JF2104: Financial Samurai With Sam Dogen

Sam Dogen is the founder of Financial Samurai and has been providing content to the world through his free blogs and articles around topics that will help you with your financial literacy and goals. He Has also been in the real estate investing experience for 17 years and shares some of his experiences with this and his personal journey.


Sam Dogen Real Estate Background:

  • Founder of Financial Samurai
  • Has 17 years of real estate investing experience
  • Owns multiple properties in San Francisco, Honolulu, and Lake Tahoe
  • Commercial real estate portfolio consists of 15 properties
  • Based in San Francisco, CA
  • Say hi to him at: https://www.financialsamurai.com/ 
  • Best Ever Book: Thinking in Bets





Click here for more info on groundbreaker.co


Best Ever Tweet:

“I love the green marble theory.” – Sam Dogen


Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’re speaking with Sam Dogen. Sam, how are you doing today?

Sam Dogen: Good. How are you?

Theo Hicks: I’m doing great, and thanks for joining us. A little bit about Sam – he is the founder of Financial Samurai. He has 17 years of real estate investing experience, owns multiple properties in San Francisco, Honolulu and Lake Tahoe; he has a commercial real estate portfolio consisting of 15 properties. He’s based in San Francisco, California, and you can say hi to him at his website, FinancialSamurai.com.

Sam, do you mind telling us a little bit more about your background and what you’re focused on today?

Sam Dogen: Sure. I actually grew up overseas, all across Asia and in Africa, because my parents were in the U.S. Foreign Service. I came to high school in the United States, and then I went to college at William & Mary in Virginia. Then I went to work on Wall Street in 1999. So I worked in finance, mainly international equities from 1999 to 2012, and in 2012 I decided to negotiate a severance and get out of there… Because after the global financial crisis in 2008-2009 it just wasn’t fun working in finance anymore. We were always the bad guys, even if we had nothing to do with the housing market.

Again, I was in international equities, specifically Asian equities, and it just didn’t feel good to work in that field anymore. Also, the pay wasn’t commensurate with the performance anymore. You could have done really well with your clients, generate a lot of business, but you wouldn’t have gotten paid commensurately, because Wall Street finance was busy subsidizing a lot of money-losing departments. So I decided “You know what – it’s been a good career.” Originally, I wanted to work until I was 40, but instead I left the industry when I was 34, and I decided to travel, spend more time with my wife, and focus on FinancialSamurai.com, which is a personal finance site I started during the depths of the previous financial crisis, in July 2009.

Theo Hicks: So Financial Samurai is like a blog where you post personal finance advice… Does that tie into real estate? Is your advice for people to go out there and buy real estate, or is it dependent on their personal situation?

Sam Dogen: FinancialSamurai.com is a personal finance site. I talk about everything from investing in stocks, to real estate, to early retirement, to career, to negotiating your layoff, to family finances, insurance and so forth. So I try to cover every aspect of what someone would think about in their lives. And money really touches upon all of us.

Real estate is about 40% of my net worth, and is something that I’ve been doing since 2003, in San Francisco… And real estate is my favorite asset class to build wealth, because it’s a tangible asset, it generates income; it’s pretty sticky on the way down during tough times, and you get to benefit from the upside, and it provides utility.  What an amazing asset class to be able to enjoy it, to provide shelter for your family, experience great memories, and maybe even make some money in real estate. So real estate has been my favorite asset class to build wealth.

Second has been stocks. I was in the stock market, in that business for 13 years. However, I think my favorite after stocks is online real estate, so owning web properties such as FinancialSamurai.com.

Theo Hicks: Nice, I never thought of it like that, online real estate; I like that terminology. Okay, so you have 15 commercial properties… Is that your entire portfolio? Are those the ones that are in San Francisco, Honolulu and Lake Tahoe?

Sam Dogen: No, the property that I owned in San Francisco, Honolulu and Lake Tahoe are physical real estate properties that I’ve bought, and that I enjoy, and I use, and I rent out, and I’m an active landlord there. And regarding my commercial real estate portfolio, it’s essentially through real estate crowdfunding, where after I sold one of my main San Francisco rental properties in 2017, because I wanted to simplify life and diversify out of San Francisco, I basically invested in a fund that had 17 commercial real estate investments, and two have exited, and there’s still 15 left.

So my thesis was to diversify across the heartland of America, because back then I was thinking to myself “Well, the cap rates are so low in San Francisco…” We’re talking 2% – 3% cap rates… And it’s just so expensive here, and I have so many investments already that I needed to diversify.

So with the proceeds that I got from the sale, I decided to diversify across the nation, and the thesis was that work from home would be more and more prevalent, telecommuting, people would be able to go to lower parts of the country to still earn a similar amount of income, but save a lot on costs. And with the lockdowns and the global pandemic I think that trend is definitely accelerating, and I’m excited to see what happens next.

Theo Hicks: How did the returns from that fund you invest in compare to your rental properties?

Sam Dogen: In San Francisco real estate has been going up; at least since 2012 it’s been a bull market. Real estate is about 80% to 100%, and now it’s probably plateauing right now… So San Francisco real estate probably increases by 6% to 7% a year. It has been. And that’s been pretty good. Obviously, let’s say with 20% down, so you have leverage… So a 6% return times five, that’s 30% return on your cash… So that’s great. But it slowed down in 2018, and 2019 was kind of “Meh…” and it started picking back up at the end of 2019. In early 2020 it was pretty good, until everything started getting locked down. So now everything’s in a wait and see mode.

In terms of commercial real estate, since about 2015-2016 when I started investing – because I invested before; I’d sold my main San Francisco rental property in 2017 – the returns have been around anywhere from 12% to 16% a year, which is great, especially if you don’t have to manage the property. And that’s one of the things that I like about investing in these properties – because it’s 100% passive income; you’ve got a professional manager there, you’ve got the lawyers and all those people doing the stuff, and  you just collect income and then you have to file the taxes.

Now, in 2020, things have obviously changed a lot due to lockdowns. So I will have some losses on properties that are in the hospitality space. For example a hotel. Surely, that property’s gonna be going down in value because nobody’s going at the hotel. It’s like an airport hotel, a Sheraton in Dallas. But the portfolio is 15 properties, so I’m assuming there’s gonna be some losses, but overall I think it’s gonna do well. If we can rebound and get out of this lockdown phase sooner rather than later, hopefully third quarter of 2020, I’m optimistic that things will get back on course.

Theo Hicks: Just to confirm – that fund of 15 properties, you’re getting 12% to 16% per year?

Sam Dogen: Yeah.

Theo Hicks: Wow. How did you find that fund?

Sam Dogen: Well, there’s a lot of real estate crowdfunding platforms. Financial Samurai is a relatively large website; it’s got about one million visitors a month organically… So there’s a lot of opportunity; you just have to go wade through a lot of opportunity. But there are many real estate crowdfunding platforms out there. I’ve been able to talk to a lot of the top ones and a lot of the big ones, and some of them don’t make it, frankly… But some of them do. And the assets they allow you to invest in are separate LLCs that continue to go on regardless of what the platform does.

So in the old days you would basically invest in a real estate fund through your network. You have a friend who’s in real estate development, he wants to raise some money, you participate, you’re a limited partner etc. Today you can go online, you can obviously buy REITs, you can buy private REITs, and you can go directly through these platforms that connect you with other sponsors.

Theo Hicks: So you’ve found this deal through your website. Someone came to you with the deal, or someone posted it on your website?

Sam Dogen: Yeah, through my website, for sure.

Theo Hicks: One thing that we stress a lot is about building a brand – our’s is a podcast website – for building a real estate company. You talk about personal finance. Is that something that — you also mentioned owning online real estate, owning websites… So what’s some advice you have for someone — well, I guess then you also have a million organic views per month… So what’s your advice for someone who wants to start getting into what you call the online real estate and owning a website? Should they build their own, should they invest with someone else’s website? What does investing in someone’s website even look like? …things like that.

Sam Dogen: I think one of the key things you have to do is own your brand and build your brand. You don’t want another platform to own your brand, for example Facebook, Twitter, LinkedIn, whatever. They are already huge companies, and they’re getting rich off your content and your brand. So instead of spending all your time tweeting about random stupid things on Twitter, build your own brand and start your own website, and start talking about all the things you care about on your website. It’s the green marble theory that I like to think about and say, and that is if you have a green marble, maybe it’s the ugliest green marble in the world; you put it on eBay and someone will find that green marble and wanna buy it. So if you put yourself out there, based on your own brand and what you care about, you’re going to find your tribe organically eventually. Google obviously has been around for over a decade now. They’ve done their algorithms very well. They’re gonna help people who are looking for stuff that you like, and connect. And that is really key, to build your brand and do it on your own platform.

The other thing is you need to be consistent. You can’t give up before the roses bloom. Too many people I see just work for six months, maybe a year, and then they stop doing it… But they stop right before things start getting good. So I believe the secret to success is to do something very consistently, for 5-10 years. After about three years you should definitely start seeing some results, but too bad people can’t stick with things for more than one or two years, because they just want instant gratification. But this is a long game, and if you plan to be alive for decades, then you have plenty of time to build your brand.

Theo Hicks: That’s really good advice about building your website, but specifically the 5-10 years, thinking in terms of decades rather than days and weeks and months. So you did mention about not going out there and tweeting your thoughts, as opposed to building your own website and then you’ll [unintelligible [00:13:37].23] organically. So do you recommend just posting on the website and that’s it, and then letting people find you on Google organically? Or should I still be sharing the content from my website on social media?

Sam Dogen: Of course, you create the hub. You create your pillar, awesome content, whatever it is you wanna talk about. If you wanna talk about real estate, go ahead. If you wanna be a real estate specialist, go ahead. If you wanna be a personal finance generalist, or just focused on stocks and real estate and family finances… Whatever you wanna do. The world is big enough; there’s billions of people on the internet. Focus on what you care about and you are best at. And then the spokes are social media; make sure what you’re doing on social media is helping you build your brand, not hurt your brand. A lot of people have blown themselves up on social media saying things and then just getting fired, or just crushed.

So think about the spokes after you build your hub, your own brand. So the spokes are maybe doing a podcast, getting on a podcast like this one. Social media. Maybe speaking at conferences, if they ever come back. But focus on the hub.

Theo Hicks: Okay, Sam, what is your best real estate investing advice? You can also apply it to personal investing advice too, but what’s your best ever investing advice?

Sam Dogen: In terms of real estate, I would say be patient. Every time you see an amazing property, it’s just human nature to get all excited and say “I’ve gotta buy this. This is amazing. Please, nobody else bid against me. I’ve gotta buy! Buy, buy, buy, buy!” But the reality is if you miss this one, it’s okay; there’s gonna be another amazing property that’ll come along. So I really stress patience and running the numbers, especially during a turning point where we don’t know what’s gonna happen with the economy, with 40 million-plus people unemployed. Is the government really gonna support us indefinitely? Are we gonna find a vaccine within the next 12-18 months? There’s a lot of uncertainty, so right now patience is a virtue. Don’t rush, don’t go panic-buying, don’t go panic-selling. You’ve really gotta run the numbers and think things through. If you miss out, it’s okay; there’s gonna be other opportunities along the way.

Theo Hicks: Alright, perfect. Are you ready for the Best Ever Lightning Round?

Sam Dogen: Sure.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:15:53].00] to [00:16:42].07]

Theo Hicks: Okay, what is the best ever book you’ve recently read?

Sam Dogen: Let’s see… I have been recently reading Annie Duke’s “Thinking in Bets.” I think it’s an excellent book and an excellent way to think about investing. There’s never a 0% probability or a 100% probability. There’s always going to be some kind of grey area, and you’ve gotta think in bets, think in percentages.

So right now, with the S&P 500 at 3,000, for example, it’s rebounding by over 32% from the mid-March lows… What is the expectation or probability that it’s gonna go up back to its record high, another 10% up from here? I would say maybe 30%. But that also means 70% is not gonna get there. So in that regards, I position my portfolio according to the probabilities that I believe in. So thinking in bets.

Theo Hicks: If your website traffic were to collapse today, what would you do next?

Sam Dogen: Right now I have about 250k-265k in passive income, excluding my website, except for 50k. 50k comes from selling a severance negotiation book… So if my website collapsed today, I would have about 200k to 215k a year in passive retirement income. So that would be a 20% loss to my passive retirement income. Then I would basically look at my budget and make sure I’m spending within my means… Because that’s obviously the bottom line of personal finance – spend within your means.

Now, in terms of the active income I was making from Financial Samurai through advertising and so forth, I would first take a moment to grieve, because I’ve been working on this for 11 years, and then I’d take a moment to be thankful that it’s given me so much back in terms of community, in terms of learning from other people, in terms of doing something that provides me joy… And then I’d think about maybe taking a six-month break, and then I would think about maybe starting something else better or newer, and learn from my mistakes.

Theo Hicks: What is your best ever way you like to give back?

Sam Dogen: In terms of giving back, I think the best way to give back is to write on Financial Samurai. Every single article is free, there’s no paywall. I talk about highly, highly pertinent things in our lives right now, whether it’s “What should you do after the stock market has rebounded by 32% from the bottom? Should you buy, hold, sell?” I talk about “Should I apply to pre-school and spend $2,000/month? Yes or no. Should I save x amount in my 529 plan so my child can go to college in 18 years, when everything will be free and college will be completely not worth its value?” I talk about these important things for free, and to help people engage and to encourage the audience to share their perspective, so that we can all learn from each other… Because nobody knows everything, and we all only know from our experiences and how we can do things better.

So I think that’s the best gift – to share what you know, consistently, for free, to as many people as possible? Because so many people will just go through and live the same thing that you went through just the past 5, 10, 15, 20, 35 years, and they could avoid all those landmines if the experienced people spend some time sharing what they did wrong and what they did right. That’s my plan.

Theo Hicks: And then lastly, what’s the best ever place to reach you?

Sam Dogen: Oh, just financialsamurai.com. I’m always reading the comments, you can always leave a comment. It doesn’t matter how old the post is, I’ll see it. You can go on Twitter if you want, but Twitter is something that I try not to spend too much time on. Basically, those two places are probably the best.

Theo Hicks: Perfect. Sam, I really appreciate you coming on the show today and providing your best ever advice. I think the biggest takeaway for me was your advice on owning websites and your analogy of the wheel, and how you don’t want to let other larger online platforms own your stuff. So you don’t wanna just be posting on Facebook or LinkedIn or (as you mentioned) Twitter. Instead, you want to be the hub yourself, so have your own website, focus on what you care about and what you’re best at on that website. And then the spokes are the secondary outlets, things like social media, podcasts, getting on a podcast, speaking at conferences. So those things are not the hub. The hub is you and your own website. So start working on your own brand and building your own brand, and make sure you’re the owner of it.

And then how to actually grow that – you talked about the green marble theory; you’ve got a green marble, and even if it’s really ugly, you put it on eBay and someone’s gonna want that green marble. So if you put yourself out there and you talk about what you care about, and you do it consistently, and you don’t give up before the roses bloom — and by consistently you mean 5-10 years… Not giving up after a year or two years or three years – then eventually you’ll find your own tribe organically.

And then obviously you talked about your real estate portfolio, the types of returns you’re getting on it, how real estate is your favorite asset class to build wealth, followed by stocks, followed by owning real estate… So again, Sam, I really appreciate you coming on the show. I look forward to reading through some of your content. I really liked what you said about the college thing; I hadn’t thought about it like that before… But again, thanks for coming on the show.

Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Sam Dogen: Great. Thanks a lot.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

JF2103: Part-time Out Of State Investing With Nick Giulioni

Nick has 3 years of real estate experience, working full time in e-commerce sales for a large tech company. While working full-time he has acquired a 48 door portfolio consisting of singles, duplexes, and triplexes in Indianapolis, and he is based in San Francisco. He explains how his W-2 has helped him pursue real estate investing because of the insurance of a guaranteed income.

Nick Giulioni Real Estate Background:

  • 3 years of real estate experience 
  • Works full-time in eCommerce sales for large tech companies
  • Has a 48 door portfolio consisting of singles, duplexes, and triplexes in Indianapolis
  • From San Francisco, California 
  • Say hi to him at: https://giulionirealestate.com/
  • Best Ever Book: Never Split the Difference by Chris Voss 




Click here for more info on groundbreaker.co

Best Ever Tweet:

“Trying to make my partner happy and get them across the finish line was my top priority.” – Nick Giulioni


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

Nick Giulioni: I am doing so well. I appreciate you having me on.

Joe Fairless: Well, it’s my pleasure, and I’m glad you’re doing well. A little bit about Nick – he’s got three years of real estate experience, but get this, he’s got a 48-door portfolio consisting of single-family duplexes and triplexes in Indianapolis. He’s based in San Francisco though, so we’re gonna talk about that. He works full-time in e-commerce sales for a large tech company.

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

Nick Giulioni: Absolutely. I have been extremely lucky over the last several years. I got into my first investment down in Southern California. Actually, it was a house-hack that my wife and I bought just about two weeks after we got married. If that didn’t prove that we can make it, nothing will. And since then, I’ve really invested myself into learning more and more about out-of-state investing. I’ve built an incredible network out in Indianapolis, and done a variety of different strategies, including portfolio acquisitions and seller financing to balloon my portfolio in that time and really be able to give back a little bit more.

Joe Fairless: Portfolio acquisitions and seller-financing. It sounds like you’ve got a couple tricks up your sleeve for how you’ve gotten to 48 units in three years, versus plodding along doing one deal of a single-family house at a time. So let’s skip to the good stuff – portfolio acquisitions and seller financing. Talk to us about maybe a specific example for each of them.

Nick Giulioni: I’ll tell you a little bit about a combination that I did. It was my most recent large deal I’ve done, and it was actually a 32-unit deal that was on the market for about 2.2 million dollars. I looked at it and really realized there was no way for me to be able to take it down, and went and negotiated with the seller a little bit; I negotiated down to a price that I thought was a little bit more fair, in the 2.15 range. I was able to bring a partner in to come buy six of those doors on their own, through traditional financing, and have the seller actually seller-finance the entire rest of the acquisition just to myself over the course of 20 years.

Joe Fairless: Okay, let’s unpack that… Let me make sure I’m writing that down correctly… A 32-unit, originally listed for 2.2?

Nick Giulioni: 2.2 million, yeah.

Joe Fairless: 2.2. You then said “No, I don’t want 2.2, I want 2.15”, so a decrease of approximately $50,000, because you said it was about that… You said the range…

Nick Giulioni: Yeah.

Joe Fairless: So you now have an interested seller at 2.15… But do you have the money to purchase that?

Nick Giulioni: This is actually an interesting one… I had no money.

Joe Fairless: You had no money. So you did not have any money to purchase anything… [laughs] Let alone a 2.15 million dollar property. So then you brought in a partner, that partner purchased six of those, and then the remaining units were seller-financed over 20 years.

Nick Giulioni: Yeah, that’s correct. So really, what I did is I sat down and I tried to have empathy for everybody involved. I kind of sat down and looked at it from everybody’s shoes… So this seller was in a position where he probably didn’t want to vacate the units, individually sell them, deal with all of the hassle associated with that… So he wanted a single transaction in order to get it all done.

Then I looked at it from my partner’s point of view – they were looking for a great deal. They weren’t looking for as much leverage or as much risk as I necessarily was… He just wanted to buy something below market value and add it to their portfolio… And for me, I wanted as many doors and as much cashflow as I could possibly get. So really, I just kind of had to look at it from all sides, and from the seller’s perspective, my partner coming in with traditional financing – that actually looked like cash to pay off their outstanding notes. So in all of this, I was able to piece something that was pretty darn special together.

Joe Fairless: Got it. So was it two separate transactions, or…?

Nick Giulioni: It was two separate transactions contingent upon one another.

Joe Fairless: Okay. Did the both close on the same day, or the same week?

Nick Giulioni: They did, they closed on the exact same day. It was actually one of the smarter moves I’ve made recently. I actually had it closed on the second of the month, and by doing that, I actually received a check at closing for prorated rents and taxes and all that stuff… So I actually got a check of $30,000 to take down all of these doors. About 1.6 million dollars of property.

Joe Fairless: Right. You say 1.16?

Nick Giulioni: No, 1.6 million.

Joe Fairless: Got it. So it was like 550k for those 6 units?

Nick Giulioni: Yeah, my partner brought in about 550k.

Joe Fairless: And he paid it all cash for those six units?

Nick Giulioni: They did use cash off of a HELOC of an existing property they had.

Joe Fairless: Got it. And when we say “partner”, is this person in the seller finance deal with you as well?

Nick Giulioni: Nope. Completely separate transactions.

Joe Fairless: So when we say “partner”, it’s really he bought his thing, you bought your thing, and then you went about  your separate ways.

Nick Giulioni: That’s correct, yeah.

Joe Fairless: Okay. Wow, props to you on this. The seller financing terms – can you talk to us about that? You mentioned it was over 20 years, but any other details?

Nick Giulioni: Absolutely. It is a 20-year amortization, 20-year term, so I don’t have to worry about it over that period. The rate was actually on the higher side, at 6%, but this was actually about 9-10 months ago. I’ve actually gone to the seller since then and asked if they would be willing to renegotiate those terms, given where current market conditions are. Now, this have gotten a little wonkier here in the last couple days, but generally, rates are in the low-fours to five, and I have actually gone back to them and we are currently negotiating a refinance to change that to over 30 years, and a 5% rate.

Joe Fairless: Okay. And what is their position, where they were amenable to doing this type of structure. You said they wanted the ease of transaction, but can you talk a little bit more about why they would do this?

Nick Giulioni: Yeah – for them, they needed to move out of the Indianapolis area, and they had been self-managing for years, and were really just looking to retire. So from their perspective, this looked like a continued passive income; it meant that they didn’t have to necessarily pay capital gains all at once across their entire portfolio that they had spent decades putting together… And it was an easy transition for them. They knew that at some point there was a decent chance I may end up refinancing and they could get cashed out… Or they may just carry it to term.

Joe Fairless: Okay. And approximately how old are the sellers?

Nick Giulioni: They’re on the older side. This was definitely a retirement play for them.

Joe Fairless: Okay. So 50, 60, 70…?

Nick Giulioni: I would say in the late 60s.

Joe Fairless: Late 60s, okay. And the property – I think I picked up on that based on what you’ve just said, that these units are spread out over Indianapolis… But will you elaborate? I might be misinterpreting it.

Nick Giulioni: No, these were actually all very close to each other; they’re in a neighborhood called Irvington. Definitely one that’s on the upswing quite a bit. It’s been appreciating quite well for me. It’s an area I’ve loved for actually a long time, and this just happened to fall in my lap, so it was pretty convenient, from my perspective… Actually, several of them are on the same block. There’s this one block in Irvington that — basically, I own the entire thing, on both sides.

Joe Fairless: The gentleman who used a HELOC to get the six units for about 550k – how did he choose the six units that he chose?

Nick Giulioni: That was a lot of horse-trading going out throughout the entire situation, and making sure that there was enough equity within the pieces without putting me into a negative equity situation… So it really just came down to “Hey, where do we think these are all worth? Let’s figure out how to build some equity for you on the buy, because I’m getting so much value with the 100% seller financing.”

Joe Fairless: Okay. So during that horse-trading, what are some lessons that you learned or some observations that you had as a result of those conversations? …because a lot of people haven’t been in that type of situation, with this type of structure.

Nick Giulioni: I probably could have been a little bit harder and been a better advocate for myself. I was just feeling so lucky that this whole thing was working out that I wasn’t being too tough, or anything. At the end of the day, I was trying to be fair to everybody involved, and I felt like I was getting one heck of a deal, no matter what happens. So for me, trying to make my partner happy and  get them across the finish line was my top priority… But there were several ways I could have probably improved it for myself, and gotten a property that I would have preferred… But in the grand scheme of things, it’s a small price to pay.

Joe Fairless: Doing some quick math – and correct me if I’m wrong, but $550,000 is $91,000 a door.

Nick Giulioni: Yup.

Joe Fairless: And the difference is 26 units remaining, and that is a 1.6 million dollar all-in price, which is 61.5k/door. So your per-unit cost is significantly less than what his per-unit cost is in a similar area… So what am I missing, where it sounds like you’ve got a really good deal, because you’re paying much less per unit?

Nick Giulioni: That’s a great question. I definitely took on some of the lower-end properties that needed a little more work, and  have thus invested since then to get them up to my expectations. I also took on more of the multifamilies. There were quite a few duplexes and triplexes in this, and the per-unit on those were significantly lower, where my partner was more interested in the single-family space.

Joe Fairless: Okay, got it. Where does the money come from to rehab the ones that need help?

Nick Giulioni: So I was being a little flippant when I said I didn’t have any money to invest. I actually did, and at that point I had 20 doors, give or take… So I was essentially using cashflow to do it. And like you talked about, I am extremely lucky to work in e-commerce sales, and am able to throw that W-2 in there. My wife and I live well below our means, and are trying to accelerate this as quickly as humanly possible.

Joe Fairless: You live in San Francisco. Are you from Indianapolis?

Nick Giulioni: I am not from Indianapolis. I do have family out there… I just listened to way  too many podcasts early  on, and found out that Indianapolis was a pretty strong market, and opted to lean in there.

Joe Fairless: Why did you pick Indianapolis?

Nick Giulioni: A variety of reasons why I like it. Number one, it’s affordable, and when I was starting out, I definitely had less capital to work with… So that was a good starting point. It cash-flows fairly effectively. The 1% rule tends to work on almost every deal there, assuming you’re not in a super A-class neighborhood. And in the grand scheme of things, it’s actually a pretty cool city. I know a lot of people probably that are listening here haven’t actually been there, but it’s a darn cool place to go hang out. And if I get to see family AND I get to make money, it’s a win in my book.

Joe Fairless: How did you find the deal?

Nick Giulioni: This particular deal actually came to me from a seller’s agent who I’d worked with in the past on a different portfolio acquisition, and actually had come to the table with a relatively similar transaction style… So this agent knew “Hey, Nick’s a creative guy. Even if he doesn’t have the money, he’ll figure out a way to get it done and bring some partners into the equation. She actually brought it to me off-market.

Joe Fairless: And how did you initially have that relationship with her again?

Nick Giulioni: We had done a 13-unit deal together about a year earlier, and had come up with a similar type of arrangement… She had found my buyer’s agent at that point, and honestly, it was just luck and happenstance that  that first transaction actually occurred… And then the second one followed just given my reputation at that point.

Joe Fairless: What deal have you lost money on?

Nick Giulioni: Oh, yeah… My second deal in Indianapolis – gosh, that one still hurts! I had done one awesome triplex deal with this new hungry agent, and had done very well with it, trusted him, and he said “Hey, this duplex is a slam dunk. Go for it.” He gave me some estimates… It turns out that he didn’t really inform me that he was representing both sides of that deal. And I remember getting into the house after investing about 50% more than his rehab budget, and just looking around and sitting there in tears.

Joe Fairless: You literally cried?

Nick Giulioni: Yeah, I was literally crying in the place and realizing I could never let somebody live here… So that’s when I called my new buyer’s agent, who I’d had brief interactions with, and I said “Hey, we’re listing this one.” I think I lost about $5,000. And I’ve gotta tell you, best education I possibly could have had was that $5,000, because I learned a variety of things… How to build a  more effective network, how to make sure that you have different parties that are watching your backs that are not related… It was a very cheap education as compared to a lot of it out there.

Joe Fairless: And when to cut your losses.

Nick Giulioni: Absolutely, yeah. We closed on that house the day before Christmas Eve. It was the best Christmas present I possibly could have asked for that year… And definitely, I sent the guy — because the guy was moving in actually on that day… I made sure that he had a Christmas tree delivered on his front porch when he got there.

Joe Fairless: Oh, that’s pretty cool. Okay, so the real estate agent was representing both sides, didn’t disclose it, or wasn’t announcing it very transparently if it was disclosed somewhere… But from a numbers standpoint, regardless of if he was repping both sides, it still boils down to the numbers, and if the deal makes sense… So what about your process have you changed in order to validate the numbers?

Nick Giulioni: I’m no longer trusting agents to give me any estimates of rehab. That certainly has changed. Or at least if I do trust their initial estimates, I’m always making sure that prior to closing and prior to my inspection window closing I always have one of my contractors go through and check it out, and actually give me at least a little bit more detailed scope of work. So that’s definitely an important lesson in that one.

On top of that, I will oftentimes now have my property manager check out the house, check out the area prior to that inspection window closing, making sure that they’re comfortable actually representing in that particular area, and just kind of validating, making sure that there’s a certain amount of accountability. The agent obviously wants to make the sale. That’s how they make their commission. But then you have to make sure everybody else along the chain is holding that individual accountable for what they say.

Joe Fairless: I’d love to learn about your process when you come across a deal, and how you verify the deal is a good one, knowing that you don’t live in that city… So let’s just pretend — or maybe even use an example, the last deal you closed on; you heard about it, then what took place to say “Yup, I’m definitely making XYZ offer.”

Nick Giulioni: My most recent is a condo. I purchased it from a buddy of mine who’s actually a wholesaler. I think he’s an incredible, incredible guy; we’ve been friends now for about a year… But I’ve gotta tell you, I wasn’t gonna trust his numbers without having him validated…

So he’s a wholesaler… I had him actually walk out there with my inspector (that I paid for), and go through this house and put together “Hey, these are the challenges with the house.” I had then my contractor, who wasn’t able to get in there prior to closing – I had him actually look at the inspection report and put together a scope of work based on that. And to be honest, the repairs that I would wanna do were slightly above where my buddy’s estimates were… And that’s okay, because the two of us chatted it through and made sure the numbers made sense… Because this is one that I’m hoping to BRRRR, and then do  short-term rentals on. It’s an incredible condo. But I just had to make sure that he understood that the $5,000 estimate wasn’t where it was probably gonna come in. It was probably gonna come in closer to 10k-11k, in that range, and just make sure the numbers made sense on those new criteria.

Joe Fairless: What’s been a surprise that you’ve come across, that we haven’t talked about, while purchasing these properties?

Nick Giulioni: Yeah, there’s a lot of challenges that I’ve faced that have been surprising. I’ll tell you the most recent of which – and I apologize I’ve gotta be a little more vague than I’d like to… I recently had a property manager go out of business pretty immediately. And unfortunately, there was no warning and there were no funds to get my security deposits back, get my rents, anything like that. Currently, we’re exploring options with insurance, and stuff like that, to get it fixed, but… This happened actually right before this last Christmas, and having to scramble there on the 18th of December to find new property management for not just my properties, which obviously was tough, but trying to protect all the other investors out there who were affected. That was definitely a challenge I hadn’t accounted for. And you don’t build that into your proforma; that’s not something that exists in any of those Bigger Pockets calculators.

Joe Fairless: [laughs] How were you notified that they’re closing the doors?

Nick Giulioni: I was informed by one of the employees, and validated it with a different employee. The funds were no longer there, and the company was shutting down.

Joe Fairless: Oh, wow… And besides insurance options, are there also legal options that are being considered?

Nick Giulioni: They’re definitely being considered. I think at the end of the day nobody wants to end up in court… So I think finding the insurance option is probably everyone’s best bet.

Joe Fairless: What type of insurance would cover a property manager disappearing in the middle of the night?

Nick Giulioni: It would potentially be called errors and omissions insurance. All agents should have that insurance. I’m learning a whole lot more about this currently…

Joe Fairless: [laughs] More than you wanted to…

Nick Giulioni: Way more than I wanted to… So maybe that’s a follow-up call. Once I’ve seen this whole thing through, you and I can talk a little bit more about what it looks like on the other side.

Joe Fairless: What’s the most profitable deal that you’ve got so far?

Nick Giulioni: I’ve gotta tell you, that one I was telling you earlier, about the big seller finance deal, where I was able to get 26 units – that thing’s been absolutely incredible. From a high-level, I actually don’t really cash-flow on it all that effectively, given how highly leveraged I am, and being at 6% interest rate… It cash-flows a couple hundred dollars, but if we really look at the total internal rate of return on that one – I have no money in the deal; I actually got paid, so I have negative money in the deal…

Joe Fairless: What about the renovation though? I thought you were renovating the units…

Nick Giulioni: Yeah, you’re right; I’ve probably invested about 50k.

Joe Fairless: Well, that’s a lot of money…

Nick Giulioni: That’s a lot of money, but I got a check for 30k at closing, so let’s consider that 20k invested, which again, is real money… But then my monthly paydown, just all my loan by itself, is in the range of $5,000 at this point… And I’m still getting a couple hundred dollars of cashflow. On top of that, the houses have actually appreciated, and I believe will continue to appreciate even in these kinds of crazy times. So I would say that for $20,000 locked in a  deal, I’m certainly making out like a bandit in that one. Heck, I think I’ve paid for it just in the loan paydown in the last couple months.

Joe Fairless: Props to you for putting that deal together, and having the creativity and the resourcefulness to get it done by bringing in the partner to buy cash, and then doing seller financing.

Based on your experience, for someone who is wanting to educate themselves about portfolio acquisitions and seller financing, what’s your best advice ever to that person?

Nick Giulioni: I think I said it earlier, but you’ve gotta have empathy, and really sit down and try and understanding it from everyone’s point of view. One of the books that really resonates with me – I actually read it after this particular deal, but I’ve found it very helpful in understanding the mechanisms by which I was working – was actually “Never Split the Difference”, by Chris Voss. It’s one of the best books I’ve read. I probably re-read it every quarter or so, just to remind myself… There are so many tactics that are just absolutely incredible. And it’s not necessarily just about portfolio acquisitions, it’s about negotiating in general and having empathy for those you’re working with.

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

Nick Giulioni: I’m so ready!

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

Break: [00:22:49].13] to [00:23:24].08]

Joe Fairless: What’s the best ever book you’ve recently read, besides “Never Split the Difference” by Chris Voss?

Nick Giulioni: Man, a tough one… I definitely love to read; I try and read at least a book every single week, and write up a book report… So I’ve gotta say the most recent one that I’ve really enjoyed was “The Infinite Game” by Simon Sinek.

Joe Fairless: Well, you can’t just slip in there you write a book report about books that you read and then me not ask a follow-up question… [laughter] What is the outline for the book report that you write?

Nick Giulioni: I actually just kind of free-form it as I go, and try and find what the most important points are, and just [unintelligible [00:23:52].05] for myself. I read so much, and I’m trying to learn so much that it’s easy to forget things. So if I’m able to just kind of go back and quickly reference the key points… I actually send this out to a couple of friends that hold me accountable, but… The general approach is to just get a couple of key points so that I can remember what was actually important in everything I read.

Joe Fairless: Do they send you their notes on books they read?

Nick Giulioni: Not as many as I should be getting. I should be giving them a much harder time.

Joe Fairless: [laughs] But it’s understood that this group of friends or this group of people exchange reports on books that are read…

Nick Giulioni: No, I’m just the weird one that actually sends out an email blast.

Joe Fairless: You’re the one, okay. Got it. Alright. [laughs]

Nick Giulioni: I’m just the weirdo over-achiever.

Joe Fairless: What’s a mistake you’ve made on a transaction that we have not talked about already?

Nick Giulioni: In my infinite wisdom once, in a portfolio acquisition that I did – it was four units. I was trying to think ahead and realized that if I got them all on individual notes from the same seller, then it would be easier to refinance, versus having to refinance all of them simultaneously. What I didn’t realize is that by doing that, I was actually taking up one of those 10 golden slots that you talk about when doing conventional financing… So in my infinite wisdom of trying to make it easier to refinance, I basically screwed myself up for conventional loans moving forward.

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

Nick Giulioni: I love reaching out to people and helping people get started in real estate. My wife has started helping me with a blog, but I hop on calls with people, 5-10 different investors every single week, trying to help them get started… So that would be my way of giving back.

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

Nick Giulioni: You can reach out to me on Bigger Pockets, you can find my website at giulioni.com; I hope it’s in the show notes, because it’s got a lot of vowels… And I would love to help anybody who would like to reach out.

Joe Fairless: Is giulionirealestate.com also your website?

Nick Giulioni: That’s correct, yeah. They both go to the same place.

Joe Fairless: Good stuff. Nick, thanks for being on the show, talking about your portfolio acquisitions and seller-financing deals, how you structured it… One key thing that you do for any deal, and that’s have empathy for all; one resource for practicing that – Never Split the Difference, by Chris Voss… And getting into the numbers of the deals, which we all love.

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

Nick Giulioni: Thanks so much.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

JF2076: Selling Million Dollar Real Estate With Cynthia Cummins

TRANSCynthia is the owner of Kindred SF Homes and she has 33 years of real estate experience. The houses she deals with have an average price point of $1.5 million which can create high emotions and interfere with your decision making. She shares what has helped her sell multiple million-dollar homes through a process of creating, nurturing, and continually finding new ways to build strong relationships which in return create valuable referrals.

Cynthia Cummins Real Estate Background:

  • Owner, Kindred SF Homes. 
  • From San Francisco, California.
  • With 33 years of experience in Real Estate. 
  • In the last 3 years, she’s sold $80M in San Francisco Real Estate
  • She has a popular blog called Real Estate Therapy where she writes about her passion, Secrets about how transaction and transformation meet in real estate.
  • Say hi to her at www.realestatetherapy.org  
  • Best Ever Book: Lincoln and the Bardoe

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Having a bigger vision for people and a longer-term view is what makes all the difference” – Cynthia Cummins


Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m your host, Theo Hicks, and today we’ll be talking with Cynthia  Cummins. Cynthia, how are you doing today?

Cynthia  Cummins: I’m doing really well, Theo. Thanks for having me on today.

Theo Hicks: Oh, absolutely. Thank you for joining us, I’m looking forward to our conversation. Before that, let’s give a little bit of background on Cynthia. She’s the owner of Kindred SF Homes and is based in San Francisco, California. She has 33 years of real estate experience, and in the last three years she sold 80 million dollars in San Francisco real estate. She also has a popular blog called Real Estate Therapy, where she writes about her passions and secrets about how transaction and transformation meets in real estate. You can check out her blog at RealEstateTherapy.org.

Cynthia, before we begin, can you tell us a little bit more about your background and what you’re focused on now?

Cynthia  Cummins: I have been selling residential real estate in San Francisco for more than 30 years, which is kind of shocking to me as I say that out loud. I went into the business thinking “Oh, I’ll give this a try”, and now here I am, three decades later, still doing it.

I woke up this morning, I have a significant listing that just debuted this week. It’s a 4,5 million dollar Victorian, here in one of the nicest neighborhoods in San Francisco, and it is what I’m waking up with every morning – thinking about it, worrying about it, strategizing about it. So this was on my list for today.

And what I’m trying to do is follow my own advice about thinking about that listing and the work I have to do around it in a more holistic way, so that I can give myself a break from all the worrying and the craziness that can go along with it.

Theo Hicks: So let’s talk about that. It’s not every day that people have a multi-million-dollar listing and I definitely wanna talk about more the tactics stuff. We can take a step back and  talk about this advice that you have, about approaching real estate in general or specific projects in a more holistic way… So do you wanna walk us through what that means, how that looks in your day-to-day life?

Cynthia  Cummins: Okay… So I’ll kind of think about the listings that I have on my plate right now. There always seems to be a theme around the listings that I have at any one time, and the theme right now is people who are in the middle of huge transitions, moving from one stage in their life to another after owning a home for many years… And it is like lightning has struck their whole being. Everybody who’s doing this is kind of in bits and pieces, and trying to move forward in a very courageous way. The stakes here in San Francisco are so high… I don’t even know what the median house  price is right now, but I think it’s around 1,5 million. So just to show up, we’re talking about big numbers… And with big numbers come big emotions, and I have to figure out always how to manage my own as I stand and hold space for my clients to go through what they’re going through. I don’t know — did that make sense?

Theo Hicks: Totally. And actually, I can completely relate to what you’re talking about right now, because me and my wife were actually going through the same process from moving across the country for a new job. So yes, it’s definitely very stressful, but I would imagine the stakes are a lot higher when we’re talking about price values that are 4-5 times higher than we’re looking at…

So what’s been the conversations like? For example, you’ve got a person who’s going through this huge transition… Maybe talk specifically about the one you’re having right now; you’re listing it for 4,5 million dollars; I’m sure it takes a long time to prepare and sell a house that large, and that comes with extra stress on their part as well… So what are some of the things that you are doing with them, saying to them, to help them try their best to alleviate this emotional stress from, as you said, having their whole entire being struck by lightning?

Cynthia  Cummins: The “struck by lightning” phrase came to me because every now and then I will pull out a deck of Tarot cards and look at them, just for fun, to see what they might say… And there’s a card in the Tarot deck called “The Tower.” The Tower is actually an image of a tower being struck by lightning, and people sort of falling off the ramparts, and the thing is aflame… And it’s a really scary card. If you get that card, it can make you feel really nervous. But it is such a  great metaphor, because really, when you’re struck by lightning, all kinds of possibilities open up, and it maybe means that yes, this is really uncomfortable right now, but you’re heading for something new and something that’s really gonna serve you better.

So when I’m talking with my clients who are in the middle of having their tower dismantled, leaving one home for another, or leaving one part of the country for another, retiring, getting a divorce, whatever the situation is, I try to help them keep their eye on the fact that yes, this is really uncomfortable; it takes a lot of work, it takes a lot of focus, but you’re moving towards something that is going to improve your situation, usually.  You’re heading for something that’s going to be better.

Theo Hicks: Yeah, I really like that metaphor. Moving to more specifics on this deal – or you could talk about a different large deal like this, because I was browsing through your website and saw that you do deal with these multi-million-dollar deals… From your perspective, besides the more emotional side of the deal, what else is different between these larger deals and the smaller deals?

Cynthia  Cummins: Well, I must say that everybody, whether they’re selling a million-dollar condo or a six-million-dollar house in Hayes Valley here in San Francisco, their house is big to them. So it doesn’t matter what the price point is, everybody’s concerns are really similar. So I repeat it again and again. But I think that for everybody, but especially in this higher price range, when you are a wealthy person and one’s idea of luxury begins to change… Luxury becomes meaning. When you get to a certain point in your life, everything’s Jake, you’ve got a good job, you’ve got good income, the family is fine, you aren’t thinking so much about survival as you are thinking about the quality of your life, and is there meaning in your life. So that’s going on with these multi-million-dollar sales.

At the same time, that person is also concerned with really nitty-gritty stuff, like “Is there a powder room on the main level, and if there isn’t, how am I going to get one?”

Theo Hicks: Okay, that’s something else I wanted to talk to you about… So let’s say  I’ve been an agent for a few years, and I want to eventually build up to the point where I’m representing clients in higher and higher price ranges. What are some of the things  I should start doing today, so that in 5-10 years from now I am where you are?

Cynthia  Cummins: I think that there are all sorts of resources and coaches and guides for how to build one’s business, how to try and aim for a higher price point, and that sort of thing. There’s all sorts of different approaches to marketing. But the thing that I keep coming back to is that pretty much 95% of my business comes directly from sphere, from word of mouth, from referrals by past clients. From the beginning and still, my whole focus is on serving that client, doing my best to build a relationship with whoever I’m working with, so that they feel completely seen, held, and like I’m looking out for them. And I am looking out for them.

Then I go out of my way to continue to nurture that relationship after the closing, after the transaction. And I’m also always looking to tell them the truth; for example, just in the last two weeks I have talked four different sets of buyers out of writing offers on properties. They were gung-ho to proceed with writing an offer on a property, and I made a point of telling them why they shouldn’t do it. So I think having this bigger vision for people, and a longer-term view is what makes all the difference.

If you do a great job for someone and they feel like you really got them and you listened to them and you spoke the truth to them, then they will tell everyone they know about you, the agent… And especially whenever somebody sends me a referral; whether that referral transacts or not, I immediately send a gift to the person who referred them. That might take the form of a gift certificate for food delivery service, or I’ll drop off a couple of bottles of wine, whatever it is. I acknowledge that in a physical way immediately, and that helps keep me top of mind.

Theo Hicks: Could  you give us a few examples on some of the things that you do once the transaction is over to continue to nurture that relationship?

Cynthia  Cummins: Well, I always circle back immediately to be sure that all the logistics have been handled. For example, if somebody’s moving into a condo complex, I wanna make sure that they’ve connected with the homeowners association to get all the information that they need to reserve the elevator for their move-in date, and stuff like that… So it begins right then. And then afterward I make a point of circling back every few months with a phone call. I also send out newsletters, I send a link to my blog to people if I think there’s a topic that might  interest them… And then I’ll have little client events every now and then… So just continually finding a way to touch base with people.

One form it takes is touching base with my clients not to talk about real estate necessarily. Just to connect as a human being, and then the real estate just comes along with that.

Theo Hicks: Alright. Now for the money question – you can apply this to investors, or agents, or just in general… What is your best ever advice?

Cynthia  Cummins: I actually have two answers for you. The first one goes like this – real estate is a lot like sex; you want to get lots while you’re young.

Theo Hicks: I think that’s the title of the episode there, so thank you for that. [laughter]

Cynthia  Cummins: But [unintelligible [00:15:00].01] I think it’s to always remember that it’s a home. This is for residential real estate, and residential real estate happens to be one of the best investment vehicles for the ordinary person, because there’s so much value that comes with owner occupancy… But it’s a home, not a house, primarily. First of all, it’s shelter, it’s where you live, it’s where you die… It’s the sanctuary, it’s the place where you raise your family, where you rest, it’s where you’re at home… So first and foremost, a piece of real estate that you’re gonna live in is a home, and then it’s a house. It’s important not to let the details of the transaction get in the way of making it a home.

Theo Hicks: Alrighty. Are you ready for the Best Ever Lightning Round?

Cynthia  Cummins: I am. I’m kind of excited. We’ll see how I do.

Theo Hicks: You’ve talked about lightning in the beginning of the episode, so it’s only happened we have a Best Ever Lightning Round.

Cynthia  Cummins: Okay…

Theo Hicks: But first, a quick word from our sponsor.

Break: [00:16:15].10] to [00:16:55].06]

Theo Hicks: Alright, Cynthia, what is the best ever book you’ve recently read?

Cynthia  Cummins: This has nothing to do with anything, but the best thing I’ve read recently is Lincoln and the Bardoe by George Sanders. That is a novel. I love to read for pleasure, so that was a real pleasure.

Theo Hicks: If your business were to collapse today, what would you do next?

Cynthia  Cummins: [laughs] Oh, I think I would go to move somewhere where it’s really quiet and beautiful, and I’d get a job working the counter at a diner.

Theo Hicks: Besides your first deal and your last deal, what’s the best ever deal you’ve done?

Cynthia  Cummins: Well, the first thing that popped into my mind was not necessarily the best deal, but it was the most lucrative, and that was selling a 17-million-dollar este in Atherton, CA.

Theo Hicks: The next question is what deal did you lose the most money on, but I’m gonna change it up a little bit and say “What deal you did had the greatest difference between what the property was listed for and what it actually sold for?”

Cynthia  Cummins: Ha-ha! Well, things in San Francisco tend to sell at or over their asking prices, but I had a condo for sale that I personally had developed with my then husband, and we had a buyer for it who was willing to pay — I forget what the price was. Like 1.7 million, or something like that… And there was some negotiating that went on… This buyer got a close look at the neighbor in the building, who was not the nicest person ever, and after a couple of months the buyer withdrew from the contract. So we put the place back on the market, asking 1.5, and the morning of our debut, Tuesday’s broker’s tour, was 9/11. We eventually sold the property for (I think) 1.2. But that was just some bad timing… But it’s okay, we survived.

Theo Hicks: What is the best ever way you like to give back?

Cynthia  Cummins: I like to listen and hold people in positive regard, and where I can, I like to tell them the things that are going to help them feel supported, and courageous, and happy, and I also wanna tell them, if I can, what’s getting in their way; trying to help them see that.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Cynthia  Cummins: You can get in contact with me via email, cynthia [at] cynthiacummins.com. And then there’s my realestatetherapy.org blog site, or at my retail real estate website, which is kindredsfhomes.com.

Theo Hicks: That’s actually funny, when I read that, for some reason I thought it was single-family; I didn’t connect it to San Francisco. So thank you for sharing that for me.

Cynthia  Cummins: [laughs] Yeah, I meant to do that… I’m kidding.

Theo Hicks: Exactly, it’s got dual meanings. Alright, Cynthia, I really enjoyed this conversation. We started off deep, talking about your holistic way of thinking. You said that you identified themes around your listings in certain periods of time, and right now people are in the middle of huge transitions in their lives, and you used the metaphor of the Tarot card of the tower being struck by lightning, and the clients that you’re representing, the theme is that they’re being struck by lightning… And some of the things that you do to help with this emotional burden that they’re going through is to let them know just like strike by lightning is that it opens up a lot of possibilities. Sure, it’s gonna be uncomfortable, it’s gonna take a lot of work, and focus, but it can open up something new, and you reinforce that they are moving towards something that is going to improve their situation.  I really liked that approach.

Then we moved into talking about the differences between small and larger deals. You did mention that regardless of how low or high the prices, it’s still a home. The concerns are generally gonna be similar, but when you’re dealing with these larger deals and wealthier people, the idea of luxury changes, because it’s less about survival and more about finding meaning and quality in their home… And that there’s obviously still a concern with the nitty-gritty; you gave the example of the powder room on the first floor.

We also talked about what agents can do; agents who are just starting out, or have been doing it for a long time and want to increase the price ranges that they’re dealing in… And you said that 95% of your business comes from word of mouth referrals. Then some of the tactical things that you do is you will send someone a gift if they’ve referred you to someone, even if that doesn’t result in a deal or anything.

You said that your whole focus is on serving the client and building relationships so they feel like and actually are being looked out for. Then you talked about some of the things that you do after the transaction is closed to continue to nurture and grow that relationship, make sure all the logistics are handled… You gave the HOA example.

Circling back, the phone call – it’s not just talking about real estate, but trying to connect on a human connection basis. Sending out a newsletter, your blog, client events, and then just telling the truth; your example was you’ve recently talked four clients out of writing offers on deals, for reasons why it probably was not going to work for them… You told the truth, rather than just making something up, so you can get the deal done.

And then my favorite part of the episode, the best ever advice, which is gonna be the title, the quote of the episode: real estate is a lot like sex – you want to get lots while you’re young. Obviously, saying that the earlier you get it, the more time you’ll have to grow that portfolio and the value of the property.

And then also, to always remember that the property is a home first, and then it is a  house or an investment or something else. Ultimately, what it comes down to is it’s a shelter, it’s where you live, it’s where you raise your family, it’s where you sleep, it’s where you ultimately die.

Cynthia, again, I really appreciate you coming on the show. I really did enjoy this conversation. Make sure you check out her blog at realestatetherapy.org. Pick her up on her offer to send an email to ask her questions, especially if you’re an agent and want to  learn how she does what she does. That was Cynthia, at CynthiaCummins.com.

Cynthia, again, thanks for joining us. Best Ever listeners, thank you as always for listening. Have a best ever day, and we will talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

JF1985 Christopher Stafford

JF1985: How to Overcome Your Fear of Investing Out of State and Internationally with Chris Stafford #SituationSaturday

Investors in large metropolitan areas know it’s very difficult to invest in real estate with high prices and expect a good cap rate. In this #SituationSaturday episode, Chris Stafford explains how he finds “second-tier” cities around the country to invest in through his research and exploration. He also describes the process for finding and screening a good property management company to give you peace of mind.

Christopher Stafford Real Estate Background:


Best Ever Tweet:

“The more information that you get in your arsenal, the more comfortable and confident you’re going to be in investing in other places.” – Chris Stafford

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

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

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

JF1925: Investing In Legally Compliant Cannabis & Hemp Properties with Dana Wallace

This is either a first or possibly the second time we’ve had an investor on to talk to us about real estate investing, in the legal cannabis space. Dana will walk us through how she finds and vets properties, and the obstacles she has to work around in this space. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“You may have a license that you can move to a different location” – Dana Wallace


Dana Wallace Real Estate Background:

  • Owner of 420Estates.net, a firm that specializes in legally compliant Cannabis properties
  • she has over sixteen years of experience in the typical aspects of investment real estate sales
  • Based in San Francisco, CA
  • Say hi to her at https://www.420estates.net/
  • Best Ever Book: Code Of The Extraordinary Mind


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

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

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


Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today we will be speaking with Dana Wallace. Dana, how are you doing today?

Dana Wallace: Great, how are you?

Theo Hicks: I’m doing fantastic, thanks for asking. I’m looking forward to our conversation. It’s gonna be a fun one, I can already tell. Before we get started though, a little bit about Dana. She is the owner of 420Estates.net, which is a firm that specializes in legally-compliant cannabis properties. She has over 16 years of experience in the typical aspects of investment real estate sales. Based in San Francisco. You can say hi to her to 420Estates.net.

Dana, before we get started, could you tell us a little bit more about your background and what you’re focused on now?

Dana Wallace: Absolutely, and thanks so much for letting me be a part of your podcast today. I really appreciate it. My company is just a boutique real estate company which basically specializes in legally-compliant cannabis and hemp properties. I am solely focused on the cannabis industry and hemp industry. We voted to bring recreational cannabis in in 2016, and I started my company in late 2015 when I saw that California was more than likely gonna vote this through… And it’s been a really interesting journey, anywhere from cultivation properties, to warehouse, industrial, commercial properties for distribution, extraction, which is considered manufacturing, dispensary, delivery… Lots of different things going on in the real estate portion of it. And I just have become very involved with a lot of the companies and small craft farmers that are working in the industry as well.

Theo Hicks: Okay, so I personally don’t know anything about these types of properties, so I’m gonna ask you just a bunch of questions, and if they seem like dumb questions, I apologize.

Dana Wallace: No, they’re never dumb. It’s a complex industry, and there’s a lot going on, and no municipality is the same, so… Yeah, fire away.

Theo Hicks: Okay. How many properties do you own? Either number, or just dollar amounts… What’s the volume we’re talking about here?

Dana Wallace: So I don’t specifically own any of the properties. What happens is an owner of the property will call me and they would like me to sell their property along with the business entity that obtained the cannabis licensing permits, or they have bought a property that they want to lease. And more than likely, that’s usually a warehouse; however, there are some landowners who are leasing to cultivators as well.

These owners have either gone through the process of becoming a permitted, licensed operation, or their actual property is zoned or approved to be able to operate a cannabis business, whether that’s cultivation, manufacturing, distribution… It just depends on what licensing they’ve gone through and what their property is approved or zoned for.

Theo Hicks: Okay, so you deal with owners of properties that are in the beginning  phases, all the way up to the shops that someone can go into and buy cannabis?

Dana Wallace: Yes. They can either be in the licensing process, they’ve already finished the licensing process, and so now they’re wanting to sell not only their real estate, but also the business entity that obtained the permits. That way, someone can come in and start operating and doing buildout, or they’ve got an already-established business and they’re looking to sell that as well, maybe for expansion, or they have obtained multiple permitting in multiple businesses.

Theo Hicks: Okay, so I’ve gone through the beginning phases, I’ve got my license and I want to buy a property, and I come to you. What would you say to me when I first sought you out?

Dana Wallace: In most cases you’re going to have a property, because in most municipalities you need to identify the location of where you’re gonna be operating your cannabis business. So they want you to have that property in place, whether you have purchased the real estate or you’re in a long-term lease on that real estate and the landlord has given full consent… Otherwise you would not have licensing in hand. Because with the lease, that landlord is going to have to be cannabis-friendly and have to submit an approval letter in order for you to be licensed. So you will have already identified a location.

Theo Hicks: Okay.

Dana Wallace: Sometimes different zoning has happened, especially for example in Los Angeles, and maybe you had a location and it’s no longer zoned correctly, so they’re allowing you to find a different location. In that circumstance you may have a license that you can move to a different location.

Theo Hicks: Is there a particular type of property I have to buy? Can I just buy a single family home in the middle of a neighborhood, or does it have to be in a specific location?

Dana Wallace: If you were going to grow out of your home, which some people choose to do, you’re gonna be allowed, in most cases, six plants per adult in the home. And again, the municipalities may vary, so your city or county may say “If you’re gonna grow six plants per adult, that’s fine, but you need to only grow in an enclosed space. Or you can only grow outdoor. And if you grow outdoor, then you need to put it in a small greenhouse.” And then they might have smell mitigation rules in place.

So most people that just wanna grow for personal use will not be utilizing me, because you can do that out of most homes. You just have to check your local ordinances. But if you’re coming to me because you want to grow commercially on a recreational level to sell to dispensaries, then you’re gonna be coming to me and saying “Okay, we have to find out what the proper zonage is in my particular area, whether they even allow it or not.” So there’s a bunch of research to be done, because each municipality does things differently.

Theo Hicks: I think you said this already, but do these people own a property that’s already zoned, or do you help them have their property rezoned to allow them to grow cannabis?

Dana Wallace: I have not gone through a rezoning process. I imagine that in most cases that would take quite a while. It’s just a matter of figuring out “Are you correctly zoned with your particular property?” And a lot of times they’ll have already gone to their planning department, spoke with their cannabis staffing, the building and planning permit department, and they’ll find out if they’re zoned. Like I said, each municipality is very different.

For example, in Oakland you’ve got a green zone. So you plug in your address and you look to see “Hey, does my industrial warehouse fall in the correct zone? And if it does, what am I allowed in my zone? Maybe I’m only allowed to do non-volatile manufacturing”, which is extracting cannabis plant oils. Or maybe I’m only allowed to do cultivation and distribution, moving my product out of this location. In that case, you look and see where you fall on their zoning map.

Other municipalities don’t have a zoning map, so you really need to go down to the municipality’s planning department, find out who to speak with, and find out where your property falls as far as zoning. If you’re looking at land, a lot of times if you’re zoned ag and you wanna do cultivation, that municipality is saying “If your property is zoned ag and you can meet these setbacks from your neighbors, and you’re not pulling from a creek or a natural water source, or basically harming the environment with what your plants are, with your cultivation business”, then yes, you can move forward and get your property permitted, because you’re zoned ag.

Theo Hicks: Okay. So you mentioned that someone would call you, and they either already have the business and they wanna sell it, or they want to lease it. The amount of money I can sell my property for, or the amount of money I can lease my property for – is it a lot higher than using it for just standard industrial use?

Dana Wallace: Yeah, there is more than likely always a cannabis premium on those properties. For example, if in your city a regular industrial warehouse is usually being leased for 75 cents to a dollar, to a dollar fifty a square foot, it can be as high as two to two fifty a square foot. So there’s definitely a cannabis premium. Same thing with selling… Because now you’ve added value to that property – and also leasing – because that property is actually permitted to conduct whatever cannabis business you’re looking to get into, which means you’re that much farther ahead of the game, so there’s more value in that property. You’re able to step into a business and purchase it, along with the real estate, whether you’re leasing and purchasing the real estate.

Theo Hicks: Do you know the types of returns these owners are getting once they actually start to operate their business? Let’s just use a landlord, for example; let’s say I’m a real estate investor, I’ve got one of these properties that’s leased and permitted to conduct a cannabis business… What types of cash-on-cash returns should I expect to see?

Dana Wallace: So you’re looking at 12% to 14% cap rate. A lot of investors have that business model in mind. I’m going to buy an industrial warehouse in the correct zone, get it permitted for cannabis business use, and then I’m gonna lease to cannabis tenants with that lease premium, for being able to operate a cannabis business.

So it can vary, again, from municipality to municipality. There are some small towns which are having economic hardships. Maybe they have a bunch of industrial properties that have been sitting abandoned, and they’re looking so forward to the tax revenue, and the jobs, and the things that it’s gonna bring to their communities, so they may have better lease pricing, or better purchase price points on their buildings. But in a lot of the bigger cities – yes, there’s a definite return margin. And it does vary, because a lot of the state permitting just became permanent at the beginning of this year, and there’s a lot of businesses still going through the process…

So it’ll remain to be seen where everything kind of settles and ways that we can mark in the fluctuations in the market. But we are starting to be able to point to different figures in the business and say “Okay, well this is kind of what this market is getting on returns and what they can commend. Okay, let’s go over here; this is kind of what we’re seeing in this particular municipality.” But it’s very new, so there’s not a lot of hardcore, solid points… But you’re definitely getting a premium on any purchase or lease figures that you do with cannabis clients or tenants; you’re definitely getting a higher return, because of the risk and the complications with this market right now.

Theo Hicks: That’s a perfect [unintelligible [00:12:52].20] my next question, which is besides the obvious regular risks associated with investing in real estate, what are some additional risks associated with this specific investment strategy?

Dana Wallace: The risks are that it is still federally illegal, although we are making huge progress. There’s bills in front of Congress now to push for federal legalization. One of our main hurdles in the cannabis industry is that the banks are federally regulated. Cannabis operators do not have a banking system that they can walk in and bank with, so it remains very much an all-cash business, which causes security problems for the operators. This is something that we’re in desperate need of – banking for our cannabis operators.

There are private groups that put together banking for Colorado, and that’s starting to happen here in California. You’re gonna have private groups that are able to put together banking, so that they can safely go in and bank. So instead of showing up to the state capital to pay your taxes with (unfortunately)  a briefcase or duffel bag with your tax payment in it, you’re actually gonna be able to safely bank. There’s also things that are set up – secure vaults; companies have started those as well, so that it is becoming more and more secure… But that’s one of the main hurdles – the banking for our cannabis operators.

Theo Hicks: Alright, Dana, what is your best real estate investing advice ever?

Dana Wallace: My best real estate investing advice for people who would like to dip their toes into the cannabis industry is basically when you’re being presented with ideas or real estate that has a cannabis entity that’s going to be operating out of it, is basically really find out who your cannabis company or operator is. You should know the full story on them, the full background story; who are they, how long have they been in the industry? Is there a brand that they can point to? Is there products that they can point to that they have on the market? What is their business history?

I say this with also the point that because of the banking industry, everybody had to do business in cash before, so you’re not gonna be able to look at somebody and go “Where’s your tax records? Where’s your bank statements?” So it’s very important to sit down and find out who it is you’re dealing with, what their experience is in the industry, and do they have a team made up of people who are also savvy with just regular business and corporate structures?

The other thing is you’re gonna wanna look at their growth plan for their company, whether it’s expansion capital, whether it’s buildout capital now, the guy has received the licenses and he wants to build out… You’re gonna wanna look at “Okay, well how has he planned out his growth?” Because for some of these businesses it’s much better to see them going through phases of growth – “Here’s phase one, and we’re  gonna start seeing profit before we move on to phase two, and phase three…”

Or you can get some guys who come in and go “We’re doing it all. We’re buying millions of dollars’ worth of real estate, we’re buying millions of dollars’ worth of licensing, and we’re going so big because we wanna dominate the market.” That can be very dangerous, because you need to really take baby steps… Unless you are getting involved with an absolute huge company and they have a record of being able to sustain themselves in the business so far. Again, we’re still a very new industry. But it can be very lucrative, you just need to do your due diligence and basically do the research it takes regarding who it is and where you’re gonna be located.

Theo Hicks: Alrighty. Are you ready for the Best Ever Lightning Round?

Dana Wallace: Sure.

Theo Hicks: Alrighty. First, a quick word from our sponsor.

Break: [00:17:05].08] to [00:18:03].07]

Theo Hicks: Okay Dana, what is the best ever book you’ve recently read?

Dana Wallace: Code of the Extraordinary Mind, by Vishen Lakhani. I may be pronouncing his last name wrong… But it’s basically — the whole book is premised on the way we grow, the values we are taught based on our culture, religion, or whatever it is, in our families, and maybe how our parents and grandparents grew up… And just taking a hard look at what do you wanna do, what are your passions, stepping outside of that box and following your own heart, instead of just the regular structures of maybe what you grew up with and the rules that you grew up with.

Theo Hicks: If your business were to collapse today, what would you do next?

Dana Wallace: Being in real estate, I am very used to pivoting and making sure that I’m always keeping one step ahead of my thought process as far as being able to build a sustainable real estate business… And it’s all about following niches.

So if the cannabis business or industry were to fall apart, I would stay in the investment realm of real estate, but I would pivot over to the hemp and CBD market, which is less regulated, less taxed, and is also going to be a huge industry. So I’m kind of always on the lookout for “Okay, what are the offshoots of what I’m currently doing? Keep your eye on that and stay involved in that as well”, and definitely pursuing niche real estate, or niche businesses, because it really sets you apart from what everybody else is doing, and helps you kind of stay at the forefront of people’s minds.

Theo Hicks: What is the best ever way you like to give back?

Dana Wallace: The way that I like to give back is you can spend a lot of time having conversations with people that may not end up monetizing anything for you. But the fact that you can share your knowledge and maybe help them in some way that’s not related to at all is really valuable to me. I appreciated when I first got into this industry being able to just pick people’s brains, find out what they were doing; they invited me to their properties, they invited me to lunches and conversations so I could learn everything I could about the industry and soak it all up. So I try to be very mindful of sharing that knowledge.

A lot of people like to label themselves as consultants and charge fees, and in my mind if I’m sharing the knowledge of what I know, it will come back to me, because I’ll have given someone else an opportunity that maybe there’s an idea or a  thought process they hadn’t thought of before I shared what I knew about the industry with them… So I just remain very mindful of sharing my knowledge.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Dana Wallace: Well, you can reach me at my website, which is 420Estates.net. I’m also on Instagram, which is @420estates4you. I have a pretty good presence on LinkedIn as well, under Dana Wallace. You’ll see the 420Estates there also.

Theo Hicks: Alright, Dana, I really appreciate you coming on the show today and sharing your insight on the cannabis industry. Again, I didn’t know anything about this going in, so I really appreciate you giving us a rundown on the entire process. Just to summarize some of the key takeaways… So you mentioned that you need to buy a property in the right location, in the right zoning in order to operate a cannabis industry. If you’re a landlord or if you’re looking to sell that property, you need to keep that in mind.

We talked about the leasing and purchase prices of these types of properties, so there’s always gonna be what you call the cannabis premium. So if you’re looking at leasing your industrial warehouse, where you could get 75 cents to $1,50 for just regular use, the premium would be as high as $2 to $2,50 per square foot. And then similarly for selling that property – just like any other value-add strategy, if you’ve got the zoning and the permitting to allow you to conduct a cannabis business, you’re further ahead in the game and you can get a premium for that property. More specifically, you said that the returns are around 12% to 14% cap rate. Obviously, it’s new and there’s no hard data on this, and it could go up in the future.

You talked about the risks associated with this industry, and the fact that cannabis is still illegal federally. Because of that fact, the main hurdle is banking, so a lot of this investment strategy is all cash… But you mentioned that there’s some private groups out there that are starting to put together banking, and there’s some legislation that might pass that allows it to be legal federally, which would obviously change and reduce these risks.

And then lastly, you gave your best ever advice, which was to make sure you’re doing due diligence on any company who’s going to lease your industrial warehouse. You’re not gonna be able to find the typical tax records and bank statements like you would for a regular property, so instead you need to do due diligence on the companies, to get their background, how long they’ve been in this industry for, is there a brand or product that they can point to, what’s their business history, what does their team look like, are people on their team savvy businesspeople who have done businesses in the past?

And then lastly, look at their growth plan… And you mentioned that it’s better to see a growth plan that is in phases, as opposed to someone who is trying to just go all-in at once, unless of course it’s a well-established company who has a track record of being able to do that.

Again, I really appreciate it. Lots of great information. I know Best Ever listeners are gonna learn a lot from this episode and might have an idea for a new investment strategy if they are in one of these states where it is legal recreationally. I appreciate you stopping by, again. Best Ever listeners, thanks for listening. Have a best ever day, and we will talk to you tomorrow.

Dana Wallace: Thank you so much.

JF1911: Gaining A Leg Up In A Changing And Competitive Marketplace with Gary Boomershine

Gary is returning to the show to bring some more value for us. We’ll be focusing a lot of the conversation on mindset. In today’s market, it’s important to expand your skill sets, knowledge, and mentality, in order to get ahead of any competition. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“If there is no vision or plan, you end up in the same cycles” – Gary Boomershine


Gary Boomershine Real Estate Background:


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

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

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


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

Gary Boomershine: Joe, a pleasure being on here again. I love what you do, and I’ve been following you forever, so it’s just a blast… And I’m really excited to deliver some great value to all of your loyal listeners.

Joe Fairless: Yeah, I’m looking forward to it as well. Gary founded RealEstateInvestor.com in 2005, out of the need to scale and grow his real estate investing business and home buying business. He noticed an opportunity to leverage people, process and technology to gain a leg up in changing the competitive marketplace. He actually just got back from a mastermind in Mexico with some real estate entrepreneurs and has some things he wants to share with us that would add value if we implement them to our business. Based in San Francisco, California. With that being said, Gary, do you wanna just give a refresher on your background and then let’s talk about the latest and greatest stuff that’s going on?

Gary Boomershine: Yeah, for sure. I love this niche. I grew up in an entrepreneurial family. I was a licensed agent, we had a real estate brokerage, and my parents were buying rental houses in San Francisco back in the ’70s and ’80s. Literally, two weeks after turning 18 I was a licensed agent.

Joe Fairless: Wow.

Gary Boomershine: 1987… I’m kind of dating myself. I’ve just turned 50. I did that, paid for college by cold-calling and door-knocking, and open houses, and all that stuff. But I got a computer engineering degree… I really was not thinking about technology, I was thinking about Silicon Valley and the whole startup world. So I did computer engineering, got a degree, and then I went to actually the largest consulting firm in the world (technology consulting), called Accenture. I did that, and then a bunch of super well-funded startups on the sales side, where I moved and I was selling 500 to 5 million dollar software packages…

But it was really 2004 my wife and I decided “Hey, let’s go back to what we know”, and got really passionate… So 2004 I went full-time real estate, and I never looked back. I bought and sold hundreds and hundreds of houses. I do a lot of private lending today, and taking advantage of the current market, doing some wholesale flips and some creative deals…

I live brick and mortar. I know you do too, Joe. You look around — I was in San Diego a couple weeks ago, presenting, and I told everybody, I’m like “Look around… There’s more product right in front of us than any other industry, and there’s more money to be made if it’s done right…” But it is a real business, and you really do need to do it right. Once you do it, it’s a lifetime of wealth and generational wealth… So I love this industry, and I love the people in it. There’s a lot of good people.

So my wife and I decided to do full-time real estate on the investing side, and I bought north of 500 houses. I’ve done apartments, I do a ton of lending today… With this current cycle I’m most passionate around wholesaling, because if you can control the deal flow, there’s a lot of money to be made. And I’m not huge on tenants — I live in California, so it’s hard to actually hold property long-term, so I don’t do it here in California… But it’s awesome.

And then on the side, as you mentioned, I built a company… Most people know us as REIvault. We do a massive, massive amount of direct mail, and outbound cold-calling. I have an agency or a service for other investors, where we’re managing all their marketing, their lead generation, their cold-calling for them, so that all they have to do is go on appointments that we pre-schedule for them. I’ve been doing that — I think we’ve sent out over 30 million pieces of direct mail.

Joe Fairless: Holy cow.

Gary Boomershine: Yeah, ain’t’ that crazy?

Joe Fairless: That is crazy. I wonder if you put them all in a room, how big that room would be…

Gary Boomershine: Yeah… [laughs] It’s pretty funny, we have about 250 top-producing investors and agents using our service today… And it’s interesting, because I’ve moved into the real estate agency world as well, because a lot of them are buying properties, and they’re competing with Opendoor and Offerpad. So I have the number one team for Berkshire Hathaway… They’re in Omaha; they did over 700 transactions the last year just on the agency side… So they’re using us as their off market direct-response team and cold-calling. That’s Jeff Cohen, and number 43 top-producer for Keller Williams.

So it’s really cool, because being able to bring on people that are really doing this business in large scale, we’re able to find out what works, and change with the market. The market is different today than it was two years ago.

Joe Fairless: You mentioned prior to us recording that you just got back from a mastermind in Mexico with, I believe, some of these individuals you’ve mentioned. One, how did you get involved in the mastermind, and two, what value do you get out of it?

Gary Boomershine: Great question. I’m actually involved in nine masterminds, believe it or not.

Joe Fairless: Wow! You pay for all nine?

Gary Boomershine: Actually, I do.

Joe Fairless: How much do you invest per year on masterminds?

Gary Boomershine: Whatever I invest, it’s a massive ROI. The masterminds are anywhere from $5,000 to – I’ve got one that I’m involved in that’s $50,000/year. It is the easiest check for me to write. I’ll give you a couple of examples. If anybody follows my podcast, I’m  a huge believer, as business entrepreneurs, in being with like-minded people; people that are smarter than you. So I try to go to places and hang out with people that know more than me and inspire me… And that’s had a huge ROI.

And then number two is really good CEO coaching. One-on-one CEO coaching. There’s not a professional in this world – sports, musician, weightlifter – that doesn’t have a personal coach. So that’s a huge one.

The one that I love the most – it’s called The Multipliers Mastermind. It’s all A+ players, all seven and eight-figure people in the real estate niche… But it’s so much more than business. We talk real stuff, we bring our wives… It’s actually on the beach. So there’s 40 or 50 of us sitting on the beach, we work out  in the morning… And then we’re talking about real stuff [unintelligible [00:07:28].10] Because real estate I think is actually pretty easy when you’ve been doing it for a while, but it’s how do you balance that and life? How do we keep our marriages intact, how do we be leaders in our family?

I’ll  tell you man, I was a workaholic, Joe… I could go off on this topic alone… I think having balance and learning… A real estate investor – Warren Buffet said this – is somebody that has money, and they buy and they hold. They’re a passive investor. So most people that are wholesaling, fix and flip, rehabbing, where it’s a single transaction – that’s a business; that’s not a real estate investor… And all businesses need CEOs. So if you’re sitting there, doing $10/work, I always say you’re gonna have a $10 bank account. And I think it’s really easy for many of us to get trapped into the rabbit wheel when we really got into real estate for the freedom, the time and the money, the family, being able to contribute in a bigger way. So that’s why I do masterminds…

My wife came, and it was incredible for our marriage. We are coming  up on 25 years, and…

Joe Fairless: Congratulations.

Gary Boomershine: Yeah, thanks. So yeah, I’m involved in that, I’m involved in Kent Clothier… He has Boardroom. I was part of Collective Genius for years, Jason Medley… Those are all seven-figure guys and gals. Brad Chandler was in there, and Billy Alvaro… So just being with people that are real, that can help us with our blind spots… Because there’s a lot of — I call it the 8 or 12 trapped doors in real estate. You go through the wrong door; it could be a massive rabbit hole. So I hang out with those people that say “Hey, what’s working, and who do I talk to, and how can I shorten my time to market?”

Joe Fairless: How do you allocate your time to nine masterminds?

Gary Boomershine: Well, this was not something I created, but I have the rule – it came from a CEO coach – of 5/10/3. So I wake up at five – I used to have massive time issues; I was late for meetings, I never felt like I could keep up… I was a workaholic; I’d work weekends, nights, holidays, traveling, vacations… I was always working, at the cost of my kids and my wife. So I have a coach that said “Gary, how did people that have massive businesses… Like the head of General Electric, Jack Welch – they have the same 24-hour day. You’ve gotta think like a CEO.” So the first one was 5/10/3.

I wake up at 5 in the morning, I don’t start my business day until 10. That gives me five personal hours. I journal, I read scripture, I don’t look at email, I don’t look at Facebook… It’s all personal time. I clean the kitchen and do my acts of service for my wife; I make her coffee, I leave the coffee, I go and I work out… And then, during those five hours, I come up with my One Thing – it’s not my three things; this came from Gary Keller…

Joe Fairless: Yeah.

Gary Boomershine: I started with one thing, and over the last two years I’ve been able to do [unintelligible [00:10:15].22] my one thing that’s gonna move the marker today in the business. And then my three hours – the 5/10/3… The three are the three hours that I’m truly gonna put my horsepower into this business to move the marker… And then I’ll look at email and do other things. So I’m able to do everything that I need to do in three hours. So that was number one, that was a life-changer.

Number two is we’ve implemented Traction. We’re a huge — Gino Wickman has a book called Traction. I know you’ve heard of it, and your listeners…

Joe Fairless: Of course.

Gary Boomershine: Yeah, all of us. But we are a huge Traction — I have Andy Taussig, he’s a coach out of Virginia; I hired him, he’s been with us for four years… And he literally flies in almost like our board, and he runs our meetings. So I’ve got almost 90 people now working for me, for RealEstateInvestor.com and on the real estate side… And we’re distributed, we have no office. So what I do is once a quarter we rent a big, fat house, I fly in the management team… We’ve been to Hawaii, we do it in cool places.. And then we basically follow EOS of putting together — looking at how we did on our rocks… And we do a hotseat… We just follow the process and preset of exactly what we need to do for the next three months, and then we execute to that. That’s been a game-changer.

I’ve got a lot of people in REIvault that have come in and we’ve kind of gotten them on that track as well, which has really been fantastic.

Joe Fairless: What are the three things for today that you came up with?

Gary Boomershine: My three things today were working on closing an office building right here in my town… It actually has a gym. I’ve found it because I actually have a new personal trainer, and he used to own the gym in this building, so we’re in the process of working to make a creative offer. A deal just fell out — the seller is super-motivated and a deal just went sideways, so we’re gonna see if we can get owner financing on it… So that was number one.

And number two is to reach out to Chris Arnold, who runs Multipliers, and get on the phone with him. We recorded a video for everybody in the mastermind… I’ll give a little giveaway; the best leads, we’re seeing the absolute best — like, the crappiest leads that all of us have, that we’ve passed on, that were deals that we passed on, were sellers that said they’re not interested – we are crushing it off of working those old leads. I just did it with Chris Arnold. In one week, our team ended up connecting with 1,200 sellers. We’ve got 62 real opportunities, and they already put one deal under contract and they’ve got three more right behind it, off of one week, just working the worst, crappy leads.

So for all your listeners that do direct mail and cold-calling, some of the absolute best leads, or the people that you’ve already talked to, that you’ve probably missed, and they’re sitting in — maybe you have a phone system like CallRail, or Podio, or FreedomVoice, or whatever it might be, those leads are gold. So we’ve just walked through those numbers…

The other thing that we’re finding – the market is changing, it’s more competitive around direct mail… So what we’re finding is you’ve gotta tighten up your sales skills. This is not an order taker market anymore; it’s really being able to make multiple offers to sellers and be a lot more relentless on fine-tuning the sales process… And people that do that are crushing it right now, and others are actually finding that their businesses are not doing as well as they were two years ago. Anyway, that was the second thing on my top three…

And the third was a family issue. I’m taking them for Labor Day – we’re gonna do fly fishing in Montana, so it was a personal thing.

Joe Fairless: Oh, cool. Good stuff.

Gary Boomershine: Yeah.

Joe Fairless: So you’re very intentional about what you focus on… And I’m still trying to reconcile how I would spend from 5 AM to 10 AM… Because this is 5 AM to 10 AM – no business, right?

Gary Boomershine: No business.

Joe Fairless: I don’t know what I would do from 5 AM to 10 AM. I heard what you said; you said you journal, read Scripture, clean the kitchen…

Gary Boomershine: I work out…

Joe Fairless: And you work out. Okay, so there’s one hour… But still, that’s a whole lot of time. Can you break down those five hours in terms of what percentage time goes where?

Gary Boomershine: I would probably say I’m two hours in the gym.

Joe Fairless: Okay.

Gary Boomershine: I’m a fitness nut, primarily because I hit 50 — my wife calls it my mid-life crisis, but I’m definitely into health and wellness… So I just find I’m a better human being, I’m better with my team if I’ve gotten cardio in. So there’s two hours.

Then probably a good hour-and-a-half of journaling and scripture… And my journal is really interesting. What I find is that when I’m actually writing my thoughts down on paper I don’t even have to go back and look. It’s the mental kind of focus on what I’m thinking and where I need to go.

A week ago I redid my perfect day. I went and I looked at a couple years ago — well, actually in 2009 I started this; it was Frank Kern… You remember, but I put together — I was very unhappy, I was about 45 pounds heavier… I wrote my perfect day, and it was night and day. So I’m definitely very much closer… So I went a week ago in that time, and  I said “You know what, I’m actually gonna look at that and refine it, and just make sure that it’s still congruent to where I’m heading…”

Let’s see, what else do I do… My wife and I have our own — we took Traction and we actually implemented it ourselves for our family. There were some things on there that I was kind of working — we are working on a family calendar, and being more intentional on that… Anyway, just interesting things.

Also, I’m about ready to record a video; I think as leaders in our family and our businesses, one of the things I’ve found is that being an initiator is a characteristic… And what I’ve found is I’m an initiator in my business, but I’m not in my personal life. I’m not the one that reaches out to friends, saying “Hey, let’s get us together.” I’m usually the one waiting for somebody…

So those are the types of things that I’m able to do. And I’ve found that doing that, the businesses are healthy, and I’m healthier, and I’ve got happy people on the team.

And then for the listeners that are solopreneurs, Joe, I would just say be really intentional with where you’re heading… Because if you don’t really know where you’re heading… Because I did this for years. I wish I’d had this information years ago… But just knowing where you’re heading and what you want life to look like will give you a trajectory. If there is no vision or plan, you really end up in the same cycle that you’re in today. This really is the Albert Einstein insanity definition, of repeating the same thing and expecting a different result.

So that’s really helped, and  I journal around that. I journal around “Where do I wanna go? What do I wanna be doing?” I’m not a big, high-volume real estate guy, as an example. I have no interest in doing hundreds of deals a year, or hundreds of deals  a month. I’m more around the time, around having the time… And then it’s all about more of my time. I’m deal-splitting with some people around the country, where I’m playing like their VP of sales… And I’m doing it really because I love it. I’ll get on the phone for 15 minutes and renegotiate a deal. I have Tyler and Jennifer in Dallas, and I might take a small percentage of their profits for deals that I make money for them, but… If they lost a deal, the deal went sideways, then I get on the phone with the seller and I revive it. I spend 15-20 minutes doing what I’m good at, on a $40,000 deal that went sideways, and then they win, I win, and it’s a good ROI on my time.

Joe Fairless: Sure.

Gary Boomershine: That’s the type of stuff that I’m enjoying, if that makes sense. I’m also very ADD, so I do have to be involved in lots of things… [laughs]

Joe Fairless: Well, but I would say the focus of the five hours in the morning though – in my mind that’s almost like anti-ADD, because you’re doing one thing for an extended period of time, like journaling… When you journal, what is the process, and is it in a Word document, or…?

Gary Boomershine: It’s a physical piece of paper… First off, I write like a doctor. It’s so illegible that I usually can’t even read it. So I write down thoughts. REIvault — I bought like hundreds and hundreds of journals… You know, the little booklets that I can give out to our members, and stuff… So I have probably like 7-8 of those. And I just pull one up, and I open up a page, and I just write. I’ve been trying to do it on an iPad… I got a new pen-based iPad, but it’s not working for me as well just to journal.

So I’m writing down thoughts… I really don’t go back to it, but I do find that I have action items, things that are actionable that will come onto that piece of paper. Then usually I’ll highlight and say “Okay, these are the things that I definitely wanna put into action.”

Joe Fairless: For anyone who does not journal, what would you say – if you can say – is the ROI from a  business standpoint you receive as a result of journaling?

Gary Boomershine: It’s so high… It’s not even measurable. It’s actually a life-changing — I was a workaholic, probably like a lot of us in this business; it’s easy to get a little lost… So I have found that journaling… It’s also — you think about it, it’s like “You’ve gotta read it, you’ve gotta hear it, and you’ve gotta write it.” So that’s one of the reasons why I journal… And kind of getting clarity of thought.

I think the journaling for me has grounded me, it’s given me more clarity… Our business — we have no fire drills; if you talk to our team in the Philippines, in India, in Mexico, here in the States – there’s no fire drills. I used to always — the whole team would be running on fire drills; a lot of us. I have lots of skills from my business background, but when I started  my own business it was very chaotic. And what I’ve found is as a leader — there’s a guy, his name is Ed Thomson; he said “You’ve gotta fix yourself before you can fix your business or your people.” And I’m like “Gosh, that’s so valid.”

So  if we’re chaotic, and we’re scramble-brained, and we’re running  on fumes, and going left, going right, and then changing direction every hour, your team is gonna be like that as well. So I’ve found that journaling helps round me, it allows me to give clarity of vision to the  people that I lead. And I think nurturing the people, especially if we’re active real estate business owners, either with a team or planning to have a team, being able to leverage people is just as important as leveraging money.

We all think about leveraging money for real estate… Well, leveraging people is as important, if not more. Being able to have somebody working for $10-$20/hour, and you’re maybe able to make $200/hour off of them. Instead of you doing it, if you run the math, that saves probably — it could be 500 hours a year, ten weeks, for some people, just having somebody do that work.

So I find that journaling allows me to come into those perspectives… Again, I just write it down. Sometimes I do it where I’ll draw triangles, or circles… It’s crazy. So I do that, and I try to spend at least an hour, an hour-and-a-half doing that, of the day. Some days I’m off. I find that every single day you kind of have to restart… But I do those things — that 5/10/3 rule has made a big impact.

And I’ll tell you another thing… I hung out with Intuit; it has Quickbooks… Massive company. I talked to the senior vice-president; I actually skied with him. A friend of a friend. He’s the senior vice-president and does all the recruiting for Intuit. Hires over 10,000 people a year, and all their executives. And he told me — because I was telling him about this, and he said that most CEOs or executives in Intuit in Silicon Valley do the same thing. He said it’s all about balance. Because the CEO is really like the captain of a plane; they have to be healthy. And if you’re working 100-hour weeks, it’s not a best practice. It’s working and being very intentional. So hopefully that helps…

Joe Fairless: Very helpful.

Gary Boomershine: Maybe I went off on a little bit of a tangent when talking about real estate…

Joe Fairless: Well, it’s all connected, right?

Gary Boomershine: Yeah.

Joe Fairless: That’s the thing that I had a challenging time understanding when I was starting out, and the more I got into real estate and being an entrepreneur, the more I realized that it starts with the mindset, and then everything else filters from there. You’ve gotta have a strong body, you’ve gotta have a strong mind, and then you have a strong business… So thank you for that.

Taking a giant step back, what’s your best real estate investing advice ever? It can certainly be along the lines that we were talking about; it doesn’t have to be transactional-based.

Gary Boomershine: I would say number one remember Robert Kiyosaki defined the definition of wealthy. Most of us got in this business by reading Rich Dad, Poor Dad. I know I did, I know most of the people that  I’ve come across did… Robert Kiyosaki said the definition of wealthy is when your passive income – meaning mailbox money – you can be anywhere in the world, but your passive income is greater than your expenses. That’s the definition of wealthy, that’s what gives you the freedom. And most people that I know got lost. They’ve created a job and they’re very focused on having ten million dollars, or 100 million dollars in their bank account. It’s a constant moving target.

In reality, it’s a fairly small number. Most of us, if you had all the toys and vacations, covering your mortgage and stuff, it’s probably like $15,000-$20,000 a month is really what most of us need. So you really only need a certain monthly number… So really focusing on that as the end game financially, as opposed to “I do 200 deals/wholesale flips a year…” Because at the end of the day it’s the money in your bank account, not about your top-line revenue… And your lifestyle. If somebody is basically dead, but they’re able to do 120 deals a year – you’re not gonna be remembered. And especially by your family.

Number two is — I was at that shareholder event for Warren Buffet a month ago in Omaha. It was awesome… But he said “We just Keep It Simple, Stupid.” It was KISS. Keep It Simple, Stupid. And I think  a lot of us over-architect the business. It’s  really just a marketing and a sales business; it’s finding deals, buying them right, and then selling them right. Or if you’re holding for the long haul…

He also said “Buy low, sell high, don’t lose investor money, and don’t break the laws. Follow the local laws.” He goes “That’s what we do.” And Berkshire Hathaway is hundreds of billions of dollars in assets. And I think there’s so much wisdom to that…

So those are the three things that I would share, that I think are very real for everyone of us in this business.

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

Gary Boomershine: Absolutely.

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

Break: [00:25:28].23] to [00:26:06].16]

Joe Fairless: What’s the most challenging business experience you’ve come across to date?

Gary Boomershine: Partnerships. Actually partnering with other people in a partnership, especially when we’re not equally yoked. That’s been the biggest challenge. Not even on the real estate side… It’s just making decisions in a partnership where we’re not in unity.

Joe Fairless: What’s a question you would ask someone, knowing what you know now, in order to mitigate the risk of a bad partnership, or one where you’re not aligned?

Gary Boomershine: Well, equally yoked…

Joe Fairless: I don’t even know what that means, equally yoked.

Gary Boomershine: Yeah, do we have the same set of core values?

Joe Fairless: Okay.

Gary Boomershine: And core values to me – if you have the same core values, there’s the chance of partnership. The other one is what specific single roles are we gonna play? “You’re gonna do this and I’m gonna do this…”, and you get that right. Alignment of core values.

Joe Fairless: What’s the deal that you lost the most money on?

Gary Boomershine: It was a retail office building in California that I had under contract for 1.2 million, with owner financing… And it had a value of about 8.5 million, and all I needed to do was an HVAC and get it rented. It was a smoking, smoking deal. Totally creative, zero interest financing… I brought somebody in who ended up actually being investigated by the FBI… And I found out 11th hour – my attorney said “You should walk from the deal.” He gave me some reasons why — I didn’t do the background on my partner. That’s the other one – do background research.

Joe Fairless: So was that opportunity cost, or you lost dollars?

Gary Boomershine: Oh no, I put a couple thousand bucks into it. It was definitely opportunity cost. That was the biggest error. And I’ll tell you one other one… It was an apartment that I picked up, but I didn’t bring the right property manager in soon enough, so it turned  into a meth lab. It was another bad deal…

Joe Fairless: That’s bad for business.

Gary Boomershine: [laughs]

Joe Fairless: And their surrounding neighbors, should it go up in flames… On the FBI thing, what research would you do now, knowing what you know, for future deals?

Gary Boomershine: Well, I could have just typed into the internet the guy’s name.

Joe Fairless: Oh, okay. It was already public.

Gary Boomershine: It was already public. There was actually an indictment for the guy. He ended up doing four years in jail.

Joe Fairless: Got it. Well, if he’s out now, maybe you can partner up with him again. [laughs]

Gary Boomershine: Yeah.

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

Gary Boomershine: I constantly think about that… I do this thing, it’s called Work is Worship. We’re bringing this into REIvault, with all of our members. It’s almost like Amazon, for leaders, but more of a faith-based message of really how to be great leaders. So that’s one.

We do Angel Tree every year, which is something I’m really passionate about… Serving is a big deal. Actually, my wife and I have that on the list of things we’re not doing enough of. As a core value, our fifth core value is a heart for giving and a heart for growing, and we’re actually realizing “You know what, we’re not spending enough time on that. On the giving.” So that’s the one area — and I’ve got multiple [unintelligible [00:29:04].29] fix-it situations… But I’m not involved in doing enough of that, and it’s definitely — not even on my bucket list, it’s on my action plan that needs to get done.

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

Gary Boomershine: REIvault is probably the best. We’re at RealEstateInvestor.com, but REIvault.com – there’s a lot of tools on there… I also have a podcast called Real Estate Investor Huddle. I’m on Instagram… And everything that we have is free. I don’t have any courses, or coaching. We have a service for a very specific, more experienced investor, but I love interacting with people and helping them. I get people hitting me up on messenger all the time, and I’m open to that.

Joe Fairless: A lot of life lessons, Gary, and I’m incredibly grateful that we had our conversation. The 5/10/3 rule – wake up at five, start working at ten, don’t do any work between five and ten in terms of business stuff, with the exception of that one thing that will move the marker today; I think that kind of is a business thing, or it could be… But then three hours of really hitting it hard and doing it…

You mentioned some things, almost in passing, that I wrote down, that I need to do. Have a family calendar – I think that is something that I will do. And then rewriting  your perfect day. Well, first off, if we have not written our perfect day – I have mine laminated ten years from now, and my wife did the same; we did that a year and a half ago… And it’s laminated next to our nightstand, so each of us have our perfect day for ten years from when we wrote it… But revisiting that, and seeing if there’s some updates that need to be made.

And then being so intentional about designing your life, and being surrounded by the right people, joining the masterminds… I’m glad we took the conversation that direction, to learn more about your thought process with why you joined the masterminds, how you qualify them, and then what you do to maximize your time with them.

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

Gary Boomershine: Thanks, Joe. I love what you do, man, for the niche. Thank you for what you do.

JF1890: From Military Life To Civilian Work & Real Estate Investing with Eric Upchurch

Eric is a veteran who is now living the civilian life, and read Rich Dad Poor Dad years ago. Like many real estate investors, reading Rich Dad Poor Dad sparked a fire for real estate investing. He started with the seminars that other investors have paid for as well. Unlike many people, who complain about the price of the seminars and getting no value from them, Eric was able to leverage the relationships and network within the program to more than make his money back. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Learn, network, add value, and take action. If you do that everyday, success will find you” – Eric Upchurch


Eric Upchurch Real Estate Background:


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

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

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


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

Eric Upchurch: I’m doing really well, how are you doing?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Erich – he’s the COO and co-founder of Active Duty Passive Income, and is a senior managing partner at API Capital. He’s been investing in real estate throughout the country for 13 years. Based in Northern California. With that being said, Eric, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Eric Upchurch: Sure. I joined the military after college. I chose to be enlisted because I like to influence people and I like to do good things for junior enlisted soldiers. I got a lot out of that as well. I transitioned from the military in early 2011…

Joe Fairless: What branch?

Eric Upchurch: Army Special Operations.

Joe Fairless: Nice. Well, thank you sir for what you did.

Eric Upchurch: Absolutely, a pleasure. The Army  used me, but I used the Army right back. I was able to have all my college debt paid for through the loan repayment program, and then they paid for all of my master’s degree as well while I was in, so… I definitely got my money’s worth there.

Joe Fairless: I’m going to my brother’s promotional ceremony later this month. He’s gonna be promoted to a colonel in the army.

Eric Upchurch: Wow, that’s pretty incredible.

Joe Fairless: He loves it.

Eric Upchurch: Congratulations, that’s really cool. Tell him I said hi.

Joe Fairless: I will.

Eric Upchurch: And thanks for his service. My wife and I moved back to the Bay Area where she is from. We met in college in Santa Barbara, and after I got out, we transitioned to Northern California, where we still reside. So we’ve been here about eight years, and I still have that W-2 that I care for as well, so… We could talk about that if you wanted to… And balancing both the real estate and W-2 job on the side as well.

I got started in real estate very similarly to many people in the military; we use the VA loan and get in on a property that we’re going to be living in. At the time, when I transitioned out of the service, I could not sell the property, so I moved back to the Bay Area and rented it out, and I eventually said “You know, I’m making money on that property…” Not much, because I didn’t buy it with the intention for it to be an investment property, so margins were slim, our profits were slim… But I thought maybe I could do a little bit better.

So I started learning and getting educated, I read Rich Dad, Poor Dad, which I guess is the accelerant… It just kind of poured fuel on the fire for me as well, and I said “Man, if he’s doing it and all these other people can do it, this seems like something that I can pursue.” Then I just started reading books, all the Rich Dad advisor books/courses out there, podcasts, I even did seminars, and anything I could do to learn about various aspects of real estate. So that’s kind of how I got into it.

Joe Fairless: What was the priciest thing you purchased to educate yourself?

Eric Upchurch: I paid 30k. I actually had no idea what the seminars were. You hear of the typical guru seminars, and I’ll just be out there and honest – I went to the free 90-minute thing and I got upsold to the three-day bootcamp for $997, and then I got upsold to the advanced training at the bootcamp, which ended up costing maybe roughly 30k all-in. And this is learning to flip houses in the San Francisco Bay Area in 2014, FYI.

So I’m a nobody, essentially, with basically no cash to my name, and I’m trying to inject myself into a market that people are paying $700,000 over the asking price for a burnt-out relic of a property in the Bay Area, right?

Joe Fairless: Yeah… Was that a Rich Dad, Poor Dad program?

Eric Upchurch: No, it was a different company, but the same thing. HGTV type of stuff. And I don’t wanna dog that either, because what I got out of that, even though I couldn’t apply all of the principles, I got a great education out of it, a good foundation, but I also got an amazing network of people that eventually – and actually within two years – made much more than my money back on the money I spent at that seminar.

Joe Fairless: And how did you do that with a network of people that you met over [unintelligible [00:05:14].28]

Eric Upchurch: Yeah, great question. One of the guys that I’ve met there, who I’m still friends with today – he’s a custom home builder/contractor in the Bay Area. He was just there to reinvent himself. He was in his fifties at the time, and he was just there to see what’s new and what’s going on and how he could scale up his business. He and I started talking, and we saw a lot of synergy between ourselves, and we just said “Let’s try and figure out a way to do this together.”

Long story short, I was living-and-flipping – which we can talk about separately – in the Bay Area, which was very lucrative, and he ended up helping me force appreciation on one of my properties near the ocean that I was living in at the time. So we ended up putting a chunk of money in, but he didn’t charge me what normally would have been a $180,000 renovation. I ended up putting about 50k into it, and it increased the value by a quarter million in nine months. Through that relationship that I built I definitely got my money back.

Joe Fairless: Yes, you did. That $180,000 retail renovation cost – what was done?

Eric Upchurch: We went into that property with the idea obviously to live in it. It was in a great location, and I had two little kids as well, so we thought “Well, two blocks from the beach… This is pretty neat.” But we were looking at the area and just going “Well, all our neighbors seem to be retirees, kind of”, and there weren’t new, young families moving into this area. So we started thinking about exit strategies.

We looked at this property, it was a four-bedroom/two-bath, oddly positioned fourth bedroom in the middle of the house; tiny bathroom, tiny living area. So we said “Why don’t we just knock out that fourth bedroom?” Normally, you wouldn’t do this, right? Take a four-bedroom and convert it to a three. We just had our eyes wide open and said “Let’s add six feet to the master bathroom, add four feet to the living space and the kitchen, and open it all up by collapsing that bedroom.” And if the people who are moving in here are retirees, they don’t need four bedrooms. They need maybe three. So we were able to capitalize on just kind of going in with eyes wide open.

It was a pretty major renovation. It took about eight weeks altogether. The guys who were working on it were actually living in the property as they were working, because we knew them, obviously… So that was kind of cool.

Joe Fairless: What research did you do besides the first-hand experience that you had with seeing who was living there, and where the neighborhood was going? What research did you do prior to having someone swing a hammer at the wall?

Eric Upchurch: I didn’t do a lot. I had neighbors that I was talking to… Our neighbor had just bought the property across the street, and they were a 60-year-old couple who moved down from Grass Valley, from Northern California… They finally could afford the beach life that they always wanted to retire to, so I said “Well, how many other people in this neighborhood are like that?” It was either people who had lived there for years/decades, or people who were just coming in as retirees.

Then I talked to the agent – it was actually the seller’s agent, who became a good contact of mine – and he just said “Yeah, that’s a pretty common trend. So my wife and I just said “Alright, let’s check this out. Let’s figure it out.”

Joe Fairless: Were your neighbors, the older people who were moving in, buying four-bedroom places?

Eric Upchurch: They were actually renovating the property as well, and I think ultimately they ended up selling it to somebody else… But we had this conversation with them, and they said “All we need is for our grandkids and our kids to come through, and we just need one extra bedroom for somebody to crash in.”

Joe Fairless: Huh. Alright, so let’s talk about the deals that you’ve done. You’ve done a live-and-flip, we’ve talked about that… But what are some other deals that you’ve done?

Eric Upchurch: I’m gonna say, first of all, the power of the VA loan, which is the only reason I was able to buy up property at all in San Francisco Bay Area. Coming out of the military, I was an E6 at my ETS, and I was making 40k, or something like that. I’d gone through the Dave Ramsey “Get out of debt” type of stuff, but I didn’t have cash to put down. Thankfully, I had the VA loan, so I ended up doing three live-in flips. And the only way were  able to do that – the first time especially – was no money down. I could afford the payment because I had a good W-2 job, but I could barely afford that payment. Then the equity over two years was crazy, value going up, so I was able to do that.

Other than that, at the same time I was learning [unintelligible [00:09:10].28] I was learning about tax liens, and invested in it through my self-directed IRA, I did some private money lending, some flipping out of state, buy and hold portfolio out of state, a limited partnership deal, which was great… I’m still in that one on a 439-unit mobile home park portfolio, and then now multifamily properties syndication.

Joe Fairless: You don’t need any money down for a VA loan?

Eric Upchurch: Oh man, I’m glad you brought that up. No, and that is part of the incredible thing about the VA loan. If you qualify for the VA loan, which is anyone who has served 90 days active during wartime, or 181 days active during peacetime, and actually six years cumulatively of reserves and guard also qualify, and there are some other things as well, other people who qualify, like widows as well… Anyway, the huge value is you can buy up to a fourplex as owner-occupy. So you have to live in it for a year and a day.

Say you buy a fourplex, zero down, zero PMI, great rates, and you can roll in your VA loan funding fee, you can roll in the closing costs, and you can do a VA rehab loan as well, which I’m not an expert on that one; I haven’t done that myself.

So you can literally go into a fourplex, threeplex, duplex or single, and house-hack, which is why I wrote the book “Military House-hacking”, kind of talking about this strategy. So it’s an amazing asset to anyone who served in our military. I have a meetup here in Northern California, and a lot of guys who served in the ’80s have still never used their VA loan. Now, maybe they don’t need to. At some point maybe you don’t need that benefit. But for the young soldiers and airmen and sailors out there that are just getting started… I wish I had this information 20 years ago, but there’s nobody out there teaching it. So that’s what active duty passive income is doing.

Now we’re able to use our community as outreach to military installations and colonels, and people in the military who have broader influence over battalions of soldiers. Otherwise, the financial education – and no fault to the militaries – there’s a mission. You have to focus on what’s important, and the task at hand is protecting our country, and protecting our interest, and mission-first, mission-focused. So that financial education is limited by how much time – and we say this kind of tongue-in-cheek… But you line up everybody on a Friday or on a Thursday before a four-day weekend, all your soldiers, and you give a safety brief. “Don’t do drugs. Don’t go to jail. Don’t hurt anybody. Don’t have a DUI.” And then at the back end of that they’ll say “Oh, and by the way, invest your extra cash into your thrift savings plan”, which is the military’s equivalent to a retirement plan. That’s pretty much it. I mean, there’s a little bit more to it than that, but barely. And that’s for good reason, so I’m not dogging  the military for that, but it’s time for that to change.

So we’re able to go out there, and now we have a podcast obviously, and a lot of people come into this idea, this mindset that you can be financially free and do some really cool things with what you’ve got going on while you serve, and after.

Joe Fairless: As you mentioned, San Francisco is pretty pricey… How high of a loan amount can you get with a VA loan?

Eric Upchurch: It just went up… It was $769,000, give or take. And some change. The typical loan right now I believe is 484k for the rest of the country, but there’s like 60-something counties across the country that have a higher cost of living, so they allow what they call a Jumbo VA loan. So you can qualify for up to like $769,000; I think that’s what it was last year. And then anything above that — even in the Bay Area,  you can’t buy something for $769,000, so anything above that… Say you buy a house for a million dollars, which – anyone who’s listening to this, don’t worry about the numbers; they’re just extra zeroes. People in the Bay Area are doing what they can, and… [laughter] So anyway, you just have to pay 25% of the difference between the maximum loan amount and the purchase price. And you also have to qualify, your debt-to-income has to be correct, and all that stuff, too.

Joe Fairless: Yeah.

Eric Upchurch: So that’s kind of nice… You can get into a property even for lower money down with the VA loan as well.

Joe Fairless: Yeah, that’s something I hadn’t heard of. I’ve obviously heard of the VA loan, but that part of it, the 25% of whatever the difference is between the max and your subject property… The meetup that you’ve got in California – when did you start it and what’s the format?

Eric Upchurch: That is something that we probably don’t even need to discuss, because I just moved up to this new location, and it’s really just a few people. I just called it like a military real estate social networking thing, and it’s just getting off the ground…

Joe Fairless: When did you start it?

Eric Upchurch: October, but it’s once a month, and I don’t put any advertising into it, or anything.

Joe Fairless: October, you do it once a month… And it’s just meet at a bar, or what?

Eric Upchurch: Yeah, right now it’s just at a restaurant.

Joe Fairless: At a restaurant. And do you have a speaker?

Eric Upchurch: No, not yet. I’ve got so many other things going on, and it’s not a focus of mine.

Joe Fairless: But you have done it once a month since you’ve been at the location that you’re at…

Eric Upchurch: I’ve had to cancel a couple, just because I’m traveling a lot now, and stuff…

Joe Fairless: Okay. I mention it because it’s not about the actual meetup itself, it’s about the mindset that you have for creating it. That is something that I did when I moved to Cincinnati. I started a meetup immediately, and been doing it once a month. I missed maybe two months or so, for four years… And it’s grown and it’s grown, and it’s been very beneficial for myself, and also those who have attended, I believe.

Eric Upchurch: I wanna give a shout-out to Adam “Triple A” Adams, actually. He’s becoming a very good friend of mine now, and he’s obviously very good with the whole meetup community, and that all works; a great resource for anybody who wants to start a meetup.

Joe Fairless: Yes, absolutely. I think I interviewed him on — I know I interviewed him, but I think I interviewed him regarding meetups.

Eric Upchurch: Yeah, I’m sure. He’s pretty much the man with starting meetups, if somebody wants to learn how to do it.

Joe Fairless: So let’s talk about another specific deal that you’ve done. What’s the most recent deal that you’ve closed on?

Eric Upchurch: I got my first GP spot in a 212-unit syndication, which was neat… And that really was not my deal as far as sourcing goes. I got brought in  to raise capital, which was all new to me, but I’m plugged in with some really great people, who are supportive, and I’ve networked enough now to build a team around me of people who are smarter and better than me… But I’m constantly present, I’m constantly active – I’m taking action, I recognize that – so I got provided the opportunity to raise capital for this deal. I didn’t know how I was gonna do that exactly, I didn’t know that I could talk intelligently about the asset, about the investment… I also had experience as a limited partner passively.

For the last couple of years I’ve been talking to a good friend of mine that I invested with, and his company has syndicated almost a billion and a half dollars of real estate. So I invested with him the first time, and he agreed to just kind of walk me through the numbers, and what it looks like… So I knew the process, and I got this opportunity, and I said yes immediately. I don’t know how I’m gonna do it, but I just crunched and made it happen.

So that’s the first one, really. I’m really just at my infancy of multifamily real estate investing. Now we’re looking at a 71-pad mobile home park…

Joe Fairless: Before we get into what you’re looking at, how much money did you bring to that deal?

Eric Upchurch: I brought 425k on that deal.

Joe Fairless: $425,000.

Eric Upchurch: Yeah. Which I feel like in the grand scheme of things–

Joe Fairless: It’s a lot of money.

Eric Upchurch: Well, it is. It is. And I feel like that was a small amount of money on the grand scale, a smaller amount of money for probably what people are raising out there… But it was enough to get me in.

Joe Fairless: For your first raise, it’s a lot of money. The person who brought the most – how much was that?

Eric Upchurch: The person who brought the most – it was a six million dollar raise total…

Joe Fairless: No, on your 425k.

Eric Upchurch: Oh, on the 425k the person who brought the most was 100k.

Joe Fairless: 100k. And how did you meet that person?

Eric Upchurch: That was actually a family member.

Joe Fairless: Okay. What about the next person, the next highest?

Eric Upchurch: The next person was a person that I knew through the military.

Joe Fairless: Okay.

Eric Upchurch: Actually, that sourced several contacts. Previously I had all those relationships, and I knew that obviously for a project like this I need to have pre-existing relationships, so I just kind of dug through my brain. I didn’t have a Rolodex at this time; I wasn’t even thinking about how I’m gonna raise money for a multifamily deal. I just said “Who do I know?” So my Rolodex I guess was my phone and my thought process of who might have money stashed away somewhere.

Joe Fairless: And did those military friends know you as a real estate investor already?

Eric Upchurch: Yeah, absolutely. I am very intentional with telling everyone that I know, including people — literally, I’ll find a way to tell somebody in an elevator, if they’re in there for two floors. At the gym, wherever it is. I love talking about it, and I try and figure out a way to work it in a conversation.

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

Eric Upchurch: Best advice ever – two things. One is use the VA loan. If you have access to the VA loan – and we just interviewed Grant Cardone on our podcast recently… And I didn’t wanna bring this up, because I think he probably would have said “No, man! Don’t go with a four-unit. You need to go 40-unit!”, whatever.

Joe Fairless: Yeah.

Eric Upchurch: So I didn’t wanna bring this up with him, but I love the idea of zero money out of pocket on something that can cashflow, like a fourplex. You live in one unit for a year and a day at least. You’re living for free(ish) and/or making cashflow from the other units that you’re renting out. So in my opinion, that’s the best advice ever. Otherwise, if you don’t mind, I have what I feel like is the real formula to success, which I love saying, and people who know me know that I say this often in our community, which is “Learn, network, add value, take action. If you do those things over and over again, success will haunt you down.” I really  believe that. That’s what I try to do every day, and every conversation I have, and that’s worked for me so far.

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

Eric Upchurch: I think so. Let’s do it!

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

Break: [00:19:13].09] to [00:19:52].12]

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

Eric Upchurch: Best ever book I have recently read – Never Split the Difference, by Chris Voss. And Can’t Hurt Me, David Goggins.

Joe Fairless: And we interviewed Chris Voss. You can google “Chris Voss Joe Fairless” and you can listen to that interview. What’s a mistake you’ve made on a transaction?

Eric Upchurch: Getting into one that I shouldn’t have, which is tax liens. I hate them.

Joe Fairless: Why?

Eric Upchurch: Too boring. I know the strategy. It’s just too long and slow and boring, and to me not active enough.

Joe Fairless: What’s something you’ve lost money on?

Eric Upchurch: I lost money on a first trust deed through my self-directed IRA. The builder who I lent money to – or my IRA lent money to – actually passed away. That was unfortunate, obviously, and something that none of us could control, but… I lost some money there.

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

Eric Upchurch: Best ever deal I’ve done were the three live-in flips in the Bay Area. Living and flipping is awesome, especially with the VA loan. And then I’ve also done a few BRRRR deals as well.

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

Eric Upchurch: This is an important one, and I’m very intentional in putting this out there… It’s brand new to active duty passive income – it’s called ADPI Helps, and we are now partnering with several people to give back to the PTSD and addiction issues that we have in the military. I’ve lost several friends to suicide, and obviously some other serious issues in the military as well. So folks with PTSD and addiction – we are now just starting to reach out, and we’re gonna create a support group, and who know where that’s gonna go, but we’re really excited about it.

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

Eric Upchurch: Please contact us. You can contact me directly at eric@activedutypassiveincome.com. Our website is activedutypassiveincome.com. I am also @realericupchurch on Instagram.

Joe Fairless: Eric, thanks for being on the show, talking about the VA loan. Certainly relevant to anyone in the military, or who would qualify for the VA loan… And also talking about your role in the 212-unit and how you make sure that you’re intentional about what you talk about when you’re speaking to people. And then your formula for success,  “Learn, network, add value, and take action.”

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

Eric Upchurch: You’re the man. Thanks, Joe.

JF1876: Creating A Diversified Portfolio Across Asset Classes & Markets with Matt Shamus

Matt was a Facebook employee before getting into real estate investing. Now Matt is doing deals across multiple markets and asset classes. One deal we will hear about is an office to multifamily conversion, which is not something we hear a lot about. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Trust has to be there first with your partnerships” – Matt Shamus


Matt Shamus Real Estate Background:

  • Founder of Driven Capital Partners
  • They are a private equity group with a diversified portfolio, including nearly 700 units of multifamily, 105,000 square feet of office and industrial space and a mixed use opportunity zone development project.
  • Based in San Francisco, CA
  • Say hi to him at https://www.drivencap.com/
  • Best Ever Book: Principles by Ray Dalio


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

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

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


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

Matt Shamus: I’m doing great, thank you so much for having me, Joe.

Joe Fairless: Well, I am glad to hear that, and it’s my pleasure. A little bit about Matt – he’s the founder of Driven Capital Partners. They are a private equity group with a diversified portfolio, including nearly 700 units of multifamily, 105,000 square feet of office and industrial space and mixed-used opportunity zone development project. Based in San Francisco, California. With that being said, Matt, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Matt Shamus: Absolutely. I am in the Bay Area in California. I have a background in the technology space, as a lot of people do based here in the Bay Area. I was most recently at Facebook, where I worked for six years, and I kind of throughout my time there, and even before working there, I was investing in real estate on the side. And I’m pretty entrepreneurial… Facebook was really only my second ever real job. Everything else that I’ve done has been kind of self-directed, entrepreneurial… And I’ve always been interested in real estate, or I always was, even from a young age. I got my real estate license when I was 19 or 20, and ended up selling my mom’s home, the house that I grew up in. She made a really good profit, and I just kind of had this light bulb moment where I realized “Wait a minute… There’s something here.”

I went off to college, I studied Economics and took whatever real estate courses I could. That was when I read Rich Dad, Poor Dad, which kind of set the foundation for the right mindset. Once I started making a little money in my career, I started investing in single-family homes… And I was basically doing the BRRRR strategy before the term was coined, or at least before I knew about it.

I had a chance to do several projects where we were buying kind of the worst house, or the worst duplex in a decent neighborhood, and significantly renovating it, and then holding it as a long-term rental. I’ve started taking money from other friends and co-workers and people that knew what I was doing and wanted to be involved in real estate, but they just didn’t really have any means to get started on their own, with their own two hands.

So I did that several times over… And I just realized “You know what – I’m doing everything right, but I need to add a zero or two to everything I’m doing in order to achieve the scale that I want to. So that’s when I started looking into apartments as an investment option, and then from there I started looking into other commercial real estate.

So now what we do is we pool money from individual investors and we sponsor real estate deals. In Driven Capital Partners, our theme is we want to create a diversified portfolio across asset classes, and across markets. So that’s what we do today.

Joe Fairless: Let’s  talk about the approach of a diversified portfolio across asset classes and markets. First, are you doing this full-time, Driven Capital Partners?

Matt Shamus: Yes.

Joe Fairless: Okay. So when you were at Facebook, what was your role?

Matt Shamus: As an employee of Facebook?

Joe Fairless: Yes.

Matt Shamus: Well, I did a bunch of different things, as you do at a company like that. I moved around a bit. I went originally in 2012 to work on Facebook’s very first iPhone app, and then I moved. Most of my time there was in business development, working on an initiative called Internet.org, which is basically Facebook’s initiative to bring free internet and introduce the internet to the poorest countries in the world.

Joe Fairless: Okay. Your skillset that they hired you for was — what was your primary thing that you were really good at?

Matt Shamus: That’s a good question. I guess I’m not sure what they hired me for in particular, but I think general adaptability, strategic thinking and planning, definitely a marketing emphasis… Those are some of the things that I focused on at Facebook.

Joe Fairless: Okay, cool. I just wanted to put you in a category in my mind – software developer, or… But you’ve answered that question.

Matt Shamus: The teams that I worked on at Facebook were generally made up of management consultants. I didn’t have that background, but that’s the kind of work that we were doing.

Joe Fairless: Okay, cool. Alright. That helps give some context for what you’re doing now… Because now that you’re a private equity group, you’re pooling capital – what aspects of your previous career are you applying now towards what you’re doing?

Matt Shamus: That’s an interesting question. I haven’t particularly put those two dots together. I think taking a strategic and analytical approach to investing definitely, and having a long-term mindset, I think, as opposed to having a quick, short-term “I need to accomplish something in a short period of time” mindset. I think those are two things definitely that I’ve translated from my former work to what we’re doing at Driven Capital Partners.

Joe Fairless: Okay. And how are you defining long-term, when you’re talking about that mindset?

Matt Shamus: Well, I’m gonna turn 35 this year, so I am planning on being here for quite a long time. What I mean is just that I wanna build a portfolio for myself, that’s gonna withstand the test of time and get me into and through my retirement years. So I’m always gonna make the decision that I think is the better decision long-term, even if it’s a little bit more painful in the next few months, or even a year. So that’s all I mean. I think it’s more of a mindset. I’m not looking to make a quick buck on a deal. I’m looking to make sure that I feel like we have a good approach in place, and that even if there are some external factors that give us some bumps in the road in the near-term, we still feel really good about what we’re doing long-term.

Joe Fairless: Your focus is having a diversified portfolio across markets and asset classes… How do you mitigate risk when you’re looking at multiple markets and multiple asset classes?

Matt Shamus: This is a good question. The more common model is to find a niche and exploit it, and rinse and repeat – which I think is tremendously valuable. What we’ve decided to do is since Dan, my partner, who’s based in L.A. – Dan and I are first investors, for our own account… So what we are doing is find investments that we wanna put our own money into. And then we are letting our passive investors ride along and benefit from the research and due diligence and operational expertise that we bring to any deal. But first and foremost, we’re investing our money. So we are very conservative in what we do, and what it translates to is we tend to say no to almost every deal. And when we find a deal that we’re excited about, we’re really excited about it.

So in terms of mitigating risk, what we wanna do is if we are investing as the lead sponsor and we don’t have anyone else on  the team in a new market, we wanna make sure that we have a very strong team in place in terms of property management, in terms of any consultants that are required, and all the professional services that you would want in a market, so that you can lean on their expertise.

If we are partnering with another operator, which we do, then we lean on their track record and their expertise. So we may, for instance, partner with an operator in North Carolina, and although North Carolina is not our market of expertise, it is this particular operator’s market of expertise. So we’re gonna use their knowledge and background and track record to accelerate our opportunity in that market. So that’s what we lean on and that’s where we see the value in actually — not exploiting a particular niche on our own, but finding really good investment opportunities and being open to the fact that I myself am not gonna find all the best opportunities. There’s a good chance that there’s someone else in a different market that may have an opportunity that I may never see otherwise, and I still want the chance to invest in it.

Joe Fairless: I would love to talk more about that and risk mitigation, and we will, but just a quick clarifying question… So you’re the lead general partner on some deals, and then other deals – you find a deal you wanna passively invest in, and then you bring in your investors after you have qualified the deal. Is that correct?

Matt Shamus: Generally, yes. There’s a little bit more nuance to it, but yeah, generally that’s right.

Joe Fairless: Okay. So you’ve got 700 units of multifamily and 105,000 sqft. of office and industrial and mixed use… How much of that is you being the lead general partner?

Matt Shamus: It’s about 50/50 to date… And I think that’s probably the mix that we’ll look to continue to do, keep it 50/50. What we like to do is Dan and I are out, looking for opportunities, but we wanna be able to weigh and compare them against opportunities from partners… And if our deal wins, we wanna invest in our deal. But if our deal doesn’t win, then we don’t wanna be putting our own money into a deal of ours just because it’s ours. So this method or this strategy gives us a lot more deal flow, and gives us a chance to have better returns over the long term.

Joe Fairless: What’s the largest deal that you’re a lead general partner on?

Matt Shamus: Well, we have — probably our 4 million dollar project. Our markets of emphasis or the places that we like the most are generally in the South-East. We happen to have one deal in Santa Barbara, California, and that’s the deal that I’m referring to here. It just happened to be an opportunity that fell in our lap, so we had to take advantage of it… But it’s about a four-million-dollar deal that is an office to multifamily conversion project in a really great location.

Joe Fairless: Office to multifamily… And of the 105,000 sqft. approximately how much of this project is the 105,000?

Matt Shamus: I don’t know the square footage… It’s under 20,000 feet.

Joe Fairless: That’s quite the undertaking… Office to multifamily conversion. How have you taught yourself how to do that?

Matt Shamus: [laughs] Well, okay, so we just got off an hour-long phone call this morning, which we do weekly, on this particular project…

Joe Fairless: Who’s on the call? What team members are on the call?

Matt Shamus: Just me and Dan and any other potential partners that are relevant for the week. We have permitting consultants, architects that are all working on the project. This property was actually built in the ’60s and it was originally built as multifamily. So the footprint is kind of there. It was converted to office space in the ’80s. If you’re familiar with Santa Barbara, this is right off of State Street, which is the main drive downtown.

In the ’80s, apparently, office space was more desirable for this location, and the property was held in a trust and it was recently inherited, and it was poorly managed. Santa Barbara has about a 2% multifamily vacancy rate; there’s a pretty big housing crisis… So the city really wants to see more relatively affordable housing options, especially in a downtown location like this… So all those characteristics or components kind of aligned here. If it was strictly truly an office that we were trying to convert into multifamily, that would probably not meet our risk tolerance.

Joe Fairless: Got it, okay. So not a heavy conversion. What do you have to do to convert it?

Matt Shamus: Honestly, mostly this is a political process.

Joe Fairless: Zoning?

Matt Shamus: It’s not zoning… It’s already zoned for the use. It’s changing the permitted use and coming up to code on certain items, and making sure that the city is on board with the project. So it’s mostly political, and kind of permitting and planning. The actual construction and the conversion is gonna be I think pretty straightforward.

Joe Fairless: Okay. And have you already purchased the project?

Matt Shamus: Yes.

Joe Fairless: And how much equity did you raise for that deal?

Matt Shamus: I don’t have it in front of me, but on the order of a million and a half dollars, somewhere around there.

Joe Fairless: And approximately how many people did it come from?

Matt Shamus: Well, our average investment over the course of all of our deals has been somewhere close to $75,000 per passive investor. Probably a little less than that. So if I had to guess, this is probably close to 20 passive investors that put money into this deal. It might have been a little bit more. On some of our deals we allow investors to come in — typically, we have a 50k minimum, but sometimes we allow investors to come in at less than 50k, and I think we had a few of those on this deal… So I would say maybe 20-25 people potentially.

Joe Fairless: And I imagine there were a lot of questions about “Have you done this before? You’re trying to change permitting use… It’s California… It sounds like a really uphill, tough sleddin’…” How did you give the 20 or so investors the comfort level that “Hey, we’ve got this. We’re gonna mitigate risk, and it’s a conservative investment”?

Matt Shamus: Well, first of all, we made sure that — in any deal that we offer our investors, we wanna be really clear about what we consider the risks to be. We’re not ever gonna sugarcoat and say that there aren’t risks. There always are, in any deal. And in this particular deal, from our research and discussing with the city, and with our planning consultants and other developers that have done similar projects, the risk seemed to be in the permitting process and the amount of time that it would take to get the permitting from the city.

So all of the signs pointed to “It’s a matter of when this is approved, it’s not a matter of if.” The city needs more housing… This was originally built as multifamily; this is really just changing the use back to its original use. We don’t know all of the little detail that the city is gonna ask us for, so there is risk in terms of “Did you budget enough?” So what we tried to do to mitigate risk is we tried to pad our budget very significantly. We raised more money than we needed to. We’re working with a lender who understands the project and is flexible in terms of LTV, and is flexible in terms of what we get back from the city can dictate how we go about the actual renovation… So we really just tried to be honest and upfront, and know – this is the first project that we’ve done in this city, this is the first project that we’ve done of this capacity, but we’re dedicated, we’re semi-intelligent, and we’re gonna do the best that we can… And our own money is in the deal, so we think we have a very good opportunity here.

Santa Barbara multifamily trades at 4 or 4,5 cap, so there’s a big, big value-add opportunity here if we can get it right… And we felt like we understood the risks and downsides, and we presented them to our investors, and they understood what they were as well.

Joe Fairless: So every now and then I ask the Best Ever listeners “Hey, what additional questions aren’t I asking, that I should be asking?” and a lot of them are like “Well, ask investors how much money are they actually making, or could they make?” So here’s the question – how much money is the general partnership projected to make approximately on a deal like this, should it come to fruition like you envision?

Matt Shamus: The general partnership… Well, I don’t have the deal in front of me to know exactly, but first of all, we put our money into every deal. I think we’ve probably put close to 10% of the total equity that we raised was from principals… So we’re making money alongside the investors in the same way that they are. In this particular deal we have 70/30 profit share, anything above an 8% pref, and then profit at the sale will go 70% to the investor and 30% to the general partner.

On this particular deal we’re gonna be all-in for a little over 5 million. Let’s just say it’s 5.5 million, and let’s say we can sell it for 7.5 million. So we have a 2 million dollar potential profit in this deal, 70% of which is gonna go to our investors, and 30% of which ($600,000) could potentially go to the general partnership. These are really round, ballpark numbers, but that at least gives you a feel for what you could expect.

Joe Fairless: That’s actually more valuable than answering just with a number, because you went through the thought process, and how it’s structured… Thank you for that, I appreciate it, and so do they. What is the best real estate investing advice ever?

Matt Shamus: Make your money on the buy, and look for ways to add value before you close the deal.

Joe Fairless: Going back to what I said we would go back to, the mitigating risk when you’re investing in multiple asset classes, and multiple markets… I get  you really hung your hat on having a strong team, that has a track record and expertise whenever you’re investing in those deals as an LP, and then you’re bringing your investors as well… My challenge – I’ll just speak plainly, with my challenge; my challenge is if I’m presented  an industrial deal, a self-storage deal, a  mobile home park, a retail deal, an office deal, I don’t have an expertise in that, so I don’t really know without having a team of advisors, who — I certainly could reach out to some people who are experts in those areas who I’m friends with… But I personally don’t have an expertise in that area, so how do you determine the validity of the projections that the general partnership has if you’re not focused on one particular asset class?

Matt Shamus: Yeah, this is the crux of it… So one thing we decided early on is we wanted to be knowledgeable enough across asset classes that we could at least be asking the right questions, and understand when we get an answer whether we believe it or trust it, or not.

I think though, Joe, a lot of this, honestly, like in any other partnership, comes down to some level of trust. That has to be there first. And I actually think that your choice of partner is actually more important than the market or the asset itself. I think that’s something at least that we believe, and a track that we follow.

So we ask a lot of questions, we try and vet answers independently, we try and do as much research as we can on our own, and we try and get collaboration from other people in the market that are third parties that don’t have any horse in the race. That’s really what we try to do.

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

Matt Shamus: Yeah, absolutely.

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

Break: [00:20:49].24] to [00:21:25].07]

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

Matt Shamus: Principles, by Ray Dalio.

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

Matt Shamus: It all comes back to not understanding exactly what you’re buying. Not checking off all the boxes, or not realizing that you missed this in the budget, or not realizing that something was gonna take two months longer than you expected… So I think it’s really just not doing the full, complete level of due diligence that you should have before you purchased.

Joe Fairless: Any one of those things in particular that you can share with the listeners, that tripped you up one time, and then it’s something that might trip up others, that you just wanna mention?

Matt Shamus: Yeah, I would go back to my single-family and duplex/triplex investing days… One of my first projects, I bought a really nice little house, and it was built in the ’60s. And in California, in the ’60s, they were putting down cast iron pipe. So going through my first few transactions, I didn’t fully appreciate the need or the benefit to really digging into all of the critical components of the foundation and the infrastructure, including the plumbing… And those particular projects literally – two weeks after we bought the house – I was in Mexico, on vacation, getting a phone call from the tenant, saying that the toilet was backed up, the tub was backed up, and the house was in danger of starting to flood… And I just kind of thought “Man, what have I gotten myself into here?”

It was a simple fix. All these problems can be fixed with a check. But if you don’t have that check budgeted, then it’s painful. So I think from some of these painful mistakes you learn, and I haven’t made that mistake since, and I don’t intend to make it again.

Joe Fairless: Best ever deal you’ve done?

Matt Shamus: I’m really excited about an opportunity zone development deal that we’re working on, just because we’ve found a great property, that was fundamentally undervalued, and we got it at a really good price. We’re close to determining what is actually gonna be built there, and I just see tremendous value long-term in it.

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

Matt Shamus: Right now it’s really about educating people about investing in real estate, about the benefits… And over time I hope for that answer to be able to change, but right now I think it’s really about that.

Joe Fairless: How can the best ever listeners learn more about what you’re doing and connect with you?

Matt Shamus: Well, our website is drivencap.com, Driven Capital Partners. They can email me, Matt@DrivenCap.com. Those are probably the two best ways to reach out.

Joe Fairless: Matt, I really enjoyed our conversation. You got into the specifics of the four million dollar project in Santa Barbara, how you structured it, the potential earnings on the project for general partners, as well as limited partners, talking about why you got into the commercial space, and then how you look to mitigate risk, since you are focused on a diversified portfolio across markets and asset classes. Theoretically, that’s great, but then how do you bring that to life while doing it in a conservative way when you’re investing, and you talked about that.

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

Matt Shamus: Hey, thank you so much for having me, Joe.


JF1855: Marketing Expert Gives Us Strategies For Real Estate Investing Growth with Lael Sturm

As most of us know, in this business we need to be great at many different things, or have people on our team that have different skills. Marketing is one necessary aspect of real estate investing. Whether you are buying or selling, you need effective ways to get in front of people. That’s what Lael will get into with us today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“The more I know, the more I can serve my clients” – Lael Sturm


Lael Sturm Real Estate Background:

  • Founded LPSS Digital Marketing to deliver effective growth strategies and tactics to real estate professionals and other profitable businesses
  • Has been in online marketing for 25 years, worked with small and large companies including MTV, Nokia, Microsoft, and CNET/CBS Interactive
  • Based in San Francisco, CA
  • Say hi to him at https://www.lpss.co/?r_done=1
  • Best Ever Book: The Big Leap


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today I’ll be speaking with Lael Sturm, who is joining us from San Francisco, California. Lael, how are you doing today?

Lael Sturm: I’m doing great. Thanks so much for having me.

Theo Hicks: Thanks for joining us. I’m looking forward to diving into your expertise, which is marketing. Lael is the founder of LPSS Digital Marketing, which delivers effective growth strategies and tactics to real estate professionals and other profitable businesses. He has been in online marketing for 25 years, and has worked with companies large and small, including MTV, Nokia, Microsoft and CNET – CBS Interactive. As I mentioned, Lael is based in San Francisco, California, and you can say hi to him at his website, which is LPSS.co.

Lael, before we dive into the conversation, can you tell us a little bit more about your background and what you’re focused on now?

Lael Sturm: Absolutely. My career started right at the genesis of the internet. The web was just starting to happen, and I knew a guy who built something and sold it very quickly; sometimes that’s all it takes – somebody nearby to be successful in order to catch the bug. So I jumped right in… It was the mid-nineties. I taught myself about the technology and quickly got a job in the industry. I was able to grow my knowledge, grow my perspective, grow my network to a point where I could actually help other people be successful.

As you’ve mentioned, I did some work in the media space for some major brands like MTV, and ultimately wound up at Columbia Business School, getting an MBA.

At the time I was at Columbia, there were not a lot of internet-qualified people that were going through business school. It was a lot of bankers and consultants. Consequently, people were coming to me for advice on startup ideas, and online strategies, and even investments in online properties… And sort of over beer and pizza I became an online strategy consultant, and grew my practice from there. Over the years, the landscape has changed significantly. Google was a brand new thing at the time I was consulting in business school, and since then social media has happened, and now we’re all carrying phones in our pockets, and things like virtual reality and artificial intelligence are on the horizon, and people are preparing for that…

So I work with businesses to try to make sure that they’re prepared to take advantage of these new technologies in order to grow and be successful, and not be left behind. As you mentioned, most of my practice is around helping real estate professionals and other profitable businesses. Day-to-day we serve them in a variety of capacities, including helping them with their social media efforts, ads across Google and Facebook and LinkedIn, content creation, blogging, email newsletters, and all of the things that they need to be doing to establish themselves as thought leaders and really take advantage of these new channels.

Theo Hicks: Before we dive into some specific strategies and tactics, I think it would be good to talk about — because as you mentioned, you started at the beginning of the internet, and since then technology has evolved quite a lot. We went from just basic computers and floppy disks to now (as you mentioned) everyone’s got cell phones, everyone’s essentially on the internet all the time; there’s video, there’s audio… So from your perspective, since you’ve been at this game for so long and you’ve gone through all those ups and downs and changes, how did you make sure that you were always staying on top of the newest thing that’s out there, instead of — like, some people can’t necessarily stay up with the changes, they can’t stay up with technology, and maybe their business was doing really well 20 years ago, but now it kind of doesn’t even exist anymore.

Lael Sturm: Fair question. I think first it starts with kind of a self-realization that maybe I don’t have all the answers. Maybe there’s still more to learn. And every day I show up with that perspective. Maybe somebody on my team has a different perspective that I could learn from. I try to consume content through podcasts, and books, and various blogs on a variety of subjects. The goal always is enrichment and growth. So the more I know, the better I can serve my clients… And frankly, I learn from clients as well. Sometimes a client will come to me and say “Hey, something has come up that we need to deal with. How should we deal with it?” and I’ll say “That’s an area that my team doesn’t have expertise on. Why don’t we go out and learn, and we’ll come back to you and report back on what we’ve found?”

So we’re constantly looking for new ways to enhance our knowledge base, to grow our perspective and to increase our value as trusted advisors to our clients.

Theo Hicks: I could not agree more. It’s always about continuously staying educated. Let’s move into the tactics. The opening question I wanted to ask you was out of all the marketing strategies that are out there, if someone’s just starting building their brand right now, or they’re just beginning to think about implementing some marketing strategies, what’s the one thing that every single real estate investor should be doing from a marketing perspective?

Lael Sturm: So we’re gonna start at the strategy level, not so much at the tactical level, although we can trail into that… What they need to do is establish their thought leadership using channels – and this is where it gets into tactics – like LinkedIn, like blogging platforms like Medium, like their email database… So they are theoretically an expertise in something; whatever it is that they’re an expert in, they need to communicate that to their potential audience… And whether that’s people that they’re trying to syndicate an investment with, or whether it’s a larger investment operation that they would like to have a role in, or whether they’re just trying to convince a property manager or a property owner to trust them, versus the variety of other resources…

The more they can demonstrate their expertise through creating content, through having a voice, through sharing their knowledge, the more likely they are to win those deals, and the more likely they are to stand out against the competition, because it’s a crowded field. And frankly, real estate investors are commoditized. One person’s money is as good as the next, from one perspective, and if you can distinguish yourself from the other investors as being smarter, being better, being more creative, having a different knowledge base, you’re more likely to win deals and grow in your career.

Theo Hicks: So can you either just high-level, or through a specific example, can you give us the story of how someone who obviously is an expert in apartment syndication, for example, and they want to start (let’s say) a newsletter, what are some things that they can do in order to build that loyal audience and stand out? I know obviously expertise is important, but what are the methods for communicating that expertise?

Lael Sturm: Fundamentally, regardless of channel or expertise or ultimate goal, fundamentally in all things marketing you wanna provide value to the end user or the end consumer. So if you’re somebody who’s putting together a syndicate, you need to be able to speak in an informed manner about this, in a way that’s additive to the conversation. So you’re just not just repeating what everybody already knows, you’re actually giving some insight, or some tips and tools that people can put to work to be successful themselves, for no clear benefit to yourself.

You’re essentially giving away your knowledge, and by doing that, you’re demonstrating both your expertise, but also your generosity, which speaks to the kind of person that you are, and makes people more inclined to wanna do business with you. That’s a strategy that you can bring to social media, that you can bring to email marketing, that you can bring to content creation, blogging, and that sort of thing… You should frankly do speaking engagements and even one-on-one meetings. “How can I provide value for you?”

Theo Hicks: When you were explaining the one thing every investor should do, you mentioned thought leadership and you mentioned LinkedIn, blogging, email database… What have you found to be the ideal or the best channel?

Lael Sturm: That’s just so hard, because it’s really subjective… But I would say – and this is tough for a real estate investor to do effectively right off the bat, but the most compelling platform currently is Instagram. Instagram – their algorithm and their engagement levels are so, so good, that if you can find a way to use Instagram to promote your brand, to promote your thought leadership, to promote a deal that you’re putting forward, that’s probably the best thing that you can do.

Now, that said, Instagram isn’t great for everybody equally. It’s a hard thing to use if your product isn’t beautiful. It’s easy if you’re in the fashion business, or even if you’re a realtor and you can showcase beautiful properties… But if you’re in finance or in the advice business, it’s a hard thing to distinguish yourself on… In which case I would say the next best choice is a platform like LinkedIn, where you can very easily reach the people that need to do business with you using text-based content, where you can write content that demonstrates your expertise.

Theo Hicks: On the opposite end of the spectrum, what is a common marketing practice/strategy/tactic that you see real estate investors in particular implementing, that you know for a fact is not effective and is kind of a waste of time?

Lael Sturm: Good question. The short answer is not everybody needs a full website. The era when everybody needed a robust website is over; with all of the current tools available to people, it’s possible to even not have a website at all. I’m not saying go that far, but what I find is a lot of real estate investors – certainly those that are trying to put together a REIT, or syndicate a deal – they will often build out a robust website to indicate that they’re the real deal, they’re professional and they can afford to invest in a big, comprehensive website… When actually a smaller website would do, with fewer bells and whistles, and you can supplement using tools like Facebook and Instagram and LinkedIn and other services… Or you can post all of the same content, but do it yourself, without having to have the robust site.

Theo Hicks: That’s a very interesting perspective. I thought of the same thing as well, and it kind of reminds me — it’s like, the three things in real estate: “I need to create an LLC right away, I need to get a business card right away, and I need to create a website right away.” So I’m glad that you mentioned that.

Take this however you want, but what would you say is one of the most unique marketing strategies you’ve seen a real estate investor do?

Lael Sturm: That’s a tough question… There’s certainly no shortage of unique practices. There is however a shortage of unique marketing that works. We’ve all seen crazy things; we’ve gone to a conference and somebody covers all of the city buses in their logo, or something… So we’ve seen stuff like that. As far as unique that works, and specific unique that works on digital – it’s not that exciting, it’s not that sexy really… It’s building community; it’s creating a profile that is going to have an engagement level that people can rely on, that they can come to this community, learn from other experts within the community, and actually enhance their own career without even engaging with the investment or the investor.

So it’s building a brand that people can rely on, and that they can turn to to grow, and be empowered by. Using a platform like Facebook or LinkedIn to do that is very unique, very unusual in the real estate investment space, but very effective, which is ultimately what you want.

Theo Hicks: For the money question, besides all of the amazing advice you’ve given so far, what is your best ever advice for real estate investors?

Lael Sturm: Well, look, since I’m a marketer, not an active investor – my real estate investment was my home. I invested in a home in San Francisco, which was not a small undertaking. It’s appreciated significantly, and there have been many opportunities for me to sell at what felt like the top, and I’ve resisted selling and moving somewhere less expensive… And because I’ve been able to hold on to it, I’m not in a position where I’ve got a tremendous pile of equity that I can tap into and use to make other investments or to take on other strategies.

So I would say my advice is buy and hold… To the extent that you can hang on, you should hang on.

Theo Hicks: Alrighty. Are you ready for the best ever lightning round?

Lael Sturm: I certainly am.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:15:52].28] to [00:16:53].14]

Theo Hicks: Alright, Lael, what is the best ever book you’ve recently read?

Lael Sturm: I’m reading a great book actually for the second time through  called “The Big Leap.” It’s by Gay Hendricks, and it is just a phenomenal business book, but it also has some great lessons in there about how to break through the barriers that you might be  experiencing in your personal life. But it’s all about growth.

Theo Hicks: Alrighty. And if your business were to collapse today, what would you do next?

Lael Sturm: Well, I guess it depends. If I’m in a position to not need income, I would just focus on playing tennis and skiing and hanging out with my kids. If you’re asking me what would I do professionally next, I would probably dedicate myself to writing and content creation, and trying to create value around education and online professional development.

Theo Hicks: Alright. And then typically we ask a question about a deal that you’ve done, so instead I’m going to change it up a little bit and ask you “What is the worst marketing strategy that you’ve given to a client, and how did you overcome and resolve that issue?”

Lael Sturm: [laughs] It’s a good question. I would love to tell you that everything we do is amazing and very effective… But sometimes we come into organizations where they face challenges that we just weren’t prepared to deal with, and it’s  a bit of a trial by fire. However, we as an agency distinguish ourselves by offering our clients total transparency, both in pricing and in expectations… So if we fail to live up to your expectations, we’re the first to tell you “It’s time to stop doing this.”

One example is we were hired by a networking group in California that wanted to grow its base of attorneys that were participating in these networking events. We thought “Well, there’s no shortage of attorneys in the area. We could certainly find them using social media.” But what we’ve found was although we were able to reach the attorneys, we were not able to compel them to attend this networking event, and the problem was that time is money when you’re an attorney. So the value proposition was not high enough to justify the lost billable hours. If you’re billing at $600+/hour and it’s gonna take you 30 minutes each way to get to this event, and then you’re gonna spend an hour there – well, that’s $1,200+. It’s hard to justify that in a Facebook ad. So we were not successful.

I don’t know if it was a spectacular flame-out, but I certainly was surprised by that, and very quickly it became clear we were not gonna be able to help this organization… So we politely said “Look, this is not a good use of your money. Let’s not do this”, and we pointed them in a different direction.

Theo Hicks: Thank you for sharing that with us. What is the best ever way you like to give back?

Lael Sturm: Well, volunteering is always good, and I do a decent amount of that, and make time for my team to do that as well… But I would say – circling back to my earlier point – I really hold myself to a standard where I provide value in every conversation. It’s really important to me that if you’re gonna take the time to sit down with me, whether you’re a client, whether you’re a prospect, whether you’re somebody that I meet in line at the coffee place, I want you to leave that conversation richer than when you arrived at it.

I wanna be able to provide value for you every single day, whether you’re a client of mine, whether you’re a friend of mine, or whether you’re somebody that I just happened to meet on the street.

Theo Hicks: Well, I’m sure the Best Ever listeners will agree with me when I say this – I do feel like I will walk away from this conversation a lot richer. The last question before I summarize what we discussed – what’s the best ever place to reach you?

Lael Sturm: The best ever place to reach me is on my website, which is lpss.co. There’s a number of different options there for getting in touch with me. You can contact me directly using email, you can set an appointment with my assistant… But there’s actually a button right there on the website where you can schedule 15 minutes to chat with me about anything. So if you wanna talk about marketing, that’s fine; that’s my expertise. But if you wanna talk about baseball, or an interesting book that you’ve read, or literally whatever is on your mind, I’m happy to spend 15 minutes with you. Again, my goal is for this to be a valuable 15 minutes.

Theo Hicks: Well, Lael, I really appreciate you coming on the show today. As I mentioned, I am definitely walking away with a lot more knowledge than I came into this conversation with. Lots of great content. Just a few things that stood out to me… One – in the beginning we discussed essentially how to stay relevant in an industry that’s changing so quickly, which is essentially every industry right now… It’s all about cutting into that self-realization that you don’t know everything, you don’t have all the answers, and because of that you need to constantly, every day, learn something new, and continue focusing on enrichment and growth.

And then something else interesting that you said is that you also learn from your clients, your customers as well. I thought that was an interesting point. You also mentioned — we discussed how to build that audience, how to build that loyal following, and one of the things that you mentioned was to obviously speak in an informed manner, that is adding to the conversation; you’re not just repeating general information or well-understood knowledge already. Do it when there’s really no clear benefit for yourself. So not only are you displaying your expertise, but you’re also displaying your generosity, because you’re giving away valuable knowledge for free.

You mentioned that right now you believe that one of the best channels for marketing is Instagram… And for those listening, we actually have a blog post; google “Joe Fairless how to grow Instagram.” [unintelligible [00:22:40].02] shared with us for how to build a following on Instagram, using real estate as the example.

Something else that I really liked that you said was – when I asked you about something that everyone does that they don’t necessarily need to be doing, and that was the website. Don’t go out there and spend thousands and thousands of dollars on a professionally-designed website if you don’t need to, especially with all those tools out there… You can just create a landing page, you can just use Facebook, or your social media page, your LinkedIn.

And then your best ever advice for real estate investors, which was the importance of the buy and hold strategy, because of the ability to build up equity, whether you’re forcing value or you’re getting natural appreciation… Because you’ll be able to get a pretty decent chunk of equity that you can then leverage to use to invest in really whatever you want.

Again, Lael, I really appreciate you coming on. Very powerful stuff today. Thank you to everyone who is listening. Have a best ever day, and I’ll talk to you soon.

JF1853: How Can Apartment Owners Leverage Smart Technology? With Mike Rovito

Mike is on the show today to tell us how he’s helping apartment owners save money in the long run by investing in smart technology. He’s also been around real estate for the majority of his career so he understands how owners and managers think about their investments. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“You need a partner” – Mike Rovito


Mike Rovito Real Estate Background:

  • CEO of Dwelo (dwell-oh)
  • Dwelo provides smart apartments to the owners and managers of multifamily communities
  • They have about 40,000 units on their platform
  • Based in San Francisco, CA
  • Say hi to him at https://www.dwelo.com


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


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

Mike Rovito: Good, how are you doing?

Joe Fairless: I am doing good as well, and looking forward to our conversation. A little bit about Mike – he is the CEO of Dwelo. Dwelo provides smart apartments to the owners and managers of multifamily communities. They’ve got about 40,000 units on their platform. His company is based in San Francisco, California. With that being said, Mike, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mike Rovito: Sure. The current focus at Dwelo is to help the owners and managers of mid to large-sized apartments leverage the benefits of smart technology. We’re thinking smart thermostats, smart locks, smart light switches etc. Both so that they can provide it as an amenity to the residents, increasing the quality of their assets, but also to help them operate their properties more efficiently. We are a technology provider and a service provider to support that.

My background in real estate actually begins in the energy efficiency space, which is my entre to real estate at large. I was working in a consulting company called ERS, helping large real estate owners in New York City save money by reducing their energy spend… Working on projects like code generation, battery storage, smart thermostats, and even working with large industrial process. That kind of opened up my eyes to the world of real estate, understanding how owners and managers think about cap ex and op ex, and where they direct that spend, and how they’re trying to optimize the NOI of their assets.

That experience showed me what enormous opportunities there were in real estate, and also got me into the smart technology realm. While I was there, we launched a platform called InfiSense, which was a measurement platform leveraging IoT devices. Previously something that had been done manually, slapping some  monitors on these huge – we’re talking massive mechanical rooms in high rises and industrial process plants… Slapping some monitors on those, making that automated, and to the cloud. It taught me a lot about technology, and that was sort of how I ended up getting into Dwelo.

Joe Fairless: I’d love to – and we will – dig into Dwelo… You mentioned the energy efficiency space, and then you mentioned four or so things for reducing energy costs. Will you just mention those again? The first one was code generation, but what were the other things you mentioned?

Mike Rovito: Battery storage, smart thermostats, industrial process efficiency… We kind of ran the gamut there. There’s obviously more standard things, like improving your lighting efficiency… It really depended on who the client was. What makes sense for a commercial office owner, versus an apartment owner, versus Steinway Piano Manufacturing in Queens, New York is gonna be different.

Joe Fairless: Let’s just talk about that for a little bit… Office versus apartment owner. What are the different directions you would typically go with those owners?

Mike Rovito: In the office realm the people who are actually occupying that space often don’t have control, and the operating hours are fairly fixed, and they’re fairly long. If you look up at the New York Skyline into the evening on a winter night, the lights are on, and the heat is running, all these sorts of things. So mostly you’re working to improve the fundamental operating efficiency of that equipment – changing out old fluorescent lights to be LEDs; some of these aging boiler plants or chiller plants that are running the HVAC systems, the heating and cooling – getting them up to modern standards. Those can just run more efficiently, and it has nothing to do with scheduling or reducing waste in the sense of “We’re not gonna heat it when nobody’s there”, because those patterns are too fixed and it’s difficult.

In apartments you have much more of an opportunity to do demand-based stuff. Obviously, you wanna have efficient equipment, but then using smart technology with sensors, or just basic automation and scheduling, you can reduce that use. And I think there’s a split in terms of who the benefit flows to in apartments. You have your residents, your managers or the operators of the assets… And in most apartments your residents are paying for their own bills, so they don’t really care what happens when it’s occupied, except in so much as a resident perceives that they will save money and therefore they will pay more for that apartment… Which is a real thing, and there’s supporting documentation from Nest and folks like that, that you can save energy, that you can provide to your prospective residents, to help them see that benefit and value that in the asset.

But then for the operators it’s really about vacant unit settings… And there’s actually a pretty big opportunity for energy savings in vacant units at apartments, bigger than you might think. The average community – professionally-managed community – we’re talking like 200 units, it spends about $100,000/year on the energy in those units and common areas, just in the vacants… And by turning those off when nobody is there – we did an analysis in cooperation with Conservice, the multifamily utility billing provider, that there’s a long tail of just a subset of units that are using about half, and it’s all waste. The long tail is called by a vendor or a maintenance worker who goes in — think of a painter… They go in, they paint the room, they open up the windows, they turn the A/C on, and then it just runs and nobody checks on it for days and days… So the typical pattern that an operator will see in vacant units is a $20 bill, $20 bill, $20 bill… And a $180 bill automation can cut that out.

Joe Fairless: That’s wonderful information. Now segueing into Dwelo – how does Dwelo help with that part of the process? I know it’s much more than that, but how are you involved with that part of the process specifically?

Mike Rovito: Zooming out briefly to help answer that question… So we’re a technology and service provider that enables owners to take advantage of smart technology, which includes smart thermostats, smart light switches… And we provide the infrastructure that enables owners to take advantage of that particular value proposition that I’ve just described.

We will help them put in smart thermostats, smart light switches, and the [unintelligible [00:08:42].15] connectivity to get that in a place where it can be automated, so that you basically at the end of the day can just have that stuff turned off every day, if it’s vacant. We know if it’s vacant, and we can turn it off when it’s vacant. It’s pretty simple in theory; anything that can run on a schedule can be automated, can know when the unit is occupied and vacant… It’s not all that complicated. But actually getting that stuff to work at scale is sort of where we come in, and the value that we provide.

Also – not to maybe segue into a new topic, but also tying that in… Because that’s not the only value proposition. Building a technology platform that doubles that same piece of hardware as a resident amenity as well; not just a commercial solution, but also a consumer solution as well.

Joe Fairless: How is it a resident amenity?

Mike Rovito: A smart home is a really fast-growing category. For the residents, especially younger residents, but you’d be surprised – the demographic interest is pretty broad… The first commercial at the last Super Bowl was for Google Home. So this stuff is really coming. I think voice controllers like Amazon Echo and Google Home have really accelerated the interest in this.

The residents – we’ve shown empirically – are willing to pay more for tech-enabled apartments. Now, that can mean a lot of different things, but as a core, it’s a smart lock, a smart thermostat, a set of smart light switches. Maybe some outlets. But mostly just those things, that get you the core value proposition. What that is gonna enable the resident to do – we speak first to the thermostat – they’re gonna be able to control their comfort settings. There’s a convenience factor and a comfort factor that comes with that. If they’re coming home from work on a hot summer’s day, they can cool that apartment without having wasted energy all day by running the air conditioning while they’re gone. They can save energy in the same ways that the owners do by configuring automations that go to their schedule, or to their occupancy pattern as well.

For the locks it’s maybe a slightly different set of value propositions. It’s the convenience of being able to let a friend in to walk your dog while you’re on vacation, or somebody who’s coming to visit, giving them digital access to that lock. You don’t need to make a copy of the key or hand off a key. You might be at work that first day when they’re coming to visit, and you wanna let them in – you can either remotely open it, or you can actually give them a digital credential in the form of a thing on the phone that they can swipe, or a PIN code that works on that lock. So it gives them the freedom to control access remotely, while at the same time giving them comfort that they know “Did I lock my door or not?” They can see all those things.

As a bundle, those things add up to — at least on a perception basis… Different people are gonna use it different amounts. The value people get from that is gonna be subject to how they use it, but there’s definitely 100% perception in the marketing benefit for the owner of that asset, who can then position that asset in a different way, as a more progressive, forward-looking, technologically-enabled asset, as part of community aesthetic, and so forth.

Joe Fairless: And what’s the value proposition for the light switches?

Mike Rovito: There’s an energy component, for sure. It’s actually the most used component, I think. The value of the lock and the thermostat is clear and more obvious when you actually get into the apartment and you are able to control lights with your voice… You become extremely lazy. It’s actually a lot of fun; it’s the most magical component. You push a button and the lights just turn on and off. So it’s somewhat novelty, but there’s also a genuine convenience. I personally turn my lights off from bed every single night, using my voice. I haven’t touched a light switch in days.

Joe Fairless: So walk us through, please, the user experience for Dwelo. Is it apartment owners of 100+ units the user, or are the residents of those apartments the user, or is it both?

Mike Rovito: Both. I actually sort of divide it — it’s obviously a little bit grey, owner versus manager, and so forth… But I usually divide it stakeholder-wise. The owner is the buyer, and both the manager and the residents are users. There’s a web app for the managers, that enables them to sort of run the whole building. They’re blocked out from seeing what’s happening in occupied units for privacy reasons, but that’s gonna be their switchboard where they’re getting access to units, to vendors, and maintenance, and so forth; if it’s a vacant unit, that’s how they’re controlling the energy spend in those units, or preparing a model unit or a vacant unit for a showing by “Let’s get the lights on and the heat on before we show up, so it’s at the right level.” They’re not having to walk — especially at some of these large communities, there’s material time-savings that come from that.

Our managers self-purported about – for an average 200-unit community – 200 man-hours of time-savings from not having to deal with physical keys as they’re moving up at the property. So if you go out to show the one-bedroom and you’re no now on the third floor in the West Wing, and the resident says “Actually, I would be interested in seeing that second one”, they’re running through the halls, going back to the key track machine… They’re not doing that anymore with Dwelo. They have digital credentials and they can just [unintelligible [00:13:48].28] to that new unit. So there is a web portal that enables them to manage all of that, for the managers.

For the residents, it’s actually the most seamless experience you can have with home automation in general, because it’s pre-installed. When you move in, your account is already set up because the manager either manually added your email to the system, and it kicks off an invitation in your email inbox, and 30 seconds from there you’re able to have an account and control your unit… Or we have integrations with Yardi and RealPage that help with that, if you have those systems on-site for that property.

So the residents moves in, the stuff is already installed, and they get an account from the management system, and within 30 seconds they can be in the app, controlling all of it just as they would any other type of smart home system.

On top of that, we’re not trying to compete with Google and Amazon, we’re partners with them. We’re selling Google and Amazon hardware. Many of our apartments have Nest in them. We don’t make the hardware, we’re just reselling it and piecing it together on this platform… So they can take their account and attach it to their Amazon or Google account and have it show up in their preferred interface. So if they’re a Google family and they love the Google Home and they wanna connect it to their calendar and this and that, you can connect the Dwelo account there, and then the resident would never have to even use the Dwelo app if they don’t want to. That’s their choice.

Joe Fairless: What’s the cost?

Mike Rovito: It’s about $600 upfront to get started with a lock, a thermostat and two light switches. That’s gonna cover you for your average configuration. You can go up and down – we have a variety of locks and different aesthetics, different types of locks and thermostats and so forth. We’ve seen people push that to a thousand or more. We’ve seen people really scrimp and cut it to $400, but you’re probably in that $500 to $750 range for most units upfront. And then there’s the subscription, and this is gonna be subject to scale, and payment terms, and all other sorts of things… But to give a rough ballpark, think of it as starting at around $10 per the more typical [unintelligible [00:15:52].08] terms and configurations.

Joe Fairless: $10/unit?

Mike Rovito: Yeah.

Joe Fairless: Cool. When you think about the number one objection an owner gives you for not doing this after you speak to him or her, what is that objection?

Mike Rovito: I think they see this coming, they’re just not sure if now’s the exact moment to do it. I think there’s a fear factor, and [unintelligible [00:16:12].10] number one objection started to go away… The objection being “Is this truly gonna work? Am I really gonna see the benefits, or am I gonna introduce headaches for my management team?” And I think on the benefits side of it — so it’s just sort of a general skepticism.

On the benefit side of it we’ve empirically been able to show 1% to 3% rent premiums. We’ve been able to show time savings for the team, we’ve been able to show energy savings that dropped to the bottom line… So we’re building a pretty good — I mean, we’ve had tens of thousands of units at this point, we’ve been at this for four years, or actually longer… So we’ve got pretty good evidence at this point. The best evidence is when the competing product down the street puts us in.

And in terms of “Is it gonna work?”, I think we’ve got good customer references to support that. And it is a legitimate challenge, and that’s why we exist as a business; you need a partner, you need some help.

Joe Fairless: Anything else that we haven’t talked about as it relates to Dwelo and smart apartments that you think we should?

Mike Rovito: No, we’ve covered a lot of ground.

Joe Fairless: Cool. Well, that’s because of you, and I appreciate it. Mike, thank you for talking about Dwelo, the services that your company provides, as well as getting into the specifics of energy savings, as well as what generally is referred to as a smart home – having a lock, thermostat, light switches… And the value proposition for each of those, as well as the costs associated to it.

We should have mentioned at the beginning of our conversations – Best Ever listeners, this is a Skillset Sunday episode, so I hope you’re having a best ever weekend, and Mike thank you for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Mike Rovito: Thanks, Joe. I appreciate it.

JF1819: He Just Quit His Full Time Job To Be A Full Time Real Estate Investor with Sean Pan

Sean is joining us today to share his real estate investing story. We’ll hear how he acquired his first deal, how he evaluates his flips, and ultimately how he was able to scale his own real estate investing business to a level that sustains his lifestyle and he was able to quit his full time job! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“I lost so much money on a deal that I ended up in Bloomberg magazine” – Sean Pan


Sean Pan Real Estate Background:

  • Real estate investor located in the Bay Area
  • Started his real estate investing career by buying a small portfolio of cash flowing rentals in Jacksonville, Florida and has since completed 5 flips in the Bay Area
  • Based in San Francisco, CA
  • Say hi to him at seanpanrealtyATgmail.com or www.everythingrei.com
  • Best Ever Book: Best Ever Apartment Syndication Book by Joe Fairless


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


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

With us today, Sean Pan. How are you doing, Sean?

Sean Pan: How’s it going, Joe? Thanks a lot for having me on your show today.

Joe Fairless: Well, it’s going well, and you’re welcome. I’m looking forward to our conversation. A little bit about Sean – he’s a real estate investor located in the Bay Area. He started his real estate investing career by buying a small portfolio of cash-flowing rentals in Jacksonville, Florida, all across the country. And since he has completed five flips in his backyard, in the Bay Area. With that being said, Sean, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Sean Pan: Absolutely. Thanks again. My name is Sean Pan, I started as an engineer over in Los Angeles, making satellites for the government. I just realized over some time that this isn’t where I wanted to be 30 years down the road, and I wanted to find a way to get that financial freedom and be able to do things that I wanted to do. And that’s how I stumbled into real estate investing, and that’s how I stumbled into purchasing cash-flowing properties over in Jacksonville, Florida, and then later on I moved over up to the Bay Area. The Bay Area is a little bit different. People here are more interested in flipping homes. And just by hanging around so many flippers, I became a flipper myself.

Joe Fairless: Did you have a full-time job when you bought that portfolio in Jacksonville?

Sean Pan: Exactly right. I had a full-time job, I was saving money…

Joe Fairless: Do you still have it, or are you doing this full-time now?

Sean Pan: Actually, I just put my two weeks in…

Joe Fairless: Alright, congratulations!

Sean Pan: Yeah, thank you so much.

Joe Fairless: Wow! Alright, so you had your full-time job when you found the cash-flowing properties in Jacksonville, and then I interrupted you. Sorry, I just wanted to ask you… So please, continue.

Sean Pan: So then  I started hanging out with a lot of flippers in the Bay Area, going to a lot of the meetup groups in the area, and learning how to flip properties, and that’s just how I got into flipping houses.

Joe Fairless: Okay. Let’s rewind a little bit to the Jacksonville portfolio. When I say portfolio, I’m just repeating what I see in the show notes. What exactly did you purchase?

Sean Pan: Right now I have two single-family homes and one fourplex.

Joe Fairless: Okay, so two singles, one fourplex – six  total units. What was the total purchase price?

Sean Pan: Oh, geez. First one was about $80,000, the second one was an auction home, so $40,000 on that one; we’ve put another 15k to rehab that one. And then the last one was a fourplex we bought for about 250k.

Joe Fairless: Okay, so 250k fourplex, and 80k, and what was the other one?

Sean Pan: 40k.

Joe Fairless: 80k and 40k. One was from an auction?

Sean Pan: Yeah.

Joe Fairless: So you bought them separate times then.

Sean Pan: Exactly. It’s a portfolio that I bought over time.

Joe Fairless: Okay, cool. Auction – that was your second purchase?

Sean Pan: You know how it goes, when you buy the first one, you just want another deal…

Joe Fairless: Right, of course.

Sean Pan: So I bought my first one and I was like “Alright, this is pretty good.”

Joe Fairless: The $80,000 one?

Sean Pan: Exactly. I was like “It’s pretty good.” I bought it for 80k and it rents for $900. About the 1% rule, so… Good enough. My friend said he had a connect who actually worked on Auction.com, and he has a list of what the banks actually want for a property… So even though something says $60,000 as the estimate, they know that banks only want 40k, so I was like “Alright.” I put in a bid at 40k and we got it.

Joe Fairless: Okay. What did you do with the property once you purchased it, in terms of renovations and renting it out, or costs, the rent price, all that stuff?

Sean Pan: My property manager – he’s a god-sent. He took care of everything, basically. He went in there, it was a wreck. There was someone living there, a squatter. Luckily, we were able to do cash for keys. He just got six crisp $50 and just kind of wafted it in her face, like “You want these? Get out.” So she did, she got out for only $300, so we got pretty lucky there.

A $15,000 remodel in Jacksonville goes a very long way. We rehabbed it and we were able to rent it for $850.

Joe Fairless: Good for you. So all-in 55k, and… Six $50 bills? Did I hear that right? So $300. So all-in $55,300. And you are renting it for $800?

Sean Pan: Yeah, $850.

Joe Fairless: $850, sorry. I didn’t mean to short-change you on that. Okay. And then you bought a fourplex.

Sean Pan: Then I bought a fourplex.

Joe Fairless: How long ago was this?

Sean Pan: This was about two years ago.

Joe Fairless: Only two years ago? Alright. What were the numbers on the fourplex? You said you bought it for 250k. What about rehab and income that it generates?

Sean Pan: That one was pretty stable already. When I bought it, it was going for about $650/door. After we turned the units, now it’s about $750/door. Again, my property manager is the one that is doing all the work. Of course, we do repairs here and there, but nothing too major on the fourplex.

Joe Fairless: Okay, so you haven’t put substantial money into it for cap ex, or anything. You just bought it for 250k and you’ve been making any improvements from the cashflow of the property.

Sean Pan: Right.

Joe Fairless: Okay. What type of financing did you get on each of the three?

Sean Pan: The first one I wanted to get the deal. It was actually listed for 100k and I said “How can we negotiate down?” So I actually bought it with cash, and then we did delayed financing. So after we closed with cash, then I did a loan to get paid back.

Joe Fairless: Okay.

Sean Pan: The second one was a pure cash play.

Joe Fairless: Sure, yeah.

Sean Pan: The third one was traditional financing. For multifamily it was 25% down.

Joe Fairless: Okay. Have you since put a loan on that $40,000 auction house?

Sean Pan: I was going to, but then I got too lazy. And it cash-flows good enough, so it’s just there.

Joe Fairless: Yeah, I hear ya. So you’re in San Francisco, these properties are in Jacksonville. How did you end up in Jacksonville?

Sean Pan: I’ve been going to all these real estate meetup groups, and consistently Jacksonville hit those top ten “Best markets to invest in”. All of the other ten, I was like “I’m not sure about the weather here, I don’t know about snow, I don’t know about tornados…” And I thought, “Oh, Florida. It’s sunny, hurricanes aren’t that common”, and of course, after I bought them, Irma hits, and the other one recently hit as well… But luckily, none of my stuff got affected.

Joe Fairless: What type of expenses do you have on the properties, in terms of anything that is higher than what would be in other areas, to the best of your knowledge? For example insurance, or property management fees. You said your manager is really good. Can you just talk  a little bit about that?

Sean Pan: Sure. I’m not gonna lie, I’m pretty sure I’m paying more for my property manager. I’m paying him 10% a month. But it’s worth it. Property management is a  hard job, and at the end of the day, what’s 10% of a couple thousand dollars, right? Versus 8% that some people get.

Insurance is definitely higher because of the hurricane risk. It’s about $1,000 per door.

Joe Fairless: Okay. When you take a look at your portfolio in Jacksonville, you are cash-flowing, and it’s making you some money. Why did you decide not to continue to build that out in Jacksonville, and instead focus your efforts on San Francisco flips?

Sean Pan: I’m sure everyone has the same story, where they love buying rentals, but after a certain point they run out of capital. So what do you do after that?

Joe Fairless: Yeah, details… Right.

Sean Pan: You could raise the money, which I had no capability of doing that at the time, because I didn’t know anything about it… So I thought “How can I get more capital?” By hanging around investors here, there are a lot of people that I know personally that are making over seven figures a year flipping homes here in the Bay Area. And just talking to them, learning the strategies, it seemed “Okay, not too bad.” That’s why I focused on that.

Joe Fairless: Let’s talk about the first flip. What are the numbers, and – will you tell us about the project?

Sean Pan: Oh, yeah. The first flip was so interesting, because I spent maybe two years spinning my tires, sending out letters, cold-calling people, and nothing was happening. But it just so happened that I used to volunteer at a meetup group, and my co-meetup volunteer, my friend who sat next to me every time, she had a deal that she couldn’t handle because she had too much on her plate already… And she actually sent it to the other investors who didn’t want it, because I guess the numbers looked tight for them. For me, I knew the area pretty well, I thought it was pretty good, so I jumped in with her. We partnered on the deal.

We bought that one for 865k. 865k for a rehab, which might surprise a lot of your listeners, because to us that’s really cheap, for you guys it’s super-expensive.

We’ve put about 75k into it – complete rehab, changed everything; kitchen, bathrooms… And when we sold it, we sold it for 1.4 million dollars.

Joe Fairless: That’s a big profit.

Sean Pan: Yeah. So we got a huge profit on our very first deal. So here I am, sitting pretty, thinking “Oh, making money is easy.”

Joe Fairless: Well, let’s talk about it. You bought it for 865k, right?

Sean Pan: Yup.

Joe Fairless: And how much did you put into it?

Sean Pan: 75k.

Joe Fairless: 75k. So you’re all-in for less than 950k, and you sold it for 1.4. What were your carrying costs?

Sean Pan: We paid 2.5 points upfront, and I believe it was 9% annualized interest.

Joe Fairless: Do you know what roughly that amount totals up to be?

Sean Pan: I don’t remember the exact details on that one.

Joe Fairless: 50k, 20k, 100k?

Sean Pan: Probably about 30k… Because we held it for only three months.

Joe Fairless: Yeah, so you all killed it on this one.

Sean Pan: Oh yeah.

Joe Fairless: What do you think the difference was between what people at your meetup were seeing and what you saw?

Sean Pan: First of all, the other investors – they get tons of deals that come on their table, so they’re able to cherry-pick the very best ones. And of course, when you’re at the high level, everyone’s super risk-averse, so if they don’t need to take on a deal, they won’t take it. This one I guess just didn’t fit their criteria, and at the time maybe the [unintelligible [00:11:34].28] was a little bit smaller.

We definitely got even luckier, because when we bought it, and to the point where we sold it, the market actually increased about $100,000 in that neighborhood, just because it was so crazy at that time.

Joe Fairless: How did you line up the financing for this one on your very first flip?

Sean Pan: I reached out to my network on Facebook, asking if anyone knew a hard money lender. When you’re brand new and you have no connections, it’s pretty hard to get stuff done. But I was able to connect with a hard money lender down in South California, who worked with me even though it was my first deal.

Joe Fairless: Cool. Alright, so that was the first one. Then out of the five that you’ve done, which one was the least profitable or not profitable?

Sean Pan: You wanna hear some horror stories?

Joe Fairless: Yes, please.

Sean Pan: Alright, here’s some horror stories. Actually, my latest claim to fame is that I lost so much money on a deal that I ended up on Bloomberg Magazine. You may know me as that guy that lost a bunch of money on a  flip.

Joe Fairless: Okay, I haven’t read it, so please elaborate.

Sean Pan: I’ll send you the link later on.

Joe Fairless: Okay.

Sean Pan: Alright, long story short – for people who wanna skip to the end…

Joe Fairless: We don’t need to skip to the end. [unintelligible [00:12:44].15]

Sean Pan: Alright, we’re not gonna skip to the end; I’ll tell you the story. I bought this house in May of 2018. This is the peak of the market last year. This property was two blocks away from Apple’s brand new campus. Beautiful location.

Joe Fairless: Seems like a home run so far.

Sean Pan: Seems like a home run so far. The property was at first listed on the MLS for two million dollars; they contacted us because that house was sitting on the market and no one was buying it. So we went over and we thought “MLS property? There’s no way this is gonna be worthwhile.” But we dug deeper. We saw “Oh, the listing agent is from Turlock”, which is like two and a half hours away from where the property is located, so he wasn’t gonna come over to do open houses. He said “No open houses. If you wanna go inside the house, contact the seller directly.” No one’s gonna do that for a two million dollar house.

Second of all, he took pictures with a very old camera, and they didn’t even stage the property. They were still living there. So all that combined, we thought – okay, this is the reason why it’s not moving. It’s just unattractive because it’s marketed incorrectly.

Down the street there was a home that was being listed for 2.5 million dollars. Our house is a little bit smaller. We thought our ARV could be 2.2-2.3 million dollars. So based on our numbers, we thought “Okay, if we can get it for 1.8 million or lower, that’s a slam dunk right there.

Joe Fairless: Yup.

Sean Pan: So we actually put an offer for 1.7, kind of low-balling for a little bit, and they straight up rejected us. I was reading this book by Chris Voss called Never Split the Difference. Have you heard of that one before?

Joe Fairless: I have, I interviewed him.

Sean Pan: Yeah, great book. So he says that if you wanna negotiate and you want a lower number, use actual numbers. So you don’t end your bid with 000 in the thousands, because that just seems like you pulled that number out of nowhere. So instead we bid 1,747,923. I remember that number because it’s so weird…

Joe Fairless: [laughs]

Sean Pan: And when they got that offer, they looked at it like “What is this number? How did they settle on this number?” And they accepted it. Then the listing agent said “Alright, they accepted it. Write up the offer.” And so right there I was shocked. I was like “Oh my goodness, this guy doesn’t realize that we intended to use him as the buyer’s agent to represent us.” He told me to write the offer, and I have a license but I don’t really practice, so I learned on the spot how to write a contract. And just by doing that, we gained an extra $45,000, because we got 2.5% of that sales price.

Joe Fairless: Okay.

Sean Pan: So we thought we were sitting pretty. We basically got this house that we wanted for 1.8, for about 1.705 all-in.

Joe Fairless: Alright.

Sean Pan: So we thought we were good. There was a house across the street that someone was trying to wholesale for 1.825, that was in a worse condition, and on a smaller lot. Long story short, we thought we were great.

But then we started getting creative; we thought “What if we take down this wall here? What if we make an open kitchen layout?” That involves getting architects, and structural engineers, and more inspectors. All that stuff takes time. So after being delayed and working on this project for months, finally we were ready to go on the market.

Joe Fairless: What did you do that you hadn’t done in previous projects, that took a little bit longer, besides knocking down a wall?

Sean Pan: That’s basically it. We’d never worked with architects before, we didn’t realize that structural engineers could hold you back so long… Just all these serial tasks make it so that you project goes longer that you need it to be.

Joe Fairless: So how long did it take from when you had it under contract to when you were listing it?

Sean Pan: We bought it in  middle of May, and we listed it in the first week of November.

Joe Fairless: Okay.

Sean Pan: We thought we’d be in and out within two months, and here we are 4-5 months later…

Joe Fairless: So a total of 4-5 months…

Sean Pan: Yeah. But the thing about that is that’s when the market turned. See, peak to trough in our area was a 25% drop… From the hot of June 2018 to the low of November 2018. 25% delta. And when we listed the property, that same weekend we had these fires up in Paradise, California.

Joe Fairless: Oh, yeah…

Sean Pan: No one was walking around, or wanna go to open houses. I laughed that I was going to a restaurant with my friend and I was like “How come we don’t have to get a reservation today? It’s great.” So after a while — this house just sat on the market, no one was looking at it…

Joe Fairless: What’s a while?

Sean Pan: Surprisingly, a while was only two weeks.

Joe Fairless: Okay… [laughs]

Sean Pan: In the Bay Area if your property isn’t sold within ten days, then there must be something wrong with it. There’s a stigma to this property now.

Joe Fairless: Alright…

Sean Pan: So people started finding excuses why no one else was bidding on it, and they said “Oh. I noticed this two million dollar property has no garage.” In the Bay Area garages aren’t necessary, and for the most part, people don’t park their cars in the garage. They park their stuff. So that became a big anti-selling point for most people. They said “Oh, I love that house. It’s beautiful, the location is great… Oh, but no garage? Deal-breaker.”

Joe Fairless: Did the one that was — I think you said 2.5… Did that have a garage?

Sean Pan: That one did have a garage. And that  one ended up selling for only 2.3. Again, the market shifted, as well.

Joe Fairless: Okay.

Sean Pan: And don’t get me wrong, this property has parking. This property has a lot of parking, it has a carport, and it has a giant shed in the back. But because of setback laws, we weren’t even able to add a garage if you wanted to.

Joe Fairless: Okay.

Sean Pan: So we were basically stuck.

Joe Fairless: You said it has a carport?

Sean Pan: It has a carport.

Joe Fairless: Can you not enclose that?

Sean Pan: Unfortunately not, because of the setback laws.

Joe Fairless: Oh, alright…

Sean Pan: Yup. So basically it’s an overhang, but there’s no way I can add a wall in there because of setback laws.

Joe Fairless: Okay.

Sean Pan: So we went over the winter break, we just kind of had it on the MLS… We decided to take it down for a whole month, so that we could reset the days on market, to make it seem like it’s a brand new listing…

Joe Fairless: Is that what it takes? You’ve gotta take it down for 30 days in order to do the reset?

Sean Pan: That’s correct.

Joe Fairless: Okay.

Sean Pan: And we put it back on the market and it was still not moving. And this whole time I’m paying holding costs on a 1.7 million dollar hard money loan.

Joe Fairless: Yeah… That’s rough.

Sean Pan: And I was laughing.

Joe Fairless: Especially due to the time of year, too. Because it’s not just a little downturn in San Fran, but I believe you’re in November, December, January at this point in time, which – that’s not exactly peak buying time.

Sean Pan: Yup. Seasonality affected us as well. It just wasn’t moving.

Joe Fairless: What were the holding costs every month?

Sean Pan: For that one property I was paying $11,500, not including staging costs, or utilities, or those beautiful green envelopes called “Supplemental taxes.”

Joe Fairless: So all-in what were you paying a month, would you say?

Sean Pan: I leased 12,5k because of staging, and then supplemental taxes are these beautiful, green envelopes that say “Hey, you owe these extra taxes based on what you’ve bought, and what the previous owner had to pay in taxes.” Those were like $15,000 checks as well.

Joe Fairless: How often?

Sean Pan: Those only happen once or twice. It’s not recurring.

Joe Fairless: Once or twice over 5-6 months?

Sean Pan: Like the year.

Joe Fairless: Oh, wow. Okay.

Sean Pan: Do you know what supplemental taxes are?

Joe Fairless: Educate me.

Sean Pan: Basically, when the previous owner bought the property, he probably bought it 20 years ago for $300,000, so he property tax is based on that $300,000, and based on a [unintelligible [00:19:57].11] that property tax can only increase by about 1% a year. So he was paying a couple thousand a year for his property. But now here I come, new buyer. I buy it for 1.7 million dollars, so now I owe property taxes on that 1.7 number, versus $300,000. So that delta of property taxes – they send you an envelope saying “We need you to pay that difference.” That comes in these green envelopes, and that’s called supplemental taxes.

So I got that one the day of my Thanksgiving party, and I was very unhappy. [laughter] It’s like, “Alright, Sean, another $15,000.” I was like “Damn it…!” [laughter] And don’t get me wrong, I did very well my first flip, I did well in my career and investing in other things, but at this time I was invested in multiple projects at the same time and they were all going south. So it wasn’t just this 11.5k. I was paying 30k total a month, all my holding costs.

I was joking, because I went to Asia and I was hanging out with a friend in Taiwan, and I was asking her about her base salary. And I was like “Oh my god, I’m paying your base salary in holding costs alone every single month… I kind of feel like a boss, it’s pretty cool.”

Joe Fairless: Right. [laughs] So then what happened with the deal.

Sean Pan: It did not move.

Joe Fairless: [laughs]

Sean Pan: We basically held it on the market for five months, from beginning of November until March. It didn’t move, so we had to drop the price significantly, get off the books, and fire-sale it. We eventually got someone who came in and offered us — the best offer we got was $100,000 less than what we even bought it for.

Joe Fairless: Okay… So 1.6…

Sean Pan: We got 1.675.

Joe Fairless: 1.675.

Sean Pan: Yeah. So imagine, a whole year’s worth of holding costs on hard money. All the repair costs that we did, and the purchase price. We basically lost $400,000 on this one project.

Joe Fairless: Was it someone who was moving in, or were they also a real estate investor?

Sean Pan: Oh no, it’s a family.

Joe Fairless: Okay. So it’s their primary residence.

Sean Pan: This is a primary residence. And when we checked up on it a couple weeks later, we saw that they were making even more renovations, so… We were like “Great! Good for them.”

Joe Fairless: [laughs] Well, they had a two million dollar budget, and they were able to get a really good deal, so they had some money invest back into the property.

Sean Pan: If you’re willing to sacrifice a garage – yeah, you can get a great deal in the Bay Area, apparently. And it’s funny, too – so I told my story on Bloomberg Magazine, I got published, it became the number one read article, I got a bunch of people listening to me… A lot of [unintelligible [00:22:32].06] obviously. Like, “Oh, this guy’s stupid.” But whatever, it was fun.

The agent who helped buy that house actually contacted me and now I’m gonna get lunch with him next week. So you might as well get a connection while you’re at it.

Joe Fairless: Right, exactly. What’s done is done. You’ve done five flips; what number was that?

Sean Pan: Number three. Basically, number three and four are losers. Number five – I’m still in it, and it’s probably gonna be a big L as well.

Joe Fairless: Okay. Well, taking a step back now, this is the perfect time for this question, “What’s your best real estate investing advice ever?”

Sean Pan: My best real estate investing advice ever is that real estate investing is a business. I think this is being said very often, but it needs to be taken more seriously. Think about creating Facebook or LinkedIn – you probably don’t do this on the side, or just part-time. If you’re gonna do this seriously, you do this with determination, and you do it with extreme focus. My biggest mistake was that I outsourced too much responsibility. I thought that it was easy based on the experiences on my first flip, where you can rely on the other party to take care of everything. But your money is at risk, so you should be the one making sure that you have everything in line, and make sure everything runs smoothly.

Joe Fairless: And on that deal number three, the main thing was the delay, where instead of two months you’re in and out, it was four to five months, and then you finally listed it. That wasn’t outsourcing the process, but it was incorporating a new part of a process… So was that your idea, to knock down the wall and then try and do a different layout, or was that someone that you spoke to and they were like “Yeah, we should do this” and you’re like “Yeah, sure, let’s roll with it”, and then you just kind of sat back and watched it unfold.

Sean Pan: I take full responsibility for everything that happened. I don’t remember if it was my idea per se to knock down that wall, but once we all agreed on it, we did it. But what I should have done is I should have followed up… Because we had some issues in the middle. Basically, in the plans there was a specific choice that needs to be put down for the foundation, and I guess the foundation width was different than planned… So the inspector said “Get the structural engineer to write this document.” It took that structural engineer about a whole month to do it, because he had his own personal issues going on, he had too much work… That ended up being only three sentences, but that delayed us by a whole month.

Joe Fairless: Oh, my…

Sean Pan: So if I knew about it, if I was there, I could have 1) talked to the structural engineer and say “Hey man, it’s three sentences. I’ll write it for you, you just sign it.” Or 2) I could have found another structural engineer.

Another thing is that I thought I knew a lot, because I was successful, but I didn’t. I thought that not having a garage was no big deal, because I grew up in the Bay Area, in a different city, but we don’t care about garages. But if it’s like a two million dollar home, now they have their nice-looking cars – they probably want a garage. I didn’t know about that. I was just learning as I was going.

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

Sean Pan: Let’s do it! I know you’re ready. First, a quick word from our Best Ever partners.

Break: [00:25:40].29] to [00:26:42].21]

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

Sean Pan: The best ever book is the Best Ever Apartment Syndication Book by Joe Fairless!

Joe Fairless: Alright! You like that one, huh?

Sean Pan: I do, I do.

Joe Fairless: I’m glad to hear it. What’s the best ever deal you’ve done?

Sean Pan: The best ever deal is that first one I did in Sunnyville, where I made around $300,000 in profit.

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

Sean Pan: Right now I am also a podcast host for the Best Ever Real Estate Investing Show. I’m also a meetup group leader, where I bring people together to talk about events and different strategies… And I love just giving back, and writing blog posts, and giving out free notes. When I go to conferences, I just give away free notes for everybody, because I know they’re too busy to take their own.

Joe Fairless: That’s cool. And what is the best way the Best Ever listeners can get in touch with you?

Sean Pan: The best way to get in touch with me is by sending me an email at seanpanrealty@gmail.com, or check out my website, everythingrei.com.

Joe Fairless: Thank you so much for sharing your story. I know you’ve shared it already; I wasn’t aware of your story, but clearly you’ve shared it already in other channels… But thanks for talking about it, and then talking about the lessons learned… And boy, that structural engineer comment really resonates with me, because it’s about being educated on the process, and then also being tenacious and following up with certain team members who are holding up the process and offering up some solutions to them.

Thanks for being on the show and sharing your wins and losses and lessons learned. I hope you have a best ever day, and we’ll talk to you again soon.

Sean Pan: Thank you, Joe. Take care.

JF1705: Making The BRRRR Method Simple & Easy To Understand #SituationSaturday with David Greene

David is now co-host of the BiggerPockets podcast, and author of a book focused on teaching the BRRRR method. He has a lot of experience as an investor, agent, and educator, now he’s finding new ways to share his knowledge with his book. We’ll cover what you can expect to learn by reading his new book, and cover the BRRRR method a little more in-depth than we ever have. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“If more people did that, they just wouldn’t suck at life” – David Greene


David Greene Real Estate Background:


How great would it be to buy a piece of institutional-quality, income-producing commercial buildings? Now you can… with BuildingBits. It’s NOT A REIT or a fund. BuildingBITS is a new platform for non-accredited investors, where virtually anyone, regardless of income, can select a building leased to a major corporation and earn money from it!

Start investing with as little as $500 at https://www.buybits.us/


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

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a situation for you – it’s Situation Saturday. The purpose of Situation Saturday is should you come across a particular situation like we’re gonna talk about today, well, you’ll know how to handle it, because our Best Ever guest will talk us through it.

Today we’re gonna be talking about the BRRRR rental property investment strategy, and it’s gonna be made really simple, which happens to be the title of today’s Best Ever guest book, David Green. How are you doing, my friend?

David Green: Good, Joe. How are you doing, man?

Joe Fairless: I am doing well, and welcome to the show. A little bit about David — and Best Ever listeners, you know David; you have listened to his episode before on this show… And then also, he is the co-host of the Bigger Pockets Podcast; he’s also a Keller Williams Rookie of the Year, or he has achieved that, and he is a real estate agent, obviously, and real estate investor.

He started investing in ’09, as a refresher, and he’s got a portfolio of over 30 single-family homes. He’s also got shares in apartments, he’s got mortgage notes, note funds etc. Based in San Fran.

First, David, how about you give a little bit of quick background of yourself, and then let’s roll right into some lessons we can take away from the book that’s come out recently.

David Green: I’ve been a police officer for about ten years. I started buying rental properties with money I made working overtime. I was on your show number #806, and we kind of talked about ways that I go buy fixer-upper properties, add value to them and then refinance them, which eventually became the BRRRR strategy, which is the book that I just wrote, kind of detailing how other people can do that, too.

When I wrote my first book, “Long-distance real estate investing” about buying houses in other markets, because California and the San Francisco Bay Area is just stupid expensive – you can’t buy anything here – I started getting interviewed on other podcasts to talk about it, and then that eventually led to me getting to take over as a co-host of the Bigger Pockets Podcast. So now I do the same thing as you – we teach people how to build wealth through real estate, and get into this awesome thing that we figured out.

About two years ago I stepped away from being a police officer, I went full-time into being a real estate agent, as well as an investor, just because I got the bug for real estate. I really liked it. I started doing good, sold a lot of houses… It turns out that really most real estate agents kind of suck, if we’re being honest, and it wasn’t too hard to start doing well with that… So now I’m building a real estate team and I’m helping people to buy real estate, and I just love to talk about real estate all the time.

Joe Fairless: Yeah, I have noticed a lot of agents are terrible… What did you to see “Okay, here’s what they don’t do, and here’s what I’m gonna do”? What are some specific points? I wanna get into the BRRRR stuff, but I’m curious about what you did, that you saw they weren’t doing.

David Green: I think that’s such a good question, because what I did was I looked at everything that frustrated me, and I said “How can I solve that problem, rather than just letting the frustration take over and make me a negative person?” And I’ve found that’s actually become a super-power of mine. When I get really frustrated with “Man, I can’t just get this piece to work in my life…!”, I work really hard to solving that problem, and then I go teach other people what I did, and people really like it.

My problem with real estate agents was I knew more about real estate than they did. I’m hiring them to help me either buy a house or sell a house, or figure out how to solve this problem of how do I take a junk house and turn it into something nice, and they don’t know what to do to help me. They really just know how to fill out forms and be friendly and nice. Most of them are trained in sales skills, but they’re not really trained in real estate skills… So I was always frustrated by that, and when I got my license, I basically kind of branded myself as “I’m okay to not be the nicest guy in the room.”

If I don’t have the coolest-looking Instagram or I don’t have the most inspiring quotes all over my Facebook, that’s alright… But I’m gonna know what happens in a transaction. I’m gonna have the best home inspectors, I’m gonna get you accurate rehab bids, I’m gonna help run numbers for you… I’m gonna paint that picture as clear as I can for my clients, the same way that I would if I was the one buying or selling that house. And there’s not many other people doing that, because frankly, most real estate agents don’t know real estate. It’s kind of a tricky genre, where you’re in charge of finding your own business and then serving your own business, so what happens is agents focus way more on how to find business than how to serve it.

And because there’s not many people that were doing well, we did really good, so now one of my goals is to be the top agent in the San Francisco Bay Area and in the Sacramento market, and give people an option when they wanna buy or sell a house from someone who actually knows how real estate works, as well.

A side benefit of that has been all the business skills that I’ve learned having to build a business, like I’m sure you’ve learned, too. They really do help in the investing stuff, as well.

Joe Fairless: Now that you’re an agent and you’ve got the process, certain things that are identified now, you are the solution to those challenges, with things that frustrated you – which is exactly what I do, by the way, whenever I’m writing a book; I read the books that are out there on my topic or similar topics, I read the reviews on Amazon, and I read the negative ones and the positive ones, and especially focused on the negative ones, I make sure I address the negative ones proactively in my book. [laughs]

David Green: It’s so genius, Joe. I mean, if more people did that, they just wouldn’t suck at life. People are giving you the answers to the test when they criticize you. They’re telling you “Here’s what you got wrong.” And when you’re thin-skinned or you’re afraid to hear that, and you avoid it, and you only go to people that tell you what you wanna hear and you just stay the same all the time… But if you can embrace that… “Okay, let me address where I did better”, eventually you just won’t make any mistakes and you’ll be the best at whatever you do.

Joe Fairless: So let’s talk about your book, “The BRRRR rental property investment strategy made simple.” First off, for anyone who is from Pluto, what is BRRRR, and then roll right into how do you structure your book.

David Green: Alright, so BRRRR is an acronym for “Buy, Rehab, Rent, Refinance, Repeat.” It’s just the order of how I buy rental property, and the book  – I basically split it into five parts. There’s a Buy part, a Rehab part, a Rent part, all the way through… And I say “This is how you become really good at each of these things. This is how you buy deals, this is how you rehab a house. This is how you analyze and rent it out. Here’s how you refinance it. This is what you need to know about loans”, and then the final chapter, the Repeat, is how you build systems to do that for you over and over.

My philosophy is if you master the BRRRR strategy, you will then inherently master real estate investing, because you’ve done every part of it that makes you a good investor. And the whole beauty of the BRRRR strategy is that you don’t leave equity in a deal. You get your equity back out, which you can then go to use to buy another property.

It’s my belief that the only time in a real estate deal that we actually make money is when we buy that deal under market value, or when we add value to it through the rehab process. That’s the only two parts, right? And you need capital to do both of those things. You need capital to buy something, and you need capital to fix something up. So if you’re leaving all your capital in the deals that you’re doing, it looks great on your spreadsheet, but you can’t go buy new deals, unless you get capital from somewhere else.

So that’s basically why the BRRRR strategy works so well – I can go in there and I can buy a property, fix it up, pull all of my money out, or maybe a little bit less than all of it (sometimes more than all of it) and go buy the next house. And the more I do this, the better I get; the more practice and repetitions I get, the better investor I’ll become.

Joe Fairless: And if you take all the equity out, or even more equity than you put into it initially, do you have a requirement that the property still needs to cashflow, because obviously if you take more out, then you might have some higher expenses on the debt side…?

David Green: That was my first concern when I started doing this at a higher volume… And what I’ve found is interest rates are so low and the price points of homes I’m buying at is so low, it very rarely affected my cashflow. I mean, it can be a difference of like $75/month, to pull out a lot of money. So I stopped being as concerned about that as I was.

I used to have a requirement that every house I bought needed to cash-flow, and as my real estate agent business did better, and some other businesses that I bought did better, the actual cashflow from rental property became less important to me… And what I cared about more was the equity that I had in that deal, how much value I added to the home, and what neighborhood it was in; how well it was gonna do over a long period of time.

So I stopped looking at “In the next six months, what is this house gonna make me?” and I started looking at “30 years from now, am I gonna be glad I bought this house?” So now I’m playing  a different game, where I’m saying “30 years from now…” — God, if you look back at what home prices were 30 years ago, it’s sickening. How many people do we know that wouldn’t wanna go back in time and buy all the real estate they could? I’m trying to operate from that perspective, and I’m doing it in a way that’s responsible, so that I don’t get so over-leveraged that I literally can’t afford my payments. That’s where you’re gonna get in trouble.

Joe Fairless: And let’s talk about not getting over-leveraged… What’s your approach?

David Green: I personally believe that cashflow itself is nice, but it’s not an offensive metric. Cashflow is not really designed to build you wealth. Equity is designed to build you wealth; running your property efficiently and effectively will end up building you wealth, and holding it for a long period of time will build you wealth. Paying down that loan and letting it appreciate in time.

So I am a bigger proponent of cashflow as a defensive metric. This is what you need so that you don’t lose the property. And having a very healthy amount in reserves. I look at people that lost their homes in 2008-2013 when the market was rough – all of them did not have enough reserves to weather that storm. They didn’t know if it was gonna cashflow or not. They literally didn’t even understand what cashflow was when they bought their house, and they didn’t have any money in reserves. That’s a recipe for disaster. I make sure that I leave a ton of money in reserves, so that any storm that hits, me I can weather. All my properties either cash-flow, or if they’re losing $100 or $200/month, I don’t really care if that goes on for a couple years and then the rents increase and I’m in the positive again.

Joe Fairless: Specifically what’s your reserve requirement for your properties, and then do you have a loan-to-value approach or guideline that you use?

David Green: Well, most banks will only let me borrow 75% of the appraised value, which is what I go for. So you’re buying a house in really bad shape, and then you’re pumping up its ARV (after repair value) as high as you can get it, because that’s what you’re gonna be able to draw against when you go to take your loan out. But you’re always gonna be leaving 25% equity in that house, just because the banks are gonna make you in the majority of the time.

So what matters is is the house in such a high price point that to pull out 75% of its value will now make it cash-flow negatively? And most rental properties – they’re not.

This isn’t a problem that comes up very often if you’re buying in areas that are close to the 1% rule, because they’re gonna cashflow so strong, they just cash-flow a bit less. I like to have six months of reserves for every house, put aside in an account, as well as probably $30,000-$40,000 at any given time to cover unexpected capital expenditures. A hurricane blowing a tree onto one of my houses and the roof getting broken, or something like that.

And then the other thing I take into consideration is let’s say I was retired, Joe – those reserves would be even more than that. But I’m still working, and I live way beneath my means, and I have lots of money coming in. I don’t need to be as conservative, because I’m replacing money every single month that I’m sticking in an account.

I’m at a point in my life now where 100% of the money I make, I invest back into real estate… So maybe I just take 10% of that that I would have invested and I put it back into my reserve account, and I invest 90% of what I make.

Joe Fairless: And when you say six months of reserves for every house, what are those reserves covering for those six months?

David Green: If you take your mortgage, your property tax, your insurance, your property management, your capital expenditures, your maintenance and your vacancy – which on most of these houses that are $100,000 or $120,000 it’s really not that much.

Joe Fairless: It sounds like a lot…

David Green: Well, maybe $600-$700/month is what I might have to spend. I’ll just take that times six. So if it’s $700/month, I’ll put $4,200 aside for each one that I do. But when you’re first buying a house, and then you rehab it, you’re renting it out, I don’t always go get a loan immediately and pull the money out. Sometimes I let it sit there for 3-4 months without a mortgage on it at all, so my cashflow is really high. That might be 60%-70% of my reserves that I’ve built up, just the house paid for itself. I didn’t even have to take my own capital. So there’s only a little bit of money of my own that I have to put aside in that reserve account, and then boom, I’m on to the next one.

Joe Fairless: Okay, alright… So you delay the refi a little bit, build up the cash reserve; there’s your cash reserve, you keep it in the account, and then you move on.

David Green: Yeah, I let the real estate pay for itself. It puts its own money aside in that reserve.

Joe Fairless: Do you have separate bank accounts for each of the homes?

David Green: Oh, brother, that is such a mess, honestly… [laughs] I’ve got like 8-9 different bank accounts all throughout the country. The problem is financing becomes very hard once you start to get a lot of homes. So you’ll have a bank that will say “Yeah, I’ll let you refinance this one, but you have to do the loan through our bank. It’s a portfolio bank, so we’re not gonna sell it. And you have to pay the mortgage from a checking account that you have with us.” So now I have to open a checking account with them, and I have the mortgage getting paid from them.

I have to move money from a mother account into that account every month, so that they can pay the mortgage, and I have to see if I can get my property manager to deposit my rental checks into that account, for that house. Sometimes they won’t, because it’s a small known bank in another area, so they put it into the mother account… It’s kind of a complicated spider web moving around, and that’s one of the reasons that I would say to people who wanna expand really big – single-family is not a very efficient way if you’re looking to expand a portfolio really big. You start running into problems like this that you don’t have with other asset classes.

Joe Fairless: So why would you do that, versus buying 40-unit apartments?

David Green: So the first reason is it’s really hard to get into that space right now, because everybody’s there. Money is kind of cheap, and there’s a ton of people getting into multifamily investing. So for the guys that have been doing it and know what they’re doing, they can do well. To try to break into that space brand new, you’re already at a bit of a disadvantage, and you don’t know what you don’t know.

Even that though, I know that I could get into and I could do it. I have a lot of buddies that are doing it. But the timing it would take me to learn that asset class would literally lose me money that I could be making working on my real estate business, or buying single-family homes. So single-family works for me because it takes very little time. I’ve got systems put in place that I talk about in the BRRRR book, so that when a deal crosses my desk, I don’t really do anything. I just forward it to the right people, they have criteria and standards that they’re held to, they start the process, they end up putting the house under contract, managing the rehab, getting it rented out, finding a bank to refinance it… I don’t really have to do anything.

My overall goal is to continue buying houses under value, adding value to them, renting them out and refinancing that money short-term to go buy more, and every time I do that, I’m adding a good chunk of equity, like $30,000-$50,000 to each house.

At a certain point, when I feel like the economy is reaching a peak, maybe like a 2005 or so, I’m gonna sell them and 1031 that money into something that I feel is really solid, that will kind of weather any storm. Maybe like a multifamily property in Indiana, or Kansas, or one of those bomb shelter states that is rarely affected by the overall economy… And leave it in a big multifamily property there until I see another crash. Then I’ll be like that little gopher that comes out of its hole, or the groundhog, and looks around, and is like “Oh, it’s safe!”, and go out there and buy a bunch more single-family again.

Joe Fairless: Okay, I get that. I was gonna play devil’s advocate on why single versus multi– again, whatever a listener wants to do, I don’t care; I’m just wanting to play devil’s advocate on two things you mentioned, and I’d like to hear your thoughts… So less competition – usually that’s what commercial real estate investors say about single-family. That’s why they go into commercial real estate, because — I would say there’s certainly a lot more single-family home investors that commercial, but there are less commercial properties than single-family, so I guess it depends on your market…

But as far as the other one, time to learn the asset class – basically, you’re talking about the opportunity cost, where the time you’re learning, you could be closing on more deals… But I think you could buy a 30-unit and spend significantly less time on that one 30-unit transaction than 30 single-family transactions…

David Green: Well, I think you’re right about that. Factually speaking, you’re accurate. I think that is the case. What I’m probably gonna end up doing is adding equity to all of these properties that I’m buying individually, and then converting that equity into the 30-unit, or into the 50-unit.

Joe Fairless: And that’s where you sold me… Because I was gonna ask you — you said cashflow is playing defense, and you’re using equity as your offensive strategy, and now I completely understand your approach… Because if you’re not focused on cashflow, cashflow does pay for you to go on trips, and do all the other things – well, what’s the end game here…? And then you proactively answered my question – you’re planning on taking these 30 or so properties and then when the time is right, packaging them up, selling, doing a 1031, and then getting something that is cash-flowing heavy, plus also has some scalability for you and your time.

David Green: Yeah, and I should have qualified that – cashflow is a defensive metric in the single-family rental space. Single-family homes were not built with the intention of building cashflow for their owner. They were built with the intention of somebody living in it and raising a family, or holding all their stuff. Multifamily properties were built with the intention of being run like a business. That’s why we value them differently. Multifamily properties – their value is based on their NOI. Single-family properties are built based on a comparable sale. It’s just the single-family space is not a business-oriented space, so you’re not gonna really get a lot of cashflow that way; or at least you’re gonna have to work a lot harder to make it work… Whereas what you’re doing in the multifamily space – it was designed for exactly what you’re talking about, and that’s a very fair point to make. If you want cashflow, that’s the space you should be in.

I’ve found this little hack where I can build equity really quick in this space, and then convert it into the space later where the cashflow is bigger, and I think that when I get there, my cashflow will be a lot more than if I’d just started trying to do my first deal a 30 or 40-unit property.

Joe Fairless: A huge part of this is finding a property that you can buy that is under-valued, or you can rehab it and then get some equity built into it… So how are you finding those properties?

David Green: The first thing I do is I target a house that nobody wants. I look for distress. There’s three kinds of distress. You’ve got market distress, which is the whole market is for sale  – 2010. You’ve got property distress – that’s where the house itself is in really bad shape and no one wants it; or personal distress, which is where the person is in some kind of distress – medical bills, you lost your job, foreclosure, bankruptcy, those kinds of things.

It’s easiest for me to target property distress. Personal distress is kind of what wholesalers would be targeting, or people who are out there beating the bushes, looking for a good deal. I look for junk houses. I look for the houses somebody else started the rehab on and couldn’t finish. Or in a market where to spend 50k on a rehab is like three years of their salary. That’s a lot of money in some of these Southern states, or Midwest states. But for somebody with California or New York money, that’s not hard for us. We can go raise that pretty quickly from other people that need somewhere to put their capital.

Once I find a house that I know is in bad shape, I look at what it would be worth when it was done, and I work backwards. We call that the ARV. Okay, if this house was fixed up like that, it would be worth $120,000. And I figure out what  it would cost to get us there.

Let’s say it would take $30,000 to fix it up. Well, I know that I wanna be all-in for 75% of the ARV when I’m finished. So I know that if it’s gonna be worth 120k and it’s gonna take 30k to fix it up, I can spend up to $60,000 to buy that house, which puts me all-in for 90k, which is 75% of the 120k that it’ll be worth… And those are the houses I write offers on. I’m not the guy who writes 100 offers a week. I find that to be really time-intensive, not very efficient.

I target houses that have been on the market for a long time. Then my agents are like, “Hey, I think we’ve got a good shot. We can get this house.” I go buy it, I have my rehab crew get out there, they fix it up; once it’s done, I talk to the bank, they get an appraisal, they let me borrow 75% of what it appraised for, I take my money out and I go buy the next one.

Joe Fairless: Anything else real quick that you think we should talk about as it relates to the BRRRR approach that we haven’t discussed already?

David Green: Yeah, the biggest reason I think the BRRRR approach is the best approach to take is that I used to do it the old way, the traditional approach – I would save up 30k, I’d go buy a house, I’d spend 15k to fix it up. $45,000 later, I’ve managed the rental property and I’ve gotta work for another year to save up more money. It was extremely slow, and I did not get very good at being a real estate investor because it’s hard to get good at anything that you do once a year.

Once I got into the BRRRR strategy, I could buy two houses a month instead of two houses a year. I started getting the wholesalers bringing deals to me first. I started getting contractors giving me better bids. I started going through contractors and finding the good ones a lot faster. I found better property managers. The whole thing just became a lot more efficient when I was doing something at a higher scale. And that’s what I want people to understand – you’re never gonna get good at anything if you just do it very rarely. The people who are good at stuff just get thousands and thousands of repetitions in doing the same thing… BRRRR enables you to do that, and you can build your business around it, as opposed to the traditional method, which really has a lot of natural things that will hold you back.

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

David Green: You can get it on Amazon, it’s “Buy, Rehab, Rent, Refinance, Repeat – The BRRRR Rental Property Investment Strategy Made Simple.” You can follow me on Bigger Pockets, or your best bet is probably to follow me on Instagram – I’m @DavidGreene24. That’s the easiest way to get a hold of me.

Joe Fairless: Cashflow is a defensive mechanism in the single-family space. Perhaps that is mind-blowing for some people, and I hadn’t heard it talked about that way, so perhaps it blew my mind as well… But it makes a lot of sense, at least for my own portfolio of my three single-family homes that I’m looking to sell right now, because there’s 350k in equity in total in them, and I make about $300/month from those…

David Green: And Joe, I hear this all the time. I looked at mine and I saw the same thing. If you looked at your ROI, it’s not bad, but if you looked at the return on your equity, you’re like “Man, I’m making like 1% on my equity on these deals.” But what happened is now you’ve got 350k that you can go put into an asset class that does make cashflow, and you’ll make so much more money with that 350k than if you had tried to just buy that multifamily place right away, and had to save up that $350,000 to do it.

Joe Fairless: True. It’s a great point. It’s very true. The first house – I had $20,000. That would be challenging, to buy a multifamily property for 20k in [unintelligible [00:23:54].27]

David Green: [laughs] That’s what’s awesome about real estate investing – we’ve got all these different strategies and mechanisms and synergy that we can kind of combine together to make this really cool finished product… Like this Voltron of wealth-building when you add it all up.

Joe Fairless: And thank you for using the word Voltron. That’s one I’ll have to look up afterwards. Thank you for being on the show. I hope you have a best ever weekend, and we’ll talk to you soon.

David Green: Thanks, Joe.


JF1689: Learning From Mistakes, Assembling Superpowers, Buying 740 Units In 6 Months with Anna Myers

Anna and her team have been on fire in the past six months! We get a lot of insight from her today; not only on the success and lessons learned from the past six months, Anna also shares her story of getting to where she is now over the past decade or so. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“If your rent comps are not correct, your whole deal falls apart” – Anna Myers


Anna Myers Real Estate Background:

  • Vice President at Grocapitus, a commercial real estate investment company
  • Applies her 20+ years of experience in technology and business to the finding, analyzing and acquiring of Commercial properties in key markets across the U.S.
  • Based in San Francisco, CA
  • Say hi to her at https://multifamilyu.com/
  • Best Ever Book: Best Ever Apartment Syndication Book


How great would It be to buy a piece of institutional-quality, income-producing commercial buildings? Now you can… with BuildingBits. It’s NOT A REIT or a fund. BuildingBITS is a new platform for non-accredited investors, where virtually anyone, regardless of income, can select a building leased to a major corporation and earn money from it!

Start investing with as little as $500 at https://www.buybits.us/


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

Anna Myers: I’m great, Joe. Thank you for having me.

Joe Fairless: I’m glad to hear it, and you’re welcome. A little bit about Anna – she is a Vice-President at Grocapitus, which is a commercial real estate investment company. She applies her 20+ years experience in technology and business to finding, analyzing and acquiring commercial properties across the U.S. Based in San Francisco, California.

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

Anna Myers: Sure. I grew up in L.A, Southern California. My grandfather was basically a Maverick of commercial real estate in the Southern California area, so that was the kind of the fabric of my upbringing, was this guy that started out flipping houses, and then started buying orange groves and walnut groves, and building shopping malls. I was the youngest grandchild, so I grew up around this, all kinds of shopping malls etc. so it just was something very normal for me. My father was an architect, so a very entrepreneurial background. However, I went into programming, because the IT industry was really taking off, and I was just a great problem solver, and there were so many real estate people in my family… My dad was happy to have me go into IT, as an emerging field.

So I did that for about ten years, became a systems architect and was very successful in that career… But then that industry kind of crashed in 2000, the IT industry had a hard time. I went on as an entrepreneur, but realized I need to be careful about my future, because any industry has its volatility. So I started investing in real estate as an investor, and learned a lot of things along the way, had some bumps in the road. I started investing in single-family and small multis…

I live in California still, and I’ve used my technology background to do what I thought I could do to analyze markets at the time, but I wasn’t very good at it. I had all these massive spreadsheets, and trying to figure out the best market to be in, and analyzing houses, and it just took me a long time to learn. We didn’t have as many resources back in the early 2000’s as we do now. We never had Joe Fairless shows and the various opportunities that are online as we have now.

So along the way I’ve made a lot of mistakes, and then I started really getting my groove, in 2014. I had a short sale in the early 2000’s, so that set me back for a while. Then once I got back in the groove and educated myself, I landed in multifamily, I started volunteering to underwrite projects for a person that I was working with and learning from. That developed into a full-time gig, and then over six months we have acquired 750 units and five apartment buildings across the United States, and… I’m very happy to be where I am now, but it’s been a long road.

Joe Fairless: Well, thank you for sharing that. It’s nice to hear the ups and the downs, because sometimes we don’t get to learn from the downs from people, so I appreciate you offering that up. Let’s talk about the mistakes first, and then we’ll talk about the good stuff, just so we can learn from both. So you said you made a lot of mistakes… What are some specific ones, just so we can learn from those?

Anna Myers: Well, being that I was investing remotely, it was much harder to do in the early 2000’s. We still had fax machines, we just didn’t have as much information on the internet as we do now… So it was not as easy to do. So I ended up investing in Diamond Head, Mississippi. It was post-Katrina. I thought that it was a good market, because the houses were kind of expensive there, with like a golf, leisurely-type environment, and the rent was really good because construction people were staying there post-Katrina that were doing all of this work.

My brother, who’s a forensic architect, was in the area a lot, and he found a house for me… So I felt really good about it. Well, those elements alone aren’t enough to buy on; that market changed very quickly, because 1) there weren’t enough jobs there, and 2) a lot of people had second homes there. Most of them were second homes… So when the economy turned there, a lot of people just abandoned their houses, and the whole community just went into like a spiral. So I could not get the rents that I wanted; the rents turned into half of what they used to be, and I ended up having to do a short sale in order to save my primary house. I kind of had to make a decision, am I gonna be out of pocket $1,000 a month on this place, and only be taking a little bit of rent, or I’m risking losing my primary house.

Joe Fairless: For people who aren’t familiar with a short sale, will you just briefly describe what that is?

Anna Myers: Sure. It’s when you are in a situation where you decide not to continue owning a property, and the property is valued under the amount that your mortgage is set for. So you owe the bank more than what the property is now worth… And in order to get out of that, you can either foreclose and just walk away from it, which has a much more severe impact on your credit scores, or you can do a short sale, where you’re basically kind of working with the bank to find the best possible scenario where yes, you’re not paying them the full money back, but you’re getting market value, and hopefully it’s not a lot in-between.

Back in those times, they kind of forgave the difference, because so many people were doing short sales… So other than a seven-year hit on my credit score, I didn’t have any additional repercussions from that short sale.

Joe Fairless: Thanks for describing… I was gonna ask you what are the repercussions whenever you do one… So what does show up on the credit score during those seven years?

Anna Myers: Well, like I said, it’s not as bad as a foreclosure; I think it probably brought me down about 150 to 175 points. I was used to being 850, really high 800 scores, and so I was in the 600’s. It takes seven years to come off; anytime you’re going to apply for anything, you have to explain it, you have to produce all this paperwork… And I thought during that time – and I was not correct, because now I know differently, that I really couldn’t invest in real estate during that timeframe. And that really held back my investment career.

Joe Fairless: And knowing what you know now, if something like that were to happen to someone and they were to say “Well, Anna, I have to wait seven years before I invest in real estate”, how would you navigate that conversation to say “Yeah, actually, blah-blah-blah”?

Anna Myers: I would say “Absolutely you do not”, because I have learned the power of teaming up and the power of partnerships. In addition to that, by doing partnerships I’m able to get into larger deals, and those larger deals that are in this case apartment buildings – they’re not necessarily looking at my credit score. That is one factor if I’m being underwritten for the loan… But what they’re looking at is the value of the asset, and my liquidity, and various other aspects.

So my credit score really doesn’t matter that much, especially if I’m partnered with people who have strong credit scores. So I needed to become a team player and stop being an island as a real estate investor, and that was a big turning point in my investing career.

Joe Fairless: And I imagine – but let me know your thoughts – if people are team players going into their career in real estate investing, there will be a less likelihood of going through a big financial hit, because you’re bringing the right people along with you right out of the  gate. What are your thoughts on that?

Anna Myers: I think that’s absolutely correct. I think we all have superpowers that we excel at, and we have things that we’re quite mortal when it comes down to it; skillsets that we don’t have superpowers at. And I think that when we team up with other people who have different superpowers than us, it makes us an unstoppable team, and it also just feels great.

Joe Fairless: What are your superpowers?

Anna Myers: My superpowers are that I am a great underwriter; I can see the big picture, as well as the small picture. If there is a detail in that underwriting that’s off, I’m usually the person that will find it, a mistake in a formula… Because my background is a financial programmer, I actually understand the model. So when I’m looking at underwriting, I look at a lot of underwriting for different projects, for coming in on different Excel spreadsheets. So of course I’m gonna look at the returns, but then I’m also gonna look at the underlying model to try and understand the philosophy of what this model is trying to do. I wanna understand what is the structure of the deal, what’s the structure of the partnership, how much money is going to different parties, and what is the underlying premise of the financial model, which is different for different models. Everybody’s got their own 70/30, pref/no-pref, and we capitalize back, don’t recapitalize back… There’s a lot of variables.

I love getting into the details, and I love solving problems. I think that I excel on the underwriting aspect… And I’m a people person. I’m good at talking with investors as well.

Joe Fairless: I’d love to talk more in detail about what you just mentioned, and that is looking at the underwriting and understanding — not intention, but just how they have the underwriting model set up. And you’ve just mentioned a couple examples – the structure, the recapitalization, the money to certain parties… Let’s pick one of them. The recapitalization – will you just talk a little bit about that?

Anna Myers: Sure. So assuming that a project is going to have a refinance, and that refinance is going to produce additional money because you’ve stabilized the property, you’ve increased the NOI and thus you’ve increased the value of the property, so assuming you’re refinancing and taking money back – that money is supposed to go to the investors, unless you’re using it to add on an additional block, or do something like that. My understanding is that refinance is supposed to go to the investors.

Now, what does that do to the investor that put in $100,000 and you’re recapitalizing back $40,000 of their money at that point? Do they continue with $100,000 in the project? Is their returns going forward based on $100,000, or is it based on $60,000? That’s a big difference.

Joe Fairless: That is a big difference. So you’re reviewing underwriting from potential partners where you all would bring your underwriting and the equity from relationships that you all have to partner with those operators. Is that the dynamic we were talking about before we jumped into–

Anna Myers: Yes, that is correct.

Joe Fairless: Okay, [unintelligible [00:12:13].07] So is there something that you look for in particular with recapitalization when you partner with an operator?

Anna Myers: Well, it’s definitely a good thing for the general partners to have the recapitalization occur, because then more money is going into the partner’s pocket for the remainder of the project. There’s less of the equity investment that’s out with the investors; so more of the high is for the GP. So from a GP’s perspective, it’s a good thing. But I’ll tell you a new scenario that I’ve started thinking about, and I’m not sure how it’s all gonna pan out, where it may be something not good for the investor, and that’s with opportunity zones. With opportunity zones, there is a timeframe that’s at 2027, where the people that brought in capital gains – they need to pay those capital gains. Either they’re paying it at 100%, or they’ve been stepped down to 90% or 85% of their basis… But some amount of capital gain they will be paying at that time.

Now, many of these funds are talking about doing a refinance to give money back to the investors, so that they have money readily available to pay those taxes. Well, are we recapitalizing back their money? Do they now have less money in, and how does that affect the amount of money that’s going forward? …that we’ll hold it for ten years, and then the capital gains on that opportunity zone project are tax-free to them.

I think a lot about opportunity zones these days, because we’re very invested in it. This is a very specific refinancing situation, because you’re trying to solve a problem in the structure of the deal, and [unintelligible [00:13:52].25] is very specific.

Joe Fairless: When you take a look at underwriting from operators, and you mentioned if there’s a mistake or an issue with some aspect or detail of it, then you’ll likely find it because of your financial programming background… What are a couple mistakes that you’ve seen in the past?

Anna Myers: Well, this is the most common thing, where there is a formula that has been left over from some previous thing that was removed, and a hardcoded number was put in in its place, and then that hardcoded number is just copied across, so somewhere you lose the formula. I’m always looking for that, and it happens quite often.

Joe Fairless: Will you repeat that, so I make sure I understand?

Anna Myers: So often in a spreadsheet – it’s usually in the proforma area, where you have a lot of rows and columns. And in there, somebody has laid this little landmine, where they did something to a formula, took out a hardcoded element to it, or they removed the formula altogether, and put something hardcoded in its place. So instead of pulling from a different tab that was supposed to pull in the insurance amount, they hardcoded in the insurance amount… And then what happens in the column next to it – the column next to it is looking at the column to the left of it and applying some additional feature to it, like x1.5, depending on what the growth is; maybe it’s 2.5%, and then it’s going into the proforma.

Well, then the person later correctly changes the insurance amount on the other tab, but it doesn’t get changed in the proforma, because it was hardcoded in… So you start getting these places where you’re changing things and it’s not changing in the proforma, so your numbers aren’t correct.

That’s a very common mistake, because it’s such a rookie way to do Excel spreadsheets, and not understand that you never touch the formulas, you only touch the input areas.

Joe Fairless: What else?

Anna Myers: Let’s see… There can just be formulas that are just incorrect. I’m always having to dig into the formula. It’s usually, again, just somebody changed a formula in a previous thing to make it correct for the specific project that they were doing… And then the next project they forgot that they did that. So what I always do to avoid that is I have a clean version of my spreadsheet and I always start with the clean version. With that one, all of the formulas are pristine. So… Most of them have to do with that.

But I’ll tell you one of the things that I see that varies probably the most between. It’s not necessarily an error, but it varies the most in between the different Excel spreadsheets I see, which is how the partnership structure is handled, and the returns to the general partners.

We all are familiar with the different ratios – 70/30, 75/25, 85/15; those all work great. But what is really different is what happens when a pref is introduced.

In the case where you have, let’s call it a 70/30, 8% pref, we’re giving the investor the 8% – they get the first 8%. Then the general partner and the limited partner are supposed to split afterwards the additional money. But what happens for the life of the project? Is there a catch-up term where the general partner is caught up so that they’re making their full 30%? Even though they gave pref to the investor, there’s a catch-up at the end or as they’re going along. Now, that is our favorite type, because then the general partners are certainly making their fair share of the pie. If you are doing a 70/30 with an 8% pref, if you’re not getting a catch-up, instead of making 30%, you’re more making 18% of the project… And it’s a huge difference. A lot of syndicators that I talk to don’t understand that; they’re like “Catch-up? What are you talking about?”

Of course, not all projects can support catch-up, because you have to have a lot more available returns in the deal. Once you put a catch-up in, that could kill the whole deal, because there’s not enough in there.

Joe Fairless: Based on your experience underwriting deals, what’s the most challenging aspect of the underwriting prospect?

Anna Myers: I think the thing that I struggle with the most is the market benchmarks. Because I invest in so many different markets, and I really wanna be correct, and it’s so hard to be correct 100% of the time when you’re looking at market benchmarks… But understanding – you’ve gotta plug in the right data. You have to go through a lot of due diligence to make sure that your rent comps are correct.

If your rent comps are not correct, your whole deal falls apart. Once you buy the place, and you can’t get the rent — you thought you could get those rents, and it turns out you can’t, that’s a terrible situation to be in. Then just the various expenses; you don’t get those expenses right. I think that’s a really critical part of underwriting, and it’s not easy. It sounds like it should be easy; “Oh, I’ll just get it from my property manager.” But you need to get it from multiple sources, and then you need to keep verifying that they are correct over time. And if things are happening at your property, you need to be an instigator in terms of asset management. You need to watch the underwriting after you’ve purchased the property, to see “Are the trends going the way that you thought it would go?”, and if they aren’t, you need to get in there and address that issue by bringing in more leads, by lowering the expenses, by making sure that you’re accomplishing what you’ve set out to do.

Joe Fairless: You mentioned just a bit ago you need to get the comps from multiple sources… What are those sources?

Anna Myers: Well, the three online sources are Apartments.com, and Rentometer, Craigslist, so various sources like that. Then multiple property managers, not just one. And then the last one, which is very critical, is actually calling the competition, and walking the competition, and understanding what the rents are at those places, and then experiencing what that means. When you actually walk that unit, and you’re like “Okay, this is what $800/month is, for this market.” So you have to get personal about it, and you have to actually make the phone calls and do the shopping to your competition in the area.

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

Anna Myers: Don’t skip out on a full demographic analysis of your market and neighborhood. We believe the cashflow may be king, but the market fundamentals are really the emperor. If you have strong market fundamentals – the jobs, population, median household income – then you’re gonna weather the ups and downs of the market, your asset will weather those ups and downs much better. So don’t just look for cash; try and find good deals in markets that have strong fundamentals.

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

Anna Myers: I am.

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

Break: [00:20:53].18] to [00:22:14].24]

Joe Fairless: Best market fundamentals that you look for?

Anna Myers: Population growth, reduction in crime level, median household income… These are all things we look at from 2000 to 2017; we’re looking for specific numbers of growth for each of those. Job growth and median house or condo value growth. Then we get down to the neighborhood level once we have the actual asset and we’re looking for a median household income that’s between 40k and 70k, we’re looking for a diversity that’s about 75% with lots of different types of slices making up those 75%. Median rent – we are happy with $700 to $1,000 in median rent. And unemployment should be no more than 2% higher than the city’s unemployment rate. So whatever the unemployment rate is for the city, you don’t want your neighborhood unemployment to be more than 2% higher than that. Poverty level – a poverty level under 20%, but preferred under 15%.

Joe Fairless: What’s the diversity of 75%? Diversity of what?

Anna Myers: The pie. A diversity that looks at the make-up of all the potential pool in that neighborhood that could be rents for you – we like to see a lot of diversity, versus just one type of person.

Joe Fairless: In terms of ethnicity?

Anna Myers: Yes, ethnicity.

Joe Fairless: Got it. So no one ethnicity makes up more than 75%.

Anna Myers: Yeah, and we like to see a lot of different slices within that pie. That way you’re able to have a broader tenant base; it’s gonna be appealing to more types of people, versus if you just have a majority of one slice of pie – then that is going to be your tenant base, and you are reducing your attractiveness to other types of people.

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

Anna Myers: I have to say The Best Ever Syndication Book. It is still one of my favorites.

Joe Fairless: Well, that means a lot coming from you and your underwriting background, that’s for sure, so I appreciate that.

Anna Myers: I am a big fan of Joe and Theo’s book.

Joe Fairless: Best ever deal you’ve done?

Anna Myers: I turned an investment that was generating $620/month into $500,000 in tax-free money, plus a replacement investment of $6,000/month.

Joe Fairless: Okay, say that  again, please? It was generating $600/month, to $500,000 in —

Anna Myers: $500,000 in tax-free money.

Joe Fairless: Tax-free money, so you did a 1031…

Anna Myers: Yes, a 1031, but it was a 121 exclusion, so the balance above the 500k was invested into a historic duplex in downtown Charlestown; it’s a legal Airbnb, and that generates $6,000/month after expenses.

Joe Fairless: Huh! What is a 121 exclusion?

Anna Myers: So I sold my primary house… What we did is we had our primary house in the Bay Area for 16 years. We moved out of it because all of our kids had gone to college and we didn’t need such a big house. We rented a house and we rented out the big house for two years. At that point – that is the key moment when you need to tell the tenant “Thank you for staying, your lease is up”, and then you sell what was your primary home; it has been converted into a hybrid, where it is still your primary house, but it is now also considered an investment vehicle by the IRS… So you’re doing a 1031 on the amount of equity over $500,000. I’m married, so that’s why it’s $500,000; it would be 250k for a single person. That’s the 121 exclusion. And then 1031 the additional equity to avoid paying tax on that, into a like-kind replacement.

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

Anna Myers: Being too nice when I bought that Diamondhead, Mississippi. I should have walked away from that one at closing. There were some signs at closing that I didn’t pay attention to, and I was just too nice and bought the house anyway.

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

Anna Myers: I love teaching. I teach free webinars weekly at multifamilyu.com, I teach underwriting, I also co-host a lot of webinars with cost-seg people, and lenders for multifamily, CPAs… I like teaching people how to invest in apartments.

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

Anna Myers: The best place to reach me is MultifamilyU.com, and I’m Anna@multifamilyu.com.

Joe Fairless: Anna, thank you for spending some time with us and talking about your experience, how you got going, your super-power… I picture you with a cape, by the way, whenever you’re talking about your super-power in underwriting, and some advanced things to look for, like the recapitalization, and some other things like the claw-back…

Anna Myers: Yeah, the catch-up.

Joe Fairless: The catch-up, sorry.

Anna Myers: Yes, claw-back and catch-up – those are two different things.

Joe Fairless: And also, when you look at different markets, as well as neighborhoods… I really appreciate you spending some time with us. I hope you have a best ever day, and we’ll talk to you soon.

Anna Myers: Thanks, Joe.

Best Ever Show #SituationSaturday flyer

JF1663: The Easiest Way To Handle Your Real Estate Taxes #SituationSaturday with Devin Redmond & Thomas Castelli

Today we have two guests with us today to discuss real estate taxes. Stessa is our sponsor and also our guest today, along with Thomas Castelli, an investor, CPA, and tax strategist. So hit play to hear the easiest way to handle your taxes and hear about the new laws. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


  • Since the introduction of the Tax Cuts & Jobs Act in 2017 many real estate investors have wondered how these new rules and incentives will affect their taxes this year. Things were so confusing in fact that the IRS recently released clarification on the 20% pass-through deduction, and specifically singled-out real estate investments as needing more clarity.
  • Devin Redmond, Head of Customer Success at Stessa and Thomas Castelli, CPA & Tax Strategist at the Real Estate CPA teamed up to help provide clarification on taxes for real estate investors by creating a series of resources that investors can reference.


Best Ever Tweet:

“You really want to be taking a proactive approach throughout the year”


Devin Redmond & Thomas Castelli Real Estate Backgrounds:

  • Devin Redmond:
    • Head of customer success with Stessa
    • Former commercial real estate pro and investor
    • Say hi to him at https://www.stessa.com/
    • Based in San Francisco, CA
  • Thomas Castelli:
    • CPA & Tax Strategist at The Real Estate CPA
    • Real estate investor, invested passively before being active in an 82 unit apartment community
    • Say hi to him at www.therealestatecpa.com
    • Based in NYC

Sponsored by Stessa – Maximize tax deductions on your rental properties. Get your free tax guide from Stessa, the essential tool for rental property owners.


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

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment for  you called Situation Saturday, and here is the situation – it’s tax time, and you’ve got to put together your tax returns, or your CPA has to put together your tax returns. Well, you’ve got to figure out what is it with these new tax cuts and Job Act law that you can do, or what is it about that that you can use to benefit you as a real estate investor. Let’s get some clarity on that.

This will be a one-stop-shop conversation for you, Best Ever listeners, as you navigate that… And even if you don’t do your own taxes, it’s important to be educated on this topic, so that you can look for your CPA or make sure your CPA is maximizing the deductions and the benefits that you have as a real estate investor. With us today we’ve got a dynamic duo – we’ve got Devin Redmond, head of customer success at Stessa, who is, as you probably know, Best Ever listeners, the sponsor of this podcast… And also Thomas Castelli, who’s a CPA and tax strategist at the Real Estate CPA. First off, welcome, Devin and Thomas. How are you two doing?

Devin Redmond: Great! Thanks for having us.

Thomas Castelli:  Great, same here.

Joe Fairless:  You all good, glad to hear that, and it’s my pleasure.  A little bit about Devin and Thomas – first, Devin Redmond, head of customer success at Stessa, former commercial real estate pro and investor; their company, Stessa.com – you can go check that out, and you know all about Stessa, because you’re a loyal Best Ever listener; based in San Francisco, California.

Then Thomas Castelli, CPA and tax strategist at the Real Estate CPA. He’s a real estate investor who passively invests, and then most recently is an active investor on an 82-unit apartment community, so learning from someone who is an expert in tax strategy and who also invests actively in deals, which is very helpful, because he’s gonna come at it from a different perspective than someone who’s just an academic person in this field. He’s based in New York City.

Before we get into it, can you both tell us a little bit more about your backgrounds and how you got into real estate investing?

Devin Redmond: Sure. This is Devin, I’ll get started. As Joe mentioned, I’m currently head of customer success at Stessa; we’re a free software platform for rental property investors, to track income and expenses and run key reports. I got started in real estate actually as a tenant rep broker in L.A, so on the commercial side; I spent my days driving around L.A. with clients, helping them find office space and negotiate deals. I then worked for a big owner-developer in the Bay Area; that was mostly office and R&D deals. I did acquisitions and asset management for them. This was kind of 2007 through the downturn, so it was a huge learning experience for me.

Very quickly I learned that the proforma goes out the window when cap rates are going up and the national economy is hurting… And I spent most days renegotiating leases with tenants, trying to cut operating expenses, and trying to run our portfolio as lean as possible.

Another thing I learned there was that institutional investors have a pretty sophisticated way of running the numbers, and we’ve built a lot of very complicated financial models, and that’s something I try to bring to my job at Stessa every day – we want to make it easy for rental property investors, but we also want people with larger portfolios to be able to run sophisticated types of reports that they need to understand what’s going on with their investments.

Joe Fairless:  Real quick question on that, in terms of the sophisticated way of running the numbers – what’s an example of that compared to what a beginning investor might use or do when they’re running the numbers?

Devin Redmond: One example – a beginning investor gets set up on QuickBucks, or a quick rental property manager, right? And that’s fine for running a general income statement; it shows you how much money you’re making at the end of the year. Our reporting with Stessa – you can run both an income statement and a net cashflow report, and the net cashflow report breaks down principal versus interest versus your escrow accounts, and it will even show you what your debt service coverage ratio is… So you can get a sense for how you’re doing compared to what your debt service is every month. That’s just one example.

Joe Fairless:  And do you all have ways to interpret a net cashflow statement for investors who come into your platform and are like, “Oh, well this looks like something I should do”, and then they see it and they’re like “Well, how do I actually read this and how do I interpret these numbers?”

Devin Redmond: We have a pretty good support center, with a lot of help articles that help you figure out what you’re looking at. One of the things I spend a lot of time thinking about is as newer investors come into our platform, how do I make it simple enough for them to get started, and then sort of guide them through and show them, “Okay, these are the reports you should be running, these are the numbers that really matter, and then this is how you can feed it back into your operations. This is how you can look across the months laid out, the income statement, and see where are utilities fluctuating too much, where are they maybe out of range.”

We’re actually trying to get much smarter about identifying those opportunities for people, and then sort of bubbling them up in the software so that you don’t have to go hunting in the statement to find them.

Joe Fairless:  And Thomas, would you mind telling us a little bit about your background?

Thomas Castelli:  Absolutely. I went to school for business and accounting, and during that time I started reading the Rich Dad, Poor Dad books. As I started to go down that rabbit hole, I just kept noticing that real estate was a common theme for building wealth… So I started going to a bunch of networking events; at this one event I met a group that was doing a seminar on real estate syndication. I went to that seminar, and really that point was pivotal because I fell in love with real estate syndication. I also met someone who would become my future mentor.

From there, I invested in a bunch of deals with him as a passive investor, and then that ultimately boiled up to participating in a syndication of an 82-unit property as a general partner, and then right around the time that deal was closed, I came across the Real Estate CPA and really found that it was a great blend of my passion for real estate investing and accounting background, so I joined the team as a tax strategist, and I now provide tax strategy and planning to investors of all sizes – people from one single-family rental, to portfolios of single-family rentals and multifamily investors, syndicators, among other groups. That’s where I am today.

Joe Fairless:  What was your role as a general partner on the 82-unit deal?

Thomas Castelli:  I worked mainly on the acquisition side of it. I ended up making a lot of phone calls to brokers and developing a relationship with a broker who eventually sent me a good deal out of a handful. From there, I ended up negotiating much of the agreement, and then I helped out with due diligence. From there, we had two asset managers who are the primary asset managers on it, but I’m still on the property management calls and keeping a pulse on the deal day to day… Well, not day to day, but week to week rather.

Joe Fairless:  I imagine you’re a good resource for the team from doing checks and balances on the books, as well

Thomas Castelli:  Yeah, I take a look at the books every once in a while, just to make sure that everything is flowing smoothly, but we actually have an accountant who works on that, so we’re pretty much covered on that end.

Joe Fairless:  So let’s transition into taxes, and the primary focus of our conversation today. I imagine this is going to be for Thomas – what are some key things that all real estate investors should be doing in preparation for taxes?

Thomas Castelli:  When it comes to taxes, the first thing is keeping good records. Stessa definitely helps you do that, but at the end of the day when you’re going to file taxes come year-end, if you don’t have your stuff organized it’s gonna be a nightmare pulling receipts out of shoeboxes and trying to get everything into your accounting system, and going back and retroactively trying to remember what transaction this was for, what expenses this was for… So really going into tax season with your books up to date and having everything organized is key. But also, at the same time, a lot of people come to think that taxes is just something you deal with once a year, around tax filing season in January or April… And the reality of the situation is when you file your taxes, at the end of the year you’re simply reporting your income and expenses, your results from the activities that you did in the year prior; once that year ends, your results are pretty much set in stone. There’s of course some flexibility and some things you can do during that time to reduce your tax liability after the year ends, but you really wanna be taking a proactive approach throughout the year, making sure that you’re implementing the right strategies and making sure that you’re taking the right actions that will give you those favorable results come year end, and ultimately reduce your tax liability.

Joe Fairless:  Is there anything you can do after the year is over to retroactively influence what you did during that calendar year?

Thomas Castelli:  There’s a few things. You can contribute to a retirement account, you can engage in cost  segregation studies… Those are pretty much some of the top things you can do during that time, simply because at the end of the day “you spend what you spend, you earn what you earn” type of thing, and you went about the way you did your business throughout the year in a certain way, and that’s already set in stone… But cost segregation studies, for real estate investors, is probably the biggest thing you can do after the year end to affect your tax liability.

Joe Fairless:  One other clarification question and then I’d like to ask about some tax strategies you see investors missing… But when you say “keeping good records, making sure your books are up to date”, will you be specific on what exactly good record keeping is?

Thomas Castelli:  Devin, do you wanna take that one?

Devin Redmond: Yeah, I can chime in. I met with a lot of investors, especially in the  early days building Stessa, and trying to figure out “What does your process look like?” across hundreds of investors, and I’ve found it really broke down into two buckets – there’s the people who are on top of things, keeping track of everything monthly, a lot of them using Google Sheets, a lot of them use Stessa now, and they’re kind of closing out the month and they always kind of know how they’re doing… And then once they close out December, they’re kind of ready for tax time. Then, as Thomas mentioned, there’s this other bucket of people who really kind of come up for air once a year, get everything ready, they’ve got a  bunch of back and forth going on with their CPA, they’re wrangling receipts, and that’s a tough spot to be in.

From our perspective, good record keeping is obviously knowing where each expense goes, into what category, and then staying on top of your tenants as well, and knowing who’s late, and making sure you’re collecting all your income.

Joe Fairless:  Yeah, and when we take a look at the tax strategies that we should be employing – I imagine this is gonna be for Thomas – what things do you see investors missing on a regular basis, that are low-hanging fruit, that they should not be missing?

Thomas Castelli:  Yeah, absolutely. So it’s not always a tax strategy necessarily if they’re missing — sometimes it’s just deductions; sometimes people think that simply by not taking the depreciation deduction, that they’ll avoid depreciation recapture tax upon sale. And for those who don’t know, depreciation recapture is a tax up to 25% on the portion of your gain that’s attributable to the amount of depreciation you took over the time you owned the property.

Sometimes they decide to omit or not take the depreciation in hopes to avoid that, but the reality is the IRS was going to assume that you took the depreciation and then recapture it anyway when you sell.

Joe Fairless:  But what if  you didn’t and their assumption is incorrect? Do you then get that money back?

Thomas Castelli:  No. You have to take it. Basically, take your depreciation deductions; don’t miss it.

Devin Redmond: But Thomas, if in the past you didn’t take the depreciation, you can file amended returns and recover that, right?

Thomas Castelli:  Correct. You can do that. You have to go back then and amend your returns. The bottom line is you just want to make sure you’re taking depreciation deductions each year, and just be proactive about doing it… Making sure you’re also maximizing depreciation through cost segregation, but… Yeah, just make sure you’re taking depreciation.

Another strategy we see people missing is not taking advantage of a home office. When you have a rental business, often you can take a home office deduction, which not only reduces your taxes, but it makes your home a place of business. And when your home is a place of business, your commute to other business locations such as the bank, such as your rental properties, meeting with a  broker, going to Lowe’s to pick up supplies for your rental business – these trips all become tax deductible.

The standard amount of deduction in 2019 is 58 cents per mile, so if you drive a lot for your business, especially when you work from home, in that type of situation, you definitely don’t want to miss out on that combo of having a home office and also taking those miles deductions.

Joe Fairless:  Okay. Fact or fiction – when you put a home office on your tax returns, it increases your likelihood of being audited.

Thomas Castelli:  That these days is more or less considered fiction. What happens is a lot of people who do have a home office often have Schedule C, which is for an active trade or business. Schedule C is actually the most audited part of Form 1040, which is your individual tax return, so I think there’s a lot of misconceptions that because you have the home office in and of itself is really the trigger for increased audits, but in reality it’s just the fact that most people who do have home offices have schedule C, which might not be the case for a lot of real estate investors, because rental real estate is filed on Schedule E of your tax return.

Joe Fairless:  Let’s talk about the 20% tax deduction. What is it, how does it work, and what do people need to know?

Thomas Castelli:  I can take that one. The 20% QBI deduction (Qualified Business Income deduction) is a deduction that allows you to take 20% of your business income, a deduction of 20% right off the top of your business income if you’re single and you’re making less than $157,500, or if you’re married it’s $315,00. Above those thresholds you still may receive a partial deduction; it’s usually going to be less than 20%, and the calculation to get there is super-complicated, we won’t go into that today.

One of the things for landlords that was up in the air was whether or not your rental business will actually qualify as a trader business for the purposes of this deduction. The IRS recently released a safe harbor that clarifies that and says “If you meet the safe harbor, you will qualify as a trader business for the purposes of this deduction.” Quickly going through what that is – to qualify, you need to meet the following criteria: the property has to be held through your personal name or through a disregarded entity or another passthrough entity such as a partnership.

Joe Fairless:  Like an LLC?

Thomas Castelli:  Like an LLC. A single-member LLC would count. Commercial and residential real estate may not be part of the same enterprise, so you have to keep separate businesses for your commercial activity and your residential activity. You also have to keep separate books and records for each enterprise. An enterprise can consist of multiple properties, as long as they’re all commercial or all residential.

You’re gonna also have to spend — well, not you specifically, but 250 hours of rental services must be performed in that enterprise for the year, and you also have to maintain records that include the hours of those services performed, a description of the services performed, the dates in which the services are performed and who performs them. Now, the good news is you as the owner don’t have to specifically do all the work; those hours will also count if your employees, agents or contractors do it. So all the hours worked by those folks will also count towards the 250, and the last thing to note there is that it must be rental services. That includes advertising for rent, negotiating leases, reviewing tenant applications, collection of rent, daily operation and maintenance of the property; things like financing and reviewing financial statements do not count toward those 250 hours.

Joe Fairless:  How is the IRS defining residential? Because I’m wondering if that includes multifamily, or if that’s just like one to four-units?

Thomas Castelli:  There’s often some confusion in that because brokers consider 5+ units to be commercial, and 1 to 4 to be residential… But for the IRS, the purpose of it is if it’s single-family or it’s multifamily, it’s residential.

Joe Fairless:  Okay. If anything, is there anything else that real estate investors should know when it comes to their taxes that we haven’t talked about? And I know that’s a broad question, so maybe some top of mind things…

Devin Redmond: I can weigh in on that… We see a lot of our investors doing 1031 exchanges, and we haven’t talked about that much… The sort of special treatment under the IRS is very powerful, and over time it’s one of the best ways to create wealth. It’s a long-term strategy, something you stick with through ups and downs and cycles and cap rates… And even with the new opportunity zone designations that are also open to deferred capital gains, my read on that is that 1031 is still the best strategy if you’re committed to real estate in the long run. Thomas, you may wanna weigh in on that as well.

Thomas Castelli:  Absolutely. 1031’s are a great strategy, and ultimately what it allows you to do is it allows you to continually defer the capital gains upon sale of a property, assuming you invest the entire sales proceeds into a new property. You can do this over and over and over again throughout your life, and in theory – albeit it is harder to do in practice – you can not pay any capital gains on the sale of any of your properties throughout your life, and then later when you pass away and you leave the properties to your heirs, they’ll receive it at what’s called a stepped up basis, which is the fair market value of the property at the date of your death, and it will eliminate all of the capital gains that you should have took throughout your lifetime when they receive it, so… Definitely a powerful strategy.

Also, something else to throw in there, something else that people sometimes overlook is the power of the combination of the real estate professional status and the cost segregation.

Joe Fairless:  Before we get into that, will you just elaborate a little bit on when you die, after 1031-ing your whole life, you said your heirs get the property at a stepped up basis, which effectively eliminates… Will you just repeat that and just elaborate on it?

Thomas Castelli:  Yes. What happens is when you do a 1031 exchange, your basis in that property decreases after each exchange, because [unintelligible [00:20:55].20] the dynamics of the way the exchange works, you’re gonna end up having very large capital gains at some point if you fail to do a 1031 exchange… But what happens is your heirs get it; their basis in their property goes from that very low basis that you had, to its fair market value.

Let’s just say for instance throughout your lifetime you did several 1031 exchanges, and the building you have now is worth, say, two million dollars. Your basis in that property might only be $200,000. So if you were to sell it —

Joe Fairless:  Because you started with a smaller property?

Thomas Castelli:  Yeah, because basically you started with that smaller property, and that basis just continued to roll over after multiple exchanges. So you might get to the end of the line, if you will, and say “I have a two million dollar property, but my basis is so low because of the original property I started with.” So you might have a huge capital gain of, say, in this instance, 1.8 million, and when your heirs receive it, your basis goes from that $200,000 mark to two million dollars. They receive it at two million dollars. So if they were to sell it, usually shortly after you pass away, they’re gonna pay little to no taxes.

Now, if they were to hold it, they’re gonna eventually have to pay capital gains on that fair market value when you die and the fair market value when they sell, but it’s gonna be significantly less than it would be if you were to fail to do a 1031 and have to recognize that gain throughout your lifetime.

Joe Fairless:  Why does the IRS do it that way?

Thomas Castelli:  That’s a good question. You know, there’s just a ton of tax advantages for real estate, because one of the things the IRS does is – the Treasury or Congress rather – they want to keep as much stuff in the private sector as possible, and by offering these advantages to real estate investors, real estate investors will build properties, and develop properties, and participate in real estate activities and provide housing to the population of America, without the government having to take that on as a public project, if you will.

Joe Fairless:  Sorry, I interrupted you just a little bit ago… What was the other thing you were gonna mention?

Thomas Castelli:  Yeah, so the real estate professional status – if you work full-time in real estate, you essentially elect to be treated as a real estate professional for tax purposes, which allows you to take the losses from your rental real estate against your ordinary or active income… So what you can do is you can buy a bunch of properties, you can have a cost segregation study performed, which is simply a breakdown of the components of your property into their individual class lives, which range anywhere from 5, 7, 15 to 27,5 years. And generally between 20% and 30% of the property can be broken down into that 5, 7, 15 year mark, which is not only depreciated over a shorter period of time, but can also be accelerated, increasing your depreciation deduction, and now with 100% bonus depreciation, that 5, 7 and 15 year property can actually be depreciated in full in that first year you purchase that property, which would give you a massive loss. That loss as a real estate professional can be used against your active income, whether it be from you or your spouse.

Joe Fairless:  You two put together a tax guide and a bunch of resources to help the Best Ever listeners… Where can the listeners find the tax guide and resources you two put together?

Devin Redmond: You can find that at www.stessa.com/taxes. All of our existing users have gotten a free copy of that. You do need to sign up for an account, but it’s pretty quick and easy. Then we’ll give you the PDF, and there’s also a separate document with the 11 top tax deductions for real estate investors.

Joe Fairless:  Excellent. Well, Devin and Thomas, thank you so much for being on the show. I learned a lot, especially the reinforcement of the 1031 and the stepped up basis – that’s really powerful stuff. I have spoken to some investors and they mention 1031-ing is like kicking  a can down the road; you’re eventually gonna have to pony up. But not so much. When you die, your heirs don’t have to, and that’s very powerful… As well as other things and things that you two talked about.

Thanks for being on the show. I hope you have a best ever weekend… And Thomas, how can the Best Ever listeners learn more about what you’ve got going on as well?

Devin Redmond: They can head on over to therealestatecpa.com. On there we have a blog, we also have a podcast, The Real Estate CPA Podcast – Joe was actually one of our first guests – which includes a lot of great tax strategies and other information regarding accounting and taxes.

Joe Fairless:  Awesome. Thanks for being on the show you two. I hope you have a best ever weekend, and we’ll talk to you again soon.

Thomas Castelli:  Great, thank you!

Devin Redmond: Thanks for having me!

Guest Matthew Ryan on Best Show Ever banner

JF1593: An Unprecedented Tax Strategy – Opportunity Zones with Matthew Ryan

In this episode we briefly discuss Opportunity Zones; what they are, how you can invest and how big this one-time tax deferral program really is. Similar to a 1031 exchange but with more leniency and better tax advantages, Matt Ryan has been tracking this piece of legislation before it was written into law. Listen to how he’ll take advantage of this and find out ways you can implement Opportunity Zones investments into any real estate strategy. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Matthew Ryan Real Estate Background:

  • A social entrepreneur, founder of Re-viv, which addresses the market inefficiencies in community revitalization efforts
  • Focused on the multifamily value-add and development space in distressed areas
  • Based in San Francisco, CA
  • Say hi to him at https://re-viv.com/
  • Best Ever Book: Discipline Equals Freedom

Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com

Sponsored by Stessa – The simple way to track rental property performance. Get dashboard reporting, smarter income and expense tracking and tax-ready financials. Get your free account at stessa.com/bestever


Theo Hicks: Hi, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, as Joe is traveling to Texas today to look at a few apartment deals. Today I’m speaking with Matthew Ryan. How are you doing today, sir?

Matthew Ryan: I’m doing well.

Theo Hicks: Isn’t Matt Ryan a quarterback in NFL?

Matthew Ryan: Unfortunately, he is. [laughs]

Theo Hicks: I’m guessing you’re not a fan of the Falcons?

Matthew Ryan: Not so much the Falcons, but I need to get to his level of fame, so people can refer to him as Matt Ryan. [laughs]

Theo Hicks: That’s funny… A little bit more about Matt’s background before we get started – he is a social entrepreneur, founder of Re-viv, which addresses the marketing inefficiencies in community revitalization efforts. He is focused on multifamily value-add and development in distressed areas. He’s based in San Francisco, California, and you can say hi to him at re-viv.com.

Matt, before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Matthew Ryan: Yeah, my career focus is, as you said, multifamily value-add and development, specifically within distressed areas in and around primary and secondary markets. Think of these as the census tracks that are the blossoming neighborhoods, the neighborhoods that are – to use an industry term – rapidly gentrifying.

What a lot of Re-viv is focused on is not just the investment, but also trying to pair with non-profits and community entities to create what we call social [unintelligible [00:03:04].13] model, where we’re basically funneling a portion of pre-tax profits into those communities, and also trying to focus on providing long-term affordable housing and workforce housing.

Theo Hicks: Obviously, someone who’s a regular investor doesn’t have to, as you mentioned, work with other non-profits and other organizations, so could you talk about how that works? How do you find them, what do they do to help you with the business plan, and things like that?

Matthew Ryan: Yeah, it’s really at the tail end of what we do. A lot what we focus on is, like I said, the value-add portion, innovative approaches to affordable housing through co-housing – that’s a particular model that we’ve looked at right now. We actually have a project right now that we’re doing… So if you look at, say, a co-housing model, we’re actually providing rents that are 35% below, with no subsidies.

But back to your question as far as the actual funneling into the non-profits – it’s at the tail end. The simplest form right now – we’re just using 1% of pre-tax profits from the asset management company and then finding local non-profits and community organizations and donating directly to them. That’s really the simplest form that we do it right now.

In the long-term we’re trying to focus our efforts in innovation around not only just the affordable housing space, but also around workforce housing and policy, and helping drive positive policy that can actually incentivize developers to preserve affordable housing, as well as develop it.

I think one of the key things that we were gonna talk about on the podcast here, which is a great opportunity, is the opportunity zones, that just came out, which is a provision in the tax code that is directly incentivizing investors to take money and invest in distressed  census tracks.

Theo Hicks: Okay, so opportunity zones – you said it’s a provision in the tax code that essentially incentivizes developers to develop in these distressed areas… What types of incentives are there? Is it just tax breaks? Do they help you fund a portion of the development? How does that work?

Matthew Ryan: It’s very similar to a 1031 exchange, but it’s actually more generous than a typical 1031 exchange… Not only in just the way that it’s structured, but also in the actual deferred capital gains. With the 1031, I have $100,000 capital gain; I invest in a project… I’m just deferring that capital gain, right? Especially if, say, only 30k of that is capital gain and the other 70k was my original basis or my original investment, right? Well, with an opportunity zone, if you have the $100,000 capital gain, you can invest that into another project and actually defer the gains through the investment, through the life of the investment, if you keep it in an opportunity zone fund or an investment within an opportunity zone for ten full years. And if you do it a five or seven-year term, then there’s a 10% and 15% step-down on the actual capital gain that you pay. So again, very similar to a 1031 format. It specifically applies to capital gains and capital gains only, but it’s not just real estate gains; it also applies to stock gains, and other various capital gains that are recognized.

Theo Hicks: Is there a list of these opportunity census tracks somewhere?

Matthew Ryan: Yes. If you just google “opportunity zones California”, that will take you to a designated page that will pull up an interactive map that you can go in there and check out the opportunity zones in your area. They typically do that by state. The local governments have designated these census tracks, so… Yeah, this was done as of April of this year, and usually Google is the best way to go about it, for sure.

Theo Hicks: And then would there be actual listings on there, or would you say “Hey, this is the census track”, so any property you buy in this area or any land that you develop in this opportunity zone you get those tax incentives?

Matthew Ryan: Yeah, it is up to you to find the investments, and it is also up to you to ensure that your investment – or if you do an opportunity zone fund, which I know some larger syndicators and investors are doing… That if you’re doing a fund, at least 90% of your assets are located within an opportunity zone.

If you wanna do a one-off investment, Theo, you could basically just invest in one individual home or project, and you just need to make sure it’s in a designated census track. And as far as finding the deals – I think it’s interesting you bring that up… There’s tech companies that are already starting to create specialty software to help pool assets in these areas… So there’s a little bit of tech navigating to that, but right now it’s just really be checking a website, using whatever your favorite lead generation tool is, and obviously working with brokers who know the areas well enough to be able to say “Hey, find me deals in these specific areas.”

Theo Hicks: So how are you finding these deals? Are you using all those strategies you’ve just mentioned? Or what’s your best way to find these deals?

Matthew Ryan: We use a couple different software tools that basically aggregates within specific census tracks. We’re using the opportunity zone overlays that are given to us by the state government, and then from there just using whatever your favorite lead gen tool is, and pooling assets, and then either cold calling, or also, as you said, using broker relationships to say “Hey, I’m not sure if you have some listings that are in and around these areas, but these areas obviously for us make a bit more sense.”

The one thing that I should mention – I’m probably hopping a little bit ahead here – is that there are some strict guidelines as far as how you invest in opportunity zones. What I mean by that is a typical value-add player may have some limiting factors, because what you have to do is you have to increase your basis by whatever you designate the actual property to be. So let’s just take a million dollar property – you say the land is worth $400,000 and the building is worth $600,000. In order to qualify for an opportunity zone, you have to invest at least $600,000 into that property in order to qualify for the tax deferral. Of course, the reasoning behind that is they wanna spur job growth, they wanna spur development in these areas.

And I will say, originally, the original guidance they had given is that you had to do 100% of your overall investment, so you had to invest a million bucks; they’ve actually scaled that back, to make it a  little bit more — not easy, of course, but a little bit more forgiving, if you will, to investors. So really heavy value-add plays, as well as development plays, are really gonna be the only types of opportunities that you would wanna pursue.

Theo Hicks: So you deal with the value-add and the development… Which one do you do more of?

Matthew Ryan: Right now we’ve been mostly focused on value-add, but with this provision, the opportunity zone provision, and really kind of within our thesis, we were tracking this piece of legislation for about two years before it actually came out… Actually using the non-profit, that came out with some of the original distressed community index, the Economic Innovation Group – we were using some of their data to help identify potential markets.

With that being said, we are navigating more towards development plays and actually creating an opportunity fund for smaller development, in the smaller [unintelligible [00:09:54].07] basically anything in the 5 to 20 million dollar range. So we’ll be focusing and shifting our business plan a little bit more towards development, but still trying to focus on heavy value-add, and even smaller value-add plays that may not be outside of an opportunity zone.

Theo Hicks: I know a very common question that I hear a lot is “How do you underwrite these highly distressed properties?” Because typically, for a value-add, it’s gonna have a decent enough occupancy that you can use historicals to figure out what the ongoing expenses are gonna be… But if it’s super-distressed, you can’t really base your underwriting assumptions on the current expenses… So if you wanna talk about what your process is for underwriting these deals and figuring out what the purchase price is?

Matthew Ryan: Yeah… Carefully. [laughs] Carefully. You have to find a local expert, and usually that’s a property management company, someone who’s embedded in the community for a while, who can really tell you what your predicted rents are gonna be once you’re finished. If you’re a heavy value-add player, it’s how far do you wanna push your product, and is there individuals within that marketplace that are gonna appreciate the product that you’re delivering?

For workforce housing, we’re finishing a project right now in Sacramento where we may have overdone the finishes a little bit, but I think you have to just be careful about understanding who your actual tenant base is gonna be. I think that’s really one of the key things, a property management company who can help you with that.

As far as the underwriting, there’s really no silver bullet. You really have to be diligent. I come from a construction background; I owned a construction company for five years in Charlotte, North Carolina, so I have a lot of that experience that I carry with me, that is very beneficial in the underwriting process, and we now have people that we’re working with in our marketplace that are well-seasoned [unintelligible [00:11:38].20] general contractors who have almost ten years experience. Being able to have those partners is really key to your underwriting, because as you know, from an investor, you’re the conductor, and you need to have a good orchestra who can go out there and give you all the bits and pieces you need so you can assemble a good underwriting proforma.

Then from there I think it’s just a matter of being — I was having this discussion with a property manager yesterday for a project… You really have to embed little pieces of conservatism in your underwriting. I joked with him, I said I kind of embed little nuggets of money everywhere within my underwriting proforma, so I know that I’ve got some juice in my proforma that if things go wrong, we write in good contingencies, and I’m just very conservative in that, so that way I never feel like I’m running up against the wall as far as our underwriting is concerned, because there’s so many things that can come up in a heavy value-add play.

The only thing I would add in the end is really spending your time in due diligence to walk the building. And not just walk the building, but spend time in the building. Look around. By the third or fourth time that you’re actually in a building, it’s amazing to me because many times in the hundreds of homes that I’ve spent inspecting, I’ll come back a second, third or fourth time and I’ll find something new, I’ll find something interesting that I didn’t see before. That’s so invaluable… And you can’t just count on necessarily someone who’s a hired inspector to have that diligence.

Theo Hicks: Oh yeah, seriously. Best Ever listeners know my experience with inspectors, so I totally understand what you’re saying there. How are you actually funding these deals? Is that what that opportunity fund is, or is that something different?

Matthew Ryan: Yeah, so we’ll be launching an opportunity fund for everything that we do from a value-add position; it’s mostly just been the 506(b) and 506(c), working with accredited and non-accredited, and syndicating our deals as one-offs. Then I’ve also done a lot of personal deals and grown a personal portfolio, and most of that has been through family and friends, or  in most cases taking on the debt myself.

Theo Hicks: So when you’re raising money from accredited investors and when you’re doing it yourself – that’s different from the opportunity fund…?

Matthew Ryan: Well, opportunity funds are absolutely going to be investor-led. So we’ll either be doing one-offs investments through syndications, but as I said, we’re looking to create a fund – more of a semi-blind pool than a true fund structure. We’d like to get a fund structure that makes sense, it’s just the rigidity of that, and the time and the energy, as well as the money… We have to see how much – for fear of redundancy – opportunity or how many deals are out there in these areas that really pencil. There’s been a lot of (of course) people excited about them; a lot of naysayers are saying “Hey, be careful. These are gonna be dangerous deals. These are gonna be deals that people are gonna stretch themselves on.” I think there’s some truth to that, but obviously, you wanna be conservative, and from our perspective, we’re really gonna get out there and raise some capital and then be aggressive about what we can do, as far as when a fund structure makes sense, or individual one-off syndications.

Theo Hicks: Okay. Essentially, you’re just raising money like everyone else, but you [unintelligible [00:14:37].09] opportunity fund, and it’s used to purchase these properties in these opportunity zones.

Matthew Ryan: Exactly. And I’ll just highlight again that the opportunity zone fund is really a setup for those individuals who have capital gains. If they wanna defer their capital gains, they can invest in an opportunity fund, and they have 180 days to take their funds and put them into an opportunity fund. Once the money is in the fund, then you have 31 months to deploy the capital and to actually invest and improve the property.

Again, 1031 I think is 45 days to identify, 180 days to close? So you’re seeing a greater level of flexibility; a great level of flexibility as far as the type of capital gain that can be put into an opportunity fund, and that’s why I think it would make a great investment mechanism for us… If we get the fund put together and raise enough capital for it, I think it can certainly make sense, but we’re still gonna be looking for investments, and if we had an investor who could bring a lion’s share, a couple million dollars, and do a heavy value-add or a development investment, I think it also makes sense to do one-offs and give them that opportunity, because the reporting structure for this is so simple. They literally have already put out a sample two-page tax form that basically you have to fill out every year for every investment. So they’ve really tried hard to make this easy.

As I said, the fund structure makes it a little bit more complex, but they’ve ironed that out. They’ve given investors a great deal of flexibility with the 180 days and the 31 days to deploy the capital.

Theo Hicks: So for someone who’s listening to this podcast and they’re saying to themselves, “Hey, this sounds like a great investment idea”, what is your best real estate investing advice ever to that person to get started in these opportunity zones?

Matthew Ryan: Are we talked about are they already a real estate active investor, or a passive investor?

Theo Hicks: Let’s say they’re an active investor.

Matthew Ryan: Okay. So if they’re an active investor, you definitely need to understand where your opportunity zones are, first and foremost. Secondly, you need to think about structure – what your capital stack looks like. Can you raise enough equity to do a fund? Do you have the experience to put a fund together, or does it make more sense for you to try to find a building or one-off investment in an opportunity zone, and then try to syndicate that deal? That would be where I would start first and foremost, and I think another thing that’s been fruitful for us is finding other individuals that you could potentially partner with, who may be good JV’s, and maybe you guys can pool your money together and get into a bigger investment, or be able to set up a fund yourself. I think those would be good starting points for anyone to be interested.

Theo Hicks: Is there a go-to website, or book, or a  blog where people can learn more about this investment strategy?

Matthew Ryan: Yes, we’ll be posting a webinar that [unintelligible [00:17:20].18] here in San Francisco – we just did a webinar series on it… And to be honest, we’ll have that on our website and on our blog here shortly. If you just, again, google search “opportunity zones” right now, you would be hard pressed to not find a plethora of information. And anyone who has specific questions, feel free to reach out to me; I’ll give you guys my e-mail address at the end, and I’ll give it to you right now again – it’s matt.ryan@re-viv.com.

Theo Hicks: Are you ready for the Best Ever Lightning Round?

Matthew Ryan: Yeah, let’s do it.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:18:01].18] to [00:19:09].23]

Theo Hicks: Alright, what is the best ever book you’ve recently read?

Matthew Ryan: That’s always a tough one, and I’ve debated this one a lot in my mind before I hopped on here… I’d say one of my more recent favorites – and I’m reading his second book right now – is a guy named Jocko Willink. Are you familiar with him?

Theo Hicks: Yeah, I know who Jocko Willink is.

Matthew Ryan: Discipline Equals Freedom – that was one of the books that I read at the beginning part of this year, and it’s funny, I can almost hear that guy screaming at me through the book… For those of you who don’t know him, he’s an ex Navy Seal, and now does a ton of business training, as well as Navy Seal training. There’s a simple way and format in which he institutes his philosophies, not only in business, but in the military. It’s just been very profound for me, and something that I really enjoy.

Theo Hicks: And if you follow him on Twitter or Instagram too and see him post a picture of his watch at like four o’clock in the morning, covered in sweat…

Matthew Ryan: Oh yeah, yeah… He’s one of those guys. And this second book – gosh, of course I’m drawing a blank now… Extreme Ownership. He’s one of those people, he exudes leadership. I don’t know how you feel, Theo, but when I see that watch, or if I see a post of his, it kind of motivates me to wanna get up the next morning. It makes me feel like a big wuss for staying in bed, versus getting up at 5 or [5:30].

Theo Hicks: What is the best ever business decision you’ve recently made?

Matthew Ryan: Wow, that’s a tough one… Recently? I’ve kind of thought back to my original investment. My first ever investment was a duplex that I did in Charlotte, North Carolina, and that was really the catalyst for me. It was at a time when I was still in my construction company, and it allowed me to really pivot and think about real estate as a career. It also led into the thesis behind what Re-viv is, by way of experience of a community member there, Ms. Pam, who was a community member and was in a gentrifying neighborhood, worked two jobs, took care of her grandkids, took public transit to her night job… At the time, she was one of those people that I thought of that said “What happens to this person as these neighborhoods continue to turn over?” For her, she was kind of an inspiration person to me, to think like “Well, we really need to rethink about how we do value-add and how we do investment and community revitalization. We need to find a way to keep  these people as part of our community, while also bringing growth to these communities.” That was the one that kind of set the tone for me, and really gave birth to the idea of what Re-viv would be.

Theo Hicks: What is your best ever deal besides your first deal and your last deal?

Matthew Ryan: Wow, that’s an interesting one. I’ll default actually to the first house that I ever bought. It was the only investment that I didn’t make money on, and everything that could have gone wrong in that seven or eight year period that I owned it went wrong, to the point where — I actually had a realtor who was listing it for me who passed away. I went through two more realtors after that before we actually tried to sell it, and then I actually ended up selling the deal myself, after getting a tenant in there and working with the tenant… And they had seen all the work that I had done, the blood, sweat and tears and how I managed the property… But they bought it from me.

I sold it at a breakeven. Obviously, if you did a financial metric on it, it was not a breakeven… But it was one of those things that really taught me the lesson of sticking with something, staying true to doing the right thing, which at the time was very difficult. There were so many times I debated just cutting it loose and selling it at a loss… You know, it just kind of taught me how to persevere, and like I said, stay consistent and stay true to what you’re trying to do.

Theo Hicks: What is the best ever way you like to give back? …besides your overall investment strategy.

Matthew Ryan: Yeah, you took that one away from me… I was gonna say it’s one of the things I enjoy about being in a social-based enterprise – you can kind of have a twofold mission; you can make money, but also do good.

I’d say on a personal basis I try to find non-profits that I enjoy, that I feel have causes that are near and dear to me. I’ve just gotten in a habit of putting them on a reoccurring donation every month. That’s been cool to me, because then I don’t feel like I have to constantly do it… And it’s nice getting the occasional thank you card, or receipt, or note from people. I think that’s been a good, positive thing for me.

Theo Hicks: What’s the biggest mistake you’ve made in real estate?

Matthew Ryan: Yeah, over-emphasis on finding the deals, and not the investors first. That would be the biggest one, and I think you hear it all the time. It was one of those pieces of advice that I’ve foolishly felt like “Oh, I can do this differently. I can find a deal, and I’m sure if I’ve got a good deal, I can find the investors.”

I think the problem with that, especially for those of you who are just getting started, is that it just doesn’t give you the confidence that you need to proceed aggressively with a deal, and it really takes away from all those important factors that you and I are familiar with as far as the due diligence period, and putting your team together… If you have that anxiety and that fear of trying to get the investment, you’re not gonna be able to focus and do your due diligence properly, the way that it needs to be done… And I would say that’s probably one of the most hindering factors, by not having your investor pool worked out.

Theo Hicks: That is really good advice. Very good advice. What is the best ever place Best Ever listeners can reach you?

Matthew Ryan: You can always check me out on Twitter. I’m not terribly active there. E-mail, matt.ryan@re-viv.com, and you can also call me at 415 805 8933. I’m always open to chat with people… And we’ll be posting some more information to our blog around opportunity zones.

Theo Hicks: Well, Matt, I really appreciate you coming on the show today and talking about opportunity zones. I’d heard of them before, but I wasn’t very familiar, but now I am. You talked about tax incentives for people to develop and buy properties in these opportunity zones, which you can find by literally just googling “opportunity zones” and then your state.

You mentioned that there are a few guidelines, one of them being that you need to invest the same amount as the property value into the property. If it’s a million dollar property and if the land is worth $400,000, then you need to invest at least $600,000 in order to qualify. You mentioned how if you wanna get started, you first need to understand where the opportunity zones are, and then figure out how much capital you’re capable of raising, to determine whether you should put a fund together or start off by doing a one-off deal in that area. Then it’s gonna be important to make sure you find other individuals to partner with.

Then we also went over your strategy for finding deals, which is there’s some tech out there now that pools together these properties in these opportunity zones… And then just your regular lead generation strategy and working with brokers.

Then we also talked about how to underwrite these highly distressed deals. It’s similar to underwriting any deals – making sure you’re very careful and conservative, so putting in a lot of contingencies, although I’m sure there’s an emphasis on the contingencies for these types of properties, because a lot more can go wrong, as you mentioned.

It’s important to find a local expert, so work with a property management company who knows the area very well, and then an experienced general contractor to help you estimate the construction costs. Also, you wanna make sure that the types of product you’re offering is actually gonna be in demand, and then make sure that you walk the building multiple times and spend time in the building, because each time you visit the property you’re likely going to find something new.

Again, Matt, thanks for joining us today. Have a best ever day and we’ll talk to you soon.

Matthew Ryan: My pleasure, thank you for having me.

Best Ever Show Flyer with Joe Fairless and Guest Heath Silverman

JF1578: Making Life Easier For Landlords & Real Estate Investors with Heath Silverman

You may have heard of Stessa before, they’re only our current show sponsor. You’ve heard what I have to say about them in the intro, today we will dive in deeper and learn more about what Stessa is and how it can help you with your real estate investing business. From seeing investment performance at the press of a button, to tracking income and expenses, Stessa can help us see performance and make informed decisions. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Heath Silverman Real Estate Background:

  • Part-time real estate investor and full-time technology entrepreneur
  • Actively maintains a portfolio of 10 multifamily buildings comprised of over 60 units across the US
  • Co-founder and CEO of Stessa, a software platform that lets property owners track, manage and communicate the performance of their investments
  • Based in San Francisco, CA
  • Say hi to him at https://www.stessa.com/
  • Best Ever Book: All You Zombies

Sponsored by Stessa – The simple way to track rental property performance. Get dashboard reporting, smarter income and expense tracking and tax-ready financials. Get your free account at stessa.com/bestever


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

Heath Silverman: Fantastic. Excited to be here.

Joe Fairless: Well, I am excited to have you on the show as well. A  little bit about Heath – he is a part-time real estate investor and full-time technology entrepreneur. He actively manages a portfolio of ten multifamily buildings comprised of over 60 units across the US. He is the co-founder and CEO of today’s sponsor, which is Stessa. And Stessa, as you know, Best Ever listeners, is a software platform that lets property owners track, manage and communicate the performance of their investments. Based in San Francisco, California. With that being said, Heath, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Heath Silverman: Definitely. I’ve been working in tech for 20 years, investing in real estate for almost as long. My first property purchase was actually a single-family home that I bought back in 2001 to live in, but I ended up house-hacking. I got a few roommates while I was fixing the thing up, and I got totally addicted to the supplemental income, coupled with that potential for appreciation. I tried doing a number of deals in the years after 2001, made a number of offers, nothing really penciled out, but post-financial crisis I saw a huge opportunity and I really doubled down on real estate in a big way.

I started buying distressed properties, primarily in the SF Bay Area, and these days I would say I do around 1-2 deals a year, and I still get that rush, that combination of both excitement, and also that little bit of fear that comes with every new acquisition.

At the end of 2016 I combined my passion for real estate with technology and I founded Stessa.

Joe Fairless: And what is Stessa?

Heath Silverman: I’ll jump right into it, yeah. As you said, Stessa enables real estate investors to track, manage and communicate the performance of their real estate assets. I spoke to hundreds of investors when we were starting out with Stessa, and I learned that most still manage everything on an often out-of-date spreadsheet, sales spreadsheet or Google Doc. And while it’s great to have a basic system in place, they honestly have no idea whether they’ve made or lost money except one time a year, when they get their returns from their accountant. Stessa really solves all of this by enabling investors to really track their investments with intuitive reporting dashboards. They can manage their income and expenses with their iOS app using our machine learning-powered receipt scanner, and they can also communicate the performance of their properties with investment partners through portfolio collaboration tools.

Joe Fairless: I wanna talk both about your investing experience and stories, especially given that you started investing after the crash… So I wanna talk about that and the timing of it. And then also I wanted to learn more about your software platform.

On the Stessa note – what’s the difference between having a bookkeeper provide you with a spreadsheet of the P&L statement and what you all provide?

Heath Silverman: Most of our users and our primary focus is what I call kind of the long tail of investors – people who have two to maybe ten buildings under management. Many of them don’t have a bookkeeper today. Many of them are managing things on their own; as I said, they have this shoebox of receipts, everything is in a spreadsheet… It’s just a big stack of paperwork, and at the end of the year they kind of dump it on their accountant. Now, maybe they go through it all, spend a very painful weekend or even a week preparing for taxes… So we’re really there to automate things in real time, and give them  a clear picture into how their investments are performing.

Joe Fairless: How big or small has the challenge been to convert people who are currently keeping their receipts in shoeboxes to being on a software platform to do that?

Heath Silverman: That’s a good question. It’s funny, because we always say that our main competitor today is spreadsheets and inertia… [laughter] Yeah, I mean — basically, people have this system and they’re like “This is my system, this is how things work”, but the reality is that when you go into the tool and you see in real-time how your investments are performing, and we can draw insights to inform decisions, through analytics and notifications we help investors monitor the rental properties, so they know when to make those high-impact changes, like improving operational costs, raising rents, or even making big acquisition and disposition decisions… When people see that, they get excited.

And of course, did I mention it’s free? There is no cost to get started, the service is fully free for everything I’ve mentioned, and we intend to keep it that way.

Joe Fairless: And how do you make money?

Heath Silverman: Today we focus primarily on the free platform; we’re in an interesting place – we actually were acquired by JLL Spark at the beginning of this year. Prior to that we were focused on mid-market investors going after a bookkeeping solution with a premium SaaS product. And then post-acquisition, now that we’re backed by these incredible resources of JLL, and also their real estate expertise, we have the ability to make the product free.

Long-term we hope to add some value-added services for all these investors. We have some ideas, there’s some premium things that we can build on top of it, but the core functionality that we offer today is and will always be free.

Joe Fairless: What has been a decision that you’ve made with your portfolio that has had a high impact on your business, as a result of seeing it on your platform where it was aggregated?

Heath Silverman: I think with that question I’ll jump right into the origin story, because it’s a pretty interesting one. Back in 2016 my co-founder Jonah Schwartz and I – we knew we were starting a new business, and we started off by contemplating a number of big ideas around the future of work… Crazy stuff that we were white-boarding in my attic. And we kept on getting totally distracted by our real estate portfolio. We had a number of properties that we’d had on auto-pilot, and we did a deep-dive into one of our multifamily buildings that really the past couple of years we had done very little. In just a couple of weeks we ended up nearly doubling the value of the building, through a combination of operational efficiencies, and also bringing some rents to market.

This added real value, and when I say real value – we took the new numbers to the bank, we did a cash-out refi and we took that real money and purchased a new property to grow our portfolio. So we were shocked by how much value we were able to create in such a short amount of time, and had three big takeaways. One, as real estate investors we should be applying these learnings we had to our entire portfolio. Two, as tech product people we could build software to automate nearly everything that we just did… And three, as entrepreneurs, there was a huge opportunity in this space to build a company around a technology solution that we could make available to the millions of investors just like us, who used little more than a spreadsheet to manage their portfolios.

So now with Stessa on a day-to-day basis it’s automating a lot of what many people are doing manually, saving them time and creating them value by providing those real-time insights.

Joe Fairless: You bought your first place to live in 2001, but you ended up house-hacking… You made offers from 2001 to up until the financial crisis, did not buy anything, and then after the financial crisis you started buying distressed properties in the San Francisco Bay Area. What year – and if you remember, what month – did you buy your second property?

Heath Silverman: I believe it was August 2009.

Joe Fairless: Wow! I mean, you were — maybe not even post financial crisis. You were on the tail end of it, I guess.

Heath Silverman: Yeah…

Joe Fairless: So what gave you the confidence to buy it, and then tell us the numbers, please.

Heath Silverman: Yeah. So I actually bought three properties, all right around the same time. Two were with some partners, we all put in some money and created an LLC called S3 and we started buying up properties in the East Bay, just outside of San Francisco, cities like Suisun and Oakley. And I think what gave us the confidence on those buildings in particular was that at that time – this is before I got into multifamily – single-family was something that I had a lot of experience in, so I’d already done the whole house-hacking thing, I had a home that I lived in for a number of years, and fixed things up, I kind of knew what everything should cost…

And then two, just looking at the numbers, these are houses that had sold for $450,000 back in 2006-2007, and these are in neighborhoods where it was kind of crazy post financial crisis; many people had lost their homes, they were all in foreclosure, and you could pick them up direct from the bank for 90k. Sometimes they didn’t have doors, and the windows were busted, and they were definitely distressed properties, but with just a little bit of fixing them up we were able to then rent them out for $1,400-$1,500 a month. So the numbers penciled. We were cash-flowing from day one, and we were super-excited.

From there, I kept on learning more about the trade, I got some mentors, had people help out, and ended up eventually 1031-ing the single-family homes into multifamily buildings closer to where I live in San Francisco, so places like Berkeley and Oakland, and just kept on expanding from there.

Joe Fairless: With workforce housing, what have you learned through that experience, and what’s that been like?

Heath Silverman: I love it, I love multifamily. This was still classified as a residential property, because it was four units.

Joe Fairless: Did you buy the four-unit, or did you buy it as a three-unit and you added the fourth?

Heath Silverman: I bought it as a three, and I’m finishing up in the process of constructing the fourth.

Joe Fairless: Okay, got it.

Heath Silverman: And it’s interesting – the whole area has been rezoned by the city, because in San Francisco there’s definitely a housing crisis in terms of supply and availability and all of that… But when it comes to workforce housing, I’ve definitely used that as my strategy when evaluating and purchasing multifamily properties, whether it’s in Berkeley, Oakland, certain other parts of San Francisco, or even my most recent purchase now that was in Chicago, which was a 1031 exchange from a building that I sold over in Oakland. That purchase was my first experience stepping into buying something out of state. With that building in particular – 16-unit building, just over two million dollars, in Rogers Park, which is an area that I know pretty well, because my sister’s husband grew up there, and my dad actually lived there way back in the day when it was a very different neighborhood. But again, short distance outside of the city, housing you can buy below replacement cost, and right next to transportation that can get you downtown quickly.

Joe Fairless: Are those three things that you always look for?

Heath Silverman: Yes.

Joe Fairless: Below replacement cost, right outside of the city, and public transportation.

Heath Silverman: Yes. And I should also add that I very much focus on distressed properties. And when I say distressed, it’s usually either they’re financially distressed in some way, there’s sort of a difficult kind of situation that maybe the owner doesn’t wanna deal with, or there’s a lot of deferred maintenance, where you just have to go in and get some significant work done in a short amount of time.

Joe Fairless: You live in San Francisco, you’ve got – I imagine – your plate full with Stessa, as well as wherever else your time goes… This property that you just purchased is in Chicago, and you just said that you buy distressed properties, or distressed owners, or some sort of distressed situation, so how do you plan on overseeing the successful execution of the business plan being remote?

Heath Silverman: That is a great question. These days I have property managers for everything, for all my properties. In the early days I tried managing myself, it was great for learning the ropes and kind of understanding everything, but now I’m very reliant on the property manager, I do a lot of due diligence on finding the right one [unintelligible [00:14:20].16] recommendations, and that can really handle all of the day-to-day operations.

Then I have Stessa, of course, that’s processing all the financials, helping me to better understand what I should be getting in terms of rents, and getting those regular insights… Things like if a water bill suddenly spikes, I can get those notifications and then check back in with the property management to make sure I am able to stay on top of things without spending too much time on the day-to-day management, or having to really dig in too deep into all the details.

Joe Fairless: That’s huge. That’s a big deal, because 99 out of 100 property managers would not proactive enough to let the owner know if a water bill is spiking, or they might not even have access to know that, depending on how the bills are set up. That’s a big deal.

Heath Silverman: And I didn’t really go into the details of a building where I doubled the value back in 2016, that was the inspiration for Stessa… The things that we really looked at – it was a combination of raising the rent… I bring up the water bill, because that was one of the things that we noticed in the analysis, that the water bill had gone up dramatically, and had been that way for almost four months, and just nobody had ever noticed.

Joe Fairless: What was the reason for it?

Heath Silverman: There was a  water leak…

Joe Fairless: D’oh… [laughs]

Heath Silverman: Yeah. Not only did we end up saving a lot of money on it, but we increased the value of the building as a multifamily property. We got the NOI up by bringing the operational costs down, and we saved potential ongoing damage to the building. Who knows, if you have a water leak going for a year or so, what could have happened. And at that time, if you’re looking at the NOI [unintelligible [00:15:52].25] it was around 2015… And this is also the Bay Area, so things were trading at a 4-cap back then. $333/month (around that) that we could save translated into about $100,000 in real value in the building. [unintelligible [00:16:08].00] like “Oh, we can change property managers and get their take down by 1%”, and then “Oh, the water leak” – that was kind of ridiculous; I think we ended up saving like $500/month just on that alone.

Joe Fairless: Wow.

Heath Silverman: And then we found a number of areas, especially on the income side with rents, where there were some interesting opportunities to get them up to market… Which is often somewhat tricky in rent-controlled areas like Oakland.

Joe Fairless: Please elaborate.

Heath Silverman: Most of the deals that I’ve done in the Bay Area, because they’re older housing stock and because they’re in Oakland, Berkeley and San Francisco, they all have rent-controlled tenants, and I think a lot of Best Ever listeners are probably very familiar with rent control… Basically, the amount that you’re allowed to raise the rents is dictated by certain city rent control guidelines.

In Chicago we were able to basically see, “Hey, all the rents in this building are probably 20% under market. We can go in and renovate the units, bring the rents up to market”, and we can either choose to stay or leave, but there’s no issues with just turning things around really quickly out here. It’s a much more delicate situation.

Joe Fairless: Based on your experience as a real estate investor, and also being really focused on the technology aspect of real estate, what is your best real estate investing advice ever?

Heath Silverman: There’s a common theme out there that everybody often kind of repeats around holding real estate forever, and that it’s this incredibly passive investment. This type of advice is especially true when talking to investors who focus on residential rentals, with long-term renters.

My advice is that you really need to make it a consistent practice to continuously optimize… And me personally, whenever I’ve maximized the value and I no longer see significant upside, I move on to the next building.

Joe Fairless: Yeah. That’s why I love your platform, because — I think I mentioned it in the ad that I recorded… I’ve got three single-family homes; they make me $100/month total, for the whole year; it’s just ridiculous… Although they should make money, I have someone move out and then I have to pay for repair costs, and turnover costs, so I basically breakeven on the three homes. But I have about $350,000 in equity that’s essentially trapped — well, it is trapped; not essentially. It is, it’s trapped there, because I bought the homes at a good price relative to where the market is at now and what they’re worth…

So having something like Stessa, where I can say “Okay, wait a second… What’s going on here? I need to really maximize my portfolio”, and now I learned about it a little bit too late, so I regret that, because all my residents are on 12-month leases, so I can only sell to an investor right now. But what I’m doing as a result of what you’ve just said, and learned more about your company, is when the residents in each of those three homes – their lease expires, then we aren’t gonna renew it and we’re gonna either sell to them, or sell to someone who is gonna move in and live there, and I’ll be able to recapture that equity that is just trapped there, instead of making $100/month, to actually get $350,000 and then I can go invest that.

Heath Silverman: That is awesome, and that is the way to do it. Find a new property where there’s tremendous value-add opportunity, and then you continually create more value.

In the last six years I think I’ve done one 1031 exchange each year. Of the one or two deals I do, at least one of them is always an exchange into something bigger. Basically, I get to the point where I’ve done the analysis – more recently Stessa is giving me that analysis – where I’m like “Yeah, I don’t see that much more upside. Let me get into another newer distressed building, ideally workforce housing, where I see more significant upside.” It’s crazy if you just keep on climbing the ladder and getting to a bigger and bigger building. It’s amazing.

Joe Fairless: Yeah, real estate is truly the backbone of how to scale. There’s two ways. One, you buy a property, you hold on to it and you just get lucky that the market appreciates – and you’re in a good spot in San Francisco, at least recently, where that has happened, and you bought at the right time. Or two, what you do is buy something that is distressed and then add the value, so you’re forcing the appreciation, and there’s not as much luck involved, although there’s always some when dealing with real estate and people… But it’s more of a proven process.

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

Heath Silverman: I’m ready.

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

Break: [00:20:43].21] to [00:22:00].04]

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

Heath Silverman: I normally like to share business books or real estate books I’m reading, but if we’re talking about the best ever books, then I’ll call out this one — it’s actually a story that I’ve shared endlessly throughout my life, and when people ask me for something provocative to read. So if you haven’t read it, check out “All You Zombies.” It’s a sci-fi short story by Robert Heinlein, from the fifties, and it’s a story that I read as a kid, and it’s the one that got me addicted to science fiction.

It’s incredibly short, like ten pages, and you can blow right through it… It deals with time travel, questions around existence and causality, and it’s quite dark and it’s a bit of a mind-screw… It was my sci-fi gateway drug, and it led me to discover many other greats in the space, and kind of set the stage for me to always be thinking about technology and implications on our future.

Joe Fairless: *cough* nerd alert *cough* Sorry about that. [laughs] I’m looking it up right now and I will check that out. That sounds like fun, and I know one of my brothers will certainly enjoy that, too; I’ll tell him about it.

What’s the best ever deal you’ve done?

Heath Silverman: The best ever deal I did was a real estate deal where I tripled the value of a building in just over a year, thanks to — I’ll call it insider information. And yes, I realize it’s ridiculous that real estate is the only asset class where insider information, or really the level of information asymmetry I’m about to talk about is allowed… But let me just tell you the story.

This particular building – it was a 5,000 square foot fourplex in San Francisco, in the Mission. It had sold for nearly 1.7 million back in 2006, and then the crisis hit. So the owner tried to sell it shortly after, but they were unable to unload the building, and it eventually went into foreclosure. Once the bank had the property, the building was just ignored for a long while, with no consistent management, and the property itself became seriously distressed from both a maintenance and a tenant perspective.

The end result is I was able to pick it up with a partner in 2012, in foreclosure for less than half of its former price that this owner had bought it for, and much less than they tried to list it for. But here’s the kicker – it goes back to the whole rent control thing. That stuff is rent-controlled, the leases have been lost somewhere in the shuffle, and the tenants lied to the bank about the rent, so they were paying a small fraction of what they actually owed, hence the low price that it was being marketed for. And here’s where the crazy information asymmetry came into play – I dug up the disclosure packets from when the former owner tried to sell the building, and I realized that in the disclosure packets it had all of the original leases, and the tenants who were residing in the building at the time I was looking at it – they were all still the same. Same people.

I went and I told this to the selling agent once we got under contract, and his comment was simply, “Yeah, good luck with that.” I of course was able to immediately get the rents back to market after purchase, and then I had some luck with the tenants choosing to leave while we were doing the much-needed deferred maintenance work that was required, and I was able to unload the building shortly after for triple the purchase price.

Joe Fairless: How much did you make in total on it?

Heath Silverman: On that particular deal — first of all, I would say [unintelligible [00:25:00].04] that one we probably netted somewhere around 1.7.

Joe Fairless: What made you think to look that up?

Heath Silverman: I was obsessed with real estate, and I tracked every single listing that hit the market at that time. Every day I was looking at listings that hit the market in San Francisco, and I saw the building and I was like “I remember this building. I’ve seen this before”, and I realized it was a friend with somebody who they had actually gotten into contract when the former owner was selling it, and we had actually talked about it. So I just happened to remember it, and then I just dug up the disclosure packet. Yeah, it was crazy.

But yeah, I made about 1.7 and transferred it into a 21-unit apartment complex in Berkeley via a 1031 exchange… So it ended up a great deal.

Joe Fairless: The evaluation was kind of low to begin with, so that also triggered something that was like “Wait a second, why is this a little bit lower”?

Heath Silverman: Yeah. It came on the market at a crazy low price, and if you were just obsessed over a very specific area, which I was, because (again) of this whole workforce housing thing, the Mission is really close to bars, and people can get to downtown San Francisco incredibly fast, and again, lots of really old buildings… So I was honed in on this one area, tracking all the deals, and then saw this come on the market and I’m like “Whoa, that is too low… What is the deal?” So I reached out to the agent and started getting all the information, and found out that there was just some crazy tenant situation in the building.

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

Heath Silverman: Maybe I’ll focus on a mistake that I made… I can think of a bigger mistake, a fun story that the Best Ever listener might like – a mistake on just a building and real estate in general is just not doing your due diligence. On that first single-family home, the one I house-hacked, that I spoke about earlier, I needed to do some significant work into the garage, that required a contractor… And I wanted to do it really fast and affordably, because this was my first dabbling into real estate, so I found this contractor who gave me a verbal quote that seemed amazing, and he was ready to start immediately at a time when you just couldn’t find contractors.

Looking back, I clearly should have realized it was way too good to be true. And beyond all that, he asked for a pretty healthy portion of the payment upfront, which again, should have been a red flag… But he demoed the whole garage and then he disappeared. I was trying to reach him, couldn’t find him, but to make a long story short – this is crazy, and this is a true story… After months of trying to reach this guy, I learned through the news that he had been arrested under suspicion of being [unintelligible [00:27:22].04] sniper.

Joe Fairless: Oh, gosh…

Heath Silverman: It was insane. I ended up going through the Contractor State License Board [00:27:30].03] and they had to send somebody into the prison to interview him for his side of the story. True story, crazy. But what I’ve learned from that – that particular situation was extreme, and I learned my lesson, and I make sure to always do my due diligence, whether it’s checking references prior to signing contracts, modeling everything [unintelligible [00:27:43].08] pre-purchase, or pre-sale, or simply just really staying on top of my portfolio performance. Over time, that is all about Stessa.

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

Heath Silverman: I guess mentorship. I really wouldn’t be where I am today without the teachers and the mentors that I’ve had throughout my life. Whether it’s helping fellow investors on real estate deals, or advising entrepreneurs on starting a business… I’ve always made myself available to others and make it a priority to pass on my knowledge.

Now that I’m a bit more time-strapped growing family, I use my company Stessa to pass on that knowledge… So whether it’s through our newsletter, our blog, our insights within the product, I wanna enable other investors to be more successful and be able to maximize the value of their assets.

At Stessa we really have this mission to democratize real estate as an asset class, and that translates into supporting all investors, all along the way, as they build out and continue to grow their portfolios.

Joe Fairless: How can the Best Ever listeners learn more about Stessa?

Heath Silverman: To learn more about Stessa, I recommend everyone with an investment property just go to stessa.com and register for free. It only takes a few minutes to get up and running.

Joe Fairless: Well, Heath, thank you so much for being on the show. Holy cow, lots of insights here. Your best ever advice about not holding real estate forever, and consistently practice the optimization process, so you can maximize value, and your 1031 comment – that right there is I think the theme here for our conversation… Because you’re constantly looking to force appreciation through value-add deals. You talked about what you look for – below replacement cost, right outside the city, public transportation and in a distressed situation… Then you optimize the performance of your overall portfolio through your platform Stessa, and you’re able to continually scale up and scale up and scale up… Not only interesting, but something that can be applied to anyone’s portfolio, that thought process.

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

Heath Silverman: Fantastic, thank you.

Joe Fairless and Dave Dunford

JF1489: Learn About A New Marketplace You May Have Never Heard Of #SkillSetSunday with Dave Dunford

Dave is on the show today to tell us about a different area of investing, not real estate.We’re actually going to hear about buying shares in private companies and why as entrepreneurs, we should care. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Dave Dunford Real Estate Background:

  • Managing director at Zanbato, an SEC registered trading platform
  • Helps registered personnel, investors, and sellers come to find counterparties and trade institutionally-sized blocks of private securities.
  • Before Zanbato, he was an olympic swimmer
  • Say hi to him at https://zanbato.com/
  • Based in San Francisco, CA

Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com

Best Ever Listeners:

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

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

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


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

First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment called Skillset Sunday. By the end of this conversation I’m betting that you’re going to have acquired a new skill, or honed an existing skill that you’ve got even better. That skill is the skill of learning about a marketplace that perhaps you didn’t know existed.

With us today, we’re talking to Dave Dunford. He’s the managing director at Zanbato, which is an SEC-registered trading platform. How are you doing, Dave?

Dave Dunford: Hey, Joe. I’m doing very well. How are you doing?

Joe Fairless: I’m doing well as well, and nice to have you on the show. A little bit more about Dave – he helps registered professional investors and sellers come find counterparties and trade institutional-sized blocks of private securities. He’s gonna make it all English here in a little bit. That might sound a little confusing, but basically — well, you know what, I’m not gonna steal his thunder; he’s gonna tell us what he does. Before Zanbato, he was an Olympic swimmer (there’s a fun fact) and he’s based in San Francisco, California.

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

Dave Dunford: Absolutely. And first off, it’s great to be on this show, and I’m very appreciative to have the opportunity to discuss this with your listeners, because I think some of what I’ll say might resonate, even though it’s in a completely different segment of a different market.

Zanbato – I think you said it, we are a trading platform for private company securities, and we do work on the larger end of the spectrum. We’re talking about tens of millions of dollars sized blocks of private companies, that sellers come to us to try and sell, and we have investors on the other side trying to purchase interests in private companies.

I’m happy to go into a bit of a background as to how this market has emerged and why it’s growing, if that would be helpful.

Joe Fairless: Yes, please do.

Dave Dunford: Absolutely. So this is a relatively new phenomenon, having an active trading market in private companies… Because historically, when a company got large enough such that it was eliciting a lot of investor interest, where sellers had large enough blocks where they were really actively looking for liquidity, the company would already be public; that’s really been largely historically a function of public markets here in the U.S. But around about 1997, which is when the number of public companies in the U.S. peaked, things started to turn… And it’s hard to pinpoint one thing in particular, but a lot of it was to do with regulation.

A lot of the regulation that was being imposed on public companies was actually increasing the liability and making it more onerous for executives of public companies, therefore swinging the pendulum a little bit from running a private company and the benefits versus risks there, and being a public company… All the while, a lot of the regulation that was being pushed was leading to the reduction in the amount of money that banks could make trading stocks in public markets. Bankers who would traditionally make a lot of money transacting, because of the advent on computers and the introduction of decimalization of share prices and therefore the inability for bankers to make as much money brokering and trading stocks – which from some perspective that’s a good thing, but from one very important perspective for this conversation, what it did was it reduced the ability for banks to invest in a lot of the services which make public companies more liquid…

So a lot of the sales, a lot of research, a lot of the investment they’d make themselves in public companies, and what that led to was lower liquidity in especially the smaller, less-known public companies, and therefore the benefit of being public started to reduce dramatically, and the downsides of being public started to increase… And therefore it’s led up to this point in private companies wanting to stay private longer and longer, where private markets continue to grow, investors start now moving into private markets, and looking at private markets when they wouldn’t have historically…

So what we’ve seen is private companies staying private longer and longer, and getting larger and larger in private markets, and therefore the need for infrastructure to support transacting private markets where historically it wouldn’t have been necessary.

Joe Fairless: So this is for the — not exclusively, but this really helps the administrative assistant at a private company like Uber or another company like that, who is making maybe 50k/year, but on paper is a multi-millionaire, because they got in the company early on… So he/she has the ability through your platform to sell some of the shares that they own in their private company, in this example Uber, and cash in on some of that, so they can actually realize some of those ownership shares, versus just being on-paper millionaires. Is that accurate?

Dave Dunford: Sure, that’s definitely a part of the market right now. It’s employees that have worked at these companies for a number of years, and early on being underpaid, but have been compensated a lot in equity, and they’ve been there a number of years and are looking to move on in their lives, buy a house, make some sort of other investment, they just don’t have the cash. They have all this equity, so they need a way to get some liquidity, and it just doesn’t look like their company is gonna be public any time soon or be acquired any time soon. So that’s definitely a huge important part of all of this.

Then another interesting part of this is the venture capital firms that invested in these companies. Traditionally, the way the venture capital model is set up is these funds have a ten-year timeframe, which used to work really well. Back about 20 years ago the average time for a company, from its first funding round to IPO, was around five years. When you’re operating with a ten-year fund, that’s a great timeframe; you invest in the early years of the fund, and then in the latter years of the fund you’re harvesting, you’re getting your money back.

Now the average time from a company’s first round of financing to IPO is around the 10-11 year mark, so it doesn’t work so well for the typical venture capital model, where they’ve invested and by the time the fund is expiring, their liquidity is nowhere in sight, so now they’re starting to have to look at other alternatives for getting money back to their end investors, that obviously invested in the hopes of getting a return at some point in the future.

Joe Fairless: Before we started recording I asked you – which I shouldn’t have, because I should always leave the questions for during the recording… So that was a rookie mistake on my part, but we’ll reenact what I’ve asked you before – I had asked you before we started recording if you only work with accredited investors, and you said what?

Dave Dunford: I said — so this market is only really accessible for accredited investors. We’ve actually set our criteria a little bit stricter than that, and we really only work with qualified purchasers; that’s the five million dollar threshold, rather than the one million dollar threshold. And that’s just more a symptom of our focus in this market, it’s more on the larger end of the spectrum. We’re serving a lot of the institutions that require our services, and then obviously wealthy individuals can fall into that category. However, it is a very interesting market, even at the accredited investor level; we’re just not as a company as focused on that.

Joe Fairless: Qualified purchasers – I didn’t know that term existed, and that’s my ignorance for having a background in advertising agencies, and kind of learning real estate through what I’m doing and also the podcast… So I’m just curious, is there another level up, of a group of individuals above qualified purchasers?

Dave Dunford: From a regulatory perspective, it’s not as meaningful, but from a sort of categorization perspective, you get into the high net worth, and then ultra high net worth… And I think there are different definitions of that, but then you’re looking in the vast quantities of money.

Joe Fairless: Got it. I always thought high net worth was accredited, for how it’s defined maybe more officially… What’s high net worth defined as?

Dave Dunford: I don’t have an exact number, but I think you’re looking at tens of millions.

Joe Fairless: Okay. So how do you make money? We’ll start with that.

Dave Dunford: We operate under an exchange model. We have a platform called ZX, and we collect buy and sell orders on private company shares. We operate on an agency basis, so we collect a transaction fee for any successfully completed transaction. A buyer will come in with a price and size in mind, and the same thing on the sell side, and if that transaction is possible, we’ll facilitate it and we’ll facilitate the execution, and then be paid from either side a transaction fee, completing the transaction.

Joe Fairless: You mentioned earlier that if an individual has ownership equity in a private company that doesn’t look like they’ll be sold any time soon, then they might wanna liquidate and sell via this marketplace… So I get that standpoint from their perspective, for why they’re selling, but why would anyone want to buy equity in a company if it doesn’t look like it’s gonna be sold anytime soon?

Dave Dunford: That’s a really interesting question, and a really important question for this market. I can actually use an example to illustrate this coin. Historically, to receive basically appreciation, or achieve the appreciation in a company’s stock, an average wealthy investor could have just waited till the IPO, got in at the IPO, and there was a good probability that you can receive really meaningful, outsized returns in the public markets, and that’s becoming increasingly less likely.

So to really achieve huge outsized returns, a lot of wealthy investors or institutions are really being forced to look at private companies before they’ve got to such a large scale as a private company that by the time they go out and IPO it really is too late to receive the double, triple, quadruple digit returns. So the example that I give here is if you look at a company like Amazon in 1997 when it IPO-ed, it was just over 438 million dollars [unintelligible [00:14:06].27] Looking at it right now, it’s at the 800-900 billion dollar valuation mark. So as an investor who had invested purely in the public markets at the IPO, you’ve received a 2000x return on that investment.

Fast-forward a decade and a half to when Facebook went public, at the time that Facebook was going public, it was already a 100 billion dollar company. So now even if you invested in that IPO, you’ve done fantastically well, but it’s not even in the same ballpark of what it would have been like for a comparable company in sort of the last generation. Facebook, a 100 billion dollar company is now at 600, so you 6x-ed… That’s a great return, but it’s not even comparable.

So if you look at a lot of big private companies now, they’ve already got very healthy valuations. That’s not to say that they won’t continue to grow as public companies, but the scale or the multiples at which they can grow at are a lot more limited.

Joe Fairless: The two target audiences that are most valuable to you – and I’m guessing based on what you’ve told me, but please clarify if this isn’t accurate – is one, qualified purchasers, so people who have five million dollar net worth, and I’m guessing that’s not including primary residence, just like it is accredited… And then also on the flipside, people who have equity ownership in private companies. Are those your two primary audiences?

Dave Dunford: They are, along with the institutions that are participating in this space – the venture funds, the hedge funds, the bigger investors that would have large positions by virtue of investing early, or the ones that are looking to come in at a later stage and purchase some of these shares.

Joe Fairless: So how do you focus your time between those three groups?

Dave Dunford: That’s a great question. It’s more company-specific – particular companies you see a difference with trends and trading activity… But it’s more if you have the ability to participate, if you have actively participated, obviously you’re on one side of the spectrum, and then if you’re just looking to get involved in this space, what I’d say is obviously there’s a lot to learn, securities are risky securities… That’s part of the reason why we’re cautious going down to the accredited investor level – for people participating in this space, investing in private companies, we just wanna be very sure that it’s a suitable thing for that person to do, and in some cases it is, but we obviously like to operate with the utmost caution in that regard.

Joe Fairless: Because it’s higher risk, but higher potential return, right?

Dave Dunford: Exactly. There are risks, obvious ones like an illiquidity risk, but then other less obvious ones. For example, information is less available in private companies and public companies, so often you just don’t know what you don’t know. So there are just risks that people need to be aware of when choosing to invest in these private companies, and obviously it is really important to understand that before taking the plunge.

Joe Fairless: Anything else as it relates to what you do in your company that we haven’t talked about that you think we should?

Dave Dunford: I think we covered a good portion, as long as you think it’s clear the reason why this market exists. The reason why we think it will continue to grow, I can elaborate on. We think it’ll continue to grow because of a lot of the regulatory trends that have caused this market to be where it is right now we don’t see being rolled back. We think it makes sense where the market is right now for private companies to raise a ton of capital in the private markets and stay private as long as possible… And we really think that what we’re doing is important because any mature securities market really does have a lot of infrastructure to standardize processes for transacting on a secondary market… And the private companies securities market doesn’t really have that much in place, and that’s really what we’re trying to achieve – set up some of the infrastructure that exists in other markets to make this market as orderly as possible.

Joe Fairless: What’s the minimum investment.

Dave Dunford: We don’t have a minimum investment.

Joe Fairless: Five dollars?

Dave Dunford: [laughs] One thing that I’ve mentioned is the transfer process for companies varies from company to company, but often there is a processing fee imposed by a company that does make it prohibitive to make small investments, and that’s a company’s way of regulating their market to some degree.

For example, some companies will say “We’ll help you transfer shares, but the transfer fee is $5,000.” Obviously, if you’re investing $10,000 it might be prohibitive. So you’re looking at sort of the hundred thousand dollar plus threshold. For us, really the vast majority of our transactions are in the millions.

Joe Fairless: What would you say the average is, if you had to guess?

Dave Dunford: The average block size is in the four million range.

Joe Fairless: Four million range… And this is with a qualified purchaser who has a five million dollar net worth or above, and this is in a private company that they’re investing in, where you said the information tends to be less available than a public – it makes sense – so what type of questions do they ask prior to plunking down four million bucks into this?

Dave Dunford: Well, the reason why that number is high is  a lot of purchases are being made through–

Joe Fairless: Institutional…

Dave Dunford: It’s institutional, so they do have existing information on the company by virtue of already being a holder, or having invested in a venture fund and having exposure to that company, and therefore having enough information to have an opinion on the company.

And then some of the larger companies do start selectively disclosing some of their metrics publicly, so it’s not the sort of disclosure that’s required in public markets, for example for audited financial statements… But it’s enough to really help people form an opinion.

I think a lot of investors, the reason they come in and invest in some of these companies is to get exposure to certain spaces that they believe in, that it’s impossible if you’re trying to invest in public markets. For example ride sharing right now – there isn’t a public ride sharing company, but if you’re really bullish on this space and you think one company in particular is dominating and will continue to dominate, then you have to really look at how you would invest through a private company.

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

Dave Dunford: Go to our website, Zanbata.com. There should be a Contact Us button, and please do put in the comment section that you heard about us through your podcast.

I would just add to that that even if you’re accredited investor level and you’re curious, we’re more than happy to answer questions. My team can help refer you to resources that would be helpful, beyond this podcast.

Joe Fairless: Yeah, and I know first-hand making the first million is much harder than making the next million… So accredited investors who are listening, I’m sure you would agree that your first million was pretty darn challenging, and if you’re in between one and five, you’re likely gonna be trending towards five… So you’re probably gonna be in the qualified purchaser category if you’re not in there already. I’m sure there’s a lot of qualified purchasers, or almost qualified purchasers who are listening to the podcast, and probably didn’t know they were categorized as a qualified purchaser, like myself; I had no idea that category exists, but that’s just my ignorance, and that’s why I do this podcast, so I can be educated by people like you.

Thank you so much, Dave, for being on the show and talking about this marketplace. It’s not real estate specific, but real estate deals with money and investors, and you are dealing with money and investors, and you’re dealing with a lot of money and people who have five million plus net worth, and it’s important and necessary for us to know what they’re looking at, what other options they have, so that we can then be more educated when we speak to them about what we’re offering.

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

Dave Dunford: I appreciate it. Thanks for having me, Joe.

Joe Fairless and Ashutosh Saxena

JF1462: From Artificial Intelligence To Real Estate & Smart Homes with Ashutosh Saxena

Ashutosh has his background in artificial intelligence, so creating a smart home startup was almost a given when he was looking into real estate. Not only can landlords have more control and know ore about what is going on in their properties, but it can also increase the rent price. Not to mention the tenants will enjoy having those advantages in their homes. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:


Ashutosh Saxena Real Estate Background:

  • Co-Founder and CEO of a high-tech startup Caspar.ai
  • Caspar is the leading AI integrated smart home setup
  • Based in San Francisco, CA
  • Say hi to him at http://caspar.ai/

Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com

Best Ever Listeners:

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

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

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.

See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


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

With us today, Ashutosh Saxena. How are you doing, Ashutosh?

Ashutosh Saxena: Doing great. How are you?

Joe Fairless: I’m doing great, and nice to have you on the show. A little bit more about Ashutosh. He is a co-founder and CEO of a high tech startup called Caspar.ai. Caspar is a leading AI integrated smart home setup. Based in San Francisco, California. With that being said, Ashutosh, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ashutosh Saxena: I came from a computing background where I did my Ph.D. in artificial intelligence, in the area of computer science where you can teach a computer to do things… And I started this home automation company because real estate and smart homes is the next big thing.

We started Caspar a couple of years back, and we partnered with real estate developers [unintelligible [00:03:58].25] intelligent homes, and also get a good return on investment in the multifamily business.

Joe Fairless: Well, I love to hear good returns on investments in the multifamily business… How is it that we can make money as multifamily investors by incorporating this smart home setup?

Ashutosh Saxena: So the basic business in any real estate is cap ex, which is you invest some money into the property – land purchase, amenities, making a gym, carpet, and making choices about light fixtures and so on and so forth, and then long-term return, that keeps on coming on a monthly or yearly basis. If you think of it that way, every decision that you make in a home, like for example whether I should choose this door lock or the other one, whether I should choose this lighting fixture, or such a countertop or a more expensive one, is driven by return on investment.

It turns out that these days some of these IoT devices or smart home functionalities are becoming a key ROI-driven amenity that one should really seriously think about. Just to give an example, smart door locks, and smart thermostats and smart speakers attract the residents towards these homes, reduce the operations costs, and increases the amenity value that you can get, which means that you can get  a higher rent per month from smart properties.

Joe Fairless: Got it. So by having a smart home, your stance is that you can then command a higher rent, because people will pay a premium for a smart home.

Ashutosh Saxena: Correct. Just to give an example, one of our first properties is called Annadel. It’s in Santa Rosa, next to [unintelligible [00:05:51].29] in that area… And that property is on average making approximately $80/month on top of the basic rent because of it being a smart property.

Joe Fairless: Got it. And how did they determine that that was the premium they’re getting for it being a smart property?

Ashutosh Saxena: At Caspar we have features in three categories. One is awareness about the house, which is roughly the feeling of safety, security, what is happening at your door, what is happening at your house, and for starting residents, that’s a huge value-add, because everyone wants to feel safe and secure, and wants to know what is happening in the house. Some people may have pets, and our system, Caspar, allows you to interact with your pets and tells you what they are doing while you are away.

Then there’s a certain value in saving energy, there’s a certain value in convenience, which is you can just talk to the house, and say “Caspar, I am watching a movie”, and the motorized door shades and curtains close up, lights dim down, and if you walk away, then other things happen. The lighting is fully automated… So we determined and did some experiments, and the average value we get out is roughly $80/month/apartment on this property as an additional income from the residents.

Joe Fairless: Okay, so you said there are three things you look at. One is awareness of what is happening at the house… I missed the other two; I was writing them down, but what’s number two and number three?

Ashutosh Saxena: The first one was awareness of what’s happening in the house, number two is convenience category.

Joe Fairless: Okay, got it.

Ashutosh Saxena: Convenience includes being able to talk to the house, lights and climate being controlled automatically, and shades and music playing throughout the house. The third one is energy saving and operations costs saving.

Joe Fairless: Got it, okay. And the energy savings – are you factoring that into the premium, or is it really number one and number two that’s driving the rent premium?

Ashutosh Saxena: Number one and number two is driving the rent premium for the residents, but the third one, which is energy saving, helps in the sales, because the residents see it in this way, that “Oh, by having this system I’m going to save some money anyway, and I’m paying for convenience and awareness features.”

Joe Fairless: Let’s talk features. What features are most popular with residents that you have come across based on your research?

Ashutosh Saxena: I think the biggest fun feature that attracts the new prospective residents to the property and helps in increasing the occupancy rate as a result is voice-controlled roller shades, so voice-controlled curtains. We have a fairly economical system where customers just walk in — without doing any setting, on the first day itself they can say “Caspar, open curtains”, and it feels like magic, the curtains open up. That impact – people get hooked on to it. Over time, the house learns your preferences and you don’t even need to say it. It starts doing things automatically in the living room. That’s one primary feature that drives the engagements, it starts with voice-controlled roller shades.

Joe Fairless: That’s cool. So voice-controlled curtains, and then it eventually learns your preferences, and maybe your schedule…

Ashutosh Saxena: And it starts controlling lighting and climate together with it also.

Joe Fairless: Okay, got it. So these are voice-controlled curtains and lighting and climate… Those are functional things that are taking place. Where does your company fit into this piece of the puzzle? Because some of this I think can be done through Alexa, or — oh, there she goes, she’s talking to me. Right when I said it, my smart speakers pinged something. I should turn her off during interviews. But where does your company live, compared to other voice-controlled things?

Ashutosh Saxena: The voice control thing is a pure command thing, and usually there are 50 to 70 things per day that happen in the house. Lights turn on and off, temperature changes, shades open, close, music plays or it moves around… So voice control, from our metrics and data, is just 8% of things that people do. Only five or six times people talk to the house and say “Open curtains” or “Turn on lighting.” Other times it needs to happen automatically.

Every morning, if you have to say “Open curtains” to a system, it’s annoying. The AI system should automatically learn that this is person number one; he likes to wake up to natural lighting in the morning. But person number two does not like natural lighting; they are better off with music… And it makes those choices automatically.

Joe Fairless: Cool. I love it. What’s the investment?

Ashutosh Saxena: The investment – the deal we are giving to certain developers, and we have some developers already that we work with, like [unintelligible [00:10:55].10] and Waypoint. It roughly costs, depending on the choices made, around $1,200 to $1,500 of incremental cost on the hardware, which includes motorized roller shades throughout the house, intelligent door lock, speakers throughout the house, smart lighting, climate, music throughout the house and voice control throughout the house. All these things just cost $1,500, which is roughly one month of rent on a median property.

Joe Fairless: You have a larger business plan than that, than $1,500 in installation, right? Is there an ongoing subscription or something, that is paid on a regular basis? Or is that just a one and done cost, and that’s it?

Ashutosh Saxena: There was a Wall Street Journal article and there are many studies that — the main business in this space is a service business, because we are not making any profit on hardware. The $1,500 is actually — we are making zero profit. In fact, if you go on the open market and buy these things on retail, like colored bulbs and all the devices I mentioned, it’s going to cost more than $5,000. We are actually having a discounted deal for $1,500.

Joe Fairless: Yup.

Ashutosh Saxena: What we resolve is we stand behind a product for the multifamily owners and make it work, so they don’t have to worry about it. Next time some device gets unpaired, some problem happens, we do all the programming, we take up the customer call, and as a result, our revenue for Caspar comes on a monthly basis for several years after the property has installed with these devices.

Joe Fairless: Okay, so you do the troubleshooting.

Ashutosh Saxena: Troubleshooting, programming, artificial intelligence software and so on, in order to make monthly revenue from the customers/residents.

Joe Fairless: Okay, so is it typical for you to bill the resident directly?

Ashutosh Saxena: We have two products. One is called Caspar Standard, that is included in the rent as an amenity code. A developer usually makes $50 or some amount of dollars as an additional rent because of it. We get a part of it from the developer on an ongoing basis, so it works out for both them and us.

Then we have upsell products to residents directly. Just like you buy internet as a service, but you can upgrade it to HD internet and 4k video, and high-speed things, and so on and so forth, we have these upgrades. For that, we integrate with the billing service providers like Yardi, where the utility bills go. It’s a very seamless process.

For the owner of the property or the manager of the property, they also get additional revenue share from us, so it’s a win/win situation for everyone.

Joe Fairless: Yeah, it sounds like it. It sounds like you’re offering the resident something extra; if they take you up on it – great, you make a little bit every month, as a result of it, that you wouldn’t have otherwise. If they don’t – well, that’s fine too, because you’re not having to put out any costs.

Ashutosh Saxena: Right.

Joe Fairless: What is that cost though for the resident if there is an upsell?

Ashutosh Saxena: Usually, the features are categorized into these different tiers… Especially — for example, they have pets. If they buy, go online and set up the camera and some pet feature, they have to spend hundreds of dollars and do all this… Versus, they just opt in for this pet feature, and now they have a pet that they can video clips of, which they can share on Instagram, and so on. That feature I think is priced around $25/month.

We partner with the real estate owner of the property and manager to do the final pricing, so these are just ballparks.

The residents are happy paying it, because people really love their pets, and they would like to see if they ate, and they have some funny video on the sofa… So there’s an example of a feature that goes as an add-on.

Joe Fairless: I think my wife has something called Piper to watch our dog whenever we’re not here, because — well, it’s a long story… Our dog is like a kid, to my wife especially… It sounds like that it was just a video; what component of what you’ve just described is AI?

Ashutosh Saxena: One problem with standalone systems is that someone still has to buy and set up the camera. The interesting part is our system is throughout the house. Using the standard system, it knows where the pets are. What we found is there are these funny things or important things that our AI worries about. For example, did the pet eat their food? Usually, there is a dispenser of the food, and we have some partners… And that even is then told to the resident, that your pet ate the food.

Then they can have a funny clip trigger… So when the pet is on the sofa, or doing some jumping motions, or doing some weird things, those clips are recorded. The difference is that you don’t have to watch your pet all the time. You may be busy doing something else, somewhere else, but you are getting these intelligent video clips and funny noises that the pets make, or informative things. So that’s the value-add for just the video camera.

Joe Fairless: Got it, okay. It makes sense. When I asked you the price for the residents, if they were upsold, you mentioned the pets, intelligent video clips, $20-$25/month… Are there any other things like that?

Ashutosh Saxena: Yeah, so then there is this package about basically — the packages are maybe kind of priced differently. For example, there’s a music integration which comes with our premium package, together with many other things. Usually, you can always have a speaker and try to connect it with Bluetooth or buy an Alexa. That works, and that’s something that we do anyway. The nice thing is that — imagine buying a car and adding a speaker yourself to it; the acoustics are not that great, right? But if you buy a car which has a nice Bose, or some expensive speaker system, it sounds really nice, because the car is designed with the speaker.

So because the house comes with the speaker, all you need to do is say “Caspar, play music”, and Caspar automatically learns that “Oh, this person is now having breakfast, and the last time he listened to this kind of music” versus “He is relaxing on the sofa and he likes a different kind of playlist.” So there is this playlist preference that is set up.

Another example is Follow Me Music. So the person gets up, goes around from the living room to the bathroom, and the music follows him without waking up the person sleeping in the bedroom. This is another common feature that people love, and it’s priced in single-digit dollars per month, this kind of functionality.

Let me take another feature for example…

Joe Fairless: What did you say in dollars per month? I missed that…

Ashutosh Saxena: Single-digit dollars.

Joe Fairless: Single-digits… Really?

Ashutosh Saxena: Yeah.

Joe Fairless: Like five bucks?

Ashutosh Saxena: Something like that. I think it’s between $5 to $10, or something.

Joe Fairless: Okay.

Ashutosh Saxena: Because it is bundled with other features.

Joe Fairless: Right. Okay, got it. It’s an add-on to another package that they’d have to have.

Ashutosh Saxena: Yeah, so there’s this whole convenience or premium package that comes with music, and it includes speakers throughout the house, and voice control and so on, so it’s bundled with that group. Other things in the group are basically these smart alerts. You can say things like, “Oh, remind me about something”, and it remembers that you were in the kitchen setting up this alarm. But if you go and fall asleep in the bedroom while your turkey is cooking and now it’s two hours, it will wake you up properly, even if you are away from the stove. So in that sense it’s a safety system, but also an intelligent system that knows that you walked away from this place and you still should be reminded, because something is cooking in the kitchen area.

Those are like alarms and reminders package, but it’s a much expanded version of the typical alarm that you would set on your phone or on your stove.

Joe Fairless: And the resident, if they are going to do the upsell, where they’re being billed directly by you, do they need to have their $1,500 installment package in place in order to have the services, or do you add on to other stuff?

Ashutosh Saxena: No, the resident actually — the first month is free, they don’t pay anything. Then they’re only paying on a monthly basis. There’s no upfront charge. So it’s pay as you go for residents.

Joe Fairless: Got it. So a resident who loves her pet and wants to see their pet jumping on the couch in funny ways could pay $20/month, have the first month free, and then pay $20/month after that, and they would have all the equipment installed, and then they could cancel the month after that and there’d be no obligation?

Ashutosh Saxena: Correct, there’s no obligation. You obviously get a discount if you sign up for a year, but otherwise there is no obligation on a monthly payment plan.

Joe Fairless: Wow. How is that a sustainable model for you, to have all that stuff installed?

Ashutosh Saxena: Let’s talk about economics and investment. This is an interesting discussion. Let us say that the total investment on the property to do all these things – motorized roller shades, full voice control, full music, door lock, and so on and so forth, colored lighting, scenes, music, camera, microphone, speaker, thermostat and so on, it’s  $1,500. Now, imagine maximum we are able to get $80/month, which is our average. So money actually comes back, in basically one and a half years, right? Because $80 of monthly fee, in one and a half years you get your money back. But the property investment that one needs to think about in multifamily is not 1,5 years or the first year. One should think about 10 years. A property lasts for 40 years, actually, and this $1,500 is including some serious level of infrastructure upgrade at a very cheap price. After that, it’s all profit, so that’s how it works. After 1,5 years it is profit. So this $1,500 can be looked upon as an amortized investment, just like for example you put a carpet in the property…

Joe Fairless: I get that. I understand from the apartment owner’s standpoint. I was asking about your company, where you go in and install all this stuff into an apartment owner who wants to pay you $20/month, after you install all this stuff, then they say “No, thank you. I don’t wanna do this anymore”, and now you’ve installed all this stuff and you’ve gotten $20.

Ashutosh Saxena: When we work with a property we don’t go into an individual apartment and install one apartment. We either do the whole property or we don’t take up the deal usually.

Joe Fairless: There we go. That’s what I was wondering. Okay. That makes more sense.

Ashutosh Saxena: And then we have an assumption that x% of residents will sign up for the basic version, and delta percent will sign up for the medium one, and some people will sign up for the premium one.

Joe Fairless: Okay, cool. So when you work with an owner, you say “You’ve got 100 units. We’re gonna install at $1,500 a pop this package in the hardware in all 100 units, and then you’re gonna offer it up to your residents, and depending on what they end up selecting – nothing, medium, low, or high package, and the profit share is X”, then that’s gonna be how much you can expect to receive on a monthly basis.

Ashutosh Saxena: Right, and the net operating income that we target for the owners is between 25% to 33% on their initial investment, per year, amortized.

Joe Fairless: Oh, cool. So it pays itself back in three years, and then after that it’s got a lot better returns.

Ashutosh Saxena: Right. Or currently you put in $100 and then you are making $25 to $33 every year on it, which is like a cash cow.

Joe Fairless: Cool. On average, how much is the small, the medium and the large package cost to the consumer?

Ashutosh Saxena: Obviously, every property makes certain differences, but let’s talk about a median package… So this is the add-on packages, right? The standard package is already included as an amenity code, which is basic functionality.

So typically, the premium package is another $40/month, which includes all these convenience things and all that that I’ve mentioned – the music, light automation, curtain automation, and so on and so forth… Which is roughly the price of a dinner for a couple per month. Now, some places it’s $30, some places it’s $50; it varies on geography.

Joe Fairless: Got it. So on average about $40 as an add-on to the basic package, because you have to have the basic package, since it was installed in your apartment, because if you’re there, if your company is there, then all of the apartments in that community  have that package, right?

Ashutosh Saxena: Yeah, and the base package is free for residents. Basically, it is included in the rent.

Joe Fairless: Cool. Well, yeah, but…

Ashutosh Saxena: It’s not free…

Joe Fairless: Yeah, it’s not free. So the owner is paying for it, if he/she is not passing it along to the residents.

Ashutosh Saxena: Right. But from the owner’s point of view, actually, the amount they are paying us from that included package is already saving them money… So it turns out that just to deal with door locks, and they’re already thinking about smart thermostats, and certain operation cost savings – it sort of pays for itself from the included part of the package.

Joe Fairless: Yeah, if they were going to put speakers, lighting, climate and music in…

Ashutosh Saxena: What happens is on average – I looked at the spreadsheets for several properties across the country, and it’s like about $3 to $4/month/apartment is wasted, because some contractor goes into a vacant apartment and leaves the thermostat on and forgets about it, and the bill comes to the property, from PGND.

Joe Fairless: Right, right.

Ashutosh Saxena: And if even a window is open — if a resident is dealing with it, he probably remember and closes the window; now, either you educate the leasing office people, which is costly, or you pay the PGND bill. Our system is smart enough to put an alert or even turn off the thermostat if the property is vacant.

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

Ashutosh Saxena: I think multifamily is a very important area – that is general; I’m not an expert in that area… But this smart home stuff has this network effect. If you are planning to upgrade a property and you’re thinking about putting in one Nest (which is a smart thermostat) and a door lock, you’re already spending $500. It saves some money. So think about ROI, not about upfront capital costs when you are thinking about smart apartment updates.

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

Ashutosh Saxena: Yup.

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

Break: [00:26:25].25] to [00:27:10].10]

Joe Fairless: Best ever challenge you’ve had to overcome when creating this company?

Ashutosh Saxena: I think there’s a lot of variation in the smart home devices – switches, bulbs, and they don’t work together very well… So from a software angle, we have to write this AI software to make it all work as a system, so the end resident who is not a tech-savvy person can still use it.

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

Ashutosh Saxena: I think energy saving, and one thing we are doing is we are building property for seniors, to make them live longer in the property… So that’s what I think is sort of giving back to the community.

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

Ashutosh Saxena: We have a website. Join our Facebook and Instagram channels. We are coming out of [unintelligible [00:27:52].14] More things will be upcoming.

Joe Fairless: And your website is caspar.ai. Is that correct?

Ashutosh Saxena: Correct.

Joe Fairless: Thank you so much for educating me on what you are doing, and also educating me more on the possibilities for incremental revenue by incorporating smart apartments and homes, and how that can benefit the resident, and then also the owner, and make it a more convenient living experience, among other things… So thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Ashutosh Saxena: Thank you very much.

Joe Fairless and Chris Stafford

JF1435: How To Pick Markets To Remotely Invest In with Chris Stafford

Chris has been in real estate for over two decades, both as an investor and as a real estate broker. He’ll take his earnings as a top broker in San Francisco, and invest in other markets as a real estate investor. All of his efforts are to achieve freedom for himself and being able to help others get that same financial freedom. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Chris Stafford Real Estate Background:

  • Listing agent for 25 years
  • One of the top producing real estate brokers in the San Francisco Bay area
  • Works with motivated listing agents, helping them 10x their income while enjoying life
  • Say hi to him at: https://epiclistingagent.com/
  • Based in San Francisco, CA
  • Best Ever Book: The Go Giver

Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com

Best Ever Listeners:

We have launched bestevercauses.com  

We profile 1 nonprofit or cause every month that is near and dear to our heart. To help get the word out, submit a cause, or donate, visit bestevercauses.com.


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

Chris Stafford: Great! Thanks so much for having me, Joe.

Joe Fairless: My pleasure, and nice to have you on the show. A little bit about Chris – he has been a listing agent for 25 years. He’s one of the top-producing real estate brokers in San Francisco; he’s also an investor, and you can learn more about him at his company’s website, which is in the show notes.

Prior to us recording, he said “I hope you don’t mind if I’m a little goofy on this show…”, and I was like “Oh, be as goofy as you want, baby!” With that being said, Chris, take it away… Do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Chris Stafford: Sure, absolutely. And you forgot to mention that I’m generally a nice guy.

Joe Fairless: [laughs]

Chris Stafford: Yeah, actually I was born and raised in Detroit; I am by training a CPA. I used to work for Price Waterhouse Coopers for 11 years, so I have a really strong financial background. I decided that I hated my life and I hated being a CPA, and I went into real estate, which was really one of my biggest passions.

I have been selling real estate in San Francisco for, like you mentioned, over 25 years, and I absolutely love it. I also started a coaching program where I coach investors and also real estate brokers. It’s called EpicListingAgent.com.

I love giving back, and that’s why I particularly love what you’re doing with this show, and what you’re doing to educate and give back to real estate investors.

Joe Fairless: So what type of deals are you focused on?

Chris Stafford: Two different types of deals really. One is for me personally — first I’ll tell you in my real estate business I’m focused on residential investors. In San Francisco we have a lot of buildings that are two, three, four, five, six-unit buildings; obviously, we can get up into apartment houses that have 50-60 apartments… But the smaller apartment buildings in San Francisco – there are quite a few of them, so I help investor purchase those properties.

It’s a pretty crazy market here in San Francisco, with the rent control that we have here, and sort of financing restrictions…

So I love doing that, and from a real estate investing standpoint, for my own personal portfolio, I tend to go with brand new single-family homes, and I do that in different marketplaces that I think have a really good, strong up-sell potential.

Joe Fairless: What are a couple deals that you’ve done, just to give us some context for what you’re working on?

Chris Stafford: I’ve purchased two homes in Oklahoma City, which I still think is a super-strong market. Brand new single-family homes, the typical track home, 3-bedroom, 4-bedroom home, fully outfitted… Those are the kinds of properties that compared to San Francisco prices are very reasonable for me. Those are properties that you can get for under $200,000 each, and the rents are very strong, very strong local economy, so they cash-flow quite nicely.

Another example is Baton Rouge, Louisiana. Another strong local economy that has brand new single-family homes, in the same sort of demographic, same kind of type – 3 or 4-bedroom homes that cash-flow really nicely.

Joe Fairless: When you say “cash-flow really nicely” – let’s go to the Oklahoma City brand new 3-bedroom 2-bath properties that you’re buying… What are the numbers on those?

Chris Stafford: I think that you’re probably looking at something around $150,000 for brand new homes, and I’m getting about $1,300/month rent for each property. I have to run the numbers, Joe, but I think the last time I checked, after taxes and insurance, property manager and all that, on a yearly basis I think I’m averaging about 6%-7% return, which I’m totally happy with.

Joe Fairless: You’re in a couple different markets… You mentioned Oklahoma City, you live in San Francisco, you mentioned some other cities… How do you get comfortable with a particular market?

Chris Stafford: There’s nothing better than boots on the ground, so what I’ll do is I do a lot of research in advance on mostly what the local economy is, what the local real estate market is, and then I have a pretty wide network of realtors across the country that I can just talk to about their markets and they help me a lot. But before I pull the trigger or make any decisions, I’ll actually go to a city and spend a couple days there and just sort of check everything out.

Joe Fairless: And when you’re at the city, what are you looking for?

Chris Stafford: Well, primarily what I’m looking for is a realtor that I feel very comfortable with, which obviously being in real estate, as a real estate broker for over 25 years, I can pretty much vet them very easily… But I’m also looking for support people, and this is the biggest concern that I have – I have the support people that can help me not only make the decision, but also help me maintain the property.

Obviously, having a good realtor, having a good insurance agent, having a good property manager, and meeting these people personally… Obviously, you can’t do anything by yourself; you really have to have a group of people to help and support your decision, and that’s the number one goal that I’m trying to do when I get there.

Joe Fairless: What type of questions do you ask to qualify those team members?

Chris Stafford: Well, I ask them questions about their experience, and I ask them all questions about what they think the local economy is like, and do they have any concerns about that, and then most importantly, I also ask them for referrals… Helping me vet that is talking to other clients of theirs, and sort of see what their other clients are saying.

Joe Fairless: When you are looking at different markets… You’ve got Oklahoma City; what are some other markets that you’re in?

Chris Stafford: Baton Rouge, Louisiana…

Joe Fairless: How did you end up there?

Chris Stafford: You know, it’s funny that you ask me that, because — and a lot of this is obviously word of mouth… I really like New Orleans a lot, and I understood that there are some areas of New Orleans that were really hot, really great to invest in, but I was really freaked out about it being so close to the water, so consequently, I wasn’t really willing to invest in New Orleans.

But the realtor that I had in Oklahoma City told me about Baton Rouge, which is about an hour outside of New Orleans; about an hour North, I believe. Obviously, it’s away from the Gulf of Mexico, and he introduced me to a realtor there.

Again, some really great business is there. I think there’s a couple headquarters there. And then I was looking at the Chamber of Commerce websites, and every major city in the country has some really good stats, some really good information that everybody should check out, and that’s part of my research as well.

I was just talking to the realtor there, doing some research with the Chamber of Commerce, and he convinced me that there were some great deals there, and I flew down and checked them out.

Joe Fairless: You’ve been in real estate for more than a couple decades, and you are not only a listing agent, but as we’ve talked about, you’re also an investor… My question is why focus on 6%-7% return when you could do more, say, value-add deals, that aren’t’ as turnkey, that would get a higher return?

Chris Stafford: Well, I think that’s a really good question, Joe. One of the reasons I think that I sort of shy away from that is because I’m absolutely a numbnuts when it comes to repairs and fixing up properties… I just don’t have that gene, and I don’t think I’m that smart to actually add value to a property; I like things that are new, that I think that I don’t have to worry about for a very long time… And I’ve had some really bad experiences with clients of mine that have purchased fixer-uppers, but I’ve also had some bad experiences myself too with contractors that have taken advantage of me.

I’m a very busy guy, and it’s just not in my wheelhouse to fix up properties. I’d just much prefer to just buy brand new properties that I know have a warranty and are gonna last for a while.

Joe Fairless: So your high-level plan, if I’m listening to this correctly, is you’re a top-producing real estate broker in San Francisco, so you make chunks of cash from listing and working in San Francisco, and then you invest that in real estate that cash-flows in other markets, and then you just continue to feed that cycle.

Chris Stafford: That is correct. And then there is one small part of the equation that is near and dear to my heart, and that is hopefully the whole concept of appreciation – that’s also going to factor in as well. So not only am I cash-flowing these properties, but I’m usually into at least a 10-year hold on these properties…

And generally speaking, if you invest in a pretty nice area, a pretty strong local economy, with a 10-year hold you can usually figure in some pretty decent capital appreciation. And assuming any major tornados, earthquakes or political stuff isn’t gonna kill this country, usually you can count on that… So that’s a big factor in my equation.

Joe Fairless: And do you access that equity and reinvest it?

Chris Stafford: Generally, no.

Joe Fairless: How come?

Chris Stafford: Because I take it out and blow it in Las Vegas. [laughter] No, for me that’s part of my savings plan, is to leave that money intact in the property. Fortunately or unfortunately, I also have some investors that if I did wanna tap into and buy other properties, I could hit up my other investors, so… For me, it’s a big savings piggy bank.

Joe Fairless: What’s your primary focus as a real estate professional right now?

Chris Stafford: As it relates to…

Joe Fairless: Investing or being a listing agent – what’s your primary focus as a real estate professional?

Chris Stafford: My primary focus is freedom. That is my primary focus. I hate to be so esoteric about this, but what I wanna do is use the money that I make in real estate, not only from real estate sales, but also real estate investing, to give me the financial freedom and the time freedom, both of which are tremendously important to me, to help others.

Joe, for me this is something that I love talking about – I love becoming so emotionally and physically and financially strong that I can use all these investments and all these sales to help others. And I do that through a coaching program I have, helping other real estate agents become the best that they possibly can.

Also, I am in the process of starting a youth charity for disadvantaged youth. That is for me the greatest thing that you can do. Actually, Joe, I’ve written a book about this; it’s called Massive Abundance: How to Create Passion, Purpose and Prosperity in Your Life, and for any of your show-goers that are listening to this and they want a free copy of the book, they can just hit me up on my website.

This book basically talks about really my passion for setting goals, making yourself super strong in all areas of life, so that you can ultimately, like a big circle, give back. I think giving back is to me, at my age – I’m 59 years old, and I’ve been very successful and I’m so blessed and so grateful to be so… To me, there is nothing better than helping others. And I help a real estate agent become a better real estate agent, or I’m helping a child – which I do nonprofit work here in San Francisco for youth organizations… That is a high that I can live off for days.

Joe Fairless: In terms of the coaching program, what’s the outcome that you’re hired to accomplish with your real estate agent client?

Chris Stafford: When I’m talking to real estate agents, my whole thing is to get them to 10x their listings. Real estate agents really want listings. Most successful real estate agents wanna be listing agents; working with buyers is sort of a hassle, and as a listing agent you’re always part of the deal, and you can take more business on, and it’s not as labor-intensive.

So on the face of it, Joe, what I’m doing is helping listing agents really increase their listing inventory, so that’s really what it’s all about. But for me, and this is also on my website, I think that’s only possible — and I love saying this… Tony Robbins always said “Success is really 80% mindset and 20% strategy.” So I don’t think that you can teach listing agents or any entrepreneurs, any businessperson to be a better person without addressing that… So what I love to do is I also love to talk about brain-hacks – things that you can do to make yourself stronger, so that you can be a better listing agent.

I have a coaching program that’s really all about the combination of brain-hacks and hardcore sales skills, and I want them to be super-successful, but ultimately – and I always talk about this – I want them to be super-successful so that they can feed their dream, whatever that dream is. I firmly believe that people don’t go into real estate to sell real estate, just for the benefit of selling real estate. The real reason people get into anything, and the only reason people really wanna make themselves stronger in any area, especially financially, is hopefully they have some kind of dream that they wanna feed… And whether that’s taking security of your family, sending your kids to school, feeding orphans in Central America – whatever it is that you’re hopeful that it’s gonna give you the freedom (which is why I keep coming back to that work) to pursue your dream.

Joe Fairless: What are some of those brain-hacks?

Chris Stafford: Some of the brain-hacks – well, it’s interesting… One of the things that I love talking about is making sure that you start your day right. I’m just really into making sure that everybody – all listing agents, and everybody… I’ll give you an example of what I do – I get up in the morning and I meditate for 20 minutes. I go swimming; I’m usually in the pool by [5:15] in the morning, and then when I’m done eating healthy, journaling, reviewing my goals… These are the kinds of things that I think super-charge your day.

When you start out healthy and you start out mentally super-charged – when I do that, I can absolutely feel like I can accomplish anything that day.

There’s another little thing that I love doing, which I call Kaizen… It’s something that if I’m fearful about doing something – and I’ve helped many agents employ this technique… You take baby steps. The old adage, a road of 1,000 miles starts with the first step.

People still freak out about “Okay, I need to cold-call, I need to go knock on doors, or I need to go do public speaking” or whatever it is… But if you take it step by step and you take it very slowly, you can circumvent the amygdala in the back of your brain that freaks you out. Each day if you work towards doing something to get over that fear, you become more and more confident and you wanna do more and more of it. So that’s just another one, too.

Joe Fairless: Is Kaizen an acronym?

Chris Stafford: No, it’s actually an Asian philosophy that started a while ago. Basically, I’ve just summed it up; I don’t know where the word comes from, but it’s Kaizen…

Joe Fairless: I almost spelled it right in my notes.

Chris Stafford: I think you can spell with s, too.

Joe Fairless: Okay, well I got even closer then, if you gave me the s part.

Chris Stafford: There you go.

Joe Fairless: It makes sense. So what’s something that you initially were fearful about doing, but then you implemented that approach and you took those baby steps and you got that momentum, and lo and behold, you got there?

Chris Stafford: Oh my god, so many things that I’ve done in my life… Because I scare the bejesus out of myself, pushing myself to do so many things.

An example is investing in other cities. 15-20 years ago somebody said “You should really check out Phoenix”, for instance, and I was like “I’m in San Francisco. I know jack about Phoenix. Why would I go to Phoenix and invest?” So you can imagine, anybody that wants to invest in real estate, 2,000 miles away from you – that’s gonna be really fearful.

And yet again, little by little, taking baby steps, doing the research, talking to people… I think your listeners could see that if you took small little steps towards that, knowledge is power, and that gives you more confidence, and the next thing you know, you’re on a flight there, buying a property.

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

Chris Stafford: Surround yourself with great people. There’s no question. I talk about this on public speaking tours – no matter what it is in life, you do not operate on an island by yourself. If you wanna become successful in real estate, if you wanna be a successful clerk at 7-Eleven, if you wanna be investing all over the world, you have to have a team in place, locally, and obviously in the place that you’re looking at… But you have to have a team in place. For me, when I’m investing in other cities, that typically means what I mentioned earlier – having a good insurance agent, having a good property manager, having a great realtor, having a great mortgage broker, a finance guy…

These are people that you need to trust, they need to be smarter than you… Because I don’t know anything. I just rely on the expert opinions of all the people that I surround myself with, and I think that’s gotta be the best advice to give anybody, to make sure that you’re surrounding yourself with the best people that are out there.

Joe Fairless: What’s one way you qualify some of the great people that you surround yourself with?

Chris Stafford: Well, I hate to sound all woo-hoo on you and all airy-fairy, but one thing is my gut. After I talk to people, after I research them, after I talk to their testimonials (I listen to testimonials that people give, or I call people that they refer me to, past clients of their), really it boils down to my gut. Most of the time, I feel pretty grateful that once I have all the facts and all the information that I think I need, it really sort of comes down to “In my gut, do I feel that this is the right person for me to add to my team in this particular city (for instance)?”

I think that the times that I made mistakes, Joe, is when I did not follow my gut in the end.

Joe Fairless: What’s one of those mistakes that you’re thinking of?

Chris Stafford: Lord knows I’ve made a few… For instance, there was one particular situation where I bought a property – I’m not even gonna tell you where it was – where the insurance agent… I missed the boat; I completely missed the mark on evaluating whether this insurance agent was any good or not… And I ended up getting the wrong insurance, and that property flooded. The property was in — to my knowledge, it was not in a floodplain, so I never thought about flood insurance. I mean, who thinks about flood insurance when they buy a house?

Lo and behold, this property flooded out, it was destroyed and damaged, and I did not have any insurance coverage on it… So I lost quite a bit of money on that property.

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

Chris Stafford: Sure.

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

Break: [00:19:59].07] to [00:20:59].16]

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

Chris Stafford: Best book is called the Go-Giver. You’ve heard the term go-getter; Go-Giver is a great story about the power of giving back. In a nutshell, this book just says that if you come from a place of giving to people, you can become wealthy beyond your dreams. I highly recommend it.

Joe Fairless: I highly recommend it as well. We’ve had multiple guests recommend that book, and I interviewed Bob Burg on this podcast way, way, long ago… He’s the co-author of the Go-Giver. So if you just search “Joe Fairless Bob Burg”, that episode will come up. I’ve actually interviewed him a couple times, because he’s got a couple follow-up books on that, too. Great book, I highly recommend it.

Best ever deal you’ve done that we have not discussed?

Chris Stafford: Best ever deal… I bought a 3-unit building in San Francisco for $1.25 million and sold it for $3 million.

Joe Fairless: That’s a pretty good return.

Chris Stafford: And actually, I guess I should tell you [00:21:56].20] probably like six years. It was like a six-year hold.

Joe Fairless: So you bought it for how much?

Chris Stafford: $1.25 million.

Joe Fairless: And you put in how much?

Chris Stafford: Very little. It was already done.

Joe Fairless: It was already done… So appreciation was your best friend.

Chris Stafford: I’m not that smart to fix up buildings, so… [laughs]

Joe Fairless: And where was that located?

Chris Stafford: In San Francisco.

Joe Fairless: And you mentioned if you took out equity from your properties, you’d just blow it all on Vegas, and you’re kidding; you’d blow some of it, but you’re kidding for the most part… Why not be focused on doing what you’ve just described, the one million to three million, six years, just doing that in your backyard, versus diversifying all across the country?

Chris Stafford: Because it’s much more difficult to do that in San Francisco. The prices in San Francisco really don’t allow one to do that. It’s hard to find really good properties here in San Francisco, that are sort of a little bit undervalued. Our market is just crazy here in this city. We’re selling properties anywhere from $1,500 to $3,000, some properties $4,000 a square foot. At that price point it’s much more difficult.

Joe Fairless: Best ever way you like to give back? You’ve talked about it already, but I would love to hear another example. I know you really like this topic.

Chris Stafford: Obviously, I love giving back to real estate agents. I love talking to real estate agents and helping them 10x their listings; I also love youth. One of the things I do is use the book that I have as a basis. I actually go into homeless youth shelters and talk to them about how they can start their own businesses… And I’ll tell you, when I give those talks, for instance at the Larkin Street Youth organization here in San Francisco, I am on a high for a week. It is the most gratifying thing that I do.

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

Chris Stafford: You can hit me up at EpicListingAgent.com.

Joe Fairless: The psychology of a successful investor and a top-producing real estate broker is what we’ve talked about today, from the Kaizen approach that you mentioned, when you’re fearful about doing something, to some case studies, and your overall business model when you think of investing, where you make chunks of cash in San Francisco, and then invest it in more cash-flowing markets across the country.

Thank you so much for being on the show. I really enjoyed our conversation, I enjoyed talking to your give-back approach, which clearly you’re passionate about, and has done well for others and then also it does well for you too, both in your soul, but also I imagine in your pocketbook, whether you look at it that way or not, which it sounds like you don’t… But it certainly is helpful for everyone.

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

Chris Stafford: Thank you.

Joe Fairless and Gary Boomershine

JF1429: The Only Way To Scale Is To Implement Rock-Solid Systems & Procedures with Gary Boomershine

Gary was forced into real estate at a young age, his family had a business and he got his real estate license while in college. He decided to quit real estate at that time and go full time with technology. Years later, Gary wanted back in the real estate field, and built up to where he is today with REIvault. Hear how his business helps many investors find deals and how he scaled his business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Gary Boomershine Real Estate Background:

  • Fortune 500 consultant and Founder of REIvault
  • Founded REIvault when he realized that the only way he could scale his business was to implement rock-solid systems and procedures
  • REIvault now serves as a virtual sales and marketing department for real estate investors and agents around the country
  • Say hi to him at https://reivault.com/
  • Based in San Francisco, CA
  • Best Ever Book: Good to Great

Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com

Best Ever Listeners:

We have launched bestevercauses.com  

We profile 1 nonprofit or cause every month that is near and dear to our heart. To help get the word out, submit a cause, or donate, visit bestevercauses.com.


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

With us today, Gary Boomershine. How are you doing, Gary?

Gary Boomershine: I am doing great, Joe. Pleasure, I know we’ve been working for a while to get this set up, and I’m super-excited to be on here with your listeners and add a ton of value.

Joe Fairless: Yeah, looking forward to it as well. A little bit about Gary – he is a Fortune 500 consultant and founder of REIvault. He founded REIvault when he realized the only way he could scale his business was to implement rock-solid systems and procedures.

He’s been investing in real estate since 2004. He has bought and sold more than 300 properties since then. He is based in San Francisco, California. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Gary Boomershine: Yeah, I’m super-excited to do that. So I grew up in a real estate family; in fact, all of us were sort of forced into real estate. I had a license — I’m 49 years old now; I was forced literally two weeks after turning 18, I had a California license real estate certificate. I was commuting back and forth from college, holding open houses, and we were buying rental properties.

I absolutely hated it. I hated being an agent at that particular time, more because — if you’ve ever been in a family business, it was like we were all forced into it… So I ended up going  to UC Davis, I got a computer engineering degree, and I went down the technology path.

It was awesome; I worked hundred-hour weeks and traveled, never saw the light of day, and it was actually 2004 my wife and I, with two small kids, took the massive plunge. I actually look back – I know a lot of your listeners probably know this, but… We had two incomes, we left the dual income, a big mortgage (we had a mortgage on our house), literally went solo full-time in real estate, and… Yeah, 2004, I never looked back.

We closed our first house in Bakersfield, California, in 2004. We made 181K, and that really set us off.

Today, I bought and sold, as you mentioned, hundreds of houses. I do a lot of wholesaling today, I do a lot of lending, a lot of private lending, I lend to other real estate investors, and one of the things I found, Joe – my background was really on technology, and in this market, a couple years ago it was different. It was really easy to find deals in 2009-2010. It was bank-owned REOs, foreclosure auctions and HUD properties.

Today it’s all off-market, which means you’ve gotta go direct to the seller. I came up with a way to do that, and I got together with other smart investors, a bunch of my friends, and we said “Hey, instead of us all having to figure out direct mail and build our own phone team and talking to sellers and scheduling appointments, what if we had one shared team?”

So a couple years ago I built a company called REIvault, we’ve done over 25 million pieces of direct mail, we’ve got about 250 investors and real estate agents around the country using our shared service, called REIvault. It’s pretty cool, it keeps us busy, and a lot of fun.

Joe Fairless: So you send out the direct mail on behalf of your client to pay for that mail to be sent? I imagine there’s more involvement in that.

Gary Boomershine: Yeah, if it’s agents that are typically also looking for buying properties – maybe they’re flipping properties, either wholesaling, fix and flip, maybe they’re buying rental properties… If they’re going direct to the seller, the ways to do that would be either work with other wholesalers who are finding the deals, or we’re doing direct mail and/or Facebook ads, pay-per-click, bandit signs etc.

So I said, “Hey, instead of everybody having to figure that out, aren’t we real estate investors? Why don’t we have one team of experts that manage it for us, instead of having to hire a bunch of people?” I have a staff of over 50 people, and people plug in as a member of our service, and it’s like tapping into a staff of over 50 people for the cost of one.

So we charge the equivalent of one VA, plus whatever their marketing budget is, and we’ll do all the direct mail. Actually, we’ve got a husband and wife – they’re doing $18,000/month in marketing, and then we’ve got other people that are doing $1,500, $2,000/month. So it’s “Hey, what’s your market? What’s the zip codes of the market, and what type of product are you looking for, and then what your budget is?” Then our team will actually give the best practice and then manage the whole thing.

So what we’re really good at is making the marketing happen, and doing the marketing. Number two, all the follow-up systems, because that’s key in this market – as leads come in, being able to automatically follow-up via text and voice broadcast.

And then lastly, I’ve got a trained, expert phone team. So as the leads come in, we actually even offer the phone team that is working actually forever to talk to the sellers, pre-screen them, qualify them, and schedule the appointment. So as a real estate investor, we just wanna get in front of sellers that are ready to go, right? I’ve got a team that makes that happen.

Joe Fairless: And at what point is the lead turned over to a customer of yours?

Gary Boomershine: From the very beginning. They see exactly what’s happening, because we provide a system, so they’ll see everything that happens, but ultimately, a lot of our members really just want the appointment. It’s like, “Put me in front of somebody”, and they’ve been screened… I know that they’ve got a 3-bedroom, 2-bath house, it’s in this condition, this is the price they’re looking for… We call them sales ninjas, because a lot of people in this market — you know this, Joe; you do this every single day, right? At the end of the day you’ve gotta have somebody on the phone that’s really good. A lot of people, they’ll get their marketing working, but then they’ll hire a Phillipino VA for $4/hour, and then wonder why they’re not making any money. It’s really important to have an expert. They’re called “Inside sales agents.”

We have a full staff of people that are managed on performance, and really good on the phone. They’re scripted, they sound awesome, and we all tap into them at the cost of a fraction of what it would cost to hire somebody ourselves, because we’re able to share this group.

Joe Fairless: If they’re scripted but they’re managed on performance, that takes away the human element, for better or worse… Or am I missing something?

Gary Boomershine: Well, as leads come in, it’s the right words at the right time. So we provide the right words at the right time; there’s still the human element. We’re training these people to be really good — so it’s the three things: you’ve gotta be sharp as a tech, knowledgeable as all heck, and really, really friendly. That’s how we hire and train… But then they are on a script, so as a seller comes in – let’s say  a seller calls off a postcard; about half of the calls (40%-50%) that come off of the marketing are hang-ups. The sellers get nervous, they don’t know who you are, so ideally, you wanna get back to those sellers within 15 minutes. By the way, this is a huge nugget, because there’s a ton of money off of these hang-ups.

So our team knows the exact words, which is “Hey, we just missed a call from you. Were you calling about a property that you were thinking of selling, or a note that you received in the mail?” to start the dialogue.

Joe Fairless: Because the answer is yes, so it gets them saying yes.

Gary Boomershine: Yeah, the answer is yes. So we take them through the process, we say “Hey, do you have a couple of minutes? I could ask you a few questions, and then I’ll pass this over to a buying specialist who will be able to make an offer and provide more information to you.” So the right words, but again, it doesn’t sound like it’s scripted… But you know, in sales it should be scripted, even as you’re building a relationship.

So with 250 members, we’ve got a lot of seven-figure real estate investors, so we’ve come together and said “Hey, what are the right words?” and collaborated on that, and then I just built the team… So it’s taken all the mystery out of it.

Joe Fairless: It surprises me, 40%-50% are hang-ups. I didn’t realize that. So they’re seeing a piece of marketing or they’re receiving a text, or something, and then they call, but then once they hear a human being on the other end of the phone, then they just hang up?

Gary Boomershine: Yeah, believe it or not… And it depends on the type of marketing. So it depends whether it’s a letter, whether it’s a postcard, a package etc. It’ll range anywhere from about 20% to 50%.

Joe Fairless: What’s 20% versus 50%? What piece of marketing?

Gary Boomershine: If you’re sending a message specifically about buying the house, so it’s like “Dear Mark, I’m interested in purchasing your property. Here’s a picture of it” etc., you’re gonna find fewer disconnects. If you’re sending more of a blind copy, which is probably the best-performing piece… Blind copy means we’re not sending a message directly about buying the house. It’s a Dan Kennedy kind of approach, it’s a two-step marketing piece… That’s gonna get a higher percentage of hang-ups.

Joe Fairless: What would be a blind copy message?

Gary Boomershine: Blind copy – some of your people have probably seen if they are talking to sellers there’s a postcard called third notice…

Joe Fairless: Oh god, I hate those things… [laughs]

Gary Boomershine: Yeah… So some of those out there – that will get a much higher response on hang-ups. By the way, that’s the best-producing piece if you’ve got a phone team, believe it or not.

Joe Fairless: I can see that… But you’re tricking people.

Gary Boomershine: Yeah, it is. We don’t send a ton of them out… We used to. That actually was invented from a wholesaler in South Florida.

The one that we like the best is a handwritten, Google Street View-looking letter that goes in a live envelope. It’s super-personable, and that’s been amazing.

Joe Fairless: And the Google Street View of the subject property, right? It’s like you’ve been there, taken the picture… I’ve received those, too. I liked those. If I was ever looking to sell, then perhaps that would be the one I would respond to.

Your personal focus now – what percent is on REIvault versus private lending versus wholesaling?

Gary Boomershine: That’s a great question. I have a COO that runs an integrator that runs most of my REIvault business… So 40%-50% of my personal time doing business is still on REIvault, and then I would say 40%-50% of my time is on real estate, and then on the real estate side I do a ton of lending, but lending is actually super-easy, because I’ve got brokers that are finding deals for me, and I’m usually funding them, so it’s not a ton of work.

In terms of wholesaling, on the real estate purchasing, especially in this particular market, I do about 80% of my deals that are wholesale flips, because I’m in and out of them, and I’m cherry-picking some of them… About 20% of those I’m cherry-picking, and I’m usually picking them up creatively; I’ll turn those into VRBO type of properties, or I do another process where I’m getting long-term financing from the seller, in some cases… So that’s a total of about 20%.

But most of my business on the real estate side, where I’m actually doing houses, is wholesaling, 80%, 20%, and then a ton of lending. In fact, I’m doing about a million dollars worth of loans, literally. Right after we get off this call, I’m looking at the packages to fund two loans.

Joe Fairless: Lending versus wholesaling – you’re spending more active time wholesaling… What percent of your profit comes from lending versus wholesaling in a calendar year?

Gary Boomershine: Well, I’ve got cash now, cash flow and cash later… Most of my time is focused on — what I personally like is mailbox money, because it’s the easiest… Wholesaling – a part of it is… A lot of people — I’m practicing what I preach, and up until a couple years ago I didn’t even know what wholesaling was. I started this business where I was basically buying luxury homes, I was negotiating with banks… Back in 2004 to 2007 I was doing a ton of short sale deals… And by the way, I was the only game in town, and realtors didn’t even know what a short sale was. So I was doing that up and down the peninsula in California… It was all creative.

So wholesaling was more 2013, when I saw the market… There was no deal flow, and if you could control the deal flow, the cash buyers were out there. So anything that needed cash, I unloaded. I don’t like holding properties — I’m in California, so it’s super hard to cash-flow a property… So that’s how I learned wholesaling; it’s super-easy. I have one sales acquisition manager in each market, and a couple of phone sales ninjas that are actually talking to sellers.

There’s not a lot for me to do in that business, and we have a pretty specific way that we’ll interact with the seller, because I’m always making multiple offers to the seller – we’ll make him a cash offer, and if they’re flexible on payment terms, then I usually get involved, and I do about 20% of those types of deals.

Those are the ones, by the way, I love, because those are all cashflow for me, typically. Not a lot of work…

Joe Fairless: With typical lending terms – what are your typical lending terms?

Gary Boomershine: In California 9% or 10% is what I’m typically getting. I’m doing only California, Joe, when I lend. It’s pretty easy; the typical lending rates right now are 10%, probably similar to other parts of the country. This stage of real estate has been going for a long, long time, and in California it’s been going nuts… I keep the loan-to-value super low, so I’m usually lending 35% or 40% LTV… Combined loan to LTV. I’m only doing first-position. So I take  a lower interest rate for better product, in my own business.

Joe Fairless: And any points at closing that’s typical?

Gary Boomershine: Most of the deals I’m doing I’m actually getting from brokers, so they’re usually getting the points, and junk fees, and things like that. I’m not a broker, so I’m not brokering the deal; I’m actually just lending the money.

Joe Fairless: What paperwork do you need in order to just lend the money?

Gary Boomershine: You need a note and a deed of trust. That’s typically what you want. If you’re lending money typically in California, you really always wanna go through a licensed broker… So the brokers are gonna have to have California license, etc. But for me, what I’m looking for is I’m looking for a promissory note, a deed of trust, a title insurance, and a homeowner’s insurance, and a lender’s policy, and all the typical stuff.

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

Gary Boomershine: Best advice ever is people buy and sell to people that they like, trust and respect, and it’s a conversation, and I’ve found that I love talking to sellers, and especially competing, because I’ll usually win… Because sellers are not just about money; they’ll tell you it’s about money, but in reality it’s not. There’s a personal relationship. So people buy and people sell to people that they like, trust and respect… So whoever I’m working with, whether it’s  a seller, it’s speak straight, talk straight. It’s probably the best from the sales perspective, talking to sellers.

And then I would also say, the real estate game is about persistence and tenacity. I see a lot of people in my sphere that haven’t been doing real estate for super-long, but they’re three feet from gold… They’re so close, and persistence and tenacity is super important.

For a lot of people, getting that first deal across the goal line is the hardest part in making it real, and everybody’s been there.

The next thing I would say is be involved in a mastermind group. That’s been huge for me. I’ve been involved in three.

Joe Fairless: Which ones?

Gary Boomershine: CG is awesome, the Collective Genius, with Jason Medley.

Joe Fairless: Isn’t that in Arizona?

Gary Boomershine: No, he is out of Florida; it’s been going for a long time. I think they have about 140 people, all seven-figure investors. Kent Clothier has got a great one called Boardroom. There’s a few others… Boardroom is awesome, the Billionaire Boardroom… But being involved with peers is really super-important, it’s super-motivating.

Every time I go to a mastermind, I’m learning — I’ll usually walk away with two or three nuggets that I know will easily make me six figures.

Joe Fairless: What’s one of them that you’ve come across recently?

Gary Boomershine: Data stacking. So cold calling is huge right now. In this particular market it’s getting more competitive for going direct to the seller, so direct mail, Facebook, pay-per-click… You’ve got a lot of people, especially people that are coming out of seminars, and the hedge funds are starting to move into off-market marketing… And cold calling – I found that from probably nine months ago from a few guys at a mastermind… They showed me how they’re actually getting phone numbers, and then their true results. We put that to work, and it was huge.

Joe Fairless: You can get phone numbers through – what, databases? Is that the best way, or is there another way?

Gary Boomershine: Yeah, but the question is what databases? [laughs] IMI is a great one. TransUnion used to have one a lot of people were using… But usually, you can take a  good mailing list and be able to get three, or four, or five really good phone numbers, and it’s typically not that expensive. It could be 25 to 50 cents per success, and that’s huge.

So what we’ve found is it costs — I’ll give you the math… It’s about 170 to 190 bucks for a qualified seller, who puts up their hand and says “Yes.” That’s what we have found in the couple markets that I’m in right now. So you’ve got a good phone person that’s dialing for dollars, and it costs about $170-$180.

Joe Fairless: Sold! Sign me up. That’s a good ROI.

Gary Boomershine: Yeah, that was a huge nugget. I never thought cold-calling was a great approach, and it is.

Joe Fairless: When you said data stacking, what were you referring to exactly?

Gary Boomershine: Data stacking is kind of a hot trend… A lot of the masterminds are talking about that right now. It’s basically when you’re getting a really good mailing list, a motivated list of potential sellers. So that’s the first technique of where to go to get the names and addresses of your 10k to 20k highest candidates that would be interested in selling the property.

That’s gonna be from one series of data sources or databases, as you mentioned. Then second is you’ve gotta take that and data stack it, which is now getting phone numbers, and usually you’re having to do that to two or three different providers. So a lot of people are saying, “Hey, what’s the process and where do I go and mimic that?” That was a huge nugget.

We’re actually replicating that right now, so that we can offer that to some of our REIvault members, and offering cold calling as the capability; that’s new.

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

Gary Boomershine: Sure.

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

Break: [00:19:35].02] to [00:20:35].02]

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

Gary Boomershine: Most recent book…

Joe Fairless: Or a recent book. It doesn’t have to be the most recent, but a recent book that you’ve read?

Gary Boomershine: I’ve just re-read Good to Great, for probably the fourth time… That’s probably one of my favorites. Three Feet From Gold is another one; that’s been out for a while. That’s a Napoleon Foundation book, a great read; that was awesome. In fact, I think I bought three or four hundred of those books. And then a third would be Traction. We’re a huge Traction fan, by Gino Wickman. That’s actually been a life-changer for us, by the way, for us real estate investors. It’s a really good business management model for growing a staff.

Joe Fairless: Best ever deal you’ve done that you have not talked about yet on our show?

Gary Boomershine: Well, I’m living in one. Actually, one of the best deals was a seller that called to be asked to be taken off the mail, and I ended up picking up that property and living in it today. That was an interesting, creative deal. I bought with a quarter of a million dollars of equity in it. Then another one was —

Joe Fairless: Let’s just talk about that one… They called to be asked off the mail, someone called back, and what happened?

Gary Boomershine: So my wife and I were actually searching a very small area in a town that we wanted to live in, so I was marketing to about 120 properties… And I figured out how to get almost 100% response rates; I’m not gonna share the secret exactly, but I got 100% response rate.

I ended up getting one of the callers – she called and asked to be removed from the mail; every one of those we called back… I called her personally, had a nice dialog, it turned out that the family – my wife, actually – was in a group with her and she didn’t even know it, and ended up having that conversation… We sent her a couple of our follow-up letters, and the third one she called back and said “Hey, are you still interested in buying my property? I’m now ready to sell.”

So it went from somebody that wanted to be removed, because she didn’t know us, to turning it into a property that we ended up purchasing, and we still live in that house. That was 2010.

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

Gary Boomershine: Oh my gosh, what mistake haven’t I made…? I don’t like rehabbing. I’m much better on the front-end, and I ended up buying a property and I had to rehab it three times. It ended up getting broken into… This is actually a property in Southern California. It was probably the worst. I still ended up making money, but I realized years ago I really don’t like rehabbing.

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

Gary Boomershine: Gosh, where do I not like to give back? I love going to San Francisco and bringing my kids, and there’s a group called City Impact and Richmond Rescue Mission in Richmond, California… It’s probably one of the best things that I’ve done with my family. We do it at Christmas and Thanksgiving – we go and deal with the homeless, and just love on them… We try to do that every year. So rather than focusing on our own present-sharing, it’s always great to go and give to others.

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

Gary Boomershine: Yeah, REIvault.com is probably the best place to go. REIvault.com walks through exactly what we do, and this is a membership model, so if somebody’s interested, they can fill out an application; we’ll jump on a phone call, share what we have, see if there’s a fit, and if it’s a great fit, then we can make a decision together to work together.

Joe Fairless: Do you do large apartment buildings?

Gary Boomershine: I did, and I’m totally focusing on single-family right now. The last apartment I was in and out of was in Sacramento, California…

Joe Fairless: I’m talking about for REIvault, the direct mail.

Gary Boomershine: Oh, yeah. You know, Joe, probably 95% of our members are doing single-family… So we’re much better at single-family than we are apartments. We have a few people that are targeting apartments, but we’ve found — as an example, direct mail is not necessarily the best way for finding apartments. It’s usually referrals. and bird dogs.

Joe Fairless: Well, Gary, thank you so much for being on the show, talking about REIvault, talking about your experience as a lender, as a wholesaler, and giving some tips for Best Ever listeners who are doing direct mail and having those phone calls… If they want to scale their business, well, one, they could work with you all. But if for whatever reason they don’t, then you have sharp, knowledgeable and friendly in-house sale team members… And then when those hang-ups do take place, call them back within 15 minutes and just say “We’ve just got a missed call from you… Are you calling about…?” and then ask them. That way you get them to start saying yes, and then you can continue the conversation from there.

Thank you so much for being on the show. I hope you have a Best Ever day, and we’ll talk to you soon.

Gary Boomershine: Awesome.

Ray Sturm and Joe Fairless

JF1344: Get Returns On Your Investments & Get Investing Advice with Ray Sturm

Ray is the founder of RealtyShares which is one of the industry’s top platforms for real estate investing. He also co-founded AlphaFlow, which is his current focus and most of the conversation today is focused on AlphaFlow. One unique aspect of AlphaFlow, along with having investments for you, they are one of the very few, if not the only investment platform that is also certified to give you financial advice. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Ray Sturm Real Estate Background:

Co-founder and CEO of AlphaFlow

– Prior to launching AlphaFlow, he founded RealtyShares, one of the industry’s top platforms for real estate investing

First and fastest-growing automated real estate investment service

– Applies best practices of professional investment management like diversification, rebalancing, institutional-quality

 data analytics

– Based in San Francisco, California

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

– Best Ever Book: The Hard Thing About Hard Things

Join us and our online investor community: BestEverCommunity.com

Made Possible Because of Our Best Ever Sponsor:

List and manage your property all from one platform with Rentler. Once listed you can: accept applications, screen tenants, accept payments and receive maintenance tickets all in one place – and all free for landlords. Go to tryrentler.com/bestever to get started today!


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

Ray Sturm: I’m great, thanks for having me, Joe.

Joe Fairless: Well, I’m glad to hear it, and nice to have you on the show. A little bit about Ray – he is the co-founder and CEO of AlphaFlow, and prior to launching AlphaFlow, he founded RealtyShares, which is one of the industry’s top platforms for real estate investing. He is based in San Francisco, California.

He applies the best business practices of professional investment management, like diversification, rebalancing and institutional quality data analytics with AlphaFlow. With that being said, Ray, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ray Sturm: Absolutely. Joe, I started my career on Wall Street in pretty traditional finance; I worked in investment banking and restructuring through the downturn, and then I became an investor working in private equity for a little bit. From there, I moved to Silicon Valley and really just got into the fintech world, and realized there were ways to open up investing to a whole lot of people. With the jobs that are coming out in 2012 there was really a big opportunity, so in 2013 – you mentioned RealtyShares –  I launched my first company. That was one of the first real estate crowdfunding platforms, and that’s more of a marketplace model. That’s still going today, but investors can come on, look at their own deals, choose their own deals, do their own underwriting, and I’m happy to talk about that.

Then a couple years ago I launched AlphaFlow, which was I think the next generation of fintech. It is something more aligned with the rest of the investment world, where it’s a passive approach for investors. We do all of the work, we build a diversified portfolio, but it’s really about fintech and opening up asset classes that people never had access to before. It’s really an exciting industry to be in these days.

Joe Fairless: What is the difference between AlphaFlow and RealtyShares?

Ray Sturm: RealtyShares — most of the rest of the crowdfunding market is similar. Think of a marketplace model closer to eBay, where you come on, they’ve got a lot of offerings for you, but you’ve gotta choose what you wanna do. They can’t give you financial advice; I don’t think any other player in the space is a registered investment advisor like we are, so they’re legally barred from telling you what’s a good investment and what’s not.

They need to actually just give you the information, you need to do your own underwriting, but you can see everything from debt deals, to apartment equity deals, to office buildings all around the country. So it’s still exciting. With AlphaFlow though, we realized that there’s a large group of investors that want access to this asset class; they want this in their portfolio, but they really don’t have time to do the work, and especially to do the work the right way.

What I mean there is I think it took investors a little bit of a cycle, a year or two to figure out this is tough to do the right way, and it’s pretty easy to pick numbers that look great, and 20% returns, but when you dig in, when those returns aren’t actually produced, there’s a reason why you have professional managers picking these deals.

So AlphaFlow was really launched to try to bridge that gap, saying “You want these returns… If you’re willing to pay a small fee to us, we’ll pick those deals for you”, and I can tell you we’ve just crossed our one year birthday of our automated platform here, and we’ve got a delinquency rate that’s about 5%-10% of the industry’s average… So it’s pretty low.

Joe Fairless: Wow. What is the industry average?

Ray Sturm: You see anywhere between 8% and 11% around the industry. One challenge – when I say “our industry”, just to be clear for your listeners here, AlphaFlow is focused a little more narrowly on residential bridge loans; think of these as short-term 8-12 month loans taken out typically by developers to fix and flip a home. They’re gonna use our debt; I’m not actually originating the debt, but I’ll work with lenders and buy their loans off of them.

So these are pretty short-term vehicles here. This is a hyper-local industry. This isn’t something banks are doing, these are local lenders. And the result of that, Joe, is that it’s really hard to get full industry data, so it’s hard for people to understand what delinquency rates are, where the dangers are, how to underwrite these well… By partnering with a lot of these lenders, I think we’ve pooled together one of – if not THE largest – the largest data sets in the world on this asset class. We’re using that to underwrite better, so our delinquency rate as of March 6th – I need to be specific on this as a registered investment advisor – was 1.66%… So that was pretty low.

Joe Fairless: Do you all work with crowdfunding website to pull in their deals and then have that as part of the portfolio that people who are in AlphaFlow invest in, or do you have only your own deals?

Ray Sturm: We do both. We don’t do our own deals, but what we do is we work with online lenders, like RealtyShares, Fund That Flip, LendingHome, PeerStreet – these type of groups. So we work with them… We also work with local hard money lenders around the country, and we’re doing more and more business with those guys these days. They are not online typically; they’re someone that — you’re out of Cincinnati; we work with lenders in Cincinnati that only work in Cincinnati neighborhoods they know very well.

We’ll come in after they’ve already made these loans, and we look at their loans and we decide which ones we wanna buy, and we get to cherry pick the ones we like best. That’s what’s been working so well for us.

These days, our rejection rate is pretty high – it’s about 92%-93% of the loans we review – but the results have worked well. It just means we can’t grow quite as quickly as you might want, otherwise you’ve gotta give up quality, and just at this point we’re not willing to do that.

Joe Fairless: Will you take us through the process, from start to finish, just so we have a full understanding of what you all are doing and offering? Can you do that?

Ray Sturm: Yes. So from the loan side, you’ve got a borrower that goes to a local lender. Let’s just say that they go to ABC lending in Cincinnati, and they’re gonna take out this loan, and most likely this lender and this borrower know each other well and they’ve done a lot fo deals together. Once that deal is closed, we might come in at that point when that lender calls us and says “Hey, I’ve just made in loan. Are you interested in buying this?” Our analytics team goes to work there. We’ve got an analytics program that we built in-house here; we put in the information on the borrower, we put in the information on the property, and then we start underwriting everything, from the actual home itself, to the wider market, to understand what’s going on there, to the borrower, and understanding what he/she has done in the past – track record, creditworthiness…

If we wanna move forward with that loan, we’ll then go purchase that from the lender. Now, we’re doing that day in and day out, all around the country, so we’re building a portfolio for ourselves. Now, as clients come in on the other side of our business, and our clients are anything from high net worth individuals, although people can put in as little as $10,000 to start with us… But we’ve also go hedge funds, family offices, the University [unintelligible [00:07:40].10] is investing with us… So everyone’s on the same turns, it’s simple.

What we’re doing is once clients come in, within a few weeks – our PPM says that we take 45 days, but the reality is these days it’s typically 1-2 weeks – we build them a portfolio within our loan inventory, of slices basically… It’s 75 to 100 different loans.

There was someone we allocated last night – this individual, for example, is in 26 different states across 85 different loans. So you get a lot of diversification, we do all of the work handling that, and we algorithmically build all these portfolios to maximize your diversification, and on a daily basis we’re rebalancing those to make sure you stay diversified. That’s really where we come in.

Joe Fairless: And they’re optimizing for diversification, not necessarily risk and returns?

Ray Sturm: Correct. So we’ve got thresholds where what we shoot for is an 8% to 10% net return for our investors. Everything that goes in the box is basically above our standard. Like we said, our rejection rate is pretty high, it’s over 90%. So within those, we consider all of those as worthy. Within those we haven’t now delineated between what’s risky and what’s not, but we’ve got a pretty conservative view at this point.

Over time, what we’ve been asked by a lot of our clients is can they take a little more risk for a little more return – shoot for 9% or 10% to take more risk… We just haven’t built that out yet, for what we might call an aggressive portfolio strategy. Today it’s all the same strategy.

Joe Fairless: So instead of investing in one deal on a crowdfunding platform, you’re investing in bits and pieces of 75 to 100 loans that you’ve prequalified through your underwriting, so it’s a diversification play – is that accurate?

Ray Sturm: I think that’s correct. Before 2012 if you got involved in this industry, this was very much a country club industry where you probably needed six figures, and a lot of our clients still do this locally, and they’ll loan a couple hundred grand on one deal, so you’re pretty heavily concentrated.

What real estate crowdfunding did was bring that bar down to about $5,000 per deal, and that was a big step forward… It’s just a lot of investors wanted to put 10k-20k to work, and that only meant 3-4 deals, so what we’ve done is even expand that further and offer massive diversification, and candidly, just better underwriting.

I think that’s one of the things people have figured out – even clients that had large portfolios said this is too much work, and it’s pretty hard to actually figure out the insights of what’s a good deal and what’s not. It’s been pretty incredible as we’ve met with some of our institutional clients and put two deals up and ask them “Can you tell which one’s a bad one and which one’s good?” It’s a lot harder to do than you think… We didn’t know a lot of this beforehand, but as we’ve started to dig in with machine learning, artificial intelligence, to really dig into huge amounts of data to understand where the danger points are – that’s what’s brought our delinquency rate down, and I think that’s really what our clients pay for with AlphaFlow.

Joe Fairless: What are the danger points?

Ray Sturm: One of the big things that people I think underestimate is that new borrowers, people doing this for the first time, have a much higher delinquency rate even if they have a great credit score, than the other way around. But if someone’s experienced and their credit score is down a little bit… The reason for that is a lot of these projects – they’re not cookie-cutter. So if you’re removing a wall, a lot of things can go wrong, and if you’re an experienced contractor, you know how to deal with that; you know how to go get the new permit to take care of that. You’ve got a subcontractor to call that can come in and fix that.

If you’re doing that for the first time, that might double the length of your project, which pushes it out of profitability and changes the whole dynamics around the loan. So I think that’s one thing that might sound obvious, but for a lot of new investors when they see that they can get a couple more point investing with someone who’s brand new, they’ll go for that, and that really ends up hurting your returns in the long run.

Another insight that we’ve figured out here, Joe, is that there’s three main use cases for these types of loans. One is an acquisition of a property. So they’re gonna go buy the property and they’re gonna use your loan.

The second is a refinance. They’ve already got a loan on there, and they’re gonna refi that loan out. The third one is a cash-out refinance. So there’s no debt on a project they already have. They’re gonna cash it out, they’re gonna take your loan onto it, and they’re gonna use that money elsewhere.

Those in the industry aren’t treated differently… When I say “treated”, meaning it’s not really priced in, but there’s a difference in risk in those, yet our modeling has shown that there’s tremendous differences in delinquencies and performance between those, and that if you really focus on acquisitions with experienced borrowers, your delinquency rate can go down a whole lot just with that.

So if your listeners ever wanna do this on their own, either offline or even online on the crowdfunding platforms outside of AlphaFlow, that’s one tip to suggest for you guys – focus on acquisitions with experienced borrowers; even if the rate is a little lower, it ends up paying for itself.

Joe Fairless: Okay. Out of those three categories – acquisition, refi and cash-out refi – what’s the riskiest? Cash-out refi?

Ray Sturm: Yeah, exactly, cash-out refi, for a few reasons. One, you don’t have a market clearing price, and you’ve got that with both refi and cash-out refi. You’ve got an appraisal, but we’ve learned in 2008 how janky those can be. They’re not always reliable. So you don’t have a market clearing price, and you also don’t have the borrower putting new capital into the project, and that’s got two negative signals. One, you don’t know if the borrower actually is in a good financial position. They could be using it to pay off credit card debt, and such.

And two, they’re not demonstrating that they believe in that project, they’re really just pulling cash out… So you could be catching a falling knife with a cash-out refi. That’s always the most dangerous project.

Joe Fairless: That’s very helpful, not only for individuals who are investing with crowdfunding platforms or AlphaFlow, but also people who are lending money to someone local, just to know that story and assess that risk. You mentioned you bring in other crowdfunding platforms and you buy their loans, and then you also work with local lenders, and I’m not asking you to name names, but just any well-known crowdfunding platforms that you started underwriting their deals to buy, but then it was like, “Oh… Not working out. No, thank you. They’re not doing it the right way.”

Ray Sturm: Yeah, I think we’ve had a lot of those, and we go through cycles there. Honestly, it can be even a little more nuanced, where we do some of their deals, but we’ve got one lender – I won’t name them, but their top tier borrowers, the ones they consider the most reliable, they do almost 100% financing of purchase for those borrowers, because they find them as worthy, and to us, that’s using a crystal ball on the market, and saying that if things go wrong in the market, it won’t happen during this loan, even though you’ve got no skin in the game from the borrower. We’re not willing to do those, but we’ll actually buy what they see as a little bit riskier of loans, and we see as less risky from that borrower.

There’s something else to watch out for… It’s a little maybe harder for your listeners to hear, but we’ve got a little bit of a ear to the ground, especially in the venture community. One of these online platforms is trying to gear up for a venture capital round. Anyone that’s ever raised capital and that was showing growth before that – it always helps  you convince investors and get them excited.

There’s a really easy way to grow in this industry in the short run, and that’s lowering your underwriting bar. If you can manufacture growth, pull in more… So we’ve often seen diminishing quality on some of these platforms, and I know the founders – I’ll often try and help them raise their capital, and I see that happening and I call it out, because it’s very obvious.

You also see it a little bit after a raise, where someone announces a huge raise –  well, that new investor that came in, all of a sudden they’re pushing their feet to the fire about “You’ve gotta grow, grow, grow, and get that going”, so often that means the same things, returns go down. So before and after a venture capital raise we’re always a little bit wary of the platform.

Joe Fairless: And with AlphaFlow have you done a venture capital raise to get your company up and running?

Ray Sturm: We have. We’ve done a couple of little ones. It’s one big difference–

Joe Fairless: So what shortcuts did you take? …no, I’m kidding.

Ray Sturm: [laughs] Yeah, exactly. I think what we decided to do, and I think my approach for it was different than RealtyShares and some of the others in the industry is our team is tiny compared to most of the other players. A lot of these players have 75 to 100 different people in there. We have 8 full-time employers, except everyone is pretty high caliber. Most people came from somewhere else in the industry, so we were able to recruit them away from the platforms. Our director of investments, for example, came from LendingHome, the largest player. He was employee number 12 there, I think, and helped set up all of their operations with servicing, so… Key industry people that can really [unintelligible [00:15:56].24]

I think that’s a little bit of our shortcut there – really telling people here in the office “You’re gonna work a little bit more as a founder.” I’m gonna give them more equity than they normally would at these other platforms, but the results are pretty strong when you’ve got a group of high caliber people with real ownership over this. No one here talks about volume; we’re really talking about delinquency rate and about culture. There’s a culture of credit over volume, and that’s been working for us, and that’s allowed us to raise a lot less venture than a lot of these platforms.

Joe Fairless: You mentioned some of your clients are hedge funds, you have [unintelligible [00:16:30].21] and individuals… How did you get a [unintelligible [00:16:34].10]

Ray Sturm: As much as you hear about these huge entities, underneath them are individual people, and in this case the first one we got – we started out with a person that had been following the industry and knew RealtyShares, knew of this space, was a big fan of the returns in the space, however didn’t wanna access it through the marketplace model… So once we started AlphaFlow, he followed the news of what we were doing, reached out, and he sits on the advisory board for this university, and got this university set up with us.

It’s a little bit slower of an approach and we haven’t been as proactive with it, but the reality is if you do a good job in this industry, eventually you start to build a pretty strong reputation, and that’s happened to us over the last six months or so… It has really picked up.

Joe Fairless: Do you personally invest in deals?

Ray Sturm: I do. Prior to launching our automated platform last year, we ran three different closed-end funds, really just to see if this concept would work for people interested in it, and most of my liquid net worth is in those three funds… So I’m invested exactly in this asset class, like everyone else is here.

Joe Fairless: Are you able to invest in AlphaFlow?

Ray Sturm: The company itself, or the platform?

Joe Fairless: The deals on the platform.

Ray Sturm: Yes, exactly. So those three funds are AlphaFlow funds.

Joe Fairless: Oh, got it, got it.

Ray Sturm: Yeah, so most of my liquid net worth is in those.

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

Ray Sturm: Oh, man, I think something that doesn’t just narrow down to real estate, but investing as a whole, from investing in companies, startups etc. is listen to your gut. It’s pretty incredible over time, the sense you get underneath the surface of if something’s off… And you can’t always explain why, and it’s really easy to talk yourself out of it, because you see a big headline number that’s very attractive… But when you deal in the debt world, your upside is pretty much fixed at your coupon rate, so you’re worried about the downside… And if something inside of you is telling you that something is off — I can’t tell you how many times I did a deal when something just felt off and it just doesn’t work out… You’ve gotta listen to that voice inside of you. It’s a big thing.

Joe Fairless: Can you tell us a story about one specific example?

Ray Sturm: Yeah, there was one where we were looking at a deal — I’ll just say on the East Coast, not to narrow the lender down too much… But the scope of work felt — with every one of these projects they’ve got a scope of work (SOW) that just lays out all of the adjustments they’re gonna make… Are they doing paint and carpets, or are they actually gonna tear down the wall, rebuild the house…? And we were looking at this, and it was a really experienced borrower, but it just didn’t make sense with all the work they were going to do – it just didn’t seem to match up with how little money they basically were estimating for this… And it’s one of these deals where we ended up walking on the deal for reasons — very experienced borrower, the lender was telling us he has done this a million times, he knows the path, and we ended up walking on it and had some tension with the lender because he thought it’s a loan we should have bought from him… And it turned out that there was fraud in the deal. The guy was under the gun on something else, and he needed to pull out cash to solve one of his other problems. These sorts of things happen.

Joe Fairless: How did you find out there was fraud?

Ray Sturm: The lender told me, in the end. We’ve got a good relationship, and it’s someone we kept working with, and he came back to me and basically openly told me “I screwed up on that one, sorry about that.” He got burned from it himself.

That’s something that will get fixed through other channels, but the reality is this is a funny industry where there isn’t a big database of how everyone’s done, who he worked with… It’s a hyper-local industry, so the more information and the more local expertise you can pull in, the stronger it is. Without that, it’s hard to underwrite these deals. On the surface, they just look too good to be true.

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

Ray Sturm: Sounds great.

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

Break: [00:20:17].03] to [00:20:57].11]

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

Ray Sturm: The Hard Thing About Hard Things, by Ben Horowitz. It’s startup-focused, but I recommend it for any business owner. It really doesn’t talk about when things are going well, but when things are going bad – great advice on specific situations.

Joe Fairless: What’s one thing you’ve implemented from that book into your business.

Ray Sturm: When you let someone go, there’s a specific phrase in there… They need to lose their job, but they don’t need to lose their dignity. If you’re working with professionals, there’s a right way to do things, and that’s something I’ve taken to heart every time I’ve needed to let go of someone.

Joe Fairless: Best ever deal you’ve done?

Ray Sturm: Oh, man… We’ve now done over 700 of them. I would say it’s probably from the RealtyShares days; we did a high-end fix and flip, but we were on the equity side of things, in a high-end part of L.A., and it ended up earning basically over 20% over eight months, so great deal there, but hard to find though.

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

Ray Sturm: Letting personal relationships get in the way of numbers that are right in front of me, that are telling me that a deal is not right… Sometimes relying too much on “I’ve known this person for years; he’s a good guy, he knows what he’s doing”, even if the numbers are telling me otherwise. That’s something I’ve gotten away from doing, both with trying to work less with people who might bring that out of me, and also just listening more to the numbers and the relationship side of things.

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

Ray Sturm: I am a big fan in the startup world of how much help I got along the way, of acknowledging that, so to me I think on a pretty consistent basis I try to meet with new founders, people starting businesses for the first time… And you’d be amazed how much little advice, everything from raising money to how do you get an office, to how do you build a team [unintelligible [00:22:34].05] to me is always very gratifying.

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

Ray Sturm: They can go to AlphaFlow.com, or they can check us out on Twitter at @alphaflow, or myself at @ray_sturm. You’ll hear lots of information about what we’re doing and what we’re building at AlphaFlow. I’d love to have them on.

Joe Fairless: Well, Ray, thank you so much for being on the show, talking about your company’s business model and why you created it, the unique value proposition of diversification among many different types of loans, and then having really a second layer of underwriting… Because in theory, the first loan that you bought was underwritten (in theory), and then you all are doing another level of underwriting, and then just giving your investors a sliver of that, but then 75 to 100 slivers of it makes up the portfolio for an investor.

Then the practical tips also, for – as you call them – the danger points that you look for. One is people underestimate that new borrowers have a much higher delinquency rate, even if they have a higher credit score. And then two, the three main use cases of borrowing – either 1) acquisition, 2) refi or 3) cash-out refi. The least risky is acquisition, the riskiest – cash-out refi. These are just some things to keep in mind.

Thank you so much for being on the show. I hope you have a Best Ever day, and we’ll talk to you soon.

Ray Sturm: Thanks, Joe.

Neal Bawa and Joe Fairless

JF1298: How To Create Over $2 Million In Investor Equity With Apartment Communities with Neal Bawa

Neal does not call himself a real estate investor. Rather, he says he is a technologist. While he does invest in real estate, he does so using the latest technology to be as efficient as possible. By doing this Neal says he is really running a technology company rather than a real estate company. Either way, he has tremendous strategies for increasing value and equity in his projects. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Neal Bawa Real Estate Background:

President/ COO at Financial Attunement, a commercial real estate investment company

-He speaks at Multifamily events, IRA events & meetups across the country

-He owns and manages a real estate single family and multifamily portfolio in 7 U.S. States

-Based in San Francisco, California

-Say hi to him at www.multifamilyu.com

-Best Ever Book: 4 Hour Work Week


Join us and our online investor community: BestEverCommunity.com

Made Possible Because of Our Best Ever Sponsor:

Are you committed to transforming your life through real estate this year?

If so, then go to CoachWithTrevor.com to apply for his coaching program.

Trevor is my real estate, business, and life coach. I’ve been working with him for years. Spots are limited, so be sure to apply today!


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

Neal Bawa: I’m well, Joe. Thanks for inviting me onto the podcast.

Joe Fairless: Well, my pleasure. Nice to have you on the show. A little bit about Neal – he is the president and COO of Financial Attunement, which is a commercial real estate investment company. He owns and manages real estate properties in both single-family and multifamily properties in five states across the U.S. He’s based in San Francisco, California. With that being said, Neal, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Neal Bawa: Absolutely. I wanna start off by saying I’m not real estate royalty like Joe here, I’m a technologist; I’ve had a successful tech career and a successful tech exit, and got interested in real estate in kind of an odd way. I started with large commercial before I got into residential, which as you know, Joe, is quite unusual (it’s very rare to see that). But my first gig in real estate was to build from scratch a 27,000 square foot campus for the technology college that I was a partner in. That was in late 2003.

My CEO and senior partner basically said “We’re gonna build a campus, and I bought this building. It’s a shell, and you’re going to build it into all these classrooms, and offices and all this other stuff.” I said “But Paul, I know nothing about real estate.” He said, “No, that’s okay. I’m gonna hire a GC and he’s gonna help you, but you’re gonna basically design and do all of this stuff”, and I was terrified. But what really worked for me is that he did hire a good GC and good sub, so they didn’t really take advantage of my lack of knowledge, but it was a fantastic process to go all the way from doing a rezoning process – because it was flex industrial land; it was a flex R&D building and I had to rezone it for school use. Then I had to go through the entire process  – the design, the build, and going through all of the approvals. It was [unintelligible [00:04:31].10] process.

Eventually we ended up building six different campuses all over California, and that’s how I got started in real estate, before I got into single-family. So that’s kind of the beginning of my story.

Joe Fairless: That’s a big undertaking. As far as you coming from a technology background – you called yourself a technologist – how do you apply that background to commercial and maybe single-family investing?

Neal Bawa: More so than most people would believe. My sales pitch, if you wanna call it that, is I’m not running a real estate company at all; I’m running a technology company that is masquerading as a real estate company. So far masquerading successfully. We use an incredible amount of technology, and we’re not just using technology in the sense of software, we’re using technology in the sense of process, we’re using technology in the way that we generate an army of leads for our properties, and I’ve taken over many of the property management associated tasks from our PM’s, and we also are very heavy on outsourcing.

I have a large group of virtual assistants that work in the Philippines and in India to optimize our property. So we’re not PM’s, we hire third-party PM’s like everyone else, but we use technology a great deal to optimize the net operating income on our properties and to optimize investor cashflow. So still, in my mind, I’m still running a technology company.

Joe Fairless: What are some tacticals that your VA’s do in order to optimize the NOI on your commercial properties?

Neal Bawa: Well, I’ll give you some straightforward numbers. On a 250-unit, if you increase rents by $25, you created roughly a million dollars in investor equity because of the laws of cap rate. So if you’re working on a 6-cap property, you’ve created nearly a million bucks. And if you increase occupancy in the same property by 2% – let’s say you go from 94% to 96% – you’ve now created slightly over a million dollars in investor equity when you sell.

So you take those two together and you created a little over two million dollars in investor equity before you start your rehab. Obviously, the standard business plan – mine is no different from anybody else’s – is “Let’s take these properties and rehab them.” But on a typical 250-unit property, if investors put in five million dollars, I’m getting to more than two million of that five million before I start my rehab, because my optimization overlay – my team here in the U.S. and in the Philippines and in India essentially allow us to do those two things: increase occupancy on average by 2%, increase rents by $25. The very short answer to how we do it is we create massive mountains of lead flow, and then we process those leads in the Philippines, as opposed to processing them in the U.S., because no property manager that I know in the U.S. would ever agree to take on that mountain of lead flow. It simply wouldn’t work.

Joe Fairless: When you’re rehabbing a property – and I’m making assumptions, so you stop me when the assumption is not correct… With your business model, if you’re rehabbing it, like you stated, then I imagine you’re putting money into the property, interior and exterior, and improving the quality of life, and then increasing rent because you’ve improved the quality of life and the living experience. Is that accurate?

Neal Bawa: So far, so good. Yes.

Joe Fairless: Okay. In that process, I imagine, if it’s like one of our properties, there’s gonna be turnover, because you go from one quality product to another quality product. Is that accurate?

Neal Bawa: Absolutely.

Joe Fairless: So the question is “Why are you increasing occupancy before you do the rehab?”

Neal Bawa: The short answer is — let’s say I didn’t do any rehab; let’s say I just left the property alone. Let’s say the property was at 94% – or is meant to be really a 94% property in that area, okay? Providing an army or a mountain of leads, I can always take that up 2%. I’m not increasing price at this point, I’m simply increasing occupancy. That 2% is really irrespective of the rehab.

Now let’s say I do the rehab, and now the rents are $125 more. Same thing applies – at that new pricing level, if in that market the typical occupancy is 94%, by using my army of VA’s and leads, I can take that up 2% again, regardless of whether it’s rehab or not. So rehab units, non-rehab units – I can increase occupancy of both by 2%. Now, if I happen to be in a market that’s so awesome that none of this is necessary, then of course I don’t do any of these things. But what I’ve found is that in 2017 and 2018, we are seeing a lot of new class A product come in markets that we are in, whether it’s Dallas or Salt Lake City, or any other markets. There’s a lot of class A product coming in, and as more and more of that product comes in, 350,000 units a year, we’re beginning to see discounting happen in that area. I think most of your viewers are aware that class A occupancy in the United States is continuing to fall month-over-month, quarter-over-quarter. So as their occupancy falls, they’re discounting, and that’s having a cascading effect on the B’s and the C’s, and the way to protect against those occupancy declines is to be very efficient at sales and marketing.

Joe Fairless: What are some ways that your VA’s are getting the leads that they’re generating?

Neal Bawa: I think that the process I’ll describe is fairly straightforward; the processes that are connected to that process are much more complex.

Joe Fairless: Okay.

Neal Bawa: So we talk about Craigslist first. We’ll use Craigslist as an example, but this actually applies to a lot of the other pieces. Craigslist – I talk to property managers and I say “Do you guys use Craigslist?” “Oh yeah, we’re awesome at Craigslist. In fact, we post on Craigslist every day.” And actually, when I go in and hire them, I notice that sometimes they post every day, sometimes they post every other day.

Joe Fairless: Sure.

Neal Bawa: But the truth of Craigslist is you only receive leads on Craigslist for between one and two hours after the posting goes up, unless you’re in a very small market. So in a large market like Dallas, you get 90 minutes of visibility at most. Then your ad is on page 4, where no one will ever find it. Have you found that to be the case, Joe?

Joe Fairless: I definitely understand that, yeah. I pretty much agree with that.

Neal Bawa: Right. So the catch is if you post another ad, Craigslist will flag it. Craigslist has a very powerful artificial intelligence algorithm that flags duplicates, and uses a wide variety of methodologies to find and flag duplicates. We don’t leave that posting to our property managers, we post 48 ads on Craigslist per property.

Let’s assume it’s a property that has studios, one-bed, two-bed and three-bed. In that case, we post 48 ads. If it only has studios, one-bed and two-bed, then we’ll post 36 ads over the two-day timeframe. Those ads are posted all the way starting at seven in the morning, then nine, then eleven, then one, then three, then five, every day. Then post it again – the second set is posted the next day.

On the third day, the Craigslist renew button, which appears on the right side of every listing, becomes available, allowing us to roll those listings over. Every 30 days, Craigslist gets rid of our listings, so we recreate all 48 ads for every property. By doing this in a phased manner, ever two hours, we create a massive number of leads from Craigslist.

Now, the same methodology is applied in different ways across nine other engines. Every engine has its own weakness, and you have to exploit it. Craigslist is almost flawless, so we’ve had to spend two hours developing the technology to hack it.

For example, it doesn’t like all those ads coming from one address, it’s gonna flag them, so we use I think 24 different IP addresses in the United States. Even though the listings are all being done in India or the Philippines, it doesn’t like same-sized graphics, so we have 48 different sets of graphics that are different file sizes. It doesn’t like the same titles, it doesn’t like the same descriptions… There’s also some other ways in which Craigslist catches you. Phone numbers…

So it’s an anti-spoofing methodology that we developed. Every quarter we look at what our flag rate is, and based on that, we develop new methodologies, and we do that across ten different engines.

Joe Fairless: Approximately how many people are involved in that process? Let’s say you’ve got the studio, one, two’s and three’s, so you’re doing 48 ads every 48 hours.

Neal Bawa: The sales and marketing team are seven full-time employees.

Joe Fairless: And where are they located?

Neal Bawa: India and the Philippines.

Joe Fairless: And what’s their average compensation?

Neal Bawa: $13,000.

Joe Fairless: $13,000 a year?

Neal Bawa: Yeah.

Joe Fairless: On average 13k/yeah, so you’ve got about–

Neal Bawa: 100k/year.

Joe Fairless: Yeah, about 100k/year.

Neal Bawa: But that’s spread across all of my properties. The standard property is penalized $18,000/year for this service, but the investor value that I just talked about creating was two million bucks, or more. And we must not forget that the value created on sale is 16 times the value you’re creating each year. So the value created each year is over $100,000, correct? So it helps to pay for that $18,000. We don’t skimp on the staff of the property. There’s no difference in staff structure of the property between my properties and yours and Michael’s… They’re all gonna be the same. There’s no optimization to be applied to property staff. It’s really the additional cost of the VA’s and the additional value that’s created for the property there, the investor value.

Joe Fairless: What’s a specific example? You mentioned a 250-unit, 6-cap rate, adding the value there… Can you give a specific example of something that you’ve implemented and how it’s gone?

Neal Bawa: I can’t. I think that that would get me in trouble with my investors. But I think that those numbers that I gave you are quite representative.

Joe Fairless: Got it, okay. With your portfolio – are you in five states?

Neal Bawa: No, that was a while back. Now we’re in seven states, not counting California.

Joe Fairless: Okay, seven states, and you’re based in California… So how do you become familiar with a market?

Neal Bawa: The best way to become familiar with a market is to do a lot of research. Each year, in January, tons of different providers put out their listings of best cities in the U.S., worst cities in the U.S., best neighborhoods, best zip codes… There’s so much data, and that data is not in any one place, so starting in November each year I use Flipboard on my iPad. In Flipboard I plug in ‘real estate’, and I thumb down anything that is not interesting to me, and thumb up anything that has to do with items that are talking about the best and the worst type of stuff.

Flipboard accesses information from a huge number of sources, so eventually I end up with all the best and worst lists in the U.S. by January. Then I pool them together, and as you can imagine, the providers are people that you know – Atom Data, Axiometrics, Costar, Yardi Matrix on the multifamily side; on the single-family side Realtor.com, Trulia, Zillow, and half a dozen other providers like that. Apartments.com, ApartmentList.com…

So I take that data and I spend the month of January massaging it. I then verify it against my paid accounts – Costar and others – and then in February I put it together into various presentations, [unintelligible [00:16:42].05] and I present to my database. Then the rest of the year I execute on the basis of those presentations.

The presentations are stored on multifamilyu.com, my website. You can check that out. It has all the presentations and data. All the data is just given away for free, so people don’t really have to invest with me, and they don’t even have to do multifamily. The data actually applies for single-family and multifamily, so they’re welcome to take it and use it, and then basically the rest of the year is really all about execution. I don’t try to second-guess how a market is doing in the middle of a year, because as you know, the process of creating a team is very time-consuming.

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

Neal Bawa: Alright, I’m gonna say that that advice changes each year, so can I modify the question to say “My best real estate investing advice–”

Joe Fairless: This year? Absolutely.

Neal Bawa: Okay. In 2018, be cautious. I think that the market has risen so long, so fast and so consistently across the United States that people have simply forgotten that real estate is not magical. I think that we forget that the rules of real estate have not changed. It means that what goes up must come down. I do not see that enough in the behavior of syndicators, I do not see that enough in the behavior of individual single-family investors. So if I can give you one piece of advice to anybody listening, I would say “Be cautious.” This is a time to be cautious, because there’s irrational exuberance everywhere, not just in real estate or in stocks, but everywhere in the economy people are now making bets that simply defy logic.

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

Neal Bawa: Sure.

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

Break: [00:18:42].23] to [00:19:08].28]

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

Neal Bawa: The 4-Hour Workweek by Timothy Ferriss.

Joe Fairless: Best ever deal you’ve done?

Neal Bawa: A brand new construction building in Provo, Utah. Just completed and now leasing up. I think the investor will receive 100% of their capital back, therefore making it an unlimited return [unintelligible [00:19:26].23]

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

Neal Bawa: Ignored red flags and bought a property that I shouldn’t have bought, simply because I was too emotionally and financially vested in it.

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

Neal Bawa: By education. I feel that the best way to empower people to make better decisions is to educate them.

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

Neal Bawa: Multifamilyu.com. I don’t believe in hiding. My information is on that website – my phone number is there, my e-mail is there… But what I suggest that you do is simply go through the content that’s on that website. You’ll find that I’m a geek, I’ve got [unintelligible [00:20:04].21] The content is extremely data-driven; if you like that thought process (it’s very unsexy, by the way), then I would love to talk with you, because we are of like mind.

Joe Fairless: Well, Neal, if you appreciate that thought process in other people, that’s another thing… Because certainly, even if we don’t have that thought process, we can appreciate the mind and how it works that way… So thank you for being on the show, Neal, talking about your technology background, how you’re implementing that into real estate investing, and in particular having a VA system that we talked about. You’ve got seven full-time employees, about $100,000/year that you are investing in that approach, and they’re generating significantly more in value as a result of even one of the examples with Craigslist.

Then also the approach that you’re taking with your business now, and being cautious, but yet still looking for deals and being very methodical. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Neal Bawa: Thank you, Joe.

Brett Hagler and Joe Fairless

JF1295: Home Building In Developing Countries with Brett Hagler

Brett was blown away by what families were living in after the earthquake in Haiti a few years ago. During that visit, he made the decision to start helping people get the basic necessities such as safety, shelter, clean water, a food program. Hear how Brett and his company helps people in developing countries receive basic human needs. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Brett Hagler Background:

  • CEO, Co-Founder of New Story, an innovative nonprofit that builds homes in the developing world
  • A Y Combinator alum, and 2016 Forbes 30 Under 30 Entrepreneur
  • Fast Company recognized New Story as one of “The World’s Most Innovative Companies” in 2017
  • New Story is one of the fastest growing startup nonprofits in the world: 1,300+ homes, building 10 communities across Haiti, El Salvador, and Mexico
  • Based in San Francisco, California
  • Say hi to him at http://bretthagler.com/
  • Best Ever Book: Great by Choice


Join us and our online investor community: BestEverCommunity.com

Made Possible Because of Our Best Ever Sponsor:

Are you committed to transforming your life through real estate this year?

If so, then go to CoachWithTrevor.com to apply for his coaching program.

Trevor is my real estate, business, and life coach. I’ve been working with him for years. Spots are limited, so be sure to apply today!


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

Brett Hagler: I’m doing great, Joe. Thanks for having me on.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Brett – he is the CEO and co-founder of New Story, which is a non-profit that builds homes in the developing world. They’ve built homes in Haiti, El Salvador, Mexico… They’ve built over 1,300 homes, and he has been named Forbes 30 Under 30 entrepreneur in 2016, and he’s based in San Francisco, California. With that being said, Brett, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Brett Hagler: Yeah, so I’m fortunate to run an organization called New Story. We’re about three and a half years old; I started after a personal trip that I took down to Haiti a couple years after the 2010 earthquake that happened down there. I was basically just blown away by what kids and moms were growing up in after the earthquake, and realized that safety and shelter was a really, really huge need… So I wanted to create a solution for that and try to do it in a fresher approach, with more transparency for donors, because I was very frustrated with what seemed to be kind of like a black hole when I game money, especially internationally…

So that’s how we started, about three and a half years ago, and we’ve been very fortunate to actually work with a lot of real estate companies, a lot of real estate agents, a lot of investors around the real estate world, just because of the synergy with houses and communities that we build, which we’ll talk more about, and then some of the technology that we also have that allowed people to have a better experience. So that’s the high-level.

Joe Fairless: Can you talk to us about the mechanics of how you do what you do?

Brett Hagler: Yes. Very simply put – I’ll give you one example and we can multiply that out. We go into developing world countries and we find areas where families are living in extreme poverty and don’t have access to life’s most basic human needs – that’s safety and shelter, clean water, and some type of food program. Think of the bottom of Maslow’s hierarchy, basically.

Then we will identify a great local non-profit and a local construction company, we will secure land very close by, and then we’ll essentially become a developer in a sense, where we get a large piece of land where we could put a few hundred homes on that piece of land, and then we’ll use other usually non-profit partner or maybe local government partners for other components of the community, such as a school, such as clean water, such as maybe a small factory, other income opportunities where then the end result is a community. We’ve been able to do 11 of those now, throughout Haiti, El Salvador, and soon to be Mexico.

How that looks and how we fund that from the donor side or the company’s side is that if you come onto our website, we built a crowdfunding platform, kind of like Kickstarter or Kiva, but for families that are homeless, living in extreme poverty… And you get to meet the family online, so you see their picture and their story. When you give, 100% of your donation goes towards building the house for the family, which is actually built by local workers, buying local materials, and then when the families move in, we take a very simple but really moving move-in video, of the families getting their keys, and their homes [unintelligible [00:05:57].14] It’s one of the best days of their lives – we capture that, and we send it back to the company or the donor that made it happen.
And the last thing – the homes we build are a little different than I’m sure what your listeners are investing into. Our homes are only about 500 square feet and only about $6,000/home.

Joe Fairless: It makes my head spin about how you all coordinate all the things that you’re coordinating to build a community, let alone it being in an area that is impoverished. The partnerships that you all have to coordinate with, the water, the factory, the school stuff, and even the general contractor – it’s incredible. What are some lessons learned for successfully executing those partnerships?

Brett Hagler: Yeah, we get a lot of leverage through partnerships, and we’ve been able to make it work, and our team stays lean, we can scale, all that good stuff. I’d say the number one lesson learned is just the due diligence up-front of choosing the right partners, and wanting to choose partners that you know if a pilot works, then you can go much deeper.

I think that we’ve been able to have some success in this area because of the SOP that we put together beforehand–

Joe Fairless: What’s SOP?

Brett Hagler: Standard operating procedure…

Joe Fairless: Got it.

Brett Hagler: …with the partners. Yeah, sorry. And making sure that we are disciplined in what we’re looking for, and then really holding the partner accountable, and if we feel that they cannot meet the standards of excellence that we try to set, then I will move on to a new partner.

Joe Fairless: How do you hold the partner accountable?

Brett Hagler: Well, that goes into the operating procedure that we put together. A simple description would be around just hitting certain timeframes and metrics, reporting structure, auditing that we put in place… So it’s not extremely heavy-lift, but we do have those procedures in place so that there is accountability baked into the whole process.

I think a lesson for the people listening is when you can put that in place from the very beginning, then accountability can be baked into the operations from the beginning, and then when you go forward, there are things held in place for accountability, as opposed to trying to identify a problem later on, and then go back and try to rework some things. That’s happened to us a few times, and that’s when we’ve got into – not trouble, but it just hasn’t been the highest level of execution that happens.

Joe Fairless: Do you typically do a pilot with every new partner?

Brett Hagler: Yeah, that’s right. We’re very clear about that. We say “Hey, here’s our pilot, here’s what we’re expecting” and then if this goes well, we have all the intent of getting much more involved. It seems to work, it seems to motivate the partner to work hard and prove that they can be a longer-term partner. So yeah, that’s been a really good process for us.

Joe Fairless: For a Best Ever listener who wants to give back more than what he/she currently is, what advice would you give to him/her about if they should start a non-profit, versus donate to one?

Brett Hagler: Definitely donate to one. Starting a non-profit – I don’t really recommend that. The only reason I started a non-profit was because — it wasn’t because “Oh, I saw people that were homeless, so I wanna start my own non-profit.” I actually went to find other organizations that I can really champion and I can really support, but the reason that I wanted to start mine was because I was very frustrated by what was out there. That was the reason that I started it.

Now, if somebody else has that feeling, okay, then maybe your entrepreneurial mind can open up a little bit about why you should actually exist, and I think that you shouldn’t start a non-profit just to replicate what other organizations are doing. There’s already so many great orgs doing awesome work; I would just say do the due diligence, find the right one, and then if you do a lot of research and talk to a lot of people and all of a sudden you’re just very frustrated and very passionate and you can see a clear path, just that there should be a better way to do this and nobody else is solving it the way that you believe should be done and other people believe should be done, then it makes sense to maybe to a very small test for like a minimum viable version of what you think should exist. I always say think big, but start really small. That’s how we started.

Joe Fairless: What are some challenges that you came across when creating your non-profit?

Brett Hagler: Before this I actually had a for-profit that I started as well, and I think obviously there are differences, but overall it’s pretty the same formalities to start a non-profit or to start a for-profit business; it’s just a little different in what the paperwork and all that stuff is… But I think the mindset as well is about the same.

You create something that is an obvious need, and is uniquely better than what is already existing if you wanna get any type of traction. So when you find those things in the very beginning I think it’s very similar, actually.

I think the best non-profit entrepreneurs that I’ve had a chance to meet have either in the past been great for-profit executives or entrepreneurs, or if given the choice, it’s very clear that they could run a very good for-profit company.

Joe Fairless: From a strictly business sense and as cold and calculated as we can be, just to separate the obvious incredible benefits that you all are doing to families – let’s separate that and just talk about from a business standpoint, how do you benefit from a business standpoint from creating a non-profit.

Brett Hagler: I’m happy to answer that, but I don’t know if I have clarity on what you mean by benefitting from a business standpoint.

Joe Fairless: Well, what I mean is you could be spending your time on a for-profit startup or business, so there’s some sort of opportunity cost here… And in some ways, this benefits you from a money-in-your pocket standpoint; now, I’m not saying it’s a direct cause and effect, but I’m saying there is — because anytime we give, we get 10 times back what we give, so how are you benefitting from a business standpoint?

Brett Hagler: For me why I do this work is ultimately for impact, and people have different things that they measure and why they wake up in the morning and go to work, whether that’s a for-profit job or a non-profit job. Some people are really optimizing for impact, some people are really optimizing for money, and I have just decided to optimize for impact. My metric is “How many lives can we change?”, but in doing that, for us and my team, the culture that we’ve created, how we go about doing it, where we really prioritize innovation and technology and really being on the forefront of what’s coming – that creates a lot of really awesome opportunities to meet amazing people, to be in rooms that I would never be in if I weren’t doing this, and to really just understand that there are things such as relationships and experiences and obviously impact that are all different currencies.

Money is one currency, those are other currencies, and me my team, even though we actually make a decent amount of money – I don’t believe in paying people very low just because they’re part of a non-profit, but those things you could say they have dollar value on them, and they’re experiences that I and my team wouldn’t trade for anything. So that’s a long way to answer what is the “benefit” other than helping change people’s lives.

Joe Fairless: What are some of the rooms that you have been in that you would have never been in if you weren’t doing this?

Brett Hagler: We’re based in Silicon Valley, so if anybody takes a look at our advisory board, our page there, it’s some of the top CEO’s or investors in this area, which is really cool just to be able to interact with those leaders on a daily basis if we’d like, to then go into introduction meetings that they’ll make for us, and to just build relationships with really world-class professionals. That’s just what we do now, and it’s a very fortunate position to be in, to grow, especially as a young professional, young leader. I’m personally only 28, and my team is relatively young as well… So we’ve been fortunate to kind of build out that network, and it’s incredibly fun and challenging, and really pushing us forward.

Joe Fairless: I’m gonna go back to the partnerships that you all have on the ground, so switching gears a little bit on you… I want to follow-up with your construction partners that you have in Haiti, El Salvador, Mexico, because you’re building homes, and it’s likely homes that the construction partners haven’t built exactly how you’re building them. First, is that a fair statement?

Brett Hagler: Right now we’re still pretty young, so in our first two and a half years they are pretty similar.

Joe Fairless: Okay, the construction partners on the ground – it’s a similar type of house that they’ve been building with other projects not working with you?

Brett Hagler: There’s definitely some differences, but for the most part it’s a similar structure. Mostly concrete, similar square foot size… However, a really big new initiative that we have just as an overall company is innovating on the actual home unit, and we have some really exciting things coming up in 2018 that we’re doing for that.

Joe Fairless: We’ll come back to that. The reason why I was asking about the on the ground contractor/local construction team is because when you’re partnering with companies that are thousands of miles away in a different country, and as investor here in the U.S., that is one major challenge for fix and flippers or for other people who are hiring a local construction company.

So I know you mentioned accountability and timelines and giving a pilot program, but is there anything else that comes to mind? Because this is a major pain point for investors here, and you all are doing it at an entirely different level with a bunch of more variables more that could go wrong, but clearly, you’re seeing yourself through those.

Brett Hagler: I definitely don’t have any great or creative answers. For us, it’s pretty simple – it’s just choose excellent people that are at these partnerships and are running the organizations, make sure they have an excellent track record that you can really trust and have potential in them. I would say that’s where it really starts with us, and then all of the other operating procedure stuff just flows down from that.

Joe Fairless: Do you call on references?

Brett Hagler: Oh, absolutely. Yeah, we’re obsessed with all of that.

Joe Fairless: Got it. Alright, you mentioned innovating on the home unit – what are some things you have coming up?

Brett Hagler: Well, we have one thing coming up that is pretty big by itself that is happening in March at South by Southwest; it’s our biggest innovation to date for sure. I’m not allowed to say what that is right now, but it has to do with building a home for half the cost, a fraction of the time, and a better quality product. So that’s one thing.

Then what we’re doing later in the year is we’ll be looking much more into the type of pre-fab, but not just the stuff that we’re all used to and I’ve heard here, but actually having potential small factories in the areas that we work… Because one of the issues with pre-fab is that if you’re working in the developing world, it’s all the shipping costs to get something from a warehouse in Brooklyn to a place out in the middle of nowhere in Southern Mexico.

So we’re gonna be looking at what could we do to make the most of the promise of pre-fab and what will make sense there that we’re exploring, and then also to be able to get it there logistically in a very efficient way.

Joe Fairless: Based on your experience founding a non-profit in the real estate world, what is your best advice ever for real estate investors?

Brett Hagler: Again, nothing great or creative. I would just say bet on the best people. That’s what we’ve tried to do. Whenever we can, we get the best people that we partner with, on our team, our innovation partners, it’s always with the highest caliber people. That’s what we always try to go with first.

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

Brett Hagler: Sure.

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

Break: [00:18:30].19] to [00:18:58].17]

Joe Fairless: Best ever book you’ve read?

Brett Hagler: The best business book is Great by Choice. A most recent other book that’s not technically business but I absolutely love is Shoe Dog, which is a memoir by the founder of Nike.

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

Brett Hagler: Over-promising and not delivering would probably be my biggest mistake.

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

Brett Hagler: Well, I run an organization that is about giving back on a very large scale, but what is personally fulfilling as well is trying to do for one person what you wish you could do for everybody.

Joe Fairless: And how can the Best Ever listeners learn more about your company and get involved?

Brett Hagler: You can just google “new story.” You’ll see our website, you’ll see other press and media pop up there. We’ve been very fortunate to have some awesome partnerships with real estate companies, real estate investors, individual folks in real estate… So give us a look to make an impact; the house is only $6,000. There’s really cool ways that you can fund-raise for that, and a lot of other stuff. So just go to our site, check it out, and then you can just reach out on the site.

Joe Fairless: Really enjoyed our conversation, and your approach to what you’re optimizing for, and how you mentioned we can optimize for money, we can optimize for time… You’re choosing to optimize for how many lives you can change. It’s a question that I don’t think I’ve asked myself, and it’s a powerful question. I think if we ask ourselves “What are we optimizing for?”, that’s something to make us think.

Brett Hagler: Cool, I appreciate that. Thanks for having me on, man.

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

Brett Hagler: Alright, cheers.

Best ever Real Estate Advice Show Banner

JF1271: Making Top End Technology Available To Real Estate Investors with Dana Dunford

Dana is bringing a technology solution to virtual investors. If you own property in another state, Dana and her company Hemlane have an innovative solution to management for you. She says that their company is a good solution between DIY and full service property managers. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Dana Dunford Background:

CEO of Hemlane, a technology-enabled property management platform

Previously, she worked at Apple in worldwide financial planning and analysis and at Nest, the home technology company acquired by Google for $3.2B

-Received her MBA from Harvard

-Say hi to her at https://www.hemlane.com/

-Based in San Francisco, California

-Best Ever Book: The Lexus and the Olive Tree


Made Possible Because of Our Best Ever Sponsors:

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

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

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


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

Dana Dunford: Great, thanks so much for having me on the show, Joe.

Joe Fairless: Well, thanks for being on the show, and nice to have you on the show. A little bit about Dana – she is the CEO of Hemlane, a technology-enabled property management platform. Previously, she worked at Apple and did worldwide financial planning analysis, and at Nest, which is the home technology company acquired by Google for a whole lot of money (over three billion bucks). She got her MBA from Harvard and she is based in San Francisco, California. With that being said, Dana, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Dana Dunford: Yes, thanks so much, Joe. Yes, my name is Dana Dunford, and my focus right now is taking technology, so top-end technology such as what we implemented at Apple, and giving that to the real estate community. My entire job is I guess 50% consulting, 50% technology, and how do you make sure that you optimize your day-to-day operations as a real estate investor in the property management space. As you know, Joe, the best investments are not in your backyard, so we really focus on saying “If you are an investor with capital, or looking for capital and then you’re going to purchase properties, how do we make sure that after you acquire those properties, that you can manage them from anywhere, and have the correct on-ground support, as well as the level of details you need to have to make sure that you’re maximizing your cashflow?”

Joe Fairless: Okay, makes sense. So who’s your target audience for this?

Dana Dunford: We primarily focus on real estate investors and managers with one to one hundred units, and typically, our investors will start with a smaller portfolio and then move up from there, based on our operations; we can handle that. But some of our investors now are getting up to the 500+ units, as you probably could guess, and we can handle that size of portfolios.

Joe Fairless: And your differentiating feature with your platform versus your competition is what?

Dana Dunford: The competition – there’s two different types of competition out there. The first you would say is software providers. You have the Appfolios and the Yardis of the world, who focus on larger real estate investors, or large property management companies. And what they have in their software offering is that they offer you just the software and say “Now you have to be the on-ground support.” For us, we’re a platform where we actually take property managers who are local, connect you with them on the platform, and that way you can suddenly say “I want the rent directly transferred to my bank account, but I also want to have a manager to help with the leasing or the turnover”, so you have a little bit more flexibility.

Then the second thing that you have is you also have the local support. So the traditional property management software doesn’t have that today. You might say, Joe, then, as the kind of second one is full-service property managers – are they your competition? Not really. They work with us. We actually open up to their market opportunity. Our real estate investors tend to be a little bit more hands-on with their portfolio. They don’t wanna be do-it-yourself, they also don’t want a full-service property manager; they’re something in between. So we work with full-service property managers and real estate agents to have them help provide the management without providing full-service, handing over the keys, handing over the trust accounts, having them do everything. It’s a little bit more of working together, both the real estate investor, with the local support to make sure you have a full comprehensive a solution.

Joe Fairless: Okay, it’s becoming clear in my head and I appreciate you walking me through this. With your company, can you give us a typical use case from an investor’s perspective, from start to after signing up with you all and what he/she utilizes?

Dana Dunford: I will give you an example of one of our customers today. His name is David and he has 11 real estate portfolios across the United States. Before he started using Hemlane, he had about 50% of those on full-service managers, and the other 50% he was remotely managing himself, and having his handymen do the showings… Or some person he knew in the neighborhood doing the property showings.

When you think about that, he had different processes for every single property. We brought those on to Hemlane, and it consolidated everything. It automated all of the administrative work. We put his full-service property managers onto Hemlane, so they were able to still manage the properties from their location, but for this real estate investor, he was able to see the whole portfolio consolidated, as well as tap into local-licensed support in those cities where he didn’t have local support; he was using his handymen to do the showings. He was able to tap into local-licensed agents to help him with the turnovers, help him with the showings, and then he could open up his dashboard, see everything going on – lease renewals, who’s paying rent, who’s been late and had an automatic late fee, and he has all 11 portfolios consolidated on one dashboard.

Joe Fairless: Got it. So it’s a way to automate the administrative work, get in contact with local experts and then see the numbers on your properties from an income and expense standpoint?

Dana Dunford: Correct. And if you think about it, Joe, it’s a little bit like the modern day franchise. Before with franchises, what you would have is one corporate office, and then a bunch of offices across the nation, franchises. In our sense, we think of Hemlane as we’ve streamlined and brought all the tools, and then we work with any sort of broker; we don’t have the brokers licensed under us, we work with all the brokers in that area to provide them with the tools. And one of the coolest things about that is the latest technology you can put into it. So for Hemlane, when a tenant says “I’m interested in scheduling a showing”, our technology has already picked that up, and then we can respond on behalf of the agent and say “Great, here’s my calendar. When would you like to book a showing? Here’s when I can show you the property.”

So what we’re looking to do is make it where the agents really can focus more on building relationships with the real estate investors, building relationships with the tenants, having the real estate investors themselves be able to build those relationships, and not focus on the day-to-day communications, reminding people of when they need to view the property, to “Should I accept or reject this tenant based on their credit score?”, all the way to reminding a tenant when their rent is due. We take all of that administrative burden off, so that the real estate professionals can really focus on what they are good at, which is both build relationships, as well as the investment.

Joe Fairless: And through this explanation, now I understand it – is that why you were saying earlier that 50% of your time is focused on consulting and 50% on technology? The 50% consulting piece is that more of the education piece of this use case, and how it can be applied?

Dana Dunford: It’s both that, as well as – I would say on the consulting side it’s… We’re getting to a point in time where the shift has focused in real estate. Traditionally, you would just purchase a property where you’re located, and now you see with syndications, with folks like you, Joe, who are incredible at showing that you can get returns across the U.S. at great prices on syndicates… What you are seeing is people are purchasing outside of where they live, so a lot of my consulting is helping people get those tools and processes set up, introducing them to local support, and that’s something that I love to do. It’s not part of Hemlane, but it’s helping make sure that real estate investors have success in both their acquisition of their properties, but most importantly in the management of their properties… Providing them with all the resources and the connections to local agents, local managers, to make sure that they have a very successful and stress-free operation.

Joe Fairless: How do you personally qualify the local support when you’re doing an introduction with someone you’re consulting?

Dana Dunford: We have standard property management questions that we ask, and then on top of that, it actually comes from our network itself. So let me give you an example, Joe – we will have a real estate agent come to us who says “I have a lot of clients.” When someone has a lot of clients and they’re good at the buy and sell side, they’re good with relationships. They say “I’ve got a lot of clients and I’m looking to offer them some sort of property management, but I don’t want to have the trust accounts set up, I don’t want to have to do a lot of the day-to-day accounting, background check, screening…” That person will come to us and say “I’m interested in starting some sort of property management for the clients who already trust me.” And we said “Okay, great, here are the tools and the software to do it”, and then we work with those clients.

We can actually review those clients to see how good they are with the property showings, the inspections, their network of handymen and local professionals, to understand this particular real estate brokerage – whether it’s a management shop or they also do the buy and sell side of things – how much do the people who are currently on Hemlane today, the owners of the real estate assets, how much do they like this person and rely on them… And that helps us build it up.

In some other pieces, you’re right, we acquire them either through referrals, or we do interviews with them to see, based on standard property management questions, how much does this person know about being able to do the day-to-day operations associated with management.

Joe Fairless: And how do you make money on this venture, with Hemlane?

Dana Dunford: [laughs] I’m laughing right now, Joe, because so many companies here in Silicon Valley don’t make money…

Joe Fairless: Yup, I know.

Dana Dunford: I almost just wanted to say we don’t make money.

Joe Fairless: “Yeah, we don’t care about money, we just care about the experience…”

Dana Dunford: Exactly… But I’m joking, we actually do make money. So we’re a subscription-based model. You pay us a monthly fee to use the software and services, and then we connect you with the local agents, as well as if you want added services, for example maintenance coordination, we can connect you with third-party maintenance coordinators to do those activities for you… And we make it affordable.

Traditionally, with Appfolio and Yardi the minimum is $250/month. We start at $30/month. So even if you own one rental property, it makes sense to do it; you’re gonna save a lot more in your cost, and also increase your revenue by much more than $30/month.

Joe Fairless: And how long have you had this venture?

Dana Dunford: The idea and concept came four years ago, but it was for my family’s own investments, so it had nothing to do with selling it to anyone else; it was a personal need. Then what we realized from there was our friends, family, referrals were coming in saying “Can we also use you?” and it was mostly consulting at that point. Then I realized the systems and the infrastructure were the best way to scale it, so then we became a technology-enabled platform to connect real estate owners with managers and agents, as well as the software to automate it. That happened two years ago, Joe, so we’ve been around for two years now selling the software.

Joe Fairless: What’s been the biggest challenge that you’ve come across launching the company?

Dana Dunford: The biggest challenge I think was patience. One of the things with SaaS (software as a service) technology is it’s very misunderstood. It’s not like Facebook; I mean, you could code Facebook in a day, and the software is already built. When you’re working in real estate, you’re working with people’s payments, you’re working with background and credit checks. The amount of security that you need, the amount of APIs… We advertise your property on over 40 rental listing websites. Imagine doing a contract with every single one of those top-listing websites.

The patience that you need to actually build the software itself – it takes a long time, it doesn’t happen overnight… And our  philosophy was the only way to make it valuable was to have an all-in-one. If everything worked seamlessly – the lease comes up for renewal, then you can automatically list the property, the showing agents are already there… It makes it much more valuable. So it was the patience to have the end-to-end platform which we have now. We’ve started with just rent collection, and then had to go from there.

Joe Fairless: Do you have investors in this company?

Dana Dunford: We do have investors. Our investors are actually some of the coolest guys and gals out there, in the sense that a lot of them are entrepreneurs themselves, some of them have businesses valued at over a billion dollars, and then some of them are our customers. Some of our first customers asked how they could get into it, so it was pretty cool in that sense.

Joe Fairless: And what advice do you have for a Best Ever listener who is looking to bring in an investor into a venture that they’re doing? And it might not be a software or a technology platform like yours, it might just be simply a house project, a fix and flip, but there are some lessons learned – I’m sure that you have come across – based on the process that you had bringing in investors, that would be helpful.

Dana Dunford: Yes. I think of it actually how our company is built today, and I’ll relate it to a real estate acquisition. If you’re going to purchase something for, like you said, a fix and flip, or buy and hold – if you’re looking to build up your portfolio, seek capital in first-tier cities, but seek your investment opportunities elsewhere. So most of our clients, the actual rental properties they own are not in first-tier cities like New York, or Los Angeles. But the actual capital, the people who are invested in our company or who own those properties are in those first-tier cities. And one of the reasons I say that is when you look at wealth, it’s concentrated in those cities. Los Angeles and New York – I mean, New York’s GDP is 1.5 trillion, and that’s more than 11 countries out there. It’s larger than any other country.

So it’s one of those things where you wanna seek the capital in these first-tier, large cities, but then when you look at investing, or your customers or anything else, they may not be in those first-tier cities.

Joe Fairless: Based on your experience as the CEO of Hemlane, what is your best advice ever for real estate investors?

Dana Dunford: My best advice ever is to look at purchase-to-rent ratios and use that. I believe in cashflow, appreciation… There is some benefit to that, but I really believe in making sure that you have cashflow, so look at those purchase-to-rent ratios and don’t limit your operations and your investments to where you live today. Look across the U.S., see the best investment opportunities and then from there dive into the local scene of those cities in more detail.

Joe Fairless: What ratio do you look for?

Dana Dunford: In the U.S. today I think under 21 is good. In San Francisco it’s at 46, the price-to-rent ratio… Versus a place like Detroit, where it’s at 6. 46 versus 6 is a huge difference, and it averages around 21, so if you can get below 22, 21, then you’re doing pretty good.

Joe Fairless: And help me understand… So when I think of purchase-to-rent ratio, I think of the monthly rent, and then — if it’s, say, $800, I divide that by my all-in price of, say, $65,000, and then that’s a 1.2%… But you are doing it differently, so educate me on how you’re doing yours.

Dana Dunford: Yes, the price-to-rent ratio is just what is the price at which you can purchase the property versus the rent you can get out of that. And you can just flip it, right? [unintelligible [00:19:42].05] into the percentage.

Joe Fairless: Oh, yeah, I get it.

Dana Dunford: You’re just flipping it and doingt he percentage; I’m just doing it with the purchase price on the top, numerator and denominator.

Joe Fairless: I’m with you.

Dana Dunford: It’s the same exact formula.

Joe Fairless: Okay, cool. Good stuff. And do you invest as well?

Dana Dunford: I do. Right now — we were in Denver; no longer there, and I’m looking in some other cities. Denver was a great ride since 2009, but I’m no longer invested.

Joe Fairless: How did you pick Denver in 2009?

Dana Dunford: It was actually my brother-in-law. It was family investments going into it. I don’t do anything on the acquisition side, I was just doing the operational side of it.

Joe Fairless: And your family’s portfolio is now under your company’s technology platform.

Dana Dunford: Yes, it is.

Joe Fairless: I’m sure you come across data collectively across everyone who’s using your system that would be helpful – maybe trends or ratios that we should pay attention to, or maybe red flags… Have you looked at any of that to come up with maybe like an infographic or something on helpful things that you’ve learned?

Dana Dunford: Yes, but I do it mostly from the operations side. What I mean by that, Joe, is most of the data and stuff I look at is on the quality of tenants, the amount you’re spending on maintenance, and what are you turnover costs, how long are the days on the market… And that varies investment to investment. When I look at metrics, I’m more focused on the day-to-day stuff.

Joe Fairless: And anything of those metrics that you just mentioned that would be helpful for us to know?

Dana Dunford: Yeah, absolutely. The first metrics I’d say — I’ll start with tenant acquisition and then I’ll go to management. One of the fascinating things I find about real estate investing is people put a lot of things on spreadsheets, but they’re not very practical. Class C properties and class D properties look great on paper, but they’re not very practical. I’ve never seen a line where people say “This is the number of evictions that it’ll have. This is the turnover.”

Joe Fairless: [laughs] Right.

Dana Dunford: I never see that, but when you invest in those, your vacancy is gonna be much higher, your turnover costs are gonna be much higher. So when I look at those, I balance it between what class of property is it, versus the quality of the tenant. If you’re investing in a B or A class property, you want over 650 in the credit score. You also want income-to-rent ratios – I try to get 3-to-1. In first-tier cities it’s probably 2.5-to-1, just because of the cost of living, for rentals in those cities. And so those are the two biggest metrics I look for on the tenant side and the tenant acquisition.

Days on market – if your property is on the market for over 30 days, you have a pricing problem, so you need to reduce the price. I only look for leases that can do 12 months or 24 months, but if you’re on a winter turnover, if you’re turning over your property in February or March, from a data perspective, you’re gonna wanna try to next time turn it over in the summer. So we are gonna change the terms associated with that lease, and we help you with all of that… But those are just kind of common sense consulting that I recommend for every single property.

Then the last part of that on the tenant acquisition side is looking at the numbers and the location-specific data. Let me give you an example, Joe. In San Francisco, more than 50% of the renters here have pets, so when I market a property, I’m definitely gonna say “You can have pets on the property”, and more than 50% of the rentals in San Francisco say you can’t have pets. So they’re just losing out on the money of charging pet rent, charging an additional security deposit added to the current security deposit, for the pets

So all of those data and numbers associated, both locally as well as just common ratios on tenant acquisition I look for, to make sure the property is under 30 days on the market, being turned over fast, the tenant is qualified, I have a level of guarantee. If you’re in a class C or a class D property, you might not get a 650 credit score, but you should request for additional security deposit to cover the additional risk… So we put all of that in place.

Then on the maintenance side I think it’s important from a numbers and metrics perspective to — not big data, but just take into account all the inventory of the appliances you have if you’re offering any to your tenants, what’s the lifetime value of them and then putting together forecasts and budgets for that.

Joe Fairless: If I were to search how many renters in Cincinnati have pets, I don’t think I’d get some good answers… So how did you know that San Francisco stat and how can we find that information for our market?

Dana Dunford: Yup, that was in a San Francisco-specific paper. The local newspapers are the best to have that. I’ve never seen a nation-wide survey of what renters have pets, but that’s actually probably a good one, Joe; I’ll have to get back to you. Maybe I can survey all of our tenants who are on Hemlane and then give you better data on that. But what you can do is just look out there at the properties that are on Zillow and see what percentage are saying “No pets”, versus which percentage are allowing for pets… And REITs are the best way to look at it; the REITs have more data, because tenants have to fill out these lead inquiry forms of “Do you have pets?” We ask them to do the same thing, so we can capture the data within that city. But the REITs will have data on pets, and then they’ll come up with what is their pet rent and what’s the additional security deposit based on those numbers, so a lot of times you’ll wanna base it off of what these larger apartment complexes are doing.

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

Dana Dunford: I guess I am.

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

Break: [00:25:48].19] to [00:26:40].28]

Joe Fairless: Best ever book you’ve read?

Dana Dunford: The Lexus and the Olive Tree by Thomas Friedman.

Joe Fairless: Oh, that’s a new one for me, The Lexus and the Olive Tree… Okay. Best ever deal you and/or your family have done?

Dana Dunford: Best ever deal was not doing a deal in San Francisco, for my primary residence. I put together the cashflow numbers of how much money we were making out of state, versus purchasing in state, and then staying on rent control in San Francisco – that was probably the best deal.

Joe Fairless: I thought you were gonna say you were about to buy a condo in that building that’s crumbling to the ground in San Francisco… Do you know about that one? It’s leaning…

Dana Dunford: Oh yeah, the Millennial [unintelligible [00:27:19].03]

Joe Fairless: Yeah…  [laughs] That would have been a big flop for you, too. What’s a mistake you’ve made in business?

Dana Dunford: A mistake I’ve made in business… I would say letting emotions impact decisions, especially with tenants. You hear stories from losing jobs to children in hospital, and the best way I’ve found to deal with that is to not let those emotions take over and set expectations up-front of saying “I know you might be going through a hardship, but we’re your management, this is the contract, don’t try to get around it, and you should build your own network of family and friends to do that.” So having more of a professional relationship with the tenants, versus anything that’s personal.

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

Dana Dunford: Best ever way to give back – I love giving back in maintaining 71% of the earth, which is the water. My husband and I are deeply connected to the oceans, he’s a huge surfer. My mom’s a geophysicist and oceanographer, so we donate a lot to ocean conservation efforts.

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

Dana Dunford: They can go to www.hemlane.com. You can reach me on Twitter @Dana110001, or LinkedIn at Dana Dunford.

Joe Fairless: Well, Dana, thank you for spending some time with us and talking to us about Hemlane and the solution that it provides, as well as getting into the data. I love the info that you’ve talked about towards the end of our conversation as it relates to tenant acquisition – if you’ve got a class B property, you’ll want a 650 credit score or higher, 3-to-1 income to rent ratio ideally; days on market – more than 30 and you’ve got a pricing problem, and the changing of terms… Perhaps if you’re seeing it every winter become available, then maybe change the terms so that it’s a summer availability, should someone decide to move out, as well as the tenant acquisition. That’s an exercise everyone can do to educate ourselves on potential additional revenue streams for our property. Just simply go on Zillow, as you said, and see what percentage of properties allow pets, versus don’t have pets; if you don’t allow pets, then maybe you can have a competitive advantage relative to the competitive set that you’re competing against.

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

Dana Dunford: Great. Thanks so much, Joe. You too.

Best ever Real Estate Advice Show Banner

JF1243: Wholetailing and SEO For More Profit #SituationSaturday with Jason Buzi

He’s been investing for 13 years, since 2013 he’s been making 6 figures in the business. He has a couple interesting strategies and tales from previous deals we can all learn from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Jason Buzi Real Estate Background:

-Real estate investor and developer

-Gained worldwide publicity as the founder of Hidden Cash, which set up scavenger hunts worldwide

-Regularly do double closings for 6 figure profits in a competitive market.

-Began in 2005 with no money, focused on wholesaling until 2010, has been making six figures since 2013

-Buys, builds, and fixes up houses throughout the San Francisco Bay Area.

-Say hi to him at info@areacodeseo.com


Made Possible Because of Our Best Ever Sponsors:

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

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

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


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

I hope you’re having a best ever weekend, first and foremost, and because today is Saturday, we’ve got a special segment for you with a returning guest. You know what the segment is – on Saturdays, we do Situation Saturday. Our returning guest is Jason Buzi. How are you doing, Jason?

Jason Buzi: Good, how are you?

Joe Fairless: I am doing well, and nice to have you back, my friend. Best Ever listeners, with situation Saturday what we do is our guest Jason is gonna talk about some challenging situations and deals that he’s been in recently, and how they’ve turned out. He’s gonna talk through that…

A little bit about Jason — by the way, you can hear his other episode where he gave his best ever advice; it’s episode 443, and it’s titled How To Focus On Off-Market Deals For One Million Dollars Plus a Year. He is a real estate investor in San Francisco, California. We’ll give you his e-mail address, it’s info@areacodeseo.com (that will be in the show notes), so you can e-mail him afterwards if you’d like to talk to him.

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

Jason Buzi: Yeah, absolutely. First of all, thanks for having me back on, it’s an honor and a pleasure. I do mostly high-end deals, partly because of the nature of the market that I’m in, which is the San Francisco, Bay Area where home prices are well in excess of one million dollars… And I say that if you’re not making a million dollars a year minimum in a market like this, you’re probably doing something wrong.

For years, I was doing something wrong – I limited myself to wholesaling. Wholesaling is great, but when I started out in 2005 I was wholesaling, and I made about 250k in my first year. I was very happy with that, but I was still doing the same thing five years later, and that was a mistake. What got me out of it was the opportunity to joint venture with family members. Basically, they convinced me to partner with them on a deal, and we made 400k, which was a lot more than the wholesaler assignment fee that I had always gotten.

That kind of created a mental shift in me where I looked at each property and sought to maximize my profit on it. There have been multiple properties where I’ve made 300k, 400k, 500k, either by rehabbing the property, by partnering on new construction, or by using my favorite method, which is wholetailing (or double-closing; people use different terminology for that). That just means you take title to the property, you don’t do a full rehab on it – we do little to nothing on it – throw it back on the market or sell it to a buyer, whether it’s a retail buyer or an investor, and make a large profit, hopefully. So again, you’re just buying, you’re closing, you’re taking title in your name, and then immediately reselling it. So it’s similar to wholesaling, it’s sort of a hybrid between wholesaling and rehabbing, with sort of the best of both; you get the upside that you can get in rehabbing without having to do the work, and you get to do it really quick, like wholesaling, where you get to recapture your profits very quickly. So that’s sort of my preferred method, and I actually have a story about one that we did recently that I think you’re gonna like.

Joe Fairless: We will dive into the stories of the ones you’ve done recently… I know when we were talking before we started recording you gave me the e-mail address and it’s areacodeseo, so clearly you’re involved in some sort of search engine optimization business. How does that align with wholetailing, what’s the crossover?

Jason Buzi: Well, I’ve been looking for a long time to improve my internet marketing presence; I’ve done a lot of direct mail, I’ve done a lot of networking, but I was kind of weak with the online marketing. Then I met a guy in this market which is very competitive, here in the San Francisco area, who is just crushing it with internet market. So we got together, and I said “I see that you’re ranking in the top five and you haven’t even been doing it that long, for a lot of keywords”, and he said “Yeah, I’m getting leads, I’m getting deals from it, I’m getting constant leads from it…” I said, “Is this something you can do for me?” and he said “Yeah.”

Then I came to him with a proposal and I said, “Well, what if I invest some money and we partner? Is this something that you can offer other people? Because I have a lot of people asking me about it.”

Search engine optimization, for those who don’t know, is a way to get your site basically ranked higher in Google when people search for common words like “We buy houses” or “Sell my house fast” or “Cash for my house.” He was able to get a very high ranking in this very competitive market for keywords. I said, “Can you do this nationally?” and he said “Yes”, and he showed me how he was doing it.

I said, “Okay, well let’s partner on this and we can offer it to people”, and everybody gets one area code — to be clear, not a zip code. So 415 if you’re in San Francisco, 202 if you’re in Washington DC, 214 if you’re in Dallas… You get that entire area exclusively, not sharing with anybody, and search engine optimization is done to get your site ranked highly. So if you’re interested in that, please send an e-mail to info@areacodeseo.com. Again, it’s a business (I wanna disclose) I’m a partner and I have equity in. It’s sort of a side-business of mine, but I believe in it, I see what he’s done. It’s info@areacodeseo.com.

Joe Fairless: Any of the deals you’re gonna talk about – did you get those deals from SEO?

Jason Buzi: Yeah, one of them recently was from it.

Joe Fairless: Perfect segue then. Do you wanna tell us about it?

Jason Buzi: That one was a rehab, not as exciting as the double-close deal that I’ve mentioned to you. Let me tell you about the double-closing, because that was kind of a unique, challenging type of situation. A guy that I know that lives in San Francisco, he was driving by and he saw some firetrucks and he referred me to this lead. And I said, “Okay, sounds good. Let me follow up on it.”

It turned out that they already had an agent; the agent was enlisted for 800k, and that seemed like a really good deal for a duplex in San Francisco. The value was at least two million. And I said, “Okay, we can do it for 800k.” So the first challenge was he said “No, that’s not 800k that we’re willing to sell it for. That was just kind of the teaser price”, because what they do here very often is they deliberately underprice properties with the hope and the expectation that it’s gonna sell for way over.

So we said, “Well, okay, how much do you want in order to sell it now without going on the market?” and he said 900k. I said, “Okay, let’s do that.” We got in contract for 900k. Now, this property was fire damaged; there had been a pretty serious fire. I mean, it wasn’t burnt down to the ground, but there was visible fire damage and everybody had to leave the building. So that was the first challenge – it was hard to comp what it’s worth; it’s not like your standard rehab. There was some major stuff that could be structural, could be electrical, plumbing probably that you had to replace.

I know the ARV, but I don’t know what the property is worth today, because this is not my regular type of paint and flooring deal. So that was the first challenge, how much is it really worth in its present condition. It’s gonna take us a lot of time, a lot of money to fix it up.

The second challenge was being San Francisco, even though the tenants left, there are very strict tenant protection laws, very anti-landlord, so all those tenants – it had three of them; it was a duplex, but one of the two units had been ilegally divided into another two units, so…

Joe Fairless: Oh, man…

Jason Buzi: …it was basically three tenants. So we have an illegal extra unit; it really should have been a duplex. We have tenants that are below market rent and they have a right to come back, or you have to buy them out. We talked with an attorney, and there’s a lot of rights protecting the tenants and not a lot protecting the landlord, so you could spend all this money, fix up the place, and your tenants could still come back, so that was the second challenge. We had to buy them out.

Well, long story short, I said “Why don’t we just try to sell it as is? Put some teaser price out there and see if there’s buyers.” So I put it out there for like 1.1, 1.2, and we were pretty confident that if we got interest at that price – go ahead and close. We got interest at that price, we kind of blasted it out while we were still in escrow before closing. So I went ahead and closed on it for 900k, and then just didn’t put it on the MLS because I thought it would be good for an investor. I put it all over Facebook and Craigslist, and any agent in that area that had done a deal and any agent that specialized in that type of property in San Francisco (duplexes).

We got a lot of interest, but a lot of people didn’t want it, mostly because of the tenant situation. They were actually more concerned about that than about the fire. But finally we got somebody to buy it that didn’t mind. We got a 1.35, so 450k more in about two weeks after buying it. 450k spread.

Basically, I had to push them really hard to get the payoff in time because it was such a fast split that I don’t think they’d even gotten the loan over to their servicing department; they got a private loan on that. So 450k was the difference. The profit was slightly less, because we paid a little bit of commisison, so we made about 400k in two weeks, not doing anything to it. Just buying it and selling it. That basically came from being creative and saying, “Okay, I may not wanna deal with the tenant situation, but there’s somebody out there that doesn’t mind. There’s somebody out there that’s willing to take over a problem that I may not wanna do.” That’s a very important lesson in this.

Joe Fairless: Where did the lead come from that eventually closed? Was it through a broker?

Jason Buzi: It was through an agent. What listeners need to understand is – and I say this many times when I do public speaking ocasionally; I have a book out which I don’t think was out yet when we last spoke, but it’s called Smash Your Alarm Clock. If you go to Amazon.com and look up Smash Your Alarm Clock, or look up Jason Buzi, you’ll see my book. And I talk about this… If you’re in this business — and I know we have kind of a love/hate with real estate agents as investors, but if you are not utilizing agents to your advantage, you’re leaving a lot of money on the table, because they want the deal to happen. At the end of the day, a real estate agent is compensated only when a transaction takes place, so you can use them to find new deals, you can use them to comp your deals, and you can use them to find your buyers.

In this case, a real estate agent was able to bring a buyer, persuade them to pay our price, and they got a commission, and we got our profit, and everybody’s happy. That buyer is willing to spend the time and do the work that I would not be willing to do. So utilize real estate agents in this business if you’re an investor. I know that some of the best deals come directly from sellers, but if you’re not utilizing agents in these three capacities – finding you deals, bringing you buyers and helping you evaluate properties and tell you what’s going on in the marketplace – I think you’re putting yourself at a disadvantage.

Joe Fairless: Do you know what the buyer was planning on doing with the property?

Jason Buzi: They had something called the Ellis Act, which is an exception to having the tenants back in. You’re basically signing a guarantee that you will live in the property and not rent it out for 3-5 years. If you do that, then you don’t have to let the tenants back in. That’s the exception, and it’s called Ellis Act. So I think they’re gonna do that, and then fix it up and then live in there. They may have family members living there… They’re looking long-term, and they’re just looking at it as an asset to buy and hold on to.

So the lesson here is just because I wouldn’t do the deal, that doesn’t mean somebody else wouldn’t do the deal. I’ve passed up deals that I’ve been able to sell to others, and sometimes they’ve done very well on them.

Last night I was hanging out with somebody who I’d sold properties to that’s a builder, and they’ve made almost two million dollars on a property that I thought was basically a “dog.” It was a busy road, it was across from a church… It’s in a high-end area, but I didn’t like the location. But you know what? They bought the house, and they sold it for 4.3 million dollars. I got it to them for 1.7.

I’ve worked with a lot of developers, so this was sort of a luxury home. Even though it was on a busy street, they had no problem selling it. So just because something doesn’t appeal to me personally… I’ve learned to say, “Look, just because it’s not for me, that doesn’t mean there’s not a right buyer for that out there.”

Joe Fairless: Yeah, especially with the wholetail approach. It’s one thing if you are putting it into your own portfolio… Then there’s reasons why you have the different filters. But if you’re wholetailing it or wholesaling it even, there’s no harm, no foul, assuming all parties are aware of what’s going on. You send it out to your list, and then if it works, it works; if not, then it didn’t work, and you move on.

Jason Buzi: Correct. And I wanna say, we did lose buyers because of that tenant situation. There were buyers that backed up, but we ended up finding one who said, “Okay, I’ll deal with it.” And we’d have lost buyers on the busy road as well, but it still worked out for the buyer that I did find. So even though it’s a challenging property sometimes, if the numbers make sense, a lot of times you can find a buyer for it.

Joe Fairless: Quickly, is there another deal that you wanted to talk about, or was that the one?

Jason Buzi: Yeah, I’ve got a lot of deals I could talk about. Recently I just got kind of red-tagged by the city because the previous owner who sold me the house left the garbage on the side of the house; I kept asking when they were gonna take it, and it was the next day, the next day, and finally they took it away… A day later I get a call from the city that “Oh, your garage has been converted illegally.” I said, “How did they even find out about that?” and that was done by the previous owner. They said, “Well, one of the neighbors complained, because you’ve got all this garbage stacked up, and we went to see what’s going on with the house, and we saw this illegal garage [unintelligible [00:16:24].17]

So that was something that never happened before and wasn’t very pleasant, but now I’m gonna make sure that we don’t have a bunch of garbage sitting out there, because we’ve got these nosy neighbors that can complain. Also, a bunch of people were gonna see the house while it was in escrow, so just… That was kind of a rude awakening there.

My favorite type of deal these deals is really just the example of the San Francisco duplex, where I can buy it, I know there’s enough value there that I can sell it and not necessarily have to do a lot of work, but I’m also working on entitlement projects, where it’s gonna be a much longer horizon. I have a friend that bought a car wash and got it permitted to build about 40 condos, and made a lot of money selling that to developers. So I’m working on deals like that right now, but I don’t have one completed yet to talk to you about.

I like the bigger deals. I saw somebody asking online “How many deals did you do? 100, 200, 150?” I’m not the guy trying to do hundreds of deals; I’m trying to make a few million bucks a year, but I don’t think I need to do 100 or 200 deals to do that. I’m looking to do big deals. 300k, 400k, 500k, a million dollar profit deals.

Joe Fairless: On the entitlement projects – I know you haven’t completed one yet, but I also know based on what I know about you that you’ve thought through the business plan already. With your wholetailing, you don’t have skin in the game. Are you able to structure it similarly with entitlements, since you’re gonna likely be having it under contract for a much longer period of time?

Jason Buzi: Yeah, I could structure it that way when I get one, which I’m working on a couple potential ones now… I’ll kind of decide, “Okay, how much of my own money do I wanna put in?” Honestly, I have people that wanna invest with me, so I’m sure that I could structure it with no skin in the game. And how much I wanna put in, I haven’t decided yet. My bank account fluctuates between deals. I may put in 100k or 200k of my own money.

I’ve met a guy recently who rehabs and puts none of his own money and does like 100 deals a year rehabbing, and puts none of his own money; private money funds 100%. I could probably get that easily if I wanted to, because of just contacts that I have, but I’m not sure yet how I will structure that. But that’s a much longer horizon type deal; we’re talking about a year or so.

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

Jason Buzi: They can send me an e-mail at info@areacodeseo.com. You can put Jason in the subject line if you have a question for me. If it’s about the SEO, you can just say “SEO.” I also have a Facebook group called Living The Dream; it’s the one with a picture of a smashed alarm clock. I know there’s quite a few groups with similar names, Living The Dream. We have about 12k or 13k members now I think, and it’s just a picture of a smashed alarm clock.

And get my book. I don’t really make any money from it. It is on ly $11 on Amazon, but it’s called Smash Your Alarm Clock. I give a lot of my tidbits away, that we can’t capture them all obviously in this brief time… But can I leave your listeners with some final thoughts?

Joe Fairless: Sure thing.

Jason Buzi: I just wanna say always be growing and learning. I’ll be depressed if in five years from now I’m doing exactly the same things I’m doing today. This business of real estate is infinite, with infinite possibilities, and you just wanna keep learning and growing and improving your skills. My biggest regret in this business is that I didn’t move on from wholesaler for almost six years. Literally, I left millions of dollars on the table. There were deals that I could have made ten times what I did; where I made 30k, I could have made 300k or 400k.

And in around 2010 or 2011 – I think it was 2011 – I said “Okay, I’m not a wholesaler, I’m a real estate investor. Wholesaling is a tool, it’s a skill, it’s one of the things I wanna keep using, but that’s not what defines me. I’m a real estate investor.” And going forward from there, it was only about a year later that I had my first seven figure year, where I broke a million dollars net, and I attribute it all to changing that mindset, first of all, and then strategy following that. Okay, I’m gonna maximize my profit on the deal, I’ll rehab when it makes sense, I’ll double-close when it makes sense, and I’ll wholesale when it makes sense.

For me, the rule is if I’m confident that I can net 100k or more — and again, sometimes I miss the mark… But if going into it I think after all the expenses and closing costs I’m gonna net 100k or more, then I’m going to close on it. I may rehab it, I may resell it right away, but I’m not gonna wholesale it. It just gives me more leverage and more power and more ability to make money.

Every year I have several deals that I make 250k or more, so that at the end of the year it’s a really nice seven-figure year, and this year it’s no exception.

Joe Fairless: Well, thanks for sharing some of the case study examples of actual deals that you’re closing on, in particular the fire-damaged house. And I also enjoyed the part where it was 800k, and then you said “Okay, fine, let’s do 800k”, and then they said “Well, we just did that to generate interest.” “Okay, fine, now what do you want?” “900k.” “Okay, fine, we’ll buy it for 900k.” Just that little piece of info right there, to know what we might come across in situations like that…

And then obviously the property itself, with the challenges – the illegal unit, the three tenants, the favorable landlord tenant laws towards tenants, and the fire damage. And as you said, just because you wouldn’t do the deal doesn’t mean others wouldn’t, so you got it under contract, made it happen, and later about $400,000 was the profit.

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

Jason Buzi: Thank you, Joe. I appreciate it.

Best Real Estate Investing Advice Ever Show Podcast

JF1159: Scale Your Business After You Have Some Success As An Individual Investor #SituationSaturday with Jefferson Lilly

Jefferson owns mobile home parks from coast to coast. He was having success individually and wanted to scale his business up to new levels. Now his company has its own fund, and is becoming more of a “small institution”. To hear how you can scale your company, make sure to tune in! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Jefferson Lilly Background:

  • Co-Founder of Park Street Partners, a private real estate investment firm
  • Owns 18 mobile home parks coast-to-coast totaling over $30mm in value
  • Self-made millionaire, mobile home park investment expert, educator, and industry consultant
  • Featured in The New York Times, Bloomberg Magazine, and on the ‘Real Money’ television show
  • Based in San Francisco, California
  • Say hi to him at http://parkstreetpartners.com/


Made Possible Because of Our Best Ever Sponsors:

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

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


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

Welcoming back a previous Best Ever guest, episode JF 161 – holy cow, that was a long time ago! A lot has happened, and that is a perfect segue into the focus of today’s show, but first, let me introduce Jefferson Lilly. How are you doing, Jefferson?

Jefferson Lilly: Joe, it’s great to be back with you. Thanks for having me back on.

Joe Fairless: My pleasure. 10th February, 2015 is when your episode aired – How To Double The Value Of Mobile Home Parks. You’ve been busy since then, I imagine, right?

Jefferson Lilly: Yes. We have greatly improved the value of parks, we have scaled up now to have our own fund, and we’re about to launch our next fund a little bit later this year, just probably another two months. We’ve been hiring on people, we’ve basically grown from being successful individual real estate owners to beginning to be a successful small institution. We’ve been hiring people, putting in place systems and procedures… All sorts of things. It’s quite challenging when you’re a successful individual investor and all of a sudden there are no hours left in the day to do more deals, and the question is “What comes next?” We are into that next phase, and it’s exciting.

Joe Fairless: You know how to T it up, don’t you? That’s so perfect, it’s exactly what we’re gonna be talking about today… It is exactly what you said – as you have become successful individual investors, how do you scale your company? Your focus is on mobile home parks, and I guess first what type of assets, value (or however you quantify) do you have now, just to set the stage with where you’re at?

Jefferson Lilly: Yeah, we’ve got 18 parks, a total of about 1,540 pads. We have another 700 pads under contract, so knock on wood – I’m banging my head here, Joe, but not on wood – we’ll be at about 2,200 pads by the end of September of this year, 2017. That should make us one of America’s 50 largest mobile home park owners; we’ll get there in another couple months. And we are coast to coast – we have bought both in Spokane, Washington over the last year, and also in Raleigh-Durham, North Carolina. 15 minutes from Duke and 15 minutes from Chapel Hill – that’s a great market there. But 80-something percent of our stuff is still the Midwest – Wyoming, Kansas, Oklahoma, Illinois, Ohio, Wisconsin, Michigan… We’re mostly in the Midwest where the values are better, where cashflows are cheaper than on the coasts…But we’ve obviously bought opportunistically on the coasts when we’d come across deals priced more like they’re in the Midwest. Nothing better than getting a coastal deal at a Midwest price, but they’re not coming.

Joe Fairless: You’ve built your company and you’re the co-founder of Park Street Partners, so I guess there’s one other founder…?

Jefferson Lilly: Yeah, Brad Johnson, he’s my co-founder. His background was more fundraising; he had worked at Eastdil Secured, Wells Fargo’s real estate investment bank. He had worked at Advent and some other private equity real estate firms. He was a little more the finance guy, and then I had been in this business about seven years dedicated, operating my own two parks – which I still do – when we partnered up. So he’s more the finance guy and I’m more the operations guy, but I still do some of the fundraising and he does some of the operations. It’s not entirely black and white, but we have our general spheres of influence and expertise with our partnership.

Joe Fairless: Okay. Now, let’s talk about the challenges you were coming across as you are growing and what you’re doing about those challenges.

Jefferson Lilly: Yeah, so basically where we got I think by the end of 2015 going into 2016 – say a year after I was on your show last – was that there just weren’t enough hours in the day. We had both people calling us and saying “Hey, we wanna invest with Park Street Partners and co-own mobile home parks with you.” We also had brokers and even some park owners approaching us directly with parks for sale. Plus, of course, we had built up from starting at ground zero the partnership, and by roughly early ’16 I think we were up to eight or nine properties, and we probably had almost a thousand — let’s just say 700-800 pads at that point.

It depends in this business a little bit on what quality of parks you buy, but somewhere between getting to 500 and 1,000 pads you’re gonna max out; you’re gonna have too much to deal with with tenants, or rehab, or other asset management activities when you’re investing back into the properties. There just weren’t enough hours, so we partnered initially with a gentleman who actually brought us a deal and he helped us do some asset management, and then this year we’ve now hired on a full-time asset management person. We found that was really both value-add for the portfolio, and also where Brad and I were spending a lot of our time. So asset management in our world, the way we divide things up is basically as follows – managers deal with all three figure issues; that is, for instance, collecting $275 [unintelligible [00:06:41].06] rent, calling a plumber for $150 to come do a sewer on [unintelligible [00:06:45].20], calling somebody else for $200/week to come and mow lawns in the common area… Those kinds of three-figure things are all with the managers on-site at the property handle.

Four and five-figure stuff is like “Hey, we actually had somebody abandon a mobile home, and it needs $4,000 worth of rehab. It’s gonna need new floors, it needs a couple of new windows, it needs some new paint…” or “Hey, we’ve got a park with a lot of potential, but we need to repave it for $65,000.” So those sorts of four and five-figure investments back into existing properties is what we call asset management.

Brad and I were spending a lot of time doing that and trying to find a crew to come and rehab a house for $4,000. What Brad and I spend our time on now is six and really seven figure and up issues. That’s mostly raising money and buying parks. So again, we’ve hired somebody to handle the asset management stuff; we can go into that here in a minute.

We’ve also hired on a CFO, somebody who’s been in the business approximately 20 years doing nothing but real estate accounting and investing relations. That person makes sure that the numbers are right and that we’re getting reporting out to our 120-some-odd investors now we’re up to. And we’ve also just recently (a couple weeks ago) hired a gentleman who’s doing acquisitions for us. Unlike the other two, he has no previous experience in real estate. He’s a very bright guy, served our country abroad in Fallujah, and other places; he’s a marine with a Purple Heart and an Ivy League undergraduate degree, and likes to work hard. We’ve got him focused on outreaching both to brokers and to mobile home park owners to help generate deal flow.

So we’ve made three key hires this year. We thought that would make us less busy. When other people take things off your plate, you do get more busy, you get more deals and more capital and what not… But anyway, those are some three key hires that we’ve made to help us grow.

Joe Fairless: I’m gonna ask more high-level questions, but before I do, I have a very specific question about the last hire – he has no experience with real estate, but clearly, he’s a go-getter, for many reasons… How do you train him to find deals and how many deals are you all looking at on a weekly basis?

Jefferson Lilly: The latter question there is a great one, and we are literally building our database… I think we’re gonna do it in SalesForce.com or something like that, just to treat each deal effectively as a “customer.” You log it in there, how many points of contact have you had with it, is it a good prospect or not, when do you next make a follow-up phone call, what’s the next step… So I don’t have an exact number weekly, but I’m gonna guesstimate it’s a couple dozen deals per week, something like that. So let’s just say we’re probably clocking in at 400-500 deals that come across our desk a year, I would guess.

But putting in place systems and procedures – which we can talk about as well – helps us follow up with things… And I’m hoping in another couple weeks I’ll have a little bit better handle on exactly how many deals are coming in, and of course with the sources – how many are directly sourced from a park owner, versus what comes in from a broker, versus what comes in from our own podcast. We’ll see, but having him on board and building that system is a big win for us.

Joe Fairless: As far as the three hires, which one gives you the most comfort in terms of you not having to do it anymore?

Jefferson Lilly: Me personally, that’s probably the asset manager. Honestly, I wasn’t doing a huge amount of the accounting; my partner Brad was doing more of that. So he may say the CFO for him is his answer, but mine is gonna be asset management… Because I was still getting calls from tenants about “Hey, there seems to be flooding in the street. What can you do about that?”

Joe Fairless: Yeah, that’s tough.

Jefferson Lilly: Or “Hey, my neighbor’s making noise.” Or again, the manager would just say “Yeah, the guy in lot 17 just didn’t pay his rent and just kind of seems to have abandoned his house. What do I do about that?” Anyway, so having her on board is a big plus. I’ll touch a little here on system – we can do more later, but we use Asana; there are other similar packages out there, but basically it’s a very fancy online shared to-do list, so now if and when something like that makes it to me, that “Hey, in Cincinnati, Ohio park lot number 17 is vacant”, I can log that in, assign it out to our asset manager, and then we have weekly calls…

And we certainly communicate really throughout the week, more by text, some by e-mail, but we all have kind of an all hands on deck Monday morning call and we go through each of the properties, and now things aren’t falling through the cracks… Or at least we know if they haven’t yet been dealt with and we can say “Hey, what’s the status of getting that house renovated? Do we have a crew on board? When will this be back to revenue-producing?” Or again, “What’s the status of that $50,000-$60,000 paving bid for the other property and which one are we gonna accept and what are the payment terms? How quickly can they get going?” These are all things now that get logged in.

There’s an app through your phone, so we can watch all the progress on our phone. It helps us work better as a team, again, now that we’ve grown beyond just having three, four properties and 300-400 pads with far fewer headaches, to the scale that we’re at now with over 1,500 pads.

Joe Fairless: How do you spell Asana?

Jefferson Lilly: A-S-A-N-A.

Joe Fairless: Got it.

Jefferson Lilly: Slack is another somewhat similar tool, and probably if you just google “Asana competitor” or something, you’ll find  a bunch of other… We like Asana; it’s free for up to I think 8 or 10 users, and we don’t have that many yet on it, but we’ll certainly pay as we grow. But just having something like that in place to track everything… People can upload photos, you can upload the actual PDF, the bid for the paving job – boom, it goes right there in that task for that property. And when it’s done, the manager photographs the pavement in place; it’s a done deal, and he uploads those and you can verify that the work has been done – that kind of thing. That’s all a big help.

Joe Fairless: What’s the compensation range – you don’t have to tell us what each of your people are making, but what’s the range for each of those three positions?

Jefferson Lilly: I believe they’re all at least on target to be six figures. So there’s a bigger base and somewhat lower bonus, say 75% base, 25% variable bonus base for our asset manager. The guy that’s out hunting down deals is probably the inverse – he’s about 25% base compensation and 75% bonus based on what he finds… So that’s the range, but I think most of these folks are gonna be coming in around 100k, maybe even 150k, depending on how they perform. This is not quite startup stuff — when I started with 66 pads under management, I didn’t have three six-figure people on the payroll, but we do now.

Joe Fairless: What type of bonus or performance structure do you have with the CFO? And again, it doesn’t have to be the specific structure you have with him or her, but just for someone who wants to hire a CFO, how do we put performance incentives in there?

Jefferson Lilly: I think that’s more just sort of “Hey, [unintelligible [00:14:20].09] job description is, that for instance all the numbers for every month to get closed out and are accessible to the partners within the first week of the following month, and the K-1’s get done on time”, that kind of thing. And then that’s probably sort of a 20% bonus, I think. That job is more cranking through numbers, whereas at the extreme opposite end, the guy that’s doing acquisition for us is really just going out, finding stuff de novo – new deals, establish new relationships, so we want him motivated to do that.

And then he kind of like a broker gets paid a percentage of the value of all the parks that we buy from the leads that he brings in.

Joe Fairless: Okay. As far as the asset manager – is that hitting a certain income or NOI figures?

Jefferson Lilly: Yes, that’s it for the bonus. It’s basically “Hey, we need to take the parks here from X to X+20% over the next year. We’ll do that by in-filling and/or bumping rents – you figure it out, but you need to deliver this higher NOI over the next year.” That’s principally-driven, again, by NOI, as opposed to goal-based things, which is more common for CFO’s.

Joe Fairless: How do you know if you’re hiring too many people too quickly?

Jefferson Lilly: Good question. We felt it was pretty clear that we had the need for this and that these were all full-time positions. We went about finding people principally by putting the word out on LinkedIn; I signed up for a LinkedIn recruiter account, which costs $120/month, and was then able to do very specific searches, well beyond my existing network of contacts, and again, search for people at certain companies, people that had been there a certain minimum amount of time, people that had certain keywords in their job description… So we thought it was great. We also put out the word, word of mouth, listed and put out the word on our own podcast… Honestly, that didn’t go really well; it was really going out proactively and finding people and putting that ad up on LinkedIn.

Plus, LinkedIn has its own computer algorithm that then generates leads for you of people that it things matches your job description. I didn’t find that to be helpful. People were just too far off base, but whatever – that’s fine that LinkedIn gave me some “matches” that I didn’t think were great matches. I mostly went out and looked for people myself.

Joe Fairless: The asset manager – I suspect good asset managers don’t ever wanna listen to a mobile home park podcast because they wanna escape that whenever they’re not at work; they wanna escape the conversation of having the local person say “It’s a vacant mobile home. What do I do?” – they don’t wanna talk about that, they don’t wanna listen to that stuff.

Jefferson Lilly: Yeah, you’re probably right, Joe. Had I thought more clearly, the way you obviously do — I would have not even bothered advertising on our own podcast.

Joe Fairless: I just asked when do you know if you’re hiring too many too quickly – when do you know when you should hire your first person?

Jefferson Lilly: In this business – again, I’m just gonna guess it’s probably somewhere between 500 and 1,000 pads. Just be honest with yourself – when are things falling through the cracks? When are you sitting there saying “Oh yeah, I forgot; two weeks ago my manager told me that that mobile home on lot 17 got abandoned and I haven’t done anything now to get it back into the rental pool and generating cash because I’ve been too busy with this, that or the other. So Just be honest with yourself and think about what you’re spending your time on.

We’ve made full-time hires — we’re actually looking now (I’ll put an ad out here, on your show) to hire somebody to handle inside sales for us, who will be responsible for posting ads on Craigslist, also in local newspapers, and then handling the inbound phone call about mobile homes for rent. That’s not quite a full-time job for us, so for that we’re looking for somebody — the perfect example would be somebody with prior sales experience, probably real estate sales experience, but at least prior sales experience, who’s maybe a stay-at-home mom and is not looking for full-time, but part-time, third-time, half-time, something like that is probably what that job is right now. For that role, again, we’re not gonna hire full-time, but there are people out there who are comfortable working part-time, and then we’ll just see how we grow.

We hope to double to about 3,000 in a year and a half, probably by the end of 2018. So that person that we hope to hire over the next month or so to handle the inbound calls will either then scale up and can work full-time for us, or we may switch to someone else working full-time… Or who knows, there’s nothing wrong with having a couple of half-time people doing a job like that if we find two people who wanna work from home. We’re flexible in accommodating people’s schedules.

Joe Fairless: Primarily, before these hires, was Brad the one interacting with investors when they had questions?

Jefferson Lilly: Certainly if it was specifically accounting-related, like “Hey, I’ve received my dividend check; it’s for X amount of money. I thought it would be more.” Or “I’m surprised it’s so much; I thought it would be less.” We get that as well.

So Brad has handled more of the accounting and would answer those sorts of questions. I’ve done certainly I think my fair share of handling inbound inquiries from folks that just kind of wanna know more; they’re thinking of investing 50k or up to a million with us, and maybe they’ve heard my podcast – those sorts of calls tend to come into me, because I do more of the podcasting. It does vary, but once it’s really sort of an accounting question, Brad handles all that. And then again, Brad does handle his own fair share of incoming questions about “Hey, what it would be like to co-own parks [unintelligible [00:20:30].12]?”

Joe Fairless: I thought the CFO handles that now though.

Jefferson Lilly: The CFO will be producing the numbers, getting K-1’s out, and then handling questions, probably more at the year end, that are fairly detailed accounting stuff. So our CFO will be handling more of that.

Joe Fairless: So here’s the question I’m getting at – I just wanna set the stage to understand the lay of the land. So it’s still in transition, basically, but my question was going to be if you’ve transitioned investor communication over to the CFO, what (if any) correspondence did you have with investors to let them know there’s a transition?

Jefferson Lilly: We haven’t fully transitioned that over yet, but what we’ll do is we’re ramping up now – now that we have more time to do quarterly reporting, it will probably be in the format of a recorded call. We’re obviously not a public company, but we will do basically an investor relations call, we’ll talk about what the numbers are, and then of course some other softer things – management discussion and analysis, like “Why did we make this acquisition, or how big is our pipeline now? What do we anticipate closing in the next quarter?” So we’ll do more of that, and then that’s a perfect time to introduce key hires and say “Hey, going forward, if you do have a specific accounting question, here’s our CFO’s contact information.”
I think all that will come into place probably for this next quarter we will have those calls and we will formally and officially introduce our CFO.

Joe Fairless: Cool. Anything that we haven’t discussed as it relates to scaling from successful individual investors to a successful larger company?

Jefferson Lilly: Yeah, I’ll talk a little bit about systems and then a little bit about financing. So also on the systems side of things we now use Rent Manager to collect all our rents and do all our rent accounting, and really beyond just rent accounting, it’s the whole P&L that’s in there. We like rent manager because it not only does the accounting, but it also interfaces with the check scanner. Joe, this is brilliant – it seemed brilliant to me, maybe it’s old hat for you, but we’ve given all of our park managers a check scanner. We never accept cash, but now when those checks or money orders come in, they can just swipe them through the check reader. It of course deposits the money AND it updates our rent accounting software in real time.

So there’s no question as to whether the guy in lot 44 has paid or not; we can see that at headquarters, we can see the delinquencies for each property… There’s no check in the mail story, it all just happens in real time and then we’re on the same page as our managers. So that’s a big thing for our accounting, and again, just to then control, really have systems around controlling any vacant lots or vacant homes – those all get flagged by the manager in that system and we can see it property-by-property.

Then we’re also using a solution called Avid Pay – all of our bills go in there, they get flagged up to the right person to be approved. Assuming a vendor has a bank account and they’ve input their information, we can just ACH them their money. Otherwise, we send them an old-fashioned check, but that just really helps with what was an otherwise unwieldy massive — receiving a fax from a manager, or an e-mail that “Hey, we owe $150 to this plumber” or we do now owe the $4,000 to that other rehab crew… Anyway, so we’ve got systems and procedures around our bill paying, as well. That’ huge.

And then also financing – we’ve now tapped into the CMBS market. That stands for Collateralized Mortgage-Backed Securities. It’s the fancy Wall-Street money; it’s no personal recourse, it’s fairly low interest rates… We’re borrowing ten-years fixed at about 4.6%, a year or two interest-only, on a 30-year amortization.

We don’t do all of our deals that way; you kind of need to have a 2 or 2,5 million dollar and up deal to really qualify for CMBS financing, but tapping into that fancy Wall-Street money has given us a cheaper source of capital, which helps us to make enhanced returns for our investors.

That’s something else we’ve done growing up beyond just being two guys and a couple of parks, to being a little bit of an organization now.

Joe Fairless: And just to clarify that – CMBS is for debt, right? Not equity.

Jefferson Lilly: Yes, sorry, that’s correct; yeah, it’s all for debt. We’re still putting down 25%, sometimes 35% equity and then borrowing – not always, but for our larger deals – 70% or 75% of the purchase price from these pools of debt that these firms put together and then sell off to institutional investors.

Joe Fairless: Any parting thoughts before we close this out, Jefferson?

Jefferson Lilly: That’s been a good and intense overview, Joe. [laughter]

Joe Fairless: I like peppering you with questions…

Jefferson Lilly: I’m giving a lot of information, I think…

Joe Fairless: Yeah, it’s been great stuff. How can the Best Ever listeners get in touch with you?

Jefferson Lilly: A couple things. First, our website is ParkStreetPartners.com. We’ve got information there for you if you’re thinking of co-owning parks with us, perhaps investing in our fund, or if you’re just thinking of buying a park on your own. Again, ParkStreetPartners.com.

Then we’ve got our own podcast, also our own LinkedIn group about now almost 3,700 people sharing tips and tricks and deal flow on LinkedIn, and we’ve got the industry’s first and only calendar of events, so that people can just suck that right into their iPhone or Android device or what have you, on your computer, and it just lists upcoming trade shows, conference calls, that kind of thing. Anyway, all that is at MobileHomeParkInvestors.com. You’ll get a link there to our podcast, to the LinkedIn group and to our calendar – MobileHomeParkInvestors.com.

Joe Fairless: And why did you choose to do a LinkedIn group versus a Facebook group?

Jefferson Lilly: Because this is more of a professional thing than a personal thing, and I personally find Facebook to be more annoying than useful, that’s why.

Joe Fairless: Got it. Fair enough. I ask because I’m in the process of creating a group for this show, and I’m debating between Facebook and LinkedIn, and I just wanted to hear your thoughts.

Jefferson Lilly: You let me know if I’ve made an epic mistake and you’re like “No, I get ten times more good leads off Facebook than LinkedIn. You’re such a goof, Jefferson, do it on Facebook!” You let me know, and then the next time I’m on your show I’ll tell you then about how wonderful Facebook is.

Joe Fairless: There you go. Well, you’ve got 3,700 people in your group, so I think you’re doing something right, that’s for sure.

Jefferson, thank you for being on the show. Thanks for talking about how you’ve scaled the business and specific ways for doing so. One is hiring the right people – you’ve hired an asset manager, a CFO and someone who’s heading up acquisitions. The compensation, the structure for that compensation, how you found them, and then the systems that you’re implementing, from Rent Manager, Avid Pay and getting the debt financing through CMBS markets.

Thanks for being on the show, thanks for sharing your advice again; I enjoyed talking to you, catching up, and I wish you the best. I hope you have a best ever day, and we’ll talk to you soon.

Jefferson Lilly: Okay, Joe. Bye-bye.

JF1132: 5 Steps To An Unstoppable Mindset #SkillSetSunday with Tina Greenbaum

As it pertains to real estate investing, Tina gives us a little insight into how we can gain an unstoppable mindset. We have to be able to manage many parts of our bodies and mind to be truly unstoppable according to Tina. Listen to this episode for more in-depth insight on how you can be the best version of yourself in the middle of a tough negotiation, (or any other high-stress situation). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Tina Greenbaum Background:
-CEO at Mastery Under Pressure, Peak Performance Coaching, Executive Coaching
Licensed Clinical Social Worker, an Optimal Performance Specialist, and a dynamic workshop leader
-Works with business leaders, athletes, artists, speakers with over 30 years experience
-Based in San Francisco, California
-Say hi to her at www.tinagreenbaum.com/

Made Possible Because of Our Best Ever Sponsors:

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

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


Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of fluff. Because it is Sunday, first off, I hope you’re having a best ever weekend, and because it’s Sunday, we’ve got a special segment called Skillset Sunday where we talk about a specific skill that you can then go apply towards your real estate endeavors.

Today we’re gonna be talking about getting mastery under pressure, and being able to be at your peak performance so that you achieve an unstoppable mindset. And holy cow, guess what?! That’s the name of our best ever guest’s book, “Mastery Under Pressure: How To Achieve An Unstoppable Mindset.” How are you doing, Tina Greenbaum?

Tina Greenbaum: Well, how are you today, Joe?

Joe Fairless: I’m doing very well, and I’m looking forward to our conversation. A little bit about Tina – she is the CEO at Mastery Under Pressure, peak performance coaching. She’s an executive coach, she’s a licensed clinical social worker, an optimal performance specialist and a dynamic workshop leader. She works with business leaders, athletes, real estate investors, speakers for the last 30 years, and she’s based in San Francisco, California.

She just released her book, Mastery Under Pressure: How To Achieve An Unstoppable Mindset – you can go check that out on Amazon.

Today, that’s our focus of the conversation – it’s gonna be on how to be a master under pressure and achieve an unstoppable mindset. With that being said, Tina, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tina Greenbaum: Sure. I am a clinical social worker by training; I’ve lived in six different places, and mostly on the East Coast. I started over my business six times, so I know a lot about entrepreneurship, I know a lot about taking risks, and I am here in the Bay Area now, working with business professionals, real estate investors, salespeople… Anybody who is in business and wants to improve their performance. So it’s not like you’re just kind of weak and not doing so great; you’re actually doing okay, you just wanna do better.

The way that I look at this is every great performer would never go out and perform without knowing these mental skills. Many of us kind of studied our subject matter, but we don’t really look at what’s between the ears, which actually rules everything.

Joe Fairless: I completely agree. I read a quote last night on some fitness Facebook page and it said “Your mind will quit much sooner than your body.” It’s applied not only in fitness, but in everything else. How should we frame our conversation, knowing that we want to improve our performance and know the mental skills for doing so?

Tina Greenbaum: Okay, so you and I talked a little bit about the kind of mindset that you need to have to be a real estate investor, let’s just kind of start with that. Any kind of business that you’re going to invest money in, you take a risk. And in order to take a risk, we’re now in the unknown. We take what we call calculated risks, we kind of do our homework and put our money where we think that it’s going to make money for us, but the truth is we don’t know what’s actually gonna happen tomorrow, none of us do.

So when we get caught up in trying to control the future, we get into trouble. I have five pieces to my curriculum. Focus – what do I focus on? We kind of lose focus, we bring it back, we get distracted, we bring it back, so the question is really “What do we focus on and what happens to us when we lose focus and how do we even know if we’re not paying attention?”

Relaxation – I’m a mind/body person, and this is something that people maybe think is a little woo-woo, we don’t talk about it a lot, but the truth is thank goodness that the neuroscience now is starting to validate a lot of the things that seem to have been very mystical. What I mean by that is that there is a mind and a body connection. In traditional talk therapy they would start with the head, the mental part, and then go down into the body. Now they’re talking about it from the bottom up. What does that mean? It means that in order to manage our stress, we have to be able to manage our nervous system. And in order to manage the nervous system, we have to know how to do that.

Relaxation techniques – we talk about yoga and we talk about all these things, but we’re gonna bring it down to a very practical thing to think about, that if you can calm your nervous system down in an instant when you get nervous, if you have practiced how to do that. We’re going to use the breath – there’s a thing called the relaxation response, and it takes practice and repetition, practice and repetition, just like any new skill, but it will be your best friend.

Joe Fairless: Can you elaborate on it? Because that is a skill that would be very helpful to acquire, being able to calm our nervous system in an instant, knowing that the nervous system is directly related to the stress.

Tina Greenbaum: That’s right. And we know if our system is on overload, we can’t think clearly. So if you’re in a negotiation and you wanna have your best foot forward, you wanna be very grounded and you wanna know exactly what you’re taking in, and be conscious of what’s happening internally.

The breath – there’s a bunch of different ways that you can practice it; there’s things online, I actually have a relaxation tape that I’m creating… But it’s basically using the breath – if we think about the yoga breath, they call it the three-part breath. If you put your hands down on your belly, way down on your abdomen, and you breathe in through your nose and you just allow the belly to fill up, just like it was a [unintelligible [00:07:09].27] and it’s actually counterintuitive, because many of us breathe from way up in the upper chest, and when we do that — our mind is very spinny, so we wanna bring the breath… Just put your hands down on your belly, let the belly expand, and then let all the breath out before you take the next breath in.

Joe Fairless: Let it out through your nose or your mouth?

Tina Greenbaum: Through your nose. In and out through your nose. Because when you breathe through your nostrils, you get a much finer connection to the brain, and over time you will balance out both sides of the brain. So it’s actually a three-part breath – it starts in the belly, and then once you get that, then it’s the belly and the rib cage, and then once you get that, it’s the belly, the rib cage and then the upper chest. And when you let it go, you let the belly go first, and then the rib cage, and then the upper chest. All the breath out before you take the next breath in.

Joe Fairless: Where are your hands in this?

Tina Greenbaum: Okay, so we use our hands just so that you can feel that you’re actually opening up this part of the body. So we start out with putting your hands on your belly first, then your belly and then your rib cage, and then you take the bottom hand that’s on your belly and put it into your upper chest.

And I have to indicate that it’s not natural for us. Babies breathe like this, and if you actually have to lay on your belly, you’re gonna have to breathe like this. But we have all kinds of emotions that are in the body, and sometimes we get stuck and sometimes it’s harder to open up one part, then another part… It just takes patience and practice.

So you could be sitting in a meeting and nobody would ever know; if you’re starting to feel anxious and you’re not sure which way to go and what you wanna say, you just take a moment, nobody will see it; you don’t have to put your hands on your body, just take a nice deep breath, let it go, and all of a sudden now your mind is back.

Another little tip is to be aware of your feet. If you do that, you’re gonna be more grounded. There’s a wonderful little saying that says “Your mind is where your breath is.” If your breath is short and shallow, your mind is gonna be very spinny. Your energy is gonna leave your body and you’re not gonna be able to find yourself.

Joe Fairless: What should your feet be doing?

Tina Greenbaum: Just be aware of your feet on the floor… Which leads us into the next piece – it’s really about mindfulness. Again, mindfulness is being thrown around a lot today; it’s like “Oh my god, everything is mindfulness, mindfulness.” I’ve been doing this for over 30 years because you can’t change anything until you’re mindful of what you’re doing.

You would notice when you make a real estate deal without doing your homework. It’s the same thing – we operate, automatic, but there’s so much going on; there’s so much under the surface that if you become a student of really being curious about your own unconscious material, your own self, what’s driving you, what’s calling you, what are you scared of? How do I react in a certain situation? What kind of negotiator am I? What is my tolerance for risk? What happens when I feel I am over the line, I’m risking too much?

All these things – you get these amazing indicators once you become connected. A lot of times when I feel stressed and when I feel like somebody’s trying to control, there’s a situation I’m not happy with, it’ll go right to my shoulders and my neck. So if I’m feeling that tightness in my shoulders and my neck, I start to look around “Okay, where am I feeling out of control? Who’s pushing my buttons?” It’s like a shortcut. This stuff is so unbelievably powerful, and we don’t teach it.

Joe Fairless: So the first thing is focus (what we focus on), the second is relaxation of the mind,  being aware of the mind and the body connection, and you gave a very practical exercise for us to implement. What’s the third?

Tina Greenbaum: The third one was mindfulness.

Joe Fairless: Okay.

Tina Greenbaum: So becoming mindful. Let’s just say, again, somebody’s presenting something to you, they’re presenting a deal to you, and you’re interested, but you’re noticing that you’re really, really anxious, because you’re aware of what anxiety looks like for you. Not everybody experiences it the same way. When I do workshops and I go around and ask people to think of something that’s challenging, some people will say it’s in their belly, some people will say it’s in their chest, some people will say it’s in their neck. So it’s important for you to become aware of how your body speaks to you, and the only way we can do that is if we sit sometimes quietly, we just notice… “I notice this makes me really wanna jump out of my skin.” Or “This feels really good, I’m really excited.”

Again, it’s a practice. There’s mindfulness meditations where you just pay attention to everything that kind of comes into your awareness: the sounds from the outside, my breath… And then there’s just mindfulness of just like “I notice how I feel. I’m noticing the sensations that my body gives me”, because the body speaks in sensations. And then once I learn to identify what those sensations mean to me, then I’ve got now a new language. So mindfulness is really important. Does that make sense to you, Joe?

Joe Fairless: That makes sense, yes. You know, I just read 10% Happier, by Dan Harris. Have you read that?

Tina Greenbaum: No, I haven’t, but there’s a lot of books on happiness these days, so yeah…

Joe Fairless: 10% Happier, something like that… He talks about his journey towards getting 10% happier, and it’s what you’re describing – being aware of your surroundings and being present in the moment. You’re being very practical, which I am very appreciative of, because we’re gonna be able to implement some of this stuff right after this interview.

So number three is mindfulness…

Tina Greenbaum: Then I look at belief systems and how we talk to ourselves. Negative self-talk. Let’s just say that the mind, by its nature, is always protective. We’re always looking for danger, that’s how we’re wired. So what happens a lot of times, we just react; somebody says something, we get annoyed and we respond back. The anger just sits underneath the surface and we have this tone of voice… So there’s a whole bunch of stuff that’s going on, and sometimes we get really annoyed with ourselves. “Ugh, I can’t believe I did that”, or “That was really stupid.” Or “I don’t really have anything to say here.” There’s a million different ways that we undo ourselves. So again, if we don’t even know how we’re talking to ourselves, then the mind just does what it does – you’ve heard the term “monkey mind”, it jumps all over the place. It’s not managed, it’s not controlled.

This is an energy thing – whatever we focus on, expands. That’s a really important concept. So if we’re kind of going down this road and sort of undoing ourselves, and self-sabotaging, not even being aware that we’re doing it, that’s what our experience of life is gonna be. So if I were to venture – I didn’t read that book on happiness, but it’s where we focus, where we put our attention.
It’s very important, number one, to put attention to how we’re thinking. Just kind of tune in during the day. As the day goes on, or you’re with your family, or you’re in a business meeting – just notice, “How am I talking to myself?”, because you’ve gotta be your own best friend. We’re working sort of against nature in how to do that.

I call it taking a negative statement, and then rather than saying “I put it into a positive statement”, I like to say “Do my thoughts produce something useful for me?”

I’ll give you an example – let’s just say I wanna take something to the post office. It’s a Saturday morning, I wrap my package, I go to the post office, and I get there and the post office is closed. I get pissy, I get annoyed with myself. Well, it could actually ruin your day. “I can’t believe that they closed. I had this thing, it was really important”, and so on. And then you’ll go down that downward spiral. Or you could say to yourself – and this is another important piece – that “I take responsibility for my own experience. I am in charge of what happens to me. I’m in charge of what I create.”

The truth is I didn’t look and see what time the post office was closed. Now I know, it’s 10 after 12 and they close at 12. Now I know something that I didn’t know before. Okay, so next time I’ll just get there earlier, and then we’re done. It’s a simple example, but if you think about it over and over again, how many times we get annoyed with situations or people, but if we just kind of flip it around – I’m responsible for my own behavior… How did I create this conversation that went South? What was my part? It’s just a masterful piece of self-acknowledgement that will change your life if you change — because people get into trouble because they’re very good at blaming other people. “If only he would do this” and “If only she would do that.” “I can’t believe they’re doing this”, “I can’t believe they’re late.” Where’s my part? Because that’s where your power is. If I can find my own part, I may not be happy with what I’ve done, but I’m the only one that can change it.

So do your thoughts produce something useful for you?

Joe Fairless: Yes, that’s a powerful one. Even as simple as when you ask someone “How are you doing?” and they say “Not too bad” – that drives me crazy, because it’s like “Well, you’re doing bad, but you’re just not doing too bad. Please elaborate, what’s going on in your life?” They say it and they don’t think about it, but in reality if they are doing well, then they should be saying “I’m doing well”, or “Hey, I’m having a great day”, or whatever. It’s just small things like that that might seem insignificant, but they pile on day after day, and they lead to other things. As you said, it could influence the rest of your day.

Tina Greenbaum: That’s right. And the rest of your life. Honestly, Joe, if people do not choose to do this work, they’ll go out this way. It’s work, it’s consciousness, it’s awareness, it’s taking the time, it’s being willing to change. Again, I’ve heard so many saying… “Expect something different while you keep doing the same thing – that’s really insanity”, and yet, we do. We just keep doing the same thing and get mad that it’s not working. Or “This deal didn’t work for me”, or “Somebody else didn’t tell me something”, and on and on and on…

This is the stuff that can change your life, your business, your relationships, the way you raise your children, how your children take on the next generation, and so on. That’s how important I think this stuff is.

Joe Fairless: Yeah, I agree. Number five?

Tina Greenbaum: There’s another little piece to the thinking — we have belief systems underneath our conscious mind, and they rule us. If you look at what’s going on in our country in terms of the polarity, in terms of the values that people are holding, if they don’t get examined, then we’re just robots; we just rinse and repeat. I have a whole thing about belief systems and values and “Whose are they? Are they mine? Are they my parents’?”

I use this silly example a lot of times about ketchup. My mother thought that Heinz ketchup was the best Ketchup in the world. I don’t really know if it is, but when I go to the store I just buy Heinz ketchup. So if I don’t examine it and really kind of look, then we’re just on automatic.

Again, if you’re not happy with other people, this is the part of being empathic with yourself and with somebody else. It’s like “Where do you come from? How do you think the way that you’re thinking?” If you can start to practice and really kind of get into people’s values and what they think is really important and what you think is important, we can make dramatic shifts. So that’s another part of my bully pulpit, so to speak.

And the last one is creating powerful visualizations. Let’s just imagine, again, that you have this dream about owning property and getting involved — I think you’re pretty big in multifamily investments and homes and so on… So let’s just imagine that I’m sitting here and this is my vision; I create a vision for myself about the way I want my life to be, where I wanna go. Now, I haven’t got a clue at this moment, let’s just say, of how to get there, but I have a vision. So I start to kind of move my life in that way, and ask myself “Is what I’m doing gonna take me to that end result? Even though I don’t know how to get there step by step by step”, and I start to visualize what my day looks like. “Am I moving in that direction, or am I way off? Am I just kind of getting lost in making agreements and decisions about things that don’t take me where I want.”

So we start with this powerful visualization of — people do vision boards and all kinds of things, but if you sit and you work and imagine what you wanna create, and then you walk towards that way, your life begins to start to take on some really interesting connections and things.

People talk about the law of attraction, and “Does that stuff really work?” Well, if our whole body and our minds are in alignment and we’re looking at what we wanna create, again, everything that we focus on expands, and we use the power of visualization, you can create a visualization and even if it hasn’t happened yet, your brain already has had that experience. So again, when we come back to athletes, and I live out in the Bay Area and the Golden State Warriors are so cool, and Steph Curry is a three-point shooter… And just kind of watching him, I just know what he has done in terms of his mind and his mental state and how he visualizes… People do fast shots, they have routines. “This one will bounce it two times, or this one will bend their knees”, and they do it over and over and over again, and that creates that neural pathway. So when they’re under pressure, they’re not thinking; their body is just taking over, they’re allowing the body to do what it does. They know how to focus, they know what their hand does… It’s a whole thing about the neuroscience and which side of the brain is operating, and how you quiet down one side and open the other.. But this is how visualization works – we create the vision, and then we walk into it

Every time I do a workshop, or I’m getting ready to do a talk, or a lecture, I sit down in the morning and I visualize, “What do I wanna create? What’s the environment that I wanna create? What do I wanna have happen?”, and I walk through it step by step. And then when I’m actually doing it, it’s like…

Joe Fairless: You’ve been there.

Tina Greenbaum: I’ve been there.

Joe Fairless: Yup.

Tina Greenbaum: So when we talk about preparing for a big meeting, or a sales negotiation, taking the time and really doing the preparation will have you just walk into something that you never even thought was possible before.

Joe Fairless: Tina, I have taken lots of notes, and I’m gonna summarize them here in a second, but first, before we do that, where can the Best Ever listeners get in touch with you?

Tina Greenbaum: I have a website, it’s called TinaGreenbaum.com.

Joe Fairless: How did you come up with that name? [laughs] Tina, this lesson – I’m titling it Five Practical Steps To An Unstoppable Mindset. You really over-delivered on this one, because we talked about how to manage stress and improve performance, but you went much deeper than that, and it’s not just about improving performance, it is really having an unstoppable mindset.

The first step is focus. Tony Robbins talks about “Where focus goes, energy flows.” You’re talking about what are we focusing on – being self-aware of that. That’s number one.

Number two – relaxation, the body and mind connection. You gave us the practical breathing exercise.

Number three – mindfulness. Be aware of the moment, be aware of how we’re feeling in that moment, and being aware of how our body speaks to us.

Number four is the belief systems – how we talk to ourselves. As you said, whatever we focus on, it expands. And I love the question that we should ask ourselves – “Do you thoughts produce something useful for me?” And take responsibility for our experiences, that’s a key thing, especially in these times.

And then number five – creating powerful visualizations.

Thanks for being on the show… Lots of great lessons in this five-step process.

Tina Greenbaum: If you go to my website, right to my homepage, there are those five things with five exercises.

Joe Fairless: Oh, beautiful. Even better. I will do that myself, and I’m sure a lot of Best Ever listeners will, as well. Have a best ever weekend, Tina, and we’ll talk to you soon!

Tina Greenbaum: Alright, Joe. Take care now. Bye-bye!

Best Real Estate Investing Advice Ever Show Podcast

JF1122: Leveraging LinkedIn The Right Way with Italina Kirknis

Italina was hunting for a job when she realized she had her own business just waiting for her to take action with. She was everywhere on social media and people were asking her how it was possible. That’s when she realized there was a need for professionals to increase their social media presence. She started rolling from there, and hasn’t looked back. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Italina Kirknis Background:
-Online Presence Expert & Speaker for Real Estate Businesses Helps Real Estate Community’s Top Realtors & Lenders upgrade their social media presence and Email Newsletters
-As a former attorney, she is now practicing her passion, Online Branding & Marketing
-Regular Inman.com contributor
-Based in San Francisco, California
-Say hi to her at italinaimage.com
-Best Ever Book: The Noticer

Made Possible Because of Our Best Ever Sponsors:

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

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


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

With us today, Italina Kirknis. How are you doing?

Italina Kirknis: Hi!

Joe Fairless: Hi, nice to have you on the show. A little bit about Italina – she has an online presence as an actor and a speaker in the real estate business. She helps real estate professionals and lenders upgrade their social media presence, and newsletters. She’s a former attorney and is now practicing her passion, which is online branding and marketing. Based in the San Francisco Bay Area… With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Italina Kirknis: Sure, no problem. I began in the legal field; I had this lucrative career in law, and actually just hated all of it. So I delved into LinkedIn, looking for my next career path. I started really networking on LinkedIn, built my network from 40 to over 500 really quickly, and started being really active. Actually, my phone started ringing, and professionals asked me “Hey, Italina, I see you on LinkedIn, you’re everywhere – how are you doing it?” and that’s how I got the idea of the company, because I realized there are all these professionals on LinkedIn that don’t know how to use it.

Joe Fairless: What was your answer when they asked you how you were doing it?

Italina Kirknis: It was funny, because I would actually walk that person through what you do, how I’m posting, how I’m being active, how I’m networking… Literally networking online, bringing conversations from offline to the phone, possibly even meeting. And then I realized “Oh, my goodness… I was supposed to be looking for a job right now, and I am sitting all the time talking to you.” So I go back to my job search and then my phone would ring again, and then the same thing. So that’s when I realized – okay, clearly there’s a need.

Joe Fairless: So what are some things that people do wrong that you’ve seen?

Italina Kirknis: First of all, there’s the mistake of neglecting LinkedIn altogether – “I haven’t logged in in ages, I don’t even know my password…” It’s the number one professional social media site, however people are spending more focus as far as time and posting and networking on Facebook, they’re doing a good job there, and then completely forgetting about their LinkedIn, not realizing “Hey, that’s the number one professional site.” Nurture these contacts as well, talk to these contacts; they’re actually professionals who are income earners and those are the individuals that you want to be networking with.

Joe Fairless: How do we leverage LinkedIn so that we get the best return on our time?

Italina Kirknis: First of all, as you know, Joe, nothing can take place without a conversation happening first. There’s no transaction, no one’s going to invest with you or utilize your service unless you talk to them first. So first of all, when you’re building your network [unintelligible [00:04:11].01] connection request from people who reach out to you on LinkedIn. Start the conversation. “Hey, it’s great to connect with you here on LinkedIn. It’d be great to have at least a quick phone chat with you to see how we can be a resource to each other.”

So actually seeing this as networking … Just like you walk into a room and you’re networking, you exchange cards, you maybe follow up with a phone call or an e-mail – same thing online; you come across someone or someone comes across you – start that conversation, follow it up with a phone call. Once you see it’s of value, you can even have a meeting and you just. You just never know unless you start that conversation.

I know my clients and I – we are receiving what we call service inquiries on a monthly basis from people that say “Hey, I see that you’re in the area” or “I see that you are also connected to John Smith. Let’s see if we’d be a good fit.”

Joe Fairless: I love that advice and that approach, especially for people who are starting out. Once we’re more established, then what is the next level to that, because there’s no way I could follow up with someone on LinkedIn when they reach out to me and say “Let’s have a quick phone conversation”, because all I would be doing is talking to random people who come across me on LinkedIn. So now that we’ve established that foundation of community and connections within LinkedIn, then what’s the next step?

Italina Kirknis: The next step is providing them with valuable information. Whatever it is that you’re promoting or looking to advance and further… Let’s say you’re wanting to work primarily with a certain geographical area. Say you wanna target this particular area, particularly target a market – you can actually use the LinkedIn search feature to target… You can plug in a city, you can plug in  state, or a geographical so that you can penetrate this market. If there’s a certain market you wanna get into or a higher price point, you can use LinkedIn’s search filter, you can actually filter it down so that it’s really specific. A lot of people don’t even know or are aware that LinkedIn even has that feature.

Joe Fairless: Are you referring to searching to connect with people, or are you referring to only sharing information to only people within that city or state?

Italina Kirknis: Both.

Joe Fairless: Both, really?

Italina Kirknis: Yeah. Once you go ahead and you search people in a specific geographical area, then you can actually create groups on LinkedIn, so that you can say “Hey, this is for this city, or this is for this city.” You can have certain groups, and then once you are ready to send a message to the people in that group, you can do that; it’s all organized and laid out there for you.

Joe Fairless: Okay, I’m gonna use my example, because that’s the best way I can think of using an example off the top of my head… I have investors in markets across the U.S., but I’ve identified the top seven markets that my investors live in. Therefore, if I wanted to create content for just them in each of those markets – and let’s just use one, for example Los Angeles – then the approach… This is where I wanna make sure I’m thinking about this correctly based on what you’ve just said – the approach I could take is create Los Angeles-specific real estate investing articles that I think they would be interested in, and then create a Los Angeles group and then share it within that group after they’re in the group? Is that correct, or did I miss something?

Italina Kirknis: Exactly, you’ve got it. And that’s just one way. The other thing I would say, to answer your question, how do we make this more advanced, what do we do to make the most of LinkedIn – the other piece I would say is if you’re really good especially at sharing content on Facebook or some of these other sites, don’t forget to share this content on LinkedIn as well, because that’s another set of eyeballs, another audience to get in front.

Joe Fairless: What should be our focus when sharing content on LinkedIn versus Facebook? Do we approach it differently in any way?

Italina Kirknis: Absolutely. Now, we’re remembering that our audience on LinkedIn – they are professionals, they are higher income earners. They are professionals, so we need to make sure that whatever we’re saying does relate to professionals. We’re not sharing pictures of our nieces and nephews and things [unintelligible [00:08:47].15] at happy hour; we’re not sharing that kind of content. It’s common to see that on Facebook and it’s appropriate to see that on Facebook.

On LinkedIn, what we’re doing is being sure to tie it into being a professional, to being (in this case) and investor, being a business owner, that kind of thing. As long as it relates to that audience, they can relate to it. One thing people say – “I don’t know… Does that mean I’m only sharing articles? Does that mean I’m being super corporate?” Absolutely not.

The best thing I can do is just give you an example. One day I was really tired; it was about two o’clock in the afternoon, and what do most of us do at two o’clock in the afternoon?

Joe Fairless: Oh, we all take naps. [laughter] Oh, just me? Okay, never mind.

Italina Kirknis: We go get a nap in the cup – we go get a cup of coffee. Have you ever tried going to a coffee shop at 2 o’clock in the afternoon? No, because you’re taking a nap.

Joe Fairless: Yeah, right. [laughter]

Italina Kirknis: So you don’t know this, but yeah, everyone else is out in line, getting a coffee. And on this particular I said “Italina, you’re tired. You might as well just take a nap, instead of having a nap in a cup.” So I took my yoga mat from the trunk of my car, it was a beautiful day, I put it under a tree and I took a quick 10-15-minute nap. Then I woke up refreshed as ever, productive for the rest of the day. But I thought “Wow, this is really cool, what I just did, what just happened – I decided to take a nap instead of rushing for a cup of coffee… I bet a lot of professionals could relate to this”, so I shared it on LinkedIn, I found a picture of a yoga mat, I shared that story. It received a lot of engagement because all those professionals could absolutely relate to needing either a nap or a cup of coffee at two o’clock in the afternoon.

Joe Fairless: I remember listening to one of Tim Ferriss’ podcasts and he’s a proponent of that type of approach, taking 15-20-minute naps whenever you need to, just like the power thing. Okay, that’s great. So it was not an article that you were sharing, but rather it was an experience that was helping you as a professional, and it was also something that people were either envious of or enlightened by. Okay, cool.

Italina Kirknis: Right, absolutely. The thing is everything on LinkedIn doesn’t need to be super corporate, it doesn’t just have to be articles. Again, it’s adding value to the professionals in your network. If you are going to share articles, I highly suggest first of all to share your own article. And then number two, if you’re gonna share someone else’s article, read it and give your two cents on the article.

For example, frequently when I see articles being posted on LinkedIn, it’s just the article, and there’s nothing from you. You’re promoting the writer of that article, you’re not promoting yourself; you’re not showing your own expertise and how you’re so good at what you do and why people should work with you. So what I suggest if you are gonna share someone else’s article — the best post that I saw was “This article answers questions on what to do prior to investing.” A person gave their two cents on what the article was going to be addressing. So then we get to see your thought process, we can see “Oh, you are smart”, or we get to see some of your brilliance.

Joe Fairless: How do we judge the success of our LinkedIn approach?

Italina Kirknis: Sure. What’s great is just like Facebook, LinkedIn gives you analytics. So you can actually see — each individual post that you share, you receive analytics. It says right there, “This post reached X amount of people.” Of course, you can also see how many people liked and commented, but as we all know, people who look at your post and who enjoy it don’t always like or comment. So it does show you the stats on not only how many people saw it, but it even shows you the job titles of the individuals who looked.

For example, when I share a post, it will say “X amount of people who have the title ‘real estate broker’ saw your post, and X amount of people who have the title ‘salesperson’ or ‘financial advisor’…” and it even shows the company. [unintelligible [00:13:07].25] it gives you specifics on who’s viewing your content.

Joe Fairless: Is there a dashboard so can compare articles, or do you just have to look at each article individually?

Italina Kirknis: On your own profile, where it says — for example, on my profile where I see all of my activity, all of my posts, it’ll say “Italina’s activity”, and I can look at all my posts that I’ve shared, and for each individual one, yes, I would go to individually and look at the analytics for each.

Joe Fairless: Okay. What’s something else as it relates to LinkedIn that we haven’t talked about that we need to know about?

Italina Kirknis: I would say the basics is the profile. The profile itself, I think the average user thinks “Oh, this is just an online resume.” Well, if you’re in sales, if you’re an investor, if you’re in real estate, you want it to be more of a marketing piece than a resume. You’re not looking for a job, so you don’t need it to be a resume. So use it as an opportunity to actually share what you’re doing, what sets you apart, what sets you in the business, what sets you apart from all the other bazillion real estate professionals out there.

For example, a lot of people don’t even have their summary up there. Use your summary as an opportunity to share the niche market that you’re working in, what sets you apart from other real estate professionals, the kinds of things we can expect in working with you, and a call to action. So it’s more of a marketing piece than just a resume or just a list of companies, real estate brokerages that you’ve been moving around to.

Joe Fairless: Let’s switch gears if we can to e-mail newsletters.

Italina Kirknis: Sure.

Joe Fairless: What are some suggestions or best practices that you have to have an e-mail newsletter that your recipient then shares out with their friends because it’s so darn interesting.

Italina Kirknis: Right. Well, as you can imagine, I’m on a lot of real estate professionals’ lists, so I receive their newsletters and I get to see either how awesome or how lame they are. So I would say the ones that are not as inspiring are the ones where I’m only getting the market report, I’m only getting these stats and so forth. Yes, that’s all important, but again, also add your own two cents, share your brilliance. Based on these marketing stats that you’re sharing, what do I do with this information? Based on that, what are you seeing? So use it as an opportunity to share your accents, your brilliance.

Our e-mail newsletter – we’re addressing problems or questions that people have in the business. You wanna do the same thing, keeping your ear out there… What do you hear people complaining about? What are people asking? That’s what your next e-mail newsletter should be addressing.

Joe Fairless: And then any tips or suggestions or best practices for anything else as it relates to newsletters? I know it’s a large question, so take it whichever way you want to.

Italina Kirknis: Utilize video in your newsletter. Your newsletter shouldn’t be this huge thesis, this huge verbiage, this e-mail that someone definitely needs a cup of coffee just to get through the newsletter. One thing I would say is keep it short and concise, and obviously, use video. Video is huge. People are gonna be more willing to watch a quick few minute video than read paragraph after paragraph. So instead of writing, or as a way to mix it up, just writing what you’re gonna say, say what you’re gonna say on a video, and put that in your e-mail.

What’s so great about that is in your subject line you can put in “VIDEO” and we’ll know right away that’s a video; they look forward to it, and then whatever it is that you’re addressing. In my case I’ll do a video, and then three tips for making the most of LinkedIn. They know right away what they’re getting, and that it’s a video, and they’re gonna be more excited about that.

Joe Fairless: Based on your experience as an online branding and marketing expert, what is your best real estate investing advice ever for real estate investors?

Italina Kirknis: Well, as we know, it’s a saturated market, there’s lots of investors out there, brokerages out there, a lot of people and a lot of options, so how are you setting yourself apart? I would say one great thing is that social media, whether it be LinkedIn, or Facebook, or even promoting through our newsletter list gives us a way to set ourselves apart and show our personalities, and that’s what people fall in love with.

So what I would say is be careful about trying to be just so professional where your personality is not flat and one-dimensional. Yes, you can be yourself hopefully, while still maintaining a level of professionalism. But use the online world, treat it as if it’s your own true e-Hollywood story where you get to share yourself, your personality and who you are, so people will be more inclined to work with you.

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

Italina Kirknis: Okay… [laughs]

Joe Fairless: I love the laugh, and I’ll take that as a — oh, you did say okay too, so you’re laughing and saying okay. Double plus. Alright, first though, a quick word from our Best Ever partners.

Break: [00:18:39].18] to [00:19:42].16]

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

Italina Kirknis: Oh, wow… That’s really hard, oh my God. The Noticer, we’ll go with that. The Noticer.

Joe Fairless: Noticer?

Italina Kirknis: Yes.

Joe Fairless: Okay. What’s the best ever way to get the most amount of e-mail subscribers in the shortest amount of time?

Italina Kirknis: [unintelligible [00:19:59].00] Promote the actual link to sign up, put the link directly in your social media outlets, [unintelligible [00:20:04].04] throughout your social media.

Joe Fairless: Best ever CRM or e-mail database software program that you recommend?

Italina Kirknis: [laughs] For simplicity, so people who are just like “Oh my God, I’m so scared of technology”, for simplicity I would just say using MailChimp for constant contact. But I love, I love, I love Contactually.

Joe Fairless: Contactually?

Italina Kirknis: Yes.

Joe Fairless: Why?

Italina Kirknis: Because it alerts you as to who needs to be contacted, and keeps that in front of you in case you’re not on top of it.

Joe Fairless: What’s the investment on a monthly basis or annual basis for Contactually?

Italina Kirknis: I don’t know…

Joe Fairless: That’s fine, I’m just curious. Best ever way you like to give back?

Italina Kirknis: I love giving back to my high school. I went to a really, really great high school and I feel like I wouldn’t be where I am today without them. I love that they give scholarships to people who ordinarily wouldn’t be able to afford to attend; it’s a private school. So I love giving back to my high school.

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

Italina Kirknis: They can obviously call me at 501-712-1918 or text, and they can also connect with me on LinkedIn or Facebook. It’s just Italina Kirknis.

Joe Fairless: Thank you for being on the show, thanks for giving us many lessons on how to enhance our presence online and how to build a database in the most efficient way possible. Some of the things that stood out to me – clearly, LinkedIn is the platform of choice, and we can be ourselves while still maintaining a level of professionalism within LinkedIn, that way we still have our personality. But it should relate to professionals; it doesn’t have to be the articles that we write or share – and by the way, if we share, then we need to have some commentary about it. It could also be that yoga mat as the example. And then targeting locations, creating groups within those locations, and many other tips along the way.

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

Italina Kirknis: Thank you.

Best Real Estate Investing Advice Ever Show Podcast

JF1043: Want to be a Top Producing Agent? Get With This Guy!

Many agents complain about marketing costs and effectiveness.  What if there was a place that had sellers lined up searching for a realtor, instead of you searching for the sellers? That’s exactly what Simon created, and taking out the marketing is only part of what UpNest does for you.

Best Ever Tweet:

Simon Ru Real Estate Background:
-Founder and CEO of UpNest, a realtor marketplace where top local agents compete for home buyers and sellers’ business.
-Facilitated over $1B worth of home listings since launch and delivered over $10M in commission savings to sellers.
-Five thousand top realtors actively competing on the platform
-Many are celebrity realtors that are ranked on Wall Street Journal or featured in TV shows such as HouseHunter & Million Dollar Listings.
-Serial entrepreneur, ex-PayPal, sold business to PlaySpan/Visa.
-Based in San Francisco, California
-Say hi to him at www.upnest.com

Made Possible Because of Our Best Ever Sponsors:

Are you an investor who is tired of self-managing? Save time, increase productivity, lower your stress and LET THE LANDLORD HELPER DO THE WORK FOR YOU!

Schedule Your FREE TRIAL SESSION with Linda at Secure Pay One THE Landlord Helper today.
Go to mylandlordhelper.com/joe to schedule your free session.


becoming a top producing real estate


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

Simon Ru: Good.

Joe Fairless: That’s good to hear, and nice to have you on the show. A little bit about Simon – he is the founder and CEO of Upnest, which is a realtor marketplace where top local agents compete for home buyers and sellers business. He’s facilitated over one billion – yes, that’s with a “b” – dollars worth of home listings since launch, and delivered over ten million dollars in commission savings to sellers (that’s a whole bunch of money). He’s talked on all the major media outlets that you’ve heard of – Wall-Street Journal etc. He’s based in San Francisco, California. With that being said, Simon, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Simon Ru: Sure. Upnest is a realtor marketplace where we bring  top local agents who compete for home buyers and sellers business; [unintelligible [00:03:19].22] personalized proposal that details your commission rates, rebates and service offerings and Q&A and a personalized pitch. Our value prop is to deliver consumers a selection of top agents. These are agents that you will hire in your neighborhoods and we bring them to compete for your business… Transparency when it comes to what services they’re gonna offer and how much they’re gonna charge, and because it’s a very competitive environment, you get savings. We have this far delivered over 10 million dollars in commission savings to home sellers.

Joe Fairless: This makes so much sense. You know it’s a good idea if the thought is “Why the heck didn’t this exist before?” I think about Uber all the time; I thank my lucky stars that Uber exists because of the whole atrocious taxi experience.

What are the terms that typically win a buyer or seller’s business?

Simon Ru: We’ve been around for almost four years and we have 5,000 top realtors actively compete on our platform now… Many a celebrity realtors, we’ve got [unintelligible [00:04:23].19] on the Wall-Street Journal, we were featured on TV shows such as House Hunters and Million Dollar Listings…

We obviously have a lot of success with top agents, and I think part of the reason is our revenue model is very similar to other marketplaces like Uber and Airbnb – that’s strictly performance-based. If the agent can’t win the listings or can’t sell the homes for the X amount and quick, we don’t make any money.
We spend a lot of time coaching our agents, and for a lot of the top producers – they know they own the neighborhoods, and if we can put them in front of the seller, they have no problem winning the listing.

Over time we weed out weak agents and the cream floats to the top. We’re really lucky to have some of the really top agents around the country to be actively participating on our platform. Some of them are actually your guests.

Joe Fairless: Oh, I’m sure, yeah. I’ve talked to over 1,000 people, so I’m sure there’s some of the guests who are on your platform. You said the top producers are the ones who win the listings; if you’re not a top producer, then how do you win listings?

Simon Ru: Basically, what we did was we leveled the playing field. We all know in real estate that 20% of the top producers win 80% of the business, and they are [unintelligible [00:05:44].07] the average age of a realtor is 55ish, but the agents that are very successful on our platforms are [unintelligible [00:05:51].29] technology, they have a really good web presence, they are hungry, they are up and comers. These agents in this industry are kind of moving into a team type of structure; they work in a team environment and they also have a fixed cause.

If you think traditionally how an agent gets their leads is they buy zip codes on Trulia and Zillow and then they get a bunch of phone numbers and e-mails which they have to spend a lot of time to nurture and scrub these leads…

When I was doing my research as I started this business, I’d do a lot of custom developments; when I’d come to these agents and ask them “I can bring an in-market seller who’s ready to list, but the only catch is that you may have to come down on your commission a little bit… Would you do it?” A lot of these agents were telling me like “Look, I’m spending a lot of money on these other marketing channels as it is, print marketing and all that”, and a lot of them are non-trackable. You don’t know whether these fliers that you mailed out were effective or not. Even with some of the online portals, it’s a huge time suck. You have to nurture these relationships and it’s six months out or nine months out before you see any deals signed.

So they were like, “Hey, if you have a seller that’s ready to list, I just need to go in and do a pitch. I’m all for it” – that’s the segment where we have a lot of success, because without platforms, the agent submits a proposal that basically lays out everything that they do. It’s like a manual – what fee they’re gonna charge, and we have a series of Q&A that’s tailor-made for the seller based on the information that they provide. By the time the seller wants to talk to an agent, wants to interview an agent, the seller will already like the agent. It’s like a slam dunk at that point.

We don’t talk that many things upfront, so effectively they ship their fixed cost into like a marginal cost, and they have no problem paying us when all is sorted out. So it’s win/win/win all around. We just basically make the process more efficient.

Joe Fairless: When the agents fill out the proposal, I’m sure that your team has identified the most important aspects that need to be included, and that’s how you came up with information that they fill in. Regardless of if it’s your platform or just in general, what are some of the aspects that your team has found are most relevant to people who choose an agent?

Simon Ru: Definitely the top of mind question is “How much are you gonna charge?” but our team does a good job in educating the consumer that the commission is not the biggest determining factor in selling your home successfully. There are a lot of aspects to look at. If a top agent can sell your home for 2%, 3% more, it kind of more than covers that differential in listing commissions.

You’re welcome to come to our website and there’s a screenshot of what a proposal looks like. We break down the commissions… There are also services. When negotiating with an agent, don’t just negotiate on the commission, but also pay attention on what type of service are you offering. Things like free stagings – the agent can offer that; or fliers, postcards that they’re gonna mail out, a landscaping service – if those are a part of the package…

In the Bay Area some of the expensive listings have drones that fly over and do an aerial shot. Those are pretty popular. 3D virtual tours… Those are expensive packages. If you can convince an agent to [unintelligible [00:09:20].08] in that platform, everything’s laid out. Those are part of the cost factor, and more than that, you have to look at the agent’s stats. We also have those laid out.

Basically, what’s more important is how do they come up with a price, because price and marketing are the most important factors in determining whether a home gets sold or not. So what’s the thought process in coming up with a price and then what’s the pricing strategy? All those are laid out, and those are some of the questions that we ask our agents to answer in the proposal.

Joe Fairless: What’s a bad pricing strategy and what’s an exceptional pricing strategy?

Simon Ru: It kind of really depends on the neighborhoods and how hot the market is. We have agents that have a lot of success in pricing a home 15% markets and trying to [unintelligible [00:10:09].23] and also it depends on the season, too; it depends on whether it’s winter time or summer time. Especially in the winter time I know the property is gonna sit on the market for a while, so I’m gonna set a realistic price and this is it, I’m not gonna budge. When it’s summer time, we may adjust it later.

So it really depends on the market and how confident the agent is, given the market conditions.

Joe Fairless: What’s been the most challenging part that you didn’t expect when building Upnest?

Simon Ru: Because of the user demographic that we’re going after, we tend to attract of for-sale-by-owner folks, and being able to convince them that — my philosophy if you ask me to talk about the top three ways to save money when hiring a realtor, my philosophy has always been “You save money by making less mistakes. One common mistake that sellers make is trying to save that 6% commission and trying to sell the home by themselves. I’m sure that probably crossed your mind too, like “I’ve got this. Why should I pay the realtor 60k?”

In the beginning we kind of struggle with convincing these for-sale-by-owner guys that “Hey, what you don’t realize is you can really never save 6% because you still have to pay 2.5% or 2% to the buyer’s agent.” Otherwise, the buyer’s agent will just badmouth your house and steer the buyers away. For that reason, more than 90% of the homes in the United States are purchased with an agent.

So we’re really talking about a maximum saving if like 2.5%, and if you’re [unintelligible [00:11:47].15] you have to take on the liability of getting sued by the buyers, and we live in a very litigious society, and we’re talking about a really big purchase here. You have to understand there’s a lot of paperwork, and all it takes is missing one [unintelligible [00:12:02].00] Then you also have to negotiate with a professional who does this for a living. And keep in mind that the buyer doesn’t expect you to keep all that commission savings (the 2.5%, or whatever). When they see [unintelligible [00:12:18].21] listing they see distress, and they expect deals, and they want a piece of that 2.5% commission saving, if not all of it.

That’s why [unintelligible [00:12:29].10] they always get low-ball offers, and research after research has shown that. They sit on the market longer and they sell for significantly less if they’re not represented by a realtor.

We’ve honed our message for certain segments of our users and became really good at convincing these users to use our platform. One advice to the home seller is “Don’t be penny wise and pound foolish and try to sell the home by yourself.” Again, if a top agent can sell your home for just 2%, 3% more, you can make more money.

And after that, now that you decided to use an agent, how to get the best deal – I talk a little bit about that. Fundamentally, it’s just like selling a home, or everything in life, for that matter… It’s creating a bidding war for your listing; the old-school way is you call a few agents, get the excited about your property, then tell them like “Hey, John at ABC Brokers down the street is offering me 5%. Can you do better?” It’s just like a flea market.

You may rub the agent the wrong way [unintelligible [00:13:29].07] is a bad way to start a relationship with someone who’s gonna represent you, gonna know your family, your finances… It’s a very important transaction.

What we do at Upnest is we turn our table around. Instead of needing to haggle with the agents, the agents are coming to your with the proposal, talk a little bit about the proposal… If you’re a buyer, we get you all the rebates from [unintelligible [00:13:53].08]

Joe Fairless: Who’s your primary audience? Is it agents, or is it people who are looking to buy and sell?

Simon Ru: It’s a two-sided marketplace. Definitely, we need to be careful not to create like a race-to-bottom situations and attract a bunch of discount agents, because that may not serve the best interest of home buyers or sellers. We put a lot of focus on bringing in some really good agents that deliver a really good customer experience and sell the home successfully. On the consumer side, we first launched as a seller-focused marketplace. [unintelligible [00:14:31].13] was actually less than 6%, and then about a year and a half ago we decided to go after home buyers as well, and we rebranded to Upnest.

Right now we have a very vibrant buyer and seller demographic and agents are very active on our platform.

Joe Fairless: Do you have a marketing budget?

Simon Ru: We do.

Joe Fairless: Let me just ask a follow-up question. So you have a marketing budget. 100% of it is the whole pie, obviously. What percent goes to attracting agents, what percent goes to attracting sellers and what percent goes to attracting buyers?

Simon Ru: 100% of marketing budget goes to attracting sellers, because really a seller is the long pole, especially in the market that we are in. It’s still very much a seller’s market. Agents – there are a lot realtors in the United States and a lot of them are actually looking for a platform like ours. They definitely feel the pressure from [unintelligible [00:15:23].01], so when we come to them with our pricing, they like it and they give us a try and they’re like “Wow, actually this is real. I get to sit in front of the–

Joe Fairless: Right.

Simon Ru: …and close deals.”

Joe Fairless: So 100% of the marketing budget goes to attracting sellers… What do you spend your money on to attract those sellers?

Simon Ru: Just the whole gamut, kind [unintelligible [00:15:56].00] social network; we spend a lot of energy on organic marketing as well. On our sites we publish a lot of the commission data, so if you’re looking to sell a home, you can go on there and look at “Okay, for California what’s the average savings? For San Francisco what’s the average savings? How many open houses do San Francisco agents really offer?” – things like that. [unintelligible [00:16:21].16] they have a bell curve that shows what other people are paying for the car, and we aspire to offer that experience to home sellers who are in the process of making that decision.

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

Simon Ru: Create a bidding war in every situation that you can think of, and when negotiating with an agent don’t just think about that one transaction, because after you sell your property, you’re probably gonna take that money and buy some other property. If you submit a request on our website, put that in there and chances are that you will probably get a better offer.

Don’t forget the little things, as an agent to throw in: free postcard mailings, free stagings and things like that. [unintelligible [00:17:06].10] make that comparison easy.

Joe Fairless: And how do you get compensated and what’s that compensation look like?

Simon Ru: Our platform is free to consumers. As a buyer and a seller it should be a no-brainer; there’s no reason not to give us a try. We charge a platform fee – just like other portals like Uber or Airbnb – when the home is sold. That money come from the agent. Basically, they shift their upfront marketing into a backend platform – they pay us.

Joe Fairless: Okay. And what was that fee?

Simon Ru: It really varies, and it depends on markets… Anywhere between 20%-30%.

Joe Fairless: Of what they receive?

Simon Ru: Of whatever they make.

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

Simon Ru: Sure! I know some of your questions… Man, I’m so busy, I don’t really have that much time to read books.

Joe Fairless: Well, don’t start answering the questions before I ask them… So just a second. First, a quick word from our Best Ever partners.

Break: [00:18:02].07] to [00:18:58].12]

Joe Fairless: Alright, Simon, you don’t read books… I’m gonna skip that question. What is the best ever business idea that you haven’t pursued?

Simon Ru: Upnest – my brain is all about Upnest.

Joe Fairless: I said “that you haven’t pursued” – best ever business model you have not pursued yet?

Simon Ru: I’ve probably pursued it, so maybe next question… [laughs]

Joe Fairless: Okay, got it. Best ever way you like to give back?

Simon Ru: I’ve recently started a non-profit called 5000 Orphans. [unintelligible [00:19:27].04] talked about this and we’ve decided whatever proceeds that we get from any situation, we’re gonna set aside 20%-30% for that cause.

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

Simon Ru: Check out Upnest.com. My e-mail is simon@upnest.com. Shoot me an e-mail. What I learned over the years is you just have to keep on iterating. [unintelligible [00:19:50].16] you just keep trying. We’ve been trying for the last four years. The first year was tough, the second year got better, and I think finally we’ve figured this out and hopefully we’ve built a marketplace that is just the way in the next couple years how people find realtors.

There’s a big shift in consumers’ mindset coming from like “Oh, I called the guy that sent me the postcard” to coming to a marketplace and have agents compete for your business. But I think this is really the most efficient way to do this, and they save money on both sides… And we pass on the savings to consumers.

Joe Fairless: Well, Simon, thank you for being on the show. This is a model that makes a whole lot of sense, and I’m glad that you’re spearheading it because it’s needed, that’s for sure. As you said, create a bidding war in any situation you can think of, and your business model is based on that… And some of the negotiation tips that you have (or points) would be putting in free stagings, fliers, postcards, landscaping service, commission, maybe even have a drone or something, do virtual tours… So what else in addition to the commission is the agent bringing to the table, and that’s something that we can all take away from, whether we use your platform or we don’t.
So I really appreciate the advice, thanks for being on the show… I hope you have a best ever day, Simon, and we’ll talk to you soon.

Simon Ru: Thank you, Joe. I appreciate it.

Subscribe in iTunes and Stitcher so you don’t miss an episode!   https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Best Real Estate Investing Advice Ever Show Podcast

JF995: Defer Your Taxes with the 1031 Exchange!

You may have heard that you can defer your taxes that are due when you sell a property, also known as capital gains tax. That’s exactly what you are going to learn today! One of the difficult pieces of this would be finding an alternative property to defer the taxes. He’s definitely got the solution!

Best Ever Tweet:

Leonard Spoto Real Estate Background:

– Oversees sales and marketing operations for Asset Exchange Company
– Frequent keynote speaker and accredited course instructor on the subject of 1031 Tax Deferred Exchanges
– Presented his real estate and tax workshops to over 20,000 Realtors, lenders, title professionals & investors
– Based in San Francisco, California
– Say hi to him at www.ax1031.com
– Best Ever Book: Olivia the Pig

Made Possible Because of Our Best Ever Sponsors:

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

Go to adwordsnerds.com/joe to schedule the appointment.


advice on defering taxes


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, Leonard Spoto. How are you doing, Leonard?

Leonard Spoto: I’m doing great, Joe. Thanks for having me on your show.

Joe Fairless: Yeah, nice to have you on the show, and looking forward to diving in. A little bit about Leonard – he oversees sales and marketing operations for Asset Exchange Company. He’s a frequent keynote speaker and accredited course instructor on the subject of 1031 tax deferred exchanges, and he’s based in San Francisco, California. With that being said, Leonard, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Leonard Spoto: Absolutely. I’ve been doing this for about 15 years. We are a 1031 exchange accommodator. We work with real estate investors who are using section 1031 within the tax code to defer capital gains taxes. When you do an exchange, when you defer taxes on the sale of your investment property, you have to work with a neutral third party to facilitate the process, and that’s what my company does. We prepare all the legal documents that are required, we make sure that our clients are in compliance with the tax code, and we actually hold sale proceeds until the investor or our clients find a suitable replacement company to invest into. So we’re an accommodator.

Like I said, we’ve been doing it for about 15 years. We do all types of different exchanges, from really simple, standard delayed exchanges to more complex reverse and construction exchanges.

Joe Fairless: Let’s talk 1031 2.0, next level stuff. Let’s assume that our listeners know what a 1031 is and the main components to it… What can you tell us that you would tell more sophisticated people and educate them on topics as it pertains to 1031s?

Leonard Spoto: There’s a few things, kind of next-level 1031 exchange stuff… Like I said, either standard delayed exchanges, one of the things that we work with most of our clients on where they sell a property and then buy a replacement property in that order. But as you and your listeners probably, right now one of the biggest challenges in the real estate market is finding good, suitable replacement property. I don’t care what market you’re in, whether it’s here in the West Coast or where you’re sitting on the East Coast, Joe, there’s just not a lot of inventory and the good properties are getting gobbled up quickly. So one of the challenges that a lot of our investors have is if I’m gonna put my property up for sale and I’ve got a limited time to reinvest, I may not want to actually sell because I might not have enough time to find a suitable replacement property within that very tight timeframe. So a lot of our more sophisticated investors are asking us about what’s called the reverse exchange.

The reverse exchange allows an investor to buy a replacement property first. As the name implies, you’re doing an exchange, but in reverse. You’re buying a replacement property first, and then you have 180 days to sell; provided that property sells within 180 days, that sale will be tax deferred.

Now, these exchanges aren’t for the beginner investor, they’re not for the unsophisticated first-time investor because they are a lot more challenging. When you do a reverse 1031 exchange, you can’t actually own the new property that you plan on buying AND the old property at the same time. An exchange is going from one to another; you can’t just go out and buy something and call that a reverse.

With a reverse exchange, we actually become the buyer for you. We are signing your contract, we become the buyer for that property, and we warehouse the purchased property until you can get yours sold.

Joe Fairless: You become the buyer for the property that I’m going to buy?

Leonard Spoto: Yes.

Joe Fairless: Okay. Do you put up the funds to buy the property that I’m going to buy?

Leonard Spoto: Yeah, good question… We don’t. I’m not in the business of giving you money and buying property for you, so what happens is… Think about it – you haven’t sold anything, right? And you don’t necessarily have that big pile of cash that most exchangers have, because the building you wanted to sell hasn’t sold yet. We do not buy the property for you with our cash, you’ve gotta do it. And the challenging thing about reverse exchanges as well is, let’s say you do have enough for a down payment on the property you wanna buy. So you’ve got $200,000 in your piggy bank and you’re gonna go out and buy a million dollar property. You plan on getting a loan from a traditional lender like Wells Fargo or Bank of America, and then you tell the lender “Well, by the way, I’m gonna borrow $800,000 from you, but Asset Exchange Company, the 1031 exchange company, is gonna be the buyer.” You can imagine how that goes over like a lead balloon in the underwriting department at that bank.

So getting a loan on a reverse exchange is tough, so most of the reverse exchanges we do are with clients either paying all cash, clients using non-traditional lending sources like private money lenders, or if the seller of that property is willing to seller-finance the deal. If one of those things are available to a client, then the reverse exchange might be an option. And to be honest with you, 90% of the reverses that we facilitate are with clients who are just paying all cash. They’ve got a big, giant lump of cash maybe that they can use from the stock market or just a big piggy bank that they’re able to access, and they’re able to buy a replacement property without getting a lender involved. It’s an all-cash purchase, we become the buyer, we sit on that property as the owner until there’s sells. Once they get their property sold, then we transfer the new property to them.

Joe Fairless: That’s an interesting concept. What type of documents — I know you’ve got all the documents, so that’s why I’m curious… What type of documents do you have in place for your client and you? Because they’re putting up the money, but you’re the owner.

Leonard Spoto: Obviously, there’s a pretty lengthy agreement that we all sign, and we are the owner in exchange — as what’s called an exchange accommodating title holder, only it’s not in our interest to become the owner of that property for the long term. We’ve got a pretty iron-clad agreement that specifies that as the client completes the exchange by either selling their relinquished property or exceeding the exchange timeframe, which most of your listeners probably know is 180 days… When one of those two things occurs – either they complete the exchange by selling their property, or going beyond the 180 days, the property we are warehousing for them automatically transfers back to them.

So we’re not in the business of obviously owning property; we only go on title for the accommodation of the reverse exchange. In fact, when we are on title to that property, we also entered into a triple-net lease with the client who’s doing the reverse exchange, and that lease will give the investor (the exchanger) all the burdens and benefits of ownership. So even though I’m on title to facilitate the reverse exchange, if there’s tenants in that property that you were buying in the reverse, you are gonna deal with those tenants, you are gonna collect the rent from those tenants. If there’s leaky toilets, you’re gonna go out and fix them. I’m not in the business of managing those properties for you. We are only on title in name and only for that reverse exchange.

Joe Fairless: And only for 180 days, right?

Leonard Spoto: For only up to 180 days. Hopefully a lot less, because hopefully it takes you a lot less time to actually get your relinquished property sold.

Joe Fairless: So the reverse exchange would make the most sense if I have cash or access to cash via a private money lender or seller-financing, and I am concerned about finding a replacement property or I have identified my property, I need to buy it now, but I haven’t sold the property I’m exchanging it from.

Leonard Spoto: Yeah, that is correct. Sometimes people get forced into a reverse exchange. You did your homework, you got your property on the market to sell, you had a buyer that came in, the buyer looked great, so you went out and made an offer to purchase something. You got into contract to purchase, you’re gonna time it so that your sale closes today, your purchase closes tomorrow, but then all of a sudden, that buyer for the property that you are selling all of a sudden just disappears, they go away for whatever reason. Now you find yourself in contract to buy something, you thought you had a buyer for the property you’re selling, but that guy took off, so you’re forced into a reverse exchange – not an ideal scenario, but that is something that happens as well, where people find themselves in a reverse exchange.

Joe Fairless: Let’s talk about some stories that you’ve either experienced yourself or heard from others, where a 1031 didn’t go according to plan and it went sour. Can you tell us a couple stories of what you’ve come across?

Leonard Spoto: Within the last 3-4 years, the biggest reason why an exchange goes sour is because they simply can’t find a suitable replacement property in the timeframe. When you’re doing an exchange, if you sell a property you have 45 days to identify what you’re thinking about buying and a total of 180 days to purchase and close on that replacement property.

So the biggest challenge in today’s market is finding that property within those 45 days, because it has to be identified within 45 days. We’ve had clients who sold their property, went to Hawaii for 2-3 weeks to celebrate the sale, came back and said “Jesus, there’s nothing on the market. What am I gonna do?!” That’s just poor planning, and exchanges blow up all the time because people just fail to plan properly.

That’s one thing – you’ve gotta do your homework if you’re gonna get into the 1031 exchange. There’s a lot at stake. My clients routinely have tax liabilities of hundreds of thousands of dollars; occasionally, those tax liabilities can get into the millions of dollars for some of our big clients… So if you are not doing your homework, you’ve got a lot at stake if the exchange fails. The government’s gonna come in, and in high states like California where we operate out of, you’re looking at about a 33% effective tax rate between state and federal government. Like I said, it can be hundreds of thousands of dollars, sometimes millions of dollars for our clients. So the biggest mistake some of the clients make is just not planning properly.

Now, there are occasions where people plan properly, they know what they’re gonna buy, they go out, they get into contract on something within the first 45 days, but then of no fault to themselves are not able to purchase something… Whether the deal falls through, maybe the financing falls through… Those are somewhat unavoidable, but in those cases what we always counsel our clients to do is have a backup. You’ve got your first choice, you think it’s a slam-dunk, but it’s always smart to identify a backup property, do some research, find out what else is on the market that might be a suitable option if your number one choice does not come through. Have a backup.

I’ve seen clients who just don’t do that. They only nominate one property on day 45, they’re already in contract on it, they think it’s a slam dunk, and then something happens. So it’s always good to make sure you’ve got a backup there.

Joe Fairless: And just a point of clarification… Do the 45 days run concurrently with the 180 days?

Leonard Spoto: Yeah. Day 45 is within the 180 days. You close escrow on your sale – that’s day zero. The first 45 days are what’s called “the identification period.” On day 45, no later than midnight of day 45 you have to submit your identification letter, stating in an unambiguous manner the properties you’re considering acquiring, and then you’ve gotta purchase and close on at least one of those within the total 180-day period.

Joe Fairless: Obviously, once our property that we’re selling is under contract, and maybe even a little bit before if we put it on the market, then we should be identifying the property; that way we’re not tightening that window unnecessarily.

Leonard Spoto: Absolutely. One of the things that my clients do, especially on the bigger deals, is they will get into contract to sell – you’re gonna sell a five million dollar apartment building, you’re gonna close escrow, and that triggers the timeframe, the beginning of your exchange. Some of my more sophisticated clients, they will work with the buyer to have a flexible close of escrow date. So instead of closing in five days with the all-cash buyer from overseas who’s anxious to get ownership of this property, they say “Yeah, I’ll sell you this property, but I don’t wanna close in five days. In fact, I want to close in 30 days with the option to extend another 30 or even 60 days, so that I have time to find that replacement property for my exchange.”

Joe Fairless: Does your company get compensated more if it’s a higher price point for the property that is being exchanged?

Leonard Spoto: Good question. No, we don’t. We just charge – and most exchange companies throughout the country are like this – a flat fee on the sale side and a flat fee on the purchase side, and the exchange fees are really reasonable. Our company has $750 on the sale and then $250 on the purchase, so most of our clients are selling one, buying one, and they’ll simply pay a $950 fee.

Joe Fairless: Obviously, you all must make money another way. I”m guessing that it is by investing or making dividends on the money that’s sitting in the exchange account?

Leonard Spoto: We are not allowed to actively invest funds; the funds have to be held in a cash-equivalent account, so that is a money market account. We currently keep the float on those funds as part of our fee. In higher rate environments, 5-7 years ago when money market accounts were yielding 5%, that yield was split with the client, but right now it’s less than 1%, so the entirety of that yield is taken as part of our fee as well.

Joe Fairless: With the exchange, is there anything else that we haven’t talked about that’s 2.0 level that you wanna mention?

Leonard Spoto: With some of the more sophisticated investors, one of the biggest issues right now is what we call in our industry a “drop and swap.” Many times investors will pool resources to go out and buy a large property. Let’s say you’re gonna buy a ten million dollar apartment building… Very few individuals will just do that on their own; they’ll typically bring on partners. And when you bring on partners, if you form an entity to own that property, such as an LLC or a partnership, it’s very important when you sell that property that the taxpayer who’s on title is the taxpayer that does the exchange. So if you have a multi-member LLC, the LLC will become its own tax-paying entity. The LLC is actually the entity that’s selling the property and the entity that’s eligible to do the exchange. So LLC will sell the property, LLC does an exchange and LLC has to buy the replacement property to complete the exchange.

Now, that works well provided the members of the LLC all wanna go forward together. Now, 9 times out of 10 though, when a property sold after X number of years, a lot of the members will wanna take some cash, do their own thing… It’s very rare that all the members wanna go forward together after X number of years of owning a building together. But what happens is you can’t go out and just take your cash and do your own exchange if other people are gonna pay taxes, because you don’t have several taxpayers on the title, you only have one – an LLC.

So one of the big issues with our more sophisticated clients is planning for an exchange a year or two prior to the actual sale. You’ve gotta get that LLC off title, you’ve gotta get the individual members of the LLC on title as tenant in common owners, so that they are taxpayers on title to the property, so that when it comes time to sell it, they can take their proceeds and exchanges their own taxpayer, or pay taxes, if they so choose. So planning on an exchange a year or two in advance is gonna be very helpful, because what you don’t wanna do is get an escrow to sell a property and be ready to close in two weeks, and all of a sudden learn that some of the members wanna cash out and pay taxes and some of the other members wanna do an exchange, because then you’ve got a big problem.

Joe Fairless: That makes sense. The drop and swap is referring to the switch from the entity that was previously to tenants in common, correct?

Leonard Spoto: That’s correct.

Joe Fairless: Another way to do that – to simply buy out the members in the LLC’s ownership interest and then allocate accordingly for whatever they would pay in taxes…?

Leonard Spoto: Yeah, you could do that. So if you have an LLC that owns let’s say a five million dollar building and you’ve got one member who doesn’t wanna do an exchange and several who do, the people who do want to exchange could simply buy that guy’s shares of the LLC. That would be a taxable event, but it gets the non-exchanger out of the deal, and then the rest of the group can then go forward with the exchange… That is another way.

Now, a) you’ve gotta have the funds to be able to pay that guy out, so if liquidity is an issue, that might not work. But the other thing is that now you also still have an obligation to replace the full value of the exchanged property.

Joe Fairless: That LLC is still on the hook for 100% of the taxes, even though you bought someone out.

Leonard Spoto: Exactly. So the LLC eventually, if it does cash out, is still on the hook for 100% of the tax liability.

Joe Fairless: Based on your experience as a 1031 exchange expert, what is your best advice ever for real estate investors?

Leonard Spoto: Plan. Especially in today’s market, due diligence is important, doing your homework is very important; building the right team to support you during the process is very important, so planning, planning, planning. You only have a window of 180 days to get these deals done. And as I mentioned, inventory is tight all over the country, so the sooner you start planning for your exchange, the higher chance that it will be successful.

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

Leonard Spoto: I am.

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

Break: [00:21:49].15] to [00:22:37].15]

Joe Fairless: Best ever book you’ve read?

Leonard Spoto: Best ever book I read? That’s a tough one… I’m gonna have to pass on that, I can’t think of anything off the top of my head. [laughs] I’m sorry, Joe… The only books I read right now – I’ve got a two-year-old and a five-year-old, and the only books I read are Olivia The Pig and Humpty Dumpty, so we’ll go with Olivia The Pig.

Joe Fairless: I’m going to include that in the notes… That’s probably the biggest smile that I’ve had on my face while typing the book that someone says. Olivia The Pig – alright,  done. Best ever way you like to give back?

Leonard Spoto: We donate to a couple of really good causes that are near and dear to our heart. Hydrocephalus Foundation is one of them, and the Ronald McDonald Fund.

Joe Fairless: What’s a mistake you’ve made on a business transaction or just in business in general?

Leonard Spoto: Not effectively communicating. You think everybody is on the same page, and this just happened to me the other day, where you think everybody is on the same page, but they’re not… So aligning everybody’s goals and making sure everybody understands the goals and making sure that you understand what you think your partners are gonna be doing.

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

Leonard Spoto: Two ways – telephone is 877 471 1031, and then we’re on the web at ax1031.com.

Joe Fairless: I’m a big fan of your phone number.

Leonard Spoto: It’s easy and it’s appropriate.

Joe Fairless: [laughs] Well, Leonard, thanks for being on the show. We went over a lot of information in a very short amount of time, and that’s exactly how I like to do it. You were really informative, from drop and swaps, which pertains to my business (multifamily syndication and large deals, as well as other syndications) and reverse exchanges, which is a potential solution to not finding the replacement property in time; do the reverse exchange… Gotta have access to cash, and you need to plan accordingly if you aren’t gonna be within that 180 days. And the plan-plan-plan advice that you have  – that’s pretty straightforward and it’s something that we need to pay attention to the business model in advance. That way something like a 1031 exchange where we don’t find a property – that doesn’t happen because we’re planning and preparing prior to that. So thanks for being on the show, I hope you have a best ever day, and we’ll talk to you soon!

Leonard Spoto: Thanks a lot, Joe. Thanks for having me.



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


Best Ever Real Estate Show Banner

JF951: The Big Boy Passive Approach to Investing

Accredited investor? This episode is for you! Our guest only works with accredited investors who want to inject capital into a passive machine that renders returns! Realty Shares executive will walk us through the types of opportunities they offer and who’s investing, so learn about debt raising an equity raising and turn up the volume!

Best Ever Tweet:

Amy Kirsch Real Estate Background:

– Director of Investor Relations at RealtyShares
– Over 10 year of financial services experience
– Worked in wealth management for Merrill Lynch, Dearborn Partners, and JP Morgan’s Private Bank
– Based in San Francisco, California
– Say hi to her at www.realtyshares.com
– Best Ever Book: Shantaram

Click here for a summary of Amy’s Best Ever advice: http://bit.ly/2p9uLnZ

Made Possible Because of Our Best Ever Sponsors:

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

Go to adwordsnerds.com/joe to schedule the appointment.


passive investing with Amy Kirsch


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

We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad, a whole bunch of others… With us today – Amy Kirsch. How are you doing, Amy?

Amy Kirsch: I’m doing well.

Joe Fairless: Nice to have you on the show, and looking forward to getting to know you a little bit. Amy is the director of investor relations at Realty Shares. She has over 10 years of financial services experience. She worked in wealth management for Merrill Lynch, Dearborn Partners and J.P. Morgan’s private bank. Based in San Francisco… With that being said, Amy, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on?

Amy Kirsch: Absolutely. Thank you so much for having me today, it’s great to be here with you. I had been working, as you mentioned, about a decade in wealth management, and I learned a bit more about real estate crowdfunding. I was very excited about the opportunity, got to know Realty Shares a bit more, and just was very excited about all they were offering to investors, the opportunity to invest in a whole new way, and that’s what brought me over here.

Joe Fairless: Cool! So what do you do? What’s investor relations mean?

Amy Kirsch: I work with investors pretty much all day long, answering their question, helping them to understand real estate better, helping them through both the sales and the relationship process as they go through in any investments that they have with us on the platforms.

Joe Fairless: Can you get a little bit more in detail as far as maybe what are your specific responsibilities, what are some challenges that you came across, things like that?

Amy Kirsch: We have a team of seven; as we’ve grown, our investor base has become several thousand, so as you can imagine, we have all realms of the spectrum of investors. We’re guiding them, and often times just introducing them to real estate investing, and helping them to understand what it might look like if they did purchase a piece of an investment, what the returns would look like, what the risks are inherent in this sort of investing… That would be the introductory part.

Then, over the life of the investment, keeping them updated, helping them to understand if things are going well, if they’re not going well, if they are payoffs, and keeping them informed over the life of it. So it’s really a combination of both a sales and relationship management role for me and my team, and we have probably a thousand inbound questions a week from various investors that we’re responding to, which really completely range from about the company to about a specific investment. Anything you can imagine, we’re answering it pretty much every day.

Joe Fairless: A thousand inbound questions a week.

Amy Kirsch: Oh yes, easily.

Joe Fairless: Seven people.

Amy Kirsch: Seven people, a thousand questions.

Joe Fairless: Sounds like a blog post title, right?

Amy Kirsch: [laughs] A little bit, yes.

Joe Fairless: Seven people, a thousand questions a week… Everything from guiding them as far as the pros and cons of real estate, and then also working with them and communicating with them throughout the investment. This is interesting stuff, because you basically do what I do, and I’d love to learn more because you’re doing it on a much higher volume than I’m doing.

Let’s talk about who you’re speaking to. Are they all accredited investors?

Amy Kirsch: They are. Everyone that’s on the Realty Shares platform right now is an accredited investor. We have non-accredited investors asking us questions, and we’re hoping that we’ll be able to show them an offering sometime in the near future, but for now we’re only working with accredited investors.

Joe Fairless: Okay, so they’re all accredited investors. It sounds like you’re at the front end of the deal before they sign up to fund a portion of the project or you guide them in real estate investing. Are you giving them input on the actual investment itself, or the pros and cons of investing in real estate?

Amy Kirsch: A bit of both. As I mentioned, we have people who have never invested in real estate before in the platform, so they often have more rudimentary questions… They haven’t seen a waterfall before – what will that mean for them? What does a preferred return look like? Those kinds of questions, trying to understand the sponsor a bit more and the ABCs of real estate… So we’re talking about the platform at large, and then also specific investments, helping them to understand… Honestly, we can get into “What is the difference between debt and equity?” We answer that question all the time.

Joe Fairless: So your role is both the particular investment, as well as just education in general, on real estate?

Amy Kirsch: Absolutely. It’s absolutely a combination of both, and we really take a lot of stock in making sure investors are educated. We want them to really understand what they’re investing in prior to getting into an offering.

Joe Fairless: You said one of the common questions that’s asked is “What is the difference between debt and equity?” What’s your response to that?

Amy Kirsch: Wow, you’re getting me on my toes here… [laughter] [unintelligible [00:07:03].19] like you’d see at a bank, where you’re receiving… You’re acting like the bank; you can expect an interest rate payment monthly. It looks like a balloon mortgage, where you can expect a principal after the life of the loan. So that’s how I explain debt.

On the equity side, you look more like a business owner. You’re participating in the upside or the downside participation of the property, and should things perform well, you’ll have unlimited upside. Should things go poorly, you will part-take in that as well. With that comes a lot more risk, but a lot more reward, whereas on the debt side you know exactly what the outcome is likely to be, because there is a stated interest rate and you’re not gonna earn any more than that.

Joe Fairless: Are they secured the same way with debt and equity?

Amy Kirsch: That’s a great question. The debt is secured by a first lien loan, where should something go wrong, we’re able to foreclose on the property. If our assumptions are in line, then we should be able to fully recoup all investor money. On the equity side there is no lien on the property. Our measures are a bit different in what we could do should something go wrong. We would maybe able to kick out the partnership, we may be able to take over the property… It truly depends on what the underlying property is.

Joe Fairless: Okay, it makes sense. After I did my first deal, I was talking to some people and they were like, “Did you raise debt or equity?” I was like, “Um, I just raised money. I have no idea.” [laughs] I was so stupid at the time. I had already done one deal, that shows how green I was at the time… And people like you have educated me along the way, thankfully.

Amy Kirsch: Yeah… Like I said, it’s important for investors to understand the worst-case scenarios, just as it is the best-case scenario, when people are first participating in real estate, and we encounter a lot of people like you.

Joe Fairless: What are the most common risks? I mean, sure, there is about 20 pages in a PPM that outlines some obscure risks… But what’s the most practical couple risks that could come up in a real estate investment?

Amy Kirsch: I think the risks are a bit different for the different types of products, like I mentioned before for debt… And truly, our debt holders are often a little bit less experienced than our commercial, which can be great and bad, because we have that foreclosure opportunity should something go wrong. But what would happen there is that the sponsor (or the borrower, in this case) is not able to execute, and what happens then? They’re not able to sell it for the price that we thought, so they can’t pay off the loan in full. That would be the risk there, often times.

I think almost all of the time we have personal guarantees on our debt, so if they do not return money in full, then we can pursue them personally. So I think that’s a risk – the sponsor is not able to execute. A more likely risk is that the market turns around, so the market isn’t able to deliver what we had expected.

Joe Fairless: Let’s talk about equity, going into an equity example. I really think this applies to both debt or equity, it doesn’t really matter how it’s structured. Let’s just say the borrower isn’t able to execute and perform under business plan, and let’s just say – because I know you do different asset classes – it’s a single family house. What is a common reason, based on your experience, that they’re not able to execute the business plan? What do they overlook or not account for most of the time?

Amy Kirsch: I wanna start by saying that we have done – I believe the number now is 550 deals, and in that time we’ve had under ten where we’ve had significant issues with borrowers or sponsors on any side of the fence, debt or equity. So what we’re talking about now is very rare… But to your point, the reason I think sponsors most often don’t execute is simply from inexperience. They thought costs would be X, and they ended up being Y, and they were significantly more. I’d say that that’s what most often accounts for not being able to execute, and the way that we try to avoid those sorts of situations is by our due diligence process upfront, where we account for track records and look for the kind of experience that they have in the past, both with either their current company or in the past, as well as getting to understand what their business plan is.

Joe Fairless: Yeah, thanks for putting it into perspective. I was curious about why it wasn’t working, but thanks for giving some context as far as “Hey, this isn’t happening very often.” But as I know you know, that’s just a question that comes up for all of my deals – “Hey, what are the risks here?”, so I was just curious how you discuss those.
Now, on a different path, what’s the most common reason why an investor doesn’t decide to invest with you all?

Amy Kirsch: You know, I hadn’t thought about that too much. I’d say the most common reason is because the parameters of the offerings that we have in a marketplace at that time don’t meet their investment objectives. That’s most often what — the hurdles often find upfront that we’re often able to overcome are the inexperience of the investor… So getting them to understand (as we’ve talked about earlier), educating them properly. But I’d say that’s most common – they’re looking for a 12-month offering, and we’re showing something that’s 8 years; they’re only looking for debt, we have equity…

Mostly, what we find is people take a month or two to review the platform if they don’t have any real estate experience, and then they invest after, in 30-40 days.

Joe Fairless: One thing I’ve found with investors who don’t invest is they wanna be active and not passive. They want control, they want to have their hands in it, they wanna be more involved, and I’m just not set up that way. They are passive too when they invest in your stuff, right?

Amy Kirsch: Yeah. We have heard that from investors before, but I hadn’t really thought about that as a common objective. What we find more often is that people are tired of being actively involved in the investment process. They don’t wanna manage the property, they wanna do it, so that’s why they’re coming to us. But I could see it on both sides… If they do wanna have a heavier hand in the process, we don’t offer that as well.
For pretty much everything else, if you are looking for passive investment, you can come to us and get whatever kind of offering you’re looking for.

Joe Fairless: You’ve just hired employee number eight on your team, congratulations! What do you wanna make sure that they know?

Amy Kirsch: What’s very important to us is that we went through a broker-dealer, and compliance is extremely important to us. Making sure an investment is suitable for an investor is, from day one, what we’re talking about. The second thing is getting — some of the members of my team have real estate knowledge, some don’t, so getting them up to speed on what kinds of deals we’re offering… We work very closely with the investments team, so working together with them to get a really good understanding of what we’re offering to investors – those are both imperative to being successful on the team.

And of course, being able to be patient, getting the same question over and over again. That takes a lot of… You have to be steadfast for that.

Joe Fairless: Yes, especially if you’ve got a thousand coming in per week. As far as the compliance goes, maybe I’m not thinking of it properly, but isn’t that already set up through your software, so if they come to you and your team, then they’ve already been qualified through the software?

Amy Kirsch: To a certain extent they are qualified up front; a part of it is qualification, but the other part is suitability, so making sure they’re an accredited investor is just 50% of the equation. We have investors that make very substantial investments with us – half a million, a million dollars concentrated in a deal. With that comes a lot of risk, simply because of concentration risk. So if they’re making a million dollar investment but they have 50 million dollars, we’re less concerned about that than if they are making a single one million dollar investment and they have two million dollars.

We’re really just trying to understand the objectives of the investor, and that they are properly suited for that particular offerings. That’s what we’re focused on when we’re reviewing deals or reviewing investors. It’s very important.

Joe Fairless: What would be the pros and cons when comparing investing in a crowdfunding platform like your company, versus a syndicator who has his own company, like mine? So if an investor were to come to you and be like, “You know what, Amy? I’ve got 100k and I wanna invest in one thing. I’m trying to decide between the deal that Joe’s got, where I know I can go directly to him and he is a one-company thing, versus a crowdfunding platform like yours.” What are you saying that would be a pro over what I’m offering?

Amy Kirsch: The largest pro is that we’re gonna have a more diverse set of offerings, because we’re dealing with sponsors all over the country in diverse product sets. So while a syndicator may specialize in a particular asset class or a particular geography, we’re gonna see that same thing repeated over our offerings, 20-something million dollars worth of opportunities over the course of a month, with a very diverse background of sponsors, geographies, asset classes, product classes. I think that’s a major differentiation you’ll see, and we’re being a low-fee provider… So with some of that relationship where you know the syndicator probably a little bit better, maybe you’re willing to pay a bit of a premium for that. We offer pretty low fees to our investors across other crowdfunding platforms, or one of the lowest.

Joe Fairless: And what are your fees?

Amy Kirsch: We charge 1% asset management fee across the board, and that goes to investors. On the sponsor side we charge in origination fee between 3% and 4% on equity and 2%-3% for debt.

Joe Fairless: And you don’t take any cut of the deal?

Amy Kirsch: We don’t take any cut of the deal, we take no participation fees.

Joe Fairless: So 1% asset management fee, and 3%-4% on debt that’s paid by the sponsor.

Amy Kirsch: Right.

Joe Fairless: And did you say something else? Was there another fee? Or is that it.

Amy Kirsch: Just the 1% asset management fee that’s charged to investors annually, as we provide the services… For updating you, K1’s, managing the property after the fact, after you’ve invested.

Joe Fairless: Those are very good fees.

Amy Kirsch: Yes.

Joe Fairless: What’s the plan for your company from this point forward?

Amy Kirsch: The plan is to expand what we’re currently doing. We have a lot of opportunities to grow in the various marketplaces that we’re in; I think that’s very important to us. The other thing that we’re really focused on is automation and tech. We’re a financial technology company; a lot of what we bring to the table is breaking down a business that’s pretty archaic and bringing it to the future. I think both of those things are what we’re really focused on, and we’re really excited about some of the new expertise that we’re bringing into the marketplace in 2017. Those are our two major focuses.

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

Amy Kirsch: I would say… Let me think about this for a second. My best real estate investing advice ever is to think about your investment objectives and diversify. If you execute in that regard, I think you really have a great shot at being very successful in real estate investing.

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

Amy Kirsch: Oh, sure! I guess so…

Joe Fairless: [laughs] Well, we’re doing it either way, so I’m glad that you guess so. First though, a quick word from our Best Ever partners.

Break: [00:18:32].03] to [00:19:13].14]

Joe Fairless: Best ever book you’re read?

Amy Kirsch: Shantaram.

Joe Fairless: What’s that about?

Amy Kirsch: It’s about a criminal who gets lost in India. I was just there, and it was so incredible to see what he had — just kind of hiding throughout the streets of Bombay. It’s the coolest book ever and it’s based on a true story.

Joe Fairless: Shantaram… Okay, cool. Best ever personal growth experience and what did you learn from it?

Amy Kirsch: That would be moving from traditional wealth management into the fintech space. It is kind of exciting to go from the most archaic business of all time into breakthrough measures of doing everything. I’ve learned so much in the last two years… More than I have in the previous ten in the same(ish) industry.

Joe Fairless: What’s one specific thing you’ve taken away from it?

Amy Kirsch: That you don’t have to think small; there doesn’t need to be so many levels of red tape, and if you’re working with the right people, you can get a lot accomplished in a short period of time. You don’t have to do things the way they always have been done just because that’s what people say needs to happen.

Joe Fairless: Are you an investor? Do you invest in real estate, too?

Amy Kirsch: I do… I own property, but we’re limited from doing it on the Realty Shares platform.

Joe Fairless: Oh, of course. [unintelligible [00:20:26].10] Well, best ever deal you’ve done personally on a real estate front?

Amy Kirsch: I have flipped out of apartments in Chicago, and I think that’s because that’s where I’ve lived, and I’ve been successful in that regard.

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

Amy Kirsch: Part of the reason that I was in India was that I’m involved with a national philanthropic organization that gives money all over the world to help people recognize that they can be successful. This particular group gave money to women in India to help them be independent, so that their kids could go to school. It’s called the Gabriel Project and I’m really happy to be associated with it. It’s just doing wonderful things for empowering women in a very impoverished area.

Joe Fairless: Thinking about some of the deals that you’ve personally done, what’s been a mistake you’ve made on a particular deal?

Amy Kirsch: I think one of the things I’ve learned is to not be too emotional. This goes to investing in general, but very particularly with real estate. You can get too involved, hold on too long… Something I’ve learned over time is to try to be less emotional when it comes to any kind of investing. I was investing in the markets in 2008 – not in real estate – and then found that some of my clients as well were making decisions because they couldn’t see through the trees… I think that’s good to overall investment advice.

Joe Fairless: Where can the Best Ever listeners learn more and get in touch with you?

Amy Kirsch: They can come to RealtyShares.com, or e-mail us at invest@realtyshares.com. We answer a thousand questions a week, so we’d be happy to answer a couple hundred more.

Joe Fairless: [laughs] Pile them on, baby! Well, Amy, thanks for spending some time with us talking about your role and the challenges you come across, as well as your responsibilities, from you and your team — what were you gonna say?

Amy Kirsch: I just wanna say thank you so much! It’s so exciting to talk to others in the similar space, and it’s just great to be here!

Joe Fairless: Yeah, especially with your particular role… It fascinates me, because I’m doing similar things to what you’re doing, but not on your volume – by no means am I doing the volume of a thousand inbound questions/week; that’s insanity. But because you’re doing the volume, it’s interesting to hear the varying degrees of questions, from what is a waterfall and preferred return, to the difference between debt and equity, all the way to the risk associated to it, and maybe more sophisticated things like “How is my money secured if this scenario does happen?” and you talk through all that… As well as your focus on compliance when you hire a new team member, and just getting them up to speed on the business model and the different opportunities.

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

Amy Kirsch: Thanks so much, Joe.

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


Joe Fairless's real estate podcast

JF 928: How He BOUNCED Back after Losing MILLIONS #SituationSaturday

He lost over a million in cash, and it didn’t come back…at least not in that deal. Hear the son of previous CEO of Odesk share his account of losing money, transforming his mind, and bouncing back from loss to prosperity.

Best Ever Tweet:

Jeff Slayter Real Estate Background:

– Best Selling Author, Trainer, Speaker, Entrepreneur:
– The Next Wave of Human Potential & Business Psychology
– Built multimillion-dollar corporate training company Speaker to over three million people from twelve different countries – Shared the stage with other thought leaders like Sir Richard Branson, Robert Kiyosaki, and Tony Robbins
– Based in San Francisco, California
– Say hi to him at http://www.JeffreySlayter.com

Want an inbox full of online leads?

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

Go to adwordsnerds.com/joe to schedule the appointment.

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


Best Ever Show Real Estate Advice from experts

JF806: How He Adds $30,000 Equity to a Cheap Home by Doing This One Thing

Adding value to a property can be extremely difficult, but our guest does it with one simple tactic. He uses many investing strategies including the famous BiggerPockets BRRR strategy. Here why he is anti-property manager and decides to make big cash as well as the passive income.

Best Ever Tweet:

David Greene Real Estate Background:

– Realtor at Keller Williams Realty and a successful real estate investor
– 8 years experience buying, selling, managing, and renovating properties
– Purchased first investment property at 25 years old
– Offers coaching for real estate investing
– David is also a full-time police officer
– Based in San Francisco, California
– Say hi to him at http://www.GreeneIncome.com
– Best Ever Book: The Richest Man in Babylon

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

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

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

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

Best Ever Show Real Estate Advice

JF805: His SECRET to Finding and Closing 24 OFF MARKET Multi Million Dollar SYNDICATIONS After Only Having $7 in His Pocket

After you pick up your jaw off the floor, just know that closing over 24 multi million dollar syndications was only possible through hard work, connections, consistency, and constant learning. Our guest has made it in the multi family syndication space, but there is a lot going on behind the scenes. Hear what he did to close a few and hear the secret behind him getting all off market deals.

Best Ever Tweet:

Vinney Chopra Real Estate Background:

– Facilitated 24 successful syndication offerings controlling $125M in Multifamily
– Presently owns single family homes and multi-family units in Texas, California, Arizona and India
– M.B.A. degree from George Washington University after coming to USA with only $7 from India
– Based in San Francisco, California
– Say hi to him at vinney@moneilig.com
– Best Ever Book: Think and Grow Rich by Napoleon Hill

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

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

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

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

Best Ever Show Real Estate Advice from experts

JF791: Why You Shouldn’t Always Trust Your Gut When Deal Making

Yes, trusting your gut is a good piece of advice, but not when your eyes are bigger than your brain! Our guest was suckered into a deal without considering all due diligence, and wound up in a Ponzi scheme! Hear how she now evaluates every detail before completing the transaction!

Best Ever Tweet:

Gabrielle Dahms Real Estate Background:

– Real Estate Broker at Premier Properties
– Came to real estate from a marketing background
– Real estate license since 2001 and broker’s license since 2013
– Based in San Francisco, California
– Say hi to her at http://www.sanfranciscoresidentialhomes.com
– Best Ever Book: One Writer’s Beginnings by Eudora Welty

Want an inbox full of online leads?

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

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

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:

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


Best Ever Show Real Estate Advice from experts

JF733: How to Use Social Media to Build Relationships and CRUSH IT!

Are you utilizing your social media the right way? Think you could improve it? Today’s show is for you, our guest is a pro and has helped big companies grow stronger relationships on Facebook, twitter, Instagram, and other social media platforms. Be sure you tune in and go to her webpage to get a free gift.

Best Ever Tweet:

Katie Lance Real Estate Background:

– CEO of Katie Lance Consulting
– Clients of hers are Remax, DocUSign, and others
– Say hi at katielance.com
– Based in San Francisco, California

Want an inbox full of online leads?

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

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

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:

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

real estate advice podcast

JF658: A High Level Investing Strategist Covers the MOST Important Market Indicators

Today’s guest is scholar from Harvard, an author, a startup advocate, and investor. He has a track record in systems development in real estate business. Hear his take on extracting value in any market.

Best Ever Tweet:

Stephen Roulac Real Estate Background:

    – CEO of Roulac Global
– Writes textbooks for Harvard and other Ivy League schools
– Author of The Property Knowledge System http://www.thepropertyknowledgesystem.com
– Based in San Francisco, California
– Say hi to him at 415-451-4300

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

Made Possible Because of Our Best Ever Sponsors:

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

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

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:

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

Best Ever Real Estate Investing Advice banner 268X250

JF607: “Keep Your Day Job!” Didn’t Stop Him from WINNING! #skillsetsunday

Raising money can be tricky, and especially when an attorney
barks at you about wasting his time! Today’s guest is no stranger,
Nav is the co-founder and CEO of Realty Shares, and he is about to
share some humbling experiences in the beginning of the his journey
to success. Hear his words of persistence and begin implementing
these beliefs in your business…you’ll go further.

Best Ever Tweet:

Nav Athwal real estate background:

  • Co-founder and CEO of RealtyShares, an online marketplace for
    Accredited Investors to securely invest as little as $5,000 into
    private real estate investment properties
  • REaltyShares has done over 320 invsetments and raised over $160
    million through the platform
  • Guest Lecturer to UC Berkeley Law
  • Electrical engineer turned attorney turned real estate
    entrepreneur based in San Francisco, California
  • Say hi to him at realtyshares.com
  • His best ever advice can be heard here:https://joefairless.com/blog/podcast/jf121-crowdfunding-tips-from-a-crowdfunding-wizard/

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

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

Need financing?

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

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

Subscribe to Joe’s YouTube Channel here to learn
multifamily and raising money tips:

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

Best Ever Real Estate Investing Advice banner

JF592: He Scrambled to Raise Capital for this Deal #situationsaturday

Today’s guest needs no introduction, and he’s about to share with us a sticky situation that tight hugs m a most valuable lesson, always be raising private capital. Hear this episode and begin raising money for your next investment!

Best Ever Tweet:

Nav Athwal real estate background:

  • Co-founder and CEO of RealtyShares, an online marketplace for Accredited Investors to securely invest as little as $5,000 into private real estate investment properties
  • REaltyShares has done over 320 invsetments and raised over $160 million through the platform
  • Guest Lecturer to UC Berkeley Law
  • Electrical engineer turned attorney turned real estate entrepreneur based in San Francisco, California
  • Say hi to him at realtyshares.com
  • His best ever advice can be heard here: https://joefairless.com/blog/podcast/jf121-crowdfunding-tips-from-a-crowdfunding-wizard/

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

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

Need financing?

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

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

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

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

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