JF1949: Building A Large Brokerage, Foreclosures, Management, & Commercial Real Estate with Devin Doherty

Devin’s daily focus is finding investors for himself to work with. Him and his team have extensive backgrounds in real estate, which they use to educate clients, and help them find great investment properties. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Warren Buffet is a great example with all of his real estate investments” – Devin Doherty


Devin Doherty Real Estate Background:

  • Real Estate Broker and Owner of Doherty Real Estate Group at Keller Williams
  • Twenty years of commercial and residential property management experience
  • Licensed general contractor, experienced in custom home construction & remodels
  • Experienced Short Sale & Foreclosure Negotiator
  • Based in Orange County, California
  • Say hi to him at www.fivedoors.com
  • Best Ever Book: The Bible 


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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 fluff. With us today, Devin Doherty. How are you doing, Devin?

Devin Doherty: I am super-fantastic, Joe.

Joe Fairless: Well, nice to have you on the show, and glad to hear that. I feel like there should be an expialidocious at the end of that…

Devin Doherty: [laughs]

Joe Fairless: A little bit about Devin – he is a real estate broker and owner of Doherty Real Estate Group at Keller Williams. He’s got 20 years of commercial and residential property management experience. He’s a licensed general contractor experiencing custom home construction and remodels. He’s based in Orange County, California. With that being said, Devin, do you wanna give the Best Ever listeners  a little bit more about your background and your current focus?

Devin Doherty: Sure, you bet, Joe. My current focus is on our national real estate team, which is the Five Doors Network, with Keller Williams. We’re operating in about 20 locations currently, and my personal mission in life and our mission in our business is to build generational wealth through real estate. What that translates into is our ability to provide value to our clients, who are both our agents, and their clients, and their ability to find investment opportunities in real estate that make sense for them to either make a first-time move, or multiple moves down the path.

My mentor is Gary Keller, so I’ve been very blessed to be able to be fed that perspective for a number of years with Keller Williams.

Joe Fairless: So building generational wealth through real estate, and you said your clients are the agents and their clients… So just so I’m understanding it correctly – are you saying your focus is your brokerage?

Devin Doherty: Yeah, our brokerage specifically searches out clients that are interested in investing in real estate, whether that’s first-time investing, or whether they are multiple-time investing. We actually have an anti-listing agent mindset, where we will sell homes that are only needing to be sold after we have a conversation about why we should hold the property, or how we might be able to hold the property.

So yes, we’re out there looking for listings. As a matter of fact, we’ve just celebrated our 800th sale this year, today. That’s 800 people who were asked the question “How is it that we can hold this property instead of selling it?” and they chose to sell it anyway, because of whatever it was – a move up, a move down, lifestyle, death, divorce, all the typical reasons that somebody might sell.

We then take that potential sale, we determine whether they wanna sell it at wholesale or retail, and we coach them through the process of — if they’re wanting to go the retail route, how we can be the best representatives to get them the most amount of money in the marketplace… And if it’s a wholesale opportunity, then we have an investment division who will look at those deals and see if there’s something that makes sense for the agent to purchase, or for the team to purchase, or for the organization to purchase.

Joe Fairless: Well, congratulations on the 800 mark so far, and we’re a little past half the year, so you’re gonna continue to go strong and creep towards the 2,000 mark in closings, so nice work on that.

So your focus is on finding investors who you can work with, right?

Devin Doherty: That’s correct.

Joe Fairless: Okay. Why investors? Because a lot of agents and brokerages prefer to shy away from investors.

Devin Doherty: It’s a great question. I think, Joe, the thing that we like to do is we like to align ourselves and think that actually every single homeowner is an investor… And the fact is that they actually don’t know the power of what they’re holding, and when we show them why it makes more sense to invest in real estate than to invest in the capital markets, for instance, with the leverage that could be provided, that we would help them align with their highest purpose and intent, and that is that they wanna be able to provide a college education for their children, or retirement income, or really talk about generational wealth – what would it look like for them to actually be able to leave something to their children’s children. And the only way to really look at that is to take something that they’re not looking at, maybe with the right perspective, and help them upgrade their mindset.

Joe Fairless: How do you — “convince” isn’t the right word, but how do you show them that real estate is the right approach to take, versus stocks and bonds?

Devin Doherty: It’s a great question. I think the first thing we do is we point to some of the great thought leaders that I know that you’ve interviewed, and some of the people that are out there that have made this point very clear… I think a great example of that is Warren Buffett and the amount of investment that he’s done in real estate in recent years. You look at the amount of homes that he’s purchased through his investment arms… I think it’s pretty evident that Wall-Street has moved to Main Street, and so many people are wanting to take more control of the capital markets, and you just don’t have that ability… And then you add leverage on top – you invest a dollar, you get return on a dollar in the capital market, where you invest a dollar in real estate, you might put 10% down and you might have return on ten dollars, or you could even go into a no money down situation and now you’re talking about a massive return.

We’ve just helped a veteran – actually, he’s active duty – in San Antonio, Texas, in one of our locations, we helped him create $1,000/month cashflow from buying a 4-unit building where he’s living in one of the units and the other three units are paying him to rent, and he’s putting $1,000/month in his pocket, and he’s getting a place to live… That’s the kind of conversations we love to have.

Joe Fairless: You’re in Orange County, he’s in San Antonio… How did you come to work with him?

Devin Doherty: He was actually referred to me from an Orange County financial advisor. Believe it or not, there are some financial advisors out there in the world of capital markets who understand the value of leverage. She actually connected me to him in San Antonio, and then I put him with one of our team members in San Antonio. We’re a nationwide company, so that’s what allows us to be able to make those kind of connections and help people literally anywhere.

Joe Fairless: Got it. Okay. Do you invest yourself?

Devin Doherty: Of course. I’m super-blessed, because I married into the concept of generational wealth. My father is also a forty-year veteran in the lending industry, so my wife’s father’s mother started the Beverly Hills Board of Real Estate back after World War II, so I back in 1991 was brought into a family business by choice. I actually started in the technology industry… But by choice I was able to align myself with how — my wife’s name is Judy; we’ve just celebrated our 25th wedding anniversary last week, and I’m super-excited…

But what I can tell you is that when I look back at what they’re done, they’ve literally just made small moves over time, and now that we’ve done some investing together and some apart, over 100 doors of real estate in some of the best areas of Southern California, which are Beverly Hills, Bel Air, Brentwood, Pacific Palisades… And along near the airport as well.

What’s great about that is that we’ve been able to get this kind of perspective that when you start with that generational wealth mindset, then you actually have a really clear opportunity to be able to go and look at the market and start turning over rocks, looking for those opportunities for yourself. So that’s kind of where the bias started from – I was blessed to have that experience.

Joe Fairless: First off, clearly, congratulations to you and your wife on 25 years. That’s incredible. I think that should be celebrated 25 times more than the announcement of a wedding, and getting married. It’s always — not always, but recently, it’s boggled my mind, because I just got married, how when we post on Facebook about our wedding, tons of people love it, comments… But when you post about 5, 10, 20-year anniversary, you don’t get as many comments… Like, wait, wait, wait… It should be the opposite. You should celebrate the 25 years much more than the initial. But that’s a sidebar.

As far as the generational wealth thing goes, what did the previous generations do to put in place safeguards, so that future generations don’t mess it up?

Devin Doherty: That is a great question. As a matter of fact, we actually ran into that question early on in my relationship with the family, and we hired a consultant who is basically a  strategic family business consultant, specific to how it is that businesses past down from father to son, and son to grandson… And the statistics are actually terrible with what–

Joe Fairless: The third generation.

Devin Doherty: Yeah, the third generation. And the reason for that is that there’s a loss of vision, there’s a loss of connectivity to the vision, and then there’s also a disconnect between what it actually took to get the wealth, versus what it takes to continue to grow it or maintain it. Jim Stovall wrote a book called The Ultimate Gift, and he actually has a series of movies about it… And what’s really interesting about all of that is that what we’ve found in our own family was that we had to align with the highest purpose and intent, and that moves away from — at a certain point you wanna create security for yourself, and then you wanna create opportunity, and then you wanna give back. And until you’re aligned on the giving side of it, there’s actually not a real good understanding of why that makes sense… And until you have people in your life who are not takers, if you will, who are givers, you actually don’t have the ability to create a common goal, or a common vision. That’s a big challenge.

Joe Fairless: Okay. I heard all that, so help me break that down into the answer to the question… And I apologize if I’ve missed it. So what safeguards are in place to protect the future generations from messing up what previous generations did?

Devin Doherty: I’ll give you a great example. My son is ten years old, and he was out at an open house with us this last weekend. My 12-year-old son is in the business of helping us find opportunities. My 15-year-old daughter is working in an environment where she’s investing 15, 20, 25 hours a week in a job where she is getting value from it. I would say that the magic pill in all of this is the ability for people to connect to the real big picture opportunity, which is teaching the value of hard work and knowing that it didn’t come for free.

If you look at Warren Buffett’s plan for his kids, he’s only gonna leave them a very small amount of money, and the rest of it is all gonna go to charity, and I think that that’s the thing that’s really interesting – if people don’t align with the fact that they’re doing this for something great than themselves, there’s no opportunity whatsoever to not mess it up.

Joe Fairless: Okay. Anything in the contracts, or something that’s passed down, that also is included? Or is it just “You’ve gotta raise your kids right, teach them the value of hard work, and know what the bigger picture is for your generation and future generations”? Or are there some tactical things that you all do as well?

Devin Doherty: Yeah, I’d say there’s obviously tactical things. The point is that you can have a lot of language and estate plans about how to manage this, and estate plans can be very well written… For instance, there’s a tool inside of Judy’s dad’s estate plan which has been discussed, called the Generation Skipping Tool, which basically means that “Hey, look, if you’re not gonna do it, we’re gonna leave it for your kids.”

Joe Fairless: [laughs]

Devin Doherty: So generational skipping trusts are actually en vogue, because one of the things that we have as we align with the Bible and the teachings of the Bible as a Christian, and one of the things that I’ll say is that the Bible is very clear, and one of the reasons why we started Five Doors is because it says that you’re supposed to pass an inheritance to your children’s children. So it doesn’t necessarily say anything about what you should pass to your children.

So you’ve just had that beautiful baby, and yet you don’t know how that baby’s gonna show up in the world, and make things happen. Or I’m sorry, you didn’t have a baby, you just got married. But you get the point – down the road you’re gonna have that baby, and you actually could choose to pour in, you can share everything that you want with them, but you actually can’t control that… And yet the innocent person is that children’s child. So what kind of legacy do we wanna leave for them? How is it we’re gonna connect to them, to make a difference for that children’s children?

Joe Fairless: Interesting. I’m sure the Generation Skipping Tool has given some people some night sweats, who are listening, who have the generational wealth… They’re like “Oh, I hate that term. Yes, I know of it…” [laughter]

Devin Doherty: Yes, as we all move towards significance in whatever that looks like for us, what I would say is that we also have to plan accordingly. I was at a seminar, and the speaker – who happened to be my business partner, Seth Campbell – was mentioning this concept of “How many of you actually know your great grandparents, or know any of their names?” And I’m sitting there in this class, going “You know what – he’s right, I actually don’t know any of my great grandparents’ names.” And what that translated into was “Well, what kind of legacy did they leave for you if you don’t even know their name?”

And then if you compare or contrast that to, let’s say, Abraham Lincoln, I’m sure generations down the line people knew who Abraham Lincoln was. And I think that when you take that and you then overlay real estate, and wealth building on top of it, it can get really funky. My wife grew up in a very rich area in the Pacific Palisades, and the fact is that not all parents are emotionally available, and willing to commit to the parenting that’s necessary to train the child in a way that they’re gonna be seeing the significance of what is available to them; then they treat money in a completely different way.

Joe Fairless: Yeah. Someone I’ve interviewed on the show, Richard Wilson – he heads up a family office in Miami, and he talked about some interesting things that 500 million net worth families do for their kids. This has reminded me of that conversation… It’s really interesting.

Devin, what was the last property that you bought? And tell us a little bit about it.

Devin Doherty: Well, again, my focus is not so much on myself, it’s the success that I see through others. A lot of the investment opportunities that I find, I actually give out as gifts to people who are in our world. So I would say that one example is that we recently had one of our administrative executives looking to level up her life and create more passive income, so we were able to find her a positive cashflow duplex in her area that she lives, and be able to make the right moves to support her in getting the right financing and all the things that were necessary… And that gives me so much more joy than even finding things for myself.

When I say “finding things for myself”, since she’s part of my team, I’m creating security for her, and that creates a win for us anyway. It’s just that when I look at opportunities for us – yes, I find those opportunities; we recently have taken down some other types of deals. But the things I get passionate about are helping people either get the first opportunity, or the second opportunity… Because that’s actually what unlocks really, as you know, every other opportunity.

Joe Fairless: Right. Okay… But as far as some of the things you’ve taken down, what was the last one you took down or purchased, and what’s that deal?

Devin Doherty: Well, we flip properties on a pretty regular basis… So I use hard money, meaning that I just throw dollars into deals. Those kinds of deals we do quite often. Our team did 175 flips last year, so there’s a lot of great deals inside of that.

In terms of specific deals, we still look for conversations with what our potential sellers — we literally dial for dollars to find opportunities for potential sellers. An example of one is that we just had a three-unit building in the city of Orange, which is here in Orange County… And it was an absentee seller, who was out of the area, and they wanted to sell the property. It’s the kind of deal that we would normally take down. That was a three-unit that was around 750k.

Joe Fairless: With the generational wealth focus, how come you’re doing 175 flips, versus doing more long-term stuff?

Devin Doherty: Great question, I love that question. As a matter of fact, what we intend with our flips is that we’re facilitating the ability to build cash to be able to hold. So we actually have a 10 to 1 ration, where it’s our intention — 10 flips equals one hold. So we continue to flip, because it’s a great source of income. And you don’t always hold a property that you don’t need to hold, or you may not want to hold, for whatever reason. So flipping for us is another active income tool to create passive income through holding.

Joe Fairless: Okay. And by “us”, is it you and your wife and your family, or is it your brokerage, or…?

Devin Doherty: It’s my Five Doors team that we formed. I have 150 agents nationwide, so the team at large is the one that is using these tools. What we do is we personalize it down to that individual, so if an agent on our team finds an opportunity, we teach them how to either hold it if they can, or flip it for the profit, so that they can develop holding dollars. Does that make sense?

Joe Fairless: Yeah, but you don’t profit from that, right? On that?

Devin Doherty: No, we do.

Joe Fairless: You do.

Devin Doherty: Yeah, I profit directly from it. I profit from the brokerage income side, as well as the flipping opportunity.

Joe Fairless: Oh, okay.

Devin Doherty: So we’re directly involved in that. Basically, what we’ve done is we’ve just taken the things that we love to do on our own and just made it a fun party, with a whole lot of people.

Joe Fairless: Got it.

Devin Doherty: And in that process, what we now have is we now have 150 people looking for opportunities, and that number is gonna obviously continue to grow… And because of that, that allows us to have this window into finding these wholesale deals that are worth holding. And there’s more and more of those kinds of opportunities that become available to us, as we turn over more rocks. As you know, it’s just about a finding game.

Joe Fairless: When you hold a property, how many people actually own it?

Devin Doherty: Great question. We have two methods. We have the individual owner method, like the one I talked to you about with one of our administrative professionals, and then we also have a group method, where we have a fund. The fund will actually hold the property, and then they get a piece of that fund.

Joe Fairless: Okay, they get some sort of ownership percentage or shares in the fund?

Devin Doherty: Yes, exactly.

Joe Fairless: Okay.

Devin Doherty: The biggest challenge with the real estate industry is that we teach people how to go out there and find a seller, sell the home, they take a transactional income, and they’ve done nothing for their generational wealth opportunities in that process. They haven’t made a really great relationship with the seller, because the seller is no longer in that home. They haven’t shown the seller how they could potentially keep the home…

Some of our best clients are the people we’ve taught how to build wealth with. That’s completely missed when you’re missing the overall focus. And what we do is we put all of our aegis in the position of them being a cash buyer. When they act like a cash buyer in the marketplace, they could take a wholesale deal down, they could take a retail deal down… Whatever it looks like, it makes it much easier for them to find opportunities when they have the mindset of a cash buyer.

Joe Fairless: It makes sense… And we’ve talked about a lot of different things, from generational wealth to your business model, your 10 to 1 ratio… What is your best real estate investing advice ever?

Devin Doherty: I think I’d have to go back one statement and say that if you can help your audience align with the fact that they are truly cash buyers, and that they just need to figure out who their partner needs to be in that – and I know you’re a partner in that, and I know that there’s many other people that are out there that have either hard money, or other people’s money that they can use, as you can help people align with their mindset of being a cash buyer, when they have a focus on generational wealth (because they’ve gotta have that first, right?), if you could teach them to have the focus on generational wealth and then attach that to them being a cash buyer, that’s like a double whammy. That’s absolutely the best advice that I could possibly give.

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

Devin Doherty: I’m ready.

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

Break: [00:20:54].19] to [00:21:35].23]

Joe Fairless: Best ever book you’ve read?

Devin Doherty: The Bible.

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

Devin Doherty: A house that we moved out of that we were renting… And we moved out of the house, we left an offer – no money down, seller-carried offer; we left the offer, we moved out, and two weeks later the owner said “Hey, we wanna take your deal.” We moved back in two weeks later and got the deal.

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

Devin Doherty: A transaction mistake… I’d say the biggest mistake I’ve made in transactions is not understanding why the deal is being done from the opposite side. Not getting a clear understanding on that.

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

Devin Doherty: I love to give back just the way that you do, in the form of teaching, training and coaching. I’m a coach for MAPS at Keller Williams, and I’m also a trainer for Keller Williams, so I  love being able to give this kind of advice in one-to-one and group settings.

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

Devin Doherty: Our website is FiveDoors.com, and you can reach us toll-free at 866-338-4677. That’s the best opportunity.

Joe Fairless: Well, Devin, thank you for talking about generational wealth, the approach to take. One, you can have safeguards within the estate plan, the generation-skipping tool that you’ve mentioned, but then more macro-level, the way you approach the generational wealth focus with kids, and that is show the value of hard work, because that tends to be something that needs to be reinforced outside of the first generation… And especially outside of the second generation. And then also the big picture opportunity – have the shared vision.

First we’ll want security, second the opportunity, and third, give back… But we really can’t get to the third part until we’re all aligned with the macro-level stuff. And then also your approach with Five Doors.

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

Devin Doherty: Thank you, Joe.

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JF1804: Finding & Investing In The Best Real Estate Markets #SkillSetSunday with Marco Santarelli

Marco has been on the show a few times now, and he always delivers tons of value for us all. We’re having him on again today to talk about something specific, finding great markets to invest in both passively and actively. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Markets change, they’re not static” – Marco Santarelli


Marco Santarelli Real Estate Background:


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

First off, I hope you’re having a best ever weekend. Because today is Sunday – a special segment for you called Skillset Sunday. You know what we do here, but just as a refresher – we will help you hone or acquire a skill that will help you in your real estate endeavors.

With us today to talk about the skill of how to find and invest in the best real estate markets, Marco Santarelli. How are you doing, Marco?

Marco Santarelli: Doing great, Joe. I’m glad to be here, how are you?

Joe Fairless: I am doing well, and I’m glad that you’re glad to be here, because we’re glad that you’re here. A little bit about Marco – he is an investor, he is the best-selling author and founder of Norada Real Estate Investments. He is a nationwide provider of turnkey investment property and has been one since 2004. He’s based in Orange County. He’s the host of the top-rated passive real estate investing podcast as well, and you recognize his name because you’re a loyal listener. Episodes 111, 1012 and 1425 – those are the three episodes he’s been on. He’s back and he’s here to share with us how to find and invest in the best real estate markets. First thought, Marco, do you wanna give the Best Ever listeners just a little bit of a refresher, and then we’ll dive right into it?

Marco Santarelli: Yeah, for sure. To make a long story short, I  did buy my first rental when I was 18, around the time when I could qualify for financing… And that’s essentially when the writing was on the wall… But I wanted to invest in real estate, because I looked around and I came to the realization that I didn’t want to struggle financially. That was the situation with my mother, because my parents got divorced when I was 16. I ended up living with my mother and my brother, and she had to work two jobs pretty much all week long; I recognized how much work she was putting in and I didn’t wanna be the person that lived that same life or lifestyle at the time… So I decided that the only way to make money is business and real estate, and that’s the course I took, on both fronts.

I bought my first rental, held it, made the mistake of selling it years later, but I did walk away with some great equity, but that was a lesson learned. Then you fast-forward to 2003 – I continued with my real estate career, but went full-time and put the pedal to the metal and acquired 84 doors in nine months early on in 2004, and then just continued from there. But to wrap up your question, it was the same time that I started this business to help other real estate investors invest in single-families, duplexes and fourplexes to create that passive income, create wealth and become financially free… So here we are today.

Joe Fairless: So you work with investors who are looking to purchase turnkey investment property and have been doing that for almost a decade and a half… So describe to us just the typical customer of yours, and then let’s go into how you help them find and invest in the best real estate markets.

Marco Santarelli: Coincidentally, our ideal client is very similar to yours, with the exception that you’re talking to people who are looking to participate in a large real estate deal, like an apartment complex… So they are partners in the deal with you, but the similarity is that they wanna be real estate investors, they wanna be passive real estate investors, they wanna create wealth and they wanna create passive income. So you can choose the large real estate route, which is apartments, or you can choose the smaller real estate route, be a  direct investor, own those single-families, those duplexes and fourplexes, and that’s really the wheelhouse or the space that we’re in – that direct ownership of these cash-flowing rental assets. The end goal is the same, the vehicle is just slightly different… But it’s the same asset class.

So when you were working with them and you were helping them identify the best real estate markets, how do you structure that conversation?

Marco Santarelli: Well, it all starts with what we call a strategy session. We wanna really find out where that investor is today and where they wanna go. Some people refer to that as their goals, but take that and turn it into a roadmap, and then you break that roadmap into specific milestones and criteria. That criteria is the driving factor that helps determine what markets you’re in, what neighborhoods you should be in based upon your interests, your goals and your risk profile, and also the types of properties you’re gonna put into your portfolio. And that is not black and white; it could be a combination of single-families, and fourplexes, and maybe apartment syndications, and who knows, maybe there’s a sprinkling of investing in notes, just having promissory notes.

Joe Fairless: What are the two extremes of stances that an investor might have in terms of — I assume it’s uber-conservative compared to [unintelligible [00:06:51].14] So if you have someone on each end of the spectrum, what type of markets would you suggest for both of those individuals based on those extremes?

Marco Santarelli: Well, there’s really two answers to that questions, and they’re different. You’re talking about extremes of investors. First and foremost, there’s the type of investor — really, there’s three answers to your question, because you have passive real estate investors that want to invest and just take the income and grow the wealth. Then you have active investors who like to roll up their sleeve, swing a hammer, and fix and hold or fix and flip a property.

The next level down is you have investors who are more speculators in nature, the borderline gamblers, and they wanna be focused on hypergrowth markets; they’re essentially chasing after appreciation, which is not the way to invest, in my opinion. Then you’ve got those who are saying “Cashflow is king. I’m investing for cashflow, but I’m gonna buy smart and right, and let the equity and growth in the property happen naturally over time, because that’s what’s happening in that market.” Then you can break that down ever further into a third layer, third level of investor type, and then you have those people who are focused on cashflow markets, and then you have those people who are focused on  markets that have more growth potential. And of course, then there’s the hybrid between the two, where you have growth and growth potential combined with moderate amounts of return in terms of cashflow, cash-on-cash return etc.

Joe Fairless: Will you associate some markets to some of those examples, just so we get some context for what markets would fit into certain categories?

Marco Santarelli: Yeah, for sure, Joe. So we’re talking big-picture here… We classify markets generally speaking into three kinds. Whenever we take on a market – we’re in 22 markets right now, so we have at any given time 100-200 properties available for sale, cash-flowing from day one (we call these turnkey rentals) and we classify them in three categories: cashflow markets, growth markets, and then what I’ve mentioned before is the hybrid market, which is a combination of those two.

To give you some examples, cashflow markets today – because let’s face it, markets don’t stay static; they do change over time, and we’ve seen this especially in Atlanta, we’ve seen it especially in Dallas to a lesser degree, but the same thing… But cashflow markets would be like Birmingham, Alabama, Huntsville, Alabama, Memphis, Tennessee… Those have predominantly been cashflow-based markets.

Then you’ve got growth markets, where you’re seeing above average appreciation rates compared to its historical norm… And if the trend is there and will continue to be there for 1-3 years, then we classify that market as a growth market. It’s basically gonna give you more growth and equity in terms of appreciation. That would be Atlanta, that would be Dallas, to a large degree Houston, San Antonio… Those are examples of those types of markets.

Now, all these markets I’ve mentioned were in those markets. Hybrid markets are Indianapolis, the outskirts of Chicago (the Metropolitan Area), Jacksonville, Florida is pretty much a hybrid market… Kansas City is a hybrid market, although it’s experienced a lot of growth here in the last 2-3 years.

Joe Fairless: And when you take a look at each of these markets… Let’s pick the cashflow market category – have there been any markets over the time that you’ve been really focused on this that have jumped in and out of that category?

Marco Santarelli: Yes, they do change. Most markets don’t change, and don’t change quickly, fortunately, because real estate is kind of a slow-moving asset class… But we were in Atlanta almost from the very beginning in 2004-2005. It was for the longest time just a sleeper market; it was not necessarily “boring”, but it was boring enough to be a great, stable cashflow market. And then somewhere around 2012 Atlanta just took off like a rocket. Inventory dropped, it was hard to find inventory on all levels of real estate, from your retail higher-end markets, to even your low-end 40k, 50k, 60k property. It was just being squeezed.

So inventory was tight, demand was strong, pushing prices up, so we saw this strong appreciation in Atlanta, and usually that appreciation – at least with residential 1-4 unit properties – it far outstrips the rents, which means that it grows faster than the rental income grows. So now you start getting this differential between the two (the delta) and that squeezes your cap rate, it squeezes your cash-on-cash return.

So Atlanta went from being essentially a cash market, quickly becoming a growth market, and still to this day it’s hard to get inventory there, and the numbers are really tight. The same thing has been happening in Dallas over the last three years or so, and we’re seeing that in San Antonio as well. So yeah, markets change; they’re not static. Nothing in real estate is static, for that matter.

Joe Fairless: You’re in 22 markets… What markets would you stay away from, assuming that the variables in play currently are how they’ll be in the future for those markets?

Marco Santarelli: Well, that is a fantastic question. Markets to stay away from – we could probably have a podcast episode on that question alone… But the first thing I’m gonna say about that are markets that are experiencing depression, lost population, meaning their net migration is negative and has been negative for years, meaning that is the trend… Because you need people in the market, and more people coming in, or more people growing there organically, to sustain the demand on real estate. So the people who rent your properties have to be people who live there and work there. So if you see negative migration, that’s a bad sign; you probably wanna do really good due diligence, or stay away from that market.

Same thing with jobs – you wanna see positive job growth, job stability, and a diverse economy. If you don’t see that, that may be a market you should avoid. Because let’s face it – there’s so many other markets you can choose from, and the United States is such a large market geographically speaking that it’s really made up of over 400 metropolitan statistical areas and probably over 600 if you include micro-markets. So there’s a lot to choose from, and this is why you shouldn’t necessarily be investing in your so-called backyard… It’s because odds are there are better opportunities in other markets if you just look around and start to look at things such as job diversity, the economy, growth, population, housing demand, and all that good stuff.

So stay away from markets that have negative factors like that, and then if you wanna break it down a little bit more granularly, I would stay away from submarkets and neighborhoods within markets that are not that great, that are not providing you with solid returns in solid locations. Here’s what I’m thinking as I’m talking… I’m kind of tripping over this a little bit, because what I’m thinking of are the investors that make the mistake of buying rentals that are 40k, 50k, maybe 60k for a single-family home… Because often what we find is that those markets may not be so great, but more specifically the submarkets and neighborhoods they’re investing in are the markets you wanna stay away from… Because that 50k property probably will stay a 50k property ten years from now, because it probably was a 50k property ten years ago. So choose wisely; it’s not just about the market, it’s also about the neighborhood as well.

Joe Fairless: Thinking of the major cities – and I’ll include Huntsville, Birmingham… That type of level and up in terms of population, in the United States; let’s just broadly think about all the cities… You come across a million dollars; who knows how you came across it, but it’s an extra million bucks, and you have to invest it in turnkey rentals in the United States. But there’s a catch. You can invest it in any market in the U.S, but the catch is that there are five markets that you’ve got to cross off your list; you would never ever, ever invest in those markets… But they’ve gotta be major cities. What are the five markets that you must cross off your list before you actually pick the market that you wanna invest in?

Marco Santarelli: That’s a good question, it’s very interesting. Joe, do these markets have to be ones that I would consider otherwise?

Joe Fairless: No. They can just be five major cities that you wouldn’t consider, so the first five off your list.

Marco Santarelli: Well, if I wouldn’t consider them right from the get-go, then that’s easy, because there’s many of those markets… And I will just rattle off some names: San Francisco, Los Angeles, New York, Washington DC, parts of New Jersey. I don’t know if I’m answering your question, but I can tell you what all these markets have in common…

Joe Fairless: Yeah, please.

Marco Santarelli: If you look at these markets, you’ll see — Seattle, Washington is another one. They’re very, very expensive, and I wanna say overpriced to the point of they’re bubble markets. And the problem there is this — it’s what I’ve talked about before; if you have properties that are so expensive, you have two problems. One is the ratio of what those rental units, whether it’s an apartment complex, or more specifically single-family homes – what they rent for relative to the purchase price or market price of that property is so out of whack, is so out of line, that there’s no way you can get a decent rate of return, if at all, on those properties, without putting a large down payment. But then you’re not really using your capital properly, you’re not leveraging your capital, you’re not getting the greatest rate of return. These are very expensive markets.

So number one, you don’t get the right cap rate, the cash-on-cash returns and everything else. Number two, because they’ve had such a huge run-up, there’s greater potential for there to be a pullback or a turn where that real estate market turns and you see the equity and the property values come down. That means that the downside risk is higher in those markets than in a more stable market, where you see the cycle in that market, appreciation-depreciation, be more like a soft wave, as opposed to a rollercoaster.

That’s the problem with these expensive markets – they’re out of whack, they’re overpriced, often they’re not landlord-friendly, and it’s hard to actually get a rate of return. Besides, you can’t leverage your investable capital as far in those markets as you can in some of these more stable, diversified markets.

Joe Fairless: On the flipside, that million dollars is split up into four chunks of  250k. You must invest 250k in four different markets. Which four markets do you choose right now?

Marco Santarelli: Well, if that’s a personal question you’re asking me what I would do…

Joe Fairless: Yes.

Marco Santarelli: Okay, so I would probably pick two markets that are growth-based, meaning that they’ve got the cashflow, but I’ll still have strong appreciation potential, and then I’ll pick two that are more stable markets, but “boring” markets, that are cashflow-based. So I may pick a market like Huntsville as an example, and maybe Memphis, maybe Birmingham or Oklahoma City. Two of those.

And then I would take two that have a stronger growth potential; probably Jacksonville, Florida, maybe the Greater Chicago Metro Area… And I would do 250k in each of those markets… And that’s a lot of property. 250k is enough to acquire 20k-30k per door as the minimum down payment. It gets you a lot of property. That’s a pretty sizeable portfolio.

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

Marco Santarelli: Thanks for asking. We have two websites. Our property website, where we have free information and the properties that are available – or at least most of them – are on NoradaRealEstate.com. And then the sister website, where we also have a lot of articles and free content is the home of our podcast, and that is PassiveRealEstateInvesting.com.

Joe Fairless: Marco, I love catching up with you. You take such an analytical approach to it, but common sense and very easy to follow and understand. I love the three different kinds of markets, how you categorize them – cashflow, growth and hybrid. I like how you talked about what you’d stay away from and why, and why would you go towards a market, and how to think about it in terms of a personal portfolio.

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

Marco Santarelli: Thank you, Joe.

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JF1433: “4 Step Sizzle Approach” To Raising Money From A Syndication Attorney #SkillSetSunday with Gene Trowbridge

All investors need money. It’s actually impossible to invest without it – by definition. Why wouldn’t you want to master raising money as an investor? That’s what we’re learning from Gene Trowbridge today. Not only does he have an amazing money raising strategy, as he is a syndication attorney, we know he’s giving good, legal advice. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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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, Gene Trowbridge. How are you doing, Gene?

Gene Trowbridge: I’m doing fine, Joe.

Joe Fairless: I’m glad to hear that, and I’m grateful that you’re back on the show. Best Ever listeners, I imagine you recognize Gene’s name, because you’re a loyal Best Ever listener. Episode 642, titled “All you need to know about real estate syndications”, Gene talked to us about that.

Well, we’re gonna get more specific, and Gene’s gonna talk to us about the four step sizzle approach as it relates to raising money in real estate. He is an experienced and accomplished syndication attorney, he is a managing partner of Trowbridge Sidoti LLP, a law firm concentrating on syndication and crowdfunding, based in Orange County, CA.

With that being said, Gene, first, before we get into the four step sizzle approach, will you give the Best Ever listeners just a refresher on your background?

Gene Trowbridge: Sure, Joe. Well, I’ve been in basically three careers in my life. The first one was as a real estate broker, selling commercial real estate. The second career was as a syndicator, where I actually did my own deals, the 16 transactions, primarily in the area of constructing and operating self-storage facilities.

Then as a mid-life crisis, Joe, I went to law school. I’d had enough of the care and maintenance of partners, but I loved the business, so I went to law school and now here I am, running a law firm that does nothing but work with syndicators, in real estate and other [unintelligible [00:03:03].21]

Joe Fairless: And before we get into the specific steps of the four step sizzle approach, can you tell us why you came up with the four step sizzle approach and what it is, from a high level?

Gene Trowbridge: Yes. What I saw from my clients and from my competitors, and probably myself when I was raising money, is that most of us when we found someone who could be an investor, we just went right for the kill, we went right for the close, and we wanted to tell them about our deal, our IRR, our ROI… And I found that was not a very good sales approach, because they weren’t ready for us; they weren’t ready to hear about the deal, and if all you’re gonna do is pitch your deal, there’s another deal out there that’s better than yours. So you need to build the sizzle up to pitching the deal, and most of the money, Joe, as you know, is raised in syndications where we need to establish a pre-existing relationship with the client… And through these four steps I think you accomplish that.

Even in the 506(c), where you can advertise, chances that someone is sending you a $50,000 check if all you do is talk about your deal are slim.

Joe Fairless: Agreed. So thank you for setting the foundation for why we’re talking about this… Now, would you mind talking to us about the four steps?

Gene Trowbridge: Sure. Let’s just take them in order, Joe. The first step is to sell the sizzle of real estate. One of the things I think listeners need to know – you need to develop a database of people you can go to when it’s time to actually pitch your deal… So in this first step, I think you need to focus on the opportunity that’s in real estate. you don’t need people who are interested in IPO’s in medical equipment; you need to build your database, first of all, on people who are interested in real estate… And if they’re not, then you don’t need them in your database; you need to just simply focus on those who seem like they’re interested in the real estate business.

So this is somewhat of a generic pitch, which we can all talk about great opportunities, great stories we’ve heard in the real estate business, and a lot of people are interested in real estate… Don’t you think, Joe?

Joe Fairless: Yeah, and when you say “sell the sizzle of real estate” and you say “develop a database”, I imagine it would be e-mail marketing – is that what you’re referring to?

Gene Trowbridge: Not necessarily. I just want a database. I want you to be able to have a list of clients that you can inventory, so you can go to them when you actually are ready to have an offer.

Joe Fairless: Okay.

Gene Trowbridge: I think it’s an ongoing project to build a database if you’re gonna be a money-raiser.

Joe Fairless: Okay. So step one is build a database, but how does that tie into “sell the sizzle”?

Gene Trowbridge: Well, you’re gonna have to ask people and talk to people about real estate. Some people will never invest in real estate, and I think for number one you need to not worry about those people in your database. Some people have had some experience, some people need to know more about real estate, and just generically, I think you need to build your database with (number one) people who wanna hear about real estate.

Joe Fairless: Okay, noted.

Gene Trowbridge: Not a terribly unique approach, but let’s ask people if they think about real estate; some people only play the market… They’ll only play the stock market, so why waste your time?

So you sell the sizzle of real estate. Then, Joe, the next step in this is to sell the sizzle of your product type. What space in the real estate market are you going to occupy?

I’ve found over the years that people who are out raising money and don’t specialize one product type in their offerings don’t have the credentials that investors are looking for, don’t have what investors want to be satisfied and confident with you.

For example, recently we had someone who said “We wanna do a fund, we wanna do a client pool. We’re gonna buy retail properties and multifamily.” And I said “That’s never gonna sell”, because multifamily people don’t wanna invest in retail. People who have moved on from multifamily and like what retail offers aren’t gonna invest in a fund that has multifamily.

I think that the important thing that someone who is raising money needs to look at is “What’s the opportunity? Why did you pick this product type? What’s the problem that this product type is trying to solve?” Tell your investors that you’ve picked this product because you have some expertise, you have experience, you’re the go-to person in this product type, and you’re trying to bring just expertise to the marketplace and offer investors who are interested in real estate, who are interested in this product type your expertise.

So I think you have to sell this sizzle. I know, Joe, when I was syndicating – as I said, I was syndicating storage facilities, building storage facilities. So what was I looking for? I was looking for investors who 1) saw the attractiveness of solving a solution for the population in a given area. Where do they store their stuff? Houses are smaller, condos are coming… Where do you store your Ski-Doo’s, your bolts, whatever you have?

I don’t know if you’ve ever had a storage unit for your stuff, but I’ve had plenty of them… People can understand that, so we wanted to show the problem in adequate storage space, show the solution, self-storage.

And then I was also interested in people who were there to build their equity. We were gonna build storage facilities. We were going to get them 50% absorbed and occupied, and then sell them. We were never looking to generate income for investors in a long-term hold.

So I had two things I had defined. I had defined investors who had bought the story of self-storage, and investors who were looking at equity build-up, rather than cashflow. Many of my clients in the law firm are doing multifamily; they’re talking about the problem of housing, they’re talking about how multifamily and rental properties is a solution, and they’re talking to people who want to generate current cashflow, and then possibly cashflow from equity build-up if it’s a project that is a value-add project.

I could also go to other people who are doing mobile homes. We have quite a few syndicators now who are turning their attention to the mobile home park community. What’s the problem there? Low-income housing. What’s the solution? Mobile home park communities. What do you get when you buy a mobile home park community? Generally you get good, positive cashflow; through renovations and upgrading you build your equity.

So in selling the sizzle of your product, you’ve got to find people who are interested in what that product is, what’s the solution that you’re trying to provide to the marketplace, and does it meet their economic goals of either current cashflow, or equity buildup.

Joe, if you’re gonna pitch your deal to a database of retired school teachers, you’re not gonna build properties and only go for equity build-up. They need current income, so now you need to go for properties that are rented, that are producing income… And it’s a matching; I’m trying to match a product with my database. Because if I don’t match the product with what the economic benefits are of the database, I’m never gonna sell anything. Do you agree?

Joe Fairless: I agree.

Gene Trowbridge: Very good. So now we’ve got the sizzle of real estate, we’ve come down to our product type – there must be something that you’re good at, that you know about more than something else, that you really believe in… You’ve identified a problem, you’ve got a solution, you’re gonna take this to the investors.

The next sizzle I think you have to get to is you. What’s the sizzle of you? Why would anyone give you their money? When you’re a real estate broker, you sell the people property and they buy the property and you’re out of there. But as a syndicator, you have their money; you’ve got to make it work. You’ve got a fiduciary duty, you’ve got to solve their problem, and the investors’ problem is “Hey, I want more current cashflow. I want equity build-up.”

So I think the sizzle of you kind of goes to the fact that you have a core group of people that works with you, that believes in your company and believes in your product type, and believes that they have a plan to make this product type work.

You have to talk about your team, you have to talk about prior results, and you have to talk about your education and how are you ideally suited to take the investors’ money and put it to work where the money will get what the investor is looking for, in a product type that they’re comfortable with in the real estate industry.

Joe Fairless: Thank you so much for going over the examples and the product type. I was gonna ask you to go through a scenario, but you went through three, and that was very helpful – the mobile homes, the storage and multifamily… So first off, thank you for that.

Gene Trowbridge: Oh, you’re welcome. I want to expand on what I did, the storage. I could have gone in the business to just buy and manage storage facilities for the production of current income, but as I was building my database and as I was inventorying my database, I was finding that most of the people who were attracted to me, who I was talking about – they had their current income solved, the issues with current income. They didn’t need to make an investment with me so they could buy groceries; they needed to make an investment with me so in 3, 4, 5 years their balance sheet looks better, their equity position looks better… So I had to go to construction, rather than ongoing property management.

So there are a lot of steps in matching your investor database with your product type, and I always say “What phase of the lifecycle of your product type are you in, that you can attract investors to actually invest?”

Joe Fairless: When you mentioned “sell the sizzle of you”, you said “have a core team of people, talk about your team’s background, talk about prior results…” As it relates to prior results, are you able to say “Hey, we bought the deal down the street, it was a similar property, it generated a 25% internal rate of return to investor on the exit”?

Gene Trowbridge: Yes, we can say that, depending upon how we get in front of the investor… And I’d really like to put that off kind of at the end. I’ve got one more sizzle that’s gonna talk about the deal, and then I’m gonna bring this back to your question, Joe, about the securities laws.

Joe Fairless: Cool, fair enough.

Gene Trowbridge: I think I can tie this together in the time that’s remaining.

Joe Fairless: Perfect.

Gene Trowbridge: So we’ve got the sizzle of real estate, the sizzle of your property type, the sizzle of you… Now we’re ready for the sizzle of the deal. It’s like I envision a pyramid where my sizzle approach takes you up to the peak of the pyramid, with all this foundation… And now you’re ready to pitch the deal. As opposed to having the pyramid upside down, where you start pitching the deal but you don’t have any of the depth of the information for the investors so they actually want to say yes.

So we’ve got real estate, we’ve got the product type, we’ve got the team… Now we’re gonna pitch the deal. You’re gonna be in front of the investors somehow; it could be online, it could be personal, it could be on the telephone… You’re gonna pitch three or four key benefits; how does your deal fit the first three sizzles you had talked about? It’s got to match what the investors are looking for; how will this deal make the investor money in the type of way and in the manner that the investor wants to make money, so you’re matching the investor’s goal and the economic benefit of the deal?

Then you ask the investor questions, because by now the investor knows about you, knows about the product type; what you have to say is in the middle of looking at the deal… You just shut up and ask the investor questions. You have all the information necessary to answer all the questions, and then you ask for the order.

What I found when I was doing this – if I just started out, “Hey Joe, I’ve got a deal” and I ask for the order right now, I’d have to go back up all the way through all these steps anyhow, and somewhere along the line I’d find out that Joe wasn’t interested in real estate. Why didn’t I know that…?

So it’s a great sales approach, getting you down to — everything’s built so the customer is ready to hear about your offer and how it fits in with everything you’ve done.

Now, let’s switch it over to two things of the securities world. We’re selling a security, Joe; I don’t think we need to talk about that. The people I’m talking to are raising money from investors, they’re managing the money… It’s a security.

Joe Fairless: Yup.

Gene Trowbridge: So you’re either going to raise money by developing a pre-existing relationship with someone… I submit that if I’m talking to you, Joe, and we are talking about the sizzle of real estate, and I gather that you like real estate, you’re interested in real estate, you wanna hear more… Now I’m gonna tell you about the area of real estate that I’m specializing in, what’s the problem I’m trying to solve, what’s the solution I have to offer, how does this property match your economic goals… Hey, have I done this before? You have a chance to talk to me about my track record, my education and my team. Joe, I’m telling you after those three steps are completed, you and I have a pre-existing relationship. Now I’m gonna pitch the deal.

Now, how do you do that? That’s a topic for another discussion, how you do that. But I think if you go through all those steps, you meet the definition of a pre-existing relationship, which isn’t really a red line definition, but it’s something like this: does the investor know enough about the product and the sponsor of the product to make an informed decision, that the risk fits the investor’s profile? And does the syndicator know enough about the investors to know that what they’re offering fits in that investor’s risk profile? And you figure all that out during the first three sizzles, and then you have a wide open field.

Now, if you’re gonna go 506(c), which allows you to advertise and sell anyone into the world, I bet you’re gonna have to build a web page, and I bet that the first page of the web page is gonna talk about the real estate industry. As they go into your web page further, you’re gonna talk about your product type, what’s the problem, what’s the solution, how does it benefit investors… You’re gonna talk about your track record, your company, you’re going to invite one-on-one conversation with the investor, so you can give specific information, and then you’re gonna pitch the deal.

There are a lot of steps to that in the 506(c), but if you go online and look at people who are trying to sell their product through the advertising, it always starts with some generic sort of presentation, and then the presentation of a product type, and then a story of the track record, and then we get down to the specific deal.

It’s the mistake in marketing, in my opinion, Joe, to just start with the specific deal. A lot of my clients — me, when I was a syndicator, the minute I had my offering documents, I was out talking to people about my deal… And they weren’t ready for me. I’d say, “Oh, I’ve got a 25% ROI and a 14% IRR”, and the  next thing, they come back and say “Well, I saw a  deal yesterday that was 30% and 16%.” You can never win the sales argument if all you’re gonna do is sell an ROI or an IRR out there, because the investor doesn’t know what it’s built on… So you’ve gotta build that up to get to that level.

Joe Fairless: That’s very helpful.

Gene Trowbridge: That’s it. Sizzle!

Joe Fairless: That is very helpful, and thank you for walking us through these four steps. Just to summarize, when we have a deal, we definitely should just talk about the deal itself, and only about the returns and that’s it – is that correct?

Gene Trowbridge: When you’re ready to do that–

Joe Fairless: I’m kidding. [laughs]

Gene Trowbridge: Yeah, good. I would just simply go to Facebook and I’d put on Facebook that I have a deal that guarantees 40%, and then I would just not answer the phone, because that’s gonna be the SEC guy who calls you… Because you know, they don’t have a travel budget anymore, they just search keywords.

Joe Fairless: [laughs]

Gene Trowbridge: So it’s the sizzle of real estate, building your database, the sizzle of your product type, does it really match the people in your database, what do they want, the sizzle of you, and then the sizzle of the deal.

Joe Fairless: Well, I usually summarize, but you’ve just summarized it for me. Thank you so much, Gene, for being on the show. How can the Best Ever listeners get in touch with you or your company?

Gene Trowbridge: My e-mail address is a  good way. It’s gene@crowdfundinglawyers.net. Or I’m pretty accessible by phone, 949-855-8399. I’m in California, Joe.

Joe Fairless: Well, we will approach accordingly if we were to give you a call. And just for the record, we were definitely kidding about that Facebook post, by the way… [laughs] I was getting a little nervous, like “Well, maybe someone wasn’t following the joke.” Okay.

Gene, thank you again for being on the show. We really appreciate this… Wonderful to talk to a securities attorney and get their insight. I hope you have a best ever weekend; I appreciate you adding so much value to the Best Ever community, and we’ll talk to you soon.

Gene Trowbridge: Thanks for being invited, Joe. Bye.

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JF1425: How To Transition Into Another Market To Find More Properties #SituationSaturday with Marco Santarelli

Many investors have the same problem, they live in a market that is too competitive and HOT for them to find deals. Marco had the same problem, so he implemented a strategy to expand into new markets. Hear how he finds new markets, and then how he transitions into them. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment called Situation Saturday, where we’re going to have a situation that will likely resonate with you right now, and perhaps in the future, whenever you’re listening to this episode. We’re not just gonna present the situation, we’re gonna talk through the solution the situation.

The situation is if you are in a hot market, where the inventory is low, how do you go about transitioning into another market, to then find additional properties? With us today, Marco Santarelli. How are you doing, Marco?

Marco Santarelli: Good, Joe. How are you?

Joe Fairless: I am doing well. We are speaking to Marco about this because he has recently implemented a solution for that challenge and that situation, so we’re gonna talk about that… And you recognize Marco because he has been on the podcast before, and you’re a loyal Best Ever listener all the way back to episode #111. That is many days ago – over 1,000 days ago you were on the show… And then episode #1012 – that’s like over a year ago you were on the show. Best Ever listeners, if you wanna hear his advice, then you can go listen to episode #111 and #1012.

Marco is an author, an investor and founder of Norada Real Estate Investments, which is a nationwide provider of turnkey cashflow rental properties. Since 2004 he’s helped over 1,000 real estate investors create wealth and passive income through real estate, and he’s also the host of a really cool podcast that I suggest you listen to if you’re interested in passive real estate investing… And by the way, the name of it is Passive Real Estate Investing. You can learn more about his company at his website, which is in the show notes.

With that being said, Marco, even though we’ve got a bunch of loyal Best Ever listeners, will you give the Best Ever listeners a refresher of your background? Then we’ll get into the recent challenge and your solution.

Marco Santarelli: Yeah, definitely. Great introduction too, thank you very much for that. So I won’t go too far back, I’ll just say that I bought my first rental at 18, and I knew the writing was on the wall, so I just continued down that path – got my license, continued to buy real estate, and grew it from there.

Where the turning point was was really in 2003, when I had taken two years off… I was kind of the fallout guy from the dot-com implosion… In 2001 I didn’t wanna get back into the corporate world, and I loved real estate, but I didn’t’ jump back into it; I took some time off.

I got back into real estate late 2003, and in 2004 I purchased about 84 units in that one year. Those were mostly single-families and duplexes, so we’re not thinking apartments here… And people were coming to me, asking me for help, and I didn’t wanna be a coach or an educator, so again, making a long story short, I’ve decided to be the guy at the end of the food chain; I would let everybody else do the bootcamps, seminars, books and tapes, and I would be the guy who would be researching markets, finding deals, packaging it together, providing all the service providers that you would need to complete that solution as a turnkey offering. Fourteen and a half years later they say “That’s all history”, and here we are today, a very strong company, and we continue to grow.

Joe Fairless: A very strong company, continuing to grow, and you’ve come across challenges as you’ve grown, I’m sure, as any business owner and entrepreneur has… The most recent challenge with markets – what was going on?

Marco Santarelli: Well, you’re talking about today, not in the past, I assume, right?

Joe Fairless: Yeah.

Marco Santarelli: So what we’re seeing today — and Joe, I know you’re in the same school… What we’re seeing is inventory being a drag on the market. The inventory is really, really tight, virtually in every market – primary, secondary and tertiary markets… And because of that, at least in the residential space it’s pushing prices up.

In the commercial space, where you live, in investing in apartments, it’s compressing cap rates, and that’s a big problem, because everybody’s chasing after good quality, or value-added plays… So what’s happening is we’re seeing less and less good inventory, and fewer deals out there.

So if you’re in the commercial space, you see cap rates being compressed. If you’re in the residential space, meaning one to four units, it’s like banging a brick on your head; it’s really hard to find good deals, and enough of them to have good deal flow, especially for a business like ours, where we’re working with investors, trying to provide them quality investments in good, quality neighborhoods.

So the solution, at least for us as a business – we had to go wider, because we’re not getting the depth… And what I mean by that is – in the beginning we were in about six markets, and to me that’s the sweet spot; over time, that grew to 10, and then 12, and today we’re in 18 markets, and we’re forced to have to do that because if I’m looking for a deal for myself, or I’m looking for deals for our clients, the real estate investors, in order to find them, we have to go and look in other markets, and we’re actually starting to tap into tertiary markets right now in order to get that width and depth.

The most recent market we’ve brought on was the Quad Cities market; you know, it kind of overlaps Iowa and Illinois… But you’ve gotta adapt with the times, and I like to refer to real estate kind of like the pendulum of a big clock. The pendulum swings one way, and then it goes the other way. So you go from buyer’s market to seller’s market, and everything has an ebb and flow. You have lots of inventory at one time, and that’s great for you as an investor; you’re in a buyer’s market.

Then that pendulum slows down, stops and starts going the other way, and now you’re in a seller’s market, so prices go up, inventory drops down, and you have to adapt, you have to change your strategy.

Joe Fairless: As you’ve grown from a smaller pool of markets to a larger pool of markets, how do you qualify those markets?

Marco Santarelli: By far, one of the most important things I wanna see in a market – this should be a takeaway for all your investors – is to make sure that you have jobs and job growth, because people pay their bills with dollars, or they pay their rent with dollars.

Joe Fairless: Bitcoin, right? I thought it was Bitcoin.

Marco Santarelli: Well, maybe in a few years that might be the case… They actually do have cryptocurrencies specifically for real estate and for rents, but it’s not mainstream yet. But you have to have income, and you have to have jobs in order to support that population, so the first thing I like to see in a market is job diversity, a stable job base and job growth ideally… It’s okay if you don’t have job growth, as long as you have the stability of the job market.

And then tied in with that – this goes hand in hand – is migration. A lot of times when you have a hot market… Like, you look at Dallas or Houston, for example – when you have a lot of jobs, it naturally draws people in like a vacuum from other markets, because they know that they’re gonna have solid and stable employment there, and often when you have job growth, you have competition, and it drives wages up… So now you have people coming in that have a better opportunity for a higher wage; in other words, they’re getting a raise. They move from a market to another market and they get a job raise.

So those are the two core things – jobs, job growth and migration. From there, I start to look at more specifically submarkets, neighborhoods and the numbers… Because just because you have a hot market doesn’t mean that you have numbers that are favorable for investing in real estate… And I know I’m preaching to the choir with you, but some people may have heard this before and it just doesn’t resonate.

I’ll give you an example – there are a lot of people along the coastal markets (and I’m here in Southern California) that still think that investing has to be done in their backyard. They’re looking at Los Angeles, maybe San Diego… These really expensive markets.
When you’re spending 500k-700k on a single-family home, if that’s what you’re looking for – we’re not talking apartments here – it’s really hard to get a rate of return, let alone cashflow, when that thing only rents for about half a percent of the purchase price on a monthly basis, meaning that you’re getting $3,500, maybe $4,000/month if you’re lucky… Those numbers don’t make sense.

So you have to be market-agnostic – you have to disconnect yourself from your backyard and your local market and just be truthful with yourself and say “Look, maybe I’m not living in the best market for real estate investing; I don’t need to drive by it every day. I don’t need to touch it and see it. It’s not gonna change a darn thing.” So you start looking at the Midwest, down through Texas, on throughout the Southeast as far as Jacksonville, Florida, Tampa, Florida, Memphis… These are markets where there is inventory, the numbers make sense, there is growth, it’s got a stable job market, a diverse industry, and in fact, a lot of these markets are actually logistical markets. You look at Kansas City, Memphis, Jacksonville, Florida – these are all logistical hubs for one reason or another… So it’s really hard to [unintelligible [00:09:58].08] industry away from those markets when you have logistics in place.

Joe Fairless: You mentioned three things you look for: job growth, job diversification and migration… Specifically, I pull it up, I’ve got it in front of me on my computer screen – what metrics am I looking for?

Marco Santarelli: If you’re looking for metrics, what you wanna see is that you have what’s called positive net migration… Because there’s people that will say that people are moving to California, and that’s true, but when you look at net numbers, meaning you take the people that are moving into California and subtract the people that are moving out, you have negative numbers, you have negative growth.

Last year we saw, as a state, 140k people leave the state of California… And what goes along with that are employers, like Toyota, Nissan, Carl’s Jr. There’s so many companies that move out, so they take jobs with them. That is a very negative thing economically speaking.

So short-term you might not notice it, but if you start measuring this out and mapping it out over the course of years, it can have an impact. You don’t want headwinds when you’re investing, you want tailwinds… So you wanna invest where markets are strong and healthy and ideally growing.

Joe Fairless: So positive net migration… Where can you find that?

Marco Santarelli: I’ve recently hired — well, not recently… I’ve had some assistants that have helped me in compiling that information. But here’s the simple way to do it – every city publishes this information, and they have different departments. There’s a Bureau of Economic Development, there’s the — I can’t remember what they call it… They have economic boards in every city, in every size of city… And if you go to Google or any other search engine and you type in the name of the city followed by “net migration” or the name of the city followed by “unemployment rate” or the name of the city followed by “job growth”, even Google will serve up this information in the form of a chart right at the top of the page…

But a very simple, clean search where you have “city, state, job growth”, “city, state, net migration” – all those types of search phrases will pull up 5-10 websites that have that information published either as an article, or as a service where you search and find that data.

Joe Fairless: With job growth and job diversification, any particular metric for each of those come to mind?

Marco Santarelli: I’m more after the trend than anything else, so when it comes to job growth, I’d like to just see that the last 2-3 years have had year-over-year increases, even if it’s nominal… I just wanna see that it’s not a negative trend.

Think of it like looking at a stock chart… If you’re looking at a stock chart – not that I’m suggesting you invest in stocks, but if you wanna be long on a stock and you buy a stock, you wanna make sure that it’s got momentum and you’ve got positive growth; in other words, the trend is upwards, and ideally, it’s growing year-over-year rather than shrinking year-over-year, because that is a very strong indicator.

It’s no different than looking at any kind of metric in real estate, whether it be, like I said, jobs, or the unemployment rate… And this is all widely available, even the Bureau of Labor Statistics, and the other — what’s the other one? These are all free websites by the government.

Joe Fairless: Census.gov?

Marco Santarelli: Yeah, Census, BLS.gov… All these websites publish this data for free, and you can search on it… And they also do quarterly reports. Also, look at attomdata.com – they publish a ton of housing data. That’s another resource where you could pull up a lot of this information for free, and they actually do write articles about it on a regular basis to kind of summarize what has happened over the last month or last quarter.

Joe Fairless: Looks like it’s attomdata.com.

Marco Santarelli: Thank you, that’s it. I just bookmark all this stuff.

Joe Fairless: Me too, I’m with you. What about job diversification? Any particular metric there that you look for in terms of like one industry has a certain percent…?

Marco Santarelli: This is not a hard one, actually. Websites like NeighborhoodScout.com (there’s a slew of them), they will provide a breakdown. City-Data is not too bad; it’s dated, but City-Data.com – they provide a breakdown of each sector of the industry. For example, it might say 70% is in finance, 16% is in construction, 14% is in healthcare, and 10% is in hospitality and fast food and restaurants. What you wanna see is as many bars as possible.

If you go to – this is kind of my poster child market – North Dakota when we had that oil boom, there was a town there that exploded in population and there was no housing; people were literally setting up tent cities, and the reason for that was because there was no housing, and you couldn’t build fast enough to keep up with the amount of people moving there.

Well, the thing is that economy was predominantly driven by the oil industry, so you had a lot of jobs because oil prices were up $100+. Then what happened is that crashed down to $40-$50/barrel, and the jobs disappeared because they couldn’t support new exploration and running the wells. So they kept the wells, and people started moving to other markets. Well, now you had a surplus of housing.

So when you look at that, that sector is like a pig in a python. You have this oil industry and very little outside of it. That’s the primary market. Then you have these tertiary businesses that really live off of that main economic engine, which is oil… Like your barber shop, and your corner store, and whatever else it may be.

Well, if people are moving away, the customers move away too, so those smaller businesses can’t survive either, so you have a shrinking economy. I exaggerate the point, but the point being is you don’t want to be in a market that is heavily stacked in one or two industries; you wanna see a falt, wide graph, not a tall, narrow bell curve.

Joe Fairless: It makes a lot of sense, and I appreciate you getting into the specifics of that. What are some markets that you’ve recently found? You’ve mentioned one – I think you said Quad Cities – that you weren’t previously in…

Marco Santarelli: I’d say the newest additions would be Dayton, Ohio, the Quad Cities – those are the two newest ones. Sometimes we’re in and out of markets; we’ll be in a market for a short period of time because we have some inventory, and then it disappears, and then we’re gone. This is true for places like Cincinnati, Ohio, Cleveland, Ohio… And I’ve never really been a huge fan of the North-East for the most part, so Ohio wasn’t on my radar for the longest time, and I’m just being completely honest and transparent here… The thing is, they’re not horrible markets; I’m not a fan of the cold weather, the Northern climate, but these are big cities, they have a lot of industry, a diverse industry profile… So as long as you’re in these markets that have stability and diversity and you pick the right neighborhoods – ideally, for me it’s what I would call a B+ type neighborhood, plus or minus – you should be fine. I think you’ve got 70% of it licked there. If you’ve got excellent management, that knows how to properly screen and qualify a tenant, place them and know how to manage that property, I think you’ve eliminated 90% of what I would call potential risks.

The last 10% – I don’t think you could ever get rid of it, because it’s what I call the human factor; we’re dealing with people, and people are people, and things happen… Whether it’s lost jobs, transferred, death in the family – whatever it may be, things happen, so you might have issues. But at the end of the day, if you’re in a  good market and you’re in a great neighborhood, with good or great management, I think you’re gonna do very very well, regardless of whether it’s Cleveland, Ohio or Dallas, Texas.

Joe Fairless: Anything we haven’t discussed as it relates to opening up a new market that you think we should discuss during our conversation?

Marco Santarelli: As an individual, as an investor?

Joe Fairless: Yeah.

Marco Santarelli: It’s really everything we’ve just talked about… The U.S. is made up of over 400 metropolitan areas; you can get as granular as 600+. I think for the most part it’s best to stick to secondary markets whenever possible, primarily being L.A. or New York; you may not make things work there. But look for good markets that have health and growth… Like we’ve talked about before – the jobs and diversity.

Then what you wanna do is make sure you assemble the right team. Now, if you’re not working with a turnkey provider or someone who has the whole package, the whole team working with you, study the market, learn the neighborhoods, learn the areas that are the most desirable from a tenant perspective, that are not over-priced. In other words, you still wanna maintain as close as you can having that 1% rent-to-price ratio… So hypothetically – a $100,000 property, rents for about $1,000/month; it’s okay if it’s renting for $950, $900, even $800 if the property taxes are really low in that state… But you wanna be somewhere in the $900-$1,000/month on that 100k property.

Always have a top-down approach, and this is one of my rules of successful investing – start with the market, work your way down to the sub-market, the neighborhood, and then the property. A lot of investors do this backwards – they start with the property, they’re presented a deal, and they follow along with it. It’s newly renovated, it looks great, smells great, it’s got a good curb appeal, the numbers are attractive, but it’s on a bad street, or it’s in a war zone and it’s not conducive for getting the best quality tenants… So don’t flip it around. Start with the top-down and think of it as a funnel.

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

Marco Santarelli: Two websites, if I may… Our core website is where we have all our free information, and properties, and that’s noradarealestate.com. And if I may plug my own podcast, it’s Passive Real Estate Investing. You can find that at passiverealestateinvesting.com.

Joe Fairless: Marco, thank you so much for coming back on the show, talking about how to open up a new market, how to think about that, the specific things to look for – job growth, job diversification and migration, making sure that it’s a net positive migration… And the approach that you’ve had to take with your business… And it’s an opportunity, because ultimately, you’re doing more research in new markets, and that opens up new opportunities, new relationships, and a more expansive offering set for your investors who are investing with you.

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

Marco Santarelli: Thank you, Joe.

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JF1259: Putting Together A Financial Plan As A Real Estate Investor with Chad Shaw

Chad is here as a financial planner to very high net worth individuals, to tell us how to plan our financial future. As real estate investors our path can be different than a W2 worker. Chad has helped a lot of investors make financial plans so have pen and paper ready for this one! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Chad Shaw Background:

-Founding partner of MST Financial Wealth Management and Insurance Services

-Qualifying member of the Million Dollar Round Table, the premier association of financial professionals

-An investment advisor and broker, working closely with real estate investors

-His team of five financial advisor partners offer high quality investment, tax, insurance & wealth management advice

-Say hi to him at http://chadshaw.nm.com/

-Based in Orange County, California

-Best Ever Book: Principles by Ray Dalio


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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, Chad Shaw. How are you doing, Chad?

Chad Shaw: I’m doing well, Joe. Thank you for having me.

Joe Fairless: My pleasure, and I’m glad you’re doing well. Welcome to the show. A little bit about Chad – he is the founding partner of MST Financial Wealth Management and Insurance Services. He works with clients and he has a focus of working with real estate investors, so we’re gonna enjoy our conversation with him because he has a lot of clients who are high-income ranging up into the billions of dollars. The focus for our conversation today is putting together a well thought out wealth plan for us as real estate investors, because we’ve got to look at it in a different lens than what’s perhaps typical for maybe a W2 employee… And maybe Chad can help us identify some blind spots that we might need to pay attention to as well along the way.

A little bit more about Chad – he is based in Orange County, California and you can say hi to him at his company’s website, which is in the show notes page. With that being said, Chad, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Chad Shaw: Absolutely. I grew up right outside of Buffalo, New York. Both my parents are realtors, owned and operated their own small brokerage there and were investors themselves… So growing up having behind-the-scenes view of decades of ups and downs, good and bad in the real estate space, and then in college between semesters did a little bit of work in the construction space, thought I might end up in the real estate world myself.

Life took me a different path and ended up in the financial planning space. Having a comfortability with the real estate space over the last decade or so, I’ve spent most of my time serving that marketplace all across the country, and as you mentioned, a lot of our clients are well-established individuals who are doing pretty well and had some unique challenges.

Much of my insights in the work that we do today has been a gift, so to speak, from some of the stories we’ve learned and things that clients are happy they did or maybe wish they’d done differently over thousands and thousands of meetings. Today we’ve got our team in Orange County putting together comprehensive financial plans for folks, and often times they are concentrated assets within their be it real estate or privately held businesses, so… Happy to share with you guys the best I’ve got.

Joe Fairless: Good, I love the part about talking to a bunch of clients and learning what they’re happy they did or wish they’d done differently, so how about we start there?

Chad Shaw: Absolutely. I am a very observant person by nature, and whether it’s been learning from books or interactions with people that I’ve never met has been fantastic, but to me the stories that hit home are the ones directly out of the mouths of some of my clients and people that I interact with.

One individual in particular who’s actually become a very great friend, through some of our meetings and interactions I asked him, I said “Hey listen, I’m pretty familiar with the real estate space, but if you would, I’d love to take as much time as you’ll give me, just give me everything you’ve got, the best of what you’ve learned in your 50 years of investing.” Today he’s got a sizeable net worth; he’s seen ups and downs, he’s done a lot of great things, and one of the things that I admire even more is he’s an incredible human being. For me, he had built the dream for every real estate investor.

The first time we sat down he says “Okay, I’m gonna be able to teach you in two or three hours more than 99% of so-called real estate experts are gonna ever anticipate.” Then he starts to draw a few drawings out on a piece of paper. So he draws an A, meaning where we are today, and he draws a B down the road, and he draws this upwardly-sloping curve, right? And he said “Chad, over decades the real estate market looks about like this. You’ve got peaks, you’ve got valleys, and no matter what anybody tells you, that’s always gonna be the same.”

What’s interesting is the individual that had introduced us has the same age, same friend group, same opportunity, same everything, very different outcome… Not nearly the space that this individual was in. And I asked him the first time I met him, I said “Hey, I have my own ideas, but out of curiosity, what’s the difference between the two of you? How come you ended up where you are and he ended up where he was?” and without blinking an eye, he said “Chad, pigs get fat, hogs get slaughtered.” I said, “Okay, I think I know what you mean by that, but give me a little bit more on that”, and that’s when he started to draw this curve.

His story, among many other conversations that I’ve had with people, has led me to — I don’t wanna say “coin the phrase”, but three layers of what I’ll call a savvy investor. His lesson here was if you ask the average individual – whether it’s stock market, real estate, you name it – what does it take to get from A (presumably where we are today) to B (more, whatever that looks like down the road)… He said if you ask the average American, the average individual, they’re gonna tell you it takes growth, or rate of return, right?

Joe Fairless: Yup.

Chad Shaw: So yes, that’s ultimately what people are looking for, he said. That’s a key ingredient, and we need that. He said “But where the great separate themselves is during those downturns”, and then he started to do some math with me. So most of his properties are large multi-unit properties, and just to make the math easy he said “Okay, if I value a property at (let’s just say value is net operating income over cap) — hypothetically speaking, if I’ve got a property with $100,000 net operating income, and a cap rate today (I’ll make up a number) of 3%, that property would be worth 3.3 million dollars, wouldn’t it?” I said “Yup.”

He says “When it goes here, let’s say in ’08, ’09, or something like it (and again, he was just making up hypothetical numbers), let’s imagine I have the same net operating income of $100,000, but now cap rates are at seven. $100,000 divided by seven is 1.428 million. Let’s imagine I put a million dollars down on the building (or whatever the number is), I borrowed 2.3 when I initially purchased it, viewing a 30% equity position as safe… Let’s imagine we’re here today, and now the property is worth 1.428, what do I do?” He said, “Historically, over my 50 years, cashflow has dipped about 20% for a multitude of reasons (and sometimes they’re different). When the market goes down, cashflow goes down; the available equity to borrow typically shrinks on my balance sheet, the cost of borrowing goes up and you have this perfect storm.”

He had made some mistakes along the way, and he said “What that teaches us here is in addition to focusing on just growth-oriented — and we know real estate is gonna appreciate as time goes on, or at least we think… There’s a second layer that’s allowed me to separate myself and it’s positioning my balance sheet to be in a position to never be forced to sell something at a loss. Because if we build our Lego tower one on top of another on top of another on top of another, sooner or later it’s gonna come crumbling down, and if we’ve gotta start from zero once a decade (give or take), it’s gonna be an issue.”

So the second layer being avoid being in a position where you’re forced to sell something at a loss… The third is really where in my opinion he’s been able to separate himself, and if you follow Warren Buffet or Ray Dalio or some of these guys, I’ve observed some of the same characteristics in them… The third layer is to be in a position to buy at a loss. Joe, have you read any of Warren’s letters to shareholders or anything like that?

Joe Fairless: Nope.

Chad Shaw: They’re really interesting, you can find them online. This last one that he came out with, he had a paragraph in there that stuck with me, and the paragraph said something along the lines of “Once a decade (roughly) the economic skies are gonna darken, the clouds are gonna come in and it’s gonna rain gold. And when it does, we’re not gonna go outside with teaspoons, we’re gonna go outside with wheelbarrows and bathtubs.” What he meant by that – and he’s been known for his phrase he’s fearful when others are greedy and greedy when others are fearful – is when he’s in a position and everybody’s running from the hills and panicking, he’s out there scooping up things on sale.

As an advisor, the stock market and the real estate market tend to be one of the only places that I’ve ever found where people are afraid of things when they’re on sale.

Joe Fairless: Those are three powerful lessons, and I wanna make sure I got this first one written down right… Is it “Be growth-oriented”? Did I get that  first one right?

Chad Shaw: Yeah, so whatever our chosen vehicle, be it the stock market, be it real estate – and there’s a million different ways to do all of them – whatever the chosen vehicle or method of growth, there has to be an element of being able to generate income or returns or something in there… And risk or opportunity for growth is pretty easy for just about anybody to find; we can all find something and master it. The challenge then becomes how do you sustain your empire? Taller mountains need fatter bases; how do you sustain your empire and make sure that structurally it’s never gonna come crumbling down? And then imagine you go through a period of time like a 2008, and you’re not only in a position where you can hang on to everything – you’re fine, you don’t need to sell; family’s needs are met, employee’s needs are met, everything’s good – but imagine you’re also in a position to become a significant buyer at that point in time.

Getting into the industry about that time, one of my first interactions with a high income/high net worth individual – and I can’t take credit for what he did – one of my first observations, and this guy was a business owner, and as you can imagine, the market tanked, revenues dropped significantly, and he had had a pool of money that was at par or better in a couple different places, that he went down to Florida and he bought 14 properties for roughly 50 cents on the dollar of what they were valued at a year or two prior. Three years later he sold four of them, paid off all the remaining debt, and today – or at least I think he still has all ten – he’s got about ten properties free and clear of any debt, spitting off an income.

So the way that he perceives the world is not to just be aggressive when the getting’s good, but how do we also take advantage and separate ourselves in a downturn as well, and what does that do to your balance sheet ultimately, as time goes on?

Joe Fairless: Those are powerful, I love it. Be growth-oriented with the focus of income, number one. Number two, never be forced to sell anything at a loss, and number three, be in a position to buy when everyone else is losing.

Chad Shaw: You’ve got it. And the only other comment that I would make on both of those is what I’ve found is that the large somebody’s got, the more seasoned, maybe the more bumps and bruises they’ve had over the way, they start to view the world in terms of decades; or maybe large institutional money or family money views it over centuries instead of a small slice of life, be it a month or a year, or something like that.

Joe Fairless: I love that approach, yeah. It reminds me of something Tony Robbins talks about. We tend to over-estimate what we can do in a year and under-estimate what we can do in a decade.

Chad Shaw: Ain’t that the truth?

Joe Fairless: Yeah. I love the philosophy that you’re bringing into the conversation. What else as it relates to your experience that is relevant to real estate investors should we talk about?

Chad Shaw: The other thing that I would talk about that I think is often looked at is there’s really in my opinion two phases of this. You’ve got the accumulation or the building of your empire, and then at some point in time — and some people build forever, but at some point in time people’s gears shift, their values change, and things start turning into “Who is this gonna go to and how are we gonna get it to them? Is it gonna go to loved ones? Is it gonna go to charity? Do I want this to go into a foundation? What does that look like? How do I do it?” And a lot of times people have their immediate satisfactions — in the society that we live in, people are so focused “No, I need to do this today. I’ll worry about that later on” that they have their head in the sand and sooner or later they wake up and — and they’ve done it, they’ve built it, they’ve been so focused and driven over decades; they’ve done this, and then they find that they might have a huge state tax issue, or no way of transferring [unintelligible [00:15:17].06] They start to dive into taxes and gifting and all these nuances that are an ever-moving target… But along the way, I find that in addition to setting up their balance sheets to be offensive in any season, a lot of times they’re looking at life within a silo.

What I mean by that is if I’m the classic real estate investor… And I’ll use my dad as an example – the first time I got into the financial services world, he said “Chad, I know what I can do in real estate and I know that I’ve been satisfied with my returns… Why in the world would I take my money and put it somewhere else?” And that’s a good question, right? What I’ve come to find out is as these people are building their balance sheets and strategically placing assets in there, they have a purpose… Much like if we were going golfing, and the name of the game is to hit the ball in the hole in as few shots as possible; people might spot the obvious if they’ve never golfed and say “Hey, the one that I can presumably hit the ball the furthest with is the driver.” Now, you can have 14 clubs in a bag, but if I gave somebody a bag of 14 drivers, good luck playing an actual round of golf.

We’ve heard the saying “There are two things certain in life – death and taxes” and I have a third, and it’s that life doesn’t always go according to plan. So these folks have found a way to position themselves to be able to pivot and move strategically in these subtle nuances that make consistently large differences spread out over extended periods of time, just in the same way as in my golf example we certainly can’t hit the ball with a sand wedge or a putter, but if we plan on scoring, well, we’re gonna need them.

That would be one thought with it, and then the other side is looking at what I’ll call a collective return [unintelligible [00:17:10].02] What I mean by collective return is if we’re getting — I’m gonna make up a number; somebody comes to me and says “Okay, Chad, I get 15% or 20% on my real estate deals historically.” And then maybe they’ve got cash on their balance sheets, and maybe their 10 million dollars of cash on their balance sheet is getting – again, I’ll make a number – 1%, but they’re in a high tax environment like we are in California, they could theoretically be paying North of 50% in taxes. So if they’re paying 50% on 1% and they net a half, but inflation might be 2%-3%, it’s a mathematical drag on their balance sheet. So while they may be experiencing positive returns in real estate or some other assets that they invest in, and they have this negative drag that’s a necessity perhaps in real estate, they need to start looking at everything as a collective, and then isolating and saying “Okay, how do I make this piece for the purpose it’s meant to serve as efficient as possible?” And most of them are very superb at what they do in investing in real estate, and it’s often some of the unknown spots that they get caught up.

Joe Fairless: Based on your experience working with investors, and also growing up in a real estate investor family, what is your best real estate investing advice ever?

Chad Shaw: My best real estate investing advice ever would be to view the collective goal as one, and stay connected with the Why you’re doing it. What I mean by that is view this journey, this adventure of building your real estate empire with purpose. Somebody once told me “Your values determine your goals, your goals determine your strategies, your strategies determine the tools that you use.” Sometimes people start with the tool or the strategy; owning real estate is a tool, it’s a strategy, it’s not necessarily a plan.

Along those lines, sometimes people get caught up in the economics of it and they forget that there’s this emotional component as well as to how they feel, or how their family feels, and then once they wake up and say “Hey, I forgot what I was doing this for” – and I hope that never happens to them, but if they wake up and say “Hey, I forgot what I was doing this for… It turns out I don’t want more real estate, or I don’t want more return.” Those are just the means to an end, and that end is X. It’s a happy family life, it’s a lifestyle that I desire, it’s peace of mind. But if once a decade you’re in a position where things are chaotic because we stretched ourselves and you can’t sleep, and I’ve had clients that have told me they didn’t sleep for two or three years during different periods of time.

My advice would be to connect those values and those goals and remember why you’re doing it, and view everything as one, instead of just in a silo of saying “How do I make the most money?”

Joe Fairless: I love it. That will allow us to have a sustainable career in whatever we do, because as we have the peaks and valleys, we’ll be able to ride through that because we’ll have a more compelling reason why, versus just doing it just for the sake of trying to get cashflow.

Chad Shaw: You’ve got it. It’s the big mistake versus the little mistake. A little mistake might be “Hey, maybe we’ve missed out on a little bit of return or this potential opportunity here”, but the big mistake might might be sacrificing your family’s emotional health, or maybe over-extending yourself and having everything come crumbling down to nothing, and the emotional tolls that come along with that.

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

Chad Shaw: I’m ready, my man.

Joe Fairless: Alright, I know you are. First though, a quick word from our Best Ever partners.

Break: [00:20:53].02] to [00:21:45].16]

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

Chad Shaw: Best ever book I’ve read… I’ve read a lot of good ones; I’ll give you the most recent one – I would say Ray Dalio’s Principles. If I’m allowed to add in a second one, I don’t know if it’s in book form, but Jim Rohn had an audio program called Challenge To Succeed; it’s four hours and some change long, and I’ve probably listened to it 50 times. It’s changed my life.

Joe Fairless: Best ever deal, or in your case maybe a client story, that you can think of?

Chad Shaw: The best one that I can think of is taking a guy that was a real estate investor and business owner, and just by some strategic restructuring of his assets and plans, we ended up redirecting somewhere in the ballpark of 20-25 million dollars to people that he loves and cares about and charities that he cares about, that otherwise would have went to our friend, the tax man.

Joe Fairless: Oh, yeah… I love that. Let’s see – what’s a mistake you’ve made as a business professional?

Chad Shaw: That’s a good question. The biggest mistake that I’ve made as a business professional was just putting my head down and again, thinking if I built more, everything would sort itself out, instead of sitting back and thinking at some of the big picture. Being a business owner and investor myself, I experienced the same ups and downs as everybody else. So the early years was full of metaphorically getting punched in the mouth, and just like the fame philosopher Mike Tyson said, everybody’s got a plan until they get punched in the mouth. From a business standpoint, it happened earlier on, and I hope I’m learning from them.

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

Chad Shaw: We’ve been doing a few things the last couple of years. This last year we’ve built a playground; we’ve raised some money and we built a playground through a company called KaBOOM! that helps put playgrounds into low-income areas. This year we’ve been raising money and giving back with an organization called Negu… Jessie Rees Foundation – awesome, awesome organization, helping out kids with childhood cancer. I’d say those are the two biggest ones at the moment.

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

Chad Shaw: The best way is — Megan is in charge of my schedule. Her number is 949-863-5893, or folks are welcome to e-mail me at Chad.Shaw@nm.com

Joe Fairless: Chad, I really enjoyed our conversation and learning more about your philosophy and your approach. The three layers of a savvy investor – one, be growth-oriented with a focus of income; two, never be forced to sell anything at a loss, and three, be in a position to buy when everyone else is losing… And view things over decades or even centuries, versus months or years.

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

Chad Shaw: My pleasure, thank you.

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1234: Why This Former Marine Prefers Wholetailing Over Wholesaling with Donald Ross

Donald started investing in real estate while he was still active duty, with the purchase of a home that is now a rental. After serving he started wholesaling properties. It didn’t take him long to discover than he preferred to wholetail and make more money per deal. Donald will not only tell us the difference between the two, but we’ll also hear how to succeed as a wholetailer. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Donald Ross Background:

  • Retired Marine & prior construction worker
  • Got started in the real estate investing by purchasing a home while active duty which is now a rental
  • Currently virtually wholesale/wholetail properties in the Milwaukee area
  • Based in Orange County, California
  • Say hi to him at REIAutomationSquad@gmail.com http://www.reiautomationsquad.com/
  • Best Ever Book: Traction


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

Donald Ross: I’m doing great. How about yourself, sir?

Joe Fairless: I am doing great as well. Donald is a retired marine, so first and foremost, thank you for your service to our country and helping us have conversations like this, where we’re not scared that someone’s gonna be knocking down our door with a gun and shooting us.

Donald Ross: I appreciate that, thank you.

Joe Fairless: My pleasure, thank you. A little bit more about Donald… He worked in construction prior to what he’s doing now, and now what he’s doing is he is wholetailing properties, and he’ll define that if you’re not familiar — I’m sure as  a Best Ever listener you’re familiar with that, but if you’re not, he’ll define it. He’s wholetailing properties, and he used to wholesale properties. He used to do about three to four a month, and now he’s doing two wholetails, because he doesn’t have to do as many; he’s making more money. The margins are double, so he doesn’t have to do as many deals.

He is based in Milwaukee, Wisconsin, and he got the start in investing by purchasing a home while active duty, which is now a rental. With that being said, Donald, do you wanna give the Best Ever listeners a little bit  more about your background and your current focus?

Donald Ross: Yeah. A little bit of the background is I did, like you’ve said, the construction when I was in my younger years, after high school; new builds, large customs homes. Then from that I kind of left, went to the military. I wound up doing contracting at the very end, in the military, as an active duty member, Afghanistan, for the local type contracts, for our people, the marines on the ground.

I came back and wound up doing the real estate stuff. I sort of jumped into the lease options and figured out that for me just being remote here in Southern California was a little bit more difficult to do the lease options than it was the wholesale side. So I started doing some wholesales, reached out to different “We buy house” type people and brokers and realtors, trying to partner with them up in Wisconsin, and wound up getting to the point where we are at today, where I have a partner that’s on the ground. We have basically come together, and she goes on the appointments; we send out marketing, and once it comes in, I’ve got my girlfriend currently taking phone calls, as well as we’re about to have John Martinez and the Call Sniper guys take some of the calls. So we’ll set up our lady on the ground that’s partners with us to go on the appointments, she’ll get it under contract, and then we’ll go ahead and put it out to either our buyers, or list it on the MLS and sell it that route.

Joe Fairless: Did I hear Southern California in there?

Donald Ross: Yeah, I live out in the Orange County area. We’re dropping mail from out here into the Wisconsin market, and taking the calls, and then setting the appointments for the lady that lives in the Milwaukee area.

Joe Fairless: Oh, okay. Are you from Milwaukee?

Donald Ross: I grew up about 45 minutes away from there, so I was kind of familiar with the area. That definitely helps with the situation, when you can talk about the areas and different monuments and whatnot in the local area. And then I fly back usually every two, three months; I go out there and we go and look at some stuff together. We’re about to actually start our own brokerage here in August.

Joe Fairless: So how long have you been doing wholesaling? I know you’re doing wholetailing now, but how long did you do wholesaling first?

Donald Ross: I spent about two years. Not entirely long, but long enough to get the basics down.

Joe Fairless: So two years wholesaling, and you’re doing about 3-4/month, right?

Donald Ross: Correct.

Joe Fairless: Okay. And then you decided “This isn’t the way I wanna do it. I wanna do wholetail.” Will you define what wholetail is and give the pros and cons as you’ve experienced them, comparing to wholesaling?

Donald Ross: Sure. Like most, probably, for the wholesale side, I was working on the inner city type properties; for us, what that meant is 50k and below values, and that’s after repair. We’ve tried to get in there and get them at a good price, meaning probably 5k-10k, and we’d wholesale them off, and we were making in the neighborhood of 5k/piece on those properties.

When we’ve kind of figured out that on a lot of those properties you deal with tax liens and code violations and all these other things that pop up while you’re trying to close… There’s a lot of landmines to navigate with a lower-end type of neighborhood like that. So we really started to market to stuff that was 75k and above for an after repair value. Our average of where we kind of stayed (median value) I would say is in the 100k to 200k range. Every once in a while we’ll venture out of that to a higher price point if it makes sense, but the median for us is gonna be there.

We’ve figured out at this point 75k and above, if we wholesale, we can usually get 10k-15k, and if we go to the wholetail method, which is really where we’re pushing now, is we’ll go ahead and grab it and close on it, and then we’re usually putting it on the MLS before that. Wisconsin allows us to have equitable interest in the property and put it on the MLS, so we’re doing that. We’ve just closed one last week and it wound up being right around 26k after expense, everything… So the wholetail method has basically allowed us to double what we’re normally getting on a wholesale fee.

Joe Fairless: What challenges have you come across when transitioning from wholesaling to wholetailing?

Donald Ross: Well, I would say one of the easier methods, kind of a hybrid, rather than actually putting it on the MLS, if you can get a hold of a list of realtors that have cash buyers and sell it to those, they’ll pay a lot higher value. They’re used to going on the MLS and paying MLS prices, so if you can go that route and get a cash buyer, there’s a lot less headache. However, if you do go down the path that we’re going right now and putting it on the MLS and start dealing with your conventional type buyers that are getting conventional loans, and you’re having to figure out if there’s local banks or credit unions that don’t have mortgage seasoning – because that’s usually an issue you’ll run into, especially with FHA buyers… You’re gonna have to buy it, hold it for 90 days and then possibly sell it. Conventional buyers – we can figure out a way to get around that.

Joe Fairless: Have you found some lenders that would do that, maybe like portfolio lenders or something?

Donald Ross: Local banks and credit unions. Otherwise, you’re basically stuck telling them that they’re gonna have to get a hard money loan and they’ll have to refinance out of it.

Joe Fairless: Have you done any seller financing on those?

Donald Ross: Not on those specifically, but we did do a package deal seller finance. So we will pick them up with seller finance and then sell them off as well. The last one I know for what we did, we pick up a package of five, and the end buyer was an investor and he wound up actually breaking them up and he made some money by doing that.

Joe Fairless: Let’s talk about the last deal that you saw through the entire process. Can you give us the numbers on that?

Donald Ross: For the outlook [unintelligible [00:09:02].13] I’ll give you round numbers just off the top of my head; let me see if I can get in there real quick. We basically bought at the price point of 195k, and we wound up pushing it out to the realtors that had bought cash buyer type purchases, investors, and they wound up having a buyer that was interested. We brought him in, and at this point we closed last week at (I believe it was) 226k. So when he took out the realtor commission expenses and everything, we’re in the neighborhood of right around 24k, 25k, somewhere in there. So for a marketplace where we normally only see 10k-15k wholesale fees, it should make sense to go after that price point, and as well as going with those realtors and MLS that allows you to get that double.

For us, we can typically send out right around in the neighborhood of 2,400-2,500 pieces of mail, and usually get something from that. It makes it a lot easier both on the marketing, and taking phone calls and everything else, if you can capitalize on a property and double your profit, obviously.

Joe Fairless: So the realtors who have cash buyers – they’re key to this.

Donald Ross: Absolutely. For us, we can have the ability to go in and pool the last 12 months of cash purchases from the MLS, and it will show us who that realtor was that helped do that transaction, and we can either e-mail or phone call, reach out to them and find out if their client is interested in buying any additional properties. Then if they are, you build out a list from that, and then when you have something under contract, you blast it out to that list and see if they’ve got a client that’s interested in doing a walkthrough; especially if it’s vacant, it’s a lot easier to get them through the property.

That’s typically what we’re doing at this point. We’ve got basically two different segregated lists. You’ve got your typical wholesale type cash buyer list, and then now a realtor list.

Joe Fairless: You were a marine and you were overseas… What lessons learned over there have you applied towards what you’re doing now, if any?

Donald Ross: The first deployment I was applying logistics, so you can kind of compare that to all the moving parts in a logistic system that you would have with a contract, and negotiating and maneuvering landmines that show up on the title when you’re getting everything closed. So you kind of figure out how to roll with the punches… Especially over there, if people need things, they need them yesterday. So we had the overnight things over there we did, and obviously the same thing applies here. You’re trying to close something, and the seller thinks the date is gonna be a certain date; on the close date you wind up jumping through hoops, trying to make things happen at the last minute. Obviously, we try to avoid those, but it happens. So assume that it’s going to happen, not that it’s always just gonna float the best possible way.

Then as far as negotiating and contracts, my secondary job before I got out was contracts for the marine corps. I negotiated some multi-million dollar contracts overseas to have services and supplies and different things to show up for the guys on the ground. Obviously, that applies to negotiating with the seller and/or the contracts that we go through. It makes it a lot easier to understand these different contracts.

For instance, the state of Wisconsin, if you’re a realtor or a broker, they require that you use a state contract. Obviously, most of those are gonna be anywhere from 12 to 15 pages, and sometimes we’ve got sellers where even if we use a simple three-pager, the attorney gets involved and they want that 12 and 15-pager, so it’s nice to be able to understand exactly what we’re using and dissecting those different terms and conditions that are in there.

Joe Fairless: Based on your experience as someone who’s full-time in real estate investing, what is your best real estate investing advice ever?

Donald Ross: Well, the hard part is just getting out there and doing it and answering the phone. A lot of people have a scarcity of the phone ringing. I would say the easiest part is just get out there, send direct mail or pay-per-click or whatever marketing channel you’re gonna use, do that, and then jump in. Once they answer a few phone calls, it just gets a lot easier.

At this point I don’t answer a ton of phone calls on my end unless it’s getting super crazy over here. We try to get the call center to take it or my girlfriend is taking it… But the money is in that phone call, and the money is in the follow-up. So first of all, take the phone calls, and second of all, make sure that you have a follow-up process.

Joe Fairless: Let’s talk about the phone call… Congratulations, you just got a new employee, and now you’re training him or her on the phone call. What do you tell them?

Donald Ross: Well, for us, I have since delegated that to John Martinez. He’s got some training that you can get into for your leads managers. He’s got great call scripts, he’s got everything that you could want basically in negotiating and talking with a seller on the phone, and it’s strictly in regards to real estate and what we do.

So for me, I’m gonna hook him up with the Martinez training, and get them over there. It’s one of the best things I’ve seen out there, and that’s another reason why I’ve got his call center now taking our calls. It just makes sense.

The biggest thing for us is then going to be the Podio training; that’s what we use for CRM to track everything that’s coming in. Now what I’ve done is as you go through the process and you start to figure out what works and what doesn’t work, I use Screencast-O-Matic, create  a video, save it, and then I save that inside for an internal video or process that I can show them, for anybody that starts.

Joe Fairless: You are scaling your business, so that you’re able to do this virtually. You’re bringing in team members, you’re automating the process… At what point do you need to be involved because you suffer the quality of what you could have had if you were involved?

Donald Ross: Well, I would say that is the point where really the tracking mechanism is. We use a spreadsheet based off of the [unintelligible [00:14:51].20] I’m not sure it was brought up, but I’m part of REI Vault. REI Vault actually has a system where they’ve built out the whole tracking mechanism [unintelligible [00:15:01].19] meetings so that everyone’s on the same. You’ve got your tracking metrics, meaning how many calls are being placed by your leads manager on a weekly basis, or how many are received, how many appointments, offers, contracts are happening each week.

Once you have that spreadsheet to track everything, it makes it super simple to know if there’s a quality issue or a people issue, that maybe the person is not the right fit and they’re not up to par, up to standard. After the first two weeks, you can really tell; if the numbers start suffering, it’s time to have a talk or potentially look at somebody else for the position.

Joe Fairless: How do you find the team members?

Donald Ross: For us, we’ve really started now to focus more so on a Facebook network, so local people that we would know or people that are friends with us. I’ve used places like ZipRecruiter and oDesk in the past for some of the VA’s, but right now we’re actually focusing on getting a leads manager into our new office that’s opening up in August, so we’re gonna have somebody locally actually come sit in the seat in our office… Which is new for us.

Normally, we’ve got obviously my girlfriend that takes the calls now, I’ve had VA’s in the past that are remote, but all those came from oDesk, the VA’s that were remote. Then obviously my partner – I just simply made phone calls to the “We buy houses” type of things that you find on Google when you search, found out what she was doing… She was doing a couple of deals by herself, and basically we wound up combining forces because I have the background automation in knowing how to track everything.

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

Donald Ross: Let’s go!

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

Break: [00:16:41].19] to [00:17:29].23]

Joe Fairless: Best ever book you’ve read?

Donald Ross: Traction.

Joe Fairless: Best ever deal you’ve done?

Donald Ross: The last one, because it’s one of the easiest and biggest ones we’ve had.

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

Donald Ross: Typically, we [unintelligible [00:17:43].17] I think that’s one of the biggest mistakes that we’ve made in the past… Because you have bomb shells that will hit you right at the last minute before you’re trying to close.

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

Donald Ross: For me, it’s veterans. If I can give back to a veteran charity or go down to anything having to do with the veterans, I’ll do that. I did at one point work for the DA and I did[unintelligible [00:18:05].01] give back to my people that I’m brotherhood part of.

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

Donald Ross: They can either get a hold of me by e-mail, which is Don@REIVault.com, or if you wanna find out more about me, track me down on Facebook. My name is Donald Ross.

Joe Fairless: Thank you so much for being on the show, talking about the pros and cons between wholesaling and wholetailing, the challenges. The main thing is getting that cash buyer, and you gave a specific way of finding the cash buyer, which is doing research on cash purchases in the MLS, see who the agent was or that person is, and then reaching out to them and seeing if they’d be interested in buying additional properties or if their client would be interested in buying additional properties in the area.

Then also how you’re automating the process and how you’ve applied the lessons learned from serving our country to now developing and building a virtual wholetailing company. Thanks for being on the show. I have you have a best ever day, and we’ll talk to you soon.

Donald Ross: Thank you.

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JF1218: Using Algorithms & Data To Find Great Deals with Daren Blomquist

Another great episode to set yourself up for success in 2018. Daren works for ATTOM Data Solutions, a company that tracks real estate data for their customers to use however they wish. The major take-away from this episode (besides knowing how to access and use their data) is that their data shows we are still in an upcycle, with high demand for more supply. Daren says that this may be a great time to sell if you have property you have been holding for some time. We’ll hear more specific market reports from Daren including which markets have great returns,and which ones have become more expensive and less attractive to investors. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Daren Blomquist Background:

– Senior Vice President of Communications at ATTOM Data Solutions (formerly RealtyTrac)

– Directs ATTOM Media, a division that publishes original real estate reports sourced from the ATTOM Data  Warehouse

– ATTOM Data Warehouse, the nation’s most comprehensive property database

– Executive editor of the Housing News Report, a monthly newsletter published by ATTOM Data Solutions

– Based in Orange County, California

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


Made Possible Because of Our Best Ever Sponsors:

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

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

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


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 fluff. With us today, Daren Blomquist. How are you doing, Daren?

Daren Blomquist: I am doing great, thanks for having me on the show.

Joe Fairless: My pleasure, nice to have you on the show. Best Ever listeners, we have a special segment, because Daren has a special skillset. The skillset that he has and his company has is identifying how to use data to track the market and see what we should do at any point in time, and also to find some deals.

Daren is the senior vice-president of communications at Attom Data Solutions, which is a division that publishes original real estate reports sourced from their data warehouse. Their data warehouse is an incredibly comprehensive property database. He is based in Orange County, California, and you can learn more about their company at their website, which is in the show notes link – it’s attomdata.com.

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

Daren Blomquist: Sure. I’ve been with Attom Data Solutions, which was previously – some of your listeners may recognize the name Realty Track… We were previously known as Realty Track, since 2001. I’ve been here a long time, I’ve been here for 16 years basically, and joined answering phones for customer service, talking to real estate investors – that was my training, and it was a great training – who were using our data to find deals. That’s where I got started, and really my background education was in communication, so eventually as Realty Track started growing I was able to start taking on that role of taking this data, and — part of our mission here at Attom is to increase transparency in the real estate market.

My job is to take the data and create reports out of that that it helps to increase transparency in the real estate market. The one that we were known for for a long time was the foreclosure report, because nobody else was tracking data… Most of the data you see out there about the real estate market tends to want to always put a positive spin on real estate, in terms of “Things are always rosy, even if…” – anyway, I won’t get into that too much unless you want to, but we were willing to say, “Look, we don’t just wanna talk about the good, we wanna talk about the reality in the real estate market”, and foreclosures was a part of that.

So it’s really a fun job to be able to dig into the data, and of course, that helps me in my own personal real estate investing experience, which I do as well; that’s been a big help. But I would say a huge piece of my learning curve early on was talking to these real estate investors, and this was back in another housing boom… The market goes through cycles, and you can use data in any cycle to help you invest and find good deals, and that’s one of the things that I’ve learned over the years. But back then it was another boom cycle, there were certain strategies and data that investors were looking at to find those deals; during the down cycle it was different. Now we’re in another up cycle, but the common thread there is that there’s always deals available and there’s always ways to make money in real estate. You need to be aware of what cycle you’re in to employ the correct strategy to do that.

Joe Fairless: I’m gonna take your word for it that you all have a bunch of data, because I’m sure that some listeners are shaking their heads, “Yeah, they do. We’ve worked with them.” Okay, so you’ve got a bunch of data… We don’t have to get into the nuts and bolts of that; what I wanna know is since you have access to all this data, how do you determine what to do with it?

Daren Blomquist: It’s a massive database. Just to throw out a couple numbers, we basically have what’s called tax deed and mortgage data on 150 million properties nation-wide, which is most of the properties in the U.S.

Joe Fairless: How many?

Daren Blomquist: 150 million. That is over 90% of the country in terms of housing units and population. And we have basically all the public record data. If you went down to the county to research a property, all the data that you would pick up, looking at all the mortgages, the deeds, the tax assessor information; of course, the foreclosure information we’re tracking as well. And what we decide to do with it – that’s a great question. A lot of it comes from our customers. We listen to what our customers are looking for and what they’re interested in, and that helps us inform what we should be looking for in the data.

We have clients from real estate investors – individual real estate investor are using our data to find deals – to massive Fortune 500 companies who are ingesting our whole database in-house and giving it to their data scientists to analyze for creating algorithms and machine learning and artificial intelligence to help them inform their business, and their business may not always be directly related to real estate. We have government agencies using the data.
To be honest, that gives us a lot of information on, “Okay, what reports do we need to be publishing out into the universe that help increase real estate transparency?” And we’ll see sometimes just looking through the records of data, you see something that sparks your interest, and that a lot of times is what sets off a report.

I’m trying to think of an example… One report that we did about a year ago, but I just saw there’s still media talking about it is the gender gap in housing. Part of the data we’re able to see is whether in the tax assessor data whether a man or a woman is identified as owning the property and looking at trends in that. That’s one of the reports we did.

One of our most popular reports now is home flipping, and that arose out of — a lot of our customers were flipping homes, and they wanted insight into the trends, not just their local market or their local experience in flipping homes, but what was the higher level trends, and that’s become a very popular report for us, as well.

Joe Fairless: What are some of the components of that report, the house flipping one?

Daren Blomquist: Home flipping report – we look at just trends in the number of homes being flipped, the home flipping rate as a share of all sales, how saturated that market is with home flippers, the number of actual flippers, if you’re looking at your competition… The gross yield – we don’t know how much flippers are spending on rehab, but we know what they bought it for and what they sold it for, so that kind of gross yield they’re getting out of the home and what markets have the highest opportunity for gross yields.

Then actually an increasingly important component for certain of our clients is how flippers are getting their financing, if they’re paying with cash when they buy these homes; we are seeing an increasing trend in flippers utilizing financing to buy the homes that they’re flipping.

Joe Fairless: And when you look at, say, the number of actual flippers, do you compare that to previous reports and then have a trend for increase/decrease or staying the same?

Daren Blomquist: Absolutely. That’s part of the story of [unintelligible [00:09:18].23] looking at data to help understand what part of the housing market cycle you’re in, and flipping is one component of that… And yes, we compare it to previous years.

We’re in a place where home flipping in 2016 was at a 10-year high, but it was still dwarfed by the number of home flips we saw back in 2004, 2005, 2006. There’s still a lot more. So we are in an up cycle, but we’re not in a frenzied cycle, the crazy Wild West frenzy that we were seeing back in 2004, 2005, 2006. We’re seeing great profits in home flipping; because the market is going up, it’s a great time to flip.

When the market was going down, we saw flippers pull back. They didn’t wanna be catching a falling knife in terms of trying to project what that home would sell for in six months when home prices were going down. That’s something important to understand it can be done, but it’s a lot tougher, so we’ve gotta definitely look at that.

In a down cycle, the upside for investors is there’s a lot of deals available, there’s a lot of distressed inventory a lot of times available to purchase, but home flipping becomes a tougher strategy for sure in that down market. Buy and hold may be a better way to go.

Joe Fairless: As buy and hold investor – not fix and flippers, but let’s just say we’re a buy and hold investor… If my market where I am investing is on your list in your report as one of the markets that have a high gross yield, what are the implications for me as a buy and hold investor?

Daren Blomquist: I think the implications there that that market is going up quickly and there’s a lot of demand for homes that have been rehabbed and in good condition – what that means for you is, well, it may be a good time to sell; if you’ve been holding that property for a long time, it may be a good time to liquidate. That market is becoming more frothy, I guess, for lack of a better word. But in general, I would say it’s a positive sign that that market is in high demand, and for you as a buy and hold investor that could be a good sign that you’re in a good location for that.

The other piece there I think is that as a buy and hold investor if you see a high gross flipping profit, a lot of times, especially when you get down to the neighborhood level, that neighborhood is gentrifying and it’s improving, the nature of that neighborhood is changing in a positive way, probably, at least from your perspective, and the value of that home… So you’re gonna get that icing on the cake of faster appreciation for that home in addition to the cashflow that you’re getting from the rentals.

Joe Fairless: Do you all look at total dollars on gross yield and then also percent? Because total dollars I imagine would be different than percent of profit, or difference there… Since California and North-East probably larger dollars, but you might not be making as much of a percent profit.

Daren Blomquist: Yeah, that’s correct. We do both of those. We look at the dollar amount, and yeah, there’s a lot of markets in California and the North-East – you pin-pointed it exactly – and maybe some places like Seattle that we see $100,000 gross profits, and that’s just average (or more) on a flip, but then you look at the percentages, and the percentages are higher in what we’d call the more blue-collar [unintelligible [00:12:51].05] markets, like Pittsburgh is near the top often in terms of percentage return. Places like Cleveland and spots like that can float to the top when we look at that metric.

Joe Fairless: Are there certain markets that you have seen on that report on a consistent basis over the last handful of years?

Daren Blomquist: Yes, you mean that are–

Joe Fairless: Yeah, the gross yield.

Daren Blomquist: The gross yield piece. Early on – we started publishing that in 2012, and early on the low-hanging fruit markets that were destined to come back quickly from the downturn, because 2012 was really the absolute bottom in terms of home prices… So places like Phoenix, Atlanta, parts of Florida would have been high on the list at that point. We have seen that shift… There’s still South-East markets, places like Memphis in there, but it’s shifted I would say North to the [unintelligible [00:13:44].05] where you see the Pittsburghs and the Clevelands and the Cincinnatis, I think where you are, that are floating more to the top of that list… As places like Phoenix and Atlanta and many parts of Florida have become quite expensive, and the low-hanging fruit has already been picked there during this particular cycle.

So that’s one thing, as a real estate investor looking at data, you need to be aware that different things are happening in different markets at the same time, and so not everything hits at the same time. There was great opportunity for finding deals in some markets a few years ago that’s not there, and now it’s shifted to other markets for both flipping, and I would even say the buy and hold has shifted as well in a similar direction.

Joe Fairless: Let’s take a step back and let’s pretend – and there’s gonna be a gasp on your end – that we don’t use your services. You can do the gasp — “Oh, no…!” So we don’t use your services, but we’re just looking to identify the best markets to invest in the long-run for the next couple decades, as buy and hold investors. Where should we go to gather data and what should we look for?

Daren Blomquist: There’s a couple levels of this. Many investors know their local markets and they’re gonna stick to that, but even within their local market, real estate is local – that’s the maxim, right? And I think that’s true; so even within, say, a Cincinnati, you’re gonna start looking at the data at the neighborhood zip code level at the very least, if not further down, and… It’s not always about looking at markets that are a 100 or 1,000 or 5,000 miles away, it’s sometimes looking at markets within a very small area… And local investors who stick to the same area do have the advantage of — they may not need to use our data, to be honest; they may know that market so well themselves, they have it dialed in and they know once they start seeing certain signs…

And I think some of the key signs – the first domino is the number of sales that are happening. If you start to see the number of sales consistently trend downward, that could be a sign of weakening demand; that a lot of times is the first sign. And following that, a few months later you would see home prices start to weaken. Tied in with that – and this is where personal data from your own… I would encourage investors to keep their own data, because that can be valuable. The time it takes for them to flip a property, if they’re flipping – if that time, particularly the time that the property is on the market, is starting to get longer, that’s a sign that the market may be weakening. At the market level, days on market is a sign that demand is weakening… Or strengthening, if all of these numbers are going the opposite way – then that could be strengthening in the market.

A lagging indicator that we look at is foreclosures. A lot of times if you see a  huge foreclosure start to spike, it kind of may be too late; that market has already experienced a downturn, for some reason.

One of the best pieces of advice I’ve heard recently on real estate is real estate is relatively slow moving, so there’s time… If you see some of these indicators, even foreclosures that tend to be a lagging indicator, there’s usually time, unless you are a massive investor who has hundreds of deals going at a given point, you have time to react to the market once you start seeing that data. It’s just paying attention, and it’s trusting the data too, I think, as opposed to thinking that everything is gonna keep going the way it has been going, and believing “I’m making money doing this, so I’m gonna keep making money doing it this way”, and trusting that the data can point you in the right direction.

So those would be a few key things – the number of sales (the basics), the days on market, the prices and foreclosure activity starts to come in as a real sign, if that’s going up, that that market could be weakening.

Joe Fairless: How do you gather that?

Daren Blomquist: Well, a lot of that data is pretty accessible and free. It’s out there through web portals that are providing trend data, including ours; we provide a lot of that basic information for free, and places like Zillow and others will have a number of sales, a number of prices… Now, foreclosures – you can get foreclosures for free on our site… The foreclosure trends, not the specific foreclosures. We run RealtyTrack.com/trends. You can dig [unintelligible [00:18:35].09] zip code level, and there’s other places you could probably get that as well to keep your eye on the trends.

Now, some of the data, when you start seeing — if you really wanna get granular and look at specific deals that are happening within a market, which may be important at a highly localized level to see how people are doing… Not just how you’re doing, but how other flippers or other real estate investors are doing – that is public record data that you can license from us or from other folks, and be looking at specific deals to really dig into the nitty-gritty of a given market.

Joe Fairless: Anything else that we haven’t talked about as it relates to using data to identify what we should do in a market that you wanted to discuss?

Daren Blomquist: There’s so many things, but I think we’ve covered the basics of it. It’s not rocket science to track the data, but I think a lot of investors do put the blinders on, and it’s just… Keeping the head up and taking some time to keep an eye on that. It also becomes important when you’re doing specific deals to know the data for that specific property as well, and all the information about that property that impacts the value, that’s a huge piece, too… Not so much at the trend level, but the specific deal level, gathering all the data on that property so you really can at the end of the day assess its true value.

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

Daren Blomquist: They can go to AttomData.com. There’s a lot of information there, our data and our products and services. Also, we run RealtyTrack.com; it’s a great source, as I’ve mentioned earlier, for finding trend data, and also looking at finding specific properties.

The best way to reach me, I would say, by e-mail is to send an e-mail to marketing@attomdata.com. That goes to me, as well as other people, so my assistant who can help make sure you get in contact with me.

Joe Fairless: Sweet. Well, this has been an informative conversation, and one that can help us, as you said, get ahead of — well, you didn’t say this, get ahead of the trends… But what you did say is real estate is a relatively slow-moving industry, and it’s true; if we’re aware of our surroundings and we know what to look for, then we can make moves prior to whatever is coming up, and some of the things that you’ve mentioned, the different ways to look at a market to identify if there is a growth or regression happening, looking at the sales trends, looking at how long the days on the market are, and then also with the approach for… You’re just making sense of it all having the approach of “Okay, we’ve got these different reports that we can go look at, but what do these numbers actually mean and what are the implications?”, so how do we take that information and then have actionable action from that.

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

Daren Blomquist: Thank you so much, Joe.

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Best Real Estate Investing Advice Ever Show Podcast

JF1176: Tax Planning Strategies For Flippers, Landlords, And Commercial Investors with Bruce Jones

Bruce has over 47 years of experience in financial services, with an emphasis on real estate. Today he’ll share case studies with us on how he has been able to save his clients a lot of tax money. We’ll hear how a client who is a flipper is able to take his gains from a flip, use them to buy another flip, deferring the taxes until he doesn’t want to buy anymore properties. We’ll also hear about an alternative to 1031 exchanges that defers paying taxes, but does not force you to buy more real estate, along with more unique strategies Bruce helps his clients with. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Bruce Jones Background:

  • President/CEO of TaxWealth, LLC, a tax analysis and solutions research company
  • Over 23 years he has served owners of real estate, privately-held businesses and other appreciated assets.
  • Contributing editor to real estate and other industry publications, writes on tax planning issues and speaks extensively on this topic.
  • Discusses strategies for reducing taxes on flips and rentals without doing a 1031 exchange.
  • Based in Orange County, California
  • Say hi to him at www.capitalgainstaxplan.com or 949-627-8724
  • Best Ever Book: Good to Great by Jim Collins

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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 fluff. We don’t like that fluff, we want to be respectful of your time and get to the best stuff as quickly as possible.

How are you doing, Bruce Jones?

Bruce Jones: Doing well, thank you.

Joe Fairless: Nice to have you on the show. Best Ever listeners, we’re gonna be talking about the number one expense that you have on your business – taxes. Bruce is the president and CEO of Tax Wealth, which is a tax analysis and solutions research company. For over 23 years he’s served owners of real estate, privately held businesses, and other appreciated assets. He’s a contributing editor to Real Estate and other industry publications. He writes on tax planning issues, and talks all about this topic, so we’re gonna talk to him about reducing our taxes on flips and rentals without doing a 1031 exchange, and all sorts of other good stuff.

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

Bruce Jones: Thank you, and thank you for inviting me to join you. This is my 47th year in financial services.

Joe Fairless: Wow!

Bruce Jones: Yeah… I’m just old. Actually, three years ago I retired from the financial planning and securities industries after being in them for 41 years. But knowing the statistics and seeing my own clients soon die after they retire, I was very selfish and I wanted to live longer, so I stayed in business. All I do is my passion, and that’s tax planning.

As you said, Tax Wealth has been around for quite some time now, and our focus is to come in in a support capacity and [unintelligible [00:02:43].20] to CPA’s, and attorneys and real estate professionals and business professionals and financial advisors of all kinds, and helping to solve their clients’ tax problems, principally real estate-oriented – when they’re selling the real estate, or a business, or some of the capital assets.

We also do a lot of work in mitigation of income taxes for those who are investors, as well as for the self-employed.

So I’ve been around a while… Tax planning is an absolute passion I have. Quite honestly, it’s a lot of fun beating up the IRS legally.

Joe Fairless: [laughs] We all live through you in that scenario. We certainly want to be in that position, or at least have a team member like you on our side. Let’s talk about reducing taxes on flips – how do we do that?

Bruce Jones: Well, with flips, unfortunately, if you’re doing really any more than probably three a year, then your flips are considered inventory; they’re not considered a capital asset. So you don’t have available the long-term capital gains tax treatments. It’s all considered ordinary income, just like you’re earning in a business, and that’s exactly what a flipping process is – it’s a business, isn’t it? So that’s all ordinary income.

There is a different approach in solving the income on flips, and it’s orchestrating actually qualified plans with some other strategies that we adhere to the qualified plans, being the IRA’s, the 401k’s and such, to where we can largely eliminate a lot of that taxable income from the flips and put everything into a tax-deferred environment by law, and then allow all the future flips that are being done with those pre-tax dollars. What the client is then doing is just really building for their future retirement on a tax-deferred environment by law, and still doing the flips.

Joe Fairless: Will you give an example of that? I am taking notes, but I want to make sure I understand it, and I’m sure it’d be good to clarify for a couple of listeners who need clarification.

Bruce Jones: Well, we can’t get into too much detail on that, because it’s for each individual’s circumstances, of course… But in general – let’s take an example. I had a client who does quite a bit of flips. He makes over $300,000 a year on his flips. He also works full-time in another vocation.
In his particular case, we set up this planning approach – he contributes the income that he receives from the flips into this approach, eliminates the taxes on the front-end, and again, as I said earlier, through the structure we’re able to take those same dollars now in a tax-deferred environment and using them to buy all of the future projects that he’s flipping. So all the gain that comes from those future flips then are all in a tax-deferred environment, and as I said, he just keeps building for the future that way. But he doesn’t have to do 100% of the income that he’s generating; he can take whatever portion that he wants.

We do need for that particular planning approach at least $100,000 of income to really warrant it, but there’s a lot of folks that are making a lot of money using flips, and they certainly qualify for this.

Joe Fairless: And contributing the income from the flips to what type of account?

Bruce Jones: It’s a combination of qualified retirement plans such as IRA’s and 401k’s, self-directed types, cash balance plans, defined benefit pension plans – any of those can be utilized. In fact, any existing plans that they already have before they put this structure into place can actually be brought into the structure and used as well, and use those dollars for future flip projects as well.

So we’re combining really at least two different strategies and combining them to come up with that kind of net effect for the client. The best part of what tax planning is about is sometimes melding different strategies together to come up with the desired impact.

Joe Fairless: And he in that scenario would be paying taxes at the end, whenever he takes that money out, right?

Bruce Jones: That’s correct.

Joe Fairless: Okay, got it. How about passive rentals? If we are a buy and hold investor, long-term, we buy something, we forget about it, we buy another, we forget about it – and by forget, we just don’t sell it – what are some tax planning strategies we can employ to lower what we pay?

Bruce Jones: Well, the very first one that should come to mind is a thing called cost segregation. It really amazes me that more people don’t know about this, because it’s been available to property owners with improved properties – apartments, single-family rentals, commercial properties or whatever it might be – since 1st January 1987… Yet most people have never heard about it.

Essentially, what this does – the law allows the property owner to segregate out or partition out certain components that are tied to the property and allow them to accelerate the depreciation on those components tied to the property, from either the 27, 5 years straight line schedule if you’re talking about apartments or single-family rentals, or a 39-year straight line schedule if you’re talking about commercial properties, and allow those components to be accelerated to 5, 7, or 15 years.

What that does – it either gives the property owner more tax benefit that can be applied against taxable gain on properties they might be selling, or it gives them an instant increase of cashflow, lump-summed often times, tax-free.

Let me give you an example – a gentleman owned an office building, bought it ten years earlier, 39-year straight line schedule, he paid ten million dollars for it; he was taking a little over 250k a year of straight-line depreciation, so 2,5 million over that ten-year spread since he bought it. Cost segregation allowed him to accelerate more than $1,368,000 in the first year. He had a combined tax bracket of 35%, and that gave him an instant increase of cashflow of more than $475,000 that he could turn around and buy more real estate with, or do whatever he chose to do with it.

And it’s instant, because this is money that he already had in hand that he didn’t have to give to the government in the quarterly estimates for that tax year. He simply reallocates it.

A lot of folks don’t realize or have no idea that they have this type of benefit available to them. So for those who want to expand their portfolio, for example, this is a great way of finding money they didn’t know was available to them to use as down payments, to buy more properties and expand the portfolios.

Joe Fairless: Isn’t’ that only for commercial, compared to an investor who has a house that’s a $100,000 house and it doesn’t make sense?

Bruce Jones: Well, there’s always that balancing point in tax planning as to whether or not something makes sense or it doesn’t. In general, if a property owner has the same multiple properties – three, four, five properties – it could very well make a great deal of sense. However, having said that, let’s say that they have one property but the purchase price was 400k or 500k; they’re probably a candidate for it, even if it’s a single-family rental.
The balancing point with this is you have to subtract out land cost at purchase, because land is non-depreciable. So you take the difference as far as structure and what the depreciable basis is based on, and then we do the projections to see if it’s worthwhile or not.

I’m in a very nice position that I can do all the projections through my sources. I’ve been working with them for nearly 20 years on cost segregation, and they’ll run the numbers for me at no cost to see what the probable benefits are by doing this, and what their cost is to do it, and meet the IRS regulations. The client then can weigh the benefits versus the costs to see if it’s warranted or not. In most cases, it is.

Joe Fairless: When you are looking at tax planning and you’re working with your clients, what are some other strategies that you like to employ that they typically aren’t already being used by your clients.

Bruce Jones: Well, let’s take an example if they wanna sell a property. Most people in the real estate ownership field, about the only choices that they know are available to them is usually a 1031 exchange. The 1031 exchange has been around a long time, since the late ’70s, under the Starker decision.

It’s well-established, it’s effective, it defers the taxes into the upleg property that you’re buying of equal or greater value. But the downside to it – or one of the downsides – in my view is that it’s very inflexible, in that if a person wanted out of real estate for example, or they needed to be out, a 1031 exchange does not allow them to do that; it forces them to buy more property.

I’m doing a lot of work with folks who own commercial properties for example, who want to sell. They want to solve the tax problem, but park the money. They don’t wanna buy right now because the market conditions really don’t warrant it. It’s a great time to sell, but a horrible time to buy right now, because the cap rates are being so low. So they’d much rather sell and park the money and wait until the market comes back to a level that is really warranting them to buy more real estate. You can’t do that with a 1031 exchange because it’s a replacement strategy, it’s not an exit strategy.

So we’re able to accommodate that need in that we can demonstrate to them and their CPA’s how to structure the sale in such a way to where we can defer the taxes literally for decades, but have the seller of the asset receive in lump sum cash, tax-free, an amount that’s nearly equivalent to the sale proceeds. That way we’re able to solve the tax problem, maximize what they get at close of escrow, and they’re in a position to where they can wait until the market gets back and then they will find the right property at the right price, without the 45-day declaration rules they have to contend with a 1031 exchange, and that of the 180-day close rule.

Right now in the market nationally – I’ve been told by commercial brokers who are very seasoned, experienced folks, I’ve been told that 50% of the exchanges right now fail in today’s market. Well, this planning approach helps solve that issue as well, because it can rescue a failed 1031 exchange.

Joe Fairless: Are you referring to a land contract?

Bruce Jones: No.

Joe Fairless: How do you structure it then?

Bruce Jones: Well, in that situation we’re utilizing what is called a dealer in the purchase and resale of capital assets. And in law, we actually reach all the way back 99 years to 1918 when the installment reporting rules came into law – what is typically called an installment sale.

Most people identifying an installment sale would [unintelligible [00:14:20].04] financing, but that’s only one way of structuring an installment sale. The very definition of installment sales or installment reporting – it simply says in law “One or more payments made after close of escrow.” That’s it. It doesn’t say how much the contract must be for, it doesn’t say how long it must be or how short. It simply says “One or more payments made after close of escrow.” That’s all.

At the time that the laws were established, the Congress also inserted the term ‘dealer.’ A dealer is simply an intermediate buyer. They buy the asset to immediately resell it. Very much like that of a car dealership – they buy the cars in consignment to sell the cars as quickly as they can and get them off the lot. It’s no different than that.

I’ve been very fortunate that for the last 9+ years now I’ve worked with a dealer in the purchase and resale of capital assets who also is the architect of this planning approach when he was an attorney who specialized in solving tax issues for real estate transactions and business transactions, reaching all the way back to 1967.

He is a Harvard Law School graduate, been in practice for all those years; he transitioned his consulting business and ended up becoming a full-time dealer about 12-13 years ago. He created this as a solution for a client that he had as attorney back in 1995, who actually did a traditional installment sale on the sale of a timber property in the Pacific North-West. He took seller carry back, was actually very happy with the transaction until he got a call from the buyer in 1995, telling him that they were gonna pay him off early. Well, he didn’t like that, because that meant that all the deferred capital gain was then due in ’95 tax year with all the taxes with it. So he contacted this attorney (our dealer we’re working with now), and he reviewed all the agreements and documents and verified that the buyer had every right to prepay if they chose to, and he crafted the very first one of these types of transactions to solve the issue.

There are now 22 years — it was a 30-year tax deferral period; we’re at 22 years of that deferral period right now, and that same program is in effect today for the very same client, unhindered and unchallenged by the IRS.

So all we’re doing, looking at it from sort of a helicopter view, is we’re combining two different things in law. We’re combining a specific type of a loan called an investment business loan, together with an installment sale. On the installment sale side, the taxes are deferred for three decades, and instead of receiving sale proceeds, which would be taxable at close of escrow to the seller, they’re receiving loan proceeds from the investment business loan, which by law are non-taxable. So it’s really a pretty simple thing to do, it’s just not well-known.

Joe Fairless: Yeah, that’s combining a couple strategies that aren’t — well, one of them… What did you say, it’s the installment sale, and what’s the other one?

Bruce Jones: Investment business loan.

Joe Fairless: Investment business loan. Yeah, I haven’t come across that very often in transactions.

Bruce Jones: Well, probably not in real estate transactions, but actually they’re very commonplace. You can go to any bank and arrange a business loan. They’re very commonplace.

Joe Fairless: Okay, I’m overthinking it then.

Bruce Jones: I think so, a little bit. But all we’re doing is taking what law has said we can do, stretching back to 1918; actually, it was reinforced by the IRS itself in 1980, because they codified into law the ability to monetize installment contracts without losing tax deferral. Then in 2012 the chief counsel of the IRS issues a memorandum in favor of [unintelligible [00:18:05].05] with an installment sale. So there’s a lot there in substance in supporting law for this, but it’s not well-known, that’s all.

Joe Fairless: Alright, so the scenario would be that you don’t want to pay all of your long-term capital gains when you sell, so you do this installment and investment loan hybrid structure. And that structure, if I’m the seller I’m receiving the proceeds from the sale, but it’s not the actual proceeds from the sale, because that would be taxed; it’s actually an investment business loan that the buyer has with me, and it’s paid out over a period of time that’s agreed upon?

Bruce Jones: No. Almost there, but not quite. What is happening is that — let me give a quick example. Let’s say that you’re the seller and I’m the buyer. We find each other, we negotiate price for let’s say a million one. So we enter escrow. Well, while in escrow, you as the seller invite the dealer to come in between us as an intermediate buyer; that’s his function. And you sell that asset in the same escrow that we’ve established, you sell it to him on an interest-only installment sale contract, non-amortized for 30 years. That defers the taxes under law, because you’re not taking constructive receipt of those sale proceeds until this contract is paid off 30 years [unintelligible [00:19:34].04]

You are introduced to a third-party private lender who now for the last seven years has been providing these types of loans for these transactions. So what you’re receiving at close of escrow are not the sale proceeds, you’re receiving those loan proceeds from the investment business loan, and they are non-taxable. They will be for nearly equivalent to what would have been the sale proceeds.

Joe Fairless: You said “I invited the dealer as an intermediate buyer” – who’s the dealer?

Bruce Jones: He is a gentleman who has a company in the Pacific North-West, who has been doing this full-time for about the last 12-13 years, but this is the same gentleman I mentioned earlier, who was [unintelligible [00:20:15].21] Harvard Law School graduate, admitted to the bar in 1967, and the very first one he did was in 1995 to solve that tax issue for that client.

Joe Fairless: Okay, interesting. This is next-level stuff, and I’m grateful that you’re walking us through it. With your experience in tax planning, what is your best advice ever for real estate investors?

Bruce Jones: Never rush into anything, because in most cases you never have to. What one really needs to do is just take their time to find out what all their options are, and there’s a lot in tax law that folks do not realize is there to take advantage of… And be sure that the ones that they do choose really fit their needs, really do fit their objectives and their goals.

Once they identify that and they prove that out, that it really is a fit, then they can move comfortably forward in implementing whatever the choices are that they’ve chosen to make.
But it’s important to take your time. Having a working knowledge of the tax code is really important, and in order to have that, you need to take the time to really see what the various choices in law are, and most people I think don’t do that.

Joe Fairless: Going back to that previous example when you’re basically deferring the taxes until 30 years, are they paid off a little bit at a time where you’re receiving the gains a little bit every year, or you’ve got to pay a big chunk in 30 years?

Bruce Jones: You pay it in 30 years based upon the prevailing tax rates at that time. However, what you’re doing is taking advantage of two things over that 30-year period. The first thing, you’re taking advantage of the time value of money. Let’s take an example – per $100,000 of taxes deferred over three decades, since you’ve deferred the taxes, you now have full use of those tax dollars to invest, don’t you?

Joe Fairless: Yeah.

Bruce Jones: So if you invest those dollars, and let’s say you just average a 5% net rate as an average yield over that 30-year period, you will have over $430,000 to pay the $100,000 of taxes 30 years later. So even at a modest, consistent rate of yield, you will have at least, if not substantially more than what you need to pay the taxes, all originating from the tax dollars themselves. That’s just pure efficiency in time value of money.

The other thing that we’re taking advantage of with this is actually inflation. Now, inflation is normally viewed as our enemy, because as inflation goes up, costs of goods and services go up, which means we pay more to get less. That’s true, but in this case the inverse is true – it actually becomes our friend, and the reason it does is because inflation will deteriorate the value of those tax dollars over that 30-year period in terms of today’s value.

Inflation over the last 30 years, for example, has been just shy of 3% as an average. So if we take 3%, projected out over the next 30 years, but apply it on those taxes, by the time the taxes have to be paid 30 years from now, in today’s dollars they’re only gonna be worth 40 cents on the dollar, assuming that 3% rate. So what the seller is doing is using tax dollars to grow, likely make a profit on top of that on the deferred taxes, pay off the taxes in 30 years at a very steep discount in real dollars in terms of today’s value… That’s an effective tax reduction cost of 60%.

Now, it’s important to understand however that what we’re doing is locking in the taxable amount. We cannot lock in the current tax rates. But if you take the current tax rates we have now, the 20% capital gains, 3.8% net investment tax, in real estate a 25% depreciation recapture, then state on top of that, here in California that can be as high as 13.3%. So if you combine all those tax rates and then project it out at 3% inflation, they’re going to have to go up by more than 250% above what they are today in 30 years to equal what they are today. In California, that would thrust us up over an 80% tax hit. It just isn’t going to happen.

It hasn’t been one CPA or tax attorney I’ve spoken with on that topic who disagrees with me. Government can allow that to happen, so it leaves the seller in a very, very good position, doesn’t it? You’re using tax dollars to grow, to pay the taxes at a very steep discount in 30 years, likely make a profit, and this is over and above all the other money that they’re getting at close of escrow tax-free, that [unintelligible [00:24:54].25] That only represents a very small portion as a whole, that reflects what the tax dollars would have been.

Joe Fairless: You know, next time we have a conversation I’m gonna make sure that I have not one but two fish oil pills, that way my brain is working at some level that it needs to be in order to have a conversation with you. This is great stuff, practical and also next-level… It’s a unique combination.

We’ve gotta move on to the lightning round – are you ready for the Best Ever Lightning Round?

Bruce Jones: Let’s go right in.

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

Break: [00:25:30].12] to [00:26:33].22]

Joe Fairless: Best ever book you’ve read?

Bruce Jones: Good To Great, by Jim Collins. The profile is how to approach structuring a very effective, lasting company.

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

Bruce Jones: Actually, we’re working on an internship program for college students to give them real business experience. That’s one way that we’re looking at that.

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

Bruce Jones: Well, I would suggest they go to our website, at CapitalGainsTaxPlan.com. The phone number to reach out at is 949-627-8724.

Joe Fairless: Thank you, Bruce, for being on the show, talking through tax planning and a scenario where if we are selling and we want to defer the gains and we don’t wanna do a 1031 because we don’t want to buy something right now, then we use a combination of an installment sale and an investment business loan, and I will let the Best Ever listeners listen to that section where we recap the buyer/seller scenario, the 1.1 million dollar transaction, and you’ll hear the play-by-play for how to do that. I have it in my notes, but I don’t wanna recap because I’m probably gonna miss one aspect of it, and it just won’t work.

I’m gonna re-listen to it myself. From a macro-level I understand it, it’s just the specifics is what I think would trip me up. And that’s why you’re involved – so if you’d like to talk to Bruce, then reach out to his company. Any last words you wanna mention, Bruce?

Bruce Jones: Yeah, I would, and thank you for that. I would encourage your listeners to create a team. Have a CPA involved, have your attorney involved. Any other financial advisors that you have available, have them involved… But bring in a proactive, trained tax planner as well. Don’t rely upon the CPA’s and accountants of the world to do tax planning, and the reason for that is because they’ve never been trained, in most situations. They’re great at accounting, they’re great at compliance with the law, but usually they’re pretty ill-equipped in how to delve into law proactively to find solutions.

So develop a team, and let each of your team members do their very best in what they do for you, and collaborate together in a synergistic fashion for your best benefit.

Joe Fairless: Thanks for being on the show. I hope you have a Best Ever day, Bruce, and we’ll talk to you soon.

Bruce Jones: I appreciate it very much, thank you.

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Best Real Estate Investing Advice Ever Show Podcast

JF1166: From $200 Million In Sales To $2.5 Billion How Did He Do It? With Mike Shapiro

To say that Mike does things differently would be an understatement! Do you know of any other brokerage that employs a full time economist? With a background on Wall Street as a finance guy, Mike can point out correlations between real estate markets and stock markets. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Mike Shapiro Background:

  • Chairman and chief executive officer of HÔM Sotheby’s International Realty
  • HÔM retains a staggering 2 billion dollars in listing inventory and another 500 million in exclusive offerings
  • The leading purveyor of luxury real estate and related services in the region
  • Growing from 36 associates and 200 million in sales to 400 associates and over 2.5 billion in sales
  • Based in Orange County, California
  • Say hi to him at www.homgroup.com
  • Best Ever Book: The Art of War


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

Mike Shapiro: I’m great, thank you so much for taking me on your show, I appreciate it!

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Mike – he is the chairman and CEO of HÔM Sotheby’s International Realty. His group retains a staggering two billion dollars in listing inventory, and another 500 million in exclusive offerings. He’s based in Orange County, California, and he’s grown from 36 associates and 200 million in sales to 400 associates and over 2.5 billion dollars in sales. Holy cow, that’s some big numbers! With that being said, Mike, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mike Shapiro: Well, I am sort of an accidental real estate guy. I was a stock options trader in Chicago, so it’s kind of funny… I was a market maker, so if you remember that movie Trading Places – I was one of those guys. I was screaming, yelling on the floor, and obviously aging quickly. So needless to say I moved when it was sort of going to more of electronic trading, and I stationed myself in Arizona and just traded off the floor, because it had changed dramatically, and my wife and I — it was so warm in Arizona… I bought a home in Newport Beach, California, and I was sort of a relatively young aged, faced with my wife being very ill; she got breast cancer, and fortunately we lived next to a very well-known doctor, and he saved her life in Newport. So she wanted to move there, which we did, and at a relatively young age, we kind of retired in our early forties, which was probably the worst thing in the world for me to do. I went absolutely nuts. [laughs]

I formed a venture capital group at that point, looking for investments and things to do, because when you face [unintelligible [00:03:02].15] at that age… Fortunately, everything’s great now, knock wood, and she’s healthy and thriving, and it was one of my biggest [unintelligible [00:03:10].25] your focus changes as you change, and you get to be at a place where you really should be focusing on what’s most important. I just didn’t realize that I had to do something.

So when I focused on this venture capital idea, a friend of mine in Arizona had owned a real estate company which ironically had converted to a Sotheby’s, he had asked me for financial help. This was in 2007. He wanted to develop an office in Newport Beach, California, and he asked if I could finance that for him. I said, “Well, I don’t really know anything about it. Let me figure this out.” So at that point I spoke with my realtor in Newport that we had purchased several homes from, and asked her how this worked, and subsequently, I got interested in potentially investing.

To make the long story even longer, in 2007 I met this company called HÔM Group, and they were facing some financial trouble even though their plan was excellent, to be honest with you, but the writing was on the wall, and everyone knows what happened in 2008. So after a long negotiation, I effectively recapitalized the company, and didn’t know what I was gonna do… If I was gonna be an investor, or what was I gonna do there. So I took control over HÔM Group, and that’s when it had 36 agents and basically 200 million in sales.

So as funny as this sounds, I just showed up every day because I had nothing to do, and I sort of fell in love with the business, and it was great. It’s been an amazing business, and when you close on a real estate business in March of ’08, and because of my background as a trader, I obviously had the luxury of making lots of mistakes, because as we know now, the low point I think in all financial markets was September 2008. So that’s what I did, I just grew up in there; I [unintelligible [00:04:58].26] with the business, and applied really more of my background to it, which was from the financial business… So I saw something I don’t think anybody else saw, which was that housing was more of an asset; it wasn’t only about the marketing, and my agents needed to be focusing on being underwriters, and that they were in fact in charge of some of those important investments that people were making.

So we focused our marketing on that, on trying to be more like a Meryl Lynch, for lack of a description, than a [unintelligible [00:05:30].24] and it worked. So we grew and grew and grew, and this is where we are today.

I can go on for hours, and I don’t wanna bore your listeners.

Joe Fairless: That’s not boring, it’s really interesting.

Mike Shapiro: [unintelligible [00:05:41].13]

Joe Fairless: Yeah, it’s really interesting coming from where you background was and how you applied it to your current business. Specifically, you said housing was more of an asset and your agents needed to be more focused on underwriting; if I’m a client of one of your team members, what will I notice that they do differently from others?

Mike Shapiro: I think that preparation and that they’re in charge of probably the most important asset that that person owns… So what I mean by underwriting, they’re responsible – legally, actually, as well – for making sure that they do the right thing and they get the best price for that client to sell that property.

And for the most part, I believe the real estate business is really a listing business. I mean, obviously, we [unintelligible [00:06:30].12] but the reality is that (from my perspective) you need to understand the value of that property and why is it that value, how is it that value, and protect that value. So that’s where the difference lies; we’re giving tons of tools to try to produce that result. We are probably one of the few houses on the street that employs an economist, I consistently put out reports about things that are associated with housing, what the value is… I put out reports I don’t think anyone else sees, and I’ll probably just send them if anybody wants to see any of this, where I see correlations depending on the price point with the stock market… In fact, there was a 95% correlation to our market, because we’re in Orange County and we sort of center ourselves into Newport Beach, so it’s obviously an incredibly expensive market [unintelligible [00:07:17].02] and I think our average list price is 4,5 million from our office.

So the behavior is almost mimicking the Dow-Jones Industrial Average, and I saw this huge correlation – it’s like 95% accurate. So I put that out, and say “Look at this. Look at what else is happening.”

So if you see things like the stock market climbing, there’s a high probability that in fact the housing market will continue to climb. So what’s interesting now is what I’ve noticed – and I’m sorry I’m going on a tangent here – is that because I was a stock options trader, I used to follow something called the VIX, which is the volatility index. Now, I looked at the volatility index as a contrarian indicator – do you know what I’m saying right now, or am I running off on a tangent here as far as the volatility index?

Joe Fairless: Yeah, keep going.

Mike Shapiro: So the volatility index, if there’s a lot of turmoil in the market, then the volatility index explodes and it’s an indication of huge turmoil. But if there’s no turmoil in the market and the markets continue to climb, and you see record lows of volatility, it’s highly suggestive – in my opinion, I’m really stressing this – that there’ll be some level of correction; in other words,  [unintelligible [00:08:21].09] they’ll attribute it to either a political event, or something… To some volatility. So I see a probable correction occurring. Now, I don’t think there’s gonna be some massive correction like we saw in 2008 – that’s highly unlikely – but there’s clearly some level of correction that’s occurring. And in fact, weirdly enough, I’m seeing the beginning of that in our marketplace, where there’s significantly less inventory, which is probably what’s pushing the market up as high as it’s gone. However, because there’s a lack of inventory, at some point people will put their houses on the market so there will probably be more inventory than buyers, which of course will push the housing market down. Or if the stock market corrects itself, which it’s too high, then people don’t feel as wealthy, and subsequently it drops prices as well. So that’s where I see the potential.

So I’m putting out research like this so that people can sit down with their clients and they can discuss intelligently what’s happening, rather than just looking at housing as just what people try to do is to make it a science and they try to just look at comps, but there’s more to it than that.

If you really think about it, housing is nothing other than an outlier. What I mean by that is that everybody wants to sell their house with a high comp; everybody, every seller is like “Well, this is the last comp per square foot”, whatever they’re using, and every buyer wants to buy the house with the lowest comp. But the reality is there’s more to this story than any high comp, and there’s more to the story than any low comp.

In other words, on a high comp, perhaps somebody just sold their company for 100 million dollars, and they’re annoyed and they’re looking, and suddenly they don’t care; they’re just gonna pay whatever the price is. And suddenly there’s a new comp. Well, there’s not exactly any science to that, it’s just behavioral patterns that were predicated on somebody’s [unintelligible [00:10:02].21]

And let’s say a low comp occurs because someone’s stressed over their mortgage payment, or there’s an illness in the family, or something’s wrong, or there’s something wrong with the house. So simply a low comp occurs because of some [unintelligible [00:10:15].07] as if there’s nothing dynamic about housing prices or human behavior, so we try to teach them that. Why did that low comp occur? What happened?… So they can explain that when they’re buying. Or why did the high comp occur? What happened there? That’s explained to the selling side, to the selling client.

Joe Fairless: How do you find that story?

Mike Shapiro: You ask. You try to get that story, and obviously, if you don’t know, you can’t tell a story; it has to be truthful. So it’s almost like being a reporter. But most times, weirdly enough, in housing, I think people are pretty honest. If you ask the other agent “What happened?”, like “They were stressed.” Usually, people are pretty open.

Or you see things on title reports, or you can extrapolate. Clearly, if there’s a foreclosure, there’s stress there; they haven’t paid. Or other things like that. But you cannot [unintelligible [00:11:10].28] anything that’s not true or that you’ve investigated, but for the most part usually you can see what happened. And if somebody buys a house that — these outliers occur a lot in our market; in a lot of ways [unintelligible [00:11:22].14] 50 million dollars plus. We have listings at 55 million [unintelligible [00:11:29].17] goes for 55 million dollars – what happened? Well, a billionaire three times over may buy the house. Well, 55 million to somebody who’s worth three million dollars is — do you know what I’m saying? It’s in relationship, so you need to explain that, like “This is who bought the property.”

So I think it’s more than just this sort of walking in, “I’m gonna market a house, I’m gonna stick it in the MLS, and I’ll hear a comp, so this is what we’re gonna do.” You need to be more educated, you need to educate your clients; you need more in your arsenal in regard to why is the value here? What’s happening?

And obviously, you need to do all the other things. This is why we joined Sotheby’s four years ago. I was too old at that point to really grow an international company, so four years ago Sotheby’s continued to ask us to join them – we were sort of the highest end of the companies in our location – and I took it seriously and I said “You know, I see all this international clientele coming in, people are demanding those types of marketing, and that kind of marketing worldwide”, so we joined, and it literally doubled — in fact, we’ve tripled our business [unintelligible [00:12:38].20] It was the right decision, it’s been great for the agents, it’s been quite great for clients, and it produces the desired result. Our brochures are going worldwide, and that’s important.

You can’t be an international company by just having the internet. I think a lot of people think that that’s what’s occurring. It doesn’t work that way. In my opinion, of course, the real estate business – boots on the ground. Are there people in other countries who are representing your property? Are they operating under your brand? So I think there’s more to it than just having internet, or international MLS, for lack of a description.

Joe Fairless: I don’t know of another brokerage that employs an economist; I’m sure there are some, at least not on the residential side. What gave you that idea and with the content or with the findings the economist comes up with, how is that distributed?

Mike Shapiro: Obviously, that’s my background; I was a trader, so I worked correlations. I’ll look at arbitrage, so I’ll look at why are things occurring, I’ll look at “Are there other things that are impacting the real estate market?” When oil was driving all over the place, was that impacting it? Are there correlations there? We noticed the stock market had huge correlations, I was seeing that the VIX had some correlations… So I keep looking at things, and I think that I tell — everytime I sit down with the company meetings every other Tuesday and I sit with agents and we talk about new listings, we talk about what’s happening in the marketplace, we talk about new compliance issues, I always say “Please, everyone, please read the Wall Street Journal every single day”, because if you read the Wall Street Journal every day, for the most part (in my opinion, again), most of the movers and shakers in finance are reading this paper, most political people are reading this paper, so you’ll see what’s at the head of the news cycle, what’s happening, what are they looking at, what are they thinking about, and it’s impacting real estate values.

So why did I hire an economist? Because I think that’s a primary aspect to the underwriting equation. What else is going on that’s moving prices? Why are prices moving? Otherwise, you’re just walking to a listing and say “What? Well, the house next door [unintelligible [00:14:49].27] but what else is happening? Yes, it’s part of the equation, but it’s not the only part of the equation. And I do think over a certain price point the behaviors become more impacted on outside forces. So yes, under a certain price point it’s probably not as impactful to have an economist. Still, there’s a correlation there, but it’s just not as impactful.

Joe Fairless: And how is that content distributed to your community?

Mike Shapiro: We write reports – we usually do one a month – and I distribute it via e-blast, and then certainly they can send it to their clients; if they want, we’ll set up an e-blast for their clients as well, if they’d like to do that. And then we print it off for them to bring to listing appointments, if it’s [unintelligible [00:15:33].00]

Joe Fairless: Okay. Based on your experience that you’ve talked about, what is your best advice ever for real estate investors or professionals who want to do what you do? Either create a brokerage, or have a differentiating feature within their brokerage, whatever comes to mind.

Mike Shapiro: I think the real estate business is a very people business. I think what people don’t understand for the most part is that it’s a highly inefficient business, and while we see all of these groups or internet sites and everything going after real estate and saying “Why is the commission so high?”, on and on, in the end it’s a people business. So I think the most important thing is that you need to identify that and you need to have a culture associated with the trade area that you’re working, so it’s gonna be pretty granular. That is what I think the most important thing is.

Where are you selling? Who are the clients that you’re selling? Understanding that and equating that to your agents. I don’t know if that makes any sense what I’m saying. We have 13 offices at this point and we serve a very large trade area; we serve all of Orange County, we serve South L.A. county – we have an office in Long Beach – and we serve the dessert. So if I go into any one of my offices, it’s like you’re entering another [unintelligible [00:16:49].25] In each office you need to identify what is the clientele, how are they behaving, if I’m making any sense, and you need to address those issues, and you need to have those services that the clients are responding to. In the end, the most important thing are the clients.

Yes, obviously, a real estate company has no assets; the only assets it has is its agents, and the agents are the most important thing to a a real estate company. But really, if you really focus on it, it’s the clients that pay the freight, it’s the clients that are the most important, it’s the clients. So what are the clients saying? What are they doing? What are they thinking? What do they want? What are they buying? And in a way, your real estate [unintelligible [00:17:29].21] should reflect that.

It’s interesting to watch… In Newport Beach, which is a very expensive area, because it’s so expensive, most of the clients are either self-employed, or they’re chairmen of companies, or they’re in sales, or they’re doing something and they’re not just getting a salary… Because how do you afford a two million dollar property, or a three million, or four, or ten million? So it’s interesting to watch that the agents who wanna sell real estate really gravitate or are more entrepreneurial, they’re more independent-thinking, and you need to service that. That’s what it is. It’s not one thing fits all, in my opinion.

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

Mike Shapiro: Oh, god… [unintelligible [00:18:10].16]

Joe Fairless: Well, that will make it even more entertaining, so I encourage that. First, a word from our Best Ever sponsor.

Break: [00:18:21].16] to [00:19:17].11]

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

Mike Shapiro: The Art of War.

Joe Fairless: What’s the best ever deal you’ve done or transaction? It could be a business deal or a transaction.

Mike Shapiro: I sold a property that I owned [unintelligible [00:19:31].02]

Joe Fairless: You what?

Mike Shapiro: I sold a property that we owned on a paper napkin. The deal was done literally on a napkin.

Joe Fairless: The contract was as well?

Mike Shapiro: Well, we ended up going to contract as we do in the normal way, but it was literally on a paper napkin, and then I’m like [unintelligible [00:19:47].14] It was hilarious. We had to do what was legal and proper, but that was how it started.

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

Mike Shapiro: This is funny, I’m not a realtor, so I don’t have a license; I just run the company… So I can’t really answer that. From a business transaction do you wanna ask me?

Joe Fairless: Yeah, just any transaction. It could be business, whatever.

Mike Shapiro: Not listening to the other side. As you can tell, the fact that I just ramble… [laughter] Not listening.

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

Mike Shapiro: My favorite way to give back is help people, it’s my joy. My joy is to help young people entering the business, and mentor them and try to establish a great career. I love doing that. It’s wonderful to see them make their money, reach their goals, whatever that is. That’s my favorite thing.

I’m also very charitable and I give to a lot of different charities, however that is my joy – the big focus [unintelligible [00:20:45].14]

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

Mike Shapiro: Well, we have a website, which is homgroup.com, and I’m happy to take any e-mail, if you want – mshapiro@homgroup.com. I’m happy to talk to anybody; we can start that way. I really answer my phone, and I love listening to what people have to say. I learn, they learn – it’s great. And I really love the business, it’s a terrific business. It’s a wonderful experience. You get to see people at their best, and sometimes at their worst.

Joe Fairless: Mike, thank you for being on the show. There’s a couple lessons I took away, but one of them that really stands out is that high comps and low comps aren’t necessarily telling the story, and that’s why you ask the Why behind the price point (what else is going on here?) and dig deeper, and that is a lesson, even if we’re not agents or have a brokerage… If we’re buying properties for investment reasons, that’s what we should be looking for as well, because it’s gonna help us understand the market more, maybe identify some more motivated sellers, and identify new opportunities, or buy at a right or wrong price, depending on which direction you go. And then also employing an economist – really interesting stuff; I hadn’t heard of that before, I’m glad you mentioned it. Certainly, your background rings true there.

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

Mike Shapiro: Thank you so much. I really appreciate your listeners listening to my ramble, so thank you.

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JF1069: Drive More Traffic to Your Website – With Neil Patel

If you have a website, you can always use more traffic. Neil is without a doubt one of the top people in the world to take advice from when it comes to online marketing. How many visitors per month do you need before focusing on conversion? Neil tells all in this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Neil Patel Background:
-Co-founder of Crazy Egg and Hello Bar
-Assists companies like Amazon, NBC, GM, HP and Viacom grow their revenue
-The Wall Street Journal calls him a top influencer on the web
-Forbes says he is one of the top 10 online marketers
-Entrepreneur Magazine says he created one of the 100 most brilliant companies in the world
-He was recognized as a top 100 entrepreneur under the age of 30 by President Obama
-New York Times Best-Selling Author of Hustle: The Power to Charge Your Life with Money, Meaning, & Momentum
-Has invested in apartment complexes, .com companies, the stock market, hedge funds, and more
-Neil has also been awarded Congressional Recognition from the United States House of Representatives
-Based in Orange County, California
-Say hi to him at http://neilpatel.com/

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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff. I hope you’re having a best ever weekend first and foremost, and because it is Sunday, we have a special segment called Skillset Sunday where we talk about a specific skill that you can hone or adopt, that will help you in your entrepreneurial endeavors.

With us today, I’m pleased to say we have Neil Patel. How are you doing, Neil?

Neil Patel: Doing good, how are you?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Neil – holy cow, if you need to know how to drive traffic, he’s your guy. One of my favorite podcasts for marketing for sure is his podcast, called The Marketing School, with Eric Siu. I’ve spoken to Eric a couple times; I was interviewed on his previous podcast, Growth Everywhere (I’m not sure if he still does that). But man, your podcast with Eric is phenomenal, and Best Ever listeners, if you want to learn practical marketing tips that you can implement immediately, you must listen to Marketing School.

In fact, Neil, you don’t know this, but I came across your podcast (Marketing School) and it was around 1 AM in the morning, and I started taking screenshots on my phone of every one of your podcast and I was sending them to my team. I sent like 25 e-mails to my team that night from like 1 to 4 in the morning, saying “You must listen to this one, you must listen to this one!” Just great stuff.

Neil Patel: The fun part about podcasting is you crank out information, people watch it – or more so listen – they learn, and they hopefully they take action on it, but yeah, it’s such hard work producing them, and you know better than anyone else… But it’s so rewarding when people listen and they take action and they get results, right? That’s the beauty of doing it.

It’s the same with the work that you’re doing – the moment people start getting results and they’re like “Oh, this is amazing!”, it makes your day; it doesn’t matter if they even gave you a dollar, or it was zero, or it cost you money… It’s just great to see people succeeding from the advice your pushing off.

Joe Fairless: Yeah, it’s a great feeling to get one of those e-mails where someone says “Hey, I’ve heard this podcast, I did XYZ and I’ve gotten XYZ results.”

So one of your blogs earns over 300k a month. The Wall-Street Journal called you a top influencer on the web, Forbes said you’re one of the top 10 online marketers… You know what you’re doing, and I’ve looked at your stuff and clearly there’s one thing that stands out, and that is the single focus that you reiterate time and time again, and that is that you help drive traffic and help others drive traffic, so I guess talk to us about the importance of having a singular focus.

Neil Patel: Everyone’s good at something, even me – I’m good at traffic, but I suck at a lot of stuff, and everyone also sucks at a lot of things, too. You just have to find what you’re really good at, and then focus on it. Because if you don’t focus on it, then you’re gonna try to do too many things, you’re not gonna be the best at them, and no one’s really gonna get any results.

Traffic – I believe every business really needs it; I know there’s a lot of businesses that just truly work off their sales teams and they do well… But of course, if you have traffic, who’s gonna end up turning your down? And whatever you’re doing in life, go find your passion, go find your focus. Usually what you’re passionate about tends to be what you’re naturally good at and what you’re better at than anything else. Focus on it, get even better at that skill, and don’t do anything else in this world. People want experts, they don’t want jack of all trades.

Joe Fairless: As entrepreneurs – because the Best Ever listeners are real estate investors, from wholesalers, fix and flippers, real estate agents, apartment investors, but we’re all entrepreneurs… And as entrepreneurs, we obviously need traffic to our website. Should we be focused more on the conversion of that traffic, so getting e-mails, or should we be more focused on driving the traffic to the website, if we had to pick?

Neil Patel: It depends. If you don’t have a ton of traffic, then you should focus on traffic. If you have a lot of traffic, then focus on the conversion.

Joe Fairless: What’s a ton?

Neil Patel: I usually say if you’re under 10,000 focus on traffic, if you’re over 10,000, focus more on conversion… Unless you’re in a B2B segment, in which each customer is worth hundreds of thousands  or millions of dollars – the moment you’re above 3,000 visitors, focus on conversion.

Joe Fairless: And when you say 10,000, is that unique visitors a month?

Neil Patel: Correct.

Joe Fairless: Okay, 10,000 unique visitors a month. Alright, so under 10,000 unique visitors a month, focus on traffic; over, then focus on conversion. So let’s say we’re at around 5,000 unique visitors a month. What are some ways that we could increase that?

Neil Patel: One of the simplest ways is go look up all your articles that you have written, or podcasts or videos that you have produced, go put in competitor ones or ones that are similar – you can google to find them – and put in that URL into search.twitter.com. You’ll see everyone else who shared it. Message them and try to get them to share yours. They already shared similar content, why won’t they share yours? Little things like that work extremely well, and if you do those over time, you’ll get more social shares, you’ll get more readers, more repeat visitors, and your overall traffic will go up.

Joe Fairless: So kind of reverse-engineering the process…

Neil Patel: Correct.

Joe Fairless: You’re obviously over 10,000 per month, so are you more focused on conversion? And if so, how do you optimize that?

Neil Patel: I’m focused on more so traffic than conversion, but yeah, I do both. The way I drive conversions is I use tools like Hello Bar, I do e-mail pop-up sliders, modals… I also do things like running A/B tests, I do user recordings to see mouse movements, where people are getting stuck, I look at analytics, but it’s all about just figuring out where people are getting stuck, to see where the drop up is within your funnel, and that’s the area you probably wanna focus on first.

Joe Fairless: Why are you focused on traffic if you have the 10,000 threshold?

Neil Patel: I wanna hit 2-3 million visitors a month within the next 12 months, and then I wanna hit 5-6 after that… So pretty much 12 more months after that.

Joe Fairless: Where are you at now?

Neil Patel: 600k-700k unique visitors a month.

Joe Fairless: And for someone who is listening and they’re starting a blog… They just launched their website, they’ve got some ideas to write about – and I know this is a very open-ended questions, and take it whichever way you want, too – what would be some tips that you’d give them?

Neil Patel: If they’re just starting a blog and they’re not sure what to write about?

Joe Fairless: If they’re just starting a blog, they know what they’re gonna be writing about, but they want to be set up for success as much as possible, with getting traffic and conversions.

Neil Patel: Yeah, so the type of foundation…

Joe Fairless: Yeah.

Neil Patel: I would actually say use WordPress, and make sure URL structures don’t have dates in them; a lot of times WordPress likes putting dates in URLs. With one click of a button you can get rid of that, though. The biggest thing other than using WordPress is just focus on content and focus on what’s popular. You can put in competitor URLs on Ahrefs and BuzzSumo and you’ll see what terms and what content that your competitors are writing are really popular.

From there, what you wanna do is write similar articles, but that are just more detailed and better.

Joe Fairless: A couple things you’ve mentioned is looking at the competition through online tools, and one that you just mentioned was BuzzSumo, and researching what top performing articles they have, and then competing on those grounds…

Neil Patel: Exactly. But the key is if you see what other people are writing, if your articles and content isn’t better or more detailed, you won’t do well.

Joe Fairless: Makes sense, it’s fairly straightforward. You said BuzzSumo – what was the other one?

Neil Patel: Ahrefs.com. Ahrefs shows you what pages that your competitors have are driving Google traffic. BuzzSumo shows you which articles your competitors have that drive a ton of social traffic.

Joe Fairless: Is there one that we should prioritize over the other?

Neil Patel: No, you need them both.

Joe Fairless: Where do you get most of your traffic to your website, where is it coming from?

Neil Patel: Google.

Joe Fairless: And then what are the terms — I was reading through your website…

Neil Patel: Are you in the U.S.?

Joe Fairless: Yeah, I’m in the U.S.

Neil Patel: Like “online marketing”, “SEO”, “internet marketing”, terms like that.

Joe Fairless: So how did you get the ranking for “online marketing”? Because obviously that’s a top one that I’m sure you’ve got a lot of competition for.

Neil Patel: More detailed and better content, and then from there, reaching out to everyone who shared all the other online marketing articles on Twitter and asking them to share mine. Then cross-linking for my own posts. Anytime I reference online marketing, I link to that main “cornerstone” content, which would be that guide on online marketing.

Joe Fairless: Will you say the cross-linking one but say it slower, so that my dunce brain can understand? I wanna make sure I’m understanding that.

Neil Patel: With cross-linking, what I mean by that is let’s say you write an article on how to sell a home and make money as a realtor. Let’s say you have a detailed guide called “The Beginner’s Guide To Being a Realtor”, but now you’re writing this new blog post called “How To Make Money Selling Homes.” Let’s say you talk about “Yeah, right when you get your realtor license and you’re just starting off…”, you may wanna link that “Hey, when you’re getting started as a realtor and you just got your license and you’re starting off” – whatever that phrase may be, link it to that guide on “The Beginner’s Guide To Being a Realtor.” That’s an internal cross-linking.

Joe Fairless: Yeah, makes sense. Is there a certain number that you like to have in terms of cross-linking from one article to another?

Neil Patel: Not really… I just link out wherever it makes sense.

Joe Fairless: Do you seek out opportunities to link?

Neil Patel: Yeah, I do. Wherever there’s opportunity, whether it’s someone else’s site, or I go through my old articles and I see if I can link my new piece of content from some of my older articles, I always search for new opportunities.

Joe Fairless: And you said linking out to other people’s sites – how much does that play into your overall ranking?

Neil Patel: Whenever other people have good information, I link out, whether it’s 5 times or 15 times in an article; there is no limit or minimum amount, it’s more so I do it whenever it’s [unintelligible [00:13:02].04]. Let’s say someone is writing an article about real estate law, and there’s different states. Well, each state has their own laws. Why not just link out to someone else’s article that breaks down the laws in California, and someone else who breaks down the laws in New York, and someone else who breaks down the laws in Minnesota etc.? You don’t wanna rewrite stuff that’s already out there, especially if you can’t add anything new. If you can add new stuff, by all means, rewrite and make yours better, but if you can’t, then link out to the existing pieces that are already out on the web, even if they’re competitors.

Joe Fairless: And as far as the Twitter reverse-engineering, what tool did you recommend using for that?

Neil Patel: BuzzSumo.

Joe Fairless: BuzzSumo for that as well? Okay.

Neil Patel: Well, for Twitter, BuzzSumo shows you what content your competitors are writing that are popular on the social web. To see who specifically tweeted out, you just take that URL and you put it into search.twitter.com.

Joe Fairless: Got it, that’s what I was [unintelligible [00:13:58].20] How do you stay up to date with new apps and the different ways to approach staying on top?

Neil Patel: I don’t stay up to date with the new apps, but the way I continually stay up to date with being on top, getting more traffic or doing better in business is by reading and learning. You can’t stay up to date with everything, because there’s so much information out there… I don’t have the latest phone, I don’t know the latest iPhone apps; I do know what’s happening in the business world or in the news or what’s the latest in marketing, because I’m continually reading and experimenting and trying to learn.

Joe Fairless: What are some resources that you go to regularly to read and learn?

Neil Patel: I go to TechCrunch, I go to Search Engine Land, [unintelligible [00:14:46].16] Search Engine Watch is another one, Search Engine Journal… Those sites cover a lot of the industry news.

Joe Fairless: What would you say is a mistake that you see entrepreneurs make when they’re establishing an online presence?

Neil Patel: A big mistake that I’m seeing when people are trying to [unintelligible [00:15:03].25] they expect results right away and they don’t stick with things… The reason being is marketing in general – content marketing, or any form of online marketing – takes time to see results and build that brand. To build that brand you have to do different types of marketing; you can’t just be like “I wanna build a brand”, right?

Whatever you’re trying to do and you’re trying to market, it takes time, and it’s consistency. Most people, when they’re trying to build that personal brand or get more traffic or grow their business, they’re doing it for a month or two and then they just stop.

Joe Fairless: How long does it take – and I know we have to define the finish line for you to answer that, but again, take it whichever direction you want, just to elaborate a little bit more on not needing to see results or not expecting to see results immediately…?

Neil Patel: It takes six months to see some decent results, one year to see good results, two years to really start seeing it flourish and grow.

Joe Fairless: Okay. And as far as how long, you said consistency is also important, so following that same timeline (6 months, 12 months, 2 years), what do you need to be doing consistently to be able to deliver on that timeline?

Neil Patel: You need to be writing content multiple times a week, you need to be sharing posts on the social web multiple times a week, you need to be participating in the community multiple times a week. You can’t do everything; you should do SEO every week, content marketing, social media marketing… But pick one or two channels of those and then go from there. So whatever it is, do it multiple times a week and just pick two or one if that’s all you have time for, and then as you have more time, expand into two, and then expand into three etc.

Joe Fairless: As far as the detailed articles go that you mentioned earlier, is “as long as possible” the better approach?

Neil Patel: Not always. I would say get to the point, but it’s quality. If someone can look at it and be like “Oh, this is amazing”, then you’re good.

Joe Fairless: What is the biggest challenge that you have in your business right now?

Neil Patel: Getting more qualified leads. We get a ton of leads, but the hard part is filtering those leads to figure out which ones are qualified, and then only giving those to the sales team… Because if we give them the bad leads, then they waste a ton of time and we’re paying reps to not make any money. So it’s just filtering out the junk, which is very difficult to do.

Joe Fairless: What’s one way you’re tempting to have that filtration process work better?

Neil Patel: We tried lead scoring using the existing softwares out there, like the [unintelligible [00:17:34].01] as in like people pick up the phone and then qualify each lead before it gets to the rep, but it’s inefficient. What we’re doing now is we’re building a lead qualifying system for ourselves that’s using APIs from the Alexa.com’s of the world or whatever it may be, where we can get data on our leads and then figure out “Alright, is this a good lead, a bad lead? Pull it from LinkedIn – alright, this is the person’s position; is this someone who could be qualified or not? It’s more about just digging through and trying to automate as much as possible, because there’s so much technology out there.

Joe Fairless: What does a qualified lead look like for your business?

Neil Patel: A qualified lead for our business is typically a Fortune500 company, someone who’s a director of marketing or VP of marketing, or in a business role within that organization that’s manager level, and they’re looking to just grow… Or their company was big and their stock has been tanking and they’re looking for someone to help fix the ship and fix their problems.

Most of our customers tend to be the ones who are extremely large, and then something happened and they dropped and they lost millions of dollars, and then they need help fixing and recuperating.

Joe Fairless: I want to follow up on something you’ve mentioned earlier, just for my own education and perhaps some Best Ever listeners… You said when you’re just starting out you recommend using WordPress. You said “make sure the URL doesn’t have dates” – why is that?

Neil Patel: When a URL has dates — I used to have that in 2016, and when I removed the dates, my search traffic went up by over 50% in less than 30 days, the reason being when your URL… Mine is NeilPatel.com, and then it’s /date/coast-title, Google associates it with the date, so then over time it doesn’t continually rank well. When you remove the dates, they realize that “Hey, this article is related to marketing (or real estate or whatever it may be) and not a specific date”, then you rank better.

Joe Fairless: Great tip, among many other tips that you’ve had. Anything else as it relates to driving traffic for real estate entrepreneurs that we haven’t talked about that you wanted to mention?

Neil Patel: Sure. The big thing if I was a real estate entrepreneur, you can drive leads, but focus on following up with people who are leads. Most realtors suck at following up. Follow within the first five minutes a lead comes in and you’re much more likely to close them, the reason being is every other realtor out there ignores them and may get to him in two or three days, and then they’re like “Oh, why don’t I get any more customers? It’s so hard…!” It’s like, “Dude, pick up your phone. You’ll do well if you just answer your phone.” Most people, gals and men, just suck at it.

My assistant was showing a buddy’s house the other day; he works for me and someone else. And this home this is in the multi-million dollar range, and the realtor was like “Cool, I confirm for Thursday if we’ll go by and I can check it out.” This was for a listing, and they never even showed up. They never confirm, and I’m like… They’re lost. What’s a 3% commission on a four million dollar home? It’s quite a bit,  $120,000. That’s a lot of money.

Joe Fairless: Is there an online system that your team uses for the follow-up process?

Neil Patel: Not really. We just make sure everyone follows up.

Joe Fairless: Got it.

Neil Patel: We check the calendar, reschedule one… We don’t really have people calling us, we more so have people scheduling, and then from there we follow through scheduling. We don’t do it where people just call us randomly; it wouldn’t work out well for us.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on, and if they are a marketing director, a VP of a large company, get in touch with you or your company?

Neil Patel: If you wanna keep learning more, you can always go to NeilPatel.com/blog and you can find out my contact information from there, too.

Joe Fairless: Awesome. Neil, thank you for being on the show. Boy, lots of practical tips, from if your traffic is 10,000 unique visitors a month or more, then focus on conversion; if it’s less, then focus on traffic. If we’re just starting out, then the tips: 1) use WordPress; 2) make sure the URL doesn’t have any dates. Your search traffic went up by 50% when you removed the dates in that URL… And focus on content – the competitive URL searching tip is gonna be very helpful. And then you’ve mentioned it takes time to see results, from 6, 12 months to 2 years, in those increments, and you have to be consistent along the way by doing things multiple times a week; pick one or two things, like writing content, posting on social and/or participating in a community online.

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

Neil Patel: Thanks for having me.

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Best Real Estate Investing Advice Ever Show Podcast

JF1063: 40 Years of Flipping Experience! With Joe Homs

Joe has 40 years of investing under his belt. He has done everything from buy and hold to flipping with no money down. Joe is an orange county investor, and has been through a couple market downturns. To say that he knows what he’s talking about would be an understatement! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Joe Homs Real Estate Background:
-Focus on fix and flips and has over 10 buy and holds 40 years of investing experience
-H&M Real Estate Services
-Based in Orange County, California
-Say hi to him at www.joehoms.com
-Best Ever book: Money Dynamics by Venita Van Caspel

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

Joe Homs: I’m doing great, and you?

Joe Fairless: I’m doing great as well, I’m looking forward to our conversation, because our Best Ever guest, Joe Homs, has 40 years of experience in real estate. He is focused on fix and flips, he’s based in Orange County, California, and his company is H&M Real Estate Services. You can say hi to him at his website, which is his name (really easy to remember) JoeHoms.com. It’s also in the show notes page.

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

Joe Homs: Like you said, I’ve been investing in real estate for 40 years. I purchased my first home when I was 21 years old, and I really haven’t looked back since. I’ve basically done – you name it, I’ve done it. No money down fix and flips, which is what I focus on now. I buy at the courthouse steps, I work through wholesalers, I go to the MLS, I’m a licensed real estate agent… I pretty much do everything – property management… You name it, I do it. I’ve done it all over the last 40 years.

Joe Fairless: You’ve been doing it for 40 years… Where have you gravitated your business towards, based on what you’ve learned over those 40 years?

Joe Homs: A particular product or market, is that what you’re asking?

Joe Fairless: However you wanna interpret that.

Joe Homs: Okay. Everything I do is here in Orange County, California; it’s very expensive. I do your buy and holds, but I don’t do buy and holds now. I did buy and holds when we had the most recent downturn, which is – my god – ten years ago now. Perfect example – I bought ten condos in a  local city here, [unintelligible [00:04:06].19], all two-bedroom, one-bath units; I paid $100,000 for each of them. I’m in the process of getting rid of them now, starting to sell them because California is very cyclical, in that every ten years we seem to have this massive bust in real estate prices.

If I was 22 like I was starting out, which is what I did, I bought several condos back when I was in my 20s and 30s, [unintelligible [00:04:34].01]; I still own quite a few of those. Those are really my bread and butter at this point as far as cash flow goes. But ten years ago, with the recent downturn – I’m gonna be 62 here pretty soon,  and I don’t really wanna ride the wave back down, because like most people know (everybody should know) you can’t take it with you, so it’s time for me to start selling some of those profits that I’ve made.

I am doing some exchanges on some of them into single-family, because I think that’s gonna be our next big wave. People just like me, the baby boomers are gonna start downsizing, and that’s why I’m looking at single-family residences, one-storeys.

Joe Fairless: The ten condos that you bought that are two-bedroom, one-bath for 100k each, so a million dollars all-in – you’re selling them off one by one… How much are you selling them for?

Joe Homs: 300k. Right before the downturn – this was the crazy part. I’ve been through three of these downturns already. The last one was the craziest. Right before the downturn, these two-bedroom, one-bath condos were selling for 400k. They’re back up to  300k; I would say by the end of the year they’re gonna probably be 325k, but again, I don’t wanna roll the dice, in that something may happen here in the future; not that I’m predicting that… My crystal ball says we’re doing good as long as the job market is the way it is, interest rates are pretty low, the banks aren’t getting out of control with what I used to call “warm body loans” – if you had a warm body, they gave you a loan. Now it’s the opposite – they want your first-born, your right arm, your leg, everything else before they give you a loan. So I think we’re good now.

For me it’s mostly for my age and that I’m getting older; I just don’t wanna have to deal with a lot of this stuff as I’m getting into my 70s.

Joe Fairless: Knowing that you’ve got 40+ years of experience, what’s something that when you hear someone who’s just getting started say about either how they’re approaching investing, or how they’re running the numbers or how they’re picking markets – anything – what’s something where you’re like, “Oh, man… What are you thinking? Don’t do that. That’s ridiculous!”

Joe Homs: I’d say to everybody out there, you have to do your homework. If you call me and you ask me about Orange County, California, I can tell you anything and everything that has to do with Orange County, California. I can’t tell you what’s going on in Ohio, I can’t tell you what’s going on in New York… I do meet probably 2-3 new investors a week through one of my other channels that I use, which is BiggerPockets.com, and what I hear from them is “How do I get started? What do I need to do? I don’t have any money. I live here in Orange County.” I would say meet up with people like me, get as much experience as you can, start to learn the real estate process… There’s just not one thing you can do in real estate, there is a multitude of things you can do. So really kind of educate yourself as to what’s going on with real estate.

What I hear that kind of drives me crazy – and I don’t know if this is working back East or in the Midwest or where, but “Buy multifamily, move into one and then go from there.” Well, if you’re here in California, you just can’t do that, honestly. In Orange County, to live in one of these fourplexes, multifamily units that’s gonna be in a decent area you’re gonna pay probably 1.2-1.5 million dollars. When you get up to that price range right now, the numbers just do not work… But I do hear that quite a lot, and it’s kind of like “Okay…”, it’s probably somebody that has no clue at this point.

Joe Fairless: Well, they don’t live in Orange County, because that does work in more city than it doesn’t work. I think Orange County, New York City, Miami – cities like that are kind of an anomaly, but it does work in most. But yeah, 1.2 million just getting started… That’s a lot of piggy banks that you’re gonna have to raid in order to come up with the down payment on your first investment property.

Joe Homs: Absolutely.

Joe Fairless: So what’s one area of real estate that you have found very profitable, either a lead generation or a tactic that you have continually done over the years?

Joe Homs: A lead generation or a tactic… I buy maybe four or five properties off the MLS a year, and what I focus on on the MLS are a couple of things. One, inexperienced agents that have no clue and price the home too low. I love probate sales because people don’t wanna go in and fix mother’s or grandmother’s house or whatever they’re selling; they want the money as quick as possible, and I’m able to afford to buy them out cash, so I focus on really those two things.

With real estate agents as well, I will go to a listing agent directly, even though I am a licensed agent here in California. I’m looking for deals – that’s probably the most difficult thing to find right now here in California, and be able to find one that actually works and you make a profit on. So I have no problems going to listing agents. For example, last weekend I went to a probate open house; come see it, you’ve got a two-hour window… Very literally, 100 people there. Gotta work through all that fog, so I went to the listing agent directly, I told him who I was – “I’m an investor, I’ll buy the home for cash; tell me at the end of the day what all your offers are, I’ll go a thousand dollars over that and I’ll let you represent me.” That gives me the ability of kind of going to the agent’s [unintelligible [00:10:37].00] in that he’s gonna get a dual commission on that deal, so he’ll tell me what the highest offer is, I’ll go over a thousand, he’ll represent me and I’ll end up getting the property that way. I do that quite often, and then like I said, other agents that are not as experienced go in and, whatever…

I had one agent that pissed off a tenant; a tenant wouldn’t show the property… I don’t even care if I don’t see the property sometimes, because I do buy at the courthouse steps and I’d say 90% of the time I don’t even see the property there. But this agent pissed off the tenant; finally, the price came down to where it came up on one of my searches. I call the agent, we went over there, looked at it, I gave him a price, he accepted the offer. Once we got in, it was more than what I had thought for repairs, so we lowered the value by 25k, and they accepted the offer. I ended up getting a commission on that deal… So it works both ways. I just pick on inexperienced agents that are new on the market and don’t really know a lot of what they’re doing with real estate. I also work with wholesalers as well, who put properties under contract and then sell them to people like me who have cash.

Joe Fairless: This is gonna be an ignorant question, but I didn’t know that agents were allowed to tell the potential buyers what the highest price was. I guess I just assumed that was always done in secret.

Joe Homs: No, you know what? It’s kind of like another one of those misnomers… The other thing I hear about California is that we’re really not a landlord-friendly state, and that’s not true. When I buy properties at the courthouse steps, you have to evict somebody; I can get them out within 30-45 days, so that’s not a problem. If they end up fighting it, if they’ve been through this system before, it will take me a little bit longer, but that’s kind of not true.

Back to the topic about price, there are a lot of agents that will not divulge what the price is, but let’s look at it from the seller’s point of view. This is your home and you have an agent, and somebody like me comes, and — what is your goal? Your goal is to get the highest price. What am I offering? I’m offering to give you the highest price, plus $1,000. Isn’t that higher?

Joe Fairless: [laughs] Yes. And you’ve said that before to the agent, I’m sure, who says “No, I won’t tell you.” What do they usually say?

Joe Homs: It depends on what they’ve been told by their office manager, what they were trained… I’ve actually called

[unintelligible [00:13:16].16]  because all agents here in California can call an attorney at any time and get a legal opinion. I called them before and they said “No, there’s no law, there’s no code of ethics or anything that precludes anybody from giving you what the highest price is.” So if they’re gonna do the best they can for their seller, then they should tell you. They should say “Here, this is where we’re at.” And I know there’s some websites out there, because I look at them… I don’t buy foreclosures on the websites; that would be another hour conversation about my opinion on that… But there’s many websites out there that will actually tell you what the price is, and you can go up from there. So they’re telling you what the highest price is.

Joe Fairless: Right. That’s something that was right in front of my face the entire time, but I never actually thought about just taking that approach, where you go to the seller’s agent if you like the opportunity and you say “I’ll pay $1,000 more and I’ll let you represent me.” What happens if they just make up an offer?

Joe Homs: Well, they can. We’re all human, you know? The best thing that I do is I work my numbers, as far as flipping goes. It’s a total numbers game, that’s all it is. I can buy a house in the worst neighborhood and the price is going to reflect accordingly. I can buy a condominium in a bad neighborhood. I may not put in the best type of flooring, I may pay $2/square foot for a laminate, whereas if I’m flipping in 800k-900k neighborhood, I’m probably spending anywhere between $10-$12/square foot for the laminate, and that’s usually glued out. So they’re totally all a numbers game; to me it’s just numbers, that’s all it is.

Joe Fairless: And I’m sure there’s been a scenario where that agent has come back to you and said “Oh, it’s such and such price”, and that price happens to be more than what they were asking, and if the numbers don’t work for you, even though you already said “Hey, I’ll buy it, plus a thousand”, what do you tell them? Just “I’m not gonna buy it”?

Joe Homs: Again, he’s calling me back, he’s telling me what his highest offer is, so I haven’t heard it yet. So when he calls back and says “Okay, Joe, this is our highest offer. You said you’d pay that plus the thousand”, I work my numbers, and if it doesn’t work out, then I tell him “Sorry, have a nice day. Sell it to whomever wants to pay you that price, because I can’t buy it from you at that price.” But at least I know I’ve cut out all the 10-15 agents that have submitted offers that have no clue where their offer is at. At least I know.

Joe Fairless: Have they ever come back to you after you said “No, it doesn’t work” and then later they’re like “Oh, well actually, how about this price?”

Joe Homs: Oh yeah, I have that happen all the time, absolutely.

Joe Fairless: Yeah, I figure, because they don’t wanna think that they are not being forthcoming with you, but I would imagine they would try and get more than what any offer they actually got, and then you say no and then maybe they go down a little bit, even though both offers perhaps aren’t even real.

Joe Homs: That’s absolutely correct. In honesty, I don’t blame them if they do that. Again, this is a numbers game for me. If you come back with an offer that fits in my numbers, that I know at the end of the day I can make a profit on, I’ll say yes. I may be paying a little bit more because he [unintelligible [00:16:49].22] the number a little bit; I would never know that, but again, it’s just a numbers game for me at that point. And yeah, that can happen.

Joe Fairless: What’s been your least favorite deal?

Joe Homs: Good question! My least favorite deal… I learned a lot. I had an investor who decided that he wanted to invest in flipping a property with me. He was a cabinet maker, a very good friend of mine, still is a very good friend of mine. In fact, we still have five buy and holds together under an LLC that we formed… But this was one of those things that after 40 years you learn, make sure you have everything in writing, be careful working with family and friends, make sure everybody knows what they’re doing on the deal – all those mistakes that I’ve made.

He was a cabinet maker, he said he can make the cabinets for the kitchen; we bought the home, it was hard money financing so it was very expensive every month to pay that loan. It took him four months to do the cabinets in the kitchen; we were headed towards a downturn. Of course, he thought he knew better than me. We priced the home too high, I listened to him when I shouldn’t have, and so we were on the market for probably eight months before I finally said “Enough is enough”, I dropped the price low enough and we ended up selling, and that’s the only property that I ever lost money on here in California. That was because I just should have taken control early on, but he was a very good friend of mine; again, he still is, but that was a big lesson that I learned.

Joe Fairless: You said that was the only property you lost money on in California. Are there examples outside of California that you’ve lost money on?

Joe Homs: No, I’m a California, Orange County investor. The only time I invested out of state – I did that once, same guy… He went to Vegas, and that was about 20 years ago. The thing to do back then was to buy brand new homes by builders first phase in a multi-phase community. We bought a single-family in Vegas in January, we paid 125k for it. By the time it was finished, built and had about four, five phases, we closed the escrow in September and we ended up selling it two weeks later for 175k. But everybody was doing that back then, everybody was doing it.

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

Joe Homs: I’d have to say educate yourself. Find a mentor, somebody who’s done it, especially nowadays… I have no idea where you’re at; obviously, you know I’m in California. Here we are, talking over the internet… Understand my process over 40 years – no phone, no internet, nothing really to talk to anybody about. I go to meetups now, I do a lot of networking… That’s what I would say – just network with people, educate yourself, especially if you don’t have any money right now. That’s why I tell people in California to just wait for the next downturn, because it will happen again. And once it happens, you need to be educated enough that you’re gonna move in at the right point in time. Do your buy and holds, and then hold on to them. Then once they get to a point where they’re not cash-flowing, you [unintelligible [00:20:11].09] then you can start flipping properties.

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

Joe Homs: Okay.

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


Break: [00:20:25].20] to [00:21:19].13]

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

Joe Homs: A book by Venita VanCaspel. It was called The Power Of Money Dynamics. I read that in my early 20s, it changed my life. I don’t think it’s still out in print; I’m sure you could find it somewhere. Basically, there are several sections in it; she talked about the stock market, she talked about different things, and she talked about real estate. What she suggested in real estate is that you buy a home every year – one home, at the very minimum – for ten years; by the time you get ready to retire, you will live comfortably. I’m a perfect example, and I took her advice.

Joe Fairless: Best ever deal you’ve done?

Joe Homs: Best ever deal – about two years ago, teaching my son-in-law the business, teaching him from the ground-up, like I learned, which means that we are actually there, swinging a hammer. My father taught me the business, so I’m very talented and I can do probably 85%-90% of a rehab. I didn’t wanna just give him my money and say “Go out and start flipping”, I wanted to teach him from the beginning.

First project we did together we ended up making $80,000. He was working at the time, he took some time off to do the rehab. He was making about 45k-50k, which is not really anything here in California. He soon quit after that and just started doing flipping with me full-time.

Joe Fairless: What’s a mistake that you’ve made on a transaction that you can think of?

Joe Homs: Other than the one I mentioned… I think that’s probably the biggest mistake. The mistake was listening to somebody less experienced, and I listened because he was an investor, a good friend; he put half the money, and he was putting half the time in the rehab as well. We were still doing the hammer-type of rehab at that point in time. Right now we actually hire contractors to do it for us.

I think that when I look back on that, not having control of the entire transaction from A to Z was a big mistake.

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

Joe Homs: I actually do that all the time. I mentioned Bigger Pockets… I connect with people on Bigger Pockets and I like to get the young people before they get caught up in this guru atmosphere that we’re in, in that “Come pay me 40k-50k and I’ll show you how to flip properties.” There’s several gurus, and I don’t wanna mention any names… But there’s several gurus out there, and I just try to get young people and stop them from doing that. I tell them, “I can give you anything that you want, you just need to ask.” I have an office, I meet with the wholesalers every Saturday here, I train people how to wholesale, I’m training several people how to flip here in Orange County, the proper use of hard money, things like that. I do that every day, I do that all the time.

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

Joe Homs: Best way – you can go on my website, it has all the information there, or you can go on Bigger Pockets and connect through Bigger Pockets. Like I said, my website has all my information on it – address, phone numbers, e-mails… Everything’s on there, so if somebody wants to get a hold of me, that’s probably the best way to do it.

Joe Fairless: And the link to your website, joehoms.com, will be in the show notes page. Best Ever listeners, you can just click on that and go check it out. Thank you for being on the show. Thanks for giving a lot of practical tips from the lessons you’ve learned over the last 40 year investing, on the acquisition front where you have the conversation with the seller’s representative and say “Hey, I’m gonna pay $1,000 more than the highest price that is offered, plus I’ll let you represent me.” Then also the lessons learned on your least favorite deal, where it was listening to someone who was less experienced than you and not having control of the opportunity. Then also being careful now with family and friends partnerships, as well as making sure that you have everything in writing.

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

Joe Homs: Thank you very much for having me, I appreciate it.


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Best Real Estate Investing Advice Ever Show Podcast

JF1012: $6,000 POCKETED from His Property Manager and How He Dealt with Fraudulent Activity #SituationSaturday

It’s unfortunate, but there are property managers out there that will take money from your wallet…even inadvertently. Because it’s a thankless job, many things can go wrong, and you may be the one taking the loss. Hear about our guest losing big money to his property manager in what he did about it.

Best Ever Tweet:

Marco Santarelli Real Estate Background:

– Founder and President of Norada Real Estate Investments
– Host of the Passive Real Estate Investing show, where people like you learn how to build substantial passive income while creating wealth
– Creator of DealGrader™ – a scoring system that measures the investment quality of a real estate investment
– Purchased his first real estate investment at the age of 18 and is licensed broker in California
– Based in Orange County, California
– Say hi to him at http://www.noradarealestate.com/

Click here for a summary of Marco’s Best Ever advice: http://bit.ly/2rfsND4

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how to deal with dishonest property managers


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 Saturday, we’re doing a special segment called Situation Saturday, where we talk about a specific challenge that our Best Ever guest had and how he/she overcame it. Today we’re speaking to a he, so how HE overcame the situation.
We’re gonna be talking about, well, if you have a challenge with a property manager that is ripping you off; in this case, the property manager had stolen six thousand dollars in collected rents in one month from today’s guest. How are you doing, Marco Santarelli?

Marco Santarelli: Hey, Joe. I’m doing great, how are you doing?

Joe Fairless: I’m doing well, nice to have you back on the show. Best Ever listeners, you can hear Marco’s Best Ever advice by simply searching Marco Santarelli at BestEverShow.com, and you’ll be able to hear his episodes.

He is the founder and president of Norada Real Estate Investments. He is the host of a wonderful show called “Passive Real Estate Investing”, where people like you learn how to build substantial passive income while creating wealth. He is the creator of Deal Greater, which is a scoring system that measures the investment quality of a real estate investment. He is based in Orange County, California.
He bought his first rental property at the age of 18. You can hear his story, again, on a previous episode. We’re gonna focus today on this challenging situation. But you know what, before we do that, Marco, do you wanna give the Best Ever listeners just a refresher on your background and your current focus?

Marco Santarelli: Sure, Joe, and thanks for having me back on the show, I’m very honored. Just real quick, I jumped into real estate investing at the age of 18; I just knew that real estate was a wealth creator just by looking at other people around that were quietly and slowly creating some amazing wealth. So I just literally jumped in, bought a property, fixed it up, put a sign out in front, took some applications, screened some tenants… I had no idea what I was doing. I was kind of going based on gut instinct, but I leased it, managed it for several years, and then ultimately I ended up selling it, which was my biggest regret, because it was about a $40,000 property at that time, many, many years ago, and it’s about a $400,000 property today. If there’s any takeaway here, it’s “Never sell your portfolio.” Yes, you can transfer the equity and do a 1031 exchange, but never sell. Keep the equity and keep building cashflow.

Fast-forward to 2003-2004, again, to make a long story short, I kind of jumped back into real estate investing full-time at that time, and this will segue into what we’re talking about today, by the way… But I jumped back into real estate investing full-time, and I noticed a need that investors all around me were spending lots of time and money educating themselves and doing a good job of it, but they still weren’t pulling the trigger. At the end of the day, unless the rubber meets the road, you’re not gonna build a portfolio and create wealth for yourself or create financial freedom. So the entrepreneurial mindset is “Find a need and fill it.” Well, the need at the time was helping these investors that wanted to build real estate get into it. That’s how the business was born.

I mention that because that only came to be because I was out there doing it. I was out there finding the deals, negotiating them, putting them together and buying real estate for myself. I bought a lot of property in a very short period of time and I learned a lot from it, but at the same time I made a lot of mistakes.

Joe Fairless: What we’re gonna talk about today – it might be a mistake on your part, but certainly when someone is committing fraud or just stealing from you, then most of the onus is on them for what was going on. Tell us the story… I gave the little teaser of how at one point you had $6,000 in collected rent stolen in one month; can you give us the back-story and just tell us what happened?

Marco Santarelli: We put a lot of trust in our property managers within our company, and on the podcast I always half-jokingly say that “You live and die by your property manager.” The reality is that property management is a thankless job. It’s very important, and you really need to think of your property manager as an asset manager, not just a property manager… Because they’re managing your assets, so it is a critically important position. When you hire them, you need to hire them well.

Well, I kind of side-stepped this whole thing in choosing the right person. I had built trust in a real estate agent in the [unintelligible [00:06:56].17] back in 2003-2004 that I used extensively to help me find and source deals. She kept bringing me opportunities and I really put her to work; I was submitting lots of contracts, a lot of offers on properties to try and find the right deals at the right price that work for me.

She was very helpful, and I grew to know her and trust her, so I took it for granted that she could help me and do a good job in the management side of things. The problem was that she was a full-time real estate agent and a part-time property manager. Yes, she was licensed, yes, she was qualified to do it, but she wasn’t an experienced real estate investor and I don’t think she made a heck of a lot of money as a real estate agent, because for the most part I was buying 40k, 50k, 60k and 70k properties. Real estate commissions are not very large when you’re only making 3% of the sales price.

Anyway, I hired her as my property manager, and she was managing dozens of units for me. Because I was in low-income areas, the tenants paid cash. It was either a money order or cash, so she was collecting cash. You can imagine that when you start to stack up hundreds of dollars or thousands of dollars every month in collecting rents, it starts to look pretty enticing.

If you’re not making as much as you’re collecting in rent for other people i.e. your client (me), I think the temptation starts to grow on you. I didn’t find this out early on, but it started to grow suspicious and become fishy as the months rolled by where I was getting less and less in rent and there were more and more defaults or late payments… So I started to question things and I started to fly out and check on things a little more often. What I came to find out is that 1) those money orders were being given to her nameless or made out in her name. I don’t wanna say her name, but she basically was telling the tenants that “You need to make them out to our company, or the property manager on behalf of the landlord.” Well, no, that’s not what you should be doing, but she did.

Where this all came to a head is in one month where I had my largest collection of rent – and she literally told me this on the phone, she said “I’ve collected $6,000 for this month”, and I said “Great, let’s send it to me…” She told me that she put it in a UPS overnight envelope, dropped it off at the UPS store and I should have it the next day or in two days.

Well, it never showed up. Days went by and still there was nothing, so I called her and I said “Are you sure you dropped that off? Are you sure you mailed that?” and she claims that she did. I can’t believe what she said, because I wasn’t there. Long story short, all I know is that she claims to have dropped it off at the UPS store and went back to double-check and make sure that it was sent. The fact is that either she took it, which is what I have come to believe, or she dropped it off at the UPS store and one of the employees knew what was in the envelope and stole it.

Basically, I lost thousands upon thousands of dollars of rent over the course of a number of months, only because it was theft; it was nothing more than theft.

The bottom line here is you need to work with a professional full-time property manager that is ideally in or part of a bigger company. If you’re dealing with a real estate agent and/or a part-time property manager, it could lead to trouble because there’s no accountability, there are no checks and balances. If you are dealing with a property management company, even if it’s just a company of three people, at least you will have systems in place, you’ll have people that you can contact and they can report back to you. I think that’s the lesson learned here with this mess.

Joe Fairless: So the two takeaways that you mentioned – full-time, not part-time, and part of a larger company. The full-time versus part-time – that makes sense; part of a larger company – that makes sense. Any other tips for the listeners as you look for property managers, how to find the best property managers?

Marco Santarelli: Definitely, and you really hit some key words there… Full-time, not part-time. Professional, meaning that this is what they do as their profession, their living; they’re not part-time this and part-time that. This is really what they do as their career, their profession; this is their expertise. In many states, they need to be licensed in order to do that, so that’s one qualification criteria right there – do they have their real estate license? Whether it’s an agent’s license or a broker’s license. If it’s a one-man show, that probably won’t be your best way to go, because you have no redundancy; there’s a single point of failure. If this person gets sick or gets hit by a bus, what happens? You have no one to contact, you have no one collecting rents; you have one single point of failure, so you need a company that has redundancy.

Here are some tips for finding or hiring that best property manager; for your Best Ever listeners, here’s a way to find the best manager. One thing you wanna find out is how many properties they are managing. If they’re only managing one, two, three, five or ten, this is very much a part-time endeavor. But if they’re managing 100, 200, 300, then you know it’s a serious business. You wanna stick to companies that obviously do this day in and day out and have the network of people in place to manage your property.

The second thing you might wanna find out or ask them is do they own any rental properties themselves? Now, this can go one of two ways… It’s kind of like section 8 – people either love section 8 tenants or they have section 8 tenants. The property manager, if they own their own rental property, then they understand what being a landlord is like and what they would expect as a property manager. They have expectations, so they might be delivering and giving you the service and the communication that they would want as an investor.

The flipside of that, which is arguable, is if they own their own portfolio of properties and they have a vacancy and you have a vacancy, is there a conflict of interest there where they’re going to fill their vacancy first over yours? So that’s up to you to decide whether it’s a good thing or a bad thing whether they own rental properties themselves or not.

A critical component is “Do they inspect or visit those properties on a regular basis?” I think most management companies will go once per year, but if they make it a routine to go once a quarter or once every six months as just either a scheduled inspection or a random inspection where they just drop by just to even look in the door and just say “Hey, I’m just in the neighborhood, I wanna see if everything’s okay.” They can look through the door, maybe they can just say “Do you mind if I come in and just take a quick look around and just make sure everything’s okay?”

Those inspections just keep the tenants on their toes, but it also allows you to find out through the property manager the condition of the property and the tenants and just to make sure things are running smooth.

Kind of a more intangible thing is “Does your property manager try to make you happy? Are they going out of their way to accommodate you and to make sure that they’re meeting your needs and expectations?” If they don’t have time to talk to you or they’re rushing you off the phone or their e-mails are very short, that’s not a good sign. It shows they don’t care enough to take care of you the right way, or maybe they’re too busy for their own good. So when an issue does come up, are they spending the right amount of time to address your needs and concerns and the problems that you’re having with your property? So it’s all about customer service. You wanna make sure that they’re keeping you happy.

This is a very basic one, but do they have systems in place? A lot of property management companies today have cloud-based software, propertyware where income and expenses are reported, notes on your account is captured and reported and you don’t need to call the property manager; you can just literally sign in from any web browser and just see the state of your property and see what the accounting is like and what expenses were made over the last month or the last year. If they don’t use systems, they’re really behind the times, because you have to have these online tools to operate today.

Then just a couple more tips… Their fees – most management companies are 8%-10% of collected rents; 10% – you can call it the street rate, if you’re just walking off the street. But generally, they’re going to be around 8%-10%, and they’re negotiable, especially if you have a larger portfolio. If you have many units, that rate could be driven down. But the important point here is make sure that the percentage that they’re charging you is on collected rent, not on scheduled collections… Not what is expected to be collected, but actually what they actually collect. Then there’s motivation to perform, and if that property is not performing – in other words, if you’re not collecting rent every month, they’re not making a profit.

Joe Fairless: Do they actually try to do a fee off of scheduled rent, not collected rent? I’ve never heard of that.

Marco Santarelli: Yes, some of them do. You have to read the agreement very carefully before you sign a management agreement with a property management company. Fortunately, most of them do it off of collected rent, but some of them will do it on what is expected. If they sign a one-year lease with a tenant and the tenant is paying fine for eight months and then the ninth month comes along, the property management company still expects to be paid, and they’re gonna take it out of your account if they have to, or they’ll collect it once they do collect rent from the tenant going forward. In other words, they always get paid, but you might not get paid. You don’t wanna be in that situation, definitely not.

My seventh tip would be… I guess just know how they’re going to address maintenance issues. Do they have in-house maintenance staff? A lot of them have in-house handymen that can handle most maintenance issues, a lot of them will outsource it. But it’s really more of understanding how they handle it and are they charging you a fee?

It’s not uncommon for them to tack on let’s say a 10% maintenance management fee on top of whatever that bill is on the maintenance issue. So it’s not that that shouldn’t be there, it’s just know what it is before you get into a management agreement.

Joe Fairless: Those are seven tips that will help us, for sure, identifying the right property management company and the wrong property management companies and choosing the best one. Then on top of that, I love the thoughts on the full-time management manager who is working for a larger company, so there’s more accountability.

Marco, where can the Best Ever listeners get in touch with you?

Marco Santarelli: There’s two websites. If they want more information on real estate investing, especially on the passive side, it’s just our podcast at PassiveRealEstateInvesting.com, but all of our properties that are in markets all around the country are on NoradaRealEstate.com.

Joe Fairless: Awesome. Well, the seven ways to screen a property management company… One – how many properties are they managing? Two – do they own any rental properties? Again, you said that could go either way. Three – do they inspect properties on a regular basis? Four – are they gonna meet your expectations? First you have to define what your expectations are – responsiveness, the level of communication you expect to receive, and then are they going to reach those expectations, exceed those expectations? Five is what software do they use? I’ve had management companies that have no software or old-school software, and it was a hot mess; you’ve gotta make sure they have the right software, maybe get some sample reports that they will provide you.

Six – the type of fees. Holy cow, if anyone tries to charge you off scheduled collected, not actually collected rent, run the other direction. Then lastly, how they handle maintenance and the fees that are charged. Make sure you’re budgeting into that. And we already talked about the full-time manager working at larger companies. These by no means are absolutes, but certainly if you follow them you’re going to mitigate the risk for having a bad property manager, one who takes $6,000 or $8,000, or whatever that number is — I think it’s $6,000 in rent, or it just disappears… Regardless of whatever happened to it, it just disappeared either way.

Marco, thanks for being on the show. I hope you have a best ever weekend. I always enjoy having a conversation with you. We’ll talk to you soon.

Marco Santarelli: You too, Joe. Thank you.


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JF818: Tom Ferry’s Approach to Systems, Coaching, and EXPLODING Your Brand and Real Estate Business

Tom Ferry, The world’s number one real estate coach is here to share his best advice ever! He shares his knowledge of systems, having teams instead of being a solo entrepreneur, the markets, starting a coaching firm, being a consultant, and how to identify the needs of an individual and help them excel! This is an episode and you cannot miss!

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Tom Ferry Real Estate Background:

– ‎CEO of Tom Ferry – Your Coach, an International Real Estate Coaching and Training Company
– #1 Real Estate Coach and Speaker, NY Times Bestselling Author of Life! By Design
– Over 10,000 hours of personal coaching experience
– Based in Orange County, California
– Say hi to him at http://www.TomFerry.com
– Best Ever Book: Bold: How to Go Big, Create Wealth and Impact the World
– Zillow Group Report – http://www.zillow.com/research/zillow-group-report-2016-13279/

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JF770: ATTENTION Expert Investors, It’s Time to DEVELOP!

You may hear that you shouldn’t choose the reward over risk in real estate, you are about to learn how to mitigate your risk even better. Our guest is a pro The product that allows you to understand your risk in developing and better negotiate the transaction and process with your partners. This is a must listen!

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Brian Barbuto Real Estate Background:

– CEO of Infobrij LLC, a private equity firm for commercial/residential real estate investors/sponsors
– He has 40 years in Real Estate Development
– Has has designed an innovative investment model that is poised to change the way real estate investing is done
– Completed over 1,000 residential units and worked through over $100M in real estate project funding
– Based in Orange County, California
– Say hi to him at www.infobrij.com

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JF768: What You CAN and CAN’T Do with Self Directed IRA’s #skillsetSunday

You’ve wondered what you could and couldn’t do, now you will know! Cure all your doubts about this this peculiar little entity and hear why you should have one. You can’t miss this one!

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Kaaren Hall Real Estate Background:

– President, uDirect IRA Services, LLC
– Helped thousands of Americans invest their IRA into real estate, land, private notes & more
– Educating individual investors and professionals is the cornerstone of uDirect IRA
– Based in Orange County, California
– Say hi to her at www.udirectira.com

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JF646: How He STOLE This Deal Off of LoopNet

Most people don’t try to browse through LoopNet as it’s known to be saturated with high priced multi family and commercial properties… little room for an investment. Today’s guest had his eyes on one, a 22 unit, and got it for a huge discount! It wasn’t that easy though, here are the struggles of our guest and how he prevailed!

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Bill Manassero Real Estate Background:

– Founder of Old Dawgs REI Network blog and website
– Acquired a 22 unit in Indianapolis
– Served as a missionary in Haiti
– Based in Orange County, California
– You can reach him at http://olddawgsreinetwork.com/

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JF463: How to be Tax Time Smart with Rentals

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

It about time…the end of 2015 is here and all of your assets are ready to be accounted for. Our Best Ever guests know what you are able to write off and how to save paying EVERYTHING to the IRS. They share some simple yet paramount tips to that you need to be sure your CPA knows…tune in!

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Amanda Han’s real estate background:

  • CPA and real estate investor based in Orange County, California
  • Director of Business Development at Keystone CPA
  • Real estate investor investing for 17 years
  • Investor in syndicated multifamily deals
  • Say hi at http://www.Keystonecpa.com

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Made Possible Because of Our Best Ever Sponsors:

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JF450: How to Take MASSIVE Control of Your Self Directed IRA

Taxes, taxes, and more taxes…you either quit making money or simply pay them…the end! Or…you can invest in real estate using a retirement account that allows you to forgo paying taxes, well there is much more to it than that. Hear our Best Ever guest shed some light on the recluse topic!

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Dmitriy Fomichenko’s Real Estate background:

  • Specializes in self-directed IRAs with checkbook control where you can bypass the custodian
  • Founder of Sense Financial
  • Say hi to him at Sensefinancial.com
  • Investor who has single family homes in various states
  • Used to have 3 4-plexes and is currently a broker in California
  • Immigrated from Russia in 1996 and has 8 other brothers
  • Based in Orange County, California

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Made Possible Because of Our Best Ever Sponsors:

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

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JF196: How Long will Strong Rental Demand Last? THIS Long…

Today’s Best Ever guest shares with you how long the current rental demand will last and what you can do right now to prepare for it!

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Logan Mohtashami’s  real estate background:

–        Senior loan manager at AMC Lending Group and is based in Orange County, California

–        Active trader in stock market since 1996 and financial contributor for http://www.benzinga.com/

–        Has his own financial blog at http://www.LoganMohtashami.com

–        Stopped watching professional baseball after 1994 strike

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JF111: The 10 Rules of Successful Real Estate Investing

Just what the title says, my friend. Today’s Best Ever guest shares with you the 10 Rules of Successful Real Estate Investing. What? You just wanted ONE piece of advice? Sorry Charlie. You get 10 golden nuggets in this episode!

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Marco Santarelli’s real estate background:

–        Founder of Norada Real Estate Investments, a nationwide of turnkey property rentals

–        Started business in 2004 and is based in South Orange County, California

–        Been investing in real estate for over 20 years

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