JF1414: A Vision For The Future Helped Him Build A Large, Diversified Portfolio with Scott Price

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Today’s guest has a phenomenal way of setting goals and doing things everyday to work towards those goals. We’ll hear about that in the beginning of the episode, followed by more details on the actual investing he has done so far. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Scott Price Real Estate Background:

  • Husband/wife team leading Bonvolo Real Estate Investments
  • Recently a full time real estate investor after 14 years investing while working full time jobs
  • Has a self-funded portfolio of multi-family, SFR, office, retail, medical, & land in WA for buy & hold cash flow
  • Got to where they are by creating & following vision board & plan
  • Say hi to him at http://bonvolo.com/
  • Based in Seattle, WA
  • Best Ever Book: 4 Hour Work Week by Tim Ferris

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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, Scott Price. How are you doing, Scott?

Scott Price: Doing well, Joe. Thanks for having me on.

Joe Fairless: My pleasure, nice to have you on the show. Scott is part of a husband/wife team leading Bonvolo Real Estate Investments. He recently became a full-time real estate investor after investing for 14 years while working full-time jobs.

He self-funded a portfolio of multifamily, single-family, office, retail, medical and land, and he’s a buy and hold for cashflow investor (he and his wife). They are based just North of Seattle, Washington. With that being said, Scott, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Scott Price: Sure thing. We’ve believed a long time in the power of real estate for income over our long-range plan, so what we did was a long time ago we created a vision board and a plan for what we wanted to do, and real estate was a big part of that. We started accumulating properties on our own.

I actually became a full-time real estate broker for three years, and then I went back into team/program management positions at some companies, but I did that just to immerse myself in real estate. We’ve been gradually expanding, we’ve been opportunistic, and what I mean by that is, as you can see, we’re fairly well-diversified in our asset classes, and it’s not so much a diversification strategy as it is a looking for good deals strategy. When we find something, we know enough about each of those asset classes that we jump in.

Most of our properties are in Washington state right now. We have dabbled out of state, but most of them are in state for us. We own them all ourselves. Our next steps now that I’m full-time and semi-retired, so to speak, is to grow the business more and actually get into syndications, which will be the next phase for our business.

Joe Fairless: You and your wife created a vision board a long time ago, you said… Did that ever evolve, or have you maintained the same vision board the whole time.

Scott Price: It has evolved somewhat, but the overall priorities for us have remained pretty constant. We still have the same vision board from 15 years ago up on the wall of our office, and it’s a bit of a guiding light. We not only look at it and the things that we’ve done and are currently doing are on that vision board. It’s a visual one, so it actually has pictures of things that we wanna do with our lives.

On top of that, we make it more actionable. By each morning, I actually have a form that’s printed out [unintelligible [00:03:40].02] sheet of paper, and it actually has actions related to that vision… So it’s not just general what we wanna have in the future, but it’s “What can I do today to help make that occur in the future?” and that’s important to us… And it’s how we’ve been able to get to the point where we now are doing things that we really enjoy, and real estate is our full-time source of income, and we’re also doing a lot of fun things on our own because of that income.

Joe Fairless: Do you show that vision board to people whenever they come into the office?

Scott Price: I do, and I actually–

Joe Fairless: What’s on it?

Scott Price: I recently gave a presentation at a local investors club and I took a picture of it and put it up in the PowerPoint just to show people what an example looks like. Some people said that that part of my presentation was actually the most important to them, to really put it in a much broader context of why you’re doing the real estate, not just getting bogged down in the details of real estate by itself.

Joe Fairless: What’s on it? What are some things?

Scott Price: It starts with where we wanna live. Three years ago we moved to Whidbey Island. That’s where we wanted to live, and we made it happen, and actually through real estate, because there’s not much of an economy here, so we had to create our own economy, so to speak… And we wanted to build an interesting, cool home on the waterfront, with some eco building features, and we’re two months away from moving into that.

Our main source of income is gonna be real estate – that’s on there… At that point we didn’t yet have a kid, and that was in the center of that; we now have a kid… And around family and friends, and then we have things that are important to us in terms of working with the community, as well as our hobbies.

Joe Fairless: What’s something that has not been achieved that was originally there a long time ago?

Scott Price: I would say it’s more that some of our hobbies changed, so relatively smaller things. For instance, my wife put on there to learn the hammered dulcimer, which is a musical instrument… And we had some dancing lessons on there. Those have kind of fallen by the wayside, but I’d call those pretty minimal kinds of things. We’ve replaced those with other interests, so they just got replaced over time. Smaller things like that…

Joe Fairless: So the large stuff that you had on there, from a business standpoint, was achieved, correct?

Scott Price: Yes.

Joe Fairless: So did you add in, or did you swap it out with new business stuff, so that you’re constantly striving for more?

Scott Price: Yes, so that’s where the more specific actions of what we do each day come into play, because on a vision board it’s really at the high-level of “We want our income, as well as our wealth generation to come through real estate primarily”, and it’s at that broad level; it’s not necessarily directly actionable, but it’s a goal, it’s an objective.

And then in terms of what we do each day – yes, it’s around increasing our income, increasing our portfolio and growing the business and what we can do around that on both the supply line, or the deals coming in, as well as the capital side of the equation.

Joe Fairless: And clearly, this is a critical component to what you do, because of how you have it incorporated in your daily routine… That’s why I asked a couple follow-up questions about it. And the last follow-up question, and then we’ll move onto some of these deals that you’ve got is the print-out that is printed every day – is the only question on it “What can I do today to help make this occur?”

Scott Price: It has four main goals that we’re currently focusing on from that long-range vision, and then below that it has — for each main goal we have, I would say, on average, about four actions. Those are actions that are in the perhaps six-month timeframe in terms of something to be accomplished. Then I have a column on the right-hand side that says “At the end of the day, did I do that? Yes/No/Partially.” So I grade myself every night, basically.

And we don’t work on every goal every day. What I do at the beginning of the day is I actually say which ones I’m going to do and what I’m gonna do specifically for them that day, and then at the end of the day I grade myself on what I actually did.

Joe Fairless: Is it all paper, or do you do electronic?

Scott Price: I’m a very electronic guy, so to speak, meaning I have everything on my laptop and my phone, except for this. I do scan them when I’m done, just so that I have a record of them, but I’ve found that just having a physical piece of paper sitting on my desk with a pen beside it, and I look down it and it keeps me focused on what I need to do, and I check it off, “Yes, I did that” – it’s easier, it’s more tangible, and it’s better than trying to open some app on my computer and look for it in there; it’s always just sitting right there and I just change it out every day.

Joe Fairless: You were a full-time real estate broker for three years, and then you went back to another occupation. Why did you stop?

Scott Price: Mostly because I was getting involved primarily to learn the ins and outs on the legal side, the contract side of becoming a broker. I’m actually still a broker, but I don’t represent clients; I just have it purely for investing purposes.

And the main reason I got out was I was mostly working in residential sales, not so much commercial sales; I did, occasionally. And I really enjoyed working with the good clients that I had, but every once in a while the tire kickers – they would take six months of my time and result in nothing… It just kind of got a little wearing. I just said “I’d rather work on things I know I can have a really good outcome.” It’s a bit of a numbers game business, and you’ve gotta have that approach.

I like the positive numbers, but the negative numbers — it just wasn’t that interesting to me, so I got out of it, but I kept the license going for investing.

Joe Fairless: What type of full-time jobs did you do in addition to the broker thing we already know about?

Scott Price: I was primarily in either team management or program management positions with technology companies. I’ve worked with some startups, I’ve worked with some large companies that you’d definitely recognize their names… A wide range of places, but generally team and program management.

Joe Fairless: What skills did you apply in those positions that you’re applying in your real estate investing?

Scott Price: I would say the two biggest ones are 1) coordinating, managing and leading a team of people, because that’s very important to our business model in terms of the partners that we work with… And by partners, I mean things like property managers and contractors and attorneys and things like that. So that’s one really important element.

Then the other important element I would say is project management in general… In other words, being very organized and on top of things. My earlier background has been in project management and I found that’s helped me quite a bit as well in real estate.

Joe Fairless: You’ve got multifamily, single-family, office retail, medical and land. Is that accurate?

Scott Price: Yes. Just a few examples of each… Again, we’re opportunistic, but yes, I do, and I feel comfortable with each of them. I know some people say “Get rich in a niche” kind of thing, and that’s fine, and I certainly understand that. I understand enough about each of the asset classes and what to look for that when a good deal comes along I have enough buffer in there to be able to invest in all of those.

All of our properties have been successful. We’re choosy. That’s one of the reasons why we’ve been doing it for so long… We’re not buying every month kind of thing, we’re choosy on the ones we’re purchasing.

Joe Fairless: What was the most challenging asset class  to learn underwriting for?

Scott Price: I would say — well, the most challenging one was actually land, just because in our case it was more flips, flipping land, and I don’t generally do flips, to be clear… Everything else is for buy and hold, and the land was to resell. We’re not developers, so we were not buying it to develop, but instead to flip to someone else.

That’s a whole different ball game in terms of learning how you can work with the local municipality to determine what can be done with the land, and that may or not always be true, depending on who you’re talking to, and what is the actual value of this land afterwards… So it’s not the NOI (net operating income) approach of multifamily or even office and retail; it’s a different beast. So that one was probably the hardest of all of them.

Joe Fairless: How did you learn it?

Scott Price: It was a combination of things. Number one was reaching out and talking to people, getting to know people who had already worked in that area, meaning they had already done both land purchases, land sales, and then they’d just done some flipping in general. That was one thing.

Joe Fairless: How did you find them?

Scott Price: Also, wherever I could, I would certainly read books, listen to podcasts, things like that to get other people’s experience. And then some of it I frankly learned on the job, so to speak, especially going into a county office and learning what can be done to a particular piece of property… There’s some that you can learn from others, but you’ve gotta stand there in that line and talk to that planner and learn something on the fly. There’s a little bit of risk to that. That was the riskiest part of our portfolio, by far, just because of all the moving parts on that one.

Joe Fairless: How many times have you invested in raw land?

Scott Price: I would say probably five or six, something like that.

Joe Fairless: What were the results, the lowest and best? What are two examples?

Scott Price: Yeah, I would say — I had two examples where I just made a little bit of money, and in retrospect I wouldn’t have done it, just because the amount of time I invested relative to the amount of time I invested relative to the amount of money I made, the hourly rate, so to speak, wasn’t very good.

Then on the other side I doubled a couple of them without actually even going through all the entitlements and all that kind of stuff… So it’s been a range.

Joe Fairless: For the lowest one where your hourly rate wasn’t worth it, as an education that it gave you, if you were presented that same exact opportunity but in a different disguise in the future, what would you look for that you didn’t look for initially on the other one?

Scott Price: I would do more due diligence up front with the local government, whoever that is – if it’s a city, if it’s a county, whatever it is – and I would do more in advance. In both cases I did some; certainly, I didn’t just buy it and then figure it out kind of thing, but at the same time there were some nuances… The folks in charge, so to speak, at the local government, just didn’t go out of their way to tell me, and I had to kind of find out on my own, so there was that risk… Again, they turned out okay in the end, but that was the biggest learning there.

I don’t do land flips anymore. It’s interesting, but that’s something that’s in my past. I’m more buy and hold for cashflow at this time.

Joe Fairless: I’ll ask you about some of those buy and hold investments. One last follow-up question on the land – what were some of those nuances that you had to learn kind of the hard way, after you got into the process?

Scott Price: For instance, one example – I purchased 72 acres that was near a beach town, and it had the potential to be subdivided, but it had this very unusual overlay on top of it that was related to this resort zoning. And the trick was to essentially get rid of that resort zoning, so that it could be subdivided. Essentially, to boil down a much longer story, I was told wrong information by the people that I initially talked to before I bought it.

So the lesson there was not only to talk to them, but to double check and to actually look at the wording of whatever regulations or zoning is involved, not just always take the word for it… Because they just literally told me wrong information that I went in on.

Joe Fairless: Multifamily, single-family, office, retail and medical – which one is your favorite?

Scott Price: I would say my favorite is multifamily. That is pretty consistent with a lot of people right now, which is the problem… In other words, there’s a good bit of competition in that area… But at the same time, that’s generally my favorite. The reason for that is if you’ve done your due diligence — we always start at a really high level; we never start at the property level, we always start at the overall market level… We look at the local economic drivers, we’re looking at what’s being built in the area, all that kind of stuff, before we get down to the details of what is that property’s NOI or anything like that.

If you get that larger scale aspect covered, meaning the local market and its drivers, then generally speaking, multifamily can withstand some ups and downs in the economy, and there’s generally gonna be demand, and even if things go bad, you might have to reduce your rents, but you’re not gonna have a lot of vacancy, that kind of thing.

When you get into office and retail, I really like the fact that you can get into triple net properties, which for the Best Ever listeners that aren’t familiar with that – it’s basically properties that the tenant takes care of everything, essentially; they take care of property taxes, the insurance, their own maintenance, things like that. So it can be fairly turnkey, hands-off, kind of easy… They also tend to have very long-term leases, so you can get five-year leases, or even more. I just got a ten-year lease, for instance, on one of my properties, and that’s great… But the downside is that sometimes on those properties when it goes vacant, depending upon your market, it might be a year until you get that actually filled again.

We’ve never had one go that long, but we have had one that went six months vacant, and it was just sitting there. We still have to pay the mortgage and pay the expenses. So that’s the main risk a lot of times with office and retail – you’ve always gotta be thinking about who’s the next tenant, and it’s much more involved than who’s the next tenant in a multifamily to think about. You’ve gotta think about “Okay, can this be a restaurant? If it’s a restaurant, what other restaurants are in the area? Might they go there, or might they go somewhere else?” It’s a whole different way of thinking.

Joe Fairless: That triple net lease – was that a retail or office? That example that you’ve just said, the one that went vacant for six months.

Scott Price: Oh, that was actually a medical office.

Joe Fairless: Medical office. Alright, so month five of six months – lets’ take a time machine back… You don’t know, since we’re in month five, that you’re going to get a lease… What are you considering in month five, and what are you doing?

Scott Price: A couple things… One of them is I’ve generally bought with enough flexibility that if I need to reduce rent, I will, but that’s obviously not the first step that I’ll take. I certainly will increase marketing… I generally — even though I am, like I said, a broker myself, I almost always work through other brokers, and I try to work through the best brokers.

So I buy through other brokers, they just treat me as a buyer, and I just have to put a little note in the contract that says “Buyer is a Washington state licensed real estate broker” and that’s it, and then in cases like this, I would market through a commercial leasing broker who ideally knows his/her stuff, and also is actively marketing it.

It boils down to making contacts… A lot of times, when there is a lack of demand, then it can be one-on-one contacts to local similar companies or whatever it is (office or retail) and actually seeing if they’d be interested to move. For instance, in that case we were listed with a commercial broker, but my wife was actually the one who got the tenant, and she literally walked around to local medical offices with a flier and brought them in and told each individual office or whoever she could talk to about our property, and that’s how we got the tenant. We didn’t get it from the internet, we didn’t get it from the broker, we got it through my wife walking around with a flier.

Joe Fairless: In that case, does the broker still get his/her fee?

Scott Price: Yeah, it depends… So officially yes, but in that particular case – we have a really good relationship with that broker; I’ve also purchased other things with him, and he just said “No problem, you got the business. We’ll do other business again in the future.” But officially, by the contract, generally speaking, most contracts would say that they would receive the fee.

Joe Fairless: Do you still have multifamily, single-family, office, retail and medical and raw land in your current portfolio?

Scott Price: Yes.

Joe Fairless: Which one takes up more of your time, relative to others?

Scott Price: Multifamily. Even though we have property managers for all of our multifamily properties – that’s been a really important part of our business model, is wherever possible to include property managers and not to self-manage, especially on multifamily… But nonetheless, there are things that we have to make decisions on, and a water heater breaks, and floods next to our unit… Then we go and check it out and determine the next steps, and things like that.

It tends to be more drama. The difference between a medical office tenant, well-established professional environment, they just pay their bills and take care of everything, versus the drama and the complexities of multi-unit buildings can be significantly different. So multifamily tends to take most of our time.

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

Scott Price: The thing that I’ve found most important is to create an environment; what I mean by that is be sure, as you are going into your real estate investing career or whatever that is, to surround yourself with good ideas, and feed your mind with good information from books, and the people you’re surrounding yourself with, and also to make sure that environment fits into your long-range vision. To me that’s been the driving force for us, and I think that if you get into the nuts and bolts of real estate and you miss that broader picture and you don’t create a positive environment for yourself, you’re missing a big part of it and you actually may not stick with it unless you put that in place.

Joe Fairless: Where did you get all the equity for your deals?

Scott Price: From a number of different sources. We own all of ours at this point, or like most people, us and the bank own all of our properties. So we’ve just been very creative in using funds moving forward. I’ve rolled all of our profits forward, so all of our income and our profits, say from a sale – they don’t go to paying for a car or anything like that; they’re always rolled forward. That’s actually the reason that I’ve had a job that I’ve worked for so long – because I haven’t taken on partners yet, and we’ve just self-funded our portfolio. And having independent income not only made, frankly, getting some loans easier, but our income took care of all our expenses, and then our real estate income just grew, it kind of snowballed over time.

I also would do cash-out refi’s, I’d take loans from my 401K, I even have a solo 401K where I have two properties in that, so it’s kind of like a self-directed IRA, but a little bit different… And just always looking for ways to use our funds and roll it forward into the next deal… And that’s also why we’ve kept our properties fairly small.

The largest property we’ve owned has been 40 units, and other than that — on the multifamily side, they’re usually between the 12 to 20 size, and it’s just because we roll our profits forward until we have enough down to put into that, and bam, we go ahead and buy it, and we keep doing it, we keep rolling [unintelligible [00:23:38].25]

Joe Fairless: Tried and true approach, that’s for sure. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Scott Price: Sure I am.

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

Break: [[00:23:51].05] to [[00:24:54].26]

Joe Fairless: Best ever book you’ve read?

Scott Price: The 4-Hour Workweek, by Tim Ferriss. Two reasons for that – it really got me thinking about leveraging the expertise in businesses of others to grow my business, and then also really important is the idea of designing the business for my lifestyle, instead of getting into designing the business for itself.

Joe Fairless: Best ever deal you’ve done?

Scott Price: I bought two buildings on the same property, two office buildings, at auction, and I bought it for 295k, and to answer your question about creative financing, this is a good example of it… Basically, a family member had owned a house outright, and I said “Why don’t you get a loan at 4%, I’ll pay you 9%, interest-only loan, you make the spread…” So they put in 200k, I put in 100k, and then bought it — because there was a time after the auction to put in the money… And then I financed it at 75% LTV on the purchase price, so I got 75k back, so I only had 25k in at that point… And even though it was 50% occupancy, at that low of a price it still was generating about 25k a year in net income after all expenses, including the loans and everything… It was still generating about 25k.

After about one year I had no capital in it, because I had the 75k back, and then I got 25k in just cashflow, so basically at that point it was kind of like an infinite return kind of thing… And then after a year it seasoned, so I did a cash-out refi and I got another 450k out of it, and I put that into another property that was generating about 25k a year in cashflow, and then also the cashflow from those two I then within a year rolled into another property that was generating roughly about another 25k/year.

So I rolled all that forward with it being effectively after a year no cash out of pocket, but generating lots of cashflow income. Then after about five years I sold that first property and did a 1031, sold it for 2.5x what I paid for it, and then rolled that into a 17-unit apartment complex.

Joe Fairless: That is incredible, it’s just a snowball going downhill is what it is. What’s a mistake you’ve made on a transaction?

Scott Price: I’d say the biggest one was actually before 14 years ago, when I started really investing, and when I got out of college, I bought a condo for me to live in, and then I soon afterwards bought a house and kept the condo as a rental, and the only books I was reading were ones about “How to be a landlord”, which meant not grow your business or not how to use the expertise of others, but how to do everything yourself and be a jack of all trades.

The first tenant was great, the second tenant sucked, basically; I mean, it was just really a bad situation… And I sold it. I said, “Oh, this real estate thing is terrible.” I actually briefly got into stocks and day-trading, and it just distracted me. The mistake, the learning was that I didn’t even really — at that point, out of college, I didn’t know any investors or anything. I didn’t even really know about property managers.

Then after I did some more research and I was getting distracted, I realized “Okay, well there’s a way to deal with this problem. There are people who professionally deal with bad tenants like that”, and then after that I just always wrote a line item in my deals of having a property manager and got back on the real estate train again.

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

Scott Price: I am on the board of directors of a land trust, and we’re working to preserve basically the scenic and the natural beauty of the island I live on North of Seattle. That’s one thing.

Then the other thing which is fun is I’m actually in the process of self-funding a public community park that will have nature trails on it, and it will integrate sculpture in the forest. I already own the property, and the next stages will be to start building the infrastructure for that.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on and get in touch with you?

Scott Price: The best way is to go to our website, which is Bonvolo.com. Or you can e-mail me directly at scott@bonvolo.com.

Joe Fairless: Scott, thank you so much for being on the show. The vision of where you wanted to go and now where you are at was put in place a long time ago, and it’s constantly a reminder for you and your wife of what you want to achieve and how specifically you’re gonna do it, because you have a process in place on a daily basis that you fill in and you have accountability for yourself on that day. You said you grade yourself each day on your progress. Really not surprising to me that you’ve accomplished what you’ve accomplished since you’ve been so laser-focused on this for over a decade, a decade and a half.

I loved hearing about the pros and cons of triple net leases – everything’s great when they’re filled; when they’re not, your wife might have to walk around with a flier to office properties and try to get them to move into your property… Which did work, even though you hired a brokerage. This just shows the hustle that you two have. Then also the scenario where you bought the two office buildings for $295,000, and then that turned into a snowball of many, many mounds of cashflow as a result of it.

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

Scott Price: Thank you, Joe.

JF1269: Why A Retiring Cop Chooses Real Estate For A Second Career with David Sweeney

Listen to the Episode Below (34:29)
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David reached the age of 53, living in Seattle he’s technically able to retire now. When he actually looked at his situation, he realized there was no way he could actually retire. He looked at options and felt that real estate was the answer for him. He set out to get his license, analyzed properties, and found a 24 unit cash flowing apartment building. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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David Sweeney Background:

30 years with the Seattle Police (currently a lieutenant)

-Nearing retirement age, he began to immerse himself in owning multi-family properties

-Got his real estate license this year, and last month closed on first transaction, a 24-Unit cash flowing apartment building

-Currently looking for his next deal

12 years of experience as a professional mediator

-Say hi to him at  davidsweeney.com OR  davidATdavidsweeney.com

-Based in Seattle, Washington

-Best Ever Book: 80/20 Sales and Marketing by Perry Marshall

 


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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, David Sweeney. How are you doing, David?

David Sweeney: Hey, I’m doing well, Joe. How are you?

Joe Fairless: I am doing well, and nice to have you on the show. Let’s see – David just closed on his first transaction, a 24-unit cash-flowing apartment building. He is also a police officer, he’s a lieutenant with the Seattle Police Department; thank you, sir, for what you do.

David Sweeney: I appreciate it, thank you.

Joe Fairless: 30 years of service with the Seattle Police, and he got his real estate license this year, and as I mentioned just a second ago, he bought a 24-unit apartment building, so we’re gonna talk about that. He’s currently looking for his next deal.

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

David Sweeney: Sure. Thanks for having me on, first off… I turned 53 last December, and in the state of Washington, that’s the minimum retirement age for a police officer. And it was kind of interesting, I can almost see the day in my mind when I realized “Hey, I can retire now!”, except I could retire now; there was no way. I have a lovely wife of 19 years, and three lovely children, ages 11, 13 and 15, and there was no way I could leave the job at that point. I wasn’t prepared financially to do so.

My motivation became — I wanted to provide a better life for my family. I wanted my wife to be able — if she wanted to work, that’s great. But if she didn’t wanna work and she wanted to work on some of her charities or causes, I wanted her to be able to do that. I wanted my three kids to grow up and be able to go to any college they want and not have to worry about the cost of it. I wanted to travel the world with my wife, I wanted to live in a nicer house… Basically, I guess you might say I was kind of — I wasn’t poor by any means, but I was closest to poor dad in Kiyosaki’s book. I had a government job I’d worked at for 30 years, I counted on over-time and raises for extra money, I basically invested all my money in my home… And I had some savings, of course, but when I view my home as my primary asset, I think I really fell into that poor dad mentality, so what I wanted to do was change my life and I wanted to change it for the better, and I decided — I evaluated several different things to do, but I decided real estate was the way to go.

When I get involved in something, when I get dedicated to a cause, when I get energized, I devote massive amounts of tension into learning everything I can about that, so I became a voracious reader of books, blogs, I listen to your podcast on a daily basis, as well as other podcasts… And this seemed to be right up my alley. I wanted to do real estate.

As I listened to more and more people, first I was thinking, “Okay, duplex, triplex, fourplex”, that type of thing. But then I decided that what I really wanted to do was own apartment buildings, and the more people I heard, the more said “You need to go into apartment buildings.” But unfortunately, it’s kind of hard to find brokers out there than really know how to buy and sell apartment buildings, so I said “Okay, I will solve that problem as well” and I decided I will be my own real estate agent. So I studied for the real estate exam for the state of Washington, got my license earlier this year, and I spent probably 4-5 months analyzing properties. I think I analyzed over 400 properties in order to find the one that met what I was looking for.

Again, it was my first investment, so what I had to do was take a refi out of my house; I pulled out $380,000 and I just had that money sitting there in the bank, just ready until the time was right, until I found the property that I was gonna buy. Fast-forward to now, I’m sure you’ll have a few questions about that process, but that’s where I found myself in August and I found my apartment building.

Joe Fairless: You took massive action, in a very short period of time. That all happened in a year. In less than a year, you identified that there was a problem with the financial situation from a long-term standpoint. You then identified real estate was the path to go, then you studied up on how to evaluate and buy apartment buildings; you then got your real estate license and you closed on one and you completed a refi on your primary residence.

David Sweeney: Yes, I did that in — about nine months I think it took, from start to finish.

Joe Fairless: Is there a thought that comes across your mind, or perhaps from your significant other or those around you who say “Oh, you went too fast. You rushed into it.”

David Sweeney: No. In fact, I get surprise from people when I tell them what I did, but I also get “Man, I wish I had done something like that” or “I wish I could do something like that.” Then, of course, hey, that’s a great lead-in, because then I can offer to help them look for their own investment properties. So I’ve started doing that. So it’s a nice conversation starter…

I think people are genuinely surprised, because again, I’m a government employee, a 30-year public servant, and that’s probably not what most police officers do. I remember being envious of an officer I was training one time and he came riding along with me… We were talking about what we were doing this weekend and he said “Oh, I have to go to my rental property and do some work on it.” And I went “Wait, why does this fairly new officer have a rental property? Why don’t I have a rental property?” That conversation stuck with me for many years. I didn’t do anything about it, I wasn’t motivated at that point, but that conversation stuck with me. “He has a rental property. Wow, that’s great!” So it’s nice to tell people that now I have my own rental property. Not just a property, I have an apartment building. I’m an apartment building owner! It’s kind of exciting.

Joe Fairless: You are. It’s incredibly impressive what you’ve done. How many hours do you work as a police officer?

David Sweeney: 40 hours a week.

Joe Fairless: 40 a week. What’s your shift?

David Sweeney: Generally, I’m a lieutenant, so I work daytime hours. My primary job right now is reviewing use of force within one of our five police precincts in Seattle. I’m at the East Precinct and I review use of force… So that’s why do primarily, an 8-to-4 job.

Joe Fairless: 8-to-4. Okay, got it. So you’ve got some reasonable hours, unlike one of my friends who is not a 30-year vet and he works the hours where I’m snoozing away.

David Sweeney: Oh, exactly. I’ve done that before many times.

Joe Fairless: Right, I figured. Okay, so you have a full-time job, and you studied up… How did you get to the point of education where you felt comfortable taking the $380,000 from the cash-out refinance on our primary and plunking it down on an apartment?

David Sweeney: Well, it first off comes from just personal learning – books, podcasts, videos, webcasts, articles, blogs, everything like that. So that form of self-education. But then when you add to that, you have to take — I spent 90 hours of classroom training online in order to get my real estate license… But then I wanted to pass the test the first time. I said, “I’m not going back to take this test the second time.” I’ll bet I invested 120-150 hours just studying for the test. So I’ve met the minimum state requirements, but I wanted to study and pass this thing the first time, so I’m constantly getting more real estate information into my brain.

In about April – that’s when I passed the test, so that’s when I started evaluating properties. Like I said, I probably did 400 of them, and I’ll bet 325 of them were residential, meaning duplex, triplex, fourplex.

Joe Fairless: Oh, okay.

David Sweeney: It wasn’t until I then moved into the mindset — I thought “If I’m gonna reach my financial goals here, if I’m gonna replace my income and then some… I don’t wanna just replace my income, I wanna increase my standard of living, and that of my family”, so in order to do that, I thought “If I’m gonna go duplexes and triplexes, how many of these do I have to buy? Oh, my gosh, this is a huge number. Wait a sec… I can skip all this and just do one apartment building, and then add a second one next year and then a third one the year after that?” That’s my goal right now, add a large apartment each year, and I wanna do like you do and just gradually — in fact, not even gradually; I wanna make a big jump the next time.

Joe Fairless: There’s nothing gradual about what you just did… [laughter]

David Sweeney: Well, I wanna go bigger, that’s my goal for next year. So 150-180 units, something like that, where I actually have to invest in staff to run it. That’s the size of property I want.

Joe Fairless: You have a property management company that is handling your 24-unit, right?

David Sweeney: I do, yes. I interviewed about three different companies, and decided the best fit for me, and the one that was most responsive to me and met my needs. So far I’m really happy. I’ve heard enough horror stories from people that chose poor on their property managers, but it’s nice that the place I located is about 90 miles South of me, so I can easily travel there, check in on my property, check in with my property manager; he’s receptive to me, we text, e-mail, call each other… So I’ve got a very receptive property manager.

He knows about the rents in the area, so that was a big plus for me… And he also knows the best contractors to use, because I don’t live in Centralia – that’s the community I bought the apartment building in. I don’t live there; I like the community a lot, I wouldn’t mind living there, but he knows who to hire and he calls me anytime there’s an expense over $200 and I authorize it.

So far, the bills that have come in looked very reasonable to me as far as the prices being paid for different contracting work and things like that… So I think I’ve chosen wisely with my property manager. I know that doesn’t always happen, but so far, so good.

Joe Fairless: $380,000 home equity line of credit, right? (HELOC) You and your wife, I imagine, had a conversation about that, yes? [laughs] How does that conversation go?

David Sweeney: You know, she was so supportive… It’s really great. She knows me; she knows when I get a certain goal in mind, I’m like a bulldog, I go after it 100%. I went back to school and got my college degree very late in life, but when I did it, I devoted myself to it and got it done. I went into Toastmasters and I said “I wanna be a distinguished toastmaster’, the highest award they give. I went in, set my goal, and did it. Same thing in real estate – I said “I wanna own apartment buildings”, I went in, I worked hard, I worked fast, and I took massive action and I did it.

So she knows when I get a goal in mind, that that provides some of my reason for being. If I don’t have a goal in mind… I’ve gotta admit to you, Joe, I’m lazy. I sit around and I don’t do a whole lot. You know, I go to work, I work hard, I enjoy my job and things like that…

Joe Fairless: You just kind of float, though… You float through things.

David Sweeney: Yeah, I absolutely do, and she knows this about me. We’ve been married almost 19 years. So when she saw this goal, she got excited about it, because she knew that I would devote my time and energy to it. We all get the same 24 hours a day, and it’s what do you do with that time that you’re given; she knew if I had a goal and set that in mind, that that would provide impetus for me to really move forward on this project… And she likes it too, because it’s good for the family. It does mean some extra hours for me, but the way I look at it, would I be better off watching TV at night, or would I be better checking out rental properties and evaluating them, looking at the financial numbers, learning more about real estate? So she’s excited about the project.

That money sat in the bank for about four months, and it just sat there, collecting its — it’s so funny having 380k in the bank… Nothing happens, the interest is so minimal, but then when you take it and you invest it in a property and now you see the returns coming in – we can get into numbers whenever you like – you go “Wow, this is exciting. This is exactly what I wanted.” And now I just need to multiply this in my coming years, and I think I’ll be where I wanna be as far as my life goals.

Joe Fairless: Let’s talk about specifics of the property – can you tell us about it?

David Sweeney: Yeah, absolutely. So it’s a 24-unit apartment building in Centralia, Washington. Centralia is located about halfway between Seattle and Portland, so it’s easily within driving distance; it’s a long drive, but it’s within driving distance for me… And that’s great, because what do I do on the way down and back? I listen to podcasts; I listen to you, Joe.

Joe Fairless: God help you.

David Sweeney: So it’s close enough where I can check in on it and see what’s going on. So the property was listed on the MLS for 1.325 million, and it’s great having your real estate license, at least it is for me. I feel like I’m looking behind the curtain and seeing what’s going on back there. So I can do my own negotiation, and that’s kind of nice, because one of my professional credentials – I’m a conflict resolution mediator at work, so I help people with their conflict resolution skills, and I definitely use that in my negotiation skills when I find a property I wanna buy.

So it was listed at 1.325, we offered 1.1, and I asked them to pay 1% of the closing costs. They came up a little bit, they wanted 1.14 million… And I got the 1% closing costs, I also got my real estate commission, so when the deal closed, I walked out with $40,000 in cash that I could then roll back into the property to do renovations or any property work that I wanted to do… So that’s kind of exciting.

The market rents were not what they needed to be, and my property manager confirmed this. I confirmed it for myself; I use websites and I also go out and look in the community that I’m at, like “Okay, how much are apartments going for here?”

So it has 16 one-bedrooms and 8 studios. Originally, they listed the gross income at $133,000/year, but I found by getting the rent up to market, where it should be, we could increase the gross up to 167k… So right now the NOI is about 100k, and then my mortgage responsibility is 50k of that. Right now I should be walking out with 50k in cash a year. That’s exactly what I wanted to do – find a property that would cashflow right from the beginning.

Joe Fairless: Run those numbers of the gross rent – what was that again?

David Sweeney: 167k/year gross rent.

Joe Fairless: Before David or after David?

David Sweeney: That was after David.

Joe Fairless: Okay. What was before David?

David Sweeney: Before David it was 133k.

Joe Fairless: Oh, okay. And to get 133k to 167k gross rent (and that’s gross potential rent) you just organically turned the units on the lease renewals but you didn’t do any major improvements to them?

David Sweeney: Right, nothing major. The market won’t really support that… It’s an older building, which I fully realize; it’s a 1920 classic brick building. The two-story brick building you see for apartment buildings, so it looks great. The units inside are not the fanciest thing you’ll ever see, but I keep them nicely painted, I get new carpet in there…

Right now, when a unit becomes vacant, then I move in and try to start saving energy. So low flow shower heads, low-flow toilets, sinks and things like that. The tenants pay the electricity, but right now I pay water, sewer, garbage. So if I can lower the expenses even more, then I’ll increase the value of the property. I love that about owning rental properties, I love that about owning apartment buildings – I’m in charge of this building, and I can increase the value of it by getting more net operating income. That’s great.

Joe Fairless: What type of loan do you have on it?

David Sweeney: That was kind of a challenge… I did receive several no’s from commercial banks when I started asking around.

Joe Fairless: Why?

David Sweeney: Because I was a first-time investor. Even though I had my real estate license and I explained that to them… I also explained that in college – and again, that was 30 years ago, but I had been an apartment building manager, so I said I had some experience here; it’s been a while… [laughter] You know, I was honest with them.

Joe Fairless: Well, when you were in college the first or the second time?

David Sweeney: The first time.

Joe Fairless: Okay, yeah. It’s been a while probably.

David Sweeney: Exactly. So I got several no’s, but I kept working at it. I knew to go with a regional or local bank, and I finally found a bank that said “Yes, we’re interested. You can send us properties, if they’re a good deal.” That’s nice to kind of have a second set of eyes looking at the deals… So when I found the Rockstreet apartments (that’s my apartment building), I sent it off to the banker and she said “Yes, this looks good. We’ll write you a letter that we intend to finance.” Of course, it has to go through underwriting and things like that…

So I got a 4.25% rate. It’s a 30-year amortization, but there’s a 10-year balloon due. So that’s kind of nice, it gives me that ten years to work with it. Now, if I pay it off this year, it’s a 5% penalty. Next year it’s 4% etc., down to 1% if I pay it off in year five. So the ideal on this would be to buy and hold it for at least five years, and then in that 5-10 range, that’s when I can start evaluating whether I just like the property and how it cashflows, or do I have something big in mind where I can do a 1031 exchange, sell this property and then move into something larger.

I have several ideas in mind as far as that time, but nothing that I need to do right now. In fact I’m pretty sure, so I can avoid that penalty, I’ll at least own that property for five years.

Joe Fairless: Yeah, I would think so. That’s a pretty good loan, from the surface. Is there any interest-only for the first couple of years, or is it —

David Sweeney: No, it’s not interest-only for the first couple of years. It’s 4.25%, and I had to put 30% down, so what’s your impression that most people are putting down when they get commercial loans? That seemed a little high to me…

Joe Fairless: Yeah, we put down about 25%, but…

David Sweeney: Yeah, I would like to see 25%, but hey, for my first loan, to get a bank to say yes to me, I was fine with 30%.

Joe Fairless: Sure.

David Sweeney: That set my guidelines and set my price parameters on the properties that I would then be looking for in order to find the one that I did.

Joe Fairless: What hasn’t gone right with this deal?

David Sweeney: One of my big challenges was insurance. It’s an older building and it has modern electrical panels, but yet there’s still some knob-and-tube in it, so it was a challenge to get insurance… So I came up with a good idea, I asked the seller “Hey, do you mind if I give your insurance agent a call?” and he said “Sure.” He gave me the name and number, and I called her up and we had a nice conversation. This was in September, and the property was set to close mid-October.

So I’m talking to her and she says “Yes, we know the property. We can probably get you a policy” etc., and I took that for granted… And I shouldn’t have taken it for granted. I should have been more thorough and followed up with her. Because as we get closer to closing date – I think it was set to close October 16th – about a week out my bank said “Okay, we need your insurance binder”, and I went “Great.” So I call her up and I say “Hey, I need that insurance binder.” Well, I leave a message, I leave a message, I leave a message, I send an e-mail, I send an e-mail, and I’m getting nothing. And I thought “Oh no, this is horrible!”

Now I’m left scrambling, so I start calling a variety of different commercial insurers to tell them about my apartment building… And again, same thing with the financing – I got several no’s, “We don’t do older buildings” etc., or I got really high price quotes… And I thought “Man, this is not good at all.” So finally, while I’m doing this and I’m getting several bids, I went back to the original office and I said, “Well, if she won’t return my call, maybe someone else in the office will.” And that worked out. I did find another agent that said, “Hey, yeah, she’s gone this week”, or I don’t know what the excuse was… I was so frustrated about it.

So now to get an insurance binder – now I’ve got like 4-5 days till closing… So anyway, I had to go back to the seller and ask for extension, which I hated to do, because it’s like you’re walking this deal to close every step along the way, and now all of a sudden I have to go out there and say “Hey sorry, I’m not ready to close… Can we extend this by a couple days?” They could have walked at that point, so that was a bit of a risk on my part. So definitely a lesson learned for your Best Ever listeners is just make sure you do your due diligence — I did my due diligence financially on this property, but I’ll be honest, my first property, I had a checklist and insurance was on there, but I didn’t pay close enough attention to what I needed to do to make sure I got that insurance binder, to make sure I was set up with payments, to make sure that everything was done ahead of time.

So closing was delayed, but I did get the binder. It came in more than I was expecting, but at that point I was just happy to get the deal done. Instead of 4k it came out to 6k and some, but I was okay with that. I thought, “I’ll do it. Where do I sign? Send me the documents right now, because I need this binder immediately.” Then I’m calling all the different – escrow, and the other lender, and the lender’s broker and everything to get this all straightened out. Ultimately, it didn’t hurt me, but it could have, and I’ll not make that mistake again.

Joe Fairless: Did you have any earnest money hard by that point?

David Sweeney: Yes, I put down 10%, so I had 11k hard money.

Joe Fairless: Okay. The seller could have said “Eh, sorry about…”–

David Sweeney: 1%.

Joe Fairless: Yeah, yeah. They could have said, “No, thank you. I’ll take your 11k and I’ll go find someone. Or if you’d like, I’ll take your 11k and we can just restart this contract real quick.”

David Sweeney: Yeah, exactly! That would have been horrible!

Joe Fairless: [laughs] And you probably would have done it, right?

David Sweeney: You know, I probably would have. I’d have to sit down and evaluate it, but if it was still a money-maker… Because at that point you’ve invested so much time and energy in it… It’s like you’re just dragging across the finish line and you just wanna close the deal, and anything that gets in the way and delays it, you’re like “Yes, what do I need to do to get that exemption out of the way, or anything I can do, absolutely!”

Joe Fairless: Well, I’m glad that the seller recognized that karma would have come back in a fury and would have recaptured that 11k and then some if they had pulled out on you.

David Sweeney: That’s right, yeah.

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

David Sweeney: My best advice ever would be for your Best Ever listeners who are doing the same thing I did, whether they’re listening to podcasts or whether they’re reading books or educating themselves, when they get started — again, I could do a lot of goal-setting here, but I’m gonna tell them when they get started, concentrate and find out what you do best. If you intend to be a buy and sell holder for let’s say duplexes, triplexes, fourplexes, concentrate and be the best investor you can be in duplexes, triplexes, fourplexes. If you intend to buy notes, be the best note investor that you can be. If you intend to buy apartment buildings, learn all you can and be the best you can at that particular discipline. Same thing if you’re looking for properties – some people do direct mail, some people drive for dollars, some call brokers all the time. Whatever it is, find out the best way that you can get your goals met.

Now, that doesn’t mean that you can never change courses mid-stream, but I hear and I’ve talked to a lot of people that seemed to flip in and out; they try this for a little while, it doesn’t work, and they reevaluate and they move on to something else. Then that doesn’t quite work the way they wanted, and then they move on to something else. So my best advice is pick your strategy and go with it. I guarantee that there’s someone out there that has made a successful living in real estate doing it the way that they were trying to do it. Emulate that person. Find out what it is that makes that strategy work.
Now again, if two years down the road you’re still beating your head against the wall and nothing’s happening for you, maybe it’s time to reevaluate then; get a good mentor or someone that you trust or someone that can give you some advice, and maybe you change strategies, maybe you look in a different direction, but don’t come in and out trying a variety of different things. You won’t get good at any one thing. So pick something that you’re gonna be good at and go after it.

Joe Fairless: I’m smiling and I’m clapping… You can’t hear it because it’s kind of silent, I don’t want the listeners to get annoyed, but I completely agree. I love that. I think it’s a cultural thing, just with the period of time in which we live, because of the internet, social media – we see so many different things that we can be exposed to if we choose to be exposed to… And when something gets a bit challenging, people who don’t listen to this podcast – because I’ve recognized that the Best Ever listeners are a cut above the typical investor… But people who aren’t achieving at a higher level, they move on to something else; it’s the shiny object syndrome. Instead, you just buckle up and focus on one thing and then do it, and I love what you said about if you don’t see results after a certain period of time, then you reassess and you see “How can I optimize the approach, or perhaps do something different completely?”, but it all starts with, as you said, identifying what you do best as it relates to that activity and then doing that.

David Sweeney: Yeah, there’s something that’s gonna get you excited. So go with that shiny object, but make sure that you’re doing all you can in order to retrieve it, before moving on to the next one.

Joe Fairless: I love it. Are you ready for the Best Ever Lightning Round?

David Sweeney: You bet.

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

Break: [[00:28:44].02] to [[00:29:36].17]

Joe Fairless: Best ever book you’ve read?

David Sweeney: I love the 80/20 Sales and Marketing book, by Perry Marshall. I thought that was so key… And as I look at my professional career both in real estate, both in police work and anything, I find that strategy so often. Let me move out of real estate just for a minute, because this is really applicable in police work. As a lieutenant, sometimes I get involved with sergeants and officers that are working, and you do find that about 20% of them are doing 80% of the work. They’re super hardworking, they love their job and they pursue it, and they help people, and they arrest the bad guys and they write all the reports… And man, if you can make up a team of people of those 20% – wow, you’re gonna have a team of superstars. And if you take that strategy into real estate, “What activities did I do that got me where I’m going?” That 20% – focus on that that gets you the biggest bang for the buck, that gets you the return. That’s my best ever book.

Joe Fairless: What’s another mistake you’ve made on this 24-unit that you haven’t talked about?

David Sweeney: I think probably my biggest mistake… I had a great inspector come out and take a look at the building, and we knew that there was a new roof on it – the roof was installed in 2016 – yet they pointed out based on where the water comes (now, it rains a lot in Washington) off the roof, that there still could be some drainage issues. So I had a 10-day inspection clause (I can inspect the property for 10 days). Unfortunately, I didn’t factor in that there was  a couple weekends involved in that, and I think if I remember right there was Labor Day involved… So to finally get a roofing inspector out, I actually pushed past the 10 days. This was probably a big mistake and I wouldn’t normally advise it. Either 1) write in your contract that you get more days to inspect it – I thought 10 would be enough and it wasn’t enough. And then 2) make sure that you can line up the exact roofing contractor that you need. I called a couple roofing contractors and basically I had people show up with ladders, and they’re used to working on residential roofs, not a large two-story apartment building… So I would have liked to have a better answer as to why water runs off the roof in certain areas and not others.

I know the roof is good, but the drainage isn’t all that it needs to be, and I didn’t have the right people in place for that. So number two, get the right people, and number one, make sure that you have enough time in your contract to get that inspected.

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

David Sweeney: I’m heavily involved in children’s charities and activities, probably because I have three kids (11, 13 and 15), so you’re gonna find me coaching football and soccer and baseball… But I also have a couple charities; I’m on the McKinley Foundation, which is a charity for deserving children that are  [unintelligible [00:32:39].07] area. So we serve and we like to give back; it’s a foundation. So we have an amount of money that we donate to local causes. And I’m also on the board at the Northwest Girlchoir, where my daughter sings. I enjoy giving back to that organization, and all it provides for our community and my daughter.

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

David Sweeney: My website is DavidSweeney.com. They can reach out and get in touch with me. I’d love to help them on any future real estate transactions that they want, particularly multi-family is my specialty, in Western Washington. At some point I wanna model it after your website eventually, when I get to where I’m going… So that’s a good goal I have in mind. But anyway, DavidSweeney.com.

Joe Fairless: Very impressive with what you’ve done in a very short amount of time, over the last 9-12 months, and where you’re headed and the results that you’ve accomplished… Lessons learned, from the insurance snafu to the due diligence story, to then the rewards that are received as a result of the action taken, and that is this apartment community that you have and that you’re gonna be using to leverage to scale into more and more deals.

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

David Sweeney: Thanks so much, I appreciate it.

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JF1258:Epic Evening Ritual To Help Us Succeed At A Higher Level #SkillSetSunday with James Colburn

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James is here to tell us about an evening ritual he uses and writes about in his best selling book. He is also a real estate investor and has advice for investors as well. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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James Colburn Background:

-Worked for more than two decades in executive and entrepreneurial roles in marketing, real estate, and consulting.

-Best selling Author of RESUCCEED revealing the 5-Minute Epic Evening Ritual, tips and tricks of top performers

-Speaks on finding fulfillment and success in real estate with the help of James Colburn’s Epic Evening Ritual

-Known for his real estate team building activities and his epic 5 minute rule

-Say hi to him at http://www.jamescolburn.net/   

-Based in Seattle, Washington

 


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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.

First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment called Skillset Sunday where we’re gonna talk about a five-minute epic evening ritual that will help us succeed at a higher level. Who’s gonna talk to us about that? James Colburn is gonna talk to us about that. How are you doing, James?

James Colburn: Hey there, thanks Joe for having me on, and just great to be here.

Joe Fairless: Well, I’m glad to have you on, my friend. A little bit about James – he has worked for more than two decades in executive and entrepreneurial roles in marketing, real estate and consulting. He is the best-selling author of Resucceed. In that book he reveals the five-minute epic evening ritual which we’re gonna talk about on today’s show. He’s based in Seattle, Washington. His website is JamesColburn.net, you can go check that out; that’s also on the show notes page. With that being said, James, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

James Colburn: Well, it’s kind of a big story that I’ll make short. I came out of college at the University of Oregon, met my wife there, and we both started working for the YMCA right out of college; i don’t know if you even know what that organization is, or have you heard–

Joe Fairless: Of course. Yeah, I went to Teen Camp at the YMCA.

James Colburn: Yeah, there you go. So I did as well; in fact, my wife and I both chose the YMCA because of our childhood experiences, and we felt like it’d be a great place to contribute. Everything was great with the YMCA until we looked at starting a family. When we started a family, the non-profit income thing just doesn’t quite work out for raising a family and affording all that that takes… So I went into real estate back in the ’90s, straight away, and never left since.

So that’s kind of the cliff notes, and then a lot happened obviously in my world as our market crashed and clarity arrived, and here I am today.

Joe Fairless: We’re gonna focus our time on this evening ritual, but I’d be remiss if I didn’t ask about the real estate stuff, since this is a real estate podcast. And all of it ties together – the evening ritual ties together with real estate investing, but specifically on the real estate front, what did you do? Tell us the story about what happened and what was the result of what happened?

James Colburn: Well, actually the real estate thing ties directly into my 5-minute epic evening ritual that I speak about in my book Resucceed, but I’ll take you back real quick to one of my best years in real estate. I had sold 120 houses up in the Seattle area just with an assistant, and I had made a considerable amount of money. I was at our lake house, which we had by design not put a TV out at the lake house, so lots of time to think… It was Christmas Eve 2006, one of the better years in real estate up in Seattle and in most of the country, and I was trying to make my phone ring one more time that year so I could write one more offer. Not because I needed to do another deal that year, but because I simply had forgotten who I was and had kind of assigned all my identity to my success in real estate.

Joe Fairless: And just so I’m clear, you were an agent, right?

James Colburn: I was an agent at that time, yes.

Joe Fairless: Got it. So you wanted your phone to ring one more time to put an offer on behalf of one of your clients.

James Colburn: Yes, good clarification. So I had [unintelligible [00:05:29].06] I wanted to get to work. The phone didn’t ring; selling 120 houses that year, I was used to the phone ringing about every three days… So I went and left the house right then at [8:30] at night, went down to Costco and bought a TV and a DVD, and brought it back to the house. My wife said, “Well, I thought we weren’t gonna have a TV here at the house.” I said, “Well, we weren’t until I needed to get my mind off the fact that I wasn’t writing another offer.”

Well, that was kind of the beginning of a process that I started then and kind of clarified over the next few years until obviously the market quickly crashed thereafter, and there were certainly a lot less deals to do. I had a lot of time on my hands; I ended up going back to grad school, and then when I came out of grad school, instead of writing a thesis, I wrote this book called Resucceed, which was all my experience on assigning my identity to all the wrong things, but also realizing that I can have even more success – or what I call unlimited success – as I get more clarity around who I am and what I bring. So the five-minute epic evening ritual birthed out of that, but the five-minute epic evening ritual is not a ritual for those looking to not have success, but rather to have even more success in their business, in their investments, but also come out of it feeling whole, not wondering on Christmas Eve, for example, where your next deal is gonna come from.

Joe Fairless: Okay, good segue to dive right in… So what is the five-minute epic evening ritual?

James Colburn: Well, what I realized is that really successful, highly achieved individuals over time basically stop asking great questions; instead, all we spend our time doing is trying to come up with answers. We try to engineer answers; we’re the answer king, if you will. And what we do is we ask a lot less great questions. As achievers we ask questions, but typically they’re questions we know how to answer. What I challenge is that our questions about the things that we don’t have the answer to is really where it’s all at. So as we become interestED, if you will, not interestING for a moment, things start to take shape in our lives.

So the five-minute epic evening ritual is all about the value of asking great questions, and then I’ve created a framework for doing that every evening, just five minutes before you go to sleep.

Joe Fairless: Okay. Please, continue.

James Colburn: Well, I hired a coach who was a best-selling author on Amazon – one of the six best-selling authors on Amazon…

Joe Fairless: One of six…

James Colburn: …best-selling authors.

Joe Fairless: On Amazon? There’s only six best-selling authors on Amazon?

James Colburn: At that time he was one of the top six.

Joe Fairless: Okay. In a certain category, or just in all of Amazon books?

James Colburn: It ended up being in all of Amazon’s self-published books. This gentleman was one of the six at the top. So I hired this guy to help me kind of clarify my book. At one point he challenged me, “This is great. Yeah, we end up becoming enamored by our success, we stop asking great questions, but after you’ve explained this whole thing to me I’m kind of wondering what to do about it. There’s no solution.” He said, “Well, the challenge I have for you is to give people a solution for this”, because this is a real epidemic, if you will, especially with highly achieved, highly successful individuals, where you end up assigning your identity to the thing that you get paid really well for, but then there’s a loss of purpose, if you will.

But yet, at one point in our life – for some it’s mid-life crisis, for others it’s a change in their lifestyle or even their income that promotes this whole need for purpose… The challenge is giving something that they can constructively to do lift out of that. He said, “Is there something you do?” Well, there was, and that was that — years ago, my kids would lay in our bed and practice their flashcards for spelling words, and one of my kids left a pile of 3×5 cards on my nightstand. And typically in the evening, up until that point, I would come up to my room and right before bed I would actually go through my to-do list, which at that time ended up being about 80 items at a time (it was a changing list of about 80 items), and I’d kind of go through my to-do list and circle some key things that I wanted to do the next day, and refer to my calendar, and that’s how I would go to sleep.

But my to-do list wasn’t up there that day, but these 3×5 cards were on my nightstand, and I thought “Wouldn’t it be cool if instead of cluttering my mind with all these things that I need to do tomorrow, what if instead on this 3×5 card I just wrote three things to focus on tomorrow?” Then I thought, “Actually, it would be interesting to put myself to bed not by writing three directives down, but instead asking three great questions.”

So all I did is I just took this 3×5 card and on one side I wrote down three questions that I didn’t know the answer to yet, but I was really curious. Things that — and I’ve got examples of these questions, but they’re different for everyone really… Just things that I didn’t have clarity around or areas that I needed to focus on, or opportunities that I had yet to kind of cash in on. Writing those things down and then letting the creative subconscious go to work while I was asleep and also accessed what I call the miraculous. So that is how the five-minute epic ritual started.

Joe Fairless: Yeah, I’m buying what you’re selling on writing down some questions and then thinking about it, and then letting the subconscious just kind of marinate overnight. The challenge – and I’m sure you’ve come across this question often – I have with this is last night, for example, I went to bed around 11, [11:30]; I was still wide awake at 1 AM. Thoughts racing through my head, I was trying to read a book, but after I got done reading the book I still couldn’t fall asleep, and my concern is that if I write down three questions that I don’t have the answer to, that are thought-provoking, as you’ve described, it’s gonna keep me up until the morning.

James Colburn: I think that’s fair, but one of the reasons why you’re staying up – it’s kind of a typical situation –  is that you’re thinking about things that you wanna do or have not yet done, rather than surrendering to the fact that you don’t have the answers. You’re actually staying up because you think you need to make the answers arrive. This is working the “sleep on it” muscle, and the difference between me and perhaps you at this point is that I’m working the “sleep on it” muscle seven days a week.

As that improves and as you don’t have to arrive at the answers, that it’s not all about you coming up with them, then all of a sudden you are resetting how you go to sleep and how you actually are excited to let that creative subconscious and the miraculous show up in those answers, rather than you having to do all the heavy lifting. Because when you’re asleep, you actually access different areas of your brain to start reasoning through things, not by kind of past experience, but rather by very creative, far-reaching, out of the box (if you will) approaches that you would never have thought of when you’re awake.

For me it’s surrendering, I guess, to that possibility while I’m speaking, and I speak a little bit in this book about how initially when I talk about this there’s a little bit of woo-woo, like “Oh yeah, right”, and I totally get that, but if you think about it, everyone you meet (or most people that you meet) that are highly achieved or highly successful are the answer king. If you ask a question, they’ll start answering your question halfway through asking it. You just pride yourself, if you will, on coming up with the answers as quick as you possibly can.

What I challenge is that it’s actually asking the questions that you don’t have the answer to and then waiting expectantly for that answer to arrive. That’s when the genius happens.

Joe Fairless: Can you give us some examples of questions?

James Colburn: Well, I broke it down into three Re’s. The book is called Resucceed, so there’s Reassess questions, Reengage questions, and then Reaffirm questions. I’ll give you one example from each of those sections, but just so you and your listeners know, there’s three Re-questions: reassess, reengage and reaffirm, and in each of those sections there’s five chapters on the different types of questions.

On Reassess… For example, one of the things that I’ve realized is that everyone is constantly – including me with my to-do list an evening before the next day, I would constantly be kicking my butt into working out. And what I realized is what I really want the older I get is more energy, so one of my main questions in the reassess category is “How can I manage my energy better tomorrow?” Specific, actionable question around what would give me more energy, because one of the things is if I’m gonna achieve, I’m gonna be successful or if I’m gonna have the tenacity to stick through a project or the tolerance to deal with certain people, in that certain negotiation, or to kind of have the brainpower if you will to kind of reason through the opportunity, I have to manage my energy. So one of my big questions is “How do I manage my energy?”, which by the way, managing your energy might include working out, but what I realized is instead we write “Workout tomorrow” or “Do 30 minutes cardio tomorrow”, but that’s a statement that’s set up to rebel against… Because especially for those who work for themselves, we think “Hey, this is great, we work for ourselves”, but we just rebel against ourselves just as much as a boss.

What I do is I ask the “managing your energy” question every single day, as I’m going to sleep – “How tomorrow can I manage my energy better to have the stamina to deal with the situation by two o’clock?”

Joe Fairless: Do you have a notebook by your bedstand? Because if I were to ask myself that question right before I went to bed and I came up with an answer before I fell asleep, I’d wanna write it down, and then I could see that keeping me up longer.

James Colburn: I love your questions around this, but this is the point – you’re resisting the desire to answer.

Joe Fairless: Even if you have the answer after you ask the question?

James Colburn: No, because the answer you think of — here’s the thing I talk about in this book… When you ask a question, if you’re a highly achieved, highly successful individual, you are already trying to answer it, and by the way, you’re answering it with kind of the “awake” answer. I’m challenging that your amazing answer will come tomorrow, and as you work that kind of “sleep on it” muscle, you sleep more soundly, you wake up excited, and I — actually, I try to wake up one hour before I need to wake up, so I can actually take a look back at my questions on that 3×5 card and see what answers have arrived. The answers that have arrived are often times way different than I ever imagined.

When I was writing this book, I was trying to figure out when I would have complete and total dead time so that I could finish the book. I kept on asking this question, “When can I find complete and total dead time so that I have all the time necessary to finish this book?” One morning I woke up and I realized I was asking the wrong question. What I should be asking is “How can I be so overwhelmed with the responsibility of writing another chapter because of the business of my life and what that reminds me of?”, you know what I mean? Kind of like my busy life, that I’ve designed, because I’m an extremely busy person, right? Why look for dead time, why not just look for moments of brilliance within my busy time? And all of a sudden it became not looking for dead time, but it became looking for like “Oh my gosh, I feel responsible to sit down and write another chapter based on what arrived in the business of my life.”

So it was like asking a different question. It’s sometimes a lot about languaging, and not always about asking specifically something you don’t know, but instead asking it differently.

On a Reengage question, one of the big things that I realized is that real moments of my life in the last couple of years was just this realization that most of us battle with this desire to be enough… So I have this chapter called “Enoughness”, which is where I kind of unpack this concept that sometimes our success and our achievement is often times to somehow prove or to enter or get the kind of membership card into the club of enoughness. And what I like to do is ask some questions around enoughness that challenges me to realize that I’m already enough, and in that enoughness, how can I be incredibly successful?

It’s kind of turning success on its head, because a lot of people I meet, they’re chasing this whole success thing just to be enough. For example me at Christmas Eve 2006, I just wanted to sell another house because that was the only way I knew how to be enough that night. We kind of set up these rules and responsibilities, so I was in charge of going out and making the money, and she was in charge of kind of keeping the home front going, taking care of the kids, at least at that time. We had these really traditional roles, and I really bought into my role, so I wasn’t enough unless I was writing a deal.

What I realized is as we become enough, even if we’re not making money or doing the thing that we’re heavily rewarded as successful people to do – even when we’re not doing that, we’re still enough, and all of a sudden we start showing up differently.

Joe Fairless: What’s the question that you would ask?

James Colburn: I just said “What do I use to make myself feel enough that’s unnecessary?” Again, everyone has to — I use the word “enough” because it’s meaningful to me. Other people would say “What component of success have I bought into as a requirement that’s not necessary for me to still be successful?”, or whatever it might be. It’s a question around what’s fueling this desire.

And then lastly, Reaffirm. One of the big things on Reaffirm is celebration. I think a lot of highly successful, highly achieved individuals are worried that when they’re jumping for joy, celebrating a success, that the ground beneath will go missing… So when they land, the ground beneath is gone. So there is this fear that I don’t wanna jinx success by celebrating it. So I challenge to ask questions around celebrations, “How in my business plan can I add in celebration to each win throughout next year?”

Joe Fairless: That’s a fun one.

James Colburn: I actually say “we business-plan success”, so we business-plan how to achieve and what the metrics are, but we often times forget to write in what the celebration will look like. So it’s just business-planning celebration as well, or for that matter, gratitude.

Joe Fairless: I love it. That one, out of the three, I think wouldn’t keep me awake. The first two, I need to read your book and learn more about how I can position those in my mind, so that I’m not trying to come up with the answers. But with the celebration, for whatever reason for me personally, that accesses a different part of my mind, and one maybe that doesn’t ever get accessed.

James Colburn: I really like that; I like that that jumps at you, because that would be all the reaffirming stuff. One chapter is called Granular Gratitude, or one chapter is called Moments of Brilliance… What I mean by Moments of Brilliance is we’re all designed for a few, very specific moments of brilliance while we’re here, right? So what have been my moments of brilliance thus far in my career? And just actually asking that question.

On the Granular Gratitude chapter, instead of just Gratitude, I call it Granular Gratitude because what I’ve realized is that we tend to be grateful for big stuff, like housing, food, shelter – that kind of stuff. Instead, what I like to do is find gratitude in the really small things, that made huge changes in our life.

Joe Fairless: Sure.

James Colburn: So the gratitude of how I met my wife, which was just completely random back in college; it ended up just being this off-chance meeting that obviously has completely changed the direction of my life, and these three kids wouldn’t even be here if I hadn’t met her… That kind of thing. So just kind of really running with those, and that’s an interesting thing how that wouldn’t keep you up, but rather instead that would actually put you to bed.

Joe Fairless: This is a conversation that I believe everyone can benefit from participating in and listening to and reading your book, so thank you for being on the show. How can the Best Ever listeners get in touch with you and learn more about what you’ve got going on?

James Colburn: Well, your listeners can certainly go to Amazon and they can get the book, either on Kindle, paperback or audio, or they can go to JamesColburn.net and they can download a PDF of the five-minute epic evening ritual with sample questions and/or three free chapters of the book.

Joe Fairless: Outstanding. James, thank you again for being on the show. The five-minute epic evening ritual – we’ve gotta create an acronym for that… For my own purposes, no one else, just for me. It is a way to start asking thought-provoking, quality questions, because as achievers, what you’ve recognized is that we tend to seek out the answer and sometimes even when the question hasn’t even been fully asked yet. So really just taking a step back, asking three quality questions, sleeping on it… Don’t try and answer it until the morning, just sleep on it, and then wake up in the morning and identify what has come up. Sometimes there’s not even an answer, sometimes it’s simply a better quality question that could be asked.

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

James Colburn: Thank you.

JF1226: Why Investor Relations Are Paramount & How To Keep Investors Happy with Ryan Gibson

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As co-founder and head of investor relations for Spartan Investment Group, Ryan knows the importance of keeping investors updated. He’s raised over $5 million from their current investors, and he’s in charge of developing more relationships to bring in more capital. If you want to hear how to find capital and keep it coming in, be sure to listen to this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Ryan Gibson Real Estate Background:

Co-founder of SIG, Spartan Investment Group

– Has experience ranging from investing in apartments, to single family homes, managing renovations and

 development projects

– Responsible for SIG’s investor relations, driving the acquisition & financing of projects

– Also is a major airline pilot and flies the Boeing 757/767

– Based in Seattle, Washington

– Say hi to him at: http://spartan-investors.com/

– Best Ever Book: Tax Free Wealth

 


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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, Ryan Gibson. Hello, Ryan!

Ryan Gibson: Hi, Joe. How are you doing?

Joe Fairless: I am doing well, and holy cow, before we started recording, Ryan gave me this little nugget – he is joining us from Italy, just North of Rome. He is based in Washington DC – is that where you’re based? Or are you based on the West Coast, in the Seattle area?

Ryan Gibson: We’re actually doing business in multiple states, but we do business in both Washingtons – Washington DC and Seattle-Washington area.

Joe Fairless: Where do you live?

Ryan Gibson: I live in Seattle.

Joe Fairless: You live in Seattle, okay. So normally, you’re based in Seattle, your company does business on both coasts… Today you’re joining us from North of Rome, in Italy, and we’re grateful for that, that you wanted to spend some time with us during your vacation. I don’t know if I would have done that, but we’re grateful for it nonetheless, because – here’s a little bit about Ryan and his company. He’s the co-founder of Spartan Investment Group, and he has experience ranging from investing in apartments to single-family homes, managing renovations, development projects… In fact, Spartan Investment Group has completed six projects and they are also focused right now on four projects between the range of 2-8 million dollars.

In 24 months, four of those six projects that they completed totaled 2.5 million dollars with an average ROI of 36%. I know that because we also interviewed the other co-founder of Spartan Investment Group. His name is Scott Lewis, and his episode number is episode 965. You can go check that out.

Today we’re not gonna be repeating the conversation that we had with his co-founder, we’re gonna be focused on investor relations and how Ryan and his team are attracting investors and keeping them updated, because that is Ryan’s responsibility, investor relations with this company. With that being said, Ryan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ryan Gibson: Yes, you said something there that I really wanted to stress, and that was team. I think that our organization now has a very strong team, where I’m now able to transition away from doing a little bit of everything, which we all do in our small businesses, but in some more investor relations and attracting capital to our company, to make sure that we can go out and do these awesome projects.

When you kind of go around the room, we have five full-time teammates for Spartan Investment Group. One person is totally in charge of our acquisitions, and that’s Ben Lapidus, and we have Lindsay Lewis, who is responsible for all of our research. She’s actually just developed a system, an app that we have internally that grabs 40 data sources and brings together the best deals to the top commercial properties – we’re focused on self-storage, value-add opportunity – and kind of gets us to only look at the deals that we really wanna look at, that are available on the market.

Scott Lewis, the co-founder and CEO of Spartan Investment Group is not focused totally on operations, so he is responsible for the day-to-day permitting activities, and also our strategy, as you heard about in the previous call. Then Jackie is involved in our marketing, and also supports the operations as well. As a result, I’ve been able to go out with our team and raise just a little bit over five million dollars for our current and previous projects, and that is my day-to-day role. I’m also a full-time pilot. My flight is 7576 for an airline based out in Seattle… So that’s kind of my day-to-day.

Joe Fairless: Five million dollars – how many investors does that make up?

Ryan Gibson: I would say that’s probably 15-17 investors.

Joe Fairless: Okay, you’ve got 15-17 investors… Let’s say 17, that’s 294k — let’s just round it up to 300k. So 300k/investor on average… What are the three main sources for how you originally met these investors who are investing on average about 300k?

Ryan Gibson: Sure. One of our core values as a company is to develop personal relationships with everybody we do business with, and I feel like we have done a great job in developing relationships with folks that we can instill a lot of trust in; that’s previous relationships, it’s friendships, and it’s also kind of doing things such as going to the Best Ever Real Estate Conference…

Joe Fairless: It’s a mouthful, yes… [laughter] My conference, yes.

Ryan Gibson: Your conference, which by the way, Joe, I just wanna say that it was a great conference. I think it was different than a lot of other conferences, in the sense that I felt like the networking was really good and I felt like the relationships and the side conversations and some of those folks that we’ve met we still keep in touch with today and have done business with, so I’m really looking forward to going back next year.

Joe Fairless: February 9th-10th, Denver. BestEverConference.com, I appreciate you mentioned that.

Ryan Gibson: Yeah, no problem. So one of our suggestions is get out and do things that aren’t real estate related. I think a lot of people focus on just going to real estate meetups, going to these conferences and things like that, and that’s really important, but I think a lot of where we develop relationships with people is doing things that we enjoy. I enjoy flying, I used to be a rowing coach in Washington DC, I enjoy joining running clubs in my neighborhood, I like to sail, I like to ski, we like to travel… And a lot of folks that you meet, you talk about what you do and they’re very interested in being part of your organization and doing things like investing in your projects. I think that really helps.

The other thing that I would say isn’t necessarily a source, but just kind of a talking point that helps people is understanding where money comes from. Obviously, there’s self-directing accounts such as self-directed IRAs and Solo401(k)’s, cash accounts, leveraged brokerage accounts, you have life insurance policies you can use to invest, you can do a home equity line of credit, or leveraging an existing property, and I think kind of having an  understanding of a lot of those facets helps people that would normally think that they don’t have money to invest say “Oh, that’s right, I have that old 401k from my previous employer that I have done nothing with, and I have no idea how it’s performing, but when I’m presented with the knowledge that that 401k could be rolled over into something else”, it really helps them say “Oh, wow, that’s great. I can actually own part of a self-storage business and not do any of the work, and put my money with you, someone that I sincerely trust to do the right thing and do a good project.” So we kind of help facilitate a lot of those things with custodians that we have existing relationships with, so that’s something that we’ve done that’s been really helpful for our investors – understanding the best way to utilize their money so they can get the best return on their capital as well.

Joe Fairless: As far as understanding where the money comes from, you mentioned some interesting things like life insurance policies and home equity line of credit… I’ve never actually talked to an investor (or a potential investor) about doing a HELOC or life insurance policies; certainly, self-directed IRAs come up, but that’s it. I’ve been on the receiving end of “Okay, I’d like to invest via this account”, but I haven’t proactively talked to them about those things. I think you can get into tricky territory with a home equity line of credit, where you borrow against the house, so how do you approach your conversations with investors when you’re talking to them about the other types of ways where money comes from?

Ryan Gibson: Well, I think it’s obviously very conversational, and obviously I preface everything with “I’m not a CPA, I’m not an attorney, I’m not your financial advisor, but there’s solutions that allow you to invest that I’ve personally used and been successful with.” I’ve used a HELOC to invest, I’ve used a self-directed IRA, I’ve used a leveraged taxable stock account… I haven’t actually used a life insurance policy yet, but it’s just kind of an idea that’s been floating out there. And kind of explaining that maybe the best places where I’ve found HELOCs or custodians that I’ve really enjoyed working with, just kind of talking through the nuances of how those accounts can work and who they might talk to that, again, someone that I know and trust, that has set them up before, or a lender that gives you a good rate and terms, who can really help them make that informed decision.

Joe Fairless: I’m trying to understand where in the process of the conversation are you talking about home equity lines of credit, or life insurance policies… Because from my experience, what I’ve seen is I talk to a potential investor, and once they’re interested, then they say “Okay, I’d like to invest via my self-directed IRA”, or “I’ve got money I wanna diversify because it’s all in the stock market.” So they already know… So I haven’t thought of the approach of saying, “Well, in addition, here’s this…” or I guess there hasn’t been a natural segue for me to talk about these other ways to invest, so how does that come up?

Ryan Gibson: That’s a tricky question. So it’s not like I say, “Hey, have you thought about this and this and this?” and “This is how it all works…” I think it’s more of just kind of you knowing the dynamics – as basic as it sounds – of how a HELOC might work, so that way when they have a question like “Hey Ryan, I found a lender that will give me prime plus a percentage, or a prime rate, and if I draw this much, they’ll give me a discount. Does that sound like a good rate and terms to you?” And from having that experience and understanding what the market is offering, I can intelligently respond and say “Oh yeah, that sounds good” or “Hey, have you tried this bank? Because they might be able to help you out better”, and just sort of being able to keep up with the dialogue… I think that’s kind of the segue that I’m sort of speaking to–

Joe Fairless: I’m with you, okay.

Ryan Gibson: Yeah, kind of having the backstop of knowledge.

Joe Fairless: 300k on average per investor… Before we do that average — or, heck, I guess I already did that average, but let’s put that average aside for a second, because I have one investor who’s invested over 18 million with us, therefore that skews the average of everyone else if I include him in there, so my question is do you have an investor like that, that’s invested above and beyond the rest?

Ryan Gibson: Yeah, we have had a handful of investors that have invested above the rest. I would probably say the mode or the most invested would probably be in the 150k range.

Joe Fairless: Okay. From the couple that have invested the most, where did you meet him or her?

Ryan Gibson: Like I said earlier, basically conferences have been one, a place that we’ve met investors. I’ve met investors…

Joe Fairless: Not investors, I’m talking specifically those two people who have invested above and beyond what the others – do you remember where you met those two people?

Ryan Gibson: Yes, one investor I met when I was involved in extra-curricular activities in Washington DC, and another investor I met at my place of employment.

Joe Fairless: Cool, alright. Now, what you’ve mentioned earlier – you’re a pilot, then you’re a rowing coach, and running clubs, sailing, skiing, traveling… Those are all rich people activities, and clearly — maybe not running, but flying, rowing, sailing, skiing, and you can make an argument about travel… But those other ones, clearly those are rich people activities. If a Best Ever listener is looking to bring investor money into their deals and they’re currently not part of those rich people activities, do you recommend that they start joining those types of activities in order to rub elbows with rich people, or do you recommend a different approach?

Ryan Gibson: Well, I will say that it wasn’t a calculated decision to do those things. Those are things that I really enjoy doing, and naturally, the folks that have surrounded myself in those hobbies and extra-curriculars are — like you said, they might tend to attract a more wealthy person, but I didn’t say “I think I’m gonna pick up skiing because it’s an avenue for me to raise capital.” But as far as recommending people to do things, I recommend people do things that they’re really passionate about. I was a rowing coach for 5+ years, and it was something that I really enjoyed doing. It was an opportunity for me to really be in a position where I could help people and help high school athletes achieve their goals, and adult athletes as well.

When you’re thinking about “What kinds of things I could get involved in”, think about the things that you’re passionate about and do those things. Sometimes you can’t think of — in this world of real estate we think of “I’ve gotta be so efficient with my time… I’ve gotta get up, I’ve gotta do this, I’ve gotta do that”, but sometimes just letting loose and having some fun and doing things that you really enjoy – you’ll find yourself surrounding yourself with other people who like to enjoy themselves, and maybe they have some discretionary income to invest in your project. I’m sorry to be so philosophical about it, but…

Joe Fairless: No, I love that approach. I completely agree. I just had to call it out, because that’s something that some Best Ever listeners might have been thinking.

Ryan Gibson: Sure.

Joe Fairless: I 100% agree with you… If someone does not have an interest in skiing – like myself – but then attempts to become a member of a ski club because they want to hang out–

Ryan Gibson: That could be disastrous.

Joe Fairless: It could be deadly. [laughter] It could be deadly, number one, but number two – yeah, it could be disastrous because it just wouldn’t be fun, and… I always talk about — when I first became an entrepreneur, someone I worked with, she worked at Junior Achievement in New York City and she said “You should get involved because it aligns with what you’re talking about – finances, learning and helping others.” So I did, and I’m now on the board of Junior Achievement in Cincinnati, and through that, I have developed some good investor relationships, but I had no intention at all of ever developing investor relationships and business friendships. It was purely I was interested in doing something, and then it just evolved from there, and same with being on the alumni advisory board for Texas Tech – that’s evolved into investor relationships, but I had no intention of it happening. So I completely agree – do what you’re passionate about first, and then they’ll fall into place.

Ryan Gibson: I wanna make two points to that as well. Number one, I’ve never asked somebody to invest with us directly. I’m never doing something just to get investors, or whatever. So when you’re thinking “How can I get involved?”, it’s something that you’ve gotta love to do, and rule number one that I have for raising capital is I never ask for money. Now, it doesn’t mean I don’t put myself in very uncomfortable situations to progress my career as a real estate syndicator, and eventually say “Hey, I know that you said you were interested… Are you really interested?”, but the other thing is adding value to somebody’s outlook on a market or real estate I think is really important, too. When somebody is having a dialogue with you in those groups and they know you as kind of the real estate guy, you can add a lot of value to their personal situation.

Maybe you don’t flip single-family homes, or maybe you’re not a real estate agent, but you know enough about that sector that when they ask you a question, you can add value to the discussion by saying, “Oh, I know this is what you should look for in the title work”, or “This is a good lender” etc., so they kind of have a feeling of “Oh wow, this guy is really helpful to me. I would entrust him/her with the capital to invest.”

I think that kind of developing your way of garnering folks to invest — we do a quarterly newsletter, and we like to add a lot of value to folks that read our newsletter that may or may not be interested in investing, but that’s kind of an in… If they say, “Hey Ryan, I’ve been talking to you, I’ve known you for a while… I’m interested in what you’re doing, let me know more about it”, I say “Well, would you mind if we put you on our list of our newsletter?”

When that happens, it’s a good thing because when our newsletter eventually comes out, that person can kind of understand that “Oh, okay, this is what these guys do” and they get really comfortable with our projects. A lot of times folks that I network with may say, “You know, I’ve got a lot of student loan debt, but that’s gonna go away in a while”, or “I’m not in a position right now, but I might be in the future…” No problem, there’s never any pressure or arm-twisting to do any of these things, and I think that kind of goes along with the same philosophy of if you’re gonna do something for fun, really make sure you enjoy it, because if you don’t and you’re kind of skeezy, asking for money all the time, it really works in the opposite, negative way as well.

I also think that a lot of the folks that do these types of activities – you’ve gotta be kind of at that trustworthy level where you’re taking a significant amount of capital and investing it for somebody, that’s an enormous responsibility that you have for that person’s capital, and I think Scott mentioned at the conference last year, $10,000 is about the average saving of $100,000 salary. So if you’re taking $50,000 to invest in a project for somebody, that’s five years of savings potentially. That’s a very serious thing to do.

Joe Fairless: You mentioned that you have a quarterly newsletter – is that mailed out, or is it e-mailed?

Ryan Gibson: E-mail for now.

Joe Fairless: What’s in it?

Ryan Gibson: We write a market update. So if we’re focused on a specific market, we have Lindsay Lewis who does our research; we’ll write a quick blurb on — we’re building a self-storage right now in the Seattle Metro Area, and she focused in on population trends and housing statistics for the Seattle market, just to kind of give folks a flavor of what’s going on in that market right now, which is a lot of good things.

We’ll also feature a teammate. For example, we’ve just brought on Ben Lapidus, who is our director of acquisitions, so we had a little bio of his background and his resources that he brings to the team. We’ll also write an article about a specific topic. Right now I’m focused on self-directed accounts, so my last newsletter included an article on how to do self-directed retirement investing, and what it is and what it isn’t, and how it might work for a particular situation, and I plan to have a continuation of that knowledge base for our investor group, so they can kind of have some opinion on that.

We also kind of let everybody know what our current projects are. We send out a few renderings and kind of give an update on the ins and outs of Spartan. Our goal is to let our readers feel like “You do your job every day, you’re running around, you’re doing all these projects, you’re doing all these things in your world, but do your fans and your investors, do they know what you’re up to?”, so we kind of do like an around the room, so they can kind of have a purview of what all of our projects are and how we’re doing as a company.

Joe Fairless: And I want to just get clarification on the statement you mentioned earlier… You said “I never ask for money.” How do you bring in investors in a specific deal where you’re raising money? What’s that conversation end with, so that they know there’s an opportunity to invest?

Ryan Gibson: Well, I guess I used that term fairly lightly. So I always let them volunteer that they’re interested in investing in our next project. I never seek out somebody, or arm-twist or make them feel obligated, or have it be awkward. People ask what I do, and I have my 30-60 second elevator pitch.

Joe Fairless: What is it?

Ryan Gibson: I knew you were gonna ask, and I was like, “Should I say this…?” [laughter] No, I just say that we run a real estate development company, and we’re in multiple states, and we raise capital, we find projects – so we find the project… I call it the three F’s – we find the project, we fund the project, and we finish the project. We target and identify under-market value properties that either we can improve through forced appreciation or highest invest use (in other words value-add), and then we raise the capital required to either purchase the property outright or using leverage, and then we completely operate the project. So we hire the contractors, we do all the legal work, we do everything that’s required to make that project go from A to Z.

Naturally, that kind of perks interest… “How do you get your money?” We say that we have a network of investors that raise capital, and we provide an annualized return anywhere from 15% to 50%, depending on the project. That usually kind of creates a conversation. “Oh, well how long do your projects take? What do you do? How does this work?”, and we kind of get into how we do it, SEC 506(b) and 506(c) offerings, and how all the projects kind of piece together, and how we can try to beat the market, and we’re conservative in our facts and figures, and things like that. That was more than 30 seconds, but it was kind of a–

Joe Fairless: It’s helpful, thank you for walking us through that.

Ryan Gibson: Yeah, no problem.

Joe Fairless: Alright, what’s your best real estate investing advice ever? Based on investor relations, let’s keep it focused on that.

Ryan Gibson: So three things – keep your investors updated. We do a quarterly investment update where we look backwards and say everything that we’ve done for their investment in the last quarter, and everything that we plan to do in the future.

The other thing that we do is we actually do video updates. If we’re rehabbing a property, we will show in the video what’s happened to the property during the progress.

The other thing that we do is we make sure our corporate formalities are done properly, and we always invite our investors to teleconferences where they can ask and answer questions.

Joe Fairless: Is that number two, or is it still number one, keep investors updated? Is this part of number one still?

Ryan Gibson: It’s kind of a holistic approach, kind of a three-within-one, I guess. I think one of the biggest things that you can do is keep them updated, but the other thing is provide clarity in what they get. I read a ton of offering memorandums, and I get through the 20 pages of the offering memorandum and I get to the end and I can’t understand what I’m getting, how long it’s gonna take, and how I’m connected to the project. I think the feedback we receive from investors is “I really like your offering memorandums because within the first two paragraphs I understand how much I can potentially make on this investment, I understand my timeline, and I understand how I’m connected to the project.” I think that’s a really key thing.

And the last thing is systematize what you do, so you can automate and workflow a lot of the process that’s involved with raising capital and doing all this paperwork that the SEC requires.

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

Ryan Gibson: I am.

Joe Fairless: Let’s do it! You’re like, “Yeah, I’m in Italy. I’m ready to go drink some more red wine… Of course I’m ready!” Alright, first though, a word from our Best Ever partners.

Break: [[00:25:50].10] to [[00:26:45].00]

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

Ryan Gibson: Tax-Free Wealth.

Joe Fairless: Best ever system you use to help create a process for investor relations?

Ryan Gibson: We’ve created an entire app suite built from scratch in Podio.

Joe Fairless: Best ever deal you’ve been a part of?

Ryan Gibson: It was our first project, actually.

Joe Fairless: And why is it the best ever?

Ryan Gibson: It was the best ever because there was a lot of learning that was involved in it, and a lot of profit.

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

Ryan Gibson: It was a mistake, but the mistake was caught, so that was good. I always encourage people, as a pilot, a very thorough due diligence process checklist. We did all of the paperwork for an SEC raise, we raised all of the money, and it was a fast-moving deal. We had to close in a week of getting the offer presented to us; we raised all the capital, did all the paperwork, did all the hoopla, we got to the closing table and we could not obtain title insurance. Luckily, no money had moved hands because of our due diligence process, so the investors got all their money back, no problem… But it was a mistake in the sense that before the SEC stuff we wanna make sure that we just kind of move that checklist item above “Raise money and do SEC paperwork.”

Joe Fairless: What was the issue?

Ryan Gibson: Are you ready for just a very quick story?

Joe Fairless: Yeah.

Ryan Gibson: Real quick, the owner of the house, when he was living, he had dementia, and he ended up moving home with his family; the house that we were purchasing that we were gonna convert into condos in DC – a guy broke in, changed the locks, forged the title, sold the title as a wholesaler to another investor, fraudulently. The title exchanged hands, money exchanged hands, and the family had no idea. When the gentleman finally passed away, they went to the house, the locks were messed up, they went to sell the property and they realized that it had been sold illegally out from underneath them.

By the time this came to us, the attorney representing the estate didn’t really know that it was that big of an issue. No problem, we got to the closing table and our very awesome title insurance company said “Hey, we can’t ensure you.” We were like, “What do you mean you can’t ensure us?” And we went to a couple other title insurance companies, they said the same thing, and finally I said, “What is going on?”, and they send me this report that all these things happened…

So it’s very, very important to make sure that you have a very squared away due diligence process, which we did, and a lot of people do, but we just wanted to make sure that before money exchanges hands, that you are in possession of a very clean and clear title.

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

Ryan Gibson: I have always been very open to mentoring, and as a coach at heart, I’ve helped a lot of people in real estate with advice, and also I’m a mentor at my other job, helping other pilots progress through their careers. I just really like giving back, because I’ve had a lor of really good teachers and a lot of good mentors in my life.

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

Ryan Gibson: We have a website, it’s spartan-investors.com, or I don’t know if giving out my phone number is appropriate…

Joe Fairless: Whatever you wanna do.

Ryan Gibson: Yeah, my e-mail is Ryan@spartan-investors.com. My phone is 202-696-5112.

Joe Fairless: Ryan, thanks for being on the show, talking to us about your approach to investor relations, how in a very short period of time five million dollars worth of investors capital that you are working with, and your approach for doing so – the long-term approach of developing those relationships, and doing things that you’re passionate about, and then those relationships just naturally gravitate to other things. It’s encouraging, I imagine, for a lot of the Best Ever listeners who are doing things they’re passionate about but haven’t seen some of the fruits of their labor; well, perhaps continue to do that, and as we’ve seen with your career, it has worked out.

The three points that you mentioned – keeping investors updated; you all do quarterly reports, video updates and teleconferences. Two, providing clarity in what investors get – the projected profits, the timeline for the project and how they’re connected to the deal, and then creating a system.

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

Ryan Gibson: Alright, great. Thanks, Joe. Have a good day!

Best Real Estate Investing Advice Ever Show Podcast

JF1061: Make Enough Money in Real Estate to Quit Your Job!! With Drew Kniffin

Listen to the Episode Below (26:04)
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He got started with single family investing. Like a lot of other investors, he scaled up from there, and after a while, he was able to quit his job. Hear how he knew it was time to leave his job, and how he scaled from single families to buying a 64 unit property. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Drew Kniffin Real Estate Background:
-Acquisitions Specialist with Blink Equity
-Began investing in 2014 with a single family home
-Since then he’s purchased small (4-10 units) and medium-sized multifamily properties (30-60 units)
-His focus is distressed properties and repositioning them to stable assets
-Based in Seattle, Washington
-Say hi to him at www.blinkequitygroup.com/
-Best Ever Book: Millionaire Real Estate Investor

 

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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. With us today, Drew Kniffin. How are you doing, Drew?

Drew Kniffin: Doing great. How are you, Joe?

Joe Fairless: I am doing well, nice to have you on the show. A little bit more about Drew – he is the acquisitions specialist with Blink Equity. He began investing in 2014 with one single-family home, and since then he’s purchased 4-10 units in medium-sized multifamily properties, 30-60 units. His focus is on distressed properties and repositioning them to stable properties. Based in Saint Paul-Minneapolis area. With that being said, Drew, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Drew Kniffin: Sure, absolutely. Thanks, Joe. That story is right – I began single-family investing in 2014, and that was just after a lot of people had gone through the downturn… I had a condo that I lived in myself. I moved out of it but I couldn’t sell it, so I was sort of forced into renting it, and that’s when I stumbled into real estate investing.

I started to understand the economics of it, and then once I had some more money and capital, again, doing single-families, and like a lot of people, scaled up from there into larger properties. So I was joining on the side until 2015, and then I stopped that job and I’m doing real estate full-time now.

Joe Fairless: Wow, let’s talk about this. You began investing in 2014… Was that the condo? You couldn’t sell it and you were forced to rent?

Drew Kniffin: No, in 2014 was the first property that I bought for the purpose of investing. The condo was 2011.

Joe Fairless: Alright, so you bought your first intentional rental property in 2014. Walk us through all the properties that you have purchased from then to now, because I wanna get some specifics on your acquisitions.

Drew Kniffin: Sure. So that first single-family was purchased off HomePath, Fannie Mae’s clearing house for foreclosed on properties. That was kind of a standard 3/2 single-family in a suburb, and that was just kind of wetting my feet into real estate. From there I got a fourplex, and almost all of the rest of the properties was done with a partner. I bought the fourplex with that partner, and then a six with a partner, and then we bought a triplex from a wholesaler, fixed it up, and then financed it, pulled cash out of it and used that cash to buy a 32-unit. That was really my jump into the bigger space. That part of it was 2015.

In 2015 I also moved from the twin cities which you mentioned in the beginning out here to Seattle, which is where I live now. I bought a number of duplexes from a wholesaler – Blink Equity, which you mentioned in the beginning. Next we bought a 64-unit last November – that was, again, with another group of investors.

Right now we’re under contract to sell both our four and our six, and 1031 that into 56 units, which we have under contract right now.

Joe Fairless: That is a lot of transactions in a short amount of time. Congratulations on that! What was your occupation prior to 2015?

Drew Kniffin: Out of grad school I was working in investment banking for a small sell-side company; we helped owners of companies sell their company. I was very comfortable and used to valuing assets, whether they were companies or, ultimately, apartment buildings. When I took that skillset into a Fortune500 company – I was helping them negotiate some of their joint venture agreement, so I was taking that same skillset into the corporate world, and I did that until 2015.

Joe Fairless: Why did you leave?

Drew Kniffin: Well, basically it got too busy to raise a family, work full-time for a W2 job and grow a real estate portfolio, and I was just enjoying less working for someone else, and I had the opportunity to do this full-time, so I did.

Joe Fairless: Is Blink Equity your company?

Drew Kniffin: No, it’s not. Blink Equity is the company of a friend of mine here in Seattle, and I worked with him on the acquisition side for his deals. Then another company that I hold much of the real estate with is with another colleague of mine, a separate colleague of mine. That friend is based in Minnesota. So there’s two organizations I work with – Blink Equity, as well as the LLC that holds many of the properties in Minnesota.

Joe Fairless: Do you have a standard structure with partners? You said the fourplex, the sixplex — basically, all the deals after the single-family HomePath loan in 2014… Do you have a standard structure you use with investors or with business partners?

Drew Kniffin: I guess I would say my standard structure is not to make it too complicated. We use an LLC, and I work with people that I trust immensely. As far as best advice goes, one of the things that I’d say is I see people get paralyzed on moving forward, because they get caught up on how to structure their organization, how to get themselves legally or from an accounting perspective set up, and that brings them to inaction. I would say that’s the biggest inhibitor of people moving forward, getting caught up on these things.

There might be an ideal or perfect structure that I haven’t uncovered yet, but I try not to let perfect be the enemy of the good, so I move forward with people that I trust, doing this kind of split 50/50, or 1/3, 1/3, 1/3 structures, and we haven’t had a problem with that so far.

Joe Fairless: On the split 50/50 example – and perhaps, if you could use a specific property just to add some clarity – what would be your responsibilities, versus your partner’s responsibilities?

Drew Kniffin: Great question. On the sixplex that we’re selling right now, I would say — first of all, he is there near the property in Minnesota and I’m in Seattle, so there’s a location difference. There’s also like a skillset difference; he is extraordinarily good on the details. He is reviewing our property manager’s financials regularly and often uncovers things that might look not correct. So he’s kind of got the operational side covered, and meanwhile, I’m a little bit more on the acquisitions side, looking for more deals, thinking more strategically. Not that he’s not working strategically, but I think that our skillsets are more on the day-to-day side, the oversight of the actual asset, versus sort of looking big picture where we’re going next. That plays to our strengths as far as what our natural tendencies are, and it’s also helped the partnership work well, because we sort of understand “Hey, he does this well, I do that well. I respect him doing that and making decisions for us there, and vice versa.”

Joe Fairless: So just to grossly simplify, because I know you like simple structures… You identify the acquisition; once it’s acquired, then he does the asset management, basically?

Drew Kniffin: I think that’s fair, yeah.

Joe Fairless: Okay. Who brings the money?

Drew Kniffin: We do 50/50 together. We both bring the money to the table.

Joe Fairless: Okay, got it. That makes sense. And are you both on the loans?

Drew Kniffin: Yes, we are. Of course, in the beginning, when you’re doing residential 1-4 units, the financing was based on our personal [unintelligible [00:09:23].07] and once you get to commercial, it looks differently… But our loans are recourse, so they could ultimately come at us personally for the assets. And we’re both signed on the most loans, yeah.

Joe Fairless: What type of lenders do you use?

Drew Kniffin: One of my worst experiences in real estate was trying to get Wells Fargo to finance my four-unit. It was just extraordinarily painful. Since that, we’ve used local bankers that are regional to the twin cities, where we’ve literally gone out for drinks or lunch with our banker, who knows us, who comes and visits the asset, and there’s this extraordinary feeling of partnership. It’s extraordinary how different it was from working, in our experience, with an institutional bank. So we like the regional bank, the one where there’s a relationship, where the guy responds to e-mails quickly… It’s just been a huge difference to work with local banks.

Joe Fairless: And what about your duplexes in Seattle?

Drew Kniffin: That’s another regional bank. That one is a fantastic deal. I bought it wholesale and then I could turnaround to the bank and get an 75%-80% loan to appraised value. And since they’re going off appraised value not purchase value, I was able to get usually all of my cash or more than all of my cash back. But again, that was a regional bank, based right out here in Seattle.

Joe Fairless: Looking at my notes – I was writing notes as you were talking earlier about your timeline of acquisitions… It looks like the triplex from the wholesaler where you fixed it up, financed, did a cash-out refi and then bought a 32-unit – that was the big jump from where you were… So can we talk a little bit about that triplex – what are the numbers and how did you get in contact with the wholesaler in the first place?

Drew Kniffin: Great question… I don’t remember how we got in contact with the wholesaler. I think basically we were just hustling, looking to meet people, looking to get an edge on getting deals upstream of the MLS and where everyone else is getting deals, and we came across this wholesaler; he offered us this deal.

The key thing for that transaction was that we were going in it 1/3, 1/3, 1/3, so there’s three of us, but one of the guys is a full-time property manager; he owns his own property management business, and he gave us the confidence to say “Hey, we can buy this for (I think it was) 88k, put about 25k into it, get it appraised around 170k, put a debt on it, take all our cash out.” Especially at that point in time doing that on my own would have been too scary, but going with someone that I trusted, when you knew the market, enabled us to go forward, and ultimately that transaction gave us basically the cash of the down payment to leap into the larger multifamily of 32 units.

Joe Fairless: Absolutely. And was the 32-unit in the same market as the triplex?

Drew Kniffin: Yeah, the 32 was in Saint Paul and the triplex is in Minneapolis, so they’re in different zip codes, but the same metropolitan area.

Joe Fairless: Okay. And can you tell us the numbers on the 32-unit?

Drew Kniffin: The 32-unit was purchased for 1.6 million, so it’s $50,000/door. There was a lot of distress on it. It was a property that they prior owner milked for cash and didn’t put money back into it… But that was fine; we knew that going into it. We’ve owned it for I would say 15-18 months now, and I’m thinking of not taking a cash distribution out of it, other than we got it refinanced with a new appraisal. We’ve been pouring cash back into it and turning over the units; we have a thankful and appreciative and somewhat loyal tenant base, and I would roughly guess that it’s worth 1.8-1.9 now.

We try to be patient with capital; we’re not looking for flipping a property in and out in 12 months, but that gets to our long-term strategy, which is buying distressed and repositioning to stable, and then being able to really improve NOI, as well as cap rates as we make that transition from distressed to stable.

Joe Fairless: Yeah, let’s stay with this 32-unit. That’s a fascinating story. You bought it for 1.6… I think I heard you say that you haven’t taken cash distributions except when you did a refi with the new appraisal; what did it appraise for?

Drew Kniffin: I should have the numbers in front of me… I think it was 1.8, Joe.

Joe Fairless: Roughly. Got it. No biggie, just curious. So the cash that you got from the refinance on the previous property certainly wasn’t covering the down payment for this 1.6 in the total… So did you all ante up again and do 1/3, 1/3, 1/3?

Drew Kniffin: You’re right… The down payment on the 1.6 million dollar 32-plex – 10% or half of the down payment came from the cash-out refi of the triplex, and the other half of the down payment we split 1/3, 1/3, 1/3.

Joe Fairless: Okay.

Drew Kniffin: Essentially, what that allowed us to do is — let’s see, over 3% of the purchase price (from a cash perspective) I was buying into a 32-unit building.

Joe Fairless: And if it was distressed, then tell us about getting financing for it. I’m sure that was an ordeal.

Drew Kniffin: It was distressed physically, but there wasn’t a lot of vacancy.

Joe Fairless: Oh, okay.

Drew Kniffin: It depends on whether it’s physical or economic distress, but this is more physical distress. And again, us getting financing on this was also due to one of our partners who had a deep, long relationship with a local banker, and that local banker had seen him perform on previous transactions where there was distress, so we were able to basically borrow from his experience and history with the lender, and able to get that financing. I think if we tried to do it on our own, our only history with single-families and a triplex or quad – it would have been difficult to impossible, but with that partner it was a different story.

Joe Fairless: The property management partner in particular is the one you’re referring to?

Drew Kniffin: Yes.

Joe Fairless: Okay.

Drew Kniffin: He brought the history, and he also brought confidence that it was gonna be managed in good hands.

Joe Fairless: Yeah, that’s huge… As the banker proved!

Drew Kniffin: Exactly.

Joe Fairless: I know that we all have roles in our business, and if yours isn’t doing the asset management, then feel free to say “Hey, Joe, let’s shift gears a little bit”, but I do have one more follow-up question on the 32-unit, and that is what specific steps were taken to bring a property from physical distress – the mechanicals and perhaps the landscaping and just the outward appearance was very tired or in disarray – what specific things did you all tackle first and how did you go about it?

Drew Kniffin: As tenants vacated, we would turn a unit and rehab it. We did go from inside out. We went from actual units, to common spaces, to exterior. When units turn, we’d be able to give them a light rehab or a heavy rehab, depending upon how worn out they were. New carpeting in common areas, new paint in common areas, and eventually on the exterior we resurfaced the parking lot, we rehabilitated some of the parking structures, the garages, and then there was gonna be some landscaping on the outside as well. [unintelligible [00:16:31].12] exterior roofing.

I’ve heard people talk about going outside in, because someone sees a property from the outside first… But we did it inside out in this transaction.

Joe Fairless: And you had some mind-reading abilities right there, because that’s exactly what I was gonna ask you… What was the reason why you did inside out versus outside in?

Drew Kniffin: I don’t know whether it was extraordinarily well thought through, and I think I’d have to talk to my [unintelligible [00:16:55].29] whether we do it the other way next time… I think it was merely that we were looking at some units that were quite distressed. At the end of the day, you could have extraordinary landscaping, a beautiful parking lot and a brand new roof, but if the unit’s trashed, people aren’t gonna live in there.

Probably, if you flip that around, people might still live in there. You could argue it both ways. We just had to get these units kind of up to par. Our handyman was there almost full-time for about half a year, rehabbing units and working on the common spaces, and the tenants got to know him by name, and they expressed often their appreciation at the work he was doing to make it a better place to live.

That was validating that what we were doing was increasing the quality of life and probably tenant loyalty and longevity of tenants, which of course, it can be costly too to turn over units, if they’re cycling through every 12 months.

Joe Fairless: Oh, absolutely. If you have some retention and some loyalty with your residents, holy cow, that will affect your bottom line exponentially.

Drew Kniffin: Yeah.

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

Drew Kniffin: To move forward, that’s my advice. I thought a lot about this, but… I’ve seen people e-mail me or ask me questions, or friends that are interested, and you can tell that they’re intrigued, but they don’t take action. They don’t take action because they’re either caught up, as I said before, on some arcane legal rule that their attorney should be solving for them, or they’re caught up on finding financing, and there’s answers to that as far as how to get banks to bring money to the table, or “It’s just not the right time. Maybe in 12 months.” Or they find good deals, but they want unbelievable deals.

What I’ve found is that I get progressively better at analyzing deals and I get more confidence the more that I do one transaction at a time, or as I’m speaking to my property managers every week and I learn more about the property. But if I had waited for the perfect deal to come along, I would never have gotten started. So I would just say “Get going!” The thing about real estate is that the wind is at your back. It’s an industry that is forgiving, as long as you follow general guidelines. So you can go ahead, take that first step, make that first transaction, not know everything, and it should still come out okay.

From there, you’ll build the confidence and you’ll build relationships with property managers, with brokers that will help you make a second deal and third deal easier.

Joe Fairless: What would you say to someone who doesn’t want to partner with people?

Drew Kniffin: Well, the first thing I’d say is reconsider. But if they were insistent upon that and there are good reasons to be cautious about partnering, then still find people — they don’t have to be formal mentors, but people who you trust and you can say “Hey, can I take you out for lunch and show you this thing I’m looking at and you can give me your input on that?” Getting someone who has experience, their input, as long as you trust that they’re being candid and have your best interest at heart, is extraordinarily helpful, and very cheap as far as avoiding you from making bad mistakes.

I guess my advice is real estate is not a lone ranger sport, it’s one where you want people to be bringing you advice, whether it’s legal advice, accounting advice, property management advice. The more people you have on your team, the stronger you are. So whether you’re formally partnering in the ownership of the asset or just getting input from others that provide different disciplines, the more advice you have, the better off you are.

Joe Fairless: I mentioned that obviously because of your background and the partnerships that you’ve participated in and that have gotten you to this place where you’ve grown tremendously in a very short amount of time. What’s one way that you personally qualify potential new partners?

Drew Kniffin: Well, I don’t take anyone just out of an e-mail as a partner. Of all my partnerships, they’ve all been based off knowing someone on a relational basis for a while – I might have met them at a local REA… But for me, all of my partnerships are rooted in deep trust. If someone just e-mailed me and said “Hey, I’ve got a great deal in St. Louis”, I might 100% believe that’s a great deal in St. Louis and I might pay them a wholesaling fee if I wanted to enter it, but I wouldn’t partner with someone that I don’t know deeply. So that’s my sort of threshold or test for partnerships.

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

Drew Kniffin: Let’s go!

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

Break: [[00:21:15].07] to [[00:22:07].05]

Joe Fairless: Best ever book you’ve read?

Drew Kniffin: Millionaire Real Estate Investor by Gary Keller. That just got me going, got me fired up for the whole industry.

Joe Fairless: Best ever deal you’ve done?

Drew Kniffin: The six-unit we’re about to sell. We bought it distressed, and basically bought it for 250k, selling to for 450k in two years, and with leverage that’s more than a doubling of our money. It’s been fantastic.

Joe Fairless: Wow, congratulations. You bought it for 250k… How much did you put into it?

Drew Kniffin: Not much, maybe 10k-20k. It wasn’t like a huge project, it was more maintenance. Putting money into it came from the operational cash flows of it, so it wasn’t additional money from our pockets.

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

Drew Kniffin: Not staying on top of property managers and making sure that they’re managing the property well. One skillset that you develop in real estate is managing your managers. You can’t go to sleep and let them do all the work for you, you still have to oversee it. I think a healthy regular phone call with them to build trust and understand what’s going on helps them know you and take care of you better, and helps you build confidence with them. Staying asleep and not paying attention would be a big mistake.

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

Drew Kniffin: I hope this sounds sincere, but I love to provide quality housing that looks after my tenants well in my investing. I wouldn’t manage a property that I wouldn’t put my brother or my sister or my friends in. That’s not giving back like serving a soup kitchen, but I truly think that there’s a lot of terrible landlords out there that don’t care about the quality of life of their tenants, and I do take that seriously. So I’ll do things that may not at first blush with economic sense, but I do it because I wanna be proud of the way that we provide housing for people.

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

Drew Kniffin: They can e-mail me. I can provide that e-mail right now, Joe…

Joe Fairless: Yeah, of course.

Drew Kniffin: It’s just first name dot last name @gmail.com – andrew.kniffin@gmail.com. I love talking to people about their real estate journey.

Joe Fairless: And Andrew, do you go by Drew or Andrew?

Drew Kniffin: I’ve gone by both. Mostly by Drew, but the e-mail is Andrew, so…

Joe Fairless: Okay, cool. I apologize for butchering your last name’s pronunciation whenever I introduced you, and thank you for not calling me out.

Drew Kniffin: Are you Joe Seamless, or what’s your name…?

Joe Fairless: [laughs] Yeah, exactly… You’re very patient with me. You may call me whatever you wish.

Well, Drew, thank you for being on the show, thank you for sharing the trajectory that you’ve had with investing, from the single-family HomePath loan to the fourplex, to the sixplex, then the triplex that you fixed up and refinanced, used the proceeds from that plus your own money and two partners’ money to buy a 32-unit, and then bought some duplexes, then a 64-unit (holy cow)…

Drew Kniffin: One last thing, Joe, is the 56-unit that we have under contract – we’re not gonna put a penny into buying that, because it’s just the gains on the 1031s from a four and a six.

Joe Fairless: Bravo!

Drew Kniffin: The business really snowballs once you get going. You’ve just gotta get going.

Joe Fairless: Yeah, and having intelligent choices along the way has served you well. One of them I’ve noticed is partnering, so together you can do more, but two is finding the right partners who complement your skillsets and bring other skillsets to the table, like, as you mentioned a couple times, a property management partner who helped get some good financing and also seed on the ground management in certain cases.

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

Drew Kniffin: Thanks so much, Joe.

Subscribe in iTunes and Stitcher so you don’t miss an episode!   https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF966: How to Find a REALTOR to Sell Your Next Rehabbed Property ABOVE Asking Price

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If you regularly listen to the show you may eventually have a rehab project if you haven’t already. When you do, there are many expenses you need to look out for, such as capital expenditures for remodel, the cost of money to purchase, and most definitely the cost to hire someone to sell it. How about finding someone that will sell your product above asking price? Our guest today is your man! Learn how to vet each candidate.

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Aaron Hendon Real Estate Background:

– 5 Star Realtor with Keller Williams Greater Seattle
– Provides Boomers with Aging Parents a Stress Free Way to Handle Senior Transitions & Estate Resolutions
– Host of The Seattle Real Estate Podcast with Christine & Company
– Designated Leader of the Introduction Leaders Program at Landmark
– Based in Seattle, Washington
– Say hi to him at http://christine-and-company.com/
– Best Ever Book: The Undoing Project by Michael Lewis

Click here for a summary of Aaron’s Best Ever advice: http://bit.ly/2oMPQnM

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finding a realtor for fix and flip deals

 

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, Aaron Hendon. How are you doing, Aaron?

Aaron Hendon: Joe, I’m doing great, thanks! How are you doing?

Joe Fairless: I am doing well, and nice to have you on the show. A little bit about Aaron – he is a five-star realtor with Keller Williams Greater Seattle. He provides boomers with aging parents a stress-free way to handle senior transitions and estate resolutions. He’s the host of the Seattle Real Estate Podcast, and he is, of course, based in Seattle, Washington. With that being said, Aaron, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Aaron Hendon: Well, I’d say I’m a residential realtor now. I’ve been a real estate investor for about 15 years; I got into the residential, agent side of it about five years ago. Also, an author and an educator. I really do consider my job to be consulting with people when they’re making the biggest, most expensive transaction of their life. I work with investors and individuals looking to buy their homes, or anyone looking to buy residential real estate.

Joe Fairless: Okay, let’s just clear that up in my mind a little bit. So anyone who’s buying residential real estate you work with, but I believe — do you have a focus with baby boomers, or is that not the case?

Aaron Hendon: I do. One of the niches that I focus on are helping boomers with aging parents. The avatar there would be “Leave. I’m a boomer, my parents are in their nineties and I don’t know anything about anything about what I was gonna have to deal with when it came time for them to move out of their homes.” They got themselves a reverse mortgage on their own, I didn’t know anything about that, I had to go look into that… Estate resolution… It’s just such a stressful time for people; it’s such a hard space emotionally… Your house itself is emotional, much less your parents. So you’re dealing with all of that.

Anything I could do to facilitate that transition I thought would be a very useful, valuable niche. I come from the mind of the — I don’t know if you ever read the book The Go-Giver – it’s sort of “How can I help? What can I do to provide value?” I thought there was a real niche that really could use help, so that’s a focus of ours here for sure in the last couple years.

Joe Fairless: It makes sense, and I do enjoy the Go-Giver, and the author of that, Bob Burg has been on the podcast a couple times, so Best Ever listeners, you can listen to his interview on this show, as well if you just google “Bob Burg Joe Fairless”.

Let’s talk about your investing approach. I believe you said you were a residential real estate investor for 15 years – did I hear that correctly?

Aaron Hendon: Yes.

Joe Fairless: What were you investing in?

Aaron Hendon: Single-family homes, the remodel and we’d rent out, and look at value and flip at some point, but buy and hold mostly.

Joe Fairless: Okay, and was that a past tense or present tense as far as you being an investor?

Aaron Hendon: Past tense.

Joe Fairless: How come?

Aaron Hendon: Well, because when the downturn came we lost our money. We lost our capital in the downturn, and have been slowly building back up. That’s sort of how I got into the realtor side of things. I thought, “Oh, well there’s a way for me to stay involved in something I enjoy, and carry none of the risk” – it’s a very low-risk model from the point of view of the realtor, and yet I could facilitate that with people that were looking to buy and hold, or flip, or do anything like that.

At this point, financially, for my family, we’re probably in the next 12 months looking at getting back in because now as a realtor, of course, I get the advantage of the commission.

Joe Fairless: Oh, yeah!

Aaron Hendon: It’s ridiculous for me not to be back. It took some time… I’m sure you have listeners for whom the downturn hit them, and it did for me, for sure.

Joe Fairless: Oh, absolutely… And I’m curious now that you’re going to get back into it, what is your approach going to be now versus then?

Aaron Hendon: Well, for sure don’t get carried away. It was very easy — looking back on it now, it’s just been sort of insane… Ninja loans, and all the questions I had about it at the time were like, “Wow, are they really gonna lend me this much money?” – that kind of stuff. So to not get carried away and not do things that don’t actually make sense. You don’t have to take the money just because they’re giving it. If it doesn’t actually make sense, there’s probably something on the other side of that. So we wanna do it more slowly, do it more cautiously, not get carried away, make sure that a downturn doesn’t take out everything.

Joe Fairless: What will be the type of financing or property you purchase on this next go round?

Aaron Hendon: I would stick with single-family residences, because that’s really sort of what I know and it’s my sweet spot. As much as I enjoy learning new things, I’d like to start back up with what I already know. I would prefer to start with — if I could find the flips, it would be the flips, but in the Seattle market right now there’s just so low inventory, and everybody who’s already in the business, all the investors, they’ve already got that covered. So I would most likely be looking for buy and holds. The Southern [unintelligible [00:07:24].03] Tacoma area… There’s a couple of great colleges there, so vacancy rates would be naturally lower because of the turnover, because of demand, and there’s the joint air force base Lewis-McChord, which are great tenants, and home values are certainly low enough that you could buy and have the rent pay the mortgage and then some, and that’s really where we’re gonna be looking.

Joe Fairless: And with the fix and flip, do you have your own team that you used in the past that you would just activate again, or are you starting from scratch with the team?

Aaron Hendon: I would be starting from scratch with that team.

Joe Fairless: What’s your role in the fix and flip process? How hands-on are you?

Aaron Hendon: I wasn’t, at all. Like I said, it’s been years since I’ve done it, so there’s no team now. When I did it, I was not hands-on at all.

Joe Fairless: Okay.

Aaron Hendon: I’m not handy with a hammer.

Joe Fairless: That makes two of us. So let’s talk about you being the host of the Seattle Real Estate Podcast – how long has that been running and what business result have you seen from being the host?

Aaron Hendon: It’s been about a year, and mostly it’s just a top-of-mind kind of phenomenon for people. I frankly don’t get a lot of subscribers, it’s not something I particularly promote as a podcast… I do educational videos at least two or three times a month, about topics that people ask me about. Sometimes I’ll do interviews, I’ll do interviews of people like a contractor or a lender or something like that, that are applicable for people buying residential real estate… And answer those kinds of questions, things about “What are the most profitable remodels I should do before I sell? Or the least profitable remodels. What’s it like to live in this part of town?” Market updates, “What’s the market doing?”, things like that, so that people, when they think of residential real estate, they might think of me as a resource.

All that goes up on YouTube, all those go out to my e-mail list of about 2,000, twice a month, so that people… Again, total go-giver – value, value, value. When they look in my direction, they think “Oh, well there’s a resource… There’s somebody who could give me some advice.”

In terms of ROI or business results, things like that, mostly it comes in the form of people call me — I just got a call from someone that I haven’t spoken to face-to-face, voice-to-voice, in 12 months, 15 months, something like that. And they just called and they said, “Listen, I’ve been getting your stuff, and I have a question. We’re right now ready to sell…”, and it’s that kind of constant drip of value on them that leads, with no ask, no sale (I’m not asking for anything) that leads them when it’s time to find someone to help, they come to me.

Joe Fairless: I love that. One thing I’ve noticed with my podcast initially is that I didn’t get any comments or feedback or outreach from strangers initially… But what it did is whenever I shared it, it influenced my current circle of friends and family, and it positioned me as a thought leader within my current circle of friends. The people who had been either needing questions answered in the real estate investing space, or thinking about it, who I already knew, this then positioned me as a thought leader, and it sounds like it’s been similar results for you.

Aaron Hendon: Yeah, Joe, a hundred percent. I don’t know how you feel saying the word “Thought leader” about yourself… It always makes me sort of uncomfortable – I always consider myself to be “Okay, I’m just some guy”, but at the same time I am putting myself out there and I do think that I have value to add, and I think that’s exactly right, I think it positions me as someone who people could turn to. For any of the listeners, everyone’s got something to add, everyone’s got value, everyone’s got a unique perspective, and I think it’s just a question of bracketing and putting aside our own internal thoughts of “Oh, I’m not really that smart” or “I really can’t do that.” Just put yourself out there.

Joe Fairless: Have you noticed any tangible business results since you’ve been doing it for a year? Any deals that have closed or any transactions, or is it still brewing and brewing, and long-term  you’ll see stuff?

Aaron Hendon: Something I do with the videos that turn into the podcast – those videos go twice a month to my list, and then I always call through my list of anyone who’s opened the videos… You know, you get a click report, you can find out who opened the video and who clicked on it, and as soon as I call through that list – prospecting – part of my phoning is calling through that list, and I call them and I’ve had people on the other side say “Oh great, I’ve gotten your video. Thank you so much for calling. Listen, my brother-in-law is ready to sell – do you wanna give him a call?” That kind of thing.
So I’ve probably done two, maybe three deals last year, something like that, from the e-mails. It’s the prospecting, though… You can’t really tell that they’re calling in from the videos, but you can tell if you call them… So I don’t know how many deals I got just from it, other than the ones that I called out to. But it’s two or three for sure, in the last year, which is not bad; it’s the first year I’ve done it

Joe Fairless: Yeah, that’s great, especially when you can start looking at the platform paying for itself and then some. You mentioned something earlier that piqued my curiosity… You said the most profitable remodel and the least profitable remodel before you sell – one, can you tell us what those are? And then two, if they’re market-specific to Seattle.

Aaron Hendon: I don’t think they’re market-specific, although I certainly don’t want anyone to come back to me later and go “Oh no, that was just Seattle!”, so I don’t know…

In terms of most profitable – and again, I’m speaking to individuals out to sell their home, not necessarily investors with money to put in… So I haven’t done it from that perspective, but from the residential homeowner, out to sell their home, the first thing I think they need to understand is that no remodel is gonna return more money than they put in. That remodel, at best, you’re looking at 80-90 cents on the dollar from an individual fixing their house. It’s different if you’ve bought a foreclosed home and you’re gonna go put money into it; that’s a different scenario and I haven’t done that work. But for the private homeowner, looking to improve their house, if they’re already clear that part of the value needs to be the amount that they enjoy it, that they don’t do it just before they sell, because they’re not gonna get that money back, the most profitable seemed to be putting on a nice deck, or fixing the deck that they have, making outdoor space. It’s relatively inexpensive, it looks great, and it adds in usable square-footage in some way that doesn’t necessarily get reported, but it’s fantastic, and it creates a great eye appeal, and that’s such a big deal when you’re selling your home. So that’s one thing.

Same thing with kitchens. Kitchens – you can spend $40,000 remodeling your kitchen and you’re not gonna get that back, but if you did it intelligently, did it economically, did it in a nice, well-done way, you can get 90 cents on the dollar back when you sell that house, and if the kitchen becomes more functional for you for the year or two that you live in it before you sell it – fantastic. That’s a great use of money.

The third one is usually going green – tankless water heaters, possibly solar, maybe radiant floors if you’re doing an add-on… It’ll give you, again, the best shot at getting 90 cents on the dollar, and only more and more popular… Green solutions are just becoming more and more valuable as we move forward with our economy. So I think those are the three places that residents can look.

Joe Fairless: And what about the least profitable?

Aaron Hendon: I think the least profitable ones are — first of all, primarily, anything you do, think in principle about this… No one is out to buy your home; people are out to buy THEIR home. They don’t wanna buy YOUR home, they wanna buy a house that they can turn into their home. So things that you do to the house that YOU love, like paint – if you’re gonna paint, you’d better be painting white, you’d better be painting neutral… Do not paint that room pink because you love pink, it’s detrimental. Not only do you lose the money and time it took you to paint it, but people are gonna pay you less. Same thing with carpeting… Unless the floors are just horrible, you’re way better off getting a carpet credit than you are carpeting, because no one’s gonna like your taste; nothing personal, but really… Don’t. Just don’t put in new carpeting. Flooring… Any kind of vinyl flooring – you just cannot rely on the fact that the buyer wants that, and you’d be better off offering that much money in the credit than you would be doing it yourself, because you’re liable to turn someone off.

So things that are cosmetic that are particular to you are the worst possible investments you have to flip the house.

Joe Fairless: Yeah, that’s a great lesson for investors… Definitely investors as far as no one’s buying your home, they’re buying their home, so make sure we do the renovations that align with the mantra.

Aaron Hendon: Yeah, very good. Great way to say that.

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

Aaron Hendon: This is very self-serving, so you’ll have to forgive me, Joe, but get a good realtor partner. Don’t go cheap when it comes time to find the professional that’s gonna sell that home. A good realtor, and if you interview a realtor well, he should be able to get you more money at sale than doing it yourself or doing it with a discount broker, and you can absolutely find realtors who’s list-price-to-sell-price ratio is high enough to cover their commission, and finding someone like that is like finding a great contractor. It’s like finding a great drywall.

Joe Fairless: What’s the list-price-to-sell-price ratio?

Aaron Hendon: It’s how much over or close to list price do you get when you sell a home.

Joe Fairless: You can ask that of the agent whenever you’re interviewing him or her?

Aaron Hendon: You sure can.

Joe Fairless: I guess you should…?

Aaron Hendon: Well look, isn’t the point to get the most money in the least amount of time with the least hassle? If that’s the point, then that’s the kind of questions you wanna ask your realtor that really nobody asks, Joe. This is literally how I got started in my educational program of creating videos and creating books. I’m in the middle of my second book now, called Real Estate Blindspots, because it’s so shocking to me that people actually do want the most money in the least time with the least hassle, but what they do when they interview realtors is pretend “Oh, they’re all the same.” It’s whacky!

Joe Fairless: Okay, you can ask that question, “What is your list-price-to-sale-price ratio?”, but how do you get verification that what they’re saying is correct?

Aaron Hendon: If you’re questioning their honesty, we’ve got a problem right away, with using that person. But you could easily ask them “Show me the listings you sold in the last 12 months.” When I go for a listing appointment, I print out the last 12 months worth of listings and I show them the list-price-to-sale-price ratio. Now, no one does that; I know no one else is doing that, because everyone else is organized around the way the market thinks, and the way the market thinks is “All realtors do the same, so therefore the first one that comes through my door is the best one.” That is really how the market thinks, and I’m out to break that up and let people know, “Look, there’s other people that you might have interviewed that they show you this?” You could just ask them to print it up off the MLS.

Joe Fairless: Instead of asking what’s your list-price-to-sale-price ratio you can just ask “Can I see the listings you sold in the last 12 months, a print-out of that?” and then you’re not questioning their truthfulness, you’re just asking them to look at that… And then on those print-outs will it show the original list price and the sale price?

Aaron Hendon: It will show the list price, the sale price and the days on market. It should all be right there for you. And it will blow their mind. I promise, if you’re an investor, if your listeners do that, there will be people that get chased away. There’ll be people that get insulted, there’ll be people that find you arrogant… And what a great way to vet who you work with, because how dare anyone be insulted? They’re about to take 2%, 3% of your commission, and they’re gonna get insulted?

Joe Fairless: I love that. That’s phenomenal. I’m really glad that you mentioned that. What is a good ratio?

Aaron Hendon: That’s a really great question, Joe, and that is something that you either would wanna research yourself and find out what the market is like in Seattle… It’s a super hot market, it’s insane… Multiple multiples over asking price; two days on market, six, seven, eight, ten offers – it’s crazy. It’s not like that everywhere. Our team does 105% of asking price on average, where the local market altogether is 100% of asking price… Because if you’re taking all of it, it’s 100%, and we consistently get 105%.

Good, it’s not like that in Tallahassee, but you should find out what it is like in Tallahassee, find out what the overall market in Tallahassee is like, so that when you compare realtors, you’re comparing them against your market average; not some national average, but YOU, where YOU’re selling. And you can ask them, you can find a realtor that finds that out…

I’m trying to think how investors would find that out… I’m a little bit off about how to do that…

Joe Fairless: We could simply ask three, four or five people, real estate agents, that question, and then we’ll at least be able to compare those five against each other.

Aaron Hendon: Completely! And then you can see, because if you get someone who’s obviously heads and shoulders above the rest, you can then start asking, “Okay, how do you do that?” And then, Joe… I think it’s really great, it’s just a really good point, because at that point, after you’ve gotten their actual performance, then you could ask the questions – “Okay, do I like hanging out with this person? Does this person fill me with confidence? Do they make sense? Do they have integrity? Is this someone I wanna do business with?”

I think those are also still critical questions, I just don’t think those are the only questions, and those are pretty much the only questions that anybody ever uses, not the performance one.

Joe Fairless: I love that, it’s very helpful for anyone listening who will use a real estate agent, which is most of us. Are you ready for the Best Ever Lightning Round?

Aaron Hendon: Sure!
Joe Fairless: Alright, let’s go. First, a pause for our Best Ever partners.

Aaron Hendon: Okay.

Break: [[00:21:48].28] to [[00:22:31].09]

Joe Fairless: Now let’s roll right into it. What’s the best ever book you’ve read?

Aaron Hendon: I’m gonna tell you the last book, because the recency bias is always right there for me… The last book I read is called The Undoing Project by Michael Lewis. That’s the guy that wrote Moneyball and The Big Short. I find him fascinating, he’s a great writer. The Undoing Project is about Daniel Kahneman and Amos Tversky, who are Nobel prize-winning psychologists who created really the field of behavioral economics. Just a fascinating look on how human beings are so predictably irrational in their buying.

Joe Fairless: Oh, sign me up!

Aaron Hendon: It’s the basis of my Real Estate Blindspots book, about the way we’re idiots about real estate.

Joe Fairless: I’m reading that for sure, that’s next on my list. Best ever deal you’ve done?

Aaron Hendon: Okay, the best ever deal… I have very good friends that I got to write an offer for… I’ve actually done this twice now with friends, but one where we went and saw the house – it was the second house they saw – we walked in, they loved it, there was already an inspection done. I called the realtor and I said “Hey, my clients really love this place. Do you have an offer?” They said, “Yeah, well we’ve just sent our counter-offer back to them but it’s not signed yet.” I said, “Okay, well if I wrote you an offer at this price, could it bump the one you have?” They said, “Yes, it could…”

So we sat down at a coffee house, we wrote up that offer, got it to them, they rescinded their counter-offer and accepted our offer. So while that’s clearly some other realtor’s least-favorite deal, that was my favorite. I loved being able to do that.

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

Aaron Hendon: Honestly, I do work with a company called Landmark Worldwide. It’s a company that’s committed to transformational leadership and transformational educational in the world, and I’ve been participating and leading programs with them for about 20 years. It’s a volunteer process for me, but man, to watch people step beyond who they know themselves to be and into a world where they become leaders in their own life… There’s just nothing like that.

Joe Fairless: What’s the biggest mistake you’ve made on a particular deal?

Aaron Hendon: That was what was there for me when you said “What’s your favorite deal?” – what’s my least favorite deals… [laughter] There was one last year where I had this great client, I totally loved them – and they did love me, up until this – and the deal was sort of closed way too quickly. It was out of protocol; the whole thing was out of protocol. They were using Bank of America, which if I could make sure that none of your investors ever use the big banks, it would make me thrilled and happy…

So they were using a big bank, and I knew it, it was a problem all the way through the deal. The deal finally got approved and was ready to close on a Friday, and my client e-mailed me and said, “Can I please, please, please, please get in there this weekend? Can we close today?” and I said “Yes”, and I should have said, “Well, we really do need to do a walkthrough, which could postpone the close until Monday… But we should do a walkthrough. How do you wanna do it?” – and I didn’t say that, I just said yes.

We went ahead and closed, and then we did the walkthrough and the seller had left just a ton of stuff all over the house, and while I paid for the cleaner, I got it all cleaned up, my client was just heartbroken. They had gotten a house that was just so poorly maintained, and it all could have been avoided had I done the walkthrough, had I done what I know to do. They won’t use me again, it was a tough deal to put together, but I didn’t do what I know to do at the end, and it was just a shame. It was really disappointing.

Joe Fairless: Lessons learned along the way, that’s for sure.

Aaron Hendon: Absolutely.

Joe Fairless: Where can the Best Ever listeners get in touch with you, Aaron?

Aaron Hendon: Probably the best thing to do — so I wrote a book about interviewing realtors, called “Don’t get fooled again.” It’s seven questions you must ask to avoid hiring the wrong real estate agent again. If they go to dontgetfooledagainbook.com, they will not only be able to download that book for free, they’ll also get on my mailing list, which will then get them all my information, and they’ll also be on the list to get a free copy of The Real Estate Blindspots when it comes out later this year, which is a much more thorough investigation of the ways in which we are irrational, foolish with buying and selling real estate. And I’d love their feedback on that too; that would give me a really big favor, if when they got a copy of that book, they were available to give me feedback. That’s a promo for your investors.

Joe Fairless: Aaron, the number one question you gave us, if that’s any indication of what’s in that book… Everyone definitely should get the book. I love the question, and we should all ask potential real estate agents who work with us “What is your list-price-to-sale-price ratio?” or maybe instead of that, just ask to see the listings over the last 12 months, and then you’ll see the list-price-to-sale-price, and days on market, then compare them to others or compare them to a standard that we know the market to be at.

Thanks so much for being on the show… Lots of other great lessons, but that’s the one clearly head and shoulders above for me, that I took away from this interview. I hope you have a best ever day, my friend, and we’ll talk to you soon.

Aaron Hendon: Joe, thank you very much. Thanks to everyone listening too, I appreciate it.

 

 

 

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Joe Fairless's real estate podcast

JF918: Section 8 and 87 Units AREN’T SO BAD…Ask This Guy!

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He manages/owns 87 units ranging from single units to multi family to single-family homes. That’s a lot… We know, yet we are still perplexed by how he does it all himself. Hear how he manages his section 8 rentals and his screening process, it’s worth taking notes.

Best Ever Tweet:

Curt Bidwell Real Estate Background:

– Managing Partner at Philia Holding Company, LLC
– Started in RE in 1990 with 3 partners and a 4-plex, while serving as a full time Youth Pastor
– Over the 26 years he has bought out each partner
– Has accumulated several SFR, duplexes, a 10 & 24 unit apartment, & a 42-unit mixed-use building
– Current project is a major farmhouse rehab that includes a short plat.
– Based in Seattle, Washington
– Say hi to him at http://www.philiahc.com
– Best Ever Book: Millionaire Real Estate Investor by Gary Keller

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JF916: High End House Hacking in Seattle!

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House hacking seems to be the way to go and especially get started in real estate. Our guest did so with Microsoft employees, high tenants who rented rooms while our guest lived in the master. More to come in this episode, tune in!

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Jeremy Jones Real Estate Background:

– Real estate investor and musician
– In 2002 was working full-time at Microsoft and acquired a rent-by-the-room rental home
– In 2012, partnered with his brother to build a portfolio of multifamily rentals in Seattle
– Received a GRAMMY Nomination in 2014 for playing drums in Macklemore & Ryan Lewis album The Heist
– Based in Seattle, Washington
– Say hi to him at http://www.jeremyjonesmusic.com
– Best Ever Book: Autobiography of a Yogi

Click here for a summary of Jeremy’s Best Ever advice: http://bit.ly/2lBp2ZZ

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JF749: How He Used NONE of His Money on His First Joint Venture Rehab Deal

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Today’s guest is very new to the game, but he and his wife are making big moves and will cash out nicely on their first fix and flip. Scheduled to close at the end of September, the house was negotiated by our guest who put together a joint venture deal using none of their money.

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Dion Johnson Real Estate Background:

– Own Residential Redevelopment Company with his wife
– Finished their first flip
– MEMBERS OF Fortune Builders
– Based in Seattle, WA
– Say hi at Facebook and search Dion Johnson
– Best Ever Book: The Millionaire Real Estate Investor by Gary Keller

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JF356: The Key Things Your Need to Look For In the Market of A Potential Flip

Today’s Best Ever guest has been doing the deal since he was 19 years old. He has flipped houses everywhere, and made over $100,000 on one flip. Listen to how he does it!

Best Ever Tweet:

It’s a lot easier to deal with the low volume high margin.

Tarl Yarber’s real estate background:

–           Based out of Seattle, Washington  and became a wholesaler at the young age of 19

–           His 3rd deal made him $100,000

–           Have been involved in over 500 single family flips

–           Currently purchases on average 7 houses a month

–           Manages a $5,000,000 fund with his business partner

–           Been in the industry for over 10 years

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JF331: Trouble With Water Meters? HERE’S Your Solution

Today’s Best Ever guest ran into trouble with water meters, and had a solution presented to him but it took a LONG time to get resolved. Listen to his story, and his advice on what you need to start doing to save money on water bills.

Best Ever Tweet:

Zah Schwarzmiller’s real estate background:

·       Started investing in 2013 and invests in triplex and commercial

·       Completed CCIM Series and the University of Washington’s Certificate in Commercial Real Estate

·       Member of the Snohomish Economic Development Board

·       Based in Seattle, Washington

·       Has an active broker’s license

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 Made Possible Because of Our Best Ever Sponsor:

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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JF237: EVERYTHING You Need to Know About Seattle Real Estate…and Ponies

We have found the Twelfth Man of Seattle real estate. Today’s Best Ever guest shares with us where YOU can find deals in Seattle, and what data you need to look at to find the Best Ever market to invest. He analyzes real estate as well as Marshawn Lynch scores touchdowns, so listen up!

Best Ever Tweet:

Tim Ellis’s real estate background:

–          Founder of Seattle Bubble, Seattle’s most popular source for real estate news and   discussion

–          Engineering and internet technology background with an addiction to spreadsheets      all influence his perspective on the Seattle-area real estate market

–          Also working on http://glowforge.com/

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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

Mascia Development – Do you need an equity partner or know about a great deal and want to get paid for finding it? Mascia Development can help you make that retail or medical office deal happen. Email them at jv@masciadev.com

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JF198: Insider Scoop on Creating a Real Estate Fund

Discover how to create a real estate fund and the pros and cons that go along with it. Today’s Best Ever guest has created TWO of them and he wants to share his tips with YOU.

Best Ever Tweet:

Adam Fountain’s real estate background:

–        Managing Director at Broadmark Capital based in Seattle, Washington

–        Say hi to him at http://www.broadmark.com/index.html

–        They work with high-net worth investors and have created a high-yield real estate lending product for them to invest in

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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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JF175: The Next BIG THING in Real Estate Technology Is…

We’re speaking to one of the leading real estate entrepreneurs and technology innovators and he is going to share with you the NEXT BIG THING in real estate technology. Let’s go!

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Dave Eraker’s real estate background:

–        Serial entrepreneur with an interest and focus on the intersection of economics and applied technology

–        Co-founder at Surefield and is based in Seattle, Washington

o   Surefield is a full-service brokerage that has virtual tour technology that builds virtual models of homes allowing house hunters to navigate a property inside and out from their computers

–        As the founder and CEO of Redfin, he led the product development efforts for a new web-based form of map search and developed a salaried model for residential real estate agents

o   Company received the Innovator of the Year award by Inman News

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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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JF154: Should You Get Your Real Estate Agent License?

Today’s Best Ever guest answers one of the most commonly asked questions I come across. She also tells you how to be successful as an agent should you choose to pursue that path.

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Carla Cross’s real estate background:

–        Author of six books and over 20 productivity programs including, Up and Running in 30 Days which is used by new agents to launch successful careers

–        She is based near Seattle, Washington

–        She has interviewed hired and trained thousands of new real estate agents

–        Carla has been published over 300 times in major real estate publications

–        Say hi to her at http://carla-cross.com/

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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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JF144: Stop Chasing Leads! They Quick Like Rabbit. Do This Instead…

You’re about to find out some next-level ways to find motivated sellers. And, we get into specifics of how to make your phone ring more often via Google Ad words.Ready for it?

Ok, let’s go!

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 David Corbaley’s real estate background:

–        Founder of The Marketing Commando based in Seattle, Washington

–        Former Green Beret in the Army now working to help investors get a flood of quality leads

–        Started investing in 2002 and has done over 200 transactions since then

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