JF2760: Market Highlight (Orlando, FL) With Special Guest Stephen Tilton | Actively Passive Investing Show with Travis Watts

Could your next great investment opportunity be in Orlando, Florida? Travis Watts and guest Stephen Tilton dissect the Orlando market, analyzing its growth potential, demographics, and budding opportunities for both active and passive investors.

Stephen Tilton | Real Estate Background

  • Realtor at FLA Real Estate Services, which sources off-market and below market value properties while selling for top market price.
  • Say hi to him at:

Want more? We think you’ll like this episode: JF2597: Single-Tenant Net Lease Opportunities with Randy Blankstein

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Travis Watts: Welcome, Best Ever listeners, to another episode of The Actively Passive Investing Show. I’m your host, Travis Watts. For any of our active listeners to this segment of the show, you know we don’t have guests on the show. We’re nearly 100 episodes in. It used to be myself and Theo Hicks, my co-host, but we have never had a guest on this show. But today, I have brought a guest on to add value. The reason is that we’re doing a market update on Orlando, Florida. I was trying to figure out how I was going to present this information, and the last thing I wanted to do was pull a bunch of data stats and facts and just read off a sheet to you guys. So I thought let me bring on a market expert. That’s who we have with us here today. His name is Stephen Tilton. Stephen, welcome to the show.

Stephen Tilton: Hey, Travis, thanks for having me, man. It’s a privilege to be here with that kind of introduction.

Travis Watts: Well, you bet. I appreciate you. We’ve done a lot of deals together, we’ve bought sold real estate, we’ve talked a lot about investing over the years, we’ve attended conferences together, so I think you’re a very knowledgeable resource for this particular market. The reason we’re covering Orlando is, as you know, there’s been a tremendous amount of interest in the Orlando market. You and I live in Orlando and surrounding markets ourselves. Even Ashcroft Capital has been investing in this area, Winter Park in Orlando, for the last two, three, almost four years now. I think it’s a worthwhile discussion, a lot has changed since COVID started… Why don’t you tell the listeners a little bit about yourself, your background, your journey, and then we’ll dive in and get started?

Stephen Tilton: Very good. Well, thank you. I got into real estate originally as a listing agent. I had a little background, because both my parents were agents heading into the 2008 crash, and our lives kind of got turned upside down through that. I took a break, started another business, sold that off, and decided real estate was really the way to go. Along the way, listing properties and becoming an expert at selling, I began to find all of these properties below market value as well in my hunt. I said “Hey, wait a minute. If I can sell them for top dollar and find them at a discount, this is a match made in heaven.” But the problem we kept running into was contracting. We couldn’t get properties from dilapidated, below market value, to retail-ready. So in 2020, we started a contracting business. I like to keep my finger on the pulse of the market, and I think that’s what you and I enjoy is being able to talk about those market dynamics and frankly, why people love Orlando so much.

Travis Watts: I appreciate you sharing. I just want to make this clear, that this is not just a biased episode just because we live in Orlando and we want to promote Orlando. If you just look at the nation-wide stats on where companies and businesses are relocating to, Orlando is top of the charts. Florida in general. But I brought you on because you’re the expert in the Central Florida area. So a lot of investor interest, a lot of multifamily interest, a lot of single-family interest; there’s just a lot of interest. Let me ask you this, Stephen – you and I both invest individually, our personal capital into this market. But I want to ask you, why do you invest in the Orlando market?

Stephen Tilton: Russell Gray from The Real Estate Guys has been a great influence on me. I want to shout out to him for what they do for the real estate investor community. They have a saying that says “Live where you want to live and invest where the numbers make sense.” With Orlando, I think it’s really both. I love living in Orlando, I think there are a lot of people who enjoy it. But it also has really strong market performance, which is what’s been driving investor sentiment and investor interest.

Mainly we’ve got strong migration trends, people coming from high equity states like New York and California, where they may not like the policy, the taxes might be higher, and maybe it’s colder. So they’re coming to Florida for the weather, the lifestyle, relative affordability, and unbelievable market absorption. When we consider what D.R. Horton is doing with 80 plus communities here in the Orlando area, it’s a pretty strong commitment that they’re making with their land acquisitions and building projects they’ve got going on.

Travis Watts: There’s a lot of migration in general, just to the Sunbelt regions. I’ve been talking about that on the show for years now, not just on this show but on podcasts for years. It’s funny to watch the trickle-down effect, the New York, the New Jersey, to your point, high taxes, the politics, the landlord-tenant laws, trickle-down through the Carolinas and through Georgia, and then of course to Florida. It’s funny driving around and I know you know this because you’re driving around all the time with clients. But all the out-of-state tags, especially up and down the East Coast, are just phenomenal. I know you helped me buy a property back in, what was it? 2017. Man, things have really changed in this market.

Stephen Tilton: There’s been so much construction happening on all fronts, not just residential, but definitely commercial. I’m curious, Travis, what is it that you love so much about Orlando?

Travis Watts: Yeah, it’s a good question. I think, for me, generally speaking, I’m a full-time limited partner as you know, I’m a passive investor. What I’m doing is I’m partnering up with firms that are buying multifamily, mostly value-add stuff. There’s a lot of research out there we can all look at, Marcus and Millichap, CBRE, and CoStar. They’re kind of running their own analysis, where companies, where jobs, where people are moving to, and it just so happens that Orlando is one of the really hot markets. You got markets like Tampa that have exceeded statistically what Orlando’s done, Jacksonville’s done phenomenal.

Again, this isn’t “Invest in Orlando, it’s the only place to be.” But I live here so I noticed it, and it’s so crazy right now for anybody who is here visiting here, the changes. To answer your question, I go by their analysis, I go by the nationwide stats. Right now, I’m bullish here in Central Florida, but ask me in five years, if things change, something crazy happens, Florida says we’re doing a 10% state income tax, people are going to be exiting like crazy, and who knows where they’re going to go. That’s a little bit about what I look at.

Stephen Tilton: Yeah. I think one of the really interesting things we talk about jobs here in Orlando, is there’s a large contingent of people. During the pandemic, we thought maybe everybody, all information work can be done from home. But there’s a pretty large contingent now, maybe it’s 15% or 20% of the information workforce, but they can move wherever they want to go geographically, and they can simply do their work at home. Suddenly, they are faced with the decision of “Where do I want to live independent of my workplace?” I think a lot of people decide they don’t like snow, they don’t like high income taxes, they love Disney World and the other world-class attractions.

Break: [00:09:40][00:11:36]

Travis Watts: A lot like say in California, there’s a lot of dynamic to Florida. As you know, Panama City is nothing like Miami, and Miami is really not a whole lot like the Florida Keys. There’s a lot of in-between, Tampa is not Orlando. There are a lot of local places that you can go to, to your point. Whether you’re a beach person, the beach is what? Maybe an hour and 15 or something from Central Florida, it’s not an incredibly long commute, and of course, Disney and all that kind of stuff. On that note, I just want to add this to the listeners, markets change and markets evolve, and Orlando is one of those markets now.

You and I Stephen, we were out at this real estate conference a year ago or something out in Houston. A lot of investors have this connotation about Houston that it’s all oil and gas. When oil and gas are down, Houston’s a bust. It’s just not true anymore, that was somewhat true at one time in the history of Houston but it is so much more diversified now, it is so much more built out. They have all kinds of industries there from tech to health care to you name it. It’s the same thing with Orlando. What I hear most as an objective from investors about Orlando is that it’s a tourism city.

While that has some truth to it, of course, we have mega attractions, Disney, Universal, SeaWorld, etc. But there’s so much more and they’re building microchip factories in the whole tech hub over by Lake Nona as you know. There’s just so much more that’s happening here. That’s something to consider when you look at job diversification. As an investor, I don’t want to be in Detroit, Michigan in 2006 and 2007 right before the collapse because you’re built on really one industry. When it goes down, we all know what happened in that story.

Stephen Tilton: The job sector and Orlando really is more diversified than people think, to your point, Travis. A lot of people just like Houston where they think it’s oil and gas, they think about the 78 million visitors that come here annually and over the $50 billion dollars in economic impact that tourism brings, which is great. I’ll tell you, the city of Orlando loves that 10% hotel tax, they build stadiums and all kinds of things with it, it’s been really great.

The lesser-known industry that’s really larger than the tourism industry, but it’s sort of not marketed as much it’s a little bit of secrecy, it’s military and defense. We actually construct missiles here. The irony is when you’re on the Orlando eye, on one side you’ve got International Drive, and on the other, there’s literally a Lockheed Martin missile factory and a research and development center. It’s sort of this perfect microcosm of the jobs market here. Not just on the military defense front, we have more military simulations happening here, computer-type simulations than anywhere else in the world. It’s the military simulation capital of the world.

Not to mention what we have going on for our medical industry. We have a great place, which is an awesome private-public partnership known as Lake Nona Medical City. They have put a number of medical research hospitals there including Nemours Children’s Hospital. When we think about that and the UCF medical research facilities, these are really world-class medical facilities that are attracting top talent, and not just in software, military defense like engineering, but also in the medical industry. Those industries really pay so more than when we consider jobs like hotel cleaning person or somebody like a ride operator, those jobs are making 15 an hour or something like that. You’re getting six-figure jobs in some of those other industries.

Lastly, but not least of which is our education industry. We’ve got incredible technology research facilities here at UCF. It’s a phase one university so they’re doing all kinds of research in a number of different fields. But engineering is really the specialty. They have a track, if you’re living here in Orlando and you’ve got a kid coming up college-age, they can be local, stay in your home and get an amazing education at UCF, and basically be direct tracked into Lockheed Martin, or Raytheon, or one of these other major defense contractors. It gives people major upward mobility here in the future.

Thinking about Valencia College, I hear Bernie Sanders talk about free education or free college education regardless of your political views on it. In the state of Florida, it’s essentially free, they’ll pay you if you’re a low-income earner to get your associate’s degree. At risk of going on too long, basically, if you’re a full-time student, you get complete tuition paid for Community College and the federal government will additionally step in with another benefit that’s almost three times as large. Meaning, to get your associates, you actually profit if you qualify. It’s an incredible place to live and it’s an incredible job market.

Travis Watts: There you go, couldn’t agree more. There’s probably a different program you were just describing, but when I went to college, it was out here in Orlando so many years ago. There was the Bright Future scholarship and it was if you have a certain GPA and some community service, the same kind of concept. I at least had an associate’s paid for at a public school. That program, if it’s still around, it was funded by the Florida Lottery. Some cool things that they’ve done structurally.

You mentioned politics which is always a big mistake so let’s talk a little bit about politics and dive into that. More importantly, let’s talk about the Federal Reserve real quick, as we kind of wrap up, let’s look at the macro-level of real estate. We’ve been bullish, bullish, bullish on this episode. But let’s talk a little bit about interest rates. I’d like to get your thoughts on what do you think we might see or what’s happening now in that space.

Stephen Tilton: Well, nobody ever knows what’s going to happen. The wise man says, “Well, it depends.” So, it depends. But I think what is likely to happen is something similar to what we saw in 2018, 2019, when the Federal Reserve begin tapering their asset purchases. They had some favorable tax policy that gave them a little bit of breathing room to begin scaling back those asset purchases, and that’s what they did. But as they began doing it, we saw the yield curve flatten and then eventually invert. Especially since 2020, we have a really strong track record. When the bond market yield curve inverts, it precedes a recession every single time since 1971.

We’re already seeing a flattening of the yield curve just with the Federal Reserve talking about raising interest rates, and yet, we see inflation roaring. I think it’s obviously two sides. We’ve got a supply chain problem, and as that’s alleviated, that should help. But we’re also getting the worst kind of inflation, that’s where the public becomes psychologically aware of inflation, and they begin demanding more from their employers, which of course, drives the cost of production up, begins this negative feedback cycle. The Federal Reserve is really in a tough spot and I’m curious to see how it’s going to pan out. As it pertains to real estate, Travis, I’m curious what your thoughts are on how things will materialize?

Travis Watts: Yeah. Well, like you, no one’s got a crystal ball. What I’ve shared here with the listeners on this podcast before is that there’s a lot more that plays into it than just interest rates, that’s the short-sighted thinking as well. If interest rates go up, then the real estate crashes. Well, to your point, you have supply chain issues, we have a severe lack of inventory on affordable housing, we’ve been behind since the year 2000 of providing enough homes for Americans. 2008, ’09, ’10 slowed that down more, COVID slowed that down more. We’re millions of households behind. I shared that a couple of episodes ago, I don’t have the stats in front of me.

You’ve got to factor in all of this. The way I look at it is this, maybe the Feds not going to be able to raise interest rates from, what’s a mortgage today? 3% or something, all the way to say 6%. Maybe that’s way too aggressive, and the reason you might want to consider that is, one, the amount of national debt that we have, obviously, what that would do to markets, to real estate, to the overall economy. We’ve already seen, to your point, them stepping back from that. But here’s another perspective to think about. I ran the numbers the other day on a $300,000 single-family home purchase at a 3% interest rate today or a potential 4% interest rate next year just in theory. That changes your payment by 150 bucks a month.

Is $150 a month really going to stop somebody who really wants to buy or own a home from purchasing? You can kind of apply that theory to the larger assets as well. Multifamily has primarily driven off net operating income so if you’re still buying a stabilized cash flowing piece of property, you still think rents are below market and you can bump them up with inflation that we’re seeing right now at 7%, I still think there’s a bullish case to be made for real estate in general but also for multifamily. I’m not an expert but that’s kind of my take anyway.

Stephen Tilton: Great point, Travis. When we are making our investments, we’re sort of beginning with the end in mind and expecting some of these marketplace dynamics to change. For me, when I’m in an uncertain market and I’m purchasing anything with that, I am most focused on cash flow even more specifically, my expense ratio relative to my gross income. For some of the investments we’re buying, we’ve got expense ratio as well under 50%. What we know from studying past downturns is that typically rents don’t go down much. If they do, it’s something more like 20%. If we feel making those kinds of investments, obviously, much smaller single-family properties where we’re able to accomplish some of those kinds of numbers, we feel pretty comfortable regardless of what happens here in the short term with interest rates.

Travis Watts: That’s a great point, Stephen. Rents are pretty inflation-sensitive too. As long as we’re seeing some form of inflation, they tend to keep up, or actually, they’re in excess of that. I’ve shared that statistic too on the show. They’ve been 583 basis points above the government inflation since 2012, so just something to think about. Right now, we’re seeing a 7% inflation rate. Number one driver to NOI on commercial is the rent bumps, so we’ll see what happens. I appreciate your insights, I appreciate your sharing.

Now, Stephen, if anyone’s looking in the Orlando market, whether they’re looking to buy an investment property or just a home for themselves or whatever, how can listeners reach you?

Stephen Tilton: You can send me an email at tiltonteam@gmail.com.

Travis Watts: Well, with that we’re going to wrap up. As always, appreciate your time, Stephen. Best Ever listeners, take Stephen up on that offer. Reach out if you have any questions about the Orlando market. Make sure to like, subscribe, and comment. Appreciate you guys, as always. We’ll see you next week on another episode of The Actively Passive Investing Show. Have a Best Ever week, everyone.

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JF2749: Broker’s 4 Invaluable Tips for Finding Multifamily Deals ft. Beau Beery

What’s the best way to find multifamily deals? According to Beau Beery, it’s having a good relationship with a broker! As a multifamily broker, Beau reveals how high-net-worth investors find and make deals, how they increase the probability of making more deals, and what you can learn from their strategies to scale your portfolio.

Beau Beery | Real Estate Background 

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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Beau Beery. Beau is joining us from Gainesville, Florida. He’s a multifamily broker specializing in conventional and student housing over 10 units in the northern half of Florida. He’s also the author of the book Multifamily Investors Who Dominate. Beau, can you start us off with a little more about your background and what you’re currently focused on?

Beau Beery: Yeah, sure, no problem. I went to the University of Florida back in the late ’90s, got a marketing degree, went to work for Trammell Crow Residential, which was the leading apartment developer in the country at the time. I was doing on-site leasing and sales, I got to understand the multifamily business from the ground floor, which is really, really awesome. I had great upline, and had great coaches. I went back and did a master’s degree in real estate at the University of Florida, which is currently the number one program in the country, graduate real estate program. Then I went and worked for a development group that mostly developed, owned, and managed office, retail, industrial, and multifamily. I brokered and managed the portfolio, I did that for 10 years.

Then I started to think, “Well shoot, I’m pretty good at this. What if I did this for 10 people? What if I did this for 20 people? What if I did this for 30 people?” The brokerage world was calling at me. So in 2010, I acquired a Coldwell Banker Commercial Franchise with some partners, and we just blew up, it was awesome. I did only multifamily brokerage while my partners ran the company. I was number one in the state of Florida almost every year for Coldwell Banker Commercial, and I was in the top three in the nation in all 40 countries for almost all of those years as well. I just sold that company to my partners last year, and now I just have my own boutique multifamily brokerage firm called Beau Beery Multifamily Advisors. I broker anything over 10 units, market rate, or student housing in the Northern half of Florida. That’s my story, brother.

Slocomb Reed: Nice. When did you buy the Coldwell Banker Franchise? How long have you been brokering multifamily?

Beau Beery: That was 2010 when I acquired the franchise; it was me and three other partners. We also had a Coldwell Banker Franchise, so we had about 90 residential agents. My partner’s ran that firm, and then we had about 12 or 15 commercial agents, and I ran that part of it. But I did nothing but brokerage for my side; I just brokered multifamily assets.

Slocomb Reed: 2010 is an interesting time to get into brokering multifamily…

Beau Beery: Yeah, man, for sure. Actually, it was interesting to just be alive in brokerage, period. When I acquired that company with the partners, we had a very limited number of months of reserves left; after 100 years of that business being in business, it was about to go under. Everybody was, everyone in brokerage; everyone in the market was struggling, they were barely surviving. We came on, and I mean within a few months, we just started killing it. When I came from working for one person to brokering for others, I had built a name for myself 10 years prior. So day one, when I acquired the Coldwell Banker Commercial, everybody who had been following me for 10 years was blowing up my phone for that first 30 days, and we must have racked up three or four dozen listings. I was the number one agent in the entire market year one, and then it took off from there. It was just a great story, it was good timing, and then I exited at a good time.

Slocomb Reed: Yeah, 2010 was a great time to get listings.

Beau Beery: Yeah, for sure. There were plenty of listings. It was finding the buyers man, that was the key. Now there’s that’s plenty of buyers and no listings. [laughs]

Slocomb Reed: Yeah. So you had 10 years’ experience before acquiring the commercial brokerage with Coldwell Banker in 2010. Fast-forward another 10 years for me Beau, 2020. The market’s been completely turned on its head. It usually turns on its head faster than every 10 years, but even prior to COVID, we were in a market where it was very difficult to find sellers and it felt like everyone was a buyer. I know in my conversations with commercial brokers, their buyers list has four or five digits, and that’s just the people who are getting the emails when they take a listing. So what is it that you’re doing now to get in front of listing opportunities to be on the listing, the selling side of multifamily deals?

Beau Beery: Yeah, I take a very digital approach to how I get my listings. It’s a system that I’ve been creating for years and years, and it’s an algorithm. I use a CRM called RealNex, realnex.com. What I did was, about 15-16 years ago, I exported every single apartment complex that exists in the Northern half of Florida, anything that was over 10 units. I exported from the property appraiser websites. Property appraiser websites are the only source of data that is accurate. All these other subscription-based websites that people subscribe to, they are not 100% accurate. They all get their information from property appraisers.

Slocomb Reed: Beau, I want to make sure we’re on the same page here. When you say property appraiser websites, are you talking about…

Beau Beery: Tax assessors.

Slocomb Reed: Yes, so you’re talking about local or regional government authority public records.

Beau Beery: That’s correct. County tax collectors are the only human beings, or the only websites, the only municipality, whatever you want to call it, that has the information on every asset, because they want to tax you. All the websites you subscribe to – CoStar, Reece, whatever it is – they have good information. Basically, what they’re doing is they’re assembling information into an easy-to-read format and they’re charging you money for. But it’s being input by a lot of young folks who don’t do real estate; so a lot of the data is incorrect. They don’t know what a qualified sale is, sometimes they don’t know the difference between market rate and student housing. There’s a lot of stuff that’s inaccurate. And I saw that. So a long time ago, I exported every asset, imported it into a CRM… And I’m leading to answer your question about listings; this is all part of the story.

So what you get from the property appraiser website, is you get a parcel number, you get an owner name which is always an LLC, you get an address, sometimes you get number of units, depending on the website, you get the age, you get what it sold for, and when it sold, and that’s about it. But oftentimes doesn’t give you the number of units, the bedrooms, sometimes the ages are not in there, the type of construction sometimes are not in there, the actual principal of the company and their contact information, how much value-add is left… Property appraiser websites don’t rank them, A, B, C, all this stuff. So I spent a tremendous amount of time and resources getting all of the physical data perfect. Everything about the physicality of the asset, who owns it, what they paid for, everything, and created a database. And over time, I tracked a number of indexes. I tracked when the mortgages end, I tracked when it last sold for, so I tracked all the sales. I can tell you what the number of months is someone’s going to hold it based on the type of asset, the size of it, the market it’s in, and most importantly, the type of owner, whether they’re a syndication or private. I track all of these sales in different silos. So as soon as someone buys a complex, I go ahead and put a date into the future of when I think it’s going to sell based on a bunch of other indexes that I’m tracking, combined with when the mortgages end, combined with the type of owner and when their equity is going to mature and they have to go ahead and sell for their investors… So there are all kinds of things that are intersecting, and I’m inputting in dates.

So every day when I walk in my office and I pull up my CRM, I pull up today’s to-do’s, there are two or three phone calls that I have to make to people who own apartment complexes that are ripe for selling today. These are phone calls that I put in last month, last year, or sometimes 10 years ago. It’s also discussions I have with owners. Over time, as you can imagine, I have lots of phone calls with owners who say, “Hey, Beau. Our loan doesn’t come up until 2025. We cannot sell before then. Our defeasance is too huge until 2023.” So I get that information. If their defeasance is too huge until 2023, I may start calling them in late 2022 or mid-2022 to start feeding them information, getting on their side, adding value to them, so that they think of me once that defeasance burns off, and now they’re capable of selling.

Slocomb Reed: Beau, this is fantastic. I know that there are some of our Best Ever listeners who do their own lead gen. The vast majority of them are not brokers, but a lot of people are hungry enough for good opportunities that they are going direct-to-seller. Especially when you say 10 units, going direct-to-seller is much more common for us investors in that 10 to 40 units space, because it’s much more likely that those mom-and-pop style owners don’t already have embedded broker relationships. First, let me ask you, Beau, in your experience, does that hold weight? Is 40 units a good metric? Under 40 doors, the majority of the owners don’t already have a brokerage relationship, but above 40 doors they do?

Beau Beery: Definitely not. To say the majority, absolutely not; they’re using brokers, period. Is there a greater chance under 40 units of getting a deal directly from the seller than above 40 units? Absolutely. But you have to understand, the guy who owns a 20-unit complex that is worth $2.5 million, he’s probably fairly sophisticated. That’s probably not the only one he owns, it’s probably not the only one he has transacted in the past. He’s not living in some silo somewhere, away from the world, and doesn’t understand that you can hire a broker and get 15 offers in two weeks. Everyone knows you can do that.

If you’re buying quadruplexes, duplexes, 10 or 12 units, there is a higher likelihood that that person isn’t in our world, transacting on a regular basis, and may entertain an offer from some guy he doesn’t know who calls him off the street. But logically speaking, when you own a reasonably good asset, you’ve probably transacted before, you’ve probably stayed with your ear to the ground, you’re probably getting calls from brokers every week educating you on the world, which is why 93% of every deal that sells over 10 units is done by a broker. That is an actual five-year study I did, it’s in my book right there. I studied 31% of every transaction over a five-year period where I literally called the sellers and I determined that 92.77% of every deal over 10 units was done by a broker, because it just makes sense for them to do so.

What I try to coach investors on is you can try to be the guy who calls the seller directly, because there’s a higher profit margin, or at least you think so, and your profitability per deal, over time will likely be greater than the guy who only focuses on network and the brokers. But the guy over here who networks with brokers has a much higher net worth than this guy over here. Because this guy is hitting base hits left and right, he’s doing way more deals per year; he doesn’t have to hit a home run every time, he doesn’t have to feel like he’s sitting around a fire drinking beer with his buddies and tries to brag about a deal he got direct from the seller. That doesn’t mean anything to this guy; he’s trying to build a huge treasure chest of assets. Because the more number of units you buy, the more powerful you become; because the more units you own, the more I as the broker want to bring you deals, because the sexier you look to the seller, the easier it is for me to sell you as the winning bidder in a multiple offer situation to the seller.

The guy who’s buying one or two deals a year directly from the seller, because he’s making as many phone calls as he can and he’s only getting one or two of those a year… And by the way, there’s nothing wrong with that, but that guy is never going to be able to compete against the guy who has nine complexes that he bought in the last 18 months using brokers. It’s a relationship business.

Slocomb Reed: Absolutely. Beau, I may be showing my Midwest-ness here when I talk about 40 doors… Because I’m based in Cincinnati, Ohio, and when you’re talking about predominantly C-class inventory – I’m not saying all the inventory in Cincinnati is C-class, but that’s what I’m focused on presently – one of the numbers that we’re pushing on if your property is 50% or more one-bedroom apartments… We’re just now seeing properties get around 65,000 a door. In your from-the-gut example of a 20 unit being worth 2.5 million, there are not a lot of 20 units at 125k a door in Cincinnati, at least in C-class areas, which I think lends itself to some more mom-and-popsmanship in a market like ours than a market like yours.

Of course, you have much better analytics than I do. I get what you’re saying about the investor who is networking with brokers, doing more deals, and building their network faster than the person who’s going off-market, trying to hit home runs. In the interest of giving you a platform, let me play devil’s advocate.

Beau Beery: Please.

Slocomb Reed: My ability to purchase is limited. And if I go to raise capital, I’ll be working primarily with sophisticated limited partners who have serious return expectations. So I feel like I need to hit homeruns. I have the wherewithal to do off-market lead generation and do a lot of digging to find a few homeruns this year, because a few homeruns this year is as far as my capital can stretch. And frankly, because I’m only hitting homeruns, I’m going to be able to perform, ideally, cash-out refinances within a 12, 18, 24-month time period, and get my capital back out so I can go digging for more homeruns.

Looking at someone in a circumstance like that, where capital and the ability to raise capital is a serious limiting factor, and understanding that the margins for forcing appreciation are often lower on brokered deals, why is it that I should be looking, or someone in this situation should be looking at brokered deals instead of trying to go direct-to-seller?

Beau Beery: It’s just to just increase the probability, it’s a statistical fact. Listen, the difference between someone who buys a couple of deals a year and someone who buys lots of deals a year – it’s not their smartness or the amount of equity they have or experience oftentimes, it’s how many deals the other guy sees. The more deals you see, the greater probability you have of getting in the game. That’s it. Now, that’s not to say, if you have the ability to have a junior or someone else on your team doing the letters directly to sellers, making the phone calls, whatever – awesome. Do it, because that doesn’t cost you anything. But if you are the only principal in your company, and you’re trying to pick up assets, and you have a limited time in your day, why wouldn’t you increase the probability of acquiring any asset? Why would you limit yourself to trying to find the only person who’s going to entertain an offer from some guy they’ve never met in their life, who calls him and says the right thing at the right time? That’s all I’m saying.

I get where you’re coming from, and it works for people, and if you’re good with picking up a couple of deals a year, that’s all good; there’s nothing wrong with that. I’m telling you information about how to become a giant. I’m giving you information about the most elite investors in the world. These guys are doing a dozen deals a year on a regular basis for 20 years. The only way you do that is networking with every broker, so that every broker brings you every deal that they come across, both before it goes to market, and after.

It’s just a statistical thing. I’m saying, if you’re going to spend your time somewhere, should you spend it to trying to find a needle in the haystack, or should you go to where the vast majority of the deals are? When you get good enough at and you build enough of a reputation of closing, you get to see the broker deals before they ever hit the market. You can be one of the limited number of people who see it before it goes out.

Slocomb Reed: Sam, that’s a very valuable point.

Break: [00:20:44][00:22:41]

Slocomb Reed: I want to ask about your database. You’ve used public record information and your own digging to accumulate a very powerful database that you use at a very high level to make sure that you’re having conversations with owners at the time that they are most likely to be selling.

Beau Beery: Right, oftentimes they don’t even know it.

Slocomb Reed: Yeah, totally. I want to compare that to the broker who gets a Costar subscription or buys a list and just starts calling people. Beau, how often, when you’re making your two or three phone calls in the morning, are you calling people who are already having conversations with other brokers, who have not gone to the lengths that you have to make sure they’re making the right phone calls?

Beau Beery: Every seller has heard from eight brokers that week, that’s a fact. Every one of them, from the guy who owns 12 units to the guy who owns a 1200-unit complex, they’re getting calls from brokers on a regular basis. There’s a couple of trains of thought on the brokerage side. Most national brokers – now, I’m going to do a general statement here, which is not fair, because there are going to be some anomalies within the national brokerages. But the national brokerages, the CB Richard Ellis, Marcus and Millichap, Colliers – all these are big, giant companies that are very, very good at what they do. They are investor-driven, they’re commission-driven, they want to do deals. So many of the agents, particularly the younger guys coming up, they are called demons. “Hey, my name is Beau Beery, do you want to sell?” “Hey, my name is Beau Beery, do you want to sell?” “Hey, my name is Beau Beery, do you want to sell?”

Slocomb Reed: Yup, I know a lot of those guys.

Beau Beery: Right, that’s their game. That’s good, it builds up a skill for that young person, it drives listings eventually, and those listings go to the head honcho broker. When I say head honcho – usually within national teams, there’s usually a two-partner partnership. There are always these two guys who are fantastic at what they do, they partner together, they have three or four juniors under them, they have analysts, and so on and so forth. Those juniors are doing the dialing for the dollars, they get a hot one, they turn it over to the major partner, the guy gets the listing, and they go to sell it.

What happens is everyone knows those shops. When they call, that’s what they’re going to ask for, is the listing, and they almost become white noise. For most investors, it becomes annoying. Now, I try to take the long game. The long game for me is I add as much value as I possibly can. When I’m making those several calls each morning, I’m not calling asking for a listing; I very rarely asked for listing. All I’m trying to do is add as much value as I can to their business. I’m talking to them about what rents are doing nearby, what amenities are driving up rents, what amenities can be added, sales that happen nearby, what construction costs are running for different things, changes in the market, just adding value. What I want is, when that person sees me show up on their cell phone, they answer the phone, because I’m going to add value and not ask for a listing.

Now, I will say this – a lot of the national shops do way more business than I do as a whole. They may not make more money than me as in net, because they have franchise fees, cuts with the house, junior, assistants and all these things, but they’re going to get more listings. So you as the investor should be networking with every one of those major brokers, because they’re fantastic at what they do. And when you go to sell, their selling point is they have national offices, they have offices in different countries, and so on so forth.

The reality is every broker has the same access, the same number of buyers, whether you’re a little old me, or your CB Richard Ellis. That’s what technology has done for this world. I literally have every human being on Earth, that owns every asset in the state of Florida, and everyone on earth who wants to own assets in Florida who doesn’t already. It’s literally a touch of a button that I have access to them.

So the two different approaches are just call, call, call, call, it’s a number of probabilities, and they’re going to get listings. They’re going to say the right things, especially if you’ve got some of these junior guys who are very good at what they do, they’ve got good verbal skills, so they get the listings.

And the partners they’re doing it for are making calls to their key prospects, doing the same thing. They already have prior relationships, they’re tight. I’m taking a different approach, because I’m not a giant national. I have to be more of a SEAL team member. I think long term. I want someone to look at me as someone who’s a true advisor, who is there to grow their portfolio, grow their business over a 30-year period. And I’ll do less deals, but I’ll have a waiting list of folks who want to work with me.

Slocomb Reed: Beau, as an apartment investor, let me say that I wish I had brokers like you calling me, offering to add value. I am a one-man band when it comes to being an owner-operator, for the most part. I have capital partners, but it’s my advice and my expertise that they’re relying on. I’m still trying to figure out what amenities in what areas are worth how much in rent increase… So if you’re an apartment broker in Cincinnati and you’re listening to this, get my contact info so that you can add value to me and all of my buddies who own apartments. What Beau is saying here is gold.

Beau Beery: Sure. And it works both ways. The thing is that you as an investor is in more competition by far than I am. For me, in the Northern half of Florida there are about 50 brokers that I compete against. You as an investor are competing against tens of thousands of people, but only a very limited number of those tens of thousands of investors are networking and building relationships with brokers, so that there’s this mutual adding value to each other. So I would encourage you to reach out to every multifamily broker in all the markets in Cincinnati, and create – not just a business relationship, but you talk about what you guys do on the weekends, your hobbies, wives, and kids, and over time you develop these personal relationships so that I like reaching out to you and telling you about amenities that people are putting in that are driving up rents, and how people are cutting down on bad debt. So brokers get to see from dozens and dozens of the top investors in the world how they’re operating tremendous businesses, and you can gain that information from them. They’re happy to share with you.

I have a lot of stuff in my head I love to share with folks; that’s why I have the YouTube channel and the book and all that. You just have to reach out to them. And for you to then be able to take some that information and share with your investors and some of your equity – that makes you look like the expert.

Slocomb Reed: Beau, are you ready for our Best Ever lightning round?

Beau Beery: Bring it on!

Slocomb Reed: Beau, what is your Best Ever way to give back?

Beau Beery: For me, it’s two things. It’s probably my YouTube channel. I put a tremendous amount of really high-quality content on there. It’s called Beau Knows Multifamily; it takes a lot of time, it’s a lot of research. Every time I do a deal and if something went bad or good, I’m putting out a video about it. My whole thing is trying to educate investors, both beginning to advanced level guys as much as possible, because the better everybody gets at this buying and selling game in multifamily, it makes my job easier; it brings up the level of that. And the second way is I take on a lot of calls from beginners. I’m very sharing of my time.

Slocomb Reed: Beginner investors or beginner brokers?

Beau Beery: Both. I’ve got more brokers that call me than investors, but I get a lot of beginning investors that call me, and I just have short conversations with them about the inventory that’s out there, what they need to do to prepare packages to hand to brokers, how they need to get letters of recommendation, who to talk to on the lending side, where they may find equity… I want to get them started, because to me as a 46-year-old, I’ve got another 15 years I want to do this. If I can grow some along, they’re going to stick with me for a long time; they’re going to want to pay me back if you will. Not that I’m doing it for that, but there’s a mutual respect. If I can help them, they’ll want to help me.

Slocomb Reed: What’s the Best Ever book you’ve recently read?

Beau Beery: My favorite book is probably Deep Work. I think the author is Cal Newport, and the whole premise is that there’s a two or three-hour window of your day where you want to carve out, where you cut out the whole world. You turn off the noises on your computer, you turn off your cell phone, you don’t check social media, your family doesn’t come in the door, and all you do is that one thing that nobody’s better at than you. For me, it’s interacting with my rank A customers, adding value in their lives and their business, so that we do more deals together. That two-hour window from nine to eleven in my business, I’m in this room, it’s completely shut off, and all I do is talk to my top customers. For you, it’s finding deals.

Slocomb Reed: What is the Best Ever lesson you’ve learned as a commercial broker?

Beau Beery: Man, I would say it is working with high-caliber, quality, empathetic, non-bull in a China shop type of investors. Because people who have bad reputations, people who re-trade assets, who bad-mouth assets, who renegotiate terms, who redline contracts to insanity, who do all the things that push a bad reputation, what happens is that crap rubs off on you. Even though you’re not that person, I’m the broker in the middle, and the more difficult the person is that I have to work with, that crap rubs off on me and the other party sees it, and they don’t know how to separate the two as much as they should. So I try very, very hard, in every transaction I do, I have a qualification checklist that I go through before taking on a listing, and most of the checklist has to do with the type of investor they are, the character.

Slocomb Reed: Beau, what is your Best Ever advice?

Beau Beery: My Best Ever advice is two things. Number one, if your overall goal is to accumulate as much units as you can, your whole job should be networking with as many brokers as you can. I go through a full process on how to do that in a book I wrote.

Number two, you have to become a master at the analytics. The reason there are 15 offers in two weeks on every deal is not because they’re smarter than you or better than you, it’s because they know the market like the back of their hand. They know as soon as the listing comes to market, they already know what that deal is worth, they know what they can take the rents to, they know what they can sell it for in three years, they know what the remodeling costs are going to be, they know who’s going to manage it, they already know who’s going to do the lending… They know all this stuff. I should be able to ask you about rents, absorption, sale prices, renovation cost, in any market, in any sub market you’re in. And the better you can get at that, the faster you can react.

Slocomb Reed: Beau, how can people get in touch with you?

Beau Beery: Three ways now. I’ve got a website, beaubeery.com. The reason you want to go there is because whether you invest in Florida or not, you’ll want to see all the metrics and the data I have for the markets that I cover. That’s the kind of data you want to master for your market. Second way is – I know I’ve mentioned it, but this is my book; you really need to get this. I don’t make a bunch of money selling books; I’m telling you because this is the inside stories between brokers and sellers and how they choose buyers.

And the third way is my YouTube channel, the Beau Knows Multifamily. I’ve got playlists on there for beginners, for advanced level guys, I’ve got analytics stuff on there… Every now and then I’ll put new listings on there before I send to anybody else.

Slocomb Reed: Awesome. Best Ever listeners, thank you for tuning in. If you’ve gotten value from this episode, please subscribe to our podcast and leave us a five-star review. If you know someone who would get value from listening to this episode with Beau Beery, please share this episode with them. Thank you and have a Best Ever day.

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JF2737: 3 Reasons to Diversify Your Portfolio with Agricultural Investing ft. Peter Badger

Why should you consider adding farmland to your investments? Peter Badger, Chief Strategy Officer at Farmfolio, sees agricultural investing as a secure asset to add to your portfolio. In this episode, Peter shares the benefits to investing in agriculture and what makes a good land deal.

Peter Badger | Real Estate Background

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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Peter Badger. Peter is joining us from Miami, Florida. He is the chief strategy officer at Farmfolio which focuses on agriculture investing in development in emerging markets. Farmfolio has now become one of the largest exporters in all of Colombia. Peter, thank you for joining us in how are you today?

Peter Badger: I’m good. Thanks, Ash. A pleasure to be here today.

Ash Patel: The pleasure is ours, Peter. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Peter Badger: Yeah, I spent 18 years on Wall Street, Morgan, Merrill, Credit Suisse and Barclays, got the inside track, drank the Kool-Aid, and then I went to Silicon Valley for 8-9 years, I started my own tech company, exited, got acquired, and I started my crazy real estate journey around eight and a half years ago. My only goal in life, Ash, was to try and keep my money and grow it.

Ash Patel: Well, hold on. So all those years in Wall Street and Silicon Valley… Why real estate?

Peter Badger: I went around, when I started my tech company, to all the founders in Silicon Valley that I knew, and I said “Listen, guys,” they’re mostly guys, sorry to say, “…how do you keep your wealth and grow it?” Bar a couple of them, all of them said “Listen, we make our money from public and private company stock, and then when you’ve made that money, you put into hard assets like real estate, agriculture, and other similar assets.” Their point was basically don’t roll it into the stock market once you’ve made something; put it into real buildings, land, structure, all the stuff that is really hard and inflation proof.

Ash Patel: Okay, that makes sense. So why not do the typical, buy single-family houses, multifamily houses? You don’t seem like a typical kind of guy, do you?

Peter Badger: No, I went through the whole journey. I did single families, I’ve bought 21 of them in like 18 months, I couldn’t scale it. I bought some multifamily buildings, went through that, I’ve had a good run with multifamily. I did mobile home parks, short-term rentals, I tried everything. Then I ended up basically with three pillars, a bit of money in the stock market, liquidity, I have a decent multifamily real estate portfolio, which is solid steady US real estate, and then agriculture is my third pillar. I did agriculture because of the non-correlation with the first two pillars.

Ash Patel: To diversify?

Peter Badger: Exactly. Because if you think about it, with farmland — the stock market will ebb and flow and crash every seven to 12 years. Real estate has its own cycle based on the local market you’re in. With agriculture, people are still going to buy coconuts, avocados, citrus fruits, all the stuff that’s in high demand in supermarkets, 12 months a year. Who cares what’s happening in the economy? Macro, micro, people are still going to eat.

Ash Patel: Peter, did you start out by buying farmland in the US?

Peter Badger: I did not, because you cannot buy farmland in the US, because it’s too expensive. Our little secret is that land is inflated in the US, labor is expensive, so I went to actually Eastern Europe, Latin America, Central America, I went to a place where there’s amazing agriculture, but there’s a lot cheaper land and cheaper labor.

Ash Patel: You sought out agricultural land as an investment, and you traveled the world to find it. Why? How did this bug get in your head?

Peter Badger: Well, I love to travel, so I was like, “Listen, I can’t buy U.S. farmland.” I just met some people, and I actually visited 19 cities in three years, and lived there between four to six weeks. I was kind of a digital nomad. You just network while you’re down in these countries, you just meet more people, meet more people, and you just get to a bunch of providers who are trying to offer farmland, agriculture, anything really real estate-wise. So I just built the network that way, by trial and error.

Ash Patel: I’m trying to see how grounded you are or lack thereof. Did you start out by investing in other people’s farmland?

Peter Badger: I did, yes.

Ash Patel: Okay. Coffee plantation, or something of the sort?

Peter Badger: Yeah, I did coffee, avocado, mango, got my feet wet… I lost a bunch of money, by the way. I trusted the digital glossy marketing brochure. On that crazy journey, I ended up meeting a company called Farmfolio, I spent five years investing in all of their products, their deals, and I eventually joined last year, because they’ve got it right.

Ash Patel: Alright, you’ve already made it, you got a ton of money, you’re just looking to diversify… It sounds like you’ve taken on a new job, a new career.

Peter Badger: I have, I have.

Ash Patel: Take us through that evolution, if you would?.

Peter Badger: Well, I think for me, once you understand agriculture and the reason for it, I wanted to find a way to share it with everybody else. Because to date, we as little people have not been allowed to invest in farmland or agriculture. Most of the land is owned by big rich landowners, old farm families, or big private companies. So there’s very little ability to get into the ag space as an individual investor. Farmfolio, who I was investing with five years in a row, they’re basically going out and buying farms that are producing, that have been basically harvesting their high-end premium fruit, coconuts, avocados, limes, they’re being washed, packed, sorted, exported to North America and European markets. So there’s this amazing opportunity whereby the fruits are being sold in the supermarkets that we shop in, for the highest price, but the farming is being done in Central ir South America, at a lower price. That’s what the arbitrage allows us to make some money along the whole supply chain.

Ash Patel: Alright, so you invested money with them. Now you can come back to Silicon Valley, come back to the states, you’ve got your three pillars set up… Something didn’t go right. What happened?

Peter Badger: It all went well.

Ash Patel: I mean, something sucked you in…

Peter Badger: Well, I think we all need to have a purpose. I think when you hit the right idea at the right time for the right reasons, that’s when I jumped into Farmfolio. Because I’ve found a way to give titled farmland real estate to people like you and me, that gives a great return for a consistent, multi-decade period. I don’t know whether, Ash – people may have heard this concept, but it’s called the financialization of everything. So there’s like MasterWorks, people are taking art, allowing to invest 10 to $100,000. RobinHood did it on stocks, no more having to buy a share, you can buy $1 amount. So I think every asset class right now is being financialized down to the n-th degree. I think the journey I’m going on right now for the farmland piece is that we’ll be tokenizing it and giving people the ability to invest their $1 amount into harvesting income-producing farmland such that you can control the income you receive from a passive income perspective.

Ash Patel: Peter, what is your role with Farmfolio?

Peter Badger: I do strategy and a bunch of marketing for the company. So I help find some farms, I help market the farms, I help basically put the strategy together for the long-term. It’s kind of a FinTech meets agriculture. As you can imagine, we want to give everybody access to farm as an asset class, and the ability to democratize that, so it’s going to require a technology play to make that happen.

Ash Patel: When did Farmfolio start and why did they start?

Peter Badger: They started in 2015, and the CEO is Dax Cooke, he’s still the CEO today. Dax, in a similar manner, was living in Central America and he was looking for an ability to actually build agricultural assets for his own portfolio. He found a way to actually raise private equity syndication money in the early days, and eventually get to this farm and ownership model, and start to build this amazing company. He started it personally for himself. As usual, these things get a life of their own, they become successful, and you’re like “Oh, we can help others benefit in the same way we intended for ourselves.”

Ash Patel: Peter, you are an investor; how did you become an officer in the company?

Peter Badger: I tip my hat in around a year ago, because the pandemic was a great leveler for everybody. I realized from all my portfolio investments – Airbnb’s, mobile home parks, multifamily… You name it, add everything. The thing that kept going and was exceeding my expectations during the whole damage was food and shelter. My multifamily portfolio was occupied 95% plus, the farmland, fresh fruit, vegetables – it doesn’t stop; people have to eat. For me, it was a great leveler. When you look at Maslow’s hierarchy of needs, if you’ve see that triangle, at the bottom is food, shelter, and security. I think, really, if you stick to that bottom layer with your real asset allocation, I think you’re on for a good thing long term.

Ash Patel: Do you spend a lot of your time in Colombia now?

Peter Badger: I do. I spend probably a third of my time down there at this point. I’m heading back on Sunday.

Ash Patel: And from an investment perspective, why would somebody want to invest in farms in South America?

Peter Badger: Because it is the best agricultural land on the planet. In the same way, Ash, that we use data to invest in US real estate, you look at population growth and jobs, local to the buildings, and reducing crime rates, I have a similar set of characteristics when I invest in farm and agriculture. Weather is a primary one. You want a place where there’s lots of rainfall, lots of sunshine, soils that are healthy. When you look at a world map – I actually challenged people, type into Google “world precipitation”, and it’ll bring up a map of all the rainfall. There is this layer with this tip of South America, it goes through Columbia and various countries. That’s where most of the rainfall and best agricultural lands are. So stop investing in farmland in California, because there isn’t any water. Go to the places where there is water, plenty of sunshine, and decent farming or agricultural skills in that region.

Ash Patel: Peter, what are some of the risks that investors should consider?

Peter Badger: Outside of generally having the right climate, the right rain, and sunshine blend, land price and labor costs are two major ones to make sure they’re part of the characteristic. But then it’s just the traditional stuff we normally see, which is around the team; have they got the track record, have they the ability not just to actually do the farming itself, but then to wash, pack, export, and sell the produce? I find that when you meet these people, they’re either really good at farming, or they’re really good at fruit sales and distribution. You’ve got to be good at the whole supply chain to be successful in this domain. That’s the key.

Break: [00:13:36][00:15:33]

Ash Patel: You mentioned the pandemic being a bit of an equalizer to US equities and assets. What about insects or viruses for fruits and vegetables in agriculture?

Peter Badger: I think part of this is on the farming side is absolutely, you’ve always got to look for insects and pests when you’re farming, and then you have a really good high-end packing facility. When you actually bring it from the farm into the packhouse, you need to process that in a very hygienic environment. There’s SMETA, there are all these certifications you can get now which actually the retailers in the US and Europe demand to make sure the packhouse have that ability to not only wash and clean the fruit, but then pack it and store it for that journey across the ocean to the premium fruit markets.

Ash Patel: Here’s probably a really dumb question… Pineapples, limes, avocados, coconuts, all have a pretty tough exterior; does that make them less susceptible to insects?

Peter Badger: It does, and it also allows you to have a longer shelf life in some cases. A coconut is an easy thing, isn’t it? It’s a robust, hardy shell, you can’t mess it up; shelf life six to nine months. It’s not like getting blueberries off a farm and onto your plate in a very short period. So yeah, look for those crops that are perennial, they’re tree crops. There are row crops and tree crops, or permanent crops, as we call them. With row crops, anybody can get into it; wheat, barley stuff. You can plant it today, nine months from now, you’ll see the harvest occur. It’s very labor-intensive, very low barrier to entry. Look for those permanent crops where you’ve got to plant a tree, wait three to four years, the first harvest appears, keep improving the harvest, and then it basically produces fruit for 20, 40, 60, 80 years straight. That’s the key. A coconut tree, -I can plant it, wait four years, wait for the harvest, income in my pocket, and then touch wood, another 30 years from now when I pass, I can pass it to my kids, and it passes well intergenerationally.

Ash Patel: I’m intrigued now. As an investor, what would I buy into?

Peter Badger: With Farmfolio, you buy a title piece of farm real estate. So instead of a single-family home producing rental income, we get 220 Tahiti lime trees producing harvest income, because those limes are being exported to the US and being sold in Walmart, Trader Joe’s, Albertsons, Publix, etc.

Ash Patel: Do you harvest and split across multiple farms, or do I get what’s on my particular plot of land?

Peter Badger: So you’ll receive your portion of fruit from that farm for the titled land you have, and then we consolidate all of that through multiple farms in the packhouse to export to the big retailers; because they need scale. Your little plot wouldn’t suffice to give much scale at all, so we bring all these farm lots together into the packhouse and then export that in containers full.

Ash Patel: So I get some kind of land title to a lot in Colombia?

Peter Badger: Absolutely.

Ash Patel: Can I get a loan against that?

Peter Badger: We are looking into leverage for this product, we’re discussing with a few lenders. But right now, you’re taking title to the real estate itself. When I talk to people about when you take your money and your wealth and you invest it, you try and take control of that wealth. If you put it into private equity syndication, then the asset manager decides how long to own or hold that. So listen, if you got titled real estate, as you would for a piece of US real estate, you control the title, you control how long you keep that, and how long you benefit from the passive income. So always go for farmland ownership on a titled level.

Ash Patel: What kind of returns do your investors get?

Peter Badger: It depends, as usual. No one guarantees returns. We should put it in the single-family home bucket, because it depends on the age of the tree, the crop type, the price of the land, the price of labor… And the same way that you work out which market you’re buying a single-family home in, what the rents are in that market, how much the house costs, how much the insurance and taxes are – we have a similar set of characteristics. You can basically end up with a single-family realm of returns; you’re looking at an 8% cap rate, to 10% to 12% on a consistent basis.

Ash Patel: What have you seen as far as land appreciation for these plots?

Peter Badger: The beautiful thing about Farmfolio’s farms is we buy them earl. We’ll buy an average age of three to four years a tree. For a Tahiti lime tree, for instance, the crop has a massive increase in harvest between years three and eight. So what you’ll see is as the harvest goes up, the income goes up, therefore, the NOI goes up, net operating income, and therefore the entire land parcel appreciates in tandem with that income profile. So it’s just like a value-add – buy a rubbish home in a good neighborhood, do the rehab and charge more rent – you get that low rent to high rent, it becomes a low crop to high crop return.

Ash Patel: What’s the challenge with having US investors and what are the tax implications?

Peter Badger: I don’t give tax financial advice, obviously. Everybody’s different. I have a lot of people who are basically buying these farms and lots in their IRAs or solo 401Ks. Obviously, the more you can use existing US tax-sheltered vehicles, the better off we’ll all be. That’s what I send people, because it is a beautiful thing.

Ash Patel: So then that’ll be shielded from a lot of the typical [unintelligible [00:21:06].05]

Peter Badger: That’s right.

Ash Patel: Can you give us a percentage over five years what the IRR cash-on-cash return would be?

Peter Badger: No, because we don’t deal in IRRs. This is a real estate, basically ownership model. But you buy a three-year farm, hold it till it’s eight years, and you’re looking for double-digit returns from a harvest income perspective. There are characteristics around that number. It’s hard unless you saw the type of farm, the crop, the age of the tree, the density of the trees on your land. Come visit farmfolio.net and we’ll show the different options and the different profiles that those harvest incomes become.

Ash Patel: Do you find a lot of investors want to come down and actually see their plot after they buy it?

Peter Badger: Yes, I’m going next week to meet two people who have bought a coconut lime lot.

Ash Patel: I love that.

Peter Badger: People love to travel. Why not travel and go and do your due diligence?

Ash Patel: That’s a business expense. Yup.

Peter Badger: Exactly. I’m just saying.

Ash Patel: Absolutely. Peter, you mentioned tokenization. I want to dive into that. Currently, do you have to come up with the amount for the entire plot of land?

Peter Badger: Yes, you do. Right now, we’re offering a single plot between 32,000 and 65,000 depending on the tree age, the crop type, etc. One of the goals basically is over time, as we’re sourcing these farms and getting better technology plants from underneath this offering, we intend to get on the tokenization route to enable fractionalized purchases.

Ash Patel: Yeah, I love that concept. What part of your Silicon Valley background has helped you apply some tech to this business?

Peter Badger: The whole thing. I mean, every business is the same. It’s just a different vertical, different subject matter. You’ve got to know how to basically do digital marketing, how to raise money, you’ve got to know how to run operations and financial processes, build technology underneath those processes. Every business is the same and I think the beauty of being in Silicon Valley is you’re at the forefront of that. And then applying those skills to an agricultural domain is one of those value-add domain areas on top of your existing skillset.

Ash Patel: Peter, you’re setting up a business in a whole different part of the world. What’s been your biggest challenge?

Peter Badger: It’s a lot easier nowadays, let’s be honest. Globalization has occurred. 20 years ago, forget it, you couldn’t have done this. The fact that everybody is remotely working now, Zoom, Google Workspace, there’s data, there are tools, there are SaaS services for everything you can imagine. So I think as long as you spend a lot of time down on the farms, down the packhouse, on the fruit supply chain, building the team, making sure everyone knows their roles, responsibilities, and we coordinate well, it’s a wonderful time to build a business compared to how it was a few decades ago.

Ash Patel: Peter, what is your best real estate investing advice ever?

Peter Badger: I have a proverb I live by; it’s a Russian proverb, it’s “trust but verify.” I see too many people trust a person they know who gives them a glossy marketing brochure, and just goes and invests their money or buys that real estate. I say to people “Listen, trust, but verify.” Yes, trust that brochure is correct, but you know what? Dig underneath it. Go and verify every single aspect of that offering; meet the people, get boots on the ground, understand the data behind all the returns or income profiles telling you what you’re going to get. You’ve got to do it. Laziness, when it comes to due diligence, is what makes you lose your money.

Ash Patel: Yeah. Peter, I want to ask you, what’s the liquidity in these investments?

Peter Badger: In the same way that you would buy a single-family rental, there’s always a market for it. If you’ve got a steady stream of cash flows, there will always be somebody taking off your hand; and there’s the ability over time to compress the cap rate, just like you would with real estate. So if you have a lime farm parcel that’s producing income for five years straight, [unintelligible [00:25:01].28]

Ash Patel: Yeah, absolutely. Peter, are you ready for the Best Ever lightning round?

Peter Badger: I am. Go ahead.

Ash Patel: Alright. Peter, what’s the Best Ever book you recently read?

Peter Badger:  The Gap and The Gain by Dan Sullivan, that every entrepreneur–

Ash Patel: What was your big takeaway from that?

Peter Badger: That the key, the gap versus the gain – everyone that looks at the most successful people andlooks at the gap between where you are today and where they are as the most successful entrepreneurs, whereas the gain is where you should be. Where were you last year? What have you achieved in the past 12 months? Stop comparing yourself to unrealistic expectations, and therefore you’ll be happier because you see your gains, not everybody else’s gap.

Ash Patel: I love that. Peter, what’s the Best Ever way you like to give back?

Peter Badger: Education. I’ve been fortunate to have mentors my entire career. I continue to seek them out and I give back and I mentor everyone I meet, because the knowledge available today on YouTube, on websites is unbelievable. You just need someone to give you a framework on how to harness that knowledge and apply it in the real world. When I give back, it’s just mentoring helping other people learn what I’ve learned, and stop making the mistakes I’ve learned in the early days.

Ash Patel: Peter, how can the Best Ever listeners reach out to you?

Peter Badger: Reach me through my email address, peter@farmfolio.net, or check out our website farmfolio.net. We believe that you should have Farmfolio as part of your portfolio all day long.

Ash Patel: Peter, thank you so much for sharing your story with us today. 18 years on Wall Street, nine years in Silicon Valley… You set out to just diversify a little bit of money, and look at you now, in Columbia, South America. Thank you again for joining us and sharing your story with us.

Peter Badger: It’s a pleasure Ash, thanks a lot.

Ash Patel: Best Ever listeners, thank you for joining us. If you’ve enjoyed this episode, please leave us a five-star review, share the podcast with anyone you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.

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JF2645: How This Mindset Change Turned a $41 Million Loss into a $100+ Million Success with Cowboy Joe Marques

When he set out to make his first deal on a 472-house subdivision, Joe Marques — better known as Cowboy Joe — thought he’d selected the right team for the development. As it turned out, the group was using him with the end result costing him $41 million. Today, Cowboy Joe shares with us how that first deal actually set him up for success, discussing the importance of building good relationships and how your self-worth affects your net worth.

Cowboy Joe Marques Real Estate Background

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Ash Patel: Hello Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Cowboy Joe Marques. Joe is joining us from Gulf Shores, Alabama. He has invested in numerous development projects across the US, ranging from resorts, commercial buildings, multifamily, and full subdivisions. Joe is currently involved in unique projects in the Caribbean, ranging from 1.2 million to $100 million. Joe, thank you for joining us, and how are you today?

Joe Marques: I’m doing well, Ash. Thank you for inviting me on the show. Looking forward to it and hoping to add some value to your listeners as we go through.

Ash Patel: Joe, it’s our pleasure. But I have to ask you, why do they call you Cowboy Joe?

Joe Marques: You know, Ash, people have been calling me that for 20 years and I’m still trying to figure out. I don’t know if it’s the hat and the boots or what. But, in all seriousness, I was raised on a ranch. I pretty much have been a cowboy most of my life. I think the first five years of my life I wasn’t. A lot of the wisdom I have comes from my grandfather, who was a true almost like off-TV Western cowboys. He built multiple ranches, and a lot of my wisdom comes from that. When I started branding, Cowboy Joe was what stuck. People said I was already that, no sense trying to brand something that I wasn’t, and brand what I was, so that’s what I did.

Ash Patel: Best Ever listeners, if you see a picture of Cowboy Joe, he looks the part. Joe, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Joe Marques: My background is I was a big government contractor, I did a ton of different government projects, I’ve always loved working with dirt. My granddaddy was constantly improving pastures, improving timber, things like that, so I had a love for working with dirt at a young age, and just basically came back to it.

As far as my real estate experience, I’ve been involved in real estate investing for right about 35 years now. I started with the traditional fix and flip. Our original mentor was Charles J. Givens; that’s a name not too many people know because that’s way back. He had the whole subject to how to do owner financing and the fix and flips. So I started doing fix and flip, but just truly enjoyed the bigger projects from the government contracting side, enjoyed the bigger project, so just naturally gravitated back to land development. And I’ve done some absolutely amazing projects over the years.

Ash Patel: You said government contracts – is it for ground-up development?

Joe Marques: The government contracts I did were in Saudi Arabia, [unintelligible [00:03:15]. I did a lot of environmental remediation. I did also emergency watershed protection, which is basically going in after storms and making waterways whole again. For example, when New Orleans had Katrina and levies broke, emergency watershed protection was fixing those levies, clearing out waterways… I did a very interesting project with the Coast Guard and FEMA combined, getting all of the vessels and everything that ended up in the waterways and [unintelligible [00:03:45] surrounding New Orleans after the storm literally removing those vessels. One was a barge with paraquat drums sunk in it, and paraquat is a pretty nasty agent that isn’t used anymore.

I love challenges, I love solving problems. Basically, when I got out of government contracting and went back into development – that’s what I love to do, see how can I solve problems. It’s also why I love consulting and coaching people in land development, and mindset of high-performance thinking as well. It’s because our biggest problems are caused by that real estate right there – the six inches of space between your ears, that real estate there is the most important real estate you’ll ever develop. That’s why I work a lot with mindset and high performance thinking with my students.

Ash Patel: Joe, what kind of development did you start out with after your government contracts?

Joe Marques: The very first development that I did after government contracts was a 472-house subdivision turnkey. That’s from knocking the trees down to turning over the keys. I learned a very valuable lesson on that. The reason I focus on building relationships, knowing the people that I’m involved with, and not just chasing money, is because that project –a lot of people would say it broke me, but it actually made me. It’s what gave me the knowledge and the drive to teach others to dodge some of the mistakes I’ve made. I was in that project strictly for the money. Long story short, there were people that didn’t have the best of intentions, that cost me a little over $41 million on that one project alone, which was a cascade effect that bankrupted me. It didn’t bankrupt me, but it broke me. I didn’t file bankruptcy, I paid every bill; it just took a while. I went from being worth –depending on whose number to use– between 77 million and 98 million dollars to worth about negative 450,000 overnight, and have started building back from there.

But that project was valuable, because I learned a ton of lessons, and learned how to use capital structures, which are critical. It’s also what tested my mindset, because I thought I had a good mindset, but if you get hit hard enough, then that’s where you find out what your true mindset is. There’s an old cowboy saying – you only know how good a watermelon or a man is until they’ve been thumped. I got thumped, and I learned a whole lot about myself in the course of rebuilding back.

Ash Patel: Joe, what was it that went wrong on that deal?

Joe Marques: People got greedy. We worked a deal that was basically third partnerships. The other two thought that they could do my part, because they were the money people; I wasn’t involved in it money-wise. But I was furnishing all the equipment, all the labor, and actually building out the project. They figured that they could approach my material suppliers, my subcontractors, and basically cut my percentage out of it, which it didn’t work out really well for them. That’s neither here nor there, because it really didn’t work out well for me at that particular point in time. It cost me literally everything I had. But then again, the universe is always in balance. What I thought was the worst thing that ever happened to me, was the best thing ever happened to me. Because I had relationships that were pretty much in it for what I could do for them. I was in a very bad marital relationship that basically I was staying around for the kids, and once I went broke, all of that went away.

Now I’ve got a circle of friends that truly inspire me; I’m just grateful every morning I wake up that I get to hang out with people I hang out with. I’ve got an awesome wife that – I scare the hell out of her because I’m an entrepreneur. I make the joke of the entrepreneur mindset, employee mindset… Well, she was way worse. She was a high-level government employee mindset. That’s a whole other level. Two different brain wirings entirely. But she loves me, she supports me, and on the flip side of that, if I get too far off my rocker, she will challenge me as well. So she’s a perfect balance for me.

Break: [00:08:15][00:10:07]

Ash Patel: Joe, what were some of the hard lessons that you still carry with you today? What are some of those learning lessons from that deal?

Joe Marques: The biggest lessons from that deal are number one, the value of relationships, and knowing who you’re in business with. Number two is capital structures. There’s a ton of, I’ll call them gurus –for lack of a better word– out there that are teaching people that you’ve got to deploy every cent. If your money is not working, it’s dead money, you’re not doing anything. But one of my mentors, George Anton, has taught me the value of capital structures, and the value of reserves, and what opportunity cost is. The biggest reason I went broke is that I was over-leveraged, I had credit lines, I had over half a million dollars of credit lines available and able to use. This is also along the same time when the bubble burst, and banks just closed credit lines. Credit lines are not reserves, because a bank can close them for any reason at any time.

So here I was, saying I had a half-million dollars to work with, and didn’t. Factoring in debt, equity partners, and reserves… Relationships are the key to life. If you’re building relationships, you can pretty much accomplish anything you want to. If you’re trying to do it all alone, you may get away, you may be able to get there fast, but if you want to get somewhere a long way and it lasts, build relationships, build up equity partners, do things together, and don’t try to be a tower for yourself.

Ash Patel: Joe, you’ve mentioned capital structures a few times. What does that mean?

Joe Marques: A capital structure is how you structure the underlying capital around any asset. You have debt, you have equity, and you have reserves. To tell you the value of it, you can take two investors, each one of them buys a 100-unit apartment complex right next to each other, side by side. Exact same areas, exact same resources, but one of them financed it with too much debt, and the other one has it balanced properly between equity, debt, and reserves. When you do have something like what happened in 2008, the one that has too much debt will lose it; not only will the other investor be in good shape and keep his building, he’ll probably be in a position to buy that one building that other investor lost.

If you structure your capital properly, you can pretty much survive anything. And as we know, real estate over the long term is going to do well. Short-term dips, if you’re over-leveraged and have all your capital deployed, where you don’t have reserves to handle those downturns, is when you lose everything. Kind of like when people talk about losing money on a stock. Well, if they bought it high and sold it low, then they lost money on it.

Amazon’s a classic example. Amazon had some 90% drops during the course of its climb. People have lost money on Amazon, only because they bought it at one point and sold it at a lower point. If they’d held on to it long-term, then it would have made them money. The same thing with real estate, that capital structure is critical on being able to number one, grow your wealth, number two, preserve your wealth.

That’s another thing that most investors don’t focus on; they focus on returns. The first thing you focus on is the protection of your investment. Your return of investment, versus your return on investment. You want to make sure that you’re having the best odds possible of getting your money back first; then next you focus on what is the return on your investment, and how much money is that money going to make me. Kind of like Warren Buffett. Warren Buffett says rule number one, never lose money.

Ash Patel: Joe, after this apocalypse, how did you rebuild?

Joe Marques: To be quite honest with you, I had about a year and a half there that I was in a tailspin. That’s why I said about getting thumped and testing my mindset. I was actually homeless. I probably wasn’t homeless, I like to say that was my couch surfing years, because I did have a few true friends. Basically, I’d stay on one couch for a while, then go to another couch for a while. After about a year and a half, I said “Alright, enough feeling sorry for yourself. You built all this once; you can build it again.”

I started out and was doing the exact same thing that I did the first time I became a multimillionaire. And it was like I was beating my head against the wall or hitting the glass ceiling. That’s when I met another mentor of mine, Dr. Trivedi. That’s where I truly learned the importance of mindset. But more important about mindset is people call it mindset, but it’s one thing to intellectualize it up here, but none of that counts until you get it in here. Until you believe it in your heart, none of that up here helps you. And I didn’t believe it in my heart until doing Dr. Trivedi’s processes. The minute that I started believing in my heart, I went from a net worth of negative 50,000 to a net worth over a million dollars in just a little over a year and three months.

Ash Patel: What was it that you did to earn that net worth?

Joe Marques: Doing the same thing I was already doing. It’s just things started working for me, because I believed that I was worth it. I didn’t look at everything as being in the way, I looked at it as on the way, and knowing that everything works for you, nothing happens to you. Happening to you – that’s a victim mindset. I can look back over the worst periods of my life – at the time I was going through it, I thought that’s the worst thing ever happened to me, things like that. But when you look back over and see what all you learn from it, what it helps you to achieve, it’s the best thing that ever happened to me.

Ash Patel: What were some examples of asset purchases or partnerships? Because you didn’t have any money at this time.

Joe Marques: No, I had no money. I partnered with actually a friend of mine from high school that was a GC and a builder, and then we used equity partners; and we still use equity partners. We’ve got money now and could do a lot of these projects that we do without bringing on equity partners. But if you hold on to that money as reserves, and you keep that money, you can do multiple projects… Versus being tied up in one and you’re locked down. If it gets marked down, then you’re stuck, you can’t grow it. Whereas if you use equity partners, you still have money tied out there to where you can invest in other projects, you can have multiple projects all at once. That’s what’s called opportunity cost. That was something I had no clue about until George Anton. It’s that money sitting in a checking account is not dead money. When that’s on your balance sheet, and when that’s on your personal financial statement, you can qualify for multiple projects.

Let’s just use $100,000. If you put $100,000 in a million-dollar project, then you can get that project done. But if it drags out six to nine months and you could have done three other projects in that timeframe with that 100,000 sitting in the bank account, then your opportunity cost was the profit on $3 million worth of additional projects, versus that one profit on the million dollars. I’d much rather create a pie factory where I’m only getting 50 to 60% of each pie, versus owning 100% of one pie. It’s basically using the velocity of money in multiple projects and keeping the money working in multiple areas, is the reason why we were able to build up that fast.

Ash Patel: On your bio, I see a resort. What did you do with that?

Joe Marques: We have built out several waterfront properties in Gulf Shores, Alabama. I also consulted on the Silver Sun Gallery in the Dominican Republic, which is a big, huge –I don’t know who’s got the flag on it now, but it’s a resort, hotel, and casino, with retail space. I’ve consulted on projects in St. Lucia, as well as Tulum. One of my clients currently is in Puerto Rico, that we’re consulting on some stuff with.

Break: [00:18:16][00:21:37]

Ash Patel: What are you today? Are you primarily a consultant, a developer, an investor?

Joe Marques: Primarily, I am a coaching consultant and investor. I still do hands-on development, but I’ve stepped away from the actual doing part. I work more on the business than in the business. I help qualify the properties and I help get them approved entitlements. But as far as hands-on development, I’ve stepped back from that. I’ve got one project that I’ve still got some hands-on development that I’m involved in. But once that one’s done, it’s pretty much on the other side of it.

Ash Patel: What have you learned in all of your years of coaching and consulting? What’s the biggest hindrance to people moving forward? You’re going to say mindset, but what is it about the mindset that keeps it from moving forward?

Joe Marques: The biggest thing is self-worth. People don’t think they’re worthy of having that kind of money. People will argue when I make this statement, but you can do empirical data and pull it up. Your net worth will equal your self-worth. If your self-worth is down, your net worth will go down. Now, can somebody temporarily make a lot of money? Yes. But if their self-worth is not up there, they won’t keep it. They’ll give it away to things that they feel guilty toward. They feel guilty toward the children and wife because they’ve taken too much time business-wise – they’ll spend money that they really don’t have to cure their guilt toward them.

It’s something that until you truly buy yourself, it’s hard to have long-term wealth. And wealth is a whole nother thing; wealth is not money. Wealth is all seven areas in your life where you live an inspired life. If you’re chasing money, you’re not going to have a wealthy life, because you’re going to destroy other areas of your life chasing money. One thing my granddaddy said that took me years to catch on to was, he said “Money is a lot like cats. Have you ever chased a cat? They’re kind of hard to catch. Whereas if you start doing something that the cat’s interested in, it won’t leave you alone. It’ll get in your way. Money is a lot like that. If you’re chasing money, it’s hard to catch. But if you start providing service to the universe, start doing what you enjoy, what’s in your values, and you’re providing service to the universe, the money’s the easy part.”

Ash Patel: Joe, what is your best real estate investing advice ever?

Joe Marques: Well, that’s going to be two parts. First, don’t do real estate investing if that’s what somebody told you to do because that’s the way to make money. Do real estate investing because that’s what you want to do and you enjoy doing it. Some people won’t enjoy land development, some people enjoy fixing and flipping. If that’s what you enjoy, do it. If you enjoy wholesale and you like the art of the deal, getting things under contract, and then somebody else that wants to do the work, do that. If you like land development, do that. But figure out what it is you truly enjoy and become the best that you can at it. The second part is to take action. You can read, you can study, you can take nine million courses, but if you don’t act on it, you’re not going anywhere. Coaches and mentors are very valuable. They help you short-circuit the timeline drastically but you still have to take action. Because you can spend money on a coach and mentor but if you’re not going to take action on what they tell you to do, you’re still not going anywhere.

Ash Patel: Do you use a coach now?

Joe Marques: I have five coaches right now. I will pretty much invest in coaching and mentorship pretty much till the day I die because we’re all living beings. Every living being is either growing or dying, there is no in-between. I do everything I can to challenge myself in the seven areas of life to where I am growing. For example, you’ve seen people I’m sure that within a year of them retiring, if they’re not dead, they’re out of shape, despondent, and not accomplishing anything. But a lot of people die right after retiring because they don’t have anything to live for, they don’t have anything to challenge them. I’m not going to be in that position. Einstein said, “A problem cannot be solved from the same level that was created at.” I pay for mentors that are higher level so when I create a problem, I’ve got higher level people that can help me solve it.

Ash Patel: Joe, are you ready for the Best Ever lightning round?

Joe Marques: Definitely.

Ash Patel: Let’s do it. Joe, what’s the Best Ever book you recently read?

Joe Marques: Best Ever book I’ve read recently is Chasing Success by one of my mentors, Dr. Alok Trivedi. Because it truly helps you figure out that it’s not about chasing money or success, it’s about figuring out what you want out of life and living your life.

Ash Patel: What’s the Best Ever way you like to give back?

Joe Marques: I love doing impact investing, that’s where you’re giving. Most people listening to the language give back. I don’t give back. I give because I’m truly grateful. When you say give back, a lot of people give out of guilt. That’s the same thing. I give because I truly am grateful for everything I have. I have the ability to make money, and I give because I’m grateful and I believe in that cause. I truly love helping single women and children. I help with one of my students who has an excellent cause for battered women, I help with that. Then impact investing is where, not only are you doing good for the community, such as building foreign student housing on different campuses, to where foreign students have other foreign students from the same country, to where they feel like they’re at home and they’re not alone, and can assimilate into the university life. But not only are you doing good, but you’re also making money in the process. Residential assisted living is another thing. You’re able to help families take care of their loved ones without being in full-blown nursing homes to where they can have a little bit more of independent life. A lot of the residential assisted living facilities, those little communities become like family, there are friends that play cards, they actually have a connection to where they can develop relationships, and not feel alone versus an institutional nursing home type thing.

Ash Patel: Joe, how can the Best Ever listeners reach out to you,

Joe Marques: The best way to reach me is www.cowboyjoe.me. You can learn more about me and you can schedule a 20-minute call. I do a 20-minute consultation call to help you see if it’s something interesting. You want to learn land development or if you have a project that you need some help on. I give 20 minutes of consulting for free to determine whether or not we’re a fit and I solve your problem. I did a 20-minute call recently that I actually saved you two ladies for making a $600,000 mistake and didn’t charge them anything. Now, of course, they took that knowledge, they’re looking for additional projects, and the minute that they’ve got them lined out, they’ll be calling me back. But I truly do love teaching people about this.

Ash Patel: Awesome. Joe, I got to thank you for being on the show today, sharing that tough story about your downfall, all the lessons that you learn from it, and how you bounce back. Thank you again for your time today.

Joe Marques: Ash, it was an absolute pleasure. Again, I hope I added some value to your listeners because I truly do love reaching out and connecting with people.

Ash Patel: Thank you again. Best Ever listeners, thank you so much for joining us and have a Best Ever day.

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JF2642: How Smaller Deals Can Lead to Bigger Payoffs with David Kislin

During the 2008 recession, David Kislin’s bank that handled his construction loan filed for bankruptcy. Fearful for the future, his partners backed out of the project causing David to lose half of his equity on the deal, totaling around $6 million. From lessons learned on relying too much on investors to the time saved on more granular deals, today David shares why he believes smaller deals can be smarter deals.

David Kislin Real Estate Background

    • Full-time commercial real estate investor since 1999
    • Primary focus in multifamily, select commercial properties, and land for ground-up development using a mix of personal capital and a small group of high-net-worth investors
    • Current portfolio consists of over $300M properties completed
    • Based in Boca Raton, FL
    • Say hi to him at: https://jeldevelopment.com/


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. 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 the fluffy stuff.

With us today, David Kislin. How are you doing, David?

David Kislin: Excellent, guys. Thank you.

Joe Fairless: Well—

David Kislin: Thank you for having me.

Joe Fairless: I’m glad to hear it. It’s my pleasure. A little bit about David – he is a full-time commercial real estate investor, and he has been one since 1999. His primary focus is on multifamily, some select commercial properties and land for ground-up development. He uses his own money, as well as high net worth investor money. His current portfolio – well, he’s developed over $300 million worth of properties, and he is based in Boca Raton, Florida.

So, with that being said, David, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

David Kislin: Sure, absolutely. I primarily grew up in Brooklyn, Manhattan, the Tristate area.

Joe Fairless: Where in Brooklyn?

David Kislin: Coney Island, right off of Ditmas Avenue. I’m a Russian-Jewish, so that’s where a lot of our family and relatives and friends were. We moved around a lot between Brooklyn and Manhattan, so constantly being surrounded by real estate, and in many cases, beautiful buildings and beautiful structures. I was always interested in the concept of what real estate is, how it works, and the ownership of it, and the stability of it, and the solidness of it, and the concept that you could build something that would withstand multiple generations, especially a ground-up construction. So that always interested me from a very young age.

I graduated Babson College in 1994, and finished with a mix of entrepreneurial studies, international business. Because I was fluent in Russian, growing up in a Russian neighborhood, at that time, the Russian market had opened up, and there was a lot of opportunities. So I spent about 4-5 years in Russia, trading commodities, primarily with Western Europe, China, etc. and really got a nice feel for trading physical products, because you actually had to buy the physical product, move it across borders, get it to your buyer, get payment and all that; it wasn’t just a paper trading process.

Joe Fairless: What were you buying and moving?

David Kislin: What we call is basically things like hot rolled coil or cold rolled coil. These are things that go to the manufacturing of dishwashers, brake pads, HVAC, precursors to the fabrication process. And we would typically handle large-sized containers, whole entire boats; 5000, 10000, 20000 tons of material at a time.

Joe Fairless: Wow. Okay.

David Kislin: And we were under a conglomerate of Swiss companies, because Switzerland has always been a major trading center for physical commodities. By the late ’90s, it became apparent that I wanted to settle down, I got married, and it was just a very natural transition to go into real estate. I had been fortunate enough where I had to put away a few dollars from my earlier years, and I started selectively investing in real estate, in more speculative products, but that’s where my career started. I looked at your questions, and you said, “What was your most profitable deal ever?” and funny enough, it was probably my first deal ever.

Joe Fairless: Really?

David Kislin: Yeah, because it was early ‘99. The stock market had been very very active, and a colleague of mine came to me and said, “There’s a loft in Soho that’s up for foreclosure, and you’ve got seven days.” And the place was in the disastrous condition, absolutely disastrous. So very few bitters came in, we picked it up for a song and a dance.

Joe Fairless: What’s disastrous? Describe that.

David Kislin: Basically, everything is exposed, the flooring was uneven, there was water leaking from the upstairs, the windows were basically broken. So it was just a complete full rehab, you know.

Joe Fairless: It sounds like they did that intentionally on the way out.

David Kislin: It was a rent-stabilized/rent-controlled property that somebody had effectively gotten out of previous tenants legally, but once they took the job over themselves, they decided they were going to do it themselves and it was just a disaster.

Joe Fairless: Okay.

David Kislin: So they got in trouble with the banks, lenders, etc.

Joe Fairless: What did you buy it for?

David Kislin: We bought it for $400,000.

Joe Fairless: Wow!

David Kislin: A 1,600 square foot loft in Soho.

Joe Fairless: Wow!

David Kislin: And we put in about, I would say, $600,000 at that time, which was a nice sum, and we almost immediately flipped it for double that to a famous basketball player who played for the Nets at the time—

Joe Fairless: Nice!

David Kislin: —in six or eight months. So that, unfortunately—

Joe Fairless: Just keep doing that every time.

David Kislin: Yeah, I was like, “Listen, I can do this all day long!” You know, buy something for four, put in 500-600, flip it for two. Sounds good! But by the early 2000s, the market had changed a little bit, and I had decided that I wanted to focus on more value-added… So I did a few smaller multifamily deals in Manhattan, primarily focusing on buying existing properties. And my strategy was relatively simple and very effective, and it wasn’t too uncommon at the time; it’s just about execution… You would buy two properties in the neighborhood, and you would focus on properties in the East Village, the West Village where there’s a high concentration of rent-controlled and rent-stabilized tenants.

Now first, some of your listeners who are not familiar with rent-controlled and rent-stabilized, it’s a legacy law in Manhattan that goes back to the 40s, and a tenant who occupied an apartment in the ’40s or in the ’50s or in the ’60s could be paying an effective rent at that time in the early 2000s of $200 to $300 a month for a two-bedroom apartment that the market rate was $3000.

Joe Fairless: Mm-hmm.

David Kislin: So our strategy was very simple, it’s just that instead of trying to buy out these tenants, which was near impossible, is you would offer them a relocation. So you would buy two buildings, one with eight or 10 units, another building with another eight or 10 units, vacate one building completely, make it basically a vacant building, and move all of your rent-controlled and rent-stabilized tenants to the other building… Legally, obviously; everybody is signing all of the proper paperwork, etc. And what happens when you do that – and we did that on three transactions – is the vacant property becomes very attractive to a developer, and the rent-control rent-stabilized property becomes very attractive to somebody who’s just looking for long-term cash flow. And you distinguish your product and you maximize that value therein. I typically did not take the full route of developing both of those properties, because the exit was profitable enough where I could simply walk away.

Joe Fairless: What are the numbers on one of those three transactions where you bought two buildings?

David Kislin: We were purchasing a four-storey or five-storey building at that time with rent-controlled and rent-stabilized tenants, so the cash flow was pretty low, between the 2.8 and the 3.2 mark. So we would buy two buildings, and then effectively sell the empty building and pay off all of our debt and have a decent gain.

So to your question, the total project size would be between $5 million and $6 million on those projects.

Joe Fairless: Got it. And then when the dust settles, what would you exit at?

David Kislin: At that time we were exiting out at, for a raw vacant property, between the 500 and the 600 mark per square foot, and we were purchasing the properties at the 250-300 mark. But I want to stress to you, that would be the vacant property that we would sell at that price. The rent-controlled property, we would be looking at a very, very small return on investment.

Joe Fairless: Hmm. I haven’t heard that strategy before, and I lived in New York for a decade, and I’ve interviewed a lot of New York City people… And I should have heard of it but I haven’t heard of that before. Are there people still doing that?

David Kislin: People are still doing that, and what you find is it’s not something that’s very attractive to a typical investor, because there’s no guarantee on when your exit is out. So you have to be patient, you have to go through the lawsuits. So that’s why it’s not going to be something that you’re going to go out and raise capital with. I was able to use my own funds and bank funds on a properly leveraged basis to do that. But ultimately, after one or two successful transactions, or actually after the third successful transaction, I felt exactly how you’re saying, is that there’s just not enough opportunity here. There’s just not enough volume to grow your career and make it work. So that’s why we pivoted our business and started doing ground-up construction thereafter.

Break: [9:47] to [11:20]

Joe Fairless: Where did you do that ground-up construction?

David Kislin: Our first project was 519 West 23rd St. It was called the Highline 519, and it was purchased—

Joe Fairless: Is that by Chelsea Market?

David Kislin: It’s 23rd Street between 10th and 11th Avenue.

Joe Fairless: Yeah. Okay, that’s near Chelsea Market, I think.

David Kislin: It’s basically a stone’s throw from the Highline Park, the elevated Park.

Joe Fairless: Yeah. Yep.

David Kislin: So when we bought the property, the elevated Park had not been fully approved yet, but we saw the value in the neighborhood, and Related had already been there with a large rental that had done very well. So we took the route of doing a slightly better design building for what the market was offering at that time – high ceilings, both concrete, Italian finishes, kitchens, etc, and started that project in 2003/2004 and finished it basically towards the end of 2007. But we really only delivered the condominiums in 2008, and that project was considered a pioneering project at the time for that part of Chelsea, because it was a little rough and tumble in that corridor up until that time. Now, it’s a totally different story, clearly.

Joe Fairless: Mm-hmm.

David Kislin: And that project taught me a lot. It taught me a lot about the Byzantine Empire, that is real estate entitlement in Manhattan, and how long it takes things to get approved, and the difficulties in dealing with your neighbors in particular, because you have a lot of older structures, and when you do ground-up construction, you have a lot of issues in the ground movement.

Joe Fairless: Hmm.

David Kislin: So it definitely taught me a lot about all of the inherent risks that as a real estate developer you might not see at first, but you kind of have to be aware of over time.

Joe Fairless: Did it teach you just to stay away from developing in Manhattan and move on?

David Kislin: Unfortunately, no. That was the next project.

Joe Fairless: [laughs] What was the next one?

David Kislin: So the next project was — I had done so well on my previous projects and I had done so well on my strategy with the rent-stabilized, rent-controlled and on the 519… I had hit records as far—

Joe Fairless: How much did you make on the 519?

David Kislin: Our cost basis was about 800-850 a square foot, and we sold out at about 1100 to 1150 a square foot. So we netted out about $3.5 million to $4 million on that project, and the banks provided financing — our equity in it was about that, so we basically got all of our equity back, plus the $3 million, and the bank financed about $6 million of that transaction.

Joe Fairless: Wow! $3 million is more than your very first deal in terms of total dollars.

David Kislin: Yeah, but you know what the old saying is, “Money won is more fun than money earned.” I really had to earn that. Like, the first—

Joe Fairless: [laughs] I’ve never heard that saying.

David Kislin: I just renovated the place, put it on sale, I sold it a week later. When you’re dealing with four lawsuits and you have to wait nine months for the fire department to show up to give you a CFO, and you have buyers who want to walk away from deals and you know—

Joe Fairless: Oh, Gosh!

David Kislin: —just a million things that could go wrong.

Joe Fairless: You loved it so much, did it again. So what was this next one?

David Kislin: So the next one, we decided that we were going to go big style and I was going to go build a 30-storey tower in Tribeca.

Joe Fairless: Wow.

David Kislin: And we hired a starchitect, Ben van Berkel.

Joe Fairless:  What’s a starchitect?

David Kislin: That’s an architect who’s a star.

Joe Fairless: Okay. [laughs]

David Kislin: He or she brings their own reputation. So let’s say somebody like a Zaha Hadid who’s passed away, or Stern, or Norman Foster, or Peter Marino. If you are a real estate developer and you want to sell at the highest possible price per square foot in an elite area, by hiring a world-famous architect, you’ve generated immense amount of publicity, free publicity.

Joe Fairless: Wow. I feel so ignorant because that’s a real thing. I just searched Google for it and surely, starchitect is actually a term people—I thought you just made that up. Okay, fair enough.

David Kislin: No, no.

Joe Fairless: Sorry.

David Kislin: I wish, I would have trademarked it if I made that up.

Joe Fairless: Noted. So you hired someone, a starchitect. Got it.

David Kislin: And we got very ambitious, and we basically went full-throttle on the project, and we received all of the entitlements, and support and we pre-sold almost 20% of the building, even before we started demolition… And then the Great Recession of 2009 happened. And we were still okay, because we had all of our financial stack was in good shape. We had all of our commitments, we had our equity in place. But unfortunately, the bank that provided us the construction loan was a bank called Corus Bank. They’re bankrupt now. They were a bank out of Chicago. And we had a schedule with them, where it was between $90 million to $110 million of total construction costs, and they were prepared to finance everything, and the last $20 million was subject to us hitting certain marks. And they fronted us based on our schedule, I think it was for the foundation, we got about $3 million, $4 million or $5 million into it; I think was like $4.8 million to be exact… And they declared bankruptcy.

Joe Fairless: Hmm.

David Kislin: And the funding stopped, and this is basically the greatest lesson that I ever learned is this – I had three other partners with us on this project. That was the time for us to show up or not show up, and my partners all got scared, decided that they wanted to walk away from the project. So we spent about a year or two marketing the project, and we eventually resold it to another developer, because at that time, it was nearly impossible to get new financing in place, and the only way we were going to be able to finish the project was through five or seven years of litigation, because the Corus Bank would have had to finish their litigation prior to me creating terms for mine. And we just kind of chose to just take a little bump, take our bruises, but walk away with as much equity as we could, and that’s exactly what we did.

Joe Fairless: Hmm. What’s the little bump? How much did investors lose? And how much did you lose personally?

David Kislin: I lost about $6 million personally, and each investor lost an additional, I would say $1.8 million to $2 million. So I would say each of us lost about half of our equity invested at that time.

Joe Fairless: Got it. Okay. How many investors did you have?

David Kislin: We had a total of four investors.

Joe Fairless: Okay. What’s that conversation like?

David Kislin: The conversations?

Joe Fairless: With investors, when you realize that that’s going to be the result. What’s that like?

David Kislin: Basically, you lose friends, and you lose faith in people’s ability to look past a short-term event, which this was in my mind, and it wasn’t going to last forever. And those conversations, if you know you’re at fault, those conversations can go a certain way. But when the whole financial system literally falls apart and everybody suffers, and even your lender has declared bankruptcy, you have to have a certain stomach and be willing to fight through that, and my investors were unwilling to do that.

And that taught me a very important lesson, and that lesson is – sometimes, or many times, you’re better off doing smaller deals, where you know that, God forbid, you can always show up and finish the deal or conclude the deal without being 100% dependent on your investors. And that’s where I pivoted my business thereafter.

Joe Fairless: And what did you pivot it to?

David Kislin: After that – you made the comment, were those conversations difficult? That whole process was extremely difficult, because I’m a real estate developer; I consider myself somebody who adds value to a project, who takes something from a piece of dirt or crappy property and makes it beautiful, and makes it long-lasting and adds that value. Sitting around for almost two years in lawyers offices litigating and fighting… For me, every dollar you spend on the lawyer is $1 less than you’re spending on the real estate, you know what I mean?

Joe Fairless: Mm-hmm.

David Kislin: And that was just completely debilitating and completely just a morale suck. And at that time, my kids were at an age where my daughter was a very good tennis player, and my wife wanted to move down to Florida… So we moved down to Boca Raton in 2011. I liquidated the vast majority of my assets up North and I made a pledge to myself that from now on I would do deals that would be smaller in nature, more granular, but that I would be the primary investor, like I was in my earlier deals, and that the only investors I would bring on in the future would be people who are more silent in nature, are more high net worth, and their investment is limited to their initial cash outlay, and I would never need to come back to them for additional investments. And that’s the way I’ve been structuring my business over the past 6-7 years, and that’s more (almost nine years) and it’s definitely helped me sleep better at night.

Break: [20:47] to [23:40]

Joe Fairless: What’s the last deal you purchased?

David Kislin: So the last deal I purchased was in May. It’s 226 North K Street in Lake Worth beach, it’s a 6750 square foot site, and it’s basically the epitome of an infill granular site. It’s a midblock site. I can build four units which I will be, about 4500 square feet in gross total buildable square feet, three two-bedrooms and one one-bedroom… And we’re looking to basically build it out, stabilize it at a rent roll. Basically, upon completion, our goal is to be at a 10-12 cap after a period of seasoning; we like to season our products anywhere between two and three years. And then we look to sell them at a five or six cap and cash out at that point.

Joe Fairless: You say “we,” who’s we?

David Kislin: Just myself and my employee. I just have one other employee. And my wife I guess as well because she’s an inherent part of the team; she’s also a real estate broker.

Joe Fairless: Mm-hmm.

David Kislin: So it helps in having very close people ensure that the rentals and all that is being processed.

Joe Fairless: What’s been your favorite project while in Florida?

David Kislin: My favorite project is the one I’m finishing right now. It’s 604 Lake Avenue in downtown Lake Worth Beach. I bought a site with the goal of developing a hotel there years ago, and again, it was going to be more of a boutique hotel, 20-22 rooms, that sort of thing. And I spent all the money, I hired all of the top agencies, HVS, and the different hotel groups, and all of the third party reports really, really told me not to do that, and that I wouldn’t be able to justify my investment.

So we took a different approach, we did a very minimal renovation to the property, which is basically new roof, new HVAC systems, and we realized that the property was a former restaurant, and one of the things we didn’t realize, which was a great benefit to us, is that the property has double-height ceiling. So we have net clearance of almost 24 feet. We put it on the market to a restaurant group, and I’m happy to say that a group from New York, a Michelin-rated chef signed a 15-year lease with us.

Joe Fairless: Nice!

David Kislin: The restaurants called Caña. For me, it’s a great project because it really enhances the neighborhood, it brings a lot to that local downtown corridor, and I believe as a developer, when he develops in a certain area, it takes a certain social responsibility with the goal of wanting to improve that. I think too many developers go in, buy property in an up-and-coming area and keep it vacant in the hopes that their property price just goes up.

Joe Fairless: Mm-hmm.

David Kislin: And here, I feel like we’ve done a great thing for the neighborhood and the community at large by bringing this quality of tenant and this quality of build-out, and everybody’s been super supportive. The banks have been super supportive. The local community banks have provided us with the support that we need, which you don’t find that every day… And the beauty of it is, is that it’s a triple net lease. So once the guys in there, I wait for the ACH once a month, and that’s the beauty of a good commercial tenant. So that’s the project I’m most excited about, and we’re in the act of build-out of that now, and we hope to deliver that to the market by February.

Joe Fairless: Taking a step back, what’s your best real estate investing advice ever?

David Kislin: This is something that I learned really over time – it’s not what you sell it for, it’s what you keep. I think a lot of people in real estate, they look and they’re like, “I need to do a huge transaction, I need to do something big, I need to do this, I need to do that. I need to have four partners and buy the best condo”, or whatever it is.

At the end of the day, if you do a large deal, and on paper it looks like you made a million dollars, and maybe you did, on the statements, but if you needed to have five people around or if it took you four years, that all should play a factor into it.

There’s a really intelligent real estate guy out in Palo Alto, he does YouTube, podcasts, John McNellis, and he came up with this concept, and it’s called ‘Net to Me.’ As a real estate developer, you should always sit down and say, “Well, what am I getting out of this? And what is my ultimate benefit?” Because I’ve learned the hard way that on paper, a deal could look great, but if it takes you two more years to execute it, or if you’ve got to spend 10 hours on that deal every day as opposed to an hour, that directly affects everything, and the stress level and all that. I would say to any real estate guy is put your ego to the side and really think about – it’s not what you sell it for, it’s what you keep.

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

David Kislin: Sure.

Joe Fairless: What deal have you lost the most amount of money on? Was it that $6 million deal?

David Kislin: Yeah, five [Inaudible [28:40]

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

David Kislin: By delivering a well-designed, well-executed product and not compromising.

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

David Kislin: My website. I also have a Twitter account and an Instagram account.

Joe Fairless: Are you tweeting a lot?

David Kislin: Not really.

Joe Fairless: I didn’t think so. [laughter] You don’t come across as much of a tweeter. That’s just me—

David Kislin: No.

Joe Fairless: As a real estate developer, I didn’t see it, you doing that much but—

David Kislin: Ultimately, you would just send me something and I would call you anyway.

Joe Fairless: Fair enough. I’m in your boat. I don’t tweet often, or really ever. Your website is  jeldevelopment.com. Is that correct?

David Kislin: That is correct.

Joe Fairless: Okay, cool. Well, David, thank you for being on the show. Thank you for talking to us about a lot of really interesting transactions. You’ve got some really big league deals that you’ve done or been a part of… And what you learned from that;as you said, “It’s not what you sell it for, it’s what you keep.” So think about the opportunity cost, not only financially, but time and emotion and sanity. So thanks for being on the show. I hope you have a best ever day and talk to you again soon.

David Kislin: Alright. Thanks a lot, guys.

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JF1940: Investor Gets Into Real Estate On Accident, Scales To $750M AUM with Don Wenner

Don got his start in the industry by knocking doors to sell security. An investor told him to do that same thing with real estate. He took the advice and ran with it, knocking on doors to find properties to buy, eventually getting away from the door knocking and scaling a large real estate investing business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

“When people lose money on an asset, usually it’s because they couldn’t execute internally and over extended themselves” – Don Wenner

Don Wenner Real Estate Background:

  • CEO of DLP Real Estate Capital, a family of real estate solution companies w/ 350 team members, 750MM in assets under management, and 100MM plus in annual revenue
  • 10k units owned, 12k homes and apartments acquired
  • Based in Allentown, PA & St. Augustine, FL
  • Say hi to him at https://dlprealestate.com/
  • Best Ever Book: Turning the Fly Wheel by Jim Collins


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Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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, Don Wenner. How are you doing, Don?

Don Wenner: I’m doing great, Joe. How about yourself?

Joe Fairless: I’m doing great as well, and looking forward to our conversation. A little bit about Don – he’s the CEO of DLP Real Estate Capital, a family of real estate solution companies with 350 team members, 750 million in assets under management, and 100 million plus in annual revenue. They’ve got 10,000 unit owned, 12,000 homes and apartments acquired, and based in a couple places: Allentown, Pennsylvania, and Don, where are you located?

Don Wenner: St. Augustine, Florida. Just south of Jacksonville.

Joe Fairless: Just south of Jacksonville. First, Don, do you wanna give the Best Ever listeners a little bit more about your background and your current focus? And then we’ll go from there.

Don Wenner: Absolutely, so I’ll give the one minute or two version. I started in real estate probably like most people; I was a college student at Drexel University in Philadelphia, and I was actually spending my days knocking on doors… Literally, all day, knocking on doors while I was in college, for ADT Security. I became the number one sales rep in the country for ADT, and I was making 5k to 8k every two weeks; I thought I was on top of the world, I was 19-20 years old… And the guy who owned the company was in real estate. This was 2006. Everybody was in real estate in 2006… And he told me if I could sell alarm systems knocking on doors, I’d do great selling real estate.

So I got my real estate license, started selling real estate. That led to very quickly starting to flip real estate, which then at the bottom of the market led to building a real estate portfolio of single-family homes, scattered multifamily, all the commercial food groups… That led us to build a construction company to handle all the renovations, it led us to build property management to handle all the management, it led us to need to open private investment funds to bring in capital to fund all the growth… That led down a path of starting to lend capital to other investors and growing a large lending business, and then further writing equity and partnering with other operators.

To fast-forward all that now to today, we have a family of 350 team members across eight total companies, headquartered, as you said, in Pennsylvania, Florida, offices really throughout the East Coast… And having a lot of fun at it.

Joe Fairless: What do you miss about door knocking?

Don Wenner: [laughs] It was a lot of fun. The simplicity of the one appointment sale, the simplicity of you know on the door, you put your head down and shuffle and walk in that door, and you walk out with a signed contract and a commission check. The simplicity of that type of sale was pretty awesome. It was a great way to cut your teeth and learn the basics of sales… I’ve been having a lot more fun since then, but it was a great experience.

Joe Fairless: So how many units does your company own right now?

Don Wenner: We own somewhere between 10,000 and 11,000 right now.

Joe Fairless: And where are they located?

Don Wenner: We’re heavy in the South-East. We’re in a total of 15 states. We’re heavy from North Carolina down to Florida, we’re also heavy in Pennsylvania and New Jersey, because that’s where the company is headquartered, and we have a lot of relationships and assets… But we’re out as far West as Arizona, we’re as far North as South Bend, Indiana, but we’re in 15 total states and we own anywhere from 200 to 3,000 apartments and homes.

Joe Fairless: And how are you able to manage that process?

Don Wenner: Great question. It starts, of course, with great people. If you asked me where do I spend most of my time, the largest segment of my time is spent on hiring and developing leaders. We really build a culture of  — our mantra is “Leaders made here.” So we build great leaders throughout the individual businesses, empower them to grow and take ownership and lead, and that’s been really the key to our ability to scale, both geographically, and the new business lines, and sitting in different seats with any of these different business lines and transactions.

Joe Fairless: And I’d love to talk more about that, but first just so I’m wrapping my head around this correctly… You said you have 350 team members. How many of those are W-2 employees?

Don Wenner: 325.

Joe Fairless: So you have 325 W-2 employees across eight companies. What company of the eight has the most employees?

Don Wenner: Property management.

Joe Fairless: Yes, of course…

Don Wenner: We have about 150 in property management.

Joe Fairless: Okay. And why have your own property management? Because I’m sure you did some pros and cons of starting your own management company.

Don Wenner: Yeah. To be honest, in the beginning, the types of properties we were buying – it was hard to find good management. When you’re buying 20-unit, 40-unit, 60-unit type properties, there’s really not good professional management out there. Or at least not that we were able to find in the secondary and tertiary markets we were in. So in the beginning, there really wasn’t any other option. And then as we grew, we evaluated and we’ve used third-party management, and we have some of our portfolio today, about 2,000 of our apartments we do a third-party management. But we still provide the construction management and the asset management.

But really, at the end of the day, your job running a business is operations, and your ability to execute is the key in any business, and certainly managing real estate is no different. I believe that my interest, my alignment and then the interest in generating profits at the asset level is always gonna be much greater than the interest level in the management company whose goal is to drive his bottom line.

So the alignment of interests are in place when you own your own management company, and then we believe strongly that by executing what we call our elite execution system, which is how we run each of our businesses, and the disciplines of executing, of hiring, of laying out our strategy and business plans and then doing the things every day, building the right forms of communication, solving issues, managing your top priorities – the way we’ve built that throughout our organization allows us to get significantly better results than any other management company we’ve been able to come across.

Joe Fairless: And since that’s the case, why have 2,000 units be with third-party management?

Don Wenner: When we go into a new market – for example, we’ve gone into Arizona, and we didn’t own anything within six or seven hours of this new community we just bought in Arizona… So in that specific case we didn’t have any infrastructure in place yet, we didn’t have any relationships yet, we didn’t have any contractors yet… So it was in easier — in that case, actually, it was one of the rarest situations where we bought a property that already had pretty good management in place… So it was just a lot easier to keep that third-party manager in place initially. They already had the knowledge of the asset, the knowledge of the market, the knowledge of the people… Than to force change, and with all my senior leadership being remote – it made it a lot more challenging.

So generally we’ll bring in third-party if it’s a new market to us, we don’t have experience… And then if they do an incredible job, we’ll keep them. If they don’t, then we take over the management.

Joe Fairless: So let’s talk about the Phoenix portfolio or property. Can you tell us some details about it?

Don Wenner: This property is actually right outside of Tucson, and…

Joe Fairless: Oh, Tucson. Arizona — I made a poor assumption.

Don Wenner: [laughs] So this is a 196-unit built in 1997, class B community, in a class B+ neighborhood.

Joe Fairless: Okay. And how did you find the deal?

Don Wenner: I actually bought it through an auction platform. So we’ve actually done pretty well buying through auction platforms, because generally, especially this platform, you have to wire a 10% deposit, and it was a 14 million dollar deal… A 10% deposit within 24 hours of winning the auction, and you have to close in 21 days with no contingencies.

So generally, what we joke is smaller operators generally don’t have the ability or the confidence that they can pull the money together that quickly, and the big guy, the guy sitting in New York, generally the big Wall Street funds, they generally can’t get the contract signed in 21 days, let alone close on the asset. So we’ve generally done very well on those types of deals, with very short timetables and very hard terms.

Joe Fairless: That’s interesting. What platform is it?

Don Wenner: Real Insight Marketplace.

Joe Fairless: Okay. How many deals have you bought from Real Insight Marketplace?

Don Wenner: Five or six.

Joe Fairless: And the first one, how did you get comfortable with buying the first one off of an online auction? …I assume it’s an online auction platform.

Don Wenner: Correct. You have to be willing to invest and do your homework upfront. So you have to be willing to invest, and doing your due diligence, getting out to the asset, doing everything upfront when you know there’s a good probability that you’re not gonna win the auction. You have to make that investment to get to the point of 100% confidence before the time of submitting your offer, so that then you’re confident in the asset and in your underwriting, but also in your ability to close quickly, and understanding all the hair that could come up as you’re finalizing up your capital structure and getting the deal closed.

Joe Fairless: So what do you do, tactically speaking, to get 100% comfortable with purchasing a property where you’ll have 21 days to close with no contingencies?

Don Wenner: I’d say the first place for most people who start is you have to confident you have your capital in order. That’s the first thing that we focus on. Beyond that, it’s understanding the asset and the market at a high level. Generally, our due diligence process consists of a team going out to the asset, or an acquisition team, our construction management team, our asset management team… In this case, this property didn’t have a heavy redevelopment component, but when they do, generally bringing contractors, and often bringing — our third-party is bringing an engineer out right away, if there’s not already one. In this case there was. Getting the phase one done on the property before you even have it tied up…

But bringing a full team out there, spend a couple days, walk through every single unit, dive deep into the asset, do your full lease audit and evaluation of the financials upfront… And then getting out to the competition. That’s really a big part of it. Truly understanding the market… This was, again, our first deal in a new market, so getting to know the market, getting to know the competition, getting to understand the demand, getting to understand the larger employers in the market, understanding the demographics, understanding the tenant base, and getting comfortable that we’re gonna be able to continue to execute over the 5 or 7-year business plan that we’re laying out for that property.

Joe Fairless: Approximately how long does it take to complete this part of the process for you? I know on the ground you said a couple days, but I imagine the lease audits, and looking at the financials – that takes a little bit longer.

Don Wenner: Yeah, if we’re under a short timetable, like on a deal like this, we’re generally gonna complete the whole process, start to finish, in about seven days. Like most, we’d prefer to have a little more time, but when we’re operating under a short timetable, generally we’ll complete the majority of our due diligence in about a week.

Joe Fairless: And what part of what you’ve just said — are there still some lingering things that could bite you in the butt, just because you were having to compress your timeline to seven days?

Don Wenner: Yeah, it’s a great question. Like any deal, we look at it as — a deal or an asset can be a great asset at one price, and a terrible buy at another price… So one of the great parts of buying on auction platforms generally is you’re picking up assets at a lower basis, that gives you a little bit more room. So anything we’re not 100% confident we’ve nailed down, then we just assume the worst in our underwriting. We’ll assume the worst on what it’s gonna cost us, or if we’re not 100% confident with what rents we’re gonna be able to drive through an upgrade package, we’re gonna assume the most conservative side of our analysis, and max out our max bid based on a more conservative underwriting.

So generally, the more holes we have in our underwriting at the point of the auction, the lower our bid is gonna be, which can result in us getting a better buy, or of course, can result in us losing out, because we weren’t able to complete and check every box in our underwriting, so we came in more conservative.

Joe Fairless: I believe you said you’ve closed on six properties on that auction platform… Did I hear that right?

Don Wenner: On that specific auction platform, yeah. We bought many, many on multiple different auction platforms, but on that specific one – yeah.

Joe Fairless: Okay. On that platform, approximately how many bids have you put in to get those six closings?

Don Wenner: We’ve probably bid on 15 assets to win those 5 or 6.

Joe Fairless: Oh, so 15 which includes those six, or 15 that you didn’t get? Wow…

Don Wenner: Correct. So we have a 33% to 40% hit rate generally on auction deals that we decide to bid on. We feel we have a good chance at it, and we do all our homework upfront to determine what the whisper price is, what the reserve price is, really where is the thing gonna shake out, to know if it’s something we’re gonna put forth all that energy and effort around.

Joe Fairless: If you mobilize your crew to go do that 7-day exercise and go visit the property, and do the lease audits, do you generally then move forward with making an offer?

Don Wenner: Generally, yes. There’s certainly exceptions to the rule. You come up with something you just don’t wanna tackle or deal with. It’s usually less about the physical asset, and it turns out that an issue with the neighborhood that we don’t wanna tackle, whether that be crime, or drugs, or just we see negative trends in population growth, or socio-economic changes going on that we don’t feel confident in the basis, that we didn’t have the most accurate assumptions before we got out to the asset. That’s generally what happens. It’s less about the asset than the neighborhood.

Generally, we like to buy C+, B- assets, in B+ or better neighborhoods. So if it turns out to be a neighborhood that we don’t think we’re gonna be able to control or change, then that can be what turns us away from an asset.

Joe Fairless: What online platform have you bought the most properties on?

Don Wenner: In terms of multifamily communities, we’ve bought on many of them. But I’d say the one we’ve historically been the most active on has been 10X.

Joe Fairless: How many would you say you’ve closed on that?

Don Wenner: Maybe 15.

Joe Fairless: Any recent ones?

Don Wenner: I don’t think we’ve won any in 2019. In 2018 we definitely bought a number of assets. I know we’ve been the bridesmaid on a few this year, but I don’t think we’ve won any this year.

Joe Fairless: And any nuances that you’ve identified from one auction platform compared to another, that you think would be relevant to share?

Don Wenner: I’d say some of them have more flexible terms, but the more flexible the terms are, generally the higher the price is gonna go. For example, on 10X they’ve started providing debt options, or giving you time to place debt… Which, as an operator, of course, that’s a great thing. We actually, on the lending side of our business, have funded a ton of auction deals for other operators, because we’re one of the few lenders who will close loans in 20 days. So it’s actually been a huge source for us not only to buy deals, but actually to fund deals to other operators. And some of the auctions that we’ve lost out on, actually we’ve ended up funding the guy who won the auction. And because we already underwrote the property, we were comfortable with it and we could close in 21 days. That’s happened many times. More times that we funded other guys buying deals than we’ve bought them ourselves.

But when auction platforms start saying “Hey, we’ll give you a 30-day extension, we’ll give you 60-day terms to place financing”, or sometimes they’ll say “Hey, we’ll give you unlimited time, as long as you’re working with our lending partner” – that’s generally when everybody realizes “Hey, I can have a lot time. I have time to go place debt, I can go get financing.” Then that opens up the buyer pool times three, four, five or ten. If they had to close in 21 days, or even 30 days, they wouldn’t be bidding. When that happens, generally we’re not able to be the buyer, because people are gonna be willing to overpay, when they can go out there and place some CMBS debt, or something that operators will use to get interest-only 10-year paper, and they can justify paying prices that to us don’t make sense.

So we actually love [unintelligible [00:16:52].15] as an operator, and we love it as a provider of debt and equity. The other guys — when there isn’t time typically to place financing, that’s where we can excel and get the best deal and bring value.

Joe Fairless: And what makes you like a deal as a lender, but not like the deal as an operator?

Don Wenner: That’s a great question. I’d say if one of our partners or borrowers comes to us with a deal that they wanna fund, we don’t compete against them. A lot of times we do like the deal a lot as a lender, but in many cases we’ll go and provide equity to them as well. A big majority of deals where we provide debt to, we end up providing the majority of the equity as well. So a lot of times when deals do come to us for debt, we really do like them and we provide them with capital as well.

We just had a deal – it was an auction deal – this past week that we were bidding on, and then we found out one of our close partners that we do a lot of business with was bidding on the same deal. We didn’t bow out, but we strategized with them and we still put out an offer, but we purposely put out our offer to be inferior terms to the partner, to help his offer actually look better, and we actually helped him win the deal. Then we ended up coming in and we’re providing both the debt and we’re providing 90% of the equity on that deal, but we’re doing it with another operator; we’re allowing him to run and manage and execute on the property.

Another case is we’ve had situations where we’ve put offers in on a deal, we lost out, because somebody else was willing to pay a little more, and then we found out who the winner is and we come and offer them capital into the deal. We’ve operated that way as well many times.

Joe Fairless: Tell us about the deal that you’ve lost the most amount of money on.

Don Wenner: Yeah, good question. I can’t really say I had a deal that I’ve lost a lot of money on. We certainly had some single-family flips, we’ve done a couple thousand single-family flips… One that comes to mind – we’ve renovated a house, start to finish, beautiful house, sold it; it was like a 350k house. And a week before closing, a realtor or an inspector doing the inspection – we never identified who did it – turned off the emergency heat switch and shut off the heat, and the whole house froze. It was a long story, but the insurance company didn’t cover it… So we ended up having to re-renovate this entire house, to the tune of about 80k. So it turned it from a 40k profit to a 40k loss. That’s the biggest loss that I can think of on any property we’ve had.

We don’t have a lot of times we’ve lost money. When I think about bad deals, where my mind goes with deals gone bad is generally doing deals with people I don’t wanna be in business with, and I think that’s the mistake that people often make. A deal can go bad because you’re stuck with a partner who restricts and doesn’t provide the capital, or doesn’t agree with the business plan, or slows things down, or won’t make decisions, or whatever the case. Or just makes your life miserable.

In the early days, like a lot of people, when we first got going, we would partner with anybody who had capital… And we worked with some lousy partners in the beginning, that really made deals unenjoyable, and sucked some of the profits out, because we had to move so slow, answering questions, and getting their feedback, and getting their approval on decisions… It really slowed us down. So that’s been the bigger challenge in our early days, and why we really committed to raising our own private funds that we had complete discretion and control of, and then being able to go out there and offer capital to others with complete control. It’s been a huge reason why we have not dealt with those issues since our early days, and why we haven’t had issues of major losses on deals. It’s a big part of it, because we do business with people we wanna be in business with.

I think building relationships with people is a huge part of success, but the other point I wanna make is I think generally when guys lose money on a property, generally it’s not that the property was a bad piece of land, or a bad asset… Generally it’s not that they bought it at a bad price. Generally it’s not that they didn’t understand construction, or they didn’t understand property management. Generally it’s not that the market turned on them. Usually it’s that they couldn’t execute internally. They tried to take on too many projects at once, and they just couldn’t handle them. They over-extended themselves.

They didn’t have any structure in their organization to stay on top of the important things, and time started going by, and things didn’t get done, they forgot to pull their permits, and then they had to go backwards, they hired a new project leader and put them in charge of the project and he completely screwed up because they hired the wrong person; they didn’t really train them, they didn’t really manage them… They didn’t have a way to scale. And what I’ve seen is when guys go from being successful home flippers or whatever type of investor and wanna scale and grow a business, they tend to struggle not because they don’t understand real estate, but because they don’t know how to scale a business. They hire the wrong people, they don’t partner with the right people, they don’t build the internal processes to execute in their organization.

They don’t have a way to drive communication as their organization grows, they don’t have a way to set priorities, they don’t have a way to solve issues, they don’t have a way to keep out the noise and stay focused on what really matters, and they end up overextending themselves. And even though they may be doing a decent amount of business, they end up starting to have losses, they end up starting to be inefficient, they end up starting to take longer than it used to take them, and they start running a business that’s no longer profitable like it was in the beginning. That’s what we see more times than not, especially over the last number of years, where the market has been so great.

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

Don Wenner: My best real estate advice ever kind of ties to my last comment, and it’s two parts. Number one, be in business with people you like. The Chug Test I heard recently by Steve Sims, who wrote Bluefishing, the Chug Test – don’t hire anybody or do business with somebody you wouldn’t wanna go and grab a beer with. So be in business with the right people.

And focus on building the internal operations of your business, and it’ll take care of everything else if you focus on execution in your organization.

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

Don Wenner: I’m ready.

Joe Fairless: Alright, I know you are. First, let’s hear from our Best Ever partners.

Break: [00:22:24].03] to [00:23:00].12]

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

Don Wenner: I read 3-4 books every week, but my best one I’ve read recently I’d say is Turning the Flywheel by Jim Collins.

Joe Fairless: And what have you implemented in your business from that book?

Don Wenner: Turning the Flywheel is a little monogram, as he calls it, an add-on to Good to Great, and I’m a huge Jim Collins fan. He doesn’t really teach anything new in this book, but what he does is he crystallizes a lot of his teachings – Good to Great, and Great by Choice, and How the Mighty Fall – and really lays it out in a really clear basis.

The biggest thing I’d say I implement is he [unintelligible [00:23:26].28] that you need your organization to be discipline-centered. He calls it disciplined thought, disciplined action, disciplined people. He just does an amazing job of crystallizing and explaining that, and then he breaks out all his different tools and things he teaches: the hedgehog principle, the flywheel etc. and breaks them out in a really organized fashion. It’s a tiny little book, it takes an hour and a half to listen to, but his strategy simplified in a little tiny book – it’s amazing.

Joe Fairless: Best ever deal you’ve done?

Don Wenner: The next one I’m gonna do.

Joe Fairless: What deal have you made the most money on, and how much did you make?

Don Wenner: I’d say a deal we’re actually selling in 3-4 days is gonna be the most profitable single deal. We bought a property for seven million dollars in Orlando, and we’ve put about a million dollars into it, so eight million total cost, we put two million equity and six million debt, and we’re selling it for 15 million. We’re gonna return an 8 million-dollar profit on a two million dollars investment in a little over two years.

Joe Fairless: A couple things that you did to increase the value that greatly are what?

Don Wenner: Management was the big play there. Really, really poor management, and a really, really poor tenant base. So we’ve spent a lot of energy and effort to turn over the tenant base, and put the right people in place there on our end, on the management side, and changed it from — when we bought the property, there were multiple shootings on the property the previous year, there were a lot of drug issues, there was unfortunately a rape on the property… And we really focused heavy on putting security in place, not allowing that type of behavior to continue, getting rid of all the troubled tenants. We turned it around over the first year and really drove up not only the occupancy and the quality of tenants, but the rents as well.

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

Don Wenner: About two years ago I launched a foundation called DLP Positive Returns Foundation, and we focus on two epidemics that we believe to be epidemics in America. One is the affordable housing epidemic here in America, that’s frankly getting worse every day, and second is attacking the job epidemic; that we’re losing jobs to technology at  a rapid pace, and I believe the only way to solve for that is through entrepreneurship here in the States.

So we’re really focused on those two causes, supporting a lot of other great organizations, both in terms of monetary capital, but then also I teach our operating system, our elite execution system – which I’ve just finished our book called Building an Elite Organization – and I go and I teach that to social entrepreneurs and help them grow their causes. It’s been incredibly rewarding.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and get your book, Building an Elite Organization?

Don Wenner: Email is the fastest way to contact me: don@dlpre.com. And of course, you can find us on all the social platforms and such as well. Our website is dlprealestate.com.

Joe Fairless: That’s how they also can get the book?

Don Wenner: Yeah, so you shoot me a quick note to my email address, and as soon as the book is going live, which is gonna be January 1st, you shoot me a note and we’ll send you out a copy of the book.

Joe Fairless: Awesome. Congratulations on the book, and also clearly congratulations on the real estate business. I really enjoyed learning about the approach you’ve taken to acquisitions on the online auction platforms, and what you do to mitigate risk as much as you can, what would be a reason why you would pull out – not necessarily about the property, but really about the market, because it’s very challenging to change that… And then the approach that you take from a mindset standpoint, and how you’re continuing to learn, you’re annihilating books on a weekly basis. Very impressive.

I really appreciate our conversation, I enjoyed it. I hope you have a best ever day, and we’ll talk to you again soon.

Don Wenner: Awesome. Thanks, Joe. I appreciate the opportunity.



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JF1914: From House Flipping To Mobile Buying To Mobile Home Park Investing with Andrew Keel

Andrew is here to add some value that we don’t get a lot of on this show. We cover a lot of investing areas, but mobile home parks are not a common subject. That changes today and Joe and Andrew dive into his investing story and then get into specifics on a couple of mobile home park deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“When buying a mobile home park, due diligence is very, very important” – Andrew Keel


Andrew Keel Real Estate Background:


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

Andrew Keel: Good, thanks for having me on the show.

Joe Fairless: My pleasure, and looking forward to our conversation. A little bit about Andrew – he’s a mobile home park investor and has been one since 2015. He owns and operates 971 lots in 16 parks across seven states. He’s based in Orlando, Florida. With that being said, Andrew, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Andrew Keel: Yeah, definitely. I started out actually rehabbing and flipping houses down in the Orlando Florida area. I also was wholesaling… Eventually, through my marketing efforts, I came across a couple of mobile homes that were very cheap, and I didn’t really know what to do with them, because they didn’t have a deed. They were a lot different, because they were personal property, kind of like a vehicle; they have a title. So I ended up doing some research and on YouTube I found a guy by the name of Lonnie Scruggs, who wrote this book called Deals on Wheels, which I highly  recommend, and I ended up reading. It just talks about buying mobile homes, and selling them on contract, and creating mailbox money.

I ended up buying about 19 of those individual mobile homes, selling them on contract, and then through the process I met a couple park owners. One of them told me the real wealth is built through owning the land, not the individual mobile homes. That was like a game-changer for myself, and I instantly just dove in — I went to Frank and Dave’s bootcamp, I went to another mobile home park specific investing bootcamp, and dove in. I was fortunate enough to have the wholesaling background, so I was cold-calling and sending letters at the same time to find motivated sellers. I ended up at the Frank and Dave bootcamp actually meeting some passive investors that wanted to invest in deals. We put some deals together; since then we’ve done five deals together with the guy that I actually met at the bootcamp, and I’ve brought on other JV partners since then, and other private equity partners from doing syndications and so forth.

So it’s been an awesome ride. We’re looking to continue buying properties, larger properties. We just closed a few months ago a five-part portfolio, and we have a couple under contract now, so… Just continuing to grow and acquire more affordable housing units.

Joe Fairless: Where is the five-park portfolio located?

Andrew Keel: That is in LaSalle County, Illinois. It’s about an hour and a half west of Chicago.

Joe Fairless: Tell us about that deal.

Andrew Keel: So that deal – it was a pocket listing through a broker. We ended up doing quite a lot of due diligence on it, and negotiations were very slow. From when we actually went under contract it was March or April, and then it ended up closing in December of 2018… So it was just a long, drawn-out process. The sellers really wanted to go through and vet everything through their attorney, so… It kind of dragged on a little bit, but thank goodness we did. We were able to get a decent concession from the seller after due diligence and doing some research.

I actually moved on-site February, March and April of this year, and through that process we bought and brought in 23 used mobile homes, along with 17 brand new mobile homes. Just a massive infill project, value-add to the max… And now our property is worth about double, so I’m really excited about that property.

Joe Fairless: You’ve given me so many things to ask questions about. Thank you for that. [laughs] Okay, a lot of due diligence you said was done on that… Will you elaborate?

Andrew Keel: Yes. When you’re looking at five parks versus just one, it’s very intensive, because you have to look at the utility infrastructure of each… When buying a mobile home park, due diligence is very, very important. Utility infrastructure specifically can make or break a deal. So some of the properties had private utilities, which means that they would have a well, or a septic that we would be required to maintain… So we did specific inspections through experts in plumbing and electrical in those private utilities to make sure that the infrastructure was intact and was going to last in the future… And if it did need repairs, what was the number that we needed, either as a concession from the seller, or that we would need to budget for to improve it moving forward.

Joe Fairless: Is it ideal to have public infrastructure?

Andrew Keel: 100%. If you can get city water, city sewer, that is the best type of park to buy.

Joe Fairless: Okay.

Andrew Keel: Some of our parks — just because they’re city water, city sewer doesn’t mean that that’s the end-all, because most of the parks are master-metered, meaning there’s just one bill that comes in from the local utility company that charges the park for all of their usage, usually for water and sewer… So then what a lot of park owners should do – if they haven’t already – is sub-meter; put individual meters on all of the homes, and then read those meters on a monthly basis and bill the tenants based off of their usage.

A lot of the mobile home park owners today are mom and pop owners, and they don’t have it sub-metered, and they just include the utilities with lot rent, so that’s a value-add component that we can add immediately when we buy these properties to increase the asset value.

Joe Fairless: So utility infrastructure was one thing that you did… And you said there five different parks. How far away are they?

Andrew Keel: They’re about 20 minutes apart from each other. Two of them are very close together… But they were a good distance apart, so when we would set out — when I was on location, I’d literally be hopping from park to park every day, and it made for long days.

Joe Fairless: What’s the smallest lot and what’s the biggest lot of the five?

Andrew Keel: The smallest one had 31 lots, and the largest had 78.

Joe Fairless: So what were some unique things that you came across from a due diligence standpoint that you wouldn’t normally come across if they were just all in one location?

Andrew Keel: That’s a great question. One of the items is — we’ll go back to the private utilities, because that’s where most of our headaches come from…

Joe Fairless: Okay.

Andrew Keel: One of the properties that was probably in the best city in terms of demand and size and employers – it had both private utilities; it had well and septic. So that just – for a lack of better terms – opens up a can of worms… Because you’re now charging people — we go in and sub-meter that park, because it wasn’t metered… So now we’re charging people for their water usage to basically cover our costs to run both the well and the septic… And the septic system was an aging system (we knew that going in), and we had three different excavations/septic expert companies come out and inspect this system… And one of them told us we had a 50/50 chance at surviving and lasting another 5-10 years, and then the other two said it was completely fine.

So with that information we had to make an educated decision on negotiating with the seller as to that septic system. We basically got the seller to guarantee the system for a period of 12 months, and if it failed during that 12 months, they agreed to pay a certain amount of money to help with either a new septic system we would have to install, or connecting the city sewer, which is by far the best bet.

Unfortunately enough, the septic system went bad in the spring, when we have the high water table… Luckily, we did have that guarantee–

Joe Fairless: Unfortunate for them, but really fortunate for you, I imagine…

Andrew Keel: It is, and we’re in process now, working with engineers to get it hooked up to city sewer, which is by far gonna be a way better situation… But yeah, that’s just the kind of stuff that we have to deal with. Actually, all of the other parks have public water and sewer, so that right there makes it a good deal. That was the only one that was kind of a headache.

Joe Fairless: How much does it cost to get it hooked up to public?

Andrew Keel: It really depends on the distance away from where the current main line is. In this situation it’s gonna cost roughly $200,000.

Joe Fairless: My eyes got really big. You can’t see me, but… [laughter]

Andrew Keel: Yeah, it’s a big ticket item.

Joe Fairless: How much did you buy the portfolio for?

Andrew Keel: We bought the portfolio for 3.2.

Joe Fairless: Okay.

Andrew Keel: It makes sense. Even if we would have paid that extra 200k, the purchase price made sense. We’re purchasing these at a 10%-11% cap, so the returns were there, it was just — mainly the project management of now having to oversee that is the painstaking process… But on the other end of this, the property will be worth maybe 8% or 9% because now it has that connection.

Joe Fairless: Right. And you mentioned earlier that you got concessions from the seller, so clearly that was one thing where you had that contingency… Anything else?

Andrew Keel: Some of the electrical… We always inspect the electrical in these parks, and a lot of these parks were built in the ’70s, so they have older electrical infrastructure… And a couple of the parks actually had electrical issues, that weren’t immediate — it wasn’t like “Oh my goodness, they don’t have power”, but they were rusted meterbanks and things like that, that needed to be addressed to help us out. So they agreed, they had an electrician that was going to take care of all of that before closing… And that unfortunately didn’t happen, so we had to put some money in escrow at closing and oversee that project to make sure that it got finished… Which it did, it just took a little bit longer than we would have liked.

Joe Fairless: And you moved on-site for three months… Tell us about that.

Andrew Keel: Yeah, my wife is by far — she’s fantastic.

Joe Fairless: Very understanding.

Andrew Keel: Very understanding, very flexible, and she gets what we’re building, so I’m so thankful to have her in my life. Her and my two-year-old daughter moved up to Ottawa, Illinois, and we rented a little Airbnb up there, a nice little spot… And they moved up with me, and I was working on the parks day in and day out.

The main thing – when we purchased the property, there was poor management in place. There was one manager overseeing all five parks, and it was kind of like chaos. Every day you would talk to her there was some new fire that she was putting out… So we ended up putting a new on-site manager at every property. That instantly gave us eyes and ears in each of the five properties, and helped with our communication of what was going on inside of those locations. That helped tremendously.

Joe Fairless: What are some benefits from a bottom line P&L standpoint that you saw as a result of being there for those three months?

Andrew Keel: Yeah, the toughest part in this business in terms of creating value is gonna be bringing in new homes and used homes, and also renovating existing homes that for whatever reason are not occupied, and in some sort of disrepair. Because unlike traditional multifamily and other asset classes, you can hire a general contractor that’s licensed, insured, and has been doing this and has a track record of doing these construction projects… However, when you’re renovating mobile homes and doing work on mobile homes  you get a different quality contractor, and they require more babysitting, quite frankly. And with that, if you’re on site, you can save yourself money, compared to being a thousand miles away and trying to make a decision off of photos or walkthrough videos.

So we’ve been burned and learned from that experience, and found out that it’s just so important to be on-site. We saved thousands of dollars being able to point out, “Hey, you did replace the glass in this window, and you can send me a picture showing me you did that, but if I didn’t walk through after you did that, I wouldn’t have noticed all of the broken glass that’s now laying on the ground… Just laying there. You sent me a picture of the window and it looks good”, right? Normally, people would just send out a check. But since I can go now to that property, I can see the glass laying on the ground and making the property look worse. A little kid can come and cut themselves. So that’s the kind of stuff that we’ve found being on-site really helps us out with.

Joe Fairless: You’ve mentioned bringing in used homes and new homes are one of the hardest parts… Will you elaborate on what you’re talking about?

Andrew Keel: Sure. When you’re bringing in used homes – I’ll start there, because I started out, my background as a [unintelligible [00:13:54].22] helps me where I can access used homes very quickly. If you talk to anybody in the mobile home park space, they’ll tell you that used home inventory is very small, and they have trouble finding used homes to fill vacant lots. So with that, I actually find several used homes in a given week through different avenues, and I used technology to do so, and have different marketing  tactics to be able to do that… So that’s a process in and of itself, to find the used homes.

Then you have to hire a transporter to go tear it down, put axles on it, put the hitch on it, get it moved into the park… And then you have to hire an installer to then block-level, tie down, put skirting on it, steps… And then you also have to get all the utilities hooked up – electrical, plumbing, gas if there is that… So it’s a multi-stage process, and as with any project management, there’s gonna be some time involved with that, and being on site is very helpful in that aspect.

Bringing in new homes – there’s HUD laws per each state with new homes, of how the site prep needs to be set up, meaning the lot… If we need to pour concrete down below the frost line – that’s something that needs to be done prior to the home even being brought in… There’s just different regulations that HUD requires for brand new homes, so making sure you have an experienced transporter and installer to install the homes is very important, otherwise you can have brand new homes just sitting there, not occupied because they haven’t passed inspection… And obviously, that’s just a waste of time and money.

So having all  those things happen at once, in a period of three months, was a little ambitious, I’ll be honest. We’re still working on some of those projects, but overall occupancy and demand for these mobile homes is so off the chart that we’re definitely profitable, so that’s great.

Joe Fairless: What are some common reasons why homes don’t pass inspection?

Andrew Keel: Number one – this is for new homes – the grading of the ground has to be so that water doesn’t sit underneath of the homes. Even though there’s skirting around it, if water can sit under there, that’s a reason the inspector doesn’t like it. It can attract mosquitoes, attract moisture, which then would rot out the sub-floor… So you have to have proper grading, and you also have to have the concrete runners that meet the local code, which would depend on the depth of the frost line. In Illinois we had to go 48 inches deep with concrete runners, so that when it does freeze and thaw it’s not going to adjust the level of the home. So those are just a couple reasons…

Joe Fairless: What’s a project you’ve lost money on?

Andrew Keel: Projects I’ve lost money on…

Joe Fairless: Or maybe the most money. Let’s go with that – which ones have you lost the most money on.

Andrew Keel: Lost the most money on… We’ve been very fortunate in the mobile home park space where we’ve bought some off-market properties, so thank God we haven’t lost money in the mobile home park space… However, when I was a home flipper in Central Florida here I bought into a property, I paid too much for it, and I was able to sell and not make all of my money back. I think I lost about 4k-5k on that property… I paid too much for it going in, took a chance, and ended up losing a bit of money there. And you don’t account for the time that you lost as well, of getting that property ready.

So yeah, it was 4k, but really that was 3-4 months of work that also went into that, so it was quite a bit more than that.

Joe Fairless: How are you finding off-market mobile home parks?

Andrew Keel: We start out cold-calling…

Joe Fairless: How do you know who to cold-call?

Andrew Keel: Cold-calling – it’s pretty simple; you can type in “mobile home parks” into Google, into a certain search criteria, based on a certain area, and then you just basically call off of the Google Places numbers. A lot of the times you’ll reach managers, and you have to somehow strategically get them to present your information to the seller…

Joe Fairless: How do you do that?

Andrew Keel: I try to just build rapport with them, and kind of get them to like me, kind of prove that I’m not just joking around, or a joker-broker kind of thing… I try to build rapport, and then if they don’t wanna give out the owner’s information – which is ideal if they will – then I will sometimes mail a letter to the tax assessor address on file for the owner, after I talk to the manager. I mail them a letter to where they get their tax bill and say “Hey, I’m interested in buying the property. If you’re interested in selling, please give me a call. If not now, sometime in the future.” We’ve had success with that.

Joe Fairless: How do you transition the conversation when you call the mobile home park, from “Hi, my name is Andrew” to “What is the owner’s contact information, so I can reach out to him/her?”

Andrew Keel: Yeah, that’s a great question. Usually, when I call I try to downplay it and just say “Hey, this is Andrew. My wife Katie and I are interested in buying this mobile home park. We’re looking to get into the business and we like this area, and we like the size of this property. Would you be interested in selling?” And I ask the manager. I assume that they’re the owner.

Joe Fairless: Right, yeah.

Andrew Keel: And then they say “Oh, no, I’m not the owner. I’m the manager.” I say, “Oh, I apologize.” And then I just kind of talk in and say “Oh, well, how long have you been managing the park? What do you think about the business?” I just try to get them talking… And after a little while, they kind of elaborate and tell me about the owner a little bit, about how long they’ve owned it, if they own any other properties, what other business avenues they own, if local – because a lot of these parks are owned by local mom and pops that have other business ventures… One time they said “Oh yeah, he owns a car dealership, and this and that, but I can’t give you his phone number.” So I ended up calling the only car dealership and I got a hold of him… So there’s just ways to kind of get around.

Joe Fairless: Yeah, very resourceful. Your wholesaling days served you well, I imagine, in that regard.

Andrew Keel: They definitely did, yeah. You’ve gotta keep going deeper. The deeper you go, the more you’ll find.

Joe Fairless: Huh. Taking a step back, based on your experience, what’s your best real estate investing advice ever?

Andrew Keel: My best real estate investing advice would be to go bigger faster, and to raise money faster. A lot of investors start out with their own money, and when they run out of money, they stop and they don’t look at continuing to acquire real estate. A good friend of mine – he has a nice little savings account, but he won’t put any of his money in deals… And he only raises money for all of the real estate that he purchases. There’s many different operators and ways of doing it, but I would just encourage people that your friends, family, potential investors out there – you’re doing  them a disservice by not allowing them  to invest with you, because the rate of return that they’re gonna get with you potentially could be a lot higher than any other program, or annuity, or CD that they could ever invest in.

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

Andrew Keel: Let’s do it.

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

Break: [00:20:42].11] to [00:21:40].00]

Joe Fairless: Best ever way you manage properties in seven different states, in terms of a process? What’s a best ever process that you use?

Andrew Keel: I would say we use a software called Slack; it’s our messaging software. Every single on-site manager is in their own channel, based on that property… And instead of phone calls, we make the managers communicate with us through Slack. That way, everything is in a nice, concise, little blurb, instead of talking with managers. Sometimes you’ll find that you’ll be on the phone for an hour when you only needed 30 seconds to get an answer… So that’s one process that I’ve implemented that has worked tremendously for us.

Joe Fairless: What about the reverse of that, where if you just jump on a phone call and you can get through it in five minutes, versus going back and forth on chat for 15?

Andrew Keel: To be honest, usually what happens when we hop on the phone is we end up talking about her sister’s brother who got in a motorcycle accident, and broke his leg… You’d be surprised, man. The conversations go on and on and on. So in Slack, there’s nothing really very complex that we discuss. It’s “Hey, did lot 29 pay?” It’s more like a yes and no type of thing, so… We don’t really have a lot of back-and-forth, I guess is what I’m saying.

Joe Fairless: Fair enough. What’s the best ever deal you’ve done?

Andrew Keel: The best ever deal I’ve done… I was able to secure seller financing on a property that I won in Ohio, and was able to secure 75% loan-to-value, 5% fixed. We have a 20-year note… And the property, when we purchased it, had like 40 tenants. We’ve been able to increase that just by implementing some marketing and some other strategies. Now we have 64 tenants… So that’s my best ever deal.

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

Andrew Keel: Best ever way to give back to the community… I’m pretty active in church, so I give back through that. We also have an angel program my wife and I donate to for kids in the Dominican Republic.

Joe Fairless: Best ever way the listeners can learn more about what you’ve got going on?

Andrew Keel: Check out KeelTeam.com, my website. Always looking for new investors and partners. Even if you’re interested in the mobile home park business and you’d just like more information, I’d be happy to chat with you. You can go on my website and set up a free consult.

Joe Fairless: I enjoyed our conversation, I learned a lot… From ways new mobile homes wouldn’t pass inspections, or common things for why they don’t pass inspection – you talked about the grading of the ground – to getting your hands dirty and living in the area of something you closed on, and what you were doing to help the P&L statement… And then also the private versus public utilities and how much that could cost to actually connect into public… So – lots of stuff we talked about; I’m grateful that you were on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Andrew Keel: Awesome.  Thank you so much for having me, Joe.

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JF1734: Card Trading Leads To Day Trading Which Leads To Trading Properties with Chad Kastel

Chad has had a little different path on his way to real estate investing than I’ve ever heard. He started by getting into Magic The Gathering card trading, got into day trading, and then got into real estate investing. How has playing Magic The Gathering helped him with his career? Tune in to find out! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“If your process is good, you will be net positive overall” – Chad Kastel


Chad Kastel Real Estate Background:

  • Real estate investor since 2016
  • 1st property was a two structure single property house hack, 2nd was a mix use triplex
  • Licensed Realtor in Florida
  • Based in Hollywood, FL
  • Say hi to him at 609-705-7332 and chadkastelATgmail.com
  • Best Ever Book: Best Ever Apartment Syndication Book


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


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, Chad Kastel. How are you doing, Chad?

Chad Kastel: I’m great. How are you?

Joe Fairless: I’m doing well, and looking forward to our conversation. A little bit about Chad – his career is a day trader, and he’s been a real estate investor since 2016. His first property was a two-structure, single-property house-hack, and the second was a mixed-use triplex. He’s a licensed realtor in Florida, and he’s based in Hollywood, Florida.

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 Kastel: A little bit about my background – I got into this card game called “Magic: The Gathering”, which is a strategic card game, and I think that was a foundation for me to get into day trading, which was also the foundation for me to get into real estate. My wife and I bought this two-structure property in Florida. We were house-hacking; we didn’t know we were house-hacking. It is a one-bedroom studio and a two-bedroom house. We lived in the studio and rented out the house for about two years, until we got pregnant. Then we got pregnant, and  we moved into the house, and I bought my first real estate book in November, and then we ended up closing on a deal in January in Upstate New York. That’s where we’re at now.

Joe Fairless: Upstate New York… Aren’t you based in Hollywood, Florida?

Chad Kastel: I am, but I got my real estate license down here, so I could have access to the MLS… I looked at over 100 deals. I was trying to get a duplex or a triplex, and they all cash-flowed negative, except for two. Those cash-flowed positive at maybe $25.

Joe Fairless: [laughs] They were not appealing, huh?

Chad Kastel: No. We have all the information about how important cashflow is, and I decided I had to find something that fit what I wanted.

Joe Fairless: So what’s your connection with Upstate New York, besides a good property?

Chad Kastel: I had a business partner — we had [unintelligible [00:02:50].16] and he owns property up there, and I was just messaging him, kind of complaining about the ROI, and he was like “Oh, why don’t you look at Binghamton?” He owns property there, I did, and it just snowballed from there.

Joe Fairless: You’ve got some friends who went to Binghamton…

Chad Kastel: Not a bad area, besides the cold.

Joe Fairless: Right, yes. True. So explain to me — you said “Magic: The Gathering” card game led you to day trading, which led you to real estate… I think that’s how you connected the dots. Is that correct?

Chad Kastel: Yeah. It’s a long connection, but…

Joe Fairless: I’m not familiar with “Magic: The Gathering”… How has that helped you in business?

Chad Kastel: “Magic: The Gathering” is an information-based game, kind of similar to poker, where each player has information about each other, and you also have incomplete information… And from a young age it taught me the process of your decision-making is more important than the outcome, as long as that process was good. So it taught me essentially not to be short-term results-oriented. The example I use is if you’re late for work, but you find $500 on the street, that doesn’t mean you should be late for work again. You made a bad decision and it worked out, and vice-versa – you can make a good decision, and the game could not reward you, you could lose the game. So it taught me how to make those good decisions at around age 13.

Joe Fairless: Thank you for that. It’s interesting how that can be applied to life and business so directly. So the second was a mixed-use triplex, and that’s the one in Upstate New York?

Chad Kastel: Yes.

Joe Fairless: Tell us the numbers on that one, will you?

Chad Kastel: I bought it for $78,900 in January. As a commercial space, that’s rented. It’s rented for $800/month. I put about 5k into the two residential spaces to get them move-in ready. We’re just going through the process of now getting tenants in there. We’ve listed it at $875 each unit, which we pay for everything. The tenant doesn’t pay for electricity, or water…

Joe Fairless: All bills paid, huh?

Chad Kastel: Yeah. I think I’m going to eventually put a RUBS on and separate it,  but I just didn’t do it for my first property. I expect after everything is said and done the property to net out about $800.

Joe Fairless: You’ve got a commercial tenant… What type of business do they have?

Chad Kastel: They’re called Paw Professionals and they are a dog grooming business.

Joe Fairless: And did you attract them to the property?

Chad Kastel: They’d been there for five years.

Joe Fairless: Okay, so you inherited them. And then when you were looking at the investment, what were some of your areas of focus in terms of them and their credit history, or the lease term, things of that nature?

Chad Kastel: You’re talking about the…

Joe Fairless: The commercial tenant.

Chad Kastel: Well, I was able to speak to the previous landlord. They had been there for seven years; excellent tenant, and didn’t move out on bad terms, and they had been at our place for five years, and  spoke to the landlord that I bought the property from after we closed, and she had nothing but wonderful things to say… And I spoke to the tenant. Between those three things, we just signed a one-year lease.

Joe Fairless: Okay. And why a one-year?

Chad Kastel: That was her request. And I thought that I could be more forceful, but considering she’d been in business for so long and she said she didn’t plan to move, I didn’t really want to rock the boat with someone that’s pretty consistent, never misses rent payment, and could probably find better terms elsewhere.

Joe Fairless: Okay. What type of financing did you do on the triplex?

Chad Kastel: I bought it in cash. I actually made her two offers. She was asking 90k and I made an offer for 83k with a mortgage, or 73k in cash. We ended up meeting at 78k. I actually ended up trying to refinance, but there were some problems… This was one of the mistakes I made – I didn’t know that conventional banks didn’t wanna refinance a commercial property like that.

Joe Fairless: That’s what I was wondering about the type of financing… Okay. So what’s the latest with that?

Chad Kastel: I reached out to some close family members, and all have agreed once I get the place rented out that they would do the refinance for 5%… So it’s kind of a win/win.

Joe Fairless: What would the terms be, besides 5%?

Chad Kastel: 30-year fixed. They’re just in the position where they’re getting 2% on their money, and I’m offering them a much better option, and they’re offering me a really good option, and they know that I have experience with these things, and I wouldn’t put them in a spot where I couldn’t pay them back easily.

Joe Fairless: And what loan-to-value would you be able to get on that?

Chad Kastel: 75%.

Joe Fairless: Okay. What would the value be of the property after you have it stabilized?

Chad Kastel: We would value it at 90k. I think it was worth 90k. I think I just got a home run on my first deal.

Joe Fairless: Okay. So you’d get about 67.5k out of it, and you’d have a little bit in it, but… You’d be cash-flowing how much, after all that?

Chad Kastel: If I’m right, $9,600/year.

Joe Fairless: $9,600/year. Cool. So with your day trading as a full-time job, what aspects of day trading has allowed you to be a more savvy real estate investor as you get going?

Chad Kastel: Just feeling confident in making good bets. Jumping in on my first property – it wasn’t difficult. Once I knew the information… Between the time I  picked up my first real estate and I was making offers was three weeks, and I wasn’t rushing it. I have a high risk tolerance, and I understand that, again, it’s about the process. You take all the right, positive steps, and you do that property after property after property. Of course, things are gonna go wrong, of course mistakes are gonna be made, but if your process is good, you will be net positive overall. I really enjoy that about trading; there’s nobody that tells me whether I’m good or not. The numbers are just there, or they’re not. And it’s the same thing with real estate. You can’t fake it to yourself.

Joe Fairless: Who’s managing the triplex?

Chad Kastel: I have a property manager. I ended up going on Bigger Pockets, reaching out to a bunch of people, and a bunch of different people recommended this one property manager. His name is Tom DeAngelo.

Joe Fairless: What type of fee structure does Tom have?

Chad Kastel: He’s charging me 9% of the gross rental, plus half the first month’s rent when he fills the place.

Joe Fairless: And how long ago did you close on it?

Chad Kastel: January 19th.

Joe Fairless: Okay, so three or so months ago. Any unexpected challenges over those three months?

Chad Kastel: Yes!

Joe Fairless: That was an emphatic yes…

Chad Kastel: Yes. I made several mistakes. I don’t think it’ll end up mattering, because the deal is sweet, but… It was my first project, and I was  a little nervous in terms of managing it, so I was planning on selling sweat equity to a mutual friend of my business partner from Binghamton. He was a maintenance guy and owned a construction company, and wanted to get into property management, and that didn’t go well. So he was supposed to do everything, and he just disappeared. Thankfully, I had already interviewed a bunch of property managers, so I was able to seamlessly move into the other property manager without scrambling.

Joe Fairless: And when you take a look at all the lessons learned from this triplex, when you look at the next deal to purchase, what are some things you’re gonna take with you to that next purchase?

Chad Kastel: Well, look at the insurance ahead of time. I ended up losing a little bit of money on that, because it was just more expensive than I anticipated. I could have gotten quotes. And I should have looked at asset protection before I bought it.

Joe Fairless: Based on your experience as a day trader or real estate investor and a “Magic: The Gathering” player, what’s your best advice ever for real estate investors?

Chad Kastel: New?

Joe Fairless: Yeah.

Chad Kastel: We’ve heard this over again – you have to do it. There’s a million reasons not to, and there’s a million people who have told me, in every endeavor I’ve taken, the awful stories they’ve heard, from trading to traveling to real estate. You have to just learn and do it. Don’t hesitate, just engorge yourself in it.

The other thing is just take one step at a time, just do a little bit every day and you’ll learn, you’ll get confidence.

Joe Fairless: If you had to start over and you had no properties, and no money in the bank account, what would you do to build that back up?

Chad Kastel: Knowing what I know now, I think if you can find a deal, it’s very easy to get money. I would learn the trade, and then just network through meetings, through Bigger Pockets, go to the Best Ever Conference… It’s very easy. Someone can get money from me if they bring me a home run. I’m sure it’s the same for you.

Joe Fairless: Yeah, it’s true. We’re gonna do a lightning round. Let’s do it. First, a quick word from our Best Ever partners.

Break: [00:11:41].22] to [00:12:34].12]

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

Chad Kastel: Right now I’m reading your apartment syndication book. And I always think the book that you’re reading right now is your best ever book, but probably The Miracle Morning in terms of how that impacted every other step along the way.

Joe Fairless: Was that a back-handed compliment? I’m messing with you, but it was like “Every book I’m reading right now is usually the best ever, but I’m reading yours and that’s not, so I’d say The Miracle Morning.” [laughs]

Chad Kastel: Oh, no, no, no… I probably just misspoke.

Joe Fairless: I know, I’m messing with you. It was funny how you said it. What’s the worst business deal that you’ve done? You’ve done two deals in real estate, but maybe it’s a day trading thing, or something… Can you tell us about that?

Chad Kastel: Well, I’m gonna say the first house I bought, the house-hack. It’s profitable, I’m doing well with it, but I bought out of ignorance. I bought out of “Oh, I have money. I need to invest it. Real estate is good.” All I knew at that point was “Real estate is good.” We profit through Airbnb, but if we had to just straight rent it out, it would be cashflow negative, and that’s a really bad place to be, because if the stock market crashes, or there’s some major problem with the economy, vacation is the first thing to go. So I think that’s probably my worst deal.

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

Chad Kastel: I like teaching. Regardless of what it is. I like teaching  tennis. That’s my why, that’s what I’m gonna get into when I have enough passive income to retire – take on students and teach them about life on and off the court.

Joe Fairless: How can the Best Ever listeners reach you?

Chad Kastel: My phone number is 609-705-7332. My e-mail address is chadkastel@gmail.com. I’m sure it’ll be listed in the show notes.

Joe Fairless: It sure will be. Well, Chad, thank you for being on the show, talking about your first deal, and then also talking about the triplex, which is a unique second deal, in that it’s got a commercial tenant where you’ve got $800/month from them, and then you’re putting in $5,000 in renovations for the other two units, for regular residential tenants… And the challenges getting the refi, but that’s also probably the opportunity for why you were able to purchase the property, because there are some challenging components to mixed-use…

But that’s okay, because you’re solving for it, and the beauty of that is because there’s an additional challenge and it’s not by any means a challenge that torpedoes the deal, you were forced to reach out to your close family members, and you’re going to secure a loan with them, and as a result of doing that, they’re benefitting, because as you said, they’re getting 2% wherever their money is, and now they’re gonna get 5%. And then you’re benefitting, not only because you have a solution, but also it’s the long-term relationship that you’re building with them from a business standpoint. I think that’s something that gets missed a lot when people buy the traditional triplexes and duplexes, and stay with the traditional approaches. The other approach, where you buy mixed use or commercial – it’s got some other components to it, but those components forced you to grow, and then they can lead to bigger and bigger things.

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

Chad Kastel: Thanks, Joe. I really appreciate it.

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JF1687: Real Estate Investor Turns Marketer – Helps Investors Close More Deals with Joe Giglietti

Our guest today was a real estate investor first, then fell in love with marketing. Quite the opposite of the typical story we hear on the show, typically our guests fall in love with real estate investing and switch careers to real estate. Joe is still heavily involved in real estate, now he helps investors and/or agents connect with great leads through his marketing company. They go a step further for their clients, rather than being a lead provider, they are an appointment provider. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“The ROI that you will receive by investing in the marketing and sales side of your business is exponentially higher than any ROI you will ever get from anything else” – Joe Giglietti


Joe Giglietti Real Estate Background:

  • Host of The Billions In Real Estate Show & Founder of Exponential Referrals, a digital marketing agency
  • Working to refer $1 Billion in real estate this year
  • Based in Melbourne, FL
  • Say hi to him at www.exponentialreferrals.com
  • Best Ever Book: The Snowball


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

Joe Giglietti: I’m fantastic, thank you for having me. Great to be with the Best Ever listeners.

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. A little bit about Joe – he is the host of the “The Billions in Real Estate Show” and founder of Exponential Referrals, a digital marketing agency. He is working to refer up to one billion dollars in real estate this year. Based in Melbourne, Florida. You can learn more about his company at exponentialreferrals.com, which is a link in the show notes page; you can click on through to that. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Joe Giglietti: Absolutely. I’m a third-generation real estate professional. My grandfather owned a real estate brokerage back in the ’60s, my dad worked in it his whole life, and when I got into college, I caught the bug, too… And since 2003-2004 I’ve been doing real estate. However, in the last two years I fell in love with marketing, and so I decided to start a digital marketing agency to help real estate agents and real estate professionals close more deals. That’s our focus now.

Joe Fairless: So you help real estate professionals close more deals. Real quick, just a random question – you’re in Melbourne, Florida; I’m picking up a Midwest bit of an accent… Are you from the Midwest, originally?

Joe Giglietti: That is impressive! Yes, I’m originally from the Chicago area.

Joe Fairless: There we go… Alright, yeah. I think I’ve interviewed so many people I can kind of pick up on accents; I was like, “Wait a second… The way he talks doesn’t fit with Florida.” Okay, cool.

Joe Giglietti: I got smart and left all the cold weather, and went to the warm weather. [laughter]

Joe Fairless: Fair enough, fair enough. So working to refer a billion dollars in real estate this year… What does that mean, exactly?

Joe Giglietti: Okay, so as you know, in any kind of real estate endeavor, we’re not in the real estate business, we’re in the marketing business, right? So what we found was there’s a lot of people out there trying to generate leads for real estate agents, or real estate investors, or name that field of real estate that you’re doing. What we’ve found is that a lot of those leads real estate agents complain “These are garbage leads.” So what we did is we said, “Hm, how do we make leads better?”

When we look at the process – and this is true when you talk to wholesalers for example as well, or when you talk to really any business owner, they’re looking for “good quality leads.” Well, we said “What makes a lead more quality?” As we thought through that process, it is — let me just talk to real estate agents first, because that’s the core focus, right? So a real estate agent – we can get them 100-200 leads in a month, and we thought we would crush the game if we did that, and we could work on a referral basis; so we say “Look, don’t pay us until deals close.” So when we first started, we would just generate leads for them and say “Go get ’em boys, and when they close, pay us referrals.”

Joe Fairless: When you say “leads” you’re referring to the owner of —

Joe Giglietti: Name, e-mail and phone number.

Joe Fairless: Name, e-mail and phone number of a potential motivated —

Joe Giglietti: Buyer or seller of real estate.

Joe Fairless: Okay, name, e-mail and phone number of a buyer or seller of real estate. Okay, got it. Sorry, go ahead.

Joe Giglietti: No, it’s all good. So they responded to some sort of marketing online that said “Hey, I’m either interested in buying this house, or I’m interested in selling my house, or I’m interested in having this agent help me.” The problem was we thought “Hey, we’ll crush the game.” We were 100% wrong. Our first 20 clients – we got them hundreds of leads per month, and literally none of those deals closed. That was very frustrating…

Joe Fairless: Huh…! Yeah, you did the work…

Joe Giglietti: We did the work, right? And it didn’t happen. So the question becomes “Why? Why don’t these leads close?” So we went and did it ourselves, spent some money in Denver, Colorado, where we’re not, to test it in a market we weren’t in, to see if it would work. We spent $600 in ads, 60-90 days, we’d look out to see how much money is coming into the pipeline, and the answer was $60,000 in gross commission income for an agent there. And we were like, “We spent $600, we’re getting $60,000 back (not us, the agent). That’s 100 times ads spent. It’s not the leads, it’s how the leads are being followed up on.” So it took us the next year of breaking down the process – and this is true no matter what area of real estate you’re in – to realize that most people focus on buying leads, and then they check all these different “lead sources” like Facebook leads, Google leads, direct mail leads, [unintelligible [00:05:56].12] whatever, in order to say which leads are better, when the reality is all of those leads are the same thing. Somebody who’s raised their hand to identify themselves.

The next thing that always needs to happen is a conversation with those leads, which was the first frustration – most people never follow up with the leads. They may call them once and leave a voice mail, and that’s it. If they don’t call back, it was a junk lead. Well, what we’ve found is that if we could find other communication channels in order to turn leads into conversations, and then turn those conversations into appointments, so that real estate agents only have to talk with people who are ready to buy or are ready to sell right now, real estate agents have a much, much higher likelihood — as a matter of fact, the National Association of Realtors says 70% of people work with the first real estate agent they meet face to face… So our whole goal is to change from being simply a lead provider to being an appointment provider; and by providing appointments, a much higher percentage of deals close, so it’s a better deal for the agents, it’s a better deal for everyone.

Now, I know all of your Best Ever listeners aren’t real estate agents, but it bears out an important point, that “Huh, the industry is missing a little bit”, which is everybody’s like “I’ve got a lead.” Maybe it’s a wholesaler who’s looking to buy a house, and they get a lead, and they call it once and then nothing happens. The game is not leads. That passed five years ago; with Facebook and everything else it’s so easy to get leads… The game is appointments – how many appointments are you getting every single month to talk with, for example, motivated sellers? Or, I’ve heard — by the way, great content on your podcast… I saw some of your capital raising podcasts – they’re so good. It’s the same game – it’s not leads of people that we can talk to about raising money, it’s actual appointments to sit down with investors who are looking and purchasing, for example, apartment deals, or commercial deals. Same game. It doesn’t matter if it’s a real estate agent, it’s a wholesaler, it’s an apartment owner – it doesn’t matter; we’re all playing the same game, which is appointments. It’s either appointments to get motivated sellers, appointments to get good deals, or it’s appointments to raise capital. That’s the game. So that’s what we’ve worked on perfecting for the last two years.

Now in the state of Florida what we’re doing is we’re building out a competitor to Zillow and Realtor.com for agents, that provides agents with appointments, and they only have to pay us when the deals close.

Joe Fairless: That’s such a smart business plan, and it’s such an interesting insight too, to hear you talk about “It’s not the leads, but rather it’s the appointments, because that leads to conversions and actual transactions taking place.”

Joe Giglietti: Yeah.

Joe Fairless: You said you’ve been working on it for the last couple of years to hone that process of actually getting the appointments scheduled on a consistent basis… Tell us about the process that you’ve been working on.

Joe Giglietti: Most people could survive just off of Facebook. There’s a lot of great channels; everybody’s talking about Facebook, and the reality is it’s really inexpensive. For example, if you’re looking for someone to buy houses – I know this is gonna be a shock, Joe; you’re probably gonna think I’m a genius when I say this, but the best way to get people who are interested in buying a house to become a lead is to advertise a house. [laughs]

Joe Fairless: Yeah, imagine that.

Joe Giglietti: Imagine that. There’s all these marketers out there, it’s like they’re the “catch me out” because they’ve figured this thing out, and it’s like, they advertise a house. [laughs] If somebody is interested in that house, it’s like “Yeah, I’d like to see pictures and more information” and so they put in their name, e-mail and phone number, right?

Joe Fairless: Yeah.

Joe Giglietti: So that’s a lead. It’s the same thing Zillow does, or Realtor.com. There’s not secret – they advertise houses, people say “I want more info that”, and they give you info. That’s a lead. There’s no magic. Here’s the thing though – what happens after that? For us, what we’ve found is that if we give it to the agents and we say “Hey, call them back.” I love all my real estate agents, I’m a real estate agents, but I started in the investing work; I didn’t get my real estate agent license [unintelligible [00:09:42].20] So I love everybody, but the reality is most investors that I know kind of complain about the agents not returning phone calls as well; it’s a pretty common theme in the industry. So if you’re gonna base a business around that, it’s probably not a good business.

So we had to figure out, okay, obviously when somebody becomes a lead, we should call them back, and we should call them back quickly. Great. Same thing if you’re finding a motivated seller, or even if somebody who’s interested in potentially lending money on a deal – you should call them back quickly. I don’t know, it’s a dopamine drop to them immediately, right?

Joe Fairless: Yup.

Joe Giglietti: But if we’d just depend on business owners doing that, our business would fail. We figured out six other channels that we can do, that we can initiate conversations in with the buyer or seller of real estate, or with the real estate agent who’s interested in our service, or with an investor when we’re looking to raise money – six other channels that we could have conversations in.

Let’s say somebody’s on Facebook and they decide “Yeah, I’m interested in this house”, or if you’re advertising an event to teach people how to invest in apartment deals because you’re looking for investors, and somebody clicks on it – first thing that should happen is a call, but the next thing that happens is we actually have an automated text process that texts them. Now, that doesn’t sound crazy, but here’s what we do that’s a little different – we text our leads three times a day for five days, or until they answer.

Joe Fairless: That’s a lot.

Joe Giglietti: Most people are like, “That’s a lot”, right? That was my thought. Remember, we spent hundreds of thousands of dollars on ads to figure this out.

Joe Fairless: I’d be blocking you so quickly…

Joe Giglietti: You would think, you would think.

Joe Fairless: Well, I know I would.

Joe Giglietti: Well, you’d probably just respond.

Joe Fairless: No, I wouldn’t respond. Well, okay, so in this scenario I initiated the conversation…

Joe Giglietti: Yes, that’s the thing.

Joe Fairless: Okay, so I initiated it.

Joe Giglietti: Yup. So I text you back, you don’t respond because you’re busy. Now, these are high-value texts…

Joe Fairless: What do they say?

Joe Giglietti: Well, it depends on the thing, but for real estate, the first one is “Hey, are you looking to buy soon, or are you just browsing?” And we specifically set it up that way to make it easy for them to respond. They want out of the conversation a lot of times, so they’ll say “Browsing.” Well, now we’re talking.

Joe Fairless: [laughs]

Joe Giglietti: It’s almost like when you go into a retail store. If they say “Hey, can I help you?” “No, I’m just browsing.” You wanna say that, so you can get them out of your face, but a good salesperson – they’ll look at what you’re browsing and, for example, find something else  in the store that’s comparable to that, that they think you might like, and they say “I saw you were looking at these, and I think these shoes would go fantastic with it. Do you like these?” At that point, it’s almost rude for the person not to respond back, because you added value, you tried to provide value to them. You might be like, “Oh yeah, I like those” or “No I don’t really like those.” “Oh, okay. Are you looking for shoes…?” and you’re in conversation. That’s the next step of all of your appointments – you need a lead, and then you need conversation. Text is one way to do that.

Here’s the funny thing – sure, some people say “Stop”, but most of the people who respond, they say “Thanks so much for staying on top of this. I’m sorry, I’ve been busy. It’s my fault”, and they just enter the conversation. They appreciate the professionalism of somebody who consistently stays with them, if they’ve requested information. That was a shock to us.

Joe Fairless: Yeah. So you said six other channels – is texting one of those channels?

Joe Giglietti: Yeah. Call, texting, e-mail… E-mail is an obvious one, right? Now, next one, most people don’t even think of this – marketers. Marketers tend to do upsell offers. If you go to buy knives on a website, the next one will be like “Hey, get two for the price of one. But wait, there’s more…”, right?

Joe Fairless: Right.

Joe Giglietti: They’re calling you the next day and they’re trying to upsell you, right? Most real estate agents and marketers and people of that nature don’t do that. Well, it’s a phenomenal business strategy. Is there a way to work that when you’re generating leads? The answer is yes. So on the next page usually they have a video or pictures of the property, with a specific offer. To give an example to people who are doing an event and they’re gonna raise money at the event – one of the things they could do on that page is talk about some special, unique deals that have actually come up recently, and if you want more information on this, click this button and schedule an appointment to talk with us directly. Boom, it’s an upsell offer, right?

Joe Fairless: Right.

Joe Giglietti: A small percentage of people take it, but it doesn’t matter; if you get 100 people on that page and 3-5 schedule appointments, most people can close some deals with 3-5 investors who are coming in. So that’s way number four.

Way number five is on every page that we’re sending people to is chat. Just like you see on e-commerce stores, and stuff like that. Surprisingly, people will go to the pages and they’ll have questions. For us, it’s questions about houses. “Oh is this sink bronze or stainless steel? How deep is the sink? Is it laminate floor or hardwood floor?”, whatever it is. Instead of calling a real estate who they don’t wanna talk to, they go on the chat and they start typing in their questions there, because it’s non-committal, right?

Joe Fairless: Right…

Joe Giglietti: Guess what – we’ve just turned a lead into a conversation, and then we turn those conversations into scheduled appointments with the agents.

The last two are search sites. We have search sites that we send them to, where they literally click buttons if they have questions with the agent; another place where we can follow up. And we keep staying in front of that customer. Anybody who becomes a lead, they’re retargeted on Facebook again and again and again; every single week they’re seeing the same agent, new properties, getting sent back into that search site, so that if they click again, now we can start the text sequence again, now we can show them more properties etc. and we track everything they’re doing.

And then lastly, Facebook messenger is huge. So many of these people, they become a lead, and then for the next five days we’ll send them a video every day, and underneath the video is a messenger button, so that they can talk specifically with the agent. They’ll click the button to ask a question, and conversations become appointments.

So we have call, text, e-mail, online chat, upsell offers, search pages and Facebook messenger, and you could also add in voicemail drops if you wanted to add number eight. Most of those you can set up on automation, so that you’re only actually talking to the person once they’ve responded. That’s what’s changed the game for us. Even if they don’t call, we’re catching them six other ways.

Joe Fairless: I’ve gotten in all caps, “Turn a lead into a conversation.” That’s the key insight here, and then your business is focused on taking that lead and starting that conversation, because then that goes to the appointment, which exponentially – to use your word – increases…

Joe Giglietti: Oh, yeah! Best listeners ever, you heard him! [laughs]

Joe Fairless: There you go… Increases the likelihood to convert into a sale. How do you make money?

Joe Giglietti: When the deal closes, real estate agents pay us a referral fee.

Joe Fairless: How much?

Joe Giglietti: 25%-35%, depending. It’s pretty standard for the industry.

Joe Fairless: Cool. Got it. Taking a giant step back and sticking with the format of the show, but tying into our conversation and your background, what is your best real estate investing advice ever?

Joe Giglietti: I think a lot of people have heard this one before, but misunderstood it… So forgive me if I’m repeating it, but here’s the best real estate investing advice I’ve ever received – you’re in the math business. Most investors assume by “the math business” is the operation side. Every business has two sides – you’ve got marketing and sales, and then you have operations. Most people, especially in real estate – if we were a pie maker, we’d be thinking about the pie; well, we’re in real estate, so we think about the apartment deals – what are the numbers? What’s the value-add opportunities? When you think about a flip, what are the costs? What percentage are we buying it on? All that kind of stuff… And we think about the operations side of the math, because we’re taught that, many times, if you have a good deal, the buyers will come, and that’s kind of the whole focus.

But the reality is the way to really explode a real estate investing business, or a real estate agency business, is to focus on the marketing and sales side. Sales is what actually makes money in the business; the operations – yes, they need to be good, they need to be quality, location obviously is important, and all that kind of stuff, but if  you focus on the marketing and sales side and you look at the math on that side of the business, it’s very interesting, because the ROI that you will receive by investing into the marketing and sales side of your business is exponentially higher than any return on investment you will ever get from anything else.

Now, I’m not suggesting that you should only do that, but the point is, for example – I’ll take a real estate agent and then I’ll give an investor example. If you’re a real estate agent, and let’s say it costs you $500 (and that’s a lot; it doesn’t cost $500) every time you get an appointment with somebody looking to buy a million dollar house – now, that real estate agent is gonna make $25,000 when they sell that house to that buyer. So if they spend $500 every time and they had to have five appointments, which would be a terrible closing rate; it should be like 50%-75%. But let’s say it took them five appointments in order to lock somebody in at a million dollar buying price point – that means they’ve spent $2,500 in getting appointments, to get $25,000 in revenue.

Joe Fairless: Right.

Joe Giglietti: That’s a 10x return on your investment in 60 days.

Joe Fairless: Yes, please.

Joe Giglietti: Yes, exactly. Let’s take it to the real estate investing side – so many guys are like “I just wanna get to the next level.” And they’re hunting down deals, and they’re doing their stuff, and they’re hustling to find a deal, and driving for dollars, and all the different things that all of us real estate investors do, but the reality is if you understood the math side of the business… Investors are afraid to invest into the highest ROIs because even though they know how to do the math, they really can’t see the bigger equation, which is this… Let’s take apartment investors; maybe there’s guys out there that are just doing 4-units, and they really wish they were doing 100-units. What’s the difference between the guy doing 4-units and the guy doing 100-units? Well, one is knowledge, and the second one is access to capital. Well, how do you get access to capital? Surely an appointment game.

I remember Elon Musk, the first time I heard him say this it crushed my mind. Somebody asked him, “How do you raise the money to do all these billion dollar deals?” He literally waved his hand and he said “Raising money is merely a function of how many phone calls you’re willing to make.” [laughter] Like, “What IS the question”, right?

Joe Fairless: Yeah, like “D’oh…!”, right?

Joe Giglietti: Yeah. “This annoys me”, right? But that’s the point… In today’s world, using social media, using direct mail, whatever channel you wanna use for marketing, you figure out how much it costs you to acquire an appointment with an investor, and let’s say investors who are willing to invest a minimum of $100,000. I mean, you need ten investors to get a million dollars in capital, and that’s a great down payment on something.

So that’s the whole idea… The thing that’s distancing you from whatever your dreams are really comes down to how many appointments you are scheduling. And that comes down to maths, which is “How much does it cost me to get an appointment?” And the mistake real estate investors and real estate agents make is they’re like “Well, I wanna optimize.” “How much do you wanna spend for an appointment, sir?” “Oh, could I get them for $20, please?” And it’s like, “Why?” Why does it have to be $20? Not $500, but what if it was $500, and you’re a real estate investor, and every time you spend $500 you have somebody who’s willing or potentially open  to the idea of investing $100,000 into your next deal. How much would you spend on appointments in order to get a million dollars in capital? How much would a million dollars in capital change your life? It’s purely a math question; you’re simply not doing the math or not focusing the math in the right area.

Joe Fairless: I love the way you think. It’s my opinion that you’re so on point with this, and thanks for bringing on the Elon Musk quote; I hadn’t heard that before. And also, we get so caught up in the cost of something, and the only reason why we should ever be caught up in the cost of something is if we’ve done the analysis of it not being a good return on investment when you factor in the potential opportunity of actually converting that… So then it’s just, like you said, doing the math, and figuring out “Okay, so it’s $300 to get an appointment? That sounds maybe on the surface expensive, but how much do I actually make whenever I convert this person?”

So on the back-end you’ve gotta make sure that you’ve got the deal flow to accommodate the leads, that way you can put them into a deal, but assuming you’ve got the deal flow to accommodate the leads, then it’s just a simple math equation, like you said. I love this.

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

Joe Giglietti: Can I say one other thing from what you’ve just said?

Joe Fairless: Yeah, yeah.

Joe Giglietti: I would just like to say this – one of the things marketers are saying… I know a lot of investors don’t hear this, because you’re not necessarily marketing like me, and in that world, but one of the things we all know to be true is whoever can spend the most money to acquire a customer, wins.

Joe Fairless: Yeah…

Joe Giglietti: That sounds backwards, but it’s so true. And here’s the reality – compared to 95% of the businesses out there, real estate agents and real estate investors can spend far more than the average person to acquire customers. Think about an apartment deal – how much can you spend to acquire more capital? How much do you really make on that, even within 60 days, even from just closing the deal and the initial fees if you’re syndicating that you’re making from that… You can spend way more. Think about a hamburger place – how much can they spend to acquire a customer? For the average business, where it’s normally $10, $20, $50, $100 to acquire a customer, it’s getting tight, right? Your margins are almost never tight in real estate. You’re just afraid because you don’t know how to get the appointments and you haven’t done the math… So I’m begging you, because it will help everyone of you so much, figure out the appointments. It’s not going to cost too much in 99% of the cases.

Joe Fairless: Right. And I will mention one thing, then we’ve gotta quickly do the Lightning Round… On what you said, “Whoever can spend the most money to acquire a customer wins” – and that’s assuming that you know what the lifetime value of a customer is for your business, otherwise you’re just shooting in the dark… But I live and breathe that statement with my apartment syndication book. My apartment syndication book is $50. On Amazon it’s the most expensive book that I know of, other than a textbook in real estate investing; but I would certainly argue that my book is more valuable that any textbook I’ve read, which I haven’t read too many though… And because it is priced at $50, which anyone who’s read it – at least I would imagine – most people who have read it would say it’s well worth the investment of $50… But that’s not my point here.

My point here though is because it is $50, I can afford to have my Amazon ads be at a higher price, because I’m getting more profit on the book than any of my competitors that I’m competing against for those eyeballs. So my Amazon ads – I rank number one on multifamily investing, apartment syndication, multifamily syndication… And the reason why I’m able to rank number one, one is through organic growth from the book, but then two, I have the sponsored ads in the best placements, which helps the growth, because mine is the most expensive book, therefore I can have a higher price on my Amazon ads, more than anyone else… Because if someone else were to match the price that I have on my Amazon ads, they’re not gonna be making any money from the book.

Joe Giglietti: Yup, that’s genius. And the lifetime value of those customers is far more than the $50 for the book, because many of them wanna come to your events, and all the other great, great things that you provide.

Joe Fairless: Of course, yeah. We’re gonna do the Lightning Round. We’ve got like 60 seconds to do the Lightning Round. Are you ready for the Best Ever Lightning Round?

Joe Giglietti: I’m ready, let’s do this.

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

Break: [00:24:30].05] to [00:25:51].28]

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

Joe Giglietti: The Snowball by Warren Buffett.

Joe Fairless: Best ever transaction – business or real estate – that you’ve done?

Joe Giglietti: I flipped a 60-unit apartment deal and on the front side we got $235,000, without any cash of my own invested.

Joe Fairless: Well, why are you in the referral business if you can do that?

Joe Giglietti: The referral business could be a billion dollar business, so…

Joe Fairless: There we go. What’s a mistake you’ve made on a  transaction?

Joe Giglietti: I had an apartment deal in St. Louis, Missouri once, and we allowed all of the tenants to be funded by a city grant program that they had. It was a little bit higher rents, which seemed fantastic, but then we didn’t realize that the city could pull it at any time, so the city actually pulled that program and that funding instantly, overnight, and all of our tenants were incapable of paying. We lost every tenant, and that apartment complex was terrible.

Joe Fairless: Dang! How did you end up financially?

Joe Giglietti: We lost that deal.

Joe Fairless: To the bank/lender?

Joe Giglietti: Yeah, we lost that to the lender. Terrible.

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

Joe Giglietti: My wife and I – that’s our dream and our focus, so everything that we’re doing from here, we’re working to fund orphanages in Africa.

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

Joe Giglietti: You can e-mail me if you have any questions – joe@exponentialreferrals.com. Or you can just search me on Facebook at Exponential Referrals.

Joe Fairless: Well, thank you so much for being on the show. I have a marketing background, so I think I’m just naturally inclined to enjoying these conversations, but… There’s a whole lot of value in this for anyone, regardless of their background. Turning a lead into a conversation. It’s not about the leads, it’s about the conversations, which lead to appointments, which lead to conversions… But you’ve got to know your lifetime value of a customer in order to intelligently go about this process, so that you know how much you can invest for these appointments.

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

Joe Giglietti: Thanks so much, Joe.

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JF1671: Funding Your Real Estate Business With Business Credit #SkillSetSunday with Gerri Detweiler

Gerri has been involved in consumer credit education for many years, even writing a book on it. Gerri was hearing from real estate investors that people were getting scammed trying to get credit for their real estate business. She’s here today to explain how we can get credit for our businesses and how to spot a scam. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“I’m not aware of any major credit card issuer that issues a business credit card without a personal guarantee behind it” – Gerri Detweiler


Gerri Detweiler Real Estate Background:

  • Education director for Nav.com, the first site to give business owners free person and business credit scores
  • 20 years of experience in the credit industry
  • Based in Sarasota, FL
  • Say hi to her at https://www.nav.com/freeaccount


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


Joe Fairless: 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, Gerri Detweiler. How are you doing, Gerri?

Gerri Detweiler: I’m doing well, Joe. Thank you.

Joe Fairless: I’m glad to hear that, and nice to have you on the show. A little bit about Gerri – she’s the education director for nav.com, which is the first site to give business owners free person and business credit scores. She’s got 20 years of experience in the credit industry. Based in Sarasota, Florida.

Best Ever listeners, I hope by the way you’re having a best ever weekend. Because today is Sunday, we have a special segment for you called Skillset Sunday, where our guest teaches you a certain skill. Maybe you’ve got the skill; well, if so, then you can hone it based on our conversation. The skill today we’re going to be talking about is finding business credit; finding money for your business via business credit. This certainly is applicable to us as real estate investors, especially as we’re starting out, or looking to grow. If we have time, which I think we will, she’s also gonna talk to us about the scams that are out there to watch out for.

With that being said, Gerri, do you wanna just give us a little bit about your background, and then we’ll roll right into it?

Gerri Detweiler: Sure. I’ve been involved in consumer credit education for a long, long time. I wrote the first mass-market book that talked about FICO scores, and worked on the legislation that gave us free consumer credit reports. So I’ve been involved in this for many years, and a few years ago I met Garrett Sutton. He’s an attorney who has a lot of real estate clients, and he told me that a lot of his clients were struggling or sometimes getting ripped off trying to build business credit for their real estate investing. So we started looking into it together and decided to write a book together; that was my latest book, “Finance Your Own Business.”

In the course of researching that I interviewed the CEO of Nav, Levi King. I loved what they were doing. The easiest way to describe it is it’s like Credit Karma, but for small business. It shows you your business and personal credit scores. I loved it so much that I ended up joining the company full-time. So I’ve been focused primarily on educating small business owners about credit for the past three years, but of course, I have all those years of personal credit knowledge in my head, too… So I like to try to help business owners look at it holistically and help them understand how to make sure both personal and business credit are strong, so they can open up more funding opportunities.

Joe Fairless: And I believe the business model for credit karma is that it’s free, or a low fee if it’s not free, and then they make the real money based on having partnerships with different credit options, like different credit cards and things like that that they recommend to their customers. Is that a similar business model for Nav.com?

Gerri Detweiler: Yes, exactly. When you come to Nav, most of our customers come as a free customer; they see their free business and personal credit. But then with that information we’re able to present to them different financing offers. We have a marketplace, we work with over 30 different lenders of different types around the country; we try to be very agnostic in terms of showing the business owner what’s best for them, not what’s gonna earn someone a commission so they can go to Hawaii, or something… So we try to be very business-friendly in showing those offers, and we don’t sell that information for marketing purposes to lenders, so you won’t get all kinds of phone calls from lenders if you sign up for Nav.

Joe Fairless: So how should we approach our conversation today, in terms of helping the Best Ever listeners who are real estate investors find money for their business via getting business credit?

Gerri Detweiler: One of the things I do when I’m at home in Florida is I usually speak about once a year with our local real estate investors group. Over the years I’ve talked about personal credit, and then we’ve graduated to business credit, and I find that with real estate investors, at least the ones that I’m speaking with, there’s a lot of overlap. There’s a lot of situations where they will turn to personal credit to get some money to accomplish a goal.

Let’s say they’re fixing up a property to flip, and they need to spend money on supplies, and paint, and everything else… So they max out their personal cards, and then when they sell the property they pay it off. I think business credit provides another tool that can help the business owner protect their personal credit, which is important still. Any business owner – real estate investor, anybody; you still wanna protect your personal credit, because there may be times where a good personal credit score could be leveraged for a particular opportunity, so you wanna protect it as much as possible.

So what I tell the small business owner is there are opportunities to get financing in the name of your business, that can stay off your personal credit, so you aren’t affecting your personal credit scores. Many times these financing opportunities have attractive costs, so they aren’t super-expensive, but to get to the point where you’re relying more heavily on business credit than on personal credit, you need to build business credit.

I listened to the interview you just had about raising funds, with Lee Arnold, and I thought this was such a good comparison. That’s a must-listen, by the way… I thought it was such a good comparison what he was talking about, where he was saying “You need to start by doing some deals where you can get some cash, and then that cash attracts other investors, because they wanna see that it’s low risk, that you’re successful.” The same thing is true with business credit. You build business credit, so that you have this reputation for your business. That in turn opens up additional financing opportunities for your business. Does that make sense?

Joe Fairless: It does. So then the question is “How do we build that business credit?”

Gerri Detweiler: Well, the great thing is that it’s much easier to build business credit than some people lead you to believe… And the reason is most business owners are not paying attention to it. We’ve done surveys and 72% of small business owners don’t even know these credit scores exist, and one of the reasons they don’t know is because there’s no federal requirement that anyone give you a free business credit report, there’s no requirement that they tell you if they turn you down based on your business credit… Anyone can check your business credit. It could be a competitor, a future business partner, a lender – anyone who wants to pay for the report can get it.

Joe Fairless: Is it a credit score like your personal score?

Gerri Detweiler: There is a credit score. The commercial credit bureaus – let’s start with who they are. They’re Dun & Bradstreet, Equifax and Experian. There are some others, but those are the three big players, and the commercial databases are completely separate from personal credit. So if you have personal credit with Experian, that’s completely separate from the commercial credit that your business has with Experian.

And then they produce their own score. D&B, one of the most popular scores, is PAYDEX. With Experian it’s Intelliscore. Equifax has a variety of scores, and they run on different ranges. If you pulled your personal credit score and you had an 80 — well, you couldn’t even go that low with most FICO scores, right? With 80 at the PAYDEX score, or Experian’s Intelliscore, that would be good. Those are strong scores. They run on a different scale.

Joe Fairless: What is this scale usually?

Gerri Detweiler: It’s usually 0 to 100.

Joe Fairless: Okay.

Gerri Detweiler: But again, there are scores that can go up to 1,000 and more.

Joe Fairless: Alright, fair enough.

Gerri Detweiler: So always look at the range. When you’re checking your business credit, look at the range and see where you fall on the range. We show red, green, yellow to help you understand where you fall, and whether your score is strong. But always look at that range and see where you fall.

Joe Fairless: Okay.

Gerri Detweiler: Then the process of building business credit is basically to have accounts to report, because you can’t have a credit score, whether it’s personal or business — you can’t have a credit score unless there are accounts that are showing up. That’s how the credit scoring model works – they analyze the data of how you handled those in the past, in order to predict how you’re gonna pay in the future. But the tricky thing with business credit is that not all companies report, and it’s not consistent across all three.

With personal credit, you get a mortgage, it’s gonna probably show up in all three of the major credit reports. It’s not typically the case with business credit. So you have to be a little more scrappy… But once you establish these accounts, even if you have just a few accounts reporting, you’re already ahead of most business owners who aren’t even doing anything to build business credit. So it can be a pretty easy process to get started, and I’ll give a resource if you don’t mind, real quick, I’d like to share… If you go to nav.com/vendors, you’ll see an article I’ve written there; it has three vendors on there – Uline, Grainger and Quill.

They’re all super-easy to get accounts, but they don’t check personal credit, they don’t report to personal credit, so your personal credit is not an issue… You can buy things that you need for your business; it could be janitorial supplies… And their catalogs are huge. It could even be [unintelligible [00:10:53].24] for your coffee machine; whatever it is that you wanna buy – you buy those things on terms. Usually they start out with a small credit line, Net-30. Just pay those on time, and very quickly you can find yourself building credit with them, and those report, and then that in turn makes it easier to get other types of business credit that you might want to use in your business, whether that’s a fuel card, or a Home Depot commercial account, or something else that you can use. So you’re trying to take as many of those purchases as possible and keep them off your personal credit and solely in the name of your business.

Joe Fairless: Two follow-up questions. One, that doesn’t mean that you have to pay interest on it, as long as you pay those bills on time, correct?

Gerri Detweiler: Correct. They’ll give you Net-30 terms, and they’re not gonna charge interests for you to pay in 30 days. There are some vendors where if you have terms with them, you give up a discount. Say there’s a 2% discount if you pay in ten days. If you take the Net-30 terms, you don’t get the discount. So in effect there’s a little bit higher costs with some of those…

And of course, if you get into a business credit card, there’s gonna be interest if you carry a balance, but if you pay it in full you can avoid interest.

Joe Fairless: And when you pay it on time, that is you are getting points or credit for doing that, and you’re accomplishing the objective of having accounts show up that you have, and you’re building your credit, correct?

Gerri Detweiler: Exactly. So with consumer credit it feels a little overwhelming sometimes when you look at all the factors that go into a consumer credit score. With a business credit score it’s usually much simpler – payment history. That is the thing that they are most interested in – your payment history. Are you paying on time or not. So having a few accounts that you pay on time can be very valuable and build your credit quite quickly if you’re proactive about it.

The other thing that I recommend that relates to that is that if you’re gonna use credit cards in your business, and at least to the real estate investors group that I speak with this is a very common scenario; I’ve heard some really strange things in that regard, so I wanna clarify it – the best thing you can do is to get a business credit card that stays off your personal credit. I’ve also written an article with that list, we can put it in the show notes. It’s nav.com/report. It lists all the major issuers… And the business credit then will not report to your personal credit unless you default. As long as you pay it on time, you’re fine.

So if you need to run up a high balance while you’re trying to pay for this rehab, and then you’re gonna pay it off and you refinance, or you sell the property, it’s not gonna bring down your personal credit score. So that’s an advantage of that.

Those cards are pretty easy to get as soon as you start your business. You don’t have to have a business for one or two or three years. But they do check the owner’s personal credit, and there is a personal guarantee. So it is a way to build credit, it is a way to keep those activities off your personal credit, but I’m not aware of any major credit card issuer that issues a business credit card that does not have a personal guarantee behind it. So if you do, if the business does fail, you would be on the hook personally for that debt.

Joe Fairless: And the other question I had was with vendors that you are currently working with – “you” meaning the Best Ever listeners are currently working with – is there a way for them to check if they are getting credit for that line of credit that they’re paying off or they’re working with that vendor?

Gerri Detweiler: Yes. So the question is are they reporting or aren’t they. You can go to Nav, get a free account, we’ll give you a coupon code for a premium account too for free for a month, and you can see who’s reporting. Now, the one thing I have to warn about business credit that’s different to personal credit is the credit reports – and this is industry-wide – they do not list the name of the lender or the vendor. They categorize them. So it’ll be manufacturing–

Joe Fairless: Why?

Gerri Detweiler: They say the reason they don’t do it is because the creditors are worried that then other businesses would come in and poach it by just pulling the credit reports and seeing who has accounts.

Joe Fairless: Right… [unintelligible [00:15:00].04] What’s your theory?

Gerri Detweiler: Well, I get it, but my theory is the reason they don’t is because they don’t have to; in the consumer world you get your credit report by law; they have to explain that you have a mortgage with Bank of America. They don’t have to on business credit; there’s no regulation, so I think that’s why they get away with it.

So you have to be a little bit of a detective to figure out “Okay, yeah, I know I have a $1,200 balance with that card, so that’s probably that account.” I just wanna warn people upfront, because that’s a little confusing… But you can check them for free at Nav, and we also provide a letter; if you want to reach out to your supplier or vendor and ask them to report, we have a description that helps them understand how to do that. Some will, some won’t, but we say not asking is an automatic no, so you can always ask and see whether they will report… But often what I’m telling business owners is to go ahead and work with companies that already do report.

Joe Fairless: Got it. So someone with a newly formed entity – they can get a credit card, and you mentioned the link for different credit cards that use your personal credit as a default only if you default on it, but otherwise a new entity can have a business credit card… And then you gave three vendors on that website for us to go to and use if we want to build our credit that way. Anything else as it relates to building our business credit that you think we should talk about?

Gerri Detweiler: Yeah, the other thing that’s important to understand is how payment history works on business credit, because it’s more granular than it is with personal credit. With personal credit you forgot to pay the credit card bill; you go in a couple days later, you pay it… You’ll get stuck with a late fee, but it’s not gonna show up on your personal credit as late until you’re 30 days late, in most cases.

With business credit they use something called DBT (days beyond term). If your terms with that vendor are Net-30 and you pay on day 32, you’re two DBT. If your terms are net-60 and you pay on day 62, you’re still two DBT. So it’s much more granular with business credit… So what I encourage business owners – especially business owners, because you’re so busy, right? – is to make sure that you set up systems (reminders, alerts) so you don’t forget to pay that bill.

And then the other thing you can do is for those suppliers that you do have terms with, as you build business credit you can go back and negotiate better and longer terms. So if you’re Net-30 now, that doesn’t mean you can’t be net-60, net-90, even net-120 days in the future. And the stronger your business credit, the more likely they are to extend longer terms to you, and that in turn improves your cashflow.

Joe Fairless: Let’s talk about scams. Scams are fun to talk about, but not fun to participate in, so let’s attempt to help the Best Ever listeners avoid participating in them and just talking about them. What have you seen out there?

Gerri Detweiler: Well, a few things. First of all, on the personal credit side, credit repair – it’s not always a scam; I’m not opposed to credit repair, but I think sometimes people think that there’s some secret sauce that if they are willing to pay enough money, they can get anything off their credit, and that’s just not true. It’s basically a process of disputing information and hoping that it comes off; if not, then you dispute it again, and hope it comes off in the future.

On the business credit side, people will spend a lot of money trying to learn how to build business credit, and I would encourage them to start with the things that they can do for free, because that $5,000 or $8,000 might be better spent improving that property, going on to your next deal… So there’s a lot you can do on your own, as a business owner, to get started building business credit. And it’s just a process that you have to initiate. And like any type of credit, you do it before you need it… Because all types of credit are based on a payment history over time. So you start early, before you need it, so that you have that payment history there when you do need it.

The other thing I’ve seen – this happened to one of Garrett’s real estate investing clients, where he spent a lot of money on a shelf corporation, with the promise it would come with a million dollars in credit lines, and it did not, and he basically lost that money. It just didn’t materialize. I’m not saying there’s never a place for a shelf corporation…

Joe Fairless: What is a shelf corporation?

Gerri Detweiler: It’s a corporation that’s been formed in the past; someone formed the corporation, and then essentially put it on the shelf. So it has a longer history as a business.

Joe Fairless: Oh… I’d never heard of that.

Gerri Detweiler: Yeah… The sales pitch is this comes with all these credit lines, because it’s an established business. And time in business is helpful; it’s helpful for many types of financing. But sometimes you spend a lot of money on something that’s not gonna deliver the promise that you would hope, so I would be very leery about some of the promises you’ll get X amount of business credit if you spend X amount of money. Again, it’s a process, and it’s something you can do largely on your own by just taking a few minutes literally every week to establish these accounts and then make sure that they’re paid on time.

Then once you do, the ultimate goal is to have access to more lines of credit for your business that you can use, that aren’t associated with your personal credit, some of them with a personal guarantee and some of them not with a personal guarantee. So that’s the eventual goal, and it is very feasible. It’s just a process that takes time.

Joe Fairless: The concrete next steps that I believe you mentioned to build that credit is 1) work with a vendor that is reporting your transactions to one of the three  organizations (Dun & Bradstreet, Equifax and Experian), and then 2) get a business credit card immediately, and use that. Make sure you’re paying it off on time, so we’re not being charged interest. Those are the two concrete ways to do that. Anything else other than those two things that you think the Best Ever listeners should do?

Gerri Detweiler: Yes, and the third thing I hear from real estate investors in particular – because many of them have multiple entities, to hold different properties; so they’ll ask me “Well, which entity should I use to build business credit?” And typically, the best strategy for a real estate investor is an entity that is focused on marketing and management, rather than strictly an entity that is formed to hold a property… Because real estate can get flagged as higher risk by some, and I don’t want anyone to not be truthful here, but if you have a property management or a marketing company and that’s your entity, then I would focus on building business credit with that entity, and then that could spill over and be helpful to your other entities… But that’s the one I would focus on.

Joe Fairless: Very helpful tip, thank you for that last point. How can the Best Ever listeners learn more about what you’ve got going on and your business?

Gerri Detweiler: They can check out a free Nav account at nav.com/freeaccount, and when they sign up there, they can use the code “podcast” and they will get a free month of our premium accounts; that will give them full detailed reports from all three of those credit bureaus.

Joe Fairless: Excellent. Well, very informational… Thank you so much, Gerri, for being on the show. I was summarizing it along the way; usually I summarize at the end, but I just wanted to make sure I was accurately reflecting what you were saying, so… We’re good to go, my friend.

I enjoyed our conversation. I hope you have a best ever weekend, and we’ll talk to you soon.

Gerri Detweiler: Thank you, Joe.

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how to build an apartment syndication team

JF1548: How to Build Your All-Star Apartment Syndication Team Part 1 of 4 | Syndication School with Theo Hicks

How to Build Your All-Star Apartment Syndication Team

We’ve worked through finding the best markets for real estate investing, as well as other aspects that lead up to completing your first apartment syndication deal. Today, Theo is covering the first part of building a great syndication team. In this particular part of the four-part series, we’ll hear about the four core team members, who they are, and how to find them. He’ll also cover the question, “Do you need a partner and a mentor?”. If you enjoyed today’s episode, please subscribe in iTunes and leave us a review!

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Free document for this episode:

Building Your Team Spreadsheet

Benefit from even more apartment investing advice when you subscribe to our Best Ever Newsletter.

Best Ever Listeners:

During a number of successful deals, my clients and I have worked with Marc Belsky from Eastern Union Funding and Arbor Realty Trust for debt, equity, and more. It’s possible that he could help you too.

Contact him via phone at 212-897-9875 or by email at mbelsky@easterneq.com to discover what he might be able to do for you.


Start Reaching Out to Potential Syndication Team Members

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process but how to actually do each of the things, and go into it in detail… And we thought, “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the apartment syndication school, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks.

Each week, we air a two-part podcast series about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will offer a document, spreadsheet, or some sort of resource for you to download for free. All of these free documents and the Syndication School series, past and future, can be found at SyndicationSchool.com.

This week is the start of our second four-part series. This will be part one, and the series is entitled “How to Build Your All-Star Apartment Syndication Team.” As the name implies, we are going to be talking about building your team. If you have followed the previous eight series, essentially we’ve built to the point where you are now ready to start actually reaching out to various team members in order to bring them on and are one step closer to actually looking for deals. So you’ve got your education and experience on lock, your goals are set, market selected… Next step is to start building your team.

In this episode, we are going to go over what the core and the secondary team members are, and then we are going to have a conversation around how you find these team members. Some team members are found a specific way, but in general, you’re gonna find these people in a similar way… And then we’re going to actually talk about the process for hiring two of your team members in this episode; that would be the business partner and a mentor. Over the next three episodes, we will go over the process for hiring the remaining team members.

Why Your Syndication Team is Important

If you remember, in episode 1527, when we discussed the market evaluation strategies. If you remember, we posed the question, “What’s the most important factor in real estate?” Obviously, in that episode we went over how to select and qualify a target market, but what I said is that the overall MSA or city is not as important as the actual neighborhood or submarket, and the neighborhood and submarket are not as important as the actual deal, but all of those things are trumped by the ability to execute the business plan. So the market is not the most important factor, nor is the deal, nor is the cap rate or anything else. The most important aspect of real estate, and in particular apartment syndications, is the ability to execute the business plan. Because, if you can’t execute the business plan, then the best deal and the best market really means nothing.

We said that one way for you to build up your ability to execute the business plan is obviously gonna be your education and experience, but the most important piece is going to be your team… Because, when you are first starting out, you’re not going to know how to execute the business plan properly, and that’s kind of the catch-22 because the best way to learn how to do it is to actually do it, but you can’t really do it until you’ve done it before. So the way to get around that is to surround yourself with an incredible, experienced team who has experience executing the business plan in the past successfully. So that’s what we’re going to talk about over the course of this next four-part series.

Who Are Your Team Members?

I just wanted to start off by mentioning how important your team actually is because your team is gonna be the one that’s gonna be helping you implement the business plan. With that being said, who is on the apartment syndication team? I’ve broken it into two different categories. The first is the core team members – these are people that you are essentially working with on a daily or weekly basis and are pretty heavily involved in the process… Whereas the other team members are more deal-specific or maybe you have meetings with them once every quarter or once a year; those are your secondary team members.

The four core team members are gonna be a business partner, a mentor, a property management company, and a real estate broker or brokers. Those are gonna be the four most important members of your team.

The secondary team members are going to be the attorneys, so the real estate and securities attorneys); as well as a mortgage broker or a lender; and then, finally, an accountant. Essentially, there are a set of companies that you’re going to need to bring onto your team.

In this episode, we’re going to talk about the first two, the partner and the mentor. In part two we’re going to talk about the property management company. In part three we’re going to talk about the real estate brokers, and then, in part four, we’re going to talk about those secondary team members. For this series, there is going to be a free document, of course, and it’s going to be a Building Your Team spreadsheet, so it will be a place for you to log the contact information of all the various team members that you need… Kind of like a checklist to make sure that you’ve got all of your bases covered. To download that document, you can find it in the show notes of any of the four episodes in this series or at SyndicationSchool.com.

How to Find Syndication Team Members

Before we dive into the process for hiring a partner and a mentor, I wanted to discuss how you actually find these team members. Again, for some of them, it’s gonna be a very specific way to find them or you might have a different strategy in mind or have heard of ways to be able to find people in the past… But, generally, you’re gonna find all of these team members through one of six ways.

Through Your Thought Leadership Platform

The first way to find potential team members is through your interview-based thought leadership platform. In last week’s series – it actually was a four-part series, so the previous two weeks – series seven and eight, we discussed the thought leadership platform and the importance of building a brand as an apartment syndicator… And one of those benefits was the networking capabilities of having an interview-based thought leadership platform. You are having a conversation with one real estate professional every week, bi-weekly or once a month, and that person, in particular, could be a potential team member or maybe they know someone who could be a potential team member.

For example, you could make it your goal to try to interview at least one person from each of these four team member categories a month. Maybe one month you’ll interview a potential partner and the next month a potential mentor and the next month a potential property management company and so on and so forth… And you get the dual benefits of having a podcast or YouTube episode, but also you have the opportunity to meet with them, talk with them, get to know them, and see if they would be a good fit for your business.

Again, I’m just talking about how to find these people. We will go into particulars on what to do once you’ve found them in the later sections of this episode for the partner and the mentor.

Via Other Interview-Based Thought Leadership Platforms

Another way to find potential team members is through other interview-based thought leadership platforms. For example, you could listen to this daily podcast, so there’s seven different real estate professionals every week, 365 every single year, so maybe one of those people could be your property management company or a mortgage broker. Right now, our sponsor is actually a mortgage broker, so that’s the perfect example of a way to find a potential team member. Listening to the other podcasts, watching the real estate YouTube channels, reading blogs…

At Real Estate Meetups

The third way is to attend local apartment meetup groups; go there, network, talk to people, figure out who is doing what, and see if they could be a potential team member. I know at Joe’s meetup group, for example, there is a section of the meetup where people get to ask a question or have an ask… So, if you’re at this point in the process, your ask could be, “Hey, I’m looking for a mortgage broker. I’m looking for a real estate broker. Do you have any recommendations?” and build a list.

With the Help of BiggerPockets

The fourth way is through Bigger Pockets. There’s millions of active real estate professionals on Bigger Pockets. You can use the search function… For example, me in Tampa, I’d say, “Tampa Bay property managers”. Compile a list of all the profiles and reach out to them and ask them to set up a phone call to discuss a conversation about potentially bringing them on as a team member. Now, for the Bigger Pockets strategy, I recommend only contacting people that are actually active on Bigger Pockets. If their profile has been inactive for multiple years, or if they don’t have any posts, then that’s not as good as someone who’s actively posting multiple times per day because that’s the indication of that person’s business acumen and work effort and things like that.

Through a Basic Web Search

Another way is simply just to use the internet. You can Google the top property management companies in your market, top real estate brokerages in your market, compile a list of those, and reach out. Give them a call. That’s actually how I found my real estate brokers and property management company – I use Google.

Syndication Team Referrals 

And then, lastly, but most importantly, the best way to find prospective team members is through referrals. The main source of your referrals could be a mentor – we’ll get to that person here later in this episode. Once you’ve found a mentor who’s an active apartment syndicator, who has a track record of success, obviously they’re tapped into the market, they’re tapped into the industry, and they should be able to provide you with connections to the various team members that you need.

Another approach is to bring on a property management company first, or a real estate broker, or a mortgage broker, and all three of those people will work with all the team members that you would need to bring on, so you can ask all of them for referrals as well.

Really, the best way to find these people is through referrals, and those first six steps, except for maybe with the exception of the internet, are kind of essentially referral-based. So that’s how you find these team members.

Again, there’s particular ways to find a certain team member that might not work for a different team member but, in general, those are going to be the top six ways to find your team members.

The Process of Hiring Your Syndication Team

Make of Note of What You’re Lacking

Now, let’s get into the meat of this series, which is the process for actually hiring these team members. In this episode, I’m going to talk about the partner and the mentor. First of all, not every single person is going to need a partner or a mentor. It really depends… For example, for the partner, if you want a business partner, it should be someone who complements your strengths and interests, first of all. And they make up for the areas that you are lacking in.

A few examples – for me, I have a strong operational background. I understand the acquisition process, I am very detail-oriented, and I have the strongest experience in underwriting, as well as managing deals in the back-end… Whereas something that I’m lacking in is access to private capital, the ability (or really the interest) to raise money. So what I did is, rather than attempt to do all that by myself, I decided to bring on a partner for the specific outcome of raising money. So I didn’t find someone who also liked to underwrite or someone who also wanted to be an asset manager; I found someone who was hyper-focused in the one skill that I was lacking in. That’s what you need to do.

Starting out, that might be a little different for you because you might have no experience or no credibility or strength; you actually might think you do… But you’ve gotta be a little creative. Based off of your educational background and your experience background, what do you have to bring to the table? What is it exactly? It’s gonna be something that you are good at and want to do and then, once you’ve identified that, you want to find other people, other partners, to complement what you’re able to do.

Find People Who Fulfill Specific Roles on Your Syndication Team

What do I mean by “do”? What exactly do you need on the general partnership side for the apartment syndication? Because you’ve got your passive investors who are investing in the deal and you’ve got your outside third-party team members who are finding deals for you, they’re managing the deals afterwards, but at the end of the day, apartment syndication is a business and you’re gonna need to have a team of people who are actually fulfilling the roles of that business.

There’s actually five parts to the general partnership. The first part would be someone who funds the upfront costs. This is the person who funds the costs from contract to close, although they’re usually reimbursed; you’re gonna need someone on the team that does that. There’s also gonna be someone that does acquisition management; they’re gonna find the deals, underwrite the deals, submit offers on the deals, manage the due diligence process, secure the financing, oversee the closing process… Essentially, everything from start to close.

You’re also gonna need a sponsor, also known as a key principal or a loan guarantor. This is someone who meets the liquidity, net worth, and experience requirements set forth by the lender, and they sign on the loan. There’s also going to be the investor relations person; they’re the ones who find the investors, secure the commitments once there’s a deal under contract, and is responsible for the ongoing communication with the investors.

And then, lastly, you’ve got the person who’s the asset manager. They’re the ones who manage the business plan and the management company after close. All five of those could be done by one person. One person is gonna be responsible for each; it could be really a combination of those two. And, usually, when you’re starting out, it’s probably going to be at least two GP’s.

For example, you might have one person that’s responsible for acquisition management and asset management; another person is responsible for investor relations. They’re a sponsor and they fund the upfront costs… But, more than likely, there’s gonna be a lot of GP’s. You might have one person who’s funding the upfront costs, you might have multiple people who are finding and underwriting deals, so they’re responsible for acquisition management; you might have ten sponsors to help you qualify for that loan, and you might have ten more people who are helping you raise money for the deal, and then a few people doing the asset management.

Determine Compensation

For each of these parts, there is a general compensation or general percentage of the general partnership assigned to each of these, so that’s how you know how to compensate your partners, as well as how you’ll be compensated. If you remember, in episode 1513, we discussed all the different ways the general partner makes money; that essentially goes into a pot, and if there’s one GP, then they get 100% of that pot. If there’s multiple GP’s, then the percentage of the pot that they receive is based off of the role that they’re fulfilling.

For the person who is responsible for the upfront costs, they’re getting reimbursed; there’s a little bit lower risk so, typically, they’ll receive maybe 5% of the general partnership, or there might be some other agreement that they make with that person, and then they’ll get any percentage of the general partnership. Maybe they get interest rate while the money is being held, or something like that.

For the acquisition management, that is obviously a much bigger role because you’re finding the deals, offering the deals, managing due diligence, and so on. So that is typically around 20% of the general partnership. The sponsor, key principal, loan guarantor, that person who signs on the loan – that could be anywhere between 5% and 20%. Now, why such a wide range? Well, it depends on the risk level of the deal. If it’s a turnkey property, it’ll probably be on the lower end of the range, whereas, if it’s a highly distressed business plan, then they’ll have to give them a little bit more because the risk level is increased.

It also depends on the type of loan. For example, if the loan is recourse, which means that the loan guarantor is personally liable, then you’re gonna have to offer them a little bit more than if the loan was non-recourse, which means they aren’t personally liable, unless a carve-out is triggered.

It also will depend on your relationship with this person. If you have a personal connection, a trusting relationship, with the sponsor, then they’ll likely charge you a little bit less, whereas, if they have no idea who you are, they don’t know your abilities, they don’t know you personally, then you’re gonna have to give up a little bit more of the general partnership to bring them on.

Other examples of ways to compensate this person is you could just give them a percentage of the principal balance at closing. On the low end, that could be 0.5% to 1%, on the high end that could be 3.5% to 5% of the loan balance, one lump sum paid to them. That could be in addition to or instead of the percentage of the general partnership.

Next, the investor relations person. That is also, obviously, very important, and it could likely be multiple people. That could be anywhere between 30% to 40% of the general partnership. And then, lastly, you’ve got the asset manager who would get 20% to 35% of the general partnership.

Qualifying a Potential Partner for Your Syndication Team

Now, how do you actually qualify a potential partner? Here are a few things for you to think about when you are talking to either potential business partners, like straight-up 50/50, breaking this apart 50/50, or when you are bringing on someone for a particular duty, like investor relations or as a sponsor.

Take Their Track Record Into Account

Number one, you’re gonna want to know what their track record is, in real estate and in business, similar to why you need a track record in real estate and in business before becoming an apartment syndicator… And you’re also gonna want to get a little bit more specific and ask them what is their track record on the specific thing they’re supposed to do. If they’re supposed to raise money, what’s their track record on raising money?

Find Out How Much Time They Can Devote to Your Partnership

You also wanna know how much time they have to spend on the business. Do they have a full-time job where they’re working 100 hours/week and they can only dedicate a few hours a week to their duty or do they have a more flexible job that allows them to give their responsibility the attention it deserves?

At the same time, you wanna know, especially if you’re doing 50/50, if they have the same amount of time that you have because that might bring up issues in the future if they’re working 20 hours a week in the business and you’re only working 5 hours a week, or vice-versa.

Consider if They Have Complementary Skills to You

You’ll also want to know if they have complementary skills to you. You wanna know what they’re good at, and what they’re bad at or inexperienced at, and see if you are essentially the opposite. So what they’re good at, you’re not good at or experienced at, and vice-versa.

You also want to know if you have complementary personalities. Essentially, can you get along with this person, or are you both very stubborn? Do you both need to be in charge, in control? Kind of on a more emotional, personal level.

Discuss Your Goals 

And then, lastly, what is your long-term goal? If your goals are too far apart, it also probably won’t work out. If you wanna make a billion-dollar company and they only wanna do a couple of deals before getting out then, again, that might bring up issues down the road.

Now, for the person who’s just starting out – and if you’re a browser of Bigger Pockets, you’ll see a lot of people asking questions about wanting a partner because they are inexperienced… And, if that’s the case, then obviously you’re gonna have to win them over. You’re gonna give them something to add value to them, or else why would they be working with you?

Reaching Out to Potential Partners and Syndication Team Members

A few strategies on how to actually be presentable when reaching out to potential partners who you actually need in order to help you complete the deal, whereas they don’t actually technically need you…

Have Experience

Number one is to have that strong business and real estate background. If you wanna know what that means, make sure you listen to episode 1499 and 1500 where we had a conversation about that. You also wanna make sure that you display your apartment investing expertise. While having a conversation with them, let them know that you know what you’re talking about, basically… Which means that you can answer their questions on what markets you’re investing in, your investment strategy… Essentially, the questions that you’re going to be asked by the property management company, real estate broker, other team members… We’ll go over that in the future episodes.

Add Value

You’ll also wanna bring something that they need to the table. Figure out what they need and help them with that. Maybe you have a particular skillset that they need or maybe you have money, but you need help with everything else… You need to bring something to the table, rather than just wanting to do a deal and that’s really it.

Connect to Them on a Personal Level

Also, try to form a personal connection. I know a lot of people have success wining and dining, going out to the bars for a drink or at restaurants, playing golf, and kind of just building a personal trusting relationship with this person so that they trust you and they’re willing to work with you.

Offer Payment

The last option is just pay them. Pay them money to be your partner. In that case, they’re essentially going to be a mentor, which is a perfect transition to the next section or the next team member, which is the mentor.

Your Syndication Team Mentor

The mentor is going to be a paid consultant, so I’m not talking about someone who is like a fatherly figure to you who you aren’t paying; this is someone you’re actually paying. A lot of people have different opinions on whether or not you need a mentor, and I’m not going to say whether you do or don’t need a mentor. Instead, I’m going to talk about what to expect or what not to expect from a mentor, and when you are ready to actually hire a mentor… And then the decision is ultimately up to you.

What to Expect From Your Mentor

Whether you need a mentor really comes down to your expectations of what a mentor will do for you, as well as why you’ll want to hire a mentor. The four things that you should expect out of a mentor is:

  1.  An active, successful apartment syndicator; they’re currently doing it, they’ve been doing it in the past, they plan on doing it in the future, and they’ve been successful.
  2. You should expect a step-by-step system, as well as the personalized help for you to navigate the grey areas. They should have a system for you to plug into to replicate their success, but you actually have to do the work… And things that aren’t covered by that system, you should be able to talk to them about those grey areas.
  3. A mentor is an ally that you can call on selfishly about anything. Since you’re paying them, you don’t really have to worry about asking them about their day or how things are going for them, because you’re paying them to just talk about yourself.
  4. And then, four, you should expect connections. Again, since they’re active and since they’re an apartment syndicator, they should have connections to the people that you need to help you create your team.

What You Shouldn’t Expect

Now, the two things that you shouldn’t expect… Number one is a knight in shining armor. Don’t expect to hire a mentor and then magically have a multi-million-dollar apartment syndication business in a couple of years. Expect to go in there and actually have to do the work yourself. They’re just gonna give you a leg up. And, lastly, don’t expect that done-for-you system. Again, you’re gonna be doing the work yourself; you don’t want them to do everything for you. Number one, they probably won’t be doing anything for you, and two, even if they did, you’re highly dependent on them and they’re never gonna be able to break off on your own.

What Should a Syndication Team Mentor Do?

Now, what does a mentor actually do for you, besides those four things to expect… 1) Providing you with a step-by-step system; helping you navigate the grey areas. 2) Being an ally to call upon. 3) Connections. 4) Them being the active, successful apartment syndicator…

You will also have the ability to leverage their credibility when talking to team members and to potentially passive investors, as well… Because you’re gonna say, “Hey, on my team there’s a board member who has done multiple millions of dollars in deals; they’ve been doing it for 20 years”, and then, also, you’ve got the potential for alignment of interests. Just the fact that they’re being on your team, you can leverage their credibility, but they also might have some sort of stake in the deal, whether it’s a sweat equity stake of actually working on the deal or they have their own money in the deal. Those are the things that a mentor could do for you.

When Should You Hire a Mentor?

How do you know you’re ready to hire a mentor? And not everyone is at that point right now… The two things that you need to do in order to be ready to hire a mentor – number one is to have the accurate expectations, which now after listening to this episode you actually have those expectations. And number two is to have a defined outcome. What is it exactly you want to get out of the mentorship? You need to know exactly what it is. Is it to find deals, is it to bring on team members…? It just can’t only be an apartment syndicator; it has to be something specific so that you can leverage that person accordingly.

If what you really want are connections, then the expectation is that the mentor should offer connections. So, when you’re talking to mentors, ask them about their connections and then, once you’ve actually hired them, make sure that’s your focus, at least at first.

How to Compensate Your Syndication Team Mentor

Now, how a mentor is compensated is really based on their compensation structure for their program… But I would expect to pay at least a few thousand dollars for a high-quality mentor. But, again, since we’re dealing in a hundred-thousand, multi-million-dollar industry, what’s a few thousand dollars if you’re able to close on a deal?

Qualifying a Mentor

Now, the thing to think about when you’re qualifying this person – number one, are they an apartment syndicator? Number two, are they still active? And three, do they have a successful track record? By successful – did they meet or exceed their return projections on their deals? You don’t want someone who just teaches apartment syndications but hasn’t actually done it before or isn’t still doing it because, like everything, it’s an evolving industry. And, if they were successful in the past, it might have been because something that happened in the future that didn’t affect them because they were buying the deals at that point in time. So make sure that they’re actually an apartment syndicator, that they’re still active, and that they have a successful track record.

Win Over Your Mentor

Now, I did say that the mentor is a paid person, so obviously, your way to win them over to your side is to pay them money… But once you’re actually in their program, there are still a few things that you can do to set yourself apart from the other people in the program in order to hopefully get extra help from them, and ideally, have some sort of stake in the deal… And the best way to do that – and it’s very simple said but harder in practice – is to actually make sure you remain active in their program and actually do the exercises. Once you get into the program, they’re gonna have some system for you, and it’s probably gonna start off by you getting educated and then kind of going from there… Make sure you set time each day to actually perform those exercises. Don’t just pay the money and then disappear. Make sure you’re active, actively asking questions to show that you’re serious about closing on a deal.

And then lastly, you can listen to episode 1507, “How to Break Into the Apartment Syndication Industry”, to learn another tactic for how to win over a mentor. In this specific strategy, it’s technically not a mentor because you’re not paying them money. You’re paying them in a different form… So I would definitely recommend checking out that episode (1507).

That wraps up this episode, the part one of the four-part series about forming your apartment syndication team. In this episode, you learned about the four core team members and the three secondary team members that make up your seven-man team, or seven-woman team, or seven-company team. You also learned the top six ways to find your prospective team members and then, lastly, you learned the process for hiring a business partner(s), as well as a mentor.

In part two, we will discuss the process for hiring a property management company. The fact that we’re dedicating an entire episode to just the property management company should tell you how important they are to your success.

Until then, to listen to other Syndication School series about the how-tos of apartment syndications, and to download your free team-building spreadsheet document, visit SyndicationSchool.com.

Thank you for listening, and I will talk to you tomorrow.

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Joe Fairless and Leslie Smith podcast episode JF1547

JF1547: Here’s How Commercial Lenders Are Looking At You with Leslie Smith

Leslie has over 20 years of experience in the financial services industry. She works with commercial investors and helps them get their deals funded. She’ll get creative and they will finance in situations where a lot of banks will not. Hear what lenders like Silver Hill are looking for in their clients. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Leslie Smith Real Estate Background:

  • Managing Director for Commercial Direct, a consumer facing direct lender
  • Led the launch of Silver Hill Funding in 2016
  • Experienced financial services professional and thought leader with more than 20 years in the industry
  • Based in Coral Gables, FL
  • Say hi to her at lsmith@silverhillfunding.com
  • Best Ever Book: Something in the Water

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

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

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


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

Leslie Smith: I’m doing great, thanks.

Joe Fairless: Well, I’m glad to hear it, and welcome to the show. A little bit about Leslie – she is the managing director for Commercial Direct, which is a consumer-facing direct lender. She led the launch of Silver Hill Funding in 2016, and she is an experienced financial services professional and thought leader, and has been one for more than 20 years. Based in Coral Gables, Florida. With that being said, Leslie, will you give the Best Ever listeners a little bit more about your background and your current focus?

Leslie Smith: Sure. I’ve been in financial services for most of my career, with originations in particular; I came into commercial originations about 12 years ago. It’s had different flavors, given how lending has changed over the last 12 months, but still, strictly in the commercial space.

Personally, I’ve been a banker, and now an originator at a non-bank institution, and it’s quite different and interesting… Both interesting, but still very different.

Joe Fairless: What’s different about the two?

Leslie Smith: Well, when you’re thinking about a bank – it has its own rules in a box; it’s kind of pre-determined for you, for many different reasons, whether it’s the risk tolerance of the bank, whether it’s the regulations that really kind of shape the lending decisions…

For a non-bank lender, you have a little more flexibility. There are still rules that we have to abide by and regulations, but less regulatory oversight, so therefore it gives you flexibility to change more quickly, adapt to what the market needs and  wants more quickly… And that’s generally been my experience – that speed to entry into the market, and flexibility to be much more creative on the lending side.

Joe Fairless: What are some specific examples of where you have more flexibility?

Leslie Smith: For my platform, we do small balance commercial loans nationally, and where we see flexibility, for example, is a lot of our customers come to us for cash-out. They’re looking to refi their current commercial property for cash-out, and the reasons for using that – there’s many different reasons, but the main reason is either to acquire another property, or reinvest in their own business and improve it.

From a banking perspective, that’s rare, for someone on the small balance side to get cash… But we’ve got uncomfortable from a due diligence credit perspective to be able to offer cash-out to the small borrowers… And what I mean by small – let me step back and say that our average loan size is about $350,000, so we are talking small. Our range is 250k to 5 million, but the core of our small business owner borrower is in that 350k range.

Joe Fairless: Got it. And what is a typical project that a customer has that you lend on or help with that cash-out refi?

Leslie Smith: From an investor perspective, they’re gonna buy another property, depending on where they are in their experience; we see a range of folks that have already bought single-family homes and have a nice, small portfolio, and then they’re kind of migrating into more multifamily properties… So we see that kind of cash-out, to invest in another property.

Another would be purchasing more equipment. We’ve seen folks trying to expand their businesses and buying additional equipment, or even just improving the look and feel of their current property; especially from a restaurant/bar perspective, there’s a lot of competition, so people wanna do a refresh. So those are some of the reasons they use the cash-out.

Joe Fairless: With a bar owner versus an apartment building owner, what are the different nuances of the underwriting process?

Leslie Smith: At the core of it is really how do you really look at their income. A lot of our borrowers have really not fully documented their income, and that’s where banks are just not comfortable lending. What we’ve done is figured out a way to find that income. It’s not always through tax returns [unintelligible [00:06:55].26] Bank statements. We can analyze a couple of full years of bank statements, and you get a lot more about the health of that business in that way. That’s one way. You also leverage a lot of third-party data to assess what’s happening in that business.

On the smaller side it’s slightly more difficult, because there aren’t that many data points when you have an auto park place or a small little retail strip mall, but still, you could be surprised how much you find out about someone and their business by simply googling.

Again, you have to be creative, you have to use non-traditional means to figure out whether this person is a good borrower and they’re gonna repay.

Joe Fairless: And earlier you said during the due diligence you look — credit is one thing, and then due diligence that you do on them is another thing… From a credit perspective, what do you look for?

Leslie Smith: We’re looking for a minimum score of 650 to start, as a FICO score.

Joe Fairless: What if it’s 625 but they’ve got a really good story.

Leslie Smith: I’ve done that. The story is important. When you’re talking about someone that’s asking for a $350,000 loan, that’s gonna be storied. If someone has the ability to go to a bank and get a loan, they’re gonna get that loan, especially if they have a local banking relationship. But the story is really important, whether it’s a 700 credit score or 625, there’s gonna be a story, with our borrowers in particular. And a lot of times that 625 – it may be a one-time hit, like maybe they maxed out their credit card for one month… And we see that. We see that because some people run their businesses that way. Particularly if you refurbish homes, you run up a bill of Home Depot, but you pay it down… And we just kind of take a second look at what affected that credit score.

The story to me is very important. It tells a lot more about what we’re looking on on paper, and actually brings it together. And frankly, as a national lender doing this out of Coral Gables, we’re just looking to see whether the documentation, the story and what we find from third-party sources aligns. That’s what we’re looking for. So for me, storied loans are what I like, and what we see every day.

Joe Fairless: What type of terms are typical for one of your customers?

Leslie Smith: A typical term for us is a 5-year term, 30-year amortization. Typically the loan-to-value is in the 68%-70%.

Joe Fairless: Got it. And when you come across a client and it just doesn’t work out, what’s the most common reason why it just doesn’t work out?

Leslie Smith: Typically for us it’s an unstabilized property. We’re the type of lender that’s looking for a higher occupancy; that’s one. The second piece is really that the story doesn’t align. We find some really significant holes in what they’re telling us and what’s really happening as we complete our due diligence. The third is real estate value.

Joe Fairless: Will you elaborate on real estate value?

Leslie Smith: Typically, when we’re refying, a lot of times people feel that their property is worth a lot more than it actually is. In addition, you have a lot of investors that have put in a lot of money into a serious investment into a property and refurbishing it, and a lot of times they’re new to that, and they think that for every dollar that you invest, it increases the value, and it doesn’t do that; it doesn’t translate into that. There are many other factors that go into that value.

Joe Fairless: What are some renovations that an owner did where they thought it would increase the value, or they thought it would increase value more than what you thought? I’m curious what those renovations were.

Leslie Smith: Specifically, I would say a lot of times they are really focused on the quality  – more expensive tiles, and expensive wood fixtures, and cabinetry, and it’s good quality stuff, but if it’s just an investment property and they’re not living there, they need to think about do they really need the most expensive tile? Could they just not necessarily remodel the entire bathroom, but just fix it, and make it look presentable to rent? I think that’s where a newer investor really is not aware. Also, they don’t necessarily hire the right contractors, and that bill can increase that overall cost of that renovation.

Joe Fairless: Yeah, right. So if someone else could have done the same exact work, paid half as much, and both parties got the same increased valuation, but one party paid twice as much as the other.

Leslie Smith: Yeah. I mean, I think a success story there is when you have an investor that already has partnerships and established people they use. They have a contractor, they have people that do specifics, and they as a pod continue on to different investments… And you kind of formulate a strategy by which “This is what it’s gonna cost me to do this, and these are my people, and my timelines have been pretty much consistent.” That’s when you know someone’s a little bit more experienced. They’ve probably made a mistake or two and they’ve learned from it, and now they have a method by doing the investment that makes sense.

Joe Fairless: Okay. Hypothetical scenario – I’ve got a 50-unit apartment building I’m gonna want to do a cash-out refinance… What would be the reason why I’d go to you versus a community bank?

Leslie Smith: A couple of reasons. If you’re gonna personally guarantee that loan, as most banks would want, are you comfortable with that personal guarantee? Are you talking about purchase only, or refi?

Joe Fairless: We’ll do refi.

Leslie Smith: Okay. So refi – number one, the bank probably won’t give you the cash that you want. Number two, they’re probably going to look at that real estate — because I’m not doing class A real estate. If you look at some of my properties, they’re not as pretty when you take a picture of them. So that’s another reason you would come here. If your property is not in the best neighborhood and it is not fully occupied, you’re probably gonna come to me. If there are concerns around environmental, you’re gonna come to me. If you want to close a loan really quickly – our average close is about 45 days – you’re gonna come to me.

Joe Fairless: Got it. What about on a purchase? If it’s not a refinance, but if it’s a purchase? What would be any differences or new things that you’d mention?

Leslie Smith: It’s probably the high LTV. We go up to 80%. So if you’re purchasing and you only have to put 20%, it makes a big difference.

Joe Fairless: Okay. And did I hear you correctly that you don’t require a personal guarantee?

Leslie Smith: In certain scenarios, your pricing is better if you do personal guarantee. If you do a personal guarantee, then we’re adjusting your overall rate to less risk because you’re personally guaranteeing. If you’re non-recourse, then the pricing looks different. So there are both options.

Joe Fairless: Will you give a hypothetical scenario for what the difference would be between guaranteeing it and not guaranteeing it?

Leslie Smith: I think you see a non-guarantee when you’re an investor, and this is not something you’re willing to put your personal net worth into…

Joe Fairless: Sorry, what I meant to ask was from your side, the difference in terms between the guarantee versus non-guarantee – what is a difference in terms typically between those two?

Leslie Smith: From an LTV perspective, you’re not gonna get to 80% of you’re not guaranteeing the loan. Your interest rate will probably look more if you’re not guaranteeing the loan, in the eights to nines, and if you’re guaranteeing the loan, you’re looking six to seven.

Joe Fairless: What’s the LTV usually?

Leslie Smith: For a guarantee, or a non-guarantee?

Joe Fairless: Guarantee you said it was around 80%, so for a non-guarantee.

Leslie Smith: Probably in the sixties.

Joe Fairless: Sixties… So for someone listening who has not been through this process, and they hear you say 8%-9% and 60% loan-to-value, they’re like “Oh, my gosh… Those 8%-9% interest rates… That’s twice as much as what I see when I search interest rates right now on Google.” What’s your response?

Leslie Smith: A couple things. Interest rates continue to increase. We’re in a very different place than we were last year at this time, generally… And also, we’re taking on risk. We’re taking on risk on someone probably — that profile of that borrower, their credit score is not the best maybe, the property probably is not in the best location, or has some sort of issue with it, where a traditional bank where they would give you that 4%-5% would give… So the pricing reflects what your scenario is, and the risk that the lender is taking. That’s really what it is.

Particularly if you’re thinking about doing a cash-out, if you’re gonna do unsecured, you’re gonna do double digits. If you’re gonna get a working capital online with any of the OnDecks of the world, that’s gonna be double digits and that’s gonna be a really harsh loan. We’re talking about using your current real estate, getting a loan that makes sense, and it’s not going to come due in 18 months. So it’s a couple different reasons, but literally the 8%-9% and 60% is just the risk that we’re taking with the property and the borrowers on the loan.

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

Leslie Smith: Know your objectives. You really have to have a plan, because I think that if you think it’s a good idea but you don’t really know what you want out of it, that really affects who you choose to work with and who your lender ultimately will be. It’s really important for you to know what you’d like out of that investment. If it’s short-term or long-term, then there are different lenders out there, and different costs to that loan, so it’s really important that you really know what you’re looking for.

Joe Fairless: Short-term or long-term, so thinking through how long we want to hold the property… What are some other questions we should ask ourselves when determining those objectives?

Leslie Smith: I would say also is this just gonna be a one-off, or are you building a nest egg for yourself, and are you building long-time wealth with this? That’s different, as well. I think that we see a lot of folks that really are thinking about their long-term wealth, and not just kind of a fix and flip and we’re done… So you have to kind of step back and consider that.

I would say don’t limit your investment property to where you live; think about maybe another area that is up and coming… So understand what’s happening in the neighborhoods, and maybe invest outside of where you live… Just in case anything happens, at least your particular property is in another part of the city that’s thriving if where you live is not.

Diversify. Don’t necessarily always buy in the same neighborhood or the same property type. Thinking about whether you could align yourself – if it’s a nest egg type of scenario – with a property manager to help you manage those properties effectively. I think that was maybe the most important…

Joe Fairless: If someone calls you up and they say “Hey, I’ve got a deal I want to do a refinance on”, what are some of the questions that you will ask during that first phone conversation?

Leslie Smith: Credit score, number one. What is your credit score right now? How long have you owned the property? That matters, for us particularly. If you have someone that has kept their property and their business through the recession, that speaks volumes. We ask also are they current on their personal home mortgage? That’s very telling to us from a consumer behavior perspective. If you’re current on your mortgage, that says something about you as a borrower.

We also talk about “Can you validate your income?”, because that then takes us to different types of conversations… Because we have a Full Doc program where you have bank statements, and tax returns – your more traditional underwrite… And then you have a Lighter Doc version, as we talked about earlier, which is our bank statement program.

So those are the questions that we ask, so then we can counsel as to where would be the best program to place them… Or from the beginning we could say “Well, maybe we won’t be able to do it.” Maybe their credit score is 500 and we won’t be able to do that loan, but at least those qualifiers upfront help us understand what they’re trying to do.

Joe Fairless: If it’s a Lite Doc program where you verify income through bank statements, does that mean they will have less favorable terms than if it was a Full Doc program?

Leslie Smith: Probably, and that’s where we’ll probably be limiting LTV.

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

Leslie Smith: Sure.

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

Break: [00:19:06].17] to [00:20:12].14]

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

Leslie Smith: Oh, my goodness… I’m a listener now. I’ve actually really adopted Audible very much. So I would say the last that I listened to that was pretty good was “Something in the Water.” It’s a murder-mystery. It’s what I like.

Joe Fairless: Sounds intriguing. What’s the best ever challenge you’ve solved in over 20 years of being in the financial services?

Leslie Smith: Hiring the right people. Hire slowly, fire quickly. Without a team that’s strong and that’s agile it’s really difficult to build a business.

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

Leslie Smith: I give back to my local university. I like to mentor a lot, whether it’s within our own organization – I participate in mentoring – and also within my local university… Because I think when people see a person that went to their school, graduated, and now their career evolved in a very non-traditional way, I think it helps people feel less about not becoming a doctor or a lawyer, or something that’s much more formed and shaped… That, I think, is the best way. I’ve also been able to  recruit really great people that way over the years.

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

Leslie Smith: Well, you can find us at CommercialDirect.com, and you can find me through LinkedIn as well.

Joe Fairless: Leslie, thank you so much for being on the show, talking about the different types of loans that you do, how you qualify your customers, and the pros and cons of the loans, as well as the getting into specifics of the due diligence that you look at. It’s important that we know that, as borrowers, so that we know what to have prepared whenever we speak to a lender… So thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Leslie Smith: Thank you, it was a great experience.

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How To Purchase 150 Properties Joe Fairless with Ben Fredericks Flyer

JF1526: How To Purchase 150 Properties In Just 12 Months! With Ben Fredricks

Ben got started with real estate investing in 2005, and was caught in the 2008 crash. He started educating himself more and went all in with real estate investing and education. He got started (again) by buying distressed bank owned properties and is still growing his business to this day. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Ben Fredricks Real Estate Background:

  • Real estate investor that specializes in bank owned and REO properties in bulk from auction
  • Purchased and sold over 150 properties in the last year
  • Offers seller financing to investors looking to grow their portfolio
  • Based in Port Orange, FL
  • Say hi to him at http://odellbarnesreo.com/
  • Best Ever Book: Sell Or Be Sold by Grant Cardone

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Best Ever Listeners:

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

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

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


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

Ben Fredricks: I’m doing awesome, Joe. Thanks for having me.

Joe Fairless: Yeah, my pleasure. Nice to have you on the show. A little bit about Ben – he is a real estate investor who specializes in bank-owned and REO properties in bulk from auction. He has purchased and sold over 150 properties in the last 12 months. He offers seller-financing to investors looking to grow their portfolio. He’s based in Port Orange, Florida. You can get a hold of him at his website, which is in the show notes. With that being said, Ben, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ben Fredricks: Sure, man. I got started in real estate pretty much at the wrong time, 2005-2008, and I just wasn’t ready from an education and mindset standpoint, and obviously everything went haywire. I actually worked for Lehman Brothers at the time that the economy collapsed, and it was just the perfect storm. We owned rental property, and we started losing tenants, because they were losing their jobs, and the dominoes just fell.

After that, I really had to reassess what we were going to do, because I knew I had to get back into the game, but I really kind of decided at that point that I was gonna commit full-on to education, between books and podcasts like yours, good seminars, bad seminars, you name it… I just spent a lot of time feeding my brain after that… And really — this might sound kind of corny, but I became a really big believer in the law of attraction in The Secret, and I just kind of started putting out into the Universe what I wanted… And soon enough, I started to receive it.

I met my mentor, my current partner off of (believe it or not) a Craigslist ad, of all things, and it changed my life… But it changed it because I was actually ready for it at that point. After that, I took massive amounts of action and then found myself in this arena of buying distressed bank-owned assets in bulk, and that’s how I got to where I am today.

Joe Fairless: Best seminar you’ve been to and worst seminar you’ve been to?

Ben Fredricks: I don’t wanna throw anybody under the bus… I think the best seminar I went to was by a friend of mine named John Cochrane. He kind of gave me some great insights into wholesaling and what I needed to know, even though that’s not really what we do in the sense that we’re not finding motivated sellers to wholesale contracts… But he gave me a lot of insight on how to market and do some good things. And from bad seminars – I think people have been to enough bad seminars, and I don’t need to call anybody out.

Joe Fairless: With what John taught you about wholesaling, what specifically did you use to apply that to what you do?

Ben Fredricks: It was mostly a lot about the marketing. So you acquire a property, and then how are you going to get rid of it? How are you going to put it out in the marketplace so that you can flip it quickly, make a good profit on it, and give a good deal to whoever is actually buying it. So it was really kind of knowing how to put together the numbers, and then take in those numbers and making it an attractive deal to the marketplace. I think that’s where I got the most value from, learning from him.

Joe Fairless: And what are some tips for how to put those numbers together?

Ben Fredricks: Well, it’s an amazing day and age that we live in, so you can find just about anything you want online… Finding numbers from places like realtor.com, or iComps, and even Zillow. Zillow gets a  bad rep of not always being accurate, but for the numbers that we do, it helps. Deriving numbers from those areas can really solidify what kind of deal you have, and then you know how to best price it. On these properties you don’t wanna always be at the top price; you wanna set your deal apart by coming in lower than everybody else, and that helps you know where to buy these deals as well.

Joe Fairless: 2005-2008 – you said you started in a very bad time, which, clearly, the economy collapsed in 2008, so I certainly would agree with that… You had a portfolio, it sounds like you lost that portfolio – is that accurate?

Ben Fredricks: That’s correct, yeah.

Joe Fairless: I imagine because of that things were tight financially to say the least, and you said earlier that you decided you would commit full on to education, there is a requirement usually of money in order to invest in your education — well, certainly with seminars, not with podcasts or things like that… So what made you decide to invest money into education when things were financially very tight with you and your finances?

Ben Fredricks: Yeah, I just didn’t see any other choice, and I knew that if I was gonna get back into the game, I couldn’t make the same mistakes again. Somebody once said to me, “The best investment you can make is into yourself”, and I really just tried to take that to task. It wasn’t easy, by any means. My wife and I did everything right, it seems, from the get-go. The properties we bought, we put 20% down, we maxed out our 401K’s and our savings, and it went terribly wrong… But what we didn’t account for was what happens if there’s negative cashflow… And we always just thought, “Well, we’ll make it up with our income if we need to”, and that was just stupid.

So not wanting to make the same mistakes again, there was really no choice but to invest in ourselves and then spend that money to get educated. So a lot of times, you’re absolutely right, it was difficult. I borrowed money from my 401K to make those investments in myself, and thankfully, they’ve paid off.

Joe Fairless: You met your current partner off a Craigslist ad. Will you elaborate?

Ben Fredricks: Sure. A couple years back I was at the point where I was like, “Okay, I’m ready. I wanna really dive back in.” I was working in financial services, I absolutely hated it, it wasn’t my passion, and I knew real estate was where I wanted to be, so I just started saying “You know what, I know people that are interested in being private money people, and let me see if I can put them together with people that have deals.” That’s really how I came about. I was essentially trying to be a syndicator. I said, “I will help you fund your deals. Reach out to me”, and that’s how I got a call. My partner called, and told me — funny enough, he said “This might be the greatest call you ever got.” It really was. I laughed at that time, but it really was. He changed my life.

Joe Fairless: And what were some steps after that call that changed your life?

Ben Fredricks: Well, I didn’t know what I do now really existed. I knew there were bank-owned properties, but I didn’t really know how people would be able to buy 30-50 deals at a time. So I went and met him for a drink, he was here locally in my market at his vacation property, and I learned about it. He said, “Well, you can come up and learn about it”, and I said “Absolutely.”

I came home and told my wife, “Hey, I’m going to this guy’s house in South Carolina, who I’ve just met and had one beer with, and I learned all about this business.” She looked at me like I was crazy, but it turned out awesome. It was really just taking a leap of faith and saying “You know what, this sounds like an amazing opportunity. Let me just take some action here.”

Joe Fairless: And was there a fee for you to go learn from him in that setting?

Ben Fredricks: Zero.

Joe Fairless: So what was his business benefit from meeting with you?

Ben Fredricks: I think his business benefit was saying “Hey, here’s a potential investor that can buy some deals from me.” That was his business – acquiring these properties in bulk and then having a big network of investors that would take these properties from him after he acquired them from the bank. I think he’s just a man that deeply believes in good relationships, and we hit it off. He’s like a father figure to me at this point. The benefit to him was saying “Hey, I might have a great relationship with somebody that’s hustling and wants to do big things.”

Joe Fairless: And how do you two – or the group, if there’s more than the two of you – structure your roles and responsibilities now?

Ben Fredricks: It’s run pretty much like a business where I focus mostly on systems – hiring, recruiting, people that are sales staff, things like that… Then one of my partners – he focuses on acquiring the deals and the properties; that’s his expertise. He’s been one of the biggest auction buyers in the last 40 years in the country. Then my other partner – he kind of runs the sales team and handles all of our distribution.

Joe Fairless: What’s “handles our distribution”?

Ben Fredricks: We have investors that we work with on a consistent basis, and he manages what they’re looking for, so we can help them find those deals.

Joe Fairless: Okay, got it. So high-level you’re responsible for the systems, and then another partner is responsible for bringing in the properties, and another partner is responsible for liquidating the properties.

Ben Fredricks: You got it, absolutely.

Joe Fairless: Okay, got it. How do you buy 30-50 deals at a time?

Ben Fredricks: Well, it didn’t start out that way. Initially it started out with buying two deals at a time. Then it took some time to work up to that. Really, what I wanted to do was just say “Okay, let me understand this process fully, let me do some deals, and then let me get very good at what we do, and then start taking that to the market.” Our first private money investor gave us about $150,000, and then over the last 12 months we’ve raised I think close to 3 million at this point. So it was really just doing what needed to be done and starting off, and then showing and proving that we can do what we say we do.

Joe Fairless: How long have you been doing this with the group?

Ben Fredricks: Close to two years now.

Joe Fairless: Two years. What’s been a challenge that you’ve overcome as it relates to the growth of the company?

Ben Fredricks: When you start acquiring a lot of properties, it does become cumbersome if you’re managing — like, right now I think we have close to 120 properties in inventory… So managing the day-to-day on those things, getting them signed, getting pictures and getting them uploaded to the website… It’s a lot of tasks that come along with it. And then you’re also managing the business itself, so it’s not an easy day-to-day thing. We have a hell of a lot of fun doing it; there’s certainly a lot of work that goes on behind the scenes… And we still don’t have it perfect, Joe. There’s so many things I miss the ball on when it comes to social media and things like that that we have to improve, but it’s a daily thing that we try to get better at.

Joe Fairless: What’s one thing that you’ve made the most improvement on as it relates to that?

Ben Fredricks: I think it’s making the transaction somewhat easy. We’ve hired a virtual assistant, so people can effectively and quickly do a transaction almost through our website. They can make offers and apply for financing and things like that directly on the website. That in and of itself cut down a tremendous amount of time in our day that was being spent reviewing offers and paperwork and all that stuff. So it’s really just trying to find those little time-saving pieces.

Joe Fairless: Is there a software program that you’ve purchased in order to do that?

Ben Fredricks: No, I had that developed by a website expert, so to speak, and I just told them what we wanted. They did it all through WordPress; that’s all technical stuff I have no idea about, because I pay somebody else to take care of it.

Joe Fairless: Ditto. What is the investment to pay someone to take care of that?

Ben Fredricks: It wasn’t much, actually. We interviewed a couple of people to do a website, and the first couple of quotes were ridiculous. They were like $15,000-$20,000, and this website I think we got done for about $3,500.

We have some little ancillary deals we constantly are working to improve it, so we might spend a hundred bucks here, a hundred bucks there to get some tweaks done to it, but overall it was pretty affordable.

Joe Fairless: Are there a lot of bank-owned properties still out there?

Ben Fredricks: Oh, my god… There’s tons. The banks were so slow, and there’s still inventory that’s just been sitting there because the banks haven’t gotten to it. So yes, there’s a tremendous amount of opportunity. And a lot of the stuff that we buy, people will look at it and say “Well, that’s a leftover. Nobody wanted it.” And somebody wants it, believe me. We wouldn’t have a business if somebody didn’t want it.

Joe Fairless: What’s a typical transaction?

Ben Fredricks: In regards to what?

Joe Fairless: Like a bulk purchase… What’s a typical bulk purchase that you all buy?

Ben Fredricks: Okay. Last month we got, I think, 44 properties, and I think we spent somewhere around $650,000 on that particular package. It just varies from month-to-month, and depending upon where we buy. Ohio, Michigan, Missouri, places like that in the Midwest – there’s just an abundance of deals that are available, that we can pick up for a couple thousand a piece.

Typically, our average deal is somewhere around 15k-20k.

Joe Fairless: Do you remember the last transaction that you all did?

Ben Fredricks: The last transaction… Well, we do quite a bit of them…

Joe Fairless: How about the most recent transaction where you remember some of the numbers and specifics? I just wanna learn about a recent transaction you’ve done.

Ben Fredricks: Sure. Well, today I was just working on an owner finance deal, and that was a triplex that we picked up in Mississippi for about 18k. We sold that on an owner finance note to a local investor. They’re putting $5,000 down, and it cashflows for us about $600/month for the next 15 years.

Joe Fairless: Wow. Where did you say that is?

Ben Fredricks: That’s in Mississippi.

Joe Fairless: That’s in Mississippi… You are not in Mississippi, you are in Florida, so how did you come across it?

Ben Fredricks: This was on a bank-owned asset. Typically, what will happen is the bank will come to us because they know we’re gonna buy, and they’ll say “Hey, we have these particular assets. These are kind of what we’re looking for out of them”, and then we can make the bids accordingly, based on what we think we could get for the property… Sort of what I was telling you about before, where we think if we could price it well enough to make it a competitive deal… So yeah, that’s pretty much how we get the deals.

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

Ben Fredricks: I think my best advice ever is if you fail, don’t be afraid to get back in the game and take massive amounts of action, and be different. I think someone else wise once told me “There are riches in niches.” I see so many investors doing the same things as other people, just trying so hard to find the perfect deal… Just start doing deals. If you can just start doing deals, taking massive action, working hard, you’re gonna find ways to be successful. That’s probably the best advice I can give.

Joe Fairless: Are you still focused on committing to your education?

Ben Fredricks: All the time. I’m a podcast junkie. I’m  up at [4:30] every morning for the most part, listening to podcasts like yours, reading books… It’s become an addiction to me. Once we get the taste of “Hey, self-improvement… I feel better about myself, the condition that I’m in”, you can’t stop it, because if you stop, you start to slip back into those old habits of not feeling so great about yourself. So yeah, I cannot stop; it must continue.

Joe Fairless: And what are a couple resources…? Perhaps I should have saved this for the Lightning Round, but who cares…? What are a couple of resources that you recommend?

Ben Fredricks: As far as mindset?

Joe Fairless: Yeah.

Ben Fredricks: Well, as far as things that have helped me, Tony Robbins has been tremendously instrumental in my ability to have a better mindset… And Andy Frisella… Guys like that have helped me tremendously.

Joe Fairless: Andy who?

Ben Fredricks: Andy Frisella. Those guys have helped me a lot when it comes to getting my mind right. And then as far as any books – A Man’s Search for Meaning, or The Alchemist… Those are my two favorite books and they’re quick reads that I’ll go back to and read a day or two if I’m feeling like I need to pick up…

Joe Fairless: Now we’ll do a lightning round. Are you ready for the Best Ever Lightning Round?

Ben Fredricks: Fire away.

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

Break: [00:18:48].21] to [00:19:39].13]

Joe Fairless: Best ever book you’ve recently read, that you haven’t mentioned already?

Ben Fredricks: Well, right now I’m reading “Sell or be sold” by Grant Cardone. I’m thoroughly enjoying that… So that’s a good one.

Joe Fairless: Best ever deal you’ve done?

Ben Fredricks: I knew you were gonna ask me this question, and I don’t know if I could pick just one deal. It’s kind of like asking “Which one is your favorite kid?” I think I love doing a deal so much that I think my next deal is always the best deal I’ve ever done. I wish I could answer that more directly, but we’ve done so many this past year, and each one is like my baby, I feel like.

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

Ben Fredricks: I think early on we were so eager to sell a deal that we probably were negotiating from a point of weakness, and I knew what the property was worth, so I think that’s an area where I’ve vastly tried to improve. I think just being so eager to do a deal, a lot of times… I’ve probably left a lot of money on the table over the years, but that’s okay; I think in the end if people get a great deal, they’re gonna come back and buy some more.

Joe Fairless: I’ve heard some conflicting statements there… You said you’re getting better, but then you said it’s okay, because that’ll come back around…

Ben Fredricks: Yeah, I try to walk a fine line there, Joe, because I do want to make a good return on investment, I do wanna make good money, but I do wanna give somebody a great deal, so it’s an inner fight that I’m having on almost a daily basis. And you know what, I’ll tell you straight out – that’s kind of why I’ve put my partner in charge of the sales, because he’s a little bit tough as nails kind of guy when it comes to that stuff, other than me. He was in the auction business for 30 years, he’s heard and seen it all, so I say “You know what, why don’t you deal with most of that, and I don’t have to feel so bad about leaving money on the table?”

Joe Fairless: Yeah, we structure our company similarly… Because I have a similar mindset that you have, and my business partner is much better at negotiating than I am, because he’s just got a knack for it.

Ben Fredricks: It’s good to know your weaknesses sometimes, so you can focus on your strengths and then delegate out the things that you’re not so good at. That’s part of being in business, I guess.

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

Ben Fredricks: I’ve thought about that a lot this year, and one of the things that we wanna do is start to donate some properties. I would love to do that, so if any of your Best Ever listeners are knowledgeable in this area or run non-profits, I would love to hear from them. And then also, I love talking to new investors and kind of opening their eyes to the possibilities. My mentor and my partner is giving me everything without it costing me anything, and I know I have to pay that forward, it’s my duty. So I don’t wanna be the guru course guy; I would rather create a tribe of people that understand how to do deals, and then they can create a life for themselves.

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

Ben Fredricks: We’re branded pretty much the same around the web, so you can reach out to us at OdellBarnesREO.com. We’re at Odell Barnes REO on Facebook, and Instagram, and YouTube.

Joe Fairless: Well, thank you so much for being on the show and talking about the challenges you had at the beginning of your investing career in real estate, and then how you focused on the education, how you got in touch with your current business partner, and how you all are operating your business and how you structure the roles and responsibilities based on skillsets, as well as some specific resources that you’re using and have used, that have helped you out.

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

Ben Fredricks: Thanks, Joe. I appreciate it.

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Joe Fairless and Jay Helms on the Best Ever Show episode 1476 flyer

JF1476: How To Add 42 Units To Your Portfolio In Just 12 Months with Jay Helms

Jay is a very experienced investor, and he also is a real estate blogger. Over the last 12 months Jay has stepped his game up a bit and added 42 units total to his portfolio. That sounds like something any investor would like to do, so hearing how Jay has done it can certainly help. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Jay Helms Real Estate Background:

  • Started investing in 2006 with single and multi family homes
  • Has added 46 units to his portfolio in the last 12 months
  • Based in Pensacola, FL
  • Say hi to him at https://helmsrei.com/
  • Best Ever Book: Go Giver by Bob Burg

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

Best Ever Listeners:

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

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

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


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

Jay Helms: I’m great, Joe. Thank you for asking. How are you?

Joe Fairless: I’m doing great, and I thank you for asking. A little bit about Jay, he started investing in 2006 with single and multi-family homes; over the last 12 months he’s added 46 units to his portfolio, and we’ll talk about that. He is based in Pensacola, Florida. With that being said, Jay, will you give the Best Ever listeners a little bit more about your background and your current focus?

Jay Helms: Yeah, so 2006, as we all now know, was the high of most of the markets. My first — well, it wasn’t actually my first purchase, but it was my first live-in flip purchase. I was a single guy at the time, thankfully, and now my wife eventually moved in with me and saved me from making some horrible design decisions… But we bought it at the high of the market, lived it in while we were flipping it, which basically laid the groundwork for what we’re doing now with two kids, so it makes it a little bit more challenging… But that was it, that was the first purchase, and then we kind of put a pause button on everything, just the way the market was going; we didn’t really know what was going on, and that property was actually in Birmingham, Alabama… And I like to call that my false start.

The true start happened in 2014. We had already moved to Pensacola, we had been down here for a few years, and we really started focusing on what the market was doing and how it was recovering… So we had held on to the house in Birmingham, we turned it into a rental property, we finished all the renovations that we wanted to do, and held on to it for a rental property. We held on to that thing for about ten years, until it was ripe to get rid of it.

We walked away with some equity, and then we took that equity and put it directly into some single-family homes down here in Pensacola. That has been our focus for several years, and then last year, about this time actually, we closed on a 42-unit apartment complex over in Mobile County, Alabama, with a couple of partners. That’s the big bulk of the 46 units in the last year, but it has been an interesting and a great learning experience along the way.

Joe Fairless: Yeah, we’ll focus most of our conversation on this 42-unit, but just so I am understanding correctly, because I was with you up until when you said you sold the one in Birmingham and put that into some single-family homes in Pensacola, because in my mind, properties in Pensacola are much more expensive than Birmingham… So what are the numbers on the Birmingham property?

Jay Helms: The Birmingham property we bought for 216k, we put in around 42k-45k in the rehab, and then we ended up selling it for 246k. So over that ten years that we had it as a rental property, that our equity was being built by the renters that were living there… So we took that money — and when you say Pensacola, there were some areas of Pensacola, just like anywhere, where you have luxury homes, and there are areas that are up and coming neighborhoods, that are going through some revitalization.

So we were able to take that equity and put it into some of those real niche, real small neighborhoods that were up and coming, if that makes sense.

Joe Fairless: Yeah, but I wanna make sure that I got the numbers right… You bought if for 216k, put in 42k-45k; using 42k, you’re all-in at 258k, but then you said you sold it for 246k?

Jay Helms: 246k, yeah. So on paper it looks like we lost money, and we did. That was a huge learning experience for us, putting ourselves through school on that one… And the main reason that I sold it – I started listening to podcasts, and trying to understand the buy and hold market, because fixing and flipping is the sexy thing to do, right? So that’s what we were trying to get into, and I was like “Well, what makes more sense for us is buy and hold… So let’s look at how this property in Birmingham is actually doing if we analyze it correctly, and Joe, what I came up with is that property, just because of where it was located and the rental rates, everything that was going on in that market, it was costing me several thousand dollars a month to keep it.

When I figured that out, I talked to my realtor and I said “Look, we just gotta get rid of it. I’ve got some equity into it now, I’m not gonna have to closing with anything… Let’s just get rid of it.” So I walked away from that property with about 41k in cash.

Joe Fairless: Okay, so 41k in cash, and then you used that as a down payment for a couple properties, or what did you do?

Jay Helms: So we took that and we actually found a foreclosure. It was a one-bedroom, one-bath house, we paid cash for it, and did renovations. We were all in with that one for about 30k, and that rented right away for $600/month, and it stayed rented the entire time that we had it.

This last February — I had some really great tenants in there, and I told myself and my wife, we talked about “Hey, once these tenants leave, let’s look and see if we can sell it.” Well, we tried that and nothing came about. Then a gentleman approached me; I guess he had been looking at the house and kind of watching it, and said “Hey, I really wanna buy this house from you. What will you take for it?” So we agreed on a price, the tenant is still in it, it’s still cash-flowing, great numbers – and when I say great numbers, this is cash-flowing $350/month from a cash-flowing perspective, after all expenses are covered… And he paid me 50k for it.

I was happy with the price, he was happy with the price, and then we turned it around and took that 50k and 1031-exchanged it into a fourplex.

Joe Fairless: Really?! You 1031-exchanged 50k?

Jay Helms: Yeah.

Joe Fairless: Wow… Into a fourplex! What are the numbers on that?

Jay Helms: The purchase price was 145k, rents are $550 for each unit. Tenants are responsible for all utilities, and it comes out cash-flowing about $600/month once all expenses are paid.

Joe Fairless: Did you have to put any money into it in order to get tenants to move in?

Jay Helms: No, it was fully occupied. This was what I referred to as the little yellow house, which is that 1-bedroom 1-bath house that we just talked about… It was an off-market deal; the fourplex that we purchased with that 1031 exchange was an off-market deal, and we came about the fourplex through our local REIA meetup.

Joe Fairless: How did that go down?

Jay Helms: Well, have you ever done a 1031?

Joe Fairless: Yes… Sorry, that was a very broad question. When I said how did that go down, I meant how specifically did you hear about it at the meetup?

Jay Helms: So with the 1031 you’ve got certain timelines that you’ve gotta meet, and I’d reached out to all the realtors that I’d worked with in the past, and some new ones, and saying “Look, guys, I’m under a 1031 clock. I’ve got to do something, otherwise I’m gonna be penalized pretty heavily…” and I could get anything. I kept getting listings from the MLS, and right now, especially for the Pensacola market, there’s nothing that meets our investing criteria.

Our local REIA has a closed Facebook group, and I just posted in there, I said “Here’s what I’m looking for. I am under a 1031 exchange clock. Let me know what you’ve got.” I got two or three people that responded immediately, saying “Hey, I’ve got this listing, I’ve got this off-market deal”, and this one had the best numbers.

Joe Fairless: Alright, cool. So now 42 units, with you and some partners… Please, tell us the story.

Jay Helms: So my main partner Tim Kelly and I met through one of the social media groups that focuses on real estate investing.

Joe Fairless: Which one?

Jay Helms: Bigger Pockets.

Joe Fairless: Okay, cool. I love Bigger Pockets.

Jay Helms: Yeah, those guys are great. So he and I met through there… Actually, we were linked up by a local realtor that had been talking to us individually and knew we shared some of the same goals, so we all went and sat down, and had some Mexican, drank some beer and started talking about how can we put a deal together.

Tim and I finally ended up working on a deal over in (again) in Mobile County, Alabama. It was a distressed seller; he’d bought it about ten years ago. He was an elderly man, he was in his mid-seventies; he was living there through the week, trying to self-manage, trying to do the maintenance himself, the lawn care himself, and the property was just in really bad repair. It had a lot of deferred maintenance.

We went through several months of negotiating with him, and then after we got it under contract for 700k, we started raising money. So we started reaching out, again, back to our local REIA group, and we partnered with two other members from our local REIA group on this deal and we all made it happen.

Joe Fairless: 25% across the board, or a different split?

Jay Helms: A different split. We basically split it up into class A and class B membership, to where class B membership are your asset managers, like myself and Tim and the two other members, and then the class A members are the money guys, who brought most of the capital for us to close.

Joe Fairless: Oh, okay, so you have three other class B partners, and then you have passive investors.

Jay Helms: Correct.

Joe Fairless: Okay. But in terms of the class B partners, you and the three other partners – is that 25% each, or how did you split it up?

Jay Helms: That is 10% each.

Joe Fairless: 10% each… Oh, sorry, I’m referring to the — again, my questions aren’t very good with you, sorry about that.

Jay Helms: That’s okay.

Joe Fairless: I’m referring to the general partnership, how did you four split up the general partnership?

Jay Helms: 10% each. Basically, what we did is the class A members had 60% equity, class B members had 40% equity, and then we split that class B membership, since there’s four of us, we split it  up 10% each way. So there’s four members total in the class B.

Joe Fairless: Okay, got it. But the only people in the class B are four people, so in essence you each have 25% of the general partnership. And then you have 10% of the overall deal.

Jay Helms: Correct.

Joe Fairless: Okay, cool. Got it. 700k purchase price… How much did you have to allocate for renovations?

Jay Helms: On top of the 700 we allocated 200k for renovations. That included a complete remodel of 12 units; there’s seven buildings on the property, so we painted the exterior of all seven buildings, we upgraded the playground equipment, which had been there I think since the property was built, in the early ’80s. We renovated the laundry facility with new equipment, we got new signage, repaved and restriped the parking lot… And there’s a fun thing about this apartment complex, Joe – we’ve removed a beehive… It was one of the unoccupied units – we’ve removed a beehive from this thing that was at least five years old.

Joe Fairless: Oh, my gosh…

Jay Helms: We had to hire a professional beekeeper to come in and take all this stuff out… But it was in the rafters of the ceiling; so you had to cut the sheetrock back, and once you cut the sheetrock back, the [unintelligible [00:13:46].01] in this thing was 18 inches by about 6 feet.

Joe Fairless: Oh my…

Jay Helms: But the cool thing is I grabbed a bunch of the honey when they did it, and packaged that up and ran it through some filters and cleaned it up and jarred it, and put some labels on it, and we gave it to all of our investors and partners.

Joe Fairless: [laughs]

Jay Helms: So I handed the jars over and I joking said, “Hey, either this is gonna be the most expensive jar of honey we’ve ever purchased, or consider this your first divided.”

Joe Fairless: [laughs] Oh, I love it!

Jay Helms: Everybody got a kick out of it. It was an interesting story.

Joe Fairless: Oh, that’s so great… I was gonna ask you some follow-up questions about honey and what you did with it, but you just rolled with it, you did all that stuff… That’s great! That’s awesome.

The $200,000 in renovations – you did a whole lot for $200,000. What was the most expensive item, and how much was it, if you can remember?

Jay Helms: The most expensive singular item was probably repaving, restriping the parking lot. That came in at about 25k. But individually, one of the things we ran into that we weren’t expecting, and that just didn’t show up during due diligence, was when we got in to renovate some of these units, we had a budget — there was a mix of 1, 2 and 3-bedroom units, so our budget was 6k for the one, 7k for two, and 8k for the three… We went over that budget; so we’ve had to really concentrate on finding better deals, and the parking lot was one of those deals.

The first quote I think we got for the parking lot was around 60k, or 62,5k. So one of our other partners said “No, that’s way too expensive. I’ve got this guy I’ve used before, let’s give him a call.” He came in and did with 25k the same job, and did a phenomenal job.

Joe Fairless: And what about painting the exterior of all the buildings? How much was that?

Jay Helms: That was around 22k… So it’s right there, closest to the most expensive. And probably why it’s not more is the bottom — so these are two-story buildings, and the bottom is brick, so we left that alone, and we just painted the top level.

Joe Fairless: For someone who’s listening and who has not put together a deal of this size, and they hear your story, like “42 units, that’s incredible! They’re doing this value-add business plan… They must be instant multi-millionaires as a result of the deal.” I doubt anyone’s saying “instant multi-millionaires”, but how much have you made in this deal, just to give a sense to the listeners of what’s possible when you do a deal like this?

Jay Helms: It is a value-add deal, so the first year we did not project to make any returns to our investors, and I’m glad we didn’t, because we haven’t… Yet.

Joe Fairless: You gave them the honey.

Jay Helms: Yeah, they got that, right. [laughs]

Joe Fairless: That wasn’t in the projections. You’ve exceeded expectations.

Jay Helms: Yeah… But our first year, as we were walking in, we knew it was gonna be a mess, and the property was only 50% occupied at the time… And these were not necessarily tenants we would recruit. So we knew as we were going through — and of course, you’ve done some of these, where renovations and upgrades always take longer than expected. That happened to us, for sure… And then also, we got rid of the bad tenants and we started getting great ones. And we also had a hiccup with property management. We’ve been through a property manager change in the last year, since we bought it. There’s been a lot of different things that came up, we’ve learned a lot, but we’re on a path now to hit those projections.

We’ve gotta do some additional marketing. The property manager we have now has done a great job; she’s born and raised in the area, lives there, is a broker in that area… So the word’s getting out that she is now managing that property, and she’s filling up units faster than we can turn them around… So we’re on a good path. We’ve hit our numbers according to our plan; I think everybody was hoping that we’d be further ahead, obviously, than we are right now, but the future’s looking bright, as they say.

Joe Fairless: Did you all have an acquisition fee, or anything like that at closing that the class B partnership was compensated with?

Jay Helms: We did. It was 2% of the purchase price, but what we did is we basically turned around and reinvested as class A partners, adding some additional funds.

Joe Fairless: Okay, got it. Cool. So you don’t have money in your bank account right now as a result of this property yet. You could have, but you reinvested that money from the acquisition fee into the deal, therefore you have no profit personally to show for it yet, but you’re working the business plan.

Jay Helms: Yeah, we are working the business plan… And if we are too far off in the business plan, I’d be stressed out a lot more than I already am… [laughs] But going back and looking at our deal package we put together and the business plan we had there and the things we wanted to accomplish in year one, we’ve done that. There’s some things in year two that we’re already ahead of, and the money is gonna come. We’re not necessarily worried about that.

Joe Fairless: What did the management company not do that you needed them to do?

Jay Helms: To be frankly honest, they needed to tell the truth. They were just not very ethical people, from where I sit.

Joe Fairless: And how did you determine that?

Jay Helms: Well, there were some things that came up, from move-ins and move-outs… Specifically when tenants moved out, they’d go back in and make sure the units were clean, and make sure things were happening… We had a little bit of a pest issue that we dealt with – that’s the biggest example I can share with you.

Joe Fairless: Okay.

Jay Helms: And there were certain things that came up… If a unit has been offline in this particular county for six months, you have to get a new inspection done, for a city inspector to make sure it’s up to code… So we worked with the city inspectors and said “Okay, what do we have to do to get the power turned back on in this unit?” and he let us know, we approved the quote; well, the maintenance man they had didn’t necessarily do — they tried to hide some things from the inspector…

Joe Fairless: Like what?

Jay Helms: Ventilation of gas appliances, strictly the furnace and hot water heater. At the city, the code is you’ve gotta have a ventilation pipe for each appliance… So what they did instead of running two exhausts through the roof, they punched a hole in the ceiling, ran two exhausts through the ceiling, and then tied them back together before they exhausted out through the roof.

The city inspector found it, of course… And we didn’t know this was going on, but when we found out, hey, we’re not passing inspection, and it’s been a few months, we were like “Why not?” and this is what was told to us.

Certain bills weren’t paid, things of that nature. They just weren’t very honest. And that’s on us. We should have done better due diligence when we were interviewing property managers to begin with.

Joe Fairless: And how did you initially find them, and then how did you find your current management company?

Jay Helms: As we had this property under contract, we started working through our due diligence items; I just googled “property management Mobile Alabama.” I started calling everybody… Where this property is located is North of the county, it’s almost out of the county, so a lot of the property management companies didn’t want anything to do with it, because of the distance.

When I say distance, it’s about 30-45 minutes outside of the city. But this one company, they convinced us they were extremely hungry, and promptly returned our calls if they  didn’t answer right away… I guess in the beginning we were in the honeymoon phase, and then we got to know each other after we got married, and it was not a pretty picture.

And then the current property manager we have, she is actually a — I’m gonna get her title wrong, but basically she is a part of the economic business development team for that city. So through our due diligence process and trying to find out “Okay, how is the city growing? What’s going on? How is the school system?”, she was our main point of contact, and she knew this property… Obviously, as she’s lived there her entire life; she knew this property, she knew what kind of deferred maintenance was going on and disrepair, and she was excited about somebody to come on board and really ramp it up to what it could be.

So she was extremely beneficial and helpful throughout the whole due diligence process, and working with us… So we eventually just approached her. Her business has some property management pieces of it; none of it apartment complex related, but the relationship there is so good, and she appears to be extremely honest and helpful, that we just said “Hey, what do you think about taking it over?” As a matter of fact, she might have approached us about taking it over…

Joe Fairless: What is one question you would ask a future management company that you didn’t ask the first one?

Jay Helms: Tell me about your team on the ground. Who do you have that’s within a 5-10 mile radius of the property that we’re looking to buy?

Joe Fairless: So you’re looking for proximity of current team members… And anything else? Any one or two follow-up questions you’d have, whenever they talk about their team on the ground?

Jay Helms: Well, the team on the ground is “Who do you have? Who do you know? Who are your contacts?” but probably a more important question – I probably should have said this first – is what is your plan to increase occupancy? What is your marketing plan? We’re at 50% now, we’ve got some people that need to get out, we expect we’re gonna go down to 30% occupancy… Once those bad apples are out, we’re finished with renovations, what is your marketing strategy to fill it up, and how do you foresee that playing out? Can we do some of that before we’re completely finished with renovations?

Because when renovations are going on, there is a lot that’s happening, and without your finger on the pulse constantly, things are gonna get missed.

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

Jay Helms: Know your market. We started investing in Pensacola three years ago; it is not the same market today as it was three years ago. The prices are high, the rents are following… Between my wife and I, we look at probably two or three properties a week, if not daily. Our last acquisition was in May, and it was over in Mobile.

So I’d just say know your market, regardless where you’re gonna invest; spend some time understanding and learning, so you don’t get yourself in a situation like I did in 2006.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round? Alright, let’s do it. First, a quick word from our Best Ever partners.

Break:  [00:24:21].21] to [00:25:09].01]

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

Jay Helms: Best ever book I’ve recently read… I’m gonna have to bring it up  on my phone, because I just downloaded it. So I’m an audiobook guy; I spend a lot of time in the car… So The Go-Giver.

Joe Fairless: Oh, Bob Burg. It’s a good one. Yeah, good story. Best ever deal that you’ve done?

Jay Helms: It was probably the little yellow house that we were talking about. We bought it for cash for 30k, and everybody told me I was crazy… They didn’t know that you could buy houses for 30k. We turned it around and sold it for 50k. In the meantime, we made about $325 cashflow every month, for the few years that we owned it. That’s been the best deal so far.

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

Jay Helms: Oh, man… [laughs] There are so many. I’ll give you a recent one. This fourplex that we purchased, that was off-market, I assumed – just because every other transaction I’ve done where tenants were already in place, that the rent rolls… So if you close in the middle of the month, that the new owner would get half the rent for that month already collected, and the previous owner would get the other half.

Well, in this case we closed toward the beginning of the month, and that was not part of the agreement. It was basically “Hey, you’re getting a great deal”– and I did. There’s competing properties in that area that are selling for 180k-200k, that are not occupied, that are in similar condition. I got a great deal for it. It was just one of those things – when we got to the closing table and we were looking at all the final numbers, I’m thinking “Wait a minute, where is the prorated rents?” and it wasn’t part of the negotiation, which I always assumed it was.

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

Jay Helms: Doing interviews like this. I make a lot of mistakes… [laughs] And I do blog about them. I haven’t had a chance to write anything recently, but I do blog about them at HelmsREI.com; that’s kind of where I put everything, so there’s that… I also have a Facebook group – Real Estate Investing for the W-2 Employee, because I think there’s a misnomer out there that you have to choose one or the other… That either you’ve gotta work, or you’ve gotta invest, and quite frankly, if you love your job, there’s no reason why you can’t invest also.

I like educating people, and it’s a little bit selfish, because the more I talk to people and the more I try to educate them, the more I actually learn… And I know that. So it’s giving back, trying to educate others to follow in my footsteps.

Joe Fairless: Well, you certainly educated a lot on this call, during our conversation, from the 10-year false start – there’s the title of the next blog article for you, “The 10-year false start” – to this 42-unit. The lessons learned on the 42-unit, from questions you would ask the property management company, to the type of clauses in the contract, with prorated rents, too. The good stuff, about finding a good deal, partnering up with people through Bigger Pockets that you met with, and other ways… And then I love how we got into the specifics of different renovation costs and you’re doing, and what was a certain price… And the beehive, too! How could I forget the beehive…? Giving investors honey. [laughs]

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

Jay Helms: Thanks, Joe. You too!


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JF1458: From One Deal At a Time To A Full Blown Tech-Enabled Property Management Company with Dave Diaz

Dave has co-founded a property management company and has managed over 10,000 homes. His company is not a typical property management company, they strive to be better in all areas than other companies. They are even working on the technology side that is severely lacking in the property management space. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Dave Diaz Real Estate Background:

  • Co-Founder, Head of Operations for Great Jones – a property management startup
  • Expert in property management: bought, renovated, leased, and managed over 10,000 homes
  • Based in Fort Myers, FL
  • Say hi to him at https://www.greatjones.co/
  • Best Ever Book: Blue Ocean Strategy

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Best Ever Listeners:

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

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

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

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


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

With us today, Dave Diaz. How are you doing, Dave?

Dave Diaz: Fantastic! Thanks, Joe.

Joe Fairless: Well, I’m glad to hear that, and welcome to the show. A little bit about Dave – he is the co-founder and head of operations for Great Jones, which is a  property management startup. He is an expert in property management; he has bought, renovated, leased and managed over 10,000 homes. Based in Fort Myers, FL. With that being said, Dave, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dave Diaz: Yeah, sure. So I was very fortunate to come out of the institutional world of high finance and land in the mortgage crisis as one of the largest auction buyers on the West Coast of Florida. We had just enough money, contacts to go really big in flipping. Then got swept up in the institutional aggregation of single-family homes; these big Wall Street groups, publicly-traded companies that bought tens of thousands of houses after the mortgage crisis, and that gave us a really good on-the-ground, but also a high-level experience in buying, renovating, leasing and managing thousands upon thousands of homes for really big money investors… But never forgot where we started with our own IRA’s and other people’s money, one or two deals at a time.

Joe Fairless: What’s your focus now?

Dave Diaz: Great Jones is a tech-enabled property management company. We could go into detail there, I’ll leave that up to you, but the reality is with property management and the execution of the income property investment is not the same as buying a public security. People forget that when you buy a stock, you’re buying the leadership of the company as well, but they take that for granted. When you buy an income property, unless you’re self-managing, you’re buying the execution of the person you hired to do that as well, and having done it with P&L responsibility for hundreds of millions of dollars’ worth of homes, we know it can be done better, more efficiently and just differently than the industry’s status quo, which currently exists to put more money in the manager’s pocket than the owner’s if things are left to chance.

Joe Fairless: Yeah, let’s definitely dive into that. One follow-up question about what you said earlier and then we’ll get into how you bring that value proposition to life with what you’ve just said… The big money investors, so the Wall Street groups, that were doing all those renovations, or that were buying the properties and you all were managing and doing the renovations for – what is the difference in the metrics that they look at, compared to a private individual that has a portfolio of, say, five to ten homes with you all?

Dave Diaz: That’s a great question. They’re gonna view a basket of homes very similarly to the way an apartment operator would view hundreds of units. So they’re talking about global occupancy metrics, rent increase down to the tenth of a basis point type thing… They’re really granular, because these numbers are spread across so many homes that the percentages become more important than the outcome of any specific asset… Whereas if we’ve got five houses and we take a big hit on something, it’s material; to them, it’s a rounding error.

At the same time, I think they can be a bit penny wise and pound foolish on the way in which they approach these things. Most of their decisions are built towards scale, so even if something is an investment decision that we would all agree we should do on this one property, they don’t typically have the bandwidth to administrate things that don’t follow the conveyor belt smoothly… So sometimes they have to opt out of really good deals that we would all love to have.

Examples of that might be buying a home that is older than their age limitation; a lot of the Wall Street firms won’t buy them older than 1990; some are even 2000+ now in terms of age… And most of them have cap-ex or initial improvement cost limits that might be in the 20k to 25k range, whereas if we bought a really hairy asset, that might actually be the one that has the most built-in equity when we’re done improving it as an individual investor; they won’t touch that.

The logic is sound – they’ve got an employee they’re trying to get to manage 25 rehabs a month, they give him one 100k project. If you’ve ever been on one of those, you know they become all-inclusive, and you can spend most of your week over there every week, and it just destroys the conveyor belt that is the aggregation process… So they really opt out of what might be some great individual deals.

Joe Fairless: And conversely, from the private side, the investor who has five to ten – what are some things that you’ve seen the larger institutions do that you think that an investor could learn a thing or two from?

Dave Diaz: So they do pay attention to broader metrics; I don’t get asked very sophisticated questions by most individual owners… It’s interesting, if somebody will ask “Am I occupied?” Like, they’ve got one house – to them it’s binary, it’s either yes or no; it’s 100 or 0. They don’t really care that the market’s 98.5% occupied, they logically only care that they’re empty.

But at the same time, if you’re empty and the market is 98.5% occupied, you’ve gotta ask yourself why. “Why am I the outlier?” So that’s one.

The other thing is they just standardize so much better. One of the things I learned early on, even in my own investments, and especially doing it for other people, was wherever possible and where rational, I standardize. Same flooring, same paint colors, same paint substrates… It’s this brand, this finish, this level… That way, if I have to go back in and touch up three years from now, I’m not repainting the whole property. You’d just be surprised how many people do one-off things that aren’t repeatable, and they spend a lot of money downstream on that item again… Like, “Okay, now it’s a full repaint, because I have no idea what’s on the wall.” Even if I think I know what the color was, I can’t remember exactly what brand and finish, and that doesn’t go well when you try to touch up that paint with something that’s slightly different. So that would be a big one – they standardize.

At the same time, I would say do it really logical; if I can get a great deal on a discount tile, and I only need enough for one house, probably not a big deal if I keep an extra case in case something breaks. But my paint  I’m super-specific about, because I know that’s gonna go back in every house.

Joe Fairless: Now, talking about Great Jones and the opportunity you saw in the marketplace which led you to co-found the company… So what is it exactly that you all do for real estate investors who pay for your company services?

Dave Diaz: We are third-party property managers. Our mission is to democratize Wall Street level performance for main street investors. Someone that has three houses with us, the investor from Ohio that’s got three properties with me in South-West Florida – they’re paying the same price as a Wall Street level firm for an air conditioner. A guy who buys 10,000 air conditioners a year, I’m not giving the same price too on that equipment to this individual investor; we’ve essentially taken all the barriers down. You don’t have to own billions of dollars in real estate to get the same pricing.

I think there’s a couple of important trends that your listeners would wanna know about, given the state of the property management industry. If you’ll indulge me for a second – this is not a push on our product, as we don’t manage [unintelligible [00:10:24].04] but I think it’s things that people just don’t know. The industry is basically all utilizing six out of the box platforms; things like Propertyware, PropertyBoss, Appfolio, Buildium –  you know the names… Those softwares have over the last several years more and more focused their revenue streams on taking the ancillary revenue that managers used to enjoy – things like online rent payments, application fee premiums… Those types of — we would call them junk fees, but they were [unintelligible [00:10:52].27] fees. Those are now going to the provider, not the manager.

So where Propertyware used charge you 50 cents for an ACH transaction when a tenant paid, and you might charge four bucks and you could pay for your really nice car with those transactions, now they charge five dollars and they get all five. I think it’s $4,95 when they process an ACH.

What that’s done to the management industry is it’s forced the managers to go deeper and deeper into the owners’ pockets to collect additional revenue. So jet fuel prices going up on the airlines – all of a sudden now you’re paying for luggage fees, and a drink costs twice as much, and all that stuff… So it’s created a junk fee fueled industry where there’s just a ton of misalignment.

So I was spending my weekend managing x thousands of homes, and I’ve got my buddies with 20 houses in Fort Myers calling me and saying, “Hey, I’ve got an air conditioning quote for some obscene number, from somebody managing a lot of homes.” And I’m texting them one phone number to call and they’d get it for half.

I realized, like “Man, this isn’t excusable. These people should know better.” If you’re managing a certain volume of homes, you either should know better or you do know better and you’re pocketing the difference… I don’t care why, it’s just inexcusable. That’s where Great Jones  was formed.

We said, hey, this could be a much better experience for the investor if we align our interests, meaning I’m not having a good day making $1,000 on an air conditioner when you’re having a bad day and have to buy one. And if we create transparency by not having any junk fees and just posting everything that we’re doing in real-time, with actual receipts and stated pricing… So it’s a challenging industry.

The other piece that we’re seeing now is people are starting to take this out on the resident if they’re not going directly after the owner. A lot of owners are not aware that they’re taking out their quest for junk fees on the resident, which is really troubling… So again, to me it’s a misalignment. I saw a lease the other day where a third of the security deposit was a non-refundable administration fee to the manager. I guarantee the owner had no idea that of their $1,200 deposit, $400 of it was a fee to the manager if it ever had to be exercised. So they’re sitting there thinking, “Hey, I’ve got a month’s rent. This is all hunky-dory.” Really? No, you’ve got two-thirds of a month’s rent.

In the same lease there was a huge maintenance call charge. Every time the resident picked up the phone to report maintenance, they got charged $50 for the phone call. Now, if you get four months before move-out and you’ve got a shower that’s leaking just a little bit, but it’s not really bugging you, are you gonna pay $50 to report it? Remember, a good chunk of your security deposit is non-refundable already… Or you’re just gonna say “Forget it, man… I’m gonna let this thing leak”, and when the owner pays $2,000 or some obscene number to replace a shower that could have been done for $900, they don’t know the motivations and the contractual misalignment that led them to that place.” You didn’t have to have a rotted shower, but because they wanted to charge him to tell you about it, and because their deposit was mostly forfeit, you’ve landed here.

Joe Fairless: You mentioned that you all have stated pricing… So what is the pricing for how you make money?

Dave Diaz: Our fees are super-transparent, and I hope the industry goes this way for the sake of owners. We are a straight percentage of rents collected; no markups, no junk fees, ever. We’re super easy. You’re paying x%, and that is it. No if, and’s or but’s; you will not see another fee, and we’re not taking it out on the resident either. The only time we ever charge the resident anything is if they actually force us to incur a hard cost on their behalf.

So we just think there’s a place in here to be the good guys, and to make up the junk fees via scale.

A typical residential property manager has something like 50 units per full-time employee… So if you think about them paying that person 50k-60k/year on average, their base fees are wiped out by the cost of staff, whereas we can, through technology and through our past operating experience, improve on that employee-to-home ratio significantly, while not sacrificing service to the owner or the resident. If anything, things are actually cheaper, better faster, because weR