JF2377: Raising Occupancy and Avoiding Skips during Covid with Ashley Wilson #SituationSaturday

Twelve years ago, Ashley and her husband started looking for investment strategies other than the stock market. They started with a few short-term and long-term rentals, eventually expanding to single-family units with historical background and multifamily units.

Before she formed a company of her own, she was a partner with another investor on a 225-unit multifamily property. Despite having a solid business plan, the company lost 120 people within the first ninety days through evictions and skipping. Ashley tells how she managed to turn around the sticky situation and raise the occupancy to 90% even with Covid-19 as a backdrop.

Ashley Wilson  Real Estate Background:

  • Full-time real estate investor
  • 10 years of real estate experience
  • Portfolio consists of 600 units
  • Based in Philadelphia, PA
  • Say hi to her at: www.BadAshInvestor.com 


Click here for more info on groundbreaker.co

Best Ever Tweet:

“The name of the game is to increase your equity.” – Ashley Wilson


Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks, and today we’ll be speaking with Ashley Wilson.

Ashley, how are you doing today?

Ashley Wilson: Great. Thank you for having me.

Theo Hicks: Thank you for joining us. Looking forward to our conversation. This is Saturday, so we’ll be doing a Situation Saturday episode; we’ll talk about a sticky situation that Ashley was in, how she got into it, how she’s out of it and then what lessons she learned. Before that, let’s go over Ashley’s background. She’s a full-time real estate investor with 10 years of experience. Her portfolio consists of 600 units. She’s based in Philadelphia, Pennsylvania, and her website is https://www.badashinvestor.com/.

So, Ashley, do you mind telling us more about your background and what you’re focused on today?

Ashley Wilson: Sure. So about 12 years ago my husband and I started to look for alternative investment strategies. We weren’t firm believers in the stock market, and we both were doing very well professionally. I worked in clinical research and development. Ironically, I worked for about five years in vaccine development, and part of that time was on seasonal and pandemic flu. So closely related to what we’re doing today.

But my husband was a professional ice hockey player, so we both made pretty good money very early on in our careers, and we were trying to figure out where to place that. We stumbled on BiggerPockets about 12 years ago and started educating ourselves all about real estate. At the time, we didn’t know we would become full-time real estate investors, but that’s exactly what happened.

So we started with a few short-term and long-term rentals. We’ve house-hacked, we’ve Airbnb’d, we’ve invested in Notes. My father and I co-founded a house flipping company 6 years ago, which we still do today, and we focus primarily on older homes, historic homes, full gut rehabs and high-end homes. So that’s kind of our niche in the Philadelphia suburbs, and that’s our single-family business. And then in multifamily, once my husband retired 3 years ago, we moved back from Europe in Russia, where he ended his career, and we started our multifamily business. And today I manage asset and construction management on those projects. We started our own company of acquiring large multifamilies. So that’s what we do today.

Theo Hicks: Are those 600 units for multifamily, or is that across all properties?

Ashley Wilson: Nope, that’s just multifamily.

Theo Hicks: Perfect. So as I mentioned, Best Ever listeners, we’ll be doing a Situation Saturday, so the sticky situation is about inheriting a tough tenant base, and then how to handle that situation when you buy a property that has a tough demographic base. So walk us through the acquisition of this property, or if it’s a specific deal or just your business plan in general, and then why you decided to pursue these types of opportunities and then we can go into tips on turning over the demographic.

Ashley Wilson: So before we decided to create our own company, I was originally partnering with other general partners, so they would bring me on to do asset and construction management and lead their projects. And this particular example is that situation where I was asked to partner with this group and manage the project both on the asset and construction management side of it. So I wasn’t involved in the due diligence process, I came in right before close. And to that effect, when I came in, I was given a business plan in which they wanted to execute. Now, I had done my own research on the due diligence of the market and the ability for that property to perform based on their underwriting, and I had seen that it could perform that way based on my own underwriting and due diligence. So I wasn’t going in completely blind.

But once we acquired the property, what I quickly realized is that the business plan that they had outlined of renovating these units— so it’s a 225 unit property, and we are going to renovate 80 of these units over three years and then refi in year four was not feasible. So for starters, we had 120 people leave the property by way of either skipping or evicting them. So that’s not even inclusive of non-renewals in the first 90 days.

To put that in perspective, on average, a market benchmark is that you’ll have a 50% renewal rate. So across the 225-unit property, over the course of six months of a 225-unit property, you would have approximately 112.5 people vacate, just because they’re non-renewals in a standard market. So the fact that we had 120 people leave just because of evictions and skips in 90 days was detrimental to the overall operations of the property.

From there, when we looked to take back these units, what we realized is they had been not loved and cared on by the previous ownership group for a very long period of time. And to that point, the cost of turning these units was costing us more than if we were to renovate them and capture the premium. So it made more sense to change the business plan and execute it in a very fast-paced manner, so that we could use the renovation as a capital expense, put it below the line, speed up the process of renovating and capture those premiums sooner.

So to that effect, we depleted the occupancy to 64.4% in mid-August of 2019. And it took a very, very long time to build up that occupancy. In fact, we actually just reached 90% occupancy two weeks ago on that property. So we’ve been able to achieve that all during COVID. And the reason why we’ve been able to achieve this is because we took a very slow, methodical process in making sure that we put the correct tenants in place on the property. We didn’t sacrifice and create another situation where we would be then just having people leave out the back door because they couldn’t afford the property, they weren’t screened correctly, their income-to-rent did not match…

So we still kept the threshold at a 3.0 when most people would probably have dropped it 2.0 or 2.5 or 2.7, because of being at 64.4% physical occupancy – I’m not even talking economic – can be very detrimental on the overall operations and economics of the property, to be able to sustain all the expenses.

But we took a very deliberate approach, and by doing so, just to give a highlight, since March of 2020 – so that’s when we consider the start of COVID impacting our tenants, right? And I think most of the country would agree to that point, where unemployment got hit – to today, we’ve had a month-over-month build versus collected rate of 99.52% across the entire property, while continuing to build occupancy. And our concession that we’re offering to move in is actually less than what it was months ago. We’ve actually decreased our concession.

So there are a lot of things that we’ve done really, really well on the property, not only to attract new tenants, but also to keep the tenants that we have. And it’s because of that, I think we’re in the situation that we’re in today, while a lot of other properties may be in a completely different situation.

Theo Hicks: Well, thank you for going in a lot of detail on that, I really appreciate that. So I kind of want to go back and ask some follow-up questions… And the first one would be, you said that the original business plan was to renovate the 80 units over a three-year period, and then refinance in year four, and then after, you said, the first 90 days, 120 people left the property.

So I have a question for you – was that something that was just impossible to know upfront? Or should it have been something that the GPs should have known? And if so, what did they not do, that they should have done to realize that this would have happened?

Ashley Wilson: There are a lot of things that could have been done upfront to have captured this. First of all, I always put when we close on a property that we get a final walkthrough comparable to residential real estate. So in residential real estate it is commonplace to do a walkthrough within 24-48 hours of closing. And I put that on commercial real estate. The great thing about commercial real estate is it’s the wild wild west; there’s no set contract. You can create whatever contract you want and you can have it with whatever terms you want. So we always do a final walkthrough prior to closing, and that was missed on this one.

So there could have been a final walkthrough on the property, it could have been inclusive of going to the property during the daytime and looking at the car count; you could have identified that that property wasn’t occupied to what they were reporting it as, [unintelligible [00:12:02].13]. Coupled with the fact that you could pull delinquency reports and see how much was delinquent, whether or not they put on record that they filed evictions or that these units were actually vacant, they were skipped prior to that. So you can also look at when you do a file audit and look at the qualifications of the residents.

So for example, on a property that we just purchased a month ago, during due diligence, we identify the current tenant base can actually afford more than what we’re pushing our rents to, and we’re pushing our rents on that property by over $300, and our current tenant base, our average tenant can afford that. We were concerned about having to change over the tenant base. Well, we might not even have to do that on that particular property. That’s a different property. But there’s an example of how you can QC your tenant files and verify income, verify their qualifications, verify they did a background, verify that there’s a security deposit; all of these different things, and you can cross-check that. You can also go through an estoppel agreement and get verification from the tenant themselves to make sure and have all the tenants go around the entire property. There’s a great way in which you could identify it, because the tenant wouldn’t even be in there to sign off on it. So there are a lot of different things that you can put into place to have identified this, and this was definitely, I believe, a lesson learned for all GPs on this one.

Theo Hicks: What’s the thought process behind going during the day to look at the car count?

Ashley Wilson: Right now, for example, most people are working from home… So going during the day and going in the evening, you can see whether or not you have tenants who are night shift workers or day shift workers, and you can see from a car count on the property. Now, of course, there could be cars that are sitting there that someone else is just keeping the car on the property. But ultimately, a lot of times on the list is — you’re going to have a cross-check of… It depends on the market, but a lot of times cars have to be registered to be on the property, so you can identify it that way. Whether or not they’re working, whether or not they’re even there, if they’re not there in the morning, they’re not there at night, where are they? Maybe they’re on vacation, maybe they’re somewhere else. But if you check it in a couple times, you’re going to see that maybe that current ownership never filed eviction, and it’s really skipped and it’s lying on the rent roll, which is honestly pretty commonplace in this industry… So unfortunate as it is, you’re buying properties as is, besides outright fraud, but it’s on you to really identify these discrepancies.

Theo Hicks: That last thing we talked about getting verification from the tenants themselves – what was that called?

Ashley Wilson: It’s called an estoppel agreement.

Theo Hicks: Estoppel agreement?

Ashley Wilson: Estoppel.

Theo Hicks: Oh, estoppel agreement. I’ve never heard that before. Interesting.

Ashley Wilson: More so, you’ll hear it used when you’re verifying rent. So for example, if you want to confirm that an ownership group isn’t lying on the rent that that person is being charged, it’s a form that the tenant would sign off to say, “Yes, these are the conditions in which I’ve signed my lease agreement.”

So let’s say for example, on the rent roll it says that they’re collecting $800 for unit 1B, but you get an estoppel agreement and you have the tenant sign off on it and the tenant signs off that they’re paying $650. Well, they’re not going to write that they’re paying $800, because they know when you come in, you’re going to charge them $800. They’re going to write what they believe the terms of the contract to be. So if the ownership group has falsified a lease contract and forged signatures or attached another form onto an existing contract and it says that it’s $800, or if there’s any sort of mismatch, you can always verify that with a tenant.

Theo Hicks: Got it.

Ashley Wilson: It’s a legal document.

Theo Hicks: Okay, so the next thing you talked about was that once these units were vacated, whether it’s through skipping or evictions, when you went into the units, you realized that the cost to turn them was more than the cost to renovate them. And you said that the plan to go in there was to do 80 units, and that 120 units were vacant. And the plan was to do that over three years. So where did the money come from to do these renovations?

Ashley Wilson: Well, we had a construction loan anyway. So this was a bridge lending situation. We have a bridge loan on the property and a construction line. So the line was already there to do the renovations, it’s just we were going to space them out further. And this gets to as an asset manager and a construction manager, why you should really be heavily involved in the process.

This is not a blanket, “I’m going to renovate every single unit.” This is an algorithm in which I’m making the determination based on the cap rate in the market, based on the cost of that renovation, to identify — and also the premium I can get on that unit, to identify whether or not I’m going to renovate that unit or another unit.

There are other things to take into consideration, for example, the demand of that particular unit style. But ultimately, you don’t want to have this just left up to your property management company to pick and choose, because what if they choose the unit that costs $10,000 to renovate and it’s $100 premium, when you could have chosen the unit that costs you $3,000 and it’s a $90 premium. Those are types of situations in which you really should be overseeing and managing so you can make the determination… Because ultimately, a lot of people think the name of the game is to increase your evaluation. The name of the game is not to increase your evaluation, it’s to increase your equity. And by increasing your equity, you have to always keep in mind the ROI.

Theo Hicks: Got it. So you didn’t renovate all those units; it’s more of like a calculation based off of all those stuff you’ve mentioned ti determine which of those units that actually makes sense from an ROI perspective to renovate based off of — including what that construction line was, right?

Ashley Wilson: Correct.

Theo Hicks: Got it. So something else you mentioned too was that rather than getting yourself in the same situation again, with putting in whoever into the units, you methodically focused on getting the right high-quality type of resident, again, so that you wouldn’t face that same situation again. You mentioned there’s a lot of things that you did to increase that occupancy; you said occupancy was as low as 66.4% and it reached 90% recently. So what are some of the things that were done to increase the occupancy and then to make sure that the people that moved in were of a high quality?

Ashley Wilson: So it’s really twofold, what you’re trying to do is you’re trying to stop the people exiting out the back door and you’re trying to attract people more in the front door. So to tackle it first, on stopping the people exiting the back door, you need to have incentives, you need to have a good property management team, you need to show value in the community.

One thing that we do is we contact our residents on a weekly basis during this COVID situation for two reasons. One is to check on their general welfare – we’re not straight up asking them whether or not they have COVID, but we’re checking on their general welfare; and two, is to see whether or not they’re still employed or if they need help filing for unemployment. By helping someone file for unemployment, it allows them to get their unemployment sooner and be able to pay their rent sooner. So that really provides an added benefit.

The second thing that we do with our current tenant bases if they do fall on hard times, we try to work with them and set up a payment plan so that they can stay on track. Ultimately, if they take the responsibility and come to us and set up a payment plan, especially during this very unique, troubling situation, we’re willing to work with them and figure out a way to make it work. If they’re going to ignore us and not work with us, then ultimately, it’s on them. There’s not much more we can do. But we’re willing to work with all of our tenants if they’re willing to work with us.

So showing that value and showing that you care it goes a long way. We also offer incentives from time to time with renewal bonuses; we also do a referral bonus too. But we do a renewal bonus to help people get some value. And when COVID first started, what we did – as well as we incentivize people to pay early; so we incentivize them by doing a raffle. So one or two people in the property would get a discount off of their next month’s rent by paying early. What we believed is having someone pay early, especially when we didn’t know if they would fall on unemployment, that it would cover their rent, it would cover them being able to stay at the property, as opposed to them not having a roof over their head to be able to figure out if they do get unemployed what they need to do next. So we’re trying to help them out by keeping their housing situation confirmed.

With respect to attracting a new tenant base, we do a lot of different things. One thing that we do is we really make sure that our marketing efforts are not let up because of it. What we’ve realized is that there are going to be less people in the markets looking for a property, so it’s more important than ever to capture as many people that are looking for a new place to call home. And what we do is we continue to market, we continue to have our property look very nice and clean, and put in a lot of different amenity services that are helpful, and create less person-to-person contact.

So for example, doing electronic showings, being able to virtually tour the property, being able to sign a lease agreement online – everything electronic, so that it makes their life easier, they have less stress if they need to move, and then we’re able to do everything electronically.

We also too have put incentives in place as well through concessions to encourage people to come into our property. Crazy enough, our concession is not even close to being the most competitive in the market; I wouldn’t even say we’re at the 50% marker either. I think we’re on the lower tier in terms of what we’re offering concessions. But what we do is we continue to reach out to businesses, we continue to make it known that we are trying to help as a community, to help the greater community.

So we work with different small businesses. So for example, we’ll contact a pizza shop and say, “What’s your slowest business day?” Especially these small businesses are hit hard, so what we do is we say to them, “Okay, Tuesday’s my slowest day.” “Okay, well, could you offer our community $5 off on Tuesdays if they order pizza from you?” “Yes, we can.” Well, then we pass that savings on to the residents and say, “Hey, if you order from so and so’s pizza place, you get $5 off on Tuesdays.” That way, it allows that business to stay in business by providing value to our property, because we can negotiate on behalf of a larger group.

So all the things that we’re trying to do is really to benefit our community and help the community through a really troubling time. And I think because of all of those things and the support that we’re providing for the larger community, the word gets around. So for example, the permit office is recommending people, our EMT companies, our police department, they’re all recommending our property, and I think it’s because of all the work that we continue to do.  We are still touching base with the humane societies and schools to do school drives, and food drives, and toy drives. These are all things that are important within the community, and we’re still leading those charges.

And then also too, just one last quick thing is on communication with emergency work order calls; we’ve made it known very early on that to protect not only them but to protect our team, we want to limit interaction between everyone. So what we’re doing is handling only emergency work orders right away, and the other work orders will be handled on a case-by-case basis. But as much as possible, we want to limit the direct contact to protect everyone.

So I think providing that communication, always staying in communication and trying to help people when they’re in need sounds so common sense, but a lot of people just get lazy about it and they don’t execute on it.

Theo Hicks: Thank you for sharing all that. One last question I had – something you said at the very end of your first thing that you were talking about, you said something about 3.0 versus 2.5… What was that factor when you’re looking at new residents?

Ashley Wilson: That’s the income to rent. So typically what you’re looking at – so you’re making sure that their income is, at minimum, 3x whatever the rent is. And I know a lot of people when they get in situations where their occupancy is depleted, they’ll take a shortcut and drop that to a 2.5, and they’ll put a bond on, or some other double security deposit; they’ll try to find some other way in which that they make up for that risk. We’d actually put that on, but put it on at the 3.0. So we use a program that helps provide some assurance to us, and it works with someone who’s not able to put a lot of money down on a security deposit, but they still qualify otherwise, but at least that provides some insurance for us too, especially during these challenging times.

Theo Hicks: Got it. Alright, Ashley, is there anything else that you wanna mention about asset management or your company and where people can learn more about you before we sign off?

Ashley Wilson: You can link to all my companies at that https://www.badashinvestor.com/ and you can follow me on Instagram @badashinvestor. So I cover all different types of real estate on Instagram and on my website, you can link off to my multifamily company which is called Bar Down Investments from there, and then I have other companies as well you can link to.

Also too, I just co-authored a book called ‘The Only Woman in the Room’, and it was released in the middle of September, and within 24 hours became an Amazon bestseller. I highly recommend anyone who is in real estate, who wants to be inspired by 19 other women in all different asset classes, all different backgrounds to check it out. So it’s called ‘The Only Woman in the Room: Knowledge and Inspiration from 20 Women Real Estate Investors.’

Theo Hicks: Well, congratulations on the success of the book. As a co-author of a few books myself, I understand it’s a long process to write books. So I understand completely.

But yeah, thank you so much for coming on. I don’t get to talk about asset management as much, so I appreciate you going into a lot of detail, specifically on that deal, but also kind of what your philosophy is on asset management in general. Lots of great advice.

You talked about some of the best practices for doing due diligence before closing, you talked about the final walkthroughs, looking at car counts, pulling various reports… You talked about the algorithm or the way you approach determining which units to renovate; it’s not just every unit that’s vacant you renovate. It is very detailed and data-driven.

And then you went into a lot of detail on how you are able to maximize economic occupancy by focusing on the two main aspects of stopping people from leaving, and then attracting new people, and you went through examples for all of those.

So thank you so much for joining us today. Again, her website is https://www.badashinvestor.com/ so check out her website. Best Ever listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.

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JF2219: Mastermind Groups With Beka Shea

Since 2013, Beka Shea has rehabbed over 60 houses and wholesaled more than 120 deals.  She was a Naval Officer for 4 years and then spent 7 years as a mechanical engineer.  She translated her engineering skills to improving marketing ROI and started a consulting company called MarketShark.  Today Beka works full-time with the real estate investing mastermind, 7 Figure Flipping, heading up Membership Development, while also providing marketing consulting for top wholesalers. www.7figureflipping.com/asana  (give away) 

Beka Shea  Real Estate Background:

  • Works full-time with the real estate investing mastermind group 
  • Started investing in 2013
  • Portfolio consist of 60 rehabs, and 120+ wholesale deals
  • Based in Philadelphia, PA
  • Say hi to her at: www.7figureflipping.com 
  • Best Ever Book: The obstacle is the way




Best Ever Tweet:

“I think it’s important to have a small peer group to be able to connect and share with” – Beka Shea

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JF2142: Improving Tenant Renewal Ideas With Brian Davis

Brian started investing before the 2008 crash and at the age of 24 had acquired 13 rental properties and ended up losing quite a bit during the real estate crash of 2008. He goes into how he was able to purchase 13 properties at such a young age and how he was able to recover from his loss and move forward. He shares a great idea of what to ask your tenants to help incentivize them to renew their lease. 

Brian Davis Real Estate Background:

  • Co-Founder of SparkRental.com
  • Has been a landlord for over 15 years
  • Based in Philadelphia, PA 
  • Say hi to him at https://sparkrental.com/
  • Best Ever Book: 


Click here for more info on groundbreaker.co

Best Ever Tweet:

“One way to improve and increase tenant renewal is to think what upgrades will add value to your property while also improving the tenant’s experience in living there” – Brian Davis


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

Brian Davis: I’m doing great, Joe. Thanks for having me.

Joe Fairless: Well, I’m glad to hear that, and it’s my pleasure. A little bit about Brian – he is the co-founder of sparkrental.com, he’s been a landlord for over 15 years. He and his family tend to travel a whole lot and we’ll talk about that; his company is based near Philadelphia, Pennsylvania. So with that being said, Brian, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Brian Davis: Sure. So I got interested in financial independence with real estate from when I graduated college onward. I graduated college in 2003, so a little while ago now, and I was working for a mortgage lender, and specifically, I started doing hard money loans for them, for real estate investors; and this of course, during the bubble in the mid-2000s, and I started thinking to myself, “These guys are all making passive income from real estate. Why couldn’t I do this? Why can’t I invest in rental properties?” So I went on, bought a whole bunch of rental properties and overspent, and then lost a bunch of money when the bubble burst.

Joe Fairless: You and a lot of other people.

Brian Davis: Yeah, I got overzealous with it as a 20-something. I didn’t really know what I was doing, but I came out of that with a lot of lessons, many of them, learned the hard way, and I started working for a company that provided legal forms for landlords online. I was with them for a long time, and then–

Joe Fairless: What company?

Brian Davis: EZ Landlord Forms is the company that I was working for. So I managed EZ Landlord Forms for about eight years, and then in 2015, my wife and I decided that we wanted to move abroad. Now I was telecommuting when I was working with EZ Landlord Forms. So I figured it’d be no big deal to move abroad. My wife is an international school counselor, so we moved to Abu Dhabi. And right after moving, things just went downhill between me and EZ Landlord Forms. So I left and I talked to a former colleague of mine, [unintelligible [00:05:02].12] and we decided to split off and create our own company, Spark Rental, which focuses on helping everyday people build passive income from rental properties on the side of their full-time job with the idea of eventually building enough to be able to pay their bills and reach financial independence. So we do a bunch of different things on that behalf.

We do a lot of education, we have online courses about financial independence from real estate, we have online property management software that we feel is the best in the industry, or at least is about to be; that’s a long story in itself, which we can get into later maybe. So that’s a quick background on me and where I’m coming from.

Joe Fairless: So let’s talk about Spark Rental, and then let’s also talk about your 20’s, because there’ll be some interesting things to learn there. So we’ll focus more on Spark Rental but first, would love to learn more about how big was your portfolio and how much money did you lose?

Brian Davis: So my portfolio at the time of the bubble bursting was 13 properties. These were single-family homes in Baltimore City and they were largely in not very good areas in Baltimore City, and that’s one of the many lessons that I came out of that with, is just how the numbers on paper, especially in lower-end neighborhoods, don’t necessarily reflect the reality of what you’ll earn… Because particularly lower-end areas have some hidden costs that just don’t show up in your average cashflow analysis. So things like vandalism and crime, and even though in a normal cash flow analysis, people look heavily at vacancy rate, I think it’s very easy to underestimate vacancy rate, particularly in tough neighborhoods… And you end up underestimating the turnover and evictions and the costs associated with those turnovers and evictions.

So one of the things that Danny and I are really big on educating new rental investors about is how most of the expenses and most of the labor involved in owning and managing rental properties comes during turnovers. So a focus of ours is minimizing those turnovers, and especially in some areas– I’m generalizing a little bit here with lower-end areas, but there can be a combative relationship between landlords and tenants, and sometimes tenants will damage the property out of spite. I’ve had that happen many, many times in the midst of a very combative eviction.

Joe Fairless: Why don’t they like you? Why do all of them try to trash the place? What are you doing to these people?

Brian Davis: You’re just trying to collect the rent, but I’ve had a lot of professional tenants over the years, all of which has really turned me off of some of the lowest end real estate. Now granted, this was ultimately my fault for thinking that I was smarter than everyone else out there when I was 24 and going in and finding these great cap rates, and these deals that look fantastic on paper, not really understanding some of the hidden costs that come with these properties.

Joe Fairless: How did you get 13 properties as a 24-year-old?

Brian Davis: Well, it was over the course of a few years. It wasn’t all when I was 24, but it helps that I worked for a mortgage lender. So I had relatively easy access to capital, and I was living in a very and extremely affordable home. I had a pretty low-cost lifestyle, and that’s actually something that I still try to maintain to this day; I still do maintain to this day, is a very high savings rate. So I was making reasonably good money, but not spending a whole lot on my lifestyle. So I was able to funnel a lot of money into real estate investments.

Joe Fairless: So let’s talk about Spark Rental, because one thing you said about the lower-income areas that resonated with me is the cost of turnovers, and you said that your focus or one of the areas of focus is to minimize the amount of turnover that takes place at a property, and you said one thing that you do with Spark Rental was education. So what are some tips that you have for minimizing the amount of turnover that we have at our properties? Whether it’s– I don’t know if your tips are lower-income specific or if it’s just in general, but however you want to approach that question, I would love to hear your thoughts.

Brian Davis: Sure. Some of it is just about building a relationship with your tenants, and it doesn’t mean necessarily a personal relationship, and you don’t have to go out and friend them on Facebook and I don’t recommend that you do, but having a very courteous and kind and professional relationship with them. So things like we urge our students to just keep a very brief file on each of their tenants so that they can pull up whenever they pick up the phone to call them, and things like their children’s names, maybe you have their hobbies or what they do for a living, just so that even if it’s just 30 seconds of small talk when you first pick up the phone and call a tenant, “How is your son Bobby doing? Is he still playing baseball?” whatever it is, just to send the message that you consider them a human being and not just a source of a paycheck, and there’s a lot of things you can do to keep that relationship.

One of the things that we recommend is that landlords are extremely responsive. Even if you can’t make a maintenance request right away, for example, the important thing for your tenants is to stay in close communication with them so that they don’t feel like they’re being ignored, so that they don’t feel like you’re an absentee landlord who hasn’t heard them or haven’t gotten the message that there is a leak in the property or whatever it is… But just say, “Hey, I got your message. I’m sending someone over as quickly as possible. It may not be until tomorrow, but I am on top of it and I will stay in close contact with you.” So responsiveness goes a long way with building that relationship with your tenants and that trust.

We also recommend that landlords find incentives to extend their leases as long as possible with their good tenants. Now obviously, every landlord has some tenants that are not as good and you probably want to replace them when it’s convenient to do so and when you’re not going to end up in an eviction scenario, but just building those relationships, incentivizing your lease renewals and sending holiday cards, whatever you can do to build, that trust that professional relationship between yourself and your tenants.

Joe Fairless: What are some examples that you implement to incentivize the resident to extend their lease?

Brian Davis: One idea that landlords can do is they can offer to lock in either today’s rent amount or they can offer a less steep rent increase for renters who renew for a longer term, such as two years or even longer, or added flexibility. Sometimes what tenants really want is a month-to-month lease, and it’s the difference between them either exiting right now or staying with you on a month-to-month basis. So some of it is just about feeling out what is most important to that particular tenant. In some cases, it’s about repairs and upgrades to the property. So landlords can approach their tenants and say, “Hey, I can’t make any promises, but if you could wave a magic wand and have three repairs or upgrades made to the property that would really make you want to stay here, what would those three things be?” And then you can look at those upgrade ideas and pick one or two or whatever that will actually increase the value of your property, increase the market rent for your property and incentivize your tenant to renew longer.

Joe Fairless: What has been something that’s been– they’ve had that magic wand and they’ve waived it and then you reviewed? What’s something that you’ve done?

Brian Davis: Well, let’s see. One time, I actually put in central air for a tenant which– that was not a minor one, but I felt that the neighborhood was up and coming and the expense was justified. So I did end up pulling the trigger on that. But it could be anything from replacing the carpets which, in many cases, you’d have to do anyway if that tenant left, to painting to upgrading the kitchen or bathroom.

Joe Fairless: So replacing carpet, painting, upgrading the kitchen or the bathroom or just installing central air.

Brian Davis: It depends on the property and the neighborhood and the tenant. What makes sense for that property, what’s an upgrade that will add value to the property that will boost the market rents even if this tenant were to leave six months or a year later? So you just have to take it case by case with each tenant and each property.

Joe Fairless: Are the three main components of Spark Rental education, courses and property manager software?

Brian Davis: Yes, those are our main components.

Joe Fairless: What’s an example or course that you’ve got?

Brian Davis: Our flagship course is our Fire From Real Estate program. It’s all about reaching financial independence and retiring early with rental properties. So in that, we’ve had three main focuses. The first focus is on maximizing your savings rate, because if you spend every penny that you earn, then you don’t have any money to invest with. So whether you use real estate as your vehicle for reaching financial independence or something else, like index funds or dividend-paying stocks or whatever, your savings rate matters because that is what enables you to invest money in any income-producing asset. So that first section focuses on savings rate and areas where you can boost that. The second section is all about real estate investing and particularly investing in rental properties that generate maximum passive income or semi-passive income because rental properties aren’t 100% passive, as you know.

Joe Fairless: Sure.

Brian Davis: But yeah, so that second section is all about rental investing, property management and that side of the business, and then the third and final section is about preparing to take that leap to pull away from your full-time job if you’re ready to do so, to pull that trigger.

Joe Fairless: On maximizing your savings rate, identifying areas to save, what are some tips you have there?

Brian Davis: Well, if you look at government data from the Bureau of Labor, the three things that Americans spend the most money on are housing, transportation, and food, and those make up between two thirds and three quarters of the average American household, usually around 70% of the American household spending.

Joe Fairless: What percent?

Brian Davis: It’s around 70%; it fluctuates between around two thirds and three quarters of the average Americans’ household spending each year. So those three things offer the greatest room for maximizing your savings rate; the greatest opportunity for savings. So we focus first and foremost on saving money on housing. We get into house hacking and all of the many different ways that you can house hack. So for example, I’ve had housemates before when I was a young professional living downtown. I bought a house and rented out rooms housemates to cover the majority of my mortgage. Now, my wife and I live overseas and her employer actually provides us with free furnished housing. So that’s one way of getting free housing. My business partner Danny, she actually house-hacks with a foreign exchange student. So she has a Chinese high school student who lives with her and the placement service pays her a monthly stipend that covers most of her mortgage payment, and she’s done things like renting out storage space before, but you can do the traditional house hack of buying a small multifamily and renting out the other units. There are many different ways to house hack and not all of them are appropriate for all people, but the idea is to get creative with your housing and find a way to have someone else pay for it.

Joe Fairless: I love how you took the approach of hey, here’s what the Bureau of Labor statistics says we spend most of our money on, and those are obviously the main ways to take a look at to see if you can save money. So that’s housing. What about food? Make your lunch?

Brian Davis: Well, yes. It sounds simple and it is simple, but food that you make yourself costs a tiny fraction of food that you pay someone else to prepare for you. So if you make your own lunch every day, you’re looking at a cost of usually in between $1 and $2 or $3.50 or whatever cost to make your own lunch and bring it to work with you versus paying $7 to $15 to go out to even a cheap restaurant near your office; even if you go to Subway or whatever, you’re still probably going to spend $7, $8, $9, $10 dollars. So yes, you can save a massive amount of money by making your own food, and that goes for every single meal of the day. So we urge people to classify meals out or even meals in that you order like delivery or whatever. Any meal that you don’t prepare yourself, that should be classified as an entertainment expense. And there’s nothing wrong with that; I love dinners out as much as the next guy, but it falls under our entertainment budget. We don’t try to sugarcoat it in our budget by calling it food because food is necessary. Going out to a fancy restaurant is not necessary; it’s entertainment. So making every single meal or at least the overwhelming majority of your meals, breakfast, lunch and dinner, is an easy way to save on food and there’s a lot of other things you can do with that to get a little bit more creative.

My wife and I make enough dinner each night to have leftovers the next day for lunch. So I just take that with me for lunch the next day. One favorite thing that we’ve done before is we have Tupperware exchanges with friends where each person will make a big batch of food. For example, a huge batch of lasagna or some other meal that it saves well in Tupperware, and then you get together and you exchange all those Tupperware so that you don’t have six nights worth of lasagna for dinner in a week, you have one of five or six different things that you can just exchange with other people, and you can freeze whatever your don’t eat and get creative with it like that, and that saves time, too. You have one big batch that you cook, and then you have meals for the entire week.

Joe Fairless: Keeps it fresh too, because everyone’s got their own cooking style and you can taste different stuff.

Brian Davis: Exactly, and get some ideas for new recipes of your own.

Joe Fairless: Taking a step back, based on your experience, what’s your best real estate investing advice ever?

Brian Davis: One of the main things that we focus on first, at least with new investors, is learning how to accurately forecast cash flow for any rental property; because if you get that wrong, then you open yourself up to negative cashflow, bad investments and a lot of lost money. So we actually make it a free tool on our website. We have a very detailed rental cash flow calculator that’s available for anybody to use; no login required, no email submission required. It’s just there on the website for anyone to use, because that is such an important thing, maybe to me in particular, because I got that so wrong when I first started investing. So we focus heavily on accurate cash flow forecasting, because if you get that right, then you’ll never make a bad real estate investment in your life again. You’ll always know the returns, at least the yield, that you’ll earn on a property before you buy it. So if I were to pick one thing, that would be my one thing. I can go on, but–

Joe Fairless: No, it’s good. Thank you. I know you said you had 13 properties in Baltimore City and they weren’t in good areas and you learned a lot of lessons as a result of what happened. How much money did you lose would you estimate?

Brian Davis: That’s a figure that I never went and calculated exactly–

Joe Fairless: Too painful.

Brian Davis: –because I didn’t want to know, but I would guess that I lost in the $150,000 to $200,000 range from that round of properties.

Joe Fairless: Psychologically, if someone is experiencing something like that, you’ve been through it, you’ve come out the other side, what advice would you give that person who is, say, in the middle of it?

Brian Davis: Well, first thing I would say is that all things come to an end; it’s going to be painful in the short term, but you’ll come out of it okay ultimately, and the most important thing is to learn from those lessons. That person just learned a very expensive lesson, it would be a shame to let that lesson go to waste; it’s tuition that you’ve paid for education. So in my case, I went on and I continued buying properties, of course, but I could have felt burned by real estate and said, “I’m never going to touch real estate again,” but that would have wasted on all those hard-earned lessons that I had learned. So I would urge people to consider it the cost of tuition. They will never make those same mistakes again because they got burned so badly. So they will be a much more conscientious investor moving forward.

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

Brian Davis: I’m ready.

Break [00:22:13]:05] to [00:22:56]:04]

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

Brian Davis: The best ever book that I’ve recently read– this is a business book, not a real estate book, but it’s Traction by Gino Wickman, and it’s all about systematizing your business so that it becomes less dependent on any one person, including you, and something you can scale and you can automate without having the business collapse if one person pulls away or it doesn’t require you to work 80 hours a week for that business to function and succeed. So Traction by Gino Wickman.

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

Brian Davis: Best ever deal I’ve done. This was a property that I bought originally to live in, and I bought it to eventually keep as a rental. This was in Fell’s Point in Baltimore, and it was an estate sale. There was one block from the harbor in the Marina. It had a rooftop deck overlooking this beautiful Marina with yachts. So I bought that for $150,000 and I – it’s a separate story – ended up putting a hot tub on the rooftop deck just for fun… And then we moved out and we rented that property for $2,400 a month in rent, and eventually, we sold it in the mid two-hundreds a couple of years later. It just ended up being more hassle than it was worth keeping with us being overseas, but it was fine. I had a lot of fun living there and then I went on to earn some good money on cash flow on it.

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

Brian Davis: Free education is one thing. So we recently did a free webinar with no sales pitch at the end. It was just pure education that was about the impact of the coronavirus pandemic on real estate investors, which is something that people kept asking us about and were desperate for more information about. So we did a two hour completely free webinar with no sales pitch whatsoever, and we got an incredible feedback from it of people just thanking us for spending all the time to put that together. But we have an extremely comprehensive blog with hundreds and hundreds of free articles; all of them very long.

So when I give money, I give it to libraries. I’m very big on the free transmission of knowledge, free education and particularly, in a human-driven way; and the internet is wonderful, but it’s no substitute for getting knowledge from a fellow human being.

Joe Fairless: This isn’t something I usually ask, but I know based off of our conversation before we started recording, you’re in Brazil. So do you typically travel, and if so, how are you able to do that?

Brian Davis: Sure. We try to hit around ten countries a year; we do a lot of traveling. This particular year is different because of the coronavirus pandemic, and because my wife is pregnant, so we can’t travel as much as we normally do. But there are so many ways to travel inexpensively beyond just staying at Airbnbs and trying to eat at locals’ restaurants. We use tools like Skyscanner to find inexpensive locations to fly to places that we never would have considered otherwise. So a quick example, we were living in Abu Dhabi for a few years and we just pulled up Skyscanner and said, “Alright. What are the cheapest flights from Abu Dhabi to anywhere in the world?” and then one of the cheapest ones that popped up was Bulgaria, and my wife and I looked each other and we said, “Well, what’s in Bulgaria?” We looked it up and we were like, “Oh, this is intriguing. Let’s go.” So we got round trip, nonstop flights for something like $150 a piece, and had an amazing week-long vacation in Bulgaria that, to this day, it generated a love for us for Eastern Europe, and we actually want to move to Eastern Europe at some point, that’s how much we love it.

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

Brian Davis: Connect with us either on our website, sparkrental.com, there are contact forms all over the site; they come directly to me or my partner or our immediate staff members, most of whom are either friends or family. We have very much a family business here. You can also connect with us through social media. We have a huge presence on Facebook. We actually have the largest Facebook group for landlords, with 30,000+ members and investors on there. But Spark Rental on Facebook, @sparkrental on Twitter, @sparkrental on Instagram or through our website, sparkrental.com.

Joe Fairless: I notice the pattern there… [laughter] Thank you for being on the show talking about the deals that did not go right and talking about what you’re currently focused on and how you’ve evolved from learning those lessons while you were in your 20s, and now what you’ve created with Spark Rental, and the lowering turnovers parts. Some very tactical things that we can do. Just be a human being with the resident, get to know them, hobbies, kids’ names, etc. Not to have a fireside chat with them, but just to make sure that they understand that we’re all in this together and that you care about them at some level, and then be extremely responsive and then give incentives to extend leases, and you talked about the magic wand and you said that you should always put a central AC in every unit regardless if that makes financial sense and I have to applaud you for that. [laughter] So thank you for being on the show; I enjoyed it. I hope you have a best ever day and we’ll talk to you again soon.

Brian Davis: Joe, thank you so much for having me.

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JF1932: How To Find & Close 120 Units With Seller Financing with Joe McCabe

We’ll cover a lot more than just finding deals and getting the owner to agree to seller financing. Joe has been around many facets of real estate, from buying/selling real estate, mortgage brokering, insurance, and his own investments. We’ll dig in on the 120 units from seller financing about half way through the conversation. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Just getting out there and taking action is so crucial” – Joseph C McCabe


Joseph C McCabe Real Estate Background:

  • Real estate broker in PA, NJ, and DE; Owner of REMAX Experts, Home Front Mortgage, Keystone State Abstract, LLC and Allstate Insurance Company
  • US Army veteran
  • HOME Front Mortgage is a nationally growing and expanding mortgage broker opening 9 interstate location adding millions in volume
  • Based in Philadelphia, PA
  • Say hi to him at http://homefrontloans.com/


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

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

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


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

Joseph McCabe: Hey! Good, Joe. How are you?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit more about Joe – he is a real estate broker in Pennsylvania, New Jersey and Delaware. He’s the owner of REMAX Experts, Home Front Mortgage, Keystone State Abstract, LLC and Allstate Insurance Company. He’s a U.S. Army vet and HOME Front Mortgages, a nationally growing and expanding mortgage broker, opening nine interstate locations, adding millions in volume. Based in Philadelphia, Pennsylvania. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Joseph McCabe: Sure. You hit on most of it. I’m pretty much invested in real estate in almost every way, except for buying paper. We also have currently about 120 units in our portfolio, we’re adding another 300 by January; they’re already under contract. So we’ve got  a significant real estate portfolio, and then right now we have 71 realtors out of our Philadelphia REMAX office, and nationwide we’re opening a little over 13 offices, most of them are already in licensing. We’re basically creating joint ventures with other real estate brokers on the mortgage company to provide them with some ancillary income.

So yeah, that’s the big piece of it. I kind of got started in real estate as a salesperson with Keller Williams, and I realized quickly on, and mainly in the army that I don’t think I’m good at working for other people… So I decided–

Joe Fairless: The army will make that come to the surface very quickly, I think.

Joseph McCabe: They made that come clear. And luckily, I got a good job real quick; I became a military police investigator, so we kind of got to work on our own. I was in a smaller unit, and there weren’t as many egos, so… It was less frustrating for me. I just got out of the military in January, so I’m all done with them.

When I started with Keller Williams about 5-6 years ago, I saw the scalability in real estate, so I started my title company… I did all the normal things that a broker does. I started the title company, I started the insurance company… Almost fell for recruiting to the downline thing, but then I realized I should just own my own brokerage. So my next step was to buy a REMAX, open up my own franchise, and then the doors really opened for me and I realized there were so many things that I was still missing out on.

That’s when we created our own mortgage company, and eventually Allstate Insurance, title and everything else. Then I started buying property. I think that maybe that’s probably the most important thing I could tell your listeners about today – everything that we’ve purchased on the real estate side was seller-financed at one point. And we very quickly refinanced out of that seller finance debt… But I’ve just been really, really good at finding those deals and making that attractive to the sellers, and kind of building a level of trust there. And partly that’s because my exit strategy is performed by the mortgage company that I own, so that’s attractive to them, of course. Now we have a track record of almost 400 units where this has been done or is in the process of being done… So that’s always been cool.

Joe Fairless: Will you elaborate a little bit on what you mentioned earlier, where you said you started the title company, you started the insurance company, and you almost started recruiting for the downline thing, but instead you opened up your own brokerage?

Joseph McCabe: Oh yeah, recruiting to your downline in Keller Williams is one of the models… The EXP model to that is maybe a little more attractive…

Joe Fairless: Will you just elaborate? What does that mean, “recruiting for the downline”?

Joseph McCabe: Oh, sorry. What Keller Williams does is if you recruit someone to Keller Williams and they join, you can make residual income based on that agent’s income for the next few years. You’ll get a percentage of all the deals they close, of the company dollar. I think EXP does something similar to that as well. But I realized – I was like “Yeah, I guess I could do this, or I could just start my own company and keep 15%-20%, and then get title, insurance, mortgage and everything else, and build a real team.” But it’s a way to build residual income, and I kind of mimicked a lot of what Keller Williams is doing, in a less watered-down way, because they have so many agents. I offer shares in our Allstate Insurance company, and I offer recruiting incentives. They just get a 1% commission if they recruit someone off the top of all that agent’s deals forever, and they never really have to do anything; just set a meeting with me and I’ll close the deal. So it’s plain and simple.

But I just realized, in the real estate industry, 1) if you have a real estate company, there’s so many other things that you need to tap into, and there’s so much income that you really don’t have to do if you set it up right.

I have a partner that runs each and every single ancillary company that we have, and we still keep most of the profit… And then not only that, but obviously being a broker there’s a lot of deals on the MLS, and a lot of times you’ll find deals, you’ll get calls for listings, or other agents will put out listings pre-MLS, that kind of gives you an early look at some of these deals that you could access. So what I just realized is that I could have my hand in so many pots, but not really have to do any extra work, and really build — I hate to say “passive income”, because nothing’s really passive, but income where I don’t really have to do as much work, and really that is owning properties, and then having a title company, and everything else. The realtors – they drive me nuts though [unintelligible [00:06:26].26]

Joe Fairless: [laughs] We clearly need to talk about the 120 units, and the seller finance deals. Before we do though, you did pique my curiosity when you said the insurance company you’ve got – all they need to do, someone within your team set up an interview with a prospective new team member, you’ll close the deal, and then they get 1%, right? That’s what you said?

Joseph McCabe: Yeah, exactly. I tell my realtors [unintelligible [00:06:51].22]

Joe Fairless: I get that, but my question is “How do you close that deal?”

Joseph McCabe: As far as recruiting, and stuff like that?

Joe Fairless: Yeah.

Joseph McCabe: We have some pretty attractive value-adds in the company, and obviously one of them is the agent’s ability to buy into the Allstate Insurance company at a very low fee, right off the bat. That’s attractive to them, because a lot of times if you’re a realtor, you kind of have that investor mindset, or at least you should, because you’re about to be self-employed…

Joe Fairless: [laughs]

Joseph McCabe: So hey, you should have it, but sometimes they don’t, and that’s why they don’t work out. But they have that option coming into it, so that’s one of our value-adds. Secondly, we start everybody at 85% commission, and then they’re capped at $15,600. So once they pay the company $15,600, they go to 100% commission. And that’s about half of what everybody else is in our industry. So that makes it an easier sell for me. And when you have all the ancillary services, you can do that.

So they like that, they like that we have in-house mortgage; that’s a huge selling point. The loan officers are right there, they can build relationships with them… I also provide all the realtors with performance-based leads. So the faster, the more responsive they are, the more leads they get. Some of my realtors get 25 to 30 leads a week. Again, now they’re getting leads with essentially no risk. If they don’t work, it was their own fault, and they don’t have to shell out the upfront money or the upfront cost for those leads. So I kind of subsidize their leads, and we don’t take an additional split for that, because they’re still cost-effective for us.

So those are pretty much the two biggest things. The other thing is, again, every realtor wants to be an investor, so I tell them “Hey, if you’re looking to learn how to flip properties, build new construction, purchase large real estate portfolios, just build a small portfolio of ten properties. I can help you do that.” I’ll dedicate my time to do that, I have recorded trainings, I run at least a quarterly training on how to purchase properties, seller-financed, how we’ve done it, how to analyze a deal, what’s a good deal – at least from our perspective what to look at, what to look for… And I always make it clear to them, “You’re gonna hear me say that, and then you’re gonna go talk to a guy who will tell you to only buy trailer parks.” There’s so much different information out there.. But it’s helpful for them, because a lot of people aren’t sharing that information, and a lot of real estate brokers are not as diversified, and a lot of times real estate brokers are not also the owner of the company. In some states they are, but in some cases, especially larger companies, it’s someone that’s paid a salary to kind of manage the brokerage.

Joe Fairless: Got it.

Joseph McCabe: So they get to interact with me, and I think it’s very helpful.

Joe Fairless: So let’s talk about the 120 units, all seller-financed deals… You said you’re good at finding them and making them attractive to sellers. What’s the best way to find them, and what’s the best 2-3 talking points to make it attractive to the sellers?

Joseph McCabe: Sure. What I do always is I try to pitch a quick exit strategy for the seller. So what I’ll do is I’ll usually just go on LoopNet or CREXi. CREXi is probably my favorite website; it’s easy to submit a letter of intent… And I’m kind of doing a mass LOI submission. I’m looking at what’s the cap rate, which is probably bullshit, but what’s the cap rate they have up there, what’s the sales price, and how many units do they have.

I like to buy 26 units, just for laws of averages purposes, and I like to buy at a 9% cap and up. And preferably things that — if it’s a single-family portfolio, obviously not a value-add, because that doesn’t really add to the value… Although I’ve seen a lot of them really trying to advertise that way…

Joe Fairless: [laughs]

Joseph McCabe: I’m like, “It doesn’t help. It’s not a value-add, dude.” Just throwing money. Or maybe you increase the market value. So that’s what I’ll do, I’ll just find properties to meet that low criteria – more than 26 units, higher than the 9% cap rate, and ones that don’t necessarily need renovations.

So what I’m doing is I’m  getting them to 100% seller-finance them. So I’ll buy them, I’ll roughly run through some numbers, look at some market values, and figure out “If I purchase this portfolio, what would leave me with 25% equity in the property?” And then I’m gonna write an offer based on that number. So if it was a million dollars, I’d write the offer for $750,000, and I would stay firm on that price, but then I would add a bunch of additional contingencies in there.

So I’d say “I’m gonna do full inspections, mortgage contingency, I need 90 days for the initial close”, and then maybe I’ll say “I need you to hold the seller finance note for five years.” Now, of course I’m not going to do that, but they’re always gonna counter me on price, and normally I counter them back and say “Look, the price is the price, and here’s why. Here’s the value, and here’s what I’m trying to do, and I’m doing this to protect your seller.” Because I wanna be able to get the seller out of this as quickly as I can and get him his money. And the best  way to do that is to buy at a 25% discount, which is — any other investor who pays cash is gonna want a 35%-40% discount. So it’s usually in their best interest anyway.

Once I do that, usually the agent calls me, tells me I’m nuts for writing a 100% seller finance deal…

Joe Fairless: [laughs]

Joseph McCabe: …that’s usually the next step. And then I explain “Hey look, how many properties do you own?” “Well, I don’t know [unintelligible [00:11:48].21]” “Well, we have 400 that we’re doing this way. And it works, and it’s attractive to a lot of sellers. So just be open-minded and pitch it.” It’s just another way to close the deal. And all we do then is we have this seller finance loan, maybe we hold it for 90 days, and we refinance out of it, because we already know where the market values are gonna come in. So we know it’s gonna appraise for a million, we can get 75% loan-to-value, and then we pay off the seller, and everyone goes on their own ways.

The coolest thing about our structure is we’re obviously collecting a real estate commission, we’re getting paid on the mortgage side and we’re getting paid on the title side. So we’re recouping most of our costs.

Joe Fairless: I think you said that you don’t need renovations, it’s a 9% cap and at least 26 units, right? You said those three things? Why not just get financing out of the gate?

Joseph McCabe: I always tell them right upfront, I don’t wanna put down 25%-30%. I don’t wanna go through that, I don’t wanna go through the extra scrutiny… A purchased deal has a lot more scrutiny than a  performing  refinance. One thing about refinancing a property is even if it’s seller financed, if you can show performance on the note, you’re good to go. Plus, it gives us a few extra months to get a better understanding of the books, stabilize some things… Because a lot of times, if someone agrees to this type of structure, they’re usually not sophisticated sellers. They’re probably a guy that built a really nice portfolio, and they cash-flow really good, but he’s probably self-managing, he’s taking a lot of cash… The books just aren’t on the up and up that a banks wants to see. So it gives us time to go in there and stabilize those things, maybe make some renovations to increase the market value if we have to, get some tenants out that we need to get rid of…

And that’s why we like to buy in rent states, because there are chances where when they’re self-managing, they know these people, they feel bad for them, they start cutting deals, and the next thing you know it’s six months later and he still hasn’t paid his rent, “But he’s gonna.” They keep telling he’s gonna pay, he’s gonna pay… So we have to go in and get a professional management company, and that transition can just take time, from self-managed to professional, or even from a professional that sucks to a professional that’s really good. That can take even more time. That’s happened to us a few times.

Joe Fairless: Thanks for walking through that process and how you position it to them, and also the back-and-forth that inevitably will happen with their agent that’s representing them. I asked also how to find them, and you said two things – CREXi and also LoopNet. Are those the two primary sources you’ve used to close deals?

Joseph McCabe: Yeah, that’s it. Actually, the only website I’ve ever closed a deal off of was actually CREXi. Sometimes there’s off market opportunities, but to be honest, sometimes those get so convoluted… Especially in Philadelphia – I’ll find a property and I’ll look it up, and it’s on the MLS for a million, but by the time the six wholesales who are selling it got done with it, the final price is like 1.6, and I’m not gonna deal with them. I’m gonna go straight to the broker… But then I find out the broker is also a wholesaler, so I get frustrated with those types of deals, and  a lot of times those are the smaller deals. But 36 units and up, or 26 units and up – you’re usually dealing with a large commercial firm, who won’t deal with wholesalers. You just get a more direct approach.

A lot of times these commercial brokers have seen crazy structures like this, and a lot of times they’re really not blown away, especially in the single-family world. Because with single-family all of these properties were acquired in some creative fashion. A lot of times these sellers will be like “Oh, it’s really cool. I haven’t seen this in forever. That’s actually how I bought most of my properties.” So it’s always cool to hear that.

Joe Fairless: Yup. Taking a step back – based on your experience, what’s your best real estate investing advice ever?

Joseph McCabe: My best advice – and I just ran a training in the office for this – is just get out there and do something. Everyone’s always wondering “How do I jump into real estate? What do I have to do to get started? Where do I start? Let me research this, let me talk to this, let me go to this course…” and it’s like “How many courses are you gonna go to before you finally do it? I started the real estate company, the title company, the mortgage company, Allstate, and I bought my first 73 units in one shot, without ever having done that before, without any mentors. I’m not saying that’s the right way to do it, I took a lot of freakin’ hits, but I did it, and there’s thousands of people out there still thinking about doing it.

So I think just getting out there and taking that action is so crucial… And if someone gives you information like this and tells you that it’s possible, just go out there and try it. There’s nothing that can go wrong.

I have a friend right now who is a contractor in Iraq, and I was speaking to him today, because he’s buying a property in Philadelphia, and he’s like “Yeah, I’ve got a portfolio… I heard your podcast on Brad Lea’s show, Dropping Bombs, so I went and got a portfolio under contract in Iowa.” And I was like “See, that’s perfect.” That’s someone who listened… They’re like “Okay, wait… I don’t know everything, but I can figure this out.” And he called me and he said “Hey, the lender is asking for this. What do I do?” And I guided him through that process. So yeah, you’re not gonna know everything, but there’s people out there that’ll ask, and if someone were to DM me… I don’t even know my Instagram; I think it’s @josephcmccabe… I’ll respond if they have a question. Usually, I’ll even give them a call. I’m always willing to help people like that. There’s plenty of money to go around.

Joe Fairless: I agree. We live in a world of abundance.

Joseph McCabe: Yeah.

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

Joseph McCabe: Yeah.

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

Break: [00:17:07].28] to [00:17:49].20]

Joe Fairless: What’s a deal or business transaction that you’ve lost the most amount of money on?

Joseph McCabe: Actually, my first two – and this is why I have a minimum unit rule. I will never buy less than 16 units; that’s my actual minimum. I bought two duplexes on my first deal, when I first got into real estate… And you lose one tenant and then the next thing you know all four are leaving, too. You can’t make that payment on your own when you’re just starting out selling real estate and everything else.

My first two duplexes that I bought in not the best area in Philadelphia – luckily, I was able to sell them and make some money, but that only helped me recoup the monthly payments that I had to shell out.

Joe Fairless: When the dust settled, what was the result of the dollars out.

Joseph McCabe: Oh, I probably still lost 2k-3k on that… And that’s where I said “You know what – worst-case scenario, even if you are buying in a bad area, at least have more units and increase your chances of not having that problem.”

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

Joseph McCabe: Right now we do a lot of stuff for Police, Fire and Military, since I’m a veteran… I partner on most of these real estate deals as a Philadelphia cop, and my whole family is cops… So any way that we can give back to the Police, Fire and Military community, we do that all the time. Sponsoring events in Philadelphia… And then also – I like to give back to other realtors and other people. I think that sometimes we forget that Police and Fire – they all stick together, and so does the Military… And sometimes in real estate everyone focuses on this competition that really doesn’t exist, and… I like to help everybody out; I’ll pick up the phone for anybody and guide you through your real estate career and see how i can help. I love to shoot back for other people in the industry and help them out.

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

Joseph McCabe: They can reach out to me on Instagram, @josephcmccabe, or they can shoot me an email at joe@homefrontloans.com, or go to one of our websites; you’ll see stuff on there. I also have a podcast, and I’ve been on a lot of other podcasts; on Brad Lea’s podcast, Dropping Bombs, that we talked about… All the mortgage stuff, and then on Pat Hiban’s podcast, where specifically we talked a little bit more about how we bought these properties. So my information is out there in multiple places, and I’d be happy to share it.

Joe Fairless: Well, Joe, thanks for being on the show, talking about the 120-unit portfolio, the seller financing, how you’re finding them and then also how you’re positioning that to the seller, and the seller’s representative (the real estate agent) as well as how you’ve grown the business, and the different ancillary income streams that you have. Also, thank you for your service, sir; I really appreciate that.

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

Joseph McCabe: Yeah, thanks  Joe. I appreciate it.

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JF1918: How Software Can Improve Your Real Estate Investing Efficiency with Matt Whitermore

Matt is an investor himself, and was a mortgage broker who closed on about $2 Billion of real estate transactions. Now in a full time sales role with a software company for real estate investors, Matt is here to help us make our businesses more efficient through tips he will share, and through his software should you decide to try it. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Keep your structures as simple as possible” – Matt Whitermore


Matt Whitermore Real Estate Background:

  • Full time in software sales for commercial real estate
  • Spent six years in real estate investments and commercial mortgage brokerage, with an estimated $2+ Billion in closed transactions including acquisitions, debt, and equity placements
  • Based in Philadelphia, PA
  • Say hi to him at mwhitermore@IMSCRE.com
  • Best Ever Book: Best Ever Apartment Syndication Book by Joe Fairless


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

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

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


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

Matt Whitermore: Great, Joe. How are you today?

Joe Fairless: I’m doing well, and looking forward to our conversation. A little bit about Matt – he is full-time in software sales for commercial real estate. He spent six years in real estate investments in a commercial mortgage brokerage, with an estimated two billion in closed transactions, including acquisitions, debt and equity placements. Based in Philadelphia, Pennsylvania. With that being said, Matt, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Matt Whitermore: Absolutely. Some years ago, back in college, I got my real estate license. I did some apartment rentals in Boston, and some landlords and property managers started to think about the investment side of the business, so I ended up getting a job doing acquisitions, focusing mainly on small multifamily deals. I worked with that group for a few years, saw a few hundred deals, tons of deal flow, tons of learning going on there, and I wanted to jump more into the middle market, sort of institutional space.

I found a job as an analyst, doing investment sales and debt and equity placement, as you said. I worked as an analyst for about four years doing that, and I more recently transitioned into the technology space, and I work for a firm called Investor Management Services. We provide investment management solutions for real estate investment firms, syndicators… We’re at over 500 real estate investment firms as clients today.

Joe Fairless: Why didn’t  you stay in the analysis and investment sales that you did for four years?

Matt Whitermore: At the outset I really wanted to get into real estate, to learn enough to become dangerous as an investor myself. I saw technology as a nice, flexible sort of job that would give me the time and the flexibility to get that started up on the side on my own. I work from home, on a pretty flexible schedule, so it’s great; it’s allowed me to really focus on getting that stuff started up.

Joe Fairless: Cool. So on your own investment side what have you been up to recently? And we are gonna talk about IMS in detail, but I’d also learn to love more about what you’re doing personally.

Matt Whitermore: Sure. I’m just getting started really on the investment side. I just got engaged, actually…

Joe Fairless: Congratulations!

Matt Whitermore: Thank you, thank you. So I’m looking forward with my fiancée at a multifamily house-hacking opportunity, actually in Albany, New York, looking to relocate there… And also, getting that business plan for apartment syndications buttoned up, talking with some prospective investors and actually leveraging all that great knowledge in your apartment syndication book to get all that started.

Joe Fairless: Cool. Good stuff. Congratulations on a bunch of milestone events in your life that have recently taken place… So let’s talk about IMS then – what does it cost and what does it provide?

Matt Whitermore: It’s a mid-range of cost. We price it based on number of deals, so number of syndications you might have, and the number of investors. I’ll say loosely it ranges anywhere from $1,000/month to maybe $5,000/month for maybe a more institutional player in the market, and we offer a lot of great different tools for investment firms and syndicators. That includes an investor CRM, so it helps you manage that investor relationship. It also provides an investor portal, where your investors can log in, look at their investment performance, look at pertinent documents, maybe K1’s for their investments, and even subscribe to new investments through an automated workflow that lets them actually sign your subscription agreement online, right away.

Then beyond that, I think the main differentiator for us is the automation of a lot of the back-office functionality. So we’re focusing today on maintaining and recording those equity and ownership structures that you might have with outside investors, and then we also help you automate the calculation of waterfall distributions.

Joe Fairless: Oh, cool. Alright, so instead of using a spreadsheet there’s gonna be a tool that will automatically calculate — if you’re returning 2% this quarter, then here’s the distribution per investor based on the waterfall that you have with your deal.

Matt Whitermore: Correct, yeah. Absolutely. We’re really focused on de-risking organizations. Excel is a great tool, obviously; it’s really ingrained in the real estate marketplace, but we see an opportunity to really de-risk that. You never know – a formula  might be wrong, you might be referencing a wrong cell… This helps you get out of that cycle of risk and automate a lot of those functions.

Joe Fairless: What’s the main objection your potential clients have who do not have sign up with you about this platform, or just the concept in general of having this?

Matt Whitermore: It’s a great question. I’d say sometimes it’s price. We’re talking to a lot of (we’ll call them) young or emerging syndicators that are really just getting started, and the name of the game a lot of times is keeping your operation lean and not having a lot of expenses, so it is sometimes a hurdle to get over… But over the last few years we’ve seen really a transformation of the marketplace, that investment managers specifically in the real estate space are seeing the need to leverage technology… So we’ve been really pleasantly surprised for the last few years; our prospects are much more educated. They’ve heard of us, they’ve heard of maybe a few of our competitors, and we’re starting to get over that hurdle, I think.

Joe Fairless: With your business, you mentioned the differentiator with the automation of back-office functionality, and then you talked about on a related note the waterfall structure… It didn’t sound like the ladder was currently in place; it sounded like that’s something you’re working on… But it sounded like the former was – the back-office functionality. If that is an accurate statement, can you talk more about the back-office functionality?

Matt Whitermore: The waterfall tool is fully functioning. That is 100% good to go today, and I’d say that that’s our differentiator, because we’re the longest in the market with a functioning waterfall tool. We’ve worked through thousands and thousands of operating agreements, and I feel like today we’ve probably seen at least a sampling of what exists in the market in terms of waterfall structures and equity structures… So we’ve put that to the test. Like with any technology solution, you can’t meet everyone’s needs all the time. Sometimes a challenge is you just get somebody with a crazy structure that kind of defeats the purpose of automation… But as we improve the tool, that’s fewer and far between that we see that.

The other back-office functionality is recording and maintaining records of capital contributions, ownership percentages, dates and times for calculating pref, calculating internal rate of returns for hurdles… All that kind of stuff.

Joe Fairless: How long have you been with the company?

Matt Whitermore: I’ve been with IMS for about a year and a half.

Joe Fairless: Okay. Over the period of time you’ve been there, for a year and a half, what are some things that have been optimized on the platform that you’d like to highlight, if any?

Matt Whitermore: I’d say early on we got some feedback from the market that maybe it wasn’t the best-looking tool; maybe some of our competitors have a better look, a more modern feel, and that’s something that we’ve really taken to heart and improved. I’d say the core functionality is there, and with now 500+ clients we have a great feedback loop… So we’re constantly taking new feature requests and really striving to meet the needs of the market. So we have clients that range from one-man shop syndication shops, to real estate investment firms that have billions of dollars of real estate…

So to answer your question more directly, I’d say something that we’ve strived for recently is trying to meet the needs of the larger firms. They have a lot more complex financial calculations, maybe fund structures that are a lot more complicated than your typical general partner/limited partner  structure… The fund area has been a huge focus for us, trying to climb the ladder in the market and read the full spectrum of the market.

Joe Fairless: Will  you elaborate on an example with a fund? So the billions of dollars company that is requesting a certain feature? Will you just elaborate on what that feature is, and why they need it?

Matt Whitermore: Sure. I’d say with our more institutional clients – they might have a fund, and then they have a separate class of syndicated equity, so it’s just an extra layer of complexity. A lot of times funds will allow their investors to redeem or exit a position, which adds a lot of complexity for software and how you’re calculating things going forward. Say investor A has his money in for 3 years, but it’s maybe a 5 or 10-year deal, and he wants to get his money out… So he either sells that position back to the sponsor, and then they turn around and bring in a new investor, or they transfer it directly to a new investor… That’s one of the main things that we see with fund structures; it’s a little bit more  complex. The typical syndicator might not look at that and offer that to his/her investors.

Joe Fairless: Thank you. And comparing a one-person shop to an organization that is well-established, what are some things that the one-person shop — based on your experience, what are some questions they don’t ask, that the billion-dollar shops do, that would be relevant to the one-person shop?

Matt Whitermore: I’d say the one-person shop is usually on Excel, they have email, and that’s the extent of the technology that they’re leveraging, so a lot of times we’re introducing them and explaining to them why they need to leverage technology… And I’d say something that they don’t usually consider is as they grow, they’re gonna need other technology solutions. This has been another focus for us – building out sort of an integration ecosystem where we can integrate with different providers. Something that might not be on the radar of a younger one-man shop, versus an established shop that’s using all different kinds of software.

Joe Fairless: And how do you attempt to show the ROI to that one-person shop, so that they see that it will make them money by doing this?

Matt Whitermore: Great question. In the one-man shop you’re usually wearing a number of different hats. You’re acquisitions, you’re asset management, you’re investor relations – you’re all the above. So leveraging a solution like IMS, you’re able to really reduce the time and effort into those functions. The most tangible one that we can point to is usually the quarter end/month end or year end process, where you’re closing out, reconciling your books and making sure your distributions are alright, and the data that you’re pushing out to your investors is alright… It really reduces that process.

We see a lot of clients that say “Hey, my quarter-end process was weeks, and now it’s hours.” So however you value your time, I think all of us would want to have an extra week in each quarter. Think about how much more we can get done with that.

Joe Fairless: I love that approach and I appreciate you talking through that. What have we not talked about as it relates to the platform and the value proposition, that you think we should?

Matt Whitermore: Great question. I would say for the syndicators out there leveraging technology – whether it’s IMS or something else – is a great way to gain a ton of credibility to not look like the one-man shop. With the investor portal that we provide, we’re able to generate investor statements with your logo, your letterhead… So it looks like you have a really robust operation that’s putting all this stuff together. So you could be a one-man shop, and then you have a [unintelligible [00:13:26].09] that has your new opportunities, it has all the data that your investor might want, and it really generates a lot of credibility very quickly for those smaller shops.

Joe Fairless: Based on your experience when you were working with institutions, and an analysis of investment sales, what are some things that you took from that position and applied it to what you’re doing now?

Matt Whitermore: I’d say just knowing the business, having an idea of the different functions and processes that these investment professionals are working through. They were my clients in debt and equity placement and in investment  sales, so… Just having a level of comfort with their priorities, what’s important to them, and just being able to use that knowledge from a different angle of how this technology can help you, and what areas might be pain points, and things like that.

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

Matt Whitermore: I’d have to say leveraging technology. It’s fitting with the conversation we’re having today. In my experience, real estate has been one of the industries where they’ve sort of held out on adopting and embracing technology. And I think luckily for those of us that are in real estate technology, there’s sort of been an awakening of the market… But I think we still have a long way to go. I think a lot of people are leveraging Excel, and a lot of people use that as a crutch. And again, it’s an indispensable tool, it’s great at what it does, but I think a lot of people are realizing that there’s a level of automation that we can achieve that is really not attainable in Excel…

So I’d definitely say leveraging technology – and I’ll expand on that a little bit, too. Since we’re automating investment structures and waterfall structures, I’d say beyond that is to keep those structures as simple as possible. We see some organizational charts – the visual representation of the equity structure looks more like a spider web on a page… Sometimes that’s a necessity, but I think in a lot of cases that’s avoidable. And then beyond that, with the waterfall structure, sometimes we just see waterfalls that are hard to follow. When I say “waterfall” I mean the order of operations and the method of calculating your distributions back to your investors.

As I think about getting my own business started, and the hundreds or more of operating agreements that I’ve seen, I’m of the mind that simple is better. Keep it simple, stupid.

Joe Fairless: I agree. There’s a lot of different ways you can slice it up, but the more you do it, the more convoluted it gets, and the more everybody gets confused, including the operators, in a lot of cases.

Matt Whitermore: Yeah, exactly.

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

Matt Whitermore: Absolutely.

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

Break: [00:16:21].08] to [00:17:19].00]

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

Matt Whitermore: I would say your apartment syndication book. I already mentioned that. Beyond that, I’ll give a second one, that sort of expands deeper on a certain, and that’s the Raising Private Capital, by Matt Faircloth.

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

Matt Whitermore: Recently I coached a youth football team, but as I am relocating in the near term to Albany, New York, I’m looking at some different opportunities and I think I’m planning on getting involved with the Boys and Girls Club there.

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

Matt Whitermore: It would be by email. That’s mwhitermore@imscre.com.

Joe Fairless: Matt, thanks for educating us on IMS (Investor Management Services), talking about the value proposition of your platform, as well as how it’s been optimized since you’ve been there, and the differences in questions and areas of focus of one-person shops versus shops that have billions of dollars under management, and the nuances that each of them look for, and perhaps some nuances that the one-person shop should look for. So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Matt Whitermore: Awesome. Thank you so much. Talk to you soon.

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JF1762: Flipping Houses, STR’s,Passive Investing, & Multifamily Syndication with Ashley Wilson

Ashley started her real estate investing with a single family home purchase that was meant for a normal long term tenant and a traditional buy and hold deal. That turned into a Short Term Rental, she flipped houses after that, started passively investing in larger deals, followed by being on the GP of her own large deals. Hear what it took to get where she is now, and what it takes to do her daily tasks with all these projects. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Until you have done the job correctly and have passed final inspection, I’m not paying you” – Ashley Wilson


Ashley Wilson Real Estate Background:

  • Co-Founder of Bar Down Investments LLC and HouseItLook LLC
  • She owns 450 units and oversees asset and construction management on 349 units
  • Has also completed 15 flips
  • Based in Philadelphia, PA
  • Say hi to her at www.houseitlook.com
  • Best Ever Book: Best Ever Apartment Syndication Book


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


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

Ashley Wilson: Great, thanks for having me.

Joe Fairless: Yeah, my pleasure, and looking forward to our conversation. A little bit about Ashley – she is the co-founder of Bar Down Investments and HouseItLook LLC. I love that play on words. She owns 450 units and oversees asset and construction management on 349 units. Has completed 15 flips and is based in Philly. With that being said, Ashley, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ashley Wilson: Absolutely. I got into real estate approximately ten years ago, with the purchase of a single-family rental property. We did actually short-term rentals  out of that property. We then continued to do short-term rentals for a couple years out of that property and moved into long-term rentals with that property… So we got a little taste of the rental side in terms of being a single owner of a property, both short-term and long-term, and dealing with tenant issues etc. So that was our taste of apartment ownership per se.

Then we moved a few years later into the flipping business. Our HouseItLook company has been in business for five years. We predominantly flip on the Main Line in Pennsylvania, which is outside of Philadelphia, in the suburbs. We typically focus on high-end renovations and historic homes, so the majority of our homes is within the 1900’s to 1960 era of construction, and we do full gut rehabs on those projects, so all six-figure type renovations.

Then within the past year we actually transitioned into the multifamily space. We passively invested in an apartment in Ohio that was 101 units, to get a little taste of the multifamily space. We’ve been educating ourselves on it for years, but unfortunately we lived overseas and we really didn’t think it was the best decision to get into the multifamily space while living overseas. We really wanted to be home for that. So once we got home, we did our first passive investment, and then that snowballed into co-sponsoring on our first deal shortly thereafter, 124 units right outside of Houston.

Most recently we just partnered with another company to pick up 225 units in Amarillo, Texas. So the two properties that we are GP-ing on, I am running the asset and construction management pieces of those properties. The first property – I ran it for the transitional period, for the first nine months, and then actually it’s transitioned since then; however, I’m running the asset and construction management piece on the 225 units right now, out of Amarillo.

Joe Fairless: Describe a day in the life of someone who’s overseeing the asset and construction management of a 225-unit property.

Ashley Wilson: Well, keep your phone with you at all times is something I would definitely recommend to anyone looking to dive into this space. You can get a call for any number of reasons, and I think when you take over a property – we prefer properties that are value-add, and obviously that’s the buzzword in the multifamily space right now; there are a lot of buyers that are looking for value-add properties.

The simplest way to think of a value-add property – I’m sure the majority of your listeners already know, but the simplest way and what I like to tell people who are new to real estate is it’s a flip on steroids. So you’re taking a property that is in some form of distress – it could be due to property management issues, it could be due to deferred maintenance… There’s a slew of reasons, even nature. If there was a storm and half the units are offline, and the previous ownership didn’t have the funds to renovate those units, that is another reason that a property might be in distress…

But what you’re doing is taking that property and you’re getting it performing optimally. That could be by means of a more efficient property management company, it could be through interior renovations or exterior renovations, amenities… Marketing is a huge game-changer as well… So there’s a lot of different places that you can take it. Each property is different and it has different needs. You need to really be on the pulse as to what the property needs and what the market wants, and pair those two together.

Joe Fairless: Let’s talk about your day… So you said “Keep your phone with you at all times.” What are some phone calls — maybe the last couple phone calls you’ve had with the on-the-ground management team about the property?

Ashley Wilson: We’ve had a challenge with finding good, reliable contractors in the Amarillo market. We have a different standard, I would say, in terms of what we’re used to and the contractors are used to working with… So I’ve been getting a lot of calls recently on our plan to tackle projects with the current workforce and options we have within that market. So that’s one of the things that has been a little bit challenging.

Obviously, time is money in this space, so you need to be able to balance the premium that you’ll pay for people who might need to come out of town to do the work, versus the time that it’s taking to have the work completed with the current workforce in that market. That’s something that I’m sure if you meet two different people, they would have two different answers as to what the solution should be… But I personally would rather pay a little bit more to have the work done sooner, because I  realize that ROI factor, and I think it’s more important to have ready product and to transition the property very quickly, so not only does the current tenant base notice the change of the tone of the new ownership, but the market does as well.

So that’s personally an example of something that has been a frequent call recently. But you can get calls about storms… In Amarillo obviously they have a lot of winds, because they’re in a panhandle… So we have a lot of wind storms, we have a lot of excess rain… So it’s very typical for properties in the Amarillo market to have some flooding issues from time to time. It’s very short-lived, because of the absorption rate of the ground; it’s very dry, so the water absorbs pretty quickly, it doesn’t sit, so that’s fortunate… But there’s all different types of calls that one can get.

I’m fortunate to have worked with this property management company previously, so we already vibe in terms of what type of information I need to be notified of immediately, versus what information that I trust and am confident that they understand how I would want it handled, and I trust that they handle it appropriately, too. That I think is a game changer, because the first time you work with a new company there is not only learning about the property and the property needs and the market needs, but also to the working relationship you have on the team.

Joe Fairless: Oh, yeah. Huge. I agree with your school of thought – pay a premium for people to get it done, even if they have to travel a bit farther to your place, versus if there’s a workforce that’s not cutting it, and it’s taking longer and “saving” money, when you really don’t save a whole lot of money.

What’s an example of a cap ex project that you’re working on right now that you have to pay a little bit more for, but you’re getting the high quality out-of-towners?

Ashley Wilson: One thing we paid a little bit more for was we switched out all the exterior lighting to LED, and when we priced it in the market it was a little bit cheaper, but the timeline that we were given by the contractors was much longer to accomplish. That’s something that you can realize right away on the cost savings from your  utility bills. So we have experience working with another company that is actually out of Houston, and because we had enough units that were offline when we acquired the property – because we’ve just acquired the property recently – we were able to house those people who came to do the work from out of town. So we paid a little bit more; fortunately, we didn’t have to pay for the housing factor, because the units were already offline, in the sense that they were in the process of being renovated, and the team was agreeable to stay in those types of units. Even though they weren’t fully-renovated, they were definitely habitable units… But that project then ended up being completed in a week and a half, as opposed to the one month timeline that we were given.

So that’s something that is an example of why I prefer to pay a  little bit more, especially with a company that you’ve already worked with before and you have that track record with them to know that they have good quality work, and they’re trustworthy, and when they tell you that the project will be completed by a certain date, it actually is completed by that date. That goes a long way. I’ve worked with contractors for a long time; my father is a general contractor, so I grew up in this space, which is why I think that I’ve come to find my niche in the multifamily space in terms of construction management.

I enjoy asset management, and it kind of came organically, but originally, when I first got into the multifamily space, it was via this construction management background. I think in the multifamily space you don’t’ see a lot of syndication teams that have construction managers or someone who’s actually really knowledgeable about construction on the team, and I think that’s a deficit. I know personally I would never invest with a group that didn’t have someone on their team, part of the GP, with actual construction knowledge and management experience… And the reason I say that is twofold. One is because I personally believe that when you outsource construction management, your interests are no longer aligned.

And to go into that a little bit deeper, I believe that when you outsource construction management, you’re paying a fee based on the total cost of that construction, or the cap ex, therefore that construction manager has no incentive to decrease the overall expense, nor do  they have an incentive to  decrease the overall timeline, because they don’t understand multifamily ownership and the game of syndication in terms of what one single day on a unit renovation equates to. So if you have a property that has 100 doors and it takes five days to renovate the unit versus four days, that’s 100 days of potential lost revenue that you’re losing out on, and a construction manager is not gonna have that incentive, no matter how you try to build that in, unless they are directly impacted, their compensation, their livelihood is directly impacted by it being more cost-effective and in a shorter timeline.

So I think everyone understands that concept when you’re speaking about asset managers, but I don’t think they relay that over to the construction manager, and I think that is a huge deficit that I see across a lot of different syndication teams. That’s where I’ve been able to really show what I’m strong at… And I’m not saying it just for me, I’m saying you should really instead of hiring someone, if you find someone and they’re very knowledgeable and they understand multifamily, consider partnering with them instead. It is much more advantageous, not only for you as a GP, but ultimately as a GP we are responsible for the LP investment. And to me, there is no better way to ensure the safety and security of the LP investment than overseeing all aspects of ownership, not just asset management.

Joe Fairless: What are a couple things that novice construction management managers would miss or overlook, that someone who has more experience would pick up on?

Ashley Wilson: There are a lot of examples. One example that I give quite frequently – I call it the patio example. A lot of these properties have patios, and often times when you’re in value-add situations and you’re looking at these patios, the patio sometimes appears as if they’re completely structurally unsound, when it might be only a minor structural issue. So what they do is they’ll bring in one contractor, and they’ll say “How do you think this patio should be repaired?” And the contractor will look at it and say “Okay, we’re going to jackhammer this concrete up, we’re going to redo all of the framing, put in new joists, new posts, and we’re gonna repour the slab.” Let’s say for example that was 3k.

What a novice construction manager would do is take that scope of work, cross out the bid price, the estimate, and get two additional bids, because everyone loves the rule of three – get three competitive bids. So they go out and they get two additional bids from two other people. Let’s say for example that it’s $2,500, and another one comes in at $3,200. So they look at the bids, they try to get recommendations of the company and look at their track record, and then they pick a company.

Well, someone like me, who has more experience in construction, would know that that situation could potentially be handled by just putting one additional post up. So instead of completely tearing down the structure and rebuilding the structure, it might only need one support post that is a few hundred dollars, to be honest with you. You could probably get it done max for $500, by doing a post. And then if there are cosmetic cracks on the concrete, you can just put over a new surface covering, so redoing the slab, instead of repouring the concrete. Putting over — they have these thicker paints that are binding, that last for definitely the ownership of these properties, because we’re in and out of them pretty quickly, as I’m sure you are and most of the audience is… So that could resolve the issue at $500.

Because someone is not very knowledgeable about construction, they take the word of whoever first comes out and looks at the property, and then use that to send to other people, without considering alternatives, because they don’t have the experience to know that there are multiple ways that you can solve an issue. So that’s one example.

Another example is we’re getting invoices, and — I could go on and on, I guess, but…

Joe Fairless: Please do.

Ashley Wilson: For example, we took over the property that we have one, and…

Joe Fairless: The Amarillo one?

Ashley Wilson: The Amarillo property; sorry, I should have specified. The Amarillo property… And there was an ongoing plumbing situation on that property, that the previous owner was handling, and then unfortunately we inherited it, but it was at the tail end of it being done.

So there was a change order, and which – by the way, anyone who has ever worked with me knows that, never send me a change order, because I’m not gonna approve it. It needs to be something significantly wrong, and that’s something that a novice person wouldn’t know either, because they wouldn’t be able to argue why you can’t give me a change order.

So I’ll give you an example of why I said that you can’t give me this change order. To finish the job that we inherited was approximately $10,000… And we agreed to that, to finish the job; that was definitely reasonable. And what happened was they went to get it inspected, and this pipe that they’d put in was not pitched correctly. With the plumbing, you need to position the pipe so that it can allow the waste to flow through the pipe, and if it’s pitched incorrectly, or if it’s even level, then it has a hard time of draining.

Long story short is they failed the inspection… So they called me to say “Okay, we failed the inspection, and we’re gonna need a change order, because in order to pitch the pipe correctly, we need to dig more etc.” And I said “Well, pitching the pipe correctly is a code requirement. There are actual specifications on how the pipe should be pitched. So are you telling me that the city wants it outside of those guidelines?” And they said no. And I said “Okay. Well, the job that I hired you to do was to pitch it correctly. So I don’t care whether or not you failed to pitch it correctly and pass the inspection, and I don’t care whether or not it’s going to cost you more money to do it correctly, but I hired you to do this, I’m not paying you until you do this. So until you have a final inspection and I receive that final approved inspection, and it gets notarized, then I’m not giving you any payment.” So this is where we stand.

They were arguing back and forth, and making reasons, and I said “I really don’t care. You can tell me any reason in the world.”

Joe Fairless: What were a couple reasons they were giving?

Ashley Wilson: They were giving reasons that in order to pitch the pipe correctly they would have to excavate more, because the brackets at which they’d adhered the joint to the pipe was corroded, so in order to attach it where they needed to they would have to excavate more, and then be able to put up these new brackets, and that’s something that they didn’t know going into it, when they were excavating. That’s all well and good, and I actually agree with that argument, that it is a very logical argument, but here is where someone who has more experience comes into play… My response to them was “Okay, well you knew that prior to calling the city and asking them to come out for final inspection, but you still made the call. So as soon as you made the call to the inspection instead of calling me and explaining this to me, you believed that you would have passed inspection.”

Their response was, “Well, we’ve passed before, where it wasn’t pitched according to code”, and I said “Well, that’s not what I hired you to do.”

Joe Fairless: Right.

Ashley Wilson: “So you need to pass the code, and if this had been a problem and you had called me in advance, that is a completely different situation, but that’s not the situation we’re talking about right now. We’re talking about the fact that you called the city and believed that you could pass the inspection, and you failed. So because you made that call, because you had that appointment, because you failed that inspection, I’m not paying you until it’s done.”

Well, guess what happened? They threatened to not complete the job, and I said “No problem, we’ll get our lawyers involved. We can handle this. We’ll notify the city, we’ll notify the Better Business Bureau, we’ll also get a hold of your insurance company, and your licensing… We’ll take care of it that way. If that’s the way you wanna handle it, that’s fine.” “No, no, no. We’ll handle it.” They handled it, no change order. Everything was completed, a week later it passed inspection.

Joe Fairless: [laughs] How much out of pocket costs would you say it was for them to complete it?

Ashley Wilson: Well, they were trying to charge us an additional $2,500 change order, which I think is a joke. When you see the scale of projects that you’re doing, if you’re gonna come at me with a change order, it better be significant, and not $2,500. On my single family and multifamily people know me well enough to never come at me with a change order unless it’s really extravagant… But I would guess that they’re probably up-charging us a lot, so I would say maybe between $1,000 and $1,500 that they were out of pocket on.

And you know what the irony of the whole situation is? We needed some additional work done, but because of this situation, we decided we didn’t want them to do it… So part of their job included back-filling everything and repouring the slab. Well, because we were done working with them and didn’t have a very good experience with them, we said “Okay, we don’t need you to do that anymore”, and they said “Okay, no problem”, and I said “And I’m gonna need you to credit that back to me”, because that was initially included in the scope. So not only did they do additional work for me, that they were trying to charge me $2,500 on, but I go them to give me a credit for $1,250 because I didn’t have them back-fill or pour a slab.

Joe Fairless: Wow. [laughs] The tenacity, but then also the knowledge, and sticking to your guns, and experience, too… There’s a whole lot of different components to being able to do that. I can tell you I don’t have that skillset, and I’m glad there are people like you who do, because it’s a tremendous value, that’s for sure.

Ashley Wilson: I think there’s a lot of other nuances too, like for example payment structure. I very rarely give a deposit. I don’t believe in that. It’s a service industry; I don’t pay for my haircut before I get my haircut, so I’m not gonna pay for any service before it actually occurs. Materials is a different situation, but in terms of actual service, I have known too many people who have been burned by that, I’ve been burned a couple times by it, and it’s something I don’t believe in.

Another thing too is taxes. A lot of companies will try to sneak by and tax you on the labor. You cannot tax on labor, you can tax on materials. So you just really need to know all of the details, and I think someone who – like I said originally, going back to why I think it’s critical you have a construction manager on the GP, is that if you don’t have someone who is really knowledgeable about all of those components and understands how that directly impacts your returns, your evaluation of that property, the overall success of the property, then I think it could be detrimental, to be honest.

Joe Fairless: Taking a giant step back, which you might have just mentioned, but what is your best real estate investing advice ever?

Ashley Wilson: I think that you can have a really good deal not come to fruition because the people that are running it and leading it are not the best-suited to do so. I think you can have a challenging property, but have an amazing team, and that deal do exceptionally well. We all like to talk about real estate, and we’re all in this because we love real estate. I absolutely love real estate, I can talk about it every day, all day, but at the end of the day, the successfulness of that real estate comes down to the people that are tied to it.

So I think really knowing the team that is operating the property, working on the property, boots on the ground – every single person that has any sort of decision-making power and how they all intertwine is really critical if you want to invest in real estate, whether it be passively or actively.

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

Ashley Wilson: I hope so… [laughs]

Joe Fairless: I believe you are. You seem a very prepared person. First though,  a quick word from our Best Ever partners.

Break: [00:26:31].19] to [00:27:17].25]

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

Ashley Wilson: Well, I would have to say your book. Your book is incredible. It is so good I’ve recommended it to a lot of people who are not in syndication at all, who are just getting started, and people who’ve been in it for a while… But I really like it because you just come at it from a lot of different viewpoints, and I also think too that the readability of the book is so good. I read it so quickly, and enjoyed it.

There are a lot of books that try to cover the same topic, and it gets too dense, and it’s not very enjoyable to read. I really enjoyed reading your book.

Joe Fairless: Well, I’m glad to hear that. I am a rather simple-minded person, so I speak plainly in the book. Theo is not a simple-minded person, but I rub off on him a little bit too, when we wrote it together. What’s the best ever deal you’ve done?

Ashley Wilson: I hope in a couple years I can say the apartments, but the apartments haven’t gone full cycle yet, so I can’t say that yet. I had a couple single-families that we’ve flipped… The short-term rental we did was extremely successful. We were making over 10k/month on just one property, so that was very successful.

But one of the single-families we did – we were contacted by an agent who wanted us to come look at the property; they had heard about our company and they had heard that we’re guaranteed to close, no contingencies, they like the easiness of just being able to rely on someone to get to the closing table… The property was listed for 499k, it had been on the market for five days. We came out to look at the property, and after I looked at the property I said “Oh, I really don’t think that our number will be close to what you’re asking” and she said “Just write up an offer.” I thought “Maybe I’m missing something”, so I had my dad go back out and look at the property, because I was afraid that I’d miss something critical to do with the construction… And my dad went out and he actually had a smaller construction budget than I had for the project

So I talked to the agent again, and we ended up offering 315k. She insisted we write up an offer, so I offered 315k. The house had been on the market for seven days. I tried to convince her to just drop the price [unintelligible [00:29:47].08] whatever she wanted for it, basically. I thought she could get around 425k for it, from someone else… But she insisted we write up an offer, we got it for 315k, we renovated and we sold it for almost 750k. So that was a really good, unexpected situation that came up, but it also too, I believe, was a result of all the groundwork that we laid beforehand. That we really cared about our reputation. We still care about our reputation, but we made sure that anytime we worked with an agent, that we made it as easy as possible for them, so that any time that they got a distressed property, they would think of us first… And clearly, that paid off.

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

Ashley Wilson: This is a recent mistake that I’ve made on a transaction… I can’t even tell you — first of all, on every single property I’ve made a mistake, and the point is that you need to debrief constantly throughout the process, and make sure that you write down your mistake, you write down how you won’t make the mistake again, and you learn from the mistake.

On a property that we recently purchased, I underestimated the proximity of the two roads that were close to it, and the proximity of the commercial space that was near it. That’s on the single-family side.

On the multifamily side, understanding partnership and who gets the ultimate say is a mistake that I’ve made, too. Understanding dynamics within a GP. Looking back on a situation, I wish I had understood that better, and I think I would have made different decisions if I had known that.

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

Ashley Wilson: I like to give back to everything. My husband says I do too much, but any way possible that I can give back in terms of volunteering… I volunteer in a lot of different organizations; I still volunteer for my Alma Mater, serving as a co-chair for the class. I’m a huge animal advocate, so I support a lot of different organizations through different animal advocacy groups… And then also I run a meetup group, a subgroup of InvestHER in the Philadelphia suburbs, and I feel that that is another way that I like giving back, because I like sharing information and helping people, whatever they need.

A lot of people will come to me when they’re looking at other deals, other apartments to invest in, and I’ll tell them the pros and cons of that deal, and I’m not gonna tell them one way or another, whether or not to invest; that’s for them to make the decision. But I feel that if I educate them on how to run analysis on properties, they only get stronger. So I spend a lot of time giving back to people who are interested in learning more about real estate.

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

Ashley Wilson: You can find us at houseitlook.com, on the single-family side. On the multifamily side, investbardown.com.

Joe Fairless: Ashley, thank you for being on the show, talking about construction management and multifamily, giving real life examples that have happened recently, as well as how to work with contractors when you’re managing the process. Thank you for being on the show, I hope you have a best ever day, and we’ll talk to you soon.

Ashley Wilson: Thank you.

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Joe Fairless and Mark Roderick

JF1532: Legal Apartment Syndication Jargon From A Boring Corporate & Securities Lawyer with Mark Roderick

Mark has been  guest before, but we did our shows backwards. Usually, we’ll have a guest on to give their Best Ever Advice and then come back for a weekend show after that. Well, we’ve heard Mark’s Skill Set Sunday Episode already, now let’s hear his real estate investing story and Best Ever real estate investing advice. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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

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

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


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, Mark Roderick. How are you doing, Mark?

Mark Roderick: Pretty well, thank you. How are you?

Joe Fairless: I’m doing pretty well as well, and Best Ever listeners, you recognize Mark’s name because — well, one of the reasons might be because you’re a loyal listener; episode 614, titled “How to avoid securities fraud and properly raise capital” – that sounds important. So episode 614, if you’re raising money, then go listen to that one. But we never got his best ever advice and never did a regular episode; that was a Skillset Sunday episode. So today we’re gonna do a regular episode.

A little bit about Mark, as a refresher… His words, not mine – he’s a very boring corporate and securities lawyer. I think those are your words, not mine…

Mark Roderick: They are, yeah.

Joe Fairless: Okay, alright… Unless…

Mark Roderick: Yeah, and very accurate.

Joe Fairless: …my team member might have slipped them in, just to play a trick on me… But okay, they’re yours. Also, since the Jobs Act of 2012, he has spent all this time in the crowdfunding space. He writes the widely-read blog CrowdfundATTNY.com, which provides legal and practical information for portals and issuers… And you can say hi to him at his company website, which is in the show notes. Based in Philly. With that being said, Mark, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mark Roderick: Well, it was a clear blue day when I was born, Joe… [laughter] Do you want me to start there?

Joe Fairless: We could fast-forward a little bit…

Mark Roderick: Yeah, fast-forward a little bit, like to today… So I have always represented entrepreneurs and their businesses, including tons of real estate developers, and in that regard, of course, real estate developers are always looking for money, so that’s one of the things, that I’ve always represented folks raising capital. So when I saw the crowdfunding act on the horizon, I realized this was gonna be the most consequential law of my career, and indeed it has turned out to be. So every since then, for the last five years, I’ve spent all of my time in the crowdfunding space. Crowdfunding is still probably 90+ percent real estate, so I spend 90+ percent of my time doing real estate crowdfunding of various kinds. So that’s my background.

Joe Fairless: I’m gonna take it from a direction a little bit different… So instead of thinking about it from — you call it “real estate developer”, so I believe you’re referring to the general partner, the syndicator who’s putting the deal together… That’s who you usually work with. But what I wanna do is I wanna look at it from the passive investor’s standpoint. So from a passive investor standpoint, when a sponsor reaches out to me about an opportunity, from a passive investor’s standpoint what should I make sure that he/she has in place, so that everything’s on the up and up?

Mark Roderick: Well, probably the most important thing is a successful track record. A person, and I wanna say a guy – even though real estate is a very male-dominated industry, but a person with a successful track record would be the place to start, for sure. A new person on the block, who’s never done a real estate development before, if he’s your brother maybe, or if you have some reason to believe that that development is gonna be successful… But if we’re talking in generality, someone with a track record who is doing a deal that is consistent with his/her track record. So if you have a person who’s spent 20 years doing successful multifamily projects and he’s doing another multifamily project, that’s certainly the place where I would start… And then you wanna make sure, of course, that the project has financing, and all that kind of stuff. But a track record – you invest in people.

Joe Fairless: Track record, got it. I asked a poor question, based on what I was intending to ask. What I intended to ask is from a regulatory standpoint, what should the passive investor look for to make sure that the sponsor is adhering to whatever they need to adhere to, so that it’s actually a security and they’re not getting bamboozled?

Mark Roderick: Well, that’s an interesting question, because from the most cynical perspective, the investor doesn’t care. So if we’re talking about securities laws – and your question is “How does an investor know that the sponsor is complying with the securities laws?”, if the sponsor is not complying with the securities laws, there’s no downside to the investor. In fact, there’s a potential upside, which is if the investor loses money, then he/she has the right to sue the sponsor if the sponsor didn’t comply with the applicable securities laws. The investor doesn’t get in trouble, only the sponsor gets in trouble.

Now, that is a cynical and short-sighted view of the situation, because my experience is that if a sponsor isn’t complying with the securities laws, then he/she probably isn’t doing a lot of other stuff right either… So to now actually try to answer your question, the sponsor should be able to show me as an investor, should be able to explain to me how the offering is being conducted, which securities law cubbyhole the sponsor is relying on. Certainly, I wouldn’t expect the sponsor to be an expert on securities laws. I would expect the sponsor to have a lawyer who knows something about securities laws, and I would expect the sponsor to be able to give me some good-looking, profesionally-prepared documents that illustrate that the sponsor knows what he’s doing from a legal perspective… Because again, if he/she doesn’t, that’s not a good sign overall.

The sponsor should be able to say “Yeah, we’re doing this offering under Reg. D”, for example; that would be a typical thing. Or “This is a Reg. A offering” and the sponsor is not gonna know all the details of what that means, but at least it allows the investor to probe further.

Joe Fairless: Got it. Okay. That’s helpful. So in terms of the good-looking, professionally-prepared documents, what specifically – and I’m sure it depends, but maybe you can go through a couple scenarios – should those documents be?

Mark Roderick: Well, in a typical, professionally well-done offering, there are three documents. One is an operating agreement or an LLC agreement for the deal, if it’s an equity investment, or a promissory note if it’s a loan. And you know, it should be more than two pages long. The second document is a so-called subscription agreement, or I refer to them as investment agreements. It’s a document that the investor signs to actually make the investment. Then the third document – you don’t always see it, but you usually see it certainly in a larger kind of deal – is a disclosure document. That’s the generic term. It’s also called the PPM (private placement memo). That’s the document that describes the deal, hopefully using plain English and without a huge amount of legal boilerplate, and includes all the bad stuff, the underside of the deal.

When the sponsor first pitched you the deal, and they showed you this PowerPoint with how the new building is gonna look when it’s done, and all the beautiful people walking around and so forth – that’s all the good stuff. The disclosure document tells you all the real stuff and all the risks. “Well, we don’t have our approvals yet. Well, we don’t have financing in place yet. Well, all these things…” So the disclosure document, if done properly, is a very important document.

Those three documents are what you would expect to get. If the sponsor says “Well, we didn’t do a disclosure document”, that wouldn’t necessarily be a deal-breaker; it’s sort of an alarm bell, “Hm, why didn’t you?” It’s not necessarily a deal breaker, but in most professionally-done deals, that’s what you would see.

Joe Fairless: What would be the reason why – and you might have to speculate here – the sponsor wouldn’t do a disclosure document, but people do invest in the deal because of the reason given? I guess my question is “What would be the reason given by the sponsor that’s somewhat logical for not doing a disclosure document?”

Mark Roderick: And it is done. Lots of times a deal will get done by a sponsor without a disclosure document if indeed it is the same kind of deal the sponsor has done two dozen times before, and the investors have invested with the sponsor two dozen times before. So there’s a level of trust; this is another not cookie-cutter, because no real estate deal is cookie-cutter. But if there has been a level of trust established in the relationship between sponsor and investor, then that is okay; that doesn’t say anything bad.

Lots of times, as you and your listeners certainly know, in very small deals, the developer 1) may not have knowledge of what the securities laws require, may not have a lawyer; he has a real estate lawyer, but not someone who knows about securities… And/or either can’t afford it, because the disclosure document is the most expensive part of the documentation, or just doesn’t wanna do it. If you’re the investor and you say “Well, it really makes me uncomfortable that you don’t have a disclosure document” and the sponsor says “Okay, I’m gonna go over to Gale over here, because she’ll invest without one.” My response is, “Okay, be my guest. Go talk with Gale.”

So it is usually some combination of those things. On the good side, there’s a relationship, there’s a trust, there’s a track record; on the bad side, we don’t know about the requirement, or we know about it and we just don’t care.

Joe Fairless: Does that open up more liability for the sponsor, if they don’t have the PPM but they have the operating and the subscription agreement?

Mark Roderick: Yes. It opens up hugely more liability. Without going into a whole thing about all the ways that sponsors can be liable to investors, the most likely way that they can be liable is if they lied to investors. “Oh, you told me you already had your approvals.” Now, of course, this only happens if the investors lose money. If we have the kind of real estate market we’ve had for the last eight years, where it just goes up, then all this becomes academic. So an investor loses money, and suddenly his memory conflicts with the memory of the sponsor. The investor says “You didn’t tell me that. You told me you already had approvals. You told me that retail space had already been leased”, and all kinds of things.

The purpose of a disclosure document is so that when the investor says “Oh, you didn’t tell me you didn’t have zoning yet”, you can pull it out and go “Well, actually, Joe, here, on page 21, it actually says we don’t have zoning yet.” That’s the whole purpose of the disclosure document – to protect the sponsor from claims like that. If you don’t have a disclosure document as a sponsor, you are leaving yourself wide open to all kinds of claims by investors… Of course, with the benefit of hindsight at that point, that you were untruthful with them. And if you were untruthful, you’re liable. You’re personally liable to give the investors all their money back. So that’s a big risk. That’s what the disclosure document is all about.

Joe Fairless: When passive investors receive the prepared documents – an operating agreement, a subscription agreement and a private placement memorandum – should they forward that to their attorney to look at? And if so, what should they advise that attorney to comment on?

Mark Roderick: Ideally, yes, they should. But the second part of the question is super-important – what should they advise the attorney? The individual passive investor should not expect that their own attorney is gonna rewrite all those documents, or is he even gonna renegotiate significant parts of the deal. Let’s say the deal has a 7% pref with a 30% promote. The investor’s lawyers should not, in my opinion, be trying to say “Well, you know, it really should be a 7,5% pref, and a 20% promote.” That’s not the purpose of the review.

There are two things that the investor’s lawyers should be looking at. 1) Do the documents accurately reflect what the investor thinks the deal is? So if I’m the lawyer in that position, that’s my question to my client, “What do you think this deal is? You tell me what the deal is, and then I’m gonna tell you whether the documents do that.” And second – and I probably should have put it first in terms of importance – the absolutely most important thing is that the investor does not have personal liability. Let’s say the investor goes to the lawyer and says “I wanna invest $25,000 in this deal.” The absolutely most important role of the lawyer is to ensure that the investor’s liability is limited to losing his $25,000, and that there’s nothing in the documents that in any way — there’s no capital calls, for example; “Well, you put in 25k now, but we can ask you for more money later.” Or the structure of the deal is such that the investor could have personal liability for a bank loan, or anything like that. Those are the two hugely important things, and that’s what the lawyer’s role should be limited to, in my opinion.

Joe Fairless: Is that a real estate lawyer, or should they hire a securities attorney?

Mark Roderick: It doesn’t have to be a securities lawyer; probably not a real estate lawyer. Just a regular, boring, corporate lawyer, really.

Joe Fairless: Another boring lawyer… [laughs]

Mark Roderick: Another boring lawyer. Just someone who knows how to read contracts, basically, and in particular knows how to read operating agreements or limited partnership agreements, but it’s not a super-strange specialty. Any business lawyer should be able to review the documents with those two things in mind.

Joe Fairless: When you speak in seminars or you speak in front of a group, what’s a couple typical questions that you get asked?

Mark Roderick: Well, I have some funny responses to that, but it depends on what the group is. I often speak to groups that include real estate developers, or the owners of crowdfunding portals. Certainly, a question that I get asked a lot by real estate sponsors – there are always two questions in the first conversation. One is “Does this work? Can I really raise money online, in the crowdfunding space?” and the answer is yes. The second is “Is there any special liability that I am taking on by raising money online versus offline?” and the answer is no. So those are the two main questions.

There’s always questions about the technicalities of verifying that investors are accredited, and how much of a pain in the neck it is… And dealing with lots of individual investors, I get asked by investors and reporters “What are the rules for investing online?” and “What things should you be careful for?” and I always say if you’re investing online, only invest through a reputable portal; don’t make your first investment just with some stranger on some website that you found… So those are the questions that I’m asked most frequently.

Joe Fairless: And you gave the answers, too…

Mark Roderick: I did. And that was for free, yeah.

Joe Fairless: Yeah. [laughs] We all appreciate that. Based on your experience in securities law, what is your best advice ever for (we’ll say) passive investors who are looking at opportunities?

Mark Roderick: Well, I will first give the advice that I just gave – go to the best real estate crowdfunding sites, and only invest there. The second thing I would say is unless you’re really a real estate expert yourself and know how to distinguish a good multifamily deal from a not as good multifamily deal – and I’m not that expert; I’ve been representing developers my whole career… But the point is build your own mutual fund of deals. If you start out saying “I wanna invest $100,000 in online real estate” don’t invest $100,000 in one deal. Pick five. And/or buy one of the very high-quality real estate investment trust REIT products that are being offered, again, on the best portals. Don’t buy one with a 12% loan from a broker. Go online and buy one of these very high-quality REITs, which consist, of course, of pools of assets, so you’re not limited to a single asset. So go with quality, and diversify. I think that’s pretty good advice.

Joe Fairless: I think that’s pretty good advice, too. On that note, we’ll go into the lightning round. Are you ready for the Best Ever Lightning Round?

Mark Roderick: Well, I guess I am.

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

Break: [00:21:53].23] to [00:22:40].08]

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

Mark Roderick: Best ever book I’ve recently read?

Joe Fairless: Yeah.

Mark Roderick: Oh, my gosh… It wasn’t a real estate book. I’m reading a great biography of Joseph Stalin right now. Does that qualify?

Joe Fairless: Absolutely, if it’s the best one you’ve recently read… What’s the best ever challenge you’ve solved as a securities attorney?

Mark Roderick: Boy, that is a great question… What is the best challenge that I’ve solved…? I think I’ve solved or gone a large way towards solving – making securities offerings easier to understand and less expensive. That has been my goal since the beginning of this industry. It will never be completely solved, but I think I’ve taken really big steps in that direction. It is less expensive now than it used to be, and the way I do them – I hope that ordinary investors can understand what they’re getting into. I think that’s very important.

Joe Fairless: How do you walk the fine line of removing some of the boilerplate words in order to make it more common sense and easy to read, versus increasing liability as a result of that?

Mark Roderick: Great question. You should do a show, Joe; you ask good questions. So the two actually go together. The way I do it is typically I just rip out everything that’s there, and start fresh. Legal boilerplate is like barnacles on ships; they never get smaller, it just grows and grows and grows, so you get these ridiculous legal documents that no lawyer ever subtracts, they only add (“Well, what about this…?”) and you end up with things that are so unreadable that I believe they increase liability, because no one could possibly understand them.

Typically, with all my documents, I have just started fresh; I’ve been doing this a long time, I know what’s important, I know the kinds of things that actually happen out there in the real world… So the answer is use plain English, try to write it the way an eighth grader could understand it, and make sure you capture everything important. That’s why I call myself a boring corporate lawyer, because I just take great pleasure in doing that, and writing things that are understandable and clear, but also legally effective… And it really does usually start with just ripping out what’s there.

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

Mark Roderick: One, on a day-to-day basis people call me. I have a very visible internet presence, and someone called me today, for example. A lawyer called me; he represents a broker-dealer getting into the crowdfunding space, and just needed advice. That happens all the time, and I just give the free advice. I somehow feel as if that is part of my role in this industry which has been so good to me, that I give back; I just provide free advice to hundreds and hundreds of people, and I feel good about that. I do feel that in the scheme of things I’ve sort of drunk the kool-aid about the social benefits of crowdfunding and democratizing capital, and bringing capital to the masses, and great deals to the masses, and I think it’s really valuable. I hope when we look back a few years from now and we say “Wow, that was really a good thing”, and I can say I helped, in some small way, I helped build that. That makes me feel good.

Joe Fairless: I love it. How can the Best Ever listeners get in touch with you?

Mark Roderick: Well, lots of different ways. They can go to my blog, which I guess — can people see a link on the screen?

Joe Fairless: Yeah, we’ll have a link in the show notes, but you can mention the URL too, again.

Mark Roderick: Yeah, it’s www.crowdfundattny.com. Or they can type my name in Google, “Mark Roderick crowdfunding lawyer” and they will easily find me, and shoot me an e-mail.

Joe Fairless: Awesome. Mark, this was a fun conversation, and educational… And those are the best kinds, where you learn and you also have fun. I love how we talked about the perspective of the passive investor and what to look for. We took a different slant on things… Three things that it should have in place — well, actually higher-level you want to make sure that the sponsor knows what security law is being used, maybe ask for their lawyer reference… Although if you have the legal documents, which should at least include the operating agreement, the subscription agreement and the PPM, it will have their attorney’s information in there, so you’ll be able to see that… And you talked about many other things from a passive investor’s standpoint, as well as we touched on some from the sponsor’s standpoint.

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

Mark Roderick: Thank you so much, Joe. Nice talking to, as always.

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Joe Fairless and Dan Breslin

JF1496: How To Raise Money For Single Family Home Purchases #SkillSetSunday with Dan Breslin

Dan has been on the show a couple of times to discuss his real estate investing and share knowledge with us. Today, he’s back to teach us about how he raises money for single family flips. Dan has ways to get creative for finding money for his deals, and shares how anyone could do the same. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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

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

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


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

First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment for you called Skillset Sunday. Today – oh, you’re gonna like it, especially you single-family home investors who are looking to scale; we are gonna talk to Dan Breslin, who’s been on the show before, about how he’s raising money for single-family home purchases. How are you doing, Dan?

Dan Breslin: I am doing good. How about you, Joe?

Joe Fairless: Same, my friend. A little bit about Dan, in case, Best Ever listeners, you need a refresher – he is the host of the podcast titled REI Diamonds Podcast. One of my favorite names for a podcast, by the way… REI Diamonds Podcast. He’s the founder and president of Diamond Equity investments, and he focuses on quick flips and he has yearly revenues of over three million buckaroos.

He’s been on the show twice. Once in a normal episode, so you can hear his best ever advice in episode 449, titled “Why you should pretend that every deal you set up will be a fix and flip”, and holy cow, I’m looking at the date that aired – November 25th, 2015. It’s been three years almost since that aired. And then the other episode is episode 739, much more recent – September 11th, 2016. This is a fun story, you’ve gotta check this out if you haven’t already, “An upscale land development deal gone WRONG”, and “wrong” is in all caps; that’s a Situation Saturday episode.

Today we’re gonna be on more of a positive note, not talking about things going wrong, although maybe I’ll pepper in some questions about that. We’re gonna be talking about how you’re raising money for single-family homes.

With that being said, Dan, will you give the listeners a little bit more of your background, just as a refresher, and then we’ll roll right into it?

Dan Breslin: Cool. So I do a large volume of deals in the Philadelphia area, Chicago area, Atlanta, Miami and Tampa area. I moved from Philadelphia to Chicago about 3-4 years ago to be a more present father in my daughter’s life at the time, and that led to us expanding into these five markets that we’re in today.

I am a regular listener of your podcast, Joe. I, like many of your listeners, probably can relate; I get lost in the number of episodes; it’s like an outrageous number of guests and episodes, I forget where I’m at… They’re all great, and I get a ton of good content, so thank you for consistently getting that up for more than — what, 1,400 shows now?

Joe Fairless: 1,400 shows and counting.

Dan Breslin: Nice.

Joe Fairless: Well, thank you. I appreciate that. You’ve been a contributor, as well as a consumer of the content… So you’re buying in a lot of different markets; what’s your primary business model right now?

Dan Breslin: We do about 20% fix and flip, where we actually do the construction and then sell it to a retail buyer, and then the other 80% is gonna be split somewhat, where we close on it, just wholesale it out, sell it for either cash or conventional, somebody who’s gonna flip the house or do the [unintelligible [00:06:07].07] thing to their own house and live there, or straight wholesale to other investors for assignment fees.

Joe Fairless: Okay. And you mentioned prior to us recording that you’re raising money for your single-family houses — what single-family homes are you raising money for? Which part of this?

Dan Breslin: For both. Some of the deals I’ll offer to my investor network are gonna be very short-term, like 90 days or less, typically with a three-month prepay… So I might have money for two weeks, I might have money for seven days, I might have money for 45 days. In those instances, we calculate three months’ worth of interest for those lenders, maybe some points depending on how small the loan amount is.

Then the other loans that we raise and use in our business are gonna be fix and flip loans, which are typically gonna be six to nine-month, or even twelve-month term projects, where the investors’ money will be tied up for that length of time.

Joe Fairless: So the first one you are describing is where you are gonna turn it around quickly, so a wholesale or a wholetail, right? For the investor, if you’re wholesaling a deal, you just need equity for the down payment and any fees associated to getting it to contract, right? Or you’re buying all-cash, or what?

Dan Breslin: Yeah, we’re gonna typically buy all-cash; that’s part of how we get the discount. We will sometimes sell to mortgage buyers, but in my experience, Joe — and if anybody’s listening right now and you’re interested in raising money, you’ve raised a little bit of money and you wanna raise more, you haven’t raised any money yet and you think this is gonna open the door to your business, and partially it will, but number one, you’ve gotta have deals before you can raise money… But there’s four things that I’ve found, Joe, that investors are gonna be interested in, and that’s how much money does it take to participate in a deal, how long will my money be with you until it’s returned to me, how much return will I receive in addition to the money that I give you, and  how am I secured in the deal? Those are the four basics that most people — they have to know at least that much. Of course, we have to know who the team is, how the money is gonna be working in the deal and a lot of other details, but those are the four main chunks that we have.

I’ll talk just about how my deals fit in there, in the conversations with investors, and how much category — compared to some other investment vehicles out there, or even with other fix and flip investors… We have 40-50 deals per month cooking in any of the five markets, so sometimes our benefit to our investors is that we can offer smaller loan amounts for people to get started.

I’ve met with a guy today, and he was kind of wanting to tiptoe in, and he has a lot more money than he’d be willing to offer on deal number one, but for everyone looking to raise money, if you have an opportunity with a smaller amount of capital to raise upfront… I’ll have deals where $25,000 is the purchase price, with the title, insurance, closing etc. An investor can give me $25,000 and feel like that’s a relatively small amount of money to place with me, to test me out, see if the deal goes as I said it would, see if I actually return their money, see how long it goes, see if they can sleep at night while I have their money… So any investors just getting started, if you can, I think you’ll have an easier time cutting your teeth and getting a track record if you can offer a smaller loan amount to get started.

A lot of the same people who started with 25k, 35k, 55k deals, they have no problem putting in 200k or 250k on a single deal with me today… But your investors have to know how much money they’re gonna put on the table in order to participate in your deal. A side note for me, and I think for a lot of single-family investors who are not set up with a fund structure – you typically wanna have one investor per deal; I’m not collecting 25k from this guy, 25k from that lady, 25k from this person and adding it all together to do a 200k, Joe. If the deal is 200k, there’s gotta be one investor that’s participating, or if somebody only has 125k, I may let that person participate, but I’m gonna foot the other 75k of my own cash.

A couple reasons I do that is 1) I just think it’s the right thing to do if I’m not set up in the fund structure; I think you can get into a little bit of hot water by combining and pooling money without setting it up the correct way; you know more about that than me. 2) If I get hit by a bus, or if me and one of my operating partners – we both die in the same crash, or for some reason the deal goes wrong, it’s going to be an unfair, immoral position that you place several people if you’ve combined money on that deal, instead of just keeping it at one person per deal.

So on the how long piece, like I had mentioned earlier, the shorter-term investments are attractive to some investors, especially as they tiptoe in and get used to Diamond Equity Investments, they get used to Dan Breslin or they get used to you, who are listening to this show, and doing your first couple deals with that investor. The faster you can get in and out, that’s the less time that that investor might be losing sleep, wondering how their deal is doing.

Updates would be important throughout that period – e-mails, photos of the project if in fact you’re doing renovations. For us, a lot of our investors love to get in on the wholesale deals, where we’re gonna close on a deal for that 25k, we’re gonna resell that thing for 45k within 60 days we’re closed, contract to contract, and they’re paid back. They get a taste of that, and they wanna put that money right back to work and kind of keep it in play once they’ve seen how that works.

On how much return to offer investors, I typically do a 10% annualized interest rate. That’s much stronger than a lot of investors are gonna see, at least the people are in my audience, my circle of influence, if they were to put that same money in the bank at 1% or 2%. So a lot of the people, that’s where I’m gonna compete with.

There’s going to be better opportunities for a lot of people’s money, with higher rates of return, and maybe not the same amount of predicted return that I’m gonna offer. So when I’m gonna say 10%, I’m gonna have the money for 6, 7 or 8 months. They may find something else with a longer lock-up period – 2, 3, 5 years – that potentially is projected to pay out at a much higher rate, of 10%, 12%, 15%, 18%.

I know in some of the deals that you talk about, Joe, you have very strong returns for investors that come with that additional lock-up period, and it’s a great reward for having the money working for that length of time. And that works for a lot of investors who don’t wanna have to – like in our instance – run down to the bank or call in a wire every 3, or 4, or 6 months to keep that money working. A lot of people would rather set that and forget that. That’s not necessarily what we as real estate investors who are fixing and flipping properties on a one-off, or a two-off, or a five-off basis, where we’re putting the money to work in one deal and then paying it back – that’s not gonna come with that same level of convenience in our deals.

And then how are investors protected? You definitely have to get into this and understand it if you’re gonna raise money for your own personal projects. At least I give my investors the first position mortgage and the only mortgage. I did mention that we don’t put several people and have a first, second, third and a fourth mortgage on a property. If two people, a husband and wife, or a brother and sister, or cousins, or business partners wish to invest together their capital in one of my deals, I ask them “Look, it’s gotta go in one person’s name, or you’re gonna have to set an LLC up, and the LLC can loan me the money… But there’s gonna be one mortgage on this property.”

The last thing I wanna be in is in a partnership dispute or divorce proceeding as a result of the loan being made against my property and my project. Investors are typically protected. Anyone buying and selling houses needs to be at 70% of the ARV minus three pairs, so that in the event something goes wrong, there’s plenty of equity here; even if the market takes a hit, there’s plenty of equity for me to pay off my investor, even if I have to firesale the property and make no profit or break even.

I’ve had cases – because I personally guarantee to my investors, Joe – where I’ve had to cut a check. I got the repair, construction budget went over, the length of time on the market was 15 months instead of nine months, the investors got the additional interest for that time that we were late on paying them back, and it cost us a few thousand dollars to get out of that project.

And then a final piece for protecting people when it comes to these types of deals on single-family is make sure that you have your property insurance in place; if you’re gonna have a vacant property and you’re gonna do a renovation, you’re gonna need a special vacant policy, that are underwritten by a select number of insurance companies, one being Lloyd’s of London; they do all the crazy — rockstars ensuring their right hand that plays the guitar, and things of that nature… So there you are, you’re gonna need a specialized property insurance… But you’re gonna wanna name your investor, whether they’re the investor who is funding your deals in an LLC, or a personal name – you’re gonna wanna name them as the mortgagee, as if they were Wells Fargo, when you’re setting up on a standard 30-year mortgage for a house. They need to be in that position. That’s additional protection, so that if there is a loss, they’re being notified that a potentially substantial check is going to be issues, and they need to be aware of that because it’s gonna have to go to them as the mortgagee who put up whatever percentage of the money to get this deal done.

And the final piece of protection that I’m gonna mention here in this piece is gonna be an additional title policy, a lender’s title policy to protect the lender for that amount in the event that anything crazy pops up on the title from previous ownership.

Joe Fairless: The special vacant policy for the insurance – if the place burns down, you said there might be a pretty large check relative to what they’ve put into it for them… What is the amount that that policy should be insured for, relative to the house value?

Dan Breslin: That’s a great question. The real answer to that is at a minimum the amount that the investor is putting into the property, plus their interest. So if it’s $100,000 for the loan that this investor is making – let’s just say the numbers are $70,000 acquisition, $25,000 renovation – this person’s getting 100% of all the money, including the carrying costs or utility bills or things of that nature. So $100,000 is the project costs, including construction. At 10% interest, for one year – we’re gonna keep it simple – is $10,000, so the payoff is $110,000. At a minimum, it should be $110,000, although the insurance broker who’s handling that can suggest, depending on the construction style, the values in the area – you may be able to ensure for even higher than that amount in the event that you decide to rebuild there; it may cost more than the $110,000 that you’d be looking for.

So they can really answer the question with more detail, but never just the purchase price of the property. If you’re buying it for 70k and you’re putting 30k into it, you absolutely without a doubt must protect that additional investment capital that’s coming into play to participate on your project, with the property insurance policy.

Joe Fairless: What paperwork is involved in receiving a loan from a private lender? Can you just name the documents?

Dan Breslin: We have a couple. On the front-end, when the deal is being funded, I send out an e-mail to my list of lenders who already raised their hand — this is something that I wish I would have started earlier; I’m sure you have something similar, Joe… If you’re listening and you don’t have one yet, get a money list – a short list of e-mails, of people who you at least had the conversation, the intention with… Maybe you had coffee with them, maybe a phone conversation, maybe they just sent you an e-mail on LinkedIn and said they were interested in maybe participating and funding some deals… But get a money list going.

So I send that out to my money list. Somebody will call me back, e-mail me, text me, and then when they commit verbally, I’m gonna send to them a mortgage for the property, written out to their name, and also a note spelling out whatever details – if there’s points, if there’s interest, the note is gonna spell out how much money…

Joe Fairless: A promissory note?

Dan Breslin: A promissory note. So those two documents go out for review. Before settlement, before funding, we send off the insurance binding documentation showing them as the additionally ensured, a day or two before settlement.

Some investors like to see the title policy. If I’m investing personally in another person’s deals – which I do sometimes too, Joe – I’m also gonna look to see the title. I just wanna take a look at it, have my attorney review everything and make sure we’re totally protected.

The deal funds, the money is wired; a week or two later, I believe the mortgage and the note are recorded, and then they’re actually mailed to the investor who put the money up. They hang on to those documents, in their file, until we go to settlement on the retail side, and then at that point we have like a standard form, payoff statement that we do some calculations; we send it to them via e-mail, they verify our interest calculations, they send it back to the title company, and then right around that same time there’s going to be a mortgage satisfaction document that the investor is gonna need to get notarized and then sent back to the title company to release that mortgage, once the money is actually wired back to them and paid off.

Joe Fairless: How much of a passive investment is it for an investor who invests with you all?

Dan Breslin: Well, there is that running to the notary and getting that satisfaction document, and there is organizing the wire. So on the front-end, and investor probably has to invest maybe a half hour to an hour if they’re pretty familiar with us (give or take), and sort of be on stand-by for when the settlement is gonna take place. I typically will have the money wired in maybe a day in advance, but usually the day of, especially with a new investor… “Hey, we’re gonna settle at 1 o’clock. I just want you to kind of hang tight, make sure that we have everybody at closing before we send the wire. I don’t wanna just have to send it back, I wanna do it all at once.”

So they’re a little bit on call. We’ve literally had surgeons in the operating room calling in our wires on our deals; that’s happened more than once. I think he was actually a brain surgeon too, that investor, believe it or not. And then there’s also — once we’re getting ready to go to settlement, you have to pay attention and be somewhat available to go to the notary. People who are traveling out of the country – it can be a challenge sometimes, and we’ll have to appoint attorneys with power of attorney, or pre-complete the satisfaction document, and then place that in escrow with their attorney if they’re gonna be traveling around the world and not quite in contact potentially when we need to pay them off.

Joe Fairless: Did I hear you earlier say that you personally guarantee each of the loans?

Dan Breslin: Absolutely. If I’m borrowing money and it’s on my name, this is personally guaranteed. If that deal loses money, this is not “Oh… Well, sorry.” It’s not a guaranteed investment, because we’re not allowed to use the word “guarantee” but the thing about it – there’s some certainty here, whereas there’s a lot of other deals with potentially greater upsides, Joe… The upside here is gonna be spelled out, you know what you’re gonna get. The only other variable is the length of time that we have the money for, but you know that your money is earning 10% interest the same way that it would be earning that money in the bank, it’s just not FDIC-ensured. Does that make sense?

Joe Fairless: It does make sense, yup. And you’re doing (I heard) 40-50 deals at a time. Is that what you’re considering, or is that what you’re working on, you’re actively in a deal, 40-50 at a time?

Dan Breslin: Well, right now I have 83 properties on the board. A portion of those – if I look up, I guess 30% are sold, under contract, with buyers. Some are renovated already, waiting to be sold… We own, actually have deed to about another 20% of those, and then the remaining 50%-60% or so are properties we have under contract, which we potentially would fund, or we would potentially just assign and wholesale to somebody else. Of all of the 83 deals, it’s about 40-50/month.

Joe Fairless: That’s mind-boggling. I couldn’t imagine that. I could not imagine that.

Dan Breslin: Thank god for my team. I have a great team around the country. It’s about 15 of us now, spread out in each of those markets. It’s a loose organization of me as a center partner, with partnerships in each of those markets, in a sense… So it’s not like one big conglomerate. Everybody’s getting paid for what they bring to the table, for what efforts and what results that they create.

Joe Fairless: I love it. Is there anything else as it relates to raising money for single-family homes that you wanna mention that we haven’t discussed?

Dan Breslin: There is. The question burning on everybody’s mind is “Dan, where do I find lenders? Where do I find the first person to lend me money?” and the answer is 1) your network. Obviously, if you know somebody who’s got some money, that’s gonna be a good place to start. But for me, the place where I’ve found my first private investor was at a real estate investor association. I paid five points and 15% interest. This was in 2008. It was a lot more expensive to get hard money. He was in a sense doing a hard money loan, but he was doing that out of his IRA, and to this day, that same gentleman is still a partner of mine and we’re doing a lot of business together.

But as a side note, try to add value to people first. That same investor — I met him at a real estate investor association; I did a deal, I made 6k. That was my first deal.

The second deal I did – we’re at that association a month later and I’m bragging about my 6k, and he says “Well, what other deals do you have cooking?” I say, “Oh man, this guy has a burned down house in Chester he’s trying to sell.” That’s what I said. He says, “Oh, I have  a buyer.” So $13,000 later on another deal – we sold this burned down house in Chester, which is like a crime-infested, drug-dealing block type of neighborhood.

By the time we got to the third and fourth deal – the third deal I brought him in was a 50/50 joint venture partner on a deal that he funded, and then my fourth deal was the first one that he actually lent me money. So add value first.

Some businesses are loaning money, but a lot of the lenders I work with, especially in  real estate investor associations, there’s occasions even to this day where we’ll do some joint venture 50/50 stuff, and then we’ll do some 10% interest stuff… We try to allow them to participate and keep the money working as much as possible, and try to provide opportunities for everybody that we work with.

Joe Fairless: So many tips, and I love how specific the tips are, and how you walked us through the entire process of borrowing money from private lenders, and investing them into our deals if we’re doing single-family homes… And the paperwork involved, the process, things to look for… How can the Best Ever listeners get in touch with you?

Dan Breslin: I have two ways, Joe. First, I drive a supercharged Range Rover. I’m into fast cars. I wish I could get the Ferrari…

Joe Fairless: That is no surprise to me. Absolutely not surprised at all. I would pick that on a multiple-choice test that your podcast is called REI Diamonds, so… I saw that coming.

Dan Breslin: Where I’m going with that is I have a site set up if anybody was interested in just checking out what we send out as far as these investments we talked about today. That’s superchargedreturns.com. Then you can check out the podcast. I talk a lot of cool stuff there. You’ve been a guest, and a returning guest – your episode is coming up here shortly. That is reidiamonds.com. Real estate investment jewels of wisdom.

Joe Fairless: Awesome. Dan, this has been such a helpful conversation for real estate investors who are looking to bring in private money. You offered some tips if we’re just getting started – start with some smaller loans, maybe shorter-terms, then send them e-mail updates with photos, maybe some video of the project, have one investor per deal (for multiple reasons), and from a paperwork standpoint you talked us through the entire process. So go back, rewind, listen to that, and you’ll hear the entire process… Or just look at the show notes, too; they’re at bestevershow.com, and you go to this episode.

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

Dan Breslin: Thanks, Joe.


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Joe Fairless and Lindsay Gordon

JF1478: From Single Family, Cash Flowing Homes To Non-Performing Second Mortgages with Lindsay Gordon

Lindsay has been investing for the last 10 years, starting with single family homes in Philadelphia. Now she lives in Puerto Rico and buys mortgages as well as commercial buildings. She moved outside the states for good reasons, which include some ways that she is saving money on taxes. Tune in to hear how she pays $0 on capital gains! 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, Lindsay Gordon. How are you doing, Lindsay?

Lindsay Gordon: I’m good, how are you?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Lindsay – she has been an investor for the last ten years. She focuses on rentals in Philadelphia, and also non-performing second mortgages nation-wide… Commercial properties in Puerto Rico, where she is based, and private lending throughout the U.S. She also has a travel investment blog, and the link to that will be in the show notes page. With that being said, Lindsay, will you give the Best Ever listeners a little bit more about your background and your current focus?

Lindsay Gordon: Yeah, definitely. I was based in the Philadelphia area for about 28 years of my life, so I started investing in real estate there. When I graduated college I started just doing flips, and then got a portfolio of rental properties throughout the area, which I still have today… And then from there, I started investing in non-performing second mortgages. After that, I moved to Puerto Rico to take advantage of some tax benefits. With that move we decided to invest in commercial properties in Puerto Rico, and ever since then I’ve been doing some private money lending for rehab projects throughout the U.S, and I also started a travel investment blog.

Joe Fairless: We have a lot that we can talk about. Alright, after you graduated college you built a portfolio of rentals in the Philadelphia area, and you still have those… Will you tell us about one of those deals? Price point, and rent and all that, just so we have a sense of the type of properties you have?

Lindsay Gordon: Yeah, for a majority of the properties, they were worth around 100k to 130k in the after repair value at the time I purchased them, in 2009-2012. I purchased each of those and did the rehab on them to get them rent-ready, so that I was all-in for about 65% of the after repair value.

Joe Fairless: Got it.

Lindsay Gordon: Once I had the tenants in there I refinanced, and I continued to get about $300-$500 of cashflow each, per property.

Joe Fairless: How were you buying them initially?

Lindsay Gordon: I initially bought them with investor capital… Just other people who wanted to private-lend. My first investor was my dad and my grandma, and then from there it was a variety of other people in the area.

Joe Fairless: And how did you structure those agreements?

Lindsay Gordon: I just had the ambassador hold a [unintelligible [00:05:42].26] mortgage on the property, just like any bank does, and then from there I paid them a percentage of interest each month, and then I paid them the full capital back when I went to refinance the property at the end of the project.

Joe Fairless: Got it. So you were buying them all cash initially.

Lindsay Gordon: Yes.

Joe Fairless: Okay.

Lindsay Gordon: Because they needed a lot of work, and you couldn’t really get a bank loan… Especially back then, bank loans weren’t really a thing…

Joe Fairless: Did they also fund the rehab budget, too?

Lindsay Gordon: Yes, they did.

Joe Fairless: Okay. So you built a portfolio in Philadelphia… You live in Puerto Rico now – how do you oversee the successful management of your portfolio in Philadelphia?

Lindsay Gordon: Thankfully, I have a lot of friends and acquaintances in the industry that I lend money… I lend money to them, so they tend to help me out a lot, taking care of my properties… Because I actually had a hard time finding anyone — I do some Section 8, and I couldn’t really find any people that do property management that would property-manage Section 8.

I just do mostly virtual — I like to set up a lot of systems in place, so all my systems are online, with paying for things and receiving payments… It’s all electronic, so that way I can do it from Puerto Rico, or anywhere.

Joe Fairless: What are some of the systems? You said online payment is one… What’s another system that you have to manage while overseas?

Lindsay Gordon: Well, I use QuickBooks for the majority of the management of everything, and that way when I receive and send payments, I know exactly what’s going on. And then I just have everything automated in my bank account to send payments out, and I also actually have tenants deposit into my bank account, or I also have a system where I have a virtual mailbox; they can send a payment there, and then I can forward that to an electronic processing system from my bank account.

Joe Fairless: Okay. And in terms of getting the units rent-ready, and any maintenance requests, how do you handle that?

Lindsay Gordon: For rent-ready I have a guy I hired… He’s kind of like a property manager, but just for putting the tenant in place, just like a property manager would… But then after that, I take over and handle everything else. It actually saves me money in the end, because I don’t have to worry about paying the monthly fee, and I don’t really do much work. He’ll actually turn around and find a contractor anyway to come help me fix any issues that I may have.

Joe Fairless: And how many units do you have in Philly?

Lindsay Gordon: Right now I have ten.

Joe Fairless: Are they all concentrated in a certain neighborhood or area?

Lindsay Gordon: No, they’re all over.

Joe Fairless: Okay. So then you have the single-family homes, and then you switched to non-performing second mortgages… How come?

Lindsay Gordon: Well, you may get $300-$400/month for a property, but you have a lot of maintenance requests, or sometimes it’s difficult to find a tenant… And the tenants are just different; they’re not as reliable as a homeowner is. A homeowner owns their house, so they’re mostly second mortgages, so a $300-$400/month second mortgage payment.

Then a lot of times I could get that without any money invested into the mortgage, because we buy the non-performing, so they’d be really cheap; they’d be paid off in a few payments, and then after that I have a lot less to worry about and a lot less liability, and a performing note.

Joe Fairless: And you mentioned that homeowners are more reliable compared to renters, but you’re buying non-performing second mortgages, so how do you reconcile that?

Lindsay Gordon: As far as the reliability of the homeowner?

Joe Fairless: Yeah.

Lindsay Gordon: I mean, they’re not as reliable as some homeowners… [laughter] But better than a tenant, usually. It all depends on what type of tenant you have and what type of homeowner you have. Everyone varies, but in general, the type of tenants that I have, they could be non-responsive as  well, so…

Joe Fairless: Where do you purchase your non-performing second mortgages?

Lindsay Gordon: We would typically purchase them from (in the past) people like myself, people who are selling non-performing second mortgages. Then as we grew bigger, from banks, very large hedge funds, or institutional.

Joe Fairless: And then you moved to Puerto Rico… Why did you move to Puerto Rico?

Lindsay Gordon: I moved to Puerto Rico because they have two acts in place – act 20 and act 22, and act 20, you can export services and only pay 4% in taxes, and act 22, you don’t have to pay any taxes on capital gains. So my tax on capital gains is 0%.

Joe Fairless: Wow. On investments in the U.S.?

Lindsay Gordon: Yeah… It’s based on where you’re located, for securities. We treat the mortgage as a security, and then we pay 0% on any buying and selling of mortgages. Then properties in Puerto Rico also count, because it’s based on where the property is at. So when we buy and sell commercial properties in Puerto Rico, we don’t have to pay any taxes on that.

Joe Fairless: What’s a commercial property you’ve purchased in Puerto Rico?

Lindsay Gordon: They vary greatly, from a plot of land to a 10-unit small little apartment [unintelligible [00:11:04].26] building, to an office front, to an office building in a huge complex, to a chicken farm… Really pretty much everything. We buy in bulk, so we like to be opportunistic on a large purchase at a very low price, and then to resell at an also low price for investors to take advantage of a good deal.

Joe Fairless: Just so I’m understanding your progression – after you graduated college you started buying the single-family homes, right?

Lindsay Gordon: Yeah.

Joe Fairless: You said you were partnering with investors to acquire those, and then you’d exit them out. Did you do that on all of the ten that you have, that same structure?

Lindsay Gordon: Yeah, and I think I had 13 at one point, but sometimes as opportunities arise, I sell the properties. But yeah, same structure for all.

Joe Fairless: And with the commercial purchases in Puerto Rico, from vacant land to (I think you said) a chicken farm, are you structuring it similarly, where you’re working with private investors?

Lindsay Gordon: It’s a bulk purchase. We worked with one private investor for the entire purchase. It was about 55 properties. We’ve paid that investor off pretty quickly actually, and then after that it was just free and clear.

Joe Fairless: Oh, that’s amazing. So 55 properties, you had one investor… What was the purchase price?

Lindsay Gordon: It was over four million.

Joe Fairless: Four million for 55 properties, ranging from what?

Lindsay Gordon: Ranging from chicken farms, to land, to little small apartment buildings, some multifamily…

Joe Fairless: Wow. That’s a fun portfolio. How did you begin to underwrite that type of portfolio with such a diverse amount of assets in it?

Lindsay Gordon: We relied on a local girl and a local appraiser and a local lawyer that we had been working with at the time. We had already been thinking about doing some real estate, so we found a team and we put them together… We also had some experience ourselves, since we had lived here for a period of time before we purchased the properties.

Joe Fairless: How long did you live there prior to purchasing the 55-property portfolio?

Lindsay Gordon: I believe it was a year and a half later…

Joe Fairless: Okay. What did you do — did you buy anything in that year and a half period?

Lindsay Gordon: We bought one property outside of that, and then the rest we purchased… We actually purchased 54 at once, but shortly after, a couple months later.

Joe Fairless: And with the four million dollar portfolio, now you said you bought the investor our relatively quickly… How does that math work, where you were able to buy them out in a quick period of time?

Lindsay Gordon: Well, our deal with the investor was that we were allowed to pay them back each month, and we could pay them back from all the proceeds of the sales of the property. So I had sold enough of the property worth to pay them back in — I think it was about six or seven months.

Joe Fairless: Wow. Okay, so of the 54 or 55 properties, you sold some of them off in order to pay that investor back, and then you’re keeping the rest free and clear?

Lindsay Gordon: Yeah… We’re still continuing to sell them. I have seven left, and it’s been about two years since we’ve owned them.

Joe Fairless: Wow… So out of the total — was it 54 or 55?

Lindsay Gordon: 55 in total, because I bought one outside of that.

Joe Fairless: Okay, I’m with you… Of the 54-unit portfolio, you have 7 remaining?

Lindsay Gordon: Yes.

Joe Fairless: Interesting… And how many did you need to sell in order to pay the investor off?

Lindsay Gordon: I feel like it’s been a long time and I kind of forget, but…

Joe Fairless: About half?

Lindsay Gordon: I wanna say about 20…

Joe Fairless: 20. That’s incredible. And of those 20 or so — basically, I’m wondering how much more was left? I guess let’s start this way… You purchased it for four million dollars; what was the value of those properties at closing?

Lindsay Gordon: That might be confidential information; I’m not sure I’m allowed to share it.

Joe Fairless: Alright, fair enough.

Lindsay Gordon: [unintelligible [00:15:12].09] on the portfolio, but it was a significant discount. There’s quite a bit of risk going into that… We were very nervous at first, because even though we lived in Puerto Rico, we know maybe too well the problems that there are in Puerto Rico, and we weren’t sure about people wanting to purchase things in Puerto Rico… Shortly after we purchased the portfolio, they had all the bankruptcy issues, and then after that we had the hurricane… So it’s been a rollercoaster ride, I guess, of different events.

People are still buying, investors are still investing, and people in Puerto Rico actually had more cash than we thought, to buy these properties cash, the ones that are not financeable.

Joe Fairless: Wow… I can imagine the different challenges… Which one was the greatest challenge out of all of those that you mentioned, and how did you overcome it?

Lindsay Gordon: Well, actually, the hurricane – it only just postponed people purchasing… But once it was over, then it actually helped spawn some people to have to move out of a property that they had, into one of our properties… Because we didn’t really have much damage (if any) from the hurricane, which was great. The bankruptcy didn’t really affect things…

When you thought people weren’t buying, people were buying… So it didn’t really affect things too much. I think now — it was a bulk purchase, and I have a few properties that are just not as desirable, and that’s probably my biggest hurdle… It’s “How do I sell these seven random properties that no one wants?” [laughter]

Joe Fairless: Is one of them the chicken farm?

Lindsay Gordon: Actually, I sold the chicken farm.

Joe Fairless: You sold the chicken farm… What’s an example of one of them that’s challenging to sell off?

Lindsay Gordon: I have a property and it’s supposed to be worth about 300k. I think we have it listed at 293k. It’s a big plot of land and it’s in a fairly desirable area, and it’s by a lot of shopping centers, and it’s not too far from the ocean, and the city… I think we just haven’t found the right buyer for that type of property, and it’s just land… So that one is difficult.

The other properties are more rural, and they’re hard to sell because they’re just in the middle of the island.

Joe Fairless: How did you come across the 54-property portfolio?

Lindsay Gordon: Well, I’ve been networking and working with different banks and different large brokers, and originally I connected with these brokers for second mortgages, but they found a package of properties… They knew that we were in Puerto Rico, and they presented it to us, as well as everyone. It was a bid, and we won the bid.

Joe Fairless: All cash?

Lindsay Gordon: Yes.

Joe Fairless: With the purchasing of properties in the U.S., compared to Puerto Rico, what are some of the main differences that you’ve experienced?

Lindsay Gordon: I would say — I’m pretty new to real estate relatively; I was just born in the ’80s, so I don’t know what it was like back in the day, but I always feel like Puerto Rico is very similar to the U.S., but just maybe years behind… Just like, we get Uber ten years later… Everything comes later here, and when you see some of the infrastructure, you think that it looks like it’s from the ’80s or ’90s still. So I would say that it’s probably similar to real estate maybe a few years ago, where there’s still some opportunity for incentives in real estate.

As far as the process of a real estate transaction goes, it’s pretty standard though, because we still follow U.S. guidelines… So we felt secure in that. But there can be people paying each other off behind the scenes and we don’t know what really is going on. Sometimes they’re fighting, and I just stay out of all that. They bring me the buyer, and that’s all I wanna know.

Joe Fairless: All the listeners in Chicago are shaking their heads, “Yeah, we know what you’re talking about.” [laughter] With the investor who invested four million dollars cash with you all – and I’m obviously not asking you who they are, but we have a lot of listeners who want to find private investors who have the ability to invest four million dollars in one deal with them… So how did you find that investor?

Lindsay Gordon: We’d known the investor for ten years as well. He was just someone local to us in the area, that we had always networked with. We started working with him on non-performing second mortgages; he was more familiar with that, so even though that might seem risky or scary to some investors, he understood that well and he was willing to work with us. From there, we transitioned him to the Puerto Rico commercial properties.

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

Lindsay Gordon: For me, I think some people get held up on the details of investing in real estate, whereas if you just start doing it, you’ll realize that it’s no more than making calls, following up and sending e-mails. For me, people think, oh, I’m so smart — I’m really not. I just hear a good idea, I make sure to find people that know what they’re talking about, that can help me and validate my ideas, and then I just do them.

Joe Fairless: Most people would not move from Philadelphia to Puerto Rico because of tax reasons, even though it makes a whole lot of sense, because taxes are the largest expense, for the most part… What do you think about whenever you move from Philadelphia to Puerto Rico? Do you think about the portfolio that you have in Philly, and how it’s gonna be such a crazy change, or do you just not think about that at all and just say “Hey, it’s better for taxes, and it’s an experience, so let me just do it”?

Lindsay Gordon: I thought it was a good business move and it was better for taxes. I had no idea actually how valuable Puerto Rico would be to me, and by purchasing commercial properties, that has been probably one of the best money-making opportunities that I’ve had, along with that tax savings.

I’m not really afraid to do what other people are not doing, and that’s what I think is the most important thing in investing. If people are talking about something, then I’m not really interested anymore.

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

Lindsay Gordon: Oh, boy… [laughter]

Joe Fairless: You’re ready. You moved to Puerto Rico, you bought a four million dollar portfolio, you’re wheeling-dealing chicken farms – you’re ready. First though, a quick word from our Best Ever partners.

Break: [00:21:53].20] to [00:22:33].01]

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

Lindsay Gordon: I haven’t read a book in a long time; that’s probably a bad thing…

Joe Fairless: That’s alright. Best ever deal you’ve done, that we haven’t talked about already?

Lindsay Gordon: My first workout on a non-performing second mortgage I was able to get the homeowner to put 20k down, pay $300/month and still had a $60,000 balance, which they paid off in cash about three years afterwards. I had bought that note for $8,000.

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

Lindsay Gordon: Sometimes pushing borrowers too far, when I don’t really know what their limit is.

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

Lindsay Gordon: I like to volunteer my time, and if I’m able to, I go to a local Boys and Girls Club here in Puerto Rico, and to an animal shelter.

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?

Lindsay Gordon: They can go to my youtube.com/lindsayegordon.

Joe Fairless: Cool. I will put that in the show notes page. Lindsay, thank you so much for being on the show and talking about your story… The 54-property portfolio, how you partnered up with the investor who you had built a relationship with over a decade, how you got started by borrowing from family, all cash, and then improving the property, putting a loan on it, and then paying them back and owning the property, with the loan, but making some cashflow from it… And then the differences between Puerto Rico and U.S. from your perspective.

And ultimately though, your approach – you hear about something, you find people who know about it, so they can validate it, and then you do it. Talk’s cheap, and you certainly are walking the walk there… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Lindsay Gordon: Thank you.

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JF1373: Friends Team Up For Real Estate Deals & A Podcast with Liz & Andresa

Liz Faircloth and Andresa Guidelli share a mission. They want to help women invest in real estate and live the lives they should be living. Their podcast was created in that light, as well as a mastermind meeting. Today we’ll hear a lot about how to form a successful partnership like theirs, obstacles they have faced, and how they overcome some inherent potential downfalls of partnering with a friend. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Liz Faircloth & Andresa Guidelli Real Estate Backgrounds:

  • Liz
    • Co-founded DeRosa Group with husband, Matt Faircloth in 2005
    • Manages 370 units of residential and commercial assets
    • Based in Trenton, NJ
  • Andresa
    • Began investing in 2012 after reading Rich Dad, Poor Dad
    • Co-founded Corsa Home Solutions, focuses on gut renovation projects and building new construction SFH’s
    • Based in Philadelphia, PA
  • Together they host The Real Estate InvestHER Show
  • Weekly show details the journey of some of the most amazing women real estate investors
  • Say hi to them at www.therealestateinvesther.com
  • Best Ever Book: Think and Grow Rich by Napoleon Hill

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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, Liz Faircloth and Andresa Guidelli. How are you doing, Liz and Andresa?

Liz Faircloth: Great.

Andresa Guidelli: I’m doing great, thank you, Joe.

Joe Fairless: Great, I’m glad to hear that. A little bit about Andresa – she began investing in 2012 after Rich Dad, Poor Dad, co-founded Corsa Home Solutions. They focused on gut renovation projects and building new construction single-family homes. Based in Philadelphia.

And Liz co-founded DeRosa Group with her husband, Matt, in 2005. They manage 370 units of residential and commercial assets. Based in Trenton, New Jersey. With that being said, will each of you tell the Best Ever listeners a little bit more about your background and your current focus? And perhaps, Andresa, you can go first?

Andresa Guidelli: Sure, of course. As you mentioned, I started in 2012. We do full gut rehabs here in Philadelphia. We basically can save much during the rehabs. We started doing new construction a couple years ago, and we usually like to do several at the same time, so we can leverage both supply time and the price itself.

My focus right now is to manage the construction process, since I create systems that can integrate everybody that is working with me, and I can also provide service for other either local or outside state investors that are looking to have a construction manager in place, but either don’t have the time, nor the experience needed to get things done and scale the business.

Liz and I also are working on the Real Estate InvestHER community, and we’re gonna talk more about the podcast later on. We are looking to build a community for women and support and inspire them to create a financially free and balanced life.

Joe Fairless: And Liz?

Liz Faircloth: My husband and I started investing back in 2005. We bought a duplex really after obviously reading Rich Dad, Poor Dad, which many people — I think that’s the number one book that people read to get into this business. But more importantly, taking it one step further, we actually played — Robert Kiyosaki has a game out there called Cashflow. To describe it, it’s like Monopoly on steroids… But anyway, it was a great game to start getting me and my husband (my fiancée at the time) introduced to the idea of passive income, and all the different things… It’s a great board game; I recommend it to people. If they’re looking for something different to do, it’s a great, great game to get your head around the concepts that real estate investing involves.

Anyway, we got inspired by that, we took a lot of courses and got involved in educating ourselves, and then bought our first property. Then we moved to Jersey, got married, and started really investing heavily here. We’ve since extended our reach. We’re doing various projects with Andresa and her company, and we have rental properties in Pennsylvania, and now North Carolina as well.
So we’re definitely expanding our buy and hold strategy in terms of geographical areas, but we’re kind of focused on growing our multifamily portfolio, and as well doing (I call it) capital gains activities – fix and flips, as well as some new construction projects; we always have those going on as well.

Joe Fairless: The reason why we’re interviewing both of you at the same time versus individual interviews is because, like Andresa mentioned, but didn’t get into the details yet – we’ll get into it now – you two co-host the Real Estate InvestHER Show. It’s a weekly show that details the journey of some of the most amazing women in real estate. That is at therealestateinvesther.com website. You can go check that out, Best Ever listeners. And you two also partner up on rehabs, have been doing so for a couple years, and right now have three new construction deals in progress.

First, how has the partnership evolved to this point where you two decided “Okay, now we want to do a podcast and build a community together?

Liz Faircloth: Sure. I’ll start, Andresa, and you can jump in. We actually started a mastermind group, Joe, about the same time — no, actually we started that first. So we met on Bigger Pockets, Andresa and I; we kind of always supported each other, just like a lot of relationships begin. We kind of became friends first, went to each other’s kid’s birthday parties, things of that sort.

Then we got to talking, because we were just kind of sharing war stories in this business, and we said we really need to create or join into a mastermind group, and “How cool would it be to just have a great group of women to connect with?” We have nothing against men, we love men very much, but we just thought [laughter] — we love you, Joe, of course! But we just thought it would be really neat to have kind of like a women’s circle that you can kind of share not just what’s coming up in real estate investing, in the business, but also just the things that women deal with and that are unique to women, just like men have their own unique things.

So we formed this – what, three years ago, Andresa?

Andresa Guidelli: Yes. We couldn’t find one, so we formed one.

Joe Fairless: I love that.

Liz Faircloth: Yeah, which is still going on, and we really appreciate still… And then through that experience, I think Andresa you had that project that you were either gonna wholesale to us, or partner with us. That was our first project.

Andresa Guidelli: Yes, that was our first one. We had to close very quickly, it was a big project. We [unintelligible [00:06:50].06] the back of the house and the top of the house, and there were only three walls in our property… [laughter] It was cool… Our inspector came the first time, for the first inspection, he took one step in, and he’s like “I think I’m done.” I was like, “Yeah, there’s nothing else for you to see.” That was it. That property sold in 24 hours, above asking price, so it was a great project.

Joe Fairless: Wow, great starting out. With a women’s mastermind group versus a co-ed mastermind group, what specifically is the difference in terms of content?

Liz Faircloth: That’s a great question. The way it’s structured is it’s a pretty classic mastermind. I know mastermind gets thrown out a lot. I googled it and there’s so many versions of it. But this is really kind of the “Think and Grow Rich” kind of origin. In essence, we all kind of share a win in our businesses, and then we really talk about what’s coming up for us in our business, whether it’s a challenge, whether it’s an idea we wanna process, or if it’s just something we wanna share with the group and get some feedback on.

In terms of the actual content, when we look at our meetings month-to-month, I wouldn’t say there’s a huge difference from the content perspective, but I think it’s more of the way of being, Joe… I don’t know, Andresa, how you would answer this, but I would say when I connect with women and women are getting information, they tend to be a) more open, and they tend not to be as stand-off-ish, so to speak, so they’re less shy when it’s just women, in my experience… In general, of course. I’m talking super generalities. I see it in conferences – when it’s more of a women’s group, women are more open up-front about their opinions, and they’ll get more information, and they’re just a little more hesitant when there’s a lot of men, especially if it’s not an area of their expertise.

So I find that women are just a little more open, but in terms of the content itself, I would say it’s just like any other mastermind in terms of brainstorming… But it’s just the comfort level, I think.

Joe Fairless: What would you say, Andresa?

Andresa Guidelli: I tend to agree with Liz. I will add that I’m a big believer that you are the average of the five people – or six, I’m not sure what the number is – that you surround yourself with, so when we were building this mastermind, we hand-selected other ladies around the country that had bigger goals and even bigger values, and we connected with them. It’s an extremely solid group, and I can name the benefits of being in a mastermind group.

The content – we talk about things that are not working; sometimes we don’t wanna talk about it, but that’s exactly why we have to talk about it… Because either somebody went through the same thing, or knows somebody that did, and can give me exactly what I need to do. It’s not a chit-chat. We are not there to chit-chat and just give ourselves opinions. There are a lot of questions… Because sometimes during the questioning process, that answer will emerge from ourselves. We come to the conclusion that we already know the answer or how to get that result.

And there’s also accountability. We are very solid, and we make commitments to each other to take actions, besides an excuse that we might have or a fear that might occur… So it helped us to take our businesses to the next level, definitely.

Joe Fairless: Okay. The mastermind group, based on how you just described – it’s not a local meetup… Or at least I don’t think it is, based on what you’ve just said. It’s national, therefore it sounds like it’s a phone call, versus in-person. Is that correct?

Andresa Guidelli: That’s correct. All the ladies are in different states, so we meet once a month, on a Monday night, for two hours on Skype, and we discuss different subjects.

Joe Fairless: And is everyone on video, or is it just audio?

Andresa Guidelli: No, we are on video, too.

Joe Fairless: Okay. And how many ladies are on the call at once?

Andresa Guidelli: Six, total.

Joe Fairless: Okay. And help me with technology, what that looks like… Are you able to see the other five individuals’ faces?

Andresa Guidelli: Yes, we are. Everybody is — even one of our members, April Crossley, she was traveling in her RV for I think two months, and she was in Arizona, changing states every time that we spoke to her, and she was still able to make it happen. So sometimes they are on their phones, but still, Skype works very well, it’s free, and it’s been working for the past three years, so we’re continuing.

Joe Fairless: So when someone says the following: “I wanna start a podcast/meetup, and I know a friend or I know someone who I met on Bigger Pockets, and I’ve discussed with him/her starting a meetup or a podcast. Do you think that sounds like a good idea?” My response is always no, and the reason is because you don’t want your platform to be dependent on someone else’s priorities, someone else’s schedule, someone else isn’t prioritizing as much as you are… And you want to be able to have the show not be dependent of someone else. What would you two say to that?

Liz Faircloth: It’s a great question. In a lot of ways, when Andresa and I got together and we would be kind of sharing what’s coming up for us – we had a strong relationship… This podcast is not about us, it’s about the women we’re serving. When we talked and we had coffee, I just said “We are dealing with young children, or aging parents, and just the life of balancing it all. Wanting to be financially free, and grow your wealth, but also just be same and not be nutsy all the time in your life.

When we chatted about it, we said, what if we put together a community – and obviously, start with a podcast – of helping other women do the same? So our vision for this became a lot bigger than me and Andresa. So I would say to that person that comes up to you – or even comes up to us – it’s a lot of work, but it’s not about us. I think that’s really big for us – inspiring both of us to carve out… I work part-time, Andresa has got a million things going on… If you looked at both of our lives, how do you get this done?! I get up at 4 AM. Joe, I get up super early, because this is a mission for us. This is not just like a random thing that we have nothing else to do. This is a big thing for us – help other women get what they want out of their lives.

So you wanna inspire people through it, and really not just move your own business along, then don’t do it. But if it’s something that’s meant to really be a mission for you and be something bigger than just a business, or to hear yourself talk, or whatever the reason is people do podcasts, I would say don’t do it then, because it’s not the easiest thing to do.

Joe Fairless: Were you gonna follow you up anything, Andresa?

Andresa Guidelli: Yeah, I was just gonna say that it’s cliché, but you’ve got to know your Why. If my Why was not aligned with Liz’s Why and her values as well, it probably wouldn’t work. Sometimes people get into partnerships very quick, and I would not recommend that. Liz and I had a very strong relationship prior to us doing our first deal; I think it was about two years… So we knew exactly what we were dealing with when we started this project. As Liz was saying, it was beyond us. It’s us looking at our future and bringing that future to now. This is who we want to be for other ladies, inspire other ladies, get inspired by the ladies that we are interviewing, and living life as it should be.

We are very passionate about it. If you don’t have passion, if you already have a lot and you just want to do a podcast or something else to have fun, I would say that’s not your best bet.

Joe Fairless: I’m gonna ask a question here in the second… The reason why I’m gonna ask this question is because as our conversation has been unfolding, it’s gonna be really helpful for listeners who are thinking about taking a potential partnership with someone to a larger level. Because in real estate, we come across potential partnerships all the time. You go to a conference, “Hey, do you wanna partner on a deal?” All the time. So this is great, because you two met 2-3 years ago, and your partnership has evolved into something, so clearly you two saw certain things in each other that made you feel comfortable to go do more and more things together… So the question is you two have partnered on deals before – describe a circumstance on a deal that didn’t go according to plan, and then what did you see in the other partner that made you think “Okay, this could be more of a long-term partnership” versus “Ugh! I don’t like how they just approached that.”

Andresa Guidelli: Oh, many things… So many things…

Liz Faircloth: I would say, Joe, I think so much of a partnership, because like you and Andresa, being in this business for over ten years, we’ve had some amazing partnerships and we’ve had some disastrous partnerships. And I would say what we saw in Andresa and our husband when we partnered together on our first deal, we really said — it was like this “Do whatever it takes” attitude…

Joe Fairless: What was the deal?

Liz Faircloth: It was a gut renovation in Philadelphia.

Joe Fairless: Okay.

Liz Faircloth: One of Andresa’s roles – again, knowing all of our roles was critical, but one of her roles was to really manage the construction. That was something harder for us to do; we don’t live in Philadelphia, we’re 45 minutes away. We visited the project, but it was nowhere near anywhere that was to be managing it on a day-to-day basis… So Andresa was tasked to manage the GC and the team day-to-day. So I would say – and Andresa, jump in if I’m off – we had a couple… You probably know more specifically, because you were there every day, but we had a couple things that just didn’t go down the path that we wanted them to.

Andresa Guidelli: Yes.

Liz Faircloth: I’m sure you can name them better than I even can… Because she just did whatever it took. “Hey guys, this is what’s coming up. This is how I’m gonna handle it. I’ve got it”, or she would say “Guys, this is what’s coming up, and I need some support.” I think what we got from Andresa and what we got from this partnership early on was you were like literally one of those upfront and honest people who have a high level of integrity. So the trust was already there for us. I trusted her, because we were friends, we worked together on the mastermind, I saw how she interacted, I knew who she was as a person, so that was never a question.

But in terms of partnering together on an ongoing basis, [unintelligible [00:17:17].25] and she’s a very forthright person; I’m never worried about “I’m not sure how Andresa feels about this.” [laughs] I’m more like “Let me think about how I feel about this. I don’t know how to say it, I don’t wanna hurt someone’s feelings.” Andresa is just “Bingo-bango”, tells it how it is. I’ve found that to be hugely complementary… Both me and Matt, quite honestly. Neither of us are — I can be like that, but it’s not my strong suit.

So that was huge for us, Joe – in the midst of day-to-day construction things that happen, Andresa was super straight with us, and it was almost like we were there with her, but not with her, because she handled it and did it with such grace, but directness.

Andresa Guidelli: From my point of view, I had the support from my partners. If things were not going as expected and I gave them the feedback, they gave me the support, “I hear you. Do you need any support? Do you need anything from us? Can we do anything to help you on this?” So knowing that I have their back and vice-versa – it just motivates me to just get things done.

When there are other people involved, like a private lender involved, my responsibility kind of like goes even higher, because I want to make sure that everything is just as clear as possible, and we are returning the investment on time, and there is not damage with the relationship. That’s very important to me.

Joe Fairless: As it relates to your experience as real estate investors, Andresa, what is your best real estate investing advice ever?

Andresa Guidelli: Well, in your future if you’re thinking about scaling your business, if you’re thinking about replacing yourself, you must start doing your SOPs – standard operating procedures – right now. I think that’s extremely important.

Liz and I have been working on improving that right now, and I think that everybody that is doing real estate in some shape or form is not looking to do the same thing when we are 65 years old; that’s not the goal. So I think that will be my number one priority right now.

Joe Fairless: That is something that I am focused on in my business right now, so certainly top of mind for me, too. We’re gonna do a lightning round. Are you two ready for the Best Ever Lightning Round?

Liz Faircloth: Yeah.

Andresa Guidelli: Yes.

Joe Fairless: Sweet! Alright, first, a quick word from our Best Ever partners.

Break: [00:19:44].09] to [00:20:34].14]

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

Liz Faircloth: Think and Grow Rich.

Joe Fairless: Best ever deal you’ve done?

Liz Faircloth: Probably the deal that Andresa just mentioned. In terms of selling it for over asking within 24 hours – it was probably one of the best wins we’ve had.

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

Liz Faircloth: It’s not so much on a transaction, but a mistake in general I would say was not getting niche-focused early on in our business.

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

Liz Faircloth: I give a lot back to my church, because I feel like I’m getting spiritually-fed.

Joe Fairless: And how can the Best Ever listeners get in touch with you two and listen to the podcast?

Liz Faircloth: Sure. We’d love for people to learn more about what we’re up to – it’s called TheRealEstateInvestHer.com. It’s a weekly show, it comes out Friday morning, and we’ve got some great women we’re interviewing. Also, we’ve just started an InvestHer community on Facebook. I think if you just put in “InvestHer”, you will find it.

Andresa Guidelli: Yes, The InvestHer Community.

Liz Faircloth: And then we’re also rolling out in the future (actually, short future) other ways to do masterminding and groups of women for them to get together across the country. That’s kind of our six-month vision, so stay tuned on all that.

Joe Fairless: Outstanding. Well, thank you you two for being on the show. This is certainly a template for what to look for when we evolve partnerships, and that’s why I’m glad that we got into the evolution of your relationship with each other… What you look for from a resourcefulness standpoint, a communication style standpoint, and shared values. Also, having defined roles at the beginning, and then seeing how that continues to evolve. The podcast certainly I will be excited to listen to some episodes. I know I won’t be interviewed on it for obvious reasons, but I’m excited to be listening to it… [laughter] Congrats on launching it; I’m looking forward to your continued success. Thank you for being on the show, and we’ll talk to you soon.

Andresa Guidelli: Thank you, Joe.

Liz Faircloth: Thank you so much for having us, Joe.

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Guest Doug Fath on Best Ever Show 1229 Flyer with Joe Fairless

JF1229: Hard Money Lending & Business Consulting All-In-One with Doug Fath

Doug and his company Legacy capital lend to investors and they also help them look to the future and grow their businesses. They work with their clients, not only funding deals, but also setting up one and three year plans. Doug says that even successful investors will not have one or three year plans, and are instead being ran by their businesses, rather than the other way around. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Doug Fath Background:

– Co-founder of Legacy Capital, a consulting and private funding company to other real estate operators

– Serial, award-winning entrepreneur and investor whose accomplishments are recognized by UN and White House

– Development projects include low income housing, student housing, mixed use projects and multi-family apartments

– Based in Philadelphia, Pennsylvania

– Say hi to him at: http://www.legacycapitalpa.com/

– Best Ever Book: Rich Dad, Poor Dad


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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 fluff.

With us today, Doug Fath. How are you doing, Doug?

Doug Fath: I’m doing well, Joe. Thanks for having me, it’s good to be here.

Joe Fairless: Yeah, my pleasure. Glad you’re here. A little bit about Doug – he is the co-founder of Legacy Capital, which is a consulting and private funding company to other real estate operators. He is a serial award-winning entrepreneur and investor, and he has accomplishments recognized by the UN and the White House.

His development projects include low-income housing, student housing, mixed-use projects and multifamily apartments. Based in Philly… You can say hi to him at his website, LegacyCapitalPA.com, which is also in the show notes. With that being said, Doug, do you wanna give the Best Ever listeners a little bit more about your background and which accomplishment was recognized by the UN and the White House?

Doug Fath: Yeah, I’ll start with the last part. The accomplishment I received an entrepreneurship award at the White House and the UN was for my real estate investment company. That was certainly pretty cool; I had my [unintelligible [00:03:20].19] I got to speak at the White House, and then I was published on the White House website and what not. That was a pretty cool event.

In terms of my background, as you’ve said, I started on the investment and development side of things, with low-income, student housing to multifamily. Then really about five years ago I started to pivot my role in the companies and made some changes that freed up my time, and it was really a pivotal point for me, because that freed up my time to start Legacy Capital, which is a private company where through that we get to fund experienced investors and developers that are really looking to grow and scale their businesses.

One of the fun opportunities that have come out of that is — look, certainly in that business we provide capital to our borrowers, but we also offer really consulting, and really look to help them… There are distinctions between doing deals and building businesses. So whether our borrowers are flippers, or whether they’re buy and hold people, really how do we help them in addition to the capital we lend them, how do we actually help them build solid businesses that actually have enterprise value? Through doing that in our core business, it’s led to other opportunities where we’ve been able to make other investments and other real estate operating companies… So it’s been a lot of fun.

Joe Fairless: That’s interesting. I wanna unpack all that, because there’s a lot of different questions I have on your current business with Legacy Capital. I do want just one follow-up question on the UN and the White House – why specifically did they award you an entrepreneurship award with your company?

Doug Fath: That’s a good question. One, you had to be nominated, and then there were certain qualifications or criteria that you had to meet. Certainly, part of that was impact in terms of not only on the financial side, but also on the social side. The tagline for my company that I received that award was “Make money, make a difference”, and I think that’s something for me in all of my ventures that I look to do. Certainly, we are for profit, we wanna make money, but also “How can we make a difference? How can we make an impact?”, whether it’s for the borrowers we’re lending money to, whether it’s the communities that we’re investing in. We wanna do good in addition to making money.

Joe Fairless: And that’s a perfect segue into what you’re doing now and the unique approach that you’re taking, because there’s a whole lot of private money lenders or hard money lenders out there, but this is the first time I’ve heard someone talk about helping the person receiving the funds build their business and then perhaps even do some joint ventures with that group lender and borrowers.

So I guess the first question is how do you structure it from a team standpoint after you lend money to someone, so that you’re also helping them build their business?

Doug Fath: We look at a real estate business as a triangle, and one of the three pieces that keeps that humming is deal flow, another is capital, and the third is management… Management of that business, whether you’re rehabbing, renting, whatever the case may be. So primarily they’re coming to us for capital.

A lot of times, especially even experienced investors that are looking to grow and scale, they think that their issue is they need more capital, and often times what they don’t realize is yes, they may need more capital, but at some point they’re gonna reach capacity management-wise, where they’re gonna be at their bandwidth; maybe they need to hire more people bring on more people, and do they have enough a deal flow now to have more capital to be able to take down all these projects? So within deal flow, capital and management – we could go a lot deeper in those areas, but just kind of high-level, those are high-level things that we talk about with them to really understand what their business is, where they’re looking to go, and try to identify what are some of the constraints aside from capital — but if capital is no issue, what are some other constraints that they’re gonna bump into, so that we can get those out on the table now.

When we’re talking to them about the one-year plan, the three-year plan, we can take those things into account and start to keep those in mind to try to solve for those before they arrive. Does that make sense?

Joe Fairless: It does. You mentioned earlier that you fund experienced developers and investors… Wouldn’t an experienced developer and investor already have a one-year and a three-year plan?

Doug Fath: No. You’d be surprised, they don’t. They may have, but most of time they don’t. Even at times where you come across one that does, and we dig a little deeper, one of the things that we are really interested in with our clients is not only the goals, but why? “Great, you have a one-year plan, a three-year plan, a five-year plan, but so what? What is it all for?” I know it sounds surprising, but what we’ve found is even with experienced investors and developers, a lot of the times they’ve either lost sight of why they’re doing what they’re doing, and they’re not even clear on what that is. So being able to provide clarity on that for them we found is of value to them. Then certainly when we start to have that clarity, it’s a lot easier for us to see the different ways that we can support them, once they’re clear on what they’re looking to do.

A lot of these guys and gals, they’ve had a lot of success building these businesses, but the businesses sort of run them; they’re so busy running the businesses that they’re not taking the time to take a step back, have that plan, know what their why is, and be able to move forward powerfully.

Joe Fairless: This is a more in-depth conversation than what’s typical for a lender and a borrower. Let’s pretend I am a borrower (or a potential borrower) and I’m just looking to fund my flip, and I’ve called three, four other lenders. I’m simply looking for a reliable source of money at the most competitive rate as possible, and I’m kind of pressed for getting this funding done. Are people annoyed by having to go through the process of a one three-year plan, “Let’s talk about the triangle”? All of this makes sense, I’m completely with you, Doug, but I’m just wondering, “Man, I’m just looking to fund my deal. Why are you getting it all up in my business?” Do you get that?

Doug Fath: It’s a great point. It makes total sense what you’re saying, and look, on that first conversation, are we going through all that stuff? Absolutely not. We’re just gonna talk very basic and just make the point that “Look, yes, you’ve got a specific deal on the table. At the end of the day, if you’re just coming to us to fund one or two deals, we’re not your guy. We don’t wanna waste your time. We’re really looking to build a long-term relationship that can help you grow and scale and achieve the goals that you’re looking to achieve.”

There are some people when I say that, that resonates with them, and those are the relationships that we wanna take to the next step and see if there’s a fit there. Then there’s some other people that, like you said, they want competitive rates, or they want the cheapest rate out there, and we’re upfront – we’re not the cheapest, we’re never going to be the cheapest, and if that’s someone’s number one concern, it’s not gonna be a fit. It’s helpful to be able to realize that in that first conversation, rather than going down a path, spending time, looking at them as borrowers and then it not being a fit. So we try to get that out on the table as much as possible in the first conversation, just to see if mindset-wise they look like they’ll be a fit or not.

Joe Fairless: How is this company staffed?

Doug Fath: The lending company?

Joe Fairless: Yeah, Legacy Capital. Because that’s the company we’re talking about, right?

Doug Fath: Yeah, exactly. We have four employees, and then we’ve got other vendors and 1099’s, but we have four people on the staff.

Joe Fairless: What do they do, each of them?

Doug Fath: A little bit of everything. They originate loans, underwrite loans, we have client relations manager, and then sort of our [unintelligible [00:11:17].08] bookkeeper that handles all things financial.

Joe Fairless: Okay. You’ve got someone who originates, who underwrites, who works with clients, and a bookkeeper. I’m gonna put the bookkeeper aside. Of the originator, the underwriter and the client relations person, who goes through this strategy session and this ongoing “Let’s build this business together” conversation with the client?

Doug Fath: That’s really either myself or my partner Jeff. It’s one of the two of us that are having these conversations.

Joe Fairless: Okay. None of those four people that were mentioned.

Doug Fath: No, not yet.

Joe Fairless: Okay, got it. So you and Jeff, plus your four employees, plus 1099 people.

Doug Fath: Yup.

Joe Fairless: So that’s really your and Jeff’s focus – having those business plan conversations, and then you’ve got a team that helps on the execution of the actual loans that are being underwritten and originated.

Doug Fath: Right, because at the end of the day, anytime for anyone, you always wannabe looking at and asking the question “How do I provide the most value and where do I provide the most value?”, and those are the areas where we’re able to provide the most value.

Joe Fairless: When do you and Jeff come in and have that conversation with the customer?

Doug Fath: That’s after that person has already spoken to some of our client relations manager, just more really as a qualifying — going back to the conversation that you had asked, as sort of role-playing and I responded to, typically that’s a client relations manager that’s having that conversation, just to see if they’re the right fit. She’s gonna ask them a handful of questions just to understand what is their background in terms of experience, how many deals have they done, dig into a little bit of their financials and what they’re looking to do. If there’s a fit and it makes sense, then the next step would be for Jeff or I to have a conversation with them.

Joe Fairless: And how do you measure your return on investment in terms of your time when you’re having these conversations? Do you look at how many more deals they do, or how long of a  relationship you have with them, that sort of thing?

Doug Fath: Yeah, we look at it a few ways; certainly, one of those ways is client retention… Not only how many deals are we doing with them, but making sure that they keep coming back, and also, are we achieving their goals? So if they wanna go from making six deals a year to twelve deals a year, or 20 to 40 or whatever it is, that those are tangible things that you can look at and say, once we get to the end of the year, “How did we do?”

Just as an example, we had one client that wanted to add 25 apartments to their portfolio in the next (I think it was) two years. With the year coming to an end now, they’ve already achieved that goal in one year – even quicker than they were initially looking to do, and they have other businesses and they’re doing other things… But those are really some of the ways that we look to do it.

Again, going back to what I said before, at the end of the day, yes, it’s about making money, but it’s also about making a difference. So things that we as a company get most excited about is helping our clients win the games that they are playing, and one of our core values is playing a big game.

Joe Fairless: I love this approach. It’s such a smart approach that I’ve never heard anyone with this business take, and it makes a lot of sense. How involved are you with follow-up on goals? For example, you set up a one-year plan with a customer, and now it’s month six… Do you have something in your calendar that follows up with them, or is it “Okay, we’ve set the plan, now they’ve gotta go do it and I’ll hear from them when I hear from them.”

Doug Fath: It’s one of those things that we try to check in with them on a quarterly basis about, and we’re actually right now building some technology to help us sort of manage that stuff automatically, as opposed to — right now it’s a bit more manual, where it’s also been the calendar, and follow-up, and certainly now with the client relations person that I’ve spoken about that recently joined the team… She’s been great, and those are some of the things that she’s helping out with as well.

Joe Fairless: Are you purchasing a software for that?

Doug Fath: There’s a few different softwares that we use and that we’re looking at, but right now we run a variety of our businesses through Podio. So it’s really just editing and programming in Podio for some of the follow-up stuff specifically for sort of the goals and the benchmarks.

Joe Fairless: And then have you had a conversation with other people who do what you do but in different markets (so not direct competition) and asked them what their client retention rate is, and compared that to yours to see if you are achieving more results or better results than a group that is not?

Doug Fath: I have, just through some other events or sort of masterminds that I’m a part of – I know other people that do this in other markets. – and our retention definitely is better. I think that the key and the question for us is as we ourselves continue to grow and scale, being able to still deliver that same type of service and experience for our customers, and as long as we’re able to do that, I don’t think that that’s going to change.

Now, I’ve heard from a lot of people, especially on the market, “Oh, you’re gonna need to lower your rates… It’s so competitive, there’s so many other people going out there”, and so far we haven’t been able to do that. Who knows, maybe at some point we will have to, but I think the reason for that is because of what we’re able to deliver and the experience we’re able to deliver.
At the end of the day, if you think about it, it’s actually a silly conversation, like “What is your rate?” or “What are you charging?” If I can help you achieve everything that you say you wanna achieve, all the other stuff is just details that doesn’t really matter. So again, going back to context — sorry, that was a long-winded answer to your question, but yeah, we have been able to have more retention than other people doing it in other markets that we’ve checked with.

Joe Fairless: I love how you elaborated on that, especially towards the end, because you moved the conversation away from fees, as it should be, and you move it towards something higher-level, and that’s what they’re looking to accomplish. That’s what you’re ultimately delivering on.

It’s the same with any business or any service. It’s not as much about the fee, it’s what value you’re getting from that exchange, and if the value exceeds what you pay, then that fee could be anything as long as it’s less than what you pay, and then depending on what your ROI that you want from it…

Let’s just talk about the triangle that you mentioned – the deal flow, capital and management. You said you think of a real estate business as a triangle – deal flow, capital and management. If someone comes to you and says, “I’m in Boise, Idaho and I need deal flow, and I would love to work with you on capital, and I think I have the management covered”, how do you help them come up with ways to get deal flow in Boise, Idaho?

Doug Fath: Right now our focus and footprint – we’re in Philadelphia, within a 100-mile radius to Philadelphia, and our focus is Pennsylvania, being Pennsylvania’s lender. We have done loans for clients in neighboring states nearby… But yeah, if someone came to us – even if they had deal flow – and wanted us to lend them money in Boise, Idaho, we’re not gonna be their guy.

Joe Fairless: Okay, then let’s pretend that you’re in Philly and someone is in Oil City Pennsylvania, which is not anywhere close to Philadelphia, and they ask you “How do I get deal flow?” Same thing, what do you say?

Doug Fath: What you’re getting at – if someone’s [unintelligible [00:19:10].14] but not our core market and any deal flow, what would we say?

Joe Fairless: Yeah, exactly.

Doug Fath: Before I’d answer that, I’d ask some questions to them. “So what are your current sources for deals?”, and checking with them, why do they think they don’t have enough deal flow. There isn’t sort of an off-the-shelf answer for it; based on what they say, there’s probably usually maybe a couple suggestions or things that we can make, but the reality of it is… If it’s somewhere outside of our market and they don’t have deal flow, and if we don’t have a presence or no other people in that market, there’s not really much value we can add there… Whereas if it is in our market or in Philly or in the surrounding areas, we can introduce them to wholesalers. Depending on where they’re looking to do it and what they’re looking for, we can make recommendations to them, whether it’s wholesalers, realtors, whatever the case may be, to try to help them increase their deal flow.

Joe Fairless: I think the capital answer is pretty obvious, because you all provide capital, so we’ll skip to management… What about if they have a management issue, which I imagine a lot of them don’t even think to talk about with you?

Doug Fath: Right, they don’t. Usually, the management issue comes up based on what their goals are. Again, if someone says, “Hey, I did ten flips last year, and I wanna get to twelve next years”, you probably don’t even really need to check in for a management conversation, because if they do ten, they can probably do twelve.

If someone says “I wanna go from 10 to 25”, that’s when you wanna check in… Well, okay, with the current team you have right now, have many projects can you handle at once? If you did ten last year, how many of those were going on at the same time? Probably two or three, if they did ten; or somewhere between one and three if they did ten for the year, depending on how quick they’re exiting. So in order to do 25, maybe you’ve gotta do 4-5 deals at a time. “Your current team – how many can you manage at a time?” and they’ll say “Oh, we can only do 2-3.” Okay, well who do you need to hire, what do you need to bring on in order to do 4-5 at a time if that’s gonna get you to the 25 or whatever it is?

It’s really just kind of digging in there, and a lot of times what’s interesting too is they understand these numbers in their head real quick, but they don’t take the time to break it down and clearly see what moving from 10 deals a year to 25 deals a year is going to mean for them from a management perspective and what they’re going to bring on. And look, sometimes when we dig down into it, they’re like “You know what, I actually don’t wanna go to that next level.”

There was one client I was talking to, they do about 30 deals a year, and we were talking about growing the business and what not, and he was like “Look, if I do one more than 30, I need to bring on another person to handle that. If I’m doing 30, until I do about 35 deals, I’m not making any more money with that extra person that I’m bringing on.” So yeah, which all goes back to the goals, and what do they really want, and why do they really want it. Bigger isn’t always better, although for us, we’re able to provide the most value for operators that are looking to grow and scale… So often times, if they’re looking to just stay where they are, they’ve got whatever resources they need for that, and that’s fine, there’s nothing wrong with that, we’re just not gonna be able to provide the most value for them.

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

Doug Fath: Create a margin of safety when you structure a deal. I think you wanna think about everything that can go wrong, and make sure that a deal has buffer room so that if one, two, three or a handful of those things go wrong, can you still make money or can you at least break even?

I think most of the time when investors get into trouble is because of one of two things – it’s either poor management, or poor structure of how they’re structuring the deal and not creating a margin of safety for themselves.

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

Doug Fath: Sure.

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

Break: [00:23:10].07] to [00:24:05].27]

Joe Fairless: Best ever book you’ve read?

Doug Fath: Rich Dad, Poor Dad.

Joe Fairless: Best ever deal you’ve done or participated in or been a part of?

Doug Fath: Oh, man… We’ve just finished a really cool warehouse conversion last year, which was a lot of fun and unique.

Joe Fairless: What type of joint venture or partnership have you done in the past with your clients after going through the triangle process with them?

Doug Fath: We’ve done a couple. One, that client had a niche of acquiring properties at tax sales, and has just done an amazing job with that, so we ended up investing and helping him grow and scale that business, and that has just gone phenomenally well and we have really enjoyed that business so far.

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

Doug Fath: My goodness, where do I start? I think real estate-wise, for me personally – on the investment and development side, we’ve managed our portfolio in-house for about ten years, and at the end of the day that’s not what I’m best at, that’s not my unique ability, and I didn’t realize the opportunity cost of that, and it wasn’t until I actually ended up outsourcing that and restructuring the company… That really freed up my time, that allowed me to start a private lending company and do these other things and really put myself in roles where I get to spend most of my time within my unique ability. It has made all the difference.

So the biggest mistake is just not figuring out what I’m best at, and putting myself in those roles.

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

Doug Fath: I love mentoring. I’m super passionate in particular about financial education; we donate money to financial education companies, and then just speaking about it, talking about it… I love empowering people from a financial standpoint.

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

Doug Fath: I think the best way would be check out the website, LegacyCapitalPA.com, or just shoot me an e-mail, which is Doug@LegacyCapitalPA.com.

Joe Fairless: Doug, bravo on your approach! You don’t have to have me tell you this, you already know it, but it’s a really smart approach and I’m impressed with how you all are structuring your relationships with your clients and how you’re playing above the fray, the blue ocean strategy. You have a business that is a hard money private lending company, so that’s not recreating the wheel, but you’ve put a spin on it that builds long-term value relationships and has repeat customers, and then helps others along the way. Really smart, and I’m grateful that we had you on this show.

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

Doug Fath: Awesome. Thank you, Joe.

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JF1217: 2018 Market Predictions From An Expert Economist with Peter Linneman

Peter is with us for the first episode of 2018, and that is not by coincidence. An economist by trade, we get a TON of great advice when it comes to how we look at the economy and markets. Some of his best advice is to take a step back and look at the bigger picture, don’t just focus on your business or you’ll never see the full picture. At the end of the interview Peter gives us a 2018 economy prediction. You don’t want to miss this one! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Peter Linneman Background:

Principal of Linneman Associates the CEO and founder of American Land Fund and of KL Realty

– Named one of the 100 Most Powerful People in New York real estate according to New York Observer

– Linneman Assoc. a premier consulting and research firm, specializing in commercial real estate investment strategy.

– For 35 years, has advised leading corporations, served on over 20 public and private boards, including serving as    

 Chairman of Rockefeller Center Properties

– Based in Philadelphia, Pennsylvania

– Say hi to him at: http://www.linnemanassociates.com/

– Best Ever Book: Capitalism and Freedom


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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, Peter Linneman. How are you doing, Peter?

Peter Linneman: I’m terrific. It’s lovely where I’m at today in Philadelphia.

Joe Fairless: Nice, I’m glad to hear that, and welcome to the show. A little bit about Peter – he is the principal of Linneman Associates and the CEO and founder of American Land Fund and KL Realty, named one of the 100 most powerful people in New York real estate according to The New York Observer. Based in Philadelphia, Pennsylvania, and for 35 years has advised corporations, he served on over 20 public and private boards, including serving as the chairman of Rockefeller Center Properties. With that being said, Peter, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Peter Linneman: Sure. I am a PhD economist by training; I taught many years at the Wharton School of Business at the University of Pennsylvania, and also started Linneman Associates very early in my career, focusing on economics, finance and strategic advice. We branched out over the years into some boutique investing and investment management as well. The client base tends to be major families, major REITs, major private equity funds, and it’s been a lovely career for a long time.

Joe Fairless: How do you spend the majority of your time now, from a business standpoint?

Peter Linneman: Thinking. I’m trying to understand the environment that we’re in – the economic environment, the capital market environment, and the real estate supply/demand fundamentals. Because if you think about it, it’s really the interaction of those three things that are the turbo-charger behind all investments. Yes, you need a decent property and yes, there are real real estate fundamentals – can you fix the property up? Can you reposition the property? I’m not trying to minimize those; those are sort of the tools of the trade. But what I really spend my time on is that interface of where’s the macroeconomy going, where are capital markets going and where are real estate supply and demand fundamentals going?

Joe Fairless: Would you say when you’re hired by families, REITs, private equity firms, you’re addressing those areas with them in some capacity?

Peter Linneman: Yeah, primarily. It can be in a very specific way of “What do you think of this investment?” or “What do you think about this sale?”, but it also can be “Help us think through risk management, help us think through how we should grow,  think through how we should protect ourselves as we move forward”, and I certainly have no monopoly on insights. I like to think that if you think about professional… Almost anything – think of professional basketball; if you can make 45% of your shots, you’re gonna be around a long time, even though you miss more than you make, because it’s a very tough, competitive environment you play in in professional basketball. And I think that’s investing. It’s a very tough, competitive environment, with a lot of other smart professionals trying to figure things out. You’re not competing against five-year-olds, you’re competing against other real pros. And if you can help and be 1% or 2% better with a substantial asset base, that’s worth a lot. So my goal is not to try to be 100% right, because that’s a silly goal, but to help people think through, help myself think through risk and opportunities, maybe to be 1% or 2% better in understanding both the opportunity and the risk than the other really good professionals.

Joe Fairless: I imagine we can become 1%-2% better if we have a grasp on those three things you identified earlier – where is the macroeconomy going, the capital markets and supply and demand? Let’s dig into each of these three and just talk about it a little bit. What should we look for when we are attempting to identify where the macro-level economy is going?

Peter Linneman: Step back and move away from the painting. What do I mean by that? There’s a very famous painting, Sunday in the Park With George by Seurat. It’s a huge painting in the Chicago Art Museum; it takes the whole wall, and it’s just dots. If you get too close to the painting, all you see are dots, you don’t see a picture. If you stand back in the room, you get some picture. In fact, if you get far enough back, you can almost start understanding the story of what’s going on in the picture that was Seurat’s attempt. I think that’s the economy – a million dots.

The interest rate was down a quarter of a percent today, exchange rates are up – just go through a million points. You decided to sell something, I decided to buy something. A million dots. The problem for most people is they get too close to the dots; they see the dot, but they don’t see the picture and they certainly don’t see what’s the story of the picture.

I attempt to look at a lot of dots and not be overwhelmed by any of them. So GDP information comes out – I look at it, I absorb it, but I take it with just one more dot. Employment – one more dot; interest rates – one more dot; stock market up or down – one more dot. And I try to see a broader picture. I think it’s one of the reasons I love impressionists so much, it’s because you really get the point that you have to step back and observe the broader strokes, the broader picture.

So I think most investors, even good ones, are too close to see the economy. It’s the logical thing, you focus on your company. How many times have you heard somebody say, “No, the economy can’t be doing well because my business is not.” Yeah, but there are a lot of others that might be doing well, or vice-versa. So I think that’s the number one message I’d give – either step back, or if you don’t have that ability to step back, outsource it. Subscribe to somebody like me, or hire somebody like me occasionally to help you… While you work on the dots, at least occasionally step back and take a look at the broader picture.

It’s not that people like me are, again, always right. We’re looking for a 1% or 2% improvement in our edge, and if we can see that bigger picture at least to some clarity, I think you can help both in the opportunity sense and in the risk sense.

Joe Fairless: At the beginning sometimes it’s knowing just what are those dots that we should be looking at. You’ve mentioned some specific things – employment, interest rates, GDP, stock market… How many dots do you look at? There has to be a certain amount, versus an…

Peter Linneman: Five hundred, if I were to say. And would I weight them all equally? Probably not.  12 of them have to do with employment, and again, there are shades of red in a painting, right? So 500… In fact, when I meet business people, one of the first things I’ve done my entire life is to say, “So how’s business?” I think people think I’m just being courteous – I’m not. That’s one more dot. I actually want to hear you say, “Well, things are a little slow” or “We’re selling the high-end stuff.” I actually listen to what people say to that. It’s another dot. It’s an attempt to confirm or challenge some other issues.

So I’m pulling 500 out of the air, but it’s a lot. I try to read everything – I don’t succeed – I try to listen to a lot, I try to look at a lot of charts and graphs and don’t just take them at face value. I’m trying to put together that painting, and it’s not so easy. By the way, for every painting that you put together that really has a clarity and a story to it, there’s paintings you put together that aren’t that clear, aren’t that moving and don’t have that much story.

Joe Fairless: When you look at — let’s just assume there’s 500 different inputs… If you look at all of those, do you have a dashboard that you use to input that info, or is it just less mechanical than that?

Peter Linneman: Well, I think both. We keep a library, if you will, of charts and graphs that I go through regularly – I see them, update them as the new data comes out; some more important than others. But a lot of it is — little bits of it are statistical, but I don’t believe in these big macro models; I think they’re kind of a waste of effort, and a fool’s errand in many cases. I have the most expensive computer I can own on top of my shoulders, and it is a very holistic and non-linear kind of computer, namely our brains, right? And if you train it and you use it and you try to twist it, that’s the game. And I’m not saying I’m the best at it, but that’s what I try to do.

Joe Fairless: Let’s talk about the capital markets. First, for any Best Ever listeners who might not be familiar with what that means, can you first define it and then can you talk to us about what you look for?

Peter Linneman: Sure. Capital markets are where money is flowing from, where it’s flowing to, what are the reasons that it’s flowing one direction or another — literally, where is the money coming from? Is it coming from German institutions, is it coming from mom-and-pop Main Street investors etc.? And who wants that money, and what are they willing to pay and what conditions are they willing to live with? And again, that’s an evolving story, it changes; there are a lot of players in it. No one will ever fully understand it, including me… But that’s what I mean about the capital markets, it’s the ebb and flow of where money is coming and going and why. Yesterday everybody wanted that, and today everybody wants out of that, and the balance of fear and greed. These days there’s a heavy international dimension to it.

Again, trying to read what are people trying to do with their money, why are they trying to do it, why are they changing what they’re trying to do?

Joe Fairless: And what specific reports or databases do you reference when looking at it?

Peter Linneman: A lot of Fed funds information, Federal Reserve data on flow of funds, a lot of information about commercial banks… Commercial banks are the dominant source of capital in the world, because once the federal governments of the world give them deposit insurance, people are willing to give them a lot of money, because they know they’ll get it back because of the government’s deposit insurance… So understanding what they wanna do.

Insurance company information, stock market information, bond market returns… And then obviously, in our case, real estate – what are the REITs doing, what are private equity funds doing, what are major institutional and family investors doing? And again, some of it you can get pretty clearly, some of it is more holistic. And again, it goes back to when I meet somebody and ask them, “So what do you think of a fund or a REIT? What are you doing today?”, I actually wanna know, and I’m not looking for non-public information, I don’t mean it in that sense. I wanna have a sense of their texture and what’s going on and what are the flows that they’re into.

Joe Fairless: For the first two out of three, there’s clearly perhaps up to 500 dots on the first, with the macro-level economy and then capital markets, you’ve got different sources… There’s a lot of stuff. Logistically, within your company, how do you organize it so that it shows up in a way that makes sense and isn’t overwhelming?

Peter Linneman: Well, we have this publication, the Linneman Letter, and it’s a quarterly publication, and it’s interesting that we’ve been doing it now for like 15 years or some number like that, 17 years… One of the beautiful things about it is that we regularly have to assemble it with all the information we wanna put out and highlight and emphasize, so we have this data bank that we do and we update, and that forces me not only to look at it casually as the information comes out, but it forces me on a quarterly basis. But on a quarterly basis it means each week as I’m working through drafting stuff and redrafting stuff, I have to be reacting in real time.

The other thing is I give probably (I don’t know) 20 presentations, 30 presentations a year to boards, to large corporate audiences, to industry association audiences, and in so doing, pull together the usual slides and charts and graphs, and I have to think through the story I want to elaborate, and that means going through — you can’t do a million charts… What are the 20 charts? What do I really wanna point out about them? And if somebody saw me yesterday, what would I say differently and why?

Yesterday, for example, I gave one of those presentations, and that keeps me focused. The interesting thing is in speaking and in teaching and in answering questions in front of an audience and in writing, I often find that I get an insight on how to express something, how to think about something, how to look at something. Questions make us think and challenge what we know, and so I really enjoy having the opportunity to do the quarterly publication, to do these speeches, to have people question me, to ask questions that I may not have thought about, or if I have, I haven’t fully figured out “the answer”, or at least my answer as I believe it now. Those tend to keep pushing me.

Joe Fairless: And then the last part that you mentioned – supply and demand. What resources do you look for and what do you look at?

Peter Linneman: We have about 50 metropolitan areas that we follow in the major food groups of real estate on metropolitan levels… Not so much in very micro, sub-market levels, because the data is not very good. And on those we’ve tried to track occupancy and rents, and we adjust rents to put them in real terms, that is adjusted for inflation… Because a lot of times people say, “Oh, we’re at all-time highs” – you’re not. You’ve had ten years of inflation, and when you consider there was 2% inflation a year, and that’s 24% compounded, and rents are only 10% above where they were, they’re 14% below their previous high. And we kind of do that type of stuff.

We try to keep track of the supply pipelines that various brokerage firms and others put out of the major food groups, we try to keep track of the stock of existing property, plus the new pipeline versus our own forecasts of what demand growth will be, which mostly trigger off of our forecasts of employment. We have some local-level employment forecasts models we’ve developed that are reasonably helpful.

We’ve got analyses of how local metropolitan areas react in the presence of an economic recovery by the US or an economic downturn by the U.S. That is to say to what extent do all ships rise or fall on the tide? They don’t rise or fall on the tide the same, and we spend a lot of time analyzing how they’re different, by various in some cases simple, in some cases sophisticated statistical models.

Joe Fairless: On that part, is there a certain region that acts one way versus a different region?

Peter Linneman: Oh, sure. I’ll give you a very simple one that we have found. I’m sure out of the 50 states you can find an exception to what I’m about to say – state capitals have more muted growth as the U.S. employment grows, and they have more muted downturns when U.S. employment turns downward. And if you think about it, it’s because governments don’t react as fast as private employers, either on the up or the down. They’re kind of a ballast. So you think of that… So state capitals have a more muted performance relative to the U.S. economy. On the other hand, places like Vegas and Orlando are super performers – that is when the U.S. economy is hot, there’s a lot of discretionary money, and you can very clearly identify kind of a turbo-charge pattern to their employment growth and their absorption.

The flipside to that is they’re very sensitive on the downside, because one of the first things you can easily forestall is going to Disney this year, or doing to Vegas this year. “I’ll get there two years from now when I got my job back.” So they’re hyper-reactors.

Other places, and I give New York City as an example, basically are a reflection of the U.S. economy. And it’s not surprising in an odd way that New York is a reflection, because it’s such a corporate headquarter kind of place, so it’s not surprising that they’re a pretty good reflection of the U.S. economy. So those give you a flavor of some of the differences.

Joe Fairless: Well, you spend your time now thinking and understanding the environment we are in, so the question is in 2018 what environment should we expect to see?

Peter Linneman: I’ll go through the three… The first on the macro-economy, the Seurat painting to me is pretty clear, which is I don’t see any end of growth for the U.S. economy in 2018, and probably on into ’19. There are just no notable excesses or notable policy errors that could occur that would derail the ongoing growth. Now, it eventually will derail, but I don’t see it happening in ’18 or ’19. So that’s the first thing.

In terms of capital flows in the capital markets, there still is a lot of money out there. The Fed and the other central banks of the world pumped unprecedented amounts of money into the system over the last decade. That money is still awash, and in fact, it’s still sitting in hoards of cash… So it’s hard to see that money going even massively more so into cash, because it is so far beyond norm cash holdings that I have the belief that that money will come out more in 2018, rather than staying in. So I feel good about the capital flows in ’18, I feel good about the economy in ’18. When you then get to the local supply/demand of real estate, that does vary by product type and geography. In general, supply and demand is in pretty good balance; yes, we are producing more than 2-3 years ago, but in general it’s reasonably muted, and demand is still growing quite strong, so in most places I expect NOIs to outstrip general economy inflation by a percent or so. There are pockets though where that’s not true – New York hotels, there’s a lot of supply coming online, and a few multifamily markets, offices in Houston, a few places you can find… But generally, the supply and demand in real estate is pretty good.

If you then go back to looking at value, it doesn’t look like a spectacular time to make spectacular amounts of money, but it does look like a decent time to keep making money… Namely, growth will occur, supply/demand of real estate is in pretty good check, and capital is not gonna disappear. A decent environment to continue making money.

Joe Fairless: What would you need to see in order to have an opposite opinion?

Peter Linneman: I gotta see real weakness in the economy – I think that’s the first one. And it will come, but there just are not notable signs of it today. A 19 trillion dollar economy doesn’t fall apart overnight. In fact, even if you go back to the financial crisis, there was a lot to be seen a year and a half and two years earlier, and a lot of those dots. Not everybody saw them, not everybody wanted to see them… Interestingly, I actually got that one right, in that as much as two years ahead of time I called the recession when it occurred. I certainly didn’t call it that it would be as big as it was, but I actually got it in that there were enough signs. So that would be one.

The second is you just start seeing supply outrunning demand. You see fundamentally demand is growing at 2%, 3%, and you see supply running at 3% and 4%. That will make a weak investment market pretty rapidly. Right now we don’t have a lot of that. We have little pockets of it, so I watch that very carefully.

And the last is that we go from a market where greed is conquering fear in the capital markets to the flip of that. That can move very rapidly. That’s kind of the hardest to see. I’ll give you an analogy – how many times have you been in a place you were unfamiliar with and in the daytime you felt real good, and suddenly it got dark and you got spooked?

Joe Fairless: Sure.

Peter Linneman: It can happen in a matter of a half an hour. That one, because it’s purely psychological, can happen and it can happen quickly, and capital markets can react very quickly. So I think the hardest by far is to get when greed turns to fear or fear turns to greed. In general, greed is gonna win about 80% of the time, but when it flips from greed to fear, it can move very rapidly, and make something that wasn’t frightening in the daylight quite frightening in the dark, even though objectively it is exactly the same. That one is the hardest one to predict, and all I can do is try to keep out feelers to get a sense of how spooked people are.

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

Peter Linneman: That’s easy – invest, if you can, for the long-term. Don’t try to time markets. Real estate is a long-term asset. Most people who invest should think about “Do I wanna own this ten years, not two years?” If you own stuff ten years and you own it with low enough leverage that you’ll never have trouble servicing your debt, you’ll do just fine. Almost invariably, investors who have held real estate for 10, 15, 20 years never having to face a squeeze because they over-leverage do just fine.

Where people get in trouble is over-leveraging so that they can’t cover their debt during the down cycles, and they can’t roll over their debt, or having a flip mentality because this fear/greed phenomena can change values very quickly. And if you’re rolling your debt in a fear mode rather than a greed mode, you’re gonna have a difficult time rolling your debt, you’re gonna have a difficult time refinancing, you’re gonna have a difficult time selling.

So the best advice by far – and I think it applies to most people – is… Jeremy Siegel, my colleague at Wharton has this series of books called Stocks For The Long Run, and it basically shows that even if you would have invested in stocks at the very peak, right on the day before each crash, and you held for 15 or 20 years, you did just fine. The reason is because the economy grows, and then when the economy crashes, supply gets limited and cashflows rebound and valuations rebound, as greed once again replaces fear.

I think the same thing is true of real estate, which is even if you invested at the absolute peak in 2007 and 2008, you’ve done okay in the subsequent decade, as long as you didn’t get squeezed out of the property… Because supply shut down, demand rebounded, greed returned, and you did okay. Being able to hold the asset for the long run means you’ll do okay, and if you’re good at real estate and you can add value on top of that, that’s the real deal.

Joe Fairless: What is the book that you referenced that has that study, where if you buy the day before the crash…?

Peter Linneman: Jeremy Siegel has done it; he’s at Wharton. He’s done several of these updates, and I don’t know what edition he’s on, but it’s called Stocks For The Long Run. When you hear it, it’s kind of a shocking result, and then when you think about it, we just lived this in real estate in the last decade, almost literally a decade ago – nine years ago you could give real estate away because when greed turned to fear, the economy dipped. If you had to refinance your debt you were dead, and if you had to sell you were dead.

You come back nine years later after one of the most horrific downturns in U.S. history, and real estate values are kind of doing fine, and cashflows are kind of at all-time highs, even adjusting for inflation, and it’s because when the things got really bad, supply ceased. And therefore, as the economy rebalanced, you start filling that space back up. The world didn’t come to an end, and as the economy grows, you fill the space back up and eventually, after a couple years, fear flips back to greed, and the valuations return. So that’s the spirit of what’s going on.

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

Peter Linneman: Sure.

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

Break: [00:31:02].17] to [00:32:00].16]

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

Peter Linneman: Capitalism And Freedom by Milton Friedman, many years ago.

Joe Fairless: Why is that the best ever?

Peter Linneman: Milton had a unique understanding of the power of capitalism, which is I think important to understand the economy AND how while it fails in many cases, governments also fail in their attempts to tame markets, and the choice is not between an omnipotent government and a failed or imperfect sense of capitalism, but rather imperfect capitalism and imperfect government.

Joe Fairless: Best ever project that you worked on that delivered results that could be measured?

Peter Linneman: Probably when I was on the board and chairman of Rockefeller Center Properties in the early to mid ’90s and it was a very difficult real estate market, and I led a team that worked through and ultimately generated good value for our shareholders.

Joe Fairless: How were you measured?

Peter Linneman: In that context?

Joe Fairless: Yeah, in that context.

Peter Linneman: By stock returns, from when I took over to when we did the ultimate transaction.

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

Peter Linneman: I have a very large effort in education for destitute children, orphans, a few in the United States, but mostly in Kenya. I have a charity called “Save a Mind, Give a Choice” in Kenya that we now support 140 children of abject poverty in rural Kenya. Most of them are orphans or near orphans. We put them through school, we provide all the clothing and school materials and living expenses; we put them in not [unintelligible [00:33:57].02] but good schools that can house them in a way that’s safe. We’ve been fortunate enough to have about 50 of our children graduate, and it’s been a remarkable experience for me and it’s helped a few children.

Joe Fairless: How can the Best Ever listeners learn more about your company? Where should they go?

Peter Linneman: I would go to www.linnemanassociates.com. Or if you google, you can find me pretty easily.

Joe Fairless: Well, Peter, thank you for being on the show. Thanks for giving us a preview of what’s ahead in 2018, and talking about where we’re at from a market standpoint and what to look for from a macro level, and then your thought process and how you approach coming up with that analysis or that assessment. One, looking at the macro level. Two, looking at the capital markets, and three, looking at the supply and demand.

One very tactical thing that I really perked up and I bolded when you said it – and again, this is a tactical thing; there’s macro level stuff that you said more important than this, but when you said, “When we read headlines that say the rents are at an all-time high”, I bet 90% of the time those reporters are not adjusting for inflation, and that’s something that I will now start looking for and I will also be aware of that whenever I’m speaking about our projects, too.

Thanks for being on the show. I hope you have a best ever day.

Peter Linneman: My pleasure, thank you for having me. Great day to everybody.

Joe Fairless: Talk to you soon!

Peter Linneman: Thank you.

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JF1153: How To Optimize Your LinkedIn Profile #SkillsetSunday with Donna Serdula

In order to maintain your credibility while attracting people to your LinkedIn profile, you need to work hard on it. Donna and her team help executives and entrepreneurs properly brand themselves based on what their goals are. 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, 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, and because it’s Sunday, we’re doing a special segment called Skillset Sunday; we’re gonna give you a skill so that you can go apply it in the real estate world. Today we’re gonna be talking about how to optimize your LinkedIn profile so that we can 1) maintain that credibility that we so deserve with all of our experience in real estate and 2) be able to expand our business via bringing on new investors when they do a search on us, or maybe even connecting with relevant business partners.

With us to talk about that is the owner of LinkedIn-Makeover.com, so clearly she’s focused on LinkedIn and having an optimized presence. How are you doing, Donna Serdula?

Donna Serdula: Hi, Joe. I’m doing great, thank you so much for having me on your podcast!

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Donna – she is the author of LinkedIn Profile Optimization For Dummies. She’s based in Philly, Pennsylvania. With that being said, Donna, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Donna Serdula: Yeah, sure. My focus is really, really niche. What I mean by that is what we do is we help the executives, professionals, real estate developers from all over the world really brand themselves successfully on LinkedIn, through their LinkedIn profile.

Joe Fairless: What are some of the main categories or buckets of things that you do to help others brand themselves successfully on LinkedIn?

Donna Serdula: With LinkedIn I think what most people do, which it actually just sort of lends itself to it, but you get on LinkedIn, you look at this LinkedIn profile, and they just fill it out; they just answer the fields and that’s it. But what we do differently is we really look strategically at the person’s goals – why are you on LinkedIn? What are you really trying to achieve? What’s your goal? Because some people are on LinkedIn to get a job; others are on LinkedIn for prospecting and sales, and there’s others who are on it for reputation management, to be found, they wanna be seen as experts.

So it’s really important to figure out what are you trying to achieve, and only once we know that can we write a profile directly towards that goal, so you can find results.

Joe Fairless: Yup, gotta know your why, gotta know what your goal is, and then once you know your goal, then you can help write and customize that profile accordingly.

Prospecting and reputation management – because let’s assume the real estate investors here, we’re mainly entrepreneurs; we might have some Best Ever listeners who are investors but also have a full-time job. Let’s just not focus on that one, but we’ll focus on prospecting and reputation management. What do you do after you identify one of those two things as the client’s goal?

Donna Serdula: The first thing we do is we figure out the goal. Once we understand why they are on LinkedIn, at that point we need to then figure out who is the target audience. Who is going to be reading that LinkedIn profile? Because once you know who’s going to be reading it, who we need to target for, now we start to get the messaging… Now we know what we need to say, because it’s not just what we want to say about ourselves, it’s “What does our target audience need to know about us?”

Then the very last thing we do in the very beginning of all of this – so we know our goal, we know our target audience, and then we start to think in terms of our keywords. And Joe, the reason for that is LinkedIn is more than just a social network, it is a search engine, and people are on LinkedIn searching for you specifically, or they’re searching for someone like you; and if they don’t know your name, they’re putting keywords into LinkedIn, hoping to get close to this person that they’re targeting.

So by figuring out the person who’s searching for someone like you, what keywords they use, we make sure we sprinkle those keywords throughout your profile, and what that does is it bumps you up higher in the search and it gets you found more often.

Joe Fairless: I get – as I’m sure you do, and some of the Best Ever listeners… I don’t know how many LinkedIn friend requests I have pending, but I don’t accept it unless it’s a personal message or it’s someone I actually know. Now, if people are searching for me and they could be potential business partners, but I’m getting a lot of requests, is there a way that you would approach that practically speaking, so that maybe I’m able to filter and determine who I actually respond to and how I approach it?

Donna Serdula: Well, Joe, I think it helps to really understand when you’re on LinkedIn, are you on LinkedIn because you want to market very specifically to certain types of people, or do you wanna market more broadly, and do you wanna get found by people searching for someone like you? So if you wanna be very specific and you wanna have a very closed network, only connect with the people that you know and trust, there’s nothing wrong doing that.

But if you wanna be heard, if you wanna get people reaching out, people who are interested in learning more about you, and you wanna reach more people, then it actually behooves you to be a little bit more liberal in accepting those outside invitations. The reason I say that – this is something very few people know – is when a person is searching LinkedIn, and I’m not talking about a name search, I’m talking about a broad-based keyword search, they are only searching their LinkedIn network. And their LinkedIn network is their first-degree connections, their second-degree connections, their third-degree connections, and any group numbers that are in groups that they also belong to. That’s it. So if you wanna get found, or if you wanna find people, you need to be in as many networks as possible.

Joe Fairless: Third-degree connections – I’m sure you and I are connected in a third-degree. Isn’t that everyone? Aren’t we all connected at least on a third-degree?

Donna Serdula: You would think, but the truth of the matter is most people – and I would be curious in terms of your Best Ever listeners, how many people are in their first-degree network; most people have far less than 500 first-degree connections, and if you don’t have a lot of connections of the first-degree, then you have less second and less third.

The truth of the matter is LinkedIn just reached 500 million users, so the truth of the matter is there’s still a lot of people out there that are not part of your network.

Joe Fairless: Okay, got it.

Donna Serdula: The other thing to remember is let’s say a person is a third-degree; there’s not much you can do with them. You might be able to see their name, you might be able to view a little bit of their profile, but you really wanna concentrate on the first and second-degree connections. Those are the ones where you’re gonna see their name, you’re gonna see their full profile, and it’s your first-degree connections that you can actually reach out to and message.

Joe Fairless: And by the way, you and I are second-degree connections, but when I was in advertising I made it a focus to add every person I came across in business, with a personal note, and I sent them a note, so I have probably 1,500 connections… So that doesn’t surprise me. Plus, I’m sure we keep some of the same circle; it looks like we have 20 mutual connections.

Donna Serdula: Joe, do you wanna guess how many first-degree connections I have?

Joe Fairless: More than 1,500.

Donna Serdula: 30,000.

Joe Fairless: Wowsers! Yeah…

Donna Serdula: I wouldn’t recommend that to everyone. To me, it is a little crazy and I totally get that, but I want people to hear my message, I wanna be found, and I wanna find people. So by having such a strong network, it really helps me really use LinkedIn successfully.

Joe Fairless: Let’s talk about your profile. What keywords do you put in your profile?

Donna Serdula: Well, I want people to find me if they’re searching for “LinkedIn”, “LinkedIn profile writer”, “branding”, “social media” – those are the types of phrases that describe what I do, so those are the words that I sprinkled throughout my profile. But you want to always think in terms of your target audience, because sometimes your target audience describes you differently than you would describe yourself.

I think of a client that I had who is a CPA, and she just described herself as a CPA and that was it. But when we really started to delve in, we noticed that her clients weren’t calling her a CPA, they were calling her a bookkeeper, and an accountant, and a tax advisor. So you really have to say “Wait…” I know how I like to define myself, “brand strategist”, but not everyone would describe me in that way, so you wanna be very smart, very strategic.

Joe Fairless: Yeah, great point, thank you for sharing that. So besides keywords and also living in the other person’s shoes and knowing how they’re gonna describe me, not necessarily how I describe myself, what are some other tips that the Best Ever listeners can take away from this conversation so that they can go optimize their profile?

Donna Serdula: One of the first things I would say is concentrate on your search result listing, because that’s how a lot of people are going to find you the very first time. So they might search for you by name, and maybe there’s a lot of Joe Fairlesses out there, you never know. Or maybe they’re searching for “real estate investing advice”, so if they’re searching for those things, they’re going to come upon a slew of listings that match that query, so you wanna make sure that yours is really interesting and it’s sexy and it just engages and it compels the person to wanna click and open up the full profile. So in that regard, you wanna make sure you have a great-looking profile picture, you wanna make sure that you have a great headline – that’s like your tagline; it’s 120 characters and it really should contain more than what the default LinkedIn gives you, which is just your title and your current job company, which is boring. So you wanna infuse it with your keywords, you wanna really give a benefit statement.

With that, if you do those three things and you have that good profile picture, you have your name correctly inputted, not last name first, but the first name and then last name, and then you have a great headline, you’re gonna find that more people click and you’re gonna get more views just in that alone.

Joe Fairless: I have never done the headline before… I just searched “real estate investing advice”, and because obviously I’m in my own network, I came up first, which makes sense. But I only have “Host of the Best Real Estate Investing Advice Ever Show”, I don’t have anything else other than that. I don’t have the, as you said, benefit statement.

Donna Serdula: Yeah, so you wanna really think in term of how do you help people, but you also wanna think in terms of those keywords. Now, I will tell you, if you visit my website, LinkedIn-Makeover.com and you head over to the blog area, that’s where you can find my LinkedIn headline generator. It’s an app, it’s online, and I help you just create a really sexy, a really interesting headline. Just by answering a few questions, selecting a few keywords, it actually outputs a really awesome headline that you can immediately use and get more views to your profile.

Joe Fairless: Any other tips as it relates to optimizing our LinkedIn profile that we should talk about?

Donna Serdula: I think what most people do – and they do it because it’s easy, and they do it because they’re busy… And that is they look at their LinkedIn profile and they say “Well, it kind of looks like my resume; let me get out that old resume of mine, let me just copy and paste all those fields in there and I’ll be done with it.” But you’re on LinkedIn for other reasons; you’re not just on it for a job. But even if you’re on it for a job, let’s say a person finds you and they read that, and then they request your resume and see the exact same thing, they’re going to be disappointed.

So really look at your profile not as an online resume, which is just your professional past; look at it as your career future, look at it as a digital introduction, look at it as a first impression, and really write it like a narrative and just give that audience information that makes them respect you, that makes them feel impressed and makes them feel confident in who you are and what you bring to the table.

Joe Fairless: How many people are on LinkedIn, do you know?

Donna Serdula: Yeah, 500 million. It just hit that number, too.

Joe Fairless: Well, congratulations to the founders of LinkedIn. 500 million… And I’ve always found that LinkedIn, especially for my business where I partner with high net worth individuals and I put money in the deal, they put money in the deal and then we share in the profit, I found that LinkedIn is the best network to reach those individuals, especially compared to Facebook and other platforms.

Donna Serdula: Yeah, well they say with the demographics the average salary is over 100k for the users, which I think blows Twitter and Facebook out of the water.

Joe Fairless: Yeah, I agree. So this has been very practical, and I love the tips that we can then take from this conversation and go implement. Any parting thoughts or insights or advice, or have we pretty much covered it all?

Donna Serdula: I think when it comes to your LinkedIn profile, really recognize that people are doing their due diligence; they’re going to check you out. They wanna know who they’re going to be working with, and when they hit your LinkedIn profile, and often times that LinkedIn profile ranks very high for your name – LinkedIn has a lot of Google juice – so it’s one of the first things they’re going to find and they’re going to click on it, and you can shape how others perceive you by really carefully strategically wording that LinkedIn profile, uploading content, putting great stuff up there… You’re gonna find that good things happen.

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

Donna Serdula: Visit my website, LinkedIn-Makeover.com, or head over to LinkedIn and become my 30,001…

Joe Fairless: And two! I’ve added you while we were talking… 30,002, yes.

Donna Serdula: Yes! So add me on LinkedIn, visit me over there, or head over to my website, LinkedIn-Makeover.com. I love to talk to people about their LinkedIn profile and help them really build a strong brand.

Joe Fairless: And I wasn’t giving myself enough credit… When I did the search “real estate investing advice” it shows how many connections I have, and I have 2,795, so not quite up your level, but almost double of what I thought I had.

Alright, Donna. Thank you for being on the show. This was, like I said earlier, a very practical conversation for the Best Ever listeners and myself on how to optimize our presence on LinkedIn, which will help generate business results.

One is we’ve gotta know what our goals are. Once we identified our goals – are we prospecting? Is it for reputation management? – then we need to know who our target audience is, who’s gonna be reading it, what type of messaging do we need to have… And then three, we need to be cognizant of the keywords that we want to sprinkle in the profile, knowing that LinkedIn is a search engine. And then some other tips that you had – have your profile be optimized from a profile picture standpoint, from a name and also from a headline. And then the tip that I really enjoyed is are we describing ourselves like our target audience would describe us when they search for us, or do we need to have a conversation with our target audience and hear how they would describe us or what they think our title is?

And then you used the example CPA versus tax advisor versus bookkeeper etc.

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

Donna Serdula: Thank you. Bye-bye!

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JF1142: Build A High Quality Sales Team That Consistently Brings You Leads with Dale Archdekin

Dale is currently the director of lead generation for the mega team, Global Living Companies, with Keller Williams Realty. He builds inside sales teams for real estate agents and brokers, hiring sales people, training them, and keeping them trained. To say that Dale has inside sales tips and tricks that we can make you a better at sales, (which if you’re in real estate, you typically use sales in some way) would be an understatement. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Dale Archdekin Real Estate Background:
Founder of Smart Inside Sales, a coaching & training company serving residential real estate agents/brokers
Currently Director of Lead Generation for the top 10 mega team, Global Living Companies, with Keller Williams Realty
Both Dale and his wife have close to 10 years of experience selling and investing in residential real estate
Based in Philadelphia, Pennsylvania
Say hi to him at http://www.smartinsidesales.com
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Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

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


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

With us today, Dale Archdekin. How are you doing, Dale?

Dale Archdekin: I’m doing fantastic, Joe. Thanks for having me.

Joe Fairless: Well, nice to have you on the show, my friend. A little bit about Dale – he is the founder of Smart Inside Sales, which is a coaching and training company serving residential real estate agents and brokers. He is currently a director of lead generation for the top 10 megafirm Global Living Companies with Keller Williams. Both Dale and his wife have close to 10 years of experience selling and investing in residential real estate. Based in Philly, Pennsylvania. With that being said, Dale, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dale Archdekin: Yeah, I think you pretty much summed it up there. With Smart Inside Sales, what we do is we focus on helping real estate agents and teams either add an inside sales division to their company or their team, or help them optimize the inside sales agents that they have in their team. Inside sales is really a bit of a new thing; only in the past couple of years have real estate agents and teams been focused on that kind of hyper-focused lead generation and conversion. So I built one, I’ve made a lot of mistakes along the way with that, perfected them, and now I help other people do the same thing.

Joe Fairless: This is a stupid question I’m gonna ask, but what’s the inside sales team? Is that just people who are actually in the office and not on the road?

Dale Archdekin: Basically, it’s a salesperson who does the hard upfront work of either receiving inbound inquiries, like sign calls on listings, or registrations on websites, Zillow leads, Trulia leads, or they’re doing outbound prospecting phone calls, making cold calls, calling expireds and withdrawns, of for-sale-by-owners in order to set up listing appointments. Then they pass those appointments over to the actual outside agent who’s gonna go and take that listing, or who’s gonna start showing homes to that buyer and close the business.

Joe Fairless: Okay. So these people are on the front lines; they have some thick skin and they know how to navigate some tricky conversations. Where should we begin? How do we create an inside sales team that’s top notch?

Dale Archdekin: Really what we do is we start with the recruiting process. What we wanna do is definitely its own lead generation. What you wanna do is you want to get as many inquiries as you can coming in, and then you wanna streamline your process. I prefer to have people calling to a phone number and leave a voicemail about themselves, and I’ll just have an outgoing message that says something like “Okay, give me your name and your best phone number to reach you at, and then in your own words tell me why you are the best fit for our inside sales department and why you are a sales rockstar.” That’s it.

Now they have to do a little verbal audition, and we just listen to those recordings… So I’m not wasting any time looking at resumes, reading resumes, finding out about your porcelain cat collection only to find out that you don’t actually sound good over the phone.

Joe Fairless: Yeah, I like that. Makes sense. And it’s efficient.

Dale Archdekin: Yeah, definitely. That’s what it’s all about, because you have to kiss a lot of frogs in order to find a really good inside salesperson. Because let’s face it, really not many people like making phone calls all day, or being told no all day.

Joe Fairless: So you start with a recruitment process, you get as many leads as possible… How do you get those leads?

Dale Archdekin: Just running different ads. Using Indeed, using ZipRecruiter, using anything that you have, pushing the ads out there, just like any other job ad. And what you’re looking for is you’re looking for people with sales experience, not necessarily real estate experience. That’s one secret that I’ve figured out. A lot of teams get hung up on trying to find somebody who’s already licensed, and in some states there’s some very heavy requirements around actually getting a license. So what we do is we look for people that just have sales experience, because we can teach them about the real estate process. They don’t have to know that, but it’s hard to teach sales skill.

Joe Fairless: So we’re getting leads coming in for our team members, and we’re listening to those voicemails. We are able to screen some out, and then what do we do after that?

Dale Archdekin: Then the people who make it through that – we set up a role-play with them. So we actually get on the phone, answer a couple questions about the job – how much is the pay, where is the location, what are you gonna be doing all day; you’re gonna be on the phone for six hours plus every single day – how does that sound to you? “Yeah, that’s good. I’m ready to go.” “Okay, great. Here, I’ve sent you a for-sale-by-owner script. You’re gonna be the agent and I’m gonna be the for-sale-by-owner. You have to set up an appointment with me. And the only way that you fail this exercise is if you let me off the phone before you ask all the questions on that script. Ready to do?”

Just doing that script tells us a lot about this person. If I give you explicit instructions that if you let me off the phone you fail, and you let me off the phone because you didn’t wanna be too rough on me, you fail. If you can’t do it when I specifically tell you not to get off the phone, you damn sure aren’t gonna do it once I give you the job and I’m not listening all the time.

Joe Fairless: [laughs] What do you do in that conversation, in the role-play, to attempt to shake them up a little bit and have them quit on you before you actually get off the phone?

Dale Archdekin: Their script – it’s a pretty common physical script in the real estate world; I think it’s actually from Mike Ferry, which everybody knows who Mike Ferry is. So my script – I’ve already baked in objections. One that does trip up a lot of people is “Hey man, listen, I’ve gotta go; my kids are playing in the yard, I just don’t have time for this.” That really shakes–

Joe Fairless: That’s pretty legit! What do you do? You have ten more questions, how do you do that?

Dale Archdekin: You stay on the phone, I don’t care — you’ve gotta be rude; you have to put aside your natural human inclination to say “Oh my god, that’s too much; I can’t keep going” and you have to keep going, because I told you to keep going. And if you can do that, then you can come in and interview for the job.

Joe Fairless: But what’s the specific response? “Hey, I’ve gotta go; my kids just got electrocuted by putting their finger in an electric socket.”

Dale Archdekin: Oh my god, Joe, that’s crazy! You’d better get them to the hospital. Real quick though, are you interested in selling that property or not if I come to see you?” [laughter] That’s the response, man… Get your most important question in. “Joe, are you definitely selling that house – yes or no – before you go?” Because if it’s a no, I don’t wanna waste my time following up with you anyway.

Joe Fairless: “I’m sorry, I can’t answer right now; my kid’s turning purple…”

Dale Archdekin: “Okay, you’d better go. I do care about your child.”

Joe Fairless: Okay, alright… [laugh]

Dale Archdekin: There is a threshold.

Joe Fairless: There is a threshold, got it. I like the tenacity, that’s for sure. My natural thought is I’d hate to be on the receiving end of that, because that would make me pissed off about the person calling me. What are your thoughts on that?

Dale Archdekin: Here’s my thoughts, and this is for the Best Ever listeners out there. The reality is if your kid just got electrocuted, I’m gonna hear the phone hitting the floor. You’re not gonna say to me “I’ve gotta get off the phone, right?” That’s not really gonna happen. So usually what happens most of the time when somebody’s like “Listen, I’ve gotta get off the phone”, really that is they can’t answer one or two more questions. So what we do is if they have a legit reason, like “I’m about to walk into a business meeting, my cab is here”, whatever, you just get your most important question answered. As long as we get the most important question answered, it leads us to whether or not to follow up with you again, and believe it or not, we don’t go so far as to be rude and try to close them on a sale in that situation, but we do wanna understand “Does it make sense to invest our time dialing your number again later on?”

Joe Fairless: Okay. You do the script, you make sure that they don’t hang up prior to getting all the questions asked… Then what?

Dale Archdekin: Then, if they make it through that, we invite them in to a three-hour calling session in the office. And keep in mind, Joe, most of these people have zero real estate sales experience. So going through that script with them, where they have to pretend that they’re an agent also tells us what the level of sales skill is it they have. Because somebody with more sales skills can basically bull***t you through anything that they haven’t sold before. They will stay on the phone with you and they will still set an appointment with you even if they’re selling 3D laser printers and they have no idea what that is.

So we invite them in for that calling session, for the first hour  or so we teach them the script, and for the next two hours we put them onto a recorded line and have them make real outbound calls to real consumers. Then we get to listen to that and see how they actually did.

Joe Fairless: Are you legally allowed to record calls with owners?

Dale Archdekin: The federal law says that one party to the call has to give consent. Now, different state laws have different rules. In my state of Pennsylvania, it’s a two-party consent rule, which means that we have to tell them “Hi, this is so and so from Keller Williams. This call me be recorded for training purposes. How are you?” So you have to make that announcement. So what I would say to all the listeners is just know what your state laws are in order to do that.

Joe Fairless: Alright. So now once we go through that process with them where you teach them the script and they’re on a recorded line for an hour doing outbound calls,  what next?

Dale Archdekin: We review it, and from there you will know who should be offered a position and who should not. And through that process — because it’s one thing… I’ve had coaching clients where they’re like “Oh, well I sat next to them and I heard them on the phone; I didn’t really hear what was on the other side, but they sounded really good on this side”, and then I’ve given them recordings to listen to of where it seems like the agent sounds good, but once you listen to what the other side of the call is going on, you’re just like “What is wrong with you? You’re not tracking with this person at all. You’re not hearing them.” So that’s critical. You’ll know once you listen to those, and then at that point we offer people the position.

Joe Fairless: And what is the compensation amount, typically?

Dale Archdekin: The most common compensation for a full-time in-house ISA would be around $2,000 to $2,500 a month base pay, plus compensation for various factors. The most simple one is a percentage of the commission on a closing at the end of the sale, but there’s all different sorts of arrangements. I’ve seen hourly, I’ve seen strictly commission-based, but most of the time if you’re gonna have a dedicated person who is sitting there, receiving calls and making calls like a machine and is expected to follow a schedule, generally that’s gonna have a base compensation to it.

Joe Fairless: Okay, and what’s the percentage of commission for closing a sale usually?

Dale Archdekin: The average is between 5% and 10% of the gross commission income.

Joe Fairless: Okay. Now taking a step back, looking at the larger picture of the compensation, what would you say annually is this person making?

Dale Archdekin: It depends on the market, because obviously some markets are gonna be far higher, like certain areas of California, and in some areas it’s gonna be much lower. My market, for instance, the annual earnings – it’s one of the phrases that we use – would be somewhere between 60k and 100k, between their base pay and their commission.

Joe Fairless: Got it, and you’re in Philly.

Dale Archdekin: Yeah, we’re in Philly. So I would say we’re sort of middle-to-high, right?

Joe Fairless: Yeah, okay. Now, with this process, we have now gotten the right team members in place, but I imagine that’s when the real work begins, right? So what do you do after that?

Dale Archdekin: So then the training begins. We’re basically training these ISAs to be an agent; not to act like “Hi, I’m a customer concierge” or “Hey, I’m just giving you a call, but the real specialist is gonna take this call farther.” So we want to train that ISA to be that agent and really handle that call, convert that lead into either a nurture for future business, or into an appointment for immediate business.

So we’re training them on everything that you would train a regular agent on – how does the process work, how does financing work, mindset, time-blocking, understanding the types of leads that they’re calling and receiving, what the mindset is of those leads that they’re calling and receiving. And then scripting.

A lot of people put way too much emphasis on scripts. They think that there’s some magic script out there. But really, it just comes down to teaching people how to have conversations with another human being and to understand how to move them  to the outcome that they are looking for and that you match yourself up with. So how do we come to an outcome where you and I are walking down the path, smiling, arm-in-arm? That’s what we’re trying to teach them.

Joe Fairless: How do you do that without being overly focused on scripts?

Dale Archdekin: We use scripts for the baseline. Scripts are to get you started; use the scripts so that you have something to say when you call somebody. But then, if they understand the mindset of this lead and they understand some core principles that I teach, such as experience, process and outcome – so for any person who’s trying to do anything or who’s objecting to you (an objection), that person has some type of experience that they’re drawing from; they’ve created a process in their mind that they think is going to get them to an outcome that they’re trying to achieve. So that objection is just a result of the experience process and outcome.

If you can ask enough questions to understand what their experience is, how they put that process together and what the outcome is and what it means to them, you can show them a different process that can get them to a more, better, faster, cheaper or easier outcome, and then you can say “Would you like that?” and they say “Yes, I would. That’d be great.”

Joe Fairless: So you’re basically learning those three components, and then you’re restating it to them to make sure that it’s accurate, and then you agree upon what the outcome that they want is, and then you say “Hey, would you like it a better, faster way?” and then they agree to it, and then you build from there?

Dale Archdekin: Yes. I’ll give you a very simple example. You call a for-sale-by-owner, the for-sale-by-owner says “My neighbor sold their home by themselves, they didn’t use an agent. They saved a lot of money. I’m gonna sell the house myself without an agent, and I’m gonna save a lot of money.”

Joe Fairless: Yeah, typical.

Dale Archdekin: There’s the whole thing, right? So then I come in, I understand what your experience is, I understand what your process is, and I understand a little bit about what the outcome is that you want – you want to sell your house, and you wanna save money. So to make it very simple, I just simply say “Hey, you’re absolutely right. You totally could sell this home yourself, and that’s great that your neighbor did that, too. If I could show you how I could not only net you more money than it costs you to hire me and make this easier for you to do, would you consider meeting with me to discuss potentially listing your home with me?”

Joe Fairless: Yes, absolutely.

Dale Archdekin: Why wouldn’t you?

Joe Fairless: As long as you’ve built rapport and I don’t think that you’re being disingenuous.

Dale Archdekin: Yes, absolutely. And that brings me to another point, which is what I hear a lot is people closing too quickly, before they’ve built that rapport.

Joe Fairless: How do you know when you built the right rapport?

Dale Archdekin: What I like to tell people when I’m coaching them is “Your close should be the logical conclusion to the conversation you just had with that person.”

Joe Fairless: Oh, okay.

Dale Archdekin: So if the conversation is “My neighbor did it, I’m gonna do it myself; I’m gonna save money, I’m gonna sell my house”, and I say “Well no, I think you should meet with me. Can we get together to talk about that?” – that is not the logical conclusion to what you and I just talked about.

Joe Fairless: Yeah. Let’s just take a step back and we can be talking about any type of sales, that philosophy, your close should be the logical conclusion to the conversation you just had with the person – that can be applied to everything, any type of sales.

Dale Archdekin: Yeah. It’s just communication between people. It doesn’t matter what the sale is, what you’re buying, because it’s not about buying or selling, it’s about you achieving an outcome.

Joe Fairless: Makes a lot of sense. What else as it relates to building a top-notch inside sales team do you wanna mention that we haven’t talked about?

Dale Archdekin: This is the elephant in the room, that doesn’t often get mentioned, but I’m gonna mention it because I run across it so often in my business, and that is when you have a real estate team who has leads coming in, the team leader is investing in them, but the team leader doesn’t have a lot of time to hold their agents accountable to actually making results for those leads… And the agents say “Oh, we’re too busy to call these leads, and they kind of suck anyway, so we need an ISA to come in here and do that for us.” So then the team leader invests money in this ISA, and you make sure they’re trained well and they are an assassin, speaking to these people, setting appointments and nurturing leads, and then they give those appointments to the same agents who were too “busy” to work the leads and follow up with people – that is where the wheels come off the wagon. Those agents are just still gonna cherry-pick the appointments; they’re still gonna just kind of crap on the leads that you’re giving them, the brushed up leads or the appointments.

That is where I see a lot of problem happen, and often times I’m helping a team leader or agent brush up their SalesForce.

Joe Fairless: How do you do that?

Dale Archdekin: So of course I have to work through my client, I have to work through the team leader or the agent. I help them understand that as a team leader, they have specific business goals that they want to achieve, and they want to do it with a certain methodology, which would be lead generation and lead follow-up, and they have agents who refuse to do it, even after that team leader starts investing their time and holding them accountable, inspecting what they expect. If they still have those agents on their team, they have to get out of business with them and they have to fill their bench with agents, salespeople who will help to carry out that vision. That’s how you do it.

Joe Fairless: Based on your experience on the topic we’re talking about now, what is your best advice ever for real estate professionals?

Dale Archdekin: Best advice ever would be to focus on your lead generation and never expect that you can get someone else to do the lead generation to a higher level than you are either capable of or willing to do yourself.

Joe Fairless: And will you give an example of that?

Dale Archdekin: Yes. If you are a team leader of a team, and you do strictly sphere of influence business, right? Just people that you know, warm referrals, “Hey, come over and list my aunt Millie’s house” – if that’s what you do, do not try and tell all your agents that they have to cold-prospect for three hours a day, and expect that that’s going to happen to any great success unless you’re in there doing it, too.

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

Dale Archdekin: Yes.

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

Break: [00:20:49].04] to [00:21:52].02]

Joe Fairless: Best ever book you’ve read?

Dale Archdekin: How To Win Friends And Influence People. I’m a driver, and it’s made me a much nicer person. [laughter]

Joe Fairless: Are you also a real estate investor?

Dale Archdekin: Yes.

Joe Fairless: Best ever deal you’ve done?

Dale Archdekin: I made a little over 15k on an assignment deal that only took me a couple hours’ work.

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

Dale Archdekin: A mistake on a real estate transaction?

Joe Fairless: Yeah.

Dale Archdekin: The first property I bought was a triplex in a questionable neighborhood. It was massive, and it had a bunch of deferred maintenance. I didn’t know what I was doing; I was smart enough to go and ask a friend of mine who had about 20 years of experience in construction, but I didn’t like his answer when he said “Don’t buy that building, it’s a money pit”, because I was so hot because I really wanted to get my first deal. That was a huge mistake, and it cost me a bunch of money.

Joe Fairless: How much did you lose?

Dale Archdekin: I basically broke even, but basically I was there on a Friday night, snaking a 100-year-old sewer line because I didn’t have money to pay a plumber. I was also there with a sawzall, cutting out an old oil tank (I didn’t realize these things could ignite), because I couldn’t afford to get it removed. I put the sweat equity into that lesson. Fortunately, I didn’t lose money.

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

Dale Archdekin: I like to mentor agents and investors, and help them. Because if I can help them with my experience and let them avoid some of the pitfalls or tears, then that would be great.

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

Dale Archdekin: They can just reach me at Dale@SmartInsideSales.com, or they can find me on Facebook; I have a Facebook page and a Facebook group.

Joe Fairless: And also your website is SmartInsideSales.com. Alright, that will be in the show notes page. Thank you for talking through how to build a top-notch inside sales team; you got into the granular details of it, talked through how to first recruit them, then how to compensate them, and then how to train them. I’m sure we didn’t cover it all, but we covered a lot of it, and it was incredibly valuable because the Best Ever listeners who don’t have a brokerage – it’s still relevant.

I don’t have a brokerage, but it’s still relevant to me if we want to bring on an inside sales staff member for whatever we’re doing; maybe it’s podcast sponsorships, or maybe it’s something else. Maybe it’s getting my conference sold out in February in Denver. There’s all sorts of things, and for anyone who’s in the business of selling anything, this is a relevant conversation, so thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Dale Archdekin: Thank you so much!

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Best Real Estate Investing Advice Ever Show Podcast

JF1022: Why You are MISSING OUT on Sweet Deals and How to Wholesale Outside of Your Local Market

He likes to be lazy. Okay, he’s not “lazy” per se, but he looks for the low hanging fruit through creative finance and “subject to” property takeover. He is also reliant on other markets to close wholesale deals. Hear how he is able to network with outside markets!

Best Ever Tweet:


Paul Lizell Real Estate Background:
– Real Estate Investor, JP Homes, Inc.
– Virtual wholesale bank REO properties
– Wholesale between 30-50 deals a year and rehab between 5-10
– Started with fix and flips then went into wholesaling in 2009
– Over 16 years experience in real estate investing
– Based in Philadelphia, Pennsylvania
– Say hi to him at http://www.housedealsamerica.com
– Best Ever Book: Rich Dad, Poor Dad

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

With us today, Paul Lizell. How are you doing, Paul?

Paul Lizell: Great, how are you doing, Joe?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Paul – he virtually wholesales bank-owned REO properties. He’s wholesaled between 30-50 deals a year, and rehabs between 5-10. He started with fix and flips, then went into wholesaling in 2009. He has over 16 years in the business. Based in Philadelphia, Pennsylvania.

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

Paul Lizell: Sure. I started rehabbing back in 2001. I was rehabbing probably anywhere from 5-8 deals at a time, going on until the end of 2007, early 2008, when the market really started to drop. At that point I got out of the rehab game because I was losing money on a lot of these different deals, and I decided to shift my focus to wholesaling. This is all in the Philadelphia market – I switched basically from rehabbing to wholesaling; still doing some rehabbing, but on a very small scale. We were limited to maybe doing 3-4 deals a year rehabbing, and the rest of the deals we were wholesaling. At this point we exclusively shifted to bank-owned properties as well.

We started doing it more remotely in 2011. We started buying out of state, out in Ohio, Indiana, New Jersey, Delaware, Virginia… We continued to expand out as we got more comfortable in these markets, and just kept on growing and growing and growing. Now I buy all over the country and we do anywhere from — a lowman year is 50-100 deals a year. That’s kind of where it stands now.

Joe Fairless: Why shift from local to national?

Paul Lizell: Basically, it was more for inventory purposes as much as anything. If you find a good deal, obviously, no matter where it is, you’re still gonna be able to move it, in my view, and I enjoy learning new markets and going into different areas. It’s actually just something I really enjoy doing – I like traveling, so I don’t mind going to an area and spending three days  there, learning a little bit about the market and then I start to buy in that market.

It gives you more inventory to choose from, right? If you’re just in your hometown or within a couple hours of your house, you’re only limited to a certain basket of properties. If you open it to the whole country, then you’re open to a heck of a lot more opportunities.

Joe Fairless: When you come across a deal that’s in another market, even if you’ve been there for 2-3 days, I’m sure it’s still challenging to know that specific area, so how do you determine how much the property is worth and what you want to sell it for?

Paul Lizell: That’s a really good question. That’s the tricky part, because in any market you have good zip codes and bad zip codes to find; even if I’m only there two or three days, I’m not gonna learn anywhere near the whole market; I’m gonna learn about a small percentage of the market.

So I actually rely heavily on other wholesalers in those markets and other rehabbers. You can match up with these guys on Craigslist and just find out what zip codes their buyers are actively buying in, what zip codes to stay away from… The guys that have been doing wholesaling for a while are the ones you wanna rely on, not the guys that are just new to the game.
And as far as rehabbers, I’ll tell you exactly what areas they buy in, what areas they don’t buy in and why. So those have been my best resources.

Realtors are an okay resource; they’re really your best resource for comps, obviously, but you’re not necessarily gonna get that zip code by zip code area – the good, the bad and the ugly – from a realtor as well as you will from a wholesaler or a rehabber.

Joe Fairless: That’s great input. Say you’re going to a new city… You’ll go on and you’ll visit it for a couple of days; now you’re coming back, now you’re getting some deals… You’ll go on Craigslist and identify wholesalers and rehabbers and see where the wholesalers are selling properties and the rehabbers are rehabbing them.

Paul Lizell: Yeah, absolutely. And if I’m planning on going to that market – say I’m going to St. Louis – I’ll actually go on Craigslist beforehand, trying to phone interview a few of these guys and maybe meet one or two of them while I’m out there, so that way I’m not doing it twice. I’d rather just go out there once, meet with these guys, find out what their buyers are looking for, do some joint venture deals…

We’ve done a lot of joint venture deals with a lot of different wholesalers out there, and that’s been a big part of our business, and it helps lower your risk for mistakes when you’re doing it that way.

Joe Fairless: What is a tough deal that you would have to wholesale?

Paul Lizell: That would be deals that we get in more rural areas, the ones that are out there, the ones that are not in the cities, not in the direct suburbs to places, and less buyer pool, obviously. Those end up being the harder deals to move, that is for sure.

Joe Fairless: I ask that question because I actually came across a wholesale deal in a very rural area of Pennsylvania and I don’t wholesale; it’s just someone who I knew and he had a portfolio of like 20-25 single-family homes in a town. A Wal-Mart gets more traffic than the amount of total population for this town, in one day. And it’s not my business model, so I talked to a couple people who I knew wholesaled, and none of them were able to move it because it was in such a small town… So who is your buyer for a remote town with a property?

Paul Lizell: This is one of those interesting things to find out… Because these places are more remote, you also don’t have great Wi-Fi access in those areas, and you have an elderly population. We sell the majority of our properties through newspaper ads in those markets, believe it or not. Newspaper ads do the best, much better than Craigslist or any of those things, and direct mail marketing.

We direct mail to cash buyers lists in those areas, wherever is close to it. Those are our best buyers. When we get buyers through Craigslist, we generally are getting somebody who is looking to live in that property, not necessarily to do it as a rental. Most of the time we get somebody who’s looking to owner occupy the property, and they happen to have some cash.

But yet, newspaper ads, believe or not. It’s the most expensive; it’s not cheap to do newspaper ads, but they work pretty darn well in rural areas.

Joe Fairless: That’s a great tip.

Paul Lizell: Anywhere there’s an elderly population, newspaper ads work well, because they still read them. We’re online doing stuff, they’re still reading the print.

Joe Fairless: Paul, you’re doing 30-50 deals a year, rehabbing 5-10… Are the rehabs local?

Paul Lizell: Most of my rehabs are local. However, I have two that I did down in Southern Florida – my dad lives down there – and I have four that I’ve done this year in Tucson, Arizona, that have been rehabbed… Some of them just paint and carpets, some full rehabs. The only reason I do that in that area is because I have a really good agent who basically runs the whole rehab for me. I pay him a little bit extra, especially on the commission side and off the side… But that’s the only reason I do that in that market. If I don’t have somebody like that, I won’t do that, because that’s remote rehabbing, and it gets really hard, and it gets really tough to monitor and control. I try to keep most of my rehabs within about two hours from where I live.

Joe Fairless: What’s a lesson learned as you’ve scaled your business, with wholesaling in particular, and you’ve gone from local to now national…? What can you tell us about something you’ve learned along the way?

Paul Lizell: Best lesson learned is don’t buy those ugly piece of junk super cheap properties, because they can be really difficult to move. I guess last year I did four or five of them… I lost money on a couple of those, and they just drew so much of my time; they’re so difficult to move because of the amount of work needed, so I’ve gone away from those properties that need a ton, and just tried to go to the ones that need your more basic rehab, not ones that need everything done – foundation issues, or anything like that. That’s a bit lesson learned there on that.

Joe Fairless: Why does that matter if you’re wholesaling it?

Paul Lizell: On two of those properties in particular we’ve had buyers under contract three separate times on both of them, and they all fell off. Then we had to lower the price to get it to a really good, attractive number, to where somebody stuck with it. I think it was just too much time to think; they were looking at it, seeing how many repairs it needs and it gets above what they’re looking to do and they just bail out.

Then we got some deposits on that, which helped, but [unintelligible [00:10:16].17]

Joe Fairless: Paul, what’s your best real estate investing advice ever?

Paul Lizell: I’m gonna make it to this market right now…

Joe Fairless: Okay.

Paul Lizell: The interesting thing about the market we’re in – we’re in a different market than we’ve been in since 2005-2006, where you can make money almost doing anything. It’s not quite as good as it was then, but still pretty good.

Right now a lot of my wholesale deals I’m getting, I’m listing in the MLS in different areas, flat fee listing agents, and we’re moving them at higher dollar amounts than we would if we were just going on Craigslist or sell them through direct mail marketing, or sell them to our cash buyers list. We’re actually doing better there than we are on your traditional sites. Right now that is a really good market to hit, as well as just doing your wholesaling, where you just make it mortgageable. Just do some paint and carpet, make it look good, make sure you don’t have any chipping paint or anything like that… That is a good one right there.

I have other things I could probably give as well, if you wanna hear the…

Joe Fairless: Yeah, please do.

Paul Lizell: Another great resource for me – I’m not big fan of rentals… I’ve had rentals, I sold all of them off; I’m down to one and that one’s gonna be sold over the next…

Joe Fairless: Why?

Paul Lizell: I hate the hassle of them is what it comes down to. The hassle of them just drives me nuts; they’re such a time suck… I try to be lazy with my business. Lazy in this way – I wanna get the most out with doing the minimal effort. I think everybody wants that life, right?

Joe Fairless: Mm-hm…

Paul Lizell: Rentals, they just drag every little bit of energy out of you. They can be difficult, but they can be really fruitful long-term. So I’m losing something long-term, but what I’ve switched to is an owner finance model, and I’ve done this a lot with investors right now to avoid the Dodd-Frank Act, but I also still do owner financing to owner occupants as well.

Those are far less maintenance, I don’t have to worry about it if the toilet breaks, or if something goes wrong with the dishwasher [unintelligible [00:12:01].04] That’s not my issue, I’m just collecting the note and I don’t have any other headaches with it. My only headaches are making sure that taxes are paid, that insurance is there covering and protecting me, and that they pay. That’s pretty much it.

Otherwise, they’re low-maintenance, they’re nice and easy, and that steady monthly income is good. Even though it’s only set for a fixed period of time, I really prefer those over rentals… But there are tax drawbacks to them, obviously.

Joe Fairless: Yeah, thank you for mentioning the pros and cons. I love how you’ve said this objectively. So on the tax disadvantages, what are they?

Paul Lizell: With rentals you get to write off depreciation, you get to write off your interest expense, your real estate taxes, your insurance. On the note, I’m not really getting to write off anything. I don’t have any depreciation; it’s all pure income coming in, so it just adds to my tax liability, unfortunately. But if you can put some of those notes into your IRA, then you kind of avoid that. Then you’re kicking it down the road.

It’s great for building IRAs. I really am a big fan of using them to build your wealth in your IRA or your 401k, and you’re not worrying about the tax ramifications; it’s down the road you’ll have to worry about that.

Joe Fairless: What is your end game then, if it’s not having a portfolio of properties that are eventually paid off and bringing in monthly rent checks? What are you doing for the long-term?

Paul Lizell: My long-term goals is I have two of them that I wanna get into, and this will be a little less maintenance. One, I wanna get into self-storage facilities; that would be the rental income I’d like to have. They’re much lower maintenance. There’s maintenance, but there’s nowhere near the same kind of maintenance as there is on a traditional rental. That’s one source.

The other one – I may get into apartment investing. That’s a little more maintenance, obviously, but…

Joe Fairless: Yes, it is… A lot more maintenance. [laughs]

Paul Lizell: Yes, yes. You’re gonna have costs, you’re gonna have so many more added costs on that… Which is why I prefer, rather than do the apartments [unintelligible [00:13:56].17] worry about the toilets, you’re gonna have maintenance, you’re gonna have people, you’re gonna have to constantly have calls to make repairs… Self-storage isn’t nearly as bad, and they’re pretty profitable, but they’re pretty expensive right now.

Joe Fairless: Yeah. With my single-family homes – I only have three single-family homes, but they are so turnkey it’s ridiculous, and it’s because of the management company. Compared to apartments, holy cow… That is much more active. So if you have these two options and your focus is on being passive, go self-storage!

Paul Lizell: I totally agree with you, Joe. And the single-families are far better than the duplexes. I’ve had duplexes, quadruplexes, triplexes, and they’re much more of a time suck and they cost a lot more money and there’s a lot more turnover of people. The single-families I’ve had – I’ve had people in there for 5, 6, 7, 8 years at a time. I’ve just [unintelligible [00:14:49].03] on our house, which is part of the reason I sold off some of my rentals, to pay for the addition here, and I just got tired of some of the maintenance on some of them, and some of the turnover on certain ones.

It’s just like a stock portfolio, you’re getting rid of your dogs… And now I’m getting rid of one that has a very good cash flow, but it’s turning into a note. So I’m getting my money back on the down money that the buyer is putting in there, and then I’m having a note on the property, so I’ll be getting long-term income from it that way.

Joe Fairless: Okay, very cool. Nice, creative approach. I sold off one of them because it just wasn’t like the others, and kept the other three. Alright, Paul, are you ready for the Best Ever Lightning Round?

Paul Lizell: Oh, absolutely.

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

Break: [00:15:33].04] to [00:16:26].21]

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

Paul Lizell: Rich Dad – it’s truly the best one.

Joe Fairless: What’s the best ever deal you’ve done?

Paul Lizell: A rehab where we made a little over 100k. That’s a good one.

Joe Fairless: Can you elaborate on how you were able to do that?

Paul Lizell: It was a bank-owned property. We picked it up for 60k, we put about 40k into it, but I we sold it for about 230k on that one. It was just a really, really good one. We were just kind of lucky. It was sitting on the market for a little while, it was listed much higher, they took our low bid and we ran with it. We really did it up; we really put some good money in and really had some nice upgrades on it. We finished off the attic, which we made a big master suite up there. We added a full second bathroom and another half bathroom, and really expanded the kitchen. So it really just made the place beautiful and sold pretty quickly.

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

Paul Lizell: Coaching. I coach travel baseball. I coach my middle son now; last year I coached my older son. I coach basketball. My 12-year-old team, we’re going to Cooperstown this summer, and there’s nothing like giving back to kids and teaching them how to get better at sports and correlating sports to life; that’s my favorite way to give back.

Joe Fairless: Did you say they’re going to Cooperstown?

Paul Lizell: We’re going to Cooperstown. Every 12-year-old team is eligible to go to Cooperstown; you have to get on the waiting list there. Luckily, our township has had it every year, so we’re there and we’re hoping to get two teams in there next year. It’s a lot of fun. It’s very expensive, it’s like $1,000 a kid, plus the pins, pants, and all these different expenses that come in there, but it’s a ball, it’s so much fun.

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

Paul Lizell: Okay, so this goes back to when I was rehabbing about eight at a time in 2007-2008, when the market started to tank. I had some properties where I was pouring in 75k-100k into these rehabs, and the market just totally tanked. I lost money on six out of the eight. What it thought me is 1) to scale back and pull back on what you put into a rehab, and also spread yourself more even. I wanted o diversify my portfolio, which is why I got into wholesaling… So you always have income coming in, rather than waiting for just these flips to close, which is taking you 3-6 months by the time you fix that are resell it.

Joe Fairless: Yes, or stagger them a little bit.

Paul Lizell: Yes, exactly, so you’re not always so cash-strapped and waiting for the next check. The great thing about wholesaling is every week we’re selling something and we’re getting income coming in, so it’s great. It’s only maybe 10k, compared to the 30k-40k that you can get on a rehab, but still, it’s constantly turning and you’re not doing anything to the property.

Joe Fairless: Yeah, and you don’t have a lot of risk with that property, because it’s just marketing costs and whatever your teams costs, right?

Paul Lizell: Exactly.

Joe Fairless: What is the best place the Best Ever listeners can get in touch with you?

Paul Lizell: They can reach me by e-mail. It’ll be my first and last name – PaulLizell@gmail.com.

Joe Fairless: Do you have a website?

Paul Lizell: I do. It’s HouseDealsAmerica.com.

Joe Fairless: That is in the show notes, for the Best Ever listeners… You can click on that, or just e-mail Paul directly. Paul, you taught us how to wholesale a property in a remote town, and that is you simply pick up the phone, call the newspaper ads department and place some ads, because there are older populations, and if you’re catering to an older population in a small town, then that’s where they’re consuming their news. You’ve been very successful and had some success with selling properties via newspaper ads in small towns; that’s a real-world lesson for me… When I was trying to do that about a year ago, or whenever that was when I came across this one portfolio randomly.

Then also your lesson at the end: 6 out of 8 homes, lost money when things shifted in the marketplace… So we should diversify our portfolio, and there’s many interpretations of that, one of which is to stagger them; another would be to diversify your portfolio and what you invest in, and then other ways. Then lastly, scaling outside of your local market into national markets and how you identify good areas and good team members, and that’s initially through Craigslist, seeing where rehabbers are rehabbing properties and wholesalers are wholesaling properties, in what zip codes.

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

Paul Lizell: Thank you so much, Joe. I appreciate it.


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JF936: How to Raise MILLION$ to Buy Notes #SkillSetSunday

Raising money to buy debt, that’s correct… Sounds strange but it pays off! Our guest has been a previous guest on the show and he is a successful investor with many hats, and today he is sharing with us how it’s possible to raise millions of dollars to purchase notes. You don’t want to miss this!

Best Ever Tweet:

Dave Van Horn Real Estate Background:

– President of PPR Note Co., managing several funds that buy, sell, and hold residential mortgages nationwide
– Over 30 years of residential and commercial real estate experience
– Also is a Blogger, national speaker, and founder of Strategic Investor Alliance (SIA)
– Began as a contractor and has done everything from fix and flips to Raising Private Money
– Based in Philadelphia, Pennsylvania
– Say hi to him at http://www.pprnoteco.com


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Chris Clothier and Joe Fairless

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 don’t talk about any fluffy stuff, we only talk about the best advice ever. I hope you’re having a Best Ever weekend.

Because it is Sunday, we’re doing a special segment called Skill Set Sunday. By the end of our conversation you’re gonna come away with a skill that maybe you didn’t have before, or perhaps you’ll hone your skill. The skill that we’re gonna be talking about today – I love this topic – raising capital.

We’ve got our Best Ever guest, Dave Van Horn, who is going to raise at least 50 million dollars this year, and has already raised 50 million dollars. Dave, how are you doing?

Dave Van Horn: Hey, thanks for inviting me to the Best Ever podcast, Joe.

Joe Fairless: My pleasure. Well, if you recognize Dave’s name, you are a very loyal Best Ever listener, because Dave was on episode number 39, way back 12th October, 2012. You were one of the first episodes that I did when I started doing this thing daily. I started being a psycho about it, and I was like, “You know what? I’m gonna do  the podcast daily and see how it shakes out.”

In episode 39 he talks about his best advice ever and more of his background. We’re not gonna talk about that in detail, we’re gonna talk about raising money and what he raises money for. He’s based in Philadelphia, Pennsylvania. You can say hi to him at his website, it’s in the show notes page.

Dave, do you wanna give the Best Ever listeners a little bit about your background, just to get some context?

Dave Van Horn: Sure, Joe. The last podcast was more about my real estate background. I started in construction, became a realtor when I was 26, then became an investor, and then did fix and flips and buy and hold. Then I became a lender, and then got into notes. My primary role in the notes space is as a fundraiser. Then I did a bunch of stuff in-between: I sold insurance, I did property management, I traded options, and then I had a wife and two kids, too… But all those things played a role into what I can do today.

My actual fundraising started over time through the real estate side. I started out with the typical real estate investor, where they’re raising money for one deal, or eventually drift into private money or hard money, and then it just morphed and morphed and morphed, and I eventually got into raising commercial real estate capital. I did that, and then off into the notes space. So it kind of evolved.

Joe Fairless: Right now, in your role, you are raising money for what?

Dave Van Horn: Primarily – I wear a few hats, but primarily I’m heavily into the notes space, which is one of the four family residential mortgages nationwide, and we buy from the big players and the banks. We buy large quantities of distressed mortgages mostly, and we don’t deal in commercial and we don’t deal in unsecured or student loan debt, or that type. So we’re in the debt space, basically.

Joe Fairless: Let’s add some context to that for perhaps some Best Ever listeners who aren’t familiar with note buying. I’ve never done note buying, so I don’t have direct experience in it. When you raise a million bucks and you buy a million dollars worth of residential mortgages, it’s different from, say, when I raise a million dollars and I buy an apartment community, because I’m raising a million and I’m putting a loan on it, whereas you’re raising a million and you’re buying the loan, is that correct?

Dave Van Horn: Yes, you’re right. We can’t really leverage like you could. When I raised capital for commercial real estate in the very beginning, I was doing it with mobile home parks, for example. We bought 32 million dollars worth of mobile home parks and we raised 8 million dollars for down payments, closing costs and fix-up. So you can see, you’re able to leverage to financing – whether it’s owner financing or bank financing; in the resident note space, you’re putting it up cash, but you’re buying it at a big discount.

Some loans can be releveraged; first mortgages are easier to releverage for the bank, but it is much more difficult buying distressed assets and saying, “I want a loan on that”, because think about it – they wouldn’t get their mind around “How can you collect on what they can’t?”

Joe Fairless: So you’ve raised money for mobile home parks, and you’re primarily raising money for notes. Who are your business partners who are bringing the equity? I’m not looking for names, I’m just looking for — yeah, I want their social security number, they bank account number… No, I’m looking for how you know them, that’s the root of the question.

Dave Van Horn: It’s funny that you say that, because my fundraising started in the real estate side, and in the very beginning I actually started a group called REING (Real Estate Investor Networking Group), and actually it still runs today. There’s a branch in Chicago and one in Philadelphia. When we first started, it was 12 people at lunch, and over a six-year period, we ended up in five states and six cities, from Baltimore to New York. Obviously, it grew, and we have about 8,000 people in our database. That was before the crash, in around 2008.

We had this real estate group, and one of my roles in the group — we did networking, we had dinner, people would bring their deals to the meetings that we did monthly, and I used to interview the speakers. What would happen over time was people would come to me saying, “Can we present to your group?” and a lot of times I’d get an opportunity to raise capital for them. I had a large network, so they would say, “Hey, would you help us raise money for mobile home parks [unintelligible [00:07:59].15] and commercial offers, condos, and things like that. That’s how it started.

Then one of our speakers happened to be a gentleman out of New York who was raising capital for pools of distressed mortgages. Of course, he came down and spoke, and everybody thought it was a great idea, and of course I didn’t do anything for like three years… But I had a partner who did, and then around the time of the market changing, we were like — my one partner today was a former lender and I was a real estate guy, and we were like “Hey, which side of the fence do we wanna be on in this downturn?” We reached out to the guy in New York and he showed us the collection side of the mortgage space; he knew we can raise capital, because we were doing it for commercial real estate.

So it’s definitely a little bit harder to raise money, especially… We started out in second mortgages, so I’ll give you an idea, Joe… You know what it’s like with an apartment space, for example – it’s much different to raise money for apartments or mobile home parks than it is to raise it for delinquent upside down second mortgages with no equity in bankruptcy. [laughter] If you can raise money for that, you can raise money for anything.

But I was fortunate and really blessed that I was able to learn from this one company who was in New Jersey and they were raising money for mobile home parks in Michigan and Indiana, and they did have one place in Pennsylvania. The beauty of that was by raising capital for them, I was able to learn how to raise capital and get paid to do it. That part was really cool.

It was a situation where the deal was good, but their partnership turned bad. But I learned a lot… The new venture appeared in the REING group with the note space. It was like a blessing in disguise. I think the reason I have the success I have today was through some of the hiccups along the way earlier on.

Joe Fairless: I wanna focus on the delinquent upside down mortgage in bankruptcy raising money part, but I do have a question just to close the loop on the mobile home stuff. How were you compensated? How did you know what to charge them for helping gather everyone to raise the money for their deals?

Dave Van Horn: Most of the time it’s through points or a salary plus bonus, that was typically how we were set up. We have different entities. The one deal was like four mobile home parks, and then some of the other mobile home parks were individual parks, but they were all over a hundred units. Then one storage center sat by itself, and the other storage center was part of a park.

There’s a lot of owner financing in that space. That’s a fundamental difference I see today between mobile home parks and apartments – the apartments are easier to get financing on. It’s kind of the same way in the note space… I said seconds are hard to leverage, but first mortgages are easier to leverage; well, it’s the same way if you compare mobile home parks with apartments – apartments are much easier to leverage (the banks can get their mind around that), whereas mobile home parks, it’s a little riskier, it’s a motor vehicle title, it has all this nuance to it, so it’s a little different animal.

Joe Fairless: Just to give a Best Ever listener an idea of what they could make… An example where you raise money for a mobile home park and you’re part of the LLC and you get a salary plus bonus or points – how much is that? How do you know to say “Yes, I’m worth this much because I’m gonna help you raise a million bucks”, or whatever you did?

Dave Van Horn: Well, I was pretty naive back then. We were typically paid points, or… What we were really doing was a lot of times the minimum investment was pretty high – a quarter million dollars was the minimum investment in some of these vehicles… So we didn’t always have a quarter of a million dollars, so we would start our own entity and maybe create 11 shares at 25,000/piece, but the 11th share is my share, and I didn’t really put any capital up. That was one way.

Then sometimes we were bonused from the company for raising money from them, so it was a combination of things. Sometimes we were paid for our marketing expense, and then on the other side we were paid through a piece of the action by putting the deal together, so to speak. So you can get paid both ways… We were fundraisers and investors as well, me and some of the other people raising capital for the group.

Joe Fairless: Now, I love how you said earlier “If you can raise money for delinquent upside down mortgages in bankruptcy, you can raise money for anything”, and I agree. Tell us what insights have you acquired that help you raise money for the perception of what I just said?

Dave Van Horn: [laughs] It’s kind of like “what’s the best advice on that”, right? It’s kind of like honing in on what you’re best at, and that took me a while to figure out in my life. At the time, I did all these crazy things… You’re like “This guy’s unbelievable, how can he do all these things?”, but it was really like a search to figure out what you were good at. What it turned out was that I was really good at this capital side of things… It’s not so much what I do, but how I do it, and it’s about focusing on my strengths, not my weaknesses. I’m not very good at guitar or speaking French, and I could study my brains out and I’ll probably be mediocre at best…

So it’s focusing on what I’m good at, and it’s really about the way I do it – I think it’s by helping people. In the beginning I almost went down the path of the typical guru at first, and gladly switched gears, because what I realized was it’s really about me sharing and helping other people build and preserve their wealth, that type of thing, whether it’s through education and things like that, or low-cost information, books…

It’s really that “give value first” type of thing. I think if you focus on what you do best… And the typical business of raising money is really “Me, me, me, me, me! Hurray for me! I wanna make a lot of money”, or something like that, whereas if you notice, the people that really are good at raising capital have a bigger purpose a lot of times in themselves.

Even when we were doing the mobile home park thing, they were actually building a Christian academy and they were funding it from the proceeds of the parks. So they had a purpose that was bigger than them. You’ll see that today with some businesses, startups where they’ll be digging wells in third world countries. Actually, my assistant’s doing that – she’s going to Nepal this summer. It’s part of the business model, and the charity is built into it. That’s always a cool thing, if you can do that right at the outset.

I think sometimes there’s some good ways to do things to raise money, because it’s much easier to raise money for charity, for example, than to raise money for Dave or Joe. But it’s really about giving value first and helping others, and I think with all the different experience I’ve had, it’s easy for me to do that. It’s really through this content creation and experience that I share with others, and I think people get to know you and it builds trust and confidence. People start to become more comfortable, they become more confident.

Joe Fairless: Okay. I’m taking notes, and I’m hearing that, and I also want to dig in a little bit deeper, because I would love to know… People are investing in delinquent upside down mortgages that are in bankruptcy… So I hear you that you’re adding value first, you’re creating content, you’re educating people, you’re building the relationship; the bigger purpose – I understand how that can be positioned and hold true, where you’re helping people work out their mortgage so they stay in. You don’t wanna repossess it, so you’re doing what you can there – so you do have an altruistic angle that you can talk about. That being said, delinquent upside down mortgages in bankruptcy – how do you position those conversations specifically when you’re talking to people?

Dave Van Horn: Well, obviously you have to do a little bit of education, because people are only gonna invest in what they know. In the beginning, we would relate notes to real estate, and most [unintelligible [00:16:07].03] an investor, and we have three types of investors. We have an investor who would invest in a note, and then we have people that invest in a fund, and then we have people that need more information, and you provide free or low-cost information. It’s really to get them to understand the investment.

In the beginning it’s kind of simple because everybody’s in the note business already, they just don’t know it. You have a credit card, you have a student loan, you have auto debt, you have medical debt, you have mortgages… The country is just loaded to the gills with debt, but people don’t think about receiving a check, they just think about writing checks every month. I’m talking in general… I’m sure the Best Ever listeners are a lot more savvy, you get the idea.

Joe Fairless: I get it, yeah.

Dave Van Horn: So it’s really about “How do I come across the aisle and start to think like the bank, or becoming the bank?”, and what are the advantages of that. And one of the things that intrigued me from the investment side was if I could buy something at a discount with a high yield that’s backed by a piece of real estate, “Hey, that’s pretty intriguing.” And by the way, it fits one of Maslow’s hierarchy of needs, because everybody needs a place to live, right? So there’s more to it than just equity, for example.

There’s things like emotional equity, for example. With a junior lien, why would somebody stay if their house was upside down, and the reason is because they need a place to live. It doesn’t have to make sense, other than what do they pay monthly and what would it cost me to move from here. Or there’s emotional equity – “I raise my kids there, I finish the basement, I know the neighbors, what will my family think, it would cost me more to move into another place with first month/last month security, pay for a mover… Or do I just figure something out on my junior lien and stay here?” So there’s all that going on.

I always describe emotional equity as “Joe Fairless at his mid-life crisis, buying a red convertible. He drives it off the lot, it drops ten or twenty grand in value, but he looks cool… The girls like it, so he buys it.” Now, does it make sense financially? Hell no! [laughs] That’s emotional equity, right? When you apply that to a house, it’s even more powerful.

Joe Fairless: The number one thing – for a lack of a better word, because I can’t think of a better, bigger word than that – that investors want to make sure of in their investment is they don’t wanna lose money. Studies after studies prove that out, that if you ask someone or do an experiment with someone and you either take 50 cents from them or give them 50 cents, they’re much more pissed off if you take it, than they are happy if you give them 50 cents. And if you give them 75 cents but take 50 cents, they’re still pissed off about the 50 cents. How do you address that with your business model? Because that has to be a question that comes up continuously, or at least the thought process of “I don’t know if I wanna invest in upside down mortgages that are in bankruptcy…”

Dave Van Horn: Well, first of all they’re not all upside down, and they don’t always stay upside down. There are assets that are covered with equity, like first mortgages, and then there’s assets that are partial equity, and then obviously there are some assets that are no equity, but they’re priced accordingly and they have different yields. And then there’s different ways to spread the risk.

One of things you mention is how do you sell an asset that’s partial equity or upside down, and what we found was we listened to the buyers and they were concerned, too. Part of it is track record, and part of it – we actually have a warranty on our performing notes. The warranty puts some people at ease. Now, the warranty is only as good as the company, because if the company goes out of business, then the warranty would be very valid, right?

The other side is some people will go “You know what? I have a portfolio of 20 notes, and 15 or 18 of them all have equity (I feel good about that), but here’s a note with partial equity. It’s a lot cheaper, it has a lot higher yield – maybe I’ll take a flier and invest that. Or I’ll invest 10% of my portfolio in this crazier asset class with more yield.”

Then other things happen too, like for example phantom appreciation. If you had a note that was partially covered by equity, and the market comes back. Maybe it’s a note in Phoenix, or Florida, or whatever, and the real estate market comes back, and now all of a sudden that note I got a great price on, the equity comes back and the property behind that note, and all of a sudden the note’s worth more, and I didn’t really do anything, the market did that. And I was collecting payments all along, and I could sell my note for the same or more than what I bought it, and I might have been collecting on it for three or four years. That’s a neat phenomenon, too.

Joe Fairless: If I buy a note that is upside down, what’s the warranty cover me for?

Dave Van Horn: Our warranty was investment principle minus payments received, and still is, when you buy a performing note. It could be first or second mortgage.

Joe Fairless: When you buy a performing note…

Dave Van Horn: Yes. Now, if you buy a non-performing note, we only warranty the lien position and that it’s a valid lien, and it’s in the lien position as advertised.

Joe Fairless: Okay, got it. So if you buy a non-performing, then it’s…

Dave Van Horn: You’re a more savvy person, usually you should know what you’re doing. It’s a little more dangerous game.

Joe Fairless: Okay, that makes sense. What else, if anything, should we talk about as it relates to raising capital?

Dave Van Horn: I guess it’s really about focusing on your strengths, getting to know your true self, what you’re good at – for me it was raising capital. I think a lot of it is how you do it. When I think about my best ever deal – on the raising capital side it has been where people have invested a couple million dollars or something, and I haven’t really met them yet. That’s just a testament to the systems and processes you have in place as far as your web presence, your profiles, your content creation that you do, the stories that you tell, the experience that you show… Because you know how it might take several touches for someone to feel comfortable, to move forward with an investment; it makes sense, right? But if you can become more efficient at that, maybe…

It’s sort of like a podcast is – a podcast is more efficient than me flying on a plane to a hotel in Ohio, so I can reach more people, potentially. So it’s kind of like that… It’s “What can I do more efficiently to provide information, comfort, advice, everything from paperwork — it’s really the systems and the process of facilitating investors, giving them the information they need in a more efficient way, maybe that’s what I’m saying.

It’s really not a salesy type thing, it’s finding ways for them to get to know you better, sooner. It’s kind of interesting when some people invest with us…

Now, the other thing is we do provide outlets to connect with them, though. We do make ourselves available, whether that’s Q&A conference calls, or actually have events for our ideal customers, so to speak. I run a group called Strategic Investor Alliance, and that group is really a venue for high net worth investors to meet with me and people that I know, and also to look at other investment vehicles and other experts. It’s like a group that I put together — it’s different than what I used to do with that real estate group years ago. I used to facilitate and network with all these real estate investors.

Today, it’s a little higher level group, but very similar in the concept of we just share resources, and we vet investments, and I bring in other investment vehicles, other funds. Some people look at me kind of strange and they go “Well, why would you do that? Why would you bring other investment vehicles? Aren’t you raising money?” and the answer is “Yeah, but my investors – and myself; I’m an investor – like to look at a lot of investment, and I like to vet them”, and we all have different strategies. Our group acts like a Yelp for various funds, investments and other types of alternative investments that we all like.

Then we bring in experts, too: lawyers, accountants, asset protection, legacy planning and all that stuff. We do all these things that we have in common, and I think that by sharing that type of value, that shared values approach – I don’t know if I raise more money from that, but I think people see the value in it. We don’t sell anything at this group, for example; it’s just information and shared resources.

I think a lot of investors like that because they can validate their investment strategy, they can help to build a solid portfolio of investments, and they can see what other investors like them are doing. I think it’s a unique way to do it.

Joe Fairless: Dave, where can the best ever listeners learn more about you and get in touch with you?

Dave Van Horn: Probably the best way is through my site at pprnoteco.com. Anybody can reach out to me direct at biggerpockets.com/users/davevanhorn.

Joe Fairless: Dave, thank you for being on the show, talking to us about the lessons that you apply to raising money in a perceived difficult area of raising money (that’s for sure)… How you help people first, through education, content creation… I love this money quote: “Find ways to get them to get to know you better, sooner.” I think that’s really the epitome of — well, adding value… I think there should probably be an added value part in there too, in that quote. What you’ve talked about before, that’s great stuff.

Also, identifying your core audience – as you said, you have three: an investor who will invest in a note, an investor who will invest in a fund, or an investor who needs more information, and seeing where they are in the marketing funnel, and then giving them what they’re looking for.

Lots of great stuff… If you’re raising money for delinquent upside down mortgages in bankruptcy, then you can raise money for anything, and that’s why I’m grateful that we had our conversation, to share that with other Best Ever listeners who are raising money as well.

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

Dave Van Horn: Thanks, Joe. Take care!

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no fluff real estate advice

JF707: A Few Tips from a No-Credit-No-Problem Asset Based Lender

Today’s guest is full of advice for fix and flip investors anxious to jump into the game. He shares a few tips on money, deal structure, and analyzing whether it’s a deal or not. Hear what he has to share intake notes along the way, it’s time for you to jump into your next fix and flip!

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Ian Walsh Real Estate Background:

– Partner at Hardmoney PA
– Started Atlas Property Management with his business partner Josh
– Based in Philadelphia, Pennsylvania
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– Best Ever Book: Richest Man in Babylon by George Clason

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