JF2140: Unique Ways to Increase NOI with Shopping Centers With Alan Schnur #SkillsetSunday

Alan went from owning apartment buildings and hundreds of homes to now focusing on shopping centers. He decided to sell his portfolio of apartments and single-family homes because of all the work and challenges to scalability. Now he is able to scale and have a model of “set it and forget it” when it comes to dealing with fortune 500 companies and shopping centers.

Alan Schnur previous episode: JF1978

Alan Schnur Real Estate Background:

  • Alan has bought and syndicated more than 2,000 units and managed more than 7,000 units
  • Owns numerous medical, office, warehouse buildings, shopping centers, and custom builds multi million dollar homes
  • Based in Houston, TX
  • Say hi to him at www.gr8partners.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“For me, shopping centers are more scalable and more of the “set it and forget it” – Alan Schnur


TRANSCRIPTION

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

Alan Schnur: Hey Joe, I’m doing great. How about you?

Joe Fairless: Well, I’m doing great as well, and looking forward to our conversation. A little bit about Alan – he has bought more than 2,000 units via his company’s syndication platform and managed more than 7,000 units. He owns numerous medical office, warehouse buildings, shopping centers and custom-built multi-million dollar homes, based in Houston. Today, we’re gonna be talking about unique ways to massively increase NOI with shopping centers. So first, Alan, do you want to get the Best Ever listeners a little bit more about your background, and then we’ll roll right into the topic at hand?

Alan Schnur: Sure. Thanks for the background on me, Joe. Again, thanks for having me today. What can I say – I’m a New Yorker, I spend a lot of time in New York. Actually, I worked in the World Trade Center in 2001, and I was fortunate enough to have left the building the day before on a business trip, and that 9/11 event really changed my life in many ways. I worked in the 101 floor, and the company that I worked for lost 700 out of 1,000 people, and I lost 40 out of 44 teammates; spent a week by myself in Portland when I was trapped, trying to figure out what I was going to do next with my life after that event, and it brought me to Houston, Texas. And I stayed in the commodity business for a good 10, 15 years, and I was turning everything around at that time in my life, and I wanted to create multiple streams of income. So I started buying single-family houses. Believe it or not, I bought one a month for ten years straight. So I woke up one day, I had around 150 houses and a successful commodity firm. So I decided to sell the firm, double down on the houses which I did, so I had a few hundred houses, and then by then, the world started to turn; not only with the houses, but in the commercial real estate business around 2010. So I looked around and I saw that apartment buildings were on sale. So for a five year period, every 90 days, me or me in a syndication, purchased an apartment complex, and I woke up five years later and I realized I had around 2,000 apartment units, and I grew out a property management firm too where we managed around 7,000 units and 1,000 houses, and life was good. I was just looking for something a little more easier. Sometimes we get involved in this real estate dream, not realizing how much work it really is.

So I had an epiphany one day; I woke up and I said, “You know what, I want to slow down a little or–” not necessarily slow down, Joe, but figure out how I can scale. It was a little hard for me to scale with the multifamily. It was taking up a lot of my time and the stuff that I was managing. So I sold it all. So I’ve successfully syndicated, founded, started, grew, cash-flowed, held on to, and I bought around $50 million of apartment buildings during the downturn and we sold everything for around $80 million. I took my share and I got into the triple net leasing business, the commercial aspects side of real estate, which I’m sure we’re about to start talking about. For me, more scalable, more enjoyable, I like dealing with Fortune 500 companies, getting leases signed that go for 5 or 10 or 15 years; set it and forget it as much as possible when it comes to real estate. So what can I say? So after I got rid of all the housing, I really jumped into buying warehouses, storage facilities, building multimillion-dollar houses, and most importantly, that’s made the biggest difference in changing my life over the last five years, I started buying shopping centers – don’t believe the hype, ladies and gentlemen – started buying shopping centers; awesome cap rates, even better at borrowing the money, nice good spread there of 400 or 500 basis points, and dealing with Fortune 500 companies where the leases go for a long time. So that’s really a quick background on where I am and where I started, Joe.

Joe Fairless: So apartment buildings and exiting out along with those homes got you a chunk of change that you clearly had some money going into it in order to buy a house a month for a very long period of time.

Alan Schnur: Well, you know what, I got a little creative at the time, or I want to say early 2000s. You pick up houses for $20,000, $30,000 a pop here in Texas in the surrounding areas. So yes, I did whatever it took.

Joe Fairless: What was the average purchase price would you guess?

Alan Schnur: $35,000 a house. Maybe fix it up for $5,000. I cash-flowed them for a long time for a good decade, and then woke up one day and realized that I’m gonna have to either sink another $10,000, $20,000, $30,000 into each house to bring it up to true market value; these were all rentals. Or — I just started selling them off in tranches, and that’s how I built it. I’d buy ten houses at a time, hard money, borrowed money from friends and family, or money that I was making, do five or ten houses at a time, and then go get some commercial bank loan on those houses. So it’s like the shell game, I kept moving the ball. In this case, I kept moving the same money into the next five or ten houses.

Joe Fairless: Okay, so you sold those and you sold the apartment buildings and you got a chunk of money, and then you went into triple net leasing, which as you said, was more scalable, more enjoyable. The perception that I have, and we’re going to be talking about this, is yes, more scalable, more enjoyable, but less profitable. So let’s talk about that.

Alan Schnur: Okay, so let’s talk about a few different ways of making money in this triple net commercial leasing business. Well, I have a few choices here. You could buy something empty and pay an empty price, if you know what I mean. Maybe buy 10, 20, 30 cents on the dollar, because if it’s empty, there’s no net operating income. So someone’s going to sell it to you per pound, per price. So let me back up a second. So buy an empty warehouse. I just did one recently; I bought a 35,000 square foot empty warehouse relatively really cheap, like 10, 20 cents on the dollar off of an auction, and put a Fortune 500 company in there. So now it’s cash-flowing, it’s got at net operating income… And when you have these Fortune 500 companies and they’re healthy and the piece of real estate’s healthy, you can really start talking about trading that  stuff that at a 6, 7, 8 cap rate on the net operating income. So it’s a really great way of getting ahead in life. I can’t specify this enough. If you can take something broken, fix it, put a good tenant in there, figure out how you’re going to cash flow it, and then cap rate it out, you can really be off to the races and running.

Joe Fairless: Someone who’s listening to this thinks, “Well shoot, I have access to auction sites and sale sites, and I see a distressed real estate all the time, but when Alan talks about bringing in a Fortune 500 company, that’s where I have a block where it’s like, well, I don’t know, any Fortune 500 company contact people.” So what are your thoughts on that?

Alan Schnur: I know we have limited time here, so let me move the same example to the shopping centers… Because I find that question posed to me many times in the shopping center business, and it’s really just fear and intimidation. Well, how am I going to fill this spot if the tenant goes out of business or doesn’t pay their bills and leaves? It is quite different than the housing business where we can just stick up a sign and see if we can catch people driving by, which still does work in the shopping center business, but we rely more on national brokerage firms, the Colliers, the Marcus & Millichaps. There are specific firms in your area of town that do nothing but lease. It’s an awesome profession to be in. It pays out 3% to 6% commission on the life of the lease for the broker. So the broker is really incentivized to go out and get a tenant for you, and you’ll also find that a lot of these brokers are representatives of these Fortune 500 companies. So as bad as you want to bring them into your space, they’re looking for your space to create a transaction for both parties and get paid.

Joe Fairless: Okay, so what are some ways to make your space desirable for those types of companies?

Alan Schnur: Let me give you an example. I just got back from ICSC. It’s a shopping center foundation group. It’s a national group here in the United States, but it’s actually worldwide. So there was a few major meetings every year with ICSC, and it’s also nationally. So we just had our Texas meeting literally last week in Fort Worth, Dallas, and what you find is every brokerage shop and every retailer that’s interested in Texas will show up at this convention. And on the second day of the convention, for example, all the retailers actually set up a table; it’s very cool. So you have Starbucks, maybe you have Chick-fil-A, you have a major grocer, you have new franchises that are trying to break into Texas. So they all set up their table, and in this particular situation, there was around 100 booths set up for these retailers. So let’s just say, I have some vacancy here in Texas, which I always have a spot or two for a lease… I literally will walk up with a flyer, say, to Starbucks and say, “Hey, I’m on Westheimer in Houston, Texas. This is my block. This is the specific information about the shopping center. Would you folks be interested in taking a look at it?” and you’d be surprised, they move so quick. They know exactly where they are, they pull up all their data, and you’re probably going to start exchanging some drone footage of the property.

For example, I had a very successful meeting with Little Caesar’s pizza. I recently bought a shopping center here in Pasadena, Texas, and it comes with an outparcel, which is another way of making money with commercial real estate and shopping centers. This outparcel was a bonus when I was buying the shopping center.

Joe Fairless: For anyone who’s not familiar with an outparcel, what is it?

Alan Schnur:  Sure. An outparcel is a piece of land. Maybe it’s like an outlier in your parking lot, or maybe even take a piece of your parking lot that backs up to a major road, and that’s exactly what this situation was. It backed up to the corner of the shopping center where two major roads intersected. So if you see me here holding my hands or if you’re listening, just picture yourself, you have a parking lot and two major roads meeting and you own the parking lot. Well, you literally can take a piece of that parking lot and build an outparcel, build a pad site for some retailer to come in.

I’ll give you even another example. I recently did this with Krispy Kreme Doughnuts and another shopping center that I have in College Station. It’s a TJ Maxx shopping center, but what’s really cool is the parking lot is huge, and we took a portion of the parking lot that lies up to this road, and we did a 20-year land lease with Krispy Kreme’s. So we took the outparcel, we just took 40 parking spots that nobody was even using, and we just built up a square, if you want to say that, and a foundation, and Krispy Kreme Doughnuts came in, they built their own structure, they’re running their own business, under the intention that we signed a lease for 20 years at $8,000 a month, with me as the owner of the property, sure. So they’re fully responsible for everything.

Joe Fairless: So monetizing 40 parking spots that you weren’t getting money for anyway, and people weren’t parking their cars anyway unless it was probably some overnight people who weren’t permitted to be there.

Alan Schnur: And let me break it out into money. What that really means by taking that 30 or 40 spaces, which was bringing in absolutely no income into the shopping center; $8,000 a month, I don’t have to take care of their property, times 12 months is $96,000, and this is trading at an 8 cap, which is high, so 0.08– I don’t have my calculator, I’m gonna say it’s around $1.2 million of value we just added to the shopping center just by creating an outparcel in a parking lot, by a busy road. And that’s another way how you create value and money in retail shopping centers.

Joe Fairless: What type of approval process is typically required to get an outparcel?

Alan Schnur: Well, first of all, if you’re the owner of the shopping center, you have to make sure that you do have the approval; you have to look at your leases. For example, I have another shopping center that has a specific national chain doctor’s office in it, and it specifically says, “You cannot block our view from the street.” So you really have to look at the easements and you have to look into the leases and you have to work with your attorneys. So for sure, I’m gonna abide by the lease and play by the rules and not put something up in front of that doctor’s office, but just maybe 100 feet down or 200 feet down, I can. So you just have to check your P’s and Q’s and see what you can do and what you can’t do, and all the leases.

In this particular situation, it wasn’t really blocking anybody. It was just a far off, distant hard corner. Back to the Pasadena, Texas example that we started talking about with the Little Caesars – so I’m pretty excited, because Little Caesars, that will easily generate $9,000 a month on a land lease, and they’re talking about $1.5 million in valuation just on the outparcel there. So again, outparcels, great advantage, great opportunity to create extra income for your shopping centers.

Joe Fairless: Okay, so outparcels is one. What are some other ways to increase NOI with shopping centers?

Alan Schnur: Well, when I buy shopping centers, I’m really looking for a 20% vacancy or even more, 30% vacancy, because they really trade on a true net operating income number. So if no money’s coming in for the spot, then you shouldn’t be paying for the spot, and that’s how I run my business here at GR8 Partners.

Let me give you a real simplified way of understanding this. When I was starting out in shopping centers, I like to start off small and then work my way up big. I started off buying around 10,000, 12,000 square foot shopping centers, and let me just keep the math easy. Let’s just say there’s six storefronts, and say they’re 2,000 square feet apiece. The first shopping center I bought was 50% vacant. So I had three tenants, 2,000 square feet apiece. So I bought that shopping center for around a million dollars. I put 30% down, so call it $300,000 down, and I valued each slot at $333,000 apiece, just simple math here. So that’s the million dollars that I paid. I hired a leasing agent, the same way I just explained it a few minutes ago. Over a 12 month period, we found three more tenants, and not only did we find three more tenants, we found national tenants. So we went for the mom and pops, who may be a pizza place or a dry cleaners, to an AT&T. We put in a national hearing aid company, and the third one I believe, was a Taco del Mar. So now I’ve got six tenants, and one side of the shopping center is worth $333,000. The other three slots are going to be worth $333,000. So all of a sudden now, on an NOI number, not only did I just pay a million dollars for the shopping center, but I doubled the value of the shopping center. So now it’s worth $2 million, and I actually did do that and I actually did sell that. So that’s a way of filling up your shopping centers and making extra money by filling up your vacancies. Makes sense, right?

Joe Fairless: It does make sense. Why wouldn’t other people do that who were competing for the same property?

Alan Schnur: I have this philosophy, the evolution of a real estate investor, a little older and wiser, just recently turned 50 and been doing this for 20 years, and I went through the same processes as every body. I started buying the houses, I started buying the apartment buildings, and then I started buying the triple net leasing stuff. Everyone wants to go through the pain, they feel like they’re not ready or they’re intimidated about filling up their shopping centers, but I can tell you, here in Houston, having a lot of property management experience, the average C Class apartment building will turn 60% to 80% every year or you’re going to lose your tenants. To me, that’s more scary… The credibility of the tenants and not paying their bills and things breaking, compared to why not do the shopping centers, why not do the triple lease? The money’s more dependable. If something breaks on triple net lease, the  tenant’s paying for it. If taxes go up, the tenant’s paying for it. If insurance goes up, the tenant’s paying for it.

Joe Fairless: I think the hesitation that most people have is, one is just becoming familiar with how to assess opportunities with shopping centers, how to run the numbers, what pitfalls to look for and just the learning process, but then combine that with the second thing, which is, I just don’t know if I can find quality tenants or enough of them because I personally don’t know business owners who would rent from me. Whereas I know that apartment owners don’t think “I’m buying 100 unit property, so I know 100 different people who would rent from me.” I mean, clearly, that would be a ridiculous thought process, but I feel like that’s a mental block for people outside of just learning the process and learning how to do it. It’s just, are there really enough tenants to rent my space if the space is currently vacant already?

Alan Schnur: Yeah, I hear you. I agree with you, 100%.

Joe Fairless: I’m not saying that’s a legitimate reason. I’m just saying those two reasons combined are what allows you to buy more property.

Alan Schnur: Here’s what I’d say to that to help someone get over the fear, or to answer that question. The first thing I would say is, look, there’s a lot more building going on when it comes to apartment buildings and housing right now than retail shopping centers. We went through this lull over the last five years in retail shopping centers. Another reason why things weren’t being overbuilt. Ask yourself a question – when you’re driving down the road right now, how many vacancies do you actually see in shopping centers? We don’t see too much here in Texas right now. So part of the argument would be, there’s a lot less space available to build shopping center strips on roads. Every other block has a new 300-unit apartment building here in parts of Houston, Texas. So when I’m buying shopping centers, I’m looking for core areas of a community, I’m looking for density, where there’s a lot of population, and I’m looking for a high car traffic count. So you can just think of those three things that I just said.

Joe Fairless: How do you quantify those three things?

Alan Schnur: Well, I quantify it– when I’m looking to buy a shopping center, I like to buy shopping centers that have 30,000 to 50,000 cars going by every day. I like to buy near a hard corner where it’s just absolutely buzzing in traffic like you wouldn’t believe it. I like to buy shopping centers where there’s so many people you can’t help but do your dry cleaning there, or go food shopping there or stop off and pick up a Starbucks.

Joe Fairless: How do you quantify that third one – the so many people part?

Alan Schnur: Okay, so we call that population density, and there’s plenty of services out there. I use CoStar a lot, and we’ll get a one-mile radius, a three-mile radius and a five-mile radius of houses. So we’re looking for a good 30,000, 50,000, and even goes up to  — a five-mile radius, we’ll go up to 50,000 people. So you want to have a lot of people if that’s the business you want to be in.

Joe Fairless: For the one mile radius, what’s too low?

Alan Schnur: Well, you’ve got to be careful with the one-mile radius because there’s day time population. Maybe there’s an area that you’re thinking about where people drive to work and that’s what people do; they work in that area, and then there’s households and there’s household incomes. So the daytime population is important. I just finished doing an analysis on a property in California. The daytime work population was 200,000 people, but only 25,000 people live in the area. So you’ve got to take that into account, who are going to be your tenants. You’re probably going to do a lot of restaurant business, maybe fpr  lunches where people are going to go eat and drink coffee, as opposed to maybe you don’t want to put a grocer in that area; and then you do want to look at the household income.

What we focus on at my firm is we’re really buying shopping centers, Class C and Class B. We’re really looking for the household incomes are anywhere from $40,000 to $75,000. We like the discounters for tenants. Some of the tenants I have, for example, are TJ Maxx or a dry cleaners or a grocers or an AT&T or T-Mobile, something where people have to go to this neighborhood center to do their business.

Ask yourself a question, Joe. How many shopping centers will you stop off at in one day? People say it’s a dying business, but there’s people that just absolutely want the experience of shopping. There’s people that have to go and drop off their dry cleaning. Even doctors and dentists, they’re moving out of medical buildings and they’re setting up their cosmetic dentistry in a shopping center strip or an ER clinic, setting up in all these shopping center strips. So again, these neighborhood centers that our people are always going to be drawn to; they just have to, they can’t live without it.

Joe Fairless: Anything that we haven’t talked about that you think we should before we wrap up as it relates to increasing NOI with shopping centers?

Alan Schnur: So another thing that’s really cool about shopping centers is rent bumps are built into the leases. It’s really common. Let’s say I’ve got Starbucks. It’s really common for their rent to go up 1% to 3% every year, and most likely you signed a five-year lease with them. So you’re looking at a 15% increase over the life of that five-year lease, which, when you’re working out your NOI numbers, that’s a huge increase. It’s not that hard to just buy, hold and bank off of rent bumps, and turn around and make 50% on the shopping center when you sell it a few years later; and then of course, we’re always looking for cap rate compression. Maybe bring in some better names, like I mentioned earlier.

We’re in a situation right now, where we have a 40,000 square foot grocer paying a rent rate that’s so low, it’s ridiculous, and they’ve been there for ten years, their options are up and now we’re talking to national names right now that will pay triple the price. So just by going from 50 cents a square foot to a buck 50 a square foot, you literally can increase the value of your shopping centers by millions of dollars.

Joe Fairless: What a fun conversation. I love talking about stuff that I’m not currently focused on, with people who are, and hearing about your approach. So, Alan, thanks for talking to us not only about ways to increase NOI with shopping centers, a couple of examples, building outparcel, have those rent bumps built into the leases, but then also what you look for with shopping centers, and you gave four things – 30,000 to 50,000 cars driving by, having it on a corner, having a population density that fits what you’re looking for and pay particular attention to daytime work population versus people living there, and then the household income being about 40k to 75k, plus the other stuff we talked about. So I really enjoyed it, Alan. Grateful you were on the show, and I hope you have a best ever weekend. Talk to you again. Oh, wait. Actually, last question. How can people learn more about what you’re doing? I apologize for forgetting that.

Alan Schnur: Listen, we syndicate. We have lots of partners in our deals, and you could find us at gr8partners.com. There, you can find our portfolios and what we’re up to and read about us. We’re always looking for new partners. We’re always looking to share what we know, and that’s one way of reaching me.

Another way to reach me is I have a book out, it’s on Amazon. It’s called the Cashflow Mindset. It’s really about lots of stories that we talked about today and ways of making money in real estate, the cashflow mindset. It’s also on audible.com. And I always do this, people think I’m crazy, but my phone number is 713-503-5908. If you’re interested in getting involved in commercial real estate, send me a text.

Joe Fairless: Alan, thanks for being on show. Have a best ever weekend. Talk to you again soon.

Alan Schnur: Bye, Joe.

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JF2117: Big Renovation Projects With Joseph Bramante

Joseph is the co-founder and CEO of TriArc Real Estate Partners. He purchased his first multifamily property in the US in 2011 sight unseen and now his portfolio consists of 1100 units. He shares his story on how he started out buying a 26-unit apartment complex and almost went bankrupt during his first deal and he ended up making a 207% return on the refi. 

Joseph Bramante Real Estate Background:

  • Co-founder and CEO of TriArc Real Estate Partners
  • Purchased first multifamily property in the US in 2011 sight unseen
  • Current portfolio consists of 1100 units, increasing net operating income by over 80% on average within 48 months post-acquisition
  • Based in Houston, TX
  • Say hi to him at: https://www.triarcrep.com/ 
  • Best Ever Book: Raising the Bar

 

 

 

 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“The books give you this 30,000 view of the industry but its a completely different ball game when you are out there in the field executing” – Joseph Bramante


TRANSCRIPTION

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

Joseph Bramante: Hey, man. I’m doing well. How about yourself?

Theo Hicks: I’m doing well too. Thanks for asking and thanks for joining us on the show today. A little bit about Joseph – he is the co-founder and CEO of TriArc Real Estate Partners, purchased his first multifamily property in the US in 2011 sight unseen; current portfolio consists of 1100 units, and they focus on increasing net operating income by over 80% on average within 48 months post-acquisition. He is based in Houston, Texas, and you can say hi to him at triarcrep.com. So Joseph, do you mind telling us a little bit more about your background and what you’re focused on today?

Joseph Bramante: Sure. So I’m an engineer by trade, spent the first five years of my career with Exxon, as well as overseas when I bought that first property; I’ve lived in some pretty cool places. I was in Australia for a year and then Papua New Guinea for two years. I was working on a $22 billion project, of which a billion was the cost that I was managing directly. I got into the industry in 2011, purchased that first property sight unseen. I originally was trying to buy 80 foreclosed houses, and then after all these banks kept telling me no, they finally said, “Just go buy an 80-unit apartment complex,” but I couldn’t afford a 80-unit apartment complex, but I could afford a 26. So that’s how I jumped into the industry with the first 26-unit property, and almost went bankrupt on that first deal and turned the whole thing around by performing a $30,000 per door renovation… Which was really nuts considering one, that was my first deal and two, it’s a large rehab. In general, most people don’t even do those big of rehabs, let alone, on their first deal. And I turned the whole thing around, made a 207% return on the re-fi. I still own it today. We’re actually talking with architects right now, getting ready to scrape it and redevelop it to a mid-rise. So that property is going to be paying us three and four times what we made on it.

So that was the start, and then through that, I met my current two partners. We formed TriArc Real Estate Partners; originally the foundation of the company was back in 2013, but then rebranded in 2016 as TriArc, and our MO has just been these big value-adds. Started with the first one at $30,000, added 22 and 18, and we’re currently doing a $37,000 per door renovation over 220 units. So we really mastered that, and that’s how we were able to produce such big NOI growth in the first 48 months, like you quoted, because we’re doing these big rehabs on our deals. We’re not just doing base hits, because that’s just– one, that was what was available. You guys know, back in 2012 and 2013, there was a lot of property to renovate. Now it’s harder and harder to find those deals. People know how to resurface and whatnot by now, so it’s very rare you’re going to find something that hasn’t been through at least one or if not two renovations about the time you’re getting it. So we’ve transitioned more into the lower value-add, which is fine. If you’re really good at doing big rehabs, you’re gonna be even better at doing smaller rehabs.

So from there, we further expanded in 2016 into new development. So I saw that the spread between new construction and renovated assets was shrinking, and it was only a matter of time before new development was gonna make more sense than buying existing and renovating. So we started exploring that area and we’ve got our first 500-unit two-phase project, garden style; we’re breaking ground on later this year, and then we’ve also got two other new developments that are in the pre-planning phase. They’re gonna be mid-rises; one’s nine stories, the other is 12 stories, Class A plus properties. So it’s been interesting.

New development’s certainly, completely different than acquisition, in that there’s really no roadmap for it. It’s very much an open book, and it’s hard to find mentors and whatnot for it, and we’ve had to figure a lot of this stuff out on our own, but finally, three, four years into it, we’ve really gotten the right people around us who’ve done this before and helped us… And that’s what really real estate, in general, is all about. It’s all about the network, having good people around you, who’ve been through different components of whatever you’re trying to do, and forming teams. And that’s how, really, we formed our company. I’m a co-founder, I’m one of three, and that’s been really advantageous for us, because it gives investors and lenders a lot of confidence knowing that between the three of us, we’ve owned or operated over 43,000 units and 1.7 billion in assets in the last 30 years. So we have that history behind us, so that when we’re going forward, while our company is still growing, we do have quite a deep bench of experience.

Theo Hicks: Thanks for sharing your entire story there. I want to dive in and unpack a few though. So one thing that you said, the first thing you said that piqued my interest is that on that first deal you bought sight unseen was a 26 unit property, that you did the 30k per door renovation, and then resulted in a 207% return on the refinance. So that was the first deal right?

Joseph Bramante: Right.

Theo Hicks: So you said that you did the 30k in renovations, and then now you’re looking to go back and put in even more money into that deal, to bring it up to another level. So do you mind just walking us through– so was the original business plan to take it from C to a B, and now you’re going from a B to an A? Did you know going in that, that is what you’re going to do or that’s something that evolved later on, based off of the market that the deal was in? So maybe walk us through that thought process a little bit.

Joseph Bramante: Sure. So the original plan – it left a lot to be decided. There really was no plan. It was my first deal. The broker had said that it needs $3,000 per door in renovation, so that’s what we budgeted for. And then we get into the deal, and it’s a really long story, but just to keep it short – within the first six months of owning it, our property had gotten down to 85% occupied. We had four units down for renovation that we had taken sheetrock down on, we were renovating, we were installing central ACs, and then as part of the permitting process for that, we had to do an environmental, because we were idiots and we didn’t do one on the closing like every other one of your listeners knows to do, and of course, it came back hot for asbestos.

So we’re six months in, four units down, we have asbestos, we’ve had fraudulent insurance… The broker that sold us insurance – well, he sold us insurance from a company that was a fraud. So we don’t have insurance, we’re going into hurricane season, and then I lose my job at Exxon on top of all that. So it was really a very dire situation I was in, and I joined a local real estate group because that’s what you did back in 2012; there were no podcasts or anything like that… And all the mentors of that group were like, “You’re screwed. Sell the property, take a loss, lesson learned; don’t do that again.” But that didn’t really sit well with me, for a couple of reasons. One, I would have to lost five years of my life at Exxon, and that would have not been good. I’d have done all that work for nothing. And then two, I would have had a negative track record to go and raise money for. So that would have meant I had no career in multifamily either. So that was also not good. So I rolled the dice on that first one.

Me and my business partner who I had met out of that group, she had done large renovations before for other owners. She was a property manager, and she said, “Look, you’re in a great location.” That was the one thing that I did right. Two, actually. Location, and we knew it needed new roofs, because that’s what the PCA said. So those are the only two things I’d give us credit for. But location is everything; everybody knows the real estate motto – location, location, location. So we were in a prime location in Houston, and we’re surrounded by these million-dollar homes. So we did this massive renovation, went all in. I cashed out my 401k, took the penalty, all in. I stayed unemployed for six months and just focused on the real estate, took a bunch of courses, and we executed this rehab, and it was the craziest moment of my life, because our rehab was $700,000, the purchase price was $650,000. So it was just insane to think of, you’re doing a rehab that’s greater than the purchase price of this property.

We had to vacate the whole property down to zero, because it’s really not a good look to have guys in hazmat suits walking around while you’re doing an asbestos abatement with residents on site. You’re just asking for a lawsuit. So we vacate the property, we did the abatement, came in behind them, we did the big renovation, then leased it all up, and that was probably the most stressful nine months in my life, and it worked. We doubled the rents, we leased it up, stabilized it, refinanced it… And it’s just an amazing feeling on that first refi when you get that money back, because until you’ve actually done it, it’s all just stories and theories and whatnot for you, and when it was proved positive for me, that’s when I knew I had a new career interest, and that was multifamily. So that was our first deal, and then that was supposed to be the end of it. The plan was to hold it and maybe sell to a developer. That was our thinking in 2014, because we knew we were on prime real estate; and then in 2016, 2017, we started developing the skills to be developers, and now, here we are in 2020, we’re working with some of the top architects in town to scrape our entire complex. So just bulldoze the whole thing and come up with a mid-rise design and raise all new equity for it etc, and expand it to include not only our site, but the neighboring sites around us on our block. We’re going to do a JV with them to all partner together and do this mid-rise construction.

Theo Hicks: I’m really glad that you shared that six to nine months journey that you went through. Just one last follow up question on that deal and then I want to transition to the other thing we talked about, which is increasing net operating income by over 80%. So it was a $700,000 rehab – all that came out of your pocket?

Joseph Bramante: It was me and one of the partners. So we were 50-50 partners on the deal and we financed the rehab, so we had a bridge loan.

Theo Hicks: Okay. So you cashed out your 401k and used that as a down payment for bridging back on the rehab? Okay.

Joseph Bramante: Exactly. The first time I didn’t though. The first time, I was paying cash for the rehab, because I didn’t know any better. My education in real estate at that time was I read about six books on multifamily, and some of the good ones… David Lindahl is always on your list. Multifamily Millions, that was one of the books I read, and a couple others… And they give you this 30,000 foot level understanding of the industry, but it’s a completely different ballgame when you’re on the field and you’re out there executing in your specific market.

Theo Hicks: Perfect. Okay, so let’s transition into your bread and butter business plan now, which is increasing the net operating income by over 80% on average within 48 months. Correct me if I’m wrong, but you can’t just pick any deal to do this on. So obviously, the front end is making sure you’re selecting the right deal. So you already mentioned location, so we don’t need to talk about that again. Is there anything else that you have? What’s your checklist when you’re looking at a deal or a piece of land, so that you know going in that you’re going to be able to increase the net operating income by high double digits?

Joseph Bramante: For us, we’re really just focused on doubling our investors’ money over five years. We keep it simple, we target a high single digits cash-on-cash and double their money in five years; and for the most part, we’ve been very successful at that.

Now, part of the reason we’re at 80% is because we’ve had some really big deals. We’ve had about three or four big deals that have really skewed those results. We just closed on a 2015 construction about a year ago, and it’s more of a base hit deal. We’re exiting right at about a 2x multiple, but we’re not increasing NOI by 80%. Also part of that, just to be honest, is because I was buying smaller deals. So when you’re buying smaller deals in the beginning, it’s very easy to magnify and grow that NOI by a very large number, because that’s just how the math works. It’s the percentage and denominator factor.

So as I was buying these large deals like that first deal we did, I think we increased NOI by 400%. It was something stupid, because there’s 26 units, and the guy was really mismanaging it really badly, and we more than doubled the rent. So it had just a stupendous growth to the NOI there. But then of course, eventually what happens on all value adds is eventually the taxes catch up with you, which we’re just now, six years later, dealing with that effect. But to your point though, we’re not targeting 80% NOI growth. It’s just something that happened on its own, because we have big deals. Our targets for deals are high teens IRR, 2x multiple and high single digits cash on cash five year holds.

Theo Hicks: Perfect. So what you’re doing is you’re finding these deals, you’re putting them through an underwriting model and you’re finding what the purchase price is that results in that return, and then if the purchase price makes sense, you offer, if not, you pass.

Joseph Bramante: Yeah. And I would say the only difference between us in regards to why we’ve had some of the big home runs is because we’ve positioned ourselves in our market as the guys that buy the big hairy deals. So the one we’re doing right now, which is $37,000 per door across 220 units on the rehab, that came straight to us. We were the first people to see that deal, because the brokers already know that we do these deals, and if anybody’s going to do a big hairy lift like that, we would be the ones to do it.

Theo Hicks: This goes back to your first deal, or this could be just in general… How do you find the right contractor for these $30,000 plus per door renovations?

Joseph Bramante: Well, I’d say we’re a bit unique in that we’ve got construction in house; that’s as of January of this year. But we’ve been through two or three GCs, and unfortunately, it’s a lot of recommendations, a lot of tried and tested and just going through the motions. So you’ve got to hire these guys, try them out and really hold their feet to the fire on deals. But my background’s with Exxon with project management, so we had a little bit of a leg up on managing GCs and contractors, because that’s what I did for a living for five years. So for us going into these deals, you’ve got a big primary GC, then you might have a couple of other subs below doing other stuff that you feel like you can handle yourself and do it directly, and you don’t want to deal with their markup. So we’re going to have a detailed contract for the primary contractor, whereas the other guys might just be a PO or something like that.

So it’s really all about what you put up in the contract, setting expectations, putting a schedule, putting good terms in and developing a relationship with GCs. So we’ve been through, as I mentioned — I think our current GC we’ve hired is our third GC; they don’t all work out. My first two, they were great people, I have nothing against them, but they just have different price points, different quality levels… And it’s not necessarily the GC. I think what people need to understand about a GC is they’re more of staff contractors than construction guys, because all they’re really doing is they’re managing all the subcontractors. They’re not physically doing the work. Some of them might have their own crews, but they’re supplementing their crews depending on the size of the project with additional subcontractors. So if you’re getting bad work on a deal, it may not be the GC’s fault, it may just be that the sub that he hired did a bad job.

Theo Hicks: Okay, really quickly, how did you start raising money for deals? Was that after that first 26 unit deal?

Joseph Bramante: Yeah. After that first 26 unit deal, I had a pretty solid track record at that time. I was one for one and my first setback was a home run, at the ending. I mean, during the play, it looked like I was about to fall on my face pretty badly, but after that first deal is when I really started raising capital quite heavily, and started targeting these big value-adds.

The other thing I would say, just as a side note, is that doing a big value-add, once you’ve done one, especially on my first one, very few things scare you. And so I think a lot of what– the hesitation is for people to do value adds is that it’s scary. There’s a lot of unknowns, a lot of risk, a lot of things can happen, but once you’ve gone through it a couple of times, you get used to and are more comfortable with that risk, and you know how to respond in real-time to what’s happening; then you’re not as afraid of doing it. I think that’s probably, just my guess on why people don’t do as many big value adds, because they say they’re risky. But the reality is, in some ways, this big rehab we’re doing is actually less risky than a smaller rehab, because we’ve got so much money behind us on the rehab that any little nuance things that we discover have very little impact to us because of how much weight or how much money we’re spending on per unit basis; it’s easily absorbed by the GC.

Theo Hicks: Okay, Joseph, what is your best real estate investing advice ever?

Joseph Bramante: My best advice would be patience. I think there’s so many people who want this really quickly, they want to grow… And we’re only just over 1000 units, 1100 units, which isn’t really that big, to be honest. There’s some guys with these monster portfolios, and we’re more of a small to medium guy, to be honest. But that’s okay, we’re going at our own pace, and we’re doing deals that we feel comfortable with, and I feel like a lot of people – they’re rushing, they’re trying to get in quick and build these massive portfolios quickly, and the danger is, if you’re a syndicator trying to do that, that you’re growing and learning along the way. So if you quickly buy a bunch of deals when you’re still learning, then there’s a risk that you’re going to buy a bunch of deals and make the same mistake on those same several deals, versus just the progressive nature and maturing of you as an investor by taking your time, that if you bought those same deals over a five year period, by the time you’re [unintelligible [00:21:04].15] comes around, you’re buying that last deal, you’re underwriting and your execution on that deal is going to be significantly better than it is on the first deal.

So I think that’s the huge risk that people run into, and if you’re a passive, and you’re doing the same thing, trying to grow very quickly and deploy a whole bunch of capital, I think you run the risk of one, picking bad deals to go into, and two, you miss some market cycles. I think one of the benefits that people have is by– like right now, if you had dumped all your money last year, you would have been in a really bad spot, versus if you would paced yourself and done your investments over a couple year timeline, then you would have been taking advantage of potentially some really good deals that are about to hit the market.

Theo Hicks: Perfect, okay. Are you ready for the Best Ever lightning round?

Joseph Bramante: Let’s do it.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:21:51]:03] to [00:22:46]:05]

Theo Hicks: Okay, Joseph, what is the best ever book you’ve recently read?

Joseph Bramante: The best ever book I’m actually currently reading is a book called Raising The Bar by Gerald Hines. Hines Development is one of the top developers in the country. Gerald Hines is 95 years old. He started the company himself back in the 50’s, and he’s based here in Houston, his office is up in Williams Tower, which is right next to my house, and I hope to one day, get him to sign my book… But it’s just really inspiring to see his whole biography and his story and how he started and growing his company, which has 100 billion AUM; it’s just absolutely incredible. He’s strictly done development his whole life, and he’s an engineer like myself, so I gravitate towards that side of it as well… But it has been a really cool book to read, because I like to read books about great people who’ve done great things in my industry.

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

Joseph Bramante: So I’m a member of Rotary, it’s a business charity group. It’s one of the oldest charities I believe, or it has some significance in regards to that fact. It’s been around for a while. But I like Rotary because it allows me to give back in a variety of ways, both with my money and with my time, and the cause that goes back is always a different cause. We do a lot with housing, but we also do a lot with schools and helping kids and various other initiatives; it’s great. I’m a busy person and I don’t necessarily have time to do a lot of the research, so Rotary does a great job of vetting a lot of the charities beforehand, allowing us to give and know that it’s going to a good cause, and then also, like I said, get involved with our time and really get hands-on, which is really something special.

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

Joseph Bramante: The best place to reach me would be on LinkedIn. I’m on there, I’m pretty active on LinkedIn. The other way is, just send an email to info [at] triaarcrep.com and it would eventually make its way to me. But LinkedIn, if you want to get directly in touch with me is the best way. And if you do reach out to me on LinkedIn, let me know that you heard me on this show and I’d be glad to hear from you.

Theo Hicks: Perfect, Joseph. I really appreciate you coming on the show today and sharing your best ever advice, but I think what’s gonna resonate with people the most is you telling a story about buying your first property sight unseen. So you bought that 26-unit building; the original plan was, like you said, that there really wasn’t a plan at first. You were just modeling what the broker said, which is 3k per units in renovations, and then six months in, you had four units down that you were renovating and found asbestos once you did an environmental on it, and then you had some fraudulent insurance, and on top of that you’d lost your job.

So you joined a local real estate group, and it sounds like people there were telling you to just sell the property and take a loss, but you realized that not only would you have lost all the money you had saved up from your job, but you would have that negative track record. You [unintelligible [00:25:38].20] for one and would have a hard time raising money after that. So you met someone at that actual meetup who ended up being your business partner, who specialized in those large renovations, and told you that you’ve got a great location and that you could do a large rehab project and turn the property around. So you cashed out your 401k, got a bridge loan and did the $700,000 rehab, even though the purchase price was $650,000.

You vacated the entire property, and after the rehab, you were able to double those rents and refinanced, pulled some money out. You also mentioned, what sparked this whole conversation – now the plan is actually knocking the entire thing down and develop a brand new property because of the location. I really appreciate you sharing that story.

And then you also mentioned a few things about how you’re identifying deals. So you gave us your return targets, and that you really just positioned yourself in the market as being the team that does these big deals, and so brokers actually bring these deals to you, which was just very beneficial. You gave us some tips on finding the right contractors; obviously, you’re doing an in-house now, but it really just comes down to just getting in contact with a few recommendations and just testing them out, holding their feet to the fire, making sure you’re setting proper expectations with the contract and setting a schedule, but at the end of the day, it’s really just trying it and seeing how they do. And you mentioned how you’ve gone through a few contractors. Then lastly, you gave your best ever advice, which I really like – just to be patient. So again, Joseph, I really appreciate you coming on the show. Best Ever listeners, as always, thanks for listening. Have a best ever day and we’ll talk to you tomorrow.

Joseph Bramante: Thanks, Theo.

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JF2072: Facebook Marketing During The Coronavirus With Tristen Sutton

Tristen is a certified Facebook digital marketer who is also a consultant for Facebook. He teaches businesses how to effectively use Facebook and Instagram ads. In this episode, he shares many different strategies to increase your leads and how to correctly target the higher conversion client.

Tristen Sutton Real Estate Background:

  • A consultant for Facebook and a certified Facebook Digital Marketer
  • Teaches businesses how to effectively use Facebook and Instagram ads
  • Based in Houston, TX

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Make sure you know who your target market is and always put a call to action in your ads.” – Tristen Sutton


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks, the host today. Today we are speaking with Tristen Sutton. Tristan, how are you doing today?

Tristen Sutton: I’m doing good. I’m staying safe, sane and sanitized.

Theo Hicks: The three S’es, there you go. Well, today we are going to be talking about marketing, and more specifically we are gonna talk about the things you should be doing from a marketing perspective on Facebook, Instagram, social media, during the Coronavirus pandemic. That’s gonna be the topic of discussion today.

Before we get into that, a little bit about Tristan – he is a consultant for Facebook, and he’s a certified Facebook digital marketer. He teaches businesses how to effectively use Facebook and Instagram ads. He is based in Houston, Texas, and you can say hi to him at TristanSuttonConsulting.com.

Tristan, before we start talking about marketing during the Coronavirus, do you mind telling us a little bit more about your background and what you’re focused on today?

Tristen Sutton: Absolutely. I’m a marketing strategist, like you said, based out of Houston, Texas, and I work with small business owners, and specifically real estate agents, and teach them how to use Facebook advertising to expand their brand, generate leads  and increase open house attendance. I’m a licensed [unintelligible [00:04:18].10] instructor, so the course I teach, Ads University, provides real estate agents five hours of [unintelligible [00:04:24].29] along with an actual training, so they learn how to market for themselves. I’m really passionate about helping this niche out.

Theo Hicks: Perfect. Do you work with specifically real estate agents? Do you work with investors as well, or is it specific to the agents?

Tristen Sutton: Actually, yes, in some of my classes I’ve had several investors attend the course, and they said the things that I’ve taught them in that course has helped them get more leads to some of the properties they’re selling and investing in.

Theo Hicks: Perfect. Obviously, the Coronavirus has impacted real estate in general… Let’s maybe focus on real estate agents first, and then we can talk about investors second… Unless you think that the lessons apply to both. I’ll leave that up to you. So let’s start with agents. Maybe first tell us some of the biggest things that are changing right now, or maybe the most important things that agents should be changing when it comes to the way they’re advertising on Facebook and Instagram and other social media platforms.

Tristen Sutton: Great question. Really what I want agents to understand right now is that it’s a pay-to-play strategy. Posting and hoping on your profile or your business page isn’t gonna get you the leads you need to get to the transactions that you want. We’ve gotta stop using a blockbuster strategy in a Netflix reality, and realize that Facebook suppresses your posts, so you need to put money in some advertising if you wanna reach your target audience.

The second thing would be understanding that Facebook changed the rules. So a lot of the targeting that used to be available for agents is no longer there. That doesn’t mean the platform is obsolete now, you just have to be strategic with your retargeting. So getting people to watch your videos or click on your links, regardless if you’re a buyer or a seller agent, and then retargeting those people… Just like when you click on a website and then all of a sudden she follows you around on Instagram and Facebook – that’s what we need to be able to do to make sure we get our transactions for the  year.

Theo Hicks: So agents can’t just have their Facebook page that they have and just post free content to people, and hope to get leads that way? They need to actually create a paid advertising campaign on Facebook?

Tristen Sutton: Right. So if anyone’s listening right now, look to your Facebook business page, and look at your last 5-10 posts. You’ll see that, regardless of how many likes/followers you have, less than 5% of those people ever saw your posts. It’ll be at the bottom  left, and it’ll say “Page Views” or “Content Views”, and then you’ll realize that “Hey, if I have 1,000 followers but only 20 people saw my post, I can’t grow a business or sustain a business with that kind of reach.” So if you wanna use this platform, you have to adapt with it and realize that to reach the people you want or need, you’re gonna have to put some behind it now.

Theo Hicks: I know that Facebook has different types of paid campaigns… One’s pay-per-click, and then there’s a different one. Is there one that you advise people to use over the other? Is pay-per-click better than just paying per campaign?

Tristen Sutton: No, there are several different objectives. There’s approximately 9 or 10. The four that I recommend for realtors is the reach objective, traffic, which drives people to your website, video objective, which gets people to watch more of your content, and then the last one would be Event RSVP – so if you have open houses, seminars, workshops, anything where you need bodies in a room, run that type of ad. That goes for the agents and the investors as well for the workshops they do.

Theo Hicks: Okay, so you said Reach Ad, Traffic Ad, Video Ad, and RSVP Ad. So I think that Event RSVP and Video are pretty self-explanatory… What is Reach Ad and what is Traffic Ad?

Tristen Sutton: So Reach Ad is more of like a digital direct mail campaign. This is gonna show your content, your face, your brand to as many people as possible in your market or your farm, but it’s not optimized for clicks or cost. So there’s none of that going in. This is more of an advertising play versus a marketing play… Marketing is lead generation, and things like that.

So you can spend at the time of this reporting maybe $5 a day and reach maybe 3,000 a day on their phones, tablets and computers, as long as they have a Facebook or Instagram account.

The Traffic one is optimized to show your ads first to the people most likely to see your ad and then click on your website. So those are the two that a lot of agents use  because they wanna get their brand out there. But then they wanna drive traffic to their listings, or the lead capture sites, things like that.

Theo Hicks: Perfect. And the Video is just a video ad. And then RSVP is advertisement for a specific deal?

Tristen Sutton: Right. So with Video Ad most people don’t know the strategy – you use the video ad to warm up a cold audience. People do business with who they know, like and trust, so the easiest way to do that right now is with video on social media. So you get someone to watch maybe a 30-second video and then on the back-end you can go on Facebook and say “Hey, everybody that watched this video that I’ve just sent out on their phone, retarget everyone that watched at least 50% or more.” Because if they watched half of it, they’re halfway interested, they’re halfway familiar with your brand, and you’re gonna get a much more higher conversion with people that are already familiar with your brand than a cold audience.

Theo Hicks: Yeah. And then the RSVP?

Tristen Sutton: I encourage everyone, whether you’re an investor and you’re hosting workshops, or an agent hosting open houses, seminars, things like that – create a Facebook event page (it’s free). It’s kind of like the Facebook’s version of Eventbrite. You put your information, your picture, a registration link in there… But you can  run ads to drive traffic to that event page, and spend maybe $3 to $5 a day and reach hundreds if not thousands of people. It encourages people to RSVP, and you can use that event page as an incubator to put testimonials, keep content in there… And really, that event page now – you’re using it as your way to do a virtual open house.

So if you can go to your house, social distance, do a video of it professionally on your phone, put the video in that Facebook event page, and now as you’re driving traffic to it, people get to virtually tour the home from the comfort of their home, and then they may schedule an appointment and say “Hey, once this is over…” or “Hey, can I schedule a tour in-person?”

Theo Hicks: What about the actual content of these ads? How has that changed during the Coronavirus?

Tristen Sutton: Hopefully people are doing more video, but unfortunately, people aren’t able to go to the barbershop or the salon, so they may be a little apprehensive about putting their face out there…

Theo Hicks: Seriously…

Tristen Sutton: Right now my beard is out of control. But right now video is still king/queen on social media, and it’s the best way to connect with your audience and the best way to get in front of them. And you don’t have to do long video. You can do something along 15 seconds, 30 seconds, never longer than a minute for an ad. Now, if you just wanna post videos, Facebook favors three minutes. But for ads, I recommend 15-30 seconds. And it doesn’t take long. Introduce yourself, identify your audience, identify a pain point to provide a solution, and then give them a call to action, “Click call or send a message”. That’s it, that’s all it takes.

Theo Hicks: So from these four types of ads, is this something where you wanna have one Reach ad, one Traffic ad, and then one Video ad, and then just continually push those? Or is this something that you refresh every day, every week, every month…?

Tristen Sutton: Great question. I wanna preface that with everyone’s situation is gonna be a little different… But a Reach ad – that’s more branding, so that’s something you just keep on going, and maybe just change your image maybe every 30 days. That way, people in your market area are gonna be familiar with you because they’re gonna see you all the time.

Traffic – that’s gonna be depending on what you’re driving traffic to. Are you driving traffic straight to your listing? Obviously, you’re gonna move those properties, so you don’t need to keep those up if you don’t have the inventory. Or if you just have a general lead capture form, you can always drive traffic to that open house, obviously only when you have a property to tour. So you may not have those going at all times.

And then the Video ads – that’s another branding strategy, so you can always have that going. I recommend leaving ads running for 30 days once you optimize them, to make sure that you’re getting the traffic and the clicks that you want.

Theo Hicks: Perfect. And then – I guess this applies to both agents and investors, but is there anything that applies to investors as it relates to marketing on Facebook  during the Coronavirus that we haven’t talked about already?

Tristen Sutton: 99% of the people I work with are agents, so I don’t have the full aspect of what the investor needs… But regardless, everyone is at home right now, staring at a phone, tablet or computer. So if you know that you have an opportunity, you can reach them right now. And ads are cheaper, because a lot of the large corporations have kind of backed away. Facebook is saying “Hey, we need to still keep this revenue going”, so your money goes a lot further. You spend $5/day and you may reach 800 people now, and on some variables you can reach maybe 1,200 to 1,800 people from the same $5. So now is the time, because you have the access to their attention, it’s where everywhere’s spending time right now, and it’s inexpensive.

Theo Hicks: So basically, everything we’ve talked about so far is what people should be doing… On the flipside, what are some of the biggest mistakes you see people making right now? And this could be as it relates to actual paid ads, or it could just be content that people are pushing out on Facebook or social media in general.

Tristen Sutton: Oh, man… A handful of things. Get quality graphics. It doesn’t have to be a $500 or $1,000 flier image, but use something like Canva.com and just make — crisp, quality graphics are gonna represent your brand. If that’s not your ministry, you can user Fiverr (fiverr.com) and just spend maybe $20 to get a nice, professional-looking graphic.

Videos – people are using videos that are too long. Like I said, you wanna be between a 15 and 30-second timeframe. If it goes longer than that, people’s attention span isn’t there and they’ll scroll past it.

Always put a call-to-action. I always see something like an ad that says “Hey, we have this beautiful 4-bedroom house for sale.” Okay, now what do you want me to do? Do you want me to call you to talk about it? Do you want me to email you? Do you want me to go to the website? Always put a call-to-action, and then just be very concise with your messaging and your advertising, too. Make sure that you know who your target market is, and you stick with that.

Theo Hicks: Perfect. Okay, Tristen, what is your — typically we say “best real estate investing advice”, but we’ll just go with “What is your best ever marketing advice?” And something that you obviously haven’t talked about already.

Tristen Sutton: Stop boosting. Stop hitting that little blue Boost button. Because typically what happens is people don’t typically have a strategy. So my top marketing advice is before you launch any kind of advertising or marketing campaign, write your strategy down. Who do you want to see that ad? What do you want them to see when they see that ad? When they click on the ad, where do you want them to go with it? What do you want to happen?

Most people just say “Hey, I just did a live video tour of this home I have listed. Let me just spend $50 on a boost” and just shoot it out there. And then it’s like “Okay, well who did you send it to?” “I don’t know, I just hit the blue button.” So have a strategy before you spend any money.

Theo Hicks: Would you say Facebook is the best platform for marketing for real estate professionals? I know in your bio it said Instagram as well. Is Instagram just not as good as Facebook?

Tristen Sutton: I’ve actually seen better results with Facebook between my advertising and my clients’ results. Instagram is more of a show and tell, Facebook is more of an engaging opportunity. Plus, Facebook is Instagram’s daddy; they own them. Facebook has 1.6 billion people logging in every day, versus 600 million with Instagram, at the time of this recording, of course.

Theo Hicks: Okay, Tristen, are you ready for the Best Ever Lightning Round?

Tristen Sutton: Let’s go!

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:15:48].14] to [00:16:35].09]

Theo Hicks: Okay, what is the best ever book you’ve recently read?

Tristen Sutton: I’ve recently re-read The Millionaire Next Door. It just kind of puts everything in perspective about how to live below your means and invest in your opportunities that are going to yield you money, like real estate.

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

Tristen Sutton: I’d probably go get my real estate license and [unintelligible [00:16:53].05] since I know how to market it. [laughs]

Theo Hicks: So I usually ask “What’s the best ever deal or the worst ever deal you’ve done?”, but I’m gonna change it up a little bit. I know that you give talks on marketing… What is the most unique group of people you’ve spoken to?

Tristen Sutton: I would say it was probably one of my first trainings; it wasn’t real estate related, it was just general business owners… And it was just a lot of individuals that didn’t even know how to use Facebook. Some of them didn’t even have a Facebook business page. So where I’m coming in expecting just to train them “Hey, this is how you generate leads”, it’s like “Well, hey, let’s set up a Facebook Ad account, or a Facebook business page for you, and upload your picture.”

So I would say my first training to general business owners who did not know much about social media.

Theo Hicks: Yeah, it is interesting that we’re living in an era right now where the younger people have always had the internet, and the older generation didn’t. [unintelligible [00:17:44].20] massive disconnect between — you give an iPad to a 5-year old and he can do everything. If you give it to a 7-year old, they can’t do as much as the 5-year-old. It is interesting.

Tristen Sutton: Very much so.

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

Tristen Sutton: Of course, I’m a speaker and trainer, but when this pandemic came, I just started reaching out to business organizations, real estate organizations, and started just offering free resources, and  training. I did a Facebook Live and shared it with a bunch of business owners and agents, that “Here’s the tools I’ve used to still market my business. Here’s my lighting setup, my camera setup, all the above.”

When I heard that restaurants were crashing, I did a free training for restaurants where I was saying “Hey, here’s a 30-minute crash course how you can make sure you stay in front of your audience and still get those to-go orders or pick-up orders, so you can still keep your doors open through and after this.” So just giving some free advice and training to those in need.

Theo Hicks: Yeah, there’s actually a bread vendor that just rented a van and just drive around the different hot spots for half an hour increments, and people will still drive up there to do their bread. I thought that was interesting. Kind of like that for restaurants, too.

Tristen Sutton: You know, one of my phrases is “Pivot or perish.”

Theo Hicks: Exactly. Alright, and then lastly, what is the best ever place to reach you?

Tristen Sutton: I wanna do a 2 for 1. So they can text to get a free Facebook Ads workbook to teach them how to set up their own. They can text “freeguide” to the number 31996. That would give them access to the website. It’s a workbook, and we all win.

Theo Hicks: Perfect, Tristen. Well, thanks for joining us today and thanks for giving us your advice and wisdom on Facebook marketing and how it relates to real estate agents and real estate professionals in general during the Coronavirus pandemic.

We talked about how it’s transitioning from — I like your little sayings… “Posting and hoping”, to the “Pay to play” strategy. If you go to your Facebook  business page, you can see that if you aren’t doing paid ads, then you’re getting very low engagement on your posts… And it’s because of the fact that Facebook has kind of changed their rules on that.

We talked about the four different types of ads – the Reach ads, the Traffic ads, the Video ads and the Event RSVP ads.

Something you also mentioned is that when you’re making advertisements for videos, you  wanna make sure that they are between 15 and 30 seconds, never longer than a minute. Then when you’re making content, you want that to be 3 minutes. That’s kind of the sweet spot. And when you’re making these ads, once they’re optimized for 30 days, you mentioned that some of the biggest mistakes people are making for advertising is poor graphics, so make sure you get high-quality graphics. Videos that are too long, as I already mentioned. Not having a call-to-action, and then not having concise messaging and concise targeting of an audience.

And then your best ever advice was to 1) stop hitting the Boost button, and then also make sure that before you  start a strategy, you write it out. Who do you want to see the ad, what do you want them to see, and then what do you want them to do once they’ve actually engaged with the ad.

Again, Tristen, thank you for all that advice and thanks for joining us. Best Ever listeners, as always, thank you for listening. Stay safe, have a best ever day, and we will talk to you tomorrow.

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JF2054: Selling Your Business With Steve Rozenberg

Steve is the Vice President of Education for Mynd Property Management. Steve owned a property management company managing about 1000 SFR and he is also an airline pilot for United Airlines. In this episode, he shares the challenges and the psychological issues he was facing when it came to selling his successful business. 

The previous episode Steve Rozenberg was on – https://joefairless.com/podcast/jf172-pros-and-cons-of-investing-in-low-income-properties/

 

Steve Rozenberg Real Estate Background:

  • Vice President of Education for Mynd Property Management
  • Educates investors about the benefits of small residential investing with a variety of content, including podcasts, video blogs and more
  • Based in Houston, TX
  • Say hi to him at https://www.mynd.co/

 

Best Ever Tweet:

“Are we doing what’s best for the team and for ourselves by keeping it, or are we doing what’s best by selling it?” – Steve Rozenberg


TRANSCRIPTION

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

Steve Rozenberg: I’m doing good, Joe. How are you, buddy?

Joe Fairless: I’m doing great and looking forward to our conversation again. And Best Ever listeners, you can hear Steve’s other interviews. Just google his name plus my name, you’ll get a couple other interviews that we’ve done. Today we’re going to be talking about lessons he learned and experiences he had from selling his business that I interviewed him about previously. So now, Steve is the Vice President of Education for Mynd Property Management. They’ve got over 10,000 single-family home properties. He educates investors about the benefits of small residential investing, with a variety of content including podcasts, videos, and other things like that.

So our focus today is going to be on the sale of his property management company and lessons he learned, so that should you come across an opportunity to sell your business or get into a venture, where eventually you want to sell, well, this conversation will be helpful for you. So with that being said, Steve, first, do you want to just give a refresher of your background, and then we’ll go right into it?

Steve Rozenberg: Absolutely. So I’m down in Houston, Texas, and we owned a property management company. We were managing about 1,000 units, single-family homes. I’m also an airline pilot, so I actually have a full-time career, you could say.

Joe Fairless: I didn’t know you still had a full-time career as an airline pilot.

Steve Rozenberg: Yeah, I fly 787s for United Airlines.

Joe Fairless: Huh! Alright.

Steve Rozenberg: I do international stuff. So you can have a career and build a business and sell it; it can be done.

Joe Fairless: Wow. Impressive.

Steve Rozenberg: Yeah. So we were building our business and thinking of taking over the world as everyone does, and we’re going through the trials and tribulations that we all have. We were looking to expand in multiple cities and had been approached about maybe doing some licensing and franchising. Because I do international travel and I speak internationally as well, we were actually looking at maybe doing some stuff in Malaysia as well as in, possibly, Australia, just exploring the ideas with some people. So we were doing very well, our business was built on systems, processes, procedures, a lot of checklists because of my airline background; we implemented a lot of those things. So it was a very optimally-run company that was outsourced about 60% of it with virtual assistants in Mexico.

So we had a lot of leverage, and so we were very, I guess, in hindsight, we really were a prime company to be acquired or merged, however you want to call it, because our costs were low and our efficiency was very high. We were doing that to streamline for scalability and leverage on a growth model, and we had done this in about six years, this whole growth spurt.

So as we kept going, my role in the company was sales and marketing. So I was the one that was the face, tip of the spear if you will, and my business partner was the integrator, and he was the operator of the business. So no one really ever knew who he was. But I was out there, bringing in people interested. A lot of things we did where we’d redirect funds. So I’d go speak in other countries or in another states on the West Coast or other places, and redirect them to invest in Houston or into Texas, where we could manage the properties for a much lower price than what they could acquire something in let’s say the Bay area.

So as this progressed, we got very well known in the industry with systems and processes, and we got approached by a company. We had a couple of people actually approach us, but we really liked the people at Mynd, and when you start looking at this being a possibility – and Joe, I don’t know if you’ve ever gone through this… It’s very interesting because you’re taking something that you’ve built out of an idea, like a thought, you’ve built it up into a structured, scalable model. It truly was a business that was, for the most part running without us, unless we wanted to grow it, and you have employees and you have staff, so there’s a lot of loyalty, and you’re taking that and someone says, “We want what you have. We want to take it,” and there’s a lot of mental torment that goes on in your brain, because there’s loyalty, but there’s also your own loyalty to your family and to your time and what is it worth. My business partner and I, we had a lot of conversations on it, and it’s a tough thing to go through if you’ve never done it.

Now, a lot of people sell because maybe they’re losing their business or having challenges. We were the opposite; we were skyrocketing, and this just happened to come up. Again, I don’t know if you or your listeners have ever gone through this at some variation. There’s a lot of self-checking that goes on internally, a lot of internal dialogue. “Are you making the right decision or the wrong decision?” And there’s a lot of stuff that you’re going to mentally go through. There’s a lot of regret, a lot of emotions in the negotiations, which we all know is not the thing to do, but you’re selling the last seven years of your life, and you’re putting a dollar amount on it, and the acquiring company.

To their credit– when you’re building a business, nobody really knows the battle scars that we all bear when you’re growing a business. We know it and we’re like, “Wait a second. I remember sleepless nights, and trying to fund, and this and that,”, and they’re just like, “Hey, we like the asset, we’re ready to move, let’s sign the contract and go,” and you want a little coddling, you want a little hugging, a little bit. So it was a definitely– I don’t wanna say, over-emotional, but there was a challenge, mentally, to get over it and deal with the situation at hand, of “Are we doing what’s best for the team and for ourselves by keeping it, or are we doing what’s best by selling it?” That’s a tough question to go through, I can tell you that.

Joe Fairless: How do you find an answer to that question?

Steve Rozenberg: I’ll tell you what. We went on facts, we went on data, because the data doesn’t lie, the facts don’t lie. In the property management industry, there’s a lot of consolidation, number one. Number two, there’s a lot of disruptors starting to come in. It starts on the third-party cursory, like the property management software, and the apps, and all those things, and you can see the trend of it. The circle is getting smaller and smaller where they say, “Oh, you can’t outsource that” or “You can’t turn that into an app. This is a personalized business,” and a year later, that’s gone, and then, they say it again. So we were seeing the writing on the wall. We were also seeing that a lot of the larger scale funds, venture capital, private equity, they were looking at the property management industry as an industry that’s almost a– I don’t want to say recession-proof, but in good times, investors are buying properties so property management scales. In bad times, homeowners can’t sell their properties, so they turn them into management properties. So any kind of the equation, you’re always getting business, essentially.

So we knew that the larger venture capital and people were looking at this, and they were starting to gobble up the mom and pops. So what we were seeing is, what’s happening is, the small– I call them mom and pops, but the smaller unit management companies, they were getting eaten up a little bit. A lot of them, the average property manager age was 58 and a half years old. So a lot of them want to sunset; they want to go off and call it. Their kids don’t want it because they’ve seen their parents run themselves into the ground being a property manager, so they’re saying, “I don’t want to do that.” And the larger-scale companies were doing some more syndication, some more mergers. So who is left? The people like our company, the 1000, 1,500, 2,000 units, you’re kind of in no man’s land. We thought to ourselves, “Do we want to join them or do we want to have to fight them in our market?” because that’s what it comes down to. If they don’t buy us, they buy someone else. If they buy someone else, now we’re competing against their dollars.

So again, it’s tough, because you’ve got the emotion side, but you also got the logic side, and the logic was telling us the industry is changing just like any industry, just like Uber and bottled water and XM Radio. So we think that the industry in the next five years will be a complete metamorphosis of what it is today. I also think that Mynd Property Management Company, they are very much a technology company that’s managing assets. So they manage properties and they understand how to do that and they do it very well and efficiently… But again, just like an Uber, they think it can be a lot more streamlined than it is. Because you know as well as I do, in the industry when you talk to someone about a property management company, they’re horrible at communicating, they overcharge you. They do this, they do that. Well, when you think about it, those are all human factors that can be streamlined and possibly computerized in software, if the AI is smart enough. So we get enough money into a sector and things will change, and that’s what we are seeing, and that’s why we decided this is a smart move. Let’s keep going down this path.

Joe Fairless: Was it an unsolicited offer or were you actively looking for buyers?

Steve Rozenberg: No, it was unsolicited.

Joe Fairless: Came out of blue.

Steve Rozenberg: It came out of the blue.

Joe Fairless: You hadn’t considered selling and then you got this offer and you’re like, “Huh. Interesting.”

Steve Rozenberg: Well, what’s even a little more interesting on this whole thing, just our trajectory, we’d  been coached by a business coach for the last six years, and the business coach was part of a franchise. Well, the franchise is in about 85 countries. The founder lives in Las Vegas. As we were growing our company, he started watching us and starts talking to us about maybe scaling this on a national level and talking how we could do that, and next thing you know, we bring him in as 10% partner in our company on a large scaling model. What Mynd is doing is what he was saying that he thinks could happen with us.

The challenge though is, man, you’re grinding a lot of gears and there’s a lot of things when you’re getting money from people and venture capital and other things. If you’ve never done it, it can be a huge mountain to climb if you’ve never climbed that mountain, and when you’re dealing with other people’s money, I’m thinking, “I’m not sure that this is a path I want to take.” So when Mynd came in and approached us, and we started talking to them and saw everything that they were doing, it’s like, “Man, this is what we think we could do,” but seeing what they were doing– they have 40 developers constantly developing their own proprietary software. I’m thinking, “I wouldn’t even know how to begin to even fathom how to do this.”

Joe Fairless: Why so many of those types of roles?

Steve Rozenberg: Well, again, they are very much a software technology company. So they believe– the gentleman that founded Mynd, Doug Brien and Colin Wiel, they actually were two gentlemen that created a company about 10 years ago called Waypoint Homes, and they were purchasing homes at that time, and they collectively got up to 17,000 properties that they owned.

Joe Fairless: Wow.

Steve Rozenberg: So they’ve already done it before. They ended up going public. So they sat around and said, “We think we can do this again, but we think there’s a huge lack in the third party property management industry that has a huge void in customer service and technology, and we think we can fix it.” Because they said that when you get above about 10,000 to 20,000 properties, your biggest challenge is not having control of the software. That is your biggest restrictor, is what they explained to us.

So we realized that they’d already done it once. Now, they know the secret of the software is the key. That’s the nucleus of everything. I mean, everything spawns off of that. So their position was, which I think is very smart, they came out and said, “Listen, we are not the experts in the industry. We want to bring in the experts strategically in the industry like you guys at Empire, and some other people,” and said, “We want to hear how you guys do it, and we want to build a system essentially around that. We know how to do a lot of things, but we don’t know the third party management as well as you guys do, because you guys are in the trenches, dealing with it.” So they were very much like, “Best idea wins, but we’re willing to listen. You tell us and let’s do it.”

Joe Fairless: That’s fascinating, because you think the company that’s buying the other companies would be the expert in industry, but in reality, they are incredibly good at one area that they know is what the long-term success relies upon in order to scale, and that is, as you said, software, which if you give me a multiple-choice test or question and answer, and if software is option D, and expert in property management expert in financing, communication, contract work, I would have picked all of those over software. That’s really interesting.

Steve Rozenberg: I agree. I would have thought it’d be staffing, communications, responsiveness, but when you think about all those things, all of those things could run through a software, technically. It’s like Uber. You could never think that you’d get on your phone, which isn’t really a phone, but you get on that, you push a button, and some stranger pulls up in your driveway and says, “I’m ready to take you to XYZ.” So when you think about it, that’s really a software play. So I have learned, when we were growing our company, we really doubled down on leverage of virtual assistants, and a lot of people said they had challenges; they more had a mental block with it, and I said, “Well, let me ask you this. When you have a app, isn’t an app a form of leverage to do something faster than you were doing before? That’s what the app was created for,” and they agreed. I said, “Well, a virtual assistant is essentially the same concept. It’s an app; it’s a form of leverage.”

So what I have learned — it’s interesting, Joe… This is not something that I have been in, so this is all new to me as well. But what’s emerging in the industry is, if you think about, are things that cause less friction to the client. So when you think of Spotify, and you think of Uber, and you think of all these things, these are less frictionable things that give a better result and a better customer experience, and that’s what all of these things that are coming out, all these apps and all these programs and everything, that’s all they’re trying to do, is decrease the friction between customer and supplier.

It’s very interesting when you get into these conversations with some of these gentlemen. They’re based out of Oakland, so I’m spending some time up there, and I’m really listening and trying to be a student of how this works because, to me, it’s a whole new world. Like you said, you don’t really relate the two together, but when you think about it, it makes perfect sense that, yeah, it could be a software thing if it was smart enough, there was enough money pooled into it.

A lot of people talk about Zillow and how bad Zillow is, and Zillow is dipping their toe into the property management world, and I hear a lot of naysayers tell me they can’t do it, and I’m thinking to myself, “Are you kidding me? You throw enough money at anything and you can fix a problem.” And that’s exactly what they’re doing. They may not get it right in a year or two years. It’s just a matter of time. When you go to McDonald’s and you don’t even need to talk to someone and you push a button and you get all your food, that’s an indication of AI.

Joe Fairless: So switching gears from that to when you were coming up with a valuation with Mynd, what are some things that surprised you, either good or bad, about how they valued your company?

Steve Rozenberg: Sure. And obviously, everybody has their own thoughts and feelings of what is and isn’t included or should be included. As far as they were concerned, they were very, very upfront and very, very fair. Obviously, I can’t say what it was, but they were very fair and realistic, because we were fair and realistic. Now, there were certain things that I wouldn’t have thought it was a big deal, and there’s different ways I had learned to sell a company, in the sense of for a property management company, you can sell the company as a whole entity, or you can sell the contracts of the company. So there’s two different ways that you can sell your business. Now, if they buy the whole entity, that’s a lot more invasive, accounting wise, litigation wise to make sure that you don’t have anything pending, as opposed to a contract which is more streamlined. So that’s something that I didn’t realize.

Then there’s obviously, different payouts of how you can be paid out. Well, obviously it’s like winning the lotto; you want your money right now. It’s not as much as it would be if you stuck it out for a little bit. So I thought that was interesting.

And like I said, they were just very fair, but I will say, with that being said, you do have to remember that it is a business transaction and they have shareholders to protect and so do we. I would say that the one thing that I alluded to in the beginning, you really got to make sure that you remember that everybody’s going towards the same goal. Meaning, if you decide to dance with the company, you really have to understand that there is no emotions involved, it’s nothing personal, and sometimes the emotions will flare up and you almost have to step away and get back into negotiations, maybe a day or two later, because something that you’re hung up on in hindsight is really not; it’s more of your emotions that are dictating the conversation. That’s what I have learned from that.

Joe Fairless: What’s a specific example, in your case of that, when it happened?

Steve Rozenberg: Sure. So when we were talking about staff coming over– so for example, when staff would come over, and it was like, “Okay. Well, who’s coming over?” And there was no guarantees, but I’m like, “This guy is– he was the reason that we got to where we were. I really think we need to bring him over.” And they’re like, “We get it, we understand, but we can’t guarantee it because we don’t know his role in the bigger company.”

So a lot of the staff that comes over isn’t necessarily going to do the same role they were doing at your company. So you have to realize that they are buying the intellectual property, they’re buying everything about your company, but at the end, they really have the choice to do what they want with the team. I can’t say, “Oh, that person needs to be in that role. Wait a second, what are you doing with that?” It’s not my position anymore. You have to be okay that when you sell the company– and also, the one thing that was very tough was letting the team know and putting them at ease. Because once they find out something’s happening, you don’t want people to, all of a sudden, jump ship because now the deal doesn’t happen or even if it does happen, they’re buying the success of all the team and everything that the team has done. But of course, it’s human nature. We always think worst-case scenario. So some people, all of a sudden, start looking for jobs and doing this, and you’re like, “Hold on. Just wait up a second.” So you’re almost having to pacify people as well on that.

Joe Fairless: Any tips for that?

Steve Rozenberg: Yes, I would say definitely, before anything happens or comes out, we were very open with the team; we let them know from the beginning what was going on. We had an inner circle of leadership. We let them know, and we told them everything that we knew as we knew it. We got verification from Mynd that it would be okay, and we just wanted to make sure we kept open dialogue with everybody.

And as soon as we could know that we had a deal, we brought the team in, we said, “Here’s what’s happening. Here’s what we’re working for everyone.” So I guess, boiling that down, I would say, you have to overly communicate with the team, because the people that are working for you, they’ve got families, they’ve got livelihood, they have time invested, sometimes more time than we have invested in the company. There was many employees that were like, “Wow, I can’t believe you guys did that,” but we explained why, and they say, “Look, I understand and I’m glad you guys did, but it wasn’t what we wanted. It wasn’t what I wanted.”

And again, at some point, you have to say– and this is something that, when we were going through the transaction, we would say, “Well, we’re doing good on our own, we don’t need to sell.” And my answer always is, that could always change with a lawsuit, that could change with a law change, anything.

Again, I’m not trying to say worst-case scenario, but at some point, a bird in the hand, like if you have an apartment complex that you’re getting rid of and you go, “What? It’s making a lot of money.” But what can I do with the money that I’m making? I really thought of– and this is what I would tell people is, if you even talk to someone, that tells me mentally, there is a thought and a chance that you are willing to do something. Because if not, you wouldn’t even have taken the conversation. So if you do, think of what the opportunity cost is, of what you can do, not only with the funding that you get from the sale or whatever happens, but your time. Because that’s all you have is time.

So that’s the thing I would say, is really think about if you accept that meeting, don’t think of the worst case, think of what is the opportunity that could open doors. I’ll tell you, coming over to Mynd, for myself, has been a great experience because all of a sudden, it has opened up a lot more doors for me on the speaking panels, speaking circuits, traveling, doing exactly what I like to do, and what I think I do well at, that probably would not have opened up as quickly at Empire.

Joe Fairless: Steve, how can the Best Ever listeners learn more about what you got going at Mynd now?

Steve Rozenberg: Sure. They can find me on Instagram – @rozenbergsteve, or Facebook, Steven Rozenberg. They can also go to our website at Mynd. It’s Mynd.co, so it’s just co. If they google me, they’ll find a lot of stuff. I do a lot of speaking, traveling, and a lot of education. I’m all about educating investors,. Again, if anybody wants to know more, I’m happy to chat with them, but it was a great experience. I’m really glad I did, and I’m glad I’m able to share it with people that it wasn’t a doom and gloom, horrible, they ripped me off kind of story. Really, it was a fair situation that I think is worth anyone exploring if they own a business.

Joe Fairless: I love how you got into, first, be aware of the industry landscape, where it’s headed, what are the industry trends. So first, we need to be aware that. And this is applicable not only to selling a company, but also individual deals too, because you could talk about the market, the sub-market, the job dynamic within that sub-market… So first, just being aware of the business that you’re in and the levers that need to be pulled in order for you to continue to have success, and what happens if they’re no longer being pulled or what happens if they go to the other direction.

And then, if they are going in the right direction, then you’ll be able to negotiate from a position of strength, any opportunities that come your way, and then you can capitalize on those opportunities and then exit out successfully, and then move on to some other things or other deals if it’s a real estate transaction. So I love the thought process, applicable not only to selling your business, but also individual deals. I hope you have a best ever day, Steve, and we’ll talk to you again soon.

Steve Rozenberg: Thanks, Joe. See ya.

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JF2026 : Analyzing Storage Properties With John Manes

John is the CEO and Co-Owner of Pinnacle Storage Properties and Pinnacle Storage Managers. John gives an example of how he looks at a deal and determines if it’s worth his time and money. His goal is to buy a storage property that can run without the necessity of him being there. You will learn the formula John uses to evaluate each property he finds before making an offer. 

 

John Manes Real Estate Background:

  • CEO and co-owner of Pinnacle Storage Properties and Pinnacle Storage Managers
  • Has been involved in self-storage since 2005, has raised over $35 million in private equity to build a $100M+ portfolio
  • Based in Houston, TX
  • Say hi to him at Pinnaclestorageproperties.com 

 

Best Ever Tweet:

“Can you be successful? Yea, but you’ll trip over yourself doing it and your going to make mistakes that might be very costly” – John Manes


TRANSCRIPTION

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

John Manes: Doing great, Joe. How have you been?

Joe Fairless: I’m doing well as well, and I’m glad to hear you’re doing great. A little bit about John – he’s the CEO and co-owner of Pinnacle Storage Properties and Pinnacle Storage Managers. He’s been involved in self-storage since 2005, has raised over 35 million in private equity to build a 100 million plus portfolio. Based in Houston, Texas. With that being said, John, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

John Manes: Sure. I started my career in retail, spent 17 years working for people like the Walmarts and Kmarts of the world. Got burned out on that, and applied to a job with self-storage as a district manager, with this little tiny storage company called Uncle Bob’s self-storage, the fourth largest self-storage company in the United States, and who are now Life Storage.

Ended up doing so well they promoted me to regional vice-president. I started with them in ’05, got promoted in ’08, and from there I went on to be the COO of a privately-held self-storage company here in Houston, that had 55 self-storage properties. I did that for about five years. Four years ago I went out on my own, create Pinnacle Storage Properties, and currently have 20 properties under ownership, two that we’re raising money on right now, and we’re getting ready to partner on eight others.

We have ground-up development on top of that around Texas, and a conversion deal in Temple, Texas. So by April we’ll be 32 properties.

Joe Fairless: Wow. The conversion deal – what are you doing with that?

John Manes: So we’re buying a 25,000 sqft. single-span building that used to be a youth sport building. We’re putting a mezzanine in it and an elevator for two stories, so it’ll be a 50,000 sqft. footprint right off the bat. It comes with four acres of land, it’s right on I-35 at the exit, in Temple, Texas, just north of Austin.

We were brought that deal off-market. It’s under contract – the building and the land – for $18/sqft. So we can’t build it for less than $35/sqft. It’s one of those ones that you find every now and again, and it was brought to us by another storage operator that was able to do the conversion, but not raise the equity or be able to sign on the debt, because it’s such a large project… So we partnered with him, and here we go. We’re already in the process of permitting and everything like that right now.

Joe Fairless: The youth sport building, from the ones I can think of, I wouldn’t think that a conversion would be too much to do, because a lot of times they’re just boxes with some dividers, and maybe some nets and stuff. Was it tough to do? I know the other operator was involved on that more so than you, but  do you know the details?

John Manes: So we haven’t started construction yet. We’ll probably start construction in the next 30 days… But to your point, it is a single-span building, which means there’s no pile-on posts in the middle. It’s just one big, huge, open room. The challenge to that is we’ve gotta put a second floor in the middle of it… So you will end up with those posts and everything on the first floor. But we’ve got some great construction people that we’ve dealt with for the last ten years, that have done all that kind of stuff. So from that standpoint, it’s a matter of getting the right engineer, the right architect, and then getting the right construction guys, put all them in place and let them do their magic. Rely on the people that know what the hell they’re doing, right?

Joe Fairless: Yup.

John Manes: So the painful part of that is going through rezoning and permitting and things like that, because you’ve gotta get it switched to be storage zoning versus an operating business like a sport athletic center would be.

Joe Fairless: In this case, when the operator came to you all and said “Hey, I have this opportunity. Here’s what I need”, what are the first five or so questions that you asked the operator, to just quickly assess if you should have more conversation about  it?

John Manes: That’s a great question, because we do some creative things on partnerships, and we get approached a lot on these types of projects… And mainly the reason people approach us is because they want somebody to help them raise equity. So to me, I always say “If you’re just looking for me to raise equity, I’m gonna raise  equity on my own deals.” So if you’re looking to operate it afterwards, or you’re looking to just put non-recourse debt on it with no risk on debt…

They always say there’s four components to a deal – you find the deal, you raise the equity on the deal, you sign on the debt, and then you operate the deal after it’s done. If you’re looking for me to just raise equity on the deal, it just doesn’t have much interest to me, because I can do that for my own deals, and I have 100% of the deal.

So the questions I ask, most importantly, is what are their needs? What are you looking for? What do you need help with? And I know you’ve been doing these for a long time, and you’ve probably had storage people on your podcast, but the reality is not everybody knows how to run and operate storage like they would in single-family or multifamily environments.

So they come to us for those needs. If I ask them the question of what they need and they need help operating it and they need help raising the money, then I perk up a little bit more. So I try to find out what their needs are. Because we’re a full-service shop, right? One of my business partners, Eric, handles all of our construction-related stuff, and he’s navigated the cities probably 15 times already… So he’s got those reps that have been painful to other people for the first go-around. He knows how to navigate those. So if they need help with construction, that gives us an idea. If they need help with raising money, that gives us an idea; or if they need help signing on debt, or if they need help managing it when it all said and done… Those kinds of things – that’s really when I perk up.

Joe Fairless: That’s helpful to know. So that’s from a partnership standpoint. What about from the deal standpoint? What are some main questions that you’ll initially ask or information you’ll initially ask just to get a sense of the opportunity, or if there is not an opportunity?

John Manes: I ask the basics – what do they have it under contract for, how many square feet is it… You asked earlier what is our specialty – our specialty is buying under-managed, under-enhanced, under-expanded self-storage property. So we buy the mom and pop. That’s what we’re known for. We’re not known for ground-up development, we’re not known for conversions, things like that. We’re known for fixing the mom and pop up, and running it better, and adding value that way.

So my questions generally revolve around “How many square feet is it? Is there room for expansion? What type of sales volume are they doing on a monthly basis? Why type of ancillary income do they do?” All the basics to see — because we’ve underwritten 350 self-storage properties in the last 14 months, so we can look at a deal and do the math in our head to find out whether that’s a good deal or not… So by asking those basic questions, we’re not class A cashflow buyers that have a self-storage property at the corner of I-10 and 45 in Houston. That’s not our bread and butter.

So when I ask the basic questions, “Where is it at? How big is it? What’s it doing per month? Is there room for expansion? Who owns it?”, those are all the basic questions that I ask right out of the box. On the conversion deal, I wanted to know how many square feet it is, how much land comes with it, what’s the potential for doing expansions; then if we do expansions, do we have to have detention, do we have to put a detention pond it, which eats up an acre, an acre and a half of your land…  All the things that allow you to know whether the purchase price equals the amount of revenue you can create.

Joe Fairless: Okay. For the detention pond, when would you not need one, versus need one? Generally.

John Manes: We focus on secondary, suburban, and some tertiary markets. So because of that — I live in Katy, Texas, which is a suburb of Houston. Almost everything around here is going to be required to have a detention pond to it, because of all the flooding from Hurricane Harvey, and things like that… So they want you to hold back as much water under your property as you can, for a temporary amount of time, so it doesn’t flood your neighbor’s property.

So when you’re dealing with suburban markets, chances are you’re gonna have to have some type of detention. When you get into the secondary markets, it becomes a little looser, and it’s not 100% of the time that you need detention… But in those areas, they might want you to have a fire hydrant on your property instead of detention. So if you have a fire, they can put it out, things like that. But then when you get into the tertiary type of markets, there’s so much–

Joe Fairless: Wild West?

John Manes: Yeah. There’s a lot less regulation. But everything’s relative. Inner city environments, urban core, you’re getting $1,50-$2 per square foot on rental rates, but you have a lot heavier cost in detention and things like that. Then when you get to suburban areas, you’re getting $1,10-$1,20 per square foot, and you’ve got a little bit less. You go to secondary markets, you’re getting a dollar, and you have less… And then you get out to tertiary markets – you’re getting $0.75, but it’s kind of a free for all. But to go build out there, it’s harder to make your numbers work, because you’ve still got the same building costs… So this is what you do downtown, urban market. Your buildings will cost you the same amount of money.

So it’s all relative to how you buy, how  you build, how you expand, but it all plays around what the zoning and the cities will allow you to do or not allow you to do.

Joe Fairless: When you’re initially qualifying a deal and you said you can do the math in your head, if  it’s a good deal or not and just run some rough numbers by asking those questions about what’s it under contract for, square footage, room for expansion, monthly sales volume, other income… Would you just run through an example? You can make it up, or a real one, and I would love to hear the thoughts that are going on when you’re thinking about “Hey, here are the numbers. It does work/doesn’t work based on this.”

John Manes: Okay, but I’m warning you, Joe, you’re getting inside of [unintelligible [00:12:31].23]

Joe Fairless: [laughs] Well, as long as we can exit out of it… We’ll exit out of it quickly thereafter.

John Manes: [laughs] So to me it’s pretty easy… In storage I’m gonna use $20,000/month, which is $240,000/year. But how I equate it in my head, pretty easy, and it’s not a perfect math, is if you’re doing $20,000/month, then you’re looking at a property that’s doing $20,000/month, you’re gonna pay around two million dollars for that property.

Joe Fairless: Why?

John Manes: I’ll just use basic math – you have 240k a year, your expense ratio on a small property like that is typically around 50%. 240k divided by two is 120k. If you divide that by a 6% cap, it’s two million dollars.

Joe Fairless: Okay.

John Manes: So basic math on a 20k a month – there’s not ten months in a year, so it doesn’t equate perfectly to two million dollars, but it does equate to a 6% cap. And then secondary, suburban type of markets, like a Katy, Texas, you’re sitting around a 6% cap. Now, if I’m looking at a tertiary market that has a population of 10k people, it might be a 1,8 million dollar buy on that 20k/month, because it’s a 7% cap. So what I do is I start with — if it’s doing 20k, the purchase price should be around two million. If it’s doing 10k, your purchase price should be around 750k. So when you go down in monthly sales volume or revenue, the smaller the number gets below 20k. Above 20k, when you get to 30k, your purchase price is gonna be about a 3.3 million dollar. And the reason is because your expense ratios in storage stay the same, whether you have 50k/month or whether you have 20k/month; they’re relatively the same.

We buy off a cashflow, so because of that, when you’re doing 30k/month it’s not a 50% expense ratio, it’s 42% expense ratio. So because of that, you’re paying more for the property because it has more cashflow that goes along with it, and you’re trying to stay about the same.

So if you come to me and you go “Hey, I’ve got this property, it’s in Tyler  TX” and I go “How big is it?”, you go “It’s 40k sqft.” I go “What are they doing?”, you go “They’re doing 33k/month”. I go “Okay. Ancillary income?” You go, “No, they’re not doing any ancillary income.” U-Haul? No. They don’t sell, boxes, insurance? Nope. I go “Alright, so let me guess… You have that property under contract for 3.5 million dollars?” and they go “No, I have it under contract for 4.2.” I go “Well, you’re paying too much.” Just like that.

Joe Fairless: Yup.

John Manes: So to me it’s an equal balance inside my head. You said you wanna get in my head.

Joe Fairless: Yeah. And I reserve the right to exit out whenever I want… [laughter] But did I heard you right, that the expense ratio in storage stays the same, regardless of how many units you have?

John Manes: That’s correct.

Joe Fairless: So if I buy a 100-unit versus a 1,500-unit, the expense ratio is gonna stay about the same?

John Manes: Yes and no. If you brought me a 100-unit property that did not have any land for expansion, that was doing $10,000/month, I would not buy that property. And the reason I would not buy that property is I do not wanna buy a job. So you can get an expense ratio in that property of 25% or 30%. You’re the one answering the phone, you’re the one meeting the customer out there, renting this space, and showing this space and so on, and you have no payroll. And then you have no website, you have no marketing… Right? So all of that expense ratio gets driven down.

But if I’m going to buy that 100-space property and it comes with 3 acres of land, and I can add another 40,000 sqft. to it, I’m going to spend 50k/year in payroll, whether it’s 400 spaces, or… I’ve got a property in Nacogdoches that’s 1,000 spaces, and we run that property with 2,5 people, versus 1,5 people. So we spend about 85k-90kin payroll in that store, versus a 400-space property that has 1,5 people to it and they have 50k work of payroll. So everything is relative, and there is a point that you have to add labor to it, or take away labor from it…

But if you’re looking at running and buying a self-storage property that is an investment asset, like most of your listeners are looking for, then the expense is relatively gonna be the same from a 250-space property all the way up to an 800-space property, which is the meat and potatoes of the self-storage industry.

Joe Fairless: Based on your experience in self-storage, for someone who is looking to get started in self-storage, what is your best advice ever for them?

John Manes: My best advice – and I give this all the time, because we get a lot of people that wanna get into the industry… My best advice to them is find somebody that already knows how to operate these things. I don’t think the operators of self-storage get enough credit against the value-add of these assets.

Let’s say that somebody in your audience that’s listening right now is a finance guy, or a broker that can find these things, or something. Go out and find somebody — when I meet people one-on-one, I say “It doesn’t have to be us, but go find somebody that knows how to operate these things…”, because that’ll make you more money, and it’ll make you more money faster. Can you be successful? Yeah. But you’ll trip over yourself doing it, and you’re gonna make some mistakes that might be pretty costly.

Joe Fairless: What are some common mistakes that someone with that lack of experience would make, that an experienced operator wouldn’t?

John Manes: Hiring the wrong website people. A lot of these guys wanna just go to GoDaddy, create their own website, it doesn’t interact with your software, there’s no prices online… Things like that. And Google doesn’t give you any credit for not having any content, or anything. Believe it or not, 80% of our customers touch us online some way, whether it’s they look at stuff on their phone, and then drive to our store, or they look at prices online on their PC or  on their telephone… They touch us somehow online. And a lot of them try to be cheap, because they’re doing 10k/month and they don’t wanna spend $300/month on having an effective website. But your effective website drives demand to your property. The more demand you have, the higher your prices can be, and eventually it pays for the $300.

Joe Fairless: What’s a URL to one of your websites?

John Manes: Mystorageplus.com.  It’s a many aggregator type of site that has [unintelligible [00:20:24].17]

Joe Fairless: Okay, cool. We’re gonna do a lightning round where I’m gonna ask you some quick-hitting questions. Are you ready for the Best Ever Lightning Round?

John Manes: Hit me!

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

Break: [00:20:40].03] to [00:21:30].27]

Joe Fairless: Alright, John, what deal have you lost the most amount of money on?

John Manes: The good news is I’ve not lost any money on any deal, so I can’t answer that. Have some of them gone sideways? Sure. But we’ve not lost money on it, and that’s the beauty of storage. It tends to be recession-resistant. We had a project that we bought 20,000 sqft, we expanded 63,000 sqft, and the construction company was eight months behind delivery on the product. So we were paying the mortgage rate months without having cashflow, we ended up in a lawsuit with them… That’s the bad news.

The good news is we were able to restructure that deal, get an extension of our interest-only payment on our loan, we borrowed an extra $150,000 from our investors in the form of a loan to be able to support the interest-only payment for an extended period of time, and now we’re back on track.

Time healed that wound, and so did increase in occupancy. We didn’t lose money on it, we just didn’t make as much money as we thought.

Joe Fairless: What was the result of the lawsuit?

John Manes: We settled.

Joe Fairless: And knowing what you know now about that experience, when presented a similar situation in the future, how would you approach it a little bit differently?

John Manes: Honestly, I don’t know that I would have approached it differently. I’ve been in a relationship with the contractor for eight years, so… The obstacle became that the construction company grew too fast and took on too many projects at one time, and ours was one of them. So I personally could have never predicted that, particularly knowing the individuals involved.

So doing it differently – I’d have to say pick a different contractor, but how do you know that, particularly when they’ve done a tremendous amount of work for you in the past, right?

Joe Fairless: Yeah, that’s a tough one to identify. Best ever way you like to give back to the community?

John Manes: I have a servant’s mentality. Right now I’m in the process of creating a mastermind group of professional athletes. The reason that we’re doing that is because like myself, most of these guys grew up poor, and all of a sudden they have money, and they just don’t know how to handle it or what to do with it. I like to educate people on how money works, from the simplest form of how to compound your money, to how to create a budget, and all those different things that people like Dave Ramsey teaches.

I love to give back in the way of the knowledge that people have given my and us as a company. We teach our store manager team how to go buy a self-storage property if they want to. So we try to take care of the people that take care of us, at the same time as the people that just don’t know. You hear a lot of people say “If I knew 20 years ago what I know now…” Okay, well, go teach somebody that.

Joe Fairless: Yup.

John Manes: That’s why I volunteer a lot for these podcasts. I have rooms full of people that I teach, not only storage, but basic financial principles around credit scores, and how credit works, and all that kind of stuff. I love giving back through teaching, and the knowledge that we’ve been blessed to be exposed to.

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

John Manes: They can call me – 210 818 1496. They can go to PinnacleStorageProperties.com, or they can email me at john [at] johnmanes.com. They can go to my YouTube channel and watch a bunch of my YouTube videos that talks about a lot of this stuff, why storage is a good investment, and all the stories about how me and my partners grew up with nothing, and have created something. All that is on YouTube.

Joe Fairless: Well, John, thank you for being on the show, talking about self-storage, and in particular talking about a deal that you’re working on, and also how you qualified that initially… And then taking a step back, how you qualify opportunities, and the questions that you ask. And then I’m officially jumping out of your head… [laughter] So you can be one with yourself, and I can go about my way, too. But I really did appreciate your conversation, and I’m grateful that we talked.

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

John Manes: Thanks, Joe. I appreciate it, buddy.

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JF1978: How to get a National Tenant in a Retail Shopping Center with Alan Schnur

Alan Schnur is a contrarian when it comes to buying and selling commercial properties. Alan has built his business around buying shopping centers with national tenants that are recession proof. Alan also explains how triple-net leases work for retail businesses.

Alan Schnur Real Estate Background:

  • Alan has bought and syndicated more than 2,000 units and managed more than 7,000 units
  • Owns numerous medical, office, warehouse buildings, shopping centers, and custom builds multi-million dollar homes
  • Based in Houston, TX
  • Say hi to him at www.gr8partners.com

 

Best Ever Tweet:

“The triple-net lease business – I’m in ten different states right now. It runs on its own, I don’t have to fix anything, and as a syndicator, the income stream is so much more dependable.” – Alan Schnur

 

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TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we will be speaking with Alan Schnur. Alan, how are you doing today?

Alan Schnur: Hey, Theo. Thanks for having me. I’m looking forward to our conversation here.

Theo Hicks: Absolutely. Thanks for stopping by, and I’m also looking forward to our conversation. Alan’s background – with partners in syndication, Alan has bought more than 2,000 units, and he also sold a management company that manages more than 7,000 units. He currently owns numerous medical, office, warehouse buildings, shopping centers, and he also custom-builds multi-million dollar homes. He’s based in Houston, Texas, and you can say hi to him at gr8partners.com.

So Alan, before you get started, could you tell us a little bit more about your background and what you’re focused on now?

Alan Schnur: Sure, Theo. I appreciate that, thank you. What can I say – I like to trade; I have a Wall-Street background, been involved in the financial markets, commodity markets for the last 20-25 years of my life, and found myself picking up real estate single-family houses in the beginning of my career, like most of us. Then I transitioned into apartments and warehouses and shopping centers, which I’m really excited to talk about today.

I like to buy low and sell high. I like to keep around 20-30 different projects, always working in my portfolio. For example, over the last few weeks I’ve just sold three apartment complexes, really because I can’t buy any the way I like to buy them… So I like to stay active and keep busy. If I can’t buy, I’m selling, and if I can’t sell, I’m buying. I always like to keep my portfolio full… And the idea comes from really Wall Street – you have a specialist sometimes that stands in the middle of the pit and just takes orders. He has inventory, and he’s always buying, he’s always selling, and that’s how I felt about real estate as well. I use that idea in houses; I bought over 400 houses. I was always buying and selling, and recently I just sold a whole entire portfolio… I was doing the same idea with apartment complexes, where I bought over 22 apartment complexes; I have a few left.

Today I guess we’ll talk a little bit about my warehouses, my land leases, and the shopping centers, triple-net lease material… Which I think is an evolution to all this real estate as we get older. I think your listeners are gonna be really excited to hear about how do you get a national tenant, like  TJ Maxx or a Krispy Kreme Doughnuts, or a [unintelligible [00:04:04].04] or a Burger King or a McDonald’s, put them on a 5 to 10-year lease, and more or less just sit back and collect rents, and let them take care of the real estate.

Theo Hicks: Well, let’s start with that, because that does sound pretty exciting.

Alan Schnur: Yeah, for sure.

Theo Hicks: So you mentioned triple-net leases, which we can get into in a second… But I wanna focus on the national tenants, so getting a big-time company to rent your office space.

Alan Schnur: I’ll tell you what, I do office, but my passion is in retail shopping center strips.

Theo Hicks: So let’s focus on retail shopping center strips. How do you get a national tenant in there, once you own the property?

Alan Schnur: Well, I’ll tell you what – the retail shopping center business got such a bad rep over the last three years, maybe 3-5 years. And let’s face it, the malls of America aren’t the same anymore, and it’s spread across the retail sector. The contrarian that I am basically said “Okay, well let’s go after the 8, 9 and 10 cap deals, and sell the apartment complexes at 3, 4 and 5 cap.” So I am a contrarian; I’m not buying shopping malls, I’m buying hundred thousand square foot shopping centers, with national tenants that I feel like are recession-proof, they’ve already been through it, and they’re prepared; in good times they prosper, and in bad times they even do better. So my tenants – TJ Maxx, Ross, [unintelligible [00:05:20].16] the Burger Kings, the McDonald’s, the Starbucks… So I always kind of feel like I’m getting involved with these national names that are protected from any kind of downturn in the economy.

To answer your question, when it comes to filling up spaces – well, look, even in the apartment complex business, it seems like here in Houston once or twice a year the units would turn. But what we do in the retail business – we go out and we get some really good leasing brokers, and they take 3% to 6% of a 5 or 10-year lease, they work really hard, and they have connections into a lot of these companies… And we’re pretty full. As a matter of fact, our portfolio now is close to a million square feet, we’re in the 90%… So we’re full.

Theo Hicks: So you’re working with these leasing brokers that have the relationships with these national companies… So if I own a 100-square-foot shopping center, as you mentioned, I’m not sure exactly how big 100-square-foot is – would that be like a TJ Maxx, or would that be like a Dollar General?

Alan Schnur: For example, a typical footprint for a TJ Maxx store would be anywhere from 25,000 to 45,000 square feet. So they might take up, say, 20% of a decent-sized shopping center… And I’ve gotta tell you, you don’t see the kind of vacancies that maybe you saw 3-5 years ago. I have a TJ Maxx, one of the best-performing locations in the United States. They’ve been there for 20 years… It’s constantly a five-year lease, and they have options to renew when they want to, and exercise it for another five years.

So a lot of these stores stay put, and they don’t really move around, because it’s quite expensive to move around… But a lot of it is also irreplaceable real estate. It’s kind of like geographically located in the center of the heart of the town,  the car count is maybe 30k, 40k, up to 80k cars a day pass… Hard corners, where people are always making lefts and rights… What else do we look for…? A good, signalized stoplight, so people just can’t fly by. Dense populations… Household incomes – we like 30k, 40k, 50k, up to 100k, depending on the stores that we’re trying to attract… So a lot of factors play to the need of these anchors, such as the TJ Maxx’s and the Ross, and the Discount Tires. And quite frankly, we should go into talking about right now what it really means to be involved in triple-net leasing.

Theo Hicks: On this topic, really quickly, before we get into that…

Alan Schnur: Go ahead, go ahead.

Theo Hicks: Could you mention, how does someone find the best leasing broker in the market for their retail shopping center?

Alan Schnur: Good question. A few ways. First of all, I’m networking with everything. Going to the events. ICSC is kind of the main national organization for shopping centers. I would suggest all your listeners join that organization.

Secondly, what we do – we really rely on Costar, which is a software program. All that information is available in Costar. If we’re looking at an area, we can see the top five best leasing agents in the area, and we can reach out and we can talk to them. And we do.

And also, just kind of see what your competition is doing, and ask who your colleagues are working with… It’s a lot of your big names that you’re familiar with already – the Marcus & Millichaps, the Collier’s… You’ll find some independents out there. JLL… So no stranger to the same names that are in multifamily are in the retail shopping center business.

Theo Hicks: Perfect. Okay, triple-net leases.  As I mentioned beforehand, I’ve heard this term thousands of times, but I don’t necessarily know what it means… So can you just define what it means?

Alan Schnur: Sure. Let’s kind of connect it to the housing business, where I believe most of us are coming from. You might see the word “reimbursables.” So a triple-net is reimbursable. Let’s start off with insurance. In multifamily housing, me, the owner of the apartment complex, I’ve gotta buy my own insurance. Taxes – me, the owner of the multifamily, I have to pay the taxes. And then third, the expenses to run the place – we call them CAMs, common area maintenance. So in the apartment complex it’s windows break, or the grass needs to be cut, or the snow needs to be removed… We, the owner, we pay.

Now, in the triple-net business, in the retail business – which is mind-shattering – it’s reimbursable. So we might pay as the owner, but every month, the tenant is responsible for their portion of the expenses. And the expenses come from a budget that’s given to them annually.

So let’s just say the insurance, the taxes, and the common area maintenance – let’s just say it costs $10,000 for one particular tenant, annually. Well, over 12 months, we’ll call that $833 – he’s going to send that in along with their rent, every month. And what happens if the numbers are over – charged too much, or charged too less, it’s refunded to the tenant, or the tenant  has to make up the difference and send it to the landlord. How does that sound?

Theo Hicks: That sounds pretty amazing. That sounds awesome.

Alan Schnur: Right?

Theo Hicks: Those three are pretty big — taxes, for sure, is one of the biggest expenses that you’re gonna come across, and depending on the amount of maintenance… But yeah, if they pay for all that, I’d imagine your expense percentage is pretty low.

Alan Schnur: It really is, and that brings us to a really good point… When I was in the multifamily house business, I’d say — let’s see… In the C class business, 60 to 80 of every dollar that I came in, went out as an expense. So you could imagine how long the profit and loss statements are, and how much work you have to do, and sending out all those checks, and paying all those people, and having all those things fixed.

Well, in the retail shopping center business, in the triple-net leasing business, we don’t have that. So for just about every dollar that comes in, we keep around 90-95 cents of it. So in essence, it’s easier to run a shopping center or a retail business than it is to run a portfolio of apartment complexes.

Theo Hicks: 90 to 95 cents?

Alan Schnur: If something breaks, it stays in-house.

Theo Hicks: Wow.

Alan Schnur: So let’s take it a little further… Generally speaking, if someone’s air conditioning goes in an apartment complex, the owner has a problem. If an air conditioning goes on one of my shopping centers, it’s not my problem. If the front glass door cracks in an apartment complex, it’s my problem. In the shopping center business it’s not my problem at all.

So the majority of the expenses are the tenant’s problems. Kind of like a leased car. It’s their lease car, it’s theirs for five years, ten years, and then at the end of the time they can either renew, or not. And I should remind everybody that in these leases, too — because once in a while I’ll get the question “Well, if you’re in a five-year lease, what about inflation?” And I constantly tell people, usually in the leases annually there’s rent bumps between 1% and 3%, every year. So even on a five-year lease, five years later, you’ve just increased your NOI by 15%, if the 3% bumps were in there for 5 years straight.

Theo Hicks: So these rent bumps, these reimbursables – all these are written in the leases for the tenant.

Alan Schnur: All of those, which is so nice about this business too, because — I was really in the class C housing business, and I can’t say the leases really carried any weight, and quite frankly, renting out to thousands of people, I don’t think I’ve ever collected a single dollar owed to me when the lease was broken… But that’s not the case here, in the retail business. The money is all about the leases, and the leases are all about the money.

Sometimes they’ll even go dark, and if it’s a national name, they’re still paying their rents. Their doors might not be open… Right now I’m doing a deal with a 45,000 sqft. grocer; they’re delayed in getting their permits from the city, and it’s a shame, because I want them to be open before Thanksgiving, but they’re still paying me rent. So it’s their responsibility to open up their own doors.

Theo Hicks: Do you get a percentage of the sales in these leases?

Alan Schnur: In some of them you do. It just depends on all these — leases are like art. It really is art. I tell my son all the time he should study legal real estate law. [unintelligible [00:13:37].13] It so happened Tuesday morning we have a percentage lease with them, and we just got a check for an extra $20,000 for the last quarter, because their sales were good. So yeah, there’s plenty of different ways of making money in this business, and it really depends on what the lease says.

Theo Hicks: The triple-net leases – are these something that are across the board for all of the retail shopping centers?

Alan Schnur: That’s a great question, too. There’s gross leases, and then there’s triple-net leases. And then there’s leases with caps. Let’s address them all. We’ve talked about the triple-net leases; it makes sense – insurance, taxes, and common area maintenance is gonna be billed back to the tenant. The gross leases – I don’t actually care for them. Once in a while there’ll be a gross lease with maybe some kind of city user, where just like in the apartment complex, it’s almost like all bills paid; I’ve gotta pay their electricity, their taxes and their insurance. I’m not a fan of it, I don’t do that type of business. I kind of have a joke – if I wanted to be in the gross lease business, I’d be back in the apartment complex business.

So I really prefer where I am in life, the triple-net lease business model, because it’s so scalable. I have over 100 national tenants, tenants that you see trade on the stock exchange, from Starbucks, to Ross, to Discount Tire, BPL Plasma, major grocery stores.

And then lastly, when it comes to these leases, sometimes they’re capped. Sometimes they say “You know what – we like this spot, we’re gonna take it, we’re gonna pay all the triple-nets, but we want you to cap out at (say) $3,50, and then you can’t raise it more than 5% a year going forward. So what does that really mean? It means you need to figure out how to raise that 5% every year, so you can stay on top of the taxes, the insurance and the common area maintenance needs that the tenants are gonna use.

But usually, if you did all your homework, and you crossed all your t’s and dotted all your i’s, the caps are usually the market triple-net rates anyway, if that makes sense.

Theo Hicks: Yeah.

Alan Schnur: One more thing I just wanted to add about that – you know in the housing business where at the end of the day the syndicator or the property management company sends you a bill for, say, 3% of the gross collections? It makes sense – someone collects $100,000 for you, they run the property, so they get $3,000, right?

Theo Hicks: Yup.

Alan Schnur: Well, what when it happens in this business, the tenant pays. It’s reimbursable. It goes to the tenant. Isn’t that wonderful? The tenant pays for the property management.

Theo Hicks: Yeah, you’re taking that 90 to 95 cents on the dollar.

Alan Schnur: Exactly.

Theo Hicks: I can’t believe I’ve never delved into this before. It sounds amazing.

Alan Schnur: I’m trying to blow your mind, Theo.

Theo Hicks: Oh, my mind’s been blown.

Alan Schnur: Look, 400 houses… I bought a house a month for ten years straight, [unintelligible [00:16:31].17] I left corporate America, I sped things up, and then for 90 days, every quarter I bought an apartment complex for five years. Sped things up… And then I got involved — and then I started reading about triple-net leases… And the same idea works in warehouses. I have a major Fortune 500 company, I have around 100,000 sqft. of warehouses spread out across the United States.

Another thing that’s great about the triple net lease business is that — I don’t know about you, but when I was in the housing business, all the volume I just talked about, and the management, I can drive to every day; it was all in 5, 10, 30 miles from me, at most.

The triple-net lease business – I’m in 10 different states right now. It runs on its own, I don’t have to fix anything. I don’t have to take the calls. And as a syndicator, the income stream is so much more dependable. Because that’s what I am, a syndicator. And I’d like to talk about that for a second – I’m always looking for partners and investors, and sharing information, which maybe we’ll talk about at the end of this… But it’s more dependable than any asset class that I’ve ever been involved with before, making those quarterly distributions to our investors.

Theo Hicks: What is your best real estate investing advice ever?

Alan Schnur: I would say one needs to be coachable, really open-minded. It’s taken me 20 years to get to the warehouses, the storage, and the triple-net lease business. I was a better listener, I was more open-minded as I got older. I wish I had that foresight when I first started.

Theo Hicks: Perfect. Alright, Alan, are you ready for the Best Ever Lightning Round?

Alan Schnur: Sure. Shoot.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:18:12].05] to [00:19:10].28]

Theo Hicks: Alright Alan, typically we ask you what’s the best ever book you’ve recently read, but I’ve changed it up a little bit… What is the best ever book or best ever resource to learn about triple net leases?

Alan Schnur: Hm… Would I be biased if I told you I had my own book? I have two books.

Theo Hicks: Not at all. Let’s hear about them.

Alan Schnur: Okay. The first one is called “Creating your own real estate cash machine”, which is more geared towards owning hundreds of houses and thousands on apartment units. It’s on Amazon, on the second edition. And last year I put out a book called “The cashflow mindset. Millionaire, billionaire, zillionaire designs for financial freedom”, and it’s all about how to use different asset classes to retire quicker, enjoy life, and have lots of fun, and lots of my philosophies. I read that one too, it’s on Audible, if someone doesn’t wanna read it. So… The Cashflow Mindset, by Alan Schnur.

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

Alan Schnur: I would go buy a vacant shopping center, for what it’s worth, a net operating income which wouldn’t be much, and then I would go fill it up with tenants, and it would most likely be trading at a 7, 8, 9 cap… And capture millions of dollars of equity. I’ve done it multiple times.

Theo Hicks: What deal did you lose the most money on, and how much did you lose?

Alan Schnur: I once got involved in a property management company with the wrong person, and the lesson learned was I should have done a background check, because I would have seen all the lawsuits. I would have seen it all. So I lost on that investment, a few hundred–

Theo Hicks: And then lastly — oh, sorry, a few hundred thousand dollars. Okay. And then lastly, what’s the best ever place to reach you?

Alan Schnur: I have a few ways of reaching me. First of all, alanschnur.com. I have lots of free education, probably a few hundred videos, from apartment complex how-to’s, houses how-to, and I believe some retail how-to as well. AlanSchnur.com. And you can also reach me at gr8partners.com if you’re interested in investing, getting involved, learning more about this. We send out quarterly reports, financials, P&L summaries, videos… And you’d be amazed how quickly you can become an expert while enjoying someone else’s syndications. So that’s gr8partners.com, where you can find a ton of information about what we’re doing, and all the different people that we work with.

And I’m an open book. If I have a few books, and on every book that I have, my phone number’s on the back page… Which is 713-503-5908. Call me, you might be surprised. If I don’t pick up, I’ll get back to you, and let’s see if we can do some deals together.

Theo Hicks: Alright, thank you for sharing your phone number, and – wow, one thing I really enjoy about doing these interviews is just hearing about different investment strategies. Usually, I have an idea about them, but this is one that I had really zero knowledge of. That’s the triple-net lease.

Alan Schnur: Awesome, awesome.

Theo Hicks: You went into really a crash course into the triple-net lease – what it is, how to find national tenants, and why you wanna find national tenants, how to find the best leasing brokers in the market to help you fill those spaces. Then we went into why triple-net leases are beneficial, and it’s that reimbursable aspect. The tenant basically pays for everything.

You gave a great comparison – when you did multifamily, about 60 to 80 cents on the dollar went out as an expense. Triple-net lease – 90 to 95 cents came in. And you briefly touched on the other leases and why you like the triple-net lease the best… And again, mostly just saying about how great these triple-net leases are.

Then your best ever advice was you need to be coachable and you need to be more open-minded, because if you come across an investment strategy like triple-net leases and you’re not open-minded, you might miss out on the opportunity to invest in a great strategy.

You also mentioned your books, Creating Your Own Real Estate Investing Cash Machine, and then The Cashflow Mindset.

Alan, I could definitely talk to you for probably hours, but I appreciate you taking this brief time to speak with me. Best Ever listeners, thank you for tuning in. Have a best ever day, and we’ll talk to you soon.

Alan Schnur: Thank you, everybody. Thank you, Theo. Have a good day.

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Joe Fairless on Best Ever Show flyer with Angelo Christian

JF1623: From Living In His Car To Building Million Dollar Businesses with Angelo Christian

This episode takes a little bit of a dive into the mindset and habits that are needed to take one’s self from a place you’re not happy with, to thriving both personally and professionally. We also hear about how to build large businesses and even open our own banks. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Angelo Christian Real Estate Background:

  • CEO of Christian Financial
  • 15 years of experience in the real estate industry
  • Went from poor and living in his car to a self made millionaire
  • Nationwide lender, one of the top leaders in Houston
  • Based in Houston, TX
  • Say hi to him at www.officialangelochristian.com
  • Best Ever Book: Dream Big

 


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


TRANSCRIPTION

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

Angelo Christian: Hey, I’m doing awesome. Fantastic. Thank you so much for having on, I’m very grateful.

Joe Fairless: My pleasure, looking forward to our conversation. A little bit about Angelo – he is the CEO of Christian Financial. He’s got 15 years of experience in the real estate industry. He went from living in this car to being a self-made millionaire, and he is based in Houston, Texas. Christian Financial does multiple things, one of them being asset management, mortgage banking and also investment management. With that being said, Angelo, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Angelo Christian: Yeah. Like you said, I started off literally when I was 17 years old, I was morbidly obese, I had a heart attack and nearly died; I grew up in a very poor family, broken spiritually, financially and mentally, and had nothing… And I always had a big dream in the back of my mind that I could do something with my life. We literally hit rock bottom; like you said, my car got repossessed and we were actually living in our car prior to that. I was walking, I was having to take care of my mother and my four brothers and my sister, and living in hotels, rent hotels, and working three jobs. We really hit rock bottom, man.

Joe Fairless: How long ago was that?

Angelo Christian: That was when I was 17, so that was 18 years ago. Life was horrible, I literally had nothing. I dropped out of school when I was in the sixth grade, and I hated to read, I hated to study, I hated to exercise, I hated to work, I blamed everyone, I hated my life, and I had a heart attack when I was 17 years old and almost died because of my obesity. So I basically hit rock bottom; I had no other choices, no other alternatives.

When I was walking home one night, one of my favorite movies, the thing that really was the catalyst to help spur the change – obviously, my rock bottom, I had no choice, and then the movie Rocky was one of my favorite movies growing up… And the song that came on was Robert Tepper’s “No Easy Way Out.” That’s my favorite song of all time. Then I had my little walk and it was playing that night, it came on… Anyway, I was walking home, it was midnight, I was getting off from work from the restaurant, and all of a sudden a bolt of lightning came out of nowhere, the adrenaline flew through my body and it took over and I started to run.

Mind you, I had 400 pounds, and I’m running to the song, I’m having visions of me being successful, and being an entrepreneur and being a multi-millionaire and having a great life, and this thin, lean, sexy athlete body, and helping millions of people… So I start running to the music and I make it all the way back to the hotel – it’s a seven-mile hike – and from there on out, that was the impetus for me to change my life. I started exercising, I changed my diet, I went back to school, I got my education in finance and accounting… That was really the thing that helped blow me up and change my life, and that was the beginning to building an 8-figure business today.

Joe Fairless: How much did the exercising and diet tie into your financial success?

Angelo Christian: It’s everything for me. For me it’s all about getting into a peak mental state every single day, and I am a firm believer that the mind and body are connected, Joe, and that you have to take care of your body if you wanna have a healthy mind. If you’re eating bad foods and you’re not exercising, it can affect your decision-making.

If your insulin is always spiking and you’re eating big, fatty meals or big, sugary meals, it can affect your state, and then therefore affect your results. I do ten miles a day on the treadmill, I monitor my diet extremely carefully with carbohydrates and sugar and protein, so… It’s everything.

Joe Fairless: What personal development people do you follow in order to help hone your personal development skills?

Angelo Christian: The biggest person for me was Tony Robbins.

Joe Fairless: I can tell by the way you’re talking. [laughs]

Angelo Christian: Tony Robbins was one of the biggest. I read Unlimited Power when I was 18 years old, after I had the heart attack, and that book literally changed my life. That man right there, and what he has done for me and my life and my family… I’ve been to all his main events, and he’s just a phenomenal inspiration to me.

Joe Fairless: With your business, what are the different ways you make money?

Angelo Christian: The mortgage banking – we’re commercial and residential lender nation-wide, so we originate the mortgages, we make loans to people that are trying to buy apartment complexes, refinance their business; single-family homes, reverse mortgage, all over the country. That’s the origination, the primary market. That’s the main, core business.

The other core business is investment management. I’m a professional investor, so I manage clients’ assets with private and public equity. That’s one thing I really admire about you, is the passive income with the real estate investments. We have a few REITs that we invest in.

And then the third business is Real Estate University. It’s an online platform, a school that’s accredited in the United States to teach young people how to become top producers, multi-million-dollar producers in the real estate business.

Joe Fairless: What niche of the real estate business do you teach them?

Angelo Christian: Primarily mortgage banking. In fact, I’ve just published a book called “King of Real Estate: How To Instantly Make Millions”, and I teach the students and people that want to get into real estate how to become an entrepreneur and successful with the real estate business… Because that’s one of the biggest issues that I see, Joe, with real estate – there’s a high turnover, and very low income earned, in a business where just a few, small percentage are actually very successful. The book (it’s free, and everyone out there just has to pay for the shipping) basically breaks down, distills all of my experience – how to become an entrepreneur and be successful with real estate. The way that we do it is we teach someone, we bring them in brand new into the industry, they can be fresh out of school, or someone that wants to learn about real estate entrepreneurship – we teach them the business, how to become a top producers, and we actually give them equity and stock in the bank, we teach them how to open up their own branch, their own location, the bank that they actually own and have stock in the bank. We’ve done this for several hundred people, that actually have their own locations all over the country, and they actually have an equity position in their branch, and they end up becoming multi-millionaires. That’s the goal, the vision of King of Real Estate, the book that we just published, and a big, core part of our revenue.

Joe Fairless: So in that model, if someone does open up a bank, do you all have some sort of ownership in each of the banks that are opened up?

Angelo Christian: We do, we’re the primary — I’ll give you an example… One of our locations we’ve just opened up in Miami, in Brickell. He was with me for seven years in the Houston office; we were teaching him how to become a branch manager, teaching him how to run a P&L center… He was a top-producing loan officer. There’s a gradual growth process here, from apprentice to branch manager. We taught him the whole business, and then he decided he wanted to move to Miami, so we gave him 30% of the bank location in Miami. He runs that as a profit center, that he literally owns the stock in.

Joe Fairless: How do you open up a bank?

Angelo Christian: [laughs] You have to have a lot of money. Basically, there’s many different types of banks. There’s FDIC depositories, there’s mortgage banks… We’re in the mortgage banking sector, so the first thing is you usually have to have a net worth of about ten million dollars or greater to open up a mortgage bank, you have to have good credit, and you also have to secure funding lines through investors, either investment banks or through Wall-Street hedge funds. Those funding lines can be anywhere from 200 million to a billion dollars that you need to fund your loans on a warehouse line. It takes many years to be able to do this, unless you have the sufficient capital.

The idea for us is that  a lot of entrepreneurs, they get discouraged because they don’t have the money or the resources to be able to do it… So with our model what we’ve done is given to somebody that’s extremely hungry, ambitious, that wants to grow and contribute, the opportunity here to actually own their own bank and have equity in it, for someone that’s hardworking, that’s diligent, that doesn’t have to front-load all the capital and all the resources. We provide all the resources, the marketing, the human resource, HR, legal, compliance and all, to our branch managers.

Joe Fairless: With the three revenue streams that you mentioned – one is commercial and residential lender, two is investment management, and three is real estate university, which a subset of that is helping others open up mortgage banks, which then you have ownership in… Which one earns you the most profit?

Angelo Christian: Without a doubt the mortgage bank, right now. It’s our longest-running revenue stream. We’ve been in that over the 15 years. So mortgage banking, basically bringing in people, teaching them how to become branch owners, and then grooming them for entrepreneurship – that’s our main, core holding.

All these different branch locations that we have – they have their own teams there, they have their own process and their own fulfillment, their own underwriting, so each one produces a seven-figure opportunity.

Joe Fairless: And what would be the reason why someone would want to start a mortgage bank, versus fix and flip homes?

Angelo Christian: Here’s the thing, Joe – credit is a trillion dollar industry. Everyone always wants credit. Your people that need funding for apartment complexes, or someone needs to refinance their business to take out cash, or a cash-grab family wants to refinance to pay off debt, or a veteran wants to buy a home, or a millennial wants to buy a house – everyone’s always gonna need money to buy a house or something with real estate collateralized. It has massive profit margins, it’s doubly beneficial to the economy, you’re helping people, and it’s a sustainable business model. Regardless of what’s going on in the economy, people are gonna refinance or purchase a home, so it’s something that’s built to last, that’s enduring… Whereas fix and flip is a very good business, but it’s not a scalable — some of these branch managers have a 10-figure mortgage branch. It’s a massive, scalable industry that has gigantic profit margins, and it can be anywhere up to 60%. You have no heavy cost upfront for capital… The biggest cost on the P&L for a mortgage banking entity is just the commissions that you pay to your loan officers; there’s no ten million dollar property plant and equipment, there’s nothing like that… Or building out a restaurant, or a casino.

Joe Fairless: Right… So most of these don’t have brick and mortar locations.

Angelo Christian: No, they are brick and mortar, but the lease hold is — you pay for your rent, but… It’s usually not retail, it’s usually in an office setting, and the rent can be fairly negotiated, it could be a good price on the rent.

Joe Fairless: Sure.

Angelo Christian: The rent on our average buildings – they go for $12/foot, so the rent is very nominal.

Joe Fairless: With the up to 60% profit margins, what would be a product that would have a 60% profit margin?

Angelo Christian: The reverse mortgage, government loans like FHA, VA, USDA, government-backed loans, some of the commercial products, we bank those loans…

Joe Fairless: Educate me a little bit – why do FHA and VA government-backed loans like that have such a high profit margin to you?

Angelo Christian: That’s a great question. The thing is that they are insured and backed by the Federal government, so with that, the lender that makes the loan, they have less risk in the event of default that they’re gonna be indemnified. Let’s say that we make an FHA loan and the borrower goes into default – FHA will pay us off and indemnify us in the event of that default, so we have less risk, so it makes it more valuable on the marketplace when we go to securitize that mortgage on Wall-Street with whoever our investor is… Versus a conventional loan – the only person or entity that’s backing that conventional loan is [unintelligible [00:13:52].11] less credit-worthy, less strength, so the yield on those mortgages is about half of a government loan. So the government loan makes it more enticing to make that mortgage, so that’s why the investors bid up the yield on that type of product.

Joe Fairless: And what’s a product that has the slimmest profit margin?

Angelo Christian: The jumbo mortgage, so a large mortgage, like a jumbo loan, those have the slimmest yield. We offer them, but that’s not really our bread and butter customer.

Joe Fairless: [laughs] Of course it’s not, why would it be…?

Angelo Christian: Well, some banks specialize in those. We don’t have really a huge appetite for that.

Joe Fairless: And why do those have the slimmest?

Angelo Christian: Because usually the people that are able to get a jumbo mortgage, they’ll go directly to their bank to get the loan, and they’re not really out to the market place to get a loan… Because a jumbo mortgage – those are people that are buying one million to ten million dollar mortgages, and they’ll normally pay cash for a huge down payment, and they’re extremely aware and acute to fees and interest rates… And they’re normally gonna go to their bank to get the loan, they don’t need a third-party or another type of lender to work with. If they do decide to talk to another lender, there’s normally a bidding war, a rate war, a fee war, to compete for the business. It’s extremely competitive, so when that happens, obviously that erodes any type of margin; there’s margin compression, and then the profit is gonna go down.

Joe Fairless: When someone starts up a mortgage bank, what are some ways that you have found to be effective in getting new clients and customers?

Angelo Christian: That’s one of the things that we help with. We’ve built a pretty good social media following, and that’s really the main focus with our branch  locations, it’s [unintelligible [00:15:44].18] branding and social media. You’ve gotta get attention, you’ve gotta get the eyeballs on you… Using Facebook, using Instagram, using YouTube, using branding, becoming a local celebrity, dominating your market, become the premiere, the eminent provider of real estate in your area. Going out to the realtor office, going to the builders, doing a podcast, starting a show. You have to become the voice, the local presence, the domination. That’s why I’m so big about dominating; don’t even focus on competing, dominate your local market. You wanna become the kind of what you do.

Joe Fairless: And when you look back on your career over the last 3-5 years – what have been some challenges with growing your business over the last 3-5 years?

Angelo Christian: The biggest thing I would say is bringing in the right people. To scale this business or any great company you have to attract like-minded, passionate people, that are gonna be in it for the long-term. I would tell anyone that’s looking to build a company or that’s growing a company – you have to attract the right people to your organization, that are passionate, die-hard, have founder spirit. It’s so important that they have that spirit, that they’re gonna be willing to do whatever it takes and embody our core values. With my company, we make sure that everybody is embodying the core values every single day when they operate. So I would say that’s a huge thing.

The other thing that I think is really important is the training. You have to train your people constantly. We do trainings every single day – virtual trainings, live trainings. I can’t stress that enough. Real Estate University – if you check out that platform, you can do it from your phone, your computer, your tablet. It’s state of the art technology in how to teach people with video learning, backed with testing, with a diploma, to learn how to become a top producer.

So I would say the biggest thing is attracting the right people, and then product offering. You have to have irresistible products to offer to your customers. Irresistible products, then getting the message right, and then the training. Those are the three biggest challenges for us.

Joe Fairless: When it comes to attracting the right people – let’s say you’ve attracted a bunch of people to apply for a position… What are some ways that you qualify them during the interview process?

Angelo Christian: Great question, Joe. One of the things that we look for during the interview – we have a four-step process whenever we hire somebody. The first time when someone comes in – let’s say it’s a group orientation, it’s a meet-and-greet, they tell us their story, their goals; we meet with them, and then we have them do a shadowing at the office. After they’re done with their shadowing, we get a group consensus of what the team thinks of these people – is it a yay or nay?

From there, we distill down to the second interview; if we think that they’re good, then they’ll come back and they’ll do a focused one-on-one shadowing with the branch manager or the sales force or the processing, or whatever department that we’re looking for. We really want to almost like see their level of dedication; how many times can they come back, we ask open-ended questions to them, we wanna see how they respond to those open-ended questions, and we wanna watch their behavior, their mannerisms, how hungry they are… We call them PSDs, and PSD stands for Poor, Smart, with a Deep Desire for success, for wealth.

Joe Fairless: Poor? You want them to be poor when they come to your company?

Angelo Christian: Yeah. When I say poor, what I’m referring to is that they had some level of adversity or challenge… For example, we find that people that had to pay for their own education, they had to work two jobs to make ends meet… I’ve had several people that came in, “Daddy paid for everything; he pays for my bills, I don’t pay for my college. What are you gonna do for me?” People that have high levels of narcissism, they typically don’t work out with us. We’re looking for people that took care of themself, they’re very responsible, they take extreme ownership.

So I’m not saying poor like living on the street, I’m saying that they’ve had some type of adversity in their life. They served in the military, they played a professional sport, they took on three jobs to pay for school… So something happened in their life where they had to take extreme responsibility and take ownership for their life – those are people that do very well for us. They’re very smart people — and they don’t have to have a 4.0 GPA, but they’re smart people, and they have a huge desire for their life, they’re hungry for life.

Joe Fairless: So that’s P… What were the other letters in the acronym?

Angelo Christian: S, Smart, and then D, Deep Desire.

Joe Fairless: Got it, okay. Thanks for elaborating on that. I love the qualifying someone based on having some adversity and challenge, and how they’ve overcome it.

Angelo Christian: Yeah. And then how we finish that up is they do the personality test. There’s a Dark Triad test, a Myers-Briggs test, the Big Five, they do the psychological test… But really how they interact through behavior, the open-ended questions… And then from there we all have to agree to hire that person. I can’t supersede anybody; all the team has to agree to bring this person in. If all the team gives a thumbs up, then we bring the person in. That’s our process.

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

Angelo Christian: I would say if you’re gonna invest in real estate, you need to have a margin of safety. I would say focus on the value, not the price. Anytime that you’re gonna be investing in real estate, have a margin of safety, and focus on the intrinsic value of the underlying asset, not the price… And make sure you have a margin of safety in there.

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

Angelo Christian: Yes, sir.

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

Break: [00:21:40].12] to [00:22:35].22]

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

Angelo Christian: I read about 4-5 books a month. The last one I read was Dream Big.

Joe Fairless: Best ever deal you’ve done?

Angelo Christian: It was a 32 million dollar apartment complex.

Joe Fairless: Why was that the best ever?

Angelo Christian: Right now it’s giving us about a 16% return, so I like it. And we got it for about 20% off. It was a foreclosure.

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

Angelo Christian: Paying too much.

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

Angelo Christian: Through Angelo Christian Foundation. No Child Left Behind is our foundation. We’ve raised about 295k last year on that, and also Susan G. Komen, the cancer foundation, and the Wounded Warrior Project, to help disabled veterans.

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

Angelo Christian: Yes, absolutely. Check out OfficialAngeloChristian.com, and please join my podcast. We have the Real Estate Insider, but you go to OfficialAngeloChristian.com.

Joe Fairless: Got it. I will make sure that’s included in the show notes. Angelo, I really enjoyed our conversation, your story, and the personal development focus certainly shines through, and so does the Tony Robbins influence. When you said you like to get into peak mental state every day, I was like “Hm, Tony Robbins…”, but I asked the question anyway, and sure enough, we both have a strong affinity towards him and what he teaches.

The mortgage bank approach, and the business model, and essentially franchising that – that’s kind of what you’re doing – it’s really interesting. I don’t think I’ve come across it after 1,500-1,600 interviews. Maybe I have, but you position it differently, so it seems new to me. It seems really interesting.

Angelo Christian: I’m very grateful. I’ve wanted to be in your presence for a while, and like I said, I’m a firm believer in your message to your followers, and if any of this can add value to your followers, please, let’s get it out there.

Joe Fairless: Cool. Well, I enjoyed our conversation. I’m looking forward to staying in touch. I hope you have a best ever day, and we’ll talk to you soon.

Angelo Christian: Yes, sir. Take care, thank you so much.

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Real estate show flyer with guest Josh Welch

JF1504: He Scaled To 121 Units In Just Over 1 Year!! With Josh Welch

What a treat we have for you today! What investors wouldn’t like to hear the story of someone who went from 0 to 121 units in just over 1 year? Even if you are a high level investor, you can always learn from a story like this. If you’re just starting out then you’ll want to hear Josh’s strategy for scaling, and apply some lessons to your on business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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


TRANSCRIPTION

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

Josh Welch: Hey, I’m doing good, Joe. How are you doing?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Josh – he is the co-founder and owner of Three Pillars Capital Group. He focuses on the acquisition and management of class B and C properties. He and his team have acquired approximately more than ten million dollars in assets in just over 12 months. He’s based in Houston, Texas. With that being said, Josh, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Josh Welch: Sure. Like you said, we focus on class B and C assets in Houston. I started out my investing career in single-family rentals, like a lot of folks have. At the time I was working a full-time job in engineering, and then I kind of got the real estate bug and I bought a second one, but I quickly realized that I would have to scale; what I wanted to do was not gonna be done with single-families.

I know there’s guy out there who have made it and done that, but I looked at a couple of bills that my property managers were charging me and I realized that “Holy cow, I’m getting charged $200 to fix a toilet handle. It’s insane.” I networked with some other guys that were in the apartment business at the time and I remember thinking “These guys have  made it. They’re scaling, they can bring their expenses down”, and I knew that was the path for me. As soon as that light bulb went off in my head, I knew that multifamily was the way to go, and I’ve never looked back. I’ve been doing it ever since. Now we’re at about 10-11 million in assets and growing.

Joe Fairless: And that light bulb went off in your head approximately 12 months ago?

Josh Welch: No, it took a while to put the pieces in place. Like a lot of folks, I had to do a lot of researching, and digging in and understanding how I really wanted to structure the business, because I knew that if I was gonna do it, I was gonna do 100%; it’s wasn’t gonna be a hobby, it wasn’t gonna be some pastime endeavor. So I really took a lot of time… I would say crafting the idea — the brainchild idea started probably 2-3 years ago.

Joe Fairless: Okay, got it. Were you full-time in engineering during then?

Josh Welch: Yes, I was full-time. I definitely saved up quite a bit, so that I can make the leap. I know a lot of guys that started in this business and they maintained full-time jobs, and they even have been guests on your show; I listened to them and I applaud them, but I knew if I really wanted to get in this in a real way, I had to save up first and then jump at it and just get after it.

Joe Fairless: What type of engineer were you or are you?

Josh Welch: Electrical engineering by trade.

Joe Fairless: Got it. So you were doing single-family homes… By saying you started in single-family rentals, what type of single-family investing were you doing?

Josh Welch: They were mostly just buy and holds. There wasn’t a ton of rehab component to them. At the time I was in Florida. Market conditions were definitely on our side. It was in the 2010-2012 timeframe; the asset prices were pretty low, so I could scale on my own equity pretty easily, and whatnot. But yeah, they were just acquisitions, I would maintain them, fix them up as needed, but there wasn’t any significant rehab.

Joe Fairless: And once you decided, “Okay, I’m gonna focus on multifamily”, what were some of the things that you put in place that you did during those couple years that prepared you to start doing it full-time in the business?

Josh Welch: First of all, I think the biggest thing was setting a plan and a vision. I don’t think you can get anywhere in life in any big way unless you really set a plan and a goal for yourself. So I did that, and that was the first thing – I knew that I wanted to be in this full-time, not having a side-gig, and “I wanna do that by 2017”; I remember at the time thinking that it was gonna take me a year to really understand it and figure it out, network, put the pieces in place so that I would be fully prepared to either do my own deal or partner on somebody else’s deal, to really start to learn things.

Joe Fairless: Having a plan and a vision, knowing what you’re gonna do… So the period of time that you said it took you from light bulb moment to when you started acquiring deals, that’s a couple years. What are some of the tactics that you did to put into motion you being ready to do your first deal?

Josh Welch: I think I really leaned on the fact that I partnered on some other deals. I did a deal with some guys in Boston when I was first starting out… They were more into the high-end condo conversion stuff. They had a few smaller multifamily buildings, and I just really knew that — I’d been analyzing spreadsheets and learning how to underwrite deals for a long time, and I’m like, “Okay, I’ve gotta figure this thing out from the ground”, and that’s why I’m so big with my partners, the people who do my deals; it’s like look, the best way you’re gonna learn about this business and learn how to do deals is to actually do a deal. At some point you have to trade off the knowledge and get your feet wet… So I did that, and that was the biggest thing for me.

That took a while – I took a year really to just invest my own capital in other people’s deals and learn how they do it, so I would then be better prepared to then not only stick to that experience, but then know how to structure my own deals when that time came.

Joe Fairless: It sounds like you were passively investing in deals.

Josh Welch: When I was starting out, yes.

Joe Fairless: I know, when you were starting out. What did you learn from passively investing in deals that now you’ve applied to being a GP on larger deals?

Josh Welch: That’s a really good question. I think the biggest thing is that you can’t take anyone’s method of analyzing a deal at face value. I think understanding the true nuances of how a deal is structured, how money is made on multifamily deals, from all angles, and then making it your own – I think that’s really what separates the people who can jump out on their own and start doing their own deals versus those who don’t.

I would always take a couple deals that I did and I would look at what they were offering, I would first of all figure out what my contribution was going to be, but then I would really make sure the deal made sense, like if I was going to run the deal… Like, “Okay, the numbers that they’re saying here – why is that true?” and “Okay, they’re gonna give us this type of loan. What about this kind of loan?” Really thinking about it from angles to make sure that it made sense to me, that if I were gonna run it, I know I could do the same thing.

Joe Fairless: And when looking at deals based on when you were looking at both as a limited partner, passively investing, and now as a general partner leading the charge, what are some of the nuances of analyzing a deal that perhaps some people who aren’t as experienced might overlook?

Josh Welch: I would say one of the biggest things that I’ve noticed is not really knowing what your competition is doing. I think a lot of people fall into this idea that there’s certain buckets that line items are supposed [unintelligible [00:08:56].08] on a T-12, and if it doesn’t fit that, then “Oh no, this deal is bad. It’s not gonna work”, but maybe for that submarket that expense isn’t too out of line, or maybe it’s bloated, but you’re not gonna know that unless you know what your competitors are doing.

So one thing that we do for every new acquisition – and I do this myself still – is we’ll go and secret shop all the competitors in the area. So if I’m looking at a deal and I’m saying “Hey, I’m gonna pay this much per door. This is the T-12 I have from the seller. Is that really accurate? Is that reality?” The only way we’re gonna know that is by going to competitors and seeing “What are they getting? What rents are they charging? What amenities have they done on their units to get those rents?”, and you can really quickly figure out where you stand.

That’s one of the biggest nuances that I noticed when jumping into my own deal – whether or not you have investors involved in the deal, the  operation of the deal is on you, and it’s your job as a general partner to make sure you know everything that there is to know, and treating it like a business. We’re just treating it like you would treat any other business – you have to know every angle of it.

Joe Fairless: When you secret-shop a deal, to me it totally makes sense from an income standpoint how you could kind of verify certain things… Are you able to pick up on anything from an expense standpoint?

Josh Welch: Yeah, and those are obviously a little bit more tricky to come across that. I lean more on kind of all the vendors, and we interview tons of vendors all the time for all of our work. A lot of stuff we do in-house, but the big ticket items that we can’t, we have contracts in place… But that took a lot of legwork to figure out what those rates were, and comparing those to the T-12 that we see, we can figure out in our market, “Okay, is this guy paying too much for an HVAC replacement, versus what we would pay for it?”

So yeah, I would say the expenses are a little bit more tricky to come by, but if you’re lucky and you’ve got a good rapport, with the property manager you’re secret shopping, they might even tell you what they make. I’m not advocating that your listeners go next door and be like “Hey, how much do you make?”, but sometimes if you have a good rapport and you’re gentlemanly polite with them, they’ll tell you what they make. So that’s kind of one way you can glean some insight.

Joe Fairless: So now we’re up to almost the present, we’ll say 12 months ago, at that point in time. Tell us about the first large deal.

Josh Welch: I totally jumped ahead in the conversation on what we’re doing now about secret shopping and all that stuff… So if I’m going back to the first deal, it was probably where I learned most of my lessons, and there’s always lessons that I’m learning and things that I’m taking away and improving the business… But I would say the biggest lesson that I learned is that the fear of the unknown is always gonna be there, but you’re never gonna know what you don’t know until you get started. I know that sounds a little cliché, but there’s tons of things that I never could have read in a book or listen to on a YouTube video, or whatever. There’s just so many nuances to running your own deal that until you actually get your feet wet and you get started and you partner with somebody, or you’re starting your own deal, you’re never gonna know.

That first deal took a lot of elbow grease, and we were newer in the business; luckily, I had already had the experience of the single-family stuff that I’d done, and the other multifamily deals that I’d partnered on, that it wasn’t as daunting… But sometimes it’s apples and oranges, single-family versus multifamily. There’s a lot of things that you don’t understand until you do one, that you just kind of have to take it in stride, really.

I had a lot of family and friend’s money in that first one, and we still actually own that. We’re actually doing very well on that deal. Since we’ve taken over, 80%-90% rents are higher than where they were, and the NOI is about 2,5x up from that… So we definitely did pretty good on that one, and it’s kind of hard to replicate that same performance on all of our properties, but for that one, even though we were going for [unintelligible [00:12:06].20] home run.

Joe Fairless: How did you find that deal?

Josh Welch: That one was through a broker at the time, but the one thing about brokers is they’re great to work with, but you really have to come to play, to show up… Maybe to speak to your listeners here, if you’re gonna look for multifamily deals, realize that all these brokers, especially if you’re new, they get tons of phone calls every day, and communication, so if you’re really going to get some of their time and have them give you one of their deals, you really have to have your stuff together. That means a business plan, that means a website, that means e-mail… All this stuff is very important. Perception is reality, and I can’t stress that enough… And that’s what we did – we came in with a business plan, we were serious about it, we let them know from day one, “Hey, we really wanna do this. We’re not wasting your time. Give us a deal”, and that was kind of how it played out… And we got one. We got a great one.

Joe Fairless: And how much equity did you bring for that first deal?

Josh Welch: That deal was just over 200k equity.

Joe Fairless: Okay. And how many units?

Josh Welch: It was a 14-unit deal.

Joe Fairless: Okay. So you’ve scaled from there, clearly… You’ve gone up a little bit. So that was a 14-unit; then what was the next one?

Josh Welch: The next one we did was a 25-unit deal, and then basically right now we’re in the camp where we’re looking at stuff that’s 50-100 units and higher. That’s the sweet spot that we’re finding for ourselves right now, and that’s been working pretty well for us.

Joe Fairless: Wow. So what property comprises of the largest valuation, when you mentioned 11-12 million in assets right now? How much is that property worth?

Josh Welch: I would say right around five million. It’s a deal we’re actually closing on this next week. It’s a five million dollar deal. Like I said, our goal as a company is we wanna do bigger and bigger deals each time, so the natural progression, as I just explained, kind of makes sense.

Joe Fairless: Okay. So the next one below that, how many units is that one?

Josh Welch: A 25-unit is the one below that one.

Joe Fairless: Okay, and what’s the business plan with that one?

Josh Welch: Just to kind of get into our business plan – we look at classic value-add. I know a lot of guys — that’s their mantra. So we really look for that. We don’t take anything that’s super distressed, but basically [unintelligible [00:14:04].18] management from the operations. A lot of times there’s owners that it’s a family thing, and it’s been in the family for a long time and they just don’t want it anymore, or maybe there’s like a divorce, and so a lot of times these guys are taking their eyes off the ball, expenses get really bloated, or maybe they’re just really unsophisticated and you see [unintelligible [00:14:21].00] on the back of a piece of paper, which I’ve actually seen quite a bit.

We find these guys because a lot of times there’s a huge opportunity to kind of tighten the ship a little bit and treat it more like a business… So we can come in there and not only upgrade the units that are typically very outdated, but we can also reduce a ton of the overhead and expenses.

One of the properties that we did, we got the operating expense ratio from 54% to 36% since we’ve taken over. We see these things where we can really [unintelligible [00:14:46].14]

Joe Fairless: Wow. Yeah, and with your engineering background, clearly, that’s a skillset that is directly applicable to value-add investing. So you’ve got the five million dollar deal you’re closing next week – early congrats on that – and the next largest you mentioned was a 25-unit… So your 25-unit plus your 14-unit, plus what else equals approximately six million dollars worth of property?

Josh Welch: [unintelligible [00:15:14].06] If you add the property that we have next week, that’ll put us at 121. So 121 units is basically — if you add [unintelligible [00:15:24].25]

Joe Fairless: Wow, 121 units, 11 million dollars… So you’ve got the 25-unit property – when is the projected exit on that one?

Josh Welch: I’m remembering that – it was about 1,8 million, and again, that was on appraised value. We had a lot of renovations we were gonna do. That was an example of a property where not only were the rents super under market, but there was just a ton of bloated expenses. It was a scenario where you had the maintenance person — I’m not sure if you’ve ever run into this before, Joe, but the maintenance guy was also the leasing person and the property manager, all in one, and the owner actually was never on-site; he lives in the country. So there was just a ton of just bloated everything.

We were able to go in there and we’ve gotten rents up from — the average at the time was right around $560, and now we’re getting rents that are like $695 for a one-bedroom. So we’ve definitely hit our targets. Our target was $675-$680, we’re at $695 now, so we’re superseding our targets on that one. The NOI equation is pretty simple – if you increase your top line and you reduce your expenses, you get a higher NOI, so because we were able to turn the knobs on both ends, we were able to get a really high NOI and hence a higher valuation.

Joe Fairless: What year of construction are the properties? What are they ranging?

Josh Welch: It’s usually ’60s and ’70s construction we go for. In Houston every market has a different idea of what class C is, but typically what we see is the ’60s or ’70s.

Joe Fairless: So 121 units, 11 million dollars valuation – that’s 91k/unit. That’s incredible. The units are 91k in valuation; I assume that’s now that you’ve done your value-add, now they’re 91k/unit?

Josh Welch: Yeah, yeah. I’m not trying to confuse anyone here. This is after we’ve done all of the work. Some of these projects take months at a time, I’m sure you’re probably aware. When we do a renovation project, just so everybody is aware, it’s not like you just empty out all the units. You have to do it over time, as the units expire, there’s cashflow you have to maintain, debt service to pay… We like to do it as the units turn.

Our projects will typically take, on the largest timeframe, 24 months before we get all the units turned over. We have a very active, aggressive approach.

Joe Fairless: Do you have a benchmark for what you wanna buy at from a 1960-1970’s product? “I wanna buy at around this amount per unit”, or do you think about it differently?

Josh Welch: We’re very much NOI-focused. A lot of people fall in the trap of “Okay, price per door is this”, and generally speaking, yes, there are ranges, but we look at how it is performing as a business, where is the opportunity, and if all the units are super-updated relative to the other assets in that class, then maybe we’re willing to pay a higher price per door… But again, it all goes back to basics – what is the NOI? Where is the opportunity for growth? Can we increase the top line? Can we decrease the expenses? What do those knobs look like, and are they already turned to max?

Joe Fairless: What’s been the most challenging part of building your company?

Josh Welch: That’s a really good question; there’s been a lot of them. I would say not being patient enough to let things work themselves out in due time. I think jumping from point A to point C, just getting really excited about something and going in — it’s kind of like walking before you can run, and I’m not saying that being super-aggressive isn’t warranted or admirable, but there’s some things that you have to build and scale the right way, and make sure that your operations are fine-tuned, so that you can really have a stable platform to scale a really good, sizeable portfolio… And we’re doing those things. It’s just sometimes I see where I want the company to be, and I wish we could be there tomorrow, but you also have to realize that some of these things take time to build. So I would say just being patient and growing smartly, and with a lot of poise.

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

Josh Welch: I would say don’t take anyone’s method of analyzing a deal at face value. I think it’s very important to understand how a deal is structured, how money is made from all angles of the business… And I said this earlier, but also understanding the true expense in your submarket, because this is what gives you an edge – knowing what your competition is doing… Just treating it like a business, and again, realizing that’s what this is  – these are all businesses; you’re buying many businesses, and you have to understand how to analyze it yourself, and you can’t take it for face value.

Joe Fairless: What’s your least favorite part of the syndication process?

Josh Welch: [laughs] Least favorite part, I would say — obviously, we syndicate all of our deals, but you have some people that really are [unintelligible [00:19:42].13] you wanna sign them as a solid, hard commit the first time you talk to them, but you kind of have to play devil’s advocate at all times, and you have to assume “What if I’ve got commitments for X amount of capital of my raise? What if it doesn’t come through? Do I have a back-up plan?” I think that’s my least favorite part of it, because you can’t just take people’s word for it, to be honest with you.

Joe Fairless: What’s your favorite part?

Josh Welch: My favorite part is when the deal is actually closed, and I build great relationships and chemistry with all of my partners involved, and having them trust me from the first day that we met to the day that they send in the funds, [unintelligible [00:20:13].18] to the day that we close the deal, to then the day that they get their first check… I think that’s my favorite part. So rewarding to send out that first check, knowing that “Hey, here’s what we’re doing – we’re actually killing it, and I wanna thank you for being a part of it.”

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

Josh Welch: Of course.

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

Break: [00:20:35].09] to [00:21:20].11]

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

Josh Welch: Organize Your Mind, Organize Your Life by Hammerness.

Joe Fairless: Best ever deal you’ve done?

Josh Welch: The first multifamily property.

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

Josh Welch: Not starting sooner, but in reality, over-analyzing to the point where I didn’t take any action. I did this for a long, long time, but that’s where I realized that I know enough and it’s time to get started… Either partner with somebody, or do it yourself, or don’t do it at all.

Joe Fairless: Well, you get a pass on that because you’re from an engineering background. [laughter] What’s the best ever way you like to give back?

Josh Welch: We actually started a non-profit here in Houston called “World Will Be Better”, and it serves to raise money for an elderly homeless shelter. There’s a movement in Houston where there’s a lot of elderly homeless, and there’s an organization that was created to house these people. However, they’re running out of housing for them, so we started a cause to basically raise about three million dollars to plan and construct a new facility for them, so that they can continue to accept more people, and educate them and house them and clothe them, to reintroduce them back into society. We’re really excited about that.

Joe Fairless: And how can the Best Ever listeners learn more about your company?

Josh Welch: They can go to our website, ThreePillarsCapitalGroup.com, and they can always e-mail me too, at JoshW@threepillarscapitalgroup.com.

Joe Fairless: Josh, thanks so much for being on the show, talking about how you were doing the single-family home route, you had the light bulb moment, you put a vision in place, started investing passively first, learned what you liked, what you didn’t like, and then applied those lessons to now doing syndications.

You said 121 units over approximately 12 months, right?

Josh Welch: Yes.

Joe Fairless: Yes. 121 units in approximately 12 months, just over  a year – congrats on that, and best of luck on the new acquisition. I hope you have a best ever day, and we’ll talk to you soon.

Josh Welch: I appreciate it, Joe. Thank you.

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JF1484: From Losing $20k To Successful Real Estate Investor with Justin Grimes

Justin went from losing $20,000 on his first deal to being a successful, money making investor and podcast host. He turned the page from the first deal by building a great team and getting better at due diligence. Hear what his strategy is now and how he was able to stay positive and move on from his first deal being a loss. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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


TRANSCRIPTION

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

With us today, Justin Grimes. How are you doing, Justin?

Justin Grimes: Good, Joe. Thanks a lot. I appreciate you having me on.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Justin – he is a real estate investor, and it turned into his passion in 2016, but on his first deal he lost $20,000; we’ll talk about that. However, he’s recovered and he’s now an active rehabber, a mortgage note creator and passive commercial real estate investor based in Houston, Texas.

He has a website at TheCashflowHustle.com. It’s also a podcast, you can go check that out. With that being said, Justin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Justin Grimes: You bet. As far as real estate goes, I dabbled in it a little bit by accident perhaps in 2007 or so. I bought a condo, kind of a bachelor pad, and kept that with the intent of just living life there and hanging it; it had a nice view. But as life goes, I met my wife, and things changed, so we wanted to buy a house.

Not knowing what else to do, I just decided to keep that thing and rent it out. That went on for about 4-5 years; it was pretty simple, but it certainly wasn’t spitting off a lot of cashflow, and when something would break, I’d go in the pocket… It never really made a whole lot of business sense. The cashflow would get wiped out every capital expenditure that you’d have.

In 2016, unfortunately, my family lost my father in an auto accident, and from that a lot of things changed. Ultimately, what I was faced with was trying to figure out how to help my mom create passive income in her retirement years. She’s 63 now. So what I knew to do at the time was stocks and bonds; I’ve got a buddy who does stocks and  bonds, so let’s put it into the bank… But as those things do what they did, the market has been hot certainly for a while, but what we’d find ourselves doing was worrying about the stability of that, and waking up one morning and all that going down significantly without any of our control.

So what I started doing was looking for investment opportunities, predominantly in the real estate space; she’s in a position where she could invest passively, as an accredited investor, and apartment buildings was the first thing we looked at. We started messing around in that in late ’16, early ’17, and then from there we’ve done some self-storage, we’ve done some mobile home parks all passively, and then I figured “Heck, while I’m at it, why not try my hand at some other real estate things to create some income?”

I took a swing at a flip that, as you’ve mentioned, we’ll talk about… I’ve since pivoted and I do that a little bit differently now.

Joe Fairless: The fix and flip that you did – was that the only fix and flip, and then you got burned and took a different direction?

Justin Grimes: It was, yeah. I took a few months, I did some classes, and a lot of reading, and podcasts… I had a fire under me, “I’m ready to do my first deal!” I jumped in head-first, I guess; not feet first, or with a cushion, or anything. I just jumped on in, and looking back on it, there’s so many things that I do differently now. Tough lessons learned, but lessons learned nonetheless.

Joe Fairless: We won’t harp on it by any means, but it’s clearly gonna be valuable for the listeners to hear about what you messed up on, so that you help other people not mess up on it.

Justin Grimes: Sure. The way we buy deals right now is with some fairly strict criteria; most notably, what we’re looking to purchase our properties at is purchase plus rehab at 70% of the ARV. Those are certainly more difficult to find. And that’s not something I’ve come up with, that’s fairly standard out there… But I didn’t do that on my first deal.

I bought the thing for about 70% of the ARV before I ever put  a penny in it, so that put me in a tough position. The total purchase price was right around $220,000, the ARV was around 300k-310k, so it had some room… But when you get into something that size in Houston — that’s a pretty decent size house; it came with some land, it came with 1.1 acres of land when I bought it. And with the repairs, as we opened up walls and found this and that, those expenses multiplied a heck of a lot faster than a thousand square foot house, that is a lot more affordable.

It was an older house, built in the ’50s… Happy to discuss specifics of those lessons learned.

Joe Fairless: Yeah, so it sounds like the repair budget – you came in high, but then the repair budget was the nail in the coffin that you went over.

Justin Grimes: That’s right. That’s where I lost my money. I’m happy to say I was able to pay back any lenders that I borrowed money from and came out of pocket, so I did make good on my debt; however, it certainly hurt.

One of the main things I did not do was just a basic inspection of termites in general. By the time I went to sell this thing, six months and holding cost with hard money – it was eating me up. I go to sell it, the buyer does an inspection, finds active wood-eating termites… So I have to tent the house.

I’m sitting pretty, thinking “Oh man, I’m almost out of this”, and then the next week I’m taking the picture of a tent on the house… That one hurt, additionally… That contract ended up falling through.

The next buyer comes through. It’s kind of  a uniquely-zoned property – it’s commercial and residential.

Joe Fairless: In all of Houston, uniquely zoned? [laughs]

Justin Grimes: Yeah, the zoning here is absolutely ridiculous.

Joe Fairless: It’s the Wild Wild West.

Justin Grimes: Yeah, it makes zero sense. Anyway, in the back of this property became a disputed 5,000 square feet of land… And on 1.1 acres of land, that’s about 10% of what I was trying to sell. I did not do a survey at purchase, and that cost me dearly. I basically had to drop the price to who I exited out to just to get the deal off and move on.

Joe Fairless: What was being disputed?

Justin Grimes: There was 5,000 square feet of land in the back of the property that had been sold in 2015. I purchased this in 2017, and the title company that I used to close the purchase did not find the issue. When I went to sell it, that title company did find the issue, and we had to make it right for the new buyer… A lot of talk and back and forth with lawyers, and things like that. Ultimately, I had to take a bath on it.

The lady I bought it from was rather whacky, it seemed, and had some whacky kids, so I had to drop the price $10,000 or so. We’ve got a young family, and $10,000 versus someone crazy knocking on my door because I sued them for 10k just wasn’t worth it… So I decided to just close the book on that one.

Joe Fairless: The first buyer inspection found active termites, so you had to tent the house… And then you did all that and you got another buyer who then the title company during that transaction found the dispute.

Justin Grimes: That’s right, so a couple lessons learned…

Joe Fairless: Dang…

Justin Grimes: Yeah.

Joe Fairless: Emotional rollercoaster, right?

Justin Grimes: Yeah, I still have some hair, but I’ve lost a ton of hair in the past 12-18 months. [laughter] We’ve got a 2-year old and a 3-month old too, so they’re doing their fair share as well. But yeah, some very simple things –  getting a termite inspection. Those termites didn’t come just at the end of the project; they were certainly active the whole time, and it would have helped me on the front-end to plan better budget-wise and get some things worked out on the front-end on a further discount…

And then obviously, when the land – it was such a large portion potentially of the sale, of the value of the property, and I didn’t do just a very basic survey on that, which would have cost me a few hundred dollars, it caused a lot of problems… And ultimately, those were the kinds of things that caused me to just blow through the budget.

Joe Fairless: We’ll move on now… What are you focused on now?

Justin Grimes: What we do now — one of the things I didn’t really do before I jumped in was build a trusted team, even of advisors, or business partners, and I’ve taken a swipe at a couple different team members. First of all, I brought on a business partner. During that time, she was active in real estate, a licensed real estate agent, and flipper, Airbnb, things like that.

What I was doing – I’m still working a W-2 job, and have access to different private investors, as well as banking relationships. I’ve got access to some capital that allowed us to get into these deals with lines of credit, and things… And what we do is purchase — just simple numbers, we’ll purchase a property for $50,000 here that needs a rehab, we’ll put 20k into it, and we’ll owner-finance that for $100,000. That’s kind of the basic math of it. And ultimately, what we do is wrap a mortgage note around ours, and a private investor is in the first lien, my partner and I hold the second (our business), and we owner-finance that to a buyer and make a spread on the interest monthly, kind of cashflow… And ultimately, what that does is for me it prevents those capital expenditures from wiping out my cashflow year in and year out when A/C needs to be done, and stuff.

So we go in there, we rehab these, we get them inspected by a licensed state inspector, we offer a good property to the buyer, and then we become the bank. And when my A/C goes does or I’ve got some roof repair at my house, I don’t call my bank… So that’s the position that we try and play in now.

Joe Fairless: You’re buying them with investors?

Justin Grimes: We are. For example, on one of the first deals we did, we raised $70,000 from a private investor.

Joe Fairless: How do you know that person?

Justin Grimes: That is just through real estate networking at events, and things like that. My business partner has a fair amount of private investors that will do these, as well as — ultimately, our target audience for investors is someone like my mom, who’s got a self-directed IRA, some money they wanna put to work, they don’t wanna play in the stock market, and they want something tangible that this risk is tied to… So those are the types of people we work with as first lien business partners on these investments.

We borrowed $70,000 at 9%, and what we’ll do is we’ll structure that at five years interest-only and non-recourse. There’s some gurus in Texas that teach this, so again, this is not my original idea; there’s other people that are doing this, just a disclaimer there. Anyway, so that comes out to $525/month that I owe that person in the first lien. They have a deed of trust, and the first lien on that property.

Then what we did is — that property is worth $100,000 ARV. So I bought it for 50k, I put 20k in it; that’s where my investor’s in. I’m all-in 70k, not using my money though.

Rents in the area – I’m trying to explain how we determine where the market can be for an owner financed buyer… It’s basically capped out for us at rent. We’re targeting people who need some help, they’ve got historical credit issues that they’re working on repairing, or they may be heavy commission-based on their income, and things like that, so a bank isn’t likely to lend to them. For that, we do charge a higher interest rate; however, ultimately their alternative is to pay $1,200 in rent in the market, or to pay $1,200 towards the mortgage note that is amortized and building equity for their family, for the next generation.

So what we focus on is pricing these things, so we’re buying things that are ARV $150,000 and under, because that lets us maintain that cap on the consumer can afford in the area. We’re not afraid to structure longer-term debt; a lot of the note guys will do shorter 15-20 year notes. We’ll do a 30-year mortgage note, and I’ll explain the math on that here in a second… We do 10% down, and that depends on their credit score; the lower the credit score, you’re talking down to 550-650 (that’s the common range of poor credit)… The lower that credit score, the higher the down payment we’ll require. But we’ll structure that — let’s use the example of $10,000 down, so they structure a note for $90,000 at 10,5% interest.

Starting out, their interest — the way an amortization schedule works… I know we’ve got some sophisticated investors as Best Ever listeners, but that thing is very heavily favored in the lender’s side. Traditionally, that’s the way the banks made their money, and it’s one of the secret tools to their success and growth and power.

In this example, the interest paid to me is $788 in that month. The principle in the first month is only $36. As you break it down over the course of five years, they pay $46,000 in interest and $2,800 in principal.

Joe Fairless: Wow. Well, it’s also 10,5% interest rate that you said… That’s incredibly high.

Justin Grimes: It is a big interest rate… So again, what we draw it back to is that could either pay $1,200 in rent and not have anything to show for it in five years, or pay $1,200 in a mortgage payment where they have a chance to build equity and ultimately own an asset.

Joe Fairless: I guess in that example you gave though, how much equity did they build over the first five years?

Justin Grimes: First five years  – they still owe $87,000 on a $90,000 note. Obviously, the interest rate is the shiny object in all these scenarios, but for me, I don’t pay more in principle than interest until you’re 17 on my mortgage; that’s a lower percent interest rate, but that’s just the way the banks have it structured. The way that amortization schedule works is until year 17 you’re paying more interest than principle.

Again, at year 10, five years later, they’ve got it down, they’ve paid a total of $90,000 in interest; the balance owed is $82,000, and at this point, my partner and I have cash-flowed that amount; so we’re talking $36,000 and the spread between what I’m borrowing at 9%, and what I’m charging the consumer at 10,5%.

I will say one thing too, that 10,5% is regulated. You can’t charge higher interest rates, and some people do (there are plenty of people that do), but what we do is no more than 6,5 points above prime. When you do that, then it triggers different types of things that the consumer needs to go through as far as education and things like that.

Joe Fairless: The 6,5 is the benchmark? Anything above that triggers a bunch of more paperwork and disclosures?

Justin Grimes: That’s right. How I know that is one of the team members that’s critical for us is a residential mortgage loan originator. To maintain compliance, we’re not licensed (my partner and I) to handle all that paperwork with their personal information and qualification and things like that. This loan originator charges a fee, and on the front-end does all that data gathering and basic collection of information to show that this consumer can, in fact, afford this property based on three years of work history and steady income, and running credit checks and things like that.

After that thing is structured, then we plug in a residential mortgage loan servicer, and again, if the buyer falls behind on payments, I can’t just call them up like a landlord and say “Hey, I need to collect your money here.” There are protections and laws in place for them where that loan servicer needs to step in and follow a sequence of steps. I know you’ve had some of your previous guests on the show who have really walked through and done a nice job on outlining those details.

Joe Fairless: It seems like if you had cheaper private money, then either a) you would have a lower interest rate to the consumer, or b) you keep that same interest rate to the consumer and you’d have a significantly more spread on it.

Justin Grimes: We could. Right now – we’re about 12 months into this, my partner and I, and I think there is probably cheaper private money out there. However, what we know at this point or who we know are usually private money lenders that do house flipping, so what they’re used to is 12% interest and points on the front-end and all kinds of things… So for them this isn’t even attractive at 8%. They’re not our target audience for that.

Ultimately, there’s a lot of meat on the bone on these things when you’re offering that, so our objective is to make a spread on the interest, but not to gouge the consumer. We’re a point and a half above what we’re paying right now, so we’re not doubling our interest rates to anybody or anything, and again, that’s all based off of ultimately what the rent rates in the area will allow the consumer to pay.

Joe Fairless: How did you learn this?

Justin Grimes: A lot of reading, a lot of podcasts, and then a  class from one of the gurus here in Texas. His name is Mitch Stephen…

Joe Fairless: Oh yeah. He’s got two books. One of them is 1000 Houses.

Justin Grimes: That’s right. So he’s got a knack for simplifying this, and he does it a little different than we do (a twist on it), but one of the ways that we’re able to do this in Texas – it’s a little different, I think, in other states, and if you’re interested in getting involved in this, it’s worth (as anything else), contacting your lawyer and some real estate professionals, because one of the things that makes Texas attractive is it’s a non-judicial state, so the foreclosure process in the event that you needed to go through it, it doesn’t last half a year. In some states, you have to sue the buyer, wait a year, things like that. In Texas we haven’t had to do this, but our intention would be to rework the note and make it to where a consumer can stay in. If ultimately it can’t work out, then the foreclosure process through the loan service company can wrap up in Texas in 60 days or so… So it’s a much different ball game than 180, and that kind of stuff.

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

Justin Grimes: From my very first deal, I really think it would have been very simple to just throw my towel in and say “Oh my gosh, this isn’t for me.” I love the stories where people just hit it out of the park on the first one, and they’ve replaced their job income with this new real estate business; it just didn’t work out like that for me.

My advice is to be resourceful and keep moving forward. It’s not always gonna go as you planned, so you have to be able to adjust your course as life and business happens.

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

Justin Grimes: Absolutely. I was born ready.

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

Break: [00:22:15].17] to [00:23:02].25]

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

Justin Grimes: It’s The Compound Effect by Darren Hardy. It’s about the power of behavior and mindset, measuring improvement. One of the chapters is called “Elephants don’t bite”. You take one bite at a time and you get through your project or whatever you’re working on.

Joe Fairless: And I’ll also throw in “My life and 1000 Houses” by Mitch Stephen. It’s a very entertaining book, if I remember correctly; it’s been maybe 8 years since I’ve read it, but there’s just so many funny stories about his deals. It’s an entertaining read, I recommend that one too.

Justin Grimes: Yeah, he’s a character.

Joe Fairless: I bet. I haven’t met him in person, but I’ve talked to him on the phone a couple times, way back when I was focused on single-family stuff. Best ever deal you’ve done?

Justin Grimes: What we’re focused on right now on the note business is hitting singles. I tried to hit a home run out of the first deal, or I thought I was gonna hit a home run, and I tripped running at the batter’s box. So we’re focused on hitting singles; those things cash-flow… And nothing crazy, sorry to disappoint.

We do just day in and day out — we’ve done four deals to this point, we’re looking to do four more by the end of the year, and we’re focused on that same criteria of buying and being very disciplined in that approach at this point.

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

Justin Grimes: I think that first deal had some other things in it… I’d say releasing funds prior to my inspection. I was traveling for work at the time, and asked a buddy to go by and look before we cut a check. He’s an investor as well, but man, he didn’t look at it nearly like I would have, because when I got back in town there were all kinds of things missing. Lights not working… This was right at the end of the project, so this was kind of some final touches and tweaks, and just detail things; and baseboard caulking, and paint touch-up and things, that I ended up having to pay somebody to touch up, because unfortunately the guy I used was nowhere to be found after he got that money.

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

Justin Grimes: My wife and I like to give back to a couple of basketball programs in the area, and I also hop into the high school once a semester and teach financial literacy to the students there through Junior Achievement, which I know you’ve been involved with as well. I think it’s fascinating that so little is really talked about growing up in school, and even in post-education with college and grad school on financial literacy at the very basic elements. You come out of school not knowing how to balance a checkbook or pay taxes. You’ve gotta learn it.

Joe Fairless: It’s eye-opening whenever I teach a junior achievement class, which is usually like fifth graders… I teach them about what you’ve just mentioned, balancing bank accounts, and teaching them the difference between a credit card and a debit card, and having a monthly budget…

I was recently talking to a niece of mine, and she is a senior in high school, and they were going over that. I was impressed that they were going over it in high school, because usually it’s not the case, but it’s incredible what fifth graders are learning through Junior Achievement in this program, compared to perhaps not a lot of students in general learning about it, and then if they do, then they’re learning about it their senior year in high school. It’s just a skill that’s needed.

Justin Grimes: Yup, absolutely.

Joe Fairless: Best ever way the listeners can get in touch with you?

Justin Grimes: You mentioned it earlier – the website is called thecashflowhustle.com. We’ve got some content on there and then various investment niches that I focus on and bring people on to interview and learn a little bit more about. Then the e-mail is jgrimes@thecashflowhustle.com.

Joe Fairless: Justin, thanks for being on the show, talking about the lessons learned on your first fix and flip – the termite inspection, and getting a survey done… What a rollercoaster ride. And then what you’re doing now with the lease options, and the way you structure those deals, and how you make money and some of the intricacies about those. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Justin Grimes: Thanks a lot, Joe. Y’all take care.

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JF1327: Focus On What You’re Good At For Increased Profits with Sam Craven

Sam realized that he needed to focus on his strengths to have the most success. Him and his partner switched to a wholesaling model, and are now looking to buy other wholesaling companies across the country. His ultimate goal is to be one of the largest privately held home buying companies in the country. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Sam Craven Real Estate Background:

– Co-Founder of Senna House Buyers

-Took his company from $1.5 Million in sales to $10 Million in just 3 Years

-50% wholesale and 50% rehab

-String of big losses from 2016-2017 that added up to $767k in total losses

-Based in Houston, Texas

– Say hi to him at http://www.sennahousebuyers.com  

– Best Ever Book: Never Split the Difference


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TRANSCRIPTION

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

Sam Craven: Doing great today, Joe. I appreciate you having me on the show.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Sam – he is the co-founder of Senna House Buyers. A couple interesting things about Sam and his company – first, he took his company from $1.5 million in sales to $10 million in just three years. Secondly, he had a string of big losses in 2016-2017 that added up to $767,000 in total losses, and three, his company is buying between 15 to 20 houses a month, and looking to grow by actually buying other wholesaling companies across the country.

Based in Houston, Texas… With that being said, Sam, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Sam Craven: Absolutely. I appreciate that introduction, too. So you kind of hit the nail on the head; I got started in this business just like a lot of us – we weren’t really happy with what we were getting out of life, we weren’t really happy making other people money, we weren’t really happy only getting two weeks of vacation a year, and I jumped in and actually started the company with my dad.

We have since taken on another partner. My dad is kind of a bit more in the background now. The other partner’s name is Matt [unintelligible [00:01:58].16] – we’re growing this company just as quickly as we can. We’ve had some really good luck growing our company in Houston, and also we’ve had some really bad luck, as you kind of alluded to there – ’16 and ’17 were kind of rough months for us as far as the house flipping goes… But what happened at the same time was we were going through these big, big losses, quarters of a million dollars in losses over the 24 months or so – we got focused on exactly what we’re good at.

So while we had all these losses that were coming in and we were losing money on these big rehabs that we were doing, at the same time our wholesaling business was accelerating; it was accelerating in the number of deals that we did, and it was accelerating in the amount of margin we made on every single deal… And we started realizing, “Look, we need to do what we’re good at, and what we’re good at is adding value to sellers and adding value for our end buyers.” We realized as much value as we could add on both sides of that transaction, the larger our margins grew and the faster our business grew.

So that’s exactly what we’ve done, and now we’ve really been lucky, and a little bit of good, and we’ve grown our business in an immense way. Our goal had always been to expand and be one of the largest house-buying companies that’s privately held in the country, and we believe we can reach those expansion goals through acquisition – buying other wholesaling companies in other markets… Because we realized something – a lot of people get into this wholesaling  business and real estate business because they wanna build a lifestyle. They build up the business to the point where they’re doing 75, 100, 200 houses a year, but they realize they don’t have the lifestyle that they want anymore, because they’re working 40, 60, 80 hours a week at the business. So there’s a lot of opportunity for people who want to stop wholesaling, that have built up a good amount of business in that market, and if they just shut the business off, they walk away from potentially a lot of money.

So we’re actively going out in the marketplace right now, finding these people, starting negotiations and looking to expand our company in these new markets.

Joe Fairless: Have you purchased a wholesale company?

Sam Craven: We have not purchased one yet. We’ve had a couple negotiations go pretty far. One we backed out of, because it just wasn’t a good fit for us…

Joe Fairless: What part of it wasn’t a good fit?

Sam Craven: That’s a really good question. When you’re going into business with someone and you’re buying someone’s business like that, you wanna make sure that everyone’s on the same mission. In this particular case, one partner loved us, we loved him, and the other partner was a good guy, but he actually wanted to stick around, which we were okay with – in fact, it certainly helps in the transition – but the missions didn’t align. We knew we could jump into it and make a lot of money; they were making a ton of money already, and we had agreed to terms on everything, but we on the Senna side of it couldn’t quite reconcile just those (I guess you could call them) creative differences in how you wanna grow the company and run the company, so we thought it would be best not to do that particular deal.

Joe Fairless: If someone is working 40-80 hours a week and they have a successful wholesale company – which really I don’t know if it’s a company; it’s more of a job… They have a  successful wholesale job, and you buy their company, and your value proposition to them is “Hey, now you can go do what you want.” Well, if they’re spending 40-80 hours  a week in that company, it sounds like they’re a pretty important part of it, and it’s gonna be some growing pains exiting them out of it.

Sam Craven: Absolutely, and that’s why I kind of mentioned it before – there’s gonna need to be a transition period where when we purchase the company, the owner is gonna stick around. We would like them to stick around as long as they can. But what we were able to do is our wholesaling company in Houston – it can run without me and my partners. We have the management in place, and things like that, and it’s just churning.

So we’ve already mastered all the systems and processes necessary to run a high-level business that’s doing 200, 300, 400 houses a year without the owner being there. So when we’re going in and buying these companies up, they’re in a similar shape that a lot of small business owners are in… Not just wholesalers or real estate investors – they found themselves, like you alluded to, they just have a job. It’s not a business that they own, it’s a job that they go in and do every day, that they have a little bit more control over.

So we’re gonna be able to insert our systems and hiring processes and things like that into that particular business model, which is gonna allow us to manage that business without us being there every single day. Now, you know there’s gonna be growing pains, there’s gonna be things you didn’t think about and all that kind of stuff, but we’re already got a lot of the nuts and bolts of how to run that business figured out, which we’re gonna be able to implement in that new business.

Joe Fairless: Between 2016 and 2017 you had $767,000 in total losses… I heard one thing from a lesson learned, and that is it sounds like you’re moving away from flips to wholesaling. If that is true, please confirm, and also what are some other lessons learned?

Sam Craven: That is true, we’re now a straight wholesale company. I think we spent a long time trying to be both, and we weren’t focused, and we weren’t getting good at all of it. And as soon as we got focused on straight wholesale, it’s grown even faster. But you know, some of the other lessons that we’ve learned through those losses is something I’m happy to share with you guys, and it’s why I bring it up… I think there’s a lot of people in this industry as a whole, we don’t like to talk about the losses or the bad times and things like that, but we learn so much from the times that — we get kicked when we’re down.

So one of the things that we learned is that we’re not good at managing rehabs; we’re just not good at it. We’re not good at picking the winners, we’re not good at managing that big job, and especially because actually all the money that we lost was in the really high, high end of the market; at least for Houston this is high end. So we’re talking projects that were over half a million, a million, 1.5 million or so… And you name it, we had this kind of stuff [unintelligible [00:07:52].20] We missed the ARV on a house, we missed the repair budget on a house, we had contractors screw us over… We had hundreds of thousands in losses; included in that are just some contractors screwing us over.

Now, it’s easy to say that contractors screwed us over, but the reality is we didn’t manage that contractor correctly to keep them from screwing us over. I’m a big believer in looking internally when you have issues like that. Like, “Okay, yeah, that person made a mistake, or that’s not a good person, but what could WE have done differently to keep that from happening?” So yeah, those are some of the lessons that we’ve learned over three quarters of a million dollars in losses.

Joe Fairless: I appreciate you sharing that, and as far as the flipside, the 1.5 million in sales to 10 million in three years – other than the focus that you’ve put towards the business, what are some tactical things that you’d say helped you from the 1.5 to 10 million?

Sam Craven: Ten million – that was just our first three years. We’re actually gross profit running about $300,000 to $400,000 a month in gross profit, just off of the wholesales… But tactically, I would say — I alluded to it a little bit, but value-add. It’s one thing for us to go in there and just try to get a house for as cheap as we can… But I noticed that the more that we focused on the needs of what our sellers wanted, what they need to get out of this, that big reason for them actually giving us a call instead of (say) calling a real estate agent, the more we were able to actually help them and the more margin that we created.

So what we do in our office is we have sales meetings every day, we have sales trainings every week, and then each salesperson is required actually to do – through some sales training that we have – some online sales training every day. And we realized the more that we’re focused on training our people and helping our people become the best that they could absolutely be, the better our margins got, the smoother our business ran, so on and so forth.

I think making that big investment in our people, and our process for negotiation and the way that we add value to our sellers – on the other side of it, adding value to our buyers is huge… Because one thing we do differently in our market than any of our other competitors (at least in Houston) is we actually put a guarantee on our ARV’s. We say “If you have an appraisal on this property within two months, or when you buy this house and you refinance it out to go turn into a rental, if we miss the number by more than 10%, we’ll write you a check.”

We do the same thing on the rent numbers. If we miss the rental target that we give you when we send out our blast, our marketing and things like that, by 10%, we again will [unintelligible [00:10:24].20] a check for $1,000. So we’re putting our money where our mouth is, and we’re making sure that our buyers are gonna hold us accountable to the marketing numbers that we put out, because I don’t wanna just do one job or one deal with someone, have them lose a bunch of money and never do business with me again; we want all of our clients to hit all of their targets and make a lot of money, so they can keep coming back to us and keep helping everyone make money.

Joe Fairless: Yeah, it’s really smart; a guarantee to put in place. I’m guessing only a handful – if that – have taken you up on the 1k where you messed up, am I correct?

Sam Craven: Yeah, it’s actually happened only one time on an ARV so far, and we gladly wrote the check. We missed it by a little bit, and the guys came back and bought from us again. And before we did that too, we’re really big on keeping data in our company, so we went back and looked at 200 different transactions and see how many times we would have had to have written that check for either a rent comp or an ARV comp. Over those 200 transactions, it would only have been one other time.

Because something else that we do too is we are actually gonna follow up in three months. After you buy a house from us, we’re gonna call you three months later and we’re gonna ask you, “Hey, how did you do?” So we’re actively following up and trying to get better every step of the way. We do the same thing with our sellers, “Hey, how did we do internally?”, things like that. Then actually our sales guys are bonused based on whether or not they’re getting good ratings from their sellers.

Joe Fairless: As far as the training that your sales individuals go through daily online, what program is that?

Sam Craven: Actually, it’s Grant Cardone’s sales training. They have to do 30 minutes of his online video training every day, and then every Thursday we come together and I actually put together an hour-long training on a specific topic. And actually for the last month we’ve been reading a book… So we read two chapters, we come in there and then I do a training based on those, and then people talk about feedback, specific deals, things like that, and then it’s just kind of more of a facilitation exercise after that.

Joe Fairless: What book are you reading right now that they’re doing?

Sam Craven: Right now we’re reading Relentless, by Tim Grover, but we’ve just finished Chris Voss, Never Split the Difference, and actually that’s the second time that we’ve read that book in our office. I love Chris Voss, the techniques and things like that that he uses. We implement those when meeting with homeowners, and things like that. I think that Never Split the Difference is one of the best sales books I’ve ever read.

Joe Fairless: What one tip has made you the most money from that book?

Sam Craven: Fantastic question. I think the biggest principle in the entire book, which we carry with us every day, is “Understand what the unknown unknowns are in the negotiation or in that sale.” Someone might call up and say “I wanna sell my house, and price is the absolute most important thing”, and that’s what they tell you. But if price was the most important thing, they would have called an agent and they would have listed the house. So it’s up to us, it’s up to our salespeople, it’s up to our team to find out what is that underlying motivation there. Why are they willing to come to us and take less money for their home? And as soon as we understand what that is, we can set up a win/win scenario for them that gets them exactly what they want at a price where we make our margin.

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

Sam Craven: The best real estate investing advice ever… I would say it’s persistence. I’m talking openly about the losses that we’ve had, the hard times that we’ve had, and we’re all gonna face that. We’re all gonna face a time where we send out a hundred letters and they don’t work. Now I’m sending 80,000 a month. Sometimes we pick a new list and it doesn’t work, but it’s okay; stay persistent, stay on top of it, never give up. This is a game of attrition, and any kind of business is a game of attrition. People are gonna drop out, they’re gonna get distracted by something else, but if you just keep going, if you stay on your path, you work with a purpose and you’re ethical, I think there’s just no telling what you can accomplish.

Joe Fairless: Some Best Ever listeners might take that literally with “Don’t give up”, but in your case, you were doing fix and flipping, and now you’ve — we’ll call it “give up.” Clearly, you’ve evolved, but you don’t do that anymore, you do wholesaling. So can you elaborate a little bit on the “Don’t give up” part?

Sam Craven: Sure, good point. Know your strengths. Understand what it is that you’re good at. You’re gonna have certain things that pop up and they’re gonna kick you in the balls sometimes. Know when to play to your strengths. We didn’t give up on real estate, but we understood what our strengths are. It was pretty clearly laid out as we saw that our margins grow and our business grows in our wholesale side of the company, and at the same time we had these heavy losses that we were taking on the rehab side.

Play to your strengths, understand your strengths. I say “Don’t give up in business.” Don’t overall just say “You know what, this business thing, this going out on my own thing is not for me.” We all thought that when we reached our first bit of adversity; there’d be a lot of people who would just quit way too early. Stick with what you know is right, but at the same time, don’t be afraid to pivot when the numbers and the reality is telling you something different.

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

Sam Craven: Let’s do it.

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

Break: [00:15:25].14] to [00:16:10].25]

Joe Fairless: Best ever book you’ve read?

Sam Craven: I wanna go with what I’ve talked about – Chris Voss, Never Split the Difference, though this Relentless book is pretty good.

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

Sam Craven: Best ever deal we’ve done… I did one particular deal — actually, we’ve done a lot of six-figure wholesale deals; we’ve got right now that’s headed to the closing table we’re gonna make $140,000 on.

Joe Fairless: What’s the most you’ve ever made on a wholesale deal?

Sam Craven: $140,000.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about?

Sam Craven: Mistake on a transaction… Negotiating too hard. I did a deal one time – it was actually on a flip – and I negotiated too hard on the first deal that came in. We lost that particular deal, and then wound up selling it three months later for $40,000 less than what that offer was.

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

Sam Craven: I love to give back by giving my time to new entrepreneurs. I’m not a guru, I don’t sell my time or things like that, I don’t do coaching, but if any of your listeners would like to have an hour of my time, go ahead and reach out to me at bestever@sennahousebuyers.com, and I’m gonna pick one person at random; you’ve gotta like our Facebook page (SennaHouseBuyers.com), send an e-mail showing that you actually did it, and we’ll pick one person to give away an hour of my time to coach for you guys.

Joe Fairless: Sam, I appreciate you taking the time to spend with us sharing your lessons learned in your journey. Some things that stood out to me… One is being focused and playing to your strengths. Clearly, at the beginning you’ve got wholesale and fix and flip; one more successful than the other, so you go all in on the one that is more successful and that plays to your team’s strengths more.

Some tactical things that you shared with us that you do with your team… One is you do online sales training; your team goes through that every day. Then also a weekly training, where everyone is reading the same book and talking about a couple chapters from the book.

Then a differentiating point that your company adds relative to other companies is that if you miss your target on the rental comps or the ARV, you write them a check for $1,000. That definitely gives a sense of comfort for those who are buying from you… And even if other are on par or even more accurate, then your team will likely get the lead on that because you’re going to have the perception of being more accurate because you’re willing to put your money where your mouth is.

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

Sam Craven: Thanks you so much.

 

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JF1316: One Decade Of Investing Netted Him over 1,000 Units with Kevin Dhillon

If you don’t believe that being consistent and doing something towards your goals everyday, can pay off big in the long run, then you haven’t heard this episode. Kevin came to the states and had no investment properties here to start. He and his wife worked consistently on acquiring and managing properties. After 12 years of hard work, they own over 1,000 units all cash flowing. To hear a first hand example of what consistent work can do, hit play on this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Kevin Dhillon Real Estate Background:

  • Australian real estate investor, who has been actively investing in real estate for the past 12 years
  • He and his wife Daniella have acquired 1,015 multifamily units, totaling over $57M
  • Experience in real estate strategies of owner financing, developments, value-add projects, and syndication
  • Currently own 1,015 rentable dwellings spread between SFHs all the way to a 192 unit community
  • Based in Houston, Texas
  • Say hi to him at www.DhillonPartners.com
  • Best Ever Book: The Bible

Join us and our online investor community: BestEverCommunity.com


Made Possible Because of Our Best Ever Sponsor:

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If so, then go to CoachWithTrevor.com to apply for his coaching program.

Trevor is my real estate, business, and life coach. I’ve been working with him for years. Spots are limited, so be sure to apply today!


TRANSCRIPTION

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

With us today, Kevin Dhillon. How are you doing, Kevin?

Kevin Dhillon: Hi, Joe. Yeah, thank you for having me aboard.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Kevin – he is an Australian real estate investor who has been actively investing in real estate for the last 12 years. He’s based in Houston, Texas, and currently owns 1,500 rentable dwellings spread out between single-family homes and multifamily apartment communities. With that being said, Kevin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Kevin Dhillon: Sure. My portfolio at the moment is 1,015 units… [laughs] Not 1,500. In time we’ll get there, but at the moment, 1,015. A little bit about my background – I was actually born in Malaysia, a predominantly Muslim country, to a Chinese mother and Indian father, I grew up in Australia; I did most of my schooling there. I currently now live in the U.S. and I attend a Jewish synagogue. So I’m very lucky to be able to have all the different influences and cultures in my life. I’m very lucky in that way.

My wife, Danielle, and I – she’s usually the brains of the entire operation; I’m just the pretty face. We’ve been doing real estate now for about 12 years, and it’s been awesome. We did it for five years back in Australia, and I’ve been doing it full-time for about seven years here in the United States, between initially Miami, and now Houston.

Joe Fairless: What were you doing in Australia, versus what you’re doing in Miami and Houston?

Kevin Dhillon: I guess our approach to real estate is basically just being able to move where the deals are. I guess we are somewhat young, and at that time we didn’t have a family, although we do have a young family now… So I guess we just move to where the deals are.

We started off in Australia, because that’s where we were, and started doing single-family homes, duplexes, triplexes… Basically, residential property in Australia. Then with the financial crisis it was a good buying opportunity in the U.S., and we ended up in Miami because of a family connection, essentially, and started doing multifamily there.

Joe Fairless: What did you buy in Miami?

Kevin Dhillon: The first deal in Miami was a 27-plex. That was the first deal. It was an REO, which we bought back in 2011.

Joe Fairless: Okay. And what was your role in that transaction?

Kevin Dhillon: I was just investing my own money, so I was the purchaser, basically. With the portfolio I had in Australia – I basically refinanced all that, I came to the U.S. with about $950,000 in liquidity, and bought that and a 24-plex as well in Miami, all cash.

Joe Fairless: You bought a 27-unit and a 24-unit, in total for about how much?

Kevin Dhillon: For just a little over a million dollars… With a shortfall; I financed that using a hard money lender, actually, in Miami. They seemed like a great opportunity, so we pushed ourselves a little bit that way, and just used hard money financing to get these two deals under way.

Joe Fairless: Okay. Tell us about what the business plan was, and I would love to hear about how they went.

Kevin Dhillon: Again, we were doing single-family homes and residential property back in Australia, so my mindset was very much about buying maybe a portfolio of about 20-odd houses here in the U.S. And why we ended up in Miami was because basically I had a long lost uncle, hadn’t spoken to him in about 20 years or so, and I found that — yeah, I’ve got this long lost uncle, he’s based in Boca Raton, Florida, and he’s an investor and  a real estate broker himself. So that’s how we ended up in Miami.

So in my mindset, I guess where I was, I was looking at a portfolio of about 20-odd houses… And going through the REO and the short sale process is just a very time-consuming and a very painful experience, because there’s so little certainty. Because you know, you’re just waiting to hear back from the banks and all that. So I think we gave ourselves a goal of buying these 20 houses in six months; three months went by and we still hadn’t closed on anything yet…

So it was my uncle actually that suggested “Why don’t you consider multifamily?” At the time, I said “What’s multifamily?” Because multifamily is an asset class which doesn’t really exist in Australia. Basically, it’s [unintelligible [00:06:09].23] so “Yeah, sure, let’s check it out.”

With the multifamily, with the first deal, the 27-plex – with that one deal, I used up half my cash, and with the second deal I used up all my cash. So I guess that’s the great thing about multifamily – the economies of scale involved… And instead of getting 20 houses, we got 51 units, and the amount of work in doing two transactions as opposed to 20, it just saved us a whole bunch of time and effort and aggravation. So that’s the story.

Joe Fairless: Were you living in Miami at the time when you bought them?

Kevin Dhillon: Kind of. So the plan was to spend six months in Miami, and six months back in Australia. We invested all our money, and then we came back to Australia, because again, that’s where my friends and family and my contacts were… And I guess we had this third-party property manager. So the idea was to spend six months in Miami and six months back in Australia. By the second or third months, when I was back in Australia, I realized we weren’t getting the results we wanted, so Danielle and I realized, look, to really make the most of our portfolio, we’ve really gotta be there and stabilize this thing properly.

And not only that… Look, Miami was a sexier place to live than Melbourne, Australia.

Joe Fairless: [laughs] Miami is sexier than most places on the face of this Earth.

Kevin Dhillon: Yeah, I know, it’s a very sexy place. So it was an easy decision… We decided to basically move to Miami full-time. We were there for about five, six years or so, with the portfolio there, and had a blast as well. We lived in Briggle, we live in Fort Lauderdale. It was a great time in my life.

Joe Fairless: Okay, I’d love to dig into the management and just your overseeing the project a lot more, because it’s really interesting… You were not in the country, you were spending six months away, six months in the country… So you’re not even from Miami or the United States, but you bought two properties. Were they both REO?

Kevin Dhillon: Yes, correct.

Joe Fairless: Okay, they were both REO… Were they both distressed?

Kevin Dhillon: Yeah, distressed — in terms of occupancy, they weren’t too bad. Both were about 90%-95% occupancy, and dare I say, about half the tenants that I inherited seven years ago are still with me… So a very low turnover. Basically, in those two communities, literally like 80% of the tenants there were all related to each other. So it’s this like family kind of enterprise going on there.

Joe Fairless: So you want them to keep having babies then…

Kevin Dhillon: Exactly, yeah. So I guess it wasn’t distressed from the occupancy point of view… More distressed, I guess, from a cap-ex point of view; the previous owner wasn’t really spending the money to upkeep the place, and also in terms of market rents, they weren’t really up to date… So just in terms of bad debt [unintelligible [00:08:39].02] the occupancy was good, we had a tenancy base that wasn’t going anywhere, so I guess there was good upside to the deals.

Joe Fairless: With the cap-ex project — first off, before I get into specifics… So you were living in Australia, you bought these two properties, pretty much around the same time?

Kevin Dhillon: Yeah, within like two months of each other.

Joe Fairless: Okay, within two months of each other… And what did you have in place initially that you changed whenever you actually lived in Miami?

Kevin Dhillon: We had a third-party property manager; they were okay. Then when I moved there, I basically got an in-house property manager, meaning I kind of started my own property management company/business. I had my own property manager and handymen that were just loyal to me; they worked for me, basically. So I guess it was in-house property management, and we went from there.

Joe Fairless: Was the property able to afford a full-time in-house property manager and a full-time handyman, or were you out of pocket some of those costs.

Kevin Dhillon: We did those numbers, and it actually worked out to be cheaper this way. Once you actually factor in the labor of repairs and maintenance, once you factored in the property manager — I guess the property management company was hiring someone else, so I guess they were charging just the management fees and [unintelligible [00:09:59].05] so it actually ended up saving my money by going in-house, basically.

Joe Fairless: So it saved you money… And just for my own clarification, it was better financially for you to bring in two full-time people, but was the property still able to support that, or were you paying out of pocket?

Kevin Dhillon: Initially, the property was able to support one full-time person, so I had a handyman that collected rents, basically. It was not a sophisticated operation, and I guess it kind of worked for a while; we managed to fix up the property. And because everyone there was related — again, the tenant base there was very good, so once we fixed things up, the property started to cash-flow and all that, so it was good.

It’s when I started growing the portfolio that then I hired on a full property manager, and they looked after the entire portfolio.

Joe Fairless: Okay, I’m with you. What type of challenges did you come across whenever you arrived, and after you hired your handyman (who was also collecting rents) what were some other challenges that you came across?

Kevin Dhillon: Challenges in terms of…?

Joe Fairless: Portfolio. It sounds like you were — maybe ‘fortunate’ is not the right word, but it’s not typical from what I’ve seen to buy REO property and have high-quality residents, so that’s awesome… But what were some challenges that you came across?

Kevin Dhillon: You know, probably the most challenging thing dare I say was actually the management of staff. Again, prior to doing this real estate thing full-time, back in Australia, I was an employee. I was actually a property manager, can you believe that? …which was why I wasn’t afraid to bring the management in-house and manage it myself, as it were. Back in Australia I was in residential property management, and my last full-time job was a commercial property manager in [unintelligible [00:11:39].01] Melbourne, looking after warehouses, and — commercial property, basically.

Joe Fairless: And just one side-question then… You mentioned you had $950,000 in liquidity; unless property managers get paid significantly more in Australia than they do in the United States, how did you get $950,000 in liquidity?

Kevin Dhillon: You know, in my working career I’ve never earned more than $32,000/year; I’ve never been highly paid, or anything like that. It was basically through investments. I started investing in Australia in 2006, and so — I don’t know if you know anything at all about Australian real estate…

Joe Fairless: Not much.

Kevin Dhillon: Australia has had 26 years of uninterrupted economic growth. Within the past 26 years, I think that it maybe had one quarter of negative GDP growth, otherwise it’s just been one huge bull run in the Australian economy. That’s another conversation. So consequently, asset prices in Australia have just taken off… So I guess I was a great beneficiary of that. I was buying houses there at 200k, 300k. Today, the median house price in Australia is [unintelligible [00:12:38].18] $900,000.

So again, I was a great beneficiary in terms of the asset price inflation in Australia… And also, I was [unintelligible [00:12:44].20] because I was involved with one development project back in Australia, myself and two other partners. We bought an old house on a larger block of land, we demolished it and we put up four townhouses and sold them off. A lot of my liquidity came from that project as well.

Joe Fairless: Okay, thanks for the background; that’s helpful. So you were a value-add investor, plus you were able to benefit from what was transpiring with the Australian economy in general. Alright. Now, going back to the original question, challenges you came across with these two properties.

Kevin Dhillon: Probably the biggest thing, dare I say, was actually personnel, in terms of hiring the people in the business. It’s really all about the quality of the staff that you have; my first property manager that I hired – she was a really nice lady, a really great person, but she didn’t have the DNA of a property manager, if you know what I mean. She was still a little bit too nice. So I guess in terms of just upholding a standard or what I wanted in my properties, that wasn’t being met, and I guess me having been an employee as well, I guess I wanted to be the nice boss… And basically, I’d say that I kept her on for one year over when I should have fired her early.

I think the biggest issue was actually kind of managing the staff within the property management business, rather than the assets themselves. And then again, the biggest issue in business is just finding good talent, so finding a good handyman and all that kind of stuff. I think that was probably the biggest issue really, just being the boss. I think for me it was the biggest challenge.

Joe Fairless: I’m gonna ask you this question not to pour salt on the wound, but rather to help the Best Ever listeners gauge the negative consequences that could take place if they were to do something like that… So if you had kept her on one year longer than you should have, what did that cost you from a business standpoint for not firing someone when you knew you should have?

Kevin Dhillon: Yeah… Look, just from the metrics of it, right? For one of the properties our gross potential income was just under $400,000; it was about $380,000. We got a new property manager and got her to do a market survey to see where the rents were at that time, and from them, the recommendations in terms of cap-ex, like where we could improve the property to get higher rents. Within about a year of this property manager coming on board, our gross potential income went from $380,000 to about $460,000. So that’s quantifying it that way.

Joe Fairless: Wow.

Kevin Dhillon: But I guess to qualify it, it was just a lot more easier night sleeps with this new property manager, and a lot more money saved in terms of gas, in terms of me needing to drive to the properties and see what’s going on… So really the biggest problem with any business is just getting the right talent in both a quantifiable and qualifiable way. Everything was better with someone that had the proper talent to look after your assets.

Joe Fairless: So that’s gross potential income, a difference of 80k… Let’s just assume 20% expenses, that’s 40k to the NOI… And what’s the cap rate? Probably like four, or something?

Kevin Dhillon: Yeah.

Joe Fairless: That’s a million dollars right there.

Kevin Dhillon: That’s a million dollars, exactly.

Joe Fairless: I didn’t mean to make it so clean, but there you go, that’s a million dollars worth of value.

Kevin Dhillon: And you know, Joe, we haven’t actually got — I had all this stuff prepared about the best real estate investing advice ever… I guess I’m telling you about my story, but this wasn’t the meat of what I wanted to go through, but–

Joe Fairless: You never know where a conversation goes… I just kind of dig into wherever makes most sense.

Kevin Dhillon: Yeah, that’s totally cool. But I’m thinking that I’ve realized — I guess my biggest expense, dare I say not just in real estate, but in life, is actually opportunity cost. It’s the things that I don’t do or don’t do in a timely way – that’s my biggest expense, really. So that was one of the lessons I learned – one of the expenses I had that gave me this lesson, that I guess my biggest expense really is opportunity cost.

Joe Fairless: Absolutely, and that’s the one million dollars in value right there.

Kevin Dhillon: Just as a little aside, Joe… I love real estate; I think investing in American commercial property is the greatest asset class or investing opportunity on this entire planet. My wife and I were lucky to be able to live in America, live in Australia, live in Malaysia… We could live anywhere, and I really hand on my heart fully believe investing in American commercial real estate is the greatest investing opportunity on this planet.

However, in terms of opportunity cost, I came to America with $950,000 in investable liquidity back in February 2011… About two weeks ago, I decided to just have a look at what would have happened if I invested all that money into Bitcoin, back in February 2011, and — Joe, do you wanna hear this?

Joe Fairless: It’s gonna be more; whether or not you can actually get the money back out, that’s another thing… But it’s gonna be more.

Kevin Dhillon: Yeah, exactly. And my risk profile is such that I wouldn’t have invested the entire thing into Bitcoin. But let’s just say I would have become Australia’s second-richest man. It’s not realistic, it’s not something I would have done, but really, I guess the lesson is — often, I think our biggest expense really is opportunity cost.

Joe Fairless: You know, if you had also taken that $950,000 and just taken one dollar of that and done the Powerball drawing for February 3rd and did numbers 15, 23, 27, 48, 53 and 06, with the Power Play you would have won 165 million dollars. [laughter] That’s what I like in Bitcoin too, but I’m sure there are Best Ever listeners who disagree with me.

Kevin Dhillon: I completely agree, I wouldn’t touch Bitcoin. I guess just the lesson [unintelligible [00:17:45].12] is just opportunity cost. So I completely agree with that, yeah.

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

Kevin Dhillon: I heard this at an Aussie real estate seminar back when I was stating the journey 12-13 years ago, and it was said by an Australia developer called [unintelligible [00:18:03].09] He’s not even really an educator or a teacher, he was just a private developer and he was just invited to speak… So he asked the audience “What business are you in?” Most people said, “We’re in the real estate business.” And he said, “No, I don’t believe that you are. The real business that you’re in is that we’re all in the finance business.” So I guess from that my mindset is being “I’m not so much in the real estate business. Really, my core business is finance.”

Joe Fairless: Interesting. I’ve heard that question before, but I’ve never heard that answer. Sometimes I’ve heard the answer of “We’re in the marketing business” or “We’re in the solutions business”, or “We’re in the relationship business”, but I’ve never heard “We’re in the finance business.” So when you take that finance business approach, what impact does that have on your business?

Kevin Dhillon: I’ve realized the more financially sophisticated I’ve become, the bigger and I guess the better quality of deals I’ve been able to do. What do I mean by that – my very first deal… I got into real estate in kind of an accidental sort of way, in that I needed to buy a house in order to marry my wife. So I decided “Look, I’m gonna go buy a house.” That was my goal. “I’ve gotta buy a house.” So what I do is I go to a bank and I say “I want to buy a house, what can I do?” and they said “You need a tax return. If you wanna take out a residential loan and buy a house, basically we need a tax return”, and they don’t need really anything else. Because I guess banks know that for most owner occupiers looking to buy houses, the height of their financial sophistication in terms of financial statements is really just the tax returns, because you’re forced to have one.

So me, I was a student at a time, so even just [unintelligible [00:19:41].21] I guess when I moved to commercial real estate and started investing in multifamily, all of a sudden they start asking for balance sheets, and profit and loss statements, and I guess I learned that with commercial financing, they actually care very little about the tax returns. They just wanna see a statement of assets, liabilities, income and expenses – that’s what they care about. So I guess having that financial sophistication where I can produce these documents very easily – it’s allowed me to go do these bigger commercial type deals.

So we did that for a while in Miami, and then I guess when some Aussie investors heard about what I was doing in Miami, they approached me, wanting to invest with me, and I guess that’s what has led me to syndication today, and raising equity. And I guess when you’re raising equity, it’s about being able to keep track of the way money is spent, it’s about being able to account the assets and liabilities… But I guess with raising equity it’s also about more abstract things – it’s about track records, it’s about the service, it’s about your business plan… But I guess if you could kind of boil it all down, I guess with raising equity it’s really all about trust.

So as I’ve become more financially sophisticated, it’s allowed me to do bigger and bigger deals. Really, the heart of this business is finance.

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

Kevin Dhillon: Yeah, sure. Go ahead.

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

Break: [00:21:07].07] to [00:21:37].06]

Joe Fairless: Best ever book you’ve read?

Kevin Dhillon: The Bible.

Joe Fairless: Best ever deal you’ve done that wasn’t your first and wasn’t your last?

Kevin Dhillon: Probably a 51-unit deal in Lake Worth, Florida… From a financial return point of view, I guess, because we’ve refinanced and got an infinite return for my investors and myself, and also in terms of just turning around a community. It was full of drug dealers and prostitutes, and now it’s just something that’s much more family-friendly.

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

Kevin Dhillon: Probably that same deal… I guess purchasing it with not enough cap-ex budgeted in.

Joe Fairless: What did you do to resolve that?

Kevin Dhillon: We decided to wait for the money to come in through cashflow.

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

Kevin Dhillon: I really do believe that the business itself is my main way of giving back in terms of just turning around communities, but I’m certainly very much involved with my synagogue as well, and I enjoy mentoring people in that place.

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

Kevin Dhillon: Probably our website would be best – www.dhillonpartners.com.

Joe Fairless: Kevin, thank you for being on the show and talking to us about how you got started in the U.S. in Miami, and the lessons that you learned are applicable to any market, and applicable to any investor who is focused on value-add deals… Or quite frankly, any businessperson in general, because one of the lessons is your biggest expense is the opportunity cost, where it was one year later for firing the property manager, and that was a million dollars worth of value that you were then able to capitalize on or realize, once you did the market survey and did a couple things to enhance the gross potential income… As well as just your overall approach with the management side of things and how you handled the handyman who collected rent initially, and then you evolved from there.

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

Kevin Dhillon: Thank you, Joe.

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Best Real Estate Investing Advice Ever Show Podcast

JF1065: How to Track Down Vacant Property Owners With Larry Higgins

If you’re a wholesaler, I’ll bet returned mail is near the top of your list of problems. Larry and his company can help get that returned mail back into a lead! Hear about the houses everyone else is missing, and how to track down contact information for vacant properties. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Larry Higgins Real Estate Background:
-Owner and chief operator of Emprise REI LLC and its series, HomeFront Real Estate Investments
-Began career with Camden, a multifamily housing company, spent three years overseeing construction
-After jumping into real estate full time in 2013, he quickly learned that returned mail was a problem
-Graduated from Texas A&M University in 2003, where he was a member of the Corps of Cadets
-Based in Houston, Texas
-Say hi to him at larryATskipgenie.com or at skipgenie.com/
-Best Ever Book: Winston Churchill: A Life

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

Larry Higgins: I’m doing great, Joe. How are you doing?

Joe Fairless: I’m doing great as well. Nice to have you on the show. A little bit about Larry – he is the owner and chief operator at Emprise REI – is that right?

Larry Higgins: Yes, that’s the overall LLC that I’m established under; that’s Emprise, and then we’ve just recently started SkipGenie.com.

Joe Fairless: SkipGenie.com… I think that’s gonna be the focus of our conversations, SkipGenie.com. A little bit more about Larry – he began his career in Camden, a multifamily housing company and spent three years overseeing construction. He’s based in Houston, Texas; we’re gonna talk about skip tracing and exactly what that is, and how he’s using it as a strategy and how others are, as well. With that being said, Larry, before we get into that, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Larry Higgins: I have a construction management background after the college, I did that for a while, I worked overseas, doing that for a while as well. Then I came home and got myself in a job I really didn’t care for too much. It just bored me; it wasn’t the company or anything like that, it was just very boring. Then I jumped into real estate. I didn’t know anything about it, but I learned really fast. At his point I’m just wholesaling; we do do some deals here and there, we’ll buy enlisted — but as far as my strategy in going after deals, as a new investor I started like a lot of other guys – you do a little bit of bandit signs, a little bit of mail, and things like that… And I learned what a valuable, versatile tool skiptracing was, and I also learned I really liked vacant properties.

Over time I just developed my own process and I got really proficient and really good at filtering lists and taking certain information, and maybe skiptracing entire lists and reaching out — instead of mailing, just directly contacting these people. So that’s kind of my strategy, and I use that just to wholesale deals.

Joe Fairless: Okay. So let’s talk about skiptracing. First, how about you define it for anyone who’s not familiar… I need a refresher on it, because other people have talked about this, but I haven’t talked about it in detail. So what is it and how do you implement it?

Larry Higgins: That’s a great question, because it can mean different things to different people. Most of the time it just means go somewhere and try and find the phone number for somebody or a new address. So if you wanted to do this on a massive scale, you can just pull a bunch of reports; people are fairly easy to find, and you’ve got phone numbers, e-mail addresses and current addresses, things like that, ways to reach out and contact them.

In another context, what I consider when you have to go in-depth is when maybe somebody passed away, or they just fell off the face of the earth, and maybe on the face value it’s a really hot deal. That’s when you have to dive down a little deeper, maybe find relatives, talk to the neighbors… You’re almost like a detective at that point, and you’re putting the pieces of the puzzle together. The ability to do one or both of those is just tremendous, because so many people won’t do it. So many people just do, say, return mail. We’re talking to a lot of people now, even the more experienced guys… A lot of people have heard “You should work your return mail”, or “Skiptrace your return mail”, the reason being nobody else is. There’s a correlation between direct mail and vacant properties.

Say you’re brand new and you’re driving for dollars – there’s a correlation there that if that mail gets returned or that property is vacant, generally those people might be a little bit harder to find. You’re not gonna be able to just dial one phone number and reach them. But there’s also another correlation — everybody loves vacant properties for a reason: a higher probability of getting the deal, a higher probability it’s gonna be a better deal.

Joe Fairless: Yeah.

Larry Higgins: So that’s skiptracing in general. As I said, it could be real broad – you just wanna grab phone numbers; maybe you’ve got a mailing list of 1,000 people and you just wanna start calling them all – no problem, you’re just taking what you get. Or you can do both – take that entire list, you’ve got the numbers… Maybe you wanna dive a little bit deeper in the data. Maybe you see the owner lives in another state now and they’re 90 years old, or maybe they’re even deceased but they don’t show up as an estate or a probate. People die all the time all over the place, and great numbers live out of will; those people don’t show up on probate lists.

So there’s a lot of little pieces that you can look at, little indicators I call them. My bread and butter – if you can get a vacant property, that’s a great indicator overall. If you can get a tax delinquent property, a lot of people love those… That’s a pretty good indicator. Then if you get an owner that has passed away, that’s obviously a lot of people like the probate.

Whatever you can do to filter business data and try and get as many of those boxes checked as you can on one property, that’s a way to prioritize and know when to dig deeper, that kind of thing. I went into too much detail…

Joe Fairless: No, I love it. The more details, the better. Thank you, this is great. So you have a mailing list of 1,000 people; how do you get the phone numbers?

Larry Higgins: One of the things unique to our services is — a lot of people have access to what they consider skiptrace services, but they’re doing a lot of manual searching. You have to go in and search each property, each name…. And you’ll get a report and it shows the phone numbers. I’ve teamed up with a guy a year and a half, two years ago; it was on a specific project – it was vacant properties and calling the owners, rather than mailing. Over time, there was an evolution that we were doing so much we couldn’t keep up doing it manually, so we put the resources into it to develop our own system, to where we can now process an entire list at once. Instead of doing 100 manual searches, we plug in a spreadsheet and we get it spit back out to us. It’s all automated at that point. So now  you can even plug it into the more popular autodialers, your voicemail drops… It’s a different way to reach out to a potential owner, because maybe you don’t wanna call him.

You could literally take a mail list of 10,000, skip trace it; we can provide it in a format the next day, you plug it into your system, and you’ve gone out and done — I think it’s a different name, but I call it a voicemail drop. Some people call it ringless voicemail. But within 24-48 hours you’ve left voicemails with 10,000 people.

Joe Fairless: And what service do you use for that? Is that your service too, or do you partner with someone?

Larry Higgins: Yeah, it’s ours. It’s our internal capability that we developed in the last year or so. We knew there was demand for it, and we thought it would be geared more towards just the higher volume guys, doing 1,000 or more a month, but there’s so much frustration with direct mail right now… It’s amazing. I call it “the yellow letter lottery.” There’s so many people sending mail to the same list… It’s not uncommon to go to an appointment, and there’s two, three, five, six other investors, and you are lucky to even get that, because they might have 50 pieces of mail. All these weekend seminars, all these classes, all these people jumping into wholesaling, and that’s the number one thing you’re told to do probably – drop mail. And everybody’s mailing the same list.

I can’t think of anybody I’ve heard in the last year to say that their response rates from direct mail have gotten better. Everybody’s talking about how the results are actually kind of going down.

It’s an intriguing concept for some people, and they’re looking for alternative ways to try and set themselves apart from everybody else, rather than just being another postcard or yellow letter in the mail type thing.

Joe Fairless: I have a list of 1,000 property addresses; in this case, let’s say I work with your company. So I have a spreadsheet, I give it to you… Do you just put the phone numbers in the cell right next to the address, so now I have the addresses plus the phone number that corresponds to each address?

Larry Higgins: Yes, it’s all in a usable format. It makes sense once you see it. We tell you if that person shows up as deceased, and if the property is not in an estate, that’s something to key in on, because it’s a de facto estate at that point. By that, I mean it’s flying under everybody else’s radar. People are tracing probates, people are tracing estates… Well, say you have a property – John Doe lives on Main Street; the mailing address is line up, and it looks like an owner-occupied house. Let’s say maybe you even know it’s vacant for sure. You run the report, and it shows up John Doe died two years ago. To me, the priority goes way up on that property. He died, it’s vacant, it’s getting run down, so that’s a key indicator to look at.

Joe Fairless: So what do you do when — yeah, sorry, go ahead; I interrupted you, I didn’t mean to. Go ahead.

Larry Higgins: That’s alright, I like talking about skiptracing, so I’ll go on and on and on, and you’ll have to cut me off. [laughter] So if you go down the way our spreadsheet is formatted, that’s one thing you can filter – see who’s deceased. Sometimes the age… Whether you use it in the cheap, low-end stuff [unintelligible [00:11:33].18] or the upper-tier providers (which we are, at this point), we all get our get our death records from the social security death index. But if that death is never reported, nobody has visibility on that death record, so it’s not uncommon to see somebody that’s 100, 110 years old that looks like they’re alive. But I tell people… Based off your list, say it’s tax delinquent or non-owner occupied, something along those lines; if you see anybody who’s 90 or older, go ahead and just do a quick obituary check. It’s worth that extra step.

You need to maximize your list. Don’t overlook these little things. You could turn that over to a VA and just teach him the process; it’s really simple. So there’s the death status, the age, then we give you address history, all the phone numbers associated with that person, and we can also show you the likely and possible relatives, so if that person does show up as deceased, “Hey, here’s some possible people that you’re gonna want to skiptrace to get their phone numbers”, if there are probable errors in that scenario.

Joe Fairless: Yeah, it’s certainly a competitive advantage that you’ve uncovered, because you’ve taken something from the surface of “Hey, you just match up phone numbers with addresses”, and you’ve taken it three levels further than that and thought through the process from an investor standpoint.

Larry Higgins: Our unofficial motto is “Built by, for and used by investors.” So we kind of know what people are looking for… And some people don’t know what they should be looking for.

But that’s not the end of the useful data; the other thing we provide are any possible e-mail addresses. I’ve just learned this from one of our clients last week. He’s using those to go and try and target the people on Facebook, as well… That kind of blew my mind; I was like, “Wow, that’s even more utility out of it.” The versatility in something like this is amazing if you make the effort, and it’s not hard.

Like I said, you could be completely automated, and just — whatever’s easy to get, you get, or you take the time and pay attention to those smaller indicators and know when you might need to put a little more work into certain things.

My general rule is the harder somebody is to find, or their heirs, the more likely it’s gonna be a better deal or a home run type deal. There might be cases where you have to get a genealogist involved. I say that because we’ve done that. I consider that a great opportunity, if I have to reach out to our genealogist and give her some information because we can’t find the heirs.

Joe Fairless: Please tell us more about that particular deal.

Larry Higgins: Okay. So that’s the house, we had a lead… I looked it up, and the owner died; they owed like $30,000 in taxes (this is in Houston). The owner died, I see her son; I look him up, and he had died, too. He didn’t have any siblings, no wives, no children. Her husband had died like 30 years prior. I just couldn’t find anything on the guy. I’m really good at going into our local county clerk, stuff like that, looking for probate records, and there was just a dearth of information on them. So I’m not a genealogist… I can do some basic stuff on ancestry, but that’s definitely not my specialty. I just knew there was a major issue at this house, and there was no close heirs, I could tell that.

So we got a genealogist involved, and I’ll never forget… It was nine in the morning, I called, I left a voicemail with the lady; I didn’t realize where she was. Well, she was in Alaska; she called me right back and she told me “It’s like six in the morning here’, but she was already up and she was really pleasant. She said, “Yeah, the person you mentioned, that’s my cousin. I haven’t seen him in 30 years.” This was a little awkward, but I had to inform her that her cousin died a few years ago, and under our heirship laws in Texas, as a cousin, she was one of the heirs.

Now, the genealogist was the one that gave me her name, and that’s how I knew how to find her… So she’s 1,500-2,000 miles away in Alaska, owns a legal interest in her deceased cousin’s property in Texas, doesn’t have the first clue about how to take care of the heirship and the title issues and things like that… And we’d found out that the house had squatters living in it. So this is getting better and better and better, but that deal alone – it took some work, and we ended up actually paying for the squatters to move, just incentivize them.

Joe Fairless: What did you pay them?

Larry Higgins: I think we ended up spending about $1,500. We wanted a clean deal, we wanted them out by the time we were closing, and not to say it’s right, it’s just the easier thing to do [unintelligible [00:16:22].15] But on that deal we paid each of the heirs $3,000; it was like free money falling out of the sky, and we double-closed on it. We didn’t necessarily want our buyer to see what we were making off of it, but it was a $150,000 deal. We were right under $50,000 all in, and we sold it for 200k.

I’m not saying you can do that once a month or every few weeks or anything like that, but my point is if you’re not looking for that, you’re rarely gonna find it. Or if you had just given up… All the signs were there – huge tax problem, and there’s no close relatives… Okay, spend a few minutes and dig a little deeper. It’s risk/reward. At some point you make a decision, “Should I get a genealogist involved? Well, there’s huge potential payoff, so yeah, let’s spend a couple hundred bucks if I have to.”

Joe Fairless: That was one of my questions – how does a genealogist charge you? What’s the structure?

Larry Higgins: We’ve only used one, and I think she’s in Canada. She’s very good, she’s always gotten results back. Our average bill — we’ve only done it a few times… I think our average bill was maybe $100-$150, and that was with us — we’re impatient, like “This is urgent, we’ll pay the rush charge.” She has a little rush charge, so we’re always like “Hey, we’ll pay the rush charge, whatever it is. As soon as you can get this…” So it’s very, very affordable, and you’re not gonna be doing it all the time. It’s something that depends on how many leads you’re working through. It’s not a common scenario, but if you come across something like that, it’s well worth your time and the risk of $100.

Like I said, in that situation, the heirs… You should be looking forward to the day that you’re notifying somebody that they are the legal owner of a property they didn’t know anything about.

Joe Fairless: We just got the phone numbers back from you; I’m pretending I paid for your services, I got my phone numbers… Now I’ve got the spreadsheet in front of me on my laptop, I’ve got my phone next to my, got my earphones in, ready to make my first call… Walk me through a phone call scenario when you call someone – or, in this hypothetical scenario, when I call someone. What should I say and what should I expect as a response?

Larry Higgins: Some of that is gonna be based off of your criteria, the nature of that list – is it a probate, or an inherited property and you’re suspecting you’re talking to relatives? Is it a free foreclosure home? That’s two different ways of talking to them.

Joe Fairless: Go with both scenarios, if you could do each scenario quickly.

Larry Higgins: Okay. Say it’s an inherited property…

“Hey, can I speak to Jill, please?”

“Yeah, this is Jill.”

“Hey, Jill. This is kind of out of the blue, but my name is Larry Higgins, and I’m not even sure if you can help, but I saw this property over at Main Street, and it looked like it might be vacant, I’m not sure. When I looked up the owner, I saw that he had passed, so now I’m just trying to reach his family or whoever owns or controls the property to see if they have any interest in selling it, because I’d like to buy it”, and then I just shut up. You’d be surprised how open some people are.

Now, that script – that’s not totally ad-hoc. That’s come through a lot of trial and error. The goal when you do this — and we actually worked with a sales trainer at one point, he helped us fine-tune it. He actually uses it with his calling center now, for people that are doing this. He has a full-blown call center.

But the goal is, when you call somebody out of the blue like that — if I just said, “Hey, is Jill there?”, she doesn’t know you; the defenses go up. It’s like “Who is this guy? Why is he calling?”, so the goal is to be as personable and just genuinely an easygoing person to talk to, and answer their questions before they have to ask who you are and why you’re calling. Then I’m just straightforward to the message.

Joe Fairless: What about the other scenario?

Larry Higgins: The other — and again, I’m not saying this is THE way, the right way; it’s the way I like. On the foreclosure:

“Hey, can I speak to Jill, please?”

“Yeah, this is Jill.”

“Hey, Jill. I don’t know if there’s a mistake and I’m really not sure, but I just saw this on a county website…” First of all, let me clarify – I don’t mention foreclosure if I’m not positive that I’m talking to the right person.

Joe Fairless: Okay.

Larry Higgins: That’s a good way to kill a deal. So once I know it’s Jill, I say:

“Hey, maybe it’s a mistake, I’m not sure. If it is, I wanted to make sure you knew that the county shows that this house – it looks like you own it – is scheduled for the auction next month (or two months, or whenever).” Sometimes I’ll just shut up right there, to see how they’re gonna tell you what they’re going through. If you’re really lucky, they think it’s already been [unintelligible [00:21:10].00]. That happens.

You’ll call them and they’ll say “Well, I would sell it, but the bank already owns it.” You’d be surprised if that happens. They don’t realize they’re still the legal owners, especially with inherited properties. The good thing there is, mentally, their mindset is they’re getting [unintelligible [00:21:27].05]; there’s no worth, no value to that property. That’s where they are mentally. If they can get anything in their pocket at that point, they’re probably gonna be happy. Probably, but you never know.

These are great questions you’re asking. We’re just a skiptrace service, but it’s hard to explain to people we’re more than just data. We give you these scripts. We will help you go over your strategy. If you’re a brand new guy, you’ve gotta make every dollar count, you can’t go pull 1,000 skiptraces on properties, we’re gonna help you to prioritize. Our goal is to get you a deal as quickly as possible and as cheaply as possible. We know that’s the only way you’re gonna stay with us – you’ve gotta see those results. One of the ways we’re doing that is the next week or two we’re gonna start weekly calls, just Q&A; what issues you’re having, whatever it is.

I like the interaction. I’m on a call like that with a guy here in Texas for something different, and you never know what little nuggets you’re get out of there that help you in whatever you’re doing.

Joe Fairless: Larry, what is your best real estate investing advice ever?

Larry Higgins: Not to beat a dead horse, but even if it’s not skiptracing, to me it pretty much involves skiptracing — but to be more targeted. I saw a guy post in a Facebook group the other day he spent $15,000 in mail since the beginning of this year, and he’s got one deal for $5,000. Obviously, I have issues with mail to begin with, but he probably wasn’t being targeted enough. There’s too much data out there from multiple sources and there’s no reason not to have a pretty tight target in your marketing. He should have got more than one deal, but those were his results.

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

Larry Higgins: Yes.

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

Break: [00:23:21].00] to [00:24:21].04]

Joe Fairless: Best ever book you’ve read?

Larry Higgins: Not real estate related, but it’s “Churchill: A Life” by Martin Gilbert.

Joe Fairless: Churchill Life?

Larry Higgins: “Churchill: A Life.” I’ve read multiple biographies on him. He had a fascinating life; he had his highs, he had his lows, but the quote “Never, never, never give up” – that kind of sums him up. He’s just a fascinating historical figure.

Joe Fairless: Best ever deal you’ve done?

Larry Higgins: The house we spoke about earlier, where we had the genealogist involved. That was $150,000 on a wholesale deal — well, we double-closed, but that was it.

Joe Fairless: Over 1,000 episodes, and this is the first episode where we have mentioned bringing in a genealogist to close on a deal, so bravo to you for that!

Larry Higgins: That’s awesome, I get to bring something new to the Best Ever Show listeners; I like that.

Joe Fairless: Yes, you do. What’s a mistake you’ve made on a transaction?

Larry Higgins: It was really a wholesale deal, and it wasn’t that I lost money, it was that I went ahead and did the deal. It took so much time and energy out of me when it was all said and done… It just wasn’t worth it. I look at opportunity cost. Everything, all the time and energy that I’ve put into this thing… It was crazy – having to move people, and the family was an issue to deal with. I realized “This cost me money.” I made $2,000, but I was so distracted and I put so much energy into that, it literally probably cost me a much more profitable deal somewhere else.

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

Larry Higgins: Talking to newer investors that need even basic question, just the back and forth… I’m not that far removed from where they are. Just “Hey, how do you go find who the owner is in a tax record?” It’s something so simple, so easy to give, but they’re at a roadblock… So just whatever I can do to talk to them, whether it’s Facebook groups, on the phone or networking events. It’s a small thing, but it’s just a little way to help a lot of different people.

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

Larry Higgins: They can e-mail me any time at larry@skipgenie.com.

Joe Fairless: And what’s your company’s website?

Larry Higgins: It is SkipGenie.com. And just a little bit of a disclosure – we just started this up recently as far as putting it out there, and we’ve done very little… But it has accelerated; we way underestimated the demand. The website is functional. It looks decent, but it is definitely a work in progress. We’re rapidly expanding our capabilities there. We have a startup mindset at this point, it’s a lot of fun. We’d love to talk to anybody if you have questions about anything. We can even give you a free search, just so you can get an idea for the quality of our content, the format of it and how we operate.

Joe Fairless: Outstanding. Well, Larry, I’ve really enjoyed our conversation, learning about skiptracing, learning about how you as an entrepreneur have developed the company and thought through the different scenarios after the number is received, and what value can you and your company add to investors to help close more deals. As you mentioned, the harder the deals are to uncover or to find, usually the better the deal, and you used the genealogist example where you made $150,000 on one deal, where you bought it for 50k and sold it for 200k. Again, not typical, but it happened; it’s real.

You do this long enough, enough times, you hit some singles, maybe strike out once or twice, but then you hit a grand slam like that, and overall your batting average is around 300-400, and that’s pretty darn good.

Thanks for being on the show, Larry. I hope you have a best ever day. I truly enjoyed this. We’ll talk to you soon!

Larry Higgins: Thanks, Joe. I really appreciate you having me on, it was good talking to you.

 

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Best Real Estate Investing Advice Ever Show Podcast

JF986: How and Why You Would Leverage Other People’s IRA and Cash

Strange concept, but once you understand the intricacies of the tax law, and pair that understanding with leveraging other peoples money… you have a powerful tool!

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Quincy Long Real Estate Background:

– President and founder of Quest IRA, Inc., the premier self-directed IRA provider in the country.
– Licensed attorney specializing in real estate and an active investor
– Author of “Real Estate Investment Using Self-Directed IRAs and Other Retirement Plans.”
– One of the most sought after keynote speakers in the nation on the Self-Directed retirement industry
– Based in Houston, Texas
– Say hi to him at www.IRAWebAdvisor.com or www.QuestIRA.com
– Best Ever Book: RIch Dad, Poor Dad

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Quincy Long advice

 

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

We’re gonna be talking self-directed IRAs today with Quincy Long – how are you doing?

Quincy Long: I’m doing great, glad to be here.

Joe Fairless: Nice to have you on the show, my friend. A little bit about Quincy – he is the president and founder of Quest IRA, he is the author of “Real Estate Investment: Using Self-Directed IRAs And Other Retirement Plans.” Based in Houston, Texas, and you can say hi to him at his company’s websites, which are in the show notes link. With that being said, Quincy, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Quincy Long: Sure. Basically, besides what you said, being president and founder of Quest IRA Inc., which was founded back 2002, I’m also an attorney, an active investor. I’ve been a fee attorney for a title company, so I know a whole lot about real estate also, and I’m a certified IRA services professional, which means I have an expertise in IRAs in general, not just self-directed. Other than that, I can go into all kinds of other details, but I suspect most of the rest of it is not all that interesting to your listeners.

Joe Fairless: [laughs] You’d be surprised. I think we like hearing some stuff that we haven’t heard about before, but we will focus our conversation on  self-directed IRAs. What should we know about them? Let’s start broad and then we’ll get more specific, as real estate investors.

Quincy Long: I think the two key elements that you need to understand about self-directed IRA’s is 1) they are incredibly flexible. There’s just all kinds of things you can do to either defer, or in some cases, eliminate your taxes on your real estate profits. That’s the good side.

The downside of self-directed IRAs – and I guess I should confess that when my mother wanted to really know what happened in my family, she just asked me because she knew I’d tell her the truth, the whole truth, and nothing but the truth, whether it’d help me or not… But there is a downside to being in a self-directed IRA, and that it is self-directed in the self – it’s not us, it’s you. You get to make your own choices, but you have to make your own choices, because in a self-directed IRA you don’t have any investment choices approved or provided by the custodian or the managed trader. So that’s kind of the double-edged sword of the self-directed IRA. It’s an incredible tool, I’ve used it extensively and really enjoyed using it personally, besides having the company, but you’re responsible for your own choices.

Joe Fairless: As far as the type of investments that you’ve seen people make – real-life investments, versus just theory-based, what are some interesting real-life investments that you’ve seen people make?

Quincy Long: Interesting… Boy, I get to fill the hour with just the interesting ones, but the most interesting ones are really not necessarily real estate related… Some of them are probably not proper for airing online, but we’ve certainly had some interesting real estate deals; options are always structured in interesting ways, so I like options… Some of the most creative stuff that I’ve seen is actually in the area of notes secured by real estate, and how those notes are purchased, sold, created – that sort of thing.

Obviously, you can buy a piece of real  estate, and I don’t know that there’s anything particularly creative with that, except for where you buy it and when. We certainly had some home runs that people have made buying real estate in their IRA, and I could tell plenty of stories about that… But as far as the most creative and interesting things, I’ve gotta say it’s probably notes.

Joe Fairless: Why do you categorize those as the most creative and interesting?

Quincy Long: Well, maybe it’s just personal choice, because that’s what I like to do… But you can structure real estate notes, and — well, of course, you can buy performing notes that are existing, sometimes from institutional lenders. You can buy non-performing notes, but you can also buy partials from seller-financed deals. But the most fun that I have with them is actually creating them from the beginning, and structuring them in a way that you can basically get the note done and then sell off the first part of the note to recoup all your money invested in creating the note, and then keep the tail end of the note for yourself as a profit. That’s a really good way to build an IRA. It’s not really sexy, I suppose, but it’s an excellent way to build an IRA slowly and securely. That’s what I like about it.

Joe Fairless: What are some things that when you work with your customers they find surprising about the self-directed IRA process?

Quincy Long: I think the biggest surprise – and I don’t know why it would be a surprise – that people find is that we’re not here to teach them how to be an investor, we’re here to provide the vehicle through which they make their investment choices. In other words, we’re like luxury car dealers – we’re gonna sell you the vehicle, but we’re not gonna teach you how to drive that vehicle, and we’re not going to put your gas in it, which is your money, of course, and driving the vehicles, making your investment selections.

I think some people maintain the illusion that somehow we’re investment advisors, and of course, there’s no way with the structure of the company that that can be done. Again, I don’t know why that would be a surprise to anybody, but they just perhaps don’t understand the product. But having said that, it’s an incredibly powerful and flexible tool, and we do provide a whole lot of free education about the things that people have done and can do with self-directed IRAs; perhaps then people say “Okay, great. Can you set that up for me?” Well, the answer is no, but I can allow you to do it once you get it figured out.

Again, other than that, the biggest other surprise would be how genuinely flexible it is, and all the crazy things that people do and can do with them.

Joe Fairless: Once you have an account set up and you’ve identified an investment opportunity – and I imagine usually you’ve already identified the investment opportunity and that’s why you’re setting it up, usually – what type of paperwork is required to invest in it?

Quincy Long: It’s actually pretty easy. The first thing they’ve gotta understand is that the titling has to be done not obviously in their individual name, but in the name of the IRA. For example, if it was your account, it would be something like you would be making the offer on the real estate or creating the note or whatever you’re doing as Quest IRA Inc. FBO (for the benefit of) Joe Fairless IRA number 12345 or whatever it is. So titling is important, but once you’ve got the titling right, the next task is to read and approve all the documents, because as I said, it is a self-directed IRA, so you have to read and approve everything because you are the decision-maker as the client.

And then the third step in the process, of course, is to submit the direction to invest, and there are different direction to invest forms based on what type of an asset you’re purchasing, whether it’s a note or real estate or a private placement, or something like that. Once those steps are followed, then we actually fund within 24 hours of when you submit all the proper paperwork.

Joe Fairless: When you attend a conference and you’re speaking at the conference, what’s the angle of your presentation that you usually talk about.

Quincy Long: Well, my presentations typically are always educational and never salesy, if you know what I mean, because I’m not very good at that. But what we do is we typically will educate on the types of accounts that are available and the types of investments that clients make with those accounts, and then we typically tell just a few investment stories to give them a better idea of the types of transactions that people can and do in a self-directed IRA or other type of account.

Joe Fairless: Can you tell us a story that you typically tell that usually resonates well with the audience?

Quincy Long: Lots of stories… Let me tell you this one, because it’s a pretty simple one. Joe, one of the things is people are not understanding that it doesn’t take a whole lot of money to invest in real estate, so that surprises a lot of people. But I’ll just give you this one example… I wish it was from my own portfolio, but unfortunately it’s not. We had a client that knew somebody, was kind of around the corner from his office in downtown Houston area, and she was being foreclosed on for delinquent taxes.

She was a little old lady, the house was not worth very much at all — in fact, it was probably worth whatever it took to tear it down, but the real estate was in the pass of development, if you kind of get my meaning on that… And he knew that the real estate development was coming, but wouldn’t get there for a couple of years. And she wanted to stay in the house; she knew she was getting [unintelligible [00:11:44].21] would probably have to move in with relatives or into a care facility within a couple years, but she wanted to stay in her house as long as she could.

So she asked him for help, and he arranged to purchase her house for the delinquent taxes of roughly $10,000. Then he also agreed to allow her to live in the house rent-free for two years, and that would give her time to make her transition. And at the end of two years, she moved on and he sold the property that he paid $10,000 in his Roth IRA for $290,000 to a developer who tore it down and put up a townhouse. That’s a pretty good return on investment, I would say… Wouldn’t you?

Joe Fairless: It’s a win/win for everyone, it sounds like.

Quincy Long: So that was a great deal… You just tell me when to stop, I can tell many stories of different types of investments. If you want real estate specific, one from my portfolio that I thought was pretty good – not a home run, but not a bad deal… Because as I said, you can invest in real estate directly or indirectly, and indirectly – I mean you can invest in things like limited partnerships that purchase property for various things. I do invest in a lot of shopping centers myself, for example, through limited partnerships. But the one deal I did that I thought worked out pretty good – and I like this; the story is important because it demonstrates something called the ERR… Do you know what the ERR is?

Joe Fairless: No, what is that?

Quincy Long: That’s the Effort to Return Ration.

Joe Fairless: Okay.

Quincy Long: And by that, I mean that everybody gets hung up on the dollars, but it’s more important to understand how many hours it took you to make those dollars. In other words, a per-hour return on your investment is the best way to really judge an investment, if you see what I’m saying. So in this particular case, I invested in a limited partnership and we paid $500,000 cash for a triangular piece of property with a small house on it that was located North of Dallas, Texas. And basically, we were gonna hold it for up to 5 years, and the rent from the house would pretty much pay the taxes and whatnot on the property, which it did.

The only thing we did to improve the property was we got the liquor license extended to the city limits, which included now our property. Well, that of course increased dramatically the value of the piece of real estate by doing that, and we ended up three years and nine months after we bought it, selling the property for 2,5 million dollars, because the path of development once again was headed North of Dallas into this little town called Melissa, and that’s where the piece of property was.

I think that’s also a great story, and the great is not because we made a good return – which we did – but in my case, all I did was read the private placement memorandum and evaluated the deal. So I spent a sum total of about 4-5 hours on the deal, and made a pretty good return for my dollars invested, in a very short period of time. I thought that was an interesting case.

Joe Fairless: Yeah… And you invested that via a your self-directed IRA?

Quincy Long: I did, indeed. Yes.

Joe Fairless: Based on your experience, Quincy, as both a real estate investor, because you have invested in real estate, clearly, and then also as an expert in self-directed IRAs, what is your best advice ever for real estate investors?

Quincy Long: Well, the best advice ever I would say is to learn how to use OPM and OPI – other people’s money and other people’s IRAs – to boost your own IRA. I think that’s a talent that not enough people have. Among the note deals that I’m talking about, if you can create a note – I purchased one at a 30% discount (a $30,000 note for $21,000)… And then when I sold the — well, I didn’t sell the property; the investor that was borrowing my money sold the property and created $30,000 worth of notes. Well, I sold off the first lien note of $21,000 and kept a $9,000 second lien. That just created that money for free.

So if you know somebody with money, you can partner your IRA with their IRA, and as long as they’re not disqualified people to your IRA, you can do some very creative and innovative things. I think using other people’s money to create wealth – or creating free money, as I like to call it – is the best thing I can think of to do with a self-directed IRA. That’s what I like to do, that’s what I try to do every day.

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

Quincy Long: Sure.

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

Break: [00:16:51].17] to [00:17:34].28]

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

Quincy Long: Best ever book I’ve read is Rich Dad, Poor Dad, because it gives such an interesting twist on how money is handled and treated.

Joe Fairless: Best ever deal you’ve done? You might have already mentioned it.

Quincy Long: Well, I hope the best deal I’ve ever done is participated in a different real estate transaction, where we bought 196 acres on Maui for $900,000 cash from a bankruptcy estate, which we got a 2,5 million dollar offer before we closed on the property, and turned it down because we think we may be able to sell if for maybe 10 million or more. So that isn’t completed yet, but I believe it’s gonna be one of my biggest investments with the dollar return for effort hour.

Joe Fairless: Wow.

Quincy Long: I hope that’s the best.

Joe Fairless: How long ago did your group buy it for 900k?

Quincy Long: They bought that 3-4 months ago now.

Joe Fairless: Oh, very recent.

Quincy Long: Yes.

Joe Fairless: What’s the hold period?

Quincy Long: Up to five years for that kind of property. We’re gonna market it to the ultra-wealthy. There’s a lot of Chinese and other Asians that visit Hawaii, so that’s the target. There’s some movie stars and what not that have property in the same area, but it’s also a good property for eco-tourism. Just fantastic waterfalls and caves… Probably for the holding period we’ll do some eco-tourism to pay the costs of the property until we can find the correct ultra-wealthy buyer that can write a check between 10-20 million dollars. That’s the plan at this point.

Joe Fairless: Wow. That’s a completely different business model, that’s fascinating. Quick follow-up question on that – how do they approach finding potential buyers?

Quincy Long: Great question, actually… And of course, this is through a limited partnership, so again, I’m not doing any of the work, because I have 4-letter words like W.O.R.K. Some other 4-letter words I’m okay with, but not that one. So basically, we’re at the end of this month or in the month of April sending a professional film crew out to document and film the property, because it’s kind of a rugged piece of property, you can imagine that of course. And then there are sites that are catering to the ultra-wealthy type properties, the trophy properties, if you will. So there’ll be a large internet marketing campaign specifically to target the ultra-wealthy individuals that might be able to afford such a property.

Joe Fairless: Interesting stuff. What is the best ever way you like to give back?

Quincy Long: What I do every day… Somebody asked me a question recently – if I was rich enough to retire, what would I do? I said I’d educate people about self-directed IRAs, of course, because I actually enjoy doing that and I think it’s important. I’ve just finished my estimated taxes before I’m going to Europe – tomorrow, actually – for three weeks… And I’ve finished my estimated taxes and looked at the dollar amount that I’m gonna have to pay as an estimate, and I just got sick to my stomach and I thought “I need to do everything I can…” I’m all for paying your taxes that you owe, but no more than that. I don’t want people to be a tax donator, as I call them. When you do a deal that you could do tax-free, you’re a tax donator, and I just have a real problem with that, because I don’t think the government uses the money as wisely as I would if I had that money.

So again, I believe in paying my share of taxes, but not a single dollar more. I believe in that so much in fact, that teaching other people how to avoid paying taxes by using the government’s own rules that they laid out for us is almost like a mission to me. So that’s what I like to do to help people – teach them how to get out of paying taxes using the government’s own rules and following those rules.

Joe Fairless: Do you have a book on that? Or somewhere else that you have that info?

Quincy Long: Yes. Our website does have a whole lot of information and pre-recorded webinars. We do classes every Tuesday at [9:30] in the morning central time, and at [6:30] in the evening central time, and then also on Wednesday evenings we also do another class out of our Dallas office; the other two are in our Houston office. Those are done by Facebook live. Also, we have pre-recorded webinars that we have done that people can access from our website, and we do all the social media stuff. We’re not quite as adept at podcasting as you are yet, but we’ll no doubt get to that at some point this year, we hope. So we use various techniques to spread the word. I am working on a book, but it’s not completed yet.

Joe Fairless: We’re looking forward to that one. And if you think about your real estate investments, what’s a mistake you’ve made on a deal?

Quincy Long: Oh, that’s easy… I’ve made lots of mistakes. And yes, I’ve been very successful, but anybody that tells you that they’ve never made a mistake has either never done a deal or they’re lying. I would have to say, again, because I do a lot of note deals, my biggest mistake was doing a deal where I did plenty of due diligence on the property, but not enough due diligence on the person that was borrowing the money in that case. I always make the strong suggestion that anything you’re doing, you do due diligence on the deal itself, but most importantly you do due diligence on the people.

I failed to do that, frankly… So I had a great and perfectly valid hard money loan out of my account from the perspective of the property, and we ended up foreclosing on it and it’s been a great rental, and we’re getting ready to sell it after a couple of years of renting it. But four days after the buy borrowed my $200,000, he turned around and went to a different title company and borrowed another $215,000 on a property worth about 270k. Then he also sold it at a third title company ten days later for — I don’t remember the number, but he took a $45,000 down payment… And I found out later he had partners at the foreclosure sale where he bought the property for $100,000, so he took like half a million dollars from people on a property that he had a net of $100,000 in. Basically, after all of this broke and I ended up foreclosing on the property and did due diligence on the individual, I found pretty strong evidence that he’s a crook.

Joe Fairless: Yeah, that’s jail time right there.

Quincy Long: Had I known that, of course I would not have made the deal in the first place. I think that’s my biggest mistake and my biggest learn – you have to do due diligence both ways: people involved, as well as the property or the deal itself. And that’s true for real estate, it’s true for notes, it’s true for private types of investments like limited partnerships, stuff like that as well.

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

Quincy Long: There’s several ways, but the best way to get a hold of me is simply to go to our website, which is www.questira.com. They can, of course, call our center here in Houston, Texas at 855 FUN IRAs. If they wanna submit a question, we do answer basic questions on my blog site: www.irawebadvisor.com. There’s some interesting blog posts there of questions that people have asked me that I’ve answered. You can scroll through those and get some information there. Ask a question if you want to, and it will come to my e-mail.

Joe Fairless: Quincy, thank you for being on the show, talking about a whole range of topics, from self-directed IRAs and some interesting investments, and then some success stories as well as some interesting stuff that you’re investing in on a limited partnership side. The land flip – I would have sold at 2.5 million; I buy it for $900,000, got an offer right before we close for 2.5 – done! Write me the check, I’ll give you the [unintelligible [00:26:28].26]

Quincy Long: To be honest with you, I voted to sell, but you know, when you’re in a partnership it doesn’t work that way.

Joe Fairless: Yeah, I’ve realized through all these interviews – I’ve interviewed about 1,000 people – that when you have money on the table like that and you can double your money before you blink an eye, then you need to do it and then maybe put it in something more long-term and take the chips off the table. But who knows? It could work out, and I hope it does, as well as the other opportunities that you mentioned that you’re doing. And doing due diligence on the operator just as much, if not more so than the deal itself. I know a lot of people look at the operator first before they even look at the deal.

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

Quincy Long: Thank you very much. Have a great day!

 

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JF977: Commercial Loans 101!

He wrote a book all about it, so today get your notes ready for commercial loans. From being approved to closing the deal you will understand what lenders are looking for in this niche.

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Michael Reinhard Real Estate Background:

– Commercial Mortgage Banker at Texas Commercial Mortgage, LLC
– Author of successful book Commercial Mortgages 101: Everything You Need to Know to Create a Winning Loan Request Package
– Masters Degree in Land Economics & Real Estate from Texas A&M
– Based in Houston, Texas
– Say hi to him at www.texascommercialmortgage.com
– Best Ever Book: Hamilton

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

With us today, Michael Reinhard. How are you doing, Michael?

Michael Reinhard: I’m good, thanks.

Joe Fairless: Nice to have you on the show. A little bit about Michael – he is a commercial mortgage banker at Texas Commercial Mortgage. He is the author of the book Commercial Mortgages 10Joe Fairless: Everything You Need To Know To Create a Winning Loan Request Package.

He’s got his masters degree in land economics and real estate, and he is based in Houston, Texas. With that being said, Michael, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Michael Reinhard: Yes, Joe. As you mentioned, I received my masters degree in 1989, and I immediately began my career working for savings and loans in the REO department. At that time the savings and loans crisis was at its pinnacle, and basically there’s no lending on real estate in Texas for the most part. I kind of cut my teeth on commercial real estate by analyzing the cash flow, the assets of the bank that were basically in the [unintelligible [00:03:34].20]  to get sold. It was the mandate by the Resolution Trust Corporation – the RTC acronym that most people are familiar with that are probably in their 40s and 50s.

That’s where I really learned the analysis of cash flow for all types of properties, so it was a good, well-rounded, quick education in all types of commercial properties. It was from multifamily, to office, to warehouse, industrial, self-storage and even MUD receivables.

Joe Fairless: What are MUD receivables?

Michael Reinhard: MUD is an acronym for Municipal Utility District. For example, if you’re outside a subdivision and a growing community is outside the reach of the main city’s water facilities… It’s almost like a privately-run organization to provide water lines to the community. Usually the taxes are a lot higher. There’s like a board — it’s kind of like a quasi-government agency that’s privately run and provides the utilities to that area because the city hasn’t been able to get out that far.

I don’t know exactly how they were set up or the history of them, but when the developer would develop a subdivision for single-family homes (or even a multifamily property), you’ve gotta go to the MUD board to get a approval for the capacity you’ve got, to determine if there’s enough capacity to build  a 200-unit apartment complex. You’d have to get the board to vote on it. There were some politics involved… But when you do that — and let’s say… Because I mentioned that at the bank, when the savings and loans crisis hit, and the recession, a lot of these subdivisions were abandoned, and there was a lot of money spent on these water utility — I don’t know if they were just water taps, or sometimes water plants or water pumps that were just sitting out there… They had value; the bank owned those, and we were just trying to determine what the value of those was at the time. That was kind of interesting.

With that said, in the early ’90s there were a lot of ex bankers, a lot of ex real estate people in the late ’80s or the ’90s that were working these different failed savings and loans; they were all being propped up by the selfless bailout government financial rescue… So when all the assets were sold, everybody was kind of losing their jobs, worked themselves out of the job, so there’s just a lot of real estate, analyst people in 1993-1994, and then we had another recession in ’94… That’s when I transitioned into working as an analyst on the mortgage banking side, because around ’94, ’95 this new conduit lending – it’s called the CMBS Loan… CMBS is a commercial mortgage-backed security; it’s the same thing as a residential MBS… That was kind of a new vehicle to provide commercial real estate loans to commercial property investors.

I started off as an analyst at a large commercial real estate firm called [unintelligible [00:06:33].15] which is a national firm… That’s where I had to shift a little bit my real estate career from just more of an analyst and selling assets to now getting on the mortgage side.

It was a good move, and I learned the conduit lending along with Fannie Mac and Freddie Mac agency lending… I spent years as an analyst, an underwriter, working for various banks like Bank of America, John Hancock Life, and some other smaller Texas banks… Then I finally decided in 2009 when the great financial crisis hit – of course, so many people got laid off, there just wasn’t any lending – to take all the expertise I had, venture out as an independent commercial mortgage banker. That’s when I wrote the book.

That’s kind of the genesis of my current position as a commercial mortgage banker, because I’ve spent years and years as an analyst, underwriter, and I felt at that point there’s no place to go at the bank. I was never really an executive or a major stockholder of a bank, so I thought there’s really not much more for me to do or contribute at a bank, and I would prefer to be able to help investors with all types of financing.

As a broker, if one bank says no, then I just go to the next bank or the next type of lender… So it’s more exciting, it’s more challenging. Every deal is different, there’s not one commercial real estate loan that’s alike, unless you’re doing the same old cookie-cutter Fannie Mae loan. That’s how I came about working for myself; I’ve got clients in California, in Florida, in Texas, I’m doing some loans in Indianapolis… I can do loans nation-wide.

I normally don’t do anything in California, because there’s just an inordinate number of brokers there, and I don’t really know the market in California. It’s a different market, and there are some licensing requirements. Texas is big enough, there’s plenty of real estate here.

Joe Fairless: Yes, there is, that’s for sure. I have purchased your book right before we got on the call… I bought your book “Commercial Mortgages 101: Everything You Need To Know To Create a Winning Loan Request Package.” I’m very intrigued by this, and I’d like to spend some time talking about the content of your book.

For a Best Ever Listener who has some single-family home properties and maybe a small multifamily property, but now they wanna go a little bit larger, and for the sake of simplicity, let’s say it’s multifamily… They wanna go a little bit larger to, say, a 20-30 unit property. What do they need to know about commercial loans, in particular as it relates to getting a package together for the lender?

Michael Reinhard: The first thing I’d like to emphasize is that a commercial real estate loan is an entirely different industry than a residential loan… A residential loan meaning either a homeowner loan or even a 1-4 family, whether it’s a duplex, triplex or fourplex. Everything you know about and any experience you have with that type of loan – forget about it. Don’t even try to make a comparison. It’s a different industry. So when you’re attempting to buy a 5-unit, or a 10-unit, or a 20-unit, as you’ve suggested, often times you have to deal with a local bank or maybe a national apartment lender.

Credit scores, for example, would be the first place to start. It’s always good to have a good credit score. It’s not all that critical, where residential mortgages it’s almost like it literally hinges on your credit score only, and of course income, but with commercial real estate loans credit score is not the top consideration, it’s not the most important. Then the next thing that a lender would like to see in an investor is net worth and liquidity. Net worth is, obviously, the difference between your assets and liabilities, and they like to see a net worth equal to or greater than the loan amount.

If you’re wanting to buy a $1,250,000 apartment building – I always like to use that number – in an 80% loan, to be a million dollar loan, they would like to see your net worth equal to a million or more. It is not always the rule that you have to have a million dollar net worth; you could have $800,000, $600,000… Because if you have a lot of income, if you have a good income, if you have a high salary or a W2 salary, or you’re self-employed and you make a lot of money, net worth is not all that important. There’s some mitigation for the net worth.

Then the liquidity is really important. Yes, you have to have enough money to put down; in that situation you’d need $250,000 to put down… But if that’s gonna use up all your cash, just to get into that deal, the lenders will look upon that as a little weary, because you have no cash left. They don’t like to see someone use up all their cash after a closing and then not have anything for an emergency such as a $10,000-$20,000 deductible for an insurance claim; let’s say you have a fire immediately after you purchase the apartment building – which has happened to one of my clients; within 3-4 weeks he had  a fire after just closing on a 44-unit apartment complex. He had to make a claim, and the lender wants to know that you have enough cash to make the claim and get the property fixed, and get it re-leased, or re-tenanted and cash-flowing, sufficient enough so it doesn’t put your payments in jeopardy and putting any hardship on you.

Joe Fairless: What type of liquidity do they look for?

Michael Reinhard: It varies between lenders. The general rule is 10%-20% of the loan amount. If you’re wanting to borrow a million dollars, you have to have at least $100,000 after closing; $150,000 or $200,000 is even better. Sometimes they use 6-12 months’ worth of principal and interest payment. If your mortgage payment was, say, $10,000 a month, they’d like to see $120,000 or so in liquidity. Those are the general rules.

Then the next would be ownership experience. Owning a duplex, or three or four single-family rentals, or maybe 10 or 12 (you could even have 30 of them) – that’s even better if you have a large portfolio of single-family rentals. But if you’ve only had one or two, and maybe a couple of duplexes, that’s not the same as a multifamily, because it’s a little bit different animal.

Anywhere between 5 up to maybe 50 units – they pretty much allow you to self-manage the property because there’s not a lot of third-party management companies that would want to take on a management of that size; it’s just too small and they don’t make enough money to do it.

Because the lender knows that it’s difficult to find a third-party management company and they know that the investor will be attempting to manage the properties themselves, they want to see “Hey, what do you know about leasing, and doing the credit checking, verifying employment and background, the criminal background?” and just qualifying tenants and management of the property. They’re gonna wanna know if you have some experience in managing the property. You could have owned properties and had some third-party management – that’s fine, too.

So ownership experience and management experience. Ownership experience is a little bit more important than management because they know not everybody manages their own property and it’s not that important.

So those are the five: net worth, liquidity, ownership experience and management experience, credit score  – that’s six. Income, in terms of whatever you are – a W2 employee or self-employed… They also wanna know if you have a portfolio of properties; they wanna look at your global cash flow, how much cash you earn after debt service… Because any excess cash flow after debt service meaning you’ve got your net operating income, then you have a principal and interest payment to the lender, and the rest is taxable income. That’s pre-cashflow — not necessarily pre-cashflow, but that’s taxable income that you have left over that if you’re experiencing some hardship on one property, you can then move that cash around to keep all your debt service intact.

A lender likes to see your global cash flow, and that would be your income in whatever profession you’re in, or if you’re in real estate full-time, they wanna just see your overall cash flow. There’s really no ratio on that. People ask me about your debt-to-income, what is the residential ratio…? It’s your income-to-debt, or is it debt-to-income…? They don’t really use that in commercial real estate. They just look at the property’s loan-to-value and the debt coverage ratio, meaning how much does the net operating income exceed the monthly principle and interest payment.

And the PITI is not applicable. So when I say debt service, it’s not principal, interest, taxes and insurance. In commercial real estate it’s just PI – principal and interest. Because in multifamily investing, as part of your operating expenses, it includes property taxes and insurance. It’s always an operating expense, it’s not a part of your payment to the lender, because those may be ESCROWs in those 1-4-family… It’s still an operating expense, but they collect them. And it’s not to say that the commercial lender doesn’t ESCROW for taxes and insurance – they do, but when they’re calculating all their ratios, your debt coverage ratio, that’s only principal and interest.

Joe Fairless: What are some immediate disqualifiers that a commercial lender will have?

Michael Reinhard: Generally, the first thing I like to ask is — an extremely low credit score is… I would say below 600 will raise some eyebrows or will require further explanation. When you get into the 500, that’s difficult.

The next would be any bankruptcies, and usually anything older than 10 years is okay. So any bankruptcies less than 10 years may disqualify you. And then foreclosures – any type of foreclosure and any summary judgments, and that could be for any reason. Any summary judgment, which is basically a court order settlement in which somebody has won a claim against you for any reason, any business, lawsuit, any real estate, and which you’ve obviously not been able to settle or pay, and therefore it lines up on your credit report… Because often there’s no real explanation of that on the credit report, there’s not much detail, so you then have to ask the credit applicant “What is this? What was it for?”

And usually, another thing is self-employed people who are living off the cash flow of some real estate investment. If you have one or two or three single-family rentals and that’s all you have, but that income is what’s supporting your family, that doesn’t bode too well for the lender… They see that you’re generating enough income obviously to support your family or your house (even if you’re single), but it doesn’t leave anything to service the debt of another loan or to give you any cushion in the events of some financial hardship. It’s just too tight. They like to see people who don’t have to depend on their commercial real estate investments or even their single-family real estate investments, they don’t have to depend on it to pay their bills.

Now, if you have a huge portfolio and you’re making 200k/year off your real estate, that’s fine. But if you’re just barely getting by and you’re trying to buy your next deal, that’s a little bit of risk to the lender. So self-employed people have to be pretty well established.

Joe Fairless: What type of loan-to-value ratios should we project when we’re initially running numbers on a stabilized multi-family property of about 30 units?

Michael Reinhard: 80% is the standard loan-to-value for a multifamily apartment building. Anything commercial-wise – an office building, a retail center, industrial warehouse, a medical office – is 75%. But there are some exceptions on the 80% for multifamily, and that would be depending on the debt coverage ratio – how much the debt coverage ratio is, how high it is, the income of the borrower and the strength of credit worthiness and financial strength of the borrower.

If you don’t have much net worth and you’re trying to do your first deal or your second deal, they may say “Well, we’re not gonna provide that much leverage. We’d rather limit out exposure to 75% and not 80%.” So if all looks good – good income, decent net worth – you can always pretty much get an 80% loan. But there are extenuating circumstances that may limit to 75%. In each deal, all of the information has to be considered: the borrower information and the property information… And the age – it could be an older property in a rougher neighborhood. It’s really subjective, so it’s up to the chief credit officer, chief lending officer to determine whether they can go that high.

Joe Fairless: Michael, what is your best real estate investing advice ever?

Michael Reinhard: I know this sounds simple, but not to overpay for properties based on when cap rates are trending down. Right now, and what’s gonna happen to my clients that have five-year money with banks – interest rates are gonna go up, and cap rates that are now in the 6%-7%, if they don’t go up with interest rates, a lot of borrowers are gonna be stuck trying to refinance a property five years from now at a much higher interest rate, and I’m talking about 7%, where now the lender is making more money than the investor is.

So it has to do with buying at the right cap rate. Don’t buy into this notion “Where else are you gonna put your money?” 6% is a good return, but you can get burned in real estate using that logic. So no matter how badly you wanna buy a property and how you wanna get into this market and get in the game, patience pays off to make sure you start off with a good at least 7,5%-8% cap rate. Because interest rates are gonna go up, and a lot of people are going to be in shock three and four years from now.

If you don’t have rental rates that are  increasing to increase the value of the property, it’s gonna be a little bit more difficult to refinance. And what’s gonna happen, your return on your equity is going to plummet if you had paid too low of a cap rate in a rising interest rate market.

Joe Fairless: Good cautionary advice, that’s for sure. Thanks for sharing that. Are you ready for the Best Ever Lightning Round?

Michael Reinhard: Absolutely!

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

Break: [00:21:52].16] to [00:22:34].14]

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

Michael Reinhard: Hamilton, I just finished it… Alexander Hamilton.

Joe Fairless: Oh, yeah…

Michael Reinhard: I just finished reading it, and I was like “This guy is a genius!” He’s a financier; this guy was a genius. He created our financial system.

Joe Fairless: There’s a couple books out about him… I’ve got a gigantic one that I’m about 20% of the way through; I’ve been working on it for about six months. [laughs]

Michael Reinhard: Yeah, Alexander Hamilton is the name of the book… Ron Chernow is the actual book that inspired that musical Hamilton.

Joe Fairless: Okay, got it.

Michael Reinhard: It’s 800 pages long. He created our financial system, he created basically our mortgage system… It’s amazing. This guy was [unintelligible [00:23:15].24] He died at the young age of 49. He just wasn’t given the credit that he deserves.

Joe Fairless: Best ever transaction you’ve done?

Michael Reinhard: I placed some preferred equity for a group that was buying a multifamily property in San Antonio. They had the deal under contract for a long time, and the investors were just coming up short — well, they weren’t just coming up short; they were about 3-4 million short of raising their equity, and they had literally three weeks to close. I was able to bring in that preferred equity lender that provided 3.2 million dollars in equity that was able to salvage the deal; earnest money was hard at risk, and I made a handsome fee on 3.2 million dollars.

Joe Fairless: What type of rate would that preferred equity partner charge?

Michael Reinhard: It was 15%, but there was no carried interest, or what they call “No promotion”, meaning that they had a superior position of preferred equity versus the common equity, but it was priced like mezzanine financing, which is like a second loan. That means they’re just saying, “Look, all we want is the 15% annual return. We don’t get any of the upside, we don’t get any of the profit. You sell it, you finance it… We don’t get any more. We’re not going to increase our return”, where a joint venture equity investor would say, “Okay, I’m going to get a 8% preferred return every year, and then I’m going to get 50% of the cash flow when they sell it.”

Well, then if you do an internal rate of return calculation over that three, four, five-year period, you could have wound up making a 20% internal rate of return. Well, it was simple; it’s just a plain, non-compounding 15% return on the investment. If they invested three million, they’re gonna make $450,000, and that’s all they get. After the another three years, they just get their 15% for over three years. They don’t get anything more and nothing less.

Joe Fairless: That was a three-year term…

Michael Reinhard: Yeah, it was to be a three-year term and they had an option to extend, so if they needed more time, they would have given them another year.

Joe Fairless: That’s interesting.

Michael Reinhard: Yeah, so they wouldn’t have made any more or less; they would have gotten their $450,000 for those three years, and no matter how much the sponsor — if they made a two million dollar profit, the preferred equity lender would not get any of that.

Joe Fairless: Did they buy this property all cash?

Michael Reinhard: No, that’s why it was the best deal ever, because there was an existing HUD loan that they were assuming. And there were some complications under any kind of a Fannie Mae, Freddie Mac or even an FHA HUD loan, because they don’t allow hard second liens, they don’t allow a pledge of the partnership interest that mezzanine financing usually involves. This lender is familiar with all of those loan covenants and requirements, so they’re able to structure the partnership agreement, basically amend the partnership agreement to secure their investment right… Because they weren’t taking an ownership interest, but they have certain rights and remedies, and if they didn’t pay back that 15%, then they could essentially take over — really, they actually provided credit enhancement to the transaction, because the company is well capitalized and actually is probably worth more than the investor sponsorship. So those first lien lenders – they’re fine with that.

So time was running out, the approval of that assuming that loan was running out… This group was able to work through the terms of the partnership agreement and within three weeks analyze the transaction and make a decision and fund it in three weeks. It was actually less than that, because the borrower was really becoming a little difficult to deal with because they were making some demands, and I said, “Don’t look [unintelligible [00:27:22].21] I said “This is a good deal, quit pushing back.”

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

Michael Reinhard: Education. I’m always helping people. I do my own tax returns, so I have a lot of people that have nothing to do with real estate, but just sharing information, networking and sharing… I believe that sharing and helping people in areas that you have a specialty and knowledge in — I always find it rewarding to share my experiences and help people. I believe that if I can help you make money or help you achieve your goals, some day you can reciprocate. When someone calls me and asks me for advice, I don’t hurry them off the phone. I’m glad to help someone or refer them to somebody else that could help them… Because I know how frustrating it can be.

I had some accounting questions and tax questions; I was so frustrated with the actual CPAs that I felt like they didn’t know what they were talking about. I actually called the IRS and did all the research and I figured out how to solve this problem of mine. Now, anytime that you spend that much time and effort, then at that point you’ve become an expert, because now you can share that and save somebody else the grief, or getting wrong information. There’s plenty of wrong information out there.

Joe Fairless: That’s a perfect segue into — not the wrong information part, but the reaching out and talking to people… That’s a perfect segue into the last question – where can the Best Ever listeners get in touch with you?

Michael Reinhard: They can reach me at my website at www. texascommercialmortgage.com. I also have a website for my book – www.commercialmortgages101.com. So you can go to my website, texascommercialmortgage.com and I have a link to the book’s website, and I have a phone number on my website. They can call me, or you can send me a message from my website, or give me a call.

The book is available also on Amazon and Barnes & Noble, but I do have a website, and if you order the book from my website, I’ll actually mail you a signed copy. If you order it from Amazon or Barnes & Noble, I’m unable to sign it.

Joe Fairless: Michael, thank you for being on this show, sharing your best advice ever, talking about the differences between commercial and residential loans, as well as the things we need to make sure we have taken care of prior to applying for a loan. One is credit score 600+, two is net worth of equal the amount of the loan, three is liquidity 10%-20% of loan amount after closing, four is experience of the owner (our experience), and five is our global cash flow. Thanks so much for laying that out there so clearly, as well as talking about the things that would dissuade a lender from lending to you… You mentioned a list of those as well. And then the interesting story about the 15% interest equity partner for that three million dollars in a very short amount of time.

So thanks so much for being on the show… I hope you have a best ever day, Michael, and we’ll talk to you soon!

Michael Reinhard: Thank you, Joe!

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JF839: $30,000 Wholesale Deal All from Sitting Behind the Computer and Phone

He is well-versed in SEO and owns some pretty sweet domains that wholesalers would drool over! Hear how he makes pretty big checks behind a computer and the phone and how easy it is for anybody to get started.

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Raymond Campbell Real Estate Background:

– Owner of Raymond D. Campbell Enterprises, Inc.
– Chief Profit Engineer at Plum Creek Assets LLC
– Focuses on the purchase of real estate mortgage loans / liens / notes at 50% to 80% discounts
– Owner of multiple real estate websites that are designed to homeowners who want to sell quickly
– Based in Houston, Texas
– Say hi to him at www.plumcreekassets.com
– Best Ever Book: More Than a Carpenter by Josh McDowell

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JF833: How Artificial Intelligence is Used to Filter and Delivers HOT Leads

Lead generation has now become computerized, so creating an artificial intelligence atmosphere on social media streams is cutting edge. Hear how our guest has a leg up on the competition by filtering and delivering the best leads online. Hear it now!

Best Ever Tweet:

Ron Sasson Real Estate Background:

– Founder Skyler360
– an ecosystem startup to engage customer, clients, partners, and organizations
– Currently focused on real estate residential and commercial vertical
– Active real estate broker and former financial consultant
– 13 years experience in property management for commercial and residential properties
– Based in Houston, Texas
– Say hi to him at http://skyler360.com
– Best Ever Book: Start with Why by Simon Sinek

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes.

Download your free copy at http://www.fundthatflip.com/bestever

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JF555: How This Investor/Biz Owner Retains and capitalizes on AMAZING Clients Through REALTORS

Today’s guest has a program all property management business owners needs, and it’s all about quality retention. He shares what he has learned over the years in regards to marketing and business development. He is not new, and has some advice for the small apartment owners to the heavy hitter community investors. Listen in!

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Pete Neubig Real Estate Background:

  • Co-founder and CEO of Empire Industries and president for the National Association of Residential Property Managers (NARPM) Houston Chapter
  • Has grown Empire from 0 to 500 doors under management in three years and is based in Houston, Texas
  • Say hi to him at http://www.empireindustriesllc.com/
  • His Best Ever book: Think and Grow Rich by Napoleon Hill

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF479: Be Grateful Always #followalongfriday

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. . 

Update on Joe’s new acquisition in, drumroll, HOUSTON! Joe shares the complexity of his Cincinnati apartment community and the attorneys involved. Listen in and follow along with Joe!

Best Ever Tweet:

Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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