JF1735: Going From Active Investor To A More Passive, Triple Net Lease Strategy with Alan Fruitman

Alan helps his clients own properties and lease them as triple net leases to commercial tenants. His clients are able to purchase properties nationwide through Alan, which his team personally vets before bringing them to his clients. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You might get a little higher cap rate because its a strong B tenant and not an A, but you made up for it with the security that the incredible location will bring to you” – Alan Fruitman

 

Alan Fruitman Real Estate Background:

  • Owner of 1031tax.com and author of “The NNN Triple Net Property Book”
  • Has helped investors purchase more than $1 Billion of single tenant, triple net leased investments
  • Based in Denver, CO
  • Say hi to him at https://1031tax.com
  • Best Ever Book: Two Page Marketing Plan

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


TRANSCRIPTION

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

Alan Fruitman: Excellent, thank you. Nice to be with you this morning.

Joe Fairless: Yeah, nice to have you on the show. A little bit about Alan – he is the owner of 1031tax.com, and author of The Triple Net Property book. He’s helped investors purchase more than one billion dollars of single-tenant triple net lease investments. Headquartered in Denver, Colorado. With that being said, Alan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Alan Fruitman: Thank you. My focus is very small. I help a target audience of investors looking for passive income, and the type of properties we sell are single-tenant, triple net lease properties. These properties range from pharmacies, Walgreens or CVS, restaurants, McDonald’s, Taco Bell, Chipotle, dollar stores, auto parts… Lots of the same retailers you see when you drive down the street – those are the properties my clients purchase.

Joe Fairless: I mentioned in the first line of your bio that you’re the owner of 1031tax.com… I’m gonna guess – and then please elaborate more – that you work with a lot of investors who used to be active, made some money, looking to 1031 that money into something that is passive, and therefore you connect them with a triple net lease property. Is that basically the business model?

Alan Fruitman: That is the model. Many of my clients come out of apartment buildings or shopping centers, office buildings, even land… They do a 1031 exchange into something much easier to manage; long-term leases with no obligations for the landlord.

Joe Fairless: Do you ever work with any of your investors who say “Alan, I’ve got some money, I’m an active investor. I do want to be passive, but I’d like to still get some of the financial benefits of a value-add deal.” So is it possible to get the best of both worlds? A passive investment via a triple net, while also incorporating value-add?

Alan Fruitman: It’s not, no. The triple net properties – there’s really no value-add. It’s considered mailbox money. You buy the property, you have a long-term lease, long-term meaning 10-20 years on the primary term. The tenant will have multiple renewal options, going 20+ years for options of renewal. There’s really no value-add. The concept and the focus is passive. Value-add is a great component of real estate, it’s just different from what this type of property entails.

Joe Fairless: Are you a broker?

Alan Fruitman: I am  a broker, and my clients purchase these triple net properties nation-wide.

Joe Fairless: So how do you find the triple net lease properties to match up with your clients?

Alan Fruitman: One thing that’s unique about my model – and there’s really nobody in the country that does it the same way that I do… What’s unique is we only represent buyers on this national level, and the properties come to me from owners, developers and brokers all over the country. My team and I receive usually more than 200 properties every day, and we sift through these properties and pick out the best of the best of the best, and we send an e-mail to our investors of these properties every day; Monday through Friday, my clients receive an e-mail of new properties that come to market.

Joe Fairless: And the new properties that you share – are those the ones that have already been filtered out, or have those passed the filtration process? Or do you share all 200 that you receive every day.

Alan Fruitman: No, they are filtered of 1) location, 2) strength of tenants, and 3) length of lease. The properties start around a million dollars on the low side, and go much higher than there, but our sweet spot is the 1 to 10 million market points.

Joe Fairless: Okay. And what did you say – location, strength of tenants, and what was the third?

Alan Fruitman: Number three is length of lease.

Joe Fairless: Length of lease.

Alan Fruitman: We try to focus on longer-term lease properties. It’s a different marketplace for the shorter-term lease properties. When you want a passive investment, the longer horizon is usually more appealing to our clients.

Joe Fairless: Do you prioritize it in that order, 1-2-3?

Alan Fruitman: Yes. It all comes back to real estate fundamentals. Location is number one. We want a location where the current tenant will thrive, but we also want a marketplace where when the tenant eventually vacates, it’s highly likely and easily re-tenanted. And specifically, we look for retail corridors where the tenants and the property is surrounded by many other prominent retailers. We want that stretch where you’re surrounded by Walmart, and Kohl’s and Home Depot, and Lowe’s, and McDonalds, and Chase Bank, and all the other national retailers. That prominent corridor is what we look for.

Other attributes would be near university, a big hospital, a highway exit… Permanent fixtures that aren’t trendy, that will pass the test of time.

Joe Fairless: Okay. And then what about the second thing, strength of tenants? How do you qualify that?

Alan Fruitman: Well, after location, the second most important feature would be strength of tenant. If it’s a corporation, we wanna make sure it’s a strong, profitable type of company, and an industry that will function in the long-term.

If it’s an industry we think that the internet will replace, we don’t show those properties. If it’s a company we don’t like their standing, we don’t show those properties. If it’s a franchisee, we wanna make sure it’s a quality franchisee – many locations, and stable within their financials.

Joe Fairless: What are some ways you quantify that qualification process with strength of tenants?

Alan Fruitman: Many of the companies are publicly-traded, so we look at their earnings ratios, their stock performance, their 52-week trends. That’s number one. If it’s a franchise, over 26 years I’ve sold so many properties that I recognize the franchisees from other properties my clients have purchased. I stay in close contact with my clients through the years. If there’s a problem, they usually call me right away, so I know which tenants have had a track record of stability and which ones have not.

I’m not perfect, so when there’s a new tenant, there’s a learning curve that has to happen… But because I’ve sold so many properties over such a long duration of time, I can usually weed out the problem properties well in advance of my clients ever seeing them.

Joe Fairless: You said most are publicly traded companies… What are a couple examples — or maybe tell us a story of a deal that was not a publicly-traded company, but still passed your test.

Alan Fruitman: Many years ago I sold a Burger King in Ohio, and when the lease came due, the tenant did not renew… So my client called me and said “Alan, what do we do? Burger King is not renewing.” I connected the client with a leasing broker in the local market, and because the location was so strong, within less than one month we had a bidding war between Chipotle and Starbucks to take over that soon-to-be-vacant Burger King. And the end result was Starbucks winning the bidding war, and we went from a franchised Burger King to a corporate Starbucks, which has certainly a higher credit rating, and the rents went up significantly, too.

That’s why our first criteria is location. And if our current tenant were to vacate, we wanna make sure the future is greater than the present.

Joe Fairless: And then length of lease… Do you have any investors who say “Alan, I do want something that is passive, but I see this area is growing, and I think the shortest lease possible would be best, because then we can get them real good on the increase once the area comes to where I think it will be.”

Alan Fruitman: That’s a great question… There is a segment of the market, and a very valid and valuable segment of the market that looks for that type of investment. It’s outside of my scope. We focus on the longer-term lease properties, but that’s a great angle within the triple net property world that investors purchase. It’s just outside of my scope. I have a very tight vision for what I sell. There’s an incredible demand. There’s lots of opportunities for these long-term lease properties. This is typically what the buyers seek, which is why it’s my focus. But the angle you described is a great angle, and it’s just outside of the box of what I focus on.

To take that thought one step further, my clients sometimes call me when their lease becomes short, and they ask me what to do, and 19 times out of 20 I’ll tell them “Don’t sell. Because if you sell, somebody else will pick up on that opportunity, that great location, the long-term vision that you have, and they’ll take your upside.” So when the lease gets short, if the location is excellent, I advise my clients not to sell, and not give somebody else that opportunity that you just asked about.

Joe Fairless: How do you define a longer-term lease?

Alan Fruitman: In the triple net lease world, leases usually are between 10 and 25 years, and that’ll be the primary lease term before the option periods.

Joe Fairless: Tell us a story of a deal that was a triple net, but did not work out.

Alan Fruitman: There’s probably many. You probably don’t believe me when I tell you I don’t have an example of any of my clients that it happened to… I’ll tell you another story. The first property I ever sold was a Denny’s in Colorado. It was near the outlet stores of Interstate 70. Very prominent location, but I guess it didn’t work out. The tenant  was a small franchisee; there was a personal guarantee associated with the lease.

The tenant closed their shop, because the franchisee had (we’ll say) other problems, without getting into a long story. The personal guarantee held up. The client received all of their rent. The client worked a buyout with the tenant, and was given a significant amount of money as that lease ended… And the property is now turned into a Chipotle and a Which Wich sandwich shop. It’s probably tripled in value over this long duration of time.

I don’t have an example of difficult endings… One thing I would share is if you don’t have a great location, when your tenant vacates, that’s where you could get in trouble. If you know that McDonald’s, or Burger King, or Dollar General, or any tenant in a rural area, the current tenant might thrive because they might dominate a small market which fits their model, but that’s the current use. The problem arises when they vacate – what do you do with that vacant building in a very small marketplace? That’s where clients could get in trouble.

Joe Fairless: Based on your experience, what type of returns should an investor expect on a triple net?

Alan Fruitman: The conservative McDonald’s, Chick-fil-A type investment with a new 20-year triple net lease will be around a 4% cap. The franchise restaurants would be somewhere in the mid-fives, or approaching 6% cap rate, and everything in between. So 4% to 6% is the range for most newer, longer-leased, triple net properties.

Joe Fairless: Okay. And what’s an example of something that is outside of that 4% to 6% range?

Alan Fruitman: As the location gets more inferior — again, we have these three criteria… We have location, strength of tenant, length of lease. When one or some combination of those three are not optimal, the cap rate rises. When all three are optimal, the cap rate is low, and when there’s a fine balance between those three, you’re in the mid range.

If your location is not very strong, the cap rate rises. If it’s a weaker tenant, the cap rate rises. A shorter lease, the cap rate rises, too. So when you get all three of those criteria that are not optimal, that’s when you’d have the highest of cap rates.

Joe Fairless: What’s the highest cap rate you can think of on a deal you’ve done? Triple net deal.

Alan Fruitman: Again, I only focus on the quality properties, so not much higher than a 7% cap. Maybe an 8% cap, but that was a long time ago. As the market has gotten better and better each year, as we’ve gotten further away from the recessionary times of a decade ago, cap rates on everything, on all types of real estate were higher. But in this marketplace, not much more than  a 6% cap, in the last several years.

Joe Fairless: Okay, so over the last several years what was the property – can you just tell us the property that was the highest cap rate, and just describe it a little bit?

Alan Fruitman: Without researching, the first one that comes to mind was a Zaxby’s franchise guaranteed, kind of a B- location, and that was about a year ago. The cap rate was around 6.5%.

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

Alan Fruitman: My clients always ask me — on my e-mail list there’s around 200 properties, and my clients frequently say “Alan, what’s the best property on your list?” And my answer is always the same – it’s the one in the best location. I’d rather have a franchised Burger King in an excellent location than a corporate McDonald’s in an average location. So the answer to your question is the best property is the one in the best location.

Joe Fairless: And you mentioned earlier how you’re defining the best location – that it will thrive and be easily re-tenanted, and it’s in a retail corridor… What are some other quantifiable things we could look at to say “Yup, this property out of the other 199 is head and shoulders in the best location”?

Alan Fruitman: Well, other quantifiable measures would be traffic counts, demographic, population counts, income levels… Those are other quantifiable. You can also look at market cap rate for tenants. Many of these tenants — McDonald’s is a… I don’t know the number, but it’s a well over 50 billion dollar company. And Chase Bank… You can look at Standard & Poor’s credit ratings; that’s another quantifiable measurement of worthiness, credit-wise.

Joe Fairless: And when you take a look at the location from a  traffic count, retail corridor, population, income levels, market cap rate, how do you determine which of those are more important than others?

Alan Fruitman: That’s a great question. There’s not one way to answer your question. There’s many measurements. Let’s look at demographics. You can have several hundred thousand people on a five-mile radius, but if you’re half a block apart, it’s a completely different area. If you’re on the signalized traffic corner or if you’re on a side street a half block away, the value of the property might be one-tenth as valuable.

So there’s an exception to every rule, and you have to take location, demographics, retail corridors, strength of tenant – you take all these attributes and figure out what makes each property unique. And there’s no two equal properties. Sometimes you have to make value judgments of which criteria to make more valuable than the other. Do you look at being on the corner more important than being sandwiched between on an outparcel to a Home Depot or Safeway or Walmart anchored center?

There’s so many great choices. Sometimes you have to make a value judgment of which ones you think will be the greatest long-term. Sometimes you say “I’ll take a  good tenant, not a great tenant, but a home run A+ location.” That might be a value judgment. And maybe you get a little higher cap rate because it’s a strong B tenant, but not an A, but you made up for it with the security that incredible location will bring to you.

Joe Fairless: Very helpful, thank you for that additional perspective on how to determine how to think about assessing opportunities, and in particular locations. We’re gonna do a lightning round now. Are you ready for the best ever lightning round?

Alan Fruitman: I’m ready.

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

Break: [00:19:31].17] to [00:20:23].16]

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

Alan Fruitman: I’ve read a book — I think it was called The Two Page Marketing Plan. I read it over the holidays… And it really helped me dig into what I’m doing, how I’m doing and how I can improve it.

Joe Fairless: Best ever deal you’ve been a part of?

Alan Fruitman: I don’t know the answer to that question. I close 30-50 properties every year. The one that my client loved the most… I’m blessed with so many clients that buy so many great properties. When my client is thrilled at the end of the deal, that’s the best deal.

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

Alan Fruitman: Good question. I’m not sure off the top of my head the best answer to your question… I think if I had to make sure I do consistently one thing in every deal it’s ask questions and just let my clients talk, and answer their questions, and let them ramble and tell me what’s important to them, and just listen, listen, listen, before I advise.

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

Alan Fruitman: My mom has run a Thanksgiving charity project since I was probably 8 years old. I was born and raised in Florida, I live in Colorado now, and for 40+ years I’ve been blessed to be part of this Thanksgiving charity project that has zero financial overhead, and we’ve fed many thousands of families, and continue to do so.

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

Alan Fruitman: Two ways. Number one, my website, 1031tax.com. And on my website you can sign up for my property list. That’s only for investors, not for brokers. And number two, I wrote The Triple Net Property book, and if you’re an investor looking to buy triple net property, you can call me at 800-454-0015, or contact me through my website and I’ll mail you a hard copy of my book.

Joe Fairless: Alan, thank you so much for being on the show, talking about triple net, and the reason why you are laser-focused on helping your clients get triple net properties, and how to evaluate triple net properties, the type of returns to expect, 4%-6% generally, and in terms of how to assess the opportunity – 1) location, 2) strength of tenant, and 3) length of lease. Then you went into detail for how to think about each of those three categories, and in particular location.

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

Alan Fruitman: Thank you, Joe.

JF1719: Working With Commercial Real Estate Cleaning Companies #SituationSaturday with Edgar Aguilar

Edgar took over a struggling janitorial company at the age of 23 in 2008. He took that struggling business and grew it into a successful commercial and construction cleaning company, helping investors clean up their properties after construction. It wasn’t always easy, Edgar worked two jobs for some time. He’s had success, but some of the business slowed for a while, Edgar did not given up, he’s working harder than ever to get his business to levels it has never reached. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“I didn’t know how I would pay the bills, but I knew that if I kept learning, and putting myself out there, I would make it” – Edgar Aguilar

 

Edgar Aguilar Real Estate Background:

  • Owner of Legacy Construction Cleaning
  • Has been working with investors and construction crews, cleaning facilities for over 20 years
  • Based in Denver, CO
  • Say hi to him at https://www.legacyconstructioncleaning.com/

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


TRANSCRIPTION

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

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. Here’s the situation – you want to learn about the different aspects of investing in real estate, and what are those aspects that you probably don’t know or probably haven’t studied a whole lot is the commercial cleaning aspect of the business. Working with companies that come in and actually do the cleaning.

We’re gonna be talking to a Best Ever guest who is the owner of Legacy Construction Cleaning, and has been working with investors and construction crews, cleaning facilities for over 20 years. First off, how are you doing, Edgar Aguilar?

Edgar Aguilar: I am great, Joe! Thank you for having me on.

Joe Fairless: Yeah, my pleasure. Looking forward to our conversation. I guess what would be helpful is if you wouldn’t mind just telling us a little bit more about your background and your company’s current focus.

Edgar Aguilar: Yeah, I would love to, Joe. Thank you. Well, initially we took over the company about ten years ago. In 2008, in the best market ever, we took over a struggling janitorial company. I say that lightly, because 2008 was crazy… Well, little did I know at that point that we were going through one of the hardest recessions ever.

Joe Fairless: Sure.

Edgar Aguilar: So here I am, 23 years old, and my [unintelligible [00:02:32].16] had just passed away from lung cancer; I had just graduated from business management school, with the passion of one day owning my own business of something. Well, after he passed away, nobody really wanted to take over the company… So I put my hand up and I said “I’ll take it over”, thinking that I knew everything about business because I had just graduated business school. Well, that’s a joke, because as we all know, that’s not the way it goes.

At that point I was also working for corporate America, and I was running the job part-time; I continued doing that for the next four years. Going to corporate America, having an 8-to-5 job, and then going to go clean afterwards (or before), and doing that year after year… Well, at 25 I made the most money I had ever made, doing both gigs… And at that point I thought I was on top of the world.

Joe Fairless: How much were you making?

Edgar Aguilar: I made six figures. Woo-hoo! With my corporate job and the business. And at 25 I believed that I was pretty unstoppable, making more money than I had ever made, more money than my parents had ever made.

Joe Fairless: That’s a ton of money for anyone, but a 25-year-old, six figures – yes, please.

Edgar Aguilar: [laughs] That’s the way I felt, and nobody could tell me anything. Well, we fast-forward three years; now I’m 28 and the income kind of dropped, and we’re not really gaining no momentum on the business, and corporate America was — it was a very stressful situation, just going in to a job that you don’t like, doing something that you don’t wanna do, just for a pay check week to week. And I’m sure a lot of listeners can relate to this, when you’re stuck at a job just for a pay check, and you’re not happy about what you’re doing.

Luckily for me, I happened to put “personal development” one day on YouTube, and a course of Napoleon Hill came up. He was talking about personal development, about your goals, about a mastermind group… And that completely revolutionized the way I started thinking from that point going forward. I was like, “Man, who is this guy?! What is this whole thing about personal development? The more you learn, the more you earn… What is this about personal development?” It really intrigued me, so I started taking notes. I filled up a whole notebook of what Napoleon Hill was talking about.

Then at 29 I said “This is it with corporate America. I can no longer do this.” Fast-forward to when I was 30, actually that same year at 30 I put in my [unintelligible [00:05:40].12] and I jumped full-time into business ownership. Scariest thing I’ve ever done. It was the scariest thing, and the happiest feeling I had ever felt.

At this point I have three kids, I don’t know how I’m gonna be paying for health insurance, I don’t know how I’m gonna be paying the bills, but I knew that if I kept learning and just putting myself out there, I would make it. Well, six months after I made that transition, I landed a huge janitorial account, where I was bringing in $2,500/month. At that point it was enough money to pay all my bills and to just continue with the business. I knew that was the guiding light, because at that point it was the same amount of income that my corporate job was paying.

So I just had to work my butt off every day, for the next few years. I worked, I cleaned… Our focus was construction cleaning, so we would go in the morning, clean a custom-built home, and then at night I would go do my janitorial gig. That happened now for the next two years. I did that every day, worked from 7 AM to midnight, go home sleep for a few hours, get up and do it again.

I started getting a little bit of momentum, so I got one employee, two employees, three employees, I started putting them in teams, putting them in different offices… Now we have a team of 12, we have 30 different office buildings that we clean, and we have about 20 different builders that we work with… Anywhere from custom-built homes, remodels, pop-ups, apartment buildings, restaurants… We’ve pretty much done every type of construction cleaning that you could imagine. But I really put a lot of the emphasis on my personal development, because those two years that I was out there cleaning from 7 AM to 12 midnight, I had audiobooks just playing. While I was cleaning toilets, I was learning. While I was sweeping and mopping and vacuuming, I was learning. I put over 50 different books, from John Maxwell, Darren Hardy, Napoleon Hill, into my inner circle. Once I started doing that, I really saw my income jump. In the last three years we have been able to double the business each year, year-over-year.

Joe Fairless: Wow. That’s impressive, especially that you took a company and have grown it to this extent, and have scaled it… And clearly, the focus on personal development is at the forefront and is the foundation of everything, plus you actually acting on the personal development tips that these individuals give you. You need to actually do things that people suggest you do (first is just listening to them) and you clearly have done them…

Let’s get into some details about the business, because the audience is real estate investors, and it’d be good to hear from the perspective of someone who we would hire, how you price your jobs, things to consider as a real estate investor, knowing what you know, when we’re hiring a company like yours… So what can you tell us about some of your business specifics?

Edgar Aguilar: Great question. Our pricing is normally on a per square basis, and I’m sure that a lot of real estate investors, flippers like to know solid prices on it; what will happen, in my experience, is when I go in to give a bid for a new builder, I am normally competing with the smaller mom and pop shops. That means if we do it right, there’s gonna be three separate bids, or four different bids from different companies.

Normally, you have your lowest two, and then your higher two. Normally, your lower two cleaning estimates are gonna come from people who not only own the business, but are actually gonna be on-site, cleaning the job site… Which is a double-edged sword. It’s good on one hand, because you’re gonna get the lowest price, but on the other hand, you have the actual owner in there cleaning, and they’re paying themselves a very minimal hourly fee. And that’s normally how you could get to the lower price.

Joe Fairless: Why is that a bad thing, if you hire someone who is the owner of the company and they’re paying  themselves a lower fee?

Edgar Aguilar: It’s bad because you will never see any growth with that company. It was like what I was doing five years ago, and I had a very small mindset.

Joe Fairless: I’m thinking about it from a real estate investor standpoint, not your perspective. So if I’m looking at bids and one of the lower bids is with a group where the owner is gonna be cleaning, I don’t care what they pay themselves, as long as I’m getting the lower bid and a good service.

Edgar Aguilar: Very good, and a lot of people like that. A lot of people like to see the owner actually out there cleaning. The only problem with that is how long can they do that for? If we’re looking at the long-term game and you’re doing multiple flips, they will be good for one season. But if you’re doing multiple projects throughout the years, they might not be able to sustain that type of job for a long period of growth.

Joe Fairless: Okay.

Edgar Aguilar: For example, for me – I have all employees, I’ve got them under insurance, workmen’s comp, paying my taxes… So we are a total legitimate company, and sometimes when we deal with the smaller companies, especially the owners and the lower estimates, they’re not insured, they’re not bonded, they don’t have workmen’s comp, they don’t have standards, and they don’t have any long-term growth. So if you are in the game long-term, it’s better to just hook up with a cleaning company that has been around for a while and that is doing everything right by the books. Unfortunately, you’re gonna pay a little bit more with that.

So it’s a double-edged sword. You could go on one side with that lower fee person; the owner is doing it… But how long can they sustain that? Let’s say you have three flips, or four flips, or multiple projects, or you have a 27-unit apartment building – they could only do so much. And if you have an apartment building, 27 units or 30 units, and then you have two other houses, and then you have a commercial space that all need to be cleaned within the same week, a one-man crew normally can’t handle something like that. You need to have multiple teams. Because of that, you pay a little bit of a premium price.

Joe Fairless: Okay, it makes sense.

Edgar Aguilar: Yeah. So that would be the biggest thing.

Joe Fairless: And you said you charge on a per square foot basis – is that typical for the industry?

Edgar Aguilar: Yes. Or some people do T&M.

Joe Fairless: T&M… What’s that?

Edgar Aguilar: Time and material.

Joe Fairless: Oh, got it. Okay. So per square foot basis – what’s the range that price will be from a per square foot basis?

Edgar Aguilar: Now, I am in the Denver market area, so that means that there’s a lot of construction going on around here. People are flocking into our state and into the Denver Metro Area, so the competition is pretty high. We are about 40 cents/square foot, up to 60 cents/square foot for residential. That’s kind of average. You can find that throughout our industry when it comes to construction cleaning.

Joe Fairless: Okay.

Edgar Aguilar: So if you’re gonna do a flip, 1,000 square feet, at 40 cents/square foot you’re looking at $400. Pretty typical.

Joe Fairless: Cool.

Edgar Aguilar: Now, if you’re building a restaurant, because it’s a lot more detailed work, they’re gonna be putting in a lot more elbow grease; they’re gonna have to clean the walls, the stainless steel – now our pricing changes closer to $1/square foot. If it’s a 5,000 square foot Chick-fil-A, or just any type of restaurant, it’s normally closer to $1/square foot. Now, that normally does also include all the window paints with that $1/square foot, and it also normally includes two cleanings. One, the pre-construction cleaning, just to kind of get it up to the CO standards, right before they have the health inspection, and then the final clean right before they open.

Joe Fairless: Got it. And the 40 to 60 cents/square foot for residential construction cleaning – you’re talking a fix and flip house, anyone who does ground-up development… Those are the two primary residential construction cleanings, right?

Edgar Aguilar: Right.

Joe Fairless: Okay. 40 to 60 cents. What would influence it being 40 cents, versus 60 cents?

Edgar Aguilar: Normally, anything over 5,000 square feet would be on the 60 cent mark, because you’re gonna be there a lot longer; there’s a lot more detail-oriented work, and it’s just a bigger space, more to cover. Normally, the bigger the project is (over 5,000 square feet) that’s when you’ll see a 50 or 60 cents charge for that project. It’s just a lot more detail work.

Joe Fairless: So I would think that the bigger the project, the cheaper it would be, because then you’re in one place longer, and you don’t have to travel from job to job, therefore there would be economies of scale. So if someone has mentioned that to you, what’s your response to that?

Edgar Aguilar: Because the bigger it is, the longer it’s gonna take, and we’re gonna have to do multiple trips. Normally, for something over 5,000 square feet I always like to tell our customers, our builders, our homeowners, our flippers – it’s gonna take 2-3 days to be on the safe side. On anything smaller than 5,000 square feet, if we take a big team, we are normally able to be in and out in a day. The problem with that is that no matter what we do, there’s always gonna be dust particles that are gonna settle on flat surfaces. So to cover yourself, especially on a 5k, 6k, 7k square feet project, you wanna be in there two days. You could probably do it in a day, but it’s gonna kill your people, so you wanna be there two to three days in order to cover all those flat surfaces… Because once you start dusting the walls and the ceilings and the ceiling fans, that dust doesn’t settle right away. It normally takes 24 hours for it to settle down.

Then one thing that I came across – sometimes homeowners, flippers, builders will go the next day and rub their hands on flat surfaces and dust will come up on their hands… And it’s not that it didn’t get cleaned, it’s just that those dust particles now are settling down, and it needs to be recleaned. So the bigger the project, the longer it’s gonna take us to clean it. And to keep it on the safe side, we wanna ensure our customer’s satisfaction, so we wanna say it’s gonna take 2-3 days, so that way we’re always coming back to clean those flat surfaces after the dust particles have settled down.

Joe Fairless: I didn’t realize it would be a 2-3 day job, so it makes more sense… Thanks for clarifying that. Put yourself in our shoes for a moment, if you would, please – a real estate investor who is considering different cleaning options, or just being educated on the cleaning process… What else should we know that we probably don’t know?

Edgar Aguilar: First you wanna meet with them. Normally, just meeting someone face-to-face will tell you a lot. As we all know, the first five seconds that you meet anybody, the first five seconds tell a lot; your first impression. If someone’s getting there and they have pads down to their needs, and they have a shirt that’s tore up, do you really want someone like that in your house or in your project, cleaning it? Even though they might be the cheapest and they are the owner of the company, do you really want that to represent your project? I would say no. You want somebody that is clean-cut, looking clean, just because that is a representation of who you’re hiring.

So I would say the first impression is meeting them. The second would be getting on their website and looking at their reviews. Google their website, Facebook, LinkedIn, just making sure that they have solid reviews on there. That’s one thing that we pride ourselves in a lot – just having great reviews. Customer service is  a must for us, but other companies don’t have that as their philosophy.

So I’d say meeting them and looking at their proposal, seeing how their proposal is structured… Is it just something on a Word document, that anybody could do? Or is it a really nice, professionally-done estimate that was done on a nice software, that they have to pay? Just because all those little things have a lot to do with the way you feel about somebody. Then at that point you can make an educated decision. They have great reviews, they have a great website, they have a great online presence. When I met them, they were clean-cut, they knew what they were talking about… I guess those few items would be able to tell you a lot from a person.

Joe Fairless: Sure. Yeah, it’s the little things that add up to a big thing, and it’s how they approach those items that is a likely indicator for how they’ll approach working with whenever you have selected them.

Edgar Aguilar: Exactly.

Joe Fairless: Edgar, thank you so much for being on the show. How can the Best Ever listeners learn more about your company?

Edgar Aguilar: Yeah, thank you. They could just go to our website, it’s legacyconstructioncleaning.com. Or I’m on LinkedIn under Edgar Aguilar, or we have a Facebook page, Legacy Construction Cleaning. Any of those ways.

Joe Fairless: Excellent. In this conversation I learned a lot of things. One is the two common ways to price out; one is on a per square foot basis, which is typical, or the other is time and material (T&M). Where you are, in Denver, 40 to 60 cents/square foot for a residential construction cleaning – that’s the fix and flippers and anyone doing ground-up development for residential – and then it increases for restaurants, because of the higher level of cleaning and more detailed level of cleaning.

Then also when we’re selecting a cleaning company, looking at online reviews, looking at the website, meeting them in person, and looking at the proposal, how it’s structured and how professional it is, because it’s likely an indicator of how professional they’ll be and how good of a quality of job they’ll do whenever you select them, or if you don’t select them.

Edgar, thanks for being on the show. I hope you have a Best Ever weekend, and we’ll talk to you again soon.

Edgar Aguilar: Likewise. Thank you so much for having me on. Have a great day.

JF1680: Natural Entrepreneur Combines Corporate World & Love For Real Estate Investing with Dino Pierce

Dino was raised by entrepreneurs, but took a little different path at first, going to and graduating from college before entering the corporate world. Once he was there, he wanted more, and to scratch that entrepreneurial itch! He started a few small ventures, before falling in love with real estate, specifically multifamily syndications. Hear how he jumped into the multifamily syndication business, and is teaming with others to grow the business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You can bring a deal to a team that is already experienced, chances are they’ll do it and add you to the GP side of the deal” – Dino Pierce

 

Dino Pierce Real Estate Background:

 


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TRANSCRIPTION

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

Dino Pierce: I am doing good, thanks for having me. I’m excited, and I appreciate the opportunity.

Joe Fairless: Yeah, my pleasure, and looking forward to our conversation. A little bit about Dino – he is the CEO of Edified Equity and an active multifamily investor. In 2018 Edified Equity and partners syndicated four apartment communities consisting of 254 doors, across four markets, valued at 9.3 million dollars. Based in Denver, Colorado. With that being said, Dino, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dino Pierce: Yes, certainly. Thanks again so much. My background – I have a little bit of a different background than most people, because I was raised by entrepreneurs. So literally it wasn’t just my mom and my dad, it was their parents, it was their brothers and sister… I almost didn’t know anyone who woke up and went to work for a company; they all woke up and ran their own business, and managed their own employees… So I didn’t realize just being in that environment that it was something unique until I graduated college, or kind of got out in a  different environment, let’s put it that way.

So I always have had an entrepreneurial spirit, and it’s almost all that I’ve ever known, from day one… I took a little bit of a different path, where I did go to college. When I talk about entrepreneurs, I’m talking about people who didn’t even go to college. They were finishing high school and going right into business. I know that’s kind of catchy and trendy today, and you hear a lot of people saying “Why are you gonna go waste this time in college? Just start now. If you’re not gonna be a surgeon, you don’t need to go to school.” And I’m taking that to the extreme… But anyway, I did go to college, and got out into the corporate world, but there was that entrepreneurial spirit that couldn’t be crushed.

So about four-and-a-half years ago, just jumping forward to real estate, by-passing all the little landscaping businesses and things that I did entrepreneurial along my path, about four-and-a-half years ago I got involved in real estate investing, when I relocated to the Denver Metro Area.

I started off – typical path, I was going direct to seller with marketing, getting distressed properties under contract, and I was taking it to a residential redeveloper, and I was either wholesaling it for a very small, quick, but heavily taxed profit, or I was saying “I’m not gonna wholesale this to you. I have the goods right here, we’re gonna partner. You’re gonna do the work, because I don’t know how to do that, but I’m gonna lend you $20,000 to $25,000, no points – this isn’t hard money; just straight interest – and we’ll settle up everything on the back-end.”

I did that for a good two years. I had a friend – still is my friend – COO for an apartment acquisition company, and he kept telling me “First of all, you have to be getting killed with taxes”, which was true, and he said “Second of all, our market is so tight…” and this was like four years ago; it’s even crazier now. But he’s like “I know it’s hard to find deals. Once you guys do a flip, you have to find another one. That’s another job for you. You have the business mindset and the wherewithall; you should really learn how to syndicate apartment communities and be on the GP side.” And I tell people all the time – I don’t think it was one of those things where I woke up and I was having a really tough day, but it was just him constantly dripping on me for those two years – “You’re getting killed with taxes. You really should learn this business. Here’s why – cashflow, tax shelter, tax deferment, profit refinance, tax-free, then big profit on the back-end…”

So I woke up one day and I was like “I should learn how to syndicate apartments.” And that’s how I got to where I have been for the past two years, with working in the multifamily only. I don’t do anything single-family, I don’t lend my private money unless it’s in my own deals, and that’s kind of fast-forward to where we are today, where I’m focusing only on multifamily.

Joe Fairless: Well, I wanna spend the majority of our time talking about what you’re currently focused on, but I am curious about the other ventures you did prior to getting into real estate. You mentioned landscaping… What else did you partake in?

Dino Pierce: It was a landscaping business; a friend and I had a trailer, we had some lawn mowers, some wheat eaters, and we had some elbow grease… We would drive around – we had a routing – and we would cut yards; this is during the summertime. I’m originally from Louisiana; we’re doing this call right now — I’m in New Orleans, Louisiana. I was on a business trip and I’m about to visit with some family… So that was number one.

I also got into personal training, which was another entrepreneurial — but everything was time for money, time for money, time for money. Even with the flipping, time for money… And I realized, especially with personal training, “Wow, it’s only me. The only way to scale this is to get many other trainers and me be the architect of the business.” And then again, you’ve got that heavily taxes, because you’re running your own business, you have your own job – you’re not in the right tax bracket.

Let me think if there’s anything else I can think of… I had some experience in the family business, which helped me learn how to run businesses, but one of the things that–

Joe Fairless: What’s the family business?

Dino Pierce: My grandfather — I’ll be quick, but it’s a great story; again, I’m from Louisiana. My grandfather went to school, to kindergarten, not even speaking English; he only spoke Cajun French. That man – his name is Nolte – literally was forced to quit school in the fifth grade to help his father put food on the table. He went on to become a self-made millionaire.

Joe Fairless: Wow.

Dino Pierce: So the family business – he started a tugboat company, he developed self-storage from the ground-up, he had single family as well as some mobile homes… He had a small motel – I think it was about 20 rooms – he owned an icehouse, a marina, a Laundromat, storage for sports fishermen that would come from New Orleans, leave their boats on the Gulf Coast, because that’s where I’m from… He did a little bit of everything. But the best thing about working for Nolte as his grandson was that I got to work the hardest and the longest, and I got to get paid the least… Because that’s what he passed on. He passed on “Nobody gave me anything. I quit school in the fifth grade and found my way. If one can do it, so can another, and I’m not gonna treat you any differently. As a matter of fact, I’m gonna be harder on you.”

So that’s the family business. And also – I didn’t mention – they owned gas stations, and things like that as well, in South Louisiana.

Joe Fairless: So the main takeaway I got from the ventures that you did – well, there are two takeaways. One, your grandfather was one heck of a person; but then two, the time for money thing – trading time for money, time for money, time for money. Landscaping business, personal training. That makes a lot of sense now, as you’re focused on syndication apartments, and the different benefits there… So let’s talk about the deals that you did last year.

When I read your bio, it said you did four apartment communities consisting of 254 doors, across four markets. First question is how did you come across the opportunities in four different markets?

Dino Pierce: Okay, so 100% transparency, still to this day – I guess it still has to do with the business mindset – I operate  a medical device business in Colorado. I have three small kids – and congratulations; I understand you are a father now…

Joe Fairless: Yup, thank you.

Dino Pierce: Yes, you’re welcome. I have three small kids, so that’s a full-time job. My oldest is nine, my youngest is three, and in addition to that, I’m on a syndication team; the keyword I’m gonna use there is “team”. So I don’t do this alone. I actually have a partner who is really good at networking with brokers, getting off-market deal flow or word of mouth from property management companies. We might be looking at something that maybe zero eyeballs are on except us, or three to five groups, but it’s definitely not something that’s going out to an entire broker’s A-list, or LoopNet.

So the deals came – they were pocket listings or off-market, from relationships that my partner had. Of those four deals, I actually don’t take credit for identifying and finding them initially.

Joe Fairless: Okay. Who’s your partner?

Dino Pierce: Three of the deals have been with the same partner, his name is Kyle. He lives right outside of Houston. And then I have done one deal with Kevin Dowling, and Pili and Jason Yarusi.

Joe Fairless: Okay.

Dino Pierce: So other than that, the other three have been with Kyle.

Joe Fairless: Very cool. Okay. And your role in these syndications it sounds like is not on the front-end, find the opportunities. I’m guessing it’s gonna be bringing some equity to the deals and bringing value to the deal that way. Is that correct?

Dino Pierce: That is 100% correct. And there’s other roles too, where we’ll underwrite behind each other, market evaluation, market research, making sure that we can all together collectively find enough data to say that “This is an emerging market.” And it might not be national news, which is good, because we wanna be there so that — and again, we don’t underwrite any of the appreciation, or maybe like a 2%, just go with the market, [unintelligible [00:11:13].07] kind of thing… But we’re not banking on the poised boom, if you wanna put it that way. The deal works even if that doesn’t happen. But if we can identify an area and be there when it does, everybody’s gonna be really happy. Because if you like the returns that we’re showing you, you’re gonna love us if we’re able to cash in on some of that appreciation as well.

But you’re right, what I did — and I’ll be upfront with you, you motivated me. I read an article, and I’ve even posted that blog on Bigger Pockets, I reposted the link to that article… You have a good article out there, and I think you recently updated it, about thought leadership. That’s exactly how I started. Because when I got involved, I learned the business of syndication, how to underwrite deals, and network, and talk to investors… But when people ask me, they say “What’s the easiest way to get my foot in the door?”, you can do one of two things – you can bring a real deal to a team that’s already experienced, and add value to them that way. Chances are they’ll do it and they’ll write you in on the general partnership side, and you’ll get started there. Or you can bring your network’s money to the table and add value that way. I think those are two of the easiest and quickest ways to get started.

That thought leadership article that you write – I just jumped in… And I started blogging, I started podcasting, I started my own closed, purely educational Facebook group; I’m not pitching deals or anything there. Writing articles on LinkedIn, now I just got on Instagram, I also have a YouTube channel… Taking one piece of content and modifying it slightly to fit those – I don’t know, I’ve probably just named about five different channels. You motivated me to do that, and start to just position myself as a thought leader, and start drawing attention as a credible source in the industry… And even – rewind back to before I had even done my first deal, “How are you credible?” Well, I’m credible because I’m leveraging the experience of my partners. It’s just like if you and I did a deal together, you have 500 million in assets under management, and even if I’ve never done a deal, but I’m bringing $500,000 from my network to your deal, now I can automatically leverage you; so when they say “Well, how many deals have you done?” “Zero, but let me tell you about my partner here, Joe, and what he’s done.” And right there, it’s instant.

Joe Fairless: It completely makes sense, and that is the approach that I certainly recommend, and I’m glad you got a lot of value from that article. And when I say “the approach I recommend”, when you don’t have the qualifications or the experience, the best way to learn is by networking while you learn; that’s what you’re doing on Bigger Pockets and at the events.

So how did you structure the deals on the GP side?

Dino Pierce: The way we structured all except one was a straight split. Anywhere from 70/30 to 80/20 split… That meaning, Best Ever listeners, 70% to 80% of the cashflow, tax benefits, profits are going to the limited partners and the general partnership team for identifying, underwriting, qualifying for the loan – the whole nine yards; bringing all the other money to the table from the equity partners you didn’t have to meet and build trust with… There’s a lot involved, as you know.

Joe Fairless: Right.

Dino Pierce: We’re keeping 20% to 30%, and we do a straight split for everything – cashflow, equity across the board. That’s how they were structured. Is that what you were asking?

Joe Fairless: No, I was asking about the GP side. Okay, so you do 70/30 or 80/20 split – cool. But on the GP side, for you bringing what you brought – what did you get in compensation for that?

Dino Pierce: We have a certain percentage carved out for everyone’s role, and usually — of course, it’s more than equity, like we talked about before, but… We usually have roughly 20% to 30% of the GP. So if  you take a 70/30 or an 80/20, that 20 now become the GP’s 100%; we’ll take about 30% of that and carve it out for the capital raise or the investor relations team, however you wanna call it.

Joe Fairless: Cool. And how much equity did you bring in total, across those four deals?

Dino Pierce: I haven’t put the pencil to the tee, but north of a million, last year, collectively.

Joe Fairless: Cool, so around a million.

Dino Pierce: Yeah, a little over a million.

Joe Fairless: A little over a million dollars… And of that amount, which investor – I’m obviously not asking you to name names, but just thinking about that investor, how did you meet him/her? The investor who invested the most; I didn’t add the important part of the question – the investor who invested the most, how did you meet him/her?

Dino Pierce: Yeah, I’m so glad you said that, because I crunched the numbers, and I don’t have them memorized, but it was enough math for me to know just the direction you need to go in. So it was something like 65% of the people who invested with me I had met online, over the phone, that kind of thing. However, when I put the pencil to it, it was almost 90% or more of the people that actually invest money with me – even though we met that way, we ultimately met up one-one-one, face-to-face, at a coffee, a lunch, or at a meetup.

So the person I’m thinking of – we actually met at a meetup, that ended up about two weeks later to a coffee, and then to the investment… Because there’s the levels of trust that you have to climb; they have to like the asset class, then they have to have trust in the team, and then the team has to show them the right deal. But what I’m trying to say is, even though I have all these methods of thought leadership, the reason I created a meetup group this year – I failed to mention that when we talked about my avenues of thought leadership… But the reason I created a meetup group this year is, again, because when I put the pencil to it, the people who actually put money into the deal, over 90% had actually met me face to face later on.

Joe Fairless: What meetup did you meet this person at?

Dino Pierce: The first time I met this person it was at the Denver Apartment Network meetup group.

Joe Fairless: Okay. And then that person you met at a meetup, an apartment networking group – you met up with him a couple weeks later, had coffee, and then they ended up investing… Have they invested in multiple deals?

Dino Pierce: Not yet, but they invested a nice chunk in this one, and we are meeting — actually, we’re gonna have dinner before your Best Ever event coming up; and my partner is also attending, so we’re gonna go to kind of like a one-off one-on-one dinner and talk about future opportunities, because we have a few other deals in the pipeline… And we realized that there’s more money, and this person also has a network, and if we can bring him to the GP side, he would be willing to open that up as well.

I’m in for the long game, and I will go off of good quality volume, and I have no problem giving up a percentage so that we can get a good deal done and offer a great investment opportunity to more limited partners.

Joe Fairless: When you were bringing equity and other things – you have other responsibilities in those deals; one responsibility was to bring some equity… When you were bringing equity to those deals, what was something that was surprisingly challenging to you?

Dino Pierce: I think surprisingly challenging was – initially, when I started out and I was letting people know what I was doing, I had a sample deal package, it was upfront… This is not a real deal, but this is where I’m transitioning from single-family to multifamily; “When a real opportunity like this comes around, are you interested in it?”, it was almost overwhelmingly yes. But then when we had a real deal, it was very difficult to get people to wire money, subscribe into the deal. And the only thing that changed was that it was real now. And it was like “Oh, wait, I’m really gonna wire $50,000 or $100,000 into this opportunity…”

That was a little bit surprising, because initially I thought “Wow! I know it’s gonna be work, but this is very doable.” And then it turned into “No, you need to have some wherewithal, and you need to have a last man standing, long-game mindset”, because when the rubber meets the road… I’ve even had investors subscribe and not wire. They go dark after subscribing. And again, probably one of the trust levels hadn’t been met yet, and that’s fine. It might take me putting five, ten, fifteen deals in front of someone before they say yes.

So we don’t burn bridges or anything, but I think that was a little bit of a surprise, how difficult it actually was to get people to do what they said they were gonna do.

Joe Fairless: There’s a video and a  speech that Jim Rohn gives, and the name of it is “The sower and the seed.” He talks about how when you plan seeds, not all of them blossom, and sometimes the birds get some; that’s just what happens in life. There are certain things we can do to optimize the performance of the seeds that we sow, but ultimately they’re not all gonna blossom, so I get that… And it’s a really good speech too, for any Best Ever listener. Jim Rohn, “The sower and the seed.”

What is your best real estate investing advice ever?

Dino Pierce: Related to this business, my best real ever real estate advice would be to take action, and don’t get caught in analysis paralysis. Now, admittedly, I am the 1% who will tap into really good podcasts, and go to great events, go to meetups, and I’ll put the pieces of the puzzle together and run with it… To where there’s other people who need not one mentor, they have to have three different people hold their hands through the first deal; that’s fine too, if that’s what you need and that’s how you learn. But for me, I’m like “Fail forward.”

The only thing I wasn’t willing to fail forward with is someone’s investment… Because I am the type of person – if you and I invested into a deal, we both put $100,000, same deal, and it went south, and let’s say I was a GP and you were an LP, I’m the type of person who says “Tough lesson. I will make it back. There’s no use crying and dwelling over this. Let me take the lessons learned from it and don’t let that happen again, if at all possible.” But it would be your $100,000 that would literally create ulcers in my stomach and keep me up at night. So I wasn’t willing to let people invest into a deal I was involved with without having–

Joe Fairless: Would you pay it back?

Dino Pierce: Would I pay it back to you?

Joe Fairless: Yeah.

Dino Pierce: Yeah, by all means possible, because — that was a scary story, it almost happened; I owed someone $25,000, and that was what I was thinking, “Okay, how do I get him his $25,000 back?” Well, come to find out he never wired… Because we were like “We’re missing person X’s wire. We can’t find person X’s money.” We verified over the phone the routing number; he has a disclaimer in his e-mail saying “Never wire to a routing number that was sent via e-mail”, so I’m like “Oh my goodness, it’s this guy, and we can’t find his money.” So I’m like “Okay, I owe him $25,000.”

So the answer is yes. Now, if I’m not liquid, we would have to sit down and talk and work something out, but I would do my best to make things right.

That’s the only thing  I wasn’t willing to do. But you know what – if you’re a broker and I’m learning to speak the lingo, and I’ve been studying, and I know the terminology, yeah, I might have some nerves… But the phone’s not a cactus; I’ll pick it up and call you, introduce myself, tell you about my team, “Here’s what we’re looking for. I saw this deal on LoopNet. Do you have anything bigger?” And I will start meeting with investors too, because there’s gonna be a first time. You just have to do it, and get good at it… Because I actually learned more, because I went through a course to learn about syndication, but I learned more doing my deals —

Joe Fairless: Which course?

Dino Pierce: I learned — I don’t wanna say everything, but initially everything multifamily through Michael Blank.

Joe Fairless: Cool.

Dino Pierce: And from there, I learned more actually doing the deals, being active.

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

Dino Pierce: I’m ready.

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

Break: [00:23:22].24] to [00:24:44].13]

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

Dino Pierce: I know it’s kind of cliché, but it’s “How to win friends and influence people.” It’s a classic, and I reference it regularly.

Joe Fairless: Best ever deal you’ve done?

Dino Pierce: Best ever deal was actually not for tax reasons; this is back when we were doing the flipping. I actually found the lead, it was free, from Craigslist, for sale by owner; father passed, the daughter didn’t want anything to do with his investment portfolio. I made an offer, they said “No. We’d rather have an open house and take the highest bidder.” But me being me, I followed up after the open house; I just sent a text message and said “How did it go?” and she wrote back and she said “It sold.” I was like, “Okay, good for her.” Then about five seconds later she says “…to you.” I was like, “Okay… Now I see where we’re going here.”

Long story short, I was tied up, really busy at that time… She was happy with the purchase price, the residential redeveloper was happy with the purchase price, and me being in the middle experienced a $45,000 heavily-taxed profit from scouring  Craigslist for a deal.

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

Dino Pierce: Real quick, a mistake I made on a transaction… The only transactional mistake I made was not knowing what was gonna happen with the market, and I ended up paying two mortgages… Because I was transitioning state to state. And I paid two mortgages for a year. That was my personal worst transaction.

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

Dino Pierce: Give back – of course, through the thought leadership. I do complementary mentor calls with people who are just getting started; I don’t charge anything… Just giving them advice, letting them know they can do it. Constantly donating to good — Joe, my kids have more than they’ll ever need for toys. I told my son, I’m like “Do you want a birthday present? Then you have to take five toys, and you’re going with me to Goodwill and we are giving this.” So we donate to Goodwill, Salvation Army… That’s how I like to give back.

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?

Dino Pierce: It’s easy to get a hold of me. I’m very active on social media, so you can look me up on Facebook, Dino Pierce. Go to EdifiedEquity.com and you can contact me there as well… But I’m easy to get a hold of.

Joe Fairless: Dino, thank you so much for being on the show, talking about your entrepreneurial family and background. The ventures that you started with – the landscaping business, personal training, and it was time for money, time for money; spend time, get money. But ultimately we run out of time, and we’ve gotta scale that. You went to real estate, doing wholesaling, heavily taxed profit; you then focused on apartment investing and syndication. You took a course, learned, and then started doing it. You are now in four deals, worth almost ten million dollars.

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

Dino Pierce: Yes, sir. Thanks for the opportunity. I really appreciate it.

JF1638: How To Purchase 150 Properties In Just Two Years with Steven Pesavento

Steven considers himself a “beginning” investor… Who has 150 properties purchased in his first two years of investing. Maybe not quite a beginner in a lot of eyes, but for himself and his goals, he’s just getting started. We’ll take a dive into how he has been able to scale to the level he is currently at in just two years. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Steven Pesavento Real Estate Background:

 


Sponsored by Stessa – Maximize tax deductions on your rental properties. Get your free tax guide from Stessa, the essential tool for rental property owners.


TRANSCRIPTION

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

With us today, Steven Pesavento. How are you doing, Steven?

Steven Pesavento: Hey, Joe. I’m doing well. How are you doing?

Joe Fairless: I am doing well, and nice to have you on the show. A little bit about Steven – he has been investing in real estate for two years and he’s bought and sold 150 properties. He’s based in Denver, Colorado. You can learn more about what he’s got going on at theinvestormindset.com, which will also be in the show notes. With that being said, Steven, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Steven Pesavento: Yeah, absolutely. I consider myself fairly new to investing. I’ve been investing for two years, but definitely have quite a bit of experience after that two years. I hadn’t ever done any real estate investing when I got started. I just kind of had that same feeling a lot of people have, where you’re like “I really wanna do this”, but I kept making up excuses on why I wasn’t taking the leap. Finally I did, and in the last two years we bought and sold 150 houses in two different markets.

I live in Denver, but we invest in Raleigh, North Carolina, and Minneapolis, Minnesota.

Joe Fairless: 150 properties in two years. How?

Steven Pesavento: We’re really focused on scale, so we built a team. We have people on the ground who are going out and signing up these contracts, getting these properties under contract directly with the sellers. And of course we’re doing direct response marketing, direct mail, PPC… All the things you might read about on Bigger Pockets, we’re just doing it at a little bit bigger scale than a lot of people, because my philosophy was “You have to do enough deals rapidly, to get enough information to learn quickly.” I’m just a big person on modeling others, and I found a few investors who I was able to pretty much learn the ins and outs of how their business is working and kind of take 7 to 10 years of real estate experience and condense it down into a few months.

So we just really started modeling, which is just another word for copying… So kind of ripping off everything that they were doing. We started applying that in our business, and we really took off. We’ve done quite a bit, and we’ve been able to help a lot of people, which has been really rewarding.

Joe Fairless: Who did you model after?

Steven Pesavento: There’s some investors – Andy McFarland, Bill Allen, Mike Simmons, Justin Williams, a couple people from around the country… They’re part of a mastermind group called Eight Figure Flipping, or Seven Figure Flipping…

Joe Fairless: Which one is it, eight or seven? That’s a big difference.

Steven Pesavento: Well, there’s two separate groups. There’s one higher-level group that we’re a part of…

Joe Fairless: Oh, okay. [laughs]

Steven Pesavento: We got connection to them through an event that was going on, and I wasn’t really a big fan of spending money on coaching or mentorship at first; I thought I could learn everything on my own. And to be honest, I was; I was trading some of my experience in other fields, building websites and doing things like that, for the ability to learn from some other investors… But when I came across these guys, I could just tell they were really authentic. A partner of mine ended up paying for it, and I ended up trading some of my time to get access to it, and then we just really took off after that and things just really grew. It’s been a great two years.

Joe Fairless: If you were to write the high-level overview of how you structure your company to allow this volume so quickly, what would be the bullet points?

Steven Pesavento: Good question. The biggest thing is you want to hire people who are better than you at certain areas of the business, so you can focus in on your core competency. For me, what I’m the best at is building systems, sales, and really putting a team together, so that’s what I focused on.

I’ve essentially hired out an acquisition manager to go on sales appointments, a  lead manager to answer the phones, a disposition manager to sell wholesales, a project manager to manage the flips that we have going… And the biggest bullet point is you just have to take action. You have to go out there and do it. You have to choose one marketing channel to go after… Because in my world, in order to get scale you’re probably gonna have to spend some money and you’re gonna have to do something that’s repeatable, and for us that was marketing. Direct mail was the first channel we went after, and we started out with about 10k or 15k mail pieces for that first month, but now we’re up to a point where on any given month we’re between 50k and 100k mail pieces per month. What that does for us is it gives us enough pieces of marketing going out every day, that we know that we’re gonna get a certain number of phone calls. And from those certain number of phone calls we’re gonna get a certain number of appointments, and we can pretty much expect how many contracts we’re gonna get.

So the biggest thing about being able to do volume is just hiring the right people and training them and really managing them, which is a totally different business than being kind of the one-man army that a lot of investors are, kind of being able to go out there like a Swiss Army knife and go out and do every single task.

For me, I don’t go on appointments. I don’t live in the market, and I’m not locking stuff up over the phone, so… I really have to rely on other people. I think that’s the biggest piece about building anything to scale – you really have to rely on your team and your partners to do what they need to do.

Joe Fairless: If you didn’t build out the team with the acquisitions, the lead and the disposition managers and the project manager, and instead you attended the mastermind that you referred to earlier, and you learned everything, but then you decided “Hey, you know what, I’m gonna just have one right-hand person and that person and I (and if you have another business partner, fine; the three of you or the two of you) am gonna do this thing.” Would you be able to make more money that way, since you don’t have all of the overhead from the team members that you have brought on?

Steven Pesavento: Yeah, whenever you take on the decision to cut overhead, it’s a trade-off. If you have two or three people who are just super-motivated, “I just wanna go out and bust your butt”, and put in a lot of hours, then absolutely. Two, three people could definitely go out and do that. For us, with the kind of volume that we’re doing, I don’t think the best use of our time is to be spent on a phone call. That’s something that’s perfect for a $10-$20/hour type of person to be setting those appointments. Then what you would do if you were trying to be a smaller-scale team, you’d have those people focused on setting appointments and then you go out and lock them up, and you go out and sell them, and you go and do all this stuff. Absolutely, 100%.

For me, the reason why we went this direction – I have people who are running the business, and that frees me up to do other things, outside of just being stuck in the business 60-80 hours a week.

Joe Fairless: Quality of life, plus you’re building something that you might be able to step away from and still have residual income from, right?

Steven Pesavento: Absolutely. Absolutely.

Joe Fairless: What’s been a big challenge as you’ve gone really quickly into this business, over the last couple of years?

Steven Pesavento: I think the biggest challenge is whenever you decide to move quick, you’re gonna make mistakes and you’re gonna have to learn from those mistakes really quickly. So when you’re doing marketing at scale and you make a mistake, that mistake costs you a lot of money.

Joe Fairless: For example…

Steven Pesavento: If for example you’re making a change within your system and you have 200 phone calls coming in a week, and you have something go wrong with your CRM, or you have something go wrong with your call system, it’s gonna really impact you and you’re gonna have to figure out really quickly how you’re gonna be able to come back from that. In other words, what I learned was you really need to have redundancy in this system. If our CRM goes down, we need to have a back-up available, so that our team is able to get in there and do the things they need to do to make sure that the machine continues to run.

So that was one big thing, it hurt us. A lot of people who were using Podio know that went down for a couple days last year and everyone was freaking out… But we learned from that quickly, and now we have some systems in place to make sure that we’re not stuck with that.

Joe Fairless: A deal that you have lost money on, if there is one — well, you’re wholesaling, so you’re probably not losing money on deals, right?

Steven Pesavento: We flipped about 40%…

Joe Fairless: Oh, really?

Steven Pesavento: We’ve done full rehabs on about 40%-45% of properties…

Joe Fairless: Well, that just opens up a whole new set of questions. You flipped 40%, so — I don’t know what that is… Like 60 properties or so?

Steven Pesavento: Yeah.

Joe Fairless: How do you do that remotely?

Steven Pesavento: My model for the first two years was partnerships. I had a partner on the ground, a 50/50 equity partner, and that person was responsible for managing the actual renovations and flips that were going on out there in North Carolina and Minnesota. So in that case, that person was the person who was actually making sure that we’re buying right, they’re going and seeing what’s going on, they make sure that we’re not losing, that we’re not making bad investment decisions… But it happens; when you’re doing stuff at scale, you are gonna lose some money. And because we were taking big swings, we did have a couple times where we lost some cash. It’s never a good feeling, but it is a great feeling when that’s off your books and you’re like, “Okay, well, I learned a lot from that.”

Joe Fairless: Yeah, I hear you. So one key is having a 50/50 equity partner, that way you’re both in it for the upside, or otherwise. What’s a specific deal that you lost money on? Tell us how much you bought it for, and what went wrong please.

Steven Pesavento: Yeah, absolute. For sure, I don’t mind sharing that at all. I think you learn the most from your mistakes. There was a property on Hunting Ridge Road in Raleigh that we bought. We bought it for 280k, we had the opportunity to sell it probably 290k, 295k, so we could have walked with some money right upfront… But this was early on, when we were entering the Raleigh market, and my partner had a lot of experience flipping, but didn’t have experience locally. He had just moved to that market.

So we ended up putting in about $80,000 in repairs. That was about double what we expected. There were a few things that came up with our contractors; even though it was a really good friend of his, the contractor ended up extending the timeline by about eight weeks longer than we expected… So that added up to some costs. And we had to redo some of the roofline, we ended up not being able to account the basement as square footage, like we expected, and we just had every little tiny thing that you think could go wrong, went wrong. By the time we put it on the market we had the ARV pegged at 450k… We ended up selling that for 412k.

So we went from expecting a profit of about $80,000 to a negative profit of about $14,000. Of course, our investors made 30k-40k on that, but we walked away with negative equity on that property. But we did learn a lot about the market and about how picky the buyers are in that area, and how it’s a little bit different than some of the hotter markets like Denver or Southern California, which is where we had some experience.

Joe Fairless: Why couldn’t you count the basement as square footage, as you expected?

Steven Pesavento: Well, in that area in particular basements are not very common, in North Carolina… And in that area we could count it as square footage, but it didn’t have the same value. So it still was counted, but it was worth way less than we thought it was because of that.

Joe Fairless: And you mentioned you had investors in the deal… How do you structure your deals with investors?

Steven Pesavento: We typically are borrowing money – private money lender, hard money lender type situation; typically, we’re paying points and interests, and typically they’re paying 100% of the whole purchase plus renovation, because we typically buy these deals with enough equity for that to work. So in the end, after points and interest and everything was said and done, they ended up making more money than we did, and we were happy. We were happy to pay them, they stick with us on every single deal that we do, and that’s been important for us in our growth, to have kind of a partner like that. Even though they’re a lender, we still consider them our partner.

Joe Fairless: What’s a competitive rate, for the Best Ever listeners, if they’re working with a group that is lending them money?

Steven Pesavento: I think it depends on the area. What I noticed is in Southern California you might be able to find money for 1 and 10, 1 and 12, 2 and 12. In North Carolina locally it’s a little bit more expensive – 2 points and 12%, 3 points and 12%… I’ve seen as high as 4 or 5 points and 12% in that area, which just blew me away… When we’re typically paying one point and 12% interest, but that’s 100% funded, and we’re usually paying our points and interest on the back, rather than monthly. Not everyone gets that, but when you have a good relationship, sometimes people — if they’re not living off the points and interest, they’re happy to take them at the end of the project.

Joe Fairless: So you’re buying deals, fixing and flipping them or wholesaling them, and North Carolina, Minnesota and also Colorado?

Steven Pesavento: Yeah, but I don’t do any business in Colorado currently.

Joe Fairless: Okay… So just North Carolina and Minnesota.

Steven Pesavento: Yup, just North Carolina and Minnesota.

Joe Fairless: So those are the two areas that you and your team are doing deals… Any unique challenges to — and I guess we’ll be specific with it, since they’re both states, so they’re rather large… I think you said Raleigh was the one deal you just talked about, right?

Steven Pesavento: Yup.

Joe Fairless: Okay, and what cities are you in in North Carolina, besides Raleigh, and then what cities are you in in Minnesota?

Steven Pesavento: We’re in what they call the Triangle Area, which is about an hour, hour-and-a-half around Raleigh, and we’re in Minneapolis Twin Cities area, so the metropolitan–

Joe Fairless: The Research Triangle, all the smart university students and young professionals over there, in North Carolina, and in Saint Paul, you said, in Minneapolis, for Minnesota?

Steven Pesavento: Yup. And some of the unique challenged to those areas is just the buyers are different; in other words, the people who are gonna move into those houses have different expectations on what they’re looking for. In an area like Raleigh…

Joe Fairless: You already said they’re very high-maintenance, but in Minnesota they’re very nice people and they’re low maintenance, right?

Steven Pesavento: [laughs] Minnesota people are very nice to your face…

Joe Fairless: I’m kidding, by the way, North Carolina listeners…

Steven Pesavento: [laughs] One of the challenges in North Carolina that you don’t really know about is there’s these things called underground oil storage tanks, that are maybe not as popular in some parts of the country, but they’re a huge cost to have those removed… So if you don’t know about them before you buy, it can be a pretty big unexpected cost if they leak, and it can be pretty difficult to sell a property because it’s hard to get a mortgage on them, depending on the kind of contamination… So that’s one challenge we’ve found.

Joe Fairless: Is that just typically disclosed when you purchase a property, or is that part of the house inspection process? Where is that getting covered?

Steven Pesavento: It’s really one of those things where you have to know what to look for. The sellers, when you’re selling a house and you’re buying it off-market, they’re not always disclosing everything about the property. You’re usually buying it as is, and they’re not sharing all the information about “Oh, well, I think there’s an oil storage tank…” But if you know what to look for, you’re able to find it. Usually, there’s a little pipe sticking out of the ground. Sometimes people cut those off, and you have to really search around with a metal detector… But for the most part, we haven’t run into too many issues; we’ve just had a couple where it cost us about 15k-20k to remediate the soil on a property that we were purchasing to tear it out and split the land so we could build two houses on it. We ended up not being able to do that because of that issue.

Joe Fairless: That’s pricey.

Steven Pesavento: Yeah, it cost us 20k to fix it, and it was supposed to be a $150,000 profit, so it was a big problem when we found out.

Joe Fairless: Well, but when you’ve got $150,000 profit… I mean, come on now. [laughs] It’s a problem, but you’re still doing alright on that deal.

Steven Pesavento: Yeah, but the issue was because of the remediation issue we couldn’t actually build the new houses, because there was a well that was too close.

Joe Fairless: So what did you end up doing?

Steven Pesavento: We ended up remediating it and selling it. We ended up making about 25k on that instead, which was good, but we weren’t able to do the development piece that we were hoping to.

Joe Fairless: Any unique challenges with Minnesota people, or the market?

Steven Pesavento: I think Minnesota is a great market; one of the challenges is just finding deals that pencil. There’s a pretty big homeowner base there, and we really haven’t had too many problems in Minnesota, I’ll be honest.

Joe Fairless: Well, I don’t want you to make one up, so we’ll move on… Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Steven Pesavento: My best real estate investing advice is just to get after it. Decide exactly what you wanna do, get up, take action and just go for it… Because you only learn by doing, and you really just need to get out there and take some action.

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

Steven Pesavento: Alright, let’s do it, Joe.

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

Break: [00:19:17].28] to [00:20:18].23]

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

Steven Pesavento: Best ever book… One of my favorite books by far is definitely Never Split the Difference. I’m sure it’s been brought up a ton of times. I love that book.

Joe Fairless: What’s a mistake you’ve made on a transaction that we have not discussed already?

Steven Pesavento: A mistake I’ve made on a transaction that we haven’t discussed is not running title early enough in the process after getting it under contract, and finding out about issues with title at the last minute. It cost us some money.

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

Steven Pesavento: I like to do direct contribution. I like working with people directly, face-to-face, helping people learn about how to get out of the situations that they’re in, and see that “Hey, there’s a better way.”

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?

Steven Pesavento: You can find me on social media, on the internet, Steven Pesavento, or you can check out theinvestormindset.com to learn a little bit more about what we’re doing.

Joe Fairless: Steven, very impressive what you’ve built in a relatively short period of time… But regardless of the period of time, impressive. I really enjoyed learning more about your business, how you work in different markets while being remote, and some transactions that did not go according to plan, why that was the case, as well as some transactions that did… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Steven Pesavento: Thanks, Joe.

 

JF1636: Creating, Managing, & Raising Money For A Nonprofit | How To Establish A 501(c)3 #SkillSetSunday with Christian LeFer

Christian and his company help people establish their own nonprofit organizations. You’ve probably heard how complicated and time consuming the process is, clouded with red tape that takes months to years to clear up. Changemakers is here to help minimize those hassles and get your giving back efforts established more efficiently than what is typical. Hear some great tips on how to establish your own efficiently, or hear how Christian and his team can help. We’re only on this earth for a short period of time, it’s important to try to make it better while we’re here. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Christian Lefer Real Estate Background:

  • Founder and CEO of Changemakers
  • Starts and manages 501(c)3’s for successful business owners, investors, execs and celebrities
  • Has raised millions and run many campaigns during his decade-plus of fundraising
  • Based in Denver, CO
  • Say hi to him at https://changemakers.world/
  • Free PDF for starting a 501(c)3 www.changemakers.world/realestate

 


Sponsored by Stessa – Maximize tax deductions on your rental properties. Get your free tax guide from Stessa, the essential tool for rental property owners.


TRANSCRIPTION

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

First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment for you called Skillset Sunday, and here’s the skill you’re gonna acquire… This is a fun one, and a rather altruistic skill – creating, managing and raising money for a non-profit. We’ve got an expert who will help us with that, Christian LeFer. How are you doing, Christian?

Christian LeFer: I’m doing fantastic. How are you, Joe?

Joe Fairless: I am doing fantastic as well, nice to have you on the show. A little bit about Christian – he is the founder and CEO of Changemakers, which starts and manages 506(c)(3)’s for successful business owners, investors, execs and celebs. He’s raised millions of dollars and run many campaigns during his decade-plus of fundraising. He’s based in Denver, Colorado. The URL is in the show notes page, so you can go check that out.

With that being said, Christian, do you wanna first just give a little bit of background about yourself? And then I’d love to dive right into creating, managing and raising money for a non-profit.

Christian LeFer: Absolutely. I appreciate you having me on the show, and I’m looking forward to where we can go here.

Joe Fairless: Cool. So will you give the Best Ever listeners a little bit more about your background?

Christian LeFer: Absolutely. I have been in the non-profit space on both the [unintelligible [00:03:27].06] and the public charity side for probably closer to 15 years now. I have traveled the country, meeting with people on the fundraising circuit… Basically, meeting with people that I’d never met with before, learning a little bit on the way about their goals, their personal history etc. and then sort of connecting their personal mission with their desire to contribute to a particular non-profit, and coming home with a four, five or six-figure gift.

[unintelligible [00:03:55].00] that opportunity, both because I got to see so much of this incredible country, and meet the  people that really make it work, and make it go around. Some were [unintelligible [00:04:04].23] executives, or just middle management or whomever, independent people; some were entrepreneurs, some were real estate investors… So I just got to meet a cross-section of a heartland that I’ll take with me through the rest of my life.

I’ve also done a lot of communications, I’ve been a copywriter for many years for a sort of direct response [unintelligible [00:04:24].10] political, and going and consulting with businesses of my own, or businesses that I did work for. So a lot of communications, a lot of ultimately what is sales; in the non-profit space you’re not providing a tangible to someone for their gift, you’re providing them with a connection to creating a better world and a better future in general.

Joe Fairless: So you’re the founder and CEO of Changemakers. Is Changemakers a for-profit company, or a non-profit?

Christian LeFer: Changemakers is for-profit. Structurally, it’s an LLC, and I co-founded that with Jacquelyn Long, and we help successful entrepreneurs, investors etc. connect their next-level efforts to make more of an impact and a legacy for the future, while taking maximum advantage of things like tax strategy and the non-profit vehicle as a way to give back to the community, in a way that doesn’t take away from what they’re doing now.

Joe Fairless: That makes sense, and I know one of my team members actually reached out to you, because he’s looking at starting something, and that’s how we came to know you… So when you are working with an entrepreneur or an executive, whoever’s wanting to start a non-profit, what are some of the questions that they typically ask?

Christian LeFer: Typically, when somebody is out to start a 501(c)3, first of all, there’s tons of misinformation out there. Now, that might be because people operate on conjecture assumptions etc, it might be because there have been a lot of changes over the years, with guidelines and how the IRS views certain things, what their process is, how long it takes, all that kind of thing… So there’s a lot of questions around the process and timeline, what’s permissible and what’s not permissible, and then I would say a lot of those questions are just sort of “in the weeds” operational – how do I switch out a board member, and that sort of nitty-gritty kind of stuff. But what we try to do is help people with those things, and do a lot of those things for the non-profit founder, so that they can focus on their mission. That is the number one thing, and that’s where things like tech strategy will come into play…

Or we provide plug-and-play sponsorship strategies, for example, so that people don’t have to sit there and have hours of meetings about how to stratify different giving levels; there’s some templates and some ideas that are tried and true that can work well, and help people get past those logistical issues and getting something up and running, so they can really focus on their strategic and their lifetime goals, and even post-lifetime, their generational goals.

Joe Fairless: Why create a 506 — first of all, am I saying it correct, 506(c)3? Is that accurate?

Christian LeFer: It’s a 501(c)3.

Joe Fairless: Sorry. I was venturing into securities territory, where I’m at. Okay.

Christian LeFer: I’ve actually written a memorandum for 506(b), which I know is your investment vehicle, and I’m familiar…

Joe Fairless: Okay, so 501(c)3… Why create one of those, compared to going on GoFundMe…? Say I’m passionate about ponies, and I want to help pony rescue… I don’t know why ponies are on the mind, but they are; so I wanna help pony rescue.

Christian LeFer: I have an 11-year-old daughter, so…

Joe Fairless: Okay, cool. Well, I have a one-month-old daughter, so maybe that’s why ponies are on my mind, but… When I want to support ponies in my local area, why can’t I just do a GoFundMe account and say “Hey, everyone”, share it on social, “Pony rescue, let’s make this happen”, versus going through the whole process, which we’ll get into in a little bit, of creating a 501(c)3?

Christian LeFer: Absolutely. Well, there often are reasons, typically… If you look at the cross-section of the world, 95% or 99% of people are going to give to a GoFundMe, or to a particular non-profit with a donation, or taking part in a social campaign sharing initiative, or whatever… But there are really three reasons, versus methods of engagement – and I have three of those as well – that someone would want to actually start a non-profit instead of give to another non-profit, or a GoFundMe, or what have you. Those are primarily simply to give back.

Somebody I believe in – I’m sort of a serious capitalist, and I also believe that people have goals and dreams that can’t be quantified in a bank account. So simply giving back is often a primary reason that someone would want to start a non-profit, because they see a way that they can contribute, where their experience growing up in the inner city, growing up without a dad – whatever have you; growing up without a pony – they see the need, and they look around and they haven’t seen anything that fills that need in the way that they see it.

People sometimes say to me, “Well, aren’t there too many non-profits already?” My answer to that is “Are there too many businesses already?” Because the millions of businesses and micro-companies that exist in the U.S. are because someone does not see a need filled, that is from their angle, in a  particular community, or reaching a particular community. And with 300 million Americans, and seven billion or so on the planet, there are a myriad ways someone can interpret a way to fill a need, and then a community to approach with that solution, that is unique… And non-profits range from a few thousand dollars – if that – a year, like your local Little League, all the way to the Bill and Melinda Gates Foundation. So number one is simply to give back.

Joe Fairless: Before we go on to number two, I’m still not clear, because if I were to start a GoFundMe account for a pony rescue, then I’m giving back; and if I were to start a GoFundMe account for $100,000 and I were to donate all $100,000 towards a pony rescue, then I’m giving back just like I would if I had a 501(c)3, right?

Christian LeFer: Absolutely. But just in the same way that you might be an advocate for a certain company – “I love this hardware store. They have the best hammer selection. Go there”, and you can encourage all your people to go there. But there’s a particular type of roofing hammer that nobody carries, you can’t find it, you have to order it, and it takes weeks; you start a company providing that particular item. It’s the same thing with a non-profit.

The reason you might wanna start a non-profit is because no one is doing what you want to do, in the way you want to do it. Does that help?

Joe Fairless: Yes, it does.

Christian LeFer: So we can get on board with other people, we can see “Hey, I’m already aligned with this effort over here. Why don’t I just do that?” But people start non-profits for — I’ll give you a great example. I’m actually on the board of a non-profit where this sort of crazy entrepreneur – he’s an industrial painter by trade – created a guitar for a very famous rock band, tracked that rock band down, got them to sign it, and now wants to autograph it, and he thinks that he can do this again and again. It’s a really neat idea, and again, it’s a crazy idea, nobody’s gonna do this, and he approached me to not only help him get the non-profit going, but to sit on the board. I just got approved a few days ago in a pretty quick fashion. So nobody is going to do that, and what he wants to do is preserve the legacy of this type of rock, this band and bands like it, for future generations… Because people who hear of things now — millennials don’t know what it’s like to live without a microwave, and future generations might lose that piece of history; so instead of relying on the non-profit that probably is the rock ‘n roll hall of fame, he wants to install statues in places of celebration for these bands, in various countries around the world, that maybe don’t have the [unintelligible [00:12:09].04] memorabilia and experience like we have in America.

Joe Fairless: Got it.

Christian LeFer: That’s pretty unique, no one else is gonna do that, and I just think it would be fun to work with these kinds of bands… And these guys are getting old, they wanna contribute too, so it gives them an opportunity to not just go to another signing, or go to another Gala event in L.A, but to really bring these people in Cambodian places where generationally they haven’t had the opportunity to experience this kind of thing.

Joe Fairless: Noted. Okay. Number two?

Christian LeFer: Number two would be to create an organization in a way that aligns a corporate social responsibility effort through the non-profit and a for-profit venture. For example, talking with Grant in your office, and what you wanna do, you want to bring – and I don’t wanna read the other mission if that’s not something you’re ready to roll out…

Joe Fairless: That’s fine, that’s fine.

Christian LeFer: Okay, so you wanna help veterans obtain housing, right? And what a great thing to do. What a great way to inspire other people to maybe copycat you in their own jurisdiction, their own geography, in a place that you’re not doing this. So you can give away a home in a massive — and I know someone that’s already done this, and created an incredible model that I’m gonna share with you… They raffled these tickets to these sponsorships on  a massive national scale; that has a halo effect. You’re doing something that brings light to the world, and that light is positively reflecting on Joe Fairless, your investing company, your team, yourself… There’s nothing wrong at all with reflecting positively on your for-profit venture by doing something that is literally going to put a veteran in a home. That is awesome.

So aligning those two things by having a non-profit alongside a for-profit is something that is a main, primary focus of us at Changemakers. Hopefully that example served to illustrate that point.

And then last but certainly not least it’s to take advantage of tax strategies. Yes, you can take advantage of tax strategies by doing certain things, like donating property into Fidelity Charitable, for example, and maximizing the upside on a long-term held property; you can’t do it with short-term holdings, but you can do it with long-term. If you do it with short-term, you can only get the cost basis. Longer term you can get a massive write-off by donating it; it’s kind of like donating appreciated stocks. But our philosophy at Changemakers is to do all three of these, because we have to get past the stereotyping that by making money you’re not for the social good, profit is evil, all that stuff. Total BS. It deserves to be  relegated to the trash bin of history. You cannot save the world if you can’t pay the rent, and they are.

They’re starting out now, on day one of forming a company, they’ve got a social idea in mind. Back in the ’50s and ’60s a lot of these folks that I would fundraise from as I traveled the country, great people [unintelligible [00:15:01].11] to the manufacturer, for example. They’d make things that you drive behind a tractor. They’re doing 30 million a year, they have everything they want, their family has everything they want, and then they say “Oh, what about my legacy? I’m getting older. I’m 50, 60, 70 years old, I wanna give back.” It is a different paradigm now. There’s been a massive shift, where young people – and heck, I’m 50, I’m young – from the outset of the company they have a social purpose in mind. I’m a foster parent and I’ve adopted through the foster care system, so I have a particular passion around that.

My sister is developmentally disabled. I’ve been in the Special Olympics since I was a kid. I’ve got certain affinities, and when you start a company and there’s a great purpose behind it, it’s much more powerful on those bad days than when you’re losing money or you make a bad deal, it’s the mission that drives you forward… And if you can align your personal mission with your business mission, I think that’s gonna bring people to the kind of satisfaction that leads to fewer Prozac prescriptions, personally.

Joe Fairless: I would agree with that. And what are the costs associated to starting one?

Christian LeFer: The costs can vary. There are a couple of different tracks to getting a 501(c)3. The IRS has a tiered filing fee structure, for example… But it’s not just about starting the 501 entity itself. Yes, we’ve done that thousands of times successfully. I’ve been involved in many thousands of those. What I realize after thousands of these is that the likelihood of success long-term for the founder is also having the system set up to get the funding in, and to set up the sustainability systems like with any business, for things like compliance, staying on mission and getting the board or getting any staff and people that are involved in the non-profit to be aligned on the same page, and then that will drive the organization forward.

What happens with non-profits a lot – if they’re under-funded, especially the founder gets burnt out and the thing becomes sort of a side project that never really runs under its own power… Or if they don’t plan ahead, there can be sort of a founder’s syndrome, where everything’s falling on the founder over time, they don’t get enough buy-in, and it’s like a company where somebody’s not grooming middle management to be C-level and to take over, and growing people.

What happens is there becomes a stagnation and maybe the company that could be doing 50 million a year plateaus at 5, and is dysfunctional, and no one’s really excited to go to work in the morning. So what we do is we provide a holistic approach to all of those things, so that you know exactly what the policies are, and  aligning your for-profit and your non-profit.

Where you can get in trouble and where you don’t have to get in trouble – how do you make money? You founded the non-profit – can you be a director and a paid staff? The answer is yes, but it’s how that’s done that’s important. So those are the kinds of things that I find the best predictors for success, and that’s why we’re templating these things and consulting, so that we can align the mission and the function.

Joe Fairless: So what are the typical itemized costs for starting one?

Christian LeFer: If you were to itemize the costs, you can be looking at about $10,000 for starting the non-profit, putting all the policies in place, and aligning the by-laws, the charges that you have to your directors and officers and all those kinds of things, with the mission of the non-profit and with the day-to-day functioning, how the things work, and setting up the systems so that the non-profit can operate properly.

It can range from about $5,000 to $10,000 to get started, and then there are ongoing maintenance costs that you need to pay attention to, and it’s subjective. It can vary. To get particular, there are a series of questions that will qualify what the costs really are and how long it takes. The maintenance costs can be fairly minimal – a couple thousand dollars a year, or maybe even a thousand, depending on the budget… To if you are fundraising in a very public way, where you are a Donate button, you’re doing a lot of social, you’re not just getting from a very close-knit group of people, larger donors… 41 states regulate charitable fundraising and you have to register in those states. That cost can be $5,000 to $10,0000 a year, but when you’re doing 2-3 million a year or more, that becomes just a cost of doing business.

On one hand, I don’t wanna scare anyone with big numbers, because most non-profits don’t incur those kinds of costs, because they’re not doing big, massive, public fundraising campaigns. But that is the range that it can go to. If you go to our website, you can see there’s a $5,000, there’s a $15,000 package which has a lot of ongoing maintenance where it’s sort of done for you; you can stay focused on your mission, we take care of everything else.

Joe Fairless: What is something that is not permissible, that some people mess up on because they don’t know any better?

Christian LeFer: Impermissible things – certainly a co-mingling of funds. Say you’re running a for-profit and a non-profit together, or alongside of each other (I shouldn’t say together, but your audience might). The listener would want to have a decision-making process that is very distinct for the non-profit, and separate from the for-profit.

The for-profit – you might have a board, you might not. You might just be a solopreneur. But say you have a group of people that are involved in the decision-making process for your for-profit real estate investment company – you can share directors; I recommend not having a majority, or at least not having a 100% overlap of directors, because that’s gonna create some separation and bring some sunlight into each process… But you wanna have a distinct bank account, decision-making processes.

You might have lots of your company people that volunteer for your non-profit, but you sort of want to look at this as two different hats that you would wear. You take off one hat to put on the other hat; you don’t stack them on top of each other. So the same person can wear a number of different hats in an organization, but wanna take those off when they go do work for their for-profit.

It really comes down in the IRS’s eyes to sources of funds and use of funds. The use of funds for a non-profit needs to fall under one of the exempt purposes, which is why the non-profit entity exists.

Joe Fairless: Anything else as it relates to creating, managing and raising money for a non-profit that you wanna mention before we close out, that we haven’t talked about?

Christian LeFer: Absolutely. I had mentioned earlier there are three types of non-profits that real estate investors might want to start or get involved in. Number one is the general education and/or community non-profit. This is where you’re putting information out to the public, you’re teaching them about real estate, or you’re teaching them about a certain aspect of what you do, and it’s available to everyone. It could be paid membership, or it could be just for free, but education is a primary one.

And then creating community. We’ve done a number of angel investing groups. The 501(c)3 can have the pitch fest, it can get everybody together into the rooms, where they educate people on how to become an angel investor etc. When the deal is made, those doors close and another door opens, and that’s where the for-profit or the other type of entity would be involved in actually putting deals together.

Number two would be a purpose-specific vehicle, like the one that you were talking about starting, where you give away a property, or you rescue ponies, or whatever, and you just wanna start one for a particular purpose.

And the third is to donate property to take advantage of some of the tax strategies that are available. There isn’t really a goodwill of real estate donations, and most non-profits have a lot of trouble. If you called your average non-profit up the street from you, they would find it very difficult to accept the real estate parcel. So there are organizations and companies that do specifically that, and sort of turn those into cash for the non-profit… But you could also give properties directly to a charity if they’re capable of accepting those.

Those were just a few of the final points I wanted to make on creating, managing and giving through a 501(c)3. I’m happy to provide more information. People wanna go to our website, changemakers.world/realestate.

Joe Fairless: Cool. Good stuff. Well, Christian, thank you so much for being on the show, talking about the costs associated to doing this, why to do it or why people do it, as well as what’s permissible or what’s not permissible, and some commonly asked questions that perhaps someone who is listening who wants to do something more formalized with their philanthropic efforts – they’ve been wondering, and you addressed them.

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

Christian LeFer: Absolutely. Thanks a lot, Joe. I really enjoyed being on the show. Have an awesome weekend.

JF1565: How To Execute On A RV Park In The Middle Of Nowhere #SituationSaturday with Scott Lewis

Scott is back on the show for a special segment today. We’re going to be talking about a deal he has going on. He found an RV park in the middle of nowhere, bought it, and is now telling us his business plan for the park. If you ever buy an odd property, you know you have to get creative sometimes, let’s learn from Scott’s experience and apply it to our own businesses. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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TRANSCRIPTION

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

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment called Situation Saturday. This is a fun one… You come across an RV park in the middle of nowhere, and there’s a lot of challenges involved with that… What do you do? How do you take it down? How do you execute the business plan?

Well, fortunately, we have a guest on the show today who has acquired an RV park in the middle of nowhere, and has implemented a business plan at that property, and we’re gonna talk about the challenges and the individual disciplines within the team members that are required in order to do this type of deal.

With us today, again, how are you doing, Scott Lewis?

Scott Lewis: Hey, Joe, and Best Ever listeners, and happy Saturday out there! Great to be back on the podcast. I’m doing outstanding, I just got back from a couple of days in Las Vegas, at a mastermind out there that was fantastic, and I’m happy to be on this show.

Joe Fairless: What mastermind did you go to?

Scott Lewis: It was a self-storage mastermind.

Joe Fairless: Okay. Who put it on?

Scott Lewis: Scott Meyers.

Joe Fairless: Cool. Good stuff. What was the takeaway that you got from it?

Scott Lewis: I don’t know that there was any one thing that I was taking away from it, other than as a company we’re doing all the right things to be able to acquire self-storages.

Joe Fairless: Well, it makes sense, and we will transition into the RV park… But first, I want to give a brief overview of Scott’s background — and you might recognize Scott from our previous interview, which was episode 965. It is titled “Why he sold all he had, went to war, then returned to develop land and syndicate big deals.”

A little bit about Scott – he’s the co-founder and chief executive officer of Spartan Investment Group. Spartan Investment Group has completed six million dollars in development projects and has 30 million more underway; has raised over 10 million in private equity. Those numbers might even be higher… I’m not sure what the latest is on those numbers. Also based in Denver, Colorado. With that being said, Scott, do you wanna give the Best Ever listeners just a brief refresher of your background, and then roll right into this RV park?

Scott Lewis: Thanks, Joe, and Best Ever listeners. I came to real estate by way of the military and the Federal Government. I’m still an active reservist, out here in Colorado, which is fantastic; I do a lot of good training that helps me be successful in my role as the CEO for Spartan Investment Group.

I started in real estate when I was in high school, building houses, and that’s kind of how I put myself through college as well, as a framer. I became a — I’ll say a “reluctant investor” in 2007 when I joined the military, because I bought a condo in 2005, and everybody’s aware of the history… I still own that condo. I won’t say it’s the bane of my existence, but it’s definitely a third leg that’s not all that helpful.

And then really just kind of got started in DC, bought a really crappy rowhouse, and flipped it, and that’s really what started our company, and we’ve just been growing ever since.

Joe Fairless: And one part of the growth was an RV park that you all came across. Tell us the story about that.

Scott Lewis: Yeah, it’s really an interesting story. It’s a story of — maybe we can call it an epic adventure, so we need some really cool instrumental music in the background right now…

Joe Fairless: You’re setting the expectations really high…

Scott Lewis: [laughs] It came kind of on a tangent to a two-property portfolio in self-storage that we were looking at taking down. Our primary mission right now is to purchase self-storages… However, that particular deal fell apart, and the agent was really impressed with our acquisitions process and how we handled that, and he was like “Hey, you guys gotta take a look at this… I’ve got a deal for you. It’s an RV park.” We were like, “Um, what?” He’s like, “It’s an RV park.” We’re like, “Okay, where?” “In Gardendale, Texas.” “Say again?” “You know, Gardendale…” “No,  we don’t know it.”

Joe Fairless: Everyone knows Gardendale…

Scott Lewis: Yeah, so we’re like “Alright, can you orient us to where we need to look?” He’s like “Oh, it’s just North of Odessa, Texas.” So for Best Ever listeners that aren’t geographically sound with Texas, Odessa and Midland are approximately about five hours South-West of Dallas, maybe about 4,5-5 hours… Pretty much do West of Austin, kind of in West Texas.

For the listeners that aren’t familiar with what West Texas is, it’s oil… And it’s actually called the Permian Basin, and it’s the second-largest oil shale outside of Saudi Arabia; it’s one of the main reason why–

Joe Fairless: Friday Night Lights?

Scott Lewis: Absolutely. Midland and Odessa were featured in a movie Friday Night Lights. That’s where it was. And it’s everything that you would think it would be – there’s tumbleweeds, lots of cowboy boots… A Prius could fit in the cab of every single pick-up truck that’s driving around down there…

Joe Fairless: Yeah, I was gonna say, there are no Priuses in Gardendale, Midland or Odessa, Texas.

Scott Lewis: Yeah. For any listeners that are down there, if you rent a Prius, a Dodge Ram or a big Ford  F-150 will eat your car.

Joe Fairless: Yeah, yeah… [laughs] If you’re driving a Prius in Odessa or Midland, your safety is in danger, I believe.

Scott Lewis: You are incredibly in danger if you’re driving a Prius down there, so do not do that. But just a quintessential, solid Texas town. Good community, good, solid, hardworking Americans that are working in the oil fields down there. So when the agent first proposed this, our director of acquisitions brought it to us, and we said no. No way in hell. And he started running the numbers on it, and they were offering it at a 16-cap, which for an RV park is a little high, but it’s not outrageous.

Our acquisitions director started running the numbers and that cap rate started creeping up. So by the time he was done running his analysis, it was right around a 20 or 21-cap. So that started to pique our attention. That’s when we really started to dig into “Well, what is this about?”, so that we understood the underlying reasons for the sale. It was a group of cousins and friends and brothers that had formed to buy and build the park, but they just weren’t really getting along, and it was just time for them to part ways and get rid of the park.

They didn’t have great management systems just because it was kind of a fractured relationship, and that’s not really what [unintelligible [00:09:07].16] We’ve actually become good friends with them, and they’re just good, solid, hardworking Americans. They do dirt work and paving. That’s what they specialize in, not operating real estate assets. So the park had kind of been run down a little bit, it wasn’t being operated very well, and it had just kind of become a thorn in the side for some of the partners, and they decided that they wanted to sell. So it was a really good situation.

So right out at the beginning, once our director of acquisitions convinced us to do this deal, we’re up against a cash offer, and the cash offer was offering to close really quick. This was in November of 2017. Well, we went back with an innovative strategy to say “Listen, you actually don’t wanna do that. You wanna take our offer, which will be private equity and debt, and we’ll close on January 5th, so that you can delay your taxes an extra 18 months, versus having to pay the taxes in 10 months if you close in 2017, since we’re so close to the end of 2017.” And they were all over that. So that’s a potential strategy, Best Ever listeners; if you are trying to close a deal in the end of the year, you may be able to add value by just waiting a couple of weeks, because it’ll allow the seller to basically have a tax-free loan for up to 20 months, or 18 months, whatever it is, if they extend their taxes. So it’s a tactic that you can use to potentially win deals with not being the highest price offer.

But anyway, so we went under contract with that, and it was heavily contingent on financing. It was going to be a very, very tough deal to finance, because it’s an RV park in Odessa, Texas. However, when we did the feasibility work, it had fantastic fundamentals from a feasibility standpoint, and the Permian Basin when compared to other oil producing areas, had the most resiliency through boom and bust cycles. They’ve been doing it for 80 years.

The people of the Permian are resilient, they’re tough, understand how to ride those waves out. So even in the worst times, when oil was in the $25/barrel area, unemployment was still 5% to 7%, versus up in North Dakota or Wyoming, where unemployment reached double digits.

So we decided to go forward, and we decided to go out and raise private equity and take down the park. The price of the park was 1.71. We had negotiated a $40,000 credit to fix some [unintelligible [00:11:37].21] stuff, so we were gonna raise about a million dollars to do some repairs and maintenance, and then we were gonna take down a loan for a million bucks. We called EVERYBODY. Everybody and their mother, and we couldn’t get it financed at all. The financials were a mess, the record-keeping wasn’t good… It was very, very hard for us in our due diligence to even understand what we were gonna be getting into, and it was even harder for banks to understand.

So at the last minute we found a hard money lender that agreed to lend us money, and we were able to raise the private equity. It’s a pretty good return; our investors are earning 26% cash-on-cash on that particular deal, and it’s supposed to be a four-year deal, so it’s about 100% return over four years… Pretty darn good return, and really good cashflows along the way, but it was the debt financing that was really tough,

Here’s where we really kind of shined as a team – our director of business intelligence had put together a phenomenal feasibility study. Just really good, really easy to follow, and our investors loved it. The debt lender loved it, as well. It was all juiced up, ready to rock, and then about a week or so before we were ready to close, they just up and decided not to fund us, at all.

Joe Fairless: Why?

Scott Lewis: That was really interesting. They told us that the financial part didn’t make sense; we weren’t strong enough as a buyer, and they didn’t like the fact that we didn’t live there. What was really annoying about this is they had everything, all of that information, for a month before they decided just to pull out at the last minute. So what we think is that those buyers failed on their side and they couldn’t get it done, and instead of acting with integrity, they blamed it on us.

I’m not gonna say their name, because I just don’t wanna deal with the legal ramifications of it, but when we have an opportunity to give a recommendation for these folks, it will not be positive. We do not believe they were good people, and they did not act with integrity at all.

Joe Fairless: Imagine coming across that in commercial real estate. Shocking.

Scott Lewis: I know… It was really irritating, because they could have told us no a month before. There was absolutely nothing new that they discovered.

Joe Fairless: So that was two weeks before the scheduled close?

Scott Lewis: About a week or so… A week and some change.

Joe Fairless: About a week before scheduled close. How much money and time did you have into this deal at that point?

Scott Lewis: We had gone hard on our earnest money, and we had pulled some studies, and this and that… So it was about 50k.

Joe Fairless: Okay. What was the earnest money?

Scott Lewis: 30k-35k, somewhere in there.

Joe Fairless: Okay. And then how much time would you estimate that you all had put towards it in total number of team hours?

Scott Lewis: Oh, in total number of team hours? Between trips, acquisitions, capital, finance… Maybe 100.

Joe Fairless: Wow. Alright, so you’ve put a lot of time and money into this deal, a week before closing financing falls through from the debt side. Equity side is still strong, right?

Scott Lewis: It is. Fully raised.

Joe Fairless: Okay… So now what do you do?

Scott Lewis: Well, as we mentioned at the beginning of the podcast, I’m a military guy, so I am fanatical about planning, and I’m fanatical about planning worst-case contingencies. In the military, in a planning process you have the most dangerous course of action and the most probable course of action. Now, from a military perspective, that’s based on what the enemy is gonna do. So when we look at our deals, we have a couple of different enemies, and one of them is always the lender. The lender in our deals is always one of our enemies… Another one being government bureaucrats, or something along those lines. Not a quintessential enemy, but someone that could act in such a way that it would damage our ability to execute our mission.

So for this particular one, our acquisitions director had gone through and analyzed the most dangerous course of action and the most probably course of action for the lender. The most dangerous course of action that we had built out two months earlier was that they would pull out a week before closing.

Joe Fairless: [laughs] Wow…

Scott Lewis: It was already in our system… And then with each one of these most dangerous and most probable courses of action, we have mitigation strategies to take care of it if those come to pass. So the plan was already written.

We basically just did nothing for 24 hours, reviewed our plan, and the plan that we had written was that banks were going to fail, so we would have no choice but to raise our own private debt instrument from our investors. That’s the only thing that we could do. We had never done it before, we didn’t know how to do it, but that was our plan.

96 hours later we  had a promissory note written, a deed of trust written, and a million dollars raised at the same terms that the hard money lender was gonna give us, and we closed the deal.

Joe Fairless: Wow… What are those terms?

Scott Lewis: They were miserable. 12,5% interest-only loan.

Joe Fairless: What was it, 12,5%?

Scott Lewis: It was.

Joe Fairless: 12,5% interest-only loan… For how long?

Scott Lewis: It had a three-year payback, but if we went to years two and three, we got hit with an additional point each year, plus we had to give up equity positions to the debt guys if we went there. So it was basically 12 months to get our act together and get different financing on  it.

Joe Fairless: Okay. How long ago did you purchase this property?

Scott Lewis: We closed March 1st.

Joe Fairless: Okay, so we’re still in the 12-month period; I’m very excited to hear how it’s going… But I don’t wanna fast-forward too much. Alright, you all found the person for the hard money… And how did you know this person?

Scott Lewis: It was actually 12 of our investors. They were our normal equity investors that just took a debt position on the property. We actually had maybe two or three investors that actually took a straddle position to where they had equity and debt. They did both.

Joe Fairless: And the original lender backs out… A little shock, but you have that in the worst-case scenario for your contingency plan… What did you do to communicate, or rather how did you communicate to your investors the fall-out and what you needed in order to close?

Scott Lewis: It’s a good question. For the equity side we really didn’t even have time to communicate. We sent out an e-mail basically saying “Hey, this is what’s happened. Here’s our course of action going forward. Anybody that’s in on the equity side, are they interested on the debt side?” So we had a couple of people raise their hand right away. We had very, very little time and we executed the strategy in four days or so. 96 hours I think it was when we had closed the million bucks on the debt side.

Then we just opened it up to our regular list. We put it out to our list of our personal investors that know us; we had personal relationships with all of them… And we just put it out to our list, and we had an overwhelming coming back to  say “Yeah, we’re gonna do this with you guys.” Everybody loves 12,5% interest for the first lien position on an asset.

Joe Fairless: And why did you go with those terms, instead of a little bit less than that?

Scott Lewis: Good question. We had very, very little time, and we really didn’t have time to struggle with the raise. We wanted to make sure we could take this down, because it was a good deal, as I’ll get into here in a minute, for the operation side of the house here. It was a really good deal, and we wanted absolutely zero probability that we wouldn’t be able to execute.

So we kind of took it on the chin a little bit upfront, knowing that we were gonna be successful in our business plan and that we would be able to take it out later.

Joe Fairless: So you’re about 7-8 months into it… What’s been the result?

Scott Lewis: The operations have been fantastic. Our business plan was to do a number of different upgrades to the park, stemming from cap-ex, like improving electrical, to just vanity upgrades, by putting in a fence around it and just really making it a much better environment, to operational upgrades such as digital management software, better marketing, a call center, you can pay by credit card… All the barely standard improvements that you would do to a particular asset to take it from a class C to a class A asset, as much as an RV park can be a class A asset.

We plan to add additional spaces. The park started out with 102 spaces, and we are in the process of finishing up 14 more, so we’ll have 116. We actually installed a propane dispensing station on-site and got our managers trained, so people can stop by and buy propane at our facility now. We’ve just done a number of different upgrades, which has allowed us to raise rents… I’m not sure what the percentage is, but it’s over $100/month per spot, and that’s really driven the NOI up a lot, by a factor of probably double or triple.

Joe Fairless: You’ve still got the loan on it?

Scott Lewis: We’ve just executed the refinance on the loan…

Joe Fairless: Oh, bravo! What a relief…!

Scott Lewis: It was. And we were able to do it in a fantastic way, as well. We went out and we engaged some lenders, and we actually got a really good bank down in the Midland area. They were really awesome to work with, and they gave us a term sheet, and it was our plan all along to go down and see what we could get from financing. When we have an opportunity to pay people, we wanna pay our own people.

The bank gave us good terms. They were a great fit for us. The terms we cut was 5.5% interest, amortized over 15 years with personal guarantees. So the interest rate – fantastic; the personal guarantees we were really kind of ambivalent to. We didn’t really care. But the amortization over 15 years – it really didn’t do the greatest for the cashflow for the park.

Joe Fairless: Right.

Scott Lewis: So what we did is we went back to the investors that had done the loan with us in March, and we had told them all along that our primary objective here is to refinance this loan out as fast as we can, because we have a fiduciary responsibility to our equity investors to make the park produce as best as possible, and one of it is to get rid of a very high-interest loan.

So we went together and we put together a new terms sheet for them, and we offered 8% interest-only, because that’s what we felt was good for our investors, we liked the interest-only, we wanted to take care of our people, it reduced the burden of debt on the park by $3,800/month in debt service, and it allowed us to take care of our internal people.

100% of the investors said “Fine, modify the loan and we’re good to go.” So now we are at 8% interest-only, versus 12,5%, and we did that in about six months.

Joe Fairless: That’s beautiful. And it’s amortized over 30 years?

Scott Lewis: It’s just an interest-only loan–

Joe Fairless: Yeah, it’s interest-only so it doesn’t matter.

Scott Lewis: Yeah. It’s really been good that — you know, people are still getting a solid 8% return, and the equity investors are getting a lot more as well.

Joe Fairless: What’s the term of the loan?

Scott Lewis: It has a balloon at five years, with extension periods to six and seven years with one point. At seven years, if something has happened and we can’t refinance it, then in addition to continuing to receive that higher interest, the debt investors get equity positions that comes out of Spartan’s stake on the deal. So not only will they have a debt position, but they will also get equity positions as well, if we can’t refinance them out.

Joe Fairless: Wow. I love this story, this epic adventure, and I love this case study. How can the Best Ever listeners learn more about what you all are doing?

Scott Lewis: They can find us on Facebook, Spartan Investment Group on Facebook. You can go to our website at www.spartan-investors.com, or you can reach out to me at scott@spartan-investors.com.

Joe Fairless: Or they can meet you…

Scott Lewis: Oh, absolutely. We’re gonna be speaking at the Best Ever Conference. I believe it’s February 23rd and 24th, 2019. We’ll have a booth there. Best Ever listeners, and those of you that are new to the Best Ever podcast, I wanna say from a participant in every single Best Ever Conference that it is by far the best ever conference that I’ve ever been to, and I do not like conference at all. Joe puts on a fantastic conference.

So don’t worry about the cold in Denver… A little secret here – sometimes it’s 50 degrees, 60 degrees in February. Anybody that comes to that conference will have an absolutely amazing time, and I don’t care how long you’ve been in the business, you will learn a ton.

Joe Fairless: So meet Scott at the Best Ever Conference, February 22nd-23rd. You can go to besteverconference.com.

I enjoyed our conversation today and loved learning about this case study on the RV park. Then also I enjoyed your presentation last year at the conference… In your presentation last year you talked about the planning for how you look at worst-case scenarios, and lo and behold, here you go, now you put it in action.

Thanks for talking about this case study, thanks for being on the show. I hope you have a best ever weekend, and we’ll talk to you soon.

Scott Lewis: Thank you, Joe. I appreciate it, as always, being on the show.

JF1511: Lose It All But Bounce Back & Scale A Real Estate Business In Just 9 Months with Chad Wittfeldt

What a crazy story! Chad lost all of his money just 9 months ago!! Now he’s here on the show to share his story of going from that to partnering in over 100 units. If you’re feeling discouraged or just want to hear a great story, definitely hit play on this one! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Chad Wittfeldt Real Estate Background:

  • Started investing in the equities market at 17 years old, before moving to currency markets
  • Joined BlueSpruce to apply his online media skills while learning real estate
  • Lost everything, was a valet in downtown Denver, is now partnering to acquire 100 units, all in 8 months
  • Based in Denver, CO
  • Say hi to him at https://realbluespruce.com
  • Best Ever Book: How to Win Friends and Influence People

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


Best Ever Listeners:

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

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

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


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best ever 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, Chad Wittfeldt. How are you doing, Chad?

Chad Wittfeldt: Doing great, Joe. Thanks for having me.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Chad – he started investing in the equities market at 17 years old before moving to currency markets. He joined Blue Spruce to apply his online media skills while learning real estate. Blue Spruce is a real estate company. He lost everything though, and was a valet in downtown Denver, and now he has partnered up to be a partner on 100 units, all within about eight months. Based in Denver, Colorado. With that being said, Chad, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Chad Wittfeldt: Absolutely. For my background, I grew up in Michigan and I was in the process of moving out to Denver when I realized that I was flat broke… And the back-story behind that is I was pretty heavily focused in the foreign exchange market. I graduated college, I was moving out to Denver, and I arranged this partnership with a guy who I had trusted with my trading account. At the time, shame on me for putting everything in one account and giving someone access to it, but I was a hungry kid out of college and I wanted to “make it” as a professional trader, and it turned out the individual just didn’t have the financial responsibility; he was placing massive positions on my account, blew it up…

Then I got linked in here in Denver with my current partners now, but at the time I was in the process of moving here and didn’t really know how to pay for my rent and all those things, so I was a parking valet when I was closing my first apartment deal in Bridgeport, Connecticut… We closed that, and then we closed an 83-unit property in Branson, Missouri as well, so a lot has happened very quickly.

Joe Fairless: Wow, no kidding… That was all within the last eight months?

Chad Wittfeldt: Within eight months. I think I was in Iowa, driving from Michigan to Denver when I realized I had no money…

Joe Fairless: Dang…

Chad Wittfeldt: Yeah, so it happened really quickly.

Joe Fairless: How much did that person lose of your money that was in the account?

Chad Wittfeldt: At the time – like I said, I was fresh out of college, so I had about $26,000 saved, and that was from working from 15 till 22, 23…

Joe Fairless: Oh, that makes me sick…

Chad Wittfeldt: It was a lot of money for me. It was everything I had. I grew up in a pretty middle-class family, so I never went without, and I always worked in the summers, and this and that and the other thing, so for the first time in my life I had felt that true, real financial pain of “How am I gonna pay my bills?”

Joe Fairless: Wow… What did you say to the person who lost  the 26k?

Chad Wittfeldt: Man, it was tough… I didn’t even know what to think. When something like that happens, the first initial thing is you don’t believe it. You think “Okay, this was just a glitch on my broker. This can’t be real.” Then you kind of come to terms, and I don’t remember exactly what I said to him, but I have to imagine that I used some profanities, for sure. And the trouble is this is an individual that I met in the online community. I never met him in person, so it’s not like I could go and have a face-to-face conversation with them. It wound up with him just blocking me on every communication platform, and since we didn’t have any operating agreements or any contractual agreements in place, there was no recourse on my end. It was just a hard lesson, for sure.

Joe Fairless: Which leads us to the lessons that you learned… What are they from this?

Chad Wittfeldt: Honestly, due diligence on people. Don’t ever follow somebody just blindly. It doesn’t matter their status or whatever the case is, who’s in their network or what name is behind them. Just don’t follow someone blindly. Then number two – just diversification. Always, always. Never put so much risk on one entity like that.

Joe Fairless: Due diligence on people, but even after the due diligence, having written agreements in place, right?

Chad Wittfeldt: Oh yeah, absolutely.

Joe Fairless: Okay, so when did this happen? How many months ago from our conversation right now?

Chad Wittfeldt: Right now — this happened, I would say, nine months ago. Exactly.

Joe Fairless: Okay, nine months ago you lost everything that you had saved since a teenager, through what we just talked about. And then what happened after that, once you came down to earth and you had some sanity and clarity? What did you do next?

Chad Wittfeldt: Sure. Well, I was fresh in Denver at the time, and I knew nobody here. I just was going through a lot of self-reflecting and thinking. So I did graduate college, I didn’t mention that… I did go to school, I did get a degree… So going and getting a corporate job was always an option. It was certainly always an option that would have settled that pain. But I knew myself well enough that I wanted to make it as kind of in an entrepreneurial phase, and then I didn’t wanna live a life of asking permission 24/7. I don’t wanna ask permission to go ride my bike in the mountains. I don’t wanna ask permission to go fly wherever. I like to create my own path. So I was focused on making that happen, so the first thing I did was just figure out how I can make some money to live, so I started just parking valet, because that gave me some flexibility. I was at least able to go park cars at night, instead of working during the day.

Joe Fairless: How much can you make on that?

Chad Wittfeldt: I was probably making about $25-$30/hour, something like that. Downtown Denver, just trying to find the high-end locations, and shake hands and smile. [laughs]

Joe Fairless: Okay.

Chad Wittfeldt: So that was the first focus, paying my bills. The second focus was starting to build my network in Denver, so I started attending meetup groups and networking events like it was my full-time job. I was going to them every single day. I actually got linked into my business partners now. My first point of contact was my business partner Brad, who I met at the bike park. We’re both pretty active mountain bikers, and… I lived here in Denver for two days, and I just didn’t know anybody. I wanted to meet some friends, so I just said “Hey man, it’s a sweet bike.” We just kind of started going back and forth, and he says “Hey, I’m in real estate.” I’m like “Great, I’ve been interested in getting into real estate.” I go to our business partner Adam Adams – his meetup group; I meet Adam, grab his attention a little bit, and long story short, we just set an appointment and now I’m business partners with him.

But after my head kind of calmed down, I was just focused on action. I was focused on making steps forward to kind of remediating that loss and remediating that pain. I think in situations like that it’s really easy to get focused on the bad instead of focusing on the solutions. I think that mindset shift for me is what really helped a lot.

Joe Fairless: How many units are you in?

Chad Wittfeldt: Just 100 units right now.

Joe Fairless: You say “just”… That’s a lot of units. I think I heard you say an 83-unit…?

Chad Wittfeldt: Yeah, 83. That’s in Branson, Missouri.

Joe Fairless: Branson, Missouri… And then, I guess I can do math – 17 units in Bridgeport?

Chad Wittfeldt: Yeah, Connecticut.

Joe Fairless: Okay, got it. $25/hour, times (let’s say) 40 hours, times four weeks – that’s about $4,000/month, $48,000/year, plus or minus. So I imagine your role in these apartment communities isn’t just investing your own money, since you started from zero nine months ago, and you’ve got a $25/hour job… So what is your role in these communities?

Chad Wittfeldt: I actually invested no money into these deals. I invested my time, and my expertise and my knowledge. And as far as the math on the valet – I wasn’t working 40 hours a week, that’s the thing. My focus was getting away from that  as much as possible. So my full-time job at that point was building my real estate journey.

To answer your question, my role in these apartment communities is — I guess I’d like to say I wear quite a few hats. I help on the lead gen side of deal flow and investors; primarily though, the back-story behind that is when I first joined the team, I wasn’t partnered with them. I was just their acquisitions guy. So all I was doing was cold-calling brokers and wholesalers and saying “This is who I am, this is who I’m working with, these are the assets we’re buying. What’s your e-mail? I’m gonna send you over my buying criteria.”

I was getting pretty frustrated, because I was making 40-50 phone calls a day, following up with more e-mails than I can even count, and my inputs were not matching my outputs in the sense of these brokers were sending me single-family deals and new developments and empty pieces of land. Just very awful stuff that’s not even close to my buying criteria… So I went back to my business partners and I said “Hey guys, this might be what you’ve been taught by whoever, but I don’t really think this is working very well. What if I can position you, this company and ourselves so that deals and all the moving pieces of closing a deal comes to us, instead of going out and actively seeking it?” They said, “Okay, show me what you’ve got.”

So I just started showing them a lot of intent-based marketing strategies that were actually going to convert and actually bring us leads in different facets of real estate. Just to kind of give you a quick example, we had a 160-unit property under contract last month, and that deal came to us because I had my partner record me a video explaining what IRR is, and debt service coverage ratio, and what it means in the apartment syndication community… And I make sure that the algorithms of social media are right, and I post it, and I make sure that the engagement gets right and it gets out to the right people… And that brought us a deal that we actually put under contract.

So just a lot of digital development, online development, and making sure that our message is positioned properly and it gets in front of the right people. So that’s my primary focus in the company.

I also pre-underwrite deals and help raise money with my personal network of investors… So definitely a couple different hats, but it’s been awesome. It’s been a lot of fun.

Joe Fairless: It’s a lot of fun to hear your story and how you’ve created the value and made room for yourself and put yourself at the table with the team. As far as the 160-unit deal, you said you had it under contract last month. Did it close?

Chad Wittfeldt: No, we let the contract dissolve on that.

Joe Fairless: What happened?

Chad Wittfeldt: It was a pretty medium rehab, so it needed roofs and all kinds of different things… In our initial due diligence phase, just based off of our communications with the seller and the broker, we anticipated about 1,6 million of cap-ex, and at the time we hadn’t visited the property in person. We sent one of our partners down to the asset and he walked the property, and we just found a lot of things that hadn’t gotten disclosed by the sellers and the broker…

Joe Fairless: Like what?

Chad Wittfeldt: The exterior stairwells all needed to be replaced. Actually, the day after my partner left, someone actually stepped through and it broke on them.

Joe Fairless: Oh, man…

Chad Wittfeldt: Yeah, so it just didn’t pass through our due diligence. We’re very strict with what we’re gonna close on. We still pursued the deal, but we had a contractor come out and bid out the entire rehab, line by line, and it came out to be a little bit more than we originally anticipated… So we went back to the seller for a renegotiation and they just were not interested, so we said “Okay, we’ll work on our other deals, and thanks for your time.” That’s just how that worked out.

Joe Fairless: What are some other examples of intent-based marketing strategies that you do now that have generated leads?

Chad Wittfeldt: A lot of it comes through content production and social media. Specifically, our last property that we actually closed – it came to us in a Facebook group. Somebody had asked a question, and I believe my partner went in and gave them a very educated, very well thought out, very genuine answer. When other people see you doing this, it shows that you’re credible, it shows that you know what you’re talking about, it shows that you come from a place of value… And the same thing – that person reached out to us, said “It looks like you’re doing awesome things in multifamily. I’d love to bring you deals.” So they wound up bringing us the 83-unit property and we closed on it.

But yeah, if anybody sees — I’m not talking about specifically my business partner… If any of the big names – Grant Cardone, and Gary V., and Tai Lopez and Tony Robbins… You see their content and you see the videos that they’re producing – you have to understand that these things are very well engineered to appeal to a certain person and make them feel a certain type of way, and then respond accordingly. We do the same thing, it’s very strategic.

A lot of our content that we produce – we have a podcast as well, that brings us deals, that brings us investors, people who wanna work with us… And we just kind of replicate that process through different mediums: Facebook, Instagram, YouTube… Honestly, it’s really just about positioning the message, showing who we are, what we’re doing, that we’re credible, that we can close, and providing value along the way. A lot of it comes through an educational standpoint, teaching people how to position themselves properly online, teaching people how to pre-underwrite a property without spending three hours just going through a basic T-12 before going through full-on. Just teaching people these little ins and outs and trying to provide as much value to our marketplace as possible. It typically comes back in the form of deals and investors.

Joe Fairless: The 83-unit in Branson – what more can you tell us about that in terms of purchase price and business plan?

Chad Wittfeldt: That was acquired for 3,1 million, and that property had about 1,2 million of cap-ex in renovations before we acquired it, so it doesn’t need really any value-add. What we really like about that property is our property manager is one lady, and she’s been managing that asset for several years; she knows all her tenants by name, she hosts weekend barbecues in the courtyard… Right now it has a lot of older residents, so we have discussed positioning it, and — I don’t wanna say converting, but kind of just moving it over to kind of like a light assisted living center. That’s something that we wouldn’t really execute on for a couple years, but right now it’s a pretty straightforward asset. It doesn’t need really any updating, it doesn’t really need much repositioning, so… Just making sure that it cash-flows properly, keeping occupancy up, rinse and repeat, really.

Joe Fairless: Was does a “light” assisted living facility look like?

Chad Wittfeldt: This isn’t something that I’ve really heard of as a strategy before, but assisted living centers – you have a caregiver there the whole time, right? So a light model of that would just be somebody to help the older residents get their groceries, help them cook once in a while… They’re not there primarily the whole time, but really just kind of creating the community and creating the environment around the older demographic, to attract more into that property.

Joe Fairless: How do you model that in your underwriting when you’re acquiring the property?

Chad Wittfeldt: We underwrite very conservatively. We underwrite from the standpoint of where the property is standing today, but basically we had anticipated that if we do decide to execute the strategy, we’d be able to charge higher rents due to the extra amenities, and obviously just offset the expenses from there as well.

Joe Fairless: From the 83-unit, before we move on to the 17… From the 83-unit, for the Best Ever who are listening and are like “Wow, I wanna get in on an 83-unit, too…”, how much money have you made from this to date, if anything so far?

Chad Wittfeldt: Our company takes an acquisition fee straight from the close, and then monthly distributions off the cashflows. The way ours is structured is our partners are on the general partnership side, and then we have a sponsor on our general partnership side as well. Then on the limited partnership side, we just have our equity investors.

What’s nice about this property – it’s been cash-flowing since day one, so we’ve already received some quarterly distributions off of it.

Joe Fairless: Oh, that’s great. So what was the acquisition fee?

Chad Wittfeldt: I believe in our original underwriting it was 3%, and then we brought it down to 2%. I’m not very good at math. I wanna say it was like 60k-70k.

Joe Fairless: Cool. And how much were you able to take away from that?

Chad Wittfeldt: Well, since we had to split some of it with our sponsors, and then we split it up between our partners on the general partnership side, I wanna say it came out to like 9k-10k/person off of it.

Joe Fairless: That is 400 hours work of valet, so that’s darn good, right? [laughter]

Chad Wittfeldt: The way I look at it, too – you put in the work for something that’s gonna pay you off for the next 7, 8, 9 years. So it’s just a long-term play, really.

Joe Fairless: You all are in Missouri, and now let’s go way up to the East Coast to Bridgeport, Connecticut, a 17-unit… How did you come across that deal?

Chad Wittfeldt: That property came off to us on Facebook. It’s crazy. People look at social media as just a place to post pictures of your dogs and your kids, but business actually goes down on Facebook and Instagram… So it’s pretty cool to see acquisitions and see a forward ROI from those efforts.

Joe Fairless: Specifically from Facebook, was it an ad, or was it just a post that you did on your group page, or what was it exactly?

Chad Wittfeldt: Basically, this property was already under a contract and moving through due diligence before I came onto the team, but I believe this property came to Adam Adams just through networking in a Facebook group. Not his own group, but somebody else’s.

Joe Fairless: So a 17-unit — was it represented by a broker?

Chad Wittfeldt: Yes.

Joe Fairless: And what are the numbers on this one?

Chad Wittfeldt: I believe–

Joe Fairless: You weren’t as close to this one as the other one…

Chad Wittfeldt: No, I really wasn’t.

Joe Fairless: Fair enough. We won’t get into any details on this one. I’m really grateful that you talked to us about that 83-unit. That was really helpful for just understanding the mechanics behind it and how you all found it.

What was your major in college?

Chad Wittfeldt: Entrepreneurship.

Joe Fairless: Oh, cool. Where did you go?

Chad Wittfeldt: I went to Northern Michigan University up in Marquette.

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

Chad Wittfeldt: I would just say honestly for me it all starts with the mindset. It’s so easy to talk about it, it’s so easy to go post a status on Facebook about surrounding yourself with the right people, or staying positive, or this and that… But to actually execute upon it when things are not looking good – that’s what’s hard. When you’re in the trenches and you don’t know how you’re gonna pay your bills, it’s hard to stay positive then… So I’d really just say focus on building that foundation of your mindset and build out from there, because you can really build an empire on a weak foundation.

Joe Fairless: What’s one thing you do regularly that works on your mindset?

Chad Wittfeldt: Gratitude. Constant, constant gratitude. I’m in a position right now in my life where I’m young and I’m in this game of real estate, and I’m surrounded by people who have already found their success, who have already done it… So instead of looking at them out of jealousy or greed or any of this, I look at them out of gratitude that I even know them, I look at them out of appreciation.

This past weekend – I’m a huge dirt biker and I went up in the mountains with 12 guys that I was riding with, and pretty much all of them are very successful real estate entrepreneurs. They’ve got their Toy Haulers and their brand new Diesel trucks and brand new dirt bikes, and I’m righting with them on my 1998 KTM dirt bike… But you know what, the entire time I had so much gratitude and so much appreciation that I was even able to get out there in the first place. So it’s coming from that place of constant gratitude.

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

Chad Wittfeldt: Let’s do it.

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

Break: [00:23:00].19] to [00:23:46].28]

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

Chad Wittfeldt: How to win friends and influence people, Dale Carnegie.

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

Chad Wittfeldt: Real estate specifically?

Joe Fairless: Well, yeah… We already talked about that other one. [laughs]

Chad Wittfeldt: [laughs] I guess you could say this 160-unit deal had a mistake in it in the sense of we didn’t dig as deep as we needed to in the very beginning, but at the same token, I believe there’s a process to things. We kind of have this rule in our company that we’re not gonna go visit a property until it’s under contract… And that was brought to us through previous experiences that didn’t transact either… So just keep your ducks in a line, and it’s not closed until it’s closed.

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

Chad Wittfeldt: Helping others. I’m not where I intend to be yet, but I’ve been through a lot over the last eight months, between losing it all and then making some  real momentum in my life… So I started to help other young entrepreneurs in my space, and I do more calls than I can count just to help them get their businesses going.

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

Chad Wittfeldt: Find me on Instagram. It’s @cw_invests. You can find me on Facebook – just my name, Chad Wittfeldt. I post a lot of content, a lot of stories, and the best place to reach me is probably in those DMs right there.

Joe Fairless: Inspiring conversation. I love hearing how you overcame a pretty challenging financial situation, and… Here’s a question – are you happy that it happened?

Chad Wittfeldt: Very. I’m very, very happy.

Joe Fairless: Ain’t it crazy how that works?

Chad Wittfeldt: It really is. Those pain points, they’re the greatest motivators and the greatest educators.

Joe Fairless: Yeah. Thank you for getting specific with us about what you did next, how you added value, how you focused on networking and going to meetups as a full-time job, making some money on the side just to pay rent and food and gas for your dirt bike, and then now what you’ve done, and what — we haven’t even scratched the surface. Really inspiring to hear this.

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

Chad Wittfeldt: Thanks, Joe.

JF1509: How To Raise $1 Million In Just 4 Days In A Crisis #SituationSaturday with Adam Adams

Adam is a repeat guest and is here today to share a fascinating story. He was in a situation where he was supposed to close in 4 days, but needed $1 million more to do it. It was time to get grinding and raise that money! Hear how he was able to do it and what he would do differently in the future. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Adam Adams Real Estate Background:


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


Best Ever Listeners:

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

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

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


TRANSCRIPTION

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

First off, I hope you’re having a Best Ever weekend. Because today is Saturday, we’ve got a special segment for you called Situation Saturday. The whole purpose of this is if you’re in a similar situation, you’ll know how others have handled it, and in some cases overcome the challenge, in other cases just learned a whole lot… And in today’s episode, it’s how they overcame a challenge – we’re gonna be talking about if you need to raise a lot of money in a short period of time, how someone did it. Who that someone is is Adam Adams. How are you doing, my friend?

Adam Adams: I’m fantastic, how are you?

Joe Fairless: I am doing fantastic as well, and nice to have you back on the show. If you recognize Adam Adam’s name, well, one reason could be because you’re a loyal listener. He gave his best ever advice in episode 1238. You can learn more about Adam and his advice there.

Today we’re gonna be talking about a specific situation that he was in. I don’t know the circumstances, but I do know that he had to raise a million dollars in four days… So please, fill us in. What happened?

Adam Adams: Alright, so we are fairly new syndicators still. We’ve syndicated a few deals and helped other people raise money for their deals. And when you’re new at syndication, it isn’t always easy; that’s just gotta be the truth of the matter. Some people say if you find a deal, the money will come; that might be a little true, I’m not gonna argue against it… I’m just gonna say there’s a lot of work involved, as well. There’s a lot of mindset, and there’s a lot of work.

At the time, this was our second syndication. We did one syndication on a small property, 16 units in Connecticut, and it took us about three weeks to raise 300k. Then we got better at raising money, so on the second syndication that came up — I’m supposed to be the money raiser in my company, similar to you. I’ve got a podcast, and that’s supposed to be my role. I raised a couple hundred thousand in the first few days, and at the time I didn’t really know that this was my role, so I went on vacation, literally. I went out of town, and then I came back, and I was like “Hey guys, how are we doing?” and they were like “Oh, you know, we’re at 300k”, and I’m like “But we were at 300k before.” They said, “Oh, yeah… Yeah, yeah.” So I said, “Hey, I’m gonna go out of town for another ten days next week, so let me teach you all what I would do to raise the other million.” So I taught everybody what to do, and then I went on vacation with my girlfriend, had a great time at the Jazz Fest in New Orleans…

Joe Fairless: Did you say “girlfriends”, multiple?

Adam Adams: Oh, I did maybe subconsciously say that… And now I’m gonna get in big trouble. No, my one single girlfriend.

Joe Fairless: Okay, just wanted to make sure… [laughs]

Adam Adams: My one, and she knows who she is… Anyway.

Joe Fairless: Both of them do.

Adam Adams: Both of them do. [laughter] Now, I don’t think that there was a Freudian slip; we’ll have to rewind and see if I did say that, but I should only have one girlfriend. I only know of one.

Joe Fairless: [laughs] Fair enough.

Adam Adams: So anyway, I went out of town to the jazz festival, I came back after ten days, and I was like, “Great, where are we?”

Joe Fairless: 300k.

Adam Adams: 300k. You know it. You know the story, Joe.

Joe Fairless: I saw that coming. I don’t know the story, but I saw that coming.

Adam Adams: So everybody was talking about “Okay, what are we gonna do? How are we gonna do this?” We had some motivation, they believed in me and I didn’t know what to do exactly, but I always felt that we need to have a strong mindset. I’ve always felt that way. What’s his name — he just came on your podcast; he’s a friend of mine, and for some reason I can’t think of his name because I’m on the spot…

Joe Fairless: Because you’re friends with everyone.

Adam Adams: I try to be, yes. So Tim Bratz was just recently on your podcast…

Joe Fairless: Yup.

Adam Adams: He had a similar situation where he had to raise a lot of money in a very short amount of time… It was all mindset. The power that he had was the power of saying “I can’t fail. I just have to do this.” You ask yourself how can I, how can I – so  I just said, “I’ve canceled all of my other appointments for the next few days…”, because we had four days to close, so I canceled everything.

I remember calling everybody and saying “I can’t go to lunch with you anymore, I can’t talk to you on the phone anymore, I can’t do this with you. We have a great podcast interview coming up, but I’m gonna have to postpone that for another couple of weeks, because I have something that needs to happen.”

So I locked myself in the room from about 10 AM to 6 PM for four days in a row, and that’s where it starts out… People would walk into the room while I was in between calls, and they were like “We’re getting down to the wire.”

I remember it was the day before we were supposed to close, and we still needed 500k. So three days, maybe about 500k. And this is all estimates, because I don’t have the specifics, but I remember thinking that I had about 500k more that needed to go in the bank tomorrow, so that we could close on time… And I had several investors that I was talking to on the phone say “What happens when you don’t close this?” and I was like, “We’re closing it.” And they’re like, “Yeah, but what happens if you don’t close it?” and I just had to politely say “We’re gonna close it. I don’t have time to talk about there being a possibility of anything else… So I’ve just gotta respectfully let you go, so I can keep making these phone calls.”

Then I actually truthfully had two different of my partners walk into the office. They were like, “Hey, Adam, what happens if we don’t close?” and to them I wasn’t as nice as I was on the phone. I was like, “You can’t effin’ tell me that! You’ve gotta get out of my office, and everybody in this office has to know that we’re gonna close. We have to know that.” Honestly, it was kind of crazy, because — this is a totally true story, it’s just mind-boggling how down to the wire it was.

So the day of, we still needed 250k, and one of the 1031’s that I think was 200k backed out. So that put us at needing a ton more money… I just kept calling — and when we get into the questions, I wanna talk about the sales pitch that I used when I called people, because I do think it is beneficial for anybody out there. It’s not just the mindset and it’s not just the grind, but the psychology behind asking for money also needs to kind of come out in the interview today, so that we can really learn, not just that we need to have some tenacity and never quit.

The end result is literally and truthfully the day that we were supposed to close we got that last wire in about two hours before close. My partner DJ ran to the bank, made our wire, and just in time we barely, barely closed. Then the next day — and this is all just… I don’t know if it’s really ten million; I don’t think I’m exaggerating, I don’t think I’m lying, or either way… I never even wrote it down. But the very next day after we closed, that’s when I got all of these people call me and said “Hey, we want in on that deal, and I assume you didn’t close, so now we’re ready to get into it”, and I’m like, “It’s gone.”

Again, this is not literal, but I feel like the very next day I had ten million dollars that wanted to go into it; I only needed one, which I guess helps a ton for the very next deal that we do. Ever since those days, raising money is a lot easier now, but… I’ll give it back to you.

Joe Fairless: Let’s talk about what you said to the investors, and then we’ll go from there.

Adam Adams: Okay, so this was 506(b), which is important to note that I had to know them already. I couldn’t advertise this; I had to have a prior relationship, which kind of painted me into a corner. I was stressed, but I wasn’t willing to say anything else. I thought “I’ve gotta only talk to people that I know, and I’m running out of people that I know. This is hard”, so I started going back, and I started to try to figure out what could I say to change it… And I kind of took a page out of your book; something that you do naturally, I figured that I would have to also do.

Having to figure out a way to tell somebody who’s also a syndicator why it makes sense for them to give ME their money… Because that’s all I had left, is other syndicators. So here’s the pitch, and it worked like a miracle. I would dial the phone, and when they said “Hello”, I would just say — let’s see, I’d get one of their cards, and I would say “John, it’s been a while. I haven’t seen you since we were at the Ultimate Partnering Events, or since we were at that sponsor event. I just wanted to touch base with you… How’s your syndication business going?” So that’s the first thing – “It’s been a while. How is your syndication business going?” Very, very important question, because now you have to start to listen, and when listening, you have to start asking more questions.

They were like, “Oh yeah, I haven’t been doing it lately because it just got too hard, and I had to go back to work”, or whatever they said. Whatever they say, you really have to be intentionally open-minded to understanding more about that situation, whatever it is.

So “How’s your syndication going?” “Oh, it’s not okay.” “Well, what happened?”, and then you’ll get into a part of the conversation where it’s kind of like this “Well, I know you have the money, I know that you have the drive for it, so what you’re telling me is that the reason you haven’t been successful is because it’s just been really tough to find a good deal. And the reason that it’s tough to find a deal is because you didn’t have the track record” and then they usually answer “Yes.”

So when it comes down to that point, then you say “Well, I’ve got a deal right now. Why don’t you just go the minimum in that deal…”

Joe Fairless: Which was…?

Adam Adams: 50k.

Joe Fairless: Okay.

Adam Adams: “Why don’t you just go with the minimum in that deal. That gives you the track record to have some more doors to your name, and then hopefully the brokers will start taking you more seriously, just because you’re invested in a deal. It always got this “A-ha!” moment for them, where they were like “Huh… I never thought that it could be that easy to just get experience.”

So really diving deep into this question, people who are listening might have the thought process that it’s way easier than what I just told you. They might just assume that it’s super, super-easy. “All I have to do is say ‘How’s your syndication business going’ and then I’ll be like ‘Invest in my deal”, but you have to find a way to sit back and first ask enough questions.

Here’s the analogy I have for you – if you walked into a doctor’s office and you said “Hey, I’m not feeling well”, and they just said “Alright, we need to give you a cast for  your ankle”, that’s not a solution to your problem. They haven’t diagnosed you well enough yet. So when somebody says “Oh, you’ve got measles/mumps” and you walk in and you’re like “Nah, it’s just my nose hurts, and I just didn’t know what’s going on.” They’re not solving your problem, and that’s because they’re not asking enough questions first. That has to be you. When you start by asking somebody “How’s your syndication business going?” and they start to answer, you really have to respond back and forth with a lot of dialogue.

You know how the doctors say “Does it hurt here? Does it hurt here?”, and they keep touching different places, or they say “What happens if I turn your neck like this?” and when they ask enough questions, they’re like “I think I know where this pain point is.” That’s you as the salesperson, allowing people into your deal. You have to see “What is it? Are they having trouble with brokers? Is it a different reason?” There’s so much that’s to it, but if you don’t understand how to ask all of these questions repetitively to draw out the real diagnosis, that’s when you’re going to fail.

I don’t know exactly how to teach that 100%, but if you have questions for me, Joe, that might help bring that out, I would be happy to help… But the point is, you have to ask enough to really understand what it is, because when you solve the problem, it needs to sound completely genuine; it needs to be completely genuine. “Well, I could help you by you being involved in my deal.” You say you have a bunch of doctors/attorneys/whatever that have a huge liquidity and they’re waiting to get into your deal; why don’t I put you in on my deal, and you let all of your doctors and attorneys come in on this deal that we own together, because you’re on the general partnership now. You know them personally, so that makes it legal by the definition of 506(b), and now I’ve solved your problem. You own the real estate, you’re on the deal, and your investors are going  into your deal, so it solves their problem, too. That’s kind of what I’m trying to get out or help other people to understand.

Joe Fairless: Yeah, it’s very helpful, and one other thing to point out here is that you have a Rolodex of a targeted list of syndicators, because your concept certainly works, regardless of if you’re talking to a syndicator or a W-2 professional or an entrepreneur who’s not in real estate, and that concept of asking them to talk about themselves, so that you can learn more about them, and then as you talk about your opportunity, you can match that up with challenges that they have. “Oh, I’m looking to decrease my tax burden, I’m looking to get more consistent cashflow, I’m looking to diversify from stocks, I’m looking to get a track record so that I can eventually do this on my own, but I don’t have any experience so far. I’m trying to find deals etc.”

So the key from a macro  level is, from what I’m taking from this and from how I approach conversations too, is listen and learn when you’re talking to someone. That makes the conversation so much smoother and more real, because you’re simply customizing the benefits of the opportunity to whatever is most relevant to them, versus having these bullet points that they don’t care about at all, because they’re interested in other bullet points that you don’t know about because you didn’t ask questions and listen. But in your case, in this example, you were reaching out to syndicators, so the challenge with doing deals is what you’ve just described, for the most part – finding the right deal, and getting the right credibility in order to do that when you’re starting out. So it’s a beautiful approach for that particular group, and I’m glad that you shared that.

Adam Adams: Thank you, I appreciate that.

Joe Fairless: The couple follow-up questions, taking a step back just about the opportunity – it sounds like you raised one million in four days, but even drilling down more, you raised 450k in half a day, it sounds like. So my question is, the amount – let’s just call it that million bucks that you had four days from now; let’s put yourself in that situation – you’ve gotta raise a million dollars in four days… Is that million dollars all the equity that was required for the deal, or was that million dollars the equity required simply to close the deal?

Adam Adams: Super-good question, and there is  a good distinction. Let me respond by saying this is our second syndication, and because of that, we hadn’t yet learned a lot of the different costs that are associated with a syndication… So how much we raised wasn’t really how much we will raise on the next one that’s the same price. We probably would’ve raised at least another 100k, knowing about prepaid insurance, knowing about utility deposit… These expenses jumped at us. Even though we were taking an education through somebody who has had thousands of doors, they never really told us to prepare for that. So there’s a multiple answer to your question.

First off, we were allowed to raise up to 1,3 million, and we raised 1,28 million.

Joe Fairless: What do you mean you were allowed to?

Adam Adams: I mean that on the private placement memorandum there’s a maximum, so we can raise up to 1,3. And there was a minimum, but we raised more than that. If we needed to, we could have closed with $200,000 less than that (1,1), and then we just used our money for the rest of the syndication. So we would have been able to do that; I didn’t want to do that and I specifically, when I was making the calls, I didn’t allow myself the freedom of thinking that I could stop at 1,1. I just had to get the entire amount and then some, or else I felt like I was failing at it… So I just knew that I had to go with the whole amount. But like you asked, we could have legally gotten to 1,1, still closed; we would have had our money into the deal, just fine, and then we could have raised the last later. But we raised 1,28, which is basically 1,3 (I always round it). So we raised about the full thing, and then again, on the next deal, we will know better on some of the closing costs that kind of bit us in the butt, and we will absolutely raise at least those things that we found on that last deal.

Joe Fairless: And you mentioned a couple of closing costs – prepaid insurance and utility deposit… Anything else that stands out that was something that it was like “Oh, shoot, I’ve gotta account for this”?

Adam Adams: I don’t have it in my head right now, but those were the two big ones that we didn’t get. On the last deal before that we learned a few other things… But I’ve had a podcast simply on just all of the closing costs, I just don’t remember all of those… But there’s a lot that I think surprise new syndicators, so I’d always be very cautious to see if you can have a good mentor with you, somebody who’s learned the ropes or listened to Joe’s podcast… Or read your dang book; that book is crazy. I’m buying it today, Joe.

Joe Fairless: You haven’t bought it yet?

Adam Adams: I was planning on purchasing it before —

Joe Fairless: Interview over. Interview over.

Adam Adams: [laughs] I was planning on purchasing it before this interview, but I had a longer interview go on… And I’m dyslexic, did you not know that?

Joe Fairless: I didn’t know that.

Adam Adams: I’ve read one book, Joe. I’ve read one book. It was Rich Dad, Poor Dad, and it changed my life. Now I’m gonna get through your 400+ page book, and pay $50 for it, because I know the value is there.

Joe Fairless: Read it before your next deal, too. It will be helpful for you, before you put your next deal together. Well, thank you so much for being on the show, talking about a million bucks, four days… How many people make up that million dollars, by the way? You might now know the exact number, but roughly.

Adam Adams: There’s 20 people exactly that makes up 1,3.

Joe Fairless: Got it.

Adam Adams: So 16-ish, 17-ish is what changed in four days.

Joe Fairless: Well, congrats on that. You’ve got an event coming up?

Adam Adams: I absolutely do. We’re starting to promote it on your podcast. We’ve probably already heard a couple of them, and a couple more after this interview, but I would love if anyone wanted to join us… It’s a Raising Money Summit. It’s a two-day summit… I asked you, Joe; I said, “Hey, you’ve gotta come here.” It sounded like you wanted to; I’ll take you at your sincerity that you did want to…

Joe Fairless: I did.

Adam Adams: But you have a baby coming out – not from you, but from your wife – around the exact same time as the event… This is the first annual Raising Money Summit, 2018, and then I hope that you’ll accept my invitation to come to the next one.

Joe Fairless: Cool.  And what are the dates of it?

Adam Adams: November 17th and 18th.

Joe Fairless: November 17th-18th. I imagine it’s in Denver?

Adam Adams: It is in Denver. Everything I do is in Denver. If I can not travel, I will.

Joe Fairless: Alright. Well, it sounds like a great summit, and I’m grateful for the invitation. I’m sure there will be a lot of value for those who are able to attend and do not have the arrival of their first child during that timeframe.

Well, thank you, Adam, for being on the show, talking about the psychology and how you approach the conversations… And then we took a step back and talked about the psychology and how to approach conversations regardless of if we’re talking to syndicators or not… And the importance of caring about the questions you ask and the responses, and listening to those responses, because it’s so much easier to have a conversation when we listen, because then we can bring up relevant things to them based on what they were talking about; it’s a breeze, and it’s fun, because when you get someone talking about something they care about and they get passionate… And who doesn’t wanna talk to a passionate person? That’s fun. Those are good, lively conversations.

Thanks for being on the show. I hope you have a Best Ever weekend, and we’ll talk to you soon.

Adam Adams: Thank you.

JF1503: Locate Your Major Revenue Stream And Take It Wherever You Want with Evan Hoffmann

Evan has a very interesting take on how investors and entrepreneurs can take control of their revenue streams. He is an investor himself and also consults others with their businesses. Hear what he has to say about what he calls a value proposition pricing scheme and how it relates to multifamily investors. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Evan Hoffmann Real Estate Background:

  • Principal & Chief Strategist of Incisive Solutions, providing revenue growth strategies to the multifamily industry
  • Has been employing optimization techniques and helping companies grow revenues for 20+ years
  • Based in Denver, CO
  • Say hi to him at https://www.incisivesolutions.org/

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Best Ever Listeners:

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

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

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


TRANSCRIPTION

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

With us today, Evan Hoffmann. How are you doing, Evan?

Evan Hoffmann: Doing great, Joe. Thanks for having me on.

Joe Fairless: Well, I’m glad you’re doing great, and it’s my pleasure. A little bit about Evan – he is the principal and chief strategist of Incisive Solutions, which provides revenue growth strategies to the multifamily industry. He’s been employing optimization techniques and helping companies grow revenues for over 20 years. Based in Denver, Colorado. With that being said, Evan, do you  wanna give the Best Ever listeners a little bit more about your background and your current focus?

Evan Hoffmann: Sure, absolutely. When I said that I’ve been employing optimization strategies for 20 years, I’d almost simplify to say that I’ve been pricing somebody’s widgets for over two decades. I first started out in the car rental industry, pricing cars for the Hertz Corporation and a few others, and then moved on to other facets of hospitality, both hotel and in cruise lines, and I’ve been involved in multifamily both at the REIT level, and then also on my own as a consultant for the past 11 years.

Basically, what I do is I help multifamily owners, operators, investors, developers and redevelopers to find and locate where the revenue streams are and where they wanna take them. That can mean all kinds of things, based upon the individual needs and what it is that keeps these folks up at night.

Joe Fairless: Will you give us a case study of just one group or a person you worked with, just so we can have a sense of what you did?

Evan Hoffmann: Sure, absolutely. In one example I had this one client that owned a 156-unit apartment community that they had just done a value-add kitchen and bath upgrade on on most of the units… And the issue with them is they had a sense that they were leaving money on the table, that perhaps they weren’t positioning themselves in the right way from a pricing perspective, and also from a marketing perspective. The one leading indicator of that was that they were still [unintelligible [00:05:00].29] pre-lease a month and two months out at nearly 100%. That for me is a red flag, saying that there is an awful lot of upside opportunity from the pricing side of things.

They were also concerned about that they had invested so much money in the product, they were also looking to upgrade their demographic. So what I was able to do was to go in and create a value proposition pricing schema across the unit types and the different amenity variables within those unit types.

As an example, something on the second floor with a courtyard view may be priced a bit higher than something that was ground floor, closer to the street… That kind of thing, so that as folks came in and looked at it, they could see the value proposition and were willing to pay a higher amount for  a premium located unit, even though the interiors of them were identical. That’s just one example.

Joe Fairless: Let’s talk about that a little bit more in detail, and then we’ll go to another example, because I think this is a good way to guide our conversation, just to go through these examples.

Well, let’s see – value proposition pricing schemes… That sounds like something — other than their investment in you, it sounds like something that they didn’t have any out of pocket costs for. Is that accurate?

Evan Hoffmann: That’s absolutely correct. They’ve already done the upgrade on the place, they’re then bringing me in to bring a fresh set of eyes in. Sometimes there is an RO without the I. You don’t necessarily have to have the investment without getting a return and getting a [unintelligible [00:06:29].16] revenue stream. This isn’t always going hat in hand and going to cap-ex.

Joe Fairless: Should every multifamily owner do that, the value proposition pricing scheme based on where the unit is, and views, and that sort of thing?

Evan Hoffmann: Yeah, 100% of the time. It’s interesting, I get into conversations with folks and they think that that’s relegated only to an A product… But there are ways to create variables and variations for A products, B products, C products, high rise, mid rise, [unintelligible [00:07:00].10] There are lots of different ways to skin the cat and ways to look at it, so that then you can offer surely the right product, to the right customer, at the right time, for the right price.

Joe Fairless: What product was this 156-unit?

Evan Hoffmann: This was a product that went from a C+ to a B, or so…

Joe Fairless: Okay. And what were the different pricing variables or tiers?

Evan Hoffmann: Sure. This was garden-style, but there were floor differentials. Based upon the demographic – and that’s a whole other conversation we can talk about on a tangent… But based upon the demographic, this was a younger demographic, so the higher floor commended a larger premium, and we’ve discerned that by looking at how many days vacant the ground floor units were, versus the second floor, versus the third floor. The third floor units were the quickest to turn, the ground floor units were the slowest to turn… And there were younger folks that were kind of workaday folks, rather than folks that were in the older end of the demographic scheme.

Joe Fairless: Did I hear you say the ground floor was the slowest to turn?

Evan Hoffmann: That’s right.

Joe Fairless: But you charged a higher premium on the higher floor?

Evan Hoffmann: That’s right. Sorry, the quickest to turn – to move in. I apologize if that wasn’t clear.

Joe Fairless: Oh, okay. Got it.

Evan Hoffmann: Yeah, not turn time; move out to move in.

Joe Fairless: Okay, got it. I’m with you now.

Evan Hoffmann: So we were able to do this for all units in the building. The next piece was to look at proximity to parking, because there is a premium, as long as we’re not talking about street parking… But talking about parking whether there’s reserve space, or it’s simply first come first served… Based upon the ability to carry groceries, then get in and out, convenience, especially in winter climates; Denver, although it’s a lot nicer than certain other parts of the country, it really has severe winters… That also has a piece.

There were some units that had [unintelligible [00:08:46].04] so they got a premium. And then quite frankly, on the other side of the spectrum we had a few units that unfortunately overlooked the dumpster area. The owner did the best to mask with fencing and so forth, but it was still not exactly up to snuff, so we actually put a negative amenity value on that, bringing it slightly below the base we were playing with.

Joe Fairless: Okay.

Evan Hoffmann: So that created a total stratum of price points, even within the same  — whether it was a one-by-one box, or a two-by-two box. Each of those had enough variables to create a real value proposition.

Joe Fairless: What percent qualified for an upgrade in rent from the standard rent, would you say?

Evan Hoffmann: In that particular case, because there wasn’t a huge differentiation here, because all the units had been upgraded except for a handful — based upon the kitchen and bath rental, those upgrades were about $180-$250, and then the variables between floors and proximity, that added maybe another $100. So using three times the rent, almost everybody qualified for any of those. There were very few that couldn’t qualify for a top floor [unintelligible [00:09:57].19] that did qualify for a ground floor bare bones type.

Joe Fairless: Okay, got it. What’s the reason why the owned would do a decrease in the rent if it overlooks the dumpster, because it seems like they could get away with not having decreased rent on one unit. What we found is that there were 2-3 units that qualified for this, and the vacancy loss on those was excessive relative to the others. If you had a 600 square foot one-bed one-bath, pick the floor of your choice, and one looked at the dumpster and one didn’t, then the dumpster [unintelligible [00:10:32].27] each and every time.

We’re not talking about a lot of money. On $1,500 rent you bring it down $50. The other benefit of that is having loss leader pricing. That is available all of a sudden; from a price point perspective, you may be competing or have an advantageous position to compete with someone else, and then you do the offer [unintelligible [00:10:52].17] showing them the upgraded pieces.

Joe Fairless: And will you elaborate on what loss leader pricing is?

Evan Hoffmann: Loss leader pricing is that you advertise the lowest price available unit. If you have one unit that’s $1,300 and another unit that $1,600, you either advertise whether you have a website or don’t have a website, whether you’re using [unintelligible [00:11:11].01] simply posting on Craigslist or on Zillow, you post the individual units and that lost leader puts you into a different straddle when people are searching with price ranges.

Often times on many of these places you’ll be able to put in a price range that you wanna pay as a renter. So by having that loss leader pricing, you will show up in more searches if it’s below a certain level. If you have 20 people that are shopping $1,300 to $1,500, and you have another 10 that are shopping $1,250 to $1,500, and now that loss leader is at $1,250, all those other folks now find you. That’s the benefit of loss leader pricing – it increases your vision, your scope, and hopefully your gust cards.

Joe Fairless: Let’s pretend that a Best Ever listener is listening to this and he/she is like “I love it. I’m going to hire Evan, if he’s available.” I know you’re the principle in two [unintelligible [00:12:06].29] at your company, but let’s just roll with this… “I’m gonna hire him.” What is the process — well, I’ll give you a leading question, because I think I know the process starting out, but I’d love for you to fill in the gaps. When you get hired to do another 156 units, is the process first you review the historical vacancies for each unit, and also review the competitive set to see what the [unintelligible [00:12:32].09] to increase rent, and then you take a look at the property itself, tour it, and then you come up with the different categories for how you could increase rent for each of the different types?

Evan Hoffmann: You pretty much hit the nail on the head, Joe. The way I like to do it is I actually prefer to go out and look at the concept first. I’ll identify some folks online, I’ll also check the neighborhood, but then I will go and actually do a ghost shop, where I will create a persona of myself, saying I’m looking to rent… And I will shop three or four of what I determine are the main competitors, because I wanna understand what they’re offering… Not only from a bricks and mortar perspective, but also what they’re offering from a customer service perspective; what does the chain look like? How do they engage me? What are the questions that they’re asking me?

Then and only then will I actually go on site, to my client property, because then I can go “A-ha! Here are the advantages, here are the disadvantages.” How do we play up one? How do we minimize the other and then work with both the nuts and bolts of going through the rent roll, but also talking to the team.

An important aspect of this, because we are so reliant on the team on the ground in this industry, perhaps more so than any others, from a pricing perspective, is understanding what their mindset is, and how they feel about the product, and quite frankly, how they’re delivering services and how they’re talking to folks.

Joe Fairless: What are some questions that you would like to be asked when you’re ghost shopping, if it’s an exceptional experience?

Evan Hoffmann: If it’s an exceptional experience, I want some of that to really get down to asking me what it is that I’m looking for, and really define what that means. When I tell somebody “Yeah, I’m looking for a lot of room”, if they simply go to the biggest unit on the property, then they haven’t really done the full discovery. “Evan, when you tell me that you want space, what does that mean for you? Does that mean that you need a big kitchen because you’re a cook? Does that mean you need lots of closet space because you need storage? Are you worried about your furniture?” I want them to walk me down the garden path. In an optimal situation, they’re not giving me a quote for more than two units in the building. If they’re giving me a quote or a price point or fliers on more than two units, then I walked away without them finding out what it is I really need.

Joe Fairless: I would have shown you the biggest unit. [laughs] I’m glad I’m interviewing you, because I’m improving my skillset during our conversation. Okay, that’s really good stuff. After you go shop the competitors, do you have an opportunity to go shop the property that hired you?

Evan Hoffmann: That depends upon the client, whether they feel that there’s a need for that or not… Because at the end of the day, I wanna do this in kind of a collegial [unintelligible [00:15:15].21] working in collaboration with the client. Half of them will say “Absolutely, please go shop and then we’ll introduce you afterwards”, and others want it to be just an organic conversation that we go on there. And I understand both sides of it.

Joe Fairless: What’s more effective?

Evan Hoffmann: It’s better if I get to go shopping first.

Joe Fairless: Okay.

Evan Hoffmann: Because then they’re no longer on stage. Now they are in their natural state.

Joe Fairless: Got it. So you look at the competitive set, you go shop, you review the historical vacancies, and then you come up with the different categories that you can increase rent based on proximity to pool, or whatever?

Evan Hoffmann: That’s correct. The first thing we have to do is determine what base floor plan rent is, and what I mean by that is “What’s the price for the box before it has any of these other structures?”, so that every single 600 square foot one-bedroom one-bath starts off at a single price point, call that $1,000. Then you add on your other layers; the other layers are “What is the amenity value at the property level of being close to a pool, close to parking, having a better view etc.?” and then going in and literally walking as many units as possible, at least within proximity, to then get sight lines, so that you can then assign that amenity value to the unit that has the base floor plan rent, so you have those building blocks that then create a market rent for the individual units.

Joe Fairless: What’s another case study?

Evan Hoffmann: Another case study was a smaller property where the first thing that they had to address in my estimation as I looked at it was the lease management curve. It was a smaller building, somewhere under 50 units (42 or so), and literally, 50% of the units were expiring in February and March. What that did was that put an inordinate amount of pressure on renewal and retention in those two months. That mean they likely could not ask for a renewal increase with that much potential exposure, or at least couldn’t ask for what the market would bear, let’s put it that way.

And then the next bit of business is if those people left at 50%, now all of a sudden you’ve got 10 units you have to rent in a 40-unit building. Holy catnap, that is an awful lot of inventory. You’ve just created your own supply problem.

Joe Fairless: Did I hear you say “Holy catnap?”

Evan Hoffmann: You did hear me say “Holy catnap.”

Joe Fairless: [laughs] I will use that for the rest of my life.

Evan Hoffmann: Feel free.

Joe Fairless: Okay, so what did you with this problem?

Evan Hoffmann: What I was actually able to do with them was I first started working on resident retention. And what I suggested is that we begin to offer either short-term leases or very long-term leases to those people that were the farthest below market. So if the market after doing the market study was, let’s call it $1,500, and those people that were still paying $1,200-$1,300, we would go to them first and offer them 4, 5, 6-month extensions at a flat rate, or we would offer them 16, 17-month extensions at only a 1% or 2% increase to reposition them into peak leasing season.

Joe Fairless: Okay…

Evan Hoffmann: Once we were able to solidify that, we minimized the damage. That’s the first thing we had to do. Because my strategy is always you’ve gotta talk about resident retention and renewal pricing before you talk about the sexy stuff of new lease pricing and sales, which is where people usually go first.

Joe Fairless: Yeah, that’s so smart. So the key there is you’re repositioning their lease to end during peak leasing season, which also gets away from the masses at this property, when their lease expires.

Evan Hoffmann: That’s exactly right. Peak season means a lot of different things based upon the market, the submarket, and even the unit size. A studio will have a different expiration curve than a two-bedroom will, particularly if it’s located nearer to a university, more in the burbs… There’s lots of variables into just expiration as opposed to “Okay, Memorial Day to Labor Day.” There’s an awful lot more to it.

Joe Fairless: Anything else as it relates to either one of these two engagements that you had that we should talk about, that we haven’t discussed already?

Evan Hoffmann: Well, I think the big piece of that, Joe, is that you’ve got to know from an investor perspective, because an awful lot of your folks are investors and looking to invest, or looking to invest more – it’s doing your due diligence upfront, understanding what it is you’re looking at, and really digging into your rent roll. It may have been had this person realized that 50% of his leases were expiring in the winter months, maybe there was a better price to offer by bringing that tension to the seller.

The other bit of business (and you brought up) is saying what people qualified at the various price points; before you venture  into any type of capital expenditure, the first thing you should know is what percentage of your current resident base, based upon three times the rent when they moved in, would be able to afford the new target ones… Because then you know your exposure before you begin that process.

Joe Fairless: If the 40-unit – let’s say instead of those leases expiring in February and March, let’s say peak rental season in general, for this property, is April/May. If all 40 leases were expiring in April and May, how would you approach that?

Evan Hoffmann: That’s actually not a good story either, because at the end of day, you just took peak leasing season and flattened it. Because you still had so much supply at any one given time, what I would try to do is striate it out across the 12 months, and almost make it look like a pyramid… So that you’ve got the fewest number of leases – onesies, twosies in January, February March, and October, November December, and then work your way up to, say, June as being the highest pinnacle of that. So you would still have to reposition those, because all 40 expiring at once still really puts you behind the 8-ball.

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

Evan Hoffmann: Probably the best advice is really understanding what it is you’re buying. And when I say that, I mean if you’re buying less than 100 units, you’d better be looking at every single lease, and all of the different line items, because you could be looking at something that is wonderfully occupied, has great rates, and then all of a sudden you dig into it and you have 25% of the folks that a) never should have qualified to be there, you may have a behavioral problem besides an economic problem, and/or there’s all kinds of things going on in the ledger, where they’re actually not paying what it looks like they’re paying. So at the end of the day, you absolutely have to know what it is you’re buying.

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

Evan Hoffmann: Sure, let’s do it.

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

Break: [00:21:52].02] to [00:22:36].08]

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

Evan Hoffmann: Best ever book I’ve recently read… That’s a tough one. If I’m gonna relegate it down to the best ever business book, that’s simple – The Art of War, by Sun Tzu. It’s an ancient Chinese book literally on warfare, but there are so many aspects of that that you can bring into how to conduct yourself in business. It’s extraordinary actually how one is able to look at the basic principles of that and apply it to a business method… About the way, the terrain, how to win victory without going to war.

As an example, if you’re competing with someone down the street, maybe there’s a way for both of you to win/win, because you’re going after a different demographic. So before you start dropping price and cratering the marketplace, take a look and maybe even have a conversation with your competitor down the street.

Joe Fairless: What’s an example of a project that you initially took on, and despite whatever you tried to do, it just didn’t pan out?

Evan Hoffmann: The one example in my head had to do with change management, and that’s a big piece of the pie. If you’re gonna go in and restructure this whole thing, you have got to be able to get buy-in from all the stakeholders… Whether that’s the partners, the owners, the operators, all the way down (quite frankly) to the frontline staff, whether it’s maintenance, leasing, or the on-site manager. If they don’t believe it, as soon as you walk away, they’re gonna revert to [unintelligible [00:23:55].08] and they’re not gonna go by the guiding principles. So change management is a huge piece of that, so people understand the Why behind the What in the change.

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

Evan Hoffmann: I give back to the community, I volunteer with the Denver  Dumb Friends League, which is one of the largest animal rescue facilities in the United States. I donate my time, I also do fundraising stuff for them… I work with educating the youth of Cambodia, I do some fundraising stuff for them – a friend of mine turned me onto that – and then I also work with Freedom Service Dogs, where they take dogs that have been rejected by everyone and actually turn them into service animals for vets.

Joe Fairless: How can the Best Ever listeners get in touch with you and learn more about what you’re doing?

Evan Hoffmann: They can certainly go to my website, which is www.incisivesolutions.org, or you could find me, Evan J. Hoffmann, on LinkedIn. I also have a business Facebook page for Incisive Solutions and under Evan J. Hoffmann. So a lot of different ways you can find me.

Joe Fairless: Is that business Facebook page active with tips and stuff, or is it more of a storefront?

Evan Hoffmann: It’s more of a store front. I do post articles and comments on them. If I see something interesting in one of the 20-25 different markets around the U.S. that I work in, then I will post that for the contacts and readers to see, and then put a comment on whether I agree/disagree, or just simply put it out there as fact-based.

Joe Fairless: Great stuff. I’m so glad that you were on the show. Best Ever listeners, if you want to add value to your property without any money out of pocket, then look at value proposition pricing; we talked about how to do that, the three steps for doing so – look at the competitive set, go shop them, and know what your baseline rent is. Then two, ideally, go shop the property that you’re serving, or at minimum have a conversation with them, walk the property etc. and then three, review the historical vacancies for each particular unit (there’s the key there, each unit), and then you can establish some premiums and increase the value of the property without putting any money into it.

Then secondly, if you’re looking at a deal with leases that expire within the same month or two, that’s a problem, and as Evan described to us, the reasons why, and how to reposition them into the peak leasing period of time, and that’s the key there. Really interesting stuff.

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

Evan Hoffmann: Thanks so much, Joe. You too.

JF1463: From Boots-On-The-Ground Investor To Private Lending & SDIRA Expert with Chris Tanner

Chris was flipping houses and owned some rentals. He realized that he wanted to be more hands off and also loved helping others get involved in real estate. Now, he lends privately as well as helps people with self directed retirement plans. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Chris Tanner Real Estate Background:

  • Business Development Manager at New Direction IRA
  • Specializes in helping people use self-directed retirement funds for real estate investments
  • Author of “Beat the Traditional Retirement System”
  • Based in Denver, CO
  • Say hi to him at https://newdirectionira.com/home or ctannerATndira.com
  • Best Ever Book: Invest in Debt

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


Best Ever Listeners:

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

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

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

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


TRANSCRIPTION

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

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

Chris Tanner: I’m doing great. How’s it going today, Joe?

Joe Fairless: It’s going really well. Nice to have you on the show. A little bit about Chris – he is the business development manager at New Direction IRA. He specializes in helping people use self-directed retirement funds for real estate investments, and he’s the author of “Beat the Traditional Retirement System.” Based in Denver, Colorado. 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 Tanner: Yeah, of course. I’ve been involved personally as a real estate investor since about 2006. I mostly was involved in single-family, rental-type properties. More recently, personally, I’ve gotten into the private lending business… But I took a special interest in utilizing self-directed retirement accounts to help people invest in real estate. So I’ve done it both personally, I’ve also owned a company, which specialized in self-directed or solo 401-K plans, and I’m now working at a company that offers any sort of self-directed retirement plan you can imagine, we offer it… So that’s where my specialty lies.

Joe Fairless: Cool. Well, I believe I know where we’re gonna focus our conversation then, and it will be helpful for a lot of the Best Ever listeners who have those retirement accounts that they can tap into for real estate.

You said you owned a company and now you work for a company, so how come you don’t own that company anymore?

Chris Tanner: I was kind of a one-man band, and what I found is as time went on, being involved in accounting, marketing, bill collecting, promotions and helping set up plans – I was wearing too many hats… So I had a good opportunity to kind of merge my business with another business, and really focus on what I’m good at, and that is helping people with advice and doing the correct things with their self-directed retirement plans, and kind of the backdoor stuff – the bill collecting, and those types of things that I didn’t have a passion for; I don’t have to do those anymore. Hopefully that makes sense.

Joe Fairless: Oh, it will help you live longer as well, to be focused on things that you enjoy and that you’re good at. What does a typical client come to you saying, and what is the typical result, assuming that things go according to plan, based on how you envision them?

Chris Tanner: For your Best Ever listeners, this is really for people that are just investigating self-directed retirement plans. I think a lot of people come in and they wanna invest in real estate… My advice is that you wanna be kind of specific. I think sometimes when people are new, they just have this broad definition of investing in real estate, and when somebody calls me, if they are specific and they say “Chris, I wanna invest in a single-family rental”, that helps me guide them and direct them to the best fit or the best product to match their needs.

If they’re just wanting to do private money loans, we might do something a little bit different for them… Because there’s so many ways, as you know, Joe, to invest in real estate, it really helps to be specific in what exactly is it you wanna do, or maybe even have a specific investment. So that would be my biggest thing, is that people have a good feel for what it is they want to do and how they wanna match that.

Joe Fairless: Please educate me on how investing in, say, private money loans versus apartment syndication or a single-family house would change what you recommend… Because I thought – and clearly incorrectly – that a self-directed IRA is a self-directed IRA, and then there’s not much more than that. I know there’s checkbook IRA’s and some other things, so can you elaborate on that?

Chris Tanner: Absolutely. I wanna give you two specific examples, and one of these was personal experience… When I bought my first single-family little rental property, I used a self-directed IRA, and I didn’t have enough money to buy this property outright, so I used leverage, and I got a loan from a bank… And within that IRA plan, what I didn’t know and I didn’t understand going into this deal was that when you use leverage, there’s something call UBIT (Unrelated Business Income Tax), and when you use leverage in an IRA, you’re subject to UBIT.

So what ended up happening is that meant I had to file an additional tax return called the 990-T, that cost about $500/year, and then I was fortunate enough three years later to sell this property and there was some appreciation. Well, what I learned was that when there were capital gains, you might actually be paying tax on those capital gains, even though it’s within a retirement plan.

The reason I share that story is that there’s a better way and a way I could have done that deal utilizing a Solo 401K. So the 401K – when you take title in a 401K and you use leverage, it’s not subject to the UBIT tax. So if I have somebody call me and say “Hey, I wanna buy a single-family in the name of the retirement plan”, obviously, I would say “Here’s some things to consider. I would suggest you might consider the 401K, simply because you can keep all of that capital gain within your retirement plan; you’re not paying that extra UBIT tax.”

So that’s one example of where we would wanna fit the investment to the most efficient or tax-effective plan, and shame on me, I learned the hard way, but I learned. Sometimes it’s easier to learn from somebody that’s made the mistakes previously.

Joe Fairless: That’s one of the reasons we do this podcast. That’s really interesting, thanks for sharing that. What about private money loans? How would you structure that?

Chris Tanner: The truth is with the private money loan there’s not a significant amount of difference when it comes to what kind of a plan you utilize… So the biggest thing I would have to figure out for folks is how quickly they need the money. Sometimes they need the money very fast; they might need check-writing ability, and the ability to process that a little bit faster, in which case a checkbook type situation might be a better fit, if someone’s wanting to do that.

In other words, they would be able to cut checks or process payments quite a bit quicker than if they used a custodian, for instance.

Joe Fairless: What are the main types of plans?

Chris Tanner: It’s a great question. What I would do is I would break it down into three categories. The first one I think is the one – and this is probably what you are familiar with – we just generically call a self-directed IRA. That’s a scenario where you have a custodian, and the custodian actually holds the money on behalf of the IRA owner, and what happens is the IRA owner directs the custodian to make an investment.

There are pluses and minuses to that. One of the pluses is the custodian is going to be looking at all the transactions, to make sure you’re not committing any prohibited transactions. So I think for newer investors, who aren’t as familiar with the product, that’s actually a good option, because they have a little more oversight.

And then you may have heard of what I would call checkbook IRA’s, or sometimes you’ll hear them called an IRA-owned LLC. This is still a self-directed IRA; the difference is that there’s an LLC typically that’s owned by the IRA, and the advantage to that is that it does give the IRA owner checkbook control. So they literally have a bank account with checkbook control, it’s just funded by the IRA… So it allows people to move quicker.

For example, if they were going to a tax deed sale, or maybe a  tax lien sale where they need to produce a check after the sale, that gives them that option.

Then the last type of retirement plan that’s in the self-directed world would be what I would call – and you’ll hear it called different things, but it’s a self-directed 401K. Sometimes you’ll hear it called a Solo 401K, or sometimes you’ll hear it referred to as a qualified retirement plan. This is a product that’s for people that have a small business, that they can affiliate that 401K plan to, but it is also a checkbook control type retirement plan. This is one that offers a lot more control, but it also comes with a lot more responsibility.

Within those three there’s different bits for different people, and sometimes people start with one and they may graduate to a different one based on their needs later on, which was what happened to me.

Joe Fairless: Are the self-directed 401K plans for small businesses exclusively, or do other people use them?

Chris Tanner: In order to establish the actual 401K, there does need to be a business entity of some kind in place… And when we say business entity, it could be anything from a sole proprietorship, to a C-corp, it could be a partnership… The form of the entity isn’t as important as the fact that it needs to, number one, be a legitimate, active business. So you wouldn’t wanna set up what I consider to be a paper business, where you just file the articles of organization, you pull an EIN number, but there really isn’t an underlying business. That would jeopardize your retirement funds.

You need a legitimate, active business, and the business needs to have active income. As long as you meet those criteria, it doesn’t matter if you’re a one-person business or a larger business, then you can self-direct that 401K plan that’s associated with it.

Joe Fairless: What’s a mistake that you’ve heard someone make, and then they come to you with having made the mistake and you’re like, “Sorry, buddy, I can’t help you out. You already messed up.”

Chris Tanner: Well, real estate investors, as you know, and I’m sure some of your Best Ever listeners, are creative people, and they’re very entrepreneurial. And what I would tell your listeners is when you’re using retirement funds, that’s not the time to get creative and try and work the system. So when we’re talking about retirement funds, the IRS has very specific rules about who you can invest with, and sometimes what you can invest in.

The biggest mistake I see is people commit prohibited transactions. In essence, what that means is they’re doing something with their retirement money that could jeopardize their self-directed retirement plan. So be creative when you’re using personal money or your business money, get as creative as you want, but with the self-directed retirement plans you really wanna look for what I would consider to be vanilla type stuff, that there’s no danger of any prohibited transactions.

Joe Fairless: What are the most common prohibited transactions?

Chris Tanner: The biggest one we see in real estate involves self-dealing. What the IRS basically says is that you can use retirement funds to invest in real estate, but you can’t personally benefit… So a real common example is someone might co-mingle their money. What I mean by that is let’s say somebody has a fix and flip; they go out, they buy the fix and flip in one of their business names, and then maybe they use their retirement plan to help with the rehab. Well, right there they’ve committed a prohibited transaction, and the penalty can be pretty severe. When there’s a prohibited transaction with an IRA, the IRS can actually distribute that IRA, meaning you no longer have an IRA.

So they either work with themselves, or they work with other people that they have businesses with… So they may not even know they’re committing a prohibited transaction, because they’re working with somebody that indirectly somehow benefits them… Or they can’t work with direct family members, like mom, dad, their wife, or their son, or their daughter. So you’ve gotta kind of keep the retirement funds separate from those prohibited individuals.

Joe Fairless: What’s maybe a story or example of a prohibited transaction that you’ve only seen once, and you’re like “Really? That happened?”

Chris Tanner: That’s a great question. Probably the prohibited transaction I can think of and it was unintended was a situation where a client gave a loan out, and did the loan in the name of a self-directed retirement plan… And loans are pretty safe, from the standpoint that you’re not out working on a property, you’re not doing anything, you’re just lending money.

Well, where things became tough and became difficult is this particular deal went bad. So it was a loan secured by real estate, and when the loan went bad, their only recourse was to foreclose. Well, the challenge that these individuals faced was that most of their money was tied up, meaning there was not really a cash reserve available, because unfortunately, if your Best Ever listeners have ever had to foreclose, you’re gonna have filing fees, you’re most likely gonna involve an attorney, so there’s some costs associated with this…

So this individual used their own money from their personal account to go ahead and pay the attorney, pay for some of the filing fees, because they just didn’t have the money in their retirement plan. Well, unfortunately, that’s a co-mingling. They should have paid for everything out of the retirement plan. So that was an unfortunate situation, so if I had an opportunity to advise that person before that happened, I would have told them “Let’s find a way to get some money into the retirement plan, and then pay for it out of the retirement plan.”

So they could have made a contribution to the retirement plan as a way to pay for it out of the retirement plan, as opposed to just paying for it directly out of their personal bank account. So that was one I wish we could have interceded a little bit sooner.

Joe Fairless: Man, it’s crazy… It’s the same money, it’s just how it flows. It can have major implications from a tax standpoint if you misstep.

Chris Tanner: It most definitely can, so my recommendation for your listeners, the Best Ever listeners, or our clients, is before you do something, pause and go ask somebody who knows. It’s always easier to ask; it might not be the answer you wanna hear, it might not involve doing the easiest thing, but it will certainly protect you from the IRS coming in and potentially distributing your retirement plan, which is the worst thing, one of the last things you would ever want to happen. So just get advice from somebody that knows.

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

Chris Tanner: For those with self-directed retirement accounts, find a competent custodian or advisor who can best match your real estate investing to the self-directed retirement account that you want or intend to use.

Joe Fairless: Amen to that, certainly! If you’ve got one — there’s too much regulation in place for us not to have a smart team member on our side with that. We’re gonna do a lightning round. Are you ready for our Best Ever Lightning Round?

Chris Tanner: Let’s do it!

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

Break: [00:19:07].11] to [00:19:54].15]

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

Chris Tanner: Interesting little book called Invest in Debt. The author is Jimmy Napier. A quick book that at first glance doesn’t seem all that great or powerful, but it’s one that after I read it and understood the power of the financial calculator and the power of being a banker has really shifted the way I invest.

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

Chris Tanner: What we’re doing right now. The way I love to give back is just through education and advice. I’ve been at this game for quite a while, both personally, as a real estate investor, but more specifically from the self-directed retirement side. So what we’re doing right now, Joe, is how I love to give back, especially when people are new to this arena. They really need somebody that they can go to to give them good, sound advice, because there’s all kinds of information out there – some of it is good, some of it is bad, and some of it can actually be poisonous.

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

Chris Tanner: There’s a couple of ways. You can find me on LinkedIn – just look for ChrisTanner1. I am the bald guy with glasses. The other way is by e-mail. The e-mail address is CTanner@ndira.com (ND stands for New Direction).

Joe Fairless: Awesome. Well, thank you so much for being on the show, Chris, talking about the three main types of plans: self-directed IRA, checkbook IRA and self-directed 401K, also known as Solo 401K… Telling the stories about some prohibited transactions, what happened to people, a more esoteric example, as well as what happened to you and what you learned, and perhaps how you got more and more involved in this space.

I’m really grateful… I’ve interviewed a lot of self-directed IRA experts, and I learn something new every time, and I certainly learned a whole lot from you, so I’m really grateful that you were on the show.

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

Chris Tanner: Thanks, Joe.

JF1461: Everything Needed For Agents & Investors To Generate More Business Through Social Media #SkillSetSunday with Justin Nassiri

Justin is here to tell us about how top agents use social media to generate their business. We’ll hear a lot of different tips for what to do and what not to do on social media. You might want to have pen and paper ready. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Justin Nassiri Background:

  • Chief Revenue Officer at Shotzr, which is like Uber for photographers
  • Founder of StoryBox, a social media marketing technology company that works with over 35 Fortune 500 companies
  • Host of Beyond the Uniform, the #1 iTunes rated podcast for military veterans’ career transition
  • Say hi to him at shotzr.com
  • Based in Denver, CO
  • Check out their research of how Top Realtors Use Facebook: https://www.shotzr.com/ebooks-top-realtors-use-facebook/

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Best Ever Listeners:

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

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

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

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


TRANSCRIPTION

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

Today, since it’s Sunday, we’ve got a special segment for you called Skillset Sunday. By the end of this conversation you will know how, when and what to post on Facebook as a real estate investor and/or agent. This is grounded in research that our Best Ever guest did on top-performing realtors and how they use Facebook. So it’s not just speculative stuff, it’s actually insightful stuff based on some secondary research.

With us today to talk about that, Justin Nassiri. How are you doing, Justin?

Justin Nassiri: Great, Joe. Thanks so much for having me on.

Joe Fairless: Well, my pleasure and thanks a lot for being on the show. A little bit about Justin – he is the chief revenue officer of Shotzr, which is like Uber for photographers. You can check out their website at, as I mentioned, shotzr.com. Also, are you the host of Beyond the Uniform, number one iTunes rated podcast for military vets?

Justin Nassiri: I am, indeed.

Joe Fairless: There you go, that is very cool. That is a much-needed podcast, too. I know a lot of veterans who have that as a question. It’s a podcast on career transition, so very cool. I’m thinking of a couple people in my life who I know, actually, could use some insight for that… But we’ll stay on task, and the topic today is how, when and what to post on Facebook as a real estate investor or agent.

First off, if you can tell us a little bit more about yourself and your background, that way we get to know you a little bit, and then let’s talk about the research that you did.

Justin Nassiri: Yeah, totally. So I started out at the Naval Academy, and then I served on nuclear submarines for about five years, and both of those experiences got me really loving numbers and really loving analysis, and I went to business school over at Stanford, and have been in startups since then… But I love to dive into these topics; I do that on Beyond the Uniform with information about veterans and what careers they pursue

With Shotzr, we work with a lot of realtors. Like Joe said, we’re Uber for professional photographers, so if you need a photographer to take listing photos or any sort of photos, you can book someone really easily, just like you would with Uber.

Because of our work with realtors, I just started tinkering with some data, and thought “I know that Facebook matters to realtors, but I personally don’t know how to go about doing that”, so I just took the approach of let’s find the top 20 realtors and agencies on Facebook, try to get an assortment of big, small and individual, and then I put all my assumptions on hold and literally just started looking at 12 months of data, thousands and thousands of Facebook posts… My goal was to figure out when should realtors be posting, what should they be posting and what sort of topics should they be talking about.

Everything that I’m gonna cover is also available in an eBook. I think that will be in the show notes.

Joe Fairless: Yup.

Justin Nassiri: But my goal today was just to make this as actionable as possible and just run down the list of what you can put to use today to start getting more engagement on Facebook, start selling more listings through social networks.

Joe Fairless: Excellent. First off, thank you for your service and what you did. My stepdad was on nuclear subs in the navy.

Justin Nassiri: Good man.

Joe Fairless: Yeah… It takes a special individual to go down underwater with a nuclear device.

Justin Nassiri: [laughs] It does.

Joe Fairless: How did  you define top realtors?

Justin Nassiri: I just try to be as simple as possible, and I really just type in “best realtors on Facebook” and derivatives on that. If anyone listening does that same Google search, you’re gonna probably arrive at the same people that I was studying. What I liked about — at least the things that came up in the top three searches is the authors of the articles tried to keep that balance between big and small. I wanted to avoid just looking at what a REMAX is doing; instead, let’s look at individuals, let’s look at the small agencies, and national ones… So it’s a pretty big [unintelligible [00:07:17].01] of size and type of real estate agency or realtor, but it’s ones that someone else had identified as the top-performing ones.

Joe Fairless: Okay, cool. How do we wanna approach our conversation?

Justin Nassiri: I’ll just dive in and just kind of stop me as things don’t make sense, or if you have questions or things to add, but basically, the starting point for me is I realized across the board that these top-performing realtors  – they’re posting five times per week; that’s mostly Monday through Friday, and that’s a tremendous amount of content if you’re trying to keep that pace consistently, which these top realtors were.

So the first thing that I look at is what type of content are they posting, and by that I mean “Is it a photo, is it an article that someone else has written, is it a video, or is it something else, like a GIF?” and what I found is that about one out of three of the posts across the board is an article.

They’re posting an article about interior design, or home financing, or gardening, or anything that would help out a home buyer or a home seller. That actually works pretty  well. That’s good filler content. But I found two things that stood out more to me instead of those articles, and the first one is that video really does well. Only 7% of the content that these realtors are posting is video… Which makes sense. It takes time to put together a video, it takes some extra effort, but what I’ve found is that those videos received twice as much engagement, and by engagement I mean a like, a share, a comment… Videos received twice as much engagement as articles.

The second thing that stood out to me is that photo is kind. Photos got four times more likes, shares and comments than articles, so the more visual you can be, either photo or video, the better. So just to make that actionable, two companies – I have no affiliation with them, but there’s a company called Wochit, and a company called Animoto, both of them make it pretty easy to put together videos. You could take photos and put in overlays… So if you’ve got that extra 30 minutes on a Saturday, it’s pretty easy now to put together for free or near-free these sorts of videos.

The second thing to make it actionable is the company I work at, Shotzr – we have a library of really local (hyperlocal) photos. So if you are looking for photos of local bars, or areas, or parks, or anything to kind of sell a neighborhood, you can get all of those images on Shotzr.

So that was kind of what we found about the type of content to post. The next thing that I started to look at in the research is “What should realtors be talking about?” I found a couple different varieties, and this is probably gonna make sense to anyone listening, but the common topics that people were talking about was about their listing, about the neighborhood surrounding the listing… A lot of inspirational quotes or inspirational pictures. There was decorating, there was advice, there was holidays, and just all sorts of different categories. So what I found when looking at these top realtors is that over 60% of the posts are about either a listing, or about a neighborhood. And if you’re doing that, keep doing it, because listings were the number one performing type of content. Neighborhoods were the number three performing content. That made sense to me. You’re selling a home, you’re selling a neighborhood, you really wanna use Facebook to be talking about that and making people aware of the listings in the neighborhood.

But what was really surprising to me was holidays was the second highest-performing type of post, and to put this in perspective, less than 4% of all posts were about a holiday… But when these realtors talked about a holiday, they’ve got almost as many likes and shares and engagement as a listing. So it seemed to me to be like a pretty easy win to get more interaction, to make things more fun with your audience… And I didn’t realize this until I found this out, but there’s so many holidays; last Friday with National Donut Day… There’s so many different types of holidays to try to make things interesting, and have it not always be about just selling to your audience. And again, just to make this actionable, there’s a lot of great content calendars out there that list these holidays. For Shotzr we have those as well; we’ll actually link at the photos, so if you are using us, we actually have thousands of photos of Donuts for National Donut Day. Little things like that can make it easy to post and engage with your audience.

Just to recap on that – listing and neighborhoods do really well, but maybe consider using a little bit more on the holiday front, because they tend to work really well, which is surprising.

Joe Fairless: The videos that you mentioned earlier – only 7% is videos, but they receive twice as much engagement as articles… Do you have a resource for easily creating videos? Well, you know what, maybe that’s just Facebook Live, or I don’t know… Do you have something else?

Justin Nassiri: You know, Facebook Live is great. There’s a service called Wochit, there’s one called Animoto…

Joe Fairless: Oh, those two. So you mentioned those two.

Justin Nassiri: Yeah.

Joe Fairless: Okay, I thought those were photos, but those are for videos?

Justin Nassiri: Those are for videos. When we classify something as video, I don’t have a number on this, but it wasn’t always a video of a property, it wasn’t always a video of someone talking… It was also the video slideshows. Maybe some music, maybe just photos, maybe some overlays. Don’t think of video as just “I have to get a videographer to go through this neighborhood or this house.” You can take photos and piece them together into a video, and that performs just as effectively as a standard video.

Joe Fairless: Okay, got it.

Justin Nassiri: And the one to me – and I think of everything I’m talking about, this is probably the most actionable, is when to post. I looked at so many different realtors and thousands and thousands of posts… Realtors are very, very consistent. They are posting five times a week, most of that is Monday through Friday, but the majority of their posts – and this is all localized, either the East Coast or West Coast, all of them are posting at 10 in the morning to noon. I don’t know what’s going on… Maybe that’s when they’re getting in, they’re getting all their online work done before going out for the afternoon, but 10 to noon is when every realtor is posting.

But this is the most conclusive one, that if you look at the posts that people are responding to, it is not happening 10 to noon. If you post 10 to noon, it’s not gonna get a response. It was orders of magnitude higher if a realtor made a post on Facebook between 7 PM to 8 PM. It does 3.5 times better than a post made at noon. 350% higher performance. Once I saw that, it started to make sense. The home buyers, the home sellers – that’s probably when they’re at home, they’ve just had dinner, and now they’re starting to look online, maybe talk with their family about this thing… But 7 to 8 PM was the highest-performing time.

In general, if you make a post between 5 to 10 PM, that will still out-perform all the posts made before 5 PM by over two times. So it’s twice as effective to post in the evening.

So just to catch it all for listeners – if you can only post once or twice a week, consider Thursday and Friday night in that 7 to 8 o’clock window. That’s the absolute best. But if you’ve got room to be doing this every day of the week, I would try to experiment to see what works… But if you don’t have time to experiment, do Monday to Friday, 5 to 10 PM.

The great thing about this is that if you’re listening, you don’t have to change your behavior. If posting at 10 to noon works really well for  you, just check out — and again, I have no affiliation with these companies… There’s one that’s called Meet Edgar (meetedgar.com), and there’s also HootSuite, which I bet a lot of people are familiar with… What each of these allow you to do is on a Friday afternoon, when it’s quiet, you can go in and you can tee up all your posts for the next week, and you can tell each of these “Hey, I wanna post in these specific times.”

That way, you don’t have to be in front of your computer in the evening. If you’re out showing listings, you can continue to do that, but HootSuite or Meet Edgar will be posting for you at those times.

Joe Fairless: What I use is SmarterQueue. It does the same thing.

Justin Nassiri: Oh, SmarterQuee. Great. This is one too where there’s probably so many of these that if you just googled around and you’re like “social media posting” or “auto-post to Facebook” there’s probably a dozen, and honestly, the functionality in my opinion doesn’t make a big difference… So just go with whatever is free or near free, and maybe that’ll make your life a little bit easier.

Joe Fairless: Something you said earlier – top-performing real estate agents post five times a week, Monday through Friday… Why not the weekend?

Justin Nassiri: It’s a good question, and you may have a better answer to this than me. I’ve been thinking about that… But in the eBook it shows the graph; I’m just pulling them up right now. It’s literally about a third, it drops down. Monday through Friday are pretty consistently for posting volume, and then it drops in a third on the weekend.

I think it’s worth posting on the weekend… I’m guessing that that’s, again, when home buyers and home sellers are maybe at home, looking on their devices… But if you have room to experiment, dabble with that. But if you’re busy and only have time to do 3 to 5 times a week… I’m just a betting man; I’d put my bet on that Monday through Friday, just because the performance drops off on the weekends, too. It’s about a third to a half of what it is during the week.

Joe Fairless: Anything that we haven’t discussed as it relates to how, when and what to post on Facebook as a real estate agent, or that’s applicable to investors that we haven’t talked about already?

Justin Nassiri: Let me just think here… So, I empathize because for my podcast I try to do social media posting; it’s so difficult to make the time to do this. So when I say five times a week, I’m realizing that may sound simple, but it really is a Herculean undertaking; it just takes so much willpower to do that.

I would just say for listeners if you’re not active on Facebook, commit to a two to four-week period. You don’t have to commit to do this a year, but try following this advice, see if it works with your audience. Look at things like your number of followers, look at things like what really matters… People who are inbound, trying to sell their home, or trying to buy a home – see if it makes an impact.

After a month, if you don’t see an increase in your audience, if you don’t see an increase in your activity, it’s not for everyone; you don’t have to do it. But I just have a strong hunch, based on looking at these thousands of posts… I’m gonna go out on a limb and say this is gonna be beneficial to most every realtor. And the other thing is your competition is doing this. You can do it better, you can do it more effectively, and it’s a way to stand out.

Of course, I’d be remiss if I don’t mention the company that funded all this research – the company where I work, Shotzr. We exist to give you quality photos. So whether it’s photos of holidays, or photos of neighborhoods – all of that, it works like Spotify,$10/month. You can use as many photos as you’d like. Then if you do want a professional photographer to come out to your listing and take some photos, it’s about $100 if you’re around the United States. We’re actually around the world, but we can go out and make a professional photoshoot happen for your listing, and that might give you a little core content to post on Facebook, too.

Joe Fairless: That’s excellent. $10/month for unlimited photos to post on Facebook and social media?

Justin Nassiri: Yeah. And there’s so many little things, too… You get your monthly content calendar, so you know a couple days in advance it’s National Day. Maybe you wanna throw out a listing that day, but maybe you wanna throw out a fun photo, just to be engaging with your audience.

We’re trying to make it as simple as possible to find the type of photos that you would post to Instagram or Facebook, and not the type of stock photos you might see on other places.

Joe Fairless: Excellent. It’s quality stuff. I’m grateful that you were on the show, I’m grateful that you shared the study. Very smart from a business standpoint. You or your team – I can’t remember – reached out to me, and usually I disregard the requests, because we like to handpick our guests, but you added so much value, and you approached in such an intelligent way, just from a business point… Your company – you sell photographs, so you thought “Let me proactively add value and [unintelligible [00:20:29].01] add value by doing a study and seeing what comes of it, and it ties in beautifully.

We learned about your company, but also learned about how we can be more successful as real estate investors, so… Props to you on the study, number one; number two, thank you for these useful insights. Video does well, photos get four times more likes, shares and comments than articles. Holidays are the second highest-performing post; maybe tie in some holiday posts or information with the posts that we do… And 7 to 8 PM has 3.5 times more engagement; ideally Thursday and Friday nights are the times and days to do it… And if not, then somewhere between 5 to 10 PM. You gave us some tools to use to help automate the process or create the process.

Thanks again for being on the show. The best way the Best Ever listeners can get in touch with you is how?

Justin Nassiri: E-mail is great. I’m  Justin.Nassiri@shotzr.com. LinkedIn – you can send me a message. You can try and find me on Facebook as well. Joe, I really appreciate being on the show.

As a fellow podcaster, to see that you’ve done over 1,300 episodes, it’s really difficult to comprehend that… I just love the sheer volume and the quality of work that you’re putting out. It is a sign that you are hustling and working hard, and really adding a ton of value to this community… So thanks for having me on.

Joe Fairless: Thanks a lot, Justin. I really appreciate it. I hope you have a best ever weekend, and we’ll talk to you soon.

Justin Nassiri: Sounds great, thanks.

JF1372: How The BiggerPockets President Divides His Time & Invests In Real Estate with Scott Trench

As the BiggerPockets president, Scott is a very busy man. Add his own real estate investing to that and he is working like a mad man! Having the advantage of one of, if not the greatest real estate investing education website, Scoot has been able to put together a tremendous investing strategy, mainly house-hacking. Hear why he loves this strategy and how he uses it in his business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Scott Trench Real Estate Background:

  • President of BiggerPockets
  • Owns properties in Denver where he also house-hacks
  • Author of Set For Life
  • Helping people achieve financial freedom so they can live on their terms
  • Based in Denver, CO
  • Say hi to him at biggerpockets.com
  • Best Ever Book: The Millionaire Next Door

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TRANSCRIPTION

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

Scott Trench: I am doing great. How are you doing, Joe?

Joe Fairless: I am doing great, and nice to have you on the show. I’ve heard a lot of great things about you from mutual friends of ours, and I’m looking forward to our conversation. A little bit about Scott – he is the President of BiggerPockets.com. We don’t even need that .com in there – Bigger Pockets. Everyone knows Bigger Pockets. He also owns properties in Denver, where he house-hacks. He is the author of Set For Life, and he is based in Denver, Colorado.

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

Scott Trench: My passion, I guess, is financial freedom, and I started out my career very passionate about it, having worked at — I started my career at what was rated as the worst company to work for in America… You can look that up for 2012 if you wanna figure out what that company was. So I actually was more interested in financial freedom at first than real estate, so I called it Mr. Money Mustache, which is a blog on frugality, and it’s popular in the financial independence community…

Joe Fairless: Sure.

Scott Trench: …and I wanted to be a little bit more aggressive though with my investments than the kind of standard index fund strategy that a lot of financial independence authors and blogs talk about… So that’s when I started reading and following Bigger Pockets. Basically, the first major step that I took towards moving towards financial independence was a house hack. I’m sure that that’s been talked about many times on your show here.

For me, that concept was I bought a duplex in North-East Denver for $240,000. I put down 5% or $12,000, and moved into one unit. The numbers here – my mortgage was $1,550, and my rent from the other side was $1,150, and then I had $550 from a roommate on my side. There were two 2-bed 1-bath units. That was how I got started on my journey at around 23-24 years old, with this duplex purchase, living with a roommate, and renting out the other side… Basically, living for free, operating the property myself and doing some work on it.

I saved up the money for that down payment over the course of the first year of employment, and put that down… So yeah, a pretty straightforward path there. From there, the Denver market has been pretty hot, and I was able to buy a second duplex, and now I have a quadplex. So I’m going on this kind of slow and steady path towards real estate accumulation, where I purchase kind of once every 12 to 18 months… So I’m not buying aggressively and over-extending, but I’m still able to capitalize on leverage, keep it passive, and go on this journey over the course of the next several years.

Joe Fairless: Do you still have the original duplex?

Scott Trench: I do have that duplex. It has appreciated remarkably over here in Denver since 2014, which is kind of  a nice stroke of fortune there. It’s going well, it’s cash-flowing, and I’m probably gonna raise the rents a little bit more this summer, but otherwise, it’s operating as always.

Joe Fairless: What’s it worth now?

Scott Trench: I think it’s probably worth around 400k-430k.

Joe Fairless: Okay. And with the 400k-430k range – you bought it for 240k, you put 5% down, so $12,000… So it’s safe to say you have some equity in it. Are you planning on getting that equity out through some sort of refinance?

Scott Trench: That’s a really good question. My plan going into this was basically — I’ve made all these fancy models; I’m a spreadsheet guy, so I have a financial modeler… A financial forecaster was my profession prior to Bigger Pockets, and it’s still something I do here at Bigger Pockets when I’m running the finances… But basically, my plan called for buy one every few years, because when you’re buying leveraged real estate, your return on your equity position diminishes over time. If I buy a $100,000 property with $20,000 down, my best returns on a return on equity standpoint are coming in the first few years… Because a 3% appreciation is a 15% return on that $20,000 down. But as you deleverage through the process of amortizing your loan, and your property is appreciating, your expected return on equity diminishes. So if I expect now, in the future, for Denver to have an average appreciation of 3%, 4%, 5%, then yes, my return on equity is gonna diminish. And I have this problem much sooner than I expected to have it because of the hot appreciation that Denver has seen over the last 4-5 years.

So the answer is I’ve gotta start looking at an idea of how to releverage, or a 1031 exchange and put it into another property. That’s a good problem, right? We all wanna have this problem, of having the investment work out sooner than you expect. But what my problem is, which is interesting, and you’ve just pointed it out – I’ve bought a great investment property, that produced a great return for me, and now it may not be a good return; it may not be something I would buy today, from an investment perspective.

Joe Fairless: With you being a spreadsheet guy, how will you assess whether you should releverage through a refinance, or sell into a 1031 exchange?

Scott Trench: So the problem I have right now – things have been pretty hectic here at Bigger Pockets over the last six months, so I haven’t given as much thought to my real estate portfolio, I haven’t done this assessment. So you’re reminding me right now of my laziness, and I’m gonna have to [unintelligible [00:06:20].25] for this show.

The way I figure it out, philosophically, is if you assume that the stock market is gonna return about 10% a year, an index fund investment, on average, over its history. Obviously, there’s gonna be volatility in that, but if you project out 30 years, my belief is that I’m gonna get pretty close to that 10% average compound annual growth rate. All cash real estate is gonna perform worse than that, on average. Some properties will perform better than that over a long period of time, but on average, all cash real estate is gonna perform worse than that… So you have to maintain a certain leverage, and my belief is if you’re gonna be investing in real estate with  leverage, then you might as well be getting at least 5%, 6%, 7% return beyond that of an index fund for it to make the effort worthwhile.

So the answer is if I project going forward that in a kind of average scenario over a period of time, in the next several years, that I’m likely to get 10%, 11%, 12%, 13% on my property, it’s time to sell, refinance, releverage, or whatever… Somehow redeploy my money in something that’s gonna produce better, or get out of it and just take the historical long-term average of stock market and index funds. That’s my philosophy there. Does that answer your question?

Joe Fairless: It’s helpful. I haven’t heard of that thought process put that way. Yeah, absolutely. Thanks for sharing that.

So you’ve got the original duplex, and then another duplex, and now a quadplex. Will you tell us the numbers on the second duplex, and then the numbers on the quadplex?

Scott Trench: Sure. The second duplex was $360,000. The worst financial return. This one’s an up-down; the first one was a side-by-side. The unit upstairs rents for about $1,500, and the downstairs rents for about $1,100-$1,200; we’re not sure yet.

Then the quadplex I bought for $355,000, and this is my best – probably from a strict financials perspective – investment, from a cashflow perspective at least. The quadplex though, I bought it for 355k, I bought it in July 2017, and the property rents for about $3,200/month for all four units combined. My mortgage payment was about $1,700, and after the tax assessments, it’s gone up to about $1,800.

My rents I believe I can raise immediately over the course of this year, this summer, when our leases expire, up to about $925 a piece, and I’ve already validated that by remodeling a unit and getting that up to $925.

So I expect to generate $3,700/month in rent over the course of the next year, while I remodel these units and redo the leases. About $3,700, and an $1,800 principal interest, taxes, insurance.

Joe Fairless: How long have you had the second duplex?

Scott Trench: That one was bought in 2016.

Joe Fairless: And you said it’s an up-down… One of them is $1,500, and the other you said is $1,100 or $1,200, “I’m not sure.” Why are you not sure?

Scott Trench: I live in that one, so we’re figuring out what the rent will be when I move out.

Joe Fairless: Oh, okay. There we go, it makes sense. When you move out, are you doing the same thing that you’ve been doing?

Scott Trench: That’s the plan, to keep doing this. It seems to me that the house-hacking strategy is very effective, because I need to put down $50,000 with a partner to buy that quadplex, right? That’s a lot of money. But that’s not a lot of money to save in two years. It’s a lot of money to save in one year, it’s not that much money to save in two years, for your typical maybe median or slightly above median income earner in a specific area. It’s tough to save that much money, but it’s not impossible. But when you can do that, and then also the next year buy a place with $15,000-$20,000 down, now you can actually consistently maintain a system of buying properties regularly… And this is different — maybe a lot of your listeners are full-time real estate investors, and it’s really the deal flow that’s the problem in order for them to build their portfolios… But for a lot of our listeners, and for probably a lot of your audience as well, there are folks that are working full-time jobs, buying on the side, and so the risk that I perceive in there is investing a life-changing amount of capital – an amount of capital you can’t accumulate in one, two, three years of hard work and saving – into a deal and having the market tank on you. So I like this system of kind of consistently buying and dollar-cost averaging over time to kind of spread my risk and ensure that I will hit closer to that kind of long-term average return that I can model out. That’s why I really like the house-hacking and buying properties traditionally, with the 25% down payment, because it allows me to spread my investments over more evenly, I guess. I don’t have to come up with a huge chunk of cash every single year to buy these properties.

Joe Fairless: I don’t think a ground-up developer would find a favorable audience with you if he/she were to present you an opportunity to do ground-up development. Am I correct in that?

Scott Trench: Yeah, not right now… I’m getting closer. I think the problem with ground-up development, at least in Denver, is that you’re talking about a 100k-200k capital commitment from you, the owner of the property… And then you’re talking about a lot of leverage and a business initiative, what I consider to be more of a business initiative. My portfolio I think is more of an investment. I spend some time managing it, but really not more than a few hours a month, versus a development, where I have that much on the line… At least at first I would want to spend nearly a full-time effort trying to get myself as high as possible odds of success of that kind of moving  forward.

However, I plan – like many real estate investors – to grow my portfolio over time, and for that type of ground-up development to not have the ability to bankrupt me or to give me a life-changing financial problem. At that point, then yeah, absolutely, I’ll start assessing those opportunities as they come, like I would anything else.

Joe Fairless: Your investment approach is to do the house-hacking… If you weren’t able to do house-hacking, what would you be investing in?

Scott Trench: The goal for me is not real estate. I love real estate; I used to joke I don’t like real estate, like the income and cashflow that it provides, but that’s not true… I love real estate. It’s just fun to talk about [unintelligible [00:12:23].22] portfolio. But the goal really that I don’t wanna forget is financial freedom, so I’d invest in a way that could help me move toward financial freedom.

One of the things I may seriously consider nowadays, now that I’ve had some success with my career and have a little bit more cash than I kind of expected to have at this point in my career, is investing out of state. I think that there’s opportunities to hit solid singles in these more Midwestern markets, where you can kind of buy a property for 50k-60k, put 30k into it, and then maybe get an ARV of 120k. So you put 80k-90k in, you get an ARV of 120k, and now you can refinance out of that and repeat your strategy… Not rapid-fire. Some people think you can do this really quickly, and I guess you can if you’re really good, but a lot of times it takes six months to a year to get that money out of that deal. But you can then accelerate your progress to do one, two, three a year after a few years, and then be kind of making some substantial progress. So I think that’s what I’d probably be doing if I wasn’t house-hacking and didn’t have the ability to put down 25% on a meaningful investment property in Denver.

Joe Fairless: How are you managing your properties?

Scott Trench: I self-manage. It’s pretty straightforward for me. There’s a bunch of schools of thought on management. For me, in a higher priced market like Denver, I have higher rents per unit than somebody who might be investing in Memphis, Tennessee, and I also have a different type of tenant because of that higher income threshold. And I’m not buying A properties; I’m buying B and C properties here in Denver… But those types of tenants don’t’ give me that much work to do from a management perspective.

My management is, for me, pretty manageable, I guess, if I use the word manageable ten times in one sentence. So I don’t have a problem with that, so I self-manage.

Joe Fairless: What are some disadvantages that you’ve seen about self-managing?

Scott Trench: The disadvantage is really just that the problems come — you have no control over when you actually get those calls. I’ll go six months and not have any calls, and then it’ll just seem like “Oh, this is a terrible time, and I’ve got so many other things going on… And I’m out of town, and now I’m getting  calls”, so I’ve gotta kind of coordinate that kind of stuff. But really, that’s the biggest problem. I don’t really have too much of an issue. So far, knock on wood, it’s been pretty straightforward for me from a management perspective. I like to think I’m pretty fair and reasonable landlord, and I have pretty fair and reasonable tenants… So we get along, they get a great place to live, and I have solid, cash-flowing investment properties.

Joe Fairless: How has your role as president of Bigger Pockets helped you with your own portfolio and your own investment approach?

Scott Trench: I would say that my role at Bigger Pockets was not impactful for my first two deals. Then, with my third deal, I think I did have a little bit of a reputation, and that helped me meet more people… But really, I just met with 30-40 different people over the course of a few months; maybe not quite that many… Maybe like 25 people. I met them for coffee and told them, “Hey, here’s what I’m doing… How can I help you?” and “If you find a property that’s of this type, built in this year, in these areas, then I’d love to  buy it, because I’m looking at buying my next property”, and a deal came through that. So I wonder if my ability to get that deal was slightly impacted by my work here, at Bigger Pockets.

I guess one advantage to it has just been I’ve been able to absorb so much knowledge through my professional capacity and working here at Bigger Pockets that perhaps that has given me slightly better odds of success… But I don’t think it’s been necessarily like “Oh, I only did this because I work at Bigger Pockets.”

Nowadays, because of the success of the business, and I have a book that’s done fairly well, I’ve been able to amass a little bit more cash than I think I would have expected to this point in my career… So my next purchases will be from a position of more comfort. That’s where I think Bigger Pockets will really play a role in my success going forward – now that I have a little bit more cash than I expected, and I just have more access to opportunity than I ever have. Does that answer your question there?

Joe Fairless: Yeah… Just to ask a couple follow-up question on that – with the person who showed you the fourplex… Is that person a real estate agent, or is that person the owner? What was the connection they had to the property, and then they shared it with you?

Scott Trench: Yeah, so I actually am an agent, and I got my license so that I could view the MLS, and potentially represent on my own deals… But ironically, I’ve actually not represented myself in any deals because this person that brought me this deal was an agent, and had a connection with the seller’s agent of this property, and I was able to get that deal before it hit the market…

So it was kind of marketed to investors through this kind of word of mouth type situation for a few weeks before it was actually gonna go onto the MLS. So that was my advantage there – he brought me a great deal before it hit the market, so I was able to get it under contract with, I presume, less competition than I would have.

Joe Fairless: Pocket listings, they’re great. You said the next purchase will be in a position of more comfort. Can you elaborate on what you meant by that?

Scott Trench: Well, when you buy your first place — when I bought my first place, my total net worth was probably basically zero; maybe like 15k-20. The amount of savings I had, less my car loan payment, plus the value of my car. That’s my position I was starting from. So buying a $240,000 asset, which was five times my salary at the time, was a very scary proposition. That seemed like a lot of money at the time. It is a lot of money.

The second property was a little easier, the third property was a little easier than that, and now those properties on their own — the portfolio could go poorly, but those properties on their own really don’t have the ability, even if I lose both tenants and have to replace the roof and go through a $20,000 rehab, they really don’t have the ability to set me back in a way that would be irrecoverable in my position right now. So that’s what I’m talking about from a position of comfort.

At the beginning, those were fears that I had – what if I have all these problems right away, where I don’t have the cashflow and I’m gonna have to borrow more, and it’s gonna be really hard…? Now I have those reserves, I have this cushion, I have a big stock portfolio, I have the big position that I’m saving for my next purchase that really kind of allows me that luxury of comfort and time, and not having to be afraid that the market is gonna tank on me and I’m gonna lose everything, or be in a position of weakness.

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

Scott Trench: I think that the best real estate investing advice ever is to remember that real estate is one part of a  well-constructed personal financial position, and that really, most of us are building real estate not for the sake of owning a large real estate portfolio, but for the balance and opportunity and flexibility in life that a real estate portfolio gives us.
So my advice would be save up, consistently build that savings rate, and steadily build out that portfolio if you’re working a full-time job and looking to build a portfolio over the next couple of years. Do it consistently, not aggressively, and enjoy the rewards that slowly, and then quickly begin piling up.

Joe Fairless: What percent is real estate of your financial position, and what percent would you recommend?

Scott Trench: My position is probably about 65% of my financial position right now, and I think it depends… As a young person starting out, real estate was close to 100% of my financial position, because I invested everything in my first house-hack. That’s not diversified, but I think that’s sensible, because that gave me great odds of success, lowered my cost of living, gave me an opportunity to own a cashflowing investment; same with the second property.

Over time, it begun to build out more of a diversified portfolio. So I think it depends on where you’re at and how your strategy is going. Yeah, it’s risky to have all your eggs in one basket, but if that’s your first year of getting going and that’s what you think has the best odds of success, maybe that’s not so big of a deal. Once you get past several hundred thousand dollars – or maybe several million dollars – in net worth and you’re not attempting to aggressively build out your one core business, then it might be time to diversify a little bit.

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

Scott Trench: Let’s do it!

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

Break: [00:20:30].13] to [00:21:17].21]

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

Scott Trench: Best ever book I’ve read is probably The Millionaire Next Door.

Joe Fairless: Best ever deal you’ve done?

Scott Trench: The first duplex.

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

Scott Trench: A mistake I’ve made on a transaction… I knew I was gonna have a set of problem tenants with a property purchase, and I did not take steps immediately to figure out how to remove those tenants from the property.

Joe Fairless: How would you go about removing the tenants if presented a similar situation in the future?

Scott Trench: Cash for keys probably would have been what I would have done… Just offer them cash to leave.

Joe Fairless: And how do you know the amount of cash to offer in order for it to financially make sense?

Scott Trench: That’s where I’d probably call up a couple of friends in the neighborhood, or maybe start a forum topic on Bigger Pockets to kind of see what the community thought on that… Because it’d probably be around one or two months’ rent, but that specific amount – I could probably get some advice from some smart people in the community to figure it out.

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

Scott Trench: There’s two types of people I like to give back to. One is the middle income to upper middle-class income earner that is kind of the core person who’s gonna be buying real estate. This is your kind of ordinary American who can buy real estate. I think that it’s really powerful to help them move toward financial freedom, because they go out and impact the world in very unique ways once they achieve financial freedom, and that’s a huge opportunity.

The second way I like to give back is people who are not at the starting point in the economic race, who are not able to command a median income, and I like to help them out through an organization here in Denver called Upstream Impact or Cross-Purpose. We basically help them work towards that job, or a career that has a potential to give them a median income, become self-sufficient, that kind of thing.

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

Scott Trench: BiggerPockets.com. I’m right there, easy to find. You can type my name in the search bar, or you can e-mail me.

Joe Fairless: I really enjoyed our conversation, Scott. Thanks for being on the show. I love that we went through really a range of topics, but all focused on what you’re doing right now as it relates to the house-hacking. A question that comes up frequently is “what’s the thought process I should use when I have equity in a house/property? Should I do a cash-out refinance, or should I sell and do a 1031 exchange?” and I love the explanation that you gave with the stock market historicals and what we can expect/project in the future, and then thinking about that, plus need a little bit more to compensate us for our time if we’re gonna be doing real estate versus passively investing in the stock market. Great stuff… Plus, I loved the case studies, I loved to get into the numbers of your properties.

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

Scott Trench: Awesome. Thank you, Joe.

JF1332: How Being Passive In Deals Can Lead To Doing Your Own Syndications with Sarah May

Sarah is based in Denver and has purchased a 100 unit apartment community in there. She learned how to be a syndicator by investing passively in other syndications, and seeing first hand how to properly do syndications. There are a lot of nuggets for us to pick up in this episode. If you’re wanting to put together a syndication, Sarah has excellent tips for completing your first deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Sarah May Real Estate Background:

  • Managing Partner at Regency Investment Group
  • Built up a rental portfolio of 125 actively and over 600 passively
  • Helping people move their money out of the stock market and into real estate. When not looking at deals
  • Former aerospace engineer who became passionate about real estate investing
  • Based in Denver, Colorado
  • Say hi to her at https://www.regencyinvestmentgroup.com/   
  • Best Ever Book: ABCs of Real Estate Investing by Ken McElroy

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TRANSCRIPTION

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

With us today, Sarah May. How are you doing, Sarah?

Sarah May: Good, Joe. Thanks for having me on your show.

Joe Fairless: Yeah, my pleasure. Nice to have you on the show. You and I met in Denver; I was in town for my conference, and I also spoke at a local meetup, and you and I were both on the same panel. I really enjoyed what you were talking about, and invited you to be a guest on the show, so I’m grateful for that.

A little bit about Sarah – she is a managing partner at Regency Investment Group. She initially was investing passively in syndications, and now is an active multifamily syndicator. She’s built up a rental portfolio of 125 units actively, and she is invested in over 600 units passively. She is a former aerospace engineer who became passionate about real estate investing. Based in Denver, Colorado.

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

Sarah May: Sure. I’ve started out while working a full-time job; I mainly bought two to four-unit properties. I tried to buy a couple a year with traditional financing; I did that for five or six years. Then a couple years ago I wanted to scale our side-gig into more of a business, so I started Regency Investment Group and got involved with syndication, and partnering with other people to do bigger deals. Last year we purchased a 100-unit apartment building here in Denver with our partners, and we’re looking for the next deal.

Joe Fairless: You started investing passively – what did you learn from that experience that then you applied towards your 100-unit that you syndicated?

Sarah May: Passive investing is great for getting all the benefits of real estate ownership without the hassle. There’s really minimal ongoing management of the investment as a passive investor. You can diversify your portfolio outside of your local market. I’d say what I learned from being a passive investor was just how important the communication was from the sponsor. I was in several different deals, and every sponsor did things a little differently, but I really appreciated the ones who communicated on a monthly basis, gave simple financial summaries, and then kept to their business plan that they presented initially. So that was big for me – I knew I wanted to communicate with our investors for the deals we put together as efficiently as possible, so we’ve put some tools together to make it very efficient… Monthly newsletters for our investors letting them know how we’re performing; not just the management report, but also comparing that to our proforma that we presented when we first raised the capital.

Joe Fairless: What are some of those tools that you mentioned you’ve put together?

Sarah May: Most of this is done in Excel, but I take the key data from the 300-page property manager financial report, I plug it into Excel which runs some basic calculations to get metrics on income performance, expense for performance, how we’re tracking to our budget, capital expenditure, rent per square foot… Things like that.

Joe Fairless: You identified an opportunity to then go from passive to active. You said you started out while working your full-time job as an aerospace engineer… Did you close on your 100-unit while you had your full-time job?

Sarah May: No, I actually was on a leave of absence. I didn’t immediately resign from my position. I took a 12-month leave of absence to essentially test out real estate. I’m an engineer, so I hedged my bets [unintelligible [00:04:24].28] being risk-averse. This was over a year and a half ago now, and I was able to essentially educate myself while still working a full-time job, and go to lots of conferences, and then I think the biggest piece was finding a mentor who I felt confident would be able to help me meet my syndication goals, and then also finding business partners who had a depth of experience doing what I wanted to do and partnering with them.

Once I had those pieces of the puzzle together, I felt a lot more confident leaving my job to focus full-time on real estate.

Joe Fairless: So you basically had income, then you didn’t have income for 12 months. What did you think about that? Are you married?

Sarah May: I am, yes.

Joe Fairless: And what did your significant other think about that? “…income to no income, and now I’m gonna just see what happens over 12 months.”

Sarah May: I think the income part was tough, but we had those passive cashflows from our other investments, so it wasn’t going to be a pinch, which was — we were grateful for that… But it was more of an identity crisis, because when you tell people “Oh, you’re an aerospace engineer and you work on spacecraft”, people kind of get the idea you don’t really have to say much else… But then when you tell someone “Oh, you buy apartment buildings and work with investors”, it’s something most people haven’t heard of, and it takes a lot more explaining; my identity for  10+ years had been an engineer, so it was kind of a reinventing myself a little bit, which I think was the scariest in the beginning.

Joe Fairless: Any tips for someone who has a significant other who they want to propose this to, where they leave their job and don’t make money, but they wanna pursue this?

Sarah May: I would just say make sure that you’re passionate about the business and wanting to stick with it in the long-term. I thought things were going to happen immediately after I quit my job. I thought I had everything together, but it still took almost a year before we bought our deal with our investors, so… Hard work and persistence are key, and if you know your own investor DNA and know that multifamily is where you wanna be, you know that you want to raise capital and be the ringleader for this sort of deals, go for it. I think that your passion and determination will win over your significant other.

Joe Fairless: You said you had an identity crisis… People knew you as an aerospace engineer, and you said that’s a pretty simple thing where people understand it – you talk to smarter people than me; I have some follow-up questions for you on that, but now is not the time or place for that follow-up line of questioning… As far as changing the perception that people have about your from an aerospace engineer to someone who partners with investors and buys apartment communities, how did you do that?

Sarah May: I think a lot of it was just networking, as I got more and more connected with the local real estate industry… That’s how I started to be viewed by others, and that’s how I started to view myself. In real estate syndication, as we know, there’s a large team of people that you have to build around you to be successful, so you know, talking to the brokers, the lenders, the attorneys, the investors, and kind of putting together that team around myself.

As I did that, it felt like just a natural transition into being a real estate investor full-time. I think that was the biggest — it eased the transition the most for me.

Joe Fairless: Let’s talk about the 100-unit. What were you personally risking by putting that deal together?

Sarah May: I think the biggest difference between these large commercial deals and smaller multifamily deals is putting down hard money at the beginning of the contract period… But that’s not like a hard money lender, but hard money is essentially non-refundable earnest money, where even if you discover a major defect in the property or the financials, the seller gets to keep the money.

I personally had $50,000 on the line for the deal that we were syndicating, and that was my money, that was investors’ money… And the first time you do that it’s a little intimidating; I did things to mitigate the risk, but that felt like a big risk at first, as well as it takes a lot more upfront costs for due diligence, and application fees, and things like that. So financial risk felt a little bit more extreme, but actually managing the property and seeing it go really well – it’s been a really non-stressful experience, thankfully.

Joe Fairless: Yes, I’m knocking on wood for you right now, by the way. We do non-refundable earnest money day one as well, and there’s three scenarios where it would become refundable. One is something wrong with the title; two is something wrong in the environmental, and then three – seller default. Did you have those three in there, or is it just non-refundable?

Sarah May: We did. We had the title defect and the seller default language in there. I don’t remember about the third one, but we did have that.

Joe Fairless: But otherwise, if it’s 95% physical occupancy and you go in and you do a lease audit and it’s 60% economic occupancy, you got 50k in and you’ve gotta figure out what to do, right?

Sarah May: You’ve gotta make the deal work somehow.

Joe Fairless: What gave you the confidence to put $50,000 on the line? And I know $50,000 is a lot of money at any point in time in life, to Warren Buffett or to a high school student who has never had a job, in those savings account, but how significant was the $50,000 to you at that point in time in your financial wealth standpoint?

Sarah May: It wasn’t gonna change our financial situation one way or the other if we had lost that money, but we just had never done an investment where it was that easy to lose your money if one thing went against your favor. But still, it’s a lot of money, but the deal size that we were doing – it really was not unreasonable at all to put that much in. I think some deals that size – it’s more like $150,000 non-refundable earnest money, so in that sense we were getting a good deal, only having to do 50k…

But how I got the confidence to move forward with that was just knowing I have the team, knowing I have the business partners who were experienced, knowing we had a great lender lined up and had done our due diligence beforehand. We had an early access agreement on the properties, which means we had our HVAC technician, a roofer, a plumber, a general contractor – all go out to the property and inspect the major systems before we signed the contract. That at least gave us a little more confidence on the physical condition side.

Joe Fairless: Will you elaborate on that, in case that’s a new term or clause, to a Best Ever listener?

Sarah May: Sure. I don’t think it’s very common in residential real estate, but when they’re putting down this hard earnest money on day one (at the contract signing), usually you’ll have a couple weeks beforehand where you’re negotiating the contract. During that two-week period, sometimes you can get the seller to agree to let you go on the property for a day, poke around, and see if there’s anything wrong with the property before you both spend a lot of money drafting up the full contract and moving forward… So they let us do that.

We weren’t able to do unit-by-unit inspections during that early access day, but we were able to get access into a few units and look at the general structure.

Joe Fairless: What’s the incentive for the seller, besides the initial legal fees, which would be pretty nominal, when drafting the PSA over the first couple days? What’s the motivation for a seller to allow you to do that?

Sarah May: In my perspective, I think it’s just the surety of closing the deal. If they’re willing to let you do that and you get comfortable with it, there’s that much more probability that you’re gonna go see the contract through the entire way and buy the property. If they didn’t let you do that, you might find something day 30 into the contract and still be within your right to terminate. And yes, they get to keep your $50,000, but now they have to start from scratch and find a new buyer, so to them I think it’s just more assuring a successful close later on.

Joe Fairless: You’ve been passively investing in over 600 units… Have any of those sold?

Sarah May: The first one is probably gonna sell in about a month.

Joe Fairless: Okay. So you’re still in all of those deals. What have you seen that’s gone wrong?

Sarah May: There’s always things that go wrong. On the multifamily side, I think most of the deals I’ve done have been value-add deals, so it can take longer to get the riff-raff tenants moved out of the property, it can take longer to find a good, reputable contractor to renovate the units, property manager issues, getting inspectors on one property… All they wanted to do was renovate the office, but apparently, the city had some very stringent codes, that they had to do it all to code, and it took months just to get the inspector to agree to let them remodel the office.

Other issues – I think the biggest one honestly is the physical condition of the property. It’s tough to know what the plumbing lines look like, what the electrical system’s condition is, how long the boilers are going to last, if there’s foundation issues… I mean, there’s a whole laundry list of items that can go wrong, and some of them are not easily seen. So I think that’s the biggest pitfall in somebody’s passive deals – the sponsors have done the best they could, but there’s an issue with the boiler or the [unintelligible [00:14:22].14] and we have to fix the issue.

Joe Fairless: As a passive investor, what type of communication — I know we talked about things like monthly simple financial summaries, keep the business plan etc., but specifically when something goes wrong, what have you seen as a communication approach that has worked, and what have you seen that is a bad approach?

Sarah May: I think the best tactic that sponsors can take is just being completely transparent with the investors. If something major happens that is $10,000 or more in unexpected costs, just let them know right away, and ideally let them know the plan to take care of the issue and how you’re gonna pay for it.

On the opposite side of the spectrum, I think the worst approach is just not communicating problems, or not communicating at all with the investors, leaving them to wonder what’s going on. I definitely over-communicate, even on the negatives, and I really have a plan of action to address the problems.

Joe Fairless: You’ve got 125 units; 100 you syndicated, 25 your own portfolio… What’s next for you?

Sarah May: Right now our major focus is finding another apartment deal that we can syndicate. We have lots of investors anxious to get another property in the Denver area. It’s tough finding deals with the market being so tight, so that’s our number one priority; simultaneously, I’m still running our other rental portfolio and managing the business plan for our Fairview Apartments that we’ve syndicated, and making sure that everything stays on track there.

Joe Fairless: You said you’re running your other rental portfolio – does that mean you’re self-managing?

Sarah May: No, no, but we’re always doing projects. We buy B and C class properties, so we’re always renovating a property, renting out a property, trying to find new properties, selling properties… The asset management side.

Joe Fairless: Okay, I’m with you. How did you find the 100-unit deal you closed on?

Sarah May: That was really traditional to begin with. It was a listing that one of the large apartment brokers in town had out, and it was a journey  getting the property. We did the open market competition – this was right at the end of 2016, when the elections happened and interest rates spiked… And I think some of the would-be buyers also got cold feet, but unfortunately the seller also got cold feet and decided he wanted to hold on to it for a little while… So even though at that point in time we had been the highest bidder, we kind of had to wait on the sidelines, and then five months later just by keeping in touch with the broker and asking about the property, we found out that the seller had wanted to sell again, and we were able to make an offer without any other competition from other groups.

Joe Fairless: Hm, the story of perseverance… What tactics are you using to find deals right now?

Sarah May: Mainly through brokers. Also, going [unintelligible [00:17:24].25] looking at tax-distressed properties and potentially reaching out directly to owners, that might be one way of doing it… And then just networking, a lot of networking. I go to several meetups every month, maybe every week… I do apartment associations, and then I’m also part of another investment group based out of Dallas, where my partners are located. So lots of networking, and we can find good deals that way, too.

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

Sarah May: I will answer that in a few different ways. I think it depends what stage you are in investing. I’d say step number one – make sure you know what you want to be doing; you might call this your investor DNA. Do you wanna be an active investor or a passive investor? Do you wanna be flipping houses, wholesaling, in multifamily? Does it meet your lifestyle and financial goals with what strategy you want? Let’s say that’s step one, and in my case, we want to syndicate large multifamily apartment buildings.

Then step two, make sure that you have that passion for the business, because like I was saying, it does take a while to build up the team, and the reputation in your local market to get started.

Then number three, once you are doing deals, just trust but verify everything that you see. For instance, brokers do a great job putting together the OMs and all the property details, but the way that they analyze properties is different than how you as a syndicator should analyze properties. There’s additional cost for closing costs, we have dollars in working capital, and things that brokers don’t usually list because they can fluctuate based on the investor’s business plan and what they wanna do with the property… So trust but verify, and be passionate for the business.

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

Sarah May: It sounds great!

Joe Fairless: Alright. First, let’s hear from our Best Ever sponsors.

Break: [00:19:23].23] to [00:20:05].08]

Joe Fairless: Best ever book you’ve read?

Sarah May: On real estate I love The ABCs of Real Estate Investing, by Ken McElroy. It’s a great introduction to syndication and how to put together bigger deals. And on personal development, I’ve just read the book The Power of Habit, by Charles Duhigg, which is a great book that kind of explains why we do what we do and why society has certain ones as well. It’s really interesting.

Joe Fairless: Best ever deal you’ve done that wasn’t your first and wasn’t your last?

Sarah May: A deal we did was downtown Denver, a little bit of a C/D neighborhood, but close to where things were happening; it was a three-unit, a long time ago. We bought it right before the 2008 recession, but what we learned from that was we still were making money every month from the cashflow, and the market went up over time, and we sold with a 200%-250% profit just on the equity gains… So buy markets with sound fundamentals, and multifamily will decrease your risk in times of economic downturn.

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

Sarah May: I would say having conflicts of interest with other people. The one and only fix and flip I did, the contractor was the same as the contract with the broker – he sold us the property he was using – and he was also a fix and flipper, and we found out that the contractor wasn’t working on our property, because he was working on our broker’s property all the time… So yeah, avoid conflict of interest and have strong contractual language; that actually would have saved us in the deal… We could have taken the contractor to court for every day he was late, for $250, but he decided to eventually get his act together and finish the project.

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

Sarah May: I love Junior Achievement; I’ve volunteered with them before. Their mission is essentially to educate young people in financial areas. Our school system doesn’t really do a good job educating students, and the fact that 75% of Americans live paycheck to paycheck means that most adults aren’t able to educate their children on financial matters. I would love to see more financial education in the schools, and Junior Achievement has been doing that for a long time.

Joe Fairless: I share your love for Junior Achievement. Best ever way the Best Ever listeners can get in touch with you?

Sarah May: Sure, the best Ever listeners can contact me probably the easiest through my website, www.regencyinvestmentgroup.com, on the Contact Us page. Or you can just reach out directly, and my email is Sarah@regencyinvestmentgroup.com.

Joe Fairless: Sarah, thank you so much for being on the show, talking about the evolution of your real estate ventures, from the 2-4 units to syndicating 100-unit apartment communities, how you started investing passively… You learned how important communication is as a deal sponsor, and the different aspects of that communication – certainly, helpful for the Best Ever listeners who are looking to eventually syndicate deals. If they’re investing passively, they’ll want to invest with a syndicator who is a good communicator, and a way to test that is perhaps asking for reports on other properties that they’ve recently sent out, just so you get a sense of how they communicate; that way, you can verify that, since that is such an important aspect for when you eventually do become full-time doing this.

Congrats on the 100-unit being not an issue. Again, I’ve knocked on wood for you on that one, and I’m really grateful we got to meet in Denver, and looking forward to staying in touch.

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

Sarah May: Thanks, Joe. Great being on.

JF1325: Closing Your First Self Storage Deal At 22 Years Old with Allison Kirschbaum

Allison has always been an entrepreneur, with her first business being a pet sitter at 9 years old. After different entrepreneurial ventures, Allison had a desk job, was making great money but was not fulfilled. She went back to being an entrepreneur and got into real estate investing. She got her first private investor at age 22 who invested $100k in her very first self storage deal. Allison has a ton of information to share with us today about being an entrepreneur and self storage investing. From raising money to managing the assets, there is something for everyone in this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Allison Kirschbaum Real Estate Background:

  • CEO of Luo Media Group, providing targeted marketing services for real estate private equity funds
  • Success Obsessive with 16 years of sales, marketing and business expertise
  • Master of capital-raising for new investors and rapidly scaling RE businesses through effective systems
  • Based in Denver, Colorado
  • Say hi to her at www.allisonkirschbaum.com
  • Best Ever Book: Three Feet from Gold

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TRANSCRIPTION

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

Allison Kirschbaum: Hey, Joe. I’m doing awesome, how are you?

Joe Fairless: I’m doing awesome as well, nice to have you on the show. A little bit of background, Best Ever listeners – I met Allison two years ago at the Best Ever Conference in Denver. She asked the best, most intimidating questions out of any person who attended, and then last year she delivered on that once more. And she wasn’t – I don’t think, Allison, you were asking to be intimidating, but your questions are so pointed and well-researched, it just blew me away… So every time I saw Allison stand up this past year at the conference when she attended, I started sweating if I was on stage, because I didn’t know what she was gonna ask. Fortunately, none of them came my way… But a little bit about Allison – she is the CEO of Luo Media Group, which provides targeted marketing services for real estate private equity funds.

She is a master of capital raising for new investors and rapidly scaling real estate business through effective systems. Based in Denver, Colorado… With that being said, Allison, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Allison Kirschbaum: Sure, absolutely. And just so you know, no, I was not asking those questions to be intimidating; I was doing it because I was afraid that I would ask a stupid question, and I wanted to be as good as possible. I had several mentors in my lifetime, and one of my earliest ones was a digital mentor, John Maxwell, that I listened to on CD while I was driving back and forth from work, as a 16-year-old… And he always said “Prepare when you’re gonna take your mentor’s time.” You and all the other people that get up on the stage of Best Ever, you work so hard to make it THE best ever, so if I’m gonna stand up and take your time and take a question spot away from somebody else that could have had a great question, it’s gotta be a really great question… So I’m so glad that you guys thought that was the case.

Joe Fairless: You delivered on that.

Allison Kirschbaum: Thank you, I appreciate that. I have to make that a branding thing – “The girl who asks great questions.” [laughter] My background – I’ve been an entrepreneur since I was 9. I started my first services business at the age of 9, I was a pet sitter. We lived out in the country, so I’m not talking about just running to the neighbor’s house and feed the cat, we’re talking like four cats, and five dogs, and horses, and goats, and chickens, and if they mix with each other, they’re gonna eat each other…

So it was a huge amount of responsibility for a nine-year-old when you live in the country and you’re a pet sitter. But things really started getting kicked off when I was 12 and I started my first products business selling handmade jewelry and soap. I would go door to door, I would chase down the garbage truck that came through our neighborhood because I knew the owner of the company drove, and I said “Hey, I’ve got this great incentive program, especially for your female drivers. You can get these great gifts to give away as incentives from my little business.”

I thought myself how to cold-call so that I could put my goods in. I eventually ended up with ten shops that were selling my [unintelligible [00:03:50].08] I think I called like 80 or 90 shops in my area, as a 12-year-old, and I eventually ended up with 10 that were selling my product for me… And I also learned how to speak from a stage and sell to small groups when I was around 15 or 16, and my parents were into network marketing, and they got me into it just to get into the entrepreneurial mindset.

That continued after I’d been in the corporate world for a little while. I was 21-22. I had been a sales trainer, the sales manager for all of the currency exchanges in the state of Texas, for the world’s largest foreign currency exchange brand. I’m the little 19-year-old kid running around training people twice my age on how to be a better salesperson, because I was that good. I loved sales that much, and I had a really entrepreneurial spirit.

But after that job, I got my first ever desk job, and it paid a ton of money. I’m this 22-year-old kid with no degree, and I’m making 76k, 77k a year. It was unheard of.

Joe Fairless: Wow.

Allison Kirschbaum: But I’d sit down in that grey, lifeless cubicle, in that deathly quiet office. Do you know what that feels like, Joe? It’s like being in a morgue; it just suffocates you. So the first day I sat down in that cubicle – it was my first and last ever desk job. I told myself, “I’ve gotta be an entrepreneur again.” So that night I went home and I looked at my bookshelf, and I’m one of those people, Joe, that my books take over everything. I’ve always got like half a dozen books all over my bed, there’s never any room to sit or relax.

I’ve got dozens and dozens of books on bookshelves everywhere in the house… And I went through all my books and I’m like “What have I studied or what have I read before that would be a great entrepreneurial venture to take on as an adult?” and my eyes landed on Robert Kiyosaki’s book Cashflow Quadrant, and I said “That’s it! Real estate. Robert’s a smart guy, I’m good at sales, I’m sure I can do this. Let’s try real estate.”

Nine months later I bought my first rental property. I ended up buying a single-family here in Denver and running it like a multifamily, because as you know, Joe, real estate in Denver is super expensive. I didn’t want to buy a multifamily as a 22-year-old kid; I could afford a multifamily at $100,000 a unit, that was just too much for me. So I ended up renting out this little six-bedroom house to young professionals coming into the city to take jobs in Denver by the room, and I ended up making double the rent on that house than I would have made if I had rented it out as a single-family… And I would be able to leverage that expertise and creating that unique approach into getting my first private investor as a 22-year-old.

It was not family, it was not a friend, it was somebody I’d met through my broker. He believed enough in my business plan for a self-storage facility to become my first private investor for over $100,000. He’s still my investor today. That was eventually what led to running private equity funds in the other systems that you talked about earlier.

Joe Fairless: First private investor – and you’re how old now?

Allison Kirschbaum: I’m 25.

Joe Fairless: 25. So three years ago your first private investor – he invested $100,000 into it. You said self-storage?

Allison Kirschbaum: Yes. A little self-storage facility outside of [unintelligible [00:06:34].20] Kansas.

Joe Fairless: And is that all the equity that was needed for a self-storage facility?

Allison Kirschbaum: Yeah, that was it. It was kind of a special deal. The bank was local to the area. They only needed 15% down, and they actually lowered that from 20% on the day of closing. I’m sure that’s the only deal I’ll ever do where the bank lowers the amount you have to put down on the day of closing. But that was all we needed to get into that deal.

Joe Fairless: How did you find that deal?

Allison Kirschbaum: To be perfectly honest, Joe, I’m not sure I remember. I think it was actually through LoopNet. Yeah, I’m pretty sure it was LoopNet.

Joe Fairless: So why do you think other people didn’t buy it, especially if it was on LoopNet, but then you did?

Allison Kirschbaum: Well, I know LoopNet’s reputation, but every now and again you find a diamond in the rough. This one – it wasn’t exactly a diamond; maybe it was a ruby. It’s not a spectacular property, but it had a lot of things that appealed to me. Number one, it was in a secondary market; I only buy storage in secondary and tertiary markets, because that prevents me being basically stomped out by the big guys, like Public Storage and Greenbox [unintelligible [00:07:27].26] It had a lot of room in operational upside; in self-storage, that’s what we refer to when we’re looking at raising rents and increasing efficiency of operations.

We had about 30% to go from the way the rents were currently being charged at that facility to the market rate. We’re not even talking about “Hey, let’s be the highest-charging facility in the market in this little town of 30,000 people”, or whatever. We’re talking about 30% to go from where those rents were, to market rates, to where everybody else with completely comparable facilities, almost identical facilities were charging.

So we saw a huge amount of upside, and I had – and still have to this day – a great operating partner who has more years of experience in self-storage than I have even being alive, so… [laughs] It was just a great combination for us.

Joe Fairless: And that operating partner is different from the private investor, correct?

Allison Kirschbaum: That is correct, yeah. Her name is Pamela Alton. She runs Mini-Management Storage, management services, and any of you that are in the storage industry, any of your Best Ever listeners that are listening to this that are in the storage industry will probably know Pamela. She’s been an industry fixture and expert for 27 years now.

Joe Fairless: How did you come across Pamela?

Allison Kirschbaum: I called her with a cold call; I went through the Inside Self-Storage website looking for somebody to do a feasibility inspection on the property to make sure that it was a good property, that I knew what I was getting myself into, and Pam and I just kind of hit it off; she came in and inspected the facility for me, and she actually approached me about four months later when we ended up at the Inside Self-Storage Conference that goes in Vegas every year… And she asked me “Hey, you’re going great places. I wanna partner with you, I wanna go those places with you”, and that’s a partnership we have to this day.

Joe Fairless: Is she based in Kansas?

Allison Kirschbaum: No, she’s actually based on the East Coast. She’s as far away from me as you can possibly get. She’s on Chincoteague Island, Virginia.

Joe Fairless: Okay… I’ve never purchased self-storage, so roll with me on this… But if she’s not local, then why would she be the best operating partner to do the due diligence, versus a local group?

Allison Kirschbaum: Number one, self-storage is a niche industry in many ways still. There was no way to find somebody who was expert enough, close enough to the property to make that connection. I either would have had to use a feasibility group out in Texas, or maybe one from Colorado, or one from the East Coast, which ended up being Pamela. There was nobody (so to say) local enough to Kansas to warrant that switch. Like I said, Pam is an industry leader; she’s been speaking at conferences, writing articles for national magazines, coaching people on how to run their self-storage and operate their self-storage for 27 years.

The reason that I kept working with Pamela and the reason that that worked for us is because the vast majority of our properties, specifically the ones in the private equity funds, are run without managers on site. They’re not run in the traditional way where you think of a nice little lady who sits in an office and takes your payment for you on the first of the month. They’re run with kiosks, so we were able to cut in half the operational margin that most self-storage facilities have, which is already ridiculously low.

Joe Fairless: So that was three years ago… How many deals have you done since then?

Allison Kirschbaum: Oh, boy…

Joe Fairless: A lot?

Allison Kirschbaum: You know, people ask me this, and it’s embarrassing, but I lose count, because we’ve  got two funds running right now, and then we’ve got another two — there’s so much demand for self-storage investors… We’ve got another two that we’re starting out, so maybe 40-45 deals.

Joe Fairless: 40-45 deals. Are they all self-storage?

Allison Kirschbaum: They’re all self-storage, yes.

Joe Fairless: All self-storage. Okay. How are you finding these deals?

Allison Kirschbaum: We use a proprietary method right now. We started out like everybody else does – we talked to brokers and we went through LoopNet, and I had a CoStar subscription, and that’s what we were dependent on. And I still do have CoStar. It’s a very helpful program. But right now we’ve brought together a bunch of techniques over the years that are serving us a lot better than working with brokers, because it allows us to not only get off-market properties and to negotiate them on our own, which is the [unintelligible [00:11:07].12] but also to take very specifically the deals that we want and kind of carve out the areas of the market that we want without too much competition.

For example, we like properties that don’t have a lot of the standard self-storage accouterments. We don’t like parking, we don’t like retail, we don’t like other pieces of stuff tacked on the storage.

And if we are working without a broker, we found that it actually is easier to kind of carve pieces of that off and either leave it with the owner, or take it to another investor, or whatever it is… Because we don’t have somebody who’s vested interest is in making that one deal work with us specifically, you know what I mean?

Joe Fairless: How much equity have you raised for your funds?

Allison Kirschbaum: It’s coming under right now about 20-25 million between me and my partners together. I can’t take credit for all of that, because I do have other partners that have raised quite a bit as well, but the fund is overall about 20-25 million.

Joe Fairless: How many partners do you have and how is the responsibility divvied up?

Allison Kirschbaum: It’s soon to be five partners. We’re taking on a couple for some of our other funds. I have a partner who’s just a whizz with Excel. She’s our CFO in one of our funds. The interesting thing about the way we split up the partnerships on our funds is that they’re always people that already have specialties in something else as well. For example, two of my partners – they run a very successful flipping company here in Denver, so in the fund that we run together they are COO and CFO, but they’re not COO and CFO for the other funds that we run.

In another fund that we have we have a CFO that knows COO, so we fill that gap with employees, or in some cases Pam can take over some of the duties, and it’s a custom situation for each fund. Eventually, I think we’ll probably get to the point where I can just hire employees for each division and we won’t have to trade between partners, so to speak, but right now that’s what we’re doing.

Joe Fairless: Let’s just keep it at the three versus the other two, just for my own purposes… For those three, you said one’s good at Excel, so is that underwriting that she’s responsible for?

Allison Kirschbaum: Yes. We have a  very specific VA system where we’ll have virtual assistants basically roll in all of the analysis info that she needs, prep it in a specific spreadsheet, and then she goes over the numbers and qualifies or disqualifies things. Then that allows me and our acquisitions person to go out and actually create the deals.

Joe Fairless: Okay. So you’ve got you, the underwriting lady, and your acquisitions person. Acquisitions – they negotiate, they go find deals etc., right? Underwrite…

Allison Kirschbaum: Yes, they mostly help with negotiations. They don’t really do any underwriting; they provide the info back to [unintelligible [00:13:39].12] to put into Excel and make sure that the numbers still work and that it still matches up with our parameters, and that kind of thing. But our acquisitions person goes out and actually takes care of the acquisition of the property. They make sure that we get all the right inspections, that we have all the right paperwork… If there’s something out of line with the deed, or the title, or whatever, they’ll go with a lawyer; they’ve got the ability to talk to them for us and just kind of feed the most important information back to me and [unintelligible [00:14:02].12] so we can maximize our time and we can focus on the things that we’re better at.

Joe Fairless: And then your responsibilities primarily are what?

Allison Kirschbaum: Marketing, and I guess you might call it CEO. I provide the direction for the fund, I provide a strategy, I build the overall operations process and marketing processes that we use in order to get both deals and investors, and also to run the properties as a whole. Then Pamela helps [unintelligible [00:14:25].14] in addition to our maintenance people, which work kind of as the side-helpers, so to speak. Then we’ve got a couple of people behind the scenes that are VA’s, just helping feed us information, answer customer calls, be customer service, all that good stuff.

Joe Fairless: And those VA’s are also helping you with the initial underwriting of the deals?

Allison Kirschbaum: They are, yes. We worked a very long time — although I guess I wouldn’t necessarily call it underwriting in terms of their judging the deals for us. They’re just going out and getting the info. For example, we have a very detailed spreadsheet that shows us the population of a very specific area around each facility, the age of the facility, their current rents, the rents for the market area, current unemployment rate… I think the last time there were about 84 different data points that go into underwriting each facility, just from the very basic “Hey, do we even wanna negotiate this top line?” kind of deal. And over many months, we’ve created a very detailed spreadsheet that shows the VA what kind of information they need to put in each cell, where the information has to come from, what the specifications for the information are…

At this point there’s almost no gaps that we could possibly get incorrect info from.

Joe Fairless: What’s gone wrong?

Allison Kirschbaum: There are obviously times when people mess up. On the first deal that I was telling you about – the deal in Kansas – we almost, due to me misreading the title paperwork, because we didn’t have the system in place at the time (it was my very first deal), we almost accidentally closed on a wrong lot that was across the street from us, instead of the lot that was actually meant for parking on our side of the street. And thankfully, my lawyer convinced me to read everything again, he was like “You really should read it one more time.” I’m like, “Dang, man, we’ve already read it so many times”, but sure enough, it saved our butts.

Joe Fairless: And why didn’t your lawyer catch that?

Allison Kirschbaum: You know, I was asking myself that, but at the end of the day I said “It doesn’t matter”, and I switched real estate lawyers after that.

Joe Fairless: [laughs] Fair enough. Got it. Of the 25 million that your group has raised, approximately how much would you attribute your portion of that to?

Allison Kirschbaum: Me personally I’d say it’s around almost exactly a third; between 7 and 10 million. Some of our investors are in multiple deals, in multiple funds. They’re kind of the type that’s like, “Hey, let’s commit a little bit more when you’ve got another signing with different parameters.” It could even be a little bit higher, we just don’t have all of that money subscribed yet.

Joe Fairless: Yeah, alright. Well, we’ll just round up for conversation purposes – let’s say 10 million. In three years you’ve launched a company and you’ve personally been responsible for raising approximately 10 million dollars… Approximately how many investors does the 10 million consist of?

Allison Kirschbaum: Around 140-150, something like that. Our average subscription amount is between 100k and 150k. And a lot of people like to do that in tranches. They’ll commit 100k, and then they might come back a couple months later, a year later while the fund is still open, commit another 100k, something like that.

Joe Fairless: And of those 150 investors, what are the ways that you met the ones who invest the most?

Allison Kirschbaum: I think the most prominent examples are usually the people that I do either meet initially in person, or they’ve had some kind of touch with me that feels more personal. For example, I do webinars, or Facebook Live, or Reddit Ask Me Anything –  that kind of thing, where people can ask me specific questions about self-storage and I can answer them back. On video, real-time, and even if they’re not physically sitting there in front of me, they feel like they have a real conversation with me. I’ve gotten some very large investors that way, in person.

I do speaking gigs, paid and unpaid, on real estate training, self-storage training… I do very limited coaching; I don’t have time for a lot of coaching clients, but I do coach on real estate and self-storage… And all of those are obviously personal touches. Or I’ll meet somebody at a networking event, something like that. So there is a lot to be said for that, but that’s from the initial amount invested.

If somebody commits $50,000 and you’re making them 12%-14% or whatever it is in their first year, and it’s self-storage funds, which is something that we can do, they’re obviously gonna be a lot more willing to come back later and say “Hey, here’s another 200k out of my savings” or “I sold some stocks, here’s 200k”, or whatever it is. We can still end up with roughly the same amount of invested money from either somebody that I didn’t meet in person the first time around, or somebody that I did. You never know.

Joe Fairless: If there was one approach that you would fight someone for if they told you you can no longer do that approach, because it’s so valuable to you, what would that approach be?

Allison Kirschbaum: It would absolutely be webinars, or Facebook Live, something like that. Something where I can be on video, online, in front of people… Because think of a room full of 100 people, or 50 people, like the panel that you did here in Denver that day before Best Ever. In that room you’re talking to 50 people, and even if you have an amazing conversion rate – let’s say you convert 10% of those people into doing something with you, whether it’s buying an eBook, buying some kind of content that you have, that shows your expertise in the niche, or whether they invest with you – if you get an amazing conversion rate of 10%, you’re still only talking about five people out of those fifty in that room… Whereas if it’s 200, 300, you’re talking 20-30 people.

On a webinar, especially with the software that I have, which is a little bit advanced, you can fit up to 1,000 people on a webinar. And if my conversion rate, which is typical for webinars of any type – if my conversion rate is 10% of 1,000 people, we’re talking 100 people that are either going to purchase from me and become investors today, or they’re gonna buy a little bit of content, or they’re gonna get a consultation for coaching and they’re gonna become investors later.

So we just have so much more potential to reach people in a personal way through a webinar or a Facebook Live or what have you, something like that.

Joe Fairless: The thought process for most people isn’t “Okay, great, I can have 1,000 people”, the process is “How do I get 1,000 people?” So how do you get 1,000 people to be on those webinars?

Allison Kirschbaum: It is not instant. The best way to start – and this is something that I teach all of my private equity clients and all of my personal branding clients to Luo Media Group as well… You need to start with some paid traffic. Everybody thinks “I wanna go organic. It’s sleazy to do paid traffic.” It’s not sleazy. You open up your Facebook feed every single day; I guarantee you there are hundreds of people paying for your eyes to fall on their ad, and I guarantee you’re clicking on some of them.

So people do it all the time, every day; it’s not sleazy, and it’s really the only way, unless you already have a great list of loyal people that are reading your content, they read a blog, they read your LinkedIn updates, whatever it is, or they listen to your podcast, something like that… Unless you already have that list of people or you can borrow it from someone, that’s the best, fastest way to get a jumpstart on it. Then as soon as you’ve got people on your e-mail list, they’re getting your newsletter, they’re reading your blog, whatever it is – as soon as that begins to snowball for you, then it’s very simple to get a thousand people on a webinar. Not just once a week or once a month, but multiple times a week. Imagine the multipliers on that, Joe.

Joe Fairless: With your approach, I imagine you registered the fund so you can publically advertise it?

Allison Kirschbaum: Oh yeah, absolutely. We always use 506(c) funds, yeah.

Joe Fairless: C as in cat?

Allison Kirschbaum: C as in cat, yeah.

Joe Fairless: Cool. Yeah, because then you’re able to shout on the top of the mountain, “Hey, this is what we’re doing.” I’m thinking through this with the stuff I do, because we always do 506(b), so I can’t publically advertise the funds. Clearly, you’ve thought through pros and cons of b versus c, so why not b and why c?

Allison Kirschbaum: I have two main reasons for liking 506(c). The first one is that it’s much riskier as a syndicator in a lot of ways to use unaccredited investors who may or may not be sophisticated. An accredited investor, as you know, Joe, is somebody who has a very specific net worth, a very specific income, and they basically are ruled with the SEC, a setup that says “If you make over X amount per year or you have over X net worth” – this is something the Best Ever listeners can look up online as well, it’s all over the internet, the definition of an accredited investor… If you are over this threshold, the SEC basically thinks “Hey, you’re a smart enough person. You’re qualified to be in a little bit more advanced investments”, and that means that there are a lot more investors open to accredited investors than non-accredited.

And that’s not always the case. Sometimes somebody inherits money and they’re not any smarter with money than some people who’ve never made a dime to their name… But unaccredited investors, in a lot of cases, simply don’t have as much financial experience. Maybe they’ve never invested in funds before. Maybe they don’t even own real estate. Maybe they ended up with an insurance settlement from a death in the family (God forbid something like that), and they’re renting right now, and they want to invest in something because they’ve been told that’s what they should do. And even if they seem like a  really great candidate overall for the fund – if they’re smart people, if we have a good rapport, and if they check out in every other way, it tends to be harder on the investor and harder on the syndicator to work with unaccredited investors, for most of those reasons.

Joe Fairless: I’m with you on that. I only do accredited investors, even though I do 506(b), so what’s the other reason?

Allison Kirschbaum: Oh, do you?

Joe Fairless: Yeah.

Allison Kirschbaum: Okay. Well, the other reason – and this is the reason that I think 506(c)’s are the only way to go, but this is just me… 506(c), you can advertise any way you want to. You can stand on a stage at a conference and say “Hey, this is what I do.” You can put up a billboard on the side of a highway; you can do social media ads. There’s some restrictions as to what you can and cannot say on those ads, but nevertheless… Where if I was a (b), you can’t even put up an ad, you can’t even say “Hey, we’re the experts in self-storage investing. Come talk to us and learn more.”

That’s all we can sometimes do with our ads because of those restrictions, but we can at least put it out there. We can reach millions of people, versus with other types of funds they’re either much more expensive, like a Reg A+, in order to get the same kind of reach, or you can’t do that kind of advertising at all, like with a 506(b). That’s why I love 506(c).

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

Allison Kirschbaum: My best investing advice ever is to read on a subject until it starts to repeat itself, and then keep reading until you find something that refutes what’s repeating itself.

Joe Fairless: Will you give an example?

Allison Kirschbaum: Yes. So when I was first starting to learn about creative deals — creative real estate generally has two or three different topics that you would read about: lease options, seller finance, or wrap. Everywhere you go, everybody talks about creative real estate as being those three things. So I read and I read and I read; I read for hundreds of hours a year, trying to find other ways to do creative deals. I said “This can’t be all that’s out there.” So I read until it started repeating itself, which is the point at which you realize that you’ve probably read enough; you’ve read enough to get started, you’ve read enough to know what you don’t know and to be careful. And then I kept reading, because I wanted to know what else was out there. Because the weird thing about any industry is that the it’s the people that tend to go against the grain of the industry, the people that take a niche market, the people that work outside of hot areas, whatever it is, in any industry – they tend to be the people that have some kind of expertise that nobody else knows. They’ve got like the secret sauce.

So I wanted to find that secret sauce for creative deals. And I kept reading, and I kept meeting random people, and I kept just pushing forward, looking for that thing, until I met a broker who was actually advertising a property on Craigslist; he was a totally legit broker, he’d been in the industry 30 years, his expertise was in 1031 exchanges… I met him at this property, and we spent about 30 minutes looking at the property and two hours talking about creative deals… It turns out there’s a whole society of really experienced brokers called The Society Of Exchange Counselors that focus on creative deals. And there are literally hundreds of ways to do a creative deal… And I never would have figured that out if I had stopped at just reading lease options, seller finance, wrap mortgage.

Joe Fairless: What’s one approach that you didn’t know through the reading, but you learned from that gentleman?

Allison Kirschbaum: I learned that you can use what’s called OPS, or other people’s stuff – it was a kind of parallel to “other people’s money” – as a down payment. In a deal that me and my dad were looking at doing about a year ago, it started out as a seller finance deal, and then it got even a little bit more creative, because a story that I had heard from this broker was somebody had put down as a down payment a Camaro for an apartment building. I don’t remember the exact details, but I know the down payment was a Camaro. The guy selling the building was seller-carrying it, and the guy wanted a Camaro, and it worked out perfectly.

So my dad has this great truck, and the seller of this property was like “Hey, what about the truck as part of the down payment? We’ll cut out some cash.” That didn’t end up the way that we went, but that’s the magic of what happens — we still ended up with a great deal… 5% down at the time of buying, 5% down a year later, and then a complete seller carryback deal; there was no bank financing whatsoever. So even though we didn’t go quite as creative as using the truck as a down payment, that was an option; that’s just an example of the magic that can happen when you have a creative seller and a creative buyer working with each other.

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

Allison Kirschbaum: I’m ready, Joe. Hit me.

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

Break: [00:27:02].26] to [00:28:08].10]

Joe Fairless: Okay, you read a lot of books, you’ve got them all over where you live… What’s a couple best ever books that you’ve read recently? …or in life. It doesn’t have to be recent.

Allison Kirschbaum: Oh, my… Well, most of my best ever books are technically not about real estate, they’re more about mindset or about business in general, because I believe that if you’re great at business in general and you have a great mindset, whether you’re in real estate or whatever it is you branch out to, you’re gonna be great at it. So one of my favorite books is Three Feet From Gold.

Joe Fairless: I love it.

Allison Kirschbaum: It was endorsed by the Napoleon Hill Foundation.

Joe Fairless: I love that one, yeah.

Allison Kirschbaum: I loved it too, because it’s one of those books that no matter where you’re at in life, it makes everything better, because it’s exactly what it sounds like. You could be in the middle of the worst storm you’ve been in, and you can think “Hey, I might be three feet from gold. I’m gonna get through this and I’m gonna hit gold.” Or you could be having the time of your life, you could be on top of the world and get lots of deals, lots of capital, and you can say “Hey, I could be three feet from gold. I could be three feet from getting even better.”

Then another book that I’ve been reading lately and that I really enjoyed [unintelligible [00:29:05].25] 10X Conference in Vegas last week (Grant Cardone 10X Conference) is a book called Relentless, by Tim Grover. It has also an amazing mindset point – people think that perseverance is all about Braveheart; they think of Braveheart when they think of perseverance, or something like that. You’re just on the top of the mountain, yelling, screaming, “I’m gonna do this! You can’t stop me!”, whatever it is. Relentless is about taking that calm, cold, icy center of yourself that’s so sure of yourself, it’s so sure you’re gonna get it done, whatever it is, that you don’t need to yell and scream. You’re just sure of it. You just walk into the room like you already own it, and you do that deal. That’s relentless.

Joe Fairless: What’s the advice you gave to people you were training who were two times your age for how to be a good salesperson?

Allison Kirschbaum: The only objection the customer has is trust. Yes, they can say that they don’t like the price, they can say that they don’t like the terms, whatever it is. That is all overcome by trust and like. So if you can overcome that barrier, you’re good as gold.

Joe Fairless: What about if they don’t have the money?

Allison Kirschbaum: If they truly don’t have the money, then you should probably help them figure that out as fast as possible nicely, so that you’re not wasting each other’s time.

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

Allison Kirschbaum: I have all my answers scripted out, Joe. You throw me for a loop.

Joe Fairless: [laughs] Good, I want to!

Allison Kirschbaum: I made a mistake when I bought into an industry that I thought I knew. I thought I’d done everything right – I bought into an assisted living property; four of them, actually. It was about eight months ago. I had all the right experts, I thought I knew everything about it. When I go into an industry, I read about it like crazy. I read 100 books a year. When I wanted to learn social media marketing, I read over 65 hours of content in eight days. I read 32 books in eight days to learn social media marketing and various other stuff.

So when I wanted to learn assisted living, I did the same thing – I attacked it, and I thought I knew everything there was to know, and I hired the best experts to manage the property. We get into the property, and I thought my perseverance is gonna pull it out; I thought I could be relentless enough to make it work, and it just didn’t. It kind of all fell apart really fast, all at once. In a way, I’m not sorry about it, because it’s led me to some other really great breakthrough things that — as my mom likes to say, “When you get squeezed, but you get to see what’s in ya…” I found some great things that I’m capable of that I didn’t know I was capable of until this happened. But at the same time… You know this – if you ever had a deal fail, you keep going over it in your head, like “Man, what could I have done differently? There’s something else I should have known. If it’s my fault, then there’s something else I should have done.”

So that’s a mistake I’ve made, and apparently, even with all my preparation, I didn’t prepare enough.

Joe Fairless: I love the quote from your mom, by the way. I wrote that down, among other things. How much money did you lose on that one?

Allison Kirschbaum: I have still yet to find out. This happened really recently, but it sounds like it’s gonna be around 280k, something like that. It could definitely be a lot worse.

Joe Fairless: How do you make money in your fund?

Allison Kirschbaum: How do we make money as sponsors?

Joe Fairless: Yeah, as sponsors.

Allison Kirschbaum: We take an equity share in each of our funds, and each person that invests with us gets an equity share based on the amount that they initially invest. And the more they invest, the bigger the equity share they get. So we end up owning between 45% and 50% equity in each fund. We also get a buy, refi and disposition fee, because we have a structure where we refi fairly frequently in order to be able to buy in cash and then pull that value out and redistribute it to other properties, instead of using loans upfront, because it’s much faster that way. It makes the process a lot smoother for everybody.

Then we also have a disposition fee, because in most cases, for the funds that we have now, we’re gonna have to sell at some point, unless we change the structure somehow, and we’re not planning to at this point. I’m just leaving an option open there.

So we make money through the acquisition, refi and disposition fees, and through the ownership of equity. In one of our funds we take a management fee, in the other we take a salary, so that can vary just based on your preferences as a sponsor.

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

Allison Kirschbaum: I really like – and I end up doing this a lot… This is how I got into coaching, actually; I find myself mentoring people that just didn’t know anything about real estate and they would hear me talking to somebody maybe at a networking event or whatever about something that I do. And most of what I do is really different, and I’ve engineered it that way. I specifically, when I got into real estate, told myself, “No offense to anybody out there who does this, but I don’t wanna be just another single-family investor or just another multifamily investor, because that’s Red Ocean.” People who read the book Red Ocean, Blue Ocean… Red Ocean is a place in the market that’s really saturated; there’s a ton of competition, there’s a ton of really good people out there, and I don’t wanna compete with the people in the industry that were already real good as a 21- year-old kid with no credibility in the industry. So I wanted to specifically take a niche that not a lot of other people were in, which led me to self-storage. Now, obviously, I’m in private equity, I’m in marketing for private equity… None of those things are extremely common.

When I sit down at a networking event and I’m talking with somebody, and I throw out those words, inevitably at least one or two other people at the table that are kind of new or are brand new will lean over to me and say “Hey, I’d really love to learn more about self-storage, or this, or that, or whatever it is you do… Can we sit down and have a conversation?” and I would end up having literally between five and eight 30-minute free conversations with people per week, just educating people, because I’d love to educate people.

And that’s obviously what I do now through content and books and white papers and blogs and podcasts and all of this stuff… But I was taking up so much time doing it, spending it on one person, I said “I’m gonna continue to do this, but I’m also gonna start doing it as a paid service, so that people who value their time can value my time, and show that they are by paying me a little fee.” But I still like to do that for certain people; I still meet people, especially young people, my age or a little bit younger, millennials that show that they have initiative and wanna get into this industry, and they just need to know a little bit more; they need to know some of the options they’re not familiar with.

Every time I go to a networking event, which is very frequently – I went to one last night – I’ll pick a new person in the room and I’ll sit down next to them and I’ll get to know them and I’ll make them feel welcome, and I’ll find out what I can tell them that they don’t already know about the industry, I’ll kind of open their eyes a little bit.

I sat next to a wonderful lady last night who didn’t know what capital raising was, what private equity was, and as soon as I explained it to her, she was like “That’s what I wanna do in real estate. Thank you for opening my eyes.” So that’s what I like to give back, is just sharing my knowledge.

Joe Fairless: That’s cool, and you’ve certainly taught me a lot during this short conversation; I’m sure most Best Ever listeners have gotten a lot of value from this… And the ones who didn’t, they probably just were maybe distracted, or something. So how can the Best Ever listeners get in touch with you?

Allison Kirschbaum: I am very easy to find, I’m all over social media. I have multiple brands, as well as my personal brands – all over Twitter, LinkedIn; I’m on LinkedIn as Allison Kirschbaum. I have my personal website, AllisonKirschbaum.com. If you wanna learn a little bit more, get some great free content on how to market your private equity funds, maybe some tips on how to get out into social media yourself if you have a 506(c) fund – you can visit us at LuoMediaGroup.com. And for the people that wanna learn just a little bit more, listen to one of my podcasts or get some free content like “The Top 10 Mistakes That Self-Storage Investors Make and How to Avoid Them” – you can get resources like that at my website, YDKSS.com (which stands for You Don’t Know Self-Storage), which you’ll know after you read the site. And you can also find us for more general real estate investing advice like “Why do I need an LLC?” or “How do I find my first investor?” at YDKRE.com, which of course stands for You Don’t Know Real Estate.

Joe Fairless: Awesome. Allison, thank you so much for spending some time with us and talking about your funds that you have put together, how you got to this point, how you make money in those funds, lessons learned when you’ve taken different directions… I love the quote from your mom, “When you get squeezed, you get to see what’s in ya…” That’s actually very profound.

Also talking about how with the funds that you have, or the investors, you’ve raised approximately 7-10 million of the 25 total, and how you found them, how you’ve developed those relationships; you are able to publically advertise because you do 506(c), so then you’ve got the  webinars and Facebook Live, as well as some other things… And then many other things that I didn’t even summarize, but those are some of the things that I’ve put in bold in my notes.

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

Allison Kirschbaum: Sounds great. Thanks for having me, Joe.

JF1300: Using The Best Data & Analytics To Optimize Airbnb Properties & Returns with Scott Shatford

Scott saw a huge lack of data and information in the Airbnb area of investing. He set out to scrape all the data he could and provide nice, easy to understand information for investors. Scott also used to be an investor himself but sold his properties to focus on this business full time. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Scott Shatford Real Estate Background:  

  • CEO and Founder of AirDNA, an Airbnb data & analytics company specializing in Airbnb intelligence
  • An Airbnb pro, author, vocal advocate and industry expert in short-term rentals
  • Utilizes his 15 years of experience as a data analyst
  • Recently launched Market Minder, a competitive intelligence tool built to empower both beginners and seasoned Airbnb entrepreneurs worldwide with the data to make smarter decisions
  • Based in Denver, Colorado
  • Say hi to him at www.airdna.co

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TRANSCRIPTION

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

Scott Shatford: Really good, Joe. Good to be here.

Joe Fairless: Nice to have you on the show. A little bit about Scott – he is the CEO and founder of AirDNA, an Airbnb data and analytics company specializing in Airbnb intelligence. He utilizes his 15 years of experience as a data analyst to then launch the company, and recently launched Market Minder, a competitive intelligence tool built to empower both beginners and seasoned Airbnb entrepreneurs worldwide with data to make smarter decisions.

With that being said, Scott, do you wanna give the best ever listeners a little bit more about your background and your current focus?

Scott Shatford: Sure. I spent 10 years in corporate America, working in data and analytics, data warehousing and how do you present data to make it consumable by executives. I was laid off from that job, and kind of fell into the Airbnb space. I grew a portfolio of Airbnb properties, and realized there was really no data out there to help people make decisions on where to invest or how to optimize those properties… So I kind of set out to figure out how to scrape the world of Airbnb, analyze that data and make sense of it to help people target investment properties and how to price their properties more effectively, and how to compare their performance versus their peers.

Joe Fairless: So what are some specific things that you’ve learned since launching the business that would be helpful for real estate investors?

Scott Shatford: The short of it is that there’s a massive opportunity there that still hasn’t been tapped. I think there’s a huge margin between what properties are valued at, both as purchases and as leasing properties, to what they’re able to earn on the short-term rental market.

A lot of our focus is on how to figure out where those arbitrage opportunities exist and where real estate is undervalued based off of what its earning potential is on Airbnb and other short-term rental platforms.

There’s lots of specifics in that, obviously, by how to target the right types of properties, and what types of properties are under-supplied, and [unintelligible [00:04:25].15] are performing really well… But in general, that is kind of the thesis of the business – properties undervalued based off of their Airbnb potential.

Joe Fairless: For targeting the right types of properties – does that vary based on the market?

Scott Shatford: It does, and the market is maturing a bit. There’s 40,000 properties in New York, and 28,000 in L.A. We’re used to being able to kind of just throw up any old property pretty much anywhere and you get some demand. You have to be a little bit more thoughtful about it. What is the competition doing? How much competitive supply is in different markets? But also getting down to the property level – when would a property be undervalued as kind of a real investment, like a single-family home investment? When is it undervalued as a short-term rental?

Just to kind of give you some tidbits on that – what if it’s in a bad school district? Short-term rentals don’t care about it. What if it’s on a busy street? People don’t really care about that as a short-term rental. What if you have a train track running through the back of it? People don’t really care for a three-night stay. So there’s lots of these little components about properties that make it really attractive short-term rental investments, but don’t make them really good investments for people that wanna live there full-time.

Joe Fairless: Yeah, that’s really interesting. That something that I hadn’t heard talked about. Did you go in thinking or knowing those sort of things, or based on the data that you scraped that’s some things that you discovered?

Scott Shatford: It’s stuff that we discovered over time, talking to people that have gone pretty deep into how to analyze properties and markets in this space, and that’s definitely some of the ideas that I’ve come talking to some of my customers over time.

For me the original idea was that hotels are over-priced, there’s not enough competition for hotels, and the one-bedroom apartments were undervalued based off of the hotels that were right across the street. So my investment thesis to start off with was I wanna buy everything across the street from the Four Seasons. High-end hotels are charging $400/night, and I’m gonna put on a bigger space, with a washer and dryer and a balcony, and twice the size, and I wanna price it at half the price… And how can a consumer not say yes to that?

Joe Fairless: Right.

Scott Shatford: So that was kind of the original thesis… And a lot of the ways that people are still investing is that hey, this hotel has 88% occupancy, has an ADR of $380, but this nice, new high-rise condo complex went up across the street and I can make a lot of money by running that at $300/night and offering a lot more amenities and space.

Joe Fairless: Yeah, that seems like a no-brainer right there. Do you also invest and buy properties across the street from hotels, or have your own Airbnb rentals?

Scott Shatford: I have like seven Airbnb rentals in Santa Monica… I ended up getting rid of those properties really to focus on this business. It’s a full-time growing business, it’s doing pretty well; we’re about 25 people and trying to add another 25 this year… I’m totally focused on the data and how to empower other people to make these decisions.

Joe Fairless: And how does your company make money?

Scott Shatford: We sell that Market Minder report that you mentioned. It’s a subscription product, you can buy for over 30,000 markets around the world; you can subscribe to it for anywhere between $20 and $150/month. We also sell to corporate America. We sell to the major hotel chains, we sell to the hedge funds, we send to DMO’s (destination marketing organizations) and a laundry list of other people that are really interested in how Airbnb is impacting or disrupting traditional lodging and opportunities that it’s creating in the real estate space.

Joe Fairless: What else haven’t we talked about as it relates to the data that you are uncovering, that’s relevant to real estate investors and we should talk about?

Scott Shatford: That’s a good question. What our core technology does is it really looks at every single Airbnb property and tries to uncover via the activity on the account of that property exactly how it’s performing – the seasonality of that property, revenue-generated occupancy rates… So really just trying to replicate traditional hotel stats for the short-term rental market.

One of the tools that we’re trying to develop with all that data is really first automated valuation model for short-term rental properties. We’ve titled that The Rentalizer, that’s what we’re calling that product, and that’s where we see the future of our business – people don’t wanna think too hard about overall market data and historical trends; they wanna put in the address and see what the comps look like and what that property could earn as a well-run vacation rental. That’s kind of the direction that we’re heading as a business, is being able to do that and do that well globally.

Joe Fairless: And what are some trends in certain markets? Because I’m sure you look at different markets. Anything interesting across the U.S. in certain markets or regions that you’ve noticed?

Scott Shatford: I think the people are starting to get out of the major markets for these investment opportunities. They’ve become saturated, there’s a lot of hotel development in these major markets… So what we’re seeing is a flat growth in San Francisco, New York, Chicago, New Orleans – these markets that were really hot for the last five years – and they’re looking for opportunities in these secondary and tertiary markets where there just aren’t a lot of properties… Maybe like a Louisville, Kentucky, or something of that nature.

People are trying to figure out 1) how to get into these smaller markets, and 2) I think the trend right now is how to capitalize on the growth in group travel. This is millennials traveling for a bachelor party, 20 people showing up for whatever sort of event… There’s a lot of money being made on buying 4 or 5-bedroom homes in some of these cheaper markets and renting them out for $1,000/night on the weekends to the group travel.

I think there’s been a big transition from trying to replicate hotel supply (1-bedroom or studio right in the middle of town) to — I think the new opportunity has been in larger places… Larger homes, in smaller towns.

Joe Fairless: With the larger homes in smaller towns – maybe not even specific to that, but what type of data points are at the core of what someone should look at when assessing the opportunity for if they should do Airbnb or not?

Scott Shatford: We have a separate product, it’s called Investment Explore. We think the real basics are “What is the average home cost in a zip code, of different sizes, versus what the average property is making on Airbnb on average?” That really simple, basic comparison of what properties cost and what they’re earning on Airbnb is obviously the best place to start.

The Investment Explore product allows you to explore different markets in your state or in the country to identify where that arbitrage opportunity is the best. In terms of other data points, a lot of people use some data points that we don’t even have, which is [unintelligible [00:10:53].21] People really are using Airbnb because the location of hotels isn’t great for where they’re going. If it’s a college graduation or visiting a relative in a hospital… There’s a lot of places that don’t have hotel supply, and so what a lot of my investors are doing is looking at where are people going, and is there a lack of hotel supply there? A lot of these are in suburban areas where there is still demand, but not for like the traditional business travelers.

So that is a huge advantage for Airbnb and Airbnb investors – hotels are gonna take five years to build something from the ground up, and they’re not really gonna add a hotel that’s like a 30-key hotel and buy a hotel, but an Airbnb host can buy five properties there pretty easily and flip them into lodging supply in three months. There’s a lot more speed to market for an Airbnb investor than a hotel can ever do.

Joe Fairless: What’s been a major challenge of your since launching the business?

Scott Shatford: It’s such a rapidly changing marketplace, and we rely on data sources both that we are scraping from websites, and both that we are getting delivered to us via some third-parties. Just the speed at which things are developing makes it more and more complicated to be able to aggregate and make sense of that information and make sure it’s all accurate… Let alone that websites change, and Airbnb is doing crazy stuff, and there’s a cat and mouse game about how we can continue to get all this data at scale. Also, there’s lots of different API changes and different — just getting data in this sort of manner, at this sort of scale, it becomes challenging.

Joe Fairless: And how are you solving that or attempting to solve that?

Scott Shatford: Spending more money on more engineers. One good thing is that vacation rentals used to be dominated by this very fragmented market, where there was like an individual property manager in every little ski town and every little beach town, that had their own little kind of silo of information. Now that the market is dominated by HomeAway, Airbnb and Booking.com – those are three major sources you can go to to grab 70% of all vacation rental properties around the world…

So it’s easier today to get a good idea of the full market size of vacation rentals and what they’re doing, but the way that we have to get this information — Airbnb is not nice enough to ship this data to us on a daily basis… So analyzing, scraping, algorithms, machine learning models – all that stuff needs to be built to make sense of that data.

Joe Fairless: And I’m just curious, with your name, AirDNA and a different company that you help others with Airbnb – two different companies, no overlap in ownership… How are you able to have that name? Just help me understand that, I’m just curious.

Scott Shatford: You just think it’s too similar to the Airbnb name?

Joe Fairless: Yeah. It’s good for you, that’s a good thing, but I’m just curious if you heard from them at all, or if that’s just bulletproof from a legal standpoint.

Scott Shatford: Everything’s pretty bulletproof on our legal standing. We don’t do anything that Airbnb does, we don’t rent places… If we were trying to rent accommodations on our AirDNA site, there might be an issue.

Joe Fairless: Right.

Scott Shatford: Since our services are complementary and completely different, we don’t really think we get into any grey area in terms of our naming.

Joe Fairless: Cool… Just curious. How can the Best Ever listeners learn more about your company? Where should they go?

Scott Shatford: Our website is obviously our best resource. It’s AirDNA.co. We provide a lot of free information there, so search for your city, search for your neighborhood… We cover pretty much every square inch of the world. Some places in Africa are lacking, but we try to cover pretty much everywhere that there’s an Airbnb property – we have data on that area.

We also have a great blog. It’s a great resource where we throw in a lot of data-driven stories about the best places to invest. We have some blogs that had over a million views, that really talk about what is the best investment opportunities at the city-level for Airbnb investments… So that’s a good place to start.

Joe Fairless: Cool. How come not .com?

Scott Shatford: We were a startup and cheap, and we’ve been trying to wrangle it from some guy in China, but he’s not very responsive these days, so… But we’re working on it.

Joe Fairless: Fair enough. Well, Scott, thank you for being on the show and sharing your entrepreneurial journey. Also some tips for some Best Ever listeners who have properties in a bad school district, or on a busy street, or next to a train track – well, look at doing Airbnb and then you can get some data from AirDNA.

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

Scott Shatford: I appreciate it, Joe. Thanks a lot.

Craig Curelop and Biggerpockets

1260: BiggerPockets Analyst Tells Us His Life-Hacking Story with Craig Curelop

Craig tells us about his lifestyle of financially maximizing his own duplex and car. We’ll hear the pros and cons of house hacking on an extreme level. His role at BiggerPockets is to keep track of all of the finances, but he is also an investor. An interesting story that surely has value for all different levels of investors. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Craig Curelop Background:

-Financial Analyst at BiggerPockets full time

-Real Estate Investor, known as “Life Hacker” – Realizing maximum efficiencies on investments

-Closed on first property in June 2017, a duplex that he’s currently house hacking.

-Purchased a duplex, rents out the top and AirBnb my bedroom

-Would like to partner up with someone and purchase another multifamily property this year  

-Say hi to him at www.biggerpockets.com

-Based in Denver, Colorado

-Best Ever Book: Never Split the Difference

 


Made Possible Because of Our Best Ever Sponsors:

Are you looking for a way to increase your overall profits by reducing your loan payments to the bank?

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.


TRANSCRIPTION

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

With us today, Craig Curelop. How are you doing, Craig?

Craig Curelop: Doing well, how are you?

Joe Fairless: I’m doing well, nice to have you on the show. A little bit about Craig – he is a financial analyst at a little-known website called Bigger Pockets. He is a real estate investor, he’s also known as a life hacker, and we’re gonna talk about that.

He has a duplex and he is maximizing the earning income potential of that duplex. We’re gonna talk about how he’s doing that. He’s based in Denver, Colorado; that’s where BP is headquartered. With that being said, Craig, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Craig Curelop: Yeah, absolutely. I’m relatively new at this real estate game. My first property I closed on in June, but I just started getting interested in real estate probably last year around July. I just did a bunch of research and all that stuff, and it just seemed to make a lot of sense. After about six months of doing research and all that stuff (BP was a huge help for that), I decided to kind of take the dive in and buy my first duplex here in Denver.

Joe Fairless: Tell us about the duplex.

Craig Curelop: It’s a top-bottom duplex, it’s about a mile and a half from my office. What I do is I rent out the top half conventionally (it’s actually a two-year lease) and I Airbnb my bedroom out… And I kind of made like a quasi-bedroom out of my living room. So basically it’s a [unintelligible [00:03:34].04] duplex, and I’m kind of trying to maximize the amount of cashflow I can get from this property at this time.

Joe Fairless: You rent out the top conventionally – that’s what, a 12-month lease?

Craig Curelop: Yeah, it’s a 24-month lease.

Joe Fairless: Does the rent increase after 12, or is it one amount for all months of 24?

Craig Curelop: I’m happy with the amount of rent I got. I always felt fine with just kind of guaranteeing those 24 months without having any vacancy in between, so I kept the same amount.

Joe Fairless: And what’s that amount?

Craig Curelop: It’s $1,750 for the top.

Joe Fairless: $1,750, okay, and you’ve got that on a 24-month lease, and you do Airbnb the bottom bedroom…

Craig Curelop: Correct.

Joe Fairless: How much is that on average?

Craig Curelop: So obviously that changes… In the summertime it’s probably around $1,500 or so, and then as the months get colder, so does the cashflow, and it’s probably about $1,000; that was the lowest month I’ve had thus far.

Joe Fairless: Okay. How much did you buy it for?

Craig Curelop: I bought it for 385k. The mortgage payment on that with — I used an FHA loan, so I’m gonna have the PMI and all that stuff; so the whole PITI mortgage payment at the end of the month is just shy of $2,300. With the top being $1,750 and the bottom just say average about $1,200-$1,300, I’m clearing the mortgage by about $1,750. I set aside $250/month for all the reserves and all that kind of stuff, and the rest is just cashflow that I just put back into my investment and it will help me buy my next property.

Joe Fairless: And I don’t want this to be passed over by me during our conversation… You also live at this duplex, right?

Craig Curelop: Yes, correct.

Joe Fairless: You live there… And you live in the living room?

Craig Curelop: Yeah. The way I look at it is — I know it’s probably not the most ideal situation for a lot of people, but I’m still relatively young and I feel like you kind of have to do things that other people aren’t willing to do to be successful later on. I’m thinking, “Okay, how can I hustle? How can I get the most out of this right now?” I made a nice — I have still a comfortable place to sleep, it’s just behind the curtain instead of behind the door.

People always make fun of me for it, but I really do enjoy it. I get to meet people from around the world, I talk to people every day, and the best part is that you have that roommate, so you have that person to talk to; then they leave in two or three days, so anything that annoys you is just out the window. So I really do enjoy it, and it’s really not much of a sacrifice to me.

Joe Fairless: Well, I love your approach, that’s for sure. I didn’t go as extreme as you… How old are you?

Craig Curelop: I just turned 25 last week.

Joe Fairless: Okay, happy belated birthday. I wasn’t as extreme as you’re doing when I was in New York City, but I always had a roommate. My friends made fun of me, they said I was living like a college kid; I had a dorm-style refrigerator, had literally no living room… But you’ve taken it to another level. If I had taken it to your level, the only way I could have done that is — since I didn’t have a living room, I could have maybe had two twin beds in my room, and I guess bunked up with a random stranger, where they have one twin bed, I have another…

Craig Curelop: Yeah, it is kind of difficult if you’re sharing a bedroom with someone… I don’t know.

Joe Fairless: It would get a little awkward.

Craig Curelop: It would, yeah.

Joe Fairless: So you live in a living room, you’ve got a curtain instead of a door, and you have the top rented out, you have the bottom as a revolving door, and you’re making maybe a couple hundred dollars a month; more importantly, you’re covering all of your expenses and you’re building equity in this property.

Craig Curelop: Yeah, absolutely. And to top it all off too, it’s also a mile and a half from where I work, so I can easily bike to work in the morning… So my transportation costs are next to nothing. I buy a tube every once in a while for my bike, and that’s pretty much it.

Joe Fairless: Do you bike to work when it snows?

Craig Curelop: Yeah. The only time I don’t bike to work is if I really need to do something after work that involves a car…

Joe Fairless: Do you have a car?

Craig Curelop: Yeah, so I do have a car; I’m not sure if you heard about…

Joe Fairless: Mr. Money Mustache?

Craig Curelop: Mr. Money Mustache, of course; one of the things he says is for every asset/liability that you have, you should have a form of income from that. That’s kind of how I view it, so I also rent out my car, too.

Joe Fairless: Oh, really? What service or app do you use?

Craig Curelop: It’s called Turo, and it’s basically just like Airbnb, but instead of renting an apartment, you rent a car. People rent it sometimes for a couple of weeks, sometimes it’s for a day… But it is [00:08:04].07] day, so it’s not like someone’s just gonna come for an hour, run an errand and then come back.

Joe Fairless: And how much do you make on that on average a month?

Craig Curelop: This is super volatile. In the summer months I was making $500, $600, $700/month after I set aside $100 for reserves for the car every month; now that it’s getting colder, I’m kind of just hitting that $100 of gross a month… So I put aside $100 and that’ll pay for some of my expenses as they come. I’ve got a Toyota Prius, so the expenses on that shouldn’t be too high.

Joe Fairless: Tell us an interesting story, and perhaps one that maybe will scare other people away from doing this, that way we really understand the downside of living in the downstairs with a curtain separating you from strangers coming in and out of your house every three days.

Craig Curelop: Honestly, the stories aren’t that scary. Sometimes you hear a little too much about what’s going on in the bedroom. That is probably one thing that you’re gonna have to get used to.

The other thing is that I actually had a couple from England come by, and I walk into the house and it’s like 85 degrees or something, and I’m like “What the hell — why is the heat so high?” He was like “Oh, sorry…” – they didn’t know Fahrenheit, so they just put it up as high as they felt like they could. I was like, “Oh… Whatever. I guess I can’t blame you for that.”

That’s kind of like the horror story, and it’s really not that often that I feel uncomfortable or there’s any bad situations happening. Usually, you have great conversations with the people that are coming in. I’m a traveler myself, and seeing people travel and talking to these travelers kind of satisfies my travel bug without having to go anywhere… So I think that’s really great, too.

Joe Fairless: Do you have a significant other?

Craig Curelop: I do not. In the event that I do get one, then I will question whether the Airbnb makes sense, or then I have the option of staying at her place, so… We’ll absolutely cross that bridge when we get there.

Joe Fairless: To me it’s pretty clear the pros grossly outweigh the cons. With the pros – you meet interesting people, you create new friendships and you have the financial upside for having this arrangement. And the cons – you come across sex noises and you have utilities that sometimes can be high because people don’t know the difference between Fahrenheit and Celsius.

Craig Curelop: Yeah, exactly.

Joe Fairless: It’s a pretty compelling case for doing this, but given your circumstances where you don’t have a significant other, it’s a lot easier to pull this off, compared to if you did, so… Props to you for doing this. I’m really grateful that you are sharing your story.

What’s the next deal? How does this evolve from here?

Craig Curelop: So I’m gonna continue working hard here at Bigger Pockets and I’m gonna continue saving as much as I can, and next year after I have completed the criteria for my FHA loan, which is living in a property for a year, I’m going to try to buy the next one. It’s either probably gonna be another multifamily and I’ll do something similar, or I might buy a single-family home, because I know you can do the 5% down conventional loan on a single-family and maybe renting out by the bedroom. Here in Denver, that seems to make a lot of sense, renting out by the bedroom, as long as you know the cons of that… You may be living with four or five different people, so it’s kind of just like a [unintelligible [00:11:22].03]

Joe Fairless: You’re okay with that, though; you won’t shy away from that.

Craig Curelop: No, no. I enjoy that, honestly. I kind of like living with people. I guess I’m an extrovert.

Joe Fairless: Well, we all have a need for community of connection, regardless if we’re introverts or extroverts; we all need human interaction and connection, it’s just different levels that we all need it, in my opinion.

Craig Curelop: 100%, yeah.

Joe Fairless: The title that you have at Bigger Pockets is financial analyst. I understand what that is, but what specifically do you do?

Craig Curelop: I just kind of call myself a finance guy here. At the end of the day, Bigger Pockets is a business, and it’s really a tech business, so my main thing is to kind of keep track of all the finances, put together the financial model, make sure where our revenue stands, if we’re making money on a month-over-month basis; if metrics are down, figure out why they’re down, and kind of share that information in with Josh and Scott and all those guys.

That’s kind of like the core of what I do, and then I’m also out there exploring new revenue opportunities as well. One of the things we’re launching over the next few months is we’re launching out some state-specific landlord forms… So we’ve basically gathered a fleet of lawyers from each state and had them look over and review landlord forms and we plan to give access to these forms to our users, so that they can be protected without paying thousands of dollars to have a lawyer look them over.

Joe Fairless: Wow, that’s outstanding. Will they be available for everyone, or do you have to have a certain membership level?

Craig Curelop: It will be available to everyone, but they will be for purchase, so I think it’s gonna be like $100 or $99 to purchase the whole set of landlord forms. It’s still at least a tenth or a twentieth of the cost of actually getting this done yourself, so we feel like we’re providing value, as well.

Joe Fairless: Very cool. Based on your experience with your duplex and being a thrifty and resourceful guy, what is your best real estate investing advice ever?

Craig Curelop: My best advice is just to — don’t be afraid to be uncomfortable. I think being uncomfortable allows you to grow and it allows you to kind of live a life that no one else is really going to live. It’s all uncomfortable, right? Making an offer on that first deal – it’s not comfortable doing it, but you have to do it. So once you kind of get comfortable being uncomfortable, that I would say is the best ever advice that I received, that I kind of try to carry on each day.

Joe Fairless: Normally, I ask “Can you give an example of how you’ve applied that in your life?”, but we’ve been talking about the entire example of how you apply it in your life, so thank you for that. It certainly reinforces our conversation.
Are you ready for the Best Ever Lightning Round?

Craig Curelop: Let’s do it.

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

Break: [00:14:08].13] to [00:14:58].15]

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

Craig Curelop: Never Split the Difference by Chris Voss.

Joe Fairless: What’s the reason why we shouldn’t split the difference?

Craig Curelop: The reason why we shouldn’t split the difference? That book is just a great book; basically, it’s a negotiation book and what Chris does is — he used to be hostage negotiator, so it’s an extremely entertaining kind of like sit on the edge of your seat type book; he also then takes it and then applies it to real-life situations. Some of the advice in that book — I think I paid ten bucks for that book, and the book probably has made me (or saved me) over $20,000. So I would just go out and buy the book right now.

Joe Fairless: Done. Alright, I’m buying it as soon as we get done talking. What’s a mistake you’ve made on your duplex?

Craig Curelop: I made the mistake of allowing a pet. For the up and down duplex, the noise – it’s not very sound-proof, so you can always hear the dog walking and jumping off the couch or whatever it is. Even the tenants told me that the dog doesn’t bark, which is stupid–

Joe Fairless: All dogs bark.

Craig Curelop: Yeah, yeah. It’s like saying a human doesn’t talk, you know? [laughter] So I believed him… And when they’re home — the dog actually doesn’t bark when they’re home, but when they’re away from home, the dog pretty much just constantly barks. These guys are bartenders, and so they’re not home until 3, 4 in the morning, so that’s kind of a mistake I’ve made, allowing a pet in a property before understanding the sound and all the acoustics of the place.

Joe Fairless: Do the two people who live upstairs have to go through the living room and pass your curtain whenever they get home at four in the morning from bartending?

Craig Curelop: No, it’s different units, different doors.

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

Craig Curelop: I love to write for the blog; basically, anytime I get information – I like to do a bunch of research and then I like to kind of share that with the world. I write for the Bigger Pockets blog and I try to share that with as many people as possible. I do try to donate a couple hundred bucks a month to various charities. I’m not (I guess) loyal to anyone, but usually I see friends that are raising money for something and I’ll always put in $100 here and $100 there for them.

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

Craig Curelop: You can find me on Bigger Pockets, you can find me on Facebook or LinkedIn; you can follow me on Twitter, but I never tweet and I’m rarely on there, so I would say Facebook or LinkedIn or Bigger Pockets are the three best ways.

Joe Fairless: Okay, noted. Well, Craig, thank you for being on the show and talking about how you’re making it happen on your first deal, and you really are maximizing the earning potential and the human experience to go along with it. You’re living a full life through this duplex, that’s for sure, from getting to meet all sorts of interesting people, making new friends and enjoying the financial rewards that come with owning a duplex and renting out the top and bottom.

Thanks for being on the show and sharing this with us, as well as some of the miscellaneous things you talked about, about other ways you are able to maximize your bottom line. I hope you have a best ever day, my friend, and we’ll talk to you soon.

Craig Curelop: Awesome, thank you. You too.

Adam Adams and Joe Fairless

JF1238: From Seller Financing To Loan Mods – Getting Creative For More Deals with Adam Adams

Adam and his company specialize in creative real estate investing, hence the name of his podcast “Creative Real Estate Podcast”. He’ll also help struggling owners stay in their homes by helping them negotiate a loan mod. If you want to learn more about creative financing strategies in real estate, listen to Adam on this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Adam Adams Real Estate Background:

-Multifamily investor with BlueSpruce Holdings, LLC and Host of the Creative Real Estate Podcast

-Started investing through Tax Deeds in 2005, became property manager 2006, then started a remodeling company

-2008 he bought his first multi family apartment building

-Claim to fame is ability to negotiate win-win scenarios through structuring creative ways to buy and sell real estate

-Owns portfolio of owner financed and private lender rentals

-Say hi to him at https://bluespruceholdings.com/

-Based in Denver, Colorado

-Best Ever Book: Rich Dad, Poor Dad

 


Made Possible Because of Our Best Ever Sponsors:

Are you looking for a way to increase your overall profits by reducing your loan payments to the bank?

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.


TRANSCRIPTION

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

With us today, Adam Adams. How are you doing, Adam?

Adam Adams: I’m doing great, how are you?

Joe Fairless: I’m doing great as well, nice to have you on the show. A little bit about Adam – he is a multifamily investor; they’ve bought a five-plex, a fourplex, a three-plex, and they’ve got almost a dozen homes. His company, Blue Spruce Holdings is based in Denver, Colorado. In 2008 they bought the first multifamily building, and they own a portfolio of owner finance and private lender rentals.
He and his business partner DJ are the hosts of the podcast called Creative Real Estate Podcast. With that being said, Adam, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Adam Adams: Yeah, definitely. I come from Utah and I focused most of my efforts in the beginning because my dad made me do real estate against my will, in college, when I didn’t save money, like he was trying to make me do, so I had to get into creative real estate. That’s why so much of what we do is owner finance things, some lease options and subject to’s, is mostly out of necessity, but I’ve found that even when we had money in the bank, it just seems easier to think a little bit outside the box. You can create a win/win pretty well.

I’m well-versed in real estate, and that’s why we have the Creative Real Estate podcast, at RealBlueSpruce.com, that DJ, Manny and I run.

Joe Fairless: Outstanding. Let’s talk about some creative real estate deals. Can you tell us about one deal that’s top of mind, what the challenge was and then how you ended up structuring it so it was a win/win?

Adam Adams: Definitely. The first one that comes to my mind, the challenge was that I didn’t have two years tax history; I was making good monthly income, but I was not able to qualify it for a traditional bank loan. The way that I structured it to make it kind of work is I offered a friend of mine to buy out the whole triplex with cash and partner with me, and to loan me the rest of the money, and put a mortgage note against the property that I would pay regularly every month. It did work, so it was a no-money-out-of-pocket deal. I was able to close on a multifamily property in a time that it was difficult to, regardless of my credit standing. I had a good credit score at the time, but you just need that two years.

The seller sold it for the price they wanted to sell it, a friend was able to make some money as we go, I was able to be a multifamily owner years and years ago, so it really helped.

Joe Fairless: So you found a deal and you liked it, you weren’t able to get a loan, so you went to a friend, the friend purchased it all cash, and then they acted as the bank, where you are paying them a monthly (essentially) mortgage payment… And you are the owner of that property, but they’re the bank, or how does the ownership actually work?

Adam Adams: It was a joint venture agreement. They were a 70% owner and I was a 30% owner. My portion of the property was done by an owner-financed bank note, so they put a mortgage against the property or a deed of trust, and then we filled out a promissory note that I’d pay  a certain amount for a certain amount of time, and we were partners.

Joe Fairless: Okay. So they still will retain ownership after you pay off what you borrowed to get the 30%, correct?

Adam Adams: Exactly, for that one property, and the end of — if I would have paid off, because I’ve already sold that a  long time ago, but if I would have just stayed in it and stayed in it, and not given him his portion back when I moved to Florida, then in that case I would have owned 30% with no note, and he would have owned 70% with no note.

Joe Fairless: Got it, cool. Very clear. How about another deal?

Adam Adams: A large portion of all the times that I’m talking to sellers that are in a foreclosure situation and offering them a lot of different strategies, most of the times it always ends up that I’m really good at selling them on  a way for me to contact their bank for them and to help to structure a loan modification. Most of my transactions that don’t count towards my portfolio, but they count towards creative real estate, happen to be because I was able to talk their bank into restructuring their loan for them, so they could stay in the house. Unfortunately, on a lot of those I didn’t make money, but I was able to help the homeowner with a creative strategy with loan modifications.

Joe Fairless: And you actually call the bank on their behalf and negotiate the modifications for them?

Adam Adams: Yes, and every bank’s slightly different, and actually every person at the bank is slightly different, but yes, I call… Sometimes we get power of attorney, sometimes the owner is just with me and they just have to say to the bank “Adam can talk, and I’m right here, just while Adam figures this out.” Then we’ll just kind of talk to them for a while, and ask if a lease option would work, if a subject to would work, try to make solutions with the bank… And a lot of times the bank just says “You know what, let me drop the loan” or “Let me forget 20k or 30k that’s owed, and if you start making your payments again you don’t have to pay the arrears.”

There’s been about a dozen of those, where they’re all a little bit different, but the loan company will modify it enough to keep the homeowner in the property, and the property owner can still pay. With that said, what I like about that is should there ever be another problem where they fall behind again, I think they’ll trust me, I think they’ll call me and see if I could help out. In that case, maybe we’ll take a property over subject to or do a lease option, because they understand that I started out with their best interest.

Joe Fairless: Yeah, that’s phenomenal to approach it that way. Now I’m putting on my business hat and I’m wondering, to put it point blank, what are you getting out of it, other than warm fuzzies? From a business standpoint is that it, just the warm fuzzies?

Adam Adams: Mostly the warm fuzzies, because I like to actually just help, but I know that if they tell their friends, and their friends tell their friends, eventually we’ll do enough subject to rentals, or maybe we have the story to go on your podcast, and it will be more than just a warm fuzzy… Maybe somebody who’s going through foreclosure right now will say “I’ve never even heard of a loan mod. Let me call my bank.”

Joe Fairless: Right. Well, we’ll take it. Just staying with that business angle though, have you seen business results as a result of you doing these modifications and going with someone to the bank and reworking — have you seen something come out of it from a monetary standpoint?

Adam Adams: There have been two times that because we worked with somebody, somebody else heard about it or they told their friend and we got a call, said “I heard that you’re the one who can solve this.” One of the times we did a lease option; I offered a subject to, but it ended up being a lease options structure where we did a fix and flip, we just paid the guy’s mortgage while we were doing it, we put in $50,000 while we were doing it, we sold the property, gave him his price that he wanted in the beginning that we couldn’t do ahead of time because there was $20,000 that we would have had to give to a hard money lender, and then when we sold it, he got his price and we were able to make a decent amount of money (about 30k) on that one.

So to answer your question shortly, yes, I do believe that because we do it, we do and will continue to make a little bit of money here and there.

Joe Fairless: How many modifications would you say you’ve done, or attempted to do?

Adam Adams: Attempted, between 10 and 12, I believe. I don’t have a number, but about a dozen.

Joe Fairless: Okay, that’s pretty good. And again, warm fuzzies aside – I get that part of it, and believe me, I’m with you, but just also looking at it from an analytical standpoint, from a business standpoint, if you’ve helped out or attempted to help out about a dozen, and that has resulted in good stuff for most of those people, but then also a couple deals that have come your way where you’ve made on average, how much, on those couple deals that you’ve mentioned?

Adam Adams: Maybe like 15k on one of them, and about 30k on another.

Joe Fairless: There you go, $45,000. So basically, if we look at it – and again, you’re probably thinking “Why are you talking about it from a business–“, I’m just looking at it from a purely analytical standpoint. So basically, every time you go with pure intentions – and hopefully I’m not tainting your pure intentions by doing this analysis… But every time you go with pure intentions to go help rework a loan for someone, it’s netting you $3,750, because so far it’s resulted in $45,000 profit as a result of your pure intentions. So basically, you could make the case that you’re getting paid $3,750 to go help these people for free.

Adam Adams: It makes sense, I like the way you look at it.

Joe Fairless: And I know you don’t look at it that way, but I was just wondering how that works from a business standpoint. Okay, cool. What’s the last deal that you’ve purchased?

Adam Adams: The last deal that I closed on was a fourplex in St. Louis. I didn’t have quite enough money in the bank to close it, and I didn’t realize on a Friday that we were supposed to close on a Monday, so I had to call up a couple private lenders and say “Hey, I need you to do this and I’ll give you a good return”, and both people said yes, and I went with the one that gave me the better terms. So it was a $50,000 note for 15%. They closed it in one day, so we were paying them $625/month, and cash-flowing really, really well on that fourplex.

Joe Fairless: Wow. How long do you plan on having that 15% interest rate on the 50k note?

Adam Adams: It’s a three-year interest-only note, and I plan on refinancing it about a year early.

Joe Fairless: [unintelligible [00:12:39].19]

Adam Adams: We’re making a lot of cashflow… The property – just how much is it ensured for is 600k+. We bought it for 60k, so I came out with just a few grand… We got a really, really good deal on it, or else I wouldn’t have been able to just call anybody up and say “I need 50k, I’ll give you 15% interest” and know ahead of time that I was gonna be able to pay them that and still cash-flow really well.

Joe Fairless: Did you say it’s ensured for 600k but you bought it for 60k?

Adam Adams: The purchase price was 60k. In the area right now it costs more to build than you can buy, so because we want to have a replacement cost insurance policy, it’s ensured for around 650k, but our purchase price was 60k. It’s probably worth around 100k, 120k right now.

Joe Fairless: That’s interesting. I’m glad you talked us through that. You’re in Denver, right?

Adam Adams: Yes, sir.

Joe Fairless: This is in St. Louis… How did you find it?

Adam Adams: A long time ago I was researching wholesalers, and because we have a couple of other houses there through a wholesaler, our property manager knew what our criteria was and they came to the table and said “Hey, here’s a fourplex. It makes plenty of cashflow, would you like to close on it?” I said yes, and I forgot about it until the — the business day before, I was like “Oh, crap…!” I still haven’t financed my houses, so I have a couple of houses that we own cash, and I was planning on getting a loan on those, so I could close on the fourplex, and we got so busy I never did that.

Joe Fairless: The part where you said you didn’t realize you were supposed to close on Monday – can you elaborate on that part?

Adam Adams: The property manager gave me a call and he said, “Hey, Adam, I just wanted to make sure that you were good to go to close on Monday”, and I was like “We’re closing this Monday?” He goes “Yeah.” I go, “Give me 20 minutes.” So I hung up the phone, went and called the private money lender, said “I’ve got 26k in the bank right now. This is like 60k. I’m gonna need a little bit of liquid”, so I said “If you could give me a $45,000 note, I will give you 18% interest.” They said yes.

Then I called the next one and I said “If you can give me a $50,000, I’ll give you a 15% interest.” They said yes, so… We just got our butts kicked really hard, because we’d been trying to buy larger apartment complexes with Blue Spruce Holdings, so…

Joe Fairless: Wow. Great story, thank you for sharing that. Based on your experience as a very resourceful real estate investor and team that you all have, where you were putting together some deals in truly a creative way, what is your best real estate investing advice ever?

Adam Adams: I would say follow up. That would be the biggest one. I think that most people lose out on what they do because they’re not following up with sellers or following up with brokers. That would be the biggest one. If you wanna be successful, be relentless and go out and do it, follow up. The fortune is in the follow-up.

Joe Fairless: Tactically speaking, what do you have in place that helps you with the follow-up process?

Adam Adams: A team, because I can’t do it very well on myself. We hire or bring in partners or employees that are really good at that kind of stuff. They’re good at systems, like Podio and other online systems to kind of make sure that you’re actually going through to the next step with people. But I can’t do it on my own, so I have a group of people…

Joe Fairless: Based on the follow-up process, what’s one lesson that you’ve learned along the way that you’ve optimized your approach?

Adam Adams: Well, it’s pretty simple… The lesson that I’ve learned is that how important following up is just because sometimes somebody will think that you’re done with the situation, nobody’s ever gonna call back. I’ll tell that sales person, the acquisition person, I say “No, you’ve gotta keep calling until they either tell you no, or you just keep calling.” I’ve had salespeople mad at me and upset; they’re like, “No, but this is really not going anywhere.” I go, “Seriously, if it was me, I would just call-call-call.” So they call again, and the result is a sale. That’s the lesson that I’ve learned with my team – even if you don’t really have full faith in the scenario working out for you, just follow up anyways until they say “Don’t call me again.”

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

Adam Adams: I’m gonna try to be ready.

Joe Fairless: I think you’re ready… You’ve got a podcast, you’re ready for it! First, a quick word from our Best Ever partners.

Break: [00:17:34].23] to [00:18:23].17]

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

Adam Adams: Definitely… Um, what is it? I say “definitely” and then I can’t even think of it. Rich Dad, Poor Dad, by far… By far.

Joe Fairless: Best ever deal you’ve done that’s not the first one or the last one?
Adam Adams: The best ever deal I’ve done – it’s similar to some other people on your podcast, and it’s so true… It’s the ones that you walk away from. it’s when you realize that it’s not gonna work out and you walk away and you don’t lose money.

Joe Fairless: Which one specifically? Can you give us a specific example?

Adam Adams: Yes, there was a 2,246-unit, seven-building complex that my company was working on, and I think that we were just in over our heads to be able to close it for 180 million dollars. I think we would have had a really, really bad lesson. But there was a lot of equity in it, and we really believed that we could just do a refinance in a few months and pull out many, many millions. But I think by walking away and going to one that we were more comfortable with, we were able to solidify that we’re not losing a whole bunch of money on making a transaction like that.

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

Adam Adams: Letting my tenants live in my property.

Joe Fairless: What?! [laughs]

Adam Adams: I had friends be my tenants…

Joe Fairless: Okay, I was like “Wait a second…” Alright, so don’t rent to your friends.

Adam Adams: I would say it was very bad for me to rent out to a family member, to a friend that I was close with, because when they can’t pay, it was very difficult for me to keep it business. And that won’t be the case for everybody, but that was my first mistake – letting one of my best friends come and move in with me and pay all this rent… And I continued to support him when he lost his job and stuff like that. That was definitely the biggest one. I would rather just keep it business, let a property manager manage the property, have them bring in the people, have them put in the three days notices, and you never have to worry about me with my big heart saying “It’s okay, okay. You’ll give it to me Friday, no problem”, and doing that for months and months and months.

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

Adam Adams: Through the podcast and through our group at Downtown Denver. I love offering to bring these strategies to other investors. So for me right now it’s just running a free meetup group and running a free podcast to help other people understand the strategies that have helped me get to where I am.

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

Adam Adams: If they’re interested in apartment investing things, that’s just BlueSpruceHoldings.com. Or if they just wanna see the podcast, it’s RealBlueSpruce.com.

Joe Fairless: I really enjoyed our conversation, Adam, and thanks for talking about specific examples of deals that you all have done, and the challenge and how it was overcome through creative financing, whether it was the joint venture, the first deal you’ve talked about, or the deal where you borrowed money from someone who paid all cash, or the transactions where you go in with good intentions and you’re able to help others out with the loan modification process, and then we just reverse-engineered your actual profits on that, which you weren’t doing before, which is great, because that’s what keeps your intentions pure, but you really are doing well on that, helping others and then also benefitting through deals that come from it.

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

Adam Adams: Thank you, Joe.

Best Real Estate Investing Advice Ever Show Podcast

JF1148: Which Markets Have The Best Rental Yields? With Dennis Cisterna

With a background in just about every area of real estate, Dennis can tell you just about anything you want to know. Currently the Chief Revenue Officer for Investability, he can provide you with everything you need as a SFR investor. They run many reports, one of which can tell you where the best rental markets are. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Dennis Cisterna Real Estate Background:

  • Chief Revenue Officer of Investability Real Estate, Inc., an online marketplace for single-family residential property investors
  • Hosts a weekly podcast, The Real Investor, to help real estate investors become more efficient and empowered in the residential investing space
  • Has over 16 years experience and leads all revenue-related functions, including sales, marketing and strategic planning.
  • Based in Denver, Colorado
  • Say hi to him at https://www.investability.com/
  • Best Ever Book: The First 100 Days

Made Possible Because of Our Best Ever Sponsors:

Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit www.fundthatflip.com/bestever


TRANSCRIPTION

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,  Dennis Cisterna. How are you doing, Dennis?

Dennis Cisterna: Doing great, Joe. Thanks for having me.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Dennis – he is the Chief Revenue Officer of Investability Real Estate. You can go see his company’s website at Investability.com, a link is in the show notes page. He also hosts a weekly podcast, The Real Estate Investor to help real estate investors become more efficient and empowered in the residential investing space, which lo and behold ties into Investability’s platform, which is an online marketplace for single-family residential property investors. Based in Denver, Colorado. With that being said, Dennis, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dennis Cisterna: Yeah, I’m happy to. I have been in the real estate investment sector for my entire career, which is almost 18 years now, and I have held a variety of positions, starting out as a housing market analyst, I’ve been a homebuilder, a land developer, an acquisitions guy, an investment banker, a lender, and now running this comprehensive platform for real estate investors, focused on the single-family in the residential investment space.

I have done it all and seen it all, and been in up markets and down markets, and I think we’re in a very unique spot in real estate’s history right now, where I think there’s a tremendous amount of opportunity right now to invest in a lot of markets, and I think the long-term outlook for real estate investing as an asset class when it comes to these residential properties is better than it’s ever been.

Joe Fairless: Why do you say that?

Dennis Cisterna: Well, you have a confluence of different factors going on that are both economic and demographic where we have an economy that’s been in a resurgent form for 6+ years where we’ve added back all the jobs we lost during the recession plus some. We have a nation that continues to grow from a population perspective, and yet we’re not adding houses to keep up with that demand; there’s a big inventory shortfall, which in and of itself would be a good opportunity for investors, since somebody always needs a place to live… But when you factor a lot of these other market constraints like a lack of available financing for a large percentage or the market, the fact that people aren’t saving as much money as they need to because they’re spending more money on housing – all this leads towards a longer-term rentership for this country more so than ownership.

Joe Fairless: Your background – holy cow! You mentioned like seven different roles that you’ve had… You certainly have a lot of different reference points throughout your career you can pull up in your mind and say “Okay, based on my experience as a homebuilder, this is an approach that I learned”, and as an investment banker, as a lender… I was trying to write down all of them, so say those again, will you? Because I was writing them down but I couldn’t type fast enough. I’ve got homebuilder, investment banker and lender.

Dennis Cisterna: Housing market analyst, land developer… I’ve also, probably like a lot of listeners in your audience, done a lot of direct investing myself, flipping properties and having rental properties as well.

Joe Fairless: Okay, let’s talk a little bit about what your company does now, and then we’ll back into some of these other jobs that you’ve done and how that applies to what you’re doing now.

Dennis Cisterna: Sure, absolutely. Investability is part of a larger publicly-traded company called Altisource Portfolio Solutions. Altisource is a large, vertically-integrated real estate service provider. They acquired Investability and our sister company called RentRange, which is a data analytics company, to be able to expand our presence in the real estate investment sector, and to be able to offer a lot of those services that they already had in house to this growing class of investors.

Investability not only leverages our existing data suite of products and our existing real estate brokerage, but it also takes advantage of a larger suite of services as part of Altisource. So whether you’re looking for your initial market research and analysis, or you’re looking to buy your first home or sell your investment property, or anything in between, we are a comprehensive service provider. So data company, brokerage, general contractor, property manager, title company, insurance company… We do it all.

Joe Fairless: And what is your specific role?

Dennis Cisterna: The Chief Revenue Officer – I run all of our sales, our marketing, our strategic planning, and I focus more on serving our larger institutional clients, guys that own 500+ houses and are continuing to expand their portfolios, where a lot of our solutions are geared towards smaller investors as well.

Joe Fairless: Okay, so an ideal smaller investor — how do you define smaller investor first off, and your ideal smaller investor is looking to do what with you?

Dennis Cisterna: A smaller investor is someone that owns between three and ten properties and is looking to either grow their portfolio or become more efficient at the properties they do own. When it comes to smaller investors, what most folks do with us is they purchase our RentRange reports which gives you an estimate of what your property should be renting for using our proprietary modeling and algorithm. So think of  a rentals estimate on steroids, where there’s more data in it, it’s used by rating agencies and Wall-Street investors to make decisions about what their properties should rent for or what the properties that are secured by securitization should rent for… And it makes sure that you’re maximizing your rental value, not under-charging through your properties.

Other folks will come to us for something as simple as just testing out if they have the proper property insurance for their investment property. Other smaller investors will come to us looking to either expand their portfolio or maybe trim the fat away from it and trim down what they hold.

Joe Fairless: How much does a RentRange report cost?

Dennis Cisterna: $14, and the more you buy of them, the cheaper it is. I think it’s pretty reasonable. If I can figure out a way to let your listeners understand how they can essentially charge an extra $25/month, it’s certainly worth that $14 for that report.

Joe Fairless: That’s a no-brainer, yeah. Now let’s talk about your different types of experience, because that truly is unique, or at least it’s not as typical. Why aren’t you still building homes, if you said earlier we’re not adding enough homes to keep up demand? It sounds like a pretty good business to be in.

Dennis Cisterna: It is, but it’s a tough business to be in. The reason I’m not building homes is because basically the entire home-building market imploded in 2007-2008, and myself along with about 93% of my colleagues that were employed by large private and public builders were laid off. That market didn’t even come back into any kind of real production until probably about two years ago, and even then they were still building at a fraction of what they should. And it’s not the builders’ fault necessarily, because part of the problem here is that there needs to be land that is available to them at a reasonable price, and then they need to build a reasonable house, and a lot of the publicly-traded homebuilders got absolutely destroyed prior to the recession, because they took on too large of land positions, kept building bigger and bigger houses when there was no real organic demand for it… It was just kind of MacMansion theory of building a bigger house on a smaller lot, and that was a way for a homebuilder to maximize their revenue, but obviously at the end of the day those properties need to move off their balance sheet and into a homeowner’s hand, and that became harder and harder to come by.

Now you have builders building at a much slower pace. In fact, we’re building the same number of single-family homes this year as we did when John F. Kennedy was in office, and at that time the population of the U.S. was only 200 million, not 340 million.

Joe Fairless: Wow, where are you getting this data from?

Dennis Cisterna: That information is available at the Census Bureau; a lot of it is tracked through the Department Of Housing And Urban Development.

Joe Fairless: Got it. So you just go to census.gov?

Dennis Cisterna: That’s right. I think they have a housing tab that you can look under that will give you a ton of that information.

Joe Fairless: It shows how many permits are being pulled… Cool. I have done that, and it’s definitely a good resource, especially if you’re looking for a particular submarket to see what type of competition you’ll have.

Dennis, based on your experience in real estate and wearing a lot of different hats, what is your best real estate investing advice ever?

Dennis Cisterna: Well, I learned this piece of advice from Bob Toll, who is the founder and former CEO of Toll Brothers, which is one of the largest luxury homebuilders in the country… He told me “No matter what you’re looking at, any kind of real estate, you can’t fall in love with it, because then you are prone to make bad investment decisions.” That is something I’ve stood by my entire life. No matter how attractive something might look, you have to have the ability to be able to say no if everything doesn’t line up the way you need it to, and that’s something that I think a lot of amateur investors have a problem with – really showing that restraint when necessary.

Joe Fairless: As an investor yourself – you said you do direct investing – what’s the last deal that you did?

Dennis Cisterna: The last deal that I did – I bought a piece of an 80-unit portfolio of single-family properties in Indiana. It was a portfolio that a relative of mine owns, and they needed to liquidate a portion of that to bring some cash out, so I was able to step in something that was already fully occupied, had a nice amount of cashflow, and for me, because my day job is running Investability, I don’t have as much free time as I would like, to be able to do as much directed investing and really being more of an activist investor than I have been in the past. So it was a good opportunity for me to get in there, get into the market, and still remain relatively hands off.

Joe Fairless: So you work for a company that you all provide these RentRange reports (among many other things), so you have access to a lot of data… What are some markets that you’re seeing right now that would be good markets to invest in for, say, the next five years?

Dennis Cisterna: Great question. I think if you’re looking for a longer-term investment, like you mentioned, somewhere in the 5+ year category, you should be focusing on markets where the economy is growing, but you’re also gonna wanna look for good in place rental yields today, so that eliminates some of the markets that have rebounded very strongly… For example, I don’t see as much opportunity in Phoenix or Southern California as I did a few years ago because the prices have been outstripping the rent growth by a pretty significant margin.

I’m seeing very attractive yields in a number of markets in the Midwest, in the South and South-East, in the North-East. A couple of those that come to mind are Cleveland, Cincinnati, Indianapolis, Dallas, Orlando, Tampa, Atlanta, Buffalo, Pittsburgh – all those markets are above the national average for yields. They typically are declining in terms of their vacancy and all of those markets are adding jobs right now, which is really the most important thing.

A lot of people are so used to investing in their own backyard, they don’t really understand what drives the housing market, and what really drives the housing market is having an economy and a population that’s growing.

Joe Fairless: You mentioned the rental yields – where can a Best Ever listener find that data?

Dennis Cisterna: That data is not as easy to find; that’s actually something we sell within our RentRange reports. It’s not something that’s tracked by someone like the National Association Of Realtors, which is a good source of free data, but unfortunately they don’t track that. But anytime you’re purchasing a RentRange report we give you a larger snapshot of what’s going on in that market as well, including what the top-performing zip codes are in terms of their yield and whatever market you happen to purchase the property report in.

There are other resources out there where you can find general information about what’s happening on a market level. We do a ton of press releases that highlight that data at a market level or what the highest-performing ones are. If you type in “RentRange” and click on the News in Google, you’ll get a lot of free and good information on that. Same can be said with RealtyTrac, if you’re familiar with that website.

Joe Fairless: Good stuff, thank you for that, and some good action items for us. Are you ready for the Best Ever Lightning Round?

Dennis Cisterna: Absolutely.

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

Break: [00:14:23].14] to [00:15:24].14]

Joe Fairless: Best ever book you’ve read?

Dennis Cisterna: Best ever book I read… I would go with The First 100 Days, which is a book about the first 100 days of FDR in office and exactly how he really revolutionized his presidency in those first 3 months.

Joe Fairless: Best ever deal you’ve done that you haven’t mentioned?

Dennis Cisterna: The best ever deal that I’ve done was actually as an investment banker… I was able to recapitalize a giant masterplan community in California, where I was literally able to save my client close to 10 million dollars in a single deal, and I also made a very pretty penny on that myself.

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

Dennis Cisterna: I’ve made lots of mistakes on transactions, I think any seasoned investor will tell you that… But certainly one of the first mistakes I made when I did my very first investment property was… One of my brothers and a partner – we went in there, we paid the right price for the property, but we really underestimated how long it would take us to finish the construction. Where we thought we’d be in and out of the property in 60 days, once we got in under the drywall, we realized this was closer to a six-month process, and when you have your own capital at risk, getting that capital back as fast as possible is key, so that was a bit of an unfortunate mistake… But we learn from those mistakes, and now I’m a lot more diligent about how long things will take.

Joe Fairless: Well, it’s better that you had your own capital than a hard money loan where the interest rate kept ticking up and up and up.

Dennis Cisterna: I couldn’t find a hard money lender in 2008 that wanted to give me any money; it was lean times.

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

Dennis Cisterna: I like to give back by supporting local charities as much as possible, whether it’s local schools or other endeavors like that. Anytime someone asks me to chip it, I’m in, whether it’s something as simple as giving a donation or volunteering for an event. I like it. I’m not tied to a particular type of philanthropic cause; I think there’s tons of good causes, and because of that I always try to keep myself open to whatever opportunities are presented to me.

Joe Fairless: How can the Best Ever listeners get in touch with you and/or learn more about Investability?

Dennis Cisterna: The easiest way is Investability.com. We’ve got a ton of great content on there, a good idea of the scope of services we provide, and all of our contact information is available there as well… So Investability.com, certainly the easiest way to learn more about what we’re doing and how we might be able to help your listeners.

Joe Fairless: Dennis, thank you for being on the show, and with your background and the different types of jobs and tasks and responsibilities that you had in the industry, it’s important to listen to someone with your eclectic experience. As you mentioned, you said the long-term outlook for real estate has never been better, or it’s better than it has ever been, and you listed reasons why, and I was writing those down… One is the economy is in resurgent form. Two is the population continues to grow. Three is that we’re not adding enough houses to keep up demand. Four is the lack of financing that is available for more — and you didn’t mention this, so I might take it to a next level, and correct me if I’m wrong… I don’t wanna speak for you and put words in your mouth, but especially for people who don’t have as good of credit, it’s tougher for them to get financing right now because of what 2008 did. Would you agree with that?

Dennis Cisterna: In parts of society, yes. What’s actually really interesting is there’s a lot of really good programs for first-time homebuyers that most people just aren’t familiar with. Through FHA – they have some tremendous first-time homebuyer programs. A part of the problem is those don’t really jive with where people wanna live right now; it’s a challenge if having the right product for the right people in the right market. But what you’re really seeing is the total erosion of financing available for the middle class.

Joe Fairless: Thank you for that. And then lastly, I think you mentioned this – you said people not saving as much money as they need to.

Dennis Cisterna: That really comes down to rising costs because of three things – not necessarily because people aren’t trying to save more money, but even though inflation has been relatively slow across most of the major parts that make up the consumer price index, when you look at what impacts people’s life the most today and why they can’t save money, it really comes down to three things. They’re having to spend more on housing than they ever had, even if they’re renting. They’re having to spend more for healthcare, and they’re having to spend more for education. Those three things combined have dramatically altered the average person’s ability to save money for that down payment for their first home.

Joe Fairless: Well, I think a lot of real estate investors, Best Ever listeners who are listening to this, are like “Heck yeah… Let’s keep going, baby!”, so thanks for the shot in the arm. I appreciate you spending some time with us. I hope you have a best ever day, and we’ll talk to you soon.

Dennis Cisterna: Thanks so much, Joe. I appreciate it.

advice from Josh Dorkin

JF1127: Josh Dorkin, Founder & CEO Of BiggerPockets Is Back For Part 2 Of Our Interview!

We’ve got some listener questions for Josh today. Get to know Josh as he dives into his morning routines, and explains the most underused aspect of BiggerPockets. He also tells us about how the BiggerPockets podcast came to be. Josh’s #1 piece of advice is to find your why, something he says that without it, you will struggle. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Josh Dorkin Background:
– ‎CEO & Founder: BiggerPockets.com, Entrepreneur
– ‎BiggerPockets Publishing, LLC
– BiggerPockets boasts more than 825,000 members, produces the top-rated real estate podcast on iTunes, and last year raked in $7 million in revenue through advertising
– Bigger Pockets made the INC 500, came in at #400 in August 2017
– BiggerPockets added a publishing arm, which released Set For Life on April 23, 2017
– Based in Denver, Colorado
– Say hi to him at: BiggerPockets: The Real Estate Investing Social Network

 


Made Possible Because of Our Best Ever Sponsors:

Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit www.fundthatflip.com/bestever to download your free negotiating guide today.


 

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

Josh Dorkin: What’s going on, man? You’re a crazy man… I don’t know how you do it every day.

Joe Fairless: Prior to our conversation I asked some Best Ever listeners what questions they would have for you. You’re gonna like this, by the way… [unintelligible [00:01:33].02] asks “What feature of the Bigger Pockets platform does Josh think is most underutilized?”

Josh Dorkin: I don’t like this… [laughter] The most underutilized feature on the platform I would have to say is member notes. As Joe nods his head and up and down, wondering what the hell I’m talking about… [laughter] Here’s what member notes are – you can go to anybody’s profile and take a note on them. I can go to your profile, Joe, and make a note and say “Yeah, Joe and I on 28th August had a conversation about X, Y and Z.” Only I can see it, nobody else can see it on the platform. It’s almost like a mini CRM, right? The next time I come back and the next time I interact with you I can be like, “Hey, Joe… Remember we talked about X, Y and Z the last time we connected?”

I think partially that’s due to people not knowing what it is. We have not updated that in a very long time; we are working on some really nice and sexy redesigns of certain parts of the site, including user profiles and our onboarding, and as part of that, I think we’re gonna be creating a little more clarity in that tool. I think it’s extremely useful, I use it all the time. I talk to you about whatever I talk to you about, I put it on there, and the next time I come back and I’m ready to talk to you again, I know exactly what we chatted about.

Joe Fairless: I am on your profile right now, in the member notes section, writing in Jerry Springer.

Josh Dorkin: That’s great. [laughter] Way to torture me, man. That’s really nice of you, Joe.

Joe Fairless: So clearly, I don’t wanna know what you’re writing about me right now…

Josh Dorkin: “What a jerk!!”

Joe Fairless: [laughs] This is from Julie, and this implies something – if the implication is not accurate, then forget the question.

Josh Dorkin: Sure.

Joe Fairless: When you were considering starting Bigger Pockets, what was a number one fear holding you back from starting?

Josh Dorkin: There was no fear that held me back from starting, which is what you were getting to. I didn’t start Bigger Pockets to create a business. I started Bigger Pockets to help me stop screwing up in real estate. So my biggest fear was continuing to screw up in real estate.

There was nothing that was kind of “Alright, if I create this thing and nobody shows up, then nobody shows up. I’ll figure something else out, I’ll find my answers in some other way.”

Joe Fairless: Evan H. has a question about podcasting and how that has enhanced your business and opened up doors and connections that you wouldn’t have had otherwise?

Josh Dorkin: I think by having a big show that has a big audience, it gives you the ability – as you well know – to talk to and reach out to people who you may not have had the opportunity to do that with. So it builds your name, it builds your brand, and especially if you do a good job and stay true to who you are and what you’re doing, then ideally that continues.

Look, I’ve gotten to talk to authors that I may have not otherwise met; I’ve gotten to — I don’t know, just getting to talk to even you, when you came on the show… There’s not a show that we have where I don’t learn something. So for me as a person not affiliated with Bigger Pockets, it’s so powerful. And as the CEO of Bigger Pockets, obviously having those people and those stories inspire other people is also so powerful.

I don’t know, we did the podcast on — I’m gonna say a lark, which is not true, but it’s funny… I look back in the past couple of months and I came across a note that I had written to myself years before I even started the podcast, and one of the things I had written down was “Start a podcast.” And I never did it because there wasn’t much of an audience, the technology wasn’t as pervasive, and so I never did it. But when Brandon came on, we were like, “Hey, maybe this will catch on. Maybe people will like the medium for the dissemination of real estate information in a way that is not already being disseminated by other people… Let’s give it a shot”, and what we found is that people do in fact like what we do and how we do it. There are people who absolutely hate us, but there’s people who hate you too, and you’re a really nice guy, so you can’t worry about that. You just have to do the show that you believe is the right show, and that’s what we do.

Joe Fairless: Your podcast has influenced my life personally in many ways, both as a listener and then also a guest. One e-mail I received after being a guest on the Bigger Pockets podcast – and it was actually probably about two and a half months after being on the podcast – was an e-mail from a fund that has over one billion dollars worth of assets under management, saying that they would like to talk to us (myself and my business partner) about creating a fund of 100 million dollars investing in our projects. And last week I was actually in Dallas, touring with them our properties in DFW, and talking to them about creating a fund. It was because the woman who heads up the fund, her niece is a listener to the Bigger Pockets podcast, and since, the woman who I met with – she listens as well now… And it was all because of being on the show.

Josh Dorkin: That’s awesome, man. That’s great. Cool. When you start that fund, I’ll take my 1% and we’ll be good. [laughter]

Joe Fairless: The last question…

Josh Dorkin: Wow, no answer there, just “Moving on to the next question… [laughter] Yeah, I’m gonna ignore that as much as I humanly can.”

Joe Fairless: I’ll buy you a beer when I come to Denver this February.

Josh Dorkin: Woohoo!

Joe Fairless: This is from Taylor L., and he asks “What are your morning routines or daily practices that you do on a regular basis?”

Josh Dorkin: I go back and forth with a miracle morning – or non-miracle morning – routine; it depends how spent or burnt out I am. But I like getting up, I like stretching… I don’t ever get up and then go to my phone, or go to my internet or anything like that. I like to get up, I like to stretch. On the good mornings, I like to exercise. This is all before anyone else in the house is awake.

Then get up, get dressed, do my thing, take care of my kids, get them ready for school, driving to school, and then at that point I will look at work. I don’t do work before my kids are off to school; I’m there, I’m present… I’m not playing on my phone, stressing about e-mails, dealing with any of that stuff. The morning is for me, followed by family, and then I head to work, and then work begins. After work, when I get home – four, five, six o’clock, whenever it is, I’m present again; phone’s away, not working. I may jump on social media from time to time, because it’s a hobby, but I’m not doing work per se until my kids are asleep. Family time is family time, and then when the kids go to bed, I usually like to thaw for a little bit, and then maybe I’ll do some work, as needed.

It’s very different than had you asked that question four years ago, which would have been “I get up, I work, I take a shower, I work some more while my kids are getting fat (or whatever) and then I leave to work, and then I come home and I work, and then I work through dinner, and then after dinner I continue to work, and even though I’m with my family, I’m not there.” I came to the realization that I was doing that, and hated myself for it, and said “This is just not who I wanna be. I am a father first and foremost, and my family is the most important thing to me and my life, so I’m not gonna let anything, especially my company, get in between that.” So I think that’s it.

On those good mornings, when I’m fully miracle-morning-ing, I don’t actually do the full miracle morning, which refers to a book called The Miracle Morning by Hal Elrod, for those of you who don’t know… But I’ll stretch, I’ll do some meditation, I’ll do some exercise, and I’ll do some reading. Those tend to be the four things that I do.

Joe Fairless: And parting words for the Best Ever listeners – what’s your best real estate investing advice ever?

Josh Dorkin: I would say figure out your why. Why is it that you’re getting into this for. If you don’t have a strong why, then you’re not ready to begin. If you’re already an investor and you’re thinking about scaling your business or growing your business, what’s the why? What’s driving you? What’s motivating you? Because if you don’t have it, do you know who’s not gonna have it? Your partner, your spouse, your family. So you’d better have a solid why that everybody can buy into, because otherwise there’s gonna be opposition at every step from those people who should be supporting you. I think that would probably be the first best piece of advice I would offer.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and either get in touch with you or learn more about your company and get involved?

Josh Dorkin: Just go to BiggerPockets.com, you can check it out. We’ve got the Bigger Pockets podcast, you can find it on iTunes, YouTube or wherever else. Podcasts are found! Go on the site, play around, look around… There’s just unbelievable amounts of information to help you out. Beyond that, for me personally, I don’t necessarily connect with people I don’t know off of Bigger Pockets. I would say follow me on Twitter, @JRDorkin. You should follow Bigger Pockets, @BiggerPockets… But until I really get to know somebody, I don’t tend to do the Facebook or LinkedIn or other connections. It would be impossible and unwieldy for me to do that. So give me a shout on Twitter…

Joe Fairless: I can tell you that you should definitely follow him on Twitter if you wanna continue to see the insect-eating that he regularly does at the Butterfly Pavilion in Denver. Thanks for being on the show, Josh. I hope you have a Best Ever day. I enjoyed it, and we’ll talk to you soon.

Josh Dorkin: Thanks, Joe. Take care.

 

Josh Dorkin and Joe Fairless

JF1120: The History of BiggerPockets And Its Founder Josh Dorkin – Part 1

I really don’t think I need to say much here – you know who Josh Dorkin is, and you know about BiggerPockets – if you don’t, you should. Today we get to hear about how BiggerPockets has become what it is today. We’ll learn about customer complaints, new tools that have been released throughout the years, and if they were a success. Josh also tells us about himself, his past and current role with BiggerPockets. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Josh Dorkin Background:
– ‎CEO & Founder: BiggerPockets.com, Entrepreneur
– ‎BiggerPockets Publishing, LLC
– BiggerPockets boasts more than 825,000 members, produces the top-rated real estate podcast on iTunes, and       last year raked in $7 million in revenue through advertising
– Bigger Pockets made the INC 500, came in at #400 in August 2017
– BiggerPockets added a publishing arm, which released Set For Life on April 23, 2017
– Based in Denver, Colorado
– Say hi to him at: www.biggerpockets.com


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TRANSCRIPTION

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

Josh Dorkin: What’s going on, man? You’re a crazy man… I don’t know how you do it every day.

Joe Fairless: I am a crazy man, that is for sure. That is really interesting, because I have video proof of you being a crazy man. I was on your Twitter handle, I was looking at different tweets you’ve made, and I have a question for you – are you ready for this?

Josh Dorkin: You scare me now… [laughter]

Joe Fairless: You tweeted it, baby… “What tastes better – a grasshopper, a mealworm or a cricket?”

Josh Dorkin: Oh… You know, I stuffed them all in my mouth at once, so I couldn’t tell you… [laughter] So what he is talking about – I went to the butterfly museum here in Denver (it’s between Denver and Boulder) and they basically have this thing, like “Hey, try out insects.” It’s super high in protein content, and the carbon impact of eating these insects is far lower than if you’re eating comparable mammals. So I’m with my kids, I’ve gotta be brave, I’ve gotta show them that I can do this (Superdad, right?) and they have these three things that you could eat, and I’m like “Alright, you know what? I’ll do it!”

The problem is this – they went and they seasoned all of these things. They put some powder on each of them, each with its own flavoring… All of the flavors of the powder were horrible. So if you were just eating these insects, it would have just been crunchy and fine, but the powder was disgusting.

Joe Fairless: Now, have you isolated that, where you do know the powder was actually the part that was horrible and not the actual insect itself?

Josh Dorkin: The insect was fine. Yeah, I had no problem eating the insect. The powder was just kind of gross.

Joe Fairless: 17th June 2017, Josh’s Twitter handle – go look at that and you shall see the video. It’s very impressive, you don’t flinch. You just eat it and you’re like, “Hm, okay. Next. What else have you got?”

Josh Dorkin: I’ve got this! I’ve got this!

Joe Fairless: Well, what we’re doing today is we’re gonna learn more about you, and perhaps some things that some Best Ever listeners, who I’d say 99.9% are all members of Bigger Pockets, and that 0.1%, shame on you! Go join. We’re gonna learn more about you and Bigger Pockets and your road to where you’re at now and where Bigger Pockets is.

Best Ever listeners, a slightly different format for this interview. We’re going to do more of a long form and we’re going to separate it out into two episodes. This will be part one.

Here’s what I’d like to start with – prior to our conversation, I asked some Best Ever listeners what questions they would have for you, and I think you’re gonna enjoy how we start out, because based on my conversations with you in person and just what I’ve read about you and interacted with you on Bigger Pockets, you take pride in helping Bigger Pockets members, and how it’s a community and we’re all in this together.

So here’s together – this is from Kendra B., and she asks “Is there one person that sticks out in your memory as having been helped by Bigger Pockets in all the work that you all have done?”

Josh Dorkin: The one person that sticks out, the instant answer to that is Brandon Turner. Those of you who are unfamiliar, Brandon Turner is co-host of The Bigger Pockets Podcast. He works for us, and initially, when I came to know Brandon years and years ago, he was a user on our platform; he was trying to find financial freedom or whatever it is that he was trying to find, and used the Bigger Pockets platform to get there.

He was the pure representation of who we were and what we strived for. He was this guy living in the Pacific North-West who had been kind of floundering around in his life – I think that might be an unfair characterization of Brandon, but regardless… You know Brandon — so he was trying to figure it out, like the rest of us. He came across Bigger Pocket and the idea of real estate, and used Bigger Pockets to help him build this passive portfolio of real estate.

Of course, living in the area that he lived in, he was at a point where he no longer needed a job. He had created that freedom for himself. He was writing for Bigger Pockets, and at that time I was in need of help. I needed to hire somebody to come and join me as my first employee, and we got to know each other and I brought him on.

Brandon really just is that pure representation of who we are, but there’s countless stories. Not a day goes by where we don’t hear from somebody who’s like “You guys are transforming my life. You guys are helping me out. You guys have helped me quit my job” or “Helped me retire” or “Helped me build income for my family”, or whatever it is. That’s why we do it. We’re here to help people succeed.

Joe Fairless: How many members are on the site now? Like 725,000?

Josh Dorkin: I think it’s like 830, somewhere around that.

Joe Fairless: It depends on what day, right? Every day it gets more and more. 830,000 members… I’m sure that with the positive feedback you get some gripes. How do you determine what to listen to and what to filter out that that’s just how things are when you get to a certain point and you reach a critical number of people, you’re just gonna get gripes?

Josh Dorkin: People who gripe – I have like three people. [laughter] People always wanna complain about something. You know, that’s really a good question. I would say staying true to yourself and knowing who you are and knowing what you’re doing and why you’re doing it, and making sure everyone on your team is aware of that. From time to time situations will arise where somebody has a gripe and you’re like “Oh, we never actually thought about this. Let’s think about it. Is this something we wanna be reactive to, or is this something we wanna deal with? Do we wanna change how we do certain things, change policies, whatever it is? Or is it a one-off situation?” It’s hard, man… I think the same goes with anything in business, whether it’s somebody flipping a house or buying rental property or running a Laundromat – there’s always gripes that come at you, and I think the way to best deal with it is really know who you are, really have your values spun out, and make sure that you’re staying true to yourself and what you stand for, and ultimately your customers.

No matter what, we cannot please everybody. Impossible. Whether it’s me, or Amazon, or Tesla, or any other brand, like Apple… The big guys. I’m not amongst those big guys. There’s no way you’re going to please everybody, so I think coming to acceptance on that and understanding that you can [unintelligible [00:08:01].00] to have a customer forward-looking business… Like Zappos, Tony Hsieh – they don’t  think of themselves as a shoe business, they think of themselves as a customer service business. I think we’re not as outwardly stating of that, but I do believe that is core to who we are. We’re here to help people be successful, we wanna take care of people, we wanna do right by people, and that’s who we are.

Joe Fairless: How do you communicate that amongst the team so that is present with them on a daily basis as they’re interacting with Bigger Pockets members and building Bigger Pockets?

Josh Dorkin: I don’t need to, because everybody who communicates with our users knows that. If they don’t, and somebody interacts with somebody in a way that doesn’t feel right, let us know… But ultimately, that’s part of our training, that’s part of how we do things – making sure that those folks that interact and communicate, they know that we’re here for you guys; we’re here for our listeners, our users, and our job is to do our best to play an unbiased intermediary in a platform where people can come together, where people can share information and where folks can help each other. At the end of the day, I see us as this democratization platform — that’s a hard word to say…

Joe Fairless: That’s a tough one, yeah… I never get it right.

Josh Dorkin: But that’s kind of who we are, so I think that probably answers —

Joe Fairless: Yeah, and has there been a gripe that you can think of that has changed a policy or you all have changed maybe a product or a feature on the site as a result of it?

Josh Dorkin: Man, we get gripes every day, and then our team takes them, looks at them, evaluates them, decides if something needs to be altered, tweaked and modified and they do it. I don’t even know about all the tweaks and changes that happen. We empower the folks within the team to be able to do that.

Anytime we do anything, we piss people off. Remember when Facebook did that last redesign? No, we all forget it, but when it happened, everyone was like “Oh, screw Facebook! I’m done, I’m never gonna go back again. This is it!” We all went back. You’re used to something; you get used to how things are done, and when something changes, it’s off-putting, until you either decide that you like it or you really don’t like it. At that point, we can then look at it and say, “Oh, well is this something that is affecting more than just one person?” And we test stuff; we create test groups… We don’t ever just say “Oh, hey, we’re gonna make a change because this is what we think”, and we put it out there. We talk to users. We have years and years of collective wisdom, plus we talk to our users on a daily basis, and anytime we make radical changes we always bring folks in and kind of work through to make sure that we’re doing it in the best way possible.

Is there any one thing? Let’s see… We came up with a product that I thought was gonna be amazing, unbelievable, which was we had created a live chat so users can chat with each other, kind of like a Facebook chat or something like that. So if you’re logged in, you go to XYZ’s profile and it will tell if they’re online, and then you can just start chatting with them.

We launched it, I was pumped — this was like two years ago… And it was an abject failure. Complete and utter failure. People didn’t like it, didn’t use it… It might have been execution, it could have been one of a hundred different things, but total failure. After a couple months we ultimately killed it, but that was something that we were able to measure. We’re not just gonna say “Oh, there’s one person griping”, it’s “Nobody is actually using this. [laughter] The people that are using it are using it incorrectly… It is a failed product. Alright, we’ll try again with something else.”

Joe Fairless: And what is your best guess, if you had to pick why that didn’t work?

Josh Dorkin: I think because it was another platform. People already had their platform of choice for chat, whether it was Skype or AIM or Facebook, and just creating another one… It creates confusion. It’s just another thing you’ve gotta do, another place you’ve gotta go.

Look, I still stand by the product. I think it was a good decision to make that product, I think there was a ton of value in it; I used it when it was around and I found it very helpful… And not just as Josh CEO, but as user-to-user I thought it was fantastic. But you live, you learn.

Joe Fairless: Yeah. As Josh CEO, what are your main responsibilities that you focus on now?

Josh Dorkin: Me? Today, my main responsibilities are ensuring that my team leads all are on the same page, ensuring that we know where we’re going, we know what we’re working on, making sure that the people side of things is working really well, staying on top of our culture, making sure that people feel good, people feel valued, people have clarity in who we are and what we’re doing… I am definitively still the chief advocate of Bigger Pockets, the face, the brains, the beauty… No, just kidding. [laughter]

I’m the guy that — I talk to other companies… I’m not the only one, but I’m out there advocating on our behalf, I’m the one out there trying to create relationships. I look at all the options, too. As the owner of the company, you need to know other businesses in your industry, you need to think about things like “Hey, do we raise money, do we not raise money? If we’re gonna have an exit, how do we do that? How does all that work?”, because as the owner and CEO – I’m both; there’s actually two roles there, right? But sometimes they conflict. But I have the responsibility of knowing and understanding all these different things and factors that are out there, and sometimes I have to fight myself on “Hey, what’s best for the company? Is it the same as what’s best for Josh, owner of the company? How does that work out?” Thinking all that stuff through – it’s complicated.

I think that’s probably the gist of what I do. I love getting my hands dirty on product. I love working with our design guys and guiding my vision through them; I like working with our marketing people…

Joe Fairless: You mentioned the question of “Do we raise money, do we not raise money?” – have you raised money for Bigger Pockets?

Josh Dorkin: Never.

Joe Fairless: And why is that?

Josh Dorkin: When I started the company, it was a hobby site. I was just doing it for fun, and — well, I don’t know how much fun I was having, but it was a hobby site still. Eventually it became this lifestyle business, and in the first number of years I did think a lot about raising, not raising. It was the cool thing to do. “Hey, I’ve got a tech company. I should raise money”, and then “I have this valuation, and now I’m worth all this money” — you know, all that stuff that the tech press and everybody else kind of perpetrates. I’ve definitively perseverated, but at the end of the day I’ve always decided not to raise, because I never wanted to have over my shoulder, telling me “Hey, this is how this company needs to be run. Hey, Josh, you’d better get an ROI in the next three years, or you’re gonna be out of job and we’re gonna shut your company down.” For me, that would be a travesty.

This company is too important, not just to me, but to so many people, that I can’t possibly have somebody who doesn’t get it directing what we do and how we do it in order to just eek out some kind of return. So that’s been it — but look, there’s use in raising money, there’s value in raising money, based on strategic objectives. Do we wanna go and acquire a company? It might be helpful. Hey, do we need to drastically improve our headcount in order to create or modify some kind of product? That might be a reasonable use. But there’s other ways to do it, too – there’s loans, and things like that. But right now we’re good, and I’m not necessarily looking… Though, you know, if somebody comes in and says “Hey, I’m gonna give you some F U money to buy a piece of your company”, I might have to have a conversation with them for sure, but I’m not necessarily seeking out a capital raise right now for any particular product or objective.

Joe Fairless: You mentioned some of the aspects of your responsibilities that you focus on that you really love, like the product, working with the marketing people etc. What’s the least favorite part of what you’re responsible for?

Josh Dorkin: Talking to you. [laughter] I mean, this show is great… [laughter] Look, we’ve got 20-something people in our office. Once you start getting more than a  handful of people, personalities come in and people drama kind of happens. It’s inevitable, no matter how good you are at hiring, no matter how hard you try…

Joe Fairless: No matter how many ping-pong tables you have.

Josh Dorkin: Yeah, we’ve got two.

Joe Fairless: I know.

Josh Dorkin: But that really is the one thing that drives me nuts. I’m kind of the old school like “Can’t we all get along? I may not think you’re a particularly good person, but I’ll work with you.”

Joe Fairless: That’s not your opening line when you attempt to resolve an issue… [laughs]

Josh Dorkin: Correct.

Joe Fairless: “You’re not a particularly good person, but hey, I’ll work with you on this.”

Josh Dorkin: That is me acting as somebody who may have a squabble with somebody else. That is not me as me. Look, I’m from New York; when I don’t like somebody, I tell them “Hey man, this isn’t working. I don’t like you.” I don’t have that at the company and I don’t see that at the company, because — I would hang out with everybody at the company if I  weren’t their boss. Everybody here I like, and they’re all good people, but look, again, that’s irrelevant – you may have different mindsets, different mentality, and you may not get along super well with somebody, but be a pro. Work through it and figure it out. Most of the time that happens here; 99% of the time that happens here, but when the drama comes up, which is inevitable, I hate dealing with it.

Joe Fairless: Your first hire, Brandon, did well there, clearly… How do you help set your team up for success on subsequent hires? That’s a good question again. Wow, look at you.

I would say having a very clear idea of the kind of culture we’re trying to create, having a very clear idea on job objectives and roles and responsibilities, and making sure that we have team buy-in. One of the things that we do is we have a “family interview” where a potential hire — you’re gonna go through all the regular rigmarole, make sure that they’re skilled and capable and they can do the job… But are they somebody that the team as a whole can get along with? Are they somebody that shares the mindset that the family does?

If you’re an engineer, you’re gonna be sitting down with a customer service person, folks from all different areas of the company who may not directly even work with you, but the idea is that by doing that we can do clear objectives, we can get clarity on who this person is. And frankly, we also have a no A-hole rule, so it also really helps to vet out the A-holes that may be coming through, because four of us may not see it, but the fifth person may be like “You didn’t see that? That lady was a total A-hole/that guy was a total A-hole.” “Can you clarify that?” “Yeah, blah-blah-blah…” “Yeah, okay. You’re right. Good catch!”

Joe Fairless: Is there any direction given to the family interview for the people who are doing the interviewing?

Josh Dorkin: Yeah, our HR makes sure that they’re asking legal questions and doing it all in the way that they’re able to, so yes.

Joe Fairless: Got it, fair enough.

Josh Dorkin: We’re not asking “So how many kids do you have?”

Joe Fairless: Yeah, I wasn’t implying that, I was more along the lines of…

Josh Dorkin: Hey, Joe, are you Christian? Because we don’t hire Christians here. [laughter]

Joe Fairless: Is there was a particular format, or is it just a roundtable and then it’s just “Okay, here’s all this people and they just start asking you questions…”?

Josh Dorkin: I think it’s fairly loose.

Joe Fairless: Fair enough. Alright, so let’s talk about what we were touching on earlier, and that is Bigger Pockets as a business. What are your top three revenue streams?

Josh Dorkin: Sure, so our top streams are advertising, memberships, and our publishing business.

Joe Fairless: Okay. And what do you see the most potential for in the future of those three?

Josh Dorkin: Actually, the most potential is not one that has been named. I think connecting our users with service providers through lead-gen is definitively one of the biggest opportunities for us.

There’s so many people that are looking for X on the platform, and X is usually like “Hey, I need a great agent”, “I need a great lender”, “I need a property manager”, all these things, and I think servicing that is going to create a monster opportunity for us from a financial standpoint, and I think it’s also going to create a massive opportunity for our users to get their needs serviced, to help people find what they want, find what they’re looking for, and solving that. That’s one of the biggest opportunities for us going forward.

Yeah, business — look, as the site grows, all of our different media grow; you have the opportunity to grow that, but over time, when I started the company almost 13 years ago, our revenue per thousand eyeballs was five, six, seven times what it is today. That’s kind of where things have gone in online advertising, which is great, no problem… Which is why we’ve also created other means for driving revenue, otherwise we would have been out of business a long time ago.

Joe Fairless: In terms of your focus as a CEO on Bigger Pockets, what’s something that keeps you up at night? Either it excites you or it is a concern of yours?

Josh Dorkin: What keeps me up at night…? I would say the things that I really ponder are how do we touch more people? How do we tell folks who don’t already know about us – or not even us… How do we help tens of millions of people out there that don’t even realize that they have an opportunity to go forth and build wealth through something other than their 9 to 5. Because we do a really crappy job in this country in teaching people financial wellness; we don’t teach them financial wellness, they don’t learn that stuff in school… Maybe few and far between do, but we don’t teach that, so the average person might learn about banking, maybe they learn about a savings account; some of them don’t trust it and put their money under their pillow anyway.

Folks who have jobs that give them 401k’s may know that they have a 401k and know that their contributes to it and that they should put their money in the market, but they may not know what that really means, they may not understand “Okay, what does buying a stock actually mean? What does buying a mutual fund actually mean? What is an ETF?” And then all the way down to real estate. Most people look at real estate and they say “Well, that’s for rich people. Only rich people can buy real estate. Only really wealthy people have an opportunity to do that”, and we say that’s not true. We say “Well, how do we solve this?” Because I think it’s a real problem in our society.

I’ve just talked to so many people who are like “I don’t have a chance, I don’t have an opportunity. I can’t get out of whatever it is that I’m in. My life, my lifestyle, my place in society… I’m stuck.” Unfortunately, the second you have that mindset, you’re stuck, you’re done; you’re not getting out. So how do we change it, how do we alter that, and how can I, through Bigger Pockets, touch as many people as possible? And pass the message that it may not be real estate. Look, if we can use our voice in some way, shape or form to help somebody who thinks they’re stuck get unstuck, and they never go into real estate, then we succeeded. If it’s “I’m unhappy with my job and Bigger Pockets helped me realize I’m unhappy with my job so I’m gonna go find another one that just best suits who I am and what my truth is”, then I just did my job, and we’re solving in need.

That’s the stuff that I’m always just trying to crunch through – how do we do that, how do we impact…? And again, I think that problem is a lot bigger than Bigger Pockets. I think we’re here to help solve it, but we can’t solve it alone. I think there’s societal things that we need to do, or schools need to make change, or – as much as I hate to say it, our government needs to get involved; I think they should play a role. I think teaching financial wellness and teaching people to not rely on the system only creates a more productive society.

Joe Fairless: It kind of ties into what you were talking about just a second ago, the connecting users to service providers via lead generation… Perhaps not a service provider, but just connecting people from “they have a challenge” to “here’s your solution.”

Josh Dorkin: Yeah, I think that’s fair. The big issue I always have is there’s never one solution, and I think one of the reasons Bigger Pockets is successful is because we were never so bold as to say that we know there’s one answer for everybody, “This is what’s right for everybody”; a very anti-guru mentality that we have. Instead it’s “You, Joe, come on Bigger Pockets and you have a question or an issue or a concern”, and you get 10 people, 15 people, 20 people with 10, 15, 20 different ideas and what works, and then you have an opportunity to go through and say “What works best for me?” I think that’s why organizations like YPO, which I’m not a part of, but I contemplate joining all the time, are so successful. They’re organizations where people aren’t telling you what to do… Well, people do tell you what to do on Bigger Pockets, you just don’t have to listen to it. [laughter] But it’s “Hey, I’m gonna share my story, and through my story you can kind of extract and answer”, or maybe after hearing two or three stories you can extract what’s true for you.

I think the beauty of Bigger Pockets is you get altering opinions, and those opinions are there to guide you.

Joe Fairless: Whether it’s something you read on a post on Bigger Pockets, or whether it’s just something you’ve come across as an entrepreneur, what’s the worst advice that you’ve seen or have been given personally?

Josh Dorkin: The worst advice… “Trust me.” [laughter] I think the most dangerous or worst thing that I see is typically — I don’t think I see this, I just know that people do it… People not taking responsibility for doing their own homework, doing their own due diligence. That can be in anything, whether it’s “Hey, I’m gonna go buy a property from a turnkey company and I’m gonna trust their numbers” or “I’m gonna buy a rental property from an agent and I’m gonna trust the numbers from the seller”, or “Hey, I’m gonna partner with somebody, but I’m not gonna do background checks and I’m not gonna make sure that they are who they say they are.” I think that’s the one thing that I see over and over again which blows my mind… Even on Bigger Pockets – there’s people on Bigger Pockets that have been around for years and years, and have written maybe tens of thousands of posts, and they’re wicked smart, and I wanna trust the hell out of them, but if I were gonna get into bed with them, if I were gonna partner with them, I’m gonna go through every ounce of due diligence check that I would with anybody else that I didn’t know at all, and I think that’s the one thing that people do that drives me nuts.

Do your homework, do your due diligence… Look, at the end of the day there’s shitty people out there – sorry, I don’t know if I’m allowed to curse on your show (bleep me), but there’s people out there that take advantage of people in society, in the world, and unfortunately everywhere else, and so it is incumbent upon us to make sure we are protecting ourselves and our families and our nest eggs by being careful.

I think that’s not necessarily something that I see, but something that I know happens all the time, on or off the site, and I think it’s just so important that people do their homework.

Joe Fairless: On the due diligence note and doing your homework, a question that Dave M. asked is “What are the likes and dislikes for owning a business versus owning real estate, and which one do you enjoy most?”

Josh Dorkin: I think the dislikes are the same on both. The dislikes are the people – not that I dislike my people, but I dislike people drama. I’m a relatively low drama kind of guy, so people drama, I just don’t like it. Likes, I would say they’re very similar. You’re embarking on some endeavor to reach some kind of goal, and real estate it’s “Hey, I wanna buy some property with the means to build wealth in some way, shape or form.” In business it’s the same, at least for me… I always have the “How do I do better? How can I do a better job than I did before? How can I not make this mistake again? How can I improve my processes? How can I serve more people in a better way?” If it’s rental property, “How do I treat my tenants better?”, whatever it is.

For me, the likes are in the challenge of doing better. The dislikes are in the challenge of people who are difficult, or could be difficult, from time to time.

Joe Fairless: I have identified your own personal version of hell… Are you ready for it?

Josh Dorkin: Yeah-no [unintelligible [00:30:26].08] [laughter]

Joe Fairless: It is if you were trapped in a room with a big screen TV, playing Jerry Springer on loop.

Josh Dorkin: Yeah, that sounds pretty terrible. [laughter] People who are griping and griping and griping would pretty much be my version of hell, yeah.

Joe Fairless: [laughs] Alright. You and Brandon interview a bunch of people, and high-achieving real estate entrepreneurs, as well as people who are just getting started… So you benefit from getting a front seat in hearing about how people are achieving certain things, and what works/what doesn’t work… Where do you see the future of real estate investing industry going, or just real estate in general going? Is there anything that you see in the future that is coming to light?

Josh Dorkin: Yeah, there’s so many new companies trying new stuff… Man, I think it’d be nice for some of the process to be simplified. Let me think about this for a second here. At the end of the day, there’s two groups of people, right? There’s homeowners, and then there’s investors, and I think you have to group them separately, because their mindset is typically very different.

New investors I think are gonna think like a homeowner, experienced investors are gonna think like a business owner. From the homeowner perspective – look, you’re gonna buy a house, you’re gonna wanna walk that house, you’re gonna wanna walk through it, you’re gonna wanna feel it, you’re gonna wanna experience it and get a vibe for it. There’s all these prognostications and development of technology for “Hey, let me put on some VR goggles and walk around a property…” I don’t know, I’ve never worn VR goggles, so I cannot even imagine how that would be; well, I can imagine, but I just don’t know what it’s like, but I can’t imagine it giving you the same experience as walking through the property that you’re gonna buy. There’s a smell, right?

Joe Fairless: There is a smell.

Josh Dorkin: There’s a vibe, there’s an energy, there’s a feeling, inside and outside, that you’ll never in a million years get from VR. I think people buying houses, no matter what, are gonna have to always go — at least the vast majority, that’s the vibe that they want; they wanna feel it. So I don’t know that there’s any way to bypass that.

Now, for that group, “Hey, can we make financing easier? Can we make the paperwork easier? Can we make the process easier?” – that’s a definite yes. Why do I have to sign eight thousand sheets of paper? There’s ways that can all go.
From the investor perspective, I think just facilitating information flow, and I think the same goes for regular homeowners as well. There’s still just so much bad information out there. We rely on a seller’s agent to provide accurate information, which they may not be privy to or they may not necessarily wanna have full disclosure of, right? How can we centralize this stuff? I know very little about blockchain, but I think blockchain can be a very good technology for real estate information, because once that accurate data is in the chain, if somebody messes with it, everybody knows. So finding a way to ensure that accuracy and truthfulness is passed along…

I bought a house a couple years ago – my primary – and there had been water damage in the living room, and they had repaired that water damage. It was not disclosed at the sale, and the cause of the water damage was actually never fixed. So there was water damage on the floor, the floor was fixed, the cause was not repaired… I bought it, I didn’t notice it, and two, three months later my floor started warping and coming apart. Clearly, the homeowner knew, there was a high likelihood that the agent knew, but at the end of the day nobody disclosed it. So I end up with all this damage, and it’s a lot of money – this is on the order of probably 10k+, and that never in a million years should have happened.

The second that person went and fixed the floor, that should have been disclosed or added to some kind of thing… Like a CARFAX, right? Something that would pass along, so I know what the deal is. “Hey, these homeowners did X, Y and Z. These homeowners did all these modifications and changes, and it’s part of the permanent record.” I think stuff like that would be really valuable and really helpful.

At the end of the day, there’s always gonna be a demand for real estate, there’s always gonna be a demand and a need for people to own property. Hey, crowdfunding came along and suddenly crowdfunding is gonna dominate and take over everything in real estate – meh… It’s another way to raise money, it’s another way to finance a property, it’s another way for people with money to get a return, but people are still buying and selling and getting loans. The basics are always gonna be the same. I can’t imagine the basics ever changing; I just think we’ll come up with creative ways for making different parts of the process easier and better and more accurate.

Joe Fairless: I agree. I think that when you talk to institutional guys and gals, who have a more macro level than I do, and who look at it from a much more institutionalized reference point, real estate investing – they say that real estate investing is broken, it’s a fractured industry, and there’s not a lot that connects the dots among all the properties, unlike other industries that they invest in, and I think that what you’re talking about, the CARFAX for properties, that is some sort of national or statewide database, is needed and would certainly be helpful. I do see that coming; it’s just inevitable with the amount of technology and smart people that are in the world. So yes, I do agree.

Josh asks “What are the 3-5 most important things in your experience to growing and scaling a company?”

Josh Dorkin: The most important things to growing and scaling a company… One, having a good idea that’s scalable – start there. So having an idea, having some kind of plan, whether or not it’s written… I don’t think you need necessarily a written plan from zero (I didn’t). So one, an idea, two – a plan. Three, your business has to solve some kind of need for the customer that somebody else is not serving. I say that out loud and I think about McDonald’s versus Burger King. Burger King is solving a need, McDonald’s is solving the same need, but now it’s flavor choices, right? So do you like A or B better? But having a USD (unique selling proposition), something that is unique or that you believe to be unique about what it is that you’re doing – you’re building, you’re offering service, products, you name it.

Three – being passionate, or having a team of people that are absolutely passionate about that idea. It’s pretty rare to see successful companies where — companies get to a point of success where the founders or creators or people running the show that don’t have some kind of passion for it, it’s too hard; it’s too much work, it’s too difficult to struggle through that without having that passion. Having a dedication to people and to your own people… You can’t build a scaling company without taking care of people, and I’m saying that and I can think of examples of companies where they have a really crappy culture and I’m like “Hm, maybe not…”, but at the end of the day I think what goes around, comes around.

I think those are the keys, and especially in 2017 when we’re recording this, I think something that we didn’t do in the past – and by “we” I mean businesses in general – is becoming very data-oriented… Metrics and data and understanding your business from a data perspective. I think you often see small businesses where they don’t get it struggling a lot.

Knowing your numbers — let’s take real estate investors. If you’re a real estate investor and you market by mail, if you don’t know your send and open rates and your cost per send and your funnels, you’re just throwing money out the window. You don’t know what you’re doing, you have no way to measure whether or not what you’re doing is successful or not.

A pizza restaurant – what’s our cost per ingredient? Can we drop that down? And measuring our volume per day and being able to predict… Most restaurants fail because they can’t buy correctly, they can’t manage their costs and all the waste. All of that is knowing and understanding the numbers. I think that’s probably one of the biggest things.

Joe Fairless: Hey, Josh, thank you for being on the show, from talking about the overall approach that you take to business and how to build a company, the process or the things that we need to pay attention to when we build a company – have the idea, have the plan, make sure we’re solving something with a unique selling proposition… Be passionate, have dedication to our people, and know our business from a data standpoint – that right there is the blueprint for creating not only a real estate investing company, but just a company in general. Also, you’re speaking to a Bigger Pockets member, and I am now going to start using the member notes section, so Best Ever listeners, go check out the members notes section; it sounds like a really cool feature.

From an overall entrepreneurship and mindset standpoint, I noticed one thing that you honed in on when you were talking about the overall vision, and it’s not saying “I can’t do something” or “I don’t have access”, it’s HOW do we do something, and really coming at it from an abundance mentality and a solutions-oriented mentality, which is what a true entrepreneur would do.

Then the family-style interview. Culture is incredibly important it’s obvious to you, and how much emphasis you put in that, and don’t bring no drama.

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

Josh Dorkin: Thanks, Joe. Take care.

Best Real Estate Investing Advice Ever Show Podcast

JF1042: Simple Networking Has Made Him Over $100,000!!!

If you’re struggling to find your next deal, try attending meetups – or even start your own! That’s exactly what Anson has done and he credits the meetings to over $100,000 in revenue from deals he would have missed out on otherwise. Something so simple that anyone can do, can have major returns!  If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Anson Young Real Estate Background:
-Owner of Anson Property Group LLC Real estate investor with over 10 years experience
-Specializes in wholesaling and flipping with a robust background in construction
-Launching first real estate investing book
-Based in Denver, Colorado
-Best Ever Book: The Obstacle is the Way

Click here for a summary of Anson’s Best Ever advice: How to Make Over 6-Figures with This Simple Networking Strategy

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make money through networking

 

 

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, Anson Young. How are you doing, my friend?

Anson Young: I’m doing great, how are you, Joe?

Joe Fairless: I’m doing well, nice to have you on the show, and looking forward to diving in. A little bit about Anson – he is the owner of Anson Property Group LLC. He is a real estate investor with over 10 years experience; he specializes in wholesaling and flipping with a background in construction, and he is based in Denver, Colorado, home of the Best Ever conference last February, and then coming up again this next February (probably early February). With that being said, Anson, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Anson Young: Absolutely. Like many people, I got laid off back in the mid-2000s from an IT job and I had to make this decision of what the heck I wanted to do with my life, if I wanted to keep letting companies lay me off and put my financial security in jeopardy, or if I wanted to do something else. It took me a little bit of time to figure out what that something else was.

I bartended for a bit, and that speaks a lot to my social skills – I love talking to people and hanging out, and getting paid to do that is great… And my wife and I decided “You know what? We’re gonna move down to Phoenix for a couple years.” My brother was living down there, they’d just had a baby… I was laid off, so I didn’t have anything keeping me here, so we decided “Hey, let’s just make a change.”

With a new city came a new opportunity. I read Rich Dad, Poor Dad in the moving truck on the way down there, and I basically said “You know what? I’m just gonna start doing this real estate thing.” It did take me about a year before I got my first deal, but it pretty much opened my eyes to “Yes, I can be my own boss. I don’t have to rely on a company to decide whether they wanted to lay me off or not”, and kind of go from there. That was 2005, and I really haven’t looked back since.

Joe Fairless: Just to get an idea of either volume or the type of transactions you do – what can you tell us about within the last 12 months in that regard?

Anson Young: You did ask about focus, and my focus these days is mainly fix and flipping. I’ve kind of gone back and forth over the years, whether it was full-time wholesaling, full-time fix and flipping… Now I kind of do a mixture of both.

In the last 12 months I’ve done 10 fix and flip projects and probably about the same in wholesales, and then this next year I’m hoping to get that fix and flip number up to about 20, and the same for wholesales.

The Denver market is crazy, and I think next to the Bay Area, San Francisco market, it’s probably one of the harder markets to not only break into, but even veterans are kind of feeling the squeeze on deal inventory.

Joe Fairless: How are you getting your fix and flip projects?

Anson Young: Mainly through off-market channels, networking, referrals, direct mail, a little bit of internet stuff… Basically shaking down every tree that I can and diving as deep as I can get to get in front of motivated sellers to get them to sell me their property, basically.

Joe Fairless: The last fix and flip project that you did – where did you get that from?

Anson Young: The very last one I did was actually a referral through somebody who I met at my meetup through Bigger Pockets. He was brand new to the business, he’s more of a turnkey guy and has some properties in another state… And he had a family member who got moved into long-term care and the family didn’t know what to do with the property; it wasn’t in horrible shape by any means, it was just severely outdated and needed some systems upgraded… So he turned to me and said, “Hey, I have this property; what can you do?” I ran the numbers and presented them to his family, and they said yes and we moved forward on that project. So referrals and network is huge.

Joe Fairless: What were the numbers?

Anson Young: The numbers on that – we bought it for 230k, we put in 45k, I think (that was the final number) and we sold it for 340k.

Joe Fairless: Okay, so you were all-in at 275k and you sold it for 340k. In what period of time did you get the $65,000ish profit?

Anson Young: It was exactly at 90 days. With the FHA 90-day flip rule, in order to avoid extra appraisals and extra headache, and FHA underwriter won’t allow the resale of a property from 90 days. Basically, from the time we closed it, we did all of our work — the work only took four weeks, maybe five. Then about 30 days on the market… We had to wait about 15 days so we can not have to do another appraisal, all that fun stuff.

Joe Fairless: And is that 90 day rule in effect when you put it under contract, or when you close on the back-end with the sale?

Anson Young: When you close. You can close on day 91 if the underwriters know what they’re doing and the lender’s good.

Joe Fairless: Okay, cool. You said that you have a meetup and you met this individual who referred the house to you via your meetup. Is that an in-person meetup that you have organized?

Anson Young: It is. It is a monthly pure networking meetup. We don’t do any speaking or pretty much anything besides get together, have a beer, find somebody who does what you wanna do or that you wanna find out more from, tackle them and pick their brain as much as possible.

It was probably the first organized meetup through Bigger Pockets, and it was just a place to get together, share ideas openly, and honestly, have a couple beers.

Joe Fairless: How often do you meet, how many people usually attend and how long have you been doing it?

Anson Young: We’ve been doing it for right about three years, and we meet once a month, and we’re actually really outgrowing our space that we have. We’re close to about 70 people who show up… And it’s only advertised on Bigger Pockets, so for limited exposure, we actually get a pretty good number of people each month.

Joe Fairless: And you host it, and you’ve mentioned beer a couple times, so is it at a bar?

Anson Young: It’s at a beer hall that’s attached to a bicycle cafe. Denver being very health-conscious, but we also love our beer, basically there’s a bike shop right next door, they serve coffee and beer and food over there, and they opened up this whole new side that’s just a beer hall, and we meet on that side.

Joe Fairless: Do you have to pay to secure the space?

Anson Young: We actually don’t. We got a pretty good deal going, where — Monday night was just a slow night for them, and so they love having 70 people coming on an off night. They don’t charge us, they don’t hassle us… It was all born out of — we kept getting kicked out of kind of a shared workspace… We had an agreement with them, but we kept showing up and they’d be like “We have this Google event. Sorry guys, you can’t meet up!” and there’s 30 of us out on the street going “Now what?”

This bicycle cafe has been great. We’ve never had any issues or problems. We just take over their area and have fun for about three hours.

Joe Fairless: Do you have a section reserved that they rope off?

Anson Young: I think technically we have the entire beer hall… I’m pretty sure that people who show up on Mondays that we meet and don’t wanna talk real estate, they kind of go next door to the quieter cafe side and they have a beer over there. We technically have the whole side to ourselves.

Joe Fairless: How many leads have come through this meetup?

Anson Young: I like to say that I’ve easily made six figures just by running this meetup… Probably in the neighborhood of 15 deals that I’ve done… In three years you’d say “Oh, 15 deals isn’t that much”, but for the time invested  – I basically post a note saying “Hey, this is all the dates that we’re meeting up for the whole year.” Every month I just create a new thread, I show up for three hours and… Honestly, my voice is gone, I’m exhausted because I talk to a lot of people, answer pretty much any questions that anybody has about nearly anything, and provide that value, but at the same time people come back to me and say “Hey, yeah, you helped me out and I’ve been driving for dollars or I’ve been knocking on doors or whatever it is, and I came across this deal and I don’t know what to do with it”, so I’m more than happy to partner up with them, help them with ARV, help them with repair numbers, contractors, whatever they need to be successful, and a lot of times we partner up and do that deal together. It’s very beneficial.

Joe Fairless: Yeah, and six figures in three years – it’s still $33,000/year extra income that’s coming in from those relationships, not to mention the actual relationships, which is much more valuable than the $33,000 average per year. And as you said, you’ve at least made six figures from it, so I’m just using $100,000, but it sounds like it could be even more than that.

Anson Young: Yeah, it’s probably in the neighborhood of 150k, but either way, it’s not a bad deal.

Joe Fairless: Why did you start the meetup?

Anson Young: It initially came about with the Bigger Pockets conferences that they did – my memory’s bad… I wanna say it was 2012 or 2013 maybe, and that was here in Denver. One of the nights there was 30-40 high-level investors just talking shop at the bar at the hotel, so I was like “This is freakin’ awesome. All the other meetups and events that I go to, it’s nothing like this.” Josh Dorkin, who runs Bigger Pockets happened to be standing next to me and I said “Why don’t we just do this once a month?” He basically just said “I don’t have time to do any of that. If you wanna do it, just do it.”

Literally, a week later I just posted “Hey, we’re gonna meet up and we’re just gonna hang out, we’re just gonna talk and we’re just gonna network.” It just kind of grew from there.

Joe Fairless: Very cool. Last question on this and then we’ll move on to some other stuff, but you don’t make any announcements to the large group at the beginning? There’s nothing other than you walk in the door, you go grab a beer and you go grab a buddy and you start talking one-on-one?

Anson Young: Yup, that’s pretty much it. I’ve kind of toyed with the announcement thing or introductions or anything like that, and I just feel like it would kind of slow down the pace of the meeting. I do try to facilitate or I try to meet pretty much everybody who’s there. If I know that you are a fix and flipper and you’re having a hard time finding a contractor on the East side of the town, and I go across the room and I find somebody who knows somebody, or somebody who is a contractor, I basically try to link everybody up, so that you’re not just blindly walking around with 70 people there. There’s at least one or two of us who’s walking around and trying to connect people who have needs.

Joe Fairless: Just for context for the Best Ever listeners, and probably also you, Anson, because you might be like “Why the hell does he keep asking me about this meetup?” – the reason why is because 1) you’ve made over six figures from hosting this meetup. 2) You’re learning along the way. 3) You are creating relationships and perhaps even friendships, and you’re becoming more valuable to the deals that you currently work on. I suspect there’s also some revenue that you’ve made on projects that didn’t come from the meetup, but either through relationships or lessons learned from conversations with people in the meetup you’ve optimized some sort of approach… It’s just low-hanging fruit for any Best Ever listener who wants to get more traction, make more money, learn more… Start a meetup. It’s very simple. You’ve been doing it for three years – just once a month you go grab some beers, very loosely organized, and you’re a living proof that it’s incredibly effective from a financial standpoint, from a learning standpoint and from a relationship standpoint.

Anson Young: Yeah, absolutely. I always say, if you wish something like that was in your area, why don’t you just started? Like you said, I’m the living proof that it works. And yes, I have friends who I’ve met just through there, and we’re friends or we’re partnering up on things now, and we wouldn’t have that opportunity if I didn’t just say “Hey, let’s just see what happens if I start it up.”

Joe Fairless: Now let’s talk about — maybe one of the issues that you’ve already identified if someone is having a problem finding a contractor on the East side of town… Let’s just say they’re having a problem finding a contractor in general, that way we’re applying it to the Best Ever listeners in addition to your Denver people. What would your recommendation be for finding a good contractor, knowing that you do have a background in construction?

Anson Young: I would say that the first thing that I go to always is referrals. I try to keep a pretty decent network inside of my meetup and outside of it… So other kind of loosely related meetups — basically, a referral is gonna be that first line of defense; it’s gonna be somebody else who has a personal recommendation, like “Yes, use Bob. He’s great.” I don’t have any projects going… I wanna make sure that Bob is feeding his family, so that the next time I do have a project, I can use Bob. So “Use Bob!” That is always my number one go-to, it’s saying “Hey, who has a great landscaper? Who has a great drywall guy?” etc.

Honestly, that gets me 90% of the way there. I can usually get two or three recommendations, and then vet them out from there. If that fails, I think the extreme old-school way of basically showing up to Home Depot at 7 in the morning, going to the Pro Desk — if you’ve been working with the Pro Desk or their managers, they should know you by now… Going up to them and saying “Who’s in here every day? Who shows up early? Who would you trust with your projects?” A lot of times they wanna see their contractors be successful, because they come in and buy more product… I’ve got a few guys that way, too – just basically kind of going straight to the people who they buy from and say “Who do you recommend?” A lot of times they have some pretty great contacts.

Joe Fairless: What would you say you’re especially talented in from a real estate standpoint? Because we’ve all got one or two really special talents if we’re honest with ourselves… What are yours?

Anson Young: I’d like to say building rapport is what I’ve worked on almost the most… Not only just tracking down and finding deals – I was gonna say that, but I think that personal aspect of getting to know the people who I’m working with, motivated sellers (or even unmotivated sellers), getting them on my side, letting them know that I’m a real person, I’m not out to rob them blind, I wanna create a win/win scenario… Building that rapport often times wins me deals, even if I’m not the highest price.

So going into it with the mindset of “I’m here to help.” This is a real person in a real crappy scenario – most of the time with motivated sellers, right? So I wanna treat them like a person, with respect, I wanna build rapport, I really do wanna get to know them. A lot of times, like I said, that does win me deals, even though I’m not the best price. They go “We have a higher offer, but we like and trust you and we know that you’re gonna get it done.” I’d like to think that that’s my super power.

Joe Fairless: What are some of the questions that you ask to get to know them, build rapport, treat them as a real person?

Anson Young: A lot of times, especially in person, it’s kind of easy to get lost in “Let me take a quick walk through… I’m just gonna mark down everything that’s wrong with your house and then I’ll hand you a piece of paper that says how much I wanna pay.” Often times the first 20-30 minutes of our meetings are talking about their family, their kids or their grandkids, or the house and the memories that they’ve had at the house, or what’s going on in town, or some of the hot issues that maybe they bring up, whether it’s something in the news… Basically, not making it all about the house and the deal. It’s making it about them, and their family and their stories and their situation, and how we can hellp, and basically kind of take it from there.

The house is obviously why I’m there, but if I show up and show interest in them, then it pays off in the long run for sure.

Joe Fairless: What’s a project that has been the most challenging for you?

Anson Young: I would say there’s been a few hoarder houses that I’ve bought that have been extremely challenging in that 1) it’s a very interesting scenario when you go in — and honestly, the hoarder houses that I’ve dealt with have been mostly mentally unstable type people who have lived in that situation for way too long… So a lot of times I’m dealing with them and their families, and everybody wants to do what’s best for everybody.

At the same time, we’re buying these houses with five feet of stuff in it, and you can’t get down and you can’t see if there’s any structural issues and you can’t see if there’s mold growing underneath 20 years of stuff… So it’s kind of this combination of very tricky, intricate personal problems, mixed with you’re kind of buying it site unseen, unless you’re trying to clear it all out and then kind of work on price.

I’m dealing with one right now, so that’s why it’s on the top of my mind. I’m kind of dreading it, but later this week I’m gonna put on a hazmat suit or the best equivalent that I can buy, and kind of wade through – I’m not even exaggerating – about six feet of stuff in a house that’s been closed up for two years and the roof is very sketchy, and it’s been raining and snowing for the last two days.

It’s one of those things where I need to get in there and find out what’s going on, so I can get the best price to the owner and treat them with the respect that they deserve.

I try to keep my word – “I’m gonna get back to you this week” – but I have to get down there and I have to get actually all the way down to the basement to make sure that there’s no structural issues or problems, so that when we clear out the stuff, all of a sudden there’s a $45,000 problem that we didn’t see.

Joe Fairless: When you’re down in the basement looking for structural issues, you’ve got your hazmat suit on, what are you looking for specifically to identify structural issues?

Anson Young: In areas that have basements, I’m looking for any water intrusion, any large cracking or heaving of the foundation walls… Some of that would look like a folded piece of paper that looks like it’s buckling… Any horizontal cracking, any heaving of the floors or the subfloor is all jacked up… Which makes it really hard when there’s five feet of stuff in there.

So yeah, basically making sure that there’s not water, making sure that the foundation walls are actually secure and standing. Then, usually on the other floors you can tell if there’s any issues going on in the basement just by the waviness of the floors on the other levels.

I’ve done this in two-storey houses where the top level was like a fun house based on all the stuff that was going on in the basement. Usually, those big problems have a tell. Something on the other levels or the exterior is gonna show it, too.

Joe Fairless: With the deal that you’re referring to right now, what do they want? What do you think it’s worth as of now? How much would you put into it and what would you sell it for?

Anson Young: I think the last number that we threw around was about 170k, and that’s why I’m going over there, to try and figure out what all needs to get done. But I think I budgeted for at least 100k-110k, if not higher. It could get pretty crazy, up to about 150k if there’s issues with the foundation. Then the exit is about 420k on that one it’s obviously being sold at a huge discount, because it’s in a really nice area of a suburb of Denver… But it’s easily the worst house in ten miles.

Just pulling up and kind of looking at the outside… There’s about three neighbors who come out and they have all the stories about the house the last 15 years of how it got that way.

Joe Fairless: Oh, I’m sure they do. Well, with the negotiations on that, any tips you would have for a Best Ever listener who is going through a situation where there’s a house, it’s completely a mess and there are more expenses and issues that come up – how to have that conversation with the seller and basically negotiate a better price?

Anson Young: The earlier in your interaction the better that you can kind of set up the scenario where you basically say “I can get you a price, but obviously you’re going in unknown. There’s a lot of unknowns going in.” If it’s a vacant house with all the stuff cleared out, it’s pretty easy to figure out what’s going on. But if it’s full of stuff, they have to understand that if something gets uncovered and we have to bring it back to the negotiation table, that they can’t really get offended.

If they buy a car, they’re gonna wanna know what’s going on under the hood, and this is a much bigger purchase. If we uncover bigger issues along the road, getting that expectation upfront of saying “Hey, this is kind of how we work. If there’s something that happens mid-way through that we discover, we might have to talk about price again”, only because it’s gonna be an issue whether they try to sell it to someone else, or if we buy it. So either way, we’re gonna have to talk price again.

It’s kind of like setting that expectation upfront of how this is gonna go – it helps when two or three months down the road you actually have that phone call, they remember “Oh yeah, we talked about this. It’s not a surprise.”

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

Anson Young: I think that mine is definitely focus on finding deals, because anything else that you do in real estate is going to basically build on that. I say that because if you’re the world’s best wholesaler, you can then use those skills — obviously, your job is to find deals that are better prices than the next guy. So if you want to go on to be a fix and flipper or a landlord or find apartment buildings, anything else in real estate (be it a developer), you already have the skills set up from the beginning to find better deals than the next guy.

I say that because when I transitioned from wholesaling to fix and flip, a lot of fix and flippers rely on an agent or a team of agents… They are kind of wrapped up on the construction side or the money side and they don’t run a marketing department, they don’t run direct-to-seller game, and where I did, I can come in and buy properties for a better price than they could, because back in the day I had to sell them those properties, so I had to have a built-in spread.

This way, if I wanna be a landlord in Kansas City, I have 95% of the skills to get me there. I just have to know the market, I know how to direct-market and I know how to negotiate… So I can kind of apply those skills wherever else I want in this real estate business.

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

Anson Young: I’m ready.

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

Break: [00:26:13].22] to [00:27:11].22]

Joe Fairless: Best ever book you’ve read?

Anson Young: The Obstacle Is The Way by Ryan Holiday.

Joe Fairless: Best ever deal you’ve done?

Anson Young: I wanna say numbers to some extent just becomes a measuring contest. I like to think that my best ever deal was helping one of the hoarder ladies out of her house, make a win/win scenario so that she didn’t have to have her house torn down and get no money. I could come in and save the day… And I still talk to one of her sisters even now; we kind of text back and forth every now and then. Building that relationship and actually helping was probably my proudest real estate deal, for sure.

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

Anson Young: Definitely not knowing my numbers well enough on development deals. When I first started trying to wholesale land to developers I probably missed out on  easily a couple hundred thousand dollars over the course of a couple deals, just not really understanding the numbers, just leaving more money than I should on the table. Obviously, I want to provide value for the next guy and make sure that they’re making money, but when you underprice a property by $100,000 because you don’t know what you’re doing… That hurts, too.

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

Anson Young: I like to support a few charities. My favorite one fights human trafficking. It’s PolarisProject.org – it’s something that I feel very strongly about.

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

Anson Young: I think that the best place honestly is probably Facebook. I’m on there probably way too much. I just have a bunch of groups going on there that I like to check in with. It’s just Facebook.com/ansonyoung. That’s how you can reach me.

Joe Fairless: Anson, thank you for being on the show and sharing your expertise in fix and flipping, networking and relationship building and construction, talking about getting the meetup off the ground three years ago and how you’ve made six figures from that meetup, even though that’s probably not the reason why you’re doing it in the first place… But the reality is we always wanna know what type of results have come from actions, and that’s why it’s important to note that. But more importantly, it would be the relationships and probably the lessons you’ve learned from those conversations and applied it to your business and evolving the business over time and determining which ones to fix and flip, which ones to wholesale etc.

Then the hoarder house example and how to approach that, as well as your focus on finding the deals… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Anson Young: Thanks, Joe. I really appreciate it.

 

 

 

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Best Real Estate Investing Advice Ever Show Podcast

JF1026: How to Make Money in a HOTTT Market

Mark and his team quit buying rentals in the Denver market and have 16 flips going on right now!  From poor project managers to bad floor plans, hear Mark’s story of how he made it to where he is today.  He also has a massive 250,000 sq. ft. project going on now, listen in for this one!

Best Ever Tweet:

Mark Ferguson Real Estate Background:
-Founder of Invest Four More, one of the top real estate blogs with over 100,000 visitors a month
-Over the last three years his real estate company has sold over 500 homes
-Avid Real Estate Investor, does 10-15 fix and flips a year and owns 15 long-term rentals
-Runs the Ferguson Team at Pro Realty, which has a team of 10
-Based in Greeley, Colorado
-Say hi to him at https://investfourmore.com/

Listen to last interview where he gave 6 tips to manage contractors successfully: https://joefairless.com/podcast/jf480-6-tips-to-manage-contractors-successfully-situationsaturday/

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Go to mylandlordhelper.com/joe to schedule your free session.

 

making money in a real estate market

 

 

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. I hope you’re having a best ever weekend.

Because it is Saturday, we’ve got a special segment for you call Situation Saturday, and here’s a situation… Our best ever guest is in a hot, hot market, therefore he has decided not to buy any more rentals and he’s focusing the majority of his efforts on flips. In fact, he has 16 flips going on right now. We’re gonna talk about that.

How are you doing, Mark Ferguson?

Mark Ferguson: I’m doing great. Thank you for having me on the show, Joe. I’m looking forward to it.

Joe Fairless: Yeah, my pleasure. Nice to have you back. A little bit about Mark… Holy cow, he was on episode — get ready for this… Episode 57! We’re in the thousands now. Man, I love my titles, but I think I was — maybe I had a couple beers after I wrote this title, but the title of your original episode was “Peek-a-Boo I See You: Overlooked Costs on Fix and Flips.” Wow… Then we interviewed you on episode 480: “Six Tips To Manage Contractors Successfully”, and today we’re gonna be talking about how to approach living in a hot market.

A little bit about Mark – he is the founder of Invest Four More, one of the top real estate blogs. He gets over 100,000 visitors a month. In the last three years his company sold over 500 homes. He is an avid real estate investor and he is based in Greeley, Colorado, which is just North of Denver, Colorado. With that being said, Mark, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Mark Ferguson: Right now, like I said, flipping is my focus. I started flipping in 2001 with my father, right after college. I think I’ve completed over 120 flips. I’ve got 14 rentals now. I sold a couple this last year, but I’ve bought 16 in total. I have a real estate team with six licensed agents.

My focus in real estate as an agent was REO and HUDS selling foreclosures, but those are gone in Colorado, so mostly I invest and my team sells houses. I love writing, I’ve published a few books… I keep myself busy, but always looking to do new things and keep things exciting.

Joe Fairless: A recent book that just came out is a book that you wrote with Jay Scott. What’s it called?

Mark Ferguson: It’s the book on negotiating real estate – Expert Strategies For Getting The Best Deals When Buying And Selling Investment Property. We wrote this book together; Jay si an awesome writer, awesome flipper and it’s just all about how to negotiate, how to get a great deal on real estate, and really negotiating anything.

Joe Fairless: One of the things I like about the book – I endorsed it and they said “Hey, we’ll mail you a copy” and I said “No, I wanna buy my own copy and I wanna support your cause”, because I love what you guys are doing; they gave me a sneak preview of the book with the manuscript. So I read through that, endorsed the book, and then I bought it, I’ve got it. Since then I’ve read through some of it, not all of it. One of the things I really like about that book are the real world stories that you two have put in there from your experiences as fix and flippers and real estate investors. I highly recommend going to get that book, Best Ever listeners.

Now let’s talk about living in a hot market and how you focus on now fix and flips. You just said that you’ve sold a couple of your rentals… Does that tie into the hot market thing?

Mark Ferguson: Yeah, for sure. I have a goal that I wrote out to buy 100 rentals in 10 years, starting a few years ago, and… Things change. You set these goals… I was not expecting the market to take off like it has. In 2011 our median price in my town was 110k, and now it’s approaching 280k. It is crazy. In the past, you could buy a house for 100k, put 20k of repairs into it, rent it for $1,200-$1,300. Our taxes are super low, which is nice here, but rents have not kept up with prices. Now you can buy a house for 200k, put 20k into it, and it might rent for $1,600. The cashflow does not make sense for rentals anymore here.

Joe Fairless: And out of the homes in your portfolio, why did you choose to sell those specific homes?

Mark Ferguson: When the market was getting tougher – in 2015 was when I bought my last rental, and the last few I bought I started to really stretch my criteria. I love single-family homes just below the median price range. I bought a college rental, I bought another property that had a really weird floor plan, it was really hard to rent, so since the market was doing so well, I’m like “Hey, I’ll sell a couple of my worst-performing rentals and the ones that I don’t like as well, and I’ll just keep the ones I really like, and I’ll use that money from the rentals I sold to just buy more flips and improve the flipping business.”

Joe Fairless: And the last question on that, and then we’ll focus on the flipping stuff… The weird floor plan – what did you learn from that that you can share with us so that we don’t do the same thing?

Mark Ferguson: It was a really good deal, I bought it for $88,000 in 2012, but it had no dining room. It had a really small living room, but no dining room. There wasn’t really a place to eat in the kitchen, and it took us like three months to rent the house in a market where it should have taken five days. It also had a weird addition where you had to walk through one bedroom to get to another bedroom… So it was sort of a four-bedroom, but not really; more like a three-bedroom. There were just some weird quirks about it where — I didn’t think about it at the time I bought it; I’m like, “Hey, it’s a great market for rentals… People will just rent it”, but it really caused some problems, and it caused a few problems trying to sell it, too.

That’s one thing I always look at now – when I buy a house, when I buy a rental, there must be some kind of place to sit down and eat, because if there’s not, it can cause some problems.

Joe Fairless: Now let’s talk about your focus… You’ve got 16 flips going on right now. You’re not buying any rentals… Are you doing these in Denver?

Mark Ferguson: They are all within about 35-40 miles of Greeley, where I’m from. I’m about 50 miles North of Denver, so I’m just outside the Denver market; I don’t quite get in there. And yeah, we’ve been anywhere from 15 to 19 flips at once so far in 2017.

Joe Fairless: Let’s talk about — how are you managing 16 flips right now, and how far away are they from driving distance from where you currently live, just to give us an idea?

Mark Ferguson: Most of them are within 10 miles of me, but there’s a few that are 30. But I would say 75% of the ones I have are within 10-15 miles, not too far away.

I hired a project manager a couple years ago to help me with my flips… Failed miserably.

Joe Fairless: Why?

Mark Ferguson: He was an ex-contractor, I thought he’d be perfect for the job, I liked him, but he just did not work. He would not do what I asked him, he would do his own thing, and we had some problems. I didn’t keep a good enough track managing him and making sure he’s doing things, so for a while there I took them over myself again, and then at the start of last year I hired Nicky, who’d worked with me for six years doing REO work to manage them, and she has been awesome. So she’s my project manager; she manages the contractors, finds new contractors, keeps track of expenses… There’s no way I could do this many flips on my own.
We kind of take turns driving around, looking at properties, and we also picked up a new program called Realty Pilot this year to manage everything: pictures, notes, bids, invoices… It’s all online in one place, and we’re not chasing down text messages and e-mails from six months ago to figure out what’s going on.

Joe Fairless: Who created that software program?

Mark Ferguson: It was a John Murray who was one of the best real estate agents in the country; he sold over 1,000 in a year a couple times. He created it with some other guys to help with REO listings for banks to manage foreclosures, and then he’s kind of opened it up to other investors too that manage their properties on it.

Joe Fairless: What are your main responsibilities right now? You’ve got Nicky, who — I love how you said Nicky, because it’s like “Oh, Nicky!” Well, I’ve never met Nicky, I don’t know who Nicky is, but okay, so we’ve got Nicky, who’s your project manager. What are you doing?

Mark Ferguson: I’m trying to focus on the things that I really love to do. I always say I’m addicted to buying houses, so I’m still out there driving, looking at deals if I’m buying it from a wholesaler or the MLS… Kind of managing some of our direct marketing stuff we’re trying to implement, and I love to be out in the field and get out of the office. So I’m really hands-on with buying properties. That’s what I love to do.

I’ll also go out there and shoot videos of them before and after to put on the blog, and different things. And I like writing, too. I’ll write all the articles still on my site, I like creating the books… My main focus now is buying houses, high-level management over the team, and the writing side of it.

Joe Fairless: You switched from buying properties to fixing and flipping the properties… What indicators – and you mentioned the median home prices – are you keeping track of so that you know when to switch back to buying properties for rentals?

Mark Ferguson: Whenever I bought rentals, I’ve always looked at cashflow first. I’ve always wanted to make at least 15% cash-on-cash return after paying all the expenses – maintenance, vacancies and all of those allowances. So when I couldn’t get that anymore, I started to take a really hard look at my market and if I wanted to buy rentals here. Prices have shot up since then even too, and I don’t know if we’re ever gonna get back to that really, in my market. So what I’ve done instead of kind of sitting around waiting for this market to change is I have looked at other markets like Florida, and I’ve also looked at different property classes here, like commercial.

Multifamily is crazy expensive here for residential, but there’s some opportunity here on commercial, like true industrial properties, warehouses, and I actually have a 2.4 million dollar property under contract right now… I just got it yesterday.

Joe Fairless: Congratulations!

Mark Ferguson: Yeah… It’s a bit out of my comfort zone. That will be my project for the next couple months here.

Joe Fairless: What can you tell us about it?

Mark Ferguson: It’s a 250,000 square foot old Hewlett Packard manufacturing plant…

Joe Fairless: Oh my gosh, you’re going all in on the stretching your comfort zone…

Mark Ferguson: It’s been vacant for 12 years, but it’s right in the path of growth, and my plan is to get a few investors in it with me, split it up into smaller spaces and lease out 5,000-10,000 square foot spaces to individual businesses, and kind of revitalize the property. They’re building a new McDonald’s, new banks, new health centers all around it. It’s a big project, but it should be fun.

Joe Fairless: How do you plan on getting financing for that?

Mark Ferguson: I’ve talked to some banks. Some banks are willing to do a part of it, and then I have one partner already and I’m hoping to get maybe two or three other partners to chip in. It’s gonna need probably almost two million dollars in repairs and renovation. So that’s the challenge right now – I wanted to get it under contract before I open my mouth up too much about it around town, and now that I’ve got it under contract, it’s time to get to work.

Joe Fairless: A couple questions… How long do you have until you need to close, and do you have an out clause so that if doomsday happens and you aren’t able to get bank financing or equity partners, then you can escape out without losing a lot of money.

Mark Ferguson: I have 85 days for my inspection and due diligence, and it’s 50k in earnest money. So I can get that back… Basically, I have three months to figure it all out. I have an extension clause too, where I can pay another $50,000 for another 90 days, but then that is non-refundable. So I’ve got about three months to figure it all out.

Joe Fairless: And your 50k earnest money is refundable within those 85 days?

Mark Ferguson: Correct.

Joe Fairless: So why not, right? [laughs] I’m used to putting offers in Texas where the day I put the offer in and it gets accepted it’s non-refundable, like six-figure style, so that’s where I’m like, “Well, shoot…!” [laughs]

Mark Ferguson: A little stressful…

Joe Fairless: Yeah, exactly. Okay, good stuff. And what do you think — after you put in two million… So you’ll be all-in roughly 4.4 million, what will it be worth?

Mark Ferguson: If you get it fully leased out, it sounds crazy, but it’s probably a 12-17 million dollar building. Cap rates here are super low for commercial. It would bring in close to two million gross a year before expenses, and probably a million after, being conservative on those numbers. There’s no space for lease here, that’s the thing… There’s so little space for lease…

Joe Fairless: How long do you expect the project to take to get to that point?

Mark Ferguson: At least two years probably to get all the way there… Maybe longer. But I figured if you start small and start building one space at a time, you can get it partially leased maybe six months, and then kind of slowly lease it out over the next year or two.

Joe Fairless: That’s gonna be a major focus of yours.

Mark Ferguson: Oh, yes. [laughter]

Joe Fairless: What do you see for your role and your other equity partners’ role in the deal?

Mark Ferguson: I wanna set it up so that I have complete control. I’m a bit of a control freak and I think in a project like this one of the biggest dangers is having too many cooks in the kitchen and people not agreeing. I wanna set it up where I have complete control, I have the majority of the equity and then maybe two or three partners have between 30%-45% of the equity together, in that range… Depending on how much investment they have. So that’s my plan right now.

Joe Fairless: What about this project — is this the largest transaction for your personally to spearhead?

Mark Ferguson: By like five times.

Joe Fairless: By five times, okay. What gave you the confidence to go five times larger than what you’ve previously done?

Mark Ferguson: I’ve been looking at commercial for a year and a half now just because there was no residential for me. I knew nothing about commercial before I started looking at it, and when I saw some of these properties, there was another one I was interested in at 2.5 million which was in much better shape, half the size, but I saw it was under rented and half the space was vacant. It’s kind of like the apartment building that you, where if it’s mismanaged there’s so much potential to increase value and increase rents, and I saw that potential in these commercial places, and I’m like “Man, I really wanna look into this more.” So I just kept looking for a few properties…

Most of this stuff was so expensive it just didn’t make sense, but then there’s a couple properties that need work, and this one is actually off market; it wasn’t listed. So there was just a huge opportunity there that I think is pretty rare to find.

Joe Fairless: Why wasn’t it listed if it’s completely vacant?

Mark Ferguson: It’s got a crazy story. Hewlett Packard left in 2001. They sold it to a group of investors; at that time it was 145 acres with this building, and those investors paid 8 million for it. They lost a ton of money, ended up selling it to another investor in a couple years for like 6 million… So it got a really bad stigma about it being a losing deal.

The new investors went through, split up the land, sold off the land, one acre to McDonald’s, one acre to a car wash, one acre to a bank… To get a subdivision for multifamily, another one for single-family… They made all their money back just selling off this land, so they’ve been concentrating on that for like the last five years and just left this property sitting there. Everyone who’s owned it has wanted to put one big, giant user in there, and I think that was their big mistake. There’s not many people who want 250,000 square feet in a dilapidated building [unintelligible [00:18:06].16]

I think splitting it up is gonna make it so much more valuable and make it much easier to rent. And I don’t know why they didn’t list it. I would have…

Joe Fairless: How many acres?

Mark Ferguson: 19,5, and it comes with about $500,000 in water too with it.

Joe Fairless: What do you mean by that?

Mark Ferguson: 13 acre feet of water to water the land, and then a three-inch water tap. Water in Colorado is so expensive, so if you were to sell that water on its own, it would be worth probably around $400,000-$500,000.

Joe Fairless: You’re speaking in a language that I don’t know what you’re talking about… So you said it comes with $500,000 of water in it. Is that a reserve, or what is that?

Mark Ferguson: It’s just water that’s been allocated to that property. Water is so expensive in Colorado… If you wanna build a new house, you’re probably gonna pay $40,000 for a water tap, just for one single-family house. We’re kind of top of the mountain where there’s nobody above us where water comes; we’re in a very dry climate, so it’s very valuable. If you have water with land, you can sell that water separate from the land. If you have water rights to a certain ditch or to a lake, you can sell that water. Then if you build any kind of subdivision in the town, you have to have a certain amount of water allocated to it or buy water, so that you can have water available for the houses. It’s very complicated, I’m just learning all about it now, but you have to have water to be able to develop here, and it’s very expensive.

Joe Fairless: Now I’m understanding the parallels, because I am from Texas. When you say “water rights”, now I’m thinking of your oil or gas rights with your property, and that’s an apples to apples comparison. Now I get it.

Mark Ferguson: Yeah, very similar.

Joe Fairless: Okay, cool. Besides the equity and the debt partners, I imagine you’ve got an architect… Who are the team members that you need to fill out your team?

Mark Ferguson: Honestly, I have been very quiet about this. Because it wasn’t listed, it wasn’t on the market, I didn’t want to let anybody else sneak into it. So there are a couple huge, massive commercial contractors in my town: Roche Construction [unintelligible [00:20:12].23] are both headquartered here, so there’s a couple people I can talk to there. I’m actually building a charter school right next to this property where Roche Construction’s working on it, so there’s a couple contractors there I can talk to that I wanna get involved. I don’t have an architect yet… It was kind of a seat-of-the-pants, get it under contract, and now the time comes to run like crazy and figure everything else out.

Joe Fairless: Besides their names though, just like the actual titles or responsibilities – you need an architect, you need general contractors… Who else are the main team member roles?

Mark Ferguson: I’m an agent myself, but I used a commercial agent in town to do this deal for me, so he’s a big part of it, because I knew that wasn’t my specialty. He’s got a ton of connections; he’s kind of been a huge help on figuring out lease rates potential. So the commercial agent was huge. The lender, of course… There’s a couple of banks in town I’ve discussed this with and they’re both like “Well, get it under contract and we can talk more.” So banks are huge, the contractor, as you say, is gonna be huge… Those are the main players: the banks, the contractor, the agent, and the architect, designer… It’s not gonna be crazy complicated for designing, so I don’t think that’ll be a huge problem, but a big thing will be the electric, the heat, getting all that working and set up right.

Joe Fairless: When doing an inspection — and again, not the actual person’s name, but how do you find the right inspectors?

Mark Ferguson: I think on something like this I would go to the contractor, because there aren’t exactly inspectors out there who specialize in buildings like these, especially in this area. But I think I would have the contractor go through it with me, and then I actually have a contact for the person who used to manage all the maintenance on this property for 20 years, so I can get some inside information from him on the pros, cons of the building and what to look out for.

Joe Fairless: Yeah, for better or worse you know that person, because considering the state that it’s in now… Alright. Well, this has been a conversation that took a couple of twists and turns that I didn’t anticipate, but I’m glad that they did. What else, if anything, would you like to share as it relates to either your approach now as an investor in a hot market – which really the 2.4 million dollar property ties into that… So anything else that you’d like to discuss as it relates to being in a hot market and shifting your focus?

Mark Ferguson: I would just say we’re focusing on the flips now, but I see a lot of investors who in a hot market kind of pay higher prices, assuming the market will continue to get hotter and hotter; I’ve never liked that philosophy, I think that can get you into trouble. When we are flipping, I’m still looking at the current market’s prices for my ARV. I’m not assuming it’s gonna go up; I’m still very conservative, very careful to protect myself, because you never know how long that market’s gonna be hot, and things can cool down in a hurry.

Joe Fairless: Well, thank you for being on the show, Mark. This has truly been a lesson in how to shift our focus when we live or are investing in a hot market; instead of buying buy and hold properties, you are fixing and flipping, taking that cash… I assume you’re probably putting a decent chunk of it in this 2.4 million dollar property, but then also the shift in the focus as you talked about earlier with this 2.4 million dollar property. This is gonna be a major project for you. It sounds like it’s got some incredible potential, and I’m glad that you walked us through the thought process for why you got it under contract and now what you’re gonna be doing moving forward to asses out the situation and qualify it while you have the 85 days of due diligence.

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

Mark Ferguson: Sounds great. Thanks for having me, Joe.

 

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JF967: Why You Should Use Your REALTOR to Manage Your Rehabs

If you’re flipping in multiple markets and you decide to pull the trigger to hire contractors far from you, it may be wise to have a second pair of eyes ensure that the job gets done… And who better than someone who is constantly reminded to protect their fiduciary duty to you, that’s right… Realtors! She fixes and flips properties in two markets, Denver and SoCal, hear how she leverages other professionals to get the job done!

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Susan Eliya Real Estate Background:

– Full-time real estate investor
– Over the last 5+ years, we have completed more than 70 deals utilizing various strategies in many markets
– Her strategy is to flip in hypermarkets and create passive income utilizing the profits from these flips
– Based in Denver, Colorado
– Say hi to her at 201.424.0247
– Best Ever Book: Chase the Lion by Mark Batterson

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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, Susan Eilya. How are you doing, Susan?

Susan Eilya: I’m great, thank you, Joe. Thank you for having me.

Joe Fairless: Nice to have you on the show, and looking forward to digging in. Susan is a full-time real estate investor. Over the last five years she’s completed more than 70 deals, utilizing various strategies in a bunch of markets. Her primary strategy is to flip in hyper markets and create passive income utilizing the profits from those flips. She’s currently based in Denver, Colorado.

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

Susan Eilya: For sure. As you said, I’ve done about 70 deals going on — this is my sixth year in it. My husband and I started this business, jumped all in about six years ago. We do everything from basic cosmetic rehabs of 15,000, all the way to brand new builds and to scrapes. My examples also include condo and single-family rentals, as well as I’ve done some short-term and vacation rentals. Always looking for another strategy… The focus is to master one strategy, keep that going, keep those systems in place and then jump to the next and jump to the next, and create various streams of income.

Joe Fairless: Yeah, the good stuff. So what are you doing right now as far as the main types of projects that you’re working on?

Susan Eilya: I’m mostly doing fix and flips. I live in Denver, it’s a really hot market. I also do fix and flips in California and San Antonio… Just focusing on those three main markets. I’ve done stuff in other areas, so trying to hone in there. That is the focus, but I think the ultimate goal, like a  lot of us real estate investors is – the flips are fun, but ultimately owning rentals and multi-units for that passive income, and really building that wealth.

Joe Fairless: Yeah, so that is the fix and flippers and wholesalers – to take those profits and then invest them long-term into something. You’re doing flips in Denver, which is a hot market… You mentioned California, I suspect… Where in California are you doing flips?

Susan Eilya: Mostly Southern California, outside of L.A. A few years ago you could pick up a property for a couple hundred thousand, paint the cabinets white and still make 20% on your money… It’s changed over the last few years, but the market’s still there, despite the prices increasing [unintelligible [00:04:30].14] and the profits are still there. So mostly Inland Empire, Southern California area. I’ve done everything from Pasadena, all the way to La Quinta in Palm Desert. Big area.

Joe Fairless: You’re based in Denver, but you’re doing it out of state in California… How are you finding those deals?

Susan Eilya: Actually, when we started I was living in the DC Metro Area, and that was when the California market was hot, so we started doing deals out of state, which is rare for most people. Like anything, it’s just having a solid P. My realtors there are invested just as much as I am, because they know if they find me a good deal, they’re gonna sell it a few months later, so they’re double dipping on the commissions; also overseeing my GCs… It’s all about teams, and I’m  mostly getting those deals on the MLS, whereas in Denver almost all of my deals are pocket deals or directly from the sellers, just because the way the market is here.

Joe Fairless: What did you say about the general contractors?

Susan Eilya: I was just saying that your team is everything, and my realtors in California, for example, are overseeing my GCs as well; they’re just as hands-on as I am or my partner is, or my GCs, because they’re just as invested as far as they know that they’re gonna be able to make money on the front end and the back end.

I’ve got a few sets of eyes – not just my GCs, but then I have my realtor sort of GC-ing the GC to make sure that things are moving smoothly, because again, we all have something to win in that project.

Joe Fairless: Wow, that’s fascinating. You have your real estate agent oversee the general contractor… How official is that and what are their specific responsibilities?

Susan Eilya: Well, they just make sure that the project is still moving. We have the GC who’s got the teams, but we’re out there fairly often. I don’t do much traveling; my husband does most of the business traveling. I’ve actually done a lot more in the last several months or so… But they just make sure that the project is moving on, and what I tend to do too is I actually, because of my relationship with my realtor, I actually will send him funds to distribute to the workers, because we’ve had a six-year relationship and I trust the guy, and we’re also discussing even making him part of my California entity, so he’s actually making profits out of the profits as well. So again, another level of commitment on his end, because of what he’d be gaining as well.

Joe Fairless: And why send the funds to the real estate agent to give to the GC? Why not just do it directly to the GC?

Susan Eilya: Well, in California my GC in particular is managing that, and he’ll say “Hey, here’s the bid”, let’s say for the kitchen, and I don’t pay anything until the work is done anyway, but a lot of times I’ll send some money to him just so that it’s available immediately to pay to the guys once it’s done. But just like any state, I’m not generally paying anything obviously until it’s done. You’ll get in trouble when a GC asks you for 50% down. I see people do that all the time… Give them 50% and then wonder why the project’s not done a week later, or hasn’t started. When you hold the money, you hold the control.

Joe Fairless: How do you structure your contracts with general contractors, knowing that your beginning, which is incredible – you were in Washington DC, but had flipped projects in California… How do you structure that with GCs?

Susan Eilya: You know, in the beginning of any business or any location that you’re cranking out your business or whatever, you really need to be present… So you’re building the teams there, and in the beginning we were out there for two weeks every four to six weeks, so we were out there very often, building those teams. And just like any other business, you have to consistently build those teams.

We’ve been present a lot, but once you get those teams in place, it’s a little easier to manage and run the projects. I’m sorry, I went off topic there and I don’t think I answered your full question.

Joe Fairless: No, you were on point, but how do you structure it? Maybe the payouts and what documentation do they need to provide you before you pay them?

Susan Eilya: First of all, we always have a contract between us and the GC. Additionally, yes, they can send pictures, but I always like a second set of eyes and get my realtor to send pictures of completed work as well. I get bids all the time. I also get invoices… I have my GC actually in San Antonio – he’s probably one of the most organized GCs ever… He’ll send an invoice with what was done, what is pending and what we need payment for for the next week. It’s like clockwork, every Monday I’ll get this invoice and then I will wire what was completed, and then either get the invoices for what was already paid for and reimburse that, or I’ll just pay for items directly.

A lot of times I even pay for items directly to the suppliers, whether it’s the window guy, whether it’s Home Depot or Lowes, or the kitchen designer… Generally, a lot of times I’ll pay for that directly so that I know the vendors are paid, and then the labor is paid to the contractors.

Joe Fairless: You’ve done 70 or so flips utilizing different strategies in many markets… Whenever I’m reading your bio and it says “different strategies in many markets” – what does that mean?

Susan Eilya: So I’ve done 70 deals… You said flips, and I just wanna clarify – those 70 include fix and flips, they include rentals that I picked up, they include properties that I renovated and refinanced and held, they include wholesale deals… I guess that’s mostly the strategies.

So anything from flips to new builds to buy and hold, or buy renovate, hold and refi, and even small wholesale deals. I don’t wholesale much, but I usually just wholesale for guys that I know that can close if I have a few extra deals. So those are most of the strategies that I do.

Joe Fairless: Are there any types of strategies that you’ve done before, that you wouldn’t do again because you got burned or you just don’t think it’s a good one after doing it?

Susan Eilya: You know, what I love about real estate is that you can either make it a business or a hobby, and whether the market is good or not, you can always find a strategy that’s good for your market. So despite what CNN or the news is saying about real estate, there’s always a strategy. So really, no, there’s not a strategy that I’ve ever done that I felt like wouldn’t work…

And frankly, if I got burned on something, I’m not gonna let that one bad experience deter me from creating a portfolio of wealth and great projects. So no, I really don’t have anything where I can think off the top of my head where I didn’t like that strategy.

Joe Fairless: You just roll with whatever the market’s giving you and you implement it based on what makes sense?

Susan Eilya: It’s that for any business, whether it’s you running your podcast or your rentals or other businesses that are unrelated to real estate. You have to constantly adjust to your market, whatever that is. I’m doing different strategies in different markets because of what it’s providing me. I’ve done some stuff in Chicago and I know people in Chicago are picking up these cheap properties and just renovating them 30k-40k, all in less than 100k (even 90k) and then they’re putting in section 8 tenants, and that’s a great strategy for that market. You’re buying low and you’re renovating it as a rental, and then you’re putting a renter in… So there’s just strategies in every area.

Areas like [unintelligible [00:11:29].10] which have a tremendous amount of foreclosures, or areas like Colorado where inventory is so tight and the population keeps growing… People can’t even find anywhere to live, whether it’s rentals or flips or whatever it is.

Joe Fairless: With the money that you’re getting from the flips, where are you investing those dollars for your long-term holds?

Susan Eilya: I’m mostly putting them back into some of the things that I have in Denver. I do love Texas, I’d love to own some multi-units down there. I’d love to own multi-units period, as long as the numbers are good. So I care about the numbers, I don’t care about really anything else. But I’ve been reinvesting a lot of that cash in my current deals, but I’m starting now to kind of just push on the side and not reinvest them and put them into longer term holds, because I do sometimes put them in flips.

Joe Fairless: Let’s talk about the last deal that you took from start to finish. Can you tell us the numbers, the story about the deal and give us the details on it?

Susan Eilya: Sure, actually I’ve got two selling at the end of this month. I picked up a property from an owner directly, and I’m actually buying two more from him. It was a 142k purchase, put about 18k-20k in… Let’s just say 20ish, so we’re all in at 160k, and I put it on the market and sold it for — I’m getting two mixed up, but they’re exactly the same… It’s under contract for 215k.

I have two of the exact same deals. For the first one I had two offers that went over list, and in Denver you’re giving a lot of multiple offers, people are losing out on deals… They’re both actually VA loans, so they’re both veterans, which was really cool for me. They both went over list; the second person felt like he missed out, but the cool thing was I was able to say “Look, you didn’t win out on this one, but I have the same exact property a block away, the building next door, and I’m gonna list it for this and that” and we ended up putting it under contract actually for five less than I was gonna list it. So whereas he felt like he was gonna miss out, he actually won, because he got the exact same product… Though I actually like that one a little better, just because I like the flooring and it had a parking space.

So basically we’re looking at — as far as an ROI, I sold it for… When all is said and done — I’d have to kind of pull up my numbers, but we’re still looking at a double-digit ROI, and we were in and out in a matter of months, about six months.

On average, my investors are making double-digit annual returns, whether it’s on one deal or we do a couple in a year, whatever, but when you annualize it, they’re making double-digits easy, every time.

Joe Fairless: And that was the next question, and you segued perfectly into it – how are you financing these deals?

Susan Eilya: Most of my deals have been with private cash partners. When I started, I really didn’t have much… I put everything in to start this business, so where my credit was amazing, it kind of got a little hit… But most of them are cash partners. I started to use a little bit of unconventional lending, because my goal is to stay a little more liquid and leverage the funds that I have. So instead of raising $300,000 on a deal, I could bring in a lender at a reasonable rate for hard money, and then only have to raise 50k or bring in the 50k myself, so I’m making a little more cash.

With my equity partners, I tend to give up more of the profits than I would if I had brought in a lender, when we kind of look at the numbers. But for me, giving up more equity to build a relationship with a creditor, cash partner for the long-term is totally worth it. I’m not here to do one deal, obviously… This is my livelihood, it’s a career that I’m building and wanna keep for a long time, so for me to have those partners that I have year after year that wanna keep their funds moving deal after deal, it’s worth giving up a little extra equity if I have to.

Joe Fairless: What type of terms are you offering or have you offered in the past to partners?

Susan Eilya: A lot of times I just go 50/50 on the deal. They bring in all the capital and we have the teams, the opportunity, the deal, we do the work, we do everything; they just kind of send the wire, sign some documents, and then I’ll go 50/50 on the profits. They get their capital back, and  then we just go 50/50 on the profit. That’s usually if I have one partner who wants an equity partnership on the deal.

I have some people that have said to me “Susan, I just wanna make 6% annually.” I’m like “Great, I can absolutely do that.” Depending on how much money they have, I can put it to work.

So yeah, I have partners who are like “Just send me a check quarterly”, so I borrow their funds as working capital, and I put it into play wherever I need it, and then I pay them out quarterly with their interest payments. The benefit to that for me is that the funds are always turning and I don’t have to write a check each month, an interest check. Then I have some partners that are like, “Hey, Susan, I wanna jump on this deal” and I’ll just give them a flat return on the deal. Generally my deals are 6-8 months. The ones I’m doing now are six months. Then they make their flat return at six months, we [unintelligible [00:16:22].00] most of these people, to the property, and then after sale they get their principle and interest, and if they’re happy, they do it all over again, which most of my partners do. And again, we’re averaging significant returns annually.

Joe Fairless: For someone who’s looking to bring in private money into their fix and flip business but they haven’t yet, what advice would you give them?

Susan Eilya: I think one of the biggest fears of new fix and flippers is they feel like they’re asking for money, and they have to remember that they have an incredible opportunity where their partner can make a really nice rate of return that is secured, and a rate of return better than what they’re gonna find anywhere else.

A lot of times I talk to these new flippers and they’re like “Well, I don’t wanna ask for money” and I’m like “You’re not asking for money. You have an incredible deal in your hand, you’ve got a great opportunity, and you’re securing these people’s funds to an appreciating asset. And frankly, if something happens and you strategy is to fix and flip it and for whatever reason you can’t sell it, you’ve created equity in it and you can actually refinance their cash out of it and pay them out, or you can put a renter in and still make money one way or another.”

There’s various strategies, but I think that – to really go back to your question – a lot of times they feel like they’re asking for money when they’re not; they’re really presenting an opportunity which is secure, and that’s the key there… They’re presenting an opportunity that most people don’t have and can’t find, and probably can’t manage themselves.

Joe Fairless: Once we internalize what you just said and then apply that within our approach, it’s gonna have a tremendous difference. If we think we’re asking for money, then we’re not gonna be successful. It is about giving investors an opportunity that is, as you said, secured by an appreciating asset in most cases… So yeah, thanks for that.

I found the same thing when I speak to people and they ask “Well, what if I’m not good at sales?” You don’t have to be good at sales, you just have to have a good opportunity that you believe in and you wanna help others by sharing it with them.

Susan Eilya: For sure… I get that all the time, “I’m not good at sales…” If you feel like you’re asking for money, you’re gonna look desperate, instead of focusing on what a great deal it is. Like you said, if you have a great opportunity, you’re gonna find funders.

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

Susan Eilya: I’d have to say to jump in. Do your due diligence, but jump in. You have to move fast in this business. In an instant, an opportunity can be taken away; if you don’t jump in, someone else will and you’ll lose out on the opportunities. Like I said before, I don’t care if the market is good or is bad, real estate is always good. You just have to find your niche and hammer that strategy.

Joe Fairless: There was a quote… I forget who said it, but it was a guest on the show and he said, “Every deal is a good deal in 50 years”, and it’s so true. I mean, of course, there’s exceptions to every generalization, but just going with that, most deals are good deals in 50 years. I think he actually said 20 years, which I’d still agree with.

Susan Eilya: Are you’re saying that you’d have to wait 20 years to benefit from it, or you’re gonna look abck 20 years later and say “Damn, I should have kept that!” or “I should have done that deal!”

Joe Fairless: Yeah, the latter.

Susan Eilya: Okay… That’s what I figured. [laughter]

Joe Fairless: Yeah, you don’t wanna lose money for 20 years and be like “Okay, finally I’m making profit on this…” No, it’s just holding on to it for as long as you can, because in 20 years it likely will be a good deal.

Susan Eilya: Amazing… And there are definitely deals that I’ve looked at even a couple years ago and just go “Oh, I should’ve kept that…!” but at the time what I needed to do was sell it, and it’s okay, I’m always gonna have another great opportunity. It’s not like there’s just one a year.

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

Susan Eilya: Yes, let’s do it!

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

Break: [00:20:03].18] to [00:20:45].21]

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

Susan Eilya: I’m actually currently reading a book called Chase The Lion by my pastor in DC when I lived there years ago, Mark Batterson. It focuses on the fact that if your dream doesn’t scare you, it’s too small. It’s something that my husband and I are both reading and kind of go in each chapter together… It just kind of pushes you to the limits, it’s great.

Joe Fairless: Best ever deal you’ve done?

Susan Eilya: It would have to be the two that I spoke with, that I’m gonna close both on this month. On one I received two offers that went over the list price, and the second-place guy felt like he lost out, but instead I was able to come to him and tell him I have an identical property that I was gonna list that next week.

To me, that’s one off the top of my head. I was generally more excited for the second buy than he probably was, but I loved knowing that I could help him out, help veterans out and also put a deal under contract in zero days.

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

Susan Eilya: I feel like a lot of times we wait until something happens before we can give back; I don’t need to wait until my career has hit a certain number or mark to give back. We can give back daily, which is what I do, whether it’s helping someone learn this business and make a little extra on the side, or whether it’s me [unintelligible [00:21:55].19] who’s taking care of the much less fortunate… I’m grateful I can do something to help. I give back every day by doing what I do, which is why I love this business – I create jobs, I make homes beautiful, again… They were once beautiful and I’m making them beautiful again and I help new owners create beautiful communities.

Joe Fairless: What’s a mistake you’ve made on a deal, that comes to mind?

Susan Eilya: Well, the biggest mistake I was thinking would just be not to start sooner, but I can’t really focus on that because I’m here now, and I’m making the best of it. But if there’s a mistake… There’s always hurdles in this business, you just have to adjust to them. I guess for me maybe just this one deal – I took the owner’s report for the sewer, instead of doing my own sewer scope, and then I had to kind of change it.

After the whole project was done, the new buyers did a sewer scope and there was a crack, and I had to spend another $10,000 to fix it and change it. Maybe that one… I mean, there were still profits in the deal, and that’s 10k out of my pocket; my investors made every dime that they were promised… But maybe just not getting that sewer scope done sooner…

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

Susan Eilya: You could call me directly… I kind of prefer the phone, although I’ll e-mail and text sometimes. I like meeting people in person, and I think that this really is a people business. So the best way they could contact me is either my phone number. Do you want me to share it? It’s a Jersey line, don’t judge me… I am in Denver, but haven’t been in Jersey in 10 years… Hopefully I’ll get a business line…

Joe Fairless: What’s wrong with the Jersey line?

Susan Eilya: Nothing, it’s just every time I call someone they’re like, “I wasn’t gonna answer because it said New Jersey…” So that was my cell, and I do have a business line, but it comes to my cell anyway, and I just kind of work out from this one. My number is 201 — and I can’t ever get rid of that 201… 201 424 02 47. Or they can shoot me an e-mail at Susan@greenstarrising.com. I did not realize how long that would be when we first created that entity two years ago… [laughter]

Joe Fairless: Well, Susan, thanks for being on the show. I enjoyed our conversation, hearing how you’re structuring deals with investors, the advice you have for fix and flippers who are wanting to take on private money, but are concerned about asking for money… Well, it’s not about asking for money, it’s about presenting an opportunity that is secured by an asset, and having that mind shift. So thanks so much for being on this show… I hope you have a best ever day, and we’ll talk to you soon!

Susan Eilya: Excellent, thank you so much!

 

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JF965: Why He SOLD All He Had, Went to War, then Returned to Develop Land and Syndicate BIG Deals

He found the best and highest use of real property, and brings it to life! This exciting episode showcases the complicated yet rewarding nature of syndicating and developing deals. Scott, our guest, literally sold all he had and went to war to be a soldier, he learned leadership and initiative, and came home to build an empire. This is a must listen!

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Scott Lewis Real Estate Background:

– Co-founder of Spartan Investment Group, LLC
– In 24 months, SIG has completed 4 projects totaling $2.5M with an average ROI of 36%
– Currently has three more projects underway, and raised over $3M in private equity
– Led several successful real estate developments ranging from single-family flips to raw land development
– Based in Denver, Colorado
– Say hi to him at http://www.spartan-investors.com
– Best Ever Book: It’s Your Ship by Michael A

 

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real estate deal syndication advice

 

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, Scott Lewis. How are you doing, Scott?

Scott Lewis: I’m doing great, Joe, and Best Ever listeners.

Joe Fairless: Well, nice to have you on the show and I’m glad you’re doing great. A little bit about Scott – he is the co-founder of Spartan Investment Group. In 24 months his company has completed four projects, totaling 2.5 million dollars, with an average ROI of 36%. Currently, he has three more projects under way, and has raised over three million dollars in private equity for those projects. He has lead several successful real estate developments, ranging from single-family flips to raw land development. Based in Denver, Colorado… With that being said, Scott, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Scott Lewis: Sure, thanks Joe. Best Ever listeners, my background really started Chemistry and Marketing major coming out of Michigan State University. I went into the corporate world for a little while, I had a regional sales job with a biotech firm, and kind of got sick of that, so I did the crazy thing and sold everything I owned and joined the army and went off to war, which actually was a really good experience. It got me some really good leadership training and what not, and when my active duty time ended I came out, I went into government service, which gave me some additional really solid training – less on leadership, but more on strategic planning, which I’ll talk about… Which ultimately lead me to build the strategy for my company. Currently – Spartan Investment Group. We’re real estate syndicators and developers. We go out, we find deals and then we put together the money for them. We also develop deals as well.

Joe Fairless: Real estate syndicator AND developers… When you say “develop”, are you talking about ground-up development?

Scott Lewis: Absolutely. We specialize in taking raw land and then developing it. As I’ll get into a little bit later, we look in two different areas. There are larger single-family developments with multiple units, or self-storage, but we like to focus on raw land.

Joe Fairless: Larger single-family development or self-storage… The four projects totaling 2.5 million that I mentioned earlier – what were they?

Scott Lewis: They were all single-family flips. We started, like a lot of folks do, in renovating single-family homes. I will say that I was a little bit non-traditional in that the smallest renovation budget we’ve ever worked with is $165,000 on an 850-square-foot house in Washington DC. One of the houses of those four projects was a raw land development, and that’s kind of what wet our appetite for that. This is a little bit more difficult, so there’s a little less competition in that asset class.

Joe Fairless: It is a little bit more difficult, that’s for sure, the raw land development. It’s interesting… We talked in Denver, and Scott was a speaker at the Best Ever conference, and I really enjoyed getting to know Scott, and I took a lot of notes whenever he was talking. We had some drinks afterwards, and one of the things that I’ve noticed with all of the interviews I’ve done is when I ask a developer “Okay, you’ve been developing for a certain amount of time – is it really worth the risk vs. reward?” and sometimes they’ll say “You know what? I just like doing it. I don’t know if it’s worth the risk versus reward, because there’s so many uncertainties and so many grey hairs that I got through the development process.” What are your thoughts on that?

Scott Lewis: Joe and Best Ever listeners, it’s definitely true. There’s a lot more risk in the development side of the house, but with risk comes reward… And maybe I’m just a glutton for punishment like some of the other developers, but I really enjoy doing it because that’s where the real money is made. Once somebody has figured out the best and highest use for a property, and then entitled it so that it’s ready for the construction phase, they can suck a lot of the juice out of the deal because they’ve done the real work, they’ve done the real risky work.

Being able to go in and do that work and then take it all the way through to fruition to whatever the project is, whether it’s a single-family home, ten townhouses, a four-phase condo development  – whatever it is, that’s where the real excitement is, and then also the real payoffs.

Joe Fairless: So let’s talk about a specific project, any one of those four that total 2.5 million on the four over the last 24 months. Can you give us some numbers and just tell us about the project?

Scott Lewis: One of them was the development deal, and it was not quite raw land… A hole had been dug in the ground, so not quite raw, but our contractor that we’ve partnered with over the last six years had a stuck project that he had kind of started and stopped, and we got in there and we helped him look through a [unintelligible [00:07:02].08] which anybody that got the fluorescent tag on their door once in a while knows that that’s a bad place to be.

So we helped him work through that, we did kind of a partner deal. He owned the land already, so he brought the land, we brought the money, split 40/60, 40% going to him 60% going to us. [unintelligible [00:07:21].19], I wanna say we were in at about $450,000 for development and construction and sales and everything, and the out was about $750,000. So we made about $300,000 with $450,000 in, and split – 40% going to the contractor because he did all the work at cost, and then 60% going to us for bringing all the money and helping him work through the city and the utilities and all of the other tangential things that go with development that aren’t there during construction.

Joe Fairless: What would be a couple things – knowing what you know now – if you were presented with those same scenarios on a future deal, that you would do differently?

Scott Lewis: Joe, that’s a great question, and Best Ever listeners… That scenario was presented to us in July of this year and then again in December. Joe, at the Best Ever conference I referenced a deal that I had two different raises on, at two different time points, and which we kind of combined them because we took two pieces of land that were just raw, and one had a house on it that we were going to demolish and get rid of. But the two pieces of land, independently, could get a total of seven townhomes, but combining them and leveraging a special zoning exemption where we were building, we were able to actually get 11 homes.

So one of the things that we’ve done right upfront is we’ve started engaging the utility companies, because that was one of the things that we waited on for our first development project, and it caused us a 60-day delay because those guys were just so backed up, and anyone that’s worked with utility companies in the past knows they are not the most motivated and efficient folks. They’re incredibly burdened, they’re under-staffed, coupled with just how it is out there, that can really stop a project. So in any of the development projects now, after we make sure we’re good with zoning and the tax guide and everybody else from the government, the next thing we do is get everything we need to do with the utility companies going right away, so that we can adhere to their traditional timelines and not be worried about delaying the project.

Joe Fairless: What type of timeframe do you have to allocate for the utility companies?

Scott Lewis: We just got a notice back from the gas company that their timeframe is 8-12 weeks. [laughter] So we’re doing another project that’s a condo conversion, and we’re basically taking a single-family home and we’ve dug out underneath the house and it’s a row home… So there’s a row of probably five or six homes; our property is the second in from the end, so we’re actually digging underneath the two other houses, on the walls and underpinning and going out the back, but we’ll also have to dig out the front a little bit to have an egress to the seller’s condo, and with that there’s a gas line there, so we have to do what’s called gas line abandonment.

The gas company has to come out and [unintelligible [00:10:17].29] and then take it out so that we can dig out, and that’s 8-12 weeks… Which is fine; this isn’t a surprise to us, we knew it was coming, so it’s built into our timeline.

Joe Fairless: How much does that cost?

Scott Lewis: The gas line – they just have to come and turn it off, and then our contractor does all the digging. So it’s just part of our construction cost, it’s not a ton to us. But sometimes the utilities can be upwards of $30,000 if you have to bring new service in… We don’t have the final bill yet, but we have to increase the size of the water line from the street because of the new sprinkler system requirements, and we don’t have the final cost there. We usually budget around $30,000-$35,000 for our projects per unit for utility cost, so it can be pretty significant.

Joe Fairless: Yes, they can be. Let’s talk about the three projects you have under way and have raised three million dollars in private equity for those projects. Have those projects closed as far as you’ve bought them, you’ve got the equity and now you’re implementing the business plan?

Scott Lewis: Yeah, so one of them is actually closed, constructed and sold. Last Friday we just closed on the property. That one went pretty well, it took a little bit longer; we missed our timeline by about two months, so we gave our investors a 2% equity bump just for us missing our timelines. So that one went pretty well other than the timeline. Our budget came in as we wanted it, so that was good.

Joe Fairless: What type of project was it?

Scott Lewis: That was a single-family flip. That one was actually a favor to our contractor. He owned the house since 2006 and he came to us and asked us to help him put it all together and get it ready, just because he didn’t want to. We put some of our money in it, we went to some of our really close investors, and just asked them if they wanted to be in it. Three of them jumped in. We raised $200,000, so not very much for that one, but it was projected to be a six-month timeline for a 10% return. We actually gave the investors 12% because of the eight months… So pretty close to a 24% annualized.

Joe Fairless: What was the all-in price, what was the exit price?

Scott Lewis: The all-in price was about $630,000, and the out price was $785,000. That normally doesn’t meet our 30% ROI criteria, but because of a favor to our contractor and the short timeline, we decided to do it.

Joe Fairless: Cool, $185,000 profit in eight months. Let’s talk about project number two.

Scott Lewis: Project number two was the condo conversion. We’ve been working on that — our plans went in in June 2016, and we actually split those plans into foundation plans and building plans, so that we could go ahead and get started with all the underpinning and foundation work that we needed to do, while the [unintelligible [00:13:04].00] was running its course through the normal application process.

That one is kind of our gold standard, we got a pretty sweet deal on that. We worked on it for about 18 months, trying to track down the owner, and just a random, fortuitous meeting at a corner bakery with an attorney to talk about another project, he referenced having a client with a property on L Street, and we immediately knew who it was. We had talked to the owner a couple of times and she had told us that she had an attorney and we didn’t think that it was even remotely possible, but it turned out it did. The financials are pretty good, we’re gonna be all-in at a million and out at 2.6 million.

Joe Fairless: Condo conversion – is it just one condo?

Scott Lewis: No, so we’re actually taking a single-family and we’re digging out underneath it and we’re adding a floor and a half, so when we’re done we’ll have four two-bedroom, two-bath condos. Three of them will be about 1,000 square feet, and the third one will be about 1,300 to 1,400 square feet.

Joe Fairless: Wow… Okay, I wanna make sure I understand that. You have a single-family house and you’re converting that into four condos?

Scott Lewis: Yes. The real sweet deal about that is we acquired the property as a single-family home, but because we’re converting it to condos, that allows the financials to change a little bit, and that’s where the deal is. It’s a big thing that’s going on in the district of Columbia right now – the condo conversions, because the housing is so limited… And DC – there’s a number of reasons the housing is limited in DC, but one of the things folks are doing is they’re row houses, so you can’t really go out to the sides, and you don’t really wanna go out to the back too much, because you kill the property, and sometimes the lots are really small, so the other way is to go up and down.

Some folks have taken it to an extreme – those are called pop-ups, and they look pretty bad. We probably could have gotten a six-condo out of it, but it would have looked really bad. We’ve actually made the top choice to go with what’s better for the neighborhood and just do the four condos. And even on the fourth condo, we’re only going half a floor, so that it still holds the charm from the street.

Joe Fairless: And you said your all-in price was a million – did I hear that correct?

Scott Lewis: Yeah, the all-in, after everything is done, is about 1.5 million, to include acquisition, construction…

Joe Fairless: And what are you projecting it will sell for once all four condos are sold?

Scott Lewis: Right around 2.6.

Joe Fairless: Nice! What do you do if anything while you’re building it to secure the condos’ sales?

Scott Lewis: That’s kind of a balancing act. As soon as we get the drywall up, we’ll go through and we’ll start soft-marketing them… But with condo conversions there’s a lot of documentation that needs to get approved before you can get your certificate of occupancy, so there’s only so much that you can do prior to the certificate of occupancy.

With this particular one, our agents work consistently in this particular area of Washington DC, so probably maybe 45 days out or so we’ll start letting them pocket-list it, and then once we get the certificate of occupancy then we’ll really go full bore, because we can’t close before that comes in anyways, so we don’t wanna market them too early.

Joe Fairless: You mentioned it was a fortuitous meeting, that you knew exactly who your attorney was talking about when he mentioned the other client… You said before that you had tried for 18 months to track down the owner – what were you doing and why didn’t it work?

Scott Lewis: We were just using the traditional methods that a lot of wholesalers and direct marketers use. We weren’t doing anything crazy. We do have an aggregation process that we use to bring a lot of different data sets together to identify sellers. Whenever we do direct marketing campaigns – which we’ve actually stopped doing – we only do maybe 50 letters at a time, but those 50 letters have been vetted through multiple levels within our organization, so it probably takes us as much time to hit 50 people as some of the wholesales could hit 2,000 people, because we take a very focused approach, versus a wide blast of mailers. Every one of our letters is personally written to the person that we’re trying to get at, and we’ve actually got really good response rates that way.

This one was no different. We got the person’s phone number, we actually talked with her and she confirmed who she was… We met her later because one of the things that we do for any of our sellers is we help them try to reduce any client’s fees/taxes; it doesn’t help us at all, because our contract price is our contract price, but the mission of Spartan Investment Group is to improves lives through real estate, and we’ve had some pretty good luck working with the District. We’ve saved one of our sellers $50,000 in bad taxes and fees; it didn’t go to us, it just gave her $50,000 more. She was a DC firefighter, so that really helped change her life.

This particular seller, she was in her late seventies, her husband had died quite a while ago, and it was probably pretty intimidating to have us call her on the phone. But once we actually got in contact with her lawyer and he vouched for us and verified who we were… I actually went over to her house a couple times and took her down to the District of Columbia, so she would be there in person, and we were able to save her about $10,000 in fees and fines. That was 10k that went right back into her pocket that she wouldn’t have gotten.

Joe Fairless: So your process which does work for other deals didn’t work initially when you were reaching out, because they might have been intimidated, or for whatever reason, but when you talked to her attorney, that proved to be the door that opened up and you were able to get the deal done. As a result of that, do you now make a more focused effort on speaking to attorneys about clients they have and just reverse-engineer that process?

Scott Lewis: We’ve actually moved away from going after the probate guys or the estate attorneys. We’ve got a couple attorneys that will occasionally pitch us deals, that we have relationships with, but we made a strategic pivot in October 2016 to kind of get out of the single-family and direct marketing. Just too much competition down there in that red ocean market, so we recently haven’t even been engaging.

We’ve got relationships with two attorneys that occasionally send us projects that they have as estate attorneys, but other than that we really haven’t even been engaging sellers.

Joe Fairless: So let’s talk about what you are doing and the shift that you’re making. What are you shifting towards? I would suspect it’s self-storage, right?

Scott Lewis: Yeah, Joe, that’s it. We’re 100% going after self-storage, and we are using some of the same methodologies. Lindsay, who is our director of business intelligence, comes from the Intelligence Community in DC, so she takes some of the methodologies that she used there to do the same thing for our business, to identify sellers and to identify pieces of property that we wanna go after.

We found that when we’re going after commercial deals, it’s not a big deal if we contact the sellers, because commercial deals are based on numbers, there’s no emotion involved. I mean, occasionally there is, but the vast majority is based on numbers, so that as long you present a reputable front from your company and that you are reputable yourself, we found that it’s much easier to deal with sellers for commercial deals.

Joe Fairless: Have you gotten a self-storage deal under contract?

Scott Lewis: Yes, using our research methodology we identified a piece of land in Washington state, went through the whole process and engaged — the seller was using a broker, so he pointed us to the broker; we engaged the broker, and now we’re under contract and we’re in the due diligence period now. It’s a piece of raw land, so it’ll be ground-up development.

Joe Fairless: How many storage units would be able to be built?

Scott Lewis: That’s a good question, Joe, and it’s one of the things that we’re trying to look at right now. There’s wetland on the property, so we had our biologist out there last week, and he is delineating the wetland on our survey, and then he’s also classifying them; there’s various classes of wetlands, and depending on the class, they can either be easily moved, or you have to go through board of zoning approvals to get an exemption to move them

Once we figure out what we can do with the wetlands, we can then go ahead and develop our site plan so that we know our unit mix and how many units we’re gonna put there.

What we did initially was we looked at if we couldn’t use any of the wetlands, and we could only use what turned out to be about 40% of the acreage that we’re buying, is this deal still feasible? Could we still pull this off? And the answer to that question was yes, which is why we wrote the contract, and the contract is contingent upon the biologist’s report on the wetlands.

Joe Fairless: Okay. When I was trying to interrupt you, you read my mind, so I’m glad I didn’t interrupt you… [laughs] That’s what I was gonna ask, how you identify what you make an offer if you don’t know how many units can be built? Let’s just say you cannot use any of the wetland area… Do you know how many units can be built just for that 40%?

Scott Lewis: We could do approximately 50,000 square feet of self-storage. Again, we haven’t done our unit mix yet, we’ve just used averages at this point, which a lot of folks might say we’re treading in dangerous waters, but we have the contract written as such that we can kill the contract if necessary if we can’t get what we need, so that’s why we’ve decided to go this route, versus having the complete feasibility studies, which usually include the unit mix, which we’ve done kind of in heuristics to see whether the numbers would work out… And there’s also some self-storage land acquisition heuristics that are out there that kind of point the needle at what your per-square-foot land cost needs to be based on your monthly cost for a 10-by-10 and a 10-by-15 unit.

We’ve done that projection, and if that’s correct, then there’s actually a lot of value in this land already, so we’re okay.

Joe Fairless: How much does it cost your company to qualify a deal like this before you can actually say yes or no definitively?

Scott Lewis: That’s a good question. We’ve done our internal feasibility studies. Lindsay, our director of business intelligence, does our internal feasibility studies, so currently it hasn’t cost us anything, other than her time. And feasibility studies cost anywhere from $3,000 for a desk audit where folks don’t actually travel to your site, up to $7,000-$8,000 if folks travel to your site to do the feasibility study.

Joe Fairless: Didn’t you say you had a biologist or someone going out to look? Aren’t they charging you something?

Scott Lewis: They are. We think we’re gonna put about $10,000 on the line before we actually know whether we can do this or not.

Joe Fairless: And the bulk of the $10,000 comes from where?

Scott Lewis: All of our money, we don’t use investor money.

Joe Fairless: No, I mean what are the expenses that make up the 10k?

Scott Lewis: There’s three major ones; four in this case, but normally it’s three. In this case we need a civil engineer to give us an initial site plan to take to the city. Then we need our biologist to go out there to delineate the wetlands and any protected or invasive species of plants or animals. We need a geotech report, so they can go out there and test the soil and tell us what type of soil it is, so that we can then have the civil engineers calculate the concrete mix, and for this particular area, we actually need a mine hazard report, because there’s some old mines that are there, so we have to make sure that there is no mines underneath. With all pooled, it’s probably gonna be about $25,000, but $10,000 of it is probably money that we’ll have to spend before we make a decision. The mine and the geotech we really don’t need to do before we make a decision, but the biologist and the civil engineer we do, to see what the site plan is, and then ultimately the unit mix. Then we can tighten up our proforma.

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

Scott Lewis: Best Ever listeners, the best advice is broken down into two categories. One is just starting out, and if you’re just starting out, take some time to learn yourself before you start. There’s some personality assessments out there… DISC and Myers-Briggs are two that are out there. I really recommend you go out and you figure out what type of personality you are. Then once you figure out what type of personality, build your tribe around your weaknesses.

Myself, I’m a DISC D, that means I’m a driver – I just wanna get stuff done, I don’t really pay attention to details. So I went out and I found a partner who is very into details and he’s very detail-oriented. The two of us, plus a couple other members of our team kind of really round that out.
Once you figure out your team, then start with an education period. Just figure out what asset class you wanna focus on, and then go. For those of us that have been out there and have been in the trenches, constantly challenge your assumptions and operating models.

We recommend a devil’s advocate. The Israeli Mossad, which is their version of the CIA, they call that the 10th man. This person is just the person on the team that disagrees with everything that’s going on. What that does is it ensures that groupthink doesn’t cause you to make a bad decision.

Joe Fairless: Does that person rotate on the dissension, so that they don’t get punched in the face eventually?

Scott Lewis: Absolutely, Joe. So Best Ever listeners, there’s two key components actually. One is (absolutely, Joe) they have to rotate. Somebody else has to come in and be that person. And then second, there is no personal attacks on that person whatsoever.

Joe Fairless: Makes sense, yes. Alright, are you ready for the Best Ever Lightning Round?

Scott Lewis: I am.

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

Break: [00:26:44].16] to [00:27:26].08]

Joe Fairless: Best ever book you’ve read?

Scott Lewis: “It’s Your Ship” by Michael Abrashoff.

Joe Fairless: Best ever deal you’ve done?

Scott Lewis: Our condo conversion in DC. There’s a million dollars of profit in that one.

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

Scott Lewis: Mentoring and education.

Joe Fairless: What’s the biggest mistake – or any mistake you can think of – you’ve made on a deal that? One that you haven’t mentioned earlier.

Scott Lewis: We had the opportunity to buy a church that was right behind where my partner and I lived when we were in DC, and at the time they needed two million bucks to make the deal work, and we were pretty novice and had no idea about raising money, and we’ve been able to raise two million dollars in like two hours over the last couple months… So that deal, the guy that bought it is building 36 units there that will probably have a sales price of probably 22 million dollars for that deal. We could have had it, but we didn’t know how to raise money.

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

Scott Lewis: Best Ever listeners, if you have any questions about what I said, you can reach me at my e-mail address, which is Scott@spartan-investors.com, or our number is 202 827 5483.

Joe Fairless: I enjoyed our conversation in Denver, and I enjoyed this one just as much, because we’re talking just about you; it was less back and forth, and I was learning more about you and I really enjoyed that, and I know the Best Ever listeners got a lot out of it as well, specifically some of the takeaways…

Utility companies – they are slow; we’ve got to allocate in the timeline for the amount of time that they need (in your case 8-12 weeks). And condo conversion – holy cow! – 18 months to track down the owner, and eventually it ends with you getting in touch with their lawyer coincidentally, and then using that as a conduit into the deal that has over a million dollars in profit, that is yet to be realized but looks really good.

Then the self-storage evolution that you’ve taken in your company. As you said, the red ocean versus the blue ocean strategy – I think it’s a book, I’ve just heard a podcast on it – where there’s not a bloodbath and a feeding frenzy, and that is in self-storage and ground-up development. And the amount of money that you have on the line prior to making a go/no-go decision on that deal.

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

Scott Lewis: Joe, Best Ever listeners, thank you very much!

 

 

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JF956: Why He Traded Billboards for MOBILE HOMES!

Undoubtedly, he is a mobile home park authority. The fifth largest mobile home buyer in the US is dropping knowledge on occupancy, acquisition, and how mobile home parks create true wealth. This is a niche unlike other niches… but there are definitely riches. Tune in!

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Frank Rolfe Real Estate Background:

– Co-founder of Mobilehomeuniversity.com
– Ranked, with his partner Dave Reynolds, as 5th largest mobile home park owner in the U.S.
– Over 250 communities spread out over 28 states worth over $8,000,000
– Commercial real estate investor for over 30 years
– Based in Denver, Colorado
– Say hi to him at http://www.mobilehomeuniversity.com/
– Best Ever Book: The Man Who Bought the Waldorf

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mobile home real estate investing

 

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, Frank Rolfe. How are you doing, Frank?

Frank Rolfe: Hey, Joe. I’m doing great, how are you doing?

Joe Fairless: I’m doing well, nice to have you on the show. We’re gonna be talking about mobile homes, because Frank is the co-founder of MobileHomeUniversity.com. He is ranked with his partner Dave Reynolds as the fifth largest mobile home park owner in the U.S. They’ve got over 250 communities spread out over 28 states.

His company is based in Denver, Colorado. He’s been a commercial real estate investor for over 30 years. Frank, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Frank Rolfe: Absolutely, Joe. Basically, I went to Stanford University and got a degree in Economics; I got out a year early. Back in that day, if you were going to go to a good business school, you wanted to start a business and write about that as your essay on your application. So I had to start a business that I could start, build and shut down within one year. The business I came upon was a billboard business.

I started a billboard company. In the first year I had [unintelligible [00:03:27].12] signs, but I had seven more pending, so I decided to go one extra year to get those closed out. You can guess what happened – I never went to graduate school, I kept building the billboard business. Then 14 years later I was the largest private owner of billboards in Dallas-Fort Worth, and I sold to a public company in 1996. A few months later I started buying mobile home parks, and I’ve been buying those for the last 20 years.

I teamed up with my partner, Dave Reynolds about a decade ago, and we’re now together the fifth largest owners in the U.S., which we built just one property at a time. We were the only people to ever build something as large as we’ve got just one property at a time.

That’s basically the background, Joe. I’m just basically very heavily invested, both monetarily and personally and time-wise in the whole affordable housing industry.

Joe Fairless: I know looking back on it, you can identify why mobile homes make sense… But if you can, if it’s possible, I’d love for you to think about when you sold your billboard company to when you bought your first mobile home or mobile home park – why did you go to mobile homes at that point in time, instead of other types of real estate?

Frank Rolfe: Well, I’ve always liked stuff that the rest of the world’s not doing… That’s why I liked billboards, because when I was doing billboards, there was only a handful of people that had any interest in it. I guess being an Economics major, I’ve been a big believer in supply and demand. I like to go where nobody else goes. That’s kind of been my life theme.

When I had had the billboard company, I built two billboards on a mobile home park, and I check on the signs, and the guy that owned the park would often call me up and ask me to do weird things like could I knock on the manager’s door and ask him why he won’t ever call him back, things like that…

I thought, “Man, what a weird business.” I’d never heard of it, I’d never knew anyone growing up who lived in a mobile home park or in a mobile home, so it was kind of like “Well, this is kind of different.” Then I also noticed when I was doing the billboards that billboards – people don’t realize, it’s a federally regulated industry. You can only build billboards in certain zonings and certain spacings from other signs, so you get very familiar with zoning maps; you’re looking at zoning maps all the time.

The MH zoning class in Dallas was the smallest zoning category I ever saw. I saw more zoning for lead smelters than I did for mobile home parks. So again, thinking supply and demand, I thought we’ll always be in the rarest zoning that exists, and this has gotta have some value in it. That’s really what got me into it. I was just kind of fascinated a) with how weird it was, and the fact that nobody else was in it, and then b) how scarce it was.

Joe Fairless: Now let’s fast-forward to today… You’ve got 250 communities across 28 states; what do you focus your time on now?

Frank Rolfe: That’s a good question, Joe. I basically probably go wherever the weak spot is and try to fix it. Basically, I kind of float around. Right now I’m very much focused on trying to fix occupancy issues and our most lagging 20% of the properties. I work on collections issues… I work on just about anything. Property condition… Just about any role. The size that we are — it’s kind of like being the [unintelligible [00:06:49].14] on an assembly line, you’re just trying to find which parts of the assembly line are not working efficiently and fix those.

Joe Fairless: That’s great. That’s very helpful, and it gives us a lot of stuff to talk about. Let’s go with the occupancy issues and the most lagging 20% of the properties. What does an occupancy issue look like, and then how do you solve it?

Frank Rolfe: We have a lot of demand because affordable housing right now is the hot topic. Basically, it’s very simple math when you have a mobile home park. Every three calls typically leads to a showing; every three showings lead to a sale or a rental. So you’ve gotta have the phone ring about nine times to make something happen. Our goal is to find all the properties that have the phone ring at least nine times every week.

The first problem you have is if a property is not hitting nine; if it’s hitting three or four, you’re trying to figure out, “Okay, how can we fine-tune the marketing?” In some cases what happens is managers get dependent on Craigslist, because it’s free and it’s easy, but the problem is Craigslist is only really effective in the larger urban markets; it’s not that great a tool in some of your medium and smaller-sized markets. Although it does work well in some of them, it doesn’t work in all of them, so you then have to expand your horizons on the marketing channels of how you’re trying to reach people. So that’s problem number one.

Joe Fairless: For example…? How do you expand?

Frank Rolfe: Lots of ways. Ads [unintelligible [00:08:09].21] are by far the best. You can do such items as apartment direct mail, it’s very effective; you can do such items as more signage on the front edge to your property, more referral letters to tenants, what we call tear sheets, which are eight-and-a-half by eleven sheets of paper with your phone number vertically  in the bottom that you cut with scissors, and put those in Laundromats and grocery stores.

There’s all kinds of different avenues you can do; you just try to figure out what works in that market. So that’s problem one.

Problem two is… Another reason you can have problems selling or renting is that people just don’t like your product. That can be because you’re not rehabbing it to a high enough level, or it can be that you are missing such basics as just having it smell good and be clean. So it’s the same issues that come up with single-family, so that’s another thing that can block you.

Third is if the manager is any good at sales. Are they even showing up for showings, and when they show up, do they care and seem enthusiastic, or do they just give you a look like “Why are you even here?” and hate everyone? So that could also do it.

Another issue can be pricing. You may be priced out of the market. You may say, “Well, our deposit on this home is $1,000”, and let’s say the home market can only afford $500; you’ll never sell much.

So those are typically the occupancy issues we have; they are falling into one of those categories, so I try to go out to the property and meet with the manager and figure out which the problem is, and then fix it. It’s no more exciting and complicated than that.

Joe Fairless: And just so I’m clear on the nine times a week… It takes nine phone calls to get one sale or rental, so if you have multiple mobile homes, then you’d multiply nine by the amount of mobile homes that you have vacant or needing to be purchased, right?

Frank Rolfe: Yeah, exactly. Most of these properties fall into a rhythm just based on the size of the market. In other words, if you are in Des Moines, Iowa, you could score 50-100 calls a week there; the homes fly out the door and you really don’t have any vacancy.

If you’re in a market that, let’s say, gets nine a week, that means you can do a home a week. So there’s some properties we have that can do a home a day, we have some that do a home a week, some that would do basically a home a month… This kind of gives you an idea of what the velocity should be. We don’t have any that would need more than one a month. We try to only buy stuff that can do one a week.

Joe Fairless: So you said another weak spot that you identify and then you dig into are collection issues…

Frank Rolfe: Collection issues are huge in the affordable housing business, because the very nature of customers that need affordable housing – they don’t have a lot of money. You probably have read, Joe, that 70% of all Americans don’t even have $1,000 total. What that means is when you’re living in a world without any savings at all, you’re flying an airplane at about a thousand miles an hour about two feet off the growth, and the slightest little thing will crash the plane. All that has to happen is the brakes go out on your car, and to get the brakes fixed it’s $700, and now you can’t pay your rent. Or you have a medical emergency, you go to the hospital, you could break your arm… There’s a million options.

So what happens is when you’re in an environment like that, it’s always hard to get everyone to pay. Now, our prices are very low, so they typically can always afford to pay; it’s sometimes a priority issue, and sometimes a timing issue. But you won’t get paid unless you have a pretty firm program, which most community owners call “No pay, no stay.” That’s true pretty much throughout the affordable housing industry. What it means is if you don’t pay, you can’t live there, so people have to make that choice – do they want to have a roof over their heads, or do they want to buy the big screen TV?

A lot of times you’re having to retrain people into doing what they need to do and not what they want to do. Sometimes what happens is the community managers loses sight of that, because often they live in the community, it’s often some of these people are their friends, and they’ll basically start relaxing the program to make friends, and what ends up happening is it screws the whole property up, and you have to go in and fix it.

It’s something you have to stay vigilant on every month, because even if you get everyone perfectly trained to pay the rent like clockwork, if you for one month stop pushing it, they all go backward again. It’s kind of like pushing a ball up a mountain, or something; if you don’t keep pushing, at some point it’s gonna roll all the way down the mountain again.

Joe Fairless: I know that you all train the on-site person initially – “Hey, it’s no pay, no stay. Here’s the process”, and it sounds like that needs to be continually reiterated, just because of the nature of the business. Do you have a process that you implement on an ongoing basis for those on-the-ground people to reinforce that “No pay, no stay”?

Frank Rolfe: Yeah, we even built an online — like a defensive driving course that we give all the managers on the frontend, and then we back that up, we’re talking to them constantly. Despite all of that, you still have to — typically, when you have as many properties as we have, you have to stay on top of everything, because there are certain people in there who will forget their training or just start doing things they shouldn’t do, which they know they shouldn’t do, but they do out of convenience or to make friends, or whatever.

It’s the greatest training program in the world; our program is about as good as you can get on the training side, but it still won’t solve all your problems.

Joe Fairless: Speaking about the on-site people – how many people do you need to oversee mobile home park? It’s a fairly broad question because I didn’t tell you how many spots there are or whatever, so take it however you want.

Frank Rolfe: Most of our properties have just one manager, and then some of the properties have what’s called a maintenance man, and that’s about all you need.

Joe Fairless: Regardless of the size?

Frank Rolfe: Well, no… In other words, until about 100 to 150 lots, typically your entire staff is potentially two people or one person. When you get beyond that, say you have a 250-space community, then you might have a manager and an assistant manager and a maintenance man. But our industry is relatively low maintenance, because the nature of the business on the park side – you’re just renting land, so it’s very low maintenance. The home side – not that much breaks in the stuff, because most people have in their agreements… The customers do all the small stuff, and we do the large stuff; large stuff doesn’t break that often. So I guess we’re like the Maytag repairman – we still don’t have a lot to do, and that’s why we can staff things without as many people as you might have to have for example in multi-family. It’s just not that much that goes on.

Joe Fairless: The last thing you mentioned earlier when you said you’re looking to find the weak spot and fixing it was the property condition. If you haven’t implemented the whatever renovations you’ve already budgeted for, then how do you approach that if you don’t have the money allocated already, because it sounds like that would be a surprise in this scenario, that the property condition is deteriorating?

Frank Rolfe: Well, in property condition, most of that is free. In other words, what it is is enforcing the rules; the whole community has rules, guidelines that people have to live under, and those items include you can’t have junk in your yard, not running vehicles, home has to be kept up to a certain standard, the grass has to be mowed. Those items are free to the park owner; those are things that the residents are supposed to be doing.

The park owner is in charge of the common areas. We’re in charge of the entry signage, mowing the common areas, things like playgrounds if we have them, and then roads, which typically we do a pothole repair once a year. So the biggest part of property condition is just making sure that the manager is staying on top of the rules violations, and that we’re mowing the property effectively. Those are kind of the keys.

The way we do it these days, Joe, which is different than the old days (20 years ago) to stay on top of property condition, you have to drive the property yourself. Today we do everything based on HD videos. Each manager has a Polaroid Cube camera and a suction cup mount. Monthly you put that on the roof of your car, and you push the button and you start about a thousand feet away from the property, so you can see even the front entry, and they drive the entire property; then they take the card out of the camera and they send the card in, and then we download the video, and we watch the video.

Now, the only problem is as large as we are, to watch the videos it’s 16 hours, so it’s a lot of video watching…

Joe Fairless: …for all the properties.

Frank Rolfe: Exactly, correct. But it’s an extremely effective tool, because while it’s not identical to what you see if you go drive, and it is only that one day in time, it looks pretty darn similar, and you can spot problems quickly and easily. You can view all your properties every time you do that. If you wanna take it to the next level, you can actually put that in a GoTo Meeting webinar and you can drive the property with the manager, like you’re in the car with them, and discuss it as you go, and stop and rewind… It’s a super effective tool. That has improved our lives by a trillion percent, because now we can just go out and physically go to the ones that are really of concern, which rarely on property condition there’s enough concern that you’re really freaking out.
The number one issue you have with them traditionally is gonna be in, say, a hundred-space community you might have a couple non-running cars, which means the manager failed to recognize running from non-running, or was trying to maybe help a friend, or something. Then THE most common is that the grass is not getting mowed. So basically, through the entire winter season, life is bliss because there are relatively no problems. But right now we’re entering into our hardest time of the year, which requires mowing.

Joe Fairless: Other than those two things – and maybe there aren’t any, but I bet there are – other than non-running cars — how do you know if a car is non-running by looking at it on a video?

Frank Rolfe: Well, a non-running car – when we talk a true non-running car – will be sitting there on flats, for starters. One item we’ve seen more and more in the industry is that people to either save money or to make it more convenient, wanna create their own self-storage sometimes in the mobile home park, so what they do is they buy a van or a pickup truck and they park it there, and they use that as their own self-storage. The car doesn’t even run. But you can always spot them, because they’re always on all flats, with trees growing up between axels, or something.

We try not to be too picky on stuff that’s just minus the tags. A non-running vehicle, by definition, based on towing regulations, is something that does not have all its tags up to date. So if your inspection sticker is off by a month, you could theoretically have it towed for being non-running. But that’s crazy, because there’s people in McMansion subdivisions that forgot to get their tags renewed, right? So that’s a crazily high bar to set.

Basically, as long as the car is being driven, even if the tags are out of date, we do not call that a non-running vehicle. In fact, if you were to tow that, what’s gonna happen is then the resident — you’ve just created the three-foot-off-the-ground plane crash; now they can’t get to work and they can’t pay the rent. So we try to be very user-friendly, particularly in automobiles, because they’re very expensive to upgrade. We don’t wanna give people more problems than it’s worth, but we can’t afford to have people pulling in a van and letting it sit there rusted on all flats because they like to use that as a mini-storage vehicle.

Joe Fairless: My last follow-up question on this particular topic – when you watch the video with the property manager and they’re not as experienced, besides non-running cars and grass isn’t getting mowed, what’s something else that you might point out to them?

Frank Rolfe: We actually have a whole thing for them – it’s an 11-step process, and it ranges from all signage (we own all the signage on every property)… You want all the signage to look good. That means that — obviously, your entry sign is the key one that kind of sets your first impression, but we do not allow any signs that are bent or rusted or weathered or have graffiti on them. For example, if you’ve got a Stop sign and somebody spray-painted something on the stop sign, you’ve gotta replace the stop sign, or you’ve gotta get it off. But you can’t get i off, so you’re gonna replace the Stop sign. So signage is one of their items.

Mowing is one of their items, non-running vehicles is one of their items, the general condition of the residence, homes and yards is one of the items. You’ve got trash dumpster areas – you don’t want any mattresses and junks sitting in those, that’s one of the items. You’ve got the common area appearance of like club houses or any structure – make sure that it’s painted and looking attractive. If you have playgrounds or basketball courts – those are all painted and in good condition. The basketball court has nets on it… It’s those kinds of items.

It’s not rocket science, but the problem is if you let it slide, it hurts the overall community feel, and it irritates people and there’s no purpose. And the worst part you have with property condition is what you sometimes have is you’ll have all these people that keep everything immaculate, and then you’ll just have this one person that just ruins it for everyone. You can see them in most any mobile home park. If you go to any mobile home park, you’ll see that of every 20-30 houses, there’s that one person. That’s not fair to the other people; they have their property looking fantastic, and then here’s this one person who’s home is beat to death, the cars are atrocious and there’s junk everywhere… When we first buy the properties, often they’ve got three pit bulls on ropes in the yard… That’s what we’re really striving to eliminate.

That person either has to move on to another property that says living like that is okay, or they have to clean up their act. That’s one of the key items.

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

Frank Rolfe: Are we talking on a macro level or just in my industry?

Joe Fairless: Let’s talk about your industry, let’s keep it focused.

Frank Rolfe: On the industry there are five key things that you have to know about a mobile home park purchase, or you’re gonna get in trouble. We call it the IDEAL system. The I is for infrastructure – you have to make sure the thing has solid infrastructure; typically city water, city sewer, good working water and sewer lines, power system is in good shape, roads are good… That’s the first step

Second one is called density – that’s the D. Density means you have to have lots that are large enough that you can bring new homes into, because the industry has changed dramatically over time. In 1954 the biggest mobile home was 8 by 40, and today it is 18 by 100, so that’s changed hugely. So you have to make sure that your lots — as soon as they can’t hold the largest homes now made… They have to hold at least about 14 by 46, which is a two-bedroom, one bath.

The E is for economics. Clearly, obviously, you have to have a handle on what kind of net income the property produces, what it can produce going forward, and make sure you’re buying it at a price that makes sense based on its net income.

A is for the age of home. We’re probably the only industry in America that tends to favor the older stuff more than the newer stuff, and that’s because an older home is paid for. It really just depends not so much on the age of the home, but whether it’s paid for or has a mortgage on it. When you have customers where the home is paid for, you typically have a customer for life, because there’s no place that they can possibly live cheaper than the mobile home park. So if they own the home and we own the land, they’re like stakeholders in the business. We like our residents to own their own homes free and clear.

The L is for location. There’s two locations that work in the mobile home park world. One is a nice suburban area in a good school district; that comes as no shocker. But the other style which many people find a shocker is that kind of gritty urban living that millennials now choose in their own apartments. People wanna live downtown, and there’s a certain number of people in the mobile home park world that like to live where the action is, in downtown. Those are those mobile home parks you sometimes drive by just outside of downtown or in downtown, and you think, “Oh my god, who would live there?” But shockingly, if you look at a market like Denver, the highest rents in Denver are those gritty urban parks; those get like $700/month lot  rent. The rural areas, even the nice school districts get like $300-$400.

I’d say that those five items are key. If you flunk any of the five items… For example, if density is too high to fit new homes on… The only way you can buy a park if one of those five is bad is if one of the other five is good enough to offset that. So it’s kind of like the scales of justice. You can only really buy a property where they’re all balancing, and if they don’t balance, you shouldn’t buy it. If they’re beyond balance on the good side, you should definitely buy it.

Joe Fairless: Wonderful practical information, and thank you for sharing that. Are you ready for the Best Ever Lightning round?

Frank Rolfe: Sure, absolutely. Go ahead.

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

Break: [00:26:11].11] to [00:26:53].15]

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

Frank Rolfe: The Man Who Bought The Waldorf, the story of Conrad Hilton.

Joe Fairless: What’s the best ever deal you’ve done?

Frank Rolfe: A park in Iowa, we paid nine million for it, sold it for 19.

Joe Fairless: Over what period of time and how much did you put into it?

Frank Rolfe: Three years; additional capital put in – probably about 1-2 million.

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

Frank Rolfe: Basically, I am all the time talking to people getting in the industry on how to do it properly. I’ve got a design to it that works and it’s a win/win. What I do is I drive a lot between properties, and when I’m on the road I just turn my phone on speakerphone and I return the gazillion calls I get from people and try and tell them my constructive ideas on parks they’re buying, or valuations on parks they’re doing. It keeps me awake and lively while I’m driving, and it’s a good way to give back to them to help them get their mobile home park thing going.

Joe Fairless: What’s the best ever way for someone who wants to get started in mobile home investing to find a deal?

Frank Rolfe: The best way… There’s probably four ways to find them, and it varies. They’re all fairly effective. First one is online. Go to mobilehomeparkstore.com. There’s about 800 parks for sale on there. When you do that, you have to understand that only probably 25% of those are deals you would wanna buy. That’s the first place most people go.

Broker pocket listings are big… That’s where half of all of the properties we buy these days come from – pocket listings. These are listings that brokers have that they don’t publicly discuss, because the seller typically won’t let them, because he’s afraid of scaring the residents or the manager, or it’s because the broker could talk about them publicly, but he doesn’t want to because he doesn’t want to talk to other brokers, only to buyers who are not represented, so that he gets the entire commission.

Third level is direct mail. We do that all the time. You basically send postcards or letters to people who own mobile home parks, saying “Hey, I wanna buy a mobile home park. Are you interested?” Like any direct mail, we get typically a 1% response rate.

The fourth is cold calling. You basically just call people up and say, “Hi, I’m interested in buying a mobile home park. Is yours for sale? If so, at what price?” Those are the four most standard ways. There’s a fifth way which is called “drive and talk”, where you pull into a mobile home park and just try and strike up a conversation with the owner, but it’s very time-consuming and half the time it’s of no value, because all that’s there is the manager.

Joe Fairless: What would be a mistake you’ve made on a particular deal, thinking back through the deals you’ve done?

Frank Rolfe: The biggest mistake I ever made was not understanding what makes the business work. In my early, early career I bought some properties in Shreveport, Louisiana that I should not have bought. Fortunately I came out of all of them whole, so I didn’t lose any money on it; I learned a lot. The problem you have is to create affordable housing you have to have expensive housing. Today I call that contrast.

If you’re looking at a market where the median home price is $40,000, nobody needs a mobile home, or a mobile home park. And I didn’t know that. Early on I just thought, “Oh, there’s a mobile home park… Why would it be any different that another one?” I’ve learned over time that there’s huge issues in the market that make some markets desirable and some not. The desirable markets to us are basically 100,000+ population, median home price of about 100,000 and up, a three-bedroom apartment rent of about $1,000 and up… We also like to see market vacancy – the U.S. average of 12.5% or lower… All these stats you can get off BestPlaces.net (that’s where we get them all).

Beyond that, we like to buy what we call recession-resistant economies. That means that they have the bulk of the jobs based on either healthcare, or education, or in government. Markets that are heavy in that – an example would be Kansas City. Kansas City has more federal jobs than any city outside of Washington DC. It also has a huge amount of healthcare, and it also has a huge number of colleges. St. Louis has the same…

If you look at the U.S. economy based simply on how safe is the employment, you’ll find entire regions that are very risky… For example, when you go way out, far East Texas it’s all about oil and gas, right? West Texas is also all about oil and gas… A lot of your Midwestern, Great Plains markets are pretty much well diversified in healthcare and colleges and government, and that’s what we like.

We like the cities where you can have the 2007 Great Recession and nothing changes.

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

Frank Rolfe: You can always reach me at my e-mail, which is frank.rolfe@gmail.com. That’s typically the best starting spot. I am very accessible, because again, I’ve got it now where I’m basically talking to people, and typically everywhere I go in life today I take my laptop with me… Whether it’s to any event, or watching TV, or whatever. So anyone who’d like to contact me, always feel welcome to do so.

Joe Fairless: Outstanding. Frank, I have literally a page and a half of notes from our conversation. This has been just a great crash course on mobile home investing, from ways to solve the occupancy issue – you broke it down very tactically, which was helpful… Then how to find deals, and then overall how to look for it using the IDEAL acronym (Infrastructure, Density, Economics, Age of homes and Location).

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

Frank Rolfe: Sounds great!

 

 

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