JF2048: Podcasting With Erik Cabral

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Erik left corporate America after 20+ years and the catalyst to push him towards another path was getting laid off for the second time. He started by reading Robert Kiyosaki’s book “Rich Dad Poor Dad” and the rest is history. He now is the Founder/Co-founder and Host/Co-host of multiple businesses and podcasts.

Erik Cabral Real Estate Background:

  • Founder/Co-founder and host/Co-host of multiple businesses and podcasts
  • Left corporate America after 20+ years, and jumped headfirst into real estate investing
  • Helps investors grow their capital with different real estate investments and sits on the board of the South Jersey Real Estate Investment Association (SJREIA)
  • Based in NYC, NY
  • Say hi to him at www.podmax.co  

Best Ever Tweet:

“Doubling down on your strengths” – Erik Cabral


TRANSCRIPTION

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

Erik Cabral: I’m good, man. I am a long-time listener, first-time caller. Big fan.

Joe Fairless: Well, I’m looking forward to talking to you and learning more, and a little bit about Erik – he’s a founder, co-founder and co-host of multiple businesses and podcasts. He left corporate America after 20 plus years, jumped headfirst into real estate investing. He helps investors grow their capital with different types of investments in real estate and sits on the board of South Jersey Real Estate Investment Association. Based in New York City. So with that being said, Erik, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Erik Cabral: Absolutely, Joe. Again, thanks for having me; it’s really an honor. So I left corporate America after two decades, and there was a catalyst there after being laid off for the second time in my career. There was a spark. I needed to find another way, another goal, and I started to think about ways to invest, because I had some relative success in stocks, but it wasn’t something that I wanted to really continue doing, and real estate was the next vehicle that made sense to me.

So as I started going down that path, I bumped into and took the purple pill, like most of us do, with Robert Kiyosaki’s book, Rich Dad, Poor Dad. It really changed my mindset, it really allowed me to see the zeros and ones, and I got really passionate about educating and saturating myself in as much real estate content and education as possible. So as I started to continue down that path, I started to realize this is really the way I want to create financial freedom for me and my family; I started to grow my network, I started to go to more meetings, and surrounded myself with people that were just doing it and crushing it.

I took down my first multifamily in the first year of investing… And what happened Joe, which is unique to my story, is as I started to do more and more networking and helping others and finding help from others, people would ask me, “Who does your logos? Who’s doing your website? Who’s doing your social media?” and it was all me. I was building it on my own. One person to another, “How can you help me?” “Oh yeah, I’ll help you,” and it became more like clients, and then it grew a creative agency. Then during that time, I also launched a podcast, and I realized then too that this is such a powerful platform. People started to listen and asked me, “Who’s doing your podcast? Who’s creating it?” And I said, “Well if you need help, I can help you.” That turned into a business. So now we produce and create half a dozen podcasts internally with 12 in our network… And then that evolved into a podcasting event, where we bring a bunch of entrepreneurs in for one day, and they all get to record four or five shows on top-rated business podcasts. Yeah, it’s a really wild ride I have to say. It’s pretty cool; a lot of fun.

Joe Fairless: Wow. So your focus now is clearly growing this network and building that business. Is that fair to say?

Erik Cabral: 100%, absolutely.

Joe Fairless: Awesome. So you did some real estate, but obviously, you’re being interviewed on a real estate podcast. So podcasting is relevant to real estate investors, for sure, so we’ll talk about that. I want to spend a lot of time talking about what you’re currently focused on, but just to backtrack a little bit – from a real estate investing side, what have you purchased?

Erik Cabral: My first deal, I started to dip my toe into flipping as most people do. What is wholesaling about? What is flipping about? I experienced some bad things, not necessarily losing my shirt or anything, but finding oil tanks and things like that, which– and I would lose my earnest money deposit. Then at the same time, I was still looking for buying holds. So a deal came to me, there was a multifamily duplex right down the road from me, and I took that down with the confidence of my team and the people and coaches around me that this was the perfect deal. A good friend of mine, a business partner, who you’ve had on your show, Justin Fraser, was like, “You need to manage it yourself so you get the experience.” So I started to do that, which I still manage, and it’s great. It was a great experience. It was a great way for me to leverage that experience and try to start positioning myself as a thought leader, because I knew that that was the path in any type of business. But then it really started to shift into more creative and more marketing and branding yourself.

Not a lot of people have a stigma attached to the word brand or have an idea about that, and I think it’s more about reputation, and I really, really doubled down on trying to help build not only my own reputation, but others in my network. So I started to really get comfortable obviously with real estate and investing, and talking to people every single day in that language. I still invest, more on a passive level. I’m a partner in the Renault Winery over in Egg Harbor Township, which is a massive project by another business partner of mine, Josh McCallen. I’m heavily involved in that, not on a day today, but I would say, more like a week or a month to month, in helping to promote and find investors for that deal and for next deals that are with that partner. So I’m still involved in a passive way, more also for the creative side of things. I’m the creative on the team, and coming up with ideas on how to get that performing, and how to grow the audience and the brand awareness for that.

Joe Fairless: Okay, got it. So what I heard is – perhaps, you didn’t go over all of them, but you bought one buy and hold single-family house and you’re a limited partner in a winery. What other deals have you purchased?

Erik Cabral: That’s pretty much the extent, because I really came to a crossroads, Joe, where I realized, “Do I continue down this path?” I started to look at larger deals, I made offers on 22-units, and I started to realize, “I think this is probably the place to go, in terms of creative,” because whether you love or hate Gary V, it’s all about doubling down on your strengths. When I really adopted that concept and that idea, I was like, “The industry and the people around me are really beckoning me to help them create within real estate. What can you do to help me in social media? What can you do to help me with a podcast?” So that was when I just decided this is a way I could service the community for now, while still trying to continue my financial freedom path and building my wealth from a passive side of things.

Joe Fairless: I’m a firm believer on doubling down on your strengths. Let’s talk about your single-family house, lessons learned, and then let’s talk about what you’re doing now. Just a single-family house, you manage it yourself. Is it New Jersey?

Erik Cabral: Yeah, it’s in New Jersey.

Joe Fairless: Do you still own it?

Erik Cabral: I still own it.

Joe Fairless: How much did you buy it for?

Erik Cabral: I bought it for $86,000.

Joe Fairless: 86k. How much do you put into it to date?

Erik Cabral: I’d say, we probably put $3,000 to $4,000 into it.

Joe Fairless: Okay, alright. So very little relatively speaking.

Erik Cabral: Very little.

Joe Fairless: What does it rent for?

Erik Cabral: The first unit rents for $1,000, and then the other unit rents for $800.

Joe Fairless: Okay. So, $1,800 rent, all in, for $90,000. That’s a screaming deal. That’s the 2%.

Erik Cabral: I know.

Joe Fairless: A lot of people aim for the 1%, rule but you upped the game to 2%.

Erik Cabral: And we recently refinanced it. So I pulled 75 k out of it, brother. Oh man, that was a big day. My wife finally said, “Why aren’t you doing more of this?”

Joe Fairless: What was your answer?

Erik Cabral: My answer was, “I want to build this agency with the same concept and idea that–” syndicators and operators, when we buy multi-families, you want to get it performing with the ultimate goal of selling the business.” So I have received offers to buy my companies, the seven-figure range, which is proof in the pudding for me that, wow, this is exactly like real estate.

Joe Fairless: What would they be buying?

Erik Cabral: The company, and everything we do, and all the people that are involved.

Joe Fairless: What’s the company name?

Erik Cabral: It’s On Air Brands.

Joe Fairless: What are the main assets of On Air Brands?

Erik Cabral: We produce podcasts; that’s our main bread and butter. So we have six shows that we produce, we create from scratch and we push out every single week, and then we have a network that we’ve built, of a dozen podcasters that are all part of the network. They get to join our events, they get to have us help promote their shows. We all have that abundance mindset, so everyone is all-in in promoting and helping to gain the followers and the listeners on each other show. The other things that we do for clients is social media marketing, and we also do live streaming events when we go to expos or conferences; we’ll Livestream there. Then on a lighter end, this is a heavier lift, Joe, is marketing, deep-dive marketing, and trying to figure out their business and new avenues and channels and platforms that they can really help to grow. They’re leads, we’re trying to create new leads for them.

Joe Fairless: What are some interesting ways that you’ve helped them find new leads?

Erik Cabral: Well, it’s always about social credibility; credibility that you’re an expert. We got to establish the “know” first, and then we get the “like”, and then we get the “trust”. So we first identify if that’s the path that they’re on. A lot of them already have it, because they’re small to midsize businesses, but then they don’t have a lot of social media presence. So what we do is we really clean up what they have. If it’s outdated– usually websites that look like they’re from the late 90’s early 2000’s, they all need refreshing, they need to be optimized for social media. A lot of brands out there don’t have logos that you can read when small on a phone. So we take it and we refresh it, and then we start to make it consistent, because a lot of these business owners don’t realize there’s LinkedIn, there’s Facebook, there’s Instagram, there’s websites, and it looks different on every single platform.

Joe Fairless: So on that note with social credibility, you mentioned having a social media presence, making it consistent. When you first work with a client, do you have a checklist of things that you want to make sure that you’re addressing with them, and if so, what are some things on that checklist?

Erik Cabral: We do have an assessment form, and they fill out the forms so that we can identify if they are the right match and we can help them. Some of the things are “Do you have social media, are you active on social media?” Some of the other things– one of the big ones honestly, Joe, is do you have a marketing budget? There’s a lot of people out there, especially in the real estate space, that are just starting up or solopreneurs, and they can’t necessarily afford to hire a team. So what happens there is, we’re more than happy to recommend them to someone, say, on Fiverr or Upwork; that’s a better fit for you as you build and grow, and then give us a call when you have a marketing budget.

Joe Fairless: How much is an actual budget?

Erik Cabral: Industry standard usually says you should be using about 10% of your revenue. So I often tell that to folks and it’s like sticker shock. But yeah, a lot of people don’t realize that they need to devote dollars and invest in marketing. Marketing is a broad term, but it could be something as simple as your business card, it could be something as simple as hiring a VA to help you manage social media, because I know it’s somewhat daunting for those who don’t do it or not comfortable in front of the camera. They could and should hire someone on the backend to help them out a little bit. But that is some of the criteria that we discuss with potential clients.

Joe Fairless: 10% of marketing budget. So you just found your ideal client, they’re ready to invest 10% of their revenue into the marketing budget; at least 10%. What is your ideal client’s business and what are their challenges?

Erik Cabral: Ideally, our clients – they’re in real estate. So whether that’s syndicator or whether it’s a flipper or whether it’s a self-directed IRA company, there’s a lot of different things in our space. Real estate agents… So their challenges are mostly leads. Everyone wants to spread the word out on how they can help and how much value they add to someone’s life for business. So we help them generate leads, or at least, what I love to do is create that credibility for them, that reputation. Like I said, that brand where it’s recognized. That was where I came from. I was a branding guy, I developed logos for Fortune 10 companies, and so the benefit of how powerful a brand can be if you do it right and you’re consistent about it.

But there are backend things that I can’t speak too much about because I have teammates that do that well, in terms of building those lead generation tools like landing pages and offering things of perceived value, like lead magnets we call it in the industry… And then that is a funnel, the first touchpoint; someone sees it, and they say, “I’m interested in that,” and they download it and now you capture their information, hopefully their phone number, and it goes into your database. So we help with clients on that end, but we really love creating podcasts and we love creating all that other front end stuff.

Joe Fairless: You’ve got this ideal client – they’re in real estate, they want to continue to build credibility and generate leads, they’re ready to invest 10% of the revenue into marketing, but there’s one caveat, and it’s a big one. You can only put that 10% of the revenue that’s going into marketing into two things. What are those two things you’re investing in for them to accomplish their objectives?

Erik Cabral: It depends honestly on their goals, where are they now, where do they want to be, what are they trying to accomplish. So it’s a different answer for everyone.

Joe Fairless: So, I guess, pick a scenario and what would those two things be for your scenario?

Erik Cabral: Yeah, it’s a biased answer, because I love podcasts and I’m doubling down on it, but if they meet that criteria and they seem like someone who could be a thought leader or they already are a thought leader, they’re just not leveraging it the way they should or could, then I would recommend a podcast, and what does that look like. But I’ll tell you, Joe, and you know this, podcast is a business; you can’t do it really as a side hustle. If you intend to use it as a lead gen and credibility play and positioning yourself as a thought leader, you really, really need to understand that this will grow and become a business if you’re doing it right.

So I tell people that, “Hey, I know it’s hot and everybody’s trying to do it now and they want to create one, but I implore you to really think about dedicating at least six months to a year, really figuring out what the strategy is, and what you’re going to be talking about. Is it adding value to people’s lives? And then also carving out time in your day, in your week to content and how you’re going to start, when you’re going to record, if you want it to be an interview format, who do you have connections with that can be on your show, are you going to be a solo person, is your personality big enough or interesting enough to be in that space?”

So there’s a lot of things and I always now push people just to “Don’t do it if you think you’re not going to commit to it.” But the other answer, aside from podcasts, is how does everything look? We’re painting a picture, like a tapestry, and we’re putting all the pieces together in a mosaic that is your reputation and your brand. What does that all look like from a 10,000 ft level? So that’s where we really look at and audit our clients and say, “We can help you here because there are pieces that are missing, and in order for it to all work together, we’ve got to do some tweaking and modifying here.”

Joe Fairless: What are some mistakes people make when creating a podcast, either the mechanics of it or the actual content piece?

Erik Cabral: Some of the mistakes are not being consistent. So, say you recorded 10 episodes and you stack them, and then, you get lazy about it, and you say, “Oh, I’m good for a couple of months,” and then they fade away. In the industry, we call it podfade, and statistically I hear– I think it’s a large percentage, Joe. I think there’s 800,000 podcasts currently and honestly, 60% of them are not active. It’s something crazy, and don’t quote me on that.

Joe Fairless: I think– I bet it’s higher. My guess is higher, yeah.

Erik Cabral: It’s drastic, yeah. So that’s what I want to tell people. Don’t be a statistic, create a podcast that’s going to add value. Here’s another thing that I want to make sure your listeners and audience understands. There’s so much out there. What am I going to offer? How am I going to help people? There’s too many podcasts. Well, there’s no podcasts with you and your experience and your voice. You’re unique, whether you believe it or not. So if you trust and believe in yourself, then it will resonate. You don’t need 8,000 downloads, 100,000 downloads per episode. If you have 100 people that are following you every single day, every week, then there are clients. Do you need more than 100 clients? Probably not.

Joe Fairless: Yep, I love your points, and it’s so true, and it’s also who you surround yourself with. So if you’re around a bunch of other people and you’re hearing that they’re doing podcasts– well, your friends might be doing podcasts, but if you take a step outside of your circle and you really look at the population in total, percentage-wise, 800,000 podcasts, that’s 800,000 people. That’s not a lot of people, relative to the population and relative to who actually listens to the podcast. So there’s still a lot of opportunity, and they’re becoming a more prevalent media channel, and it’s been great in a lot of ways. Okay. So taking a step back, based on your experience as an entrepreneur who’s also involved in real estate, but really your special sauce is on marketing and building brands, what is your best advice ever for real estate investors?

Erik Cabral: There’s so many good things out there, but I highly recommend you surround yourself with people who are just crushing it. Our mutual friend, Matt, he was one of the first people that I [unintelligible [00:19:14].18] myself next to and became a shadow, and really learned a ton just by being around people that were doing what I wanted to do. Really, when I started to analyze deals and get more and more comfortable with the concept of investing, then I would leverage them and say, “Hey, what does this look like? It looks great to me. Am I right?” and just having that voice and having that option to say, that guy’s done hundreds, if not thousands of deals, and he says it’s good or she says it’s good, then it’s good for me.

Joe Fairless: Yeah, we are a product of who we surround ourselves with, and if we want to elevate, we elevate our peer group and we’ll get to that level, assuming we follow what they’re doing. We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?

Erik Cabral: Absolutely.

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

Break: [00:20:08].23] to [00:20:57].19]

Joe Fairless: What is the best ever deal you’ve done, whether it’s business or real estate?

Erik Cabral: Yeah, I would have to say, I lent money, so I held a note. For roughly 90k – so let’s just round it up to 100k – and I got two points upfront, meaning it was 2%. So they paid me $2,000 just to get it started. Really just paperwork on the backend that’s done by my self-directed IRA company. Then I asked for 12, we negotiated to 11, and it went over a year, Joe. So they said they needed it for a year. I was like, “This is cool. I’ll make 11k,” and they went for a year and a half.

Joe Fairless: Even better.

Erik Cabral: Yeah. It was like it was inconvenient. They’re like, “We’re so sorry.” I’m like, “All day, just keep it. It’s okay”

Joe Fairless: Yeah. As long as you pay me back, eventually.

Erik Cabral: As long as you pay me back, yeah.

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

Erik Cabral: In business. Staying in corporate for too long. But no, I would say, it was probably staying in corporate America for too long, brother. I really should have started my own company sooner.

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

Erik Cabral: Just networking and helping the people around me, constantly. I was telling you off the mic, I’m on the Board of Directors for SJREIA and we have a thousand members. So it’s nice to be able to give back to those thousand members, whether I’m in front of the room or not. I really, really love helping the community, since that’s where I received a ton of help, and if not one or all of my business partners now, I met through that REIA. Also, giving back and adopting the abundance mindset is something what recently was new for me… And when I started to realize that a rising tide lifts all boats — I heard it and I got it, but I didn’t implement that, and once I started to do that, Joe, I was like, “Wow, it’s changed my life.”

My staff, friends, my network; how do I help you and your goals, how do we get you to where you want to go? And the wonderful side effect is, it helps you in the long run. You just have to trust in that process and that it will help you.

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

Erik Cabral: They can go to podmax.co. So that’s our podcasting event. Or they can go to onairbrands.com, and that is our media agency.

Joe Fairless: I enjoyed talking to you about your focus, and that is your media agency, as well as podcasting, also learning about the results of your single-family home purchase. Thank you for being on the show. I hope you have a best ever day. Talk to you again soon.

Erik Cabral: Absolute pleasure, thanks Joe.

JF2025 : The Differences Between Commercial & Multi-Family With Anthony Scandariato

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Anthony is the Co-Founder and Managing Principal of Red Knight Properties, a value add multifamily and mixed-use investing company. Anthony shares some insight on purchasing commercial real estate and explains the differences between multi-family and commercial properties. 

Anthony M. Scandariato Real Estate Background:

  • Co-Founder and Managing Principal of Red Knight Properties, a value add multifamily and mixed-use investing company
  • They have over $500 Million of Commercial Real Estate acquisition experience and control 9 properties
  • Based in NYC, NY
  • Say hi to him at http://redknightproperties.com

 

Best Ever Tweet:

“Try to find a niche.” – Anthony Scandariato


TRANSCRIPTION

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

With us today, Anthony Scandariato. How are you doing, Anthony?

Anthony Scandariato: I’m doing pretty good, Joe. And yourself?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Anthony – he’s the co-founder and managing principle of Red Knight Properties, a value-add multifamily and mixed-use investing company. They have over 500 million dollars’ worth of commercial real estate, acquisition experience, and currently have 9 properties with their company. Based in New York City, New York. With that being said, Anthony, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Anthony Scandariato: Sure. That was a great overview, Joe. I appreciate it. And for your listeners, we’re actually right outside of New York City, based in New Jersey; about a half an hour outside of Midtown Manhattan.

Joe Fairless: Where in Jersey?

Anthony Scandariato: [unintelligible [00:01:46].29] Morristown area.

Joe Fairless: Okay.

Anthony Scandariato: So we’re pretty close to New York… And we started our company – my partner and I – about  a year ago. In terms of the acquisition experience, I worked for an institutional real estate operating company in New Jersey, where bought office buildings up and down the East Coast, where we were renting to Fortune 500 companies and doing value-add plays, but on the office side. I kind of realized that for a long-term investment strategy, or even a short-term investment strategy, that office wasn’t the best thing to be in, at least in this point in the cycle… So I kind of decided to start buying a few deals on my own, deals that I could just buy and build a track record, and then bring on additional partners and investors once some of these deals came to fruition and returns were actually realized, to feel comfortable to actually be taking the leap doing this full-time at Red Knight in 2020.

Joe Fairless: You bought office buildings up and down — what did you say, the East Coast? Did I hear that right?

Anthony Scandariato: Yeah, we bought anywhere from pretty much New Jersey, all the way down to Florida.

Joe Fairless: Okay. Purchase price ranges were what?

Anthony Scandariato: For your listeners, very big range. It was anywhere from 10 million to 287. That was our largest.

Joe Fairless: Alright… Where was the 287 property?

Anthony Scandariato: It was a building in downtown Charlotte, Wells Fargo Center. Great market, for sure, for any asset class, I would think.

Joe Fairless: How many years were you working at that institution?

Anthony Scandariato: About 5,5 years.

Joe Fairless: 5,5 years, okay. And what was your role during those years, and did that role evolve or change at all?

Anthony Scandariato: Absolutely. So I graduated from college actually in ’14, so it was essentially a role out of school; I started out as a very low-level analyst, analyzing different opportunities for the company’s investment strategies. Then I kind of evolved into taking over the acquisitions department, and also at the same time getting involved with a boutique company and seeing everything from the acquisition, to the asset management, to property management, to development, to negotiating with lenders… Almost like running your own within the shop. So a great experience, and I’d recommend it to any of your listeners who are thinking to get into commercial real estate on their own long-term, but kind of want the experience beforehand, and kind of learn from really good mentors who have been successful.

Joe Fairless: To use your words, “a low-level analyst” – what do you do exactly in that role?

Anthony Scandariato: I wouldn’t really call it low-level, maybe that was the wrong term… But more of–

Joe Fairless: Entry-level?

Anthony Scandariato: Entry-level, yeah. Entry-level market studies, feasibility reports, comparable reports… Almost like a basic form for appraising properties. And then after you master that skill, you can look at analyzing investment opportunities for the company, and presenting to the company if this is a good opportunity to pursue, and if we’re gonna pursue it, are we gonna partner on it, and who are we gonna partner with… And kind of run it soup to nuts. It kind of just evolves from there.

Joe Fairless: Talk to us about a feasibility study that you would do, just the components of that please.

Anthony Scandariato: Sure. So you would obviously do a market study, which could be broken down by obviously started with the state, and then it could be broken down by submarkets is what we call them, in certain regions in different states… And as you dig deeper – it depends what asset class you’re looking at, but you look at historical trends for vacancy, you can look at historical trends for rent growth, and average rental rates, look at trends for any new construction, any new development coming on the line, looking at historical sales data, price per square foot… For a lot of your listeners, multifamily is price per unit, and cap rate… Many different metrics to determine if it’s a good investment to underwrite and present to either a limited partner, or another general partner you’re trying to acquire the property with. Nothing else starts without that general feasibility study.

Joe Fairless: Those different data points that you were talking about are variables that are assessed… I imagine that you all had a subscription to some third-party research company or database to pull a lot of that information. Is that correct?

Anthony Scandariato: Yeah, that’s the benefit of also working for a larger company. You have the [unintelligible [00:06:25].18] which is, as you know, the largest commercial real estate information company, at least in the country right now, and they’re trying to take over more… Reis is another good resource, primarily more catered towards the multifamily… And obviously, different news cycle reports, we could speak to different brokers on historical market reports… There’s many ways to get market intel.

Joe Fairless: So as an analyst you go get this information, but I imagine that doesn’t take very long to run these reports, because you’re just logging and running the reports… What are you doing with the information as an analyst?

Anthony Scandariato: So once you’ve found that information, typically — it depends on what asset you’re looking at, and what asset type it is. For example, I was buying office buildings. Typically, they come with an offering memorandum, which is the same that you  see in multifamily properties. You go through that, verify all the information the brokers are presenting to you are correct and accurate from your third-party sources, and then putting together after that a comprehensive financial analysis [unintelligible [00:07:38].18] you can use, and also working for a larger company, they’re able to buy subscriptions to software such as Argus, which is very expensive relatively speaking to just a general simple Excel spreadsheet.

With office properties there sometimes could be a hundred tenants at the property with different reimbursement methods, and different lease expirations, and [unintelligible [00:08:03].09] and expense caps… So it’s pretty comprehensive software. I haven’t really seen an office building modeled on Excel from scratch, but if anybody’s ever done that, I’d love that template. [laughter]

So  you kind of gather all the market information, verify what the broker is presenting to you is accurate, underwriting the property in either Excel or Argus to the best of your assumptions, and then seeing based upon your return criteria seeing if it’s a good investment or not, and then kind of presenting to your internal investment committee, and then it kind of goes from there, depending upon how you’re structured.

Joe Fairless: When you’re looking at the third-party research information and cross-referencing it with the information the brokers provided to verify that it is correct, when it is not correct, what are they typically fudging the numbers or their facts on? What categories or what stuff does that typically involve?

Anthony Scandariato: The number one thing I’ve seen is rent growth. Whether you’re buying a hotel, or self-storage, whatever it is, typically the brokers like to fudge those numbers, so that’s the first thing I look at – what did they assume for rent growth? Let’s just say you have a tenant paying $1,000 for a one-bedroom unit; did they assume that you’re gonna get a 7% increase year one, and then year two a 5% increase, without any renovations or justification for it? Even if you wanna compare that to your historical data, most of the time generally cut that in half, what the broker is saying… But it depends on every asset class, and where the properties are located.

If your property is located in a hot market like Charlotte, for multi I had to look at the 10-year historical average year-on-year rental growth there, and see if whatever they’re underwriting makes sense. And if it doesn’t, we adjust, and then we see how our numbers shake out, and we would go to the broker then and make an offer; sometimes it’s accepted, sometimes it’s countered, or sometimes it’s not accepted at all. That’s generally an overview of how we come up with an analysis.

Joe Fairless: For 5,5 years you were focused on buying value-add office buildings, correct?

Anthony Scandariato: Yes.

Joe Fairless: And you learned within a structured organization, but you were able to get a lot of really good hands-on experience, and have different roles over that period of time… And then you decided “I’m gonna take this experience and I’m gonna pivot in the multifamily.” Now, earlier you briefly mentioned that you moved to multifamily because office near and long-term wasn’t as good as multifamily… But let’s talk about that more. Why not office? Because as you were totally aware, I know, office is not as competitive – at least my perception of it; I’ve never purchased an office building. My perception is multifamily is much more competitive than office… And if you have that skillset of being in the industry for 5,5 years, it seems like that would be a great play for you to just double down on office, since you’re bringing that skillset already…

Anthony Scandariato: That’s a good point. What I would say to that is if you’re looking to pivot asset classes, I would try to find a niche within the asset class you’re trying to pivot to, that not many people are looking at. For example, for many obvious reasons [unintelligible [00:11:36].01] multifamily historically has been very recession-proof, and we can go into those details, but we’ll spare them for another time.

It’s more the fact of you kind of have to know your local market, and understand where all the investors are flocking to, and where some of the investors aren’t, because they’re not aware of the areas.

For example, I live in New Jersey, which we mentioned, and it’s very close to New York City, within half an hour… A lot of investors in New Jersey won’t touch anything West of the waterfront, which is Jersey City, Hoboken… Basically Hudson County. So we don’t stay in those markets at all. We like to go West of that, because that’s number one where we live, and number two where we know, and number three where we’re able to focus on kind of the middle market deals, anywhere from — a small scale we did was a million; we’re closing on our first syndication now which is 5,5 million, we just got another one under contract for 7,3…

So if you’re in between that 1 to 20 million dollar range, if you bought in Hudson County and you had that type of money, you’re probably gonna be buying only 15 to 20 units, whereas if you go further West, you can start to get in the 50 to 100-unit properties, with less competition and buying from very non-institutional owners, where you can really create value, and not many people are looking right now in those areas. But once the waterfront gets heated up, everything trends West, historically as well.

But office in general, to answer your question, you could be really good at repositioning office buildings. It takes a lot more time to do that, in my experience, than repositioning multifamily…

Joe Fairless: Why?

Anthony Scandariato: Vacancy… It depends where you’re at. I’ve done deals anywhere from Jersey to (like I said) Florida, Atlanta, Charlotte, Louisville, Baltimore… Even if you’re in a pretty hot market, lease for office buildings take sometimes months to negotiate, even if they’re only 10% of your rent roll and they’re signing a three-year lease. Sometimes it’ll take four months to negotiate a lease… And then you have to deal with the construction, which could take another 2-3 months, or potentially even six months, depending on how big the tenant is. And then they start to pay rent… And then you’ve gotta do it again. You’ve gotta keep constantly doing it…

So it’s a little different than multifamily, where traditionally you had your leases, and just kind of an expected turnover rate every year, and you kind of forecast that as you build your portfolio and you’re able to plan for it. So office is very fluctual, especially when you have a downturn as well.

Joe Fairless: If you were forced to only buy office, what would your approach be?

Anthony Scandariato: I’d say pretty similar to the multifamily – trying to find a niche. Stay out of C, B, D locations, in gateway markets such as New York City and Chicago and Boston. I would go to secondary markets, which we have, very similar to what we’ve been doing. The cap rates in terms of the spread between multifamily and office – they’re getting tighter. I’m seeing about 100 basis points spread right now on a stabilized property between office and multifamily, which is not anything to write home about.

Joe Fairless: Did I heard you correct, for your first couple deals you’ve used your own money?

Anthony Scandariato: Correct.

Joe Fairless: So what was that first deal?

Anthony Scandariato: It was a two-family house… [laughs] I still own it. I think it’s a great way to start out. It could be relatively affordable…

Joe Fairless: We’re gonna skip past that. What’s the next one?

Anthony Scandariato: Okay. Two-family house, and then I bought another two-family… [laughs]

Joe Fairless: Next… What else?

Anthony Scandariato: Another two-family, but I sold it…

Joe Fairless: [laughs] You got three two-families.

Anthony Scandariato: Basically, I started with three two-families, and then I met my partner through a mutual friend. My partner played for the NFL for eight years, Brian Leonard. He’s a great partner to have. He played for eight years as a fullback, so he’s local to the area that I live in. So we ended up partnering on our first deal. It was a very simple split between the two of us.

Actually, we bought a mixed-use building together. It wasn’t 100% multi; it was about 60% retail, 40% multi… A year ago, which we just turned around and did a really nice cash-out refinance.

So we went from the two, two, two, to essentially a ten. Then we bought another ten, and then we bought a 13, and then we bought a 20, and then we bought another 20, and then now we’re closing on a 51, which was our first syndication, and now we’re doing a 64… So you see the progression.

Joe Fairless: Yeah. Is the 60% retail, 40% multifamily the only mixed-use you’ve purchased?

Anthony Scandariato: No, we actually have three mixed-use properties, but the first property we bought was very local to the area I live in; I knew the building and I was very comfortable with the retail. The other two properties that we have, that have retail only, have one or two tenants, whereas the first building we bought had four retail, so the income from the residential and the other ones were anywhere between 70% and 80%… So it looked less risky.

Joe Fairless: Right. Okay. On that first one that you bought, that is 60% retail, what did you do that the person you bought it from did not do?

Anthony Scandariato: Sure. It’s a great case study. We bought it from a farmer family. They actually had 9 siblings that owned the property. Then what happened was there was a fire at the building a year ago, prior to when we bought it, that occurred. One of the tenants left the candle in the curtain over night, and the next thing you know the whole building was on fire.

It was a little bit of a disaster, but structurally, the building was still sound. They had a nice insurance claim that they collected on, and redid essentially the whole building. But this family is very non-sophisticated, and what they ended up doing was they kept everybody’s rent the same after that occurrence, even though you had brand new apartments and brand new retail space now, that they paid for. So everybody’s rent – let’s just call it $800 or so, on the market is more like $1,400. So we went in there and obviously we were able to increase rents, and we also were able to add a little bit more upgrades that the insurance company didn’t add.

So we added some upgrades, we got a substantial rent increase from all the residential, in addition to leasing up some vacant retail that was sitting vacant for years.

Joe Fairless: How do you go about leasing up vacant retail?

Anthony Scandariato: It depends how big the space is. With a local broker. In this instance it was 1,000 sqft. It was actually like a lot style, it was kind of lower-level… We didn’t even think we would rent it, to be honest, for a while, unless we gave it away… But we rented in two weeks after we bought it, and we just put it on the market with the broker.

Joe Fairless: Huh. How much?

Anthony Scandariato: We got $10/sqft, so about $1,000… But if [unintelligible [00:18:06].16] you just add a lot of value to your building, with one lease. So that happened, and there was also a retail tenant that was below market, that we knew was leaving. Every time we buy a building, we like to interview the tenants, if it’s retail or office; obviously, it presents more risk than apartments, and we like to see what’s going on.

So we knew they were gonna be leaving, but their rent was $500 below where somebody else new would come in… So they ended up telling us they were leaving, so we kind of planned. We had the broker market the space already while they were still occupying it. When they left, they got somebody paying actually $550 more than the previous tenant, with no turnover, no vacancy. That was really a slam dunk deal.

Joe Fairless: What type of business is it?

Anthony Scandariato: The new tenant – it’s like a curated goods for men’s supplies. They have men’s deodorant… It’s kind of a cool, crafty space. The space before that was a high-end women’s boutique.

Joe Fairless: Okay. Last question on that, and then I’ll ask you the question I ask everyone… How much did you buy it for? …and I believe you said there was recent refinance – what did it appraise for on the refi?

Anthony Scandariato: Sure. Pretty crazy numbers, and we weren’t expecting this… So we bought it for 1.285 million. Our all-in basis was around 1.3. It appraised for $2,110,000.

Joe Fairless: Excellent. Over what period of time?

Anthony Scandariato: A year.

Joe Fairless: Wow. I’m glad that you talked about what you all did, because that is what attributed to the value increase. Anything else that you didn’t mention, that attributed to the value increase?

Anthony Scandariato: People were flocking over the building when we were making offers. I think we positioned ourselves well. I was friendly with the broker, and we showed a proof of funds, and it was kind of a no-brainer… But we were very fortunate. Maybe it was a little bit of luck and market timing, but very fortunate to have bought that, and really looking to that as a case study for our future success… Even though every deal is not gonna be like that, but… A really good start.

Joe Fairless: What percent of money did you get out on the refi?

Anthony Scandariato: 100%.

Joe Fairless: And how much of that was Brian’s versus yours?

Anthony Scandariato: It’s a very simple 50/50 split.

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

Anthony Scandariato: Like I said before, find your niche, and find your niche asset class. Know your local market and where you think you think you can add value if you wanna be a value-add investor, which I’m assuming a lot of your listeners do. For cashflow reasons you could buy a very safe product that’s not gonna go anywhere, but you’re probably only gonna make maybe 5% to 6% on your money. Some people might be okay with that, but… I would say find your niche if you’re trying to create value, and eventually syndicate and bring on other partners… Find your niche.

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

Anthony Scandariato: Sure.

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

Break: [00:20:52].15] to [00:21:39].13]

Joe Fairless: What deal have you lost the most money on?

Anthony Scandariato: Knock on wood, nothing yet.

Joe Fairless: Best ever deal you’ve done?

Anthony Scandariato: I don’t think anything could beat the deal I’ve just described right now…

Joe Fairless: What’s the best ever resource you use in your business?

Anthony Scandariato: I think Costar is a really good resource for market intelligence.

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

Anthony Scandariato: We do a charity event every year for children with cancer, that my partner runs. We like to donate a part of the profits to that. And we run it in New York City every year.

Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing.

Anthony Scandariato: You can visit our website, RedKnightProperties.com. Like us on Facebook, or you can add me on LinkedIn. I really appreciate the time, Joe.

Joe Fairless: Yeah, I appreciate you sharing the office experience that you have, and how you’ve applied that to apartment buildings, as well as some mixed-use projects that you’ve done, and how you and your business partner have created the company. I love the case study, as well as just talking about your approach when you were an analyst, how you approached the feasibility studies and the different components of it, and what you look for… And then trust, but verify on those offer memorandums brokers provide, especially the rent growth; as you said, that’s the number one thing you wanna make sure is accurate, is those assumptions.

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

Anthony Scandariato: Great. Thanks a lot, Joe. I appreciate it.

JF2015: Networking Made Me Money With Jacob Busani

Listen to the Episode Below (00:12:44)
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Jacob is a real estate broker based in New York City and he also focuses on raising money for multi-family syndications and has recently completed his first hotel deal. In this episode, he shares how he has been able to build a business through networking by attending events, LinkedIn, and reaching out to others on Facebook.

Jacob Busani Real Estate Background:

  • Real estate broker and syndicator
  • Has been involved in over $157M of real estate closings
  • Based in NYC, NY
  • Say hi to him at Jacobbusani.com 

Best Ever Tweet:

“The deal I didn’t do is the one I lost the most money on. ” – Jacob Busani


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, I’ll be hosting today’s show. Today we’ll be speaking with Jacob Busani. Jacob, how are you doing today?

Jacob Busani: I am doing wonderful, thank you very much for having me.

Theo Hicks: Absolutely. Thanks for stopping by and talking with the Best Ever listeners today. Looking forward to our conversation. A little bit about Jacob – he is a real estate broker and syndicator, has been involved in over 157 million dollars’ worth of real estate closings. He’s based out of New York City, and you can say hi to him at JacobBusani.com.

Jacob, before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Jacob Busani: Sure. My background has been in real estate over the last four years. I did a nice amount of closings and was involved in a bunch more. In the last year I kind of focused gears more on the syndicating end of things, and doing a lot of coaching and speaking. So that’s really where I have been focusing most of my time now, is growing my speaking and training career, and still playing around with a lot of syndications.

Theo Hicks: Let’s talk about your syndication business – what’s the number of units you’ve syndicated so far?

Jacob Busani: I raised money for deals. I raised money for Brooklyn deals, I raised money for Manhattan hotel development deals… That’s really what I do, I just raise money for the deals, and then I get a cut out of that.

Theo Hicks: So you said you raised money for hotel development deals… Is it mostly non-multifamily commercial deals, or is it all types of commercial deals you’re raising money for?

Jacob Busani: No. Where I’m most comfortable is multifamily. The hotel deal was purely accident. I just came across it and it happened to be a really good deal, so I put a bunch of people together for it. But really it’s mostly just multifamily, that’s what I focus on.

Theo Hicks: How did you get hooked up with the people that you’re raising money for?

Jacob Busani: I think it’s all in the network. I’m part of the CCIM. I sit on the board of CCIM in New York City… And I think it’s really just all the network, and it’s really just the people you know and how often you nurture those relationships and connections.

Theo Hicks: So these deals – you met these people through your CCIM?

Jacob Busani: I met those people through CCIM, through LinkedIn, through networking events… But primarily, they all came through the CCIM path at some point, whether at a networking event or they were on a phone call of some sort.

Theo Hicks: How does that conversation go? So you’re attending these events… Are people out there saying “Hey, I’ve got this really great deal and I’m looking for money?” or are you proactively going up to these people and asking them “Hey, I’ve got a network of high net worth individuals, I can raise money for it. Do you have any opportunities”?

Jacob Busani: It’s more of the second one. I tell them exactly what I do, this is what my investors are looking for, and just send me your deals. They’ll send me deals for a couple months, until there’s one deal that I like, and then we’ll take it to the next step.

Theo Hicks: How are you analyzing these deals that are coming across your inbox?

Jacob Busani: CCIM, that’s what we’re known for. We’re a commercial real estate education organization, and they teach us how to analyze the deals, from user base analysis, to investor base, to market analysis… So all of that together and my secular real estate education, and sometimes with some of the investors that I bring on board – that’s how we analyze our deals. We don’t have an in-house underwriter, or something.

Theo Hicks: Okay. So are you actually underwriting the deals  yourself, or are you looking at other high-level factors to determine if it’s a good deal?

Jacob Busani: It’s more of I underwrite the deals myself.

Theo Hicks: Okay. You’re using your own cashflow calculator you got through CCIM?

Jacob Busani: Yup.

Theo Hicks: Okay. And then you mentioned that when you are proactively reaching out to these people, you tell them what your investors are looking for, so you underwrite your deal… What are the metrics that need to be spit out in order for you to present that to your investors?

Jacob Busani: Everything has to make sense. The leases have to be in order, all the building work has to be in order, permits, approvals… For example, in Manhattan, whether there’s heir rights; now it’s a little bit more trickier than it was six months ago… Everything has to make sense before I present it. I can’t have one thing where I’m not clear about it… Because if I’m not clear about it, I’m not confident enough to go and present it to my investors, which would make me look not good.

Theo Hicks: Is there a particular return number or return threshold that’s kind of a go or a no-go?

Jacob Busani: Everyone’s different. My database is a little bit vast, so I have people who  all they care about is the cap. They’ll just look at 5, 6 caps in Manhattan. Then I have the people who are more on the cash-on-cash. They’re looking for their high teens, mid-twenties… And then if we’re going out of the boroughs, they’re looking at a little bit of a longer play… Everybody’s different. There’s not one specific… It’s more of a “Just send me the deals.” As long as I have not seen it, I’ll take it to the next step… And that’s when I start analyzing.

Theo Hicks: Are most of these multifamily deals existing properties, or are they developments?

Jacob Busani: I’d say 70% of them are existing. The development is a little bit longer-term, and that’s really where it is. So it’s more of a 25% to 35% development.

Theo Hicks: If you don’t mind, can we dive into that hotel deal that kind of just randomly happened? Do you wanna walk us through how you found that opportunity?

Jacob Busani: Sure. I met one of my father’s friends one day, and he told me that he has a guy and he’s actively looking for hotels. I told them I have a deal, but it’s partial development. They have the existing hotel, but you’re gonna need to develop it a little bit further. He said “Cool. Send me over the deal.” I told him I don’t have all the information yet. I go, I reach out to my guy who’s actually in Texas, he sends me all the stuff, and I send it back to him.

He gets back to me two months, he’s like “We’ll take it.” I come back, it’s still available… It was a nice deal. A very nice deal, actually. And we just went back and forth. It took us about a year and two months to close on it, but we finally did it, and that’s just how it happened. It was literally one guy wanted this, the other guy had that… And I made the connection between them.

Theo Hicks: And then did you raise money for that deal as well?

Jacob Busani: I raised just a small amount. I raised 2% as down payment, and that was it.

Theo Hicks: So how did you have to present this hotel deal differently to your investors, compared to the typical multifamily deal that you’re presenting to them?

Jacob Busani: Surprisingly enough, the team who had the acquisition firm that had the deal – they really knew what they were doing; they had somebody in the CCIM, or some CCIM crafted it, because everything was my language, the way it was presented… So it was really just a few modifications on my language of presenting the deal, and then just forwarding it on to my clients.

Theo Hicks: Okay, so since the team knew what they were doing, did you have to do much underwriting yourself?

Jacob Busani: I did not need to do much underwriting myself. Everything was practically done, and I just needed to do a couple of tweaks.

Theo Hicks: Okay. Alright, Jacob, what is your best real estate investing advice ever?

Jacob Busani: Relationships. I think that relationships can get you so far. So many people are too busy cold-calling; they don’t realize that the biggest opportunities are right in their backyard, the people that they already know. They just need to ask them, to  introduce them to more people. That’s literally how I got started and how I got to where I am today.

Theo Hicks: Is there anything specific you do on an everyday basis, like “Alright, this morning I’m gonna get up and I’m gonna do A, B, C, D” in order to cultivate more relationships? Or is it just something that comes naturally to you and you just do it over the course of your everyday life?

Jacob Busani: Yes, every day I try to have at least a few new introductory meetings from people that I meet on LinkedIn. So whether they’ll be at coffee, or whether they will be just online… I attend a networking event once to twice a week, and I follow up with whoever I feel that I have some good synergy with… And it’s mostly just asking those people to introduce me  to other people, and then just having the [unintelligible [00:08:51].22]

On every given day I’m speaking to anywhere between 5 to 20 new people, and then just having my assistant following up with them and just cultivating the relationship and having them in the pipeline.

Theo Hicks: Alright, Jacob, are you ready for the Best Ever Lightning Round?

Jacob Busani: Sure.

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

Break: [00:09:11].25] to [00:10:06].12]

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

Jacob Busani: Five Dysfunctions of the Team, by Patrick Lencioni.

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

Jacob Busani: Start a new one.

Theo Hicks: And what would that business be?

Jacob Busani: Exactly what I’m doing right now, just different.

Theo Hicks: What deal did you lose the most money on?

Jacob Busani: The deal that I didn’t do.

Theo Hicks: Besides your first deal and your last deal, what’s the best ever deal you’ve done?

Jacob Busani: The hotel deal.

Theo Hicks: You don’t have to answer this question, but how much money did you make on that deal?

Jacob Busani: I got a nice chunk of equity in the deal.

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

Jacob Busani: I like to empower the youth in my community and beyond.

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

Jacob Busani: LinkedIn, Jacob Busani.

Theo Hicks: Alright, Jacob, thanks for joining us today and telling us about your syndication expertise. Just a quick summary of what we talked about – you raise money for mostly multifamily deals. How you find the money for these deals is through your current network, people you meet on LinkedIn, and essentially just networking with as many people as possible.

You mentioned that you’re pretty proactive about it, so when you meet someone new, you explain to them what you do, what your investor is looking for, and ask them to send you deals. Whenever they send you a deal, you use your CCIM expertise to underwrite those deals yourselves. You also look at other things, making sure the leases are in order, building permits are in order, that everything is completely clear and makes sense to you before presenting that out to your investors.

You also mentioned that you have a vast diversity of investors. Some care about cap rates, other care about cash-on-cash return, some people want short-term investments… So you present your deals to your investors based on what the outcome of that deal is going to be. Then the majority of the deal that you do are existing multifamily homes.

We went over your hotel development deal, which was your best ever deal, and how you kind of just found that through, again, networking. So the theme of this seems to be networking, which was your best ever advice, which is to focus on relationships. To do that, just ask people that you have in your current network to introduce  you to people that they know, that might be a good fit for you.

More specifically, what you do is that you’ll meet people for coffee on a daily basis, through LinkedIn or different network events you go to. You’ll attend different network events at least once a week, and whenever you meet someone, again, you ask them ot introduce you to other people to start that chain. Overall,  you speak to about 5 to 20 new people every day.

Jacob, thanks again for coming on. Best Ever listeners, if you want to learn more about Jacob, again, his website is JacobBusani.com. A link to that will be in the show notes. Have a best ever day, and we’ll talk to you tomorrow.

Jacob Busani: Thank you.

JF2014: Digital Media Tips With Shoshana Winter

Listen to the Episode Below (00:26:10)
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Shoshana is a digital media veteran with 30 years of marking management experience on both the agency and client-side. She ran marketing for audible for 4 years before they were purchased by Amazon. She has the skills to help early-stage business’s grow through marketing. In this episode, she gives some great insight on how to think like a marketer when it comes to growing your audience base, whether that is listeners, investors, or distressed properties. 

Shoshana Winter Real Estate Background:

  • Digital media veteran, bringing nearly 30 years of marketing management experience on both the agency and client side
  • Now working at iintoo, the company has managed and raised 357 deals and $600M with a gross asset value of $2.5B
  • Based in NYC, NY
  • Say hi to her at https://www.iintoo.com/

Best Ever Tweet:

“I think it’s not just about being lazy, I think we become lazy because we lost faith perhaps.” – Soshana Winter


TRANSCRIPTION

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

Shoshana Winter: I’m doing great, thank you.

Joe Fairless: Well, I’m glad to hear that, and looking forward to our conversation. A little bit about Shoshana – she’s a digital media veteran, bringing nearly 30 years of marketing management experience on both the agency and client side. Now working at iintoo. The company has managed and raised 357 deals, 600 million, with a gross value of 2.5 billion. Based in New York City, New York.

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

Shoshana Winter: Sure. Well, you did a pretty good job of it. I come from an advertising marketing and media background. I’ve worked for many different large advertising agencies, and then spent a lot of time in senior marketing roles in digital startups. Probably the one that you guys are being most familiar with is Audible. I ran marketing for Audible for four years before Amazon purchased the company, so I’m very familiar with how to build audiences for early-stage companies using the internet as a tool

About two years ago I had the pleasure of meeting the CEO of iintoo, which was a relatively early-stage company in the online real estate investment space, at the time based in Israel. He was just about opening a U.S. office, because ultimately the real opportunity for real estate investments is in this market. I worked with the company for a while as a consultant, and then got asked to lead the company as a managing director of the U.S. headquarters about a year ago.

So I am new to the real estate space… Drinking from the fire hose would be an understatement of what I’ve experienced over the last 24 months… But what’s interesting is that I think a lot of my background, both working with early-stage companies, as well as understanding how to communicate and market directly to accredited investors is something that’s really coming in handy as we lead and grow this business in the U.S.

Joe Fairless: So your target audience would be accredited investors, it sounds like, yes?

Shoshana Winter: At the moment, the offering is just to accredited investors. As we look at the space evolving – and we plan to be here for a very long time – we are well aware of and interested in expanding that audience through different kinds of offerings. But in the short time we’ve been here in the U.S. market, that’s our focus right now.

Joe Fairless: I think a lot of people are gonna enjoy this conversation, because you have the deep experience in digital media and marketing in a way that isn’t typically brought to real estate investing and our industry… So what are some of the things that you all have done to reach accredited investors that have been effective?

Shoshana Winter: You said a couple things that I think are really relevant… I think that as much as — and I’m sure your audience is already pretty knowledgeable and excited about the real estate investing space… But I think that when you look at the U.S. investor audience more generally speaking, we’re a pretty conservative bunch, and in general we’re pretty passive when it comes to the way we both invest and sort of even think about portfolio diversification, for example.

So if you look at the big institutional players and the way we normally interact with companies where we have our IRA, or 401K, we pretty much either give it over to our financial advisor, or tend to invest in pretty traditional asset classes. So a lot of what we’re focused on is using digital communication – and I would say also traditional communication. This conversation, in many ways, is another form of audio or radio, that’s gotten much more popular… So we’re open to channels that work and that reach the right people at the right time.

But I think that ultimately, what we’re finding is working is understanding the American investor, what he or she is either knowledgeable or not knowledgeable about, and really being able to leverage digital channels, whether it’s search engine marketing, or doing partnerships with financial services, publishers like Forbes or Fast Company, to be able to tell our story in a way that really communicates the fact that this is a relatively easy, direct access way to get in on an asset class that traditionally had not been at our disposal.

So from a messaging perspective, we’re all about “This is easy, this is fast, you can do it on your own time. You don’t need to go through a financial advisor or a broker”, and the returns are, in many cases, higher than what the stock market and other traditional asset classes that are correlated to the stock market have been able to deliver.

So that’s sort of my long-winded answer to your question…

Joe Fairless: Yeah, that’s really helpful… When you think about it, it sounds like you think about it as 1) first understanding who you’re talking to, and from what you’re saying, the U.S. investor audience is pretty passive… Another word for it is “lazy”.

Shoshana Winter: [laughs] I didn’t wanna say that.

Joe Fairless: Yeah, I get it. It’s crazy to me, because the majority of people work so darn hard for their money, but then once they have the money, they don’t put some effort into growing that money so that they don’t have to work so darn hard continually. It’s a flawed logic, but that’s just how it is, and good luck changing that. So what you focus on – it sounds like it’s more about the category versus the product…

Shoshana Winter: Yeah, I think it’s both… Listen, anyone that’s in this space, or even in the investment space more broadly speaking, obviously knowing your audience really matters, because that’s going to drive where you talk to them, how you talk to them, and what you say. In their defense – just to speak to the “lazy” comment, which I completely agree with – I think it’s not just about lazy; I think we’ve become lazy because we’ve lost faith, perhaps…

In my own lifetime as an adult or working adult I’ve seen three major disruptions in the market that have affected my portfolio. There’s a book that was written about this called “Rational Exuberance”, which is although we look out the window today and in New York City it’s a beautiful fall day, with the sun shining, and the economy seems to be good shape, we’re always waiting for the [unintelligible [00:07:43].01] 2008 is not that long ago for a lot of us… So I think part of the passivity comes from a lack of transparency and understanding of what drives the market and how people’s individual portfolios are affected by things that they feel like they don’t have very much to do with.

And the beauty of real estate and what we really try to lean into is demonstrating to this target audience that actually this is a really transparent asset class. You can actually look at it and see it. It’s something that we’ve all experienced, because we live in homes and we go to work in buildings. This is something very organic and natural. And the way in which we choose to make those opportunities accessible is using that same kind of transparency.

So I think that it’s a marriage between understanding the audiences, the barriers to entry, the fear that they may have, or the lack of education, but I think more importantly, leaning into those trigger points that really help them change the conversation about what this could be.

I think the internet, even in the last 5-10 years, has demonstrated that if you do a good enough job at it from a product and experience perspective, people will begin to behave very differently. Look at the way we now think about booking a hotel room; going to Airbnb us now, the first thing people do. That was something that we wouldn’t have even thought about ten years ago.

So I think that we’re both part of an emerging group of companies that are trying to give traditional investors access to an untraditional asset class, but at the same time we’re also part of an internet revolution that’s giving consumers direct access to things they never had before, with better results… And those are the kinds of value propositions that we try to really leverage as we build the business.

Joe Fairless: Hypothetical scenario –  your marketing budget has been slashed in half (*gasp*) and you are only going to focus on one type of advertising. Where do you put that money?

Shoshana Winter: Any direct response marketer or direct marketer worth their salt (as they say) would probably say “Stick to what you know and what you know works.” So ultimately, as you yourself are a perfect example of this – this is a podcast that’s about a very particular subject… The marketing that really is most effective is one where a consumer self-identifies as being interested. So search is a great example of that. By the action of someone typing in “investing in commercial real estate” into Google, they are raising their hand and saying “This is something I’m interested in”, so therefore my ability to be able to capture their imagination and hopefully get them to visit my site and join is a lot more probably than, for example, if I decided to do a big billboard campaign all over New York City.

We know a lot now, we have a database of over 200,000 accredited investors, and the data that we use on a regular basis is not only to communicate directly with them, but to extract out demographic and psychographic information that we could then use when we go out and we buy a search campaign, or use social media. We’re able to create lookalike audiences based on all that data, so that we can really cut out the guesswork, if you will, around marketing and advertising, and only talk to those people that we have a shot at really converting from an interest level.

Obviously, as the category grows and this becomes (let’s call it) a less alternative way of behaving, I think that when you think about things like “I’ll advertise on television, or radio” – those things become much more interesting, because we already have a base of users that are pretty familiar with how this works, and are [unintelligible [00:11:48].14].

Joe Fairless: What are some demographic and psychographic information that you pull from your current database to create a lookalike audience to attract via digital ads?

Shoshana Winter: I’m so glad you asked about both, because I think in the data and marketing we tend to focus more on demographics. Obviously, because at the moment we’re going after a relatively small group of people in the United States – somewhere between 13 and 15 million accredited investors – because associated households’ income and personal wealth, they tend to be older and living in cities that are business hubs, versus rural areas, and they tend to be of a higher educational background. So all of those leavers, which I think are pretty obvious – and Fidelity is going after those people, and Schwab is going after those people – those demographics are pretty obvious. So obviously we take advantage of that. I think geography is an interesting one… What states or cities are there high concentration of accredited investors etc.

The second piece I think is where it gets really interesting… Which is to me, as a marketer and a business person, this is not just about how old you are and where you live. This is about an attitude. Somebody who’s going to feel comfortable after seeing an ad on Google, or on Instagram, to come through and either call us or sign up to create an account at iintoo, and then talk to a registered salesperson about the latest offering we have in Little Rock, Arkansas.

That person is probably a little bit more of a progressive thinker. He/she was probably an early adopter of other disruptive products, like Airbnb or Uber or Casper mattresses, or Warby Parker glasses. These are people who, despite their age – and I think the world likes to make us all feel very old and out of touch with technology… The truth is we have the most disposable income, and a lot of us are very much leveraging those kind of disruptive technologies to get more done in a day, to have more access and transparency to those things, and to do it in a way that feels personal to us.

So when we look at a progressive mindset, we look at things like “What are the other sites or services that these individuals are using on a regular basis? What are they reading? What products are they purchasing?” Those are the kinds of datasets that allow us to really think about our investor not as a number, but as a human being with a particular personality and a particular attitude when it comes to trying things like this.

Joe Fairless: And how do you determine what other sites are they on and what other products are they purchasing, what are they reading?

Shoshana Winter: Some may find this creepy, but the one thing that marketers and businesses have at their disposal today more than ever before is an incredible amount of data. I think a lot of us maybe speak about privacy, and issues like that, but at the end of the day, with the data that’s available to us, whether it’s buying a campaign on Facebook, or Google, and Amazon is becoming a bigger player here as well – those platforms, because of their scale, collect an enormous amount of data from their users. Where a user has visited before they came to the site; what are the groups that they’re members of if it’s a social site, for example…

These are old datasets, that although they’re never delivered to us in an Excel spreadsheet, they are used to create audiences based on certain kinds of attitudes or behaviors.

For example, let’s talk about the busy working mother; that would be an example of that. We’re able to take a group like that and go to a lot of our digital partners and provide them with the data we have – anonymized, of course – and say “These are the kinds of people that we’ve been very successful with. Can you find them on Facebook or Instagram?”

What most of these platforms are able to do because of the amount of data that they hold and use is to be able to identify those people within their own platform and allow us to target them with our advertising in a very precise way.

Joe Fairless: For someone who is listening and wants to learn from this process and do it, how do you do that exactly? If they have a list of people, like “You know what – I’d love to know more of what they’re reading, and what they’re purchasing… I have this database of people”, what are the steps that they would take in order to better target them and get that information?

Shoshana Winter: I’m gonna be honest about not being able to go through every step, because it’s not something that I personally do on a day-to-day basis…

Joe Fairless: Fair enough.

Shoshana Winter: I have a director of marketing and we work with a digital media agency… But even if someone had a relatively small business and they reached out to Google and said “I wanna do a campaign that reaches a particular audience. Here’s what I know about my audience”, the ad rep on the other side should be able to in some way, shape or form either extract the core parts of the data that the advertiser owns, without names, obviously, and/or replicate the demographic make-up on their own platform, and then allow them to create campaigns that are highly targeted to those groups.

Joe Fairless: Got it.

Shoshana Winter: It’s an art and a science in and of itself, and I don’t want at all to position myself as an expert, but I’m well enough versed in understanding how it works at a high level to know that where digital is really going and where marketers in this space and really in any category – the biggest asset they have is knowing who they’re talking to with as much granularity as possible, so that they’re not wasting their ad dollars on those individuals that are probably not going to be interested in being a customer.

Joe Fairless: It makes sense. On the flipside, what’s something that you all have spent money on marketing-wise, and you’re not doing that anymore, because that just was not a good ROI.

Shoshana Winter: That’s a great question. I think everything is all about timing. I mentioned earlier television and doing content on whether it’s Barron’s, or Fast Company, or in the world of financial services publications like the Wall Street Journal, where we know a large chunk of our audience probably is.

I think that the problem for a more early-stage marketer like us, or even let’s say somebody who’s starting their own business, is that those channels tend to be more expensive, and the impact that they have directly is sometimes harder to measure immediately. What you’re really doing – as we say  in the marketing biz – is more top-of-the-funnel: brand awareness, creating an immediate connection with somebody, but it might not result in an action.  So that’s not something we’re really investing heavily right now as we build the business, because really what’s gonna make it work at this stage is, as they say, getting to the low-hanging fruit. Those individuals that maybe have already expressed  an interest in this category.

Our company about six months ago made an acquisition of a competitive company in the space that had gone out of business, and with it we were able to inherit assets to their database of accredited investors. That in many ways was a piece of marketing. It was our ability to be able to have a larger addressable audience of investors that have already raised their hand and said “I’m interested in commercial real estate.”

I think that as we grow and we exhaust the low-hanging fruit  and we wanna start talking to maybe more of the mom-and-pop investor, who maybe is more conservative, or maybe is not as progressive, but who we know can really benefit from it, from a portfolio management perspective, then we would start to look to things that are perhaps a little bit more expensive and not as direct, but help us to really tell a story in a more compelling way and build interest over time.

So I think it depends on what stage you’re at. I think almost anything can work, but I think it has to be at the right time and with the right measurement.

Joe Fairless: Yeah. Thank you for that information. Lots of great information. Just so I’m clear on one thing that you’ve spent money on that hasn’t worked – what is that one thing?

Shoshana Winter: I would say  right now to do a big TV campaign would probably not be the best use of my marketing dollars, just from a pure return perspective. I do think there will be a time, hopefully in the near future, where that will make sense for us… But right now that’s not something we would consider.

Joe Fairless: Got it. So you’ve been strictly digital since you’ve been on board in this capacity, for the last 24 months.

Shoshana Winter: Yeah, I would say digital and content, where content can have a life outside of digital, but I would say those are our two main focuses… And then we do spend a tremendous amount of effort in what they call CRM (customer relationship management). So marketing directly to our own base of users, some of whom have already invested and some of whom have not… And really trying to get to know them and offer them – whether it’s access to webinars, or eBooks, articles that we create, that will help make them feel more competent and informed about the category, so the notion of investing becomes a little bit more accessible.

Joe Fairless: And how do you get to know your own database a little bit more, tactically speaking? How do you execute on that?

Shoshana Winter: I think a combination of email, as old as it is, is a very powerful medium. It allows you to create tiny little audiences based on how active somebody is, because we have all of that information. Audiences based on things like “Have they invested in the last six months? Have they not? Do they tend to invest in deals that are in certain geographies or not?” So what I think email marketing allows us to do is get very sophisticated about how we segment the audience, and then create really customized content or messaging, that we believe is going to work best with that audience, versus just sending out a lot of mass mail, if you will.

So email has been very powerful for us, both in terms of segmentation and then in terms of the data that we get back after an email is sent. What was the open rate, what was the click-through rate, what are people doing as a result of said email? That’s one, I think.

And then the other may sound kind of old-fashioned, but we’re an investment company, and at the end of the day this is about building a relationship between a registered investment professional that we have on our team, that will pick up the phone, welcome members to the platform, and through conversations over time enable them to feel comfortable enough and informed enough about a particular opportunity. And we keep all of the data that gets collected by the salespeople on an internal, proprietary platform that we have, so you can go into our platform as a salesperson and look up an individual investor and really get a full history of what he/she has/hasn’t done over the life of their membership at iintoo, which is incredibly valuable when we’re having a phone conversation or sending out emails.

Joe Fairless: What CRM platform do you all use?

Shoshana Winter: We’re using HubSpot as our marketing automation platform, and then some of our CRM is actually built on top of our portal, so it’s a combination of the two.

Joe Fairless: Anything else as it relates to this topic that you think we should talk about, that we haven’t talked about, before we wrap up?

Shoshana Winter: I think that those of us in the online real estate investment space – these are early days in a category that I think is really gonna change the way people think about their money. And I think it’s an exciting time to really be on both sides of it – as an investor, and on our side, as a business that’s trying to communicate and get that investor to invest a portion of their portfolio with them.

I think it’s just really incredible that regular retail investors that don’t know somebody in the business and don’t have to put in a million dollars can invest into a deal and see double-digit returns in a short period of time… So I just think it’s an exciting time to be in this space, to be marketing in this space and to be an investor.

Joe Fairless: I loved our conversation. Lots of really good tips for how to think about marketing to accredited investors, and specifically how to reach them. Some challenges, as well as some solutions. Shoshana, how can the Best Ever listeners learn more about your company?

Shoshana Winter: The website is pretty easy to follow, and there’s an email address on every single page, invest@iintoo.com, which gets answered personally every single day. Or you could just pick up the phone and call us, and we’ll talk to you.

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

Shoshana Winter: You got it. Thank you so much.

JF1984: From the Military to Multifamily with Phil Capron

Listen to the Episode Below (0:22:51)
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Phil Capron went from running special ops missions with the Navy to purchasing his first property in 2010. His new book shows veterans and active duty personnel how, with a few strategic decisions early on in their career, they can acquire and manage enough real estate to separate from the military after a full career as a net-worth millionaire and, ideally, have a cash flow that would replace their active duty income. In this episode, Phil discusses how he conducts his multifamily missions with host Theo Hicks.

Phil Capron Real Estate Background:

  •     Purchased first property in 2010 while in Navy in Norfolk, VA
  •     Got real estate license, flipped homes, bought and held SFRs, got into MF a few years ago
  •     244 MF units
  •     Senior Mentor with Michael Blank
  •     Book: Your VA Loan and How it Can Make You a Millionaire
  •     Based out of: NYC
  •     Say hi www.philcapron.com

 

Best Ever Tweet:

“I’m not concerned about why something isn’t going to work, I’m concerned with how can we make it happen? How can we overcome this obstacle? And if you approach this business with that mindset, I believe you’re a lot more likely to succeed.” – Phil Capron

 

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TRANSCRIPTION

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

Phil Capron: Theo, I’m doing amazing. Thank you so much for having me.

Theo Hicks: Absolutely, thanks for joining us. Looking forward to our conversation. Phil’s background is that he purchased his first property back in 2010, while in the Navy. At that point he also got his real estate license, and then flipped some homes and bought and held some single-family homes. Then a few years ago he transitioned into multifamily.

He currently has a portfolio of 244 multifamily units. He’s also a senior mentor with the Michael Blank program. He has a book coming out, or it might be out once this episode airs, and that is “Your VA Loan and How It Can Make You a Millionaire.” Phil is based out of New York City, and you can say hi to him at PhilCapron.com.

Phil, before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Phil Capron: Yeah, for sure, Theo. Thanks. So that’s pretty much; I’ve just gotten out of special ops selection to become a Naval Special Warfare Combatant-Craft Crewman. It’s a lot of words basically for the guys that take Navy SEALs to and from their maritime missions on small, fast boats. We jump out of planes, shoot big guns, do some other pretty cool stuff.

I’ve just moved from Coronado, California to Virginia Beach, Virginia, and rented an apartment with a  couple of my buddies from my class… And I’d always instinctively known that there was something to this real estate thing. In 2010, looking back, obviously that was a pretty good time to buy… So I had to decide whether I got the two-bedroom/one-bath on the beach or close to, for what was my budget (about a quarter million), or whether I went into the city of Norfolk, which is slightly less desirable schools, and it just doesn’t have that Virginia Beach zip code, and get a four-bedroom/3,5-bath for the same price. So I chose that route, I moved my couple of roommates from my apartment in, as well as one other guy… They paid my entire mortgage while I lived there, and all my utilities… So of course, I reinvested all the money I saved into real estate. Just kidding. No, I didn’t. I wasted it on really dumb stuff.

The book that just came out, “Your VA Loan and How It Can Make You a Millionaire” shows veterans and active-duty personnel how with a few strategic decisions early on in their career they can acquire and manage enough real estate just with that program to separate from the military after a full career as a net worth millionaire, and ideally have a cashflow that would replace their active-duty income. So when they get out, they’re not forced to take a job that maybe doesn’t agree with them. They’ve spent a lot of time away from friends and family serving a country, and I believe that they have more to give; I want them to be financially free, so they can do things like coach little league, volunteer in their church, run for office, or even just chase a little white ball around or take their significant other on a cruise around the Mediterranean. I believe they’ve given enough, and via the VA loan I think that financial freedom truly is possible for these American heroes… And that’s what the book is about.

From there, as soon as I separated from the military, I started selling my buddies homes, and also listing them when it was time for them to transfer. I saw a lot of really bad advice was being dispensed. The saying that I have is “All men are created equal. All real estate agents are not.” So buying your first home is your largest financial decision to that point in your life; you’ve gotta make sure that you’re doing it right. It’s not like buying a car, or buying a jet ski, or something. There’s real consequences associated with it. And as many folks as I can get to understand how powerful of a vehicle it is, the better. So that’s my mission.

I sold a lot of homes, I got into flipping, did a few dozen flips over a handful of years, and actually locked in my first multifamily purchase. It was a 13-unit. I took one of my buddies who’s also a veteran and had about 30 units at the time; I took him to this property, listed around 900k, thinking this would be great, I’d get a 27k commission if I could get him to buy it.

They couldn’t make a deal, but then the other broker approached me and said “Well, if it was seller-financed, would you buy it? I said, “Well, I guess I’ve never considered that.” Long story short, I ended up buying it for 900k, 100k down, and negotiated seller financing for 30 years; a 30-year amortization and 30-year term, at 6%, without so much as a credit check, which is a pretty good result, in my opinion. Also, the first six months no principal payment. So the full  mortgage payment is just under $5,000; my payment the first six months was just over $800. So that enabled me to cash-flow just under $45,000 the first seven months.

It’s been some important lessons learned with that little property. It’s actually pretty difficult to manage, and I might consider selling it soon… But without it, I wouldn’t have acquired a little over 200 additional units in the last few years, so I’m very thankful for it. That kind of brings me to  present day, where I’m helping people get into multifamily, with Michael Blank and his program… And raising money and doing deals. I’ve been talking for a really long time, Theo… I’m gonna be quiet now. That’s everything.

Theo Hicks: [laughs] Thanks for sharing that. So for that 13-unit, with 100k down, how did you fund that? Was that your own money, or did you raise that capital?

Phil Capron: That’s a fun story in itself. I had a buddy who — we did a lot of flips together. He’s a military guy from the special ops. We went to class together… And I said “Hey buddy, here’s how this is gonna work – 50/50.” Two weeks before closing he said “You know what, I’m not comfortable with this, because my money is gonna be tied up for too long. I’m out.” So I now have to approach the seller and say “Hey, I actually don’t have the money anymore.” So he said “What CAN you do, young fella?” Because this guy was basically looking at the seller financing as retirement, and generational wealth for his kids. I had about 25k in the bank, or something like that, and I’m supposed to say something less than that, obviously; just simple math. But I got nervous, and I said “I could do 40k.” And he stuck out his hand and he said “Okay, let’s close in ten days, as planned.” I go, “Oh, no… Now I need at minimum 15k.” So I went on the hunt to other friends that we’d done real estate deals with in the past, ended up raising 35k, and I figured “Well, if I’m raising money, I might as well raise money.”

I closed on that transaction with $5,074 and one cent of my own money, which was pretty cool, being that we brought in 45k the first seven months. The ROI on that is solid. I don’t know how to compute it exactly, but it’s pretty good. So he gave me a second for 60k and a year to pay it back. So I did that at the end of year one, and now it’s not a killer-killer deal – it cash-flows about $1,500/month – but it’s extremely highly leveraged. And like I said, the law of the first deal, as Michael Blank likes to say; it got me into all these other deals because it’s a proof of concept.

Theo Hicks: Exactly.

Phil Capron: The rents start rolling in and I’m like “They were right! It just keeps coming. This is great!”

Theo Hicks: What about your second deal? Let’s talk about that.

Phil Capron: Okay. My second deal, a 108-unit portfolio, North of Virginia, six buildings. I’d learned a little bit on the first one, but still largely didn’t know what I was doing… But I was fortunate to surround myself with really strong partners. A commercial real estate broker with 30 years experience, one of the biggest residential brokers around, who owns a property management company… And then a classic contractor, the gentleman who I took to the original 13-plex to try to sell it to him to manage the construction. So we all put in an even amount of money, and took that down for what ended up being one of the lowest price-per-door sales of a stabilized transaction in the MSA’s recent history since maybe 2009, or something.

The great thing about it was that when the appraisal came in, it came in 1,55 million dollars higher than our purchase price, and the as-completed appraisal -because we did do about 500k in cap ex – was about 3 million dollars higher. So you could say that was kind of a grand slam.

From there I went on and picked up an 82-unit with a bunch of partners, and then I’ve picked up a couple 20-plexes since.

Theo Hicks: So it sounds like your ability to scale from a 13 to a 108-unit was because of your team, because you said you still really didn’t know what you were doing… But you found a really solid broker, a management company, and a contractor. Do you mind walking us through how you were able to find them, but more importantly, how you were able to convince them to come on your team with only having done one deal before?

Phil Capron: For sure. I like to bring things back to military analogies, because they make sense to me, and because I believe there’s a lot of value in there. When you’re conducting a mission, you need to understand what assets you need to execute the mission, and a multifamily deal is no different. In your Syndication School – guys, if you haven’t checked that out, definitely check that out. Fantastic information. You need obviously some cash to close, right? We needed about 1.3 million dollars. That’s one box we definitely needed to check.

Then the next box is with the loan, the first mortgage, we need a net worth that’s greater than what we’re seeking as a loan. That’s another box. We need somebody to manage, we need somebody to swing the hammer, because some of these units legitimately did need work.

And then, we needed somebody with the experience to keep the project on track and to anticipate problems before they happen, and to help us find the best solutions when they inevitably do happen. So my first priority was money and net worth. I achieved that with one partner.

Then the next partner was the construction piece. Then the next partner had the property management arm, instead of just a third-party, which – obviously, when you have a great property manager that’s  a third-party and you manage them, it can work out. But I’d much rather create that alignment of interest that they wanna see my project succeed as much as I do.

So once I had all those boxes checked and we negotiated terms within the partnership, away we went. I make it sound simple there; it wasn’t, to actually put it all together… But if you’re considering your first or next deal, I invite you to write it out – what do I need? Who do I need? What do I need them to do? Where do I fit in? What value am I bringing and what’s that worth to the marketplace? That’s the key to this whole business.

Theo Hicks: Okay, thanks for breaking that down. That’s really good analogy. I’m sure a lot of your skillset acquired from the military make you a fantastic investor, just by listening to you break that down like that.

So you said that the first piece was the money and the net worth, and that was one person. Who was that? Was it somebody you knew? Was it somebody you had to find?

Phil Capron: It was somebody I knew, and we were actually flipping houses at the time, so that was pretty easy, so to speak… And then I approached actually the contractor next, and he told me no. He’s like, “Phil, I love you, but do you really think that we have it to do this?” I said “Yeah, I do. This is a screaming deal. Deal of the century. Let’s do this.” He’s like “Well, I don’t know. The way you frame it looks pretty good, but I just don’t know.”

So then when I brought in the commercial broker, who also was gonna provide some net worth and that experience piece that we really needed, a little bit of guidance, I had my contractor come and walk him through our plan and improve my (at the time) planned improvements. It went really well, and afterwards I said “Hey guys, let’s go to lunch. I’ll treat you the lunch. I appreciate your time.” And the commercial broker said “Phil, I hope I’m not speaking out of turn here… This is a great deal, you’ve got a great deal, but the only way I’d be comfortable with it is if this gentleman (your contractor) is on the team, doing the work as an owner, not as an employee. And I said “Well, no offence, I invited him first and he told me no.” Then the contractor said, “Well, Phil, if he’s in, I’m in if you’ll have me.” And I said, “Alright, cool. We’ve got a deal. Let’s do it.”

Theo Hicks: So it sounds like you knew the first guy, the money/net worth, you knew the construction person… Did you know this commercial broker as well?

Phil Capron: It was a referral from my accountant. So I knew of him, and we got to know one another, and then I invited him down… Just actually more for counsel than necessarily as a partner, but it ended up unfolding perfectly. So did I get a little lucky? Sure. But luck happens a lot more often when you’re doing the kind of problem-solving that I described and you’re finding solutions.

Theo Hicks: Exactly.

Phil Capron: So many people, even students of mine, they’re like “Oh, I can’t buy this. The cap rate’s wrong.” Okay, why is the cap rate wrong? When we were going through the financials in-depth on another deal, the 82-unit, I found a discrepancy in the water. Two years prior it was 50k a year, then it jumped to 75k. So I asked the person, “What’s up with this?” This is pre-LOI even. “Can you figure out what the deal is?” And he said “Oh, they just sent the water company out and the meter was broken on the city side and just spinning, to the tune of $25,000/year.” At an 8 cap, what is that? It’s a lot more. So everyone else is lazy underwriting, didn’t catch that. We caught it, got to the bottom of the problem, had it fixed, and it enabled me to save several hundred thousand dollars on that particular transaction.

So I’m not concerned about why something isn’t gonna work, or why we can’t do it, I’m concerned with how can we make something happen? How can we overcome this obstacle or this problem? And if you approach this business with that mindset, I believe you’re a lot more likely to succeed. If you’re looking for obstacles, or even if you’re not, they’re gonna occur… But if you tackle them head-on with “How do we overcome this? I’m not accepting defeat.”

There’s actually another story on that point, with the 82-unit, if we have time… It’s kind of funny, but… Sorry, I’ll let you get back to it there, as I think I’ve tangented a bit.

Theo Hicks: I was gonna jump into the money question, which we maybe might have just been over, but… What is your best real estate investing advice ever?

Phil Capron: My best real estate investing advice ever is on that same kind of thread, or in that same vein… You have to not be willing to accept what is, you have to be able to think of what can be, and work to make it so. A lot of folks these days – again, if you’re playing in the big multifamily space, deals are really hard to come by, guys. Kind of like the special ops, we do missions that other units are incapable of doing, they don’t have the tactics, the training, the equipment, whatever… The personnel, most importantly. I look at a lot of the big operators and whatever their criteria is, mine is gonna be about the opposite, because I’m willing to do work that others in the marketplace aren’t willing to do, so I have access to deals that they don’t have access to.

So my advice would be if you are observing that it’s tough out there right now, what can you do different to basically create a little niche for yourself?

Theo Hicks: Alright, Phil, are you ready for the Best Ever Lightning Round?

Phil Capron: Absolutely.

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

Break: [00:17:32].22] to [00:18:10].18]

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

Phil Capron: Best ever book I’ve recently read was a re-read, and it was The Millionaire Real Estate Investor, by Gary Keller. If you’re just getting started, it’s a fantastic overview of what it is to invest in real estate.

Theo Hicks: What deal did you lose the most money on?

Phil Capron: It was a combination of deals. I had five flips going at the same time, everything was going great, with a new contractor… So I was out in California, surfing with buddies, in Vegas, hanging out… They asked for money, I sent it; more money, we sent it, sent it… Eventually, I got back home and found out that really no work was done on any projects, and that cost me tens of thousands of dollars, by taking my eyes off the prize and not verifying. I certainly trusted, but I did not verify that everything was continuing to go well, even though the past projects had.

Theo Hicks: What is the Best Ever way you like to give back?

Phil Capron: The best ever way I like to give back – I actually have  a  charity called See Them Soar. I’m embarrassed to admit that we haven’t done an event in over a year, but our mission is to enrich the lives of cancer patients and their families by providing an opportunity to go indoor/outdoor skydiving at no cost to them. After the military [unintelligible [00:19:20].29] indoor skydiving center. As an instructor – I’m still an avid skydiver – I had the opportunity to take some cancer patients flying… And it’s a total transformation. It’s a vacation from everything they’re dealing with – their friends, their families are there… It’s an amazing experience. So I need to get back engaged and get some more events booked, because it’s very fulfilling to do those types of things.

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

Phil Capron: The best ever place to reach me – probably Facebook, embarrassingly enough. Phil Capron is my name. You can also go to PhilCapron.com. Hopefully, by the time this is out, your VA Loan and How It Can Make You a Millionaire is out, and doing stuff with that… So yeah, Facebook or the website. Just be patient with me. I’m kind of a one-man-band at this point. But I will get back to you if you reach out though.

Theo Hicks: Perfect. Well, Phil, I really appreciate you coming on the show today and sharing your experience, your advice… Just a few things that stood out to me – you talked about how you lucked into your first multifamily purchase. You were actually visiting a friend who couldn’t bring it on deal, and the broker offered seller financing. As you mentioned, your mindset is to not be willing to accept what is, and you took advantage of an opportunity to get into multifamily.

You mentioned you had some issues along the way, someone pulling out the funding last-second, but you were able to close on that deal. You might consider selling it, but as you mentioned, it’s the key that opened the door to multifamily for you.

We also talked about your second deal, the deal of the century, as you said, or at least the deal of the decade, because of the lowest price per door in the MSA’s recent history, and how it appraised for over a million dollars above the purchase price and three million dollars above the all-in price.

We talked about how you built your team, and you succinctly broke down exactly how you need to approach any type of project in life, which is to figure out exactly what needs to be done, and then where you fit into that, and then write out a list of all the people you need, and then prioritize them based on what you need most, and then work  your way down that list, and we went over that. The cash to close, you needed the net worth for the loan, you needed a management company, a contractor, someone with experience, so we broke down exactly how you did that.

And then lastly, your Best Ever advice, which I’ve kind of hit on already, which was you have to not be willing to accept what is, and think about what can be, and work to make it so. Then you kind of gave an example of you were looking at a deal where the water was really high, and you found out it was because it was a broken meter, which saved you a ton of money on the acquisition, as well as ongoing expenses.

Then you also mentioned that another way to approach this is to have criteria that’s the complete opposite of what everyone else is doing, and pursue opportunities that people are ignoring.

Again, really solid advice, very applicable, especially in today’s hot market. Best Ever listeners, thank you for stopping by. Have a  best ever day, and we’ll talk to you soon.

JF1961: Replace Security Deposits With Low Cost Insurance with Adam Weiner

Listen to the Episode Below (00:17:55)
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Adam has something a little different to share with us today. We’ll hear about Rhino, a company that helps investors and renters skip large security deposits by having the tenant pay a low monthly fee. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“It’s all about hiring smart, driven, hungry people” – Adam Weiner

 

Adam Weiner Real Estate Background:

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

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

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


TRANSCRIPTION

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

Adam Weiner:  I am doing good. How are you doing, Theo?

Theo Hicks:  I am doing fantastic, thanks for asking. I am looking forward to our conversation.  A little bit about Adam – he is a Managing Director at Rhino which is a company that replaces security deposits with a low-cost insurance policy. He joined Rhino as employee number five, and now leads a team of eight other people. He is based out of New York City, New York. You can say hi to him at www.sayrhino.com.  Alright Adam, before we get any further, do you mind telling us a little bit more about your background and what you’re focused on now?

Adam Weiner:  No problem. Thanks for asking, Theo.  A little bit about me – I’ve been in tech sales for  the last seven years. I’ve been at companies like Yelp, and Google… For the last four years I’ve been in property technology at a company called Nestio, prior to joining Rhino, and helped build out their business development team seed round through series B, and now I am over here at Rhino where we are changing the way that renters rent, and hopefully change the way that owners can manage their properties.

Theo Hicks:  So I mentioned in the intro that Rhino replaces security deposits with a low-cost insurance policy. What exactly does that mean?

Adam Weiner:  It’s real simple.  Traditionally, when someone gets approved for an apartment, the managers or the owner says “Okay Johnny, you’ve been approved for the apartment.  We are going to need a cash security deposit in X amount.”  That could be 300 dollars in Texas, or it could be 3,000 dollars in New York City.  And what we do is we go ahead and replace that deposit with an insurance policy. So it’s a reduction in upfront cost for the end user, that being your resident, and it will really grease the wheel so to speak with regards to leasing velocity, and your ability to effectively market the apartment.

In essence, we are just cutting out a major bottleneck that prevents people from getting into apartments quickly, to benefit landlords, and it’s a great way to tackle the affordable housing issues by helping people out during what’s a super-expensive time in someone’s life, moving.

Theo Hicks:  So when you say it’s insurance policy – are you working directly with renters, or are you working directly with the owners? Or is it both?

Adam Weiner:  That’s a great question.   We view ourselves as a true B2B2C model. My team’s job is to form partnerships with landlords throughout the United States.  And they this in turn offer Rhino as a financial amenity to the renters.  So it’s really an equitable equation for everyone involved.

Theo Hicks:  Okay, so you said typically what happens is I want to rent an apartment, the landlord approves me, and instead of me paying them $300 — I wish my security deposits were that low.  Typically, it was like a month’s worth when I was in Ohio.  So I pay $1,200 upfront, plus first month and last month’s rent.  That’s like $3,600 right away.  Whereas for this strategy, you said that it replaces it with an insurance policy. Does that mean me as a renter rather than paying $1,200 upfront, I am paying something each month, like I would with other insurances?

Adam Weiner:  Yeah, you hit the nail on the head. It’s a monthly payment that the renter pays.  The general rule of thumb is for every thousand dollars of protection the landlord needs.  So to replace your exact deposit, it would have cost you about $5 a month with Rhino.

So, the resident is psyched, because they don’t need to shell out $1,200 bucks in addition to all the other fees – first month’s rent, last month’s rent – and that’s a huge reduction in cost, which benefits the landlord initially. And to your point, $300 [unintelligible [00:05:32].14] in Texas. In San Francisco or in New York City, where we have partners on the landlord side, they are charging resident three, four, upwards of seven, eight thousand dollars in terms of deposits.  So it’s really a universal fit for a renter, and depending on socio-economic status, it will vary as to what we’re actually replacing.

Theo Hicks:  Okay, and how does the exit process work with the insurance policy?  I am a landlord, my tenants lived there for a year, they’ve paid their let’s say $500 per month for insurance, and then they move out. And then let’s say that the damage that I incur is — I don’t know, let’s say 2k.  Well, does the insurance policy cover all of that? What will the insurance policy cover?  Is there a process for explaining what issues I had, is that different…? Because obviously, if I just take a security deposit, I kind of am the one who’s looking at the property, seeing what damage was incurred, calculating the costs, and then taking that out of the security deposit before giving it back to them. How does the exit process differ with this policy?

Adam Weiner:  Yeah, totally.  The claims process is really easy. Effectively, we need to be as good or better than cash.  If landlords or owners weren’t able to get their money quickly and in a really in an efficient way then no one would be working with us. Right now we are in about half a million apartments, and we’ve ensured upwards of 150 million dollars in leases, for owners and operators throughout the US. So, from a claims perspective, it’s all done digitally online.

We need some photos for damages, for loss of rent or late fees, just a copy of a lease ledger, or arrears on the account.  You upload that information with the claim, actual amount, and click Submit. You will be alerted automatically that we received the claim, and then we process that claim in an hour. So it’s very, very fast.

Theo Hicks:  Okay, this sounds very convenient for the landlords.

Adam Weiner:  Yeah, take car insurance as an example. You go rent a car, and they don’t say, “Hey, Theo, we’re going to need $5,000 to drive the car off the lot.” You give them your information, you take on an insurance policy, and it’s a really effective way to protect the asset.  Same exact principle applies to real estate.

Theo Hicks:  Taking a step back and looking at Rhino’s business perspective – again, I don’t know much about how insurance companies operate, but you mentioned that you ensure up to about  150 million dollars in leases throughout the US. As a company, do you need to have a lump sum of cash on hand in order to make sure you can cover all of these claims processed? How do you know how much money your company needs to make sure it can cover the potential of 150 million dollars or whatever that number would be? I am just curious.

Adam Weiner:  Yeah… Well, it’s called an MGA, which is a Managing Group Agent. So it’s our policy, it’s our marketing, it’s our branding – we handle end-to-end processing of the entire insurance process, from collection of premiums all the way to processing of claims. We operate on carriers balance sheets,  so we are backed by a company called State National. State National is a roughly 14 billion dollar A-rated excellent insurance carrier.  They basically trust in us to write [unintelligible [00:08:41].01] policies in a way that we find appropriate, and it’s actually them [unintelligible [00:08:45].20] fulfilling claims when landlords file them.

Theo Hicks:  Okay. And another business question – it sounds like you joined this company pretty early on. What was the size of the company? …whatever the main metric is. You said that you ensure 150 million dollars in leases now; maybe that will be the metric. How much money worth of leases did you guys ensure when you first started working there?

Adam Weiner:  That I don’t have off the top of my head, but to give you an idea, when I started a year ago, we were working in an eight by eight office, with seven of us on a good day.  Now we are in a 5,000 square foot space, we are a team of roughly 40. So the company has grown, and that’s really to keep up with the volume and demand of both renters that we service, and landlords that we work with.

So when we started off, we had roughly just south of 100,000 units on the platform, like 50 or 60 thousand, and now we are upwards of 300,000.  So we are growing really quick, primarily from an institutional owners standpoint… So a couple of folks on the [unintelligible [00:09:45] and then we work with everybody in between.

Theo Hicks:  Okay, so just because this is an insurance company, it doesn’t mean the kind of concepts that are used to scale don’t apply to real estate… Because I could start with me doing everything myself and having a small number of units, to eventually having a team of ten people.  So what were some challenges you faced, or maybe the lessons that you learned, that other people can apply if they want to get to the point where they’re not just a one-man show, they’ve got people working for them and that enables them to scale their business? What are some of tips you have for people who want to scale the number of people they have working in their business, so that they can grow their real estate business?

Adam Weiner:   It’s all about hiring smart, intelligent, driven, hungry people. Everyone in the office understands what the mission is, we are super-collaborative, and it’s really about hiring A-players early on, and A-players will attract other A-players.  So I think the advice would be surround yourself with good people.

Theo Hicks:  Do you have any involvement in the hiring process?

Adam Weiner:  Yes.  I am hiring key people in our business development team right now.

Theo Hicks:  Can you give us some tips on what to look for when you are hiring people? I mean, I know you mentioned smart, intelligent, driven people, who are aligned with your mission, but is there any specific tactics that you use when you are interviewing, that maybe is unique to your business?

Adam Weiner:  Yeah, I try to have a conversation with someone, rather than ask generic, arbitrary interview questions. I try to really see if a person can connect with me and have a real conversation, and try to learn that way. I think that’s kind of indicative of the way that we approach business development.

Ultimately, Rhino is a free product for landlords, it costs nothing.  So my team’s job is to form strategic partnerships with progressive-thinking folks in real estate.  So it’s really about doing exactly that – having a conversation, building rapport.  I think that’s a huge part of what I look for.

Theo Hicks: You mentioned [unintelligible [00:11:46].16] landlord, so you making money off of the insurance payments that the tenants pay… So part of that goes towards covering the claims or whatever, and the rest of that is profit for you guys, correct?

Adam Weiner:  Correct. That’s how the business model works.

Theo Hicks:  Perfect. Alright Adam, what is your best real estate investing advice ever?

Adam Weiner: My best advice ever would be if you’re a multifamily operator, to get your apartments off of deposits, and to have them use an alternative like Rhino.  I think that’s where the market is heading right now, and the advantages greatly outweigh the disadvantages. The only reason I could think of not using a service like Rhino is if you are in a state that allows you to use deposits for capital improvements. But most states — it’s  few and far between that allow that.

Theo Hicks:   Perfect. Are you ready for the Best Ever Lightning Round?

Adam Weiner:  Yeah, let’s do it.

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

Break: [00:12:42].27] to [00:13:27].29]

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

Adam Weiner:  War Journal, by Richard Engel. It’s  a history, or conflict [unintelligible [00:13:35].19] It’s very, very interesting.

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

Adam Weiner:  I’d probably go into brokerage works. I’ve always had a real interest in that, and I’ve never done it… But I’d probably go into the world of brokerage.

Theo Hicks:  What deal did you lose the most money on? I guess as you aren’t technically an investor, I guess it could be “What business decision resulted in a loss of money?”

Adam Weiner:  When working at a company, the worst deals are deals that hurt the company. The worst deals that I have ever lost were deals that did just that, [unintelligible [00:14:10].20] probability deals.

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

Adam Weiner:  The best ever way I like to give back is a charity called Shatterproof that I’ve given back to, that helps people who are dealing with substance abuse.

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

Adam Weiner:  Text or email is the best way. Adam@sayrhino.com

Theo Hicks:  Alright, Adam, I really enjoyed conversation. This is one of the first interviews I’ve done in a while where it’s been kind of completely foreign knowledge. I really don’t know anything about the insurance process, and I’ve never heard this before. It was very interesting, and I am looking forward to diving into this more.

Just to kind of summarize what we talked about… Rhino is a company that replaces security deposits with a low-cost insurance policy. So rather than me as a landlord collecting a security deposit from my renter, instead I will partner with Rhino and my tenants will pay a monthly fee instead.

Adam Weiner: You nailed it.

Theo Hicks:  And the benefits of that are — both benefits to the landlord and to the renter, because the upfront fees are going to be lower, so I don’t have to worry about losing the residents that can’t afford thousands of dollars upfront. I can lease my units faster.

You also mentioned that  from a business perspective your company is backed by a large company called State National – that’s your insurance carrier – that lets your company handles the entire insurance claims process. So if you are working with Rhino, they do the entire process.

You mentioned that the claims process itself is all done digitally, so rather than me having to do all the calculations of myself, I just upload photos, upload copies of leases for any late fees, and then your company calculates how much money it’s gonna cost to cost to fix all the damages.

We talked about how to scale… So when you first started out, you had seven people on a good day, really small office, you managed around 60,000 units. Now you have a big office, 40 people, managing over 300,000 units. The tips were to make sure that you are hiring the smart, intelligent, driven and hungry people early on, who in turn attract more smart, intelligent, driven and hungry people, and you’ve got the snowball effect. So make sure you are focusing on hiring right people early on, that will help you scale long term. More specifically, when you are hiring people to see if they are smart, intelligent, driven and hungry, make sure you are having a conversation with them, rather than asking them a list of generic questions, to see if they can connect with you.

And then lastly, the best ever advice was to get your apartment off of the deposit system and use an alternative like Rhino. The only exception you said would be if they have the ability to use the security deposits for ongoing cap ex, because if that’s the case, you can multiply that money by investing into the property and forcing appreciation.

So yeah great interview, great conversation, lots of great content. Best Ever listeners, I am sure you’ve learned a lot. Thanks for tuning in, have a best ever day, and we’ll talk to you soon.

Adam Weiner:  Thanks so much.

JF1953: 60 Homes, 12 Units, And One Storage Facility In Just Three Years with Angad Guglani

Listen to the Episode Below (00:23:19)
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Angad started in this business as a real estate agent in college. He got that business rolling by helping students find housing. Now with a bunch of single family homes, multifamily units, and a self storage facility, Angad has a ton of knowledge to share with us today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Figure out where you’re going to get the money to buy the deal and where the revenue is coming from” – Angad Guglani

 

Angad Guglani Real Estate Background:

  • Real estate investor for three years
  • Has built a portfolio of 60 single family houses, 12 multifamily units, and a self storage facility
  • Based in NYC, NY
  • Say hi to him at http://cooperacq.com/
  • Best Ever Book: The E-Myth

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

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

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


TRANSCRIPTION

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

Angad Guglani: Doing well, Joe. How are you?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Angad – he’s a real estate investor for four years, has built a portfolio of 60 single-family homes, 12 multifamily units, and a self-storage facility. In three years. We’re gonna dig into that, I’m very curious how you were able to do that. Congratulations, first off… And secondly, based in New York City, New York. Where you do you live in New York City?

Angad Guglani: I’m actually in Greenwich Village. I went to NYU, so I kind of stayed in the area.

Joe Fairless: Oh, a very nice area of New York City. Alright…

Angad Guglani: Yeah, we have some parks here… It’s nice.

Joe Fairless: Do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Angad Guglani: Sure. I started in real estate about 5,5-6 years ago. I started when I was 19, I got my real estate license. I went to NYU, I went to the business school there (Stern). I know we’re kind of in the headlines the last couple of days…

Joe Fairless: What happened at NYU? I don’t know.

Angad Guglani: Well, the class president of the grade below me just got put away for insider trading at 23…

Joe Fairless: Oh, busted. Okay.

Angad Guglani: Pretty young. I hope I didn’t give it any more PR, but anyways… I was a student there, and I kind of ran into someone who was doing rental brokerage. He told me he was making a lot of money doing it, so I said “Let me get my license and let me see what this is about.” So I got my license and I realized actually I have no business, I have no clients, I have no owners I can represent… But I ended up coming up with the idea that I could basically start a student-run brokerage for college students looking to get apartments… Because at NYU and other colleges in the city about 20,000 students move off-campus every year, so it’s a lot of rental deals that happen. And most of them had a broker involved, and the broker made about a month to two months’ commission, which for their average rents of 3k-4k it was  a pretty good chunk of change.

So anyways, I started a business that kind of tapped in that market. At first it was just me, and then  I hired ten of my friends to go run around and show apartments.

Joe Fairless: When did you have that business? At 19, or 20?

Angad Guglani: At 19 and 20 — I basically ran it all throughout college.

Joe Fairless: What year were you in college when you started the business?

Angad Guglani: I was a sophomore. I think that was back in 2015. Anyhow, so I ran that and we were doing really well. I was making six-figures a summer, three months.

Joe Fairless: Wow.

Angad Guglani: The numbers were pretty good. We would do 100 deals a summer, because most of the kids would move during the summer, and the average commission was between 3k and 6k. And because I kind of ran the team, I would get splits off of all the friends that were working for me… So I would make money on my own deals, and their deals.

Joe Fairless: How many friends did you have working for you as a sophomore in college?

Angad Guglani: The biggest we ever got was ten or eleven. And they were all licensed. You have to be licensed by the state of New York to represent someone in a real estate transaction. So it’s pretty easy to get a license; I’d kind of coach them through, I’d get them on the online class, and that’s how we were doing it.

Joe Fairless: And how did you advertise?

Angad Guglani: Actually, I created a website called OffCampusApartments.nyc. It’s still up there. If you ever google “student housing new york city” our website still comes up on number one or two. And then I also made a partnership with NYU directly, so if you were to call them at the time and ask for a broker, they would send you to my company.

Joe Fairless: Did you get the majority of your leads through that?

Angad Guglani: About 50/50. In the beginning the majority, then the referrals from the school, and then as our website got SEO, as it got web presence, we got a lot from the web page, and then we did Facebook ads… It was  a good time, because brokers were doing really well back then. Now margins have compressed a lot, because most of the listings are available online, through different websites [unintelligible [00:05:02].05]

Joe Fairless: What did you have to do in order to get that partnership with the school? I know you were a student at the time, but did you have to do anything else?

Angad Guglani: It just came down to going to the guy’s office and just sitting there for a couple hours, until he took with the meeting, and… He was a nice guy. I think it was the guy who ran the student affairs at the time… So it wasn’t as hard as you would think.

Joe Fairless: Had someone else approached him about this idea before?

Angad Guglani: A few people had, but most of them were not students; they were older people. It’s pretty frustrating, running around with college kids and showing them apartments, so a lot of people start businesses like this and then quit after a year… But being that I was 19 or 20, and just very ambitious, I took it in stride, so I kind of enjoyed it.

Joe Fairless: And what aspects would some people find frustrating, working with college students trying to find apartments?

Angad Guglani: Oh, New York renting is crazy; it was crazy then, and it’s still crazy now. You have to get a whole dossier of documents, like tax returns, bank statements, photo ID, employment letters, pay stubs… You have to assemble that. And because kids aren’t working themselves, you have to ask their parents for this information. And kids are pretty disorganized, so you basically end up having — if you’re doing a two-bedroom or three-bedroom deal, you have three kids, three sets of parents, you have to assemble all these documents, and they’re kind of running around like a chicken who had their head cut off… It’s a lot of coordination, and a lot of times these deals don’t even go through. So unless you’re really passionate about it, it can get pretty frustrating.

Joe Fairless: Alright, so that’s this business. Then what happened?

Angad Guglani: Like I said, I was doing pretty well. I was making some money and I was living very inexpensively, because I was 19 or 20. I wasn’t spending any money, so I was saving it… And I realized the money in real estate is not on the brokerage side. I’m not saying — I mean, there’s certainly brokers who make a lot of money, but I’ve always wanted to be on the ownership side. And through a mutual friend I met someone who lived in Philadelphia and he turned me on to Camden, New Jersey. He said this area is getting about 2,5 billion dollars of government money put in in the next 5-10 years. It used to be the highest crime area in the country, but there’s real signs of change…

When it started, it was me and two best friends; we went there for a day, saw some property, and realized the numbers really do work.

Joe Fairless: Okay. So what did you do?

Angad Guglani: So we bought our first house — like I said, it was me and two partners; not because I needed the money from them, I just wanted to share the experience with–

Joe Fairless: How much did you have in your bank account after the brokerage stuff, before you bought your first house?

Angad Guglani: Between 200k and 350k.

Joe Fairless: Good for you. Isn’t that incredible? Do you think that’s incredible? It’s tough to look at it from your own perspective, I know…

Angad Guglani: Living in New York you see people that spend that much money on one week vacation, the people in hedge funds..

Joe Fairless: [laughs]

Angad Guglani: Especially the startup guys. I read stories about guys that are 24-25, raising a hundred million bucks, and I’m like “What am I doing?”

Joe Fairless: Well, that’s different. They’re raising that much money; you earned this money yourself. There’s a difference there.

Angad Guglani: No, I’m very appreciative–

Joe Fairless: I’d say it’s more impressive what you did than raising a hundred million dollars.

Angad Guglani: Thanks for that, Joe.

Joe Fairless: Alright, so Camden, New Jersey, you bought your first house, two partners… What information should we talk about regarding that transaction?

Angad Guglani: Sure, I can run you through it. So we bought it on an auction website, totally blind; we had no idea what we were doing. We ended up getting a pretty darn good deal. We bought it for 33k, put about 12k into it, so we’re in for 45k… And we had the property management company running it, and they were kind of wrong company, so it sat vacant for 4-5 months, and my partners got frustrated… So I ended up buying them out.

So I bought them out, and eventually it was just me in a single-family house… And we ended up getting a tenant – or I ended up getting a tenant – and I think I rented it for $1,450 a month. We were all in 45k at this point… So that was the first deal. The rents came in every month, and it was great.

Joe Fairless: How did you and your partners structure that deal?

Angad Guglani: When I had the partners, it was basically a third, a third, a third. We each put in about 15k. It was into an LLC.

Joe Fairless: So that was the first deal. You have 60 single family homes, 12 multifamily units and a self-storage facility… So what happened?

Angad Guglani: Yeah, that was in 2016 when I bought it; 2017 was when I bought the partners our. In 2017 I bought about five houses, because I had the equity, the couple hundred grand… So I was able to buy these houses in cash, fix them up and rent them out.

After I built a portfolio of about five I realized I really can go to a lender; that was the hardest part, was finding a lender… Because lenders don’t wanna lend to LLCs when you’re buying houses for 50k. I mean, it’s very hard to get the financing. But I found a lender that would do a blanket refi, so they basically tied the five properties into one loan and fully cashed me out at 75% LTV.

Joe Fairless: Okay. And then what did you do with it?

Angad Guglani: I basically got the money I started with, plus a little bit more back out after the cash-out refi at the end of 2017. And then in 2018 I kind of got my feet wet; I learned the different players in the market, I aligned myself with a really good property management company, I trusted and aligned myself with some good brokers that were kind of the guys who were doing the most deals in that market… So I was able to pick up 30 single-family houses. Actually, not 30; probably 25, and then I bought a five-unit building in 2018.

Joe Fairless: So how are you running the numbers and evaluating if  these homes are worthy of purchase and not something that you’re just gonna sink money into?

Angad Guglani: Sure. My business is buying distressed real estate, as a lot of people are. So you basically need to figure out what this thing is gonna be worth once you fix it up, what the bank is gonna appraise it at… The numbers work. This is a high-yield market. You can go on the MLS and buy 10%, 11% caps all day long. But I like to buy deals where I get unlevered returns of 16%, 17%, and the only way to do that is to buy them distressed… So we’re talking REOs, estate sales, people that need to sell them quickly, off-market deals… Those are the types of deals I buy. And on those deals, as long as you know [unintelligible [00:10:58].08] on the back-end,  you know what you can buy it for, and you can guesstimate what you can fix it for, and you have a pretty good formula.

Joe Fairless: So you’re renting them out though, right?

Angad Guglani: I rent all of them out, yeah. I sold a handful for strategic reasons, but the majority of my business is BRRR method – buy, rehab it, rent it, and then refi on the back with a commercial blanket loan, tying all the assets together, pulling it out.

Joe Fairless: What are some strategic reasons why you sold some of them?

Angad Guglani: I realized that I don’t want to do construction jobs more than 25k, reason being I live about two hours away from the market… And you’re not gonna get an ace contractor that’s willing to work in Camden. Most of the contractors in that area wanna work in the suburbs, where they can do retail jobs. They don’t really wanna work for investors.

So if I’m gonna be hiring sub-optimal contractors, they’re gonna overcharge me, because I have a New York cell phone number. They think everyone in New York has a bunch of money. I’m just gonna get eaten alive.

So I would rather sell that deal off and make a little bit of money because I bought it well, to some guy who’s gonna do the work himself, [unintelligible [00:11:58].17]

Joe Fairless: And how do you manage that process? Even if it’s less than a $25,000 construction job.

Angad Guglani: Less than $25,000 my property manager has a handful of handymen that do a lot of work for us, that can take those jobs on. We’re talking patch and paint. New flooring, new kitchens, some painting and a little bit of drywalling. It’s not major structural or mechanical stuff.

Joe Fairless: So right now you have 60 single-family homes?

Angad Guglani: Correct.

Joe Fairless: What do you think the 60 single-family homes are worth?

Angad Guglani: They’re worth probably around 80k a door, so about f.8 million…

Joe Fairless: That’s great. And about how much cashflow do you receive on a monthly basis as a result of having them?

Angad Guglani: Right now I’ve kind of grown pretty quickly… Which has been good, but it hurts you in the beginning as far as cashflow. So I’m buying properties — I buy about five a month, so I have a backlog of about 18 houses that aren’t rented right now, that are undergoing minor construction, that are gonna be on the market… But as far as my underwriting goes, I make about $300/door in cashflow after it’s fully financed.

Joe Fairless: Okay.

Angad Guglani: So the 60 would be about $18,000/month in free cashflow, and you’re amortizing your loan, so that’s another kicker to it.

Joe Fairless: What lender do you use?

Angad Guglani: I use two local community banks, but I’m kind of now in the process where I’m speaking to some of the national commercial mortgage lenders. There’s a few that have entered the space in the single-family rental aggregation space, and I’m speaking to them.

Joe Fairless: And who are they? The rental aggregation lenders.

Angad Guglani: You have CoreVest… CoreVest was spun out of Colony Capital, and that’s owned by a bank. They’re pretty big. Blackstone has one called Finance of America. There’s another one called Rock Capital. Goldman Sachs has one called Genesis Capital… There’s 3-4 of them. I’m sure there’s more that I’m missing, but…

Joe Fairless: What type of terms are you looking for with a group like that?

Angad Guglani: Rates have gone down a little bit, which is nice, but we’re looking at 5.5% to 6.5% on a 7/1 ARM loan, that seven years fixed rate and then adjust every year after that, on a 10-year or 30-year term, that amortizes over 30 years.

Joe Fairless: Cool. And you have a self-storage facility.

Angad Guglani: Correct.

Joe Fairless: Tell us about that.

Angad Guglani: It sounds a little glamorous, like self-storage facilities are these big facilities… [laughs] To be honest with you, this one is about 20 garages. Each of these garages is 20×10, so it’s about 4,000 sqft. of storage, and then there’s about a 1,000 office that’s leased to a single tenant, on the other side of the lot.

Joe Fairless: And how much did you buy that for?

Angad Guglani: I got a really good deal, I bought it for 120k.

Joe Fairless: What’s it worth today?

Angad Guglani: It’s tough to say. There’s no real comps… But I’m projecting a net operating income on that facility of about 40k… Plus we have a lot that we can build some more units on. So once we finish building them out, we have to go to the zoning board to get approval to build out some more units… But I wanna get the net operating income up to about 50k. So if you wanna back that into like–

Joe Fairless: Yeah, I just did… So that’s the cap rate, you’d say, about 10%-12%?

Angad Guglani: 10%-12% cap, because it’s not a core buy for anyone, so they’re gonna want a real nice yield if they were to buy it. So you’re talking about – what, 400k?

Joe Fairless: Yeah, 50k in NOI, 12% cap, 416k valuation.

Angad Guglani: Yeah. And I didn’t even spend any money on it. To build the units it’s probably gonna cost 70k-80k.

Joe Fairless: How did you find that deal?

Angad Guglani: That deal was actually on the MLS.

Joe Fairless: Huh.

Angad Guglani: But it was on the MLS for like a day… My whole strategy is buying deals directly from the listing broker, especially on stuff that they don’t wanna sell. Most of the listing brokers don’t wanna sell properties in Camden because they’re low on the nominal value amount, where they’re not gonna make much commission off it. If you go directly to them and they’re getting the full 6%, they’re gonna put your deal first, and they’re gonna get your deal done.

Joe Fairless: So are most of your deals marketed deals, and then you just reach out directly to the listing broker and make offers?

Angad Guglani: I would say 15% of the stuff I buy is MLS-listed… I have relationships with some REO companies, asset managers, so I get a lot of deal flow through that… And then I have a direct to consumer line called Cash for Camden, where we do direct marketing, and we’re getting deal flow through that…

Joe Fairless: Right. What percent of your deals do you get through the REO companies?

Angad Guglani: About 50%.

Joe Fairless: That’s a lot. Okay. And I won’t ask you specifics about them, because —

Angad Guglani: Yeah, it’s pretty paramount in the business, so…

Joe Fairless: Yeah, yeah, so I won’t. But I wanna ask you about it conceptually. How did you get introduced to them, or how did you choose to introduce yourself to them?

Angad Guglani: I  got kind of lucky… An attorney that I had been introduced to to help me on another matter – they were a client of his. So he put us in touch. That’s how I got that direct relationship.

Joe Fairless: Let’s say that relationship went away; if you would try to replicate this, how would you got about replicating this?

Angad Guglani: Something I’m trying to do now – I’m really trying to build systems and processes. That’s my goal for 2020, is really get a lot of this stuff automated. But what I would do is look at the deeds. I’m obsessed with the county clerk’s office. I look at all the deeds and all the mortgages; that’s how I get all my data. So I look at the deeds and I look at who’s selling a lot of stuff. If there’s one entity that’s selling a lot of stuff, they probably are an REO entity. Figure out who’s behind it, look at the addresses on the deeds and work  your hardest to try and get in touch with them.

Joe Fairless: Love it. What’s a deal you lost money on?

Angad Guglani: There’s one deal I lost money on, and that was because I got scammed by a contractor. That’s when I put that rule in place that I’m not gonna do jobs over 25k. It was pretty terrible.

Joe Fairless: [laughs] He really did a number on you, where you made it  a policy moving forward not to ever work with [unintelligible [00:17:33].20]

Angad Guglani: [laughs] Yeah, it was a tough one. This was in 2017-2018 I think it was… But  did my job right. My job is buying distressed real estate cheap. I bought the house for 20k. I could have sold it the day of closing for probably 30k-35k, but I didn’t. I wanted to fix it up. So I hired a contractor who had grey hair, who really talked the big game, said “Stanley’s been doing construction for three generations”, and I really trusted him.

So we had a really trusting relationship, and speak every day, and he started trying to add value to me. He’d drive around and say “Hey, did you see this house?” So I really trusted this guy. And I would give him his draws by bank wire whenever he asked for them. It started out good. He did some good work, he would send me pictures and I’d wire the money right away.

And all of a sudden, coming around Christmas time he started saying “You know what – this job is costing me way more. You need to frontload some of the draws”, because the roof needed way more than he needed… And I know nothing about construction. And by this time I had a really good relationship with this guy… So I basically paid him the entire draws for the project, 45k, and the project was only about 40% done. That’s when things really got wrong. He basically walked off the job. And if you were to google him, you’d figure out this guy’s been sued a bunch of times, he went to jail… I had actually done that, I had actually read that, and he explained it away. He’s like “You know what, don’t trust what you see… There was a lot more to that story. I’m a good guy.” And I trusted him… But I learned my lesson.

So I bought it for 20k, I spent 45k with this contractor, then I had to hire another contractor. It turned out all the work he did, he never pulled permits for. The 20k worth of work he did, we had to rip it all out. It cost me another 40k-45k.

Joe Fairless: Aw…

Angad Guglani: So I bought it for 20k, I’m in 90k for the rehab, so we’re in about 110k, and I listed it at 115k or 117k, something like that… So I think I lost about 10k between holding costs, commissions, and all that stuff.

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

Angad Guglani: Have a business plan, figure out what your niche is, what your strategy is, and figure out where you’re gonna get the money to buy the deal and where the revenue is gonna come. Are you just buying it for yield, are you buying it because you’re trying to refi it out, or are you buying it to flip it? Really figure out the sources and uses.

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

Angad Guglani: Yeah, sure.

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

Break: [00:19:58].28] to [00:20:40].03]

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

Angad Guglani: I read it about two years ago, The E-Myth. It really changed the way I think.

Joe Fairless: What’s something from that book that you’ve incorporated into your business?

Angad Guglani: Really focusing on trying to build the business, and systems and processes. It’s really hard for me; I’m not a systems thinker, but I think that’s really the only way to build a lasting organization, is to have processes and employees [unintelligible [00:20:58].16]

Joe Fairless: Best ever deal you’ve done?

Angad Guglani: Most of the best deals have been this year, but I’m superstitious. I don’t like to talk about things until I’m done with them… So I’d have to say probably the first deal, I think I did pretty well on that one.

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

Angad Guglani: My goal is once the portfolio is fully stabilized, it’s to give 10% back to local charities; 10% of the net operating income. I haven’t started that, because I’m cash-strapped as we’re growing this… But eventually, that’s my goal, is to really give 10% back to the community.

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

Angad Guglani: Sure, you could check us out online. The company is Cooper Square Acquisitions, cooperacq.com, or you can reach out to me directly at ag@cooperacq.com.

Joe Fairless: There are a lot of impressive things about what you’ve done, and I won’t summarize all of them, but I will say what you did as a college student, and what you built, where you saw the need and then — I mean, six figures, a third of  a million dollars earned as a result of the brokerage business as a college student – it’s just inspirational for anyone… And then what you’ve done to build the portfolio, and the smart ways you’ve gone about finding deals, and getting deal flow, and then obviously executing… Because anyone can be a spreadsheet millionaire, but it’s all about the execution. So just very impressive… I really appreciate you being on the show.

I hope you have a best ever day, and I’m looking forward to talking to you again soon.

Angad Guglani: Thanks, Joe. I really appreciate your time, and I hope to speak to you soon as well.

JF1937: 3 Tips for Entrepreneurship #SkillSetSunday with Dana Corriel

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As real estate investors, we are usually business owners and entrepreneurs as well. Dana is also an entrepreneur who is here to share her story and help us with some tips on entrepreneurship. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Every successful entrepreneur at some point has to say no and disappoint some people” – Dana Corriel

 

Dana Corriel Real Estate Background:

  • Board certified internist and creative entrepreneur
  • Was one of the Top Ten Internists to follow on Twitter in 2018 and featured on the LA Times front cover in 2019
  • Based in NYC, NY
  • Say hi to her at  doctordanacorriel@gmail.com

 


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


TRANSCRIPTION

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

First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment for you called Skillset Sunday. The purpose of this episode is to help you hone or even create a skill that you may or may not have already. The skill we’re going to be talking about today is the three tips for entrepreneurship.

We have a successful entrepreneur who is joining us today, Danna Corriel. How are you doing, Dana?

Danna Corriel: Good, I’m great. Thank you for having us on.

Joe Fairless: Well, I’m glad to have you on, and looking forward to our conversation. Dana is a board-certified internist and also an entrepreneur. She was one of the top ten internists to follow on Twitter last year, and she’s featured on the Los Angeles Times front cover this year, 2019. With that being said, first, do you wanna give the Best Ever listeners a little bit more about your background and how you got into entrepreneurship? And then let’s dig into  your three tips for entrepreneurs.

Danna Corriel: Right. So I am just your standard, traditional physician. I trained really hard to get my medical degree, and upon earning it, I sort of entered the work field, and at some point became a  mom… And did the whole medicine thing. Then at some point I actually took a break, because I felt like I needed that time to connect and bond with my children. But during that time, I also discovered that, lo and behold, it might have been myself that I needed to connect with, so there were suddenly all these things that became apparent to me, that I just never realized that I could do. So I started to create, and I entered the medical work field again three years later, with a whole new sense of clarity.

I decided to sort of never give up that creative side that I somehow had found, and I decided that I would somehow mesh it into medicine. That’s where I became a creative entrepreneur.

Joe Fairless: And what were you doing exactly? You said you started to create and you wanted to hold on to that.

Danna Corriel: Oh… I started to live. I know that sounds raunchy, but that’s literally what I started to do. I literally learned how to cook, and learned how to bake, and learned how to connect with my kids, and I learned how to host people, and how to really make an impression, and I learned how to design, how to collect vintage and refinish furniture… I started kind of dabbling into arts, and I realized suddenly that I actually had a talent, and it had nothing to do with medicine. And I  don’t think I ever would have known that if I didn’t take the time to not be a doctor.

Joe Fairless: So how the heck do you merge that into being a doctor?

Danna Corriel: Actually, that’s the dilemma I found myself in when I actually entered the workspace, because to be honest with you, there was a time where I didn’t want to go back to being a doctor. That’s how much I loved what I was doing. My husband made fun, he said that I was in early retirement, because we didn’t think I was going back… But I did decide to go back, and I said “I’m going to find a way to do this”, and it’s taken me a few years to really get into how, but I actually found it, and it evolved into where I am now.

What happened was that I started to create content virtually and online, I started to take photos of the world around me, and to create just like magical photos just using my iPhone. I suddenly got attention of people around me, and I started to write, I started to blog… And I started realizing that that catches people’s attention. People are actually interested in hearing me being funny, and hearing me being a human… Because I’m a doctor, and a lot of times doctors — we have this traditional hiding behind our coats, and we kind of can’t be human, to “be taken seriously.” And that’s a little ridiculous. Of course, we’re human; I’m a human being, I just also can treat you.

So I started taking these really beautiful photos, and I’m like “Oh my gosh, I can leverage the creativity in my photos to teach medicine, or to teach a point from my life”, or I can use my words on my blog to teach a life lesson and actually teach people about medical topics, or about behavioral medicine that they can learn from.

That sort of evolved, and I started to write my own blog, and I started instagramming, and I started sharing content… And then at some point it caught the eye of physicians, and then I was like “I need to really empower other physicians to do this”, because I’m just n of 1, I’m one person, and I don’t know what the specialists know. I’m an internist, I know a little bit of a lot. But the specialists know a lot of that particular thing; I need to literally empower them and give them the power to shine. And that’s where I created my brand SoMeDocs, and that’s the brand that I am now entrepreneurially taking on.

Joe Fairless: I’d like to learn more about SoMeDocs, but first, what’s an example of a piece of content you created to then teach a lesson in medicine, or even a life lesson?

Danna Corriel: Wow… So, so many examples. And actually, if people wanna check them out, they could check me out at @DrCorriel. That’s my brand name all over Instagram, Twitter, any platform. But just to give you an audio description, a great piece of content is something that was  very controversial, that actually landed my name on the front cover of the L.A. Times… And that’s that I posted on just an innocent post on social media, on the fact that we got the flu vaccines in to our office. I had an image of someone holding up the vaccine very innocently. That piece of content went very viral; I got crazy engagement. Good, bad, I got attacked, then I had healthcare come and rescue me… It was amazing.

The bottom line of that is that I had to take it off after some time, because it really got to be too much for me. But months later, I actually got my own flu shot, and I decided to create a piece of content that was relevant, but also kind of fun, and also kind of make a commentary on health. It was Halloween, and I put on a little — it wasn’t a little, it was a big mushroom cap, kind of like for Mario Brothers… Because my friend is an artist, Anne [unintelligible [00:07:51].10] and she made it. And I was like “You know what – let me use that as commentary.” I have a photo of myself flexing with it, with my bandaid over my flu shot area. And I say something like “On Halloween, this doctor powered up.” It was sort of like my clever response to that vaccination mayhem from months before. And I was making a commentary on vaccines, like — look, I tell people to get their vaccines, but I practice what I preach; so here I am, using that. And it was a really nice photo. If your audience wants to look it up, it’s there, in all of my content. It’s a cool photo.

So that’s the kind of information nowadays that really sells, and those are the kinds of things that go viral – just things with cool visuals, with cool wording, and things that really grab people’s attention.

Joe Fairless: Your evolution as a public figure is applicable to anyone in business, and especially real estate investors, because as real estate investors, the perception might be we have to be very analytical, we have to have a suit and tie on… This might not be a perception that everyone has of real estate investors, but some people might perceive if you’re starting real estate, “Hey, I need to always have a suit and tie, I need to act a certain way…” But the challenge you came across is you are a doctor, and there is a certain perception that people have about how doctors are supposed to act, and your challenge was “I want to actually be myself, show my personality, but I also need to continue to be taken seriously as a doctor.” So you broke through that by saying “You know what – I’m gonna do what fulfills me, and I’m gonna share this, and it’s ultimately gonna help people.”

So I think it’s inspiring to hear your story for anyone who thinks they need to act a certain way, to be someone that they’re not. And I can tell you firsthand, I came across this when I was leaving the advertising world, and I was going into real estate investing full-time. I did a photoshoot, and I had a suit — well, it wasn’t a suit, it was a tie, and a long-sleeved buttoned-down shirt. I got those pictures made, tweeted them out, and my former boss said “Who is this guy? I don’t know this guy. I’ve never seen you with a tie on in my entire life.” He said it playfully, but it resonated with me.

That wasn’t me. I’m not that guy. And I was l like “You know what – I need to really stay true to who I am, because people will end up gravitating towards me a lot more than if I try to pretend to be someone I’m not.”

Danna Corriel: That resonates me to such a high degree. I am so finding myself in the same place as you, literally… Because no other field is more traditional than medicine. You don’t know how many times people have come up to me when they get to know me, and they say “You’re so not like the person I’d imagined as a doctor.” I look at that as a compliment. It’s not an insult. Some people get insulted by those kinds of comments… I truly find that to be a compliment, because that’s what sets me aside from everyone else. And that’s going to market me in this world. And that factored into my deciding that I wanted to be an internist. I could tell you that internists are primary care general doctors, and we succeed by making these connections with our patients, even more than the things that we know.

So for me, it helps me that I stand out, and I do wanna be true to who I am. So I can tell you that when I started doing this – no joke; I can relate to you – people were telling me “What are you doing?” I would have friends who would tell me “You’re making a mistake.” I even had family say that, “You are just doing things that don’t make sense.” And I said to them “I can’t not do this. I really not only believe in this, but I am truly passionate in how I feel. And I know that someday it’s going to speak to someone… But even if it doesn’t, it speaks to me, and it satisfies this urge that I have to work on my passion.”

So that’s, I think, part of why I’ve succeeded with my brand and my company and my vision, and we’re still growing.

Joe Fairless: Real quick, what are SoMeDocs, and then let’s get into your three tips for entrepreneurs.

Danna Corriel: Sure. SoMeDocs stands for Doctors on Social Media, because SoMe is the way of saying social media nowadays.

Joe Fairless: I did not know that. Thank you for telling me.

Danna Corriel: Oh, yeah. Absolutely.

Joe Fairless: I’m such an old person, in life and in heart.

Danna Corriel: Oh, please… I am also an old person in heart, but I strive to be — at least functionally speaking, I strive to be somewhat more of a millennial… Because they really know how to utilize social media. So that’s what I do with SoMeDocs – I’ve created this brand that has presence on several platforms. We are present on Facebook, we have a Facebook group called SoMeDocs, and it really is physician-only. I vet physicians in there.

And just to mention the sister Facebook group, because that’s more relevant to your audience, because your audience can actually join that group… I have a group also called SoMeDocs Public. It’s the same as SoMeDocs, but meshing together both the medical and non-medical world, so anyone is welcome to join that.

The purpose is just to brainstorm through ideas, through collaboration, make connections. Maybe somebody has an idea for the next medical device, or maybe someone needs to find a special expert in a certain field, or someone that they consider an influencer in a certain specialty. That’s a place where you can connect, because I have a lot of my SoMeDocs joining that, and then I have a lot of other people, either from industry, like publishers, and investors, and writers, journalists… And then I moderate it to sort of make connections. So that’s what I’m working on. That’s one platform.

Then I have a website for SoMeDocs, where we feature doctor voices and we collaborate there in that way, but it’s more public. And then I’ve got Twitter, where we spread brands of physicians using the SoMeDocs hashtag, and we retweet it to sort of gain visibility.

I can tell you that in the last month I’ve had something like over 45 million impressions using the SoMeDocs hashtag. Physicians are valuing the brand and the hashtag, and the value in using it, because they get that it gives you visibility for your voice and your words.

And then we have other things. We have SoMeDocs engage, which is like live networking sessions for physicians, where we get together to just network. We talk about, among other things, social media, and how we can leverage our brands, and build brands in general, in healthcare. But we also network and talk about other things, like some people wanna talk about finances, and other people wanna talk about where they can invest their money in real estate. So that’s yet another platform. But we have a lot that’s coming.

Joe Fairless: Top three tips for entrepreneurs.

Danna Corriel: Okay, so my top three tips are – first and foremost, some of you may have this need to always be nice, and I know that physicians can relate to this especially, because we’ve got this extremely altruistic side. But once you decide to tackle something from an entrepreneurial level – like, once you decide that you’ve spent so much time on something and that it’s really something powerful, and you need to invest all your time in it, then you need to grow it from an entrepreneurial perspective. Don’t mix the altruistic nature of being a physician or being that person with that necessary grit of becoming a successful entrepreneur… Because every successful entrepreneur has to, at some point or another, say no, and to disappoint some people. But you’re also building a good brand, and people will follow if it’s quality.

Joe Fairless: Okay, it makes sense.

Danna Corriel: So that’s one. Okay, do you want me to go on to the second?

Joe Fairless: Yes, please.

Danna Corriel: The second one I thought of in my journey is that you have to tackle your plans head-on, but you always have to be realistic and set realistic expectations, and you have to always brace yourself for the possibility of a loss… Because otherwise, you’re basically putting all your eggs into one basket, and you literally fail. I think that’s a big one for people that are starting out, that really believe in their idea. Because I myself had this grand idea, and I felt like at some point I will succeed… But I have taken so many different turns in my role there that it’s really taught me a lesson that I’m now passing on.

Joe Fairless: I think it’s great for people who are — in addition to starting, people who are in growth mode, to brace ourselves for a possibility of a loss, because we’re in growth mode, we’re growing, and we might think it will always be that way… But we’ve got to have a back-up plan. Or maybe not even a back-up plan, but a contingency plan  – which is kind of  a back-up plan, I guess – where we have some cushion, should things not continue to go as according to plan.

For example, having a six-month emergency fund that you can live off of, or being aware of the debt that you have and the income that you have, and how diversified is that income, and does that service the debt that you have as an individual. The lenders take a look at the properties that we purchase, but are we taking a look at the debt that we have as a person and the income that’s coming in, and the income sources, and is that income coming from one source, or is it coming from multiple sources, from different types of methods or different types of earning opportunities?

Danna Corriel: Absolutely. Diversification is huge, and that’s actually part of why when I set up my brand and my business, I decided to create multiple platforms, because I honestly saw the advantage of each one, and I was like “Let me see, maybe one will take off, and you know what – I could always steer it in that direction.” But secondly, what you said is actually exactly the third one I was just going to say, which is “Do you have  a plan moving forward?” Yes. “Do you wanna be rigid in the path towards that plan, or towards the endpoint of that plan?” Absolutely not. You have to always be flexible, and be malleable. You want to get to your endpoint, but when you steer in a different direction, that’s not always a bad thing. Always maintain an open mind and give things a chance. You may be surprised at where the road leads. It sometimes actually leads you to an even more successful road. So that’s my third tip.

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

Danna Corriel: I’m branded across social media as Doctor Corriel, so you can literally find me under the handle @drcorriel. That’s on Instagram, that’s on LinkedIn, that’s on my website, drcorriel.com, and that’s on my email, DrCorriel@gmail.com. And then we have SoMeDocs.com for the bigger brand.

Joe Fairless: Yes, and the SoMeDocs – that is pretty darn easy to find, and so is your Facebook page. And you can actually search “SoMeDocs”, and your Facebook page also comes up.

Thank you so much for being on the show, sharing your journey, the evolution… A lot of Best Ever listeners are doing work right now that they would like to do less of, and they’d like to do more investing or doing more of something else… And it’s wonderful to hear how you’ve taken your journey and how you’ve evolved your approach, and how you’re doing things that fulfill you, and how you’re building a community around it.

Robert Kiyosaki talks about the richest people in the world build networks, and everyone else looks for work… And I completely agree with that, and you’re clearly building a network.

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

Danna Corriel: Thank you so much, Joe. I appreciate it.

JF1886: From Skyscrapers To Retail & Multifamily with Donato Settanni

Listen to the Episode Below (00:20:35)
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Donato worked for a company building skyscrapers in NYC, one of those projects sold apartments in the building for $90 million. Once he had an education base Donato wanted to do his own thing, and branched out to create his own company. We’ll hear some about his skyscraper experience, then we’ll hear more details on his own current investments which total a value of $25 million and growing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“The best way to learn is to do it for yourself” – Donato Settani

 

Donato Settanni Real Estate Background:

 


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TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and I will be the host today. Today we’ll be speaking with Donato Settani. Donato, how are you doing today?

Donato Settani: I’m doing great, thanks for having me.

Theo Hicks: Absolutely. I appreciate you coming on the show, and I’m looking forward to our conversation. A little bit about Donato – he is the managing partner of DXE Properties, has managed multiple projects in closing, totaling over 3 billion (billion with a B) in value. Based in New York City, New York, and you can say hi to him at DXEProperties.com.

Donato, before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Donato Settani: Sure, no problem. So I started my career in New York City in the construction industry. I’ve then decided that that wasn’t necessarily for me, so I went back to school for a masters degree in real estate development, and then went on to work for a couple of owner in New York City, including Macklowe Properties and Oxford Properties, two very large owner-developers in Manhattan, where I had the opportunity to build some mega-tall skyscrapers and close on huge properties, upwards of 3 billion dollars, in real estate.

Since then, I’ve recognized that you should work for yourself, and split off and created DXE Properties with a friend of mine, and we currently own seven properties, around 25 million dollars in real estate, and we plan to keep going.

Theo Hicks: Are the properties you own through DXE – are those also skyscrapers, or are they a different type  of real estate?

Donato Settani: No, they are totally different. The properties we currently own – we own two retail properties (one has a development component) both outside of New York City, and then we own five multifamily properties, scattered throughout the South-East mostly.

Theo Hicks: Alright, let’s talk about the skyscrapers first, because not every day you get to talk to someone who develops a skyscraper. Do you wanna tell us maybe about one particular project that you worked on, that stands out? Talk about the height, the cost, and what all goes into developing a skyscraper, from a preparation standpoint?

Donato Settani: Yeah, no problem. Building in New York City is quite difficult; we always call it building on a postage stamp. One of my most notable projects was with Harry Macklowe of Macklowe Properties. There we developed 432 Park Avenue, which was the tallest residential building in the Western hemisphere. The total height was about 1,400 feet tall, 106 apartments. The most expensive apartment went for over 90 million dollars, so it was an extraordinary experience to be a part of…

As far as the planning, he bought the site back in around 2006-2007. It was [unintelligible [00:04:24].18] He bought it for 400  million dollars, and then had to slowly assemble land around it. Eventually, he demolished the site, but the economy turned, so the project stalled. Harry Macklowe  is a very tenacious developer and was able to convince a large equity partner to step in and continue on with the development. From there, we planned this 1,400-foot tower which had never been done before in New York City, for high-end condos. Overlooking Central Park, you could see all the way out to the Atlantic Ocean when you’re up nice and high. So we planned it, we pre-sold a lot of units, and there’s only a couple units left today.

Theo Hicks: So did most skyscraper developers — would they build it and then they will also manage it, or sell the units afterwards? Or do they typically build it and then sell it to someone else who then actually sells the units or rents out the units?

Donato Settani: Most developers in New York City, when they’re developing condo units, they will build it, manage it and sell off the units. Some of them, depending on which company, will keep property management in-house. There’s a couple reasons for it. Number one, you wanna make sure tath the units you sold to the tenants – that they’re happy tenants, and the best way to do that is to keep managing the property. Number two – in New York City there’s a sponsorship requirement that you’re responsible for any defects in a property after you build it and sell it… So it’s best to manage it and know what defects might come up firsthand, and be able to fix them before you get into a lawsuit.

Theo Hicks: What are the profit margins on these types of developments? I’m pretty familiar with multifamily development… Just mid or low-rise apartments. What would be the ROI you would estimate was made on this project?

Donato Settani: This project was very unique. I can talk about it from when it was recapitalized on forward, with the new equity that was brought in as a starting point… But I would say that Harry was visionary in putting it together at the right time, and we also had some good, dumb luck, and hit the market right… But in terms of returns, we could loosely say that the project cost around 1.3 billion dollars, and the sellout, including the retail, was over 3 billion dollars.

Theo Hicks: Okay, and just out of curiosity, how did you get into — not why you decided to get in this skyscraper development, but how were you able to get on this team, for these large projects? So if I’m someone who’s interested in becoming a skyscraper developer, or at least working on a team of a developer who makes skyscrapers, what’s some advice you would have for how I could get picked up by someone?

Donato Settani: That’s a great question. I worked out of school — so I went to school for engineering, and  out of school I worked for a major construction firm in New York City. I actually was able to be on the team that built the new Yankee Stadium up in the Bronx, and also in Madison Square Garden renovation projects… So that gave me some big-time experience on the order of magnitude of billion-dollar projects.

I then went back to school to try and get onto the owner’s side. That’s what a lot of people do… So I went back to school for real estate development, and I actually took a job interning for free when the market was bad, because no one wanted to hire me. So I’d read somewhere that if you really wanna do something, do it for free… So I took a job, interning for free for a smaller owner in New York City, got some experience with that smaller owner, and the equity partner of that smaller owner happened to be the equity partner with Macklowe Properties on this huge project… And they called me up one day and said “Hey, how would you like to build the tallest skyscraper in the Western hemisphere?” and I said “Sign me up.”

Theo Hicks: That’s really solid advice. That’s actually how I got started working for Joe. So whenever anyone asks me “How can I get into a unique industry, like skyscrapers or multifamily syndication, what’s a really good way to quickly climb the real estate ladder and find your way working for a multi-million-dollar or multi-billion-dollar company?”, working for free is a great answer. It sounds like for you — you didn’t even work for free for this large company. You started really small, you got that experience, and then from there you were able to jump to the higher levels… So yeah, really good advice.

Let’s talk about your DXE with your friend… I guess my first question is what advice do you have about partnering up with people? How do you make sure you’re selecting the right partner? And then maybe talk a little bit about any challenges or benefits of partnering up with a friend, as opposed to partnering up with someone who you’ve met pretty recently?

Donato Settani: I’d say that we both had a decent amount of caution on partnering up. I had done my own development project outside of New York City by myself, and he had bought a bunch of multifamily, mostly in the Midwest and some in the South-East on his own. So we weren’t used to working together by any means, and used to just doing things on our own.

I would say that we took about a year to formalize the relationship. We did a couple deals together using our separate entities to make sure that the relationship was going to work, and then we came up with a pretty strong and robust operating agreement over time, as we really got to know each other on a business level, to make sure that we could move forward in the right way and create a long-standing company.

Theo Hicks: Alright. And then those seven deals that you’ve done – you said you currently own seven properties, 25 million dollars; two of them are retail properties outside of New York City, and then you said five are multifamilies in the South-East. So it sounds like you’re kind of focusing on the areas that you know, which is in New York City, and then focusing on — I think you said that he owns some multifamily properties in the Midwest, but I guess he was the guy that knew the multifamily. Do you wanna walk us through one of those retail deals in New York City? How you found it, how much it cost, what you did to it, and then maybe what’s its value right now?

Donato Settani: We bought a small, small property up in Upper Westchester in New York. It was a small retail property. It has three retail tenants currently, but what we liked the most about it was it had four acres of land right behind it, and it was located right in the center of a wealthy town in Westchester County, which is a major suburb of New York City. So we bought the property… The major tenant, which was Chase Bank, was leaving. We were able to get the property off market, through a lawyer that we knew, just at a compelling price. We actually got it well below the recent appraised value, and have had offers since to purchase the property from us just as a flip, which we have denied.

We’re hopefully able to secure a new bank tenant in there. We’re currently working out a lease on that, and just trying to get to the end on that one. Then we also have the opportunity to develop further behind the property, which really makes our basis on that land a zero. So if we get this lease done, which we’re confident on, I’d say within the next year from purchasing the property we would have doubled the value of the equity in the property, at a minimum, not even including the potential development further down the road.

Theo Hicks: And as the reason why you’re targeting a bank – is that just because banks are really good tenants, or is it just because the current unit is set up for banking?

Donato Settani: It’s really both. The current unit is set up for banking. It actually has a drive-through; the town won’t let you use the drive-through if you don’t continue the use as a bank, so there’s advantages to going after a bank… And then furthermore, everyone knows that a bank is a credit tenant. So when we go to sell the property, selling the property with a credit tenant is gonna be a lot more valuable, especially in this tenuous retail market, than selling a property with a restaurant owner, or a day spa.

Theo Hicks: What is a credit tenant? What does that mean? Just out of curiosity. I don’t know…

Donato Settani: Sorry, a credit tenant is just a name used for a national tenant, whether it be in the retail space or the commercial space. So you would consider a good bank a credit tenant, or on the larger retail side something like a Stop & Shop, or a Target, or a CVS. Those are all credit tenants. On the office side –  a major office player. Basically, even if the office went dark or the retail went dark, you’d still be getting your rent payment, because the overall company is not going to go bankrupt… Forseeably.

Theo Hicks: Yeah, that makes sense why you’d wanna target someone like that. So it’s not like a small business and that’s the only location they have. Something that’s got thousands of locations across the country are preferable to those smaller mom-and-pop type shops. Alright, Donato, what is your best real estate investing advice ever?

Donato Settani: Best real estate investing advice ever is it’s really hard to take the leap into investing in real estate. As I said, I had a full-time job and was investing on the side… Really, what you need to do is you just need to jump in with both feet. You need to be smart about it, obviously, and not take a dumb risk… But the best way to learn is to do it for yourself. Once you do it, you’re never going to turn back. As you see the fruits of all your work, you’re just gonna get more and more excited about doing the next deal.

Theo Hicks: Alrighty. Are you ready for the best ever lightning round?

Donato Settani: I am.

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

Break: [00:14:26].19] to [00:15:08].12]

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

Donato Settani: The best book I have ever read recently – I would have to say Tim Ferriss’ book. I’m pretty sure the name of it — it’s called Tools of Titans. It’s a great book about a bunch of podcasts that he’s done over the past couple years – he put all the best information into that book.

What I really like to do – I’ve read the book cover to cover, and then I go and seek out all those podcasts that I really liked what he talked about, because there’s just so much more information in the podcasts than he was able to put in the book… So it’s really like a continuous learning experience, over and over again.

Theo Hicks: Alright. Well, what’s the best ever Tim Ferriss podcast we should all listen to?

Donato Settani: Best ever Tim Ferriss podcast… He does an interview with Tony Robbins, which was really good. I’ve recently listened to one with Seth Godin, which was very good. And the third one I would say is he interviewed one of the founders of Google, which was just fantastic.

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

Donato Settani: I always say — it’s kind of a joke, but if my business were to collapse today, I’d just go be a pizza man. I’ve got the name for it.

Theo Hicks: There you go… It’d be Donato, singular, not Donatos Pizza. What is the worst deal you’ve ever done?

Donato Settani: The worst deal I’ve ever done… I would have to say that that’s a tough question right now. We’ve been riding a very good market on the way up, and we’ve been lucky enough to not have too many bad ones. I would say that there’s skill involved in that, but we also have to understand that we’ve been in a good market, so… Only time will tell, and I’m sure there will be a bad one in our mix, but the goal is to not have any.

Theo Hicks: On the other hand — besides your first deal, the one we already talked about, and then your most recent deal, what’s the best ever deal you’ve done?

Donato Settani: Best ever deal I’ve done – I’ve built a townhouse development outside of New York City, in Westchester County. The whole deal took me 18 months from the day I closed on the contract to the day I sold the last condo and got out of the deal. We did really well on that deal. All the investors were very happy, and I actually now live in that same village, because I like the experience of building and the people that I sold to so much.

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

Donato Settani: Best ever place to reach me – if you go to our website, www.DXEProperties.com. Or my email address is dsettani@dxeproperties.com.

Theo Hicks: Alright, Donato, I’ve really enjoyed this conversation. Lots of good information. Just to recap some of the main takeaways – you talked about how you started off in the construction industry and were able to transition into working on the tallest residential building in the Western Hemisphere, and then from there you learned that you wanted to go off on your own and start your own business…

We talked about some of the things to put in place when you’re going off on your own and in creating a partnership. In this case it was with a friend, but these lessons really apply to any sort of partnership. A few of the main things were to make sure you do a few deals together via your separate entities first, just to make sure everything works out, before jumping in and starting a business together and having the same LLC. You mentioned how you worked together for a year first, to make sure everything worked out, and then also make sure that you create a strong operating agreement to set yourself up for success.

You also talked about how you were able to go from working in the construction industry to working on the tallest residential building in the Western hemisphere – one of the main takeaways was intern for free. So if you want to get into an industry, find a smaller owner in the industry and work with them for free to get that experience, and then hopefully pursue a larger firm, leveraging that previous experience.

Then I also learned what a credit tenant is, which is essentially a national tenant. So if you’re in the retail space, there are advantages to having a credit/national tenant – that’s a company that isn’t just a one-off company; it’s like a Chase Bank, or a Target, or a CVS… Just because you’re lowering your risk of them not paying for rent.

And then I guess lastly was your best ever advice, which I whole-heartedly agree with, and it’s how I got into real estate, which is — it’s obviously pretty difficult to get into real estate. The best way to do it is to just jump in with both feet. Now, obviously, be smart about it; don’t do anything stupid, and set yourself up for success, but educating yourself and building a strong team… But the best way to learn, the best way to stay in the game long-term is to actually get in the game. So just do a deal… For me – I house-hacked a duplex, put 3.5% down… It was small, but I got into real estate that way.

Again, Donato, I appreciate you taking the time to speak with us today. Best Ever listeners, thanks for stopping buy. I know this episode was valuable to you… Have a best ever day, and we’ll talk to you soon.

Donato Settani: Thanks a lot for having me.

JF1869: Apartment Syndication Leads To Quitting Full Time Job with Pancham Gupta

Listen to the Episode Below (00:23:43)
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Pancham was in a similar situation as a lot of real estate investors, or people that want to invest in real estate, working full time and looking for a way out. He started apartment syndications just a couple of years ago and has already been able to leave his full time job. We’ll hear how he was able to put together his first couple of deals and grow to the level he is at now. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“A constant effort of being in touch with them” – Pancham Gupta

 

Pancham Gupta Real Estate Background:

  • A Principal of Mesos Capital
  • Has bought and invested in properties in 5 different states and internationally,  recently quit his high paying job in Fintech to do syndications full time
  • Has successfully built a portfolio which is cash-flowing in double digits, manages and controls over $32M in real estate
  • Based in NYC, NY
  • Say hi to him at:
  • Best Ever Book: Turning Pro

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

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

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


TRANSCRIPTION

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

With us today, Pancham Gupta. How are you doing, Pancham?

Pancham Gupta: I’m doing great, Joe. How are you doing?

Joe Fairless: I am doing great as well. Looking forward to our conversation. A little bit about Pancham – he is the principal of Mesos Capital. He has bought and invested in properties in five different states, and internationally. He recently quit his high-paying job in fintech to do syndications full-time. He has successfully built a portfolio which is cash-flowing in double digits. Manages and controls over 32 million in real estate. Based in New York City, New York. With that being said, Pancham, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Pancham Gupta: Sure. Thanks, Joe, for having me on. I came to the U.S. in 2003 for my masters in computer science, and it was not until 2012 when I decided to invest in real estate here in the U.S. I bought my few investment properties here in New York because I actually bought my own house, and they were all single-family homes. Over the next few years I ended up buying properties in five different states. Again, these were single-family homes, duplexes, triplexes, and I was doing all this part-time; my main focus was the job, and I was spending more time managing these rental properties.

Slowly I realized that this strategy was not scalable at all, and I started looking into bigger multifamily deals. Syndication seemed like the way to go, and it was not until 2017 when we bought our first syndicated property. Since then we have done four syndications, all the way from two million to 19 million dollars.

Joe Fairless: Did you say 90 or 9?

Pancham Gupta: 19 million dollars. So two million and 19.

Joe Fairless: 19, okay. None of the above, Joe. 19… [laughter] Two million to 19 million, got it. Okay.

Pancham Gupta: Right. And now I’ve quit my full-time job, like you mentioned, and I’m focusing full-time on the syndication business, and also doing a podcast to educate high-paid and juniors about personal finance.

Joe Fairless: You bought in five different states… Why is that?

Pancham Gupta: There is a story behind that. I live in New York, and it’s not the cheapest city in New York. Every house here, if it’s in a decent location, was somewhere half a million dollars to a million dollars. They were cash-flowing nicely when I bought them in 2013, but after that, they were not really cash-flowing that well. So I started looking out of state for investing opportunities in the areas which were still growing and the price point was  not that high. Slowly, from one state to the second state, to the third state… So it kind of mushroomed into five states.

Since then, I’ve sold most of my portfolio and focusing full-time just on the syndications and bigger deals.

Joe Fairless: Your first syndication was a two-million-dollar property, correct?

Pancham Gupta: That is right, and it was in Charlotte. It was a 44-unit deal.

Joe Fairless: Okay. And how much money did you raise for that?

Pancham Gupta: For that we raised exactly $781,000, from friends and family.

Joe Fairless: And who’s “we”? I think you said “we”.

Pancham Gupta: It’s me and my partner – one of my partners who we bought together and have Mesos Capital. We both raised from our friends and family.

Joe Fairless: Okay, so friends and family, $781,000. How much did the investor who invested the most bring, of the 781k?

Pancham Gupta: Our highest investor was one individual – he invested 100k. [unintelligible [00:05:11].29]

Joe Fairless: We don’t need to know his name. He would get a lot of emails and phone calls if you did that. Okay, 100k… So it was pretty spread out, I imagine, then. There wasn’t a 300k, 400k, 500k investor in it.

Pancham Gupta: No, it was that guy, and both of us invested close to 100k as well.

Joe Fairless: Each?

Pancham Gupta: Each, yes. So 300k was just like that, and 481k we raised from other individuals, anywhere ranging from 50k, 75k and 100k each, from these guys.

Joe Fairless: How many of the individuals are family, compared to friends?

Pancham Gupta: I would say one is family, and all the rest are friends who are like family.

Joe Fairless: Yup. And how do you know those friends who are like family? Tracing back to — what’s the origin of how you met?

Pancham Gupta: So either they’re my former classmates, or former colleagues, at this point. I met them in school, and at my full-time job… And the same thing for my partner as well.

Joe Fairless: Okay, got it. So you either went to college with them, or you worked with them at your full-time job. And you were making approximately how much at your full-time job? Just to get an idea of the type of people you were working with?

Pancham Gupta: All of these are high net worth individuals, north of half a million dollars.

Joe Fairless: A year?

Pancham Gupta: Yes.

Joe Fairless: Okay, so they were making a lot of money a year, and you were talking to them about it… So people who hear that might think “Well, no wonder Pancham had such an easy job raising the money. He’s around people who are making 500k+ a year.” What is your response to that?

Pancham Gupta: My response would be that you can meet high net worth individuals anywhere. First of all, I’m very grateful having friends and family making high incomes, and I would kind of agree to part of that question, where it is easier knowing those people… But for a person to write a check of $100,000 or $50,000 or $75,000 to you in order to invest in your deal, you need to add value into their portfolio in some way or another. They need to first trust you, and then they need to see the value that you’re bringing to the table, and how you’re actually solving their problem, which is they have too much money to invest, but not have either time, energy or motivation to learn about investing outside of Wall Street, into different products… And you’re bringing that to the table and you have to educate them, spend time with them, to really make them understand the value that they will get out of investing in these deals. So you have to do all that upfront and really make them understand.

So yes, it is easier than talking to a person  who’s making, let’s say, $50,000/year versus that person who’s making $500,000/year. They definitely have more spare cash than the other person… So that’s what I would say – regardless of how much money they were making, you still have to go through the process of educating them and really creating that trust with those guys.

Joe Fairless: And I would even argue that it’s gonna be just as challenging, if not more challenging, speaking to someone who has earned over half a million a year, about a new investment opportunity that they might not have invested in before, because they’re constantly being pulled in different directions to invest in certain stuff. So their guard is up a lot more than someone who isn’t at that level of income. Maybe they’re at $250,000 or $300,000, and they don’t have a job on Wall Street, so the perception isn’t that they have buckets of money, so they’re not bombarded with a bunch of opportunities.

So what are some tips for people that you can share who are speaking to individuals who are the half a million plus earners, when communicating to them about the opportunities, or even your business?

Pancham Gupta: I would say — you hit on this a little bit. These guys are constantly getting bombarded by different kinds of opportunities. So if I have to give advice to someone who is starting off, I would say first creating trust between that individual who’s making half a million dollars and what you bring to the table. They have to hear from you more, they have to really understand the asset class that they’re investing in, and also what kind of risk and reward profile they would have to bear with this asset class.

So this is a constant effort of being in touch with them and making them understand the asset class, and having  trust in what you do. The way we have done this is by constant one-on-one conversations with these guys. Meeting them for a coffee, telling them about what we are doing on a constant basis; they are investors who I’ve spoken to for the last at least three years, and it’s only now they want to invest in our next deal; they have not even invested yet.

So it has taken us three years for some of these guys to actually finally realize what we bring to the table, and trust us that they can rely on that we’re not gonna just run away with the money, and actually really give a return and do what we promise.

Joe Fairless: And what about the thought that, okay, it’s having the time with these individuals, sitting down with them… But that’s not scalable. What’s your response to that thought process?

Pancham Gupta: I would say that is absolutely correct, in a way. My response is that it takes time. And for us, what we’ve done is now we’ve created a newsletter that we’re trying to send out on a constant basis… And we get a lot of word of mouth business where people recommend their friends, and they talk to us, and we like it that way as well.

And then we also partner up with other people who have these connections across the board, and with high net worth individuals, and they bring on their network to bring on to our deals to invest.

So for me, I would say it’s one-on-one conversations and meeting people physically – it would create the most trust. And that’s how I would go about investing my own money, and that’s how I’ve gone about finding everyone who has invested in our deals, to create that relationship and trust.

Joe Fairless: Let’s talk about the next deal… The first one was a 44-unit in Charlotte. What about the next one?

Pancham Gupta: The next one was a 76-unit, again in Charlotte. That was a ’99 build, class B property, 4.56 million dollar deal. Again, very close to this first deal that we had. And by the way, the first deal that we bought, we’ve just sold it a few days ago.

Joe Fairless: Oh, congratulations!

Pancham Gupta: Thank you.

Joe Fairless: You bought it for two… What did you sell it for?

Pancham Gupta: We sold it for three million dollars.

Joe Fairless: Three. How much did you put into it?

Pancham Gupta: So our 781k was equity, and we put in about 250k. We redid the roofs, we did a lot of structure work; there were issues with the structure. We built out trenches… There was a lot of infrastructure work that was bad with this property, that we fixed, and also some units that we upgraded. And we sold it for three.

Joe Fairless: Excellent. So you bought it for two, and — sorry, how much money did you put into it about? I’m just trying to figure out the profit.

Pancham Gupta: Yeah, $250,000.

Joe Fairless: Okay, so $750,000 profit in just two years.

Pancham Gupta: Yeah, it’s about 23 months. Less than two years. And $750,000 actually includes broker commissions and some of the closing costs… So I would say $650,000.

Joe Fairless: Wow, congratulations on that. So the second deal – how much was the purchase price?

Pancham Gupta: 4.56 million.

Joe Fairless: And where was that?

Pancham Gupta: That was in Charlotte MSA as well, but it was a class B property. The previous property was a class C, this was a class B.

Joe Fairless: How many units?

Pancham Gupta: 76.

Joe Fairless: What about the third property?

Pancham Gupta: Our third property was 28 units. That again was in Charlotte, very close to our 44-unit property.

Joe Fairless: Okay. And purchase price?

Pancham Gupta: About two million as well.

Joe Fairless: Okay. And what about the fourth? I’m guessing that’s the 19-million…

Pancham Gupta: Yes, that’s the 19-million one.

Joe Fairless: Unit size?

Pancham Gupta: 242, in Jacksonville, Florida.

Joe Fairless: Okay, in Jacksonville. So I think we all notice a trend, except for the fourth. You went to Jacksonville, from Charlotte, NC. So why Jacksonville?

Pancham Gupta: Like I mentioned before, I’ve recently quit my job… So  we were very focused on Charlotte before because we’re not able to spend enough time, and wanted a market which was very close to New York City, and Charlotte was one of them. So since I wanted to quit my job, I wanted to expand into more markets, and we had Jacksonville as one of the markets that we wanted to expand to, because it met all the criteria that we were looking for in a city to invest in… And it just happens to be that we came across this deal, and one of our partners on this deal brought this deal to us. She actually is part of our mastermind here in New York City [unintelligible [00:15:11].05] and that’s how we got connected. We partnered together on this deal, and we simply closed on it a month and a half ago.

Joe Fairless: On 28-unit – you bought 44 units, then you bought 76 units… What made you want to go down in unit size to 28 units?

Pancham Gupta: That was mainly more of a strategic decision, because that was only a mile from a 44-unit property, and we wanted to kind of scale the operations with this 28. But it did not pan out that way. We actually sold that property as well to one of our partners, who bought it off market from us… And since we were planning on selling our 44-unit as well – so we kind of sold both of them. So at this point, we don’t wanna go anything below 75 or so units for any of our acquisition. But it’s a good question; we  probably wouldn’t do that small of a deal if it wasn’t close to our 44-unit property.

Joe Fairless: And what are some disadvantages of doing, as you say, that small of a deal?

Pancham Gupta: Our biggest disadvantage is the economies of scale. If you have a smaller property, you still need a leasing agent on-site, especially if you’re not local. And if you have a 28-unit versus a 44-unit versus a 76-unit or  a 100-unit, you probably need one leasing agent per 90 or 100 units… So the overall expenses, fixed expenses that you have kind of go much higher on a smaller-unit property, as compared to a bigger property. We’ve realized that over time, and that’s why we have gone towards a higher and higher number of units, and that’s the trend that everyone follows once they start investing, from a single-family to duplexes to triplexes to bigger properties.

Joe Fairless: On the execution of the business plan, what’s been one thing that hasn’t gone according to plan, and how did you resolve it or attempt to resolve it?

Pancham Gupta: We had one major issue with our 44-unit property where we had a structural issue with one of the buildings, where in the crawl spaces, some of the joists were completely rotted out, and one side of the building was also bent. I say that quite lightly, but there was a huge bent in that. We knew this while going in, and we actually raise capital to fix this. We had a $50,000 raise just to fix this problem; we got some estimates before that… And it ended up costing us $102,000, so almost 100% more than what we estimated.

We were okay with this cost, because we had raised a little bit extra upfront anyway, because it was our first syndicated deal… But the lesson was that whenever you have any issue or you’re raising capital, always try to raise a little bit more than what you have anticipated, because there are things that come up. That’s the nature of this business.

We know people who have brought this thing to science, where they know exactly how much they will spend on every single unit and every single issue that they encounter during due diligence, but we have not reached that stage yet, so we raise a little bit of extra capital always, to make sure that we are covered.

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

Pancham Gupta: My best advice is to go where the growth is. The areas which are growing in overall jobs, in population job diversity… We look at the areas where millennials are moving in, where builders are developing… Because even if there’s a downturn, that area will be the last one to see the impact and the first one to come out of it.

Joe Fairless: And how do you determine that it qualifies.

Pancham Gupta: There are a lot of free reports and public — census.gov, and different free resources that you can go online and get this data from (and historic data), and also there is local paid research that you can buy, from different agencies, to get this data. We do both, and look at this data and see if it qualifies all the things that we have on our checklist.

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

Pancham Gupta: Absolutely.

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

Break: [00:19:51].01] to [00:20:32].08]

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

Pancham Gupta: The recent one that I really liked was Turning Pro by Steven Pressfield. It really taught about what kind of mindset you need to become  a professional. Since I was quitting my job, this book really hit home, everything that I thinking through, and helped me quit my job.

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

Pancham Gupta: It’s not vetting out the PM company beforehand. I had a duplex in Cleveland, Ohio where this PM was charging a lot of money for rehabs, and turnarounds, and I lost a lot of money over there. I changed the company a few times, but it still didn’t work out. I ended up selling that property and made some money on selling it, because the market was going up. But my worst deal and my biggest is not properly vetting the PM company before actually hiring them.

Joe Fairless: What deal have you lost the most amount of money on?

Pancham Gupta: I would say one of the deals in Cleveland also. It’s a single-family house where I lost very little money, but that’s the most I lost.

Joe Fairless: And how much?

Pancham Gupta: About $1,000.

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

Pancham Gupta: It’s two ways. One, I have contributed to LLS, which is Leukemia & Lymphoma Society – money for cancer research. My grandmother and two of my aunts passed away because of cancer, so I do events, and I’ve done events in the past and raised funds for them. So that’s one. And second, I’ve started educating people on personal finance, I’ve started a podcast to educate high-paid professionals, especially the software engineers, on how to convert their high incomes into long-term wealth.

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

Pancham Gupta: They can email me at p@thegoldcollarinvestor.com. The Gold Collar Investor is the name of my podcast as well. They can connect with me on LinkedIn, I’m there as well.

Joe Fairless: Pancham, thank you so much for talking about how to speak to accredited investors, how to approach those conversations, how you’re in it for the long game, how  you’ve had some conversations with people and it’s been three years and they haven’t invested yet, but they’re starting to show interest, and in the meantime you’re doing your thing, you’re building your business, and again, you’re just focused on the long-term relationships versus the transactional approach where you’re trying to rush things, and getting frustrated because certain relationships aren’t bearing fruit.

Thanks for talking about the pros and cons of the types of deals that you’ve bought… The 28-unit, a smaller deal, and congratulations on the recent sale of your first deal, the 44-unit.

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

Pancham Gupta: Thanks, Joe, for having me on.

JF1832: Step-By-Step Guide For Acquiring Properties In NYC #SkillSetSunday with Elliot Bogod

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Most of us know that the real estate market in New York City is both expensive and competitive. Elliot has become a specialist in his market, and he can typically find deals for himself and/or his clients. He even wrote a book on the subject that he has been working 12 years on! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Commercial real estate is supported by the economy and the economy is strong” – Elliot Bogod

 

Elliot Bogod Real Estate Background:

  • Real estate author, educator and blogger
  • founder and managing director of Broadway Realty, a New York brokerage
  • Has personally sold over $2 Billion worth of Manhattan residential and commercial real estate
  • Based in NYC, NY
  • Say hi to him at https://broadwayrealty.com/

 


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TRANSCRIPTION

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

Elliot Bogod: I’m good, Joe. How are you? I wanna say hi to all your listeners from New York City, Manhattan, and happy to be here.

Joe Fairless: We’re happy that you are joining us, and we are going to be talking about today — this is a special segment, Skillset Sunday, and we’re gonna be talking about today step-by-step guide for acquiring properties in New York City.

A  little bit about Elliot – he’s a real estate author, educator and blogger. He’s a founder and managing partner of Broadway Realty, a New York brokerage. He’s personally sold over two billion dollars (with a B) worth of Manhattan residential and commercial real estate. Based in, of course, New York City.

First, Elliot, do you wanna give the Best Ever listeners just a little bit more about your background? Then we’ll get right into the step-by-step process for acquiring properties in New York.

Elliot Bogod: Sure, Joe. I’m not a New Yorker, I wasn’t born in New York, but I consider myself a New Yorker for 30 years now. I came to New York in 1999, and finished college here in New York, and then started working for a company called Cushman, which is a big brokerage firm. Soon after, I started working for myself, and for my investors and clients.

Broadway Realty is the company I own, and I’ve been a president of Broadway Realty for many years, for over 20 years now. I’m specializing in commercial and residential real estate, and mostly in Manhattan, even though we do some business in other borders of New York.

Joe Fairless: What are some commercial projects that you’ve brokered?

Elliot Bogod: This year a garage building. It’s in the Midtown West, in Hell’s Kitchen, and that deal will be a development deal, which is secured by a storage company, which will develop it into a self-storage facility.

Joe Fairless: Okay, got it.

Elliot Bogod: They got advantage of the zoning, which is a very good zoning for them, for M2 zoning, manufacturing zoning, so they will change the use of it; they will develop it into — instead of a garage, it will be a self-storage facility.

Joe Fairless: What were other potential buyers wanting to do with that piece of property?

Elliot Bogod: You know, this use is a broad use for many commercial users. You cannot do residential, and you cannot do a hotel, but you can do all other uses applicable on the M zoning, which is manufacturing.

Joe Fairless: Got it. So let’s talk about the step-by-step guide… You wrote a new book called “Get Rich in Real Estate: Your Step-by-Step Guide to Acquiring Properties in New York City.” Can you walk us through the outline of your book? Let’s just talk through that a little bit, the step-by-step process.

Elliot Bogod: Sure. The book is about six weeks out, it’s a new book that took me a long time to write; about 12 years, since before the Great Recession we had in the real estate business in New York… Now we are fully recovered, and I believe this recession has changed to a much more stable market. We saw a lot of purchases, a lot of refinancings and a lot of transactions that happened in the New York real estate, and it’s happening this year as well.

We have a strong market, even though the residential part of it I think got softer… But commercial real estate is supported by the economy, and the economy is strong. We see the real estate, which is following the stock market, and the stock market has never been stronger. The job numbers are rising, the actual employment is great, so I think it’s a good time to be in the New York real estate markets.

Joe Fairless: Okay.

Elliot Bogod: My book talks a lot about New York [unintelligible [00:06:32].16] a lot of New York transactions, but this is a model for other real estate markets, and I think that people who do business in other parts of the country – they watch closely and if they see a good deal, they invest in New York real estate, so it helps them.

This book talks a lot about the next happening things, about the New York cycles, about market cycles, and it shows you models and things that will be hot in the next cycles in the markets in New York.

Joe Fairless: Okay. What’s an example of something that will be hot next in New York City?

Elliot Bogod: New York is moved by technology. First we saw dotcoms in the ’90s. Now New York is a big technology hub. We have a lot of companies, such as Google. Google just bought another building in Chelsea, and it all starts with a billion dollars big office building.

So for them, such big multi-million dollar transactions – they move markets, and people look at those transactions and sometimes they secure it for themselves, sometimes they become anchor tenants. We spoke a lot this year about Amazon. Unfortunately for the real estate markets it didn’t happen, but many other companies are looking to get into the New York if they’re not here already.

Amazon, by the way, has a big presence in New York, and we have a lot of people who work for Amazon; it’s a well-paid workforce, and they rent expensive apartments, they also buy expensive apartments… So Amazon workers are very good for the economy, and all the technology sector I think is a very promising sector… So as long as they do well, the real estate market around the industry does really well, for office building as well as residential, and so on.

Joe Fairless: Knowing that that’s the case, that technology is driving the New York City expansion or evolution, how can we as real estate investor capitalize on that?

Elliot Bogod: In New York you can be a small investor who buys just an apartment, a condominium apartment, or you can be a developer who develops big buildings, multifamily buildings and rents them. For those who work in the industry, it’s a great time and a great opportunity to build new housing. It will attract a lot of new buyers, first-time buyers, people who started working in the technology sector.

I think for first-time buyers it’s a big opportunity for both – for developers and investors, people who buy new apartments, who build new condos… They’ll do well in this market.

Joe Fairless: The challenge that a lot of people might be thinking of is “Well, it’s not gonna cashflow, or if it does cashflow, it’s not gonna cashflow very much. I’m gonna have to hope that the market continues to appreciate.” What’s your response to that?

Elliot Bogod: I think that you look at the cap rates in the rental markets today – four, up to five-cap, in the areas that are [unintelligible [00:10:20].24] Brooklyn, Queens… You get debt services for 4%, low fours for developers, and I think that’s what the big moving factor is – they’re getting [unintelligible [00:10:37].08] money at low rates, and that makes it so the banks are still attracted to new developments, and they’re building.

Joe Fairless: You talked about earlier that your book has New York City cycles and market cycles… Let’s talk about New York City cycles – what should we know about the cycles that New York City has gone through, and in particular how that can be applied to the future, as we move forward?

Elliot Bogod: A big downturn in Lehman Brothers in 2008-2009 times – we had few transactions in the years 2009 to 2011. It changed dramatically after 2012. 2015 I think was the highest market in New York… So it gave us a big lesson that the market can change; it can go high or it can go really low, so we saw discounts in the market of 30%-40% from the tops of 2008. That was the top market. The next top market was in  2015, and now we are in a softer market, which is three years after. The prices are still top prices, but it’s a buyers’ market now. Buyers will get good deals if they are careful; they have secured financing, so… Old sellers are listening to buyers now. That’s the situation with the market now, and that’s how it changed.

I talk a lot in my book about the market cycles. The New York cycle is anywhere between 3 to 5 years. The next cycle I think will happen in 2021. That’s when the next [unintelligible [00:12:27].05] market is coming.

Joe Fairless: And what causes it? Because even if it does happen every 3-5 years, it won’t happen just because it’s supposed to. Something triggers it, so what do you think will trigger it in the next three years?

Elliot Bogod: The population growth in New York – New York now is 8,5 million people city, and we have a lot of people looking for upgrading residences, they’re looking for larger apartments, family-size homes… So the residential market has always affected the trends, and that buyers or sellers market. Of course, interest rates is a big factor. This year we had good news about interest rates. They are still low, and it doesn’t look like it’s gonna be increased, even though at the end of the year we can have surprises… But so far, the interest rates are back to the lows.

In the last 3-4 months we had interest rates for mortgages decrease, so I think it’s a good thing for the market. We sold a lot this year, and something that didn’t move last year because of the interest rates, we saw this inventory started selling again. Law interest rates is good for the liquidity.

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

Elliot Bogod: Broadway Realty has a website, broadwayrealty.com. My book is on Amazon – Get Rich in Real Estate, by Elliot Bogod. We’ve got a lot of good coverage already for our book, and people like it; we got a lot of good reviews, and we’ve also got a lot of books sold, so we have a lot of interest in our book.

Joe Fairless: Outstanding. Well, Elliot, thank you for being on the show, having a conversation with us about New York City real estate, the market cycles, where you think the market cycle will end – the current one – and when it will begin, in New York City in particular, and then the technology companies really driving the ongoing evolution of the city and its real estate.

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

Elliot Bogod: Thank you, Joe. Thanks for having me, and good luck to all your listeners, and best of luck in the real estate business. Have great deals and success in real estate.

JF1790: Developing Emotional Fitness To Grow Your Real Estate Business #SkillSetSunday with Carla Blumenthal

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Carla and Joe used to work together in New York City before becoming entrepreneurs in different industries. She has been coaching high achieving men and helping them with business and personal relationships for the past four years. We’ll hear some great insights into emotional fitness, as well as get her best tips and advice that we can put into action. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“There is a six step process to minimize the negative effects” – Carla Blumenthal

 

Carla Blumenthal Real Estate Background:

  • Coach for high achieving men to master their emotions so they can create thriving businesses, relationships, and lives.
  • Over the past four years she’s coached executives and senior leaders across the US in a wide range of professions, including real estate, tech, marketing, entertainment, even an international DJ
  • Clients have included an Emmy-Nominated entertainer, a PR Week 40 Under 40 CMO, a Facebook exec, Fortune 100 executives, CTOs in Silicon Valley, among many others
  • Based in NYC, NY
  • Say hi to her at https://www.carlablumenthal.com/
  • Free Gift for Best Ever Listeners:

 


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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.


TRANSCRIPTION

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

First off, I hope you’re having a best ever weekend. Because today is Sunday we’ve got a special segment for you, like we usually do on Sundays, called Skillset Sunday. Here is the skill that you can acquire once you listen to our conversation – it’s the skill of developing emotional fitness to grow your real estate business.

With us today to talk through that is my dear friend Carla Blumenthal. How are you doing, Carla?

Carla Blumenthal: Joe, I’m so great! I’m so thrilled to be here with you!

Joe Fairless: Well, I am thrilled that you’re here. Carla is a good friend of mine; I’ve known her for many years. We worked together in New York City, and we both have become entrepreneurs, in different fields. Her field is — well, let me tell you a little bit about it. She’s a coach for high-achieving men to master their emotions, so that they can create thriving businesses, relationships and lives. Over the last four years she’s coached executives and senior leaders across the U.S, from a bunch of different professions, including real estate. One of her clients has included an Emmy-nominated entertainer, a person who was a PR Week 40 Under 40 CMO, a Facebook exec etc. She’s based in New York City. You can learn more about her and her company at CarlaBlumenthal.com.

With that being said, do you want to first give the Best Ever listeners a little bit more about your background and your focus? Then we’ll roll right into developing emotional fitness.

Carla Blumenthal: Sure. So I coach high-achieving men on emotional mastery; what that means is that I really believe that your emotions and mindset can either propel your forward in your life and business, or leave you in mediocrity.

I started coaching four years ago, and truly, it found me. My first client was a real estate investor whom I met at a networking event; I explained to him my insights and passions around personal development and the work I do on myself, and really the next day he emailed me asking for me to coach him.

Over the next year I worked with over a dozen men who had a very similar story, reaching out looking for support and helping them through challenges in their relationships and business… And I realized most of the work I had to do, whether it was business-related or relationship-related, actually had to do with their own ability to understand and manage their emotions.

So this really inspired me, and it snowballed into my coaching business, where – like my bio said – I serve men all over the world: CTOs, architects, CMOs, Emmy-nominated entertainers… The list goes on. And really the focus of my coaching is uncovering the emotional and mindset barriers that are stopping people from the full success that they long for in their business and relationships.

Joe Fairless: Normally I hear about the mindset barriers… For me to understand and for people to communicate and get behind, you’re talking about emotional and mindset barriers, and the topic of today is developing emotional fitness to grow your real estate business… So why is emotional fitness important, and what exactly is it?

Carla Blumenthal: Emotional fitness is the skill of understanding how your emotions work, so you can use them to propel you towards your goals. In any business you have to do a lot of things, but some of the main things you have to do is motivate yourself to take action consistently; you have to work with others, build and lead a team, really have successful, lasting relationships with those who can support you… And all of these skills involve mastering yourself and mastering how to influence others. So emotional fitness is really understanding the emotional side of yourself.

Emotional fitness – we can look at it sort of what it’s not… I like to call the opposite of emotional fitness emotional laziness. And there’s really three symptoms of emotional laziness. The first symptom of emotional laziness is really letting your emotions overrule you; perhaps you really anger quickly and start yelling at a contractor when he’s gonna be late with a project… Or we’ve all been in that situation where you get a nasty email and you quickly send a snarky one back. Or maybe it’s in your personal life and you just wanna eat better, but you are eating unhealthy snacks, or ordering pizza when you don’t really mean to. That’s sort of letting emotions overrule you.

Next is avoiding situations or people because of uncomfortable emotions about them. Maybe you start your day looking at your email instead of starting with the most important things for your business. That’s sort of an avoidance process. Or avoiding an important conversation because you don’t wanna rock the boat.

The last way is really suppressing or denying your emotions or what’s going on for you. Maybe you had a deal fall through and you deny your disappointment, or maybe you have  a team member who’s always late, but you bottle up your anger and never communicate it. These are three examples of emotional laziness, and a lot of these can lead to unintended actions – overeating, or overdrinking, or numbing out with Netflix or social media, sort of these stop and start situations with your business. I’ve seen it all.

So it’s helpful to see what emotional fitness is not before we dive into what it actually is. So really emotional fitness is the ability to really skillfully manage all your emotions, so they work for you instead of against you… And it’s not about being happy all the time, it’s about being able to feel different emotions, including both positive and negative, because every emotion serves an important purpose, but it’s about being able to really minimize the negative effects and super-charge the positive ones, so that no matter what happens in your life or business, nothing can take you off your path.

Joe Fairless: How do you minimize the negative in that instance? What are some things you can do?

Carla Blumenthal: Well, I have a whole process on how to minimize…

Joe Fairless: Even better.

Carla Blumenthal: Yeah, so emotional fitness – I really have a six-step process that you can go through to minimize any of the negative effects. Because like I said, you can’t control whether you’re frustrated, or disappointed, or angry. Those are natural things that come up. But what you can do is take them through this process and really be able to choose how you want to respond. So you’re not responding from anger or frustration, but you’re responding based off of your goals and what you want to accomplish.

This six-step process – the first step is to really slow down and see what’s happening. So slow down. Basically, everyone’s running a thousand miles a minute, multi-tasking, and really just trying to reach their goals… But they haven’t trained themselves to recognize that the time to practice anything in their life is right in front of them. So the goal here is just slow down, and any example – maybe that email came through and you’re starting to get angry… So just recognize, “Okay, I’m gonna slow down in this moment.”

The next step is to observe what’s happening in that moment. Literally, our mind is always making meaning, so our goal here is to just be really present and observe the fact of what’s happening. By doing this, you’re taking any meaning or story out of the situation; so you’re just literally observing that email came through, and it said “This, this and this”, and not making a whole story about what it means.

So it’s just really being able to literally observe with curiosity the facts of what is happening. That’s the second step.

The third step is to really assess your thoughts and physiological responses. Starting with your thoughts – are they leaning negative, are they coming up with a story, is self-doubt creeping in? And being able to observe your thoughts and then observe what’s going on in your body. You have sweaty palms, is your chest tight, are your fingers tapping on the table? What’s going on within your body? So next is assess your thoughts and physiological responses.

The next step is to recognize your emotions. There was an interesting study out of UCLA a couple years ago that said that verbalizing your feelings actually makes your sadness, anger and pain less intense. So when you name your emotion, the intensity of the emotion actually goes down.

Joe Fairless: I believe that. That makes sense. I’ll speak for myself – anytime I have something that I am concerned about, if I write it down or talk about it, then it just seems less daunting, because it’s no longer this mysterious thing that’s omnipresent, it’s “Well, it’s now this one specific thing that we’re talking about” with vulnerabilities, as well.

Carla Blumenthal: Totally. That’s the first step – being able to name the emotion; exactly what you said. Whether it’s writing it down, speaking about it with someone… That’s the next step, and you can do this very quickly, to yourself as well.

So naming the emotion, and then the second to last step is pausing. I think this is the most powerful one… Because when you pause, you get to choose how you get to respond, instead of being overruled by your emotions. Like you said, if you’re feeling angry or you’re feeling frustrated about some things, all of your power resides in your ability to choose your response. And when you can really let that sink in, that you don’t need to be overruled by something or you don’t need to supress it, it’s about bringing it forward and pausing and recognizing how you want respond, you get to build your life from there.

And the last step is choosing which response you want to take, and then taking action on it, and creating the meaning for the situation that you want to create.

Joe Fairless: One of my favorite quotes – I think it’s Abraham Lincoln – is “You’ll be as happy as you choose to be.” I just love that. It’s something I wholeheartedly believe. Nothing has meaning in life until we choose to give it meaning, and that’s what this is all about, right?

Carla Blumenthal: Exactly. It’s being able to slow down enough, choose how you want to respond, versus letting something else choose for you, letting the pattern choose for you… And then being able to make the meaning that you want from there.

Joe Fairless: The challenge with this – and I’m sure you’ve heard it before – is… You just gave a six-step process, but we’re talking about emotions, and emotions can be a quicker thing, or maybe there’s something in the moment that’s taking place… How practical is it to go through a six-step process in our head, and then also verbally in some of these steps, whenever you’re in the middle of an event that is high stakes and high emotions?

Carla Blumenthal: That’s the root of what we can get at here, is the power of the pause. Like you said, we can’t control the emotions coming in. We can’t control what comes up for us. What we can do is even if it’s a two-second pause, saying “Oh, I recognize there’s the emotion of feeling frustration. How do I wanna handle this? Am I gonna share my frustration in this way? Maybe I do wanna send that snarky email. Or how do I wanna handle it in this moment, knowing I need to collaborate with this person?” So that power of the pause in the middle of this process is so important… Because it gives us the full power to choose not only our actions, but then really down the line, the meaning that we assign to it.

Joe Fairless: I love the power of the pause… And it sounds like it’s also being very intentional and self-aware of what we’re going through in that moment, what we’re feeling… And then Malcolm Gladwell would say we’re thin-slicing at that point, where we’ve had similar experiences throughout the course of our life, and now we can thin-slice, so in a split second we can identify “Okay, here’s how I wanna approach it, because I have come across these situations before”, whereas without the power of the pause we’re on autopilot and we’re not being as thoughtful or mindful of how we’re reacting.

Carla Blumenthal: Yes, exactly. And when we’re on autopilot, we’re not really choosing our responses, or to be honest, what the end result is.

Joe Fairless: Right. A lot of the success in real estate is about relationships. And if we are building relationships for the long run and continuing to – as Tim Ferriss would say – play the long game, then we’re gonna set ourselves up for success in the short and the long term… And the power of the pause and the six-step process is a great tool for that.

What else that we haven’t talked about as it relates to developing emotional fitness to help us grow our real estate business do you think we should talk about?

Carla Blumenthal: Well, there’s a difference between information and transformation. There’s a difference between intellectually learning something, intellectually reading the six steps, and even listening to podcasts and reading books… But until you are really ready to change, and unless you’re really willing to go beyond the information part and put things into practice, things are gonna be very slow for you and you are not gonna get to the outcomes that you want as quickly. So that’s a big area here – really saying “What’s in the way of me changing?” and being very clear with yourself what the barriers are, even if they’re just sort of made up in your head… What are the barriers for you to make the transformation, to move from information to making the change you want? I think it’s such an important skillset to practice.

Joe Fairless: Is there a legitimate barrier, or are they all just made up?

Carla Blumenthal: Well, there are stories in people’s minds, but they can feel real. One of the things that we often overcome in looking at emotional fitness is when you do want to move into changing. I know a part of your story, Joe, is moving from living in New York City, working in advertising, to being a really successful real estate investor… And I’m sure over your time, I’m assuming you had to really assess your identity, in many ways; who are you, and who are you becoming? Sometimes when we move from information to transformation, we do have to assess our identity, and we do have to be willing to let go of, in many ways, a past part of ourselves, or be very clear about the vision of who you want to become. I know you went through this process.

Joe Fairless: Sure. Yeah, absolutely. I’ve interviewed professional athletes, or former professional athletes who are now in real estate, and they say a similar thing – they say “I was known as X, but now that’s over, and now I want to be Y.” And first off, it’s an ego hit, because they’re going from being on ESPN and having some notoriety, to not… And then also it’s transforming their identity to then take it into a different direction and try and climb a different mountain.

Carla Blumenthal: Definitely. And when you aren’t aware that you’re going through that process, a lot of people self-sabotage. A lot of people don’t recognize that when you’re shifting from one identity to another, so if you’re becoming a real estate investor, or maybe you’re even becoming a dad, or whatever it might be, this is about shifting your thoughts, your emotions, your overall way of existing into the person you wanna become. And if you aren’t aware that you’re going through that process, sometimes you do end up self-sabotaging and taking you back down to your old ways of being, your old identity, your old demeanor.

Joe Fairless: Yeah, change is inevitable, but progress is a choice, right? Change is gonna happen, but if we’re progressing and evolving – well, that’s more of a choice and an intentional thing… So Carla, how can the Best Ever listeners learn more about what you’ve got going on?

Carla Blumenthal: Sure. I have a free gift for the Best Ever listeners. CarlaBlumenthal.com/bestever – you can download a free audio and workbook about mastering productivity and focus by really becoming more emotional fit. Feel free to download that guide for you guys, and also, I’m at CarlaBlumenthal.com as well.

Joe Fairless: Awesome. Well, Carla, as always, I thoroughly enjoyed our conversation. Thank you for being on the show. Best Ever listeners, CarlaBlumenthal.com/bestever, go get that free guide. Carla, I hope you have a best ever day, and we will talk to you again soon.

Carla Blumenthal: Thanks so much!

JF1768: Investing Niche: Providing Furnished Apartments For Short Term & Long Term with Hank Jonap

Listen to the Episode Below (00:19:26)
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Hank and his company work with rental companies to help furnish their apartments and move in great tenants. Typically their tenants stay for multiple years, but they also have month to month lease options available. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“When we’re moving in a unit, we move in that first day, after that, our sales team handles everything” – Hank Jonap

 

Hank Jonap Real Estate Background:

 


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TRANSCRIPTION

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

Hank Jonap: I’m doing very well, thank you. Thanks for having me on the show.

Joe Fairless: Yeah, my pleasure, and I’m glad to hear that. A little bit about Hank – he is the director of real estate for Blueground. He oversees the company’s location expansion strategy, and new space acquisitions. Based in the Big Apple. With that being said, Hank, do you wanna give the best ever listeners a little bit more about your background and your current focus?

Hank Jonap: Sure, absolutely. I’ll tell you a little bit about  Blueground first. Blueground is a real estate tech company offering beautifully-furnished and thoughtfully-equipped apartments, for stays ranging from 32 days to a year, or even longer. Here at Blueground we’re on a mission to create a tech-powered living experience that guests love, homed in an organization where great people are proud to work with these carefully-selected, ideally-located apartments, and upgrade them to be fully furnished homes, so people can show up and really start living from day one. Our vision is really to make people feel at home, wherever they choose to live.

More on a personal note, I started my real estate career out of college on the brokerage side of the business, working with Newmark Knight Frank, [unintelligible [00:03:19].09], then kind of transitioned over to SL Green Realty, who’s a large commercial real estate company here in New York, where I’ve dabbled in everything from property management and instruction project management, and then kind of moved into more of an underwriting and operational, construction side of the business, where I would be evaluating large deals, where the company would potentially be acquiring and creating a value-add situation.

After spending about eight years at SL Green, I ended up in a little bit different of a lifestyle, and moved into the startup culture where I worked for Breather products, who is a flexible workspace solution that is catering to instantaneous workspace and on-demand solutions, whether it’s for a short-term meeting, or a great office for 10, 30, 50 people, that really just provides you great flexibility in your daily work environment.

Joe Fairless: So with Blueground, help me understand a little bit more… Because furnished apartments have existed before Blueground. So what is it about Blueground that’s unique?

Hank Jonap: Blueground offers many unique things, one of them really being just that we have tech at our core, and that really enhances the client experience and the stay, where our clients can really learn a lot about our products through our website, which is the blueground.com, or even through our mobile application.

We really provide a much higher level of experience, from design, to the cultural fit. Our clients really feel at home and are happy to stay in our homes for a very long duration of time. We actually have an average stay of six months and longer in many of our cities, which just tells you that our clients are really happy to be in our apartments, and really appreciate the unique design, and high-quality furniture, and just the living experience we provide to them.

Joe Fairless: Okay, so your units are competing with hotels and Airbnbs then, correct?

Hank Jonap: In some cases. We don’t really overlay much with the hotel world. We have a shorter stay of 32 days, which eliminates the transient nature of the business, when a hotel would be for a handful of days, or a week maybe. Our clients are really staying with us for a longer duration of time.

Joe Fairless: So you’d be competing with maybe an extended stay hotel, or something like that.

Hank Jonap: Correct.

Joe Fairless: Okay, got it. So you mentioned a design and cultural fit… How do you deliver on that value proposition?

Hank Jonap: We’re fortunate enough to have a wonderful design team, that really provides a unique layout and experience for every one of our units, but also [unintelligible [00:06:00].14] into our brand identity. One of the things that makes Blueground so amazing in reference to what we do is that we actually manufacture and streamline all of our own furniture. We’re making high-end furniture that’s unique for our apartments, where we can really just highlight certain details and elevate the experience of the unit… Whether that’s with our furniture, our beds, our couches, as well as fully-equipped kitchens, which is really one of the things that our clients do value, at the end of the day.

Joe Fairless: Huh. What other ways is your company integrated? You mentioned you manufacture your own furniture… Anything else that you do that would be noteworthy?

Hank Jonap: I guess one other thing is that when you compare it to a hotel, people are staying in our units and they really value the additional space, and the ability to not just have a bed and a shower in a hotel room with a TV on the wall; they love the ability to make our units their home, and the ability to stretch our on one of our high-quality sofas, or have dinner at one of our dining tables. The furniture is made to improve and enhance their way of living.

We provide everything to our clients, from their towels and linens… It really makes them feel that they’re in a place they wanna live instead, and not something they happen to just pass through.

Joe Fairless: Got it. So with the manufacturing of your own furniture, I imagine that the price point for the consumer is gonna be in line with more of  a luxury type of extended stay hotel… If there is such a thing. I don’t even know. What type of price point are we talking about for staying here? I know it depends on the area.

Hank Jonap: Yeah, area and city plays a large factor into the price point. Even talking about here in Manhattan, you’re gonna pay a different price point for being in the financial district, to the Upper West Side. But our clients, typically, depending on the duration of stay — if we have a client that’s looking for one of our great units for, say, a 12-month lease, pricing is gonna start around $3,000 for that monthly rate. That includes all of their services. There’s no hidden fees, or anything like that.

Joe Fairless: Cool. And that’s in New York City?

Hank Jonap: That’s correct. But prices range across that platform, across all of our markets.

Joe Fairless: Sure, sure. I lived in New York City for ten years, I get the varying price range for sure. Okay, so your focus is the company’s location expansion, and getting new space acquisitions… Can you talk a little bit about your business model and how you grow your footprint?

Hank Jonap: Sure, so we grow our footprint in many different ways, really depending on the city and our partners. We have a great team of real estate business development associates and managers in all markets, that are out in the market, meeting with different owners, brokers, individual landlords, really trying to tell them that we are the best option for them over your everyday renter… Or coming into units and meeting with landlords to help them stabilize a unit. We’re not a tenant that’s coming in for a year; we’re typically there for 3, 5+ years… But we work with regular rental companies, companies like Related, or Stonehenge, or Pinnacle (New York), but we also work with a lot of the large institutional companies, like Blackrock or Blackstone, that have assets throughout the world.

We also work with various individual investors and condo owners, who are looking to potentially purchase a condo in New York as an investment. To have steady income, they’re able to work with Blueground, who is able to come in, fully furnish their unit, operate this for them, and all they have to do is pretty much sit back and know they’re having steady income on an asset that they can hold on to for many years.

Joe Fairless: And I’ve noticed on your website you’re in about 8-10 markets… The major ones in the U.S, and then some international markets.

Hank Jonap: That’s correct. We’re in nine markets in total, six here in the U.S. We’re currently operating here in New York City, as well as Boston, D.C, San Francisco, L.A. and Chicago. We have approximately about 900 units spread out across the U.S, and a little more than 2,000 globally.

Joe Fairless: What’s the sales pitch to the owner, other than you’ll be there for 3-5 years? …which is significant, because turnover costs, as you know, eat into the bottom line for owners. What else is the value proposition when you’re speaking to owners?

Hank Jonap: Sure. We’re [unintelligible [00:10:25].21] with owners, and basically really able to drive home many different factors. Some of the other ones would be that when we’re moving into a unit, we’re moving in that first day we take possession of it, bring in all of our furniture in there. After that, our operations and our sales team is filling units for extended periods of time. So it’s not a transient type of business, we are not dealing with people coming in and out with suitcases every few weeks. Our clients are coming, and in many cases these are high-end business professionals that are looking to stay in the units for their job. These are their homes; it’s a place for them to come home to, and the average renter than any landlord would be happy to have just needs flexibility in their living situation, and that’s what we do, too – that flexibility that in many cases landlords can’t offer, but can  work with Blueground to expand their offering as a building or as a company.

Joe Fairless: You were originally a broker in your career… What are some things that you learned from that experience that you’re applying to what you do today?

Hank Jonap: Time is everything when dealing with real estate. Time can kill a deal, so the ability to move quickly, to know what works and to be able to close. That’s been something that’s always been true to me. In real estate it comes down to location, so understanding what you’re looking for, having a strategy, and kind of going into it with a purpose is something that allows you (or anybody) to really get the deal done, and to go in knowing exactly what you need to walk away with.

Joe Fairless: What are you looking for in a location whenever you look at growing the footprint?

Hank Jonap: In many cases, we’re looking for accessibility to public transportation, whether that be subways or buses. Our clients wanna have a feel natural air, and like coming into the units, so typically we’re on a floor that’s gonna cater to those elements.

We have many clients that are coming that wanna be close to their office for the convenience factor, but we also have many units that allow the clients and our guests to get away from certain parts of the city, so they can step away to the Upper West Side and have an office in Midtown, be close to the great restaurants, parks or things that are important to them when they’re not working.

So our units can range from great transportation, to great restaurants, to parks and access… That’s really the one thing, that we’re strategically locating in places where the everyday individual wants to be.

Joe Fairless: And that certainly holds true in New York City, but when you get to outside of the bubble of New York City and you go to Dallas, Fort Worth, or Miami, or other cities where most likely people are not gonna be taking public transportation – at least en masse, they’re not taking public transportation; they have a car. What would you look for in those types of cities?

Hank Jonap: In those types of cities, as you said, people are driving. Mass transit isn’t [unintelligible [00:13:15].22] It’s access to parking, in many cases, and allowing people to have the ability to conveniently get around to different parts of the city, or being able to have some space to enjoy life a little bit differently. Now, I can’t get into too much about the markets we’ll be going to, and I do know in some of our locations we are very focused on certain downtown business districts, and the convenience for people to work and live, and kind of bring it all together in a very high-end, unique way.

Joe Fairless: And will you describe your typical customer who is renting from you?

Hank Jonap: We have many different customers, and that’s something that we’re proud to say we have. I would say our average customer is a business professional who might be from a consulting company, or a startup, that is traveling around, trying a new city, or being sent somewhere, that just wants a unique experience, wants something more than just a hotel room… Wants to sample a new city and see what it has to offer, and really kind of just have a different experience than what others might be able to provide them. But at the end of the day, it’s not so much that you try to cater to a certain client, but you’re catering to a certain type of living style.

Joe Fairless: And just so I’m clear on how you deliver on that unique experience – you mentioned there’s a layout for every unit, it’s customized, and you manufacture your own furniture… What else do you do to deliver on that unique experience?

Hank Jonap: Outside of just the design and everything that we provide to our clients, it’s the customer experience. The ability to work with our staff to get additional cleaning services, have us help them with certain things they’re trying to do, or recommendations for restaurants, or things to do in the area. It’s allowing our clients, at the end of the day, to just have a seamless experience. It can take the worrying away of moving, or trying to find a place, or buying furniture… They can literally just show up into one of our units, know exactly what they’re getting, and start living.

Joe Fairless: So you have a concierge. Along with renting the unit, you’ve got someone who serves as a concierge for them.

Hank Jonap: Correct, and that’s all through our tech platform. That’s the nice thing, where everybody today is on their mobile device; you don’t have to go to a lobby and talk to somebody and wait on line. It’s all through our mobile application, where you can get immediate attention from one of our trained staff.

Joe Fairless: Taking a giant step back – based on your experience as a real estate professional and investor, what is your best advice ever for real estate investors?

Hank Jonap: My advice for real estate professionals and investors – it’s a long game; there’s many people that are always looking for the quick dollar in real estate. I always like to look for those — I’ll call it kind of the low-hanging fruit, where something that might not be the best opportunity today, and just a stable thing, but you have to look to the future and know that it’s a safe bet. That’s just something that I’ve always personally realized – you never know what’s gonna happen, but if you’re willing to hold on to it and understand the long-term value in real estate, that’s what I’ve always thought is a great separator from some of the larger players out there.

Joe Fairless: Do you have an example of something you’ve purchased or you’ve been involved in a transaction, where you took that to heart and held on to it for the long run, and it came to fruition?

Hank Jonap: To be honest, personally, no. I’ve been investigating a lot of various opportunities, but I’m a new father, so most of my recent savings has been going to my family and raising my young child. Currently, I’m a renter, and thankfully, I have the ability to stay in some Blueground apartments, which makes me feel like I’m home even when I’m not.

Joe Fairless: Well, congrats on new fatherhood. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Hank Jonap: Absolutely.

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

Break: [00:17:12].17] to [00:17:55].10]

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

Hank Jonap: I’ve been reading a lot of kids’ books. Other books that I’ve probably read recently is Rich Dad, Poor Dad.

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

Hank Jonap: A mistake I’ve made in business… Sometimes fact-checking. There’s been an opportunity where I checked the date of something that was just a quick oversight, but the date was actually two days out instead of two years out.

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

Hank Jonap: I love giving back to the community by helping, whether it’s charitable donations, or doing various walks and marches for breast cancer, or even over Thanksgiving working at a Food Kitchen, or something of that nature.

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

Hank Jonap: The best way to check out our company and learn more about our great units would be to check out our website, at theblueground.com, where you can see all of our cities, all of our apartments, and learn more about what we have to offer and how we can help [unintelligible [00:18:43].13]

Joe Fairless: Hank, thanks for being on the show, talking about the business model, talking about the value proposition, and how you and your company that you work at deliver on that. I really appreciate your time. I hope you have a best ever day, and we’ll talk to  you again soon.

Hank Jonap: Thanks so much, Joe. I appreciate you having me on.

JF1750: How To Diversify Your Investments Away From Wall Street with Alina Trigub

Listen to the Episode Below (00:20:45)
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Alina had a need of her own, and as many entrepreneurs do she started her own business. She began investing in real estate for herself because of a need to diversify her own portfolio, now Alina also helps other investors do the same. By working with other passive investors she can help others diversify without having to be active. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“There is no Nostradamus to tell us if the recession is going to happen tomorrow or 3 or 5 years from now” – Alina Trigub

 

Alina Trigub Real Estate Background:

  • Founder and Managing Partner of SAMO Financial, a boutique equity firm
  • Help clients over 1,200 doors, over 500 storage units and a $10M mobile home park fund
  • Works with high earners to passively invest in real estate
  • Based in NYC
  • Say hi to her at https://www.samofinancial.com/
  • Best Ever Book: Compound Effect by Darren Hardy

 


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

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


TRANSCRIPTION

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

Alina Trigub: Doing great, Joe. Thank you. I’m very happy to be here, and thank you for inviting me.

Joe Fairless: Yeah, looking forward to our conversation. A little bit about Alina – she is the founder and managing partner of  SAMO Financial, which is a boutique private equity firm. She’s helped clients get into over 1,200 doors on multifamily, over 500 storage units, and into a ten-million-dollar mobile home park fund. She’s based in New York City. With that being said, Alina, do you wanna give the Best Ever listeners  a little bit more about your background and your current focus?

Alina Trigub: Absolutely. Thank you, Joe. As Joe mentioned, our clients get into commercial real estate by passively investing with us. I started out my career as a tax accountant in the big four environment, with Ernst&Young, and later on I switched to the technology world and became a liaison between business and technology professions.

This field made me realize that we are, for the most part, working with other people, so if you wanna achieve anything in this world, having a full understanding of how the relationships get established and maintained is absolutely essential for success. With that in mind, and with a personal problem to solve, which was to diversify out of Wall Street, I started my journey of finding a way out of the stock market.

This has been my concern for many, many years, and partially because I’m a former tax accountant, so I always think about taxes… And I have seen a number of significant stock market crashes in my lifetime, and some of the smaller stock market crashes as well… So my main concern was always to find a way to conserve the wealth, and then find a way to save in taxes.

Real estate has been on my mind for many years, and finally I decided to give it  a try, and I started conducting an extensive research, which led me to Bigger Pockets, which in turn led me to find syndications. I started about 5-6 years ago as an equity partner in someone else’s deals, and over time I realized the value and the conservatism of this strategy; not only that it allowed to preserve wealth, it also allowed to save in taxes, and in addition to that, it was giving me residual income.

Out of this business idea was born, I decided to start my own company, whose mission would be to strictly help other investors to preserve their wealth and to build passive income by utilizing the tax saving strategies. So that’s my main concentration today – working with investors, helping them select the appropriate investment based on their needs, based on their interests, whether they wanna diversify, invest in one commercial real estate asset class or the other, and help them understand the tax consequences without giving them advice, just explaining to them what I know and what I’ve seen based on my personal experience with the industry overall.

Joe Fairless: So you’ve helped your investors get into a lot of different opportunities… Are you in all those opportunities, the same ones that your clients are in?

Alina Trigub: I am.

Joe Fairless: So I imagine that you’ve seen some ups and downs on projects… Tell us about a project that didn’t go according to plan.

Alina Trigub: Sure. I’ve seen a project where we started out really well, but then about a year or so into the project we got a notice from the general partners (I was LP in this project) saying that there was apparently a big hole behind the apartment complex and the tenants started using that hole as their garbage dump, so they started dumping garbage… And unfortunately, the people that noticed that garbage pile were not the property management company, but rather the town, and the town imposed a really big fine on the property, and in turn that fine would be a burden for the investors… So the deal sponsor has hired the legal team to fight against the town to lower the fine or get rid of it altogether. While they couldn’t get rid of it altogether, they were able to lower it by almost half. Even with that, it was still a pretty big burden; the dividends weren’t paid to investors for a few quarters, and they had to bear the legal costs in addition to paying the fine to the town… So that was kind of  a challenging disappointment.

Joe Fairless: Do you remember how much the fine was?

Alina Trigub: No, but it was in the hundreds of thousands of dollars. It was pretty big.

Joe Fairless: Dang. So it’s one thing to be fined for people dumping garbage into a hole on the property, it’s another to have a city official discover it and not the property management team discover it… So did you or anyone (to your knowledge) ask the general partner why they didn’t discover this or their on-site staff discover it first?

Alina Trigub: Yeah, the question did come up. We didn’t get a clear answer, and obviously, we weren’t happy with what the property management company was doing overall. After a little while, after the fine was paid off and this was settled, they decided to sell the property altogether. So the property was sold, and it was all more or less hushed out… But they did not give us a clear answer as to why the property management didn’t notice this.

Joe Fairless: Anything that you took away from that experience that you applied to future deals or future general partners that you partnered with?

Alina Trigub: Absolutely. When I talk to future partners that I partner with, and people that I know that I do business with now, I always ask them about the property management company they have, the relationship they established with the property management, and their interview process – what kinds of questions they ask the property management company, whether they stay on top of not only the regional managers, but also the managers that are in charge of each specific property; what kind of follow-ups are done and what kind of reports they’re getting from the property management, to make sure that they’re staying on top of things within the property itself.

Joe Fairless: What are some good answers and bad answers to those questions?

Alina Trigub: The good answers: “Yes, we get weekly meetings with the property management company, and they give us weekly updates, and we travel to the property either every month, or at least every other month.” The bad answers is “Oh yeah, they send us periodic reports. We look at those reports, and sometimes we talk to them once a month.” To me, that’s a red flag. You should be on top of the property management company and be in touch with them every single week, if not more often than that.

Joe Fairless: And do you recommend to your investors that they go check out the properties before investing in them?

Alina Trigub: I offer it to them. It’s not my recommendation. These days with Google Earth they can see the property themselves virtually, and actually the investors that are local to the property sometimes do decide to take a trip and take a look at the property, but if it’s outside of their immediate area, or if it requires a flight, most of them don’t really wanna go. But yeah, I always tell them that it’s open if you’d like to go, join the deal sponsors, take a look at the property. The option is there.

Joe Fairless: So you’re in a lot of doors and units, and you’ve got multifamily, self-storage and mobile home. Of those three, which one was the hardest to gain a firm grasp on in order to be comfortable to not only invest your own money, but also recommend it to others.

Alina Trigub: I don’t know if one or the other was the hardest one, but I would say naturally I started with multifamily because for me personally it was close to home. I could relate to the asset class. I lived in an apartment building at some point in my life for a very long time, so I could understand it much better than the other two classes; I knew what the apartment buildings were about and what to expect from them, I understood the difference between different neighborhoods… I lived in Brooklyn for a very long time, and I’ve seen drastic changes when you literally cross the street from one block to another, so I can relate and understand the difference between going, say, from a D+ area to a C+ area. There’s a huge difference… And so forth.

But over time, and after speaking with a number of my investors, I realized that there is a need to help them to diversify, and not just stick to multifamily  and going to multiple markets, but also go into other asset classes. Naturally, I started doing research and looking into other asset classes, which are the asset classes we can attack forward… And by being a former accountant, I’m very conservative by nature, so I wanted to find something that would be conservative enough to sustain any recessions, if we had any… So storage is the first one I stared looking into, I believe. And again, I’ve done research, I’ve talked to people that have been investing in storages, asked them what is it about that asset class that they like, and some of the things that I was told is that most people, when they’re downsizing – downsizing normally happens, again, during the recessions, when people wanna go from a large house into a small apartment…

They don’t wanna get rid of their stuff, they wanna store it, because they think that it’s a temporary thing; they’re gonna store it for a couple years and then come back and buy another house… And that in most cases never happens. They put their junk in a storage and let it be there for a very long time… So it makes this asset very profitable, especially during recession time, and they continue keeping it in the storage because the rent is not as significant as for the apartments. It’s a much smaller amount. And they just continue keeping the junk, because they never wanna get rid of it, and it stays in storage for a very long time.

I would say a similar concept of being more of a conservative asset class applies to the mobile home park. What I’ve found with mobile home parks is we all have this preconceived notion that a mobile home park is this dilapidated building that’s gonna collapse when the next wind blows its way… But it’s not that anymore. There are mobile home parks that from outside look like regular homes, but they’re just a lot more condensed, a lot more small, and they are built specifically for people that are looking for affordable living. They wanna live in a good, decent area. These are good, working folks, but they cannot afford the high prices of, say, Arizona, where the rents are astronomical, so they go rent or even buy this mobile home park, so they can live there with their kids, and  kids can potentially go to decent schools. That allows them to stay in a decent community.

And again, if you find tenants like that, that will stay with you for a very long time, especially when the mobile homes are owned by the tenants because they don’t wanna pay the price of moving their mobile home from one location to another – to them, it’s a lot more expensive to move than to stick to the same location and maybe pay a small increase in rent for the land that they’re paying.

Joe Fairless: What’s a disadvantage of each of those three?

Alina Trigub: The disadvantage of multifamily is yes, it’s dependent on the location, depending where it’s located; say you’re looking at a D area… While it could be a a good income source, it’s gonna be very labor-intensive. You have to constantly stay on top of either your property manager, or if you’re self-managing, then you have to stay on top of the tenants all the time. It’s very hard to manage the property when it’s in a really bad location.

When it comes to storages, again, storages could be hit or miss, depending on where it’s located and depending on where we are in the economy. Like I mentioned, if the economy is doing well, and people are buying larger houses, then the demand for storage may be not as significant as during the downturns. So that may impact the storage as a class altogether.

With mobile homes – again, the age of the mobile homes has a significant impact on them. If the mobile homes are much older and require a lot of maintenance, then obviously the park doesn’t wanna own them, and the tenants will not be as prone to buy them, because it’s an older home and it will require a lot of work; they will look at homes that are probably newer, or have been built in the last 20-30 years. That’s the disadvantage of the homes that are much older.

Joe Fairless: And out of the three – you have three similar projects that are presented tomorrow. You have the equity for one of those three. How do you decide which of the three to do?

Alina Trigub: In addition to looking at the asset classes, I look at such things as the deal sponsor… What is the track record of the deal sponsor? How long have they been around? Have they gone through at least a cycle or more? Outside of the deal sponsor, I also look at the deal itself – where is it located? For instance, if we take multifamily, the multifamily as an asset class needs to have the infrastructure in place. I’m gonna look whether there is a major airport in the area, does it have colleges and universities in the area? Are there shopping centers nearby? Is the highway easily accessible? What is the job industry doing? Are there jobs coming into the area? Are there people coming to fill in those jobs, so in other words, how high is the demand? What’s the typical vacancy for the area? If all of those components adapt, then that’s the asset class to compare.

Then I go to the next asset class and look at pretty much the same things – what is the demand and what is the breakeven point? That’s another component that I need to look at – what’s the breakeven point for each of the three asset classes, and where it’s gonna lead if we hit the recession tomorrow. Everyone is talking about this recession, but no one can predict — there’s no Nostradamus that can tell us whether the recession is gonna happen tomorrow, or three, or five years from now.

So we need to find ways to mitigate the risks and be able to sustain that poor economy if it happens, and make sure that the asset that we’re buying is still cash-flowing. People can bet on appreciation, but I personally don’t wanna be on appreciation,  for myself or my investors. My main goal is to make sure that, based on the analysis, the asset will continue to cash-flow and the investors will continue to be paid; even if we go through a recession, however many years it is, we can come out and sell it.

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

Alina Trigub: My best advice would be educating yourself prior to taking action. I think it’s extremely important to understand what you are doing and how you’re approaching the business. In my case – well, in syndication – I think it’s absolutely critical, for myself and for others who wanna learn about syndications, to educate themselves, learn the business first, before taking any action.

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

Alina Trigub: Absolutely.

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

Break: [00:16:28].21] to [00:17:12].13]

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

Alina Trigub: The Compound Effect, by Darren Hardy.

Joe Fairless: Best ever deal you’ve done?

Alina Trigub: It was a deal where I invested as an equity partner. After about a year in the deal we got at least half of our principal back, and the dividends were above the expectations, so it’s been phenomenal.

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

Alina Trigub: Our very first investment that my husband and I did – we bought a property without doing the proper due diligence. Basically, our friends had been in it, and we bought the property. It was around Philly area. We just followed that trend – we went ahead, went through the filter and bought property in the same area, and it was an absolute disaster. We had to sell it with a loss. We had everything from people breaking in, to drugs, to stolen pipes… You name it.

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

Alina Trigub: I volunteer by educating kids in underserved communities. There are plenty of such places in New Jersey. I’ve done lectures to these kids on career aspirations, higher education importance, personal development, and I just love to see the sparkle in these kids’ eyes when I say something that touches their trigger points. It’s very rewarding.

I also like to give back through Bigger Pockets. It’s a great community, and I’ve learned a lot by asking other people questions, and now I’m trying to give back by answering other people’s questions.

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

Alina Trigub: Through my website, it’s samofinancial.com. My phone number is there. Or they can find me on any social media – Facebook, LinkedIn… I’m everywhere.

Joe Fairless: Well, thank you so much for being on the show, Alina, and talking about the different types of asset classes that you invest in – multifamily, self-storage, mobile home parks. The pros, as you see, for each of those, as well as a disadvantage, or a potential disadvantage for each of those three… And then talking about the cautionary tale for the one syndication that you were in, where residents were dumping garbage in a big hole, and the town found it before the manager, imposed a fine, well in the six-figure fine, which did hurt the distributions and delay them for a period of time.

That specific scenario I haven’t come across, so it’s always good to hear what could go wrong, so that as operators we know to be proactive and continue to be on-site and make sure we’re checking out the grounds, so that we proactively address those types of things. And then it’s also good from a passive investor – any limited partners who are listening… There are some pretty esoteric things that could come up on a deal where you don’t receive the distributions that you were projected, and here is one of them. I don’t imagine a town fining the general partner because there was garbage being dumped in a hole happens very often across the United States… I think that’s a pretty unique scenario. But there are all sorts of those types of scenarios that could come up, and that’s the point.

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

Alina Trigub: Absolutely. Thank you for inviting me. Great to be here.

JF1743: Finding Commercial Comps Can Be Tough, He’s Here To Help with Michael Mandel

Listen to the Episode Below (00:21:43)
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Michael was in a position that required him to research comps for the company’s deals. He was having trouble finding relevant comps, so he started working on a solution. Enter his company, CompStak, they provide comps nationwide from brokers, appraisers, and research people in real estate brokerage firms to anyone who uses their platform. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“The way you differentiate yourself is through your creativity” – Michael Mandel

 

Michael Mandel Real Estate Background:

  • Co-Founder & CEO of CompStak, the nationwide provider of commercial real estate data and analysis
  • Has provided 2 million comps on 700k properties totaling 10 billion leased SQ. FT.
  • Based in NYC
  • Say hi to him at https://compstak.com/
  • Best Ever Book: Shoe Dog by Phil Knight

 


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

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


TRANSCRIPTION

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

Michael Mandel: I’m doing well, thank you.

Joe Fairless: Well, I’m glad to hear it, and welcome to the show. A little bit about Michael – he’s the co-founder and CEO of CompStak, which is a nationwide provider of commercial real estate data and analysis. The company has provided two million comps on 700,000 properties, totaling ten billion leased square feet. Based in New York City, New York. With that being said, Michael, do you wanna give the Best Ever listeners a little bit more about your background and your company’s focus?

Michael Mandel: Absolutely, sure. Before starting CompStak, I was a commercial real estate broker. I was working [unintelligible [00:01:39].15] in New York City. I did office leasing transactions, representing both landlords and tenants, and I did data center deals throughout the country. I started CompStak out of my experience as a broker, because when I was a broker – as probably many brokers who listen to your show could attest – I would spend a lot of time trading data, specifically trading lease comps when I’d get a lot of leasing work… And I was doing that over the phone and via e-mail, and most notably, in our weekly market meeting that we had every Monday morning. Really, it was sitting in one of those market meetings for hours, as we’re trading random comps for other random comps, I realized “This is silly. We’re all sharing this information in the industry…”

I would be calling up other brokers frantically on Sunday night, trying to get information to share in the Monday morning meeting, just so I could sit around this table and hear about deals that were largely irrelevant to what I was working on. And the thought was “Well, all these brokers are trading data… Why don’t we build a database where everybody can put it, so you could find what you need, when you need it?” And that’s what we did.

We basically took that offline process of people sharing information, creating a credit system, where brokers, appraisers and research people can earn credits for sharing data on CompStak, and then use those credits to get other comps back out. So it took what everybody was already doing offline, which was basically tit for tat (you give a comp, you get a comp), and we’ve put it online and made it even more fair. I think that was really well-received in the industry, because it’s just a much more efficient way of doing things.

Joe Fairless: Well, yeah, I love that approach; I love that story, too. It was like an a-ha moment, where you were doing it offline and there was no real system, so then you’ve created one… And props to you, because it’s one thing to be in the middle of that madness initially, and it’s another thing to think “Oh, well this would be a good idea”, and then it’s at a whole other level to actually act on it and do it. What are some challenges you came across during the acting on it and doing it part?

Michael Mandel: Well, there’s constant challenges, and we continue to have challenges… There’s nothing about being an entrepreneur that isn’t challenging. But I think what it came down to is I think people have a conception “Oh, you build a tech product, and then everybody just uses it, and it’s an overnight success.” The truth is that for most tech companies you spend a lot of time doing things manually, and just grinding away until things start to work, and until you sort of hit the flywheel, where it works by itself.

In our case, we were trying to create a marketplace, and when you’re building a marketplace, you’ve got a real chicken or the egg problem. People don’t wanna use CompStak unless there’s valuable on there; but you need the people to get the data, but you can’t get the data without the people… So it was a challenge, and basically, initially it was just me — I remember a distinct memory, sitting at my couch in my apartment, calling up every broker that I knew in the industry and saying “Hey, I’ve got this new thing. I’ve set the login for you. Here’s your login. I want you to send me some comps to put on it.” And getting them to log in and send comps, and then every week calling through the same list of people and saying “Hey, you haven’t logged in this week. Why haven’t you logged in?” or “Hey, you haven’t sent me any comps this week? Why haven’t you sent them?”, until eventually people just started doing it on their own, and finding value on their own. I had to really manually hand-crank that machine to get it going.

Joe Fairless: I have a whole lot of respect for you in that regard. So you got the machine cranked up a little bit… Once you had more people who were on there, what are some major things you’ve tweaked or optimized with the site or the process, that looks different now than originally?

Michael Mandel: Well, we’re one of those companies that what we’re doing is fundamentally still the same as what we were doing in the beginning. We haven’t pivoted; it’s still the same model. I would say we’ve made the interface a lot better, we’ve added analytics to sit on top of this data to allow you to really do some interesting things with it… We’ve added a lot of new ways to search the data and filter it and find what you’re looking for. We’ve had to build out tremendous infrastructure to allow us to process all of the data, because when we started it was just my friends in New York giving us comps, and now we’re bringing in over 50,000 comps a month, each one with anywhere from 15 to 50 data points within it; so we’re bringing in millions of data points a month, and we’re getting all this stuff in scanned PDFs, Word documents, Excel spreadsheets… So there’s been a lot that we’ve had to do on the back-end to scale our infrastructure to be able to do this.

At the end of the day, what’s the most valuable to our members is the data. The data’s gotta be there, and it’s gotta be comprehensive, and it’s gotta be high-quality. There’s a lot of bells and whistles on top of it, but that’s not what drives the value. The value is the data, and that’s what we’ve always focused on.

Joe Fairless: And I’m purely guessing here, but I’d like to guess and then you can tell me what the answer is… My guess is that you’re going to make money through a version where people can pay to get access to this data, so it’ll be free for the brokers and people who upload the stuff, and then for people who aren’t participating in the sharing system, if you want access to that, then you pay. Is that the business model?

Michael Mandel: Actually, it’s very clearly delineated. We have CompStak Exchange, where we have brokers, appraisers and research people in real estate brokerage firms who share data on CompStak, earning credits for sharing that data, and can use the credit to get other data back out. And that is a free platform, it’s been free for seven years, and will continue to be free. As long as you give data, you can get data. And actually, those members cannot pay for data; they have to give to that.

Joe Fairless: Okay.

Michael Mandel: And then we have CompStak Enterprise, where we sell subscription access to our data via our web platform; we also have API deals and integrations. On that site we have some of the world’s largest institutional real estate investors and lenders using that data to make real estate investment decisions and to lend on commercial real estate. Those are — I’ve gotta think about which logos/names I’m allowed to mention… There’s companies like Wells Fargo and most of the other [unintelligible [00:07:50].28] People like Blackstone, and Tishman Speyer, and Brookfield, and SL Green, it is major insurance companies, it is pension funds, sovereign wealth funds… A lot of major institutions that use this data to make their investment decisions and to lend on commercial real estate. And lots of other use cases, too; we have hedge funds that trade on the data, we have insurance companies that do property and casualty insurance underwriting using the data… So there’s lots of interesting use cases of this.

Joe Fairless: Did I hear you correct, you have 50,000 comps a month coming in?

Michael Mandel: Yeah, over 50,000 comps come into the system a month.

Joe Fairless: Okay.

Michael Mandel: And that’s growing constantly.

Joe Fairless: And did I also hear you right,  you’ve been doing for seven years?

Michael Mandel: Yeah.

Joe Fairless: What point were you out of the woods and you were no longer having to manually call people and it took off more organically than having to hand-crank, at least?

Michael Mandel: Sure. Well, we still do hand-crank. Some markets we don’t have to do any hand-cranking. In New York City, which was our first market, we can do nothing and the thing will just probably go on forever, as long as we [unintelligible [00:09:03].18] the data. Every lease comp in New York City, we get an average of ten times, and we get a lot of those deals the day they take place, because there’s a competition for people to be the first one submitting and earn the most credits for submitting comps.

But we’ve consistently been launching new markets, so our database now spans from New York City to Honolulu, Hawaii, Anchorage, Alaska, Sioux Falls, South Dakota… We’re in every state, we’re in every town, so in some of those newer, smaller markets we still have to hand-crank, we still have to call up the local people in that market and get them engaged and get them sharing data. But there is a strong network effect, so over time you have to do less and less of that in a market. That’s why we have right now eight people at CompStak managing 20,000 members. If you look at that in contrast to a  company like CoStar, which has 1,800 researchers, effectively cold-callers, calling for information… So our corollary, our exchange team is the one to do that business development work and to build relationships, but they don’t have to call everybody, they just have to call some people and they just have to make sure those relationships are strong, and people wanna contribute… But our members are the ones that are contributing the data and doing that work.

Joe Fairless: Why would a successful broker who can afford to pay for a service like CoStar participate in your platform when they have to do some work, versus  – their time is valuable, so instead they choose to just pay for something like CoStar and not have to do any work for the data?

Michael Mandel: Sure, most of the brokers on CompStak do pay for CoStar and use CoStar, but you can’t get this data on CoStar. Part of my experience in starting CompStak is that I used to use CoStar every day when I was a broker, and I used it for listings, but we could never really rely on CoStar for lease comps, because the reality is that everybody wants to share their listings with CoStar, because you want your listings out there, but when that same researcher from CoStar would call you and ask you about the terms of the deal for that listing you just took off the market, you wouldn’t give that to them, because they’re not offering you anything in return for it. They’re not incentivizing anyone to share that information, so people just don’t share that with them.

So the end result of that – they just don’t have good quality lease comps data… I don’t know that it’s 100%, but it’s probably close to 100% of our members on the Exchange side who trade data also use CoStar, and they use CoStar for listings… And a high percentage of our Enterprise customers use CoStar for listings too, and I think CoStar absolutely is the place we wanna go for listings. They have amazing market coverage, particularly for for-lease listings, but for lease comps that wouldn’t be the case. And now for sales comps – we now capture sales comps data as well, but it’s a similar situation; CoStar is able to get the publicly-available information and the information people are allowed to share. You’re able to capture things like NOI and cap rate from our members, because they’re incentivized to share it. That’s really the differentiator. CoStar is very good for the things they are very good at, and we’re very good at the things we’re good at.

Joe Fairless: Mm-hm. That’s huge, having accurate NOI and cap rate… Is there a checks and balances for the accuracy of the NOI cap rate?

Michael Mandel: Sure. I think it’s a broader question, which is just sort of like “How do we maintain data quality across the board?” And that’s obviously tricky for any data company, certainly for a crowdsourced data company… But the way that we go about it – we actually used to have analysts review every comp that came into the  system, and they’d call up the brokers into the deal, or they would call up the person who submitted the comp and try to get more information… Obviously, that wasn’t scalable, so what we’ve done is we’ve built pretty sophisticated machine learning on top of the process, where — in fact, I wouldn’t really call them machine learning algorithms, but basically data science work that is used to look at the decisions our analysts were making in a manual fashion, and to automate those decisions. So we were able to pretty efficiently find outliers in the data and clean up the data and normalize a lot of these versions into master records, and then instead of having analysts look through every comp, we actually flagged certain comps for greater review by our analysts.

We also have a community regulation piece, so our members earn credits for updating incorrect data and lose credit if their data has been updated by someone else… And we have the fact that we get every comp multiple times, and every time we get it there’s another opportunity to validate the data.

But I would say the best testament to the quality of our data really is our customer base, because when you go and pitch a Tishman Speyer, you walk into their conference room and they expect you to show them all of their own deals; you’ve gotta have their deals, and those deals have to be accurate. If they’re not, they won’t sign a contract. So I think that that’s really a testament to the quality.

Joe Fairless: Very true. That’s a great point. In some databases I’ve seen some pretty whacky stuff on my company portfolio’s deals… I’m like “That’s not right, but I don’t care. I’m not gonna correct it”, because in some cases it’s beneficial that they have it so grossly inaccurate.

Michael Mandel: Well, you’re probably not eager to sign a contract with that company.

Joe Fairless: Yeah, exactly. Exactly. It’s quite the company that you have… I find this fascinating from an entrepreneurial standpoint, and also being in the industry. Your typical clients – you mentioned a couple times lease listings and lease comps…Are you referring to a certain asset class when you’re mentioning this?

Michael Mandel: For our lease comps we cover office, retail and industrial. And for sales comps we cover basically everything but single-family homes.

Joe Fairless: Okay.

Michael Mandel: And then we cover related property information for all of them.

Joe Fairless: Okay. When you take a look at some of the data that’s been accessible and been updated, do you all put together any reports on surprising things, or industry trends, or market trends based on the data, or do you always wanna keep that data behind closed doors for the members?

Michael Mandel: We certainly do, on occasion. We don’t do it very often, because when you’re a startup and you’re resource-constrained, you have to figure out how best to deploy your resources… And frankly, it takes a while to write reports and get them out there. We are now significantly building out our team, and we’re actually building out a new team here at CompStak that we call CompStak Intelligence. We’re gonna be putting out a lot of content – market reports, but also daily little tidbits on interesting things we’re finding in our data, and we’re gonna be publishing that over e-mail, and writing blog posts… So you’ve hit on something that is actually a real priority for us this year. I actually just interviewed candidates to join my team today, and I’m very excited about it, because we have such a unique dataset, and we think that we can create some really special thought leadership leveraging that data.

Joe Fairless: Based on your experience in the industry and as an entrepreneur, what’s your best advice ever for real estate investors?

Michael Mandel: Well, I guess I’ll be biased here and say my advice is that you should leverage data to do your job exceptionally, and then you should leverage creativity to really make a difference. I think that data has become table stakes in this industry. You’re not gonna win a deal, you’re not gonna make the best investment decision because you’ve got better than somebody else, or at least you shouldn’t; you should make sure you’ve got every piece of data you can available to you, so that that doesn’t become a variable for you. And then, the way you really differentiate yourself is through your creativity, going above and beyond that data to make your decisions and to focus on how you make your investments and what you do. But if you’re not doing the fundamentals of leveraging every piece of data that’s available, you’re really missing the boat.

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

Michael Mandel: Oh, boy… I hope so.

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

Break: [00:17:10].18] to [00:17:58].02]

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

Michael Mandel: Well, I’ve just read Shoe Dog, by Phil Knight. I don’t know if that’s the best ever, but it was a really good read. My latest book that I’ve just picked up is The Sales Acceleration Formula, by Mark Roberge. He was the head of sales for HubSpot, and I’m excited to read that one. I just saw him speak and he was great.

Joe Fairless: What’s the best ever transaction you’ve done, either through CompStak or as a broker or as an investor?

Michael Mandel: Good question. Well, the funny thing is the best transaction that came to mind is one that blew up on me. When I was a broker, that would have been the best ever… No, but I’m excited that —

Joe Fairless: What was it? Tell us the story of that.

Michael Mandel: Oh, man… I had a massive data center deal I was working on. It was an off-market deal, and it was a two-million-dollar commission on a data center deal in Manhattan… [laughs] And we lost the deal because another company got wind of the deal that we were doing and came in from under us; they had better credit than my tenants, and basically the landlord did the same exact deal with another company, that had better credit than my tenants.

Joe Fairless: Oh, man… You’re smiling about it now, but I bet you weren’t then.

Michael Mandel: Oh, I was not… It would have been a game-changing deal. But frankly, had that deal taken place, I don’t know that I would have started CompStak. I would have been sitting on a lot of money, and I maybe would have said “You know what, I’m gonna stick with this brokerage thing.” So maybe there is a silver lining in it.

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

Michael Mandel: I have two kids, so I don’t do a lot of kicking back. I’ve got a four-and-a-half-year-old and a one-and-a-half-year-old. But lately I just got Peloton Bike in my house, a spin bike, and it’s awesome.

Joe Fairless: I said giving back, not kicking back…

Michael Mandel: Oh, I thought you said kicking back… That’s funny. [laughs] As far as giving back, I spend a lot of time talking to other entrepreneurs, I try to help people getting their businesses off the ground, and particularly people in real estate tech. I try to be as helpful as I can to help them figure out how they can build their businesses, because I’m happy to support the ecosystem.

Joe Fairless: Real quick, do you like that bike?

Michael Mandel: I love the bike. It’s great. The bike is awesome.

Joe Fairless: Best ever way the listeners can learn more about your business?

Michael Mandel: Just go to our website, compstak.com, and check it out. They can also e-mail me; I’m michael@compstak.com. I’m happy to chat.

Joe Fairless: Michael, I enjoyed our conversation. I loved hearing about your entrepreneurial journey, how you were in the middle of a process that was unnecessary and you identified it as being unnecessary. And not only did you identify it, but then you did something about it and have been doing something about it for the last seven years with CompStak… So that is relevant for anyone, regardless of what we’re working on.

Then also having your one-two punch of you’ve got to have the data, but then how do you leverage it creatively? That’s so applicable to business and everything else. You’ve got to have the core assets or tools, but then what do you do with them? How do you leverage those tools? Well, we all have access to those tools, or we could have access to them if  we’re resourceful enough, but then what do we do with them? I love thinking about business that way.

Thank you so much for being on the show; I enjoyed learning about your company. I hope you have a best ever day and we’ll talk to you soon.

Michael Mandel: Sure thing. Thank you, I really appreciate it. It was a lot of fun.

JF1741: Investing In Distressed Debt #SkillSetSunday with Joshua Jaouli

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Joshua is joining Theo on the show today to talk with us about distressed debt. We’ll hear about his overall strategy, including how to find the distressed debt to invest in, how to evaluate them, and ultimately how to invest in the debt. A great episode for an intro into the distressed debt investing field, also a very informative episode with nuggets for even an experienced investor. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Distressed debt is a space where not only do you need to have a lot of capital lined up ready to go, it’s something that takes a more sophisticated buyer” – Joshua Jaouli

 

Joshua Jaouli Real Estate Background:

 


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

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


 

JF1707: Apartment Syndication Case Study #3 | Lessons Learned From Another Deal Sold

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Frank and Joe are having another case study conversation of a recent deal which they took full cycle. The property had its own unique set of challenges they had to overcome to make this deal work. From unexpected repairs to the outside and foundations, to replacing an entire new fence around the property. They also did a lot of things right with the deal, and we’ll hear about that too. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Now we do our own property condition assessment” – Frank Roessler

 

Frank Roessler Real Estate Background:

 


How great would it be to buy a piece of institutional-quality, income-producing commercial buildings? Now you can… with BuildingBits. It’s NOT A REIT or a fund. BuildingBITS is a new platform for non-accredited investors, where virtually anyone, regardless of income, can select a building leased to a major corporation and earn money from it!

Start investing with as little as $500 at https://www.buybits.us/


TRANSCRIPTION

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

With us today we’ve got Frank Roessler. How are you doing, Frank?

Frank Roessler: Very good. How are you, Joe?

Joe Fairless: I am doing well, and welcome back to the show. Best Ever listeners, you recognize Frank because you’re a loyal listener. He is the co-founder of Ashcroft Capital. We formed Ashcroft Capital and we have exited some deals; the purpose of this conversation is to talk about the lessons learned from a deal that we exited, so it’s a case study conversation. It’s not to beat our chests about “Hey, look at us, this was a good deal”, it’s to discuss the stuff that we learned, and ultimately to help you out whenever you’re doing your own deals, so that you can learn from the things that we came across, the challenges that we came across when we were executing the business plan of a multimillion-dollar apartment community.

With that being said, we’ll go ahead and dive right into it. Today we’re gonna be talking about a property called Carrolton Oaks. Best Ever listeners, by the way – if you’re curious about Frank’s background, then just go to AshcroftCapital.com or listen to a previous case study conversation. So we’ll get right into it…

This deal that we sold fairly recently, Carrolton Oaks – how should we start our conversation, Frank? What’s the best way to kick this off?

Frank Roessler: I was gonna say maybe let’s just start off by talking about what drew us to this investment and why we liked it. The reason I would say that is because Carrolton Oaks really represents everything we look for in a value-add property. It’s really right down in the middle of the fairway for us. Ashcroft Capital – we’re value-add guys, we like to by properties with full meat left on the bone; something that a previous owner might have left on the table for us, where we can go drive net operating income to whatever business plan we create, and then hopefully return our investors a nice, strong multiple. That is indeed what happened on this property, and I think it’s because, like I said, it’s everything we look for.

Carrolton Oaks came across our desk — it was actually the third property that we did here at Ashcroft Capital, and it came across our desk because it was a marketed deal. This property was a nice-sized property, 320 units. With a property of that unit count you’re gonna get some good scale of economy; hopefully a lower price per door on expenses like payroll, turn costs, marketing, things like that. So good size.

Secondly, it was being sold by a non-institutional group. It was bought by the patriarch of a wealthy family, who passed away, and his daughter is the one who sold this to us. Joe, you might remember she did a buyer sales call from Cancun, while she was sipping a drink.

Joe Fairless: Yeah.

Frank Roessler: That’s unusual, but what we like about that is usually when you’re buying from a group that is not institutional, there might be some efficiencies or inefficiencies at the property which we can help tighten up, and hopefully reduce expenses, which will drive net operating income.

Another reason why we liked this deal was that they had not renovated any units. They had bought this deal several years back; as I said, the daughter inherited this property, and now she was just looking to exit. She was actually a full-time eye doctor, not a full-time property owner. So because they had not renovated any units, and other comps had in that area, we saw an opportunity to push rents, and improve the community, improve the quality of life at this asset, and get that multiple that we always seek out.

The market itself – we always do a lot of homework on the submarkets that we look at, and the market itself had a lot of projected rental growth underneath it. It’s Carrolton, Texas, which is just North of the city of Dallas. It’s kind of a submarket of Dallas-Fort Worth, in a good – not great, but a good school district; Carrolton-Farmers Branch Independent School District was there, so that was another box that was checked.

Another thing that was great about this property is it was infill. When we say infill, that means there’s not a lot of land to be developed around the asset, but it was infill based on single-family homes. So yes, there were a couple comps, but it’s not like apartment community row, where we’re one of a dozen apartment communities. It was us, a property next door, and then another comp a mile away. Everything else was single-family homes.

What we like about that – and this was similar in Woodglen Village actually, the first property we bought… It was that it creates a desirable place for families to live. Because if you can’t afford to go buy a $350,000 to $500,000 home, you can rent in a good school district, be around  a great residential suburb, have your children go to a good school. So it was very desirable for families, and we like to own communities where families want to live. They’re more long-term, stable residents, they tend to be consistent, pay their rent on time, and they also tend to really appreciate what we do for the properties. They are looking for their unit to be a little nicer; they like nicer appliances, and cabinetry. And because they’re families, they typically have higher household income to afford to pay a small premium for that.

Like I said at the beginning of this call, it was right down the middle of the fairway for everything we look for… And that might sound easy, but when you get into it, as you know, Joe, every property usually comes with some good and some bad. There’s usually never the perfect asset for value-add. I’m not saying this was perfect, but it certainly checked a lot of the boxes that we look for. So in terms of just a place to start, it was our value-add deal.

Joe Fairless: Yeah, yeah. Just curious, on the school district front – let’s say the school district (and it wasn’t great), instead of it being good, it was below average. Does this deal still pencil, if it’s a below average school district?

Frank Roessler: Well, that would be one chink in the armor of this deal. There’s always a price for every property, so to say it wouldn’t pencil – I don’t think. But what realistically would happen is our price might lower because we might say the submarket is not as desirable, families might not wanna live here, so we might not be able to get the premium we need to do these renovations. So then our business plan might change, our purchase price might change, and unless the price that the seller wanted changed, we just probably wouldn’t be able to get the deal.

As we always say, we underwrite somewhere between 75 and 100 properties we buy one, and usually, due to a few or many things that just don’t check our boxes, we’ll either not offer, we’ll offer the price that makes sense, and we just won’t get the property, because there are some other aggressive buyers that will drive the price higher.

So it would have penciled at a price, but probably it just wouldn’t have gone our way.

Joe Fairless: You mentioned there were some good things and some bad things. What were some challenging things that you think we should talk about?

Frank Roessler: I would say — as I mentioned, this was the third property we did, and I always like to talk about these… And this was a very successful investment, but I think part of the purpose of these calls, as you said, is to hopefully give a lesson or two that we had on these properties, and for your listeners to learn from this example, versus learning the hard way and doing it on their own.

One of the challenges we faced was definitely deferred maintenance. I will say though the third-party report came in very clean – it didn’t recommend new roofs, new paint, foundational issues… They really didn’t. Though that happened, we certainly experienced a lot of issues at this property. Now, none of them were extremely high, but we had foundational issues on three properties. When you get in there, there’s settling issues. Doors aren’t closing properly.

It turns our Carrolton — we did a tremendous amount of homework, but you can always do more… But it turns out Carrolton – the soil in that area is very soft, and continuing to settle. And this community, along with several houses in the area, has some settling and foundational issues, and we had to spend money on about five or six buildings, do tuckpointing and sure up the foundations, that we didn’t anticipate. That takes money away from other projects that you penciled for, of renovating the units, and repainting the property, things like that. So that was one issue we had.

Another was just drainage in general. We didn’t get to tour the property when there was heavy downfall, so it’s hard to know how drainage is going to work on the property without really seeing that. A couple months after we bought it there was just pools of water… And there’s a lot of acreage on this property too, and there was lots of areas where irrigation systems were either shut off, or not working properly, or the drainage systems of the building weren’t routing water properly. This led to other foundational issues… So we spent a lot of money turning back on those irrigation systems, rerouting drainage and getting the water away from the buildings when it would rain. That’s another project that I wish our engineers — or maybe we would have instructed our engineers to possibly pay more attention to.

And then others are just things that are really hard to identify. The entire perimeter fence was one thing that we should have paid more attention to; it started falling apart after we bought the deal, and we had to replace that whole fence. And when you have several hundred feet of a perimeter, that can get very costly, too.

You know, I don’t wanna beat this up too much. We did a lot more right than wrong on this deal. But if I could just impress upon the listeners one thing – don’t just settle for the third-party property condition assessment; a lot of times they’re not good enough, and they’re not doing the due diligence that you will need… So get your own engineers out to this property and spend a little bit more upfront. This was a 320-unit property; probably for another 100k in closing costs we could have had a few more professional engineers out there, someone looking at the foundations and the irrigation, and someone looking at the mechanics of the property. I’m not saying that didn’t take place from our third-party, but we didn’t do it internally, and we probably should have on this deal… And we started doing that subsequently.

Now, I think starting on maybe the deal right after this, we have the third-party which our lender requires us to do, but then we spend our own dollars and we get our own property condition assessment reports done. So we don’t just rely on those. And often our own is much higher and much more conservative, and it gives you not only projects that you need to get done if you were to buy this property day one, but also projects that are just kind of warning projects. Like “These roofs – I’m not saying you have to replace them, but as your engineer, you’re paying me to give you a number, and I think in five years you might have to replace all these roofs. Here’s a potential bid for it.”

We paid a lot of attention to those internal property condition assessment reports. We now make  sure either we’re covering the things that we think we have to do on top of it, or we’re preparing a sufficient contingency fund in order to cover any rainy day projects.

Joe Fairless: When the dust settled on this deal, what were the final investor returns? Do you have that in handy?

Frank Roessler: Yeah, I do. We did very well on this deal. We bought right, we negotiated right, and we closed at a 6.1% cap. We increased the value from the purchase price to sale price by 61%, in just over 18%, so that created an IRR of 42.2% on a project level. Pardon me, the valuation increase was actually the Alara. Carrolton Oaks – we increased the value by 32%, which created an IRR of the 42.2%. That created an equity multiple of 1.7 for our investors, and over 18 months it definitely made our investors very happy.

So this was a very successful deal. You don’t often see IRRs in 30’s, or high 20’s even, and we hit a 42 on this property. We had almost all of our investors 1031 their proceeds from this deal to another deal, so this was a very great deal for us.

Joe Fairless: So we talked about the school district – that would have changed things a little bit, but  it’s tough to identify really how much. What would be one thing about this property that if we took that one thing away, that type of return would not have been able to be achieved?

Frank Roessler: I would just say the comps, the submarket. So if this was a property where we theorized if we renovate, there will be a demand for a nicer unit, and if there’s the demand, then you can charge a higher premium – if you would have taken that away (and we certainly see submarkets like this), then you should think twice about it. You might not get that return on your investment for renovating these units. You wanna do a sufficient amount of market research to make sure you’re looking before you go leap and spend all those dollars… Because you would not wanna be in a project after closing, and then discovering “Oh my goodness, these residents don’t really care about nicer units, nicer cabinets, floors or light fixtures. They’re just looking for a place to live, and don’t care about the quality of it.” And there are plenty of places like that, that if you’re not careful, you might step into it.

Joe Fairless: I enjoyed our conversation, as always, Frank. Thanks for talking through the case study. Best Ever listeners, if you want to learn more about our company, just go to InvestWithAshcroft.com, and you can go learn more about what we’ve got going on… But you probably already know about us anyway, since you listen to this show.

Some things that Frank mentioned, that we learned through this process with Carrolton Oaks – the deferred maintenance, drainage, and perimeter fence… Basically, having a third-party do the due diligence like the lender requires – you’ve got to have that anyway, but in addition to that, have your own property condition assessment completed; that way, you’ve got two objective perspectives on the assessment of what needs to be done.

And ultimately, making sure that your fundamentals are in place for the opportunity. As Frank mentioned, if we weren’t able to achieve the rent premiums, then that’s a problem. So we were in the right market, and it was just a matter of tweaking some of the business plan… Which there will always be some tweaking of the business plan on an ongoing basis when you have 300 units, so you’ve probably got around 1,000 people living in a small footprint. Anytime you’re dealing with that many people, there’s always business plans and circumstances that are evolving, and it’s a fluid situation… So it’s just being able to make sure you’ve got your fundamentals right.

Frank, thanks again for being on the show. I hope you have a best ever day, good catching up with you, and we’ll talk to you again soon.

Frank Roessler: Likewise. Thank you, Joe.

JF1701: We Sold Another Deal! Lessons Learned From Taking Another Deal Full Cycle with Frank and Joe

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Frank has been on before, both to share his Best Ever Advice, and also to discuss another deal that Ashcroft (Joe and Frank’s apartment syndication company) took full cycle. We’ll hear why they bought the property at a time most investors were not optimistic about the market the property was in. They tell us about the business plan, and how it actually unfolded. This was only Ashcroft’s second property purchase, so a lot of learning opportunities along the way! Take their lessons learned with this deal, and apply them to your business, without having to suffer through the trials yourself. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“We could have done a better job with our lease audit, unit walks, and really getting to know the extent of the demographic around us” – Frank

 

Frank Roessler Real Estate Background:

 


How great would it be to buy a piece of institutional-quality, income-producing commercial buildings? Now you can… with BuildingBits. It’s NOT A REIT or a fund. BuildingBITS is a new platform for non-accredited investors, where virtually anyone, regardless of income, can select a building leased to a major corporation and earn money from it!

Start investing with as little as $500 at https://www.buybits.us/


TRANSCRIPTION

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

With us today, Frank Roessler. How are you doing, Frank?

Frank Roessler: Very good. How are you, Joe?

Joe Fairless: I am doing well, and welcome back to the show. Best Ever listeners, we’ve got a special segment for you – it is all about case studies, and most importantly, what we learned from those case studies. Today, Frank is gonna be leading the conversation about a deal that we took full cycle. Anytime you take a deal full cycle, you’re gonna learn some things along the way.

It was a successful deal for us and our investors, but we’re not really gonna be focused on that, as much as the lessons we learned, so that we can help you learn stuff as you go about doing your own deals. And by the way, if you wanna learn more about Frank – we won’t get into his background, because you’ve heard that on previous episodes. If you wanna learn more about Frank, just go to our website, ashcroftcapital.com, or investwithashcroft.com and you’ll learn more about Frank.

Frank, let’s go ahead and get right into it… What’s the deal and why did we like the deal?

Frank Roessler: Okay, so this property was called The Alara. It was located in Houston, and it was a smaller complex of 155 units. Why did we like the deal? We liked the deal, plain and simple, for two reasons. One – the basis. We were getting this deal at a tremendous cap rate, compared to where most multifamily was trading; most value-add 1980’s product in Houston at that time was trading for about a 6,5%, and we acquired the Alara for us at 7.7% cap rate. That’s a very, very strong basis to go into a property at. Right around 36k/door is what that translated to. Very low basis.

We liked that oil had crashed. We bought this deal in 2016, oil was down around $40 or so, and it used to be well above $110 a barrel… So as all of our fathers or uncles have told us, “Buy low, sell high”, and that is indeed what we did with the Alara.

I think what we did that was wise is we bought a deal that had a lot of value-add, had a great cap rate, and we also timed the cycle very well. We bought when there was not a lot of confidence in Houston; when there’s not a lot of confidence, there’s not a lot of buyers, so you can do well by holding on until confidence returns, buyers are in the market, and therefore cap rates go back down. So that was why we liked the deal – the economy and the timing of the cycle.

Joe Fairless: On the flipside of that, with most deals now I think it could be successfully argued that you’re not gonna get a great cap rate, and the timing of the market – not quite where you’ve just described… I don’t wanna get too off-track here, but how can you still be successful with really buying during the opposite of great cap rate and timing the market right?

Frank Roessler: It’s a great question, Joe. I wouldn’t advise anyone to make a business out of trying to time the markets right. No one has a crystal ball. Hedge funds usually don’t beat the S&P. There’s a lot of Ph.D. students that are focused on this that cannot do that… So I would not recommend that.

So short of that, well, just admit, “Hey, we don’t know what the future is gonna bring, so let’s make sure that we’re buying it at a good price right now, that we have a good business plan right now. If things don’t change too dramatically, let’s focus on the short-term return. What is our cash-on-cash most likely gonna be in years one and two and three?” and not “Where are we gonna sell this deal in five years from now?” So I would say focus on the fundamentals of investment; focus on the fundamentals of multifamily, and the actual demographics of this property, in that submarket, and what you can do based on your business plan. And if those returns are suitable for what you’re seeking, then move forward, and then try to buy that property at the lowest price possible. But for timing the market, focus on the fundamentals.

Joe Fairless: Yeah, I completely agree. Best Ever listeners, you can go to multifamilycorrection.com and you can read — I don’t wanna call it just  a blog post, because we spent a whole lot more time and research on it than just a blog post… It basically is a blog post, but it’s a very in-depth analysis of why I’m confident multifamily is gonna do well after the correction, or even during the correction… So multifamilycorrection.com – you can read that analysis.

So those were the reasons why we liked the deal… And then how did the business plan unfold?

Frank Roessler: The business plan unfolded not in the way that we thought it would, and I love the story of this deal  because there are a lot of learning lessons for listeners, and we had our learning lessons on this deal. This was the second property we had acquired. This property was actually bought at a price below six million dollars, so we bought it at a great basis. However, there were two things flying in the face of getting a good loan on this property. One is the submarket; as I’ve just mentioned, oil had crashed, and this was Houston… And when that happens – yeah, that’s great that there’s not a lot of buyers and you can get a property at a good price, but so too lenders are not going to be around, or as plentiful as they would have been in an area where there’s more confidence. So it’s gonna be more challenging for you to get a good loan on this property.

If you’re underwriting for a certain debt in a stable market and then you go look at a property in a very unstable economy, be prepared to have higher interest rates, lower loan-to-values. I don’t wanna say predatory lending, but you’re not gonna be with the who’s who of the debt market… So be very cautious.

Secondly, in any market, under ten million bucks, getting a loan, and really under 5-6 million on purchase price – there’s also not a lot of reputable lenders in that world either… So like I said, in a good market, if you need a loan for 4 million bucks or so, you’re not gonna attract the most reputable, stable lenders, who are gonna have the best spreads. You’re gonna attract lenders who are trying to grow their company, and they don’t want to make mistakes; they’re dealing with maybe smaller buyers, with not as good of a track record, and if they’re dealing with those buyers, in turn they’re gonna want to mitigate risk by charging higher interest rates to those buyers.

So we had two things going against us for debt. One was the economy itself was very unstable because of oil, and two, this was just a small property, so we weren’t gonna get the best lenders. That was a real challenge for us, and one that we didn’t anticipate things being such a challenge. I can talk for an hour about it, but we had lenders that gave us an offer, we accepted, we put a deposit down, and then the next week those lenders pulled out of the deal. It was very chaotic and very stressful.

At the end of the day, we did partner with a good group, but we got lucky to partner with that good group, because there were not a lot of other options out there. So we learned that lesson on debt.

I would say also — this was our second deal, and we knew the submarket was very challenging. We knew that there were properties around us that had renovated, and performed the way that we need this property to perform, but if I could speculate, I think we could have done a better job with our lease audit, our unit walks, and really getting to know the extent of the demographic around us. I think we walked into something saying, “Okay, we have a lot of non-paying residents”, but we weren’t aware of the extent of honestly the criminal element at this property, and then dealing with paying more for security to come to this property. We weren’t aware that the police did not like coming to this property, and when we had a problem they would not show up… And it gets worse. So I think we could have done better homework, making sure that we knew what we were getting into with the demographics.

And what I liked about it – we learned this lesson on a very small deal. We cannot be so naive and foolish and think “Okay, well, it’s heavylifting and we can do it”, but not to know really what that involves. And what it involved was us flying down to Houston very frequently and spending weeks on end with the property managers, making sure that they have the support that they need, that we’re running this property properly, that we’re getting good residents in there and not just recycling bad with bad… So it involved a lot more effort and time than what we thought we were going to give to this property. And it made us be more cautious on future deals.

Now we do all this research. We pull crime reports on every property, and we see all of the major crimes that have happened, any felonies that have happened; how often are the police being called to this property. We look at that and we pay attention to that… And we could have done a better job with that in the begging with this property.

What went on to make this project a success was 1) as I said, we did a fantastic job on the buy. In real estate sometimes you make all your money on the purchase; we did a good job there. But 2) the property would not have performed if we wouldn’t have broken our back to work with our property management company as diligent asset managers. Our investors trust us, and that matters a lot. My sister was invested in this, among many other investors, and we do what we say we’re gonna do. If that requires more time and effort for us, then so be it.

We were able to reposition this property. We took it all the way down to about 77% occupancy, and by the time we sold, about a year before then, we were back up to 93% occupancy. Our bad debt was sub 2% on this property, and collections were very strong, the expenses were stabilized and we wound up selling it to a group that was looking for a stable property. So in time, we got there… It just took more work than what we thought.

Joe Fairless: And you didn’t even mention the two hurricanes and one fire.

Frank Roessler: [laughs] That is correct, I didn’t even mention that.

Joe Fairless: Which probably aren’t necessarily lessons learned, but it just adds to it. We had two hurricanes come through; one was Hurricane Harvey, and I forget what the one before that was… And we had one fired that burned down one of our buildings. Fortunately, no one was injured on any of that, that I’m aware of… Right? We had no injuries…

Frank Roessler: No, no one was injured.

Joe Fairless: Yeah, no injuries there. But we had the property for — what was it, 2,5 years?

Frank Roessler: Yes.

Joe Fairless: Yeah, 2,5 years. So in 2,5 years we had two hurricanes, one fire, plus the lessons learned that Frank mentioned… And something that’s interesting to me is our largest investor invested in this deal, and it was the first time he had invested with us. He went into this deal, and then he saw how we approached things and how much attention we were putting towards it, and then ultimately seeing the results that we were getting, then he invested in another, and then another, and then he reached out to us and said, “Hey, I’d like to be the only limited partner with you all.” We have since partnered with him on three deals where he is the only LP.

As of yesterday, he just offered to be a reference to another group that is looking to invest with us and be the only LP on the deal. He’s bringing significant equity to our deals, and it all starts with 155 units, in a very challenging area, buying it during a very challenging time, and rolling up your sleeve and getting after it.

Thanks for sharing those lessons… Anything on the loan front, that as a listener, if they’re hearing “Okay, if I have a property under ten million, it’s gonna be tough to get some reputable lenders.” Any tip you’d have for them when they do find themselves buying a property under ten million, in order to get a reputable lender?

Frank Roessler: I would say underwrite accordingly. If you’re at under ten million, make sure you’re not buying at a 4,8% cap, and assuming that you’re gonna get some loan that’s at 3,8% interest. Assume that you are gonna get a loan that’s 300 basis points floating on top of the one-month Libor to come in at 70% of the purchase price, and then adjust your purchase price accordingly in order to get the returns that you’re seeking… So be cautious is what I’m saying.

I also don’t want our listeners to think that there are no lenders there. There certainly are, and it’s how many of us get our start – buying smaller deals and growing into larger deals. So it’s not to be avoided, it’s just meant to be used with caution.

Joe Fairless: Anything else we haven’t discussed that you think we should about Alara?

Frank Roessler: Just that we were able to sell this property at a 22 IRR. We increased the value from purchase price to sale price by 61%. We returned our investors over a 1.6 equity multiple in under three years, and it was a very satisfying project at the end of the day, because it showed us what type of owners we were; when the tough got going, we got going.

Joe Fairless: Oh, I love how you ended that. [laughter] And especially, it also showed us what type of deals we like to do more than others. This is a type of deal that we don’t like to do as much as other deals. We prefer larger deals, and we prefer submarkets that are stronger… And consequently, our investments after that have been in stronger submarkets, and this is the smallest deal we’ve ever done. Now it’s significantly smaller than all the deals we do.

Frank, thanks a lot for being on the show. Best Ever listeners, if you wanna learn more about us, then go to investwithashcroft.com, or ashcroftcapital.com, either one. Looking forward to more case study conversations.

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

Frank Roessler: Likewise. Thank you.

JF1700: NFL Tight End Double Dips In Real Estate Investing with Hakeem Valles

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Hakeem is a tight end for the New York Giants (as of the recording) and a real estate investor. He shares how he became interested in real estate investing, and we also hear some deal specifics. Hakeem explains how he put together his first sample deal package to show to potential investors, and how he presented it to them to secure verbal commitments. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You can work your way into real estate deals by adding value to others” – Hakeem Valles

 

Hakeem Valles Real Estate Background:

 


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TRANSCRIPTION

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

Hakeem Valles: I’m great, Joe. Thanks for having me.

Joe Fairless: Yeah, my pleasure. Nice to have you on the show. A little bit about Hakeem – he is a tight end in the NFL. He has played for three teams – the Cardinals, the Lions and the Giants most recently, and most relevant to us, he has been investing in real estate for seven years. He started by flipping ten houses in college. I imagine you were playing football and also flipping homes in college; you were  a very busy man in college. Based in New York City… And you can say hi to him – we have his link to his LinkedIn profile in the show notes.

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

Hakeem Valles: Absolutely. Thanks, Joe, for the beautiful introduction. Like you were saying, my name is Hakeem. I originally went to Monmouth University; it’s a small school in New Jersey, and it’s one of the few schools in the country that has a real estate program for an undergrad… My undergrad is Business, with a concentration in real estate.

While I was in college, I found a mentor who was essentially — the girl I was dating, her dad, at the time, had just started flipping houses… And he knew I was a real estate major and he kind of took me under his wing. And I just had to decide different places and facets in his business where I wanted to add value. So I was the guy swinging the sledgehammer, I was the guy driving for dollars, and I didn’t even realize what I was doing at the time. I was knocking on doors of pre-foreclosures and putting in offers. I was handwriting our direct mail campaigns. It was a lot of experience, and the wildest part about it is I didn’t even know about Bigger Pockets at the time; I was just experiencing and doing. It was wild, and it was kind of hard to do, playing division one college football; it’s not the easiest thing to do, but real estate is something that I’m passionate about and I love, so I made time and made it happen.

As I transitioned in my career, like you were saying, I went to the Arizona Cardinals as a rookie, and what I decided to do was to house-hack a fourplex using my FHA loan. I bought a 4-unit in Phoenix, lived in one unit, rented out the other three; it was awesome. It was completely the opposite of what my teammates were doing.

Joe Fairless: Oh, I guarantee you it was the opposite of what they were doing… [laughs]

Hakeem Valles: Yeah, and you’d be surprised of the neighborhood that the fourplex was in. One of my tenants was Section 8, and I didn’t mind it. It was the right move for me at the time… And it really protected me, because I have a brother as well who’s an NFL player, and I watched him while I was in college, when he got traded from the Oakland Raiders to the Buffalo Bills, he was still locked in on a lease and open for like another six months, paying 3k/month for rent. I’m like “Man, that’s $18,000 going in the air”, you know what I mean?

Joe Fairless: Yeah, yeah.

Hakeem Valles: So it essentially protected me… And when I knew I was inevitably gonna get cut from the Arizona Cardinals, when I got cut, I took that unit and now my property manager Airbnb’s it, and he does double of what it would do for renting it out. Then I slowly rinsed and repeated and did the same exact thing when I got to Detroit. Within a month I found a duplex, lived downstairs, and my fiancée, she handled the Airbnb upstairs, and it covered our mortgage.

We’ve just had a newborn, I’m the father of a five-month-old…

Joe Fairless: Congrats.

Hakeem Valles: Thank you, sir. After the baby came, we decided to stop airbnb-ing, and then moving forward, after I was released from the Lions, I have a property manager renting that property out now. Moving forward, I’ve just found mentors along the way. I’m currently working with a few partners out of Detroit and Miami, and we’re starting an opportunity zone fund. We’re headed over to Germany to start raising the capital for that at the end of February. We’re heading out to Germany to start this fund, so I’m really excited about capitalizing on the opportunity zones across the country.

But yeah, that’s essentially where I’m at. I’ve been investing for seven years and real estate is my passion, my lifeblood, what I eat, sleep. I talk to everybody about real estate. I love it.

Joe Fairless: So you talk to everybody about real estate… I imagine you were talking to everybody about real estate while you were playing for the Cardinals and the Lions and you were house-hacking. If that is the case, what were your teammates saying about what you were doing?

Hakeem Valles: Essentially, how I approached the process was — I’m sure you’re familiar with Michael Blank…

Joe Fairless: Sure.

Hakeem Valles: I took his guide on how to raise money… He teaches you how to create a sample deal package and present it to investors when you don’t have a property under contract. So after my rookie year (or second year) I built out the sample deal package – it was a 50-unit property in Phoenix – using his syndicated deal analyzer, which is amazing software; with that, I can analyze a deal in like ten minutes, but be the most professional-looking model that you’ve seen.

I essentially made this very nice sample deal package, I went to Staples, got it laminated… I had like 100 books. I started out actually doing it myself in my office, laminating and hole-punching, and I’m like “What the hell am I doing?” I went to Staples and just paid for it and got it all done… And literally, as the season ended – this was my second year – [unintelligible [00:07:00].09] I had the markets that I liked, I knew different players in those markets, and the former players that I’d played with; I set up an itinerary and I spent a month just traveling around the country, presenting the sample deal and getting commitments.

Over time – it took about a month, a month-and-a-half, and I had about 1,5 million in commitments, I would say… And from their perspective — I’d say they’re very receptive to the concept of real estate; you know, everybody loves real estate, and everybody knows somebody who invests in real estate… It’s just more about educating. Most NFL guys have different finance guys and different sharks throwing deals at them every single day, and not really knowing what’s good and what’s bad. I guess from my perspective, being a player, it helps with that certain level of trust, of being a player, going through the grind and all that…

Now, I didn’t saturate my market; I’m not “Real estate, real estate, real estate”. I was very organic about it. The guys who gravitated towards me, and that I like, trust and respect, and we all like, trust and respect each other, then we’d do dinner and it’d be almost like just an education session. I’m explaining how cap rates work, how markets work, the difference between commercial real estate versus single-family real estate, and then just giving them a walkthrough, play-by-play, of exactly how a value-add apartment syndication would work… Showing them the different structures, showing them my fee structure, how I don’t do an acquisition fee, because I’m not looking to make money upfront, and things like that. It was awesome.

And then essentially, whenever I’d get a deal, I’d hit them up. It works very smooth. I had one massive deal in St. Louis. 56 units. It was for 5.6 million, and I had negotiated with the seller to carry back a portion of the purchase price. Earnest money deposit is in, we’re in due diligence, and from the seller’s accountant I’ve gotten their actual numbers from their LLC’s bank account, their income statements… And from what they advertised from their proforma – it was an off-market deal – the NOI was off by about $200,000.

Joe Fairless: [laughs] That’s a lot on a 56-unit.

Hakeem Valles: Yeah, it was a lot, and I’m like “This can’t be real…” And they tried to renegotiate, drop the price, all this different stuff… And I’m like, “No.” The value of my network is too important to risk it on bending to make this deal work. I could have taken less and still made the deal work, but I didn’t know what the seller was lying about, so I essentially went back to each of those investors and — because after presenting the sample deal, I went back to all of them, sent them out the package with the syndicated deal analyzer, with the facts about the property and the market to all of them, and they were all in… And I had to go back and go “Look, this is why we’re not doing the deal – X, Y and Z.” The awesome part about it is that they respected me twofold, and now they’re just hungry and waiting to get on the next deal.

Joe Fairless: So you have your fourplex in Phoenix and you still have a fourplex in Detroit?

Hakeem Valles: It’s a duplex in Detroit, but yes, I still have it.

Joe Fairless: Duplex, sorry. Yeah, duplex in Detroit… And then once you got those two, then you were really hitting the pavement and preparing for some larger deals, and you rounded up verbal commitments of 1.5 million by educating players, and then you came across a 56-unit, the seller was not telling you the truth about what they were offering, and so you exited out of that deal… And now you’re focused with some business partners on the opportunity fund. Is that accurate, or were there any deals in-between that we missed?

Hakeem Valles: Yes.

Joe Fairless: Okay.

Hakeem Valles: Yeah, so with the business partner we’re doing the opportunity zones, and then with my NFL investors – I’m not gonna bring them in on the fund; with them I’m still working – like we talked about before the call – on a direct mail campaign and on a cold call campaign on a specific market that I’ve done research on across the country… And with those markets, I wanna stick to like the 5 to 50-unit range, with those markets and with those investors… Because these are deals that — I wouldn’t say I’m gonna take down myself, because I plan on partnering with different people and markets if the right opportunity comes about… But when I went out to raise all of that money in those different markets I liked, I also built up teams. I was meeting with property management companies, I was meeting with an attorney in each market, that’s familiar with that state; meeting with probably like 5-6 brokers per market… And then just local investors. Every time I was traveling to each market, I’d put out a message on [unintelligible [00:11:43].06] like “Hey, I’m in Vegas. If any investors wanna go golfing, please let me know.”

I met an awesome investor, and we’ve had an awesome relationship since. That’s where my life is kind of going and gravitating towards. With real estate, it’s one of those industries — with most industries there’s always a winner and a loser when it comes to competition; in real estate, I feel like competition just brings out the best in you, and everybody can win. The more people win, the better.

Joe Fairless: With the opportunity zone fund, I believe you said you were traveling to Germany… Why Germany, to raise money for an opportunity fund that’s gonna be in the U.S.?

Hakeem Valles: My partner – he’s also a real estate attorney from Michigan, and 30%-40% of his business is overseas, because he’s multilingual. He deals with a bunch of family offices in the Detroit market, from an attorney perspective… And it’s funny – one thing why I swear by Bigger Pockets is because I’ve met these people through Bigger Pockets… And they’re not even on Bigger Pockets, they’re a friend of a friend of a friend, just through networking on Bigger Pockets… But we went golfing with these people from Ireland, and they’re connected with a family office in Germany who my partner has done plenty of deals with in the past through these people from Ireland… And they deploy 350 million dollars of capital in the United States every year for single-family houses. And essentially, the pitch is having them allocate 150 million of their capital gains towards opportunity zones… Because it makes sense. The capital gains they’re seeing from that injection of all that capital – they’re getting taxed like crazy, and it’s a win/win.

Joe Fairless: What would be your role in that?

Hakeem Valles: My daily role right now – I’m literally finishing up the finishing touches, because we’re gonna send them a pre-pitch before we get out there. Then when we get out there, we’re gonna each take our own role on the pitch, section by section. Then as the fund rolls out, it’s gonna be more of a market perspective. My one partner has the North-East, my other partner has the South-East, and I have the South-West market.

My other role is — from the perspective of my partners and me, I’m the younger guy and I can move around a lot more… So I’m more of a networker and I make things happen. Because like I said, how I work is I like to add value to people’s lives, and one thing I try to tell a lot of young people is that you can network your way into real estate. The stigma around real estate is that you need to be 40 years old and rich in order to invest in real estate, or you need to be retired to invest in real estate. I’m trying to break this stigma; you can network your way into a real estate deal. You can add value and somehow work your way into a real estate deal; as long as you can just give up the concept of instant gratification and just hone delayed gratification. If you really wanna add value, it will work out in the end.

Joe Fairless: Yeah, I love that. Our society is conditioned to want instant gratification, and that’s why a lot of people don’t stick with one thing over a period of time and do it consistently, because they don’t see the immediate results… But I completely agree with you – you can network your way into real estate deals, and then once you network your way into a couple, then that builds momentum, and then you can not worry about the networking into a couple, because then you’re being presented opportunities and you go from there.

Hakeem Valles: Exactly.

Joe Fairless: The conversations you have with NFL investors or players who are wanting to invest in a deal that you put together – what are some questions that they have when you’re talking to them? Because you said the education piece is the important part of it, but then also they’re getting presented “deals” from all sorts of different angles, and for better or worse… So I’m sure they have their guard up as well, so you’ve gotta break through the guard that they rightfully have up, and then educate them on this… So what are some questions that are typically asked of you?

Hakeem Valles: I’d say one of the biggest questions is always “Who is your team and who else are you with?” That’s why [unintelligible [00:15:55].05] first building teams anyway. I instantly, no matter what, lose credibility — I gain credibility with NFL guys, but I also lose credibility, because I’m not a suit; I’m not some suit coming in, trying to present the deal… I’m on the field with you, and then in the locker room we’re talking about it.

Even in the industry as well, it’s the same exact thing, like “Oh, you’re just a football player.” I’m so passionate about real estate, and I hate that stigma. “You’re just a jock.” And that’s another thing – I’m starting a podcast that’s called “Not Just Jocks.” We’re trying to change the stigma of what jocks are, and highlighting what athletes do outside of their sport. Even for this pitch when we’re going to Germany, I don’t wanna be the dumb jock on the side of the room, so for the last 2,5 months I’ve been learning German; I watched Netflix movies in German, I watched TV shows in German, and [unintelligible [00:16:40].23] Why not, do you know what I’m saying? It’s the opportunity of a lifetime, and I take advantage of it in the lifetime of the opportunity.

But questions that they have – one is always the team, “Who are you dealing with?” Two is honestly the market. That’s why I was strategic with it; as I traveled market to market, in the markets that I liked, I like to talk to investors in that market… Because just to start with – a lot of NFL guys, like you said, [unintelligible [00:17:05].08] there’s so many deals that they see every day; they’re only gonna go with what they’re comfortable with. So I like to really frame it with the perspective of “We’re working on deals across the country, but to start with, I’d rather do a deal in a market that you already know, or are comfortable with.”

Perfect example, I have a couple teammates of mine — obviously, I’m not investing out there like Brandon Turner, but it really comes down to just educating… Like, I spend three hours breaking down deals to people, and it really comes down to… Also, they wanna do background checks on everything. We’ve gotta go through background service as an NFL player, and it’s annoying to some investors, even my partners, but it’s just a process that has to happen. And once it happens, and once everything is fluid, it’s a beautiful process.

Joe Fairless: The free background check service is a very necessary tool. I’m glad that that’s offered to you…

Hakeem Valles: Absolutely.

Joe Fairless: …with all the different opportunities that I imagine are sent your way and everyone’s way who’s in NFL. What’s your best real estate investing advice ever?

Hakeem Valles: Wow, my best investing advice is to just get going. Release those pre-conceived notions of whatever’s holding you back and just get going. The thing that held me back from getting my fourplex – I didn’t know if my dad was gonna be cool with it or not… And I remember telling him about it, and how excited he was when I told him; I was like “Wait, what…?” And then a month and a half later I was in a fourplex, because it was just like — that was what was holding me back. Just get going.

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

Hakeem Valles: Absolutely.

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

Break: [00:18:47].07] to [00:19:50].01]

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

Hakeem Valles: The Go-Giver.

Joe Fairless: Bob Burgh, great book.

Hakeem Valles: Amazing.

Joe Fairless: Best ever deal you’ve done?

Hakeem Valles: My fourplex with the FHA loan. I put down 13k, and it cash-flows about $800/month. I’ve never paid a dollar out of my pocket, because the tenants pay the mortgage.

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

Hakeem Valles: My duplex in Michigan. I was so eager to move in, I breezed through the inspection report and I had a cracked pipe going straight down the middle of the house.

Joe Fairless: How much did that cost you?

Hakeem Valles: Detroit is hard with handymen, so I had to deal with three different handymen and plumbers. It cost about 7k, and no kitchens on either floor for about a month, because they had to go straight through the wall. So that was a mistake.

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

Hakeem Valles: By giving my time. I like to take the time and just — you inspired me, actually. After booking the podcast to be on your show, that link of Appointlet.com. I was like “Whoa, that was really convenient.” And I literally went and signed up for Appointlet, and now it’s amazing; now people can kind of respect my time. I’m sorry, I went on a tangent, and didn’t realize what your question was and why I even brought up Appointlet.

Joe Fairless: That’s alright… Best ever way you like to give back.

Hakeem Valles: Oh yeah, talking to people about real estate. I have a lot of teammates, even just like college people, who just wanna know about real estate, and no one is giving it to them genuine. A lot of the stuff about real estate that you’re looking for out there, a lot of the best advice – sometimes you’re not even gonna find it on Google; you’ve gotta look in books. So I kind of just give my time to people, and I send them my appointment link. “If you guys wanna talk about real estate, Bam! Here’s 30 minutes. Whenever you wanna chat, we chat.” I have about three or four calls lined up for today.

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

Hakeem Valles: My website is currently under construction. I know you said you’re gonna include my LinkedIn link; besides that, just social media. My Twitter and Instagram is the same, @hakvalles80.

Joe Fairless: Anything you wanna say in German before we take off?

Hakeem Valles: Das Boot! [laughter]

Joe Fairless: Rosetta Stone is serving you well.

Hakeem Valles: Yeah, right?! Or Beerfest.

Joe Fairless: [laughs] I really enjoyed our conversation, and learning about how you’ve been focused on real estate since college, and managing to excel in both school and football stuff, as well as the real estate stuff simultaneously; what a person who’s good at prioritizing your time, but then also maintaining focus. Clearly, you had to maintain focus in each of those things, so it’s not just prioritizing, but it’s channeling the focus when you’re prioritizing that. Very impressive. It’s tough to go to college and graduate for some people, and then for other people it’s tough to go to college and play a sport… And then I don’t know too many people who go to college, graduate, play a sport, and also flip ten houses while in college. Very impressive, and clearly it’s flowed from college to today and what you’re doing…

So I really enjoyed hearing about your approach and what you’ve been up to. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Hakeem Valles: Absolutely. Thanks again, Joe. I appreciate you having me.

JF1695: Can’t Find A Job? Start Your Own Business! With Sabine Franco

Listen to the Episode Below (00:19:37)
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Sabine was out of law school and struggling to find a decent job. Rather than settle for something less, she started her own firm. FRANCO LAW FIRM, P.C. is her firm and they focus on real estate law and business law. Needless to say, Joe and Sabine will be covering a lot of real estate investing law in today’s episode, but we also hear her personal story which we can all learn from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Start early, a lot of people spend a lot of time learning, but you learn more by doing” – Sabine Franco

 

Sabine Franco Real Estate Background:

  • CEO and Principal Attorney at FRANCO LAW FIRM, P.C.
  • Established in 2012, her practice strategically focuses on Real Estate Law and Business Law
  • Has 5 years experience working in the mortgage and real estate industries
  • Based in NYC
  • Say hi to her at http://www.franco-lawfirm.com/
  • Best Ever Book: The Four Agreements

 


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TRANSCRIPTION

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

Sabine Franco: Hi, Joe. I’m good, how are you?

Joe Fairless: I am doing well, and nice to have you on the show. A little bit about Sabine – she is the CEO and Principal Attorney at Franco Law Firm. Franco Law Firm was established in 2012; her practice strategically focuses on real estate law and business law. She’s got five years experience working in the mortgage and real estate industries. Based in New York City.

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

Sabine Franco: Yes. Like you said, I had worked in the mortgage industry way back, and prior to 2008 I worked at mortgage companies, and was a loan processor, and then I worked for a mortgage bank, and after that, around the time of the crash in 2008 I went into law school. Then after law school I started my own practice, and naturally, part of that was real estate law. Now I’m currently helping individuals, businesses buy and sell and invest in real estate.

Joe Fairless: Got it. Once you graduated from law school, you immediately started your own practice?

Sabine Franco: I did, I did. I braved it.

Joe Fairless: Yeah, that’s a big deal… Why did you choose that direction, versus joining someone else’s?

Sabine Franco: I always tell people I was a little bit snotty about it, because of working in the mortgage industry in my early twenties; I made good money, and I was expecting that coming out of law school. So when I graduated in 2011, the market was kind of just starting to rebound itself, so it was fairly hard to get a good paying job… So because of that, I decided “You know what, I’m gonna go out on my own”, which in hindsight to me now, it was crazy… [laughs]

Joe Fairless: But it worked!

Sabine Franco: It worked, it worked.

Joe Fairless: But I imagine the first six months probably didn’t work out like you planned… So what were some challenges starting the law firm?

Sabine Franco: Getting business was a challenge in the beginning. I kind of just told everyone I knew that I had started out on my own, and I got referrals here and there, but it came slowly. I did work for other firms in sort of like a temp capacity; I covered cases for them, and stuff like that… Until the business kind of built itself up to where I didn’t need to do that anymore. But it took a while.

Joe Fairless: What type of work were you working on in those early days?

Sabine Franco: In those early days, other than real estate I did also business formations, and helped businesses with simple contracts back then. And when I was working with for other firms, I would cover a lot of landlord, tenant and foreclosure cases. It was good, because I learned a lot about tenancy and how the landlord/tenant courts work, and dealing with that in New York, so it kind of helped build some background for what I’m doing.

Joe Fairless: Now what are some typical cases that you would work on?

Sabine Franco: Now?

Joe Fairless: Yeah.

Sabine Franco: Now I don’t do too much of the going to court for tenancies, except for current clients, if they own buildings and multifamilies and stuff like that, they’ll ask me, so I’ll help them out sometimes… But mostly I do residential purchases and sales – single families, multifamilies; well, you call them multifamilies, but they’re multi-units here.

Joe Fairless: There’s a lot of red tape in New York… Especially New York City has its own set of red tape, doesn’t it?

Sabine Franco: Right. In New York it just takes so much longer with respect to searching the titles, the title reports take longer to come in, with respect to violations, and liens, and judgments… When those things come up on title, it takes a while to get it cleared. Dealing with the Building Department, and housing and buildings department… It takes a while. So if you have something that needs to be cleared off of the title, or inspected, you have to make an appointment and it usually takes them a couple of weeks, and then you can’t rely on the date they give you… So the whole side of things – it kind of makes it much more difficult.

And then when it comes to landlord/tenant laws in New York, it’s extremely tenant-friendly. It could take anywhere from six months to two years to get a tenant out in a New York residence.

Joe Fairless: I knew six months, I didn’t know up to two years… What’s a circumstance where it would take two years?

Sabine Franco: It basically would depend on the tenant’s living circumstance. If they are older, or if they are disabled, they’re gonna get more favorable treatment from the courts. If they have young children or small children, they’re gonna get more favorable treatment. They can keep going back to court and asking for more time. There’s no limit to how many times they can go back. Even if you set up a settlement with a tenant and they say they’re gonna move out on this time, they sign it, so basically it’s like a contract… [laughter]

Joe Fairless: It sounds like it’s like a contract, but it really isn’t a contract…

Sabine Franco: [laughs] Exactly. The way the courts treat it is it’s not so much like a contract, because when the time comes for them to be evicted, they can go back to court and just file what’s called an order to show cause, and get more time… And depending on if the judge feels their reasoning is sound, or worth it, they’ll give them more time. So it’s really open to a lot of discretion by the courts, so that’s what makes it so lengthy and difficult here.

Joe Fairless: Anything as an attorney you can do to try and shorten that timeframe, if you’re representing a landlord client?

Sabine Franco: Well, a lot of times what attorneys do is enter into — we call them stipulations, and they’re kind of those agreements… Because even though tenants can ask for more time to stay, it’s the quickest way, because if you have to go to trial with a tenant, then you have to wait for a trial calendar, and that could take even longer than just trying to put in an agreement… And depending on whether or not — if it’s rent-stabilized apartments, you can only get somebody out if they didn’t pay… So if you enter into agreement with them and they pay, then you can no longer evict them. But the best way to do that is to enter into an agreement and just stay closely on top of the deadlines, to see if you can get them out by acting immediately upon those dates.

Joe Fairless: Got it.

Sabine Franco: And those are pretty much what you–

Joe Fairless: You don’t have much. You can’t do a whole lot.

Sabine Franco: Yeah. It’s almost like “Who’s gonna get more tired?”

Joe Fairless: Right, yeah. How much would an attorney like you be compensated to stay on top of that process over the course of 12 months, for a landlord?

Sabine Franco: Attorneys charge by the hour, so anywhere from  — your average attorney is gonna be like $350, to your white shoe big law firm could be over $1,000/hour, depending on who the landlord is and how much money they wanna spend… So imagine that – filing petitions, filing documents to put into court, drafting documents, filing documents, appearing in court over and over again…

Joe Fairless: That’s the big one, right? Appearing in court…

Sabine Franco: Yeah… [laughter]

Joe Fairless: Because travel time and everything – that’s factored into the hourly rate, isn’t it?

Sabine Franco: Right. Sometimes a lot of attorneys won’t do flat fee if it’s gonna be that you have to continuously go to court, because of the fact that you don’t know how long it’s going to take. So on a case-by-case basis you may be able to get that, but generally you won’t.

Joe Fairless: Talk about whatever you can talk about obviously, but what’s a challenging case that you’ve participated in?

Sabine Franco: With regards to buying and selling, or…?

Joe Fairless: Yeah, yeah.

Sabine Franco: In New York and in the Brooklyn market it’s a very hot commodity right now; there’s a lot of competition, and a lot of times there’s investors that want to put in offers on multiple properties… So you can be in contract with an investor, on the seller’s end, you can expect for them to close, but then the times comes and they’re not ready to close, or they wanna back out of the deal, so it kind of makes a lot of mess for the seller.

I had a client who had a multifamily that she was selling, was in contract with an investor buyer… The property had some issues that she needed to get up to date, which she did. Finally, she got them up to date, and the investor is like “Well, I wanted the property vacant”, and the contract actually didn’t call for the property to be vacant, but the seller client wanting to accommodate, did try to get rid of all the tenants… Then come to find out the investor buyer now was not even ready to close, was not capable of closing. So after almost nine months of being in contract, which I know in other states it’s unheard of… [laughs] After nine months of being in contract, not having tenants to cover the cost of the building, now having to break the deal, basically, and the buyer wanting to back out and just walk away clean… So that ended up having to go into litigation, to sue over that buyer’s deposit. And I represented the seller.

Joe Fairless: Who won?

Sabine Franco: It’s still going. [laughs]

Joe Fairless: Oh, man… Everybody loses when that takes place… Except for the attorneys. They make out pretty well.

Sabine Franco: [laughs]

Joe Fairless: What’s some advice you give your clients to help mitigate the likelihood of litigation whenever you’re drafting up a contract, or even reviewing a contract if they’re purchasing something?

Sabine Franco: One of the things that I think is extremely important is even when you’re a savvy investor or buyer or whatever it is, it’s important to keep your attorney informed of all of the issues that may be going on. A lot of times parties will have conversations on their own, either buyers and sellers directly, or just outside of the knowledge of the attorneys, and then when they have these side agreements, there’s nothing we can do to protect you if we don’t know that it exists. Because you can’t cover everything under the sun in a contract. You can cover a lot, but you can’t cover every single scenario, so it’s good to keep their attorney informed, so that we can cover particular things.

I had a weird situation with a single-family property… The buyer was buying the property — so we got into contract, the seller’s lawyer calls (I’m representing the buyer) and says “Well, my client wants to take the shrubs out from the outside of the house. He’s not gonna leave a hole in the ground, he’s gonna replace it, but we wanna take it.” So I said, “Okay, let me speak to my client.” I’m thinking it’s not a big deal; it’s bushes, or trees, or whatever they want to take… So I call my client, I’m like “Yeah, the seller wants to take the bushes. He’s not gonna leave a hole in the ground, he’ll replace it.” My client is like, “Absolutely not! That’s the only reason why I bought the house. I went to school for botany…”

Joe Fairless: Oh, my…

Sabine Franco: Yeah. It turns out they were bonsai trees. It was just a ridiculous situation… But if I didn’t know that, I could have committed malpractice by just saying, “Yeah, sure. That shouldn’t be a problem.” [laughter] So it’s good to keep your attorney informed. I just think we have a certain level of confidentiality that we owe you as far as we’re legally bound to do, so… No reason to leave your attorney in the dark on things that you’re doing, so we can include it in the contract and cover it, and make sure that the thing that you’re concerned about is protected.

Joe Fairless: Based on your experience as someone who represents real estate investors, what’s your best real estate investing advice ever for them?

Sabine Franco: I would say start early. A lot of people, when they’re looking to get into investing, they spend a lot of time just collecting information and not starting. The quicker you start, the quicker you learn, because you learn a lot doing, versus just thinking about it… So I think the best advice would be to not wait too long, and just start as quickly as possible.

Joe Fairless: What type of investing do you do?

Sabine Franco: Personally, I have a couple of single-family and multifamily property. I’m looking to invest more. I kind of didn’t take my own advice, I didn’t invest as much as I–

Joe Fairless: It’s tough in New York City.

Sabine Franco: It’s tougher in New York City, but it’s still possible.

Joe Fairless: Yes, true. True.

Sabine Franco: Especially when you know your way around things. It’s harder to have properties where you have tenants, and things like that, but it is a flipping market here; you just can’t be afraid. That’s one of my biggest mistakes probably, because I was in and around the mortgage industry, and real estate, and financing since I was in my early twenties, and I didn’t start then… So that’s why I said to get in earlier than later is better.

Joe Fairless: Where do you live in New York City, what area?

Sabine Franco: I’m in Long Island in Nassau County.

Joe Fairless: Alright, you’re in Long Island. Where are your properties?

Sabine Franco: One in Nassau, and also in Brooklyn.

Joe Fairless: Oh, cool. Alright. So what type of deals — will you just give an example? Maybe the one in Brooklyn… What did you buy? Just to give some homework.

Sabine Franco: Okay, it’s a four-family property. It’s fully occupied with tenants. The purchase price was actually $900,000, which I know seems like a lot…

Joe Fairless: Not for Brooklyn. Where at in Brooklyn?

Sabine Franco: It’s Brownsville.

Joe Fairless: Brownsville, okay.

Sabine Franco: The properties there are a little over a million now, and that’s the beginning of that area being turned around… That area is on the come-up, and the areas surrounding are already in the multi-million.

Joe Fairless: Did you do anything to the property, or are you just leasing it out to tenants?

Sabine Franco: Right now just leasing it out to tenants, and kind of just letting it appreciate, but in the near future we’ll be renovating. The issue with that is because of the tenant laws here, it’s harder to get people out quickly. You kind of have to strategize and do it strategically.

Joe Fairless: Got it. What is an example of doing it strategically?

Sabine Franco: Well, kind of making sure that you have everything in order in terms of being able to cover all of the rents and everything, and while you’re in court with everyone, trying to get them removed… Because it’s gonna take a while. Because as soon as you put somebody in court, they’re gonna stop paying rent. So basically make sure that it’s one at a time, and make sure that you’re able to cover everything.

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

Sabine Franco: Yeah, okay.

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

Break: [00:16:18].22] to [00:17:14].15]

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

Sabine Franco: The Four Agreements.

Joe Fairless: If your business collapsed today, what would you do next?

Sabine Franco: I’d probably start a podcast. [laughs]

Joe Fairless: Why would you do that?

Sabine Franco: I like talking to people. I like talking about ideas, and learning about people, and helping people… Either that, or a YouTube show, or something like that.

Joe Fairless: What’s the worst deal that you’ve invested in?

Sabine Franco: The worst deal I’ve invested in… I don’t think I have one yet.

Joe Fairless: Well, if you’ve invested in multiple, then what’s the least profitable one? …I’ll phrase it that way.

Sabine Franco: The least profitable one… Probably the single-family that I live in.

Joe Fairless: [laughter] Ditto. Alright… Best ever way you like to give back to the community?

Sabine Franco: I like sharing my knowledge with people that I come into contact with. I’m happy to share anything that I know, to try to motivate people, to get them to just do the things that they desire. Opportunities are everywhere.

Joe Fairless: And how can the Best Ever listeners reach you?

Sabine Franco: My Instagram is @Sabine_Thepurposelawyer, and you can also reach me on my website, franco-lawfirm.com.

Joe Fairless: Well, Sabine, thank you so much for being on the show and talking about some intricacies with New York and New York City. Those things that you mentioned, like that six months to two years – is that New York City specific, or is that New York?

Sabine Franco: That’s New York City, so Upstate and Long Island – you’re looking at more around six months for Long Island; Upstate – it varies, depending where it it, but New York City is where it takes a really long time. That’s where you’re gonna see six months to two years on some — two years is on the extreme, but it happens.

Joe Fairless: Well, thanks for talking about that, as  well as your journey as a real estate investor and what you’re doing, and your business plan. I appreciate you being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Sabine Franco: Thank you. I appreciate you having me.

JF1672: The Next Great Investing Niche – Nudist Colonies? With Nico Blue

Listen to the Episode Below (00:19:25)
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Nico’s investing strategy is a little bit different than most strategies we usually talk about. He also lives a different lifestyle than probably most of us listening to this episode. Nico is a nudist who built a colony of nudists on vacant land that he bought. Hear how he did it, what kind of returns he got, and how he plans on doing it again in a new place soon. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“When investing into a community, you’re investing into the people as well” – Nico Blue

 

Nico Blue’s Real Estate Background:

  • Principal and Managing Broker of Blue Investing
  • Before starting the Blue Investing, Nico was a top producing apartment broker in Southern California at his brokerage
  • Has a personal career transaction volume greater than $2 Billion.
  • Based in Boulder Creek, CA
  • Say hi to him at: http://www.mattazark.com/
  • Best Ever Book: The Art of Loving by Erich Fromm

 


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TRANSCRIPTION

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

Nico Blue: Hey, Joe. How’s it going, man?

Joe Fairless: It’s going well, and looking forward to our conversation. A little bit about Nico – he is the principal and managing broker of Blue Investing. Before starting Blue Investing, Nico was the top-producing apartment broker in Southern California, at his brokerage, and he has a personal career transaction volume greater than two billion (that’s with a B). Based in Boulder Creek, California.

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

Nico Blue: Yeah, for sure. I grew up in Southern California, I was a surfer. I grew up down in San Diego. My dad owned some surf shops; they were like surf/smoke shops. Growing up I was a surfer, helping my dad out in the shops, and then sort of after high school really went into business with him, trying to help get those surf shops up and running.

We had a surf shop right on Mission Beach called “Ridin’ Reef and Smokin’ Reefer.” It was great, we were killing it in the early ’90s. Once I came aboard, I was there to help him open up two more surf shops along Mission Beach. One of them was called was called “Surf’s Up *beep* Down”, the other one was called “Hit, Puff, Pass”, and they ended up sort of being kind of a staple in the Mission Beach community throughout the ’90s.

Joe Fairless: So that’s the ’90s, and just for my own clarification – did you all own those surf shops, or were you leasing them out?

Nico Blue: Yeah, exactly, so they were standalone buildings right along the beach. We did own those buildings, which really helped us keep our overhead down, not necessarily having to be a tenant and pay those monthly fees.

Joe Fairless: Oh, sure. So do you still own those surf shops?

Nico Blue: No, not anymore. Being [unintelligible [00:04:06].27] surfing community, one of the big things we like to do – my dad and I – we would go up to Northern California and surf the epic Mavericks Wave, if you heard of that…

Joe Fairless: No.

Nico Blue: There’s like a whole movie with Gerard Butler. It’s an epic surf location up in Northern California, in Half Moon Bay. Unfortunately, my dad drowned in a surfing accident. That was in ’95, ’96, and that sort of set me on a different path in life. At that point I sort of gave up surfing, tried to take a step back, look internally about what am I doing with my life… And I wanted to move up to Northern California, I wanted to be closer to his energy and kind of where he last was… So I sold off all the locations by ’96-’97, and then took all the life insurance that my dad had, and was able to start opening up Blue Investing up there, in Boulder Creek.

Joe Fairless: So what does Blue Investing do?

Nico Blue: The way we got started was — one of the first purchases I’ve found was this ranch up in Boulder Creek. It was a 25,000-acre ranch. After he passed away, I really started following the Buddhist ideology, started reading a lot more about spirituality, and becoming closer with Earth, and trying to live a more self-sustaining lifestyle. I eventually became a nudist. And I know that’s not the life that most people like to live, but me and a bunch of friends and my girlfriend moved up there, onto this ranch, and sort of started our own little community.

At the beginning we built anywhere between 20-30 little cottages on our ranch, and we started having people move into our community, which allowed us to start charging rent, and own these properties, and really started to build the blue investing.

Then I ended up growing those cottages into 200 different cottages across our ranch. That really allowed us to start bringing in a lot of money, allowing us to start investing into other properties outside of the ranch and into the actual Boulder Creek community.

Joe Fairless: So you bought a ranch that did not have cottages on it, and then you and some of your close friends and your girlfriend moved there and had a couple cottages built, and then you recruited others to come, and then you’re basically renting out dirt with a tent? Or how does that work?

Nico Blue: No, we ended up building this small community. We had about 20 or 30 little cottages built and operating on the ranch. Everything that we were doing up there was self-sustaining. We were growing our own fruits, vegetables, we had our chickens, goats, cows, and it really became sort of an attraction, this sort of Buddhist/nudist community. Popularity started to grow, which allowed for more people interested in moving into the community, to not only move in, but invest into us building — we ended up building over 200 different solid cottages on the ranch. At that point, I think we had between  800-900 people living on the ranch at one point.

Joe Fairless: It’s typically challenging to make land profitable, and with development, in my opinion, the risk is certainly greater than if you buy an existing structure… So what gave you the confidence that when you buy a piece of land, that you’d be able to make that profitable?

Nico Blue: Well, that wasn’t necessarily the idea going into it. The idea was we wanted to just build a place that we could enjoy for ourselves. I think all of us when we moved up there had the idea to live just a more simple, self-sustaining lifestyle. It ended up becoming more of a movement than anything… So as interest and people wanting to invest and wanting to come and live and be a part of the community – as that grew, that allowed us to grow, as well. We started really investing into more the supplies that we needed to build out a lot of these cottages.

Joe Fairless: What were some challenges that you came across — you’re essentially building a town on a ranch, so I’m sure there’s a lot of challenges you came across… What are a couple that you had to resolve?

Nico Blue: Well, the biggest challenge was the city of Boulder Creek, the town, did not like what we were doing. We met with a bunch of resistance from the other people living in the town; they didn’t like our lifestyle, they didn’t like what we were all about, what we were doing…

Joe Fairless: Specifically the nudist part?

Nico Blue: I think that had a lot to do with it. We’re very free-living people. We did grow marijuana up there from time to time, and I think between the nudity and the marijuana… I think some of the old people that lived up there, they lived up there for a long time, and just hadn’t come across people like us… And people get scared of what they don’t know.

Joe Fairless: It was illegal at the time in California to do that, right?

Nico Blue: Exactly, yes. We are running a legal operation up there. Everything about our business is 100% legal.

Joe Fairless: It was illegal before, but what you’re doing now is legal? Just so I’m making sure.

Nico Blue: Yes, 100% of what we do is legal. We didn’t start doing the marijuana growing until way later in the 2000’s, when it was legal to actually grow it up there for medicinal purposes.

Joe Fairless: Got it, okay. So how did you overcome that challenge of the town not having positive thoughts towards you all?

Nico Blue: That’s a great question. I think the sheer number of people that we had moving up there and being a part of the community, and us having the funds to start moving outside of the ranch – I was able to buy two different apartment complexes, both which had about 45-50 unit a piece. The community itself, before we had moved in, wasn’t the richest community, so… Being able to invest in these apartment complexes allowed us to not only get more people, more of the nudists into the community, but we were able to rent it to those people at a much lower rate, because of how much money we saved on being able to purchase these apartment complexes for 50 cents on the dollar. The community had not been doing well.

I ended up getting elected to City Council, along with a couple other members of our community..

Joe Fairless: Wow!

Nico Blue: So just being able to infiltrate the community, from a governmental level, allowed us to pass certain laws that allowed us to continue what we were doing up there.

Joe Fairless: Hm. Like what?

Nico Blue: Just like zoning restrictions, and how many different buildings we could build on a certain plot of land, different restrictions when it comes to nudity around schools, and making sure that everything that our people are doing, that are in our nudist colony – that they’re following the rules and they’re not doing anything illegal.

Joe Fairless: So I noticed that you’re talking about this in the past tense… Is this no longer a thing?

Nico Blue: Yeah, this is something I’m not really a part of as much anymore. I ended up selling off all my shares into this community, me personally. It’s still a part of the Blue Investing Group, but I personally don’t have much to do with it anymore. I’m really focused on trying to find another community in Northern California where we could start to invest into another ranch, or into another small town.

Joe Fairless: I’m just curious, why not continue to build that out, versus — you said it was a 25,000 acre ranch, right?

Nico Blue: Yes.

Joe Fairless: Why not continue to build that out, versus start something new from scratch.

Nico Blue: Yeah, I figured it was just time to move on. I feel that we’ve kind of really pushed the limits of how much we can really grow in that town. There’s only a certain amount of area and a certain amount of land that we can buy, and buildings we can build out there. We’ve really done a great job of building up that community, and I’m just looking forward to the next challenge of my life, and really wanna see… There are other communities that have been asking us to kind of look into bringing what we’ve done in Boulder Creek to other parts of the country, or other parts of the state.

Joe Fairless: You took the profits from that and now — is that currently cash-flowing, by the way? The original 25,000 acre ranch community.

Nico Blue: Yes.

Joe Fairless: You’re still an owner in that, you’re just not focused on it.

Nico Blue: Exactly. I’m still an owner, but I don’t really have anything to do with the day-to-day activity of keeping all the ranch up and running and going. At this point it’s pretty self-sustaining, so it allows me to really focus on the next endeavor.

Joe Fairless: So with this next endeavor, what are some things that you’re looking for in order to make it another financial success?

Nico Blue: Yeah, I think the main thing is we want to really move to an area where we can bring some of the community that’s already embedded from the nudist colony into the town that we’re moving to, as well as trying to get more outside investors… Because we still have a lot of people who wanna be a part of this; they wanna live a simpler lifestyle, they want to move to a place with like-minded people.

There are people who want to invest with us, but right now it’s just trying to find the right area where we can buy, and really buy a lot, and make sure that where we move that we don’t run into a lot of the same issues that we ran into in Boulder Creek. So it’s trying to find an area that has some cheap land, some infrastructure already in place, that we don’t need to start everything from scratch.

Joe Fairless: When you create a community out of basically raw land, what are some income sources that you generate as a result of that? Clearly, renting the cottages is one of them, but do you have any other income sources from the nudists who are basically your tenants?

Nico Blue: Yeah. On our ranch we had like a small little town center where we had our own cafe/restaurant, we had our own bar/nightclub, and the community is really tight. People spend a lot of time within the community, in that restaurant, in that bar… We had a place of worship as well, where we had donations.

We also had people who moved into the town that wanted to invest into Blue Investing as well. So we were getting investors, as well as we had some sustaining businesses up and running.

Joe Fairless: Anything else as it relates to this business that we haven’t discussed, that you think we should mention?

Nico Blue: I think a lot of it is — we really got into this because this is just the lifestyle that we love, and the lifestyle we wanna live. I think that a lot of times people get a little bit too caught up and just trying to “Hey, we just need to make money in any way possible”, but I think if you’re really trying to do something positive in this world and trying to live a nice, clean, self-sustaining lifestyle, you’re gonna find people that are gonna want to invest in you. As long as you’re authentic and you’re speaking the truth and you’re following up and living the lifestyle that you talk about, people are gonna see that. They’re gonna see the passion that you have, and they’re gonna want to invest in what it is you’re doing.

I’d never thought that it would ever grow into something like this, and it’s pretty crazy how bit it’s gotten.

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

Nico Blue: When you’re gonna invest into a community, really try to make sure that you’re investing just into that piece of property that you’re buying; if you can invest also into the people and into the community, it’s gonna not only help your own investment, but it’s gonna help the community as well. And the more support you have from the community, the more that community is gonna want to bring you in as a member of the community, and they’re gonna want to support you, and they’re not gonna try to stand in your way when you try to start new businesses and new ideas.

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

Nico Blue: Let’s go for it!

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

Break: [00:15:36].15] to [00:16:35].16]

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

Nico Blue: The best ever book I’ve recently read… I think I would probably have to go back to The Art of Loving, by Erich Fromm.

Joe Fairless: What’s a mistake you’ve made when putting this nudist colony together?

Nico Blue: We started to build before we got permits.

Joe Fairless: What happened?

Nico Blue: We had to shut down construction for a few weeks, until we got all that straightened out… But we ended up getting back on track

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

Nico Blue: I think the best ever deal had to be buying that 25,000 acre ranch up in Boulder Creek. Just being able to start that, and grow that as a passion project, and then watch it grow into something that is a huge investment opportunity for not only me, but other people. I think that ended up being out of this world.

Joe Fairless: And what is your real name?

Nico Blue: My real name is Matt Azark. Yeah, I’m a comedian up here in New York City. I’m happy to be back on the podcast, man.

Joe Fairless: April Fool’s, Best Ever listeners! We do an April Fool’s day episode every year… Except for last year; we missed it. We’re back, April Fool’s… There is no nudist colony. Well, there might be a nudist colony, but just not in Boulder Creek, California… That I’m aware of, at least.

Nico Blue: If not, there should be.

Joe Fairless: [laughs] Matt, how can the Best Ever listeners learn more about what you personally have got going on? …not fictitious, Nico Blue character.

Nico Blue: I’m a stand-up comedian here in New York. You can check out my website, www.MattAzark.com. Also, you can go to BombShelterComedy.club. That’s one of the shows that I run out here in New York City. We’re running shows at New York Comedy Club, West Side Comedy Club, and then we run a weekly show at a bar in Hell’s Kitchen called Gap West.

Joe Fairless: And you’ve got a podcast. What’s it called? What do you talk about?

Nico Blue: Yeah, I’ve also got my own podcast called Trophy Dad Podcast. It’s on iTunes, Spotify, TuneIn, Stitcher… Yeah, it’s a podcast by me, and I have other comedians, other dads… It’s sort of like a goof-off podcast; we drink beer and just talk about life.

Joe Fairless: Matt, there might be a couple things I have to edit out of this episode, but I would rather remove than have to add things. You really went above and beyond in this one. Thank you for being on the show, my friend, and thanks for another April Fool’s Day episode. Best Ever listeners, none of what we were talking about it’s true, just to reiterate, it is an April Fool’s Day episode… Besides that contact info.

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

Nico Blue: Yeah, see you later. Thank you again.

Best Ever Show #SituationSaturday flyer

JF1663: The Easiest Way To Handle Your Real Estate Taxes #SituationSaturday with Devin Redmond & Thomas Castelli

Listen to the Episode Below (00:26:33)
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Today we have two guests with us today to discuss real estate taxes. Stessa is our sponsor and also our guest today, along with Thomas Castelli, an investor, CPA, and tax strategist. So hit play to hear the easiest way to handle your taxes and hear about the new laws. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

  • Since the introduction of the Tax Cuts & Jobs Act in 2017 many real estate investors have wondered how these new rules and incentives will affect their taxes this year. Things were so confusing in fact that the IRS recently released clarification on the 20% pass-through deduction, and specifically singled-out real estate investments as needing more clarity.
  • Devin Redmond, Head of Customer Success at Stessa and Thomas Castelli, CPA & Tax Strategist at the Real Estate CPA teamed up to help provide clarification on taxes for real estate investors by creating a series of resources that investors can reference.

 

Best Ever Tweet:

“You really want to be taking a proactive approach throughout the year”

 

Devin Redmond & Thomas Castelli Real Estate Backgrounds:

  • Devin Redmond:
    • Head of customer success with Stessa
    • Former commercial real estate pro and investor
    • Say hi to him at https://www.stessa.com/
    • Based in San Francisco, CA
  • Thomas Castelli:
    • CPA & Tax Strategist at The Real Estate CPA
    • Real estate investor, invested passively before being active in an 82 unit apartment community
    • Say hi to him at www.therealestatecpa.com
    • Based in NYC

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


TRANSCRIPTION

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

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment for  you called Situation Saturday, and here is the situation – it’s tax time, and you’ve got to put together your tax returns, or your CPA has to put together your tax returns. Well, you’ve got to figure out what is it with these new tax cuts and Job Act law that you can do, or what is it about that that you can use to benefit you as a real estate investor. Let’s get some clarity on that.

This will be a one-stop-shop conversation for you, Best Ever listeners, as you navigate that… And even if you don’t do your own taxes, it’s important to be educated on this topic, so that you can look for your CPA or make sure your CPA is maximizing the deductions and the benefits that you have as a real estate investor. With us today we’ve got a dynamic duo – we’ve got Devin Redmond, head of customer success at Stessa, who is, as you probably know, Best Ever listeners, the sponsor of this podcast… And also Thomas Castelli, who’s a CPA and tax strategist at the Real Estate CPA. First off, welcome, Devin and Thomas. How are you two doing?

Devin Redmond: Great! Thanks for having us.

Thomas Castelli:  Great, same here.

Joe Fairless:  You all good, glad to hear that, and it’s my pleasure.  A little bit about Devin and Thomas – first, Devin Redmond, head of customer success at Stessa, former commercial real estate pro and investor; their company, Stessa.com – you can go check that out, and you know all about Stessa, because you’re a loyal Best Ever listener; based in San Francisco, California.

Then Thomas Castelli, CPA and tax strategist at the Real Estate CPA. He’s a real estate investor who passively invests, and then most recently is an active investor on an 82-unit apartment community, so learning from someone who is an expert in tax strategy and who also invests actively in deals, which is very helpful, because he’s gonna come at it from a different perspective than someone who’s just an academic person in this field. He’s based in New York City.

Before we get into it, can you both tell us a little bit more about your backgrounds and how you got into real estate investing?

Devin Redmond: Sure. This is Devin, I’ll get started. As Joe mentioned, I’m currently head of customer success at Stessa; we’re a free software platform for rental property investors, to track income and expenses and run key reports. I got started in real estate actually as a tenant rep broker in L.A, so on the commercial side; I spent my days driving around L.A. with clients, helping them find office space and negotiate deals. I then worked for a big owner-developer in the Bay Area; that was mostly office and R&D deals. I did acquisitions and asset management for them. This was kind of 2007 through the downturn, so it was a huge learning experience for me.

Very quickly I learned that the proforma goes out the window when cap rates are going up and the national economy is hurting… And I spent most days renegotiating leases with tenants, trying to cut operating expenses, and trying to run our portfolio as lean as possible.

Another thing I learned there was that institutional investors have a pretty sophisticated way of running the numbers, and we’ve built a lot of very complicated financial models, and that’s something I try to bring to my job at Stessa every day – we want to make it easy for rental property investors, but we also want people with larger portfolios to be able to run sophisticated types of reports that they need to understand what’s going on with their investments.

Joe Fairless:  Real quick question on that, in terms of the sophisticated way of running the numbers – what’s an example of that compared to what a beginning investor might use or do when they’re running the numbers?

Devin Redmond: One example – a beginning investor gets set up on QuickBucks, or a quick rental property manager, right? And that’s fine for running a general income statement; it shows you how much money you’re making at the end of the year. Our reporting with Stessa – you can run both an income statement and a net cashflow report, and the net cashflow report breaks down principal versus interest versus your escrow accounts, and it will even show you what your debt service coverage ratio is… So you can get a sense for how you’re doing compared to what your debt service is every month. That’s just one example.

Joe Fairless:  And do you all have ways to interpret a net cashflow statement for investors who come into your platform and are like, “Oh, well this looks like something I should do”, and then they see it and they’re like “Well, how do I actually read this and how do I interpret these numbers?”

Devin Redmond: We have a pretty good support center, with a lot of help articles that help you figure out what you’re looking at. One of the things I spend a lot of time thinking about is as newer investors come into our platform, how do I make it simple enough for them to get started, and then sort of guide them through and show them, “Okay, these are the reports you should be running, these are the numbers that really matter, and then this is how you can feed it back into your operations. This is how you can look across the months laid out, the income statement, and see where are utilities fluctuating too much, where are they maybe out of range.”

We’re actually trying to get much smarter about identifying those opportunities for people, and then sort of bubbling them up in the software so that you don’t have to go hunting in the statement to find them.

Joe Fairless:  And Thomas, would you mind telling us a little bit about your background?

Thomas Castelli:  Absolutely. I went to school for business and accounting, and during that time I started reading the Rich Dad, Poor Dad books. As I started to go down that rabbit hole, I just kept noticing that real estate was a common theme for building wealth… So I started going to a bunch of networking events; at this one event I met a group that was doing a seminar on real estate syndication. I went to that seminar, and really that point was pivotal because I fell in love with real estate syndication. I also met someone who would become my future mentor.

From there, I invested in a bunch of deals with him as a passive investor, and then that ultimately boiled up to participating in a syndication of an 82-unit property as a general partner, and then right around the time that deal was closed, I came across the Real Estate CPA and really found that it was a great blend of my passion for real estate investing and accounting background, so I joined the team as a tax strategist, and I now provide tax strategy and planning to investors of all sizes – people from one single-family rental, to portfolios of single-family rentals and multifamily investors, syndicators, among other groups. That’s where I am today.

Joe Fairless:  What was your role as a general partner on the 82-unit deal?

Thomas Castelli:  I worked mainly on the acquisition side of it. I ended up making a lot of phone calls to brokers and developing a relationship with a broker who eventually sent me a good deal out of a handful. From there, I ended up negotiating much of the agreement, and then I helped out with due diligence. From there, we had two asset managers who are the primary asset managers on it, but I’m still on the property management calls and keeping a pulse on the deal day to day… Well, not day to day, but week to week rather.

Joe Fairless:  I imagine you’re a good resource for the team from doing checks and balances on the books, as well

Thomas Castelli:  Yeah, I take a look at the books every once in a while, just to make sure that everything is flowing smoothly, but we actually have an accountant who works on that, so we’re pretty much covered on that end.

Joe Fairless:  So let’s transition into taxes, and the primary focus of our conversation today. I imagine this is going to be for Thomas – what are some key things that all real estate investors should be doing in preparation for taxes?

Thomas Castelli:  When it comes to taxes, the first thing is keeping good records. Stessa definitely helps you do that, but at the end of the day when you’re going to file taxes come year-end, if you don’t have your stuff organized it’s gonna be a nightmare pulling receipts out of shoeboxes and trying to get everything into your accounting system, and going back and retroactively trying to remember what transaction this was for, what expenses this was for… So really going into tax season with your books up to date and having everything organized is key. But also, at the same time, a lot of people come to think that taxes is just something you deal with once a year, around tax filing season in January or April… And the reality of the situation is when you file your taxes, at the end of the year you’re simply reporting your income and expenses, your results from the activities that you did in the year prior; once that year ends, your results are pretty much set in stone. There’s of course some flexibility and some things you can do during that time to reduce your tax liability after the year ends, but you really wanna be taking a proactive approach throughout the year, making sure that you’re implementing the right strategies and making sure that you’re taking the right actions that will give you those favorable results come year end, and ultimately reduce your tax liability.

Joe Fairless:  Is there anything you can do after the year is over to retroactively influence what you did during that calendar year?

Thomas Castelli:  There’s a few things. You can contribute to a retirement account, you can engage in cost  segregation studies… Those are pretty much some of the top things you can do during that time, simply because at the end of the day “you spend what you spend, you earn what you earn” type of thing, and you went about the way you did your business throughout the year in a certain way, and that’s already set in stone… But cost segregation studies, for real estate investors, is probably the biggest thing you can do after the year end to affect your tax liability.

Joe Fairless:  One other clarification question and then I’d like to ask about some tax strategies you see investors missing… But when you say “keeping good records, making sure your books are up to date”, will you be specific on what exactly good record keeping is?

Thomas Castelli:  Devin, do you wanna take that one?

Devin Redmond: Yeah, I can chime in. I met with a lot of investors, especially in the  early days building Stessa, and trying to figure out “What does your process look like?” across hundreds of investors, and I’ve found it really broke down into two buckets – there’s the people who are on top of things, keeping track of everything monthly, a lot of them using Google Sheets, a lot of them use Stessa now, and they’re kind of closing out the month and they always kind of know how they’re doing… And then once they close out December, they’re kind of ready for tax time. Then, as Thomas mentioned, there’s this other bucket of people who really kind of come up for air once a year, get everything ready, they’ve got a  bunch of back and forth going on with their CPA, they’re wrangling receipts, and that’s a tough spot to be in.

From our perspective, good record keeping is obviously knowing where each expense goes, into what category, and then staying on top of your tenants as well, and knowing who’s late, and making sure you’re collecting all your income.

Joe Fairless:  Yeah, and when we take a look at the tax strategies that we should be employing – I imagine this is gonna be for Thomas – what things do you see investors missing on a regular basis, that are low-hanging fruit, that they should not be missing?

Thomas Castelli:  Yeah, absolutely. So it’s not always a tax strategy necessarily if they’re missing — sometimes it’s just deductions; sometimes people think that simply by not taking the depreciation deduction, that they’ll avoid depreciation recapture tax upon sale. And for those who don’t know, depreciation recapture is a tax up to 25% on the portion of your gain that’s attributable to the amount of depreciation you took over the time you owned the property.

Sometimes they decide to omit or not take the depreciation in hopes to avoid that, but the reality is the IRS was going to assume that you took the depreciation and then recapture it anyway when you sell.

Joe Fairless:  But what if  you didn’t and their assumption is incorrect? Do you then get that money back?

Thomas Castelli:  No. You have to take it. Basically, take your depreciation deductions; don’t miss it.

Devin Redmond: But Thomas, if in the past you didn’t take the depreciation, you can file amended returns and recover that, right?

Thomas Castelli:  Correct. You can do that. You have to go back then and amend your returns. The bottom line is you just want to make sure you’re taking depreciation deductions each year, and just be proactive about doing it… Making sure you’re also maximizing depreciation through cost segregation, but… Yeah, just make sure you’re taking depreciation.

Another strategy we see people missing is not taking advantage of a home office. When you have a rental business, often you can take a home office deduction, which not only reduces your taxes, but it makes your home a place of business. And when your home is a place of business, your commute to other business locations such as the bank, such as your rental properties, meeting with a  broker, going to Lowe’s to pick up supplies for your rental business – these trips all become tax deductible.

The standard amount of deduction in 2019 is 58 cents per mile, so if you drive a lot for your business, especially when you work from home, in that type of situation, you definitely don’t want to miss out on that combo of having a home office and also taking those miles deductions.

Joe Fairless:  Okay. Fact or fiction – when you put a home office on your tax returns, it increases your likelihood of being audited.

Thomas Castelli:  That these days is more or less considered fiction. What happens is a lot of people who do have a home office often have Schedule C, which is for an active trade or business. Schedule C is actually the most audited part of Form 1040, which is your individual tax return, so I think there’s a lot of misconceptions that because you have the home office in and of itself is really the trigger for increased audits, but in reality it’s just the fact that most people who do have home offices have schedule C, which might not be the case for a lot of real estate investors, because rental real estate is filed on Schedule E of your tax return.

Joe Fairless:  Let’s talk about the 20% tax deduction. What is it, how does it work, and what do people need to know?

Thomas Castelli:  I can take that one. The 20% QBI deduction (Qualified Business Income deduction) is a deduction that allows you to take 20% of your business income, a deduction of 20% right off the top of your business income if you’re single and you’re making less than $157,500, or if you’re married it’s $315,00. Above those thresholds you still may receive a partial deduction; it’s usually going to be less than 20%, and the calculation to get there is super-complicated, we won’t go into that today.

One of the things for landlords that was up in the air was whether or not your rental business will actually qualify as a trader business for the purposes of this deduction. The IRS recently released a safe harbor that clarifies that and says “If you meet the safe harbor, you will qualify as a trader business for the purposes of this deduction.” Quickly going through what that is – to qualify, you need to meet the following criteria: the property has to be held through your personal name or through a disregarded entity or another passthrough entity such as a partnership.

Joe Fairless:  Like an LLC?

Thomas Castelli:  Like an LLC. A single-member LLC would count. Commercial and residential real estate may not be part of the same enterprise, so you have to keep separate businesses for your commercial activity and your residential activity. You also have to keep separate books and records for each enterprise. An enterprise can consist of multiple properties, as long as they’re all commercial or all residential.

You’re gonna also have to spend — well, not you specifically, but 250 hours of rental services must be performed in that enterprise for the year, and you also have to maintain records that include the hours of those services performed, a description of the services performed, the dates in which the services are performed and who performs them. Now, the good news is you as the owner don’t have to specifically do all the work; those hours will also count if your employees, agents or contractors do it. So all the hours worked by those folks will also count towards the 250, and the last thing to note there is that it must be rental services. That includes advertising for rent, negotiating leases, reviewing tenant applications, collection of rent, daily operation and maintenance of the property; things like financing and reviewing financial statements do not count toward those 250 hours.

Joe Fairless:  How is the IRS defining residential? Because I’m wondering if that includes multifamily, or if that’s just like one to four-units?

Thomas Castelli:  There’s often some confusion in that because brokers consider 5+ units to be commercial, and 1 to 4 to be residential… But for the IRS, the purpose of it is if it’s single-family or it’s multifamily, it’s residential.

Joe Fairless:  Okay. If anything, is there anything else that real estate investors should know when it comes to their taxes that we haven’t talked about? And I know that’s a broad question, so maybe some top of mind things…

Devin Redmond: I can weigh in on that… We see a lot of our investors doing 1031 exchanges, and we haven’t talked about that much… The sort of special treatment under the IRS is very powerful, and over time it’s one of the best ways to create wealth. It’s a long-term strategy, something you stick with through ups and downs and cycles and cap rates… And even with the new opportunity zone designations that are also open to deferred capital gains, my read on that is that 1031 is still the best strategy if you’re committed to real estate in the long run. Thomas, you may wanna weigh in on that as well.

Thomas Castelli:  Absolutely. 1031’s are a great strategy, and ultimately what it allows you to do is it allows you to continually defer the capital gains upon sale of a property, assuming you invest the entire sales proceeds into a new property. You can do this over and over and over again throughout your life, and in theory – albeit it is harder to do in practice – you can not pay any capital gains on the sale of any of your properties throughout your life, and then later when you pass away and you leave the properties to your heirs, they’ll receive it at what’s called a stepped up basis, which is the fair market value of the property at the date of your death, and it will eliminate all of the capital gains that you should have took throughout your lifetime when they receive it, so… Definitely a powerful strategy.

Also, something else to throw in there, something else that people sometimes overlook is the power of the combination of the real estate professional status and the cost segregation.

Joe Fairless:  Before we get into that, will you just elaborate a little bit on when you die, after 1031-ing your whole life, you said your heirs get the property at a stepped up basis, which effectively eliminates… Will you just repeat that and just elaborate on it?

Thomas Castelli:  Yes. What happens is when you do a 1031 exchange, your basis in that property decreases after each exchange, because [unintelligible [00:20:55].20] the dynamics of the way the exchange works, you’re gonna end up having very large capital gains at some point if you fail to do a 1031 exchange… But what happens is your heirs get it; their basis in their property goes from that very low basis that you had, to its fair market value.

Let’s just say for instance throughout your lifetime you did several 1031 exchanges, and the building you have now is worth, say, two million dollars. Your basis in that property might only be $200,000. So if you were to sell it —

Joe Fairless:  Because you started with a smaller property?

Thomas Castelli:  Yeah, because basically you started with that smaller property, and that basis just continued to roll over after multiple exchanges. So you might get to the end of the line, if you will, and say “I have a two million dollar property, but my basis is so low because of the original property I started with.” So you might have a huge capital gain of, say, in this instance, 1.8 million, and when your heirs receive it, your basis goes from that $200,000 mark to two million dollars. They receive it at two million dollars. So if they were to sell it, usually shortly after you pass away, they’re gonna pay little to no taxes.

Now, if they were to hold it, they’re gonna eventually have to pay capital gains on that fair market value when you die and the fair market value when they sell, but it’s gonna be significantly less than it would be if you were to fail to do a 1031 and have to recognize that gain throughout your lifetime.

Joe Fairless:  Why does the IRS do it that way?

Thomas Castelli:  That’s a good question. You know, there’s just a ton of tax advantages for real estate, because one of the things the IRS does is – the Treasury or Congress rather – they want to keep as much stuff in the private sector as possible, and by offering these advantages to real estate investors, real estate investors will build properties, and develop properties, and participate in real estate activities and provide housing to the population of America, without the government having to take that on as a public project, if you will.

Joe Fairless:  Sorry, I interrupted you just a little bit ago… What was the other thing you were gonna mention?

Thomas Castelli:  Yeah, so the real estate professional status – if you work full-time in real estate, you essentially elect to be treated as a real estate professional for tax purposes, which allows you to take the losses from your rental real estate against your ordinary or active income… So what you can do is you can buy a bunch of properties, you can have a cost segregation study performed, which is simply a breakdown of the components of your property into their individual class lives, which range anywhere from 5, 7, 15 to 27,5 years. And generally between 20% and 30% of the property can be broken down into that 5, 7, 15 year mark, which is not only depreciated over a shorter period of time, but can also be accelerated, increasing your depreciation deduction, and now with 100% bonus depreciation, that 5, 7 and 15 year property can actually be depreciated in full in that first year you purchase that property, which would give you a massive loss. That loss as a real estate professional can be used against your active income, whether it be from you or your spouse.

Joe Fairless:  You two put together a tax guide and a bunch of resources to help the Best Ever listeners… Where can the listeners find the tax guide and resources you two put together?

Devin Redmond: You can find that at www.stessa.com/taxes. All of our existing users have gotten a free copy of that. You do need to sign up for an account, but it’s pretty quick and easy. Then we’ll give you the PDF, and there’s also a separate document with the 11 top tax deductions for real estate investors.

Joe Fairless:  Excellent. Well, Devin and Thomas, thank you so much for being on the show. I learned a lot, especially the reinforcement of the 1031 and the stepped up basis – that’s really powerful stuff. I have spoken to some investors and they mention 1031-ing is like kicking  a can down the road; you’re eventually gonna have to pony up. But not so much. When you die, your heirs don’t have to, and that’s very powerful… As well as other things and things that you two talked about.

Thanks for being on the show. I hope you have a best ever weekend… And Thomas, how can the Best Ever listeners learn more about what you’ve got going on as well?

Devin Redmond: They can head on over to therealestatecpa.com. On there we have a blog, we also have a podcast, The Real Estate CPA Podcast – Joe was actually one of our first guests – which includes a lot of great tax strategies and other information regarding accounting and taxes.

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

Thomas Castelli:  Great, thank you!

Devin Redmond: Thanks for having me!

Guest Frank Roessler on the Best Show Ever flyer

JF1645: We Completed A Business Plan & Sold A Deal – Here Are The Details – with Frank and Joe

Frank Roessler, for Best Ever Listeners that don’t know, is the Founder of Ashcroft Capital, and managing partner along with Joe. Recently, they finished a business plan and sold a deal, now we get to hear their case study discussion. This will be a normal segment on the podcast, whenever Ashcroft sells a property, we’ll hear the details from Frank and Joe! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Frank Roessler Real Estate Background:

  • Founder of Ashcroft Capital
  • Has overseen the acquisition of over $700,000,000 of institutional quality multifamily investments
  • Based in NYC
  • Say hi to him at ashcroftcapital.com

 

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Learn more about Frank:

JF810: When Mother Nature DESTROYS Your Property, What Do You Do? #SkillsetSunday

 


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TRANSCRIPTION

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

We’ve  got a special segment for you today. It is a  case study conversation on a 200+ unit apartment community that my business partner and I, and our team, and our investors worked on and completed. Any time we close a deal, I’m going to attempt to have a conversation with Frank, and we’re going to have a case study conversation with you all, so that you can learn the lessons that we learned. Ultimately, this is about helping you out, and identifying things that we came across along the way, some challenges, and successes, and also things that didn’t go according to plan, how they were overcome, ultimately so that when you’re  doing deals you have a guide to help you when and if you come across similar situations.

First off, Frank, how are you doing?

Frank Roessler: I’m doing very well, thank you for asking. How are you?

Joe Fairless: I am doing very well, as well. I’ve interviewed you on this podcast, right?

Frank Roessler: Yeah, we definitely did that.

Joe Fairless: Alright, so I’ve already interviewed you. We’re not even going into your background, because we’re gonna be doing multiple case study episodes when we close deals, so we don’t wanna have to have you go through your background every time. Let’s get right into it.

The deal that we’re talking about today was formerly called Timberlodge, and you and I and our investors refer to it as Eleven600. Tell us about the business plan, tell us about the deal.

Frank Roessler: Yeah, sure. I was thinking a little bit before this call about things that went right; it resulted in a very good return for our investors, and there’s a number of things that went right. The business plan is definitely one of them. I thought I might start off kind of before the business plan, with just the submarket and the purchase. Is that alright to do that?

Joe Fairless: Yeah, please.

Frank Roessler: So starting from the beginning – we bought this deal, and we bought it right; we bought this deal off-market. I think that added a lot of value, because we avoided a bidding war. We got it at a price that we felt was very attractive at the time. One of the things that went in our direction was that the seller was a group that we had purchased from in the past, a group called Bridge IGP, Bridge Investment Group. We bought Woodglen  Village from them, and it always helps when you buy from a buyer, if you can, to close and close well; without retrading, without being a challenging buyer. While maybe retrading might get you a  lower price on that one deal, if you don’t need to retrade and you just close and you’ve maintained your reputation, it can lead to opportunities like this, where that same seller presents you with another deal, and that’s just what wound up happening here. So I always recommend, if you can, to have a very smooth due diligence and closing when you buy.

So we bought this deal off-market at a great price, avoided a bidding war; we bought from a group that we transacted with in the past.

Joe Fairless: Are we able to say how much we bought it for?

Frank Roessler: There’s a confidentiality agreement when you sell most deals, that prohibits you from doing that, so unfortunately we’ve not publically stated what price we bought it for or what price we sold it for, but we can definitely talk about the returns to investors.

Joe Fairless: Yup.

Frank Roessler: So anyway, we also didn’t just buy Timberlodge because the seller offered it to us. As you know, we did a very robust research project on all the submarkets in Dallas, and just looked at, okay, we know where the desirable markets are; we all know where Highland Park is, and Preston Hollow is, things like that, but what are the markets that are actually in growth mode? Just because it’s desirable doesn’t mean things are growing or are headed in the right direction.

We’ve found that the North Lake Highlands Area/Richardson was a challenging market for the previous ten years, but that it was really turning around. The community was investing significant dollars into that submarket. Other owners like us had bought apartment communities and were renovating, therefore improving the demographics… And the databases didn’t lie; they told us there was huge rent growth, a very strong vacancy, I should say… So that was one of the reasons that led us here. And then by great coincidence, this deal that came across our desk was being sold by a group we bought from before.

So I just wanna make that point, that yeah, we bought at a great price, but we also bought in a great submarket. We had a lot of wind behind our sails just going into this property.

Joe Fairless: A couple follow-up questions on that… When you say we bought off-market – we went through a broker, but it wasn’t publically marketed, correct?

Frank Roessler: Yeah, that’s a great question, Joe. And yes, that’s exactly what happened. Transwestern brought us this deal from Bridge, so it worked well that we had bought from them in the past; it helped to convince them that we’re gonna close and not screw them over (pardon my French). But then the broker did a great job of convincing the seller that, for whatever reason, this was a good offer, and that it made sense to just sell directly to us, rather than going through the hassle of going through a bidding war… So we owe a lot to the broker we used.

Joe Fairless: And just generally, when a broker does not have a listing fully marketed, but they’re representing their client, and it’s considered off-market, but there’s broker representation, how often is that broker sending it out to a whole bunch of other people, just not officially? …so it’s pretty close to being on market, since they’re already sending it out to a whole bunch of people.

Frank Roessler: It’s case-by-case, but everything you’ve just said could happen. It could be the case that a lot of brokers when they get a property and they don’t wanna market this thing for the next two months and do 50 property tours, so it would be great for them to just sell it to a buyer directly… And sometimes that’s the way things go – they kind of quietly e-mail the financials around to the most common buyers in a market, see if they can just get it done there, and if they can’t, meaning those prices don’t meet with what the seller wants, then they go through the process of fully marketing the deal, and launching it out.

I know on this property this happened very quickly. We were dealing with a broker, Taylor [unintelligible [00:08:52].01] who we’d dealt with many times in the past… And he’s always done a good job, from our perspective – we never know what’s going on fully behind the scenes – of really just sending us the first look at a deal… And it’s an exclusive (but short) look for us, to see if we like this price, if this price makes sense for us, and if so, okay, make an offer, start negotiating a purchase and sale contract. He doesn’t say “Hey, I’ve got this out to five other groups.” So that was the case with this one – it came to us, just us, we came to an agreement on price and we moved forward. So it worked well on this deal.

Joe Fairless: The initial price that Taylor presented – was that the transaction price?

Frank Roessler: No, it wasn’t. But it wasn’t far off, either. I think we were just a few hundred thousand dollars below the price that he brought it to us for.

Joe Fairless: So off-market and submarket strength going into the deal, so we were set up for success… And what was the business plan?

Frank Roessler: The business plan was ideal for us. We tried to look for low-risk deals with value-add. What we tried to do is find an apartment that is under market, its units are outdated, but it has almost all (if not all) units unrenovated, and we can see comps which were… But then we’re buying from a great seller, hopefully, that has taken great care of the property, so we’re buying a property with good bones, that we don’t need to invest funds for maintenance, like replacing roofs or repainting the property, things that don’t really drive net operating income, but that you have to do every five to ten years or so. And that was the case with this deal. That’s why we liked it so much. Bridge had taken excellent care of the property, it was very well maintained. They have a business plan where they try to be very, very troubled assets, stabilized, maintain, and then sell with full value-add. That is indeed what happened here. They bought this deal when it was at a point of very low occupancy, it had a tough demographic on it…

So they stabilized it, they did a good job of that, and they replaced the roofs, they renovated the clubhouse, did a really good job on that… So when we bought it, it was served to us on a platter, so to speak, of having no units having been renovated, yet the market as I said was in growth mode and several comps were fully renovated and they were achieving rents 20% to 30% higher than what this properly was achieving, as well. It’s everything that you look for in a value-add deal, and that’s what wound up happening – we wound up buying the property and just slowly implementing that business plan.

If you’ve listened to our calls, one of the things I always say is the huge risk in this investment game is the execution of the business plan. You can do  everything I’ve just said  – buy it at the right price, in a great submarket, with a great business plan, but if you can’t execute, you can really screw up an investment. So I’ll get into lessons learned, Joe, if that’s okay.

Joe Fairless: Sure.

Frank Roessler: One would be we took on a very complicated, heavy lifting value-add project in Timberlodge. We wanted to further improve the demographics, we wanted to rebrand this property, so get rid of all the brand recognition, start anew. We wanted to add revenue-generating projects like carports. Then we wanted to renovate every single unit, and we wanted them to look nice. We didn’t wanna tank occupancy, but we wanted to keep going on renovations whenever someone moved out. So we wanted high occupancy, we elected to put granite in a 1980’s asset, when no one else in the market was doing that, and we put in those carports.

So we didn’t have CityGate at the time that we acquired this company.

Joe Fairless: The property management partner?

Frank Roessler: Yes, thank you. So we were out interviewing groups. We knew we wanted to go with a small, yet sophisticated property management group, because we wanted our business to be important to them, but we interviewed four different groups — CityGate was actually managing one of the comps that we said “If we can do that on this property, we’re gonna do really well.” So that was in their favor, and ultimately we were impressed by their proposal; we happened to like that group a lot, and we said “Okay, let’s go.” But that’s probably a gamble. I wouldn’t recommend doing such a heavy value-add project with a property management company that you’re not too familiar with yet. And that’s what we did, and we wound up getting lucky here, because we did a good job of interviewing… But still, it was an unproven group to us, and this is a big, heavy renovation project, rebranding project, a repositioning. So if they would not have been able to execute as well as they did, we would have had to have replaced them… We could have been in a lot of trouble on this deal, and we were fortunate that they performed, and performed well.

I look back at that and I do think we did things right, but I do think we got fortunate… If someone else was looking at the property and they didn’t have a group set up yet, third-party, I’d recommend maybe going with a large, large property management group. While they might not care about your business so much, they’re probably not gonna do a very bad job…

Joe Fairless: Right.

Frank Roessler: Or, alternatively, maybe start with a property that doesn’t require so much attention, renovation, operationally, as well as cap-ex… An easier project, that hopefully a group can get in and do a good job on no matter what. Maybe one of those two directions.

Joe Fairless: Yeah, that’s very helpful. I remember — so you and I invested in this deal, obviously, like we do all of our deals… But then also, for this deal, we have one investor. He invested with us a couple times (more than a couple)  leading up to that, and then he said “Hey, I wanna be the only limited partner on a deal. Will you go find me something to partner with you guys on?” So we ran this scenario by him, and he was fine partnering up with this group, CityGate, who we now have our portfolio with… And they are a third-party management company. So there was just one person to have that conversation with, versus us mentioning it to a network of investors, which is different, because it’s just a different conversation, and you don’t have to have a lot of people being on board with it; you just have to have one person, who’s bringing the equity.

But I love that lesson, because even thinking about it from, “Okay, how do I pick  a property management company, regardless of if it’s heavy value-add or medium value-add?”, well, how about looking at the comps, and if they’re managed by a third-party, and as you said, if you’re thinking “If we can do that, then we’ll do really well with this property”, and simply interviewing the managers for those comps.

Frank Roessler: Yup, and that’s exactly how things worked out. We got recommendations in from Taylor, our broker, and some other guys, about what third-party to go with… And then when I was shopping the comps, I saw CityGates’ name on the door, and that’s actually how they came to us. They were just included in the process, and it worked out really well.

Joe Fairless: I think you said two lessons… Was that the first one?

Frank Roessler: That’s the first one. Now, the second one – putting in granite and spending almost 7k/unit on a 1980’s property… This is, again, case-by-case issue, and sometimes that makes sense. This happened to be the fifth project that we had done. We looked at these units and we said, “Let’s do granite, let’s do stainless steel, let’s make it look beautiful.” We replaced the vanities in the bathrooms, all the lights, floors – you name it. We made these units shine and sparkle, and I do love that we did that. It showed that we’re capable of doing something like that, and we got great rents. I think we would have gotten just a little lower rents by spending a lot less. I think we didn’t need to go to that level with this demographic, and we couldn’t have gotten away just resurfacing the  counters, even just maybe black appliances… The list from where the units were beforehand, completely unrenovated, with white appliances that were ten years old, carpets that had just been washed for five straight years, vintage lighting in there – from where it was to where we took it, I think we didn’t need to take it that far, and we could have gotten a higher ROI by maybe only spending $4,500/ unit. So I think that was the lessons learned of “Don’t under-renovate, but renovate to the appropriate level for the demographic.”

So now we found that if we do scale back and do the latter of what I said, which we’ve done on several properties in this submarket since – like Estencia and Belterra – you’re still gonna get a very, very strong rent bump, and therefore ROI, but you don’t necessarily need to do that big of a project and spend that much money… So I’d say that was also a lesson learned for us on this property, too.

Joe Fairless: For future properties and future acquisitions, what aspects of the subject property and the comps do you look at in order to determine “Okay, granite countertops, stainless steel” vs. “Resurfacing and black appliances”, or something in between?

Frank Roessler: Yeah, it depends on two things, which go hand in hand. One, what are the comps doing? Are you going to be the nicest property on the block? You probably don’t wanna be there… And then two, what is the income level of the demographic at that property and at the comps? Are you buying a property that has primarily workforce housing, that while they do want nicer units, maybe can’t necessarily afford a $200 premium, but could afford a $100 premium? I’m just picking those numbers our arbitrarily, but saying pay attention to the average household income of your residents, as well as the demographic around.

Or are you on a property that maybe because it’s built in the year 2000, it’s more of a core-plus asset, and it has a white collar demographic to it, with average  household incomes of 85k or greater? Typically, on deals like that and the comps around it you will see a higher quality of finish that often includes granite and stainless steel appliances, undermount sink etc.

In order to really determine if you can get that return on investment that I’ve just described, you really need to take a look at the market, take a look at the comps, and take a  look at the demographics of your property.

Joe Fairless: The business plan was five years, we sold it in less than half than that… What were the results of this project?

Frank Roessler: So we did an outstanding job on not only executing the business plan… We renovated approximately 60% of the asset, so we left a lot of meat left on the bone. We bought at the right time, we sold at the right time… We actually sold this property at 50% greater than what we bought it for, which is incredible to do. And on top of that, we sold in 18 months.

What happened with this asset… As you mentioned, it was a five-year hold, we sold in less than two years – we got an outstanding offer on the property… And like you said, we only had one equity partner; we have a fiduciary responsibility to bring any offers that come our way to our equity partner. That’s what we did. He certainly liked the price. The price more than doubled the equity invested into this property in less than two years. We actually pushed them a little bit more on price, we made them go non-refundable from day one, so that we didn’t waste anyone’s time here and have them retrade or back out of the deal later… And they agreed to the terms that we had them change, and it resulted in a fantastic investment in a very short period of time.

Joe Fairless: The 50% greater than what we bought it for – how much of that was cap rate compression versus NOI growth?

Frank Roessler: It’s definitely both. Our NOI increased 20% over 18 months, so that’s incredible right there, and that’s a direct result of our ability to execute on our business plan. But on that of that, there absolutely was cap rate compression, instead of expansion. We bought this deal at what I believe was around a 5.8 cap, and sold at a 5.2 cap. So if we would have done nothing, we would have made money. But if we would have done nothing, maybe it also wouldn’t have been an impressive return and we just wouldn’t have sold, we just would have held. It was the result of both – good timing and a good business plan.

Joe Fairless: Anything else you think we should talk about as it relates to this deal?

Frank Roessler: I took notes before this, and we went through everything that I wanted to discuss. We bought at the right time, but we did a lot of research as well in the submarket. We bought from a good group, that we’d transacted with before, and it was helpful, because we preserved our reputation by closing and closing at the right price. And then we had an appropriate business plan for the investment, and that’s what resulted in such a great return for us on this one.

Joe Fairless: And then the lessons learned – one, the lesson on picking the right team to do this type of project, and also perhaps not have this be a project that if you’re starting out, or if you’re doing large apartment communities, then this type of renovation overhaul probably isn’t the best first one for you to do, but certainly there’s a lot of value that you can add to it and it can be profitable.

And two is knowing how to renovate to the appropriate levels based on the demographic. And as you mentioned, the two things to look at is 1) what are the comps doing, and 2) what’s the income level of the demographic?

Frank, thanks so much for being on the show, great hanging out with you. I’m confident this is valuable, especially for multifamily investors who listen to this show, which probably makes up a vast majority of the audience. I hope you have a best ever day, and we’ll talk to you soon.

Frank Roessler: Thank you, Joe. I appreciate it.

Joe Fairless: And Best Ever listeners, you can go to AshscroftCapital.com and read Frank’s bio. I skipped over it, but you can check that out, and then see what we’ve got going on over there, too.

The Best Show Ever flyer with guest Grant Sabatier

JF1617: Millenial Real Estate Investor Reaches Financial Independence By The Age Of 30 with Grant Sabatier

From no job and submitting endless amounts of job applications to entrepreneur and financial independence, all in just 6 years time. Grant got his start by getting certified with Google Ad Words and hit the ground running, getting into real estate investing along the way. Hear how he was able to work his way up to a $500k income per year in a fairly short amount of time. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Grant Sabatier Real Estate Background:

  • Creator of Millennial Money and host of multiple finance podcasts
  • Writes about personal finance, investing, entrepreneurship, and mindfulness and has been featured in over 200 media outlets
  • Based in New York City, NY
  • Say hi to him at https://millennialmoney.com/
  • Best Ever Book: Art of Living

 


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TRANSCRIPTION

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

Grant Sabatier: I’m good, Joe. How are you?

Joe Fairless: I am doing well, and nice to have you on the show. Grant is the creator of Millennial Money and host of a whole bunch of finance podcasts. He writes about personal finance, investing, entrepreneurship and mindfulness, and has been featured in over 200 media outlets. His website is millennialmoney.com. Based in New York City now… With that being said, Grant, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Grant Sabatier: Yeah, thanks for the introduction, Joe. My story starts back when I was 24. I was living at home with my parents after college. I’d bounced around a number of different jobs and ended up getting laid off twice, and finding myself back living in my parents’ home, and sleeping in the bed that I slept in as a seven-year-old kid. That’s where my financial independence journey started. It was at that point that I had to completely reinvent myself, and from that day in August 2010 it took me five years and three months to reach financial independence, at the age of 30. So there was a five-year period where literally 18 hours a day I was making money, launching side hustles, growing two different companies, and I really had a ton of fun doing it… And real estate actually factored pretty heavily into that entire process, and I’m excited to chat about it.

Joe Fairless: Well, I’m excited for you to chat about it, too. Just so we know how you define it, how much money were you making by the age of 30?

Grant Sabatier: By the age of 30 I was making a little over half a million dollars. After investing in taxes and all that good stuff, I was saving about 62% of my income.

Joe Fairless: Alright, got it. So you were making a little over $500,000, and you were saving – did I hear that correct, 62% of that?

Grant Sabatier: Yeah, that’s correct.

Joe Fairless: Well, you piqued my curiosity… Let’s go back to your seven-year-old bed – what did you do from there?

Grant Sabatier: So in August 2010 my parents had told me that I could crash there for about three months, and I was at month two, and I’d sent out over 200 resumes really into the abyss, and hadn’t gotten a single call back. It was at this time I was doing a search on my phone and I saw a little Google mobile ad, and I was like, “Huh, what’s this?” I’d never seen one before. So I started researching it and figured out that you could make between 10% and 20% of media spend to manage Google Ad campaigns. And what’s more exciting is that you could actually get certified through Google for free.

I had no digital ad experience whatsoever, didn’t know anything about Google campaigns, so I dove into their free YouTube videos, and the Google AdWords University, and I got certified. It took me about 30 days to do that, and I applied to a couple digital marketing jobs and ended up getting the first one that I applied to, and was off to the races, making $50,000. It was at that time where I was like, “Okay, I’m gonna treat money very differently. I’m gonna figure this out.” Money is really essentially just a human invention. How can I really put all of my attitudes, all of my thoughts about money, all of my emotions, how can I put them in a box and set them to the side, and look at money as a philosophical concept, as something we embed so much meaning into?

So I started looking at money from so many different angles, and really fell in love with not only how it can change your life, but how to make money in really counter-intuitive ways. And real estate factored in pretty heavily into this process…

I got kicked out of my parents’ house pretty quickly, got the job that gave me the boot, and I knew…

Joe Fairless: Did you try to convince them to stay?

Grant Sabatier: I was ready to leave, but it was the first time–

Joe Fairless: You weren’t being proactive about it though… They kind of came up to you…

Grant Sabatier: It was kind of just a confluence of a couple weeks where it was like “Alright, you’ve gotta get out of here.”

Joe Fairless: [laughs]

Grant Sabatier: I’d gotten my first paycheck and I was excited to start investing the money, and I was like “Hey, if I can just stay here for free…” But it was short-lived…

Joe Fairless: “Get outta here, kid…”, okay…

Grant Sabatier: Yeah, absolutely. So the best decision that I made was to move into the cheapest apartment that I could find. I’d moved to Chicago, that was where the job was, I got settled, and I found a $700/month apartment, when all my friends were living in $1,500-$2,500 a month apartments; I found literally the cheapest apartment that I could find. It had two bedrooms; I needed two bedrooms, because I wanted to have a little office…

Joe Fairless: Bad area?

Grant Sabatier: It wasn’t a bad area, it was a transitioning area; it was just a really crappy apartment. It was old… If it had been fixed up, it probably would have gone for double the price, but it was just something the landlord and the management company were just super-lazy… And actually, once I moved out a couple years later, they ended up redoing it and almost did double the rent. So I found kind of an undervalued place, and was able to bank pretty much every dollar that I would have spent on housing above that into investments.

Just renting that apartment for a little over two years, I’ve now calculated that investing the additional money – I invested an extra $800/month – it’s actually helped me earn almost $200,000 more, from my investments.

Joe Fairless: Wow. Did you have student loans, by the way?

Grant Sabatier: I had a little bit of student loans. What I had more of was credit card debt. I’d actually gotten an academic scholarship, so I was very fortunate. I’d taken out a few loans, but I paid them off over the course of actually college, because I didn’t wanna graduate with debt.

Joe Fairless: Good for you.

Grant Sabatier: But I did have about $20,000 in credit card debt.

Joe Fairless: Dang! Okay…

Grant Sabatier: I was certainly hedging there… But just the compounding impact of that one decision of renting the crappiest apartment I could, the one that my now-wife but then girlfriend – she literally wouldn’t come over to hang out… [laughs] I’m happy she stayed with me, but I focused on reducing that expense, and then two years in I ended up buying my first property in downtown Chicago, which was in a loft building, actually where they printed the Sears Catalog for almost 70 years. I found a really incredibly unique property; I took the route of how can I find a property that has immense historic value, and is also something — you can’t go and build it today. I had over 100 feet of windows, east-facing… Just an absolutely gorgeous apartment.

I was able to buy it — I looked specifically in the month of November and December, because Chicago, when it’s zero degrees, very few people are looking for properties, and I was able to find a guy who had been trying to sell it for a little while, and he was desperate and he needed to get it sold by the end of the year, so I was able to lock in about $60,000 worth of equity immediately, just on the purchase price. Then I bought a parking spot from him separately for cash, I paid $12,000 for a $40,000 parking spot, and that got me into investing in parking spots, which is something I never scaled, but actually ended up being quite profitable from a real estate investment standpoint.

Joe Fairless: What was the purchase price?

Grant Sabatier: Of the property in Chicago?

Joe Fairless: Yup.

Grant Sabatier: $272,000.

Joe Fairless: Okay, cool.

Grant Sabatier: This was a 2,000 square foot open loft, 11th floor, national historic landmark building. The only kicker was the assessments were incredibly high, just because the head of the board – he was really conservative, and they wanted to keep a million dollars in reserves at all time. So that was one of the kickers that ended up making it a little challenging to rent once I did leave the apartment.

Joe Fairless: Okay.

Grant Sabatier: So yeah, that was a really great investment from a real estate standpoint. There was also — I started Airbnb-ing it quite early. So one of the things I was actually able to do is I had a friend who lived a couple of blocks away, and I was able to rent out my loft for about $300/night, and for a period of about six months I was able to completely offset the cost of the mortgage on that property, and basically bank and invest the difference.

My girlfriend ended up moving in with me, and that was no longer possible, but I was able to bank that investment. Since then, I’ve invested in a couple of other properties also in historic buildings. That’s something I’m particularly passionate about. One of the things in Chicago, actually, during this time – they’d built about 5,000 rental units within a quarter of a mile of this property, and what was interesting is the property has actually more than doubled in value since I bought it in the year 2012. So it was an incredible investment. And then these historic properties are something – like I said, I’m incredibly passionate about that, because they’re not making any more of them… And they’re really like art pieces, in a way, and that’s something — I wanted to invest in the most beautiful homes that I could invest in, because a) they attract a more sophisticated renter, and b) you’re able to get a higher price point because it’s something that is very unique.

Joe Fairless: So within these five years you’ve been buying in historic buildings, renting them out via Airbnb, offsetting your mortgage, making some cash on the side… What else were you doing?

Grant Sabatier: Oh gosh, so many other things… So at this point I had two digital marketing agencies that I was growing.

Joe Fairless: So you left your 50k job.

Grant Sabatier: Yeah, I left the 50k job after a year. That year was an incredible learning experience for me. It was like getting a Ph.D. in digital marketing, because I was working for a 30-person agency, and I was like a sponge; I spent as much time as I could with the SEO guys, with the web developers, with the designers… But most importantly, I spent time with the sales guys, and one of the things I quickly learned was that our agency wouldn’t take clients who wouldn’t spend at least $10,000 a month in fees on campaign management, or pay less than $50,000 for a website… So I was able to form a good relationship with the sales guys and say “Hey, if someone calls us and they have a smaller budget, could I talk to them?” And it was completely fine with the CEO, so I was able to pick up some of my first clients. They’d called the agency, but they were too small for us to work with, and then through that process I became very good at selling.

By the end of that first year I was making over $300,000 just through my own side hustles, in addition to the full-time gig. So I made the leap and went full-time into entrepreneurship, with the specific goal of trying to make a million dollars as quickly as possible. That was the singular focus of my life… Fortunately, but kind of unfortunately too, because I did burn through the end of my twenties working literally the entire time. But I had a goal – I wanted to essentially buy my freedom as quickly as I could. I never wanted tens of millions of dollars, I simply wanted enough that it would give me the freedom to go and pursue other projects that I was passionate about, and just take off the stress of having to always grind.

I was on the road at one point 35 weeks a year, servicing clients and speaking at conferences. I knew that that wasn’t going to be sustainable long-term. I also didn’t want to work till I was 65. Both of my parents were in their early 60’s and they were still working, still  chucking away, and that was one of the things — I was so burnt out, even by the time I was 24. I was like, “Alright, I’ve gotta find the escape hatch here.” And I fell in love with money in the process, not from a greedy perspective; I fell in love with the potential that it has to transform people’s lives, and it’s never been easier in history to make more money, whether it’s through real estate, or side-hustling, or making money online, or selling your knowledge. It has literally never been easier in history, but a lot of people think they need degrees, or they have to spend just tons and tons of time learning. Not that it’s easy, but it’s easier, and that’s one of the things that really excited me most.

I went from selling $500 websites to $50,000 websites within a year. I was really hooked on “Hey, how do sell the same thing to two different people, but get one to pay literally a hundred times more?”

Joe Fairless: How do you do that?

Grant Sabatier: Great question. It really comes down to understanding the perception of the value of what you’re selling. I think a lot of people think about making money the wrong way. They’re like, “I’ve gotta be busy, I’ve gotta spend all this time, I’ve gotta even over-deliver”, and while delivering obviously value and over-delivering is one path to making money, I quickly learned that what was most important from the people who were buying from me was that they wanted to look good to their boss, or their boss’ boss, or their board. So I focused a lot of my energy on helping my clients communicate the value of what I was doing and what they were doing through working with me all the way up the food chain. So I actually ended up spending an inordinate amount of time crafting e-mails that my clients could send to their boss, could send to their board, could send to their CEO, being like “Here’s what we’re doing, here’s how it’s working out, here’s the data, here’s the new website.”

So when I sort of flipped it, and instead of trying to just sell my client and add value to my client, I made my clients look really good to their bosses, and that’s what I realized that I was actually selling… Because a website is a website. But if you can get the director of marketing at a big law firm – if you can make them look amazing to the CMO and to the partners, that’s a win/win across the board. They’re gonna give you more business, they’re gonna give you more referrals, so I focused on increasing the perceived value of what I was selling, in addition to — you can sell the same thing to two people, but the person who has more money and more at stake from that thing that you’re creating, they’re obviously more likely to pay you more money as well. So I was able to go in really as a solo practitioner first, and be able to under-price big agencies using the pitch “Hey, it’s me and my small team. We’re able to move faster, we’re gonna over-deliver, and we’re gonna make you look amazing to your boss.”

So that ended up being the secret sauce, and I figured out kind of the art and science of pricing… And then sometimes you’ve just gotta shoot for the fences, and that was one of the things I did a couple of times – the first six-figure engagement that I sold was literally a lead that had come through my website, and I just was like “I’ve got a lot going on right now… Hey, I’m gonna try to make $100,000 on this website”, and I did. That was something where if I’d undervalued and underestimated and just not tried, I never would have gotten there.

And then finally, the last thing is I spent a significant amount of time calculating my actual real hourly wage. This is one of the things a lot of the people don’t understand – even if you’re making $200,000 in your full-time job, but you have to travel all the time, you have to spend time decompressing from work, you actually are spending a lot more time on your job than you probably realize, and when you divide that number of actual hours that you’re spending into your salary or your paycheck… I did this with one of my friends who was making over $300,000 as a management consultant, and when we actually ran the numbers, he was making $37/hour, because he was on the road so often. He quit his job a couple weeks later and then moved into a less-paying job that took less time, so his actual real hourly wage almost doubled, and he was a lot happier.

A lot of people spend significant amounts of time trying to make money, when they could move to a job making less money, but they’d actually free up more time. And then the final thing is once I realized that a vast majority of companies are really just legal Ponzi schemes – they’re built so the person at the top makes the most money – that was a huge eye-opener for me, and that was something that I share with my audience, that I’ve talked a lot about… Because at the end of the day, the whole value of a company, of being a company owner, is that you can create efficiency and you can leverage other people’s time. So then you’re in the business of selling someone else’s time instead of selling your own, and that becomes really the multiplier effect, where I was then able to start selling websites, and I just became the broker and the connector of supply and demand; I actually wasn’t doing any of the work myself. So that’s where the value exchange can happen, because you no longer have to trade as much – if any – of your time for money.

Joe Fairless: Yeah, those are some profound insights – sell someone else’s time, not your own, and in order to  really let that resonate or have that sink in, then calculate how much you’re actually making on an hourly wage…

And then the other thing that you mentioned is make the clients look really good to their bosses. I always think “How does this apply towards what I’m doing?” and holy moly, it applies with my investors when we’re performing on a project – make sure that they’re aware of it. Now, I do monthly communications, but what you might have inspired me to do (I don’t know, I have to think through it a little bit more) is whenever we do a refinance or a sale of one of our properties (or a supplemental loan) I might do a special e-mail just recapping what all has transpired in more of a storytelling format, versus what I have done in the past, which was just “Hey, here’s what you’re receiving and here’s the status of the property”, just so that they can then forward that on to their significant other, who probably is their boss, in some ways… And their significant other can then look at that and be like “Hey, nice job. I’m proud of you for finding this investment”, and that makes them feel better, and then it just increases their likelihood of reinvesting.

Grant Sabatier: Absolutely. Life is storytelling. It really is. And the better you are at communicating the value, just like you said, of being an investor in one of your projects, the higher the retention, the better the person who invested with you looks… And this is one of the things – yes, more and more of our lives are being automated, but that actually increases the value of human connection. You have to think that the written word has only existed for a very small amount of the time that we’ve been humans. A vast majority of the time we were telling stories; it’s really wired into our DNA. So the better you are at telling stories and communicating that value, the more seamless that it is, the better people feel, the stronger the connection.

One of the things that I’ve done in a lot of my writing is the more open and vulnerable I am, the bigger the audience grows, the stronger the connection. When I make a mistake with money, I talk about it, I’m open about it. That’s one of the things probably a little more difficult to do when you have investors, but you could be like, “Hey, here’s the mistake that I’ve made, too”, because actually, people connect with those human mistakes, because it creates a level playing field. Everyone likes to see the human side, they don’t just wanna see all fluff, all plump, all positive storytelling as well. I think that was important too when I was selling – when I messed up, I owned it. When I made a mistake, I owned it. And sometimes even leading with that and then giving the good story became a pretty effective process.

Joe Fairless: And we’ll get into one of those mistakes, but first, what’s your best real estate investing advice ever?

Grant Sabatier: Oh gosh, try to live for free as long as you can, and there’s a number of ways to obviously live for free. You can stay with your parents, but no one wants to do that. The easier way is especially when you’re young live in your closet, live in the basement, live in a spare room, rent out the other rooms for as long as you can. Nothing is forever – that’s one of the big mistakes people think… It’s like, “Ugh, gosh, my living situation sucks. I don’t want this”, but be uncomfortable for a couple years so you can bank the difference, because every single dollar that you save today is worth significantly more than a dollar you’re gonna save in five years. So try to save and invest as much of that money as you can, whether it’s through living with someone else or through house-hacking, all the different forms of house-hacking that are out there… Or even house-sitting. Some of the best investors that I know – they’re flexible and they go from city to city and they house-sit, and they live for free.

The average American spends most of their money on housing. That’s the biggest expense. So if you can keep that as low as possible, or even make money from it and bank the difference, you’re gonna be better off than 99% of the people out there.

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

Grant Sabatier: Let’s do it, Joe.

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

Break: [00:22:29].11] to [00:23:19].12]

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

Grant Sabatier: The Art of Living by Thich Nhat Hanh.

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

Grant Sabatier: We’ve talked about all of them, so… I will say the first property. I think the first property you buy is the most important real estate investment that you’re gonna make in your career.

Joe Fairless: Top three (in order) sources of income for you right now?

Grant Sabatier: Right now blog affiliate income and sponsored content income is number one. Number two would be income from my book contract and my book deal, and number three would be rental income.

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

Grant Sabatier: That’s a good question… I actually recently sent a wire internationally to the wrong place.

Joe Fairless: Did you get it back?

Grant Sabatier: I did get it back, but it took quite a bit of time.

Joe Fairless: A couple sleepless nights?

Grant Sabatier: No, it didn’t lead to any sleepless nights, but it was just a careless mistake that ended up costing me a lot of money. I also realized recently that an affiliate link on my website had been wrong for over two months and I lost about $20,000 worth of income from it.

Joe Fairless: Why did the wire cost you a lot of money if you got the money back?

Grant Sabatier: I wouldn’t say it cost me money… It was just one of those situations where – it took about three months to get money back – for a period I thought that it was completely lost. It was about 40k, so it wasn’t an insignificant amount of money.

Joe Fairless: That wasn’t a sleepless night, when you thought you’d lost $40,000?

Grant Sabatier: No, actually, interestingly, the more money that I’ve made – and I don’t have tens of millions of dollars – the less it kind of means to me. It has diminishing returns, in a way. So something like that — well, it more upsets me than it does keep me up at night, because I’m the kind of guy… If I actually never got it back, I’d actually probably double down and try to make that $40,000 back faster, just because it would give me more motivation… But I’ve probably lost 150k-170k just in the past couple months on some of my investment declines, just because the market has been so crazy… But once again, you only lose the money when you withdraw, when you lock it in, but those types of shifts, and even — actually, the $25,000 affiliate link made me more upset than the wire.

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

Grant Sabatier: Oh, this is great… Giving back my time. Actually, most of the time that I do now is mission-driven work. Sometimes there’s not a high ROI from a monetary standpoint at all, but I find that giving your time is actually significantly more valuable than giving money, and that’s one of the things that I’ve learned, and I’m trying to give my time away as much as I can.

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

Grant Sabatier: Best two ways are millennialmoney.com, and then I have a book dropping, FinancialFreedomBook.com. My books is coming out in a bunch of different languages all over the world, February 5th. Check it out. It’s everything that I’ve learned about money over the past eight years, and how you can become financially independent as fast as possible. So check out millennialmoney.com, FinancialFreedomBook.com, and these are the best two places to find me.

Joe Fairless: Well, congrats on the upcoming book, and looking forward to checking that out. And thank you so much for being on the show, talking about how you’ve progressed from living with your parents after graduating college, getting laid off a couple times as a 24-year-old, to making over $500,000 in five years from that time, and how you were doing that  through your digital marketing companies, and how you did that through those companies, which was you made clients look really good to their bosses, powered through some limiting beliefs, and looked at your time relative to your hourly wage that you were spending, and then started selling other people’s time, not your own, and scaled the company accordingly, and what you’ve done to date since then. Really interesting.

Also, on the real estate front, buying in historic buildings, and buying things that can’t be built today. You mentioned earlier a bunch of floor-to-ceiling windows facing East. I assume that’s a big deal in Chicago, the facing East part… Is that the river, is that what it would face?

Grant Sabatier: Yeah, you’re facing the river, and just the sun in the morning. It could be five degrees outside, but it’d 70 in and warm, because you get that morning sun.

Joe Fairless: Oh, beautiful. Well, thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Grant Sabatier: Thanks, Joe. I really appreciate it.

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JF1600: Let’s Talk About How To Keep More Of Your Money with Holly Williams

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Holly and Joe are long time friends, going back to Joe’s advertising days when they were co-workers. She invested in one of his first deals and never looked back. She discovered a tremendous way to invest her money and not only keep more of it, but also create more of it for herself. Today she’s a full time investor and entrepreneur focused on helping others find these opportunities to keep and create more money. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

Holly Williams: I’m doing great, Joe. How about yourself?

Joe Fairless: I am doing great as well, and…

Holly Williams: Happy new year!

Joe Fairless: Happy new year, yes. Episode 55 is when we did our interview the first time you were on the show. That is so long ago, that’s so many episodes ago, so here’s what we’re gonna do – usually, I do a Skillset Sunday or Situation Saturday with returning guests, but it’s been so long… I mean, you were the 55th interview guest on the show; we’re just gonna do a normal episode.

Best Ever listeners, if you recognize Holly, then props to you, because you have probably listened to every single episode since you listened to episode 55… And just as a refresher in case you haven’t checked out episode 55, which is titled “A creative alternative to just renting out your house”, we talked about a lease option that she did with a home that she owned… Holly is a passive investor with a passion for helping others passively invest and keep more of their money.

She’s the founder of MQ Ventures and a partner in over 100 million dollars in multifamily communities. She’s based in New York City. You can learn more about what she does and her company at KeepMore.com. With that being said, Holly, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Holly Williams: Sure, Joe. I have single-family home investing experience, as with episode 55; we had a four-family house in Brooklyn, we’ve done  a couple of single-family homes in other markets – Texas, whatever… So I think that’s how you and I met each other, was through mutual friends in Texas, and a board that we’re on together…

Joe Fairless: Texas Tech?

Holly Williams: …and all of that. So I’ve always known that real estate investing was a good thing. But I had this career in advertising that I liked; I’ve bumbled around from 1990, I came here to New York City and never left. I met my husband, and we have a daughter… And eventually sold my Manhattan apartment and moved to Brooklyn… So I’ve had real estate back and forth, but I had this career, and I did everything that you’re supposed to do.

We all have a map on how the world’s supposed to be, and my map was to go to school, do well, get a job, have a kid, get married, not necessarily in that order… And then I was also taught to buy real estate, but it’s a lot of work. It’s a lot of work to invest in real estate, it’s tough to get started if you have a full-time job… Something usually has to give, especially if you’ve got a job like I had, where I was traveling all over the place… And I was really happy and did okay; I did pretty well… And it was really you – I have to credit you, and I try to give it back and share what I know now – because you’ve really shared… I guess we’ve learned a lot together in some of it, but you gave me an opportunity to kind of help you get going. So I invested with you…

It’s so funny, because my investors today say “Holly, I’m just doing this because of you. I trust you. I don’t understand–” and I’m like “Listen, you’ve gotta understand this.” They’re like, “Well, I understand it, but I’m just not sure, I’m scared”, blah-blah-blah. And they understand it cognitively, but they almost think it’s too good to be true, because we’re programmed to think otherwise; we’re programmed to be given a set amount of choices for investments.

So when you came to me and said, “Holly, I’m gonna buy an apartment complex”, I was like, “Whatever, go for it.” So I invested in that with you and began to learn about this. Then you called me one day and said “I’m gonna buy another one. Can you help me raise some money?” and I thought it would be so easy. I thought that everybody would understand, because I know a lot of people with a lot of money from my career, and I thought, “Oh, I’ll make a few phone calls.” Oh, my goodness…! Because that’s when it really dawned on me that I wasn’t the only one that didn’t understand this; I wasn’t the only high-earning professional — I didn’t even know what an accredited investor was, and I was one… And there was just a lot that I did not know. So the more I began talking about what I was doing, the more people just didn’t get it; they thought it was too good to be true – that’s what I’ve heard so many times.

The reason it’s probably too good to be true is because in a way we’re by-passing Wall-Street. The framework that most of us – or at least I’ll talk about myself – were brought up in is to invest in mutual funds, let professionals handle it, and all of that. And basically, they’re taking cuts all the way down the line, and we are conditioned – at least I am conditioned – to believe that my 6%-7% is good. As a matter of fact, I’m ecstatic about a 6%-7%, or I used to be. Now I know that there are other ways that you can do things.

Now, that said, I’m still in other investments. You shouldn’t put all your eggs in one basket, but this has changed my life, and I was able to quit my job about three months ago, and I focus now on just providing access for people to some these — I know you, of course, and I’ve been totally immersed in this for about the last 3, 4, 5 years, and the more I do it… I know what a good deal looks like, I know how to evaluate it, I know what questions to ask, and I’ve learned all of this over the last little while just networking and talking to people that were smarter than me, including yourself, and it’s a great thing.

So that’s what Keep More is all about, because I was working like crazy… So all this stuff kind of happened at one time. You started doing this… Once you start making a little money — I’m 56 years old, so… Anybody that lives in New York City in much else than a third-floor walk-up with three roommates is an accredited investor. There’s a good chance that you are, right…? And we pay taxes like crazy, and [unintelligible [00:07:50].13] on our stocks, and stuff, and it says “Woo-hoo! You made $8,000. Woo-hoo, you made…”, but we’re paying capital gains taxes on all this.

I didn’t snap to this, and I’m a smart person. I’m not that smart, but I’m pretty smart. And when I got a 1099 that said “Congratulations, you’ve made $65,000 on these mutual funds, and because you’re in this tax hell that you live in, in New York City, you owe $30,000 in capital gains on this $65,000 gain”, and I’m like, “Wait– whoa… Hold the phone… I didn’t take $65,000 out. I don’t have $65,000. You’re saying I made $65,000, but I don’t have it!” And that is what happens in mutual funds. They’re buying and selling stocks and they’re making money all the way around. It says maybe I’ve got 0.75% expense ratio, and all that… Read the fine print.

People tell me that PPMs for passive real estate investing are scary, “It tells you all the horrible things that can go wrong…” Are you kidding me? Any mutual fund…? Forget it, you’ll never invest in another one. You can’t even find them. You have to ask for those… They give you the summaries online, and they’re about 150 pages, and if you ask them, then they send you this inch-thick thing, the terms and conditions of the mutual fund.

I’m not against them, I’m still in them, all that stuff, but I know now a lot more than I knew then, and I know now that I don’t understand; I thought I did, because I can tell you about Kenney Ratios, and stuff… I thought that I understood the stock market, but at the end of the day I really don’t. Apple went down today, right? I don’t understand all of what the trade agreements — what the impact is on Apple’s business. I don’t understand their margins, I don’t understand the worldwide share of cell phones. I’m not in that business, so I don’t know enough to invest in it.

In real estate, I know. I’ve been there, I know the pitfalls, I know what we’re doing to mitigate the risks… I don’t know that we’re gonna make five times the thing, I don’t know what the return is, but I can tell you that capital preservation — when you’re buying for cashflow… I can tell you what happened to rents in 2008, and in class B properties like we focus on they did not go down, and most of the time they went up.

Joe Fairless: That $65,000 gain on the mutual fund – I hadn’t heard about that… So you didn’t cash out that mutual fund, and that’s why you just had to pay $35,000 out of pocket?

Holly Williams: Yeah, because he was buying and selling. And they all do that, we just don’t know it. Look, I can’t tell you, Joe, the number of people I’ve told that story to, and they’ve come back and said “Listen, I’ve looked at my taxes last year, and you know what, I’ve paid capital gains taxes on 20k on a mutual fund that was outside of an IRA.” It’s crazy.

I don’t believe that these financial advisors come to work and say “I’m gonna screw over my clients.” I really don’t. I think that their blueprint is the same as ours. They don’t know that there are other opportunities.

A lot of my investors want to do what I’m doing and tell all their friends, right? And I was on a call recently, and this person was a real estate professional, they were a realtor, and they’d been a realtor for like 20 years in New Jersey. They had no idea that [unintelligible [00:11:30].19] Not a clue. Or the ins and outs, or how it worked, or anything. Not a clue. It’s amazing.

Joe Fairless: When you’re speaking to investors who aren’t familiar with it, what are some of the questions that you typically get?

Holly Williams: They believe it’s a REIT, first of all. “How is this different from a REIT?” They ask “How do you manage the apartments? You’re not in Dallas, you’re not in Tennessee  (or wherever the property is), so how do you manage that? Why doesn’t everybody do this?”

Joe Fairless: What’s your answer to that one?

Holly Williams: Oh, that’s the best. I told my CPA, I said “For the love of God, why didn’t you tell me about this?” My first accountant — I’ve switched accounts, but even my new accountant didn’t tell me, really. He said “Holly, they’re not available. They’re not something that is offered; you have to know someone. You have to have a relationship with the person that has one of these.” So only my friends and family and people I know can even participate. And then on top of that, you have to be an accredited investor, which is an entirely other conversation, which I could talk a long time on that, too.

The point is that this is private money, and this is what the uber-wealthy people are doing. And God love you, and God love all the people that are really doing this, because I feel it’s my duty to tell people that I love… Because I’ve watched my parents — you see the stock market right now; it’s crazy, right? So if you’re in the stock market, I don’t care how safe — as a matter of fact, I moved some of my daughter’s 529 money over a while ago, about a year ago, because I had a feeling this thing was gonna go… And I moved it to something “very safe.” It’s down. She still goes to college, so don’t worry — my point is that if you are relying on the stock market to live on when you’re retired… Remember, I’m 56, right? If you’re relying on that for income, it’s awesome if it’s up, but it’s not so awesome if it’s down… And you can’t live – or at least me; they tell you “Oh, you’re gonna not spend as much money in retirement”, and I don’t know about anybody else, but that’s not true for me. “You don’t need as much money…” – of course you do.

I watch my parents, [unintelligible [00:14:10].02] and I watched them die in 2010 and 2011, while the stock market was down, and I watched them have to withdraw from their portfolios, and they probably in 2008 had half a million dollars, and when they died it was pretty darn close to where — I was giving them a lot of money, too. And to see that, and to see how hard they worked all their lives, and to see because of the timing that’s what happened… And what is so amazing about this is that your principal can grow, but you get income from it.

So through the course of rolling over and avoiding taxes, I’ve been able to pretty much make enough money to more than pay my bills… So I’m focusing now on spreading the word and making a little income to replace that now. So that’s what I do, and it’s working out quite well. I’m having a great time with it.

I suspect just in the last 3-4 months of doing this full-time, and taking the advice of really smart people that I’ve surrounded myself with, that I’ve been able to really jump-start my business, and I feel like I’m doing some good in the world, actually. I really do.

Joe Fairless: Based on your experience in real estate, starting out as a passive investor and now being a general partner on deals, what is your best real estate investing advice ever?

Holly Williams: I think that eventually you just have to pull the trigger. You can analyze and analyze, but everything has risks, and I think you need to understand those risks, and then ask the question “What are you doing to mitigate the risks?” If you ask your financial advisor what they’re doing to mitigate the risks, they can’t answer that.

Eventually, it takes a leap of faith. Everyone is afraid… Not everyone, but at least me. And I think that you have to just trust that you know more than you think you know, and if you’re dealing with good people that have the same sort of life framework… There are bad deals that you can invest in in real estate syndication; there are people that are doing it different ways than I like to do it. So you’ve gotta get with like-minded people, that have the same goals, because that’s what it’s about. You can do fix and flips, you can buy stranded properties that need a doctor, that you go in and stabilize them, you can build ground-up construction, you can do a lot of different things. I don’t know enough about that to invest in it, and I’m not sure I would because it’s riskier than I like to do; I’m not comfortable with it, especially at the age that I’m at… And most of my investors are the same, because I talk to people like me.

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

Holly Williams: I’m ready.

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

Break: [00:17:07].15] to [00:18:15].04]

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

Holly Williams: Recently read… I would say “Never Split the Difference.” Everybody read it, but I did, too. It’s good.

Joe Fairless: What’s something that you’ve implemented in your business from that book?

Holly Williams: I think just to shut up. And I haven’t done that in this interview, but…

Joe Fairless: Well, I’m interviewing you, of course.

Holly Williams: [laughs]

Joe Fairless: I would hope you wouldn’t shut up. Good. Alright… What’s the best ever deal that you’ve done?

Holly Williams: Well, my Manhattan apartment was a good one, and that’s not a syndication… But I would say the best one I’ve done is the first one that you called me on and you were trying to raise money. I try to do what I say I’m gonna do. It’s important to me to do that. So I told you I was gonna raise some money, and I didn’t. It was harder than I thought. I was talking to a friend, “You sold your last company for 350 million dollars. What is wrong with you, why are you afraid to do this?” Now this person is on board, but he wasn’t four years ago, or whatever.

So I’ve put a lot of money into that first deal, and it was THE best thing I could have ever done with that money.

Joe Fairless: What’s a mistake you’ve made since you’ve gone full-time in this business?

Holly Williams: I think every mistake that I’ve made has been more of non-action rather than action. And I don’t even know if it’s a mistake… We do what we do when we’re ready to do it, and when we feel comfortable to do it. I tell investors all the time, “Don’t do this if you’re not feeling it. If you’re gonna stay up at night worrying about it, don’t do it.”

It’s more of a non-action, and I — again, and I don’t think I’m unique… You’re smarter than you think. At the end of the day, there are so many people smarter than me; and if you’re the smartest person in the room, you’re in the wrong room. But I really do kind of know what I’m talking about, and it’s more believing that and internalizing that, and I think that just getting myself in the right framework… Because we are given this blueprint for how life is, and you’re not supposed to leave a high-paying executive job, you’re not supposed to do that. That blueprint is outdated, because it really was okay for me to do that, but it’s amazing how I was afraid; even though cognitively I knew what the answers were, I was still afraid to do it.

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

Holly Williams: I think just sharing… There’s a lot of different ways, but I honestly believe that what I’m doing, providing access to these types of investments to people. I try to give back what I’ve been taught freely, so that’s really the way I give back. I’m beginning to get involved with some things, time-wise… I used to have more money than time, and now I’ve got a little more time, so check with me about a year from now and see what I’m doing time-wise… But I donate to a lot of things.

Joe Fairless: What’s the best way the Best Ever listeners can learn more about what you’ve got going on?

Holly Williams: KeepMore.com. That’s really my mantra of paying way too much tax, and… It’s not that people are being like “I don’t want them to know because I wanna hog it all myself”, but they don’t want you to know because they wanna hog it all themselves, right? [laughs] Because nobody would pay taxes.

Joe Fairless: Well, Holly, I loved the passion… You speak with conviction, because it’s a personal story. It’s one that you have experienced first-hand, you’ve seen the benefits of investing in the type of deals that we put together, and that mutual fund tax thing – that’s crazy, to be taxed on money that you don’t have in your bank, because it’s still in a mutual fund, but you’re still getting taxed on it… That’s insanity.

Holly Williams: I’m putting together a presentation and I have that 1099, and I have the tax return on how much capital gain taxes I pay. It’s really true.

Joe Fairless: Thanks for sharing your story. Great catching up with you again. I hope you have a best ever day, and we’ll talk to you soon.

Holly Williams: Thank you, Joe.

Flyer for Joe Fairless real estate show with guest Chao Cheng-Shorland

JF1589: Blockchain Real Estate Investor Helps Source Deals with Chao Cheng-Shorland

Listen to the Episode Below (20:46)
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Chao is with us today to talk about how investors can search properties, make offers, and purchase real estate directly on the blockchain. She created a company to help investors and agents do this after she saw the need for a product like this in the marketplace. Hear how her technology can help your investing and/or the businesses of your real estate investor clients. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Chao Cheng-Shorland Real Estate Background:

  • Co-founder and CEO of ShelterZoom Corp
  • They are the first real estate technology company to deliver a blockchain based real estate offer and acceptance platform to the mass market
  • Based in NYC
  • Say hi to her at https://www.shelterzoom.com/

 


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TRANSCRIPTION

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

Chao Cheng Shorland: Hi! Good, Joe.

Joe Fairless: I’m glad to hear that, and welcome to the show. A little bit about Chao – she is the co-founder and CEO of ShelterZoom Corp. They are the first real estate technology company to deliver a blockchain-based real estate offer and acceptance platform to the mass market. I’m not exactly sure what that means, but Chao is gonna tell us. She’s based in New York City. With that being said, Chao, do you wanna give the Best Ever listeners a little bit more about your background and what your company does?

Chao Cheng Shorland: Yeah, sure. Blockchain is really a very new technology, and it’s like a distributed ledger technology, so it’s very different from the traditional type of technology. As a startup company, we were very fortunate to deliver a blockchain-based platform, which is quite rare on the market at the moment. Our initial focus of the company was really to deliver a deal platform; it’s around real estate offer and acceptance, so for both property purchases and property rentals.

Now the company has grown a fair bit, and we’re really expanding our scope way beyond just offer and acceptance. Now we went really into the end deal space, so it’s really that one-stop marketplace, so people can come do their deals for real estate, and for even other industries as well… We’re expanding beyond, to include services from service providers like legal, mortgage, [unintelligible [00:03:47].07] home inspection, so all kinds of services you can acquire from our marketplace. That’s really probably the background of ShelterZoom.

Joe Fairless: I get blockchain as a technology, and I’ve interviewed people on the show, so I understand that… Help me understand your business model just a little bit more, and I think the best way to do that would be to talk about your ideal customer and how they use your platform. That would help in my mind clear things up a little bit.

Chao Cheng Shorland: Yeah, we  really target the real estate space – three groups of customers. The first group, brokers and agents, so anyone really who’s a professional real estate person. The way they can utilize our platform is they can install what we call the Offer Now and the Rent Now widget. It’s like a plugin for their website.

Then end consumers, the buyers or renters, when they see a property they really like, they can instantly make an offer through us to them. In a way, if they are the listing agent, they can immediately receive the offer, and it’s a qualified lead, and then they can negotiate through our app in the chat, and just track all [unintelligible [00:05:02].15] Then at the end they do the deal with that particular person.

But if they are not a listing agent, they can actually become the buyer agent, so when people submit offers through their own website; then they’re actually representing this person and become the buyer agent, so they can actually get more deals through that way.

Other benefits include they will reduce the paperwork dramatically. It really reduces admin costs, and it makes the deal extremely efficient, and they can pretty much have all the deals on one mobile phone, and they can make the deal on the go, negotiate on the go, and also go back to all the historical record and if they need something after a few months, they can very easily find the deal through the mobile phone and re-check what happened at the time. It’s almost like a virtual office for them, if they want to use it that way. So that’s the one group of audience.

The other group of users – consumers. Now the buyers and the renters or the sellers – they now have really much more control over the deal they have made or they received, because everything is going to be transparent. So they would know as a buyer where their offer is at, and whether the agent viewed that, because as soon as the agent views it, on our dashboard they will see the color actually changes, and the status changes, and they know exactly when the seller will be informed. Then they also can instantly chat with their agent through the chat feature we have.

As a blockchain technology, they also know the offer right in front of them is their own copy; it’s not a copy like a centralized, where people may have a chance to go in and manipulate something. So they can be very assured it’s extremely secure, it’s really tamper-proof. That’s really from the consumer side – it’s really the convenience they receive from our platform. They can make an instant offer, and very soon they can also acquire all the services they need through different service providers in our marketplace. That’s the second group.

The third group is really the service providers. They can come in and offer their service, and it’s almost like advertising their service, but instead of just a service that’s not really tangible, they can actually put a service as a real deal on our platform and say “Hey, I’m offering you 10% off. These are all my terms and conditions.” Then the consumers or even agent can come acquire those services.

So these are the three major groups, but they all really fall under several categories of organizations; even MLS – they can partner with us. Aggregators can partner with us, franchise or technology companies providing other types of products – they can utilize our platform as well.

Joe Fairless: I can see with the brokers and the consumers, how it would benefit both the consumer and the broker if — well, I’ll just call the consumer the buyer…

Chao Cheng Shorland: Yes.

Joe Fairless: So if the buyer is on the agent’s website, likes some properties that he/she sees, and the agent has your plugin installed on their website – if I heard you correctly, that means that the buyer can utilize that plugin to make an offer immediately, and there’s not nearly as much paperwork and communication and back and forth. Is that accurate?

Chao Cheng Shorland: Yes, very accurate. That’s right. And one of the concerns buyers or renters have is the security, because they don’t really want to put on the internet so much of their personal details… So that kind of explains why until now there was not much online purchase or rental in real estate, because it’s such a large transaction. But with blockchain, that kind of concern really immediately goes away, because really no one can see that when you have a private key. It’s almost like a safe – you can open it up, then see the data inside. The only people who have the key are the people in the deal, so the seller and the agent. Even us – we won’t be able to see anything inside. That really gives you the assurance that data is not going to be harvested. People can actually really feel secure to make an online offer.

Joe Fairless: Besides security, what’s been the objection that you’ve heard most frequently in terms of adoption for your services?

Chao Cheng Shorland: I think people are not used to the concept that so many parties can come to negotiate through an online app, or a mobile app, or web browser. People still really incline towards the old way of practice, and want to be face to face, especially the older generation of brokers. They think face to face is more personal, which actually has been the practice for years… Which definitely has benefits. But what actually people sometimes fail to see is more and more people are now very comfortable with doing deals online, or through internet, or virtual rooms…

What we’re creating is really a virtual room, and especially the millennials are coming through and they will have more and more money; they will be the [unintelligible [00:10:17].12] buying properties or renting properties, and the older generation will be more like downgrading to the smaller-sized homes… And that’s really when the technology will really take off. They actually will require these kinds of applications to facilitate transactions. Millennials are much more comfortable with it, rather than going to someone’s office for a couple of hours, going through the paperwork. So that’s really not the practice anymore.

Joe Fairless: If I’m an agent right now – which I’m not, but if I was a real estate agent and I heard this interview, if I wanted to have your plugin on my website, so that people could simply go to my website with my listings and immediately make an offer on the deal, I would be able to use that plugin and make that happen. Is that correct?

Chao Cheng Shorland: Yes. It’s actually really simple – they can just go to our website, ShelterZoom.com, and sign up as an affiliate. As soon as they sign up, within 24 hours we will actually give them the widget and the links as well. So even before they install the widget on their website – they either can ask to install, or they can install themselves, because we provide the full instructions… They already can start using that link to make an offer, or share with their clients and ask them  to make an offer. So it’s almost instant – as soon as they sign up, they will receive the package and then they can start using that.

Joe Fairless: How do you make money?

Chao Cheng Shorland: At the moment we’re actually providing this service for free. The first year we’re really looking for adoption, and also while we’re still improving the technology and making it much more rich and robust. From the beginning of next year, which is towards the later part  of quarter one, we’re going to release the full stack to the marketplace. At that point in time we’ll start charging.

There will be multiple revenues we’re really looking to generate. One of them is what we call transaction – once people actually sign a deal, then they need to pay us a fee. We think it’s very fair; if the deal doesn’t happen, then they don’t really need to pay a fee, but if the deal actually happens, then we will charge a platform fee.

Then other ones, like the referral. If the service provider gets the service through our platform, our marketplace, then the service provider will pay us a small fee. These are just two examples, and they are kind of the revenue streams. One is the technology platform, because once we actually become the license provider, we will charge a license fee for companies that use our technology… So they can actually integrate and can use that as a kind of a gap filling, or whatever you want to call it, to really fill the capability gap in their own technology landscape.

Joe Fairless: What’s your best advice ever for real estate investors as it relates to your background and experience in the technology space?

Chao Cheng Shorland: That’s a great question. Myself, I’m actually from an enterprise architecture background, so I’m very much kind of a business outcome driven technologist. I actually worked in one of the largest property management funds in Australia before I came here. That was through my own consulting company. I actually advised them on how they do the technology for such a large fund… And through that engagement I came to realize a real tech, which is a prop tech, it actually gives you far more return than the real estate asset itself. At that point in time – I think it was back in 2015 or 2016… And what they actually looked at was – in Australia, every seven years the value of the asset doubles. Before real tech, the last seven years at that point in time was 1,200%. So it was far exceeding any other real estate investment. So that was really the day I came to the realization real tech is actually a very promising business.

I have seen an amazing amount of money coming into the real tech, from venture capital. You probably have heard of SoftBank Vision Fund, which is 100 billion, and they actually try to invest in all the high-growth startups, and companies like [unintelligible [00:14:46].15] really the valuations have gone up so much… This made a lot of those companies very positive cashflow and very good returns for their investors. So I think this sector is going to be really blooming in the next few years.

One of the research I actually did – I think it was called [unintelligible [00:15:11].06] and that really reached a very high level… 8.7 out of 10, if I remember correctly, this year. And then 96% of investors plan to make the same or more investment in prop tech over the next 12 months. So I do think the sector of real estate is actually going to be a shiny star the next few years.

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

Chao Cheng Shorland: Yeah, sure.

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

Break: [00:15:48].02] to [00:17:04].03]

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

Chao Cheng Shorland: Actually, I’m more into the classical novel kind of thing. It’s not really investment-related.

Joe Fairless: That’s fine, yeah. What is it?

Chao Cheng Shorland: It’s actually a Persian book called [unintelligible [00:17:13].02] which is old poems. It’s a masterpiece. It’s similar to the Chinese Dream of the Red Chamber.

Joe Fairless: How do you spell that?

Chao Cheng Shorland: Oh gosh, I don’t know how to spell that actually. [unintelligible [00:17:26].22] I actually was not prepared, sorry.

Joe Fairless: Will you say the name of it again, please?

Chao Cheng Shorland: [unintelligible [00:17:33].23] Really very famous book.

Joe Fairless: Cool. What’s the most rewarding part of what you’re doing right now?

Chao Cheng Shorland: I actually think it’s extremely rewarding in my personal development, and also how I see the world, and being able to manage such a large team, and very talented individuals. We have just such an amazing, talented team… And really develop everyone’s career, and making sure everyone’s on track, and deliver the company’s vision. I think it has been really rewarding.

Joe Fairless: What’s been the least rewarding part of what you’re doing right now?

Chao Cheng Shorland: I really can’t think of anything that’s not rewarding. Even the stress I have, sometimes the frustration, disappointment – it’s all part of the learning experience and of the growth I need to go through to better myself and to better the technology we’re going to provide. So I really don’t think anything negatively; I’m a very positive person, I always see the glass half full.

Joe Fairless: Spoken like a true entrepreneur. What’s the best ever way you like to give back to the community?

Chao Cheng Shorland: Yeah, I’m actually really big into giving back. I do see so many homeless people from where I’m from in Melbourne, and whenever I travel around the world I see a lot of poverty. I really hope one day if ShelterZoom makes a big success, I’d love to give back a lot to the community. And another way of giving back is really continuously educating people about what’s really important, and develop my own team and make each of them a success.

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

Chao Cheng Shorland: They can go to ShelterZoom.com, that’s our website. Also, I’m in Forbes Tech Council, and I write the Technology for Real Estate. I have my own column in Forbes. The other way of getting in touch with us is through our social media. We have the ShelterZoom App, which is our Facebook account, and Twitter, Instagram and Telegram… So we do have quite  a few social media channels people can follow.

Joe Fairless: Chao, thank you so much for being on the show, for educating me and perhaps other Best Ever listeners on the benefits of having a blockchain platform during a deal. You talked about very specifically the brokers and agents, the benefit there with the plugin on the website, the consumer, more transparency throughout the deal, as well as the service providers can get more business as a result of being involved.

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

Chao Cheng Shorland: Thank you so much, Joe. Thank you so much for the opportunity.

Guest Jason Yarusi on the Best Show Ever flyer

JF1538: Return Massive Portions of Investor Equity After Just 13 Months #SkillSetSunday with Jason Yarusi

Listen to the Episode Below (26:20)
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Jason is back on the show to tell us about the execution of an apartment syndication deal in which he was able to return 75% of his investors’ capital in just 13 months. We have actually heard about this deal before, about 400 episodes ago when Jason purchased the property he came on and told us about how he was able to obtain the deal Now we’ll hear about his business plan execution on that same deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Jason Yarusi Real Estate Background:


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Best Ever Listeners:

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

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

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


TRANSCRIPTION

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

First off, I hope you’re having a best ever weekend. Because today is Sunday, we’re gonna do an episode called Skillset Sunday. The purpose of today’s episode is to help you acquire a skillset, so that you can then apply those skills towards your real estate ventures. We’re gonna be talking about a very specific skillset, and that is the skillset of performing on an apartment community, so that you can return 75% of the capital that was invested after 13 months. This isn’t hypothetical, this happened, and it happened with one of my friends, Jason Yarusi, who is back on the show to tell us how he did it. How are you doing, Jason?

Jason Yarusi: Doing great, Joe. Thanks for having me back.

Joe Fairless: My pleasure. You’re gonna add a lot of value to our community through this episode, so I’m grateful you’re on the show. A little bit about Jason, as a refresher – he’s the managing partner of Yarusi Holdings, which is  a full-service real estate and construction company. He has syndicated multiple deals, and in fact, episode 1,157, titled “Case study of a first-time apartment syndication, with Jason Yarusi” – I recommend going to check out that episode and also hear his best ever advice… We’re gonna be talking about a 94-unit. That case study of the first apartment syndication that we talked about on that episode – do you know if that was the 94-unit that we’re talking about today?

Jason Yarusi: It sure is.

Joe Fairless: Beautiful! Okay, so this is great. Part one of this conversation – go listen to episode 1,157, where Jason talks about how he acquired it and the numbers on the deal, and then we have the benefit of being 13 months later now approximately, and you’ve executed on that deal, and you returned approximately 75% of the investor equity after 13  months… So let’s get into some specifics about that deal. But before we do, how about you give the Best Ever listeners a refresher, just to remind them about your background, and then we’ll roll right into this 94-unit and we’ll focus on the execution during this conversation.

Jason Yarusi: Sure. Thanks, Joe. Yes, Yarusi Holdings – full-service real estate construction company; we mainly focus on flips here locally in New Jersey, and wanted for a long time to move into more apartment buildings, so I’ve spent a lot of time learning the process, following others like yourself and just learning the steps to take. The opportunities here in New Jersey were not really hitting on the metrics standpoint from what we were looking for, so we started looking out of state in a few markets, one being Kentucky. We really honed down on Louisville, Kentucky and really just specifically some of the submarkets there.

It took us a long time to find a couple opportunities and then we started offering. The deal that we closed on back in 2017 was a deal that we first offered on about eight or nine months prior to it going under contract, because — basically, our offer was about a million dollars off or apart from what the seller asking price was. It was an off-market opportunity; motivated sellers where the father, or the matriarch, was in his nineties, and the kids who were in their fifties or sixties just at that point were not really involved in the company. They came back and said, “No, thank you”, offered right at their asking price, and we went away. We kept it on our tracking list that this was something that we’ve made note to to go on — anything we offer, we keep a list of it, so we can check back and see what the status was.

So months later we saw this was still having no transaction history; we went back and offered just $50,000 higher than our first offer, and they countered back $600,000 less, and we were able to get it down to close just about a million dollars off their original asking price back in May of 2017.

Joe Fairless: Okay, so that sets the stage for you acquiring the property… A refresher on the business plan, please.

Jason Yarusi: Sure. Class C property, 1972-1975; six buildings built in the South-Central submarket. Basically, it’s an all owners-paid with two of the buildings where the tenants do pay some utilities. It has two boilers on the property; all the original windows. It also had basically high-flush toilets, and from that there was many different avenues from an income standpoint that we could capitalize on… One from just putting in a process for actually screening tenants, application fees, pet fees etc. Then we had rent bumps that were basically anywhere between $75 to $100 under market.

So our strategy from the front part was to have a traffic light rent raise strategy. Now, the tenants that are in the building, just because they’re paying under market doesn’t necessarily mean that they’re bad tenants; they were just being offered less rent, and if I was offered less rent to live in an apartment complex, I wouldn’t say no.

We basically filtered based on their collection history, just a level of green, yellow and red on the tenants standpoint, basically saying that if they’ve been great actors, they’ve been paying on time, really steady in their performance for the prior owners, that we were just gonna do a nominal rent bump.

Joe Fairless: What’s a nominal?

Jason Yarusi: $50 for after, and then $50 after six months. After that, we had yellow, where it was something that we were going to go in there and do $65 for the yellow, and red – basically there were a few bad actors who were continually on the list of having to be filed on, where we’d give them one opportunity where we have to file and they have to pay for filing fees for an eviction; if they came through and paid it, the second time there would be no remorse, we would take it to the action and we would be bringing them to market rate.

So we had that across the board, and we wanted to do this for a point that although we wanted to make sure that we were providing value before we were really taking rents up, so for this we were making sure that we were going forward and improving it. One of the first things we did was go out there and do all the landscaping, completely new signage across the board. Then we started getting into doing other things that can make the property better. We redid the parking lots, other things that ultimately in a value from a bottom line standpoint don’t add in there, but from a performance standpoint to the property it really just makes it perform better, because you’re not having a number of issues just with insurance, or other things.

We started doing concrete flatwork, repainting the parking lots, as I said, and then we did replace two of the boilers to start helping on the utility bill. Past that, we went in and replaced all the toilets, faucets and showerheads across the entire buildings to low-flush toilets and aerators. That has been a tremendous hit. It actually cut our water bill based on the last three months (we’ve just tracked it again) we’re down 32% on our water bill… Noting that this is an all owners-paid property, that goes right to our bottom line; it’s been a huge step for us. It also allowed us that we were able to go back and — it’s not really an area where you can bill back… So building back is in some areas, if it is an all owners-paid property, you will bill back tenants for part of the utility bill; it doesn’t happen on the 600 surrounding units around us, so it wasn’t something we were gonna put into play.

We also implemented, of course, application fees, which they weren’t doing, believe it or not… And simple things — we have an office, a full-time resident manager on site, an office leasing person. The prior office was having trouble with collections, but silly enough, they weren’t allowing the office manager to actually take checks. So the person who was the office manager had to refer them to take the check either to the mail, or go down four miles away and hand it to the office. So just a bunch of things that were very easily correctable for this site.

We installed move-in fees, instead of a deposit. We were finding that the tenant base is always worried about the deposit, the level of possible damage they can make, so we got away with the deposit, took that away and put in a set move-in fee, based on preparing the unit. It’s a one-time move-in fee that’s less than their deposit, and we also–

Joe Fairless: How much?

Jason Yarusi: It’s a $400 move-in fee, and then we do a surety bond on top of that, which would cover us for any damages, up to one month’s rent, that may incur for the life of their stay… And I believe this surety bond is $75; I have to double-check on that. But that still comes under where they would be paying if it was a deposit. The deposit would be in the $525-$550 range.

Joe Fairless: And that covers how much worth of damage?

Jason Yarusi: It covers one month’s rent, depending on where their one month is.

Joe Fairless: Okay.

Jason Yarusi: Past that, we started using some of the programs in the area to our advantage. It was having an occupancy issue with the prior ownership; we took it to 92% within the first couple weeks. We had a number of people skip just because they were not happy with rules, which is fine; it allowed us to quickly turn units. We basically turned about 40% of units until today, and for that no we were able to get those units rented up quickly. It’s a very workforce-driven area, and we’ve used some programs — we have dedicated up to 15% of the building for Section 8 and other programs [unintelligible [00:12:11].14] a veterans program, things that can really help the neighborhood as well.

Joe Fairless: What percent was Section 8 when you took it over?

Jason Yarusi: It was about 7% to 10%. There’s been some — let’s not  say difficulties with Section 8, but there’s been some change in the process they’ve done in Louisville where the inspections have changed their protocol and the payment structure has certain delays based on the government’s dynamic there. I know some other owners who have a very heavy Section 8 where payments are coming in three or four months behind. It’s been very difficult for them. We wanted to keep it at a low rate, no more than 15% of units, just so it’s a dynamic we can use there, but it wasn’t something that was going to cause issues for cashflow if we had to wait 3-4 months.

Joe Fairless: Okay. Just so I am recapping this properly, all the different ways that you ultimately added value, whether it’s from an income or expense standpoint… What I’ve got written down based on what you’ve said, in no particular order – app fees… And how much are the app fees?

Jason Yarusi: App fees is $35.

Joe Fairless: So one, the added application fees of $35. Two, move-in fees instead of a deposit, and the move-in fee is $400, plus on top of that they pay $75 for a surety bond… Did I hear that correctly?

Jason Yarusi: That I have to check, but I’m pretty sure that’s it.

Joe Fairless: Roughly… Okay, got it. No big deal. Okay, let’s see – so that was app fees (1), move-in fees (2), three, better collections; previously it was cumbersome to accept checks, or they did not at all, but now you just accept checks, so there’s better collections… Is that correct?

Jason Yarusi: That is. And that’s a fine line, we find, with this tenant base… Sometimes based on payment – if they get paid Friday, which is maybe the seventh, well that may incur a late fee, and lots of times people happily pay a late fee every month along with their check, just so they can have the availability to pay. So collections – we wanna make sure we’re collecting, but also we’re not always pushing to get rid of late fees, because that can be a great step to increase income as well, if you’re getting $3,000-$4,000 in late fees across a 100-unit building… Well, not $3,000-$4,000, but let’s say $500 in late fees a month, and that’s $6,000/year that’s basically going to your bottom line.

So we’ve improved collections, but we still have late fees and other fees that are coming across the board, just based on cycles for payment.

Joe Fairless: And then the huge thing – at least from what I’ve heard  – is getting that water bill down 32%. This is not an area, according to you, where you can bill back residents, so you found a different way or an additional way (if you could do both) to decrease that bill. How did you decrease the bill 32%?

Jason Yarusi: We changed all the toilets out, we made sure that we did a full unit inspection, and we’ve been continuing to do full unit inspections to check on any leaks, because there were a number of leaks going into the building just within some toilets or just leaking showerheads. We changed out also faucets and shower heads for aerator etc. just to really limit on the water use… So changing over to low-flush [unintelligible [00:15:27].01] just from the massive toilets that were installed, most of them from day one – it’s really reduced the water bill, and that’s been a huge hit.

Joe Fairless: Got it. And what was the investment to do that process?

Jason Yarusi: Honestly, oddly, if you think of the big run overrun, I think it was about $250/toilet across, somewhere in that range. We were able to buy them in bulk, so you do $250 times 94 and you’re talking about $20,000 or so.

Joe Fairless: Cool. And do you off the top of your head know how much value that decrease of 32% of the water bill added to your property, based on a certain cap rate that you use?

Jason Yarusi: We haven’t annualized it yet. I will say if we’re taking 30%, about $450,000.

Joe Fairless: [laughs] Would you do that deal all day long, again and again?

Jason Yarusi: All day long, all day long. We’re actually carrying it over to the next property that we’re rolling the investors into, so yes…

Joe Fairless: What cap rate did you assume there?

Jason Yarusi: Same thing. We actually were at a 7.5%, and I’m using this cap rate 1) based on the area, but 2) based on where the lender put us for the loan, and basically where they put us for the refi as well.

Joe Fairless: Okay. So that was the fourth thing. One, app fees, two, move-in fees, three, better collections by taking checks, four is doing a green program where you decreased the water bill by 32%, and the fourth thing… Holy cow! Did that have the biggest impact on your bottom line?

Jason Yarusi: That definitely had a huge impact. We’ve been able to get a good amount for rent increases as well, slowly pushing ourselves back up to market. We’ve also put in pet fees; we were the only complex, of 600 units in the area, that wasn’t allowing pets, and when we did our inspection, there was actually eight units with pets… So it was a simple thing to put in what was trending right with even the building across the street, $250 non-refundable pet fee, and $25/month for pets.

Of course, these little additions – they don’t seem a lot, but those are things that if you’re not going to be bullish trying to push on rents, where we do syndicate… So we have to be careful, we don’t wanna push on rents and have an occupancy problem. We wanna offer moderate rent increases, but then now perform better by offering these other opportunities where we can bring in other income and decrease expenses.

Joe Fairless: So five would be rent increases, six are pet fees… And then you mentioned you did other things, like concrete flatwork… What is that, for anyone who is not familiar with it?

Jason Yarusi: Sure. The first floor is a floating slab, and the second floor is a slab… So there were some cracks in the slab that were not structural, they just needed to be patched. There were also patches in the sidewalk that needed to be made, and on some of the steps going up some of the railings had some railing issues… Basically concrete where it needed  [unintelligible [00:18:21].06] These were things we would have done, but also basically the lender required a repair checklist that we had to make. So we had our game plan, and we also had 6 and 12-month repair items that were required by the lender. And we basically just went in there and knocked all the items out within five months. We were performing very well at five months, continuing to do our turns, continuing to do — basically, our units turns and our rent raise strategy, but we did have a one-year blackout period on the loan, so we had to wait till month 13, or at least right at that 12-month mark to really start going into the refi process to do the next step here of the business plan.

Joe Fairless: Yeah, and on that next step with the refi process – walk us through that, please.

Jason Yarusi: Sure. So we were performing very well, of course; we did push everything forward, as I said. By month five we had all the construction out of the way and now we could really focus, where — being that this was our first deal, we slammed everything at the same time. We were doing the rent raise strategy while we were doing all the corrections to the property, while we were trying to work on collections, and then do all the lender required repairs. So we put a lot on the plate, and it worked out great. We have a great management partner there, that had been in house construction, and had made the process — of course, with learning experience in there; not everything is always perfect… But it had a lot of the opportunities for us to really just capitalize very quickly.

So once we got to month five, we started to really just push on the rent raise strategy, and then once we got through the blackout period, which was year one, we wanted to go into a permanent loan. We had a Fannie 7-6 ARM product which allowed us to roll into cap-ex, and from there we transitioned to a Freddie 10-year loan product that was basically a fixed rate. For that now we went in and just at the same cap rate we appraised out for over a million dollars more in value, and for that when we did the refi we were able to pull out, with returns for year one, we’ve been able to pull out over 75% of equity and return it to our members, which has been great, and they’ve been very surprised, very happy. It’s been a huge win, and we actually have another opportunity that we have coming up, and they’re all eagerly waiting for that one as well.

Joe Fairless: It appraised for a million dollars more than you bought it for, so basically it appraised for the amount they originally wanted to sell it to you for.

Jason Yarusi: Pretty much, yeah. It’s funny, right?

Joe Fairless: But you had to bunch of stuff to get there, so you were right on the valuation, right?

Jason Yarusi: We were spot on on the valuation, and one of the tidbits for us buying in is that you may feel funny putting an offer so low, but sometimes it just becomes that there’s the expectation of the seller, and then there’s the actual realization of the seller; he can finally realize that the property is not worth their expectation, and for us, after months of negotiation at a lower price point, we ended up basically showing our underwriting to him and saying, “Guys, it’s not that we’re trying to beat you up here… This is just what we can offer based on just the way the property is performing, and this is where we are. We do bring investors to the deal, and this is where we have to be.” That got us across the finish line at that lower price point, to where we really implemented our plan… And with our improvements to where it is, it is now worth where their expectation happened to be (way off) over 24 months ago or so.

Joe Fairless: What’s one thing that went wrong with this property?

Jason Yarusi: We’ve had a couple [unintelligible [00:21:30].22] neighboring building. And the neighboring building is owned by the city; it had tenants, or let’s say not even tenants, but there were people in there that were — basically, there was a shooting there, and drug activity… And it’s not an area where there’s shootings; there’s maybe been two shootings in the last 15 years. So we have one building that’s right by  there that was scaring the tenants, and we had a couple tenants move, and wanted to move in other buildings, so we were worried it was gonna 1) create a really big safety issue for our tenants, and 2) that of course, we’re gonna start to [unintelligible [00:22:00].03] because tenants wanna move.

The city really was not very helpful at first, but then I was able to get in contact with the housing authority and go forward to actually get a detective from a local [unintelligible [00:22:12].26] and they were able to arrest a number of the bad actors over there and really clean up the neighborhood, which has been great. So they’re now performing some kind of rehab on that building where a number of the units were down, in some distress, and that building has come back online, which is gonna rather help the community a lot better than that.

Past that, being that it was an older building, we had an electrical issue, which at first they could have been something of a major issue. There was an electrical wire that somehow they got a [unintelligible [00:22:40].12] into the wire, and it was one of the buildings (23 units) shut down the power of that building for a portion of the day. Luckily, we have a great electrical company that works with the management company and was able to get on site right away, and by 7 PM that night all the power was back on. That could have been a much bigger thing, so they went through the whole building and checked everything, There were three other spots, they fixed them as well.

For us, we wanted tenants there to like where they live and feel safe, first and foremost, and with that, it’s also provided something on a positive note – we’re finding that we wanted to get our tenant base improved just to the point that we have a great tenant base… And past that, we’ve started to offer referrals for them, where they can bring in other tenants. So we’re now having about 30%-40% of our new tenants coming in are coming from referrals, where we offer the tenants who are bringing in the new tenant a $250 referral fee. And that’s good, because you figure if you have a good tenant, they’re bringing in another good person to them, and that’s been very helpful as we continue to make this a better community for people to live.

Joe Fairless: Was that a process that you implemented, or was that existing already, the referral fee?

Jason Yarusi: No, we implemented it. We implemented it and we wanted this to happen. As we were continuing to clean it up, we wanted to give basically guidance to the tenants that we want this to be a great place for them to live… And of course, tenants love when they have friends or cousins or whoever it is live there, so it’s been a win/win from both sides.

Joe Fairless: So to summarize the top three value-add components or tactics that you implemented, in order of the value they created, were what?

Jason Yarusi: So it would be the water savings, and then it would be the rent raise strategy, which at some point will take over the water savings process, but at this point we’re still continuing to have our moderate rent raise strategy. We’re now at about 98% occupancy, so we’ve started to be a little more bullish, but for that point, we’ve basically for year one into year two, we’re just doing the moderate rent raise strategy.

And then lastly was just putting in a proper management process; that adds in the little fees that come with the application fees, move-in fees. That would be third.

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

Jason Yarusi: Sure. You can check out our website, www.yarusiholdings.com. My e-mail is jason@yarusiholdings.com.

Joe Fairless: You’ve just educated us on how to manage a project effectively, so that it returns approximately 75% back to investors within 13 months… Thank you so much for doing so, and I’m sure the Best Ever listeners are thanking you, as well. I hope you have a best ever day, and we’ll talk to you soon.

Jason Yarusi: Thanks, Joe.

Jordan Goodman appearing as guest on the Best Show Ever

JF1524: Heroes Come First: How Our Heroes Can Save Money On Real Estate #SkillSetSunday with Jordan Goodman

Listen to the Episode Below (17:23)
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Jordan has a passion for helping people do better with their money. Today, he’s here to tell us about saving money on real estate, and a way to passively invest in real estate that anyone can do. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Jordan Goodman Real Estate Background:


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Best Ever Listeners:

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

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

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


TRANSCRIPTION

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

First off, I hope you’re having a best ever weekend. Because today is Sunday, we are doing a special segment called Skillset Sunday, where you’re gonna come away with a skill that you will either have honed even more, since you listen to this, or perhaps you will acquire, because you didn’t have the skill. We’re gonna be talking about a couple different things. One is if you’re a doctor, police officer, firefighter, our guest is gonna tell you how you can get great deals on real estate; the topic is “Heroes come first.” And we’re also gonna talk about how to verify mortgages, PMI and escrows, and who knows where the conversation will take us from there, but those are some specific skills that you’ll have at the end of our conversation.

With us today to talk through that, Jordan Goodman. How are you doing, Jordan?

Jordan Goodman: Great to be with you again, Joe.

Joe Fairless: Nice to have you back on the show. A little bit about Jordan – he’s been on the show two other times; one is episode 499, titled “This trick will pay down your mortgage in a few years”, and another is episode 858, “How to verify mortgage payments and score big refunds.” So we actually covered the mortgage thing on the last one, so we’ll focus on “Heroes come first.” If you’re curious about verifying mortgage payments etc. then feel free to listen to episode 858.

With that being said, Jordan, do you wanna give the Best Ever listeners a little bit of a refresher about your background and then we’ll dive into the “Heroes come first”?

Jordan Goodman: I’ve been a personal financial journalist for about 40 years. I was at Money Magazine for 18 years, NBC News for 9 years, Marketplace on Public Radio for 6 years… I’ve done 13 books on different aspects of personal finance, including a lot of real estate things. My website is MoneyAnswers.com, and I’ve got lots of resources there. I do the Money Answers radio show, I’ve got a Money Answers YouTube channel, so I’m there to help people with all their financial questions.

Joe Fairless: 40 years of being a personal financial journalist… What are some bad pieces of advice that you’ve seen out there?

Jordan Goodman: Well, usually it comes in the get-rich-quick category, I should say. Lately, it’s been cryptocurrencies. You invest in Bitcoin and you’re gonna be able to retire the next day, and other cryptocurrencies things like that. People wanna believe these things, but it’s usually not true. So I would say that’s the general category of bad advice I see all the time.

Joe Fairless: Get-rich-quick stuff… And in terms of good, solid advice that you’ve seen the more successful people implement in their business, what would you say falls into that category?

Jordan Goodman: Learn what you’re doing. Don’t just jump into something without understanding what it’s all about. A lot of people will go to a real estate seminar, Joe, and come out of it with 10 pounds of stuff, and they think they’re gonna be a real estate millionaire the next day. It doesn’t work that way. Real estate can be very profitable, but it takes some knowledge. It takes some network of people to make it happen. So don’t expect instant success, which is what everybody is looking for.

That’s why you’ve seen a lot of people over the years sell all kinds of enticing real estate programs, and most people don’t either implement them at all, or give up on it and never succeed.

Joe Fairless: What are your thoughts on trying to time market cycles as real estate investors? You’ve been a financial journalist for 40 years, so you’ve clearly been a part of some cycles..

Jordan Goodman: I’ve seen some big ups and some big downs; it’s about ten years ago that we had the beginning of the financial meltdown, where real estate led on the way down. Before the official meltdown of Lehman Brothers and AIG and Fannie Mae and Freddie Mac, real estate had already been contracting for about two years. So it’s not as though it happens one day. These are cycles that you can get a sense of on the way up and on the way down.

Frankly, right now – it depends on the city, but some things are definitely slowing down. Where I am in the New York area, sales are down about 20%-25% over a year ago, because the new tax law changed. It’s much more expensive on an after-tax cost basis to own real estate that it did before, and you don’t get the full value of those mortgage deductions, state local income taxes, property taxes, things like that. So it’s definitely affected the real estate market.

In some areas like Seattle and San Francisco it’s still super-hot, but I’m seeing signs of slowdowns already. In the mortgage market – fewer mortgage applications, nobody is refinancing their mortgages because rates have gone up, so I’m definitely seeing some signs of slowdown, but not the kind of surge we had before the crash we had ten years ago.

Joe Fairless: Have you interviewed a bunch of people over 40 years in the industry?

Jordan Goodman: Yeah, like hundreds, basically…

Joe Fairless: What’s an interview that stands out?

Jordan Goodman: Related to real estate specifically?

Joe Fairless: Yeah, related to real estate specifically.

Jordan Goodman: There’s a guy named Mitch Stephen I interviewed recently, who just like you came up not knowing real estate, learned about it, and has a huge portfolio of income-earning houses, and he shows people how to do it.

Joe Fairless: Oh yeah, “My Life in 1,000 Houses” author?

Jordan Goodman: That’s right.

Joe Fairless: Yeah. Great book, very entertaining book. That book has come up a couple times recently.

Jordan Goodman: I’ll give you another one – there’s a guy named Lance Edwards, who has something called Big Money in Small Apartments. His whole thing is to buy small apartment buildings – either four units, up to maybe 20, and do very well building a portfolio of income-producing properties.

People have specialties that have worked for them, that they teach to other people. Those are just two of many examples of people that do it right and are successful in real estate.

Joe Fairless: Alright. Let’s talk about Heroes Come First. What is Heroes Come First?

Jordan Goodman: Heroes Come First is a program where heroes get big discounts on buying and selling homes and mortgages. Heroes are defined, Joe, as doctors or anybody in the medical field, dentists, police, firemen, EMTs, military – either current military or veteran – clergy, educators, things like that.

Joe Fairless: Yeah, I like it.

Jordan Goodman: They’re helping professions. And it’s nice to say “Thank you for your service”, but this is actually giving them money, so it’s much better. The website they go to is HeroesComeFirst.com, and there are two things – when you buy a home or sell a home through a real estate agent associated with Heroes Come First, you get a rebate of one quarter of their real estate commission, which can be thousands of dollars, depending on the price of the home. So that saves you money right there.

And then, when you buy a home and get a mortgage, they give you discounts on mortgage rates and all the closing costs, points and fees involved; appraisals, escrow, legal fees, just a whole bunch of different things that they give you discounts. They just have to go through people that are associated with that program, realtors and escrow agents in the lending firms and so on. But there’s a real way of giving back to people who often don’t get much of a  financial reward for being heroes. So again, they can find out more about it at HeroesComeFirst.com. They’ve also got a phone number – 888-437-6114. That’s helped a lot of people who have a hard time — let’s just say the military alone; they have a hard time with what they earn, being able to afford a mortgage and buy a home. It helps a lot of those people get into homes that they wouldn’t be able to afford otherwise.

Joe Fairless: When you speak at a conference and there’s a Q&A session, what are some typical questions that are asked of you?

Jordan Goodman: About this particular subject, or other…?

Joe Fairless: Others, yeah…

Jordan Goodman: What I hear a lot today is “How do I earn a decent yield on my money?” People have money sitting in the bank in checking accounts, CDs, savings accounts, pretty much earning zero, or certainly less than 1%… So “Where can I earn a decent yield on my money today without having to take huge risks?”, that’s a question I get all the time, and I’ve got a good answer for it, if you’d like the answer…

Joe Fairless: What’s the answer?

Jordan Goodman: The answer is secured real estate funds, because those pay 8% yields over a one-year timeframe. You can get monthly checks if you like, or you can reinvest them and have it compound at 8%. There’s a website for that, too – securedrealestatefunds.com. They’ve got a phone number, too: 888-444-2102. Now, this is what are called crowdfunding funds. They get money from the investor, the minimum is $5,000 and a one-year hold, and then they pool the money and they lend short-term to commercial real estate projects all over the country, different kinds: medical buildings, apartment buildings, assisted living, student housing, all kinds of different projects. And the people who have been running this fund have been doing this for 30 years, and they’re very careful about who they lend to… So it’s a way of getting [unintelligible [00:11:48].27] the price of the shares doesn’t really fluctuate up or down. It stays pretty much at $10/share. So there’s a way without having to take any principal risk, to earn 8% on your money as long as you can put in $5,000 and hold it in there for a minimum of one year.

Joe Fairless: What do you personally invest in?

Jordan Goodman: I have that, I have a diversified portfolio of stocks, I do some really conservative things, like real estate investment trusts and master limited partnerships, and I do some aggressive things – I do some high-tech stocks, lately I’ve been doing some cannabis stocks, I dabble in options a little bit… So I kind of do some conservative stuff and some aggressive stuff.

Joe Fairless: What was the thing you said after REITs?

Jordan Goodman: Master limited partnerships, MLPs.

Joe Fairless: What’s a master limited partnership?

Jordan Goodman: A master limited partnership is a publicly-traded company that typically owns oil and gas pipelines that bring the oil and gas from the fields where it’s discovered to the refineries. They have a huge capital investment to put the pipelines in, but once they’re in, it’s like a toll road, and they’re collecting money as the oil and gas is being transported through their pipes. They have yields of 4%, 5%, 6%, and they don’t trade up and down that much… But it’s a nice way of getting a decent yield, which you can reinvest.

It trades more on the transmission cost of oil and gas than the price of oil and gas itself. I’ve got several of those that worked out quite well.

Joe Fairless: Why REITs?

Jordan Goodman: REITs are a way to buy institutional real estate. You can have different kinds, you can have them regionally, like just Washington DC area, or just retail, or just office buildings, or just apartment buildings; there’s different kinds. They are interest-rate sensitive vehicles, so when rates go up, they go down; when rates go down, they go up, in general, so you have to kind of realize that… But you can get some pretty decent yields on REITs, and the advantage of a REIT is that they are not taxed at the corporate level as long as they distribute 90% of their income to their shareholders, so you get a bit of a tax break; that’s why the yields can be higher, because they’re not paying corporate taxes… And the same is true of master limited partnerships as well, by the way – they’re not taxed at the corporate level. Only you as a shareholder pay tax on whatever dividends you receive from either a REIT or an MLP.

Joe Fairless: Have you looked into investing in private deals and have you invested in any private deals as a limited partner or a joint venture?

Jordan Goodman: I have not done that, actually. I know people who do it. I don’t have the bandwidth to do all the due diligence on it; in my case it isn’t necessary. The Secured Real Estate Fund kind of does it for me, and I’d rather have them do it and be more passive. And you can do really well being active the way you are, but it’s just not the way I’m put together. I’m doing radio shows, writing books and doing other things all the time… And REITs do something similar – you have a professional manager managing it for you.

Joe Fairless: What’s the latest book you wrote?

Jordan Goodman: The latest book I wrote is Master Your Debt, Slash Your Monthly Payments and Become Debt-Free. That’s the one, when we talked on the earlier episode about the mortgage optimization strategy to pay your mortgage off in 5-7 years instead of 30 years… And I’ve got all kinds of other things in there about improving your credit, and how to get the best mortgage, and credit score… It’s all about the whole world of credit and debt.

Joe Fairless: And that’s episode 499, and then also episode 858 – Jordan talks about verifying mortgage payments. Anything else that we haven’t talked about, that you think we should discuss as it relates to information that real estate investors would be interested in?

Jordan Goodman: I’ve created a special landing page for your folks, that might be helpful for them to take a look at, which is go.moneyanswers.com/bestrei. There’s some links there for them. At my website, at moneyanswers.com, I’ve got all kinds of resources and videos, I’ve got a YouTube channel, and links… I take questions from people… So I’d just love to be a resource to help all your folks. I’ve got quite a few e-mails from your last show to help them make sound decisions in real estate.

If you do it right, it can really work well. You just don’t wanna over-extend yourself, or get into something you’re not really familiar with. Understand it really well before you actually go into action.

Joe Fairless: Jordan, thanks so much for being on the show, talking about the different aspects of, well, bad advice you’ve heard, and good advice that you’ve heard, as well as the “Heroes Come First” program, and some miscellaneous other things that we discussed.

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

Jordan Goodman: Thank you so much, Joe. I really appreciate it.

The Best Show Ever flyer for how to do over $15M in wholesale

JF1485: How To Do Over $15 Million In Wholesales In Just One Year with Steven Libman & Adam Rae

Listen to the Episode Below (28:46)
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Steven and Adam teamed together to build a huge wholesaling business. They also transitioned over to commercial real estate to secure some passive income. If you want to know how to wholesale A LOT of deals and/or want to know more about commercial real estate investing, listen to what they have to say in this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Steven Libman & Adam Rae Real Estate Backgrounds:

  • Two of Three of the Managing Partners of Integrity Capital Group
  • Steven Libman Real Estate Background:
  • Has spent over 10 years in real estate as a broker at first, then an investor
  • Managing Partner at one of the largest private investment companies in NJ, doing over $50M in transactions, and over 150 deals a year.
  • Based in NYC, NY
  • Say hi to him at https://www.integritycapitalgroup.com/
  • Best Ever Book: Never Split the Difference
  • Adam Rae Real Estate Background:
  • Has spent most of his career in real estate
  • In 2017 his company, Integrity Invest LLC had grown to be the largest Wholesale Acquisitions Real Estate Investment Firm in Southern Colorado, coordinating the sourcing and deployment of over $9,000,000 into the market over 12 months
  • Based in Colorado Springs, CO
  • Say hi to him at http://www.integrityhg.com/

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


Best Ever Listeners:

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

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

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


TRANSCRIPTION

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

Steven Libman: Doing well.

Adam Rae: Thank you so much for having us.

Joe Fairless: Yeah, my pleasure. A little bit about these two – they are two of the three managing partners of Integrity Capital Group. Steven spent over 10 years in real estate as a broker at first, then an investor, and he’s been a managing partner at one of the largest private investment companies in New Jersey, doing over 50 million in transactions and over 150 deals a year. Based in New York City.

Adam has spent most of his career in real estate. In 2017 his company, Integrity Invest LLC, had grown to be the largest wholesale acquisitions real estate investment firm in Southern Colorado. He is based in Colorado Springs, Colorado.

We’re gonna be primarily talking to Steven, but you’ll hear Adam as well, because I know it’s tough to follow voices with three people on a podcast… With that being said, Steven, do you wanna tell us more about your company’s background and focus?

Steven Libman: Sure. Integrity Capital  Group was established just this year, actually, because we both (Adam and I) run very similar business. We have a wholesale/fix and flip business in New Jersey, and he does the same thing in Colorado. We actually met through a mastermind, and we’re both on track to do probably 15-20 million dollars in each state.

The name of our company is Integrity Holdings Group, the name of his is Integrity Invest, and the goal has always been to get from wholesaling into commercial real estate and multifamily. Just through meeting over the last year, and being of like mind – he is cut from the same cloth – we decided “Hey, why don’t we attack this together?” and in a very short order of time we’ve gotten thrust into a couple of pretty large multi-million-dollar commercial deals, and we just kind of hit the ground running.

So here we are, and our business model is to raise capital from private investors and deploy that into safe, securitized, and providing higher than expected returns on commercial real estate deals.

Joe Fairless: The primary reason why you two partnered up is so that you could go into commercial deals?

Steven Libman: Correct. Our businesses still operate kind of on their own now, and are — Integrity Capital Group was established specifically for commercial.

Joe Fairless: You both have, it sounds like, flourishing wholesale companies, 15-20 million in each state, if I heard you correctly… Why did you choose to partner with an individual who has similar experience, versus choosing to partner with someone who has commercial experience, since you wanted to get into commercial deals?

Steven Libman: Great question. That’s kind of one of the things that has always driven us, is to find like-minded people and find people of different skillsets. The experience level in commercial was both where we wanted to go, but it was more important to find people that were kind of similarly minded when it came to values and relationship, and where our family goals were, and things like that. So that was the most important piece of the puzzle for us when creating a team, and we all have different skillsets… So Adam’s genius zone is different than mine and different than mine, and different from Travis’, who’s not on the call today… But the three of us meshed really well, and that’s why we started the company. But to your point, the deals that we are involved in are co-sponsoring with guys that have a ton of experience. Collectively, they own about 2,000 units, and we’re building a self-storage facility down in Orlando with one of them, and acquiring 152 units in Arizona for another one… So we certainly get the value of partnering with people with that experience. For our core group and what our company was gonna be doing, we just decided that the three of us would make the best fit.

Joe Fairless: 15 million dollars on track this year – that’s great for anyone who’s listening, but especially it’s inspiring for people in that particular area. How much money do you make when you do 15 million dollars in wholesaling?

Steven Libman: So that’s just total transactional volume, and you skew statistics to make them sound really good, and that’s that one. But to put it in perspective, in 2016 we did 16 deals for $240,000 in revenue. This year we’ll do about 180 for 2,4 million dollars in revenue. So it’s been an extremely quick growth curve for us.

Adam, I forget what your numbers look like from two years ago till now…?

Adam Rae: Two years ago we did 21 deals for about $400,000 in revenue (just under, 380k). And this year we’re on track to do 88 deals with like 1.4-1.8, somewhere in there.

Joe Fairless: And just so I’m clear, revenue is the total amount of income, not necessarily the profit, correct?

Steven Libman: Correct. About a 35% profit margin.

Joe Fairless: Okay, so like for the 1.4 now we do 35% of that, and that’s about where you’re netting out from a profit standpoint.

Adam Rae: Yeah. My profit margin is about 33.76%, roughly…

Joe Fairless: About…? [laughter]

Adam Rae: Yeah, I’m a numbers guy.

Steven Libman: It depends if you’re in growth mode, too. So when we were doing extreme growth mode, that might have dipped down to 20%-25%, because we were pumping money into new markets, and new marketing channels, and things like that. So it fluctuates, but that’s the goal.

Joe Fairless: Interesting. I never heard that type of percentage expressed as a profit just for wholesalers; that’s great to know. When there’s a certain amount of revenue, then approximately — well, I don’t remember the percent that you gave, Adam, but approximately 35% of that is profit. That’s pretty cool.

Why go into commercial? Why not just continue to scale from 15 to 20 million to 100 million in wholesale?

Steven Libman: I think we’ll both have the same answer for this, and we’ve discussed it a lot, obviously, before we went into commercial. It’s because of passive income. Cashflow ebbs and flows significantly in a fix and flip business and in a wholesale business. And at the beginning of every month you hit the reset button… So you’re sending marketing pieces out, you’re spending more money on pay-per-click, you’re sending your acquisition people out on new appointments, and it’s just a heavy-lift at the beginning of every single month.

As entrepreneurs, I think we always wanted something that would create some passivity in our lives, and commercial offers that. We’re watching other guys that are building their businesses, and now that we have a business that’s kind of printing some cash that we can turn into passive income, that was always the goal for us.

Adam Rae: And then the second thing is Steven and I were headed down the path of partnering to build a monster single-family portfolio in different regional locations we were scouting, different cities around the country, trying to look at local partners, and I’ve got a small 23 rental portfolio in Colorado, so I have some experience with our passive income and growing that one house at the time, and we just looked at the amount of energy that it takes to source, find, fix and then deploying that capital, even in a small amount, into a  single-family house across the country… And then also looking at analyzing the numbers of a large, large commercial project.

To be honest, we’ve both done a lot of residential deals and we looked at our time commitments and said “My goodness, I can add three zeroes to this deal and it’s about the same amount of work as flipping three houses and buying two rentals”, but the payoff on the back-end has a couple extra zeroes on it, and then we can actually scale if we combine both of our ability to build businesses together. And we are talking every day anyway, so…

Joe Fairless: It sounds like two things. One is the endless heavy-lifting cycle that is wholesaling, because you’re constantly ramping up the machine, and then the time commitment in terms of opportunity cost too, and being able to scale.

When you two made that decision to go into commercial, what were some of your first steps?

Steven Libman: I would love to say that it was methodical, and I would love that we sat and wrote our plans of what we were going to do, but the truth of the matter is that we were at a mastermind together in Baltimore not more than 60 days ago, and a sponsor that I had been communicating with reached out and said “Hey, if you guys wanna get involved in this deal and you can raise six million bucks, then let’s talk about that.”

I went, I found Adam, I said “What do you think? Do you think we should paint ourselves in a corner and commit to doing this?”, and…

Adam Rae: Yes.

Steven Libman: He said “Yeah, I think we should.” [laughter] So we did, and just last week we closed on 14 acres of land with 1,193 approved self-storage units on it, just outside of Orlando.

Joe Fairless: Wow.

Steven Libman: And we just closed on the two million dollars of the land last week, and we’re in the process of closing out the second round for the 12 million dollars worth of construction cost for that. How did we get started? It was a violent shove into it, and our eternal need to say yes to things kind of got us in there, and then that just really opened the door for us to go side by side with a sponsor who has a lot of experience with 100 million dollars of assets under management, and to just learn and watch and figure it out… We’ve been raising money for a long time with our single-family fix and flip business, so we thought it was achievable, and it was, and now we get to take the ride.

Joe Fairless: What was something that surprised you as you got started having those conversations with investors?

Steven Libman: I think first it’s how many people are really interested in creating some passive income for themselves. When you’re paying double market returns to your investors, they get excited about that. So I would say that it was not easier than we thought, but initially the conversations were a little bit different, where “Hey, we’re gonna deploy your capital now for 3-5 years, versus 3-6 months” and people were excited about that. So the people that we’ve already had relationships with were saying “Yeah, that’s kind of what I was hoping you guys would do.” So it turns out it was the right move.

Joe Fairless: New development… I heard that right, correct?

Adam Rae: Correct. Ground-up.

Joe Fairless: Ground-up development. You definitely got into this with a violent shove, as you described, Steven. Did  you get any pushback on ground-up development?

Steven Libman: No. We actually have some experience in that. Travis, our third partner, is from the underground utility and site development world, so he has a lot of that background, so we’re confident that we can oversee that project with a solid fiduciary responsibility to our investors. Then also in New Jersey in 2018 we’ve taken down some, divided and either improved or approved over 100 lots for single-family development, so… It’s not that different, except storage doesn’t have any kitchens and baths. Well, maybe one or two baths, but it’s a little bit different of a process, so it goes much quicker than that larger single-family development stuff.

Joe Fairless: You’re working on another project, too. I think you said you’ve got that and something else, right?

Steven Libman: Yeah, so in just about 30 days we’re getting ready to close on 152 units in Yuma, Arizona. That’s a little bit different. It’s a cash-flowing asset already. We’ll make some changes to it cosmetically and operationally that will create some value… But yeah, we’re still in the middle of raising the final round for that as well. That’s a really exciting project as well.

Joe Fairless: And how much are you bringing into that deal?

Steven Libman: 2.6.

Joe Fairless: How long does it take you to raise 2.6 million?

Steven Libman: Hopefully less than 30 days.

Joe Fairless: It’s in process, it sounds like.

Steven Libman: Yeah, exactly. It’s in process, doing two projects side by side, with different risk tolerances. Ground-up means a different risk tolerance than the stabilized asset, so… Different investors, lots of conversations, but we’ll see. I wish we had a better dataset for that.

The goal moving forward is to continually meet with investors that like what our portfolio is turning out to be, and then as those deals pop up, we don’t have to play behind the 8-ball, because right now a little bit we are.

Joe Fairless: What have you noticed you’ve had to give more attention to as it relates to your wholesale business that you thought was on auto-pilot, but then not so much?

Steven Libman: For us, and I think for Adam too in the next couple of months, the goal is — for us, we’ve already identified and are starting the onboarding process for a COO, so that they can take the operations day-to-day off of our hands. But as much as we like to say everything’s on autopilot, you don’t need a COO if it’s on autopilot. Nothing’s really ever on autopilot. Marketing changes, your response rates change, your appointment quality changes, acquisitions people sometimes get sick or go on vacation so you’ve gotta step in and the business still has to run… But I think we’ve done a really good job, and I know that Adam has too in his wholesale business created a really good culture of accountability and team play where everybody knows that they are part of the [unintelligible [00:16:42].09] where we all hold each other up. If you have that type of accountability to everybody on the team, then everybody works really hard and that’s the culture that we’ve created, and that has been the biggest win for us in terms of making sure that things continue to run… Because if they don’t wanna run it for themselves, they wanna run it for their teammates, and nobody’s ever wanted to run it just for us; that’s been really helpful.

Adam Rae: One of the big surprising things on my end has been as I’ve started to shift my focus, I’ve realized I’m less important to my business than I actually thought.

Joe Fairless: That’s good.

Adam Rae: Not in the sense that I haven’t given a lot to it and made a lot of things work, but at the end of the day if I take an extra 24-48 hours to get back on a problem, by the time I get back to if I’ve noticed over the last couple of months somebody on my team has taken that opportunity to step up, usually, and has solved that problem prior to me being able to get to it. Actually, that’s been the most surprising thing, and exciting to see some of those team members step up into situations that you didn’t know that they could handle… But now my attention being pulled in another direction has given me the opportunity to see them do that, and my trust in that is growing, for sure.

Joe Fairless: What’s the short to medium-term vision in terms of asset class? Because you’ve got a couple different asset classes in commercial right now.

Steven Libman: We like multifamily and we like self-storage… The reason being is that during the last great recession, storage was the only asset class to continually gain throughout the recession, and multifamily because we like to have impact on people’s places that they live. People always need a place to live, and if we can impact that in a positive way, I would say that it’s arguably one of the other stable asset classes. If you buy those things right, and you manage them properly, then you can do a really good job and win. Not that we know how to run a self-storage facility, but CubeSmart is gonna sign on, and they are the ones that are gonna be running that facility for us. Then we have great asset managers and property managers to help us run those other multifamily assets.

Joe Fairless: What’s been a surprising challenge as it relates to getting into commercial and having those investor conversations that you didn’t think you’d come across, or maybe questions that they asked that you didn’t think you’d come across?

Steven Libman: First, I think it’s a slower process. I think that what makes the two deals that we’re in right now significantly more challenging is timeframes. People need time to discuss a property with you, they need to figure out where their investment moneys are coming from. If they’re rolling it over from a 401K or an IRA, that’s not a one-week process.

We have self-directed IRA companies that work with us often and they can do it in between two and three weeks, which is really fast… But I’d say that that’s been in my mind the biggest challenge – just making sure that you’re consistently having these conversations, because if it’s not this deal for an investor, it will be the next one… And making sure that you’re continually keeping them involved and updating them with where we’re at with the current project, and when they get excited for that, to make sure that they’re ready for the next one.

Joe Fairless: How do you grow your list of investors?

Steven Libman: I’m sure you can answer that better than we can at this point… [laughs]

Joe Fairless: Well, I’m not being interviewed though… [laughter]

Steven Libman: That’s been a strategy point for us over the last couple of weeks, figuring out exactly how to build those relationships… But I think like anything else in your business that you find has been really successful, it’s based on relationship, and making sure that you’re out there meeting people, getting connected, and just letting people know what you’re doing.

There’s a book called Getting the Money, and she talks about how she’s not Wonderwoman, but her and Wonderwoman have never been seen in the same room together,  and her point was don’t forget to tell people who you are and what you do… And I find that most of our investors work with us more for who we are than what we do. It’s great that we can provide good returns to them, and certainly, it’s better than what they have seen in the past… But it’s mostly about who we are and why we do what we do.

I think as you continue to build that base of good investors, they have friends, they have family, they have other people that they want to introduce you to, because you’ve done a good job for them, and they trust you, and you just continue to build that relationship.

Joe Fairless: And the self-storage investment near Orlando – if you can think about the one investor who invested the most amount, how did you meet him or her?

Steven Libman: By asking the question of the people that we know “Who else should we know that you think should be in this deal?”

Joe Fairless: Wow. And they introduced you to this person who wrote the biggest check.

Steven Libman: Yeah. It was one point of separation, and we said “Hey, this is what we’re doing.” They were involved in the deal themselves on a lighter scale, and we said “Who else do you know that we should be talking to?” and about an hour later we had the largest commitment that we had. So it’s our warm network.

Joe Fairless: Wow, that’s incredible.

Steven Libman: That’s the key – making sure that people know what you’re doing, and then asking those questions, “Who else should we be talking to about this?”

Adam Rae: But it’s also positioning yourself. We’ve done due diligence on this, we have a partner who his job is to blow up deals for us… Because we’ll get excited about something and we’ll send it across Travis’ desk, and he spends 36 hours in the numbers and says “Hey guys, here’s three yellow flags. We need to resolve these before we go any further.”

When we’re having conversations with people, we’ve found something that is intriguing, enticing and exciting, and we’re not even gonna take it out to somebody unless we feel like this is something we’re gonna put our own money into, that we’re excited about, and that truly has a great opportunity… So positioning ourselves as the prize, and just asking for who else possibly would be interested in something like this, and people are excited to share it.

So just capitalizing on that relationship and warm network, because you have built the trust and you have that relationship with someone and they’re excited to bring somebody else in that they know, because they trust you.

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

Steven Libman: For me it’s build the team. We started our business in 2011, the wholesaling side, and for five years I built a great job… But you heard the numbers – in 2016 they weren’t great, and now they are. The fear that I had and that was holding me back was I didn’t wanna be responsible for other people’s income. When mentors of mine told me that the value of our business is going to be predicated upon the talent of the people we bring in, it really changed my mindset to say “Wow, if I build a really good team, then I don’t really have anything to worry about.” That changed everything for us.

We started hiring people, and not all of them have worked out, but being able to confidently go in and say that building a rockstar team is gonna build a great company – that’s been the best advice I’ve gotten.

Joe Fairless: Adam, do you have any thoughts?

Adam Rae: Yeah, I would say for me it’s check your ego at the door, and just try and find somebody who’s doing what it is that you wanna do, and model. Just don’t try and recreate the wheel; it’s not complicated, but it’s not easy. So just keep your head down and try what someone else is doing, and stay long enough to really figure it out, and that takes checking your ego.

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

Steven Libman: Let’s do it.

Adam Rae: Let’s do it.

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

Break: [00:24:54].17] to [00:25:41].19]

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

Steven Libman: Never Split the Difference.

Joe Fairless: Best ever deal you’ve done?

Steven Libman: It’s gotta be so far this over a thousand-unit self-storage development deal.

Joe Fairless: What about a deal that has gone full cycle, best ever deal you’ve done?

Steven Libman: Probably the 24-lot subdivision, from entitlement to completion.

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

Steven Libman: So many. Probably making sure that we haven’t touched and felt every piece of it… That’s more in the single-family world, where we had less of a stringent timeframe with the due diligence, and we’ve uncovered some stuff in the deal that we should have known before the deal… Luckily, we still made money on it, but that’s a learning curve for sure.

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

Steven Libman: We work with Samaritan’s Purse, and we donate a portion of the proceeds from every property that we’re involved in to their Clean Water project, digging wells in third-world countries.

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

Steven Libman: IntegrityCapitalGroup.com. My name is Steven, that’s Adam, and our e-mail addresses are just our first name, @IntegrityCapitalGroup.com.

Joe Fairless: Thank you so much for being on the show, talking about how you two have built  wholesaling businesses that are thriving, and now going into commercial deals – two primary reasons why… One is the heavy-lift at the beginning of every month; basically, just ramping up every month, because you’re starting fresh, and two is the opportunity cost, and I believe as Adam said, you could spend the same amount of time, but then you add three zeroes to the deal and it’s a significantly bigger payday for your time…

And the projects that you two talked about, and holy cow, that question that secured the largest investor in your recent deal… That question is “Who else should we know who should be in this deal?” and you’re asking that to a current investor. Now, you already have that rapport build up, and Adam, as you said, it’s not a magical question; when you ask that, people get into a trance and then say “Talk to my uncle Billy. He is a billionaire. He’ll give you money.” [laughter]

Adam Rae: Sometimes… [laughs]

Joe Fairless: Maybe, sometimes… I haven’t met uncle Billy yet, that is a  billionaire, but I’m sure he’s out there… But it is a question that once you have positioned yourself properly, then that question can help you get to another level. Thanks so much for being on the show. I hope you two have a best ever day, and we’ll talk to you soon.

Adam Rae: Thanks, Joe. You too.

Steven Libman: Thank you.

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JF1359: When No One Else Will Lend To You, This Guy Can Help with Michael Chelala

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Michael and his team deal with large development projects and large apartment community owners. Michael, through the company Equicap, specializes in getting creative and financing tough situations that most other lenders will not touch. They also lend in normal situations, and can help almost anyone looking for capital for real estate. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Michael Chelala Real Estate Background:

  • Entrepreneur who loves pursuing a great idea and turning it into a reality
  • Director of Originations for Equicap, a real estate investment banking firm
  • Able to effectively structure financing for complex real estate transactions
  • Based in New York, NY
  • Say hi to him at www.m-equicap.com OR michael@m-equicap.com
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TRANSCRIPTION

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

Michael Chelala: I’m doing good, thanks for having me.

Joe Fairless: Yeah, nice to have you on the show. A little bit about Michael – he is the director of originations for Equicap, which is a real estate investment banking firm. He’s focused on effectively structuring financing for complex real estate transactions. Based in New York City, New York. You can say hi to him at his company’s website, which is in the show notes page.

With that being said, Michael, do you wanna tell us a little bit about your background and your current focus?

Michael Chelala: Absolutely. Like you mentioned, we are a finance firm focused around commercial real estate in New York City. We pride ourselves on our ability to structure debt and equity. We work for developers and owner operators around the country. My background is in finance. We’re a pretty small shop, about 5 or 6 guys here in the office on a daily basis, but we do about a billion dollars in transactions a year, so we’re very active. I think it equates to about 100 deals a year, and we go up and down the capital stack.

We arrange acquisition financing, construction financing, traditional refi’s, special situation deals… We touch all asset classes, from multifamily to industrial, to hospitality. We really like to touch it all; anything that as a commercial real estate component we talk about small businesses, SDA loans… We do it all, really. So yeah, we like the hairy stuff.

Joe Fairless: Give us an example of the hairy stuff. Give us a specific example if you could.

Michael Chelala: I’ll give you an example – last year we had a really interesting deal that came to us in Brooklyn. It was a distressed deal. The client was a couple weeks away from her building going to auction, and her lender was obviously foreclosing on her, and she was looking for an exit. Her building had tons of violation. In New York, the violations can get pretty heavy. You have to be on top of your building, and she wasn’t, so her building ended up going on the AEP list, which is a list of the worst violated buildings in New York City… So a lot of lenders wouldn’t wanna touch that deal.

Well, we did – we found a family office to come in, lend her the money, and pretty much get her out of the sticky situation that she was in, where she was in default. We bought her enough time to reposition the asset and stabilize the situation, and ultimately we got her out of that funky situation that she was in where she almost lost her building. She was able to buy time to clear up the violations, and then find conventional financing thereafter to take out that family office. This is an example of a hairy situation. We work on development deals where–

Joe Fairless: I’d love to talk about the development deals in a second, but I’d love to learn more about how that was specifically structured, just to learn more about, okay, if I have a building in Brooklyn, totally have been messing up, on the worst violation list, the AEP list… Is that it, AEP?

Michael Chelala: Yeah.

Joe Fairless: Okay, the AEP list… And then I come to you and you’re like “Hey, Joe, this is my specialty, you are in good hands. Let me try and take care of it” and then you come to me with the proposal – how is that exactly structured?

Michael Chelala: How is the loan agreement structured [unintelligible [00:04:34].02]

Joe Fairless: Both.

Michael Chelala: Obviously, the most important thing is getting to a place where the lender is capable of coming in, paying off the existing lender, and coming into a new sort of structured deal with the borrower. In this case, the loan was structured as a bridge loan, where the terminal loan was 12 months, and a couple extension options. So the borrower had 12 months time before the new loan would mature, she had a couple options to extend, and within those 12 months she was paying pretty high interest; the borrower is gonna be paying a pretty high interest compared to a conventional [unintelligible [00:05:15].05] but at least she was able to hold on to the asset and get it back to where it had to be.

So the trade-off with the bridge loan is that, hey, you’ve gotta pay up, but it buys you more time to get a distressed asset to where it’s gotta be.

Joe Fairless: And then her exit out in 12 months is she’s now done the stabilization — so the previous lender is paid off, done; now family office comes in…

Michael Chelala: Cleaned up the violations…

Joe Fairless: Cleaned up the violations, okay, and then stabilized it. From a stabilization standpoint, here what specifically are we doing to stabilize the property, other than cleaning up violations?

Michael Chelala: At the time where the property was really in distress, there were a good amount of vacancies. Some of the properties needed some cap ex work, some minor renovations to get them leased up. Once our lender came into the deal, she had that 12 months time to come in, make those minor renovations, get those units leased up, and that’s why she was able to upside the cashflow and get the building performing again.

Joe Fairless: And from a lender standpoint, is the reason why I would lend to an individual in that type of circumstance because if they don’t perform I get the building? And the reason why I say that is because if an owner has gotten to that point where they’ve got all these violations around the naughty list, it sounds like that would be tough to trust that they’ll follow through with this new loan.

Michael Chelala: For sure. I think that any bridge lender that tells you that they’re not worried about getting paid off is probably lying to you. They’re always worried about it, because they’re coming into hairier situations than a conventional bank would… But they definitely need to take into account what the property is worth as is, what they’re lending on, and just in case they run into that issue where they need to take back the keys to the property, they know that their basis is solid and that they would still be able to come out either making a little bit of money or breaking even. But I don’t think that any lenders that at least I deal with intentionally go into a loan to own situations, right?

There’s a lot of lenders out there that people need to look out for, and maybe some of your listeners that are sort of getting into the real estate game, that are looking for private money or “hard money” – you’ve gotta be careful, you’ve gotta make sure that your lenders are not out to just take the property right under your feet; they’re there to work with you… Dealing with those lenders, you’ve gotta be careful.

Joe Fairless: Any particular questions you could ask a lender to try and determine if they’re a loan-to-own type of lender?

Michael Chelala: Yeah, I think it’s important to know how many loans they have out at any given time, how many loans have been paid off, what their level of experience is… Anybody can have money and anybody can be playing in the real estate game, but really how many transactions have you been a part of and who can I call as a reference? Who are one of your borrowers that I can speak to and make sure that the process went smoothly?

And I think deal with debt and equity brokers like myself, that can speak to that, and… I’m accountable, right? A broker is accountable to which lender they pair you up with. Experience is definitely important, and just being able to speak to somebody that can guide you through the process.

Joe Fairless: Now, you were mentioning development deals before we went very deep on this Brooklyn deal. What about a development deal(s) that was challenging?

Michael Chelala: We’re dealing with a few challenging construction deals at the moment. For example, we have a developer that bought a lot that had environmental issues that we needed to clean up in order to acquire that land and then start building on it… But there’s all types of situations that developers can run into.

We also have seen a lot in this market, where people, first-time developers are getting into deals, they don’t budget properly, there’s cost over-runs, they end up falling short of their budget, and they need to upsize their construction loan again.

We worked on deals like that where we’ve taken out a construction loan, then we needed to bring in another construction lender to upsize the loan and give them more money to complete the project. So developers definitely need to be careful and make sure that they budget everything as detailed as they can, so as not to run into that problem.

Joe Fairless: What’s a scenario where I came to you and I said “Hey, I’ve got a really tough situation”, where you say “Joe, you’re screwed… Sorry, I can’t help you.” What would that be?

Michael Chelala: I think if you get to a point where you’re as complete value is falling short of what you owe on the property and what you need to complete the property. That’s when you’re really in trouble. You’ve gotta make sure that you buy things smart, you buy things at a good basis, that you’re not just building to build. You go into it, you’ve gotta run the numbers and make sure that you have room to play, and room for error, because any developer will tell you, it’s never 100% smooth; there’s always gonna be bumps in the road, there’s always gonna be contractors that need a little extra money to do whatever, there’s always cost overruns… You’ve gotta be careful.

Joe Fairless: What’s an approach you take to developing relationships with family offices?

Michael Chelala: I think with family offices you definitely wanna approach the ones that first of all have sort of an interest in real estate; not all family offices play in that game. And I think that you wanna bring good deals to family offices. Some of them play on the equity side, some of them play on the debt size, some of them play on both levels, but I think I’ve developers these relationships over the years by bringing good deals – deals that are strong on paper, that have strong sponsors. That’s primarily it. You wanna make sure that whatever you’re bringing to the table is gonna look good for them.

Joe Fairless: Thinking about that Brooklyn deal where the family office came in – I’m not asking you to name any names, but how did you initially meet a person at that family office?

Michael Chelala: I actually met that person at a networking event that one of my title relationships organized. You’ve gotta go out to these little events that people put together. It was sort of a private thing where a few guys got together and exchanged business cards, that was actually it.

What’s funny about that deal was nobody wanted to touch this deal. There was not a lender under the sun that wanted to touch it. And then the week before we got this thing closed we found this guy. So it was a really quick process.

Joe Fairless: How long have you been a director of originations?

Michael Chelala: Equicap has been around for 15 years. I’ve been here for about 3-4 years now.

Joe Fairless: Okay. With your approach in particular, for the 3-4 years you’ve been there, what’s something you’ve evolved?

Michael Chelala: I’ve definitely been paying more attention to me. In particular, I’ve developed sort of a marketing platform on Instagram, and some of these other media channels… But you’re starting to see more brokers and more developers and more owners put their product to show on these platforms, and I think it’s important to pay attention to that and be a part of it, because I think in the next couple of years it’s gonna grow even more. There’s a lot of people in the industry that aren’t really paying attention to it, but you’d be surprised how many new leads, new contacts, new developers I meet on a daily basis through social media.

Joe Fairless: So you’re a registered broker-dealer?

Michael Chelala: Yes.

Joe Fairless: For someone who’s not familiar with that term, first what is it, and then secondly, what’s the type of compensation that someone can expect to be charged if they work with a broker-dealer?

Michael Chelala: Sure. By the way, before I answer that question, about 90% of deals in New York City on the debt and equity side run through a brokerage, and that’s because brokers in this market are — it’s important to find a good broker, one, and two, you wanna have representation when you’re negotiating with your lenders to make sure that you get the best deal and you see all the options on the table out there, because it’s our job to know all the lenders and equity players out there.

Obviously, I’m biased, but I’m a big believer in people going out and using brokers, and I think the market speaks to that. But as far as what it takes to get into the brokerage world, you need to get license from a city – there’s a series of tests that you can take… And as far as the fees are concerned – different companies offer different sliding scales for their fees and stuff, but typically speaking, on a debt assignment you’re gonna get charged about 1% of the total debt. Then ob equity assignment, equity is usually between 2% and 3%.

You can play with those numbers – sometimes smaller deals or more difficult deals could be a little higher, bigger deals that are a lot easier to get done, cookie-cutter multifamily refinances, you can chop that point down to maybe 0.75%. So there’s some flexibility there.

Joe Fairless: Thank you, I appreciate that. What is your best real estate investing advice ever?

Michael Chelala: I would say to look for hairy situations, special situations. Don’t just go for the fancy-marketed real estate acquisitions. I think that if you wanna find a good deal, you’ve really gotta dig for it. You’ve gotta look for the guy that’s in trouble, or the lady that’s in trouble, that needs help. This way you can structure deals that make sense. You can maybe come into the deal in a unique way… So I think you’ve gotta look for special situations; you’ve gotta look for hairy deals. That’s the best way that you can sort of find the golden opportunities.

Joe Fairless: I’m gonna ask you a follow-up on that, because you’re brokering the money between the person doing the hairy deal, who is at risk, and the lender, who is at risk, but should have a property that they can own if the owner doesn’t adhere to whatever the loan covenants are. So you don’t have skin in the game necessarily; sure, a reputation, but skin in the game. So from looking at a hairy deal – I hear you, that’s where we can get a lot of value, but holy cow, that could be where I lose my shirt… So have you been an operator on these types of deals before?

Michael Chelala: What I’ve done in the past is if I really like a deal, I’ll roll my fee into the…

Joe Fairless: Oh, okay.

Michael Chelala: If it really makes sense, if it really pencils out and you know that the guy that’s running with the transaction knows what he’s doing, then it’s worth taking a shot at, right? Or maybe you split your fee, so you get paid half, and you roll half into the deal.

It becomes a small piece of the transaction, but 12-18 months down the line when there’s another play – whether it’s a sale or a refinance – you can see a little premium on your money. So the answer to that is yes.

Joe Fairless: Certainly more of an alignment of interest with them when you do that. Still, it’s investing money that is a commission, versus perhaps the owner-operator who didn’t earn money with the equity that they put into the deal; they might have had to dip in savings, or something… But still, more of alignment of interest. I didn’t know broker-dealers did that, so that’s pretty cool to know.

Michael Chelala: Yes, it’s definitely a creative way to get involved. And by the way, I wanna mention that these lenders, although they’re lending on a hairier transaction, let’s say, sometimes they like that, because they also recognize that there’s a unique opportunity to come into a special situation that the guy or girl that’s running the deal can create a lot of value and put the lender in a better position to be taken out down the road.

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

Michael Chelala: I’ll give it a shot, man.

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

Break: [00:17:34].29] to [00:18:11].13]

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

Michael Chelala: Best ever book I read… Oh, God… Like a Virgin, Richard Branson.

Joe Fairless: Alright. What is the best ever deal you’ve done that we haven’t talked about?

Michael Chelala: I did an SBA loan for a trendy cafe in New York City called Cafe Grumpy.

Joe Fairless: Why is it the best ever – just because it’s kind of a cool name?

Michael Chelala: If you look up their logo, they’ve got the coolest logo, man. A really cool coffee brand.

Joe Fairless: Alright, where is that located? I don’t know Cafe Grumpy.

Michael Chelala: They have a location in Grand Central, right in the middle of Manhattan, and they’ve got a bunch all over the city. The loan that I got them helped them open up a location downtown.

Joe Fairless: Alright. Yeah, they’ve got a new Miami location, too.

Michael Chelala: They’ve just opened up one in Miami… I think they’ve got a couple in Brooklyn.

Joe Fairless: Yeah, “Roasting in Brooklyn & Brewing Beyond.” Cool! What’s a mistake you’ve made on a transaction?

Michael Chelala: A mistake I’ve made? Hopefully none. I think the only mistakes I’ve made are really presenting things to lenders that hadn’t been fully vetted. What I mean by that is, for example, if a guy comes to me and says his net worth is 10 million dollars and it’s really $500, then that could pose a potential problem, and that’s happened in the past… So it’s definitely important to make sure that the people that you deal with, you vet them and you make sure that what they’re telling you is actually true.

Joe Fairless: That wild swing of net worth has happened before?

Michael Chelala: Maybe not $500, but give or take…

Joe Fairless: [laughs] Give or take $50.

Michael Chelala: Yeah… There’s definitely some cowboys out there, no doubt.

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

Michael Chelala: For me, I like giving back to orphanages. My grandfather was an orphan, so that’s really a soft spot to me, to give back to orphans.

Joe Fairless: And what’s the best ever way the Best Ever listeners can get in touch with you?

Michael Chelala: The best way to reach me is by e-mail, or on my Instagram, just DM me… That’s definitely the best way to reach me.

Joe Fairless: Cool. Do you wanna say your e-mail?

Michael Chelala: It’s michael@m-equicap.com. The Instagram is @thedeveloperclub. On @thedeveloperclub on Instagram you can reach out to me. Either through DM, e-mail me, call me… All my information is there.

Joe Fairless: I loved our case study conversation with the Brooklyn deal. The woman was in trouble, and then you got the family office involved… They bought out the existing lender and structured a new deal with her, as a bridge loan, 12 months, a couple extension options. She cleared up the violations, had some vacancies, cap ex, minor renovations, got it leased up within 12 months, and then exited out into a longer-term loan. It was a loan that no one else would touch. And you met the family office contact at a networking event that I think a title company contact put together…

So a lot of lessons to be learned there, and it’s just kind of a microcosm of the type of deals you do. Thank you so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Michael Chelala: Thanks very much.

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JF1348: Starting A REIT & Helping Others Invest In Manhattan with Jesse Stein and Janine Yorio

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Jesse and Janine started a REIT in NYC to help everyone be able to invest in real estate, even as little as $100. Unlike most opportunities for investors, Compound allows everyone to invest in Manhattan real estate, not just accredited investors. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

With us today we’ve got Jessie Stein and Janine Yorio. How are you two doing?

Janine Yorio: We’re doing really well, Joe.

Jessie Stein: Hey Joe, how are you?

Joe Fairless: I’m doing well, and nice to have you two on the show. Well, their company has just launched a REIT focused solely on Manhattan residential properties. I think that’s pretty darn interesting enough for us to talk about, and we’ll spend the majority of our time doing some Q&A about that. They’re based in New York City, New York, and their website is CompoundNY.com. With that being said, do you two wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jessie Stein: Sure. I’ll start; this is Jessie. I started my career as an equities trader in 2005, and I decided I wanted to get into real estate. Having made the transition from pushing a button and investing millions of dollars at a time to real estate, I started to realize how difficult it was to get a transaction process, and how difficult it was for the average person to invest in real estate.

Having grown up in New York and having worked in New York for a couple decades, I always had a vision of making investing in New York City something that is easy to do and that everyone could do. So what we’ve done at Compound is form New York residential so that everyone can invest in Manhattan residential real estate for as little as $100.

Janine Yorio: Joe, my background is similar, but not entirely the same. I come out of the real estate private equity investment world. I worked for a firm called North Star Capital for about eight years, where I managed a portfolio of about 200 million dollars in real estate investments, and I’ve also worked on different kinds of real estate investments at all points in the capital structure: commercial, hospitality and lots and lots of multifamily. Then I was the head of acquisitions for a hotel company that also did a lot of condominium development in New York, and Los Angeles as well.

So we built Compound specifically because we saw a [unintelligible [00:03:08].00] at the intersection of real estate investment and millennial investment trends, and we saw that fund flows into ETFs had increased dramatically over the last several years; in fact, they were up 24% last year alone… But there aren’t really great real estate-backed ETFs where a person who has a thesis can invest systematically. And given that we’re based in New York City and we’re both most familiar with the New York City residential market, we felt that was an optimal entry point into this sector, so we created a [unintelligible [00:03:37].09] investment vehicle specifically designed so that people can invest in Manhattan housing, which is historically one of the best-performing real estate asset classes and geographies, but also one of the most inaccessible. So unless you have several hundred thousand dollars or even a million dollars to buy an apartment, it’s very difficult to gain exposure to the Manhattan residential market, and that’s why we built Compound.

Joe Fairless: What do you do and what does Jessie do?

Janine Yorio: My title specifically is CEO, so I run the company and I’m primarily involved with setting the strategic direction for the company and leading our fundraising activities. At our core, we’re an asset management company, so we’re always capital-raising from consumers, institutions, and then at the operating company level we’re funded by venture capital firms. So a lot of my time is spent doing investor relations on all fronts.

Jessie Stein: I’m involved more in the real estate investments and operations aspects of the business, analyzing different neighborhoods that we’re looking to invest in, individual apartments, apartment buildings, and really designing an investment strategy.

Joe Fairless: Jessie, with identifying different neighborhoods, are we talking about all the burrows of New York City, or are we just talking about Manhattan?

Jessie Stein: We’re just limited to Manhattan.

Joe Fairless: Just limited to Manhattan. Here’s a dumb statement, and then please take me behind the woodshed for making this statement – it doesn’t matter where you pick in Manhattan, the price is gonna go up, so why do you bother putting a lot of research into which neighborhood to invest in?

Jessie Stein: I don’t think it’s necessarily wrong, in one respect, but our real thesis is about buying at value… So yes, there’s definitely correlations between different neighborhoods as far as which direction prices are moving, but we’re also focused on micro-level catalysts at the neighborhood level that might add value. If you go back 20 years ago, you probably would have been better off investing in the Lower East Side and Soho, as opposed to the Upper East Side or the Upper West Side. Now, prices have gone up in every neighborhood, but the returns have varied.

We start at a very natural level – we go down to the neighborhood level and then we go building by building and unit by unit to try and identify both trends and individual attributes that we think would be catalysts for greater appreciation.

Joe Fairless: Some of those micro-level catalysts would be what?

Jessie Stein: At the neighborhood level it could be a public-backed development project. We were just looking today at a neighborhood in the Lower East Side called Corlears Hook, which is a small neighborhood that’s not very well known, and the city is building a new ferry terminal there. So it’s a neighborhood that doesn’t have great public transportation right now, but the new ferry system will allow people in that neighborhood to get to Wall Street in under 10 minutes, mid-town in about 15 minutes, so it’s a real game-changer for the neighborhood.

At the building level it’s every attribute that any real estate investor would look at, and at the end of the day it’s gonna come down to supply and demand, it’s gonna come down to buying units and properties at below replacement cost and figuring out where the added value is going to be.

Joe Fairless: Are you all buying buildings, or individual units?

Jessie Stein: We’re buying both. In New York there’s a limited supply of single-family homes. There are townhomes, but those are typically five million dollar plus…. But the single-family home market in New York City is condominiums, so we’re focused on buying individual condominium units; we’ll also look at townhomes, we’ll look at small apartment buildings, new development… So really, anything that qualifies as residential is something that we’re interested in.

Then from an operational standpoint, our management team, our background is not just in general real estate, but also in operating individual apartments and apartment buildings in more creative type ways – for example co-living and short-term rentals… So we have some creative strategies in order to increase revenues in some cases, or operate units in non-traditional means.

Joe Fairless: And that was my follow-up question – so ways to add value, ways that you all add value… You mentioned co-living and short-term rentals; what are some other ways.

Janine Yorio: Number one, we look to create value when we buy, so we’re looking to find unique buying opportunities, either because they’re off-market, they have some complexity to them that an individual investor might not be able to underwrite or to endure; we are also going to tap our personal networks, which are quite deep, to find transactions that are not being widely marketed.

Then on the operations side we are looking to be very strategic about our use of leverage, which will impact our returns, and also to partner with strategic marketing agencies, for example Compass, who’s doing our marketing and leasing, to help us better rent out the units and to keep them occupied, which is a big driver of return as well.

Joe Fairless: Okay. Specifically within maybe the complex transaction – can you give us a complex transaction that you all did that others said “No, thank you” to?

Janine Yorio: First of all, we should clarify – we haven’t actually made investments yet; we are at the point where we are exploring investment opportunities and actively negotiating.

For example, there is an apartment unit in a relatively new condominium development that had historically been operated as a swing space in the building, and the building manager was using it as a fitness center. So there is a lease in place that terminates in the relatively near term, but that’s the kind of thing that an end user wouldn’t be able to deal with, because they might need a place to live. So since we are opportunistic and we can buy things that have some complexity to them, we’re able to price that and to handle the fact that it may not become available for 6-12 months.

Joe Fairless: Just to educate myself and the Best Ever listeners on the timeline for creating a REIT, and then when you buy the first property – can you just tell us all the things high-level that you’ve been through, and just like the high-level milestones that got you to this point?

Jessie Stein: Yes, sure. So we spent most of the last year going through a very extensive SEC qualification process. In order to offer REIT shares to the general public and to use general marketing and solicitation efforts, you do need to register with the SEC. We also were approved by FINRA for this same offering… So we’re just undergoing right now our capital raise, and this first round of capital is up to 50 million dollars.

The way that the offering works is that it’s an ongoing rolling offering. So as we raise capital, we can use that to begin to acquire assets. So we don’t have to raise 50 million and then go out to buy apartments; we can begin to acquire portfolio as we raise capital.

Joe Fairless: If you’re backed by venture capitalists, aren’t they the ones bringing the capital? Or are they backing just the infrastructure and your salaries?

Janine Yorio: They are backing the technology company and the operating company, but they’re not investors in the REIT.

Joe Fairless: Got it, got it. So they helped you get to this point for a piece of the action, and now the company needs to then go bring in investors for this particular business model?

Janine Yorio: Correct.

Jessie Stein: Right. Compound is the management company of each of the REITs, and the Manhattan REIT is really our first of what we believe are going to be many offerings, all based on the [unintelligible [00:11:15].06] investment strategy that’s specific to a major market in an asset class. So the Manhattan product might be followed by a Miami product, and a San Francisco product… The various options are endless at that point, but right now we’re focused on getting the Manhattan product off the ground.

Joe Fairless: Okay, cool. Congrats on getting it to this point, that’s incredible!

Jessie Stein: Thank you.

Joe Fairless: I’d love to touch on a little bit more the ways that you’ll be adding value, because it’s almost an oxymoron – New York City real estate value-add investors… [laughs] So you mentioned co-living, short-term rentals, off-market deals, deals that have complexity to them, and Janine mentioned that example. Can you give maybe a couple additional specific examples of how you add value?

Jessie Stein: I think we’re not really positioning the REIT or us as a management team as value-add.

Joe Fairless: Okay. I thought I heard that earlier, my bad.

Jessie Stein: No, we will try and add value whenever appropriate and for each unit individually, but what we’re really providing here is exposure to Manhattan real estate, which has been basically inaccessible for the majority of investors ever.

If you think about the returns, you’re starting with the base returns of the market – the beta – and then our management team will add some alpha component to that, whether it’s through a specific value-add strategy, or just through our ability to source investments… Whereas Janine noted earlier, some of the added value might be on the acquisition side, where we can acquire an asset by 5%, 10%, 15% below what we think the market value is, although there may need not be a specific strategy during our hold period to add value, we’ve in effect added value by buying well.

It’s really the exposure to Manhattan… The same way when you’re looking to buy an ETF – you’re making that investment to gain exposure to a specific investment strategy. That’s really what we’re selling. An added bonus for that is that our management team is capable of making intelligent investments and operating each of these properties the way that it needs to be managed, but it’s that beta level exposure that is the big play here.

Joe Fairless: At what amount of that 50 million will then be enough for you to then go buy your first deal?

Jessie Stein: We can start buying properties at a million dollars.

Joe Fairless: And with the approach that you all are taking, is it a certain period of time that you think each project will last? Or they just get grouped into the fund and the investor dollars make a certain amount?

Jessie Stein: Right. It’s structured as a perpetual vehicle, so unlike a private equity fund where we’re raising capital now and we’re gonna hold for five or seven years and then sell, we’re gonna give investors the ability to decide when they exit. Once we raise the 50 million dollars of this initial tranche, our intent is to list on the New York Stock Exchange, on NASDAQ, so that your investment in this REIT, the New York residential, will be liquid. And you can determine when you wanna make that exit. That may be on your personal circumstances, whether you need money or not, or if you think the market is overheated.

So we’re building a portfolio for the long-term. We’re buy and hold investors, we’re gonna continue to grow the portfolio, and really give the liquidity and the ability to sell (that decision-making) to the individual investor.

Joe Fairless: And Janine, why the decision to do a REIT versus just have one-off private offerings?

Jessie Stein: I think even though we have the specific investment strategy of Manhattan, and of course, that’s not really geographically diversified, it is important to diversify from the asset level, because you never know what’s gonna happen on a single building level, and there’s a lot of economies of scale that we can create and build in a portfolio of Manhattan residential properties, both on the investment side, on the operational side… And then of course, there are the tax benefits of operating as a REIT.

We’re small right now and we’re just beginning to raise capital, but we envision each of these REITs that we bring to market being billion dollar REITs that trade on the New York Stock Exchange one day.

Joe Fairless: The scalability certainly sounds like it’s there, and then some, with the REIT versus one-off private offerings, right?

Jessie Stein: Yeah, exactly.

Joe Fairless: As of today, what’s been your biggest challenge?

Jessie Stein: One of the challenges that we have in marketing this is people who are unfamiliar with the Manhattan market feel like it’s in this boom stage, and that it’s expensive and that we’re buying at the top. The reality is that the market has been very weak for the past three years, whereas prices have come down more so in this corrective cycle than even during the financial crisis.

So we didn’t necessarily try and time the market here when creating this product, but we got very lucky, because the market is weak; it’s a very strong buyer’s market, there’s a lot of opportunity out there for us… But there’s still this perception, because Manhattan is relatively expensive, that it’s this boom market that’s always flying to the sky and you’re always buying at the top of the cycle. It’s really just in educating the investors who aren’t that familiar with the Manhattan market what the current environment is.

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

Janine Yorio: Never sell. [laughter] No, buy and hold Manhattan for the long-term. That’s my personal experience… The apartment I bought when I was 24 – I spent $229,000, and I sold it a year later for $386,000. I just saw it hit the market again this year for 1.1 million dollars, so I wish I had never sold it.

I know that I happened to marry into a family that is from the New York City area, and all of the real estate investments they’ve made almost accidentally have gone on to become very, very valuable and huge stores of wealth, without actually doing anything to them. So that’s one piece of advice – if you can get a piece of Manhattan, hold it and don’t sell it.

Joe Fairless: Within your business model, do you sell properties? Or do you just hold them in perpetuity?

Jessie Stein: We don’t have to hold them, but building a large portfolio is right now the strategy. We’re certainly allowed to sell individual properties, but we don’t have a defined hold period for any investments that we make.

Joe Fairless: Would you 1031 if you do sell?

Jessie Stein: We can, sure.

Joe Fairless: Would that be the approach, that way you defer the taxes? Or is there a different approach, since it’s a REIT?

Jessie Stein: No, in a lot of cases we may decide to do a 1031, and one of the benefits of being a REIT is that we can acquire properties through an UPREIT contribution, which is an alternative to a 1031. There’s a lot of people in Manhattan that own investment properties, whether it’s an individual condominium unit or an apartment building, and what we do is we can offer them an alternative to a 1031 where they can contribute their asset in exchange for operating partnership units, which are basically shares, realize the same tax benefits as a 1031, diversify their holdings, and convert their interest into a property, into a liquid security.

Operating as a REIT we’re very tax-focused, so on an asset-by-asset level we have a lot of flexibility and we’ll do what’s best in order to either defer or eliminate taxes.

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

Jessie Stein: Let’s do it!

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

Break: [00:19:10].06] to [00:19:57].17]

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

Janine Yorio: Best ever book I’ve read?

Joe Fairless: Yup.

Jessie Stein: The Fountainhead.

Janine Yorio: Oh… If we’re going cheesy, Gone With the Wind.

Joe Fairless: [laughs] Best ever deal you’ve done?

Janine Yorio: I was involved in buying the Hard Rock Hotel and Casino in Las Vegas, and I lined up the financing for that, and that was pretty damn cool.

Joe Fairless: That’s a lot of fun.

Jessie Stein: I did a bulk condo deal in Miami just before the last cycle, which turned out to be a great deal.

Joe Fairless: Yeah, Hard Rock still wins on that. She beat you. [laughs] What’s a mistake you have made on a transaction?

Janine Yorio: Legal fees. I am so cautious about using lawyers, and waiting to bring them in until you really need them. Getting the business people to negotiate the deal as much as possible before you hand it off to lawyers, especially in New York City, where lawyers charge a small fortune. You can eat up a lot of your return on the deal before you even close with legal fees if you’re not really careful. That’s something I see young people make when they first start out. It’s a mistake you make one time, and you never make it again.

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

Janine Yorio: I like to mentor young people in my industry. I think there’s nothing more gratifying than seeing people’s professional careers grow and developing a really rich relationship with the people who have come under your wings.

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

Janine Yorio: They should visit our website at CompoundNY.com, or follow us on Twitter at @GetCompound.

Joe Fairless: Awesome. Well, I just loved interviewing you two. You’re playing at a very high level, a level that a lot of people aspire to, and I’m grateful for our conversation… Learning how the process (or some of the process) for how to create a REIT, and some of the things you’ve been through – at least the timeframe; we didn’t really go through the process, but at least the timeframe… And then how you’re structuring your business model, how you are focusing on Manhattan real estate. Yes, there will be unique ways that you acquire, but really it’s the access to the real estate that your REIT is focused on.

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

Janine Yorio: Thanks, Joe.

Jessie Stein: Thank you, Joe.

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JF1337: Talking Growth & Branding With Inman’s CPO & CMO – Matthew Shadbolt

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As the Chief Product & Marketing Officer at the popular real estate publication, Inman, Matthew knows a thing or two about how to brand properly. From drawing people in to keeping them engaged, we’ll hear amazing marketing tips from one of the best in the biz. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Matthew Shadbolt Real Estate Background:

  • Inman’s Chief Product & Marketing Officer
  • Oversees all growth, user experience, product, off-platform, brand development and marketing initiatives
  • long-time supporter of Inman’s journalism and events, Matthew works closely with the editorial team to shape and enhance the reader experience
  • Based in NYC, NY
  • Say hi to him at https://twitter.com/matthewshadbolt
  • Best Ever Book: Ready Player One by Ernest Cline

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TRANSCRIPTION

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

Matthew Shadbolt: Hi, Joe. Great to be here with you.

Joe Fairless: I’m glad that you are excited to be here, and looking forward to diving in. Matthew is Inman’s chief product and marketing officer. He oversees all growth, user experience, product, off-platform, brand development and marketing initiatives for the company. He is a long-time supporter of Inman’s journalism and events, and he works closely with the editorial team to shape and enhance the reader experience.

Also, they just wrapped up a Capital Connect event, that we’re gonna be talking a little bit about. With that being said, Matt, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Matthew Shadbolt: Yeah, sure. I’ve been with Inman for about six months; I’ve been a long-time friend of the brand, but moved across into a more formalized role with Inman as the chief product and marketing officer about six months ago. Before that, I was at the New York Times around the real estate section. I was there for almost four years, which was a ton of fun. obviously, there’s a tremendous amount of change going on inside of that news organization and it was a fantastic opportunity to be a part of that, especially through the election cycle, as I’m sure you can imagine… Just sort of see that engine work from the inside was an incredible experience.

Then before that, I was almost ten years in the brokerage world, where I headed up digital for the Corcoran Group here in Manhattan.

Joe Fairless: Okay. Let’s talk about your experience at New York Times, and we’ll spend most of our time talking about your experience at Inman. With New York Times you wrote the real estate section for four years… How did you decide what to write about?

Matthew Shadbolt: I wasn’t on the editorial side. I served as like the general manager of the section; so I’ve worked really closely with the journalists, but I’m not a journalist. So I worked on the business side, on the growth side… So a lot of what we saw there was really this tremendous transformation of the newsroom, from not thinking so much about the production of a printed newspaper, to more about the use of data, the smart use of audience insights, and the general sort of muscle-building that the newsroom needed to go through in order to really sort of significantly modernize. And I saw that accelerate at a tremendous pace while I was there.

So I was a huge part of how the real estate desk within the newsroom started to really think about what was resonating with users, outside of just anecdotal stuff that they would hear on a Monday morning after people had read the paper on a Sunday. So a lot of use of data, a lot of modernizing of sort of process and practice, and then building tools and building services around that journalism to help people really understand and sort of bring to life the journalism’s stories.

Then ultimately rolling all of that up into the business and making sure that we can monetize that from the sales perspective, either through sponsorships, or native content, or any kind of other sort of articulation of how a brokerage may want to reach this particular audience.

Joe Fairless: What tended to resonate with the users?

Matthew Shadbolt: That’s a really good question.

Joe Fairless: I’m glad I asked.

Matthew Shadbolt: Yeah, it usually goes two ways. There’s like the recreational stuff – it’s sort of what we actually refer to as floor plan porn… So super high-end, really bonkers listings, amazing homes, celebrity homes… Things like that. Things that you would imagine on like an HDTV or something like the [unintelligible  [00:04:32].12] something like that. So like the really trophy, voyeuristic kind of homes. That stuff always did really well; it was great at getting scale of audience, but it wasn’t very good at retaining audience.

So the retention of the audience is the much more interesting thing from the business perspective, just getting people to come back over and over again, because they want to sort of consume the content, and the content is helpful for them.

If you heard of like service journalism – it became really powerful for us as a team, inside of the New York Times. So the more helpful we could be, the more we could dispel myths, provide guidance and insight, really sort of hold the user’s hand through “Here’s the nightmare of renting in Manhattan and Brooklyn, and here’s how you can navigate it [unintelligible [00:05:16].17]

The service journalism was really where we landed in terms of the stuff that perpetually brought people back to the website over and over again, and there’s  a very large set of initiatives at the New York Times around service… So a tremendously successful cooking product, where you can learn to cook or you can just search recipes, that kind of thing. A similar product for movie and TV recommendations… But informally, inside the New York Times, it’s called “The Guide to Adulting.” It was like, how to get a mortgage, how to think about buying your first house, how to think about wealth management – all of these kinds of things that grown-ups do, but nobody really teaches you at school.

So it became a lot of this sort of service-oriented journalism, and it became very popular, an incredibly powerful tactic for retaining subscribers and growing subscribers. So it was really powerful on the acquisition and retention front.

Joe Fairless: So you’ve got some candy that you offer them to come into the Times, and that’s the recreational stuff, and then you give them some vegetables once they’re there, and you feed their mind, not only their instant gratification sensors… How do you determine what ratio you should do candy to vegetables?

Matthew Shadbolt: That’s a good question, I should clarify this. Ultimately, people are at the New York Times to read the news, right? People are not specifically coming to seek out the recipes, or do the crossword, or whatever. The primary function of the New York Times is to report the news… But there’s other things that users do in their lives, that the New York Times provides – and historically provided – a lot of advice on. So it’s not all just sort of candy and vegetables. All this stuff that I’m talking about sort of wraps around this core experience of explaining [unintelligible [00:07:00].04]

But I think over time one of the things you realize is it’s not really like candy, it’s more like fast food. It sort of tastes really good, but then you’re hungry again 30 minutes later… This sort of quick hit of audience. You can get very seduces by that, I think, and a lot of news organizations really sort of grapple with this idea of immediate, short-term gratification around audience lift, versus longer-term retention and subscriber-driven behavior. That’s the more interesting thing for growth. So just like my mother told me, you’ve gotta eat a lot more vegetables than candy.

Joe Fairless: Yup, it makes sense. Now that you’ve taken your experience, not only at New York Times, but before at a brokerage and whatever else you were doing before that, and you’re at Inman as the chief product and marketing officer… What learnings are you applying to Inman that you’ve come across before?

Matthew Shadbolt: It’s a good, timely question for me as well. I think one of the things that I think Inman is uniquely positioned to do is to really act as a very helpful, essential service in realtors and brokerages’ lives. We’re a 25-year-old organization, and thousands of people come to our conferences every year, whether that’s in San Francisco or New York, and hundreds of thousands of people read our journalism every month, so I think there’s a tremendous sort of moment right now where technology is sort of colliding in terms of like the influx of capital into the real estate category, whether that’s through startups, or investment, or even different ways of handling the transaction… So we hear a lot about things like people buying homes with Bitcoin, or this sort of ongoing cryptocurrency conversation as it relates to real estate and investing. That’s like a fascinating thing for us.

But on the other side, you have this sort of legacy technology system that’s sort of struggling to consolidate and struggling to remain relevant. So all of this is sort of colliding with increased disintermediation of the actual agent themselves. The value of the realtor is still very much in question, especially with younger users, who are able to do a lot of what a realtor exclusively used to do. Younger users are more than happy to go do all this work on their own; they don’t really want to, but they do. And there’s this sort of amazing collision between the new way of thinking about transactions and then sort of the existing way of thinking about transactions, and I think that Inman as a news organization that also provides service journalism and guides and insights and events and all those kinds of things – we’re uniquely positioned to pool those conversations together and sort of be able to help chart a part for the particular individual that has questions.

This stuff comes with a tremendous amount of questions, so a lot of what we’re doing at Inman, especially with our conferences, for example – we’re actually doing less of this sort of focused on people talking from the stage, although that’s still obviously something that we do, but we’re inviting a lot of people to come up from the audience and do live problem-solving, as well. [unintelligible [00:10:08].09] inside of the New York event in January, and actually having experts on stage, and having people from the audience just come up and be able to ask them stuff and solicit a more organic conversation about “What do I do with social media?” or “What do I do with first-time buyers?” – all those kinds of things. That is where it can be incredibly valuable.

So a lot of what I’m talking about is really informed by the service journalism stuff that I worked on at the New York Times, but applying it to a very specific moment within the real estate industry is for me a very exciting thing to work on.

Joe Fairless: It makes a lot of sense… I could see easily how that would fit into a conference structure. How do you fit into the more organic conversation approach with writing stories and posting it online?

Matthew Shadbolt: Yeah, that’s a good one as well, because there’s like the daily beat, with covering the news, and that’s our core product (“This is what’s going on in the world…”), but then there’s also other things that we do. There’s other aspects in terms of like service journalism; it might be just “Here’s the guide to working with first-time buyers” or “Here’s the specific set of recommendations surfaced from our community about whether you should start forming a team or not”, or “Here’s the latest thinking around commercial real estate investing”, that kind of stuff.

So there’s the daily beat, but then there’s other sort of pillars of [unintelligible [00:11:32].08] we do, whether it’s service journalism, we do a tremendous amount of opinion work as well, or sort of just more experimental things like things with video, or things with visual forms of storytelling… There’s a very healthy mix between all of these things. The core daily beat is something that the editorial team is very focused on, and then the service journalism is something that we leverage specifically on the subscriber side, as well. We think that there’s a really strong correlation between not just understanding what’s going on in the world, but also having a strong sense of actionable, helpful advice available to you as a subscriber as well.

Joe Fairless: What are those categories? You said daily beat, experimental things, opinion…

Matthew Shadbolt: And service journalism.

Joe Fairless: And service journalism. Those are the main categories?

Matthew Shadbolt: Yeah, I would say so. There’s other things that we do, but those are the four broad most important ones, I would say.

Joe Fairless: And are they all 25%, or what’s the percent breakdown, would you say, that is maybe not where you’re at now, but what’s your ideal breakdown?

Matthew Shadbolt: It’s a good question, and obviously, it’s a really hard one, too. It varies day by day, depending on what’s going on in the world… But I’m sort of hesitant to give percentages, because it depends on the specific realtor. A specific realtor or a specific