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
  • Best Ever Book: Like a Virgin by Richard Branson

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Read Full Transcript

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.

JF1348: Starting A REIT & Helping Others Invest In Manhattan with Jesse Stein and Janine Yorio

Listen to the Episode Below (22:34)
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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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Janine Yorio and Jessie Stein Real Estate Backgrounds:


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Read Full Transcript

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.

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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Read Full Transcript

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 brokerage may be more interested in service journalism, and they may have a greater use for it than an understanding of sort of an opinion piece; that might be less important to them, less relevant to them.
So the degrees of helpfulness - we try to sort of take a broad approach and be as helpful as possible to as many people as possible, but it really does depend on who you are in terms of like your use of the product and where you fall in terms of like percentage breakdown of what you engage with.
Joe Fairless: Fair enough, fair enough. If you're okay with this, I'd love to do kind of a pretend scenario... And the pretend scenario is you no longer work at Inman; you left on great terms, all good, so no burning bridges there, but instead you've moved to partner - for whatever reason - with a company that does not have the reach that Inman has, it doesn't have anywhere close to the reach that New York Times has... It's just a small brokerage, and for whatever reason, you've decided to join this small brokerage, and they said "Matthew, we'd like for you to be chief product and marketing officer and help us with our approach, and maximizing the exposure while maximizing the revenue along the way. How do we get started?" What do you do?
Matthew Shadbolt: Wow, that's a very big question. When we think about that kind of problem, it's like "Where is the unique value proposition? What is it specific to that particular brokerage that you can sort of really lean into?" I think when I was in the brokerage world, a lot of where we landed -- there's a lot of opportunity to be unique as a brokerage. There's lots of customer surveys that sort of reinforce this idea that customers don't really understand the differences between brokerages, whether they be big or small; there's like a red one, a blue one, a yellow one... Things like that. And I think there's enough surveys to really give weight to that kind of argument, and I think it really starts with the agent.
I've always been a firm believer that the core of any sort of brokerage brand really lives and breathes - or dies - with the agents. If the agents don't buy into it, you don't win, and I think a good example of agents buying into a brand at the moment is something like Compass. Those agents really believe it, and they really live it, especially online. So I think that that's a good case study, for sure.
But I think finding the unique proposition is like a really interesting thing. When I was in the brokerage world, for example, this sort of unique idea that we worked with when I was at Corcoran was "What is around the four walls of the apartment building is just as much an important part of that transaction as what's inside the four walls." It's a very, very simple idea. Going beyond the four walls of the apartment is the thing, right? And when you think about Zillow, Trulia, or even just like a regular brokerage website, there's isn't a whole lot that really answers the question "What does it feel like to live here?" And if you can answer that question, then you really have something powerful.
I still think that this is a massive space of opportunity, for brokerages in particular, and I think that there's a wealth of stuff that you can do with that one idea... The idea of really helping people to understand "What does it really feel like to walk my dog on a Saturday morning and go and get my coffee? What's my commute gonna feel like? How far away is the grocery store and what kind of things do they have there?" These are very simple, very regular questions that inform the home purchase, outside of the zeroes and ones, the prices and square footage, the room count, things like that.
But I think that there's this sort of database-driven stuff that is informing search, but there's a very high emotional quotient that goes with that stuff as well that is never really tapped into, and it's something that realtors know very well. So this when I say -- when I start with the realtors, digitizing what's in their heads, in terms of like "Which bar is the best one to go to on a Friday night? How do I order off the menu at the local Italian place? How do I cut the line to get into that particular store?" - all those kinds of things, realtors know this, but none of it really translates to something like a brokerage website. So the idea of really investing in that kind of approach is really exciting for me, and the nice thing about it is the smaller the brokerage, the easier it is to do, because you have more available materials to work with. That's really hard inside a big brokerage. If you're at an international brokerage, like a [unintelligible 00:17:26.06] or Sotheby's or something like that - that kind of project is really challenging. But if you're in a small brokerage, that would be something that would be of interest to me, I think.
Joe Fairless: How do you identify what that value proposition should be?
Matthew Shadbolt: For me, I always start by talking to customers - understanding where the pain points are, understanding really the questions that they have in their heads and trying to sort of synthesize that kind of stuff into (I'm speaking as like a product person here) a series of "How might we..." statements. So like "How might we take the pain out of a realtor not being able to call somebody back in time?" That's like a good problem to solve. "How might we help people understand what it feels like to live there and what their weekends are gonna be like? How might we help people understand what travel and commuting is like if they live in this particular place?"
These kinds of things all come out of just simply talking to users, so the more transparency and visibility you have into being able to talk to users -- this is one of the things that got me really excited about joining the Inman team, is because we have hundreds of opportunities throughout the year, but specifically the events in New York and San Francisco where we have 4,000-5,000 users all in the same place, and you can just soak it up for like a week, and you really hear "Well, I had problems with your website" or "I couldn't read this", or "Wouldn't it be great if you guys did this?"
There's tremendous opportunity to learn from the people that interact with your staff every day, and as a product person that runs a team here at Inman, to poke holes in all the assumptions of what we think is cool and to actually have users tell us what they need, not just what we think is cool - number one, it's very humbling, but it also is incredibly useful to hear what's not good. We kind of wanna hear all the stuff that's broken. That's the best path to actually just making a great product, I think.
Joe Fairless: For Inman, the focus is acting as a helpful service for realtors and brokers... What is your best advice ever for real estate agents and brokers?
Matthew Shadbolt: I get asked this one surprisingly frequently, and what I always say is just be really good at saying no to stuff. Your time is the most valuable commodity, and I know a lot of people sort of say that, but it's really true. The customers is sort of paying for your time and attention. That's really sort of what the commission consists of.
They're paying for that service, which really means time and attention, and I think having a very acute understanding of the value of your time and how you translate that to the customer is really key. That does mean saying no to a lot of things; it does mean saying "You know what, I'm not gonna spend quite as much time on Facebook and Twitter as I used to, because I really need to just get back to that customer...", things like that.
So you have to sort of give up a tremendous amount as a realtor. It's a very challenging profession, I really believe that, but time is really the most valuable asset - not just for you as a realtor, but also for the customer as well. Their time is very valuable, as well. So just having a very clear understanding and awareness and sensitivity to that I think is key.
Joe Fairless: We're gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Matthew Shadbolt: Okay, what is this - like, saying the first thing that comes into my head here?
Joe Fairless: Sure thing. You betcha! [laughter] Does that work for you?
Matthew Shadbolt: I may filter at times... [laughter] But I'll do my best.
Joe Fairless: We're about to get a good glimpse inside your mind, which sounds like it's gonna be very entertaining. First though, a quick word from our Best Ever partners.
Break: [00:21:09.18] to [00:21:54.02]
Joe Fairless: Alright, Matthew, best ever book you've read?
Matthew Shadbolt: Best ever book I read... Recently, I really enjoyed Ready Player One.
Joe Fairless: Ready Player One?
Matthew Shadbolt: Yes, it's by a guy called Ernest Cline. It's gonna be made into a Steven Spielberg movie later this year.
Joe Fairless: Oh, sweet. Okay. What's a mistake you've made in business?
Matthew Shadbolt: Not realizing that I have two customers inside of a brokerage. There's a real customer - the actual person selling their house - and then there's the agent, and not realizing that everything that we built had to reconcile for both people.
Joe Fairless: Best ever way you like to give back?
Matthew Shadbolt: I really like to pay it forward at either the grocery store, or at the drive-through.
Joe Fairless: How do you do that?
Matthew Shadbolt: I pay for the person behind me.
Joe Fairless: Best ever way the Best Ever listeners can get in touch with you or learn more about what you've got going on?
Matthew Shadbolt: I'm an easy google. I'm @MatthewShadbolt on Twitter, or facebook.com/matthewshadbolt, or at matthew@inman.com.
Joe Fairless: Outstanding. Matthew, this was a much larger conversation than just brokerages and what you're doing at Inman. You provided insight that can help any entrepreneur, real estate or otherwise, create a brand - or at least create the structure of a brand - with the value proposition... Because regardless of what industry we're in, we need a unique value proposition, and you talked about an example of that - what is around the four walls is just as important as what's outside of the four walls of the apartment, and tapping into the emotional quotient of the customer, and talking about what does it feel like to walk my dog and get coffee around this neighborhood... And really honing in on that as a focus. You can then use that for the content that you create, which you talked about with both recreational stuff and service journalism at the New York Times, as well as the four categories that you have at Inman: opinion, service journalism, experiential things like video and visual forms of storytelling, and the daily beat.
Thank you so much for talking to us about your approach, sharing your expertise, really grateful for that. I hope you have a best ever day, and we'll talk to you soon.
Matthew Shadbolt: Thanks so much for having me, Joe. It was a pleasure.

JF1311: Being Able To Overcome 2008 & Thrive In A Market Reset with Robert Dankner

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In 2008, Robert had the unwavering belief that the market crash was temporary and that money could still be made. Had he been wrong, he would have been up the creek without a paddle. Luckily he was correct and the market was merely going through a reset. Robert and his partner were able to succeed in real estate at a time most people were losing all their real estate assets. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Robert Dankner Real Estate Background:

  • President of Prime Manhattan Residential, a real estate brokerage firm focusing on Manhattan’s luxury residential market.
  • More than 25 years of experience as a real estate investor in New York City
  • His team executed nearly $200 million in transactions on both the buy and sell side in 2017
  • Prime offers inventory of off-market opportunities, accounting for over $100 million in 2018 closings already
  • Based in New York City, New York
  • Say hi to him at https://manhattanresidentialnyc.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, Robert Dankner. How are you doing, Robert?

Robert Dankner: I’m well, thank you.

Joe Fairless:  Well, nice to have you on the show, and I’m glad you’re well. A little bit about Robert – he’s the president of Prime Manhattan Residential, which is a real estate brokerage firm focusing on Manhattan’s luxury residential market. He’s got more than 25 years of experience as a real estate investor in New York City, and his team has executed nearly $200 million worth of transactions on both the buy and sell side in 2017. Based in New York City, New York.  With that being said, Robert, you want to give the Best Ever listeners a little bit more about your background and your current focus?

Robert Dankner: Sure. Just very quickly, I’m an ex-Wall Street trader. I spent many years trading interest rates, currencies and metals, about 10 years in Wall Street, and when I started making some money, I started investing in real estate. So fast-forward a bit, my business partner who’s currently one of my oldest friends, we were investing together for many years, and he decided to start a brokerage firm when I wasn’t active in the brokerage business, but I financed it. We continued to invest together, and I have sort of leveraged my Wall Street experience being a student of the markets and a trend follower, into understanding how to unlock value, create value, and buy and sell better than most.  And a result of that, we’ve built arguably one of the most powerful boutique brokerages in Manhattan in terms of what we do here. My small group is probably in the top 5 or 7 largest producing brokerage groups in Manhattan luxury market and residential, and we also have a concentration in the commercial market as well.

Joe Fairless:  Great stuff, lots of follow-up questions. Let’s start with being “a student of the market and a trend follower”, you’re able to unlock and create value.  Can you tell us how you do that?

Robert Dankner: Well, as an example, the trend is your friend.  A good example of this is we actually started Prime Manhattan Residential in 2007.  Obviously, in 2008 is when the markets collapsed – the real estate market, the equity market, etc. As a rule — you know, I grew up on Long Island, I was surrounded by a lot of very wealthy people, most of whom were in real estate, and frankly most of them not very smart, but they were all very, very patient. And one of the things that I understood in 2008, for example, was that what was happening was a once-a-generational event; it happens once every 15 or 20 years.  And if [inaudible [00:04:57]] prevailed, there would be an opportunity for — I guess the best way to say it is a massive reset.  And if I was wrong, then I would have been on [inaudible [00:05:08]] with everybody else.

But overtime, Manhattan real estate in particular, has been tried and tested and is true, and the trend is your friend, and this was a reset.  So as a way to compel both the users and investors to not disregard what was happening in the environment, but not to be afraid of it, it was an opportunity to grab and create more value than you’ll have an opportunity to do in most 10-15 year periods because of this massive reset. So that’s a good example of understanding the trend is more powerful than momentary events, and if you can recognize trends and understand that they’re sustained and sustainable, then you can operate and think carefully around short-term events that may cloud one’s thinking.

Joe Fairless:  Do you see any short-term events coming up in the near future based on your analysis?

Robert Dankner: Well, in any market, any asset class, whether it’s real estate or equity markets, things just can’t go straight up or straight down forever. I wouldn’t profess to be able to time markets – nobody can – but the equity markets are at a point where I’m sort of hoping that they’ll correct soon, because they’ve been moving in a parabolic state. But I think what’s going to happen is real estate, particularly Manhattan real estate, is going to be the beneficiary of what I think would be ultimately a slight reset of the markets. The reason for that is — again, it’s a different asset class, but it’s in the ground, you can touch it, you can feel it, you can use it, you can rent it. And again, with patience, a combination of whether you’re a user or you’re an investor, patience should pay, and I think values will continue to build on themselves and create more long-term value, and I think we’re at a particularly interesting point in time.

Joe Fairless:  So the thought process of “things can’t continue to go up and things can’t continue to go down, there’s ultimately going to be correction, and during that correction, just keep a long-term view” – anything specific within that that you look for…? I know you said you don’t time markets, but any fundamentals that when you start seeing some of those fundamentals change, it starts raising red flags in your mind?

Robert Dankner: Well, when the fundamentals change, you have to think a little bit more carefully. What I mean specifically is when things are going well, it’s very easy to make money, and when things are going as well as they are now, even in the real estate market, although prices have stabilized a little bit in the luxury market, north of 6-8 million dollars plus… But an area or category that has been moving well but is sort of not paid as much attention to because they buyer base is smaller is, for example, the Greenwich Village townhouse market.

The Greenwich Village townhouse market has been moving at a pace that’s probably 50% faster than the condo or co-op markets, specifically because there are less of them, you can’t make more of them, unlike a high-rise, and although it’s a different type of living, meaning it’s not living in a condo or co-op with a doorman, so a different type of vertical living, the money goes further, buys more in terms of square footage, and there’s a natural – for lack of a better term – arbitrage that will bring markets close to one another.

For example, if one wanted to buy a 5,000-square foot condominium in Greenwich Village today, if you can find one, you’re going to pay in the neighborhood of $4,000 or $4,500/square foot. In the townhouse market in Greenwich Village, you can buy the same amount of space for only $3,200/square foot, for example. It doesn’t have a doorman, it doesn’t have the services, but when you start to understand the huge disparities in terms of price per square foot in environments like we’re in now if you’re an investor, or even if you’re a user looking to build long-term value, you might want to pay more attention to sort of anomalies, things like these that will cushion you and create the opportunity for things to fall slower and rise faster when markets recover or start to move parabolically again.

Joe Fairless:  Interesting. Yeah, so taking a look at the rent per square foot on different asset types and seeing where the value could be, and then capitalizing on that value.

Robert Dankner: Yeah, it’s really not rent per square foot, but really selling price per square foot.

Joe Fairless:  Selling price — yeah, sorry.  My investment lingo isn’t there — selling price per square foot, okay.  Cool, good stuff. You mentioned that your business partner is one of your oldest friends, and you initially financed the real estate brokerage. Why did you do that, and how does that work? What type of structure did you set up?

Robert Dankner: Well, we’ve been friends. We always invested together, and he was actually in the apparel business, and he wanted to — again, we were real estate investors, and he wanted to get into the brokerage world, so we both put money together to help create a company that I didn’t really have particular designs on becoming active in it or not… But he’s a smart guy, smart as I am or smarter than I am, so I was sort of investing in him as much as I was in just creating an enterprise. And 10 years later, I started working everyday with him, but it was nothing more than we just got together at the right time and the right place, and both put in money to start an enterprise that he ran and I was going to be silent, but I’m no longer silent.

Joe Fairless:  When you left Wall Street as a trader, you said you initially started investing in real estate. What did you buy?

Robert Dankner: I’m not a developer, I’m not a builder, although I purchased single-family homes and apartments and fixed them up and sold them, that’s not what I do. I just started buying good quality cap rate place, meaning great locations or emerging locations, and a key rule for me is I don’t need to be first; I need to be right. So I’m looking at emerging neighborhoods where I saw smart money, developer money going in and building condominiums and hospitality etc., that was early stages, whether it was at Lower East Side or the East Village, for example, before it was cheap.

I started buying individual units and condos, those that existed, very small buildings, and just grew the rent roll, which improved the cap rate, and either I’m still holding them or sold them and redeployed my money as those markets started to mature, and I could grab higher capital appreciation base by redeploying that money back into areas that I felt were still emerging, as opposed to being more mature.

Joe Fairless:  You don’t need to be first, you just need to be right.  So you mentioned you look for developers who are building other condos and hospitalities. What are some other things you look for in order to be right about the market — well, the sub-market or the neighborhood?

Robert Dankner: In New York, for example, there are some extraordinary developers, whether it’s The Related Group, or HFZ, or Property Markets Group, or people that are  just very savvy, have access to a lot of money, have strong development track records… And although it’s not telltale, if you see more than one of them starting to infiltrate an area, that would raise my eyebrows, because right or wrong or otherwise, my first inclination is that I think they are smarter than I am, and if they’re moving into these areas, even if they’re not spot on right, at least they’re going to provide support from the standpoint of new residential options in the area, new hospitality options in the area, which brings new commerce. And once there is sort of a foothold there, meaning it’s starting to be developed, I think one can mitigate the risk by following in their footsteps so to speak.

Now, their perspective, they’re developers, so they’re in, they manufacture, build, sell it, and then they move on… But because the development cycle is so long and it’s not like picking a stock – they’re developing areas – I think logic should generally prevail that if there’s smart enough money or enough smart enough money moving into a new area, let them be first, let them sort of break the ice. It doesn’t mean it’s a telltale and an absolute that the area is going to mature into what they think it’s going to be or what I think it might become, but like I said, I think it mitigates the risk a lot, and that’s also a way of following trends. Let them sort of create trends, and then you hop on to it, ride it as long as you can, and as long as the trend is working in your favor, stay with it.

Joe Fairless:  Our audience are primarily real estate investors. As real estate investors, what should we know about investing in Manhattan, because you’ve successfully done that and are doing it?

Robert Dankner: Well, Manhattan is a market unlike any others, in that over the past 10 years the average annual appreciation rate, for condominiums for example, has been 12-13%, which is very high, and that’s really not sustainable. But the thing that’s interesting about Manhattan is if you want to be successful here, you pro-form yourself at a very low level; if you cut that in half or cut that in more than half, and make the assumption that over a 10-year period the average annual appreciation rate is going to be 3-4%, not 12-13% like it’s averaged over the last 10 years… But combined with that you have a very strong rental demand, so if you’re buying a property and renting it, you’re going to get 3-4% yearly rent increases, and after over a 10-year period, when you factor in your net [unintelligible [00:14:36].13] cashflow received, including your rent escalations, combined with 3% or 4% capital appreciation if you’re lucky enough to participate in a run like we’ve had over the last ten years, that’s great.  What happens is at the end of that period, when you sell your property, the combination of capital invested, based on your NOI and your capital appreciation, you can come out with 16-18% average annualized rate of return, which by any standards is very good in a market that’s very stable, and this is not an island, so there’s built-in support.  It’s not like — not that there’s anything wrong with being in Florida or Texas or wherever, but there’s only so much you can build on this island. So as a result of that, it’s sort of a built-in price supporting, built-in rental demand, so you sacrifice near-term capital appreciation for long-term average annualized rate of return combining capital appreciation with net operating income.

Joe Fairless:  I love the way you think about that. It’s gonna be really helpful for comparison purposes. How much do we need to invest in Manhattan?

Robert Dankner: Well, it’s a good question. The barrier to entry is pretty high, because this is an expensive market, but I would say that sort of the lower tier entry-level, if you will, as an investor, and if you’re buying single units, not houses, but they have to be condominiums, not co-ops, you have to be in the $1.2-1.5 million range as sort of a starting point. That’s not cash — that’s selling price. But the number of condos that are available in that range – one-bedroom condominiums – are few and far between, frankly. But that’s sort of the barrier to entry or the starting point, and then it’s onwards and upwards from there.

Joe Fairless:  So let’s see – $1.5 million… I just need 25% of that. That’s $375,000.

Robert Dankner: Correct.

Joe Fairless:  What variables or factors would you look at if you were an investor who does not live in Manhattan… Let’s say you live in California, and you’re deciding between some city in the South or the Mid-West, and you just heard this interview and now you’re considering Manhattan, and you’ve got about $500,000. How would you think about where to invest?

Robert Dankner: A very large portion of my business is dealing with investors at this level and above, and there’s no right or wrong answer. Everybody has their mission statement and what works for them. And if somebody is looking for near-term yield, meaning they’re looking to generate 7%-8% on their money, New York is not the place for that. But if one has a longer-term perspective, the capital appreciation pace from New York, in my opinion, will far outpace almost anywhere else in the country. As a matter of fact, there’s really only two or three markets in the world that work like Manhattan, which is Manhattan, London, and I guess you could say Hong Kong. But one has to be prepared to live with cap rates cash on cash that are not exciting – 3%-4% maximum – but the carrot is the hope (which is usually reality) that the capital appreciation rate, combined with your net operating income over time is going to create a rate of return that far outpaces what you can get in most other geographies.

Now, the icing on the cake is if one happens to be fortunate enough to be a participant in the market when it’s moving as briskly as it’s moved in the last 10 years, then it’s that much better. But I think as an investor, it’s prudent to take a very conservative approach.

One thing that’s going to remain constant, if in you’re in the right neighborhoods, is rental demands and rental income. A thing that’s less predictable is what the appreciation rate and the market is going to be. But unlike other areas of the country, Manhattan real estate is really looked at as an asset class that is a diversification outside of equities for example, and it’s a place where investors from all over the world park their money, whether it’s here or in London or in Hong Kong for example, for the reasons that I’m explaining to you – that there’s not wide open spaces, you can’t continually make a lot more of this stuff, for lack of a better term, because we’re on an island, and as a result of that, there’s built-in price support, which creates an appreciation rate that’s a bit different than most other geographies in the country.

Joe Fairless:  Are there opportunities for a value-add play similar to what I do in Texas, where I buy apartment buildings, renovate interiors, increase rent, and then I’ve got a higher value property?

Robert Dankner: Of course, but that’s really not for people that are passive investors. You really have to be here on the ground.  But in the investment side of our business, that’s probably the most active area in the $8-30 million market, whether they’re individual houses or small buildings that are bought, refurbished, renovated, increase the rent roll and sell them. But the nuances of renovating in Manhattan, or like in any other place in the country – it’s different everywhere you go, but rules and regulations and insurance requirements and how you work with contractors is a little bit more treacherous here.

So virtually every day we get calls from people that want to get into that type of investing, and the romance of it wears off very quickly when they realize what’s involved. But those who have the stamina to understand what’s involved in terms of being on the ground, the payoff is huge. But I think one has to have a very realistic expectation that it involves a lot of heavy-lifting, but the rewards are massive.

It’s not brain surgery. It’s just something that you really have to pay a lot of attention to, and as an investor, clearly you can pay somebody to do this for you, but that person that you’re paying to do this for you is going to be taking a large portion away from why you’re doing this. It might be defeating purpose, so… I think you understand what I’m saying. But to answer to your question, the answer is yes, you can do here what you do in Ohio, but it’s a little bit different.

Joe Fairless:  A lot different. [laughs] It’s a lot different.  The tenant-landlord laws aren’t as friendly either to investors in Manhattan.

Robert Dankner: No, New York and Manhattan particularly is very tenant-friendly, which has its positives and negatives. If you’re a landlord, obviously it’s entirely negative, and I will say that we have rent stabilization laws here that are very unique to New York, and we have tenants [inaudible [00:21:14]] that are very unique to New York, and the vast majority of these protected tenants understand the laws as well as many attorneys do. So navigating around them, you have to be very savvy.

With that being said, I like things with hair on them, and the more complicated it is, that’s things that people overlook, and if you understand tenancy laws extremely well as I do, then it creates a different set of opportunities, because you can look at properties that a lot of people overlook because they see some obvious roadblocks. But if there are ways to mitigate your risk, then it creates much greater value-add opportunities.

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

Robert Dankner: My best real estate investing advice ever — well, there’s a lot, but I would say, don’t over-negotiate. Don’t try and buy it and get the last penny out of it, and don’t try and sell it and get the last penny out of it. Everybody has to walk away a little happy, but I see people lose things on both sides of the equation because they have to win. And you win even when you don’t win, so don’t over-negotiate.

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

Robert Dankner: I suppose.

Joe Fairless:  Alright, then I suppose we shall do it. First though, a quick word from our Best Ever partners..

 

Break: [[00:22:24].19] to [[00:22:53].10]

 

Joe Fairless:  Best ever book you’ve read?

Robert Dankner: The Art of War by Sun Tzu.

Joe Fairless:  Best ever deal you’ve done?

Robert Dankner: Purchasing a townhouse in West 10th Street in Manhattan.

Joe Fairless:  Why is that the best ever?

Robert Dankner: Because it was purchased, we bought it for $9.5 million, had to spend about $2.5 million to get the tenants out, then spent another $8.5 million dollars to renovate it, and I just put it under contract for over $37.5 million, over a 4-year period.

Joe Fairless:  2.5 to get them out — is that cash in pocket to be on their way?

Robert Dankner: Yeah, cash in pocket, yes.

Joe Fairless:  Got it. You gave them a living situation too, so they can transition into, I imagine…?

Robert Dankner: Correct.

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

Robert Dankner: I don’t know. I’ll have to come back to that one.

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

Robert Dankner: I give a lot of money away. Money is wonderful, but even when I was a kid, I wanted to grow up and have enough money so I could give it away and just support causes that are near and dear to me, near and dear to people that I like and support, and I’m very involved in philanthropy, and it’s my biggest joy.

Joe Fairless:  Maybe think about one of the last deals you’ve done and what’s something that if presented the same opportunity, you would have done it slightly different to optimize in the future.

Robert Dankner: Just going back to my advice, which is don’t over-negotiate… Again, there was a townhouse that I was representing, I represented the person that bought it, and I was representing them when they sold it… And I’m usually pretty forceful with people and the first offer that we got was an extraordinary offer, and I am a shepherd – I can’t push people to do things, but I can very persuasive when I want to be.  I wasn’t as persuasive as I should have been with my seller. I give advice like I’d want to get it, like I’d want to receive it, so I said, “I would do this. I would take this one,” but I wasn’t forceful enough, and we ended up selling it for about 6% less than our best offer, which was an extraordinary offer, like off the reservation. So my answer is not being forceful enough with my convictions, because I’m not pushy.  And you can never push, you can’t make somebody do something, but I think I could have been more persuasive with data.

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

Robert Dankner: They can email me at rdankner@primemanhattan.com, or they can call me at 646-485-5896, or they can visit our website at primemanhattanresidential.com.

Joe Fairless:  Robert, thank you for being on the show and sharing your advice from your ex-Wall Street trader days and how you’ve applied those lessons and that thought process to real estate, both building up the brokerage, as well as investing and what you invest in…  And also the comparison for investing in Manhattan versus anywhere else in the world, besides London, Hong Kong… But really comparing the Mid-West and the South to Manhattan, and what to think about when investing, and pros and cons. So thanks for being on the show.

Robert Dankner: My pleasure.

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

Robert Dankner: Thank you so much.

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JF1288: Making Money With Partnerships & Distressed Assets with Larry Friedman and Frank Sanchez

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Frank and Larry had a third business partner in the past, the three of them grew a firm from 0 to 500 agents in 10 years. Once that relationship began to sour, they went separate ways. Frank and Larry tell us what to look out for to avoid getting into a bad partnership. We’ll also hear about their latest business of acquiring distressed assets through their real estate fund. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Larry Friedman and Frank Sanchez Real Estate Backgrounds:

Co-Founders of SDF Capital, real estate investment firm focused on acquiring distressed real estate assets

-Larry is responsible for financially structuring property acquisitions, asset diligence and disposition strategies.

-Frank is responsible for all property acquisitions, dispositions and overall investment strategy.

-Say hi to them at http://www.sdfcapitalllc.com/

-Based in New York, NY

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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, Larry Friedman and Frank Sanchez. How are you two doing?

Larry Friedman: Fantastic, Joe.

Frank Sanchez: Thanks for having us on the show.

Joe Fairless: Yeah, my pleasure. Nice to have you both on the show. A little bit about this dynamic duo there – the co-founders of SDF Capital, which is a real estate investment firm focused on acquiring distressed real estate, primarily single to three-unit, so one, two, and three-unit properties in the New York area.

Larry is responsible for financially structuring the property acquisition, doing the asset due diligence and disposition strategies, while Frank is responsible for acquiring the properties and the overall strategy. They’re based in New York, and with that being said, do you two wanna give the Best Ever listeners a little bit more about your background and your current focus?

Larry Friedman: Awesome. Thanks, Joe. Happy to be here. Basically, Frank and I have been in real estate for collectively around 15+ years. Our background with both of us is in residential real estate. We started a real estate firm – pretty much him and I and a few other agents – and we grew it from zero agents to over 500 agents over a 10-year span. At our peak we had 12 offices and over 500 agents. Ultimately, what happened was in our last acquisition we partnered in with someone that wasn’t a great partner, and ultimately it led to the demise of that real estate firm, or at least Frank’s and my interest in the firm.

Then from there, we always had [unintelligible [00:03:46].26] we had flipped one prior to that and we had loaned money to a couple of home flippers, so we decided “Hey, this seems like it could be interesting.” About three years ago, him and I decided to start doing this full-time, and here we are today.

Joe Fairless: So you’re fixing and flipping or wholesaling?

Larry Friedman: We do a combination of a couple of different exit strategies. We fix and flip, we wholesale, and we assign.

Joe Fairless: Got it. Clearly, we have to talk about the partnership that didn’t work out, because you two were up to 500 agents, you grew it from zero, and then you mentioned there was another partner that didn’t work out. What happened and what would you do differently?

Larry Friedman: We partnered with someone who on paper everything looked great; we had complementary skills. This person was bringing a lot of agents to the table – 200 to be exact – as well as more of a focus on sales, we had a focus on rentals. However, we quickly started to realize that from a trust, from a personality standpoint, from a way to treat people we just came from two completely different schools.

It ended in a litigation, and it ended in big fighting, and while we were fighting and litigating, agents want a stable place to work, and it became unstable. That led to the demise of what I think was a great firm.

And just to answer your question about what I’d do differently – it’s definitely know who you’re partnering with; the papers looked great, but I don’t think we did enough diligence, I don’t think we spent enough time; when you partner up, he becomes almost like a best friend, and it’s a very important decision. I think the person’s fiber is probably more important than what they bring to the table from a dollars and cents standpoint.

Joe Fairless: Besides the lawyers, who won the litigation?

Larry Friedman: It was one of those that the lawyers definitely won. Nobody won, essentially… The legal fees were astronomical. Frank and I ultimately decided that this isn’t really worth fighting anymore, and we saw greener pastures and just figured “You know what? This has run its course”, and the two of us decided at that point we’re just gonna see what we can do. We’re young guys, and let’s get into a different venture.

Joe Fairless: So now fix and flip, wholesale and assigning, right?

Larry Friedman: Correct.

Joe Fairless: Okay. What’s the last deal you two did? Describe it for us, please.

Larry Friedman: Frank, do you wanna go for that?

Frank Sanchez: Yeah, sure. The last one was actually one of our most exciting deals. It was a 3-bedroom 2-bath split-level in Brooklyn County. We actually put it under contract for 200k, and literally a week and a half later we put it out there, we marketed it, and we were able to double-close on it with the fund that we have. We made a 100k spread. So we bought it for 200k and just closed for 300k. That was a great momentum swing coming into the new year.

Joe Fairless: Well, it sure was. And you mentioned you were able to double-close with a fund that you have – what is this fund?

Frank Sanchez: Go ahead, Larry.

Larry Friedman: We established a fund basically to fix and flip and wholesale. So we have approximately 12 high net worth individuals that have invested money into the fund called SDF Capital Fund One, and we used the fund to purchase [unintelligible [00:06:54].00]

Joe Fairless: Okay, and how much did you raise?

Larry Friedman: We raised 725k. It was a relatively small raise, and in hindsight I didn’t realize that the whole process is the same if you’re raising 725 million. So it was quite a learning experience, and we definitely will have another much larger fund, but this is a good start.

Joe Fairless: You can’t just add to it? I’ve never done a fund, so I don’t know the details.

Larry Friedman: Joe, from my understanding, we have a finite timeframe, it’s a two-year hard close. So once the capital raise is over, that’s it. That’s the way this fund is structured; that’s the way ours specifically is. I’m not sure in general whether or not you can or cannot, but I know with ours we couldn’t. Because we have had others that have been interested in investing, we just had to turn them away.

Joe Fairless: You had two years to open up to investors and the close it out, or two years for the entire life of the fund to be closed out?

Larry Friedman: Two years for the entire life of the fund to be closed out, so from the day we started to — essentially saying “Hey, the fund is opening, and here is the date that the fund is starting”, it’s two years after that. And that started after we had done our capital raise.

Joe Fairless: All of your deals need to have closed out and gone full cycle within two years?

Larry Friedman: Correct. Most of our deals are relatively short-term in nature. We’re usually in and out anywhere between, as Frank said, a couple weeks, to six months.

Joe Fairless: Interesting, yeah. Congrats o getting this fund together. What were some things that you learned while putting together this fund?

Larry Friedman: Some of the things I think we’ve learned essentially were that when you put together you have to know who is your target audience. So as we were speaking to people, because we do a lot of debt raising as well, certain people that we spoke with, they were not comfortable with a two-year hold. So that was a question that people had. Other people really wanted more on the upside, so more of a profit split.

So I think the most important things we learned were you really have to know “Okay, this is the exact type of person that this makes sense for”, whether it be an IRA investor, whether it be a high net worth individual with extra money. So I think just that focus on who is that avatar, essentially? That’s number one, which I don’t think we had that going into it initially.

Then I’d say number two would be really streamline the structure, make it very simple to understand. I don’t wanna say ours is overly complicated, but it’s slightly complex, so I think going forward our next one would be much simpler.

Joe Fairless: How would you make it simple? What would the structure be?

Larry Friedman: Given what we’re doing, the way I would do it is I would do some type of preferred, which we have now; I would offer a preferred, and then I would do an accrued return. Very simply a preferred, then an accrued return over the same two-year period. It’s just much easier from an accounting standpoint as well.

Joe Fairless: Accrued return over a two-year period as opposed to what?

Larry Friedman: So we have a profit split, and then we have expenses as well in the fund. So we have a preferred, but then there’s expenses, and then there’s an after the fact profit split, which gets a little murky, because you have to figure out what is the profit.

Joe Fairless: Oh, I bet.

Larry Friedman: So that’s kind of something that some investors want more clarity on, so again, in the future I would just make it much simpler.

Joe Fairless: Yeah, so basically, it’s like a debt deal for them, because they know that they’re getting, assuming that it goes according to plan.

Larry Friedman: Exactly. And I think that for the type of investors that are attracted to what we’re doing, I think that would be a better structure.

Joe Fairless: How much does it cost to put together a fund?

Larry Friedman: I’ve heard different numbers. We’ve spent between the filings – because we’re in about four different states – as well as the legal work, we’ve spent around $18,000 to $20,000.

Joe Fairless: That’s pretty good. I was expecting another zero on that.

Larry Friedman: Yeah, I’ve heard the same… I’ve heard all different numbers. We tried to stay simple, and we were only in four states. I think every time we do the blue sky and register in a different state it just adds to the cost.

Joe Fairless: Are all of your investors in those four states, as well?

Larry Friedman: Yes, that’s where they live. My understanding from the securities rules are if you have an investor that lives in that specific state, you must register to do business and file in that state.

Joe Fairless: Okay. Would you recommend some of the Best Ever listeners create a fund, who are doing fix and flip projects on a one-off basis?

Larry Friedman: No. [laughter] I think if you’re doing one-off fix and flips, I would just do that and make it very simple. The reason why Frank and I decided to go this route is we do a pretty decent volume, and we do use hard money, but we also like to use more flexible money, and a lot of our investors, when they were investing with us and we would cash them out of deals, they would say “Well, I don’t wanna be cashed out of this deal. I want my money to still work.” So that’s kind of the reason why we decided to go with this structure. But again, one or two deals a year, or three deals a year, I wouldn’t bother. It’s too much work and there’s also a lot of regulations etc.

Joe Fairless: That’s interesting. So really if we’re a fix and flipper and we’re cashing people out at a volume in which they want to get put back into deals, and we’re constantly having to put people back in and cash people out, put people in… Then when it becomes that point of a headache, then you need to look at doing a fund. Is that right?

Larry Friedman: I would think so. Or if you are tired of using hard money, although we love using hard money, but it comes with mortgage recording tax, and they’re bringing in an appraiser, and it takes a little bit longer to get a deal done… So we just like that speed.

Joe Fairless: With your deals, you said that you two are doing high volume… How are you able to get so many leads?

Frank Sanchez: That’s a good question, Joe. So basically the way we get leads is we have a very big marketing budget. We’re spending $32,000 every single month, including targeted marketing. We’re doing yellow letters, we’re doing SEO, we’re doing pay-per-click, we’re doing a little bit of radio and TV, and it’s very targeted. It’s for people that have low LTVs, homes built in a certain year – usually in the 1950’s, probates situations, homes that are not financeable, people that have tax liens etc. They’re calling us directly.

Our deals are basically off-market deals, directly with the sellers. We’re visiting their homes, we’re sitting down with them and seeing if we can create a win/win situation with them where we’re helping them.

Joe Fairless: Let’s go through a scenario. Your budget just got sliced in half – which is still more than most people are spending every month… Where do you put that money?

Frank Sanchez: Honestly, I would say back in marketing.

Joe Fairless: But where specifically in marketing?

Frank Sanchez: Sure. I’d say we’re getting the most use right now from direct mail. About 60% of our buyers are coming from direct mail.

Joe Fairless: How do you approach direct mail? Is it just a postcard, or is there a system that you have in place?

Frank Sanchez: Yeah, we have yellow letters. We use a mail house, and they basically send them out for us.

Joe Fairless: Okay.

Frank Sanchez: We just give them a bunch of zip codes and our budget, and it automatically gets sent out. We do two mail drops a month. Usually, we do one right in the first week of the month, and then we hit them again the third week, and we repeat to the same sellers; they get a letter every three months.

Joe Fairless: Okay.

Frank Sanchez: So we’re consistently sending that letter out.

Joe Fairless: Every three months… So if I’m receiving your letters, then I get a letter from you the first week of the month and the third week of the first month, and then I get a letter from you every three months thereafter?

Larry Friedman: Well, let me clarify that. So you would get a letter the first week of the month, then a letter three months from that day.

Joe Fairless: Okay, got it. You just split up the first batch, got it.

Frank Sanchez: Yeah, we split up the batches, correct.

Joe Fairless: Okay. And what do you say in your letter?

Larry Friedman: We basically say that we are interested in buying houses in your neighborhood. “If you’re looking for an all-cash offer, with no repairs necessary, sell as is, close quickly, give us  a call”, essentially. It’s a very simple letter.

Joe Fairless: Have you made any changes to it over time?

Larry Friedman: No, the letter pretty much has been consistent. One of the things that we’re contemplating doing is sending a postcard to some of the top zip codes in between that three-month period that Frank discussed, which we know some other people are having a lot of success… Just another touch.

Joe Fairless: Okay. Because right now that letter is in an envelope, so they have to open up the envelope?

Larry Friedman: Correct. And as Frank said, it is our bread and butter, but it’s probably the highest cost of acquisition, it’s direct mail. But it is predictable; obviously, our response rate keeps declining as we spend more money, but I’d say it is (like Frank said) the number one core strategy in a market. At least in our markets.

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

Frank Sanchez: I would say being on the acquisition side it’s really buying the property at the correct numbers. We are in a risk business; buying it correctly – we really want it to allow us to have the most exit strategies and to maximize our profit. I think knowing the numbers is crucial, you’ve gotta know the numbers for that market. And you also have to take into effect all the factors to the property, and it’s location.

We’ve made countless mistakes that we can share with the best listeners ever on our first few deals, just having errors with our after repair value numbers. We typically try to buy between 65-75 cents of the after repair value minus repair costs.

Joe Fairless: Will you tell us a story of one of the lessons learned on when it didn’t go the way you wanted?

Frank Sanchez: Yeah, for sure. It was about our third home we purchased. I went on the appointment, and it was a 3-bedroom 2-bath–

Joe Fairless: So it was your fault. [laughter]

Frank Sanchez: Yeah, absolutely my fault.

Larry Friedman: [unintelligible [00:16:42].04]

Frank Sanchez: So I was running my comps, and I have experience running comps… All the 3-2’s are going for this price, all the [unintelligible [00:16:52].14] everything’s in line within one mile of the subject property. That’s basically how we run the comps, going back six months. So I show up at the house, look over the repairs, speak to the owner, see if we can make a win/win situation… I give him my offer and all of a sudden he shakes my hand. In the back of my mind I said “Something was just too easy with that.”

After we bought it, we realized we only had one exit strategy – basically, to rehab it. What I missed is the house was across the street from a church, which I didn’t factor into the value. And it also had what we call a funk factor. Basically, yes, I was comping it as 3-bedroom 2-bath, however this house – the configuration was very funky. To get to the master bedroom, which was like an extension, you had to go through the dining room where people were eating. And then it was connected to a bathroom that Jack and Jill-ed with the kitchen, and when you go up the stairs, if you’re a big dude it kind of gets real tight at the end; you’ve gotta squeeze up onto the second floor. The shower – you couldn’t put your full body in the shower, because it was ricocheting off the wall, the water…

It was just nuts, and we did a full-blown rehab, which this market did not commend the finishes that me and Larry did. But another lesson to the best listeners ever is don’t over rehab. We put in the marble, we put in the new hardwood floors, high hats, the whole  bang. Picture moldings… And we had it listed at a price the market wasn’t gonna pay, and again, the lesson there was just I should have taken probably a 20% discount off my original after-repair value, after I went into the house and saw it had a funky layout, and saw it had a Jack and Jill bathroom going into the kitchen and all that.

So when you’re looking at the house, you take a discount for that… And you can’t change the location, so if it’s across the street from a gas station or a church (in this case) or an elementary school, that’s gonna be some sort of a value detraction that you have to play in your numbers. So really just knowing your numbers is super important.

Joe Fairless: How do you come up with 20% off for those things?

Frank Sanchez: It’s a number that we feel comfortable with after we see the house. If there are some funk factors in there, we’ll kind of compare to other homes that have a similar layout, or a similar location, and that’s the kind of number we see that are selling, the kind of discounts that are coming off for having those factors into the property.

Joe Fairless: Thanks for telling that story, that’s pretty cool. The last question on that, with the property – was it on the market for a while, so could that have been an indication that there was something up too, or were you one of the first people to come across it?

Frank Sanchez: No, it wasn’t on the market at all. We bought it directly from a seller that was moving into a retirement home.

Joe Fairless: Okay, got it.

Frank Sanchez: It was just a number I gave him, and that’s why he was really happy with it. I should have known.

Joe Fairless: With the church and the elementary school example, I could easily see the seller saying that that’s an advantage and an amenity, and they shouldn’t receive a discount… What would your response be?

Frank Sanchez: I’ve heard the same also, Joe. School can get extremely busy with parking and noise at 9 o’clock and 3 o’clock again, which can be a disturbance, especially if it’s a high school. I know when I was in high school I was hanging out doing god knows what, so that could be another disturbance. It really depends. I mean, personally, from my experience, when we have something on the market, most of the feedback we get is that they’d rather be on a nice, quiet, suburban street, without these types of places close by.

Joe Fairless: Makes sense. Are you two ready for the Best Ever Lightning Round?

Larry Friedman: Yeah.

Frank Sanchez: Yeah.

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

Break: [[00:20:47].13] to [[00:21:18].06]

Joe Fairless: Best ever book you’ve read?

Larry Friedman: The best ever book – actually, I’ve just finished reading it – is called Never Split the Difference, by Chris Voss. He’s a former FBI negotiator. Great book, a lot of nice nuggets of information about negotiation, which I think is critical in every aspect of life.

Joe Fairless: I’ve heard a lot of people mention this book many times recently, so it’s definitely – I think I’ve already bought it – on my list of books to read.

Larry Friedman: Yeah, you’ll enjoy it. I actually listened to it in the car, as audiobook. That’s my new thing.

Joe Fairless: Best ever deal you’ve done that we haven’t talked about, that wasn’t your first and wasn’t your last? Something in between, a best ever deal.

Larry Friedman: Another best ever deal that’s actually similar to the deal that Frank discussed (a double close), we bought a home for I believe it was $100,000. This home was a complete disaster. We put it on the market for 204k to be exact, and we were able to close it at that number with multiple offers. It was on a lake; that helped it. Literally, a lake view. That was an awesome, easy deal to get done.

Joe Fairless: And you didn’t do anything to it?

Larry Friedman: Did nothing to it.

Joe Fairless: Did nothing to it. How did you find that deal?

Larry Friedman: Same, it was through direct mail. I think that one actually was a tax delinquent– he was on a tax delinquent list [unintelligible [00:22:30].04]

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

Larry Friedman: Frank and I, we run something called Deal House. It’s a monthly meetup, and it’s something that we put together for other investors and those in the real estate space. Essentially, we talk like kind of what we’re doing today, about some of the things we’ve done well, some things we haven’t done well, others come and share their advice, and we network together. That’s something we do once a month, and it’s actually an in-person meetup. It’s called Deal House. That’s something we really like to do.

Joe Fairless: Where is that hosted?

Larry Friedman: We hosted in New Rochelle in the Radisson, and it’s the third Thursday of every month, 7 PM.

Joe Fairless: Cool. Well, Best Ever listeners, if you’re in upstate – I call that upstate… Should I not call that upstate, New Rochelle? [laughter]

Larry Friedman: Well, we wouldn’t consider that upstate. [unintelligible [00:23:18].11]

Frank Sanchez: It’s like 40 minutes from the city.

Larry Friedman: Yeah. [laughs]

Joe Fairless: For all of the Best Ever listeners who want to travel 40 minutes from the city, or are near New Rochelle, then definitely check that out. It sounds like a really cool meetup.

Frank Sanchez: Awesome, we’d love to see you there.

Joe Fairless: How can the Best Ever listeners get in touch with you? …which is a perfect segue into this.

Larry Friedman: Awesome. The Best Ever listeners can get in touch with us one of a few ways – they can find us on SDFCapitalLLC.com, or they can find us on DealHouseNY.com. We’re doing the site as we speak. We have some videos as well on YouTube, under Deal House, and like I said, the in-person meetup at Deal House as well.

Joe Fairless: Very cool. And the Deal House website is DealHouseNYC or NY?

Larry Friedman: Just NY. We’re in the process of putting up a new site.

Joe Fairless: Sweet. Well, thank you you two for being on the show and talking about your fund and what you did prior to this, lessons learned with partnerships, and then the fund as far as when it makes sense to put a fund together and when it might not make as much sense to put the fund together. And then lastly, just talking about how you’re getting your marketing leads and the most effective ways that you’re doing that with direct mail, how you’re approaching the direct mail… You might include some postcards in the future to reach people more frequently.

Then how you found some of your most profitable deals, and lessons learned on a not so profitable one. How much money did you lose on that not so profitable one, the funk factor one?

Larry Friedman: We couldn’t sell it and we had to put a rental in there, and we’re actually negative about $150/month.

Joe Fairless: Oh, alright. What do you think it’s worth now, compared to the all-in price that you have in it?

Larry Friedman: I’d say probably our loss, if we had to take that loss today, would probably be about $20,000. If it was a year and a half ago or two years from this happening, it probably would have been about 30k.

Joe Fairless: Good. Well, keep on holding, maybe it will continue to appreciate. But more importantly – I don’t wanna end on that note, by the way… More importantly, I really enjoyed learning about how you MADE money, and the lessons learned along the way. I was just curious about that one thing.

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

Frank Sanchez: Thanks, Joe. I appreciate it.

Larry Friedman: Awesome. Thanks, Joe.

Steve Rosenberg and Joe Fairless

JF1276: Giving Away Half Of Your Real Estate Investing Profits with Steve Rosenberg

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Steve is the CEO of a company that has a $26 billion loan portfolio. He attributes the company’s success to their philosophy and practice of giving away at least 50% of to people that need it. Curious how giving away so much makes a company rapidly grow? Tune in to hear how that has happened for Mr. Rosenberg. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Steve Rosenberg Real Estate Background:

CEO and Founder of Greystone, a real estate lending, investment, and advisory company

-Responsible for the coordination and management of corporate matters

-Founded Greystone in 1988 as an independent investment banking firm & developed it into a mature investment firm

-Greystone closed on $550 Million Freddie Mac Loan to Refinance Moinian’s Sky, the largest residential tower in U.S.

-Say hi to him at https://www.greyco.com/company/

-Based in New York, New York

-Best Ever Book: Peace Like a River

 


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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, Steve Rosenberg. How are you doing, Steve?

Steve Rosenberg: Great, Joe. Thanks for having me on.

Joe Fairless: My pleasure, nice to have you on. A little bit about Steve – he is the CEO and founder of Greystone, which is a real estate lending, investment and advisory company. They’ve just closed on a 550 million dollar Freddie Mac loan to refinance the largest residential tower in the United States. Needless to say, they’ve got some track record and experience that comes with them.

Steve founded Greystone in 1988, as an independent investment banking firm, and developed into a mature investment firm. With that being said, Steve, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Steve Rosenberg: Sure, thanks a lot, Joe. I was the head of housing finance at Dean Witter Reynolds before I started Greystone, and frankly, Dean Witter was a large company, and there’s a certain culture at large companies that is you just have to be a certain kind of person to do well there, and you have to know how to play the politics and you have to fit into that culture, and I really didn’t. So as I saw the writing on the wall and I saw that there really wasn’t much of a future there for me, I decided to start Greystone.

I just started in the back of my friend’s music store, trying to call potential clients and see if they would use me to refinance loans. Somehow, through those conversations and some of the work I had done at Dean Witter before, I started building up a small clientele. Over the years – now it’s been 30 years – what’s really been interesting is that Greystone has been built into a fairly large institutional player. We’ve got in excess of 7,000 employees. What’s really interesting though is that we’ve never raised any capital ever in our history. Even though we’re a principal lender and our loan portfolio is about 26 billion dollars at this point, we’ve never gone outside and raised equity. It’s always been whatever profits we made, or meager profits certainly at the beginning that we made – we invested those back in the company, and what’s maybe the most amazing fact of all, Joe, is that throughout our history we believe in enhancing the lives of others, and at least 50% of our profits have always gone to charitable causes.

Every year, no matter how well or not well we did, at least 50% of the profit that we made went to help other people’s lives and just enhancing other people’s lives. So in spite of the fact that I myself am pretty much an introvert, and we’ve never raised any equity, in every year we’ve given away at least half of our profits… Notwithstanding all of that, somehow there’s a certain magic to helping other people, and notwithstanding all of that, again, the company just keeps growing.

Joe Fairless: I was gonna ask you to clarify it if was 15% or 50%, and then you said half, so obviously I know the answer… 50% – that is incredible. In 1998 you were giving away half of your profits to charity?

Steve Rosenberg: In 1988.

Joe Fairless: Yeah, I did it again… [laughs] 1988.

Steve Rosenberg: Yes, when we were making almost nothing, at least half went out. These days we’re giving more than half. The mission of the company is to do what we do well, and that’s doing business, but that’s just the mechanism for generating profits that we can give away to help other people live a better life. So I would say that we’re not great, loud institutional givers; there are great – whether or not it’s the Red Cross or whether or not it’s The American Cancer Society or other great, great not-for-profits… That’s not the target of our giving.

What we do is we have a network literally around the world where families that flow on hard times, whether or not it’s a child that gets sick that needs an operation, or whether or not it’s a new kind of cancer therapy that has come out but hasn’t yet been approved by the insurance companies… We’ll just step up, write the check, and just help the situation. So we really target families and individuals that were it not for us being able to do what we do, they just wouldn’t be able to get help anywhere.

It’s incredibly fulfilling and empowering, but the bottom line is the mission of the company is not to enrich me or the other senior managers. The mission of the company is really to help other people.

Joe Fairless: How do you choose where you give? You said you have a network – can you elaborate on that?

Steve Rosenberg: Sure. We have a network of people literally around the world, whether or not it’s in Europe, in the Middle East, even in Asia, even Australia, where somehow, whether or not it’s a rabbi or a priest or a nun — we had heard that in Cameroon, for example, there was unfortunately a high percentage of AIDS in the population, and yet children walking the streets that, because both parents had passed away, and there was a sense in the community that because both their parents died of AIDS, that somehow they were contagious… And so even their relatives didn’t take them in.

There was a nun that opened up a home for them… It wasn’t an orphanage where they were gonna be adopted, but it was just a home. So we had heard about this and we had heard about what she was doing, and she was taking care of 45 kids at the time. We looked into it, we gave them the money to built the capacity to take 250 kids. That was in Cameroon. We helped kids that needed operations that we heard about in Australia…

It’s kind of interesting, once you put yourself out there and people know that you wanna help, things come to you. I think that’s kind of the karma or a certain energy, but when you wanna help people, the cases come in. We’ve never had a problem having to advertise that we wanna help people. People find out and cases come in.

Joe Fairless: I’m gonna ask you to speculate, and as a person who’s been in the real estate lending business for 30+ years you might not like it, but I’m still gonna ask you to do it, and just play along with me for a second… Your company has a loan portfolio of 26+ billion dollars, right?

Steve Rosenberg: Right.

Joe Fairless: What would you guess your loan portfolio would be today if instead of giving 50% over the last 50%+ over the last 30 years, you gave 10%?

Steve Rosenberg: What’s interesting, Joe, is that I attribute the success of the firm to our giving. If you ask me, I think there’s a great chance that had we not given all of this money away, we might not even be in business. The fact that we weathered the Great Recession in 2007-2009, when banks were left and right pulling credit lines from us… It was just a very, very difficult time, and we don’t have any large institution behind us. There’s no insurance company, pension fund or any institutional investors, it’s just us. The fact that we were able to survive that time and just keep growing, notwithstanding the fact that we’re giving so much money away… I actually attribute our success and our growth to our giving. So I wouldn’t be surprised if we weren’t even in business if we hadn’t done it.

Joe Fairless: And digging a little bit deeper in that, because I assumed you were gonna go with that approach, and I love it, and I’d just love to learn more about why you say that, and maybe speak to the analytical Best Ever listener who’s listening to you like “Yeah, yeah, but why are you saying that? How was there a cause and effect? How did the numbers shake out?”

Steve Rosenberg: I would say this – if I tried to establish a cause and effect, which I’m always reticent to do, I don’t think that I can logically prove it. But if we just look back on history and we say we started with nothing, we’ve given most of it away, and I can assure you that I am not an extrovert – it’s hard for me to ask anyone to do anything – there is no logical explanation to how the company has grown the way it has. There just isn’t.

By the same token, what I can tell you is that so much of business is — sure, you wanna be smart and you wanna make the right decisions, but so much of it is being at the right place, at the right time, having someone like you that didn’t have to like you, having the market go in your favor when it didn’t have to… There’s just so much that has to go right for businesses to prosper. It’s just my sense that things fall into place even when you would expect that they wouldn’t, when they certainly don’t have to; it’s my personal feeling that I attribute that to our philanthropy and the fact that we really just love other people and feel like we’re in business to help people. I understand that there may not be a business case for that, except that there’s a book that recently came out; Adam Grant is a professor at the University of Pennsylvania-Wharton, and Adam came out with a book called Givers and Takers. He makes the business case for extending yourself for others just creates a positive business environment and actually creates successful business.

I would just recommend that that Best Ever listener that’s out there right now that’s scratching his head, rolling his/her eyes and saying “Hey, this is just a bunch of malarkey”, pick up the book. What I can tell you is that my career and my history with the firm is evident that the book is right.

Joe Fairless: What’s been a tough decision that you’ve had to make with this company over the last 30 years?

Steve Rosenberg: The hardest decisions that I have to make are ones that affect people’s lives. Sometimes people come to Greystone and we expect great things from them and sometimes it just doesn’t work out. To have to have that conversation with someone where we know that they’ll be better off at a different place, because either they don’t fit the culture here, or for whatever reason the skillset that is required to do this job is not the skillset that they have, but the skillset that they do have could be very well utilized at a different company – having that conversation I find is the hardest conversation to have… Because again, I feel like I’m here and our company is here to enhance the lives of employees and other people in the outside world, and whenever you have to have a conversation where you’re telling somebody it’s just not working out, that’s a tough conversation to have. We try never to surprise anybody with that, but those are the hardest parts of my job.

Joe Fairless: And what’s your approach in that conversation?

Steve Rosenberg: Well, I think you always wanna be kind, because what you’re really doing is sure, the conversation that you’re having is for the company’s best interest, but it’s also the individual’s best interest, and people do well at jobs that they love. I think you rarely find a situation where someone does extremely well at something that they don’t love, or that they don’t do well at something that they’re absolutely in love with. So I think the idea is to be as kind and gentle — and not only that, as helpful as possible in finding their next job. But I think that trying to help them do that, trying to be kind and supportive to them, and also giving people constant feedback… Because no one should ever be surprised when someone tells them that it’s time to find another position. And if they are surprised, it only means that the management of the firm hasn’t been giving them the feedback that every employee deserves. Every employee coming in to work every day needs to know whether or not they’re a rockstar or whether or not they’re failing at their job. If they don’t know that, then shame on the management, because that’s’ what they owe every employee.

Joe Fairless: I’m gonna switch gears a little bit because I mentioned it in the intro, and that is you all closed on a 550 million dollars Freddie Mac loan to refinance the largest residential tower in the US, which is in Manhattan… Tell us about that.

Steve Rosenberg: This is a project that was done by the Moinian Group, which is one of the best-known development companies in New York. They create very high-end properties. This was on 42nd Street on the West side of Manhattan. This was a tower, it was very creative financing, that 550 million, as you mentioned… And it’s one of the largest  transactions ever done by Freddie Mac, and it’s one of the things that Greystone does – the loans that we do are generally guaranteed by either HUD, which is a US government agency (the Department of Housing and Urban Development) or Fannie Mae, which is another kind of government-related entity, or Freddie Mac.

This loan was guaranteed by Freddie Mac, and again, I’m very proud of the financing and I think the owners Moinian Group was very happy with it, and we were very happy with it, and so was Freddie Mac.

Joe Fairless: This is gonna be a tough question to answer, but as objectively as you can be, why do you think they selected your group versus three or four other groups that I’m sure they were looking at?

Steve Rosenberg: I think that when you think about Greystone and the fact that we started with nothing, and give most of our profits away and still have grown… I would say that the one thing that we do that others don’t is besides the fact — everyone works hard; I think we work harder. I think there’s very little business that we get because we just say “Give us a shot.” We always are bringing something to the table that the competition doesn’t. We use our capital in our balance sheet I would say more aggressively and more creatively than any other lender in our space.

Sometimes we’re doing a loan for a client and the loan falls several million short. We’ll use our own capital to fill in that gap, because we don’t want the client to be disappointed and we wanna have a successful financing. Lots of times we’re financing an acquisition for a client, and one of the client’s investors falls out at the 11th hour; we use our own capital to fill in the cap and fund that amount of that lost investor, and we’ll give the client six months to find another investor, or a year to find another investor.

So we are constantly doing the double and triple backflip to accommodate clients, and I think that’s the reason that people will come to us. We’re not just creative and we don’t just work hard, we put our money where our mouth is and we’re constantly doing things that the competition literally — if they had to do it, they would just get nauseous. But we do that constantly, and we always feel that we’ve gotta prove ourselves every day, and we do. We’re constantly doing things that others won’t even consider doing. In fact, we’ve created a special group inside Greystone called Special Situations, because borrowers and clients – all sort of things happen in the eleventh hour where we’ve gotta come up with a bunch of cash to help a client out… And we do. It was happening so consistently and so often that we just created a special group called Special Situations; it’s got its own group leader, and when those situations come up, we know we’ve gotta respond within 28-48 hours or within a very short period of time, so we’re prepared to do it.

Joe Fairless: Based on your experience in the industry, what is your best real estate investing advice ever?

Steve Rosenberg: You know, it’s interesting… I’ve always said that when we invest in real estate as well – we own a portfolio of almost 8,000 apartment units and we manage those, and we have a portfolio of skilled nursing facilities and we also manage those… I don’t wanna have to be too smart to this investment. I need to see a clear road to success before we take the risk. So I would say as an investor I am relatively risk-averse. I have the patience to weigh into situations that are complex and try to figure them out, but I don’t wanna have to be a genius and guess at where markets are going to go before I get into a transaction. So I’d like to be able to be conservative and not genius-like at all, and still see the profitability in a transaction. I don’t wanna have to be that smart.

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

Steve Rosenberg: Okay.

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

Break: [[00:20:03].28] to [[00:20:55].16]

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

Steve Rosenberg: A book that I recommend to everyone is a book called Peace Like a River. What I love about that book (it is a novel) is the author uses commonly used words, but he puts them together in very uncommon ways. I am such a fan of how human beings  communicate with each other. I feel like lots of times I’m talking to someone and as I’m listening to them I can just tell that there’s something in their brain that they wanna say to me, and they’re not looking to see whether or not I’m really understanding what they’re saying. So I think communication is a very unique skill, I don’t think too many people have it, and I think the author in this book, Peace Like a River, just communicates in such a unique and effective way using small words.

Joe Fairless: Best ever deal you’ve done?

Steve Rosenberg: I think the best deal I’ve ever done is hiring the senior management that supports me and supports the firm. I think it’s all about the people, and I think the best deal I’ve ever done is hiring people that are not just hard workers and creative, but have huge hearts and are just generally kind and generous and good people. That’s clearly the best deal I’ve ever done.

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

Steve Rosenberg: The greatest mistake I’ve made on a transaction was thinking that I could protect myself with documents. I saw that a client wasn’t behaving in an upright or forthright way, and I felt like my lawyers were good enough and I was good enough to structure the transaction so that I couldn’t get her. I’ve never failed to be disappointed whenever I thought too much of my ability to structure the right transaction.

If a client doesn’t have integrity and they are not people that you would want to do business with, it’s best not to do business with them. That’s been my mistake. I’ve always thought too much about our ability to structure around a lack of integrity.

Joe Fairless: How can the Best Ever listeners get in touch with you or learn more about your company?

Steve Rosenberg: The best way is probably our website, which is GreyCo.com. I’m Steve Rosenberg, I’m extremely accessible, and I’m happy to help or talk to anyone. It doesn’t have to result in business for Greystone. Again, I’m here to help people live better lives, and if I can be helpful to anyone that’s listening, or to you, Joe, I’m happy to do that.

Joe Fairless: A very refreshing conversation… I thoroughly enjoyed our time together, Steve. Thank you for talking about your business approach throughout the last 30+ years. At least 50% of the profits have gone to charitable causes, and while you certainly weren’t doing that with the intention of getting a dollar amount in your portfolio, which is now 26 billion, we kind of reverse-engineered that in a hypothetical scenario and perhaps you wouldn’t even be in business if you didn’t take that approach. You might be not giving yourself enough credit, but I know where you’re coming from.

You talked about the book that Adam Grant wrote, Givers and Takers – we’ll check that out… And you’ve talked about the bunch of intangibles in business that have to go right for a business to prosper. Basically, you’re building up your karma bank by taking this approach.

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

Steve Rosenberg: Thank you, Joe.

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JF1213: Using IRA’s & 401k’s To Invest In Real Estate with Expert Bernard Reisz

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Bernard is here today to tell us how we can use our, or other people’s, retirement accounts to fund real estate transactions. Not only does that help us get deals done, but also helps people earn better returns with their retirement money. We’ll learn about the tax advantages, as well as what is not allowed by tax law. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Bernard Reisz Background:

CPA and Principal of ReSure Financial and combines tax, financial, and investment expertise

– Advises on the use of self-directed IRAs and Solo 401(k)s for real estate investing and lending

– Specialized in real estate debt and equity investing using retirement funds, and personally invests in that way

– Based in New York City, New York

– Say hi to him at: https://www.401kcheckbook.com/

– Best Ever Book: Phishing for Phools

 


Made Possible Because of Our Best Ever Sponsors:

Are you looking for a way to increase your overall profits by reducing your loan payments to the bank?

Patch of Land offers a fix-and-flip loan program that ONLY charges interest on the funds that have been disbursed, which can result in thousands of dollars in savings.

Before securing financing for your next fix-and-flip project, Best Ever Listeners you must download your free white paper at patchofland.com/joefairless to find out how Patch of Land’s fix and flip program can positively impact your investment strategy and save you money.


TRANSCRIPTION

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

Bernard Reisz: Doing great! Great to be with you, Joe, and with all the Best Ever listeners.

Joe Fairless: Yeah, we don’t wanna forget about them too, you’re right! Welcome, Best Ever listeners, and welcome, Bernard! Welcome, everyone!

First, Bernard, we’ve got to tell the Best Ever listeners a little bit more about your background, because it’s definitely relevant for our topic at hand. Your background – Bernard is a CPA and Principal of ReSure Financial and combines tax, financial and investment expertise; basically, he’s an expert on self-directed IRAs and the compliance and usage of those self-directed IRAs and Solo 401(k)s for real estate investing and lending. He’s based in New York City, New York. His website, which is in the show notes, is 401kcheckbook.com.

We’re gonna talk about self-directed IRAs and compliance responsibilities, so if you have a self-directed IRA or are curious about self-directed IRAs and you know a little bit about it, well perhaps we’re gonna educate you (and me) on some compliance factors that we need to be aware of. With that being said, Bernard, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Bernard Reisz: Absolutely. My background is CPA; I’ve been involved in consulting, I’ve worked with some of the country’s largest corporations, Fortune 500 companies, and with individual investors. With that experience I’ve learned a lot about investing, tax and finance, and have seen that investors and individuals can really benefit by being put in the driver’s seat, by taking control of their own finances, rather than being sold to. There’s a lot that people don’t see, and through self-directed accounts and real estate they can dictate their own futures.

Joe Fairless: Amen! So with self-directed IRAs, real quick – let’s not assume everyone knows what it is, so can you quickly define it? I think 95% of the people listening do, but can you quickly just give us an overview of that and Solo 401(k)s?

Bernard Reisz: Absolutely. These retirement accounts, contrary to what Wall Street leads us to believe, can be invested in nearly any asset. So the tax code doesn’t define what you can and can’t invest in your retirement accounts. The tax code outlines the few things that you can’t, and those are collectibles and life insurance for IRAs. Other than that, for your 401(k) defined benefit IRA, if you can imagine it, you can invest in it.

Practically, the most popular investment for self-directed retirement accounts are real estate and some other angle in real estate, be that tax liens or private lending. There are so many ways to get into real estate and to leverage real estate in retirement accounts; there’s a way for everybody to get involved.

Joe Fairless: How are the profits taxed when you make money on a deal after you invest with a self-directed IRA?

Bernard Reisz: Okay, so there are a couple of stages to analyzing that. Some of that relates to all IRAs and some of that is unique to self-directed IRAs or IRA LLC’s and Solo 401(k)s. In general, with IRA taxation and 401(k) taxation there are two routes – there’s what we call traditional contributions and then there are Roth contributions. With traditional contributions you’ve got a tax deduction for all the money that flows into your account. Everything grows tax-deferred, but at some point, usually around age 70, those funds have to start being distributed from the account, and then it’s taxed as ordinary income. So you get the power of 50, 40, 30, 20 years of tax deferral and upfront tax deduction, but there is ultimately taxation.

The other approach is the Roth approach. With the Roth approach there’s no current tax deduction for putting the funds in, but subsequently all gains come out completely tax-free. So you’ve got great deals, you’ve got things that have the potential for high appreciation, you want a Roth, because everything will be completely tax-free.

Joe Fairless: Yeah, so the other scenario would be if you think you’re gonna be making more money at age 70 than today, you’d wanna do Roth, correct?

Bernard Reisz: Absolutely. Because if you’re in a higher income tax bracket, then you wanna get all the Roth funds out completely tax-free. That’s exactly it.

Joe Fairless: What are some common questions that you get from your clients who ask about self-directed IRAs and doing a Solo 401(k)?

Bernard Reisz: One of the most common issues that comes up relates to self-dealing. So while it’s really exciting to be able to invest tax-free in real estate, there are certain limitations. One of the things that we like to make clear at the outset is that you can buy real estate with your retirement plan, but you can’t buy real estate from yourself or from your spouse or from a child or a parent. So the IRS has set this up to try to keep your present self from benefitting, and restricting the benefit to your future self.

So you can buy real estate, but you’ve gotta be aware of those restrictions, and that, I think, is a very common issue that comes up the first few minutes of every conversation.

Joe Fairless: What’s a use case where someone would be doing it incorrectly?

Bernard Reisz: Somebody may have a property that they see is profitable and there’s appreciation, and they get excited about moving that into a retirement plan and having that tax-free. That’s one of the things that gets people excited, which unfortunately cannot be done; you’ve got to buy the property with your retirement account in the first place.

Joe Fairless: Okay. If the property is owned by your retirement account, then that is either tax-deferred, or it’s taxed immediately and then not taxed on the exit, depending on either traditional or Roth.

Bernard Reisz: That’s exactly it.

Joe Fairless: Okay. What’s another question that you get?

Bernard Reisz: There’s another common question that relates to people that want to invest in the type of real estate that involves more than long-term buy and hold and flips; they wanna invest in hotel kind of properties, and that brings up an issue related to something called UBIT – Unrelated Business Income Tax. This I’d say relates to the tax question that we spoke about a few moments ago.

Retirement accounts are tax-free, but occasionally you could inadvertently engage in a transaction that can result in tax within the IRA, and that kind of tax is something called UBIT, and Congress enacted that to keep tax-free accounts from having an unfair competitive advantage over other active businesses.

Joe Fairless: I’m having trouble following you on this one. Will you give an example?

Bernard Reisz: Absolutely. When you get engaged in something that’s active business and it’s ongoing and continuous, Congress enacted a tax on tax-free accounts, and that would apply potentially on flipping real estate. So if you engage in lots of flips inside a retirement account, that potentially results in taxable income to the retirement account.

Another example would be the hotel scenario we’ve described, where you’re going beyond providing the traditional landlording services and providing room services and things of that nature, and the IRS says that’s not an investment business, that’s an active business.

Joe Fairless: Oh, okay. Do you have to be passive?

Bernard Reisz: You certainly do not have to be passive; on the contrary, there are great deals that are available even after the tax, and I think this is a great segue into some of the great benefits of self-directed retirement accounts. Why would you use your retirement account for real estate? The benefit is many-fold, depending on each investor’s stage in their real estate investing career.

For some that are experienced and they’ve got their team in place, they’ve got their strategy, they’re gonna do better in real estate, their returns are great and they identify great deals – they should be deploying all their capital in real estate; as much as they can get into it, that’s what they should do because they’ll do better there than anywhere else.

So even after these taxes, they’ll still do better in their IRA, putting their IRA into real estate, than having it in the traditional space.

Joe Fairless: And I just wanna close the loop in my mind on the unrelated business income tax – you mentioned flips and the hotel scenario… Let’s just go with the flip scenario. If you have an LLC that has, say, 100k and you flip a house and then you take the profits and you keep it in that same LLC that’s through your self-directed IRA and you just keep flipping houses… Say you do one a month – then that would be a red flag?

Bernard Reisz: It’s not a red flag. Actually, it’s perfectly legal, but there would be an income tax to pay, and it wouldn’t be an income tax of the individual that has the IRA, but the IRA would get its own EIN, and it would file its own income tax return to pay taxes on that income.

Joe Fairless: Okay, because it’s more of a business versus an investment.

Bernard Reisz: Exactly.

Joe Fairless: It seems like that would be a grey area, for if it’s a business-oriented investment.

Bernard Reisz: Very grey area, very murky. There’s really nothing in the tax law that outlines what the guidelines are for when something crosses a threshold to an act of business. There was a tax case that went to tax court in which there were nine flips done in the retirement account in a year, and there was no assessment of UDFI; there was no assessments of such tax. That doesn’t establish a precedent, but that just shows us that it’s really grey, and you could potentially go up to quite a few flips without incurring the tax.

Joe Fairless: Okay, now going back to the benefits… The first one you mentioned is if you’re good at real estate, you might as well put more money into real estate to make you more money, and that will likely outweigh the taxes you’ll pay. What are other benefits?

Bernard Reisz: That’s for the experienced investor. For many people that are just getting started, real estate provides an opportunity that’s not available in traditional markets. Traditional markets are fairly efficient – there’s something called efficient market hypothesis; you’re not gonna build incredible wealth in the stock market, and you’re gonna have to deal with the volatility.

Real estate can be an inefficient market; there are opportunities there that can be life-changing for people that get into the game with the proper team. The question is “How do you get in? Where is your capital?” Real estate requires some sort of capital, and IRA LLCs and Solo 401(k)s provide that entry point.

There are people who have capital tied up in retirement accounts that aren’t doing much – they can use that capital to make their initial foray into real estate; they can leverage the IRAs of other folks (of friends and family) that are not disqualified persons to get funding for deals. Beyond that, they could become private lenders. If you’d like to get into real estate and you know somebody that’s successful and is active in real estate and you wanna get his guidance, you can say “I’ve got an IRA. We’ll lend this money on your deals” and this way you can get your feet wet and learn about real estate and get into the game, which is really the only investment opportunity that can be really that life-changing.

Joe Fairless: You just can’t lend to your family?

Bernard Reisz: That is again tax code! So you can’t lend to what the tax code calls “disqualified persons”, and there are lots of family members that are disqualified, and there are lots of family members that are not disqualified. The list of disqualified family members would be a spouse, children and the spouses of children, and parents. Spouses of parents are not disqualified, meaning somebody that’s not a biological parent and married one of your biological parents. Siblings are not disqualified, friends are not disqualified, boyfriends and girlfriends and domestic partners are not disqualified, nephews and nieces, in-laws… So the list of people that are related that are not disqualified persons is pretty broad.

Joe Fairless: Is checkbook IRA another way of saying self-directed IRA?

Bernard Reisz: Definitely not. Checkbook IRA is an exciting way to take self-directed IRAs to the next level, to make them really flexible and really cost-efficient. When we talk about a regular self-directed IRA, we’re talking about an IRA that sits at a custodian; the custodian controls the funds. Every single transaction, every single document has to be processed by the IRA custodian. That can take time, that incurs fees.

Each time you’ve got a deal that you’re pursuing and you need to get that deal before somebody else does, which happens in real estate all the time, particularly looking at REOs, share of sales, you’ve gotta be nimble and move quickly. Having it at a custodian can be an obstacle.

The checkbook IRA is a very creative workaround that puts you in total control of the funds. To get a checkbook IRA involves setting up an entity that’s held by the custodian, so we usually use an LLC. All the funds move into that LLC; that LLC has a bank account over which the IRA owner has signature control, so it can be run like a regular business. Is that clear?

Joe Fairless: That is clear. What type of liability do you open yourself up to as the owner of the Checkbook IRA versus having a third-party handle all of the stuff for you?

Bernard Reisz: The potential of engaging in a prohibited transaction increases. You’ve got total control, and when you have those funds you wanna make sure you don’t accidentally use the money in that bank account to buy groceries, you don’t wanna use that for any personal funds… It’s gotta be clear that those are IRA funds to be used for investment purposes only. Don’t accidentally or inadvertently use them for yourself.

Joe Fairless: How come retirement accounts are called tax-free when in fact you get taxed, either on the entrance or on the exit?

Bernard Reisz: There is a tax deferral. Roth IRAs we’d say are tax-free on the earnings… When we say tax deferral, among us, financial professionals, we immediately know what that means. To most of the people out there that are not CPAs, the term deferral would throw them off, but it’s a way of saying that there are incredible tax benefits to using these accounts.

Joe Fairless: So it’s not accurate, because it’s not actually tax-free.

Bernard Reisz: Yeah, a traditional IRA is gonna be taxed on the way out; it’s tax deferral. Roth IRAs are tax-free on all the profits and gains, but the money that goes into it is not tax-free.

Joe Fairless: Right. In some form or fashion you’re getting taxed, in any of these accounts.

Bernard Reisz: Yes, absolutely.

Joe Fairless: Okay. Because I always say as a multifamily syndicator our investments are tax-deferred, and then if I hear not an investor but a tax person say their investments are tax-free, I just was always wondering that question. So they’re all tax-deferred.

Bernard Reisz: They’re all tax-advantaged. That’s the term I try to use, tax-advantaged.

Joe Fairless: Yeah, because the terminology might be a little bit different, depending on which one. What is your best real estate investing advice ever for investors, as it relates to your background and your expertise?

Bernard Reisz: I’d say real estate is something you’ve gotta get into; you’ve gotta get an angle, you’ve got to associate yourself with real estate pros in your neighborhood, and you’ve gotta take that leap, and you’ve gotta access the capital that you have available to you, and there is an abundance of capital that’s locked up in retirement accounts. Over 25 trillion dollars is sitting there in retirement accounts. That’s greater than the US national debt, which may change before we got off this phone call… But there’s just so much power locked up in there, and you should use that to get into the market.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Bernard Reisz: Let’s go for it!

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

Break: [[00:19:21].13] to [[00:20:19].21]

Joe Fairless: Best ever book you’ve read?

Bernard Reisz: Phishing for Phools. That’s by George Akerlof, Nobel prize winner. He goes out and explains how there are so many places in the financial markets that we are being taken advantage of, and you’ve got to be aware and cognizant of that and look out for yourself.

Joe Fairless: Best ever resource other than that book that we can be educated on self-directed IRAs, Solo 401(k)s, checkbook IRAs, things like that?

Bernard Reisz: That’s a good one. I’d say we try to put up on our website a wealth of information, and we’re always refreshing it; we put links to the tax code, we go down deep into details, and we’re always refreshing that information with new angles and new ways to go about it.

Joe Fairless: And there’s a link to that in the show notes page. I didn’t expect to give you a layup, but hey, I’m on your side and you do have a bunch of good stuff, so we’ll go with that. What is a mistake you’ve seen one of your clients make as it relates to your area of expertise?

Bernard Reisz: I’ll give you more than one answer if I may, because I really want the Best Ever listeners to be aware of this. When you’ve got an IRA LLC, you may go to Home Depot, you’ll maybe go to a store and they’ll offer you a credit card. Don’t take it. That can be a prohibited transaction, because you’re taking and personally guaranteeing the liabilities of your IRA.

Joe Fairless: That’s a good one. You said you have another?

Bernard Reisz: The other would be when opening your IRA LLC account, I discourage funding the account with personal funds; that could potentially be interpreted as a prohibited transaction. Often times you go to a bank and you open the account for your IRA LLC or Solo 401(k) and the banker says, “Okay, you’ve gotta put some money into the account.” So you’ve gotta tell them, “We’re gonna move the money from my custodian. It’s coming over. I don’t wanna put personal funds in here.” We, as part of our services, we deal with the bankers and we iron that out.

Joe Fairless: That’s great. Those gotta be two common mistakes that come up, because those are kind of spur of the moment types of decisions people need to make, versus a decision where they’re in front of their computer, e-mailing or can call; these are in-the-moment type of things.

Bernard Reisz: Yeah, that’s it… And we’ve gotta be there for our clients to make sure these don’t happen and pre-empt that before they occur.

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

Bernard Reisz: Best way to get in touch with me is direct e-mail, Bernard@ReSureFinancial.com. We’d love to hear from all the Best Ever listeners and help everybody out in the system and get in control.

Joe Fairless: Thank you for being on the show. I’ve done many interviews about this subject, and you’ve taught me some things that I haven’t learned in other conversations, so I’m grateful for that and I know the Best Ever listeners are as well.

Some things we can’t do, the last two things you’ve mentioned, that is don’t take a credit card out at Home Depot or wherever, because you’ll be personally guaranteeing against that, and it might be considered a prohibitive transaction. Then also when you open an account with your LLC at a bank, don’t personally fund it – again, a prohibited transaction, or it might be considered that. And then some limitations and some benefits as well, which we’ve talked about.

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

Bernard Reisz: Joe, thank you for having me, and thank you to all the Best Ever listeners for listening, and I look forward to being in touch.

Carl Banks and Joe Fairless

JF1206: He Doubled His Business In 18 Months After Losing $30 Million In Contracts with Carl Banks

Listen to the Episode Below (41:26)
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After a very successful career in football, Carl continued his success trend in business, launching G-III Sports. With his new business, he made outerwear for the NFL. Until one day when reebok bought the licensing rights to make the outerwear. Rather than giving up, cutting costs, and downsizing, Carl and his team hustled working with smaller shops and in return only lost about 10% of his business. Carl knew that Reebok could not make the outerwear as good as they could, and in 18 months G-III Sports was awarded the licensing for outerwear again, which now doubled his business vs. what it was before. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Carl Banks Background:

-2x Super Bowl Champion/NY Giants Legend, NFL’s 80’s All-Decade Team, and Michigan State University Hall of Famer

-President of G-III Sports, the largest licensed sports apparel company in the world that produces for the NFL, NBA, MLB, NHL, etc.

-Founded G-III over two decades ago and responsible for bringing back the iconic Starter satin jacket.

-Travels with NY Giants as an on-air broadcast analyst and serves as a mentor to the team

-The Carl Banks Foundation raises money for a variety of causes, most notably autism research

-Based in New York City, NY

 


Made Possible Because of Our Best Ever Sponsors:

Are you looking for a way to increase your overall profits by reducing your loan payments to the bank?

Patch of Land offers a fix-and-flip loan program that ONLY charges interest on the funds that have been disbursed, which can result in thousands of dollars in savings.

Before securing financing for your next fix-and-flip project, Best Ever Listeners you must download your free white paper at patchofland.com/joefairless to find out how Patch of Land’s fix and flip program can positively impact your investment strategy and save you money.


TRANSCRIPTION

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

With us today, Carl Banks. How are you doing, Carl?

Carl Banks: I’m doing well, thanks for having me.

Joe Fairless: Well, my pleasure and nice to have you on the show. A little bit about Carl – he is a two-time Super Bowl Champion with the NY Giants, he is a New York Giants legend, he was on the NFL’s 1980’s All-Decade Team, and he is a Spartan from Michigan State University. He is a Michigan State University Hall of Famer. You’re from Flint, Michigan, right?

Carl Banks: Correct, yes.

Joe Fairless: I was born in Flint, Michigan.

Carl Banks: Really?

Joe Fairless: In fact, in about a month I’m gonna be in Flint, visiting my grandmother who is 102 years old.

Carl Banks: Oh, that’s awesome.

Joe Fairless: She’s still living in the same house that she’s lived in for 60 or 70 years.

Carl Banks: Boy, I know there’s some stories she can tell.

Joe Fairless: Oh, boy. Yes, yes, yes. So Carl – not only from the football background, we’ll put that aside for a second… Holy cow, Carl has been busy post-football career; he founded G-III Sports, and G-III Sports is one of the largest license sports apparel companies in the world that produces for the NFL, NBA, MLB, NHL. They’re the number one outerwear sports licensing company, and we’re gonna talk about that, as well as some other entrepreneurial endeavors. He also still travels with the New York Giants as an on-air broadcast analyst, and serves as a mentor for the team… So here’s my first question for you, my friend. Well, first off, welcome to this show!

Carl Banks: Thank you for having me.

Joe Fairless: You were a grave-digger in high school… How did you get into that?

Carl Banks: Well, there’s a few cemeteries in Flint, Michigan. Gracelawn Cemetery was the one that shows me, I guess, there was a really great — I call him a community leader. His name  was Peter [unintelligible [00:04:20].13] and he tried to make sure that all the young athletes around town just kind of stayed out of trouble; he would offer summer jobs. He was at one of my games, and it was probably my junior year, going into the summer – it was the summer league basketball – and he said he had a job for me.

I came, and he gave me a shovel, pointed me in the direction to go, but… There were a lot of us out there, but it was so interesting because the whole grave-digging thing, with the people that you work with… I think there was kind of a method to his madness, because he had us working with people that were just out of incarceration, so people that were trying to get their lives back together…

So you’re sitting there and you’re digging graves, and you’re having these long conversations with people that are giving you really great life advice… Because people are saying “You don’t wanna do these types of things, you don’t wanna be with these types of people. This is what got me in trouble”, and some of these young men — my father was a corrections officer, so he knew some of them. So it was really interesting, but it was a great character-building experience, so much so that I continued to do it throughout college. It was great.

Then Peter was just awesome, because he would come, he would drive through, pick me up, take me to lunch, and we’d have these life conversations, and how to deal with people and building people skills… It was just awesome, that whole experience, and I always joke — when people ask me about it, I say “People are dying to get in there.”

Joe Fairless: [laughs] Well, with some of the conversations you had with the people who are just getting out of jail or prison, do you remember any particular piece of advice that really resonated with you?

Carl Banks: Flint was a really small community, but I’d say the one thing that I never forgot – I don’t know if it was Peter that told me, or one of the ex-convicts… He said, “Your eyes remember what your ears forget”, meaning always stay alert, always be observant of people and your surroundings.

Joe Fairless: How have you applied that to your life?

Carl Banks: It’s so interesting, because in business, just like in sports, what I call phatic communication or non-verbal communication – you can read a lot from a person just by observing them, and sometimes you’ve gotta be less of a talker in business and more of a listener and more of an observer. And in sports, because I played on some very good teams, I was able to – when I knew I could impose my will on someone – watch their behavior; I could tell when someone gave up, I could tell their level of determination. The harder you played, the more tips they would give you.

If a guy had to block you, you could tell the ball was coming to my side of the field, because the guy would be a little more nervous than he would if he didn’t have to block me. Sometimes you find that in business people are over-talkers sometimes, or if you ask a question and you watch behavior, you can learn a lot about people, so that’s why I observe and I listen.

Joe Fairless: I love that, that’s incredibly helpful for us as entrepreneurs. You mentioned that – and this will be the last grave-digging question I have for you, but it’s really fascinating… You mentioned you continued it when you were at Michigan State – did you just find a new cemetery to go dig in, or did you go back to Flint and dig at the same place?

Carl Banks: I stayed at Gracelawn Cemetery.

Joe Fairless: Okay.

Carl Banks: And I did everything, too. It was grave-digging, landscaping, I ended up working backhoes and tractors… It was everything, but you had to find lost grave locations, you relocated people to their family plots… It was all kinds of stuff, and one of the weirdest things was when you had to relocate someone that’s been buried for a very, very long time; the family or the kids bought a plot and they want everybody together, and you’ve gotta go dig someone up… And once you dig it, you can only go so far, then you have to go by hand and scoop out turf, and there’s water and all kinds — it’s just like the creepiest thing…

Joe Fairless: Yes, it is…

Carl Banks: But it was fun… [laughter] Believe it or not, it was fun.

Joe Fairless: Were there any self-talks later in life, whether in the NFL or post-NFL, doing the successful endeavors that you’re doing, where you think “You know what, I hand-dug out an existing grave, I can do XYZ.”

Carl Banks: Probably more often than you can imagine. Because I think it also taught hard work. I’m not afraid to get my hands dirty and dig in, literally. Pun intended. But there are times where you’ve got a decision to make, or you’re training — when I was in sports, yeah, I would say I’m doing pretty good for myself. I’ve been around death, I can do just about anything.

Joe Fairless: Let’s talk about a tough decision, as an entrepreneur, that you’ve had to make. Can you tell us what that was and just the thought process that you had with it?

Carl Banks: I would say in the late ’90s the licensing landscape changed, and Reebok became a major licensee for all categories in the NFL. They just pretty much bought the entire business. So I was a niche business at that time, I was strictly outerwear, and I was informed by the NFL that all of my major retail rights were taken away and gonna be granted to Reebok.

Now, I knew Reebok did not have the outerwear core competencies that we had, and yet I lost the business to them because they were the highest bidder, and obviously outerwear for someone who’s making jersey shirts and hats [unintelligible [00:10:36].03] but it’s a very important category at retail. So I spent probably two or three meetings, myself and Morris Goldfarb, the CEO of G-III – we went to Boston, we sat with their executives, Paul Fireman, and we said “Okay, so if you guys are gonna do outerwear, we do it better, why don’t you sub-license us to do it?” He said “No.” So ultimately, their goal was to put us out of business. So my decision that I had to make at that moment was “Was I going to allow this company who is much bigger than me in the sports area to put us out of business, or to strategically adjust?” Because I sat with Morris Goldfarb and he said “Look, I may have to shut the division down, because I don’t know where we’re gonna get this business from.”

I would say the number one thing that kicked in for me, and I basically said to myself while I was in the meeting with him, I said to myself “What would Belichick and Parcells do?” Because they’re the masters at knowing what you are this year, and I’d written both of them letters thanking them for being kind of a blueprint for how I approach business from year to year, from week to week.

So what I did was a little bit of deductive reasoning. I knew that Reebok did not make outerwear and they didn’t do it proficiently, so even if they did, it would be one or two pieces. So what I said I would do is adjust the business. And I just looked at the CEO and said “We’ll be okay”, because I knew if they didn’t service the customer, it was gonna be a problem with the leagues, because the customer is gonna say they’re not getting outerwear and G-III Sports was getting me everything I wanted. And if you’re talking about a 20 or 30 million dollar business at the time, that’s a lot. And you’re taking product out of the market. So they bought the rights, they warehoused them, so I said to my CEO, “We’re gonna be okay.” But in the interim, I still had to find business, right?

Joe Fairless: Yeah.

Carl Banks: So what I ended up doing, where they took the major retailers away from my portfolio, there were a ton of independent guys, local market guys, team pro shops, right? So my ability to go out and go find the local market guys to buy my outerwear was the greatest thing I could have ever done, because I expanded my business in preparation for the rights to come back, because all of these mom-and-pops got the product, and they were the only ones to have outerwear for a couple of years.

Now, the big retailers were complaining to the NFL, like “I can’t even get outerwear when all of these other mom-and-pops have outerwear.” I’m saying, “Go talk to Reebok, we have nothing to do with it.” So eventually, I think about 18 months into the deal, we probably lost I would say 10% of our business. So we had to hustle, right? But we found a different way, and that was kind of — if I had to look at the lessons I learned from Parcells and Belichick, those are the things. Each week, each year it’s “What are we? What do we have available to us? Now let’s find a way to be successful with what we have”, because the old way doesn’t work given the tools we have available to us. So I immediately went into that, and that’s something that businesspeople didn’t experience. It takes a series of meetings, and the first thing you think to do is cut-cut-cut, slash-slash-slash, and I’m thinking “No, let’s grow; here’s an opportunity”, because these were guys that weren’t getting my product that wanted it, now I can give it to them exclusively, and make the other guys want the product as a result of that.

My business was down, like I said, about 5%, maybe 10%, which wasn’t bad, given I just watched 30 million dollars worth of business go to someone else and I had to refigure it out, but I was able to cultivate a new customer base, and Reebok and the leagues, all of them (the NBA and the NFL) were hearing it from the major retailers – “You can’t do this. You can’t keep this–” and Reebok could not make the products at the level we could, and they were offering one jacket that wasn’t very good. And I got into the business being a niche player in outerwear, because I was able to make jackets at a level where they’re presenting ten T-shirt, I would go to JC Penney’s and present 20 jackets as if they were T-shirts; I was able to give each customer their own jacket, and that’s how I got in the business with NFL… But I basically went back to my roots.

When the big players started to call the NFL and say to them “You can’t not keep this product out of the market”, Reebok had to either make the product or surrender the rights, and we ended up getting the rights back in 18 months.

Joe Fairless: Wow.

Carl Banks: What ended up happening, I grew a business and then I got the 30 million dollars in business back, so it doubled my business just like that in 18 months.

Joe Fairless: Knowing that you went through that process and the results from the process, would you ever trick yourself into thinking that something like that is about to happen again?

Carl Banks: It is.

Joe Fairless: Okay, will you elaborate?

Carl Banks: It’s a thing called Amazon. Amazon is great, but they are squeezing brick and mortar… So yeah, it’s happening. We’re making some adjustments, and the experience is very important if you wanna be relevant beyond online purchasing; you’ve gotta create an experience, you’ve gotta create stories that work, that can’t be articulated by looking at a computer screen. We’ve been able to do that, and we do business with Amazon, we do business with Fanatics; both are good partners, but their stated goal is to take over the world, and as long as we’re part of that, that’s fine, but we have other partners that we wanna keep in our mix as well that are brick and mortar, and the only way you’re gonna do that is people go to brick and mortar for the experience; if you’re buying a coat, if you’re buying your favorite team hat, jersey or shoes, it wasn’t grab and go… That’s what online is right now. There is no experiential component.

I’ve just read about the artificial intelligence of the Echo and Alexa, where they’re gonna be  beaming and looking at your body and seeing what you wear, and how to do that, but that’s just not the same. If you continue to create the experience and if the retailer can adapt to the changing taste of the consumer, I think we’ll be fine. But there are certain things that you can’t do online that you can do in person, and also a lot of these guys have to buy brands in order to stay relevant, because they don’t wanna make product; they wanna sell product, so they have to buy other brands to sell the product, and sometimes it’s just like they bought whole foods, because they know that people like to feel their vegetables; they like to look at the fish before they buy it. They can’t buy that online. So it’s got a proof that everything can’t be sold online; you’ve gotta have some level of experience.

Joe Fairless: On the entrepreneurial note, and really just the hustle and the foresight note, I was reading a story about you and it mentioned that you convinced a radio station to allow you to host a post-game show while you were playing for the Giants. So you would shower after the game and then go talk about the game immediately after, on your show, and most of your teammates, I imagine, were not doing that.

Carl Banks: None.

Joe Fairless: Okay, none. [laughs]

Carl Banks: There was no one doing that at the time. There was no one in the league doing what I was doing at the time, and it became kind of the format for what we see in post-game shows now – player-hosted shows, player reports… That was all a result of what I did, and I had great help, because again, when you talk about being proactive and opportunistic and kind of having that grind — I got Coca-Cola to be a sponsor of it, but how it happened… I was speaking — I’m trying to think where it was; it was in South Jersey like Exit 9, and I was speaking at a kid’s banquet, and the father came up to me, his name was Wayne Vogel, and he was from Coca-Cola.

So we struck up a conversation, I said “I’ve got this idea, I wanna do a post-game show… Would Coca-Cola be interested?” Long story short, he took me to meet Jim Patton, his boss, and Patton had this idea, too; they had to try to sell a two-liter bottle of Diet Coke, and it was the first time they were launching that, so I was a big guy, it worked for them, because I became kind of their poster guy for this two-liter bottle of Coke, and which kicked off an entire campaign around the entire country with the NFL, and then Pepsi signed Shaq as a result of that.

Joe Fairless: Shaq should thank you, by the way.

Carl Banks: Yeah, so I got Coca-Cola to say, “Okay, we will be your sponsor.” So I walked into the radio station – and by the way, this is the same way I operate now with my radio show here in New York on WFAN CBS Radio… I had a Coca-Cola in hand, it became the Coca-Cola Carl Banks Report, and the Coca-Cola Carl Banks Post-Game Show. So I was like in radio while I was working. No players were doing any radio shows during the seasons, and they certainly weren’t doing postgame shows. That’s kind of what laid the groundwork for me to be a broadcaster, but I loved the philosophy of having a sponsor in hand and basically bartering your air time… But it’s great, especially if you’re good – and I think I’m pretty good at what I do, but here I have a postgame show, I do a Monday and a Friday show here on WFAN, and my main sponsor is KIA, and KIA wasn’t in sports.

I’m not gonna say I’m solely responsible for putting KIA in sports, but I was at [unintelligible [00:21:18].29] and I needed to rent a car, and they gave me what I thought was a Toyota Land Cruiser and I find out it’s a KIA, right? I’m like “This is great!” and I was ranting and raving, so I got back to the radio station and I said “Can someone call someone at KIA?” and I recorded this testimonial, they sent it to them, and we’ve had a relationship for like seven years now.

Joe Fairless: Wow.

Carl Banks: But then, KIA is now in NBA, they’re in NFL, they’re a big part of sports now. LeBron James is a big spokesperson for them, but the experience and being proactive in things that you like is really cool. I know I didn’t answer the question, but I just wanted to share the experience.

Joe Fairless: No, you did! And I love that, because I have a follow-up question on that. You mentioned it was called a Coca-Cola Carl Banks Report…

Carl Banks: Yeah.

Joe Fairless: No one else was doing it…

Carl Banks: Correct.

Joe Fairless: I’m gonna make some assumptions now. I am assuming that your teammates were like “Dude, you’re doing what after the games?” and when you made a  mistake in the game, would the coaches and/or players be like “Well, Carl, if you weren’t doing all this extra stuff, then you would have more time to focus on the game and what we should do.”

Carl Banks: We had a little bit of that. I got my chops busted a  little bit, but that’s even more pressure to be good. And again, I was on some really good teams, so there was always this element of accountability; we always had to be accountable to each other, so effort was important. And if I made a few bad plays in the game, I had to fess up to it. That was the way our team was built and the way each component that Bill Parcells built our defense and Belichick ran it… But if something happened, we pretty much happened whose fault it was, because that’s just the way we were set up. We were pieces that worked together, so if a pass play happened or  if a run play happened, you couldn’t come off to the sidelines and tell your teammates, “Well, I did my job, but something freakish happened” – no, we knew, everybody knew.

So if I screwed up, I had to fess up right there, which made it I guess even more authentic for me in a postgame show, because I had to go on air — I didn’t have a 24-hour rule; I had to go on and fess up right on air… “Hey, look, they scored a touchdown because they ran on the outside by me and I didn’t do my job.” I think that’s what makes me such an honest broadcaster to this day, is that I can actually look at something and say whose fault it was without making it personal, because I had to do it myself.

Joe Fairless: You are more so proactive and opportunistic than most people. You’re digging graves, doing a job in high school that most people wouldn’t wanna do for their whole life, let alone in high school. You made the NFL, excelled, while in NFL you took on another job that evolved into other stuff and now post-NFL you’re doing really well with your company… What would your advice be to people who don’t naturally have your level of proactiveness in their nature?

Carl Banks: I would just say be curious. Developing people skills, believe it or not, it started for me while working in the cemetery, because I was around different types of people and I had to ask questions, I was asked questions, and I had to learn certain things. So I would say everyone who is not proactive or they don’t think opportunistically, I’d say be curious, always be intellectually curious; you wanna learn something about something or about somebody, and that one question will lead to the next answer, to the next question, and then that’s growth, and then you wanna know something else about something, because that’s how it really starts.

You’ve gotta develop some level of communication skills; you don’t have to be a great orator, you just have to be curious. You’ve gotta be curious and you wanna have interest in people, and I’m probably, when I’m not around people, the most introverted person ever. I enjoy doing nothing better than anybody, but when it’s time to have that conversation or to follow up on something that I was reading, I’m all in. I wanna learn as much as possible.

Joe Fairless: Based on your experience as an entrepreneur, what is your best advice ever for other entrepreneurs?

Carl Banks: As painful as it can be, do not be afraid to fail, because entrepreneurism is about exploring every idea you have. That’s what an entrepreneur is – it’s about blazing a trail, it’s about breaking new ground, it’s about having a better idea. That’s what an entrepreneur is. He finds either a better way to do it or he has a better idea or he has a unique idea. Sometimes you find out that your idea is not unique, and you either abandon that idea and go to the next one, or you find a better way to make your idea even more innovative, but it can be painful. Even when you’re successful, your one or two ideas for expansion could fall flat on its face, and that’s painful, but you’ve gotta be able to say “I’m not afraid, because I’ve got many more ideas to come, so I’m just gonna keep coming at you.”

Joe Fairless: Well, let’s stick with the painful theme. What is a painful flop business-wise that you’ve been responsible for accomplishing?

Carl Banks: [laughs] Well, this was just recently. I had an idea that I was trying to work a licensing deal with Classic Media, and they have just the greatest library of cartoons, Rocky and Bullwinkle to Richie Rich… They have this incredible catalog, and I thought I would be able to take those images and really create some fun stuff on apparel, because we’ve seen it, junk food has done it with vintage, from Coca-Cola to 7Up, whatever it is, right? And I thought the time was right in the market.

I invested a lot, hired a lot of people, we created some incredible product, and nobody wanted it, nobody understood it, no one wanted it, and it’s unfortunate, because I still have some great designs that eventually — and I’ve been ahead, that’s how I also look at it too, sometimes I’m ahead of the curve in some of my ideas… But that was a very expensive failure, very, very expensive, because you get licensing rights and they gave me everything, I gave them a great presentation, I built a great product, I even had product in the warehouse, and just no one wanted it, and that was interesting, because I thought the timing was perfect for it.

It happens, but I still have great product and I know at some point if I have to revisit it with Classic Media, I’ll be okay. I think they’ll be ready for it.

Joe Fairless: If presented a similar type of opportunity, or if you have a similar type of idea, how would you approach it differently, knowing what you know now?

Carl Banks: I don’t think I would approach it any differently.

Joe Fairless: There’s no way to test that before sinking in a bunch of money?

Carl Banks: Sure, you have to spend money to build it, right? But you do your market research, you see what’s trending, you see where fashion is leading, and you say “Okay, this fits”, and it didn’t. But that’s okay, because it’s about instinct. Entrepreneurs have to have instinct. You can’t be numb. If you feel it and it feels good and you feel great about the research that you’ve done, you feel great about the integrity of what you’re building, you go for it.

I had the same instincts on the Starter brand, that’s extremely successful for me right now. I wore it when I played, I was a spokesperson for it, I was building a jacket program, and I wanted to get the starter label on it because we were recreating the scene from Coming To America with Eddie Murphy and Arsenio Hall; Eddie had the Mets on and Arsenio had the Jets on, and they had all the buttons and everything on it, and I said “I wanna do this, but I want it authenticated”, and I was able to reach out to the folks at Iconix, the IP holder, and asked for permission to do it. I said “You know what, I think it’s time to bring this entire movement back.”

So we worked together with Iconix, I got the license for the brand, and it has been on fire. Instincts felt good, I built it the right way, I made sure that the integrity of the product was as authentic as it used to be, and I knew there was a generation of millennials and even people that are of my age group or a little younger that had an emotional connection with the brand. This was a brand that resonated even before Nike started to enter into sport. So there’s heritage, these are the guys that created what we know as sports fashion, as sideline apparel. These are the guys that were innovators, they created that, so I brought it back and it is on fire right now. I’m very excited and I’m very glad I trusted that instinct as well.

Joe Fairless: Oh yeah. You’ve got the pullover Starter jackets…

Carl Banks: That’s the breakaway, yes sir.

Joe Fairless: Yeah… I do have a place in my heart for that, and I think I will be getting one after our conversation.

Carl Banks: Yeah, you should break your old one out, but yeah, Starter.com… We do a great job. But the number one thing I wanted to do when I got permission to do it from the NFL, and then I went to Iconix and they granted me the rights to the license, the first thing I wanted to do was find out where the product was made, so I looked in the old jackets to see what country of origin they were made in, and then we tracked down and I have three people on my staff that actually worked for Starter during that period.

They knew some people, and we tracked down the original factory, and we’re still working with that factory to make sure that we have some level of authenticity to it.

Joe Fairless: That’s incredible.

Carl Banks: And how about this? This is something for entrepreneurs to know about, too – I also went to the vintage dealers, because those guys are so true to the essence of the product, because they sell it… I became really good friends with — there’s a guy here in New York, he has a vintage store called Mr. Throwback, and he specializes in Starter jackets. So I went to him to make sure I had all the details right, and if there was a detail off, he talked to me about it and we got it right. So also bring an outside, expert point of view into what your thought — you’re not surrendering your thought process, you’re just perfecting it.

Joe Fairless: The final question — actually, I have two questions… This is the penultimate question – how do you identify the people to be on your team as advisors? Because I’m sure through your connections throughout the years you’ve got a rather large rolodex, so really the challenge is identify who you should really closely associate yourself to?

Carl Banks: Well, you find out what people’s core competencies are. It could be people that you admire for what they accomplish. You start to pick their brain, you have conversations. Again, like I said, eyes remember what your ears forget. So if you’re very observing and you see how people do things, you learn about them and you say “Well, maybe that can apply to what I do.”

The same principle applies when I hire someone. I still to this day — I didn’t think I was that tough, but my current men’s activewear designer, I almost sent to home in tears, because I kept making her do projects and I kept challenging her because I lost a very good designer, and I was really in a good space in terms of how my product looked and where it sold at retail, and I kind of had carved out a position, and I didn’t wanna lose ground to my competition, and I was fond of the designer I lost.

So the next person in – she’s not a kid, she’s a young lady… But her mother was in and she was like, “Mommy, would you tell him how hard I took it?” I’m like, “I didn’t think I was that tough, but I just wanted to know that you were good enough and that we were gonna have great product.” I could not say more great things about her to this day, because she is just incredible. She actually took our activewear to a whole other level.

Joe Fairless: Wow. As a business owner and entrepreneur it’s incredible what you’ve accomplished, and I’ll give my summary here in a second. But before I do, what if anything would you like to mention that we haven’t talked about?

Carl Banks: Well, I would say you’ve gotta have a work/life balance. I think people that are so driven – and I’ve been there before – they don’t have a life. I think health is important, I think you have to do something you like outside of the things you wanna create, like work… Because entrepreneurs often multitask from different ideas, but I think a healthy mind and body is important as well, and I think you need to have balance in that, and if you’re an entrepreneur with a family, you definitely need work/life balance there, because the sober reality is your failure sometimes can bleed into your personal life, and you don’t want that.

You wanna have a balance where people are rooting for you, you wanna create cheerleaders. If you fail, you don’t wanna come home and be looked at as a failure; you want everybody bought in. You wanna have a life where everybody’s proud of every effort that you have, so that they’re your cheerleaders and they’re like “Okay, what do we wanna do next? If this one didn’t work, we’re gonna do the next thing.”

Joe Fairless: With your company, how can the Best Ever listeners check out the products that you licensed? Where can we go to look at that?

Carl Banks: Well, we have a website, giii.com, but starter.com is another place. Fanatics – if you’re just going to Fanatics.com and you type in any of our brands, meaning Starter G-III For Her, G-III By Carl Banks, you’ll see all of our products. I do Hands High for Jimmy Fallon, I’m partners with Alyssa Milano who is the number one fashion, maybe sports apparel brand, Touch By Alyssa Milano… So she has literally changed the game.

We met probably ten years ago at a trade show and she said she wanted to do women’s apparel that didn’t look like men’s product, that was (as she said) “shrink it and pink it.” So she had an idea – talk about an entrepreneur – she said “This is what I want it to look like. Give me a designer, give me staff”, and away she went. Now I think she is the leader in high-end fashion for women’s sports apparel.

Joe Fairless: Wow. I will include those links in the show notes page. Carl, lastly, as someone who — I believe your company works with investors, right? I see an Investor Relations–

Carl Banks: Yeah, our corporate company, G-III Apparel is a publicly-traded company, that’s correct.

Joe Fairless: Got it. And I guess my last question is what was the decision-making process to make it a public company versus keeping it private?

Carl Banks: Well, I was not part of that process. Morris Goldfarb and his father and his brother are the ones who took the company public. I joined the company probably two years into that process. They had just gone public. So what I brought was a whole different mindset, because they weren’t even in the licensing business at that time. They had just become outerwear company of the year for some retailer on a Bomber jacket, and I joined the company with the sports licenses, which became a model for how the company would operate, because the margins were so much better… Now you’re dealing in brands instead of commodities.

So now, if you look at the G-III portfolio, outside of my sports business, you’ll see names like Calvin Klein, Karl Lagerfeld, Andrew Marc, Kenneth Cole, Cole Haan, Levi’s, G.H. Bass are all brands that we corporately license or own outright. We own DKNY (Donna Karan) now, we own G.H. Bass, we own Karl Lagerfeld… So we have brands now so that we can remain important at the retail level, and just not a commodity black or brown dress, or suit, or jacket.

Joe Fairless: Carl, thank you for being on the show and sharing life lessons along the way…

Carl Banks: I appreciate it, man.

Joe Fairless: This is incredible, very insightful, and I’m very grateful that we were able to catch up and learn more about your approach, from the very beginning — or from the beginning of when we started our conversation, where you talked about lessons learned from your summer job, digging graves, to just your overall approach where you can [unintelligible [00:39:06].29] a lot from people by observing them; sometimes you wanna be less of a talker and more of an observer, and how you’ve applied that towards business. Sometimes people talk too much, they’re overtalkers, and perhaps there is something that is lurking just beneath the surface there, whether they’re insecure or hiding something or whatever.

Then life challenges or business challenges – you had Reebok come in and took away basically a 30 million dollar account. You had to hustle, you went after the private companies and lost only 5%-10%, but then you got it back 18 months later, plus you’ve got all these private companies, so you grew tremendously through that experience… And the whole thought process, what would Belichick or Parcells do… It’s funny, I had a challenge in my business when I was starting out and I thought “What would a billionaire do?” So it’s still having the thought process of someone else at a higher level at the time of where you’re at would be doing…

And then being proactive and opportunistic… Holy cow, playing a football game and then doing the radio show when no one else is doing it, then bringing on sponsors… And if we don’t have that level of ambition and proactiveness that you naturally have, then your advice is to be curious, ask questions and learn. From learning, you will grow, and then that leads to more questions, and naturally, there’s more growth.

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

Carl Banks: Alright, man.

Jay Williams and Joe Fairless

JF1169: #2 Overall 2002 NBA Draft Pick & Entrepreneur Jay Williams: How To Reinvent Yourself When In Life Altering Situations

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As the #2 overall draft pick in 2002, Jay had his future all planned out. Until one day when he hit a utility pole at 65 MPH on his motorcycle – his life was forever changed. Rather than let his situation get the best of him, he turned it around, writing about what he went through and helping others in their tough situations. Today he’ll discuss how to come back from tough times, as well as giving us business and investing tips. Jay isn’t where he is today because of his athleticism, he truly made himself into a phenomenal business man, someone we can all learn from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Jay Williams Background:

-Multi-talented ESPN college basketball analyst, motivational speaker, and Former NBA star

-Considered one of most prolific college basketball players in history, and the second pick in the 2002 NBA draft

-While a motorcycle accident pivoted his promising NBA career, he saw the adversity as a blessing that taught him    how to thrive/inspire others

-Now applies his positivity and signature personality to broadcasting, business, and beyond.

-Best selling Author of “Life Is Not An Accident”, a Memoir of Reinvention

-Say hi to him at http://www.jaywilliams.com/  

-Based in New York City, New York


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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, Jay Williams. How are you doing, Jay?

Jay Williams: I’m doing good, my man. Thank you for having me.

Joe Fairless: My pleasure, and I am grateful that we’re gonna spend some time with you. Best Ever listeners, you know Jay, and if you need a refresher, let me just give you a quick one. He is a former NBA player. He was drafted number two overall by the Chicago Bulls, got into a motorcycle accident and he pivoted his career from NBA to now an entrepreneur and multi-talented businessman, one of which occupations is being an ESPN College Basketball analyst, he’s also a motivational speaker, and many other things. He’s also the best-selling author of the book “Life Is Not An Accident: A Memoir Of Reinvention.”

Jay, let’s start off with that. What does that title mean to you?

Jay Williams: First off, who would have thought it took me three years to write close to 290 pages…

Joe Fairless: Books aren’t easy.

Jay Williams: Yeah, they’re definitely not. They’re more stressful than anything. The most humbling part about it is writing draft after draft and then being vulnerable enough to share that insight about what you’re going through in the darkest moments of your life with your inner circle, and having guys like Coach K., after you put a year-and-a-half into it, read it and then call you and with that Coach K.-like voice say “Yeah, I think this is pretty shitty. You could do a better job”, and you being honest with yourself and saying “Wow. Okay, back to the drawing board.”

But I guess the overall premise of it is that I found myself in a very bad place for a very long time because of decisions that I’ve made in my past… And it’s all about owning your experiences and using that as something empowering, where I think a lot of people run away from bad things that have happened in their life instead of documenting it, recognizing it, thinking through it and then using whatever experience they’ve been through as something as a positive driver in their life to push them to be more, in whatever capacity they decide to pursue.

So recognizing that all these incidents have led up to this point, that have allowed me to be the person I am currently today, and that person is exponentially different and stronger than the person that it happened to when he was 21 years old.

Joe Fairless: And you’re 36 now. I’m curious on the feedback that Coach K. gave – and we’re talking about head coach for Duke, your former coach – you on the book… What was the difference from that version that he read to the end version?

Jay Williams: You know, sometimes when you’re writing, there’s a tendency for you to be so worrisome about the way you’re perceived by everyone, not just yourself; if you have the moxie or the confidence to be vulnerable about your experiences, how vulnerable are you going to be about the experiences you’ve had with the people that you are closest to? And then are you doing a disservice to truly telling your story if you’re not going to be candid and honest about your relationship, about where that was in comparison to where it is now.

I think there was a big push from him for me to find out more about myself. He’s always a person that drives people for self-exploratory journeys, so for me the more honest I was with myself and the less I was the BS Jay and what I want the perception of people to think of who Jay was, he once again pushed me in the direction of being truthful. And when you tell the truth, it helps other people confront their truth with your truth, and then it’s your job to find common ground.

Joe Fairless: Can you think of a specific story or example that wasn’t in there pre-review, but it was in there post-review?

Jay Williams: Yeah, various sensitive subjects, in particular with Coach K., and then I’ll give you one from my father, because [unintelligible [00:05:09].23] I obviously have a dad, and my dad has raised me since I’ve been a little boy and has done a hell of a job, all the sacrifices he’s given me, but then Coach K. in my [unintelligible [00:05:19].08] years as well kind of stepped in as a coach, in that capacity.

The one with him was recognizing that at the time he was very traditional, and he liked for guys to stay in school for three to four years, and he wanted people to graduate, and it was difficult for him to adjust to the new culture, where kids wanted to be one and done, kids wanted to get in and out. And having to address the fact that after my sophomore year we won, and he allowed me to make the decision myself, but in retrospect if you think about it, he should have told me to go, and how to confront that with him… Even though I did graduate in three years, once again, owning my journey – it happened for a reason; look where I am now. But the advice I would have given some other kid is that you only get a certain amount on time to capitalize on that skillset that you have. In particular, we’ve seen all these injuries with Gordon Hayward, and you saw one last night in the football game.

That was something I had to address, and how you’re gonna handle that with your coach [unintelligible [00:06:17].06] all means John wouldn’t like. So one of those moments when you’re honest with yourself.

And then with my dad, about going through what he went through back when he was younger; there was history of domestic violence in my house, and how that ultimately affected me and affected my relationship with him, and how I’ve had to work through that, in particular with forgiving myself with my own accident; I had to learn how to forgive others and not hold slight or animosity if I was going to learn how to forgive myself.

So I think there were some really cool life lessons that he forced me to address. And it’s one thing when these things happen to you, it’s another one when you’re writing it down and you’re forced to thoroughly think through it and you can’t dismiss it, and you wanna suppress it and act like it didn’t happen.

Joe Fairless: And when you say your own accident, you’re referring to the motorcycle accident where you hurt yourself, and basically the NBA career was no more after that, right?

Jay Williams: Yeah. When you hit a utility pole going around 65-70 mph, it inevitably changes the path of what you thought your original path was.

So taking all that and then once again owning it and then helping other people empower themselves with owning their journey is something that I’m very passionate about.

Joe Fairless: With that circumstance and other circumstances, you’ve come up with this approach of “you document it, you recognize it, you think through it and you use it as a positive driver.” What are some positive things that have come out of that experience? Because I imagine – but correct me if I’m wrong – that has been one of the most life-altering experiences that you’ve come across, but I don’t know, so I’m just guessing.

Jay Williams: I’m knocking on wood that it is. There have been a lot of positives. One is that it really pushed me as far as how I look at life. There’s a tendency from the people that I know that the smaller things, the minutiae really affects them, and I think I’m able to sift through the minutiae and recognize the bigger picture, and also recognize that when certain things don’t happen the way that I really work hard for them to happen, to understand that “Okay, this is all part of the plan.” Now, it may not be the plan that I’ve been trying to orchestrate, but ultimately that’s my own plan… And not to get into the whole spiritual stuff, but you have to believe that there’s a purpose behind everything, and that ultimately my purpose is one that’s going to continue as long as I push and drive myself to be fulfilled. So that’s one positive.

Another positive is recognizing the importance of my relationships. I just lost one of my best friends, and I haven’t really been punched in the stomach like this for a very long time, since I was 21. There was also a tendency for me to get lost in my work. When you go through something like that at the age of 21, the same kind of passion I had towards basketball I had to translate into work, and that has ultimately lead me to be in a really good place work-wise; I don’t know if it allowed me to spend as much time on my own personal growth and the growth of my friendships, and the candidness and the honesty with some of my friends and with some people I care about in particular. Writing my book was the first step towards that, but I lost one of my really good friends, Peter Stein, a couple of days ago — two days ago, actually… And going to the viewing, you just — those are the things that just remind you how important each and every moment is that you spend with the people that you love.

Once again, I was able to sift through the minutiae work-wise, but then I was able to sift through a lot of minutiae personally as well, friendship-wise and family-wise.

These are things, like Icarus, as you fly higher, sometimes you get up and you see the sun, you get knocked down, and it makes you appreciate the entirety of the journey.

Joe Fairless: From a business standpoint – and we’ve talked about this prior, and my thoughts first and foremost are with your friend’s family and you and everyone that was affected, and whatever we can do as a community, please let us know… From a business standpoint, what are your focuses? You’ve got ESPN, and then what other areas of focus take up your time during the day?

Jay Williams: One of the things that happened for me — it’s funny seeing how other people have been able to really build upon it, in particular Gary B., who’s a good friend of mine, and also another guy named Scooter Brown, who I’ve known since I’ve been 13 years old, who represents for Justin Bieber and Kanye and has done tremendous within the entertainment realm… Is that you start seeing the play of content, content, content. And one of the things that I’ve been able to do, and I got lucky enough to do that, is that I invested in the company in New York City called The Leverage Agency back around 2006-2007, with a guy that I’ve known for a very long time, Ben Sterner.

Joe Fairless: I know Ben, I used to work with Ben.

Jay Williams: Small world, right?

Joe Fairless: Yeah.

Jay Williams: Ben’s incredible. I kind of call him — he’s like Russell Crowe in A Beautiful Mind, for his ability to put together things, and he’s constantly coming up with ideas. It was a way for me to be connected to more brands. I had this network of people that I had met throughout my tenure at Duke, and having other assistant coaches become head coaches, and Tom [unintelligible [00:11:34].00] goes to Harvard, Chris [unintelligible [00:11:36].14] goes to Northwestern, Mike [unintelligible [00:11:37].07] was originally at Stanford before he went to UCF… You’re tapping into this network along with other friends and you start to recognize, “Okay, I have this great network, how can I leverage it, but how can I be truly authentic to who I am?” So working with Ben, being a partner with Leverage, procuring sponsorships for major events, and now I’m on the verge — I consult with players [unintelligible [00:11:59].06] and helping them build out content because I recognize – and I started to a while ago – okay, the traditional model in which brands have worked with agencies is becoming more antiquated by the second.

You’re seeing a lot of brands that are internally trying to create their own content, their own collateral, and how are they building out their brand voice, and who are some of their distribution partners in which they are trying to go to market with? So recognizing that and helping other athletes come up with original content on their own, me coming up with original content, bringing the branding advertiser in as a partner, working with a multitude of different distribution companies… That’s The Players’ Tribune, that’s working with Twitter and Facebook and coming up with original series is something that I’m really passionate about now, in conjunction with still working with Leverage and still investing in smaller things on the side.

Joe Fairless: When you decide to invest your time – because I imagine that’s the most precious resource that you consider you have, versus money… But the time – what do you look for before you dedicate your time towards something?

Jay Williams: I look for thoroughness, and I’m a little bit old-school as well – I also really pay attention to the due diligence of the party that I’m potentially going to work with. Detail is everything for me, so if you’re paying attention to what my story is and who I am, are you trying to make a ball fit into a round square, or are you trying to make it fit into a square peg?

And then also the candidness; I like authenticity, I like things that really blossom naturally. That’s my MO. I’m more of an emotional guy. I’m not saying I’m not gonna do my own research and do my own due diligence and be thorough, because I am… But I like seeing that creative passion from the person that I’m working with. Are they truly invested? Because one of the things I recognize, being from New Jersey, New York, is that I meet con artists all the time. I meet people who are really good at talking and people that can put themselves in scenarios that you would never expect, and I think now recognizing that I’ve been faced with a lot of these people… Okay, how thorough are you? Are you going to follow up? Are you going to be on the conference call when you say you’re gonna be on the conference call?
Everybody has a quick-fix ideology these days, and that stuff is becoming easier for me to sift through. The more I can do that and the more I can see the authenticity of the person I’m working with, that’s the first step to allow me to say “Okay, this person has my attention, they have my time.

Joe Fairless: Is there any questions that you ask, or is it more you thin-slice based on your interactions with the people and then you go from there?

Jay Williams: I do the latter, but I have a team that literally puts you through a pitbull session. What I mean by that is the team I have and the team I put on board are people that I’ve trusted for a very long time and that are also very thorough and detailed. So when I start putting you through the blitz territory, all the different questionings, and that’s from my financial advisor, that’s from my calendar, that’s from my business manager, and that’s from one of my other partners in my other business… I really put your through it, and if you don’t answer the questions within the timeframe they ask you, I start wondering “Okay, what are your true intentions? Are you just looking for a quick answer, a quick hit, or are you actually really involved in this for the long run?”

Joe Fairless: With your business now and your focus, how do you see it evolving in the next couple years, if at all?

Jay Williams: Well, on a multitude of levels… So the TV side first off, it’s going to be fascinating to watch as subscriptions continue to go down. With the likes of Apple and live streaming, it’s inevitable before you feel like an Amazon, a Netflix or an Apple will own live sports content. Or if you’ll have leagues — the money is great right now, but if you have leagues that eventually go to a subscription model where they make you pay… They’re already essentially doing that, but just owning all the rights outright. And also for, in particular teams, instead of allowing these third-tier production companies to come in and film all this great content, own it yourself. If you’re the 76ers and you hear [unintelligible [00:16:06].24] talk about the process, why not figure out some kind of [unintelligible [00:16:11].00] since he’s already an employee, and keep that all in-house?

So inevitably seeing it go into that direction, and working with different brands to — obviously, I think those rates are going to increase drastically. On the production side, seeing more now about real original content, recognizing a year and a half ago – and I was on [unintelligible [00:16:32].03] talking about this – for all the craziness that comes along with LaVar Ball, it’s brilliant to have a deal with Facebook and to create your own brand.

I posted something today on my Instagram about – I do these talks to these kids all the time, and I say “Are you preparing your plan?” A lot of people talk about wanting to be a millionaire, wanting to be a billionaire… But are you really starting to thoroughly think through the process of how you’re going to get there, and do you recognize that right now you are your own brand?

LaVar Ball was able to recognize that for Lonzo, and he’s done the same with LaMelo, and he’s the same one with everybody that’s in his camp. There’s strength that comes along and leverage that comes along with that. So for athletes, I really like what TPT is doing, I like what Bleacher Report is doing – obviously, they’re killing the game digitally… And even kind of the cross-pollination of their content, like them owning House of Highlights — and people are not even recognizing that Bleacher Report owns House of Highlights, but how you end up going to House of Highlights for all your highlights, and what are some of the advertisers they’re working with…

So the linear equation is losing a ton of support, and it’s all becoming how you’re really amplifying your voice digitally, and how do you have access. I think people, and especially athletes in particular, are finding out the power of their own voice. So helping other athletes, in conjunction with myself, and doing co-production deals to bring that to light.

Joe Fairless: When you’re involved with the industry that you’re in, and you are an expert, you’re consulting, you’re helping come up with different deals and brokering the deals with talent and brands, you have reinvented yourself, and that’s part of your title in your book… What are the keys to effectively reinventing yourself when you’re either forced to change your career or choose to change your career?

Jay Williams: You know, I spoke a year ago at Delta, and I spoke in front of about 250 of their employees on one of their retreats, and it’s really something that I think is applicable to everybody, because I’ve seen it. One of the reasons I wrote Life Is Not An Accident is because I recognize that yes, I had a motorcycle accident, but the word accident can equate to everybody pretty much in their life. Now, hopefully your accident may not be as extreme as my motorcycle accident, but at the same time for you, if you dislocate your knee or you tear your ACL, that could be the worst thing that ever happens to you in your life. [unintelligible [00:18:53].10] but for you, you might look at that as something that’s traumatic overall, and overall changes the path of your life.

So the first thing I say to people is that it’s the same kind of business analogy that I gave before, that is applicable to everyone. You are your own business, and even for me, when I talk to my employees, I say that “I want you to think about yourself as your own business, because the more you think about yourself as your own business, the better overall that my business will do, because you’ll take more ownership on what you have.”

When I have friends that do this and I watch it from afar – do you come in, do you punch your clock at eight o’clock, and then when it’s time to punch out at five, are you the first one to punch out and you get done your bare minimum? Or are you trying to push yourself to get more, to elevate yourself and elevate the business?” So the first question I say to people is “Who’s on your board?” I have a board with a multitude of things I’m involved in. Every board meeting I go to, I see different CEOs who are literally sweating their tails off. They’re nervous as hell each and every time, because it’s their job to answer to this board on a quarterly basis about where the company was, where the company currently is, and if we’re on schedule to get the company for what our Q1 or Q2 goal is.

So if you’re your own brand and you’re your own CEO, first off, who’s on your board? Even for these employees at Delta – okay, great, if you’re in the marketing department, who’s on your board? And are you really sitting down with your board each quarter, and are you candidly assessing where you are, where you want to go and how you’re going to get there with your own board? And then are you gonna be vulnerable enough to actually hear feedback from people that you really look up to or people that you hold high, and these people with high standards that that board is in the vertical of business, and really be open enough to hear and bring in what they tell you? And then can you reinvent yourself?

This reinvention thing isn’t something that happens one time in your life, it’s constant. It’s almost like an app. It’s one of the things I laugh at with my phone; my damn iPhone is constantly updating. I send Eddie Q. a note, I’m like “Eddie, seriously, is it the iOS 8, is it the 9? The new phone that’s coming up, you’re asking me to update my software, and all of a sudden my old phone isn’t working again… Oh, very smart, you get me to get the new phone…”, and that’s how we should be individually.

If you have your board and you put people that truly you look up to and you know that they’re gonna hold your feet to the fire with this, are you constantly updating yourself? Are you taking on information to make you better?

I think that’s the major part to reinventing, because it needs to happen because we’re constantly updating within society.

Joe Fairless: Who’s on your board?

Jay Williams: I’ve been lucky, I have a multitude of boards. I have a business board, I have a guy that I’ve known for a while (since I’ve been 13 years old) and it’s been great to watch his story. I call him Scooter now, but his name is Scott. What he has been able to do with some of the people that he’s been able to represent, and what he’s been able to build – I bounce ideas off him all the time. He’s one of these guys, he’s very upfront, he’s very honest and he holds my feet to the fire.

Another guy is a guy named John Wren, who was the CEO of Omnicom for a very long time. Obviously, when you work with over 5,000 brands, he recognizes where brands were, where they are currently and how the landscape ultimately is changing.

Another guy is Matt Blank, who is the CEO of Showtime. I’ve known Matt for a while, and watching what they’re trying to do at Showtime, and competes with HBO and Cinemax, and where they are right now and how their game is ultimately changing with live streaming…

And a guy named Mark Clouse who was the CMO over at Mondelēz for a while, but now is the CEO over at Pinnacle Foods is a very dear friend. And then a guy named Carl Liebert, who ran 24 Hour Fitness for a while, did that and then decided that was not for him, and took another route and now is the CEO of USA Bank.

The beautiful part about all these guys is that I wanted to be successful business-wise, but one of the things I was very scared at is the more success I found on the basketball court, the more I started to lose myself personally. For me, I was like “Yeah, I want to have [unintelligible [00:23:07].23]” if that makes sense. I don’t want these guys just to be successful in one vertical, I want these guys to be good individuals.

When I look at Carl Liebert, or when I look at Mark Clouse, or when I look at Scott, these are all guys who are great family men. And I know this sounds silly to say, but once again, being authentic to myself and my brand, they’re all loyal to their wives.

I watch Mark Clouse, and every Saturday he’s at his sons, Spencer and Logan – he’s at their football game. Spencer goes to TUFTS and Logan plays at a high school in New Jersey, and he splits his time with his wife.

Carl has three sons, and one of his sons went into the army. I watch that, and that’s inspiring to me, because I recognize “Oh, you can have both.” It doesn’t need to be “I can have this, and then this suffers.” There’s actually a way to delegate your time and to be successful and be a successful father and a successful husband, and run a successful business. Those are the stories that I find extremely inspiring to me now.

Joe Fairless: How do you know that the value exchange is good enough for them when they’re on your board? Here’s the background for why I ask the question… As real estate investors and entrepreneurs — we’re all entrepreneurs at heart, right? So real estate investors – we’re entrepreneurs, and that’s why I wanna talk to you about this; we want to surround ourselves with people who have been there, done that. So John, Matt, Mark, Carl – those are all examples of guys who have been there, done that, or are currently doing it. And the challenge that we come across as real estate investors in particular is that when we find people who have been there, done that and perhaps are currently doing it, it’s a disproportionate value exchange, because we need information, but they don’t need a whole lot from us, so how do you balance the value exchange there, if you do at all?

Jay Williams: Well, I would ask that individual “How do you measure your hustle?” I think I’ve been really blessed, because one of the things that I can’t stop doing — when I was playing basketball I was always on the court, working out. And when I started to get involved in business, I found that same burning desire. My thing was that yes, the value prop to me was nowhere close to the value prop that it was for the names that I’ve just mentioned, but my thing is I think I was vulnerable enough with them to recognize that I didn’t know that.

Once again, I think the more transparent you can be with people… When I’m vulnerable — and obviously, I’ve had a different background. Being on TV gives me leverage due to my platform, so it opens the door for me to have these types of conversations with these individuals in conjunction with the people that I already know. But one of the things I would tell somebody who maybe didn’t have that platform is that “Are you doing the small things to make sure that you’re noticeable?”

One of things that happened to me – I did an internship, and it was a really cool experience for me because I wanted to recognize how hard somebody would work. Now, without saying — I had multiple people come up with this internship, and I put it out there, and a lot of people that came to me and wrote long-winded paragraphs via e-mail… About 98%-99%, that was to the extent they went.

Joe Fairless: Yeah, that’s how it is.

Jay Williams: Okay, so you know… A lot of people who they say they wanna achieve success, they say they wanna do all these great things, but they once again do the bare minimum and then they get angry if you don’t respond. So me, I don’t respond to anybody, because I wanna see “Okay, who’s gonna constantly sent me a note? Who’s constantly gonna find different ways to make themselves stand out?” So when you’re trying to form that relationship and you’re trying to form that connectivity, what things are you doing that are different to really attract that person’s attention? Are you waiting for them one day after school, or you know their location where they’re gonna come out of?

I know some of these things may sound crazy, but at the same time, I want somebody who’s a little bit crazy; I want somebody who’s willing to push themselves to go to a different level, that all of a sudden person a regular person wouldn’t do that, because I know that at the end of the day that person is going to do whatever the hell they need to do in order to get it done. Now, as long as it’s an incredible way, I’m never going to turn down the spirit of the hustle, and I don’t think a lot of people have that.

With this internship, this one person won in particular, and then all of a sudden it’s like, they’ve got the internship and they’re waiting for me to give them instructions, and I didn’t give them instructions. I wanna see what you bring to the table, what’s your value prop to me? I know what I can do to help you. An internship doesn’t mean that now all of a sudden I’m gonna just give it to you. I wanna see how long this goes, I wanna see what kind of things you’re gonna do for my business, and the more you do for me, if you get me, and if you hustle with me, I’m going to go over and beyond to make sure that you are successful at the end of the day.

But if you come into this opportunity and you worked your tail off to get my attention, and then just because you got it you think I’m going to give it to you, that’s not the real world. I’ve got doors open, and that’s not how the people — I worked hard to get their attention [unintelligible [00:28:22].12] their door open. So once again, it comes down to the measure of the hustle for me.

Joe Fairless: That’s beautiful. I love that. Based on your experience, what is your best advice ever for entrepreneurs and real estate investors?

Jay Williams: Well, on top of the hustle, I think that inevitably if you open the door of somebody, either you’re gonna be a person that does the work or you’re not. And I think that will be displayed within what you bring to the table once that door is open. I really think this is becoming a major issue within our world right now – people have lost the ability to do what you and I are doing right now. They’ve lost the ability to look somebody in the eye and not BS them, but actually be upfront and be honest with them.

For example, I get turned down all the time. Today [unintelligible [00:29:10].16] I took a stab at trying to reinvent the news; I really did, because I think the linear approach to how we see news is antiquated. I did not want to see news an hour after it breaks, and I’m tired of news being skewed. So I’m trying to pitch — I’m not gonna say who the company was, but pitch them on “Hey, this is a new format of how we see news. It’s gonna be 24/7, it’s gonna be functioning ADHD.”

Hearing the guy come to me, the head of biz dev for news, sitting down and talking to us about what their initial goals are, he pretty much said “Hey, what you guys are doing – that’s not in our wheelhouse.” But being able to listen to that and then say “Okay, great. Have you thought about this? Have you thought about that? Frankly, I don’t want my brand to be where I think your brand is going. I want my brand to be here.”

So then again, being authentic and being honest… And then I think we both left the meeting saying “I have a lot of respect for them, because we disagreed on where I think their brand voice should be, but that’s the direction they’re moving and we’re upfront and we’re honest about it, and he knows where my line in the sand is drawn”, and that was good. Because I don’t wanna be BS-ed. I don’t want somebody to talk me into doing something that I know they can’t do.

I think the ability to convey a message and the ability to be very candid and upfront about what your value prop is, and the things that you can’t do… Once again, what makes a great CEO? There are a lot of things I can’t do, but I’m going to surround myself with the best people to do them at the best of their degree in order to achieve the business.

Joe Fairless: Some pretty powerful business lessons, and I’m very grateful for that. We’re gonna do a lightning round, so are you ready for the Best Ever Lightning Round?

Jay Williams: Let’s do it, man. I like that name, Best Ever Lightning Round.

Joe Fairless: [laughs] Well, I guess I like to set the bar high, because it’s the best ever… We’ve got some questions from listeners who have asked these questions and we hand-picked a couple of the questions. So here we go, this is from Charles in your neck of the woods, New York City – “Did writing your book help you through your tough times?”

Jay Williams: I think about writing another book. I think everybody, honestly, has a book in them, and one of the things that I would tell or really kind of implore everybody to do is to write down your experiences that you had in life, and really take those things and read it and see the evolution of how you think, and are you challenging yourself to think differently?

I know for me, being 36 years old, writing my book and continuing to write op-ed pieces or different things on where we’re in sports allows you to formulate opinions. I start becoming more of a voracious reader, and I think hearing other people’s stories and really equating those stories to my life just allows me to pick up on more and more knowledge… So that’s where I will leave that.

Joe Fairless: Best ever investment you’ve made that you haven’t talked about already on our call?

Jay Williams: A little small investment in Uber.

Joe Fairless: What’s a mistake you’ve made when investing?

Jay Williams: I think it’s the mistake I made – without going into the particular… I had one business I had a chance to invest in and I did, and let’s just say that I got really excited because I got excited about the person and the investment and the entity that the person was working with I thought was talented, but it didn’t really pan out, and I quickly recognized that “Oh, okay, there’s multiple levels to an investment.” Just because you have a great CEO, you have to really work with that CEO to make sure that they hire the right people underneath them.
I think that even though his ideas were tremendous, his execution and the people that he hired underneath them weren’t the right people to really lead the charge.

Joe Fairless: How would you qualify that if presented a similar opportunity in the future?

Jay Williams: I’d get myself a more firm stance on that board, and I’d start to really evaluating what that vetting process is, and I’m a lot more strict now at 36 than I was when I was 25, 26, looking to make one of my first seed investments.

Joe Fairless: This is from Aaron in St. Louis – he asks “For anyone who wants to play in the NBA, what is the single piece of advice you can offer him?”

Jay Williams: Make sure that your mom and dad are above six feet tall… [laughter] I’m kidding. Playing in the NBA represents less than 0.001% of the world, so a very arduous task. I will just say, as you continue to get better at whatever your skillset is, one of the best pieces of advice I ever got was from a guy named Steve Nash – I don’t know if you’re familiar with Steve, but Steve used to always say “Get in where you fit in.” And I remember Ben Wallace, who was a guy that played for the Detroit Pistons – everybody now wants a shot that they can score, and Ben was like “I screen, I rebound.” I remember him in USA basketball, looking at him and he’d say, I’m like “Ben, when I give you the ball there, you’ve gotta shoot”, he’s like “I screen, and I rebound.” [laughter] I’m like, “Wow, this guy knows what he does, and he does it pretty damn well.” That screening and rebounding got Ben Wallace 65 million dollars.

Not everybody can be LeBron James or Paul George or Kyrie Irving, but if you have a special skillset that you can do extremely well, do it. Get in where you fit in.

Joe Fairless: Isn’t that analogous for business, too?

Jay Williams: Exactly. Get in where you fit in.

Joe Fairless: Yeah. How can the Best Ever listeners learn more about what you’ve got going on?

Jay Williams: They can’t.

Joe Fairless: Just play this interview on repeat, and that’s all we’ll give them, right?

Jay Williams: You know, one of things that I — I started a company a couple years ago called Clandestine Ventures… It was even funny when my PR person was like “Hey, do you wanna do this interview?” and I paid attention to some of the things he’d done before… I was like “Yeah, you know…” “But why do you seem hesitant?” I said “Because I don’t like talking about some of the stuff or some of the moves I make.” But as I get older, I do think I’m starting to be in a place where as long as I share the knowledge of people that I feel are truly passionate about it — for me, it has to start with the passion. And I think I see a lot of the people that get involved in the business for the lifestyle that it comes along… And don’t get me wrong, I’m very lucky, again, but I just love to work, man, and I have a hard time being around people that just get into — it’s like playing basketball… Like, “Oh, I wanna fly in jets”, and “I wanna go here” or “I wanna do that, and playing basketball helps me do that.” I’m like, “Hm, that’s unfortunate.”

If you’re passionate and you’re truly hungry to learn, and this is something that you wake up in the morning and you can’t wait to go do, then I’ll work with you.

Joe Fairless: And what’s the best way to either get in touch with you, your team… Or where should they go?

Jay Williams: Through you, listening to more of these podcasts. I’m very active on social, and… Look, I’m in this position now where I think in the next year or two I’ll be taking on a lot more employees for a new personal direction I plan on going, so for me, I like people that pepper me with questions; I like people, once again, that are consistent. It goes back to what I’ve said before, I think that’s my mantra for life… I work extremely hard, and it’s funny that a lot of people are like “Oh, you’re a college basketball analyst.” I’m like “That’s great that you see me that way, but I do a lot more than that.”

If somebody reaches out to me and they’re truly passionate about it and they continue to show that effort, then eventually I’ll open my door, but I like seeing that effort made before.

Joe Fairless: I love that approach. As I mentioned, I’m very grateful for our conversation. One of the things that rings true is what you’ve just said, that certainly surfaced often during our conversation, is the hustle, and how a lot of people don’t necessarily have it consistently. There’s a vast majority of people if given an opportunity at one moment in time, they will show hustle, but then it fades away, and that really separates the good from the great, and the great from the outstanding – it’s the consistent hustle.
You gave some great tips and insight on how to break free from the pack, whether it is working with you, but even more high-level just in business, how we separate ourselves from the competition, and that is having the consistent hustle and the follow-through.

I see it often at events where if I speak and I have a bunch of people line up afterwards, I’d say 9 out of 10 people want to speak to me and do some sort of business transaction afterwards, and 1 out of 10 people actually follow through with that. And it’s just simply because it’s convenient for them at the time to talk about it, and they have these ideas, but then they don’t have the follow through, and that is what separates the good from the great, and the great from the outstanding… So thank you for that.

Also, your approach to owning your journey and your experiences. When things happen that on the surface aren’t as positive, then first document it, second, recognize it, three, think through it, and four, use it as a positive driver to push and do more.

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

Jay Williams: Thanks for your time, man. I really appreciate it.

Best Real Estate Investing Advice Ever Show Podcast

JF1150: She Left Wall Street Jobs Behind To Be A Realtor with Julia Hoagland

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Julia has a background in engineering and finance, so why in the world leave the Wall Street firms to be a real estate agent? I’ll let her answer that in the show, she’ll also tells us how she leverages her engineering background to impress her clients and earn their business. As the #21 agent in NYC according to WSJ Real Trends, it seems Julia made the right decision with her career change. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Julia Hoagland Background:

  • Licensed Associate Real Estate Broker at Compass, a residential real estate brokerage firm
  • Ranked #21 of NYC agents by WSJ Real Trends 2016
  • Formerly the Vice President and Director of Marketing at two leading Wall Street firms
  • Active member of the Who’s Who in Luxury Real Estate international affiliation
  • Based in New York City, New York
  • Say hi to her at jhoagland@compass.com
  • Best Ever Book: Traction

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki, author of Rich Dad, Poor Dad, and a whole bunch of others. With us today, Julia Hoagland. How are you doing, Julia?

Julia Hoagland: I’m doing fantastic. How are you, Joe?

Joe Fairless: I am doing fantastic as well, nice to have you on the show. A little bit about Julia, she is a licensed associate real estate broker at Compass. She was ranked #21 of New York City agents by Wall Street Journal Real Trends 2016, formerly the VP and director of marketing at two leading Wall Street firms, and she’s an active member of the Who’s Who in Luxury Real Estate. She’s based in New York City, New York, so she is performing at a high level in a very competitive market. With that being said, Julia, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Julia Hoagland: I am happy to. My background is very analytically-focused. I’m an engineer by training, and I did that for three years before going to Business School for finance. After eight years of that I gave it all up for a career in real estate and started this business about 12 years ago.

Joe Fairless: Okay, so why?

Julia Hoagland: Good question. [laughs]

Joe Fairless: Because with your background in engineering, and then you went into finance, you were working at Wall Street firms, you have to be making more money than what you made your first year as a real estate agent, or at least thought you would make in your first year, so why leave that?

Julia Hoagland: I really always felt slightly like a fish out of water in the corporate American structure is the best encapsulated version. I was never fully passionate about what I was doing, and I got laid off if truth be told, and I took a year to travel for our honeymoon with my husband. When I came back, I just thought  “You know what? I can always go back to Wall Street. Let me see what I can do on my own.” At the end of the day I just switched assets and added emotion, because I’m still marketing, underwriting and selling financial assets, they just happen to be in the form of real estate.

So it’s not really that different, but now I work for myself and in theory my time is my own, but in reality my time is not my own at all… But I love it.

Joe Fairless: A year to travel for your honeymoon certainly is the longest honeymoon trip I’ve ever heard of. I’m about to go on a ten-day honeymoon and I thought that was kind of long to leave, but holy cow, now I’m really jealous.

So your engineering background – how has applying that led you to rise to the top as an agent or broker?

Julia Hoagland: Engineers are all about problem-solving, that’s what the core of engineering is, and there are a lot of problems to solve in real estate deals. What we do here in New York — I’ve never done what I do outside of New York, but we have a very liquid and very geographically condensed market; it’s not that big of an area. It is tall, there’s a lot of verticals but not a lot of horizontals. So you can assess valuation pretty accurately by doing statistical analysis on the multitude of statistics that we have here.

It’s really a perfect marriage of the science that I was trained on and the art which makes it much more interesting than what I was doing in the past, to me.

Joe Fairless: Can you give a specific example…? Okay, so I’m your client. What about you with your approach do I recognize “She might have an engineering background”?

Julia Hoagland: What is important to clients is always maximizing value. To a buyer that means buying a property for the lowest price, and to a seller it means getting the highest price from a qualified buyer. What we are able to do by the analysis that I just described is assess using real data – the true value of something is what someone else is willing to pay for it, so it’s important to know what the true value of assets that are like the asset that you’re considering have been in order to assess [unintelligible [00:05:06].08] But data is by its nature historical, and you are trying to predict the present by using the past, so the art of the science (if you will) comes into play when you adjust that statistical analysis on that historical data by current market trends is now the interest rate, the consumer sentiment and all kinds of qualitative factors.

Joe Fairless: With the different qualitative factors that you just mentioned, and then I’m sure you’ve got some qualitative go-to points that you always look at, how do you determine what’s most important and how to prioritize?

Julia Hoagland: It really depends on the asset. If you have (I’ll call it) a cookie cutter two-bedroom apartment in a building with 500 units in it and there have been ten other two-bedroom sales in the last three months, several of them in the same line, then it’s pretty clear that the most important comps you wanna look at are those in building comparables… Because when you’re in the same building, you neutralize for location and amenities and monthly charge levels services etc.

If you have a very unique asset, for instance let’s say a penthouse, one-bedroom apartment that’s 2,000 square feet and has a terrace, you may not be able to find any comps in the building that are like that, and there might not be any in the immediate area.

I’ve actually searched for an apartment exactly like the one I’ve just described all over Manhattan, for the most expensive one-bedroom apartment to sell in the last six months to one year, and analyzed all of the data that is similar about those apartments while trying to adjust for what’s different in terms of neighborhood, and type of building, month lease etc.

Joe Fairless: And with your clients, what type of presentation or how do you communicate this information to them?

Julia Hoagland: I prepare a spreadsheet with my team; we pull data off of our listing system, which is just basic data – the address, the unit number, the costs monthly, square footage etc. and we then augment that with condition and a lot of factors… Like, if we’re analyzing townhouses, do the townhouses have suites and how wide are they, and are their gardens South-facing or North-facing, and are they deep? Do they have high ceilings? Are there interior [unintelligible [00:07:33].21] that kind of thing. I put it on a spreadsheet and calculate averages based on the entire data set and then similar condition data points, and then maybe side street data points, and put together about six or seven paragraphs of analysis, including on the actual data, and put it into an e-mail and send it to my clients with the attachment along with the statement of account from the New York City taxing authorities and also the Property Shark information.

That gives them something to chew on, and then we get on the phone and discuss the findings and decide on a negotiation strategy.

Joe Fairless: As far as your clients go, what would you say is the typical profile, demographically, of a client of yours?

Julia Hoagland: I speak finance, so I tend to connect — it’s all about connection in our world, and in any world of sales, I think, and we all tend to connect with people whose language we speak most, and since I have an analytical background and I approach the business that way, I tend to connect with people who also are in some sort of an analytical field or have analytical training, which includes finance, consulting, accounting… So I would say a large majority of my client base is from or connected to those worlds, but we have very good business referral partners in California, as an example, that are entertainment industry advisors.

We’re also extremely discreet, and discreet by nature and by practice, and I do think they go hand in hand; it’s hard to be one without the other. So I connect on that level with them. We’re able to work with very high-profile names that you’ve heard of without letting anyone know, and they appreciate that.

Joe Fairless: How do you get introduced to the high-profile names?

Julia Hoagland: It’s all about networking. I’m a big networker, I am a member in several organizations, I ascribe to the abundance mentality, so really trying to figure out how I can help people, and I learned that when people help me, I’m very focused on helping them; what goes around, comes around, and it all kind of made sense to me. So it’s networking, organizations that I’m in… I tend to connect with people who ultimately introduce me to these clients or their business advisors.

Joe Fairless: And what organizations are you involved in?

Julia Hoagland: I’m in the Women Presidents’ Organization, I’m in 100 Women in Finance, I was a member of BNI for 12 years (I’ve just resigned this year) I’m a member of The Cultivist, which is a really interesting organization focused on the arts — it’s not really a networking organization per se, but there’s always networking to be done when you’re at events with people who are interested in the same things you’re interested in. I think there are a few others, I don’t have them at the tip of my tongue.

Joe Fairless: Yeah, but those are the ones that are top of mind. The NI – what does that acronym stand for?

Julia Hoagland: BNI is Business Networking International. It’s quite popular in New York. I think there’s 70,000 chapters around the world. It’s all about networking; the sole purpose of the organization is to help business owners build business. I helped form a group when I started in the business, and I could tell you one of the big contributors to my growth in the beginning, and just a really good way to not only build business, but… You stand up every week and you talk about what you do, so it makes you really good at marketing, and trying to figure out a million different ways to talk about things that you do in ways that will sell them. And you also develop this really strong network; I have very good friends – some of my best New York friends are in the chapter… And a strong network of wealth advisors, and [unintelligible [00:11:25].06] attorneys, mortgage brokers, graphic artists – all kinds of people who are in these chapters that you get to know really well because you meet every week.

Joe Fairless: It sounds like a great organization, why did you resign this year?

Julia Hoagland: I wanted to make room for the next guard, and I also felt like I was at a position and a place in my career and development that I wanted to focus on other things, like The Cultivist and the Women Presidents’ Organization. My team, which is comprised of six salespeople, myself and two admins, they are now – some of them are in BNI already, but it’s really about what they’re doing now. So it was just time to kind of make room.

Joe Fairless: Got it. Based on your experience, what is your best advice ever for anyone who wants to invest in New York City?

Julia Hoagland: Partner with someone who really knows about how to assess the value of properties; I’m talking about a brokerage, which is what I do, but there are a lot of different ways to approach what I do, so it’s not only important to partner with someone who’s confident – that’s kind of the baseline to me – but also someone who you can really relate to, because then they get to know what it is that you’re looking for from a deeper level and they can better advise you.

Joe Fairless: You told me before we started recording about 10% of your clients are investors, right?

Julia Hoagland: Yeah, about 10%.

Joe Fairless: Okay, so what are they looking for?

Julia Hoagland: Interestingly enough, when I first start working with investors, they’re often looking for highest yield, which makes perfect sense… But in New York City (and other cities like it) people trade yield for upside appreciation potential and liquidity, so that’s one of the first questions I always ask investors – if yield is your number one goal, then I might suggest [unintelligible [00:13:18].00] to a broker in an area like Kansas, or somewhere in Middle America where prices are much lower, rents are also lower, but the yields on those properties is higher. The thing that you’re trading is upside appreciation potential; there is a good likelihood that New York City – this is me as someone who’s selling properties in New York City talking, so take it with the grain of salt that you need to, but I’m very bullish on the long-term valuation potential of the city, because of a lot of reasons.

That potential doesn’t exist somewhere that’s more [unintelligible [00:13:51].03] and less internationally-known. And the liquidity in New York City is pretty amazing. With the exception of the six months after the financial crisis, you can sell just about anything at any time if you get the pricing, marketing and exposure right here.

If you’re in a place like – I’m picking on Kansas and I don’t mean to, but somewhere that’s just not a major metropolitan city, you’re likely not gonna face equal liquidity situations, so you might have to drop your price pretty dramatically if you have to sell at any specific point in time.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Julia Hoagland: Yes.

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

Break: [[00:14:34].05] to [[00:15:33].15]

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

Julia Hoagland: Recently, Traction by Gino Wickman.

Joe Fairless: Best ever transaction you’ve done, either business-wise or real estate?

Julia Hoagland: My own home, purchasing our apartment that I live in now and I absolutely adore, that I found and I wanted to buy on the day that I found it, and my husband being the shopper that he is needed to spend another few weeks looking around at properties, so I sent him on this way… And then he came back. [laughter] Thank goodness.

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

Julia Hoagland: Not listening and not giving the other side a chance to give me information by picking up the phone and calling them.

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

Julia Hoagland: I love talking with people and finding out what it is their interests are, and taking something that I’m really familiar with or can easily get familiar with and either contributing to the cause or introducing them to someone I know who’s affiliated with the cause… Basically, making connections.

Joe Fairless: And how can the Best Ever listeners either get in touch with you or learn more about your company?

Julia Hoagland: You can e-mail me, you can call me on my cell phone, or you can go to my website. I’m very happy to connect with everyone at any time.

Joe Fairless: And what’s the best e-mail?

Julia Hoagland: jhoagland@compass.com

Joe Fairless: Easy enough. Well, Julia, thank you for being on the show; thank you for talking about the analytical approach that you take based on your engineering background and the data points you look at, as well as how you get clients through the networking approach that you take, the abundance mentality and those specific organizations that you’re in and the benefits that you’re getting from a couple of them.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon!

Julia Hoagland: Thank you.

best ever real estate pro advice

JF963: Why You Should Raise BILLIONS in Capital with a 506(c) Offering versus a 506(b)

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Raising capital for cash flowing projects it’s exciting, but only one of these offerings will allow you to talk about it. Publicly soliciting potential transactions can boost your ability to close for obvious reasons, you get the word out! Follow Mark as he walks us through some case studies and shares why he would prefer to let everyone in on the deal!

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Mark Mascia Real Estate Background:

– Founder and CEO of Mascia Development
– Mascia Development LLC, is a long term value investment real estate investment company
– Over 12 years experience in real estate
– Presently an adjunct professor at New York University‛s Schack Institute of Real Estate
– Based in New York City, New York
– Say hi to him at http://masciadev.com/

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raising money with a 506(c)

 

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

I hope you’re having a wonderful — no, best ever weekend, and because today is Saturday, we’ve got a special segment for you that we do sometimes, called Situation Saturday. You’re gonna love this is you’re a money raising machine or want to be a money raising machine, because we are with an investor who has developed over one billion dollars – yes, with a b – of property, and he has over 12 years of experience in real estate. We’re gonna talk about why he chose (or is choosing) to do a 506(c) offering, versus a 506(b) offering on his current deal. How are you doing, Mark Mascia?

Mark Mascia: Good, Joe. Good to hear from you.

Joe Fairless: Nice to have you on the show again. If you recognize Mark’s name, that’s because you’re a loyal Best Ever listener. He’s given his best ever advice once before, and he’s been on the show a couple times. You can just search his name at BestEverShow.com and hear his best ever advice.

A little bit more about Mark – he is presently an adjunct professor at NYU Institute of Real Estate — how do you pronounce, NYU’s Shnack…?

Mark Mascia: Shack, unfortunately… [laughter] It’s the most unfortunate naming of a real estate program.

Joe Fairless: No kidding, the irony… NYU’s Shack Institute of Real Estate – he’s an adjunct professor there. He’s also the founder and CEO of Mascia development, and he is based in New York City, New York, where his company is. With that being said, Mark, before we dive into the 506(c) stuff, do you wanna briefly give the Best Ever listeners a refresher on your background and your focus now?

Mark Mascia: I started my own company about ten years ago, Mascia Development, as you mentioned. Before that, I had worked for large companies, small companies, doing development of all kinds throughout the New York City and DC area; some, like you mentioned, as big as half a billion dollars. That’s pretty easy when you’ve won a project that is that large to get to a billion dollars in development.

So I started my own company ten years ago, and we’ve since always focused on retail and medical office. We focus on properties all over the country, and we’re really a long-term value player, so we buy undervalued assets for the long haul. Cash flow is focus, so we’re not buying vacant buildings and fixing them up; we’re doing development, and it’s all in a cash-flow driven strategy.

We work with some of the largest family offices in the country for the majority of our capital, but we also allow and enjoy having individuals invested alongside those large capital sources. Our sort of egalitarian model is everyone invests at the same terms; there’s no special treatment, even if you have a billion dollars, like some of the families we work with do. So that’s just kind of how we operate, and have owned – I think we’re up to 86 assets right now.

Joe Fairless: What’s your total portfolio value?

Mark Mascia: It’s like 515 or somewhere million dollars… It’s hard for me to keep track because I don’t really look at it every day.

Joe Fairless: Yeah, just ballpark. You don’t track that like the stock ticker.

Mark Mascia: Yeah, right. [laughs]

Joe Fairless: Okay, got it. And Mascia – I apologize for mispronouncing it. Before we started interviewing, I triple checked how to pronounce it and I wrote it phonetically in my notes, but I didn’t write it correctly phonetically in my notes, so I apologize. He’s a friend of mine, I shouldn’t be butchering his last name.

Alright, Mark, thanks for the context. The reason why we’re here is why you are choosing to do your current deal under a 506(c), which you can publically advertise, versus 506(b). We’ve spoken to securities attorneys (a couple of them) on this show, and they’ve walked through the pros and cons of 506(b) versus 506(c), but they’re not doing the deals, so this is gonna be interesting because you’re actually doing the deals. Walk us through your thought process.

Mark Mascia: First and foremost I’m not an attorney, so none of this is legal advice, but it’s just our own experience what I’m sharing… So I like give attorney advice, but I’m not an attorney.

Our current deal is a retails strips center in Spartanburg, South Carolina. It’s a pretty growing, booming market, largest growth center of basically the South. They’ve gotten over a billion dollars of investment in the last couple years, so it’s an interesting market that we track for a really long time. We found this property there that has some vacancy, it has really low rents, it has some great tenants, long leases, so a pretty straightforward retail deal to what we do. Cash flowing day one, around 7% levered, and it goes up to 9% over time. Nothing to blow the doors off, but just sort of a very steady, down in the middle, strong deal that has great [unintelligible [00:06:50].02] cash flow.

We have good reserves, long-term debt – all the kind of stability things you want, and that exactly follows our model. What I just told you – I couldn’t have told you any of that if I was doing 506(b), the old way of raising capital.

Case in point, the first and foremost reason that we like it is because we can talk about what we’re doing actively, and not have to keep everything a secret or know you personally before we talk about it. It just makes logical sense, in my opinion, from a business perspective, to be able to talk about things you’re excited about, and things you’re excited about are usually the newest deal, or the newest thing you’re doing in your business, and before September 2013 you couldn’t do that legally. It’s kind of crazy to me, but that’s the way that we used to do it, and it was the only choice before that date.

So first and foremost, the ability to communicate openly about what you’re doing is exciting and it is the only way to do that – under a 506(c) deal. So that’s kind of the deal in a nutshell.

What we specifically do every time – I mentioned our capital sources are predominantly family office in the beginning, but now have made a huge focus on not just diversifying the investments we make across different locations and different properties, but also our investor capital base. What we saw in the beginning was we have these few families that have deep pockets, but if any of them decided not to do any deal we found, for any particular reason, and some were as funny as “Oh, I’m going skiing for a month, so I’m not gonna do any deals, regardless of how good they are” (that literally happened), to any other reason… They just don’t like Spartanburg – let’s say they grew up there and they hate it and they’re never going back, so they don’t wanna invest there. That didn’t happen, but things like that happened in the past, and we just don’t wanna have any sort of single source of capital, just like we don’t wanna have any single tenant or any single property that can sort of wipe out our whole business.

With that being said, every deal we do, we have the ability to raise all of the funds from these large, big-pocketed family offices, but we specifically choose not to… 1) so that we can keep relationships with our friends and family and other investors who have been with us for a long time, but 2) to meet new investors. I think it’s really important – when you think about this, it’s very easy to go and say, “Oh, Sally invests half a million dollars with us every time. She’ll write another half a million dollar check every time”, so it’s easier just to go to her and get that half a million dollars.

What I would suggest – personally, it’s worked for us and I’d suggest to form your own perspective – is consider what happens if Sally one day stops writing that $500.000 check. It’s gonna be a lot harder to find a bunch of $10.000 people if you don’t know any of them, versus if you’ve already had many 10k, 25k or other hundred-thousand-dollar investors that you can replace Sally with.

With that all being said, every deal we do, we do a portion of it crowd funded, which really is nothing more than just advertising online through one of these third-party platforms for new investors. So it’s a straight general solicitation out there, advertising on the website, and they advertise on other platforms, but they’re aggregating individuals who are interested in investing in real estate, and putting our deal in front of those eyeballs. So every deal we do, we reserve at least a few hundred thousand dollars for that specific purpose.

In this deal we’re doing that as well. We’re on CrowdStreet, but we’ve been on just about every platform out there in the past, so we don’t have any one that we love or don’t love more than the others. They’re all good for their different reasons. In this case we went with CrowdStreet, so our deal is up there and we’ve gotten some investors directly from them. These are people that I would otherwise have never met in my life, that are interested in investing with us, and some of them have already invested with us.

So it’s a great opportunity to grow your network of individuals that either might be interested or are definitely interested in investing. Again, something you couldn’t have done prior to 506(c), or that I couldn’t do now even, if I chose a 506(b) type of raising capital.

Joe Fairless: You couldn’t do a 506(b) with CrowdStreet, even if you have a relationship with CrowdStreet and CrowdStreet has a relationship with their investors?

Mark Mascia: Yeah, there are some platforms that do 506(b) and crowd fund it and they sort of backdoor a few of these “relationship” angles. What you’re alluding to, which I agree with, is you have to have a pre-existing relationship before you can market something to someone. You and I know each other, Joe; I can tell you anything privately I want about any of our deals, regardless of how we’re raising money, because we have a pre-existing relationship. But to any of your Best Ever listeners – I’m sure many of them I’ve never met – I can’t tell them anything about the deal until we have a relationship. But it’s kind of catch-22, because how do you establish a relationship with someone so you can tell them about what you’re doing? They’re not just gonna invest blindly and send you money before you can tell them about the opportunity.

So there are some loopholes to this, and I’m not a super-expert in what those loopholes are. We’ve tried to stay pretty clear of those and just say, if we’re generally soliciting – which online advertising, in my opinion, clearly is generally soliciting – then you wanna use 506(c) to stay out of the gray area. But again, there may be other ways around that if you talk to your attorney; it’s just not my expertise.

So crowdfunding – the primary source of “advertising” for this deal in terms of new investors. We are also in this particular investment trying out for the very first time Facebook advertisement, because we’ve heard in the past a lot of great reviews from friends about how they’re acquired investors that way, because you can be super targeted. We know very clearly that 90% of our investors are 40 years and older, live all over the country, but mainly in population centers of 100.000 people or more… Things like that. It’s pretty easy to target those types of people on Facebook, because they’ve already given all of that information out there.

Joe Fairless: Is it primarily males, too?

Mark Mascia: Yeah, unfortunately it is. One of our largest investors is a woman, and I’m really excited about that because I really love to see a more diverse investor base that’s not all male. But yeah, it’s probably 95% male in terms of number. Just because one of our investors happens to invest a lot of money, it skews a little bit when you consider percentages of dollars, but…

Joe Fairless: Any other things you target for?

Mark Mascia: Like I said, this is the first one we’ve done. I’m not a super-expert, but those are the main things that we’re looking for. Well, I guess education I didn’t mention, as well. So generally they’re all college educated. To the extent that you can target more professionals – doctors, lawyers, executives or small business owners, those tend to be good users. But that covers a large population, it’s not exactly a narrow niche of people; that’s a lot of people, so…

Joe Fairless: Okay.

Mark Mascia: So Facebook advertising – we’ve just started that and we’ve seen a ton of traffic. We haven’t actually converted anyone yet on that, just to be perfectly open and transparent, so I don’t know if that’s something we’ll do again or not – stay tuned on that side – but it’s certainly something we’re doing now and something we couldn’t have done under a 506(b) deal.

We’re also trying old school newspaper advertising, because our investor base tends to be a little bit older. In some cases we have investors 70, 80, 90 years old, and newspaper still happens to be a very relevant source for those people.

And because we’re local – we’re not local in terms of our operations are in New York, as you mentioned at the outset, but our property is located in South Carolina, so what we’ve chosen to do is try to get investors that live in that general area, so we will make an extra target, either on Facebook and also in this newspaper advertising, that focuses on North Carolina, Greenville, South Carolina – markets that are very close to these areas. Charlotte’s an hour away, Greenville is about 45 minutes away, Charleston… Those types of things, because people tend to like investing locally; even though long-term I think that’s a bad strategy, it’s a great gateway if they can drive by the property and see it.

So newspaper advertising is something else we’re doing and something else we couldn’t do under a 506(b).

Joe Fairless: And you did – I believe, if my memory serves me correctly – newspaper advertising in Omaha for a deal, didn’t you?

Mark Mascia: That’s right, and we actually did get investors directly from that, so that’s why we’re doing this again.

Joe Fairless: Okay. Do you happen to know any type of return, or how do you look at that? One dollar spent in a newspaper ad, and you get an investor… How do you measure the return on your investment there?

Mark Mascia: It’s a great question… I don’t have a mathematical model that works yet, because honestly some of these people start out and invest 5k, 10k, 15k, 25k – some smaller check size because they’re testing the waters with us and seeing how we operate. That may be all they ever invest, because they don’t like us. Or, generally what happens is they try us out for that amount, and the next time they write 100k check, or half a million dollar check.

It’s kind of difficult, because they lifetime value of that customer to us could be extremely high if they invest a lot of dollars or refer a bunch of friends, or things like that. But if they only invest one time, 5k, or they don’t invest at all, it’s very difficult to see the clear — I mean, it’s not like purchasing a product… They bought my book or something, and then I’d be like “Okay, that’s a clear conversion of one to one.” In this case, first of all it’s a high dollar value that they’re dealing with. If they write a check for 100k, that’s obviously worth a lot to us, versus somebody who would buy a $20 item on eBay, or something.

I think typically we’re trying to stay in that 2%-3% of capital raise to cost to convert. That’s about what happened: we spent about $3,000 in newspaper advertising and converted somewhere in the $150,000 range from that, so I think that math works our roughly. But it’s not an exact science; that’s what we hope for. Sometimes it will be 20% cost to convert, but over the long haul that will decrease itself drastically.

Joe Fairless: Okay.

Mark Mascia: We also did a webinar, which is something else… I’m sure you’ve seen the “be everywhere” strategy, that kind of like blanket/carpet marketing, whatever you wanna call it… We’re definitely trying to follow that strategy. I mentioned Facebook, I mentioned newspaper, we did a webinar, we’re on CrowdStreet… Those are all things that get our name out there.

The webinar was helpful because we get one-on-one questions, we get a bunch of people and interest built around that specific concept of hosting a webinar, and you can record it and then send it to others, so it gives you sort of a platform and another contact point to reach out to people.

Then we did a video. We always do a professionally recorded video, including drones footage and all types of different angles of the property and the surrounding area. That’s probably our most expensive question about if we should do this, because…

Joe Fairless: How much?

Mark Mascia: Well, there’s multiple different pieces, because you have the voice over, you have the actual video editor, you have the video recording – all those different things. I think when you put them all together it’s probably $10,000-$15,000.

Joe Fairless: Oh, Mark! I gotta get you my video guy. $3,000, all in. With a drone. We’ve got a drone, text overlays, everything.

Mark Mascia: Alright, awesome. I definitely have to check that out. I appreciate it! See, that’s why we do this, right? We all share and learn; I’m learning, too.

So yeah, that’s something… It’s also just a piece for existing investors, family offices to feel like they’ve been to the property instead of having to fly down there themselves. That’s what we used to do… Not on our dime, but we used to fly down and meet them and do a physical tour, and now we do more video, which is better for everyone.

I mentioned existing investors – the referral, probably in everyone’s experience has been why you start with your friends and family, because they know you, in terms of raising capital. If you perform for them, they will refer you to their friends and family, and so on and so on. That’s typically been the best source for us overall.

Joe Fairless: Do you have a way that you encourage that? Any intentional way?

Mark Mascia: I tend to let them know that it’s actually benefitting them, because people are wonderful; I think inherently people wanna do what’s right and be good and help others, but people are also sort of like short-term selfishly motivated, so what I try to do is focus on the benefits to them and why they should take action, because ultimately that’s what motivates most people in the short term. So by showing them that it actually lowers the cost of capital if they can refer somebody – I don’t have to pay the 2%, 3% or 4% to use crowdfunding or to do this advertising avenue that I’ve been speaking about… So it’ll decrease that, and then it’s also a social proof thing. From the standpoint of what I’ll try to do is people that do know each other or people that don’t know each other, some of the family offices that didn’t know each other, I introduced them to each other. Now they know each other, so when I say “XYZ family office is investing. Don’t you guys wanna to invest as well?” they go “Oh yeah, of course. If they’re invested, we’ll do it, too.”

So there’s a little bit of trying to get people in the same room or same social network of some sort, even if it’s just because I introduced them, so that there’s that social proof aspect where people feel obligated or inclined to invest because of someone else.

Joe Fairless: Any other pros, before we get into the cons?

Mark Mascia: The ability to develop this kind of long-term relationship quickly. What I mean by that is in 506(b) you had to know somebody for long enough to prove that you had a relationship with them. Now it’s like, I don’t have to prove any relationship. As long as they’re an accredited investor and they can invest, and as long as they’re a human on earth, I can talk to them about what I’m doing, and that’s just the base thing.

The costs are the same. You’re not spending any more money to file these documents, to do anything else. So from that standpoint, there’s really no reason not to do it in that way, in my opinion. It’s still got the same unlimited amount of money you can raise, so it’s not like you have a certain maximum doing it this way, so sometimes you should go the other way. You can raise unlimited funds. I think those are all important points.

Joe Fairless: What are the downsides of 506(c) versus 506(b)?

Mark Mascia: Definitely the overwhelming upsides, in my opinion; that’s why we’re doing it here. We’re only raising like 2.8 million dollars for this current deal, it’s a very small deal. But some people who raise much larger dollars and deal with very sophisticated investors, especially those that they’ve dealt with in the past, this can be a little bit of an annoyance… Because what has to happen under a 506(c) is they have to actually be accredited by a third party. So either they need to send you personally documentation of their accreditation status – and just as a reminder… I’m sure you’ve heard it a million times, but to be accredited as an individual, you need to make $200,000 a year, or with a married couple you need to make $300,000 a year, or have a net worth of a million dollars, excluding your personal residence.

So you have to have proof of either W-2 income statements, tax returns or a proof of your net worth. A lot of that, people don’t like to share. If they’re super wealthy, they’re very protective of their privacy and things like that and they don’t want people to see that, so generally they’re not gonna wanna send that to you. Well, that’s okay, the 506(c) allows you to do it under a third-party. That means either they need to send a letter and all their documentation to any attorney that [unintelligible [00:20:53].29] a currently licensed CPA can do that, or a stock broker. So there’s three other avenues where a third-party, not you sponsor or them the investor, but a third-party can verify them.

But again, this process – filling out that paperwork, proving that they’re wealthy, can be frustrating, can slow down the process, and can sometimes offend people, honestly. We’ve had people that have invested with us in the past who were like “Well, I never had to do this before” or “I’ve never had to do this with any other real estate deal I’ve invested in. Why are you so difficult? What’s wrong with you?” So there’s definitely a bit of more of an education problem… Not that they’re not smart or educated in life, but they’re not necessarily educated to the ways of these rules… Because these are not my rules, these are the SEC’s rules, and that’s what I always tell them. It’s not that I’m trying to be hard-lined about this, it’s the SEC has these restrictions and I’m just trying to follow the law. So that’s a definite downside.

Now, how real that is is really gonna depend on your investor base and on your relationship with them. Most people, when you walk them through why and how easy it is once they’ve done it once, they tend not to care… But again, you have to do this every 90 days, so that’s the other annoyance.

Joe Fairless: You have to do what every 90 days?

Mark Mascia: Get them accredited… Not for the investment that they’re in, but let’s say I’m raising money for this Camelot center deal in Spartanburg, South Carolina today; we have another deal under contract. If I don’t get that next deal ready and in front of that same investor within 90 days, they have to do it twice. So even if it’s the 91st day and I wanna get them to invest in that second deal after they invest in our deal that we have now, they can’t, unless they resubmit all the paperwork. And that’s just kind of like stupid. You just invested in that last deal, you just proved to me you’re accredited in the last deal 90 days ago, now all of a sudden the SEC magically things that it all completely changed and now you’re worth nothing or make no income… It’s a little onerous in that respect as well…

So just to be clear – not once they’re invested. If they’re invested with you, as long as you’ve got the accreditation paperwork upfront, you never have to do that again in that specific deal. But for all future deals, every 90 days you need to get a new update on whether they’ve accredited or not. That’s frustrating.

Joe Fairless: One strategy is to do 506(c) but only bring in new people, and then the next deal do 506(b) with your current people and funnel the new people in there. Then do another 506(c), bring in all new people… That way there’s no changeup in the process for you existing investors.

Mark Mascia: Yeah, that would definitely work. The problem is if any of your existing investors wanna get in on your new deal… The biggest problem we have is finding enough good deals for our investors. If I could find 20 deals, they would be happy. Unfortunately, we find a handful of deals every year that are good enough… So if I say, “Hey, by the way, you can’t invest in this one because it’s only new investors, I think that would be more of a turnoff than anything else. But if you can tailor it that way, it definitely would work, I agree with you.

Joe Fairless: I guess you could always say, “Yeah, you can invest in this one, but here’s the wrinkle in the process.”

Mark Mascia: That’s a good point. I hadn’t thought of that, so I appreciate it… But again, for us certainly that wouldn’t work, but for other people it definitely might.

I think the other thing is from a 506(b) standpoint you’re also a little bit more protected in terms of it’s been around forever. It’s been around since the 1930s or 1940s or whatever it was when it was originally enacted, so there’s been tons of case law, lawsuits, all types of things that you put you very clearly in the right or in the wrong, with very limited gray area… Whereas 506(c) – the new regulations have only been around since September 2013, in which case there’s been almost no clarifying points beyond. There hasn’t been tons of lawsuits and things like that because it just hasn’t been around that long.

So there could be some additional risk there. How to quantify that risk – who knows? Clearly, I don’t think there’s that much risk because I’ve talked to a bunch of attorneys and this is what we’re doing, but time will tell what that actually looks like.
The other thing that gives you protection is under 506(b) it’s self-accreditation. That means if someone comes to you and says “I’m wealthy, I’m accredited”, and you as the sponsor have the right to rely on that, they will essentially have committed fraud if they tell you otherwise, in which case that nullifies their ability to sue you.

So in a lot of ways you’re sort of saying, “I’m not in this process. They told me they’re rich.” If they’re not rich and they try to sue you and say “Hey, you shouldn’t have let me invest in this deal. You should give all my money back”, you say “Hey, you told me you’re rich, so clearly you lied. That means you can’t sue me.” So there is some additional protection in that respect as well, that you’re losing here because you’re now using some sort of verification process and they could say, “Well, I just called somebody and they signed off on it. It wasn’t true, so you shouldn’t have let me invest.”

Joe Fairless: Sounds like those are the three main downsides that you can think of. That is, they can be annoying for the investors because they have to be accredited by a third-party, there’s some gray area because it’s rather new, and then the self-accreditation process likely protects you more because they’re saying they’re accredited by completing the paperwork, so they would have committed fraud if they actually aren’t accredited.

Anything else that we haven’t talked about as it relates to why you choose to do a 506(c) versus 506(b)?

Mark Mascia: No, I think… Like we’ve mentioned before, they’re both the same in terms of the amount of money you can raise, in terms of the process, in terms of what you’re allowed to risk, whether that’s real estate development or real estate investment of long-term nature – anything can be done. Unlimited amounts of money, the same blue sky paperwork in terms of what you have to file with all the states… So in that sense it’s like you have to learn this and do this the same either way, so you might as well do the one that gives you more flexibility in what you could say.

Joe Fairless: Mark Mascia, where can the Best Ever listeners get in touch with you?

Mark Mascia: E-mail is always best. It’s mark@masciadev.com, and I’m sure you’ll have that in the show notes as well.

Joe Fairless: Yeah, well I’ll put your website in the show notes, and that way the internet trolly things that some people have don’t grab your e-mail address. You’ll thank me for that.

This has been wonderful. I loved talking about this stuff, and this was such an educational experience, coming from someone who’s currently in the middle of it, and you’ve got half a billion dollars worth of assets under management that your company has part ownership in… So talk about the pros, as you so succinctly recapped – it diversifies your investor capital base, that way you’re not relying on one source of capital, because you’re able to publicly advertise and you’re able to meet new investors just to make sure that you have additional investors coming in and you’re not relying on one, which kind of ties in the first thing.

You can convert people quicker, versus having the pre-existing relationship, because you are doing the 506(c), and then the raise is unlimited, just like the 506(b), and the cost is the same, just like 506(b). And then I love how you got into the equity raising tactics, the crowdfunding website, Facebook advertising, who your target audience is, newspaper ads, webinars, the video, and then ultimately the word of mouth, referrals and how you social proof and mention how it lowers the cost of capital, because you lower your advertising budget if they refer their friends or whomever.

Then the three downsides… The primary one, I believe, the risk in the legal liability for the gray area, but the here and now is it can be annoying because there has to be verification by a third party. And then the other two – there’s more gray area with 506(c); with 506(b) there’s a self-accreditation process.

Thanks so much for being on the show, Mark. I hope you have a best ever weekend. Enjoyed it, as always. We’ll talk to you soon!

Mark Mascia: Thanks a lot, Joe.

 

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JF810: When Mother Nature DESTROYS Your Property, What Do You Do? #SkillsetSunday

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So you have a check after a recent hail storm, hurricane, etc. Do you use it to repair your property? What do you do right after the event? Who do you call? Today you’ll understand how to break down the situation and make the proper choice!

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Frank Roessler Real Estate Background:

– Founder of Ashcroft Capital
– Managed underwriting, due diligence and contract negotiations of over 30 properties comprising of 200+ units each
– Served as an asset manager over a portfolio valued in excess of $450m
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– Say hi to him at http://www.ashcroftcapital.com

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JF803: How to Self Publish Your Way to Thought Leadership #SkillsetSunday

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You may have thought of writing a book, so why haven’t you? This is a no fluff episode about how you can establish yourself as a thought leader through book publishing. Self publishing allows you to freely execute your niche book release and Amazon is the vehicle to do it. Listen in, take notes, and publish!

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Mike Fishbein Real Estate Background:

– Inbound Marketer and Co-Founder of GetSuperScript; Marketing for technology companies and consumer brands
– Grew consumer website from zero to 25,000 unique visitors per month, and generated 10,000 leads
– Bestselling author of twelve self-published books on Amazon
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JF617: The Pertinent 4 Comparable Property Tips this Expert NYC Agent Wants You to Know

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Today’s guest is an expert in the Co-op market of New York City and he’s about to share the details of listing leases and for sale Co-ops in the city. He shares his experience helping buyers and sellers, and also believes Co-ops are not too investor friendly. Tune in!

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Brad Malow real estate background:

  • Has been representing NYC buyers and sellers since 2003
  • Transaction portfolio exceeds $35,000,000
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JF611: How a $350k SFR is Now Worth $950k and What He Did to Add Value!

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Today’s guest is a very savvy investor and real estate professional. He converted a single family property in the New York market into a triplex, which increased the value considerably!

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Robert Edward Franklin real estate background:

  • Has 15 years of real estate experience in New York City
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JF604: How Rent Concessions and Other Marketing Tools Can Attract Tenants in a Tough Market

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Our New York City guest is a real estate agent who specializes
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Elliot Osgood real estate background:

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    Habitats
  • Say hi to him at citibabitats.com
  • He is currently focused on Brooklyn, New York

Please Take 4 Min and Rate and Review the Best
Ever Show
 in iTunes. 

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

Need financing?

Are you a buy-and-hold investor or doing fix and
flips?

I recommend talking to Lima One Capital. A Best Ever
Guest told me about them after I asked how he financed 10
properties in one year. They are an asset-based lender with unique
programs for long-term hold and fix and flippers.

Click to
learn
more or, better yet, reach out to Cortney Newmans at Lima
One Capital. His cell is 404.824.6121.

Subscribe to Joe’s YouTube Channel here to learn
multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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episode!

JF599: BIG Money Raised, Investor Partners Set, and on the Closing Day the Lender Says…#situationsaturday

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Today’s guest has been here before. He shares a suspenseful yet agonizing account of funding a large medical building in Nebraska, well, almost funded. Hear how after all the due diligence, raising money, and cutting red tape the deal goes south.

Best Ever Tweet:

Mark Mascia real estate background:

  • President and CEO of Mascia Development and has over 13 years of experience in real estate
  • Based in New York City, New York
  • Prior to forming Mascia Development, Mark was in charge of developing over 2,500 residential units and multiple retail and mixed use properties with a total portfolio of over $1.1B
  • Presently an adjunct professor at NYU teaching Real Estate Development Principles and Practices as well as Advanced Real Estate Financial Modeling
  • Say hi to him at https://invest.masciadev.com/properties/find/

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

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

Need financing?

Are you a buy-and-hold investor or doing fix and flips?

I recommend talking to Lima One Capital. A Best Ever Guest told me about them after I asked how he financed 10 properties in one year. They are an asset-based lender with unique programs for long-term hold and fix and flippers.

Click to learn more or, better yet, reach out to Cortney Newmans at Lima One Capital. His cell is 404.824.6121.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF597: Where You Could Back a BIG Deal with People Who Don’t Even Live Here

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Our Best Ever guest is able to put together large New York City long-term cash flow syndications backed by people that don’t even live here, all international! He is a licensed agent with a keen sense of Manhattan and the Bronx inventory and the path of growth, and he has already completed 20!

Best Ever Tweet:

Russell Putterman real estate background:

  • Started Focus Real Estate in 2010 and merged with Keller Williams in 2014
  • He is based in New York City, New York
  • Began career as a tax consultant and senior auditor
  • Real estate investor since 2008 and has about 20 properties
  • Say hi to him at focusreg.com
  • His Best Ever book: Slight Edge by John Olson

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

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

Need financing?

Are you a buy-and-hold investor or doing fix and flips?

I recommend talking to Lima One Capital. A Best Ever Guest told me about them after I asked how he financed 10 properties in one year. They are an asset-based lender with unique programs for long-term hold and fix and flippers.

Click to learn more or, better yet, reach out to Cortney Newmans at Lima One Capital. His cell is 404.824.6121.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF596: How the Vice President of South Africa Found Our NYC Local Real Estate Expert

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Our guest is a local expert in the Co-Op and condo space in New York City. He shares how much money he invests in real estate platforms such as Zillow and Trulia to attract foreign buyers. He is currently helping the Vice President of South Africa purchase a space in the city. Hear his expert advice and knowledge in the New York real estate market!

Best Ever Tweet:

Jules Borbely real estate background:

  • Based in New York City, NY with a focus in Mahnattan
  • Real estate agent for last five years and has sold about $14,000,000 just last year
  • Say hi to him at http://www.opgny.com, Oxford Property Group
  • His Best Ever book: The Sell by Fredrik Eklund

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

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

Need financing?

Are you a buy-and-hold investor or doing fix and flips?

I recommend talking to Lima One Capital. A Best Ever Guest told me about them after I asked how he financed 10 properties in one year. They are an asset-based lender with unique programs for long-term hold and fix and flippers.

Click to learn more or, better yet, reach out to Cortney Newmans at Lima One Capital. His cell is 404.824.6121.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF595: This REALTOR Has a Few Tips for Investors Looking to Buy

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Today’s guest is a New York City real estate agent who has sold millions in volume using one simple trick. This trick works in any negotiation and she has mastered it. Press play to hear what it is!

Best Ever Tweet:

Kelly Robinson real estate background:

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

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

Need financing?

Are you a buy-and-hold investor or doing fix and flips?

I recommend talking to Lima One Capital. A Best Ever Guest told me about them after I asked how he financed 10 properties in one year. They are an asset-based lender with unique programs for long-term hold and fix and flippers.

Click to learn more or, better yet, reach out to Cortney Newmans at Lima One Capital. His cell is 404.824.6121.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF586: ALL You Need to Know about Investing in NY, NY Townhomes

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Moving to New York City?!? Well you may want to invest in a townhouse, they are highly limited. Today’s guest shares his 1,000,000,000+ sales knowledge in all things regarding townhomes in New York City. We get down to the nitty-gritty including design, floorplan, and square footage. If you ever want to invest in New York City you have to hear this show!

Best Ever Tweet:

Patrick Lilly real estate background:

  • Has successfully sold more than a thousand homes worth in excess of a billion dollars in Manhattan and Brooklyn
  • His team is consistently ranked in Wall Street Journal’s top 250
  • Based in NYC, NY and been selling real estate since 1984
  • Say hi to him at thetownhousespecialist.com

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

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

Need financing?

Are you a buy-and-hold investor or doing fix and flips?

I recommend talking to Lima One Capital. A Best Ever Guest told me about them after I asked how he financed 10 properties in one year. They are an asset-based lender with unique programs for long-term hold and fix and flippers.

Click to learn more or, better yet, reach out to Cortney Newmans at Lima One Capital. His cell is 404.824.6121.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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

JF554: How He Wholesales, Holds, and Raises Money!

Our Best Ever guest first bought a duplex as a buy and hold investment, and now wholesales value add deals. He has raised private capital and seeks to close even more deals this year. Hear what he believes is the best investing strategy!

Best Ever Tweet:

Tosin Oduwole real estate background:

  • Purchased 2 properties as buy and hold investments, done 5 wholesale deals and bought 1 plot of land for development
  • Based in New York City, New York but born and raised in Saint Louis, Missouri
  • Been a real estate investor since graduating high school after several unhappy stints at fast food restaurants
  • He also raises money forjmrepartners.com
  • His Best Ever book is: The 50th Law by Robert Greene

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

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

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF551: How to Connect With Others on a HIGHER Level #skillsetsunday

How important are the relationships around you? If you plan to live a wholesome life of abundance, freedom, and happiness, then you must peer deeper into the individuals that surround you, and today’s guest is ready to show you how!

Best Ever Tweet:

Aliya Levinson real estate background:

  • Coaches emerging female entrepreneurs in conquering hesitancy, overwhelm and fear to launch their service-based business
  • Say hi to her at aliyalevinson.com
  • Is a Certified Professional Coach and holds an MA in writing and based in New York City, New York

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

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

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF541: How a Young Commercial Investor Raised Over $1M to Purchase a 30-Unit Deal

He’s tenacious! Only 28 years old, our Best Ever guest is a real estate agent and investor in New York, New York. He is relentless with his marketing efforts and uses direct mail. He understands the buy and hold market in NY and has observed how others have liquidated and purchased large multiunit buildings. He knows his numbers, listen in and be inspired!

Best Ever Tweet:

Josh Jaouli real estate background:

  • He’s a 28 year old commercial real estate agent focusing on multifamily properties in the New York Metro area
  • He’s also an investor and raised over $1M to purchase his first 30-unit deal valued at $3.5M with a close date in about 4 months
  • He’s raising money for his first distressed debt fund and you say hi to him at multifamilyny.com
  • Based in New York City, New York
  • Here is his guide he uses: https://goo.gl/Y3eVag

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

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

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Have you tried REFM’s Valuate software yet? It makes investment analyses a breeze, and makes you look like you spent all week on them. Go to app.getrefm.com to sign up today.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF523: How to Build a Business from SCRATCH #skillsetsunday

It starts with a passion for…well what is your passion? What makes you tick? Our Best Ever guest has been with us before, and today he is sharing the true struggle and joy of building a business step by step. He covers important topics that you need to understand such as team building, decision making, and execution. This is one episode you cannot miss!

Best Ever Tweet:

Matthew Rodak’s background:

–          CEO of Fund that Flip, an online lender for residential flips

–          Previously, worked at leading commercial property insurance and risk management firms

–          Based in NYC, NY

–          Hear his Best Advice ever: https://joefairless.com/blog/podcast/jf-07-uncovering-why-real-estate-crowdfunding-is-so-hottt/

 

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

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

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Have you tried REFM’s Valuate software yet? It makes investment analyses a breeze, and makes you look like you spent all week on them. Go to app.getrefm.com to sign up today.

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

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JF512: How She Moved from Medical Billing to Million Dollar Developments

She started out in medical billing, and knew there was something bigger out there—she fell in love with real estate. She works now with investors, general contractors, and planners to develop large multimillion developments. Hear how she did and her Best Ever advice!

Best Ever Tweet:

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

Michelle Wong’s real estate background:

  • Real estate sales agent and is based in NYC, NY
  • About $5M in total transactions over the last 12 months
  • CEO of The Wym Group which is focused on single family and commercial real estate
  • Focus on conversations and large renovations and development in markets across the US
  • Say hi to her at http://www.thewymgroup.com
  • Her Best Ever book is Think and Grow Rich by Napoleon Hill

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JF494: Targeting a Business Idea, and How to Raise $$$ For It #situationsaturday

He has raised over $2,000,000 for his lending business. Our Best Ever guest shares the secret in building capital, which has NOTHING to do with money! His patience and persistence was rewarded and now he heads Fund That Flip! Tune in to see how his company can benefit you!

Best Ever Tweet:

Matthew Rodak

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

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Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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JF455: What a “Tasty Deal” is with a NY Multifamily Investor and Author

As a Former Chemistry teacher who knows New York very well, our Best Ever guest jumped in head first! He was able to watch others who were successful in the business and began buying in the early 2000’s. When the bubble burst about a decade later, he was ready to buy deeply distressed homes at big discounts. One of his greatest tips involve speaking with code enforcement to sniff out local offenders. Don’t pass up this episode!

Best Ever Tweet:

Michael Gansberg’s Real Estate Background:

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Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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JF413: JV Partners Unite to Take On NYC Purchases

So your pockets are not as deep as the guy next door…and you would rather share the risk. Joint Venture partnerships could be for you! Today’s Best Ever guest is taking down building in “The Big Apple”, a highly tenant friendly city/state. Hear his Best Ever advice that will boost a little more confidence in your next step to investing.

Best Ever Tweet:

Harry Brodsky’s real estate background:

  • Based in New York City, NY and investing in the New Jersey and New York City
  • Does JV deals with other investors
  • Host of Founder Grind podcast
  • Say hi to him at http://www.foundergrind.com

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Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

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JF369: Meet, Greet, and Share to BUMP Tenant Retention #skillsetsunday

“Out of the box” is the Millennial way! Our Best Ever guest is innovating the way communities interact through creative tenant retention and job search methods including one you have NEVER heard of, listen up!

 

 

Best Ever Tweet:

 

 

 

 Brad Hargreaves’ background:

 

  • Started his first business his sophomore year of college

  • CEO of Common, dedicated to making housing better by providing flexible, community-minded shared residences

  • Previously co-founded General Assembly

  • Based in New York City, NY

  • Say hi to him at Highcommon.com or…@bhargreaves on Twitter

 

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Made Possible Because of Our Best Ever Sponsors:

 

Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF362: How Empathy Will Bridge Any Relationship Gap

What is empathy? We hear it, but do we use it when we communicate with our friends, family members, and tenants? Listen closely to our Best Ever guest as she walks us through her four steps of mastering empathy, which will certainly improve your personal and business relationships!

 

Best Ever Tweet:

 

 

Carla Blumenthal’s background:

Based in New York City, New York

 

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Made Possible Because of Our Best Ever Sponsors:

 

Norada Real Estate – Having a hard time finding great investment properties?Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing at http://www.NoradaRealEstate.com/Guide

 

 Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF341: Your SIX Step Guide to Conflict Resolution

The next time you have a difficult situation to confront in your business or home life, HERE is your complete guide in order to deal with it. We discuss a SIX step guide to conflict resolution, and how it relates to you as a real estate investor.

Best Ever Tweet:

Bruce Eckfeldt’s business background:

·        Over 20 years of experience building teams, products and companies

·        Previously an entrepreneur and an INC 500 CEO of Cyrus Innovation

·        Technology and coaching companies on develop software

·        Work with startups and high-growth companies to clarify goals and set clear objectives

·        Say hi to him at http://www.Eckfeldt.com

·        Beat an Olypian in a cross country ski race

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF312: When You Should Start Renovating a Property as an OWNER

What happens when you own a property and no one wants to buy it? Well, today’s Best Ever guest shares with us how to look at the numbers in order to determine when to renovate a property, and why you shouldn’t buy properties that YOU would want to live in. Yep, you read that right so listen up!

Best Ever Tweet:

Nicole Beauchamp’s real estate background:

–          Over a decade of experience as a real estate broker specializing in representation of buyers and sellers in NYC

–          Based in NYC, NY

–          2014 Inman News 100 Most Influential RE Leaders

–          She is a writer, educator, real estate and technology geek

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

Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF309: How Much You Need to Know About an Area Before You Invest

Ever met someone who says they know New York City like a native? Well, they probably don’t know as much as today’s Best Ever guest. He knows NYC like the back of his hand, and shares with us all we need to know about investing in NYC, how to market your neighborhood in person and especially online, and what YOU need to be able to answer about a neighborhood before you invest.

Best Ever Tweet:

Mike Mishkin’s real estate background:

–          NY real estate broker and owner of Love Where you Live Realty specializing on the Upper West Side of Manhattan where he grew up

–          Also owns and operates http://www.ilovetheupperwestside.com which is a neighborhood blog covering events, restuarants, real estate

–          Used to be a comedian

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

Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF269: The Questions You Need to Begin Asking Your Tenants TODAY

This born and bred New Yorker, knows all there is to know about real estate in NYC. But that’s not all! We discuss when to put your properties up for sale, and the best ways to put tenants into your rentals after one showing TODAY!

Best Ever Tweet:

Chris Morley’s real estate background:

–          Owner of Bien Realty

–          Focus is on residential rentals and sales

–          Used to do 70 transactions and now 20 transactions

–          Based out of NYC, NY

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

Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

 The Book On Flipping Houses – Are you looking for a step by step guide for starting your flipping career? Head on over to Amazon to pick up The Book On Flipping Houses by professional house flipper J Scott.

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JF265: EVERYTHING You Need to Know About Buying Notes

Get out your pen and paper to start taking notes on…NOTES. Today’s Best Ever guest shares with us everything you need to know about buying non-performing notes and once again, just how important doing YOUR due diligence is.

Best Ever Tweet:

Paul Birkett’s real estate background:

–          Founder of Automation Finance and is based in NYC, NY

–          It generates growth by returning non-performing assets to performing status

–          Buys pools of non-performing residential mortgages and works with the borrower to address the cause of their distress

–          Was in the Guinness Book of World Records for building and mailing the largest greeting card in the world

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF264: Have a Big Decision to Make In Your Future? Well, Here’s Your Step By Step Guide to Make the Right One #skillset Sunday

Today, we discuss how to make a decision for something that you continue to question. I have had a lot of big decisions to make recently, and have developed a step by step guide that has helped me come to the best decision for MY life. Apply this to your life today, to be sure you can stand by your decision.

Best Ever Tweet:

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF235: Why Millenials are Revolutionizing Real Estate

You may want to get used to seeing LOL, G2G, and TTYL because today’s Best Ever guest shares with us why millennials are completely changing the real estate industry. We discuss the Best Ever ways to cater your business to millennials why they are putting off the white picket fence in the suburbs to stay in the city.

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Matt Britton’s background:

–          Founder and CEO of MRY  – a social media and youth marketing agency based in New     York City, New York

–          Grew MRY from a one-man startup to a company with over 600 employees

–          MRY has been named Social Media Agency of the Year by Mashable and one of the 10      most innovative companies in the world by Fast Company

–          Author of YouthNation: Building Remarkable Brands in a Youth-Driven Culture

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Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

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JF234: Shark Tank’s Barbara Corcoran Reveals Her Best Real Estate Investing Advice Ever

This shark shouldn’t scare you, but INSPIRE you. She shares with us how to spot an up and coming area to invest, what YOU can do to quickly spot your team’s next superstar, and how avoiding her WORST investment can be your best investment. Listen up, because this shark didn’t get to the top of the real estate world by staying in the shallow end!

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Barbara Corcoran’s real estate background: 

             Took a $1,000 loan and created The Corcoran Group, a New York residential real estate               brokerage which she sold in 2011 for $66 million  

–      Author of Shark Tales and shark investor on ABC’s hit reality show, Shark Tank and on  Beyond the Tank which premiers May 1st

–     Founder of Barbara Corcoran Venture Partners and she is based in New York City, New York

–      Earned straight D’s in high school and college and had twenty jobs by the time she  turned 23

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Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of LandWant to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF223: Insider Tips on the Online Real Estate Market

Ask not what you can do for technology, ask what technology can do for you. Today’s Best Ever guest shares with us how we can bid on properties online, and the importance of technology in the real estate industry.

 Best Ever Tweet:

Eric Eckardt’s real estate background:

  •  Vice President at Hubzu.com based in New York City, NY
  •  Named one of the top technology real estate firms
  •  Prior to that he was the Founder of Eckardt Holdings which launched startup companies like Zonic Realty, an online brokerage
  •  He is the youngest of 8 and spread is 18 years

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Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of LandWant to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF221: Titles! Titles! Read all about it!

You know the age old saying “Trust is gained in drops and lost in buckets?” Today’s Best Ever guest shares with us the importance of building trust with your clients, discusses title insurance, and a neat loophole to investing in the crowdfunding marketplace.

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 Allen Shayanfekr’s real estate background:

  •  Founder and CEO of Sharestates, a real estate crowdfunding marketplace based in NYC, NY
  •  Currently practicing law in New York and CT and uses his legal expertise in securities law to   help Sharestates promote and produce public and private offerings        
  •  Got his JD from Touro Law Center where he was top 6% in his class
  •  Say hi to Allen @allenshayanfekr or Sharestates @sharestates

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 Made Possible Because of Our Best Ever Sponsors:

Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions at http://www.PatchOfLand.com/bestever

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JF213: One SURPRISING Way to Find an Off-Market Multifamily Deal

Initially today’s Best Ever guest wanted to syndicate multifamily deals but he couldn’t find anything that made sense. Then he stumbled into a surprising way to get the off-market multifamily deals when he wasn’t even looking for them! Discover this and much more on today’s episode.

Best Ever Tweet:

Jonathan Makovsky’s real estate background:

–        Invests in Connecticut with a focus on single family home fix and flips

–        His first deal made $47,000 and his second deal expects to make over $60,000

–        Has wholesaled and in process of syndicating his first real estate deal – a 16-unit apartment community and is based in New York City, New York

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Made Possible Because of Our Best Ever Sponsors:

Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF211: How to Make $10,000,000 in 10 Days

The meteoric rise of today’s Best Ever guest is astonishing. Listen closely as he gives you the step-by-step process for how to make $10,000,000 in just 10 days.

Best Ever Tweet:

Ted Winters’s real estate background:

·        Director of the Ted Winters Group, a Real Estate Luxury Brokerage firm in New York, NY that has been in business for ten years

·        Ranked in the top 1 percent nationally for professional realtors, Ted oversees acquisitions and asset management for $500M and growing portfolio of multifamily assets in the United States

·        He also teaches advanced real estate courses at Columbia University in New York City

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Made Possible Because of Our Best Ever Sponsors:

Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF195: How to Become a Billion Dollar Developer

Listen to today’s Best Ever Guest’s inspirational journey about how he started in the development business. And, the lessons he learned along the way that you can apply to your business as well.

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Mark Mascia’s real estate background:

–        President and CEO of Mascia Development and has over 12 years of experience in real estate based in New York City, New York

–        Prior to forming Mascia Development, Mark was in charge of developing over 2,500 residential units and multiple retail and mixed use properties with a total portfolio of over $1.1B

–        Presently an adjunct professor at NYU teaching Real Estate Development Principles and Practices as well as Advanced Real Estate Financial Modeling

–        Say hi to him at http://masciadev.com/

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JF188: Qualify a Multifamily Deal in Minutes with These FOUR Questions

Your time is valuable. That’s why it’s imperative to know how to quickly qualify a deal so you know if you should spend more time looking into it or pass on it. Todays’ Best Ever guest shares with you the FOUR questions you need answers to.

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Joe Stampone’s real estate background:

–        Vice President of Atlas Real Estate Partners based in New York City, New York

–        Assisted in debt and equity placement on $450M of acquisitions

–        Leads company’s strategic vision including branding, investor management and investor platforms

–        Analyzes the performance of the company’s 25+ properties under management

–        Founder of A Student of the Real Estate Game which a popular real estate community of real estate professionals

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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF178: TWO Ways to Structure an Agreement with Local Team Members

Want to invest in a market outside of where you live? Want to learn how to structure partnership agreements with local team members? Today’s Best Ever guest shares with you TWO ways

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Anthony Dadlani’s real estate background:

–        President of A Plus World Group based in New York City, New York

–        15 years as an equity markets trader and portfolio manager

–        Experience buying and selling private liens, notes and mortgages

–        Actively buying single family homes

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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF148: Discover these PROVEN Ways to Get the Most Money for your Property When You Sell

Today’s Best Ever guest tells you why she started a luxury auction company and shares some tips on how you can get the most value out of your property when it’s time to sell.

Best Ever Tweet:

Consider the next owner of your property.

Laura Brady’s real estate background:

–        Founder and president of Concierge Auctions based in New York City

–        They are the smart way to buy and sell the world’s most unique, high-end properties

–        Former top luxury real estate agent

–        Company is going on the 8th year in biz and sold over $725MM in luxury properties

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JF127: This Unique Approach Closed 5,000 Apt Units in 10 years

Today’s Best Ever guest tells you how he created a company from scratch that went on to do over $1,000,000,000 in transactions. Learn the business model he initially employed and how he evolved his business over time.

Tweetable quote:

Nick Jekogian’s real estate background:

–        President & CEO of Signature Group based in New York City

–        Over 25 years in real estate and started with his first apartment building in Philadelphia

–        Has since made more than 1,000 separate equity, debt or corporate acquisitions with deal value in excess of $1,000,000,000 (yes, billion!)

–        Co-Author of Your Turn: Two Brothers Transforming Themselves and Their Relationships Through Long-Distance Running

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JF91: Raising Money from International Investors

How do you set up international investors so they can take their money and invest in your deal? Today’s Best Ever guest shares with you the process.

Tweetable quote:

Decide what you want not what you think is possible.

Ben Gray’s real estate background:

–        Founder of American Properties International based in New York City

–        Match up international investors with turnkey American investment properties

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

–        Experience raising money and working with international investors to invest in United States properties

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JF84: Include this Little-Known Clause in your Next Contract

A wonderful conversation with today’s Best Ever guest where you learn about market evaluations, a contract clause to add in to your next deal, daily reminder system to be more effective and much, much more. This interview is loaded with #bestever advice.

Tweetable quote:

Louis Leone’s real estate background:

–        Founder at REALvestment, a start-up looking at big data to identify local and emerging real estate markets

–        As former Senior VP at Predential Real Estate, he was responsible for the 5th highest number of total transactions in New York City in 2010

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JF63: Revealing Five Profitable Exit Strategies for Note Buying  

Note buying. Buying notes. And more note buying…you want to hear from a note buying expert? Listen to today’s Best Ever guest as he shares how to do the due diligence on note buying and the reveals five exit strategies for note buying.

Tweetable quote:

 

Val Sotir’s real estate background:

–        Founder of Watermark Capital Partners (http://www.watermarkcapitalfund.com/)

–        In 2009 he was featured on the cover of Forbes magazine as one of the mortgage survivors on Wall Street

–        10 years of experience as a stock broker

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JF 51: A Multifamily Biz Model that Quickly Scales Your Wealth

Today’s Best Ever guest shares with you the biz model he uses to quickly scale his apartment investing business. Next week he is closing on a $12,000,000 property – I think you’ll want to hear what he has to say.

Tweetable quote:

Chris Urso’s real estate background:

–        Raised over $15,000,000 of private equity

–        In last 4 years his company has acquired over $45,000,000 worth of apartments

–        He and his wife began investing in 2001 originally focusing on residential

–        Co-founder of U.R.S. Capital Partners & Elite Apt Coaching, a multifamily coaching and training program (http://www.eliteapartmentcoaching.com/)

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JF43: Letting the Market Dictate the Strategy

Today’s Best Ever guest shares a case study of how his company changed their strategy in the middle of a project and came out ahead. Plus, if you’re interested in the hotel business you’ve got to listen to what Jonathan has to say.

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Jonathan Minkoff’s real estate background:

–        Co-Founder and CFO of Ash NYC (www.ashnyc.com)

–        Currently working on projects totaling over $200 MM

–        Focused on improving assets by design

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JF 34: If You Give a Mouse a Cookie…

As landlords it’s almost impossible to not get caught up in some sob story a tenant has. It’s a judgment call we all have to make and then live with the consequences. Listen to today’s Best Ever guest as she shares her experience and, consequently, her advice for you if you are in the same position.

 Tune in to listen to her Best Real Estate Investing Advice Ever!

Shannon Morrow’s real estate background:

–        Owns a 3-family building in Brooklyn, NY as her 1st investment property

–        She lives in one unit and rents out the other two

–        Currently works as a real estate agent in NYC

–         Previously worked as a loan processor who did over $150,000,000 worth of loans with investors

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JF 28: Investing in Dirty Words

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How many investors do you know who are focused on buying suburban office space? Bet you can count the number on one hand. In fact, a lot of investors consider “suburban office space” dirty words. And that’s why listening to this interview with Arndt is so important. He is taking a contrarian mindset to real estate and doing very well with it.

Arndt Nicklisch’s real estate background:

–        Closed on almost $1.2BN in real estate transactions

–        Founder of American Eagle Capital Partners (http://www.aecp.com/)

–        Focused on investing in suburban office real estate

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JF 26: Starting a Multifamily Syndication Biz Ain’t Easy…But Here’s Proof It’s Worth It

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Jonathan used his reputation, networking skills, persistence and smarts to start his own real estate investing company that now controls over 230 apartment units. But he had some issues along the way. First, he lost out on two deals days before closing because the financing fell through. That was a very costly hiccup. Learn how he overcame it and what he learned from the experience.

Listen to hear his best advice ever!

Jonathan Twombly’s real estate background:

  • Board member on the Harvard Real Estate Alumni Organization in New York City
  • Managing Member of Two Bridges Asset Management Company which controls over 230 multifamily units (http://twobridgesmgmt.com/)
  • Former real estate lawyer specializing in litigation involving hotels and other real estate assets

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JF 12 : Continually Evolve Your Approach…or Become Extinct

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Ankit Duggal has successfully invested and exited in over $50,000,000 worth of real estate assets since 2008. He focuses on multifamily deals and tax liens in the Northern New Jersey market and discusses with us the importance of maintaining your focus on what you know while evolving how you make the deals happen.

Ankit’s real estate background:

  • A wide variety of experiences from hard money lender to brokering deals to deal syndication
  • His company Real Estate Renaissance Group (www.rernj.com) has deployed over $90,000,000 into investments

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JF 07: Uncovering Why Real Estate Crowdfunding is So HOTTT

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Matt Rodak recently launched a crowdfunding real estate website called Fund that Flip. He talks to us about crowdfunding rules and why it’s beginning to take off in a big way.

Matt’s real estate background:

  • Founder of Fund that Flip (www.fundthatflip.com), a crowdfunding platform for residential flips – based in New York City
  • Worked with major real estate companies in a variety of capacities including most recently as a business development executive for FM Global, a commercial real estate insurance company

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JF 03: Learn Why Accredited Investors Invest in Your Deal

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So often we hear from the people putting syndicated deals together but rarely (ever?) do the actual investors in the deals get interviewed. Wouldn’t it be interesting to hear from an investor on WHY he investors in deals and WHAT he looks for?

Brandon Evans’s real estate background:

  • Passive investor in multiple multifamily syndicated deals
  • Successful NYC entrepreneur who has created or co-created 4 companies

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