JF2241: Find Off Market Apartment Leads with These 7 Online Services | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks shares 7 different ways to find off-market apartment deals through utilizing methods that allow you to be on your own personal coach. 

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To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

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JF2235:The 5 Types of Millionaires | Actively Passive Investing Show With Theo Hicks & Travis Watts

Today Theo and Travis will be going into the five different types of millionaires. This is based on a recent blog post that Travis shared on the www.joefairless.com site. Be sure to check it out when you have time.

Click here for more info on groundbreaker.co

We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 


TRANSCRIPTION

Theo Hicks:  Hello  Best Ever listeners and welcome to the Best Real Estate Investing Advice Ever show. I’m Theo Hicks and we are back with the Actively Passive Investing Show with Travis Watts.

Travis, how are you doing today?

Travis Watts: I’m doing great, Theo. Happy to be here as always.

Theo Hicks:  Today, we are going to be talking about another great blog post that Travis wrote called The Five Types of Millionaires. Did you know that all millionaires are not the exact same?

Travis did a really good job breaking down the differences between the different types of way, in a sense, you can be a millionaire. Obviously, you can apply this to being a billionaire, $10 million, but I think the concepts apply across the board. I’m going to let Travis kind of walk us through these one by one and then I will come in and kind of get my thoughts on each one.

Travis, as usual, I know you like to start off by explaining why you wrote the blog post, so explain that first, and then we can go into these five different types of millionaires.

Travis Watts: Sure, you bet. Happy to get started here. Thank you again, everybody, for tuning in. These are awesome. Just once a week is perfect for me and kind of gets that creative flow going, so I can make these types of posts.

Theo pointed out this is about the five types of millionaires. I started a study a few weeks ago on just learning more about millionaires in general as far as the stats and the facts. In fact, Dave Ramsey’s team did a great study. It’s called The National Study of Millionaires. I bought that from them. It’s all these stats and facts, which is kind of cool, but it doesn’t really explain anything. It’s just data, basically.

From that, I’m sure we’re all used to hearing generalizations about millionaires, right? Oh, it’d be nice. They’re a millionaire, or it’d be nice when I’m a millionaire… But what does that really mean? What type of millionaire are you or do you want to become? That’s kind of what inspired this post, is thinking outside the box and deciphering and distinctions between the different types.

With that, I’m sure there is more than five, but I took five common categories from what I’ve experienced in my life and just kind of what came to mind. I’ll kick it off on number one – the first type of millionaire that exists would be making a million dollars per year, or potentially greater. This is interesting because, of course, this isn’t the net worth definition. This is the income definition of a millionaire. But here’s the thing to think about – I point out in the blog, imagine that you make $1 million exactly in W-2 income or through a salary, through earned income, basically, and you spend $600,000 that year in lifestyle expenses; for housing and fun and vacation, whatever you do with your money.

Well, that would seem on the surface, like you’re living below your means, right? You make a million, you spend $600,000. That’s awesome. But you can’t forget about taxes. We all know that federal tax and state tax and so many types of taxes; payroll tax… You would at least be paying about 40% of your income in taxes. In some cases, up to maybe 60%, depending on what state you live in and what that state tax is. California, New York, high tax states, for example, as opposed to Wyoming or Florida.

The point is, you’d be broke. Yeah, you made a million bucks this year, but you spent $600,000 and after taxes are factored in, you’re left with zero or sometimes negative; you might actually end up owing more money than that.

We all know the celebrities and the lottery winners and the professional athletes that make millions of dollars and all of a sudden, they’re broke. How does that happen? Something to think about is if you strive to be that type of millionaire or you are, you must have a good grasp on your personal finances and a good understanding of taxes, and how all of that work. That’s number one type of millionaire. Theo, you’ve got any thoughts on that?

Theo Hicks:  Yeah, this gets back to the episode we did about your spending habits and how it’s the house, the car and the food… And when people think of living paycheck to paycheck, they assume it’s someone who’s making somewhere around the median US salary or lower. So maybe they make 40 grand a year and if they were not to receive a paycheck, then they wouldn’t be able to cover their living expenses. Kind of what you’re explaining here is that’s not necessarily the case. You can be a millionaire, you can be 10-millionaire or 100-millionaire and still fall in that same category. Surely, it might seem because you’re making all this money that you aren’t living paycheck to paycheck, but I think there was one of the articles you wrote how there was one celebrity that had spent some insane amount of money per month on wine, I think is what it was.

Travis Watts: Yeah.

Theo Hicks:  Yeah, that’s what it was. That’s kind of an example of that, just because you’re making a lot of money doesn’t necessarily mean that you aren’t broke, you aren’t living paycheck to paycheck. That’s what Travis just said. That’s kind of what this one reminds me of here.

Travis Watts: Just real quick, to cap off number one here, I was holding in my head these two extreme thoughts of, you have a person like Johnny Depp or a Mike Tyson – I think he made 300 million in his career and ended up middle-aged broke. You’ve got that. And then you’ve got folks that are part of the F.I.R.E Movement that save up a million or maybe 2 million and that lasts them infinitely, through a lifetime, and they end up dying with more than what they had at age 30 or 40. Quite extreme, and that all comes down to the personal finance side. So great point.

Jumping into number two is save your way to a million. This was certainly the thought process to my parents, being that they were very frugal and whatnot. It was just living below your means for life. That was the strategy. It wasn’t until later on in life that investing kind of became a thing for them.

What I point out here is let’s say you earn $100,000 per year in a salary. That’s your income. You’re going to pay roughly $30,000 in taxes per year. Let’s say that you live frugally. You live below your means. You’re going to live on let’s say $40,000 per year, though you make $100,000. Well, that gives you an opportunity to save about $30,000 per year. That’s what would be left over.

So if you’re going to save your way to a million given those circumstances, that’s going to take you a little over 30 years; it’s 33.3 years to get to a million which is fine. I’m not bashing that method, except for, it’s very lengthy, time-consuming… We all know that things come up in life whether that be a divorce, a tragedy, hyperinflation, who knows what we’re going to see in the next 33 years.

And then to think — let’s say that inflation speaking to that topic, as the Fed’s trying to keep it in the range right now… Let’s say it’s 2% a year, just to give a conservative low average. Well, two times 33.3 is 66%, almost 67%. Meaning, when you finally get there, it’s been 33 years and now I have a million bucks in the bank in cash – well, it’s worth 66% less, because it’s been killed by inflation. And we all know you’re getting nothing in the bank these days. So something to think about in terms of saving your way there. It is really a commitment, a working career or almost a lifetime of living below your means and living frugally, which, like I said, my parents did it, a lot of people do it, not bashing it, but just be aware of the realisms that come around thinking that through, if you will.

Theo Hicks:  Yep, exactly. Then, as you mentioned, and we’ll talk about later, I think it’s number five, that’s a good start, but you need to then do something extra, rather than just having that money sit in the bank and make 0.1% interest or whatever. That’s all I’d say about that one. I think we’ll get more into this one in number five.

Travis Watts: Yeah, 100%. It’s a pretty basic concept. We all know what saving looks like and how that works.

Number three would be owning a million-dollar house. Now, I have to admit, I was guilty of this at one point. As I began my home ownership journey, it was get a little bit bigger, a little bit bigger, a little bit pricier, a little bit pricier… And as my wife and I were kind of heading up that path, that ladder, so to speak, it kind of got silly, because it’s just the two of us, for us, we don’t have kids, at least not right now… So it’s like, so what’s next? Do we need more spare bedrooms for the few people that visit each year? Do we need an overpriced downtown place just to keep paying more? Like, what’s the point here? We just keep upgrading and upgrading for what reason?

A lot of people get in this trap. In fact, I have some family members that their house kind of owns them. They have a beautiful home, a multi-million dollar home, but they have to keep working throughout their 60s because, what Robert Kiyosaki points out, “An owner-occupied house is a liability. It’s not an asset.” And why that is, is even if you have a paid-off million dollar home, $2 million home, you name it, you have property taxes you’re responsible for, you have insurance, you have maintenance, you have upkeep and the utilities, everything is more expensive on a more expensive house. It keeps you kind of in the rat race, it keeps you kind of in the grind. What are you going to do to make money to pay for that liability? It’s either working a job or having investment income, which we’ll get to later.

But I fully recognize home ownership is or was the American dream and there’s nothing wrong with it. But at some point, you probably need to question how much of your total net worth is tied up into an owner-occupied home? What is that really doing for you or not doing for you, financially speaking? That’s number three.

Theo Hicks:  [unintelligible [00:12:59].22] similar to number two. I’m not disagreeing with what Travis is saying. I’m saying what you need to do is that extra step. I’ll just use a friend of mine, for example. He has his house, that’s not a million-dollar house, but rather than simply paying off the house or rather than keeping a high amount of his money in his house, whenever he’s able to, he’ll do a refi or he’ll do a HELOC, a Home Equity Line of Credit, so you can pull the money out of that house rather than it just sitting there, and then using that money to buy more real estate or to invest in something else.

Best Ever listeners, everyone’s heard of this strategy before. There’s the BRRR strategy. There’s strategy where I ask people how they get started, “I took a home equity line of credit against my house”, but the point here is that similar to saving up a million dollars is great, but what are you going to do with that money? Having a million-dollar house could be fine if you were using that equity towards something else, as opposed to having a million dollars just sitting in your house. So for a lot of these, they could be either really bad or they could be not as bad if you’re using them the right way, in combination with number five and number four or investing actively in real estate, which is what we’re going to get in a second in four and five.

Travis Watts: Yeah, 100%. 100%. Finally, what we haven’t been discussing is the investing aspect of being a millionaire. Unfortunately, we all know this, this isn’t trained in school, you likely didn’t get training from your parents, maybe you did, but most don’t… So this is kind of self-taught.

When we talk about investing, I’m on number four now, it’s invest a million dollars or have a million dollars invested in equity investments. I define the two between equity and income. Equity is like, I’m gonna buy a stock at $10 per share and hope that it goes up to 15, or I have reason to believe it’s going to 15, whatever that reason is. If it does, I’m going to sell it, and then I have a capital gain. I’ve just made 50% on my money or whatever.

Another example would be flipping a house. Okay, I’m going to buy a house at $100,000, I’m gonna put 25 in. I think it’ll sell for $200, 000 in and after all of my selling commissions etc. I’m going to profit some money there. That’s equity investing, and hey, I’ve done it. We’ve all done it. You’ve done it, Theo. Everybody kind of does this in one form or another. But the thing to think about long term is it requires our time, it requires an active commitment to this. If you’re flipping homes and you decide one day, “Hey, I’m 60 years old, I don’t feel like flipping houses anymore” then your income is done; or at least if you outsource it, it’s going to dwindle and go down. There’s ways around that, but that’s something that I point out in the blog, is that—again, I’m not necessarily advocating or bashing any of these, I’m just pointing out things to think about… And most people, statistically speaking, when you say invest, they think buy low, sell high. That’s what investing is. But it doesn’t have to be that, and that’s what I’ll get into in number five.

Theo Hicks:  If you don’t mind, can you do number five first, because they’re kind of connected, and then I’ll chime in.

Travis Watts: Yeah. Number five is investing in income-generating assets. Instead of the buy low, sell high, which may be part of the equation that you’re hoping to achieve, but it’s not the primary focus… The primary focus is cash flow, it’s interest, it’s dividends, it’s passive income, it’s things where you go park your million bucks and then hopefully you’re getting back, let’s say $100,000 a year in some form of passive income, just to use a simple example. Things like this could be buy and hold real estate, rather than flipping; REITs (Real Estate Investment Trusts), bonds, CDs, tax liens, ATM machines, producing oil wells. There’s so many different assets out there. But the point is, truthfully, you should probably care less if the value goes up, because that’s not the point. The point is the income, and the beauty of number five and investing in income-generating assets is that you have the ability to live on that income. That’s real passive income. You can choose to change your lifestyle, or enhance your lifestyle, or retire one day, if that’s your goal, or work part-time instead of full-time. We talk about this a lot, obviously, the actively passive show here.

This is where financial independence is built, in my definition anyway. It can be built in steps of all five of these, but ultimately, it’s having more passive income than you have lifestyle expenses. When that exceeds your lifestyle expense, you have a lot of freedom and flexibility there, hence the word freedom in the definition. That’s number five and the last type that I pointed out in the blog.

Theo Hicks:  As Travis mentioned multiple times, falling into any of those earlier categories isn’t necessarily a bad thing. It could actually be good if you are using that million dollars the right way. So kind of just taking it step by step.

Let’s say you make a million dollars a year, so you fall in the category number one. And then in Travis’ example, if you spend too much money on your lifestyle expenses, then you’re going to be broke, you’re going to be living paycheck to paycheck. So maybe the first thing to think about is okay, well, how can I move from number one to number two? How can I go from spending 600k a year to spending 30k a year or $300,000 a year, or whatever that number is; that way, the extra money that you’re saving up — but okay, well, that might take a long time, to save up a million dollars. So rather than just continuously saving it, take that capital and invest it into number fours and number fives.

Same thing with your house. If you’re number one and number three, obviously you can start saving money, but then you can say, “Well, I’ve got all this equity in my house that’s not really doing anything. Sure, my monthly payments outgoing are lower, but what if I could get a home equity line of credit, and then whatever that payment is, is less than whatever return I can make with that money? Well, then it makes sense to do number four and number five.”

As Travis mentioned, the goal would be to ultimately get to number four and number five, because of the fact that you don’t necessarily have to put in a lot of active work in order to make that money. Because if you think about it, number four and number five, they can kind of go either way. You can be an active equity investor or an active income investor, or you can be a passive equity investor and a passive income investor, right? A lot of people that I’ll talk to on the show, they’ll be fixed and flippers, so they’re the active side, but then they’ll have people who invest in the fix and flips. Those people aren’t actively doing the day to day fix and flips, but still at the same time they’re not making an ongoing cash flow and say, “Hey, I’m going to give you 100k and then a year from now I’ll get my 100k plus some return back,” which obviously is fine if that’s what you want to do.

Whereas on the other hand, you’ve got the income investments, right? That could be a buy and hold investor where I buy properties, I fix them up, I hold on to them and I generate cash flow… Then I can have someone passively investing in those, like passively investing in an apartment syndication, where someone’s actively generating an income, so they could also be number five; or you could be the person to just in passively invest into this and then you can make that income without having to do anything.

I guess my point is that number four and number five are similar, but they are also different where you could have an active and a passive component to both. I’m sure everyone’s ideal world would be number five, you invest money into some income-generating investment where you can live off of this income that’s coming in that you are literally putting maybe an hour or a month into.

Number five would be the ideal if the goal is ultimately to have money coming in to cover all of your expenses and more, without you having to do anything else.

Travis Watts: Yep. I feel like everybody kind of touches on maybe not all these categories, but probably most, throughout a lifetime, whether it’s just setting goals, “I want to make a million dollars a year,” or, “I want to have a million-dollar home,” maybe that’s a goal, or maybe it’s saving to the million. Maybe that’s how we start with our mindset, and then we get into maybe some equity investments. And then as we start earning more money, then we get into some cash flow investments, and then one day, we’re older, and we retire and we need cash flow, and we kind of maybe end up in number five. It’s different for everybody. Again, it’s not right or wrong. It’s just not black and white thinking here. It’s just to point out different observations, different ways to look at this. Yeah, I love those points. Thanks for pointing those out.

Theo Hicks:  One last thing which I’ve kind of hinted at, but I kind of want to explicitly say is that, as Travis said, everyone has at some point been near one of these categories; maybe it’s not a million dollars, but everyone makes money somehow, everyone saves money somehow, most people have a house, maybe it’s not a million-dollar house, most people have invested in equity and income investments before… An important thing to understand, based on what you said about the step by step process is just where are you at right now? If you don’t fall into any of these, then maybe you can skip some of the steps that Travis has talked about has some cons to it, and go straight into the pros. Whereas if you’re already someone who makes a million dollars a year or someone who’s already saved up a million dollars a year, it doesn’t mean you just quit your job. “I’m not going to work anymore, because Travis told me not to make a million dollars a year.” It’s kind of understanding where you’re at right now. If you’re in number one or number two or number three, then you can do a certain thing. If you’re in neither of these, then you can just kind of jump straight to number four and number five.

Travis Watts: Exactly. Again, our other topic the other week was about self-awareness. I point out in the blog, whether you are a millionaire today or you’re trying to get there… Let’s say you already are – well, maybe you could reevaluate what it is you’re trying to pursue and why that is. I used the example of our house with my wife and I; bigger, bigger. But did that make any sense? Not for us, so we actually went smaller, smaller, smaller, smaller and we took the equity out of our home and invested it. Because I decided that category five was really the approach that we wanted to take more so than it was category number three.

If you’re trying to get to become a millionaire, maybe again, kind of recalibrate here – why is it you want to get there, and through which method do you want? A lot of people I don’t think even would realize, with number two, saving a million, how long that really would take and what that really would look like as far as the numbers, and then additionally thinking about inflation over that same timeframe. There’s a lot of things to think about there. But that’s really all I got. That’s what the blog is, there’s some more details in it, so check it out. It comes out tomorrow, I guess.

Theo Hicks:  Perfect. The last thing I’ll end with, which is the quote in the blog, which kind of relates to what you were just saying about having awareness, like, what do I actually want? Why do I actually want to be a millionaire? The quote is that, “You can be rich by having more than you need or by needing less than you have.” By being aware, maybe you don’t need to be a millionaire, maybe you don’t need the million dollars to be rich, because it’s going to be relative to what you want. Maybe thinking about, “Okay, well, do I need to keep doing more and more and more and more or can I realize what my actual expectations are, my actual needs and wants are, and then build my goals around that?” as opposed to just kind of arbitrarily saying, “I want to be a millionaire,” and then saying, “Okay, well, I’m a millionaire. What am I going to spend my money on? I want to do this, this and this.”

Travis Watts: 100%. One thing I want to end with – I was just flipping through my notes here. I talked about this before, I think it was on our Actively Passive Show, or maybe not, but… My wife and I, after studying the F.I.R.E Movement and stoicism and all these different things, we sat down to think, what are the things that make us happiest in life? I’m not going to share all of mine right now, but I’ll share a few just as an example, and I’ll tell you why. Out of my top 10 it’s sleeping in, one on one time with my wife, with friends, with family, learning something new and educating myself, helping others in things that I’m also passionate about, music, concerts, exploring new places, finding a good deal, relaxing, resting.

The point is, does any of that really take any money? To your point, maybe we all don’t need to be deca millionaires or billionaires, maybe it’s just focusing on what makes you happiest and finding a reasonable way to get there. A big part of our passive journey has been about travel, and it’s on my top 10, ranked one of the highest. For us, we use our passive income to travel. For us, that’s just one thing that we thoroughly enjoy. It’s just, again, self-awareness, running through a quick easy exercise like that, what are the 10 things that make you happiest on a daily, weekly, monthly basis, whatever, and then realizing that, hey, private jet isn’t on here, an 80-foot yacht isn’t on here. That kind of stuff. You can get a lot out of life with a little, to the point of the quote too, needing less than you have.

Theo Hicks:  Perfect. I think that’s a good way to conclude, Travis. Thanks again for writing the blog post, sharing your wisdom with us and for joining me today. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2234: 5 Ways to Immediately Improve Your Mindset | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares some of the most valuable mindset tips he has taken away from some of the recent interviews he has done on the Best Ever Show. Stay tuned in as Theo shares some golden nuggets to help you improve your mind so you can handle stress and grow.

Click here for more info on groundbreaker.co

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to another episode of The Syndication School series; a free resource focused on the how to’s up apartment syndication. As always, I am your host Theo Hicks.

Each week, we air a syndication school episode that focuses on a specific aspect of the apartment syndication investment strategy. For a lot of these past episodes, especially the first 50 or so, we’ve given away a lot of free documents. So make sure you check those out, those episodes as well as those free documents. All that is available at http://syndicationschool.com/.

Today we are going to talk about some mindset tips, some habit tips that I learned over, say, the previous three to four months of Best Ever interviews. I wanted to give you a preview since none of these have aired yet, and make sure that you are able to hear, to be knowledgeable of what I think are some great mindset tips without accidentally missing them in the future.

Obviously, the purpose of this comes down to the idea of 80% psychology, 20% mechanics is the key to success. You can spend hours and hours and hours working on your business, you can have the best systems in the world, the best technologies in the world, the best mentors in the world. But if you don’t have the right mindset, then well, you’re most likely not going to be taking smart action, the right action to move you forward.

We’re going to go over five different ways to improve your mindset. And then obviously our habits are also tied into our mindset, because in order to improve our mindset, we need to change from bad habits to good habits. I think those two go hand in hand, which is why some of these are more specific to mindset, other ones are more specific to different success habits.

The first one is from an interview I did with Chris Benson. He talked about a concept called “The cool guy list”. Obviously, this could be a “cool girl list” as well. So the “cool guy and girl list”. What is this?

Well, Chris says that whenever he encounters someone who he’s impressed with, he writes down their name in a little notebook that he has. This is his cool guy list. It’s a running list of people who he thinks are very impressive. These are the people he’s met personally, these are people that he’s listened to on a podcast, maybe somebody he came across on the internet in some other form, maybe it’s an author that he read, a blog post that he read. Anytime he comes across something interesting, something unique, something that fascinates him, something that impresses him, he writes down the person’s name. And then he will then follow up with this individual on this list. He didn’t say the frequency, so I’d kind of just say maybe once a year. Then he will ask this individual what new opportunities they see on the horizon. So what is their future outlook on whatever they specialize in. Then based off of this conversation, Chris will then make changes and adjustments to his business accordingly.

Now, one thing that he did add to this is that another benefit of the cool guy list, besides new strategies to implement into your business is that if he were to lose his job or decide to leave his job and pursue something else, then he would open up his cool guy list. And he would literally travel to each individual on the list and then work for them for free for one month. That way, he can see firsthand what they’re working on, what these new opportunities are. I thought that was interesting.

Next would be kind of similar to this a little bit, but Ryan Growney… And his is talking about adding value for free. This is another habit that we focus on here at the Best Ever Show, Best Syndication School show when we talk about adding value to others for free with the expectation of nothing in return, whereas in reality, you are getting something in return. The example that I always give is when I first started working for Joe; I worked with him for free for a while and eventually got hired on full time.

Ryan Growney’s example is very fascinating, because he gave something away for free that most people would probably charge a lot of money for. What he did is created a custom, built from scratch database of all of the mobile home park owners in the country; their contact information, the property they own, things like that. And then whenever an interested person comes to him and wants to get into mobile home parks, then Ryan will give them access to his database for free. In return, Ryan asks that if they are able to secure interest from a mobile home park owner, then Ryan gets a first look at that deal. If he doesn’t want to buy it, then he will then help this newbie buy it themselves or wholesale it.

From the perspective of the newbie, the benefit is access to an amazing database, right? But also, they can use it as practice for cold calling, since they most likely aren’t going to even get the deal in the first place. Obviously, Ryan benefits by the leads that are generated. That’s more a specific example of giving away an actual service but be creative based off of what you’re capable of doing when it comes to adding value for free.

The simplest way is just answering questions on various social media and BiggerPockets types of websites, or all the way up to clearly giving away a consulting program in a sense for free, following Chris Benson’s cool guy list and working for one of those people who impressed you for free. All these things will help you not only improve your mindset, but also give you more business opportunities as well.

This next one is actually specific to mindset, but also habits it as well. Whenever I talk to someone on the show and they are a mindset expert, they’re a coach or they are just giving some sort of advice on how we need to think in order to be successful in real estate – okay, I understand the concept, I understand what you’re saying. But I understand that people have limiting beliefs, people have bad habits, and that we need to get over our limiting beliefs and replace our bad habits with new habits… But how do we actually do this? I get the what, I get the why, but how do we actually do this? What can we start doing right now, that will enable us to move from bad habits to good habits?

One really unique way that I really liked was from Vaughn [unintelligible [00:10:30].04], I think his last name is. He said that whenever he works with his clients on mindset issues, he tells them that rather than just do journaling or meditating or attempting to improve their mindset and habits just by themselves in a vacuum in their room, they need to enlist the help others. The specific examples that he gave was that you want to go to someone who knows you really well, maybe this is your business partner, maybe this is a family member, a significant other, someone who knows you really well… And then ask them what they think are your limiting beliefs and self-destructive behaviors. This can be applied to me really anything; your personal life and your business life, really anything. Any aspect of your life that you’re not achieving in or not achieving the level you want to, it’s likely because of some bad habits that you have. If you can get an objective third party to analyze you and tell you, “Hey, the reason why you’re not finding more deals is because you aren’t cold calling enough,” or, “Maybe the reason why you’re not having the energy to work long hours is because your diet is really bad and you’re not working out enough, or whatever.”

These things are probably obvious to us, once they are said, but oftentimes, we are unaware of the things that are holding us back, or we are making excuses for the things that are holding us back.  I know, for me, a big thing is like I eat on the  ago, “I’m still young, I can eat whatever I want to and it’s fine.” No, that’s not necessarily how it works. Sometimes, I need my wife to tell me that, “Hey, babe, you’re getting a little round around the waist,” in order for me to realize that this is a bad habit.

Now, if you’re trying to apply this to business, it’s probably better if the person who’s helping your enlisting is more successful than you. Because you don’t want to ask someone who’s also having problems in their business, or are not where you want to be, and ask them, “What’s holding me back?” Just because, well, the same thing is probably holding them back as well. So ideally, a person more successful than you. But still, at the same time, at least from what I’ve noticed, some people are able to give advice on how to improve, even though they don’t actually act on that advice themselves. It is possible, but ideally, the person is more successful than you.

Vaughn says that just the act of being aware of these bad habits – and by awareness, I mean, not you becoming aware of them yourself, but someone telling you about them; just that alone will begin the healing process.

The next step, he says is to figure out the reason why you are doing that bad habit and then ask yourself if that is actually true or if it’s some story you created. Go back to my example with eating. I say, “Oh, well, I’m young, I can eat whatever I want to and I’ll be fine.” Well, is that actually true? Obviously, that’s not true. You need to—at this point, he says, “Change this story from a false story that’s creating the self-destructive habit to a good story, a positive story that results in a good habit.” That was Vaughn’s advice. I really liked that, very powerful advice, I think.

Then next would be Madison [unintelligible [00:13:52].04], and she gave advice on actually forming a new habit. Let’s say I follow Vaughn’s advice. My wife keeps telling me how I’m getting bigger and I need to change my diet and start working out more. How do I actually start changing my diet? How do I actually start working out more? That’s kind of first step again, is awareness relative to what I need to do, but how do I actually start doing it?

Madison gave really good advice on how to start new habits. She says that, “Rather than telling yourself you’re going to do something forever, just tell yourself that you’re going to do a five-day experiment.” ‘I’m going to eat clean for five days, no matter what.’ ‘I’m going to work out every day for five days for 10 minutes or whatever.’ Not forever, not for a month, not for a year just for five days. Not only does this most importantly help us start something, because not as overwhelmed with the idea of doing it forever, but also it will help us avoid doing something for a long time that is not going to work, that is not a good fit for us.

She says that after these five days, do a post mortem analysis to determine if the new habit you formed is working and is right for you. For her, she says that this comes down to how you intuitively feel about it. You don’t need to force something that’s not going to work, right? There’s millions of different workouts—if you kind of follow my analogy, there’s a million different diets you can do, there’s a million different workout programs you can do. Not every single one is going to work for you, right? Just like there’s a lot of different mindset techniques that you can do, a lot of different real estate business plans that you can do, which I guess that wouldn’t really work for five days… But the whole point is experimenting on things, as opposed to just telling yourself you’re going to do them forever.

I think a really good real estate example would be—I was interviewing someone yesterday, and he says that he has active business and then whenever he’s interested in a potential new active investment (maybe he wants to get into multifamily), rather than researching multifamily, finding the right market, building a team, buying his deal, going through that entire process, which could take two, three years, maybe a year, maybe six months depending on where you’re at, but not immediate… Well, what happens if you spend all that time and you don’t like it? Well, you’ve wasted—in a  sense, not wasted totally, but you’re three years later and now you need to figure out what you want to do next. Whereas instead, what he does is he tests different types of business plans by passively investing in them first. Because passively investing in multifamily requires a lot less effort, a lot less knowledge than actually doing a multifamily deal yourself. For something like that, it is obviously more than five days, but thinking of ways to test things out before going all in.

Lastly, and this is more of a goal-setting technique, is the rocks, the pebbles ad the sand concept we’ve all heard before, but this is from Steven Davis. The concept goes, “If you want to fill up a jar with as many rocks, pebbles and sand as possible, while you put the sand in first, and then you’re not going to really fit any pebbles or rocks in there at all. Whereas if you put the pebbles in first, then sure you can put sand in, but none of the rocks are going to fit. The best way is to put the big rocks in first, and then put the little pebbles in, and those will all kind of trickle in around the bigger rocks and then pour the sand, then it’ll fill in the rest, and then the entire jar will be filled with the most amount of rocks, pebbles, and sand.”

Similarly, when we are setting our goals, we need to prioritize them based off of this concept of the rocks, pebbles and the sand. For Steven, the rocks are the one to two major outcomes for the quarter, for the year, for the person’s life, for whatever, whenever you’re setting a goal in and whatever the length of that goal happens to be. Then once he has those big rocks, the next steps is to fill in those goals with the pebbles. These are the smaller monthly goals, the smaller weekly goals that you need to accomplish in order to ensure you accomplish your quarterly or yearly goals. Lastly, would be the sand, which is the rest; the things you need to do every day in order to achieve those big goals. If you do the opposite, if you focus on just doing the menial daily things like replying to emails, well then you don’t have the big picture in mind. Obviously, monthly goals are great, but yearly goals are the best.

An interesting twist that I put on this would be to actually each quarter buy a rock, buy a boulder if you want to, and put it in your office and then in permanent marker write down whatever your goal is for that quarter. That way, not only will you see your goal, but you will also see the rock to remind you of the reason why it’s your goal, as opposed to maybe just writing it down, which is great, but I think tying it to a story of the rock pebbles and the sand would help you achieve that goal even more effectively, more likely.

Those are the five interesting success habits, goal setting tactics that I learned over the previous three months, and I think I will start doing episodes like this a little bit more often just to kind of condense a bunch of episodes, the best advice from a bunch of episodes into one. Because I feel more, like — some people talk about raising money with social media, others talk about ways to scale businesses… So keep a lookout for more of those in the future and let me know. You can always email me at theo@joefairless.com, if you really like a certain thing that we’re doing, sp we can keep doing more, or if you don’t like what we’re doing, so we can stop doing that, or anything that you want us to start doing. I’m always open to feedback.

Until then and until next time, thank you for listening. Make sure you check out some of the other episodes and free documents at http://syndicationschool.com/. Have a best ever day and we’ll talk to you tomorrow.

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JF2228: Are You A Passive or Active Investor | Actively Passive Investing Show With Theo Hicks & Travis Watts

Today Theo and Travis will be sharing the difference between active vs passive investors, the common personality traits found in both, and why you should get started right away.

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We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.


TRANSCRIPTION

Theo Hicks: Hello, best ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today we are back for another edition of The Actively Passive Investing Show with Travis Watts.

Travis, how are you doing today?

Travis Watts: I’m doing great, thrilled to be here as always.

Theo Hicks: Thanks for joining me. Looking forward to our conversation today. We are going to talk about what type of investor you are. This is going to be based off a blog post that Travis wrote. The three things we’re going to talk about is first, figuring out what the two types of passive investors are, what the characteristics are of each. And then based off of that, we’re going to talk about the second part, which is becoming self-aware of your personality, to see if you’re more conducive for one or the other. And then lastly, we’re gonna also talk about understanding your risk tolerance. All about self-awareness, all about understanding based off of who you are, if passive investing or active investing is ideal for you.

I’m going to let Travis take over for each of these sections. First, Travis, tell us about the differences between the passive and the active investor.

Travis Watts: Sure. Well, first of all, I’m very excited about this particular topic because the name of our show, The Actively Passive Show, so we are talking about the active side, the passive side… Trying to reel it in and bring it home. I know sometimes we get on these rants and tangents of celery juice and other topics, but this one’s spot on.

I think I titled this “What type of investor are you: A quick guide to self-awareness”, which I’m a big advocate for. I think the more self-aware you are, the better decisions you’ll make and the more in line with your goals you’re going to be. That was really the intent, is to help people uncover what may be right for them.

To your point with that, yeah, the first section that I point out is painting the picture. Of course, I go into much more detail on the blog, but I’m just kind of bullet pointing and recapping here… Active investor mindset versus passive investor mindset, and a few things you might pick up on that resonate with you.

As I go through this really quickly, just think to yourself which one resonates most with me and why that might be. I’ll start with the passive investor. I’ve just got a few bullet points, and of course, these are generalizations; everybody’s unique, different, you may be a combination of both… In fact, to be quite honest, most people are a combination of both active and passive. I’m the extremist, being I was full active, now full passive, but you don’t have to be that.

The passive investor often lacks the time to frequently monitor their investments. I say this all the time through podcasts; the doctor, the dentist, the lawyer, the attorney, and in my situation years ago, the oilfield worker – career-focused. Yes, I was doing the active stuff. But man, it became very difficult to find the time to do that when I was so career-focused.

Number two would be enjoys reading financial news. You do have a vested interest in investing. Being passive doesn’t mean you tune out and you look the other direction, and you just put money in a 401k, and you’re done. That would not fall under these categories the way I’ve laid them out.

The next thing would be likes to own a little bit of a lot. Hence the private placements, the syndications being a 1% or 2% owner perhaps in an apartment complex. Also, you can relate this to stocks, this may be more of the index fund investor that likes to own just a little bit of all the companies and not necessarily cherry-pick and handpick their favorites

At the end of the day, and to that point relating to stocks, seeks to match but not necessarily beat the market. You want to be in the game, you want to be participating, but your real goal isn’t to say, “I’m just going to annihilate the competition out there. I’m the best of the best.” It’s just to be in the game at the end of the day.

Now, let’s switch over to the active mindset relating to real estate and stocks, and any other asset class. The first thing would be “Likes to create their own unique strategy.”

My first property when I was active full-time was a unique strategy. I had found this undervalued two bed, one bath, I thought I’m going to move in as an owner/occupant. I’m going to rent out the spare bedroom. I’m going to make it fully furnished. I’m going to custom hand pick out all these things I can find frugally on Craigslist. I was kind of custom designing my own strategy that I felt was competitive among what I was seeing out there online, and among the competition.

Number two, doesn’t necessarily value diversification. What I mean by that is often the philosophy or the mentality of the active investor is put all your eggs in one basket and watch the basket closely. I don’t know who coined that term or that quote, but that kind of resonates here. You’re probably, in terms of real estate, doing active deals in your own local market, so to speak, not necessarily doing them across the US.

Number three, seeks control over his or her investments. You like to be in control, you like to call the shots, you like to make the decisions. That’s a huge component to being active. I enjoyed it for a while. You may have, as I pointed out, a unique skill or an upper hand in the marketplace, whatever that may be; you may be self-reflecting and thinking, “I can do this better than what I see other people doing it as.”

Last but not least, you essentially seek to beat the market, not just participate in it. You think, “If I do this myself, I’ll have higher returns, I’ll have more reward coming from it, because I have that unique ability to get out there and do it myself.”

I’ll pause there to not get too long-winded, but that’s kind of the active and the passive mindsets and the difference between the two.

Theo Hicks: Yeah, I couldn’t agree more. And I’m thinking back that the book I’m working on right now; I’m not sure exactly what the title will be, but it’ll be focused for passive investors. And that’s essentially exactly how we, in the book, define the differences between the two.

The categories for me were you mentioned control – so the control is going to be different… We’re gonna talk about it a little bit later, but the risk is going to be different. The time commitment and feasibility is going to be different. And then the returns, like how much money you’re going to make is going to be different between the two. I think those are the four main categories that will show you what the differences are between these two.

Okay, so now we know what each of these are. The next step is to look at the different personality types or to become aware of our own personalities, to see which one we are naturally a better fit for.

Travis Watts: Exactly. As I was writing this, it felt a little two bullet-pointed and analytical for me. This is kind of the portion of my article or blog that I go into a little bit of story mode. And this is the self-reflection piece more than anything. The whole blog is about self-reflection, but this is thinking back to, for example, your childhood. Where did you develop your beliefs around money and around finance? How do you respond to financial situations?

Let’s say that you own a bunch of stocks, and then you tune in to your phone tomorrow, and they’re down 30%? What does that mean for you? There’s folks on every side of the spectrum, people who could say, “Eh, markets go up and down whatever,” and people that freak out and say, “I’ve got to sell everything. I’ve got to get out of this market. I’m panicking.”

It’s great to be able to be self-aware of that, because you may be in the wrong asset class all together, you may be using the wrong strategy all together. It’s thinking through, and I point out a few examples, things to think through there, on the personality. For me, on a side note, I was raised by two very frugal parents. I’ve always found a lot of confidence and peace in the ability to save and to buy things below value. That sits really well with me.

As I was in the stock market at one time with a lot of my portfolio, I learned pretty quickly I can’t stomach the ups and downs. It was so unsettling. I couldn’t sleep at night. I wasn’t in panic mode, where I was about to sell everything, but I was uncomfortable. It was like this rain cloud over your head all the time. I got addicted to staring at my computer or phone, whatever it was, and I just couldn’t not do it. If it were down 30%, I had to know the next day, was it up or did it fall more? If it fell more, I’m really sweating bullets. If it went up, of course, it wasn’t enough, right? It needs to go up more. So I’ve got to tune in the next day now and see if it went up even more. It was a waste of my time number one, and it was taking a toll on me.

I found that private real estate, whether that means active in my own single-family homes that I used to own, or private placements, that you don’t know the value for a number of years unless you’re constantly getting appraisals done. That sat well with me. I loved the set and forget for a period of time; not set and forget for life, but for maybe three to five years. I will check in on it at that point, we’ll make a decision as needed. That’s kind of what that section is, is just self-reflecting on yourself and how you handle finances and investing.

Theo Hicks: Yeah, this is a very important section, I think; we could definitely talk about this for a full episode. But from my personal experiences, I can definitely relate with you when it comes to that cloud over your head. Because as a lot of best ever listeners know, when I bought all those fourplexes a few years ago, and I was self-managing them, and ever since I bought my first duplex, whenever I owned a rental property, it’s really—I wouldn’t say I was constantly thinking about it, but whenever I thought about it, it was never a positive feeling. I always had my phone, and when my phone rang, it was like, “Is this the tenant telling me the house burned down?”

At first, I thought that it was going to go away, I’d get used to it. I kind of did in a sense, but it never fully went away. So kind of, as you said, with the stocks versus some sort of passive investment, when you’re the active person who’s managing it, you have the ability to, as you mentioned, figure out where it’s at every single day. Whereas for passive investments, it’s you invest, and then you’re getting monthly updates, or you don’t even have access to getting the value and you don’t control the entire asset. The way you think about it, it’s definitely different.

And the getting used to it part because it is kind of two different ways to look at it. It’s either “Okay, so I’m self-aware that I react negatively to ups and downs in the market”, or for my case, I reacted negatively to my phone ringing, whenever I think it’s a tenant. So on the one hand, should I figure out why I feel that way and try to get over it or do I just try to take advantage of how I naturally am, in order to find the best investments. I think you can kind of go either way.

I’ve talked to people on the show who were a bundle of nerves when they first started investing. And then now they at least say that they’re not a bundle of nerves. Whereas other people say that “I started this one type of investments, and I didn’t like it, it made me too anxious, so I did something else that I was more comfortable with.” So kind of just being self-aware also of your ability to potentially change the way you react to these things.

I think Travis said it best, which is just see how you actually react to things in real life as they happen, as well as reflect on how you reacted to things a year ago, two years ago compared to how you react to them now to kind of see if there’s any evidence that you’re able to change your reaction to things.

Travis Watts: 100%. And I was exactly like you when self-managed real estate. I started very confidently, because when you first start, you don’t have problems hopefully. I didn’t for a while. It wasn’t until that rent was skipped, or a tenant bailed and fled town or these things started happening; a property was damaged… Then I started freaking out a little bit. Then to your point, every time I would get a tenant phone call, what problem is it now? Are they going to tell me they’re bankrupt, they’re moving out, the house burned down, whatever.

Here’s a key point to specifically being a general partner or doing your own active syndications. This is a critical self-reflection and conversation to have with yourself. Imagine, if you’re a bit paranoid about it, or always thinking the worst or it keeps you up at night, imagine that not just on an individual level, but imagine handling 100 or 200 people’s money, and now having to report to them and having investor emails come in all the time and having to do reports, and sometimes maybe that’s not always roses and rainbows. Because I get asked all the time on podcasts, are you, meaning me, am I going to be a general partner? Am I going to start doing my own syndications?

The answer is absolutely not. No, I won’t. It is for a lot of reasons, but liability and time commitment and whatnot. Now, I’m not bashing it, because obviously, there’s great GPs, we need them. That’s the Ying and the Yang, the LP the GP.

All I’m getting at with this – I’m not saying that active is right or wrong, or passive is right or wrong. It’s being able to identify your strengths, weaknesses, how you respond to things and just choosing the right strategy, the right asset classes… This is a great first step. That’s why I made this blog.

To that point, our last section or the last section I wrote about was risk tolerance. It’s a huge conversation that I don’t think it is happening often enough. I tried to categorize it in a different way than most people do, or what I’ve seen, and I took four different types of investors and how they respond to kind of piggyback on the last section. You have the cautious investor, you have the systematic investor, you have the spontaneous investor, and then you have the individualist. I’ll kind of go into again, much more detail in the blog, but I’m going to bullet point it out.

A cautious investor is very sensitive to losses. They may be better suited in things of CDs or bonds or annuities, things that aren’t going to fluctuate, go up and down; they’re looking for more of that certainty around their income or their retirement. Cautious, right? It makes sense.

Systematic is somebody who basically has built a system or adopted a system to go through the investing process. It’s most often based off facts, research, and a particular philosophy that you might subscribe to. It’s just simply a system. It’s just rinse and repeat every time, you filter it through your criteria, and there you go. That’s how you invest; very robotic, rightfully so.

And then you’ve got the spontaneous investor. There’s a lot of folks like this, that let’s say, to use the stock example. They log in to https://www.cnbc.com/. They see that Tesla is up or down, and then it’s buy, buy, buy and sell, sell, sell, and “Oh, I just heard that Bitcoin’s going up tomorrow, I might as well dump 10,000 there,” and they’re just always kind of on a whim, they’re trying to catch the wave. There isn’t really a philosophy or systemized approach, it’s just more on a whim. You’re walking through a neighborhood, you see a foreclosure, maybe I’ll buy that. Why? I don’t know, maybe it’s a good deal. There’s not a whole lot to back that stuff up, but it can be fun. They like to keep things fresh and new. Again, rightfully so.

And then you have the individualist, which you could relate that to an independent in political terms. As Robert Kiyosaki always talks about, there’s three sides to a coin; left, right and the edge. These are the folks that tend to step on the edge of the coin, and look over both sides, see the case for, “Yes, the stock market’s going to go up. And then this side no, the stock mark is going to go down.” And then they’re trying to be as unbiased as possible and make a decision based on what they believe. That’s kind of the approach there.

So yeah, those are four common types. Again, you may not be 100% in any category, but in general, that’s more or less how it goes. In the investors I speak with, that’s what I see coming up over and over again. Any thoughts?

Theo Hicks: Yeah. On the spectrum it’s like on the one hand you’ve got the spontaneous who’s the one who — I’m going to say suffers in a sense from shiny object syndrome. That’s kind of what the term people use. Then on the other hand, you’ve got maybe the cautious or systematic, who potentially falls into analysis by paralysis. Those are kind of two terms that I’ll always hear people talk about on the interviews that I do.

Again, I think the purpose of understanding and talking about these different categories of risks is to understand which one you are, and not necessarily no longer be spontaneous or no longer be systematic, because nothing, as mentioned, apparently wrong with being that way. It’s just if you take it overboard and you fall into analysis paralysis, or you are so spontaneous that you never get deep enough into a certain investment type that you don’t learn enough about it, and you kind of  bounce to the next one, and always are at the surface level. So just kind of understanding which one you are.

I was trying to think of which one I am. It’s really hard when you do these interviews, because everyone has a different investment strategy, like, “Oh, that is amazing. I’m doing that,” and then you talk to someone else and they’re like,” Oh, that’s also cool, I’m doing that one.” And you realize that you can be successful doing any type of active investment, any type of passive investment and people have been successful doing this forever. It just depends on personality type, because certain ones are better for other people. I think that’s kind of the entire point on this entire post, is to say, “Hey, here are the different types of personalities, here are the types of risk.” And then based off of that, you can figure out which of these you fit into best, or maybe a spectrum of one you fit into.

And then something else I want to quickly mention too, when it comes to things like risk. There’s going to be risk when you’re comparing across active and passive, but there’s also gonna be risk within the passive. So taking apartment syndications, for example; if you’re going to passively invest in apartments syndications, it’s not like the risk level is the exact same for every single type of apartment syndication. You’ve got developments, you’ve got ones that are completely distressed, you’ve got ones that are turnkey, you’ve got ones that are value add. Those also come with different levels of risk. That’s why it’s important to understand each of those, as well as your risk tolerance level, so you know which one of those apartment syndications or which type of stock is going to be more conducive with your personality.

Travis Watts: Yep, 100%, couldn’t agree more. In that example, LP-GP; LPs have an upper hand on one hand with risk, because they’re limited to what they’ve put into the deal. That would be their max loss, so to speak. But from the GP side, you have more liability, but you’re hopefully making more than an LP would, so you’re kind of limiting your risk there, too.

It takes some research and time. This blog wasn’t to get into the weeds, but I think it’s so important because I had to learn this lesson firsthand. I’ve shared this story before, maybe not here on this podcast, but I was in the middle of doing a fix and flip years ago, when I was fully active. It was this epiphany, this self-awareness moment, this light bulb moment as I’m standing in the middle of this vacant place, I had to pull in my mom to help me with something I was doing. And she yells downstairs, she says, “Hey, hand me the electric drill.’ And I thought, “I don’t own an electric drill.” And then it was just that moment, like, “Should I be doing this? Am I in over my head right now?” It was embarrassing. It was humiliating. That’s where kind of my self-reflection started. It wasn’t too long after that, maybe a couple of years, that I made the full transition out of doing that active stuff. And again, nothing wrong with it, it was just me personally, not very handy. I didn’t really have the competitive edge. I didn’t know what I didn’t know. I didn’t have mentors, coaches. I lacked so much that I wasn’t a key player in that space. And that’s something to recognize.

I wrap this whole blog article up, and I guess we can wrap up this show on the same topic, which is, at the end of the day, what’s the takeaway here that’s practical to get started? That doesn’t necessarily mean get started investing, although you could perceive it that way. But get started on your self-awareness. Write down your strengths and weaknesses. Write down some examples of how you would respond to extreme situations. I made a lot of money, I lost a lot of money, I invested in a deal that did nothing for five years. Just think through this stuff and it’ll help you identify a better alignment to how you should invest, basically. And only you at the end of the day knows you best and only you can make that decision.

Theo Hicks: Yes, 100%. All the people I talked to on the show about how to tactically understand and ultimately change your mindset is to just write and journal it. Some people tell me to literally just carry around a tiny little journal with you. And in this example, whenever you come across anything related to investments, write down your thought process, write down how you’re approaching it, write down how you’re reacting to it, write down how you feel about it. Do that for a week and you’ll have a much better understanding of the personality type, your risk tolerance level and maybe just for a month and you’ll have a lot more self-knowledge.

Travis, is there anything else to mention about what we talked about today before we wrap up?

Travis Watts: I think that’s a good wrap up. The blog is called What Type of Investor Are You; A quick guide to self-awareness or quick self-awareness guides, something like that. It’s on The Best Ever Community. It’s on my Bigger Pockets, so check it out.

Theo Hicks: Yes. What Type of Investor are You; A quick self Awareness guide. There you go.

Travis Watts: I don’t know these things, so check it out.

Theo Hicks: All right, Travis. A very enjoyable conversation. Thank you for joining us again. Best Ever listeners as always, thank you for listening. Again, make sure you check out the blog post and we will be back next week. Until then, have a best ever day and we’ll talk to you soon.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2227: Why Multifamily In The Suburbs Will Thrive | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks will be sharing some of the research he has done on the trends of Multifamily as a result of the Coronavirus Pandemic.

Click here for more info on groundbreaker.co

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, listeners and welcome back to another episode of The Syndication School series, a free resource focused on the ‘How-tos’ apartment syndication. As always, I’m your host, Theo Hicks.

Each week, we release a Syndication School episode that focuses on a specific aspect of the apartment syndication investment strategy; make sure you check out our previous episodes. We also have a lot of free giveaways, free goodies, free documents along with those older episodes, especially the first batch, where we go through apartment syndication from A to Z. Those free documents, as well as free episodes, are always available at http://syndicationschool.com/.

In this episode, we’re going to review a pretty heavy data research that I did on the trends of multifamily as a result of the Coronavirus pandemic. I’m going to start focusing on that. I think it’s been long enough since the onset, we have a lot of data to see how people adjusted their lifestyles in order to determine what types of real estate are going to be in demand, and what the new developments are.

One of the things that had been on my mind that I’d seen a few articles talking about was the market changes. So which types of markets are going to be in demand for the future. As you know, as a loyal listener, when we talk about markets, there’s lots of factors that we want to look at, essentially, to paint a supply and demand picture.

One of the metrics that is an indicator of demand is going to be the population change. All other things being equal, if the population is increasing, then the demand for real estate will increase. If the population is decreasing, then the demand for real estate will also decrease. Obviously, that’s just one factor that is relevant to demand. And there’s a whole other side of the equation, which is supply, so you can have an increasing population, but if the supply is outpacing the increase in population, you might have an oversupply issue. I know this is very simplified, but there are people who I’ve come across who will use the population growth, at the very least, as a disqualifier. If a market, whether it be a state or a city, does not have a positive net migration, so if more people are moving out than are moving in, the population is decreasing, then that market is automatically disqualified from contention. Whereas if more people are moving in than are moving out, then the net migration is positive, and they won’t disqualify it.

U-Haul actually has really good net migration data that they release each year. So definitely check that out. If you just type in Google “U-Haul migration”, that will come up.

But the reason why, and it’s kind of obvious, but the reason why you want to understand where people are moving to or where they’re moving from or where they’re out of is so that you can adjust your business plan accordingly. The reason why you want to look at U-Haul’s net migration data, the reason why you want to pay attention to any new businesses moving into the area or moving out of the area, is because if you’re in a market that has more people moving in than moving out, then you’re in a pretty good place, you’re sitting pretty. But if you’re in a market where the trend has turned, and now more people are moving out than are moving in, well, then that might indicate some trouble on the horizon, right? Not guaranteed, not always, but that is something that you want to pay attention to, because that is an indication that demand for real estate will also decrease. If you match that with a really high new construction rate, then you’re in big trouble, because supply is going up and demand is going down which is the opposite of what you want to see.

One of the biggest migration changes, population changes that is due in part to the Coronavirus, but it was happening, and I believe it was happening beforehand — there’s a really good, I think it was a Brookings Institute article that talked about the trend from people moving from urban centers to the suburbs over the past few years. Based off of some of the more recent articles, because of the Coronavirus and a few other things we’ll talk about a little bit, more people are interested in leaving, or they’re saying that “I plan on or I’m searching for, I intend on leaving”, whereas some places they’re actually leaving already. New York is a really good example, to not only show that it’s happening already, but that it’s something that is expected to continue to happen into the future.

An article in The Hill entitled Americans leave large cities for suburban areas and rural towns said that approximately a quarter of a million New York City residents plan on moving out of New York City to some other New York suburb, and another 2 million said that they plan on moving out of state altogether to somewhere else. Also more than 16,000 New Yorkers have already moved out of the city to suburban Connecticut. But this trend is not unique to New York.

There is another analysis done by Redfin, that said that a record number of their users were looking to move to another metro area. This was in the middle of 2020. And that number was 27.4%, I think it was up from 25%. A quarter of their users are looking to move out of the metro area that they are currently in.

The most popular places that people are looking to move to are going to be either the city or the suburbs surrounding Phoenix, Sacramento, Las Vegas, Austin and  Atlanta. And then to round out the top 10 is Dallas, Tampa, Miami, Nashville and Charlotte. And then this analysis also has where they are leaving from, and that would be Los Angeles, San Francisco, and New York. And then for Tampa — because they have it for top origin in states and then top out of state origin. The only ones that aren’t the same would be for Sacramento. Out of state is  Reno, Nevada, and then for Tampa, the out of state is New York or the in-state is Orlando.

On the other hand, the locations with the largest outflows were New York, San Francisco, Los Angeles – I said that already – Washington, Chicago, Seattle, Denver, Boston, Milwaukee and Rockford. That is where these Redfin people are searching to leave these larger metros for these more secondary metros.

Now something that’s surprising to me at the very least was that not only is there an increase in demand in these suburban areas, people leaving the cities to go to the outer suburbs, but there’s also an increasing demand for rural markets, even further out from these cities. This is a US News article, and they said that 57% of realtors that responded to their survey said that they had experienced an increase in interest in rural Montana. A lot of these came from people who lived in major metros in California, so San Francisco and Los Angeles. And the reasons why they were choosing rural markets, in addition to them choosing Montana, in addition to them growing up there and having family there, is because of the low Coronavirus infection rate.

In the same Hill article I mentioned earlier, they talked about how real estate sales were increasing in Montana with a 10% increase year over year. And that rural markets in Colorado, Oregon and Maine experienced similar increases in sales. And so people again are leaving urban areas for suburban areas as well as for rural areas.  Why? Why are they doing this? As I mentioned already a few times, Coronavirus, but there’s also other reasons. Surprisingly, Coronavirus isn’t actually the number one reason why people are leaving.

Another article in NASDAQ entitled The Urban-to-Suburban Exodus May Be the Biggest in 50 Years  provided some data on the reasons why the New Yorkers were fleeing the urban centers for other New York suburbs or leaving the state entirely.

The number one reason was the cost of living at 69%. Below that would be crime at 47%, and then looking for a non-urban lifestyle at 46%. Those are the ones that are above 40%. 40% of the people that respond or more said they were leaving because of crime, looking for a non-urban lifestyle, and the cost of living.

Then the other three that were common was the concern over the spread of Coronavirus, which is at 34%, the ability to work from home which is 30%, and then this last one is typical, it’s with childcare, which is pretty low at 15%.

One of the ones that stood out to me the most — cost of living, crime, looking for a non-urban lifestyle and concern, those three are common. Those aren’t unique to today. Coronavirus, obviously is unique today but the other one that’s unique too today besides the Coronavirus would be the ability to work from home. A year ago, people would not be moving out of cities because of the ability to work from home. That’s something that’s very new. This is one of the biggest COVID-related changes that are driving more people out of urban centers.

According to a blog that I found that tracks remote working statistics said that because of the Coronavirus, 88% of companies encouraged or require their employees to work from home; 88%. And 99%, so essentially universally across the board, people prefer to work remotely due to obviously the Coronavirus. but also because they like it.

Now, I think here was the most important and telling statistic, 88%-99% – what is this compared to? Well, you can compare this to just 3.4% of the US population working remotely before Coronavirus. This is the entire population, so it’s including people that don’t have jobs as well. But 3.4% of the population was working from home before Coronavirus, and now 88%, essentially. That’s a pretty big difference and there’s a possibility to have a pretty big disruption in real estate.

There’s some people who I’ve talked to who’s worked for big corporations, and they aren’t going back until, the earliest, this time next year. It’s kind of hard to tell if everything will go back to normal, and the same amount of people who were working in an office before will go back to the office, or if it’ll be half as much, who knows. But I would imagine it’s not going to be the exact same.

I was looking at some other study that said that a lot of jobs that are in offices can technically be done from home. Who knows, maybe these corporations after seeing people work from home for seven months now, by the time they start having people come back it’ll be at least a year, and maybe they’ll realize that their employees are just as effective working from home, they can save money by not having an office, things like that. Employees prefer to work from home, they have a hard time transitioning back. There’s no parking in downtown areas, because people are probably not going to take public transportation, how’s the elevator situation going to work, and a lots of different issues with going back to offices.

So what is real estate going to look like with more people working from home? One of the things is people moving to the suburbs; because if they don’t have to go to the office, then they’re choosing to live in areas—and this is from the Redfin article I talked about earlier… They’re choosing to live in areas that are more affordable, that are closer to their families, that have access to more local amenities, while still having direct access to a downtown, which is why they’re leaving the urban areas for the suburban areas, because the suburban areas beats the urban centers in all those categories.

But besides market aspects, there’s also the type of home that’s offered in the suburb or the type of home that is available to people that is offered in the suburbs. For example, now that people are working from home and are at their houses are often, they want more outdoor spaces, whether this a private yard for themselves or nearby green spaces and parks. They can go on walks, as opposed to being stuck in a skyscraper apartment type building in an urban center. And they also want to have a home with an extra room, or at least extra space to convert into their home office. As I mentioned, this type of green space is essentially non-existent in urban centers. It’s there, but it’s not as much as there is in suburbs, and it is usually more so in rural areas.

And then also, the cost for this extra bedroom would be a lot higher in urban areas, whereas you can get a lot more bang for your buck in the suburbs. It’s kind of unrealistic for people who are looking to move to a house that has more space to pay a lot more downtown when there’s all these extra benefits, plus cheaper in the suburbs.

They want to see real green grass, real trees, they want a home office. The suburb is really their only option. That or the rural areas; but they still want access to downtown, so that’s why they’re choosing suburbs over a rural area.

What does this mean for you, the investor? As I mentioned earlier, as a real estate investor, in general, you need to have an understanding of the population and migration trends in whatever market you’re investing in, at the very least. And then obviously, when you look to expand, you’re going to look at these things as well. But you don’t want to just look at the trends one time when you choose to invest and then not think about it anymore, because it’s always changing.

Once you’ve selected a market that has good demographics, good economics, you want to kind of continuously stay up to date on the actual metrics, as well as news stories. We’ve talked about this on the show before, setting up your Google alerts for your area and finding the local real estate news.

Based on what I’ve talked about today, if you’re someone who’s heavily invested in a major urban center, it doesn’t mean you should sell all your properties, right? But it might be time to consider pivoting and diversifying into the suburbs, or maybe not buying more in the urban areas, holding what you have, and then pivoting to the suburbs for new acquisitions.

If someone is already investing in the suburban areas, well, you’re in a pretty good spot, because not only are you going to benefit from the increase in rents that come from the increase in demand, but you might also see an increase in value that comes from more than just the increase in rents, but due to cap rates reducing.

Then for people who are less established, who are newer, this is really good news because you can take advantage of this trend towards the suburbs at a low barrier of entry. In the sense, generally, real estate is going to be more affordable in suburban and rural markets. It is a trend you can take advantage of without having to shell out a lot of money to buy in a new gentrifying urban area or something.

In conclusion, no one really knows exactly what the future holds, but due to the information I presented today, as well as stuff I’ve talked about in the past, specifically in the blog post and the syndication school episode we did almost two years ago now, back in January 2019, where I talked about the reasons why we believe multifamily is going to thrive during and into the next recession – well, a lot of these things turned out to be true because of the same metric we talked about; affordability, tightened lending standards, like I talked about last week, things like that. But combine that again, with the migration trends I talked about in this article, and you can kind of stack those two things together and say multifamily in the suburbs is going to thrive in the years to come.

That concludes this episode. Thank you for tuning in. Hope you learned something. Any questions, any comments, any feedback? Let me know at theo@joefairless.com. And maybe depending on what you say, I might read that off on a syndication school series episode or do further research and it might turn into an episode that I’ll give you credit for.

Make sure you check out our other syndication school episodes and those free documents at http://syndicationschool.com/. Thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2220: Why Tightened Lending Standards Benefit Apartment Investors | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares some of the reasons why the tightening of lending standards will benefit apartment investors in the near future.

 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.

Each week, we air a podcast episode that focuses on a specific aspect of the apartment syndication investment strategy. For a lot of these past episodes, we’ve given away some free resources; these are free PDF ‘how-to’ guides, free PowerPoint presentation templates, and free Excel calculator templates. All of these resources as well as the Syndication School episodes will help you along your apartment syndication journey.

Today, we’re going to talk about some more current events, more market updates.  As you can see by the title, we’re going to talk about the tightened standards that residential lenders have. This is a very recent development, really within the past six or so months, right before the onset of the Coronavirus, and then the largest decrease in the months of April and May. But before we get into that, some context.

This time last year, real estate was really showing no signs of stopping; rents were going up, prices were going up, the stock market was going up… However, like most economic expansions going back multiple years, the economic experts either predicting an impending recession or at the very least, preparing their audience for a potential recession.

Over a year and a half ago, back in January of 2019, we wrote a blog post entitled, Why I’m Confident Multifamily will Thrive During and After the Next Economic Recession. This wasn’t something that we kind of just made up or wrote because we focus on multifamily—obviously, this is a Syndication School podcast, but it was based on some interesting metrics.

If you read that blog post, one of the main things that we focus on is the portion of renters. Every year, the percentage of renters and the percentage of owners are tracked. Historically, what happens is, once a recession happens, then the numbers start to sway more towards more renters. The renters population will start going up. Then once the recession is over, it’ll keep going up for a little bit into the next economic expansion, but then eventually, it starts going back down, and more and more people start to buy homes again, because the economy’s turned around, and the cycle kind of repeats itself.

That’s held true from my understanding, every single recession to economic expansion cycle, except for the most recent economic recession. The one that started in 2006 and it ended in 2008, that recession obviously started off with more and more people renting, but then people continue to rent more and more, even into the economic expansion.

In that article, we talked about how the decade after the recession resulted in the overall increase in the renter population of 25%. And then in 2016, a decade after the start of the recession, more US households were renting than at any point in the last 50 years. It was between a 3% to 1% increase during the 2010/2015. So kind of the back end, where the economy was booming. During this time, the Dow Jones actually tripled, unemployment was cut in half, the GDP rose by nearly $5 trillion, yet more people were renting.

So we said because of this, and then because at the time—the data isn’t super relevant anymore, but essentially looking at some surveys of renters saying what they expected to do; did they expect to move, did they expect to keep renting, did they expect to buy…? If their rent increased, would they move? Things like that.

Because of all this, we said, well, even if there was a recession, because of the increase in renter population during the most recent economic expansion and the increase in renter population during all historical recessions, and due to the fact that the reason why people decided to rent while the economy was booming aren’t going away, therefore we expect multifamily to still be strong, during and after the next recession.

The next blog post I want to point you to is another one that we wrote, and this one we wrote in June and it is called Demand for Multifamily Rentals to Increase by nearly 50% in the Next Five Years. We talked about in the Why I’m confident multifamily will thrive blog post, some of the reasons why more people were renting while the economy was booming, and it had to do with student debt, poor credit, tighter lending standards, which we’ll talk about today. People were starting families later, and their inability to afford home payments, and how these weren’t going away. Then sure enough, a year and a half later, a study comes out in June 17th that says that we project the homeownership rate to decline before partial recovering by 2025, but during this five year period from 2020 to 2025, the demand for rental housing will increase somewhere between 33% and 49%.  Why? This article says because of a lot of people are starting families later, student debt, an inability to make down payments, tightened lending standards. These are the reasons why people aren’t going to be buying homes and the rental demand is going to go up. That was in June.

Then one of the things that they talked about in that article, one of the things that we talked about in Why I am confident multifamily will thrive during and after the next recession is this concept of tightened lending standards. The study talked about tightened lending standards. It has been talked about since the previous recession.

The main topic of today is going to be talking about what that means for multifamily investors… Kind of obvious what that means, right? It’s hard to get a loan for a residential home, and then by default, people are going to rent… But I want to get kind of into more specifics as to how that is measured.

There’s a very interesting monthly report that is released each month by an organization called Mortgage Bankers Association, MBA; not to be confused with getting your MBA in business. They have an index called the Mortgage Credit Availability Index, or the MCAI. That’s just one of those indexes where they take a date and say it’s 100 at this date, and then everything else is kind of compared to that date. So is it getting better or is it getting worse?

According to MBA, it’s the only standardized quantitative index that focuses solely on mortgage credit. The way the index is supposed to work is that it’s a comparison tool. So if the index of 100 was set in March 2012, and you look at it month over month, and you say, “Okay, if this index is declining, that means that the lending standards are tightening. If this index is increasing, then that means that the lending standards are loosening.” Essentially, what this means is that, the higher this number is and the more it is increasing, the more people qualify for financing. The lower it is, then the less people qualify for financing.

They started tracking this data monthly; I believe it was March of 2011. Since March 2011, all the way up until November of 2019, there’s been some months where it’s gone down, there’s been some dips, but overall, the trendline is—it is actually strictly diagonal up, at a 45-degree angle. It’s kind of gradually increasing at the same rate every year, every month during that time. It started back in December 2012 in the high 80s, so a little bit less than that benchmark. And then it’s steadily increased up into the high 180s. So lending standards got a lot looser in November of 2019 than they were in 2012 because of the recession.

Then what happened, because the news broke of the Coronavirus, it wasn’t very concentrated until March, but there were reports on it in Decembe, and so it began to slowly decline. And then most things started closing down and as everyone became aware of the Coronavirus, that is when this index started declining a lot.

There were two really large drops. I included it in this blog post, which is on our website right now, called Residential Lenders Tightening their Lending Standards; Why this is Good News for Multifamily Investors. You can take a look at these actual graphs, and you can see a massive cliff, a massive fall off starting in March 2020. It dropped by 16.1% in one month, down to 152. The next month, it declined by another 12.2%, down to 133.5, and then it had some minor drops. Then it dropped again by about 5% last month in August down to 120.9, which is the lowest it’s been since March of 2014.

Within a six month period, there was a very large, almost 50% reduction in this. It went from about about high 180s down to the 120s, so a drop of about 60 points. So close to a 50% drop; more than 33% drop, I guess.

But anyways, so the associate VP of Economic & Industry Forecasting for MBA, [unintelligible [00:14:26].24] monthly reports, they’ll have a quote from him where he’ll kind of talk about why it went up, why it went down, what this means.

The quote that I have here is very interesting. He says that, “Credit continues to tighten because of uncertainty still looming around the health of the job market, even as other data on loan applications and home sales show a sharp rebound.” And the sharp rebound – there’s an article that came out I believe today about a big jump in home sales. You can find that in Bloomberg.

Anyways, so continuing the quote, he says, “A further reduction in loan programs with low credit scores, high LTVs, and reduced documentation requirements also continue to drive the overall decline in credit availability.”

This gives you an idea of how this MCAI index works. Essentially, I’m trying to think of a good analogy, but basically, you’ve got this pyramid of loans. At the bottom, you’ve got the loans that the most people qualify for, and at the very top of the pyramid you’ve got the loans that need to have astounding credit or have a high net worth, high liquidity to qualify for these types of loans. Whereas at the bottom, you can have a low credit score, very low downpayment, you don’t really need much documentation. I think back before the crash we didn’t need any documentation whatsoever, you can just write down your income and get a loan. [unintelligible [00:15:50].17] Well, that bottom of the pyramid, those are the first types of loans to go away. Once those are eliminated, that’s when this MCAI index will start to decrease, and as those come back, it will start to increase again. So the higher it is, the more people at the bottom of the pyramid can get loans.

What he’s saying in this quote is that because of the Coronavirus, lenders are tightening their standards. What this means is that you need a higher credit score. I believe we did an article, or a Syndication School episode about, maybe it was Morgan Stanley, or one of the big banks was eliminating any residential loans to candidates that had a credit score below 650, I believe. I think it was JP Morgan, or maybe it was Morgan Stanley. It was one of those two.

Again, since we talked about in that Why I’m Confident in Multifamily article, the demand for multifamily – why is it going up? Well, because of the inability to make a down payment. Why is the MCAI index going down? Because of the high LTV loans being eliminated.

Another reason why people are renting is because of the credit scores, they can’t qualify. Well, even more people aren’t going to qualify for loans now, because they’re eliminating low credit score loans up to 650; and then reduced documentation I guess wasn’t technically addressed in any of the previous blog posts.

Overall, as I mentioned in the beginning, people are always going to need a place to live. That’s like the last thing that they’ll give up; they’ll give up a car, they’ll give up entertainment, they’ll give up everything before they give up a place to actually live. When it comes to having a place to live, you really only have two major options, at least, you can either rent a home or you can buy a home.

As indicated by these massive MCAI declines, since the end of 2019, less and less people are going to be able to qualify for residential mortgages. The programs available to people with low credit, who can’t afford a high downpayment for a lower LTV loan, those aren’t available anymore. If those people who would have qualified for those loans don’t qualify for them anymore, their only other option, since they can’t buy a house, is to rent. So by default, more people are going to be renting. That’s kind of the main crux of this post of this podcast, is to take a look at these different metrics and see is this good for buyers or is this good for renters? If it is good for buyers, and obviously, people who fix and flip homes, they’re going to benefit from those types of economies. It is better for renters, and people who do buy and hold are going to benefit, and people do apartments are going to benefit.

Now the last thing I did want to mention before I sign off, I just thought this was kind of an interesting tidbit that was added on to these reports. I was trying to think — I see that there’s a big drop, but this data only goes back until 2011. Like, what happened with this MCAI index? What happened with lending standards after the 2007 through 2009 recession?

At the very end of these MCAI reports, they have a graph where they say, “We expanded the data back by about a decade. We had it go back all the way to 2004 up to 2011” – it’s this kind of this old approach, where they were able to pull this MCAI data that was generated annually. And then they kind of like interpolated it back to be monthly. It was not super accurate. Whereas after March of 2011, they were able to pull these reports monthly and the data is going to be a lot more accurate.

When you look at this graph, you see that, well, before the crash, this MCAI index was almost in the 900s. And so I’m going to go back to June of 2004 – it is about 400; and then it shoots up to about 900 in mid-2006. And then from the end of 2006 to mid-2008 is when it drops down back to 100. When you compare the more recent drop in the MSCAI index, over the past 10 years, it’s a pretty big drop. But if you open it up to 20 years, then it’s not that big of a drop.

When I read that, it makes me think that, “Okay, well, the decline in the MCAI index, the reaction was not as severe because apparently, the [unintelligible [00:20:16].26] were a lot more loose before the 2008 recession compared to now. Hopefully, that indicates that this recession or this setback, or this slowdown, depending who you talk to, is not going to be or is not as severe as 2008.

Again, it’d be good to check out the blog post that we have, Residential Lenders Tightening their Lending Standards; Why this is Good News for Multifamily Investors, just to see those graphs, or you can also go to the website that has the monthly reports. It is called https://www.mba.org/ and then it’s the Mortgage Credit Availability Index, underneath their news, research, and resources page and kind of click-through a few things and you’ll be able to find it.

That concludes this episode of Mortgage News for Multifamily Investors. Make sure you check out some of the other Syndication School episodes we have about the how-to’s of apartment syndication, check out those free documents as well.

Thank you for tuning in. Have a best ever day and we’ll talk to you tomorrow.

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JF2214: The Truth About FIRE | Actively Passive Investing Show With Theo Hicks & Travis Watts

Today Theo and Travis will be sharing the truth about F.I.R.E, financial independence and retire early. The idea behind FIRE is to focus on producing as much money as you can possibly generate while living very frugal for a number of years so you can eventually have enough income to be financially independent and to have more of a flexible lifestyle.  

We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks and we’re back for another edition of the actively passive investing show with me and Travis watts.

Travis, how are you doing today?

Travis Watts: Theo, I’m doing great. I’m super excited. This is one of my favorite topics and I’ve never had a chance to dive into it deeply. Hopefully, we can do that today.

Theo Hicks: Yes. This topic that Travis is talking about is the F.I.R.E Movement. F.I.R.E, which is an acronym that stands for Financial Independence and Retire Early.

I was talking to Travis a little bit before the show that I’ve heard of this movement before, I’ve seen a few trailers for documentaries, but I am by no means an expert on this topic. It’ll be mostly Travis talking and maybe I’ll ask him some follow-up questions to learn more.

Travis, kind of take it away. What is the F.I.R.E Movement? You said it’s one of your favorite topics, so maybe tell us why it’s your favorite topic, how you learned about it, things like that.

Travis Watts: I think I was just like you, Theo, a few years back and I had heard that acronym, really couldn’t tell you anything about it, didn’t understand it.

Here’s the long and short of it. I was raised by two very frugal parents. I think we’ve talked about that before. They taught me very well one side of the money equation, which is the saving and budgeting side; nothing about investing, nothing about real estate, but very thankful for that. I’ve always had a good discipline there.

I was raised that way, continued that throughout my life; just frugality, I guess we could coin the term as that. Then all of a sudden, I started feeling like I was the only one out there doing this. It was kind of a lonely existence. Then you start second-guessing it, thinking, “Is this kind of a stupid thing to do, or does anyone else feel this way about money?”

Then all sudden, I discovered the F.I.R.E Movement, which I wouldn’t say it’s a huge community, but it’s a growing community of mostly millennials. I would say people in their 20s, 30s, and 40s, for the most part.

The idea is this, a lot of people get this wrong when they first hear about the F.I.R.E Movement, and the whole retire early thing, a lot of heat gets driven there. The movement is really about designing a life and a lifestyle that fits you, that complements you. It’s searching for things that bring you happiness, joy, fulfillment, excitement, and then creating a life around that.

Now, I think a lot of people get caught up in the financial side of it, which we’ll talk about in just a minute. But it’s this idea that, hey, maybe I have a corporate job, and I make good money, I make six figures or whatever. I’m an IT guy, an engineer, what have you. Well, I may like that to an extent, but realistically, could I see myself doing that from today or in my early 20s, all the way through my late 60s, to get to so-called retirement?

Well, a lot of people are feeling like, “No, that’s just too long. That’s too much of a commitment.” It’s this idea that you work aggressively to earn income early on, as early as you can, make as much money as you can using your highest and best skills, talents, credentials, then you’re going to live very frugally. You’re going to live on just basically as little of that income as possible for a period of time; not forever, but maybe five or 10 years, something like that. It’s different for everyone.

Then here’s the most important element of that. You’re not just going to save that money and throw it under a mattress. You have to invest that money into assets. Now, F.I.R.E Movement is all about stocks and index funds, but what I want to talk about today is how the F.I.R.E Movement can relate to real estate and how I’ve done that. So earn as much as you can, live on as little of that as possible, invest the difference into assets.

Number four is just avoiding bad debt. A lot of people start out with bad debt, maybe it’s student loan debt, credit card debt. Get out of it, and then if you don’t have it, don’t get it. Just stay out. That’s one of the biggest things that detracts people from starting their investing journey.

By doing that, it’s incredible. But you see people all around; there are podcasts dedicated to this, as you mentioned, documentaries, books, there are conferences now around this topic, and you genuinely see people in their 30s retiring. What I mean by that is not going to the golf course and moving into a 55 plus community and these kinds of things, but it’s financial independence. Let’s just focus on the first half of that acronym. That’s what it’s about. It’s about financial independence, it’s about having enough income; as we talked about on our previous podcast, how much is enough? It’s just having enough to have lifestyle flexibility; if you want to travel more, if you want to be more charitable, if you want to spend more time with your family, if you want to go ride around in an RV for six months. You just have more options on lifestyle choices.

That’s a little bit about what the movement is. What I really want to dive into though, is how most people view the F.I.R.E Movement as it pertains to stocks and index funds, but how I think you could shift that over to the real estate. I think that can be very impactful, and that’s what I’ve done. That’s kind of what I want to pick up on there.

Theo Hicks: Yeah, sure. Let’s kind of lay the groundwork, maybe the first talk about what people usually do. You said that really what will remain the same is the saving of the money aspect. We talked about this before, but knowing what your number is, what’s enough based off of your lifestyle, but the major difference is going to be what you’re putting that money into, and then based off of that, when you’ll actually be able to achieve that enough number. Maybe kind of walk us through what people traditionally do in the F.I.R.E Movement, as you mentioned, with stocks and index funds, to maybe kind of give us like a high-level example, too.

Travis Watts: I was getting reeled into this movement. I was getting really excited. I was so happy to see other people are thinking like I think, until it came to this aspect, which is the one thing I really disagree on many levels.

This is how it works in the traditional sense; they use what’s called the 4% rule. The 4% rule is a withdrawal method off of your retirement accounts, whether that be a brokerage account, or actual retirement, IRAs, and Roths and 401K’s.

What I mean is this, they say, “Okay, let’s say you need 50,000 per year in income. The way the 4% rule would work is that you need $1.25 million put into index funds. That’s what 90% plus in this movement are doing, are index funds; something like VTSAX, Vanguard Total Stock Market Index Fund, for example. Why Vanguard? Low fees. Why that particular one? It’s a wide stock market index, so they claim you have some diversification that way.

If you have $1.25 million put into an index fund like that, what they say is, well, historically—I’m sure everyone listening has heard this before. But historically, over the last 50 or 100 years, whatever, the stock market has returned 8%, annualized. Obviously, some years being 20% or 30%. Some years being negative 40%. But we’re just trying to find the middle ground here and the averages, and it’s about 8%, give or take, depending on what you read, and how you interpret that.

The idea is, if you’re pulling 4% off your accounts per year to get $50,000 out, and it’s returning eight on average, that you’ve left yourself in their conservative buffer; that buffer can be used for inflation, or the ups and downs, or just a weird market, and we’ve never seen this kind of thing happen before, whatever. It’s just a safety margin.

In theory, you’re infinitely wealthy; if all you ever needed was 50,000 a year, you had 1.25 invested in something that historically does 8%. That’s how it works. It’s kind of a mindless thing to do. You have one strategy, you don’t really need to learn anything else, every dollar that you can invest, you just do and you just do that for five or 10 years aggressively, or whenever you can hit that number, and then there you go, you’re done. That’s how the F.I.R.E Movement works.

Theo Hicks: Just a follow-up real quick… Essentially, they’re just going to a bank or some broker, and then as they’re making their money, they’re giving it to them and saying, “Hey, invest this in this index fund.” They’re kind of doing that every quarter, every year or they’re just doing it once they’ve hit that number?

Travis Watts: Good question. Due to fees and financial advisors, and all this, they’re circumventing the whole system and they’re saying, “Hey, it’s free to open a brokerage account or a retirement account at Vanguard or Fidelity or Charles Schwab. They’re going to do that; no cost. Then they’re going to go into a low-cost index fund. So not like a mutual fund that usually has a higher asset under management type of fee. I think VTSAX are the lowest fee; you could probably look that up as I’m talking, but that’s why so many people in the F.I.R.E Movement choose it. You’re not using a financial advisor.

The theory is nobody, technically, statistically can outperform the stock market. Yes, people do, but it’s not a sustainable long-term approach. It’s not like someone outperforms it every single year for the rest of their life. So why pay somebody extra fees to basically match or underperform what the index funds do anyway? That’s the theory. That’s the philosophy. That’s the mindset. That’s the strategy.

Theo Hicks: Got it.

Travis Watts: I’m thinking about that. I’m thinking, “Wow, 1.25, 4%. Okay,” and I’m thinking about my real estate holdings. This happened several years ago. I’m thinking, “Well, when I buy a piece of real estate, what do I see as conservative cash flow?”, which is a completely different mindset; cash flow versus equity. I’m not banking on things to go up in value. I’m just saying, what gets collected out of rents, and other income-generating things on the property.

Well, I came up with 8%. 8%, to me, was kind of a conservative number, and let’s just forget about the appreciation side of the real estate, the fact that it could go up just because of inflation, and that’s what happens, or forced appreciation, you’re making it better… But just take that completely out. Let’s just look at cash flow.

If I put $100,000 into a single-family home or a private placement, or syndication or what have you, my principle is locked in there, that’s what allowed me to invest or buy the property, but the cash flow is what I could potentially live on. That’s what I do live on. I thought 8% to me is pretty conservative, as the F.I.R.E Movement sees 4% being conservative for the stock market. I thought, “Well, then if that’s true, you can actually get to where you want to go twice as fast. You could have $625,000 invested at 8% cash flow in real estate, instead of $1.25 million at 4% in the stocks.”

If you look at the yield on VTSAX or S&P index, it’s so low. It’s not a cash flow play. It’s 1.6% or something, depending on when you check it out. It’s really hard to live on that kind of yield for cash flow.

This is just a big mindset shift, and the deeper I got into this, the more I found out that just hardly anybody in this movement talking about real estate. I thought that was the craziest thing, because unfortunately for so many of these people, they could get there so much quicker, with half as much invested.

My wife and I, I don’t know if it’s earlier this year or last year, we went out to one of the biggest advocates for this movement, is Pete, they call him Mr. Money Mustache, and he’s a big blogger, things like that in the F.I.R.E Movement.

We went out to Longmont and we met with him. He has a co-working space, a bunch of F.I.R.E Movement like-minded people, they call him Mustachians, they do this goofy little mustache thing.

I was asking him, I said, “Pete, this index funds stuff,” I said, “everyone’s doing it.” And I said, “I’m kind of a real estate guy at heart.” I said, “Do you own any real estate or whatever?” He said, “You know, Travis, the index fund thing, it’s just worked historically. It just works for me. It works. Why change something that’s working?” This is, of course, before COVID, and as the great bull run has been happening and stuff, and I just thought, that’s interesting.

It led me to think that there’s probably a lot of people in this movement that just aren’t in investor mindsets, and rightfully so. Not everybody has the time, energy, effort, or interest to become an investor mindset or an entrepreneur or whatnot, and that’s fine. But I think that’s what gets so many people to buy into this concept, is “All I have to do is have a brokerage account and an index fund, and that’s all I ever have to do for the rest of my life,” and that’s pretty simple and that’s some peace of mind there.

But anyway, just wanted to point out that real estate’s a great asset for cash flow. If you’re looking at it through the eyes of cash flow, and not through equity, for those interested in this movement or pursuing this journey yourselves, that’s something to definitely consider. You may not go fully in like I am with real estate, but at least maybe having a few rental properties or something; it could really help that equation out.

Theo Hicks: Yeah, you have a really good point there, because one thing that I first thought about when we were talking about the index funds is – okay, so I follow the 4% rule, the example you gave us, 50 grand a year, so I need to invest $1.25 million. But at that point, really, I have my account with $1.25 million in it, and then I’m living off every single dollar generated by that account is me using it, and so that’s gone within the year, and I’m using the next 50. It’s kind of always 50. Whereas for real estate, as you mentioned, you’re kind of just focusing more on the cash flow and how you can get there twice as fast. But if you’re investing in a five year or 10 years syndication, then again, depending on what type of syndication it is – because sometimes you are just participating in the cash flow… Participating in the cash flow and the upside. Let’s say you invest 100 grand, you’re making 8%. And then you can obviously live off of that 8%, $8,000 a year, but at the end of five years, you’re going to get 60 grand. So now you’ve got 160 grand, and then you can pull that 60 grand out and do something fun with it, or you could take 160 grand invest it in something else five years later, and then make more cash flow, and then either live off of that still or reinvest that more and more, whereas I don’t think you can do that with these index funds. There’s no equity play here, it is just cash flow, right? Or is there an equity play?

Travis Watts: Yes. For an index fund, what you’re banking on is not cash flow at all. You’re just hoping that on average, that account balance goes up 8% and that you’re just taking four out of it, so you’ve got a little buffer in there, but inflation is a real thing, so that 4% isn’t just a gain, you’re kind of [unintelligible [00:18:28].03] there. That’s the good thing about real estate, it often keeps up just automatically with inflation.

We could make the case on and on, you and I, for real estate, with the tax benefits and the leverage that you can use and this, that and the other and we could go on and on. But I just want to paint the simple example of, if you’re trying to live off of something, it doesn’t sit well with me to sell off my nest egg, to have an account balance of a million bucks and just say, “I’m going to start selling it and then living on it.” I don’t like that concept.

With cash flow, it’s not that way. That 100k I put into the property is still there, and then hopefully the equity and appreciation come in too, but just again, forget about that altogether. I’m just talking about the cash flow. It’s a better asset, in my opinion, for retiring on, because we all have to come around to needing some income and I think real estate is one of the best asset classes to produce income.

Theo Hicks: Do people ever do life insurance with this F.I.R.E Movement?

Travis Watts: Like the whole life, you mean, and kind of doing that the infinite strategy and whatnot?

Theo Hicks: Yeah.

Travis Watts: Yeah, yeah. Some do, but I’m telling you, my theory—I need to do more research on this. I’m not an expert either. My theory though is that most people in this movement are not investor mindsets. It’s just, “Do this one thing, and then you’re good for life.” That’s kind of like insurance too, right? Open up this whole life policy and just dump everything you’ve got into it.

You have to play to your strengths, obviously. I’m not suggesting real estate is right for everybody, but there’s ways to do real estate passively; even if you were to do the stock thing. There’s REITs, there’s Real Estate Investment Trust, there’s high dividend yield stocks. There’s ways to create cash flow in that strategy, besides just doing an index fund with a 1.6% yield on it.

But that would be my suggestion, is focus on cash flow, versus the buy, hold and pray that the stock market just goes up forever.

Theo Hick: That’s actually a great opportunity to plug the book we’re working on, the Passive Investing Book, because we have a full section in the book where we go over every single passive investment you could think of – index funds, mutual funds, REITs, [unintelligible [00:20:33].14] regular stocks, private equity… And kind of just comparing all of those to one another in regards to risk, returns, feasibility, various other fees involved, just to say “Hey, there’s not one that’s better or objectively the best, it’s just “What do you want to get out of this?” And then based off of – again, if you want a low fee type of a situation, then you can do the Vanguard thing. If you want higher returns, you can do something else. You haven’t said any of the funds that we don’t have in there, so that’s good. I think we have everything covered.

Theo Hicks: One thing I did want to ask about this – so you mentioned that the traditional F.I.R.E participant would place their money and open up their own brokerage account, and they’d just kind of dump money in there, and then it’d be set it and forget it. With apartment syndications there is some more time that goes into it; and so for you, how much time are you spending on just your passive real estate investments, compared to your other investments you’re doing, or whatnot…

Travis Watts: Well, we call it the actively passive show… It is active to a point, but it’s fully intentional, a; and it’s, b, because I love it. It’s my interest. It’s my passion. This is what I like to research and learn. If it’s a Saturday or Sunday, and I’m sitting at home by myself, what am I doing? Probably a documentary on financial stuff or reading a book on that. I fully recognize that’s not most people, I totally get it. But for me, that’s why this topic is even coming up. That’s why not a lot of people are talking about the real estate side of the F.I.R.E Movement. Because everyone just wants the one thing, “Let me just do one thing, and then be done with it. Take the diet pill and lose 30 pounds. I don’t want to actually work out or know about diets.” That’s where it comes from.

I spend realistically, not a lot of time. I might seriously vet maybe one deal per week. That doesn’t mean I’m investing in that deal. I get sent, let’s say, four deals a week from different syndication groups, or whatever, and I pick one. I’ll dive deep, just mainly for the education side of it in, and invest maybe in one a month or one every other month or something like that.

What does that equate to? I don’t know, two hours a week or something like that, not a lot of time. It is mostly passive, which is what I preach and what I advocate. You’re already working 40, 50, or 60 hours a week, sometimes more. You don’t have the time to get out there and always fix and flip houses or do all this kind of research.

Theo Hicks: It sounds like most of your time is spent on not actually analyzing a specific deal or viewing financials, but kind of the other aspect that you mentioned, like watching a documentary or doing additional research.

Obviously, if you are one of those people that don’t have a lot of time, you don’t have to spend all this time on deals, right? I mean, you can just listen to a show like ours and take some takeaways and be able to quickly analyze deals. What we’re talking about in fact is just tradeoffs, right? I mean, you’re not going to have a magic investment where you don’t do anything at all; you just press a button, a spacebar on your computer, and then you make a 1,000% return. It’s just not how it works. There’s going to be tradeoffs. With higher returns, there might be a bit more risk, or there might be a little more time investment spent. With the lower returns, it might be a little bit easier, but then it can take a lot longer to get to that point. There’s going to be trade-offs all the time.

Travis Watts: Yeah, exactly. The last thing I want to circle back to is something that we talked about at the beginning of the show, is what this movement is really all about, and it’s more about lifestyle, it’s more about happiness and fulfillment and making wiser and smarter choices both for the planet, for yourself, for your family.

There was a well-done documentary that came out last year. It’s called Playing with FIRE. I can put a link somewhere. I bought it on Amazon. I don’t know all the outlets for it. It’s got a little orange shopping cart looking background to it. But it’s great. What it is, it’s a couple, they’re millennials, they’re in their early 30s and they live out in San Diego, California, and they’ve got the BMW and the Yacht Club membership and the beach house. More or less what they’ve been doing and they didn’t even realize is just kind of keeping up with the Joneses from their subconscious. It wasn’t intentional. It’s just, they thought they were doing what everybody does and should do.

They did an exercise—anybody listening right now, seriously, hit pause and do this if you can. If you’re driving or something, make a note to do this as soon as you can. It’s a simple exercise, but it means a lot. It can mean a lot. It’s life-changing. My wife and I did it. They did it in the documentary.

All it is, is you write down the 10 things that make you happiest. The 10 things that bring you the most fulfillment, either daily, weekly, monthly, annually; you choose your time frame. The point is, for this group, it was interesting. Husband and wife, right? And it’s like playing with their newborn child, eating dinner at home, enjoying a nice piece of chocolate, going on a walk outside, riding bikes together, and they’re thinking, “If that’s what brings us the most fulfillment, we can live anywhere. Why are we in the most expensive place in the US, paying $4,000 for housing, etc?” They end up moving.

This documentary is just about an average couple, that they’re not experts in the F.I.R.E Movement. They’re just trying to learn as they go. They end up leaving San Diego, they go to—I think it was Bend, Oregon and they just find cheaper housing and more outdoor activities and recreational things, they switch up their car and they reduce all their car payments. It was just a cool thing to see. It’s called Playing with FIRE.

There’s a lot of good books, a lot of good podcasts, so check out all that stuff if you want to learn more, but that’s a little bit what it’s about. Not to give it such a bad rep on, “What are you going to do if you retire in your 30s? You’re going to be bored out of your mind.” That’s not the point. It’s not that you are going to retire. It’s just that you’re going to have that flexibility to do what brings you the most fulfillment and happiness.

Theo Hicks: And I think we talked about this on one of the other shows that if you can think of a job to do if it didn’t really matter—if you could do any job and the salary didn’t matter, what would you decide to do?

My dad drives a bus. He loves it… Because he’s retired, he doesn’t have to worry about the money.

That documentary is by Travis Shakespeare. So if you search Playing with FIRE, Travis Shakespeare, you will find it.

Travis Watts: Cool.

Theo Hicks: All right, Travis, I appreciate you coming on. I enjoy talking about F.I.R.E. because I get to learn a little bit more about it. Make sure you check out that documentary, and then we’ve referenced a lot of blog posts. I’m going to try to remember to add some of those to the show notes for these shows moving forward, for some other secondary sources.

Again, Travis, thank you. Best Ever listeners, as always, thank you for tuning in. Have a Best Ever day and we’ll talk to you tomorrow.

Travis Watts: Thanks, everybody.

Website disclaimer

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

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

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

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

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

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JF2213: How to Approach The Renewed Eviction Moratorium | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares some insight on the new eviction moratorium and who this applies to, and what you should be doing as an investor.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The syndication School Series, a free resource to focus on the ‘How to’ of apartment syndication. As always, I am your host, Theo Hicks.

Each week, we air a podcast episode that focuses on a specific aspect of the apartment syndication investment strategy. For a lot of these episodes, we have released free documents, either free pdf ‘How to’ guides, PowerPoint presentation templates and Excel calculators that will help you along your apartment syndication journey. Make sure you check out the previous Syndication School episodes, as well as those free documents at syndicationschool.com

Today, we are going to be returning to the Coronavirus, and we’re going to talk about the recent CDC Eviction Moratorium. This was signed early in September, and effectively banned evictions nationwide through the end of the year.

The previous eviction moratorium expired at the end of August, and then there was like a week where you were allowed to do evictions, and then this renewed eviction moratorium came into place.

Today, I wanted to talk about who this moratorium applies to, and then some of the things that you should be doing, and mostly continuing to do, right? These are things you should have been doing already and you’ll just have to continue doing them until the moratorium expires.

Who does this eviction moratorium apply to? What type of resident is eligible? Here’s some of the criteria that you can find, and all this is on the CDC website.

One, the resident has sought all available government rental assistance. There are some websites you can go to where rental assistance is available to residents. I’ll read this off a little bit later in the episode. The resident also cannot earn more than at $99,000 or $198,000 combined. Below that, they cannot be evicted. The resident can’t pay the rent in full due to substantial loss of income. The resident is trying to make timely partial payments to the extent they can afford to do so, and the resident would, if evicted, likely end up homeless or forced to live in a shared living situation.

It sounds like the resident would need to submit a CDC declaration form to notify their landlord that they’re not going to be able to pay rent because of one of the aforementioned reasons. If you are to receive one of these from your residence, well, what should you do?

The first thing you should do is reply, in writing, and encourage them to make partial payments, whether it be of rent or any other things that are due to the extent that they can, in accordance, again, with the CDC declaration where they may be able to pay some of their rent, but they just can’t pay all of it. They might be able to make partial payments, right? Because they’re supposed to be trying to make partial payments to the extent that they can in order to avoid being evicted under this moratorium. You can also remind them of the rental amounts that are due at this time, and that they will ultimately need to be paid. Just because someone is not evicted doesn’t necessarily mean that the rent that they can’t afford to pay now are forgiven. Let them know, “Hey, please pay what you can, because these rents will be due at some point” or else once the eviction moratorium has expired, then they can be evicted.

Also, one of the other stipulations is they’re supposed to have a sought all available government Rental Assistance Programs. It probably makes sense to provide that information to them, because that’s again, more collections for you.

In this written correspondence, you can include a list of resources, like the ‘How to’ of resources, so how to say this to some non-profits that received some emergency solutions or grants, or community development block grant funds from the original CARES Act, and those can be used for rental payments.

The websites are going to be https://www.hudexchange.info/, http://hud.gov/coronavirus, and then https://home.treasury.gov/policy-issues/cares/state-and-local-governments. We have these links on our website under the blog post the CDC Eviction Moratorium – What You NEED To Know, posted on September 16. Either type in the links I just said to your web browser, or you can click on those links from that website.

There might also be some other local programs available, so make sure you are investigating that and providing that info to your residents as well.

The next thing to kind of think about would be okay, well, let’s say that the resident doesn’t meet the criteria, or you’re uncertain if they’re meeting the criteria – what should you do? Ultimately, that’s going to be up to you, but there are penalties and they’re actually pretty severe for individuals. It would be if you just own the property yourself as an individual, and you evict someone who falls under the eviction moratorium stipulations. It’s up to $100,000 fine and one year in jail, or if the resident ends up dying because of this eviction, the monetary penalty is even higher, up to $250,000. Then if it’s an organization or if it’s the syndication, the penalties are even more severe.

Again, keep that in mind if you’re going to attempt to evict someone. Also, keep in mind that because of the current climate, you might draw additional judicial scrutiny. There might be a news article written about you. Again, keep all the negative consequences in mind when you consider evicting someone, even if they explicitly fall outside of these stipulations.

Now I did a Syndication School, Episode 2046, 11 Tips for Collecting Rent During the Coronavirus Pandemic. I think these tips still apply today; since you can’t evict people, you’re going to want to figure out ways to collect more rent. I’ll just very quickly to go over those again, but I went to a lot more detail on those in that episode 2046.

One is, offer discounted rent to people who pay rent on time or early. Offer a repayment plan. Allow the residents to apply any security deposit to the rents. Ask residents to pay for security deposit insurance. Communicate with residents to see who can and cannot pay rent. Volunteer your units for free to Coronavirus volunteers. Use federal or local programs created for landlords and renters. Ask residents to pay rent with a credit card. Offer an emergency repayment program. Provide free rent to residents who lost their jobs, and then reduce rents to break-even.

Some of these are going to be delayed, and the rents would be paid eventually. Some of them are most likely going to be a forgiveness or written off as a concession, but if you listen to the episode, I go into more detail on those. I think the most interesting one would be applying the security deposit to their rent and then having them do security deposit insurance at the same time.

One thing I guess I didn’t put on here was, if you do need to come to some sort of repayment program, maybe extend their lease. But again, the potential drawbacks of that are if they’re not paying rent right now, then you might be stuck with someone that you can’t evict for even longer. So make sure you check out that episode.

Another thing that I think would make sense to check out would be Episode 2074 where I went over some of the changes and adjustments that you can make when actually underwriting deals right now. This is when you’re looking into new deals. Check that episode out as well.

Now, one of the things I wanted to mention that is important to keep in mind, because as I said, just because someone is protected under this eviction moratorium, and let’s say they pay partial rent, or they’re not paying rent at all – at some point that rent is not forgiven. It’s going to need to be paid eventually.  So so me of the things to kind of think about is okay, well, if I have all these residents with really, really high balances, what’s going to happen once the eviction moratorium actually ends? They have the option of either paying that high balance or leaving. This is something that you’re going to want to kind of be thinking about now, even though it might not necessarily happen. That eviction moratorium at the earliest, will expire in early 2021, and it’s really hard to tell if it’ll be extended or not. But assuming it expires in 2021, and assuming that you’ve got a certain percentage of residents who aren’t paying rent, you can kind of figure out how much bad debt you’re going to have come the eviction moratorium. Kind of think about, okay, well, what percentage of these residents are just going to skip and disappear once the eviction moratorium ends? What percentage are going to actually attempt to pay off their debts?

One thing that you can consider doing is obviously that repayment program, and thinking about that now and having that conversation now with your residents, because if they skip and that’s money that’s essentially gone, unless you want to pursue them legally. But most likely, you’re going to have a very high bad debt if they skip, and so what can you do today to minimize the number of skips you have in three, four or five months from now, that is going impact the cash flow and therefore impact the distributions you can send out to your investors.

That’s why I think the repayment program is going to be powerful. You can spread out the money owed maybe in another lease price, and assign an additional year, and then that rent is going to be higher. Essentially, their balance owed divided by 12 is what’s added to each month of rent.

I guess the main point here is, is to be aware that this rent is not forgiven, this rent is owed, and if it is not paid because the resident skips out, then that’s going to be a revenue loss. It’s going to be bad debt. If you have a portfolio right now, you should have a decent understanding of what that’s going to look like, based off of the number of skips you saw during the pandemic in general… But some of the skips that you saw towards the end of August, when the eviction moratorium was going to end, and then before anyone knew there was going to be a new one –  did the residents who had high balances, the ones who you had a hard time getting in contact with, the ones who were not sticking to their repayment program, did they leave in August or early September? Then that should give you an idea of what will happen from the beginning of 2021; lots of things to follow up with.

I recommend checking out the blog posts we have; the CDC Eviction Moratorium – What You NEED To Know. I recommend checking out the Syndication School Episode 2049, where I went over 11 tips for Collecting Rent During the Coronavirus. I listed them today, but I go into more detail on each of those. Some of them are self explanatory, some of them by me just reading off the bullet points, like offering emergency Repayment Program or ask residents to pay for security deposit insurance. Those aren’t necessarily self explanatory, and I go into those in a lot more detail in that episode.

Then if you are looking into new deals, make sure you’re understanding what changes need to be done to underwriting by listening to Episode 2074, Ashcroft Underwriting Adjustments During COVID-19.

That’s going to conclude this episode. Thank you for tuning in. Make sure you check out all of those resources I just mentioned, make sure you check out the previous Syndication School episodes, as well as the free documents we have for those. And then have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2207: How To Get The Most Out Of Reading | Actively Passive Investing Show With Theo Hicks & Travis Watts

Reading is very important when it comes to growth, however, it is also sometimes very hard to fit reading in an already busy and stressful day. Today Theo and Travis will be sharing two methods they each use to get through multiple books in a short period of time. Each method is successful in its own right so be sure to try both to see which flows more with your personality.

We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

Click here for more info on PropStream


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and we’re back for the Actively Passive Investing show. So Travis, how are you doing today?

Travis Watts: Doing great. Excited to be here. We’ve got a fun topic.

Theo Hicks: We do, we do. So we’re gonna talk about reading today, and how that can obviously help you in your investing business. We’re gonna go over a technique that Travis has for how to read more books every single year. So Travis, I did know that you wanted to mention something before we got started about the show and the reception the show has gotten, and you wanted to say some thank yous, so maybe you can say that first and then we can dive into today’s topic.

Travis Watts: Sure. Yeah, I forgot this completely last time; apologies. But so many people reaching out through social media and LinkedIn exclusively, it almost seems like… Watching our show, just thanking us for making it. So just thank you guys for tuning in, and hopefully, this adds some value. We call it the Actively Passive show because there is so much on the active side of being a passive investor, and we have folks on both sides of the coin, active investors and passive investors. So that’s, to the point of today’s topic, which is about reading, which is obviously something active that you would do to keep up with your education. Hopefully giving you some tips and tricks to make that an easier process, a quicker process, a more efficient process, and maybe point out a couple things you hadn’t heard before. I know Theo’s got some really cool thoughts and insights here on what methods he uses, and then I do as well. So between the two of us, you can find a couple things that’ll help cut the learning curve for you.

Theo Hicks: Yes, exactly. So let’s go over your strategy first, how you read, and then I’ll ask you some follow up questions or maybe give my thoughts on it as well. But I would say that overall before we dive into this, I think Travis’s strategy – he’ll explain it – but I think his strategy is really good for trying to very quickly pull out the top best things in order to immediately implement those in yours, whereas my strategy is more for if you want to read a textbook. If you are reading the Best Ever Apartment Syndication Book, and it’s more of a book that’s written by a step by step process. The reason I’m saying that is because our strategies are completely different. But the point is that both are helpful, based off of what you’re actually trying to accomplish and what types of books you are reading, and you mentioned that in the article.

Travis Watts: Oh, yeah, and that’s something to mention. This is all off of a blog that I wrote a couple months back called “How to Read 52 Books in a Year”, which is something I did in 2015. In full transparency, this isn’t the exact strategy that I used to read 52 books. I didn’t just skim 52 books, as we’re going to cover today; it’s  more or less how to get through a book in let’s say an hour, just to put a time frame to it. That’s actually not what I did then, but it’s what I do since, because it was just information overload that year. I had incredible amounts of information being poured at me like a firehose. But for anyone that’s familiar with the cone of learning – you’ve probably seen a diagram, it looks like the food pyramid. I think it was – gosh, what’s his name – Edgar Dale, I think was his name, that came up with this, and it’s basically how much information we can retain as humans based on what method we’re consuming the information. So for example, for reading, statistically, we’re only going to retain about 10% of what we read.

So this is just a method to make that percentage jump a little higher and to cut that time commitment. If it takes you a month or two or three to get through a book, as I said, this is a way to take one hour and get the majority of what the book is trying to tell you. But to your point, Theo, even my strategy here, this strategy is really non-fiction stuff, it’s self-help, it’s how-to books, it’s things like that. But anything that’s going to follow a chronological order or it’s going to be in story format, this is not going to be a good strategy for books like that. Just to lay that out there.

Theo Hicks: Is Edgar Dale’s cone of–

Travis Watts: There you go.

Theo Hicks: –experience, E-D-G-A-R? You said a pyramid, and I found really nice pictures. There’s a  green pyramid that has the different types of ways you can consume content, and then it has the percentage of information retained based off of whatever you’re doing. So I never heard this before. Interesting.

Travis Watts: Oh, really? Okay. The book I’m going to talk about as my example is Robert Kiyosaki’s book. I think that’s where I probably picked up on that for the first time, was through him. But just to give simple– I don’t have it in front of me; I forget what they are. But I know 10% is reading, and I think it’s like– I don’t know. 30%–

Theo Hicks: 20% of what you hear, 30% of what you say, 50% of what you see and hear, 70% of what you say and write, and then 90% of what you do.

Travis Watts: Exactly. And we’ll get to hopefully more than that 50% to 70% range, and I’ll show you how to do that. Again, this is just a form of speed reading. But instead of just flying through page by page like that and going through 400 of them and trying to retain what you can, it’s a little bit different strategies. So it’s five steps, and I guess I’ll just jump right into them.

The first three steps have nothing to do with even reading. So it’s pretty easy, there’s only two real steps. But setting some blocks of time aside to read. So I think, myself included, and I know a lot of people, when you make this vague commitment like, “Hey, this Saturday, I’m just going to read all day,” or “I’m going to read this afternoon,” and there’s no clear timeframes or timetables, we often get distracted. You might get 45 minutes in and then “Oh, I got a phone call. Oh, I forgot about that email. Oh, I got to go cook dinner” or whatever. So I think blocking out two or three intervals per day, 15, 20-minute range, something like that puts you in the ballpark of an hour per day, and it doesn’t have to be every day. Think about yourself, your schedule, your routine. Make it sustainable. Maybe it’s ten-minute intervals three times a day – I don’t know – morning, evening, night, whatever works. So that’s step one.

Step two is decide ahead of time on what you want your outcome to be for the book that you’re reading. That’s really important. I don’t think a lot of people do that. This book here that I’m going to use as my example is called Second Chance, Robert Kiyosaki, came out several years back, author of Rich Dad, Poor Dad. So Second Chance, what comes to mind, if I knew nothing about this book, is let’s say I lost a lot of money in the last recession or the downturn, or maybe I made some financial mistakes in my life previously, and what I get from this is, well here’s a second chance to think differently about it, or to come back stronger, or try something new or different. So that would be my outcome. I want to learn how I can have a second chance financially speaking. That’s step two.

Step three, we talked about this before the show – bookmarks, sticky notes; I’ve got all kinds of colors and types and sizes. It’s whatever works for you. But the point is, you want to highlight sections that are easy to find, like key concepts, topics, things that really stood out, things that were really helpful. And when you put this book away back to your shelf, you have these tabs so that, again, back to the cone of learning, we only retain 10%. Let’s say if I read this book, well, I want to be able to go back in five years and say, “What was that book about again?” or “I know there was something in that book. I can’t remember exactly what it was, but it really was helpful, or whatever”, and then you can just clearly go back in a matter of minutes and figure out what it was. A little overwhelming to go back to a 400 or 500-page book and forget what it was you’re even looking for and try to find it. You pretty much just have to reread it. So that would be step three, is simple organization.

So one, two, and three is just prep work. So to jump into it, this is what I do to get through a book in roughly an hour, depending on the book, obviously, and the size and the chapter length and all that. Step four is read the front cover, the subtext for your money, your life in our world. Kiyosaki, Second Chance, yadda yadda. The back’s actually got quite a bit on here. It says the past, the present, the future, you will learn how we got into this financial crisis and what we can learn from the past. The present is learning from the past. You’ll have the opportunity to make new decisions from the present for a better and brighter financial future. And in the future, you will learn how to guide yourself and your loved ones through this growing financial crisis.

So that’s just one small section, but this gives you clearly what this book is about, some things to think about. You may even need to use that to go back to step two, which is defining your outcome. Then, a lot of books have a jacket. There’ll be some text in here. This one doesn’t have it, but definitely read that after you read the front and back cover; the inside jacket there. This one has a dedication, that’d be fine to read that. I was really thinking about more the introduction. Definitely read the introduction. This book only has literally a one-page introduction. So that’s really short. So the foreword, the introduction and the jacket. And then we’re gonna jump right into chapter one. Okay, and this is all step four.

So the jacket covers, introduction, dedication, chapter one. So most books are gonna lay out the land for you in chapter one. It’s usually a pretty lengthy chapter, and it’s just the core concept. This is what this book is about, this is why I wrote it. They’re making the case for what it is. So it’s going to have the meat of what this book is all about. Now, so far, we haven’t done much different from reading any other book, like we’ve all learned in school and done our whole lives. Here’s where it changes though.

Step five, the last step, you’re going to skip all the way to the last chapter in the book, for the same purposes as I just pointed out for chapter one. Often in the last chapter, there’s going to be a really detailed recap. Okay, this is what we learned in the book, this is what we studied, these were some of the key takeaways, this is more or less what the conclusion is. So again, just painting the big picture. And then this book, I think, even has final thoughts. So definitely check that out.

But you can see in here, this is all part of the last chapter. It says right here, “Here’s a few ideas as you consider your second chance on what this could mean for your life, your spirit, your family, your future – one, two, three…” So it’s just recapping the book to give you the most out of this. A lot of people are phased out in the middle anyway, they’re not going to retain a lot of that. So this is just getting right to the point, highlighting, bookmarking, taking notes, all that good stuff.

Then, here’s the very last step that you do. Go all the way back to the table of contents in the book. And here’s the key – find one or two, maybe three at the most – depending on how much you love the book at this point – chapters that you actually want to read that are going to help you accomplish your outcome or your goal. So just skimming through here, I would probably read The Next Crash, chapter five, because I want to know thoughts on what is this crash? What are you talking about? What does that mean for me? What else would I read? Chapter 13, The Opposite of Get Out of Debt. That sounds interesting, because you would think you’d want to get out of debt, so what does he mean by the opposite of that? So those would be probably two chapters that I would focus on.

From there, literally, you’re going to be so much more organized than most people who read. You’re going to have things that you can reference and go back to. Of course, you can read the full book, if you’re really that into it, and you love it. But the concept here is, you put five books on your table and that’s overwhelming sometimes. You think, “God, that’s gonna take me a year to get through all that,” and here’s a way to do that in a week. You can just blow through them, and then maybe pick the favorite one of those five and say, “Man, that one seemed really interesting from what I read. I’d like to finish it.” And then double down on that one, and maybe one of them, you skim like this for an hour and you go, “Yeah, it’s kind of crap. I don’t think I’m gonna learn much from that book,” and that’s the point. Don’t waste your time. Value your time. So that’s the strategy to get through a book a lot quicker instead of the traditional speed read, which is reading super fast and trying to comprehend that. I’m not good at that. I’ve taken courses on it and I just struggle with it. So this is a way to retain more and to your point earlier, Theo, with that cone of learning. I think you said 70% is write, or at least that’s part of the 70% equation. No, write down notes.

Theo Hicks: Say and write, yeah.

Travis Watts: Yeah, say and write. So say it after you read the book. Recite your bullet points to someone. Now you’re all the way to 70% instead of 10%. So something to think about. But that’s my strategy in a nutshell.

Theo Hicks: Thanks for sharing that. And if you’ve ever written a book before, or you understand how the process of writing a book goes, this strategy makes more sense, because as Travis mentioned, typically what happens is you want to really summarize the book in the intro or the first chapter. So obviously, in that book Travis was talking about, it was summarizing– the intro was summarized in the first chapter. So you usually don’t write the intro until after you write the entire book. And then if the intro is 20 paragraphs, it’s one paragraph per chapter. So even you could even use the intro and say, “Okay, well in paragraph 15, it talks of something very, very interesting,” and then you go in the table of content and say, “Oh, Chapter 15 is talking about that particular paragraph in the intro.” So you can read that too. But obviously, you get that from reading the first chapter or reading the intro.

Something else too is a lot of the middle parts of the books is what authors do is they’ll have per chapter, maybe it’ll be one particular concept they’re trying to get across. So they’ll say that concept in the intro and in the beginning of the chapter, and then they’ll have 20 or 30 pages going into more detail and giving examples, which is obviously good to read sometimes. But really, if all you want is the concept, then you don’t even need to read that chapter in general. And then one other thing too I thought about as you were talking was I remember– I think his name is Tai Lopez. He talks about how he reads a book every day. So his strategy, from what I remember – I watched his video years ago – is he just downloads SparkNotes and he reads the SparkNotes of that book, and then that’s how he gets all the info. Now, the only issue I think with doing that is you’re going to be getting a summary out of maybe a real estate book or a self-help book that’s not written by someone who specializes in that, so you’re like “Didn’t I miss something?” So I think Travis’s strategy is a lot better, because you won’t miss the important things.

And then the one thing I wanted to mention before I talk about what I do really quickly, is taking a step back and asking yourself, how do I know what books to actually read, because there’s thousands, there’s millions of books out there, and if you don’t have a lot of time to read, obviously, this strategy would help. But if you even have less time, and you want to make sure that every book you read is completely worth it, then just make sure you’re getting your book recommendations from someone who’s at where you want to be.

So if you want to be a really successful apartments syndicator, then I would recommend reading books, listening to the podcasts, or reading the blogs of really good apartment syndicators or really good passive investors and see what they’re reading, and then just pick those books and just start there. That’s a lot better than going to a random top book list online or following the recommendations on Amazon, or something. So that’s how I pick books that I want to read, is that people who have information that I want or are at where I want to be, if they have a recommended book list, I’ll read that and only that. And once I go through that, I can move out somewhere else.

Travis Watts: That’s one of the most common questions I think I’m asked when I’m a guest on a podcasts, “What’s your favorite book or your top three books that have changed your life?”, things like that. That’s a great source to get that information. Again, if you want to be  a passive investor, go listen to a podcast with passive investors, see what they say about books. Great point. I love it.

Theo Hicks: So just really quickly, what I have is similar. So usually, whenever I read books, I go in a lot of detail, like a crazy person. So this strategy is more for if you– let’s say you follow Travis’s strategy and you find that one book that you want to read through fully. So again, I’ve never heard of this Edgar Dale’s cone of experience before, but he says that the best way to retain knowledge is to actually do it, act on that knowledge. And then before that is to say and to write it. So a little bit of what I’ll do is I’ll read the book, and while I’m reading it, I will underline, highlight maybe a statement or two, what concept is being talked about or whatever. So I’ll read the entire book that way, and then I’ll go back through and I’ll look at the words I had at the top of each page. And then it depends on how detailed the book is. But maybe for each chapter, you take a post-it note and you put it at the front of the chapter, and then you write your notes on that chapter. It could either be very detailed or it could just be bullet point form. And then you do that for each chapter, and then you can stop there. I don’t stop there. I go further than that. But if you stop there, then you go back to your book, and like Travis has these little notes at the top for you, you don’t even have to open that book again if you don’t want to. You can just say, “Okay…” You can just quickly read through that ten post-it notes in five minutes. So five years later, you want to go back to the book and remember what you learned, all you need to do is read these five bullet points, as opposed to reading the 300-page book again. So that’s the– you take care of the reading part and you take care of the writing part.

And then if you want to go even above and beyond that, you can write a page worth in Microsoft Word summarizing the chapter after you’ve read that chapter or later. Or even better, as Travis said, you can say it out loud. So usually, when I read a book, I’ll annoy my wife by [unintelligible [00:20:13].21], I’ll just start talking about the concepts that I learned in that book to her, and she’ll ask questions, and it makes you think about it more. Or you can turn it into a thought leadership platform where you can talk to listeners about what you learned. So not only are you obviously helping other people adding value to their lives, but you’re also helping retain that knowledge even more, because then he says in here, the best way is to perform a presentation on the information that you learned. So this is design and perform a presentation. So you read a book, you take your notes, and then you do a presentation on that book for, say, an hour, even if you don’t even record it. It’d be good to record it and post it, but you don’t have to. You can just say it out loud in your office to yourself, and that way, you’ll retain that knowledge, as he says here, 90%, as opposed to just reading it, and that’s it.

Travis Watts: Exactly. That’s something I just started doing too, just these relevant book reviews to the industry that we’re in, multifamily. I did one last week on The Hands Off Investor, and it really helped. I just finished up that book, and for reasons that we’re talking about, I wanted to really sink the point home of what that book was about and recap it. So I did make a video, I did record it, I did post it, but I don’t know how many of those I’ll do.

But one, it helps other people. Instead of what we’re talking about reading a book in an hour, maybe they can watch a ten-minute video and get the gist of it. But two, it helped me remember some key concepts. So whatever works for you, like I said earlier before we started this, whether– it’s not about my method versus your method versus anybody’s method; just do what works for you. But don’t waste your time reading a book that’s not giving you any value or a super long book that you’re already six hours in and you can only say one thing about it. This is just a point to almost like that book’s out too. The most time you’re going to risk is an hour, and if it’s junk, you just quit. And if it’s great, then you saved a month or whatever. So it’s a win-win.

Theo Hicks: Yeah, it’s definitely a really good vetting process. Again, going back to this pyramid and the experience of writing a book or writing blog posts or whatever. You’d be surprised by how much more you retain information when you write it. Someone could say something and you might remember a blog post you wrote five years ago about that topic, but you spent five, six hours writing. So I think that if you truly want to retain that information once you identify it using Travis’s strategy, you need to, in some form, do this, perform a presentation, whether it’s writing it or saying it out loud, if you truly want to retain it and be able to have it naturally come up whenever you see something that might be relevant. Is there anything else that you want to mention about this reading technique or any reading technique or how you read? I remember you mentioned that you don’t necessarily follow this strategy or you didn’t or I can’t remember exactly what you said in the beginning.

Travis Watts: Yeah, just remember that this is good for books like these nonfiction, how-to, self-health, all that good stuff. But again, if you’re going to go read Harry Potter, forget about this and things like that, fiction books. The other thing is I listen to a lot of audiobooks too, at least before COVID. I was traveling a ton. All the time I was on the go, sometimes hard to read a physical book. So mix and match. Maybe as you’re in your car, you’re doing an audiobook. But when you get home in the evenings, you’re doing a physical book. So it’s just one tool. I’m all about just sharing helpful knowledge hacks and tools and things like that. So try it out. That’s the best thing you can do for yourself – go grab a book, a nonfiction, how-to, self-help book and just try it. Try it for yourself and see what you think after an hour of that, and then take a book maybe that you’ve read previously, where you didn’t do this; you just read it front to back three years ago. How much do you remember about that book? What could you tell somebody? Could you teach a 20-minute presentation on it, and just see if it helps. That’s all I can really say.

Theo Hicks: Yeah. So I would summarize and say, when it comes to reading, I think it’s quality over quantity. So it’s much better to read one fantastic book that you get 52 takeaways than to read 52 books that you get one takeaway from.

Travis Watts: I can attest to that.

Theo Hicks: So if you want to read this blog post in full… It’s a really well-written blog post. It gives case studies of some very successful people and how many books they read and their thoughts on reading, and then it has the step by step process on how you benefit. It’s called, A Life Changing Technique – How to Read 52 Books A Year by Travis Watts. This one’s on BiggerPockets. I think it’s on the Joe Fairless website as well. So Travis, thanks again for joining us. I always enjoy these. And Best Ever listeners, thank you for listening as well. Go out there and read your book today in one hour, and have a best ever day. We’ll talk to you tomorrow.

Travis Watts: Likewise. Thanks, Theo, and thank you guys so much for listening and tuning in.

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JF2206: How To Underwrite Apartment Deals With No Financials | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks shares how to go about underwriting apartment deals when you have no financials. This would rarely happen but when it does it is typically when you are approaching an off-market deal. This is a question Theo gets a lot and so today he will walk you through how to handle underwriting with no financials. 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

Click here for more info on PropStream

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JF2200: The Truth About Financial Freedom & Retirement | Actively Passive Investing Show With Theo Hicks & Travis Watts

Today Theo and Travis will be sharing the truth behind what financial freedom and retirement is like, and how many successful individuals still “work”. Most of us need a purpose or mission to feel fulfilled and happy. The idea of sitting on a beach every day and sipping your best cocktail sounds great but will get old very fast. 

We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

Click here for more info on PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and I’m back with Travis for the Actively Passive Investing Show. Travis, how are you doing today?

Travis Watts: Yo! Doing great man.

Theo Hicks: Well, thanks for joining us again and looking forward to our conversation. So today, as usual, we’re going to be diving deeper into one of Travis’ blog posts that he wrote that are geared towards passive investors who are ultimately wanting to become full-time active passive investors, hence the name of the show. And the blog post today is entitled, Financial Freedom Doesn’t Mean Stop Working. So we’re going to talk about what financial freedom actually means, what it looks like on the other end, and then some of the things you can start doing right away before you get to that side to prepare yourself. But before we get into the details of the blog post, Travis, do you wanna, as usual, let us know why it is you decided to write this particular blog post?

Theo Hicks: Yeah. So this blog was actually inspired by one that we covered a couple weeks ago, which was called How Much is Enough? Essentially, how much is enough to retire, how to figure that out and that kind of stuff. So a lot of digging deep and soul searching, but it’s very individual. But this blog really piggybacks that one. So now we take it from a new angle, which is, okay, so you’ve gotten to the point of, let’s say, early retirement or retirement, in general. Does that have to mean that you don’t work anymore? What happens when you retire early and you’re in your 30s or 40s? Does that mean that it’s time to go move into that retirement community and start playing pickleball? In most cases, not. So that’s what inspired me to write this one. And yeah, looking forward to it. I think this one’s a fun topic.

Theo Hicks: Yeah. I loved reading this, and it reminded me of when I first became interested in real estate and you would read the blog post or listen to the podcasts, they would talk about the goal is to ultimately retire, and then you even have it in this blog posts, hang out on the beach and drink piña coladas or whatever. And at the time, this sounded amazing. This would be a great life – every morning, waking up and being drunk all day. I don’t know what the exact plan is. But you start to mature a little bit, and actually think about what is it that I enjoy doing right now and would I truly enjoy doing the exact same thing over and over again, every single day – going to the beach, pina colada, and not, as you mentioned, doing some of the things that you’re going to mention in this blog post. So I definitely fell into this early on, for sure. I think I’m slowly getting out of it, and your blog post definitely has solidified some of those things in my mind. So with that being said, let’s get to the blog post. I’ll let you lead the way.

Travis Watts: Sure. The idea here is that we all have a lot of preconceived ideas about what retirement is, what that means. And to your point, a lot of people in the very beginning of this whole search and journey and thinking about retiring early, that’s what comes to a lot of people’s mind is “I’ll just be on a beach, kicking back and really not doing anything”, but the fact is anyone that’s tried this… If you’ve gone up to an all-inclusive resort– I remember being in Cancun and by day four of piña coladas on the beach, I’m about ready to go home. I’m about ready to puke, quite frankly. So maybe you could hold out a little longer than I did, but inevitably, I think that we all want to be contributing in some form or fashion. So sometimes, I think that gets disguised as work.

Travis Watts: So I point out how many successful individuals that are far beyond what they need financially to retire, but why is it that they keep “working”? Well, it’s because they have a mission; they have a purpose. They have the ability to switch from trading their time for money like I used to do. I used to be in an oilfield gig that I really didn’t like, I wasn’t passionate about, I didn’t enjoy it. So really, all I was doing was trading my time for money, and that was a very sad existence. So as I built up the financial independence to be able to say, “Hey, I don’t need to be doing this anymore, but I still want to work. I’m still young,” I was able to pivot and go try out some new things. It’s been a soul searching journey. I worked for a brokerage firm right off the bat to learn stocks, bonds and mutual funds. I could care less what the salary was or if there even was a salary. That’s just what I wanted to learn at that very moment in my life, believe it or not; that’s what I was passionate about. And as that passion wore off and I realized how that industry works, I pivoted back to real estate and sharing my experiences and trying to help other people, which led to working with Joe and Ashcroft and the team there. So the point is, that, to me, is really what financial independence is all about. It’s having the option to work, but not the obligation to work. I think I put that in the blog. So that’s the whole basis behind what this is all about.

Theo Hicks: [unintelligible [00:07:59].04] intro spiel I mentioned that some of the things in this blog post are going to help you right away, and other ones will help you afterwards. But then you mentioned something that I really liked about this, which is the difference between the option to work and then being obligated to work. And then again, you talked about what work actually means, but I’m gonna keep using the word work. I don’t want to keep saying every single time exactly what you mean by work – but having the option to do something, as opposed to being forced to do something. You mentioned that you can start introducing this before you retire. You mentioned that you wanted to learn a certain skill that would help you to do what you’re doing now, and that was working for that brokerage and, of course, you got paid in return for your time, but you weren’t necessarily approaching it as “I’m just going to do it for eight hours or whatever per day and then get paid, and then do something completely different”. You picked a job that was part of your larger plan, which I think is something that people can do right away.

So if you want to ultimately become a full-time passive investor, then ask yourself, what are some of the skill sets that you’re going to need now that’s going to make you a better passive investor? So you talked about how you learned about other types of passive investments. It’s gonna make sense to know about whatever type of investment you plan on investing in, so apartments… So why don’t you find a job now that allows you to gain knowledge on that while you’re still obligated to work, get the information, and then while you’re working, while you’re spending the majority of your time at work, you’re able to move towards that goal faster than if you had to do some non-related job, and then do that all after work? Now obviously, I’m not saying that quit your job and get into real estate, but this is more for people who are earlier on in their careers and aren’t necessarily happy in what they’re doing, and as you mentioned in the beginning, they hate what they do for work. Well, then maybe rather than just quitting and going in real estate full time, try to figure out a way to transition into a job now that will help you reach your long-term goals.

Travis Watts: Yeah, and there’s usually two types of people. There’s those that love their career and they’re passionate about it, and then there’s those that really despise what they do. I was in the latter part of that initially, and then the passionate side later. But the point would be this – if nothing else, for either side of that, just get started. Again, to the whole theme of this blog about not having to quit work – it doesn’t have to be so extreme like I work a W2 job today and tomorrow, I quit and go full-time real estate. Just start. Just have a rental property. REITs on the stock market; you can get in with $10.

I helped my nephew… I don’t know if we talked about this on the podcast, but he’s 18 and obviously, he doesn’t have a ton of money. But I opened a brokerage account for him for graduation, put a few hundred bucks in there and we went through finding some high yield dividend paying REITs and stocks and things like that, and I was helping paint the picture of passive investing. So he’s already on the right road. He gets the concept, the philosophy, why this would be important, and he’s got a starting entry point at 18 years old. All he’s got to do is just pour more money towards that; not a ton, but just some, as you can, here and there, and while he’s in his 30s, he’ll have quite a portfolio built up. Hopefully, he sustains that and that becomes part of his whole thing.

But in either case, I was on the phone the other day, I do these free Q&A calls with folks to network, and there was a lady, 19 years old, California, and she tells me, “Six months ago, I just had this epiphany, just this mind blowing thing that real estate is my calling”, and she’s getting all enthusiastic on the phone – beautiful call; it was amazing – “but I just want to start building passive income streams as early and quickly as I can”, and she’s saving all of her salary, and she’s so dedicated to it, and I think that’s the solution.

So when we talk back to the preconceived ideas that I mentioned, let’s take retirement, for example. When the word retirement — and do this exercise, everybody listening. What comes to mind? Here’s a retiree. Well, what is that? Most people think of someone in their 60s, maybe 70s, did the corporate world thing. Now they’re living on their social security and their pension and whatnot. It’s our grandparents’ idea of retirement. Got my gold watch and my pension and I’m off to the races. But the fact is, you’re so fortunate in today’s world to even have a pension, and even if you have a pension, it doesn’t mean it’s going to be there in 10, 15 years. Most of them are going bankrupt or already bust today. It’s a horrible thing that’s happening.

In fact, I want to read this real quick. Before our call, I got on the Social Security Administration, ssa.gov. I was just reading this. This is right from the government. I won’t read this whole thing, because it’s long, but I’ll read this first sentence or two. It says, “The concepts of solvency, sustainability and budget impact are common in discussions of Social Security, but they’re not well understood. Currently, the Social Security Board of Trustees projects program costs to rise by 2035 so that taxes will be enough to pay for only 75% of scheduled benefits.” They’re telling you right there – your taxes are going up, and we’re gonna pay you less in the entitlement. So I guess my point being, you’ve gotta rely on yourself at the end of the day. When I started doing research like this and understanding 401Ks and retirement plans, Social Security, I just got so disgusted with the concept that I thought I’m going to put things in my control and I’m going to take action sooner than later, and I’m not going to hope that one day I wake up, I’m 65, and that all this stuff is just here to bail me out… Because clearly, all of these programs are failing and going bankrupt [unintelligible [00:14:07].01] what we’re talking about. So I switched my mentality. This is important; I don’t think this is in the blog.

Most people think of investing in terms of capital gains, in terms of equity, in terms of fix and flip a house, in terms of buying a stock at 10 and hope it goes to 15 and sell. That’s how most people associate investing. But I flipped that into passive income; cash flow, specifically. Living on cash flow and creating multiple income streams early in life to where you’re actually putting yourself in the situation that statistically 60 and 70-year-olds are in, in retirement a whole lot sooner than that, if you dedicate to this concept and philosophy.

So in that– hence, again, this blog and this topic… What happens when now you’ve done something like that and put in the work and now you’re in your late 30s or 40s or 50s and you have a sustainable income? You have more income passively than you have lifestyle expenses. What do you do? This is in the blog. I’m just pointing out how many people in my network are financially independent, financially free, whatever you want to call it, they have the time freedom, but they continue doing projects. They’re writing books, they’re launching companies, they’re launching charities, they’re still being productive. Use the celebrity examples, like Bill Gates and his charity foundation. That guy works his butt off. He’s not doing it for money. It’s a mission and a purpose, and I think that’s the whole concept that I’m passionate about helping people reach those levels, so that they can do essentially their highest and best work.

Theo Hicks: Yeah. So a few follow-ups on that. So we talked about your cousin and that reminded me of other preconceived notions that people might have about passive investing, is that it’s not extravagant. You gave him a brokerage account and he’s gonna be as a computer doing things for an hour, a month… I’m not exactly sure how that works. But it’s not this super extravagant, epic music playing in the background. I guess technically, you can do that, but… So that’s one thing too, it’s just a consistent grind. You could do things on your computer like buying properties and things like that, but if you’re doing that, extravagant parts are just once in a while, most of it is just the constant grind, which of course, most people listening to this know.

The other thing you said too that I wanted to also mention before we move on to the last part of this blog is, you said that you know a lot of people who are financially independent and that you want to surround yourself with these types of people, talk to them on a consistent basis, so that 1) you can absorb the knowledge that they have, how they were able to become financially independent, but also 2) to get the understanding of what we’re talking about today that what retirement actually means. Is it just doing nothing? It’s continuing to do something that you want to do, which is the last part of the blog post. You gave some examples of what people can do once they are retired. But again, you also gave some examples of things that you’re doing now that anyone can really do now to start to figure out the type of life that they should be living once they retire. So do you want to talk about that, too?

Travis Watts: Yeah. A lot of passive investors, I’ve come to learn, are just simply highly paid professionals doing whatever it is they do, and they’re looking for a place to park capital that’s not going to require their time. Think about being a dentist or a doctor, and then taking two days off a week, Saturday, Sunday, and going and trying to fix and flip houses. You can’t even day trade stocks; it’s the weekend.

So a lot of this act of stuff just doesn’t make sense for certain types of people. So what I outline in the blog and I’ll read it here, just three common examples that I talked to – these folks are in my network and I have these calls weekly – a doctor and or medical professional, an attorney and an engineer. “So when a doctor, an attorney or an engineer reaches financial independence, what they have is an option to”, and here’s the three things I point out – “An early retired doctor might set up a smaller practice, which operates without the pressure of optimizing profits and without dealing with the hassle of insurance companies; one of the biggest headaches in the industry.” So just more of a work-life balance and fulfillment from their work, not being tied to the structure of what that industry is all about. “An early retired attorney might refuse all cases that are based on questionable ethics.” You have just an option to say, ‘I’m not going to do this work. I’m not going to take on stuff like that.’ You can be a lot more picky and choosy with what you do. And then the engineer might continue working. For example, they might contract instead of being a W2. They might go to part-time instead of full time, or they might be compelled to create a new invention or a new software with their newly freed mind. So those are just some things to think about, of what we’re talking about. None of these folks in these examples stopped working, despite their age, but they were able to move on to something that was more fulfilling and brought more joy into their life.

Theo Hicks: Yeah. And then another example, more real estate related, too… If you are someone who wants to transition from active and retire from that and become a passive investor – I’ve talked to a few people recently who were full time active real estate investors, and then they hired someone to oversee that company, and then– well, I’m sure they took some time off, but then once they were ready to get started again – I think you either mentioned this in his blog post or you mentioned it when you were talking – they started some consulting program or mastermind group where they teach other people to replicate what they did.

So they’ll spend an hour to a month on the business they used to work in a 100 hours a week, and then they’ll spend the rest of their time doing their mastermind group, and then the remaining time doing whatever it is they wanted to do. So that’s just another example of someone who’s a real estate investor transitioning into what they can do when they’re not passively investing.

And then the other thing that I really liked about this blog post that you mentioned, the question you want to ask yourself to figure out what you should do once you retire is what you value. We talked about this in a past episode about stuff and that if you value stuff too much, then you’re gonna have a hard time reaching that number, because you’re going to have this luxurious lifestyle that’s going to cost you a lot of money to maintain, and you’re going to need a higher passive income to cover that. So you gave examples in here about things that were high costs but resulted in low happiness, and the things that were lower in cost that resulted in higher happiness. So we talked about how you could upgrade to a Ferrari or a Lamborghini, but would that ultimately make you happier? Maybe once you buy it, and then when you’re driving it once a month or once a week or whatever, or maybe when you’re looking at it when it’s stored in the winter. But it would bring you, as I mentioned, further away from your financial goals, and then your family goals and your travel goals, because of that reason that “Now I need to make that much more money. I need to invest in that many more deals to cover that Ferrari cost.” So you gave other examples of things that resulted in happiness. So I’ll let you talk about what those are.

Travis Watts: When I was a kid, Theo, I remember… Obviously, I think every, at least male child is into cars to an extent.

Theo Hicks: Oh, yeah.

Travis Watts: Well, cars are just cars, I don’t know. But I remember when I first was learning about money and how much things cost, and I would see a Lamborghini or a Ferrari and then ask or research how much those are and then think, “Oh my gosh, that car is $200,000. I can’t even– that’s not even in my world; that’s not in my reality. That’s insane.” And then as you progress through life and one day, you’ve got a couple hundred grand and now you’re thinking, “Well, I could really buy that car. I could really buy that car, cash.” And then you think, “How dumb would that be?” because it’s how much happiness would that give me versus what if I invested it and I got 1,200 bucks a month in cash flow? What could I do with 1,200 bucks for the rest of my life? That kind of stuff. For most people, that’s Social Security benefit right there – $1,200 a month or something crazy, and maybe less. We just read off the ssa.gov; maybe less.

Travis Watts: A couple things that I put in there that have added some tremendous value at a low cost where my wife and I, we went and we backpacked Europe for our honeymoon, and I bought the custom ordered shoes like a Forever Soles; breathable, washable. They collapse down, you can roll them up. You can almost put them in your pocket. They’re amazing shoes. They were like 100 bucks, and I can’t even begin to tell you how much value that added not only to that trip, but every vacation we take – I’m wearing them, and I love them, and they don’t wear down; they’re just phenomenal. Honestly, I think those shoes have given me more value than a Lamborghini would. All things considered. I truly believe that.

The other thing is my wife’s got scoliosis, so her spine’s jacked up a little bit like an S shape. So I bought her an inversion table. We’re always trying to experiment with things that make her life easier and eases the neck tension and the back pain. It’s just a little table. You strap your feet in and turn upside down and it decompresses your spine. I found that thing used for 40 bucks. I don’t know how much they retail for; probably a couple hundred. And I can’t tell you, man – very time she gets on it, she’s so happy and it’s so fulfilling and physically rewarding, and it’s 40 bucks.

So this whole thing is about finding things that bring value happiness into your life, and to our surprise… We used to be on the rat race thing. We used to want bigger, better homes, the fancy cars, “Oh, my clothes are three months old, I need some new ones”, just crazy stuff like that. But as we began to educate and learn and really think how much value is being created out of all that, with the luxuries, hardly any. And what we really value is travel and vacations and spending time with family and these little things – a nice pair of shoes that are comfortable. So just to wrap it up, that’s the whole point, I think, between this post and the last one that we discussed, too.

Theo Hicks: Alright, Travis. Well, I enjoyed this conversation. I think we gave a lot more information on this blog post. So the blog post is called Financial Freedom Doesn’t Mean Stop Working. So make sure you check that out on our blog. Travis, again, thank you for joining me. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Travis Watts: Thanks, Theo. Thanks, everyone.

Website disclaimer

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

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

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

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

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

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JF2199: SEC Modernizes the Accredited Investor Definition | Syndication School with Theo Hicks

TRIn today’s Syndication School episode, Theo Hicks, will be sharing the SECs recent expansion on the definition on what a “Accredited investor” is. There are two types of people who can invest in syndications; the sophisticated investor, and the accredited investor. Today we will focus mainly on the accredited investor definition.

 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

Click here for more info on PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week we air a syndication school episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we’ve released some free resource. These are free PDF how-to guides, free PowerPoint presentation templates or free Excel templates that will help you along your apartment syndication journey. So make sure you check out other episodes and those free documents at syndicationschool.com.

In this episode, we are going to talk about the SEC’s recent expansion on the definition of what an accredited investor is. So as a refresher, the two types of people who can invest in apartment syndications are going to be the accredited investor and the sophisticated investor. We’re gonna focus more so on the accredited investor in this episode, but the sophisticated investor is someone who does not meet the accredited investor qualifications but has sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity. So if you are raising money under 506(b), then you are allowed to raise from up to 35 of these sophisticated investors, assuming you have a pre-existing substantive relationship with them. So to learn more about that, you can check out our syndication school episode where we go into more detail on 506(b) versus 506(c). But if someone is an accredited investor, they can invest in any apartment syndication. They can also invest in crowdfunding as well, which I had a really good interview with someone about crowdfunding yesterday, that I’m sure I will be discussing on syndication school at some point. But still, currently today, because this is a new definition, it does not go into effect. I think they released it at the end of August and they said it’ll go live in 60 days. So by the end of October, this will go live. So technically right now, you’re still only allowed to raise from accredited investors who are qualified under the old definition.

So as a reminder, the old definition is going to be someone who has an income that is greater than $200,000 per year. Or it could also be $300,000 combined between an individual and their spouse in each of the prior two years, and then it reasonably expects the same for the current year; so you can qualify with your income. And then the other most common way to qualify is to have a net worth over a million dollars, whether that is as an individual or with a spouse, and then this excludes the value of the personal residence. So they can’t use the equity in their house or whatever to count towards their accredited investor status.

And then there’s a few others that might be relevant to you when you’re raising money, because sometimes people want to invest through an entity. So any entity in which all of the equity partners are accredited investors will also qualify, and then any trust with total assets in excess of $5 million does not form specifically to purchase the subject securities, whose purchase is directed by a sophisticated person, is allowed to also invest. A broker who’s not accredited can invest on behalf of a trust that meets these requirements. So there’s a long list of other ways people can qualify to become accredited. If you just go to the IRS website… I’m pretty sure it’s under regulation D. You’re going to find all of the different ways people can qualify.

Now as I mentioned, the SEC have recently changed the definition. I guess some people were fearful that the definition would become less; it would be limited. But anyone who is an accredited investor today was an accredited investor yesterday and last year is still going to be an accredited investor once this new definition comes into effect in October. So this definition only adds new accredited investors, not removing any accredited investor. So that’s the good news. But the bad news side is that it was not expanded that much. So the first expansion was people who had Series 7, Series 65 or Series 82 licenses are now technically considered accredited investors. Also, investment advisors registered with the SEC or any state. And then something that was surprising was that venture capital fund advisors and exempt reporting advisors now qualify as accredited investors, which is interesting, because if you remember what I said prior that – a sophisticated person, an investment broker… So talking about the sophisticated person who’s not an accredited investor who can invest on behalf of a trust.

By sophisticated, it means the person or the company or the private fund offering security reasonably believes that this person has sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment. So the exact same as the definition of the sophisticated investor that could invest in 506(b).

So the main point here is that the individual needs to be sophisticated in order to invest in the syndication, whereas a venture capital fund advisor and then exempt reporting advisors are not required to pass any exam or demonstrate any financial knowledge or sophistication. So this seems to be the first, if not a rare example of someone who’s allowed to invest without needing to meet the old accredited or the old sophisticated requirements.

A couple of other additions, expansions to the accredited investor definition – LLCs that are otherwise qualified can invest just because the LLCs were started after the existing regulations on who is or isn’t an accredited investor came to be. So it’s just adding that in there. Entities not currently listed, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries that 1) own investments and then investments in excess of $5 million and 2) were not formed to invest in the securities offered, meaning they were pre-existing, rural business development companies, family offices with at least $5 million in assets under management and their family clients, as each is termed under the Investment Advisors Act of 1940. So if you remember, we did an episode recently about family offices. So I think maybe that they just reduced the assets under management, maybe… Because I didn’t know that you could raise money from family offices before.

And then the last one are knowledgeable employees of a private fund, but only with respect to investments in that fund. So this last one, essentially what this means, is that individual and institutional investors that have the knowledge and the expertise to participate in private capital markets, which includes apartments syndications, now qualify as accredited investors based on defined measures of professional knowledge, experience or certifications. So rather than just them needing to meet a certain income or net worth or assets under management, they can also qualify as an accredited investor based off of a sophisticated status. Maybe in between or who have a little bit more experience than a sophisticated investor, then they will qualify as an accredited investor.

And then the last thing is that currently, the net worth and liquidity is based off of your spouse. So you have to be actually legally married, whereas now, the definition expanded to someone that you’ve been a cohabitant, occupying a relationship, generally equivalent to that of a spouse for at least seven years. Now, this obviously isn’t a massive change, but it could be an indication of bigger changes to come. And then also especially, this last example where people can qualify with different designations/credentials, so they don’t actually have the liquidity or net worth, is going to open up industry self-regulatory authorities and accredited education institutions to create various certifications, designations or credentials or courses that the SEC would approve for accredited investor qualification.

So someone can take some course and then get a certificate that will allow them to be a accredited investor, which obviously would lead to a lot more people learning about securities, and then being able to participate in apartments syndications and crowdfunding, which is obviously something that could be massive and tap into a massive portion of the population that can’t invest now because they lack the knowledge, expertise or the money.

So I would say out of all of these changes, the LLCs might be helpful. People can invest with an LLC now instead of an LP or something. But this last one where people who have certain certifications are allowed to invest, people can create new certifications that are approved by the SEC. So this is why it’s very important that you get the word out about what you’re doing… Especially now, even if the people you have a pre-existing relationship with don’t know about apartment syndications or aren’t qualified to invest in apartment syndications, because once these qualification courses start coming out, they can take those and be allowed to invest.

So if you want more info about the SEC release, their press release is on August 26, if you just google “SEC modernizes the accredited investor definition fact sheet”, you’ll go to the page that goes into more details, and then there’s obviously a lot of blog posts that have been written about it as well. You don’t technically need to go read the facts. I’ve summarized it pretty well in this episode, but if you want to read the more legal jargon as opposed to the laymen terms that I just gave you, then you can go check that out again. That’s “SEC modernizes the accredited investor definition”. So that will conclude this episode. Thank you for tuning in. Make sure you check out those other episodes and download those free documents at syndicationschool.com, and until next time, have a best ever day.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2192: Insurance & Apartment Deals | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks shares some of the lessons he learned from interviewing an insurance broker on the Best Ever Show.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

Click here for more info on PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of the Syndication School Series – a free resource to focus on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air our syndication school series that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes we’ve been releasing free resources that’ll help you along your syndication school journey. A lot of these documents were released with the first chunk of syndication school series, where we went through the apartment syndication process from A to Z. So if you want to check out those episodes, the more recent episodes and get those free documents, go to syndicationschool.com. And today, we are going to talk about insurance and what you need to think about when you are obtaining a quote when underwriting an apartment deal.

Now before I go into these tips, a little bit of context. So I was interviewing someone a few weeks ago from when I’m recording this, so early August… He is essentially an insurance broker, and he was saying that insurance rates and therefore insurance premiums have been increasing recently in the apartment multifamily realm. He says that you can expect anywhere between a high single-digit up to 20% increase depending on what market you’re in, and he said that’s because the insurance market is usually going to be delayed by about a year compared to the overall sales and buying market.

More recently, the insurance market has gone from a soft market, he says, where insurance companies were competing for business, meaning that the syndicator, the investor could shop around and get a lower rate and therefore, a lower premium. Whereas now it’s the opposite, where it’s a lot more competitive for the investor. So multiple investors are now fighting for one insurance company. So he says that not only are the rates higher, but they’re also not even getting insurance on certain types of properties. So with all that being said, all of these are things to consider now with insurance rates going up and with insurance companies being a little bit more picky about the types of deals that they provide insurance on.

First and foremost, I guess this is not gonna be considered part of the eight things, but this is maybe a bonus one, which is, make sure you talk to your insurance broker or whoever your insurance agent is, ASAP to get an understanding on what rate changes have been and what types of deals they may or may not be providing insurance on, because you don’t want to spend all this time underwriting a deal, getting it under contract just to realize that you’re not able to secure insurance because of some reason that we’ll talk about here in a second. So that said, let’s go through these tips.

The first one is how to set the insurance assumption when you are underwriting. So traditionally, for the past ten years, let’s say, they’ve been setting the insurance premium to the T12 insurance premium. So whatever the current owner is paying, the underwriter assume that they’ll pay something similar or the same. Whereas now, with rates going up and the premiums going up, you no longer want to simply assume that the insurance rate is going to be the exact same because as I mentioned, it is now a hard market and insurance rates can go up in the double digits in certain areas. So it is more important than ever to now speak with your insurance agent during the underwriting process so that you have an understanding of how much the insurance is going to increase. So give them some information about the deal and ask them what they expect the premium to be, or at the very least, what they think the rate increase is going to be. So that’s number one. Do not use OM insurance premiums anymore.

Number two is about the history of losses. So in order to provide you with an accurate insurance quote, your insurance provider is going to need the history of losses from the current owner’s insurance provider. So if the property has any past claims during the past how many years the owner has owned the property, your insurance agent needs to know because the history of the property is going to determine the rate, and it might even determine whether or not they will give insurance at all on the property. So if you do not provide them with the history of losses, then they’re going to assume that there is no history of losses, there have no claims, and will create an insurance code based off of a clean property history, which is okay if the claims history is actually clean. But if your insurance agent gets their hands on the history of losses during the due diligence period and there is a history of losses, then it’ going to change your insurance rates significantly and your premium is going to also increase significantly.

And as I mentioned, they may not even provide insurance at all, at which point you’re scrambling to get a new insurance provider. So to avoid all of those difficulties, reach out to the broker or the owner and ask them for the history of losses so you can send that to your insurance agent. The guy that I interviewed said that this is not very long process. So it’s just a button they click to generate it. So it’s not like they’re writing this out from hand or anything. It’ll be very helpful in helping you underwrite the deal properly.

Next is understanding the difference between the deductible and the premium and which one you want to have higher because they have an inverse relationship. So the premium is what you pay each month or each quarter or each year, and then the deductible of what you pay when you file a claim. So if you pay up to the deductible ceiling and then once that ceiling is passed, the insurance company covers the rest. But as I mentioned, there’s an inverse relationship between the deductible and the premium. So when you are getting an insurance quote, the higher the deductible, the lower the premium. And then the higher the premium, the lower the deductible.

Now since we’re buying for cash flow and not appreciation, then you want to get the insurance quote that has the lowest premium and then the highest deductible that you are comfortable paying. This will result in a lower premium, a lower ongoing operating expense, and higher cash flow. So when you’re asking for quotes from your insurance provider, ask them to provide you with multiple quotes with varying deductibles and premiums. So say, “Hey, what’s the highest deductible, what’s the medium deductible, and then watch the lowest deductible, and then what’s the associate premium with each?”, and then decide whether you want to go with the highest, the medium or the lowest.

Now on a similar note, number four is going to be understanding the actual deductible because you’re going to see two types of deductibles for commercial apartment communities. There’s going to be a deductible per occurrence and a deductible per building. So as the names imply, the deductible per occurrence is one deductible pay per occurrence. So if three buildings are affected by a fire or whatever or a hurricane and you file a claim, then you need to pay your deductible one time if it’s a deductible about per occurrence before the insurance kicks in. If it is a deductible per building, then in that same situation, you’re going to have to pay that deductible three times before the insurance comes in. So obviously, the deductible per building is going to be lower, but if multiple buildings are hit, it’s going to be higher than the deductible per occurrence. So you’re gonna want to make sure you know what types of deductible is in the insurance quote. Is it per occurrence or is it per building? And then you’re gonna have to decide which one you want to go with. Probably the per occurrence or the one that results in the lower premium.

Next is going to be about loss of income coverage. So apartment insurance doesn’t just cover the physical asset. It can also cover loss of income as well. So you want to determine if you are going to receive any reimbursements from a loss of rent if the property is damaged by a covered loss like a storm or a fire or a hurricane or a tornado or whatever. And then if you do, you want to know what the terms are. So is it just all of the income for the damaged buildings for a certain period of time? Is it up to a certain amount? Is it a percentage which is dependent on what the covered loss is? So you want to know exactly what types of claims will allow you to continue to generate income on those down units.

Another type of coverage you can get is a liability insurance. So this covers you legally if someone at your property, whether it be a tenant or a visitor of a tenant is injured. So if they slip on ice or they tripped on the stairs, they get hurt and they sue you, well, this could be hundreds of thousands, if not millions of dollars in legal fees and settlements. So you can get commercial general liability insurance, and a good rule of thumb here is $1 million per occurrence and $2 million overall in general liability coverage. So just say, “Hey, I want commercial general liability insurance included on my quote, and I want the $1 million per occurrence and then $2 million in general liability coverage.”

Next is going to be the replacement cost for the insurance. So this is just something not super important, but it’s also– well, not super known; this is a specific detail of the insurance. But you won’t know how the insurance company is calculating the replacement cost of the property. Are they just basing it off of the purchase price? Are they basing it off of some sales comp or comparing it to other assets in the area? What you want to have had is you want the replacement cost to be based on the price per square foot to actually rebuild this specific property. So wherever the replacement cost is included in your insurance policy, make sure it says, “Replacement costs based off of price per square foot to rebuild.” Again, that way, if something were to happen and the entire property were to be destroyed, you actually have the money to have the option to rebuild the property in full.

And then the last thing that I wanted to say that you should consider is to join REAPA. So we have no affiliation with them whatsoever, but it is a website where you can join for a couple hundred bucks per year. They partner with a variety of industry leaders in the real estate realm, and through these partnerships, their members are able to get discounts on certain things, including insurance. So it’s like– I can’t remember what the exact terminology is, but when you have a master policy with insurance company, or if you bring them enough people, you can get a discounted rate. So it’s like a bulk discount in a sense. So by going through this company, you can get a reduced insurance rate. So this is very helpful, especially since as I mentioned at the beginning of this, insurance premiums, insurance rates are increasing.

So those are the things to think about when you are getting an insurance quote. Again, this doesn’t cover every single thing, which is why I have the coverall, which is talk to your insurer. You can make sure you are adequately inputting the correct insurance amount when you are underwriting your deals. So that concludes this episode. To check out some of our other episodes as well as those free documents, visit syndicationschool.com. Thank you for listening. Have a best ever day and we will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2186: How Do You Know When It’s Enough | Actively Passive Investing Show With Theo Hicks & Travis Watts

Today Theo and Travis will be sharing their thoughts on the topic of “knowing when enough is enough”. There are some who are on the side of “always continuing to grow” and others who are in the group of “at some point, I want to retire”. 

We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

 

Click here for more info on PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks. We’re back for another episode of the Actively Passive Investing Show. With me today, as always, is Travis Watts. So Travis, how’s it going today?

Travis Watts: Hey, doing well. We finally got an official background for those tuning in on video; there it is.

Theo Hicks: That’s amazing. Maybe I’ll see if I can figure out how to edit my background, but I don’t have a green screen like you, so…

Travis Watts: That’s true.

Theo Hicks: It might look a little weird. I might morph in and out the video. But yeah, so today we’re gonna be talking about another one of Travis’s blog posts. It’s a deep topic today, so I’m really excited to dive into this with Travis and the blog post is entitled, How to Know When To Retire – How Much Is Enough?

Now before I let Travis describe it, I don’t see many people asking this question. I haven’t seen many blog posts covering this topic, and I think Travis did a really good job explaining what we need to do in order to number one, just be aware of this concept in general, and then number two, what we should do to figure out when, if ever, we have reached the point of maybe we don’t need to work as much, or continue that grind. So I’ll let Travis take it away and then we’ll have our back and forth. So go ahead, Travis.

Travis Watts: Sure, awesome. I think you hit the nail on the head there. This is an awareness blog, and it’s really not talked about a lot especially out in the real estate space, not that I’ve seen anyway. So what I wanted to do is paint a picture maybe from a different perspective that not a lot of folks have thought about before. So in this blog, I use this story of a CEO of a tech startup company, we’ll call it Silicon Valley startup. So it starts with the tail end of this guy’s career, saying he just took his company public, he’s got stocks that are going to vest over the next five years; once they do, it will be estimated this guy will have about a $5 million payout.

So that sounds like the ultimate American dream. The ultimate solution that we’re all after. But as we dig a little bit deeper, we get a little more into this story, and we figure out that number one, as I mentioned, this is the tail end of the story. So the way this journey started was this guy worked at a Fortune 500 company for the first decade of his working career, had a high salary, had some stock options there as well… So in those first ten years, walked away with approximately $2 million in total investments, had paid off home, things like this, and then launched his own company afterwards, went into business for himself. So he had actually previously sold a company; that was his second venture in the second decade of his life, and then here, we’re taking a look at the third.

So the question really is, is as much as that looks like an amazing success story to a lot of folks potentially, how much is enough? Was it possibly enough when he had a couple million dollars and a paid-off home? Could he have potentially retired in his 40s, maybe in his 50s? So now he’s 60 looking at– okay, 65 is the target, got a couple of kids in their 30s that he wishes he could have spent a lot more time with in his life. I know you and I, Theo, have talked about the previous blog I wrote about the top regrets of the dying, and Bronnie Ware’s story. Bronnie Ware, for those that may not know, was a nurse working in a terminally ill patient care unit, did a poll or survey on people’s top regrets before they passed, and the top two were, “I never pursued my dreams and aspirations and I never spent enough time with my friends and family.” So that’s a lot to think about.

To your point earlier, this is a deep topic if you take it that direction, but if nothing else, I just wanted to inspire the thought that a lot of people get caught up in these success cycles. It’s just one business to the next to the next to the next. I made $1 million now, I need to make $2 million; I made $2 million, I need $4 million, and I made $4 million, I need $8 million, but where do you stop? Do you one day just pass away like Steve Jobs, $10 billion in the bank, but a lost family by the wayside and possibly some regrets there? So that’s really what the topic’s about.

Theo Hicks: Yeah, I remember when I initially read the blog post about the top two regrets of the dying. So one of them is essentially career-focused and the other one is more family-focused. When I first looked at it, I was like, “Oh well, are these two mutually exclusive or can they both be used together?” Because in this story with George, we’ve got George, who I’m sure it was his dream to do a start-up, but at the same time, he in the story neglected the other regret. So I think what he’s saying here is that it’s not necessary that you’re gonna have both of these regrets when you die, it’s just you might have one or the other. It’s finding that balance. It’s finding that “Okay, well, I’m going to do this career thing.”

I’ve got a couple of things written down, because obviously, a lot of people expect if you’re the person who is able to grow that much success, it’s gonna be very difficult for you to attend to anything, so there’s obviously some options you can do in order to continue pursuing a career without having to work 120 hours per week. But when I  heard that at first, I thought, “Well, is it possible to have neither one of these regrets?” and then I think the reason why this blog post is important, especially for people who are just starting out who have no money at all and they’re like, “What are you talking about? It would be awesome to have $5 million in the bank” start realizing you need to be aware of this upfront, so that you can create your business plan on maybe not having these two regrets. So an example would be, I was talking to someone– I can’t remember what his name was; it was maybe two weeks ago on the podcast, and he literally had an exit plan right when he started; he knew exactly how much money he wanted to get in real estate before he fully stepped away. I think for his game, he was just gonna sell everything, right?

Travis Watts: Yeah.

Theo Hicks: So obviously, that’s one option, [unintelligible [00:08:38].11] okay, so let’s say I know what enough is, then what? What do I do after that?

Travis Watts: This is how I see it – identify first what is important to you, what are the most meaningful things in your life, what is the purpose of your life. If you had that ultimate life, reasonably speaking, what does that look like? What brings you the most fulfillment? This is something that — you’ve gotta write this stuff down. This can’t be just done in your head one time; just setting goals for a lifetime, 10, 20 year plus goals.

Number two is then you have to reverse engineer now. So how much is that going to take to afford that type of lifestyle. And I think what a lot of people find, myself included, is when you really nail this stuff down, you might find it’s a lot less expensive than you might think, when you really get down to it. I think the problem is in general, in society, is that we don’t stop to think about these things. We just think “I’m working now, I’m going to work forever, I’m going to work till my 60s”, whatever, and we don’t give it much thought, and we just go on the treadmill. And then one day, you’re waking up in your 60s thinking maybe either a) I have a few regrets about some of these things or b) like in George’s case in the blog, maybe I could have actually pulled the plug back in my 40s or my 50s, spent more time with my kids, maybe traveled a little more, had less neck and back pain, and those things; a lot less stress, if nothing else.

I think the purpose is not to say “Quit working” or retire in the traditional fashion, especially if we’re talking about someone in their 40s. I think it’s about finding what you’re truly passionate about. And maybe for George, this truly was his passion, but that’s why I point out in there that he’s got kids in his 30s he wishes he would have spent more time with, so obviously, there’s a level of possibly some regret in there. So just trying to find the balance and optimize your lifestyle. That’s really what this blog is all about.

Theo Hicks: Yeah, I totally agree. I think a good question would be again, where this is from – this is not from me, but ask yourself the question, essentially, what’s the job I’d be willing to do for free, is basically what it is. What I’d be willing to do, that I enjoy so much – work-wise, obviously; not like you sit there and watch movies all day or something, but maybe that’s what it is. [laughs] But what kind of job would I do? How many hours per week If I could do it for free, and then that would be what you do once you retire.

This also reminds me of what we talked about last week, is obviously how you get to this point. So there’s a million different ways to get to this point, and one of them would be making sure you’re focusing on not overspending in those main areas – the vehicle, the house and the food last week, and then doing some positive things as well. But I did have a few things besides that what I’d do for free, that you could possibly do once you’ve hit your goal. Obviously, the most important one is gonna be passively investing.

Some people’s goals in real estate is to actively invest, build up a large enough nest egg that they can passively invest with someone else, and then live off of that interest. So that would be probably the strategy that resolves it most times for you, because you’re just checking– Travis would know more about this than me, but you’re just checking the monthly reports and looking at deals, and it’s not gonna take more than a few hours a week.

There’s someone named Holly Williams, she’s been on the podcasts a lot. I interviewed her last week, and she is someone who is a professional passive investor. All she does is passively invest, that’s her job, and she’s been on the podcast a bunch of times. So if you want to figure out what that life is like, you can listen to her podcast. So that was one, and Travis, any thoughts on that?

Travis Watts: No, that’s exactly– yeah, that’s my big message to the world, too. Obviously, I’m a huge advocate for passive income and passive investing; that’s my story. The point is, you and I, Theo, are very fortunate. We’re very grateful, obviously, to have jobs and careers that we genuinely enjoy. We like to be creative and expressive, we both write blogs, we both do the podcasting stuff in various outlets, and that’s amazing, but you also have to remember most people can’t do that. Most people aren’t doing that. Most people are caught in the golden handcuffs, either a 9 to 5 situation or they’ve climbed this corporate ladder so high that they make a really nice salary and there’s really nothing else that they could do, so they’re trapped.

So until you start putting some of your income towards investments, whether it be passive investments or not, it’s hard to branch away and have this balance that we’re talking about, no matter what your approach is. But I think we all get there at one point or another. I think maybe we talked about that before. What’s the average American retirement like? 67 retirement age, or I don’t know; something like this. So you’ve got social security, you’ve got possibly a pension or your 401K. This is passive income at that point. You’re not having to exchange your hours and your labor in exchange for money. So we’re gonna get there somehow, at some point, hopefully. It’s just a matter of if you focus on this stuff earlier in life, you can get there potentially a whole lot faster than perhaps your 60s or your 70s.

Theo Hicks: Oh yeah, exactly, and there’s all those examples if you can invest $1 every day or whatever, for 20 years, you’re a gazillionaire, or something like that. So I 100% agree.

The other one, I’ve gotten this from– I do eight interviews every single week with people, and every single person obviously works — most of them, probably nine out of ten people were not born into a real estate family, and just were raised in it from birth. For example, I talked to someone last week, – he is a physical therapist, that was his full-time job, and he was doing some form of physical therapy that was very flexible. I think he go to people’s houses or something, and so it was very flexible, and then he got a promotion and he was a corporate physical therapist, and so he was traveling everywhere, he was working 60, 70, 80 hours a week, and during this job is when he had gotten in real estate, and he’s making six figures… And he asked himself, “Okay, well, I can continue to grind this 80 hour a week job, not be home with my wife, and make a lot of money, or I can go back to my old job, have more flexibility, so that in between the clients or at the beginning or at the end of the day I can work on my real estate business, so that I can get to the point where I can have my own physical therapy company” or whatever he wanted to do. But the point is, you don’t have to just once you catch the real estate bug, quit your job, and just be like “Well, I’m done”, without having an option. So one option would be to get a more flexible job, so that you can focus on pursuing your dreams and aspirations so that you can quickly get to this point where you’ve reached enough and then can transition into something else.

It’s funny, because I’ll talk to one person and then someone else who proves what the guy said to be true, and this guy had a job and he got into real estate, he completely neglected his job for real estate and got fired a few months later, and then it ended up working out for him. But if he would have gotten a more flexible job, he could have kept that job and then scale even faster, because he’s used that income to grow his active or passive investing business.

Travis Watts: Yep, exactly. Also, I was introduced to this video maybe a year ago. I came across it on YouTube, and unfortunately, this is on the fly right now, I can’t remember what the guy’s name is, but if you type in, I think, “retire at 36” or something like that, “retired at 36”, there’s this guy who had a passion for boats and sailing; that was really his life purpose. It was his hobby, it was his everything. Well, he was a consultant, if I remember right. An IT type consultant, made really good money, worked full time, grinded it out, up until 36. Ended up just buying this sailboat and just living out on the boat and in the Caribbean. He “retired” at 36 because– and he’s the one that introduced me to this concept of enough. He said that’s the hardest thing to do is pinpoint that number, “This number would be enough for me” and then take action when you hit it… Because that’s the scariest part, is taking the leap and saying, “God, I hope this is enough. I hope I’m right.” But it was for him, and this guy’s, who knows, in his 50s now or something, but it’s an amazing story just to hear about this guy’s adventures in life, and with his wife, and all the memories and moments that they’ve had, because he could identify that. His alternative was just more and more and more and more money, but then that would have kept longer and longer and longer away from sailing, and what if he had passed away or came with a debilitating disease or something? You never know, right? Life is short. So yeah, something to think about.

Theo Hicks: Yeah, that story just brought up another thought in my mind, which is why this topic is even more important the younger you are, because enough is gonna get bigger and bigger and bigger the older you get and the bigger your lifestyle gets. We also talked about this last week, about the three main areas of life, and the bigger your house is, the more expensive your car is, the more you’re used to these things, when you’re sitting there saying, “What’s enough? Well, I want to have a BMW and I want to have a million-dollar mansion and I want this,” which is obviously fine, but that enough number is gonna be way higher than if you just graduate from college and you’re in an apartment like, “I really just want a three-bedroom house and it’d be nice to have a car and to be able to go out to a restaurant once a week”, and then that could be your number and that’s what you can start working towards. Obviously, it might not be exactly that. It might grow a little bit, but you’d be in a lot better situation if you started thinking about these things earlier. It’s easier the earlier you do it, for that exact reason.

Travis Watts: Yeah, that’s a great point, and I know that we did talk about that previously. But again, for those that may not have heard the episode, as far as the things like talking about a BMW or a ten-bedroom house, or this, that and the other, you’ve really got to ask yourself, “Why are you doing that?” Is it because you genuinely, wholeheartedly love BMWs and you’re passionate and you’re a car fanatic, that’s your hobby and interest and everything in life to you, and it brings so much joy? Or is it because you’re keeping up with the Joneses? Or is it because you think, “Well, society expects this of me. I’m a dentist or a doctor or a realtor. I’ve gotta drive this really fancy car. What will people think of me if I don’t?” So you’ve got to really understand this takes a lot of soul searching and looking deep, but at the end of the day, it’s probably the latter in most cases for most people… And nothing wrong with those vehicles. I’ve owned nice vehicles, like we talked about before. I chose to buy them pre-owned and I don’t think I’ve ever spent more than 13 grand on a vehicle, but I have owned luxury vehicles. So there’s ways to go about it, but it’s to recognize that you’re doing it for yourself, and not trying to impress other people. So good point, though.

Theo Hicks: And then the last thing I had on here was — probably the most common transition that I see from people I’ve spoken with, what they’ll do is they’ll have this business, own this big business, maybe they’re fix and flippers or whatever, and they’ve gotten to the point where “I’ve got enough” or “I’m ready to have more time freedom”. So what they’ll do is rather than just sell portions of it and transition over to something else, they will completely automate the company, hire a COO… I was talking to one guy, he said he spends a few hours a month on his business that he used to work 100 hours a week on. And then he can take that money that he’s making and obviously grow that business, but also passively invest in other things. But then from there, he can just do really whatever it is he wants to do, and for this particular person, he started a mastermind group. So he’s still passionate about real estate, he just didn’t really want to do the day to day stuff anymore, and so he started a mastermind group and he was teaching other people how to do what he’s doing. So automating your business is another way to slowly get yourself out of it once you’ve hit that enough number.

And then I just wanted to mention one more thing, because we were talking earlier about pensions and how once you retire, it’s not like you’re just going to do nothing. My dad, for example, he retired, and he is a bus driver because he loves talking to people, and so every morning he will — not now, but before COVID, every morning at 6 am, he’d go to the bus shop where the buses are, and all the retired bus drivers are, and they just talk about whatever for two hours, and he really enjoys doing that. So it could be something as simple as “I like talking to people, so I’m gonna do a part-time job where I’m doing something as simple as driving a bus or being a cashier where I get to hang out with people all the time.” I thought that was really interesting.

Travis Watts: Absolutely. I know we’re getting towards the end, but I do want to share this one thought that you just made me think of it. I know we’re both Tim Ferriss fans. I forget which book, 4-Hour Workweek or one of them, but he’s sharing this story of the New Yorker business guy that goes down to Mexico on a fishing trip, and this guy takes him out on the boat for a few hours, comes back, and he says, “Alright, thanks. That was great. It was amazing. Do you have more customers today?” He said, “No, I only do the one trip a day and get some fish for my family and do this.” He says, “Well, why don’t you do more? Why don’t you do five trips a day? You’ve got plenty of time to do it,” and he’s talking about, “Well, I like to come home, take a nap, visit with my wife, play with my kids in the evenings, have some tequila or whatever, and then play music with my friends, and that’s my life.”

And he goes, the New Yorker, “Well, can you imagine though, what if you did more of these trips, made more money, you could buy two boats, then you could hire employees to run those boats, and then you could have a whole fleet of ships, and then when that gets successful, you bounce out of the business, then you could headquarter in the States, and then you could run this big operation, and then you could franchise it…” And then the guy keeps asking, “And then what? And then what? And then what would I do? And then what would be after that?”, and he goes, “And then, you can retire and come down here and have a quality life and spend time with your family and your friends and play money.” It’s like, the guy already had all that. He already had the quality of life. That’s one more example of having enough. This guy already had that. So something to think about, just an awareness article in general.

Theo Hicks: Oh yeah, that’s a perfect example of someone who’s just starting out and just getting a few rental properties or passively investing in a few deals, and then just using that income, and then essentially you don’t need to, as you mentioned, franchise. That’s a perfect story to definitely end with. So is there anything else you want to mention before we sign off?

Travis Watts: I guess, for anyone listening, just think about this question – are your goals and your aspirations more set around a quality of life, or having quantity, meaning money and numbers? I was guilty of this early on when I would set goals, it was always money goals. One of my first goals – I want to be a millionaire; I want to have $10,000 a month passive income. But when you dig a lot deeper, it’s what do you really want out of life? Who cares about the money aspect? What if that wasn’t the factor, how do you want to live your life? So that’s really what the question is and that’s how I end the blog, on that note.

Theo Hicks: Perfect. Let’s end the episode on that note as well. So thanks, Travis, again for joining me for the Actively Passive Investing Show. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Travis Watts: See ya.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2185: Tips On Converting Apartments Into Condos | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares some ways you can convert your apartments into condos. This will give you more options when it comes to buying apartment complexes. 

 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

Click here for more info on PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of the Syndication School series – a free resource focused on the how-tos of apartment syndications. As always, I’m your host, Theo Hicks. Each week, we air a syndication school series episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we offer free resources. These are free PowerPoint presentation templates, Excel templates, PDF how-to guides, something that will help you along your apartment syndication journey. So make sure you check out those free documents as well as past syndication school episodes at syndicationschool.com.

In this episode, we’re gonna talk about an interesting strategy; an interesting, unique syndication type of deal where you’re buying an apartment, and rather than doing a turnkey where you hold it for cash flow or doing the opposite end which is an entirely distressed deal, and then stabilizing the deal and either selling it or holding on to it and that’s how you pay your investors, or the in-between value add where you have a deal that’s stabilized, but needs some care… Maybe you just renovate some of the units, upgrade some of the amenities, and then increase the cash flow to pay your investors. This strategy is a fourth, which is– well I guess, another one would be developing. So you buy a piece of land and you develop the apartment. So you raise money for that, develop the apartment and either sell or hold… And then I guess the fifth strategy would be to buy apartments and to convert them into condos. So this is going to be about condo conversion.

So this is apartment syndication and technically you are doing an apartment syndication, because you’re buying an apartment with other people’s money, but on the back end, you’re not selling it as an apartment, you’re selling it as condos. So like a development deal, the condo conversions is going to be a little bit different and require more effort. I won’t say more effort, but there’s more things you need to do for development deals and for condo deals; as you’re doing heavy construction, the units are gonna be vacant.

So if you are looking at a deal and it’s in a market where there are a lot of condos, or condos are popular, or you just want another option when you’re analyzing deals,  because the more options you have, the more deals you can do – I wanted to do an episode that went over some of the things that you need to think about before you submit an offer on an apartment deal that you intend on converting to condo.

So I’ve got a list of things that are a little bit different for condo conversions than for your traditional turnkey, distressed or value-add apartment syndication deal. The first one, and this is kind of the all-encompassing, which is to speak to an attorney. So the process for converting a condo is going to vary from state to state and from city to city, county to county. In some states, it’s a lot easier to convert to condos; other places, it’s a lot harder. So you’re gonna want to speak to an attorney that specializes in these types of condo conversion projects. That way, you can ask them what the entire process is, what the steps are, how long the steps take, what the costs are for the various steps, just to get a general understanding of one, is it even possible to do a condo conversion project in the market, and then if you are, what are some of the things that you need to do in order to get to the point where the condos are completed and ready to be sold.

On a similar note, you’re also going to want to talk to someone who actually specializes in condo conversions on the investment side. So an investor who has done condo conversions before, because you’ve never done it before – well, you might not necessarily know what you’re doing, you might run into a lot of mistakes, and when we’re talking about using other people’s money, well, every mistake is less money that goes to your investors and potentially eating into the capital that they invested. So it’s always good to have someone on your team that has experience doing what it is you’re trying to do, and even if you’re doing value add, you want to have someone who has experience in value-add syndication. So in addition to the attorney, make sure you have someone who’s done these types of deals in the past, and ask them also, “What’s the process like? What are some of the things that I need to think about? What are some of the things that most people miss?” just your traditional conversation.

Now, one of the biggest differences between your traditional syndication deal and these condo conversions would be the process for vacating the property. So it’s going to be more or less challenging depending on the laws surrounding condo conversions in that market. So that’s why you’re gonna want to talk to your attorney to ask them what the laws are, because some places there are a lot of laws that protect the rights of the people that are currently living in the property. So let’s say you see a property that you think is a good potential condo conversion deal and every single unit is occupied, but they’re all month to month, and so you say, “Oh well, I can just go in there and I can give everyone a notice to vacate, and then within 30 days the entire property is vacated, so I can start with my renovation. So I’ll have a 30-day window where I can’t do anything, but then after that, I can add in the renovation time, and then I can calculate the hold period.” Well, depending on the market, you might need to give a longer notice to vacate time than your traditional 30 days if you plan on converting to condos, and then in some places, even if you are able to send out these notice to vacate, you might, depending on the laws, have to cover relocation costs. You might even have to give them a chance to purchase the completed condo. You might not even be able to give them a notice to vacate depending on how strong these laws are. So if you buy a property with the intent of doing a condo conversion and you don’t know what the process for vacating the property is, and you’re in one of these localities that make you pay them $1,000 or whatever to move, or you can’t have them move at all and you have to organically move, then obviously your whole period is going to be way longer, those holding costs are going to be way higher, and you might not even be to do the condo conversion project at all, and obviously, that’s going to affect the returns to your investors. So that’s probably one of the first things you’re gonna want to look at if you are considering a condo conversion project, is what’s the vacating the property process like?

Next, you’re gonna want to understand the hidden fees. So there’s a lot of extra fees associated with condo conversion that you’re not going to see in the traditional value add type deals. Of course, your attorney can help you uncover these, but a few of these are going to be application fees with the city, surveying fees, attorney fees, and then fees related to code compliance. And then once you’ve actually done the condo conversions, the city’s gonna want to inspect the condominiums and make sure that they’re up to code, and if they’re not up to code, then you’re going to have to address those issues. So there’s gonna be a fee associated with any of those issues you need to fix.

One recommendation would be to hire a private condo pre-inspection specialist to inspect the property first, to give an opinion on potential code violations and the cost of repairs. That way again, rather than the city inspector coming saying you need to do XYZ, you do XYZ and they come back and say, “Oh well, you did this one wrong, you need to do the ABC now,” and then wasting more and more time increasing the holding costs… Have this pre-condo inspection guy come in after you’ve done the conversions. He can say, “Hey, these are the ten things you need to do.” You do all ten, the inspector comes, there’s no issues and you can move on to the next step.

One other hidden fee can be your increased insurance costs, because the insurance to cover condos is higher than insurance to cover apartments. So while you’re waiting to sell, your holding costs as it relates to insurance, is going to be higher. So make sure you’re getting a quote for the new insurance premium, and then you’ve got to keep in mind of the upfront and back-end fees that you as a syndicator are going to charge for putting the project together and manage the project, as well as the brokerage fees. So those are some of the hidden fees. Obviously, there’s more, but those are some of the main ones.

Next is going to be financing. So since you’re buying an apartment and converting it into a different property code, and it’s going to be vacant and not be generating any income, you’re not gonna be able to get your traditional loan. So you’re gonna need to speak with a mortgage broker who specializes in condo conversions so they can help you secure the right financing for the deal. And obviously, you’re gonna wanna have these conversations before you put the deal under contract, so you have an adequate estimation of the debt service, as well as the other important loan terms, like interest-only periods, what the loan term is, if there’s gonna be a balloon payment or prepayment penalties, interest rates, if they’re fixed or adjustable, financing fees, closing costs, really everything else associated with the loan. But you want to know upfront what types of loans you can get, so you can estimate that debt service so you have a more accurate holding cost.

Next is gonna be the timing. So again, you’ve got the upfront cost, the backend costs and also the hidden fees in the middle, but also the holding costs. Things like insurance, things like taxes, things like utilities, these are things that you have to pay regardless of whether or not the building is occupied or not. So in order to understand what the whole holding costs are going to be, you need to understand what the total holding period is going to be. So to determine that, you need to estimate the timelines for each step in the condo conversion process. So what’s the time it takes from buying it to vacating the building? Once the building is vacating, how long are the renovations going to take? How long does it take to convert the units to condos, to do whatever you need to do to address deferred maintenance, to do whatever you need to do in order to get the common areas up to par? And then once everything’s done, you’ve got the inspection and they’re ready to be sold. First of all, how long does it take to actually get the condos listed? So those are the things you need to do. As I mentioned, the inspections, you have to set up the HOA, any other post-conversion requirements, and then once they’re ready to be sold, how long will it take for you to sell all of these units? So that is going to be the average days on market, and then the closing timeline like. Once it’s under contract, it takes 45 days to close, or whatever.

You add all these together, and that’s going to be your hold period, and maybe you want to add an extra month or something for contingency, and then that’s how you can calculate your holding costs. Obviously, the next thing is, well, what are the holding costs? I already mentioned this, but these are going to be the ongoing expenses that you pay during the hold period. So these will be your insurance, your taxes, your utilities, your debt service. Obviously, since you aren’t going to be generating any cash flow during the conversion process, unless it takes a long time to vacate the property, maybe you got a few months of cash flow coming in, but obviously not enough to cover all of the holding costs… So these expenses must be covered in that initial equity raise. You need to make sure that you’re raising money to cover these holding costs.

Next are going to be the renovation costs, which we can break into four categories. First is the cost to convert the apartment units into individual condos. Second is the investment amount for the condo common areas. Next is the cost to address deferred maintenance and the next is going to be the contingency budget. So you’re gonna wanna make sure you have a grasp on all of these costs before you submit that offer.

So this is where you want to talk to, again, that person who specializes in condo conversions or a contractor to understand how much it costs to convert the condo, what types of common area investments should be made, deferred maintenance – you’re just going to need to get a contractor in there – and then a contingency budget; 10% to 15% is usually the traditional contingency budget.

Next is to understand the sales process. So obviously, you’re going to need to understand what the after-repair value is of each of the individual condo units so that you can determine how much money you’re going to make at sale, which requires doing a sales comparable analysis and figuring out how much condos are going in that area. Of course, you’re gonna want to do this beforehand, because you’re not gonna be able to set an offer price if you don’t know what the exit price is going to be. You’re also going to want to understand the costs associated with selling the properties, like the marketing expenses, if any, as well as the broker’s commission.

And then lastly, since this is a syndication as you are raising money, you need to figure out how the limited partners are going to be compensated, so you can determine if it’s actually a good deal for them or not. So first, what type of return are you going to offer? Is it going to be a preferred return? Is it going to be a profit split? Or is it going to be both? More importantly, when are they going to get paid? So they’re not going to get paid during the hold period, that’s for sure, because it’s not going to be generating any cash flow. It’s going to be more like a development deal where they get either a preferred return that accrues, or they’re gonna get a profit split at sale, but is it going to be after each condo unit sale or is it going to be once all the condo units are sold? So when they get paid is going to affect not only the IRR. So those are the things to think about if you want to convert an apartment into condos, and really the team member that you’re going to need to have in place prior to putting an offer in your first deal is obviously going to be the attorney that we talked about, we talked about the mortgage broker, we talked about the listing broker, we talked about the contractor, and then also, you’re going to want to find someone who’s investor who specializes in these things. And then all of those team members – attorney, mortgage broker, listing broker and contractor don’t need to specialize in the condo conversions. It doesn’t need to be the only thing they do, but it needs to be at least a part of their business. You don’t want to have a contractor who’s never converted an apartment to a condo before, or same with the attorney; especially the attorney, and the mortgage broker. Obviously, you might be able to find a mortgage broker that just specializes in condo conversions, but most likely they’re going to be some bridge lender that focuses on bridge loans in general.

So those are some of the things to think about when it comes to converting apartments to condos, when you’re raising money from investors to do this. So I think that’s everything. So we’ll conclude this syndication school episode. Thank you for tuning in. Make sure you check out the other syndication school series episodes as well as those free documents at syndicationschool.com. Again, Best Ever listeners, thank you for listening. Have a best ever day and we will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2178: Two Ways To Grow Your Syndication Business On The Radio | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, two ways to grow your apartment syndication business by using the old fashion radio, that’s right, the radio. 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

Click here for more info on PropStream


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, Best Ever listeners, and welcome to another episode of the Syndication School series – a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air a single syndication school episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we release free resources, especially the ones earlier on. These are free PDF guides, PowerPoint templates, Excel templates, something that’ll help you along your apartment syndication journey. All of these free resources and past syndication school episodes are available at syndicationschool.com.

Today, we are going to be talking about the radio. So I’ve interviewed a couple of people on the best real estate investing advice ever show about their usage of the radio to grow their real estate businesses, and so I want to talk about two episodes in particular. One, I did with Chris Arnold, that is Episode 2150, and the other one is with Erick Hatch, which has not aired yet, but I would imagine it’d be airing in the next few months, so keep an eye out for that.

So both of them are wholesalers, fix and flippers, and the did their lead deals using the radio, and I’m going to talk today about how you can use the radio to not only generate most likely smaller apartment deals — I’m sure it’s possible to get 100-unit, 200-unit deals on the radio, but most likely you’re looking at smaller, 50 and below… But more importantly, how you can start to generate potential investors interest and start to grow relationships. Obviously, depending on whether you 506(c) or 506 (b), you’re gonna have to approach it differently, but I’ll go into more details on that second step.

The first step is how to find deals, and that’s through radio ads, and the reason why is because– and I didn’t know this, but the radio reaches around 90% of adults, and since adults are the ones who are selling real estate and listening to the radio, that is a great way to generate leads. Again, this is most likely going to work for smaller deals, but I don’t see why this wouldn’t be a strategy you can use to generate apartments. So someone uses this and it works, let me know for apartments because most of the time, I hear about it for smaller deals, but the cost is so low that I would imagine it would make sense to attempt to do this for apartment deals. If you can get a hold of some mom and pop owners who listen to the radio, that’s probably your best bet.

So knowing that – Chris Arnold, we’ll start with him. He has done over 2,500 deals on the radio. So essentially, the strategy is four steps. Very simple. Well, I guess, first, another reason why he uses the radio is because most people listening to this who have read the title and said “The radio? No one listens to the radio anymore”, but they do. A lot of people listen, but not a lot of people advertise real estate on the radio. So there’s a massive supply and demand imbalance. You’ve got a lot of people listening to the radio potentially wanting to sell their deals, whereas there’s not a lot of people talking to them on the radio.

So the four-step process – number one is to define your target audience. So if your goal is to target mom and pop investors, so demographic over the age of 50, let’s say, which is the target demographic for Chris, then you have to think of what their motivations are. So if they’re over the age of 50, they’re mom and pop, then their motivations are to retire, maybe they’re tired of being a landlord, maybe they inherited an apartment from their parents who recently passed away… So since that is his target audience, then the next step is to create the advertisement targeted towards that audience.

So again, let’s go with 50 mom and pop, maybe they’re looking to retire, maybe they inherited the property, maybe they are tired of being a landlord. So the advertisement isn’t just some vague, “Hey, we buy apartments. Let us know if you’re interested in selling.” It’s very specific and talks to and touches on the pain point of that target demographic. So in his advertisements, he’ll say, “Hey, are you retiring? Are you tired of being a landlord? Did you inherit a property? No problem, we can buy your property all cash. Just give us a call on–” whatever number it is. So if you listen to the episode, he goes into detail on what his exact messaging is, but the most important thing is you need to mention the pain points, the motivations in your advertisement.

How you actually create your advertisement – you can either do it in home with a microphone, because again, it’s just audio, and if you don’t have the proper equipment, then you can use a local radio station studio. They’ll allow you to use their studio assuming you pay for the advertisement, which brings us into number three, which is how do you find a radio station.

Of course, this goes back to your target audience.  So once you’ve got your target audience defined, you’ve got your advertisement script written, then you figure out where you’re gonna air the advertisement, what radio station; which is actually pretty easy. All you need to do is figure out what type of music the target audience likes to listen to. So if you’re talking about the demographic that’s 50 and older, then they typically will listen to classic or old rock stations, and so you want to focus on those stations. If your target demographic is in a rural area, then country music, he says, are best. If it’s in a city, hip-hop or urban station might be better, or R&B, pop and hip-hop would be your best bet. But most likely, since you’re targeting the older demographic for these mom and pop investors… Classic, rock, old rock, country music stations will probably be your best bet to generate those leads.

Now, this last step is very interesting, which is to negotiate the pricing. So once you’ve identified the radio station, what most people typically do is they’ll call into the local radio station, and then they will ask for the media packet, and then they’ll get a media packet, which is a PDF with the various packages they offer, this many spots per month, and then there’s a price, and then they’ll just pay the price. So what Chris does is he’ll pull reports on the value of the radio station prior to calling, what the actual value of the time on the radio is, and then based off of that report, he’ll calculate how much the advertising spot– it’s a 60-second advertising spots, I think, he says he gives 100 per month. So he’ll calculate, “Okay, so 6,000 seconds.” So he’ll calculate “Okay, how much should I be paying a month for 6,000 seconds of ad time based off of this radio station’s value?” And then when he calls in, rather than saying, “Hey, can I see your media packet?” he says, “Hey, I did research and here’s how much money I’m willing to pay for the spot.” So start there. Obviously, not every single time they’re gonna not just say, “Oh yes, sure. We’ll take that”, but it’s much better to do that to at least know if the dollar amount in the media package is way inflated and overpriced, and then you can get a lower rate.

So Chris pays $1,500 for 100 60-second ad spots per month. So three spots-ish per day for $1,500 dollars per month. Now obviously, this price is going to vary depending on where you live. Chris does this in, I believe, Dallas, Texas. So he’s in a pretty big market. So again, this is more for finding deals, and I think, since this is only $1,500 dollars, I think it’s worth trying for six months to see if it works because again, one apartment deal will far outweigh the costs associated with advertising.

But the other episode with Erik Hatch, I think, is gonna be more interesting, because rather than airing ads on a radio station, he says he has his own radio show. When he told me this, I was surprised because I had this conversation with him and we had gone over all the various things he’s involved in in real estate; he does a lot. He does real estate software and he does deals himself, and then he also has a show on a radio station. So the reason why it’s not that difficult to get a show on a radio station is because they’re actually looking for content from people that they don’t have to pay.

So the way he explained to me is that if they want to fill an hour show, a three-hour show or any FM radio station, AM radio station, they reach out to someone, and then they pay this person money every single day, every single week, every single month, every single year for their show. And obviously, they make money by doing advertisings on that show and then commercials on that show. Whereas if you, the real estate investor, wanted to start a radio show and you reach out to them with your interest in starting a radio show, well, you pay them. So it’s way better from their perspective to have you host a radio show than it is for them to pay, assuming that you actually bring and attract listeners.

So what he does is he’ll do a show — and this is something very familiar to your traditional thought leadership platform that we’ve talked about a lot on this episode. So he did the show and he’ll blog about it. He’ll usually record his show in video format, and so he’ll post clips to YouTube about it, social media about it. He’ll tag the guests that he has about it… And it allows him to be perceived as the local expert, which again, we always talked about that with the thought leadership platform.

So what he did is he started at the most popular station first. Again, going back to that defining your target audience, and then figuring out what music they listen to. So in this case, if you’re looking to attract passive investors, whatever your criteria is for your passive investor, which we’ve talked about on the show before, how to define that, so you can check out that episode, then you need to figure out what FM radio station to do your talk show on, or what AM radio station to go on and do your talk show on depending on what high net worth individuals are listening to on their way to work. And he’ll just talk about investing. He won’t say, “Hey, I’m looking for deals,” or, “Hey, come invest in my deal.” He just talks about real estate investing. He gets his name out there and positions himself as an expert in the area. So if you’re on the radio talking about real estate all the time, and you’re interviewing real estate investors, you’re gonna become pretty well known, and people are gonna know who you are. So I guess technically, this could help you find more deals. The brokers will know, “Hey, you’re that guy on the radio station.” You’ll be more credible in their eyes and they’ll more likely be willing to give you their off-market deals.

Something else interesting that he says he does is he’ll have vendors advertise on his show. So he’ll do a live read. So rather than the commercials which the radio station makes money on, he’ll do live reads during his actual show. So does this sound familiar? It sounds a lot like a podcast or a YouTube channel, and as opposed to just posting it on iTunes, you take a step back, and the conception of the content is the radio show. So you do the radio show, and then that audio gets uploaded to the podcasts app, the iTunes app, all the other podcast apps; that’s audio.

You can go on YouTube as video, you can make your clips and post it to social media, you can write blog posts about this radio show, and you’re getting the added benefit of it being on the radio, as opposed to just being a podcast. And I’m not sure what’s even better – because he didn’t necessarily talk about how difficult it is to get a radio station to accept you, but he started this a while ago, and he does 20 to 30 flips per year. That’s what he does deal volume-wise. And if you have an existing podcast, and you can show the radio station when you call them and say, “Hey, I got this podcast. It’s got this many downloads, this many reviews, this many weekly listens. I want to do a one-hour show,” then you start at the most popular radio station and work your way down until you get someone to say yes.

As I mentioned, I’m sure you could technically use this to directly market for the leads. I think the better strategy here with the radio show is the same reason why you create any thought leadership platform. One, it’s for your own education. You can create your own customized education by deciding who to interview. The other benefit is that you’re already doing it. If you already have a podcast, it’s not that difficult to transition that to a radio station, because you don’t have to go in there — you can go in their studio, but you can also just record in your own home studio, especially if it’s just going to be audio, and then you send that in and then they just press Play. So that’s the other benefit.

I think the main advantage is going to be in regards to becoming the expert in your local market; becoming the go-to guy for real estate. Everyone knows who you are, you’ve interviewed a lot of people in the market, and then not only can you use that and leverage that when you’re talking to potential investors, but you might get people actually reaching out to you and asking if they can invest in your deals, and then you get to know them, and then they’re legally allowed to invest in your field.

So two ways to use the radio. One is to use it as advertising, legitimate advertising commercials, and the other one is to use it as a thought leadership platform. So again, very interesting strategies, very unique strategies that not a lot of people are doing… And especially now, recording this in August of 2020, when essentially everyone is still working from home, this is going to be, I think — people can begin to expand their future business by expanding what they’re doing right now and using the extra time that they have to grow and evolve into different marketing strategies, into different ways to find deals and tap into things that you might not necessarily have thought of before or had the time to pursue.

So at the very least, people should be doing a thought leadership platform, and doing a radio show is just one example of that, that I think, has a lot of promise. I remember I was really excited after talking to Erik and hearing about all the success he had on the radio station and how seemingly easy it was. All he did was just call and ask, and he asked a couple of times, just like when you’re cold calling. He asked enough people until they said yes, and now he makes money via advertising, he gets to talk to all these great guests, he’s an expert in the area, everyone knows who he is. He’s finding deals, he’s finding private money… And he didn’t say how much he paid for the radio station, but again, do one deal and it pays for itself.

So that concludes this episode, How To Use The Radio To Grow Your Apartment Syndication Business. Make sure you check out those other syndication school episodes we have from the past, as well as those free documents at syndicationschool.com. Thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2164: Tips for Creating A Compelling Property Management Incentives Program | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, will be going over some tips on how you can create a property management incentives program. He will be giving you the process on how to go about creating your program and advice on the type of incentives you can offer.

 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

Click here for more info on PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Now we are gonna start airing one syndication school episode every single week in addition to another show we’re starting off with me and Travis. I don’t have a name locked down yet, but it’s gonna be focused mostly on passively investing. So whether you are a passive investor listening to this or an active apartment syndicator listening to this, I think these episodes will be valuable whether, again, from a passive investor perspective learning the tricks and tips for that, as well as the active syndicator, understanding what it is that passive investors are actually looking for. But this is going to be Syndication School to talk about the specific aspect of the apartment syndication investment strategy. We’ll continue to release free documents in syndication school when it makes sense as well.

Today, we’re going to talk about property management incentive programs. So we’re gonna be talking about how to create this program for your management companies. This will be a post closing or I guess, at the earliest, post due diligence phase step, and the reason why you want to do an incentives program is because it will create an additional alignment of interest between you and your property management company, because the better they perform, the more money that they make.

So we’ve talked about other ways to create an alignment of interest, bringing on a team member, an experienced team member creates alignment of interests between you and your investors, and then with that team member, from lowest to highest alignment of interest, you have them getting an equity stake in the deal, which is a little bit lower than the next one, which is them investing their own money in the deal, where they have skin in the game. Above that would be them investing their own money and/or bringing on their own investors, and then above that would be them signing on the actual loan. So this incentive program falls probably in between you just bringing them on and giving them equity in the deal, but this is still a great way to create alignment of interest, because based off of whatever your incentives program is, they achieve that goal, then they get paid more.

So what is an incentive program? Simply put, you give your property management company an objective and if they complete that objective, then they are given a reward. That’s the simplest way to explain what an incentives program is. The incentives programs are going to fall into one of two categories. So for the purpose of this episode, we’re going to call them Type 1 programs and Type 2 programs.

So Type 1 incentive programs are incentive programs that begin at acquisition, and then they end at sale. So these are the types of programs where the objective is not necessarily never fully accomplished, and we’ll give some examples, but this is something that whatever reward they get, the possibility of continuously getting that reward every month, every quarter, every year, or all three. So that’s the Type 1 program – start at acquisition, end at sale. The Type 2 would be the one-off incentive programs that starts and end over a fixed amount of time.

So what are some examples? So for Type 1 incentive programs, the most obvious would be the property management fee, which is technically an incentive. It’s going to be used all the time, but that is considered an incentive. The objective is for them to effectively manage the property, to make sure the property’s occupied, make sure expenses are kept low, and their reward is their property management fee. The reward is also not getting fired if they do a poor job. So that’s the base level incentives program that everyone is going to have.

Other ones are them investing their own money in a deal. So the objective is they invest their money, the reward is they get the compensation given to the limited partners. If you’re getting a loan guarantor – same thing, they’ll get either a chunk of equity or a one time fee. Bringing on their own investors, same thing, they’ll get a chunk of equity. So the reward for all these are more equity or more cash flow. So those are kind of like basic, simple incentive programs.

These next ones are what you would probably consider incentive programs. So you can create these Type 1 incentive programs based off of KPIs, the Key Performance Indicators, and we’ve done an episode in the past on the property management weekly performance reviews, and in that series, we offered a free document which was that KPI tracker. And on that document, you’ll have all of the various KPIs that you will want to track on a weekly basis at your property. Of those KPIs, you can create various Type 1 and Type 2 incentives programs. So for example, the objective for an incentive program could be to grow revenue by a certain percentage each year, or maintaining or exceeding a specific occupancy rate, like 95%. So that could be something that you have an agreement with your property management company from the get-go, that as long as revenue grows by 5% every single year, then you’ll get an extra 1% bonus; or if you are able to maintain a 96% occupancy rate, for every month you exceed that, you’ll get some bonus. So those are examples of Type 1 incentives programs; so the KPI is revenue growth and occupancy rate.

Now make sure that when you are doing these Type 1 incentive programs that the objective actually makes sense and actually results in alignment of interest. So for example, a really bad incentive program with a bad objective would be to grow the occupancy by a certain percentage each year, because there is a limit to the occupancy growth. Once they’ve achieved 95%, 96%, it’s gonna be very, very difficult for them to achieve a 5% growth without, in their mind, sabotaging, reducing occupancy and then bringing it back up again. So just occupancy fluctuating up and down so they get paid more. So that’s why having an occupancy threshold that they need to maintain or exceed is a much better objective when you’re using an occupancy KPI. Same thing for total revenue growth. Setting a total revenue growth goal of 20% is too unrealistic and is not going to accomplish what you set out to accomplish. So those are examples of Type 1 incentive programs.

Type 2, again, are the one-off incentive programs. So these are ones where you can target a specific underperforming KPI. So let’s say, for example, your occupancy rate drops to just below 90%, then you can create an incentives program, and the objective would be to achieve a specific occupancy rate within a specific timeframe… Say, 95% occupancy within two months. And you can apply this to many of the other KPIs too if they fall below whatever your projections are. So if you do the KPI right away in the beginning to maintain the 95%, or you can do this in addition to that already incentives program. If your occupancy or some KPI falls below your projections or it doesn’t necessarily have to be below your projections, it could be non-stabilized or something else, you can set up a just one time Type 2 incentives program to get that number back up. Once they’ve achieved that occupancy rate, then they receive the award and that incentive program expires, and then you’ll do another one or not do another one, depending on how the property performs.

So let’s compare these two. Both can be very beneficial. The Type 1 incentive programs will create that alignment of interest from the get-go, and then the benefit of the Type 2 incentives program is that they can be used during the business plan to target and improve a specific lagging KPI. Of course, you might be saying, “Well, Theo, why don’t I just do all Type 1 incentive programs? That way, I don’t have to worry about a KPI ever lagging.” Well, as I mentioned before, one reason why is because if you set an objective to increase the occupancy rate by percentage, it’s not going to actually create an alignment interest, but the second point is that you need to be very, very careful and mindful when you’re creating these incentives programs, because you have to make sure that it’s actually incentivizing the management company and it’s incentivizing you; that it’s a win-win scenario.

So I already gave the example of the occupancy rate percent increase each year could potentially result in the property management company purposely sabotaging the occupancy, so that they can then be the knight in shining armor, increase the occupancy rate by that 3% they need to increase it by, and then getting that bonus.

Another example would be if you set an occupancy-based Type 1 incentives program. Let’s say, it’s to maintain a 95% occupancy rate. Well, how are they going to accomplish that 95% physical occupancy rate? So that’s just the number of units that are actually occupied. It has nothing to do with the rents demanded for those units, the concessions that were given for those units… So setting a Type 1 physical occupancy goal or even a Type 2 physical occupancy goal is probably not the best incentive program, because the property management company can sacrifice other aspects of the P&L in order to get that number to 95%.

So a much better KPI would be the economic occupancy rate. Another example would be a number of new leases based incentive program; 20 new leases every single month. Well, what’s stopping them if that’s the goal from letting in unqualified renters to inflate those new lease numbers? So you have to be very, very smart when you are creating these incentive programs, because you don’t want to shoot yourself in the foot. So Type 2 incentive programs are gonna be really good for the KPI based objectives. So if a KPI is lagging, then you’ll want to target that with incentives, and then the Type 1 incentive programs are gonna be much better for these non-KPI based objectives, like the property management fee, and then other ways to create alignment of interest like them investing in the deal and things like that… Because again, you don’t want to incentivize the management company to do things that actually hurts you.

So a few other best practices when creating an incentives program – first, you want to make sure that the objective set is realistic and attainable. We’ve already given examples of what would be realistic ones, but an objective to, say, raise the occupancy just below 90% to 85% and you set an incentives program to increase occupancy to 100% in two weeks – that’s unrealistic, very difficult. I mean, obviously, it’s possible, but very difficult to accomplish. So a  really good strategy to ensure that the incentive programs are practical is to actually plan a brainstorming session with the key members of your property management team and discuss objectives, metrics for those objectives, and then the actual rewards. What do they want? Which brings me to my second best practice, which is to be creative with your rewards. So maybe, after the brainstorming session, you realize that the property management company just wants money. They just want a cash bonus or a gift card, but other rewards would be dinners with you or someone else in your company. You could offer them an extra paid vacation day. It could be a free education or training course which helps you and them. It could be a special trophy or plaque that gets passed around every single month. Just be creative about your rewards, make it fun. Not only incentivize them to do it for monetary reasons, but also because it’s fun; it’s a competition.

Then lastly – and this is really important – you do not want to create an incentives program that actually punishes the management companies for failing to achieve the objective. So when you set incentive programs, you want it to be, “Here’s the objective. If you achieve the objective, you get rewarded. If you don’t, then you don’t get rewarded,” which, in a sense, could be considered a punishment, but you don’t want it to be, “If you have achieved the objective, then you get a 1% raise in your management fee. If you don’t, then you get a 1% decrease, and if you fail three objectives then you get fired.” That’d be a really bad incentives program, because that’s not creating an alignment of interest, that’s just helping you in a surface level, but also, it’s not necessarily helping you because your management company is not going to achieve that incentive, they might get fired and that is going to affect the operation that’s your property. So don’t reduce management fees, don’t give out any punishment if they don’t achieve the objective. The only time you necessarily want to punish your management company is when you actually fire them, and I believe we did an episode on how to approach firing a property management company. Actually, it was a Follow Along Friday that Joe and I did, where we went over how to fire a property management company. If you go to YouTube and say ‘how to approach firing your property management company’. It was released July 26, 2018. Joe and I went through that process.

So obviously, it’s not that you never want to punish your management company, but you’re not going to fire them for not achieving the objective in an incentives program, you’re gonna fire them for other reasons. So maybe incentive programs would be a good way to give them a chance to not get fired, and then in that sense, you might fire them after an incentives program failure, but overall, you don’t want to punish them over an incentives program.

So overall, these incentive programs are a great way to create that extra alignment of interest with your management company, as well as help you target specific KPIs that start to lag. So right now, amidst the pandemic, right now might be a great time to implement a fun, engaging, realistic, attainable incentives program. Even if they don’t meet that goal, that push up in economic occupancy or revenue or whatever, it could be very helpful.

Anyways, that concludes this episode, that is how to create a compelling property management incentives program. Make sure you check out some of the other syndication school episodes and those free documents at syndicationschool.com Thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2157: 8 Apartment Syndication Lessons From Tools Of Titan | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, will be going over 8 key lessons he learned from the book Tools of Titans by Tim Ferris. 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

Click here for more info on PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air a Syndication School episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we’ve offered some free resources for you. These are free PowerPoint presentation templates, Excel calculator templates, PDF how-to guides, some resource to help you along your apartment syndication journey.

All the past Syndication School episodes as well as free documents are available at syndicationschool.com, and in this episode, we are going to go over some of the top apartment syndication lessons from Tim Ferriss’ book Tools of Titans.

So we’ve actually referenced this book before on the syndication school when we talked about the concept of 50-50 goals, which I will briefly reiterate later on in this episode, because that is one of the lessons, but in addition to that, we’ve got seven other lessons that we took from the book, Tools of Titans. A really big book, but it’s written in a way that allows you to go to a specific type of person. It’s got a really good index, and it’s got really good searchability. It’s the kind of book that you can read front to back, or you just read it to get little tidbits, little pieces of advice that you want to get from the Titans, the billionaires, the icons, the world-class performers, and maybe by Tim Ferriss. I have a blog post on this, but the blog post was written geared towards passive investing. So I wanted to take these same lessons and apply them to you, who is an aspiring apartment syndicator. So again, these are eight lessons; let’s jump right into it.

The first one is to ditch conventional marketing. Essentially, what Tim Ferriss means here is that the traditional conventional way of advertising, those days are gone. He says that if you want to breed substantial results for your marketing efforts, you need to think outside the box; you need to be creative. He talks about how the traditional way is the hard sale, whereas now it is better to abandon that super aggressive approach and be not more passive, he says, but more elegant and more subtle. So a perfect example of this would be providing free content to potential customers. So as opposed to a straight-up going from meeting someone to asking them what you want, add value to them first. That’s a lot more subtle and elegant way to, in a long term, create and breed better results, as opposed to as Tim Ferriss mentions the conventional way, which is the super hard sale, and both in person as well as in your copy. So maybe a good first step would be to, for example, take some writing course. So there’s the Udemy who has a lot of good courses. You can take a copywriting course to figure out what’s the best way to create copy that is able to attract customers without turning them off by being overly aggressive. So Ferriss swears by this method of subtle and elegant advertising as opposed to the super-aggressive approach. That’s lesson number one.

Number two is to not fear fear. So rather than avoiding unpleasant feelings, foreign feelings, he says that it’s better to actually embrace those. He says that, for example, the fear of taking some risk. Of course, it’s good to take calculated risks, but if you let your fear dictate your actions, then you aren’t going to take really any action at all because there’s always some excuse we can come up to ourselves to tell us why we shouldn’t reach out to that broker property management company or why we shouldn’t get into apartment syndication in the first place.

He says that if your behaviors are often dictated by fear, be more mindful about the emotions that you’re giving your energy to. So just your standard mindset advice, which is just to be aware of your fears. I was interviewing someone today and a good exercise she says was to journal. Say, for example, you have some thoughts that’s keeping you from taking action. Let’s say taking action from, I don’t know, reaching out to a broker – so journal and write down specifically what that thought pattern is in your mind and that’s resulting in you not taking action, and then ask the follow-up question – Is this true? Do I have evidence to support that this thought is true? Do I have evidence to support that the outcome I’m afraid of is going to happen? If that outcome that I’m afraid of actually happens, what is the result of that? Is it the end of the world or will I actually learn from it and grow from it? So that’s the point, I think, Ferriss is making here is that– as Trevor McGregor says, “There’s no failure. There’s only feedback.” So don’t be afraid to fail, because when you fail, you’re going to learn a valuable lesson that as long as you apply that lesson moving forward, you are better for it. So that’s number two – don’t fear fear.

Number three, and this is very, very important for apartment syndications, is that qualifications don’t matter. So the idea that you need to have this massive amount of knowledge on a specific topic or a specific industry in order to take action doesn’t sit well with Ferriss, and he says that as long as you have a passion, then you’re going to be able to get through any obstacles. But a big obstacle from people starting in apartment syndications is “Well, I don’t have the knowledge or the education or the experience. There’s something I’m lacking that I need before I can go out there and do big deals and raise money”, and while it’s true to a degree, it’s unlikely that you’re gonna go from graduating high school or college with no relationships, no knowledge whatsoever of multifamily, and then do a 500-unit deal with $20 million raise. Sure it’s possible, but there’s also on the opposite of the spectrum is don’t spend years and years of years educating yourself on something and saying that “Well, I can’t do anything until I’ve reached some arbitrary point of knowledge.” So have your bases covered, but as long as you have that passion, as long as you have that drive, and as long as you have at least some foundation set up, what Tim Ferriss believes is that failure– you ultimately not reaching your goals is something that’s just not going to happen. So he thinks that passion and drive is more important than having the right qualifications.

Something else he doesn’t necessarily talk about here is that you can hack this qualification process by bringing on team members who have that experience. Finding that product management company that has that experience, finding that mentor that has that experience. So again, ultimately, you do need to have that education part covered, which is what you’re working on right now, but you don’t need to spend ten years educating yourself on apartment syndications before you do your first deal. So that’s number three.

Number four is to become comfortable with public speaking. So he talks about how a lot of people have a fear of public speaking; maybe one of the biggest fears. But Ferriss believes that there is a strong connection between being successful and being a good speaker. So a thought leadership platform is a perfect example. Let’s say you’re already super successful; then by you getting good at public speaking, you can inspire other people to follow in your path. So obviously you might not be a master, but as you become more and more comfortable with what you’re doing with the apartment syndications, make that thought leadership platform. Get out there and share your advice with other people even if you’ve done one deal. It’s huge that you’ve done one deal, but even when you’re in the process of doing your first deal, that information is going to be valuable other people. So focus on that as opposed to focusing on how scared you are, a public speaker.

That’s Joe’s big piece of advice is that whenever you are public speaking, as opposed to focusing all of your attention on yourself and how you feel your anxiety and fears of speaking, focus on the audience and adding as much value to them as possible. Another really good way to get better at public speaking would be to take some course. So I took the Dale Carnegie public speaking course, and at the end of the day, once you have that training, it’s very difficult to be afraid of doing a normal talk in front of people because of the different outlandish, goofy things than if you do in front of a complete stranger. So they make you go through these exercises where you humiliate yourself, not in a gross way, but you act and you say completely absurd, outlandish things.

One of the exercises was you had to go up there and sing the “I’m a little teapot” song while doing a teapot thing and singing it in a really high pitched voice. Then everyone’s sitting in a circle and you act like you’re a mountain troll or something, and you say the fee-fi-fo-fum thing. Some girl got so into it; it was really funny, but it shows you that if you’re able to do something like that, then you’ll be able to stand in front of people and have a normal talk as opposed to having to do the little teapot, I guess is the point. So Dale Carnegie; you can look that up. It’s pricey, but again, just think of it as an investment. So that’s number four – become comfortable with public speaking.

Number five is to ask these stupid questions. So you’d think that this would be only relevant to passive investors, but this is also relevant to you, for a longer learning process; and this could be literally asking a mentor or a property management company or a broker stupid questions, or it could be you asking yourself stupid questions to make sure you actually know what you’re talking about. Because at the end of the day, it doesn’t really matter what you’re doing, there’s nearly an unlimited amount of information that you could discover, and the more information you have, the better decisions you’re gonna be able to make. So if you’re interviewing a bunch of property management companies, don’t be afraid to ask them a question that you deem to be stupid. It is going to provide you with information that you need in order to make the correct decision on who to invest with. So there really isn’t a stupid question when it comes to interviewing people, and at the same time, if by asking yourself what might seem like stupid basic questions and then seeing if you can answer them, it’ll also promote growth. Because if you realize, “Well, hey, I actually don’t know the answer to that question. So now I need to go out and get the information,”  and even if no one’s going to ask you that question ever, you’re still gonna have more knowledge and get closer to mastery of a specific subject, and then ultimately, more mastery of the apartment syndication strategy as a whole. So that’s number five – ask the stupid questions.

Number six is to not sell yourself short. This is where that 50-50 goals comes into play. So it’s easy to think that you are not progressing. You set a goal for yourself to do apartment syndication for the year and then you don’t do that goal, and then in your mind, the year was a complete failure. Keep in mind something that Joe always says that he got from, I believe, Tony Robbins…. It’s that you think you can do more in a year than you can actually do, but you think you can do much less than you can actually do in five years or in a decade. So this is a very long-term strategy. Real estate is a long term strategy. It’s not a get rich quick scheme. So if you end up not achieving your quarterly goal or your yearly goal, try not to stress out about it so much and instead use the 50-50 goal approach, which was from this book as well, and it says, “50% of the success of a goal is actually achieving that defined outcome.” So if your goal is to do an apartment syndication, then half of your success is if you actually did that deal, but the other half of this it says, “Did you learn anything during that process?” So let’s say you didn’t achieve your goal of doing an apartment vacation in your first year… What did you do that got you closer to doing an apartment syndication? Who did you meet? What piece of education did you gain? Do you have a team built? Have you spoken with people about raising money? Have you attended some– I guess you can’t really attend much stuff now, but have you taken a lot of online courses or have you been listening to a lot of podcasts to determine if you actually made progress towards doing apartment syndications. Did you create some process or system that you’re going to take with you for the next 10, 20 years in your journey? So half of it is the defined goal; the other half is actually the systems and the information and the people that you gained along the way. So that’s number six – don’t sell yourself short.

Number seven is to find an uplifting community. So it’s technically impossible to do anything in life by yourself. Even if you’re in a cave by yourself, eventually you’re gonna have to interact with someone to get food or water or whatever. But obviously, we’re not in caves here, but the whole point is that no matter what you do, you need other people, you need help from other people, and this is especially true for syndications. You need your team to help you manage the deals, to close on the deals, to fund the deals… But at the same time, you also want to have another team of people who are doing what you are trying to do or have already accomplished what you are trying to do, and surrounding yourself with a community of people that align with you, align with your goals, align with your values. A fellowship of sorts, where you’re doing the more technical stuff with your property management company, your broker, and then you’ve got your other team where you can talk more abstract, long term strategies, get tips and different processes and things that work for them. Overall, have people that you can talk to that have similar interests, similar goals, similar values. So this is your core group of people that you can rely on.

Then lastly, and this is pretty straightforward, but you got to show up. At the end of the day, none of the other things are gonna matter if you don’t actually take action and show up. So this is the glue that holds all the other lessons together, is that you have to show up to do marketing. You have to show up to overcome your fears. You have to show up to be a public speaker. You have to show up to ask questions, to find a community. You have to take action. You have to, every single day, do something that is bringing you closer and closer to whatever your goal is.

So those are the eight lessons from the Tools of Titans book that we took away and again, there’s this based of a blog post, but it’s not written towards syndicators, so I thought it’d be great to go over today’s lesson. So to summarize is ditch conventional marketing, don’t fear fear, qualifications don’t matter, be comfortable with public speaking, ask stupid questions, don’t sell yourself short, find an uplifting community and show up.

If you do these eight things, you’ll be well on your way to becoming a syndication titan like those who are interviewed in the Tim Ferriss’ book. So that concludes this syndication school episode. Thank you for listening. Make sure you check out some of the other Syndication School episodes about the how-tos of apartment syndications. Make sure down all those free documents; that’s at syndicationschool.com. Thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2144: Read 52 Books In A Year | Syndication School with Theo Hicks

Does reading 52 books a year sound daunting to you? Yeah I thought so, well today Theo Hicks will be going over a popular blog post that Travis Watts from Ashcroft Capital recently published on the importance and techniques to reading 52 books in a year. Theo will be sharing the techniques he learned from reading this blog post and if you’d like to read it yourself check it out here

Click here for more info on groundbreaker.co

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that help you in your apartment syndication journey, and for a lot of these previous episodes, we’ve offered some free resource. They’re PDF how-to guides, PowerPoint presentation templates, Excel calculator templates, something that’ll help you along your apartment syndication journey even more so than just these weekly episodes. All of that is available at syndicationschool.com.

Today, we are going to talk about a life-changing technique that I learned from Ashcroft Investor Relations, Travis Watts, and that is how to speed read; how he was able to read 52 books in one year. So I used to be an avid reader. I’m just starting to get back into it. Again, at least reading books and not just blog posts/articles… So I wanted to go over this blog post with you, Best Ever listeners, just in case you haven’t read it, but even if you have read it, I can give some additional advice on some strategies I’ve learned to be better at reading or how I read, because Travis obviously includes a lot of great examples in here as his examples as well. So I felt I could add a little bit of value here.

So in this blog post, first he goes over a few case studies. First, he’s trying to convince you why it’s important to read before he goes into how to read. So he starts off by talking about Tony Robbins, who coined the term CANEI, which stands for Constant And Never Ending Improvement, and that he emphasizes the importance of reading as a way to constantly improve yourself. There’s a book that he wrote called MONEY Master the Game where he says, “As a young man, I decided I was going to read a book a day. I didn’t quite read a book a day, but over seven years, I did read over 700 books,” so about 100 books every single year. “So how can you read, on average, 100 books every single year?” He goes over even more case studies.

He has Warren Buffett – everyone knows who he is – who spends five to six hours every day reading a book. Now obviously, you might not be able to spend five to six hours every single day reading. Warren Buffet has an established business. So if you’re grinding, you’re hustling, trying to scale, your time might be spent better doing that as opposed to reading, but reading is still important nonetheless. Especially one of the world’s richest men is spending five to six hours every day, probably close to a third of his waking hours reading. Not just books, from my understanding, he also reads a lot of online content as well, newspapers, things like that.

We’ve got Bill Gates, who said that he reads about 50 books a year; so about a book each week. Mark Cuban, who spends about three hours reading every day. He attributed his early career success in life to reading. So again, just because you don’t think you got the time, just because you think it might be more important to spend your time, as I mentioned, hustling, grinding for deals… Mark Cuban, pretty successful person, billionaire, owner of the Dallas Mavericks, said that in the beginning of his career, he attributes reading to his massive success.

You’ve got Oprah Winfrey, who is an advocate for reading and strongly recommends her talk show viewers to adopt the habit of reading. She often refers to reading as her “path to freedom” due to these tough start in her career. So again, just like Mark Cuban, she attributes her success to reading early on in her career.

You’ve got Mark Zuckerberg; he’s a strong believer in reading. He believes that if you want to improve the quality of your life, you must commit to personal growth and development. He also adheres to Tony Robbins’ CANEI approach.

Elon Musk, who devoted a huge chunk of his time to reading when he was young. When he was in grade school, he read about ten hours a day, and I remember reading about that or at least hearing it when I listened to– it was in an autobiography; it was the biography of him where he talked about– I’m pretty sure he just went to the library in South Africa and just spent all of his days there reading.

So clearly, reading is very important if you’ve got billionaires, world’s richest people reading a ton and talking about the benefits of reading. So because of this, Travis decided that he too was going to take a stab at an aggressive reading strategy. He was going to try to read 52 books, so one book a week, for a year, but then he said that he knew that he would likely fail if he tried reading books in a traditional fashion, one page at a time from front to back, so he took a couple of speed reading courses and learned a powerful reading technique. So he outlines the technique that he used that allows him to read 52 books every single year… And he actually mentioned this here too, that this is more specific to the how-tos in the self-improvement books, but I do think that this would also work in real estate books as well. It depends on the type of book. For example, if you’re reading The Best Ever Apartment Syndication book and you’ve never done an apartment syndication before, then following this technique might not be the best approach just because it is a step by step process for completing an apartment syndication, and so it goes to the education of exercise you need to do… But if it’s a traditional how-to or self-improvement or self-help book, then I think this approach is perfect for that.

So here’s his five-step process. So first, set aside three different 15 minute or 20-minute intervals for reading a book each day; so a total of 45 minutes. So this could be 15 minutes in the morning, 15 minutes in the afternoon, and 15 minutes in the evening; and then if you need to, set a timer.

Now I think this is important because if you tell yourself that I’m going to read for 60 minutes every single day, that’s a long time. An hour is a long time, especially if you’re not used to reading, especially if you haven’t read a lot. So you’re likely going to avoid that. I think a better example would be fitness. I personally think that the reason why a lot of people have a hard time getting started is because they don’t want to spend 60 minutes in the gym. So a much better way to start off is to, rather than working out 60 minutes straight, maybe do a few different cycles of push-ups, sit-ups and air squats in your office. Maybe do that ten different times a day; maybe do five push-ups, five sit-ups, and five air squats. Do three rounds of that and do that five times throughout the day. It’s a lot easier to do that because that takes two minutes to do. Let’s say it takes five minutes to do. You do it ten times, that’s 15 minutes. You’re probably not gonna do it ten times, but at least if you do it one time, it’s better than not doing it at all.

I think the purpose of this is to give yourself much more smaller goals that are more easy to mentally digest and get into. Saying, “Well, I only need to read for 15 minutes–” well, that’s 15 minutes, compared to the “Oh, I can sit down here for 60 minutes,” you’re wondering about what’s going on in your emails, what other things you need to do. So I really like this technique of breaking it into different intervals. Of course, if you’re able to do 60 minutes straight, by all means, do that, but breaking the intervals, I think is a lot better.

So right when you wake up, it may be one of the first things you do, and then before you take your lunch break, you read 15 minutes again, and then maybe take 15 minutes at the end of your workday or after dinner, or before you go to bed to read as well. So that’s step one.

Step two is to decide ahead of time what your goal is for reading the book. So what are you seeking to learn from the book and how will that help you in your career? So depending on where you’re at, this might be something different. If you’re obviously just starting off, then you’re likely going to maybe need some help with this mindset; maybe you’re gonna need help finding deals. If you have an established business, maybe you want to learn how to be a better leader. But defining specifically what you want to accomplish by reading this book is going to be important for the later steps.

Step number three is to use a bookmark or sticky notes to save important pages or sections. Use a pen to circle or underline key tips or ideas. So when I read books, right now, what I do, I don’t necessarily follow the speed reading technique, but when it comes to the sticky notes, and then the pen idea– so a really good strategy is while you’re reading anything that’s important– let’s say you’re reading one chapter; it’s a 20 chapter book. If you are planning on reading the full book, while you’re going through it, you have a highlighter. I like a highlighter better, just because with a pen, I’m ripping the pages and I can see the pen on the page behind. So I found a page that looks like I underlined something on the page behind it, and sometimes the lines are so close together that I can’t really get a pen in between lines without going over one of the lines. So it looks like I’m crossing something else. I personally am a highlighter person plus it’s a lot brighter, but a pencil works. But you’re still gonna need a pen because what you do is you read a chapter, you highlight things, and you go back over that chapter and you read what you highlighted, and you take one of the bigger sticky notes, and you just either summarize in sentences or summarize some bullet points and the main takeaways from your highlighted sentences, and then you put that sticky note at the front of that chapter. That way, whenever you’re going back to your book, you open the book up and if it is a 20 chapter book, you’ve got 20 sticky notes, rather than having to go through every single page and look at the actual highlights. All you need to do is look at 20 sticky notes to read the entire book again. So that’s essentially what he’s saying, but I think you should take it a step further. Rather than just using sticky notes to save important pages, use sticky notes to summarize the different things you underlined or highlighted in that chapter.

So step four is to read the front cover first, then the inside jacket, and then the foreward introduction and first chapter. So if you’re reading a softcover book, the front cover has the title and then any subtitle, and then the inside jacket for hardcover books will have a description of the book, but obviously, for a softcover that’s on the back. So if you’re reading a softcover book, it would be – read the front cover, read the back cover, read any of the things before the actual book start. So it might be an intro, it might be a foreword, it might be a preface, they’re all called different things. Read everything up until the first chapter, and then read the first chapter. After that, you go all the way back and read the last chapter, which is typically depending on what book your reading. If it’s a self-improvement or how-to book, it’s typically going to be the conclusion. Summarizing– not to just say summarizing, but summarizing the content of the book. After you read the last chapter, go back to the table of contents and select the most relevant chapters for your goals and only read those. So cover, back cover or inside jacket, everything up to and including the first chapter, and then the last chapter. You have a pretty good idea of what information is going to be in the book, and then going to the table of contents, you can pick out specifically what you want to read.

So maybe I got ahead of myself talking about our Best Ever Apartment Syndication book, because obviously, if you are just starting out, you should read the entire book, but if you’re already doing syndications and maybe you just need help on raising money or maybe you just need help on building a brand or maybe you already are really good at raising money and building a brand, but you just need help finding more deals… Well, if you simply go to the table of contents and it says How to find more deals, you read that book, review that chapter in one day and you’ve essentially gotten what your goal was out of that book in one day without having to read all 450+ pages. So really apply that to anything.

So that is Travis’ five-step technique for being able to read a book in a week, and depending on how specific your goal is, you should be able to read a few of these books in a day, and it’s 45 minutes to an hour. So maybe you spend your first interval reading the front cover, the inside jacket or back cover, the forward introduction and the first chapter, and that’s your first 15 minutes or 20 minutes, and then you take a break, and then on your next 15-minute interval, you read the last chapter in the book, and then go back to the table of contents and determine which chapters are the most important, and then at the end of the day, you read those irrelevant chapters, and then boom, the book is done and you can move on to the next book.

Now in his blog post, Travis says that the goal of using this technique is to extract a few key ideas, concepts or takeaways that you can implement in your life, because most people only really retain 10% of what they read anyways. So if you’re going to read a 100-page book, you’re likely only going to retain ten of those pages. That’s not exactly how it works, but you get the idea. Whereas this technique will allow you to retain information quicker and more efficiently and offers you the ability to go back later and skip directly to the most relevant information by using those bookmarks, notes and annotations. So again, if you’re struggling to read because you’re overwhelmed by how big the book is, this is a great way to pull out the important information that you need now, ignore the fluff that you don’t necessarily need to know right now, and then move on to a different book afterwards.

So definitely try this technique and let us know how it goes on our Facebook group. You can email me at theo@joefairless as well, and hopefully, you too can be like Travis and read 50 books per year or if you’re feeling very bold, you could be like Tony Robbins and read 100 books per year. I think following this strategy you could probably read 300+ books per year because you could probably go through one book per day as I mentioned earlier.

So that concludes this episode on speed reading. I hope you enjoyed it. Make sure you check out some of our other syndication school episodes and those free documents; those are available at syndicationschool.com. Thank you for listening and we’ll talk to you tomorrow.

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