JF1519: How To Find Equity & Debt For Your Syndication Deals with Marc Belsky

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Mark has over $3.5 Billion in transactions under his belt. He specializes in helping investors find equity and/or debt for their deals. He can help you with most aspects of putting together a syndication deal and today he’s giving us free tips to help us with our deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Marc Belsky Real Estate Background:

  • Managing Director of Eastern Union Funding and lead affiliate of Eastern Equity Advisors
  • They have a proven track record of introductions that have resulted in investments from $500,000 to over $50,000,000
  • Done about $3.5B in transactions
  • Works with his team to raise institutional equity for acquisitions and recapitalizations on behalf of multifamily and commercial real estate owners
  • Last year his team successfully raised over $100 million
  • Based in Valley Stream, NY
  • Say hi to him at https://www.easterneq.com/  or mbelsky@easterneq.com

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Best Ever Listeners:

Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


TRANSCRIPTION

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

Marc Belsky: I’m great, how are you?

Joe Fairless: I am doing great, and welcome to the show. Best Ever listeners, you probably recognize Marc’s name, because he and his team are sponsors of this podcast, but more relevant than that – he’s done approximately 3,5 billion dollars in transactions. He’s the managing director of Eastern Union Funding, and the lead affiliate of Eastern Equity Advisors. He brings debt to deals, he helps bring equity to deals, and you can learn more at his company’s website, which is in the show notes page.

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

Marc Belsky: Sure. I’ve been in the business about 20 years, I started off on the principal side. I’ve spent about 15-16 years on the principal side, which as I’ve heard from many clients, gives me a unique perspective of really understanding how to finance deals, both on the debt and equity side. I focus primarily on middle market deals. We’re focused on loan sizes of one million up to 100 million dollars, and then on equity of about five million to 40-50 million dollars.

We’ve recently completed about 250 million dollars of equity raised, representing over a billion dollars of real estate deals, and I probably did about another 150 million dollars worth of debt in the last ten months… So we’re having a great year, and we really are focused. We do a lot of multifamily deals, we [unintelligible [00:04:25].21] but most of what we do is in multifamily, I would say.

Joe Fairless: Why did you switch from the principal side to the lending side?

Marc Belsky: Sure. Again, more brokering than lending, but the secret is I also am still on the principal side. I saw an opportunity, basically… The way it started was I saw an opportunity in the capital raising for the middle market. There’s a lot of big shops that are out there that raise for these big, massive institutional deals, and when people are doing the smaller deals or syndicating deals, they go to their friends and families etc. and I saw a niche that just wasn’t being covered by anybody, which was, again, middle market equity.

So while I was still buying my properties [unintelligible [00:04:57].10] about doing equity, and we ended up getting into it. Then over time, as the business just became larger and busier for me than my investment business, [unintelligible [00:05:10].08] for my own account, but as a business, [unintelligible [00:05:15].05] business than just investing.

At this point, it’s become my primary focus. I’m dedicated to it 18-20 hours a day almost some days, and I work full-time… Again, giving the fact that I am a principal, and I come from the principal side, it really gives me a unique perspective when I get involved in deals and I have clients, and even with banks and lenders. One of the stories I tell all the time is when you have  a real estate deal that you’re buying and you need a mortgage – suppose you’re buying a property for 10 million dollars and you get a 7 million dollar mortgage… You can go to any mortgage broker in the country and they’ll help you get that 7 million dollar mortgage based on whatever your NOI is. What most brokers don’t know is really what happens between that 7 and the 10 million dollars. That’s where I add the most amount of value, because I’ve done so many deals on the principal side, and I own real estate myself, and I’ve been buying real estate for close to 20 years, that I understand really how to do the deal on the equity, but more importantly as it relates to debt as well. I’m not just pitching the bank on the NOI; I really understand the real estate transaction, how it works, what the value is, why the bank should be lending, and there are multiple stories I can share – I’m sure we don’t have time for today – where banks said no at first, and then after I was done with my pitch, I convinced them to say yes, because I really happened to understand the real estate and the transaction. It wasn’t just looking at a piece of paper and taking the NOI and dividing it by what the property can carry as far as the debt is concerned.

Joe Fairless: Can you tell us one of those stories?

Marc Belsky: Sure. A good example was that there’s a shopping center that we did about six months ago. It went to committee, and about two weeks before closing, the bank calls us up and they say they have a problem; they wanna cut the loan proceeds because they thought that the center maybe couldn’t perform the way they originally underwrote. So we said “What are you talking about? What changed?” Long story short was that it was a grocery shopping center, and the grocer was doing something like $400/square foot over a 50,000 square feet space, and the lease was coming up in about four years. They felt it was a good store, because they were doing about 25 million dollars, so that makes sense – 25 million divided by 50,000 is about $500/foot.

What happened was the bank suddenly started panicking whether or not they were gonna renew. We spoke to the tenant, and the tenant said they’re doing very well. The problem was that they were just in too much space. So because I have an owner’s perspective, not just a broker looking at numbers, I was able to convince the bank that the issue is not that they’re doing $500; if they would just give back 15,000 square feet and they would do that 25 million dollars over 35,000 square feet, they would do over $700/foot, which is very healthy for a grocer. Not only that, but they were paying below market… So then a) they would renew their lease, because they’re below market; b) they would take a smaller space and they’d have a high-performing price per square foot, and c) the owner would be able to take advantage of leasing that 15,000 square feet to another tenant at a higher market rate.

So we got on the phone with [unintelligible [00:07:46].24] officer and had to walk him through this process and explain to him how and why [unintelligible [00:07:52].13] not just “Hey, there’s a grocer that’s not doing so well with a short-term lease.” The grocer actually was doing really well, they just had too much space for that location… And we ended up closing the loan a couple weeks later.

Joe Fairless: When you have that conversation, how much convincing is needed? Because I imagine the actual lender – I know you’re the broker – tends to be fairly rigid, at least from experience, in their underwriting and how they look at things.

Marc Belsky: To say the least, they’re definitely rigid. Look, every bank’s got that box, but at the end of the day, that’s the value in having a broker. We meet plenty of people along the way; some people have brokers, some people don’t, and I can tell you, sometimes I look at clients who say “Oh, we’ve got that right”, and I see the mistakes they make.

My job as a broker is to know the market and understand what happens. For example, if I’m a principal and I’m buying a single building and I’m going directly to a bank and something comes up, I don’t really have market data to provide to the lender to say “Well, you did this elsewhere” or “Another lender did this elsewhere”, but as a broker, if things come up throughout the process, I can say a) “Hold on a second, lender… You know that your competitor did this. You don’t wanna lose a business. Why don’t you match it?”  or b) Well, we did this on the last loan” etc, because we do such volume.

As a company, we’re gonna do about five billion dollars this year in debt placement, and close to 1,000 deals. As I said earlier, we do middle market deals, we focus on 1 to 100 million dollars, but our average loan size is only about five million dollars. So we do a tremendous amount of volume here. We have a lot of data to share, so when we get on the phone with a lender, we really know how to push all the points and the hot buttons of what we think they’re interested in, because we know what the market is doing.

A good example of that – I’m doing a deal right now in New Jersey, a construction loan. We went to a lot of lenders, and we actually brought the equity to the deal as well, and the equity wanted to use some lender from another state… And at the end of the day, the lender from the other state wasn’t able to understand the market as well as our lender, and the reason why we [unintelligible [00:09:31].22] is because we knew that lender did all the deals specifically already in this market… So it wasn’t just throwing a dart against the wall; we knew based on the knowledge that we had on another deal in this market that this lender was the one that did construction on the other deal, and we were able to successfully bring that lender.

It was two partners. One partner wanted us to bring this lender, and the other partner was like “Oh, I have my own relationship with this [unintelligible [00:09:48].18]” and he really pushed against it. Ultimately, he came around, recognizing the value that we were able to bring, and we ended up getting a better deal, with a better spread, and just a better overall loan for the real estate deal.

Again, it’s a lot of market knowledge and data that we bring to the table when we speak to a banker, and many times they appreciate it. They’re in the business to make loans, right? We sometimes forget, because they’re so rigid, that they’re there to put out money. We assume that “Hey, they’re a bank, they’re tough, we’ve gotta put on a suit when we go to the bank.” The reality is that they have to put their money out in order for them to make money. So when we were able to show them a clear path for them to do that in a conservative way, that they can put out the money and not lose it, they’re very appreciative for us.

Joe Fairless: Not needing to name names, but just an example of where you said “You know, your competitor did this”, and then the first group ended up doing it, because their competitor did it… What would be an example of that?

Marc Belsky: An example of that… Look, we have that literally on a daily basis when we’re competing on loans… Bridge loans are a good example of what happens, because this is balance sheet lending, and people have control of their own balance sheet. So if somebody is charging a point on a deal, and the other lender is charging half a point, then the first lender says [unintelligible [00:10:53].22] “Well, your competitor is charging half a point. Why don’t you match it?” That happened.

It happens on equity. I’m working on a deal right now where the client [unintelligible [00:11:00].06] couple of shops, and one of the shops wanted to do the deal, and a second shop wanted to do the deal. The first shop was a little tough about it, and he’s like “Well, I need this, I need that.” Then as soon as he found out there was some competition on the deal, he started softening up, and he’s like “Well, I maybe could do this, I maybe could do that.”

So again, it happens so often that it’s even hard to say. Forget about even giving an example, it literally happens [unintelligible [00:11:17].02]

Joe Fairless: What are some questions that beginning investors ask you that if you answer it now, if they’re listening, then they’ll have the answers? Because I know as a sponsor of this podcast you get a lot of inquiries, and some are from investors who are kind of just starting out, so what are some common questions that they ask and what are your responses?

Marc Belsky: Good question. I just have to think what the most common ones are… Look, they say that the bank never wants to lend you money when you need it. A lot of people are starting out and they need the money, and the banks don’t wanna lend you money. Banks wanna lend money to people who don’t really need it. This is a big problem in how the banking business works… But I think it comes as a big shock to some people that banks won’t lend the money. “I have a property I wanna buy.” “Well, what’s your credit score? How much liquidity do you have? What’s your net worth? What’s your experience?” I think there’s this misconception that just because I’m buying real estate, I’m gonna get a loan. When a bank lends, they look just as much at the borrower as they do at the property… More so at the property, because obviously they have some collateral to take back… But ultimately, if there’s a guy that never bought anything in his life, or has no net worth or liquidity or doesn’t have good credit history, it’s probably hard to get a loan… So I think that’s probably a big misconception that people have, that “Hey, I’m buying a property… Let me just go ahead and get a loan.” I would say that’s probably the most common misconception that people starting out have.

Of course, you’re gonna ask “How do I do that?” The answer is you buy small, you invest together with other people, you partner up with other people… You know, what we’ve done in the past is we’ve introduced some of our larger clients to some of our smaller clients, to help our smaller clients grow… And the main thing I can tell is “Look, be prepared to give up–” There’s many people that started out and became big, and didn’t own everything. Sometimes it’s better to be a small fish in a big pond when you’re starting out, instead of owning 100% of the pie. Just be prepared to give out pieces to people that are getting in the way, and that’s how you grow.

Joe Fairless: When you work with a client, what’s your typical project, your sweet spot?

Marc Belsky: Partially by design, partially by default, I would say it’s a 10-15 million dollar check for a multifamily deal. For example, we just closed a deal last week of 10,1 million dollars equity check in Tampa, Florida. It was a 39 million dollar acquisition, so there was a 28 million dollar loan connected to that. Something like that is probably right [unintelligible [00:13:25].14] We do a lot of those.

I was running my numbers yesterday [unintelligible [00:13:30].06] I think I’ve financed, between debt and equity this year, over 6,500 units already. Again, we just hung up a  call for an office building in Texas, and as I said earlier, we did a shopping center. I’ve done industrial deals. I’m closing at the end of the month a ground-up self-storage deal in Arizona. But at the end of the day, most of what we do is multifamily, again, middle market, between 5 and 40 million dollars. Most of the check sizes we’re doing are between 8 and 20 million dollars.

When I say “partially by design, partially by default”, it’s because like anything else in life, the more multifamily deals I do, the more assignments I get from them, the more my name gets out there, and the more assignments I do, the more I close; the more I close, the more my name gets out there and then the more requests I get. And at the end of the day, multifamily is probably the easiest asset class to understand, likely the easiest asset class to finance, and surely the easiest asset class to raise capital for.

Joe Fairless: When you are looking at self-storage, multifamily, ground-up development for something else, how much of a challenge is that to your brain, to switch gears from one to the other?

Marc Belsky: Again, the easiest thing down the fairway, as I said earlier, is just the typical, traditional multifamily type deal… But the good news is I’ve been doing this for a long time, and I have a lot of knowledge and a lot of different type of deals. I’ve closed office, retail, hospitality, multifamily, industrial, healthcare… I’ve done a lot of it over the years, and time buys experience for you. So for me it’s not such a big challenge, but it’s definitely the more challenging of deals. When you’re buying a [unintelligible [00:14:52].10] multifamily, you’ve gotta find out what the market occupancy is, what the commission structure is, what the demand is for vacant space, it matters on obviously what the credit history of the tenants are, you’re gonna have to understand how much traffic goes in front of the building every day, the [unintelligible [00:15:04].11] There’s just a lot more brain-damage to understand commercial deals versus multifamilies, which is why I said what I said earlier, [unintelligible [00:15:12].13] probably easier Thank god I have the experience to do that, and I’ve done quite a lot of deals over the years, as I said earlier… But ultimately, multifamily is still easier, but thank god I understand all of it.

Joe Fairless: With the commercial deals where you used retail as an example, would that be the most  — I don’t wanna use the word “headache”, but the most in-depth research and time, compared to the other types of asset classes, like industrial or storage?

Marc Belsky: No, I think8 it’s really bifurcated between commercial and multifamily, because again, even in an office building, what’s the [unintelligible [00:15:45].28] but they wanna buy a building at X% occupied, and they wanna take it up to Y. The question is what’s the market occupancy? If the market occupancy doesn’t equal Y, why is it that they think they can bring it to that occupancy? And the answer is because understanding the submarket is another level of what you need to do. You need to go down and understand what the demand is, how many square feet in this submarket are the building’s comparables really? If there’s two million square feet in this submarket, how many square feet of this submarket is really competitive to the building they’re buying? Meaning, I [unintelligible [00:16:20].06] older buildings that have no recent cap-ex upgrades in them etc. What’s the real occupancy in that?

So there’s a lot of layers that go into even office, and industrial is the same thing. So one is not more difficult than the next. They’re both pretty different than multifamily collectively. Obviously, with regards to retail, you have the added target on your back with the whole retail [unintelligible [00:16:40].14]  that people think is common with Amazon, and even Walmart going online now, all that kind of stuff. That’s just an added target. But other than that, I wouldn’t say one asset class, once you get into commercial, is more difficult than the next.

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

Marc Belsky: The number one advice I can give you as an investor – are you saying someone that’s investing as an LP or someone that’s syndicating deals?

Joe Fairless: Whichever direction you wanna go.

Marc Belsky: Someone that’s investing as an LP, find people you trust, because all the deals in the world, if you’re in bed with the bad person, it’s completely worthless. If they take advantage of you when things are down, the greatest returns in the world are completely worthless. And life’s too short.

Number two is somebody who’s on the syndication side, what I’ll say is it’s more important to make money in life than it is to be right. You don’t always have to be right, you don’t always have to get your way, you don’t always have to get everything you need to get. If you want to grow, just sometimes swallow hard and do what needs to get done to get a deal done.

Joe Fairless: When you were on the principal side, is there an example of that where you had to swallow hard just to get the deal done, and then it ended up making sense?

Marc Belsky: There is. I had a partner actually, who I decided wronged me, and I had to be right… And this was my biggest lesson – if you’re gonna ask what my biggest lesson in real estate was, it was exactly this, which is why I’m sharing it. We got into a disagreement and I decided I need to be right, and I just walked away. And it was more important for me to be right, and we just separated.

Over the next three years, he went on to buy a huge portfolio in the right timing, and I started again, and I didn’t get that big, and I ended up selling this business, which I’m very thankful for… But thank god, three years later he showed up at my house one day, and made up with me, and we’re actually buying real estate again, because I learned over that period of time that it was less important to be right than it was to make money. So I learned how to make up with people, and sometimes just swallow hard, and then get a clear pathway to make money.

Joe Fairless: Powerful. Yeah, I appreciate you sharing that. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Marc Belsky: Go for it!

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

Break: [[00:18:33].27] to [[00:19:21].02]

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

Marc Belsky: Other People’s Money. I’m an obsessive reader of real estate biographies. I don’t believe in reading real estate how-to books and learning on the job, but I’m an obsessed reader of stories about real estate. If you’re familiar with New York, there’s a building in Peter Cooper Village-Stuyvesant Town, that was bought for 5,4 billion dollars back in ’07-’08, and then they lost the building a couple years later, and there was a book written about that story. I think that’s the last major real estate book I’ve read. But I’ve read a ton of autobiographies. The last one I read I think is called Other People’s Money, and basically it highlighted what happened in 2008 and how people were playing with other people’s money, and they were buying this real estate at crazy valuations. It was a fascinating book, a tremendous history of the real estate, understanding how [unintelligible [00:19:55].11] works, and how foreclosures work, and [unintelligible [00:18:57].11] Again, a lot of this stuff being in the market then and now you know, but it’s just fascinating to read. It’s called Other People’s Money.

Another fascinating book I actually read as a kid – it was a book about Ian Bruce Eichner, who built 1540 Broadway, in New York. It was called “How 1,000 men and women spent 10 years building a tower and lost a billion dollars”, something to that effect. Just look for Ian Bruce Eichner. That was a powerful story. It really got into the detail of New York.

I’ll admit it, I read books from President Trump as a kid, I read books on Trammel Crow, I’ve read books [unintelligible [00:20:25].00] I am an obsessive reader of biographical real estate books.

Joe Fairless: I like that approach. I think I’m gonna read more biographies. What’s the best ever deal you’ve done that we haven’t talked about already?

Marc Belsky: The best ever deal I did was probably a deal I bought with this partner that I was saying earlier. We bought it in a matter of four days, and it was the riskiest deal. It was actually on Memorial Day; I was at a barbecue and he called me saying “Listen, we have an opportunity. You’ve gotta come tomorrow morning to see this. You’ve gotta wire me money, you’ve gotta do this, you’ve gotta do that.” And we went in there and we just bought a small building in Brooklyn. It was a 7-unit building, and we underwrote it at a certain exit, and we did significantly better. We sold it pretty quickly. It was a building that just had some legal red tape that needed to be cleared out, it was a vacant building, and it was problems — like everything else, nothing works out the way it is. We went into the building, a tenant moved in illegally, we had to get the tenant out, we called the cops… All the [unintelligible [00:21:14].00] but ultimately we planned to clean the red tape and sell it six months later. It took us a little more time, we sold it about nine months later, but we actually sold it for a lot more than we thought  we would, and I think we made a 3X in a matter of nine months.

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

Marc Belsky: On the principal side, I can tell you (thank God) nothing yet; knock on wood, as they say. But on the debt and equity side, I had a recent mistake… I had a large deal I was working on, and I was sitting with a client and he gave me his word that he wasn’t working with anybody else, (I was working on the deal really hard) and there was a lender that we were talking to, but he just wasn’t being as responsive as we would have liked.

I get a call one day from the client, and he says, “Oh, by the way, I signed the deal with that lender through another broker.” The mistake was I should have been more aggressive with that lender. I tell my guys all the time, “You get paid to push and to follow-up. That’s the key to this business.” The key to the business and the seat that I sit in is just push and follow-up.

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

Marc Belsky: Charity is actually very important to me, so I give what I like to think is a fair amount to charity, but I can tell you that I give it very quietly. My most favorite type of charities to do is people that really cannot help themselves. I give to charity for people who just can’t put food on the table. I pay people’s groceries bills, I pay people’s private tuition, because their kids were getting thrown out of school… Just things where you’re really at the bottom of the bucket and you’re at the end of the rope and there’s nobody else there. That’s really where I most enjoy giving… But I’ve given to so many things over the years… I really believe in that.

I’ll tell you something else, my personal opinion – giving is not just charity; giving is also time. I always try to see with any of the charities I’m involved with if I can volunteer my time, as well.

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

Marc Belsky: Sure. The best way probably is by e-mail, which is mbelsky@easterneq.com. My office number is 212-897-98-75.

Joe Fairless: Marc, thanks for being on the show, talking about the different types of ways that investors can benefit by working with a broker, and how you gave some specific examples of how you’ve helped get transactions to the finish line when initially perhaps the finish line was not visible at the time.

Also, talking about the different types of asset classes and what you look for, as well as the type of sweet spot that you have with your clients. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Marc Belsky: My pleasure. Thanks for having me.

JF1364: From Quizno’s To Real Estate Development & Everything In-Between #HappyMemorialDay with Todd Fox

Listen to the Episode Below (31:37)
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Against the advice of his parents, Todd started branching out from his Quizno’s franchise. He bought his first property at an auction and thought he might lose his shirt. That first property ended up being extremely profitable, but he still was not all in on real estate. Once he decided to really focus his efforts on real estate investing, he blew up, even after a bankruptcy. Now his company is completing $50 Million of new construction.  If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Todd Fox Real Estate Background:

  • Started investing in real estate 9 years ago
  • He had $20,000 and no clue what he was doing
  • Spent first few years working 100 hours a week, learning the business from the inside out
  • Now in 2018, his company Visum Development Group will complete just under $50 million of new construction in this year alone
  • Based in Ithaca, NY
  • Say hi to him at https://www.visumdevelopment.com/
  • Best Ever Book: When I stop talking, you’ll know I’m dead

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TRASNCRIPTION

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, Todd Fox. How are you doing, Todd?

Todd Fox: I’m doing good. Thanks for having me, Joe.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Todd – he started real estate investing nine years ago, he had $20,000, and according to him (not according to me), had no clue what he was doing. Spent the first few years working a hundred hours a week, learning the business from the inside out, and now his company, Visum Development Group, will complete just under 50 million dollars of new construction this year alone. Based in Ithaca, New York… With that being said, Todd, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Todd Fox: Yeah. So background – you are 100% correct, I had absolutely no idea what I was doing with real estate. Actually, at the time when I bought my first property, I had owned a Quiznos franchise, and I was just absolutely miserable with that career path and what I was doing; I wasn’t happy, I was looking for something else… And I was actually dating a girl at the time, and I went to visit her, she was moving into a new place; I’m driving down the street in Ithaca, and there’s like 30 duplexes, on both sides of the street, identical, nothing’s different, other than the color of the siding.

I get to the end of the street, I’m like “This guy has gotta be making money, or he would have stopped after the first or second duplex.” I asked “How much do you pay in rent? Are you guys paying utilities?” and I started doing back of the napkin stuff, and I said “Listen, do me a favor – reach out to your landlord, ask him how much it cost to build one of these buildings”, so she did. I’m like, “Alright, this guy is making money. I could do this.” I knew nothing other than I just felt like I could figure it out. That was kind of my attitude.

I needed to be doing something different, and if this guy was doing it, I can do it, too. So I ended up basically just kind of copying his model, doing 3-bedroom 1-baths, and searching for properties. I came across this estate auction; it was like a 3-bedroom house, and everybody was there, buying… They were flippers. I go to this auction, I got 20k to my name, literally. The auction starts, it’s “One thousand dollars here! Two thousand dollars there!” and everyone’s raising their hand, and my hand is just pounding [unintelligible [00:03:23].08] “Sold for $32,000!” and everybody’s looking at me and I’m like, “Oh my god, what did I just do?”

This old guy walks past me, he’s like “Oh, this kid is gonna lose his effin’ shirt!” and I’m like “Oh my god, am I gonna lose my effin’ shirt?” [laughter] “I don’t know what I’m doing right now!”

Luckily, I’d had the foresight to meet with an architect just to make sure I could actually build what I wanted to build on the site. I called her up and I’m like, “Listen, Claudia, I don’t know what I’m doing right now. I think I actually just bought this property… I really need your help. I don’t know a single contractor.”

She was like, “Alright, calm down, calm down. I’ve been doing this for decades, I know a bunch of really good, reliable guys.” She helped me with the bidding process, and I ended up getting the thing built on time and on budget, and I actually got more in rent than I’d projected. That was kind of my start into real estate, just trial by fire.

Joe Fairless: Since you said you got more in rent than you projected, it sounds like that was a buy and hold?

Todd Fox: Yes.

Joe Fairless: With 20k in your pocket, how were you able to do a buy and hold? Because I imagine all the money that you had – plus, there was a 12k difference – went towards the project.

Todd Fox: Yes, we ended up redeveloping the site, it was a new construction. So we tore down the existing home… And I’d gone to my mom and I said, “Mom, I need to borrow some money, because I think I just bought this house.” She’s freaking out and she’s going “What do you mean you’re going into real estate? You own this Quiznos! What are you doing?!”

After like a couple of weeks of trying to convince my mom, she finally came around, and that’s how I got the first property.

Joe Fairless: Was it 12k that you borrowed from her, or was it more than that?

Todd Fox: No, it was right about that, and that time, that was about enough to be able to have a down payment for the house, and they used that as part of the 20% down… So it pretty much covered it.

Joe Fairless: And since that was all the money that you had, how were you able to hold on to it and receive the monthly rent, versus selling it and getting the cash back out plus profit?

Todd Fox: At the time, I never even thought about refinancing or anything like that. It was making about $20,000 a year profit after everything.

Joe Fairless: Wow.

Todd Fox: Yeah, it was a good investment right off the bat.

Joe Fairless: Yeah, it sure was. [laughs] It was approximately 32k all-in, and making you 20k in year one – is that accurate?

Todd Fox: Yes.

Joe Fairless: Well, you should just keep doing that then, right?

Todd Fox: That was the plan, and ironically, that didn’t really give me the bug yet. At that time, I had actually started working on an internet startup with a friend. I had actually gone through a personal bankruptcy, because I had sold my Quiznos, and a  year later the guy ended up defaulting on paying his rent payments, and the landlord came after me because I still had a personal guarantee…

So I really wasn’t even in the mindset of real estate at that time, and I ended up moving down to Brooklyn and working on this internet company… And it didn’t end up working out for me. So I’m sitting in my apartment, just sitting there thinking like “Alright, what am I gonna do next with my life?” I had gone through this bankruptcy, at this point it had been about a year, and this internet company didn’t work out, and the only income I had was this rental property that was making me $20,000 a year.

I’m like, alright, if I could just get ten of these things, I could make a quarter million a year, and it’s passive income, I don’t really have to lift  a finger, so why don’t I just do that? And at that point, if I wanna start another company or I wanna travel, I can do that, because you have all this passive income coming in.

So I had written on my wall I was gonna own ten duplexes within the next three years, and then I started meeting with banks… And every bank I talked to was like “What? Are you crazy? You just had a bankruptcy a year ago. We’re not gonna lend to you. Come see us in seven years, kid. You’re out of your mind.”

I talked to my mom, and my mom was like “No, I’m not gonna help you out… Are you crazy? You just had a bankruptcy!”

Joe Fairless: What terms did you give her on the first 12k? I imagine she got her money back, right?

Todd Fox: Yeah, she got her money back, and that time she didn’t ask for any interest; she just wanted to help her son out…

Joe Fairless: Oh, you should have given her some interest rate on that, that way she would loan to you later.

Todd Fox: Oh, believe me, I’ve been able to take care of [unintelligible [00:07:32].26]

Joe Fairless: [laughs]

Todd Fox: I was bootstrapping it back then. So here I am, I’m like, alright, I wanna make money in real estate. This makes sense to me. But I literally talked to every bank I could and they all told me “Listen, it’s not gonna happen. Go find another career path.” Luckily, I didn’t listen to them, and that’s one of my double-edged sword things in life, where it’s good and it’s bad, but I don’t always listen to people and take advice, but this time it ended up working out pretty good for me.

So I realised, listen, if I could find these deals, all I’ve gotta do is just find someone that can basically co-sign on the loans for me. I had a friend that was looking at investing in Connecticut. He was like, “Alright, show me the deals that you’re working with.” I said, “Listen, I’m getting double those returns in Ithaca. If you can help put up the money for these projects and you can help get the bank financing, we’ll go 50/50 on these projects. I’ll manage them, I’ll find the deals, I’ll take care of the leasing…”

He ends up partnering with me, and… It’s interesting, because I got really close to giving up. I was sending out letters to people, I was knocking on doors, and I had about 50 doors slammed in my face, or phone calls, or people who were like “Listen, if you call me back, I’m gonna call the police, because you’re harassing me.”

Joe Fairless: [laughs]

Todd Fox: I think probably the best deal I ever did was really that first one where I knock on the door and the guy opens up and says “Yeah.” He actually had a piece of land that was across the street and I said “Have you ever thought about selling the land across the street?” He said “Only if you buy my house.” I said “Okay, can I come in and see?” The guy shows me around the house… The house is probably worth about 425k; it was actually a three-unit that he lived in, and the land across the street was a double lot and it was worth about 100k.

I said, “Okay, well what do you want for the land?” He said, “Well, probably 25k for the land…” I’m like, “Okay.” I said, “What do you want for the house?” He said, “260k.” I’m like, “Are you sure about that?” He said, “Yeah, absolutely.”

Joe Fairless: You said, “Are you sure about that?”

Todd Fox: I said “Are you sure?” because in my mind I’m like “This thing is worth 425k easily.” I’m like “Is this really happening?” I’m like “Am I taking advantage of this guy?” I asked him, and he said he lived there, the house was paid off, and he always had in his mind that he wanted to sell it for 260k.

The next day I had my attorney write up the contract, and that was really like when I caught the real estate bug and that was my a-ha moment, because I’d just made basically 200k by knocking on this guy’s door. If I turned around and I sold these properties, I could cash out with 200k, and that was just like, okay, all the podcasts that I was listening to, and the books that I’d read – it’s true. This really does happen, if you just keep putting in the work.

Joe Fairless: Knocking on the door – how did you identify the neighborhood where you were knocking on doors, and then when you knock on a door, what do you say?

Todd Fox: So at that time our county didn’t have anything online, so I had to go down to the county assessment office, I had to pull out tax maps, and really what I was looking for was vacant lots, because I just wanted to replicate what I already did. I built this duplex, it makes me 20k; if I could just find building lots like that, I could just keep replicating my model. So it was a process to even be able to get that information, and I’d sell letters out to people, I’d go and knock on doors…

This guy – I knocked on his door, and he answered, and I said “Hi. This may sound a little strange, but I was wondering if you ever consider selling your land across the street.” That’s where he kind of looked at me and said, “Yeah, I’d sell it, but only if you buy my house.” I was just like, “Wait, what?” I was just not expecting that.

You hear a lot of different thing… People think that you’re there just to harass them. I literally had doors slammed in my face before… So I just tried to make a friend, and just smile as much as I could, and it just worked out.

Joe Fairless: What did you end up doing with the property that had the house on it, and then what did you end up doing with the one that was vacant?

Todd Fox: The property that had the house on it – we renovated it, because it was dated; we redid the floors, kitchens, baths and everything like that. I rented it out and it cash-flowed great. Then the double lot across the street – I ended up building two more duplexes. I basically took the exact same floor plan, didn’t have to pay for an architect, because I already had the house, and I just built two more of those duplexes on there.

Joe Fairless: How long ago was that?

Todd Fox: 2012.

Joe Fairless: And fast-forward to today, have you reached your “I wanna get ten of them to cash-flow 20k/year?”

Todd Fox: We well surpassed that. I really started falling in love with real estate, and like I said before, I was working 100 a week, I was laying floor, changing toilets out, unclogging toilets… Just learning the business from the inside out, and I really fell in love with it. And I said to myself, “Okay, I’ve kind of mastered this duplex thing… What’s the next step?”

I started looking at multifamily buildings. Now this year alone we’re gonna have just under 50 million in new construction. So the ten duplex thing – we far surpassed that a long time ago, which is crazy, because every time I talk about it, it’s mind-boggling to me, because at that time, ten duplexes was like this monumental goal. It was like “Am I really gonna even be able to do this? Everyone’s telling me I can’t even get a loan… What am I getting myself into?” And then all of a sudden you start to have some success, and you start to get really good at your craft, and you realize you can kind of take that next step and you can do an 18-bedroom, and then you can do something larger. One project gets 207 units, that is under construction right now… So it scales. I’m putting in the time and the energy and the work, and having this success.

Joe Fairless: That 50 million dollars under construction this year – what’s the value of the largest project within that 50 million?

Todd Fox: 37 million.

Joe Fairless: And what is that?

Todd Fox: It’s a 207-unit, it’s geared towards student housing for Cornell University.

Joe Fairless: Can you tell us about that project?

Todd Fox: Yeah, it’s about 85,000 square feet, it’s a five-story building, high-end, luxury student housing… So you’ve got a sauna room, and a jacuzzi, and the lounge, and all that stuff.

Joe Fairless: What’s your team’s role in that and who are the other partners involved?

Todd Fox: The partners that I have — it’s investors that I’ve kind of built up over time. I started out with one investor, which is actually kind of a neat story. Actually, my first duplex – the guy’s daughter was renting from me, and he called me up and said “Hey listen, I reviewed the lease, everything looks good, but that’s not why I’m calling.” I said, “Okay, why are you calling?” He said, “Well, you know, I’m interested in investing in the Cornell market, and I was wondering if you have any deals.”

So he was my first investor, and we ended up really hitting it off. He’s actually brought in his friends and stuff into deals, and their group invested almost four million dollars into this project. So it’s investors that I’ve kind of built up over the years, and my investor group has essentially kind of grown organically. It’s like, you do a really good deal with someone, you execute on time, on budget, and you do another deal, and the next thing you know it just kind of snowballs, and you build up that trust and that relationship. Then they wanna kind of tell their friends and family about it, and essentially why we’ve been able to scale at the rate that we have is the investors that we’re working with.

Joe Fairless: And how is it structured with investors on a deal like this?

Todd Fox: Every single deal that we do is basically structured differently. With this one it’s pretty interesting, just because we’re able to create so much equity into the deal, that we’re going to refinance the building in year two; the investors are gonna get 100% of their capital out, plus an 8% preferred return, and then they’re gonna maintain about 50% of the equity in the building, which then produces about 8% or 9% on their original investment.

Let’s say they put in a million dollars – they’re gonna get their million dollars back in year two, they get their 8% preferred return, and then they’re gonna make about $90,000/year going forward in perpetuity.

Joe Fairless: And what if in year two the million isn’t able to be paid back?

Todd Fox: The investors basically will have essentially 100% equity. We don’t get our equity kicker until they’re made whole. So 100% of the cashflow will go towards paying off the investors.

Joe Fairless: Got it. And then once they have the original investment  back, plus 8% preferred return that’s accrued, then you do a 50/50 split?

Todd Fox: Correct.

Joe Fairless: Cool. I’ve seen some development deals that have, say, 12% preferred returns, and I always wondered how the heck does the development have a preferred return at all if there’s no cashflow, but then someone told me “Hey, dummy, it’s just accrued until cashflow can be distributed.” Is that basically how you approach it?

Todd Fox: Yeah, it is… And again, what’s really unique about this deal is just the amount of value that we’re able to create in it… So we’re gonna be all-in into this project about 23 million dollars. That’s hard costs, soft costs, land costs. We have an as-built appraisal at 37 million. So the bank will finance 75% of the appraised value… So not only are we gonna be able  to get 100% of our money back, but based on their equity, we’re projecting an additional 40% return. It’s not written or guaranteed into the operating agreement, but it’s most likely going to happen.

So if they put in a million dollars, based off the refi money they’re gonna get their million back, a minimum 8%, and most likely, it’s gonna be an additional 400k. And because it’s a refinance, you don’t pay capital gains on that money.

Joe Fairless: When you are looking at that project and then you’re also working on your other ones, how do you prioritize your time and where you put your focus?

Todd Fox: I have the most incredible team around me, and without them we wouldn’t be doing any of the stuff that we are right now… I just have super-intelligent, talented, passionate people, and it’s really just delegating, allocating whatever time needs to be for whatever project, based on the team that we have. So it’s really all about the team that we have at Visum.

Joe Fairless: How many team members do you have? Not including on the ground people nailing nails with hammers, but just full-time team members.

Todd Fox: Construction-wise we employ hundreds of people a year, but within the Visum office there’s five people, and I make six. And then we’re actually looking to hire two more team members.

Joe Fairless: What are the roles, high-level, of each of the five?

Todd Fox: We have one person who basically is focused on leasing and managing the projects, we have an in-house project manager who’s basically at the various job sites every day, just making sure everything is staying on schedule. We have someone in-house that’s basically focused on raising money, investor, relations, staying in constant communication with the investors based on the current projects, as well as constantly raising new money.

We have two people that are in the office that are just focused on new deals and new markets, so we’re basically expanding our horizon; we’re looking pretty much as far South as Florida, and as far West as Nebraska. So we’re basically just focused on finding new opportunities in new markets.

Joe Fairless: As far as asset management, does that fall under the project manager’s responsibilities?

Todd Fox: During construction?

Joe Fairless: After.

Todd Fox: After construction. We’ve decided recently that we’re gonna do all of our property management in-house, just so you can kind of have your finger on the pulse of the market and get a better understanding of where things are going… So we’re hiring a couple additional people from the property management side.

So we’ll have three people that are dedicated to that, and then we’ll scale that based on the demand and how many hours is really needed, as the new projects come online.

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

Todd Fox: I feel that I could spend hours going through that… I think if we’re kind of talking for people that are trying to get into the business or just starting out, it’s trying to find a really good contractor, having a good contract in place; don’t ever pay them, unless work has been completed. I know there’s contractors out there that they want 50% down, which I always tell whoever, like “Listen, there’s always this thing what-if. What if this person gets hit by a bus? They might be the most honest person in the world, but you pay them $20,000 and they get hit by a bus tomorrow… Good luck trying to get that money back.”

And I think on a more high-level type of advice, I would say everything you do, just do it with integrity. I think that’s really one of the main reasons why I’ve been able to grow my business the way that we have. It’s always being honest, being a man of your word, executing, putting other people’s interest ahead of yours… It’s all about relationships in life. It’s all about taking care of other people and putting their interest ahead of yours. If you do that, you’re gonna be successful.

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

Todd Fox: Definitely.

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

Break: [[00:20:25].19] to [[00:21:08].05]

Joe Fairless: Best ever book you’ve read?

Todd Fox: I’ve got two, and it’s really difficult. So the first one would be “When I Stop Talking, You’ll Know I’m Dead”, by Jerry Weintraub. It’s an autobiography… If you haven’t read it, you’ve gotta read this one…

Joe Fairless: Never heard of that one.

Todd Fox: Oh, man… Every other page, you’re jumping out of your seat. So it’s this guy, he grew up in the Bronx, came from poverty, and ended up managing Elvis Presley when he was in his early twenties, and managed Frank Sinatra… And it’s just the most crazy story, because it’s this guy who never took no for an answer; he just went out and he just made things happen. He wasn’t the most intelligent guy, he just went out and did things… It’s such an incredible book.|

And then the second book would be Shoe Dog, by Phil Knight, which is another autobiography, and it’s about the guy that started Nike. And again, the guy started with nothing, bootstrapped his business, was on the verge of bankruptcy for the first five years or whatever, and ended up just growing his company into Nike. They’re both such amazing and inspiring stories.

Joe Fairless: You like the bootstrapping stories, and it makes sense based on the challenges that you came across early on.

Todd Fox: I can definitely identify… I remember when I first moved back to Ithaca to work on the real estate – all my credit cards are maxed out, and I went out to dinner with my wife, and we are at this Vietnamese restaurant, and I thought I had money on my one card, or I wouldn’t [unintelligible [00:22:29].28] and I think the meal was like $35, and I think I had like $16 on my card… So I put that on there, and then I went to my car and I’m grabbing one dollar bills and change… I remember being at the counter, counting out change. It was embarrassing, but I put everything I had back into my businesses. Those books, especially Shoe Dog, I can totally identify with his story.

Joe Fairless: If someone’s in that position and they don’t end up in a position of monetary success that you’re at, why would you say they don’t?

Todd Fox: I think one of the biggest things that holds people back in life is just getting outside of their comfort zone, it’s fear of failure, and I’ve personally always viewed failure as an opportunity. I’ve made so many mistakes in my life… I make mistakes on a daily basis, but you learn so much from those mistakes. I think if you can just have that paradigm shift and change your perspective and realize that if you fail, that’s a good thing, because you’re gonna learn from that experience and you’re gonna grow from that experience, and you’re probably not gonna make that mistake again, and it’s just gonna make you a better, stronger, more intelligent and capable person. So I think that’s really the deciding factor right there.

Joe Fairless: What’s your favorite mistake that you’ve made?

Todd Fox: Again, I feel like I could spend hours kind of going into that. Favorite mistake… There’s been so many, so it’s kind of hard for me to even pin it down.

Joe Fairless: Maybe the last one, or maybe a mistake on a transaction that might come to mind.

Todd Fox: Again, trying to think about first starting out, I paid a contractor – and this is why I said, never pay someone ahead of time… And it was like $6,000, and again, you know, I’m bootstrapping, so to me at that time it was a lot of money… And the guy just disappeared on me. I had already rented the space out to tenants, they were supposed to be moving in in like four weeks, and I didn’t have any money to renovate the place, and I didn’t have a contractor… So that’s why I say, never pay people ahead of time.

Joe Fairless: What’s the best ever deal you’ve done that’s not anything you’re working on now, and was not your first one?

Todd Fox: I think it’s definitely that second deal that I talked about, just because it was such an eye opened for me, and I really was on the verge of giving up. I’d been sending out letters, I had so many doors slammed into my face, and had that deal not happened, I might not be where I am today… And  I hope that people can listen to that and realize that that can be you. If you just persevere and you keep knocking and you keep moving forward, eventually it’s gonna happen… Because it happened to me, it’s happened to probably everyone that’s been on your show, or all these other podcasts, or all these books that people write… Just keep doing the right thing, and eventually something good like that is gonna happen, and it’s gonna change your life.

Joe Fairless: It’s one thing to hear someone say they view failure as an opportunity, it’s another for someone when they hear that think “Okay, when I come across a failure, I’m gonna think of it as an opportunity”, but it’s a whole other to actually apply that whenever we’re in the middle of a failure… So any thoughts on taking it from concept to action for the Best Ever listeners?

Todd Fox: That’s a really good point, and there are definitely a lot of times where when it’s happening to you, it’s really hard to deal with, especially depending on what it is that you’re going through at that time… But self-reflection is important, and I think if you can realize that “Hey, whatever I’m going through right now, there’s a solution to it…” Every problem in life has a solution. At the end of the day, what you’re going through may really suck at the time and be hard to deal with, but at the same time in the grand scheme of things it’s probably not that bad. So if you can just kind of remove yourself from the situation for a little bit and try and gain some perspective and say “Okay, this is what’s happening… What good can actually come out of this? How am I gonna grow from this situation?”

I think sometimes that’s all you’ve gotta do – you have to just take a step back and try and gain some perspective.

Joe Fairless: When you are approximately 16 dollars short on a dinner out with your wife, how do you step back from that at that time?

Todd Fox: Yeah, that’s great… Because it was highly embarrassing. It was extremely frustrating, because I’m sitting there and I’m like, “Man, how did I let myself get in this situation? Because I don’t wanna live like this. I’m trying to grow a business, but at the same time, if I can’t even take my wife out to dinner once a month, that’s not a way to live.” So you sit back and you say “Okay, what could I be doing differently with my business? Do I need to slow down a little bit in certain aspects, so that way I can start to build up a reserve?”

It takes hitting a wall for you to realize, “Hey, I need to take a step back, because I just ran into this wall. How do I move forward from here?” There’s a lot of things that are always gonna happen that are unexpected, that you don’t anticipate, and it’s just figuring out how to get through it, that you possibly can.

Joe Fairless: It’s interesting how you said “How did I let myself get in this situation?” versus “Oh, why me…?”, more of the victim mentality, versus “I let myself get here, so how can I get out of this situation?”

Todd Fox: Yeah… You know what, it’s a very interesting perspective, and you’re absolutely right. I think that’s an important thing in life if you wanna be successful – you always need to be accountable. You can’t always blame people or things and feel sorry for yourself. Life happens, and there’s always gonna be things that are out of your control, and you’ve just gotta deal with it.

If you make a mistake, you need to sit back and say “Hey, I made a mistake. How am I gonna fix it?”, as opposed to “Oh, the world owes me something” or “This person didn’t treat me right”, or “My contractor ripped me off…” It was like with my contractor – I was more mad at myself than I was at him for stealing the 6k. I wasn’t like, “I can’t believe this happened to me. I’m giving up on real estate.” It was more like, “Okay, Todd, you’re an idiot… You paid this guy money when you shouldn’t have.” And you know what, I never made that mistake again.

Joe Fairless: That’s certainly a lesson we can all apply – if we’re not already – when we get stiffed by a contractor or someone else, in life. Instead of being mad at them – which rightfully we very well could be, and perhaps in many cases should be… The common denominator when we go throughout life in other circumstances will not be them, it will be us. So how do we fix ourselves, so that we can mitigate that risk from happening again?

Todd Fox: Right, absolutely.

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

Todd Fox: I love mentoring people, I love helping people, even competitors. I just think about when I had my first duplex, I had this kid that I went to high school with and he came in and he was saying he wanted to get out of his career, and he wanted to get into building duplexes… I ended up giving him my blueprints, which were probably worth $10,000 at the time, and I remember I was talking to people and they were like “Why did you do that? He’s gonna be a competitor, he’s gonna hurt your business. You gave him $10,000 worth of plans for free…” I was like, “Yeah, but he’s a good guy… I don’t know, I wanna help the guy out.”

Then fast-forward like 5 or 6 years, and this guy now works at my company, he’s one of my best employees. He ended up selling his duplexes, which – he was a competitor… And he reinvested all that money into my business. So in me trying to help that person, just because I felt like it was the right thing to do, paid dividends down the road.

So I believe in helping everybody that I can, and sometimes it bites me in the butt, because you get people that screw you over, but to me it’s always very gratifying when you can do something for other people.

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

Todd Fox: I think the best way to get in contact is going to our website, visumdevelopment.com. We’re also on Facebook and Instagram @VisumDevelopment.

Joe Fairless: Inspiring story, that’s for sure. The takeaway is we should all buy a Quiznos franchise, go bankrupt, and then start knocking on doors, because clearly that’s a model for success. [laughter]

Todd Fox: Yes. You can also skip the bankruptcy and the Quiznos part, and then go knocking on doors, but…

Joe Fairless: Oh man, you’re skipping the best part though… That’s where the character building comes into play.

Todd Fox: Absolutely, I couldn’t agree more, and believe me, I learn more from those failures than anything else.

Joe Fairless: Well, I’m grateful that you were on the show, shared not only your story, but then also how you’re structuring your development project, the 207 student housing units near Cornell in Ithaca, New York, with investors, as well as the mindset that you have that helps propel you forward… Being accountable for your actions, asking “How did I let myself get in this situation” versus “Oh, I can’t believe this happened to me.” It didn’t happen to me, I LET myself get into this situation. And that’s generally speaking. Everyone starts out at different places, everyone has different things happen to him/her, but generally, when we have the approach of “I’m  in control, and I need to be accountable for my actions”, that’s generally a good approach.

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

Todd Fox: Thanks, Joe.

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JF1151: Getting The Most Value Out Of Your Home Office with Craig Cody

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Craig is here today to tell us about tax deductions that many of us may be missing. As real estate investors we are also business owners, as such, there are many deductions that are advantageous for us. If you have a home office, there are many deductions that are available to lessen your tax burden. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Craig Cody Background:

  • President and Founder, Craig Cody & Company Inc.
  • Certified Tax Coach, Certified Public Accountant, Business Owner
  • Former New York City Police Officer with 17 years experience on the Force.
  • Has co-authored an Amazon best seller book, Secrets of a Tax-Free Life.
  • Based in Manhasset, New York
  • Say hi to him at http://www.craigcodyandcompany.com/bestever  – Visit for a free copy of his book – 10 Biggest Tax Mistakes That Cost Business Owners Thousands
  • Best Ever Book: Traction

 


Made Possible Because of Our Best Ever Sponsors:

Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit www.fundthatflip.com/bestever


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 of that fluff.

With us today, Craig Cody. How are you doing, Craig?

Craig Cody: I’m good, how are you?

Joe Fairless: I’m doing well, and nice to have you on the show. If you can’t tell from his accent, Craig is in New York. I could tell as soon as he picked up the phone, baby. A little bit more about Craig – he is the president and founder of Craig Cody & Company. He is a certified tax coach, a certified public accountant and a business owner. He is a former New York City police officer with 17 years experience on the Force. Thank you, sir, for your service, first and foremost.

Craig Cody: You’re welcome.

Joe Fairless: He has co-authored an Amazon best-selling book, Secrets of a Tax-Free Life, and most recently authored the book Ten Biggest Tax Mistakes That Cost Business Owners Thousands Of Dollars. Based in – you’re gonna have to help me with this pronunciation…

Craig Cody: Manhasset.

Joe Fairless: Manhasset. Is that Long Island?

Craig Cody: Yes, it is, Long Island.

Joe Fairless: Sounds like a Long Island town… Manhasset, New York. With that being said, Craig, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Craig Cody: Well, as you know, I was a former New York City police officer, I had a great run for 17 years, I retired, I went to work for an accounting firm that did a lot of international work; I slowly built up my own firm, and now I’ve been on my own for a number of years now. I have a staff of ten, three other CPA’s, and we’re focused on tax planning for business owners and real estate investors.

Joe Fairless: Alright, well that’s what we are – we are business owners and real estate investors, so we’re in the right place. Your latest book, Ten Biggest Tax Mistakes That Cost Business Owners Thousands – what are some mistakes that are made?

Craig Cody: The biggest one is failing to plan. People don’t communicate with their CPA, their CPA doesn’t communicate with them; most accountants are really good, they put the right numbers in the right boxes, but it kind of stops there. There’s not enough communication back and forth, and it takes two to tango; it’s not just their fault. But people spend more time researching a call than they do how to structure their [unintelligible [00:03:07].09] how to structure their real estate, how to depreciate that real estate, where if they took some time, they’d probably save themselves a lot of money.

Joe Fairless: So now that we’ve heard that, what do we need to do in order to plan? How should we approach this?

Craig Cody: You need to work with your team of advisors, who should be a CPA, an attorney and whoever you work with in the real estate field, and get the information that they’re experts on; get that information from them and share it, and make your decision based on that information versus just flying by the seat of your pants and not using your resources.

Joe Fairless: So drilling down a little bit more specifically, I wanna make sure — so a CPA is a team member, an attorney is a team member… What did you mean when you said “whoever you work with in the real estate field”?

Craig Cody: That could be the broker that finds you your deals, it could be your finance person that finds you the money… Whomever you have that’s part of your team and helps you do your transactions.

Joe Fairless: Got it. And why are they involved in this?

Craig Cody: Well, everybody has their own area of expertise, and isn’t it better if everybody talks together? I may say “I think you should do it this way, because you need to accomplish this” and the attorney can say “Yes, that’s a great idea, but if we do it this way, it’ll accomplish what you want, plus it will accomplish what I want”, and why not get the best use of that information?

Joe Fairless: Let’s just say it’s a broker, for example – why do they need to be involved in tax planning?

Craig Cody: Well, I guess when it comes down to the broker, if that’s the person that’s finding you your properties, you could probably make the point that “He knows how much I can spend, so he should be involved in that or he should know that I’m qualified.” I would say the broker might not be the tip of the iceberg, but all these people that are part of your team, whoever you use regularly to find your investments, purchase your investments, they should be involved in some level. I don’t see a lot of downside there.

Joe Fairless: Yeah, I’m just trying to identify what the purpose of them being there is, but if just more to know where you’re coming from, so they can — I don’t know. I’m not sure, actually…

Craig Cody: If you could get some value out of it, why not?

Joe Fairless: Got it.

Craig Cody: If you don’t think you’re gonna get any value out of it, then…

Joe Fairless: Okay. Alright, so we’ve got the team – CPA, attorney and maybe someone who helps us get transactions or maybe not, depending on our situation. As far as failing to plan – I’ve rounded my team up, we’re sitting down; what do I say?

Craig Cody: Okay, let’s start with “What type of entity are we gonna purchase this asset in?” If it’s real estate, it’s probably going to be an LLC; not always, but probably. You’d be surprised how many pieces of real estate I’ve come across that are in C corporations or owned individually. I’m not an attorney, but what’s the bad thing about owning that thing personally and what’s the bad thing about having that piece of real estate in a C corporation? Let’s talk and let’s figure out a way to do it that’s gonna accomplish what everybody’s expertise is and get it involved in there.

Joe Fairless: Okay. After we identify what type of entity we’re buying it in, what other questions or topics need to be addressed?

Craig Cody: Okay. Well, let’s say we got it into an entity; how are we going to depreciate this? Are we going to do a cost segregation study? Is it a residential rental property? What’s the value of the building versus the value of the land? Am I gonna save money? Is it cashflow positive? Am I gonna save money if I do a cost segregation study? What is a cost segregation study?

Joe Fairless: For anyone who’s not familiar, then you just google “cost segregation Joe Fairless.” I’ve had a couple guests on the show talk about it.

Craig Cody: That’s something in the accounting world, but that is something that will help you keep more of what you’re making.

So you have your team together and you’ve chosen your entity, you’ve looked at depreciation… Now we look at “Okay, what other benefits can I get in the tax world? What can we do?” Can you hire your family? Do you need a home office? Do you use a home office? What can a home office do for you? How do I write off my car expenses? What other things can I be doing that I’m not doing that will generate tax deductions for me that are legitimate? Have those conversations. But if you don’t plan, you can’t have those conversations.

Joe Fairless: So number one is gathering the team, asking these questions, and thanks for giving us some questions to ask.

What’s another tax mistake that business owners are doing?

Craig Cody: I’m trying to keep them in real estate, so let’s talk about a home office. Are you managing your property yourself or are you using a management company? If you’re managing it yourself, where are you conducting your business? Are you doing it out of a home office? Are you taking advantage of everything that’s allowed inside that home office? Are you deducting a percentage of your utilities? Do you have an on-premise athletic facility?

The code says if you’re having an on-premise athletic facility, with a home office you can deduct the cost of that. That could be a pool, it could be a gym in your basement.

Are you taking advantage of medical expense reimbursement plans? Most real estate, if it’s not owned individually, it’s typically inside of an LLC, and an LLC allows you to have a section 105 medical expense reimbursement plan that lets you deduct the out of pocket cost that you have for medical expenses.

We see that with a lot of older clients, where maybe they’re doing a little bit of remodeling in the teeth area, and with the younger clients it’s braces and stuff like that, that are typically $6,000-$7,000 a pop, so they get to deduct that, which fortunately most people don’t get to deduct their medical expenses on schedule A, because they would have to be so large that it would have to be something very bad.

Once you have a home office, now you can write off your mileage from your home office to your different properties. It just opens up a whole lot of areas.

Joe Fairless: When you work with someone – and this can be a real estate investor or a business owner, because as real estate investors we are business owners, so if you need to think more broadly about this, that’s fine… What are the first steps that you do when you sit down with a person?

Craig Cody: The first steps we do is we get copies of their last two years’ tax returns. If they’re using some type of accounting software, we’ll get a portable file from them, and we’ll do an analysis. We’ll go through our analysis and we’ll basically uncover missed opportunities missed deductions.
We’ll present those via a WebEx or a Zoom call, and we’ll basically say “Okay, we see X amount of dollars in missed opportunities in deductions. That’s gonna save you $20,000 a year. Over five years, that’s gonna save you $100,000. If you wanna do a plan with us, we’ll do a plan for you.” We get paid upfront for the plan, it’s 100% refundable, and nobody’s ever asked for their money back, because it’s instant gratification.

So we do a plan, and from there clients will ask us if we’ll help them with their ongoing accounting work.

Joe Fairless: Got it. That makes sense. As far as the missed opportunities for deductions, any one or ones come to mind that you haven’t talked about already?

Craig Cody: There’s retirement plans, you see those all the time. They’re not that prevalent in the real estate arena. At Mill’s Entertainment you have what we call the [unintelligible [00:10:39].00] that allows you to rent your home to your business for up to 40 days a year and not have to pay income tax on that income. There’s a couple of higher-level ones that we’ve come across with people that are a little bit more high net worth…

Joe Fairless: Like what?

Craig Cody: It could be conservation easements.

Joe Fairless: What’s that?

Craig Cody: A conservation easement is when you invest in a property, and then that property gets donated, basically, for conservation purposes, and you wind up getting a tax deduction. That’s typically a multiple of your investment. They have to be done correctly and with reputable companies, and we typically do them with clients that are involved in the conservation movement or are very charitably-inclined. They’re not just doing it to get a tax deduction, they’re getting it because they wanna do some good. And as a side note, they actually get a decent-sized deduction out of the deal, too.

Joe Fairless: What’s something else for high net worth that you look at?

Craig Cody: We have captive insurance that we see a lot of.

Joe Fairless: What’s captive insurance?

Craig Cody: To keep it real basic, it’s self-funded insurance, and you’re ensuring certain risks, and you basically get a deduction for the premiums that you pay for that insurance. Once again, this is high net worth, and then down the road if you have no claims or there’s money left over after claims, when you take that money out it’s capital gains, versus ordinary income.

Then we’ve recently gotten involved in some international retirement plans that are perfectly acceptable and allowed by U.S. treaties where people get to take advantage of these. In the U.S. how much can you put away a year? $18,000, maybe $50,000. In a lot of foreign countries you can actually put away a lot more money than that. So there are treaties that allow clients to do different things, and shelter some money.

Joe Fairless: Based on your experience, what is your best advice ever for real estate investors as it relates to taxes?

Craig Cody: My best advice ever is communicate, plan, and look at your depreciation, and make sure you’re doing it correctly and in the most advantageous way. I can’t tell you how many times we see depreciation is a mess.

Joe Fairless: What do you mean by a mess?

Craig Cody: They miss it, they move from one accountant to another accountant to another accountant, and somewhere along the line they got missed and it wasn’t picked up by the next accountant, and by the time they get to the third accountant it’s not even around. I’ve seen that many times – people that are doing their own taxes (God forbid) and they have all these passive losses, and next thing they know they use a different computer to do TurboTax and they don’t move all that passive loss history over, and it’s gone.

I look at 2014 and I see $60,000 in passive loss carryovers, and then I go to 2015 and I see it starting at zero. Where did it go?

Joe Fairless: Can you capture that retroactively once it’s identified?

Craig Cody: Yes, you have to amend the return. But if you don’t know what you don’t know…

Joe Fairless: Yeah, someone’s gotta point it out first.

Craig Cody: Another thing with real estate investors that also have other businesses that they operate is when they have these passive losses, you look at opportunities to generate passive income. So would I rather take that deduction  today, or would I rather wait 5, 10, 15 or 20 years until I see that property? I’d rather have that deduction today.

Joe Fairless: Great stuff. And as far as cost segregation, Best Ever listeners, one of them is episode 750, titled “Why You Are Losing Money Not Understanding Cost Segregation And How To Use It.” So episode JF750 with Jeff Hobbs. Are you ready for the Best Ever Lightning Round?

Craig Cody: I’m ready.

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

Break: [[00:14:32].00]  to [[00:15:30].18]

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

Craig Cody: Probably the one I’m reading right now is Traction, and I’m trying to think who is it by… It’s a very popular book. I’m about a third way through it and it’s living up to everything I’ve heard about it.

Joe Fairless: Yeah, a couple people recently have mentioned that, I’ll have to check it out.

Craig Cody: Best ever business deal you’ve done? Take that however you wanna interpret it.

Joe Fairless: I’m gonna say how about the worst business deal I’ve done, which was I sold my Manhattan co-op in 1992 for $125,000 and it was just sold two years ago for $565,000.

Joe Fairless: Where was it?

Craig Cody: Manhattan.

Joe Fairless: I know, but where?

Craig Cody: West 96th Street between Columbus and Amsterdam.

Joe Fairless: Okay.

Craig Cody: A one-bedroom with a Pullman kitchen.

Joe Fairless: Well, you sold it in ’92? That’s a lot of years, ’92 to 2015. What’s the best ever way you like to give back?

Craig Cody: To give back? I like to give back by just being a good person. I like to say “You know what? Leave people with a smile.” It was something I learned when I was in the police department. Make a friend, that’s the way I like to give back.

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

Craig Cody: They could go to our website, which is www.CraigCodyAndCompany.com, and if they actually go to /BestEver, they can request a copy of our book, The Ten Biggest Tax Mistakes That Cost Business Owners Thousands, and we’ll send you out a free copy of that book.

Joe Fairless: Oh, cool. Alright, I will amend the notes in the show notes page. Thank you for being on the show, and Craig, thanks a lot for talking through some mistakes that we need to watch out for. First and foremost, let’s make sure we’re planning ahead by getting the right team members at the table, asking questions like “What type of entity are we buying the asset in? How will we depreciate this? Are we doing a cost segregation study? (episode JF750 has that info on cost segregation) What about the home office? What are other things that I can be doing that I’m not doing to minimize my exposure to taxes?”, because taxes are our number one expense, and a lot of people don’t think of it that way, but they’re our number one expense… So thanks for being on the show, giving us some tips; I hope you have a best ever day, and we’ll talk to you soon!

Craig Cody: Thank you very much! Have a great day, too!

 

Cheryl Eisen and Joe Fairless

JF1119: Staging Your Listings Can Help Sell Faster, And For More Money! With Cheryl Eisen

Listen to the Episode Below (20:01)
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Cheryl was located in NYC, and found it very difficult to separate herself from every other agent in the city, and there is a lot! She started staging for additional income. It definitely helped her income, as she is now wildly successful, staging homes for very high profile people. Cheryl shares a lot of great information for us to take in today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Cheryl Eisen Background:
-President, Interior Marketing Group, Inc.; a Premier Luxury Real Estate Staging Firm
-Helps move billions of real estate each year with doing $1B in real estate in 2016 alone
-Some clients include Kim & Kanye West, Ivanka Trump & Jared Kushner, Bethenny Frankel, Paris Hilton
-Recently expanded to Turn-Key Furniture Rental and Interior Design services, providing the same expedited luxury interiors for long-term rentals and permanent living
-Based in New York, NY
-Say hi to her at www.imgnyc.com
-Best Ever Book: The Start-up Playbook

Made Possible Because of Our Best Ever Sponsors:

Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit www.fundthatflip.com/bestever to download your free negotiating guide today.

 

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

We’ve spoken to Barbara Corcoran from Shark Tank and a whole bunch of others. With us today, Cheryl Eisen. How are you doing, Cheryl?

Cheryl Eisen: Great! Hi, everyone.

Joe Fairless: Nice to have you on the show. Everyone is giving you a collective hello back, I’m just filling it for them. A little bit about Cheryl – she is the president of Interior Marketing Group, which is  a premier luxury real estate staging firm, and has recently expanded to turnkey furniture rental and interior design services. She helps move billions of real estate each year with doing one billion in real estate in 2016 alone. Some clients include Kim and Kanye West, Ivanka Trump, Paris Hilton, and a whole bunch of other famous people. With that being said, Cheryl, do you wanna give the Best Ever listener a little bit more about your background and your current focus?

Cheryl Eisen: Sure, absolutely. Hi, everyone. I started about ten years ago by selling real estate for the Corcoran Group, and I realized that it’s very hard to sell real estate in New York City when there’s so many great brokers to compete with, so I decided to start staging the properties, which is something I’d seen on TV. As I started staging, my selling got more successful, and the brokers were saying “Who staged this property? Can you stage mine?” and I quickly became the stager to go to in real estate, and that’s sort of where I made my name.

Joe Fairless: So with staging it’s gotta be an art and a science… I imagine, I don’t know; I’m guessing there’s an art and a science to it, so how do you successfully stage a property?

Cheryl Eisen: I think it’s just understanding marketing principles, I think it’s that simple. I don’t have any design background, I just sort of was watching what buyers were responding to in terms of what would make them buy a property one over the other? And it was really how they connected with the space. So when I look at a space, I try to figure out what’s going to feel comfortable and homey to them without alienating them. That’s sort of how I design a space; it’s not so much what looks pretty, it’s actually what will buyers react to and not react to? So we stay away from those things which are like taste-specific things like colors. But people respond to whites and sort of like ethereal things, and comfort, space, light… Those are the ways in which I learned how to design for buyers.

Joe Fairless: Since this is an audio interview, versus us being in front of maybe a PowerPoint where you can show before and after pictures – it can be a little challenging, but I’d love if you could too give us an example of a before and after… What a place looked like before and what you did afterwards specifically.

Cheryl Eisen: A lot of times the most impact I think we make is when we get something called an estate condition property, which is a property where it hasn’t been touched since the ’70s or ’60s; I think everyone’s seen one of those, with the formica table tops and falling apart bathrooms, and the walls sort of crumbling. One of the things that makes such an impact on those properties is when we come in, we paint everything, put beautiful light fixtures in, beautiful furnishings and rugs, and it totally transforms the space into a place that you can actually envision moving right into, versus sort of a crumbling shell of a place that existed in the ’60s and ’70s. You can actually paint almost anything – table tops, cabinets… And when you add beautiful light fixtures as well, it starts to feel new. If that’s a good visual, I’m not sure…

Joe Fairless: Yeah, it is. You said earlier that you’ve got no design background – you’ve said that, right?

Cheryl Eisen: That’s correct.

Joe Fairless: I have no design background, and if you told me “Hey, Joe, we’ve got a new client; go in there, paint everything white or neutral colors”, I guarantee you, I still wouldn’t pick out the right color gray. So just going a little bit deeper, how did you know the details of the items?

Cheryl Eisen: It was actually trial and error. Again, when I watched buyers, I saw what they responded to – what colors they seemed to respond to, what sort of furniture they seemed to respond to, what type of things actually enhance an apartment versus distract  from it… So I started using those colors.

With paint colors specifically, there’s so many shades of gray… Some of them turn blue, or green, or purple, and I learned actually by having a place turn completely purple that this gray is not to use. We had to totally repaint and find the grays, so now I stick to that pallet.

I also stick to certain types of furniture that I see worked in almost every space. Low-profile furniture, not too period-specific… Simple rules, if you follow, it’s pretty easy.

Joe Fairless: It sounds like it’s to be as neutral as possible, versus picking one angle and going all in on that angle.

Cheryl Eisen: Correct. I think neutral homes are appealing to a broad audience, and the whole goal when you’re selling real estate is to have broad appeal, versus like 10% of the population would be interested in this space. Even if the color blue alienates 4% of the population, why take that risk? So we stick with neutral tones, but we layer them with different textures [unintelligible [00:06:41].02] sort of fluff, and beautiful woven fabrics, and this makes it feel deeper and more sophisticated, but without distracting your eye with tons of things to look at, like colors and trees and anything like that.

Joe Fairless: Outside of paint colors, when you walk into an apartment – because you’re in New York City, right?

Cheryl Eisen: Yes.

Joe Fairless: So we’re primarily talking about New York City apartments – is that correct?

Cheryl Eisen: Yes.

Joe Fairless: Okay. Until you dominate the world, right?

Cheryl Eisen: Exactly.

Joe Fairless: So New York City apartments… Let’s say you walk into one that you haven’t staged, but someone has attempted to stage it and you just find yourself shaking your head and maybe smiling like “Oh, my gosh… Why did they think that was a good idea?”, what would be that example?

Cheryl Eisen: I’ve seen that happen, actually… About 18% of our work is bad staging that we have to come in and completely redo. What that staging is – from what I’ve seen in New York, in any event – is where they’re trying to just decorate a home like a decorator, instead of doing it for a buyer. So what you’re looking at is the furniture, the art on the walls, and not the beautiful home with the views, or the selling points of the actual home; you’re distracted by the actual furniture. That’s one big mistake people make.

The other one I think is when it’s staged, then it really looks staged. It looks cold, like you’re trying to fool someone with some furniture in there, and I think that does the opposite of what we want it to do, which is really look like a home, something soft and something you wanna just swap into, into a bedroom, for example.

There’s a fine line between overdoing it and underdoing it, but I think the right staging really makes a huge difference.

Joe Fairless: Now if we can, let’s draw parallels to an apartment building owner who has a model unit that he/she shows to prospective renters. What would be some tips that you have for him/her when they go to stage that unit for prospective renters?

Cheryl Eisen: I remember when I was looking for rental apartments in New York City. Firstly, it’s a very sobering process, because things are so small… But when you first walk into a rental building, I think it just feels so sterile in rental… The walls are white, it’s very stark. When I see model apartments that are done well and rental apartments, it’s because they’re finished; put some paint on the wall, it looks like it’s warm and home. Maybe even some wallpaper. Floor-to-ceiling [unintelligible [00:09:12].07] flanking the windows really makes a big difference. It feels flowy, makes you wanna walk over there.

Showing how to use space, that you can actually put a desk chair by the bed, it’s not just a tiny little bedroom. Then people can understand how they can function in the space. “Where is the TV gonna go?” is one of the main things people ask, so you sort of show them by placing it.

Joe Fairless: I’m sure that you might not have come across this as much now, because you’ve got some high profile clients you’ve worked with and you’re well-established, but at the beginning of this, I bet you came across a lot of “Yeah, I can do staging myself” or “Okay, fine, if you wanna stage it then I’ll give you t$10”, and you had to really qualify why they should pay you to stage and how you can make them more money. First off, am I correct in that assessment?

Cheryl Eisen: You are, and even in the luxury spaces it still happens.

Joe Fairless: Okay, so what’s your response to that?

Cheryl Eisen: Well, in the beginning when I first started, I really had to do proof of concept, so I had to start by investing in it myself. I said “Let me stage this” — my first listing, in fact, was a one-bedroom apartment the seller tried to stage himself and tried to sell himself. It was on the market for like a year; it didn’t sell, no offers. So I said “Let me just try this thing; let me list this apartment, but let me totally redo it.” So I totally redid it with IKEA furniture, and paint and accessories, and the first day on the market it sold for full ask, and they wanted everything in it. So I started to build an ROI (return on investment) and I was also planning statistics on return on investment for staging, which proved the concept immediately. So I love to give the statistics, because it’s real hard evidence, but also what I like to do is bring them to one of our listings that’s staged in person, so they understand the emotional reaction one would have when they walk into a home that’s beautifully staged, versus an empty space or even like a badly-staged space, and that’s how I sort of justify why the investment is important.

Joe Fairless: What’s the ROI go-to stat that you use?

Cheryl Eisen: It’s different every year, but I think things sell for 34% more than unstaged homes, and they sit on the market half the time. So the statistics are very strong, and this formula seems to follow the same statistic. You can really do the numbers if you analyze tons of data in your little metro area.

Joe Fairless: And where do you get the data from in order to look at staged versus unstaged selling prices?

Cheryl Eisen: Rebny has a website, and I think there’s a real estate staging association, but also Reby, the Real Estate Board of New York has statistics at the end of each year. If you put it in Excel or analyze the data, you can figure it out.

Joe Fairless: Do you have music?

Cheryl Eisen: Do I have music?

Joe Fairless: Yeah, do you have music in your apartments when you stage them?

Cheryl Eisen: I liked to put in soft jazz for a while, but I found people wanted to hear what was outside, so we have to turn it off. If they’re buyers or renters, they wanna hear how loud it is outside the window – either birds chirping or cars honking – so I think that’s an important selling part, to stop doing that.

Joe Fairless: Okay.

Cheryl Eisen: We do however like to have a candle burn, but a very subtle one, so it doesn’t seem like you’re trying to hide anything… But it does put a person in a soothing mood, and that’s been proven too, from psychology things, so we like to do that.

Joe Fairless: Where do you put the candle?

Cheryl Eisen: We put it in the foyer, so the second you open the door you’re hit with a very calming sense.

Joe Fairless: Interesting. Do you think the people wanting to hear the outside noise is specific to New York versus if you’re in Dallas, Texas, you can have some jazz on?

Cheryl Eisen: That must be the case. But then you wanna make sure that it’s the type of music that no one’s going to be irritated by. Some people are irritated by jazz, so you have to do the broad appeal thing anyway. But I think it is specific to New York or any city where there’s a lot of noise outside the windows, in most cases.

I think in a home in the suburbs there might just be crickets, and that’s okay.

Joe Fairless: Based on your experience in staging and just as a professional in general in real estate, what is your best advice ever for real estate investors in terms of staging?

Cheryl Eisen: When you’re looking at a property to invest in, I would say don’t get a property that needs an enormous amount of work. It’s too much to do, it keeps it off the market too long. Find something that with some paint and some beautiful light fixtures and some staging it can go on the market immediately, whether renting or selling.

Find something that has good bones, something that you can fix up yourself if you need to, then put it on the market, instead of something that would take an enormous amount of work and distraction.

Joe Fairless: And I know you’ve said this a couple of times, but I’ve been taking notes, and just so I make sure I have it in my notes… When you go into an apartment to stage, what are the maybe three or four things you absolutely you make sure that you do?

Cheryl Eisen: I have some go-to things – for example, you can never have enough giant mirrors in the staging. You put it across from a window, for example, and suddenly they double the window space; they double the space, in general, and it gives the feeling of more space. And they double the light. These are things that buyers respond to. So giant mirrors, and they don’t have to be expensive; you can get them at Ikea. That’s number one.

Number two is the paint color, because it looks finished. As soon as you walk in, there should be a paint color, like a neutral… Something that’s very subtle, nothing overwhelming. That’s number two.

And number three is light fixtures. They really make a home feel more custom, more unique, and they also create ambient lighting. Those are the three things I always add. It doesn’t have to be expensive.

Joe Fairless: I love it, that’s incredibly helpful. Alright, we’re gonna do a lightning round – are you ready for the Best Ever Lightning Round?

Cheryl Eisen: I’m ready.

Joe Fairless: Okay. First, a quick word from our best ever partners.

Break: [[00:15:27].09] to [[00:16:25].26]

Joe Fairless: Here we go – best ever way to get Kim and Kanye as a client?

Cheryl Eisen: Oh, wow… To get them as a client you just have to know the people that work for them. There will be someone who is known by the people that work for them, it’s all about that.

Joe Fairless: Best ever way to build a business in real estate from the ground up? Let me be more specific – best ever skillset to have in order to be successful in building a real estate business?

Cheryl Eisen: I would say patience, because it doesn’t happen quickly. Somebody who understands ROI, how much it’s gonna take to sell a place, and redo it, or put it back on the market, someone who understands the market and the macroeconomics of a market. That’s helpful. People who are smart can almost be successful in anything they endeavor to do.

Joe Fairless: Best ever book you’ve read?

Cheryl Eisen: I’ve just read The Startup Playbook by David Kidder. It’s just a great book for entrepreneurs in general. It’s a compilation of tons of famous entrepreneurs – Elon Musk, Cheryl Sandberg – and it’s very palatable and digestible because they just give advice on little specific moments, lessons they’ve learned, and I just think it’s really great. It helped me a lot in growing my business.

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

Cheryl Eisen: I love personally mentoring women. I’m letting them see how they can realize their potential. It’s just something I’m personally passionate about. I think this next generation should be breaking the glass ceiling. Still, even now that there’s a record hit, there’s still less than 7% of women CEOs running Fortune500 companies. That numbers should change, in my opinion, and I’m very passionate about that.

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

Cheryl Eisen: They can visit our website at imgnyc.com. I’m also on Facebook, Cheryl Eisen, I’m on Instagram, Cheryl Eisen, and I respond to people when they reach out. I love to give advice.

Joe Fairless: Great, you’re everywhere, apparently. Cheryl, thank you for being on the show. Thanks for talking about how you’ve built your business in a very specific category, and it started by selling real estate and then seeing “Hey, there’s a lot of competition”, and what’s the book – Blue Ocean Strategy, I believe… You build a business where there’s not a lot of competition; otherwise it’s a red ocean, a lot of blood in the water. This really is an example of a blue ocean strategy.

And the tips that you gave – the three that stood out to me that you summarized at the end… One, you can never have enough giant mirrors. Put them across the window so it doubles the space, doubles the light, doubles everything that they love. Second is the paint color – have a very subtle paint color. And third is the light fixtures, so that it makes the home feel more custom, more unique.

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

Cheryl Eisen: Thanks, Joe.

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JF978: How 9 MILLIONAIRES Were Made with This Simple Trick #SkillSetSunday

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He’s a professional consultant from New Zealand and helps other people get their business off the ground with their own ideas and unique talents. There are too many gold nuggets to not take notes, be sure you bring your full attention to this episode, enjoy!

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Sam Ovens Real Estate Background:

– Millionaire Consultant & Creator of Training Programs For Consultants at OVENS International
– CEO & Founder of SnapInspect; A property inspection app for property management companies
– Created 9 Millionaires & 136 6-Figure Consultants from his trainings
– SnapInspect has an office in New Zealand, North America with over 2,000 clients in 16 different countries
– Based in New York, NY
– Say hi to him at http://www.consulting.com 

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Sam Ovens real estate advice

 

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

I hope you’re having a best ever weekend. Because it is Sunday, we are doing a special segment called Skillset Sunday, where by the end of our conversation you will have a specific skill that you will then be able to apply towards your real estate investing ventures. Now, today it is a unique skill, in that this is a skill that you can implement prior to starting your real estate ventures, to have the capital to actually use to invest. That’s the focus of our conversation – how to generate cash flow to use for your real estate investing.

With us today to talk us through that – Sam Ovens. How are you doing, my friend?

Sam Ovens: Good, thank you!

Joe Fairless: Nice to have you on the show, Sam. A little bit about Sam – he is a millionaire consultant and creator of a training program for consultants at Ovens international. He has created nine millionaires and 136 six-figure consultants from his trainings. He created SnapInspect, which has an office in New Zealand, North America with over 2,000 clients in 16 different countries. That is a property inspection application for property management companies. So he does have some experience within the real estate category. He’s based in New York, New York. You can say hi to him at his website, which is the show notes page.

Before we get into it, Sam, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Sam Ovens: Sure. I did the normal sort of thing – went to school, went to college and then got a corporate job, and then realized that I didn’t like my corporate job pretty quickly. I decided I wanted to be an entrepreneur, so I quit my job and then I moved back home with my parents into their garage, and decided I was gonna start a business. I didn’t know anything and I had no money either, really… I had probably about $1,000 or something, which was supposed to keep me alive.

The first couple of businesses I started were just cool ideas; that’s how a lot of people start, they’re just like “What’s a cool idea?” I started a job board, and then an office lunch delivery business, and they both failed, and I spent my first year pretty much just failing. Then that’s when it really hit me that all these businesses I’ve created, they were just cool ideas which I’d come up with. I just thought “What’s a cool idea?” and then I created it and went out there and tried to sell it, and then no one wanted it.

That’s when I really realized that no one wanted the things I was coming up with, and the ideas that were cool in my head weren’t exactly things other people would pay money for.

It was like a big wake-up call, so the next time around I decided to go to the market first and ask them. So I went out to the market first and I said, “Hey, what are some problems that you guys have? Maybe I can help you solve those.” So I went out to the market and I found out that property managers had a massive problem with property inspections, so I decided to start helping them with property inspections and I came up with SnapInspect. For the first time ever, something I created worked, and it was because I got outside of my own head and went to the market, and I created something that people actually needed, instead of something which I thought people would want.

That worked, and that kind of evolved… I grew that business up, I ended up selling my shares in that to my business partner, so I’m out of SnapInspect now. Then I became a digital marketing consultant, helping businesses get customer online, and then that’s involved into — now I help people start consulting businesses. I help people who have a skill or want to have a skill start their own private consulting business. We have online trainings that help people do that.

Just recently we acquired Consulting.com, so now we’re really growing into a company that has multiple offices and a big team, and it’s less about me now and it’s more about a company. It’s gone from being a private consulting business to being kind of like an e-learning platform. Like most entrepreneurial stories, it started one way, ended up somewhere totally different, but that’s kind of how it happens.

Joe Fairless: What was the need that SnapInspect solved the problems, based on your original research?

Sam Ovens: Property managers – when I spoke to them… This was back in 2012, or something… Back then, the way they were doing property inspections is they were going to the property, carrying a clipboard with a printed checklist; they’d have a pen, they would complete the inspection checklist like that, and then they would have a digital camera with them, they’d take photos, and then they’d go back to the office. There they would open up a template on Microsoft Word, manually copy the information over into the template, and then upload the photos from the digital camera to the computer, format them, put them in, save it as a PDF, attach that PDF to an e-mail, then send that e-mail to the owner.

The average property manager managed 130 properties and they had to inspect each one twice a year minimum, legal standard. So we’re talking about like 600 of these inspections, and each one of them was quite an ordeal of just shuffling things around, and it was very inefficient. People hated it, it was their number one problem.

If you spoke with a property manager then – I’m sure even if you spoke with a property manager now – and you were like “What’s the number one burden of your day-to-day in your job?” they would say “It’s property inspections.”

Joe Fairless: So you put it in a digital template or format, so they could easily upload the content and then the output would be something they could send out.

Sam Ovens: Yeah, I created a mobile app; you just take photos, you complete the checklist, and then it creates the PDF and e-mails it to the owner as you walk out the door.

Joe Fairless: Now we’ll transition into what we kicked off the show talking about, and that is how to generate cash flow for investments so that we can invest in real estate? How do we build up our cash flow? Your focus was teaching how to get online customers, now it is help to start a consulting business… Take it away – how should we structure our conversation so that by the end of this the Best Ever listeners will know how to generate cash flow so they can start investing in real estate, if they haven’t already?

Sam Ovens: Well, generally you have to have cash flow to build up a large stake, like a war chest of cash to invest. Unless you’re lucky enough to get given some, which I’m sure most people aren’t — that was the big hurdle for me… I was like, “Well, I’ve got no money to invest, so there’s no point in learning how to invest unless I’ve got money to invest”, and it’s like the chicken and the egg problem, which one comes first?

That’s when it really dawned on me that when you’ve got no money, cash flow is the most important thing in the world, because you have to keep yourself alive and you have to stay in the game. And most importantly, I found you have to have confidence. If you don’t have a certain amount of cash in the bank, you start making lousy decisions, and you’re desperate, and you’ll want to jump at a deal which you usually wouldn’t jump at if you had enough cash to float you through the year.

Warren Buffett talks about it a lot – he even calls it “cash float.” Berkshire Hathaway always has at least 36 billion on cash, purely because he never wants to worry, because when you worry, you make poor decisions.

So I realized this, and I was like “Okay, so you need cash to really be a good businessman, but how do we get it?” All the product businesses I looked at, they were capital intensive; you had to spend money upfront. To built a software product, you had to spend money upfront. So when it came to developing SnapInspect, for me, I had a great idea, the market validated it with me, they saw that this would work, and we all paid for it, but I didn’t have the thing to sell to them.

So I was kind of stuck here, I was like “Well, this is a good investment, but I don’t have the money to front it”, so I was forced to figure out a way to generate the cash to fund the investment and bring it all to life, and that’s when I first turned to a consultant. Plain and simple, I knew that a lot of businesses and a lot of people out there, they need help with different things, they have problems, and a lot of problems people have aren’t just product problems… Like, there’s not a product to solve everyone’s problem; a lot of them are services and advice, and there’s a whole market out there for people that just need advice, and that’s just talking to someone and they give you money in exchange for it, and you can actually charge quite a lot of money for that.

I realized that the stuff I had in my brain just from understanding a little bit about marketing and sales and stuff, to me it was worth nothing because it was just what I knew, and everyone always undervalues what they know, but to other people, I had no idea that that was worth money. So I started talking to other people and asking them about what their problems were, and then if I could help them, I would say “Okay, well I can help you with that. I’ve got experience with this thing, I know how to solve this problem. Would you be willing to have an agreement together where I train you on this or consult you on this, and you pay me in return?” I was able to get a few deals like that… None of them were huge, they were like $500-$1,000. And just by selling those things, I was able to get enough money to build SnapInspect and actually get it off the ground.

So it was through selling my advice that I got enough money to front an investment, and I think having a consulting arm really for any business is a great thing to have, because if you need cash flow or if you need to get some liquidity at any point in time, you can do that.

Joe Fairless: So for the Best Ever listeners in varying backgrounds, because we’re all over the United States mostly – 93% of the listeners are in the U.S., and then 7% all over the world – where do we go from here? …Where yes, agree, Sam, it makes sense; we should start a consulting arm for our business to help generate cash flow. Now what do we do?

Sam Ovens: Well, if it’s something you actually want to do, you have to go to the market. You need to know what you’re gonna be selling. People feel like they have to go out and just learn a whole bunch of skills and acquire a whole bunch of knowledge, and it’s the wrong way to go about it. If you just go out and you start learning – learning for what? What are you optimizing for? Your mind is an algorithm, and if it doesn’t have an output function set for what it’s optimizing for, it’s just gonna make a mess.

Whenever you’re gonna learn or whenever you’re gonna acquire information and knowledge, you need to have a reason why, you need to have some sort of intent. And then once you have the intent, it’s very easy to acquire the knowledge. Where you find that intent is you don’t [unintelligible [00:13:31].05] because you don’t know what you need to know.

The way I make it really simple for people is it’s like imagine that there’s a girl called Suzie and she’s sitting on a park bench, and you’re sitting on a park bench opposite of her, and you’ve gotta guess what Suzie wants for lunch. You have no idea what Suzie wants for lunch; you could sit there and think about it all day, you could read every book there is, you could listen to every podcast, you could read every blog… You could own Google, and you still wouldn’t really know what Suzie wants for lunch.

This is kind of what entrepreneurship is about, and people kind of messed it up a bit… They try and learn all this stuff and then guess what Suzie wants for lunch, but you’re never gonna know, no amount of information can tell you. The easiest way is to just go over and ask her. That’s what entrepreneurs need to do, any type of entrepreneur. This doesn’t matter what niche, what country, what anything.

Very simply, Suzie is the market. You need to go out to your market. If your market is real estate investors, if your market is property managers, if your market is whatever – you can go and talk to your market and be like, “Hey, what are the most painful problems that you face on a day-to-day basis as an X?” And X could be a property manager, it could be an accountant, it could be a real estate investor… You ask them that, and then you’ll be quite surprised – people love telling you about their problems. They love talking about themselves, and they’ll tell you. And you don’t just listen to the first one, because one person can be wrong, one person can be an outlier; you need to listen to enough of them. I would say a sample size of about 20 or more.

After you’ve talked to 20 people in one specific niche, you’ll start to recognize a pattern, and you’ll start to recognize reoccurring themes between these conversations, as I did with property managers. I started to notice that out of 20 property managers I spoke to, probably 18 of them hated property inspections. I was like, “Okay, this isn’t just one person. This is like a widespread issue here.”

You’ll be amazed at how easy these things are to find. If you talk to the market and you care for them and you don’t have any agenda or any bias in your mind when you go there… A lot of people – they already know what they want to sell to the market, so they go there and they’re asking questions to position it just so that they can sell their thing. You’ve gotta remove all the bias; you can’t have an agenda, otherwise you’re gonna skew the conversation. You literally have to have no bias.

You talk to them, you find out what you want, and then you create the offer. That’s where you get the information and you create the offer, whether it’s a product or a service or a consulting business or whatever, and that’s how you find out what to sell.

Once you know what to sell, then you know what skills to acquire, and if you don’t have those skills in order to solve their problem – it’s very easy, you can go and learn them.

Learning things is very easy. Knowing what things to learn is the hard part. So that’s how we figure out what to learn, we optimize off the market. We go speak to the market, find out what Suzie wants for lunch, figure out a solution to give Suzie what she wants, and then acquire all the knowledge and information necessary in order to fulfill Suzie’s want.

Joe Fairless: On the very first step, which is really knowing who you’re speaking to, knowing your audience, knowing which niche you’re focused on – do you have any suggestions for the Best Ever listener who hasn’t identified who they should be speaking to?

Sam Ovens: Yeah. Well, the first thing is you have to pick a niche. The man who chases two rabbits catches none. The guy who tries to chase all of the rabbits, he’s like “Screw chasing one, I’m going for everything. I’m gonna chase everybody.” And he goes chasing everybody and he gets nothing. Then the guy who just chases one rabbit, he always ends up catching it. Business is very much like this.

A lot of people, a lot of entrepreneurs are too afraid to narrow their reach because of what they might miss out on, but they don’t understand without narrowing their niche they don’t get anything. So the key is to pick a niche, that is mandatory. You can always make it wider later, but to begin with, it has to be nice and narrow.

To answer the question “What niche to pick?”, it honestly doesn’t matter. You can’t pick the perfect niche, there’s no way to do that. This isn’t a science, or at least a science that exists at this present moment in time. There’s no way to study and theorize on what niche to pick. The best thing to do is just to pick one… Just use your instinct.

Imagine someone has a gun to your head. They’re gonna blow your brains out in ten seconds. What niche are you gonna pick? Whatever you say is a good one to start with, because we can always change it. Like I said, your mind is like an algorithm, it optimizes. If something doesn’t work, it’s like “Okay, we don’t do that again.” If something does work, it’s like “Maybe we’ll do more of this.” So it doesn’t matter what you start with, it’s just that you need to start.

I told you my story before about how I started with an online job board, then an office lunch delivery business, then a property inspection app, and now I’m here… I’m probably doing the thing right now which I should have always been doing, but I was only able to find that by doing the wrong things. So that’s the key – pick anything, and just do it. If it’s not right, then change it. If it is right, do more of it. Trying to get it right, you’ll never have picked anything.

If I was still trying to pick the perfect niche, I’d still be back at the starting blocks, five years ago.

Joe Fairless: Once you identify what should be created based on what your target audience says they have a problem with – so you’ve got the offer, and then you went and learned whatever is necessary, assuming they didn’t have that knowledge, how do you know how to price or structure the consulting program?

Sam Ovens: That’s a very good question. We’ll handle the structure of it first, and then we’ll handle the price. In terms of the structure, I like to use this thing I call ‘minimum viable offer’. I blatantly stole that from the guy who wrote Minimum Viable Product, which is MVP – Eric Ries, The Lean Startup. He found in the sales world that people were building these big bloated products that had like a thousand features and they were like rocket ships, and people were sick and tired of all of this crap; they just wanted something lean, and just something that was simple and could do the job…

So these new protagonists emerged in the market who were people who focused solely on minimum viable products and made them dead simple, and they were actually able to beat the fancy, complex products. It was a case where simple beats complex. In the consulting world right now it’s gotten complex, so it’s a ripe time to come in with that same strategy.

I came up with the term ‘minimum viable offer’ – it’s the same as minimum viable product, except we’re selling services instead of products. So we look at the customer’s problem and we ask the question to ourselves “What is the least amount of work I can do to get that person what they want?” I’m not trying to show off how smart I am, I’m not trying to talk about this new theory that I read in this book, I’m not trying to talk about any crap which they don’t need… I’m just trying to offer the least possible, because that means it’s easier for me to deliver, it means it’s simpler for the client, it’s more simple to communicate, and it’s a lot easier to do.

So you really have to start with that question, “What’s the least amount of work possible that I can do to help this customer achieve their result?” and again, like everything in life, you’re not gonna be able to figure this out perfect before you do it. So you kind of come up with a hypothesis; you’re like, “I believe this is going to work” and then you form your hypothesis and you go out to a customer and you sign them up, and you start doing the work with them. Then they either get the result they were after or they don’t. Then you go back to your hypothesis and you’re like, “Okay, where could I have improved this? Where did I go wrong? What should I do more of, what should I do less of?” Then you form a new hypothesis, you go back to the market, you implement it again, and it’s just an iterative process, each time coming closer and closer to the perfect offer.

So that’s how we create the perfect offer – it’s minimum viable, and we use the scientific method of hypothesis, iteration and feedback to optimize it to get it to that perfect product market fit, or in our situation, service market fit. So that’s how we do that.

Then in terms of pricing the offer, what I like to do is price around 10% of value. You have a price on costs. I think costs-based price is a very stupid way to do things. That came about from the industrial revolution when people were selling steel and oil and things, and we’re not in the industrial revolution anymore.

These days it’s all about value. You really have to determine what is it worth for this person to have their problem fixed. Let’s say we’re in real estate investing and this guy has a bad deal; it’s bleeding him out like 2k/month. If he doesn’t fix that, it’s gonna cost him 2k/month for some horizon of months; you could assume maybe six months – it would cost him $12,000. Then if we would have priced our offer, if we thought we could save him from that deal, we could say “Okay, the value would be $12,000 for him”, and to make it a blockbuster deal, we wanna price on 10% of value.

If he’s gonna save 12k if we charged him $1,200 for that, then it’s a no-brainer, right? That way you’re gonna have an awesome offer. We don’t wanna be too greedy and be like “We’ll charge him 10k.”  We could absolutely do that, but my view is that you want to blow people away. You want to be like the iPhone. The iPhone is pretty cheap for how much value you get.

When you have an offer like that, it just goes crazy. You don’t even need to market, you don’t need the webinars, you don’t need all this crazy copywriting which all these copywriters do and put highlighter and countdown timers everywhere… It’s just a bloody good offer and people talk about it.

That’s what happens when you price it about 10% of value, so that’s how I recommend everyone prices things.

Joe Fairless: I love that. And just to ask a clarification question on the pricing – do you recommend pricing based off of, say, monthly retainers of 10% of value, or a one-time thing, or any combination thereof?

Sam Ovens: That’s a good question. It totally depends on the nature of the problem. If the problem is kind of a one-off sort of thing, then you’d probably just have a one-off fee. If it’s an ongoing thing, which is like you’re going to be working together for a while, and personal training is one of them – you just don’t get fit and then that’s it; people who have tried to do that, they often end up not fit again.

So it totally depends on the nature of the problem. If it’s an ongoing thing, then you would have a retainer; if it was a one-off sort of thing, you would go one off. You’ll be able to tell what makes sense when you see the problem.

Joe Fairless: Sam, is there anything else that we haven’t discussed as it relates to generating cash flow so that we can then invest in real estate that you wanted to mention?

Sam Ovens: We’ve talked about some good theory and everything about how to go out and make money, but the big thing that I see every day with entrepreneurs is that they become great money makers but not very good money keepers. Pretty much everyone I’ve observed – even my heroes who I observed five years ago – it’s amazing to see that all the money that’s gone through their hands, they still don’t have any of it… So I think there’s massive amounts of information missing in this industry, and in terms of accounting and finance and being financially responsible.

I think everyone’s being so pulled on the bias of “Make money!” It’s all about making all this money, and it’s great, people have learned how to make a lot of money, but they haven’t kept any of it. It’s kind of like, if we observe history, when pro athletes first started making a lot of money, in boxing or in football or in basketball or whatever, the first people were the pioneers of their industry; the first people who did it, they lost it all. Only the modern day people can look at their mistakes and learn, and that’s why they have financial managers, and they’re more sensible now.

I think it’s more than just making the money, I think it’s also hanging on to it, especially in investing. I understand now that in business once you’ve got money, it’s more of capital preservation than trying to make more. Protecting your downside is more important than trying to make more, and that’s the number one thing that becomes an issue once you have some money.
So I think a lot of people need to read some books on accounting and on finance, and just on managing money, because the biggest thing — I’ve seen so many millionaires do it… They’ve made millions, and they don’t have millions anymore. So that’s the only other piece of advice I would add.

Joe Fairless: I was interviewing a gentleman, and his mentor was Ross Perot… And Ross had a famous saying that he’d always mention prior to investing in something; he said, “It’s more important to be focused on return OF capital than return ON capital”, and that’s exactly what you’re talking about here.

Sam Ovens: Yeah, absolutely. It’s a concept which you don’t learn to appreciate until you have some capital. Because most people are swinging for the fences all the time, because they’re like “What does it matter if I lose 1k?” But once you’ve got a pile, it’s more about protecting that pile than trying to add to it.

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

Sam Ovens: My website – the new one, which is live right now, but it’s just one page… There’ll be a full blog there and everything in the next few days. It’s Consulting.com.

Joe Fairless: And what will they find when they go there? On that one-pager, what will they find?

Sam Ovens: They will find a basic video about what we do – we provide training programs helping people become consultants. The reason why I’m saying it now is because in like two or three days’ time there’s gonna be a proper website there, which has a lot more information… Because we’ve only just acquired that domain name.

Joe Fairless: Well, congratulations on the new acquisition and thank you for being on the show. You walked us through six steps to start a consulting program, so that we can go invest in real estate if we haven’t already. Step one is pick your niche; as you said, if you chase two rabbits, then you get no rabbits… So find your rabbit and go chase it. Two is know your audience. Three is know what you should be selling to your audience; talk to them, do 20+ interviews. Four is create the offer based  on what they want, and then five is know how to structure it with your minimum viable offer approach. You test and optimize that. Six is getting the pricing right, and you recommend pricing it at around 10% of value.

Thanks so much for being on the show, Sam. I love your quote also — you had a couple of money quotes, in my opinion. One is “Don’t undervalue what you know. Most people do.” And also, “Learning things is easy. Knowing what to learn is the hard part.” Ain’t that the truth?

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

Sam Ovens: Thanks, you too!

 

 

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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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JF960: “Real Estate Brokers to the Stars” Share $2 BILLION in NY Sales

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$2 BILLION with a “B” in sales accrued from New York city luxury! And the stard of Selling New York spill the beans and share what they believe it takes to be a winner in the luxury niche. Be sure you subscribe to Joe’s podcast, but also tune in to see these guys make it rain in the Big Apple!

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Tom Postilio & Mickey Conlon Real Estate Background:
– Stars of Selling New York, HGTV’s smash-hit reality series broadcast to 99-million American homes in 65 countries
– Both are Brokers at Douglas Elliman Real Estate, the largest brokerage in the New York Metropolitan area
– Named among the Top 1,000 Real Estate Professionals in the United States by The Wall Street Journal
– Responsible for nearly $2 billion in residential sales
– Internationally renowned for their command of New York City’s luxury real estate market
– Based in New York City, New York
– Say hi to them at http://www.tomandmickey.com
– Best Ever Book: The Great Gatsby

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luxury real estate investments

 

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad, and a whole bunch of others.

With us today, Tom Postilio and Mickey Conlon. How are you two doing?

Mickey Conlon: Doing great, thanks so much!

Tom Postilio: Doing great!

Joe Fairless: Yeah, nice to have you on the show, and looking forward to diving in. A little bit about Tom and Mickey. Of course you know them, they’re the stars of Selling New York, which is on HGTV, the reality series broadcast to millions and millions of people. They are brokers in New York City, at the largest brokerage in New York, and they’ve been named the top 1,000 real estate professionals in the U.S. by the Wall-Street Journal. They’re responsible for nearly two billion – not million, billion – in residential sales, and they’re based, of course, in New York City, New York.

With that being said, Tom and Mickey, before we dive into it, do you want to give the Best Ever listeners a little bit more about you background and your current focus.

Mickey Conlon: Absolutely. We sell luxury real estate here in the great metropolis of Manhattan, and we thank you for that wonderful bio you’ve just read. It’s kind of a very exciting job, it’s a very competitive world that we live in, but it’s also gratifying, and we love what we do. Two billion dollars is a lot of transactions over a collective, cumulative 25 years in the business between the two of us.

Tom Postilio: But it adds up quickly! [laughter]

Joe Fairless: That is quite an impressive number. I lived in New York City for ten years. I moved three years ago from the City; I lived in East Village. So I know a bit about your market, clearly not as much as you two. As you said, it is a very competitive market.

Regardless of what industry you’re in, how have you two been able to stand out and be as effective as you have been?

Mickey Conlon: First off, not everybody in the real estate industry starts there. That’s historically been the case. Many people transition from other careers, because they’re looking for something with certain amounts of autonomy, making their own rules, because by nature we’re all entrepreneurs. We decide how our businesses run, what our business model is, and while we exist under the magnificent umbrella that is Douglas Elliman, we’re still responsible for creating our own business.

So we are both creatures of show business. Tom was a singer for many years, I produced theater, and we bring that skill set to everything we do. We often joke that it’s all show business, and some people have derided that, as if we’re minimizing the importance of a transaction… But there are two words in there: there’s “show”, and there’s “business”.

New York is a city that’s all about lifestyle, it’s all about the sexiness and exclusivity and sometimes even the snobbery of it. So if we’re just selling bricks and mortar, we’re not going to achieve those record prices that the city is so well known for. So we add a little bit of sparkle, razzle-dazzle and we help people to imagine their New York fantasy.

Joe Fairless: The question that comes to mind is, as you just said, you’re selling the sexiness and the exclusivity, you’re not selling the brick and mortar. How do you first identify what you need to sell, what angle you need to take with a property, and then how to actually tactically bring that to life?

Mickey Conlon: Great question. We look at each property differently. Whether it’s a studio apartment or an entire building, that requires us to create an identity. Sometimes it’s an entire neighborhood that requires an identity, because markets don’t grow out of the mist, they are created. We look at ourselves as the people charged with creating those markets.

When we look at something, we look at it the way a director might a script. What is the story here, what is it telling us? What makes it stand out from the other apartments in that line, or the other townhouses on that block, or even the other sales? If we’re going by the numbers, why are we going to be able to get more for this than anybody else has been able to achieve? And we create that story, and that story comes through our property descriptions, it comes through our marketing materials, and it comes right down to the very way we present a property. It really does matter, in the end.

We find that the people who are least successful in this business are the ones who are trying to do it by rote; they’re doing something somebody else was doing. They walk through the kitchen and they say “And this is the kitchen, which is nice…”, and it’s like “Thank you very much… Why are we paying you all of this money to tell us where the kitchen is?”

A better question is to say to somebody, “Do you cook? You do cook, great! Let me tell you a little bit about the kitchen… I’m sure I don’t need to because you’re an expert at this.” But it’s appealing to people’s needs, overcoming their objections and obstacles, and to justify the pricing, because as much as there’s show in our business, the business is a very important component. And nobody wants to overpay for anything, but if we can demonstrate why this opportunity is so special and what it will be worth in the future, then we’ve done our job successfully.

Joe Fairless: If you’re presented with an opportunity for a new listing in an area of New York City that you’re not as familiar with as others, when you go to that area what are you looking for in order to identify the way that area or property stands out among the competition?

Tom Postilio: I have a thought… Sometimes we’re on the same wave length… [laughter]

Joe Fairless: [unintelligible [00:07:46].13]

Tom Postilio: It’s about feeling the neighborhood, it’s about walking the streets, getting the vibe and the feel of the neighborhood first of all.

Mickey Conlon: When somebody wants to explore a neighborhood that they’re not used to, it doesn’t start with us, it starts with them. Go walk around, have lunch some place, spend an evening there. How do the streets feel at night?

One of the other common questions that we get is “What’s the next hot neighborhood?” and in New York it’s like the wheel of fortune – just spin it, and any place you land is almost going to be the next hot neighborhood. And there are some key markers we look for.

Sometimes people are just grasping at straws because developers are building in an area, but that may be because the land was cheap, not because it’s the best opportunity. Sometimes the best opportunities are kind of a confluence of many different factors. When you can look at transportation, or expanding transportation, and see a neighborhood that wasn’t easily accessible before – that’s something to look for. Look for retail – which major retailers are moving into the neighborhood? Which hot new restaurants are in the neighborhood?

Then suddenly we build that infrastructure – that your value, and you just try to get in there before the prices skyrocket out of control.

Tom Postilio: We have been fortunate to sell in just about every neighborhood in Manhattan, but it’s interesting, on the flipside of that, we’re working with a buyer right now – VIP clients, and we’ve helped them, their family, their siblings; we’ve known them since the beginning of our real estate careers… They’re looking now to sell an apartment downtown and move their family out to either several neighborhoods in Brooklyn, they’re exploring the Riverdale sections of Bronx, they’re exploring parts of Madison County, and we’re following and helping with these conversations to really learn those different areas that we obviously don’t do business in every day… Although in Brooklyn we’re more active than [unintelligible [00:09:32].08]

Joe Fairless: When you are identifying the unique selling points of a particular property, how do you approach that?

Mickey Conlon: It starts with pros and cons, and we tell this to every client we work with. Whether you’re looking for a one-million-dollar property or a twenty-million-dollar property, there’s always something that you kind of have to give up on; you’re not gonna get everything on your list. But I think it’s putting the pros and cons… We’ll make a list together and accentuate the positives, that’s the song.

Tom Postilio: We try to break real estate up into its components, and these are ingredients in a recipe that carries us through hot markets and slower markets. So we have the real estate of necessity, and that’s when somebody is just busting out of their studio, their one-bedroom or two-bedroom and they need more space. They can’t wait to see what interest rates are going to do, they can’t wait to see where the market is going next year; they need to fulfill that need now, and that is an ever-present need in New York and in any market.

The other is the real estate of desire. It’s that penthouse, the fifty-million, the hundred-million-dollar… It’s a pied-à-terre, it’s more of a [unintelligible [00:10:40].12] than anything else, and that market tends to be more volatile. But in the everyday market where you combine those two things, and when you can marry necessity with desire, you find a way to reach your target buyer, because even if you just need that extra bedroom, you also have a fantasy of what that bedroom is going to do for your life. You’re going to have more storage, your kids are going to be more comfortable where they’re sleeping, you have ideas about how you use this neighborhood… Is it near the park, is it near shopping?

When we can touch on all of those things and listen more than we talk to our clients, that’s when we can achieve a successful sale, and hopefully a record-breaking sale.

Joe Fairless: And the last thing you just said – listen more than you talk… Earlier there was a comment about the kitchen, where instead of saying “Here’s the kitchen”, asking them the question “Do you cook?” What are some tactical things – if you have any you can think of, and if not, that’s fine – that you always do when you’re either with a client or presenting to a client, that have helped you from a business standpoint.

Tom Postilio: Complete honesty. One of the most powerful things that we can do is if we’re working with a buyer, for instance [unintelligible [00:11:58].06] experience, you’re walking through a place and you know what their criteria is, and of course at the end of the day every real estate broker wants to do a deal… But the most important thing is to be completely honest to the client, because it’s all about referrals, it’s about repeat business, it’s about doing the right thing. So walking through a property, I’ll be the first to kind of whisper to them and say, “This is not for you, let’s go.” That kind of honesty is absolutely important.

Joe Fairless: Was that hypothetical or was that a real scenario where that happened, where you arrived, and you said “This isn’t for you, let’s go”?

Tom Postilio: No, it has happened. It happens often. Obviously, we’re working with buyers and sellers, but when we’re working with a buyer, we can look at a property on paper – you look at the floor planning, the photos and the description… That’s all well and good, those are the ingredients that get you to be interested and walk up to the door, but once you’re there you can immediately ascertain that this is not the right property for your client.

Joe Fairless: Okay. I think you just answered it, but I was going to ask – if you took them there and then you said immediately “This isn’t for you”, I was going to ask, if they get annoyed by that because you took them somewhere and it wasn’t a good use of their time, but that explanation you just said makes a lot of sense.

Tom Postilio: Typically we’ll have multiple showings scheduled in a period of two to three hours, so if you’re seeing six or eight properties, there might be a couple that that’s just our “immediately out.” It’s all part of the exploration of the market and what’s out there for any particular buyer.

Mickey Conlon: And for any buyer trying to educate themselves, it’s important that they see the properties in the same price point that don’t necessarily appeal to them, because it gives them a more comprehensive sense of value, so when they do finally find the right one, they’ve learned, they’ve seen enough that they can feel confident in their purchase.

Joe Fairless: Thinking back, you two have 20+ years of experience doing…?

Tom Postilio: It’s just a little over 25…

Joe Fairless: 25+ years… How have you evolved from when you first got started to now in the business?

Mickey Conlon: My goodness… I mean, on day one – and we tell this to every new broker; we often meet with young agents who just got their license… It takes a good year to really learn the language, to be able to speak this language, and we’ve seen things in our collective experience, just real head-scratcher situations, but you deal with it in real time and you approach it on a day-to-day basis. There’s still things that come up that we go “Okay, wait a minute, how are we gonna solve this one now?”

Joe Fairless: Can you give an example?

Mickey Conlon: One of our favorite deals in recent memory – it was epic. We started with a bidding war, that fell apart. We had an accepted offer above the asking price, buyers fell off left and right, multiple inspections, different inspectors found different problems that uncovered decades of open permits and violations which held up the sale. The seller had to invest hundreds of thousands of dollars into fixing a roof problem, the buyer had to invest a certain amount… Very long story short – we encountered things that even our attorneys were scratching their heads over.

At the end of the day, we were most proud of the fact that we were representing both the buyer and the seller in this particular transaction,  and we were really proud that at the end of this nobody came out unscathed, but we remained friends with both of these parties, and at the end both were grateful.

So it’s not always pretty down there in the trenches, but we try to use our expertise and our past knowledge and our contacts to solve complicated problems without creating a fire drill unnecessarily. We do try to buffer our clients from some of the madness.

Tom Postilio: One of our primary rules of our business is that there’s so much drama on a day-to-day basis… Don’t put it in the face of the client. We are the sponge for that drama, we do this all day. We understand the potholes and the pitfalls and the workarounds, but do not put that on the client, and we’ve witnessed it where some brokers love to get hysterical and create crazy scenarios…

Joe Fairless: That would make for better TV…

Tom Postilio: It makes it look like they’re earning their commission. They’ve waving their hands and squealing a lot, like “You couldn’t do this without me.”

Joe Fairless: What are some other primary rules that you have that you always adhere to or it’s always top of mind?

Mickey Conlon: Absorb the drama, total honesty… It’s all about servicing the customer, not making a deal. Do the right thing by the customer. From a personal business standpoint, constantly evolve. The business evolves, as much as people would like to keep it rooted in the past, and in New York, in many ways, it is. It’s a paper-heavy market, we do a lot of paper, co-op board packages and financial reviews that aren’t common to other markets, but it’s something we have to deal with.
On the flipside of that, we have to deal with emerging technology – how is the industry changing, how are consumers getting their information, how are they processing that information?

We sometimes laugh that all of these aggregator sites like Zillow, Trulia, StreetEasy – they’re in a sense like WebMD. People have a certain amount of knowledge, and they process it the best they can, and they make determinations based on that. It’s like going to WebMD sweaty, feverish – you’re always dying within weeks; you’re always diagnosed the worst possible thing. They do that with real estate data – they look at the number, they say “Oh, I know what that’s sold for”, but there’s a lot more to it than that.

So we’re constantly redeveloping our business, staying in touch with our consumers to partner with them, with that technology, to show them how to use it better. Because very often we’ll say “At the end of the day, we may not be the people who find your perfect home. You’ve tuned it, you may send it to us, but we’re going to show you how to get it, and we’ll get it for the best possible price and we’ll guide you through this process to make sure you don’t endure any additional stress.”

Joe Fairless: When you’re talking to a client… Maybe that last property example where there were bidding wars, multiple inspections, permits, violations etc. and something comes up and you have to communicate it back to the seller – say it’s a violation or an inspection issue, how do you communicate that? If you can, will you almost pretend that I’m the seller and there’s a violation and it’s going to tank the purchase price? How do you talk to me?

Mickey Conlon: At any time we have to share a news of that kind, we just take a deep break and we go ahead and tell the truth. Sometimes there’s just no sugar-coating it. You just have to rip off the BandAid and get deep down into the issue. We try to look at the issue from the buyer’s perspective – “This is what they’ve discovered. It has a dollar value. How are we going to do this? Are you, Mr. Seller, going to resolve this? Or are you going to give them cash incentive to overlook this?” Sometimes that’s a complicated road to navigate because we’re not exactly sure; it could open somebody up to liability down the road, even if they simply give a discount on the price to make it go away.

So again, that’s some place where we like to counsel buyers and sellers in those situations to figure out, if this issue goes away, what does that look like in six months or six years when you’re going to sell it.

Tom Postilio: While it’s a case-by-case approach, most of the time we will sit down and put that in writing, because it’s the kind of thing that you wanna give them the time to absorb… “These are the facts of the matter, this is what’s been found, this is how we would suggest approaching it. Please review all of this, review the attached documents, the supporting collateral, and then let’s set up a time for a call.” So they’re not just hit with it blindsided. It’s “Here’s all the information we’ve gathered. Digest it and then we’ll talk.”

Joe Fairless: Yeah, I love that. That makes a lot of sense. I want to briefly go back to what you mentioned  earlier, the showbiz part. You said there’s the show, and then there’s the biz. Can you tell us a story of how you’ve approached maybe a particular deal or a showing or something, where you brought the showbiz aspect to life?

Mickey Conlon: Oh boy, I’m sure there were few… There was one of our favorite transactions, we were representing Joan Collins in the sale of her apartment, and we were the fourth brokers on that transaction, so by that time media coverage had been completely sacked up. There was really no meat left on that bone. By that time, as  a seller, she was becoming frustrated because she was emptying the apartment, she was sending things to her home in L.A., and you could feel it, it was like, “Okay, we need to reinvent this show.” And with zero budget, we enlisted the help of a friend, a designer, and we said “We have zero budget. What can you do to freshen this place up?”

What we wound up doing is creating a one-million-dollar makeover of the apartment, all with donated furniture, rugs, a piano from Steinway, and it gave it new life. It felt great, you could imagine yourself living in it. And all of those years on the market, we had an active bidding war in the last moment, and we thought “That’s really not common.” After you’ve been on the market for years, you would typically say it’s a slippery slope of diminishing returns; you want to make a sale happen as quickly as possible. But we’ve sort of carved a niche out for ourselves as… How do we put it? “People hire us when they wanna make a first impression for the second or third time.” [laughter]

Joe Fairless: You’re the closers!

Mickey Conlon: Yeah, exactly! So we wound up getting a lot of media coverage, and interestingly, that brought in a whole wave of celebrities who were interested in that particular property. We thought, for some of them, “That’s not really quite the right fit for you”, but it was sort of a tacit endorsement of the building and the neighborhood, and quite a success story, I’d say.

So yeah, a little razzle-dazzle can go a long way.

Joe Fairless: The friend that helped you two out – was that friend an expert in staging? Or did they just have some muscles and they moved the donated furniture into the apartment?

Mickey Conlon: His name is John Lyle, he’s a well-noted designer, and it really took a village, between the painters and the multiple vendors who contributed their time and effort to make this happen, it was kind of like something out of an MGM movie – everybody just banding together, we’re getting this done, and everybody there is going to be a part of that success story.

Joe Fairless: I think you mentioned zero budget – is that relatively speaking, or literally zero in all those individuals donated their time and supplies?

Mickey Conlon: It was a zero budget. Everything was donated.

Joe Fairless: Wow… And the painters, they did it just to say they worked on that place?

Mickey Conlon: Yes, because in situations like this we like to thank everybody… Whether we thank the in writing as a contributing participant in this effort, or where we can refer business to them down the road. When somebody needs somebody, if they need a contractor, if they need an attorney, if they need an interior designer, we like to be able to recommend people who are basically an extension of ourselves, knowing that they’re going to get the same level of service. And these people went above and beyond, and that’s something we really value, so we like to pay it forward, in a sense.

Joe Fairless: Makes sense. Based on you two’s experience — I used to say “y’all”, but I moved from Texas, so now I don’t say y’all… I don’t think there’s a perfect word to substitute for y’all, though… Based on y’all’s experience in real estate, what would you say is your best advice ever for real estate professionals?

Mickey Conlon: For people who do what we do?

Joe Fairless: Yeah.

Mickey Conlon: Always be honest. Don’t make things up. If somebody asks you a question and you don’t know the answer to it, do not make up the answer. We have seen people get in so much trouble time and again; you cannot make representations that are not true, and there is nothing wrong with saying “You know what, that’s a great question. Let me look into that and I’ll get right back to you.”

Tom Postilio: I would add to that – going back to show business – know your audience. Let’s say if I’m representing a seller and I have a showing and I open that door, that’s the curtain going up. Who are you dealing with? Are you giving the same performance every night? What kind of audience do you have out there? Are they with you, are they having fun, are they slightly hostile? Are they someplace in their own heads and they’re really not present for this showing? Figure that out and try to figure out how to break through… Because these people are probably seeing five, six or seven properties in a day, and you want the experience and their short time with you to be memorable, to hopefully get them to come back.

Joe Fairless: How do you break through? Let’s say someone is lost in their own head, and you can tell they’re just not being as focused on the property… Maybe they’re checking their phone, or just kind of absent-minded; what do you do in that moment?

Mickey Conlon: To the best of our ability we’ll try to engage them in conversation. I know there are some brokers — if a buyer’s broker brings their buyers in and we’re representing the seller, they try to act as a wall between the client and us, as if they’re pulling the strings and they’re controlling them. But the best brokers are those who realize we need to foster communication. If we can create a comfortable sense of environment in the space, that will lead with them, because if it’s tense or they’re disconnected, not to be too hippy-dippy about it, but it really does affect the energy of the space, and you leave that thinking “That’s not for me”, even though it may have been for them.

So if we can engage them in a conversation and find out, “This is a three-bedroom listing. How many bedrooms do you need?” “Two.” “Okay, great. Well, here’s the great thing about this other bedroom… It could be a fantastic media room, or an office, or what else do you need?” Then we try to help them go through their wishlist and check off as many of the boxes as we can.

Joe Fairless: Are you two ready for the Best Ever Lightning Round? First though, a quick word from our Best Ever partners.

Break: [[00:25:55].00] to [[00:26:37].01]

Joe Fairless: Okay, what’s the best ever book you’ve read?

Tom Postilio: From literature – not to be trite, but I think I’ve read the Great Gatsby 14 times. [laughter]

Mickey Conlon: Mine’s usually the one that’s currently on the nightstand, which of course, being obsessed with Frank Sinatra, is a Frank Sinatra book, but I’m gonna go back — you mentioned Barbara Corcoran earlier, and she’s kind of a hero to us. She wrote a book several years ago called “If You Don’t Have Large Breasts, Put Ribbons On Your Pigtails”. Hysterically funny read. For anybody who does what we do for a living, they should read this book. It kind of ties into our mantra of “It’s all show business, and you’ve gotta stand out.”

Joe Fairless: What is the best ever transaction that you’ve done?

Mickey Conlon: I think we have to reference back to that building in Harlem we were just talking about, because it’s not always the highest-grossing transactions that are the best ones. It’s the ones where you come out of the trenches, you’ve survived, and everybody is still reasonably happy. [laughs]

Tom Postilio: And there’s another one too, we sold a townhouse on the upper West Side for another celebrity client, and it was a situation where we went in and we were the second broker… They had it priced at eight-and-a-half; they lowered the price, they were finally ready to move on. We went in, we wanted the listing, we raised the price to twelve million, because it’s not often where you go in and you say, “This is underpriced. This is being approached from the wrong angle.” We went in, we raised the price to twelve, and we wound up closing at eleven million dollars, and that was a record-breaking deal at the time on the Upper West Side.

Joe Fairless: What specific aspect or aspects did you identify that it was under market so you raised the price?

Mickey Conlon: One of the cornerstones of our business is comps. People go by numbers, so when you run what sold in the last six months or the last year of comparable properties, people come up with the price – dollar per square foot, based on the quality of the space, the block, the renovation… And at that moment, when we looked at those numbers we realized “There’s a gap here. This house is far better than anything in the eight-and-a-half-million-dollar range, or the nine-million-dollar range.” So we broadened the search, and we saw an opportunity not in that neighborhood, but in other neighborhoods; the lines blur very quickly… And we thought, “We can do this. We can really get away with this”, and we had half the brokers on the Upper West Side calling us, telling us we were insane. But there were a few [unintelligible [00:29:01].26] colleagues who came through that house and they said “You nailed it, you’re exactly right. I’m bringing my people back.” And they did, they brought rounds of buyers back over and over, because they believed in the pricing.

Certainly after that, the closing price was posted… Those same people were calling us, “How did you do that? What did you do? Was there something included with the sale? Was there extra furniture?” No, we saw an opportunity in the market, we believed the market could bear that, and it did. That forever changed the benchmark in that neighborhood for pricing the townhouses.

Joe Fairless: That’s impressive. What is the best ever way you two like to give back?

Tom Postilio: We write checks to a bunch of different charities, but really our preference on this kind of thing is to be very hands-on and create events that we will host ourselves. We’ll bring in VIP clients to have an experience and to raise money for some charities that we support.

Mickey Conlon: New York City real estate in particular is known for these glittering soirées designed to market properties, and what we like to do… Where a seller has an organization that they believe in and they’d like to support, we try to find the tie-in with the property to raise money for that cause. Because people are more inclined to turn out if they feel there’s some good to be done. So it’s great for our marketing efforts, but more importantly than that, it’s great exposure for those organizations.

Joe Fairless: What’s a mistake that you can think of that you’ve made on either a deal, or just while in business?

Mickey Conlon: We don’t make mistakes. [laughter]

Joe Fairless: You’re perfect! Maybe we’ll add that to one of your mistakes…

Mickey Conlon: One of our biggest mistakes is that we spend a lot of time making a lot of money for a lot of people, and we don’t drink our own Kool-Aid. Sometimes a buyer says, “You guys are absolutely right, I’m doing it”, and they make a lot of money, and sometimes they say “I don’t believe you”, and then five years later we say “Remember that place? It tripled in value.” And we’ve stopped recently and said, “Why don’t we grab some of these opportunities ourselves? Why do we keep giving them away to other people” That’s a mistake that happens over and over, but we’ll learn someday…

Joe Fairless: Lastly, where can the Best Ever listeners either reach out to you or your company?

Tom Postilio: TomAndMickey.com.

Joe Fairless: Well, that’s just perfect. That goes along with the theme, that’s for sure… The show business theme where you two stand out. I love the analogy of looking at it the way a director looks at a script when you approach each property differently. I’ve been taking notes throughout our conversation… I wrote five primary rules that you two mentioned that you follow.

One is buffer clients from the madness, so be a sponge for the drama. Two is total honesty and transparency, regardless of what’s going down. Three is servicing the customer first and foremost, and not necessarily being focused on making the deal. Four is to consistently evolve, and then five – I love this one – is to put something in writing first if something bad or unexpected happens, and then call after. It helps 1) the individual digest the information, process it at their own speed, in their own way, and 2) it allows you to formulate it the way it needs to be formulated and communicated so that you can think through it before sending it out.
I really appreciate listening and having a conversation with you two. I have learned a lot, I know the Best Ever listeners have as well. I hope you two have a best ever day, and we’ll talk to you soon.

Mickey Conlon: Thank you so much!

Tom Postilio: It was a pleasure!

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JF917: How He Rehabbed and Refinanced an 8+ Unit Quickly!

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Best Real Estate Investing Crash Course Ever!

Leaving the corporate world after graduating our guest was ready to do something greater… real estate investing on a multiunit level! Hear how he acquired, rehab, and refinanced and 8+ unit apartment property and what he’s up to now!

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Nick Baldo Real Estate Background:

– Owner at NY Home Solutions
– Began investing part time in 2011 on rehab properties, went full time in ’14 after profiting on flips/rental properties
– Currently focused on value-added real estate investing while also launching a luxury home remodeling company
– Also created and manages the real estate education site Income Digs, that helps investors get started
– Based in Buffalo, New York
– Say hi to him at http://www.nyhsolutions.com/
– Best Ever Book: The Alchemist

Click here for a summary of Nicks’ Best Ever advice: http://bit.ly/2mGOWLx

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real estate pro advice

JF874: Why You SHOULDN’T be Intimidated by HUGE Properties Regardless of your Skill Set

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50,000 sq ft, is that big enough? That was our guests FIRST purchase! He has become an authority on buying underperforming assets, adding value, then refinancing them! You can’t miss this episode!

Best Ever Tweet:

Brian Murray Real Estate Background:

– Founder and CEO of Washington Street Properties
-Grown company into large portfolio of office, medical, retail, restaurant, parking, storage, and apartment communities
– In 2015 Presented with Gold Stevie® Award in the Executive of the Year, Real Estate category
– Brian has been quoted by the Wall Street Journal, the New York Times, and other publications
– Based in Watertown, New York
– Say hi to him at http://www.washingtonstreetproperties.com
– Best Ever Book: The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges

https://www.amazon.com/dp/0998381624/

Click here for a summary of Brian’s Best Ever advice: http://bit.ly/2kofq3K

Made Possible Because of Our Best Ever Sponsors:

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Best Ever Show Real Estate Advice from experts

JF813: $50K Rehab With a Million Dollar Multifamily Return and Why Who Know Matters

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She was a lawyer and is now taking advantage of such a detailed career and setting up large contracts on multi family acquisitions. Hear how she does it through debt investing, multi family flips, and a deal you may hear about on a future episode.

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Krista Testani Real Estate Background:

– Principal and Managing Partner at Sharpline Equity Real Estate Investments
– Sharpline’s focus is Apartment complexes and Single Family Rentals
– Krista has been involved in acquisition of 164 units in 4 states with purchase cost close to $5.5 million dollars
– Began real estate in 2009 with single family home and 2012 transitioned to multifamily
– Law degree from Brooklyn Law School
– Based in Long Island, New York
– Say hi to them at http://www.SharplineEquity.com
– Best Ever Book: The Go Giver by Bob Burg

Want an inbox full of online leads? Get a FREE strategy session with Dan Barrett who is the only certified Google partner that exclusively works with real estate investors like us.

Click here: http://www.adwordsnerds.com to schedule the appointment.

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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Best Ever Show Real Estate Advice from experts

JF789: What it Takes to Be an Empowered Startup Founder #SkillsetSunday

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Have an idea or the drive to get your business up and running? Do you have both? You’re about to hear what it takes to be a founder and stay in the game, because it’s not easy. Be sure to have a pen and paper and take notes to begin your journey in becoming a founder.

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Kevin Siskar Real Estate Background:

– Managing Director of the Founder Institute in New York; Helps entrepreneurs launch startup companies
– Hosts the Ambition Today podcast interviewing ambitious startup founders and entrepreneurs
– He was named Best Startup Ecosystem Developer in FI’s global network in 2016.
– Based in New York, NY
– Say hi to him at http://www.siskar.co

Want an inbox full of online leads?

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

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

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Best Ever Show Real Estate Advice from experts

JF757: The Grief and PAIN You’ll Cause if You Don’t Set Up an ESTATE PLAN

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You’ve heard about it, you wonder why you need it, and this episode is going to show you why. The bottom line is this, people pass away, things happen, and nobody realizes who owns what. Taxes are involved, attorneys are involved, and it could be very expensive without one of these.

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Jules Martin Haas Real Estate Background:

– Founder of Jules Martin Haas Attorney at Law
– Trusts, Estate Planning, and Probate Expert
– Say hi at www.juleshaasattorney.com
– Based in New York, New York
– Best Ever Book: To Kill a Mockingbird by Harper Lee

Want an inbox full of online leads?

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

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

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no fluff real estate advice

JF674: Where GOLDEN Buyer/Seller Leads Come From

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Interested in golden leads? Did you think about reaching out to a fiduciary, financial visor, or asset manager? There are many leads locked inside the wealth management system for both sides of the transaction, and our guest is going to share how he keeps in touch and converts many leads from these resources.

Best Ever Tweet:

Phil Henn Real Estate Background:

    – Broker at Town Residential
– Top producing broker for over 12 years
– Based in New York, NY
– Say hi at 9176028416

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

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
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real estate advice podcast

JF659: When Snapchat and This Unique Approach Earns Better Homes and Gardens Love

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When Better Homes and Gardens says our guest’s brokerage is “One of the top ten most innovative brokers in the country,” you know your on the right track! Our guest has mastered real estate marketing in our short attention span era. He uses videos, Snapchat, and other personal social mediums to reach buyers and sellers. You must hear this episode!

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Michael Meier Real Estate Background:

    – Founder and Broker of Meier International Real Estate
– Completed over 500 transactions
– Better Homes and Gardens has said he is one of the top ten most innovative brokers
– Based in New York, New York
– Say hi to him at http://meierrealestate.com/#

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

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

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

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

real estate advice podcast

JF651: How He Works a Day Job and Closes Over 140 Deals

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Today’s guest is a full-time employee working towards his financial freedom. His niche of choice in real estate is the lease-option and other creative financing strategy. He is also open to closing with cash, but has learned creative solutions from mentor Dean Graziosi. Sure to lean into this one!

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Jay St. Hilaire Real Estate Background:

– Author of Stop Renting and Be a Homeowner Now!
– Lease option strategist
– Based in Brushton,New York
– Reach him at jbtoggs@yahoo.com

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

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

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

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

Best Ever Show Real Estate Advice

JF631: How Grandma Helped this NYC Investor Get Started in REI

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Today’s guest used $7000 of his grandmothers money to get started! He shares with us properties he purchased in a drug trafficking area, student housing, and other opportunities that he took advantage of over the years. New York City New York and Ann Arbor Michigan are two places he invests. Tune in and hear how he did it!

Best Ever Tweet:

Tiga McLoyd Real Estate Background:

-23 years in the business
-Broker and investor
-Based in New York, New York
-Reach out to him at Tiga.nyc

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

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

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

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

Best Ever Show Real Estate Advice

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!

Best Ever Tweet:

Brad Malow real estate background:

  • Has been representing NYC buyers and sellers since 2003
  • Transaction portfolio exceeds $35,000,000
  • Currently an agent with Douglas Elliman as well as founder of buyingnyc.com, a website that helps consumers navigate NYC’s complex real estate market
  • Based in New York City, New York
  • His Best Ever Book: A Wrinkle in Time by Madeleine L’Engle

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

Do you need more leads for your real estate business and a platform to grab more leads?

Danny Johnson has a solution for you, go to leadpropeller.com set up your website for success and get more leads!

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
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Best Ever Show Real Estate Advice

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!

Best Ever Tweet:

Robert Edward Franklin real estate background:

  • Has 15 years of real estate experience in New York City
  • Co-founded Brick Real Estate and grew it from the ground up to one of Brooklyn’s finest residential and commercial firms and now is at William Raveis
  • Got “Rookie of the Year” in residential sales
  • Say hi to him at raveis.com
  • 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

Sponsored by:

Door Devil – visit  http://www.doordevil.com and enter “bestever” to get an exclusive 20% discount on your purchase.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
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Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!