JF1588: Find One Market And Scale Until You Can Leave Your Full Time Job with JC Castillo

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JC got his start as a part time investor, working hard to get to a point of leaving his job as a mechanical engineer. Now a full time investor, JC is a value add apartment investor. He also has a passion for technology and says that has helped him grow his business. Hear how he was able to quit his job and be a full time investor, and what he’s doing now to continue the growth. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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JC Castillo Real Estate Background:

  • Founder and managing principal of the Multifamily Property Group (MPG)
  • They have been investing in large multifamily for 12 years
  • Based in San Jose, CA
  • Say hi to him at https://www.multifamgroup.com/
  • Best Ever Book: The One Thing

 


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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, JC Castillo. How are you doing, JC?

JC Castillo: I’m doing good, Joe. Thanks for having me on.

Joe Fairless: Yeah, my pleasure, nice to have you on the show. A little bit about JC – he is the founder and managing principal of the Multifamily Property Group. He’s been investing in large multifamily for 12+ years. Based in San Jose, California. His company’s website is multifamgroup.com. With that being said, JC, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

JC Castillo: Sure. I’ve been investing in multifamily for a good long time, since before the recession. I’m actually a technology guy by degree, mechanical engineer, and I’ve been in the tech business and the semiconductor business for about the last 20 years, but certainly I’ve transitioned over to more of a real estate-focused person these days.

Joe Fairless: Are you a full-time investor, or part-time?

JC Castillo: Absolutely, full-time. I got my property up and running for the last 12+ years.

Joe Fairless: Okay, cool. So you’ve been investing in large multifamily for 12+ years… What does your portfolio look like now?

JC Castillo: We have about a 50 million dollar portfolio; we’ve bought and sold over 1,000 doors in Dallas-Fort Worth. We currently have six properties in our portfolio.

Joe Fairless: And are they all in DFW?

JC Castillo: That’s correct. Everything is in Dallas-Fort Worth, that’s right.

Joe Fairless: When did you buy your first one?

JC Castillo: I bought my first properties in 2007 in Dallas-Fort Worth. I bought a 50-unit and a 24-unit, and then the following year we bought a 31-unit. Those were my first purchases.

Joe Fairless: And did you have a full-time job at that time?

JC Castillo: Oh yeah, back then I was working a full-time job. I’ve always been a real estate guy, always had a passion for it. I had bought several single-family homes throughout my early career in technology, and sold a lot of those. I bought those in the San Jose area, sold a lot of those and decided I wanted to get into multifamily to scale up, because I had limited time, being a full-time technology guy. That was how I got my start in apartments.

Joe Fairless: When did you quit your full-time job, to be full-time focused on multifamily?

JC Castillo: It’s funny – in 2011 I basically left my full-time job; by then, my real estate had really taken off… But interestingly – I’m kind of an entrepreneur by nature, and one of my buddies had told me a really great idea about a networking startup that he wanted to do. Long story short, I joined that company and helped build it up from the ground up, and it became pretty successful. So even though I was running my property business – I’m sort of a technology guy at heart, but I sort of left that company as well, so now it’s full-time real estate.

Joe Fairless: And when did you leave that company?

JC Castillo: August of this year as a matter of fact.

Joe Fairless: Oh, cool. Alright. So you were there about 6-7 years. Why did you leave in August?

JC Castillo: Well, it got to the point where we had built the company up and we had some really great customers, and for me that business was turning into a little bit more of a lifestyle than an exit, which was my strategy on it… So at that point, if it’s gonna be lifestyle really, my real estate business is really what I’m more passionate about from that perspective. That’s why I made the move in August.

Joe Fairless: You call yourself a technology guy… How has that helped you in multifamily investing?

JC Castillo: Well, I think as a matter of fact a lot of my capital partners are all Silicon Valley technology guys as well, and I think what I enjoy about being a technologist is that — I think apartments become a lot less emotional for us; it’s a very numbers-driven game, and our capital partners that are technology guys are actually quite zero and one, if you will, when it comes to investing. They read numbers very well, they’re very analytical, and if these deals pencil out on the financial side, it’s fairly quickly and easily identifiable for them, as well as for me, to understand whether it’s a good deal or not. I think that’s my advantage as a tech guy.

Joe Fairless: And then on the flipside, since you’ve got a 15 million dollar portfolio, you know the execution is paramount in our industry, which gets away from the zeroes and ones, and is definitely more focused on the people aspect… So what have you done to help set your properties up for success, since it perhaps isn’t natural to be focused on that, compared to the numbers?

JC Castillo: Yeah, that’s a really good point. I think it’s actually even more critical than sort of the numbers; build your team, and build your ecosystem right. Multifamily investing, like many businesses, is a team sport, so… I’ve chosen strategically to focus on a very specific major metro, so I’ve gone very deep in Dallas-Fort Worth with my relationships with brokers, lending partners, and a whole ecosystem of partners that get the job done for us. We’ve managed to build a really awesome team out there in Dallas-Fort Worth, that really helps on the execution side, because that’s as important, if not more important than the numbers, of course, as you rightly pointed out.

Joe Fairless: And what are some specific things that you’ve done to find the right team members?

JC Castillo: Well, I always say that the first thing that you need to do when you’re going to a market is basically do the fundamentals. It starts with, number one – especially if you’re coming in from an out of state perspective, California guys and gals have a little bit of a negative connotation… Maybe not as familiar with the local market, potentially not in tune with the price variations, and not as sensitive to the local workings… So I think you have to really come in with your hat in your hand and fairly humble, and sort of go to learn and listen, and ask a lot of questions of the brokers, and sort of be honest with them about your situation. “Look, I’m coming into a new market. I really haven’t participated here before, and I’d really like to know what it takes to be a good partner in this metro, in this market.” I think that’s how you really get started, and that’s probably the best way to get going.

Joe Fairless: What’s been a challenge you’ve come across with a specific deal?

JC Castillo: I think there’s many different challenges. I could tell you specifically one of the challenges that we’ve faced in the past, that we’ve sort of learned the hard way in a lot of ways, is that when you’re looking for these major projects you really wanna try to stay away from as much as you can anything that might be invasive to the current residents’ lifestyle. For example, if you’re gonna go in and replace the internal workings of the units, even for occupied units – let’s say that you’ve got window units, for example, and you need to replace them with a centralized A/C system, or maybe a mini-split system. It sounds easy enough, and especially for the vacants it’s pretty simple, but when you have occupied units and you’ve got people going in and out of the units 2, 3, 4 times, that can actually get pretty invasive in a resident’s lifestyle… So what we’ve seen with those sorts of deals is we’ve seen that we’ve had a little bit more issue keeping people happy residents throughout that transition. That’s probably one of the things I can tell you that we’ve learned over the years.

Joe Fairless: So what’s the solution if you’re wanting to change out window units to central A/C?

JC Castillo: Well, in my opinion, if you’re a value-add guy, which we are, I would steer clear of deals like that. I think that they sound great on paper, but I would say that there’s a lot of logistical challenges. Sometimes you kind of have to say “Look, this may not be such a great model for us”, with those sorts of things. Now, things like cosmetic upgrades, replacing countertops and upgrading  units when they’re vacant, and turning units and all that other stuff, it’s perfect.

Joe Fairless: What are some value-add additions or tactics that you’ve done, that stand out to you as incredibly effective, other than interior renovations of a unit?

JC Castillo: Well, I think I would up-level that question maybe one notch, and what I would say is over the years, as we’ve developed and gotten better at the way that we do value-added properties, one of the things that we’ve really thought hard about and sort of executed on a little bit better, I’d say, is that we try to look at the initial execution in the planning stages and say “Look, let’s attack this from a design perspective before we attack this from a nuts and bolts perspective.” What I mean is we really try to step back and really look at the design elements and the amenities and how we could really maximize the usefulness of the renovated product for the resident profile.

For example, we spend a little bit more money than most people on the leasing office/community center. A lot of people come in and slap some paint on the walls and maybe work within the bounds of what the configuration is, but we’ll actually take it a step further – we’ll usually completely blow out walls, open up spaces, take a lot of time to transform it from something that looks me-too-ish, to something that really blows people’s socks off when they walk in the door… Because we kind of look at the leasing [[00:10:59].26] center as kind of the equivalent of the car dealership when you walk into the showroom floor. You really wanna be wow-ed in the showroom floor, because that’s where the decision is gonna happen to sort of decide to live and become a member of that community. For us, those sorts of things, that design element and really taking those pieces to maybe a different level is something that we feel is important to us… And we get a lot of value, we think, from doing that.

Joe Fairless: With the capital partners, you mentioned, who are very bottom-line oriented and look at it in terms of zeroes and ones – and I know, obviously, that’s not all your capital partners, but generally, that’s been a benefit of your background, having those relationships… How do you communicate the bottom line ROI on spending more money than most on a leasing office and/or community center, since those aren’t, for the most part, getting rented out? You might lease some space in a community center, but for the most part they’re not.

JC Castillo: Basically, it all comes down to not only what the numbers look like, but also what your model is. One thing I will tell you about who we are is that our investor profile is a little bit more long-term focused than most. We like to hold deals for maybe longer than your typical 3-5 year exit, and because of that, we’re able to plan for the long-term a little bit more maybe than the shorter-term exits… So investing a few more dollars — and we’re not talking about extensively larger amounts of money, for example for the leasing center remodel; we’re talking about more money putting in than the average bear, but not excessively… But when we look at the long-term benefits of the stuff that we do, we certainly feel like we’re setting ourselves up in the long-run for a much better performance, and a consistent performance.

I don’t think that making those additional investments, at least for our profile of investors and sort of the long-term mindset that we have, is a detriment to us being able to execute or being able to attract capital.

Joe Fairless: With your mechanical engineering background I imagine you love getting into the numbers in the underwriting process. First off, is that an accurate assumption?

JC Castillo: When I first started out, absolutely. I was underwriting my own deals, coordinating with the renovation of our own deals, running through all the acquisition process… Obviously, these days we’ve grown, so we’ve been able to put some pretty wonderful people on the team, that kind of help to do the acquisition and the underwriting stuff… But it is something that I have enjoyed doing, and I still am able to do it at times, but these days I’m focused on a little bit of a different — sort of a growth mode and sort of managing the different pieces that have we in motion these days.

Joe Fairless: The underwriting process that you had at the very beginning – your first couple deals – versus what you and your team have now, what are some specific areas that have been evolved or updated? Just so we can learn along the way from what you learned through those 12+ years.

JC Castillo: Well, when we first started out, the model was a little bit more basic when it comes to — we really didn’t account for, for example, unit upgrades, or how those would be folded into the execution. We would really just say, “Look, let’s underwrite the deal as if we’re buying it, and we’re basically just gonna increase the rents on a holistic level as we go out in time, because we’re value-adding it.” But along the years, one thing we’ve done a much better job of is we’ve really customized underwriting to basically look at how the ramp-up happens with upgrading classic units.

As you’re going through the value-add process for a deal, you’ve got a majority of the residents who are gonna be what you would call classic/renewing; then you’ve got a subset that are gonna exit, and you’ve got vacants that you’ve gonna upgrade… So now you’ve got upgraded units at a certain price, and you’ve got classic units at a lower price, but on the upgraded units you’ve got whatever your number/month that you can turn is, so you sort of have to work that into a year-over-year basis and also multi-year basis in terms of how much you’re increasing your GPR, and sort of how that’s all mapping into your overall performance. We’ve gotten, for example, in that area, a little bit more sophisticated in terms of how we model out time=0 to however long it takes us to transition to fully upgraded units.

Joe Fairless: And did you create your underwriting spreadsheet from scratch, or do you use something else?

JC Castillo: We have. Everything we’ve built, we’ve built in-house, and we continue to develop it. We’ve looked at several third-party software underwriting services, and to a varying degree we’ve seen some of the value that they have, but they always maybe fall short just here or there in terms of the custom stuff we’ve built out…

Joe Fairless: For example…

JC Castillo: For example, one of the solutions that we looked at actually did a really good job of doing what I mentioned about having a certain number of upgraded units, but where it kind of fell short was the way that the data could be generated out just wasn’t specifically formatted to what we wanted to see, from a bottom line perspective. So you get into the details of it — it all sounds good from a high-level, but as you sort of peel the onion back, you kind of go back to what you’re doing and seeing sometimes it just works a little bit better.

And the other thing that’s interesting is when you build something from the ground-up, what you end up figuring out too is that you sort of have a model in place, and that model, the way that you work it, forces you to think about the deal in certain ways, and whether the deal makes sense of doesn’t, and sometimes when you move to these third-party solutions you lose that level of really having to think through the process a little bit more, which forces you to identify areas, if you will, where the deal may not make sense, but maybe from a high-level punch-in-the-numbers it kind of looks right, but it doesn’t after you sort of spend more time on some of the things that  you’ve customized over the years.

Joe Fairless: If we had had our conversation two years ago and I asked you the following question, what would you say? And here’s the question – what’s your biggest challenge right now with your business? And again, if this was a question I asked you two years ago.

JC Castillo: I think two years ago what I would have told you is the biggest challenge is finding the right deal… And what I’ll tell you is if we look at two years ago, the market, while it sort of got maybe a little bit hotter, and maybe it’s cooling off right now, the market wasn’t that much different than what it is now; we’ve been struggling to find truly great deals two years back, so I think finding those deals has always been the challenge.

Joe Fairless: And have you bought anything between today and two years ago?

JC Castillo: We did. We’ve bought one project, and we’re going under contract on another. What I would characterize as net sellers, but definitely opportunistic on the buy side, when we feel like we find something that hits our parameters.

Joe Fairless: And how did you find the contract that you purchased?

JC Castillo: The one that we purchased – off-market deal. We had sold a project with a broker who we’ve known for many years, and we were in a 1031 and he was able to find a really great [[00:18:08].24] for us, that was not what I would say off-market these days, where it’s kind of like everybody knows about it, but it’s not officially listed. Truly off-market, that no one ever knew about, and that we were able to get at great terms and we were very happy with it.

Joe Fairless: What type of fee does a broker receive in that type of 1031 transaction when they find you a deal?

JC Castillo: It depends. The situation that we had, once the broker identified a project that might be suitable, then in that situation the seller said “Look, I’ll sell the deal at this number”, which was a really good number, “…but I’m gonna request that the buyer pay your broker commissions.” In that particular case, the broker came back to us and said “Look, here’s the number it’s gonna take for this deal”, which when we underwrote it, it worked immediately… And he said, “But you guys are gonna have to pay my broker commission.”

What I’ve learned in this business is when a broker does that to you, you have a real opportunity to build a great relationship by being agreeable to it, and by being not only agreeable, but being positive about it.

I think one of the mistakes I’ve seen people make is they start trying to nickel and dime the one person that’s actually on your team and bringing you amazing deals… And all you’ve gotta do is look at it as a cost of doing the transaction. If you’re buying the deal at a certain price, that the seller said he would sell it, and the commission for the broker is something they want, then you say “Hey, heck yeah. Let’s take a look at it and run it assuming your commission that we pay you, and if the numbers make sense, we do it.” I think that really sets the tone for the broker that “Hey, look, these guys aren’t gonna nickel and dime me. I’m working hard to find these deals, and when I do, I know I’m gonna get paid for it.” For us, we feel like that’s a great opportunity when a broker does that.

Joe Fairless: Yeah, I completely agree. And what was the purchase price for that?

JC Castillo: I never get into purchase price numbers in public, because DFW in Texas has a whole, as you know, a non-disclosure state… But we’re doing deals these days in the range of 15-25 million dollars or so.

Joe Fairless: Fair enough, okay. I totally get that. What was the commission? …because that’s where I was going with it.

JC Castillo: I believe on that deal it was a $200,000 commission.

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

JC Castillo: Go long, not short. That’s one of my personal investment philosophies. I think it’s been a great run, and I don’t know how much longer we’ve got in the cycle; obviously, there’s starting to be some transitional periods here in terms of what we’re doing… But I’ve always said that if you go long, and focus on the fundamentals, over time I think that you can get over market ups and downs, which do happen, and I’ve been through sort of probably one of the biggest, in the recession… But things like “Don’t overpay” is one of the big rules that I have.

Don’t overpay doesn’t mean look to buy deals for less than fair market value, because fair market value is fair market value… But don’t overpay in this sort of a market, especially in this phase of the market.

When we look for deals, we try to look for deals that have long-term ownership. If we can find a deal that’s been under ownership for 10+ years, that means that we know that most likely there’s some sort of an under market rent situation, and probably plenty of things that we can fix to add value, from the exterior, the amenities, the upgraded units… And look for multiple ways to add value.

All these things sort of speak to the fact that if you go long, you really want a product that can support that. You want the great characteristics, for example a value-add, and then once you add the value, if it’s in a decent location and it’s a good, solid product, you’ll be able to keep it for more than five years if you want, and it should keep continuing to throw cashflow out the door.

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

JC Castillo: Lightning round, alright. Go for it.

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

Break: [[00:22:00].11] to [[00:23:15].19]

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

JC Castillo: Best ever book I have recently read… Right now I’m reading a book called The One Thing, by Gary Keller, which I really love.

Joe Fairless: Best ever deal you’ve done?

JC Castillo: Best ever deal I’ve done… Probably a deal called Amber Creek.

Joe Fairless: And why was that the best ever?

JC Castillo: Well, like I said, it’s been owned by a guy for 20 years, and the rents were way under market. We were able to get it for a very fair price, and it had significant upside, and it was an asset in a great location in DFW.

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

JC Castillo: Well, I think we talked about one – we went in and did some major, extensive renovations to occupied units, and I would say that we would wanna shy away from that moving forward.

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

JC Castillo: The way that I like to give back is more on a one-on-one basis… If there’s folks that ever have questions, I’m happy to give advice, I’m happy to help out. That’s what I like to do.

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

JC Castillo: If they wanna get in touch with me then they can go to our website, MultifamilyPropertyGroup.com, and they can click on the Contact Us section and we’ll get  a hold of them and talk with them about whatever they’re interested in talking about.

Joe Fairless: Well, JC, thanks so much for being on the show, talking about your background, how you’ve grown your company’s portfolio from 0 to 50 million dollars, some lessons learned along the way from an underwriting standpoint, the nuances in underwriting in terms of the unit upgrades and how to look as the ramp-up happens, versus underwriting it as though it happens overnight, and being very granular about that process on a progression standpoint.

Then the challenges, how you like to stay away from properties that have invasive updates to residents, and you used the example of windows to the central A/C, and doing that replacement.

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

JC Castillo: Thanks a lot, Joe. I appreciate it.

JF1326: Why You Should Diversify And Invest In REITs with Lior Gantz

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Lior started his entrepreneurial ventures early in life and had 25k by the age of 18. He started investing in business and stocks at 16, and has only expanded the assets he invests in. One of his favorite investing strategies is wholesaling vacant homes. Lior also loves REITs, and has great advice on what to look for in a REIT. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Lior Gantz Real Estate Background:

  • President of Wealth Research Group
  • Over the past 16 years, Lior has built, run, and managed various exciting ventures across 2 continents.
  • As a deep-value investor, Lior loves researching businesses that are off the radar and completely unknown to most financial publications
  • Based in Costa Rica
  • Say hi to him at http://www.wealthresearchgroup.com
  • Best Ever Book: Science of Getting Rich

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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, Lior Gantz. How are you doing, Lior?

Lior Gantz: I’m doing well, thanks for having me.

Joe Fairless: Nice to have you on the show. A little bit about Lior – he is the president of Wealth Research Group. Over the last 16 years he’s been — he’s an entrepreneur; he’s built, run and managed various ventures across two continents. He’s a deep value-add investor. He loves researching businesses that are off the radar and completely unknown to most financial publications. He’s wholesaled vacant homes, he’s done lease options, he’s got a few rentals, and he’s also investing in REITs.

He’s gonna talk to us about the pros and cons of having investments and REITs over traditional real estate too, which will be interesting. With that being said, Lior, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Lior Gantz: Yeah, sure. I always say that my financial career started as a survival mechanism, Joe. My father went bankrupt three times, and the first time was when I was 13, and right around that time I started having my own goals and desires and things that I wanted to do, and I couldn’t. So I started working when I was 13, and I think doing that helped me build this muscle of saving money. Kids, when they get money, they just simply spend it all. They have no idea that you can have a bank account etc. So I had a bank account, and by 16, from doing some assisting coaching in basketball, and then the parents of the kids asked me if I do babysitting, so I started doing babysitting, and [unintelligible [00:02:36].10], and I worked in a clothing shop… By the time I was 16 I started delivering pizzas and all that, and by 18 I had like $25,000.

Joe Fairless: That’s incredible.

Lior Gantz: I know. Well, you don’t have a lot of expenses when you grow up. No taxes, the rent is kind of paid for you, food, and all that kind of stuff, and obviously no gasoline. So I got my parents to sign a waiver and let me do my own investing, and my grandfather bought me two books – one from Warren Buffett, and another one from Peter Lynch. Those got me started investing at age 16. It was two months after the dotcom bubble burst, but obviously that meant nothing to me. I didn’t even know what that meant. But it was a great time to start getting invested, because everything was very cheap.

Luckily, I got started with China. Who would invest in China in the year 2000? …but that is kind of where that book from Peter Lynch and Warren Buffet took me. Warren Buffet said “Buy whatever is out of favor” and Peter Lynch said “Look around you.” That “Look around you” was easy for me, because I was 18, I was buying all these brand new clothes, and everything said “Made in China.”

My first company that I ever bought is VF Corp. I still own it until today. It’s a  bit expensive right now; obviously, I’m not adding to my position, but for years I’ve owned this company. It’s the manufacturer of The North Face, Timberland, Lee, Wrangles – all these brands are under that umbrella, but nobody knows it. So that’s how I got started.

Joe Fairless: How much did you put into VF Corp then and what’s it worth now?

Lior Gantz: Well, I don’t know exactly how much risk-adjusted or inflation-adjusted in today’s dollars I put back then. It would be interesting to look at it. But the company itself has flourished; in terms of price, it’s gone better than the S&P 500, so you obviously beat the markets by going with a company like VF Corp. And the reason is – and that’s why I liked these types of companies – because they raise their dividends.

VF Corp in 2000 was dollar cost adjusted right around $6. Today it’s $77. So you’re talking about more than a tenfold move. But the real beauty is that the dividend yield used to be like 6 cents per share, and right now it’s around 42/share. That is like buying an asset – a real estate asset – for 100k in 2000, and back then it rented for $1,000, and right now it rents for $7,000/month. The same asset. That is the power of these compounding dividends, and it’s why I make sure that I have both stocks and real estate in my portfolio.

These types of stocks – I call them wealth stocks, or dividend [unintelligible [00:05:30].25] If you go to WealthResearchGroup.com/dividend, you can actually see a list of a number of them that I personally own, and that I wrote a full report on… Because these are the types of companies that do these types of moves.

Joe Fairless: From a real estate standpoint, how active are you?

Lior Gantz: In 2008, while the subprime mortgage problem happened, I was on a four-day rafting tour in Green River, Colorado, so I don’t know nothing – I have no cell reception, no signal, no nothing. I get out of the trip after four days and the world ended, right? So you go into the trip, nothing’s wrong; you come out of it and everything’s wrong. It really taught me a lesson in market panic, because I wasn’t part of that initial panic, so to me it looked very foreign, and I didn’t end up selling my shares or doing a lot of the things that other people have done. I was kind of looking at it from the perspective “What happened in four days that will make me change my mind regarding everything I know was true?”

So when everyone else was leaving real estate and didn’t want anything to do with it, I started a real estate business in 2009 in the U.S. My niche was to help banks dispose of their glut portfolios of foreclosures, and I had to develop big, big relationships with a number of key brokers. I got what we call pocket listings first. That was good for a couple of years, and then it got too competitive.

I moved into my favorite niche until today, which is wholesaling of vacant homes. Right now in America there are about 2.1 million vacant properties. I always get asked the question “Why do properties go vacant?” and there’s so many reasons, Joe; I bet you know this as well, just because you’re in the market all the time… People get divorced, and then the house stays vacant for months. People squander in there, they rip off the copper, the bushes get overgrown, and then you get into a position where now this house will cost you money to put it back on the market. It can be inheritance, relocation, unpaid taxes – anything from property taxes to other types of taxes.

Vacant homes is a frequent site when you drive the streets, so the real problem is finding out where the owner is. But if you can do that, some of these owners are incredibly motivated to get rid of this property, and some of them have equity. So that is a great situation to be in, because then you can negotiate with them a very low price. Once you got that contract locked with them — but the real problem is finding them, so people would understand this… But the minute you find them and you’re able to negotiate with them, you can create a situation where you really get a cheap property in your hands that a flipper or a fixer upper, a small-time construction company would love to buy off your hands.

So what you do is instead of close on that property and try to market it, you simply wholesale it. The way you do it is you just assign your rights to that contract (the sales contract) to another person who wants that property. You do it for a few thousand dollars, but your name is not on the chain of title; it’s a very easy transaction to do. You don’t have to appear in front of the title company, and you can do that a few times a month. In my heyday I used to do that a lot.

It works everywhere, it works in any type of environment – if it’s a seller’s market, if it’s a buyer’s market… It’s just there.

Joe Fairless: You said the real problem is finding where the owner is. How do you find where the owner is?

Lior Gantz: Well, there are companies that help you do that. There are services that 4-5 years ago when I used to do this a lot I found a few softwares that help you do that. But first of all, you go to the tax assessor’s website. That might be where you find them, because the owner’s information is there, and perhaps his new address is in there. Or maybe he never listed this house under that address, so probably he owns 2, 3, 5 or 10 homes, and he’s listed some other home as his address.

Once you have that address, you start either direct mailing to that address, so you send them a postcard or a mail piece or whatever, saying that you wanna buy that property in a very marketable language… Remember, Joe, the beauty about this is who’s your competition, right? This property is not in the MLS, it doesn’t have a for-sale sign on it… Literally, no one knows about it except for you, and if there’s any other person who’s aware of this right now on your podcast and is gonna implement this.

Now, the problem could be that the house is listed as this address for the owner. So what you do is you send a mail piece to this house, but the post office will either redirect it to the new place, or send you back a postcard saying “This person is no longer in this address. Here’s his new address.” That’s another likely scenario.

You need to have a language, like a return service request or something of that nature on your postcard, depending on where you are located in the country… But that tells the post office that “Hey, if this is undeliverable, give me the new address.”

Then there are other types of paid ways, like skip traces, where they find you that person. If you’re willing to pay a few dollars – it could be like $10 a lead, or something – they help you find all of their relatives, any known addresses, any past addresses… You start like a detective, finding those people.

What happened to me is it got too overwhelming and I just hired someone else to find them and to handle all these mail pieces. I used to use ClickToMail.com, and then obviously the skip tracers… I can’t remember the name of the website right now, but I used to use a couple of websites to do that. They just send you a PDF file with everything they know about this person… So there’s a few ways to do it, and there might be better ways today. I haven’t done this type of deal in a year and a half now.

Joe Fairless: So now from a real estate standpoint are you focusing on investing in REITs?

Lior Gantz: I am. I think in terms of general economy — and by the way, I’ve written a lot about that niche that I’ve just described, so if you want more information, if you’re a reader, you can go to WealthResearchGroup.com/realestate and you can actually download a PDF file with a case study and all that kind of stuff that might help you more. But definitely research wholesaling vacant properties and you’ll find a lot of information online as well.

REITs are publicly-traded companies, so this is not like owning the actual piece of real estate. You don’t own property, you own a piece of a company that owns the properties. The differences between that and owning a real property is if you own a property, you get your rents every month, and it doesn’t matter what the stock market is doing, your renter pays the rent. Your investment is outside the stock market.

REITs are companies that are trading on the stock market, so they are susceptible to market panics, and market booms, etc. That’s why I love them – you can invest in the type of real estate that you can’t as a person. Consider, Joe — you know that there are 51 million boomers in retirement right now; there’s gonna be 81 million people in retirement by 2030, so you’re talking a quarter of the country retiring. There’s a lot of elderly homes that are gonna make a fortune, but how can you invest in elderly homes? You either have a few friends and institutions that you can raise money with and actually buy one, but you need to know how to manage it and all that kind of stuff… Or you can buy a REIT that specializes in elderly homes, and then you have a piece of that equity, and they pay a very fat dividend.

REITs pay anywhere from 6% to 14% a year, obviously because they use leverage. So if you find a well-managed one with a good balance sheet and you do your research, those are very good companies, especially today. The reason I say “today” is because when bond yields go higher, then REITs outperform stocks, historically. That has happened everytime the Fed has tightened monetary policy, and that’s why I think bonds are a very lousy investment going forward, and I think people will do very well by selling their bonds portfolio and moving into REITs. That’s not even counting the fact that there’s inflation. If inflationary pressures come, then REITs will be an even better investment, because the real estate equity itself will rise with inflation.

I wrote about this — again, I love these PDF files just because they give an added value outside the interview that I can share with people, so if you go to WealthResearchGroup.com/bonds, you can actually read my analysis of bonds and we’ll cover in the next 3-4 weeks on the newsletter – Wealth Research Group has a free newsletter – two of my favorite REITs going forward. Again, Joe, my thing is they invest in stuff that you can’t invest on your own. One of them is the biggest owner or real estate that they rent to the federal government. That’s something very unique. The government offices are rented from this company.

Joe Fairless: What tax document do you get at the end of the year?

Lior Gantz: It just depends on your nationality. I’m not a U.S. citizen, but —

Joe Fairless: Oh, got it.

Lior Gantz: If you’ve got a good CPA and all that kind of stuff, then REITs are very tax advantageous. They had a change in the text law — obviously with the tax cuts they changed tax rules for REITs and MLPs; MLPs are also high-yield type of mechanisms, but they invest usually in pipeline of oil and natural gas… Both of these asset classes have seen recent changes, so definitely research this before you get into it… But the idea is they remain a very tax advantageous way to do it. There’s no depreciation and all the good stuff that we do with the genuine real estate holdings, but they have their own tax advantages, which are better than normal stocks.

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

Lior Gantz: I think that the best real estate advice that I’ve received – and it’s the best real estate advice that I can give – is that it’s all in the purchase price. If you can get a good purchase price, then that’s half the sale. That is precisely how my mentor first told me about it, and I live by that with everything I do. Everything is in the purchase price, in my opinion. So it’s better to wait and sit on cash, than to buy mediocre investments. That’s how I have implemented that advice in my own life.

If I have a chance to sit on cash, which is something that most people cannot do – they have this thing that I call “activity disease” – they have to have their money at play; I don’t, and I think that helps me. I’ll give you an example how that can help.

If you sit on cash, you don’t earn a yield, if there’s inflation, then you erode your purchasing power 2%-3% a year. We all know that, we all get it. But think of a scenario like 2008. Sitting on cash was a tremendous advantage. And I’m not talking being 100% in cash – that’s obviously stupid – but having 20% of your investable portfolio just sitting in cash is very advantageous. You are leaving yourself room to take advantages when other people are suffering from liquidity crises, and that is important. And if you see two good deals at the same time, then having cash helps you capitalize on both of them instead of selling or liquidating another piece of real estate. How often has that happened, Joe, where you see two good things and you need to sell one of your holdings to have enough money to get into a new opportunity? I don’t think that’s a good habit to have, having to sell one thing in order to get into another.

If you look at Warren Buffet, he has 70 billion dollars in cash right now. Are you kidding me? 70 billion dollars. When one of the best decision-makers of this past 60-70 years is telling you “Hey, I’m sitting on 70 billion dollars worth of cash”, how hard is it for somebody like you and I to say “Okay, let’s just put a million aside right now and wait, at all times, and not have it at risk.” Just let it sit until that powerful opportunity comes. I equate this to being like an anaconda. The anaconda sits at the river bank all day long, and it looks at countless opportunities to eat small, nice, little meals; it just sits there and waits for that motherload prey, and it doesn’t waste energy on anything else. I think that’s important, because in order to be mentally ready to take advantage of opportunities, you can’t be bogged down with other things. We all have our limits. It’s very hard to be everywhere at the same time, so it just makes life easier.

And I think it’s hard, that’s why I think it works. It’s very hard to stay in cash, mentally, and that’s why I think it’s good advice. Anything that’s easy is not as effective as stuff that is hard, because then you know that other people are not doing it with you.

Joe Fairless: A very true life lesson across the board on that last thing, for sure. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Lior Gantz: I don’t know what that is, but I was born ready.

Joe Fairless: Alright. Well, you’ve been working since you were 13, so this is nothing. First, a quick word from our Best Ever sponsors.

Break: [[00:18:59].14] to [[00:20:05].07]

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

Lior Gantz: It would be The Science of Getting Rich, by Wallace Wattles, 1911. That’s the book that the Australian lady behind The Secret based all of her work on.

Joe Fairless: Best ever deal you’ve done?

Lior Gantz: I think the best ever deal I’ve done would be proven in the future, but it was buying Microsoft at $25, right after the crash.

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

Lior Gantz: I think the worst mistake that I’ve done was when I first started with wholesaling. This person who wanted to flip this home – he wanted to pay me after he met with the owner, and I allowed the owner and him to meet. They transacted directly between each other, and he didn’t give me my assignment fee. Basically, he said “Why should I pay you your assignment fee when I can do the deal essentially with the owner and save a few thousand dollars?” That was a lesson to me to always get the documents inked before you do anything else.

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

Lior Gantz: The Wealth Research Group. The way that this newsletter came to be was that I sold my real estate businesses in 2013, and I started a boutique fund with 20 well-to-do that I knew from before, and that trusted me with their money. The bull market helped us make a lot of money, for two years, so by the end of 2015 I was ready to give this up, because it was very demanding to manage money for those 20 people. I said, “Look, what I wanna do is I wanna write and share my research with more people”, and that is how Wealth Research Group got started – as a labor of love [unintelligible [00:21:52].29] sharing the information.

Joe Fairless: Lior, thank you so much for being on the show and sharing your journey, the journey that began at the very young age of 13, and then has transpired throughout in the different approaches you take, from investing in REITs, why you do that, what you were doing prior to that, wholesaling homes, buying vacant homes – how you did that, how you found the owners, tax assessor’s website, sending the direct mail piece to the address, and then getting a return if they’re not there, and then also skip traces among other things.

I appreciate you spending some time with us. I hope you have a best ever day, and we’ll talk to you soon.

Lior Gantz: Thank you very much, Joe.

real estate pro advice

JF883: How to Buy Investments with ZERO Debt

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That’s right, no debt! How does it work? You’ll have to tune in and take notes. He also covers why if he doesn’t have the right property manager, he won’t buy the deal.

Yousif Abudra Real Estate Background:

– Managing Director of BENA Capital, a private equity real estate investment fund
– Responsible for the sourcing and execution of investments, raising fund capital, and investor relationships
– Investments are 100% equity based and do not utilize any interest-bearing debt
– Previously, he was an investment banker and consultant for $10MM-$1B businesses
– Based in San Jose, California
– Say hi to him at www.bena-capital.com
– Best Ever Book: Investing in Real Estate by Gary Eldred

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JF411: The Art of Charm Host Spills the Skills of an Introduction

Social capital…how much influence is hiding in your inner circle? How are you able to connect individuals in your network to benefit everyone? Well, sit back and prepare for a riveting interview from the host of The Art of Charm, a popular podcast that empowers big thinkers. Our Best Ever guest has a few tips that will allow you to be an extraordinary connector of the human race…hear it now!

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Jordan Harbinger’s background:

  • Host of the Art of Charm, where ordinary guys become extraordinary men
  • #1 Self-help podcast in iTunes
  • Been kidnapped…twice
  • Based in San Jose, California

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Made Possible Because of Our Best Ever Sponsors:

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

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JF349: How to Find A Lender To Suit YOUR Investing

Today’s Best Ever guest really thrives on Robert Kiyosaki’s principle of using other people’s money to make you rich. Listen up as he shares with us how his lender helps him in non-conventional ways, and why he switched up  his investing strategy half way through.

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Joey Noel’s real estate background:

-Based in San Jose, California

-Started investing for appreciation and failed miserably then changed approach and now buys for cash flow

-Registered Nurse – works 3pm – 11pm in the ICU

-@rookie_invest on Twitter

-Rookierealestateinvestors on Tumblr

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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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JF177: Apply these TWO Stock Market Tips to Real Estate Investing

Today’s Best Ever guest gives you two Stock Market tips to apply in your real estate investing. Plus she gives you advice for how to minimize your risk when you get started investing in real estate.

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Barbara Friedberg’s real estate background:

–        Veteran portfolio manager, has a master’s degree in business administration and is a former university finance instructor and based in San Jose, California

–        Author of multiple investing books including Invest and Beat the Pros- Create and Manage a Successful Investment Portfolio  – buy em here: http://barbarafriedbergpersonalfinance.com/wealth-shop/

–        Say hi to her and learn personal finance tips at http://barbarafriedbergpersonalfinance.com/blog/

–        Host of the popular podcast Young & Oldish Money

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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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JF 120: How to Use Hard Money to Buy Deals

Today’s Best Ever guest shares how he uses hard money to structure his fix and flip deals. He also talks about how he takes his profits from his flips and puts it into long-term holds. Let’s go!

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Mark Gagner’s real estate background:

–        Founder of Bridge Equity Group based in San Jose, California, a real estate company focused on investing in single and multi-family properties

–        Owns single family homes in Atlanta, student housing in Philadelphia and managing partner for 172-unit in Longview, TX

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