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

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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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TRANSCRIPTION

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

With us today, 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.

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

Listen to the Episode Below (36:06)
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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

 


Made Possible Because of Our Best Ever Sponsors:

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

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

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


TRANSCRIPTION

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

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

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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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TRANSCRIPTION

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

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!

JF1142: Build A High Quality Sales Team That Consistently Brings You Leads with Dale Archdekin

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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
Best Ever Book: How to Win Friends and Influence People


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TRANSCRIPTION

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

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!

JF1022: Why You are MISSING OUT on Sweet Deals and How to Wholesale Outside of Your Local Market

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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

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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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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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JF707: A Few Tips from a No-Credit-No-Problem Asset Based Lender

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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
– Say hi at hardmoneybankers.com
– Best Ever Book: Richest Man in Babylon by George Clason

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JF702: How to Flip Properties, Manage Them, and Run a TURN KEY Business

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Today’s guest has a limb in every pool as he flips properties, manages homes, and runs his turn key operations in an extremely rapid market of appreciation. Hear his experience in Philadelphia and what he’s focused on today!

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Josh Weidman Real Estate Background:

– Founder and CEO of Turn Key Philly
– Flips 8 to 12 contracts a month
– Based in Philadelphia, Pennsylvania
– Say hi at turnkeyphilly.com
– Best Ever Book: Atlas Shrugged by Ayn Rand

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

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JF628: How this Private Lender will Lend 100% LTV and NO DOWNPAYMENT

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Today’s guest is a private money lender with perks! What sets her apart from the others is that she sees value if a great deal has been secured. Tune in to see how you are able to have 100% of your loan funded with zero down payment.

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Susan Naftulin real estate background:

-Co-Founder and president of Rehab Financial Group
-has law degree
-Based in Philadelphia, Pennsylvania
-Find her at rehabfinancial.com

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

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

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JF614: How to Avoid Securities Fraud and Properly Raise Capital #skillsetsunday

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Everyone hears about crowd funding today on the radio, podcasts, and many publications. It didn’t always work that way. Thanks to some recent securities laws established a few years ago, it is much easier to build crowdfunding platforms and advertise the activity. Our best ever guest plays a big role in many crowdfunding operations today, tune in!

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Mark Roderick real estate background:

  • More than 25 years of experience as has in-depth knowledge on capital raising and securities law
  • He spearheads Flaster Greenberg’s Crowdfunding Practice and works with investors and crowdfunding portals
  • Based in Philadelphia, PA
  • Say hi to him at markroderick.net

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JF585: From $0.00 to $800.00 to Rich and How He Did It #situationsaturday

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He lost it all after jumping into a business he knew nothing about. He decided to come back to his home…real estate. Joe specializes in lease options and creative finance structures today, he also runs a mentor program. He shares how important it is not to give up; his drive took him from broke to wealth. Here his Best Ever advice!

Best Ever Tweet:

Joe Bodek real estate background:

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Need financing?

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

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

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

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JF567: How this “House Hacker” Now Owns 5 Homes!

“House hacking” seems like an interesting term, but it did notes renting out your living spaces in an owner occupied investment. Our guest today has done so, and that’s how he began his journey three years ago. Tune in and listen to this investor’s story of multiple offers he made and what he closed on!

Best Ever Tweet:

Jeremy Chaudet real estate background:

  • President of JCRE Holdings, LLC and is a buy and hold investor – buy, rehab, rent, refi – and works fulltime as an underwriter
  • Started about 3 years ago and owns 5 properties and just got one under contract today
  • Based in Philadelphia, PA
  • Say hi to him at jcrealestate.webs.com

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

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JF530: How to Leverage the Power of Your Network #skillsetsunday

How many people pass you daily whom you’ve never spoken to? What are their challenges, strengths, or resources? When you can tap into your network to add value where needed, you are sure to see it come back, you can’t miss this episode!

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Best Ever Tweet:

Rashad Pleasant background:

  • Host of the podcast, Partners in the Field
  • Has over 15 years of entrepreneurial experience
  • Say hi to him to partnersinthefield.com
  • Award-winning wedding photographer and expert networker
  • Based near Philadelphia, PA

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

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

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

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

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JF503: He Thought BIG, From 8 Broken Houses to Multimillion Developments

At 25 years old, he purchased 8 “crack houses”, or shells rather, to jump into real estate, and specifically big deal developments. In Philadelphia, he had a vision to add value to residential communities, and he did so. He even renovated a portion of what was once one of the largest brew towns in the nation. You gotta hear his start and what he’s doing now!

Best Ever Tweet:

Dave Waxman background:

  • Co-founder of MMP, a leading urban infill development company in Philadelphia, Pennsylvania
  • Has done over $50M of development and has over $75M in new developments in the pipeline
  • Say hi to him at mmpartnersllc.com
  • His Best Ever book: Titan: The Life of John D Rockefeller by Ron Chernow

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

What’s the Best Ever health plan for YOU?

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

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JF303: How to Become a MASTER Marketer in Creative Real Estate Investing

Today, we have an incredible conversation about lease-options and ALL you need to know about them. Our Best Ever guest shares with us his motivation for going into lease-options, why they are beneficial and what he does to be a master of marketing.

Best Ever Tweet:

.

Joe Bodek’s real estate background:

–          Third generation real estate entrepreneur who is born and raised in Philadelphia, PA

–          Has run 7 apartment communities (3,000) units, developed land and built single family houses

–          Guitar player and played with local groups

–          Lease options is what he specializes in now

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

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JF291: How Getting Kicked Out of College Led to a Lucrative Real Estate Career

Today’s Best Ever guest has SO many stories to share, and they include having his credit stolen, and buying stolen properties! Phew, I’m anxious after conducting this interview I can’t even imagine going through it! Listen up, because he shares with us all about hard money lending, and why he will absolutely lend to first time investors.

Best Ever Tweet:

Rod Stanback’s real estate background:

–          Owner of Flip Funding LLC which is a hard money lender which does over $20M of funding annually

–          Owner of over $1M in real estate holdings and acquires 4 buy and holds annually

–          Don’t get in a fight with him either! His favorite hobby is boxing.

–          Based in Philadelphia, Pennsylvania

–          http://www.Flipfunding.com

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Cozy – Are you still chasing down rent checks down?? Cozy, automates the whole process for you so you can avoid all of the hassles that come with being a landlord. Say hi to them at cozy.co

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JF146: Discover Home Staging Tips Proven to Get Record High Sales

Our Best Ever guest is a home staging expert. She’s about to give you her Best Ever advice on how to stage your property so you get the most money for it. Let’s go!

Best Ever Tweet:

Starr Osborne’s real estate background:

–        Founder of Tailored Transitions, a home staging, moving management and interior design firm based in Philadelphia, Pennsylvania

–        Say hi to her at http://www.stagingstarr.com/

–        Author of Home Staging that Works

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JF39: Pssst…Check Out This Note

Welcome to the wonderful world of note buying. Where you become the proud owner of paper not property. So basically you are now a bank. Want to hear how the heck one of the most successful note buyers is approaching this investing strategy?

Dave Van Horn’s real estate background:

–        President of PPR Note Company based in Philadelphia, PA

–        Owns 18 investment properties

–        Licensed real estate agent for over 25 years

–        Visit him at http://www.pprnoteco.com/

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