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

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

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.

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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2123: Attractive Passive Investor Content | Syndication School with Theo Hicks

In this episode Theo will be going over some of the main takeaways he has received from a professional writing course he has recently taken to improve your writing content by focusing on benefits rather than features to attract more passive investors to your business. 

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 apartment syndication. As always, I am your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, we offer some free resource for you. These are free PDF guides, free PowerPoint presentation templates, free Excel calculator templates, something to help you along your apartment syndication journey. All of these free documents, as well as the past syndication school series can be found at syndicationschool.com.

I’m actually really excited about this episode. We’re going to change things up just a little bit. I mentioned this a few weeks ago that I am taking some copywriting courses and I wanted to share some of the main takeaways that I got that you can apply that to your apartment syndication brand, to grow your business and ultimately attract more passive investors.

So one of the major steps in launching a successful apartment syndication business is building your brand. So you’ve got your website, you’ve maybe got Facebook groups you’ve created, you’ve got blog posts, podcasts, YouTube channels, you name it; all with the purpose of educating passive investors, and then ultimately getting them to invest in your deals. Now, whenever you are creating copy– and copy is really any type of content that you’re creating. So just think whenever you’re creating content, you’re creating copy, which is in effect marketing materials. So you want to make sure that you’re following the best practices so that you’re getting the most out of all of the copy that you’re writing. So by the end of this episode, you will not only know how to improve your copy moving forward, but you can also go back and look at copy you’ve created in the past and more specifically, copy that is on your website or whatever landing page people go to most. That’s probably where this is going to be most useful to you, at least immediately, and then moving forward on your blog post, your podcast and your YouTube channels and the educational resources you make.

So a really good way to start off the conversation I want to have today is to give you two examples of two different pieces of marketing materials, and ask you which one do you think is better, which one do you think is more interesting, which was more appealing to you.

So let’s say, you’re in the market for some new software. Say, it’s a property management software or maybe a new asset management software, and you browse the internet and you come across two ads. Obviously, there’s a lot more than two ads. Let’s just say, we’re living in a world where there’s only two products that you’re able to choose from. They both obviously offer tech support. So the first company, we’ll call it ABC Asset Management Software, has a copy that says, “We offer free customer support 24/7,” and then you find XYZ Asset Management Software and they have a piece of copy that reads, “No matter what time, what day or where you are in the world, there’s always an expert available to offer the troubleshooting support you need.” So two pieces of information, both telling you that they offer customer support, which one is more appealing to you? I will answer that question for you, and it’s pretty obvious – the second one; the one that reads, “No matter what time, what day or where you are in the world, there’s always an expert available to offer the troubleshooting support you need.” So definitely a lot more attractive, a lot more appealing than the simple statement of, “We offer free customer support 24/7.”

So now, the question is why is that the case? Can you explain specifically why it is that marketing piece number two is better than marketing piece number one? The answer is that the first marketing piece, the one that says, “We offer free customer support 24/7,” is only telling you what you get. Whereas the second piece, the one that tells you, “No matter what time, what day or where you are in the world, there’s always an expert to offer a troubleshooting support you need,” that one tells you not only what you get, but why it’s valuable to you, what’s in it for you. So what’s in it for you is, no matter what time, what day or where you are in the world, there’s always an expert available to offer the troubleshooting support you need.

In other words, the first marketing piece tells you the feature of their asset management software product, whereas the second marketing piece tells you the benefit to you for using their asset management software. So in this episode, we’re going to focus on features versus benefits. So first, I’m gonna define what features are and what benefits are, and then we’re going to talk about comparing the two and which one is better when creating copy that has the purpose of attracting more customers, and then I’m gonna give you a few exercises that you can do in order to apply these lessons to your business.

So first off, what are features? So a feature is something that describes a product’s appearance or capability. So since we’re apartment syndicators, let’s talk about this in the context of doing apartment syndications. So as an apartment syndicator, your product is a passive real estate investment. So what are some features of a passive real estate investment or more specifically, an apartment passive real estate investment? So you’ve got the preferred return, you’ve got the share of the profits, you’ve got it being completely passive, you’ve got the recap emails that you send out to your customers, you’ve got the actual physical asset that they’re investing in, you’ve got the team that’s managing the asset, you’ve got direct access to the sponsor who’s an investor relations person. So those are all examples of features. So there’s obviously a lot more features, but those are just a few examples of the features of a passive real estate investment.

Now, what are benefits? A benefit shows how a product is useful and adds value to the features. So what are some benefits of passively investing in apartments? What are some benefits of your passive real estate investment product? Well, it’s a hassle-free process, it’s convenient, it gives the customer peace of mind, it gives the customer time freedom, it gives them the ability to relax, it’s low risk. So we can continue on and list more and more benefits, but those are just some examples of the main benefits of your passive real estate investment product. Now each of these benefits can be easily linked to a feature in the previous section. So for example, one of the features was it being completely passive. The benefit of this feature is that being completely passive is hassle-free because you’re not actively involved in the process, which makes it super convenient, gives you peace of mind. So you’re not having to focus on making sure everything’s going properly at the property, and if things are going wrong, figuring out solutions; you just sit back and relax. It gives you the time freedom to spend that time you would have been spending making whatever that money is on something that you actually want to do, that allows you to relax. It’s lower risk because maybe you don’t have the knowledge that you would need to buy such a large apartment building, but you are able to passively invest, which reduces the risk. So you’re able to get the benefits of investing in apartment without the risk of you doing it yourself and messing up without having the experience. So you can do the same thing for all of the features. You can essentially link one or more benefits to all of the features.

So overall, and it’s pretty clear, it’s obvious, but again, it’s important to make this conscious in your mind, and to be conscious about this when you’re creating content, but content that focuses on the benefits, more so than the features of the product will attract more new customers. In this case, attract more passive investors. So as an apartment syndicator, focusing on the benefits of passive investing in apartment communities will attract more new passive investors than focusing on the features of passively investing in apartment communities. Now, that doesn’t mean that features aren’t important and that features should be completely ignored. They’re obviously important to highlight, but you really want to make sure that you’re focusing on the benefits because that’s what people actually care about. So one practical takeaway is to ask yourself the question after creating copy, whether it be after each sentence, each paragraph or at the end of the blog posts or podcast episode of a larger piece of content, ask the question – So what?

So let’s take two statements as an example. So statement number one is going to be – investors in apartments syndications receive a monthly preferred return and a profit split. The apartment is actively managed by a sponsor, making it an entirely passive investment. So maybe you’re creating a page on your website that’s finding what a passive apartment investment is, and this is the same that you have. So ask the question – So what? How does receiving a monthly preferred return or a profit split benefit me? How does the project being actively managed by someone else benefit me? So a stronger statement would be – investors in apartment syndications receive a monthly preferred return and a split of the profit, the apartment is actively managed by a sponsor making it an entirely passive investment. So that’s the same as before, and then you add – you increase the amount of money you make each month with no ongoing time commitment, allowing you to spend more time doing what you want. So when you ask the question there, “So what?” I guess you can continually adding, so what, and that’s how you create a blog post. So you think so what after that, and then continue listing more and more benefits based off of the features.

So in this example, the features are the preferred return, the profit split and being completely passive. The benefits of the features are more money each month and more time freedom. So in addition to the so what, here’s a full exercise that you do today, tomorrow, this week, to start the process of applying the concepts we’re learning about today. So the first step is to obviously define your product, and since we’re apartment syndicators, the product is the passive apartment investment. So next, you want to list out all the features off of that product. So I gave you some examples above, but try to list out 10, 20, 30, 40, 50 features of your passive apartment investment product, and then thirdly, list out the benefits of your product, again, 10, 20, 30, 40, 50 different benefits of your product. So determining the benefits may require a little bit more effort and creativity than the features. So a really good approach is to come up with benefits for each of the features you created before. So get your list of features, and then go through each feature and determine what the benefits of those features are to your passive investor.  Three questions to help you in this process are – one, why does this feature exist? Two, how does this feature connect to human desire? And three, what is in it for the customer? So take your list of features and for each feature, ask and answer those three questions to come up with a list of benefits.

At the conclusion of this three-step exercise, you will have a list of all the benefits, or at least, a very long list of most of the benefits of your products based on the different features. So now that you have your list of benefits, the goal is to always focus on this list of benefits whenever you are talking about a certain feature of your property. This includes any content that is directed towards your potential customer, aka the passive investor. So blog posts, your website, other company material, communication with your investors, podcasts, whenever you’re being on any of other people’s podcasts, always keep that list in mind. So overall, what are some things that you should do from this takeaway? Here are a few recommended steps. First, obviously, perform that three-step exercise I mentioned above. Next, review your website and start asking the question, “So what?” after the various pieces of content you have on there. Next, you can go ahead and review a recent blog post or a recent piece of content that you’ve created and ask yourself – are you focusing on the benefits or are you focusing on the features? And then, in your spare time, if you want to get better at figuring out the best ways to write solid copy about the features of your product, go to some Fortune 500 company websites, go to other real estate professionals who have a massive following online, a massive business and take a look at their copy, see how they’re focusing on the benefits. Maybe you might find that they aren’t focusing on the benefits and there’s opportunities to improve, and something that we all have talked about on this show is, a really good way to get into apartment syndications is to add value to other people’s businesses for free proactively. So a great way to do that is to take what you have learned today, find an apartment syndicator that you want to work with and proactively create a presentation for them on how to improve their copy by focusing more on the benefits than the features. So again, lots of practical takeaways for today and lots of exercises you can do to start improving your copy and focusing on features and ultimately attracting more passive investors.

So that concludes this episode. Make sure you check out some of the other syndication school episodes that we have as well as the free documents that we have for all these episodes at syndicationschool.com. Thank you for listening. Have a best ever day and I’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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2122: 7 Rules of 1031 Exchange | Syndication School with Theo Hicks

1031 Exchange allows a taxpayer to defer the assessment of any capital gains tax and any related federal tax liability on the exchange of certain types of properties. This will allow you to sell a property and instead of paying taxes on the capital gains, you can delay it by investing it into another property. Theo will go over the 7 rules of the 1031 Exchange so you can have a better foundation about the 1031 exchange and can determine if its the right move for your business.

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 am your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, we offer you free resources. These are free PowerPoint presentation templates, free PDF how-to guides or free Excel calculator templates that’ll help you along your apartment syndication journey. All of these free documents as well as past syndication school series can be found at syndicationschool.com. Today, we’re going to be taking a deep dive into the 1031 Exchange.

So the 1031 Exchange, according to the United States Internal Revenue Service, and if you want the exact code, it is 26 USC 1031. A 1031 Exchange allows a taxpayer to defer the assessment of any capital gains tax and any related federal tax liability on the exchange of certain types of properties. So what this means is that you can sell a property and rather than paying taxes on the capital gains, you can delay paying that tax by investing into another property.

So there are a lot of rules surrounding this, which we’re going to get into in a little bit, but a little bit of interesting history – in 1976, the federal courts allowed this 1031 Exchange code to be expanded to not only sell real estate, but also to continuously purchase within a specific timeframe with no liability assessed as that time. So it allowed you to, starting in 1979, do the 1031 Exchange that we know today. Something else that’s interesting is that before 2018 – I didn’t know this – properties listed under the 1031 code included stocks and bonds and other types of properties. So you were able to 1031 Exchange stocks and bonds. Whereas now, post 2018, the 1031 Exchange only applies to real property, which makes it great for real estate investors.

So there are seven primary aspects or seven primary rules that you must follow in order to successfully do the 1031 Exchange. So we’re gonna go over each of those in episode, but first, we’ll just go over with what the rules are and we’ll go into more detail on those rules. So the first one is that it must be like-kind property. The second rule that it is only for investment or business intentions. Third, greater or equal value of the replacement property. Four is the boot. Five is the same taxpayer rule. Six is the 45-day identification window, and then seven is the 180-day purchase window. So those are the seven rules that you’re going to want to know about when you’re doing the 1031 Exchange.

So first is the like-kind property. So the replacement property that you buy needs to be like-kind with the property that you’re selling. So if you’re selling land, you need to buy land. If you’re selling an apartment, you need to buy an apartment. So you can do a 1031 Exchange for land or anything attached to the land, but you can’t go from an apartment to land or from land to apartment; it needs to be like-kind. So you can’t just sell your apartment community and buy anything. There are certain rules on that, and for more specifics on that, you’re definitely gonna want to talk with your 1031 Exchange consultant, which we’ll talk about later on in the episode. Well, I guess we can mention it now. You typically want to do this through a consultant or I think you’re required to do it through a 1031 consultant, but most people are just going to go from apartment to apartment or maybe a single-family home to a duplex or a duplex to an apartment. So you shouldn’t have an issue with this unless you’re trying to go from land to a warehouse or something. In that case, you should have a conversation with your consultant. So number one, it must be like-kind in order to meet the requirements of the 1031 Exchange.

The second rule is only for investment or business intentions. So to meet the criteria for the 1031 Exchange, the real estate that is being sold must be utilized for investment or business purposes only. So you can’t do this with your primary residence. You can’t do this with a vacation home. It must be a property that either generates cash flow or you bought for appreciation, or was used for business purposes. So for example, you could 1031 Exchange from a property that you were using as a rental or if you bought a hair salon and you bought the place for appreciation, you’re doing your hair salon business, then you wanted to 1031 Exchange into a larger hair salon, you can do that as well, even though technically you weren’t collecting rent on the building. But overall, it must be used for investment or business purposes only. It cannot be something that you use for personal use like a primary residence or a vacation home.

The next rule is that the replacement property must be a greater or equal value. So you’re allowed to 1031 Exchange into an unlimited number of properties or a single property as long as, again, they’re like-kind and they meet other rules, but there are restrictions on the value or the total value of the properties or property purchased, and the window currently is between 95% and 200%. So if I’m 1031 exchanging a property worth $100,000, then I can exchange into one or more properties that are equal to a value of between $95,000 and $200,000. So I can’t go below that window, and I can’t go above that window. As long as I’m in that window, and again, it meets all the other requirements, then I’m allowed to do the 1031 Exchange.

Now, a good question to ask that you might be thinking of as well – if I do below 95% or if I go below 100%– so say, I sell that $100,000 property and I exchange it to a $95,000 property, what happens to that $5,000? Is that also tax-free? That goes into our next rule, which is the boot.

So whenever you don’t go into a replacement property that is equal to or greater than, then that difference is going to be called the boot and that is going to be taxable. So you don’t get that money tax-free. There are some boot offsetting provisions and other things that go into boot, but that’s the simple explanation. If you want to know more about the boot, if you plan on 1031 exchanging into a lesser value property – again, you can’t go below 95%, so it’s a pretty small window… But if that’s what you’re going to do, then make sure you have a conversation with your 1031 consultant to understand how that boot will be taxed.

The next rule is the same taxpayer rule. So it is mandatory that the person who is doing the 1031 Exchange, who is selling a property and exchanging into another property, must be the exact same person, and that is defined as the exact same tax identity. So if I buy a property under an LLC, then that is the same LLC that needs to buy the next property that is being exchanged into. If I use my personal name, I put it under my personal name, then I need to buy the other property as well. So the reason why is if the taxpayer changed their identity, then based on tax law, there would be no continuous action of tax. So it just needs to be the same entity or same individual that sold the property and buys the property.

Next is the 45-day identification rule. So the person or entity that plans to do the 1031 Exchange has 45 days from the date of the sale of the previously owned property to identify the replacement property. So this 45-day window is typically referred to as the identification period, and this process must be done in writing with the authentic signature of the taxpayers. So that is what officially finalizes the fact that you’ve identified a replacement property.

So when identifying the replacement property, here are a few things to remember. First, again, it needs to be used for business or investment purposes. It can be located anywhere in the US, and actually starting in 2005, there were certain temporary regulations that allowed people to do 1031 Exchanges in Guam, the Northern Mariana Islands, and also the US Virgin Islands. So a little 1031 trivia there.

The property must be clearly identified, needs to have a physical street address or a legal property description. Sometimes you might even need the actual specific unit addresses if you’re doing apartments, and the process of identification, you have until midnight of the 45th day to identify the property. If you purchase a property within 45 days, you actually purchase it, there is no formal identification needed. So you don’t have to do the formal signing process. You can just buy it and you’re fine. A little bit of things you want to think about whenever you’re looking at identifying that replacement property.

And then we’ve also got the final rule, which is the 180-day purchase rule. So when completing a 1031 Exchange, not only is there a window for when you have to identify the property, but there’s also a window for when you need to actually buy the property. So according to the 1031 Exchange rule, you have 180 days to purchase the property, which is six months, and this rule applies no matter what. So you have to buy a new property within 180 days in order to defer those capital gains taxes.

So there you have it; those are the seven rules that you need to know about doing a 1031 Exchange. That concludes this episode. We’ve talked about the 1031 Exchange briefly before, but we didn’t really go into that much detail on the actual steps.

So I wanted to do an episode where we went a little more detail on those steps in case you’re in the process of selling a property right now and want to know how to avoid paying a massive tax bill on all that equity created by implementing your value-add business plan. Since this is syndication school, obviously you are able to do a 1031 Exchange as an apartment syndicator, just keeping in mind that, again, the taxpayer that bought the first property needs to be the taxpayer that buys a second property. So since you’re typically doing apartment syndications through an LLC or an entity, you want to keep that in mind to make sure you’re doing the 1031 Exchange properly.

So thanks for listening. Make sure you check out some of the other syndication school episodes on how-tos of apartment syndications. Also, check out the free documents we have available, all of that is at syndicationschool.com. Thanks for listening. Have a best ever day and I’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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2116: 3 Factors On A Schedule K-1 Tax Report | Syndication School with Theo Hicks

In today’s episode, Theo Hicks will be talking about the schedule K-1 tax report. It is a statement that is given to each of the limited partners also known as passive investors. He will be sharing how your passive investor can interpret the K-1. Free document with this episode.

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: Hi, Best Ever listeners. Welcome 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 air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, including today’s episode, we offer some free resource. These are PowerPoint presentations, PDF how-to guides, Excel calculator templates, some document or resource that will help you along your apartment syndication journey, or in this case, for today, accompany the episode. All of these free documents as well as past syndication school series episodes can be found at syndicationschool.com.

Today we’re going to talk about taxes, and then more specifically, we’re going to talk about the Schedule K-1 tax report for apartment syndications. The Schedule K-1 tax report is the tax report that is given to each of the limited partners, the passive investors in your apartment syndication deals. So in this episode, we’re going to talk about how your passive investor can interpret that Schedule K-1 and what the different boxes or at least the important boxes mean.

Now before we get into any of that, it’s important to say that this is for informational purposes only. I am not in a tax advisory firm, I am not an accountant, I’m not a CPA. So any general tax-related real estate questions that you have or that your passive investors have, you should tell them to talk to their own accountant. But what we can say is that passive investors like to invest in real estate opportunities because of the tax advantages that may potentially come from write-offs and losses due to depreciation, but we don’t include any of those assumptions about any of these tax advantages in the projections. So this is a disclaimer that we have to say when we’re talking about these types of things, because I’m not an accountant. This is just general information education on what those little boxes mean on a K-1. So now that it’s out of the way, let’s get into the actual meat of the discussion today.

So as I mentioned in that disclaimer, apartments syndications are very attractive to passive investors because of the different tax benefits, and we’ve talked about the major tax benefits or at least the tax factors involved with apartment syndication – depreciation, accelerated depreciation, capital gains versus income tax, cost segregation studies, things like that. So if you google ‘Joe Fairless tax factors’, a blog post or a syndication school episode will come up…

But the foremost benefit is the depreciation. So whenever you have a fixed asset, such as an apartment community, its value reduces over time due to the usage and normal wear and tear. So depreciation is the amount that can be deducted from the income each year to reflect this reduction value from usage and normal wear and tear, and the IRS classifies each of these depreciable items according to the number of years of its useful life. So over this period of time that apartment can be fully depreciated, whatever that useful life happens to be, which we’ll go into in a second.

Now there’s also, as I mentioned, the cost segregation study, which actually goes in there and identifies building assets that can be depreciated at an accelerated rate, using a shorter depreciation life. These are things that you actually have to go there physically in person to see, and they’re not on any document or report. So these are interior and exterior components of the building, the structure, it may be part of a newly constructed building or existing building that has been purchased or renovated. So about 20% to 40% of these components of an apartment, these interior, exterior, structural components can be depreciated at a faster rate than the building structure itself. So a cost segregation study dissects the purchase construction price of a property that would normally depreciate over 27 and a half years, and figure out what things can be depreciated over five, seven and 15 years. So as opposed to the entire value depreciating slowly over 27 and a half years, 20% to 40% of those things depreciate over five, seven and 15 years, again, which drastically increases the amount that can be written off, and the remaining is depreciated over at 27 and a half years.

So if the expense of the construction purchase or renovation was in a previous year, favorable IRS rulings allow taxpayers to complete a cost segregation study on a past acquisition or improvement, and take the current year’s deduction for resulting accelerated depreciation not claimed in prior years. So if you’ve owned a property for five years and haven’t done the accelerated depreciation yet, and you do a cost segregation study, those components that depreciate over five years can be fully written off that next year. That’s what they’re saying. This is just a brief explanation of how the cost segregation and calculating the depreciation works. If you want more specifics and some examples, you can go and check out that Five Tax Factors When Passively Investing in Apartment Syndications blog post, where there’s a lot more actual numbers and formulas and calculations for how to do an example depreciation write-off.

Now, as I mentioned, each year, the general partners’ accountant will create a Schedule K-1 for all the limited partners for each apartment syndication deal, and these passive investors will then file that K-1 with their tax returns to report their share of the investments, profits, losses, deductions and credits to the IRS, which includes any depreciation expense that is passed on to them, assuming it is passed on. So we’ve got a sample K-1 that you can download for free and see what it looks like. It’ll be in the show notes of this episode, so make sure you check that out; check that out at some point. It’d be nice if you had it open right now while we’re having this conversation, but it’s not completely necessary, because there’s only three boxes that are the most relevant to your passive investors. It’s box number two, which has the net rental real estate income loss. It’s box 19, which has distributions, and then Section L partners’ capital account analysis.

So if you check out the sample K-1, box number two says net rental real estate income, and then [unintelligible [00:10:19].11], the number is -$50,507. So what does this mean? This is the net of revenues less expenses, including the depreciation expense pass through to the LPs. So for most operating properties, the resulting loss is primarily due to accelerated depreciation. As I mentioned, on the sample K-1, the depreciation deduction that passed through to the limited partners is $50,507, thereby resulting in an overall loss. So negative taxable income. So that’s the amount that was written off through that accelerated depreciation. That’s one important piece of the K-1.

The second is box 19 distributions. So going back to our sample K-1, box 19 says $1,400. So what is this? This is the amount of equity that was returned to the limited partner. So on the sample K-1, the limited partner received $1,400 in cash distributions from their preferred return of distributions, as well as profits. So just because the LP realized a loss on paper does not mean that the property isn’t performing well. This loss is generally from accelerated depreciation, not from loss of income or capital. So here they made $1,400, and then they lost $50,507. So does that mean that the property is doing really bad and that it has lost money? Well, no. It’s just the depreciation. So it’s the loss of value of the overall property from depreciation from normal wear and tear, not some loss of income or loss of capital or loss of equity.

So the third is Section L partners’ capital account analysis. So going back to our example, K-1, it says partners capital account analysis, and then beginning account balance is blank, capital contributed during that year is $100,000, current year increase or decrease isn’t -$50,507, withdrawals and distributions is $1,400, and the ending capital account is $48,093. So what does this mean? Well, so I invested $100,000 that year, $50,507 is from depreciation, so you subtract that, and you also subtract the $1,400 in cash division, and you’re left with $48,093. So does this mean that the capital balance is lower and that the preferred return is now going to be lower, and it’s not only based off of that $48,000 figure? Well, no. This figure is for tax purposes only; it is the tax basis, it is not a capital account balance. So the limited partner would not receive a lower preferred return distribution based on this tax basis of $48,000. From at least Ashcroft’s perspective and most likely your perspective as well, that appreciation does not reduce the passive investors capital account balance, it reduces their tax basis.

The capital balance is technically reduced by the distribution amount above the preferred return, which is a portion of the $1,400 in the withdrawals and distributions box. However, Ashcroft deals are structured in a way that the LP continues to receive a preferred return based on their original equity investment amount, with the difference made up at sale. So what that means is that anything above that $1,400 is considered a profit, and whatever the profit split is for that deal, say 70-30 or 50-50, at the end of the deal, once everything’s said and done, the total profits distributed needs to be 50-50 or 70-30 to the LP/GP. If the LP is receiving money during the hold period, and then the GP technically receives — let’s say, for simple numbers, the GP doesn’t receive any money at all from profits, then at sale, 100% of the profits have gone to the LPs, and the GP receives 0%. So after the equity is returned to the LPs, before the remaining profits are split, whatever the profit split is, the GPs need to catch up first. So the GPs are distributed until the profits are 70-30, as opposed to being 100 and 0.

So just to keep things super, super simple, let’s just say that the profit split is supposed to be 70-30, and then at sale, you add up all the different distributions that have gone to the LPs and you spend $100,000, and you add up all the different distributions that we have done to the GPs and it’s zero dollars. So 100% to the LPs, zero to the GPs. If the split is going to be 70-30, again, let’s just do even more simpler math. Let’s say that number is $70,000 instead of $100,000 just so I can simply explain this to you. So $70,000 to the LP, and zero to the GP at sale. So the way the waterfall will work is that, first the LPs equity will be returned; so whatever they invest, it will be returned, and then before the remaining proceeds are split 50-50 or 70-30, in this case, we’ll say 70-30, is a GP catch up. So it needs to be a 70-30 split. So the first $30,000 will flow to the GP, so that at that point, the LPs have received $70,000 and the GPs have received $30,000. Now they’re a true 70-30 split, and then the remaining profits are split 70-30.

So back to the taxes in the K-1. So the majority of the other items on the K-1 that are report on just flow through to your passive investors’ qualified business income worksheet, and the net effect of these items will be very unique to each investor based on their specific situation and other holdings that they have. So again, that’s something that would take a long time to explain because of all the different situations. So what’s important are the three main sections we talked about, which is box number two, the net rental real estate income or loss, and that is what is passed through as depreciation; so that is the depreciation deduction. Box number 19 is any positive distribution received, any cash flow sent to that investor, and then section L will give you the actual tax basis, which is whatever their capital account is, so their investment minus depreciation, minus distributions, and that’s what they are going to be taxed on.

Now if you want to learn more about each of the individual sections and boxes, you want to go ahead and check out the IRS’ website on the Schedule K-1. So if you just google ‘partners instructions for Schedule K-1 form 1065’, you should be able to find it and it’s got a bunch of hyperlinks, and go through every single item on that K-1. Or the website is irs.gov/instructions/i1065sk1.

As always, just to conclude again with the disclaimer, to better understand any tax implications on their investment, it’s always important to let them know that they need to consult with a professional like a CPA, a financial advisor and accountant before making any investment decisions based off of the tax benefits of investing in apartment syndications.

So that concludes this episode on how your passive investors will be interpreting their Schedule K-1 tax report. Make sure you download that free K-1 sample so that you can follow along, again, by either listening to episode again or hopefully you’ve been doing it while I’ve been talking. That’ll be in the show notes, also at syndicationschool.com along with all the past syndication school episodes, and previous free documents. Alright, that’s it for now. Thank you for listening. Have a best ever day and I’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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2109: Launching A Thought Leadership Platform | Syndication School with Theo Hicks

In this episode of Syndication School, Theo, will be going over the topic of how to create your own thought leadership platform. He will be going over how to successfully launch your platform and how to continue to grow it. 

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, 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 two podcast episodes that focus on a specific aspect of the apartment syndication strategy. For the majority of these episodes we offer free resources. These are free PDF how-to guides, PowerPoint presentation templates, or Excel calculator templates that help you along your apartment syndication journey. All of these free resources, as well as previous Syndication School episodes can be found at SyndicationSchool.com.

Today we are going to continue talking about branding. Yesterday or the episode before this we talked about the four tips for nailing a podcast interview, so that’s going on someone else’s podcast or thought leadership platform; I guess the same lessons technically apply to a YouTube channel, or really any sort of interview you’re doing. I guess, heck, even a blog post where you’re being interviewed. These are gonna be about how to actually create your own content platform. But we’re not gonna go into the specifics on how to actually create a podcast, the name, logo etc. Instead, we’re gonna talk about how to actually successfully launch it once it’s created. So if you wanna know how to create a thought leadership platform – and again, these include things like podcasts, YouTube channels, books, blogs, newsletters – then check out those branding episodes at SyndicationSchool.com. Just type in “how to create a *fill in the blank*” and we’ll have a resource on that.

We’re gonna talk about – okay, so it’s created, you’ve got a launch date set. What are some of the best practices to make sure you’re maximizing the number of viewers, of buys, of clicks that you get from the get-go. So I’ve got five tactics I wanna go over. These are all kind of related, but the first one is to create a win/win/win scenario. If you’re doing a podcast or a YouTube channel, this is gonna be a win between you, the interviewees, as well as the listener. That applies for podcasts and a YouTube channel… Because typically, what you wanna do is you wanna have a batch of episodes ready to go.

Let’s say you decide to release one episode every week. Typically, it’s really good to have 3 to 6 months of audio or video content on-deck. So if you’re doing one per week – six months, that’s about 26. For three months, that’s 13 episodes. Let’s say you’re going three months ahead, so you’ve got 13 episodes prepared… So you have 13 guests who are going to be released in those 13 weeks. Or maybe you wanna do something where you do every single week, but you wanna release every single day for the first seven days. Whatever it is you wanna do, you wanna create a win/win/win for you and whoever those interviewees are, as well as the customers. I’ll talk about how to create that win/win/win in a second, but I just wanted to define what that win/win/win actually even means.

For the book, it’s gonna be you, the reader, and then anyone who’s actually featured in that book. So the win/win/win is a lot simpler for the book, than the podcast. For the podcast, if it’s just you talking, then it might just be a win/win for you and your customers. Now, how do you create this win/win? You want to promote content that is exclusive, and that is valuable. These are going to be content that costs money, or something that was previously unavailable. And then you’re gonna go ahead and give that away for free. Let’s just do some examples.

Let’s say you’re launching a podcast, and you’re gonna follow the strategy of doing seven podcasts in the first week, and you’ve got seven different guests… Then maybe you can ask all seven of those guests to send you the eBook version of a book that they have, so that you can use that when promoting the podcast. We’re gonna talk about promoting the podcast later on in these tactics. That’s just one example.

So ask the seven guests “Hi, I want to –” and I’ll explain what to do later. “So if you don’t mind, could you send me a copy of your eBook?” Or it could be something as simple as you personally buying seven hard copy books and then doing  a giveaway at the end of each episode. So be really creative about this, about how to actually do a giveaway… But the whole point is to find something that is valuable, so it actually costs money, and that is going to be exclusive. Something that is not easily found.

The  book idea is valuable, but not necessarily easily found, so another example would be some unreleased piece of content that you’ve been working on and haven’t sent yet. Or maybe you can create a specific piece of content for the promotion of this podcast. For example, for a book, you can create some sort of content for that book that you can give away to people who pre-order the book. So if you pre-order the book, that’s helpful for you, because obviously you’re able to get more sales upfront. You’re also able to leverage that “Hey, I’ve got 100 pre-ordered already. Don’t miss out.” But at the same time, the buyer is gonna get some sort of free extra-content from you. And again, it could be something that is elaborating on something in the book, it could be something completely different… It’s really up to you. But again, the overall idea is to find  a piece of content that is either unavailable, so it’s newly created specifically for this purpose, or it’s something that they can only get by paying for it, and you’re giving it away for free. So that’s the first thing, create a win/win/win by finding and having free content to give away that either costs money, or is unavailable. I gave a lot of examples there.

Now, what do you do once you actually have this content? Well, you’re gonna give it away. The way in which you give it away is really up to you. As I mentioned, it could be if you pre-order the book, then you give it away. “Each day, for the seven days, we’re gonna give away a free book that was written by the interviewee. In order to enter, follow A, B, C, D steps”, which hopefully captures their email address.

That brings me to number two, which is to promote your new content platform to your email list. So this includes obviously the day that it launches, having a banner or a section in your email list that promotes this new content platform, but you’re gonna wanna do this actually ahead of time as well. I’m gonna kind of keep using the same two examples – either a book or doing the seven podcasts in one week.

Let’s say you’re gonna do seven podcasts in one week. Obviously, your not gonna do all seven of those episodes the day before, and then the next day you release the first episode. It takes editing, it takes time… So once you know what the seven podcasts are gonna be, then over the several weeks before it launches you could feature each of those episodes each week, to create anticipation for those episodes. Maybe seven weeks is a little too much, maybe you can do a month, or two weeks.

The whole goal is you don’t want to blindside your readers, your followers with a brand new podcast, because you’ll get some interaction, but you’re not gonna get as much interaction as you would have if you would have created a bunch of anticipation leading up to it. And one way to do that is on your email list. And then obviously, once it actually launches, you go ahead and promote it there. Since you are creating this win/win/win, you’re gonna want to promote the giveaway that you’re doing, or the book, if they’re pre-ordering it, just the “Hey, if you pre-order this, you’ll get the giveaway.” Or if you do A, B, C, D, E, F, G after listening to each podcast, you get the chance to win the free book.

So however you’re giving away the free win/win/win content, make sure you include that in your promotion as well, on your email list.

Number three is to promote the new content platform in a Facebook group. It’s basically the same thing you’re doing on your newsletter, but do it in the Facebook group. So figure out “Okay, how far in advance do I wanna start promoting this podcast? Okay, I wanna promote it for a month, so each day for 30 days I’m gonna have some sort of post on my business page that’s promoting my new podcast.” So pretty easily, you’ve got seven for the actual podcast guests, you can ask questions to generate conversation on what types of guests you should interview, things like that.

For the book, maybe you’ve got 30 chapters in your book, so each day you can feature a different chapter in that book before it gets actually launched. So a lot of different ideas, but again, the purpose is to do something on Facebook.

You can also create a brand new Facebook group that’s specific for that new content. Podcasts, for example – we have the Best Ever Show community, that’s specific to our podcast. So everything on there is to promote engagement, to talk about topics from the podcast, or in a sense miniature interviews that are happening on the Facebook page. If someone asks a question and then a bunch of people who would be interviewed on the podcast go in there and answer that question.

So in that Facebook group – you create that Facebook group for this new podcast that you’re gonna create, and then in addition to posting that 30 days’ worth of content on the Facebook group, also post that in that Facebook group community. Make sure you share that Facebook group community on your personal Facebook, on your business Facebook, so that you’re able to get people to join that before the podcast actually launches. So that’s number three.

Number four is to get on other people’s content platforms to promote the launch. We actually talked about this yesterday, the four tips for successfully being interviewed on someone else’s podcast or YouTube channel or blog post. So a great way to promote your new podcast is to promote it on other people’s podcasts. As I mentioned in one of the tips, have a call to action that sends them to your Facebook group, or sends them to your email list. Mention the free content you’re giving away.

So if you know when you’re gonna launch the podcast, try to get on other people’s podcasts and have those episodes go live before yours launches. Again, you’re creating anticipation for your new podcasts. If something applies for a book you’re launching, go on there and talk about your book. You can talk about five topics from your book, and then say “If you want to learn the next 10 or 20 topics, you can buy my book. It’s available for pre-order now. If you pre-order it, we’re giving away this free thing.” So that is number four; we talked about that a lot yesterday, so I’m not gonna elaborate more on what to do when you’re on other people’s podcasts; just go listen to that episode.

And number five is to have something else to give away. Going back to number one, creating a win/win, let’s see say you’ve got a list of ten different pieces of content you wanna give away, and maybe two of those are exclusive and valuable, so you only give away those two. Once you give away those two, you can also give away the other ones as well. So when we did our book, some of the content was exclusive and valuable, and some of it wasn’t. Some of it was stuff that we’ve used before, some of it stuff you could find elsewhere, some of it was repurposed content from before… But we wanted to give away a ton of resources, so whenever we were promoting the book on the podcast, on the Facebook group, on the email list, we focused on those exclusive and valuable pieces of content, and then once they actually received the content, not only did they get that, but they got the bonus content of the extra five, six, seven, eight in the example I just gave, where two were valuable and eight weren’t. They are surprised when they see the bonus eight pieces of content.

So those are five things you can do to successfully launch a new content platform, whether that’s a podcast, a YouTube channel or a book. The first one is to create a win/win/win, which is to offer exclusive and valuable content to the listeners. Some of that content can be from the interviewees or people who are featured in your book, to again, get that third win in there. Plenty examples of that.

Number two was to promote your new thought leadership platform to your email list. If you don’t have an email list, you probably should create one. We’ve talked about that in previous Syndication School episodes as well. Number three is to promote the new thought leadership platform in your Facebook group. And again, for both the email list and for the Facebook group you’re not only promoting the platform, but also the free content you’re giving away.

Number four is you get on other people’s thought leadership platforms to promote the launch of your book, your podcast or YouTube channel. And number five is to focus on the exclusive and valuable content pieces when promoting the book, but then once you actually send the content, have something else included in there. It doesn’t need to be valuable and exclusive, but just have some bonus material to provide to the winner, or those who pre-ordered the book.

So that concludes this episode. I recommend listening to the episode from yesterday, or if you’re listening to this in the future, the one before this… Because it ties in to that number four, getting on other people’s content platforms, like talk about some tips on how to perform while doing your interview on other people’s podcasts or YouTube channels. Or you can just find that at SyndicationSchool.com, along with all of our other Syndication School episodes and free documents.

Thank you for listening. Have a best ever day, and I will 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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2108: Tips To Nail Your Podcast Interview | Syndication School with Theo Hicks

In this episode, Theo will be talking about branding and specifically going over how to nail your podcast interview. He will be giving tips from his experience in interviewing dozens of guests on our show. 

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, and welcome to 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 two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes we offer free resources; these are free PDF how-to guides, PowerPoint presentation templates, or Excel calculator templates, things that help you along your apartment syndication journey.

Today we are going to talk about branding. We haven’t talked about branding in quite some time; I believe the last time we talked about something directly related to branding at least was back when we were doing the 10 or 11-step process for doing an apartment syndication, and did an 8-part series on branding… So I thought  right now would be a really good time to refocus on our branding. I’m actually taking some copywriting courses right now, so I’ll definitely be talking about the information I’m [unintelligible [00:04:48].27] in those courses in the future… But also, since you might not be doing as many deals as you were doing previously, instead of not doing anything, you can refocus on building your brand, whether that means creating your brand in the first place, adding to your brand, or just making your existing platforms a little bit better.

So what we’re gonna talk about today is how to perform well when being interviewed on other people’s podcasts. Obviously, one way to promote your business is to create your own brand, and one way to promote both your business and your brand is to be interviewed on other people’s podcasts or YouTube channels, be included in their blog posts, things like that. So just getting your name out in front of a new, but similar audience is very powerful when it comes to branding… So I wanted to give you some tips on how you can adequately prepare for that podcast, so that you’re able to get the most out of it, so that you’re able to maximize the number of people who will listen  to that podcast and say “Oh, wow, it’s Theo. The guy is interesting, smart, and I think I want to learn more about him at his website, or his blog post” or “I think wanna sign up for his newsletter.

So I’ve got four tips I wanna go over today. The first one is to ask yourself why people listen to that podcast. I’m not gonna talk about how to get on podcasts here. We’ve already talked about this. We’re not gonna talk about best practices, tactics during the interview, what to do post-interview… We’ve talked about all that before on the podcast. I wanna talk about specifically how to actually just high-level nail your podcast interview.

Before you get on the podcast with whoever is interviewing you, you wanna ask the host or whoever is responsible for scheduling why people  listen to their podcast. You’re gonna want to do this before the interview starts; ideally, a  few days prior to the interview, or technically you could do it the second you’re scheduled to be on the interview. You wanna know why people listen to the podcast, because then you’ll know what you should and shouldn’t talk about, as well as how to cater the conversation.

Let’s just use this podcast as an example – people listen to the Best Ever Podcast because they want to hear best ever advice that our guests have about how to be successful in real estate, but they want it in a short, no-fluff format. That’s why all of our episodes are no longer than 30 minutes, unless I’m doing Syndication School or Follow Along Friday and I’m yapping for a long time… But typically, they’re gonna be shorter, concise, to the point episodes where a wide range of real estate investors give their best ever advice, so that you can take that advice really quickly if you’re really busy, and then implement that into your business.

We also do them daily, so that there’s gonna be constant content coming out. So if we’re interviewing someone that you don’t think would be a good fit for you, you can skip it and have a new option the next day.

On the other hand, let’s take Bigger Pockets, for example. Their podcast is a little bit different, because their podcasts are a lot longer. They’re an hour, an hour-and-a-half, two hours… They’re a lot more casual, so it’s more of a back and forth conversation, where the Bigger Pockets guys talk some, and then the guests talk some, whereas on our podcasts it’s mostly just us asking questions… And I got this from the Bigger Pockets Podcast description – they chat about the failures, successes, motivations and lessons learned. So if I was being interviewed on the Best Ever podcast, I would cater the conversation differently than if I was being interviewed on the Bigger Pockets podcast.

First and foremost is the time. So if my plan is to get ten important points across to my target audience, I’m gonna get those ten points across a lot faster if I’m being interviewed on the Best Ever show, whereas I can elaborate – at least on a few of those – on the Bigger Pockets podcast. So overall, if I was being interviewed on this podcast, I’d keep my advice very concise and to the point, whereas if I was on the Bigger Pockets podcast I would give advice as if I were talking to a buddy, or a friend; a more conversational, coffee shop-type environment.

Now, some people will listen to a podcast for very specific, niche advice. Bigger Pockets and our podcast has a very wide range of niches. We kind of cover everything. I’ll talk to someone who’s house-hacking a single-family home, and after that I’ll talk to someone who’s got 10,000 multifamily units. Also, then I’ll talk to someone who invests in notes, and then someone who invests in condos… So it’s kind of all over the place. Same with Bigger Pockets, it’s exactly the same way. They kind of hit all different niches. But there’s a lot of podcasts out there that focus on specific pieces of advice, specific real estate niches.

Let’s take, for example, Gino, from Jake & Gino, who I actually interviewed last week – they have a podcast called Wheelbarrow Profits Apartment Investing, where they talk about apartment investing. You’ve got someone like Kevin Bupp, who has a podcast called Mobile Home Park Investing.

So if I were to go on Gino’s podcast, and if I were to ask him, “Hey, why do people listen to your podcast?”, he would say something along the lines of “They want to learn how to invest in large apartment buildings.” So if that’s the case, I’m not gonna go on there and talk about my first house-hack story. Whereas if I’m on Bigger Pockets, then it’s something that’s interesting, to hear my first house-hacking story, and then how I got to where I am today.

Same with Kevin Bupp’s podcast. If I don’t know anything about mobile home parks, then I’m probably not gonna be a good fit for that episode, and I’ll have to talk about something that’s’ likely not related to real estate, and maybe more personal development, or business, or sales or strategy side.

Overall, you wanna make sure that you know why the audience is listening to that specific podcast, and then make sure that you are catering your advice to fulfill their needs, and then don’t talk about anything that they’re not gonna be interested in. That’s number one.

Number two is to have a call-to-action. At the conclusion of most podcasts, the host will ask you, the interviewee, to tell the listeners where they can learn more about you and your business, or they’ll offer you some sort of opportunity to provide a call-to-action. It’s okay to say “Just email me or call me”, but to take it a step further, ask yourself what do you want people to do after listening to your amazing podcast?

Again, it can be something as simple as “Email me in the questions that you have”, but again, the idea is  you want to send people from this podcast to your business, whatever your hub is going to be. So you’re gonna want your call-to-action to include that hub. Again, that can be as simple as asking them to send you an email, or you can create an actual landing page and send them to that landing page. That landing page could capture their email address, for example. It could take it a step further and it could allow them to have access to your newsletter.

To take it a step further, you can have a landing page that captures an email address, and then in order to convince them to give you their email address besides your amazing podcast interview is to have some sort of free item to give away. An eBook, or maybe one of your most popular blog posts that goes more in-depth into the topic that you discuss on the show, or again, it could be something as simple as a subscription to your newsletter.

So if you think about this from a process standpoint, you ask “Okay, why do people listen to this podcast? Okay, they wanna know about apartment investing. Okay, well I know about apartment investing, so what specifically do I wanna talk about for apartment investing?” Maybe I wanna talk about my top tips for hiring the right property management company. I’m going on the Best Ever Show, which is a little shorter, so I’m gonna go over my first five tips of how to find a property management company. At the very end, I’ll say “Hey, those were just actually five tips. I have ten more tips on top of that, so 15 total tips. If you wanna know my next ten tips, go to www.theorocks.com and enter your email address and I’ll send that to you for free.”

So just being super-prepared for the podcast – that’s actually a lot better than going over all 15 tips on the show, or just going over the best five tips and just saying “Hey, go to my website and check out more content that  I have.” Again, that’s fine, that’s a decent call-to-action, but a better call-to-action is one that hits all of those steps – it sends them to the landing page, and it actually gives them something that builds on what you already talked about in that episode.

Obviously, by having a call-to-action that captures email addresses, another advantage is that you can see the effects of the interview. You aren’t gonna have access to the interviewer’s analytics for the show; you’re not gonna know how many people listened to the episode. And even if you did, you’re not really gonna know how that compares to other episodes, because you don’t have access to that, but you can ask them “Hey, do you mind sending me the analytics for every single episode you’ve ever done?” So the best way to gauge the success of the podcast, if it was worth your time, is to actually capture the email addresses, and then you can determine how many people clicked on that link, or inputted their information. It’s a really good way to gauge how successful the interview was.

Tip number three is to have prepared stories. So you know why people listen, you’ve got your topic, you’ve got your call-to-action prepared, now you need to figure out what you’re actually gonna talk about in regards with that topic… So make sure that you have an interesting story to tell about whatever that topic is. Don’t necessarily force it into the conversation, but at least have a few stories ready to tell, and then try to implement them or add them in very naturally, so that it flows properly. Because at the end of the day, people really love stories.

Let’s say for example you are asked about your first deal. Don’t just say “Oh, well I’ve found it on the MLS, and I bought the deal for $100,000, and then I’ve put $50,000 into it, and now the value is $200,000. It was a really good deal.” That’s good information to include, but it’s not enough, and it’s quite frankly kind of boring… So instead, have some interesting story to tell about your first deal. Or you can give them the numbers, but then follow it up with something funny that happened, something unexpected that happened, or some interesting story that you learned, or some relationships that you’ve created… Some sort of story that’s going to make it interesting, make it entertaining. Because at the end of the day, it’s all about entertaining people. That’s what people want to do. So educating and entertaining, as opposed to just educating. So have a prepared story for whatever topic you wanna talk about, and then figure out ways to naturally bring those up.

And then the  last thing is to focus on lists. What’s the title of this episode? Well, I don’t create the titles, but it should be something along the lines of “Four tips to nail your podcast interview.” People who listen to real estate investing podcasts and read real estate investing blogs, they love lists. So whenever a host  during a podcast interview asks you a question, try to give your answer in the form of a list. For example, if they were to ask you about the lessons you learned from your first apartment syndication deal, a really good reply would be “Well, I’ve made a lot of mistakes on my first apartment deal, so here are actually five. Number one is blah-blah-blah. Number two is blah-blah-blah. Number three is blah-blah-blah.”

After that, you can say “Here’s five things that I did to fix these mistakes.” Or “Here are the five things I do now to avoid making these mistakes.” So list form, as opposed to saying “Oh, yeah, I’ve made a lot of mistakes… I did this, I did this, I did this…” But just let them know kind of going in there “Hey, here’s a list of five things.” So they can say “Okay, well I can make a list. One, two, three, four, five. Oh, he only said four? What’s the fifth one?” You’re kind of confused now.

So people love lists… That’s why I didn’t title this “Tips to nail your podcast interview.” People are gonna want to know “Well, how many tips? Is it one tips, is it two tips, is it ten tips? How many tips?” So definitely try your best to lead off your advice with “Here are the X number of tips.” And if you don’t really know — let’s say I am doing this podcast off the cuff, and I say “Oh, here are three tips to nail your podcast interview. Number one, why do people listen? Number two, have a call-to-action. Number three, prepare stories. And guess what – I’ve got a bonus tip, which is number four.” So if you make a mistake, just always toss in the bonus tip. Or “Here’s another bonus tip.” Or “Here’s an additional bonus tip.” So always underestimate the number you think you might do, or — obviously, if you know what the list number is, you can say that;  but if you don’t necessarily know, go on the low-end, and that way you can say “Well, here’s a bonus tip.” Because I think the one thing people probably like more than lists are the bonused tips.

So those are the four tips to nail your podcast interview – number one, why do people listen? Number two, call-to-action. Number three, have stories prepared. Number four, people love lists.

Thanks for listening. That concludes the episode. Until next time, make sure you check out some of our other episodes on the how-to’s of apartment syndication. We have a lot more Syndication School episodes on branding, so you can definitely check those out. Also, check out the free documents. All that is available at SyndicationSchool.com.

Thank you for listening, and I 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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2101: What Does Financial Freedom Mean? | Syndication School with Theo Hicks

In today’s episode, Theo brings up the topic of what is important in life? He starts to question what does financial freedom really mean to you? He shares a popular blog post where a nurse interviewed her patients who were close to their end of life and asked them each the question “what did they regret?”. This episode will help open up your mind to discover what it really means to be financially free? 

 

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 of apartment syndication. As always, I am your host, Theo Hicks.

Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For a lot of these episodes we offer a free resource to you. These are free PDF how-to guides, PowerPoint presentation templates, Excel calculator templates, some sort of resource to help you along your apartment syndication journey.

All of these free resources from previous Syndication School episodes, as well as the actual episodes, are available at SyndicationSchool.com.

In this episode I wanted to review a blog post that was written by someone on the Ashcroft team about the top two regrets of dying, and how to buy more time. We might have briefly touched on what I’m going to talk about today in a Follow Along Friday actually, probably about a year ago… Those of you who are newer, this will be new, and those who are long-time listeners – this will be a refresher… But it was back when Joe was talking about how he was starting to volunteer at a hospice care.

In his blog post, Travis focuses on a blog post that was written by a nurse, all the way back in 2009. This nurse worked in a terminally ill care unit, with people who are living out their final days in life, so kind of like hospice care… And this nurse decided to ask her patients about their top regrets in life. She first published her results as a blog post, and it was so popular that she later wrote a book on the topic. If you wanna check that out, the woman’s name is Bronnie Ware.

Now, the top two regrets that people had on their deathbeds was 1) I never pursued my dreams and aspirations, and 2) I worked too much and never made time for my family. So the way that Travis was positioning this blog post was that people spend a lot of time focusing on getting a nice car, new clothes, or a really nice house, or a vacation home, which is obviously pretty awesome to have, but he categorized all of these things as “stuff.” And while stuff is nice, we only need a certain amount of stuff… And having stuff is different than having freedom. So he was saying that there’s a choice between having more and more things or having more and more freedom.

There’s a pretty cool quote in here from Susan Fussell. which is “You can have anything you want, but not everything you want.” So you can’t have both. You can really have freedom, or you can have more and more stuff. If you actually sit down to think about it and you focus your awareness on it, would you rather have more and more things, or would you rather have your own life? Because ultimately, having freedom comes down to being able to live your life and spend time on things that you love, and focus less on things that you don’t like doing, just so you can buy more things.

So the reason why he wrote this blog post was because — it was geared towards passive investors, so I definitely wanna talk about that in a second, but… Looking at those two regrets, 1) I never pursued my dreams and aspirations, and 2) I  worked too much and never made time for my family – number two is probably a better selling point for passive investing… And number one as well, “I never pursued my dreams and aspirations”, but that also applies to apartment syndicators as well.

This blog post, when you read it — it’s positioned and speaking to passive investors, but the same regret could apply to an apartment syndicator. You work a regular 9 to 5 job your entire life, you retire when you’re 70, you live off of your 401K, and you have a pretty comfortable life… But even if that’s the case, on your deathbed did you wish you would have bought in real estate? Do you wish you would have bought more real estate? Do you wish you would have decided to take the chance and raise money and buy larger deals? Whatever your real estate aspirations are, do you want to be on your death bed and regret not taking that leap into trying to (in this case) raise money for apartment deals? Obviously, it can be anything, but this is Syndication School, and a lot of people who are just starting out aspire to raise money, so that’s why we’re here, to help you learn how to do that. Obviously, if you’re listening to this, you’re already on the track to not have that regret.

But the second regret, which is “I worked too much and never made time for my family” – that’s something that you want to use when you are talking to people who might potentially invest in your deals. Because obviously, you can tell them “Hey, you can get 8% preferred return, or 7% preferred return, and you can make a 2x equity multiple”, and you can tell them of all the money that they’re gonna make from the deal, which might convince some people, but a stronger, more powerful story is to try to touch on this second regret.

Obviously, don’t go to them and say “Do you want to be on your deathbed and regret that you worked too much and never made time for your family? Well, if you passively-invest, you’ll be able to make money without having to work, and be able to do that.” I guess you could position it that way, but the whole point is to focus on the dollars that they can make by passively-investing, but also focus on what those dollars will do for their life.

So the moral of this story from Bronnie Ware and these two regrets is that passive income is not about money or obtaining more stuff, it’s about having freedom and the ability to spend your time on the things you love, and focus less of your time on the things you dislike doing.

So the first step – and again, this is your trying to position this to your passive investors, or at least understanding this, so that when you’re talking to your passive investors, you can position it in a way that gets this story across… But the first step towards any journey to financial freedom, as you well know, is having more income than expenses… But it’s not just any type of income, it’s actually passive income. So you wanna have more passive income than the expenses that you’re paying out. So that means you have more money coming in each month than your expenses; that money that’s coming in is coming in without you having to exchange your time or effort for it. So that’s the actual true definition of financial freedom. It’s having passive income that’s equal to or greater than your living expenses.

Now, when you put it like that – this is kind of a simple formula; it seems straightforward, but most people aren’t passively-investing in real estate. Most people aren’t involved in real estate in general, so what’s the reason why people are deciding to purse what Travis calls “stuff”, or pursue income that you have to get in exchange for time and effort, as opposed to passive income and choosing freedom over stuff. He believes it has to do with the fact that there’s not a lot of education on the topic of time freedom, which is what’s achieved through building passive income streams… Or as an apartment syndicator, doing these apartment syndications and building up a large enough team, so that you’re only working on your business for a few hours per week.

So I thought that was interesting, the whole concept of time freedom. Most people focus on financial freedom, but when you actually drill down into it, it’s actually time freedom. And I know when I first started working for Joe on his website, he had a big About Me section, which was about that time freedom. And the whole entire idea is that he believes that people are inherently good, so if people had more time, then they would be able to do more good. So by creating the syndication business and allowing people to passively invest in his deals, so they’re able to make more money without having to exchange their time and effort, they can have more time freedom to spend on doing more good for the world.

And the same applies, again, to the Syndication School, teaching people how to do syndications… Because that’s also gonna get people in the long-term more time freedom as well.

Next in the blog post he goes over some example numbers of “Hey, if you invest $200,000 at 10% passive income, you’ll get $20,000/year”, which is great, but obviously, you wanna have more passive income than your living expenses, so you should be figuring out “Okay, here are my expenses; they’re 100k/year.” Typical apartment syndications result in 10% — again, I’m just making these numbers up just for simplicity. So if I wanna make 100k from a 10% return on an apartment syndication, I need to invest one million dollars to make that 100k/year in passive income.

Now, this doesn’t mean — and this is something that’s important too, that maybe don’t maybe think about or don’t really talk about… There’s not just “Either work full-time, or you’re completely taking in passive income.” Because if you go back to those two regrets, it’s “I never pursued my dreams and aspirations” or “I worked too much and never made time for my family.” Obviously, some of your passive investors may want to eventually do nothing but make money through passive investing, but not every single person is going to have the same outcome for passive investing. Some of them may want to — rather than working for someone else, they wanna do their own thing, and having this passive income will allow them to not have any income coming in from a W-2 job for 6 to 12 months.

So figuring out exactly what it is your passive investors want from passive investing is important. Ultimately, they’re likely gonna be tied to those two regrets… Either “I’m working too much and can’t spend enough time with my family or doing things that I personally want to do” or “I never pursued my career dreams/aspirations.”

My point there is don’t just assume that every single person you talk to just wants to make $100,000/year and just do nothing. Most people that are high net worth are going to want to do other things at the same time, so maybe it means that they have 50% more free time, and then they work part-time. So rather than working 100 hours per week, they’re working 50 hours per week; or rather than 50, 25. Or rather than 20, 10. And then obviously, for some people the amount could be for retirement, and then just kind of doing whatever they want to and sitting on a beach.

Overall, when you’re thinking about how to position your conversation with passive investors, you’re gonna wanna keep those two regrets in mind, and you’re gonna also wanna understand the difference between having stuff and acquiring more things, as opposed to the time freedom. And also, understanding that whenever people are talking about financial freedom, what they’re actually talking about is time freedom. So having money coming in so that they’re not spending 20, 40, 60, 80 hours per week doing something they don’t necessarily like. Instead, they can spend that time either doing whatever, hanging out, chilling, or they can do that pursuing some other dream or aspiration that they have, so that they’re not like the patients that Bronnie Ware was meeting, that were full of regrets about not pursuing their dreams and aspirations, and working too much and never having time to see their family.

So that concludes this episode. Obviously, the entire purpose of this episode was for you as an apartment syndicator to think about what’s going on in a potential passive investor’s mind, but you also wanna apply this to yourself, too. I kind of talked about that in the beginning, “Why do you wanna do apartment syndications? Does it fall into one of these two categories of?” Do you wanna pursue a dream or aspiration, or you don’t wanna work a lot? Obviously, if you don’t wanna work a lot, then apartment syndications could eventually get to that point, but you’re gonna have to put in a lot of effort upfront in order to build up a large enough portfolio and team… So more than likely, it’s something that is a dream and aspiration of yours – to build your own company, to work for yourself, things along those lines.

So that concludes this episode. Thanks to Travis for writing this blog post. I thought it was very inspiring, and also very enlightening as well, and a very interesting take on the concept of financial freedom and acquiring things, versus acquiring more time.

I recommend reading his blog post. It’s called “The top two regrets of the dying. How to buy more time.” If you just go to the blog page on JoeFairless.com, it’s one of the top blog posts right now. If you’re listening to this way in the future, if you just search “Top two regrets of the dying” on the website joefairless.com, it will be one of the search results.

Until next time, make sure you check out some of the other Syndication School episodes that we have about the how-to’s of apartment syndication. Check out some of those free documents as well; those are all available at SyndicationSchool.com.

Thank you for listening, and I 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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2095: Coronavirus Impacts On May 2020 Rent | Syndication School with Theo Hicks

Coronavirus has impacted the real estate market in many ways from home buying, selling, to collecting rent payments. In this episode, Theo Hicks will be sharing information on how May rent collection was with so many Americans out of work.

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: Hi Best Ever listeners. 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 podcasts episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, we offer a free resource for you. These are PowerPoint presentation templates, Excel template calculators, PDF how-to guides, some resource to help you along your apartment syndication journey. These free resources as well as past Syndication School episodes are available at syndicationschool.com.

Today we are going to return to talking about the Coronavirus. So we’ve taken a break from that the past few weeks, but I wanted to do an episode that goes over how rent collection was during the month of May.

So I’m recording this on May 20, the data is in. Definitely check out some of the episodes that I recorded last month, either late April or early May, about the Coronavirus and how that is impacting apartments. Those are also at syndicationschool.com or if you just go to joefairless.com and search Coronavirus, you’ll see all the blogs and podcasts we’ve got about that topic. But today, we’re gonna talk about how the Coronavirus has impacted rent collection for landlords, more specifically how it has impacted rent collections for the month of May, because obviously, it has caused a lot of uncertainty for landlords, property management companies, really anyone involved in real estate in general, but we’re gonna focus on apartments obviously, and this is due to things that have to do with rent collections and people losing their jobs, and evictions, eviction halts and foreclosure halts.

So in an attempt to help tenants who may be struggling financially, many states have restricted evictions. It has been a scary time for a lot of investors, because that might translate to less income if you are not able to evict a tenant who can’t pay rent. So obviously, because of all these changes in the rent collections, we’re expecting a lot of people who are saying it’s gonna go down a lot, or it’s not gonna change a lot. Now we have data to support and determine who’s right, and fortunately, it seems like according to the recent rent collection data, landlords may not be as impacted as some people initially expected, and it shows that rent collection is down by only a few percentage points. So just because while the new eviction laws seems scary, the data shows that it’s not as bad as it seems, at least not yet. So let’s go over the data and see how rent collection has been impacted.

So first of all, well, rent collection is down. So it has dropped, but as I mentioned earlier, this was expected. Whenever you’re going into a recession, whether it’s caused by some financial instrument like it was in 2008, or a pandemic, like it is now, typically that means people are making less money, and when people make less money, that means they can’t pay the rent sometimes. But luckily, as I mentioned, the rent collection has not been affected as much as compared to previous economic downturns, and it really has not been as affected year over year either.

So this is for rent collection as of the 6th May. Basically, people who are paying their rent on time. In 2019, by April 6th, 82.9% of rent payments were made, and the next month in May, by the 6th of 2019, 81.7% of rent payments were made. So from April 2019 to May 2019, it was down about a percentage point.

Now moving to 2020, April 6th of 2020, the percentage of rent payments made was 78%, which was about a 5% drop year over year. However, by May 6, 2020, 80.2% of rent payments were made. So it actually went up from April to May. So obviously, April 2019 to April 2020 is down, and May 2019 to May 2020 is down very slightly, but a promising part is that April was lower than May. So rent collections actually went up from April to May. So this increase from April to May seems to be promising, and also for the time being, the spread of virus seems to be slowing down, additional steps seem to have been taken to get the economy rolling again. So in the short term, the worst may be over. April, May have been the worst month. Of course, we don’t really know for certain. Nothing is a fact yet, but what we do know is that rent collection is only slightly down. From April to May, it’s actually going up.

So why is this happening and will it get worse? Well, the obvious reason that the rent collection went up from April to May are those government stimulus checks hitting people’s bank accounts. People get their stimulus checks towards the end of April allowing them to pay their May rent on time if they weren’t able to pay their April rent on time, but of course, right now, as of this recording, this is the only confirmed stimulus check going out to Americans. With our talks right now, I just looked up today, they’re still talking about potentially sending out a second round of stimulus checks, which would obviously be very helpful for June rent, especially because data is showing that 63% of Americans will require a second stimulus check in order to pay bills within the next three months. Although we do know that people do pay their housing bill first, so this is just bills in general… But it’d still be helpful to these people.

So depending on whether the economy reopens, the next few months could potentially be unstable compared to April and May, but the good news is that many states are ramping up unemployment efforts since 15% of the country’s unemployed. So just because they’re not getting stimulus checks on a national federal basis, states are also helping with unemployment benefits. So with all this federal and state help citizens are currently receiving, it’s hopeful that rent collections won’t be fluctuating too much, but again, disclaimer, none of this can be said for certain.

So what about the evictions we’ve talked about earlier? What’s perhaps more important is to know when the current rent collection numbers might go up or down. So not all states have implemented new eviction laws, but many states have, and so it’s important to know which ones they are. For example, there was a recent case in Minnesota where a landlord was criminally charged for evicting a tenant during the pandemic. So states are beginning to require a landlord to allow tenants to live in their properties even if they cannot pay rent. Right now, 15 states have to suspended or changed their eviction laws until further notice with really no end date in sight. So each state’s eviction laws are a little bit different, so make sure that whatever state you’re in, you’re up to date on that. So if you go to Google, then you can set up a Google Alert to “evictions” and then your state name. Each day, you’ll get a Google Alert will send to your inbox, updating you on the eviction laws in your state or examples of landlords getting charged or whatever.

Most states have changed their eviction laws to require landlords to keep tenants in their homes even if they cannot pay rent. So in New York, for example, they declared an eviction and a foreclosure moratorium and prohibited late fees for up to 90 days, allowing tenants to use their security deposit to pay past rent.

So luckily, as I mentioned earlier with the April, May 2019, 2020 data, these eviction laws haven’t seemed to change rent collection too much, but the disclaimer here again is yet; it’s still something that might happen in the future, especially if there’s not a second round of stimulus checks, if these halts on evictions are extended for many months; it really just depends.

I talked about this on some of those previous Coronavirus episodes. Just make sure you’re trying to work with your tenants as much as possible during this difficult time, just because even if you’re allowed to evict them, it might be hard to find a resident currently. So just work with them, help them out as much as you can.

So the last thing I want to talk about is just because you got these eviction changes and rent collections seem to be down year over year, rent growth is slowing down, people are unemployed, everyone just keep in mind that this is going to be temporary. We don’t know when, but eventually, the economy will recover, things will get back to normal and we hope, and we’ve got an article on our blog about this, it’s called, Will Apartments be Stronger in the Post Coronavirus World? Ideally, apartments are going to be stronger after all this is over and we come out of this pandemic, recession, whatever you want to call it.

So overall, rent collections have been slightly affected, but it’s nothing too concerning as of now. Obviously, these are just average numbers. So some places aren’t affected at all, other places are affected a lot worse, but on average, these rent collections have been slightly affected. I should’ve just said on average a little bit earlier. So just be sure that you’re staying up to date on your state’s eviction laws, foreclosure laws, really any changes in laws to the Coronavirus pandemic, and then think of practically how that’s gonna affect rent collections come June, July, August, etc.

So that’s an update on the rent collections. Again, just to go over the data one more time, these are all percentages of rent payments made by the 6th of the month. So April 2019, it was 82.3%, May 2019 was 81.7%., April 2020 was 78%, May 2020 was 80.2%. So year over year, April was down about 5%, May was down about a little under 2%, but looking at the 2020 data, the rent collection in May was higher than it was in April. So we saw a bump, again, due to stimulus checks, but it’s still a good thing to see from a landlord, from a property management company, from a apartment syndication perspective.

If you want that data, it’s from the National Multifamily Housing Council. So you can find June data for there as well. And depending on how June goes and depending on if the Coronavirus is still top of mind topic, we’ll do another episode talking about the June 2019 and June 2020 rent collection data by the 6th of the month here in the next few weeks.

So a little shorter episode, but that could give you time to check out some of our other Syndication School episodes available at syndicationschool.com. We’ve also got our free documents there as well. Thank you for listening, have a best ever day and I’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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2094: Everything You Need To Know About Waterfalls | Syndication School with Theo Hicks

In today’s episode, Theo will be sharing the ins and outs of waterfall structures. Waterfalls are also known as a waterfall model or structure, is a legal term used in an Operating Agreement that describes how money is paid, when it is paid, and to whom it is paid in commercial real estate equity investments.

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: Hi, Best Ever listeners. Welcome to another episode of The Syndication School series, a free resource on the how-to’s of apartment syndication. As always, I am your host Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we offer free resources as well. These are PDF how-to guides, PowerPoint presentation templates, Excel calculator templates, some free document to help you along your apartment syndication journey. All these free documents, as well as the past Syndication School series can be found at syndicationschool.com.

Today we are going to be talking about waterfalls. So a waterfall describes how, when and to whom funds are paid in an apartment syndication deal, and then the type of waterfall structure that you as the syndicator chooses will determine the returns that the limited partners and the general partners receive. Ultimately, you get to decide which type of passive investor compensation structure to choose, and if you remember, we’ve already done an episode where we talked about the different types of compensation structures, preferred return, profit splits, different types of thresholds. So I’m not going to go into a lot of detail in this episode on what those are. This is more going to explain what the waterfall structure is for each of those structures; and the waterfall structure, as I’ve already mentioned, describes how, when and to whom funds are paid in a partner syndication deal, but what it means is that money comes in and how is that money allocated. Who gets paid first and who gets paid second, who gets paid third, who gets paid fourth, and then each of those people, how much do they get, and how’s that cash flow going to be allocated. The same thing for any capital transaction like a sale, a supplemental loan or a refinance. So the waterfall structure will let your limited partners or passive investors understand 1) how much money they’re going to make, and 2) who gets paid in what order.

So in this episode, we’re going to go over the written description of the waterfall. So cash flow comes in based off of what structure you’ve created, who gets paid first and in what order. So we’ve got five waterfall structures to go over, and the last one is one that you might not have heard of before; it’s one that I’ve recently heard about. I know it’s a pretty common structure in apartment syndications, but I personally hadn’t heard of it before. So it’s a structure that you might like because it allows you, as a general partner, to get paid cash flow first, without having to wait for the profit split to come into play, or it allows you to have a payment accrue if you don’t receive payment because you can only cover the 8% preferred return, or whatever. So let’s dive into the explanation of the different waterfall structures.

So the first one would be if you have 8% preferred return only. So the waterfall for the cash flow is that the cash flow is distributed to the Class A partner, which is the passive investor, until they receive an annualized return of 8% based on their initial capital contribution. Of course, if you decide to update their preferred return based off of their ongoing capital account, then this would change a little bit. So to start off, being based off of their initial capital contribution, and then after year one, it would change and update based off of their new capital account if they received equity back via profit splits and things like that or with refinances, and then any remaining cash flow is distributed to the Class B general partners. So since this is only preferred return, the Class A partners made their 8%, and then the general partners get the rest of the cash.

Now what about a waterfall for the capital transaction, which is a sale supplemental or a refinance. So first, repay the unreturned capital contributions of the Class A investors, which since this is a preferred return, they’re not receiving an additional profit split, which is considered a return of capital typically. Then they are owed their entire initial equity investment.

Next, make up arrearages in Class A preferred returns, if applicable. So if you were not able to hit an 8% preferred return, then at the capital transaction, that is where that accrued amount is paid back. And then after that, any remaining cash flow is distributed to the Class B general partners; so you’ve got pretty straightforward structure. Preferred return only is what Ashcroft has for the Class A investors, and then this next one, waterfall two, is what they have for their Class B investors, which is a preferred return and a profit split.

So of course, you could see a deal where it’s just a preferred return, which is pretty advantageous to the general partners. So maybe not something that would be common right now, just because there’s not so much money out there, but in the future, who knows, maybe this is something that you can convert to, because this is definitely very beneficial to the general partners, because once they pay the 8%, they get the rest of the money.

So waterfall structure number two is a preferred return plus a profit split. First, you’re going to just– for simple math, we’re gonna go with 8% preferred return, and then a 70-30 profits split. So for the cash flow, first, cash flow is distributed to the Class A, the passive investors until they receive an annualized return of 8% based on their initial capital contribution or on their capital account, depending again on which way you decide to go, and then any remaining cash flow is split 70-30 with 70% pay to Class A passive investors and 30% paid to Class B general partners. So again, very simple.

Now what about a capital transaction? So first, unreturned capital contributions is paid to Class A, and so this is going to be either the initial equity investment; if the 8% preferred return or less was hit, or the reduced equity investment amount based on capital return from that profit split. And if it’s a second capital transaction – let’s say if we’re going to refinance, that would be the reduced equity amount based on the return on capital from the profit split and the finance or the supplemental loan. So equity gets returned first, second arrearages in Class A preferred returns, if applicable, again. So if 8% preferred return isn’t hit, then the accrued amount is paid back after the equity is returned, and then any remaining cash flow is split 70-30, with, as I mentioned, 70% going to the Class A and 70% going to Class B.

So if you remember, we have a simplified cash flow calculator available on the syndication school website, so syndicationschool.com. Or if you find the syndication school episodes about underwriting, just go to joefairless.com, search “underwriting” at the top, you’ll see that come up. We have a link to download the free simplified cash flow calculator, and on that cash flow calculator, this preferred return plus profit split is what is currently set up on that cash flow calculator. So once you input the preferred return and the profit split number, then it’ll automatically calculate returns to your Class A investors based off of this waterfall I just described. So you don’t need to do anything to that cash flow calculator if this is the type of waterfall structure you are doing. Obviously, if you’re doing any of the other ones, then you’re going to need to make some updates to that model, with the easiest update being the waterfall number one, which is just a preferred return. So the other ones are a little more complicated, like the next one, which is waterfall number three, which is a preferred return plus a profit splits with a return hurdle. So the waterfall for the cash flow is going to be the exact same as the waterfall for the previous waterfall we discussed, which is the preferred return plus profit split, because the hurdle’s typically not going to come into play until a capital transaction, most likely the sale being that capital transaction. So just as a reminder, for cash flow, first, cash flow is distributed to the Class A passive investors until they receive an annualized return of 8% based on their initial capital contribution or their capital account, and then any remaining cash flow is split 70-30, with 70% going to Class A and 30% going to Class B general partners.

The capital transaction is where it’s a little bit different. So obviously, unreturned equity is paid back to the Class A investors first. Next, any arrearages in the preferred return to Class A, and then cash flow is split 70-30 with a 70% paid to Class A and 30% paid to Class B up to a certain return hurdle. So a very common return hurdle is the IRR, the internal rate of return hurdle, and the internal rate of return isn’t going to be a positive number until they receive all their money back anyways, which typically, is not going to happen until sale. So that’s why you’re typically not going to hit your hurdle from ongoing cash flow unless you’ve had a really large refinance where they received 90% of their money back, and then maybe at year four, they received enough cash flow so that they’ve received all of their capital back, and then maybe ongoing cash flows change. But typically, it’s not going to happen until sale.

So it’s a split of 70-30 up to, say, 13% internal rate of return, and then once that 13% internal rate of return is hit, the remaining cash is split 50-50 between the Class A and Class B. Of course, there can be more than one hurdle. It could be 70-30 up to 13%, and then 60-40 up to 15% IRR, and then 50-50 thereafter. It could be really any combination of these things, whatever you decide to do. As I mentioned, this is something that is not on the simplified cash flow calculator. If you’re going to want to set up a hurdle, you’re going to need to download a hurdle Excel calculator; I’m sure you can find one for free online; or you can do more of an iterative process where you keep changing the sales proceeds to the limited partners such that the IRR equals 13%, and then after that, you can change that remaining number to 50-50. That’s probably the fastest and the easiest way to do it, but if you do want to update the simplified cash flow calculator to do it for you automatically, it is possible; it’s just some pretty complicated formulas.

Okay, waterfall number four, which is having two passive investor tiers. So this would be if you have, let’s say, Class A receives a preferred return only and then Class B receives a preferred return plus a profit split. So the waterfall for the cash flow would be cash flow is first distributed to Class A until they receive their annualized preferred return based on their initial capital contribution. So let’s go with 10%. So the money is first paid to the Class A until they achieve an annualized return of 10%, and then next, the cash flow goes to the Class B until they receive an annualized return of, let’s say, 7% based on their initial capital contribution, and these 10% for Class A and 7% for Class B is what Ashcroft currently does. That’s why I’m using those as an example. And then any remaining cash flow after that is split 70-30 or whatever, 50-50, 60-40, whatever you decide, with the 70% going to Class B. So Class B are the ones that get the profit split, not Class A; and then 30% going to Class C which, in this case, would be the general partners.

Now. the waterfall for the capital transaction would be repaying the unreturned capital contribution to Class A first. So Class A gets paid before Class B. And since Class A isn’t receiving a profit split, then their capital account isn’t reduced, unless there’s been some refinance or supplemental loan, next you repay the unreturned capital contributions to Class B investors, and this is going to be, again, like I said before, their initial capital contribution or their capital account based off of profit splits received, or refinances, things like that.

Next, make up arrearages in Class A preferred return, and then make up arrearages in Class B preferred returns, if applicable for both of those. Generally speaking, at least for Ashcroft’s deals, the Class A is going to get their 10% because they make up 25% of the actual investors, and so the deal itself doesn’t need to cash flow 10%. If they only make up 25% it needs to cash flow around 2.5%. to hit that 10% number on a deal level. But sometimes, the Class B investors might not make their entire 7% preferred return. So if that’s the case, then at the capital transaction that accrued amount will get paid. Then any remaining cash flow from a capital transaction is split 70-30, with 70% paid to Class B and 30% paid to Class C. Of course, for this same structure, we could add a hurdle as well, so that 70-30 split might be up to a certain IRR to class B, and then that profit split changes to a 50-50 or 60-40.

The last waterfall structure– so this is what I was talking about in the beginning, which is more beneficial to the general partners, because long term, I’d probably say, waterfall structure number one is the best, just because once they hit that 8% preferred return to their investors, they get the rest of the money.

Waterfall number five is a general partner catch up. So this is a waterfall structure where you are able to start receiving distributions starting from day one or start accruing distributions starting from day one.

So for the cash flow first, cash flow is distributed to Class A until they receive their annualized preferred return amount based on their initial capital contribution – so let’s go with 8% – and then cash flow is next, distributed to Class B general partners until they receive an annualized return of 3.43%, and this is gonna be based off of the Class A initial contribution. Now this 3.43% is based off of the profit split. So the profit split is 70-30 overall, and the Class A investors are getting an 8%. So that 8% to 70% is the same as 3.43% is to 30%. So it’s like an algebra equation where it’s 70 over 30 equals 8 over x, and when you solve for x equals 3.43%. So it’s just keeping the ratio of profit splits the same and applying that to the preferred return.

So the preferred return to Class A is 8%, to Class B general partners is 3.43%, and then any money remaining is split 70-30, with 70% going to Class A and 30% going to Class B. Then the capital transaction, again, is gonna be very similar to the previous one, which is the two tiers. It’s similar in all of these. So first is unreturned capital contributions to Class A, so equity is returned first, and then arrearages in Class A preferred returns is paid, arrearages in Class B preferred returns. So that’s it for the general partner. So the 3.43% preferred return accrues as well. This is why this is a beneficial structure for the general partners. And then any remaining cash flow is split 70-30, with 70% going to Class A and 30% going to Class B.

Now the entire point of this episode was to give you an explanation of what is happening on a simplified cash flow calculator, or really any cash flow calculator that you’re looking at, any underwriting model you’re looking at. When you plug in all these numbers and it spits out a five year ROI to your limited partners, and it spits out cash flow that goes to the general partners. And it’s great to see that and share that to your investors, but it’s also good to understand exactly how that is being calculated, and how that’s being calculated is the cash flow calculator is saying, “Okay, we’ve got $100,000 in cash flow. The first 8% goes to the limited partners, so $80,000, and then $20,000 is split 50-50 to Class A and Class B. So for that first year, Class A receives $80,000 in preferred return plus $10,000, in profit split, and then the general partners receive that last $10,000.

So that’s where that $90,000 and $10,000 is coming from. So it’s much better to understand that, and if you look into the formulas, you’ll be able to see that, but here’s just a written explanation of what those formulas are actually doing. So this gives you a better understanding of what’s going on on those cash flow models, so that if an investor asks you about it, you can answer and let them know exactly what the waterfall is.

So that’s really everything you need to know about the waterfall structure. As I mentioned on the simplified cash flow calculator, that waterfall structure number two, which is the 8% preferred return, and the 70-30 profit split is what’s currently set up on that model. If you want to do one or the other waterfall structures, you’re gonna have to do some manual manipulation. Really, all of them are pretty easy to do except for the hurdle, which takes a little bit of a more high-level grasp of Excel, which is why I prefer the iterative process, which is again, just changing the sales proceeds to the limited partners until they’ve hit that IRR hurdle. So let’s say $100,000 at sale, you send $30,000 to the LPs and see what the cash flow calculator calculates as the IRR. Oh, it’s at 10% IRR. Okay, let’s try $40,000, so now it’s up 15%. So you can keep going higher, lower, higher, lower, higher, lower, higher, lower until you hit that sweet spot of $35,275.16 that is exactly a 30% IRR, and then you know that the remaining cash flow above that will be split 50-50.

So okay, that concludes this episode. Thank you all for listening. If you want to listen to other syndication school episodes and check out some of the free documents we have available, that is all available at syndicationschool.com. Thank you all for listening and I 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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2088: Pros and Cons of Securing A Supplemental Loan | Syndication School with Theo Hicks

In this Syndication School episode, Theo Hicks, will be going over the pros and cons of securing a supplemental loan. These episodes are to help you become a better syndicator so we hope you enjoy the help and let us know by sending us a message. 

 

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 groundbreaker.co


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: Hi Best Ever listeners, welcome to another episode of the Syndication School series, a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks. Each week we air two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy, and for most of these episodes, we offer a free resource to you. These are free PDF how-to guides, free PowerPoint presentation templates or free Excel calculator templates, some free resource to help you along your apartment syndication journey. So all of the past free documents as well as past Syndication School series episodes can be found at syndicationschool.com.

In this episode, we are going to talk about the pros and cons of securing a supplemental loan. So on a previous Syndication School episode, I had gone over how to actually secure a supplemental loan, but I didn’t go into the pros and cons. I briefly mentioned how it’s different than a refinance, but I wanted to do another episode that went in depth into the pros and cons of securing a supplemental loan compared to, say, a refinance or a sale, because the supplemental loan falls into the category of when the passive investors in your deals receive a large chunk of capital back or a large chunk of money back. Obviously, one of those is the supplemental loan, another one is a refinance, another one is when you sale. So if passive investors receive all or a large portion of their equity back at sale, at a refinance and/or at securing of a supplemental loan. So in this episode, I wanted to just highlight what a supplemental loan is again, go over the pros and cons of the supplemental loan and then also briefly talk about why Joe and Ashcroft prefer to secure supplemental loans.

So first, what is a supplemental loan? It is a type of loan that is subordinate to the senior indebtedness. So it’s the fancy definition of a supplemental loan, but basically what it means is that the senior debt, which is the original debt used to acquire the apartment community, so the agency loan that was put in the property, that is the senior debt, and that must be paid first by the general partners.

The supplemental loan is a separate loan that is obtained, and then it is paid after the senior debt is paid. So year one, you pay your monthly debt service for the agency loan, and let’s say you secure a supplemental loan at the end of year one – you’ve got a new loan now. So the way that it works is you pay the same debt service you paid before first, and then the next portion of the cash flow goes towards paying the debt service on the new supplemental loan.

Now, a supplemental loan is only available if the original debt is a agency loan, so Fannie Mae or Freddie Mac. Those are the two that offer the supplemental loans. You’re not going to be able to get a supplemental loan on any other loan but those two. That doesn’t mean that you can’t take out equity in different ways, but the actual word supplemental loan only applies to agency loans, and it can be secured at 12 months after the origination of that original loan or the most recent supplemental loan.

You can’t get your first supplemental loan until after 12 months, and then you can’t get another supplemental loan if available for another 12 months after that, so 24 months after the first loan, and then supplemental loans are not the same as a refinance because a refinance is replacing the original debt with a new loan. So that agency loan is paid off entirely and then a new loan is put on the property for a refinance. Whereas for a supplemental loan, the original agency loan is still in place and an additional supplemental loan is also put in place. So there’s two loans, as opposed just one.

So let’s go over the pros. So there’s five benefits of getting a supplemental loan. The first is that it converts the equity created in the property to cash that can be distributed or used for further capital improvements. So the entire purpose of a supplemental loan or refinancing or selling is to access the equity that is created, and supplemental loans is one of the ways to do that. So you buy a property, you increase its value, and one of the ways to tap into that value without having to sell or get a brand new loan is to do a supplemental loan.

Another benefit of this supplemental loan is that it closes quicker and has less risk than a refinance.  So now we’re going into why the supplemental loan might be a better option than refinancing. So first, supplemental loans require less due diligence and underwriting than the refinance. So for a typical supplemental loan, the lender is gonna order an appraisal, a physical needs assessment, which is a property condition assessment or inspection, as well as reviewing the previous 12 months of financials. Whereas with a refinance, the same is required, but there’s also additional full underwriting of the sponsor and more due diligence required. So basically the same due diligence you did when you initially acquired the property will be done again by the new lender, but since you’re getting a supplemental loan through the same lender, all that has been done. They just need to make sure that nothing has changed during the first 12 months. So obviously, it’s faster because you have to do less due diligence, and there’s also a little bit less risk, because you’re not necessarily guaranteed to get that refinance, whereas you’re more likely to get the supplemental loan again because you’re getting it through the same lender that you’ve got your first loan. So that’s number two.

Number three is that supplemental loans are also less expensive. So since they’re faster and they require less due diligence, they’re also going to be less expensive, with lower closing costs compared to the refinance. Number four, the increased LTV that comes from a supplemental loan helps make assumable debt more attractive to a buyer. So what does that mean? So securing a supplemental loan increases the loan to value on the property, and the loan to value being — an 80% loan to value means that the bank hold 80% of the property value as debt, and then you have 20% in equity. So normally, agency loans are more stringent on their LTV requirements, and are capped at around 70% at origination, which means that they will lend up to 70% of the purchase price, and then you, as the general partner needs to put down the remaining 30%. And then as you implement your value-add business plan, you increase the value of the property. And when you increase the value of the property and the loan amount stays the same, then the LTV actually is reduced. So let’s say you buy a property for a million dollars, you put down $300,000 and the bank puts down $700,000. Let’s say you double the price of the property to $2 million. So the value of that property is $2 million, but the debt is only $700,000. So the LTV was originally 70%. Now it’s cut in half to 35%, and it’s calculated by taking that $700,000 divided by that $2 million number.

So now you’ve got the 35% LTV. Now generally suppplemental loans allow for up to 75% LTV. So going back to our $2 million example, now that the property is worth $2 million, the bank is willing to lend up to $1.5 million. So since they originally loaned $700,000, they loan you $1.5 million. The difference between the two is $800,000. So you could technically secure a supplemental loan for $800,000 and have an LTV of 75% as opposed to the 70% LTV at purchase. This allows you to increase the leverage. So now you’ve got 75% leverage as opposed to 70% leverage, which allows you to pull out more equity, but it also allows a potential buyer to assume the senior and supplemental loan with less money down. So as opposed to having to put down 30%, they can put down 25%. So the higher the LTV, the less money a buyer who’s going to assume that debt has to put down to obviously buy you out of the deal.

So if you’ve got 40% equity in the deal and  a 60% LTV, then they’re going to have give you 40% to buy the deal from you they assume the 60% loan. But if it’s 75%, then they need to put down 25% and buy you out and assume that 75% LTV loan. So overall, higher LTV makes an assumable debt more attractive to a buyer, and that’s accomplished by doing the supplemental loan, because it allows you to push up that LTV from 70% to 75%.

Then the fifth benefit is the ability to secure multiple supplemental loans. So I mentioned this a little bit earlier – so I get my first loan on May 13, 2020 from Fannie Mae, and I can get my first supplemental loan on May 14, 2021. So 12 months after the first loan. Now, Fannie Mae limits the supplemental loans to one, unless the loan is assumed, and then the person who assumed that loan gets another supplemental loan; so they can get their one supplemental loan as well. But for Freddie Mac, they allow unlimited supplemental loans as long as the most recent supplemental loan was secured 12 months or more before.

So I buy my property and I close and I get my debt on May 13, 2020 through Freddie Mac. I can get my first supplemental loan on May 14, 2021. I can get my second supplemental loan on May 14, 2022, or later, and I can keep repeating that process over and over again as long as obviously the LTV requirements are met. So those are the five benefits.

What about some cons of the supplemental loan? Obviously, it increases the debt service. So since you are taking out more debt, then the debt service, the monthly mortgage payments on the property increases. However, this is going to be the same case for refinance as well obviously. So it’s not just if you do supplemental loan, it goes up or if you do refinance, it doesn’t. Additionally, since these are amortizing loans versus interest only, monthly payments tend to be a little bit higher, even at lower interest rates. So there’s not gonna be an interest-only supplemental loan. You’re gonna have to pay principal and interest, so it’s gonna be a little bit higher compared to an interest-only refinance type of situation.

Another potential con is they’re only available through the agencies. So you can only get your supplemental loan if you’ve got Fannie Mae or Freddie Mac debt on your property. So only having two lenders available limits your ability to have lenders bid against each other to offer the best terms, but because both lenders are government-backed entities, rates are already generally going to be lower than private lenders. So it’s not that big of a deal, but the con here is that unless you have a Fannie Mae or Freddie Mac loan, you’re not gonna be able to secure a supplemental loan.

Number three is there’s limited flexibility with exit strategies. So agency loans are ultimately sold to investors as bonds. So they’re securitized and then sold to investors as bonds. So because of this, it adds a hurdle to the exit of the property. So a loan assumption [unintelligible [00:15:42].16] that the terms of the existing loan are better than market at the time of sale, so this is not gonna be a problem. So if your loan has a lower interest rate than the market interest rate at the time of sale, then it should be fine. But if the market rates are lower at the time of sale, a defeasance fee is going to be required to sell the property free and clear, which is a type of prepayment penalty, and this fee is typically paid by the seller. So if you want more information on defeasance and yield maintenance and prepayment penalties, check out everything you need to know about prepayment penalties on Syndication School. What it’s saying is that, sure, your loan can be assumed by a buyer, but if you need to actually sell the property free and clear and get out of that loan, you’re most likely going to need to pay a prepayment penalty, especially if you secure a supplemental loan.

Then number four is that interest rates can be higher. So the spread on floating rate supplemental loans tends to be higher than the spread on the same type of loan on the senior debt, making the supplemental loan’s interest rate higher. For fixed rates, senior and supplemental loans, the rate fluctuates with the market at time of origination. So compared to refinancing, you’re probably gonna have a higher interest rate. So these are the four cons.

Now why does Ashcroft Capital secure supplemental loans? Well, because they’re great tools for deals that have long term agency financing on them, because it allows Ashcroft and Ashcroft’s investors to get rewarded for executing the business plan by adding value to the property. So as I mentioned, typically agency loans are more stringent on their loan to value requirements, compared to private bridge types of financing. Those are normally capped at around 70%. But as Ashcroft continues the business plan and the overall value of the property increases, that LTV shrinks below the original 70%. I’ve already given an example of that by saying if you buy a property for $1 million at a 70% LTV and increase the value to $2 million, that LTV is now 45%; and since you can get a supplemental loan at 75%, that creates an opportunity to obtain a large amount of money back for investors.  So those are the pros and cons of supplemental loan. That is what a supplemental loan is, and that is why Ashcroft Capital prefers to secure supplemental loans.

That concludes this episode about the pros and cons of securing a supplemental loan. Until next week, make sure you check out some of the other Syndication School series about the how-to’s of apartment syndications. Make sure you check out some of the free documents we have available on there. All that is at syndicationschool.com. Thank you for listening and I will 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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2087: How To Find and Qualify an Executive Assistant | Syndication School with Theo Hicks

At some point during your journey into real estate investing you will want to hire some help. In this episode, Theo Hicks will go over how to find and qualify an executive assistant that will help you in your business.

 

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 groundbreaker.co


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: Hi, Best Ever listeners. 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 two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy, and for most of these series, we offer some free resource to you. These are free PDF how-to guides, PowerPoint presentation templates and Excel calculators. These free documents will help you along your apartment syndication journey. All of these free documents, as well as past Syndication School series, can be found at syndicationschool.com.

Today, I wanted to talk to you about finding what might potentially be your first hire, and that is a executive assistant. So in this episode, we are going to focus on how to find an executive assistant as well as how to qualify an executive assistant.

Now, I was interviewing someone on the podcast about a month ago, and I believe he was involved with a VA servicing company, or he started it… I think he started it, a VA servicing company. So he helped businesses find virtual assistants for whatever they wanted to do, and one of the questions I asked him besides when to hire a VA – is  what do you have them do? So I wanted to quickly talk about that really quick, because he had a very interesting strategy that he thinks people could do right away today to figure out what types of things they can have their first hire, their first VA, their first executive assistant do.

So the exercise is very simple. What you do is you pull out a piece of paper and you make a vertical line right down the middle. So you’ve got a column on the left side and a column on the right side. On the left-hand side, you write down every single thing that you either aren’t good at doing or that you don’t like doing, that you currently do in your business, and on the right-hand side, you write down everything that you like doing and are good at doing in your business as well.

So on the left-hand side, you have the things you don’t like or are bad at. On the right-hand side are the things that you’re good at or you do like, and this is something you can do either one time, just sit down for 10 to 15 minutes and write it all out, or it’s  something – and this is probably the better approach, you can walk around with this piece of paper or take notes on your phone and then write it on a piece of paper at night throughout the week. That way you can track, okay, during the week, here are the 50 different things that I do. I’ve got 10 things on the left-hand side that I don’t like to do, that I’m bad at, and 40 things on the right-hand side that I like to do and then I’m good at. And that is going to be your document that tells you what you should outsource first.

So all the things on the left-hand side are what you should be focusing on outsourcing to other people first, and all the things on the right-hand side are what you’ll have more time to focus on once you’ve actually outsourced the left side things. So I would definitely recommend doing the exercise. I really like that. It’s very practical and something you can do right away. So once you’ve got that exercise done and you know what you don’t like doing or what you’re bad at, then you know what types of things you could have your executive assistant do.

So let’s start off by first talking about how to find an executive assistant. So we’ve got four different ways to find your executive assistant. Number one is to use your social network and ask for recommendations from people that you already know. Obviously, the best way to find really any team member or someone to invest with, someone to work with, someone to be involved with is through recommendations, through someone in your current network. So if you like that person in your current network and they refer someone to you, you can assume that you’re going to, most likely, like that person as well. So you should provide a few details of the position to people in your social network or anyone in particular that you know has contacts with executive assistants, and then obviously, give them some contact information so they can contact you if they are interested. So these are things like LinkedIn, Facebook or people that you already know in the real estate industry. So that’s one way, is just someone in your current social network.

Number two is to use Indeed, ZipRecruiter or similar websites to post the position. So just create a job listing and post it to an online job listing website. You can customize the job listing to suit your needs, and it can even be down to the preferred location of the candidate. So if it’s something that you want them to come to your home office, then obviously you’d want them to live near you. Or if you don’t really care, these types of websites give you lots of customized features to select different types of characteristics you are looking for.

For these sites, unlike Facebook and LinkedIn, which you already probably have an account, you’re going to need to set up an account on these if you don’t already have one; and then once you have your account, once you have your job listing, just like if you’re posting a unit for rent or have a property for sale, be prepared to receive a lot of contacts. So that’s why you’re going to want to focus on understanding exactly what you want this executive assistant to do and who you want them to be, and that, in part, comes from doing that left side/right side exercise, because you don’t want to waste time talking to a lot of people who could easily have been screened out if you would have created a better job listing. So make sure you know and narrow down the scope of the position before you post to a place like Indeed or ZipRecruiter. So that’s number two.

Number three is you can just consider hiring a staffing agency. So there’s a lot of companies out there whose sole purpose is to find employees that you need. So for example, I know in a previous job that I got, I got it through a staffing agency. So a business goes to a staffing agency and says, “Hey, I have a job opening, here are the requirements for the job, here’s what I’m looking for. Go out and find me someone,” and then the staffing agency goes out and finds someone, interviews them, pre-screens them, and then if they are a good fit, they will pass on the information to the business owner. So in this case, you would go to a staffing agency, tell them the scope of the position you’re looking for, for an executive assistant, a staffing agency will go out there and find multiple people, interview them based on the criteria you provided them, and then if two, three, four people makes sense out of the 50 people they talked to, then you’ll just be speaking to those four people, as opposed to having to talk to 50 people if you were to do it yourself.

Some of these staffing agencies also do temp-to-hire situations. So something where you don’t have to hire them full time right away, they can work for you temporarily as a test and if you like them, you can hire them. If not, you can go ahead and find someone else through that staffing agency. But the major pro of the staffing agency is that most of the candidates will come pre-screened already, as opposed to you having to do all of that on your own.

Then the fourth way to find an executive assistant – and this will be more if you need someone immediately; you don’t have a few weeks or a few months to go through the hiring process with a thing like Indeed or ZipRecruiter or through social media or through a staffing agency, but you need someone working for you next week or tomorrow – then you can use a website like Fiverr or Upwork and just hire a virtual assistant in the meantime.

So let’s say you do your left side, right side exercise, then you realize that, “Man, I really don’t like doing this one thing and I don’t want to do it ever again. I’m just completely done,” then you can go on a website like Fiverr, create a posting for that particular thing. Maybe it’s you don’t like scrubbing lists or something for direct mailing campaigns. Well, you can find someone on Fiverr to do that for you. They’re gonna be a lot less expensive than hiring a full-time executive assistant, and you’ll be able to get them on your payroll, in a sense, immediately.

So those are the four ways to find an executive assistant. Now, what types of things do you ask them when screening them once they’re actually found. Now, obviously, it’s going to be very specific to your real estate niche. So an executive assistant who’s working for, say, an apartment syndicator might be a little bit different than an executive assistant who’s working for a wholesaler or fix and flipper, or someone who just sends out a lot of direct mailing campaigns. So obviously, you’re gonna want to add to this list specific questions on whatever niche that you’re in.

You’re also going to want to add specific questions based off of the result of your left side/right side exercise. So if there’s ten things you don’t want to do or you don’t like doing, you’re not good at doing, and you want an executive assistant to those ten things– well, obviously, when you’re talking to them, you’re going to want to know if they are actually capable of doing those things, but besides those two things, these are a few general questions that you can ask a executive assistant regardless of what real estate niche you’re in, or regardless of whether you’re in real estate or in some other line of business.

So the first question is  what software programs have you used in the past and how would you describe it your computer skills? Obviously, we live in the age of technology. So an executive assistant who’s doing administrative tasks is going to need to know how to navigate a computer. Especially if you are doing really complicated real estate strategies like apartment syndications, there’s a lot of different softwares and programs that they will have to use, rather than having to do everything manually. Maybe a system you’ve already put in place that you want them to take over. Well, if you don’t have computer skills, then it’s not going to be a good fit. Again, assuming that you want someone that has good computer skills.

Number two – describe a time you had to adjust a schedule due to unforeseen circumstances. So executive assistants are typically responsible for managing the schedule, the calendar of the person they’re working for, and if you need to change something on your calendar or if someone needs to reschedule something with you, how are they going to handle that situation? Can they handle that on their own or will they need you to be involved in that? Because at the end of the day, the purpose of the executive assistant is to make your life easier. So if you have to be involved in tasks you don’t want to be involved in, like scheduling, then it defeats the purpose of having an executive assistant.

Number three – what are your strategies for managing your time when dealing with multiple urgent tasks simultaneously? So asking about their ability to multitask – because again, being an executive assistant isn’t a job where you do the same thing every single day. Things that come up that are higher priority, so how do they prioritize things? How do they make sure they get the higher priority things done first, while also addressing other things that need to be done at the same time?

Next question – describe a time you identified a problem and proactively created and implemented a solution. So again, very similar to the second question about describing a time you had to adjust a schedule due to unforeseen circumstances. The purpose of the executive assistant is to make your life easier. So if they’re able to identify problems and fix problems without you even being aware of it, that’s gonna make your life a lot easier, as opposed to them finding problems and then needing you to actually fix that problem. Obviously, there’s gonna be cases where they can’t fix everything, but there are times where they should be able to do that on their own.

Next – how would you deal with an angry person demanding to speak with an unavailable executive, or wanting to speak with you, who’s unavailable? So if someone calls the executive assistant that’s really upset, how do they handle that situation? What are their communication skills like? What are their people skills like? Can you give me an example of when this happened in the past? This is especially important if you’re doing things like cold calling. Whenever I talk to someone about cold calling, they always say, “Well, most of the time, they don’t answer, and if someone does answer, it’s oftentimes they’re angry with you, they get mad. And then there’s other times where obviously, we make a deal.” So if you’ve got an executive assistant who’s screening phone calls for you, most likely, eventually, they’re going to speak to someone who’s angry. So how do they handle that?

Next – what do you believe an executive assistant brings to a company? So just getting an understanding of what their expectations are of an executive assistant. The next question – how do you anticipate the needs of an executive? So again, making the executives’ lives easier, making your life easier by anticipating things and being proactive as opposed to reactive.

Next – why do you think you’re well suited for this position in particular? Pretty self-explanatory.

Then lastly – what do you enjoy most about administrative work? So all those questions, at the end of the day, are trying to accomplish – one, are they capable of doing what you need them to do, and then two, are they going to be able to make your life easier? That’s really the two questions you need to have answered. Are they capable of doing what you need them to do, and by hiring them, is your personal life, is your business life going to be easier? Also, getting an understanding of what their expectations are of the position. So you can get understanding of what they’re going to do once you actually hire them.

So just to finish off the episode, I wanted to go over — I’m not going to read it in its entirety, but I do have a sample posting that Ashcroft Capital has used in the past for finding an executive assistant. So obviously, Ashcroft Capital is an apartment syndication business. So some of the wording will be a little bit different based off of, again, your particular real estate niche. But at the same time, the structure of this, I think, can apply to all positions, and then obviously, a lot of the stuff in here can be used as well.

So the way that the job posting is structured, it starts off with a bio of Ashcroft Capital, and then it goes into a bio of them as an executive assistant. So these are the characteristics that we want to see in our executive assistant. The third is the responsibilities of the executive assistant, and then the fourth are the requirements. So obviously, in the bio, you want to put the name of your company, what your company does, some of the statistics of your company, and then also in that section is what you’re hiring for. So it says, “We are hiring an experienced, reliable, task-oriented executive assistant to a co-founder of our company. The executive assistant will be responsible for performing a number of business, as well as personal administrative duties. This is an ideal position for a well-qualified candidate to get in early and grow alongside of a powerful and entrepreneurial investment firm.”

Basically, just summarizing the entirety of the other remaining three sections. So who will you work for, what do you need you to do, what’s the benefit to you? Boom, boom, boom.

So the section two is the ‘about you’ section. So this is a paragraph that describes ideal characteristics of the executive assistant. So it reads, “You are a highly motivated professional and capable of managing your workload and prioritizing tasks in a fast-paced environment. You take initiative and think through questions that might be asked and proactively address them before they are asked. When it comes to completing your tasks, you’re consistently reliable. You’re a self-starter and can start and can work autonomously. You want to be a part of something special. You want to a career, not a job. You want to work with a small, but dynamic team that is accomplishing big things.” So as you can see, in that ‘about you’ section, that corresponds with a lot of the questions that you’re going to ask during the interview process.

Next are the responsibilities. So whatever responsibilities you want them to do, make sure you list those out as well. So for example, completes projects or special assignments by establishing objectives, determining priorities, managing time, gaining cooperation of others, monitoring process, problem solving, making adjustments to plans.

And then lastly, the requirements– so obviously, read these just so you have an understanding of what the requirements were for the executive assistant role that Ashcroft Capital is hiring for, because again, you don’t want to hire just anyone. You want someone who has experience, who has certain skills, and then you’re also gonna want to mention the pay.

So requirements, “This is primarily a work from home position, but might require working from an office one or two days a week.” So are they capable of doing that? Two is polished, written and verbal communication skills. Three is at least five years of being an executive assistant. Now this, obviously, is going to depend on where you’re at in your business, because at this point, Ashcroft has 22 properties, 8000 units worth over $900 million, so they could demand someone who had experience.

If you’re just starting out and looking for a executive assistant, you’re probably gonna have a hard time hiring someone who has a lot of experience, but you might be able to. So this part’s really up to you. Then lastly, experience in real estate finance and/or legal is preferred, but not required. So ideally, they have an understanding of the base understanding of finance, in general, if they’re gonna be working for a real estate company… But at the end of day, that’s not a absolute requirement, especially if they are a solid executive assistant and are able to learn on the fly.

Then the last requirement would be, how do they actually apply? So for this listing, it says, “When you apply, please provide a cover letter with your resume,” and then it has a salary of $45,000, plus the opportunity for up to $25,000 in bonuses… Just to give them an idea of how much do you pay an executive assistant.

So that concludes the episode. Now you know everything you need to know about hiring, finding, qualifying an executive assistant, and also, you learned the left side of the paper/right side of the paper exercise for actually figuring out what you would need an executive assistant to do.

So thanks for listening. Until next time, make sure you check out some of the other Syndication School series about the How-tos of apartment syndications and check out some of the free documents we have as well. All of that is available at syndicationschool.com. Thank you for listening and I 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.

 

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2074: Ashcroft Underwriting Adjustments During COVID-19 | Syndication School with Theo Hicks

Theo is back with another Syndication School episode and this time he is going over how Joe and his team at Ashcroft Capital are making adjustments to how they underwrite future deals during this pandemic. 

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 groundbreaker.co


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: Hi, Best Ever listeners. 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 two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we offer a free resource that will help you along your apartment syndication journey. All of these free resources, as well as free Syndication School episodes can be found at SyndicationSchool.com.

In this episode we’re going to go back to talking about the Coronavirus. We took off about a week or so, and we’re gonna jump back into it because today I want to talk about some of the changes that Joe and Ashcroft Capital are making to their underwriting of value-add apartment deals during and then probably after the Coronavirus pandemic.

The purpose of this episode is going to be to outline the four main changes that Ashcroft Capital is making to the underwriting of new deals currently, and then for the — I won’t say foreseeable future, but at least for maybe the next few months after the Coronavirus pandemic is over.

Overall, the underwriting changes really need to be on a deal-by-deal basis, because different markets have different rules as it relates to Coronavirus. This means that the economy is being impacted differently… But there are a few items – four items in fact – that Ashcroft thinks are important to consider.

First is going to be year one operations. It should be expected that there will be an increase in things like vacancy, bad debt and concessions throughout 2020. And then once things settle down a bit and the economy reopens, it is also possible that some residents will no longer be able to afford living at the property. So the two things – number one, some of the income loss items, like vacancy, bad debt and concessions. When you’re making your assumptions, you should be projecting that they will be higher than usual. Based off of the T-12 or current market rates, you can’t really use those for vacancy, bad debt and concessions right now, because it’s a different environment, and once the Coronavirus ends, it will also likely be a different environment.

Secondly, once the economy reopens, the residents that are currently living at that property – so if you buy a property now, once rent repayment programs are ended, or rent delays are ended, evictions are allowed again, maybe expect to have to evict more tenants than you usually have to, because they’ve just been living there and maybe paying partial rent, or just doing what they could… But once it’s over, they can no longer pay the full amount. That’s year-one operations.

Number two is rent growth. The rent growth for 2020 in the vast majority of markets is projected to suffer, as unemployment rises. But the silver lining is that most of any rent lost in 2020 is expected to be recovered in 2021. From my understanding – I believe I’ve talked about this in one of the episodes – the rent growth is supposed to suffer; rent growth isn’t gonna go negative, it’s just going to be less. I’m pretty sure the most recent calculation I saw was about 1.3% percent, as opposed to 2%, 3%, 4% we’ve been seeing for the past decade or so.

Apparently, this dip is supposed to be temporary… So this dip in rent growth to the 1% range is temporary, and then in 2021 it’s supposed to go back to what it has been before. Obviously, when you’re underwriting a deal, the year one rent growth and year two rent growth should reflect the immediate area and the demand in the market. So obviously, you don’t wanna just use the 1% average. You wanna figure out “Okay, what do the experts think will  happen to rent in this specific market in the next two years?” And then probably be even more conservative and assume that it might be less than that. That way if it’s better, great. If not, then you’re still able to hit your returns to your investors.

Where does this information come from? Your management company. We’ve talked about the importance of your property management company, how to find a property management company, so you can find all that information at SyndicationSchool.com.

Number three is going to be debt. As of right now, most private lenders – these are basically the bridge lenders; the ones that do the 2-3 year renovation type loans – are taking a pause from lending. But lenders that are still active are being extremely conservative with their loan proceeds and terms.

I talked in a previous Syndication School episode about JP Morgan Chase, for example, has changed their lending criteria; this is for residential loans, I understand that, but it’s just an example of a lender becoming extremely conservative. They’re only lending to borrowers with a credit score of 700 or more, and who can put down 20% or more. So that definitely limits the pool of people who can get residential mortgages.

Similarly, other lenders are doing the same for commercial loans. I think one of the biggest changes is the reserve amounts that are required. Now, the agencies are lending, but they are also being conservative on their underwriting and requiring large upfront reserves for debt service payments. So the reserve requirements are changing. Typically, you create an  upfront reserves account called an operating account for unexpected things that happen at the property, but now in addition to that you need another upfront amount of reserves that are a lender requirement.

So more conservatives proceeds should be underwritten, and the underwriting needs to include these upfront reserves, as they will  impact the equity required to fund. So you’re gonna need to raise additional money now from your investors, even though the cashflow is not going to be going up. Typically, if the deal is cash-flowing $100 per door and you need to raise X amount of money, well now that deal might be cash-flowing $75 per door and you need to raise even more money from your investors. That’s why if you’re looking at deals right now, you’re gonna have to negotiate a lower purchase price because of these new lending criteria, and the rent growth, and the year-one operations that I’ve talked about previously.

So what does that mean more practically? Make sure that you ask your lender or your mortgage broker about the new loan-to-value requirements, the new upfront reserves requirements, and other terms that you need before you submit an offer on a deal. So you need to have an understanding of whatever lender you’ve been using or you plan on using, what are the terms of the loans they’re offering, what are the LTV terms, how much money do you need to put down, how much money do you need as upfront reserves, what are the interest rates, what’s the amortization? Is there anything that I need to  know that’s changing, so that I can underwrite my deals properly? Because if you don’t know what the debt is going to be, it’s gonna be impossible to submit correct offers on deals.

And then lastly, for value-add deals, depending on the deal, many owners are pausing their interior renovation programs until the market is restabilized… So when you’re underwriting a deal, it may be wise to assume that the value-add program does not start until the overall market stabilizes.

Now, this is something that’s gonna be obviously up to you, depending on the state you’re investing in, or the local area you’re investing in, if construction is considered an essential service, if construction companies are still working, things like that… But you need to think about “Okay, I plan on going in there, renovating all these units and doing all these exterior upgrades”, but what are the typical ways that you renovate interiors? Exterior renovations are likely fine, assuming that business is essential in your state, but interior renovations is the one that might be delayed because of the fact that residents aren’t able to move out right now.

So again, to summarize, the four changes that Ashcroft are making – and again, these four points came straight from the director of acquisitions at Ashcroft Capital – is the year-one operations. Things like vacancy, bad debt and concessions should be assumed to be higher, at least during year one. Rent growth should be assumed to be lower than  previous years, so whenever you’re underwriting your annual rent growth increases, or even when you’re determining what your rent premiums are going to be, you need to have a detailed conversation with your property management company to determine how to calculate that. So annual income growth is typically 2%-3%. You definitely wanna be underwriting maybe a 1% or 1,5% at least for year one and year two… And then when it comes to rent premiums, again, you have to see what’s the demand for those units in the immediate area? What are the prices on the newest leases in that area? It can’t be leases from a year ago or six months ago, or really even two months ago. It needs to be probably within the last few weeks to a month – what are the rents being demanded for those specific units?

Number three is debt, so making sure you have a conversation with your lender, so you know exactly what types of terms they’re offering on their loans now, including what sort of upfront reserves requirements are needed.

And then lastly, for the value-add deals, understanding that you’re likely going to need to delay any interior renovations until the market restabilizes and Covid is gone, because you’re not allowed to evict people, tenants are probably moving a lot less because of the Coronavirus… So those are four things to keep in mind when underwriting deals.

Obviously, if you are out there underwriting deals, I’d love to hear from you what you’re doing, so we can maybe add to these four points. So if you have any advice, any things that you’re doing differently when underwriting, please let me know by emailing Theo@JoeFairless.com. And of course, anyone who reaches out and I include their information – obviously, it won’t be in this episode, but I’m gonna turn this into a blog post, so I  will definitely give you a contributor status for the blog post, since you contributed to underwriting advice to the document.

That concludes this episode. To listen to other Syndication School series about the how-to’s of apartment syndication and check out some of our free documents, please visit SyndicationSchool.com.

Thank you for listening, have a best ever day, and I will 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.

 

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2073: How To Calculate Class A and B Return Projections | Syndication School with Theo Hicks

In this Syndication School episode, Theo will first review the difference between Class A and Class B investors. Afterward, he will share with you how to calculate the projected returns for each class, and to follow along with Theo you can download his free excel document below.

Free Class A and Class B document

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 groundbreaker.co


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: Hi, Best Ever listeners. 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 two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy.

For the majority of these episodes we offer a free document. These are free Excel template calculators, free PDF how-to guides, free PowerPoint presentation templates, some sort of resource that will help you along your apartment syndication journey. All of these free documents, and past free Syndication School series are available at SyndicationSchool.com.

In this episode we are going to talk about how to calculate the returns to limited partners when you have a two-tiered path of investment structure. What does that mean? Well, generally when people get started as syndicators, they offer one investment tier to their investors, and it’s either a preferred return only, a profit split only, or a combination of the two, with the most common being an 8% preferred return, and then a 50/50 or a 70/30 profit split.

Now, as you gain more experience, or even at first, you might decide to offer two investment tiers – class A and class B. Our episode is focusing on what are the differences between class A and class B. I’m gonna do a quick refresher on that, talking about the advantages and disadvantages of each, and then I’m gonna talk about how to actually calculate the return on investment and the internal rate of return to investment tiers.

For this episode, I’ll be giving away a free document. It will be a  calculator that will allow you to automatically calculate the ROI and the IRR based on the steps I discuss in this episode. So I’ll talk more about that free document here in a little bit.

First, let’s just do a refresher on class A and class B. Class A, investors sit behind the debt in the capital stack, which means that when all expenses are paid, including the debt, the next cash goes to the class A investors. Class A investors are offered a preferred return that is generally higher than the preferred return offered to class B investors.

On Ashcroft deals, the class A preferred return is 10%. Class A investor have virtually no upside upon disposition or capital events, nor do they receive a split of the ongoing profits. So they are getting the 10% or whatever the preferred return is, and then that is it. But in order to be taxes the same as class B investors, they do get a very small piece of the upside, that varies from deal to deal… So they do get a small piece of the upside for tax purposes, but overall they’re not given a large upside in the deal.

In Ashcroft deals the class A tier is limited to 25% of the total equity investment, and the minimum investment is $100,000. So the reason why is because let’s say year one the project cash-on-cash return is only 7%, and you may say “Oh, well I can’t pay my 10% preferred return then.” Well, if only 25% of your investors are offered a 10% preferred return, then you can hit that preferred return of 10% to that portion of investors. I’m not sure exactly how that math will work out, but as long as these class A investors aren’t making up a large portion of your investor pool, then you don’t need to have a 10% project cash-on-cash return to distribute 10% to the class A limited partners.

Now, of course, other syndicators may offer a different preferred return, or have different equity percentages or different minimum investments. That’s just what Ashcroft does currently, and I just wanted to give you an example.

Class B investors sit behind class A, so all expenses go out, including debt, and then class A investors get paid, and then class B investors get paid with what’s left. But they sit in front of the general partners generally in the capital stack, so they get paid before the GP is paid.

Class B  investors are offered a preferred return that is lower than the preferred return offered to class A investors. On Ashcroft deals that return is 7%, compared to that 10% for Class A. If the full preferred return cannot be paid out each month, or each quarter, or each year, depending on what the payment frequency is, then it accrues over the life of a deal.

Class B  investors do participate in upside upon disposition or capital events. On Ashcroft deals the split is 70% of the profits up to a 13% IRR, and then 50% of the profits thereafter. The Class B  minimum investment for Ashcroft is 50k for first-time investors and 25k for returning investors. Actually, now that I’m thinking about it, I think that Ashcroft recently reduced the class A minimum investment to 50k. [00:09:04].21] and really all other types of tiers offered. Syndicators may offer different preferred returns, profit splits, different minimums for these class B investors.

So since class A investors are in front of class B investors in the capital stack, they are paid first, plus the class A investors are offered a higher preferred return, therefore the class A tier is a deal for investors who prefer a stronger ongoing cashflow… So they’re more likely to get this cashflow, and it’s higher than what it would be if they were class B.

Since class B investors are sitting behind the class A investors in the capital stack, they are paid what is left over after the class A have received their preferred return. So if the full preferred return isn’t met, it accrues and is ideally paid out upon disposition or a capital event. So class A investors are offered a lower preferred return, but they do participate in the upside upon disposition or capital events like  a supplemental loan or a refinance… So the overall return over the life of a deal is higher for class B investors, compared to class A.

Class A is gonna get 10% a year, or whatever that percentage is, class B might get less than their preferred return year one, maybe 5%, but maybe eventually their cashflow goes up to 9% or 10%, but then they’ll get a massive 20% return on investment at sale over the life of the investment. It’s really at the end where they surpass the class A investors.

So the class B tier is ideal for investors who want to maximize their returns over the life of the investments. And if I’m the person who wants both – if I want strong ongoing cashflow AND to participate in the upside, typically that passive investor will be allowed to invest in both. So if you have a passive investor that wants to do both and you’re offering class A and class B, they should be able to invest a portion in class A and a portion in class B. So that’s what class A and class B are, as a reminder.

Now, how do you calculate the returns? I recommend downloading the document and having it open right now in Excel, but I will assume that you don’t have it open, and I will do  my best to explain exactly how to calculate. At the end I will discuss in more detail how the free document works. So the first thing that you need to know in order to calculate the returns to class A and class B investors are 1) total equity investment. So this is the total amount of money that you as a syndicator raised from investors for the deal, because that’s what’s gonna be their capital account and that’s what their return is gonna be based on… And then assuming it’s a five-year hold, you need the project-level cashflow; that’s income minus expenses gives you the NOI. NOI minus debt service gives you the cashflow. So you need the cashflow for year one through year five, as well as the sales proceeds.

Basically, you have year zero a negative amount of money technically, because that’s what the investors are paying, and then year one, year two, year three, year four, year five you’ve got your cashflow coming in positively, and then for the sales proceeds it’s just the profit remaining after all expenses are paid at sale. If you’ve downloaded the simplified cashflow calculator, it should be as easy and copy and pasting these figures into this model. As a reminder, the sales proceeds is the sales price minus the debt owed to the lender, minus any closing costs you need to pay for, minus any other costs associated with the sale, like disposition fees, broker’s fees… And then what’s remaining is the total sales proceeds. So that’s one bucket of numbers that you need.

Next you need to determine what the structure is going to be for class A and for class B. So for each, you need to know what the preferred is going to be, and what the profit split is going to be. So for the purposes of this document, the preferred return to class A is 10%, and the profit split is zero. For class B the preferred return is 7% and the profit split is 70%.

Now, the next step is to determine what that preferred return amount looks like for class A and class B. Basically, for class A you need to determine of the equity investment which portion is class A. To keep things simple, in this calculator it’s just set at 25%; obviously, you can go in there and manually adjust it if you want to. Class B is set at 75%, but you can go in there and manually-adjust it, if you want to.

So you’ve got 25% of the equity investment, you multiply that by the preferred return percentage of 10% to get the preferred return amount. Same thing for class B. So Class B  you take 75% or whatever percent of the equity investment, multiply it by the preferred return, which is 7%, and you’ve got the preferred return amount owed.

Now, if you remember, class A is paid first. So when you’re looking at your year one cashflow number, you take your year one cashflow and you subtract the class A preferred return amount completely out of there. And then what’s left over is what goes to class B investors.

Now, let’s say that year one you are able to cover the entire preferred return amount to the class A investors, but the cashflow that’s remaining is not enough to cover the preferred return owed to the class B investors. Obviously, they’re still going to get paid, but it’s not gonna be full. So in the sample cashflow calculator that you download it shows that the class B investors only get a 3% return on investment year one, as opposed to 7% preferred return that they’re owed. Every time that happens, for every year that happens, you need to track how much of the preferred return is actually accruing. So if they’re given a 3%, then they’re owed an additional 5%. So that’s going to accrue.

Now, for this particular document the way I have it set up is that it accrues and then it is paid out at sale. I’ll talk about how that happens later, but it’s not gonna be paid out the next year, it’s gonna be paid out at sale. If you want to have it paid out the next year, you’re gonna have to do some manipulations to the cashflow calculator.

Basically, you repeat that process for each year. This is how it works in this cashflow calculator. Let’s say at year two you take your full cashflow  for year two, you pay your class A investors their preferred return if the remaining amount is greater than the preferred return owed to the class B investors. So class B gets their full 7%, so the profits remaining after the 10% is paid to the class A, after 7% is paid to class B, that extra cashflow is going to be split. In this case, 70% goes to class B and 30% goes to the general partners.

Now, typically, profits are considered a return of capital, preferred return is considered a return on capital. So whenever capital is returned to them, then their capital account reduces. Now, in Ashcroft deals the preferred return is always gonna be based on the original investment, and then the general partners will catch up at sale. So what that means is whenever the class B investors are receiving a profit split, you need to track that so that you understand “Okay, after five years I’ve returned a  total of $15,000 to investors from this profit”, because they’ve got $15,000 in profit, therefore they’ve been returned $15,000. Therefore at sale, I’m gonna return them their full equity minus that $15,000 they’ve already received.

Basically, the two things that you need to track whenever you’re paying out your class B investors is if they’re not receiving their full preferred return, how much is accruing that year, and then number two, if they received a profit split, how much profit do they make, because that’s something you need to track, because that’s considered a return of capital.

So you repeat that process for years one, years two, year threes, year four and year five. When you do that, you should have a total class A accrued preferred return number, and a total return of capital from the profit split for the class B investors.

Obviously, if you aren’t able to distribute the full 10% preferred return to the class A investors, then the same concept applies… But since they’re not receiving a split of the profits, you only need to focus on the preferred return accrual and not anything about them receiving a return of capital, because they’re not.

Alright, so now you sell the deal and you have your sales proceeds calculation… So you’ve already copied and pasted the sales proceeds into the cashflow calculator… So now you need to determine which portion of the sales proceeds goes to class A, and which portion goes to class B. If you remember, class A is in front of class B in the waterfall, so class A gets their equity back first. That one’s pretty simple, because class A did not get a return of capital, so they receive their entire equity investment back. So the sales proceeds are a little bit less.

Next is the money that goes back to the class B investors. If  you remember, they’re owed three things at sale. First, they’re gonna be owed their equity back. So the equity they receive is going to be their total equity investment minus whatever capital they’ve received thus far as profits. So if they’ve received $15,000 in profits, it’ll be their total equity investment originally, minus $15,000 which is returned.

The second thing that’s returned to them is the preferred return that they’re owed. So whatever the total accrued preferred return number is, that is also owed to class B investors. So it’s the equity owed, plus preferred return owed. Lastly, it’s going to be the profit split. So whatever is left over after the class A is paid, class B has received their equity investment back, class B has received their accrued  preferred return, the  remaining profits are split 70/30 between the class B investors and the general partners.

Now, if you have some sort of tier structure where it’s based on IRR, and once there’s a 13% IRR it drops to 50%, you’re gonna have to do that calculation on the back-end, because that’s not what this does. This is just a straight-up profit split, just to keep things simple.

So the remaining profits are multiplied by 70%, and that also goes to the class B investors. So if you’re got profits of class B investors, plus preferred return owed to investors, plus equity to class B investors. So now you have a total proceeds to the class A, which is just their equity investment, and a total proceeds to class B.

Now what you wanna do is you wanna create a data table so that you can do your IRR and your ROI calculations. The ROI calculation is pretty simple – it’s just their initial equity investment divided by the money that they’ve received each year; so year ones, two, three and four it’s just the cashflow they’ve received… So for the class A it’s always gonna be 10%, for class B it’s gonna be ideally 7%, maybe lower at first, and maybe eventually higher… And then same thing for year five, but this actually includes the sales proceeds as well, so it’s gonna be a number that’s ideally over 100%. Then you can average all those to get your annualized cash-on-cash return.

Then for the IRR calculation, it’s just an Excel function where you basically do =IRR and then you highlight year zero through year five, and then it’ll give you what the IRR is.

Now, let’s talk about how to use this model. On the document that you’ll see there are a few locations that you need to input data. Basically, everywhere you input data, it’s gonna be in red, to make it very simple for you.

So you need to input the initial equity investment year one, two, three, four and five, project-level cashflow, the total sales proceeds for project-level, and then the preferred return percentage and the profit split for class A and class B. Once you input those numbers, it’ll automatically calculate year one through five cashflow for class A and class B, as well as the return on investment and the internal rate of return. So it’s essentially a very simple calculator.

And again, where you get the equity investment year one, two, three, four and five and sales proceeds numbers from – that comes from your simplified cashflow calculator that you gave away a while ago now. So if you wanna find that, go to SyndicationSchool.com to download that document.

That concludes this episode of Syndication School. Thanks for listening. Make sure you download your free calculator for calculating class A and class B return projections. Check out some of our other Syndication School episodes and those free documents as well.

Have a best ever day, and I 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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2067: Rent Or Own Post Coronavirus | Syndication School with Theo Hicks

Coronavirus pandemic has been a disruption to normal living; from social distancing, to working from home, and even how you look at someone when they cough. We have also seen how banks have been changing the way they lend money, Theo goes over a recent article JP Morgan Chase released on the new rules around borrowing for home loans and how this could be the beginning of how all banks could change. He explains how this could impact the housing market and provides additional studies on what we can expect in terms of house sales.

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. 

Best Ever Tweet:

“Obviously they will not live on the streets, therefore, they are more likely to move into an apartment and rent. ” -Theo Hicks


TRANSCRIPT

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: Hi, 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 two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy. And for the majority of these episodes we offer a free resource. These are free PowerPoint presentation templates, Excel calculator templates, PDF how-to guides, documents that will help you along your apartment syndication journey. All of these previous documents, as well as previous Syndication School episodes are available for free at SyndicationSchool.com.

In this episode I’m gonna try something a little bit different than what we usually do, maybe a little bit more speculatory – if that’s even a word – than usual. I was reading some articles about the ways that banks have been adjusting to this new Coronavirus world… And I came across some interesting things that I thought would have a future benefit to apartments… So I kind of wanted to run through some of those, and then I’d love to hear anyone’s thoughts about what I talk about today.

So if you have thoughts, either in agreement or disagreement with me, I would love to know… So you can send those to me at theo@joefairless.com, or you can just message me on Facebook, or post something in the Facebook group and tag me in it. That way, if what you think I’m saying today is absolutely crazy – which I don’t think it is, but maybe you do – at the very least I can know that and maybe we can have a follow-up next week or in future weeks about what I’m gonna discuss today.

I don’t think this is anything too crazy. I think a lot of people will agree with my logic… It all started when I came across an article stating that J.P. Morgan Chase, who is the largest lender by assets in the U.S, as well as the fourth largest lender overall, made two announcements. The first announcement – I’m recording this on the 22nd of April… This one came out on the 13th of April, so about  a week ago. It says “J.P. Morgan Chase to raise mortgage borrowing standards as economic outlook darkens.”

Basically, the key point from that article is that customers applying for a new mortgage will need a credit score of at least 700, and will be required to make a down payment equal to 20% of the home’s value.

So I did a little research… Okay, 700 seems high, and 20% is obviously a lot higher than the 3.5% for your typical residential homes… So I took a look and found out that according to Experian, approximately 58% of Americans have a FICO score of at least 700. And then I also wanted to figure out what the average down payment is for a home, and  it is 10%. Obviously, average isn’t the median, but I think it’s safe to assume that the majority of people aren’t putting down 20% for their homes. Most people are  putting down 5%, 3.5%, and I’m sure the average is 10% because some people are putting down 20%.

So J.P. Morgan Chase is basically only allowing people who have a credit score of 700 and the ability to put down 20% to buy a home. So based off of the Experian numbers and the average down payment numbers, potentially the vast majority of people can no longer afford to buy a home through J.P. Morgan Chase. Obviously, this is just one bank… But the assumption would be that if they’re doing this to hedge against risks, then other banks will probably follow in suit in the coming months, which — obviously, it’s only been a week, so it’s too hard to tell. So that was one interesting thing that I saw.

And then secondly – and this is more recent, too – this is the article that came out within the last few days… And it says that J.P. Morgan Chase temporarily terminates HELOC loan offerings. So Home Equity Line of Credits.

So not only is it more difficult to get a new loan through J.P. Morgan Chase, but it’s also impossible to pull equity out of your existing home if you have a loan through J.P. Morgan Chase. Now, again, as I mentioned before, one bank – I understand. But typically, from my understanding, if one bank does something, other banks are more likely to follow in suit.

So why am I talking about residential loans? Well, obviously, if residential loans are more difficult to secure, then people who would typically be in the market to buy a new home or need to buy a new home, or people who are in the middle of a move, or maybe once they begin to allow banks to foreclose on people, they aren’t gonna be able to qualify for a new home, and obviously they’re not going to live on the streets. They’ll cut other expenses, and that’ll be one of the last expenses they cut, therefore they’re more likely to move into an apartment and rent… Because maybe their credit score isn’t high enough, maybe they can’t afford the down payment for a new loan.

And even if they do have the 20% down payment to pay for a home, and they do have the 700 credit score or higher, because of the surge in home values during the most recent recession, they might not be able to get the quality of home they want, and therefore resort to renting a home or renting an apartment of that quality. So that’s another interesting observation that I had.

Say I’m used to living in a $500,000 home, and maybe I was putting down 5%. That’s $25,000. Well, now if I need to put down  20%, and all I have is $25,000, I can really only afford a $125,000 home. So I’ve reduced the amount of house I can buy by 400%. So if I’ve got $25,000 in cash, that’d be something I get per year on a house, then that’s 2k/month. Would I rather rent for 2k/month, or would I rather put a down payment for a $125,000 house? That’s another interesting observation.

Now, something else that’s interesting too is that one of the main benefits of buying a home, especially during the most recent economic expansion, was the insane increases in property values that came from natural appreciation. So I looked it up and according to Zillow, the average home value increased from 175k on March 2010 to 248k in March 2020. So that is an overall increase of 47%, or about 4.7% per year. So that means that on average, every single year, my house value grew by 5%.

So if I had, again, a 175k house, in ten years that house is now worth 248k. So 4.7% return per year just by living in your own personal house – it’s a pretty good return. However, when the Federal Reserve came out with their March consumer survey, they said that they expect home values to only grow by 1.32% this year, which is the lowest reading since this survey began in 2013.

So again, not only is it harder to buy a home, but even if I were to scrape together my 20% down payment, one of the main financial benefits of owning a home, which is that increase from natural appreciation, is basically gone… Which again, makes renting more attractive.

Now, once the Coronavirus occurred and people had to shut down their businesses, the number that was floating around for number of people who were out of work was about 16 million. I’m sure it’s a lot higher, but that’s one of the original numbers. I think it started off as 9, and then it was 16. So because of this, the number of borrowers on residential mortgages who requested to delay mortgage payments rose by 1,900% in the second half of March. Obviously, these are the types of people that can’t pay their mortgages and are asking for help, which the federal government has done by halting foreclosures.

So the question is “Will foreclosures resume before or after these borrowers are able to secure new employment?” Because if it resumes before, and these people need to delay their mortgages but they can no longer delay their mortgages without being foreclosed on, then these people may potentially lose their homes and have to rent as well.

So overall, because of this tighter lending criteria – again, that is the 700 credit score, 20% down payment, just J.P. Morgan based currently, and also the ability to not pull your equity out of your own home anymore, which I guess is another benefit of owning a home, is that the equity that is created you can pull out, which J.P. Morgan Chase is not allowing people to do at the moment… So that’s the tightening lending criteria.

We’ve also got the lowest projected home value increase since 2013 of 1.32%, compared to 4.7% in average the previous ten years. You’ve got the massive increase in the mortgage delay requests, which is 1,900%, you’ve got 16 million people – probably way over 16 million people now – who had jobs a month ago that no longer have jobs. This indicates that more people are going to be renting, as opposed to buying… At least in the next few years.

And to end, another interesting statistic from the National Association of Realtors – in March they announce that they expect home sales to be around 10% lower compares to the historical sales for this time of the year. So in March the previous  years – this March is 10% lower. So again, we’re already seeing right away that less people are buying homes. Obviously, that means that they might just be staying in their current homes, or renting, but obviously as more and more people don’t have the ability to  buy a home, renting is going to automatically become the default attractive option to these people.

So I’d love to know what you guys think. Do you think that more people are going to be renting or buying in the next few months, and maybe the next few years, after this is all over hopefully? You can let me know either on the Facebook group by tagging me, or you can privately message me on Facebook, or you can email me at Theo@joefairless.com.

Until then, make sure you check out some of the other Syndication School series about the how-to’s of apartment syndication. Make sure you check out those free documents we have on there as well. Those are at SyndicationSchool.com.

Thank you for listening, have a best ever day, and we will talk to you tomorrow.

 

Website disclaimer – Should be prominently displayed on website

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 – To be read at or near beginning of podcast

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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2066: 11 Questions Passive Investors Want to Know | Syndication School with Theo Hicks

Theo is back with another Syndication School episode and this time he will be going over the 11 questions most passive investors will ask you before they invest in your deals. Theo hopes he can arm you with the right mindset when answering these questions to put you in a good position to find investors.

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.

Best Ever Tweet:

“Making sure you let them know what your financial review process is very important because if you aren’t reviewing your financials your investors are not going to like that.” – Theo Hicks


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 two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy.

For the majority of these episodes – sometimes they’re part of a larger series – we offer a free resource. These  are Power Point presentation templates, Excel template calculators, PDF how-to guides, something that accompanies the episodes that will help you on your apartment syndication journey. All of these free documents from past episodes and series, as well as those past episodes and series can be found at SyndicationSchool.com.

In this episode we are going to talk about some of the questions you should be prepared to answer when you are speaking with potential passive investors. Way back in the day when we did the original series, we did an episode that talked about how to prepare for potential objections from investors, especially when you’re first starting out. So you’ll definitely wanna  check out that episode. I think it’s over 50 objections, and we go through those in multiple episodes, and talk about “Hey, these are things that your passive investors might ask you either upfront, or when you actually have a deal.” Then we talked about the ways you should be responding to those questions.

This episode we are going to go over 11 more questions. Some of them are repeats from before, some of them are new, but these are questions that the Ashcroft investor relations person has come across more recently, with the Coronavirus pandemic. So these aren’t specific to the Coronavirus pandemic, but these are the types of questions that you should expect investors to ask whenever there’s a looming recession, or thoughts of a looming recession, or something is going on that’s not your economic boom, whenever things are just kind of naturally going well. So let’s just jump right into those questions. We should be able to get through all of them today, in this episode.

The first one, and probably the most important question that you’re gonna get asked during potential recession times is “How are you adding value or hedging against valuation reductions and rent reductions.

More specific to the Coronavirus, in January everything looked great. In February everything was fine; it was a normal year as an apartment investor. And even the beginning of March was pretty normal. But by about mid-March things started to change, and by the end of March there were stay-at-home orders, businesses were closing or shutting down, or at least reducing their hours of operation… Some sort of change that affected the workforce.

Obviously, as an apartment investor the residents are able to pay for rent and pay you by their jobs. So if they can’t leave their homes or if they lost their jobs, then how are they gonna pay rent? So these are things that passive investors are definitely thinking about right now. How are you ensuring that you’re going to be able to collect rent, and in turn make sure that you’re able to maintain the value of the apartment? So you need to have an answer to that, you need to have specific answers to what exactly you are doing.

We’ve talked about ways to do that in previous episodes, where I talked about how to make sure you’re able to collect rent, so definitely check that out… But you’re gonna wanna have a specific answer to that proactively, because your investors are gonna be asking you that question.

Number two – and this is more of a general one, but “Can I run a  background check on your key people?” Obviously, you should always answer yes to this question without hesitation. These people are investing a large amount of money with you, and they wanna make sure that there are no red flags for you or other sponsors on the deal. Basically, the same way that you would be screening a potential resident, they’re gonna be screening you, because it’s even more important, because they’re giving you a lot more money proportionally than the residents are.

Next question, how frequently are you communicating with your investors? This is on an ongoing basis, so proactive communication, but also how quickly do you commit to responding to investor inquiries?

Right now, in a time like the Coronavirus, investors are probably reaching out to sponsors a lot more than they usually do. So you’ve gotta make sure that in times of economic certainty, if you say that you’re gonna be replying to questions within 24 hours, and then something like the Coronavirus happens and you’re no longer responding to questions in 24 hours – well, then that’s not gonna reflect good on you and your business.

This applies to all these questions, but when you’re replying to investor questions, you wanna make sure that your replies apply to times of economic expansions and recessions. And if they don’t, you need to make sure that you’re distinguishing between the two, because if you are getting a new investor during an expansion, and you say “Oh yeah, I send out emails every month, and then I’ll reply to you within 24 hours”, and then a recession occurs and you’ve got all these investors reaching out to you and it’s actually impossible for you to reach out within 24 hours, what are you gonna do in that situation? Probably let your investors know that “Hey, I’m not gonna be able to reply to you as soon.” But having some sort of communication and letting them know what’s typical, and then obviously if something happens, here’s how it will change.

Next question, “What is your financial review process?” Every month or every quarter – ideally every month; maybe even every week – you should be reviewing the financials of the deal. These are the T12’s, the rent rolls, the bank statements, making sure that all of your i’s are dotted and t’s are crossed… So make sure that you let your investors know specifically what you do when you’re reviewing the financials. So what financials do  you look at? Who else is able to look at these financials? Is it also being checked by some third-party? Is  your property management company look at it? Do you have someone on the team that specifically analyzes these financials? What do you look for? Typically, you wanna look for the variance between your projections and your actuals… Things like that.

So making sure you let them know what your financial review process is is very important… Because if you aren’t’ reviewing your financials, your investors are not going to like that, because you won’t be able to catch issues sooner.

Next question, “What is the worst-case scenario, and how do you try to mitigate that?” Obviously, the worst-case scenario is you lose their money, and then you do a capital call, and you lose their money again. So what types of things have you put in place to make sure that that doesn’t happen? What types of things have you put in place to make sure you don’t need to do a capital call? What types of things are you doing to make sure that you’re able to preserve your investors’ capital? We’ve talked about this countless times on Syndication School. Obviously, it starts with the 3 Immutable Laws of Real Estate Investing, which is buy for cashflow, not appreciation, make sure you secure long-term debt, and make sure you’ve got adequate cash reserves. So those are the three most important and best ways to make sure you’re conserving investor capital. So again, not making the money, but also not losing their initial capital.

So they don’t really care what the worst-case scenario is, they care how that worst-case scenario affects them; how much money could they lose. And again, the answer is they could lose the money they invested, you ask for more money, and they lose that. And I guess the worst-case scenario is they give you more money and you lose it again. So what types of things are you doing to mitigate the risk of that happening?

Next, “Can you send me investor references? Current, and on deals that have sold.” That’s also important. Typically, when you think of references, you think of just the current deals, but also investors that maybe invested on a deal that sold, and did not reinvest. So make sure that if they ask for references, you say yes. If they ask specifically for people who no longer invest with you, then give them those references as well.

Next, “In your return projections, are the numbers presented project-level, or net to LP?” Obviously, whenever you are underwriting your deals – and we’ve talked about this on the Syndication School before – you’ve got your overall cash-on-cash return and your IRR, which are the two most important metrics… And then you’ve got your LP level IRR and cash on cash return. Those are not gonna be the exact same, because even if the investors invested all of the capital into the deal and the GPs had no money invested into the deal, you as a GP are still getting fees upfront, you’re getting ongoing fees and profits, and you’re getting fees and profits at sale. So not all the profits are gonna go to the limited partners.

So if you’re presenting project-level returns, and you aren’t projecting LP-level returns, then you’re not setting yourself up for success, because what’s gonna happen is once you begin to send out distributions, or maybe even all the way up until you sell the deal, and the investors are getting returns that are below the project projections, because the project projections are going to be different than the LP projections, they’re gonna be confused and ask you “Hey, you told me that the returns are gonna be 20%, but they’re actually 15%. What’s going on?” And obviously, one of the answers could be that you didn’t meet your projections… But another answer could be that “Oh, I gave you the wrong projections”, which is probably even worse.

So make sure that whenever you are sending numbers or projections or returns to your investors, you’re sending them returns to them. They don’t really care what the overall project returns are, they wanna know what money they actually get.

Next, “How much liquidity do you keep as reserves in each deal?” Right now that’s huge. People who did not have liquidity are struggling right now, and those who had liquidity and reserves are not struggling as much. So how much money are you saving upfront, at closing, when you purchase the deal, and how much money are you saving on an ongoing basis? Because if something happens unexpected, you’ve got enough cash in reserves to cover the expense of that, or to cover any reductions in income, reductions in rent collections that come from some sort of event like the Coronavirus.

So the rule of thumb is about 1% to 5% of the purchase price as an operating account upfront, and then $250 to $300 per unit per year in reserves. So the first one is upfront, the second one is like an operating expense that comes out before you calculate your cashflow.

Next question, “How much do the principals or company invest in each deal, and at what level?” I’m pretty sure when I originally talked about the GPs investing in the deals, Ashcroft was not doing the class A, class B. So there’s an extra layer to this question, which is 1) how much money are they investing, and 2) are they as class A or class B?

Actually, I had a conversation with Frank, who’s one of the founders of Ashcroft, at the Best Ever conference, and I was asking him about class A and class B, and he mentioned that he invests as class B, because that creates a lot more alignment of interests… Because for the class A they get the 10%, but they do’t participate in any upside. Whereas class B gets a lower preferred return, but they do participate in the upside. So if the deal does really well, they do really well. If the deal doesn’t do very well, then they don’t do very well.

So when you are thinking about whether or not you wanna invest in your own deals, the answer should obviously be “Yes. You need to invest in your own deals, so that you have skin in the game, so that you have alignment of interests.” Because if an investor asks you “Are you in investing in your own deals?” and you say “No”, you’d better have a good answer — and I don’t even know what a good answer could be that would alleviate any concerns that they had.

But going above and beyond that, not only do you wanna invest, but you wanna invest in the class that is benefitted by the deal doing well, and suffer from the deal not doing well, which creates even more alignment of interests. So let them know how much money you have in the deal that you’re investing as the class of investor that participates in the upside and the downside.

Next, “Who will be managing the property, and how long have you been working with them?” So we’ve done countless episodes on property management companies. Obviously, the property management company is going to be managing the property, and the one question they’re asking here is “How long have you known them?” So obviously let them know how long you’ve known them for and how long you’ve worked with them for, how many deals you’ve done with them… Check out the Syndication School about “The ultimate guide for finding a property management company” for more on that, because that was basically the entire episode, or maybe two episodes talking about how to find a property management company, how to screen the property management company, and also how to be prepared to answer the questions that they have about you.

But obviously, the property management company is the most important team member besides the members of the general partnership, because they’re the ones that are responsible for the day-to-day operations of managing the day-to-day operations at the property. And especially at times like Coronavirus, you wanna make sure you’ve got a property management company that’s rock-solid, because a lot of adjustments need to be made in a health crisis like this, and if you don’t have a rockstar property management company, you’re gonna be in trouble… Especially when it’s harder to collect rent, people are working from home, so you can’t really do in-person tours, things like that. So you wanna make sure you have a property management company who’s flexible enough to handle these types of unknown events that occur.

Last question is “How many deals have gone south or sideways, and how do those affect your strategy?” Obviously, if you haven’t done many deals before, then you aren’t going to have an answer of a deal that’s gone south or sideways… But I guess if you have only done one deal and that deal went south or sideways — they don’t really  want a horror story; you’re not supposed to scare them about what went wrong. What they wanna know is what was the mistake that was made or what was the problem, and was it your fault or was it not your fault, and then what did you do to solve that problem?

So if it was a really small or minor mistake, then let them know that it was a small, minor mistake. “We’ve implemented the solution and we’re still able to provide our investors with returns.”

Essentially, all these questions – they wanna know “Is my money safe?” and “Will I be able to make money?” So when you’re replying to these questions, keep that in mind. Remember that that’s why they’re asking these questions. They’re not asking it because they wanna know a funny story about  a deal that went sideways, they wanna know “Okay, what happened to people’s money in that deal? Is this something that could potentially happen again?”

So those are 11 questions that every passive investor is most likely going to ask you before investing in a deal with you, especially if they’re not a family or a friend. Obviously, if you’re doing 505(b) you need to have a pre-existing substantive relationship, but maybe you only know them for a year, and they’re gonna ask you these questions.

Families and friends will probably ask you most of these questions too, but basically what you wanna do is make sure that you’ve got answers to all these questions. You don’t wanna read a script to these people. If they ask you “What is your financial review process?”, you don’t wanna go to your Word document and read “Well, my financial review process is…” You don’t wanna read it to them, you wanna just sound natural and genuine, but at the same time you also don’t want to not have an answer, or not have a clear answer, or have one of those runaround answers, where you don’t necessarily work your way around the answer, but you don’t actually answer the question…

So have everything written out in bullet point forms before you hop on a call, or before you even start doing calls; make sure you know exactly how you wanna answer each question, or at least the main points you wanna hit for each question. That way, when they come up you have an answer that, again, is actually hitting at what they’re actually asking you, which is “How are you gonna protect my money?”

So that concludes this episode. Until next time, make sure you check out some of our other Syndication School series, as well as all the free documents that we have. Those are at SyndicationSchool.com. Check out our Coronavirus blog landing page, where all of our blog posts related to the Coronavirus are. That’s joefairless.com/coronavirus.

Thank you for listening, have a best ever day, and we will talk to you tomorrow.

 

Website disclaimer – Should be prominently displayed on website

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 – To be read at or near beginning of podcast

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.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2061: What to Look For in Mobile Home Parks With Jimmy Johnson

Jimmy is the founder of Sanddollar Communities, a mobile-home park acquisition firm. Jimmy shares how he was able to wholesale 14 mobile home parks in less than 12 months so if you’re interested in getting into the mobile home park scene, this is an episode you will want to listen to since Jimmy gives his way of finding the right mobile home parks to invest in.

 

Jimmy Johnson Real Estate Background:

  • Founder of Sanddollar Communities, a mobile-home park acquisition firm
  • Has wholesaled 14 mobile home parks in less than 12 months for a total of 471 sites in 7 states
  • He has also partnered on 149 sites across 4 parks where he helps run daily operations
  • Based in Tampa, FL
  • Say hi to him at: jimmy@jimmyjohnson.co 
  • Best Ever Book: Four Hour Work Week by Tim Ferriss 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Anyone can pick up the phone and call but offering to meet in person is very influential.” – Jimmy Johnson


TRANSCRIPTION

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

Jimmy Johnson: Great, Joe. How are you doing?

Joe Fairless: I’m doing great as well, and looking forward to our conversation. A little bit about Jimmy – he’s the founder of Sanddollar Communities, a mobile home park acquisition firm. Jimmy has wholesaled 14 mobile home parks in less than 12 months, for a total of 471 sites in seven states. He’s also partners on 149 sites across four parks, where he helped run the daily operations of those parks. He’s based in Tampa, Florida. With that being said, Jimmy, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jimmy Johnson: Yeah, definitely. Thanks for the intro. As Joe said, about a year ago I got started in mobile home parks, and wanted to figure out how I could provide the most value to the industry. Everybody needs deals, so I thought the best route to go would be in wholesaling parks and providing those off-market deals. So I kind of jumped right in, and started full-time doing it, working 24/7, just trying to get the parks.

It took a couple months to get the first one, but since then it’s kind of snowballed, and now I’m just 100% focused on just growing the business and continuing to do more and more deals, and just marketing, and trying to find the best ones as things get more and more competitive.

Joe Fairless: What were you doing before this?

Jimmy Johnson: Before this I was working for a multifamily company, and that was kind of my first experience in real estate. Then once I left there, I had a virtual assistant agency where I was connecting entrepreneurs with VAs in the Philippines. I sold that, and then got started in mobile home parks. I went looking for something new to do.

Joe Fairless: What were you doing for the multifamily company?

Jimmy Johnson: Just acquisitions, so helping with the marketing, looking at database building, working with brokers… The whole nine yards, from start to finish, from selecting the areas that we wanted to target, up into naturally closing on the deals.

Joe Fairless: I knew there had to be a competitive advantage you were bringing to the table, because I don’t know of anyone who has started looking for mobile home parks and has gotten as many deals as you did, within the time period that you did, having just started out. So that makes sense; your background was in acquisitions on multifamily, plus you have had a virtual assistant agency… So my guess is – and I’d love for you to elaborate – that you used some of your experience in acquisitions for multifamily and combined that with virtual assistant help, and that’s how you got up and running so quickly… But please, tell us about it.

Jimmy Johnson: You hit the nail on the head. I pooled some of the experience from both. I have done [unintelligible [00:03:41].04] obviously not alone; I have some full-time VAs that work for me and help. They do a lot of the admin stuff, especially the database building, and just helping with transaction management. So I definitely piggybacked off of the experience of both, and it’s been great to just kind of bring that knowledge to the table. O couldn’t imagine having started without either one of those… So it’s been very influential and very helpful.

Joe Fairless: If I want a VA, what’s the best way to find one and bring them on board?

Jimmy Johnson: There’s a lot of agencies out there now. It’s one of the reasons why I got out of that business. You can go with the more boutique companies, or you could obviously go to Fiverr or Upwork. I think still the best way is to go to Upwork and post some ads there, and you’re gonna probably go through a couple dozen before you find that one good person. It’s all about just — you have to have them through task to task. So you wanna give them a couple hours of what a day in the life of working for you would be. If you give that to 100 people, maybe ten will actually do it, and out of the ten, two or three will do it right.

So it’s [unintelligible [00:04:50].04] but once you have the right person — I’ve had a couple who have been working for me for years and years now, and they really know all the ins and outs of the business… So it’s very helpful working with them, and it’s fun. They know so much about mobile home parks, and they don’t even have mobile home parks, obviously, in the Philippines.

Joe Fairless: [laughs] And what’s their compensation?

Jimmy Johnson: Between $2 and $4/hour as the base. I hire people that are more in the rural provinces, not right in the city, and then I give them a bonus for every deal closed that’s pretty substantial, so they make a good living there.

Joe Fairless: And what’s a bonus for a closed deal about?

Jimmy Johnson: $500. Over a month’s salary for them.

Joe Fairless: With your background in acquisitions for multifamily and with having owned a virtual assistant agency, talk to us about your specific approach that you take — or let’s talk about when you first started. What did you do exactly to get your first deal and get those leads coming in?

Jimmy Johnson: Nothing too fancy… It’s just the cold-calling, direct mail, meeting with sellers… You have to kind of put yourself in the shoes of who you’re reaching out to. I knew I wanted to target mom and pops, and out of the 14 last year, the average age was over 70, of the sellers that I worked with. So you’ve gotta think what does your seller — what kind of marketing are they gonna respond to. They’re not gonna probably respond to ringless voicemail, or texting. These are people who want cold-calls, and they want you to see them in person.

Joe Fairless: Okay. Well, in order to cold-call and direct mail and meet with them and know who they are – average age over 70 – you’ve got to be able to find them. What did you do exactly to put together your database?

Jimmy Johnson: I kind of picked the states and the areas that I wanted to do after doing some research on BestPlaces.net. It’s one of the good websites for metro research. After deciding, then I would figure out how many counties comprised that area, and then I would go county to county, go to their website… And some of them were easier than others, where you could search a list of mobile home parks, others you have to call them…  So kind of just getting a base list of what are the 100 mobile home parks in the area, just what’s their address. Then a lot of them, just due to these mom-and-pops, if you just google the name of the park and the address, it’s their cell phone number that’s often associated with the Google listing, because they don’t have a lot of technology and systems in place. It’s often them who is answering everything, from leasing calls, to maintenance… So just kind of calling that way is how I got started quick. And then since then, I’ve developed some systems with the VAs for different paid softwares and whatnot, for doing skip-tracing… One of the easiest, quickest ways in how I got started was just county research and then googling parks.

Joe Fairless: What was the easiest experience finding the mobile home parks in the county, and then can you describe the hardest experience?

Jimmy Johnson: The easiest, depending on state and the county, was just going on their website, and you could just search “multifamily, 2-5 units, or 5-10 units” etc. So they  had a listing that was just mobile home parks. So that was perfect, because —

Joe Fairless: It distinguishes between apartments and mobile home parks?

Jimmy Johnson: Yeah, as well as commercial and retail and industrial. They just had everything broken out, and all you had to do was download a list.

Joe Fairless: Okay.

Jimmy Johnson: So a lot of the more tech-savvy counties have that. That’s maybe 30 minutes total to get to that, and get the data downloaded. So that’s the easiest.

Then the hardest was counties that don’t have anything at all, and kind of having to call them and see what they could provide. And even harder on top of that is the counties that won’t provide the data at all, and then having to actually go on Google Maps and just search street-by-street to pick the parks, and then google. That’s a couple-day to a week task to get that done.

Joe Fairless: And when you create your database, what are the fields that you input for information?

Jimmy Johnson: The basics are obviously address, and then city/state ZIP, the whole nine years; always parcel ID number, because that’s the easiest way to look it up, especially when you’re digging deeper into the data. A lot of people will forget to put that.

In addition to that, you want as much info about the owner as possible. So whatever corporation they own it in, or if it’s in their personal name, the husband or wife’s name, any partners… And a lot of this you could find on the county’s site when you’re looking up ownership.

I wanna know where they live, because that can always be a talking point. I live down in Florida; a lot of sellers often do, even if it’s a park that’s in Georgia – I could say “Oh, it looks like you live in Orlando”, and then that can get the ball rolling for communication and whatnot. So just as much info… Google the park and see what’s near it; if it looks like there’s any new development, or if there’s something prominent that’s right around the corner… Just anything that you can kind of stand out with a talking point, compared to just “Hey, I wanna buy your park” and that’s it; so it looks like you don’t even have any info.

Joe Fairless: Besides mentioning that the area code is Orlando, so it’s “Oh, you live in Orlando”, is there any other way of saying “I see you live in Florida” without acting creepy to them, because you’ve been internet-stalking them to get all this information?

Jimmy Johnson: It kind of depends on the person. A lot of times they’re like “How did you  get my number? How do you know who I am? How do you know I own the park?” They’re like “I thought it was hidden.” And you’re like “No, you could look it up in two minutes online.” So there’s always that kind of creepy right off the bat feel if it’s the first time somebody’s calling them… But I always just say “Oh, we just get it all from county records. It’s all public data.” You just notice that “You live in Florida. I do, too. Are you down here now?” I try and segue it into an in-person meeting.

Then they kind of open up more and they’re like “No, I’m only down there in the winter. I love fishing”, and then we start talking about that… So it’s really just “Hey, it’s public records data, that anybody can look up.”

Joe Fairless: Okay. So that is building the database and putting together the team… But then you’ve got to actually close on the deal, and I introduced you earlier as having wholesaled 14 parks in less than 14 months for a total of 471 sites across seven states… So what are some tips you have for taking it from initial conversation to actually closing on it, or in your case wholesaling it?

Jimmy Johnson: Great question. Right off the bat, like I said, you wanna have some conversation points ready about the area… Especially if you’re not super-familiar with it, you wanna do research, even if it’s a new major employer is coming to town… Just anything to talk about. Or if you have friends or family or partners in the area. So just getting started with those talking points. And then one of my biggest tips is you wanna try and meet these sellers, with any type of wholesaling, I think, as soon as possible… Because anybody can pick up the phone and call, but offering to meet is very influential.  So I kind of start planting the seed right away. You know, “Hey, if you wanna get together in person”, and you kind of talk through the details. Because with a park, there’s a lot of info that you need, from how many park-owned homes, how many tenant-owned homes, if it’s private or public utilities… So it is a bare minimum 30 minutes to an hour of just exchanging information.

Once I have those basics, I then start to come up with my offer, where we have to be, and make sure we’re in the same ballpark, and then just start pushing for that in-person meeting.

Joe Fairless: Okay, so you mention what your initial offer is on that first call?

Jimmy Johnson: A lot of times they want to know, but I try not to. I think with anything, you want the other person to name the price first, just because you never know what’s gonna be said… But I’ve been most successful with one that doesn’t come up until actually in-person; because they see you have some skin in the game, you’ve taken the time to meet with them, where maybe 9 out of 10 other people haven’t.

Then once maybe walking the properties or sitting over lunch or coffee, then towards the end it’s “Alright, let’s talk numbers”, and that’s when I most address bringing up the actual final offer.

Joe Fairless: You wholesales properties in seven states over a period of first 12 months… How do you determine which people to go fly to meet with or drive to meet with, versus not?

Jimmy Johnson: Another great question. You lose some of them, because you get there and they want quadruple of maybe what it’s worth, and that’s why a lot of people wanna just shoot off that offer right off the bat. But the ones where I know I’m definitely going is — I had one where I was working them for 6-9 months, and we were talking every week or two, and it was “I’ll sell them next month” or “I’ll sell in a couple months. I’m not ready yet”, and then finally something just clicked after six months of talking. I had the rapport built up… And he goes “Yeah, I’ve had a rough couple weeks health-wise, I’m getting older… I’m done. Can you meet this week?” And I’m like “Okay, this park is across the country. I’m down in Florida. How about next weekend?” And he’s like “No, Friday is good for me”, and it’s Thursday. And I’m like, “Um, how about Saturday?”, and he’s like “No, it’s tomorrow. I have Bingo on Saturday.”

So I went online as we were on the phone and looked up tickets to Kansas City, booked the flight, and met him there the next day. So when they’re ready, they’re ready, and time [unintelligible [00:14:49].17] so you’ve gotta jump on it.

Joe Fairless: Yeah, I would hope most people would find the way to get themselves to Kansas City in that scenario. Earlier on — and you answered this, so I guess we won’t talk about it much more, but how do you determine who do you got meet with and go fly with… But certainly, that was a hot lead, to say the least.

Jimmy Johnson: Yeah. They’re not all ones, though… I drove eight hours two weeks ago, up to Northern Alabama, to meet with an owner, and it was one I was working for a while; I thought I had it in the bag, and he ended up selling it to a  college friend of his, so… A lot of times the time is wasted, but I stop at other parks on the way and kill a couple birds with one stone, or get lunch with some investor… So I try and make it where it’s 4-5 things happening, and not just a one-stop sort of thing.

Joe Fairless: Let’s talk about the four parks that you help run daily operations… What is your role?

Jimmy Johnson: Two of them are with one partner, two of them are with another. One group is much more out there, looking to grow. They have six parks total, so I’ve kind of assigned one to them, and we enjoyed doing business together and wanted to keep working together… So we ended up doing two more I partnered on with them. With that, there were more turnarounds, heavy lifts, and we all play our role. One person’s in charge of leasing the property up, another person is in charge of dealing with contractors… So for that one, I kind of just have my one lane, and I’m helping with just infill, bringing homes in, leasing homes, selling homes.

The other two, it’s more with a passive investor, so I’m kind of running 100% of things. They’re more stabilized. Still value-add deals, but not needed for a five-person team. So with that I’m taking everything from tenant calls, down to taking visits to the property, and moving in homes, and really everything, A to Z.

Joe Fairless: What’s your least favorite part of managing the operations?

Jimmy Johnson: I wish they were all closer. I wish I could basically be there more often. I have one park that’s only five minutes away from my house, so that’s great, and it’s the one that’s running the bust, because I can be there. And then I have another one that’s in Oklahoma, and that one – I just wish I could be there more. It’s tough to fly out there for a day just to do something that’s maybe not a high priority… So I think when you’re not there as often, obviously things kind of fall behind. So really, the least favorite part is missing out on some of the more day-to-day stuff by being remote.

Joe Fairless: And what do you think is the monetary benefit to the park for you being closer? You mentioned some of the smaller day-to-day stuff that’s not as much of a priority, but you said it is operating the best when it’s closest to you… So what exactly is it that you’re doing that is helping with operations?

Jimmy Johnson: I meet with my manager there once a week. It’s just walking through — I park the car, and then I kind of walk. The tenants see me there, and it’s kind of — not that fear of “The owner is here”, but more of like it’s more active, and there’s a presence… So just kind of less problems, less complaints; they all know me. So it’s that, and then… We’ve just had somebody move out last week and we had a tenant moving in there the next morning. So it’s just quicker turnovers. We’re doing a small expansion there, and it’s just easier to manage that. We’re adding eight homes in… So it’s just a lot easier to pop into the county and do what needs to be done.

The on-site managers do this at the out-of-state properties, but just being able to oversee this one — I think it’s running more efficiently, and I work a lot closer with the manager there. He does other kind of side-projects at the other parks, and he actually travels to them… So it’s just kind of better relationships, and more smoother communication, just being on-site more often, and doing that  weekly walk.

Joe Fairless: Do you have weekly phone conversations with the Oklahoma manager?

Jimmy Johnson: Yeah, with all of them. It’s a minimum of once a week. So we typically do Friday afternoon, and it works well. I think it’s good for both sides. They like to kind of update and share what’s cookin’, both good and bad, and then of course, I like to stay on top of it equally. So it might be overkill to some, we could probably do it twice a month, but I think a quick 15-minute call is worth its weight in gold.

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

Jimmy Johnson: Definitely trying to meet sellers in person. I think it’s one of the biggest reasons why I’ve done 14 parks in the first year… Because I’ve gone the extra mile and I meet these people when nobody else is.

Joe Fairless: And I’m guessing at the beginning you chose to wholesale just to build up some cash reserves. Is that something that you are continuing to do? And if so, why? …compared to just buying them with a partner and doing it yourself?

Jimmy Johnson: Yeah, definitely, this year the number one focus is still wholesaling parks. About double the number that I did last year. And with wholesaling, everybody wants the deals… So just for like being the guy with the deals, then you’re able to partner. A lot of times people will say “Hey, instead of the fee, how about I give you a piece of equity in the deal?” So I’m building up ownership in multiple parks, as well as building up the cash with the assignment fees. I’m learning a ton and getting to know everything, from people buying their first park, to the institutional groups who are [unintelligible [00:20:19].16] ten or twenty. So it’s a great way to meet just so many people, in really any market that you want.

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

Jimmy Johnson: I’m ready.

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

Break: [00:20:39].16] to [00:21:23].24]

Joe Fairless: Best ever resource that you use to stay sharp in business?

Jimmy Johnson: I really like BestPlaces.net for staying on top of what’s cooking in areas, and metros, and cities, and just the demographic.

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

Jimmy Johnson: Time kills deals. Dragging my feet on a couple things and kind of letting things fall behind. You’ve gotta just stay on top of it and just put in the hours to get them done quick.

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

Jimmy Johnson: Pretty generic, but 4-Hour Workweek. I always revisit that one. I think it’s good for anybody in business.

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

Jimmy Johnson: Super-simple, but once in a while just buy something for somebody behind you in the line at Starbucks. I do it about once a month, and it’s always just such a feel-good moment.

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

Jimmy Johnson: You can email me, jimmy [at] jimmyjohnson.co, or you can also go to my website, sanddollarcommunities.com. You could reach out that way. I’m on top of both of those every day.

Joe Fairless: You came into this business just ready and raring, hitting the ground running. It’s impressive how you got 14 mobile home parks in less than 12 months wholesaled.

Jimmy Johnson: Thank you.

Joe Fairless: It really is. They’re tough to find, as you might know… I don’t know if you agree with that or not. I know some people in the industry and they have a hard time finding them. Bravo to you. And thank you for going through your process in detail for how you did it. So any mobile home park investors listening, they can learn. And I’m sure everyone has an abundance mentality, so thank you for sharing that.

Jimmy Johnson: Yeah, I appreciate it. Thank you.

Joe Fairless: I really appreciate you being on the show. I enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you again soon.

Jimmy Johnson: Right back at you. Thanks, Joe.

 

Website disclaimer – Should be prominently displayed on website

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 – To be read at or near beginning of podcast

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

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2053: 3 Ways to Get Cash From The CARES Act | Syndication School with Theo Hicks

In this episode, Theo shares three ways to get cash from the CARES Act. He explains the 401k distribution, Paycheck protection program loan (PPP), and the Economic Injury Disaster Loan (EIDL) in detail so you will be better prepared during this pandemic. 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. 

 

Best Ever Tweet:

“Understanding the CARES Act can help many individuals.” – Theo Hicks


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: Hi, Best Ever listeners. 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 or two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, sometimes they’re part of a larger series, we offer a free resource – PowerPoint presentation templates, Excel template calculator, PDF how-to guides, something to help you on your apartment syndication journey. All of these free documents from past Syndication School series episodes as well as the episodes themselves can be found at syndicationschool.com.

In this episode, we are going to talk about three specific aspects of the CARES Act, the Coronavirus Aid, Relief and Economic Security Act that was recently passed, three aspects of that that can help you get cash to hold you over if your properties are struggling and you need some cash to pay investors to cover expenses to your mortgage and things like that. So we’re going to go through those three in this episode today.

The first one is going to be some changes they made to retirement accounts such as a 401(k) and an IRA. So if you have a 401(k) and IRA, this applies to you. Obviously, if you don’t, then the other two, I think, will be much more advantageous. But the first change is that you are going to be able to take out a large withdrawal of up to $100,000 from your IRA or 401(k) without having to pay the early withdrawal fee or the income tax right away. So usually, if you wanted to pull money out of your 401(k) or your IRA early, you’d be required to pay the withdrawal fee, which is 10% as well as the income tax on that distribution. Whereas now, you are able to take a coronavirus related hardship distribution of up to $100,000.

People who qualify for this coronavirus related hardship are people who are diagnosed with coronavirus, have spouses or dependents who have been diagnosed with coronavirus or those experiencing financial consequences from the quarantine, which is pretty vague. So the rules are actually really loose.

So if you’re an investor and you’ve seen a reduction in rent, then you’re experiencing a financial consequence from the quarantine, and are able to pull out up to a 100k out of your 401(k) or IRA without paying the early withdrawal fee. So this provision may help, as I mentioned, you, but this is also something that might be able to help your residents, depending on what type of properties you’re investing in. If you’re investing in Class A properties, maybe your residents have 401(k)s or IRAs they can tap into to pay for their rent. It’s another way to pay rent as well. But of course, obviously this is something that can help you as an apartment syndicator, cover expenses as well, and it could also cover living expenses too.

If you are putting everything into a property to pay your investors, but you’re not making money yourself, well, pull some money out of your 401(k) if you need to, to hold you over until the property turns around. The up to $100,000 distribution – not only do you not have to pay the early withdrawal fee, but it’s also tax-free for three years, at which point you need to either replenish the money, put it back into your account or you need to pay the income tax on that. Now, if you haven’t experienced a Coronavirus-related hardship, which if you’re a real estate investor and based off of the loose requirements, you should be able to be considered having faced a Coronavirus related hardship… But let’s say, for some reason, you haven’t, your properties are perfectly fine, your business is perfectly fine – well, you can still access up to $100,000 from your 401(k), and you do this through a loan.

So in the past, if you wanted to take a loan against your 401(k), the max was 50%, or 50% of the vested amount, whichever was higher. With the CARES Act, the maximum amounts has been doubled to $100,000. So the loan process is the same, which means you need to pay back the loan with interest, or else it will be treated as a withdrawal and will be subject to the income tax and the early withdrawal fee. But instead of being able to pull out only $50,000, now you’re allowed to pull out up to $100,000. And similarly, this loan may be used to cover– this can be something that your residents can use to cover rent, you can use it to cover business expenses or living expenses. Plus, you could also use it to potentially acquire a property.

A lot of people use their 401(k)s to buy properties. So you could also take up to $100,000 out of your 401(k) to buy more real estate. So the two 401(k), IRA retirement-related things that the CARES Act allow is number one, if you’ve experienced a Coronavirus-related hardship, you can pull up to $100,000 out without paying the early withdrawal fee and then not having to pay taxes for three years. Whereas before, if you pulled out a 100k, not only would you have to pay the early withdrawal fee, but also income tax immediately. And then secondly is, if you have not experienced a hardship or if you have and you want even more money, you can take up to $100,000 from your 401(k) as a loan as opposed to the previous $50,000. So that’s 1A and 1B.

The second way to get cash from the CARES Act is going to be the Paycheck Protection Program Loan or the PPP Loan. So this is something that is new. The third thing we’ll talk about is something that’s previously existing, which is expanded upon us, the Economic Injury Disaster Loan. But first, we’ll talk about the PPP loan.

So the PPP loan, as the title points to, helps you pay your payroll costs, during the coronavirus. So who qualifies? Small businesses. So this is a small business loan; you need to have under 500 employees. It can be an S Corp, a C Corp, an LLC… It can even be a sole proprietorship or an independent contractor or someone who’s self-employed. So that applies to basically all real estate investors. And then when you are obtaining the loan, in order to qualify, you need to certify that your business has been economically affected, or there’s economic uncertainty to make the loan necessary. So there’s a portion of the application you fill out that you need to basically prove that you are being economically affected by the coronavirus.

With this PPP loan, you can get up to $10 million, but the amount is going to be based on your payroll costs. So in order to calculate how much money you can get as a PPP loan, you want to determine what your average monthly payroll cost was for the past 12 months, and then multiply that by 2.5. So if your average monthly payroll is $100,000, then $100,000 times 2.5 is 250k. So you can qualify for a $250,000 PPP loan.

Things that are included in this payroll calculation are salary, wages, commissions, payment of vacation, sick parental family, medical leave, payment of retirement contributions, group health coverage premiums, state and local taxes. It doesn’t include federal taxes and it doesn’t include payroll costs for those making more than $100,000. And these are things that apply to you and your employees. Obviously, if you’re an independent contractor, you probably don’t have employees, or if you have your property under the single purpose entity, you can still qualify for the PPP loan. It would just be whatever salary wages that you yourself got.

What can the money be used for? Payroll for you and your employees. But what’s nice is, you can also use the money for rent, mortgage obligations, utilities, and other debt obligations you may have. So you can pay the mortgage on your apartments or you can pay utilities on your apartments with the PPP loan.

The interest rate is essentially interest-free; it’s only half a percent, so 0.5%. And the repayment period is two years, and loan payments are deferred for the first six months, and there’s no prepayment penalty, so you can pay it back whenever, and there’s also a way to have the loan forgiven.

So there is a loan forgiveness provision which states that you’re eligible for loan forgiveness for the amounts you spend over the next eight weeks after receiving the loan on certain qualifying expenses. And these qualifying expenses of the business over the eight week period include payroll costs, rent, interest item, mortgage debt, and utilities. So depending on how you use the loan, you could have the majority of it or all of it forgiven, meaning you never have to pay it back if it’s one of these qualifying expenses. And if the amount that could be forgiven is determined by the bank who actually grants the loan, and once you request forgiveness, the bank will have 60 days to approve or deny the loan. What’s also nice is that you are able to have more than one small business loan. So you could get the PPP loan, you could also get the EIDL loan, which I want to talk about next.

So just to summarize, the PPP loan, the Paycheck Protection Program, is for small businesses, so you have to have under 500 employees. That applies to most entities, but you can get up to $10 million. That loan amount is based off of the average monthly payroll for the last 12 months multiplied by 2.5, and the money can be used for payroll, but it can also be for rent, mortgage obligations, utilities, and other debt obligations. Very, very low interest and needs to be paid back within two years. Payments are deferred for six months and you have the possibility of having most or all of the loan forgiven, depending on how you use the proceeds. So that’s number two – the PPP loan.

Third is going to be the Economic Injury Disaster Loan, the EIDL. So the EIDL is an existing program that was expanded upon through the CARES Act. So in order to qualify for the EIDL loan, you need to meet the definition of a small business, which is something that’s organized for profit… and this applies to the PPP loan, too. You have to be a small business, because these are things that are gonna apply to most of you – organized for profit, has a place a business in the US, operates primarily within the US, is independently owned and operated, and is not dominant in its field on a national basis. So assuming you meet those criteria, you meet that definition of standards, the size standards are 500 or fewer people, and then you need to be located in the US. So assuming you meet those three, then you could qualify for the Economic Injury Disaster Loan. I’m not sure what’s easier to say – the Economic Injury Disaster Loan or the EIDL. Well, probably EIDL.

So you can borrow up to $200,000 through this program without a personal guarantee and you can be approved just based off of your credit score. You do not need to prove that you can’t get credit or money anywhere else. So you don’t need to prove that this will be your last resort and you need this loan to survive. If you’re getting a loan over $25,000, then you’re going to need to have collateral, which can be your small business. It doesn’t need to be your property, doesn’t need to be anything that you personally own. And probably one of the things that most people are talking about this is that you can get a $10,000 loan advance very, very quickly to provide for immediate support while you wait for the proceeds from your EIDL loan.

So the EIDL loan, you can get up to $2 million to provide working capital for your payroll costs, debt, expenses like that. The interest rate is 3.75% and the loan term can be as long as three years.

There’s one year of payment deferrals, although the interest does begin to accrue right away. And then as I mentioned, you can get a $10,000 advance, which is effectively a grant. When you request that, when you fill out your EIDL application, it should arrive within a few business days. And the money is yours and does not need to be repaid whether or not you qualify for the EIDL loan. So it seems like it’s just free $10,000 that you can get by just applying, assuming you meet the criteria. I went to the website and it said that it takes about two hours and 10 minutes to complete, but I know a few people who filled it out very, very quickly. So basically for this EIDL loan, the majority of it remains the same of how it was before, the biggest change is the $10,000 advance.

So when you apply, you can get a $10,000 advance in a few days that you do not need to payback. So it’s basically a grant given to you. And then after that, you can apply for up to $2 million to pay for things, assuming you can prove that you’ve been financially impacted by the coronavirus.

So those are the three main ways to get money from the CARES Act. The first is being able to pull money out of your IRA and 401(k) without paying the early withdrawal fee and the larger loan amount that you can take against your 401(k).

Number two was the PPP loan, which will help you cover payroll costs, but also rent and mortgages and utilities and things like that. And then the Economic Injury Disaster Loan, the EIDL loan is another loan that gives you a $10,000 advance. The loan terms are a little bit higher interest rate, but a longer payback period and a longer payment deferral, and you can get up to $2 million for the EIDL loan compared to the up to $10 million for the PPP loan.

So again, those are the three main ways to get cash from the CARES Act. There’s a lot more things in the CARES Act that are going to positively impact your investing business, but I think those were just kind of the main three that most people are talking about now, that we wanted to talk about today.

So thank you for listening. In the meantime, make sure you check out some of our other Syndication School series about the how-to’s of apartment syndication, make sure you check out our coronavirus page on our website – this is joefairless.com/coronavirus, where we post all of our blog posts about the coronavirus and different developments in regards to that, and also make sure you check out some of the free documents we’ve been giving away for Syndication School. That’s available at syndicationschool.com. Thank you for listening and I will talk to you tomorrow.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2046: 11 Tips for Collecting Rent During The Coronavirus Pandemic | Syndication School with Theo Hicks

In this episode, Theo shares 11 tips for collecting rent from your tenants during the coronavirus pandemic. These ideas and tips are from research around the real estate investment community, from some of our previous guests, and from the Best Ever FaceBook community.

 

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. 

 

Best Ever Tweet:

“During this pandemic, one idea is to apply your tenant’s security deposit towards rent and apply a discount to help your tenant’s out.” – Theo Hicks


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. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s apartment syndications. As always, I’m your host, Theo Hicks. Each week, we air to podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes we’ve been releasing free documents as well; how-to PDF guides, PowerPoint presentation templates, Excel calculator templates, things that will help you along your apartment syndication journey. All of these free documents and past Syndication School series episodes can be found at syndicationschool.com. Today, we will be continuing with our coronavirus-focused episodes and talking about how to collect rent. So some tips on collecting rent.

When this episode airs, the first of the month of 1st of April will have arrived, and in previous months, apartments syndicators really knew that the vast majority of the residents were going to submit their rent on time and in full, something that we didn’t really have to think about at all, unless we were just buying a property and knew that tenants weren’t the best and the plans have turned them over. But the majority of the time, they’re going to pay on time; that’s not really something that was focused on. Whereas now with the coronavirus pandemic, a lot of people losing their only source of income, being furloughed indefinitely, laid off from their job, hours cut back, it’s the first time that rent is due during this pandemic time. So we wanted to provide some tips on how to collect rent.

So they did pass the $2 trillion Stimulus Bill, which is going to extend a direct cash payment to certain individuals if you qualify. So it’s $1,200 bucks for most American adults and $400 or $500 bucks for each child, as well as some money for businesses, cities, states and small businesses, hospitals, things like that. So that is obviously one option. If your residents are able to get that direct payment, then that can help them cover rent for a month or two. But besides that, I wanted to provide some other tips on how to collect rent that’s not the direct cash payment that’s coming from this stimulus bill.

In this episode, we’re gonna focus on 11 ways that you can still collect rent during the coronavirus pandemic. This comes from research that we did across the Internet and things that other investors are doing, plan on doing. So that’s where this information came from.

So the first piece of advice came from our Best Ever show community on Facebook, which I highly recommend following or liking if you aren’t already, because we’re posting some coronavirus related content every day and we are asking for people that are currently following the page to provide their input on things that they’re doing. So a lot of active investors are providing some very solid advice, and these first three approaches are coming directly from that group.

So the first came from Justin, and this one’s pretty simple. He’s just going to offer a small discount to residents who pay their full rent early or on time. So if they pay their rent a week early, a few days early, and it’s in full, then he’s going to give them a minor discount. So obviously, the discounts and the timing of how early, it is up to you, but the goal is to motivate residents to pay their rent before it’s even due; so pay it early. That way you have an understanding of how much you’re going to be collecting for that month and in return, you’re giving them a small discount. So that was number one.

Secondly, Justin’s also going to set up a repayment plan for residents who cannot pay their full rent on time or pay their full rent early. This is going to allow residents to make up for their unpaid rent later. So that’s another strategy that I’ll talk about later in this episode about a potential repayment plan, but if they don’t pay rent, then you create some plan for them to repay it in the future before their lease expires. So just helping people out that aren’t able to come up with rent. Justin is offering a small discount if they pay early, and also creating a prepayment plan rather than evicting them, or you’re charging them money with interest or something. So those are the first two strategies.

The next strategy comes from Julie, also from the Best Ever show community. It’s a very unique approach to collecting rent. I believe I talked about this on last week’s Syndication School, but first thing she’s doing is allowing her residents to apply their security deposit towards a reduced monthly rent payment. For example, if you have a resident who owes $1,000 per month in rent and has a $1,000 security deposit, well, what Julie did is she allowed them to use that security deposit to cover two months’ rent. So she discounted their rent each month for two months by 50%, so $500 each month, and they were able to apply that $1,000 security deposit to their rent. So at the end of the lease, they won’t get that $1,000 back, because the $1,000 should be sitting in a bank account somewhere. So you just take money from the security deposit bank account, and deposit that into your rent collection account.

Now in return for this discounted rent and with the ability to apply the security deposit to the monthly rent, Julie was making the residents sign a new lease. So six months or twelve months depending on what their current lease is, as well as sign up for some security deposit insurance. So the service she uses is called Rhino, and it’s $10 per month per $1,000 in the security deposit insurance, and then depending on the residents, she wants to see two to three times, the security deposit amount in coverage. So if they owe $1,000 for security deposit, then they’ll pay $20 to $30 per month for security deposit insurance, and security deposit insurance covers damages and unpaid rent. So if they can’t continue to pay rent, well then Julie can make up for that by having that security deposit insurance and collecting rent that way.

So she had just started this during the coronavirus pandemic and hasn’t actually filed a claim yet so you’ll want to check out Rhino or some other security deposit insurance company. The strategy here is to allow your residents to use their security deposit to pay their rent. Julie did a reduced rate just because she wanted to cover two months as opposed to one month, so pushing the problem away two months as opposed to one month. So you can reduce it by 33%, or you don’t have to reduce it at all. You can make them sign a new lease or not sign a new lease. You can make them sign up for security deposit insurance, you can make them do something else, but the overall strategy is to have them use their security deposit to pay rent in return for doing something else that you want them to do. So that is strategy number three.

The next two strategies, four and five, they came from actually a Best Real Estate Investing Advice Ever Show podcast interview that I did with Daniel, which actually aired this past weekend. So I think it aired the 29th or the 28th of March, and the first tip that he provided is to communicate with all of your residents to understand their ability to pay rent in full and on time. So you don’t want to skip this step. You don’t want to just not say anything to your residents in general. Obviously, you want to communicate them with the safety precautions that need to be taken by them and that you are taking during this time, but you also want to communicate with them about their ability to pay rent, because not every single resident is going to have a problem paying rents.

So you don’t want to assume that every single person at your apartment community is not going to pay rent, and then apply whatever solution to everyone. So if you’re gonna do Julie’s solution, for example, and allow them do their security deposit and reduce the rent by 50%, you don’t want to do that to every single person. You only want to implement some solution for residents who will have a problem paying their rent. For the ones that don’t have a problem paying their rent, you don’t really need to do anything. If they’ve kept their job, if they already work remotely or work for an industry that’s not affected by the coronavirus, then nothing really changes for them. It’s for the people who cannot pay rent on time. If you don’t communicate with the residents, you’re not going to know, and you might end up losing more income that way.

So, Daniel, he had a long-term rental portfolio and he has a short-term rental portfolio, so all of his long-term residents are able to pay rent on time. So since he’s a sales manager, he had the conversation with his residents or he knew from past conversations with residents, whether or not they were financially impacted by the coronavirus. And fortunately for him and his residents, none of them were financially impacted by the coronavirus. They all had their jobs and were still getting paid, and so they were all able to pay rent on time.

Obviously, his short-term rental portfolio was a different story, and that’s something that I’ll talk about in the next tip, but if he didn’t communicate with residents or if he wasn’t a sales manager and didn’t know that all of his long-term residents could pay on time, well, first of all, he might have been surprised come April 1st, but secondly, he might have applied the solution that resulted him losing income that he didn’t necessarily need to lose, because some of his residents might have been able to pay him on time. So this is a very important step, very important tip, which is to make sure you understand where your residents are at financially before implementing or offering some discounted rate to them.

So, Daniel’s other tip was very interesting. So as I mentioned, half of his portfolio consisted of long-term rentals, so 12-month leases, which as I mentioned before, he didn’t expect to be impacted by the coronavirus. Obviously, it’s still really early, but at the time of the interview, he knew that the residents were gonna be able to pay their rent on time.

The other half his portfolio were Airbnb rentals. So obviously, with all the stay-at-home orders, most people aren’t traveling and staying in short-term rentals anymore. I did interview someone in North Carolina, I believe, who said that the little municipalities he said he’s in actually started to ban any lease that was less than 90 days. So short-term rentals are completely shut down in his local area. So for Daniel in particular, since all of his short-term rental clients canceled the leases, he pivoted and is trying to market his properties to traveling nurses, because all of his properties that he uses for short-term rentals are really close to hospitals. But he’s not able to do that for every single property.  Some of these properties are still vacant.

So what he said, and what I thought was really interesting, was that he plans on volunteering up his units to volunteers that are coming to the hospital. So people that work for Red Cross or other professionals that are traveling to the hospital to volunteer and help with the coronavirus. Something he said that was very interesting was that the worst-case scenario is that you would help someone else. So for him, he’d much rather have someone living in his unit and being able to use it to do good than just have it sit there vacant, because he’s gonna lose money regardless. So in his mind, he wanted to help people, rather than to have it to sit vacant. So I thought that was a really interesting, altruistic strategy. So another tip you can use, not necessarily to collect rent, but a way to give back and help people during this crisis.

These next tips come from Brandon Turner over at BiggerPockets. He created a YouTube video with the strategy that he is going to implement for collecting rent during the coronavirus pandemic. He had a five-step plan or five tips, and I really liked three of them. So the first one was to keep an eye out for federal and local programs that will be created to help residents pay their rent. So a perfect example would be the direct cash payments to qualifying individuals in the $2 trillion Stimulus Bill that passed March 27th.

So research online and figure out what other programs there are available. I’ll talk about another program on the Syndication School episode tomorrow or directly after this one, and that was included in the $2 trillion Stimulus Bill. So that was number one, or Brandon Turner’s first tip, which was number seven overall.

Another idea that he had, so eight overall, is to have residents pay rent with their credit card, so very simple straightforward. It allows them to delay paying their rent in a sense, by a month or longer than that, as long as it makes the minimum payment on their credit card bill… And I believe Brandon said that he was going to waive the 3% credit card fee that is incurred when you use your credit card to pay rent on their portal. So you might have to set up a portal or do some extra steps to accept credit cards for rents, but Brandon waived the fee. You can or can’t do that, depending on what you want to do, but that’s another way to collect rent, is to have them use a credit card.

Then his third, which is number nine overall, is to offer his residents an emergency rent deferral program, which he said was a last resort and something that he only brings up if all the other options don’t work. So for his program, as I mentioned earlier in this episode, Justin also had a repayment plan, but he didn’t get into specifics. Brandon got into specifics of his repayment plan.

So what he does is he allows his residents to defer paying their rent for up to two months. And then, once that two months is over, or one month is over, they are able to pay the rent back over a 10-month period. So let’s say, for example, a resident misses their $1,000 a month of rent payment on April 1st and on May 1st. So there are $2,000 in the hole, they’re not allowed to miss it in June. So they must pay their rent in full in June, but they’re also going to owe 10-month installments for the $2,000 that they didn’t pay. So it’ll be $1,000 plus 200 bucks for a total of $1,200 per month, starting in June, and then ending after 10 months. So that’s the plan.

Actually, I think he delayed the 10-month repayment program by a month. So for example, if they’re gonna miss April and May, they wanted to pay 1,200 bucks until July. So they [unintelligible [00:16:13].17] at June, as long as they pay their $1,000 a month, they’re fine, and then starting in July, they’ll give him 1,200 bucks.

A few other tips that I came across – some of these are pretty simple, but one is just to offer free month of rent to residents, as long as they can provide you with a financial hardship letter from their employer, stating that they have been laid off or furloughed due to coronavirus, or a note from their doctors saying that they have coronavirus. So this really could be applied to all these.

So if you want to, you can only apply these types of things to people who can prove that they’ve been hit financially from the coronavirus. So a letter from their employer saying that “Yes, we’ve had to lay off employees because of this reason, and Billy Bob is one of them.” Or, “Yeah, his hours have been cut because of the coronavirus and his pay’s been reduced because of the coronavirus,” things like that. So again, that’s up to you. You can apply these solutions to all residents or you can apply them only to people who can prove that they’ve been hit financially by the coronavirus. It’s really up to you. These are all just strategies that we’re throwing out there. You can use them or not use them.

The other one is to reduce your rents to the point where you don’t make any money, but are still able to cover all of your expenses. So let’s say that you’ve got a 100-unit property and you find out that 30% of the residents have been laid off from their job and can’t pay rent. And then let’s say that the breakeven economic occupancy is 70%. Well, 30 units is 30% of the total units that are there. So if none of those units could pay rent, then you’re at 70% economic occupancy, assuming that all other 70 units are paying their full rent. So you could technically offer no rent to those people and still not lose money. So figure out what your break-even point is and then know that you’re able to reduce rents by that much, but no lower, in order to continue to cover all of your expenses.

So those are the 11-ish tips for how to collect rent or help out your residents during the coronavirus pandemic. To summarize, it was, one, offer a discounted rent to those who pay early or on time. Number two is offer a repayment plan. Number three is to allow residents to apply their security deposit to their rent. Number four is ask residents to pay for security deposit insurance. Number five is to communicate with residents to see who can and cannot pay rent. Six, is volunteer your units for free to coronavirus volunteers. Seven is to use federal or local programs created for landlords and renters. Eight is to ask residents to pay rent with a credit card. Nine is to offer an emergency repayment program. Ten is to provide free rent to residents who lost their job and 11 is to reduce rents to break even.

Now before we go, we did create a page on our website, where we post all of our coronavirus related content. It’s joefairless.com/coronavirus, it’s pretty simple. We update that every single day with blog posts and different articles. So if you’re interested in learning more tips on how to maintain your properties during the coronavirus pandemic, I recommend checking out that.

Also, check out our other syndication school episodes and those free documents. Those are available at syndicationschool.com. As always, thanks for listening, have a best ever day, and we will talk to you tomorrow.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

JF2033: SOS Approach to Managing Your Investment During Coronavirus | Syndication School with Theo Hicks

In this episode, Theo will give you a three-step approach to what you should do during a crisis event, and when it passes. The three-step approach will be easy to remember by using the acronym S.O.S, which stands for Safety, Ongoing Communication, and Summary. Theo breaks down each step so you will know in detail so you have a better idea of what you can do during today’s pandemic. 

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. 

 

Best Ever Tweet:

“Until this goes away you want to make sure your continuously communicating with your investors and with your residents” – Theo Hicks


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 back 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 do two Syndication School episodes. Sometimes they’re part of a larger podcast series that’s focused on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we give away something for free. These are free PowerPoint presentation templates, Excel calculators, PDF how-to guides, s