JF1489: Learn About A New Marketplace You May Have Never Heard Of #SkillSetSunday with Dave Dunford

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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!

 

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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


TRANSCRIPTION

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

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.

JF1462: From Artificial Intelligence To Real Estate & Smart Homes with Ashutosh Saxena

Listen to the Episode Below (28:53)
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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!

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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


TRANSCRIPTION

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

With us today, 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.

JF1435: How To Pick Markets To Remotely Invest In with Chris Stafford

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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!

 

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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

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TRANSCRIPTION

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

JF1429: The Only Way To Scale Is To Implement Rock-Solid Systems & Procedures with Gary Boomershine

Listen to the Episode Below (25:44)
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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!

 

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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

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TRANSCRIPTION

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

JF1344: Get Returns On Your Investments & Get Investing Advice with Ray Sturm

Listen to the Episode Below (24:32)
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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!

 

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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


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TRANSCRIPTION

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

JF1298: How To Create Over $2 Million In Investor Equity With Apartment Communities with Neal Bawa

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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!

 

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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

 


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TRANSCRIPTION

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

JF1295: Home Building In Developing Countries with Brett Hagler

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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!

 

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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

 


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TRANSCRIPTION

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

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JF1271: Making Top End Technology Available To Real Estate Investors with Dana Dunford

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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!

 

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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

 


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TRANSCRIPTION

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

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JF1243: Wholetailing and SEO For More Profit #SituationSaturday with Jason Buzi

Listen to the Episode Below (23:21)
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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!

 

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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.


TRANSCRIPTION

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

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

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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!

 

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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/

 


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TRANSCRIPTION

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

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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!

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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/


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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

Listen to the Episode Below (22:46)
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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!

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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

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

With us today, 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!

Listen to the Episode Below (21:41)
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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.

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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

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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!

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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!

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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

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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.

 

 

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JF951: The Big Boy Passive Approach to Investing

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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!

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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

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

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.

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Joe Fairless's real estate podcast

JF 928: How He BOUNCED Back after Losing MILLIONS #SituationSaturday

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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.

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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

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JF806: How He Adds $30,000 Equity to a Cheap Home by Doing This One Thing

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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.

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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.

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

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Best Ever Show Real Estate Advice

JF805: His SECRET to Finding and Closing 24 OFF MARKET Multi Million Dollar SYNDICATIONS After Only Having $7 in His Pocket

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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.

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Vinney Chopra Real Estate Background:

– Founder & CEO OF MONEIL INVESTMENT GROUP
– 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

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Best Ever Show Real Estate Advice from experts

JF791: Why You Shouldn’t Always Trust Your Gut When Deal Making

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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!

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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:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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Best Ever Show Real Estate Advice from experts

JF733: How to Use Social Media to Build Relationships and CRUSH IT!

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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:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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real estate advice podcast

JF658: A High Level Investing Strategist Covers the MOST Important Market Indicators

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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.

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JF607: “Keep Your Day Job!” Didn’t Stop Him from WINNING! #skillsetsunday

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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. 

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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.

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multifamily and raising money tips:
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episode!

JF592: He Scrambled to Raise Capital for this Deal #situationsaturday

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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!

JF579: How to Connect with VIP’s in Your Industry #skillsetsunday

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Ready to contact the big bosses of your niche? First you need to tell yourself that you can do it, and it’s all in your head. Remember, these are VIPs are human too… In fact only a human can reach out these individuals, you must build the relationship and be sincere. This episode covers many tactics and methods in which you can reach the top from adding value to interviewing hot shots. You can’t miss this episode!

Best Ever Tweet:

John Corcoran real estate background:

  • Smart Business Revolution and has interviewed Marie Forleo, Guy Kawasaki, Gary Vaynerchuk
  • How to Launch a Successful Webinar from Start to Finish
  • At 23 years old he landed a job as a writer in the Clinton White House
  • Say hi to him atsmartbusinessrevolution.com
  • Based in San Francisco, California

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

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

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

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

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JF443: How to FOCUS On Off Market Deals for $1 MM a Year!

It’s safe to say that the best deals are found off the market. Wholesale deals are quick, easy, and clean, and our Best Ever guest has consistently earned over one million year over year through his niche wholesale, fix and flip, and double close business. He stresses the importance of finding deals that are organic and unheard of. He is a direct mail machine and just dropped 13,000 letters in the San Francisco Bay area. Hear this pro move homes!

Best Ever Tweet:

Jason Buzi’s real estate background:

  • Investor in the San Francisco Bay area
  • Specializes in wholesaling, rehabbing, double closing and new construction
  • Founder of Hidden Cash which was an online scavenger hunt
  • For the last three years his personal income exceeded $1M annually
  • Say hi to him at: https://www.facebook.com/groups/154694161390410/

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Made Possible Because of Our Best Ever Sponsors:

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

What’s the Best Ever health plan for YOU?

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

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JF436: How $$$ is CHEAP Right Now and Why You CANNOT Wait to Buy

What are you waiting for? MONEY IS CHEAP at record low interest rates and as an investor knows, it’s ALWAYS a good time to buy! Our Best Ever guest is a Residential Mortgage Loan Originator and hosts a well seasoned real estate radio show. He spills the beans by sharing his insights on the next interest rate rise…you gotta hear his vision for 2016!

Best Ever Tweet:

Joe Cucchiara’s real estate background:

•Mortgage planner with W.J. Bradley Mortgage Capital and been a residential mortgage loan officer for 15 years

•Radio host of the Real Estate Radio LIVE which broadcasts on 1220 KDOW AM from 3 – 4pm PST in the Bay Area

•www.Reradiolive.com

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

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.

What’s the Best Ever health plan for YOU?

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

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JF432: How to Make 5 FIGURES in One Webinar with John Corcoran #skillsetsunday

He has made 5 figures in ONE WEBINAR! Since his youth, our Best Ever guest found a purpose to inspire and elevate others. He sees an opportunity to instruct professionals abroad through the webinar, a seminar broadcasted over the internet. He covers the basic fundamentals of the complete and successful launch of a webinar and of course the best part…monetization! Hear how to get started!

Best Ever Tweet:

John Corcoran’s background:

  • Smart Business Revolution and has interviewed Marie Forleo, Guy Kawasaki, Gary Vaynerchuk
  • How to Launch a Successful Webinar from Start to Finish
  • At 23 years old he landed a job as a writer in the Clinton White House
  • He’s on track to do about 100 webinars in 2015 and made over 5 figures in one webinar
  • http://www.webinar1k.com and http://www.smartbusinessrevolution.com
  • Based in San Francisco, California

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

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.

What’s the Best Ever health plan for YOU?

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

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JF266: How to Analyze Real Estate Statistics…From the Guy Who Makes Them

Today’s Best Ever guest conducts ALL the research on real estate so that you don’t have to. Listen up, as he shares with us the reasoning and research behind all of the statistics YOU use to do your due diligence.

Best Ever Tweet:

Ralph McLaughlin’s real estate background:

–          Housing Economist at Trulia based in San Francisco, California

–          Say hi to him @housingnomix

–          Is an avid homebrewer, and one of his beers won a national award in the IPA category

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

Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF231: How to Ensure You and Your Investors get the MAXIMUM Return on Investment

Data, data and more data. Clearly defining his goals and being able to back up his company with data made investors want to buy in, and it can for you to! With today’s Best Ever guest, we discuss the THREE market trends you need to recognize to maximize your ROI and why data is SO important to starting your company.

Best Ever Tweet:

Anthemos Georgiades’s real estate background:

–          Co-founder and CEO of Zumper, an apartment search website for both landlords and      renters

–          Zumper has raised $8.2M in venture capital with about 1M people a month based in SF

–          Worked at Boston Consulting Group and was a speechwriter in British politics before moving to the US to get his MBA from Harvard, where he founded Zumper in 2012

–          Owns property in the UK and in California

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Made Possible Because of Our Best Ever Sponsors:

Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF224: Some SURPRISING Things You May Not Know About Your IRA

Did you know that your IRA isn’t just for paying greens fees at the golf course when you retire? Today, our Best Ever guest shares with us some of the incredible tax benefits of using your IRA to fund your next deal and why using an IRA might be the Best Ever thing you can tell YOUR investors!

Best Ever Tweet:

Mike Howe’s real estate background:

–          Director of Institutional Products at PENSCO based in San Francisco, California

–          Works with clients to help them understand the tax benefits of investing using a self-directed IRA in real estate

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

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

Made Possible Because of Our Best Ever Sponsors:

Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of LandWant to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

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JF200: Decrease Your Turnover with this FASCINATING Program

Yes we want to create a community with multifamily properties but how many of us…actually create…a…community?? I’m talking about a step-by-step program that builds community and decreases turnover? Today’s Best Ever guest does that and you’ve got to hear about it!

Best Ever Tweet:

Peter Slaugh’s real estate background:

–        Managing Director of OpenPath Investments based in San Francisco, California

–        He oversees acquisitions and asset management for $200M and growing portfolio of multifamily assets in the Western United States

–        OpenPath is transforming apartment complexes into thriving, healthy communities by making positive social and environmental impact just as important as financial returns

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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF161: How to DOUBLE the Value of a Mobile Home Park

Buying mobile home parks can be a profitable business but, of course, you also need to know how to make it profitable. Today’s Best Ever guest shares with you how to the perks of mobile home investing and a success story of how he doubled the value of a park.

Best Ever Tweet:

Jefferson Lilly’s real estate background:

–        Co-founder of Park Street Partners based in San Francisco, California

–        Focused on the mobile home park investing in select markets in the US

–        Owns 5 mobile home parks with an aggregate value of $4,500,000

–        Say hi to him at http://www.parkstreetpartners.net/

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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF121: Crowdfunding Tips from a Crowdfunding Wizard

Today’s Best Ever guest shares with you how to be successful at crowdfunding and the types of deals crowdfunding sites look for when picking which ones to offer to their investors.

Let’s go!

Tweetable quote:

 Nav Athwal’s 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

–        Guest Lecturer to UC Berkeley Law

–        Electrical engineer turned attorney turned real estate entrepreneur based in San Francisco, California

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Sponsored by Cozy – Simple, free online rent payments, tenant screening and credit checks. Get Cozy for free at cozy.co.

 

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JF 89: How to Create a Powerhouse Real Estate Brand

Buckle up, partner. You’re about to get a dose of #bestever tips about branding yourself and how to use social media sites to build powerhouse company online.

Tweetable quote:

Herman Chan’s real estate background:

–        Klout’s Top 50 Most Influential in Real Estate Investing

–        Featured on HGTV, CNN Money, CBS, CNBC, USA Today and House Hunters

–        Author of LOOKING UP: Images to Uplift

–        Top producer at Sotheby’s in San Francisco, California

–        Say hi to Herman at http://www.habitatforhermanity.com/

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Sponsored by: Twenty Four Sound – visit http://www.twentyfoursound.com and mention “bestever” for an exclusive 20% discount on your purchase.

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JF 05: Get Apt Investing Advice from the Guy Who Wrote the Book on It

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Peter Harris literally wrote the book on apartment investing (see below) and has learned from some very successful apartment investors. Learn what he has to say and hear some inspiring case studies.

Peter’s real estate background:

  • Owns over 1,000 apartment units
  • Purchased over $20,000,000 worth of apartment communities 
  • Co-author of Commercial Real Estate Investing for Dummies
  • Been in the business over 10 years and is based in San Francisco, California

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Listen to the show to hear his Best Real Estate Investing Advice Ever!

p.s. I made a rookie mistake when I didn’t mute my mic so you can hear some background noise towards the end of our call. So sorry! Lesson learned.