JF1674: How To Build Your Own Residential Assisted Living Portfolio with Loe Hornbuckle

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Loe was making good money running a car dealership, but was not fulfilled. He wanted to get into property management, but no one would hire someone who was taking a huge pay cut! He finally got a job as an assistant property manager and started learning the business. Eventually he learned about residential assisted living and started building that business, which is still his main focus. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“I think it’s great to have a third party take care of stuff for you, but at the same time you have to know enough to know if someone is a good property manager or not” – Loe Hornbuckle


Loe Hornbuckle Real Estate Background:

  • CEO and founder of Sage Oak Assisted Living and Memory Care
  • Sage Oak is “the boutique assisted living company” with 5 locations in Dallas and a total of 40 beds.
  • Has two developments in TX and Louisiana, totaling 300 beds and estimated value of $45M
  • Based in Dallas, TX
  • Say hi to him at https://thesageoak.com/
  • Best Ever Book: The One Thing


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JF1659: From House Hacking To 30+ Unit Portfolio with Chad Hudson

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One of the most popular ways to get started in real estate is through house hacking. This is how Chad got his start as well, only he did it a little different. Usually, someone will purchase a multifamily property and live in one of the units while renting out the other unit or units. Chad needed someone to help pay the mortgage so his friend moved in and his rent paid almost the whole mortgage. That got chad started and he quickly set out to get more property. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Chad J Hudson Real Estate Background:

  • Started investing in 2000 when he was burnt out on baseball
  • Founded Savoy Companies and grew to over 30 units
  • Based in Rockwall, TX
  • Say hi to him at https://www.savoycompanies.com/
  • Best Ever Book: The One Thing by Gary Keller


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JF1421: Using Passive Investing To Catapult Into Your Own Large Multifamily Deals with Jimmy Edwards

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After being a very successful house flipper, Jimmy decided he wanted to pivot into buy and hold. In order to gain experience, knowledge, and credibility, he decided to be a limited partner on some deals first. With everything learned from that experience, Jimmy and his team were able to start acquiring their own multifamily deals. Hear how he did it, and what he learned along the way. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Jimmy Edwards Real Estate Background:

Best Ever Listeners:

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

Jimmy Edwards: I’m good, how are you?

Joe Fairless: I’m good as well, nice to have you on the show. A little bit about Jimmy – he is the owner of High Five Group, and has been in real estate for 12 years, flipped over 100 homes, is an investor in 400 multifamily doors, both passively and actively, and he’s based in Dallas, Texas. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jimmy Edwards: Yeah, absolutely. Thanks, Joe. I’ve been in real estate for 12 years, like you said, and I’ve done a little bit of it all. I was a real estate agent, mortgage broker, and about five years ago I’ve started flipping houses, accumulating rentals, and within the past 12 months started to transition into multifamily in order to scale and go bigger, faster.

Joe Fairless: Over the last 12 months you’ve started transitioning to multifamily, but I mentioned in your bio that you’re an investor in 400 doors – has that been only within the last 12 months?

Jimmy Edwards: Yeah, and probably within the last six, actually. So yeah, in the last six months I got into 400 doors. I got into two passive deals, and then bought a 16-unit apartment complex with three other partners, and then about a month later I syndicated a 103-unit project.

Joe Fairless: Wow, that is quick! How did you get up and running so quickly?

Jimmy Edwards: I got a mentor and I got coaches, I joined some programs, and just started networking, and set some goals, and decided that’s the space I wanted to be in. It actually kind of all falls into place once you set your mind to something; I had a friend of a friend call me on a 26-unit deal, and while doing the due diligence on that we met up with some other folks that we’d had previous relationships with, and ended up buying a deal together, and then that just turned into bigger and better things.

Joe Fairless: The 26-unit – is that part of the passive investment?

Jimmy Edwards: It’s not. That was kind of the deal that was the spur of everything. That deal didn’t work out, but it was an off-market deal, the seller was one of my neighbors; he knew I had rental property, and he came to me with that deal. We started underwriting it, and I didn’t know what I was doing, got  help, got a coach, and it kind of kick-started everything else. It was a blessing in disguise. It didn’t work out for us, but it opened the door for a whole lot of other opportunity.

Once we had underwritten that deal, that’s when I got into the passive opportunities, knowing that those would look good on my resume, and that sort of thing.

Joe Fairless: Why didn’t the 26-unit work out?

Jimmy Edwards: It was overpriced, basically. It was a good deal. It came to me as an off-market deal; I knew the seller. He’d been getting calls from brokers, so we worked on it, we really tried to make it work… We sent him an LOI, and of course, the same weekend we sent the LOI he got an offer for 200k more… Which I understand. So it wasn’t the right deal, but the timing of it was perfect to get us moving in the right direction.

Joe Fairless: What about that deal allowed you to get moving in the right direction?

Jimmy Edwards: Understanding how to underwrite multifamily. I’ve been flipping houses for five years, and I can look at a wholesale deal or an off-market house in 20 seconds and know if it’s a deal or not. I’ve gotten good at walking into seller appointments and being able to make an offer on the spot… But multifamily was a completely different animal.

I was excited — I’ve got a finance background, and multifamily really excited me. I didn’t know much… I thought I owned a business, but when you get into multifamily and understanding decreasing expenses and increasing the NOI in order to trade the deal, it was just a new concept to me… So I learned about underwriting deals, and the 26-unit was definitely a catalyst to doing so.

Joe Fairless: What have you learned as a passive investor that you’ve applied to the deals that you’re doing as an active investor, if anything?

Jimmy Edwards: Yeah, a lot of stuff. I’ve learned a lot of things over the past six months. The passive deals – it allowed me to underwrite a deal separately, and a lot of the passive opportunities that I see and that I believe in are definitely people-driven. I think the sponsor is one of the most important parts [unintelligible [00:05:32].16] but just having the ability to underwrite a passive deal… I probably underwrote six or seven before I jumped on one, and just being able to kind of watch from the sidelines and being comfortable doing that, and then it adding to your resume, while you’re underwriting deals that you wanna take down (you’re kind of watching from the sidelines), and then having a little bit of stake in the deal and being able to bounce questions off people… It just opens up more conversation, if anything, talking with other passives and other sponsors.

Joe Fairless: Did the passive investments help you with the lender approval on your active deals?

Jimmy Edwards: Absolutely, 100%. That was probably why the 26-unit deal was a blessing in disguise, because we went to lenders and said “Hey, we have this deal” and they said “What does your resume look like?” So far it was “I’m a Texas real estate broker, I own rental properties, I’ve flipped 100 houses”, and none of that really matters. So immediately, the next step was “Let’s turn over some rental properties, do some flips and get into some passive deals.” Being a limited partner in 2-3 deals gives you some street credibility, really; it helps you build your resume and it allows you to get some experience without really having to do a whole bunch of legwork… So I’d say absolutely that was monumental in allowing us to take down our own deal.

Joe Fairless: Why are you transferring to multifamily when you’ve flipped over 100 homes, and I imagine you have that process down pretty good?

Jimmy Edwards: For me, scalability… I guess the natural progression of a real estate investor in my mind is going from single-family into multifamily. The ability to scale, having more of a  team in place… And I also think that it’s a little bit more — I hate to use the word “recession-proof”, but I don’t know… Five, seven years ago I had a lot of money in Apple, and Steve Jobs died and my shares cut in half. So I kind of went through the recession as a loan officer and as a lender. Rates were low, and I was refying people that were underwater.

Single-family, especially being here in Texas and Dallas-Fort Worth, the rental portfolio that I’ve built has a lot of trapped equity… And on top of the scalability with the multifamily, I think that for me, I’m just currently pulling my chips off the table, so to speak, in single-family, and redeploying them in multi-family. I think that you have the ability to 10x your money much faster in apartment complexes if you’re buying the right deals, and underwriting them correctly, and being conservative and increasing the NOI, whereas single-family homes – you’re riding the cashflow, but you’re waiting on appreciation most of the time… Even if you’re buying them at a discount, you’re still kind of riding the appreciation wave.

I think the market is still strong for the next couple of years, but one thing I learned, like I said, from that Apple experience, is I doubled my money and I didn’t pull it out when I probably should have, and something happened that was out of my control, and it sucked. So I’m kind of hedging a little bit by taking those chips out and putting them into a vehicle that I think is a little more sustainable in a down economy.

Joe Fairless: You are a lead partner on two deals, right? A 16 and a 103-unit.

Jimmy Edwards: Correct. There’s four partners on the 16-unit deal, and then the same four partners on the 103-unit deal. We did a one million-dollars equity raise, so we have 23 limited partners on that deal.

Joe Fairless: What’s something that’s gone wrong on one of those deals, and what did you do to address it?

Jimmy Edwards: They’re both heavy value-adds, which is coming from a flipper mindset… Heavy value-add seems like more opportunity, obviously… Which is not always the case, but most of the times it can be. Heavy value-add – the 16-unit was probably an F when we got it, and we’re getting it to a C status, so we knew there were gonna be a lot of challenges there. The challenges came, and they’ve passed.

The 103-unit deal was a little bit different. It was also 50% occupied. I was painted a picture that I believe everybody thought to be true.

Joe Fairless: What was that picture?

Jimmy Edwards: The chiller went out last summer. This is in Lubbock, Texas, and the chiller went out, and the owner didn’t get it repaired for 60 days, and caused a lot of people to move out… So we’ve looked at the financials and came up with an offer that we thought made sense. Once we got into due diligence, we kind of realized that that — although that may have been a true story, it was probably just the tip of the iceberg. We began to uncover more and more issues, indications of a distressed property.

Joe Fairless: Like what?

Jimmy Edwards: There were people coming in and turning in their keys while we were doing due diligence… It was really bad. You’re doing due diligence, and all of the tenants are standing there talking to you, and you wanna sit there and listen to them, because they’re giving great information… So they just start telling the story of their experience the past 3-4 years, and there’s been 5 or 6 property management companies, and we’re there on-site and the manager has been there for two weeks and the maintenance, it was his third week, and nobody knows anything… It’s a little bit more deeper than just a chiller being out. So it was just a surprise.

We ended up negotiating close to 500k off the price. There were surprises in due diligence, and the financials weren’t there, and we all got together and said “Hey, we’re still willing to do this deal, but we know that there’s gonna be more surprises after closing, based on our home flipping experience and dealing with distressed sellers.” So we negotiated the price down, got the deal, closed it, and here we are, six weeks into the deal, and the surprises keep coming.

Joe Fairless: Like what?

Jimmy Edwards: The pool hasn’t been opened… When we showed up for take-over two days after closing, there was a cardboard sign on the gate, written with [unintelligible [00:11:31].01] that said “Pool closed because residents can’t follow instructions. If you’re gonna swim…”

Joe Fairless: [laughs] Wait, what did it say? If you’re gonna swim…?

Jimmy Edwards: “If you’re gonna swim, swim at your own risk. Chemicals may not be adjusted, so swim at your own risk of your eyes burning up”, or something ridiculous. A responsible and a responsible property management company – they’re blaming it on the tenants.

So we took the sign down, went and grabbed one from Home Depot, put up a proper Pool Closed and started investing.

In Lubbock, you have to have a permit to have the pool open; the city has got to inspect it. The name on the last permit was three or four names ago, so the property has changed names in the past quite a few years… So we put in a form to get the named changed to the new name, and we did an inspection, and obviously it had been closed for more than just the last several years…

So we start digging into that, and it’s typical of what’s a distressed property and a distressed seller. We made sure that we had enough budget in the cap-ex, and we were able to keep moving forward, but… It’s stuff like that that we couldn’t see in due diligence, but we were lucky that our experience dealing with those types of transactions put up a red flag and said “Hey, you can do this deal, but it needs to trade at a value indicative of what you’re feeling.”

Joe Fairless: The 100+ flips that you’ve done, and you’ve indicated some things that you’ve applied from that experience to multifamily – but can you elaborate more on some things that you learned through those flips that you apply to multifamily?

Jimmy Edwards: Yeah, definitely. There’s a lot of things in the single-family business that I think can be translated. I think a lot of it relationships, understanding situations, listening to what people are saying… And I think a lot of it was trial and error, but just seeing the right indications… The single-family business was great, but you’d go in and you’d buy these houses and feel that you got them at a good discount, and then you start digging into the project and realize why they were so quick to sell sometimes, because there’s a lot of underlying issues that couldn’t be seen on the surface…

I think that helps. I think having a pretty good understanding of the construction management aspects, and walking the property, having been through so many issues, and rehab, going through the rehab process and just being able to walk a property and see the issues… Walking the apartment complex, we were able to just kind of put our eyes on it and [unintelligible [00:14:02].11]

That was the thing with this deal – we did the property tour, and to the eye, it seemed to be in pretty good shape on the exterior. Granted, it was in the winter, so they had the pull winterized, which may have been coincidental timing, but… We walked all 103 units, and they were just in much rougher shape than we had expected.

So I think there’s a lot of overlapping things. I think that people could get into multifamily without single-family experience, but for me, my comfort level is much higher, my confidence level is much higher… And then I think for our limited partners and our passives that invest in our deals, there’s some sort of comfort level there as well, knowing that we’ve been in high-distress situations, so it’s not that different.

Joe Fairless: Based on your experience as a real estate investor, so incorporating your single-family and your multifamily experience, what is your best real estate investing advice ever?

Jimmy Edwards: That’s a good question. I would say probably do your due diligence and make sure that you have a team. If you don’t have the experience, have a partner or a mentor or a coach that can guide you in the right direction.

I think you can save a lot of time and headaches by having good partners and good teammates. Multifamily is definitely a team sport. Single-family – I think you can do it on your own; you can learn from your mistakes, and most of them won’t be life-debilitating, but getting into multifamily I think you’ve gotta have the right team players in order to make solid investments.

Joe Fairless: The 103 units that you are partnering with three other people – four of you total, is that correct?

Jimmy Edwards: Correct.

Joe Fairless: Okay, so you’ve got three other partners on the 16-unit, and then also the same three other partners on the 103 units… How do you structure that on the GP side?

Jimmy Edwards: On the 103-unit it was just an equal split, because we all brought equal pieces to the puzzle…

Joe Fairless: Who brought what? You don’t have to name names, but just what were each person’s role?

Jimmy Edwards: Kind of 50/50, we brought — me and my partner from the single-family business brought kind of the sweat equity component, the day-to-day grind, the boots on the ground… We brought that component, and our other two partners – they have experience in multifamily and they have a really deep resume, and they were able to bring net worth and liquidity… So we kind of put the deal together. We split it up equally. They’re there to guide us and to help us answer any questions, but we’ve been really kind of boots on the ground, day-to-day grind, which was something we’re excited to do, and still are excited to do, and I think that’s what we can continue to bring to the table on other deals, and maybe a few years down the road we’ll be able to be on the other side of the table and help somebody else get into the business.

Joe Fairless: You’re based in Dallas, the property is in Lubbock – that’s about a 4,5-hour drive, so what does day-to-day grind, boots on the ground look like?

Jimmy Edwards: We go up there about every two weeks, but earlier I talked about having the right team, and one of the reasons we felt really comfortable on this deal was having a property management team in place, in the area, with 4-5 other properties, and lease up some value-add projects like this. We really felt good about their presence in the market, and the regional manager… So we communicate with the property management company pretty much on a daily basis.

If we’re able to fly out there — it’s a short flight, it’s an hour… So we fly out there and we go and put our eyes on everything, but the property management company has been monumental in communicating problems and resolving them, and just the day-to-day operations, more so than just getting leases written. They’ve helped a lot with facilitating a lot of the distress that we’re still working through.

Joe Fairless: What do you do there whenever you go every two weeks or so?

Jimmy Edwards: We’ll walk the property… We’re still at this point meeting with constructions teams and landscapers, and we’re implementing a water conservation program, we’re changing all of the lights from the property to LED lights, we’re rebranding it, so it’s getting new signage, and then of course, we have 40-some-odd units that need to be turned, and it wouldn’t be practical to have our maintenance guy and our porter doing that…

So really just going up and checking the status. I think we owe it to our team and owe it to our investors to keep our eyes on it and just make sure that everybody’s on the same page. I feel like it’s been good and it’s been beneficial, and so far it’s been running really smoothly. We feel good about the progress.

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

Jimmy Edwards: Let’s do it.

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

Break: [00:18:48].24] to [00:19:52].04]

Joe Fairless: Best ever book you’ve read?

Jimmy Edwards: Best ever book – Rich Dad, Poor Dad. It’s pretty cliché, but I read that book in my senior year of college and it changed my life. Any time I mention it and someone hasn’t heard it, I pull one of many copies out of my bookshelf and give it to them for free. I think it can be life-changing if you’ve never been exposed to that material.

Joe Fairless: This is actually a new question based on a request from the Best Ever listeners… If someone were to do a 103-unit syndication, on the general partnership side, what type of income should they expect to receive from that?

Jimmy Edwards: I think it depends on the deal. Depending on the deal side, you could have 40k/door to 120k/door. So based on the NOI, I think that could really vary. On our particular deal, the sponsorship deal had a 20% override, and then I think it was 1.5% asset management fee… The deal was about a 5 million dollar deal, so…

I think the more deals you can get into, and the more bigger deals that you can do is really where you can start seeing that paying more of your lifestyle, I guess.

Joe Fairless: Best ever deal you’ve done that we haven’t talked about already.

Jimmy Edwards: That’s a tricky one. I don’t know, there’s been a lot of memories… [laughter] That’s a tricky question. My mind first went to the biggest paycheck, but then I stepped back and said–

Joe Fairless: What’s been the biggest paycheck? Let’s do biggest paycheck.

Jimmy Edwards: About 70k on a wholesale deal… So I don’t do a lot of assignments; we’ll close on most of our deals… Because a lot of times we’ll get inheritances, or a family member will still be living in the property… I’ve done quite a few deals where the family member came to me and said “Hey, this is in my name. It was my father’s house, but my brother is still living there. We’re not on speaking terms… You can buy the house for X, but you’ve gotta deal with the brother.” So I said, “Okay…” So we’ll get it under contract and we’ll start talking to them and figure out some sort of situation, and then once we close, we decide if we wanna rehab it or wholesale it. A lot of times, those usually end up being really good candidates for wholesale.

But that particular deal we did like that, everyone was really grateful. We ended up giving the brother some money to move out, and he was satisfied. But I’d say my favorite deal I think I made 500 bucks on, but it was the sweetest little old lady, and she was in a reverse mortgage, it was going into foreclosure, and it was underwater, and couldn’t shortsale it…

It was one of those deals where we stopped the foreclosure two days before auction, and I ended up renting her a U-Haul truck so that she can move out of state to be with a family member. The buyer market was thin, because the margins were small, but we sold it to an institutional buyer. We made a couple bucks, but she was super grateful, and that’s probably my most memorable deal, just being able to help somebody out.

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

Jimmy Edwards: It’s funny you ask that, I was having this conversation last night… For me, in my career, relationships have been  important. I feel like I’m a good listener, and I like to talk a lot, that’s not unknown… But bringing other people up and helping other people get there, because I couldn’t have done it by myself, and along the way there was people that were willing to help me, so… That’s really one of the things that I really believe in – helping other people along the way and being a mentor, if you can. I get a lot of satisfaction out of that component.

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

Jimmy Edwards: They can go to my website – it’s highfivemultifamily.com. You can e-mail me, call me, I’m on Facebook, LinkedIn, Jimmy Edwards everywhere. I think those links are on the website, too.

Joe Fairless: Awesome. Highfivemultifamily.com, we’ll have that on the show notes page. Jimmy, thanks for being on the show and talking about your career in real estate, how you were in apartments now, what you’ve applied from the 100+ fix and flips that you’ve done to apartment investing, and the benefits of investing passively first to help get credibility with lenders, as well as just being able to underwrite deals and look at deals faster and more effectively, and have some people who have experience to ask questions to along the way, and then now how you structure it with your partners on the general partnership side, and how you make money on the general partnership side… As well as the due diligence, sneaky things that might come up, and the stories that you mentioned along the way.

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

Jimmy Edwards: Thanks, Joe. It was a pleasure, thanks for having me.

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JF1415: Finding Your Market & Going ALL IN with Chris Powers

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Chris and his team are extremely bullish on the Dallas – Fort Worth market over the next couple of decades. Because of that, they have been expanding rapidly in the area. From multifamily and industrial to office and urban core, they buy and hold it all! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Chris Powers Real Estate Background:

  • Serial entrepreneur with more than 13 years of real estate development and investment experience
  • Has raised more than $70 million in equity financing through a multitude of high net-worth and family office partners
  • His Company, Fort Capital has invested and developed over $200M in multifamily, industrial and urban properties throughout Fort Worth and the greater DFW Metroplex
  • Say hi to him at https://fortcapitallp.com/
  • Based in DFW, Texas
  • Best Ever Book: Traction

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

With us today, Chris Powers. How are you doing, Chris?

Chris Powers: I’m doing great, thanks Joe. How are you?

Joe Fairless: You’re welcome. I am doing well, and nice to have you on the show. A little bit about Chris – he is a serial entrepreneur with more than 13 years of real estate development and investment experience… And here’s the proof in the pudding – he has raised more than 70 million dollars in equity financing through a multitude of high net worth and family office partners.

His company is called Fort Capital, and they’ve invested and developed over 200 million dollars in multifamily, industrial and urban properties throughout Fort Worth Texas and the greater Dallas-Fort Worth Metroplex. With that being said, Chris, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Chris Powers: Yeah. As you mentioned, I started a company when I was 18, in college at the time; it was called Powers Acquisitions, and it was set up to buy rental properties around TCU. That eventually kind of grew into a full-time student housing leasing company and property management company.

I did that all throughout college, and really grew the business over the last 9 years. Now we have a team of 19 amazing people.

We focus on buying and developing multifamily, buying industrial, and buying kind of urban core assets throughout Fort Worth, Dallas, Houston and El Paso. Primarily right now the majority of our work is in the acquisitions space, although we have development projects that we’ve been working on for a couple years… But the majority of what we’re doing is acquiring.

Joe Fairless: The majority of what you’re doing is acquiring… There is a mixed feeling right now about if investors should or shouldn’t be acquiring. What are your thoughts? Well, I know why your thoughts are, but why are you choosing to acquire at this stage?

Chris Powers: The market is high; the people that are wary of acquiring real estate – it certainly comes with merit. I think the way we look at it is, number one, our culture and philosophy is deep-rooted in more of a long-term hold than a get in and get out investment time horizon, more like 3-5 years… We’re more like 7-10 and beyond.

We really believe in the Texas story right now and the fundamentals of Texas. We love the job growth that DFW has, the business climate, the cost of living, the lack of new supply that’s meeting the demand… We’re having corporate relocations coming in from everywhere, so there’s a lot of fundamentals specific to Texas that we really like, which is where we’re doing all of our investing and buying. So it’s more of a Texas-first strategy.

Having said that, it’s not like every single deal we look at is a buy. It’s harder today to find a deal than it has been in a long time, but we’re just very bullish on Texas over the next 20-30 years.

Joe Fairless: You said your focus is buying and developing multifamily, buying industrial and buying urban core. Real quick, can you define urban core for any Best Ever listeners not familiar with that?

Chris Powers: Yes, we look at urban core as densely populated cities, and within those cities buying close to — I guess you would call the core is really downtown and trying to buy within three miles of downtown, in growth corridors where density is starting to occur, where old buildings are being torn down to build more dense buildings, where walkability is becoming more the trend… So properties that kind of fit that model.

For us, that could be buying buildings that can lease for now, that are on top of land that we think would make great development down the road, all the way to locations that we feel like are kind of once in a lifetime opportunities to pick up, and they’re just gonna kind of keep getting better. Those asset classes vary, but we’re really intentional about just location and how we think the city can build out around it.

Joe Fairless: What’s an example of an industrial project that you’ve purchased?

Chris Powers: The last one we closed on was two weeks ago…

Joe Fairless: Congrats, by the way.

Chris Powers: We started our industrial team a little over 18 months ago. We’ve just achieved a million and a half square feet of property that we now own. We call it light industrial, kind of shallow bay assets. The latest one we bought was in Garland, Texas, which is East of Dallas. It was a 650,000 square foot manufacturing facility built in the late ’70s. It sits on 52 acres. It was 94% leased, and it’s the low-cost provider in the area, so due to the age of the building, we’re able to charge significantly less than what new construction or newer buildings are charging.

It sits on a great piece of land, it’s rail-served, in an industrial market that’s probably the largest feeding into Dallas. It was an off-market deal, and our plan is to hold it for 5+ years, renew rents, update rents, and then we potentially think we have an amazing development site down the road… But for now, it’s an amazing industrial play.

Joe Fairless: You mentioned a couple things that someone – or myself, I’ll just speak for myself – who is not in industrial would not look for in multifamily, and that is rail-served is one of them… What are some other components of an industrial deal that are unique to industrial, or attributes that you’d look for?

Chris Powers: You look at things like the depth of the buildings, you look at the clear heights, which is how high are the buildings or how tall are the buildings and the ceilings… That has a big influence on manufacturers or warehousers or distributers that are storing goods – they need to know how high they can store those goods, what type of equipment/machinery they can have inside the warehouse to work on either manufacturing processes,  or how they store goods.

You have rail-served, which is larger buildings along train tracks, and that means that train cars can off-load and on-load product into buildings. You look for access to major highway systems, so you can find areas that have 18-wheelers that can come in and go out and easily get on the road for kind of their major transportation routes, you look for buildings that might have excess land – they call it yard, or yard storage, where people can park their extra trucks, pallets, machinery, equipment, different outdoor items.

A shallow bay is typically looked at as more of — you find that more in multi-tenant buildings, so that you can cut buildings up. The shallow bay would be the depth of the bay on the building. If you see Amazon in a million square foot building, it’s one enormous building; the dimensions of it are very large, and to cut that building up into multiple tenants would be tough. But when the building is narrower and longer, you can kind of cut that building up into more spaces, so that you can offer it to more tenants.

The light industrial vintage, kind of older industrial – it tends to be in industrial parks that are closer to the city center, just due to the age of when they were built, and they’re usually on a lot of land, and we love land here, especially in the bigger cities… So it’s interesting to us.

Joe Fairless: So the ideal industrial property is narrow, but very tall, has a yard next to it, close to a bunch of highways, and a railroad track.

Chris Powers: That would be pretty awesome. There would be a lot of demand, a lot of tenants that can use that type of space.

Joe Fairless: Cool. You’re buying and developing multifamily… Why develop? And there’s pros and cons to anything in life; I personally am not going to get into development because of the increased risk – in my opinion – that there is in development, and stress level. But you’re developing, so clearly you have a thought process for why that is the better model for you. Why is that?

Chris Powers: Well, it’s kind of interesting you ask that… So we are developing, and I said a little bit earlier in the show that we’re mainly acquiring now, and everything you just said is absolutely true. What we have learned as we’ve grown as a company is that acquiring property that already exists and working in that environment is less risk, it’s more controllable, both on cost and on time. It is a better lifestyle.

Development poses a lot of stress, especially in the urban core, where you’re redeveloping old properties. I think over time we are much more interested in acquiring than developing. Development comes with a lot of fatigue, there’s a lot of unknowns, and at this point in the market the returns don’t justify the additional risk and headache and lifestyle that you have to put up with to get these deals over the goal line. So I think during the next cycle, whenever that may be, there is a time and a place to develop, and the acquisition I think is a better lifestyle, no matter where you are in the cycle. Development is like, when it’s the right time, it’s worth the pain, because the gain can be really great.

Joe Fairless: What factors or metrics do you look at to know “Okay, time to suck it up. I’m gonna do development. It’s the right time. It’s gonna be stressful, but you know what, it’s gonna be worth it.”

Chris Powers: When land prices have done down. In down cycles, land prices typically take the hardest hit, because they have no cashflow to them. Banks do not like to hold raw land. So when land prices get low, when the cost of labor and construction has gone down because people for a year and a half into recession haven’t been building and so they’re dropping labor costs, material costs are going down – when those factors allow you to produce a building, and then demand is still in the market to where you can build a brand new building, sometimes for cheaper than you could buy an existing building, because a lot of the folks that had been buying while the cycle was up have a high basis in their properties, or they’ve developed properties that cost a lot more to build, the land costs a lot more, the constructions costs… So you’re able to enter the market with a newer product that the market will like, at a much cheaper basis, and you can achieve a better return on the cap rate that you can build to, to the cap rate that you can sell on, then it would make sense to go buy something.

It’s typically tougher also to develop in the down times, because people are a lot more nervous then. If you look over cycles, the people that kind of come out early in the cycle, developing, tend to do the best. They don’t necessarily probably think they’re gonna be doing the best, but history shows that they will, because a lot of the stars for good development align.

You have a city government that doesn’t have permits in line, a bunch of projects they’re working on, so they’re easily able to get through projects. Land’s low, construction cost is low… It’s kind of the perfect storm. And then as construction costs rise, as the city fills up with projects, as land prices rise, that margin for error continues to get squeezed and squeezed, and at some point there’s a breaking point… Some companies don’t ever see that; we certainly do, and we feel it, and we just feel like we can control our destiny a lot easier by just acquiring existing than developing new.

Joe Fairless: 70 million dollars in equity has been raised by you and your company for your projects, and in your bio it says it’s through high net worth individuals, as well as family office partners. Of the 70 million, what percentage is allocated towards family office partners, approximately?

Chris Powers: I would say probably half.

Joe Fairless: And how did you initially get introduced to those family office contexts?

Chris Powers: I want to get a lot out of today, but if there’s something that I think was a real critical turning point for us, it was — again, I started the company in college, and at the time (2004-2005) the economy hadn’t gone down yet… I had a friend that taught me how to buy rental houses. An 18-year-old with no credit, no money down… This was kind of the epitome with what was wrong with the economy at the time, which was just basically lending to anybody with a pulse… But we were getting loans through Countrywide with 3%, 6% cashback at closing. So we were putting very little money down, and then we were going and leasing these homes, and then going back to the lender and getting them refinanced and pulling out money.

So what I learned early on was you can grow money off of using other people’s money, and in that instance it was the bank’s money that I felt like I was using.

Fast-forward, it made me realize that’s not gonna last forever, and in 2008 when it didn’t, that’s when I really started having to look to other people for money. My mentor, who has been my mentor for 12-13 years always told me “You’ll build a great real estate company if you treat investors like royalty and like gold, and get them their tax documents on time, and communicate to them quarterly, send them financials, communicate what’s going on in your projects, prepare good legal documents when they’re signing in to be a partner of yours… All the things that make their life as your investor easier. And by the way, go do good projects that produce good returns, and you can scale that quickly.”

So I’ve put a lot of emphasis really early on on learning how to work with investors, how to put together pitch decks and investment decks to raise money, and it became kind of a strong suit of mine. So it started with a few people out of college, people that I’d gone to college with and their parents, and did  a deal, made money, and then we raised money for another project, and they introduced me to a few folks… “Hey, you might wanna talk to him”, and over 12-13 years it’s just kind of been this revolving door of meeting new people through our current network of investors.

The family office environment – they’re all very close with each other, they kind of live in their own world, so you get introduced to family offices from other family offices; they co-invest together a lot… And in the high net worth, kind of friends and family world, yes, it can work both ways, but if you go make somebody money, they wanna tell their ten friends about you. I guess if you lost somebody’s money, they might go tell 100 people about you, so it works both ways. We’ve been fortunate to continue to earn people’s trust, and we get introductions all the time, really without asking… And we’re taking them to heart, and cherish them, and we treat our investors like our customers.

Joe Fairless: What’s the difference between working with a high net worth individual compared to a family office?

Chris Powers: I think the main, general differences are a family office typically has hired investment professionals; they could be MBAs, or really smart accounting/finance people, and their job is to deploy capital into assets that will keep making the family money. The family at that point usually doesn’t need to be making huge returns, because they’ve already made their money; they’re more trying to grow steady, consistent wealth… So when dealing with a family office, I think there’s just a lot more kind of — I wouldn’t say red tape, but just more hoops you’ve gotta jump through to kind of check all their boxes.

They’re in the business of investing, so every investment they make, they treat it very much like a business, and they require good reporting and communication and all the things we already do… Whereas a high net worth individual, which basically just means they have a lot of money – they might be a one-man show, they have a couple million dollars of cash in their bank account, they go put 100k or 200k into one of your deals… They don’t really have any systems or processes set up to kind of constantly monitor you and be checking in.

I think high net worth people tend to be more passive, because they have other things going on in their life… And typically, they’re not investing enough into any one of our deals that they have to watch us like a hawk. They’re probably allocating 1% of their net worth into any one deal, and so they tend to just probably be a little more flexible to deal with, a little easier to work with… And not that family offices are tough, it’s just more work.

Joe Fairless: What type of terms, generally – or specifically, if you can be specific maybe about a deal – would a family office be provided on a deal if they are the only limited partner, versus high net worth individuals? …if those terms are different; perhaps they’re not.

Chris Powers: They are different. I think you can do better as a general partner or an operator if you syndicate capital from a multitude of capital sources to where not any one investor is more than 20% of the total partnership. If you just had one investor that was a family office, you might achieve terms that look similar to some type of preferred return with a split in the back-end, so it would be like an 8% preferred return, and then a 70/30 split on everything over an 8%.

What that means is if somebody gives us a million dollars and we give them an 8% preferred return, it’s basically like an interest rate on their money. We need to pay them 80k that first year, which is that 8%, and then if we sold it a year later and let’s say we made a million bucks in profit, we will pay the first 80k to pay their preferred return off, and then everything left, which would be 920k, would be split 70% to the partner, which is the family office, and 30% to us, which is the general partner.

On friends and family syndicated deals, or even with high net worth and family offices, a syndicated deal, and we might get something more like 60/40, or we’ve done deals where (it was a land development deal) we knew we’d only be in it for a year, and we just offered our equity partners a 20% interest rate on their money. It was equity, but as long as we paid them 20%, we kept everything above that. That worked, as long as we stayed on schedule and sold quick, and met our timelines. The longer we would have had to hold that project, it would have kept eating out of our potential profit, and so we were willing to take the risk that we would execute, and for that we were offering a guaranteed 20% return, assuming that the deal was profitable.

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

Chris Powers: My best real estate investing advice ever is location matters; it’s the common, common thing. Buy good locations. They’re the first to come back in a down market, and they do the best in an up market. And I think more than anything it’s just knowing your market. So wherever you’re placing your money, wherever you’re investing your money, it is super important to not just know about the one property that you’re looking at, but know everything else going on around it – who’s moving in across the street? Does the city council member like development? Do they not? Is there environmental issues? What are the rental rates in the area?

You can look at a lot of maps online, and everything on Google Earth kind of looks close to each other, but you know very well in your specific cities that you wanna be on this side of the street, not this side of the street, or on this corner and not that corner.

Knowing all those little details is what we call knowing our market, and the better you know it, the easier it is to find truly good investments. If you’re just looking at it like a piece of property and not the market around it, you can write a proforma, you can do all that work, and you think it looks good, but if people are leaving the city because there’s no jobs and everything else, the market could take that down quickly. So know your market and buy good locations.

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

Chris Powers: Let’s do it.

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

Break: [00:21:29].06] to [00:22:33].04]

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

Chris Powers: Traction, by Gino Wickman.

Joe Fairless: Best ever deal you’ve done that you haven’t talked about already?

Chris Powers: I assembled 36 homes in the hottest area of town – replotted them, re-entitled them and sold them to a multifamily group.

Joe Fairless: Dang! That’s impressive. That’s Sam Zell style, he opens up his book — have you read that? “Am I Being Too Subtle”

Chris Powers: No, what is it?

Joe Fairless: Well, he opens up his new book by saying that’s how he got started in Ann Arbor, Michigan, assembling a bunch of single-family homes, and i think he did some student housing development with it… How long did it take you, what were you all-in at, and what did you sell at?

Chris Powers: It took us six months to buy all the homes, it took us seven weeks to put it under contract with the group, it took us 18 months under contract to entitle it and get to closing. Our total all-in — so we bought it in 2011, which was kind of at the bottom of the market, or kind of coming out of the bottom… We bought the land for $11/foot, which basically put us all-in at about 3,5 million dollars, and we sold it for 10,8 million dollars in 2013 to a multifamily group.

The lesson there is, obviously, buy low, sell high, but more importantly, as the urban core continues to grow, there are opportunities to take land that was once just a single home and create the correct zoning and density you need to where we turn those 35 single-family homes into 420 class A apartments, on the same amount of land. So land prices can go up considerably when the density that you can get on them increases considerably.

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

Chris Powers: I think the biggest mistake we’ve made — I think this is with every business, but trying to be too many things to too many people. At one point we were trying to do property management, construction, fully-integrated, and we weren’t really great at property management, so it just was a mistake. We got out of property management and now we’re doing much better.

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

Chris Powers: The best ever way I like to give back – we support Rivertree Academy in Fort Worth. It’s a private school built in one of the most challenged neighborhoods of Fort Worth. They are starting with kids in kindergarten and growing them through sixth grade. These kids are doing phenomenal, they’re flourishing.

So overall, our theme across the company is helping children that have challenges in their life get the most out of the opportunities available to them.

Joe Fairless: How can the Best Ever listeners get in touch with you and learn more about your company?

Chris Powers: They can go to our website, FortCapitalLP.com, or follow us on Instagram, @fortcapital, or come to Fort Worth, Texas and let us know, and we’d be happy to host you at our office.

Joe Fairless: I got a lot of value from this interview, I personally did, and I’m really grateful that you were on the show. I learned a whole lot, from an ideal industrial property, really validating my thought on development, but then also there is opportunity with value-add development, which I guess is redundant – all development is probably value-add. But the example where you talked about the best ever deal, where you essentially profited about 7 million bucks, you and your investors…

And also talking about the difference between having family office investors versus high net worth individuals, and the structure of that – both communication style leading up to the closing of the deal, and then also the structure that you had with them.

Thanks again for being on the show. I’m really grateful. I’m sure that this added a lot of value to a lot of the Best Ever listeners. I hope you have a best ever day, and we’ll talk to you soon.

Chris Powers: Thank you very much, Joe. Have a good one.

Best Ever Show Real Estate Advice

JF1402: From 6 SFR’s To 200+ MF Units In 7 Years with Greg Ford

Listen to the Episode Below (26:35)
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Today’s guest did not mess around when he got started in real estate. He rolled up into multiple multifamily buildings and communities. Hear how he was able to do it. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Greg Ford Real Estate Background:

  • Real estate investor since 2010
  • Purchased 6 single family homes from 2010-2013 which he 1031’d into 50% ownership into an 85 unit apartment complex in 2016
  • Refinanced in July 2017, pulled out $1.5M, which rolled into 136 units
  • Say hi to him at gregfordinvestingATgmail.com  
  • Based In Dallas, Texas
  • Best Ever Book: Rich Dad Poor Dad

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

Greg Ford: I’m doing good, thanks for having me on.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Greg – he’s been a real estate investor since 2010. He purchased (listen to this…) six single-family homes from 2010 to… What year?

Greg Ford: The last one I bought was 2013.

Joe Fairless: 2013, which he 1031-ed into 50% ownership into an 85-unit apartment complex in 2016, and then in July of 2017 he pulled out 1.5 million and rolled that into 136 units. Did I get that right?

Greg Ford: Yeah, that’s pretty much right.

Joe Fairless: Alright. Well, we are gonna dig into that. He’s based in Dallas, Texas. With that being said, Greg, will you give the Best Ever listeners a little bit more about your background and your current focus?

Greg Ford: Sure. Well, first of all, I’m an industrial engineer by trade, so I’ve got the engineering background that loves to crunch numbers and sometimes I have analysis paralysis, but we try to get rid of it. I still have, to this day, a full-time job, and I do that mostly 9-to-5, but I do have some flexibility to do my real estate, and I have to admit, my job gets in the way of my real estate quite a bit. However, my focus was initially on single-family, and in 2010 I saw that the market was [unintelligible [00:02:36].16] down at that point, as we all know, and I thought it was a good opportunity to get in there, and I didn’t have any education at all… So I just bought a house that was near where I lived, and started renting it. Then I bought another and another, and I started seeing the cashflow and I really enjoyed it, and it’s kind of mushroomed now to where I’m primarily focused on multifamily, and I’m sure we’ll talk more about that.

Joe Fairless: The six homes that you purchased in 2010 to 2013 – how much total equity did you bring to closing for those six houses?

Greg Ford: My average purchase price was probably around $160,000, and I did the traditional 20% down on those… I did get creative on where to get that $20,000 from; in some cases, I took a loan out on my 401K, in some cases I [unintelligible [00:03:28].10] and sold, for that matter, IRA accounts and paid the taxes and then used that for the down payment. I saw that even if I was paying the penalty to get to those retirement assets, that my return here was gonna be far greater, and it was worth it to do it.

So the reasons that those houses were spread between 2010 and 2013 was I didn’t wanna create a huge tax impact in any one year by selling the retirement assets, so I spread it out a little bit.

I really didn’t have the education, I didn’t really know what I was doing, I just kind of knew that this was working, and if I had to do it again, I’d probably do it a little bit — in fact, I think most of us would probably do things differently… But that’s how I took 3-4 years [unintelligible [00:04:10].03] to acquire the six single-families.

Joe Fairless: If you had to do it again, I’m guessing you would compress that a little bit and do more in a shorter period of time?

Greg Ford: I think yeah, certainly. In hindsight, 2010 was a fantastic buying opportunity; we know the market has gone crazy since then, so I think we had to do it over again, we would certainly do that… And I would probably be a little less gun-shy about selling my retirement assets and diving in head first, even if it meant short-term tax paying… I’d be much farther along.

Joe Fairless: So the six homes, according to my math, you said approximately 130k per house, on average?

Greg Ford: 160k was the purchase, and then 20% down.

Joe Fairless: Let’s just round that for easy math – 200k. So 200k out of pocket… You did it in creative ways, but at the end of the day it was 200k out of pocket… So let’s begin where you then made a decision to package them together into a 1031 – can you talk to us about that?

Greg Ford: Sure. Well, 2013 was my last purchase. Sometime around 2014 I kind of took a look around, and honestly, time got away from me, and I look back and I say “You know, it’s been a year since I’ve done anything. I really need to kick this in gear. I need to do something and take more action, because I’m not gonna get where I need to be taking this with one or two houses  a year kind of thing.”

So in 2014 I made a decision — and I guess it was really towards the end of 2014. I said, first of all I’m gonna hook up with a local mentoring group, because I wanna start learning the right way to do this… Because up to that point, I had really just been kind of feeling my way through, reading a few books here and there, and… It was working, but I wouldn’t say I was crushing it.

At that time, those six homes were probably producing $2,500 – $3,000 a month in cashflow. Now, that’s before my capital reserves… So by the time I paid for repairs and things I might have been down to $1,500 or so of cashflow on those six, so they weren’t exactly crushing it. I knew I needed to do something a little more dramatic.

So I hooked up with some mentoring group, and then I said “Alright, well, let’s look at multifamily.” Bottom line is we decided that my homes – one of the calculations they had me do which I had not done was look at my return on equity.

Obviously, between 2010 and 2014 those homes had appreciated in value, and what we determined is my return on equity was very low; it was 3%, 4%, 5%. So the first thing that came to mind was let me do a refinance on these, do a blanket loan, pull out some cash from these homes – this was before I sold them and 1031-ed them… And I got about a quarter million dollars out on the cash-out, and I put that whole quarter million dollars as a passive investment into some syndications just so I could learn the multifamily side, and start to understand how that was all gonna work… Because prior to 2014 I didn’t even know what NOI meant. I didn’t know that whole calculation, I didn’t know the whole books side of it, and I was just like “Alright, it’s time to learn.” So that’s what I did initially in 2014.

Then in 2015, after I’d been doing the passive investing for about a year – those had been going great, I’d been working with the lead syndicators to really understand what they do… And I met a gentleman by the name of Mitt, and he and I were kind of in the same boat, and we were looking to do our first multifamily deal… And I figured I could afford about a 40-unit complex if I cashed out and sold all my six single-family homes, and he was in the same similar situation… And he said, “Well, why don’t we work together and we can find maybe an 80-unit. This way we could afford management, and we’ll both have full-time jobs…” This was just gonna work out better, so that’s what we decided to do at that point, and this is now late 2015 at this point, so a whole other year had rolled off the calendar.

Sure enough, Mitt was a passive investor in a syndication that as a group they had decided to sell their property. They’d already owned it for four years. Mitt and I were talking like “You know what, this would really be cool if we could just buy this”, because it was an 85-unit in Irving, Texas… So we approached the lead and said “Hey, let’s just keep this off-market, and what if we come in and buy the partnership out?”

At the time, to kind of bait that a little bit, we said “If any partners that are currently in here wanna stay in here, we’ll be happy to have them stay, but if they wanna sell and they wanna get out, then that’s fine, we understand that, too.” It turned out that the other six that were in there voted to just cash out; they wanted to take their money and go on their other ways.

So now we had the tricky situation of pulling that off, and we got hooked up with a local real estate attorney and a local tax person, and they crafted a situation to where we came in as tenants in common, two 50% ownerships. Now, like I told you, Mitt was already a passive in that deal, so in the sales agreement what we agreed to was that there would be a two-day close. On day one of the close the existing partnership would split into two 50% pieces. Mitt would only be part of one of those pieces.

Then on day two of the close, Mitt would buy out the remaining share to get him to 50%, and then I would bring my six homes in as the 1031 exchange and buy out the other 50%. That’s how we closed that deal. Obviously, there’s a lot of moving parts there.

Joe Fairless: A whole lot of moving parts there. That is fascinating… How did you qualify your partner? Because you’ve taken fees on your retirement funds to get the access to that money, you have spent 3-4 years acquiring this capital through your investments, and now it’s very precious to you, I imagine, the six homes, and now you’re gonna roll this into something else… But instead of doing it on your own, you decide to partner with someone, so I imagine the qualification process was something that you went back and forth with in your head to know if this is the right thing to do.

Greg Ford: It certainly was. Now, I had gotten to know Mitt — at the time we ended up doing the deal I’d known him for about a year and a half at that point, and spent a lot of time even outside of the mentoring group talking, and his son and my son were in gymnastics together, and we got to know each other a little more that way… So it was definitely that part of it.

But I was looking at it more from an enablement. As a 40-unit, which was my original goal, I may not have been able to afford on-site management – I certainly would have had a third-party property manager running it – and I wasn’t really scaled. Scale wasn’t there. And when Mitt told me he was looking for something very similar to that, that’s when we started saying “Well, now with an 80-unit we can afford to have on-site management”, and it just seemed like it would scale much better.

It just so happened within a month of that discussion is when that partnership that he was part of decided they wanted to sell theirs, and we jumped all over that.

Joe Fairless: So now you’ve got an 85-unit at this point in time in the story… Tell us about how that went.

Greg Ford: Well, let me tell you about the 1031 process just a little bit, because again, my not being educated as well as I am now, I decided that since these homes were in a very affluent, suburban area, part of Dallas, I said “I think the right angle here is they’re not good rental properties anymore, because of the price appreciation, so I’m gonna sell these individually…” And I had the foresight to set all the leases to expire at the same time – I think it was in June 2016. I had my realtor that I’d been working with all of these years – I had him market them and sell them, and I thought that would be the easiest part of the process. It actually was the hardest part of the process… Because what I thought would be easy — the reason it wasn’t easy was because we had rental homes, and they were competing against homes that people had lived in and were pretty well upgraded, and the countertops in some cases, and nice flooring, and mine were just average builder grade [unintelligible [00:12:44].12]

So here we are, getting ready to close – or I won’t say getting ready to close, but we certainly were under contract – and I wasn’t completely assured that these were gonna sell in time to provide the funds for the closing.

It got down to where several had gone in and out of contract, people had backed out, and I was getting a little nervous, so we were talking about plan B – where do we get these funds from?

For me in  total I needed about $400,000 of equity to do my 50% share, and these homes were gonna be about $400,000. Bottom line is we got down to the end and five of them did sell, but one did not, so when talking with the 1031 company we ended up doing a reverse 1031 on that one, because it was under contract, but it wasn’t closed… And the way reverse 1031’s work – you basically get a short-term loan and you’ve gotta cover the equity. So I basically did that, I had the money to do that, a part of it – it was about $50,000 or so – and we were able then to close the apartment. Just a crazy way of getting there, but we did, we pulled it off.

Joe Fairless: No kidding. You went from a single-family home investor to putting together one of the more complex 1031 exchanges and deals you could possibly do, with ticks, and reverse 1031’s, and normal 1031’s… It’s baptism by fire.

Greg Ford: Yeah, absolutely. Anyways, we got it all closed, we took over the property… When we took over the property – this was in August of 2016 – there were probably 5-6 vacant units out of 85. We had a plan to renovate them and kind of test the rents, and the funny thing was, since we got the property management team in place, and I don’t remember what day it was they took over, but we came to meet with them on-site a few days after closing and tell them like “Okay, here, we wanna renovate these, and this is what we’re gonna do” and they’re like “Oh, well we’ve already rented all five of these.” And not only did they rent them, but they rented them for quite a bit more money than they had previously been renting for, even without doing the upgrades, and we were like “Oh, okay… So we’ll have to wait now for some units to turn over.”

The third-party management team, and specifically the manager that they brought in was really a fantastic salesperson. She could sell ice to an Eskimo, so she had a really good ability to keep that property occupied… And it had never had an occupancy problem before, but now it was really — when we got one or two, it was a lot.

So one of the projects that was our cap-ex was to reseal the parking lot, asphalt the parking lot… And we said, “Hey, let’s go to the residents…”, because the previous owners, the previous syndication group had tried to sell reserve parking to the residents, and I think they were charging $30/month for a spot and they only had a couple people doing it. It really wasn’t an income-generating source. We said we’d reseal this parking lot anyway; let’s put a  special out there to the residents saying “Hey, $15/month (which was 50% off), and after we reseal it, we’ll put your name on it/your reserve spot on it.”

With this manager we had in place, she sold the heck out of that. Before we knew it, currently today we have $1,300/month in parking income, that if you do the math – let’s say you use a 6-cap, that’s almost $250,000 a year in value that we created out of nothing, and it was all because we just said “Let’s try it. Let’s give it a shot and see what happens.” That was an example of one thing that we did that was just crazy.

Joe Fairless: And you didn’t do carports, you simply painted “Reserved” on certain spaces and then rented those spaces out for $15/month?

Greg Ford: Yup, that’s all we did. We had virtually no expense other than the initial paint on that, and it’s been fantastic. Now, one of the reasons I do think it works, and it work here at this property versus maybe another one [unintelligible [00:16:50].07] I think we’re about a 1.3 ratio to units, so I think that helps, and we’ve certainly hit a critical mass at some point where everybody realized that “Hey, somebody just reserved this spot that I always park on. I’d better go get in line.” At some point it just took over and we have virtually now every spot rented at this point. And $1,300/month, that’s like a unit and a half of rent that we created out of nothing.

Our goal on this whole property has been looking at other income opportunities. We have looked high and low for where we can get other income, between — we own the laundry equipment… As I started to mention a minute ago, we took some units and we fenced them a little backyard between the units as a little experiment, to see if we could get a little bit more rent. About $25/month is what we’re currently pushing for, and that’s been mixed results; I won’t say it’s been a home run, but we’ve tried that…

Joe Fairless: Are you doing it on request, or are you doing it for everyone and then they pay…?

Greg Ford: Well, there’s only a certain number of specific units that we can do it on that have the land and the [unintelligible [00:18:01].05] There’s only about 8 units that we can do it on. We did four, and then of course, those four were already under a lease when we did it, so we went ahead and just installed the fence… So as the leases have been renewing though, we’ve had the discussion that this has a premium with a fenced backyard, and trying to get the $25. I said earlier that there were kind of mixed results; in some cases they pushed back and rather than lose them as a tenant we said “Alright, fine, we’ll just renew the regular rent renewal”, and in other cases they did.

So I wouldn’t say that’s been a home run, but it has certainly been a source of a little bit of revenue per month. I don’t know that it’s offset the cost of the fence installation, so we haven’t done the others yet… But just anywhere we can generate other income has really been a focus.

Joe Fairless: How much does it cost to install the fence?

Greg Ford: I wanna say we spent about $7,000 maybe. I don’t know how long it was… But we fenced four units and we spent $7,000.

Joe Fairless: Per unit or in total?

Greg Ford: No, total for all four.

Joe Fairless: Okay, got it. So around $2,000 or so.

Greg Ford: Yeah, and then if you could generate – what is that, $400 a year, and then again, go back to your 6-cap, it might take a year or two to account for it… So I guess it has been kind of a mix on that… But when we took over this property, the total revenue was about $58,000/month; that was everything, including vacancy and everything. Our total actual revenue was about $58,000 and we’ve improved it now to about $73,000/month. That’s been in the space of just under two years.

The focus on the unit renovations, the focus on the other income, the focus on just revenue as a top line item has been fantastic.

Joe Fairless: What management company do you have on that?

Greg Ford: We use a company here in Dallas called Devonshire. They’re primarily C class focused, I would say, maybe B- focused; they have about 8,000 units last I looked.

Joe Fairless: So you now have recently(ish) – well, now about a year ago – refinanced the 85-unit and you pulled out 1.5 million… Is that 1.5 million all yours, or is that yours and your partner’s that was rolled into 136 units?

Greg Ford: That was me and my partner.

Joe Fairless: So 1.5 million, and then obviously half of that is 750k… So you began with approximately $200,000 from the six homes in equity that you put out, and then in July of 2017 that 200k grew to 750k, plus you no longer had the six single-family homes, but you had a 85-unit property that also I imagine has cashflow on top of the $750,000. Is that all accurate?

Greg Ford: That is all accurate. Most of the cashflow we’ve been plowing back into the property for renovations and cap-ex; we’ve been taking a little bit, but most of it we’ve been reinvesting it right back into the property. But when we got this cash-out proceeds, that 1.5 million total, the two of us decided — we had an opportunity to buy 136 units in Balch Springs, TX, which is on the East side of Dallas. We knew that about 2.5 was the total raise for that, so we brought in two other people with us.

We still maintained the tick setup in that scenario, so there’s four of us now as tenants in common on this 136-unit. Mitt and I are probably about 75% owners of it. We were able to buy that, and we are operating that now. Devonshire is doing that for us as well, and it’s working out quite well as well.

Joe Fairless: I just love hearing these stories… And again, $200,000 initially has turned into ownership interests in a 136-unit where you own 36% in a 136-unit, as well as 50% ownership in an 85-unit. That’s awesome.

Greg Ford: Yeah, and the cashflow combined –  I told you earlier my six single-families officially on paper was about $2,500/month, but after I put my cap-ex reserves, it was more like $1,500/month. Now my cashflow has tripled and quadrupled from that, just from the larger assets that we’re owning.

So when I was saying earlier that I was selling my retirement accounts and paying the penalties, it absolutely was worth paying those penalties. It hurt at the time, but I had the long vision in mind of where I wanted to get to, and it’s played out quite well.

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

Greg Ford: In my case, as a full-time employee, property management is key. Be picky about who you select, not just pick anyone; find someone with a track record. I think that’s been essential to my success with doing this… And cashflow is also king. Cashflow gives you options, so pay attention to cashflow.

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

Greg Ford: I am ready.

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

Break: [00:23:32].18] to [00:23:51].20]

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

Greg Ford: Well, recently I listened to a lot of audiobooks. Recently the one I read was Tax-Free Wealth, but I wanna say the best one overall was Rich Dad, Poor Dad. I know that’s [unintelligible [00:24:03].03] but it really did open my eyes to the possibilities of what real estate could do.

Joe Fairless: Best ever deal you’ve done, out of all the deals you talked about?

Greg Ford: That 85-unit actually I think is the best deal. It was the catalyst to everything else at this point, by far.

Joe Fairless: What’s a mistake you’ve made on one of these transactions?

Greg Ford: A mistake I’ve made I think would be not getting enough opinions on whether it was a rehab, or a renovation, or just an idea of something that might work. My partner Mitt is just more social than I am, to be honest with you; as the engineer, I like to crunch the numbers, but I’m not as engaging as I probably should be with people. He’s my alter on that, so from a partnership standpoint it works really well.

I would say we’ve run into a few problems where we’ve spent more money for a rehab than we thought we were gonna spend. We might have gotten three bids, but if we’d just talked to even ten more people, we could have seen a better way to do it.

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

Greg Ford: At this point I’m learning every day, but I really like to take the person that was in my situation 6-8 years ago today, and show them the map. I’ve always really — I meet these people probably now weekly, especially in the mentoring groups that I’m part of now. I’m part of many of them. I’m happy to spend an hour at lunch or a coffee shop and just kind of help paint a picture of what is possible if they just think a little differently.

Joe Fairless: And how can the best ever listeners get in touch with you and learn more about you?

Greg Ford: The best way is probably through e-mail. I have an e-mail address, it’s gregfordinvesting@gmail.com. Send me an e-mail and I’ll be happy to talk further.

Joe Fairless: Great, so gregfordinvesting@gmail.com. Greg, thank you so much for being on the show, sharing your inspirational story of how you started with a single-family house and now have a portfolio where you have substantial ownership in a 136-unit plus an 85-unit property.

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

Greg Ford: Thank you.

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

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Pete and his company, Apartment Life, help apartment owners create a strong community within their apartment complex. They have found that when tenants are getting along and have friends within the apartment community, they are happier, which leads to better reviews, and increased likelihood that they will renew their lease. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Pete Kelly Real Estate Background:

  • CEO of Apartment Life, a faith based nonprofit serving the multifamily industry
  • Helps improve a community’s financial performance through online reputation, resident satisfaction, and resident retention.
  • Say hi to him at https://apartmentlife.org/
  • Based in: Euless, TX
  • Best Ever Book: What Got You Here Won’t Get You There

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

Pete Kelly: I’m doing great. Thanks for having me, Joe.

Joe Fairless: Yeah, my pleasure. Nice to have you on the show. A little bit about Pete – he is the CEO of Apartment Life, which is a faith-based non-profit serving the multifamily industry. He helps improve a community’s financial performance through online reputation, resident satisfaction and resident retention. Based in Dallas-Forth, or if you’re familiar with DFW, more specifically Euless, TX. You can learn more about his organization at apartmentlife.org.

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 Kelly: Yeah, sounds great. Thanks, Joe. As you mentioned, I’m CEO of Apartment Life. We are a faith-based non-profit in the multifamily industry, and over the last 18 years we’ve been honored to serve 1.3 million apartment units and over 3 million residents from coast to coast… And if I were to explain what we do in the very simplest terms – we help people make friends. Our central belief is that relationships are not just good for the soul, they’re also good for the bottom line.

Joe Fairless: I certainly agree. The more that the residents know each other and connect with each other, the more they are likely to enjoy the living experience, and then ultimately stay longer, which is  a big cost (turnover). So tell us maybe high-level how you do it, and then we can get into some specifics.

Pete Kelly: Yeah, that sounds good. Well, a lot of what I’m gonna share is directed toward apartment owners, but I think the principles apply to people who own single-family homes or duplexes as well. If I could give one piece of advice, it would be that the relationships your residents have with one another is more important than you realize.

What we’ve seen is that a lot of apartment owners are focused on the physical amenities – the granite countertops, how nice is your pool, or your clubhouse, or your exercise equipment – and they’re also focused on services, like making sure they have good maintenance, bundling cable and internet, package storage, package delivery… But I think one of the often overlooked amenities is that the residents themselves are an amenity. In fact, I would say that they’re the best ever amenity that you can have, because good neighbors make for great neighborhoods.

Joe Fairless: Absolutely.

Pete Kelly: So what we’ve found is that the more friendships that a resident has in an apartment community, the more likely they are to renew their lease and be satisfied and boast about it online… So that’s what our company specializes in. We place one or two people in the apartment community, they’re kind of like the welcome wagon – they welcome new residents as they move in, they host all the parties and events, they look for opportunities to care for people.

Let’s say a young couple just had a baby – they might swing by, and on behalf of the management company bring them a small gift, and say thanks. Then 90 days before that resident’s lease is set to renew, they’ll visit them and they’ll say “How do you like your stay here? Are you thinking about sticking around?” What we’ve found is if they do that, it creates a sticky community where people are happier and they wanna stay, even when the rents go up.

On average, we’re saving owners $138,000/year in resident and staff turnover, and it increases their online reputation. So to summarize, if you wanna differentiate your community from the competition, I’d say be intentional about creating community.

Joe Fairless: I completely agree, and thank you for talking through that. One question that comes to mind – you mentioned that the relationships residents have with each other are more important than we realize… But the welcome wagon, as you call it, the 1-2 people that you place in the community – those are not other community members, those are people hired by the owner to then basically stay in touch with the residents… So is that the program, or is the program getting the residents who also live at the apartment community to get to know each other and build a community that way?

Pete Kelly: Joe, that’s an excellent question. We have two models of service. We have an on-site program where this Apartment Life team – they actually live on the property as one of the apartment residents. That’s our most traditional model, the on-site model… We also have an off-site model, because some owners don’t wanna concess a 2-bedroom 2-bath unit. But either way, not only are they engaging with the residents themselves, but they’re serving as a catalyst to help people make friends.

When my wife and I first moved to Dallas, we lived for about nine months in an apartment community. They would have parties, they would have events, they would put food out, but my observation was that everyone hung in their own relational group, they didn’t interact with each other, and I wondered “How much better would this be if there was a catalyst that was working the crowd, introducing themselves and introducing people to one another? How much more of a sticky community would that have been?”

Joe Fairless: So how does that play itself out? Let’s go with the on-site model… So we bring in a couple people who live on-site, and they are primarily from a business standpoint responsible for lowering turnover costs and increasing the bottom line; they’re doing events and they’re visiting residents 90 days before, “Hey, how’s your stay?”, but in terms of connecting one resident with another, how does that work?

Pete Kelly: Well, it’d be as simple as when you’re at an event and you’re mixing it up with the different residents, you’re like, “Oh, you live in building number two… Hey, have you met Joe over here? He lives in building number two.” Or “You said you’re into water skiing… I noticed that Bob over here is also into water skiing”, or hunting, or whatever the common interest may be. So they’re always looking both for their connection to the residents, because that helps people feel safe if there’s one person kind of looking out for them, making them feel welcome… But they’re also always looking “How could I connect residents with one another?”

Joe Fairless: Let’s do the on-site model. Is it typically a couple that moves into a unit?

Pete Kelly: Yeah, it would be typically a couple. It could be two singles, but the most common would be like a husband or wife, typically either before they have kids, or maybe only one, or empty-nesters. We don’t see a lot in the middle, because at that point families get bigger and it becomes unwieldy to do the program.

Joe Fairless: Sure. So a couple moves in, and they host an event… How do they introduce themselves to the other residents?

Pete Kelly: I would say “Hey, my name is Pete Kelly. I’m your Apartment Life team here. On behalf of the management team I want to welcome you to this community.” So they serve as kind of a liaison between the management company and the residents, they’re kind of an in-between. This isn’t their full-time job, so all of our teams have outside employment; this is what they do in night and weekends. It’s kind of like a part-time commitment that they would have to that community.

So they really straddle two worlds – they serve as goodwill ambassadors to the management team, but they also are themselves a resident, so they wear two hats at once.

Joe Fairless: And what is the incentive for the individuals to move on-site?

Pete Kelly: For the on-site model, their compensation is in the form of reduced rent. The owner would concess a 2-bedroom 2-bath unit which we would turn around and give to the team so that they could use that. In addition to that, the owner pays a management fee, and obviously, for any events that they would host, they would cover the cost of those events. We recommend $1,50/door to throw a decent number of events each month.

Joe Fairless: Okay. You said reduced rent – was it reduced, or is it free rent?

Pete Kelly: The owner concesses the unit to us so that we can lower the cost of the management fee to the owner. The team does pay a little bit to be part of the program. They pay roughly 30% of the rental value to Apartment Life, and what that does is that enables us to keep the management fee to the management company as low as possible.

What we’ve found is that when teams are having to pay a little bit, there’s a little bit of skin in the game, and it also gives us an ability to recourse if, for some reason, the team isn’t performing up to the standards that we need them to perform up to.

Joe Fairless: Sure. So as an owner, the investment is give a unit to your organization, so free rent, and then I should allocate $1,50 per month towards hosting an event, and they’ll handle everything else… And then what is the management fee?

Pete Kelly: The management fee would be $650/month, and that covers the cost of our going out and finding these teams, training, equipping and making sure that they’re delivering the results that they need to please the ownership and the management.

Joe Fairless: And then you mentioned earlier $138/year savings, and it increases online reputation. First off, did I quote you correctly? And secondly, is that net of your fees?

Pete Kelly: $138,000 gross savings. You would take the fees off of that. Typically, I’d say we would bring net over $100,000 in value.

Joe Fairless: Got it. Okay, so net over $100,000 in value, so clearly we’d have to determine what size of property we’re talking about, because a 50-unit wouldn’t have, I imagine, over $100,000 in value… So what size property are you referring to with that stat?

Pete Kelly: In our traditional on-site program, our core would be 250 units and above. So it’d be your larger traditional apartment communities, versus your small, privately-owned ones.

Joe Fairless: And to determine that net of $100,000 in increased NOI, what metrics do you show the owner?

Pete Kelly: There’s a couple ways that we go about it. We have a well-respected economist named Ron [unintelligible [00:11:30].01] that for a small fee ($200) will do a study, and we’ll cover the costs of that for the owners themselves. It involves a survey of the management staff and the residents to gauge to what degree is the program influencing their likeliness to renew, and the same for the retention of staff, because that’s one of the things we count about our program – not only does it make the residents’ lives better, it makes the management team’s lives better… So that’s kind of a hidden savings for the owner themselves – you have less employee turnover.

Basically, [unintelligible [00:12:05].20] he’s got a model and he can show you “Here’s all the factors, here’s all the assumptions”, and on average it saves $138,000/year, so if you take your costs out, that’s a net of over $100,000 in savings.

Joe Fairless: And it’s based on basically a survey that asks if they’re likely to renew or not, and if so, how much influence did the program have in that decision?

Pete Kelly: Yeah, exactly. In addition to that, we do an annual property manager survey and we ask the management staff “In your estimation, how many leases a month would you attribute to either a new marketing side, or renewals, how many would you attribute to Apartment Life?” Annually, that comes out to 42 leases a year… So if you know your turn costs and your marketing costs, you can extrapolate 42 — let’s say your turn cost is $2,000. You multiply 42 leases times $2,000 and that would tell you what your annual savings are.

So there’s a couple different ways you can approach it. Obviously, there’s a whole lot of factors that go into retention and resident satisfaction, so we have to lean on the preponderance of the data to quantify the value of what we do.

Joe Fairless: When you speak to a multifamily owner who has a 250-unit property, when would it not make sense for them to participate in this program, based on your perspective?

Pete Kelly: Well, it may not make sense if they don’t wanna concess the 2-bedroom 2-bath. For some people — we’ve had a lot of owners say “Hey listen, I know I’m always gonna have an unused unit, so to me that’s not really a cost. In fact, I’m taking a unit that’s not doing anything for me and I’m in a sense monetizing it to get this program that saves me money.” So depending on how you view the concessed unit – some people don’t like to do that, because that feels expensive and it looks badly on their books, but others are like “No, I’m gonna have that, so it’s not a big deal.”

So for the ones that don’t wanna concess it, we’ve developed an off-site model where instead of giving the team a 2-bedroom 2-bath unit, we pay them an hourly wage to execute the program on-site.

Joe Fairless: And that would be, I imagine, primarily the monthly events?

Pete Kelly: That would be primarily the monthly events. There’s other things we can do. For example, I’d say our core is the class A and the class B assets, but more recently we’ve been surveying tax credit properties with managing their [unintelligible [00:14:38].02] requirements. So we have an additional service that helps that, as well… So for tax credit property owners, that’s an additional value-add for them.

Joe Fairless: How much of a focus would the on-site group – regardless if they’re living there or not, assuming that they’re hired… How much of a focus is it of them to promote and quite frankly generate online reviews by doing these events, and taking pictures, and having the residents post them, or however you do it?

Pete Kelly: It’s actually an increasing focus of ours. Over the last year we’ve introduced that as an increased value-add, because as we’ve looked at the multifamily industry, everyone knows that online reputation matters. They don’t know how to quantify how much is one star versus two, or three stars versus four, how much is that extra star worth, but everyone knows that it matters, because it drives traffic.

So what we’ve coached our teams to do is on every welcome visit, every renewal visit, every partying event, whenever they encounter a satisfied resident, say “Hey, as a personal favor to me, would you be willing to go online and put a positive review?” That really helps me, because in a lot of ways we’re able to do this program as we serve the management team. And if we’re doing that well and it’s showing up in positive reviews, that helps us.

So they can make that appeal as a friend to a friend with their other residents, and it’s so much more powerful than if the management staff just hands them a card, “Hey, would you do me a favor? Would you go online…?” It’s more of a friend-to-friend appeal, so it kind of lands differently… And what we’ve found is that’s really positive.

I’ve met teams that will say “I’ve got phone numbers of 200 residents on my phone right now.” All they need to do is reach out to them, text them and say “Hey, would you be willing to do me a favor and go online and post a review?” So a lot of our teams have been able to see dramatic results in a short period of time by capitalizing on their relationships.

Joe Fairless: Other than the on-site event, how many hours would you say they spend basically cultivating a community and helping generate online reviews a month?

Pete Kelly: We would say for a traditional on-site team, which is the 2-bedroom 2-bath unit concession, that we would expect that the team would give on average, between the two of them, 20 hours a week to the program. That could be preparing the events, promoting the events, hosting the events, doing the welcome visits… So it does take a good bit of their nights and their weekends, so as we select teams, we have to make sure they’re able to commit to that, because there’s nothing worse than getting in there and realizing “I don’t have the margin really to do this effectively.”

Joe Fairless: 20 hours a week – did you say per person?

Pete Kelly: Per team. It would be typically husband and wife. If they’re doing a visit, it’s best for them to do that together, versus an individual showing up at the door and knocking. So yeah, most of what they do, they would do together. Maybe shopping they would do separately, but when they’re throwing the events, when they’re doing welcome visits, renewal visits, they would do this together.

Joe Fairless: For the online reviews – is that a metric that you report back to the owners?

Pete Kelly: Yeah. Every month we send a report to the ownership group or the management group (or both, really). It shows, at the very top, “Here’s how many positive reviews that you’ve gotten this month”, and it’s got a list of all the welcome visits they’ve done… When we do welcome and renewal visits, we ask “On a scale from 1 to 5, how would you rate your satisfaction?” and if there’s anything lower than a 4, we ask them “What would make that better? Is there anything the management team could do?” Sometimes just by asking that face to face, because they wear a slightly different hat, people will tell them things that the management team would never know… Like “Yeah, our carpet was dirty when we moved in…” So immediately – they don’t wait till the end of the month for these things – when they get that, they alert the management team, “Hey, here’s something you can do to move that three back up to a five, if you would take care of that.” But then at the end of the month they get a summary of all the visits, all the events, all the comments, online reputation, and they can see for themselves, “Hey, here’s the activity for the month.”

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

Pete Kelly: I would say if you wanna differentiate your apartment community from the competition, whether you use our program or not, I’d say be intentional about creating community, because your residents are that hidden amenity that are often overlooked.

Joe Fairless: Yes, you have sold me on that philosophy, that’s for sure… And I didn’t really need selling, but it’s nice to talk to someone who’s solely focused on it… Because I would imagine most people know it, either consciously or subconsciously, but you actually have an organization that’s executing on that idea, and that’s the key… From what I’m aware of, there’s not another organization like what you do.

How many apartments are you all in? You mentioned earlier, but I missed the number.

Pete Kelly: Well, over the last 18 years we’ve served 1.3 million units. Currently, I think we’re serving around 130k-140k units from coast to coast.

Joe Fairless: It’s a lot.

Pete Kelly: It is a lot, yeah.

Joe Fairless: How many owners is that roughly? Is it heavy on one owner, or are you spread out?

Pete Kelly: We’re pretty diversified. Greystar would be our largest client; of course, they’re the largest management company in the nation, if not the world. We serve a lot of Lincoln… But we’re pretty diversified. We’ve got a pretty wide range of owners and operators that we serve.

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

Pete Kelly: Sure, absolutely.

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

Break: [00:20:30].24] to [00:21:07].03]

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

Pete Kelly: I would say Marshall Goldsmith’s “What Got You Here Won’t Get You There.” I love that book. He talks about 21 common behaviors that sabotage your career and relationships. I think it’s one of the best books you could read to advance your career and your relationships.

Joe Fairless: What’s the best ever project that you’ve worked on as it relates to your business?

Pete Kelly: That’s a great question.

Joe Fairless: It’s like choosing between children, right?

Pete Kelly: [laughs] I think the funniest thing we do is when we break into a new market. Currently, we’re in about 20 different markets around the United States, and we’ve got our eyes on 13. Just yesterday I was up in Oklahoma City, meeting with a group of owners and people in the industry, talking about what we do, and that is so deeply satisfying.

Joe Fairless: Why?

Pete Kelly: Well, I just think they love what we do, and when they hear about it, they’re like “This is brilliant. Why haven’t we been doing this the whole time? It’s just incredible.”

Joe Fairless: What’s a mistake you’ve made along the way over these 18 years, as it relates to how your business is set up?

Pete Kelly: Well, at the end of the day, our business rises and falls on the quality of the people who are executing the program. People really are our business and our product, so sometimes when you’re in a haste to provide an owner with a team or with a program, you can believe the best in the team that you’re placing on site, only later to discover they’re not quite mature enough, they’re not quite the team that you need… So I’d say one of the greatest mistakes is not doing enough due diligence on the teams we place.

This year we’ve just had an increased focus on raising the quality of our teams and the quality of the programming that we deliver to our clients.

Joe Fairless: What is something that you do now to help with that discovery process where you find the right people?

Pete Kelly: Well, we always do phone interviews, but I think the face-to-face interview is key. When you get with people face-to-face and you can read their body language and you can see “This husband and wife – do they get along? Because if they go through a divorce in the middle of this thing, it’s gonna get really ugly for the client.”

So I think nothing beats meeting with a couple face-to-face and really looking them in the eye and seeing “Are they mature? Are they [unintelligible [00:23:33].08]? Are they relationally-equipped to do this? Do they have the margin to do this? Do they have the heart to do this?”

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

Pete Kelly: Well, two ways… One is you can reach out to me via e-mail. My e-mail address is PeteKelly@apartmentlife.org. If you’re not ready to e-mail because you wanna read more, you can go to apartmentlife.org, our website, and you can read more about it there.

Joe Fairless: Well, Pete, grateful that you were on the show, talking about your non-profit and how you structure it, the focus being on creating a community, having team members on-site – or off-site, depending on which model it is, but basically having a presence that is solely focused on creating community, having events and connecting residents with each other, with ultimately from a business standpoint helping the NOI increase because it will decrease the resident turnover.

Thank you so much for being on the show, talking about the metrics that you follow and share, as well. I hope you have a best ever day, and we’ll talk to you soon.

Pete Kelly: Joe, thank you so much for having me on the show.

Joe Fairless Best Ever Show banner with Omar Khan

JF1392: He’s Raised Billions For Others – Now He’s Raising Money For His Own Deals with Omar Khan

Listen to the Episode Below (22:44)
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Omar was working for a large company, helping raise $3.7 Billion as an analyst  during his time there. Today he takes what he learned there and applies it to his own company and real estate syndications. Omar branched out to do his own syndications, along with a partner, they are also building an underwriting software to give institutional underwriting to the average Joe’s. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Omar Khan Real Estate Background:

  • Manager at Boardwalk Wealth with 10 years of investing experience across real estate and commodities
  • Developing the next generation of multifamily, self storage and mobile home park underwriting software
  • Based in Dallas, Texas
  • Say hi to him at https://www.boardwalkwealth.com/
  • Best Ever Book: Thinking Fast and Slow

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

With us today, Omar Khan. How are you doing, Omar?

Omar Khan: Hey, Joe. Great honor to be here.

Joe Fairless: Well, I’m glad you are on the show. A little bit about Omar – he is a manager at Boardwalk Wealth. He’s got ten years of investing experience across real estate and commodities. He is based in Dallas, Texas, and you can learn more about his company at BoardwalkWealth.com. That’s also a link in the show notes page. That being said, Omar, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Omar Khan: Well, you’ve done a great job, so I’m just gonna add on some stuff. You’re a big inspiration for me, so we run syndications. I’ve done about 3.7 billion dollars of capital financing and M&A transactions. I’m Canadian, I moved down in the U.S. three years ago, so I advise a lot of high net worth individuals and entrepreneurs on real estate portfolio allocations.

Apart from that, my partner [unintelligible [00:02:00].24] a software that is just specifically catered for syndications in multifamily, mobile home parks and self-storage facilities. That’s basically going to be [unintelligible [00:02:09].04] you’re gonna get institutional quality underwriting.

Joe Fairless: Cool! So I can’t ignore anything with a B – billions. So 3.7 billion – will you elaborate on that, just so I can understand the context?

Omar Khan: Well, these are debt and equity transactions, as well as M&A transactions, both in real estate and commodities… Oil and gas primarily.

Joe Fairless: Oil and gas primarily. And what is your role in those transactions?

Omar Khan: I was the lead analyst and manager running those transactions. One was a debt refinance. We did that, and that took into account a couple of things, but the oil crisis three years ago – we had to basically selectively go out to the market, raise money to our investment bankers; there were a lot of strategic reasons, so I was leading that charge.

On the equity size, similar to that, we raised equity as well, and on the M&A transaction side, because I worked for a bigger company, selectively we would choose to acquire both refining assets, upstream assets and downstream assets in oil and gas. And then on the real estate side, I raised capital for about 80 million dollars [unintelligible [00:03:07].18]

Joe Fairless: Got it. So real estate side – you raised capital, 80 million dollars. Where did that 80 million dollars come from?

Omar Khan: Where did that come from? Well, that came from a lot of people. [laughs] Lots of people, high net worth individuals and entrepreneurs.

Joe Fairless: Was that for your company, or was that for the company where you were a W-2 employee?

Omar Khan: No, that was for other people’s projects; I was a capital raiser.

Joe Fairless: Got it. So for example, how would that be structured? Will you elaborate on that?

Omar Khan: Well, typically how we structure it is the same in the LLC and the LLP scenarios that you have in your own deals. A lot of my Canadian investors are primarily Canadians, and international people, because I’m from Canada, so we’ve got a lot of that… So when I was coming to the U.S. three years ago, that’s kind of how I got started. I didn’t have a good enough network in the U.S., but slowly that’s developing, and that’s how we do the work.

Joe Fairless: So you personally have raised 80 million dollars?

Omar Khan: I personally participated in 80 million dollars’ worth of transactions. I’ve raised about 4 million dollars.

Joe Fairless: Oh, got it, got it. Sorry, I misunderstood. I thought you said you’ve raised 80 million dollars. Okay, so you’ve participated in 80 million dollars; you have raised 4 million dollars. Got it. Okay, so you have raised 4 million dollars, and you said you were a lead analyst on a bunch of deals… That was as a W-2 employee – is that correct? Okay. What did you learn from that that you are applying to your real estate underwriting for your own stuff?

Omar Khan: Well, what I learned from that is that the level of granularity, the level of detail and the level of sophistication one needs when they’re running big transactions is a step above just the usual sort of “I’ll do analysis on the back of the envelope”, because there’s lots of moving parts, and a lot of these moving parts, a lot of balls are up in the air. You don’t really know how people are going to react, how the situation is going to develop, so what you basically need to do is have a plan, A, B and C, before you even do something… And you have to be confident enough in your own plans, but you have to be willing enough to know that if things don’t work out, you can basically switch gears pretty quickly.

Joe Fairless: Will you elaborate on that, just to crystallize in my mind a little bit what that means?

Omar Khan: So what that means is that when the oil prices went down 3,5-4 years ago, what was happening is that a company that I was working with (a 20-billion dollar company), in the Canadian space it was number three or four if you think about it in terms of their total production capacity; so apart from the financial aspect of “Hey, we can go out and raise money” and all of that kind of stuff, the bigger thing that we had to basically figure out was 1) what was our opinion? Was it just a temporary downside in prices, and prices are just gonna come back up, or was this a secular decline in commodity prices? And if it was a secular decline in commodity prices, because our operations are long-term in nature and we need long-term financing, what we had to do was secure more long-term financing, so we can avoid — as prices are going down, nobody’s gonna lend to us, so we should [unintelligible [00:05:58].06] but other than that, what we also had to start doing is thinking “We’re first out of the gate, we have a first mover advantage.” So if I go out as a company, we can go out and raise a billion dollars – that just means that when our competitors go out into the market, not enough people will buy their stuff, because there’s only a finite amount of capital to be allocated to a certain space at a given moment in time.

So there’s financial reasons, but there’s also a lot of strategic and qualitative reasons one has to look out for when engaging in these size of transactions.

Joe Fairless: Okay. It definitely makes sense. So when you now apply that to underwriting real estate for your own deals, how is that applicable to the latter?

Omar Khan: Well, how that’s applicable to the latter number one is that right now we’re seeing that — we’re not as big as you, obviously, so we’re not the first people that the brokers call… So for some of our brokers [unintelligible [00:06:51].05] Dallas, Houston, San Antonio, and we’re looking at Atlanta… What’s happening is that a lot of prices are being paid which frankly do not make sense to us for a given market… So what do we have to do? We have to look at two or three things. Number one, we have to be patient for the right deal. Number two, we have to maintain discipline, and number three, what we have to do is ensure that we’re continuously in touch with brokers, so the relationship is maintained, while we are doing all this stuff at our back-end.

A lot of this stuff — for instance, even just optimizing our processes, automating a lot of stuff within our company to make sure that when we do get the right deal, in the meantime we’re not wasting any time. We are still moving in the right direction, but we’re waiting for the right deal.

Joe Fairless: In terms of deals, what have you personally purchased?

Omar Khan: Personally – the Houston deal is done; that was about 243 units, and now we’re actually looking for another deal, either in Houston or in San Antonio.

Joe Fairless: Got it. So you were on the GP side of a 243 unit in Houston?

Omar Khan: Yeah, my partner was, actually. That’s how we’re partnering up.

Joe Fairless: So you and your partner were on the GP side of a 243-unit?

Omar Khan: Yeah.

Joe Fairless: Cool. Congratulations on that closing. So what was your role in that?

Omar Khan: Two roles. My partner was basically just putting up his net worth, and I was providing a lot of the financials, underwriting a lot of that kind of stuff behind it, just to make sure that when he was investing his money, he knew where it was going, it was a good enough deal for him, and it fit the parameters that we want.

Joe Fairless: And when you do that analysis, what are some tactical things you can tell us you did, that listeners can then apply to their underwriting?

Omar Khan: More than the underwriting, what we started off was a submarket analysis, by looking at the jobs growth, the employment growth, the demographics, all of that stuff. Then when we took it to the underwriting aspect of the game, what we wanted to basically figure out was not just a precise number, so let’s say x.xx IRR. What we wanted to figure out was what were the chances of us losing our money, or rather, how bad would things have to go for us to lose our capital, and how can we manage that situation?

Once we ran a lot of stress tests, we did a lot of sensitivity analyses, when we figured that out and we were okay with the risk, that’s when we decided to go ahead.

Joe Fairless: So specifically what metrics do you look for when you’re looking at how bad would it had to be?

Omar Khan: Cashflow metrics primarily. I’m basically looking at debt-service coverage ratios, I’m looking at liquidity to see for instance “Can we pay out the investors at the time that we’ve told them we’re gonna pay it out?” and “How much more margin of safety do I have?”

As an example, if I have to pay out $100,000 this quarter and I only have, say, $105,000, that’s not enough margin of safety for me, because things can go south. So looking at those sorts of things and realizing “Well, is it comfortable enough? Are we okay with it?” and then working with our property managers and our other partners to make sure we’re all on the same page and we’re not all looking and thinking about things differently.

Joe Fairless: What is the baseline cashflow metric that you look for?

Omar Khan: Baseline cashflow metric – I’m looking at it first primarily from the perspective of a lender, and I’m basically seeing debt-service coverage ratios. Because if I keep paying their debt  and everything else [unintelligible [00:09:53].21]

Joe Fairless: And what number do you look for there?

Omar Khan: At least a minimum of 1.35-1.4, in that range.

Joe Fairless: And in terms of liquidity, what do you look for?

Omar Khan: I need at least 10%-15%, ideally 20% margin of safety built in on a stabilized asset.

Joe Fairless: On a stabilized… 10%-15% of what?

Omar Khan: 10%-15% of whatever outflows of cash [unintelligible [00:10:19].06]

Joe Fairless: Okay. When you apply the lessons you learned from the 3.7 billion dollars worth of transactions where you were the lead analyst on those deals, and then you’re now applying it to real estate transactions, what doesn’t transfer over from your previous experience?

Omar Khan: Well, first of all, I think there are a lot of cross-transferable skills. Where it doesn’t maybe transfer over is the fact that at least in the space that we are in, the [unintelligible [00:10:53].11] there’s less institutional players there, whereas in my earlier job it was all institutional. But what does translate over is the fact that you need to be in-depth, you need to be granular, and you need to be very sophisticated in the way that you look at things.

Joe Fairless: As far as being very sophisticated in how you look at things, what are some tips you can give the Best Ever listeners for how to do that on their deals?

Omar Khan: As an example, for instance, a lot of deals that we look at [unintelligible [00:11:17].16] when they’re underwriting, they’ll only provide you, say, an annual level of detail… And I understand that you’ve gotta put it in your investment summary, but as soon as you start asking people about, say, “Can you provide me the monthly details?”, a lot of people don’t have it. I’m sure smart folks like you have it, but a lot of folks don’t have it, because their models are very simple; they’ve just simply copied over somebody’s model.

Or for instance when people say “We’re gonna implement RUBS” as an example, first they were gonna come in, and currently the property is at 40%, but they wanna take it up to 70%. So one of the things we look at is that people immediately start assuming that from month one I’m just gonna be 70%-75%, whereas what actually happens in real life is that there is a ramp up, right? You go slowly.

Then on top of that, what we also see is that a lot of times people are basically massaging the numbers, basically how aggressive they are in their rent roll, how much they curtail or manage their expenses… Basically, they’re trying to massage their numbers to hit some sort of cash-on-cash target, a preferred return target and an IRR target. So if you go back and you look at the monthly results, you see how aggressive or non-aggressive they are.

Joe Fairless: If we’re looking at financials and we’re looking to see if they are massaging the numbers to hit a certain metric, what’s something we can specifically look for to determine that?

Omar Khan: Two things right off the bat you can specifically look at is how aggressive they are with their rent rolls. Actually, three things – how aggressive they are with their rent rolls, how aggressive they are with their rehab projects if it’s applicable, and then on the exit, what kind of exit cap rate are they using. I prefer 50 to 200 basis points higher on a typical 2-5 year [unintelligible [00:12:55].13], but everybody has a different assumption.

Joe Fairless: 50-200 basis points higher… That’s a decent-sized range of what the exit is… How do you determine if it should be 50 versus 200?

Omar Khan: That depends on the strength of the market. As an example, if you bought in the last three years in Dallas… Or Richardson – if you bought in Richardson or Garland, you can get away with 50 to 100 basis points, because the market is very strong, with good demographics, diversity of economy and all of that stuff. But let’s assume you’re buying in more of a cyclical sort of market. Maybe Houston is a bigger example, but maybe in El Paso; that’s very oil and gas-driven. There you might wanna expand your exit cap out to 150-200 basis points to account for all the risk.

Joe Fairless: As far as — you mentioned about how aggressive with the rehab projects they are… Will you elaborate on that?

Omar Khan: What I’m seeing primarily is that a lot of folks on their first or second deal what they’re doing is let’s assume they put a 150-unit asset under contract, and they say “We’re gonna renovate 100 of those units, and we’re gonna renovate that in the first 6 months, or 12 months, or 13 months.” First of all, I feel that yeah, you could potentially do it, but there’s a lot of moving pieces, number one. Number two, if the rest of your underwriting is predicated on the fact that you’re very aggressive, so in 12 months you’re gonna upgrade 120 of these units and then you’re gonna start getting all these rent premiums, you’re going to build a margin of safety.

As an example, if you assume you’re gonna renovate all these apartments in a 12-month period, maybe you should underwrite for a 24-month period, give yourself some of that room. In reality, if you get more money coming in earlier, nobody’s gonna complain.

Joe Fairless: And then as far as the rent growth, how do we determine if they’re being aggressive or not there?

Omar Khan: In most [unintelligible [00:14:43].19] people assume anywhere between 3% to 6%. I would ideally like to look at anywhere between 2% to 4% just to be safe, but a lot of times what I’m looking at, just to fit the numbers, people are going above the 5%-6%, and what they’re primarily doing is looking at the last two or three years’ worth of high rent growth and big [unintelligible [00:15:02].06] and assuming that’s gonna continue forever, whereas that’s not really the case. The last 2, 3, 4, 5 years are the exception to the rule, not the rule.

Joe Fairless: And that’s on stabilization, right?

Omar Khan: That’s on stabilization, yeah.

Joe Fairless: And what about the renovation period where they’re assuming rent growth? What should we look at there?

Omar Khan: Well, there I would actually err on the side of caution, number one, because that’s also dependent on your rent roll and how [unintelligible [00:15:24].14] But I think the bigger thing to focus there would be how aggressive you are on your rehab plan. If you’re a newbie or you don’t have the experience like, for instance, you guys do… Again, like I said, err on the side of caution; if you or your property manager thinks you guys can do it in 12 months, I would underwrite a lower rent growth on a 24-month period, just to give yourself room to breathe.

Joe Fairless: Great tips. Very applicable, and the Best Ever listeners can certainly just take this and go help assess different opportunities, both from a passive investor’s standpoint, but then also from an active investor standpoint, putting these deals together.

What’s been a challenging project that you’ve been a part of?

Omar Khan: A challenging project that I’ve been a part of was this Houston deal. The challenge was more around understanding the market demographics, number one. We did our research, we were getting some [unintelligible [00:16:18].02] on the communication frequency that we wanted and the property manager didn’t want. Because we were partnering up with some other people – some of these were really experienced people – we wanted to be on more of a frequent communication in the first 12 months, so more like, say every two weeks, or every week, whereas the property management team wanted more at the three or four-week mark.

We basically had to sit down and come to an agreement, and we did agree on the two-week period, but that was more around the asset management, the property management, as opposed to the [unintelligible [00:16:43].24]

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

Omar Khan: Patience is a virtue.

Joe Fairless: How does that play itself out in your approach?

Omar Khan: How that plays out in our approach is that we have an investment criteria, and from time to time, as the market changes, we might have to modify it… But the bigger deal is holding on to your horses and not chasing after every deal that comes across our desk, because we know the market is hot. The bills are only as good as what the market is. So if we hold our horses, we stick to our criteria and we don’t try to over-engineer or [unintelligible [00:17:17].00] hopefully we’ll be coming out pretty in the long-term.

Joe Fairless: What is your investment criteria that you mentioned?

Omar Khan: 15% to 18% IRR. 8% ideally preferred returns, and around 8%-9% cash-on-cash.

Joe Fairless: And that 15%-18% IRR – is that project-level, or is that to limited partners?

Omar Khan: That’s to limited partners and net of fees.

Joe Fairless: Got it. So the project level would be low twenties at minimum?

Omar Khan: At a minimum. The spread has to be — that’s a good point you raised. For us, between the project and the LPs, the spread has to be at least 5% at the minimum.

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

Omar Khan: Yup.

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

Break: [00:18:03].09] to [00:18:40].08]

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

Omar Khan: This is basically Thinking, Fast and Slow by Daniel Kahneman [unintelligible [00:18:43].22] They’re basically behavioral economists, and they basically talk about how people actually react in situations, as opposed to how they should theoretically react.

Joe Fairless: Oh, I would just eat that up. I’m definitely gonna read that one. Thanks for sharing. What’s the best ever deal you’ve done that we haven’t discussed?

Omar Khan: I think the best ever deal — I wouldn’t call it a deal, but the best ever agreement I came up to was convincing my wife to marry me.

Joe Fairless: [laughs] Fair enough. I’m certainly not gonna have any follow-up questions there or ask you why… What about a mistake you’ve made on a transaction?

Omar Khan: The mistake I’ve made on a transaction is that, for instance, I wasn’t very patient, and in the hurry to do a deal and to just get that notch under my belt, I overlooked a few big things around due diligence. Basically, I didn’t do my whole operational due diligence; I did a lot of the financial due diligence and I thought that was okay, and that I learned the hard way not to do in the future.

Joe Fairless: What specifically from an operational standpoint got overlooked?

Omar Khan: What got overlooked was the fact that basically there were some foundation issues, and there were some septic tank issues that me and my partner should have looked at, but I [unintelligible [00:19:48].15]

Joe Fairless: Similar property, but a different one that you come across tomorrow, who do you bring on to help assess those things?

Omar Khan: That’s a good question. I’d have to reach out into my network to see who’s good at all this managing the foundation and septic tank issues, because that’s something we do or wanted to do… But we overlooked that little aspect and bought ourselves a deal where we shouldn’t actually be operating that side of the asset. So I’d have to look into my network and ask a couple of people… But I’d primarily wanna ask Reid; he’s done a couple of deals and he’s an engineer, so I could leverage him.

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

Omar Khan: We actually run and contribute to a few charities; one in specific is in San Antonio. I’m forgetting the name of it, but I read about it in the newspaper… A really big property developer had a daughter with special needs, but they couldn’t really find any amusement park that catered to special needs children. The guy, basically as his legacy, has built out a special needs amusement park for kids, and people from all over the world bring their kids in. It’s a great place.

Joe Fairless: That’s beautiful. Is that in San Antonio?

Omar Khan: Yeah. Sorry, I’m forgetting the name… It’s Happy-something. I should know this.

Joe Fairless: That’s alright. I think that’s enough for a Google search; it’ll be pretty easy to find. Best ever way the Best Ever listeners can get in touch with you?

Omar Khan: They can e-mail me at Omar@boardwalkwealth.com, or they can go to our website, www.boardwalkwealth.com.

Joe Fairless: Omar, thank you so much. You gave some helpful tips on underwriting, especially for passive investors, but also active investors, as I’ve mentioned earlier… The things to look at that are more sophisticated when we’re assessing an opportunity. One is making sure that the monthly details and the underwriting is there (not just annual). Two is making sure that the RUBS are done gradually; there’s a ramp-up time versus you bought it, and “Congratulations, now everyone’s on the RUBS program starting day one.”

Three is looking at the numbers in detail, and you gave three additional things there. One is how aggressive are they with rent growth; on a stabilized property you like to see 2%-4% rent growth, versus 3%-6%. The second thing is how aggressive are they with the rehab projects, and third – what does the cap rate look like? Making sure that it’s at least 50 up to 200 basis points higher than what the going in cap rate is, so that the market is projecting to be worse when you sell, and not the same or better.

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

Omar Khan: Thank you very much, Joe. It’s a great honor. Have a good one.

Jason McDougall and family on #BestEverShow flyer

JF1350: Getting Busted By The Cops Couldn’t Keep Him Down with Jason McDougall

Listen to the Episode Below (24:47)
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Jason was putting up bandit signs in 2009 when a police officer took them all down and tracked them down. Jason did give up briefly at that time, but came back better because of that happening. Now Jason is a full time wholesaler with a ton of buyers on his list, and he makes $15-$20k per deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Jason McDougall Real Estate Background:

  • Full-time real estate investor
  • Quit his job in January 2016 to go full time in real estate, with a focus on wholesaling
  • He has done about 30 – 40 deals a year since he went full time
  • Along with wholesaling he also flips houses, as wells acquires single family houses for rentals
  • Based in Dallas, Texas
  • Say hi to him at https://www.sellmydfwhouse.com
  • Best Ever Book: Rich Dad, Poor Dad

Join us and our online investor community: BestEverCommunity.com

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List and manage your property all from one platform with Rentler. Once listed you can: accept applications, screen tenants, accept payments and receive maintenance tickets all in one place – and all free for landlords. Go to tryrentler.com/bestever to get started today!


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

With us today, Jason McDougall. How are you doing, Jason?

Jason McDougall: I’m doing great, sir. Thanks for having me on.

Joe Fairless: My pleasure, nice to have you on the show. Jason is a full-time real estate investor. He quit his job January 2016 to go full-time in real estate and focus on wholesaling. Since he’s been full-time, he’s done approximately 30-40 deals a year, and along with wholesaling he flips homes as well as acquires single-family homes for rentals.
Based in Dallas, Texas, specifically Colleyville. With that being said, Jason, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jason McDougall: Yes sir, absolutely. My name is Jason McDougal and my company is Next Era Homebuyers. As you mentioned, I quit my job in 2016 to go full-time with this, but if I back up, I actually started doing this – or I tried to do this – in 2009. I was putting out bandit signs with my wife to try to get wholesale deals, and we got caught by the police putting them out… So we got fined, and I was like “I am not touching real estate ever again.” So that kind of put a damper on things.

Then some things at my job that I wasn’t happy with, I wasn’t fulfilled, and I realized that I would never create the life I wanted for my family unless I made a drastic change. My wife was three months pregnant in January 2016, and I told her “Honey, I’ll quit my job. I’ve only done two wholesale deals, but I think I can do this.” She supported me, and that’s kind of how we got started.

Joe Fairless: Wow. How much was the fine?

Jason McDougall: It was $600 for her, because she was the driver, and $600 for me, because I was the guy hammering them in the ground.

Joe Fairless: Is that in Colleyville?

Jason McDougall: It was in Hurst, Texas.

Joe Fairless: In Hurst… Okay. Got it. HEB. Okay. What type of emotional reaction did you have to that? And describe the scene, will you?

Jason McDougall: It was one in the morning on a Friday, so I guess it was a Saturday morning, and we were driving around putting these signs up… We had done it before, but we’d never gotten any deals off of them. The cop just pulled up behind us, and I tried to make an escape to the back seat, and that didn’t work. He pulled us over and cited us to put the signs out, opened up his backseat, and we saw 40 other bandit signs [unintelligible [00:03:12].02] I was like, “Man, I got caught by the wrong police officer.”

It just kind of crushed me and made me just wanna stop anything related to wholesaling or real estate, because I didn’t have the perseverance to just push through it.

Joe Fairless: Fast forward to January 2016 – you have a wife who is pregnant and you mention to her your idea about leaving your – I assume a stable full-time job, to do something that is perceived to be unstable, at least initially. Tell us about your thought process there.

Jason McDougall: Well, I climbed the corporate ladder and I thought that was where I wanted to be, and what was gonna make the most sense for my family… But after getting there, I really didn’t enjoy it and I wasn’t passionate about it, and I just dreaded going to work every day.

Joe Fairless: What were you doing?

Jason McDougall: I was doing forklift equipment rental management. I ran a rental department and we had forklifts going in and out all the time. I didn’t enjoy it, I didn’t love it, and I loved real estate and I was always passionate about it. So that drove me to give it another shot with wholesaling, to get out of that world… And it worked. She had a lot of confidence, I guess, in my ability… Maybe more confidence than I had in myself, and supported me to go forward with that and do it full-time. It was rough at first; getting the deals was not easy, I didn’t really know what I was doing, but we worked through it.

Joe Fairless: Did you go back to bandit signs?

Jason McDougall: Yeah…

Joe Fairless: You did! [laughter] Okay, in January 2016, “I’m gonna do this full-time”, and then you did what to get deals?

Jason McDougall: We started marketing in July of 2015; we would just do a lot of postcards, because I didn’t have time to put the bandit signs out.

Joe Fairless: So a year before you quit you started marketing.

Jason McDougall: Correct.

Joe Fairless: Okay.

Jason McDougall: And that worked… I wasn’t really doing that correctly either, but for some reason I got deals, and made it work, and then eventually we added the bandit signs back into it among other things, to kind of complement the marketing.

Joe Fairless: Okay, so you were starting to do work on real estate in January of 2015, and then you quit a year later… How many deals did you do between January 2015 and January 2016?

Jason McDougall: Two.

Joe Fairless: Okay, so it’s not like you had a system set up, you just got a couple deals.

Jason McDougall: Yeah, it was luck.

Joe Fairless: How much did you make on those two deals, minus all expenses, which includes marketing?

Jason McDougall: Between both deals, minus expenses, we probably made like $7,000.

Joe Fairless: Total?

Jason McDougall: Yeah.

Joe Fairless: Okay, got it. So how did you find your first deal?

Jason McDougall: It was direct mail. It was an absentee owner type list, and she said she needed to sell her house, and I was nervous the whole time. I had no idea what I was doing. I ended up contracting that and selling it to somebody on a buyers list that I had built back in 2009. I was like “Well, maybe somebody on here still buys real estate”, and they ended up buying it.

Joe Fairless: A buyers list back in 2009, when you were originally doing it… How did you build that buyers’ list?

Jason McDougall: I would just go to all these networking events, and I never stopped going to the real estate networking events through that time. I would always collect business cards; every time I got a business card, I would put it on that buyers list and try to build it up.

Joe Fairless: How many people did you have on the buyers list by 2016 whenever you were in full-time?

Jason McDougall: I had about 2,000 people on there by that time.

Joe Fairless: Holy moly!

Jason McDougall: Yeah… I went to a lot of networking events.

Joe Fairless: When you send that e-mail, what’s your open rate?

Jason McDougall: 13%. It’s pretty low.

Joe Fairless: Well, that makes sense, based on how you’re putting them in there… So you’ve got 260 people approximately who are opening it… And how many responses did you get from those 260 people who opened it, about that deal?

Jason McDougall: It’s still kind of this way… We’ll get 5-10 responses pretty quickly, and I’m like “Well, maybe I’ve priced it too low”, or sometimes we might get one or two if it’s just a weird property, or if I priced it too high.

Joe Fairless: And I assume your list has grown from that 2,000… Or is it 2,000 today?

Jason McDougall: No, it’s about 5,000 today.

Joe Fairless: About 5,000 today. I wanna make sure I’m understanding you correctly – you still get approximately the same amount of responses, 5-10 responses, now with the 5,000 list?

Jason McDougall: I do, yeah.

Joe Fairless: Why do you think that is?

Jason McDougall: I don’t know, that’s a good question. Well, a lot of people have Gmail, and Gmail sends a lot of our e-mails to the Promotions tab. So they don’t really go to their inbox, so people aren’t checking that and they’re not seeing any e-mails from us at all, which kind of sucks.

Joe Fairless: Yeah, that does kind of suck. It does that for me, too. I have investors who are like “I didn’t see that new deal…”, and I’m like “Well, you have the Gmail!” [laughs]

Alright, 30-40 deals a year… What’s the system that you’ve set up to be able to do that?

Jason McDougall: I wish I would have set up a system more thoroughly in the beginning to be able to do that, because the wholesaling thing is a job, and it’s really a grind for one person to do it by themselves.

So I don’t have all the systems in place; my wife’s of big help to me to kind of set up the marketing list and get those distributed, but by and large I don’t have any other systems other than Podio and Excel that I use to kind of manage the business.

Joe Fairless: Okay. Who all works on the business?

Jason McDougall: I would say 80% me, 20% my wife. We are looking to hire somebody in July and get an office to kind of help with administrative stuff.

Joe Fairless: Okay… The 20% that your wife does – you just mentioned it briefly, but will you outline what she does?

Jason McDougall: She does a lot with our website, she does a lot with our direct mail, she does all the designs for the postcards, and door hangers and different things like that that we do, different marketing. She designs the bandit signs… Kind of that marketing piece of it, she really helps a lot with.

Joe Fairless: Okay, and then I can probably deduce what your responsibilities are, but what are your responsibilities?

Jason McDougall: I go on all the appointments, I answer all the phone calls, I do all of the administrative tasks, corresponding with buyers, title companies, researching issues on title… Just different things like that.

Joe Fairless: What have you evolved in your — you said you don’t have a system, but what have you evolved in your process, from when you start to today?

Jason McDougall: When I started, I did zero follow-up, I just used paper to keep track of all the leads, and if I didn’t get a deal the first or second time after talking to them, they kind of went in the trash. And I look back now and I realize how much money I had thrown away by not having a system in place to track all those people, to touch them frequently, and to just follow-up with them. Having that in place now has been huge.

Joe Fairless: Is that where Podio comes into play?

Jason McDougall: Yes, sir.

Joe Fairless: With your 30-40 deals, minus marketing costs, how much do you make per deal on average?

Jason McDougall: When we started out, I was happy making $5,000 on a deal. Then I talked to somebody and he said “Why aren’t you making 10k?” and I said “I don’t know.” “Try to make 10k.” I said “Okay.” So I tried that, and I started making 10k. Then someone else said “Man, I really don’t try to make less than 20k. Why don’t you try to make 20k?” “Okay…”, so I started just going in, thinking I was gonna make 20k, and it started working. I’m like, “Wow…” So it’s evolved from making 2k-5k when I started, to usually 15k-20k is an average assignment fee now.

Joe Fairless: It sounds like a bunch of malarkey when you’re like “Hey, I just wanted to make this much more, so I started making much more”, but it reminds me when Tony Robbins talks about how he got from where he used to be to where he is now, and there’s a period of time where he got out of the $50,000 range, and got into where he was making a million bucks a year, and he made it for 3, 4, 5 years. Then I think someone said exactly what you just mentioned other people said to you, and he was like “Oh wait… Yeah, I guess I could make more, because I want to give back more, and feed more families as a nonprofit”, and then he just magically, by intention – but quite frankly, it’s not magic, it’s mechanics, too – was able to increase the revenue.

So within your five to ten and ten to twenty, it was a thought process, but what specifically changed within the mechanics of it?

Jason McDougall: I would go into a deal and I would always be afraid that if I tried to make $20,000 on an assignment fee, that my price wasn’t gonna work for the seller, and that was just my own limiting belief. So if I [unintelligible [00:11:29].11] I wanna make $20,000, so my offer needs to be where I have a $20,000 assignment fee built in. That’s the only change I’ve made, other than telling myself it was possible to do that, and it worked. So like you said, there’s no magic behind it, it was just really changing your thought process and changing your offer a little bit.

Joe Fairless: How are you now getting most of your deals?

Jason McDougall: They’re mostly through — I still do bandit signs, Joe… Bandit signs, we do door hangers, we do direct mail, we do some pay-per-click, and some SEO… So a combination of all of those produces our deals right now.

Joe Fairless: Okay – banner signs, pay-per-click and SEO?

Jason McDougall: Yes, sir.

Joe Fairless: And SEO.

Jason McDougall: Yes, sir.

Joe Fairless: Okay… How would you allocate percentages for those? The banner signs, direct mail, and pay-per-click, and then SEO – out of those four, in terms of deals?

Jason McDougall: It would probably be 30% bandit signs, 30% direct mail, 30% pay-per-click, and then the rest would be SEO.

Joe Fairless: Even though SEO is only 10%, I am curious – do you have a team member that does that?

Jason McDougall: I’ve got a VA that does that, yeah.

Joe Fairless: Okay, alright. As far as the bandit signs go, are you still risking personal fines by doing it, or do you have someone else?

Jason McDougall: I have someone else putting them out, but I guess if they ever…

Joe Fairless: Yeah, you’re busted.

Jason McDougall: Yeah, exactly.

Joe Fairless: Okay. How many do you put out?

Jason McDougall: 150/week.

Joe Fairless: What’s your approach for doing that?

Jason McDougall: I have two guys that put them out for me every week. I order them and they get sent to their house, and they put them out, and I pay them electronically. I would say every 600 bandit signs produces a deal.

Joe Fairless: You do 150 a week, so why not do 600 a week?

Jason McDougall: Because I don’t wanna flood these areas where they get so mad at me [unintelligible [00:13:12].24]

Joe Fairless: Oh, you’re walking a fine line… Okay, I’m with you. How much do you pay these individuals to put the banner signs out?

Jason McDougall: $2,15/sign.

Joe Fairless: $2,15/sign? That includes gas and whatever else?

Jason McDougall: Yup, that’s their fee to do it.

Joe Fairless: Is that per person?

Jason McDougall: No, that’s for both of them to do that; that does not include the price of the sign and the stake.

Joe Fairless: How much is the price of the sign and the stake?

Jason McDougall: I think it’s like another $1,50 for both.

Joe Fairless: For both. Okay, cool. For every $2,000 you spend, you make approximately $18,000. That’s pretty good.

Jason McDougall: Yeah. Sometimes it’s lower than that, but often times it is that.

Joe Fairless: With your direct mail, any tips there?

Jason McDougall: Testing things really is huge. We’ve done letters, we’ve done postcards… I actually bought all the equipment to do letters in-house. I bought an envelope printer, [unintelligible [00:14:04].00] all these machines to do it in-house and save money on it, because the response rate on letters is just so much better for us than postcards.

Joe Fairless: And what about your other method, the pay-per-click? What’s your approach there?

Jason McDougall: I’ve only been doing that for a few months, and there’s a lot of retail leads that we get with that, so it’s frustrating sometimes… We get people like “I wanna sell my house fast, but I want full price”, and like “Well, those two things don’t really work out together.” So that’s a challenge, but that’s just inherent with pay-per-click, I think, because some of the leads you get are gonna be like that.

Joe Fairless: You’re taking some of the profits, I believe – because I’ve read this in your bio, so I assume it’s true – and you’re buying single-family buy and holds; tell us about that.

Jason McDougall: I’ve been buying those with as little money out of pocket as I can. We had one this time last year, now we have six rentals and two notes that are producing passive income for us.

Joe Fairless: That’s great. So you’re not just creating a job, but you’re creating a long-term income stream for yourself, so that you can eventually phase out or put someone else in place of where you’re at.

Jason McDougall: Absolutely, I’m aggressively trying to acquire passive income this year.

Joe Fairless: Where are the homes?

Jason McDougall: They’re all in the Dallas-Fort Worth area; Arlington, Fort Worth…

Joe Fairless: What are the numbers on the last home?

Jason McDougall: I got two under rehab right now, that I just bought, and these will be my first ones that I’m trying to go Section 8 with. One I’ll be all-in into this house for $50,000, and we’re converting it from a two-bedroom to a three-bedroom. It should bring in $1,200/month, with a PITI of $600/month.

Then another one in Arlington, that we bought all in for 107k after rehab, it will be worth — ARV of 165k, and it will rent also Section 8 for $1,800/month. That’s kind of the path I’m going towards now, is the massive amounts of cashflow that I can generate through Section 8.

Joe Fairless: Are you managing that yourself?

Jason McDougall: I am.

Joe Fairless: Have you gone through the Section 8 process?

Jason McDougall: Not yet. I’ve been to their briefings, but I have not had a Section 8 tenant yet, so I might be changing my story on this in a year, but we’ll see…

Joe Fairless: Those weren’t leading questions, I was just curious… I have a Section 8; I have three homes, and one of them is a Section 8, so… But I don’t self-manage, that’s all. I was just curious.

The rehab properties, all-in 50k and all-in 107k – how did you find those two?

Jason McDougall: It was a pay-per-click lead, actually. Someone was appointed as a guardian over someone else’s estate, because he was legally incapacitated, and I purchased that property from him. The other one was a door hanger lead, actually; someone wanted to move out of state and sell his house, and I negotiated a pretty good price on that house.

Joe Fairless: Oh, I didn’t hear door hangers as part of your marketing arsenal… How many door hangers do you send out?

Jason McDougall: 10,000 a month.

Joe Fairless: Is there a reason why that was not included? Is that not that big of a lead generation?

Jason McDougall: We’ve just kind of started doing it, so to be determined on the effectiveness of it, versus how much we’re spending to do it.

Joe Fairless: Okay. When did you start doing it, how long ago?

Jason McDougall: In February.

Joe Fairless: Okay, 2-3 months ago, and it’s already resulted in… One deal, or more?

Jason McDougall: We’ve gotten two deals off of them so far.

Joe Fairless: And how much does it cost to do 10,000/month?

Jason McDougall: With materials and everything it’s probably $2,000.

Joe Fairless: Okay. The $50,000 house that you purchased, where you’re all-in for 50k, what did you purchase it for?

Jason McDougall: 43k, and it needed a rehab of 7k.

Joe Fairless: Is that an all-cash transaction?

Jason McDougall: No, I’ve got some banking relationships and some private lending relationships where I was able to purchase that with no money out of my pocket for the rehab and purchase.

Joe Fairless: Please continue…

Jason McDougall: [laughs] I’ve bought all of my properties that way, with no money out of my pocket, and this was through relationships I’ve built with banks, and through private lenders that I’ve been able to do that.

Joe Fairless: I heard you the first time, but can you be specific?

Jason McDougall: I’ve just focused on talking to several banks, and just kind of seeing what they’ll all do, and all these community banks will do something a little bit differently; it just depends on what their appetite for risk is. Some will say “Yeah, we’ll fund 100% of the purchase and rehab for your rental, and then after your rehab is done, we’ll roll it into a 20-year amortization with a three-year adjust.”

Joe Fairless: Huh!

Jason McDougall: Another bank would say something like “We’ll give you a 10% down to purchase the rental and we’ll cover 100% of the rehab.” Then I’ve had private lenders that were like “Hey, we’ll purchase the house for you, you rehab it, it’s your house, and just pay us 6% interest a year, no points.” So there’s been all kinds of different strategies that I’ve used to acquire these properties that have been really beneficial.

Joe Fairless: And you have six of them, cool. This is great. I’m glad we got to this point, because this is really interesting. You said you work with different banks and private lenders – are there any repeat banks or private lenders from those six homes?

Jason McDougall: Yeah, these last two houses – the one for 50k and the one for 107k were from one bank.

Joe Fairless: What bank?

Jason McDougall: It’s a small community bank in Fort Worth.

Joe Fairless: Which one? I’m from Fort Worth, I might use them.

Jason McDougall: Have you heard of First Bank?

Joe Fairless: I think so.

Jason McDougall: They were just comfortable with my credit and my experiences, therefore they offered me that deal, and I said “Well, how many rentals would you help me purchase?” [laughter] They were like, “We’ll do five.” I’m like, “Okay…” So I got two, and my plan is to get five maxed out with them, and then refinance those into a portfolio loan and do it again with them.

Joe Fairless: Beautiful. So just so I’m understanding it, they’re doing 100% of the purchase and rehab?

Jason McDougall: Yes, sir.

Joe Fairless: Wow! Nice searching! How many banks did you have to go to and have conversations with prior to finding them?

Jason McDougall: I’ve probably talked to 6-7 different banks, and then kind of found out what all they wanted to do after just sitting down with them, explaining what I wanted to do… And some of them — I’ve got two notes, and a couple of those banks let me wrap their loans to end buyers, so I can owner finance those, which has been great, too.

Joe Fairless: When you walk into the bank, what do you do? Do you just tell them “Hey, I don’t want any money out of my pocket, but I wanna buy this property. Do you wanna do a deal?”

Jason McDougall: Kind of… I mean, not really like that, but I tell them exactly what I’m doing and they’re like, “Well, you’re getting a pretty good discount on these properties when you’re buying. We’re comfortable doing that if we ever have to take it back. There’s lots of equity there.” And then my experience and my credit kind of help, I guess, as well.

Joe Fairless: So you’ve got good credit, you have experience, they know you’re a full-time investor, and then from a property standpoint what documentation do they require? From a high-level; I know a lot, but from a high-level what are the main things they require?

Jason McDougall: As far as financials, they wanted to see a P&L from my company for the past two years. I don’t have two years of self-employment taxes filed yet, so they were able to look past that just based on my P&L’s, and credit, and a financial statement.

Joe Fairless: And what about the house itself? Because you mentioned they said they have enough equity in it should something go wrong, so what did they need to see from the house?

Jason McDougall: They did an appraisal on the house, to make sure that — based on my scope of work from the rehab, if the house would appraise for their value, and they were comfortable with that.

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

Jason McDougall: I would say do not give up. I wish I really wouldn’t have given up in 2009 when I was putting up bandit signs, and just persevered through that. I could be much further along than I am today.

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

Jason McDougall: Absolutely.

Joe Fairless: Alright. First, a quick word from our best ever partners.

Break: [00:21:19].29] to [00:22:00].17]

Joe Fairless: Best ever book you’ve read?

Jason McDougall: Rich Dad, Poor Dad, the cliché answer.

Joe Fairless: [laughs] Hey, if that’s your answer, that’s your answer; that’s alright. What is the best ever deal you’ve done that we have not talked about, and it can’t be your first, can’t be your last.

Jason McDougall: It can’t be my last?

Joe Fairless: No, it can’t be your last.

Jason McDougall: I did a wholesale deal where somebody just called me up and said “I just don’t want this house anymore, you can have it.” I looked it up and I was like, “Man, I think I can make some money here”, and I ended up making $35,000 by wholesaling that.

Joe Fairless: And what did they say originally?

Jason McDougall: He just said “I don’t want this house anymore. I don’t wanna deal with this property.”

Joe Fairless: What was the problem that he had with the property?

Jason McDougall: The house was vacant and he had moved out to South Texas and he had some property taxes that were delinquent on it, and the house was in a really bad shape.

Joe Fairless: So then what did you do?

Jason McDougall: I contracted it and wholesaled — I’ll back up… He was getting someone to go to court in Fort Worth, and he was elderly, and six hours away, he was like “There’s no way I can go to court regarding this house”, so I ended up calling the court and pretending to be his grandson to try to postpone the court date until I could get it sold and transfer the ownership to the new buyer… And that worked out.

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

Jason McDougall: Trusting contractors too much and allowing them too much leeway, which has hurt me on a couple flips early on.

Joe Fairless: There’s just a tiny bit of irony – the previous answer was you pretended to be someone else’s grandkid, and then the next answer was trusting contractors too much… Right? You see the irony there? [laughs]

Jason McDougall: Yeah, I get it. I’m a very trusting guy, and I was too much so early on when I trusted these contractors to do a good job for me and paid them too much, and they just burned me.

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

Jason McDougall: I have a Facebook group called Passive Income Through Real Estate, where there’s some really good conversations going on about how to generate passive income, since that’s really my main strategy right now.

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

Jason McDougall: You can e-mail me, Jason@nexterahomebuyers.com, or get in my Facebook group and chat with us there.

Joe Fairless: Outstanding! Well, a wonderful conversation. Thank you so much for being on the show, Jason, and talking about your adventures, from getting fined $600 (actually, $1,200 as a family) with the bandit signs, to now doing 30-40 deals, how you’re getting financing for the buy and holds that you purchase after you have successful wholesale deals that you then reinvest into really interesting stuff… So thank you for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Jason McDougall: Thanks, Joe. I appreciate it.

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JF1315: Real Estate Economics From An Economy Expert with Danielle DiMartino Booth

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Danielle is a global thought leader when it comes to money,finance, and economics. From best selling books, working for the FED, and founding an economic consulting firm, she has deep knowledge of our economy and how different investment and asset classes affect it. We get some amazing real estate advice from Danielle today, as well as higher level economy advice and thoughts. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Danielle DiMartino Booth Real Estate Background:

  • Founder of Money Strong, LLC, an economic consulting firm
  • Global thought leader on monetary policy and economics
  • Author of FED UP: An Insider’s Take on Why the Federal Reserve is Bad for America
  • FED UP rose to #22 on Amazon’s Best Seller List and garnered #1 in Economic Policy & 6 other categories  
  • Based in Dallas, Texas
  • Say hi to her at http://dimartinobooth.com/
  • Best Ever Book: Lords of Finance

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

With us today, Danielle DiMartino Booth. How are you doing, Danielle?

Danielle DiMartino Booth: I’m doing great today, how are you?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Danielle – she is the founder of Money Strong, which is an economic consulting firm. She’s also the author of Fed Up: An Insider’s Take On Why The Federal Reserve Is Bad For America. She is based in Dallas, Texas. She’s a global thought leader on monetary policy and economics. With that being said, Danielle, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Danielle DiMartino Booth: Sure. I made my bones being one of the few hated individuals in the country predicting the housing crisis; that came from my Wall Street background and understanding traders speak, and what a 125% loan to value toxic waste, piece of garbage was. That really did open the door for me kind of to being unhinged in my opinions, which caught the attention of the Federal Reserve.

The gallows humor, when I joined the Fed back in 2006, prior to the crisis hitting, was that they had hired me to shut me up. That was pretty effective, because I went silent for 9 years as an advisor to Richard Fischer, one of the better-known hawks on the Federal Open Market Committee through the crisis years. He retired, I followed him into retirement… The first thing and last thing I can tell you about myself is I am the worst bureaucrat ever known, and since then, I have written a weekly newsletter and it’s become quite the authority on pensions and commercial real estate, and the intersection thereof.

Joe Fairless: So with your newsletter – that’s the weekly newsletter that comes out regularly – as real estate investors, what should we be paying attention to if we were reading the newsletter?

Danielle DiMartino Booth: Really, inflection points is what I would focus most on. Commercial real estate in general has been underpinned in a very strong way by the tremendous foreign flows that have resulted from interest rates here increasing, so from foreigners looking for a better, stabler place to put their money in “hard assets”, and I think going forward, a lot of the focus is going to be on the pronounced downtrend we’ve seen in especially construction lending, as well as how retail shrinking its footprint has the ability to bleed into other sectors of the commercial real estate market.

Joe Fairless: Can you elaborate on that?

Danielle DiMartino Booth: Well, if you think about where class B and class C malls are, many of them are in pristine, great locations. So by the same token, there’s going to be a finite appetite for repurposing these malls. Here in Dallas where I live, for example, they’re in the process of raising a class B property very slowly, but they’re razing it to the ground in order to free up the land that’s underneath it.

Now, if you expand that strategy, if you will, to other markets, that means that you’re going to have prime real estate competing for commercial real estate in the years to come, and that supply of prime real estate is going to be increasing on the heels of what we know to be the most over-valued time for this particular sector. Like it or not, that’s just what the data say.

Joe Fairless: So as real estate investors who are listening to this, what are some things we can do to be ahead of this and take advantage of it?

Danielle DiMartino Booth: Well, it was years ago that Leon Black said – and this is of private equity in general – “I’m selling everything that’s not nailed to the ground”, and I think to be opportunistic sellers in this kind of environment is really wise. I think locking in rent while you can is also really wise, understanding that corporate America and how it operates, and the amount of square footage that it requires is changing as we speak. It is a dynamic dynamic, and we see that all over the place with shadow inventories [unintelligible [00:06:37].08] we’re starting to finally see some stress emanating from the office sector, and I would argue that this is a reflection of a lot of the supply that is coming online in addition to the over-building that we’re beginning to realize has occurred in the multifamily and in the restaurant and in the hotel spaces.

Joe Fairless: So with the quote “I’m selling everything that isn’t nailed to the ground” – you mentioned that because your suggestion is to sell at this point, if you were considering selling?

Danielle DiMartino Booth: I think so. For all of the years that I was now no longer with this firm called Donaldson, Lufkin & Jenrette, I kept on retaping a sticky to my computer screen that said “Pigs get fat, hogs get slaughtered”, and I think one of the most important disciplines that you can have as an investor is that of having a strong sell discipline. If you see that you’ve made a great return, then you should definitely take that money off the table while you can. Be opportunistic, sell into selling opportunities.

Joe Fairless: So know what your price point is to sell initially, and then when you reach that, then sell, because with that sticky note “Hogs get slaughtered, pigs get fat”, or something like that… I’ve heard it before —

Danielle DiMartino Booth: Pigs get fat, hogs get slaughtered, and to shift gears a little bit, I will never forget staring at that sticky, trying to talk a huge holder of Cisco systems into pairing back their position to their cost basis in 1999, and failing… And then being told, much after the fact, “Gee, I should have listened to you.” And again, in this environment, it is not about maximizing your return, it’s about assuring your return.

Joe Fairless: I’d love to run something by you. I did not invest in 2008, because I didn’t have money to invest. I was saving up my pennies. I’m from Fort Worth, I was living in New York City at the time, I bought my first house in Dallas, Duncanville, and then bought some more in DFW, and now I’ve got a portfolio of apartment communities in DFW and in Houston… And I’ve interviewed 1,300 or so people, every single day, for the last 1,300 days — well, one person a day for the last 1,300 days; 1,300 or so people.

Danielle DiMartino Booth: You’re very busy, I’m quite impressed. That’s prolific.

Joe Fairless: So I mentioned that only because here’s what I’ve learned, and this is what I wanna run by you… So what I’ve learned is that in 2008 when people lost their shirts – I’m only talking real estate investors, because that’s my world; I don’t know stocks, I don’t know bonds, I don’t know other stuff… So real estate investing – the people who lost their money, one of three things (or a combination of three things) happened to them. One is they bought for appreciation, not cashflow. So they weren’t making money every month, therefore when times get tough, now they’re underwater, and they’re losing money every month, so that’s a problem.

The second is they’ve had short-term financing, or they were just unlucky and their loan became due during 2008-2009 when no one was gonna want to put a loan on the property, or the loan terms were terrible and it was just a bad time trying to get financing. That’s the second.

And then the third is they had some unexpected expense occur, and they didn’t have the cash reserves. So those are, from what I’ve found, the only three reasons (or a combination of those three) that people lost money. So with that as my thought process, going to your comment about selling when you have a strong return – I’m with you on that, but my thought is as long as I don’t break any one of those three cardinal rules, I don’t have to sell, I don’t have to try and time the markets. I can simply be a long-term player; that way I’m not worried about what’s going up and down in the markets and I’m not trying to time anything and be perfect about that. What are your thoughts?

Danielle DiMartino Booth: Well, timing never works, and I have officially spoken out of boths sides of my mouth. But again, it all hinges on what your position is. If you’re cashflow-positive and you can see over the horizon and know that you’re going to remain cashflow-positive and not be beholden to refinancing, then you can certainly do the math yourself and hold on, and continue to clip that coupon, so to speak. It really does depend on your starting point and how strong you are in your position, and regardless of which investment we’re talking about, which asset class we’re talking about, if you’re cashflow-positive and you can remain cashflow-positive with some good assurance, then you are absolutely correct, there’s no being forced into selling anything.

I suppose I’m speaking more to the people who are looking for that appreciation in the property, who maybe bought at really high prices and don’t have that same kind of security that you describe.

Joe Fairless: Okay, it makes sense, 100%. I just wanted to run that by you and get your opinion.

Danielle DiMartino Booth: Sure. It’s absolutely intuitive, you’re right.

Joe Fairless: What is the biggest challenge you have on a daily basis with your business?

Danielle DiMartino Booth: On a daily basis with my business, what’s the biggest challenge that I have?

Joe Fairless: Yeah, maybe an interesting problem that you’re solving for, or something that you kind of got a soapbox for, and it’s kind of a thorn in your side… Anything that comes to mind.

Danielle DiMartino Booth: Well, look, you have my mind right now on real estate, and one of the biggest thorns in my side is that I’ve become a close study of pension funds, and for that matter sovereign wealth funds and how they interact with private equity… And my greatest concern is that as we potentially begin to hit a more volatile time in the broad financial markets, that a lot of these pension funds under-appreciate the lack of liquidity in some of the alternative investments that they’ve made – and I will tell you, commercial real estate private equity funds have been the darling of pension funds for the past 18 months or so…

My greatest concern is let’s take a pension from state ABC that has reduced their fee structure by investing passively in the stock market, and tried to up their long-term returns by gaining exposure to commercial real estate – my biggest concern is that as baby boomers retire and [unintelligible [00:13:19].02] and cashflow becomes a concern because they’re actually writing pensioner’s checks, not relying on actuarial accounting gimmickry, that they’re going to run into the perfect storm of not being able to access liquidity because their stocks have declined, while at the same time realizing the very long-term nature that they’ve committed to in plowing their money into illiquid commercial real estate, especially on the private equity side, where you’ve got that 7 to 10-year commitment for your funding.

So that’s a real thorn in my side, and it’s especially prevalent among the weakest states and cities that have been adversely affected by the recent tax reform bill that is going to cause an acceleration of the shrinking tax base that states like Florida, Texas, Nevada will benefit from going forward. That’s going to be a huge [unintelligible [00:14:13].23] for certain states’ real estate market and provide a great floor, but by the same token, it’s going to accelerate the pain for states whose residents are going to continue to flee.

Joe Fairless: What’s the ideal solution?

Danielle DiMartino Booth: Oh, gosh… [laughs] Now you’re asking the big question. The ideal solution… Well, I will tell you that ideal – since we’re speaking ideally – the pension fund system in Great Britain, for example, requires that public pensions cap their rate of return assumption at 3,5%, such that they never can go too far out on a risk limb, endangering their pensioners, endangering retirees. I would like to see some sobriety come out of what I expect will be a lot of pension crises in the years to come, in the form of legislation that requires that in the future, if you’re gonna make public promises to firemen and policemen and teachers, that you have to be realistic in your return assumptions so that you never get into this soup again.

Joe Fairless: There’s not something in place with the realistic projection guideline?

Danielle DiMartino Booth: No, absolutely not. Most return assumptions right now are in the neighborhood of 6,75% to 7,25% per annum. Most pensions have been unable to hit those [unintelligible [00:15:35].29], which means that as a factor of time, they continue to get deeper and deeper and deeper under-funded.

Joe Fairless: If you were in a room full of real estate investors and the following question were posed to you, what would you tell them – what is your best advice ever for real estate investors, based on your unique experience and background and education?

Danielle DiMartino Booth: Well, I think to follow the flows would be my best advice. When you see a herding effect, be afraid, and be conscientious, and try your very best to zig when others are zagging. It’s really difficult to do, because sometimes you want to ride that wave.

Joe Fairless: So you’re a big Bitcoin investor then…

Danielle DiMartino Booth: Ha-ha-ha-ha… [laughter] That would be no. That would be the negativo there. No, absolutely not. No, I chuckle, and it’s not that I don’t — look, I’m a former central banker, I’m a reformed central banker. I completely commiserate, and I have deep empathy for people who are losing faith in our dollar’s ability to retain its value, but by the same token, I don’t have much faith in something that has 1,000% return and people say it’s gonna be a 3,000% return. It doesn’t pass muster. But I would say that to be contrarian-thinking, even in a long-term asset class such as real estate, really does afford the people who are going to be most successful over the long haul.

I listen to investors like Sam Zell, and they’ve never had trouble being early to the party, therefore live to invest another day.

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

Danielle DiMartino Booth: Oh, gosh, you’re scaring me! Your youth is coming through. Let’s do this!

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

Break: [00:17:36].22] to [00:18:05].15]

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

Danielle DiMartino Booth: Lords of Finance.

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

Danielle DiMartino Booth: Believing people who sell me something that sounds too good to be true twice.

Joe Fairless: [laughs] The same person twice?

Danielle DiMartino Booth: No, different entities, different selling strategies, same bad results.

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

Danielle DiMartino Booth: I like to give back mainly through financial literacy. That’s the best thing that I feel I can give to other individuals. I’m a supreme translator of jargon and gobbledygook, especially as it pertains to interest rates and monetary policy, and I think that the more I can pull the curtain back on what a lot of central bankers try and confuse us with, the more everyday working people can have a better comprehension of their financial standing and what they should do to be on the safest ground possible.

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

Danielle DiMartino Booth: Well, you can follow me on Twitter, which is never boring. I don’t [unintelligible [00:19:13].25] You may have inspired me. But @DiMartinoBooth is my Twitter handle, and you can go to my website, do a trial subscription of my newsletter, which is DiMartinoBooth.com. And the easiest way to access who I am, my philosophy, where my thinking is grounded, what my background is, is to grab a copy of Fed Up, the book that I wrote, that went to 22 on Amazon and continues to sell magnificently, I’m proud to say.

Joe Fairless: And number one in Economic Policy category on Amazon as well. Well, Danielle, thank you so much for being on the show and sharing your expertise. We usually have real estate investors, so this was a different angle than we’re used to, and I love it… I love hearing from you, and based on your background and talking about the – as you said – follow the flows, and be aware of macroeconomics and what’s going on, or listen to people who are aware of that, so there’s a bit of a filter, and then see how that can be applied towards what we’re doing on the ground.

I loved the class B and C model example, where they are raising —

Danielle DiMartino Booth: You are — beautiful articulation. You said it all very, very well.

Joe Fairless: Well, thank you, I’m patting myself on the back right now. Danielle, thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Danielle DiMartino Booth: Thank you, take care.

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JF1313: Making The Move From Single Family To Multifamily Investing with Anna Simpson

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As an immigrant in 2004, Anna began her real estate career. She was investing in single family, then invested passively in other peoples’ deals. Fast forward to today and she is sponsoring her own syndications in the DFW market. Anna gives very actionable tips for scaling your business and moving from smaller deals to much, much larger deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Anna Simpson Real Estate Background:

  • Multifamily Investor & Deal Sponsor
  • Started investing with rental homes, then moved to multifamily
  • Invested in 1,300 multifamily units passively/as KP, then became a deal sponsor
  • For first deal raised 1.4M via syndication
  • Came from Russia in 2004 and is a licensed realtor in DFW
  • Based in Dallas, Texas
  • Say hi to her at www.simpsonmultifamily.com
  • Best Ever Book: Rich Dad, Poor Dad

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

Anna Simpson: Hey, Joe. I’m glad to be here.

Joe Fairless: Nice to have you on the show. A little bit about Anna – she is a multifamily investor and a deal sponsor. She has passively invested in over 1,300 multifamily units, and she has also put together her own syndication. She has also been involved in a tenants in common deal, otherwise known as a TIC deal, and she’s based in Dallas, Texas. She came from Russia in 2004, and is a licensed real estate agent in Dallas-Fort Worth. For her first syndication she raised 1.4 million dollars.

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

Anna Simpson: Sure. At this point I’m a multifamily investor and a deal sponsor or syndicator, as you mentioned. I started my investing career in rental houses; I was buying homes, I was rehabbing them, renting them out… And I also worked as a realtor at Keller Williams in South Lake, Texas.

In 2015 I decided to make the move to multifamily. I first invested in 1,300 multifamily doors passively, or as a key principal. Then I switched and became a deal sponsor. As you mentioned, for my first deal I raised 1.4 million, and I had 23 equity investors for this deal. For the second deal I also had the same equity raise, 1.4 million, but this was done in a tenants in common (TIC) structure, and I only had two other people with whom I did it. In this deal I’m a TIC manager and I’m also an asset manager.

At this point I’m in acquisition mode. My focus is in DFW, because that’s one of the best markets in the country, so I’m lucky to live here.

Joe Fairless: Lots of things to talk about, let’s see… First, let’s talk about 1,300 doors passively that you did previously, and I assume you’re still involved with some of those or most of those deals as a passive investor. And you said “or as a KP.” Can you elaborate on what KP is, and also what the difference between investing passively versus being a KP is, with those 1,300 units?

Anna Simpson: Sure. When I first started, I basically just started to kind of learn about this business, so I figured the easy way would be just become an equity investor, and I did have the money, so that’s where I started. I basically learned how other deal sponsors communicate with their investors, what they do, and I figured out what are good things to do, what are bad things to do, and then I decided to take the next step, which is to become a KP. The reason for doing that – you sign on the loan; that’s the difference. If you become a key principal, you are signing on the loan, you’re becoming  a guarantor, to help someone else to secure an agency loan. This is basically good for your own resume, whenever you’re ready to start becoming a deal sponsor, because the bank is going to be looking at you as an experienced borrower… So that’s an important step.

Joe Fairless: What do you risk and what do you receive for signing on the loan?

Anna Simpson: These being non-recourse loans, you really don’t risk too much, except if your deal sponsor decides to not perform well – potentially might turn into recourse. So that’s your risk. Basically, you have to choose your deal sponsor very carefully, and what you gain is basically this little plus on your resume, so the next time when you’re ready to syndicate your own deal and you apply for agency loan, basically they’ll see that you already did it in the past, so it’s not your first deal.

Joe Fairless: And do  you get additional equity, or some sort of fee for signing on the loan?

Anna Simpson: That depends. If this really benefits you — in my case it was benefitting me, and it was not really bringing that much of a difference to the deal sponsor with whom I signed on the loan, so I did not get anything… But let’s say if I was a deal sponsor in five deals and I was bringing my experience, that would have been a different case. Right now, I potentially can do it for other people for their equity piece, because now I’m bringing not only network and liquidity, but also experience… So that would be more valuable. Back at my first time, I just brought the net worth liquidity, and that was it.

Joe Fairless: Makes sense. What type of equity ownership would someone negotiate in order to have a key principal bring their balance sheet and experience to sign on the loan?

Anna Simpson: Let’s say if the deal sponsor gets the sponsor overwrite – let’s say it is 10%, 15%, 20%, potentially the key principal might get 1% or something like this, because essentially they are not doing anything, they’re just signing on the loan… So maybe like 1% or 2% out of it they can get.

Joe Fairless: Of the general partnership.

Anna Simpson: Correct.

Joe Fairless: Got it, okay. And you mentioned as a limited partner, a passive investor, you learned some good things and the bad things of how people operated. Can you tell us about some of the good and bad things you discovered?

Anna Simpson: Just basically communication that some of the deal sponsor provides. It’s essential to communicate with your passive investors, because they want to know, once they send the money to you, what is exactly happening with the deal. They kind of want to know if you’re doing well. So it’s not just sending the reports on a monthly basis, but maybe sending pictures, maybe sending updates…

Some of these things, some investors do it very nicely. They just really update everybody, they explain what’s happening, and some people just don’t kind of do it very well… So I’ve just kind of learned about this, and of course, making meetings with your investors – that’s a good thing to do.

Joe Fairless: You said you have 23 equity investors on the deal that you’ve put together, a 1.4 million dollar raise… Did I write that down correctly?

Anna Simpson: Yes.

Joe Fairless: How did you find that deal, and what can you tell us about it?

Anna Simpson: This deal was originally off-market, so I made an offer, and they didn’t like it originally, but then they took my second offer. So I found it kind of through relationships. My lender introduced me to this broker; they knew each other, and we kept relationship… And once he got this deal listed, he kind of had me in his mind as his potential buyer. That’s kind of how I found it.

Joe Fairless: Who introduced you to the broker?

Anna Simpson: My lender.

Joe Fairless: Your lender introduced you to the owner, did I hear that correctly? Or to your broker?

Anna Simpson: To the listing broker.

Joe Fairless: To the listing broker… But I thought you said it was off-market.

Anna Simpson: Yes, even off-market deals, they’re still listed, but they may not be just kind of widely marketed… But it went on market later on, so I didn’t get it the first time, but I got it the second time.

Joe Fairless: So initially he didn’t like your offer, but then it went to the market, and you were awarded the deal through that process. How much did you offer, and were they similar terms, off-market, before they shopped it around, versus when it got shopped around and you got awarded the deal?

Anna Simpson: It wasn’t too much of a difference, but just in between these two offers the new financing came through; it was a new program that Freddie Mac had for certain submarkets… So basically, my financing became better, so I was able to get better leverage, so that way I was able to offer a little bit more. And it wasn’t much of a difference, but basically it all came to financing, really… Because once you get better financing as a buyer, of course you can offer a better price.

Joe Fairless: What specifically was better between the financing from the first go around to the second?

Anna Simpson: Basically, this was  a new program by Freddie Mac, and this was something about a certain zip code that they considered as affordable, and [unintelligible [00:10:40].08] I don’t even remember exactly. So this is not like a cheap zip code, or anything. This is in Arlington, in a very nice location, but it just fit this bracket for Freddie Mac at the time. So basically, I just got a better leverage. It was lower before, and it was better on the second time around.

Joe Fairless: Okay. The price for the first go-around versus when you actually bought it – what was the price for each of those?

Anna Simpson: Oh, it wasn’t much of a difference. They were asking 4,15 million originally, so eventually I got it for 4 million. So it’s not too much of a difference.

Joe Fairless: Okay.

Anna Simpson: And I was offering before four.

Joe Fairless: You were offering what?

Anna Simpson: Before I was offering lower than four million, and then I was able to come up and offer four million. So that’s what they ultimately wanted.

Joe Fairless: Got it, cool. And that’s in Arlington, you found it through your lender… How did you find your lender?

Anna Simpson: He is very known in the industry, and actually it would be my advice for everybody, to create good relationships. He is well-connected here, so pretty much everybody knows him.

Joe Fairless: What’s the best way to get connected to the people who are connected to everyone else?

Anna Simpson: Basically, when you start in this business it’s just very important to kind of go and find out who is who, and make it a priority to make significant relationships with the right people. When I first went into multifamily, I literally went and asked people “Who is good here?” and I started to kind of meet all the movers and shakers in my market, and I started to create kind of a team around myself… Because this is very much of a team sport, much more than single-family. So here you really have to surround yourself with the right people and create your team – a lender, a mentor, a property manager, due diligence professional, insurance… You just have to find all these people and identify who is going to be on your team. That was an important thing for me.

Joe Fairless: The TIC structure (tenants in common) – can you elaborate on what that is and then why you chose to structure it that way, versus the traditional way?

Anna Simpson: Sure. In this particular case I knew a couple of people that basically had more money than normally people willing to invest, because in a syndicated deal usually people invest 50k or 75k, 100k… These people, between just the two of them, they brought way more. One of them was a 1031 exchanger, so basically he sold his property in another state and he was ready to deploy this money here in Texas. So we knew each other and he kind of came to me and said “Look, we have this money and we would like to find something here in DFW. We know you, we trust you…” I was working on two off-market deals, so it kind of worked this way that we had enough equity to go ahead and purchase this deal.

The reason we chose the tenants in common structure for this partnership or syndication is because this person was doing a 1031 exchange, so he could not be in a partnership. This has to be a tenants in common for him to not be disqualified for his tax-deferred exchange.

Joe Fairless: Because the information from his previous property needed to be on the title for the current property, and that’s how you were able to do it, with the tenants in common.

Anna Simpson: Correct. To be able to not be disqualified, you basically cannot kill the taxpayer… So to say if your relinquished property — when you sell the property, it becomes a relinquished property; you sell it under your social security or under a certain EIN number, and you buy the next under the same EIN, or same social security number. You cannot change it, otherwise it’s not gonna be qualified for exchange. So he had to be in a tenants in common structure, because in our case, the three of us, we owned the property and we each have a deed for the property… But it’s not a single LLC, it’s three LLC’s that own this property. So that’s kind of how it works.

Joe Fairless: Let’s talk a little bit more about that four-million dollar deal. How many units is it, first off?

Anna Simpson: The second deal, the tenants in common deal is 76 units in Fort Worth.

Joe Fairless: Okay, sorry, I switched gears on you. I went back to the four-million dollar deal… Because that was four million, right? The purchase.

Anna Simpson: Yes, yes. So the first deal it was 70 units, in Arlington.

Joe Fairless: Okay, 70 units in Arlington… And then we’ll come back to the TIC, but 70 units in Arlington – what’s the business plan for that?

Anna Simpson: Basically, this deal is in a very good submarket of Arlington. It rents for very much below market for pretty much no reason, so what we’re doing right now – we’re aggressively raising rents to be at the market level, and we’re also doing certain upgrades on the exterior and on the interior. So my goal is basically just raise the rents, raise the NOI, and once I’m able to, let’s say, double the money of my investors, I will be able to sell the deal.

Joe Fairless: What type of structure do you have with your investors?

Anna Simpson: This is just a normal syndication. This is the LLC where I’m a general partner and I have 23 limited partners. I’m an asset manager over there, and I’m taking care of the day-to-day business, but we do have the third-party property management… So I’m basically managing the management company.

Joe Fairless: And with 70 units, some people might think that you need to be at 100 units in order to really have the property pay for that management team… Can you elaborate more on that thought?

Anna Simpson: I wanna say 60 units and up you can definitely use the property management company. We are still paying a very reasonable fee, so it totally makes sense. I would never want to be on the management size, like be there day to day; that’s just not what I do. I believe you have to do what you really like. I like to acquire deals, analyze the deals and meet the brokers and the equity investors… Management is not my stuff, so I’ve never even thought about this.

We have a very good management fee, and I don’t see it as a problem. You don’t have to be 100 units, or anything. 60 and up should be fine.

Joe Fairless: With the interior and exterior upgrades, anything in particular you want to mention that you’re doing that might be a little bit different, or if not different, then just very high ROI?

Anna Simpson: Whenever you’re on the buying side, you really wanna be looking for the deals that maybe have interiors that have not been upgraded, because let’s say if you put a new boiler or a new roof, that is not going to increase your rents. Basically, you need to find a deal that has good bones, so you don’t have to be putting too much of cap-ex, but maybe something that has not been upgraded inside. Because once you do this type of upgrades, you can definitely raise rents.

We are raising rents $200/unit in this particular property. That’s because the units were not really upgraded to the level that we are doing right now, so tenants are willing to pay this price for their better-looking units. And we do things like backsplash, [unintelligible [00:18:01].24] that kind of things.

Joe Fairless: And approximately how much are you spending per unit to get those $200/unit upgrades?

Anna Simpson: So let’s say if the flooring is already there, because we have some units with a very nice flooring, then it’s $3,000, maybe even $2,000. It really depends. The units are kind of 800 square foot average size.

Joe Fairless: Wow, $3,000… That’s quite a return. That’s 80% return.

Anna Simpson: Yes, we are doing well on this one, that’s for sure.

Joe Fairless: Cool. How many of the 70 have you upgraded?

Anna Simpson: At this point it was maybe around ten… We are kind of in the middle of doing three of them right now. I don’t want to upgrade too many, because once you’re ready to sell the property, you always want to have a good story for your next buyer… So the good story would be that I’m leaving some meat on the bone. You don’t want to essentially over-improve your property, because it just doesn’t make any sense.

Joe Fairless: And of those ten that have been upgraded, how many have rented for that $200 premium?

Anna Simpson: All of them.

Joe Fairless: Outstanding.

Anna Simpson: It’s Arlington, we have no problem with that.

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

Anna Simpson: I want to kind of say that multifamily real estate is a very competitive industry, so it’s very essential to position yourself correctly. Single-family – there are a lot of houses that you can find pretty much anywhere; multifamily assets – they are mostly controlled by brokers. Even if they’re off-market, they still kind of come from the brokers, most of the time. So it’s important to position yourself in the market and keep a very good reputation among listing brokers and among owners’ communities.

So kind of three things that I thought I would give away as advice. Those three things really helped me to succeed. The first one, as I mentioned, is relationships. You really have to leverage good relationships in this business to be successful. For me, early on I made it a priority to build very good relationships with the right people. When you start, I recommend that you concentrate on that… Because as a multifamily buyer, you’re basically doing two things – you find deals, and you find money; to be able to find deals, you have to have relationships with brokers. And to find money, you have to have relationships with the equity investors. So that’s basically one thing.

The second one, for me it was very important to create the momentum. Basically, what it means is once you’re in the game, it’s important to keep it active. What I mean by that is you always want to be staying on top of the mind of the brokers. You always have to call them, remind about yourself, so once they have a deal, whether it’s off-market or on-market, they think about you as a potential buyer.

And the same goes for equity investors – you don’t want to disappear on them; even if let’s say if you don’t have a deal right now to offer to them, you always want to keep the connection with them, so they know that you are actively involved in the business. So that’s another thing.

And the third one – it’s important to treat multifamily investing as a business, not as a hobby. I see a lot of people that come here and they think it’s easy, and they’re kind of like dabblers. It’s important to just really keep on track, set your goals and have a plan how to reach these goals, and follow through. And once you reach the goal, basically set a bigger goal, and go for the bigger goal. Push your limits; always, always push your limits.

It’s important to be very intentional. Say if you have a goal – say you wanna buy your first apartment complex… So just kind of assess the actions as you take actions. Figure out, whatever you’re doing, is it taking you closer to your goal, or is it taking you further away from the goal? I’m kind of identifying the priority of what I have to be doing, and kind of acting on that.

Joe Fairless: A couple follow-up questions… Let’s talk about relationships. You are from Russia and you came to Dallas in 2004 – is that correct?

Anna Simpson: I first came to Plano, I was there for like a year and a half, and then I’m based in [unintelligible [00:22:24].29]

Joe Fairless: Got it, alright. DFW. But you came from Russia in 2004, yes?

Anna Simpson: Correct.

Joe Fairless: Alright. How many people did you know when you came to Dallas-Fort Worth?

Anna Simpson: Not so many.

Joe Fairless: Okay, that’s the root of why I’m asking this. So you came in 2004, didn’t know very many people, from a different country… For someone who is in a situation similar to yours and they’re listening to this show, how do they build the right relationships? Tactically, how do they do that?

Anna Simpson: Okay, so basically I usually say “Fish in a pond where there’s fish.” Essentially, if you know that you want to be successful in a certain industry – let’s make it multifamily – figure out if you have any multifamily groups in your market, and go join them. Because there will be some groups; unless you’re in some kind of rural setting, it’s gonna be something. In DFW we have a lot of real estate-related groups, multifamily-related… Basically, you go there and you start meeting the right people, and you start building your relationships.

You don’t want to go on the street and start teaching this business to people who don’t know anything about it. Same goes for equity investors. It’s easier to find equity investors in real estate groups, because they’re already kind of sold on real estate investing; you don’t have to explain why. So what I did, I basically started joining these groups. That’s how I started.

Joe Fairless: Okay. As far as number two, you said momentum, and really staying top of mind with brokers and equity investors… How do you stay top of mind with brokers and equity investors?

Anna Simpson: Sure. So as far as brokers go, I have a list of let’s say ten brokers that I would really like to keep on top of them all the time, because they have deals [unintelligible [00:24:21].16], sometimes they have off-market deals… So what I personally do, I either e-mail them or call them pretty much every week.

It’s kind of like when I started first buying houses, my agent told me “Be [unintelligible [00:24:36].19] So basically, you just always kind of remind about yourself, to the point that they just wanna give you something… Just “Okay, let’s give her a deal, so she gets busy with it.” So yes, every week, I have a list of brokers that I contact, and basically I ask “Do you have something? You know what I want”, and very often, especially now that I have a couple of deals under my belt, they just call me themselves and say “Look, I have a deal. I think this is what you want.”

Joe Fairless: Let’s say you have now e-mailed this broker for four weeks straight… What does the fourth week e-mail — what is in that e-mail?

Anna Simpson: Basically, I try to have a very personal relationship with all of them, with the brokers that I personally know. So this is not just kind of like go on DotLoop, find ten names and start e-mailing them. No, you have to really know them. I know them personally, I know their family, I know what they do, I meet them at different events… So all of these guys I have a very good chance to have something from them. This is not a cold call, essentially; this is a very warm call. All of these people I already created relationships.

The fourth e-mail, or tenth e-mail, that basically can be different, like “How are you doing? How was your Christmas? How was your multifamily conference? And by the way, do you have something for me?” That’s kind of how it is.

Joe Fairless: Got it. So it’s getting to know them personally, and also knowing what else they’re working on or experiencing, or maybe it’s just seasonal, based on if there’s a holiday or something, talking to them about that, genuinely caring about the answer, and then also reminding them about what you’re looking for.

Anna Simpson: Absolutely, so you don’t sound like a machine, like every week it’s the same “Hey, how are you? Do you have something?” It’s really very personal, because I genuinely care about what they have to say about this conference that they’ve just had in January. I care about what their experience was, what did they come there from…? I care, and it’s interesting for me to hear this, so we have a relationship. That’s kind of how it goes.

Joe Fairless: If you were investing in Chicago – since you don’t live in Chicago, what would your approach be for following up with them and getting to know brokers, since you’re not in the market?

Anna Simpson: I’d say I would travel there first, and personally meet them. Because nothing can beat the personal relationships. When I first started, as far as meeting the brokers, I actually went and scheduled meetings for them. Several brokers, literally – I went to their offices, or maybe took them out for coffee or something like this, because you’ve gotta do it. Until they meet you and look you in the eye, just really understand that you are a real person… And also very important to show them that you actually already invested in multifamily, so you’re not a single-family guy with a couple of houses and now you want to try multifamily.

So it was important for me that I was already invested in 1,300 doors, and they knew the sponsors with whom I invested, so that was a big deal.

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

Anna Simpson: Absolutely.

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

Break: [00:27:51].15] to [00:28:24].29]

Joe Fairless: Best ever book you’ve read?

Anna Simpson: Rich Dad, Poor Dad. Hands down.

Joe Fairless: Best ever deal you’ve done that’s not the first one and not the last one?

Anna Simpson: I was gonna say my first one… Well, I think that it’s so difficult to go from zero to one, so my first deal was really my best one, really. The reason is this is how you get in the game, and once you get in the game, this is like a new life start… So I should say my first one, sorry.

Joe Fairless: What’s your second best-ever deal?

Anna Simpson: Maybe one of my houses… I put $15,000 in it, and I pulled out like 70k, and I was cash-flowing during three years. That just was one of the best ones also.

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

Anna Simpson: My biggest mistake was when I was still doing the rental houses. For one of these houses I paid more than I should have, and I basically ended up doing a lot of projects myself, literally. I hated it, and I vowed to myself to never do it again, and never work IN my business, but actually work ON my business. It’s kind of important to remember, when you buy something, you make money on the purchase. If you overpay, it’s gonna take you a long time to recover, and probably you’re not gonna make as much money as you wanted to make… That was in my case.

I didn’t lose money, because it was several years ago and as you know, the market is very good… So the market was very forgiving and I didn’t lose any; actually, I made money, but I didn’t make as much as I could. So do not overpay, for sure.

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

Anna Simpson: I like to volunteer at real estate events, and specifically with the people originally helped me succeed in this business. I always volunteer my time, to just go there and do whatever they want me to do. Just volunteering.

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

Anna Simpson: The best way would be to go to my website, SimpsonMultifamily.co.

Joe Fairless: However did you come up with that name?

Anna Simpson: Hey, that was easy… [laughter] My last name and “multifamily.”

Joe Fairless: Well, Anna, thank you so much for being on the show. I love the lessons learned – very helpful for everyone, not only people putting the deals together, not only people passively investing in deals, to get a glimpse of the evolution of things, but also just real estate investors in general, because there are some tried and true principles that you discussed. One is for how to position yourself in a market, especially with multifamily, but really anything… One, focus on relationships; focus on relationships with the right people, and as you say, fish in the pond where there are fish – very simple, and it really helps us hone in on where should we focus our efforts, at least initially.

You came from a different country about ten or so years ago, and you’ve built this up, and it’s interesting to hear how you approach it, because anyone starting out certainly can approach it a similar way and have some success.

Two is maintain momentum with your brokers, as well as equity investors. Actually, I meant to ask this question, so I wanna ask it… I asked you about how you stay top of mind with the brokers; how do you stay top of mind with your equity investors?

Anna Simpson: I have a meetup that I have, and I also go to other people’s meetups. We have like maybe 50 people always coming, so you constantly network with these people… And just go to all the other local REIA, just basically meet all these people over and over again, so they know where you are and what you’re doing.

Joe Fairless: And then the third thing is treat the business as a business, not as a hobby, and assess results as you continue to go. So 1) focus on relationships and build the relationships with the right people, 2) stay top of mind with brokers and equity investors, and 3) treat it as a business, not as a hobby.

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

Anna Simpson: Thank you, Joe. I appreciate it.

Lance Wakefield and Joe Fairless

JF1290: Closing 30+ Deals Per Month After Being In Business For Only 2 Years! With Lance Wakefield

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Lance started wholesaling in March of 2016. Fast forward to March 2018 and his team and himself are closing 30+ deals per month! Lance shares his best tips for how he has been able to scale so quickly. From setting up partnerships, learning from others, and investing in yourself, these are just some of the tips we hear from Lance today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Lance Wakefield Real Estate Background:

  • Started wholesaling in March 2016 and now his team does about 30+ deals a month.
  • Have about 30 people on our team, in both Houston and Dallas
  • Focus is wholesaling but also do flips and have experience in buy and hold investing and new construction
  • Based in Dallas, Texas
  • Say hi to him at lance@winwinmethod.com OR http://winwinmethod.com
  • Best Ever Book: Never Split the Difference by Chris Voss


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business partnership advice

JF1257: How To Approach Partnerships & What To Look For #SituationSaturday with Mark Kenney

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Mark started investing in real estate at the age of 22. Now with over 2300 units and plenty of partnerships had, he can tell us a thing or two about good and bad partnerships. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Mark Kenney Real Estate Background:

Seasoned real estate investor, published author and founder of Think Multifamily

-Over 20 years experience and has extensive experience in property valuation, acquisition, and operations

-Has a passion to help others succeed in the multifamily arena and is invested in 2100 units

-Mark also is a CPA

-Say hi to him at http://thinkmultifamily.com/

-Based in Dallas, Texas


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. First off, I hope you’re having a best ever weekend. Because today is Saturday we’ve got a special segment for you called Situation Saturday, where we’re gonna talk about a tough situation and how the Best Ever guest overcame it; that way, if you come across a similar situation, you have a playbook and you know exactly how to overcome it, or you have some tools and techniques for what’s worked with previous people in that situation.

With us today to walk us through how to approach partnerships, what to look for and some hard lessons learned along the way, Mark Kenney. How are  you doing, Mark?

Mark Kenney: I’m good, Joe. How are you doing?

Joe Fairless: I am doing really well, and thanks for being on the show again, Mark. Best Ever listeners, you might recognize Mark’s name, and that’s because he was a guest on episode 975. It’s titled Hotels And Multifamily Investing On a Passive Level, and you can hear his best ever advice… He has money in over 1,000 units as of that time… And you began when you were 22 years old, did I get that right?

Mark Kenney: Yeah, I started when I was 22; I guess 21 probably really, and now we’re at about over 2,300 units.

Joe Fairless: There you go, wow. And you’re also a CPA based in Dallas, Texas. The company is Think Multifamily, and you can just go to ThinkMultifamily.com, that will be in the shownotes link. Mark, let’s start out with partnerships, obviously, and maybe a story about a partnership that didn’t go the way you wanted it to go, and then we’ll kind of extract the lessons learned from that.

Mark Kenney: Sure. So I’ll give you an example of a very recent tough lesson learned as we had a partner in a deal. It’s a little confusing, because he actually was already in another deal with another partner, and we bought his partner out. So we came in, bought his other partner out, assumed everything – same company, same LLC, same loan, everything. And when we did that, we found out fairly quickly that he was doing something he shouldn’t be doing, so within two months we kind of discovered some things…

Joe Fairless: Like what?

Mark Kenney: Not recording any payables, and not like 10k-20k, but like $300,000 from 12 months old…

Joe Fairless: Well, 10k-20k is a big deal, too… [laughs]

Mark Kenney: Yeah… Well, try 300k. And frankly, a lot of it is bogus, scam between him and a vendor…

Joe Fairless: And we’re talking a multifamily property, right?

Mark Kenney: Right.

Joe Fairless: Okay. Was is self-managed? Is that why he was able to do that, or…?

Mark Kenney: Yeah, self-managed. He had a partner in the deal, a general partner as well… And since we took over, we inherited all those sins, if you wanna say… We did a lot of due diligence ahead of time, but at the end of the day if someone wants to be deceitful, they’re gonna get away with it. We called him quickly, took legal action…

Joe Fairless: How did you catch him?

Mark Kenney: Well, first I went down there, surprise visit… That’s one key thing I think if you have properties. Even if your partner is running the deal, do a surprise visit. They’ll always be like, “Why didn’t you tell me you were coming?”, I’m like “Because I don’t want you to know I’m coming.” Things kind of looked a little bit — not super bad, but kind of like not quite as good as they should be… And it had only been two months.

Then we actually had a board set up over that property; I won’t go into all the details on that, but we had an SEC attorney from Harvard and some pretty high caliber people… But essentially, I was requesting information on the rehab – it was a very large rehab project – and I wasn’t getting the answers. It was more like, “How much is this stuff gonna cost?” “Well, probably more than we thought?” “Well, how much?” “Well, you know…” – kind of those answers.

So we had a formal board meeting, we requested information formally through the board, five members total including himself, and gave him a deadline, he didn’t produce the information. We didn’t even know what he spent on rehab and things like that, and what still needs to be done and all those basic questions that he should get. That’s where it started. And then when we kind of uncovered more and more… We didn’t find out until after we removed him – it took us almost two months to get him out, somewhere around there, after we requested information and then we had the attorneys involved and everything like that… Then invoices showed up – two weeks after we booted him out invoices showed up from one vendor for $160,000; that went back from December 2016, so at that time nine months old…

So if your gut is kind of telling you something just doesn’t seem quite right, and fortunately for this, we took action quickly… Our basis is low on the property, but nobody wants to go through that; we lost essentially about five months of our business model right off the bat…

Joe Fairless: When you went to the site visit you said things didn’t look exactly how they were supposed to; it was a surprise visit… What specifically did you see that was a little off?

Mark Kenney: Vandalism, which isn’t uncommon with a class C property, but broken windows and doors that were sliding doors that were broken… It’s a huge rehab project and there were a total of three guys that were working. I was like “This doesn’t seem quite right.” And there was always an excuse given. They are tough, but the city is giving them problems, which they weren’t; the lender is not giving him money from the reserves, and things like that… But we met with the lender directly ourselves and kind of got the story on that, and it was like “Well, we don’t believe everything is being done the way it should be done…” But for that big of a project, and have three guys working there, and then before that requesting information like “What percent are we complete?” and “How much did we spend versus how much we have?” – the typical information wasn’t provided, and it still has not been provided to this day.

Joe Fairless: It was really quick that you were able to identify that… Would you say that ties into your CPA background?

Mark Kenney: No, not in this case, really. I think it was somewhat probably timing; I just happened to go there at the right time when things kind of looked a little suspicious. It is very quick; you can argue “Well hey, you wish you would have called him day one”, but at the end of the day it’s the guy I’m gonna partner on another deal with… I think at that time I trusted him. But you know, it really wasn’t — I have something to compare it against. I have a lot of other properties with other management companies, and I can be like “Well, I get this information from them, why am I not getting this from you?” We had some luck, and then it was taking action immediately. We didn’t give him any wiggle room.

Joe Fairless: You said it took almost two months to get him out – that seems lightning fast, to get someone out of a — did you kick him out of the general partnership?

Mark Kenney: Yeah, we have an overall company with five members in it that kind of oversaw this property, and thankfully we have attorneys that were involved, and one is on the board, an SEC attorney, Harvard graduate, and things like that… So we were able to finagle things. If it had been left up to me, he’d still be there, but we engaged the appropriate legal people immediately, and that helped. Without them, frankly, probably all our money would be gone.

Joe Fairless: Yeah, yeah. And you said that you bought his partner out, and you assumed the previous partner’s position, and congratulations, you’re now partner with what turns out to be a crook… [laughter] So did the person that sold you their ownership interest know what was going on?

Mark Kenney: No, not that we were aware of.

Joe Fairless: Why did they sell? What was the reason they sold?

Mark Kenney: The story was that he was a New York guy, had properties up there, and I think with he was frustrated with the lack of communication, but to my knowledge had no indication whatsoever was going on, because a lot of things didn’t really come to fruition until after we removed him. All these invoices showed up, and liens on the property… It was bizarre, and kind of a little bit fascinating, as I would never go in that situation again buying out a partner, because you inherit everything from before.

There were some advantages to doing it; we got to keep the same loan, we didn’t have to  pay additional fees and things like that, but personally, from my own perspective, I would never do that again.

Joe Fairless: Okay. So now that you know what you know, what would you say about — if you were presented a similar opportunity, how would you qualify that partner?

Mark Kenney: One thing you could do is just background checks, which lots of times you’re not gonna find some of these things like this anyways. I would talk to their old partners, which at this time I had already partnered with this guy and he gave me his story, so I’m kind of like “Okay, well I don’t need to go check with his partner”, but I would say “Can I talk to your other partner? What would your partner say if I talked to him? What would he say?”, kind of go from there.

Then the other piece is regardless of what’s said, is everything in writing. In this case, there were some existing agreements that we were never even provided, that made it more difficult to get him out. It’s almost like you have to do a do-over. If I come in and buy a partner out, we need to restructure everything, all the agreements that were done between the construction companies and the existing company – they all need to be redone. If you don’t do that, there could be things in there that makes you liable for things you never even dreamed of.

Joe Fairless: So you do background checks, talking to old partners, asking them “What would your partner say about you if I talked to him/her?” and then gathering all of the paperwork that is in place, even though they might not share everything with you, but at least you can ask for it, right?

Mark Kenney: That’s right, you ask for it.

Joe Fairless: You ask for it in writing, probably.

Mark Kenney: In writing. In some cases — like, he had a construction company that was doing work there too, I would have asked to redo those agreements that we were never even provided… They still haven’t been provided. So that’s the thing – you don’t know what’s out there, unfortunately, in a situation like this.

Joe Fairless: Okay, so those are the three… Have you done a background check? I’ve had people do background checks on me and I have to give them my social, and my name and stuff. Have you asked that of a partner before?

Mark Kenney: Yes. I did not with him, because he was a prior partner, but I have… And if the partner has an issue with you running it, then I would just say don’t do business with them. And I mean, it’s like, “Really…?”

I think there are a lot of things when you enter into a partnership, and this is not an exaggeration – I just had dinner last night with two of my best friends; one is an attorney and the other one is a financial guy at a large organization, and he had some rental properties as well. He had mentioned he’s been trying to sell his rental properties for the last 18 months and his partner doesn’t want to… So lesson learned, guys, if you’re gonna have a partnership, you need to have tag along clauses and things like that [unintelligible [00:13:21].23] legally you can force your partner to sell, and they can force you to sell, provided some sort of stipulations are met.

So he’s stuck there not being able to sell his properties for 18 months because the partner doesn’t wanna sell them. The other partner – he’s known the guy for 23 years, went to law school with him, had been in partnership with him for 9 years, and his partner came in Wednesday before Thanksgiving, came in and said “I’m done. I don’t wanna partner with you anymore.”

So if you’ve been partners long enough, with enough people, I can guarantee one of them will not go as planned, and you had better make sure you have things in writing, even simple things like “What do you do in a tie-breaker? If you’re in a 50/50 ownership in one of these partnerships, how do you break ties? (legally break them) How do you resign if you wanna get out?” There’s a whole slew of things…

I don’t know what you do, Joe, but the partners — I know a lot of banks don’t support dual verification; your partner could go and withdraw $100,000 and say “Thank you very much”, and you could after the fact address it, but you can’t address it typically before it happens.

I think partnerships are great, I really do. I think you look for people that have some sort of skillset that you don’t have, you plan for the worst-case-scenario in writing, because eventually something will probably happen – hopefully, it doesn’t – and have it in writing that way… But yeah, at the end of the day your reputation can be tarnished. Think of all the people that you don’t think of as individuals, and their names are presented together… If your partner is doing something that they shouldn’t be doing, there’s a good chance — and it’s not even doing something; I mean, that’s the extreme example. But if they treat people differently than the way you want people to be treated, because fundamentally they don’t have the same — the way they interact with people, maybe they’re very harsh or brash and you’re not like that, you can sometimes inherit their reputation, unfortunately.

Joe Fairless: Going back to the story you were talking about, if you had asked for a background check, if you had talked to his old partner – which you talked to the old partner, but you didn’t do a background check – and if you had asked for everything in writing prior to going into the partnership, then you likely wouldn’t have gotten everything in writing, so then the question becomes would you have known that you weren’t getting everything in writing, so here’s a hypothetical question to you – if you would have asked and had everything in writing, do you think he would have shared with you enough stuff to lead you to believe that you had everything, or would he not have shared with you enough where you’re like “Wait a second, something’s off…”

Mark Kenney: He would share enough, without a doubt. He is an extremely intelligent, crafty individual; I’m kind of back to where I would personally never buy into another partnership like that, where I’m inheriting potential liabilities and risks that happened before I was even involved. And he washed his hands, he’s gone now, and “Thank you very much, Mark! You can take all of this stuff, and look at these vendors and old invoices from nine months ago that were never paid, and didn’t pay sanitary for 12 months… I recorded it all in the books, though; they’re all in the P&L.” [laughs]

Joe Fairless: Sanitary is a pretty important service.

Mark Kenney: Bizarre to me how you can get away with that.

Joe Fairless: Yeah. So let’s talk about never buying into another partnership like that, because there are opportunities for you – or as an investor for us – to buy an LLC from the seller, and then… Is that what you’re referring to?

Mark Kenney: No, not so much. If you do that, I think you can put language in there where anything prior to that you’re not liable for, and things like that. This was literally just buy a partner out of existing everything. My partner still stayed in, so it was kind of a different structure. The loan stayed the same, everything was the same.

The example where we buy an LLC out I think is different. One reason you might do that is for your tax basis. People kind of do it that way. But I think if you ever consider doing that, you need to put in verbiage about anything prior to the day you took over, you’re not liable for.

Joe Fairless: With the approach that you took with this gentleman in the partnership, anything that if you had to do it over again… Obviously, there are some things that you’d do and we’ve talked about that, but if you did those things – the background check, talked to the old partner and looked at everything in writing – you still wouldn’t enter into another partnership like this?

Mark Kenney: I would not.

Joe Fairless: Burn the bridge, baby.

Mark Kenney: Burn the bridge; there’s other deals I can do that are a little less risky, I guess.

Joe Fairless: Yeah, fair enough.

Mark Kenney: It could work out, right? You could do 100 deals and 99 of them work out perfectly, and it’s just that one that taints you.

Joe Fairless: Well, this is good information. If we’re presented a situation like this, we will all reference this episode and have a cautionary tale for what to look out for and proceed with caution if we do proceed. Anything else as it relates to partnerships that you wanna mention?

Mark Kenney: No, just back to having everything in writing. I see people that have these loose agreements that exist; you need to contemplate everything going South and how you account for it. Always having someone that can break the tie, because you’re gonna have disagreements. I think having really just the core fundamental beliefs that are the same, let alone the skillset for your to help each other, but having the same way you treat people is critical.

Everything in writing. If your partner doesn’t wanna put things in writing, then there’s an issue. I just wouldn’t do business with them. You need the ability to maybe also — people have a different perspective, but if you’re in a partnership, more than likely one partner thinks either what they do is more important than the other one… “Hey, I find deals.” “Well, I raise money so you can get deals” or “I raise money”, “You can’t do that without deals.” It’s like, “Hey, don’t do that.” But inevitably, someone’s gonna think that what they do is more important.

I recommend maybe doing things deal by deal, because life events happen, and yes, you wanna help each other, but if you’re doing 90% of the work on three deals and I’m doing 10% on three deals, then I think you should be compensated deal by deal, splitting up by category – who found the deal, who raised the money, whose earnest money is in there, whose balance sheet is being used… And do it deal by deal. That’s what I would suggest doing it. That way there aren’t those hard feelings potentially where you get two years into the partnership and one person thinks they’re doing a lot more because the other one’s wife is sick… You know what I mean? Something like that.

Joe Fairless: Sure. Great stuff, and this has been helpful from a very practical standpoint when we go through the scenario, and also just from a — it was kind of entertaining, too… Sorry to tell you that. [laughter]

Mark Kenney: Thanks, Joe… Thank you! [laughs]

Joe Fairless: I was actually entertained by your story.

Mark Kenney: Yeah, it’s bizarre — I mean, I never would have dreamed (literally) anything like this would happen. It’s almost like a story you have on TV, it really is… But I’ll share anything with anybody, because at the end of the day I do not want anyone else to go through some of the lessons we’ve learned over the years.

Joe Fairless: Why did you have a board? That’s not typical.

Mark Kenney: It’s not typical at all. So we had a larger organization with these grand plans which included this other individual, and as a result of that we had a board structure. We had a CFO from a publicly-traded company, the SEC attorney, a large broker guy involved… It was really more to make sure everything’s structured upfront, legally, and how we potentially — my other partner’s plan was “Let’s bring this together and eventually create a REIT.”

Joe Fairless: That’s not gonna happen with him, is it?

Mark Kenney: Oh, hopefully he ends up in jail; I hope he ends up there, I truly do, because he needs to stop doing this. And it goes back to the reputation; my reputation gets hurt because of what he did. But I think if you can be very open with investors – and that’s the key, to be very open with them and share everything you can… Of course, things don’t always go as fast as everyone wants, but if you have an open communication with them, most investors – not all, but most – will be okay and supportive. It’s that one or two that it doesn’t matter what you do, they might not be quite supportive like they should (nothing’s ever good enough), but communicating out is key.

Joe Fairless: How much are board members in a scenario like that – if you can’t say exactly how much they’re compensated, but in a scenario like that, how much are they compensated?

Mark Kenney: The board members – because I was in the board, and then this other individual was in the board… We had 50% total between the two of us, and then the other board members – that’s somewhat getting diluted down, but that’s very high… I never like that structure; it was actually set up before I got involved with him. But this goes back to the compensation piece again, who’s doing the work.

One individual has done virtually nothing, because his time hasn’t come yet. He’s the CFO, and we’re not at that point where we need him, so why give away some sort of percentage upfront that might never happen? it doesn’t make sense to me. I think it should be reevaluated deal by deal.

Joe Fairless: I’m a little confused… You said 50%, so you had 50% and the board had 50%?

Mark Kenney: He and I can get around 50%. We were on the board, though; he and I were both on the board.

Joe Fairless: But you said there were many board members.

Mark Kenney: Five.

Joe Fairless: There are five. So five board members, each of them roughly had what percentage?

Mark Kenney: 75%, the four board members. That’s how we had the right to rule them out.

Joe Fairless: So everyone had about 18%?

Mark Kenney: Yeah. It varied, depending on the role.

Joe Fairless: Okay, cool. That’s a ginormous amount.

Mark Kenney: It’s insane, and it shouldn’t be, and it’s actually not gonna be, frankly… It’s getting adjusted. I got into that with him and he had some grand scheme plans and things like that, but yeah, there’s actually not reason to be giving that type of percentage away. it makes no sense.

Joe Fairless: Cool. Well, Mark, thank you for being on the show again. How can the Best Ever listeners get in touch with you?

Mark Kenney: Our website, ThinkMultifamily.com, and the e-mail is mark@thinkmultifamily.com.

Joe Fairless: When we look at partnerships, we’ve gotta obtain background checks or run background checks, we need to obtain everything in writing, and ask for everything in writing… Because we might not get everything in writing that has been memorialized, but if we ask for it, at least there’s a paper trail of us asking for everything in writing. And then talk to other people who have partnered with the person we’re planning on partnering with, and ask the potential partner “What would your partner say if I talked to him/her? What would your old partner say if I talked to him/her?” Those are three ways that we can attempt to mitigate the risk…

But ultimately, as you said, Mark, if they’re trying to pull a fast one, they’re probably gonna pull a fast one, and it’s just a matter of having a plan in place for if a fast one gets pulled, then what are the steps that we need to take in order to get that individual out of here.

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

Mark Kenney: Thanks, Joe. Take care.

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JF1250: Do You Have Proper Insurance? With Beth Boisseau-Coots

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Beth has an incredible amount of knowledge in insurance and specifically insurance for real estate investors. As the Vice President of Sales at a full service insurance agency, knowing specialty insurance programs for real estate investors is part of her job. This episode will help you understand your insurance needs. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Beth Boisseau-Coots Background:

-Vice President of Sales for J.B. Lloyd & Associates, a full service insurance agency

-Specializes in specialty insurance programs for real estate investors, lenders, mortgage servicers, community banks

-Endorsed by Texas & Western Independent Bankers for Forced Place, Foreclosed Property Liability, Mortgage Impairment, and Outsourced Insurance Tracking.

-Say hi to her at http://www.lloyd-ins.com/ – beth.cootsATusrisk.com

-Based in Dallas, Texas

-Best Ever Book: Think and Grow Rich


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

With us today, Beth Boisseau Coots. How are you doing, Beth?

Beth Boisseau Coots: I’m great, how are you doing?

Joe Fairless: I am great as well, and nice to have you on the show. Beth is the vice-president of sales for JB Lloyd & Associates, which is a full-service insurance agency. She specializes in specialty insurance programs for real estate investors and banks, lenders, mortgage servicers etc. Today we’re gonna be talking about insurance. She’s based in Dallas, Texas. With that being said, Beth, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Beth Boisseau Coots: Sure, and thank you for having me today, I really appreciate it. My background is really just insurance. I started in sales, in another space, but my father started this business back in 1988, so I was sort of raised into it, and when he saw that I have some ability in the sales area, he said “Okay, well come on, you need to be part of the family business.”

So I’ve been doing this for 12 years and have loved every minute of it, believe it or not. I know people are like “Insurance… It doesn’t sound so exciting”, but this has been a lot of fun.

Joe Fairless: And what about it do you love, real quick? Just curious.

Beth Boisseau Coots: You know, one thing I just absolutely love is the fact that it’s never boring, and there’s always something to learn. My area, my specialty in insurance is always changing; we always have regulations that are always being updated and changed and tweaked by the government that we have to stay on top of… So it’s never boring, there’s always something to learn, something to conquer, and you could spend your whole life doing this and never know it all. That’s the main thing.

Joe Fairless: And then on that note, with your focus – you’re focused on real estate investor policies and working with banks… Is that right?

Beth Boisseau Coots: Yes, that is correct. We started in the banks space, we’ve specialized in community banks since we started in 1988, and then during the financial crisis we started getting more calls from people who were purchasing large pools of distressed assets from lenders, and our [unintelligible [00:04:21].13] that we were working with the banks on was a very good set for these investors as well. So that’s kind of how we stepped into the real estate investor space.

Then as time went on, we’ve adapted our program and our product, we added more carriers, we refined the system on that side of the house to really reflect the needs of the real estate investor… Because they don’t always need all the bells and whistles that the force-placed program offers to the banks. At the same time, there are things they need that the banks don’t need, so we were able to really create a niche for investors.

Joe Fairless: I love that you’re talking about force-placed insurance, because I literally just found out about this term and this policy on the last interview I did, about ten minutes ago, after — I don’t know how many interviews I’ve done; over a thousand, obviously… And the woman on the show talked about force-placed, because she buys distressed notes, so she does that. Now, real quick, what’s a refresher on force-placed? And then let’s talk about some other aspects of insurance.

Beth Boisseau Coots: Okay. So force-placed insurance is an insurance policy that allows a bank, a lender, a mortgage servicer to force coverage on any properties they have in their loan portfolio where the borrower is not compliant with the insurance requirements that are outlined in that mortgage or in the loan.

For example, if you have someone who’s bought a house and they own maybe $100,000 on it, and they’re not keeping up with their insurance, the bank can add insurance to it for what the borrower owes, and have their interest in that property covered.

So the banks need the ability to add properties as necessary, but they also need the ability to delete the properties as necessary. So they don’t want to have an annual term; they may have a property that’s only covered for two weeks, they may have one that’s covered for a year. They need that flexibility, and to accommodate this, we have an online system where they can manage the insurance on the loan portfolio. There’s no more underwriting after the policy is bound, because it’s an after-policy, so they just go online, add properties as necessary, take properties off as necessary, and then they’re billed monthly.

At the same time, if they have a property that they have to foreclose on, then they could go on that online system and just change the status of the property from a force-placed to a foreclosed, and then liability is added. So it’s a convenient way to manage the insurance, all in one place, as needed, with no underwriting delays, no more applications, and then pay as you go… Where the real estate investor’s policy is very similar – it’s the same online reporting, except liability is added (unless we’re told not to) on all properties, because what we find is that the real estate investors usually have a mixed bag, but in almost every case they need the liability, because they have that exposure. So that’s really the key difference between the two.

Joe Fairless: Got it. And certainly for the first example it’s someone who has a high transaction volume, I imagine, whenever they’re trying to oversee their portfolio and things are going in different stages in the process.

Beth Boisseau Coots: Yes. Again, the two policies are very similar, but there are some key differences, one being the liability needs, and another one being the fact that a real estate investor, while they can cover a property or the amount that is owed, and that might be necessary if they are doing an owner-finance situation… A lot of times they’re doing contracts for deeds, or buy and holds, or fix and flips, so a lot of times they’re going to want replacement cost, rather than just to cover what their interest is in the property. So they have that ability – they can do up to replacement cost, or they can just cover it for their interest in the property that they paid for, or what their borrower owes on it.

Joe Fairless: Let’s talk about terms that we should be aware of whenever we’re shopping insurance carriers and we’re evaluating different policy options. Can you educate us on that?

Beth Boisseau Coots: Absolutely, and I’m a big believer that this is something that all insured should know. The first one, that I think is probably the most important one, is know whether your policy is an actual cash value policy or a special policy. Another name for actual cash value policy would be basic, and another name for special would be all risk.

There’s some very important differences between these two types of policies. A basic or actual cash value policy is going to only cover a list of things. It’s only gonna cover what’s listed in the policy. Usually, there are five basic perils, like smoke and explosion, things of that nature, and sometimes they’re endorsed to add a few more, like theft, vandalism, malicious mischief… But you can see that if the only things that are covered are listed on a policy, there’s going to be a lot that’s not covered, and that’s really important to know… Versus a special policy – everything is covered, unless it’s specifically excluded. So you can see that you’re going to have a much, much better coverage with a special form of policy than you would with the actual cash value, and that of course is going to be reflected in the rate. But you need to know it going into the contract and signing the contract, because I hear every day “Oh my gosh, I had no idea that my form of policy was an ACV policy until I had a claim.” So that’s really important.

The second thing is co-insurance – what is co-insurance? Well, co-insurance is the insured paying a portion of a claim; usually it’s an 80/20 split. So if it were an 80/20 split, that means after the deductible, the insured would pay 20% of the claim. So it’s important to know if you have a co-insurance clause in your insurance contract, because obviously that could be a big surprise if you have a claim for a roof, and it’s $20,000 to replace or repair the roof, and you think “Oh, well I just have to pay my $1,000 deductible and I get my roof; then it’s gonna cost me $19,000.” Well, if you have a co-insurance clause, that could really change things in terms of your claim payment.

Joe Fairless: And the comparison between the cash value versus the special policy – on average, how much more percentage-wise is the special policy?

Beth Boisseau Coots: It depends on underwritings. It can be significant, and then there are times when it’s not as significant, just depending on the risks involved. But yes, it is definitely going to be more expensive to get a special policy.

And back to ACV, one thing I needed to mention and I didn’t is that that stands for actual cash value. Basic and actual cash value usually go together. And actual cash value means that when you get your payout, they take the replacement cost, they deduct depreciation and that is your claim. So that’s another very important term to know, is what does that mean, versus replacement cost. You definitely want to know that… If you have that same roof claim and the replacement cost is 20k, but it’s a 30-year-old roof, so they’re gonna take off 30 years of depreciation and you might get a $3,000 plain check. So those are very important terms, the actual cash value, replacement costs, co-insurance.

Joe Fairless: Yeah, it is. Is that the depreciation that you had on your taxes, or depreciation that the insurance company writes up?

Beth Boisseau Coots: They have a formula for depreciation, so it is an insurance company formula that they have. It’s not the taxes. And it’s based on age and quality.

Joe Fairless: What’s another term or something we should pay attention to when we’re evaluating?

Beth Boisseau Coots: Well, obviously deductibles, and homeowner’s insurance – you probably noticed you have a percentage of the value of the house, the value to replace the house, which a deductible is. In my world, a deductible is more like car insurance. My investors get to pick anywhere from $1,000 to $10,000 for their deductible, and that is the amount that you pay when there’s a claim.

If you have a $2,500 deductible, that first $2,500 you pay, and then everything after that is your claim if you don’t have a co-insurance clause. If you have that, then you pay another 20%, or 10%, depending on what your insurance clause is. So the deductible is also very important, and it’s about knowing how much risk that you have the ability or the desire to assume. If you don’t wanna assume much, then you need to choose a lower deductible, you pay a little bit higher rate. If you don’t mind, you have the cash on hand, then you can go higher, and that’s reflected in the rates as well. A deductible is basically how much are you going to self-insure, before the insurance kicks in.

Joe Fairless: What’s a mistake that you see investors make, as it relates to insurance?

Beth Boisseau Coots: Oh, my goodness… The biggest one is not reading the policy and not researching the company – those two, in that order. I’ve had so many that have come to me because they were referred by a friend to so and so, and they find out when there’s a claim that, going back to those terms, they had a basic policy with an actual cash value, this co-insurance, and a high deductible. They think they’re covered, because they are paying every month, but when the pedal hits the metal and there’s a windstorm or a tornado or something, a tree goes through their roof on their house in Kansas, they find out that roof is barely covered, and the amount that they get won’t even fix the whole that has been knocked into it.

So reading the policy – huge. Knowing the carrier – are they A-rated or above by A.M. Best? That’s also really important. We only work with carriers that are A-rated and above, because that shows that they pay their claims, they’re financially solvent, and all that good stuff.

Joe Fairless: What’s the rating system?

Beth Boisseau Coots: It’s called A.M. Best.

Joe Fairless: A.M. Best?

Beth Boisseau Coots: Yes.

Joe Fairless: Okay.

Beth Boisseau Coots: And a quick Google search will get you a lot of results on that.

Joe Fairless: Yeah, I’m already there, I see it. [laughter]

Beth Boisseau Coots: [unintelligible [00:15:21].06] Another term to know is limit; what are the limits? How much liability do you have? Is it a million dollar limit? Is it $500,000? You wanna know what your limits are, and you wanna know that they’re enough to cover you. If you own an apartment complex and you have a  pool and a little kid gets in there and God forbid something happens to them, and of course you get sued, what are the limits? You need to know that, so that’s another one of those terms.

Going back to this, another thing that real estate investors should be aware of is that there’s a lot of variance in types of policies. You can go to your local agent and have them do a policy everytime you have a property, and then you’ve got maybe a hundred different renewal dates, a hundred different policies, a hundred different policy fees, and so you kind of manage all this. Or you can do it in an online system like what we have, where it’s all in one place, and you’re paying monthly.

Then there’s other ones that are similar to ours, but you fax in a copy every time you add a property to your agent. So there’s a lot of variance. I think the real estate investor insurance world is so evolving and so growing… So you find just a whole plethora of things in there, and a lot of times agents who may be doing home, auto, a few businesses, throw their hat in this, too. So it’s good to know what you’re getting, and that your agent is able to navigate this, because it is definitely a niche, with its own requirements, its own compliance standards from CFPB, and laws – there are laws and legalities that go along with it as well.

Joe Fairless: Fact or fiction – if I get an umbrella policy that is five million dollars, then that’s better than one million because if something were to happen, then the insurance company would put their better lawyers on it and spend more time because they don’t wanna lose that four million dollar difference?

Beth Boisseau Coots: Well, I would not say you’re gonna have a better coverage or a better time because of lawyers and whatnot; you will be paying more for that, and you will have that extra coverage. So if you need that much coverage, it’s there. So you would be better covered because you would have the coverage. But I would ask you this – why would you need five million?

Joe Fairless: Because of what I just said. If that is true, which you’re saying it may or may not be… So I have people who I look up to in the real estate space, and one of the guys who I look up to, he’s a commercial real estate investor and super successful and he says he’s got five million dollars worth of coverage because if it’s one million, then the insurance company won’t put as much effort towards it, versus if they have a five million dollar liability. And I’m not saying that the insurance company wouldn’t put effort towards a one million, I’m just saying just the difference there – you have more of their attention, so therefore they’re more likely to get behind you in more of a stronger way.

Beth Boisseau Coots: And they may. I have not had that experience personally with the company that I work with. What I have found is that — I guess going back to what my original question is (and I would ask him the same thing if I were his agent), “Why, sir, do you feel that you need that much coverage? Do you own apartments that have swimming pools? I would want to know why, because that is a lot of coverage.” We can go up to that amount, but we don’t very often. Not because we don’t want to or not because we can’t, but because there’s just really not a need; that’s an excessive amount of coverage in many cases, but not to say that it’s not needed. If it’s needed, then that’s what’s needed.

I have one client who is a physician, and he’s a very wealthy physician, and he actually does have five million. We didn’t have to get it through an umbrella, we were able to get it on his regular policy, but he feels like he needs it simply because he has deep pockets and he is afraid that he might be sued because of those deep pockets, which is understandable. But in most cases, I would say that five million is excessive; it’s excessive even for banks. My banks don’t even typically carry that much liability.

Joe Fairless: Wow, that’s interesting.

Beth Boisseau Coots: In fact, I only have one bank that carries that limit, and it’s not even on the liability, it’s on the property side, and it’s because they do a lot of commercial lending. So I have not had the experience that he describes, but I would say if someone asked me for that – and when they have –  I have stated what I have just stated to you, and that is “Why would you need that much coverage?” Because I’ll do it, and I don’t mind doing it, but let’s talk through this to see if it’s really necessary, since you’re gonna be paying for it.

Joe Fairless: It might have to do something with the meth labs that he has on his properties. [laughter] I’m kidding. So Beth, what is your best advice ever for real estate investors as it relates to your area of expertise?

Beth Boisseau Coots: My best advice ever – quality over price; shop the coverage first, carrier second, and lead the policy. Those are my three main things. Know what your coverage is. I know it’s boring, but do it. And ask questions. I love it when my clients ask me questions.

Joe Fairless: I’d say read the policy, but then have your attorney read the policy. I just got done getting a bunch of insurance for myself and my wife, and just making sure we’re covered in case something crazy comes after us, and I read it – great, but I had my attorney read it and then he went back and forth with my agent through me to get all the questions answered, because it’s one thing for me to read it and to get it interpreted by the agent, but then also have the attorney from a legal standpoint make sure that everything’s in there that needs to be in there.

Beth Boisseau Coots: That is excellent advice because it is a legal contract, but not everybody has access to an attorney or the funds for the attorney, and if they don’t, at least be familiar with what you’re getting. But yes, if you have access to legal, by all means, I think that’s even better.

We have all the time our banks and some of our larger investors – they have to do their due diligence on us, so we have that same thing going back and forth, sending a form, showing who we are, so that they know who they’re dealing with.

Joe Fairless: We’re gonna do a lightning round and then we’ll wrap up. Are you ready for the Best Ever Lightning Round?

Beth Boisseau Coots: Sure.

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

Break: [00:22:03].09] to [00:22:52].09]

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

Beth Boisseau Coots: Think and Grow Rich, by Napoleon Hill.

Joe Fairless: Best ever policy that you have sold?

Beth Boisseau Coots: Oh, my goodness. I can’t name names, but I have one amazing client; his initials are A. A., and his policy was the best, and he is the best client.

Joe Fairless: Is that Mr. American Airlines?

Beth Boisseau Coots: [laughs] No. I believe they’re self-insured.

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

Beth Boisseau Coots: I teach Sunday School, I volunteer with the church choir, I am a board member of my children’s PTA, I am a board member at my daughter’s American Revolution chapter… I love to serve, because it’s an honor and a privilege, so I give back however I can.

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

Beth Boisseau Coots: Well, my direct number is 972 342 4280, and my e-mail is beth.coots@usrisk.com, and we have a website, www.lloyd-ins.com, and then I’m on Facebook and LinkedIn as well. You can call, text, e-mail, yell really loud, I’ll probably hear you, especially if you’re somewhere in Dallas… And I’d love to hear from you. Anytime anybody has any questions, I’m always happy to do policy reviews and things of that nature.

Joe Fairless: Beth, thank you for being on the show, thanks for talking about the different types of insurance and then the different terms of insurance that we need to pay attention to, from actual cash value (ACV), otherwise known as basic, compared to the special policy (all risk), and the pros and cons for each – basic is gonna be cheaper, special will cover everything unless it’s specifically excluded, whereas basic only covers a list of things, and maybe some additional ones if they’re added.

Also, the co-insurance, where the insured is paying a portion of the claim, so always look to see if you have co-insurance in contract. Make sure we know what the deductible is – there’s a balance there, risk versus ability to pay or to assume certain risk, and the limits for how much liability we actually have. Make sure we read through the policy. Shop around first, as you said, and then second, make sure we do research on the carrier, and third, read through the policy, and my recommendation, as we discussed, is also to get that attorney to read through it, too.

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

Beth Boisseau Coots: Take care.

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JF1237: How To Use Augmented Reality To Lease Or Sell Your Property Faster #SkillSetSunday with Kevin Hart

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Kevin and his company can place CAD models anywhere on their platforms. In the example of the Sacramento Kings, they provided the CAD models to Aireal, who then placed the models in the exact spot the new stadium and retail centers were going to be. They were able to start leasing the spaces before the ever broke ground. To hear how technology like this can help you as an investor listen to this episode today! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Kevin Hart Background:

Founder and CEO of Aireal  

Created the Patented Intellectual Property, and lead business operations  

– Aireal is an Augmented Reality platform that supports the placement of custom content (2D graphics, 3D graphics,

 Video & Interactive applications) based on predefined longitude, latitude and altitude coordinates

– Based in Dallas, Texas

– Say hi to him at: http://aireal.io/


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Patch of Land offers a fix-and-flip loan program that ONLY charges interest on the funds that have been disbursed, which can result in thousands of dollars in savings.

Before securing financing for your next fix-and-flip project, Best Ever Listeners you must download your free white paper at patchofland.com/joefairless to find out how Patch of Land’s fix and flip program can positively impact your investment strategy and save you money.


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

First off, I hope you’re having a wonderful best ever weekend. Because today is Sunday, we’ve got a special segment for you called Skillset Sunday. The skill today is how to use augmented reality to lease or sell your property faster. With us today, Kevin Hart. How are you doing, Kevin?

Kevin Hart: Pretty good, and yourself?

Joe Fairless: I’m doing well. Kevin is the founder and CEO of Aireal. He’s based in Dallas, Texas. They’ve created a patented intellectual property which helps do exactly what I’ve just said. Actually, we have a case study that he’s gonna talk about that he used with the Sacramento Kings, and helped lease out space before the space was even built. Certainly a way to shorten the period of time where we’re not making money on deals.

With that being said, Kevin, how about you talk us through what your company does, and then how it benefits real estate investors?

Kevin Hart: Absolutely. I appreciate the opportunity, and thank you for having me today. When it comes to augmented reality, it’s critical to understand where augmented reality has come from. In the past, a lot of it was based off of what’s called image or marker based recognition, so your phone could only scan a QR code or a picture of small 3D model on top of it. We wanted to remove those limitations at Aireal, so what we did is we patented and created the ability to place 2D, 3D video and interactive content at longitude, latitude and altitude coordinates. This means we could place content anywhere in the world instantly. You don’t have a limitation on the dimensions of the experience, and it could all be viewed and interacted with through a mobile device, much like your phone, or even a tablet.

What makes our technology really unique and how it could be applied to real estate specifically is how we can anchor CAD models at the actual location where something’s going to be built. Now, you mentioned the example of the Sacramento Kings, and what we did for them is when they were building out their new arena and the retail space surrounding it, before they ever actually began construction on that retail space, they provided us with the CAD models of what was going to be built, and we anchored it exactly where it was said to be built, so people can hold up the mobile device, they can actually walk around the structure as if it actually coexisted with reality, they could see it to its full scale, they could even walk into the first floor of it and see some of the details of what that building would be. That then allowed them to start getting commitments or leases for that space, and they didn’t have any of the upfront costs, and it validated it for their investors as well.

Joe Fairless: Beautiful. So is this a technology that is only for a company or organization that has big-time spending power like the Kings?

Kevin Hart: No, not necessarily. We would like to work with a lot of various builders, whether it’s large architecture for businesses or residential. We think there’s an endless amount of opportunities, especially with residential. If you’re a potential homebuyer, you can go to the lot that you would like to purchase with that builder’s library of CAD models for the particular houses they have in that neighborhood. You can place various houses there, walk through them as if they’re already built, and even customize features along the way and save that to a profile that will go back to the builders.

The benefit of our technology is that we are a toolset, so we’re a white label solution, meaning that we can either create a standalone application for the builders, or we can integrate into an existing application for realtors that they can receive all this information themselves. Either way, it will be a custom-built solution that gives them endless opportunities.

Joe Fairless: For example, if a builder is building a development and they have their model that’s already built, then you can go in and do your thing with your technology, and create a model of that so that others can walk around where their house would be built, and you can show them what it would look like through augmented reality?

Kevin Hart: Absolutely. And even for some neighborhoods where they only have like maybe one or two model homes built, but it’s not the full amount of houses that they’re gonna be building in that neighborhood, it would allow you to also visualize and experience those other houses that aren’t physically built yet.

Joe Fairless: Have you worked with developers in that situation?

Kevin Hart: We haven’t yet. We’ve only been working with large business structures and architecture, but that’s definitely a market that we’re excited to be in.

Joe Fairless: What do you charge?

Kevin Hart: It actually varies. Right now, for some of these larger clients, we have a 50k annual license just to have our technology, and then depending on the complexity of the actual experience on top of it, that’s where the variable cost comes in. So it’s on a per-use-case basis, so the price varies, but generally the experiences engineered are definitely between 10k and 50k on top of that 50k annual license. Then once that experience is created, you don’t have to make that investment again, it’s just keeping up with the license.

Joe Fairless: What else can you tell us about the technology that brings in the relevancy for real estate investors, or the application of it?

Kevin Hart: One of the main things it the fact that we have a backend metric system that measures over 70 different metrics in real-time related to human behavior, engagement and geo-intelligence. What that means is that if you are a builder and you have a potential buyer that wants to download the application that uses our augmented reality technology, and you say “Hey, you can come back to this lot, check out the augmented house, walk through it, customize the features and get back to us”, we’re measuring a ton of data. We know how often they’re coming back, how often they’re interacting with it, how many pictures or videos are taken, how many are shared to social media maybe for opinions of friends and family. We even know which speed they’re moving at. Are they walking? Are they jogging through the neighborhood and looking at it? Are they a passenger in the car? All this information so that the builder can contact that buyer based off of their behaviors and how they’re interacting with that experience.

Joe Fairless: You probably can also tell what features of the house are getting more attention than other features, right?

Kevin Hart: That’s right, and how often somebody’s changing it. Then you’re building out essentially a profile and understanding what people’s favorite points are, what areas they’re looking at the most often… So as a salesperson, you understand the points of emphasis that are important to that buyer.

Joe Fairless: Yeah, that could help influence future development decisions, once the developer sees how quantifiably people are looking at the house and areas of interest that they’re seeing, versus areas that they thought would be of interest, but aren’t as much.

Kevin Hart: That’s correct.

Joe Fairless: Yeah, because it’s one thing to hear what people talk about, it’s another to see how their body moves… And how does it track it? Is it based on movement, or is it based on some other way?

Kevin Hart: No, it is all based off of movement and where the angle of the device is. It’s called pose tracking, so we understand where a device is moving throughout a given space, and then what angle it’s actually looking at as well, so we can target what content it is they’re looking at. That’s one of the major innovations around our technology – we’re able to bring the GPS accuracy on a mobile device down to millimeter-level precision, when usually it’s between 5 and 25 meters of what’s ultimately inaccuracy. Having that level of accuracy gives us that absolute precision.

Joe Fairless: What has been the main challenge for you as an entrepreneur with building this company?

Kevin Hart: It always comes back to education. In the past, augmented reality had a negative stigma to it, because it was considered a novelty, and the main reasons were because of the limitations of what an experience could be with that previous technology I’ve mentioned with image or marker based recognition. So the matter of getting people to change their behaviors, understanding the value proposition of how we’ve removed the negative stigma of a novelty, and are now rewarding people with experiences and even memories on how they’re interacting with this content… So overcoming the educational hurdles, getting people more familiar with the technology has definitely been the ultimate barrier, but thank goodness the augmented reality market is now emerging, and we’ve been in business for 4,5 years, so we’ve always been ahead of the curve of this new and emerging market.

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

Kevin Hart: The best way to get in touch with me is by e-mailing me at khart@aireal.io.

Joe Fairless: Kevin, thank you for being on the show. Thanks for talking about your company and its applications for real estate investors and especially real estate developers. I appreciate you talking through the applications for how it could influence the development of not only the lease-up and sale of a property, but then future development decisions prior to actually going into development that are influenced based on the research that’s being done.

I appreciate that, I hope you have a best ever weekend, and we’ll talk to you soon.

Kevin Hart: Thank you very much for the time, I appreciate it.

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JF1219: Renting To Owner Occupants In Higher Tax Brackets & Providing Turnkey Investments with John Larson

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John and his company American Real Estate Investment provide turnkey investment opportunities for investors. One thing that sets them apart from other providers, they focus on Class A properties that rent to people making over $100k a lot of times. They also have your more typical investments of B and C class, but they like to focus on the class A properties with higher level tenants. Hear why they take this approach and how it has benefited them and their investors over the years. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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John Larson Real Estate Background:

Managing Partner at American Real Estate Investments

– Leading provider of A Class turnkey investment properties in the US

– Also own American Real PM our in-house property management solution

– Started in real estate at the age of 17 flipping houses with his family

– In first six months at AREI, he purchased, renovated & sold over 150 properties netting more than $1M

– Based in Dallas, Texas

– Say hi to him at: https://areiusa.com

– Best Ever Book: Exceptional Service, Exceptional Profit


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

John Larson: Very good, Joe. Thanks for having me.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about John – he is the managing partner at American Real Estate Investments, which is a provider of class A turnkey investment properties. He’s based in Dallas, Texas, and in the first six months at his company he purchased, renovated and sold over 150 properties, netting over a million bucks.

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

John Larson: Absolutely. I’ve been involved in real estate since I’ve been a teenager. My family – they’re all real estate investors, they’re all people that believe real estate is their number one investment philosophy, build rental portfolios for themselves; they’ve been doing this for years.

As a young man, I used to work on a cruise and kind of be like the gopher, grabbing tools, learning how to work on houses, how to properly renovate homes. Then from there I went away to school, I went to college, came back, got my real estate license, and kind of just started doing investments myself and working with investors to build rental portfolio.

Through that experience I crossed paths with American Real Estate Investments, they offered me a position with them to come on as their sales director, I kind of led the whole sales team, and from there I made myself up to partner. We were once located in Kansas City when I started working with them; we moved the company down to Dallas in 2014, and I’ve been working diligently to build this company into one of the top turnkey providers in the U.S. today.

Joe Fairless: Congratulations on the evolution and getting in to be a partner in the company when you didn’t start out that way, and working your way through the ranks… One bullet point I didn’t mention in your bio that I had in front of me (that I should have), and you alluded to this – you started at an early age, but you started flipping houses, right? With your family.

John Larson: Exactly, yeah. Some of them they would hold, and they’d put in — my family basically has almost like a little fund of rental properties in Michigan where I’m originally from… But yeah, I would do the acquisitions as a real estate agent, and we’d work on the homes ourselves, just kind of keeping it in-house with the family, and then I would list the properties and sell them to just regular homeowners. So yeah, we had an active flip model as well.

Joe Fairless: As a turnkey management company, how do you differentiate yourselves amongst the competition?

John Larson: Well, a lot of the things that we do – I look up to the guys over at Memphis Invest as well; I think they have a great model and I try and create my company to kind of mirror what they do in terms of making everything very passive, and white glove service, things of that nature… I would say the only difference is that we do kind of go after these higher end properties as well. I’m a real firm believer — yes, I wanna see cashflow, yes, I wanna see great returns, but I’m also really looking for safety; when I’m looking for properties in neighborhoods specifically that are more so heavily owner-occupant instead of renters, just because I believe that those properties, especially in the Dallas market, are gonna give you that greatest chance to see appreciation… And obviously, they’re very desirable, and when you get these higher end rents – I’ll produce properties that rent all the way up to $2,500/month, well that tenant in order to qualify for that home they need to make at least three times the monthly rent, so you’re talking about people that make 100k or above a lot of times. These are the types of tenants that I’m placing in these properties, so it really makes the whole experience passive for everybody involved – myself, my management company and the investor.

So although on the spreadsheet the rate of return might look slightly less than what my competition can offer, really my property is honestly the safest property that you can purchase based on the neighborhood and based on the quality of the tenant that I’m putting in the property.

Joe Fairless: I love that point. That is the differentiator, and I’m really glad that you brought that up. Let’s dig into the neighborhood – you didn’t say this, but I think what you’re implying is that the primary indicator for the neighborhood is that it’s primarily owner-occupied homes versus rental houses; if so, is there a percentage that you look for?

John Larson: Usually, honestly some of the neighborhoods that I’m buying in, Joe, like Plano here in Dallas, which if anybody does a research on Dallas, Texas, Plano is gonna be an area that comes up. There’s a lot of jobs moving there, a lot of Fortune 500 companies; Toyota was the most recent company that just moved into the Plano market. They brought 4,000 jobs nation-wide. Those neighborhoods are honestly 90% owner-occupant, but these neighborhoods are still attractive for rentals as well, because all the new transplants that are moving into the DFW market and Houston market (which we’re also in), due to these jobs that are moving in here, a lot of times people have to move here for employment. A lot of these people – they could purchase a home, but they’ve just moved into Dallas and they’re kind of feeling the market out.

Dallas-Fort Worth is fourth largest metro in America, so they rent for a couple years first, at least a year if not two years, just to kind of feel the area out before they decide to go ahead and jump in and purchase a home. And honestly, really with my tenants I’m only losing them to the fact that they wanna go buy a property. When someone says, “Hey, I’m giving notice to move out”, the reason 90% of the time is “I’m going to buy a home for myself.”

Joe Fairless: And I would say that makes a lot of sense, because on the flipside I would suspect that if you look at the numbers – and I’m guessing, so I have no clue, but my guess is that if you look at the numbers for how long a tenant lives at a house, if they’re in an income bracket that’s around 50k-60k, they’re more likely to stay longer. And I know from my experience (this I do know) that my number one expense is tenant turnover. So with your business model being focused on people who make more money, therefore I would suspect live there a shorter period of time, that leads me to believe that the expenses would be higher than what the flipside would be. What are your thoughts on that?

John Larson: Yeah, turnover could potentially be more frequent when you’re dealing with higher end properties, because you are gonna lose tenants to the fact that, “Hey, I’m gonna go buy my own home.” The thing though about the DFW market and Texas as a whole – 400 people a day move into the Dallas-Fort Worth metroplex, so just in case we do have a turnover, I’m really able to get that property turned in seven days or less.

But number one, the tenants that are staying in my homes, they are in that higher income bracket, they just generally are more responsible and take care of things a lot better, so I really don’t run into any high cost maintenance issues; the tenants take great care of the properties. Literally, a tenant moves out of one of my homes in Plano, in North Dallas or wherever it may be, the house – I can move a new tenant in right away. It’s clean, it’s good, there’s no holes in the walls, stains on the carpet… There’s nothing like that. The house looks move-in ready on that turnover, and when you have such a large amount of people moving in daily, it’s very easy to rent these properties out, and really keep them leased.

I wouldn’t say that all of the tenants that we have in our properties are leaving because they’re going to buy their own home. Some of the people, they make 100k, but they don’t have the best credit score. So they wanna live in a nice neighborhood, they want a nice property, but they just can’t either afford that down payment right now, or they just don’t have the credit to get that good mortgage.

Joe Fairless: You mentioned Plano – what are some other areas that you are looking in or actively buying? And perhaps it’s not DFW, because I see on your website five to ten different markets.

John Larson: In the DFW area I’m focused mainly on — you know, North Dallas is where my higher end properties are. There’s also pockets of East Dallas that are going through a lot of gentrification. We have a lot of young business professionals moving into the DFW area and they still wanna live close to downtown, so there’s a lot of neighborhoods there.

There are some older properties, 1960’s, 1970’s builds, but you see fix and flip outfits in there, buying properties, renovating them, doing high-end renovations and then just selling them on the MLS to a regular homebuyer. Well, there’s also opportunity in there for guys like us to buy a higher end rental and put a young business professional type tenant in that property, and those areas are really super desirable, just based on the location, the proximity of the property, the location of downtown, things of that nature. So I focus  a lot on this Eastern part of Dallas, as well.

Then in South Dallas it’s kind of what I call my bread and butter rentals. That’s gonna be like the Lancaster, Cedar Hill, Duncanville, DeSoto type neighborhoods, Seagoville… Because those are the neighborhoods where you have more so around 60% on the owner-occupant side, but 40% are looking to rent, and that’s where you have the rentals… I would say they average about $1,500/month. Still really good properties, you still are dealing with the middle-class type tenant, but maybe down there you’ll have more of a longer-term type tenant and not as much turnover.

Joe Fairless: You’re not exclusively focused on the higher valued properties, you’re also buying properties that are less than 100k…?

John Larson: Not as much. I do operate in Kansas City and St. Louis as well, where I would say those are my B-type properties. Still, I’m trying to keep my values at 100k and above. In my opinion, 100k to 130k, in that range, where you have properties that are renting for around $1,000/month – that to me is a B-grade property, so just a step below what I’m doing here in Dallas and Houston… But I would say the stuff in South Dallas – there’s a little bit less of a barrier to entry; the price points are more so I would say 160k to let’s say 200k, whereas the stuff in East and North Dallas, you’re starting at about 200k and they’re going all the way up to 300k.

Joe Fairless: What are the types of average returns you’re seeing on a typical property? And if you can define what that property is, if you’re referring to the A or the B.

John Larson: B class homes, on a cash purchase, you’re gonna be anywhere from about 7,5% to 8%. It can get as high as 9% net return. If you’re gonna take advantage of conventional finance, which I know a lot of investors are doing (why wouldn’t you?), it can get you anywhere from 15% on a leveraged rate of return side, as high  as 20% or more in some instances… Because up in Missouri property taxes are less, so you have less expenses there. Down here in Dallas property taxes are a little bit higher, there’s no state income tax here, and they make up for it on property taxes.

With my higher end properties I’m starting at about – on a cash purchase, probably anywhere from 5,5% on the low end, up to 7%. Then on the leveraged side, it doesn’t affect the yield that much because you’re putting a higher down payment down on the property… So even a 300k house, you’re coming out of pocket 60k to purchase that property, so you’re still kind of floating in that 6% to 8% range on my higher end homes.

On the properties in South Dallas that I was referring to, where the price points are 160k to 200k – at that point  I can get you starting at about 8% on the leveraged side, up to as high as 12%, and on a cash purchase you’re floating somewhere around 7%, 7,5%.

Joe Fairless: You started out not as a partner, and now you are a partner.  What would be something, if you can put yourself in someone else’s shoes for a moment, what would be something they’d say about your for why you’re able to grow with the company that you’re with and eventually become partner?

John Larson: Something about myself… Number one, it’s hard work. That was the thing that stuck out to the guys at American Real Estate Investments. James Wine – he’s an older gentleman now, he’s in his seventies, so he wanted to take a step back in terms of the day-to-day operations, and I felt like he could trust me; I was a loyal guy, someone that came in and put my head down and worked hard right away. As you said at the beginning of the show, I bought and sold, basically almost wholesaled, 150 properties for them right when I started on in 2014, and made the company a million dollars.

That was probably a notch on my belt that got me on the fast track to becoming partner of this company, but I think it’s just my relationships that I built with my clients. I feel like my clients can trust me because they know I’m trying to do the right thing. There’s other turnkey providers out there and other companies that try and spice up these properties on the spreadsheet and show you these high rates of return, but they don’t really explain the common risks that are involved with those types of properties. And I know the risks that are involved with those homes, because I started [unintelligible [00:14:24].02] in Detroit, producing these C and D class property, stuff that’s selling for 60k and below, and I’ve seen everything that can go wrong with these homes, and that’s why I try and steer my investors into really safe investments where I know I can consistently put really solid tenants in the home, tenants that I know are gonna pay rent every month, that are gonna be super low risk for eviction… We don’t have evictions in our market here.

Joe Fairless: When was the last eviction you did?

John Larson: We had a guy move out earlier this year because he was going through health problems, but he just came in and dropped off the keys at our office. We don’t have evictions. I would say we did have one last year, and the thing about Texas is it’s very landlord-friendly, I’ve gotta give them that… Coming from Michigan, where it’s very tenant-friendly and it’s a pain to evict people. Out here in Texas if you sign a lease and you go to court – if it gets to that point where you have to go to court, you just show the judge, “Hey, they signed a lease and they didn’t comply”, they’re out within 30 days. It’s really easy.

But when you’re dealing with that higher end tenant, so to say, a more responsible tenant I guess I would say, someone that has a better job and makes better income, and is just more responsible – better credit score, things of that nature – those are the types of people that pay their bills, and if they can’t afford their bills, they’re gonna come to you and say, “Hey, I can’t make the payment, so unfortunately I’m gonna have to break the lease and move out.” I don’t have to evict them, they just hand the keys over, and that’s a good experience. Those are the types of experiences we want.
So even when we have to make that call to the investor, like “You’re tenant moved out”, it’s not like “Hey, we’re going through an eviction.” It’s like, “Hey, they’ve moved out and the house is in great condition. We could lease it today.”

Joe Fairless: In that scenario, you really can lease it within seven days of someone moving out, and someone can be moved into that house in seven calendar days?

John Larson: This is the hottest market I truly believe in America, Dallas-Fort Worth. The amount of people that are moving into the market, it’s so hard to get your hand on good opportunities and get your hands on inventory down here, because there’s so many people moving in.

When we do have a turnover situation, obviously we’re notified… 45-60 days from the expiration of the lease, the tenant is saying “I’m staying” or “I’m leaving” if they’re leaving. We already start pre-marketing that home; my leasing people in my office, we have a list of potential tenants that we can reach out to and say “Hey, this property is gonna be available on 15th November”, and they’ll just say “Boom! Here’s the deposit. Alright, I’m good to move in on 15th November.” So when that tenant moves out on 7th November, we go in, we spice it up, clean it up; if there is any work that needs to be done, which is very rare, we get that completed and we’re ready to move that new tenant in right away. But that’s the demand that we have in this market.

Joe Fairless: What are you applying in your current business, in your current role, that you learned at your first role? Can you briefly just describe your current and first role just to set the groundwork?

John Larson: When I was started with the company [unintelligible [00:17:13].19] sales and things like that?

Joe Fairless: Yeah.

John Larson: I still have my hands in that. I have a client who was a very successful businessman, and he invested with us when I first started with American Real Estate Investments, and I started to try and pull myself out of sales more and more and just kind of focus on the education aspect, because we also provide a lot of education as well on how to do this yourself and things to look out for, potential pitfalls when investing in real estate. So I kind of started more towards that.

Well, he reached out to me to buy another home, and I redirected him to one of my investment coordinators, and I said, “Sir, I’ve kind of pulled back on sales a little bit since I became partner, and I’m kind of heading up and overseeing the company, transactions…” – basically, Joe, you know there’s a lot of things involved with companies like this and with real estate, a lot of moving parts, and he said “John, can I give you a piece of advice? Never pull yourself out of sales.” [laughs] He said, “It’s the most important part of your business.”

So I kind of took that to heart, and still today I deal with the investors, I deal with client relations, but I’m overseeing things on the property management side; I still will consult with investors, serious investors, investors who are ready to pull the trigger right now, and I still keep in contact with our current client base… But right before I jumped on the call with you I was with my transaction team doing a closing meeting, and just going through each contract and where we’re at in the process, where we stuck on closing this deal, and so on and so forth. We do that once a week. So my hands are kind of just everywhere in this business.

Joe Fairless: You said one of the responsibilities is to oversee things on the property management side – what’s a process that has been enhanced since you’ve been overseeing it?

John Larson: Well, I would say it’s something that we’ve implemented with our property management team, to just add extra customer care and customer service; we call them investor concierge… So after we sell a property, we transfer property ownership to one of our investors, they’re assigned an investment concierge rep, which is basically a liaison between AREI and American Real PM our management company. They really work more so on the American Real PM part of the business… And that’s just that person that’s reaching out to your once a month to make sure you collected your rent and there aren’t any hiccups with the investment; we’re calling you and giving you updates, and kind of explaining where we’re going with the next step, because I just believe communication is key with these investments. I sell these properties worldwide, but most of my investors who invest with us are out of state or out of the country, so we just really and keep those open lines of communication.

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

John Larson: That’s a good question, actually. Honestly, what I try and tell all my investors is kind of the way we led off the show… With me, I’m really looking at neighborhoods and properties that are gonna attract – f we’re talking about rental properties, and that’s kind of my forte – the best type of tenant. You can really look at a neighborhood and you can really look at a home, and you could… It’s common sense. Anybody, I don’t care if you’re a new investor, a seasoned investor, you’ll be able to look at a home maybe just outside the downtown area of Dallas that’s a 3-bed one-bath, almost looks like a shack… You’ve gotta think about what type of tenant is that property gonna attract, and is this gonna be the safest investment for my money?

In my opinion, I would say no, steer clear of that. So I always try and tell my investors, always envision what type of tenant this property is going to attract, and usually that will give you an indication on “Should I pull the trigger on this one or not?”

Joe Fairless: It makes sense. Are you ready for the Best Ever Lightning Round?

John Larson: Let’s do it.

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

Break: [00:20:38].11] to [00:21:25].26]

Joe Fairless: Best ever book you’ve read?

John Larson: Honestly, it’s something that was referred to me by FortuneBuilders – it was Exceptional Service, Exceptional Profit.

Joe Fairless: Best ever deal you’ve done?

John Larson: That’s a good one. I would say when I was working [unintelligible [00:21:37].14] shoutout to Max Brooke in Birmingham; I used to work for a luxury brokerage… I sold a two million dollar home; I was just starting as an agent, and I would say that was probably the most rewarding feeling, and a pretty solid commission check.

Joe Fairless: After doing that, why not continue to do that?

John Larson: Because Michigan is honestly kind of up and down in terms of the real estate market.

Joe Fairless: Oh, Birmingham meaning Birmingham, Michigan.

John Larson: Yeah, Birmingham, Michigan, yeah.

Joe Fairless: Okay, I was thinking Alabama. Alright, anyway, go ahead…

John Larson: Just being a retail agent obviously, you know, things can go up and down, things are very cyclical. Also, when dealing with buyers that are looking to purchase a home themselves, they’re buying on emotion, they’re not necessarily looking at numbers and what makes sense, right? So I just kind of veered to the investor side of things, or steered back into that, because of the fact that investors are kind of looking at numbers and what makes sense, and it doesn’t matter if it’s summer or winter or whatever it is, an investor is not gonna turn down a good deal.

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

John Larson: Selling it too early I would say, before I had my GC go out and actually perform the final rehab bid on the property; that’s something I’ll never do again. Obviously, you get estimates on what you think the rehab is gonna be while you’re going through your underwriting process… Well, I’ve sold it to an investor, and I’m thinking in my mind “It’s only 35k rehab.” Well, now my GC goes out and it turns out it’s a 60k rehab. I took a loss on that one. My partners weren’t too happy about that. So even the pros, Joe, make mistakes here and there.

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

John Larson: Honestly, mentoring. Believe it or not, I have people that will e-mail me, find my contact information… Young guys, just like myself when I was young, trying to get started. They’ll reach out and say, “Hey, John, do you mind if I come by your office? I just wanna pick your brain.” I just went out to lunch with a guy the other day, he was just getting into real estate… I feel like giving back is just kind of sharing the knowledge that I have.

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

John Larson: The best way would just be to hit our website, www.areiusa.com. We have a Contact Us page, but also have resources on that page. I’ve also started a web series called AREI 101. The first episode is actually “Why I Stopped Buying C-Class Investments.” I also interview Scotty Mitchell who is the COO of our management company, that’s on episode two. The first three episodes are coming out here shortly, then I’m gonna add to that each month. That will be a great way to get some great education for newbie investors, and like I said, there’s a lot of other good resources on that website as well. But if you wanna contact me, just put your information in the Contact page, and one of our investment coordinators will be reaching out right away.

Joe Fairless: Thank you for being on the show, John. Thanks for talking about how you differentiate your company from others, and that is the types of properties that you purchase, which consequently you’ve got a different resident, one who earns more money and is able to pay for a higher rent. So that’s one, the higher-earning tenants, and then two – the owner-occupied neighborhoods. You gave the example of Plano being 90% owner-occupant; you look at other areas, but really that’s where you all differentiate yourselves, is having those class A type of properties. A little bit less return, a little bit less risk… So there’s risk-adjusted returns, that’s for sure.

John Larson: Yeah, Joe. If you don’t mind, I have one more point that I kind of forgot about.

Joe Fairless: Yeah, sure.

John Larson: Another reason why I like to buy these properties in these better neighborhoods is it gives my investors multiple exit strategies as well. When you’re buying properties just trading on cap rate, whether it’s single-family homes or whether it’s a multifamily apartment building, whatever it may be, if you’re pigeon-holing yourself in a neighborhood that’s more investor-owned, where you don’t have as many people looking to actually purchase properties in those neighborhoods for themselves (it’s a neighborhood full of landlords), you’re really not gonna be able to get that market value for the property. You’re gonna get offers based on how much income the properties produce.

Another reason why I buy these properties in these nicer neighborhoods is just in case these investors… Obviously, with rental properties we wanna go with that long-term hold, but let’s say you need to exit on the property, or let’s say your property appreciated $100,000 or $50,000, whatever it may be, and you wanna sell it and cash in on that equity – I can help you achieve that with my homes that I’m doing right now in Dallas, those ones that rent for $2,000 to $2,500, in these nicer neighborhoods.

Hopefully that makes sense to the listeners as well. I wanna give you multiple exit strategies, just in case you need to go down that route.

Joe Fairless: John, thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

John Larson: Thank you, Joe. I really appreciate you having me on.

Best Real Estate Investing Advice Ever Show Podcast

JF1181: How To Build Great Relationships #SkillSetSunday With Jason Treu

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Clients will come to Jason to make themselves better leaders, coaches, or whatever it is they feel they are “stuck” in. Jason says that the root of the actual problem oftentimes stems from experience when the client was younger. Most of the work he does, is working from the inside out, not the other way around. Jason tells us exactly how we can build great relationships with people even if we are feeling “stuck”. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Jason Treu Background:

  • Top executive coach
  • Through his coaching, his clients have met industry titans such as Tim Cook, Bill Gates, Richard Branson
  • Works with executives and successful entrepreneurs on leadership and performance issues
  • Author of the Social Wealth
  • Based in Dallas, Texas
  • Say hi to him at http://www.jasontreu.com/


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

I hope you’re having a best ever Sunday, and because today is Sunday, we’ve got a special segment called Skillset Sunday where we’re going to help you with a specific skill that will help you in your real estate endeavors. Today, the skill is how to build great relationships with people. To talk to us about that, we’ve got Jason Treu, top executive coach. How are you doing, Jason?

Jason Treu: I’m doing fantastic, thanks for having me back on the show again.

Joe Fairless: Yeah, my pleasure. A little bit about Jason – he works with executives and successful entrepreneurs on leadership and performance issues. He’s the author of Social Wealth. He’s based in Dallas, Texas. With that being said, Jason, just to give the Best Ever listeners a refresher, can you give them a little bit more about your background and your current focus?

Jason Treu: Sure. I started like every entrepreneur, a really windy road. I went to law school and didn’t really wanna be a lawyer after I graduated from school. I went out to Silicon Valley and got to work with a lot of great executives, back in the gold rush, like Mark Cuban, Steve Jobs, just a bunch of great venture capitalists and other people. Then I decided to move back closer to my mom after some friends of my parents had passed away, and I was like “I could be near my mom for one point, at least for a couple years.”

I just came here, and then I just started my business by helping other people. I sort of just fell into it and then did it as a side hustle, and then turned it into a full-time gig.

Joe Fairless: Okay. So what’s the primary reason – and then we’ll get into how to build great relationships with people… And perhaps this is it – what’s the primary reason people hire you?

Jason Treu: Well, they’re stuck, and they’re stuck in internal issues. They come to me because maybe they wanna be a better leader, they wanna perform better, they wanna help their team, they wanna be a better coach, a better manager… But the reality is that that’s a small piece of the puzzle. The issue stems from things such as they can’t step up because mommy and daddy told them to shut up when they were small. They told them big boys don’t cry, and they have a problem sharing emotions and being vulnerable and getting close to people, and that makes it hard for them to actually be a leader and cultivate a great team.

Most of the things, it’s really an inside-out job, it’s not the other way around. Part of it is a  lot of it is a lot of deep self-inquiry or [unintelligible [00:03:36].26] therapy in the process of helping people really make the unconscious conscious, so they can see what they’ve done, the patterns they’ve gotten into, survival patterns that they’re stuck that are keeping them in place.

Joe Fairless: So let’s talk about the focus of our conversation today and the skillset that you’re gonna educate us on, and that is how to build great relationships with people. Clearly, real estate investors – we need to have great relationships with people from a business standpoint for sure, so how do we do that?

Jason Treu: I think first of all you need to be in the right places, even before you think about “What do I need to say? How do I need to construct a relationship?” and I think the problem is most people don’t really have a plan. I think building relationships is all about a strategy, as it would be if I wanna find a new job, if I wanna do anything in my life; you’ve gotta have a plan, and you have got to get some help usually in figuring all that stuff out.

Part of it — the first place is where do you go? And I’ve found through a lot of research in time some of the best people to me are in charities and non-profit groups, and sometimes they can be interest groups, things such as running clubs, book clubs, things like that that you have in common… But you wanna go where people have money, because you’re trying to get people to invest and buy stuff in a higher value, and where they go is they’re a part of charities, they’re a part of charity boards, they’re  a part of nonprofits, meaning museums, opera, symphony.

The more you get ingrained in your community in those organizations, the more successful you’re going to be because those are the people that actually have the resources that you can leverage when you prove to them that you can add value to them, and they begin to trust you, and then it will be a lot easier to find the deals you want.

Joe Fairless: That’s one of the things I keep top of mind as well, is the philanthropic component, because the more involved I am with, for example, Junior Achievement – I’m on the board for Junior Achievement in Cincinnati – the more I build relationships, just genuine relationships with people who are also on the board with me, and one of them has invested in multiple of my deals.

Jason Treu: Of course, and the thing about it is that in an organization the whole premise is giving. When you’re around people that have the mindset of giving and you build a relationship, they’re much more open to helping you. Because most times when you meet people, like at a networking event or something like that, there’s a lot of matching, where you might give something but expect something back, or you’re taking. But in a charity organization, the whole premise is giving, so the mindset of people in there and their ability, and also their want to help you is significantly higher, as long as you just build a natural relationship with them and it’s not all about seeing what you can get.

I think that’s why those organizations and places are the right ones you’re a real estate investor (or any kind of investor) to go. And the problem is most people don’t do that. They go to meetups and other places, which are okay, but that’s not where you’re going to meet people who have hundreds of millions of dollars or a lot of excess capital just laying around, because that’s not what they do. It’s like a salmon, you can fight it upstream, or you can go where the people are.

And you know what, you might find that even if you don’t like going to opera, or a symphony or something else, that actually if you keep going to it, you might actually learn to appreciate it. And there are so many options of things that you can do anyways… It’s pretty limitless. I think it’s almost impossible for you not to find a couple organizations that you’re passionate about and that you enjoy and the people that you actually like being around, if you get out there and just try them.

Joe Fairless: Yeah, I think that’s the key part – finding the places that you just naturally gravitate towards, because there’s a nonprofit for everything. Unless you’re in some [unintelligible [00:07:47].28] town, then maybe you’ll need to be a little bit more resourceful, but if you’re in a major city, or near a major city, you have access to pretty much any type of nonprofit or philanthropic cause.

I like going to volunteer first, and then once you volunteer, then work your way up to the board of directors.

Jason Treu: Yeah, exactly. That’s how you do it. You go one or two times, and you see “Do I like the people? Do I enjoy the cause? Would I like spending my time there?” and if the answers are yes, then get more involved. If the answers are no, don’t. Find something else where you don’t just have to do something because of it.

It’s easy, you just google “young professionals”, “charity”, “nonprofit” or whatever, or just come up with some stuff and throw it in there, and  you can figure out a list of places in your local community, or the metroplex that you live inside of… It’s almost impossible not to find any of these places, and great things always come out when you’re in an environment of giving.

Joe Fairless: I can tell you I also did a Google search like you just suggested… So I’m on the board for Junior Achievement in Cincinnati, but in addition I wanted to do something a little different, so I did a Google search and I ended up gravitating towards hospice. So now I volunteer every Friday, I go visit a patient at hospice, and the benefits are not to build business relationships obviously when they’re in the hospice, six months or less to live, statistically speaking, but more it’s about knowing how to value relationships for myself when I build them with other people, and just knowing that is precious, and just having a different perspective.

My point is even if the nonprofit isn’t a direct cause and effect for “These people have money”, it can still benefit you for your overall business as an entrepreneur.

Jason Treu: Right, because when you do that, you feel gratitude and grateful, and that is the number one way to happiness. It is a way to see abundance, and when you see abundance in your life, you see more opportunities and get much more creative, and that mindset is how you make more money. So even if you don’t get something out of it, being in that mindset, in that environment will actually allow you to see a lot more around you and be a lot more successful.

So the by-products of it no matter what you do or how you go about doing it are massive, and it’s proven by research and science and however you wanna look at it. I’m 100% doing it, I’ve been doing it for a really long time, and it changed my life for the better, I had some great experiences that I could never have, and I wish more people would do it.

Joe Fairless: So how to build great relationships with people… You said have a strategy, then go where the people have money (charities, nonprofits) and do something that you genuinely — test it out first. What else do we need to do?

Jason Treu: Well, I think the thing is you’ve gotta understand the pillars of how to build a great relationship, and I think that if you have these things… And I’ve kind of simplified it in my mind how to do this really quickly, because when I talk to people, I like to give them quick advice that they can implement pretty quickly and see some tangible results and then dive in deeper… And the key is that whenever you meet someone, you need to influence them enough to pierce their inner circle, because that way there’s some urgency for them to follow up with you, because you created some sort of influence on them that they’re like “That’s a great person. I really wanna get to know them more, and I’m gonna take time out to either meet them individually, or go where they’re at, or have them come over to some group function. Whatever is, they’re top of mind.”

How you do that is through three pillars, and one is building rapport, and there’s two ways to build rapport. One is nonverbal and verbal. Nonverbal – there’s so many things that you can look up, like body language… Amy Cuddy has a great book on how to do that, and that’s more time-intensive, but it’s pretty easy to do a lot of the stuff.

The verbal side of it, they key is you wanna find common ground with people. The way to think about it is we’ve all had those moments in our life where we’re like “Wow, I felt like I met that person for five minutes, but I’ve known them all my life, and it’s just amazing, and we just clicked instantly.” Well, you can do that almost every single time, it’s just you’re not asking the right questions.

I learned in law school that the key to being successful is not about the answers, it’s all on the questions, and I thoroughly believe that now. The questions you should be asking people are questions like “What’s the most exciting thing that’s going on in your life right now? What are you passionate about outside of work? What projects are you working on that you’re passionate about?”

Why would you ask those questions? Well, the key is that after you ask someone “Hey, how are you doing?” or maybe “How did you get to this organization?” as a warm-up question, you wanna immediately go into that because that interrupts their pattern. Because most people ask people “Where are you from? What do you do?” and they ask those questions so many times, usually most of the outcomes are not grey, where they’re okay, that they sound you out. They’re thinking about other stuff as they’re talking to you, and you’ve immediately lost them.

But when you ask them questions like that, 1) it connects them to their emotional side, and the key about life is we’re all emotionally-driven people. Even the most logically-driven person that you think, it’s all about emotion and it’s all about how they feel, and what you wanna do is have people talk about the thing that they’re most interested in and no one’s ever asked them before. Most people have never been asked that question, because I’ve asked people, even by people in their life that they’re closest to. If you ask that question to people, you then have something that they really wanna talk about, and you can find some commonality because you can draw something… Like, “What are you passionate about right now?” “I’m really passionate about that because I love going to music and concerts”, and you can say “I love that too, I’ve been to this concert”, or rap back and forth.

That is great, because that person will instantly like you significantly more and you found some common ground that you can then discuss something that they wanna discuss, not what you wanna discuss.

Joe Fairless: I don’t know art. Hypothetically speaking, I just asked you “What’s the most exciting thing that’s going on in your life right now?” – I love this question, by the way – and you talk for about 180 seconds about some piece of art that you just found. I know nothing about it; what do I do?

Jason Treu: Then I would say “That’s fantastic. I’m not really into art, but it’s probably something that I should really check out. Where do you recommend that I start to look at it in the city? Where could I see something like that?”

Joe Fairless: But I don’t care about art either.

Jason Treu: Okay, well then you say “I think that’s great that you’re really interested. Is there any other things that really are getting you excited or that you’re doing in your life and your work, or something?” You can just bridge it. I would just bridge it to something business-oriented, or ask them “So what else is going on outside of that?” and they’ll bring up something else. Maybe it’s secondary, but at least you can get and find some commonalities to something else.

Joe Fairless: Alright, let’s pretend that I am just kind of, 20% interested in the art thing – where do I take the conversation? Because we’re talking about art… Let’s say we’re at a conference. I ask you, you talk about art, and I’m kind of interested, but then where does that conversation go?

Jason Treu: Well, I think if you’re just kind of interested into what they’re talking about…

Joe Fairless: But I want you as a business connection.

Jason Treu: Right. You can say to them “I’d love to talk to you more, get to know you more, have a conversation. Obviously, we don’t have much time here. Let’s exchange contact information and go grab lunch or coffee next week.” People will just hand you their information.

Joe Fairless: Okay.

Jason Treu: It’s pretty quick, because people at that point — again, if you do 30% of the talking and they do 70%, they’ll at least like you. That’s the opposite of what most people do, because most people will try to sell themselves. So by not trying to sell yourself, you actually stand out, which I know seems strange to people, but that is a huge turnoff if people talk over you and they’re not listening at all, and they’re only interested into what they’re saying. So even at that point…

Joe Fairless: I’m sorry, I have to butt in. No, I’m kidding. [laughter]

Jason Treu: Yes, exactly. So that really helps, and I would just do that. Because a lot of times you’re in a place, and the key is you wanna keep conversations under five minutes. You just wanna say “Hey, let’s connect next week, exchange contact information…” Maybe you can say “Hey, I’m going to a bunch of other great events. You seem like someone who’s really involved, why don’t I send you some other stuff if that’s the case?” Just find something in your head that you can use on a repetitive basis with people, a couple different ways that you can interact with them, and most people are going to give you their contact information pretty freely.

I think the majority of people will follow up with you, and the people that don’t, usually it’s because you’ve not made a good connection with them, and I think then you can go back and ask yourself “What did I ask them? Was I present during the conversation?” Sometimes things just don’t work out. Not every person you’re gonna talk to, these things are gonna work well at. And that’s not the point; it’s a numbers game.

Joe Fairless: I wanna ask you about the comment you made where you said “Keep conversations under five minutes.” Are you referring to if you’re speaking on stage and I’m like “Oh  man, I’ve gotta talk to Jason, but there’s a bunch of people that are in line talking to Jason”, or are you referring to if I’m at a conference and I’m sitting next to a couple people, then those conversations are the under five minutes?

Jason Treu: Yeah, the ones when you’re sitting next to people. If someone’s on stage and doing it, that has gotta be a super short point. But the thing about most of the people going on stage, they are speaking at that event, and what I would do – and I’ve done this several times – is that I contact them prior to the event, and they’re usually actually pretty free, and they’ll meet with you.

In fact, I met with the chairman of Royal Dutch Shell… [unintelligible [00:17:46].09] to Austin last year and meet with ten different energy people at a conference, and he doesn’t even know anything about energy, and meet with executives, and just had an opportunity to talk with them, and I booked appointments for him ahead of time. I said “Look how easy this is gonna be” and he’s like “There’s no way that’s possible. You can’t get a meeting with the president of Exxon, the chairman of Royal Dutch Shell… There’s no way. How would that ever happen?” But these people go to these events and they wanna be busy, and they wanna do stuff, it’s just that you wait till the last minute.

Joe Fairless: Oh, so you’re saying you set up a meeting time to meet at the event?

Jason Treu: Yeah, you e-mail them. You just e-mail them ahead of time and then you’ll get through a lot of the times. I’ve got 25% of the meetings that I pitched out for an event for Forbes Magazine for one of my clients to go in there. So it’s possible to do all this stuff. If I had more in common, I bet that would have gone up a lot more, but I was completely far out of left field, but that’s a pretty good ratio. And I got to sit down with these people — my client did for 15-20 minutes and talked with them, and that made a lasting impression. And what he did with it from that point was up to him, but he didn’t have to fight and stand in line. These people just came to him and said “Hey, let’s go to the restaurant in the hotel.” [unintelligible [00:18:56].21] and they had a conversation and moved on.

You’ve just gotta be thinking ahead and ask yourself “What are 99% of the people not doing?” and then go do that. Or just do the opposite of what your first reaction is going to be, and it’s usually right.

Joe Fairless: I believe you said three pillars to have a great relationship. The first one is build rapport – is that correct?

Jason Treu: And the second one is likability, and the easiest way to do that is just to listen to people. Like we’ve talked about before, most people talk over people, they are not present, they’re thinking about what they’re having for dinner, what they have to do later, and 90-something percent of communication is non-verbal. So if you just look at someone and practice being present, and don’t worry about who else is walking behind them, around them, you’d be amazed at how the tenor of your conversations and interactions will change, because they can tell when you’re distracted in the back of their mind, because that’s how we interact with people. That’s how our mind and our senses work around us.

You’ve gotta really be noticing that and observant, because if you’re not, it’s affecting your ability to build relationships at the level that you could be if you actually just looked  at them and were present and you didn’t worry about anything else in the couple minutes that you spoke to them.

Joe Fairless: Okay. And then the third?

Jason Treu: The third is you have to build trust with people. That’s the key. And the way you do that first is by showing them that you care. If you look at all the tenets of trust or all the research, caring matter by far more than anything else. How you show people that you care is you add value. You add value in a conversation in ways by suggesting things like maybe there’s a book, maybe there’s a person you can introduce them to, maybe you can say “I may have some ideas, let me follow up” and then follow up with some ideas… You can also introduce them to people at the event.

A lot of the times when I first started out doing a lot of this stuff, I introduced strangers to other strangers, meaning I didn’t know either person. I would just introduce them, and it worked really great. I’d go up to the bar, or any place, and whether you were drinking or not, and I would say to someone on my right “Hey, how’s it going? What’s happening? How did you get to this event?” and they would say something. It didn’t even matter what they said; there’s be someone on my left, and I literally might touch their arm or grab them or do whatever, and I’d say “Hey, you two should meet each other. I think you’d get along.” Obviously, I had no idea, but my mindset was that they would… So it’s true. If you believe it’s true, it is true.

Then what happens is they start talking to each other, and the great thing about that is that people always wanna meet new people. They might say to you they don’t need a lot of friends, or they’re happy in a small circle, but the fear of missing out — everyone wants to meet a new person, because they don’t know where that interaction might lead. And the thing about that is when you introduce someone to someone else, what I found out the magic is – it’s not really what happens in that interaction. It doesn’t matter whether it goes okay or whatever; what happens is when you walk around the room and you meet that person the next time, they’ll introduce you to everyone that they’re standing around. One, because they like you already, because you actually went out of your way to introduce them to people, and the only people that introduce other people are usually in people’s inner circle or people that they know really well will go out of their way to do that, and also–

Joe Fairless: Law of reciprocity.

Jason Treu: Yeah, exactly. That fits in there as well. So either one, whatever happens, and the reason why that works – it doesn’t matter. I started doing this and realized that by doing that, and introducing 5-7 different strangers together, I could easily meet 25-50 people in probably 60-90 minutes in every event I go to. Again, these things are all numbers games, because you don’t know who you’re gonna run across and what’s gonna happen, so the key is just meeting a lot of people and then getting their information.

If there’s someone you wanna do one-on-one, great. But the other option is inviting people to go and get together for brunch, for dinner, for lunch, and just inviting a bunch of people along, because everyone wants to meet new people. I don’t care whether they’re married or whatever, people want new people, because they don’t know where these interactions are gonna lead. And if you’re meeting them in charity or nonprofit events, for the most part people are pretty open and pretty giving and understand what’s going on.

Not every interaction is gonna go great, but if you invite 4, 6, 8 people to a dinner or a lunch, there’s gonna be some great things that come out of it, and then you are the hub making all this happen and everyone else is a spoke, and when you do that, that’s an influential place to come from, and people then come to you, and are more open to hearing things from you, and then they invite you to other events in other private functions, too.

So you never know what is going on… In fact, one of my friends here did that, and he met one of Jerry Jones’ nephews, and now he goes to the Dallas Cowboys game a couple times a year and sits in the owner’s box.

Joe Fairless: I never thought about doing a sub-meeting brunch thing where you invite a bunch of people who you’re meeting at the event to then go have brunch together, and that’s it; you’re just going, and you’re the one that’s [unintelligible [00:24:06].08] everyone. It’s the same philosophy as if you create a meetup locally – you can invite all these speakers, and you have to have zero experience, that’s it… Just know how to work meetup.com and then you automatically get elevated to a similar level of a speaker just because you’re putting it all together.

Jason Treu: Right, and you can actually do that even at the event, saying “Hey, you know, a bunch of us are gonna go to this place afterwards” and invite people to go, and who knows who’s gonna show up? You can invite people, and I’ve done that quite a few times, and that works almost all the time too, because a lot of times when an event ends, 7-8 o’clock, people don’t wanna go home yet, and they’ll be willing to go out for a little while, so then you can spend some more time with some of the people that you met as well.

So there’s a lot of ways to skin the cat here, and get interactions with people; the key is you’ve gotta start going to events, because by spending 60 or 90 minutes there, it’s the most high value time that you can spend to meet a lot of people quickly, and in a great environment.

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

Jason Treu: They can go to my website, it’s JasonTreu.com. There’s tons of free giveaways on it. I have a guide on ten best practices in creating influence and meeting people, and some of the stuff we covered is on there, and a lot more stuff in-depth that’s easy, that people can just implement overnight, and be pretty successful at translating that into real estate deals or other investing that they wanna do.

Joe Fairless: You absolutely over-delivered on the promise of talking to us and teaching us how to build great relationships, talking about the three pillars that you have for building a great relationship – one is build rapport. A question that we should all ask people, whether it’s someone we just meet or our spouse or significant other, “What’s the most exciting thing that’s going on in your life right now?”

Two is likability, and then three is building trust with people, and you gave some specific ways to do each of those things. Then on top of that, a couple miscellaneous tips… One is go volunteer for a nonprofit, or a charity or something that you’re passionate about where people who have money also spend their time, but more importantly you want to be involved with that organization; go volunteer, test it out, and then ultimately climb the ranks, be a board member.

Then the other miscellaneous tip would be do a sub-meeting at a conference where you gather some people and do a brunch. Then you’re simply the one who organizes it and you’ll be elevated to another level and be included in other stuff.

Thanks, Jason, for being on the show. I hope you have a best ever weekend. A lot of practical tips that you gave us, and I’m very much grateful for that. I hope you have a best ever weekend, and we’ll talk to you soon.

Jason Treu: Thanks.

Best Real Estate Investing Advice Ever Show Podcast

JF1175: He Buys For Appreciation vs. Cash Flow with Tim Shiner

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Tim specializes in high end SFR rentals, and contrary to popular belief, he prefers to buy his properties for the appreciation. He’ll even lose $200 to $300 per month if he believes the property will appreciate and be worth more in the long run. He has another different strategy for when his tenants lease comes to an end. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Tim Shiner Real Estate Background:

  • Specialize in high end Rentals in the Dallas,Texas market
  • Creating a revenue stream for landlords from departing renters, with a focus on superior school districts for appreciation
  • Has 153 doors, with 19 being high end residential and the rest multifamily
  • Based in Dallas, Texas
  • Say hi to him at www.timshiner.com
  • Best Ever Book: Cash Flow Quadrant

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

With us today, Tim Shiner. How are you doing, Tim?

Tim Shiner: Joe, thanks for having me on. I’m excited about being interviewed by a Red Raider. Guns up!

Joe Fairless: That’s right, Guns Up! I appreciate that. For any Best Ever listener who’s like “What is a Red Raider?” Texas Tech, baby – that’s where I went to school, and that’s what Tim’s referring to. Alright, a little bit about Tim – he specializes in high-end rentals in the Dallas market, and we’re gonna talk to him about that because that is a bit different from what we come across. He has 153 doors with 19 of them being high-end residential, and the rest of them being multifamily. You can say hi to him at his website, which is his name, TimShiner.com, and that’s in the show notes link. With that being said, Tim, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tim Shiner: Sure. Thanks for having me on your podcast. I’m 51 years old; I bought my first house when I was a couple months shy of being 20 years old, so I’ve always had real estate in my blood. I’ve made a lot of low-end mistakes, and it forced me to focus on the higher end. I get it, people gotta start out wherever and work their way up, but my best advice is a theory that I call “BAD.” You Buy once (B), A for Appreciation – we’ll talk to that – and D is for Debt reduction.

When you buy once, you’re either gonna pay fair market, below market or above market. It’s gonna happen once and that’s it. And then let’s skip over the A for one second and go to debt reduction – debt reduction is gonna take a lot. Whether it’s a 15-year mortgage, 20 or 30, it’s gonna be a long road, and sometimes you’re not gonna see that debt reduction kick in until five or seven years down the road… So what I’ve really focused on is appreciation. Naysayers can say “Hey, it could be up or down, it could be a bubble economy”, but what I focused on is tremendous school districts in a town called Southlake, Texas, where there’s no multifamily, there’s no duplexes, there no easy way in, and because of that, my high-end residential properties have appreciated tremendously (the A for Appreciation), but my houses almost act like the apartments in that town, because there is no multifamily.

That’s something that I’ve done a little bit different than most – really focus on great school districts. I’m convinced that my lovely wife makes more of the real estate decisions than most guys do, and wives want great school districts to raise their kids in.

Joe Fairless: Yeah, and being from the Dallas-Fort Worth area I’m familiar with Southlake (Carroll), and it’s one of the top high school football programs in the state, and usually with that comes a very nice area, and that is the case with Southlake. So this is one of the top five high-end areas in Dallas-Fort Worth probably in terms of just overall net worth or affluence. So let’s talk about the numbers on a typical deal. Will you give us specific numbers for a deal?

Tim Shiner: Yeah, so I bought a while ago – there’s a beautiful outdoor mall called TownCenter that was being built, and I can’t play guitar, but I’ve got vision, and I could see what that was gonna be like afterwards, and once that mall was gonna be done, I knew the properties were gonna shoot up, because it’s such a beautiful, high-end place.

I’ll give you an example of the first one I did there – it was a [unintelligible [00:04:21].18] for 169k with a pool, and now that [unintelligible [00:04:25].11] So the appreciation in the area has just been tremendous, and we have an unfair advantage, Joe, the fact that we know this area, but there’s about three affordable pockets, and everything else is 800k to many, many millions. So having these houses that are now about 400k, that fly off the market and rent instantly, has been one of the things that I’ve done really well.

I’ve had a lot of strikeouts on lower end property while I was waiting for them to appreciate, slowly getting debt reduction, and it just made me focus more on the high end. I’m fortunate that I have other businesses and other streams of income. In the beginning I was not positive, I was negative $100 or $200/month per house; now I’m positive on everything and there’s a ton of equity in it.
Some people are in the [unintelligible [00:05:09].00] and I understand that… But if you think about it, if you had a $240,000 house and you were $200/month positive, that’s $2,400/year. Now, if you had that same house and it went up 1%, that’s $2,400 also. If it went up 3%, that’s triple the $2,400, and that’s where I’ve built wealth and that’s where I’ve done things a little differently.

I’ve got another concept after we’ve done discussing this, and I think [unintelligible [00:05:32].21]

Joe Fairless: Yeah, we’ll talk about that one in a second. Let’s still talk about this – $169,000 house, three-bedroom two-bath in Southlake… When did you buy that?

Tim Shiner: That was about ’06.

Joe Fairless: Really, ’06? Alright, I was figuring maybe like ’09, but ’06… Still on the way up you bought it.

Tim Shiner: Yeah, absolutely. I’ve got numerous examples of stuff anywhere between 170k and 240k… But we don’t have a time machine, we can’t go back in time on that deal, but if listeners are thinking about an area, just try to go towards the better school district. [unintelligible [00:06:11].03] kick up a little bit more on a house in a better area… Those great school districts just seem to hold value and appreciate a lot better than other things.

Joe Fairless: As far as the buy once goes, does that mean that you never sell?

Tim Shiner: Yeah, my horizon now is forever. When people say “Hey, it might have been a little bit of a run-up…”, well, I’m holding on forever on my deals now. And how I have an equity moment – it’s just refinancing. I haven’t refinanced anything up until this year. I just pulled off 300k tax-free on a small little refi, and I really don’t have  a purpose for the money so I didn’t wanna take too much equity off, but for the  first time ever I did fly South a little bit… And quite honestly, I haven’t done much with it, just some nice vacations, and it’s really just kind of sitting there, but that’s how I had an equity moment.

I hate selling anything, I’m not a flipper. I feel like if I can make 20k today, I can probably make 100k a decade from now, so I’m a buy and hold guy through and through.

Joe Fairless: Are you still buying in Southlake?

Tim Shiner: To give you an example, I looked at one yesterday that was a three-two-two, and it was 315k, and it’s part of [unintelligible [00:07:18].22] but it goes to that same great school district that you talked about, and it just doesn’t feel right, but that’s what I’m at now price-wise to get more houses – between 300k and 400k for the same type of houses. I [unintelligible [00:07:32].16] step down currently. So it makes it hard for the numbers to work, because rent on that 315k is gonna be around $2,000 or $2,200, so it barely makes sense, it’s a little negative on that.

Joe Fairless: So what are you gonna do?

Tim Shiner: I’m looking at the North part of [unintelligible [00:07:48].29] and they’ve got a good school district there. I can drop down in that area at like $220, $230, and I think I’ll have a nice little run-up on that.

Joe Fairless: When you say ‘tremendous school districts’, do you go somewhere to look at the ratings?

Tim Shiner: Yeah, Southlake Carroll you alluded is top five in the Dallas-Fort Worth area; it’s actually top five in the state of Texas. There’s 1,221 independent school districts in the state of Texas, and Southlake is ranked number five. So one is the school district, but the second thing is the restrictions. In Southlake you can’t build on anything less than a half an acre of land, so now you’re restricted by the dirt. There’s no multifamily, there’s no duplexes, so the city’s really cranked down the barrier of entry, and like anything, if there’s scarcity, there’s gonna be more value and greater chance for appreciation.

So I just locked in on Southlake, and now the numbers are to the point where I’ve gotta find something similar to Southlake, and I believe that’s [unintelligible [00:08:46].26]

Joe Fairless: Oh, I love hearing you say Keller, Texas, because we closed on an apartment community in Keller, Texas like three months ago, so…

Tim Shiner: Good for you, Keller’s great!

Joe Fairless: Yeah, that puts a big smile on my face. I think I missed the website that you go to… Where do you go online to look at the ratings?

Tim Shiner: I googled it, and quite honestly, I don’t know exactly what the website is. It’s something that I looked at years and years ago. But living here, you knew that it was a great district. I really don’t know where you would go today… So I’m sorry, that isn’t the best advice ever.

Joe Fairless: Okay, that’s fine. You live in the area, so you just know. It’s different for an outsider who doesn’t live there, going to a resource… But quite frankly, an outsider who doesn’t live there should be talking to someone like you and should be doing third-party research, but the best resources are people who are living there and know the area, versus what some website says.

Tim Shiner: Sure. And the other thing that I feel good about is the proximity to the Dallas-Fort Worth Airport. You’re ten minutes away. There’s three major middle-of-the-country airports – Denver, Chicago and Dallas, and two of those three tend to have a little bit of snow, so I still think the Dallas area is gonna hold its value because you’re in the middle part of the country. If you’re a guy in outside sales you’re ten minutes from the airport, you’ve got a great school district for your kids… I don’t see it ever going backwards.

Joe Fairless: Well, now we’ve talked about your BAD strategy or theory – buy once, buy for appreciation, which goes against what I always wanna do, which is buy for cashflow, and it goes against most people, but ideally I wanna buy for cashflow and then force appreciation through some value-add components, and then if we get natural appreciation then we’ll high-five each other. But you take a different approach, and that’s the beauty of real estate.

Tim Shiner: We’re similar – I have tremendous positive cashflow now, I just didn’t right away. But I could have bought in a less good area, and the stuff wouldn’t have appreciated. But the other thing is you’re a lot younger than me. I’m holding for forever, and I am positive, but I have other businesses that offset breakeven, little negative, little positive in the beginning. But think about it – you know how to buy for positive cashflow, as a ton of the podcast listeners know how to do, and I do also, but I chose to try to ride the appreciation ride and have different challenges.

When we don’t get a check on time, people are calling us up or e-mailing us going “Hey, you didn’t deposit our check.” I’ve had some really positive stuff in lower-end areas where I’m chasing money. So I guess it’s what challenges or what opportunities do you want with the real estate that you’re gonna own.

Joe Fairless: Absolutely, that’s a great way to put it. There’s gonna be a challenge regardless of what you buy and how you buy it, it’s just what challenges do you wanna have. What is your threshold when you look at a property that is losing money, but you see a good long-term play, in terms of what are you willing to lose in the short run to potentially gain in the long-run?

Tim Shiner: $200-$300 is where my threshold has been.

Joe Fairless: A month.

Tim Shiner: A month, yeah. So I’m only gonna lose a couple thousand bucks a year on something that I feel like is growing more than a couple thousand bucks, or I see some long-term value on it. I just think that quality, quality stuff — it’s really hard to get a great piece of property in a great area and not have to pay fair market. You control 175 million dollars worth of real estate, so you have a different point of view, and if you listen to someone, you probably should listen to you versus me… I’m just giving a different way for the listeners to think about something.
Some people might not care about $50 or $100 positive, but they really get excited about the fact that that property could grow 20%, 30%, 40%. Southlake last year grew 20% alone, so if you had five million dollars worth of real estate there, you made a million dollars.

I’m not really worried if I was plus or minus a couple hundred bucks a decade ago, because the bigger picture has really worked out. The naysayers can say “Hey, maybe it won’t appreciate.” Yeah, it might not, and stocks might not go up, but I think long-term quality always endures.

Joe Fairless: How do you finance these?

Tim Shiner: Back in the day I bought a lot of them during the subprime heyday with traditional mortgages. Then recently I rolled up 15 properties and took a 20-year note, and that’s when I grabbed some equity [unintelligible [00:13:11].09] I rolled up 15 properties, I owe 1.8, and they’re worth over five million. And what I ended up doing is tossing another 300k on cash-out and now I owe 2.1 on stuff that’s five million. That goes against everything that — normally, I’m Mr. Leverage Up, let me get to 80% or 75%, whatever the bank will get me, but I’ve also got a line of credit off of that, so now when I buy something I just toss into the original loan and then refresh the line of credit. I use a local bank here.

The challenge for me right now is the market’s so hot, to find something I really want, that somewhat works, is a little bit nuts. Everything’s going 10+ offer, full money or more… It’s just a pretty hot market for us right now.

Joe Fairless: What bank do you use? What local bank?

Tim Shiner: Providence Bank in Southlake Texas.

Joe Fairless: Okay, it makes sense that they’re based in Southlake.

Tim Shiner: Well, what’s great is they have two branches, so they appreciate and understand the area they’re in. And they’re a smaller bank that likes to play ball, and they see the value of the community they’re in.

Joe Fairless: Alright, let’s talk about the other strategy that you alluded to. Tell us about what you were talking about.

Tim Shiner: Okay, my wife is a real estate agent, and she became one out of frustration, because when you’re leasing out properties, an agent typically makes 25% on each side. So let’s say that we’re taking a $2,000 rental (or listing, if you wanna call it that), the agent is making  $500, and the person bringing the client is making $500. Well, when the real estate literally can make 10-12 times more money selling a house, they don’t get too enthused about getting a client in there real quick for a measly $2,500.

So we relied, at the time when we had traditional mortgages, and every time that house [unintelligible [00:14:49].13] it’s a $2,000 click, so we’re like “We’ve gotta do something different”, so she became a real estate agent. This also feeds into my theory of higher end properties. I think we’d all agree that every renter eventually leaves, so why not make a 3% pop on  the way out? So what we do is we’ve got this term we call “Buy from me, tear up your lease for free.”

So when our renters want to leave or move on, we’re gonna try to sell them a house and let them out of their lease at anytime that they want, so that they don’t have to worry about trying to time the perfect house with the ending of their lease. This year my wife sold three houses with a total value of about 2.5 million dollars combined on the three houses. 3% of that, that’s $75,000, minus the 20% she pays for broker. But that’s our whole philosophy for continuing to buy higher end rentals, because we create a revenue stream off of basically our savings, or our long-term goal of having these houses. That’s a different strategy, and it’s another way of making a revenue stream off of your portfolio.

Joe Fairless: Yes, I wanna make sure I caught that… “Buy from me and tear up your lease for free”, is that what you said?

Tim Shiner: Yes, sir.

Joe Fairless: Right, so they are renters with you; when they want to buy, they can exit out whenever they want as long as your wife represents them and gets the 3% commission.

Tim Shiner: Exactly. What that does is… Let’s say the renter’s best friend or sister or family member is a realtor – that’s great, but their family member or best friend cannot get them out of their lease. You kind of block them out that way, but then the other great thing about it is they can relax. They’re not like “Oh my god, my lease is coming up in June; I’ve gotta buy something by 1st July, and hopefully don’t live in a pod, have all my stuff in a pod and live in an extended stay…”

Joe Fairless: It’s genius.

Tim Shiner: So it’s a way of making a revenue stream off that. Now, if you think about it, if I had lower end rentals, chances are some of those folks might never qualify, might never buy a home, but on the higher end rentals, it creates this whole other revenue stream. And quite honestly, I’ve talked to a lot of folks where the husband’s [unintelligible [00:16:46].03] in real estate investing; this makes for a real happy family, when the wife can get a pop (or the husband) while you’ve got your long-term goals set into place.

Joe Fairless: That’s genius. Is there an out clause for them, should your wife for whatever reason – not that she would – drag her feet, and it’s been 12 months and they’ve been wanting to buy but she’s just not responding to e-mails, or whatever? And again, she wouldn’t do that, but I’m just trying to think–

Tim Shiner: You don’t know my wife; she’s a Texas Tech grad and–

Joe Fairless: I know, I know, she would never do that… But it’s the lawyer in me–

Tim Shiner: Yeah, Joe, great question, and it’s a fair question. It’s not a fair-less question, it’s a fair question. [laugh] So what it is – it’s a traditional 12-month lease. We’re still doing a 12-month lease. So let’s say that they don’t find a house, or my wife is horrible at responding – after 12 months they’re out of their lease, just like they would be with any other lease. But what makes our lease special, different and better for them is the fact that they CAN get out of it… And trust me, when they’re looking to buy a 600k or a 1.2 million dollar house – which both of those occurred this year – my wife’s all over it. She likes nice purses and fancy shoes, so you don’t have to worry about phone calls.

Joe Fairless: Okay, I get it. If they are in month 11 of their lease and they have one month left, then technically she has one month to solidify the relationship and work with them to either find a place or be entrenched enough where they won’t go with another agent.

Tim Shiner: That, or just [unintelligible [00:18:15].07] So it’s very much like a traditional lease; there’s nothing different, except for “We can get you out if you wanna go buy a house.” And quite honestly, at the higher end, these people have 700+ Beacon scores; they might have just moved to the area, wanted to get a feel for the town for a year, and then decide to buy. We get a ton of that. So it’s just a different caliber of renter.

One of the big challenges is trying to explain to them what a renter does and what a landlord does, because most people haven’t rented since college. You have people that sold a house in New Jersey and came down – they’re not used to renting; they’re used to being a homeowner, so it’s a great transition for them and it’s a really good thing for us.

Joe Fairless: That’s beautiful. What a fascinating strategy… It makes a lot of sense. It’s something that I think every landlord who is self-managing, who also has a real estate license, should put in their lease. It should be there for everyone. It’s not handcuffing them… It kind of is, but more importantly it’s giving them the flexibility to break the lease, and they’re gonna bring an agent on anyway, so let’s see if they can find something within the lease period.

Tim Shiner: Joe, we’ve had situations where people have a friend or a strong relationship with a realtor that fulfilled their lease, and they go buy a house with their friend – no problem. That occurred to us for the first 15 years of doing this, until we kind of wised up about 3-4 years ago and thought “Hey, there’s an equity moment potentially on our long-term plan of buying and holding and appreciation…” This year alone, like I said, it’s been about $75,000 worth of commissions.

You’ve got a lot of listeners out there that have wives that are trying to raise children, or having to go to their job and put kids in daycare – wouldn’t it be nice to work your portfolio for another stream of revenue?

When I look at your podcast, I love that you basically said “Hey, what do you do differently than anybody else?” and “Get to it pretty quick.” Mine is “BAD”, buy the good stuff, and then the second thing is “Buy from me, tear up your lease for free.”

Joe Fairless: Alright, we’ve already talked about these two concepts, so feel free to pick one aspect of either the concepts, or if you’ve got something else, that’s cool too… What is your best real estate investing advice ever?

Tim Shiner: Buy quality. You’re never gonna regret it.

Joe Fairless: You’ve got 153 doors… Let’s move the high-end residential properties aside; you’ve got 19 of those, I believe. What’s the other stuff that you have?

Tim Shiner: Four apartment complexes in rural Kentucky. Not where you’re at, but more Central City, Greenville area. Because I owned another business up there I bought up there, but [unintelligible [00:20:45].02] in ’09 and ’10 everything just went to a screeching halt, so I no longer was able to buy residential properties. In fact, I looked at a guy that had a bunch of residential properties kind of with a little hairy eye, like “How did that happen?” So that’s when I started buying multifamily, and I also wanted to grow faster… Just like you, I’m a huge fan of good debt. If you’ve got good debt, that’s cash-flowing and other people are paying it down, I want as much as I can.

So I bought, through the years, four small apartment complexes – a 24-unit, a 27-unit, a 48-unit, and the 24 with a trailer park on it. And quite honestly, it cash-flows good, it was good, it’s just my challenge was – and I’m sure your listeners are much better than I am at it – it’s hard to manage something 750 miles away, and it was at a price point where you just had some challenges that were just tough.

I’m in the process of selling those units now. I’m happy that I’m gonna have an equity moment on it, and I’d rather just have that money closer to home, on the higher end. So that’s where I’m at with multifamily; not to say anything bad about it, it’s just I didn’t do a good job at it. I’m much better at the higher [unintelligible [00:21:48].07] I think sometimes in real estate investing you’ve gotta realize who you are and who you aren’t. That’s a great deal for someone else; I’m looking forward to transitioning out of it just because it’s been challenging for me, being that far away.

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

Tim Shiner: Sure, bud.

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

Break: [00:22:10].14] to [00:23:12].12]

Joe Fairless: Best ever book you’ve read?

Tim Shiner: It’s gotta be Kiyosaki, The Cashflow Quadrant.

Joe Fairless: Best ever deal you’ve done?

Tim Shiner: The first house I bought in Southlake; it was the beginning of many, many more.

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

Tim Shiner: When I was really young I didn’t get an inspection, and I bought a property that had a major leak, a sewage problem… So I will always get inspections; it’s money well-spent.

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

Tim Shiner: All the time, man… Community Storehouse, that’s the foodbank in Keller, and the Safe Haven Womens’ Shelter in Fort Worth. I’m extremely charitable.

Joe Fairless: What’s the best ever way the listeners can get a hold of you or learn more about what you’ve got going on?

Tim Shiner: I’m lucky that a lot of people helped me along the way. I’ll be more than happy to communicate or e-mail or text or talk to anyone. TimShiner.com – there’s a couple free things that I’ve got there… A poster of 25 habits of a future millionaire – it’s just to help people focus on what I feel it takes to get to that level. I also wrote a book, “50 Things They Don’t Teach You In School.” 100% of the money goes to the foodbank, and it’s just trying to help young people, like buy used cars, send thank you notes, be charitable… [unintelligible [00:24:18].18] Pretty quick, easy read.

Joe Fairless: I’m looking forward to reading that myself. Tim, thank you for being on the show. Thanks for talking about concepts that I haven’t come across before in this way, and that says something, considering I’ve interviewed over 1,000 real estate investors, and I always love coming across different approaches that are working. There’s pros and cons to any type of approach that we take in real estate, and we talked through that. Your “BAD” strategy, the buy once, buy for appreciation in tremendous school districts, and bonus points if there’s restrictions on the type of multifamily builds that can be done there. Then debt reduction (D)… So buy once, appreciation and debt reduction (BAD), as well as the other strategy, “Buy from me and tear up your lease for free.” It’s got a nice ring to it and it makes a lot of sense… So that’s for being on the show.

Tim Shiner: Thanks for all you do. I really appreciate your efforts and all you do for us.

Joe Fairless: My pleasure, and tell your wife “Guns up!” I hope you have a best ever day, and we’ll talk to you soon.

Tim Shiner: Thank you. Have a great day!

Best Real Estate Investing Advice Ever Show Podcast

JF1139: How To Sell High Ticket Items (Like Real Estate) #SkillSetSunday with Stephanie Chung

Listen to the Episode Below (22:25)
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Stephanie has sold private jets to very high income earners. She has amazing insight and tips on how to be better at selling, one of them is to shut up and and ask questions. We process information faster than we can speak, so letting your potential client, buyer, or seller, speak is beneficial to you. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Stephanie Chung Background:
-Award-winning executive coach and high-ticket sales closer
-Creator of “High Ticket Selling Made Simple” course, to help small business owners sell and make more
-Former sales executive in the private jet industry
-25 years of team management, business development, and sales leadership experience
-Based in Dallas, Texas
-Say hi to her at http://www.stephaniechung.com/  and http://www.getmoreclientsandsales.com

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They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit http://www.fundthatflip.com/bestever to download your free negotiating guide today.


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

I hope you’re having a best ever weekend. Because it is Sunday, we’re doing a special segment like we usually do, and that is Skillset Sunday. By the end of our conversation you’re gonna have a specific skill that you can then go apply to your real estate endeavors. Today we’re talking to someone who’s a former sales executive in the private jet industry. She was selling private jets to individuals and companies, and she has mastered how to sell high-ticket items, and how relevant is that to real estate in terms of getting the most value from our properties that we are selling. Maybe we’re doing a conference and we wanna sell more premium tickets – whatever it is, we can use some tips and practical ways to implement how to sell high-ticket items. With us today – how are you doing, Stephanie Chung?

Stephanie Chung: Thank you so much, Joe. You really know how to introduce a gal.

Joe Fairless: [laughs]

Stephanie Chung: I’m doing fantastic, thank you so much for asking.

Joe Fairless: Well, my pleasure. It’s such a natural fit for real estate investors, your background. A little bit more about Stephanie, and then we’ll get into it in more detail. She is based in Dallas, Texas, she’s got 25 years of team management business development and sales leadership experience, and she’s an award-winning executive coach and a high-ticket sales closer, as I mentioned earlier. So by the end of our conversation you will know how to sell high-ticket items. With that being said, Stephanie, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Stephanie Chung: Sure, absolutely. Our organization, Stephanie Chung & Associates, we’re based in Dallas, as you mentioned, and really what we specialize in is executive coaching; we work with the C-suite in regards to leadership communication, and then also – really my love and my passion, is high-ticket sales closing. Companies, because of our background (because of my background specifically), companies will bring us in to really work with their skilled professionals or managing partners or business development – those folks who specialize in very high-ticket items. So we will come in and talk about how do you close those high dollar items, and what does it take.

As you know, there’s a difference between selling a high-ticket item to a high net worth individual versus selling a high-ticket item to all the rest of us. It’s a little bit different, and different techniques and skillsets are needed, and it really centers around the conversation itself. Getting in that show, we do executive coaching and we do anything all sales-related, as well.

Joe Fairless: So how do you close a high dollar item and what does it take?

Stephanie Chung: At the end of the day, one of the things that just can send me through the moon in a negative way is when I hear people say things like “Oh my gosh, they’re such a people person, and that’s why they’ll be good in sales” or “They have the gift of gab, and that’s why they’ll be good in sales.”

The fact of the matter is the best people in sales are the ones who do a lot of asking and very little telling. That’s the very first thing – you wanna focus on asking your questions, and not that [unintelligible [00:04:25].29] but getting down into the core… Because we’ve heard this before, and now there’s enough science to back up, that we don’t make decisions based on logic, we make it based on emotion. So as a sales professional, which by the way, anybody that runs their own business, I always call them a sales professional, because at the end of the day that’s what we are, right?

Joe Fairless: Yeah, I agree.

Stephanie Chung: All of us grind it out every day. As sales professionals, we have to understand the neuroscience behind selling, which is why mine is a little bit different than just your typical open probes, close probes, like the normal stuff. It’s because I’ve spent a lot of time looking at what does the brain do when those kinds of conversations are happening. To give you an example, Joe, we talk about “Ask, don’t tell.”

Here’s the science behind why that is. One, there’s the obvious – the more I could ask questions, the more information I can get. And if you ask people enough questions, they’ll tell you everything you ever wanted to know about them, right? But the science behind why you do that is you and I can probably talk at a speed of, if we’re lucky, 300 words per minute. That’s how fast we can speak. But the brain can process anywhere from 1,000 to 3,000 words per minute, so the reason why you don’t wanna be the one talking all the time and you wanna be the one asking is because you have the unfair advantage based on you being the asker and your buyer having to speak. So if it’s the buyer speaking, they’re speaking 300 words a minute, maybe, if they talk fast like you and I, Joe, but [unintelligible [00:05:50].28] calculates 3,000 words. So as they’re speaking, we can watch their body language, we can listen to what they’re saying, we can hear the essence of what they’re saying, and then that helps us then drive and guide the conversation.
But if you reverse that, and most salespeople do – they’re doing all the talking – then the buyer has the ability to sit there and look at you, politely smile, but in their mind, because they can process so much faster, they’re thinking “What does she have on? Oh, I wonder how am I gonna get out of this conversation? Maybe I’ll just tell them this…” – you know, they have the advantage to think of so many other things which can come back to bite you later on.

Joe Fairless: Yeah, it’s so true… I’d never consciously thought about that, but that you mentioned the 300 words per minute that we talk, versus 3,000 that we can process, it makes a lot of sense. Now I’m thinking back on situations… I do feel like my brain is working more when I’m listening than when I’m actually talking. I’m processing a lot more information.

Stephanie Chung: Exactly. And you know, another reason why you do it is when you ask someone a question, especially if you’re asking them a question about themselves, the fact of the matter is the brain produces like a dopamine effect. That’s why we all like to talk about ourselves; we actually feel good about it.

Well, what’s great then from a sales perspective is how we wanna use that is we wanna use that to our advantage. So we wanna ask people questions about themselves and build rapport, because people won’t buy from you, as we all know, if they like you, trust you and feel like you’ve got their best interest in mind. But how you can simply do this is by asking them some questions to build that rapport. That, in fact, lets the brain start to produce the dopamine effect; they feel really good about you, and you may not have said anything about your product. All they go is “I like that Joe, he’s a really great guy” – it’s because you asked them questions and let them just talk about themselves.

Joe Fairless: So high-end ticket sales – asking questions, don’t tell; you gave a reason why, and also really another reason why… What else do we need to know? Now, I get I should ask more than I should tell, but what else do I need to know to do high-end ticket sales, or high end sales in general?

Stephanie Chung: A couple things. One thing a lot of people don’t really think about is you’ve gotta get your mind set to be able to talk those big dollars. What that means is your financial beliefs have to be under control. We all have them – we were brought up, and it’s a matter of how were be brought up in our home? Were we brought up where money was based on scarcity? “Turn those lights off”, “Money doesn’t grow on trees.” Or were we brought where money was spoken about in abundance?

However we grew up, we have our own financial beliefs. So whenever you’re selling a high-ticket product – or any product, for that matter – you have to make sure that you’ve never let your financial beliefs get into the conversation. Because once they get in, unless you grew up around money, which most people did not, it can sabotage the results and sabotage the sales, and you end up actually not selling the high dollar, but you come in and you settle for something less, because that’s where you’re comfortable. Does that make sense?

Joe Fairless: It does, it makes a lot of sense. Any way that you recommend someone expanding their mindset so they can talk big dollars and live in a world of abundance, versus scarcity?

Stephanie Chung: The very first thing I would say – and this goes without saying, but unfortunately I have to say it all the time – is you really do wanna be about the buyer in front of you. The more you can focus on what exactly do they need — not so much what I feel comfortable selling them, but what do they need? When you can focus in on that, then the conversation takes a whole different direction.

Here’s what I mean by that. I have a client, and they sell memberships. I’ll give you just a quick story on this. A membership in their particular world can range anywhere for $50,000 to $100,000 or more. So this company brought me in for some of their salespeople, and as we were coaching through it, I kept asking this one particular salesperson (he was their number one sales guy)… I said “Why do you keep selling everybody the $50,000 membership”, when clearly this particular scenario he was giving me, the guy really was better suited for $100,000?

He said, “Well, I wanna just get them in at $50,000, and then they love it, and then down the line I’ll sell the the $100,000.” Well, that’s putting your own financial beliefs into the equation. This customer was better suited for the $100,000. It’s a very subtle effect how it can sabotage the deal. In his mind, he truly believed that “Well, you know, I’ll start him at 50k and then we’ll ease him into 100k.” Well, now that’s two steps for the buyer. If the buyer is better suited for 100k, then that’s exactly where you start. It’s not about you, it’s about them.

So that’s one thing I would tell you – if you think about the stuff that we have to do, when you have those conversations, the first part is be really listening and be attentive and mindful of what is, and of course, it’s not about me. That’s the first thing.

The second thing is you have to know your stuff. Long gone are those days that you could wing it. Those days are dead. There’s way too much competition out there. No matter what space you’re in, the market is flooded… And really, what’s gonna separate us is our ability to get the job done for our results, and knowing our stuff, and having that swagger, if you will; you’re confident. When you’re selling a high-ticket item, you have to be sure, you’ve gotta know what you know, because A-list players wanna work with A-list players. They don’t wanna work with A-list players in the making, they wanna work with — you’ve got to have your act together. You’ve gotta know your stuff, you’ve gotta stand firm on whatever your price is, and you have to have that air about you – not arrogance, because nobody likes that, right? But you definitely have to have that air about you where they feel comfortable that you’re competent in what it is that you do.

And one thing, Joe, along those lines, I would tell people is if you’re not that person just yet, that’s okay. None of us are coming out of the womb competent; we have to build and get to that place. But if you think no one else notices — yeah, we all notice; we all know when people have insecurities, we’ve all got them… So get them figured out and worked on.

Joe Fairless: How do you have confidence, but not talk as much and just ask questions? Because usually I would think people would consider confidence with talking and telling them what you know, versus being more quiet and listening and asking questions?

Stephanie Chung: That’s a great question. It really comes down to the quality of the question. You wanna be able to ask those questions that get your buyer to literally stop for a second and go “Huh! I’ve never thought about that before”, or “That’s a good question.” You want that awkward silence, and that’s when you know you’re really getting somewhere… Because everyone else is asking the normal questions, and you have to be mindful. What I always tell clients – and everybody’s got a different field, but when you’re asking one of those questions, like… I’ll give you an example, since you have a lot of real estate folks – one of the clients that I work with – again, they work with high-end dollars, and this particular gentlemen is just super smart; Ivy League school… Just a beast; this guy, he reeks confidence. But he’s newer into this space, so where he’s a little bit challenged is on the people skills.

He can do the numbers real good, he’s got a strong financial background, yadda-yadda-yadda, but when it comes to socializing or the social skills – not necessarily his strong point, which is why he brought me into the equation. So some of the things that we were talking about – we were doing an example because he was working with a husband and wife couple, and the husband and him just resonated, because the guy was exactly like him. But of course, the wife had a big influence in whether or not they were gonna move forward with this particular purchase, and certainly with this particular realtor. So we worked a lot on his soft skills, and one of the things I shared with him was I said “When you’re asking the question, instead of [unintelligible [00:13:44].20] as far as how long you expect this to take.”

A part of sales is keeping the sales cycle down, Joe; so if it normally takes you five or six touch points to close the deal, well how do we get that down to two or three. So that’s the first thing. But in that particular scenario, what we worked on – I said “Part of it is you’ve gotta guide the customer”, because again, this isn’t their expertise; they’re counting on you to be the expert… So guiding the conversation.

In his scenario, I said what you could tell him is “Listen, I’ve understood everything that you’re looking for, and let me just give you an idea of how we tend to work over here, at the XYZ company.” Have him go through — so you’re guiding the customer, because it’s like a dance, most people wanna be lead in that sense. But one of the questions I had him ask, I said “Ask the question about when you’re trying to figure out which home is gonna be a great choice for them, instead of just asking about what are they looking for, ask them about their childhood and what they’re used to”, because now you can attach the dots, okay? So you could ask something like “Well, I know that you’re looking for [unintelligible [00:14:43].13] and a two-car garage and three bedrooms”, and the basic stuff, right? I said, “But instead, ask them a question like ‘Well, tell me a little bit about when you grew up. Walk me through what your house was like then.’ Now I’m gonna take you back…” Again, we don’t make decisions on logic, we make it on emotion. So the more I can get you back there, and now I’m training the dopamine effect – you’re talking about yourself, you’re talking about your childhood, and you’re walking me through that process, and I’m digging in detail. “Oh, so your mom was a stay-at-home… Wow, what was that like? Oh yeah, she cooked all the time and she made the best apple pie…” – I want those details, okay? Because that’s going to change the game. For starters, you’re gonna remember me; “Yeah, I really liked that person, they were great.” Why? Because I let you talk a lot about yourself. I was listening to all the little cues and keys, because the things that you’re describing are going to help me better serve you now, when we get back to “Yes, you want a home with three bedrooms and a two-car garage etc.”

Most realtors will ask that question, right? Hardly anyone will go back and dig into the background as to why, what got them here at this point? So I would say you’ve got A through Z – most people will start at M, and try to get you to Z and close you… Whereas I’m like “Hey, start at A, so I can build that stickiness, build that relationship, get you falling in love with me”, making myself stand out from my competitors, and then by the time I get to M, getting the Z is easy. Does that make sense?

Joe Fairless: It makes a lot of sense… Yes, it does make a lot of sense. You’ve delivered as you promised. You’ve given some practical tips and strategies for how to do high-ticket selling, or just high end selling in general, high-ticket items. Anything else that you wanna mention as it relates to selling high-ticket items that we haven’t discussed, before we wrap up?

Stephanie Chung: I would say two things. One, we always know it’s never about the money, but a lot of times people will use stall tactics – “Let me talk to my wife, let me talk to my investor, let me talk to my dog…” That’s just stall tactics, they don’t need to talk to anybody, so always keep that in mind. So when someone says that to you, your comeback is “That’s great, it makes complete sense, Joe. Just for my own knowledge though, can you tell me specifically what is it that you need to think about specifically?” That way I can get that objection up and I can go back around to try to close it out again.

So call them on it. That’s the first thing – don’t just let the people off the hook when they say that. Always know there’s no such thing as next week. “Yeah, let’s get back in touch next week” – there’s no such day as next week. So narrow them down. “Great, would you like me to call you Tuesday? I’ve got Tuesday at 2 or 4.” Narrow that next week stuff down.
And then my last one, and I am a big fan of this, is you always want to use the pre-emptive strike. We’ve all been in business, and that’s to know that we’re gonna get the same one or two objections all the time. So what you wanna do… This comes with your confidence and you being in control, and your swagger – you bring up the objection ahead of time, so you can control the narrative.
I’ll give you an example. I know that I’m one of the more expensive coaches in the Dallas area, so because I know that — let’s say someone calls me and they wanna talk about my coaching services or what have you… So what I would say is “Great, based on what you told me, this is what I believe that you’re looking for. You and I have talked about, Joe, how this, that and the other would actually be a great solution for you, so let’s talk about pricing.” So now I’m gonna bring it up, right?
So I’m gonna say something like this to you, Joe – “Something you need to know, Joe, is I’m actually one of the more expensive executive coaches in the area, but here’s why.” So I’m going to bring up the objection, so I can control the narrative. That’s what we call a pre-emptive strike. So for any of your listeners, whether you’re negotiating a commission, listing fee or any of that stuff, bring it up in advance; YOU bring it up, so you can control the narrative. That way you’re not on the defense when they bring it up, and you’re stumbling all over yourself trying to answer it. You bring it up, you’re in control, you’ve got that confidence, and it will usually go really well because they appreciate the fact that you brought up the objection.

Joe Fairless: Bravo, thank you for mentioning that. That can be applied in so many scenarios as real estate investors. You’ve just said three things – control the narrative, proactively bring up things, no such day as next week… And then the first one, “What will you need to think of…? — will you just say that example again? I wanna make sure I wrote it down correctly.

Stephanie Chung: Sure, no problem. A lot of times people will use a stall tactic, and the stall tactic will be “Oh, let me think about it” or it would be “Let me talk to my wife” or “Let me talk to my dog” or to whoever. They’re just trying to stall from making a decision. So the answer to that is — let’s say they said “Let me talk to my wife.” “Sounds good, Joe. It makes complete sense that you would wanna get a second opinion. And just for my own knowledge, could you help me understand what specifically will you be discussing with your wife?” That’s it. If you’re really still involved, you could say something like “Is it price?” Just call it out. If you can tell that they’re kind of getting a little wobbly because of price or something like that, bring it up, call it right out, so then you have the objection right there for you to address.

Joe Fairless: Outstanding. Where can the Best Ever listeners get in touch with you, Stephanie?

Stephanie Chung: StephanieChung.com is probably the easiest way. This has been so much fun, Joe.

Joe Fairless: Oh, it’s been a lot of fun and educational for me. There are a couple things that I absolutely will implement in my business, and that is the last couple things that you said… The “bring up the objection to control the narrative.” I kind of do that already, but not consciously, and now I will. And then also the thing I just asked you to repeat, and that’s why, because I was really interested in that… Just the stall tactic, if they have one. It’s not even really to close anyone, it’s just to learn more about what the potential objections are, so that you can learn for the future, and then perhaps optimize the approach that you take, or the different business plan that you have, or whatever… So “Just for my knowledge, what specifically will you be discussing?”

And then also the many lessons along the way that you mentioned earlier about asking the questions, don’t tell, how we make decisions based on emotion, and how to have the right mindset and really be conscientious of what our financial mindset is and does that align with who we’re selling to?

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

Stephanie Chung: Excellent! Thanks so much, Joe. Bye-bye now.

Best Real Estate Investing Advice Ever Show Podcast

JF1112: He Attributes Having The Right Mindset & Character to His Success with Carlos Vaz

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Carlos was born in South America, as the son of a butcher, he started working at the age of 7. His family instilled strong beliefs in him, which he outlines for us, and says his character is the reason he has been able to own 5,000 multifamily units valued at almost $600,000,000. Hear how he has been able to come to the U.S. and be successful when a lot of people may have given up. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Carlos Vaz Real Estate Background:
-Co-founder and CEO of CONTI Organization, a multifamily real estate investment company
-Portfolio of over 1,400 units his first year in the multifamily business
-Been involved in over $400MM of real estate transactions
-Member of the Urban Land Institute (ULI) and the Young Presidents’ Organization (YPO) Currently enrolled in the Harvard Business School OPM Program
-Based in Dallas, Texas
-Say hi to him at www.contiorg.com
-Best Ever Book: Good to Great

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They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit www.fundthatflip.com/bestever to download your free negotiating guide today.


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 fluffy stuff. We’ve spoken to Emmitt Smith – yes, he develops real estate, believe it or not; we’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad, and a whole bunch of others.

With us today, Carlos Vaz. How are you doing, Carlos?

Carlos Vaz: I’m doing great.

Joe Fairless: Nice to have you on the show, my friend. A little bit about Carlos – he is the co-founder and CEO of CONTI Organization, which is a multifamily real estate investment company. He had a portfolio of over 1,400 units his first year in the multifamily business. He’s been involved in over 400 million dollars of real estate transactions. He’s a member of the Urban Land Institute and the Young Presidents’ Organization, which is an organization I’m currently in the process of getting into. He is currently enrolled in the Harvard Business School Program, and he’s based in Dallas, Texas. With that being said, Carlos, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Carlos Vaz: Sure. First of all, Joe, thank you for putting this together. I’ve heard outstanding things about yourself and about the program. Keep up the good work, we need more of that!

About myself, as you can all tell, I do have an accent; I was not born in the U.S. I am one of nine kids, I’m number eight of nine. My father was a butcher and my mom a homemaker. I’m very proud of that. We didn’t have that much growing up, but it’s just that attitude — the attitude of being thankful and having gratitude for everything that we do.

So I started to work with my dad at the age of seven, going to the farm and going to the butcher shop, put myself through school, started going to law school in Brazil, but they went on a strike the first year, they went on a strike the second year… It was taking a little bit too long, and I ended up coming here to the U.S. about 16 years ago, working odd jobs. I worked at the law office as an intern, working from 2 AM to 6, loading and unloading trucks, working in restaurants during the night, and also going to school during the night whenever I didn’t have to work, and working over the weekends as well.

That was pretty much the beginning, slowly getting myself involved in construction, learned a little bit more, [unintelligible [00:03:20].21] We’re located in Dallas today, Dallas is home. Today we own almost 5,000 units in the greater Dallas area. Our portfolio now is getting close to 600 million, and I’m very proud of what we as a company have achieved together… Not just myself, but being honored to put the company together and achieving so much.

Joe Fairless: I can tell the multiple jobs while you were going through school and having jobs – that has a lasting effect on you because you went into detail about that and I’m sure it was a decent amount ago from a time standpoint. So how have you applied that mentality to get you to where you’re at now?

Carlos Vaz: Well, I think sometimes people complain — it’s so easy for people to complain about what they have in front of them… “I hate my job, I hate this [unintelligible [00:04:13].13]”, but sometimes you need to look into gratitude. Even when I was working as a waiter you never saw me complain; I was thankful for what I have. If I don’t like this job, I’ll suck it up and see “What can you do differently to change your position?”

If you work at a job that you don’t like, and you get home and you just watch TV and you go to bed, and the next day you do exactly the same thing, guess what? Five years from now, where are you gonna be? Exactly in the same place. I think at the end of the day it’s up to us to make decisions, right? Not because the world is not fair… We need to look at our own habits. Many times I constantly look at my habits and say “How can I improve? How can I make things better?”

When I look at the jobs that I used to have, even working as a waiter or working on a construction site in all different places, I was thankful for what I had. “This is gonna give me some money so I can take another class” or “This is gonna give me some knowledge that I can take somewhere else.” That’s how I approached every job that I used to have, until I have my own company now.

The way that applies here is that if you come and you work for CONTI, you really need to enjoy what you do, because everybody inside of the company really enjoy what they’re doing. You can see the passion, which is actually one of our core values. You can see the passion in everybody. I think that’s what sets apart — how can you find your passion eventually and live it?

Joe Fairless: I love your approach. You said “It’s easy to complain, but it’s more important to have gratitude”, and even as you were waiting tables you were grateful, and it’s more about what are you doing differently to change your position, and it boils down to those habits. In addition to have the macro-level gratitude approach, what are some specific habits that you have that have helped you get to where you’re at, or maybe just daily habits now?

Carlos Vaz: It’s interesting, that’s something that my wife and I [unintelligible [00:06:22].12] and I told her “I need to put something together, because that’s how I see some of the habits and the way that I was raised, and being thankful for…” — first of all, you never see me complain. I think that it’s not part of who I am; I don’t have enough time to complain. If I were to look at something I put together, I can come up pretty much with ten values that I live my life. That’s how I was slowly teaching my kids… They’re still young – 4 and 2 – but I’m telling them.

So I would say to me – and that’s very personal, and that’s how I live my life… I’d say these values would be 1) Faith. In my case, my faith is important, because [unintelligible [00:07:06].29]. 2) Excellence. Doing your best in all you touch. It’s not about the quantity, it’s about the quality. Sometimes people say “Well, I’m gonna do this halfway.” Really? It takes twice the amount of time and effort to come back and fix something that you didn’t do well the first time, so take the time to do well the first time around, so that you don’t need to come back.

The third one, perseverance. Again, don’t complain about the situation. [unintelligible [00:07:34].16] working hard. Number four – relationship. Be a team player and help others, and let others help you. So how can you be in a situation — because nobody wants to be around a jerk. Come on, that’s reality. Communication, right?

I think many times there’s an issue it’s because of a lack of communication. It’s not communication itself, it’s what you call effective communication.

Another one that’s important to me, number six – integrity. You always do the right things, even if it means making hard choices. Integrity is everything. When I shake your hand, Joe, and we do business, we’re gonna do something together, it’s not a contract that’s gonna put us together. That contract is just gonna be the formality. I think that you have to have the integrity to do the thing that’s important.

Another thing to me that’s important is family and country. I always say “What can I do to provide for my family, for my parents, to my mom and to my brothers?” and also I do believe that this country (on my book) is the best country in the world. Seriously. We live in an amazing country called the USA. There are opportunities every day, as long as you’re willing to wake up in the morning and go get them. So I think that it’s important to give back and help this country.

The other one is knowledge. What are you doing to pursue growth and learning? A lot of people that are gonna be listening to your podcast — I wish five years ago you were doing this thing, then I could be listening to you. There’s so many good nuggets, there’s so many things if you’re looking for learning from other people that are actually doing things. That helps me not to make mistakes.

Another one is health. Health is really important when I look at my life and everything. If I don’t have health, there’s nothing. So what are your habits? What are you doing to yourself?

And finally, commitment. When you say that you’re gonna do something, get things done, because there’s no point about you saying something and at the end there’s no commitment. When I look at some of these values and I put all of these together, those are my habits, that’s how I live my life.

Joe Fairless: I did not expect you to have a list of ten and be so thoughtful about it, so thank you for that. I’m glad we took the conversation that direction.
I wanna rewind a little bit… Correct me if this is not correct – 1,400 units your first year in the multifamily business. First off, is that correct?

Carlos Vaz: Yes, [unintelligible [00:10:04].21] My first deal was March 2008; that’s when we closed the first deal, and from then to September we were buying a lot.

Joe Fairless: How did you have the funding and the knowledge and expertise to pull that off? Because the last time I checked in with you on your startup background, you ended where you said you were flipping homes and got into some construction. That’s a big jump.

Carlos Vaz: It is. Well, I think that you need to start somewhere, and everything goes back to that knowledge. To go back a little bit, when I stopped buying houses in the greater Boston area was about May 2007. I said, “Okay, the market is getting too crazy, it’s not gonna go anywhere… It’s just gonna get very bad, so I’d better get out of the market.” So I was selling everything that I could.

Then I met some of the friends that had apartment buildings, talking to them. Everything made sense, but number one – I had to go and learn. Where can I learn about apartments? To me, I’d say one of the best places to learn about multifamily real estate — not only multifamily, but also commercial real estate, office, retail, industrial and the multifamily side is CCIM. I’m a huge fan of CCIM. Everytime someone wants to learn about multifamily, go talk to CCIM, because they [unintelligible [00:11:30].03]. So I started going to all their classes and learning more, and now look at highest and best use and demographic change.

My first reaction is “Well, I need to go to a place that’s growing faster than Boston.” I was between North Carolina and Texas, and I ended up coming to Dallas in August 2007. I spent about two weeks here and I said “Wow, this place is really home.” I really love Texas, I really love Dallas, and that’s how I made here my place.

Of course, when I moved here I didn’t know anyone, I didn’t have the equity, I didn’t know management companies, and the whole idea of “I need to start networking, networking, getting to know more people…” There’s a great book on that subject – Never Eat Alone. It’s a really great book on how to network efficiently, and not only [unintelligible [00:12:22].10] about yourself, but also help other people… And I started networking a lot in Dallas, with the idea that 1) when I move here I’m not gonna do single-family homes, I’m gonna do multifamily apartment buildings, and pretty much I’m gonna burn my bridge. Either I move forward or I move forward. That was my intention.

With that in mind I came here to Dallas, I started learning about the markets, talking to and meeting every single broker that I could meet, and then I found a broker that gave me a shot. He said “Carlos, I have this property, the bank has taken this property back. Take a look.” It was a 208 units, the first deal. I was running the numbers, everything kind of made sense, and I knew they were buying very, very cheap. I put the deal under contract; I didn’t have my equity, I didn’t have my debt, I didn’t even have the management company… However, I had that feeling that “Hey, we’re gonna make it happen” a lot, and I started calling every single person that I could, and I was able to find a group out of Utah – an amazing group that said “Carlos, we wanna partner with you.”

Of course, my first deal – the splits were not the best. We were talking about 99 and 1. We all know who got the one, [laughter] but it was okay. So at least part is easy — 99, and who’s getting the one, right? But one of the best books that I’ve ever read is Napoleon Hill, Think And Grow Rich… So you work for the knowledge, you don’t work for the money. I said, “Sure, I’ll take it, because I wanna learn.” And then I started learning more about multifamily and seeing how operations are being done.

Within not even three weeks after closing the deal, they said “Carlos, let’s do this again.” I said “Sure”, and we did it again. And “Let’s do it again”, and we did it again.

Joe Fairless: With that same group?

Carlos Vaz: With the same group. Then by September I was like “We need to hold a little, because it’s moving too fast.” But that’s how the beginning was [unintelligible [00:14:16].13] If you go back to those values, how someone is gonna trust you? Well, it’s easy if you have integrity, if you’re trying for excellence, if you’re trying to be transparent. I said “Listen, how can we grow together? How can I have a win/win relationship?” So that was my first deal.

My idea in the beginning was “I’m gonna learn as much as I can about the market, and then eventually I’m gonna get to a point that I’m gonna make more money.” Sometimes people are so focused on “Oh, I need to make X amount of money up front, otherwise I’m not gonna do anything.” Well, if you’re gonna compromise knowledge, I think that it’s very important to recheck that way of thinking.

Joe Fairless: Do you remember how you learned about the group in Utah?

Carlos Vaz: Yeah, I do. It was very simple, because three weeks before closing I still don’t have my equity and I’m like “I’m gonna die [unintelligible [00:15:13].02]” I started calling some brokers that were friends of mine. That’s why I tell everyone in the company, “The most important thing that we have is respect.” Always respect every person that you meet. I don’t care if the person is picking up the trash, if it’s the EA or if it’s the owner of the company. They are all the same. Treat everyone with respect, because you never know tomorrow.

So I’m meeting all these brokers, and three weeks before closing I just drew a map and said “This is a three-mile range from that property”, and started looking for all the properties. I called the broker and said “Listen, these are all the properties around one property that I own. Can you help me to find numbers of these owners? I wanna call them to see if they wanna partner with me.” And I started cold-calling every single one of those owners, until I found someone who said “So what do you have?” “I have this here.” I said “Okay, what are you paying?” “I’m paying this.” I said “Really?” “Yes.” I said “Can you [unintelligible [00:16:15].19] the contract?” “Sure. We’ll look at the contract.” “Wow. Yeah, I wanna partner with you.”

[unintelligible [00:16:20].21] but at the same time, “You know what? It’s gonna be fine. Let’s learn”, because there’s that saying “You’re gonna be known for the things that you finished, not by the things that you started.” Sometimes so many people when I talk about this story they wanna do those things, but how many deals have you done? So that was my way in. I’m very thankful for that group, and we’re still great friends, and probably if they listen to the show, they might be laughing on the other side, and they might be calling me and saying “Let’s go have dinner”, and I’ll say “Sure.” This time we’re gonna split the deal differently. [laughter]

Joe Fairless: When you were buying multiple properties in year one with them, did the split change at all from deal one to the last deal within that 12 months?

Carlos Vaz: It was getting better.

Joe Fairless: Got it, okay.

Carlos Vaz: I think that had we stayed longer, I think that things would have been different. It was just [unintelligible [00:17:23].18] was too much to pass, and I completely understand.

Joe Fairless: I went on your website a month or two ago and I noticed that when you go to the investor form I believe it says that the minimum for new investors is $500,000. Is that correct?

Carlos Vaz: Yes, that’s correct.

Joe Fairless: Help me understand, how do you get to that point? Is that through growing organically over time, so you’ve got more and more current investors making more money investing with you, so you just raise the minimum to 500k, or how does that work?

Carlos Vaz: Well, I’d say there are two things that you never have enough – you never have enough deals; you should always look at new deals, even if you’re not buying, because you’ll learn about the market. You need to really learn about the market.

For example, last year in the Dallas market alone we looked at 231 deals. That’s a little bit over 65,000 units just in Dallas. We’re a bunch of data people; we love operations, that’s us. We need to have data.

And the second one is equity. We never have enough equity. You should always be looking for the right partnerships and the right people. So how could you increase your minimum? Well, multifamily is one thing to me – multifamily is operations, operations and operations. It’s heavily intense operations. We brought the management in-house a little bit over three years ago, and of course, they don’t move that fast… But way in the beginning, over three years ago, our minimum was $50,000. Much smaller projects. We were raising only three million. That’s one thing.

We just closed a deal on Monday that’s about 20 million. It’s a little bit different when you close a 20 million dollar deal just the equity side, instead of a three million dollar equity side. But what happens is — number one, if you have a company, you have a very clear process, a very good execution, putting things together, but you have very strong core values behind this company, and you have these amazing people moving in the right direction, you have this communication, your investors are gonna see that.

The way that your reporting is coming out, your lender is gonna start seeing that, and say “Wow, this group is not a fly-by-night. These are guys that do the right things, the right projects. I wanna stay with them for the long haul.”

Our current investors are always repeating again. And I always ask other people, “Hey, if you think CONTI and what we are doing is an opportunity for you, come get to know us. Come to see our office, come to see one of the projects. Come talk to some other investors, see if it makes sense. We’d love to have you join our company.”

[unintelligible [00:20:20].02] growing, growing, getting to other points, now also scalability… We can no longer accept $50,000 investments, we go to 100k. Then you go to 250k. I think half a million is a sweet spot. I think half a million and above has been a sweet spot for us, and even right now, as we closed our last project, we just said internally that moving forward we’re not gonna accept higher raise anymore, and also we’re not gonna accept exchanges anymore. Exchanges get to complicated on the structure, so we said “Let’s not touch that one anymore.” But that comes with time, spending time building the business, building the foundation of the company.

If you focus on the foundation of the company, if you build that one, the real estate side is gonna define. The investment is just a vehicle, and that’s what sometimes people misunderstand. They think that real estate, buying the property is the most important thing. No, that’s one of the least important things, actually. Building the company with the right people, the right processes – that is by far the most important thing.

Joe Fairless: From a structuring standpoint with investors — you clearly have a lot of returning investors who have grown with you as your company has grown… How do you structure the deal with them in terms of preferred return, equity split, things like that?

Carlos Vaz: It varies, it depends on the project. If the project is older or the project is newer, although in our mind we always [unintelligible [00:21:55].27] So for us it’s typically anywhere between a 7%-8% preferred return, and anything above that, we’re trying to do that 50/50 split with the investors… And we have a couple of tiers that we have on the back, when we sell the property, until they achieve that 12% or 15% IRR. They split either 75/25 or 80/20. Those are a couple things you do.

Joe Fairless: Got it. And you mentioned the types of properties you buy… If I’m a broker and for whatever reason you and I haven’t met and I’m in Dallas and I ask you “What type of properties are you looking for?”, what do you tell me?

Carlos Vaz: It’s very simple for us. We only buy in Dallas, we’re very focused. We only buy 1970s and up vintage, between 150-500 units (that’s important to us), and a very important thing – the median household income (not the average household income) in a three-mile range has to be above $45,000, preferably $50,000. That’s [unintelligible [00:23:06].13] Because every time you go above that 50k as a median household income in a three-mile stage, it’s a more stable neighborhood. You’re gonna find good neighbors, such as Walgreens, Walmart, Whole Foods, you’re gonna find Home Depot, Starbucks… That’s all important to us.

Joe Fairless: And why 1970s instead of 1960s or 1980s?

Carlos Vaz: I said 1970s and up.

Joe Fairless: Yeah, yeah. Why?

Carlos Vaz: When I look at something that’s a little bit older — I can, but I just have to be careful… When you start to go a little bit older than 1970s, you might find a [unintelligible [00:23:46].26], so you need to approach carefully, say “Why are we gonna be buying this property?” That can be an example.

If it’s 1980s, we’re gonna be looking at 1980s. If something comes up, we’re just gonna take a look.

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

Carlos Vaz: My best advice is never stop learning.

Joe Fairless: What are you doing right now so that you’re constantly learning?

Carlos Vaz: As we mentioned earlier, I’m finishing the Harvard OPM program. It’s a program for owners and managers of companies. It’s an amazing three-year program; you go to Harvard Business School for three weeks for one year, then you go back the next year for three weeks, and you go back the next year for three weeks. It’s a great program. You need to be an owner of a company with a certain revenue to qualify. It’s a great learning tool. I’ll finish my program this year, so that’s one thing I’m doing.

I do have a business coach that I meet every quarter. And it’s funny, now that my kids are young – 2 and 4 – sometimes just talking to them [unintelligible [00:24:58].04] It’s amazing how much a child can teach you sometimes, and I love that. I always learn. My wife knows, and Stewart, my partner, he knows that I’ll always be learning in my life… Learning not only how to become a better — I never call myself a boss, but how to become a better leader, how to become a better friend, a better father, a better brother. There’s so many things that we can become better, so I think that’s the best advice I can give someone… Never stop learning. We can always become better.

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

Carlos Vaz: Yes, let’s do it.

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

Break: [00:25:41].16] to [00:26:42].17]

Joe Fairless: The best ever book you’ve read?

Carlos Vaz: I wanna say the Bible. The second one is maybe Good To Great.

Joe Fairless: Good To Great, got it. Best ever deal you’ve done?

Carlos Vaz: Partnering with Stewart, and marrying my wife.

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

Carlos Vaz: Talking too much. When you’re about to put a deal under contract, just be quiet, mind your own business, and finish the transaction. Whenever you get too excited because you’re about to put something under contract, you can lose the deal. It actually happened to me in the past. I had this great deal that I’m about to put under contract; I’m talking way too much, and somehow I lost the deal. It left a very sour taste in my mouth, and I learned very quickly to just shut up, close the deal, and that’s it. Don’t keep talking about the transaction, talk internally. Just do what you’re supposed to do.

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

Carlos Vaz: I think charities. There are four charities here in Dallas that I give to. For someone who was not born in this country, I appreciate this country in so many ways… This country is just unbelievably amazing. We do give to Make a Wish Foundation here in Dallas, [unintelligible [00:28:03].09] These charities are just unbelievable, and I’m honored that I can help them, and I wanna do much more.

Joe Fairless: What’s the best ever way the listeners can get in touch with you or your company?

Carlos Vaz: Just go to our website, you’re gonna find my e-mail there. And if you’re in Dallas, maybe we can get a cup of coffee.

Joe Fairless: Carlos, this has been a refreshing and enlightening conversation. I’ve mentioned this before we started recording, but I’ve heard you interviewed previously and I’ve kind of studied your career, and it is truly an inspiration. I’m grateful that we had a conversation, from the 10 habits or values that you hold near and dear to your heart, to how you approach things, where “What are we doing differently to change our position?” We don’t focus on complaining, we focus on gratitude, and what are we doing differently to enhance or evolve from where we’re at now? And then the first deal right out of the gate where you didn’t have the money three weeks prior, and then you were calling all the brokers who you were friends with who you had met, and said “Hey, here’s two miles of the properties around me. How can I get these phone numbers to the owners and call them to see if they wanna partner with me?” and you made it happen. You didn’t make much money, I don’t think, due to that 99/1 partnership structure, but more importantly, as you said, you worked for knowledge, not the money. And then again, talking through how your business has evolved.

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

Carlos Vaz: Thank you very much, Joe. I do appreciate it, and all the success to you, and I look forward to talking again, my friend.

Best Real Estate Investing Advice Ever Show Podcast

JF1097: Juggling Parenthood With Their Small Business #SkillSetSunday with Candice Romo & Hollie Siglin

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Together they founded a business based on family-friendly essential oils and sprays. From helping with diaper rash to head lice sprays, they have it all! They are here today to tell us about how they are able to juggle being parents and run their business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Candice Romo & Hollie Siglin Background:
-Co-Founders of Hawk + Sloane, a line of family-friendly essential oil sprays, to give busy parents everywhere a helping hand
-Hawk + Sloane named after Candice’s first born son Hawkins and Hollie’s second born daughter Sloane
-Working on growing business through online media, influencer support, and retail presence (just did a stint in Dallas Market where wholesalers placed over 60 orders to get H+S in stores across the southeast; headed to Atlanta Market in a few months)
-Line of sprays essential to facing various parenting challenges – diaper rash (Soothie Spray), potty mouth (Sassy Spray), bedtime blues (Sleepy Spray), monsters under the bed (Scary Spray), stinky diapers (Stinky Spray), and headlice prevention (Lice Spray)
-Based in Dallas, Texas
-Say hi to them at www.hawkandsloane.com/

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

We’ve spoken to Emmitt Smith (Hall of Famer, also real estate developer), we’ve spoken to Barbara Corcoran (Shark Tank) and Robert Kiyosaki, the author of Rich Dad, Poor Dad, and whole bunch of others. With us today we have Candice Romo and Hollie Siglin. How are you doing you two?

Candice Romo: Great!

Hollie Siglin: Thanks for having u!

Joe Fairless: Nice to have you two on the show. Best ever listeners, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment, as we normally do, called Skillset Sunday, where by the end of our conversation you will have a specific skillset that perhaps you didn’t have before, or you want to hone. The skillset today is juggling parenthood with your small business.

We have Candice and Hollie, who are the co-founders of Hawk + Sloane, which is a  line of family-friendly essential oil sprays that help give busy parents everywhere a helping hand. With that being said, Candice and Hollie, do you wanna give the Best Ever listeners a little bit more about your background and tell them what you’re focused on?

Candice Romo: Hollie, do you wanna start, or…?

Hollie Siglin: You can start, go ahead.

Candice Romo: Okay, well Hawk + Sloane was created because as busy moms we look for shortcuts and things to help us make life go smoother. It kind of started with our first spray (Happy Spray). As parents, and we talked with moms in group settings [unintelligible [00:03:53].11] things that are working and not working, and somebody had mentioned putting apple cider vinegar in the mouth; we thought “That’s kind of a good idea, because apple cider vinegar is still good for you” and a lot of people [unintelligible [00:04:07].07] takes it daily to equalize the system.

So we thought “That could be interesting as an (oral) disciplinary action”, so we thought “How do you spoon-feed vinegar into a mouth of a four-year-old that’s running around [unintelligible [00:04:20].25] so we thought we’d put it in a travel spray bottle, and just do a little squirt in the mouth when they’ve been sassy, or biting, or screaming, or back-talking… And it turned out to be a big success.

We actually also included a bunch of vitaveggies in it, so it doubled the dose of nutrition for you… [unintelligible [00:04:42].03] as a lot of businesses start, we would [unintelligible [00:04:45].15] other ideas… Because sprays are just so convenient and so much easier than creams, and things of that nature. So our line was born, and that’s kind of how it started.

It’s been great. We’re best friends and we do it together, so it doesn’t feel like work that much.

Joe Fairless: So you two have a line of sprays… It sounds like the first one was Sassy Spray, is that correct? And then it snowballed from there. I’m reading here you’ve got a Soothie Spray, which is for diaper rash, Sleepy Spray for bedtime blues, Scary Spray – perhaps my favorite; I haven’t had it yet, but perhaps my favorite – for monsters under the bed, Stinky Spray for stinky diapers, and Lice Spray for, obviously, head lice. Is that the line that you’ve got so far?

Hollie Siglin: You nailed it, yes. That is it, that’s our six sprays.

Joe Fairless: Sweet. Earlier, before we started recording, we very briefly — I was like “Hey, are we good for this time?” and you both said yes, but one thing, Candice, you mentioned is “Hey, but I do have my kid with me, he’s kind of running around…”

Candice Romo: Yeah this is a perfect segment for juggling parenthood and a small business, because I’m sitting here at the pool with my kids trying to watch them — I have other adults watching them as well, but… [laughter] School’s about to start, and it’s this kindergarten party thing and I don’t want them to miss it, so I had to be here, juggling while we’re sitting at the pool for this little get-together. [laughter] If you hear some screaming and pool splashing in the background, I apologize.

Joe Fairless: And know that there’s someone else supervising as well, in addition to that.

Candice Romo: Yes, of course.

Joe Fairless: Yeah, so that is a perfect segue… How many kids do you have, Candice, and how many kids do you have, Hollie?

Candice Romo: I have two boys, and our third boy on the way, due in August. Hollie?

Hollie Siglin: I have two girls, and my third child is a boy… Six, five and two.

Joe Fairless: Wow, okay. So you each have more than one child. Candice – two boys, and a third on the way; congrats on that, and Hollie, two girls and one boy. And then quick fact – I don’t think I mentioned this, but Hawk + Sloan was named after Candice’s first-born son and Hollie’s first-born daughter… Is that correct?

Hollie Siglin: It’s actually my second daughter. Candice and I grew up playing golf together, and we had kind of lost touch when we both went off to different colleges and stuff, but then we ran into each other and we had the exact same due dates, with Hawk and Sloane… So that’s kind of we rekindled our friendship and we started doing life together, as we like to say… And that’s why we chose Hawk + Sloane, because they are little best friends now; they’re five, and they’ve been in the same class every year. Their birthdays ended up being a week apart, but we were both due with them on 13th April.

Joe Fairless: Got it, okay. That makes sense. How long have you had the company Hawk + Sloane?

Candice Romo: We launched it last April, so it’s just a little over a year.

Joe Fairless: Okay, a little over a year. So for a little over a year you two have had a startup… How were you juggling the launch of the startup along with the family stuff?

Candice Romo: It’s probably the same for both of us, but for me, I’m actually — my primary job was real estate, so I’m doing jobs actually. I’ve been a residential realtor for ten years. It took a lot of juggling, obviously. I have three kids, and Candice has almost three… So it comes with a slew of teamwork that we do everything and we get it done, but that’s what’s been nice in doing this together – we really look to each other; when the other one is tied up with something one day, we both have each other’s back and we can kind of do the juggling between the two of us.

Hollie Siglin: What we both tell people too is it takes a team. We’ve got husbands that can help, we have babysitters that we utilize, and grandmas and grandpas that we try to utilize. There’s a lot of people that help us get things done in addition to ourselves.

Joe Fairless: So for father or mothers who are listening who are also juggling a full-time job and then launching an entrepreneurial venture, which I consider real estate – Hollie, I’m sure you would agree with this… I consider real estate an entrepreneurial venture. The key is teamwork then – is that what you’re saying?

Candice Romo: Totally.

Hollie Siglin: Definitely. I’d love to be able to say “Oh, we do it all. We can do it all”, but we really can’t do it all… So between school hours and family and baby sitters and [unintelligible [00:09:17].17] it’s a team effort.

Joe Fairless: With the team effort how do you identify what your responsibilities are and what the other team member’s responsibilities are?

Candice Romo: This is a good question, because we are such a yin and yang… Hollie and I work so well together because her assets are not mine, and my assets are not hers, so we’ve never even had to give each other a job description because we just kind of know, even with e-mails, which e-mail I need to take and which e-mail she needs to take, because it just fits with our personalities.

I’m more of a creative, I deal with more of the artwork and the vision, and I do our market boosts and a lot of things visually, and I do a lot of packaging, and things.

Hollie is our CFO, and does numbers, and tells me “We can’t spend that much, Candice… Find a cheaper [unintelligible [00:10:13].08]. [laughter]

Joe Fairless: And then with the other team members that you have… Are there any other employee of the company that you’ve brought on, or is it grandma and husband and others who happen to be around you and you just pull them in on a case-by-case basis?

Candice Romo: Either way with that, we’re actually business; we’re the only two behind the actual business right now, but we’ve made amazing relationships as far as our fulfillments and our lab that manufactures it, so we feel like we have a team just based on all the relationships that we have founded throughout this process. It isn’t just us doing the packaging, and we have  a wonderful graphic designer who does our website and everything… So it feels like a little family we’ve created for Hawk + Sloane, although it’s really just us [unintelligible [00:11:02].22]

Joe Fairless: What’s been the most challenging part over the last year, as it relates to this business?

Candice Romo: Hollie and I might have different answers, but I think from my perspective is slower than you want it to be. We have ideas and we have things that we wanna get done, but you rely, like she said, on a lot of relationships and a chain reaction of things, and it just takes time. It takes time for people to respond, things don’t come in, you can’t just make some things overnight… So I think for me it’s learning to be patient, and that this isn’t gonna be an overnight process. Hollie, would you agree with that?

Hollie Siglin: I agree. I think Candice and I – our personalities are very similar, and I think probably one of our greatest weaknesses is that we’re impatient; we like things to happen right away. So it just an entrepreneurial journey for anybody, I’m sure. It’s just such a process, and it’s step-by-step, and it’s [unintelligible [00:11:59].22] You just learn so much along the way…

We launched our company last April, like I said, but to me – and I’m sure Candice would probably agree with this – it doesn’t really feel like until the last three months we’ve really known exactly where we wanna go, and I think that that’s something that is just starting to become clear through this process of what our goals are gonna be and where we see our products – all of that stuff has really taken time to figure out, and that’s been something that we’ve learned… Until you’re really selling and you’re out there, you can’t figure out exactly what avenues you wanna take, until you’ve experienced everything.

Joe Fairless: On that note, once you two had this idea, how long did it take you to get up and running? Did you wait a long time, or was it “Let’s get this thing going and then we’ll start testing”?

Candice Romo: Pretty quickly from the time that we started using the Sassy Spray… We were like “Wow, this really works. Why [unintelligible [00:13:02].07]” and then from there Candice had a meeting with a lab within a week, and [unintelligible [00:13:07].22] Then all of the testing and development – I’d say we probably built everything over 9 months to a year before we actually launched. So it was a process to get there, but fairly quickly, I’d say, from idea to actual launch.

Joe Fairless: Candice and Hollie, is there anything that we haven’t talked about as it relates to juggling parenthood with launching a small business that you two wanted to mention?

Candice Romo: [unintelligible [00:13:35].11] we don’t wanna sit here and act like we can do it all. We just really can’t. We do rely on late nights and scheduling around kids’ stuff, because at the end of the day we’re still stay-at-home, and [unintelligible [00:13:46].05] We do rely on school hours and things to give us time to do this, and I don’t wanna ever give a mom the false impression — I want them to know that there is juggling and hard work. We’re not just over here saying how easy it is.

Joe Fairless: Well, thank you two both for being on the show. How can the Best Ever listeners learn more about the company and go buy some of these sprays?

Hollie Siglin: Our website is www.hawkandsloane.com. We’re also on Instagram @HawkAndSloane, and Facebook, and all of that.

Joe Fairless: Excellent. That link will be in the show notes page, Best Ever listeners. Thank you again, Hollie and Candice for being on the show, talking about — the main component that you mentioned is teamwork. First off, having the self-awareness to know what you’re really good at, and then having a partner that plays off your strengths, so that you two can tackle things independently, but also as a team.

It reminds me, your comment about things happening slower than you wanted, but it takes time… I was talking to Jillian Michaels recently, and she said something interesting that stood out to me – she said one thing that she could do better that she would have had more success doing in her business – if she had more patience. I said “Well, what about the patience thing? Because if you had more patience, would you really have accomplished what you would accomplish so far?” and she said “Well, if I had more patience along the way I would have stuck with certain things instead of just dismissing them… And it sounds like you two are doing just that – having the patience, going through the process and having success along the way, so kudos to you.

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

Candice Romo: Thank you so much!

Hollie Siglin: Thank you!


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Best Real Estate Investing Advice Ever Show Podcast

JF1089: Want to Buy Properties at HUGE Discounts? Arnie Abramson Can Help You Buy at Tax Sales.

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He’s been buying properties at tax sales for the past 20 years. It’s safe to say he knows a little bit about the business. Arnie tells us a great deal about buying properties at tax sales in Texas. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Arnie Abramson Background:
-Founder of Texas Tax Sales Resource Group Been buying properties from tax sales for the past two decades
-Helps investors buy tax sale properties in Texas with turnkey services and training
-National speaker on Texas tax sales and has been quoted in U.S News and World Report
-Based in Dallas, Texas
-Say hi to him at www.txtaxsales.com
-Best Ever Book: Atlas Shrugged

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

Arnie Abramson: Fine, how are you?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Arnie – he is the founder of Texas Tax Sales Resource Group. He’s been buying properties from tax sales for the past two decades. He is a national speaker on Texas tax Sales and has been quoted in the U.S. News and World Report. Based in Dallas, Texas. With that being said, Arnie, do you wanna give the Best Ever listeners just a little bit more about your background and what you’re focused on?

Arnie Abramson: Well, I originally was a financial planner for what seemed like 100 years, and during that time real estate kind of called to me as the best investment… So I made that transition in the early ’90s, and I happened to go to a real estate club meeting where someone was talking about the various ways you could get involved in real estate, and one of them was buying properties at tax sales. About four people raised their hands and said they had done that before.

After the meeting, my wife nudged me in the ribs and said “Let’s go talk to that guy over there. He raised his hand up and it sounds interesting.” So we went and we ran into this man who had just moved to town. He was working for a dotcom company and he didn’t have the time to do this, but he knew what to do because he had been doing it. We had the time and didn’t know what to do, so it was a perfect fit, and we formed a joint venture and I learned by him mentoring us and showing us what to do for 2-3 years, and it kind of stuck.

Joe Fairless: Yeah, clearly, for 20 years you’ve been doing it. Educate us – or at least educate me, please, on the pros and cons of buying at a tax sale, and maybe start out by saying what is a tax sale.

Arnie Abramson: Well, first of all let me also say that every state is different.

Joe Fairless: Okay.

Arnie Abramson: The tax sales are when people don’t pay their property taxes – ad valorem taxes they call them – and eventually they’re taken over by [unintelligible [00:04:29].17] in the state… And some of the states are what they call “tax lien states” and some of the states are what they call “tax deed states.” The difference is this – in a tax lien state, let’s say you have a property worth $100,000 and you owe $8,000 in taxes. In a tax lien state, at the auction the sheriff is going to conduct, he’s gonna sell that lien of $8,000 to the person who will take the lowest interest rate. Somebody may say “I’ll take over that lien for 12%”, somebody else says 10%, somebody says 8%, etc. Now, that’s a tax lien state.

In a tax deed state, as Texas is, same scenario – $100,000 house, $8,000 owed in taxes, the bidding starts with the $8,000 that you owe in taxes, and the highest bidder, they get the deed to the house.

Joe Fairless: Okay, good distinction.

Arnie Abramson: That’s the distinction. We concentrate on Texas, because Texas has some of the better features compared to the rest of the states that do similar things.

Joe Fairless: Unless you’re behind on your taxes, then Texas has the worst process possible.

Arnie Abramson: Well, actually that’s not necessarily the truth, because the objective of the tax sales is to collect the back taxes and to keep someone [unintelligible [00:05:51].01] that will pay the taxes. In Texas, what they do is if they lose their house at the tax sale, they have either six months or two years that they can buy it back, they can redeem it, and they have to pay that premium to the person who bought it, but they get the opportunity to do that. So it’s not all bad.

Joe Fairless: Oh, really? How does that work?

Arnie Abramson: For the investor or for the guy who lost his house?

Joe Fairless: Well, both, because it sounds like their worlds can collide. If I am behind on my taxes, I live in Texas, you go to the tax sale, you buy the tax deed for whatever I owe, you now own it, and then I get some money from my uncle 18 months later and I’m like “Hey, Arnie, I want my house back. I know you bought it for, say, $8,000, because that’s how much I owed. How do I get my house back from you? How do they calculate the premium and how does that work?”

Arnie Abramson: 25% more than what I paid for it if it’s within the first year, and 50% if it’s within the second.

Joe Fairless: Okay, that’s interesting.

Arnie Abramson: I have to caution you that you’re gonna have great questions, but there are no short answers in this, okay? That was the short answer, but it’s not complete. [laughter] Let’s say it is in the first year and you have to pay me back my $8,000 plus 25%, plus any of the certain costs or other things that I would have had to pay… And here are the three magic words: to maintain, and keep it safe. Maintain the property and keep it safe.

For example, let’s say the roof blows off and I replace it. That’s maintaining the house; the insurance premiums that I have paid, that is also maintaining it. So those types of things too, if I should spend those [unintelligible [00:07:41].13] The three magic words are to maintain, preserve, and safe keep.

Joe Fairless: Out of the 20 years you’ve been doing tax sale purchases, I’m gonna guess, and you’re probably gonna say “You’re wrong” because I don’t know much about this process, but I’m gonna guess no one has ever purchased it back from you. Is that right or wrong?

Arnie Abramson: It’s wrong.

Joe Fairless: Oh, man…! Okay, how many people?

Arnie Abramson: [laughs] About 20%-25% of the people do redeem it.

Joe Fairless: Really? 20%-25% of people?

Arnie Abramson: That’s our experience. In the state as a whole it’s 10%, and the reason it’s so much lower is almost no one redeems vacant lots, and we don’t buy those, so it doesn’t drag our average down. The ex-owner is not the only one who has that right of redemption. Anyone who has an interest in that house i.e. a lien on it (like the mortgage company) also has the right to redeem it.

Joe Fairless: Oh, okay. You said 20%-25%… Out of all the times they’ve been purchased, what percentage is the people or the entities with liens versus the homeowners?

Arnie Abramson: I would say most of them are the owners.

Joe Fairless: Really? Oh man, you keep surprising me every time. [laughs]

Arnie Abramson: Well, let me explain the reason why. The reason is most people who own a house have a mortgage. Most people who have a mortgage have the mortgage company collect taxes for them, they have them escrowed. So if they stop making their mortgage payments, the mortgage company will continue to pay the taxes, and then they can go foreclose on the person a lot quicker than the tax authorities can for lost taxes. So the bottom line is most of the properties that wind up going to the tax sale do not have mortgages on them, because if they did have mortgages and they failed to pay it, the mortgage companies would foreclose a lot quicker.

In Texas – and I’m only talking about Texas with this…

Joe Fairless: Yeah, of course.

Arnie Abramson: In Texas it’s several years usually, from the time they stop making their payments until they finally get it on a tax sale, because they have to go through a long process. They have to make sure everyone who had an interest in that property was properly notified. They have to make sure that all these i’s are dotted and t’s are crossed, and not only were they notified, but they had an opportunity to pay, and things like that. So it takes a while.

Joe Fairless: So the original owners, who’s house you buy via the tax deed sale, the 25% who purchase it back – do you rent from them in the in-between time? If so, that makes a little bit more sense to me, versus they’re no longer living in the house and then they wanna come back to the house and buy it back from you at a 25% premium. That just doesn’t make sense to me.

Arnie Abramson: Well, you’re correct, it doesn’t make sense. When I buy at the house at the tax sale, I am the owner immediately. I have the right of possession, I have all rights; every right is mine, with the one exception – they have the right to redeem it, period. That’s all.

I have the right to possess. I don’t have to give him 20 days to get out if I want, but I’m gonna go to him and say “Look, you’re the owner of the house, you have three choices: you can move out, you can redeem it, or you can sit there and pay me rent.”

Joe Fairless: Okay, now it’s getting clearer. What is your ideal outcome from a business standpoint. Not a warm and fuzzy standpoint (that might be different), but from a business standpoint, where do you make the most money on those three options?

Arnie Abramson: Well, first of all, we only do this for investors, because if I did it myself AND for other investors, it would look like it would leave itself wide open for us cherry picking, and that’s conflict of interest and that kind of thing. I’ve been doing this long enough, I don’t need any more properties. I started when the great recession started coming; I saw it was coming (or something was), and I started teaching this and I found that most people wouldn’t do all the work involved.

Eventually, we morphed into where we are now, where we do teach other people, but we do all the work and teach them how to do it, we do it for them, and we get paid IF they are successful. That’s where we really started to blossom. This is a long answer to a short question… I kind of forgot your question.

Joe Fairless: The question is after you buy it and you go to the original owner whose how you just purchased and you give them the three options – you can move out, you can rent it from us, or redeem it immediately, which option from a business standpoint makes the most money?

Arnie Abramson: Well, when we do it for the investors, obviously the best thing is, as you see in Texas, one of the things that makes it different from the other states like this is the 25% premium is not prorated. So if you buy a property with a tax sale today and they redeem it next week, you get the full 25%, not two weeks’ worth out of proration. So if you [unintelligible [00:12:48].15]

There’s a little town not far from where I live – I live in the country right outside of Dallas – and they had a property on a tax sale… It was a $300,000 house and they only owed 12k in taxes. So we knew that they’re not gonna let that go for 12k. My wife and I went there and we drove by the house, and you could see the bass jumping out of the lakes, a six-bedroom five-bath, and I told her “If this does go to sale and we buy it and they don’t redeem it, we’re moving.”

Joe Fairless: [laughs] What’s the town? I’m just curious, because I’m from DFW.

Arnie Abramson: Commerce.

Joe Fairless: Commerce… I think they’re the Commerce Indians, right? Is that their high school mascot?

Arnie Abramson: Something like that. Well, there are 8,000 residents in Commerce, and 10,000 students at Texas  A&M Commerce, so this is right out of Commerce.

Joe Fairless: Yeah, yeah.

Arnie Abramson: So the beauty of it is — I told her, I was like “They’re not gonna let this house go for 12k”, but just in case, I sent her to the tax sale because I had to go to another one. All the tax sales in Texas are all at the same time, but that’s another story.

So she goes to the tax sale and the bidding started at 12k, and we bought it for our investors for 90k. Well, the mortgage company had just screwed up and didn’t know it, or they let it slip through their fingers, so they redeemed it in 52 days for $130,000, so our investors were very happy.

So to answer your question, if they can get 25% in one month or two months or three months or less than a year, that’s pretty significant.

Joe Fairless: Right. So the ideal scenario is as soon as you buy it from the tax deed auction, that they redeem it for 25% premium immediately thereafter.

Arnie Abramson: Yeah, but that’s the story book…

Joe Fairless: It’s rare… Yeah, I get it.

Arnie Abramson: It is rare. And some of these gurus go out there and, given a lot of hype, they’ll tell you “Look, if you can buy a house and it redeems it for 25%, that’s the equivalent of 300% a year. Where are you gonna beat that?” But over 25 years in the business I’ve only had two properties that have redeemed in a month or less, so… That’s not reality.

Joe Fairless: What’s the typical scenario?

Arnie Abramson: Typical scenario is they lose the house. Now, most of the properties on the sale – let me say this – are not homesteads; most of them are rent houses, or they’re vacant lots, or they’re [unintelligible [00:15:15].18] leases, or sometimes we run across some commercial properties… They’re all over the board, but most of them are lower end houses. You do get exceptions, but that’s for the most part. They’re rent houses.

Joe Fairless: So I guess after you buy it, if they are living in the house, do you have to go through the eviction process? If they’re like “I know you bought the house, but I’m not moving.”

Arnie Abramson: Yes, you can. We have to give him 20 days notice to do that. We prefer to buy them without people in them, because if someone’s living there, I’m pretty sure most of the major systems are working and the [unintelligible [00:15:52].03] I’ll just say to the people “Hey listen, we want you to stay, because what am I gonna do? I’m gonna go rent it out anyway.” They’re already there, I’d rather rent it to them. I probably don’t have to do as much work to get it ready.

Joe Fairless: What are some downsides or watchouts that you’ve come across?

Arnie Abramson: Great question. The biggest problem is that you’re typically not allowed to go bother the people in the homes before the sale… Because just imagine if 50 people are knocking at your door – “Hey, your house is on the tax sale, I wanna come look at it.” This is Texas, how many has that happened before you come to the door with a gun?

Joe Fairless: Oh yeah, you get shot.

Arnie Abramson: Yeah, so they discourage you from doing that. So that means that you can’t see the inside of a house before you buy it, for the most part. [unintelligible [00:16:44].09] to estimate how much rehab you’re gonna have to do. That’s why I don’t, as a rule, buy vacant houses that are boarded up and you can’t see the inside. I would rather go for the ones that are occupied, because then you know most of time they’re not camping out on the floor and no utilities. So that’s one of the biggest downsides.

The other things is this, and it has nothing to do with the redemption, but this is a caveat – that is that there’s a separate law in Texas that says if someone was not properly notified of the sale, who had an interest in the property, they can contest that sale for up to 2 years, and if they prevail, they will undo the sale.

Now, the reality is this – it almost never happens, because — let me tell you, there are some safeguards to make sure somebody doesn’t frivolously call up and say “Oh, I wasn’t notified.” The first thing they’ll say is “Okay, bring us a cashier check with the amount of the taxes owed that you would have brought us had you been notified.” Then they kind of hang up most of the time.

So because they have that law that for two years they can do that, and even though it almost never happens, the title companies that give title insurance for the properties, hanging their hat on that. That means that generally speaking, most of the time you’re gonna have to hold on to that house for two years, because who are you gonna sell it to that would take it without a title policy ensuring the title?

Joe Fairless: Right.

Arnie Abramson: Now, if you’re selling it to another invest that understands some of the things, then you could do that as long as you disclose that, and if they don’t need financing, because a normal mortgage company is not gonna give them a loan without a title policy. But there are some other considerations too, so it’s just part of the caveat that you have to watch out for – if you’re buying it, my philosophy is if you’re gonna buy it, you should buy it with the feeling that you’re gonna have to keep it for at least two years.

I don’t wanna pay out taxes and insurance for two years, so I’m gonna wanna rent it out. We look for what kind of cashflow it can provide. That’s the big thing.

Joe Fairless: I am really enjoying our conversation, Arnie. Based on your experience in tax sales, what is your best real estate investing advice ever?

Arnie Abramson: For people in the real estate business my best advice is if you’re looking to acquire a property, [unintelligible [00:19:21].29] but primarily to acquire one, and you catch yourself trying to talk yourself into it, don’t. In other words, follow your gut. If you have to sit there and convince yourself “This is a good deal”, don’t do it. If your gut is telling you “Hey, I don’t like this”, go with your feelings. That’s the best advice I can give anybody.

Joe Fairless: And especially when you have some time under your belt and you acquire some of those life experiences with deals, your intuition will get stronger and stronger.

Arnie Abramson: Oh, exactly. That’s right. Now, let me also give you one more caveat – in Texas this is such a great deal, because 25% [unintelligible [00:20:02].09] and all this stuff, and there fundamentals here are great (the real estate fundamentals), because there’s land here that’s not expensive, there’s not state income tax for individuals, and as you may or may not know, it’s booming here. The problem with that is all the hedge funds and the REITs and the private equity firms and everybody has discovered that, and they’re coming to the sales and they’re bidding them up like crazy.

So there’s an awful lot of competition at the tax sales, like everywhere else in Texas right now. Now, the other side of that is what we’ve developed is primarily these big investors are in five major cities: Dallas-Fort Worth, Houston, Austin and San Antonio. So we’re concentrating on the smaller counties right now. We’re still in the big counties too, but we’re concentrating on the smaller counties and the smaller houses, because there’s that old baseball adage: “Hit them where they ain’t” That’s what we’re trying to do.

Joe Fairless: I like it. Arnie, we’re about to do a lightning round where I ask some quick-hitting questions… Are you ready for that?

Arnie Abramson: I’m ready.

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

Break: [00:21:15].24] to [00:22:15].00]

Joe Fairless: Alright Arnie, what is the best ever book you’ve read?

Arnie Abramson: The one I’m writing right now, on tax sales in Texas. [laughter] That’s a facetious answer… One of my favorite books was Atlas Shrugged. I read it, all 1,700 pages, years and years ago, and I’ve read it three times. It turned me into a capitalist.

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

Arnie Abramson: The best deal I’ve ever done was the one that I said no to.

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

Arnie Abramson: I love to teach people how to do this, and I love questions, because that shows they’re thinking and they’re connecting the dots, and the best for me is when I see that light bulb go off when they get it. That’s the most rewarding thing.

Joe Fairless: What would you say is a mistake you’ve made on a deal?

Arnie Abramson: Not listening to my gut and talking myself into the deal when I’ve got that feeling “I really shouldn’t do this, but it looks so great.” You know, you can talk yourself into it… So that advice I gave was from personal experience.

Joe Fairless: Well, that’s the best type of advice. Where can the Best Ever listeners get in touch with you?

Arnie Abramson: Well, they can call me, or we have a website that gives a lot of information. It’s www.txtaxsales.com. If you would live to e-mail, it’s Arnie@txtaxsales.com. I made it very easy for you.

Joe Fairless: Yes, very easy, and the link is also in the show notes of this episode, so that Best Ever listeners can just click through the link on the show notes page and they can go to your website.

Arnie, I really enjoyed our conversation. I did not know a whole lot about tax sales, but now I do, and I love how you had the disclaimer first “This is Texas specific. Different states, different process.” There  are tax lien and tax deed states, and Texas is tax deed… And going through the options that you have for the previous home owner after you buy it, the ways you can make money, the things to look out for, and the lessons learned along the way.

I really enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you soon.

Arnie Abramson: Thank you so much for having me… And boy, you capsulized that beautifully.

Joe Fairless: I take lots of notes.

Arnie Abramson: [laughs] Thank you for having me.


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Best Real Estate Investing Advice Ever Show Podcast

JF1017: A Smart Yet Passive Approach to JV Deals

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He is not necessarily in the deal, but his capital is! Today our guest will share how he likes to joint venture with other investors on the single-family residence level, that’s not all he does. Tune in!

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David Phelps Real Estate Background:

– Founder at David Phelps International LLC
– He began his investment in real estate by joint-venturing with his father on their first rental property in 1980
– Nationally recognized speaker on creating freedom, building real businesses and investing in real estate
– Owned general dentist practice for 27 years and Hosts “The Dentist Freedom Blueprint” podcast
– Based in Dallas, Texas
– Say hi to him at www.freedomfounders.com
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passive approach to joint ventures


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, David Phelps. David, how are you doing?

David Phelps: Joe, I’m doing great. Thanks for having me on!

Joe Fairless: My pleasure, nice to have you on the show. A little bit about David – he began investing in real estate by joint venturing with his dad on their first rental property in 1980. He is a nationally recognized speaker on creating freedom, building real businesses and investing. He has owned a general dentist practice for 27 years and hosts the popular podcast “The Dentist Freedom Blueprint”. He’s the founder of David Phelps International. Based in (Big D) Dallas, Texas, my hometown. With that being said, David, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

David Phelps: Yeah, absolutely, Joe. I started out as a real estate investor back in 1980, as you just stated, with my first joint venture acquisition. I used my dad’s credit and financing and I was the manager. I was in dental school at the time right here in Dallas, at Baylor College of Dentistry, and kept that property for the next three-and-a-half years while I was in school. We sold it and split about a $50,000 capital gain. When I looked at that profit that I made managing that property, which took very little time, I realized that I made more in profit from that than I did all those hours that I spent waiting tables [unintelligible [00:03:39].22] nights and weekends. I found there’s something to this real estate…

So I went in and I got my license. I practiced dentistry, I started a practice, but I never looked back in terms of real estate investing; I was hooked. So I kind of ran both things in tandem. I built my dental practice, but I was also building a portfolio of real estate investing properties. Now, I’ve never been a flipper, a wholesaler… It was always an investment for me.

I went through the years, things in life happened, they changed; I have a daughter who was very ill, very sick. She survived leukemia, epilepsy and had to have a liver transplant when she was 12. She has changed everything for me in terms of my priorities.

Fortunately, I had the real estate, so I made the decision back in 2004 that I was going to get out of the regular practice of dentistry, the owning and doing of the dentistry, and doing something else. I didn’t know what that something else was gonna be, but I knew I had the real estate as a backdrop, so I sold the practice twice, actually… That’s a whole other story which we don’t have the time to go into today. I sold it twice – it’s not something I would recommend, but I learned a lot of lessons there.

I got out of the practice and I could spend time with my daughter, which was the reason I did it. She had a lot of health issues; she’s good today…

Joe Fairless: Thank goodness!

David Phelps: Thank you. She had the recovery from the liver transplant, and I was happy to be able to be the dad that I always wanted to be, but I never [unintelligible [00:04:59].13] because I always thought “Well, someday, when I get everything else just right…” – have you ever heard that before, Joe?

Joe Fairless: Yeah…

David Phelps: On a Sunday, when I’m gonna get all this stuff just right, then I’ll start living my life; then I’ll start doing the things that people talk about when they’re on their deathbed… They talk about all the regrets they have about not doing those things. For me, Joe, it was really a wake-up call, and I’m pleased to say that through all of the issues that I went through – and everybody listening to this great podcast today has either gone through some tough times in life, they are going through some now, or they will, and you have to realize that that’s just part of the test we go through in life… But once you get through them, you’ll learn a lot of great lessons and it will propel you to being a better person, I believe, and think about your life more in terms of impact and not “How can I make enough money to have security?”, because there’s no such thing as that.

So just to go forward a little bit faster on where I am today – I had a lot of colleagues in dentistry and medicine that once I was out of practice they would ask me, “How did you do that?” Because for most people, they end up just kind of treading water, or trading time for dollars all their life; no matter what their per-hour wage or compensation is, they never get free…  And I explained that there was this real estate to my life that I didn’t really expose to that many people, and they wanted to know more. “So how did you do that? Could you help me?”

Little by little, as I just started to help and realized I could help more people if I had a little bit more of a platform, and very organically, what today’s [unintelligible [00:06:20].13] which focused initially on dentists and affiliated professional practice owners, but really today we like anybody who has a like-minded spirit that’s a small business owner and we can help them combine what they’re doing with their business or practice, but also how they can connect to real estate and build wealth outside of that primary business, and have that plan B whenever they need it.

Joe Fairless: First and foremost, thank goodness that your daughter is feeling better – that’s the most important. As far as the real estate stuff goes, I just wanna make sure I’m understanding things… So what’s the primary way that you make money in real estate?

David Phelps: Today it is taking participations with other people… But that’s not how I started. I started boots on the ground, going out and finding opportunities, primarily in single-family at first, that I could take down with existing financing or private financing or seller financing. I was not an institutional financier back in the day, I stayed away from institutions and built my portfolio boots on the ground. But today, and what I teach other busy professionals and busy business owners is it’s all about relationships. Real estate, unlike Wall-Street, is an insider’s game; it’s who you know. Now yes, you can definitely do it boots on the ground, a go-getter, and that’s where most young people start, but at some point I think there’s opportunities to connect dots, and that’s really what I do – I bring capital to deal flow, and with my own capital, I take participations. I lend money, I do equity deals, syndications, and I just really do it through other people that I have built a relationship of know, like and trust, which is critical; it’s a critical factor. I’m not being [unintelligible [00:07:54].07] find somebody to give your money to… It’s a lot more than that, but that to me is the fast-track. That’s really for me true leverage today of my time, and my time is the most important thing that I’ve got, so I’ve gotta look at my time and realize “Where do I wanna spend my time? How can I get the most out of the time that I’ve got and enjoy what I do?”

Joe Fairless: So you are passively investing, whether it is in a syndication or lending your money to fix and flippers, or doing some other type of passive investment, correct?

David Phelps: Yeah, you could say passive… I’d say it’s semi-active. I don’t get down with tenants and management and contractors and actually looking at the properties, but I stay involved with the fewer better people that I have built into my network, and I enjoy that involvement. So it’s not as passive as where you just dump your money into a fund, whether it’s real estate-based or Wall-Street-based, where you just dump it into a fund and you never hear from anybody, you’re just supposed to get checks, dividends or interest payments. That to me would be truly passive, but I like to have a little bit more control over what I’m doing. Just semantics a little bit, I just wanna kind of clarify how I feel about passive versus semi-active.

Joe Fairless: Can you give a specific example of the semi-active scenario?

David Phelps: Yeah, for sure. I’ll just keep it simple and just talk about single-family residential, which I believe is one of the best places for people to start, and actually that’s where the bulk of my portfolio is today. I do a lot of lending, and I can do short-term lending for fix and flip, but also I’ll do longer term lending where I actually take equity participation, or I’ll take option positions on equity on a longer term basis.

So I’ll put my money on a deal and lend the money for the acquisition AND the rehab if it’s someone that I’ve got a track record with. As I said, that can be a short-term deal, which is pretty simple – it’s points in an annual interest rate; I’m pretty standard on short term. But I like the longer term, because I like to keep my money invested where I don’t have it coming in and out. There’s a point where you wanna have velocity when you’re trying to grow your portfolio, but at some point you don’t need to have super-velocity on your entire portfolio…

So I put my money somewhere where it’s gonna be there for 3, 5 or 10 years. But I do have an equity hedge in those deals, and that simple – that’s one deal, one operator (if you will). I want a boots on the ground catalyst in my money in that deal. Of course, you can explodre that and do other things where you are syndicating and build off that model, but that’s pretty much a basic premise.

Joe Fairless: For the acquisition/rehab of a property where you’re lending the money and you’re charging points in the interest rate, what do you charge?

David Phelps: It’s gonna depend, Joe. It depends on the geographic area, it depends on the price point of the property, how much risk I feel is in the deal and evaluating that… It depends on my relationship with that person and how much scale, how much deal flow they can provide me. But just to give you a range, typically today the average is about 12% and two points, that’s an average.

Joe Fairless: Okay. And as far as the long-term play – 3, 5, 7, even 10 years where you said you have an equity hedge, so you have upside in the deal because you have some portion of equity in the deal, what type of returns do you look for in that?

David Phelps: Great question, and that will again depend upon the marketplace. I’ve gotta look at the market and say “Well, is this gonna be an appreciating market?” If we have – which I think we will have – some serious inflation in the next decade or two, is this a marketplace, is this a price point, a geographical market [unintelligible [00:11:09].14] great cashflow market, but not so much for appreciation? That’s one factor.

The second factor is today, when I’m making the investment, what is the equity position today? The borrower – what’s his position? What do I feel like the truly fair market value is on a quick sale, and how much am I loaning in the deal? What’s my loan-to-value? What do I feel is true equity, net after cost of sale? So those two would be determining factors on what percentage of participation I want and based on the number of years.

Sometimes I’ll go in with a flat percentage. It could be anywhere from 20% to as high as 75%. That’s gonna be dependent upon those few considerations I just gave you, plus what’s the carrying cost that the borrower wants to or feels like they can carry? Probably the top level is 8%; that’s probably top-level in a moderate priced range category. If we start getting into a little bit better properties, we’re gonna have to drop that carry for the borrower to 6%, 5%. I’ve gone down to 2%, but that’s where I’ve taken a bigger equity participation in a market where I felt like we had equity going in and I felt like there’d be an equity play on the backside.

Joe Fairless: What’s an example of that type of market?

David Phelps: Well, right now in the Dallas-Fort Worth area. In Dallas particularly, our market is hot right now. Properties that we could easily buy for under 100k, maybe in the ’80s or ’90s all-in 3, 4 years ago and cash-flowing like a big dog… Price points are up now; it’s more competitive. Now we look at properties where the gross rent has gone from 1,150 to 1,200, and now we’re up to 1,300, 1,400, 1,500, 1,600 dollars per month, and property price points there closing in on 170k. So if someone’s borrowing the greater proportion of 170k, maybe they’re borrowing 140k give or take, even at $1,600/month rent, pushing them up at 8% is gonna strain their cashflow.
I wanna make sure my borrowers have plenty of margin. Number one, their deals have to be good, and they’ve gotta be able to negotiate and close good deals. With that being said, I wanna make sure they’ve got a cushion, because a deal only works if it works for both people. If I’m greedy, or try to be greedy and take too much out of the deal, then it hurts that person, and I wanna do deals over and over and over again with a few people.

A deal like that, I’m probably looking at 6% tops on the carrying cost for the borrower, and then again, looking at whatever the equity is going in. If I think we’ve got 25% equity, then I might look at a 50/50 deal on that. I’m just talking in general right now, without penciling numbers in, but that might be a general range.

Joe Fairless: What’s the last deal you invested in?

David Phelps: Oh, gosh. Last deal… I’m doing deals every week, so…

Joe Fairless: Okay, so the one this week.

David Phelps: I do deals with a good friend of mine in Jackson, Mississippi, so it’s a low price point market; he does a lot of seller financing. He’ll do fully amortized seller finance notes to the homeowner borrowers, and they amortize out in less than 10 years. He’ll typically sell of the first 60 payments or so of that note to take care of his acquisition cost; he’ll keep a backend position, and he’ll sell those to me at 12%, so I’ve got maybe like a five-year note, 12%.

Those are easy for me to do. I’ve got my money in for 5 years, I’m very secure, and he’s got a great track record. I do deals like that all the time… Small deals like that, but my money is in play for five years or so.

Joe Fairless: What’s a challenge you have in your business right now?

David Phelps: I have probably too many ideas, honestly… I’m like a lot of entrepreneurs, I always wanna do more, or think “What if I added this or did that?” Fortunately, I have a really good team around me that helps me vet my great ideas – I say that with air quotes, “great ideas.”

It’s easy to get off track, Joe, for all of us. So I’ll think about something, I’ll read about something and I’ll go “I think we’ve gotta go do that” or “I wanna do that”, and I really count on my team to help vet my deals, and… Not that they’ll say my ideas are not good, they’ll just say “Well, maybe not now.” And I appreciate that.

Probably the biggest job for me is being true to myself and not running after every squirrel that appears out the window.

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

David Phelps: Best advice ever? I would say that before anybody starts investing, that I would tell you today to start by being an apprentice. What do I mean by that? It means find somebody in your marketplace, in the space – not geographically… Just find the best person who you know well enough that has a great platform and is doing something that interests you and you believe they have a lifestyle also that reflects what you’re really looking for in the long-term. And tell that person, “Hey, I’ll come work for you for free for a period of time.” Now, most people will pay you something, you can earn your way in, but I think that’s the best advice – invest in yourself first, but you’ve gotta do that by serving others that already have a track record.

Mentorship, apprenticeship – to me that is the fastest track, inclusive of just reading a lot, being around the people, going to conferences, seminars, listening to podcasts like yours… All those are great, but I think actually being able to tag along with somebody who has already created the path and can show you so many things so quickly about life in general, business principles, finance principles, specifically about real estate – you can learn so much faster and kind of skip your own training wheels, which for most of us are wobbly at first… We fall off and scrape our knees and there’s nothing wrong with that, but if there’s a faster track where I don’t have to have patches in my knees and elbows as often and as long, then I’ll take that path every time.

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

David Phelps: I’m ready.

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

Break: [00:16:23].10] to [00:17:25].11]

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

David Phelps: That’s a tough one, Joe. I’m gonna be true to my faith and say I think the best ever book is the Bible. There’s so many great lessons in the Bible that speak to everything in life… And then I’ve just got a whole library of books behind me on business: Jim Collins’ Good To Great, Simon Sinek – Leaders Eat Last… The list goes on and on, but there’s a couple for you.

Joe Fairless: Best ever deal you’ve done?

David Phelps: I’m gonna say it was the first one I did with my dad, because had I not had the chutzpah to ask him to come be an investor with me, I might not have gotten started early on like I did, and who knows where I’d be today.

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

David Phelps: We have a young leaders group [unintelligible [00:18:00].06] mastermind community, and we want to empower the millennial age group (18-30 years old) and give them the opportunity to live their life the way they wanna live it and not feel trapped by society norms or traditions.

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

David Phelps: Trusting but not verifying facts. Not doing enough due diligence. Not that I was lazy, just going too fast. With a little bit more work, I could have saved myself a little bit of pain.

Joe Fairless: What is the best place the Best Ever listeners can get in touch with you?

David Phelps: The best way would probably be my website, FreedomFounders.com. You can check me out on the Dentist Freedom Blueprint Podcast. You don’t have to be a dentist to listen.

Joe Fairless: Well, David, thank you for being on the show. Thanks for talking about how you invest now, your investing strategy, that is semi-active/going towards passive, but I won’t say “passive”, because you said not to… But more semi-active, versus being on the ground and being fully active… And your approach to both short-term financing that you provide, and the long-term play, where you want more of an equity upside component to the deal. Then just your path along the way that got you to this place.

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

David Phelps: Joe, thanks. My privilege!


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Real estate secrets from Emmitt Smith

JF1010: NFL Legend, Emmitt Smith, Shares His Developmental Real Estate Secrets

Listen to the Episode Below (24:51)
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Best Real Estate Investing Crash Course Ever!

He built a legacy on the gridiron. Now he’s building properties! Hear Emmitt’s challenges and triumphs in his real estate career and his specific advice about finding opportunities. This is one episode you will want to play on repeat!

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Emmitt Smith Real Estate Background:

-Owner of E Smith Legacy, a real estate investment and development company Along with his other two enterprise companies, E Smith Realty Partners & E Smith Construction
-Co-owner of The Gents Place; the ultimate men’s grooming and lifestyle club
-Author of, Game On, book that outlines the principles that helped Smith succeed both on and off the field
-NFL Hall of Famer, 3x Super Bowl Champion and 15 year NFL Career Dallas Cowboys
-Based in Dallas, Texas
-Say hi to him at http://www.emmittsmith.com


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developmental real estate and Emmitt Smith



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

With us today, Emmitt Smith. How are you doing, Emmitt?

Emmitt Smith: I’m good, Joe. How are you?

Joe Fairless: I’m doing well, nice to have you on the show. Obviously, Best Ever listeners, you know who Emmitt Smith is, but in case you didn’t know, some things about him… Let me quickly mention a couple things. One, he is the owner of ESmith Legacy, which is a real estate investment and development company. He also has a couple enterprise companies – ESmith Realty Partners and ESmith Construction. He is the co-owner of The Gents Place, which is the ultimate men’s grooming and lifestyle club; we’re gonna be talking about that.

Emmitt Smith: [unintelligible [00:03:05].21] I need to get over there soon. [laughter]

Joe Fairless: I do too, I’m getting a  little rough in the beard area. I need to look smooth.

Emmitt Smith: You just need to shape it up a little bit, that’s all.

Joe Fairless: That’s right. And, well, he’s played a little football along the way, so… Emmitt, what are you up to? What’s your focus right night?

Emmitt Smith: My focus is obviously on a lot of things that you just mentioned; all of them are real estate companies, as well as my construction company. We have a couple things that we’re working on that are pretty significant in the infrastructure space, and so we’re just busy. We just concluded up our Emmitt Smith Invitational Golf Tournament just about three weeks ago, and now we’re planning and getting everything geared up for the Emmitt Smith Gran Fondo, which is happening on 30th September, here in Dallas-Fort Worth. So there’s a lot of other things that are going on from a business as well as from a charitable perspective. Very busy.

I’ve got NFL people around me right now, doing some things, a day in the life of myself… So there’s a lot going on.

Joe Fairless: How do you determine how to prioritize your time?

Emmitt Smith: Well, the way I see it, I have only so many hours in the course of a day to get as much work as possible done, and I try to prioritize how these things absolutely work in terms of either 1) helping every company that I own prosper and grow; 2) assist the brand in terms of more brand awareness for not only myself individually, but also for all my companies that are under my leadership, including our charitable component. I try to prioritize these things; do they all work together, or is it something so far out of the box that it’s gonna take up too much amount of time, and do I really wanna do it?

The only things that I’m doing thus far, I’m extremely, extremely passionate about. Everything I’m doing, I don’t have any pullbacks, because it just flows. It flows within the course of my daily schedule, and I take time for every last piece of it.

Joe Fairless: With the different ventures — I mean, you mentioned the golf tournament, you mentioned real estate, you’re the co-owner of the Gents Place, you’re helping with that… What’s right now taking up the majority of your focus when you look at all the stuff that you’re working on?

Emmitt Smith: Well, the beautiful thing about it is I don’t have to do it all myself, let’s make that very, very clear. The one thing I learned a long time ago, you surround yourself with great teammates. Emmitt Smith did not become the all-time leading rusher because he was out there blocking for himself, handing the football to himself and throwing the football to himself, let alone calling him to plays.

I had a supporting cast, and that supporting cast afforded me the opportunity to do what I do best, and that’s the same thing that I have here within my corporations. I have great leadership executives that push the ball, if you will, down the [unintelligible [00:05:48].15] and we communicate constantly. That part is very helpful.

The one thing I have learned and one of the challenges that we all face in business is not necessarily whether or not the concept or the idea is the right one, it’s whether or not we have the right people to help us make that concept and that dream or that idea become successful. So far I feel like I have surrounded myself with a great group of men and women to help fulfill that dream.

Joe Fairless: I imagine that’s a unique challenge that you face starting out, because a lot of people knew who you were, and with that comes a lot of people who wanna get your money, and not necessarily look out for your best interest.

Emmitt Smith: That is true. Go ahead.

Joe Fairless: Starting out, how did you identify the right people to surround yourself with and how has that evolved, if it has evolved at all?

Emmitt Smith: That has been one of the hardest tasks to try and – I ain’t gonna say “master”, but to get as good as you possibly can with it. Outside of my own intuitions and my own questions that I’m gonna ask every person that I interview with, I use a filtering system that I go through in terms of having the HR department spend time with people, doing background research, interviewing folks before they actually sit in front of me, and then I come with a whole other set of questions that are maybe sports oriented but also give me some insight in terms of who the individual might be, what type of work ethic they actually have. But the most important thing I try to find within people is are people really credible? Can you really do what you say that you can do?

The only way you can really figure that out is through trial and error, therefore I don’t mind giving a 60-day window here to try and figure out whether or not you have the capabilities of picking up something fairly quick, and executing against something. Most of the times it’s just a matter of conversation. Your thought process also is a big indicator of how you think about certain things – do you think about things in a silo? Are you able to be a broad thinker and think outside of a silo and bring it back into context [unintelligible [00:07:58].27] to the situation or the cause at hand? There’s a lot of different techniques that you have to learn.

Joe Fairless: Do you have a favorite interview question, when they finally go through the entire process and finally get to you and have the conversation?

Emmitt Smith: Well, it depends on the resume that’s in front of me, the person that’s sitting in front of, the conversation that we’re actually having, and obviously I like to know what people see themselves. I like to understand “Where do you see yourself in the next five years? Are you just coming here to get a job, or do you have a mission? Do you have a goal, do you have a vision for how you see yourself within this corporation? Do you see that the landscape is open, that we have enough opportunity for you to become what you aspire to be?” If you cannot see yourself being successful in here, then you’re not the right person.

It’s nice to know how people envision themselves working within our platform.

Joe Fairless: We talked earlier about the different types of ventures that you’re involved in, and you said that you’re passionate about each of those ventures. I imagine that you’re presented opportunities that you could be passionate about… You could be like “You know what? That sounds really interesting…”, but perhaps you don’t enter into a partnership or invest or create a company around it. What is the difference between the ventures that you have decided to move forward with that you’re passionate about and the ones that perhaps you could be, but you don’t move forward with?

Emmitt Smith: That’s a great question. When you think about our platform, which you stated at the top of this show, ESmith Legacy, which is a real estate development company, so we build things, we have [unintelligible [00:09:34].04] shopping centers, mixed-use projects in terms of retail office, hospitality, multifamily – all of those things are part of the mixed-use umbrella that we actually have from a development standpoint, and we’re currently venturing off into the MOB space (medical office space).

When we put all of those things together, it creates a nice little dynamic mix there. That’s the development arm. Then we [unintelligible [00:09:58].11] brokerage services arm. We represent clients that wanna be in those types of mixed-uses, whether it’s industrial office, or retail or medical – whatever it may be, from a brokerage tenant rep standpoint, we represent a number of clients that actually want to fill some of that space up. These kind of work hand in hand that way.

Then we [unintelligible [00:10:19].09] construction. Whether it’s any form of development, it’s gonna require some type of construction work, and so our construction company is not only building roads and bridges, parking garages, but is also doing site work, infrastructure work and everything else which is required for any development that ESmith Legacy does. So it all kind of work together in this nice way. Construction may take a lead here one day, development may take the lead another day, brokerage services might take the lead on another day. Everything that we do tests some form of real estate or some form of development that somebody is probably gonna either own or develop themselves.

Joe Fairless: I read an article – I think it was a recent article – where you implied that the construction part of your business is the part — I don’t know if it was that it keeps you up at night, or something, but it was the challenging part because you’re spending dollars and you don’t have a return for 12-24 months. Can you elaborate on that?

Emmitt Smith: Yeah, construction is one of the most — [laughs] when I first got into the business, my CEO said “Are you sure you wanna do this? Because you could probably make more money going and signing autographs than doing this…”, [laughter] which he was absolutely probably correct in terms of the stress level. But construction is an outpouring of cash early, outlay early on; it’s on an accrual basis, so we can be on a job site for almost 90 days, in some cases 120 days, before we actually get our payout. So probably we have outlayed somewhere between 200k to 500k before we get our first paid application. In some cases you spend a lot of time debating and arguing with the person about the work that you’ve done. The work is then placed, you moved on to the next phase, you’ve been cleared to go, and yet you still wanna argue and they’re trying to beat you down some more from a financial standpoint, which is absolutely ludicrous in my opinion, because I come from a world where if you perform your job, you get compensated for it.

It’s kind of a rigged system, because we find ourselves financing the project – which is not cool – to get a small amount of return. But my reasoning for doing it was I got sick and tired of hearing that they cannot find qualified minority (African-American) companies that can do the word. I got sick and tired of hearing it, because it’s a big old myth. The reason why you can’t find it is because some of the general contractors, some of the big boys are constantly doing things to run smaller minority companies out of business, by accelerating the schedule.

Well, if you’re a small minority contractor and they accelerate a 14 million dollar project, they accelerate the schedule on you, you just went from maybe doing $50,000/week to $100,000/week and you’ve gotta wait 90-120 days to take it back. So it’s kind of hard to do. That’s why I say it’s one of those very difficult things, difficult businesses to be in, and it’s one of those things that will keep you up at night.

Joe Fairless: And how do you mitigate the risk as much as possible or navigate that so that it doesn’t keep you up as many nights in a row as perhaps it could?

Emmitt Smith: Well, the first thing we try to do is to find very good relationships with general contractors and owners who have better pay terms, if you will. [unintelligible [00:13:37].03] that’s impossible; establishing that type of relationship in a marketplace is absolutely critical to the success of any small minority business. So that’s one thing.

Risk mitigation comes in the context of “How do we estimate a project and how do we find the woodpile, even in the construction space?” So we try to eliminate problems before we actually get on the job site. Then most importantly, safety [unintelligible [00:14:08].03] Safety is a huge part of everything that we do. I’m making sure that every person that’s on our job site come home the same way they went to work that morning.

Joe Fairless: Yeah, right… Perhaps with a little bit more dirt on their clothing, but otherwise [unintelligible [00:14:22].27]

Emmitt Smith: I could do with dirt on the clothing, that could be washed off, but we want fingers and toes [unintelligible [00:14:27].09] and stuff like that.

Joe Fairless: So the primary audience for my show is real estate investors, so what is your best real estate investing advice ever for them?

Emmitt Smith: One of the simplest forms of investing advices I’ve ever received came from Jerry Jones himself. He told me years ago, he said “Emmitt, have a big front door and a small back door.” A big front door and a small back door. Now, how does that play in the context of real estate? Well, obviously, from a development standpoint, I obviously wanna do big projects. And the more projects that you do that are of quality and size and the more that you are capable of getting done, then you have a big front door. [unintelligible [00:15:09].16] at the back door. In other words, take in as much as you can, and let out little on the back side.

Joe Fairless: How have you applied that in either one business or your overall approach?

Emmitt Smith: Overall approach – I would say… We touched on it a little bit ago when we were talking about the construction business, risk mitigation. How can we set up our contracts where there’s brokerage service or development contracts to the point where we can alleviate as much of the risk as possible and try to be as fair as possible with our contractors as well. So that’s important… Whether we utilize an architecture firm that has VM technology to find collision in the drawings that we may have and mitigate those things before we’re on the job site, which is absolutely huge, because it saves us money on changing orders and everything else. All of that is important.

Those are some of the things that we try to do – contracts for language and risk mitigation in terms of design criteria.

Joe Fairless: We do a lightning round of questions… Usually, they’re the same questions, but prior to our conversation I asked the audience to submit questions, so we’ve got some personalized questions for you. Are you ready for the Lightning Round?

Emmitt Smith: Yeah.

Joe Fairless: Alright, let’s do it.

Emmitt Smith: If I don’t have an answer, I can say “Pass…”

Joe Fairless: We’ll see… Elton from Detroit asks “How do you identify which opportunities to pursue?”, which we kind of touched on, so if you don’t wanna elaborate, you don’t have to. But just from a high level…

Emmitt Smith: Number one, from a real estate development standpoint it’s about an eye for a piece of property… What does this property want to be? No matter if it’s an old redevelopment play, or if it’s a piece of land that’s vacant, but it wants to be something. Then figuring out how to make it happen. Some people see challenges and don’t wanna touch it. Other folks see challenges and they wanna run right to it because it’s those creative minds that pull off something that someone else doesn’t wanna do, which is a lot more riskier, but yields a much larger return. And I’ve gotta be passionate about what it is that I’m trying to get accomplished. But then I extrapolate that from the site standpoint to the demographics and the trade area around it. What’s in that trade area and what’s not in that trade area? And I try to [unintelligible [00:17:24].10] that are in the trade area off the table, and figure out who really needs to be here and how does the demographic stack up with that tenant profile.

Joe Fairless: Theo from Cincinnati asks “What separates the NFL players who leave the NFL and lose all their money with the NFL players who leave the NFL and make more money?”

Emmitt Smith: Well, I think we all run the risk of doing things that we’re not aware of. One thing I’ve learned is it’s better for me to invest in myself than to invest in others, because I’m not gonna cheat myself. What happens when you invest in others, others sometimes (again) claim that they can do XYZ, until  the rubber  meets the road and you find out that they can’t, so you’ve made a significant investment in the person just for them to let you down. Not only that, but then the actual management, who you’re investing in and how you’re investing in these people, also their credibility becomes critical, too.

I just think that often times we are excited about being in business and not really taking the time to understand the business. Everything that I’ve done, I’ve tried to immerse myself in it to understand the business and how the business actually works itself, and asking questions, versus being an absentee owner, being an involved owner from start to finish. So you learn that lesson one time, versus having to learn that lesson three or four times.

Joe Fairless: Makes sense. Bradley from New York City asks “What are you most proud of?”

Emmitt Smith: What I’m most proud of? That’s hard to say, outside of just my kids. I’ve got two kids now that are going off to college; one’s already in college, one just graduated from high-school, and she’s off to college [unintelligible [00:19:12].12] And I’ve got three other kids coming from behind them, and they all are good kids. I think I’m most proud of my children in terms of how they’ve been able to handle not only the success of their parents and who we are, but just how they carry themselves as young men and women.

Joe Fairless: And the last question from the listeners that was selected is from Eric in Cincinnati – “What’s a trait you learned in the NFL that has been applied in business?”

Emmitt Smith: I would say teamwork. [unintelligible [00:19:42].16] ego at the door, and understanding that you do not become successful by yourself. It involves a lot of people in terms of helping you become successful. Like I said before, I did not hand the football to myself, I did not block for myself, I did not call the plays, and the same thing applies in business. I’ve got people that help keep me on time for my schedules, I’ve got folks that are in the marketing side, I’ve got folks on the executive director side, I’ve got CEO’s and everybody else that has a job and a responsibility. Doing your job and doing your responsibility protects everybody else, and in some cases I’ve got people that have the ability to do more, a lot more bandwidth than others, and that’s a beautiful thing. To me that’s a first, second and third running back. Not only is he there to run the ball, but on third down he can go out and catch the ball and he can also block, which is also extremely important for key people and key personnel in any organization. If you’ve got somebody that has the ability to not only be a broker, but also has a law degree too, so that expedites certain things too, that covers your back.

Having engineers that have the capability of not only being a CEO, but also seeing your estimator too, so when it comes down to creating processes and procedures for your organization to run off of and run in the most efficient way, all of that is great knowledge to have. Then you have folks that just handle one piece, but they do that one piece very, very good, and that’s a wonderful thing to have.

Teamwork becomes such an important thing in every aspect of what we do. In my household it’s the same way – teamwork. My wife and I have got to be on the same page in order to raise all five of our kids and keep them all humble, hungry and knowledgeable in terms of their growth. That is an important aspect of who we are as people, to not only have the ability to share knowledge with one another, but to establish that team environment.

Joe Fairless: I’ve read that on your bucket list is to be an NFL owner. Let’s fast-forward, and I’d like to congratulate you – you have your pick of the litter; you can pick whichever NFL team you’d like to be an owner of… Which one is last on your list, and why?

Emmitt Smith: Last on my list… That could be a number of cities, but obviously I would like to work in cities that I love to visit, where the weather is perfect or good in some kind of way.

Joe Fairless: Sorry, Detroit… [laughter]

Emmitt Smith: No offence to Detroit, because it has tremendous opportunities, but I’m not a cold weather person, so I would rather be on the South Side. West Coast – I could deal with the West Coast; Arizona – I could deal with Arizona… Obviously, anything in Texas I’m good with, Louisiana, Georgia, Carolina, Florida – all of those are great areas, but if I could pick one team that I could be the owner of, I would wanna be a part owner of the Dallas Cowboys.

Joe Fairless: Absolutely. And has anyone ever interviewed you while wearing an Emmitt Smith jersey, like I just did?

Emmitt Smith: I can’t think of [unintelligible [00:22:53].25] in recent times. [laughter]

Joe Fairless: Well, Emmitt, thanks for spending some time with us. Thanks for talking about your teamwork approach and how actively involved you are in learning aspects of the process, and the challenge. A lot of people who haven’t walked a mile in your shoes or other people’s shoes, they have a tough time thinking that perhaps everyone has a challenge. Everyone has challenges, and really, one of the things that you mentioned is do you have the right people and how you focus on “Are they credible?” and how you qualify that credibility, whether it’s  a 60-day timeframe for testing them out, or any number of other filters that you use… So thanks for being on the show.

Where should the Best Ever listeners go to perhaps get more involved in what you’re focused on, whether it’s the Gents Place or something else?

Emmitt Smith: Go to EmmittSmith.com.

Joe Fairless: Cool. Emmitt, thanks for being on the show. I hope you have a best ever day, my friend, and we’ll talk to you soon.


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Exclusive Emmitt Smith Interview – Teaser

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Enjoy this teaser clip, as this week NFL Legend, Emmitt Smith, shares his secret to success on the Best Ever Show. Full episode coming soon!

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Best Real Estate Investing Advice Ever Show Podcast

JF998: How an Anesthesiologist Built a Brokerage that FOCUSES on Investments

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Still an anesthesiologist, he grinds away at real estate focusing on investments although he appears to be a retail professional. He can do it all, commercial and residential, but his niche is investment properties in the bustling Dallas-Fort Worth area.

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Amir Baluch Real Estate Background:

– Founder and Principal of FundingNest.com
– Provides turnkey investment opportunities to investors and his physician colleagues from around the globe
– Also a licenced realtor, owner of Investment Club Realty, LLC, and holds series 63 and 22 securities license
– His team has closed over $450M in real estate
– Based in Dallas, Texas
– Say hi to him at http://www.baluchbulletin.com/eonfire
– Best Ever Book: How to Win Friends and Influence People

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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 fluffy stuff.

With us today, Amir Baluch. How are you doing, Amir?

Amir Baluch: Pretty good. How’s it going, Joe?

Joe Fairless: It’s going well, my friend, nice to have you on the show. A little bit about Amir – he is the founder and principle of Funding Nest. His team provides turnkey investment opportunities to investors and his position colleagues all around the globe. He’s also a licensed realtor, as well as the owner of Investment Club Realty and holds a series 67 and 22 securities license. His teams closed over 450 million dollars in real estate. Based in Dallas, Texas… With that being said, Amir, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on?

Amir Baluch: Sure. My whole goal growing up was actually just to focus on being a doctor, but then I started learning that 80% of the multi-millionaires generated their wealth through real estate, so at the age of 21 I jumped into it head first, with no mentors; we didn’t have access to podcasts like Joe’s here, where you could get information from other people. I was just pounding my head against the wall, but eventually, a few years later I started investing alongside a private reach and multifamily; a few years after that I got my real estate license, I started putting deals together and putting together a team to help grow my real estate investment business, because I knew that this was the key for me. It wasn’t gonna be just going to work at the hospital every day for the rest of my life,

Through that process — as you mentioned, Joe, we have our own brokerage… I believe we’re the only one in the metroplex that focuses solely on investments; we really don’t mess with the retail side of it that much, although we won’t turn down the business, but we don’t focus on that. We do both commercial and residential transactions, developments, fix and flips, and we also coach other people just like you. We like to share our knowledge with other people, because I know what it’s like to not have knowledge. That’s how I got stuck when I was younger, getting into this game, so I love giving back to people, giving as much advice as I can, and that’s kind of where I’m at in my life right now.

Joe Fairless: And are you doing anything with the doctor route?

Amir Baluch: Yes, I still do anesthesia. Usually it’s from 7 AM to about noon, which leaves me most of the day. Some days I take off completely, but I have definitely more than 40-60 hours/week to give to real estate.

Joe Fairless: That’s incredible. 38, you started at 21, and you have some securities license, and you have a brokerage, you are also an anesthesiologist, I guess… Right?

Amir Baluch: Yeah, I just can’t sit still.

Joe Fairless: You can’t sit still, no kidding.

Amir Baluch: I love to learn.

Joe Fairless: Yeah, so let’s talk about how you balance your time. How do you figure out what to focus on?

Amir Baluch: A couple things – I’ve taken a lot of time management courses, and you learn a few tricks here or there, but the number one thing, you have to be very conscious about your time and understand that there’s a certain amount of hours in the day, and prioritize things. There some type of a chart or like a square you could make where you have urgent/not urgent, and then you have important/not as important. You put things into those categories, you figure out what needs to be done now at this given moment based off of that, you prioritize, and eventually the things that don’t really matter that much, you procrastinate on those intentionally, or you can outsource so much with virtual assistants, people in India, the Philippines, bringing people to pick up the phone for you… There’s so much virtual stuff on there, so much technology we have to increase our own free time. I definitely recommend for people to take a look at that. So that’s the key for time management.

Joe Fairless: Do you actually create a chart every day?

Amir Baluch: Not every day, but I have a long list of things to do that has up to 70 things on it. Instead of having those blocks, I actually have it color-coded based on which block it should be into, like what’s urgent, what’s not urgent. A lot of times I don’t have to put too many things in the blocks, because as soon as I see something that’s a time waster but needs to be done, I just immediately outsource it. I don’t even want it to take up space in my brain, I don’t even wanna think about it, so that’s what I do.

Joe Fairless: And who do you outsource it to?

Amir Baluch: For example, I wanna build a call center right now – it might take me a couple hours to actually do the Google research and figure out who’s good at what and what the prices are. I’d have a virtual assistant that for $10 will do all that searching for me and just give it to me in a nice Excel format, and I’ll just call up the best one and that’s it.

Some of the marketing material, too – I used to try to do it all myself… It doesn’t make sense to do that. You have websites like Fiverr.com, or even Upwork, and you can outsource this thing for much less than what your time will be worth if you’re in the real estate investing world. Even content creation sometimes, like a quick blog post or something like that… Although the ones that I publish with my name behind it, I’ve gotta do those myself because it’s too hard to find somebody to put all that stuff together. But just some small things like that you can outsource, and the most important things are things that really will make money or make an impact – those are the ones that I’ll handle myself, such as negotiating the contract, face-to-face meetings with a new partner, visiting a plot of land for development… Those things you can’t outsource. But that’s what I’ll focus my time on – those critical elements of a transaction.

Joe Fairless: What service did you hire your virtual assistant through?

Amir Baluch: I can’t even remember. I use different ones, depending on what I want done. For example, Google searches or keyword searches, things like that, I’ve used so many different ones, and they all have strengths and weaknesses; it just depends. I used some on Fiverr, I used some on Upwork, and they’ve been from all over the world, but it really just kind of depends what I’m looking for. If the English is kind of tricky, I definitely don’t wanna hire somebody from India; I need somebody that’s fluent in that.

If I need something for a medical background, for something like that I’d definitely need to hire somebody with an M.D. or some type of healthcare background, so you’re not gonna find that on Fiverr, most likely. Sometimes I just ask other friends that I know use virtual assistants, they give me some recommendations, too. It’s kind of a conglomerate of all that.

Joe Fairless: What’s the primary way you make money?

Amir Baluch: Right now it’s probably 50/50 anesthesia and real estate.

Joe Fairless: And within real estate specifically, what’s the number one way within real estate that you make money?

Amir Baluch: Right now most of it is coming from our fix and flip transactions. We’ll probably make anywhere from 20k-60k a pop on that net. Number two would come from the retail side; we usually clear about 5-6 million a year in transactions just on small retail deals. Number three would be wholesale.

Joe Fairless: Okay, that makes sense. Fix and flip transactions, retail brokerage, and then wholesaling. What is your focus? You’ve just mentioned the call center – why a call center? What will that do for your business?

Amir Baluch: Well, the game is really just about leads. In any business you need leads. If you get leads, you can be successful in any business and you could build the infrastructure to handle the leads. What I wanna do is get large, commercial leads and investor leads because the limiting factor for me a lot of times is getting the capital to close on these larger developments, which that’s where our next move is gonna be. So if I have a call center, calling people, prequalifying them, see what they’re interested in, if they wanna invest with me passively, we’ve got all that ready to go with Funding Nest, or just one-on-one partnerships, it doesn’t have to be a security… Or if somebody doesn’t wanna partner, some people just like to own things outright, they don’t like any partners – that’s okay, because we can handle the retail side and we can broker them the deal, depending on what they’re looking for.

We need both those lead sources to scale up, and so instead of me making the phone calls all the time, I’m just gonna generate some scripts, form a call center; we’ll just have the person sit in our office here in uptown Dallas, and for maybe 4-5 hours a day just make the phone calls and run through a script and we’ll see how many leads we get, and we’ll keep on tweaking the system until I’m getting so many leads that I won’t be able to handle it.

Joe Fairless: With the leads, what are ways you generate them?

Amir Baluch: Right now a lot of it has just been networking. We do a lot of coaching — or my brother mainly does a lot of the coaching at a group called The Real Alliance in Dallas, so we teach other investors how to do fix and flips, and they can either partner up with us from day one, or a lot of times what happens is they try to do it themselves and then they come to us to bail them out. When we come to bail them out, we really just take over the project and that’s kind of like a lead.

Or somebody will come in and they found a deal but they don’t have the money and they come to us and then we close on that, so we get leads like that, we’ll pay them a wholesale fee. Or somebody doesn’t know what they’re doing – we’ll give them a script and tell them to knock on some doors and find leads like that, and then we’ll pay them 5k-10k once they give us a deal that we approve. The more we give and the more we share, the more leads we get. It’s really interesting how that concept works.

Joe Fairless: What’s the main project that you focus on, besides the call center and scaling the leads? What’s another main project that you’re focusing on right now as it relates to the real estate business?

Amir Baluch: We have two big projects that we’re working on right now. We want to build a subdivision in Fort Worth, which I think you know a lot about Fort Worth – it’s a historic district, it’s just South of 7th Street. We bought 30 plots of land, and it’s just the next progression after fix and flips; it’s actually easier to build a home than it is to tear down a part of a house and then build on top of that. Doing a subdivision is almost like doing 30 fix and flips with less headaches. We should be breaking ground on that in about two weeks. That one project will probably net us more money than we’ve made in the last three or four years with the fix and flips, and it’ll be easier also.

Another deal we’re doing is on the commercial side… I actually have a conference call with the attorney in about an hour after this podcast. There’s 20 acres for a commercial development; we already have 15 acres almost sold off to a group that will build multifamily on it, and they’re buying it at a high enough price where the remaining acres we’ll own free and clear… So within nine months of completing this transaction, we’ll have about three million dollars worth of frontage on a highway on free and clear to do whatever we want. We could flip the land, we could develop it, we could hold it for a while… So that’s another deal we’re working on even right now, in the next hour.

Joe Fairless: That sounds like a lot of fun, both of them, and for different reasons. You have 20 acres… How much will you have left? About 5 acres – what are your plans with that, and do you have investor dollars in that deal?

Amir Baluch: I have a couple people that will put in the money right now, but it just depends on what kind of partnership structure they wanna have, so I’ll definitely be negotiating with both of them, and I would wanna partner with the ones that could bring in the most value outside of just bringing money…

Joe Fairless: For example?

Amir Baluch: For example, let’s say if a commercial developer wants to invest in this deal, with his knowledge and resources, he might have some tenants in his back pocket; I’d rather have him invest, because if we decided to build it and get tenants, while we’re closing on the deal, he might already get some LOIs (letters of intent, for the Best Ever listeners out there). If he gets some letters of intent before we even close on the transaction, we could immediately get the construction loan and start building, so it really can turn a speculative deal into a home run just by having those contacts, whereas somebody who’s just passively investing and can’t bring anything else to the table, well, they’re just bringing in some dollars, but that’s pretty much it. They’re not actually adding value to the deal outside of that.

Joe Fairless: And you’re referring to the five acres, right?

Amir Baluch: Correct.

Joe Fairless: Okay. Did you acquire the 20 acres – the original transaction – with investor dollars, or your company’s own money?

Amir Baluch: Well, actually it’s under contract right now and it’s gonna be assigned to me, so somebody else could have closed on it, and through the grapevine it got into my hands, because they know I like these types of transactions, so I’m kind of negotiating terms with the person who wants to assign it with me, at the same time trying to figure out what my next move is gonna be, whether I wanna sell three-quarters of it to the multifamily developer, or I might even keep that and do residential deals. So even this minute right now, my brother is doing due diligence on the residential side and crunching some numbers to see if that makes more sense for us to do.

Joe Fairless: What is the process for doing the due diligence on the 20 acres? How do you know which option to go with?

Amir Baluch: That’s a good question, because a lot of people can’t answer this. This is why I don’t advise anybody to go out there and just buy land. When you buy land, you definitely have to know what the best use is – is it commercial? Is it residential? If it’s commercial, which asset class? You wanna do multifamily, should it be office, should it be retail? So we put together proformas for each one of those options. A proforma is just lining up all the numbers with costs and income to see what will generate the most amount of money for the money we put into the deal. We kind of already know what retail will do based on current comps. We are figuring out what will happen if we do residential, and if it becomes multifamily, we’re actually just selling the land, and we know what the sale price is of the land, so we know how much money we’re making there.

For example, let’s say if we wanna do residential, my brother is looking at what the sales price would be, the days on market, what our costs are gonna be… This is raw land, we have to know what’s the cost gonna be to actually make it useable; is the city gonna get in the way? Are there any restrictions? What if we’re forced to have some roads in this 15-20 acres – now we can’t build as many houses. Let’s say it was a home run building 100 homes; well, if the city gets in the way, they’re like “No, you can only build 60”, well, there goes 40% of your net income.

Every single step of the way you have to plan it all out as fast as possible, and see which one is the safest, at the same time makes the most amount of money for the dollars you’re investing, and over what period of time.

Joe Fairless: You all haven’t done ground-up development yet, correct? Did I hear that earlier?

Amir Baluch: We’re actually partners with people doing ground-up development, but by ourselves we haven’t done it.

Joe Fairless: On the subdivision in Fort Worth will you be partnering with someone who has, or are you doing this on your own?

Amir Baluch: That one’s gonna be our first project where we’re doing it ourselves.

Joe Fairless: And what allows you to sleep at night knowing that you’re not partnering with someone else and you haven’t done it before?

Amir Baluch: Because building on a lot that has already been developed to put a house on is easier than the fix and flips. Imagine doing a fix and flip but you don’t have to tear anything down. For example, the real numbers would be that each lot is averaging about $15,000. Our all-in costs to build the home is about 75k-85k, and it’ll take about four months. We already have buyers for all the homes in California, or even my friends will buy them as turnkey rentals, and the sales price will be about 140k. So we already have the end buyers, we know what our costs are, the land is already pretty much developed, we’ve just gotta put a house on it. It’s probably the easiest way to get started in residential development.

Joe Fairless: What do you think they rent for?

Amir Baluch: They’re gonna rent for right around 1%, maybe a little bit more. 1% meaning whatever the purchase price is. If we sell it for 140k, you’re probably gonna get about $1,400 of rent a month.

Joe Fairless: Okay. How many homes will be there?

Amir Baluch: 30 homes.

Joe Fairless: So you’re projecting roughly a $30,000 profit per home?

Amir Baluch: Plus or minus… It’s gonna depend how much we end up paying to the investors also. But the total project should net a little over a million dollars when we’re all said and done.

Joe Fairless: It’s exciting stuff, thanks for sharing that. Amir, what is your best real estate investing advice ever?

Amir Baluch: The best advice I have for all the Best Ever listeners our there would be to find ways to partner with people that know more than you and are bringing value to the table. The reason I say this is when I first started getting involved in real estate (this is when I was 21), I couldn’t get anything done. I was going to the courthouse and getting a paper version of a list of foreclosures and running around… It just takes a long time to learn the hard way on your own. It’s better to partner up with somebody that’s been there, done that; it accelerates the process of you being successful, and it decreases the chance of you losing any capital or any sweat equity you have in the deal.

Even if by partnering you make a little bit less, at least you’re making some money, or you’re more likely to make money, and you’re gonna do it in a shorter amount of time. Then as you learn from your partners, then you can become more and more independent. That’s probably the best advice I have. You can apply that to anything, not even just real estate; it could be any type of business, or even if you wanna learn to play the guitar, or really anything that you wanna be good at, partner with somebody that’s better than you and that’s bringing value to the table.

Joe Fairless: I’ve witnessed that first hand in my own business, and I embrace that Best Ever advice, that’s for sure. Are you ready for the Best Ever Lightning Round?

Amir Baluch: Sure.

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

Break: [00:21:11].02] to [00:22:03].23]

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

Amir Baluch: The best book I’ve read is probably gonna be Dale Carnegie’s “How To Win Friends And Influence People.” The reason I say that is the principles in that book last forever; nothing has changed in the decades the book has been out, and it’s especially applicable to real estate because real estate is really a people business. If you can’t work with people, you can’t manage people, if you can’t have a conversation, you can’t get people to remember you, good luck… You’re probably better off just doing something like IT or building apps or something. It’s just not gonna work. All the deal flow you get, building relationships – that’s kind of like the grease behind everything that makes things run smoothly; it’s being able to work with people, and that’s the best book, “How To Win Friends And Influence People.”

Joe Fairless: If no one likes you, then stop listening because you might as well do something else, and go listen to a podcast about building applications on your phone, right?

Amir Baluch: Right, exactly. [laughter]

Joe Fairless: Best ever deal you’ve done?

Amir Baluch: I would like to say closing on these 30 plots of land, because it’s really the next progression of where we’re going – it’s gonna be 30 fix and flips. Our basis in the deal is excellent; we probably bought this land about 60-70 cents on the dollar for what it’s worth, so there’s really no way we can lose on this. We could flip the land anytime. And really, 30 fix and flips, we’ll say if it took us two years to do that, then we could knock this out with very minimal time, so that’s probably my best deal there, closing on that land and building on it, which is gonna happen in about two weeks.

Joe Fairless: How did you get the price to be 60 cents on the dollar?

Amir Baluch: Well, it was some distressed property that was taken back by the city of Fort Worth, and we had an in with somebody in the city, and they were looking for somebody to help turn around the neighborhood a little bit, develop it and bring more people to that area, and they wanted it to be kind of renovated, and not a lot of people wanted to jump into that area, but we were, and they liked us, because my brother and I both have read that Dale Carnegie book, so… [laughter] They decided to sell it to us, and that was it. We beat out a couple other developers that were putting in offers at a higher price than us. We still got it at a lower price, even though offers were 10%-20% higher than our offer.

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

Amir Baluch: I have a couple different ways to give back. One is actually through my book, “Make it, Keep it. New Wealth Strategies For Physicians.” It’s just kind of all the knowledge that I have just on the basics of investing in general, and there’s definitely a lot of good real estate chapters in there. I just roll it all up and just almost give it away for free. You can get it on Kindle for 99 cents. I think that will make my physician friends tens of thousands of dollars in better decisions.

We also give back by training other real estate investors. We never charge for our time, we’re just happy to see other people join along, and as they grow, we might become partners. If they don’t grow, hey, they might be able to feed us deals, and we’re happy for them wherever they go in their career.

On the charity side, I’m the Sapphire sponsor of the Dallas Margarita Society and Dallas Children Charity. Every year we raise just over a million dollars in one night and we distribute it to about 70 children’s charities in the [unintelligible [00:25:37].06]. Joe, you were probably familiar with that when you were living down here.

Joe Fairless: Yeah. I haven’t been personally involved, but I’ve heard of it.

Amir Baluch: Yeah, those are the three biggest ways we like to give back.

Joe Fairless: What’s a mistake you’ve made on a particular deal that stands out?

Amir Baluch: Sometimes working with friends is not always a good idea, because when there’s money involved and things like that… There was a deal where one of my friends wanted to do a fix and flip and he needed a hard money lender, so I lent him the money… I said, “Okay, you’re coming in at a good enough basis, I know I’m not gonna lose”, but I was really hoping for a pretty good return. We start putting some terms in there where he loses all the equity in the deal after working months and months, and you get all your money back plus a little bit. They might not like that that much, although that was the terms that he agreed to… So I try not to really get involved with friends that much as business partners. If they wanna passively invest in my deals, that’s fine, but I kind of think twice about working with really good friends.

Joe Fairless: What happened with that deal?

Amir Baluch: We had to take over the project pretty much and steer it in a different direction, and upgrade it a little bit, get a new broker to sell it, and that’s pretty much it. But we should actually have a buyer in the next two days, so it will be okay.

Joe Fairless: Boy, a lot is happening within two weeks.

Amir Baluch: I know. There always something going on.

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

Amir Baluch: There’s a couple different ways… You can reach out to me at BaluchBulletin.com. I’m also on LinkedIn, if you look up Amir Baluch. A really good way is I’m gonna have a little special gift for all the listeners out there if you go to BaluchBulletin.com/eonfire; I have a special deal that they can download with tons of advice for anybody that’s doing anything real estate related. It will be a really good little addition to whatever knowledge base that your Best Ever listeners have.

Joe Fairless: Sounds like you were on Entrepreneur On Fire and you created that, huh?

Amir Baluch: [laughs] Yeah.

Joe Fairless: Sounds good. Well, Amir, I enjoyed our conversation, and hearing about the different ventures you have from the subdivision, the historic district Fort Worth, Texas where you bought 60 cents on the dollar because you’re just a likable guy and you had an inside connection with a person in the city. You are building, the lots cost 15k/piece, all in to build 85k, so you’re at 100k all in, and the sales price is expected to be about 140k. Then also the commercial deal with the 20 acres that you’re working on and haven’t closed yet, and trying to come up with the best approach for structuring that deal. And then the lessons learned along the way as far as finding ways to partner with people who know more than you and bring value to the table, because you’ll make less money on that particular transaction, but you’re more likely to make money and do it in a shorter amount of time, and then eventually you can branch off and stand on your own two feet.

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

Amir Baluch: Thanks for having me.


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JF954: Former DALLAS MAVERICKS President Develops RE with Foreign Capital and How YOU Can Too

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Now off the court, former Dallas Mavericks President, Frank Zaccanelli, has raised over $235 million in just the last three years for real estate development, and he did it with foreign investors through a program called EBI. Hear what projects he’s developing and short-term goals, he definitely knows how to think big!

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Frank Zaccanelli Real Estate Background:

– Chief Executive Officer and Managing Partner of Fiamma Partners, LLC; an investment & development firm
– Invested over $235 million in residential and mixed-use real estate opportunities across the United States in       the last 3 years.
– Former President, General Manager and Managing Partner of the Dallas Mavericks
– He spearheaded the effort to acquire and redevelop 75 acres of environmentally-contaminated land, which now   houses Mavericks, Dallas Stars (NHL) and concerts.
– Currently working on revitalizing a historic shopping complex in Dallas
– Based in Dallas, Texas
– Say hi to him at www.linkedin.com/in/frankzaccanelli/
– Best Ever Book: Tuesdays with Morrie


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real estate development with foreign capital


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

We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad, and a whole bunch of others. With us today, Frank Zaccanelli. How are you doing, Frank?

Frank Zaccanelli: Doing well, thank you.

Joe Fairless: Nice to have you on the show. A little bit about Frank – he is the chief executive officer and managing partner at Fiamma Partners, which is an investment and development firm. He is the former president, general manager and managing partner of the Dallas Mavericks. He has invested over 235 million dollars in residential and mixed-use real estate opportunities across the U.S. And this is really interesting – he spearheaded the effort to acquire and redevelop 75 acres of environmentally contaminated land, which now houses the Mavericks, the Dallas Stars and a whole bunch of concerts. Last thing I’ll mention before we get into it, he is currently working on revitalizing a historic shopping center in Dallas.

Lots of real estate related conversation that we’re gonna be talking about. Based in Texas… With that being said, Frank, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Frank Zaccanelli: It’s good to be with you in the no-fluff zone; I guess this is the no-fluff zone.

Joe Fairless: You betcha!

Frank Zaccanelli: I’m happy to be in the no-fluff zone with you. I started off in real estate as a real estate broker back in 1980, and I went to work for a guy who was a really famous guy in Dallas, and probably around the country, Roger Staubach. He had just gotten out of football, and he knew in his last years in football he was going to make real estate his career. I met him playing basketball. I played basketball in college; he played a lot of basketball in the off-season to stay in shape.

We met and hit it off pretty well. One day he invited me to his house, and we played. He asked me “What do you do for a living?” At that time I was in the consumer product industry, I was a marketing guy; I was young out of school, and I went from there. He said, “Have you ever thought about getting your real estate license?” I said, “I thought about it.” He said, “Well, maybe what you should do is you should go do that and then come back and see me.” Well, he didn’t have to ask twice.

I went to get my license and I went to work for him, and had a wonderful five-year career with him. I was probably the 12th to 14th employee. When he sold his company, I think he had either 2,500 or 3,000 employees. So I was there very early on, and I basically parlayed that into meeting Ross Perot Senior, then Ross Perot Junior, and ultimately went on to a really fun and exciting career with the Perot family for a long period of time before I started all of my own ventures. I’ve had a really lucky and blessed career, and I’ve been around some really good people.

Joe Fairless: You’ve invested over 235 million in residential mixed use real estate across the U.S. Can you elaborate on…

Frank Zaccanelli: That’s just in the last three years. We’ve invested billions through my career. I’ve been lucky enough again to be with some very powerful groups that had done a lot of great things, but the 235 has been invested really over the last three years.

Joe Fairless: Alright, let’s talk about the last three years. What have you been investing in?

Frank Zaccanelli: Well, actually, the EB5 program – I don’t know if you know what that is, but maybe some of your listeners… It’s an immigration program that actually is pay-for-play immigration, where they allow up to 10,000 visas a year through the United States government, the USCIS, and ultimately what happens is is that money has to go into projects that create jobs and economic development in the United States.

This all got started for me in this EB5 program in San Francisco, back in 2010. San Francisco was a real hotbed for the Chinese. The Chinese dominate the EB5 program. They’re probably 90% of the total program. One company is probably 60% of the 90%; that’s the company that basically I linked up with. But we went to China, and like we would do in the Unites States at a public offering, [unintelligible [00:06:32].27] you sit in front of investors, you explain to them what you’re doing in the real estate they’ll be investing in, and ultimately all this has to be approved by the United States government.

So we did that in 2015, and raised the 235 million dollars of EB5 funds, and we placed that money into two land development deals in the suburbs of Dallas. I know you’re from Fort Worth, so you would know where Westlake (Texas) is, and Flower Mound, Texas. And then a historic hotel in downtown Dallas called The Statler, which is ultimately one of the premier properties in Dallas historically. It was Conrad Hilton’s biggest hotel at the time, back in the ’50 when he opened it.

The building has been vacant for a while, and we used these funds and our expertise to be able to redevelop that project. So those three projects kind of make up Fiamma’s playlist now, and the 235 million that you were speaking of.

Joe Fairless: What are some things that we should know about the EB5 program in terms of pros and cons as a real estate developer when you use it?

Frank Zaccanelli: Well, that’s a great question, actually. It’s a very arduous, long process, which I think really connects in with the government’s involvement. Projects take about a year to a year and three months to get approved. If you’re in the middle of a very active development and you need financing right away, the EB5 program probably is not the way to go. But if you can plan out your financing and your capital stack and your capital structure, it’s pretty cheap money, and ultimately if you can get through all of the coordinates that you have to get through, which is ultimately you have to have certain job numbers, you have to have certain economic development numbers, it has to be a certain tax space… These basic things, if you meet the standard on that, and you have the time to be able to really utilize that financing – because it doesn’t happen overnight – it’s a pretty nice way to basically finance your projects.

Many big development companies, especially out of New York, have done EB5 deals on major projects, where they’ve raised on a single project, five, six, seven hundred million dollars. So it’s good financing if you have the time and you meet the criteria.

Joe Fairless: What is your specific role within those three projects?

Frank Zaccanelli: Well, I raise the capital and I’m the developer. I have a long history of building things from my Hillwood and Ross Perot days. So really, the two projects in the suburbs are land development projects where we’re actually going to build 14 buildings, on the land development projects in the suburbs. At the Statler, that’s really brain surgery, because you’re taking an existing historic building and you’re actually having to retrofit it under the laws of the historic tax credit program, which is another great way to raise capital if you meet those standards. Ultimately then, you have to do your engineering and your architectural work in conjunction with the fact that you’re involved in a historic project, and you have to meet all these basic standards. My job is to make sure all that happens.

I’ve spent a lifetime really working with engineers and architects and the like, to be able to really understand all the disciplines that are necessary as you go through these steps.

Joe Fairless: A couple questions on that… On the raising capital front, in the last three years 235 million, and it’s been through the EB5 program that you have done your projects with that capital — this is a broad question, so feel free to take it in whichever direction you like… How do you raise that amount of capital?

Frank Zaccanelli: Well, again, in the EB5 program a lot of it has to do with who you’re involved with. We were involved with the right company that ultimately has 45 officers in China, and does this as the main course of their business. They raise 50-70 million dollars a month of this money. That gives  you some idea of how big this company really is, and the broadness of that. So I think a lot of that has to do with who you’re involved with.

I think ultimately your background has a lot to do with it. I’ll give you a very interesting thing. Something in your life that you never think is going to be a big deal became a big deal with me going to China. In 1997 or 1998, Don Nelson and I (a guy that I brought in as the general manager of the Dallas Mavericks, and then he became the head coach) – Nelly and I worked together to bring the first Chinese-born basketball player into the NBA; his name is Wang Zhizhi, and he is a very famous guy in China. In the United States not so famous, but he was the precursors to Yao Ming coming over, so it became a very big deal. We worked with the Chinese government for over a year to basically make all this happen.

Well, when I went for the first time and I was getting ready to do this road show, someone had recognized my name and recognized me, because over in China when we did this deal, it made major news; this was a huge deal. And so they asked me about it and they asked if we had any photos… Well, by the time that we got to our first couple of meetings, I realized how big of a deal this really was to the Chinese, because it was really, again, the groundbreaker to a lot of Chinese players to come to the United States and play in the NBA.

By far of any place I’ve ever been other than the United States, China is the biggest basketball place where fans just are insane about the NBA, more than any other place in the world that I’ve ever traveled. They’re really up to speed on exactly what’s going on, they watch all the games, they follow all the stats… So that became a very important thing for me on something that really was not a big deal at the time, but it became a huge deal and it gave me some notoriety and some credibility that also helped us.

Joe Fairless: When you have conversations with investors, whether it’s about these particular projects or something else, how do you approach those conversations? As far as preparation in advance, or just knowing what you need to know about the project, or maybe something else? And again, I’m leaving it broad to hear what comes top of mind for you.

Frank Zaccanelli: Well, I’ll just use China and then we’ll bring it back to the United States. In China, it’s really just being very prepared in terms of the numbers, and being prepared in terms of the information. They’re information freaks there, so they wanna know all of the details. In China, it’s really about preparation.
In the United States it’s also about preparation, but then there becomes a scenario where basically you have to make a connection with the people. They have to trust you and they have to believe that you really are knowledgeable, you have the background, they understand that you’ve done this before… It’d be the same thing that anybody who is gonna invest any money in something would want to know; they’d want to know that the people that they’re investing with are competent and capable, and more importantly, they’re honest.

Joe Fairless: And then bringing it back to the U.S. – when did you first go off on your own, outside of working at a real estate company?

Frank Zaccanelli: That was in 2000, when we sold the team to Mark Cuban, who has been all over the news lately. We sold the team and I thought that was a really good time for me to exist Hillwood and the Perot families business. That was the best situation that any real estate person or any business person could ever have. They’re the top of the line, the best all the way around.

I felt that was a good time for me to cash out and to exit, and to start doing my own deals. I always had a drive that I wanted to do my own projects, and in 2000 that was a really good time for me to exit, if you will, the corporate world, even though the Perot family was very entrepreneurial… But the bigger real estate companies [unintelligible [00:15:05].17] boutique companies. I’ve never had 50 employees. We’ve always kept it small and on the investment side, and I only wanna take on two or three deals at a time, because I think you can get yourself overloaded, and when you get yourself overloaded, you have an opportunity not to do as good a job.

Joe Fairless: In 2000 you went out on your own, and you’d take on at most two to three deals at a time. How do you structure those deals with investors?

Frank Zaccanelli: Well, it just depends on what the deal is. Again, if it’s equity, if it’s debt… A lot of times I just put up  my own equity and we went out and raised that. That side of things, quite frankly, is a little bit easier. The banks are looking for collateral, they’re looking for the ability to be able to take a look at what’s the loan-to-value ratios that they’re loaning in. They wanna know that the developer’s competent, they wanna know that the projects are sound… So when it’s on the debt side, it’s easier.

When it’s on the equity side, there has to be some camaraderie. There has to be controlled provisions, there has to be – in the event that there’s a problem between the partners, there has to be buy sells and there has to be all kinds of other mechanisms that come into play, so things become a little bit more complicated if it’s on the equity side. So it just really depends on what the deal is and what kind of capital you’re trying to raise.

Joe Fairless: Thinking of a specific example with the equity side, where you brought in equity partners – can you give a specific example for how you structured the equity side? Just so the Best Ever listeners can hear how you had structured an equity deal in the past.

Frank Zaccanelli: We’ll take a project that was a land development project where the properties were in the — buildings that were gonna be built once the entitlements got done. There was a process that we had to get through on the entitlements side, and that took about two years, to get all the entitlements in place, and get the city’s and the state’s approval on everything that we needed approvals on.

When we brought in equity partners there, it was really based on them being silent money partners, because it was up to us to be able to go in and complete the function with the municipalities and with the government agencies to get everything in place, and then it was a matter of actually starting the infrastructure and starting to build some of the buildings. That was all, again, on us as developers.

I had other deals where the equity that you bring in wants to be part of the development team, and if they wanna be part of the development team, that becomes a little bit trickier, because you can’t have too many cooks in the kitchen. What you have to do is you have to really understand exactly who’s gonna do what, who’s gonna be responsible for what… Because if you have too many cooks in the kitchen, you have the opportunity to start to run into each other and have some conflicts.

It’s better on the equity side if  the money and the equity that you’re bringing in is more silent than not if you’re the master of development.

Joe Fairless: On that first example, the land development project where it took two years to get the city and state approval, the equity partners wanted to be silent money partners, what type of structure – I’m talking about preferred return, equity split… Can you get into those details as far as what type of structure you offer in that scenario?

Frank Zaccanelli: Yeah, sure. A lot of times the money that comes in that’s silent wants to be in a preferred position. Let’s assume that they put in 80%-90% of the capital. If they’re in a preferred position, normally what you’re doing is you’re accruing some interest rate to their capital; let’s just assume that your accrual is 6%-8% on the equity, and that money is not paid in kind; basically, over time it’s accrued until the deal has the money to pay them out.

You as the developer, a lot of times will take a development seat, and you’ll have a current pay on the development seat out of the proceeds that are in the capital stack. Once the entitlements got done and once you start the land development and you actually start selling assets, then normally the way this works is the preferred capital is paid off first, and then there’s some [unintelligible [00:19:36].23] of split. The splits are never 90/10 when there’s preferred capital. Say that then goes after all, the preferred money is paid back, and then any of your money that you put in upfront, then normally the splits are 50/50, and then all proceeds from that point are then basically split on an agreed upon after-capital split. Those after-capital splits are never the pre-capital splits, so ultimately, the developer has an opportunity to promote the silent money, once their preferred return is paid back and their capital is paid back, to get in a better equity position. That’s normally how it works.

Joe Fairless: So give them interest on their money AND their money back, and then perhaps do a 50/50 split, or whatever the project calls for…?

Frank Zaccanelli: Correct. Ultimately, there’s always a promote for the developer once the preferred capital is paid off.

Joe Fairless: And as a developer, how do you know what percentage to charge? What’s typical?

Frank Zaccanelli: Well, it just depends on what interest rates are, what equity returns are in the marketplace, but I would say that 6%-8% in a normal market is probably a pretty good target.

There are a lot of investment companies that want a higher return. Let’s assume that they want in the low teens. Well, then the backend split, if you’re gonna pay them in the low teens, then the backend has to be adjusted so that the developer has the benefit of his bargain.

Let’s assume that I paid in the low teens; that’s something that I don’t really like doing, but let’s assume that was the case. Then we make it 70%-80% of the backend, because the investor got most of their money upfront.

Joe Fairless: Last question on this, and then I wanna talk more high-level… The developer fee that’s paid upfront – is that a percentage of the overall project cost? Or how do you figure that?

Frank Zaccanelli: It’s normally negotiated, but it can be a percentage of the project cost, and ultimately it’s paid out every month, so that the developer can pay their people and can do all the things that they have to do during this period of time where they’re getting the development ready to actually start selling assets.

In the land development world, what you’re normally doing is you’re either selling parcels of land that are now fully developed from a land development standpoint to other developers, or you’re building buildings and then eventually selling those buildings. The developer fee is kind of based on the total dollars that are put into the deal, and you get a percentage of that on a monthly basis that ultimately is part of your compensation as a developer.

Joe Fairless: And then just industry standard, what would be that percentage that would be reasonable? I know it depends on the project, but generally what would be that percentage?

Frank Zaccanelli: In the 2%-3% is probably industry standard. I’ve seen it a little lower, I’ve seen it a little bit higher. Now, this is not to be confused though – because I don’t wanna confuse your listeners – with actually managing money. There are a lot of firms that go out and raise institutional capital and manage money; that is much lower than 2%-3%. We’re talking about project-specific development fees, and normally in the 2%-4% range, that’s right there in terms of what the market would be.

Joe Fairless: You have the connections to invest in, I imagine, any type of real estate: ground-up development, office, retail that currently exists, maybe reposition it… Reposition a warehouse into condos, whatever. The perception that — at least my perception of development is that there’s more risk, but more reward. If that perception is the case – feel free to say “Joe, you’re absolutely wrong” – then why do you choose to do development instead of something that would appear to have your risk mitigated by working on a project that already exists?

Frank Zaccanelli: I think you’ve hit it your first statements on the topic – the returns are much higher if you’re in the development business. I’m not looking for institutional returns of 7%-8%. In the development business we look for 20%+ returns on projects that we invest our money in, and ultimately then build out. 20%, 25%, 30%.

A lot of the Wall-Street firms, quite frankly, are very comfortable in that space of 7%, 8%, 10% returns. “I’m not taking a lot of risk, buying existing cash flow, buying existing assets.” That’s ultimately the buyer for a lot of the properties that I develop, so therefore the real niche that I think that my company has is the ability to understand all of the entitlement-related issues, all of the environmental-related issues, of the engineering, of the architectural… All of the pieces that really are important that ultimately create a development opportunity. Ultimately, that’s really where we find that our expertise lies, better than just buying existing buildings.

Joe Fairless: Clearly, with you being on the development side, you’ve got to stay in tune with the political climate not only locally, but nationwide… And especially if you’re involved in EB5 programs, too. I think that has to continue to be renewed periodically; I’m not too close to it, but I remember reading something about that.

Before we jumped on the call and started recording this, I know that one of the topics that was mentioned to me as something that you have some good insight on is what does Donald Trump in the White House mean for real estate investors, and especially now that we have more context about what you’re doing, it’s clearly very important to you, since you’re on the development side.

In my notes that were sent to me it says that you are an independent, and you’re gonna stay away from saying one or the other, but you’re purely coming at it from an objective real estate investor standpoint… So what are your thoughts on what does it mean to have Donald Trump in the White House for real estate investors?

Frank Zaccanelli: That’s another great question, and I would tell you four, five things about it. Number one – and you mentioned – I don’t come at things in my life or in business from an ideological point of view. I think there’s way too much of that in our system. If you turn on the major cable networks, or you turn on the major news networks, it seems to me that 80%-90% of the commentary is all ideologically based. They’re not really giving viewers the opportunity to get information. That is not where I’m at, and I’ve never been.

I voted for Barack Obama, I voted for Donald Trump, so ultimately I’m all over the board in terms of exactly where I stand with my politics and where I think the country needs to go. Now, I think that Donald Trump – and I like calling him The Donald… He’s The Donald to every real estate guy, right? Ultimately, he’s gonna become the deregulation president. That’s gonna be a major piece of what he does.

In 2008 we had the worst meltdown. I’ve been doing this at a pretty high level for 38 years. In 2008 it was the worst financial and real estate meltdown I ever saw. World markets were melting down, and the whole TARP program that was put into place – I wasn’t a gigantic fan of at the time. Ultimately, TARP came in and really stabilized the marketplace, and I think hindsight being 20/20, which it always is, I think TARP was probably a pretty good idea.

Now, where they individually went in and said, “We’re gonna save one company, not gonna save another” – probably not the greatest idea. But when Barack Obama came in, he put pretty heavy regulations on the banks and Wall-Street in things that they could and could not do. The deregulation president, Donald Trump, is now gonna lift those regulations and open the markets up a little bit more.

What always happens in life and in business  and in politics is that we overcompensate. I believe with the regulations that went into place in 2008, 2009 and 2010, I believe we somewhat overcompensated with the banks. Now, Trump is basically signaling that he’s going to take some of these regulations off, which is gonna open up the money flow from the banks, which I think ultimately is gonna be very important to real estate lending and financing in the United States.

The other point that I’d like to make to you is that when you really take a look at Trump’s policies, they’re all very pro-business. Now again, you can deregulate to a level that doesn’t make sense, so I think we have to really watch now and make sure that we don’t overcompensate the other way, with too much deregulation and not enough coordinating policies that ultimately don’t allow for what happened in 2005, 2006 and 2007 to occur again. So I think it’s a real balancing act.

But if you take a look at the markets and you take a look at the stock market, as long as Donald Trump can get his agenda through Congress, which is still now a question mark – if he can get it through Congress, the markets have taken very kindly to his policies, and ultimately I think the markets will continue to improve if he can get his agenda through Congress.

Joe Fairless: What are you doing in your business right now, knowing what you just said, to either prepare or take advantage of what you see coming?

Frank Zaccanelli: Well, ultimately I think that there’s going to be an increase in interest rates, right? I don’t think that’s a surprise to anyone. We’ve been in this zero interest rate climate for a long time, and inflation has been, for the most part, in check. So ultimately, as interest rates start to go up, which eventually has to happen, inflation will probably go up a little bit, and ultimately if you own some really good hard assets, it’s probably a good time to be an owner of some good, hard assets as inflation may increase the value of those.

I think ultimately anybody who’s been sitting on a lot of cash for the last 10-12 years hasn’t seen very good returns. There really hasn’t been a real marketplace for cash in the non-real estate, non oil and gas, non investing market, just cash in treasury bills or municipal bonds or other things.

I remember in my career buying municipal bonds 20 years ago where the yields were 7%, 8%, 9% tax-free, and ultimately now those yields are 1%-2.5%. So I think that ultimately if the markets continue to grown, and I think there’s some level of inflation – probably not a bad time to own hard assets.

Joe Fairless: I hear that. So with your investments in particular, what are you personally doing?

Frank Zaccanelli: We’re building hard assets to hold and then eventually sell at the right time. Ultimately, this gets back to your question a few minutes ago where you said, “Why are you in the development business?” Well, we’re in the development business because the returns are much better than buying institutional great quality hard assets, because the returns are two to three times if you can buy the ground assets, the land assets properly and you get to write entitlements. The returns are much higher, and ultimately you cash flow them until you decide that you want to sell them.

Joe Fairless: The last thing I’d love to talk to you about, because I’m sure we piqued the Best Ever listeners’ curiosity when I mentioned the redevelopment of 75 acres of environmentally contaminated land that now houses the Mavericks, the Stars and some concerts. Can you tell us a story about that?

Frank Zaccanelli: Yeah, we were looking in 1996… When we bought the Mavericks in May 1996, Ross Perot Jr. and I knew that all of our economics were gonna be tied to our ability to build a new arena. The team had played in Reunion Arena, which was a functional arena that was in downtown Dallas, and they played there since their inception in 1980. But it didn’t have the revenue capabilities of some of the new arenas that were being built, like the United Center in Chicago. That was, in my opinion, the greatest arena that we built at its time in terms of its design, in terms of its maximization of revenues… So we knew that our economics were largely tied into our ability to build an arena.

Well, you wanna talk about a lot of regulation and a lot of politics and a lot of public/private partnership… We went through about a year and a half of that, maybe two years of really identifying how we were gonna do this, what the city’s participation was gonna be… On the West side of downtown along I-35 was probably the least desirable properties, and they had a big power substation; I don’t know if you’ve ever seen one of those, but they’re pretty unsightly. And it was on this piece of property, and it was right along the freeway, and you knew that that was where downtown eventually had to go.

So we went in and we started buying up properties… I think we bought up some 31 different parcels that created the 75 acres of land. We knew that we had an environmental challenge in front of us. If you’re in the development business and you are rushed for time, don’t win environmental awards… Because when you win environmental awards, that means that it’s taken three times longer than anything that you ever thought. But we won every environmental award that there was.

The cleanup, needless to say, was a little bit more significant than what we thought, but ultimately we were able to get through that and we were able to take what I considered to be the worst part of downtown and make it now into what’s called Victory Park. If you went there today and you saw what was built there and what was being built there… People are living there, they’re working there, they’re shopping there, they’re going to games there…

I’m really proud every time that I drive by there that we had the foresight at least to be able to see not what a property was then, but what it could be. That’s the ultimate part of all the development business – what can it be? What can you turn it into? But don’t ever win environmental awards; that means the project’s been delayed.

Joe Fairless: Frank, based on your experience as a real estate investor, what is your best advice ever for other real estate investors.

Frank Zaccanelli: Well, I’ll give you a piece of advice that H. Ross Perot gave me as a really young business guy. I’ll never forget the day I walked into his office, and he looked at me, and he looked at me hard and he said, “Zaccanelli – he always called me by my last name – forget about the return on your capital. Forget about it. I’m more interested in return OF my capital. Once I get my capital back, then we’ll worry about what the return ON my capital is. But I’m worried about the return OF my capital, not return ON my capital.”

I’ll never forget that, because his message really was you need to ultimately be very careful about how you invest your money. Everybody gets so caught up in what their returns are, and his philosophy was “Yes, returns are important. We need to make sure that the returns are there, but we need to make sure that all of our money comes back to us, because we don’t wanna be out there lunging when we’re risking our capital.”

I had another guy tell me another really interesting anecdote. He said, “Always bet the milk from the cow, but don’t bet the cow. Because if you bet the cow, then there’s no more milk. If you lose the cow, you’re out.” I think both of those kind of lend themselves to a philosophy that “Be careful as you take your capital or other people’s capital – be careful about the risk that you take on when you invest.”

Joe Fairless: What is one either underwriting approach, or just your overall… I’m looking for a more granular, tactical thing that you do when you evaluate development deals – or potential deals – where you make sure that your risk is mitigated, so you do have that return OF your capital first and foremost.

Frank Zaccanelli: Well, take all your reports and all the market studies, and everything that everybody does – we do the same thing – and then at the end of the day when it comes down to putting your final numbers together, discount all that about 20-25%. If you can discount those numbers 20-25, even 30% – if you can discount that and the deal still makes sense, then you’ve probably got something that you should do.

So take all your market data, take all the reports that everyone puts out about the office market and the hotel market and the apartment market, and then discount that back, assuming that the market is gonna adjust at some point, and if your numbers still make sense from a return standpoint, then you probably have a good deal.

Joe Fairless: And by “makes sense” does that means it’s safe to assume you’ll get your capital back?

Frank Zaccanelli: Well, capital plus returns. Again, the story that I tell you about Ross Perot – it was nothing more than him telling me that “Look, the most important part in investing is return OF your capital. Once you get your capital back, then your returns are infinite. So get your capital back. Make sure that you’re structuring things…” Because I know a lot of investment companies that structure things and take a lot more risk on for a higher return.

In other words, I could structure certain things that are really 20% deals and make them 30% deals, but my capital takes on a whole [unintelligible [00:38:53].25] of additional risk that is really not necessary.

Ultimately, you invest to make money, and I told you that the targeted returns in the development business are 20%-30%, but ultimately I think the message is structure things so that you make sure that your capital is not greatly at risk. To say your capital is never at risk – it doesn’t work that way. Your capital is always at risk, but take away as much of the risk as you can on the front end.

Joe Fairless: Alright, we’re gonna do a Lightning Round, are you ready for it?

Frank Zaccanelli: Sure.

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

Break: [00:39:32].16] to [00:40:14].09]

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

Frank Zaccanelli: The most interesting book that I’ve ever read – and it was probably because of the time that I read it, years and years ago – was Tuesdays With Morrie. That book really hit me… It was done by a guy out of Detroit who was a sports guy – Mitch Albom. Tuesdays With Morrie was a great story about him and his college professor, and life, and business, and relationships.
At the time that I read it, that book really stuck with me. So I would say Tuesdays With Morrie.

Joe Fairless: The best ever personal growth experience and what did you learn from it?

Frank Zaccanelli: Probably the first brokerage deal that I did that didn’t work. Because you learn a hell of a lot more about life when things don’t work. The first deal ever that I thought was going to the title company and was gonna close, all the detail wasn’t done and it wasn’t there, and the deal did not close. So I learned a lot more about that, that went into subsequent deals that did happen… So that was probably the most significant.

Joe Fairless: What’s one specific aspect that you learned, that you then applied to future deals?

Frank Zaccanelli: Expect the unexpected. I think that ultimately the way that you think a deal is gonna go, and the way that you chart it out during your due dilligence process – rarely does it complete itself in that exact matter. So expect the unexpected. Expect the change in the market, expect the problem with your partner, expect a hiccup with the banks… Expect something that ultimately is gonna challenge you as you go through these deals.

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

Frank Zaccanelli: The best ever deal I’ve ever done – probably the deal that we made the most money on over the long haul and the one I’m probably the most proud of is the Alliance Airport. You’re from Fort Worth, Texas…

Joe Fairless: Yup.

Frank Zaccanelli: Alliance Airport is by far the finest industrial airport ever built, not only in the United States, but maybe in the world. We control 22,000 acres of land; you wanna talk about a public/private partnership back in 1986 – George Herbert Walker Bush called it the model for public/private partnership, and ultimately the amount of tax revenue that was generated there, the amount of jobs and all the pieces of that deal I’m probably the proudest of… And I was one of the initial 4-5 guys that really spent 3, 4, 5 years of their life getting that not only approved, but built. So that’s probably the most satisfying deal I’ve ever done.

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

Frank Zaccanelli: Well, I think ultimately you give back every day. You give back by the way that you deal with people… I think ultimately the best way to give back — in order to help somebody else, you have to be doing okay yourself, right? So I think that if you can continue to build your career and you can continue to be successful, you can help more people. So ultimately, I think that’s the gauge… People that unfortunately are struggling in their own careers, in their own life financially probably can’t help as many people as if you were doing much better in your life. I think that’s really the key.

Joe Fairless: What would you say is a mistake you’ve made on a particular deal that you haven’t mentioned already?

Frank Zaccanelli: 20/20 vision is always the best. I think that ultimately the biggest thing that I could tell somebody that’s out there that’s gonna listen to this is that you have to pick your partners wisely. I think the picking of your partners is probably sometimes more important than the picking of your deals. You can have every kind of problem in a partnership, and ultimately I think the mistakes that sometimes are made is that not enough work and due dillligence goes into underwriting your partners and your lenders.

You spend all your time on the deal itself, but I think you need to spend as much time in the underwriting of your partners and your lenders.

Joe Fairless: What are some specific things that you would do during that underwriting or analysis of partners in particular?

Frank Zaccanelli: I just think you have to look into their backgrounds and the stuff that they’ve done, and you have to make sure that your documentation is clear. It gets back to what we talked about 15-20 minutes ago, about “What does a partner really bring to the table?” When a partner decides that they wanna be a co-developer or a co-manager, then you have to make sure that the lines of who’s going to do what are very well defined, because you get yourself in a position that you could butt heads very easily over insignificant things that then can cause even more problems.

I would just say make sure that your documentation is right and make sure that the lines of communication are very clear as you go through these partnership-related issues.

Joe Fairless: And lastly, where can the Best Ever listeners get in touch with you and/or your company?

Frank Zaccanelli: They can go to my website, FiammaPartners.com, and ultimately that’s really where somebody can get a hold of me. Or they can get a hold of me through Berk Communications, which is the company that kind of represents me now in some of the things that I’m doing. Berk Communications is out of New York; they’re a great firm, and I’m working with them to develop some of these other media things that we’re doing.

Joe Fairless: Outstanding. Frank, I’m really grateful that we jumped on a call and had our conversation. We talked about a lot of different stuff, from the EB5 program, raising money overseas, to very granular — I love how you got specific on developer fees, what’s the market do or what’s reasonable, what have you seen, as well as getting into some case studies that you’ve done, from Alliance Airport to the land development projects where the Dallas Mavericks currently play, to the mistakes along the way, and the advice that you received when you were getting started – forget about your return ON your capital, and be more interested in the return OF your capital. I capitalized OF, because I think that’s where the emphasis goes. And the also, always bet the milk from the cow, but never the cow.

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

Frank Zaccanelli: Great to be with you! Thank you for having me.

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JF952: $50MM In 3 States Using PHYSICIAN’S Money with Thomas Black

Listen to the Episode Below (29:32)
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He has built a portfolio of multi family complexes funded by physicians on apartment syndications. He even wrote a book on it. I would take extensive notes listening to this interview if you were interested in multi family fundraising and selecting specific properties to purchase.

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Thomas Black Real Estate Background:

– Co-founder and Managing Partner of Napali Capital; a real estate investment company
– Currently regional director of 8 hospital Emergency Departments and practice clinically few days per month
– Napali Capital, LLC, owns nearly $50 million in multifamily real estate in Texas, Oklahoma and Wisconsin.
– Former Navy veteran, turned physician, turned real estate investor
– Based in Dallas, Texas
– Say hi to him at www.freedomintheblack.com
– Best Ever Book: Rich Dad, Poor Dad by Robert Kiyosaki

Check out his new podcast at https://soundcloud.com/financialfreedomer


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real estate investing physicians


Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff. We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki (Rich Dad, Poor Dad), and a whole bunch of others.

With us today, Tom Black. How are you doing, Tom?

Tom Black: Great, Joe. How are you doing today?

Joe Fairless: I’m doing well, nice to have you on the show. Tom, first and foremost – he’s a former navy vet turned physician, turned real estate investor, so thank you for your service in the navy, my friend!

Tom Black: Thank you so much! It was great!

Joe Fairless: In addition to the navy, as I mentioned, he is a former physician and a real estate investor. He currently is a regional director of eight hospital emergency departments, and I guess you’re currently a physician too, practicist.

Tom Black: I currently am. I’m practicing maybe one day a week or so, just to keep my finger on the pulse with things, should I say…

Joe Fairless: Sweet! In addition to that, more relevant to our conversation, he is the co-founder and managing partner of Napali Capital, a real estate investment company. His company owns nearly 50 million dollars in multifamily real estate across three states – Texas, Oklahoma and Wisconsin. Based in my hometown, Dallas, Texas. With that being said, Tom, do you wanna give the Best Ever listeners a little bit more about your background?

Tom Black: Sure thing. I got involved in real estate about seven years ago now; I was finishing up my medical training at the wonderful Indiana University, and was really hitting a time where the market, as you know, wasn’t doing so hot around the 2008-2009 period. I decided to rent my house up there instead and we moved down to the Texas area, and just rented out a residence. That really gave me insight to a depreciation, which is something that a lot of physicians don’t know about and/or don’t have, just because of the nature of our business and not having any assets to use.

I got into practice at [unintelligible [00:03:58].16] Texas. I designed and developed and built from the ground up a small apartment complex and did very well on it. I 1031 that into some commercial properties, and just completely got enamored by it and what it could do for physicians and other high net worth individuals, translating from a high income to a high net worth, which has been career-saving for me. The emergency department and other physicians in general tend to have pretty high stress careers, and there’s a longevity to that – you can only do it so long.

So I moved to the Dallas area and started doing some syndications, mainly with physicians and my brother, who is the former chief operating officer of Great Wolf Lodge, which is an indoor waterpark community and hotelier. Since then, it’s just been going off to the races, and I just finished a book, in fact, entitled The Passive Income Physician: Surviving a Career Crisis by Expanding Net Worth. It’s basically about my background from the navy, up into medicine, and then translating that and having a heck of a fun time doing it.

Joe Fairless: You designed and built a small apartment complex – can you elaborate and tell us the details about that?

Tom Black: Sure. In Longview, not a lot of economic pressure as far as big box places; a lot of local economic impact, and I found a three-acre plot that was on foreclosure through a bank, and I decided to jump in. I had read enough about real estate and I had owned numerous single-family homes that we bought as foreclosures and were using them as rentals, so I partnered up with a local custom homebuilder that had been building custom homes for about 20 years.

I started designing and doing the utilities – of course, that goes hand-in-hand with rezoning, which is not something that I would ever wish on my worst enemy, but learned a lot about the process. We took this thing from a pile of dirt up into just under 20 units; it took us about a year and a half, and then I was fortunate to sell it at a time where oil was starting to decline a number of years ago.

Joe Fairless: Okay. How much did you buy the land for and what were your all-in costs, in addition to the land?

Tom Black: The all-in land cost was only $35,000, and I bet somebody will probably out there dropping their jaws, but it is East Texas, for a couple acres, and it actually had a pipeline run through it. East Texas is of course known for a lot of oil, so there’s a lot of issues with engineering that need to go around that, and variances and things. We had to specifically design the apartment complex so that we could get around these pipelines.

All-in cost was just about a million dollars or so, right around there. With fees I think we ended up at about 1.2, and ended up selling for just under 1.9 million 18 months later.

Joe Fairless: That’s great. What type of financing did you get in order to build it?

Tom Black: On this, oddly enough, I didn’t know enough about multi-family, and built the units probably a little larger, looking back, than I should have, and used some really nice interiors of cedar, granite and stainless shell appliances. This was all done as a recourse note, on my back. Of course, now getting to educate physicians, it’s one of the paramount things that I discuss – recourse vs. non-recourse financing. At that time I didn’t really understand what that meant. For those that do know, the non-recourse with larger assets, you’re not limited having any financial liability unless there’s certain clauses that are met. That was all done as a banknote on my cheat.

Joe Fairless: With that exit, you 1031-ed it into what?

Tom Black: Light industrial properties near that area, that are all triple net leased to oilfield service companies. So we’ve managed to do very well on those; they’re anywhere from 5,000 to 20,000 square feet. We ended up building those as well, and have gone very well for the last three years; despite the decline in oil, oilfield service companies still have to operate, and there’s still a certain amount of measuring and calculations and other things that need to be done on existing oilheads.

So we did that, and we used that money then as I broke off and moved to the Dallas-Fort Worth area and fit the existing position I’m at, managing a physician group, and then in turn really focusing a lot on physician wellness and more passive income and professionals and people that may not know the absolute joy it could be to depreciate a large asset, at the same time creating passive income for yourself.

Joe Fairless: So with that 1031 you went into light industrial properties that were triple net lease and you built those from the ground up…?

Tom Black: One was a purchased existing, and what we did was a leasehold improvement on it for several hundred thousand dollars, because the tenant existing wanted some more office space. So we bought that building and that satisfied the 1031 requirement.

The other one we got was essentially a shell. So the land, the building had been developed, we just did not have a tenant in there, so it was kind of a building we built on spec, and luckily, a month after we signed the contract, we had a national oilfield service company out of Utah came in and started leasing that.

Joe Fairless: How did you attract the company that ended up leasing it?

Tom Black: Relationships. That’s the cornerstone of this multifamily and real estate… The gentleman that owned and developed the industrial park actually had relationships with a lot of places all over. He had had some people that already finished their business plan on a couple of these commercial buildings, so he offered them to me. It was just a gentleman in the community, and it’s a very small community, so I was fortunate to have made those relationships early on.

Joe Fairless: And you have a toehold in Longview, Texas, East Texas, and I have some friends who are from there, and I love hearing them talk; they have a different accent from a typical Texas accent… Why not focus on that market, albeit smaller, but you could dominate that market, versus going in larger markets?

Tom Black: At the time I built this area… That’s very possible, it’s just that there’s a decent amount of people that are doing a lot of different land plays and things like that, and of course oil and gas is very big there. The issue – it’s really only a town of 80,000, with traffic counts maybe to 110,000 during the day. So what happened is I had this great idea that I was gonna build something very nice, because there was no existing multi-family there that was available for rentals when I actually moved there. The last property had been built maybe in the early ’90s; still a class A, but really wasn’t up to par. There were consistently 99% waiting list.

What happens, when we started designing this complex, two major companies came in and put in about 800 units, and they grow in part of the community. The first one did very well, and leased out very quickly, as well as the majority of the second, but that pretty much absorbed all of those folks that would have been looking for nice places, which is where we built.

So at this point, there’s just no jobs for that class of folks and people are leaving that area, and it’s really tough to make that work.

Joe Fairless: On the 20-unit that you built from the ground up, why build from the ground up versus buy an existing property?

Tom Black: Well, really at first it was to satisfy my goals of creating housing that was something that I would wanna live in, which was probably my first mistake. The units were anywhere from a 1,000-1,300 square feet, almost like homes inside, so that was really the first thing… And I didn’t see anything out there in the community. It was kind of a private ownership at that time, whereas now I’m focused on my investors, my returns, while at the same time still doing a quality product in private ownership. But at that time I was very fixated on those classes only, and kind of had some blinders at point.

Joe Fairless: Okay, makes sense. And what year are we in when you moved to Dallas and you’re done with the Longview stuff?

Tom Black: I finished the Longview property about 2012, right around there… Actually 2013 we sold, and I moved to the DFW area in July 2014.

Joe Fairless: 2014, and now you have 50 million in multifamily real estate in Texas, Oklahoma and Wisconsin… What’s the largest property in terms of units and where is it?

Tom Black: We have 305 units on the North part of Arlington. We bought that in December 2014, and it has been — as you know, the DFW area is very hot right now, and there’s a lot of infrastructure and a lot of influx of jobs etc., so we’ve done very well on the property. That’s our largest asset right now – 305.

Joe Fairless: And how many total units? Roughly, if you don’t know off the top of your head, just so I get an idea…

Tom Black: Just including multifamily, we’re probably sitting at just over 900.

Joe Fairless: So you’ve got a third of them in that one property in Arlington, but you’re also in Oklahoma and Wisconsin… Why choose to branch out to those two states?

Tom Black: We had, as you know, underwritten a lot of different areas and looking for where we could find value, and we were fortunate to go into the Tulsa market and find two properties that were owned and had fallen in disrepair, and really it came down to a management issue. Since then, we’ve taken over the properties and rehabbed both of them and we’ve done very well.

The Tulsa market, of course, is not as robust as the DFW market, but we’re still seeing great and strong returns. Looking at those other markets – such a strong underwriting, number one, and I think a very long underwriting period, so that we can essentially do a yield play. The loans – of course, they’re Freddie Mac loans, but they are 10-12 years, so we can underwrite for a long period just in case the situation changes.

Joe Fairless: With your Tulsa two properties that were in disrepair and there was a management issue – I think I know the answer… I think you’re gonna say “relationships”, but how did you hear about those two properties?

Tom Black: Exactly that – it was relationships! [laughter] One of them was being managed out of a company in Utah, and they had gone in and they’d done some great things with the property, but they just didn’t finish their business plan.

The other was another syndication of a gentleman in Texas; he didn’t put a dollar into that property, and just did some very one-off things… They hadn’t done a distribution to any of their investors in a number of I think two years, and they had just maybe over-analyzed the property where they couldn’t put back in the cash flow that they needed to to make the property really shine… And that’s where the key is – being able to have enough capital to go in and to do what you can and execute the returns that you need to.

Joe Fairless: As far as how you got in touch with those separate groups – was there a broker, or did you know those two groups personally and you did it off-market?

Tom Black: Yeah, it was one single broker, off-market. Tulsa is a funny market like that, there’s not as much competition brokerages. DFW probably has a lot of different brokers, but only five did the majority – kind of the 80/20 rule – whereas in Tulsa it’s very few times that the property is even listed, so they don’t go to best and finals or have [unintelligible [00:14:11].09]

Joe Fairless: Was it First Commercial?

Tom Black: No, actually it wasn’t. Right now I would love to be giving them a plug, and I cannot see their company name in front of me right now. [laughter]

Joe Fairless: That’s fine… I only know one group in Tulsa, it’s First Commercial. So it was basically a pocket listing where the broker had a relationship with you, and they had these two owners who were looking to sell, and the broker went to you because they knew you would close, and you made it happen. Okay, cool.

And Wisconsin… You’re in Dallas, you went to school in Indiana – Tulsa makes sense, but Wisconsin?

Tom Black: My brother, Tim – Tim and Tom, of course – who was the chief operations officer at Great Wolf… Great Wolf was actually headquartered in Wisconsin. Around that area of the university, he lives probably 20 minutes from there, so we have a couple of multifamily areas around there, too. He heads those up, and I try not to fly anywhere near Wisconsin unless it is July, August…

Joe Fairless: [laughs] How many units do you have in Wisconsin, and what city are they in?

Tom Black: They’re all in Madison, and probably only just less than 30, I believe.

Joe Fairless: Okay, and are they student rentals?

Tom Black: No, actually they’re not. There’s a 16-plex, and I believe a bunch of quadplexes that are nice, and they’re actually not student rentals.

Joe Fairless: How do you manage those 30 units, since they’re so far away?

Tom Black: That would be Tim. We’ve got a professional management company up there also.

Joe Fairless: Okay, just a third-party.

Tom Black: Yeah, right. I let him set his boots on the ground right there, and he’s able to manage all that; I try to not get involved with that as much as possible. They’re good friendvestors.

Joe Fairless: Okay. But it’s a third-party management company that he oversees. So you’ve got the 305 in North Arlington, you bought them in 2014 – what’s your business plan with those? You’ve had it for over three years, what’s the progress on that business plan?

Tom Black: I misspoke, I made a mistake – it was actually 2015. We’re 18 months into the process. Our business plan originally – 3-5 years execution plan on that. We started with the concept that 1) all the rentals were about $50 under for comps in the area, as well as they weren’t doing any kind of utility billback or RUBS. We’ve been able to recapture the grossly month from 170,000 collections, and this month we actually just hit our record of $217,000.

Joe Fairless: Great job!

Tom Black: Thank you. So we’ve taken that property up just in value by [unintelligible [00:16:40].16] approximately 5 million dollars in 18 months. We’ve been very happy with that.

Joe Fairless: Great, so from 170k to 217k in collections. How much did you buy it for?

Tom Black: Right under 13, I think we were at 12.8.

Joe Fairless: Thirteen million…

Tom Black: If you look at [unintelligible [00:16:56].13] using the same cap as we bought, we’re right at 17.1 million.

Joe Fairless: And I’m sure that cap is actually lower than when you bought, at this point…

Tom Black: [unintelligible [00:17:04].00] and I like to try and look at it realistically, and I think we look at about seven and a half. Although in net R, [unintelligible [00:17:11].02] it’s probably not unrealistic you get a seven cap or so.

Joe Fairless: Yeah, I agree. The way that you said you do a 3-5 year business plan – did that mean that you’re planning on exiting in 3-5 years?

Tom Black: Right. As soon as we hit those returns we had estimated – I know the first year we paid out our investors roughly 13.1% cash-on-cash; I think our business plan calls for a little bit more than that this year. When we typically hit around 100% return – which right now we’re in year three of that proforma – then we will try and execute, whether we look at it, go to the investors and say “Hey, we wanna do a supplemental here, that way we can get tax-free money out and then we’ll continue to cash-flow the property… Or do we sell the property outright or do we just continue to use the cash flow?”

At that point, I imagine at the 36 months, if the market is favorable – and certainly in Dallas I think it will be – then we look at it, because I think one of the keys is being able to sell it to somebody else and allow them to create some value there and continue on to improve the property and drive revenue.

Joe Fairless: I should have asked this, because this is a relevant question if you’ve increased value five million – how much did you put into it to increase it that five million?

Tom Black: We put about 600k in CapEx. Not too horrible. We’re still executing some of the smaller little details, but the major items have already been done – a caged soccer field, which for that community has been fantastic. We did a lot of repair, and really where it came down to was management customer service.

Joe Fairless: That is incredible. It’s less than $2,000/unit, and you have increased the value – five million dollars, according to your projections. I suspect you haven’t done interior renovations on unit turns.

Tom Black: Very few. We’ve done a little bit… We normally budget about $2,500/unit, and that’s where we went with this, for the 305. There wasn’t much to get caught up on as far as structural, or any kind of deferred maintenance.  We have some roof issues, but the unique thing about this property was that, like all areas around that Arlington location, all the units had tile already, and they were actually Sarana tile, so that saved a good amount of money. We do go in and when we’re turning the unit put in brushed nickel fixtures; the upstairs tends to get some faux wood vinyl floors, and we get two-inch blinds, and add a more palatable color scheme.

Really there wasn’t a whole lot that needed to be done to the units. We’ve been really fortunate.

Joe Fairless: Based on your experience as an investor who has bought triple net lease buildings and done ground-up development, now focused on multifamily syndication, what is your best real estate investing advice ever?

Tom Black: To no be afraid not to jump in. Fear will hold you back. All those years ago when I bought that land in Longview, I got seriously crazy looks not only from my family, from my wife, from other physicians… Something in me told me it was the right thing to do. Don’t let fear be a detractor from being able to jump in, even if at a small point. It will pay off dividends.

Joe Fairless: When you talk to, let’s say, your wife… And you’re talking about going into real estate more heavily than, say, renting out your residence when you were in Indiana – what are the talking points? And I ask this not because I’m interested in your relationship with your wife and the conversation, but for Best Ever listeners who need to have those crucial conversations with their significant others, how would you recommend it based on your personal experience?

Tom Black: It’s been a total team approach. We have four young children, so a lot of her job is obviously taking care of them… But she’s been super passive during the whole thing, she’s been fantastic. One of the things I did – because I’m a physician, of course, and for those listeners out there that don’t know, there’s certain requirements by the IRS to be considered a real estate professional; you have to spend at least 750 hours involved in that to be able to take those depreciations.

For me, of course, as a physician, I was not gonna qualify for that, so my wife actually went and got her Texas real estate license, which automatically qualifies her as a real estate professional, thus giving us the ability to depreciate a good amount of our taxable income, which has been very favorable. When she gets the ability to do that and she sees the dollar signs, then it’s a win/win, really.

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

Tom Black: Okay, let’s do this!

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

Break: [00:21:27].03] to [00:22:09].27]

Joe Fairless: Best ever book you’ve read?

Tom Black: Best ever book… Robert Kiyosaki, Rich Dad, Poor Dad, I would say. It changed my life.

Joe Fairless: Best ever personal growth experience and what did you learn from it?

Tom Black: It was in the navy. I had an appointment to the naval academy, and did something really stupid as a young, 18-year-old guy, and got that removed. I learned to never give up just because you’re down. There’s a lot of other roads that you can take that are just as profitable – if not better – for you in the long run.

Joe Fairless: Best ever deal you’ve done?

Tom Black: I would say the Arlington deal right now is just smokin’.

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

Tom Black: Volunteering as a physician is a big one. And as Napali Capital grows, we have some plans to contribute around to the community, and that’s something that I cannot wait to do – financially contribute.

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

Tom Black: Don’t ever buy a piece of land and assume you can rezone it. That is a big mistake. Understanding zoning is very good. I bought a piece of land inn Kilgore, Texas one time, and I wanted to rezone a single-family over to a multi-family and build some very nice, small, little condos. The homeowners association that was adjacent to it absolutely went crazy, and I found myself in the newspaper and at town hall meetings being yelled at. I will never rezone any other — needless to say, I lost that battle, after numerous tries.

Joe Fairless: What were they saying in the newspaper?

Tom Black: Oh my god… It was “Evil doctor from next door [unintelligible [00:23:34].21] wants to put in rentals with druggies…” Everything that I was not planning on doing, they accused me of doing. In fact, there was condos or town homes right across the street that were rentals, and as you may know, they have to put out messages to the surrounding area of 200 feet. So they had people that were renters coming to these town hall meetings and accusing me of doing something that they were already doing. [laughter]

It made no sense, and town hall meetings are not something I’ll ever do. That’s why we have attorneys.

Joe Fairless: I don’t think you’re gonna be getting into ground-up development either…

Tom Black: It’s not gonna happen. I will willfully partner and be an equity component to that, but otherwise no. If you’re gonna develop, start on the ABCs of rezoning and knowing what you’re doing.

Joe Fairless: I don’t want any part of development at all, because of that. It’s funny, because you said earlier the type of finishes that you put into the 20-unit – it sounds like you went a little over and above what you should have, with granite… So they were actually way off base, because you were probably gonna put in stainless steel appliances into this…

Tom Black: Oh, it was over the top… These were nicer than a lot of my apartments; I could have said when I was in the navy… Heck no! I lived in some places that are B class. [laughs] Now, yeah… I did that; I probably could have gotten in about 400-500 units and really driven in [unintelligible [00:25:02].12] if I really would have understood that. But I was building that based on what I projected the rents to be, and from a meager percentage of increase as far as what we knew we could sell it for.

I was not sophisticated enough to even know what a cap rate was. Lucky, but that’s the schools of hard knocks. It was a great, great learning experience.

Joe Fairless: Yeah, you wouldn’t be here if you didn’t go through that. We have a lot of multifamily investors who listen to this show… What’s one learning experience or one thing you would do differently when given an opportunity, when it’s presented to you next time on maybe your 305 units, or the Tulsa deals? Just one little operational nugget.

Tom Black: Operational – less so. I would say relationships again. I know we keep harping on that, but make sure that if you’re getting involved with somebody, or you’re doing the investing, just know who you’re getting in bed with, because it’s very, very important. Vet them out thoroughly; sometimes personalities conflict.

Operationally – I would just say have a very strong operations team in place and know your third-party management and really understand what a P&L is and how it operates, so that you can take full advantage of your asset and being able to turn the highest priority in the interest you wanna bare.

Joe Fairless: Do you have a particular program or software that you use to vet people out?

Tom Black: You mean as far as investors?

Joe Fairless: Well, you said “Pick your partners wisely”, so I’m wondering if you have a certain process you use.

Tom Black: No, we’ve honed it after trial and error; we learned some really big lessons and we’ve ended up with a core that’s really important. Because once you develop your team – it’s all about the team. Investing is not just for you to go out there — as a single person it’s very difficult. Make sure you have a team around you to do it properly, because not doing so, having the correct attorney that understands what they’re doing… If you’re doing some syndications or investing with a syndicator, [unintelligible [00:26:54].00] track record, as well as CPAs, things like that.

Joe Fairless: Thinking back to a team member who now today you’re like, “Oh, man… No way, not on my team again”, but they were originally on your team in some capacity, what would you look for now, that you didn’t look for then?

Tom Black: I’d look for somebody who operationally complemented, who had a very good insight maybe into a part that I was weak in if it’s in operations, or maybe if it’s an analytics part – somebody that is able to go in and garner those sides that maybe I didn’t have a strong hold on… And understanding that. Because at the end of the day, when we’re sitting around the table, having a consenting voice is always a very good thing, albeit in the right manner. Now, somebody that’s abrasive, that destroys relationships – that’s not gonna work.

When you’re dealing with brokers, or even investors, you have a very serious obligation to do what’s best for them first. Not the brokers, the investors. [laughter]

Tom Black: Brokers will be fine! They’re looking after their own interest, so… [laughter]

Joe Fairless: They always land on their feet.

Tom Black: Right, they will. They’ll be doing fine.

Joe Fairless: Well, Tom, I really enjoyed our conversation. Where can the Best Ever listeners get in touch with you?

Tom Black: The easiest – I have a blog called FreedomInTheBlack.com, as well as www.napalicap.com. The book actually just came out on 1st March on Amazon. It’s called The Passive Income Physician: Surviving a Career Crisis by Expanding Net Worth. If you just google my name, Thomas Black MD, it will indeed pop up.

Joe Fairless: Outstanding. Congratulations on the recent book launch, and congrats on your transition and multitasking abilities, as well as surviving the ground-up development and doing well on the first one, and learning your lesson on the rezoning stuff in (I think you said) Kilgore… And getting in the newspaper and all that stuff, as well as, most important, the macro level – the properties that your company has: 50 million dollars in assets under management, the 305-unit in Arlington, as well as the other couple large properties in Tulsa.

Interesting stuff, especially the lessons learned along the way – team members, and underwriting, and how you approach relationships. I’m grateful we had a conversation.

I hope you have a best ever day, and we’ll talk to you soon.

Tom Black: Thank you so much, Joe! I appreciate all your time.

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Joe Fairless's real estate podcast

JF930: Recession-Proof? Why You MUST Diversify Your Assets

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His father lost much of his net worth during the last crash, so our guest made sure he died versified his real estate portfolio. Hear what he believes to be the best way to invest even when you are starting out!

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Mark Allen Real Estate Background:

– Broker at SVN Investment Sales Group and real estate investor
– Began real estate in 2009 as a cadet at the United States Military Academy at West Point
– Focuses on Single Family Rental Portfolios around the country and Multifamily (50+ units) in TX/OK
– Served in the US Army as a Field Artillery Officer where he led troops in Operation Enduring Freedom – Afghanistan
– Based in Dallas, Texas
– Say hi to him at http://www.svn-isg.com
– Best Ever Book: Never Eat Alone

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JF832: Bidding for SWEET Leads and How He Farms Them

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What would you pay for incredible leads? Our guest lets you decide with his program he has created a betting platform for lead generation. It works like this, if you pay $100 per month for the best farmed leads in a given area, someone else may want to pay more than you, so they can get the same leads. An interesting business model from a techy investor, hear how he does it!

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Jeremy Brandt Real Estate Background:

– Founder of WeBuyHouses.com & Fast Home Offer
– ‎We Buy Houses
– Jeremy is a sought after expert and speaker in the field of real estate
– Has been interviewed on FOX News, Larry King Live, CNBC, CNN
– We Buy Houses® is the most recognized name in residential real estate investing
– Based in Dallas, Texas
– Say hi to him at http://www.webuyhouses.com
– Best Ever Book: 4 Hour Work Week by Tim Ferriss

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JF796: How to Decide Your Exit Strategy in a Deal #SkillsetSunday

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There may be many ways to enter a deal, but what do you do once you sign? Are the terms you negotiated favorable enough to allow a creative exit? This episode is for you! Learn the number out ways to exit a deal like “wholetail”, wholesale, or retail, it will save you thousands!

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Ron Carlson Real Estate Background:

– Owner & General Contractor at Renovation Gurus
– Began as a wholesaler and built up enough capital to start flipping houses
– Speaker at REI Groups around the country
– Rehabs 15 to 20 properties a month
– Done over 200 transactions
– Based in Dallas, Texas
– Say hi to him at www.renovationgurus.com

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Best Ever Show Real Estate Advice from experts

JF 760: How to Sell a Property with Foundation Issues #SituationSaturday

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Today’s guest bought a property with major foundation problems. He wasn’t aware of the scope of work that the rehab was going to require and it would not have been worth the capital expenditures. Hear what he did to solve this sticky situation!

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Saj Babu Real Estate Background:

– Founder of Xylo Realty
– Invests in the DFW market
– Based in Dallas, TX
– Say hi at www.xylorealty.com
– You can listen to his episode here: https://joefairless.com/blog/podcast/jf713-the-pros-and-cons-of-buying-through-a-hedge-fund/

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JF750: Why You are LOSING MONEY Not Understanding Cost Segregation and How to Use It

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This is a subject that many investors struggle understanding even if they are experienced. Our guest is committed to putting more money in his clients’ pocket by using cost segregation. Hear what it is and how you can apply it with your rental portfolio!

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Jeff Hobbs Real Estate Background:

– CEO of Segregation Holding
– Cost segregation expert
– Over 30 years’ experience in management and financial consulting
– Based in Dallas, TX
– Say hi at www.segregationholding.com
– Best Ever Book: The Holy Bible

Want an inbox full of online leads?

Get a FREE strategy session with Dan Barrett who is the only certified Google partner that exclusively works with real estate investors like us.

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Best Ever Show Real Estate Advice from experts

JF735: $0 Down Deal that Netted over $100,000 and Building an REI Group

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Today’s guest is on a mission to grow the largest network in Texas. Six years ago he started a real estate investment group that had only a few members. Now, he has grown it and reaps deals on the daily. Here his amazing deal and how he is giving back.

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Joe Boston Real Estate Background:

– Director at Dallas Real Estate Investment Group
– Built one of Dallas’s largest REI groups
– Based in Dallas, Texas
– Say hi at www.dallasreig.com
– Best Ever Book: Art of the Deal

Want an inbox full of online leads?

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Best Ever Show Real Estate Advice from experts

JF713: The PROS and CONS of Buying Through a Hedge Fund

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Today’s guest got in the game into thousand 12 and leveraged hedge funds to purchase his real estate. He knew hedge funds knew the market, so he brought the deal. Here how he explains the pros and cons of using a hedge fund in how you can apply these concepts in your business.

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Saj Babu Real Estate Background:

–    Co-Founder of Zilla Realty
–    Works with hedge funds to fix and flip
–    Based in Dallas, Texas
–    Say hi at Instagram
–    Best Ever Book: The One Thing

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