JF2703: How This 20 Year Old Built a Multifamily Portfolio in One Year ft. Brad Simtob

Brad Simtob started investing in commercial real estate when he was just 19 years old. Now at 20, he has grown his portfolio to 350 units and has no plans of slowing down anytime soon. In this episode, Brad shares how he found his current deals and the goal-setting strategy that has helped him achieve his success.

Brad Simtob | Real Estate Background

  • Founder of Simtob Management & Investment LLC which purchases value-add multifamily in the Midwest. They are proprietary with their in house construction and property management team. They typically utilize a unit renovation value-add and are able to complete it for 30% less than the closest general contractor quote.
  • Portfolio: GP of 350 units in Michigan.
  • He’s only 20 years old.
  • Based in: Grand Rapids, MI
  • Say hi to him at: www.simtob.com | brad@simtob.com
  • Best Ever Book: Traction: Get a Grip on Your Business by Gino Wickman


Click here to know more about our sponsors:

Deal Maker Mentoring





Follow Up Boss



Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Brad Simtob. Brad is joining us from Grand Rapids, Michigan. He is the founder of Simtob Management, which purchases value-add multifamily in the Midwest. Brad’s company is able to complete renovations for 30% less than the closest general contractor quote. He is a GP on 350 units, and he’s 20 years old. Brad, thank you so much for joining us. How are you today?

Brad Simtob: I’m great. Thanks for having me, Ash. I really appreciate it.

Ash Patel: I’m excited, man. Your resume alone – you’ve got me very intrigued. Brad, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Brad Simtob: Yeah. I started when I was 19 years old, I bought my first building back in July of 2020, in the middle of COVID. That’s how I really got into this. It was a building in Lansing, Michigan. Now I’m here today, 20 years old, 345 units, our goal is 850 by the end of the year. We just want to keep growing.

Ash Patel: Alright. Slow down, man. 2020, your first property – what was it?

Brad Simtob: It was an 11-unit building. I actually found out in the middle of due diligence, it was a Section 8 building. That’s how I really got into all this. A lot of people told me to steer away and try to stay away from Section 8, but I decided to actually dive deeper, understand more, and understand how to do it better than other people who are doing that.

Ash Patel: Okay. Help me understand your mindset at the time. Because at 20 years old, that was the opposite of me. Have you been wanting to get into real estate for some time, and why?

Brad Simtob: I’ve always looked at real estate, I’ve seen a lot of people that could do really cool things. I’ve met a lot of people that are doing commercial real estate and multifamily, and I always saw these deals pop up online, but I never thought it could really be me. Because I’m 19 years old, how am I going to afford a $400,000 building? That wouldn’t make sense. Then I started to understand how other people do it, I started to meet people that actually raise money for their deals, and I was like, “That’s what I really want to do. That seems really cool.” I started just going from there and looking at deals.

Ash Patel: Will you walk me through acquiring that first property?

Brad Simtob: Yeah. I’ve found it in April of 2020. It was an on-market deal, and it was a family friend, he’s the broker for the company. I reached out to him and he sent me over the information. I ended up putting this lowball offer, and the broker said, ‘This is never going to be accepted. I don’t even want to show it to the seller.” I was like “Just show it to him. Tell him I’m a young kid that’s trying to get the deal done, and it’s a good deal at this price.” They ended up saying no. Then they came back to us and said “Actually, if you go a little bit higher”, I think it was 5% higher, “then we’ll get the deal done.” I said “Perfect.” I get it under contract, I’m so excited, I do all this due diligence, I start bringing it to investors, I raised $125,000, I got the loan, and then we closed.

Ash Patel: Okay. How did you pitch this deal to investors when you have no track record, and you’re 19 years old?

Brad Simtob: My dad definitely had to co-sign the loan. He’s been a huge mentor and advisor for me in this whole company the whole time. I sort of used his track record as a way to be able to get it into investors’ hands. I created this whole presentation, I laid out all the numbers, I’ve seen how other people laying out the numbers, I tried to do it very similarly; I explained the returns, and what I’m going to do. My goal was to build a portfolio at a time, which I have now done.

Ash Patel: What were the proforma returns that you pitched to investors?

Brad Simtob: I pitched an 18% IRR. What’s really cool about this deal is I ended up selling it a year and one day later. Investors ended up making over 80% in that one year  I owned it. That’s really where I took off.

Ash Patel: Over 80% on their initial investment, in one year. You killed it.

Brad Simtob: Absolutely killed it. It was the best thing I felt.

Ash Patel: So now the benchmark is really high. What’s next?

Brad Simtob: I’m really bullish in the city of Grand Rapids, and that’s why I moved here. I actually don’t own any real estate in Grand Rapids. I’m only in Lansing, Kalamazoo, and Michigan. I’m just trying to find deals, I’m doing my best to network with new people, going to dinners, get drinks with people, and really just having a good time trying to understand the market.

Ash Patel: Wait, are you 21?

Brad Simtob: Just getting dinner mostly…

Ash Patel: Yeah, drinks. [laughs] I like it. Okay, hold on. Did you literally move to Grand Rapids to pursue real estate?

Brad Simtob: Yes. I moved here by myself.

Ash Patel: Man, I love it. Where were you before?

Brad Simtob: I used to go to Michigan State before any of this happened. I was in East Lansing, Michigan. And then I bought my first property in Lansing. And when I bought my property in Kalamazoo, I said this is a great opportunity for me to live rent-free. So I moved to my building in Kalamazoo; I lived there for a few months, and then I moved to Grand Rapids.

Ash Patel: Alright. If you don’t mind, let’s keep going back. After the 11-unit that your investors made 80% returns on, what was the next deal?

Brad Simtob: So that was a 32-unit building I put under contract. I saw this deal before the 11-unit. I put a lowball offer, and the broker didn’t call me back. Then I just kept going up and up on this deal and eventually, they did call me back. They said 800,000, I said, “Okay, 800,000. I’ll write the purchase agreement.” I didn’t hear anything, then they called me back and they go “Actually, it has to be 900,000.” I go, “Okay. 900,000.” So I put it under contract at 900k, and I ended up renegotiating it down to 700k. There was a bunch of mold issues that we have to go in and we had to do a bunch of remediation. No one else is buying this property except for me at this time. So I ended up going in and we did all the renovations. Now it’s an absolute cash cow. We bought it for 700k, we ended up putting in about just over $200,000 into it now, so all-in for 900k. I had an offer a few months ago to sell it for 1.55.

Ash Patel: And?

Brad Simtob: I’m going to hold it. I’m not selling any of our properties unless I sell the whole city at once, unless I sell the whole portfolio.

Ash Patel: Got it. Brad, do you have investors on that deal?

Brad Simtob: Yup. I raised money on that deal too, we raised $350,000.

Ash Patel: Did you know you were going to have that kind of CapEx?

Brad Simtob: Yeah. Ahead of time, I knew I had that CapEx, [unintelligible [00:06:14].29]

Ash Patel: You raised money for that as well?

Brad Simtob: Yes. We got a 75% loan-to-cost loan on that building, which is great. It covered everything for the CapEx.

Ash Patel: What was the proforma return you pitched to your investors on that deal?

Brad Simtob: That one was roughly about 18% when I pitched it. When I underwrote it, I got about 28%. I never want to show an investor that hybrid return, because the expectation is too high.

Ash Patel: And wasn’t it tempting to take the cash, the $1.5 million offer?

Brad Simtob: It’s still very tempting to me today. I would make a few hundred thousand personally, which would be awesome for a 20-year-old, but it’s not right for investors. I know that the value is going to keep going up; I could still do better, I can still raise rents and decrease expenses, so the value is just going to keep going up.

Ash Patel: Would you do a cash-out refi?

Brad Simtob: I’m looking into options with that. I haven’t owned it for long enough, is the issue, to be able to do something like that. So I’m sort of waiting till I hit the two-year mark.

Break: [00:07:11][00:08:49]

Ash Patel: Out of curiosity, what if you sell it to another entity of yourself, so you could potentially pay back any investor who wants out, and you get an appraisal, you pay fair market value, and then would you be able to get a loan for the higher amount?

Brad Simtob: I think so. I never really looked into something like that. It makes sense on paper though.

Ash Patel: Yeah. I honestly don’t know.

Brad Simtob: That would be really cool.

Ash Patel: I’m just thinking out loud. Listen, man, you made a bold claim. You can do renovations for 30% less than the closest GC quote. How do you back that up?

Brad Simtob: I do all in-house construction. I hire employees for $20 an hour when the GCs are charging $50 to $60 an hour per person. So just on the labor alone, I’m saving $40 an hour. And then I have a great relationship with Home Depot and they’re able to deliver… What I do is I create these lists online on their Home Depot site, I basically just send it to the rep, and they get every single piece that [unintelligible [00:09:49].19] delivered to the unit in one week. They get everything delivered to the one unit, I put two to three guys in that one unit, it takes them one week to do the whole renovation…  And in Lansing, renovations are about $5,000, when the GCs we’re asking for about $8,000 to $9,000.

Ash Patel: How did you learn how to do that?

Brad Simtob: I ended up starting with GCs. They did some unit turns for me and renovations. Then I saw the breakdown, and I was charging you $60 per person, you pay them $20, like I’ve talked to them before. I could pay people $20 to do it, so I started with that.

Ash Patel: What is it about your mindset that allows you to achieve so much at a young age?

Brad Simtob: I’ve just always been a go-getter. I love to really have big ideas and big dreams, and I really want to accomplish those goals. Whenever I set a goal, I make sure that I do it. I write my goals down every year, and I make sure to accomplish as many as I can that year.

Ash Patel: Well, help some of us older folks out with that. You set your goals at the beginning of the year; I’m assuming they’re achievable goals. Are they a stretch?

Brad Simtob: Specifically this year, 850 units. We’re only at 350. When everyone looks at that, that’s definitely a stretch.

Ash Patel: And then you have a plan of action that you create at the same time?

Brad Simtob: I start with that at the beginning of the year, we’ll create that one-year plan. From there, we break it down into quarters. What do we have to do this order to achieve that by the end of the year.

Ash Patel: And you always hit them.

Brad Simtob: Yeah, it’s three years I’ve been doing it.

Ash Patel: Did you drop out of college to pursue real estate?

Brad Simtob: I did.

Ash Patel: What was that decision like with your family?

Brad Simtob: It’s really interesting. When I dropped out, when I first made the call, my mom was not having it at all. She said, “You have to get a college degree.” I was very fortunate my parents were paying for college. So it was a great deal for me, but I’m like, “I see all this opportunity. I know we’re in the middle of COVID and prices right now are so low. If I put all my focus and energy into this, I can only imagine how big we could grow it.” So I created a goal, by the end of 2021 I had to have 125 units that we raised money for, closed on, and owned. At the end of 2021, I ended up having a 345. So I definitely hit that goal.

Ash Patel: It’s funny. I picked up on what you said, “When I made that call to my mom.” It wasn’t a discussion, it was a call to inform her about your decision.

Brad Simtob: Yeah. I had already made the decision at that point. I only bring those ideas to my parents when I know for sure I’m all in with it.

Ash Patel: I love it. Do you have a team, or are you doing this by yourself?

Brad Simtob: I have just under 30 employees now. That includes all the construction, and we do in-house property management, and the people to manage those.

Ash Patel: What was your first hire?

Brad Simtob: My first hire was my best friend, Alec. He’s still with me, he’s the best.

Ash Patel: What’s his role?

Brad Simtob: We call him the COO, basically. He really mainly focuses on construction right now. I still manage all the property managers directly, but he does an absolute job, an absolute killer job with the construction.

Ash Patel: To hit your goal of 850 units, you’re going to have to raise a significant amount of capital. How are you going to go about doing that?

Brad Simtob: Right now, we have about 40 investors that we reach out to, to be able to raise money on every deal that we do now. We have an online portal that we basically send out. So far, we’ve been oversubscribed in our deals. It’s definitely going to get harder, as we’re raising more and more money and people only have a finite amount that can really give. So we’re going to have to reach out to new people, we’re going to have to start asking for the friends and family, which – they’ve been very generous enough of introducing us to other people already.

Ash Patel: Alright, I’m going to push you a little bit. Best Ever listeners, this entire interview, Brad’s had a smile from ear to ear on his face. Everything you say, you make sound easy. Give me stories of something that was grueling, something that set you back; a hard lesson that you learned.

Brad Simtob: Yeah. I have a great story. I bought a 29-unit vacant building in Lansing, Michigan, for just over 30 grand a unit, back in April 2021. It was supposed to be a 60 to 90-day renovation project; it was vacant. We were just going to go in we’re going to do our classic renovations where you get paint for a new cabinet, stuff like that, just new finishes, all the mechanicals were good. As we were getting close to the end – I was still in East Lansing at a time – I heard this tornado siren go off. There’s a big tornado going through, the winds were so high, the rain was terrible, and it ripped the roof off the building. I kid you not. There’s water going into the building and we basically had to completely restart, we had to remove all the drywall, and we’re still not even done with this project. We bought the building last year. It’s been terrible.

Ash Patel: Did the insurance cover the expenses?

Brad Simtob: It didn’t cover anything.

Ash Patel: Why not?

Brad Simtob: They said the roof was not as good a condition. When I looked at the roof, it was at least five years left on this roof. It would not have fallen off if there wasn’t a tornado that came through. Then they said they looked at the storm radar and there’s no tornado. But I lived in East Lansing, I heard it.

Ash Patel: Oh my god, what a horrible experience.

Brad Simtob: Our plan with it is once we completely finished out the project, we’re going to go back to the insurance company. We’re going to have a total number of what they’ve cost us on our claim, we’re going to go back and either start a lawsuit, or something like that.

Ash Patel: And you have attorneys working with you.

Brad Simtob: Yeah.

Ash Patel: Good. Yeah, that’s a tough deal.

Brad Simtob: Yeah, it’s a tough one. But [unintelligible [15:00] money, which is good.

Ash Patel: What did that cost you, in redoing renovations? And a new roof, obviously.

Brad Simtob: Yeah. It’s hundreds of thousands at this point. I think it’s probably close to an extra 300,000 that we did not expect to incur.

Ash Patel: And where did that money come from?

Brad Simtob: Right now, our management company is lending money to this entity, until we get paid off. We’re still waiting for a final draft from the bank and we’ll be able to pay a large portion back.

Ash Patel: And Brad, you have investors on this deal as well?

Brad Simtob: I didn’t want to do a capital call, because it would ruin my reputation.

Ash Patel: And how do you share the story with investors? What’s their response?

Brad Simtob: There are three stories in this building. I rented out the top two floors, and all we’re waiting for is the final approval on the bottom floor. So I rented the top two floors, they’re above market rents of what I was expecting. I’ve lowered expenses as much as I can, I put so much of my own effort into that, just items like that, so I could show them the proof and that the project’s actually going to end up being worth more, but they’re not going to make the money as soon as they thought.

Ash Patel: And what advice do you have to other people on sharing bad news with investors?

Brad Simtob: It’s always good to end on a positive note and at least show what you’re doing to solve the issue. If there’s an issue, you can’t really tell people any issue and “I don’t know what to do. It’s out of my hands.” It’s never out of your hands. The roof flew off, that’s still 100% my responsibility. I should have known that the roof in this one part wasn’t as good, I should have done more research, so it’s 100% my fault on that.

Ash Patel: Way to take ownership of that. Good for you. What advice do you give people that are either your age or twice your age who want to get involved in real estate, but never took the leap?

Brad Simtob: That’s really interesting, because I know there are so many opportunities in real estate. It’s a huge world, there are so many different things you could do. You could be a broker, you can do Airbnb, or these different things. I always tell people to sort of look in all directions and see what really fits them best. I think the reason I really love what I do and I’m so happy with what I do – I used to be the property manager and everything for the Section 8 tenants. So when I’m moving people in and they’re telling me stories of how they’ve never had a bed, they’ve never had their own place, they would cry on my shoulder, and I would be crying, too. I think it’s terrible that people would have to live that way. So I really found my passion in that area, so I tell people to try and find the same passion. Work for other people and see what you can do.

Break: [00:17:19][00:20:15]

Ash Patel: Have you considered doing other asset classes – industrial, retail, office?

Brad Simtob: I have. But I think it’s really important just to stay focused on what we do. I only buy in three cities in Michigan, so I know exactly what I’m looking for. It really keeps me honed in and focused on our future growth and everything like that.

Ash Patel: What if you run out of deals in those three cities?

Brad Simtob: I guess we’re just not going to have a deal from there for a while. Maybe we can look into development or something like that, but I just love the areas that we’re doing.

Ash Patel: And your ultimate goal is to sell to some hedge fund, or a big REIT, or something, so you’re going to accumulate as many assets as you can and sell off the entire portfolio?

Brad Simtob: One goal I wrote down… So we use the EOS system, and it’s called a BHAG. Big hairy audacious goal. The BHAG that I wrote down is I want to sell a billion-dollar portfolio. So I need to create a portfolio worth a billion dollars and I want to end up selling it to someone at that point.

Ash Patel: You’re so focused on work; do you have time for your personal life?

Brad Simtob: Yeah. One of the goals I wrote down for this year is I actually want to go on 15 vacations. If it’s a weekend trip, if it’s going here, going there, wherever it is; going up North… Tomorrow, I’m going up north with my friends and I’m having the best time. So I still have time to do stuff like that. I’ve really focused on creating leaders in our company, so when small issues come up, they can figure it out themselves. If it’s a bigger issue, of course, I want to be involved. We’ll talk through it and figure out a situation together. But a lot of the things are figured out with them.

Ash Patel: How do you cultivate leaders in your company?

Brad Simtob: I have a leadership coach, and I give a lot of credit to her for helping me figure out how to go through conversations, how to treat people, how to create processes, and write them down. I really do pride myself as well in automation. I’m so young that I understand this computer so well, that our property management system is basically completely automated; texting tenants, emailing them, correspondence, things like that.

Ash Patel: What do you use for a PM system?

Brad Simtob: We use Rep Manager. I love it.

Ash Patel: And why did you get a coach? Was there an issue that started?

Brad Simtob: There wasn’t an issue, it was just that I started to get a little nervous and I started lacking confidence in myself, and I started to notice it. It was at a time when I think we only had 10 employees at the time; I was still 19 years old. I was like “Am I fit to be doing this?” I’m not sure, I wasn’t too sure myself anymore. It was actually my dad’s idea to bring in this leadership coach. She’s really helped me, she brought the confidence back. I know for sure I could do it now; I know I’m capable, and now I just need to figure out the steps of how to get there.

Ash Patel: Brad, a lot of people have an evolution where they take on everything themselves. It’s when they’re on the brink of a nervous breakdown is when they start hiring people. Did you hire people preemptively, or were you doing it all yourself?

Brad Simtob: I truthfully think I hired preemptively, sometimes even too much. I want to word it a little bit better, but I think that I’m out of the day-to-day now; things that I still have time that I could be doing, and I don’t need to be spending too much money on it. For example, we just hired an admin that’s going to be doing all our purchasing for all of our properties. We’re turning units, we’re turning about five or six units a week now, of renovations, so there’s a lot of ordering that goes on. But me and Alec definitely could be handling it ourselves, but this is pre-emptive, because we know we want to grow, and we have to do this if we want to reach our goal.

Ash Patel: And who are your mentors? Who do you look up to?

Brad Simtob: I look up to my dad a lot, and there’s a lot of people that are involved with the Detroit real estate and everything with that in that area that I really look up to. I talk to them a lot and they teach me a lot.

Ash Patel: At 20 years old, if I had a ridiculous amount of money, I don’t know what I would spend it on. What do you spend your money on?

Brad Simtob: That’s a really good question. Whenever I do a new deal, whatever’s in my personal bank account, I really just put it into that deal; [unintelligible [00:23:56].10] scrape up. I try to be an investor on every deal, and I have been so far. Sometimes it’s a little tough for me, because I have a limited amount of money, but that’s really what it goes into. One thing I do pride myself on is we’re really big into AMEX cards, so all of our purchases are on the AMEX card. It gives me a lot of travel points, which will help me be able to do the 15t vacations essentially for free.

Ash Patel: Brad, what’s been the challenge with having your best friend as your right-hand man?

Brad Simtob: I haven’t had any challenges yet. I’m hoping I never have a challenge. But so far, it’s been perfect and we’re really good at splitting up the work side of life and the personal side of life, which is awesome.

Ash Patel: Good. Brad, what is your best real estate investing advice ever?

Brad Simtob: You’re never too young to start, and anything is possible as long as you set your mind to it.

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

Brad Simtob: Let’s do it.

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

Brad Simtob: Traction. It’s a great book.

Ash Patel: And what was your big takeaway from that?

Brad Simtob: It’s really teaching me about the EOS system, which I think is really important. I think it’s too big to talk about in this podcast. It’s great.

Ash Patel: Brad, what’s the Best Ever way you like to give back?

Brad Simtob: I love talking to young people like me that are really interested to get into real estate or they’re already in real estate doing some side things. I love talking to them and sort of motivating them, showing them that it’s possible.

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

Brad Simtob: My email is the best way. It’s brad@simtob.com.

Ash Patel: Brad, it’s been an honor having you on this podcast. This is Brad’s first podcast that he’s ever done. You absolutely killed it. Thank you for sharing your story with us. You’ve accomplished more than people two to three times your age, so my hat’s off to you, man. Thank you for sharing your positive outlook and how you built this business.

Brad Simtob: Yeah. Thanks for having me. I really appreciate it, Ash.

Ash Patel: Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review and share this podcast with anyone you think can benefit from it. Also, don’t forget to like and subscribe. Have a Best Ever day.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

Follow Me:  

Share this:  

JF1854: Stuck With Bad First Deal, But Scales To Over 20 Units with Jamie Gruber

Jamie bought his first real estate investing deal in 2005. He still has that same property because he was unable to sell it. He didn’t let that ruin his investing career, Jamie now owns more than 20 units with more under contract to close (may have closed since recording this episode). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Build your network, but also try to be the face of a market or the face of a niche within a market” – Jamie Gruber


Jamie Gruber Real Estate Background:

  • Real estate investor with 21 units and 22 more under contract
  • Recently created a fund to take on capital and scale his business with his partner
  • Based in Ann Arbor, MI
  • Say hi to him at https://www.cfassetgroup.com/
  • Best Ever Book: Outwitting the Devil


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


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, Jamie Gruber. How are you doing, Jamie?

Jamie Gruber: I’m doing well, Joe. Thanks for having me.

Joe Fairless: I’m glad to hear it, and it’s my pleasure. A little bit about Jamie – he’s a real estate investor and he has 21 units with 22 under contract. He recently created a fund to take on capital and scale his business with his business partner. Based in Ann Arbor, Michigan. With that being said, Jamie, do you wanna give the best ever listeners a little bit more about your background and your current focus?

Jamie Gruber: Sure, yes. I’m a native New Yorker. I grew up there, I bought my first property there. In 2005(ish) I made a mistake that I think a lot of people made back then in going zero down. 20% down with one loan, the rest was under another loan, and when I moved a few years later (right around 2008, actually) to Boston with my job, I couldn’t sell that house, and I still own it to this day. So for a lot of years, that house was a burden to me; I always looked at it like “Man, if I could just get rid of it, I’d feel so much better.” Even though I was renting it, making a little bit of money on it, it just felt more like an albatross than an investment.

A few years later I re-read Rich Dad, which I know is essential to a lot of investors’ career… At the same time my wife and I bought a house in the Boston area that we ended up house-hacking and kind of flipping (long-term flip) and made some decent money on that… But really decided that I was gonna take that single-family and change my mindset around it from sort of detriment to asset. We restructured the debt on it, we did some things to make it a little bit more professional as far as how we managed it, and we went from there.

Shortly after, we decided to buy a couple of duplexes in that same area in New York. So we were living in Boston, we bought these two duplexes remotely, both distressed. We fixed them up, we’re in the process of refinancing them… But then as time went on, I’m a W-2 employee, I have been one for a long time; I like what I do, but I realized that the long game of a 401-K isn’t as sexy to me. So buying properties two doors at a time is great, but takes a long time, so I made the decision that multifamily was for me. I got myself educated, and when I moved to Michigan with my job a couple years later – which is where I am now – I got with a partner, I started looking at deals… We picked up a 16-unit late last year, and we’re now under contract with a 22-unit. That is our focus.

That first property we purchased we with our own money, and with partners. The second property we’re purchasing with partners as well, but we’re funding it with other people’s money, and moving forward our focus is to find some larger deals and syndicate.

Joe Fairless: Tell us about the 16-unit deal. Purchase price, business plan, that sort of stuff.

Jamie Gruber: Sure. We picked it up — it’s in a small town outside of Ann Arbor, kind of a bedroom community. We picked it up for $755,000, about 47k/door, with a 7-cap. The NOI was like $51,000 at that point when we purchased it, and the owner was your standard mom and pop. They owned it for a lot of years. Older couple, unfortunately their health was failing; we found the deal off market through who now are our partners on the deal, and we realized that rents are severely suppressed. Leases from 1999, where rent was never increased or increased very little, more than one. And others were  2008 and 2007, 2012, that kind of thing. So lots of upside on rent.

We came at $578/door in rent, and we projected to get to a little over $700/door in rent, and actually we’re learning — it’s a very small town, and we’re pretty much the market. There’s really not a lot of multifamily in that town, and we’re learning that even our anticipated rent is lower than what the market would allow for… So we’re starting now with a couple of unit turns to really pump rents up to even more than we thought.

Joe Fairless: Like what?

Jamie Gruber: We also have a plan for pets, plan for storage, those fees coming in… There was no reported laundry income, so all of that on the income side. And we have some expense management strategy we have in place to increase the NOI to about 85k, 86k, which would put us at about a 1.2-1.3 million dollar valuation.

Joe Fairless: Wow, that’s phenomenal. A very thought out plan. You said you projected there’d be $700, and it looks like you can push a little bit more… What do you think you can push to?

Jamie Gruber: I think on average we can get rents up to probably $750-$775, if not more. When it’s fully turned over, if current residents leave, it’ll be over $800… But I’m anticipating our current residents, who we’ve moved their rents up not to full market, but pushed it as much as we felt we could without turning the entire building over – as we kind of incrementally  increase those folks, it’ll get into the high sevens… But if we turn units in time, then we can be easily into the $800.

Joe Fairless: And it doesn’t sound like you’re doing major renovations in the units to upgrade them. Is that accurate?

Jamie Gruber: It depends. Some of the units are in really good shape. The biggest issue, honestly, is that this was a big-time smoker building; or the two buildings, big smoker. So a unit we just turned – you take the magnets off the refrigerators and you can see the original color, kind of thing… So we’ve had to do some — I wouldn’t call it major renovations, but probably $5,000/door or so. We’ve put in new kitchens, or painted sometimes kitchens, painted cabinets… Same thing with the bathrooms. We haven’t had to gut a bathroom yet, but paint the vanity or maybe replace the vanity, replace the toilet, clean up the tile, that kind of thing. So 5k-ish a door is what we’ve put into it… And we’ve learned a lot, because there’s some sweat equity in there as well that we didn’t anticipate certain costs…

Joe Fairless: Like what?

Jamie Gruber: Cost of labor. We were probably under on cost of labor, what we anticipated going in.

Joe Fairless: And what about it being under on cost of labor? What aspect of the estimate was a little bit off?

Jamie Gruber: A couple of things. One, the cost of just handymen services – guys to come in and just help us lay down flooring, help us do some paintwork, or whatever, was probably more in the $50-$65/hour range, where we were anticipating and maybe just didn’t do enough deep diving into it to learn that it’s really… We thought $25 was gonna be a good price, but we’re learning that it’s significantly more to get a good handyman. So that’s one.

The cost of a painter was a lot more than we expected, based on feedback we got from other investors, and I’m sure we’ll find more apartment-friendly investors in the future… And then some of the condition of some of the cabinetry we thought was better than it was, but when we got into it and you started really moving things around underneath, where you’re thinking you’re gonna move a shelf and paint this cabinet, the shelf would crumble, or the structure of the cabinetry would crumble… Those sorts of things were things that we maybe didn’t anticipate as well.

Joe Fairless: Regarding the painter, what did you think it would cost and what is it actually costing?

Jamie Gruber: It’s costing now about $1,500 to paint a unit. We were expecting half or less of that.

Joe Fairless: And how large are the units?

Jamie Gruber: They’re about 700 sq. ft.

Joe Fairless: With the expense management strategies you mentioned that you were employing, what are some examples of that?

Jamie Gruber: A good example is when we bought the property, there’s a dumpster, so we have an account with a local waste management company… And one of my partners called that company right away, saying “Hey, our price is high.” I honestly can’t remember exactly how much it was, but the price feels a little bit high… “Is there anything we can do to negotiate this?” and they said “Yeah, well the prior owner just never called us, so we kept raising it. They never called us”, and they literally slashed the cost of our dumpster in half, if you will. So that was one big one.

Other expense management stuff was there’s hard water in the building, and there’s some faucets, toilets, things like that, that are literally running all day. Some of the toilets were running all day… So we went through and changed some of those fixtures to mitigate our water bill, and we’re starting to see that build in a little bit now.

Joe Fairless: What type of financing do you have on this property?

Jamie Gruber: We have a credit union that financed it for us. We got 80/20 loan-to-value. It was about a $600,000 loan. It’s a 20-year amortization, a 5-year term, 6% interest, and no prepayment penalty.

Joe Fairless: Recourse?

Jamie Gruber: It is recourse, yeah. And our goal is to get it to the price point where we can refi into non-recourse.

Joe Fairless: Okay. And if it is at the — you say 1.1 million? That’s what it’ll be with the new NOI?

Jamie Gruber: 1.2 to 1.3.

Joe Fairless: 1.2 to 1.3. Is that the range that you could then get non-recourse, once it breaks the million-dollar mark?

Jamie Gruber: Yeah, correct. About 1.24 or higher we should be locked down, but even at 1.2 we should be good to get non-recourse.

Joe Fairless: You mentioned that you found this property from people who are now partners in the deal. It was off market. Can you tell the story?

Jamie Gruber: Absolutely. My partner and I, when we got together about a year ago now, and started really looking at multifamily property and going about putting together a business plan, socializing that plan to brokers, to property managers, to all of these different groups, and just trying to kind of build our team and build our credibility in the market, we had great interactions with brokers, but then we weren’t a priority for brokers, which I completely understand. So I would say “Hey, here’s our criteria.” The broker would say “Wow, this is great. You guys have a really clear plan. It’s excellent”, and then they would send us something that was nowhere near the criteria that we had outlined.

So we were getting a little bit like “Alright, well if we’re not gonna get it through brokers, how else can we?” And we decided to start a meetup group. We found a conference room in an insurance office, put it out on Meetup, created a Facebook group, and just sort of “Hey, who wants to come talk about multifamily?” We got about ten people or so that first month, we had a loose agenda. We did it again the second month, had about 15 people, and we built it since then. In fact, now we have seven markets with the brand that we have. It’s called Multifamily and More. So we have a meetup locally here in Michigan; it’s got over 500 members in a Facebook group, and then we’ve got about another 500 members combined in other groups across the country… So it’s been great.

But in that meetup – I think it was the second or third one – a couple (husband and wife) came to us and said “Hey, we’ve got this deal. It’s actually an 8-unit building, but the owner has 16 total units. We’re looking just to kind of partner up to close on this thing.” We got to know them a little bit, talked through what our strategies were, what our goals were, so on and so forth… And from that interaction they brought us this deal and we were able to close on it.

Joe Fairless: How many people attend your meetup?

Jamie Gruber: To this day?

Joe Fairless: Yeah.

Jamie Gruber: Somewhere between 40 and 50.

Joe Fairless: Okay.

Jamie Gruber: We do a virtual meetup once a month as well, where we get about 100 registrants and probably about 70-80 people attending that. I have a guest come on, somebody of national prominence typically, and do a webinar, if you will, the second Wednesday of the month, and that goes into all of the communities for them to view and participate and ask questions.

Joe Fairless: And how did you structure the general partnership with that couple on this deal?

Jamie Gruber: We are 25% apiece; there’s four of us in it – me and my partner, and then the two of them. We’re 25% apiece, all-in, that’s the gist of it. Any other specific…?

Joe Fairless: No, that makes sense. Joint venture partnership, everyone owns a quarter.

Jamie Gruber: Correct. All brought the same amount of money in and we just split it four ways.

Joe Fairless: That is crystal clear. Very straightforward. What about this 22-unit that you have under contract? How do you structure the general partnership for that?

Jamie Gruber: We’ve got four partners again in this deal. Me and my partner, the gentleman who brought the deal to us, sort of a boots on the ground guy. We split this up a little bit differently because we’re raising capital and there’s different roles here. The guy that’s on the ground, who will oversee management, who’s really doing the due diligence – he’s getting 32% of that property, and the rest of us are splitting the balance. I think me and my partner get 16% each, and the balance goes to the guy who found the property and is also bringing money to the deal.

Joe Fairless: And how was that property found?

Jamie Gruber: Through my meetup here; we have a Cleveland-based version of the meetup as well, and through that, this gentleman brought the deal to us.

Joe Fairless: Is it in Cleveland?

Jamie Gruber: It is.

Joe Fairless: Oh, the plot thickens. Okay…

Jamie Gruber: [laughs]

Joe Fairless: So you’ve got the 16-unit in a bedroom community outside of Ann Arbor, if I heard you correctly…

Jamie Gruber: You got it.

Joe Fairless: And now you’ve got a 22-unit under contract in Cleveland… How far is Ann Arbor from Cleveland? At least a three-hour drive…?

Jamie Gruber: About that. Two and a half, three hours apart, yeah.

Joe Fairless: About a three-hour drive. How do you plan on doing the management for that?

Jamie Gruber: We’ll have a professional manager for Cleveland. And again, the big part for us was one of our partners who actually runs the Cleveland meetup group that we created – and I’m in a mastermind with, so I know the guy fairly well – he’s the boots on the ground, so that’s why he’s getting a larger chunk of the equity in this property. He’ll be the one to really be there, see it visibly, manage the manager and all of that. So we needed somebody local to participate in this.

Joe Fairless: Okay. You got the 16-unit last year… When do you close on the 22-unit?

Jamie Gruber: Good question. We’re under contract, but this is very mom-and-pop. We’re struggling to even know if the price is good, because he wanted an LOI, we gave him one with what we had at the time, which wasn’t much, and we’re sort of clawing things out of him here and there. He’s got three properties, all of them are mixed together…

From a bank statement perspective, he just gets cash from all three groups of tenants and just puts a lot of money into the bank… So it’s hard to know what the economic occupancy is versus actual, and the leases are all over the place… I think the guy in Cleveland, our partner in this, even said – he was brought copies of the leases, and then asked by the owner if he could have those copies back, because he can’t find the originals… [laughter] So it’s been fun, it’s been fun.

Joe Fairless: That sounds about right for a 22-unit… It was one of those scenarios where you make an offer and then we’ll show you what the property is actually worth.

Jamie Gruber: You got it. [unintelligible [00:15:07].10]

Joe Fairless: Right, right. And obviously, in that deal you were not going non-refundable day one.

Jamie Gruber: Correct.

Joe Fairless: How much money do you invest in due diligence of a project like that, knowing that it can take a left turn very quickly based on the lack of information that you have?

Jamie Gruber: At this point, the way we structure the LOI – I don’t know if this is right, or the best way to do it, but what we did (and I think it’s fairly standard) and what we’re making sure of is we’ve got our EMD, so $10,000 is our EMD on that. And we’ve got an exhaustive list of financial due diligence–

Joe Fairless: Earnest money deposit, just so…

Jamie Gruber: Correct, I’m sorry. Yeah. We’ve got an exhaustive list of financial due diligence that we’re requesting from the seller, and he hasn’t even given us all of that yet. So until we have all of that — and we even told him upfront, we don’t know if we can go in with this price, we really don’t. We’ll give you this price, but we don’t know if we’re gonna have to retrade you. We don’t wanna do that if we don’t have to, but we don’t know if we will have to.

So once we get through the financial due diligence, really only then will we start, based on the LOI, the physical due diligence, which will start to cost us some money.

Joe Fairless: Okay. You are under contract though.

Jamie Gruber: We’re under contract. The LOI has been accepted, the contract is signed; we have a purchase and sale agreement signed.

Joe Fairless: Okay. And with the due diligence of it – it sounds like you haven’t walked any units, it’s just gathering all the paperwork right now? Is that correct?

Jamie Gruber: My partner walked a few units upfront; they did allow us to get in once we submitted an LOI and they accepted that. So prior to the actual contract we did walk it, after the LOI. And from what he reported, the units that they did show us, they were in decent shape. Could use some upgrades, but overall in decent shape.

Joe Fairless: Do you know how they found this property?

Jamie Gruber: I actually don’t.

Joe Fairless: I was just curious.

Jamie Gruber: Yeah.

Joe Fairless: So you’ve got clearly a focus on these 15 to probably 50-unit properties… Is that where you want to continue and build the portfolio, through these types of properties, or are you looking to change it up after you purchase a couple of them?

Jamie Gruber: Yeah, we’d like to start small and expand. We were looking at a 32-unit recently… That sort of thing. But at some point we wanna get into the larger, 100+ deals. We have this mantra – my primary partner and I – of “500 and 5.” That’s 500 units in 5 years. We even have a hashtag that we text each  other every so often… [laughs]

Joe Fairless: I like it.

Jamie Gruber: So yeah, we wanna scale up, take the experiences from one, apply it to the next. We’re making plenty of good mistakes on the property we own now, the 16-unit; I’ve made plenty of mistakes on my small, single-family portfolio, and we plan to just leverage those and continue to scale up.

Joe Fairless: I’m gonna go all over the map and all the way back to what you said earlier – the 2005 property you bought in New York, zero dollars down, that you still own today… Where in New York is it?

Jamie Gruber: It’s a town called Elmira. It’s a little town, right on the Pennsylvania border; I would say directly South of Rochester. A little South-East of Rochester, New York.

Joe Fairless: And is that the only home you own in Elmira?

Jamie Gruber: In Elmira, yes.

Joe Fairless: Do you own homes in the nearby area of Elmira?

Jamie Gruber: About an hour and a half East of that, where my family lives, where I grew up, for the most part, is where I own two duplexes.

Joe Fairless: And how much did  you purchase that Elmira house for?

Jamie Gruber: Back in 2005 it was $140,000.

Joe Fairless: And what would it go for today if you sold it?

Jamie Gruber: Maybe 120k.

Joe Fairless: 120k. And what does it rent for?

Jamie Gruber: About $1,200/month.

Joe Fairless: Okay, so it’s breaking even/you might be making–

Jamie Gruber: You’ve got it. Spot on. It’s not killing me, it’s not doing anything for me either… It’s just sort of there. My wife is a real estate professional by designation, so we take the passive of losses and move on.

Joe Fairless: Okay. Who manages that?

Jamie Gruber: My wife does, pretty much.

Joe Fairless: Remotely.

Jamie Gruber: Remotely, yeah. She has some contractors and people on the ground there that she’ll leverage, but she manages it remotely.

Joe Fairless: Okay, got it. Based on your experience as a real estate investor, what’s your best real estate investing advice ever?

Jamie Gruber: Networking is, I think, an underrated, understated imperative when it comes to investing. Everyone knows what it is, everyone knows – including me – it’s the general gist of “Get out, meet people” and everything else, but the extent to which you can not only get out, join a  local REIA, meet with people there, build your network, but also potentially get out in front and be the face of a market, or be the face of a niche within your market.

I’ve had multiple deals sent my way, I’ve had capital offered to me to invest, simply because I’ve put myself out there in front of 50 people a month at a meetup locally, and 100 people/month on a webinar, with the idea of giving value. So you go out, you network, you give as much value as you possibly can, without expecting it to this extent. I see the return on that, even though it’s not primarily why I do it – I really enjoy it – but networking is key. I would say that’s my best advice.

Joe Fairless: Yeah, I completely agree… And anyone can put together those meetups, and most people don’t. I can tell you, I’ve seen both sides of it, because I have a monthly meetup in Cincinnati. I’ve had it for probably about four years; maybe three years. And then one of my good friends – he’s also a passive investor with me – he started an investor meetup, non-real estate-specific, just an investor meetup where local entrepreneurs who wanna start their business, they come present, and we as investors decide if we wanna invest in their idea or not… And I can tell you that as an attendee of a meetup, it’s amazing, because someone else coordinates it all. I just show up five minutes before, I’m relaxed, I hang out, I talk, I listen to the presenter, and I leave when I want… It’s just wonderful. And putting one together – it’s a lot more work; if you have a team, then it’s much better, but there is a lot of value that’s created through creating that meetup… But that person, my friend who puts together that one meetup that I attend – he gets value too from it. So everybody’s benefitting.

In your case – holy cow, the two largest deals… Those are the two largest deals, right?

Jamie Gruber: Yeah, yeah.

Joe Fairless: They came from your connections. So I’m glad that you mentioned that, and I’m glad that that was your best ever advice.

Jamie Gruber: Absolutely.

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

Jamie Gruber: Let’s do it!

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

Break: [00:21:37].03] to [00:22:38].12]

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

Jamie Gruber: Outwitting the Devil, Napoleon Hill.

Joe Fairless: Oh yeah, Sharon wrote that, too.

Jamie Gruber: Correct. Great book. I think it’s the foundation for Think and Grow Rich, and it just got my mind racing. Great book.

Joe Fairless: That is a very polarizing book, because I did not like it at all, but it was highly recommended to me by people who swear by it. So I believe you’ll either love it, or you’ll  be like “Meh, not for me at all.” So Outwitting the Devil, that’s yours.

Jamie Gruber: I’ll be honest, the first third of it was slow. I didn’t know how much I wanna stick with it, but enough people recommended it that by the time I finished it, I really loved it. But yeah, I could see how you wouldn’t like it, to be honest with you.

Joe Fairless: Yeah, alright. To each his own. I do like other books that Sharon has written, by the way. I think we have like one degree of separation with Sharon, so – Sharon, I do like your other books.

Best ever deal that you’ve done?

Jamie Gruber: Probably the 16-unit I mentioned. That’s going really well. To have not understood the true rents are even higher than we anticipated – that’s a good mistake, or a good learning, I guess… But the home I purchased in Massachusetts was an estate sale we bought, and when we left, we walked away with a hundred and something dollars in profit. We’ve enjoyed the house, and when it was time to get rid of it, it ended up being a great deal.

Joe Fairless: You rode the wave of appreciation, just because that’s what happened in the market, or…?

Jamie Gruber: That, and we redid the whole house, too. We put about 50k into it, because it was vacant for two years prior to that…

Joe Fairless: Oh, so you earned it.

Jamie Gruber: …not redone since like 1972 when it was built.

Joe Fairless: Okay, well you earned your profit.

Jamie Gruber: Yeah.

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

Jamie Gruber: I think it goes back to the duplexes that I purchased. It was probably under-estimating the cost of repairs, the cost of some of the stuff that needed to be done, like windows, siding, things like that, that you have people in that market, and they say “Yeah, I had my siding done for X, I had my siding done for Y”, and you’re like “Okay, that gives me a good idea of what I’ll pay”, and then when you actually get a quote for yourself with that specific property, it’s a lot more. So making sure you get specific quotes on the property that you’re looking to rehab I think is the biggest mistake I’ve made.

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

Jamie Gruber: My wife and I are big on donating to — we call it “the innocent”, so children, animals, that sort of thing. I think that’s from a charitable standpoint, where we give back. From a community standpoint, within this multifamily group I really do enjoy bringing high-level guests to my meetups, high-level guests to my webinars, so that folks can interact with, learn from, and everything else from them… As well as giving my own time to a lot of folks that have questions about mistakes I’ve made, things I think, that sort of thing.

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

Jamie Gruber: I think the best place to go would be to our website, which is CFAssetGroup.com. On there you can learn more about our company. There’s also a link in the middle of the page to Multifamily and More – if you click on that, you can then select any other groups nationally that you might wanna join, so you can network locally. We’ll also have a newsletter, you can fill in your email address and we’ll send you information on what we’re doing in the community, when webinars are coming, that sort of thing. And all of my contact information is in there as well.

Joe Fairless: Jamie, I enjoyed our conversation. I talked a lot already, relative to how much I usually talk during the interview, about my thoughts on our conversation, with your approach on networking and building relationships and having these meetups… But I’m also grateful that you got into the specifics of the 16-unit and the business plan, your expense management strategies, as well as the income, or the cost of labor, and some of the assumptions that you’ll update on the next go-around with this 22-unit and future properties, in particular handymen, services and painter costs… So thanks for being on the show, getting into the specifics and also talking about how you found these properties.

I hope you have a best ever day, and we’ll talk to you soon.

Jamie Gruber: Thank you so much, same to  you.

Follow Me:  

Share this:  
Joe Fairless and Shanyn Stewart podcast episode JF1656

JF1656: Battle Brewing With The IRS – How To Prepare #SituationSaturday with Shanyn Stewart

Taxes are an inevitable part of running a business, sometimes things can go wrong. When the IRS comes knocking, it’s better to be prepared. Shanyn has helped her clients and is here to share some tips with us today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Shanyn Stewart Background:

  • Tax strategist and serial entrepreneur  
  • Has been helping clients with taxes for 22 years with her company Advanced Accounting
  • Based in Lambertville, MI
  • Say hi to her at https://advancedaccounting.com/


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


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

Shanyn Stewart: I’m well, thank you.

Joe Fairless: I’m glad to hear it, and looking forward to our conversation. A little bit about Shanyn – she is a tax strategist and serial entrepreneur. She helps clients with their taxes, she’s been doing that for 22 years via her company, Advanced Accounting. Based in Lambertville, Michigan.

Today, Best Ever listeners, first off I hope you’re having a best ever weekend. Because today is Saturday, and obviously I record these episodes during the week, so I can make believe whatever day it is — because you’re listening to this on a Saturday, we are going to do Situation Saturday. The purpose of Situation Saturday is should you come across a similar situation that is presented during this conversation, well now you’ve got a roadmap for how to handle it… And here’s the situation – you have a battle that is brewing with the IRS. How do you prepare for that battle before they come knocking on your door? Shanyn is gonna talk us through that, so that we can best prepare ourselves for that, should that take place. But before we do that, Shanyn, do you wanna give the Best Ever listeners a little bit more about your background, just so we get to know you a little bit better?

Shanyn Stewart: Definitely. I actually started my career working for General Electric, and I was one of two advisors that worked from a financial and tax standpoint with the employees at GE. And like GE does, and like a lot of corporations do, they decided to no longer be in that business, and I had the opportunity to go into business for myself. That was a natural fit to actually open the full-service accounting and tax practice.

As our skills have grown, tax strategy has become our super-power. Unlike a lot of tax professionals that are very slow and are actually in the business of recording history, we actually take a very proactive stance to actually help our clients legally write the history of their company from a taxation standpoint. We’ve built a great team of experts out, and actually about 67% of all of our clientele live outside my geographical location… So we’ve become a very virtual and worldwide company.

Joe Fairless: What are a couple things that is typical for an accounting firm, and then what are a couple things that you do that goes above and beyond that? …just to give us some context.

Shanyn Stewart: Definitely. One of the things to remember when we’re talking about taxes is that it’s kind of a three-legged stool. We’ve got the compliance end of things, keeping you in compliance by making sure that you’re filing an accurate return on time, and then we have the financial side of things – making sure that you’re running optimally from a financial standpoint. Then there’s the tax planning side of things. So it’s completely different than what most traditional tax professionals do. And that’s not meant to throw them under the bus, because keeping you in compliance is  a full-time job. So often times tax professionals have so much on their plate that the only thing they can focus on is being reactive.

So you come in at the end of the year with your shoebox full of documents and paperwork, and all they can do is record the history of what you’ve done for the year. That’s where we set apart from other firms, in that we actually take a proactive approach, where our clientele are meeting with us at least on a quarterly basis, and some of our clientele where we service as concierge CFOs, are actually meeting with us on a monthly basis… And we’re tracking metrics, we’re planning for increased growth or reduced revenue, strategically making sure that if we have asset sales that we’re handling them in the most tax-efficient way possible, before they actually even occur, so that we’re able to lay out a game plan to mitigate taxes legally for our clients.

Joe Fairless: And on a similar note, when we talk about how to prepare for battle with the IRS before they come knocking on our door, what’s the best way to start our conversation when we talk about that?

Shanyn Stewart: Well, I think one of the things that we need to realize is that accounting as usual won’t work anymore. I think one of the things that the public doesn’t really understand is that the IRS is actually deploying artificial intelligence in so many aspects of cutting down on tax evasion. So the old days of just haphazardly putting together our financial paperwork and our financial reporting that  our tax professional then reports for us may not have all of the safety nets that need to be employed now.

So when we talk about artificial intelligence, it’s not taxes as usual either. We just went through the largest tax law change since the Regan administration, and just last week the IRS put out official regulation and revenue rulings on rental activities. So the game has changed from that standpoint. But when we’re talking about the good old days, as you might wanna call them, when we used to put our things together, the state and federal accounts were not actually connected electronically. So we could file a federal return and it never talked to the state. Well, now the state and the federal governments talk together, the system is not easily manipulated when taxpayers would do that previously – which is never advised, but it did happen… So all systems are now talking to each other, and we have electronic footprints that are trackable by the IRS.

I think one of the most startling things as I’ve uncovered this and talking to individuals is that there was a New York Time article that dated back into October 9th of 2015, that actually says the computer scientists wield artificial intelligence to battle tax evasion. And if you go to the IRS website, underneath their jobs that they have posted are postings for artificial intelligence analysts, that will apply artificial intelligence to solve IRS business problems.

Basically, the IRS is creating algorithms that are actually lining up with the tax returns that are being prepared, and if something looks like it’s out of alignment from previous algorithms, it’s going to create scrutiny on the IRS’s side for you. So it’s very important 1) that you’re working with a tax professional that understands the new IRS regulation, and understands how those regulations apply to you specifically in the real estate market, and then is utilizing those new regulations and guidelines to help maximize your deductions and mitigate your taxes from that standpoint. That’s one of the big things that we’re seeing – the IRS computers are smarter than they ever have been.

Joe Fairless: Yeah, and I’m good with them using artificial intelligence, because that leads me to believe they’ll be more efficient, therefore there will be less hours spent on it, so maybe it will cost the taxpayers less money, because they’re being more efficient since they have these algorithms. So in my mind, that doesn’t really change anything, it just makes them more precise… So what I’m taking away from that is if someone was trying to cut corners and get away with stuff, it will be harder for them to get away with it.

Shanyn Stewart: I don’t think most taxpayers are out to evade taxes. Here’s one of the things that I’ve seen start happening. Let’s say for instance you have an LLC and your rental properties sit inside that LLC. But you receive payments and you are 1099 for rent payments to those rental properties and it actually floats through your personal social security number… So the system knows that that social security number receives rent payments, but the rent payments may not actually have flown through a personal return; those rent payments may have flown through to a business return.

That will generate a letter that says “Whoops! Something is not lining up… What was issued to you and what you reported are not in alignment.” That creates stress and anxiety for the taxpayer. It’s a fixable situation, but those are the kind of things that we’re gonna start to see more of, and that’s why it’s really important to make sure that you have an accounting system and make sure that you actually have all of your tax ID numbers linked to the right LLC’s, linked to the right properties, and that things are being reported correctly from outside third-parties, as well.

Joe Fairless: That makes sense, and I appreciate you mentioning that. When someone receives a letter from the IRS and they say “We’re gonna audit you”, what do you have to make sure that you have prepared, and ideally what should you have done already so that you’re not having to scramble?

Shanyn Stewart: Right. So here’s the first thing, and this might sound kind of ridiculous when I say this, but this is the reality. When you get a notice from the IRS, you need to open it, because you have timeframes that you have to respond by… And often times, what happens when we see individuals come into our firm that have an IRS issue, it’s because they’ve ignored the situation.

So the first thing is when you get that notice, you need to open it up, you need to read it and you need to take it to a tax professional that has either prepared your documentation for you, or if you prepared your own, who has experience in what we call IRS resolution work. That’s the first thing, because the IRS is not gonna come and levy all of your assets and things of that nature — which they will do, but they give you time to make a reasonable effort to substantiate and to prove your side of the situation and to correct what may need to be corrected.

Often times, I would say that when you get an IRS letter, it is a situation that it’s just the reporting did not line up and it’s an easy fix from that standpoint. It’s when you ignore your 30-day, your 60-day, your 90-day letter and now they’re actually moving to levy or it’s going to tax court, that there becomes an issue. So immediately if you get a letter from the IRS you need to be very proactive, take the bull by the horns and get the ball rolling as far as getting it resolved. And then once you’ve gotten it to your tax professional, you need to make sure that they are following through on the deadlines, because these letters actually have deadlines.

So I’d always make sure that if you’ve hired a tax professional, that you’re asking them to provide you with the copies of all the correspondence and the return receipts. I’d ask them all of my letters and correspondence to the IRS. If it’s fax, I want the fax confirmation; if it’s actually mailed, hardcopy, I want the return receipt, a copy of that for my own records… Because it really falls back onto me; as the taxpayer, I’m the one who has to be in compliance. So making sure that your tax professional is answering things in a timely manner… But let me say this – these problems, when they start to rise, the IRS is very quick to send out these notices, but they’re not always quick to respond. And the letters are actually generated by an automatic system; a computer system spits out this boilerplate correspondence to you… So your tax professional may have responded already, and then here comes another notice. If you get another notice, you need to respond again. You wanna make sure that you’re never ignoring any type of correspondence that comes in.

Joe Fairless: Okay. The tracking of expenses throughout the year – can you just pay on a credit card and that be sufficient for tracking the expenses? Or if you’re paying on a credit card do  you also have to take a picture of the receipt and then save it on your phone or somewhere else?

Shanyn Stewart: Well, I think that it’s always best to have more documentations than not. One of the things that taxpayers often do is they comingle their personal and their business expenses, which is never advisable. You really need to have a credit card that’s dedicated just to business or just to personal. If you’re co-mingling those expenses, then I would recommend that you also have the receipt to substantiate it… Because if you’re handing an IRS agent or revenue officer a copy of your bank statement that has co-mingled business and personal funds, or your credit card was co-mingled in business funds, then that opens up all of those transactions for scrutiny.

If we’re walking into a situation and let’s say they’re questioning repairs, and we walk in with the actual work order and all of the receipts that go with it, and then we can tie it back to a credit card, but we have the receipts in hand as well, it’s going to make the audit process easier.

Now, you don’t have to keep paper copies of these things. Like you said, you could snap pictures on — there’s lots of apps out there where you can snap a picture and keep it on your phone or on your Google Drive. As long as you can replicate those expenses, they’re going to be able to be substantiated.

Joe Fairless: Got it. Anything else as it relates to preparing for going back and forth with the IRS that we haven’t talked about, that you think is relevant for the listeners to know?

Shanyn Stewart: Yeah, I think one of the things to remember is that if you hire a tax professional to actually — it’s called “tax resolution” in our industry… So if you actually hire a tax professional to provide tax resolutions for you, they became your power of attorney and they become the front face to the IRS. So you actually have representation and you don’t have to go to battle on your own behalf to the IRS. You now have someone who stands in the gap.

So if you have representation, that tax professional should be handling everything for you. You should not be the one that has to go to speak to the IRS on the telephone, to reply to the letters… If you have a professional, you want to make sure that they’re standing in the gap in the entirety for you.

Joe Fairless: And if you search “IRS resolution work”, is that the best way — assuming you don’t know someone or you don’t listen to this interview, so they don’t know you… Which I guess that wouldn’t be possible, because if they do listen to this interview then they will know you… [laughs] But I’ll just ask the question anyway – “IRS resolution work”, is that a good Google search to find someone who can help you?

Shanyn Stewart: “IRS help, IRS relief”, all of those. So let me also say, there’s a lot of big organizations that are nation-wide. I would do your due diligence and interview a couple of different tax professionals before you choose somebody who’s nation-wide from that standpoint. Sometimes in this situation you wanna be able to see them face-to-face. We do a lot of our things over Zoom, you wanna sit down in their office… This is a hand-holding process, because anytime you’re questioned by the IRS or any taxing authority, it’s gonna create stress and anxiety in your life, it’s gonna create a little ripple in your life, and you need to know that you resonate with the person that you’re working with. Those are great keywords to search, from that standpoint, but I always recommend talking to a couple different professionals based on what they’re gonna do for you, what they think is gonna be reasonable, and what they’re gonna charge.

Joe Fairless: What questions should you ask?

Shanyn Stewart: I always love the question “Tell me what your super-power is.” Have they handled cases like yours previously? And because of privacy laws, we can’t share clients and things of that nature, but we can tell about situations… What do they believe the likely outcomes are going to be? You wanna know the good, the bad and the ugly, and then you also want to know what they think they possibly can do to mitigate penalties, to stop levies… What can they do, and what is the game plan?

Now, here’s the situation – most individuals are not going to open up their toolbox and solve your  problem before you’ve retained them… But often times, within the retainer and the engagement letter, if they fail to work quickly or expedite the correspondence and things of that nature, you can walk away from those engagements.

So I think it’s just making sure that you are very confident in the person you’re choosing, that they’re gonna go to battle for you, and they’re gonna do what’s your best interest and under the legal guise of the law.

Joe Fairless: Very helpful with those questions that we should ask them. Thank you for that. What is the typical fee that is charged to have a firm work on your behalf to resolve it?

Shanyn Stewart: Well, it really depends on what’s going on. If you’re going into a full-blown audit, I’m thinking that a company is gonna take at least a $5,000 retainer and go from there. Most of these problems, if it’s escalated to the IRS situation… If it’s just responding to correspondence and you have proper accounting and you’re organized, then it’s probably gonna be $1,000 to $1,500. But if it actually is going to take meeting with revenue officers, compiling the case for you, often times these cases run about $5,000 and up.

Joe Fairless: And when a professional who’s working to resolve this on behalf of their client, when they meet with that client who has the issue, what are some of the questions that that resolution professional is gonna ask their prospective client?

Shanyn Stewart: First of all, that professional needs to know that you’ve been in compliance. If you’ve not been in compliance, they need to know why. They need to know the story or the deal behind the fact that you’re not in compliance. So even sometimes before we can start the resolution process, we have to get the taxpayer into compliance.

I’ll give you a real-life example that we just went through last year – we had a construction company come to us and they had failed to file their federal tax returns for three years, and they had withheld taxes from their employees and they failed to pay it to the IRS; they failed to remit the withholding from the payroll taxes to the IRS. They owed over $150,000. The IRS was moving to close the business, levy personal assets… I mean, this was very detrimental to this construction company. So when they came into the office, the first thing — we couldn’t take care of the fact that they did not pay their taxes, because we had to go back and do the work to get them in compliance first.

So that’s the first thing they’re gonna ask – are you in compliance? And then a good tax professional is gonna pull transcripts. They’re gonna actually have you sign powers of attorney and give them the permission to actually go to the IRS and see what they have on record for you, to pull your account records, so that they can see that you’ve been in compliance or not in compliance and see what the IRS actually has on record for you. So that’s kind of the first process. A lot of firms charge up to $1,500 just to pull those transcripts and do that research before they’ll give you a resolution outline.

So that’s the first thing – they’re gonna ask you “Are you in compliance?” If you are in compliance, you’re gonna want to take your last three years tax returns with you, and any backup that you have for those. So if it’s electronic format, you’re gonna want it accessible on a Google Drive or on a thumb drive, a USB drive, and then they’re gonna go through an interview process with you to see why this happened, if it’s an error on the IRS side or if it’s something that’s an error on the taxpayer’s side. Then they’ll be able to formulate their strategy.

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

Shanyn Stewart: The offer that I actually make to listeners is that they actually go to our website, which is advancedaccounting.com. In the right-hand corner there’s a link, and I offer a free consultation to actually talk about either a tax planning strategy, or a tax resolution. I’ll spend 30 minutes on the phone just talking to them about the questions and concerns that they have, with no obligation or anything of that nature; just to give them a value-add.

Joe Fairless: What a wonderful gift. Thank you for that, and thank you for sharing your knowledge and expertise with us today on how to prepare for an IRS audit, and perhaps how to avoid an IRS audit as well… And then when you do hire someone to help you through an IRS audit, the questions that you ask – ask about their experience, the cases they’ve handled previously that’s like yours, what the likely outcome will be for your case, what they think they can do to mitigate the penalties… Just overall what’s their approach for the game plan. Then you gave the projected costs based on a couple different scenarios.

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

Shanyn Stewart: Thank you.

Follow Me:  

Share this:  
Re-engage Old Network Joe Fairless with Jordan Harbiner Flyer

JF1440: Re-Engage An Old Network And Keep It Engaged #SkillSetSunday with Jordan Harbinger

Jordan is a fellow podcaster who has interviewed hundreds of successful people. He specializes in helping people figure out their superpower and learn to communicate it to others. Today, we talk about picking back up old relationships, and how as real estate investors we can leverage this knowledge for our businesses. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Jordan Harbinger Background:

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

Best Ever Listeners:

We have launched bestevercauses.com  

We profile 1 nonprofit or cause every month that is near and dear to our heart. To help get the word out, submit a cause, or donate, visit bestevercauses.com.


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

First off, I hope you’re having a wonderful weekend. Because today is Sunday, we’ve got a special segment called Skillset Sunday where we will hone and/or acquire a specific skillset – after our conversation, you will have that.

The skillset we’re gonna be talking about today – and not really we, but our guest, Jordan Harbinger – is the skill of being able to re-engage an old or dormant network that we might have, and to have a system for continuing to keep that network engaged.

First off, how are you doing, Jordan?

Jordan Harbinger: I’m good, man. Thanks for the opportunity.

Joe Fairless: My pleasure, nice to have you back on the show. Best Ever listeners, you can check out our previous episode – it was episode 411. A little bit about Jordan – he was a Wall Street lawyer turned talk show host, social dynamics expert and entrepreneur. He was the host of the Art of Charm, now he has his own podcast, the Jordan Harbinger Show, where he deconstructs the playbooks of the most successful people on Earth on his podcast. You can check it out at his website, which is in the show notes page.

With that being said, Jordan, do you wanna set the stage for — maybe give the listeners a little bit of a refresher on your background, and then we’ll go into our topic.

Jordan Harbinger: Sure. So I’m a former Wall Street attorney and I’ve been doing podcasts for over 11 years. I’ve been interviewing people, I’ve interviewed hundreds and hundreds of people over the last decade and change, and that’s really what I do now. I’m the creator of The Jordan Harbinger Show, I’m the creator of AdvancedHumanDynamics.com, that teaches networking, relationship development, verbal and non-verbal communication skills… But my sweet spot is interviewing great people and helping them teach their super-powers to the listening audience.

Joe Fairless: Sweet. So let’s talk about the network… As real estate investors, we are entrepreneurs and we have at the core of our business relationships. It is certainly going to be helpful for us to re-engage old relationships, or maybe dormant relationships, as we talked about before we were recording… So what’s the approach for doing so?

Jordan Harbinger: I have a bunch of drills… Do you want me to just get into these drills? Because I feel like that hands-on, practical stuff is pretty good.

Joe Fairless: Sure.

Jordan Harbinger: Okay, cool. So first of all, a lot of people have mistaken beliefs over what networking and relationship maintenance really is. They think “Oh, this is for these scumbaggy slimeballs, throw business cards in people’s faces… And that’s really irritating. Nobody wants to be that guy or gal. So that’s one reason, I should say, why a lot of people avoid doing the networking thing, because they hate it; networking has become a dirty word, it’s really something that people try to avoid, and I totally understand that.

I would say that first of all, get rid of that image of what you think networking is in your head, because if you’re not doing it authentically, of course it’s gonna look like that. That’s not what we’re teaching here.

What we’re teaching you is that you don’t have to be born into it; if you’re an introvert, you don’t have some medical excuse that you can’t network. Most people procrastinate this, because they either don’t know how to do it, or they also think “Well, first I’ve gotta have my website. I’ve gotta have my prototype, I’ve gotta have this, I’ve gotta have info on my product” etc. This is not a bonus skillset or an add-on; this is first principles, foundational stuff, and if you ignore the skillset of networking and relationship development, you’re not immune to the consequences… You’re just being willfully ignorant of the secret game that’s being played around you, and that’s a huge problem for entrepreneurs, business owners, real estate agents, whatever it is that you do; you’re gonna be in trouble. You have to dig the well before you’re thirsty, and build these relationships before you need them. It’s kind of like putting a spare tire in the trunk of your car; it’s way to late if you’re already on the side of the highway. You need that in place before you have to rely on it.

One of the first drills that I give people is imagine you either get laid off today if you’ve got a day job, or your business implodes. Let’s say it just suddenly becomes illegal to do what you do. Who are the ten or so people that you’d contact to solicit their advice on what to do next? Make that list and reach out to those people now, while you don’t have an agenda and you don’t specifically need anything from them. That will show you that reaching out and maintaining your network — it’s not awkward; that’s what a lot of people think. Yeah, it’s awkward when you reach out to somebody you haven’t talked to in three years and you need something. It’s not awkward when you reach out to somebody and you just check in on them.

This will also get momentum for people, and they can go down and do a lot of the other drills that we have at Advanced Human Dynamics; there’s a level one course which is free, and I have a lot of videos with a lot of these drills.

Joe Fairless: Before we go on to another one, when we reach out to those ten or so people, what’s the message sound like?

Jordan Harbinger: Oh, sure, and you’re gonna hear this on repeat from me: “Hey, it’s been a minute… Haven’t spoken to you in a long time. What’s the latest with you? I hope this finds you well. No rush on the reply, I realize everyone’s busy”, and then sign your name on this. Now, this isn’t very important if you’re just reaching out via e-mail, it’s gonna come from your e-mail, but it’s gonna come in handy in a second, and I’ll tell you why.

The next drill is if you scroll on your phone – if you have an iPhone or an Android, you know how you scroll on your phone in the text messages all the way to the bottom, and those are people that you… “Oh, I had lunch with them three years ago at this conference, and then I never kept in touch” – those threads are still in there, so send that same script… “Hey, it’s been a minute. How have you been, Jim? It’s been forever… Last I think we had lunch at Cafe Gratitude in San Diego. I hope you’re doing well. No rush on the reply… Just checking in, because it’s been so long. Jordan Harbinger.”

Now, you sign your name so they don’t go “New phone. Who this?”, right? And you also say “No rush on the reply”, that’s the other key. The reason for that is I get messages like this in my inbox or via text all the time, and if I get a sort of spider sense that they want something, I may not reply… And one way to signal that you don’t necessarily wanna sell me freaking Herbalife or get me into Scientology is you say “Hey, no rush on the reply. You don’t have to reply if you’re busy.” Salespeople who are pushy and have an agenda don’t do that. They build urgency. They don’t unbuild urgency. They don’t tell you that it doesn’t matter if you reply.

So that actually, counter-intuitively, increases my response rate from about 40% to about 70%.

Joe Fairless: Are you doing this e-mail, text, or what?

Jordan Harbinger: I said to text this–

Joe Fairless: This is text, got it.

Jordan Harbinger: Yeah. The other way, lay off lifelines, where you make a list of ten people – that can be phone, text, e-mail… Those are existing relationships. The texting is for weaker and more dormant ties, and that I think is extremely important.

Because the thought exercise lay off lifelines – you do that once every three months, or something like that… Maybe those lifelines change. Those are really important people in your life, but you don’t have to re-engage them all the time by making that list; they get re-engaged by virtue of the fact that you’re reaching out.

The texting thing you should do every day. You should make at least four every single day, because it’s so easy to do this. Do it in line for coffee at Starbucks, every day; it takes the excuse off the table that “Oh, networking takes up so much time…” No, it doesn’t. You’re already gonna be wasting it on Instagram; just text people and re-engage.

Joe Fairless: Got it. So just so I’m clear, there are two exercises within that. One is what you’re calling lay off lifelines. If what you’re doing right now becomes illegal or implodes, you reach out to ten people and you’d give them a message via text… And then separately there’s the texting thing – same approach, but do it daily, with dormant relationships, people who you met like a year ago, or whatever, and you haven’t spoken to…

So it’s basically the same message – one is staying top of mind with the ten people, and then two is dormant relationships.

Jordan Harbinger: Exactly. You’re strengthening weaker or dormant ties, and then in the lay off lifelines you’re strengthening ties that hopefully already exist, but that are kind of your crucial ones… And the reason I have people make that list is occasionally there’s gonna be a couple on there where you go “Oh yeah, you know, I should have reached out to my uncle a million times, but I haven’t…”, and then there’s usually gonna be some sort of more aspirational people, where you  go “Well, I was gonna save this for an emergency, but I guess I will reach out to the CEO of my old company where I used to work.” That tends to be a different category of people.

And of course, the people whose phone numbers you have on your phone, you at some point had a relationship with that person where they trusted you with their phone number, so that’s a different category of connection than somebody in the lay off lifeline, generally speaking.

Joe Fairless: Got it. Makes sense.

Jordan Harbinger: So I have dozens of drills like this. I could go through another couple more.

Joe Fairless: Yeah, let’s do it.

Jordan Harbinger: So another one that I think is really crucial – a lot of people go “Okay, great, this is where the weaker ties are…” I’m gonna skip over some of the re-engagement stuff, some of the strengthening stuff and go right into the network maintenance… And there are really two kinds of network maintenance strategies that I use.

Systematic and opportunistic network maintenance are sort of these two systems that I use, and I probably should change the word systems, because I’m using it twice in two different contexts here… But systematic network maintenance is alright, I’ve got a CRM, I use Contactually, I put in all my Gmail contacts that I regularly contact, I import my Facebook birthday calendar to my own calendar, and I get the birthday list there, and then three days before someone’s birthday I set an alarm and I wish them a happy birthday three days in advance, so that I beat the rush.

Everybody gets a ton of wishes on their birthday. Be the first one, do it three days early. Russian people will say it’s bad luck, that’s okay… But you can really cut ahead, and that uses a really easy system to re-engage people on an annual basis, and the CRM (Contactually in this case) will create a reminder for you when it’s been 20, 45, 90 days, whatever category you plot people in… So you’ve got your system.

I’ll spend an hour, an hour and a half a week keeping in touch with thousands of people using those systems.

Opportunistic network maintenance is more laid back, and anyone can do this with no additional expense. I use both of these systems, and I encourage people to use both… But opportunistic is like this: “Alright, I’m on Facebook, and I see that Joe had a baby. Wow, that’s cool. I’m gonna — what, click Like? Okay, I could… Or I could make a comment. Alright, maybe he’ll see that. But I could also e-mail you. That might work, but you might be getting a ton of that… What if I text you? Well, that’s better. What if I leave you an audio message or a phone call? That’s even better. Or what if I know you well enough that I can pop by in person, or I know where you work and I can knock on your door and drop off an “It’s a boy” cigar, or something like that…?”

Those are all ways that I can engage you, but I didn’t get an alarm, I didn’t see you in my CRM. I’m using social media like Facebook and Instagram to show me what life events are important in your life, because that’s what that algorithm does – it shows me your vacation, it shows me your wedding, it shows me your new kid, it shows me some sort of set of photos that you took… So it’s giving me a reason to talk to you, except instead of taking low-hanging fruit and clicking Like, or making a comment, which you will either never see or never respond to, I upgrade the type of engagement on the engagement totem pole to text, audio, e-mail, phone call.

That is a great way to use something that usually is a time waster and turn it into something that essentially acts almost like a CRM, or a private news service for everybody in your social circle and your business circle.

Joe Fairless: So when we see something on Facebook, instead of just simply licking or commenting, taking it another level and doing something that would stand out and be, as you said, higher on the engagement list.

Jordan Harbinger: Yeah, because it’s like “Okay, great, you got married! I’m gonna click Like, you’re never gonna see it. I’m gonna comment, you might never see it.” Why not take the opportunity and five extra seconds and creating a more intimate type of engagement. If I’ve got your number, you might get 1,000 likes, you might get 60 or 160 comments, you might get dozens and dozens of e-mails… How many texts are you getting? Twenty? Thirty, maybe? Mostly from family and close friends. Why don’t I put myself in that bucket?

You’re not gonna have somebody go “Don’t text me! We only know each other tangentially through this conference.” You’re gonna go “Oh cool, man. I’m so glad to hear from you. Thanks.”

Joe Fairless: I’m actually that person. I hate text messages. I wouldn’t tell them that, but I wouldn’t really reply, because I hate text messages.

Jordan Harbinger: That’s fine. That puts you in a very small minority.

Joe Fairless: I know, they call me Grandpa Joe, so I agree with you.

Jordan Harbinger: Yeah, [unintelligible [00:14:02].20] So I would encourage your listeners to not take that to heart, because 99.9% of text messages are read and I think replied to within 10 minutes… So if you know somebody doesn’t like texting, fine; send him an audio message or call them. I hate audio messages, because I feel like people ramble. But if somebody calls me or something like that, sends me a text – great.

So if you know somebody hates that, then fine, don’t do it. Nobody goes “I’d prefer for you to communicate with me on Facebook comments.” No one has ever said that in history and nobody ever will. Nobody says “Please send me a like.” Nobody does that. They want further and higher levels of engagement from people that they actually wanna hear from.

The interesting part about this is they will rationalize that they wanna hear from you if they hear from you in that way. Very few people are gonna go “Man, I wish this guy wouldn’t text me nice things once a year when I have big news.” That’s really unlikely.

If someone’s texting you every day, it’s inappropriate. If you have a baby and somebody goes “You know, I think I still have his phone number somewhere”, you’re not gonna go “F U. Don’t text me. I had a kid.” You’re gonna appreciate it, unless you’re Grandpa Joe [unintelligible [00:15:08].03]

Joe Fairless: Yeah… [laughs] So it sounds like it’s being observant with what’s going on, and then breaking through the clutter via your acknowledgment tactic. Is that accurate?

Jordan Harbinger: You don’t even have to be that observant, man… I mean, how observant do you have to be to look at your newsfeed and go “This person just got married.” You don’t have to be Sherlock Holmes to use the algorithm; it shoves things in your face deliberately. That’s what it’s designed to do. Mostly, we just scroll through it and click Like or engage or not engage at all, but why not actually take things up a notch? That’s kind of the point… It’s just that Facebook has decided “Let’s make this really easy”, except it’s really easy to get lost in the cruft.

Joe Fairless: It could also be easy to get inundated with this approach if it’s not scheduled, because if you do go on Facebook, they’ve got a pretty crafty algorithm to keep you there, and it’s a black hole… So how do you schedule or prioritize this in your business?

Jordan Harbinger: I schedule my systematic and opportunistic network maintenance — sorry, I should say, opportunistic is just that, it’s opportunistic. I’m standing in the line at Starbucks, I take a minute to look at Instagram and I see somebody post something, or on Facebook and I see somebody post something – it’s opportunistic for a reason.

Systematic – I schedule 60-90 minutes  a week to check in on Monday morning, look at Contactually, wish people a happy birthday every morning… I schedule 15 minutes in the morning to go through and text people, like I’d mentioned before with the texting engagement… And a lot of these other drills that I have at level one (Advanced Human Dynamics on the level 1 course), I have these scheduled during the week. Because if you de-prioritize it, of course it’s never gonna happen. You’re gonna go, “Oh man, I don’t know what to say in this text… I’m not gonna do it. Oh, I’ve gotta look at Contactually, I’ve got five minutes. Oh man, there’s 87 people in here because I haven’t done it for three months. Oh, I don’t have time to do this now… Let me close the window and not think about it.”

Schedule it out. People go “I don’t have an hour a week.” Okay, cool. What are you doing for that hour a week that’s more important than engaging your network? Literally nothing, because this should be at the top of your list. This is really gonna be highest leverage thing you have on the list.

Joe Fairless: When you schedule it, you schedule for 15 minutes or 30 minutes, whatever it is, but if you’re texting someone – or whatever the communication method is – I imagine you’re ideally gonna get a reply, so then it will spill into the rest of your day… So do you have an approach for the continuing the conversation or how you allocate your time to do that?

Jordan Harbinger: Yeah, it doesn’t have to spill over into the rest of your day, really. Most people reply right away, hence the statistics that most texts are read and responded to within ten minutes.

The other thing is if you do it in the beginning of, say, a commute on the train, or let’s say you do it in the morning and then during your lunch hour you check your phone… You don’t have to sit there and wait for people to reply; you can check your phone in the evening. They haven’t heard from you in three months or a year, they’re not gonna be like “Hey, where are you?” because they didn’t hear from you for three hours.

So I wanna take excuses off the table, because a lot of people go “Oh, I’m not gonna text people because I hate texting and then they’re gonna reply.” It’s like, okay, cool. You can protect your time as much as you want, and I always encourage people to protect their time, but what I’ve noticed is that a lot of people who supposedly protect their time, they have crappy networks, they’re not well liked in certain areas, and then when they need something, they’re like “Oh man, how do I get people to mail out for me?” Well, people don’t like you, because when they reach out to you, you don’t respond. Or people don’t like you because you only reach out when you need something. That’s why you have to dig the wheel before you’re thirsty; it’s not about what you want, it’s not about what’s convenient for you.

You can schedule it and you can make it happen, but you can’t dictate everybody to interact with you on your terms, unless you’re some kind of celebrity, which you and I are not.

So you really have to dedicate some time to this. The point is this is the highest lever. I don’t know very many people who have made it to the top, made nine-figure businesses who don’t have great relationships and networks with other people, high levels of trust etc. I don’t know anybody who’s done that, and those who have, even then, without being very deliberate about this have either gotten very, very lucky, or they do it now, now that they’re closer to the top. But most people that I know who are good at this are extremely successful, because they realize the value that this brings.

Joe Fairless: Anything else as it relates to engaging our current network or re-engaging the dormant relationships that we haven’t talked about that you wanted to mention, that you think we should?

Jordan Harbinger: I don’t wanna overload people with stuff. As I’ve mentioned before on advanced human dynamics, I’ve got that level one program which is like a dozen and a half of these types of exercises… Really do the lay off lifelines, where you make that list of ten people and reach out; really do try for a week the text re-engagement… Just give it a shot and you will find that certain opportunities pop out of that. You’ll go “Oh, I didn’t even realize this person had moved to my area. I didn’t even realize this person moved away. I didn’t even realize this person worked for a company that I’m interested in. I didn’t even realize this person started a new project.”

The opportunities start to become really obvious when you start to work this system, and then it doesn’t really require me to sell it anymore… So rather than giving people a bunch of homework, I’ll give them those two bits and say “Try it.” And I don’t know anybody that’s tried it and gone “Yeah, this isn’t totally worth my time forever.”

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

Jordan Harbinger: Sure. I do the Jordan Harbinger Show where I really interview some amazing people and have them teach skills to the audience every episode as worksheets. I’m very big on practicals. Just search for The Jordan Harbinger Show on your podcast app, or if you want this networking stuff, go to AdvancedHumanDynamics.com and you can click on Level 1 and you’ll get a lot of stuff like this – practical networking and relationship development stuff that will change the way that you interact with people forever. That’s the goal anyway.

Joe Fairless: Well, relationships are the core of what we do as real estate investors. I love these two exercises, the lay off lifelines, and the text re-engagement. Thank you so much for being on the show; I loved the philosophy or the metaphor of dig the well before you’re thirsty. It certainly applies to us as real estate investors.

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

Jordan Harbinger: Thank you, man. I appreciate the opportunity.

Follow Me:  

Share this:  
interview with syndicator and property manager, Ratan Khatri

JF1334: From Commercial Pilot To Syndicator & Property Manager with Ratan Khatri

Ratan has quite an extensive real estate background. From managing other investor’s deals to buying a portfolio of 50 homes with partners and syndication. Hear what it takes to buy 50 houses in one deal, what to look out for, and how to negotiate the deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Ratan Khatri Real Estate Background:

  • Own and run a property management company in Muskegon, own over 30 rentals,
  • Bought my first house at 21, ran a mushroom distribution business and mortgage broker for 20 years
  • Immigrated to USA in 1970
  • Owns over 30 rentals, did his first syndication in 2017 of 50 sfh
  • Finishing up new book on immigrant success in America
  • Based in Muskegon, Michigan
  • Say hi to him at 231.206.1181
  • Best Ever Book: Real Estate Money Machine

Join us and our online investor community: BestEverCommunity.com

Made Possible Because of Our Best Ever Sponsor:

Are you committed to transforming your life through real estate this year?

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!


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, Ratan Khatri. How are you doing, Ratan?

Ratan Khatri: I am fabulous, Joe. How are you doing today?

Joe Fairless: I am fabulous as well, nice to have you on the show. A little bit about Ratan… I actually got to meet him in Denver – at the Best Ever conference I met him for the first time, and I really enjoyed talking to him… And I enjoyed talking to him so much that I thought we would get a lot of value from interviewing him as well on the show, and here is why – he immigrated to the U.S. in 1970 and he owns 30 rentals; he did his first syndication in 2017, when he syndicated 50 single-family homes. He owns and runs his own property management company in Muskegon, Michigan. With that being said, Ratan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ratan Khatri: Well, as you said, we immigrated here – I moved to a small town not too far outside of Detroit, in Clawson, Michigan, and I understand you grew up in Flint, Michigan, so we were practically neighbors, up the road [unintelligible [00:02:03].16] on I-75.

Joe Fairless: Yup.

Ratan Khatri: I went to Western Michigan University, I went to a flight school there, and was going to be a commercial pilot; I am still a licensed commercial pilot, but I don’t do it professionally. That’s where I met my wife, and we’ve been married for 36 years, and together 40 since college. I always loved real estate, and I bought my first house shortly after graduating from college, and we lived in that for about six and a half years, and then we moved to the West Coast of Michigan, over to Grand Haven, Michigan… I bought a house across the street from Lake Michigan there. My wife and I, we fixed that up and then we flipped that in ten months, and then I bought another house there.

Then down the road I got into the mortgage business, I was a mortgage broker for many years until the crash, and I started buying a lot more property during the crash, because it was cheaper; then it got cheaper again, and I bought some more. Then it got cheaper again and I bought some more, and then I decided to start a property management company. We manage just under 200 units at this time, and as you mentioned earlier, we bought a portfolio of 50 single-family homes/syndication/joint venture. I met two of my good friends that I have in Muskegon, I asked them if they wanted to go in on it with me, and we put the 10% down and seller-financed the difference, and we turned it over to a third-party management company, even though I owned a management company, so there was no conflict of interest.

We’re looking forward to doing more, and this is why I came to your conference, to meet people that are doing apartment buildings and mobile home parks and self-storage units. It was a home run.

Joe Fairless: I love to hear that about the conference, and even more so I’d love to hear your story in how you’ve gotten to where you’re at, so let’s dig in… Let’s see – you said you bought a portfolio of 50 homes, and it was a joint venture/syndication. Can you elaborate on that?

Ratan Khatri: Yes.I didn’t have to go too far and too wide some partners that wanted to make the investment. The offer was actually made — I went to a local Landlord Association meeting… A retiring landlord who was in his seventies – he had his son and daughter manage the portfolio for a while, but that apparently wasn’t working out, so he actually put it on the table, he set the price, and he set the down payment terms and the interest rate. He was gonna hold the note for the difference, and it was kind of a no-brainer.

The last 7-8 months we’ve been improving the portfolio, taking care of any deferred maintenance, improving the properties, and also a little bit of tenant changeover to improve the rent roll and collection rate. It’s very possible that we already have a potential buyer for it. It’s gonna be a surprising — I don’t even wanna call it a home run, I’m gonna say it’s gonna be a grand slam if it happens the way I think it’s gonna happen.

Joe Fairless: Well, let’s talk about the price and the down payment terms. You said 10%, so we got that. What was the price for the 50-unit?

Ratan Khatri: He was asking 1.1 million dollars, and we agreed to that. Then we did our due diligence, where we inspected a handful of properties, made sure they all had the certificates of occupancy. We physically inspected maybe only about 15-20 of the properties. Based on that, we were able to get a small reduction on the price of about 50k. So he financed the difference, and he had set the terms up at 6% on a 15 year note, because he wanted the cashflow for the rest of his life.

The gentleman was a very well respected landlord; he had always taken good care of his properties and had a great reputation, so like I said, it was a no-brainer to jump into it. Since then, I might have actually found another 70-unit portfolio to buy in Jackson, Michigan.

Joe Fairless: Okay, before we get into that 70-unit that you might have found – I’d love to learn more about that; I’m writing it down, so we come back to it… The price originally was 1.1, and then it got lowered about 50k, so $1,050,000(ish)?

Ratan Khatri: Exactly.

Joe Fairless: Okay, so that’s about 22k/door.

Ratan Khatri: A little over 20k, yes.

Joe Fairless: Okay, a little over 20k/door. You only inspected 15-20, so less than 50% of the homes that you purchased, but it’s a million-dollar purchase, so what is your thought process there?

Ratan Khatri: Well, we could have inspected every single property. We inspected what we thought would have been the worst ones after doing an exterior drive-by. We did drive by all of them, and then even though it’s 50 units, it’s actually 55 total occupiable units, because some of them are duplexes.

So we went into the ones that on the exterior drive-by’s appeared to need the most maintenance, and so forth. All the rest of them looked really sharp, and they had longer-term tenants in them, and we only had a two-week window to do our due diligence… And we were satisfied.

We’ve not had too many surprises. We planned on having to replace a few furnaces and we planned on having to do a few roofs just from the exterior… So so far there haven’t been any surprises, and the management company that we took on to manage them for us is doing an exceptional job. The portfolio just continues to improve in value, in quality of tenants and in quality of the properties.

Joe Fairless: The down payment, (10%) is 105k. Did you three split that equally and get equal ownership?

Ratan Khatri: Yes, we set up an LLC and we had one of our local attorneys who was also a friend of all of us drop an operating agreement. We set up a bank account, and we all three put in one third each, basically. My one third is actually me and my wife, and we did that through our retirement account. That’s one of the reasons we couldn’t touch the property, so we had to have a third-party management also for that reason.

Joe Fairless: Okay. I was gonna get to that question that you mentioned about it, but you just answered… Okay, cool. So you each have 33.33% ownership in the deal, and you have equal say in what takes place, right?

Ratan Khatri: Yeah, we have a meeting about once a month. We get a report from the management company, we review the maintenance costs, the evictions and so forth. Right now I believe of all the occupiable units we only have two that are vacant. The demand is very strong in our market, as it is in most markets, so we’re able to keep them more or less full. It didn’t start out that way, of course, but our cashflow the first month might have been like $15,000 or $17,000 and in the last couple of months it was in the mid-twenties, and at full capacity it should be about 30k/month.

Joe Fairless: Is that income, or the net?

Ratan Khatri: Top-line.

Joe Fairless: Gross income, got it. Cool. It’s basically a partnership, so you did a joint venture with a couple friends, and you each put 33% in… As far as the business plan goes, you said early on it wasn’t as smooth as it is now; how much did you allocate to invest into these properties?

Ratan Khatri: We have put everything that has come in back into the properties. All of us decided that we weren’t gonna take anything out until the portfolio was running satisfactorily and cash-flowing properly. We’ve only had it like seven months and we’ve all put in another 5k-10k/piece in since then for all the maintenance that was unfortunately deferred, and we have taken care of all of that stuff. This spring we’re gonna be putting on half a dozen or so roofs. Our estimation was it would take six months to a year to get the portfolio performing at the projected expectations.

Joe Fairless: Okay. So you’ve put in 105k initially plus up to about 30k, so that’s 135k or so. For these new roofs are you out of pocket, or is that from the cashflow from the property?

Ratan Khatri: Most of it should be from the cashflow from the properties. We don’t anticipate having another cash call, but sometimes you don’t know. Overall, each month the rents roll has increased and the collections have increased, and the quality of the tenants has increased, so the pay performance is getting better each month.

Joe Fairless: Did you anticipate having the first cash call?

Ratan Khatri: Yeah, we kind of expected it and we planned for it. We had a meeting and we said, “Hey, at the end of the month we’re gonna need 10k”, and we were able to take care  of it… So it was not a surprise.

Joe Fairless: With three people who have equal ownership and have put in the same amount, how do you determine who has the additional responsibilities, like overseeing the management company? You got seller financing, that’s pretty easy… But insurance is in place, and property taxes are paid – who deals with all that stuff?

Ratan Khatri: Right. Initially, we found the insurance company, and the management company pays the insurance. The tax bills go to the management company and they actually pay them almost a month early. So the taxes are all current, and they handle the day-to-day issues. Then one of our partners – Steven, who I think you’re actually gonna be interviewing in the future, because he does the sheriff’s sales… He has taken the lead on communicating with the maintenance person at the management company, and when they have issues over — I think it’s either $500 or $1,000, they give Steven a call and Steven approves it.

Joe Fairless: You said you might have not a home run, but a grand slam… What information can you share about that?

Ratan Khatri: We had a broker from Grand Rapids, Michigan that we contacted, that had sold a similar portfolio in Lansing, Michigan, 60 properties for only 3.3 million. We contacted that broker to see if they had any buyers that missed out on that portfolio or maybe couldn’t afford that portfolio and are looking for something similar to that, and they indicated to us that yes, they did. We haven’t listed it yet, but we’ve been communicating with them and they have put a value of about 1.79 on this portfolio if we were to list it today.

Joe Fairless: I’ll round up 1.8 million, and you’re all in about less than 1.2, I guess?

Ratan Khatri: Yes.

Joe Fairless: Yeah, so it’s like $600,000, and then you’ve got miscellaneous fees, and things…

Ratan Khatri: Cash-on-cash it’s like five or six times. I haven’t done the math, because it’s not in our bank account yet.

Joe Fairless: Not a real thing yet, yeah. It’s nice to have those projections, but then whenever it becomes reality — that’s great though, that’s a great sign.

Ratan Khatri: It is, and the funny thing about having the three of us — myself, I was more optimistic about the value; I kind of thought that they were worth 40k/piece, and Steven was more pessimistic; he thought they were about 30k/piece. Then Gary, our third partner – he was in the middle, at 35k, and the real estate broker from Grand Rapids came in at a value of 36.5k average per unit… So Gary was closer, and I was too optimistic.

Joe Fairless: Well, anytime you can take $35,000 and then multiply that by four or five in a span of 24 months, assuming everything pans out – bravo! Right? You take that.

Ratan Khatri: Exactly, exactly. Again, having the three of us – it was kind of a unique situation. We’ve all done joint ventures before, we’ve all had partnerships before, and I kind of took the lead on this one. Steven initially didn’t wanna do it, but I twisted his arm a little bit. Gary was on board in two minutes, and it was a pretty simple deal.

All of us have a lot of experience and we knew what we were getting into, so there’s no surprises in that sense, because we know the marketplace well, they’re all in our own backyard and we all own properties in our backyard.

Joe Fairless: Would you cash out and pay the taxes, or would you do 1031?

Ratan Khatri: Mine is gonna go back into my retirement account, so I won’t be affected. Steven is gonna probably do a 1031 exchange on his share, and Gary I think is gonna end up paying capital gains.

Joe Fairless: How can Steven do a 1031 and you two not do it?

Ratan Khatri: Well, we have the LLC, so we’re selling the LLC, and the proceeds that go back into the LLC should revert back to the entities that own the shares in the LLC. In my case, my Roth IRA owns it, so the funds will go back to my Roth IRA, because my share is owned by the Roth IRA.

Joe Fairless: The entity that you currently have would need to be on title for the next deal, right?

Ratan Khatri: Exactly.

Joe Fairless: Got it. So you two would exit… One person would take the money and pay taxes, you would put it back in your account, and then the third individual who would 1031 would need to factor in you two exiting, because when he eventually sells, he’s gonna have to pay the taxes on the gains that would have been paid out for the whole entity right now, correct?

Ratan Khatri: I don’t know all those details, Joe, but my best guess is that I know that I won’t be paying any taxes on it because my Roth IRA owns it, and the 1031 exchange part — because if we had made a profit on the first four months, which we didn’t, at the end of the year we would have received a K-1 for whatever proceeds that our each individual entity received from one third, and we would pay tax on our own one third.

Joe Fairless: I’m guessing that’s what’s gonna happen, but have that person talk to a 1031 person, because basically the entity is gonna have to pay taxes on the whole gain eventually, whenever they stop 1031-ing… So people who exit out in between point A and point Z – there’s gonna have to be some sort of calculation of what those taxes would have been… Otherwise, when the music stops and there’s only one chair, the person with the property at the very end – 20 or 50 years down the road – has got a huge tax bill if they’re not preparing in advance.

Ratan Khatri: I understand and I agree with you. They will have to look at that carefully.

Joe Fairless: The 70-unit deal – how did you come across that?

Ratan Khatri: Well, I was at the Grand Rapids Rental Property Owners Association conference last weekend, and they have what they call a deal room where people enter and talk about deals they want to sell, and deals they want to buy. All three of us were actually there at the conference, and then during two different deal room sessions, I had mentioned that we have this portfolio for sale and that I’m looking for more, and it was a realtor from Jackson, Michigan that said that there had been a landlord that owned 70-something units, and he had passed, and his son was having difficulty managing the properties… So she is going to get me the information, and once I have the information, I’ll evaluate the deal and do the due diligence and see if it makes sense to pursue further.

Joe Fairless: Is this the same meetup that you got the first deal from?

Ratan Khatri: No, the first deal was from the Landlord Association that meets in Muskegon, Michigan; I’m a member of that and I do frequently the seminars that teach [unintelligible [00:17:31].26] different landlords, different things, and as I have a management company, I’m exposed to more experiences and more situations that occur… So I share those monthly at the Muskegon meeting. The Grand Rapids association is a much larger association, and they put on a convention once a year [unintelligible [00:17:51].14] Grand Rapids, Michigan; that’s a very nice conference, and they have national speakers come in… During the breakout sessions, one of them is the deal room session (breakout session) [unintelligible [00:18:02].04] from Grand Rapids.

Joe Fairless: Do you remember how much the ticket was to the Grand Rapids conference?

Ratan Khatri: It’s free.

Joe Fairless: Free. So you went to this Grand Rapids Conference and you might get a deal from it, and then you attended the local landlord association meetup in Muskegon, Michigan, and you did get a deal from that…

Ratan Khatri: Yes…

Joe Fairless: There’s a theme here, clearly… We should all attend our local meetups, first off. But secondly, when the individual – the gentleman who had the portfolio of the 50 homes – stood up and said “Here’s what I’ve got, here are the terms”, how many people went up and talked to him?

Ratan Khatri: Well, he was in Florida actually, and one of his friends had handwritten copies stapled together of the portfolio; it was nothing formal, and the gentleman just put the five or six copies on the table. I grabbed one, Gary (one of my partners) grabbed one, Steven had already heard about it during the day earlier and I already had spoken to the gentleman while he was on the golf course in Florida, and was asking if he could split up to two different cities that the portfolio was in… Both cities are adjacent to each other, but Steven didn’t want 15 of the properties, and the gentleman said “No, it’s all or nothing.” So Steven had originally passed on it, but I twisted his arm in the next day and we ended up doing the deal.

Joe Fairless: So what I heard is someone put five or six copies on the table and you and your crew took all those six copies so no one else could bid on the deal?

Ratan Khatri: No, no…

Joe Fairless: [laughs] I’m kidding, I’m kidding…

Ratan Khatri: [laughter] But the answer to your bigger question is many other people were not interested. We’re in a smaller town, and unfortunately many of those landlords still wanna self-manage, which I’ve always tried to educate people on where that’s not a good idea and why they’re just creating a job for themselves. My management company — the reason I was at the Grand Rapids conference is I had actually a booth there to promote my management company and promote the city of Muskegon as where the deals are, because Grand Rapids (like many other markets) has grown substantially, and price points are higher than ever, rents are higher than ever, and the cap rates are in the fives and the sixes now, and just the deals just aren’t there.

So Muskegon is 30-45 minutes down the road and you can still find exceptional values and exceptional cap rates, and sometimes even you can find terms. Not a lot of people jumped at that portfolio, and for us and for our experience that all three of us partners have, it was kind of a no-brainer.

Joe Fairless: Would someone without the experience in your market be able to pull that off? Because you hired a different third-party management company, so it’s not like you were the one on the ground in this case… So could a New York City investor – if they heard about this deal, could they have pulled it off, too?

Ratan Khatri: Absolutely. I manage for many people from California, and I have a group out of California that I manage 67 of their properties for them inside my management company… So yes, we have a lot of out of state investors that find fabulous value in the city of Muskegon; I think sometimes when you’re too close to the market you kind of have a negative view of it. Cashflow is fabulous, and I saw no reason not to do it. If these two guys hadn’t wanted to do it, I would have found three other guys that would have wanted to do it.

Joe Fairless: Next time give me a  call, please. [laughter]

Ratan Khatri: I certainly will, I’ll take you up on that.

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

Ratan Khatri: I think I have a couple different points, if I may. Number one – if you’re a beginning landlord, do not do it yourself; hire the management company. My company – we have a flat fee… We charge $60/month, and it’s well worth every penny, so that the beginning landlord doesn’t have to go and do everything themselves. If the property is a turnkey property, you shouldn’t have to do anything. So that’s one piece of advice – don’t do it yourself, hire a management company.

The overall advice really would be to just jump in and do it. Too many people sit there and analyze things to death, and they miss out on so much opportunity. That’s one of the things we talked about, how immigrants succeed here, and how they think a little bit differently and how they see opportunity, whereas other people just wanna analyze it, analyze it, and have other things that they wanna do with their investments.

Joe Fairless: And you’ve got a book – did you finish your book? I know you were writing a book about what you just talked about – immigrating here and having success.

Ratan Khatri: Yes, the book is written. I’m in the process of editing it and making it more readable and more saleable. I won’t give it a title right now, but I will give it a subtitle: to succeed in America, you have to think and act like an immigrant. The basic things are being frugal, saving, and then turning those savings into investments and assets, and then having those assets produce cash for you to live off of. The more you do of that, the more you’re going to have coming in passively.

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

Ratan Khatri: Absolutely, let’s go for it.

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

Break: [00:23:25].11] to [00:24:30].23]

Joe Fairless: Best ever deal you’ve done?

Ratan Khatri: The best deal would be this 50-unit portfolio. The back-end return on that is just gonna be awesome, and I’m gonna parlay that into hopefully more and larger deals.

Joe Fairless: Best ever book you’ve read?

Ratan Khatri: I’ve read many books, I’m an avid reader. One of the first ones that I read about real estate was written by a gentleman named Wade Cook, it was called Real Estate Money Machine. And of course, Rich Dad, Poor Dad, and Lowry’s books… All the old gurus that originally started this business – I’ve read all of their books and I apply many of their principles to this day.

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

Ratan Khatri: The commercial building that I’m presently in – I bought that and had it built at the peak of the real estate business (before the crash), and unfortunately it’s still mostly vacant, and I’m carrying the load… That was probably my biggest mistake in real estate.

Joe Fairless: If you were presented a similar opportunity again, how would you approach it?

Ratan Khatri: I would have either wanted to pass on it completely, or I would have to have it pre-leased before I committed to buy it and have it built.

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

Ratan Khatri: I have a friend of mine in Muskegon – her and I, we put together this house… It’s a 7-bedroom 3-bath house, and it’s called The Patriot House, if anybody wants to do a search on it. I went to a breakfast meeting one day and they said there’s a major homeless veteran’s problem in Muskegon County… So when this house came up, I decided I was [unintelligible [00:25:58].23] for housing some of the homeless veterans. We provide all of the utilities, and laundry, and internet, and cable, and beddings, and furnishings, and they pay a minor amount of rent, because they can’t afford a house on their own or apartment on their own. We provide housekeeping services, laundry on site… I love this country, and my way of giving back is to help some of the veterans that need help.

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

Ratan Khatri: We have our website for our management company, it’s rkpmgt.com. Also, they can call me directly on my cell, which is 231-206-1181. I’m also on LinkedIn.

Joe Fairless: Ratan, thank you so much for being on the show and talking to us about this case study, the 50-home portfolio, which is actually more units than 50 – what did you say, 56?

Ratan Khatri: 55 total.

Joe Fairless: 55 total livable units; 50 homes. The business plan, how you found out about it at the local Landlord Association, the partnership structure that you ended up doing, and how much you’ve put into it, where that’s gone, and the projected value right now, along with those returns, based on selling it at that value… So thank so much for being on the show and talking about that, as well as your overall approach. I’m looking forward to reading the book myself whenever your book comes out.

I hope you have a best ever day, and we’ll talk to you soon.

Ratan Khatri: Thank you very much, Joe. I really appreciate it, and best wishes and success to you.

Follow Me:  

Share this:  

JF1308: From Small Deals To Over One MILLION Square Feet Of Office Space with John Bogdasarian

John is here to tell us how he went from no money down loans (because he had no money) to owning a huge portfolio of commercial and residential real estate. Hear high level money raising, asset management, and investor relations tips in this educational episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


John Bogdasarian Real Estate Background:

  • President of the Promanas Group, a real estate investment firm
  • Began with nine initial investors, has strategically guided the firm to serving more than 300 investors today
  • Ownership in multiple entities with more than 2M square ft. of industrial, warehouse and distribution space
  • Has well over one million square feet of office space
  • Obtained his Certified Commercial Investment Member (CCIM) designation in 1999
  • Based in Ann Arbor, Michigan
  • Say hi to him at https://promanas.com/
  • Best Ever Book: Atlas Shrugged

Join us and our online investor community: BestEverCommunity.com

Made Possible Because of Our Best Ever Sponsor:

Are you committed to transforming your life through real estate this year?

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!


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, John Bogdasarian. How are you doing, John?

John Bogdasarian: I’m doing great.

Joe Fairless: That’s great to hear, nice to have you on the show. A little bit about John – he is the president of Promanas Group, a real estate investment firm. He began with nine initial investors, and has strategically guided the firm to serving over 300 investors today. They’ve got ownership in multiple entities with more than two million square feet of industrial warehouse and distribution space, and has well over one million square feet of office space.

He’s got a CCIM designation, had it for 1999 to 2018. What is that math? That is about 20 — is that almost 20 years?

John Bogdasarian: I’m that old.

Joe Fairless: Holy moly. That’s crazy, almost 20 years. Based in Ann Arbor, Michigan. With that being said, John, do you wanna give the Best Ever listeners a little bit more about your current background and your current focus?

John Bogdasarian: Yeah, I started out as a residential agent. I was actually just a broker, selling houses, and I started figuring out very quickly that I was always working myself out of a job; you only got to eat what you killed. So I started buying single-family homes, and I built a portfolio of about 20 single-family homes, doing very low down – and even zero down – type deals, because of course, I didn’t have any money. That’s where I really cut my teeth, in that real estate residential arena.

Then after a while the deals got bigger, and I found some things that made sense, but I didn’t, again, have all the money to do it, so that’s when I started syndicating deals. I didn’t really have any idea, I was sort of figuring it out; there’s a lot of information out there today, and it’s really interesting… I’ve been on a few podcasts, and this is a great one; I’ve listened to a number of your episodes, and back then, there was nowhere to learn this process. I just kind of conjured it, and just kept doing deals and figuring it out, and getting a little bigger, and then really started taking on investors in earnest in about 2005.

We really only work with accredited investors, so that’s mostly what I can speak to, is what makes a smart investor and what they should focus on, and things like that. But I did the whole do-it-yourself, start-from-nothing as well, so if that’s of interest to anybody, I can certainly speak to that.

Mostly what we do now is we purely represent accredited investors, we put deals together, fund development deals, acquisitions, we run a major portfolio and we just distribute out cash pro rata. I like to say we make rich people richer.

Joe Fairless: Well, let’s talk about that, because the Best Ever listeners tend to have some deals under their belt; we’ve got a lot of passive accredited investors as listeners, and then have people who are syndicating deals, or wanting to syndicate deals. They have bought those homes similar to what you did starting out, and they wanna go larger. So let’s focus on what you’re doing now, versus how you got started, and some things that might be of interest.

So what’s the most challenging question an accredited investor asks you?

John Bogdasarian: You know, the scary thing about it, to be honest with you, is that I don’t get many questions anymore. Most of our investors are direct referrals, and they hear about it – “Hey, I heard from Bob that you make him money. Can I get a couple shares? Here’s a couple hundred grand.” “Do you have any questions?” “No, I don’t know anything about this stuff.” And that actually is the worst thing I get – no questions.

In terms of tough questions, I would say the toughest questions are easily answered at this point in time. I wouldn’t say there are any difficult questions, but there are good questions, that’s’ for sure.

Joe Fairless: Good distinction. What are some good questions?

John Bogdasarian: Some of the best questions I get – and this is what I’ve discovered about the smartest investors that I have, all of them, hands down, almost all of their questions are about me, the person representing the deal: my background, my track record, my motivation… And not as much about the deal itself.

The good questions are kind of things along the lines of “Why are you doing this project and what do you see the likely outcome of it being? What is the worst-case scenario? What’s the worst deal you’ve ever done? Where did you learn to do what you do, and how?” They’re not focusing on pedigree or what university I attended or anything like that, they’re focusing on experience and where I am in life and what my overall deal philosophy is.

We tend to take very much a preservation of capital strategy first. We wanna know that our worst-case scenario is that potentially our equity gets locked up in a deal for longer than we’d like, and maybe we end up accepting a lower rate of return. This actually has not happened, but we kind of look at it like “That’s what could happen.”

We’re very much into trying to set expectations and temper them and look at the downside of the deal, and those are the best questions I think I get from people, for those types of things… If that makes sense. I’ll tell you some worst questions I get, too.

Joe Fairless: I’m gonna write that down and we’re gonna get to the worst questions, because you’ve piqued my curiosity for sure… But I do wanna ask a follow-up question on the types of deals that you do. How about we take a step back and talk about the types of deals you do, because for other syndicators or aspiring syndicators – and then also for passive investors – it’d be interesting to know how you’re able to have a good return for your investors, but then the worst-case scenario is equity gets locked up, versus you lose it all, then there’s a capital call, then you lose that, and then everyone’s upset.

John Bogdasarian: Sure. Well, to speak to the asset — we don’t really focus on a specific asset class or geographical location. We’re really situationally-driven is what I like to say. What I mean by that is I’ve done single-family homes, obviously; I had a big portfolio of those at one point in time, that I sold actually earlier this year. Apartment complexes, small retail properties that were more service-based businesses, ground lease deals where we owned the ground and leased the land to restaurants like McDonald’s, TGI Fridays, Joe’s Crab Shacks, Applebee’s… We owned a number of Applebee’s at one point in time… Special purpose buildings we’ve done, bowling alleys; I owned a bowling alley in Baton Rouge, Louisiana… Don Carter All Star Lanes – if anybody’s listening from Baton Rouge, they’ll know Don Carter.

Joe Fairless: I know Don Carter from Fort Worth. There’s a Don Carter’s in Fort Worth.

John Bogdasarian: Is there?

Joe Fairless: There used to be, I don’t think there is anymore.

John Bogdasarian: A very famous bowler from back in the day… But I’m not a bowling guy really; only for entertainment, at my kid’s birthday parties now.

We have industrial, we have multi-tenant office, we have single-tenant office, we have hospitality, we’re building a hotel, we do acquisitions of existing properties, we build from the ground up, I’ve done office condominium projects, residential condominium projects, land splits, subdivisions… So really no two deals are anywhere close to being the same to each other from an asset type or whatever, but situationally they’re all the same. Situationally, what we’re doing is we’re structuring a deal whereby we have many layers of protection before our equity is at risk. And what I mean by that – I’ll give you a quick example, on a condo deal we’re doing right now, where a guy… And so you know, we don’t always act as the principal developer. So for the younger people starting out doing deals, we’re a very good source to developers all over the country. We have people we’re working with in Denver, Nashville, Florida, where they have a project teed up, they have it ready to go – or not ready to go; maybe they just have it concept-ready and they need the money to get it through the approval process and get it built and do whatever.

So what we will do is come in and we’ll say like I, John Bogdasarian, am the investor; I negotiate a deal with him and say “I’ll provide all the money, and here’s how we do it.” If they like our proposal, which 99 times out of 100 they do, then boom, we get involved together and we go forward and do this deal, and then I’m accountable to my group of 300-400 investors (that’s about where we are now). We put the package together, syndicate it, put it out, and put the shares out. So we’re between those two groups, essentially.

An example of how I would structure something like this is our Kingsley condos we’re building in downtown Ann Arbor right now. A guy comes to me, the land is four million dollars (let’s say) and we wanna build these condos on it and sell it, and everything else. I say “What kind of debt do you have on the property?” Let’s say they have a million and a half of debt on the property; I say “Okay, here’s what we’ll do – we’ll close on the land, we’ll pay you the million and a half, but you’ve gotta contribute the other 2.5 to the deal, and you get that once we get the return of our equity.”

So let’s say we have to put 8-10 million dollars in equity into that project. We go, we build this thing, we have another (let’s say) 20 million dollars of bank debt paired with that. We go, we build it, we sell condos… We first use the condo sales to pay the bank, we then use the condo sales to pay back all of our investor capital first, then he gets the balance of his land – so he’s risking his land against that, and then his profits also come at the end as well.

So essentially, we have multiple layers of what I call protection before we get [unintelligible [00:12:13].23] The only thing that’s ever in front of us is the bank and the lender, and I would say it is possible to go out and put something up and over-leverage and build into a bad market and lose the money. The worst-case scenario is always you lose all your money. My investors don’t sign personal guarantees on our debt or anything, so they could lose all their money. But for that to happen, with us putting 35%-40% down on a project and projecting a pretty massive profit on the back-end, the profit has to erode, and then a lot of things have to go away before we’re losing our money.

Typically, we have a certain number of pre-sales that would pay the bank down to a number that’s good enough so that even if we were stuck with 20 units, we could just refi the bank out of that position, or I have enough cash around myself typically that I can just pay the bank off and charge some nominal 5% interest-only while we rent those units out and wait for the market to come back, to sell those units. Sometimes that can be a long wait.

In 2006 I was selling my single-family home portfolio as fast I could. I could only get rid of so many, and then the market tanked in 2007 and I just sold the rest of them all in the spring of 2017, so that temporary setback lasted 10 years. But the good news is they were rented the whole time, and there was plenty of income behind them, so there was something backing them. I didn’t lose any money, I just lost net worth on paper. So that’s kind of an example of how we would put something together.

Joe Fairless: That’s helpful, I love that you went through a specific case study. And with your deals – and you’ve got how many going on at one time?

John Bogdasarian: That kind of depends on the season and the time of year, but typically about five or six is about where we are right now. It used to be we’d have one at a time, one acquisition; we’d be doing one deal, because it was me and an assistant and one other guy. Now I have a team and an investor relations department and a marketing department, and a lead asset manager, and a chief operating officer and a chief financial officer, with people reporting to all these people.

So as the organization has grown, we’ve been able to do more. Right now we’re kind of at my comfort level. I don’t ever like to get too many cards out of the table – or too many chips, I should say – without seeing some of them coming back in, and seeing things being realized. We started getting into development about three years ago, and I started testing it with small projects. 18 townhomes – it was a small 6-8 million dollar deal we did, total deal size. And then once we saw that worked and we saw how the numbers came in, then we would expand and do 2-3 more in that particular market, higher-level deals.

Right now though, we could handle way more than six. I need 2-3 months to see the sales going and the lease up and so forth. We just don’t like to get over-extended. We wanna be able to back this stuff up if for some reason it’s not working out as we originally projected… Which again, knock on wood, we haven’t had that happen, but it can.

Joe Fairless: With that case study, I was taking notes and trying to get some of the core pieces, but it would be helpful if you can summarize – when you go into a deal, since as you said, no two deals are the same, so you look at risk mitigation and capital preservation… What do you make sure is in place for every deal, so that you have capital preservation at the forefront?

John Bogdasarian: So another example – I can’t remember who it was, but on one of your shows you had a guy who bought apartment complexes, and it kind of blew my mind because he was buying like 50 units and less, and I was like “Wait a minute, that doesn’t work. You’ve gotta have 100 to 200.” But he said something in there that was critical – he said “You know, the fact is the cost to manage these things and maintain these things is way higher, yes, but if you put that number into the deal, it’s okay, because you’ve got enough to do it.”

That’s a mistake I made at one point in time – I bought an 84-unit apartment complex and I realized I’ve gotta pay a full-time manager, I’ve gotta pay a full-time maintenance guy, and the only reason I was able to make that work was because I owned a ton of single-family homes in that same area and I had him run all those as well, so I could diversify their cost… But that was a lesson.

So I would say basically on an acquisition, the layers of protection we put in there – a broker will tell you you need 15 cents a foot per year as a reserve on an industrial building. We put a dollar a foot per year in there as a reserve… And that’s even if we have like a 15-year absolute net lease, we still will let a buck a foot in there to accrue over the life of our hold period. Multi-tenant office buildings – two dollars  a foot as a reserve, because you’ve got buildouts, TI, leasing commissions… It’s expensive.

So we’ll put hefty reserves in there… We have not only a property management fee that pays for really managing the property, but we also have an asset management fee, because we’re running 300 investors, and reporting to them and doing other things. These are things that we could theoretically live without if we had to, without missing projections to investors; we could cut those back. We wouldn’t wanna do that, but they’re layers of protection that we put into the deal.

It’s kind of like the godfather – you wanna sit in a place where you can see the exit. We pretty much wanna see the exit. I know you’re gonna get to some questions about some of the most important lessons or mistakes or things, because you ask good questions on your shows and I’ve heard them… But for the most part, these are the types of projections we put in there — or protections we put in there.

Another one is just having the trust of my investors. We came across a deal, for instance, on a hotel, and we had originally projected that 10 million would be enough equity to get the hotel built, based on the loan quotes we had. And we had a lender basically change the terms of the loan on us the last minute, and they wanted us to put in three more million dollars of equity… So I just created a mezzanine piece. I had plenty of mezzanine lenders that would have loaned that three million, but we don’t do mezzanine loans because they tend to be predatory lenders, and we certainly don’t wanna risk our capital with an extra lender… And they have pretty high fees, and so forth.

So what we do is create a short-term loan opportunity for our members and say look, we have this loan, let’s say, for 25 million and we really need 28, so we have an opportunity here where the members can loan 3 million dollars temporarily, and once the thing is built and stabilized, the lender will extend that extra three million out and we can pay you back.

In addition to that, I’ve never had to make a capital call. Like I said, I hope I don’t. But if I did and it made sense, it wouldn’t be very difficult for me on any one of our deals to double the money that we’ve got in it in about 24 hours. So that’s why we try and go smaller, gross lower than we can.

I know, for instance, if I put 4 million dollars in a deal and that represents 30% down and the bank gets squirly or we can’t sell units, I can just raise another four million and boom, pay the lender down to some stupid number, or raise a little more and pay him off, and we can own it free and clear. Because again, we’re not building things in farm fields, for special uses. We’re going city infill, where demand is far outweighing supply, and it’s just a matter of time, if there’s any setback at all, for us to hit our numbers.

Joe Fairless: Is the asset management the same across different types of asset classes?

John Bogdasarian: It varies, but it’s similar. I don’t like property management, I’m being honest with you. I’m not a day-to-day operations guy. I like to say I have a lot of RAM, but I don’t have a giant CPU. I can figure things out very quickly and make quick work of stuff, but on a day to day basis, day in and day out, dealing with managerial tasks is very challenging for me… So I initially try to outsource all property management, and was really disappointed, frankly, at the level of service we got, and reviewing the expenses…

One of my best friends came on board years and years ago and is now my business partners. He’s the director of operations and he is an incredible day-to-day eye on the ball management mindset, so we complement each other very well, and we’ve taken all management in-house, and we’ve been able to shave costs substantially… Which doesn’t always make us more money, because a lot of our properties are triple net, and even absolute net leases, but in some cases we’ve been able to save our tenants a dollar or even two dollars a square foot on their pass-throughs. And when it comes time for a lease renewal or negotiation, we can point to that and say “Hey, we need a 50 cent/square foot bump here, but look, we’ve saved you $1,50/foot on your expenses.” So it does eventually pass through to us, and it’s just good business.

Joe Fairless: I guess I was asking that question because I’m just wondering what is an asset management fee? Not property, but an asset management fee for office versus industrial versus apartment community versus hotel.

John Bogdasarian: Oh, okay, I get it… So an asset management fee is very similar across all the assets. The property management fee itself covers property management. If we have an office building, the property management fees are higher because there are salaries that are attributed to those buildings. So the buildings themselves pay the expense of running the buildings, and property management is not really a profit center for us. It’s just basically a breakeven to manage all these properties.

The asset management fee, which theoretically should be a profit for us, is not really a profit for us either. It just covers office overhead, and salaries, and it basically allows us to break even. We might be slightly positive now. I think we crossed over from losing money… When I started out it was like a $50,000/month drain, so everytime we closed a deal, I’d make a commission and pay off a line of credit at the bank, and then start drawing it back out again to get to the next deal. This happened from 2009, all the way to — actually, it started in 2005, I guess, all the way through probably 2015 is when we got to the point where our global asset management fees (property management fees, everything), we started breaking even on that, probably about 2015. And it’s kind of interesting, because the acquisitions market has really dried up. We haven’t really bought anything in the last year, so we haven’t really added asset management fees.

We do now have developer fees on deals. That’s another layer of protection. We have these big developer fees on these projects we’re doing, but we don’t charge those. So far we haven’t charged those as we’ve been building the project; we wanna draw them out, we let them accrue, and we wait until the end to make sure that we’re gonna be able to return 100% of investor capital, pay the bank off and give people their pref return before we draw that money out. Legally, we can take it, but so far we have not, we just accrue it, because again, it’s just a protection mechanism.

Joe Fairless: And just so I know – your asset management fee is or is not the same on a hotel versus an apartment?

John Bogdasarian: It’s the same as a percentage. In our PPM, in our subscription agreement we reserve the right to charge up to (I think it’s) 6% of the net operating income of the property as an asset management fee. And sometimes it’s all of that 6%, sometimes it’s half of that… We kind of look at it and say “Is this thing causing us a bunch of headaches and hassles and so forth?”

What I will say to young syndicators and to investors is that it’s very important that you operate with 100% transparency. All of these things are explained, outlined, they’re part of the prospectus, they’re in the PPM, and all our returns that we project and calculate to investors are net of every fee that can be charged. I just think you have to do that, there’s no reason not to; for deals that bad that you’ve gotta hide stuff, then you don’t wanna be doing it anyway.

Joe Fairless: It makes sense. What is your best real estate investing advice ever?

John Bogdasarian: Focus your questions on the sponsor, do the work once and get paid forever. You find a good sponsor, you do your due diligence on him, they’ll make you money forever, if you’re an accredited investor.

Joe Fairless: What’s a worst question that you receive? Because I mentioned we’d get back to that… What’s a worst question?

John Bogdasarian: The single worst question I get is a statement, and it’d be a statement about a certain market, or somebody not thinking something’s gonna sell, or whatever. It’s someone second-guessing what I know. I’m interested in the input, I’ll listen, but the reality is I kind of feel like I know what I’m doing and that they should be coming to me and not doing it themselves.

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

John Bogdasarian: Sure, let’s go.

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

Break: [00:25:54].04] to [00:26:22].17]

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

John Bogdasarian: Atlas Shrugged, by Ayn Rand.

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

John Bogdasarian: By far and away a deal called Crown Point. We bought a billion for 3.6 million dollars. The investors made an 18% return in six months, and then I sold the property two years later for 11.3 million and split the profits 50/50 with the guy who brought me the deal.

Joe Fairless: And the investors made 18% because there was a refi and you cashed them out, or how did that happen?

John Bogdasarian: We bought it all cash, closed in seven days; the investors got all their money back, plus 18% in six months, and then they were out of the deal. We don’t typically do that. We would like to keep the investors in the deal. But the guy who brought me the deal, that was a condition of the deal – the investors got their 18% and they were out, and then he and I owned the deal together. He didn’t want a lot of investors. But the investors made 18% in six months, so everybody was happy… But we took a 3,5 million dollar cap gain on it.

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

John Bogdasarian: The biggest I’ve ever made is… Two of them. One is not doing enough due diligence up-front, and the other one is being too creative and too tricky in getting something done and closed that other people cannot get done and closed, and then I was trapped in it. A quick example – I bought a six-unit, nobody could get commercial financing; once you go over four units, you might as well go to 400. So I got a six-unit done because I have the credit and I could just get it done with a bank on a line of credit. Then when I went to sell it, I couldn’t get it sold because nobody could buy it.

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

John Bogdasarian: My favorite is my wife’s charity, called The Generosity Project. We also like the 2|42 Community Center here in Michigan; they’ve opened multiple church/community centers throughout Michigan and the country… But thegenerosityproject.org.

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

John Bogdasarian: The best place is ir@promanas.com. Or lisa@promanas.com.

Joe Fairless: Your website is promanas.com, right? And that will be in the show notes. Best Ever listeners, you can click on that and go check out John’s group.

John, thank you for being on the show, talking to us about your career and what deals you’ve done, how you approach your potential deals – you’re situationally-driven, not focused on an asset class or a location, and how you apply that so that you are mitigating the risk and being focused on capital preservation with your deals, regardless of the type of asset class it’s in, or location.

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

John Bogdasarian: I appreciate it, thank you very much.

Follow Me:  

Share this:  
Joe Fairless's real estate podcast

JF907: How to Transform an SFR into a Duplex #SituationSaturday

Abracadabra! Transforming a single family home into a duplex could bring in some magical returns! Hear how our guest saw a need in Michigan for housing and doubled his cash flow.

Best Ever Tweet:

Charlie Kao Real Estate Background:

– Owner of iBuyHousesMichigan
– Began real estate investing after moving to California and worked with clients who were investors
– Has purchased 19 homes since moving to Michigan in 2008
– Invests in variety of homes but his niche is non certified condos and homes off busy roads or next to graveyards
– Currently working on building wholesaling business and expanding network
– Based in Grand Rapids, Michigan
– Say hi to him at http://ibuyhousesmichigan.com/

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

Subscribe in iTunes and Stitcher so you don’t miss an episode!


Follow Me:  

Share this:  
real estate pro advice

JF888: LOSING $60k, Graveyard Flip and Converting an SFR into a DUPLEX!

Strange and dreary, yet there is always certainly a buyer at the right price. Our guest also converted a single-family house into a duplex for greater cash flow! Hear how he analyzes a deal and why he takes extreme caution before purchasing another investment.

Best Ever Tweet:

Charlie Kao Real Estate Background:

– Owner of iBuyHousesMichigan
– Began real estate investing after moving to California and worked with clients who were investors
– Has purchased 19 homes since moving to Michigan in 2008
– Invests in variety of homes but his niche is non certified condos and homes off busy roads or next to graveyards
– Currently working on building wholesaling business and expanding network
– Based in Grand Rapids, Michigan
– Say hi to him at http://ibuyhousesmichigan.com/

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

Subscribe in iTunes and Stitcher so you don’t miss an episode!


Follow Me:  

Share this:  
Best Ever Show Real Estate Advice from experts

JF793: How He Bought a Rent Ready DUPLEX for $12,000!

One man’s trash is another man’s treasure and that’s certainly what happened in this episode. Our guest picked up a $12,000 duplex because the previous owner was not as diligent with his systems of buying and holding. Hear how he provided quick solution for everyone in the transaction.

Best Ever Tweet:

Jim Sakalis Real Estate Background:

– Partner at Vash Investment Group
– Involved in more than 12,600 real estate transactions generating over 300 million in sales
– Over 20 years’ experience in real estate
– Based in Flint, Michigan
– Say hi to him at http://www.jimsakalis.com
– Best Ever Book: How to Win Friends and Influence People by Dale Carnegie

Want an inbox full of online leads?

Get a FREE strategy session with Dan Barrett who is the only certified Google partner that exclusively works with real estate investors like us.

Go to http://www.adwordsnerds.com strategy to schedule the appointment.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Follow Me:  

Share this:  
no fluff real estate advice

JF709: How He Bought 16 Units with $5000 Down!

He’s 23 years old and is living the dream! His family has hustled in real estate to help his brother make it to the NHL, now he’s a young real estate entrepreneur in the multi family niche. Yes he did only use $5000 of his own money to purchase 16 units, hear how he did it!

Best Ever Tweet:

Joel Florek Real Estate Background:

– JF Holdings
– Goal to acquire 150 doors by age 26
– Based in Iron Mountain, Michigan
– Say hi at joelflorek@gmail.com
– Best Ever Book Start Something That Matters

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

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.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Follow Me:  

Share this:  
Best Ever Show Real Estate Advice

JF629: How She Negotiated Over $1,000,000 in Concessions for Shortsales

You can call her the Short Sale Queen! She has been able to negotiate over $1 million in short sale concessions, as she was adding value to those that needed out. Hear this episode with a most talented and skilled guest who has helped many people!

Best Ever Tweet:

Lola Audu Real Estate Background:


  • Real estate broker and educator and one of the first brokers to do short sales aggressively
  • Negotiated over $1M of concessions for her clients on short sales
  • Been in real estate for about 20 years
  • Based in Grand Rapids, Michigan
  • Say to her at laspeaking.com
  • Best Ever book: The Autobiography of George Mueller

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

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.


Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!


Follow Me:  

Share this:  
Joe Fairless