JF2756: How One Cup of Coffee Kick-Started Her CRE Investing Career ft. Alessandra Thompson

When a mentor offered to grab coffee with Alessandra Thompson if she was ever in town, Alessandra didn’t hesitate. The next day, she showed up to Nashville, and that coffee date ended with a business partnership. Alessandra shares how she made the bold move to move across the country from California to Tennessee, her experience as an underwriter and asset manager, and what she’s planning for the future.

Alessandra Thompson | Real Estate Background

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Ash Patel: Hello Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Alessandra Thompson. Alessandra is joining us from Nashville, Tennessee. She began her journey into real estate syndications after moving across the country. Alessandra now has two properties under management and she handles day-to-day asset management and operations. Alessandra, thank you for joining us and how are you today?

Alessandra Thompson: Thank you for having me. I’m doing really well. I’m happy to be here, excited to just be on the show.

Ash Patel: It’s our pleasure. Alessandra, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Alessandra Thompson: Yeah. A little bit about me is that I’m originally from California. I started my real estate investing journey probably last March 2020. A little bit of education a couple of months before. I always knew that I wanted to just get into something that would free up my time and where I wanted to live, and also just help me out financially. This is something that I just wanted to really get educated in. I started out by just looking at all the different ways of how I could get out of my W-2. I wanted to get more passive income, so this is something that just clicked with me in the multifamily world.

I was just working in marketing in Los Angeles and it wasn’t until COVID that I realized how unhappy I was with just going into an office, especially with the LA traffic. I was able to just get my life in order of where I wanted to be. I fell into multifamily, I found some mentors and people that were doing what I wanted to be doing, and I just got started and moved to Nashville to be in my market. I’m just super-excited to be here. I love the industry, I love the multifamily space. That’s a little bit about me.

Ash Patel: I’ve got a lot of questions. First of all, you’re in your mid-20s and you had this epiphany that you wanted more free time, you weren’t happy with the W2. Do you know how many people I interview in their late 30s, 40s, and 50s that had just had that revelation? How did you come to this? I would Imagine a lot of people at that age are just like, “Alright, I’m going to work, I’m going to grind harder, and then I’ll retire early. Or I’ll save up enough money and then I’ll move on to something else.” How did you have this awesome mindset at that young age?

Alessandra Thompson: I think it’s just that I’ve never been able to sit still in an office, and look outside and be like, “I want to travel the world and I want to be able to have the opportunity to spend more time with my family and friends.” Also, my father passed away about four years ago and he was working until the day that he passed, and that just really struck a chord in me that that was something that I could not do. I wasn’t able to spend enough time with him, I wasn’t able to just be able to go on a trip with my family and friends, or go out somewhere, because it was always just about work. I think that life is meant for more than that. I think that there are just boundaries that need to be had, so I wanted to just be able to free up my time and be able to do the things that I want to do, when I want to do them. That’s a lot of where it came from.

Ash Patel: Yeah, sorry to hear that, and thank you for sharing that. So you had that in the back of your mind… How did you bring yourself to take the action of leaving your job, pursuing real estate and moving to Nashville? Now, you said Nashville was my market – did you have the property first, or did you move to Nashville just because Nashville is awesome?

Alessandra Thompson: That’s a really long story, but I’ll get into the nitty-gritty. I was living in Los Angeles and then COVID happened. I didn’t see anyone for three months, I was just like, “I’m just going to get my life together a little bit.” My brother was living in Florida, he was doing door-to-door sales, and I just went. So I haven’t seen anyone — Florida seems like the other right place to go just to visit. So I went and visited, I stayed there for the entire summer, I started doing door-to-door sales with him. I made a good amount of money doing that while working my marketing job at the same time. I knew that I’d always wanted to get into real estate, so I was just like, “Okay, I’m going to put this money to use. I’m going to buy maybe a duplex and rent out one side.”

It didn’t seem like it was going to replace my job or my W2, and so I wanted to think outside the box of like, “How can I scale bigger?” That’s when I started falling into multifamily. I got on Clubhouse when it first started. It was an interesting space, because I was just asking any question I wanted on the platform and just meeting different people, getting on phone calls, asking all the questions that I could, just jumping on the phone with people. My mentor now, the people that I work with were in the space and I just jumped on a call with her and she said, “That’s awesome that you want to get in the industry. If you’re ever in Nashville, let us know, we’ll grab a cup of coffee.” I was just jumping around from state to state, and I was like, “Okay, I’m going to go to Nashville tomorrow.”

I packed my stuff up and I just moved to Nashville. I’d never been here before. I thought it was coming into old country, but it’s actually very different than that. I showed up and I was like, “Hey, I’m here for coffee.” I was still working my marketing job, so I had that security on the back end. So I just told myself to take that risk, take that action, see if there’s any value that I can provide for these people. They happened to have an open position and they gave me the opportunity to start working with them, so I quit my W2 job and jumped straight into multifamily. I think through experience, I’ve been able to just grow a lot quicker and educate myself a lot faster by being like, that boots on the ground.

I took action, because if I didn’t, then I would be in the exact same position that I was before. I think that in my mind, I was just like, “Well, the worst that can happen is that I move home, so I might as well just go test it out.” I had really great time driving across the country, so that was a win for me. It has been working out, so I’m just really grateful and excited.

Ash Patel: I love your story. What did you end up buying first?

Alessandra Thompson: We went in on a property in Little Rock, Arkansas. It’s a 36 unit and that was last July. There was a lot to be done; it was a 1935 build and we just went straight in, replaced property management. We ran into some issues and delays with closing, just because of the HUD statements. We also found there’s a huge groundwater stream running under the property, and we had a big mold issue which just delayed closing a lot. I’m actually going there tomorrow, I’m going to drive there and take a look at it. I’ll post it. So yeah, that was the first property that I closed on.

Ash Patel: Hold on, we’re diving into some of this stuff. I’m very curious. When you say we, this is you and the person you had coffee with?

Alessandra Thompson: Yeah, we’re partners.

Ash Patel: Okay. There’s a story there that I need to hear. You had coffee and then you became partners. How did that happen?

Alessandra Thompson: I was able to come in and work with them as their underwriter and just doing day-to-day stuff, and now I’ve grown. Because I didn’t know anything when I first started, so they didn’t have to give me that opportunity. But they saw the hard work and determination, and so I was able to just start small, just doing basic things. Then I started to just keep educating myself, really looked through how the process worked, and now I’m working in asset management and going out to contractors, speaking with contractors, property managers, underwriting the deals still… I’m doing a lot of work on that end, and so I was able to just partner with them on the property.

We got it through our lender relationship. He actually lived in the area in Little Rock, Arkansas, so he thought it was a really good opportunity. It was on the MLS, it’s a 36-unit. No one’s going to go on the MLS to buy their house and be like, “I’m going to buy this 36-unit to be my residence.” We were able to just go in there and get the financials. It’s a great little deal, it’s right off the main street of downtown, so that’s just been so exciting to see. It had a lot of different challenges to it, so I was able to just grasp how to deal with them. I think that’s the way that I’ve learned the most, is just through experience. So that started from coffee, yeah, to answer your question. [laughs]

Ash Patel: Were they blown away that they said, “If you’re ever in town”, and the next day, here you are?

Alessandra Thompson: Yeah. It’s a funny story to always tell but I think it all just comes with taking that action and just showing up. Even if you don’t know what to do, just take that next step because that’s what’s just going to propel you into the next step, and the next step. I wasn’t very educated in it and so it just takes time, but they were blown away.

Ash Patel: I would be as well, that’s incredible. I was going to ask you a question and you just answered it. The question was, what advice would you give somebody that’s in their 20s, or even — I don’t think age matters. Somebody that’s in a W2 job, hates it, realizes they’re sacrificing all of their time, it’s not where they want to be… And what you’ve just said, I think is the answer. Just take the next step; whatever step it is, take a step.

Alessandra Thompson: Take a step, even if that means reading a book about it. I think that just meeting people that are doing what you want to be doing, getting on the phone with people, going to meetups, having conversations, or attending certain webinars, it’s all going to be helpful, because you’re just going to build upon that, it’s always going to take the next step. There’s a lot of fear that’s involved, and I think that’s what people are afraid of is just getting out of their comfort zone.

I’ve been uncomfortable for the last year but I know that every time that I conquer the next step, I can look back and be like, “Well, I did this, so why can I do the next one?” I think it just comes with, “Okay, where am I going to direct my energy to, and what’s going to get me to the next level?” It just all begins with believing in yourself, but also just taking that action and not letting fear guide you.

Ash Patel: I’m sorry, I’m blown away. You have an incredible outlook, a great mindset. Back to the Nashville deal – you also mentioned you found it on the MLS. Something I tell our Best Ever listeners often is to look for mis-marketed or mismanaged deals, and the MLS is a great spot to look, because a lot of people are looking to brokers. I have broker relationships, I look for off-market deals. While all of that is great, we’re missing the low-hanging fruit, that new or inexperienced residential realtor that lists a multifamily or commercial property on the MLS; there’s a ton of that out there. So I’m glad you brought that up as well. You ran into a lot of issues there… What was your role in resolving the mold issues, the HUD issues?

Alessandra Thompson: That was just speaking with our lender and speaking with the previous sellers of just how are we going to handle this mold issue. But it took a lot of just back and forth with the groups. My role I think came mostly with property management. I was just helping the transition of property management groups in the due diligence phases of how are we going to switch over the utilities, or collect the balances, and just working between those groups. We actually ran through the property management group that we hired secondly; they were not doing the job that they said they were doing, so we had to like pick up a lot of work, and so I was on the phone with contractors. I even posted Facebook Marketplace posts to get people into the unit. It was great, to just experience what day-to-day life looks like for a property manager. It’s a lot of work, but it’s just been helpful for me to learn. Really just a lot of communication and the due diligence of just switching over companies.

Break: [00:14:37][00:16:33]

Ash Patel: Alessandra, how much hand-holding have you received, or is this just learn as you go?

Alessandra Thompson: It’s learn as I go. At first, I think the biggest challenge was speaking with contractors, like “What is the standard pricing? Where are we supposed to be? What’s the timeline?” I think that I just had to get accustomed to that. It took a lot of asking a lot of questions and getting a lot of different quotes to compare. I think it’s just been learn as I go. Jason Yarusi, the person that I work with has a great background in construction, so it’s just in his brain. So I could just turn to him and be like, “What is this? What is that?” That’s why I think it’s so important to partner with people that are just doing what you want to be doing, that have that experience. I think that’s the best strategy to just get into the place that you want to be, because you can just learn as you go from experts and people that are experienced.

Ash Patel: What’s an example of a mistake that you’ve made and what would you have done differently?

Alessandra Thompson: Oh, man. I know I’ve made many mistakes, but I don’t know why I can’t think of one right now.

Ash Patel: Think of an embarrassing moment, an “Oh my God” moment, or “I can’t believe I did this.” Something that stood out, something crazy.

Alessandra Thompson: Oh, I can’t even think of one, but I know that speaking of contractors I’ve probably said some dumb stuff, because I just wasn’t accustomed to like, “How does this electrical thing work?” I’m sure I just sounded silly, but I genuinely cannot think of what I’m really…

Ash Patel: No, that’s a good example. What would you have done differently? Because there’s a learning curve, you talk to somebody who’s been doing this for X number of years, and here you are asking a silly question. Is there something that you could have done differently?

Alessandra Thompson: Yeah. During the due diligence phase, there was one point where I was on the property and we were doing the inspection. I was on the property with 12 different contractors, and three of them getting different bids from everyone, so I started to just lose track of what I was supposed to be doing. I think that I could have been better at just writing everything down and recording what I was doing. Also, it’s a space that I wasn’t fully understanding yet at the time, so I think just being more educated and having someone that’s more of an expert on-site would be helpful. Now I can go in there like a breeze and speak to those contractors.

Ash Patel: Like a boss.

Alessandra Thompson: Yeah. So I think it just takes practice. But I’m sure I’ve said some silly stuff.

Ash Patel: We all have. What was your next property?

Alessandra Thompson: We are doing a 20-unit motel conversion up in North Nashville, we’re turning it into a short-term rental community, an Airbnb. This one has just been a full project. It’s been really exciting, because I can just drive over there, it’s like 10 minutes away, and just to really get down into the nitty-gritty of every layer of the process, versus the other property that is in Little Rock. It’s just focusing on that communication with the property management that the business plan is going according to plan, which it wasn’t with them at first, so that’s why we had to also re-hire a new property management company; now it’s going smoothly.

This one we’re just handling on our own and it’s just been getting people onsite, making sure that the schedule is just completely – no holes in it, because there are so many people in and out, like “Okay, the electrical needs to go here but we need to make sure this is done first; then the electrical needs to go back again.” I think it’s been really fun for me. I know it sounds stressful for a lot of people because we have to make sure we’re doing a lot of everything on time, but it’s fun for me to just see it happening before my eyes.

Ash Patel: How did you guys find this deal?

Alessandra Thompson: This one was actually through a broker.

Ash Patel: It was marketed as a hotel?

Alessandra Thompson: It was marketed as a motel. Yeah.

Ash Patel: Okay. The great idea of turning that into short-term rentals – doesn’t Nashville have very strict rules on that?

Alessandra Thompson: They do. So with zoning, you’d want to just contact the zoning department. But here, because it was already set up as a motel, it was perfect because people are just coming in and out anyways. But there are a lot of issues with the zoning department.

Ash Patel: What’s your role on this project?

Alessandra Thompson: I’m doing asset management, so I am always out there just with the contractors. It’s a lot of work and just making sure everything’s going according to plan, according to budget, speaking with the lenders on draws… Just out there.

Ash Patel: Asset Management sounds simple, but you’re doing everything – the renovations, the lease-ups… You’re going to run the asset once it’s up and running as well, right?

Alessandra Thompson: Yeah, we have a third-party short-term rental property management group that’s going to come in as soon as the property is ready. But because there’s such an overhaul of work right now, it’s probably not going to be online until April or May, just because there’s so much to be done. It’s been quite a journey. It’s exciting because Nashville is such a good market for people coming in and out, especially – apparently, there’s more bachelorette parties here than there are in Las Vegas.

Ash Patel: Nash Vegas.

Alessandra Thompson: Yeah. The numbers are great, and it’s super exciting. I’m excited.

Ash Patel: How many hours a week do you work?

Alessandra Thompson: A lot. I feel like I couldn’t tell you, because I wake up so early, like four in the morning. So I’ll be emailing at four in the morning, or when I go home, and I’ll be up on my email at 7pm underwriting a deal… It just doesn’t end, but that’s okay, because I enjoy it.

Ash Patel: The reason I asked that question is I want to contrast that to when you had your W2 job in that office, in traffic. Even though you may have worked less hours back then, the smile on your face now is amazing, because you love what you do and it’s very fulfilling. Congratulations to you. Again, at a young age, having this stuff figured out… What are you doing to inspire other people?

Alessandra Thompson: I just want people  — especially there are not a lot of women in the industry, and I think that a lot of people just are afraid of getting into something like this because there’s a lot to learn. But like we said, it just takes taking those small steps. I think to inspire other people, I love to set up Calendly links and just have phone calls. I like to help with mentoring others, so I’ll just randomly get on a meeting with someone and overlook a deal with them that they’re looking at. Help them point out what they’re missing, how they could improve, who they can talk to, what they can just do to be stronger on their underwriting.

Then also just getting on panels or podcasts like this; I just want people to know that if they want help, I’m happy to just be a resource to them. I love helping others, and I want them to know that they are capable of doing something like this too, because I didn’t use to think that I was, but I also just pushed that out of my mind. I was like, “Okay, well, why can’t I do it?” Just letting other people know that it’s possible to do what you want to do and make the leap.

Ash Patel: You are incredible and very inspirational, and  I’m glad you’re doing that. Where do you see yourself in five years?

Alessandra Thompson: As I said, I want to have that geographical freedom, so I would like to travel a lot, but I also would just like to keep scaling my portfolio with multifamily, possibly get into development at some point. I don’t know what the future holds, but I think I’m on the right track to just leveling up each year, each year just trying to get better. Also just spending more time with family and friends. I love traveling, it’s my main goal. I love eating at restaurants, so I’ll be eating some more. [laughs]

Ash Patel: Do you get to travel right now?

Alessandra Thompson: Right now, a lot of US travel, so I’ve been doing some of that. Like Denver at the conference, that was fun. I’m going to go to New York for my friend’s wedding, which will be good. But I haven’t been out of the country since before COVID, so that’s something that I really want to make sure I’m doing… But I’ve been very busy right now so I’ll make it work, I’ll figure it out.

Ash Patel: Good. What does your team look like right now? Is it just you in that one partner, or is it is a giant company?

Alessandra Thompson: There are three of us. It’s Jason and Pili, they are amazing at what they do, and I’m so grateful to be a part of the team. So yeah we’re just going to continue scaling and growing as a group, and seeing where we’re going to go next.

Ash Patel: I am excited for you. Alessandra, what is your best real estate investing advice ever?

Alessandra Thompson: Just get started. I think that just take action, don’t let fear guide you. I think success lies on the other side of fear. Just know that you’re capable of doing anything that you set your mind to. Just take action.

Ash Patel: Alessandra, are you ready for the Best Ever lightning round?

Alessandra Thompson: Oh my gosh, these stress me out, but yeah.

Ash Patel: Well, you’re stressing me out now. All right, listen, let’s take a breath, and let’s get through this. Alessandra, what is the Best Ever book you recently read?

Alessandra Thompson: Oh man. I read the Psycho-Cybernetics book is really good. Just shifting your mindset of the way that you see yourself. I think that once you shift the way that you see yourself, then you can shift the way that you act on daily actions. That’s a great book, everyone should read it.

Ash Patel: Alessandra, what’s the Best Ever way you like to give back?

Alessandra Thompson: Give back? For friends and family, I love cooking a home-cooked meal and sitting down at the table, just being there together and checking in on everyone. That’s why I love to get back to my family and friends.

Ash Patel: Alessandra, how can the Best Ever listeners reach out to you?

Alessandra Thompson: They can reach out to me at alessandra@yarusiholdings.com. They can find me on LinkedIn, Alessandra Thompson. Send me an email, that would be great.

Ash Patel: Your information will be in our show notes as well. Alessandra, it was actually a very good pleasure meeting you at the Best Ever conference. Glad we got to do this podcast together. Thank you for sharing an inspirational story. Moving from California to Nashville, showing up because somebody invited you for coffee, showing up the very next day. You’re on your way to building a great portfolio. Thank you for sharing that inspiration with us and the Best Ever listeners.

Alessandra Thompson: Thank you so much for having me. I’m looking forward to hearing the episode. It was so great to meet you at the conference.

Ash Patel: Thank you again. Best Ever listeners, thank you for joining us. If you enjoyed this episode as much as I did, please leave us a five-star review and share the podcast with anyone you think can benefit from it. Follow, subscribe, and have a Best Ever day.

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JF2754: RV Resorts: The Growing Asset Class You’re Missing Out On ft. Greg Scully

Are the returns on RV resorts worth the risk? For Greg Scully, an apartment and RV resort syndicator, the numbers don’t lie: with risk comes reward. Greg divulges why the market for RV resorts has high-growth potential, and also shares how he found and value-added his RV resorts.

Greg Scully | Real Estate Background

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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Greg Scully. Greg is joining us from Johnson City, Tennessee. His focus is apartment syndication; he’s currently the GP on 170 units, and 226 pads in RV resorts. Greg, can you start us off with a little more about your background and what you’re currently focused on?

Greg Scully: Yeah, sure. We’re here in Johnson, Tennessee, we were 40 years in Alaska. Transitioned to real estate full-time about two and a half, three years ago. We got started five or six years ago. Ended up in Tennessee to help with a project that needed some extra hands. Most of our investments continue to be in Tennessee. At some point [unintelligible [00:04:13].27] kids are growing up, getting older, we decided to just pull up and relocate down here. Landed in Johnson City, and just continued to grow. Central and Eastern Tennessee, we don’t go too far West.

Slocomb Reed: Nice. That’s where your portfolio is currently, it’s all in Tennessee?

Greg Scully:  Yes, we have one one-off syndication in Mulvane, Kansas; we co-GP’d with some friends and partners over there. We articipated in the asset management side, but they’re handling boots on the ground.

Slocomb Reed: Nice. Tell me about your RV resorts. What got you into that?

Greg Scully: We just heard about it, thought about it in passing a little bit, and then through COVID… We are very close to Sevier County, Tennessee, which is in between Johnson City and Knoxville. The most famous things going on down there are Dollywood, Gatlinburg, and Pigeon Forge. So it’s certainly in the top five, if not the number one most visited national park in the US. We got an opportunity sent to us from a conversation. We have a partner in common that had been in that space a little bit, realized we were both looking at it together, and we decided to collaborate instead of compete. A lot of our interest just came from how good a market Sevier County is, in terms of if you’re going to crack open the window to a new asset class, you might as well do it in one of the most stable and successful markets in the nation.

Slocomb Reed:  Yeah, and take advantage of your backyard.

Greg Scully:  Yeah, exactly. Exactly.

Slocomb Reed:  Hollywood makes a lot of sense as a place to have an RV park. Given your experience with apartments syndications, how do the numbers on an RV Resort compare?

Greg Scully:  Income is income, expenses are expenses; they are chopped up a little bit differently, specific to the RV resorts. You have two models that are happening; you’ve got a daily model where your guests are saying two, three, four days at a time and then they’re leaving. Then you also have a monthly model, which you may see in markets more like Florida, where people are coming down there — they may even be leaving their RV there year-round and they’re basically just paying for the pad, which is very similar to the mobile home park we’re doing. So from the income proforma point of view, you’ve got to figure out your highest and best use within each of those potential models.

Slocomb Reed: I imagine around Dollywood that’s an area economically that’s fairly entertainment driven. Are you on a more day rate model?

Greg Scully: Yeah, absolutely. And that was one of the opportunities that we saw with one of the purchasers, is it was being completely run as a monthly model. And not only that, they were well below the market rate for what that monthly model should be. So we had two possible avenues of upside – just keeping the monthly model, running it more efficiently, and getting close to the market… It has a little bit of a development side to it, so at a minimum, we’re going to take advantage of the development side more on the daily model. But yeah, absolutely, this market is better off doing day rates, because we could be open year-round almost.

Slocomb Reed: Totally. Greg, given that you syndicate through general partnerships, what is your specialization within your partnerships?

Greg Scully: Underwriting and asset management. Those are probably the two things that I spend the most time on. Underwriting — back when we were living in Alaska and investing out of state, there was very little I was going to do, because I was nine hours away by plane. So I cut my teeth on underwriting due diligence side of it. And then moving down here, most of the deals we’re extremely active in, to the point I’m being onsite occasionally. So those two buckets are our focus.

Slocomb Reed: Do you guys manage your own properties?

Greg Scully: We did just start that. Our last two acquisitions, we took management in-house, so we’re currently managing 65 units over two properties here locally. We’re about four months into that.

Slocomb Reed: And what’s your involvement? Are you personally involved in the property management?

Greg Scully: Yup. My wife and our main partner, Darren Light, started a new management company, specifically to vertically-integrate. So we have one syndication that we’re managing, and the other one is a joint venture.

Slocomb Reed: Great. So given your background in underwriting and due diligence with these deals, I’d like to spend a little more time on the RV Resort, Greg. So you had the opportunity to go from a monthly rental model, what feels like a mobile home park, to a day rate model that may feel more like hospitality, I would imagine, except that you’re not having to change the sheets for your guests, given that they’re bringing their own sheets with them; it’s an RV. Financially speaking, explain to us how big the difference is between those two models. Is your entire park at day rate or is it split between the two? How did you make that decision?

Greg Scully: When we bought it, it was entirely monthly. If you have something that is entirely monthly, basically your labor can be significantly less, because there’s just less going on. There are fewer people coming and going, they’re going to have more familiarization with the property to begin with, so there’s less — let’s say hand-holding; that’s kind of what we call it. There’s less handles of the people coming in.

The daily rate – yeah, you’re running a little hospitality business. It’s open seven days a week, sort of 24/7, so the labor component to it is much higher. You’re going to have a lot more payroll, because there’s never a closed sign on the office, if you have an office. That’s one of the most major things, is your labor costs are significantly higher.

Slocomb Reed: I would imagine your revenue is significantly higher too though, right?

Greg Scully:  Daily versus monthly? Oh, yeah, absolutely. Gross potential rent is – yeah, significantly higher.

Slocomb Reed: How are you guys operating the park now? Is it all daily? Is it all monthly still? Is it a mix of the two?

Greg Scully: It’s a fairly new acquisition, so yeah, it’s still mostly monthly. As we’ve gone in and got closer to market, there has been some vacancy created. It’s also very specific to the layout of your park, so whether or not you have concrete pads that are fully drive-thru, and can accommodate a 35 to 40-foot piece of machinery coming in, or if it’s more back-end type pads. So it can be very specific as to even what individual pads are capable of doing on your park. It can be fairly dynamic figuring out exactly what the highest and best use is.

Slocomb Reed: Did you guys raise capital for this purchase?

Greg Scully: Yes.

Slocomb Reed: Okay. Did you underwrite to a five-year hold?

Greg Scully: Yes, we did. Two of them are in a fund, and that was basically done as a five-year hold. The other one — I believe we might have done a seven-year hold. It’s not right in front of me, but we did not go incredibly out into the future.

Slocomb Reed: Tell me, what did the numbers look like when you purchased it? How much did you buy it for? What kind of NOI are we talking about with this property with below market rents and exclusively monthly rentals?

Greg Scully: I can’t pull NOI right out of my head without having it on the spreadsheet. I can tell you that monthly rates were hovering around 200 bucks, which would have been inexpensive for a mobile home park, let alone a destination in one of the most visited tourist markets in the US, that has a pool and access everything that the Smoky Mountains have to offer. So there’s easily 300, 350, maybe even 400 bucks to market just on the lot rent alone. Just that alone, the deal was fine. So getting everything up to market… Cash on cash return are in the high teens, so that’s our anticipation when it’s fully stabilized. Yeah, a significantly different type of return profile compared to multifamily.

Break: [00:12:35][00:14:31]

Slocomb Reed: What is the return that you were projecting for your investors on a five to seven-year hold?

Greg Scully:  Oh, the IRRs were high 20s; like I said, average cash-on-cash returns mid-teens, equity multiple 2+.

Slocomb Reed: Gotcha. All of those numbers are significantly higher than people are going to expect to see with apartment investing. You’re talking about high teens cash-on-cash return to an audience that is most familiar with an eight pref. You’re talking about high 20s IRR for an audience that’s mostly familiar with a 15% to 18% IRR. The first alarm bell in my head, if I can say so, Greg, is that if you’re projecting returns this good, this must be a risky asset. Is that the case?

Greg Scully: I would say there is higher risk relative to multifamily, whereas housing is an absolute need. Dragging a box behind you and hanging out somewhere for three days and going fishing – I wouldn’t put it in the same bucket as primary housing. It’s similar to where storage was in mobile home parks were maybe a decade ago. As the industry is set up, there’s very low supply, there’s essentially not necessarily a finite number of RV parks, but there’s not a lot of them to begin with. It’s very fragmented, a lot of mom-and-pop owners, a lot of generational owners, and there’s a lot of operational efficiencies to be gained through better marketing, dynamic pricing, running it like a business, instead of a lifestyle. That’s the similarities. It wasn’t too long ago, those types of returns were also talked about for mobile home parks and storage. That asset class got found out, and lo and behold, look where we are today.

Slocomb Reed: Yeah, maybe RV parks are the next mobile home parks, or the next self-storage.

Greg Scully: I know. I don’t want to talk about it too much.

Slocomb Reed: Sure, totally. Yeah, I totally get that. But also at the same time, when you’re talking about, at least within our listenership, that is predominantly… The majority of guests that we bring on based on the nature of our podcast are involved in apartment syndication. So they’re typically offering investors projected returns that are more standard to the market and lower than what you’re talking about. You guys could underperform your business plan considerably, and still provide a similar to return to someone who could have put their capital into an apartment deal instead of yours. That’s some pretty exciting prospect. Greg, what is the most important skill you’ve developed with regards to underwriting your investment deals?

Greg Scully: I wouldn’t say it’s a skill that I have even close to mastering… It’s just the critical thinking skill of looking at things holistically and dynamically. It’ll be part of my book recommendation when we get to that. Just making sure that you’re not having too much confirmation bias, or cherry picking, and inviting people to look at your underwriting and asking them to break it, and being happy when they do. So yeah, just not getting married to your proforma, not trying to be right on trying to make good decisions.

Slocomb Reed: What is the biggest challenge you’ve had to overcome specific to a particular deal?

Greg Scully:  To a particular deal… The deal that brought me down to Johnson City was very difficult. Heavy rehab, we went 100% vacant, we had contractor problems, we had bridge debt, went from bridge to bridge debt, which apparently has never been done before… So a lesson of perseverance and just muddling through things, and “Wow, this sucks. Maybe I won’t sleep that well again tonight. But tomorrow we’ll keep plugging away at it.” It’s just that sometimes the process is not what you would like it to be, but you’ve got to get through it.

Slocomb Reed: Did you start out as a general partner on that deal?

Greg Scully: Yeah.

Slocomb Reed: When was this?

Greg Scully: 2017 through March of last year. We had it two and a half years or something like that. We did sell it, we didn’t make money on it; not a ton, but most of the returns are in our head, in the experience pocket.

Slocomb Reed: Sure. Yeah, I know some of the more distressed properties that I’ve taken over it’s been very valuable that I, being the owner operator and also the boots on the ground, being physically present to be overseeing things… But also, for my own stuff, I’m the one who’s showing apartments in some cases, but also creating the standards for our tenant base.

It’s definitely helpful to have boots on the ground on the team when you get into a situation where an asset is considerably distressed. A situation like 100% vacancy while you renovate. Especially with as difficult as it has been to find good contract labor the last several years, for sure. Well, Greg, are you ready for our Best Ever lightning round?

Greg Scully:  Yeah, sure. Absolutely.

Slocomb Reed: Awesome. What is the Best Ever book you’ve recently read?

Greg Scully: You’re About to Make a Terrible Mistake is what it’s called. The byline is how bias is decision making and what you can do to fight them. That’s something that I’m into, is how to make decision making more of a process and less of a feeling.

Slocomb Reed: Gotcha. What is your Best Ever way to give back?

Greg Scully: I just enjoy talking to “newbies”, because I’m not that far. I’m five years into this, and I remember how valuable it was when somebody came down and would spend some time with you talking about the details. A lot of this is good theory that you can learn from books and podcasts like this and everything, but things get very real when you close on one specific property, on one specific tax parcel, with its own set of inherit characteristics, we’ll call it. Just chatting when I can with somebody that’s just getting started.

Slocomb Reed: What is your Best Ever advice?

Greg Scully: Probably network. Post mortem, looking back on where we’ve come, a lot of our deal flow, a lot of our partnerships, a lot of our friendships have come through not only face to face networking, but even just getting on LinkedIn, weekly Zoom calls… If you’re going to be doing business with somebody, it’s not all about the deal, it’s very much part of who you’re working with as well. So just get out there, and put yourself out there. That was a big challenge for me, really. I’m kind of an introvert. It took me a little while to get into chat and networking. So the quicker you get into that, probably the quicker you’ll progress.

Slocomb Reed: Awesome. Greg, where can our Best Ever listeners get in touch with you?

Greg Scully: Everything about us is at www.realwealth.solutions. From there, you can find our newsletter. We host a podcast as well called The Real Wealth Solutions Podcast. It’s got a little bio, our projects… That’s the catch-all for figuring out where to find us.

Slocomb Reed: Well, Best Ever listeners, thank you for tuning in. If you’ve gotten value from this conversation with Greg Scully, please subscribe to our podcast, leave us a five-star review. If you know someone who would get value for listening to this episode, please share it with them. Thank you and have a Best Ever day.

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JF2738: The Innovative Strategy to Scale Military Short-Term Rentals ft. Joe Riley

Veteran Joe Riley saw an opportunity in the market when he rented his home while on deployment: creating temporary housing for families near military bases. Now with over 300 properties, Joe has continued to grow his portfolio to fit this overwhelming need for military housing. Joe talks about how he created Patriot Homes and how to scale your short-term rental portfolio.

Joe Riley | Real Estate Background

  • Founder of Patriot Family Homes, a veteran-owned company that meets the need for short-term housing near military bases.
  • Portfolio: Owner of 300+ properties.
  • Prior to starting this company, Joe was a Captain in the Army, having multiple overseas deployments, and previously served on the National Security Council at the White House.
  • Based in: Chattanooga, TN
  • Say hi to him at: www.patriotfamilyhomes.com
  • Best Ever Book: The Politics of Diplomacy by James A. Baker III

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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Joe Riley. Joe is joining us from Chattanooga, Tennessee. He is the founder of Patriot Family Homes, which specializes in short-term housing near military bases. He has over 300 properties and he was a captain in the Army and served on the National Security Council at the White House. Joe, can you start us off a little more about your background and what you’re currently focused on?

Joe Riley: Yeah, so I was in the army, and on a deployment to Afghanistan, my wife and I decided to throw our house up on Airbnb and HomeAway, because she traveled for work Monday through Friday and there was no reason for her to stick around Columbus, Georgia. We’re not from there, and with me being gone, instead of trying to take all our stuff out and put it in a shipping container or something, we just left it in the house, rented it on Airbnb and HomeAway, realized (no surprise) that there was a big need for furnished temporary housing around military bases with families coming and going all the time. We then came back, started getting some more houses. The short version of the story is that it just kind of morphed from there, we started working with other veterans and folks in the service, a ton of military spouses… In fact, it was on another deployment to Ukraine that we started relying on other military spouses to kind of take care of the houses while we were gone. That’s really been the secret to what we’ve been able to do.

Slocomb Reed: Nice. So 300 properties around military bases. Are those still all single families?

Joe Riley: The vast majority of everything is single-family and we do have some small multifamily. We’ve branched out now, we’re no longer just around military bases, we’re also in some kind of vacation areas and other markets. We are in Pennsylvania, Virginia, North Carolina, South Carolina, Tennessee, Alabama, Georgia, Florida, Texas, Kentucky, Mississippi, is kind of our current footprint.

Slocomb Reed: Gotcha. So every time there’s an SEC football game, you guys are fully booked out, it sounds like.

Joe Riley: The University of South Carolina or the University of Georgia, or Alabama or whoever else is playing, we have houses in most of those markets. We find that many of the same characteristics that make army bases attractive for short-term rentals also make university towns attractive for those.

Slocomb Reed: Joe, tell us about your partnerships. You said that you were working with other veterans; tell us how your partnerships work.

Joe Riley: We started out, my wife and I, just kind of having our own houses. When we ran out of money, we did a rental arbitrage model where we would go and sign a three or five-year lease on a property, and then turn around and sublease it as a short-term rental. We had landlords who came to us and said, “Hey, how are you paying our rent and still making money on top of that? Would you just like to manage for us?” Then we started a management company, to kind of manage for those types of folks. We had other service members who wanted to do this, but didn’t want to have the hassle of managing the properties themselves. From that, we’ve now morphed into working with larger investors who are looking to buy 50-100 homes. We go put that to work and spread them out across our markets.

Partners range from just a single-family who has a home, maybe they’re what we call PCS in the army, moving from one base to the next; it could be just somebody who has a second lake house or beach house, it could also be somebody who’s looking to go and do this for 10, 20, 40, 50, 100 homes. We’re fully vertically integrated, so we have our own acquisitions team, we have a renovation oversight team that oversees that, we have our own warehouses where we warehouse all the furniture to set up the houses, and then obviously, we manage it on an ongoing basis. So we can come when someone just says, “Here’s an amount of money I want to put to work”, and we can go do soup to nuts everything from there.

Slocomb Reed: Awesome. Out of those 300 properties, how many do you all own?

Joe Riley: We have full ownership in about 100 of them, partial ownership in another 150, and then just pure management on another 75 or so.

Slocomb Reed: Gotcha. Joe, what I’d like to ask about is raising capital for doing short-term rentals. The people that I know who do short-term rentals are doing it with all their own capital or they’re arbitrating. As you said, you sign a lease with the landlord to rent the space with permission to sublet as a short-term rental, which means that your startup cost is significantly lower. But it also means you don’t own the asset, you’re not building equity or gaining appreciation, you’ve just got the cash flow. It’s much more of an active business than what most people are looking for from real estate investing.

Similarly, people who are looking to invest more passively tend to shy away from short-term rentals, because they’re looking for something that doesn’t have the fluctuations that the short-term rental market is perceived to have. So let me ask, the people who are coming to you looking to buy houses or looking to partner with you in this, or just for lack of a better term, hand over their money and let you invest it in 50 to 100 houses at a time – what is it that they’re looking for and what is it that is attractive to them about investing in short-term rentals?

Joe Riley: In terms of what’s attractive, we tell people we offer hotel-style cap rates with a single-family backstop. When we approach most of our lenders, we do manage million-dollar beach homes and lake homes, but the preponderance of our portfolio is actually just kind of run-of-the-mill single-family homes that you could also run in cash flow as a long-term rental. One way you get banks comfortable with financing is that you show them that this property could also cash flow as a long-term rental. We think we can use the returns as a short-term rental, so the bank feels confident, “Okay, if they do well, good on them. If they do poorly, then it still cash flows.” So hotel-style cap rates, single-family backstops.

Slocomb Reed: When you say hotel-style cap rates, what do you mean?

Joe Riley: Double-digit cap rates, unlevered cap rates. What we would say is that we find across our portfolio we have about a 13% unlevered cap rate.

Slocomb Reed: Gotcha. When you say unlevered, what do you mean?

Joe Riley: If you just went out and bought a $100,000 house, then we would say that your net income at the end of the year would be $13,000, assuming you had no debt on it. Then if you add in leverage, that 13,000 goes down, but then you don’t have 100,000 in cash sitting in it.

Slocomb Reed: A 13% cap is going to sound very exciting, especially with the kind of debt that is available for single-family homes; and as you said about the backstops, if there is a dramatic market shift, then single families tend to be easier to sell, and you do have the long-term rental potential in some cases. A 13% cap is pretty impressive, of course. What analysis do you do to determine the market that you’re going to go into?

Joe Riley:  At the broadest level, we want cheap markets with a lot of turns. Sometimes that is secondary and tertiary markets which is the kind of the main place where we play. We also look at blue-collar vacation destination sites. We’re not out in the Hamptons, we’re in the Poconos; we’re not on Destin, we’re in Pensacola; we’re not in downtown Savannah, we’re out in the kind of rural areas outside of Savannah. Gatlinburg, Pigeon Forge… That’s what we’re looking for, cheap markets with a lot of turns. Then when we look at an individual house, we target a minimum of 25% of the asset value in annual revenue. A $200,000 house, we want to generate $50,000 a year in top-line revenue. You back out your net operating income is typically about 40% of that, inclusive of our management fee.

Slocomb Reed: The expenses are only 40%?

Joe Riley: 60%. So your net operating income would be about 40% of the top line.

Slocomb Reed: Gotcha. It sounds like you’re all over the Southeast, possibly because you’ve talked about Georgia and you’re in Chattanooga, Tennessee. Why is it that you’re focused in the Southeast? Is it just geographic proximity and that makes things more efficient?

Joe Riley: Yeah. Obviously, a big piece of it is proximity. We started our first market in Georgia, then we were in Alabama and Tennessee, and we’ve just kind of spread from there. This is an incredibly operationally-intensive business. Do you think managing long-term single-family rentals is operationally intensive? We turn our houses on average six times a month. So if you’re doing 70 turns a year compared to one turn a year, and then in addition to basic maintenance, you’re having to worry about linen, soap, shampoo, toilet paper, and cleaning at every turn… It’s a very operationally intensive business. We tell people short term rentals are easy on the [unintelligible [00:12:11].24] hard on your emotions.

The biggest reason we see people not succeed in short-term rentals – one, they become too emotionally attached and that leads them to just have a lot of stress and take it personally when people say bad things about their home. Also, then they turn around and they spend way more than they should on furnishings and finishings and everything else, which is relevant in some kind of prime markets for prime properties, but for what we do, we call ourselves the Walmart or short-term rentals. We’re just offering consistent, good quality, but not premium, not luxury accommodations for traveling groups of workers, electricians, plumbers, families on the move, military families. Again, we’re not the Saks Fifth Avenue, we’re the Walmarts.

Slocomb Reed: Gotcha. A little bit of background on me, Joe. I’m in Cincinnati, Ohio and I’m a buy and hold guy, landlord, long-term rental. I tried Airbnb for a while; I say tried – I had at most three units at once. Superhosts, over 200 reviews. I had some success, my issues were operational; I didn’t have the scale to leverage or delegate the majority of the responsibilities within Airbnb with only three doors. I would at least like to say that it wasn’t for emotional reasons that I decided to get out of Airbnb, it was because I saw my portfolio, my goals heading in another direction. But I am certain, Joe, that there are people who are listening to this episode who have flirted with Airbnb, gotten in, gotten stressed, whether it’s because they’re too emotional or because of the operational difficulties of the short-term rental space. They’ve gotten in, they’ve gotten stressed, they’ve gotten out, as I did.

I think my biggest issue was scale. Three doors is a terrible number to have. I want to ask two questions at the same time, Joe. Someone like me, who wants to get into this and wants to be able to delegate the majority of responsibilities… I don’t want to be the one who has to go through it during every turn. I want to know that I have a cleaner who’s reliable, I want to know that I have someone else sending the vast majority of messages, responding to the vast majority of the inquiries, and doing the legwork that’s required to set nightly, weekly, monthly rates, along with the software platforms that are available. How much revenue do I need to have in order to get to that point where I can hire out the majority of the day-to-day operations for short-term rentals? How many units do I need? Another way to ask basically the same question, Joe, how many units do you need to bring on to enter a new market and have the same infrastructure and efficiency that you have where you’re operating already?

Joe Riley: For us to enter a new market, we would want five with a pathway to ten is what we would be looking for if we were going to do full service. Now, we also offer a digital-only package. Let’s say you had your three doors in Cincinnati, and you were like, “I’ve got a cleaner, but I don’t want to make sure the cleaner gets all the automation to go there, and I don’t want to answer the guest’s questions before they arrive, and I don’t want to do the pricing. I don’t want to have to put together software that pushes me to Airbnb, Vrbo, Booking.com, and integrates all the backend stuff. I don’t want to do all that, but I’ve got good maintenance people on the ground and I’ve got a cleaner.” Then we could do a digital-only package for you and we can do a digital-only package anywhere and you don’t have to have scale or volume. For us to come in and pull up a full-service operation, then it’s five with a pathway to 10 is typically what we tell people. Does that answer your question?

Slocomb Reed: It does, and that number surprises me, Joe. Five with a pathway to 10 seems low.

Break: [00:16:06][00:18:02]

Slocomb Reed: Now, you have much more experience in this space than I do, of course, although I was Superhost and got a couple hundred reviews, so I have some experience. My units were studio apartments in a walkable downtown. The vast majority of stories that you hear about Airbnb are people who are getting larger spaces, multiple bedrooms; you said single-family homes. So with that five with a pathway to ten, how much revenue is that, that you’re looking to have when you start in a new market?

Joe Riley: To be clear, at five or less, what we would do is we would find a local cleaner who does a good job, and we would sub out the cleaning. Then we would have a maintenance person that we have on retainer that we can call out. That’s why we say we’re the Walmart, not the Saks Fifth Avenue. If you want white-glove service and fresh cookies in the house when the guests show up, we’re not going to do that even with 30 houses; that’s how we operate [unintelligible [00:19:03].07] you said Superhost status.

So we do have some profiles, we segment out profiles into premium, intermediate, and budget properties, and we find that actually often our budget properties are the best return on investment for the asset owner. The analogy I give is I can have a $100,000 house in a transitioning neighborhood that will generate $36,000 a year pretty consistently, or I can have a $300,000 house that’ll make $70,000 a year or $75,000 a year, or I can have a million-dollar house that’ll make $100,000 a year.

In many instances for the asset owner — selfishly for the management company, we like to manage the million-dollar home. Because if you can take 30% — and oftentimes in vacation markets, the owners are price-insensitive; they didn’t buy the house for an investment, they bought the house because they wanted to go there on vacation. So anything that makes them money is better than their alternative. So they’re the ones carrying the million-and-a-half-dollar cost, but then that house turns around and makes $150,000 a year, and the management company takes 35%-40% of that, because again, the owner is relatively price-insensitive. ..So selflessly, from a management company, those are the houses you love to manage. What’s harder is to manage the standard 3/2 in a transitioning neighborhood that makes $36,000 or $40,000 a year. We do that, but the difference is there’s not someone meeting the guests to check them in, and there’s not a bottle of wine and cookies.

That’s what we have to talk with owners about, is – if you want to have only five-star reviews, then we can do that but that’s at a different price point, both in terms of the asset and in terms of the management fee to be able to manage that. But our view – and this is what we’ve done with our own properties – is that, again, from an asset-owning standpoint, we find that the best return on investment is more of those kinds of Walmart-style properties. And more specifically, we find that the two best types of assets are either small multifamily or large houses in urban cores. Small multifamily, we would break into like duplexes, quadplexes, something like that… Because let’s say I have a duplex, I don’t have two listings, I have three listings. That’s really important. I have unit A, unit B, or the two together, and that allows me to touch multiple points in the demand curve, which allows me to then push the average nightly rate for each unit up without having a major hit on occupancy.

Let’s say they’re three/twos and they sleep 10 people each, or collectively they sleep 20; then I’m hitting two different points, again, on the demand curve. The other types of assets that we find that do really well, maybe they used to be student accommodation, college rentals so they’re big houses and urban cores. Ultimately what Airbnb is, from a value play at the macro level, is a volume counterweight to a hotel room. If you go stay in a Marriott hotel room, you’re going to get a Marriott experience, but you’re going to pay 250 or whatever it is a night for one room, versus getting six; where you start to get those really big cost savings from a renter is if you’re renting a four or five-bedroom house in an urban core, that’s where that arbitrage opportunity is there.

The other thing that does really well is anything that’s got a mother-in-law suite or [unintelligible [00:22:26].07] in the back or something like that, because then you can rent out the mother-in-law suite or the casita to a traveling nurse or somebody who needs it. Then you’ve got the main house that’s generating the bulk of the revenue, or people can run out the two together.

For example, if you came to us and said, “Hey, I’ve got five houses in Cincinnati that I’d like for you to manage”, I’d say, “Absolutely. We can do it digitally or we can do it full service.” Our full service would not be us putting a W2 person on the ground, it would be us going and finding a 1099 cleaner and a 1099 maintenance person and paying them a retainer in addition to the cleaning fee are the service call to kind of come out and manage that stuff on the ground for us. This means the guests would probably, frankly, not receive the same level of service as when you manage that yourself because you were much more personally involved and there’s a much more personal relationship that the guests receive, versus us, which has a larger, more of a kind of management company, corporate style, experience. But again, our view is with the pricing — we also work with a lot with insurance companies, we have a lot of direct partnerships, so around 30% of our revenue comes off-platform, which is a huge benefit.

Slocomb Reed: Tell me a little bit more about that, Joe, 30% of your revenue comes off-platform. Let’s dive into that a little further.

Joe Riley: So we’re a preferred vendor for a lot of insurance booking companies. Let’s say your house burns down, tornado, water damage, whatever have you; the insurance company has to put you up. So those are really nice, juicy, two-month, three months, six-month-long bookings that we’re able to get; then we work with a lot of different corporate housing groups more generally conceived. Then we have a really good program – let’s say someone stays with us, anytime one stays with us for five days or more, we do an outreach and ask them why they’re coming. A lot of the time, that’s like a group of traveling contractors, and they’re coming back next week and the next week, so then we allow them to go directly with us; they save money, it’s better for us as well. Our strength is really in that kind of digital package that you get of pricing pushing out across all the different platforms, the off-channel stuff, and then the efficiency at which we manage turns with our 1099 vendors. Frankly, we run markets of 25 houses with not a single W2 person on the ground.

Slocomb Reed: That’s awesome. Joe, a couple of questions before we transition into the final phase of this episode. Have you entered a market and then decided to leave?

Joe Riley: Yes.

Slocomb Reed: Okay, tell us about that. You go into a market, you try it out, it didn’t pan out or didn’t meet expectations, and you decided to step away from the market. Can you tell us what market that was and how that went down?

Joe Riley: Yeah. The most recent one would be Athens, Georgia, which we’re actually now going back…

Slocomb Reed: College town.

Joe Riley: We left and now we’re coming back. So we went into Athens at the worst time, which was February of 2020, is when we closed on our first homes.

Slocomb Reed: You purchased them, that wasn’t arbitrage?

Joe Riley: We bought them. We basically then pivoted to some more kind of long-term rental stuff, and then we’ve brought them back to short-term rentals, and they’ve done really well. It’s not a full left the market, but we had to pivot focus, because that whole market was wrapped up in university traffic, which all shut down for 2020 in COVID. Then we had to kind of push through those longer-term leases, and now we’re transitioning back.

So that’s the main one that we’ve kind of gone into and had to leave. This is not me trying to blow smoke. I tell people, nine times out of ten, if you have a standard home in an area that has a metro population above 100,000, I’ve rarely seen an instance in which you don’t make more money as a short-term rental than you do as a long-term rental.

We’ve had a turn loose some of our leases… The arbitrage business is the biggest one where it’s great if it does really well, but you can have thin margins. We don’t arbitrage anymore on small units, because there’s just not the margin. Again, if we go back to what is the arbitrage of short-term rental – it is a volume play vis-a-vis hotels. If you have a small unit, you’re not taking as much advantage of the difference.

Let’s take Birmingham, Alabama. I can get $1,000 a month rental and then make $3,500 as a short-term rental. I can go get an $1,800 a month or $2,000 a month rental and make $7,000 a month. Now I’ve taken that $2,500 spread up to almost $5,000. Or I can go get a $3,200 a month rental and I can get $11,500 on average, where now I’ve got an $8,000 spread.

So as you go up to those bigger properties — because no one’s going to pay $8,000 a month in rent, you cap out on the long-term risks for some of these bigger nicer houses, because people who can afford that are either going to move out into the suburbs and have better school districts, or they’re going to buy the house. So where we found the arbitrage to not work – it’s on smaller properties that are not as premium in location.

Slocomb Reed: Because they have slimmer margins. What is the biggest challenge you’ve had to overcome thus far in getting your portfolio to where it is?

Joe Riley: Accounting.

Slocomb Reed: Accounting.

Joe Riley: Accounting is the name of the game in this business. If you just have one unit, you don’t really fully internalize that. But at 300 plus, closer now to 350 units spread across a mix of arbitraged, owned, fractionally owned, and managed, the different lodging occupancy taxes in every spot… There’s just like — every time you turn around, how does the pet fee get split? All of those things seem relatively simple when you have one or two or three properties… And it’s even somewhat simple if you manage in one market…

Slocomb Reed: Joe, let me ask, what is it that you have to do to be able to handle the accounting for your short-term rental portfolio?

Joe Riley:  We’ve had to leave QuickBooks and go to Sage Intacct to allow multi-entity accounting. We have a pretty robust in-house team, and then we have an outsourced…

Slocomb Reed: How big is your in-house team, just specific to accounting, for 300 plus?

Joe Riley: Five people.

Slocomb Reed: Five people to do the accounting for 300 plus units.

Joe Riley: Plus an outsourced team.

Slocomb Reed: Plus an outsourced team. Wow, that’s a lot for sure. At the end of the day, though, you’re still talking about a 13 cap on average across the portfolio. High-intensity operations, high-intensity business plan, but also high-intensity returns. Joe, are you ready for our Best Ever lightning round?

Joe Riley: Let’s do it.

Slocomb Reed: What is the Best Ever book you recently read?

Joe Riley: The Politics of Diplomacy by Jim Baker. Not relevant to real estate at all, but I’m a big fan of Jim Baker.

Slocomb Reed: Joe, what’s your Best Ever way to give back?

Joe Riley: We’ve been working with a lot with Afghan refugees to house them in these units as they’re waiting for more permanent housing.

Slocomb Reed: What is your Best Ever advice?

Joe Riley: Love your tenants and never sell.

Slocomb Reed: Where can people get in touch with you?

Joe Riley: They can go to info at info@patriotfamilyhomes.com as an email, or you can send me an email to joseph@patriotfamilyhomes.com.

Slocomb Reed: Best Ever listeners, thank you for tuning in. If you’ve gotten value from this episode, please subscribe to our podcast, leave us a five-star review, and please share this episode with a friend so that they can get value from our podcast too. Thank you and have a Best Ever day.

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JF2706: 5 Ways to Find Off-Market Multifamily Deals ft. Chad King

Chad King believes there is always a way to find deals, even in competitive markets. With the right tools and mindset, Chad has sourced the majority of his deals off-market. In this episode, Chad shares his direct-to-seller deals he’s closed, how he’s scaled his portfolio, and the best ways to source multifamily properties.

Chad King | Real Estate Background

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to The Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. 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 fluffy stuff. With us today, Chad King. How are you doing, Chad?

Chad King: I’m doing great, Joe. Really looking forward to the conversation.

Joe Fairless: Well, I’m glad to hear it, and as am I. Chad is the principal and owner of Titan Capital Group, which purchases and repositions commercial real estate. He’s got 303 units as a GP and 328 as an LP, based in Nashville, Tennessee. Titancapitalgroupllc.com is the website. With that being said, Chad, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Chad King: Sure, absolutely. I started humble beginnings in the wholesale fix and flip space, I kind of scaled my way up, so I did that path. I’m sure some of your listeners are familiar with that trajectory. Then ultimately, I got into apartment complexes. I was buying my own for the first couple and then realize that through syndications I can ultimately do larger deals. Then I got into doing some 506(b) and 506(c) syndications. That’s where I focus all of my time now, is apartment acquisitions; that’s what I’m just mainly focused on now.

Joe Fairless: What have you purchased so far?

Chad King: I started with a little 14-unit. Me and two buddies put a down payment together and bought a little 14-unit, we’ve refinanced that thing twice. Then a 21-unit was the next deal, built some confidence, got to a 49-unit, then a 65-unit, then a 93-unit, and kind of just been scaling my way up. It seemed like every deal that I did, I just got a little bit more confidence that “Oh, man. If I can do a 50-unit, I can do 100-unit. It’s just an extra zero.”

So I’ve been acquiring a lot of stuff between 20 and 100 units. We’ve exited multiple properties, we refinanced properties; that’s what the portfolio looks like. The 303 on the GP is a mixture of a lot of 50 to 100 unit properties.

Joe Fairless: Let’s talk about those. I’d love to go through as many as we can, just to hear the progression and what transpired. We’ll fast forward to when you started doing larger deals. I heard you on the wholesale and fix and flip, and I might ask a follow-up question about that in a little bit. But let’s go to when you started doing the larger deals. What was the first one?

Chad King: The first, let’s call it syndication, of the 50-unit in Chattanooga, Tennessee…

Joe Fairless: So you went from wholesale and fix and flips to a 50-unit syndication?

Chad King: Yeah. There was a 14-unit and a 21-unit in between them, but that was just bought with active income that was from wholesaling and flipping.

Joe Fairless: Wow. Okay, good to know.

Chad King: Ultimately, I also had to get a guarantor. I didn’t have much of a balance sheet other than making money, because I was just an entrepreneur, and banks don’t really love entrepreneurs when they get underwritten… Because our job is to show losses, right? It’s funny how that works. So I had to get a guarantor for the first couple to get them done. Now, obviously, when the balance sheet increases, you can do your own deals. Anyway, I’m digressing a little bit.

Joe Fairless: Who was your guarantor? You don’t have to name the person, but how did you know that person?

Chad King: Just networking. We’ve done a tremendous amount of wholesale fix and flip deals and he was my partner in the wholesale business. So it’s all about networking, getting people to know, like, and trust you. It’s the same thing with raising capital, Joe, and you know that. People want to put their capital with somebody they know, like, and trust. A lot of times, it’s not even about the deal, it’s about the operator. When you network and you tell people what you’re doing, those relationships just sort of open themselves up, especially the ones that you need at the time.

Joe Fairless: Okay. So you did a 14-unit, a 20-unit, and you got a guarantor for those, because you needed to. But besides your guarantor, it was just you, correct?

Chad King: That’s correct. I was the one running the whole deal. Even on the 21-unit that we’re talking about right now, I learned a lot of lessons on that. We fired three property managers in the first two quarters of ownership,  [unintelligible [04:34] off the job. It was a heavy value-add deal; six units were occupied when we bought it. We could go down a rabbit hole like the lessons learned on some of these apartment complexes.

Joe Fairless: What were the top two lessons learned from that… You said 21-unit or 20-unit?

Chad King: 21-unit. Yeah.

Joe Fairless: What were the top two lessons learned from that 21-unit?

Chad King: That’s a great question. I’d say the top two lessons – number one, when selecting a property manager, you need to ask a lot of questions. I think I was a little bit still green in the apartment space and I wasn’t fully vetting the property managers the right way. But we use third-party property managers for all of our apartment complexes; I don’t want to take the phone calls, I want to scale. So getting those team members on the ground is mission-critical.

The first one that we hired, I didn’t vet them properly from an accounting, software, and systems perspective, and it was just a complete nightmare on the financials. They had a contractor that was able to get out there and everything, but the work orders and all the financials were all messed up, and I was spending all my time trying to dig through the accounting, the bills, and the credit card receipts, and it was a nightmare on the accounting side. They didn’t have a software in place, the woman’s son was running the books… I didn’t ask these questions, and it was a nightmare.

The second lesson I learned was making sure that if you’re going to go with a third-party property manager, that they have the relationships in place that can knock out work orders quickly and get things done in-house. What’s their relationship with contractors? Locally? Because the second property manager that we ended up letting go, it was taking them two weeks to get to just a minor work order, like fixing a toilet. It’s because they didn’t have any contractors in-house to knock out little things. I get you to need to serve out the big stuff, the electrical, maybe the HVAC stuff, but you need to vet your property managers… Can they knock out work orders quickly and do they have contractors in place to get things done? Those were the two lessons that I learned moving forward. Now we have just the best of the best property managers, because I think I learned those lessons the hard way on that building.

Break: [00:06:40][00:08:19]

Joe Fairless: From those two lessons, both property management-related, and you said to ask a lot of questions, and then make sure they have the right team in place from an in-house standpoint. What are a couple of questions that you would ask? I heard what you said, but if you asked, “Hey, do you have people in place that can do work orders quickly?” They’re going to say yes, it doesn’t matter who they are. Knowing what you know now, how would you ask those questions, both about the reporting and bookkeeping, and also the in-house question? How would you ask those to make sure you’re getting the answer that you need in order to make a good decision?

Chad King: Great question. I always take just a couple of notes, so I don’t forget and get off track, because I can go down some tangents… This is basic sales 101. You don’t ask a yes or no question, because you’re going to pigeonhole yourself into getting a yes or no answer. So if I could go back to that conversation and the way that I have them now, is you ask it very open-ended and see where they take the conversation. It sounds something like this. “Hey, just curious, how do you guys currently handle work orders?” Leave it open-ended and see where they take the conversation. But what you’re going to do is sort of guide that conversation to “Okay, what about in-house work orders? What do you guys serve out currently?” Letting them elaborate on their process and their product is I think the biggest thing, rather than asking them yes or no questions.

The same thing with the financials. I should have asked her, “Can you walk me through a little bit about how your accounting system works right now and how you guys handle the bookkeeping?” If I had asked that question and she told me “Well, my son handles the bookkeeping and we do it on an Excel sheet,” I would have freaking run for the hills.

Joe Fairless: I love your approach, the open-ended questions and let them talk, and you just ask a follow-up question. That’s awesome.

Chad King: That’s it, 101, you should listen twice as much as you’re talking.

Joe Fairless: Yeah. But it’s also the open-ended questions, versus people who would be inclined to have a checklist of, “Hey, do you have this? Do you have this?” And then they’re checking off their checklist of questions I ask. Whereas yours is more, “Here’s the outcome that we want.” Then it’s going to take probably multiple follow-up questions on the fly in order to get to that outcome; I’m just going to let them talk.

Chad King: 100%. I think the other lesson too, Joe, is that you have to know what your desired outcome is or what those questions are geared toward the responses that you’re trying to get and uncover. That’s kind of the lessons that I was just telling you about earlier. That’s what’s really important, is where are those questions actually leading to?

Joe Fairless: Well, okay. Thank you for that. Now, let’s go to the 50-unit. How much was it? And by the way, where are these properties? You’re in Nashville.

Chad King: Nashville, Tennessee. I started wholesaling in South Florida, and it wasn’t really conducive to where I wanted to build an apartment portfolio, so my wife and I packed up and left. We didn’t know anybody when we moved here, just came to Nashville, and I loved it where it was located. Obviously, the South-East is a landlord-friendly state. Then I was able to put a pin in Nashville, draw a two-hour radius around Nashville, and I was able to grab Chattanooga, Huntsville, Louisville… We have some stuff in Florida, but most of our assets are in Kentucky, Tennessee, Georgia, and Alabama. Most of our stuff is in Louisville, Chattanooga, and here in Nashville. We’ve entered and exited in Huntsville and have some stuff in Florida, too. But I’m right here in Southeast Tennessee, Kentucky, Alabama, to answer your question.

Joe Fairless: This 50-unit, where is it? Is that Louisville?

Chad King: Chattanooga, Tennessee.

Joe Fairless: Chattanooga. Okay. How did you find it?

Chad King: Off-market, direct-to-seller. It came from a text message, believe it or not.

Joe Fairless: How’d you get their number to text them?

Chad King: Skip tracing the. Pulled the list from Reonomy which is the…

Joe Fairless: You got the list from Reonomy, and then what did do you do?

Chad King: Got the list from Reonomy, we skip-traced it, and we put it into our marketing sequence. I love buying direct-to-seller. Most of the stuff that I have in my portfolio we bought directly from the sellers. So we put it in our marketing cadence and they responded to a text message. I sat down with the owner at a McDonald’s, and he pulled out his rent roll, it was on the back of a napkin. He was collecting the rent, mowing the grass, kind of a mom-and-pop, just your traditional perfect avatar cellar for apartments for forced appreciation value-add stuff. I ultimately ended up getting a Fannie Mae loan on it, because I put together all the financials manually based on his napkin roll.

Joe Fairless: So you bought the list from Reonomy, and you skip traced it. What service do you use to skip trace?

Chad King: There’s a lot of VAs and stuff, like on Fiverr, that’ll do skip tracing for you. We use a private guy; I don’t mind plugging him, his name is Ryan Smith.

Joe Fairless: Fair enough.

Chad King: He’s got a company called Lead Smith.

Joe Fairless: Just google him.

Chad King: Yeah. Google.

Joe Fairless: Sorry, he’s got a company called what?

Chad King: Lead Smith.

Joe Fairless: Lead Smith. Okay, fair enough. Once you said the company name, then it’s an easy Google. I was just laughing at the Ryan Smith part.

Chad King: I haven’t negotiated any kickback yet. So just wait until…

Joe Fairless: [laughs] Fair enough. You got maybe a week or so before this episode airs.

Chad King: Cool.

Joe Fairless: Alright. So then the marketing sequence – how many text messages did this owner receive before they agreed to meet?

Chad King: It was on the first text message, but he had received some other marketing from us, so it wasn’t a foreign text message, because he had gotten a couple of letters from us, and he had gotten… I don’t know if he had received the email, but he was on an email sequence as well prior to the text message. So he had gotten two letters, two emails, and then this was the first text that he responded to, to set up a meeting.

Joe Fairless: Got it. So he received two letters, he did not respond. He received two emails, he did not respond. He received a text message, he responded.

Chad King: Got to hit him on all communication mediums.

Joe Fairless: That’s right. What did the text message say?

Chad King: I’d have to go back to the language, that was a while ago… But just something generic, “Hey, I’ve sent you a couple letters. I’m not sure if you’re interested in selling the property. We’d love to have a quick conversation with you whether now’s the right time or not.” With apartment owners, Joe, all the messaging is geared towards building a relationship. It’s not like single-family, where you’re kind of looking for distress and motivation. You really won’t find too much of that in multifamily. I mean, these people do want to sell, but not a lot of these are going to be distressed sales. I mean, very rarely are you going to find that. It’s all geared towards relationship building, and I think I said like, “I’d love to sit down with you and talk about your portfolio, see if it might be the right time to sell.” This guy wasn’t in a lot of pain, but he was just tired of mowing the grass, collecting the rent, and doing all that stuff.

Joe Fairless: And educate me on Reonomy. I’m not too familiar with it. Are you sending the marketing sequence, the two letters, two emails, text messages, via Reonomy?

Chad King: Yeah. You can, it does have that service. However, we pulled the list out, skip-traced it externally, and then we sent that list to a mail house,

Joe Fairless:  A mail house and they send the letters out.

Chad King: Correct.

Joe Fairless: But what about the emails and the text message?

Chad King: We use MailChimp for the emails, and we were using Sendy for the text messages, which is where he actually got his text messages from. Ultimately, Sendy I think shut down, so now we use a service called Launch Control.

Joe Fairless: So how do you coordinate — if at the time (or sounds like still) you have at least three different companies that are sending out stuff on your behalf to the same person, how do you track that internally to make all those systems speak to each other so it’s easy for you to see the response or lack thereof?

Chad King: Yeah. So I have a CEO for that, that tracks all that; he’s the integrator, he tracks all the data. But with the apartments, you’re not going to get a ton of leads. It’s not like single-family, where you can shoot postcards out to 50,000 people. In any sort of metro, secondary or tertiary, there are only probably three or 400 apartment owners that might be in your target; so it’s not a ton. You don’t need some robust CRM, I think; that’s a limiting belief that people have like, “I don’t have a CRM setup like Podio.” You can get it done with an Excel sheet. I’ll be honest, I’ve acquired all my assets with an Excel sheet to keep track of who calls in. I have it ring directly to me, because I want to be the one that has the conversation. If a seller is calling in, have someone on the phone who can actually talk the talk. I think if you end up putting somebody in that position to answer calls, you may end up doing yourself a disservice. But I track them in an Excel sheet, to be honest with you, Joe. I mean, I’m not going to overcomplicate it.

Break: [00:16:39][00:19:36]

Joe Fairless: Yes, simplicity is very helpful in order for us to execute regularly, so I’m glad to hear that. Alright, I think I’ve uncovered the way we can add a whole lot of value to a lot of people on this show, and that is that you’ve purchased a majority, or I think you might have said all, of your large apartments off-market, direct-to-seller. Let’s talk about that, because clearly, right now it’s a challenge to find deals and a lot of people have excuses. Most of them are just BS excuses, because they’re not putting in the effort to do things like you’re doing, and/or hiring people, or bringing on people who have those skill sets to do this stuff. So that’s the 50-unit… What about the next deal? How did you find it?

Chad King: I have bought a couple of deals from brokers, so not all my stuff is…

Joe Fairless: Yeah. Fair enough.

Chad King: But the next deal was a 93-unit that was right here in Nashville. That one was negotiated directly with the seller as well. $8.3 million dollar purchase price. He actually owner financed it, held a $6.1 million note for us, so we didn’t have to go to the bank to get a loan, didn’t have to get approved for anything, no appraisal, nothing. I sat down with him and figured out what he wanted. He had owned it for over 20 years; just a lot of operational efficiencies that we were able to come in day one, increase the NOI by 110,000 by cutting salaries on day one, which increased our value over a couple of million bucks overnight. We can dig into that but that was the next deal. We did a syndication raise of 2.8 million on a 506C(c) which is open to the public. That was our first 506(c) syndication.

Joe Fairless: That was the 93-unit?

Chad King: Correct? Yeah. Right here in Nashville.

Joe Fairless: Yeah. I heard that you said direct-to-owner letter. Got it. Okay. Before, it was sent two letters, two emails, and a text message. The two letters – do they go out first before the emails?

Chad King: We do letter, email, letter, email text, letter, email text, and then they get off that cadence and give them a break, and then they go back on it later on.

Joe Fairless: How soon after they receive a letter do they get the email?

Chad King: Two weeks.

Joe Fairless: Every action is two weeks?

Chad King: Give or take.

Joe Fairless: Give or take. You said it was the first letter?

Chad King: The second letter he got from us.

Joe Fairless: So he had already received a letter and an email.

Chad King: Again, you can’t tell if they get the emails, you just have to assume that they’re seeing your name and your logo. I just know that we mailed them twice. I don’t know if he called me from the first letter that he held on to, or it was the second one that got him. That’s what you never know, Joe. People will pull a list and do a campaign and get no phone calls, and they’re like, “This doesn’t work.” Well, you’ve got to kind of put some activity in. These people need to see you a few times before they reach out to even set a meeting to see if you’re serious.

The other thing that I had going for me on this one in full transparency is we had a broker that had a relationship that was also able to speak to our credibility, that knew the seller very well, too. So it was off-market, it had never even touched the market, and nobody else even got a phone call to even bid on it. But I also build a lot of relationships with brokers in addition to direct-to-seller marketing. So on this one, I actually got a letter and we kind of tag-teamed it with a broker relationship that was able to help out, [unintelligible [00:22:49].19] in there for credibility.

Joe Fairless: What was that broker compensated?

Chad King: The seller compensated him on the sale. [unintelligible [00:22:56].19]

Joe Fairless: When you send the letters, are they the same exact letter? Same question for the emails.

Chad King: No.

Joe Fairless: Different, so you switch it up some. Got it. Alright. That’s awesome. What would you say to someone who says, “I’m having a hard time finding multifamily deals.”

Chad King: So is everybody else. [laughter] It’s a lot of activity. I think people say that and they probably haven’t even begun to look at enough deals to even come out and say something like that. Because I don’t think enough people getting into this understand how much activity you have to load into the top of the funnel, as far as deal flow goes and underwriting goes. I’m looking at 60 to 70 deals before we buy one, and underwriting 20 to 25 deals before we’re actually closing on one. There are 10 to 12 LOIs going out right now to get a deal closed. There’s a lot that goes into the top of the funnel, and people are looking at four or five deals and saying “Oh, there’s nothing out there.” They’re going on LoopNet, looking at the three four deals on LoopNet, and “There are no deals out there.”

You’ve just got to increase your deal flow, look at enough properties, and start underwriting enough deals to actually get one closed. Because it’s a numbers game; it’s a race to 60 or 70 deals is what it is. If you change the way you think about it – not that there are no deals out there, but “Hey, 70 deals need to come across my desk,” you’re going to raise your standards for your activity level and the rest is going to take care of itself. Kind of a long-winded answer, but I hope that was helpful.

Joe Fairless: That’s helpful. All on point. I’m not going to go through your other deals, because I think we’ve found the main focus for this conversation. I’m glad that we talked about it. So I’m going to ask you the question we ask everyone, what’s your best real estate investing advice ever?

Chad King: Best real estate investing advice ever… Trust the numbers. Fall in love with the numbers, don’t fall in love with the deal. Too many people fall in love with the actual property or the piece of real estate. They try and fit a square peg in a round hole and actually try and force the numbers to work. When I get a deal, Joe, I try and kill it on the underwriting; I kill the deal on the numbers, and then if it fights to stay alive and still stays in the green, then I trust it and I do the deal. So fall in love with the numbers and get good at trusting the numbers, because they don’t lie. They tell a story; when you’re looking at these properties, the numbers will tell you a story. You have to trust the story and be able to change the narrative, and trust the numbers moving forward, and they’ll take care of you.

Joe Fairless: You’ve got 328 units as an LP; so how many deals are you in as an LP?

Chad King: That’s five.

Joe Fairless: How many different sponsors?

Chad King: Two.

Joe Fairless: How did you pick those two sponsors?

Chad King: Track record. I vetted them hard. You’ve got to vet your GPs. A bad GP can screw up a great deal if they don’t know how to run it.

Joe Fairless: And when you say vetted them hard, will you qualify that a little bit?

Chad King: Yeah. Look at how many properties have they purchased, what are their current assets under management, how many have they successfully exited, is this their first deal? That’s not to say I wouldn’t invest in somebody if it was their first deal, but I just got to feel very comfortable with them in their game plan, their reposition plan for the property. I’m looking a lot at their numbers and how they’re projecting out. Are they a little overzealous on the rent increases? A lot of people think you can both increase rents and decrease expenses all at the same time, and it’s going to be hunky-dory. So what’s their narrative change going to be? How are they going to force appreciation?

So not only what the narrative is for the deal, but also, what is the narrative for those sponsors? Do they have other jobs that they’re doing? Am I just talking to a money raiser or am I actually talking to someone who’s going to be actually hands-on with the property? Those are the kinds of things that I’m asking when vetting a sponsor. How are they getting a debt? Like who’s sponsoring the debt? All that kind of stuff is important when you’re looking at investing in an LP.

Joe Fairless: We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Chad King: Let’s do it.

Joe Fairless: Alright. What deal have you lost the most amount of money on?

Chad King: Believe it or not, I have never lost money in a real estate deal. I did a lot of wholesale deals, but we’ve flipped a lot of properties…

Joe Fairless: Even the fix and flips?

Chad King: Yeah, we kept a very tight box on what we would actually take down and flip and we would wholesale everything else that was outside of our box. So we really got super specific on — and this is probably a good tip, but we didn’t do any renovation over 40,000. We kept it cookie-cutter on the renovations, things that just needed basic cosmetics. We stayed within that box and then wholesaled everything that was outside of that box. It ended up treating us pretty well, so we never lost money on a real estate deal.

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

Chad King: For-purpose apartment community. We put a line item below the line. We’re working this into our new acquisitions as well, but we’d like to give back with for-purpose apartment communities. Each apartment complex that we buy has an initiative. Some of them are child sex trafficking, some might be disaster recovery, and they all have an initiative below the line expense item that can fund an initiative. So both the residents and the investors now feel like they’re a part of a greater purpose, and we feel like we’re giving back to a greater purpose as well, to the things that matter to us.

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

Chad King: I had our marketing team put a link together just for your listeners. I did this first-offer challenge where I went into a brand-new market… I know this is the lightning round, but this is pretty cool for your listeners. So I went into a brand-new market from scratch, with no relationships and I just cold-called… I went from going to a brand-new market to making and submitting an LOI in five days, with one hour a day of work. I recorded the whole thing and kind of put it into this little package, to kind of eliminate everybody’s limiting beliefs that you just can’t get started and get an LOI out.

We cold-called brokers, I cold-called sellers, and I was doing it live. They can get a hold of that if they want to opt into our world at 7figuremultifamily.com/chad, and they can get access to that challenge. But if they want to come to see me, I’m Chad King on Facebook. We have 7 Figure Multifamily as our mastermind group. We’re doing an event in Nashville in June, or this year in June, we’re doing an event. If you guys want to come over and check us out at 7figuremultifamily.com, that’s our mastermind where we teach people how to do what we’re doing.

Joe Fairless: Got it. And you don’t spell out seven…

Chad King: No, the number 7.

Joe Fairless: Yeah. The number 7. Yeah, I just tried typing in seven, but that didn’t work. So you have 7figuremultifamily.com/chad. I see that.

Chad King: I don’t know if that link is live. I actually told them to set it up this morning.

Joe Fairless: It is live. They are on point. Yeah, it’s there. Well, Chad, thank you for being on the show. Thank you for sharing with us in detail how to get off-market deals. And hey, if you’re having a hard time finding deals and you’re not doing this, then here is a solution for how to find deals. I love that comment you gave regarding, well, you just got to keep doing it and have a system. The results are here in your story. Thank you for that, Chad, inspirational and very, very helpful and timely for a lot of investors. I hope you have a Best Ever day and I will see you at the Best Ever Conference here in about a month or so. I’m looking forward to shaking your hand.

Chad King: I can’t wait Joe. Thanks for having me on. I think we’re [unintelligible [30:11]. I can’t wait to see you. Thank you very much. I appreciate it. Always a great value on this.

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JF2672: 4 Wholesale Secrets for Scaling During a Recession with David Olds

David Olds began investing in 2002 when he and his wife flipped their first house. Seeing the benefits of investing, David started to seek bigger deals in commercial real estate. Today, he has accumulated over 100 rental properties and continued to flip, having wholesaled over 1,000 deals. In this episode, David shares his secrets to wholesaling, how he survived two recessions, and how to maximize deals during market downturns.

David Olds | Real Estate Background

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Slocomb Reed: Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed. This is the world’s longest-running daily real estate investing podcast. Today we have David Olds with us. How are you doing, David?

David Olds: Slocomb, I’m doing amazing. Thank you so much for having me on.

Slocomb Reed: Great to have you here. David’s company is Nationwide Property Liquidators. He’s a full-time real estate investor with 20 years of experience, both active and passive. Current portfolio, he has wholesaled over 1000 properties, rehab-flipped 27, rehabbed to rent 30 or so, and he has 62 rentals currently. He’s based out of Chattanooga, Tennessee, and you can say hi to him at nationwidepropertyliquidators.com. David, tell us about yourself. What got you into real estate?

David Olds: Man, I tell you, I get that question a lot, and I’m embarrassed to tell you that it’s the most cliche thing ever. I was in an airport, I was waiting to pick somebody up, and I’m moseying through the bookstore like most of us do, because we’re just killing time… And of course, I picked up Rich Dad, Poor Dad. Man, talk about one book that can just change the trajectory of your life. That’s what that book did for me. So I’m sort of leaning there on the rack, just killing some time… I read about 10 or 15 pages, and like, “Wow, this is really good.” I’ve got to go pick up my kids, they were flying in, unaccompanied minors, from seeing a relative in Ohio. So I took that book home and just devoured it. One thing about me is – I’ll tell people, “I may not be the smartest guy around, but I’m really coachable, trainable, and I follow directions really well.” At the end of the book, he says “Real estate is the thing you want to do. Go get involved with a real estate investment group, a REIA, or a meetup, or something like that.” That’s what I did, and that’s sort of how I got my first toe dipped in the water for real estate investing.

Slocomb Reed: I’m one of those, too. Whenever I track my progress as a real estate investor, my day one is the day that I picked up Rich Dad Poor Dad.

David Olds: Isn’t it amazing? [unintelligible [00:03:02].13] people, same thing.

Slocomb Reed: Yeah. That was about 20 years ago. David, when did you buy or wholesale your first property?

David Olds: Our first property, my wife and I bought. We bought it in 2002, so 19 years ago. That’s a funny story I tell people. I came out of the closing — and this was a house we bought for ourselves. I said to my realtor – because I didn’t know anything, I’m like, “Why did I buy this from Wells Fargo? I don’t understand.” She’s like, “Oh, it’s a foreclosure.” I’m like, “I kind of don’t really understand what that means. Can you tell me?” Of course, she explained it to me. That property — and we had just gotten married, we moved in, and… Because I worked in home improvement, and like lumber sales, that type of stuff… We fixed it up a little bit and resold it two years later. As we’re selling it, the same realtor, we’re going to closing, and she’s like, “Oh, I forgot to tell you. You know you’re not going to have to pay taxes on the money, right?” I said “What? What do you mean?” She’s like, “Yeah, it’s a homestead. You’ve lived there for two years, the government doesn’t tax you on it, because it’s your primary residence.” What?! $47,000 I get to put in my pocket, and I don’t have to pay any taxes?

So even though it was our primary residence, it really was an investment vehicle. So we did that, we sold that property, and we went and bought another one that we made almost 100,000 on. So that was how we slid into investing, while I still had a full-time job, was buying these properties, living in them, fixing them up with the sole intention of reselling them again in two years. Over the first, probably five or six years, we did that as often as we possibly could.

Kind of in the middle there is where I found Rich Dad Poor Dad and got involved with the Real Estate Group in Orlando. That led us into traditional rehabbing, buying, creative financing, subject-to, all those different strategies. So if you think back in time, there aren’t many investors that were around back then still, compared to the total number of investors. But in 2008, the market started getting really bad. Central Florida was the worst of the worst places to be. So we knew we needed to do real estate someplace else, because the market was so bad there; it was just loaded up with foreclosures, and it was really tough to make money.

Slocomb Reed: What did your investing look like in 2008? You were in Central Florida, you’d done some wholesaling and some flipping… Is that all single families to this point in 2008?

David Olds: Yeah. Just flipping at this point, no wholesaling. So here’s where we are. 2008, I went to this boot camp, a seminar up in Boston, with a guy, and he was teaching apartment investing. That’s what I wanted to do, was I wanted to learn how to invest in apartments, because we’re all just playing Monopoly, right? Everybody who’s got a house wants a duplex, everybody who has a duplex wants quads, everybody who has quads wants apartment complexes; everybody’s always trying to level up. That was the goal. I’m like, “Okay, I’ve done a couple of deals, I want to do apartments.” So we were looking for new markets, emerging markets. So we’re going to go through a market shift here at some point in the future, and understanding how to look at markets, what’s going up, and what’s coming down is really important.

Anyway, Chattanooga, which is where I live now, Chattanooga, Tennessee – it was an emerging market. There were a lot of things going on here that were causing explosive growth. So we came here with the intention that we’re going to buy some small multifamily 8 to 10 units, maybe 20 units. We had these visions of grandeur. But again, 2009 – think back to those times. It’s not like it is now. Do you know who was lending money? Nobody. Because banks were spending all their time taking properties back. They weren’t in the money lending position. So we fell backward because we were doing a lot of marketing to get [unintelligible [00:06:32].12] deals. We fell back into wholesaling, and that’s sort of how we got started. But as we’re wholesaling and we’re doing a lot of marketing, deals were coming in, and we were able to take those people and turn them into owner-financing.

Owner-financing was relatively new to the masses in the single-family real estate business like our world. But in commercial, everything that we’re doing now as individual real estate investors has been done in the commercial world forever – novations, and assignments, and all the crazy lease options, lease wraps, and all that type of stuff.

Slocomb Reed: A couple of questions about your wholesaling. You were doing a bunch of marketing to find deals in ’08. What kind of marketing were you doing?

David Olds: Back then, there was only a couple of things you could do. It’s not like it is now. There was direct mail, and really, there was ListSource, which was about the only place where you would go on to pull lists. There was no Propstream, there was none of that stuff, no BatchLeads. Facebook really wasn’t even around back then. So we would do three things really for leads. One, driving for dollars. We would drive neighborhoods, looking for distressed properties, properties that look like they’re empty, tall grass, that type of stuff. We were looking for duplexes, triplexes, storefronts, anything that we can find, because I had no money, broke. When I moved to Chattanooga, I had $5,000 in my account. It was me, my wife, and my brother. A lot of people look at us now like, “You run all these million-dollar companies.” I’m like, “Yeah, that’s great. But we started with zero; literally nothing.” So driving for dollars is one thing. We’re coming home every night, I’ve got this list, my wife is handwriting yellow letters and postcards to people. So we were doing that, putting out a lot of bandit signs, the street signs, “We buy houses, we buy duplexes, we buy apartments. We’ll buy anything, just call us. Please just call this number, we’ll buy.” Then we were downloading some lists and trying to do some targeted marketing. Because again, our goal was to buy multifamily stuff.

Slocomb Reed: Were you working a job at this time too, or was wholesaling your primary source of income?

David Olds: Yeah, just a little bit. I worked for 84 Lumber when I was in Florida, and I told them I was planning on relocating to Chattanooga. So I was on a little bit of a guarantee. And it was supposed to be for a year, but it lasted about three months before they’re like, “Hey, you’re a really good guy, but you’re not selling anything.” In fact, nobody was selling anything right now, because there was no new construction going on back then. They laid me off, so I had to make this work. I had a wife, two boys, and three fat dogs at the time, and I had to generate money. That’s why wholesaling became just crucial for us, because it’s very quick in your life cycle and a wholesale deal can be as short as 14 to 21 days from the time you put something under contract to the time you get paid.

So we were using that in conjunction with going out and finding these other deals and working owner finance where the seller will be the bank for us.

Break: [00:09:17][00:10:56]

Slocomb Reed: Tell me more about that. You’re doing this wholesaling, going into 2009 to 2010, at a time when banks aren’t lending. Tell us more about how you were structuring those deals so that you didn’t have to get financing and you weren’t selling to end buyers who couldn’t get financing either.

David Olds: Let me tell you where I’m at now. We’ve got a portfolio, it’s about five million dollars, a mix of single families and small commercial units. So again, let’s go back in time. So when there’s a market shift — let me tell you that, we are never going to know when we’re at the top of the market, or even when the market starting to decline, until it’s already happened. Anybody that’s out there projecting right now, “Oh, in March the markets going to crash.” Full of crap, they have no idea, I promise you, because I’ve been through two market corrections already. So we knew something was happening; there were foreclosures. This was when all the gurus are out, “Hey, you can market to foreclosures and do whatever. This is going to be your strategy.” Well, that was a struggle, because imagine, you’ve got somebody, they’re in foreclosure, they owe 100,000, the market is starting to slide; it hasn’t fallen off the cliff yet, but it’s starting to slide.

Typically, it’s very hard to find a way to make money on those deals. Or quick money, at least. So you can buy them, take over their mortgage, and that’s some long-term money.

So understand, that was a little bit of a struggle. It’s difficult to wholesale a house that’s worth 100k when they owe 97k. Where do you make money there? So I tell you that to understand this – so I come to Tennessee, and I have to start doing some marketing, and I can’t. I don’t have the money to do unlimited marketing, so I have to be very targeted. I sort of backed into this by accident, and I said “Well, I don’t want to do foreclosures, because I’m tired of dealing with that, and all the problems that come with foreclosure. I’m just going to market to people that own their houses free and clear. They can do whatever they want, because they own the house and they’re not bound by any banks or anything like that. And I actually have done some research, and somewhere between 35 and 40% of all the properties in the United States are owned free and clear. Did you know that? That’s a phenomenal number. I had no idea when I looked that up. So my intention was for wholesaling.

There wasn’t this master plan… I’m telling you how I sort of cavemanned my way backwards into this. So I said, “I’m tired of dealing with foreclosures, so I’m only going to market free and clear properties, and the ones I drive by that look like they’re distressed.” So I did that, so we’re getting in these deals… And I’d also done some training. This amazing guy, this name is Chris Kirschner – he had a thing called the Autopilot System. He’s not around, he doesn’t teach anymore. But he had this amazing course and it talked about how to make different offers to people.

So I’m hustling, because I got to do something, because I don’t have a great job, or a job that lasted; I got my wife, got my kids, I got all these things, I’m in a new city, we knew nobody, it was like to burn the boats kind of thing, we come here… But I’ve got this other thing where I know how to make multiple offers. And I bought the Carleton Sheets course, and  I’m buying all the courses. Don’t laugh at old Carleton boy; people goof on him, but he knew what was up.

Slocomb Reed: People who invested back before the recession, there are a couple of names that always come up from who they learn from. Carleton Sheets is one of them, for sure.

David Olds: He was the man, dude. I’ve still got his course on my bookshelf in there. I boxed up a lot of courses that I bought there in storage, but that’s one that I leave out there. So Chris Kirschner teaches in his thing; you can make multiple offers, and it really was geared towards making subject-to offers. And I thought to myself, “Sell?” As you’re talking to all these people who want to sell, because they’re motivated – that’s going to be the first thing – but I’m making them an offer… And let’s say you call me and say “I want 70,000 for my property.” I’m like, “Okay, great.” And I know you own it free and clear, because you’re on my list, and that’s where the lead came from. But for me, like a wholesale deal, you want 70k, I’ve got to be at 45k. You’re like, “Geez, man, I just can’t take 45.” I’m like “Hey, I get it. Let me see. Let me ask you a question. Do you need all the money at once? What are you going to do with it?” It’s got to be that kind of pacing; that pace, like it’s the first time you’ve ever thought of it. “Slocomb, man, I want to help you out. I know you’ve got this thing, you’ve got these tenants you hate, and you’re moving to Florida…”

Slocomb Reed: Do you need all the money at once? That’s a great question.

David Olds: Right. Like, what are you going to do with the money? If I give you that 70 grand, you know the government — I’m not an accountant, but you know the government’s going to take a third of that. Do you need it all at once? What are you going to do with that money? “I’m going to put it in the bank.” The bank’s paying about 1% right now. Man, if I could find a way to get to that 70 grand, would you be interested in that if we didn’t do all the payments upfront? So you sort of work backwards into it. So what I was able to do was I’m making all these wholesale offers, and people are saying, no, no, no, no. Because only one out of 10 people are going to take it. Then I back into this, “Hey, do you need all the money at once?” Sometimes people say yes. “Okay, cool.” Hey, I can’t help you. I’m not your guy. If anything changes, call me. But a lot of times, people say “No, I don’t need the money. I’m just moving, or I can’t deal with these tenants”, or whatever it is. I’m like, “I might be able to find a way to make this work for you. Let me run back to my office and work some numbers. Let me see if I can find a way to make this work.” And that’s it.

From there, now we make them a terms offer. I make them a cash offer, a 100% owner finance offer, and maybe another offer where I give them 2k to 5k down, and they’ll pick one. Whatever one they pick, I’m like “You know what? That’s the one everybody picks.” Because I just want to affirm whatever, I want to anchor them and affirm whatever their decision was, so they feel good about it. Because people want to be like other successful people. If you pick the cash offer after all that, I’m like, “You know what? I’ve got to be honest with you. That’s what most people pick, they just want the cash and be done with it.” Or if you pick a zero-down owner finance offer, “Man, that’s really smart. That’s what most people pick, because they just want to find a way to make the most money for this deal.” Whatever it is, it doesn’t matter. And if you pick the one where I give you 2000 bucks down, I’m like, “You know what? That’s really smart. That’s what most people pick, because they want to know that I’ve got a little bit of skin in the game.”

So it doesn’t matter. The key is that all those offers work for me. It doesn’t matter to me which one you pick, because I wrote the offers. They all work for me, any one of them. I’m going to wholesale your house, or I’m going to get a house for free, or I’m going to put two grand down, get a house for free, and pay less money, because it’s a sliding scale. I’m going to give you money; maybe I’m going to give you 62k instead of 70k. But if I can get the house with zero down at 5% interest for 10 years, I’ll give you your 70k. What do I care?

Slocomb Reed: A couple of things for you, David… Tell us how your real estate business transitioned coming out of the recession, and tell us how your success with single families transitioned into your commercial investing.

David Olds: So there’s definitely a difference in what I do now as opposed to the recession. In our wholesaling business back in 2009, ’10, ’11, ’12, probably almost into ’13, our business was very geared towards landlords. Again, you have to think of what was going on in the retail market. Nobody — I don’t want to say nobody; I don’t want to overgeneralize. Primarily, the real estate market still hadn’t started to get traction again. It took longer than any of us thought that it would. We thought, “Oh, 2008, new president, whatever. Things are going to happen, there’ll be an adjustment.” But it took a long time to come out of that, longer than anybody thought. So primarily within the recession, we were doing $25,000 deals. We were really strong in the lower-end areas. I don’t want to say “hood”, because I hate that word, but lower-income rental areas.

One of the things that I learned is don’t ever put your own biases or what you think on the marketplace. The data will tell you where people are buying and where they’re not. I know there are some investors who are like, “I don’t want to invest there, I only want to invest in nice areas.” That’s cool, but your returns are going to be lower, they’re going to certainly be lower in the nicer areas, because your entry cost is going to be a lot higher, so your return is going to be lower.

Man, if you go into those low-end areas – I tell people to drive through there on a Friday night at about seven o’clock. Do you see all those people sitting on the floor? Do you think any of them own those properties? No. They’re all tenants. So who owns those properties? Landlords. I know people that own half of the downtown area, all those houses that most people turn their nose up at, and those guys are making $800 to $900 a month off every single one of them. I mean, they’re just ridiculously rich. So in the recession, we’re primarily into landlords, as we come out; then we start getting into wholesaling more nicer properties in nicer areas, because now the rehabbers are coming back into the market. So the easiest time for us to buy properties, when we bought… We were over 100 properties at one point, where we bought the bulk of those; it wasn’t in the recession. I’ll be honest with you, the worst the news was about them saying “Oh, the real estate market is terrible”, the easier it was to buy. Because people are like, “Just take this, just take my house; just take my apartment building”, whatever it was.

So I guess to answer your question, it was far easier to buy during the recession than it is right now, because now everybody thinks they’re sitting on a pile of gold, and prices are running up through the roof. So how did we do it? We made a lot of offers; we got out there, we got up to the plate a lot of times, and we were swinging all the time. So the small apartment buildings that we’ve got, the 8, the 10, the 15 units, the quads, the triplexes – a lot of those came because we were talking to a guy who owned a single-family house, and he also owned these other properties. We were getting deals that way, and then we were also direct-mailing anybody with 20 units or less. I feel like I went a long way. Did I answer all the questions?

Slocomb Reed: Yeah, that’s good. How did your strategy shift as you started negotiating with apartment owners, as opposed to single-family owner-occupants and landlords?

David Olds: I tell you, it’s not a lot different. The people I’m dealing with are the smaller — they’re not the institutional guys; they’re not guys that own 1000 units. I’m not the best person to speak on that. The people that I talked to, they own a couple of houses, they own an 8-unit, a 10-unit. And before you can negotiate – I always really stressed this to my team and to our students, is you’ve got to build a great rapport with people, and you’ve got to figure out what their motivation is; you’ve got to figure out why they want to sell. I had one guy that sold us 27 doors; he had multiple properties. It was1.2 million dollars, and we bought that property zero down, 4% interest, on a 17-year term. A million-dollar deal, we did like no money.

Funny, I remember going to the closing and I was at one of my properties — this is back in the day when I actually was out painting and doing stuff. I looked down at my jeans, and they were kind of painted, I had a hole in them, and I’m like, “I should be dressed better to go get a million dollars in properties.” [laughter] I remember distinctly having that thought sitting in my old, beat-up pickup truck.

But I listened to this guy’s story – his name was Tommy Baker, and he owned a bunch of properties here in Chattanooga. He called me up one day, he’s like, “Hey, I want to sell all these properties.” I’m like, “Oh, okay.” From a wholesaler’s point of view, package deals are very hard to sell… Because a wholesaler – we’re trying to move properties, everybody understands what we do. It’s far easier to sell one property at a time than try to sell 27 doors at once. Because there’s a limited number of buyers who have that kind of cash available. Wholesalers – we sell to cash buyers.

So I talked to him, I said, “Tommy, send me over what you got.” He sent me an email, I looked through them, I called him back, and I said, “Listen, dude. I want to help you here.” I can tell he’s an older guy. “But to be honest with you, you’re looking for like full retail on all these properties. Your best bet would be to put these things on MLS and go ahead just sell them.” There’s something powerful too in telling somebody that, “Hey, I can’t help you. I’m not your guy,” but trying to at least point them in the right direction. So this is what he said, “Listen, I don’t want to do that.” “What do you want to do? How do you think I can help you?” He’s like, “Well, I need to sell all these properties. I can’t take care of them.” I’m like, “Okay, are you open to doing any kind of owner-financing?” I threw that out there and he’s like, “That’s exactly what I want to do.” I said, “Holy…”

Slocomb Reed: Hah! That’s awesome.

David Olds: I’m like, [unintelligible [00:22:37].03] Because we always get scared, what if somebody says yes? I’m like, “Okay. Well, send me over what the rents are. Let me look at it. Let me see what I can do. Then why don’t you come to the office tomorrow?” So he comes to the office and we sit down, we’re having a conversation… We don’t jump right into that. I want to talk to him like “Hey, man. What’s going on? How did you get these things?” I’m always fascinated talking to old-time investors who’ve been doing this for a long time. I’m like “How’d you get these deals? What did you do?” So his story was this… A long-time investor, kids were grown, out and married, he was probably 70, and he had self-managed all these properties. But here’s the thing, man – he was diagnosed for the second time with brain cancer. Heartbreaking. He was such a nice guy.

He said, “Listen, here’s the truth. I’m not going to make it. I’ve got three or four months left. Here’s the thing. My wife – I need to make sure that she’s got income forever. She’s never dealt with properties, she’s not going to be able to deal with them. I don’t want her to have to liquidate these things after I’m gone. I want somebody that I can trust, that will pay me on these things ,or pay her, that’ll get her through the rest of her life, so she’ll have income, so I know that my wife is being cared for.” Man, do you want to feel like a ton of bricks hitting you? I’m going to tell you, sitting in that room across that table, that’s what that it felt like. I said, “Okay. Yes, I want to buy your properties. I’m your guy. Let’s figure out the terms and how we can do this. Let me work on this over the next day or two. There are 27 of them. We need to go out and spend a day or two, and I need to get into all the units to see where we’re at.”

Because typically, when you’ve got a person that’s going to do that, for the most part, they’re probably distressed, in some way. He’s an old guy, he wasn’t great at keeping up with all of them; some were good, some were bad. We met again and I made him a deal. I’m like, “Here’s the deal, dude. I’ll give you everything that you’re looking for, every single thing that you want. Here’s what I need. The only way I could do it at this amount is zero down. I’m not going to put any money down. We’re going to do 4% interest over 17 years. The way I came up with 17 is I’m just playing with an amortization schedule. I know what the rents are, what the insurance is going to be, I know what the mortgage is going to be. I’m playing with those numbers so that I get myself to a cash flow number that works. And here’s what we can do. Either you can give me all the deposits and we can prorate the rents, like the security deposits and the taxes, and you can give that to me, or I can just not make payments for a couple of months to kind of offset. So we can work this out. What do you want to do?”

We ended up kind of coming to something in the middle, where I think he gave me the deposits and the proration of rent, and I took care of the taxes. So I went to this closing, 1.1 something, I don’t know, just right around 1.2 million. I put no money down, I walked away with $10,000 and 27 properties.

Slocomb Reed: That’s awesome.

David Olds: Kind of a good deal. But, again, I tell that story to people and they’re like, “That’s what I want to do. I want to do those deals.” I’m like “Yeah, that’s like saying I want to go down to Braves Park, where they won the World Series and hit a grand slam every time I get [unintelligible [00:25:32].29] It doesn’t happen. You’ve got to get up to the plate and take swings, because you’re going to get some base hits and then you’re going to get the grand slam.

I’ve actually done two big deals like that, but really, the bulk of all of my properties… But it’s the same process. It’s the same process whether you’re buying a single-family, a duplex, a quad, 20 units, 50 units, 100 units… It’s the same process. Why do you want to sell? How can I help you? What is it that you really need?

Break: [00:25:57][00:28:54]

Slocomb Reed: It sounds like you’ve done a really good job of making sure you get up to the plate enough times that you’re sitting across the table from those sellers who need to sell you 27 units all at once, on 100% seller financing.

David Olds: Yeah, it’s pretty neat.

Slocomb Reed: David, what is your Best Ever advice for our listeners?

David Olds: Different advice for different people. If you’re just starting out – because I get asked this a lot – the best advice is pick one strategy. I tell people real estate is like being a doctor. You could be the eye doctor, the nose doctor, the mouth doctor, the elbow doctor, the butt doctor, the toe doctor, whatever; lots of ways to do doctoring. Same thing with real estate – lots of ways to do real estate. You can wholesale, you can rehab, you can buy apartment complexes, you can buy storage units, you can do land development, you can do lease options… Lots of things you can do. All of them make money, every single one. So pick one that fits your personality. If you’re like me and you’re yappy, and you want to talk to people probably, wholesaling is probably a good place for you to be.

Some things that I could never do – I don’t like talking to banks; they’re very slow-paced. I couldn’t be like the short sale guy or the loan modification guy. That’s not for me, that doesn’t fit my personality. So find something that you really like and that resonates with you, and that you enjoy, because this will be a struggle. Being an entrepreneur – it’s not easy. Instagram, I think, it’s always the flash, the bling, the Lambos, and all that stuff… But when you’re starting out, it’s a little bit of a grind. So find something that you really like, but stick with it; don’t have that shiny ball syndrome of, “Oh, I’m going to do storage units. Oh, now I’m going to do lease options. I’m going to do tax deeds. Now I’m going to do whatever.” Find something that you enjoy, and really stick with it.

As you progress, again, another piece of advice is – like, this is hard; we’re all in the beginning, we’re all solopreneurs, we’re all starting out, and it can feel really lonely. You’re sitting at Starbucks, trying to grind this out, you listen to a podcast, you’ve got some idiot on here with a Patriots hat telling you how great he got this million-dollar deal, and it sounds so simple, or whatever… ll of us want to make it sound like the most glamorous thing. But it can be a grind, and it can be lonely. So whether you’re at Starbucks, or you’re sitting in your living room, or your garage, or your bonus room, or whatever, you can feel like a man or a woman on an island, like you’re out there all by yourself. And what I tell people is get a tribe; get some friends, get some people — I’m not saying do the business with them, but be around people that are doing this every day. Get around that campfire.

So whether that’s an online community, which is okay, but if there’s a local meetup in your area or a real estate group, you should be at that. You should be about two or three times a week, especially when you’re just getting started. Because one of the most powerful things that help all of us as human beings is that you have to believe that this can work. You have to believe it and feel that all the time. So when you’re around those people, like “Oh, Bob just did a deal for $6,000 and he did it in one day. That’s great. Joe just bought these storage units. Holy smokes! I can do that.” Because when you see other people doing it, it gives you the belief that you can do that, too.

So get around those people, have people that cheer you on, you should cheer on other people, be excited about their success… I’ve got those people all over the country that I’m friends with, that operate on a super high level, that I can call and go “You cannot believe what happened to me today, with my company…” Here’s the thing. I promise all of you that are listening, if you haven’t done your first deal and you’re struggling with something, my company is going to do 4.8 million dollars in assignment fees next year; there are days we struggle, too. We all have problems.

Slocomb Reed: Absolutely.

David Olds: Yeah, man. Don’t ever be confused like, just because I’ve got a picture on top of the Eiffel Tower in Paris that my life is perfect. I run a company, we deal with people, and I mess stuff up, too. We all had bad days. So find those people that you could jump on the phone with and go “Holy smokes, guess what I did today? I screwed this up royally.” My friends can call me and go “What are you doing when this happens?”

So those people that you –if you want to call it mastermind– that you have a relationship with, you help them out in a bad time, they help you out in a bad time, you all cheer each other on, and I’m excited about their success and they’re excited for mine.

Slocomb Reed: David, I totally get that. I have my list of people that I call when I have a certain struggle, or even when I have a certain victory that people outside of real estate just aren’t going to understand. I know who I’m going to call to talk to about it, because they’re going to know what the struggle was I went through it, and how big of a deal it is, this thing that only real estate guys understand. David, what’s the best way for our listeners to connect with you?

David Olds: Instagram is a really great place. It’s very easy, @davidoldsrei. I answer all of my questions or messages. If you have a question or something I can help you with, or a deal with what you’re struggling with, certainly reach out. Our website is the exact same, davidoldsrei.com. We offer lots of resources on there, some coaching, free videos, and all that kind of stuff. So definitely go over there and check it out. I think they’ve got some free contracts loaded, and free marketing stuff that we just give away for free there, because those are the things that people ask for the most. So ueah, @davidoldsrei on Instagram, or davidoldsrei.com is our website.

Slocomb Reed: David, you’ve taken us on a journey here. You got into real estate accidentally through some live and flips. You found Rich Dad Poor Dad like a lot of us. Heading into the recession, you moved to an emerging market so that you were in a good position to continue real estate investing. You focused on free and clear owners and landlords. Coming out of the recession, you transitioned into bigger deals, with a focus on making sure you were getting in front of any sellers as possible and figuring out how you can offer them what they needed to sell to you. And it’s brought you to around a five-million-dollar portfolio today. Your advice to all of our Best Ever listeners is to play your strengths, do what works for your personality, and make sure you stick with it.

David Olds: I love it when you say it. It sounds great. [laughs]

Slocomb Reed: I get to spend 30 minutes listening to you, soaking in all of your wisdom, and trying to summarize. Thank you again, David. And Best Ever listeners, we will see you tomorrow.

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JF1867: Passive Investing & How To Use It To Become Financially Independent #SkillSetSunday with XRAYVSN

Today’s guest is an anonymous online blogger and a radiologist. He’s here today to tell us about how he was able to bounce back from a nasty divorce that cost him a lot of money and a lot of mental pain, to being financially stable once again. This was done in large part thanks to passive investing, which we will dive into today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“The money that you put into these investment is a long term play and it will not be liquid” – XRVSN


XRAYVSN Background:

  • Radiologist, passive real estate investor, and anonymous real estate blogger
  • Lost 7 figures in a divorce, used passive real estate investing to get to financial independence in his 40’s
  • Based in Southeast, U.S.
  • Say hi to him at https://xrayvsn.com/


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell. 

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. I am your host today, Theo Hicks, and today we are speaking with Xray. Xray, how are you doing today?

Xray: I’m doing fine, Theo. Thank you for having me on.

Theo Hicks: Absolutely. I’m looking forward to our conversation. Best Ever listeners, it’s Sunday, so you know what time it is – it is Skillset Sunday, where we talk about a specific skillset that our guest has acquired, that hopefully you can use to expand and grow your real estate investing business. The skill we’re gonna talk about today is passive investing, and how you can use that to become financially independent.

Before we get into that skill, a little bit more about Xray’s background – he is a radiologist, hence the Xray moniker, passive investor and anonymous real estate blogger. He lost seven figures in a divorce, and was able to use passive real estate investing to get to financial independence in his forties. So he’s a great source of information on how to actually use passive income to not only become financially independent, but to pull yourself out of any financial hole you’ve gotten yourself in.

He’s based in the South-East, and you can say hi to him at his blog, which is XRAYVSN.com.

Xray, before we get into the skill, do you mind providing us a little bit more about your background and what you’re focused on now?

Xray: Sure. As you mentioned, I am a radiologist, so I’ve been a physician for about 15 years now; I’ve been practicing in the South-East U.S. And as you also mentioned, I had a financial low in my life; I went through probably one of the worst divorce stories that most people have heard of when I tell it. It was very contentious; it was just not a fun time in my life. That was starting in 2010, and it lasted for 13 months. During that time I just saw money draining out of my account. It was like I was hemorrhaging money. The only people that benefitted from it apparently were the lawyers.

Just to give you an idea, just my legal counsel fee during this time was about $300,000, I sort of tallied it up… And it was just a shocking amount of drain going through my life. I really hit financial rock bottom and emotional rock bottom right around the time that the divorce was finally finalized. I was looking at a negative net worth probably close to $800,000 negative, and I was just about to turn 40. I was really was reeling. Like I said, financially and emotionally I was devastated; it was a grueling time. There was just a lot of times I just wanted to throw it all in and give it all up… And it was at this lowest point that I started saying “I can still build myself up. I am a physician, which fortunately does carry with it a high income.”

I didn’t really know how to deploy that money in the past. Basically, money coming in – I would spend it, and never really built any financial traction in my life. But when I was starting at rock bottom, I said to myself “I need to do something, otherwise I’ll never be able to retire. I just got my legs cut out from under me at age 40, and if I ever want to retire early, much less retire at all, I’d better get my financial ducks in a row.”

So I started doing research online, and one of the biggest topics that really struck a chord with me was passive income generation. Basically, I thought that this would be an ideal way that I could actually turbo-charge my net worth, bringing money as a physician while I was creating some side-streams that brought additional money into my household. Those two incomes combined could really set me back up to where I needed to be.

That’s how I sort of first got into passive income real estate investing and other passive income sources  – it was just a desperate need to find out “How can I call myself back from this huge hole that I was in right after a really bad divorce?”

Theo Hicks: Thank you for sharing that. I know you mentioned you did some research online… Do you have more specifics on how you’ve found passively investing in real estate specifically? Was it just you were reading some blog posts, did you come across a forum, did you talk to someone online? How specifically did you find this investment strategy?

Xray: I was almost going through Google searches at one point, just to see — how to recover from a divorce was one of the topics I would search… And I started seeing some forums that I took part in. One of the first that was really helpful was the Bogleheads forum. They were basically a group of like-minded individuals that kind of followed this principle of the late Jack Bogle, who founded Vanguard. For those familiar with index investing, Bogle was the first person to really push that out… But this was a group of individuals that really were helpful. Basically, my first post was “Help.” And I gave my spiel of what happened to me, how essentially I lost pretty most close to a million dollars throughout the whole divorce. I said “This is my age, this is what I have. Can I be helped?” And it was just an outpouring of support there. I had a lot of responses saying “It’s not the end of the world. Don’t give up.” And again, they cited that I was a physician, and they said “You can dig your way out of this. You’re having a high enough income that you should start looking into these topics that you might not have been aware of.” Through that, I started looking at other blogs.

One of the biggest blogs that inspired me in the physician finance realm was from The White Coat Investor. He had been giving advice to physicians… First of all, physicians are very well-known for not being very financially savvy. We are usually easy prey for a lot of financial advisors… And mainly, we go through all these years of education – I think I’ve been through  the educational system for 25 years, and not one single hour was dedicated to finance. So you’re basically a perfect sheep for all these wolves of Wall Street. You basically come out of med school with no financial knowledge. You go through residency – no financial knowledge… And now you’re pulling in these good-sized checks, and these financial advisors know “Wow, this is easy prey for us.”

Dr. Dahle, who runs The White Coat Investor, he basically got taken advantage of by a financial advisor, and it basically inspired him to start a blog. Tons of posts on that site, and then from that on, it sort of blossomed into looking at other blogs. One of the ones that really got me into passive income investing was another physician and anesthesiologist who blogs at Passive Income MD. He was solely writing on that topic, and that really spoke to me. Once I got into that, it just took off from there.

Theo Hicks: That’s amazing. You went from googling “how to recover from a divorce” to finding that Passive MD website that’s allowed you to obviously reach financial independence within a year. So let’s actually talk about the strategy. Before we go into specifics, can you explain the overall strategy that you would recommend to someone who may be in a similar situation and wants to achieve financial independence strictly through passively investing in real estate?

Xray: Sure. I guess first define what I think is financial independence… It’s basically at a  point where you could stop working, not receive another W-2 dollar for the rest of your life, and you’d still be able to take care of your basic needs. There’s certain levels of financial independence. The community that I’m part of is called the FIRE community (Financial Independence Retire Early). You don’t necessarily have to retire early when you receive financial independence or when you get to it, but some people like to say they are fired, which means that they’ve reached financial independence and then they can retire early, or they could just basically design a work life that they want. There’s also different levels of financial independence.

There’s the basic needs, where you can’t do anything luxurious; they call that Lean FIRE, where you’re just basically covering your expenses for having a roof over your head, utilities and food. And then you could go all the way up to Fat FIRE, which means that you’re so beyond financial independence you could splurge on anything off the menu, take luxurious trips, and stuff like that.

Where I’m at right now is probably in between the two in terms of my financial independence. I could certainly stop working and support myself with the life I have now, and take a nice vacation every now and then. But I am still continuing to work, because I do wanna pad my net worth a little bit before I pull the plug.

When I wanted to get into these income streams, I had to decide whether I wanted to be an active participant or a passive one. Being a physician, that really took a lot of my time. I didn’t wanna have a second job… And that’s why real estate passively was ideally suited for me.

I’ve owned a couple of condos which I actually lost during the divorce, and I was not unhappy about that, because they were a pain to manage, and the money received from that was not really worth my time… So I didn’t wanna be a landlord, so I kind of wanted to have something where I could invest in real estate, take advantage of all the tax benefits. The IRS and the tax law right now favors a lot of people who are into real estate. There are so many more benefits than you can get from just normal working… So I really wanted to get into real estate, but I didn’t wanna be a landlord.

I started looking into passive things. One of the easiest ones to do is actually what’s called a REIT. That’s a real estate investment trust. It’s almost like a stock – you basically can buy it off the market; there’s indexes for it as well… And you could be part of this real estate investment plan with them, and every quarter they send you distributions, so it’s almost like you own the real estate, but it’s treated like a stock. That’s probably the easiest way to get into it.

Unfortunately, REITs can behave like stocks. So if the market crashes, you could certainly lose a lot of value in your REIT shares. But if you’re not gonna sell it – I don’t plan on selling my shares – the volatility doesn’t bother me as much.

The next level when I got to it was the crowdfunding platforms. The JOBS Act basically allowed normal individuals to start investing in these real estate properties that were at one point only available to the ultra-wealthy. There were platforms that came up, like RealtyShares and a whole bunch of others.

I actually went into RealtyShares and did three deals with them, had no problems, and later on RealtyShares actually closed its doors, but others have taken its place. But that was an easier step for me to go into real estate, was through these crowdfunding platforms.

The minimums were a lot lower than what I’m currently in. They usually could be anywhere from 3k, to 5k, to 10k to invest in. You basically pool your sources with other investors and you could buy these commercial properties like apartments. Then, if you’re fortunate enough – which I achieved fairly quickly in my early stages of this project – you become an accredited investor, if you have a net worth of over a million dollars, not including your primary home, or if your salary is (if you’re single) $250,000 a year. Or actually I think it’s $200,000 if you’re single and $300,000 if you’re a couple, a year. So if you can achieve that and you become an accredited investor, that opens up a whole bunch of more opportunities for you to invest in, and that’s where I was at fairly soon, and that’s where I concentrated my efforts on.

Theo Hicks: Can you walk us through an example deal that you do right now? Let’s talk about it at the highest level, so not the REIT, not the crowdfunding platform, but what you’re doing now as an accredited investor.

Xray: Yeah. As an accredited investor – it basically gives you opportunities to invest in these private syndicators. These private syndicators – there’s a lot of them, and that’s probably the most daunting thing out of all this; there’s so many choices, you have no idea where you wanna go to… So you actually have to do a lot of research. But when you become an accredited investor, basically these private syndicators will offer you opportunities. Basically, you will contact them through their website, or if you have an email contact, and then do an interview, make sure that you’re a good fit with them; they’ll check your financials, you have to fill out some forms that basically agrees that you are indeed an accredited investor.

What happens when you join these companies is whenever they have a potential offering, about a month or two before they close on a property — say they have a 20 million dollar apartment complex that they wanna purchase… They’ve done their due diligence, they think this is in a good area, there’s a good projection for growth – they will send out a mass email, or some will do a demonstration, a webinar over the internet, and they will present it to their group of investors. So I’ll usually get a phone call, because I’m pretty active in a few of them, and I will get a heads up by one of the investor relations people. They say “Hey, we have an interesting opportunity coming up; I just wanna give you a heads up. If you need some funds to start mobilizing, we want you to be ready for this.”

These private syndications are a little bit more of a bigger step to get into. Like I said, crowdfunding – you get in as low as $1,000. Typically, these private syndicators that I’ve been dealing with – the minimums are usually around $50,000, and I’ve seen some that the minimum investment is in the quarter of a million plus range. So it does take a little bit more dry powder to get into it… And obviously, you have to have other assets that allow you to put your money in here… And the money that you put into these investments — it’s typically a long-term play. Once you’re in it, it’s not very liquid; it’s an illiquid investment, so it’s hard to get it out.

In case you’re relying on this money for short-term things, this is not the avenue you wanna go into. But they’ll basically give you a notice after you see the webinar or the emails that they send you and you feel like you’re comfortable with it; you make a pledge, you fill out a form, and you put your investment amount. Typically, they’ll withdraw your funds from your bank, and then you’re automatically invested in it.

The ones that I’m a part of – they usually have each property in an LLC… So all the other investors are all in this one LLC, and then whatever the positive cashflow that that one property does, they do quarterly distributions.

Theo Hicks: Okay, perfect. For all that are listening, if you want more details [unintelligible [00:15:54].04] make sure you check out Syndication School, where we do an hour a week of just strictly talking about how these syndications work.

So you mentioned that with these private syndicators – there’s a lot of them. And I get this question all the time, which is “How do you know who to invest with? How do you pick?” There’s literally hundreds, probably thousands of private syndicators out there, so… I know you’ve probably got your go-to syndicators, but for someone who’s wanting to enter this field – they’re an accredited investor and they wanna know how to get started, what would you tell them are some important characteristics of a good syndicator, but also talk about some red flags as well.

Xray: Sure. That really is the biggest question, and it is one of the hardest ones to answer fully, because you basically wanna do your own due diligence and feel comfortable with it, because you are writing a substantial amount of money (a check) to some people that you might not have ever even met in person… And it feels like a leap of faith. The first time I did it, it was just like “What am I doing…? Am I ever gonna see this money again?” And it felt like I’m just handing this stranger 50k, 100k of my hard-earned money. “What am I thinking…?” And you definitely get a comfort level with it. I guarantee you, the first syndication that you become involved with, you’re gonna have a little bit of self-doubt.

The things that made me feel a lot more comfortable were to actually do research on that particular company. As I said, I did a lot of research on other blogs, and if I saw another blogger who I trusted mention “Hey, I am an investor in this particular company. This is my experience with them. This is great” and they recommended it, that obviously raised the bar for me in terms of “Yeah, this is a good quality company that I should trust.”

Some of the other things is most of these companies will require a phone interview. They’re interviewing you, but at the same time you need to be interviewing them. You need to have the same philosophy. Some companies specialize in a certain sector of real estate. Some do self-storage, and concentrate on that. Some people do apartments, some people just do retail, some do all of them. So if you feel like you’re comfortable with a certain sector of real estate, obviously the best match for you would be a sponsor that is in that particular field. For me, I thought that my comfort zone was multifamily commercial apartments, and I wanted to go into that sector primarily, just because of my own personal beliefs. I wasn’t as high on retail as some people might be… So I’ve found companies that were concentrated solely on apartments.

Then after that I did more research on the particular company itself – again, reading about it on blogs, doing online searches… They also should provide you – and you should ask for it if they don’t – a list of other investors that are currently in their base, that you could call and talk freely with them. That’s another great source of information. Talk to another individual who’s already been through a few cycles with them; ask them “Are the returns on par with what they projected?” And even if they’re not exactly on there, these are all projections; some people get all spun up, “Oh, it came in 0.1% less than they said they would…” That’s rational, to have a little bit of a wiggle room.

They’re not gonna be exactly spot on in these projections; so when you’re reading the paperwork, don’t get hooked up so much on the details, but you just wanna make sure that they’re not being overly optimistic. They’re not telling you “This is gonna be a home run.” And anytime you see one property that has expected returns that are way, way beyond what normally would be for that property, that’s a red flag for me.

As somebody who’s a syndicator, who wants to get investors, they sometimes can inflate the numbers, and they try to make it look enticing, so you have to be cautious as well. I’ve seen five properties that have a return of this, property number six is double that; why is that? And they’d better have a good reason why, otherwise you might not want to put your hard-earned money into something that’s more speculative.

Theo Hicks: You mentioned the FIRE – Lean FIRE, Fat FIRE… How do someone who wants to achieve financial independence through passive investing, how do they go about setting their goals? Are they saying that “I need to invest this amount of money”, or “I need to invest in this many deals, if I wanna become financially free”? What’s the process I should go through to determine exactly what I need to do?

Xray: The best thing to do is to figure out what your current (what I call) “burn rate” is. If you could find out what your basic living expenses are, if you have a mortgage… And it also depends on if you wanna retire early or retire a certain age, if you plan on having that mortgage at that time, or will it be paid on… But for me, what I did was I figured out “Every year, this is sort of where I was trending in terms of expenses”, and you wanna make it where there’s a basic level, where “This is the absolute minimum I need to make sure I don’t have to sell my house, or get kicked out, or get foreclosed on, that I could actually eat the way I want to eat, that I have utilities the way I want it.” That should be your basic line. And once you figure out that that’s your annual burn rate or your spend rate, you could sort of work your way backwards and try to get a passive income stream to at least match that.

Obviously, it’s a long-term play. Don’t be discouraged that “Man, I’m not gonna be able to do that year one.” This is not something that you can do in one year. It takes several years. And obviously, the higher the income you have, the quicker that path could be. But the first goal is to get to that “Yeah, I am financially independent where I don’t need to rely on any working dollar to come in to maintain what I currently have, the way I wanna live my life.”

Once I did that and I once I achieved that, then I started envisioning what I wanted to do when I am retired. Do I wanna travel the world? Well, that’s gonna add a lot more expenses, so I need to plan accordingly. And how much do I wanna spend? All this is obviously guesstimates. You’re not gonna be completely accurate there, but you could give yourself a little bit of wiggle room and say “Yeah, I like to spend $10,000/year on vacations”, or 20k, or whatever, and then add that into your budget.

One of the studies that a lot of these FIRE blogs use is the Trinity study. Basically, it tells  you that whatever your goal spending is per year in retirement, you divide it by 25, and that’s what you need to have each year to draw off of.

Say you have a million dollars in your nest egg. Basically, 4% of that is $40,000/year. So that one million dollars — and don’t include your primary home in this number, unless you plan on selling it and using it as money that would work for you. But whatever your money that is actually going out there and acting as capital and bringing in passive income – whatever that amount is, divide it by 25, and that is a relatively comfortable estimate of how much you can take each year.

If you have a $100,000/year lifestyle, multiply it by 25 – so you need to have a 2.5 million dollar nest egg to support that life. That’s sort of how you wanna do it. You’ve gotta figure out where you wanna be, and then how much you think that costs a year to support that, multiply that by 25 and that’s your nest egg gold.

Theo Hicks: Is that factor saying that you can make a 4% return on that money, or is that saying that after retirement you’re gonna be alive for 25 more years?

Xray: The Trinity study took it out for 30 years, so there’s a little bit of caveat to there… And there’s some people now that are a little bit more conservative; they think that 4% is a little bit too high, given where they think the market is going… But the Trinity study was done, I believe, 10-15 years ago. They basically did it on a mix of bond and stock — I believe it was like a 60 and a 40. So that’s how the 25 rule came, it was off this Trinity study.

I personally am really conservative. When I leave medicine, it’s gonna be really hard for me to ever go back into it, so I wanna make damn sure that when I leave it, I don’t have to ever go back… So I am ultra, ultra-conservative compared to that. My goal was actually to be 3% to 3.5% instead of the 4%. So the smaller the number is, the more of a buffer you have.

A lot of people are saying that the Trinity study is an okay guideline, and depending on how conservative you are, you could vary that number. But  most of the time, if you did follow that Trinity study when it first came out, at the end of 30 years, when they worked it out, most people actually had more in their portfolio than they started out with. So it’s sort of like a doomsday scenario, that it kind of survived so many drops and all that, and that’s why they came up with 4%. There’s probably a 90% or 95% chance that you’ll survive okay, but if you don’t wanna have that 5% to 10% chance that you have a bad retirement, you could be more conservative with that number. But at least that’s a good starting point for me.

Theo Hicks: Is there anything else that we haven’t talked about as it relates to achieving financial independence through passive investing that we haven’t talked about, that you wanna talk about before we wrap it up?

Xray: Yeah, sure. I actually wrote a post about this… This is my favorite type of money; I think passive income is by far my favorite type of income. Even though I make a lot more money through my active work, I get much bigger smiles when I see what I’m getting through my passive income, even though it’s like a fraction of my physician job.

So with my passive income dollars – they get taxed a lot differently than my active dollars. As a physician, I’m in the highest tax margin, so essentially every dollar I make, the government automatically takes 37% off of that, so I lose 37 cents for every dollar I make, for my last dollar (that’s at my marginal rate).

Whereas with passive income, the top tax rate comes in at 20%, and then you add in a 3.8% Affordable Care Act on top of that for some higher individuals; the most you’ll be paying on passive income tax is 23.8%. So there is a big tax arbitrage between those two.

My passive dollar that comes in gets taxed far better than my active dollar that comes in, and  that’s one of the reasons why passive income is such a beautiful concept. First of all, your money is working for you. It works 24 hours a day, seven days a week, and basically your capital is bringing you more money that you could put back into the pot, and it just compounds itself that way. It’s just a beautiful concept.

I’ve written about this one relationship that I think is always important to let people know… There is a financial relationship – there’s a borrower and a lender in every financial equation. You wanna be on the lender side, because that’s where the money is made. If you’re on the borrower side of debt, you’re basically paying somebody else interest. You’re making money for them. Once you become a capitalist, once you have money working for you, you actually flip the script and you become the lender. And in our society, it pays to be the lender.

Theo Hicks: Yeah, it pays to be the lender. That’s a good bit to end on. Xray, I really appreciate you coming on the show. Just to summarize – lots of amazing advice; I’m looking forward to relistening to this episode. You started out by walking us through how you got to the point where you needed help; that was your forum post, “Help me increase my net worth.” You talked about how you essentially through online research came across passive investing in real estate, we talked about financial independence, we talked about the different tiers, so your Basic/Lean FIRE needs, all the way up to Fat FIRE, which is splurging on whatever you want.

We talked about the different levels of passive investing. You could start with the easiest, which are REITs; the next level would be crowdfunding, and the top level would be you being an accredited investor and investing with private syndicators. You walked us through how that process works from a passive investor’s perspective. Then we talked about how you actually qualify a syndicator, because there’s a lot of them out there, and it really comes down to being comfortable with them, their business plan, the types of properties they’re buying, making sure they don’t have unrealistically high or inflated terms, make sure you’re able to actually talk to some of their investors to make sure that they are doing what they say they’re doing, as well as doing some online research and trying to find some people you respect and see who they are actually recommending. But at the end of the day, it’s gonna feel a little weird at first, because it is a  leap of faith… And you mentioned how you had your doubts in the first deal, but once you’ve had success, that will at least be reduced.

We talked about how to go about determining what you’ve gotta do to become financially free; it starts off with that burn rate, and determining how much money you need to bring in in order to cover your basic needs. Then either setting that as your passive income goal, or envisioning what you want to do when you retire, and then adding that to your burn rate. And we also talked about that Trinity study, which is whatever your nest egg is, divide that by 25, and assume that’s how much money you’ll be able to spend per year. Or if you say “I wanna make X amount of dollars per year”, then multiply that by 25 and that’s how big your nest egg has to be.

Then we’ve talked about the differences between taxes on a W-2 income and a passive income; you talked about how people should focus on figuring out how to become the lender, rather than the borrower.

As I mentioned, lots of powerful information in this episode. I’m glad I got to interview you today, Xray. Best Ever listeners, thanks for stopping by, and we will talk to you tomorrow.

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JF1764: Real Estate Agents Need To Know This To Perform At The Highest Levels with Monica Neubauer

Monica is a real estate agent, investor, and podcast host. Currently, she is focusing on helping other real estate agents perform at high levels, and helping their clients in the best ways they can. In order to do this, agents need to constantly be learning their market, and understand the real estate investing atmosphere around them, so that they can help their own clients with their portfolios. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“Being a real estate agent is selling yourself, you have to go and ask for the business to get the business” – Monica Neubauer


Monica Neubauer Real Estate Background:


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Monica Neubauer. How are you doing, Monica?
Monica Neubauer: Hey, I’m great! Nice to be with you, Joe.
Joe Fairless: Yeah, nice to have you on the show. A little bit about Monica – she has been a real estate agent since 2002. She’s the host of Center for Realtor Development Podcast with NAR. She owns two rental properties and has helped more than a dozen investors buy or sell investment properties. Based in Franklin, Tennessee.
With that being said, Monica, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Monica Neubauer: Well, my current focus is actually helping agents improve their businesses by helping their clients better. I do do a lot of speaking and training about that topic, and one of the things that I love telling agents and giving them the opportunity to learn about is actually investing in real estate… Because agents – they’re around that all the time, and I think it’s a great investment.
You mentioned I have two properties, and just a little bit about why do I just have two, or why don’t have more in this industry, when I have the opportunity… And for myself, my husband and I have been more financially conservative, and so we have bought as we’ve had the money. So like we buy our first home that we live in – it’s almost paid off – we save money, we buy rental properties, and we buy them with a short mortgage. Because our goal is retirement-focused for our investment properties. And I just think all real estate agents, because they’re in the industry, should be looking at buying or selling real estate themselves for their own purposes. So that’s just one of the things I’m passionate about now, among others.
Joe Fairless: Alright. And when you say you buy properties with a short mortgage, how short are you talking?
Monica Neubauer: Well, I have one on a 15, and one on a 20.
Joe Fairless: Okay, cool.
Monica Neubauer: In that case, young enough to look ahead and say “Hm, how many years do I have here?”, being attentive to it. And I put all my money towards getting it paid off.
Joe Fairless: Okay, so you do extra payments, or pay off more per month than what the mortgage is.
Monica Neubauer: Right.
Joe Fairless: Okay. So your primary focus is — I believe you said “helping agents help their clients”, right? So you help agents. Alright. What are some things that you tell agents, to help them perform better?
Monica Neubauer: Well, agents need to be running their real estate business like a business… And in that, while it’s perfectly fine to sell real estate generally, to anybody who wants to buy or sell, in any location within an hour of your house, that doesn’t help agents hone into what they’re really good at. So when I’m teaching and speaking with agents, I like to encourage them to look at their business as a business, what can they be really expert in – is it their town, is it a niche in equestrian properties, residential properties, neighborhoods, or investment properties? What are they really good at and what do they wanna keep doing?
Joe Fairless: Okay. And when you say “run their business like a business”, other than identifying what they’re an expert in, what are some other examples or ways that would play out to run your business like a business, and not a hobby?
Monica Neubauer: Well, it’s spending time in it every day, for one. When we focus on it as a business, that means coming to work, focusing on it, learning what’s so important on it; it’s about keeping up with your finances, recognizing profit, and where’s profit, and what’s the long-term gain. I want them to be in the market all the time. If it’s your full-time job, be in the market; be out there, learning about the new construction that’s happening in the area, be reading up on what are the current new listings on the market, go into classes, go into your office meetings and learning new things… Because the market is shifting and the industry is shifting. There’s so much change going on in real estate, and investing as well; we’re seeing international buyers… There’s just so much to learn, that I wanna see people taking that with purpose – what’s my purpose, where do I wanna go, how do I wanna get there, and what’s the way to get me there?
Joe Fairless: And when you mentioned “What can you be an expert in?”, you gave some good examples of different areas of expertise, like a certain neighborhood, or a certain niche, like equestrian homes… I should know this, but — I know equestrian are horses, right? But what are equestrian homes…? I should know this, but sorry for the ignorance.
Monica Neubauer: Well, equestrian homes, especially those in areas like Tennessee, Kentucky, even Colorado – they usually have property and we wanna know about if it’s fenced, and does it have a barn on it, does it have a stable? You care actually about the quality of the grass. Those are the kinds of things that I’ve learned being involved occasionally; I’m not an equestrian specialist. But in our area, we have agents who are niched in condos; there are some agents who just specialize in condos around the universities in Nashville. There are some who do the high rise condo buildings. There are some who do land, or rural land, or rural land for development. Those are a few of the niches that people easily get into.
But then you could also look at people’s needs niches. Some people love animals, so build your business around your love for dogs and cats, and network with other people who love animals as well, and what’s available in the community. So it could be either a housing niche, or a personality niche.
Joe Fairless: And when it’s the personality one, will you elaborate on how that plays out from a business standpoint?
Monica Neubauer: It plays out in kind of who you spend time with. If you have somebody who has pets, their housing style may not be the same… But when people have pets that are really important to them, they like to be with people who respect their love for their animals, and they’re gonna talk to them about where to find a good vet, and where are the dog parks, and have conversation like that; that becomes that core for community with the realtor and the seller or buyer… Which is so important, because when you’re spending all that time together, you wanna have some camaraderie and some rapport. So you have things like the animals… For a while, my husband and I had a Harley Davidson motorcycle, and we rode motorcycles, and I just enjoyed hanging out with those people so much for that season, and worked with a number of them… And that is a particularly loyal group, and they enjoy working with other people who have the same hobby. So then I could tell them about what are the great roads to ride on, what are the great towns to go visit. So for them, it was not so much my niche specialty in a house, but it was “Tell me how I can live my lifestyle in your area.”
Joe Fairless: Sure. That’s a really helpful example, because that certainly could be applied to any investor, whether they’re a real estate agent or not. If you’re looking for capital for your business, then focus on what you enjoy already, and then go get involved in the community and build a group of people around that thing you all collectively enjoy, and then it’s likely you’ll get some customers or clients as a result of that, right?
Monica Neubauer: Well, totally right. I was listening to one of your podcasts – today, actually – with Theo; you were talking about being intentional about networking with people who could be investors… And when you’re in real estate, honestly the world is your potential client. Anybody could potentially be someone who would buy or sell a property. But that doesn’t mean we necessarily want to or can focus on the whole world, as in every industry we have to focus on where we can meet the people and who are the customers that we wanna serve. So that comes into whether you’re in a Harley group, or you’re in a running group, or you’re in a moms group; whatever your group is where you’re connecting with people, you as a real estate agent can present that for the owner, purchase and sale, or introducing them to investors.
A number of the investors that I’ve worked with were first-time investors, so I would talk to them about buying an investment. Or you’re leaving your first home; why don’t you try and keep your first home, if you can afford to, when you buy your second home? I have loved teaching people how to invest in real estate, just in the normal course of the people that I serve.
Joe Fairless: Have you worked with first-time investors, as well as investors who have purchased multiple properties?
Monica Neubauer: Yes.
Joe Fairless: What are some questions that people who are investing for the first time ask, that people who have invested multiple times do not ask?
Monica Neubauer: Well, I’ve found that the first-time investor buyers – they have, as you mentioned, so many questions. They are concerned about renting it, and how hard is it gonna be to rent it… And it kind of depends on if they’ve had some training. If you have somebody who’s taken some classes, or read some books, they have a little bit more information and tend to ask better questions. But when you first start talking to them about it, they’d like to see how does the money pan out, so it’s good to have a spreadsheet (template) to show them… But it’s also about “Should I manage it myself? Should I get a property manager? What’s involved in getting a tenant in my place? Do I need to run a credit report? How do I do that?” Then they also wanna know about the lease. If I’m working with them, will I help them with the lease, or do they need to do that somewhere else? Those kinds of questions.
Joe Fairless: Do you enjoy working with first-time investors?
Monica Neubauer: I do, because I’m a teacher, so I love to see people grow in something new… So I do. [laughs]
Joe Fairless: Fair enough. And it’s probably rewarding as they come back for number two, number three and number four, that you’ve helped them along through the process, right?
Monica Neubauer: Right. And giving them some vision for something new, and help them believe that they could do something that maybe they didn’t think they could do, or they were afraid of it… And occasionally, they don’t love it; then they come back and they need to sell the property, or they’re done, or they had a bad tenant, or whatever… But I’ve never had them regret it. They still learned something, it was still interesting, or they were glad they tried it.
Joe Fairless: And from a teaching or development standpoint when you work with agents, you talked about running your business like a business and what can you be an expert in… What’s something else that you talk to agents about?
Monica Neubauer: Well, a lot of people come into real estate and they think about it as “I’m gonna start a second career.” Either they might be older in their lives, or they might want to have a little extra money, so they do like a side hustle, which that’s a little concerning to me, because there’s so much involved… So people don’t always think about where to get the business; they kind of think they’re gonna talk about it amongst their friends, and they’re just gonna start helping people and it’s just gonna fall into place. But being a real estate agent is selling yourself. You have to go and get the business and ask for the business, just like as if you were selling clothing or insurance, or whatever else. You still have to go out and sell yourself.
So a lot of agents struggle with the habit of building up that communication with potential buyers and sellers, and providing value in the marketplace, so that when they have somebody who wants to buy or sell, that they will contact them. Just being in touch and providing value. We talk a lot about that, and encouraging people to write blogs, or take good photographs, and connect on social media… Just to be always providing relevant and interesting information to people, so that when they have a real estate need they’ll call you, because they know you know what you’re doing.
Joe Fairless: Sure. And any tactical things you recommend to act on that advice?
Monica Neubauer: Well, I do have a few tactical things… [laughs] There are so many ways, and I would say once you decide “Okay, I need to make a plan to get business…” That’s where people really need to start; me just hoping it’s gonna fall out of the sky is not a plan. I think there’s a book “Hope is not a strategy.” Well, that fits in this situation. They need to make a plan; are they going to be calling people and having conversations on the phone? Do they want to send out information via an e-mail list, or provide market data, maybe on social media? They need to decide some way to communicate out into the community. And what is that gonna be? What’s a social media network that they love being involved with, or are they on a neighborhood HOA board? Where are they already involved with that they can provide value? Is that an email newsletter list to that group, or can they sponsor something where they can provide information? Can they start writing a blog and share the blog and relevant market information on their Facebook page? Do they love taking photos? Maybe they can build an Instagram account and have photos of their neighborhood, or favorite house styles that they like…
I know some agents will do regular happy hour events, and invite past clients or friends to come and network and connect with other people, and it’s sponsored by the real estate agent, so it just keeps her there, front of mind, and always meeting with people, but she’s providing value by encouraging this networking with people who wanna meet other people, which is especially relevant when you have new buyers who move into town.
Joe Fairless: Oh yeah. Very helpful. Based on your experience as a real estate agent and also an investor, what is your best advice ever for real estate investors?
Monica Neubauer: My best advice ever… Uuh. Okay… [laughs] I think my best advice ever is to make sure you as an investor know what you’re getting into. I would love it if every investor had a great network, a real estate investor’s network and a great agent that they trusted, who really were helping you and looking out for your best interests. But the fact of the matter is that an investor – it’s still their own money; they’re gonna be the owner of the house, they’re gonna be doing the repairs, or they’re gonna be hiring the property manager… So an investor needs to keep educating themselves about the process. “Where is the money going? What are the legal things? What are the landlord laws in my state?”
We have so many people ask us – and this is more from a buyer perspective, even though it’s an investor niche – about “What about those pre-foreclosures?” Well, pre-foreclosures are complicated things for people who don’t know what they’re doing, but investors who really dig in and learn it and know what they’re buying, it can be a really great thing. But if they’re relying on a real estate agent who hasn’t been trained in that, that could end up costing them money.
Joe Fairless: Sure.
Monica Neubauer: My best advice to investors would be to keep reading books, keep learning, go and talk to people at the county government office… If you’re gonna take this seriously, either keep it really simple, like I’ve done, maybe like a buy and hold, and just kind of let it appreciate over time, and keeping that money in your savings account as they pay down your mortgage, and if you’re even more conservative than me, you can get a property manager; if it’s out of town, get a property manager… That’s kind of the simplest way to do it.
If you wanna get more involved – and I know that you teach a lot of your investors about how to get more involved and have their own businesses, digging in with it – then they need to learn. They need to learn construction things. If your contractor is over there, learn some things from him/her, because you might need to step up and help them sometime when you get in a hurry. So just keep learning. If this is your business, this is your industry, it’s your money on the line, learn it.
Joe Fairless: Yup. And treating it like a business, and just becoming not a human being, right? Always becoming something else…
Monica Neubauer: Well, maybe it’s one of those times to not so be a human being. This is be a human doing in your business. [laughs]
Joe Fairless: Right, yeah.
Monica Neubauer: Just like being a realtor, being an investor, if you’re building it as a business, think about the income, the expenses, how can you improve yourself. They go together.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Monica Neubauer: Oh, okay. A lighting round. I’m ready.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:18:44].24] to [00:19:25].25]
Joe Fairless: Okay, best ever book you’ve recently read?
Monica Neubauer: I’m reading “High performance habits” by Brendon Burchard right now to tweak some of my habits.
Joe Fairless: Good stuff.
Monica Neubauer: It is good stuff. I’m having to kind of dig in because I know some of it; I’ve got some of it going on, but I’m really getting some great reminders. He’s giving a couple of really good tips that I haven’t heard before. One of my favorites I’m trying to practice is the transition mentality.
Joe Fairless: What’s that?
Monica Neubauer: Well, I work in my house, which is fabulous, but what happens when I’m done working and I just go in for dinner, and go into my family part of my house? Am I taking any mind space to make a shift, or am I bringing my work attitude with me? So it’s that transition mindset, so I can be where I am, in the moment, right where I need to be.
Joe Fairless: That’s something I need to be better at, as well. I might check that out. What’s a mistake you’ve made on a transaction in real estate?
Monica Neubauer: I’m thinking of a situation where the negotiations took a strange bent…
Joe Fairless: Okay…
Monica Neubauer: [laughs] You know, something came up, it was unexpected, and…
Joe Fairless: What?
Monica Neubauer: It was a negotiation and the other agent had something that was not in the contract, that needed to be, and at the last minute her client was like “Well, I want this.” She hadn’t put it in, and so it wasn’t there, and her approach to me was — that’s where the strange part came in; she was saying “Well, this isn’t done and this isn’t done”, which are things that are not contractual. So it was kind of an assault on me, is what it was. And yet, what she needed really wasn’t difficult. My client could do it, it wasn’t a problem… But I got my own back-up. I was upset because —
Joe Fairless: Yeah… The approach she took?
Monica Neubauer: Right. She didn’t approach me with a genuine “Oh, we’ve got this issue. It’s important to my client. What can we do?” So not only did she not bring solutions, she didn’t come with a cooperative attitude of “Is there a way we can fix this? What can we do?”
Joe Fairless: Yup. So what was the mistake?
Monica Neubauer: Well, the mistake was the client had wanted some extra days after closing, and when we had created the second back-up contract, it wasn’t in there… And they wanted their extra days after closing for possession. And it really was easy for my buyer to do it, but the problem was — well, I mean she had her problems in that, but my own problem, that I have to own, was I got upset on behalf of my client, even though my client wasn’t upset.
Joe Fairless: Okay, fair enough.
Monica Neubauer: People need to remember that the real estate agents in the transaction have agendas. They shouldn’t. They should be neutral negotiators. But we have to remember that we’re all people, and there’s a lot of people in the negotiation.
Joe Fairless: What’s the best ever deal you’ve done, whether it’s with a client or one of your own?
Monica Neubauer: The best ever deal I’ve ever done… I’m actually in a transaction right now that I beleive is gonna go good. I’ll tell you what makes a good transaction, the ones that come to mind as far as good. It’s where everybody has a willingness to do something to help the transaction move forward. It’s just like me getting my backup with that really bad thing that I had done, and that many of us tend to do. The opposite is true – when everybody can come into the transaction with a cooperative attitude (“I’m not gonna dig in my heels”), those make the best transactions.
Joe Fairless: Best ever way you like to give back?
Monica Neubauer: Well, one of the things I like to do to give back – because I’m a speaker, I like to speak on behalf of organizations who need a speaker. Even just today, I was working on an upcoming presentation I’m doing for End Slavery Tennessee, which is a human trafficking organization; they work to educate and help reintroduce survivors back into a healthy environment in Middle Tennessee, and I’m doing a speaking session for them to eight-graders. How exciting is that, to be able to talk to young people about such an important message?
Joe Fairless: Yup. And how can the Best Ever listeners learn more about what you’ve got going on?
Monica Neubauer: Well, they can listen to the podcast if they have an interest in real estate outside of investing; it’s for realtors, but it’s about real estate, just living in the industry… It’s at crdpodcast.com. Or you can find me at MonicaNeubauer.com.
Joe Fairless: Monica, thank you for being on the show, talking about some things that real estate agents should know or should hone, one or the other. Also, talking about your approach for how you two are continually learning and developing as you go… Some really good things here.
Thank you so much, Monica, for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Monica Neubauer: Alright, thanks Joe.

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JF1688: A Great Team Culture Can Take Your REI Business To New Levels with Danny Coleman

Today’s show features a guest whose main focus with his career is helping teams and businesses grow. Danny shares his best advice on the topic with us today, you may be surprised to learn that team culture is often the biggest area of concern for Danny as he starts working with teams. How do you build an excellent team? Tune in to find out. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“As a leader, you have to make the people feel like they are your priority” – Danny Coleman


Danny Coleman Real Estate Background:


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

Danny Coleman: Hey, what’s up, man? I’m doing good.

Joe Fairless: I’m glad to hear it. A little bit about Danny – he’s been working for small teams and businesses since he was 14 years old. He’s got a passion for small businesses and helps business owners grow their businesses. In fact, he was a COO of a real estate development company for four years, and his focus is on management so we’re gonna talk about the lessons he learned from this experiences, and how it can be applied to real estate investors and what we’re doing. Based in Columbia, TN. With that being said, Danny, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Danny Coleman: Sure, yeah. Thanks so much. I was home-schooled, and anyone out there who was ever home-schooled knows that we get to work early in life… So I’ve been working my whole life; it’s always been for small business. I had a few corporate stints; honestly, it just wasn’t for me. I think that when you’ve got the entrepreneurial bug in you, you’re not gonna last in a corporate environment… So ultimately, one thing led to another and I ended up falling into real estate kind of haphazardly, just because of the position I took with a real estate team. Then a couple years later, fast-forward, I’m working for a real estate development company.

I started off as office manager/project manager, then went into business development for the team, and the ultimately COO. That was the last time that I was a W-2 employee. When that business split up – there were two CEOs, and they both had a different vision for the business, so they went their separate ways, and I was like, maybe I can take whatever in being COO for a small team and try to bring that to other teams in real estate businesses… Because if it can work in one place, it can work in any place really, so long as you can teach the fundamentals.

Joe Fairless: And before we talk about what you learned, what did you all do at that real estate development company?

Danny Coleman: We started out wholesaling. We were wholesalers, we were doing pretty high volume, at least for us, within Nashville, TN. Nashville has been pretty hot… So we wholesaled for a while, and then we kind of dipped our toes into the flipping side of things as well. We’d basically get it under contract, and then we’d just determine what’s the best way to monetize this contract. Of course, it used to always be the answer “We just wholesale”, and then we started realizing all the money that we were leaving on the bone, essentially, so we started doing some flips as well. Then the owners also kind of used it as their machine to also build up their rental portfolio… And they gave us the opportunity to do the same, which I’ll probably touch on later.

Joe Fairless: So based on that experience, what did you learn that you’re now applying to small businesses, as well as real estate entrepreneurs who have their own businesses?

Danny Coleman: The biggest thing is helping managers; if you’re a small business owner, you’re managing somebody… Helping managers realize that the fundamentals in management, especially when you’re dealing with small teams and you have limited resources – you’ve got your people aspect and your process aspect. Getting those things right. Focusing on the people aspect really comes down to — the word is thrown around a lot, culture. If you can figure out how to have a good culture on your team, create and cultivate a good culture and realize that that’s an ongoing, never-ending process, you can create a team that becomes leaders, that give you 110%, and can honestly run your business for you, so that way you can do really what you want with your time.

Joe Fairless: How do you cultivate a good culture?

Danny Coleman: Everything for me starts with the hiring process. Whenever I go in to work with a business, I start with their hiring process, because everything stems from the people that you bring in to help you fulfill your vision, to create the thing that you wanna create. So there’s three phases to that. There’s recruiting, then there’s onboarding, then there’s retaining.

Culture really becomes the biggest player in the retaining phase, but honestly it permeates the whole way through them. I don’t know if that answers your question or not. I’ll get into it if you like, but basically culture in a sense is just the soul of your business, and that’s why people have such a difficult time with it. I don’t know if you’re spiritual or not, but the non-physical part of yourself – the soul, if you will – or your business, it’s the same thing; it’s this intangible aspect where all of the things you have, all the processes and systems you have going on around you create the culture. It’s gotta be intentional, but you also have to realize that you can’t control it like you can [unintelligible [00:05:52].08] process.

Joe Fairless: So there’s certainly a priority on having a phenomenal culture. Can you get into some specifics of how to create it? Because you mentioned it starts with the hiring process, so you’ve gotta recruit, you’ve gotta onboard people, you’ve gotta retain them… But can you get into some more specifics there?

Danny Coleman: Yeah. The first thing is what kind of people are you bringing into your team? A lot of small businesses, the owners have a propensity to put warm bodies in seats. “Hey, your sister needs a job?” “My brother needs a job” just whoever. You go online, if you’re working with virtual assistants — we work with lots of virtual assistants, I’ve worked with them over the years… And you tend to think “Okay, I just need a monkey in here doing this. Anyone can do this.” You can’t have that way of thinking. You have to realize you’ve gotta bring in quality people. Because if you want quality people, it’s gonna take intention. And quality people only stick around in the business if you continue to bring in quality people. If you have this mix of “Oh, well this is one of those positions where we need a quality person, but this is somebody where anyone can do that.” You have to throw out that way of thinking. So first of all, the people who you’re bringing into your business.

Secondly, structure. Rock stars love structure. They want honest feedback, they want opportunities in your business to grow, both personally and income-wise, and they wanna be in a place that supports them, and where they feel like they can be vulnerable. There’s a lot of stigma around the whole idea of safe space right now, but the point is your business should be a place where people can be vulnerable, in the sense of that’s how you’re gonna connect with the real person. If we’re all wearing masks, then you’re not interacting with the real person; you’re gonna have communication issues. But when people can be vulnerable, they can be themselves. When they’re themselves, you have the best communication that you can have as humans. If you have to boil all business problems down – it’s not even business, it’s really all problems in the world – it has to do with communication, how we communicate with each other as humans.

Joe Fairless: That’s something that I’ve not thought of… If there’s a position that you need to fill, you must continue to have a high standard, even if it’s a position that perhaps isn’t as much of a priority for you, because bringing in quality people keeps the other quality people around. Thanks for sharing that.

Danny Coleman: And it happens a lot, especially in real estate, because we tend to use virtual assistants for a lot of the parts of the work that basically could be automated, but you ultimately need a human to do it. So you’ll tend to really devalue that position, because you feel like it’s so robotic to do, you could just have the lowest-paying person in there and that’s gonna be the best thing for you… But ultimately, that’s the biggest mistake; if you bring in people who are sub-standard, then your people who are median or exceeding standards will begin to — honestly, they won’t feel great about your decisions; they won’t trust you like they should.

Joe Fairless: Where do you find the quality people?

Danny Coleman: You can get them, you can certainly find quality virtual assistants. UpWork is a huge place to go; it used to be oDesk. And you can find them on Craigslist. I got into the position I’m talking about, the COO position, via a Craigslist ad. So it really comes down to your process. Let’s just think about this for a second – if you’ve got 100 people who apply, how do you figure out who are the 1-3 people in that 100 that are good? So it’s not a matter of where do you go to find them, it’s just you’ve gotta make sure you’re casting your net wide enough.

Then the problem is “Oh, I’ve been casting my net so wide…”, so it’s a 40-hour/week job to screen these people, and interview and hire these people. So you’ve gotta have a good process, and that’s when it comes back to the hiring process we can talk about. A good process will work through all the masses of people that exist out there and who are trying to apply for your job. That’s essentially how you do it – you have to cast a wide net, but you’ve gotta have a process that keeps it from taking up all your time.

Joe Fairless: And what is that process?

Danny Coleman: Every business that I work with, we kind of tweak it a little bit. It starts with your job ad – how are you even putting your job ad together? It sounds so basic and technical, but it’s really important. When you’re writing a job ad, what you’re doing is you’re asking someone else to come contribute to your vision; you’re saying “Hey, I want you to come in and be a part of this thing that I’m building.”

The way that I have people write job ads (or I’ll write them for them) is you wanna tell a story. Why your business. Describe what your business is, four values of your business, what are the people in your business like, and then you wanna lead them on – “Does this sound like a good place? Is it interesting to you? Well, keep reading. Here’s what we need help with.” Get really clear on your position.

I always have people write up a position agreement, or I’m gonna help them write a position agreement. A position agreement is a mutual contract between you and the person who’s filling the position. More basically, it’s a job description. But then once you bring them on board, it’s kind of when it becomes this living, breathing document between you and them.

But to stay on point with the process – you start out with just your job description. You say “Here’s the reason that this position exists. Here’s the things that you’re gonna be responsible of doing on a daily/weekly/monthly basis. Sound like you? Sound like something you’re interested in? Cool, keep reading”, and then you describe them as a person. I think this is what’s missing from a lot of job descriptions – you kind of just say “Hey, here’s our company, here’s what we need. If you wanna do this, apply here.” But you wanna describe them as a person, because the people who get really excited – and people who are hiring managers know what I’m talking about; or if you’ve done interviews – about working for you and the people you want on your team, they’re reading that description of themselves essentially on your job ad, and they’re like giddy. They can’t wait to apply for it. “Wow, this is what I’ve been looking for!”

And just to give you a real-life example, this is how I got into that position, for the real estate business in Nashville. [unintelligible [00:11:30].11] that changed my life… And it was because of how well-written the job ad was; it wasn’t perfect, but it got me excited. In fact, one of the things that they had in the job ad was “Must enjoy organizing chaos”, which is [unintelligible [00:11:43].08] I have podcast named “Organizing Chaos.” So I read the recruiter’s job description describing me, and I was like “Oh my gosh, I can’t wait to do this.” So really that’s the big part. I’m kind of going into details on the hiring process, but it really is where it all starts. Putting that job ad together is the first step towards finding the right people… And again, you’ve gotta cast a wide net, but that process needs to sift through all of the people that are gonna apply; you’re gonna have the resume shotgunners, you don’t want them… You want the people who get excited.

Then I have really specific instructions on how to apply. “Your subject line must look like this, and you must include a cover letter”, and these other things… But yeah, I can get into as much detail as you’d like on that.

Joe Fairless: Yeah, that would be good. I imagine — one of the things you’ve mentioned is “Have something specific in the subject, as well as have a cover letter”. Those are the ways you filter people out, right?

Danny Coleman: Yeah. And it started honestly out as something I did for technical reasons… Because I was casting a wide net, but I didn’t wanna deal with all these e-mails in my inbox, so I set up a filter… And it needed to work with that filter. I’m sure you’re probably familiar with Podio. I would use Podio to manage the applications. So e-mails would come in from Craigslist, Indeed, or wherever else I placed a job ad – they would come in, and then they would use that filter to send that e-mail on to Podio, where I would then manage the applications in there.

But then I also had a qualifier – can you follow simple directions, such as your name, colon, position. A lot of people don’t do that. There’s also lots of apps out there that work with Craigslist, that help people shotgun their resume, and it doesn’t take those types of things into consideration… Just like go to apply with the job title, or something like that. So that’s the next part of the process.

Then the next thing I do is I shortlist those candidates. So I already have two pre-screens that essentially run through a really specific job ad, and then a specific way of applying. Then I do a video for it. I’ll send out a video of myself where I pretty much just say a few things about the position we’re looking for. I’ll pretty much just read the job ad, but I obviously give it some flavor and context, and I let them see me. Then I send that video out to everybody who I’ve shortlisted, and I request a video back from them.

We used to have a problem… For a while we would kind of hit and miss on whether or not people would be responding with their video, because a lot of people don’t wanna do that. But I’ve found out that it balanced the relationship a little bit by me sending the video first to all those people I shortlisted, and basically it gets them excited again. If they like the position, they’re gonna be excited to respond. So that’s another screen right there, because you’re gonna have maybe a 25% response rate with people doing videos back… And it also tests their ability to do something simple like upload a video to YouTube, make it unlisted and send it to you.

Joe Fairless: What do you ask them to do in the video?

Danny Coleman: I have them tell me what about the job ad stuck out to them and what interested them, and then why do they think their natural talents and/or their experience would be relevant to this position. And I really just use the idea of who they are as people. Before we have to sit down and schedule interviews, it gives me an idea of what their character is like, how are they coming across; what is it that excited them about the job ad. I wanna hear them say it, rather than formulate an e-mail response where they can write and rewrite it a million times. Of course, they can upload the video many times too, but they’re less likely to do that than they would with an e-mail.

So getting just those two questions answered is really all that I ask for. And again, it helps me with this whole process of being able to cast a wide net, but then use all these various filters to filter it down to make the best use of my time.

Joe Fairless: For people who do the video, the 25%, but you’re not a fan of the video – do you reply to them, or do you just not reply?

Danny Coleman: I do let them know that I’m moving forward to another candidate. Of course, typically at that stage they might have asked me a question, like “Hey…” — I’ll always let people know I got it, because you always wanna be respectful of the fact they’ve sent a stranger a video.

Joe Fairless: Yeah…

Danny Coleman: So I always respond. I have an auto-response that says “Hey, we’ve got your video. Thanks so much. We’ll be in touch within the next timeframe.” And I always try to let people know. But the people who send back a video, I try to let them know what the deadline is for when I’m trying to hire for this position; it’s respectful of their time… Because if they’ve given me this much respect at this point too – replied to the video, followed the instructions, sent me a video back – I wanna let them know 1) that I got it, and 2) what kind of timeframe they can expect. Because they might be looking for a job sooner, or they might need to move on with another application, or something. So I try to be respectful in that by letting them know.

But ultimately, when I’m done interviewing someone, or by the point I get to the point where I’m  scheduling in-person interviews, I let everybody else know we’re moving forward with other candidates right now, so thanks so much for your interest, or whatever.

Joe Fairless: And then what’s the next step in your process?

Danny Coleman: The next step is an in-person interview… And I’ll give this out, honestly, to anyone who’s interested in it – I have an interview template that I use. I’ve built it over time, there’s a lot of research behind it, there’s more experience behind it… I’ve got an interview template that — my interviews run about an hour long. That’s why this process has to shake people down to the point where maybe I’ve got five or six people who sent back videos, who I’m like “I wanna schedule an in-person interview with these people.” Without fail, out of those five or six I’m only gonna get three people who are going  to take the time to schedule an interview with me… But the truth is that probably any one of those people that I’m going to schedule an interview with, because of all the filters I’ve had set up beforehand, by the time we get to that point probably any one of those three people would actually work… And then the interview is just to see who I think it would work with the best; who has got the chemistry if they’re interacting with me where we’re gonna get along the best and we’re gonna be able to communicate and understand one another.

But that interview – as I said, it’s an hour long; a couple of the things that I ask people about is their future plans. I wanna know that a candidate that I’m talking to has been considering their future, at least 6 or 12 months in the future. Are they reading books? You know they read books, period; I don’t care — I like it to be personal development or business books, but if they’re reading fiction, that’s fine too. I think people who read books – it’s a telltale sign of someone who is just a little bit more than basic. That’s another favorite.

I always ask the classic question, “What’s a weakness? What’s something you could stand to improve on?” Because for me if you’re not self-aware enough to know something that you need to work on, then you’re not self-aware enough to be on my team… So I think that’s important, too.

I’m trying to think of some other things… I always like to ask people to say one word to describe what motivates them. Then I also ask “In one word describe what discourages you, or tears you down.” It helps me to get an idea of how this person uses words. Everyone has a different association with different words, different words mean different things to people. That’s why communication is hard. It gets them to stop and think in an interview, and that’s with a lot of my questions – they’re designed to get people to pause and give me thoughtful answers… Because as I’m doing the interview, I’m always engaging in Socratic questions; if you don’t know what that is – it’s basically asking a clarifying question after each question. It’s not every question; sometimes people give you good answers that I don’t need to ask for clarification on, but most of the time I’ll be like “Go further into that” or “Why would you use that word?” or “Give me an example of that”, or something like that… And you get them to get a layer deeper. That’s how you filter out people who might just be blowing smoke, or BS-ing you, or whatever. That’s what my interviews are really designed to do – how do I get down to the real person, how do I get down to the genuine human being that I’m gonna be interacting with on a daily basis.

One thing I forgot to mention is that I open it up by actually mentioning a few things about myself. I like to have a conversation, not an interrogation. If you go in there and you’re just like “Oh, well let me just immediately start asking you questions” – no, I like to say “Hey, my name is Danny Coleman and I live in Columbia, TN. I really like to be a part of my community. I’ve been working for this business for x years. I like to ride motorcycles, and I’m a Star Wars fan.” It lowers defenses, because defenses are there because they think that they have to present this perfect version of themselves.

Joe Fairless: Right.

Danny Coleman: That’s not the version of the person you’re gonna be working with on a daily basis. You’re gonna see people in terrible situations, which reminds me of one other favorite question of mine from the interview… Asking them about what frustrates them the most, and then following up with “How do you cope?” That’s another good one that I’ve really used. Because again, you’re not just asking questions that they pass or fail here; you’re asking questions that inform you if you hire them, you understand more about them and how to interact with them, sooner rather than later.

Joe Fairless: Incredibly insightful. Thank you for that. How can the Best Ever listeners get that template? Do they just e-mail you, or…?

Danny Coleman: Yeah, shoot me an e-mail at danny@dannycoleman.me. I have a bit.ly link, it might work with that. Can I send it to you?

Joe Fairless: Yeah, you can send it to Grant on my team and he’ll make sure it’s in the show notes page. Sorry, what was your e-mail?

Danny Coleman: Danny@dannycoleman.me.

Joe Fairless: Cool. Well, based on your experience as an entrepreneur, what is your best advice ever for real estate investors looking to scale their company?

Danny Coleman: It would be focus on your people. I remember there was a point in time at a business that I used to work for, that I was like “Wow, I feel like we care more about each other than we do about our customers.” And that sounds weird and odd, but I think it’s really important, because if your team doesn’t think that they’re a priority, that the money is more priority, then they’re not gonna follow you.

As a leader, you have to make your people feel like they’re the priority in your business, and in turn they’re gonna give you 100% and they’ll be loyal, and you’ll be able to give them more responsibility without necessarily increasing their pay, which I think is one of the biggest things that we run into as real estate entrepreneurs.

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

Danny Coleman: Yeah, yeah. I’ve never done one.

Joe Fairless: Well, because I’ve never interviewed you on the show. This is the first time, and you’ll enjoy it. It’ll be a lot of fun. First though, a quick word from our Best Ever partners.

Break: [00:21:42].09] to [00:23:04].01]

Joe Fairless: Alright, speaking of being well-read – best ever book you’ve recently read?

Danny Coleman: David Goggins, Can’t Hurt Me. Fantastic book.

Joe Fairless: Best ever business deal you’ve done, whether real estate or otherwise?

Danny Coleman: Well, I would have to say it was a deal that we got $100,000 assignment on. That was pretty cool. We all got a percentage of that, so I didn’t get $100,000, but I did get a really nice paycheck.

Joe Fairless: What’s a mistake you’ve made in business?

Danny Coleman: I would have to say being overly trusting.

Joe Fairless: What happened?

Danny Coleman: Contractors specifically.

Joe Fairless: Oh, yeah…

Danny Coleman: I just got kind of manipulated by a contractor. I don’t think he was so maniacal, I just think it was one of those people that are like “Oh, we’ve got a good relationship, so I can get away with this, I can get away with that, I can get away with this…” There’s foundation issues now, we’ll leave it at that.

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

Danny Coleman: My local community or the real estate–

Joe Fairless: Whoever.

Danny Coleman: Well, I’m a very big proponent of being involved in your local government. I think it’s very important that you’re attending commission meetings and/or your city council meetings, keeping in touch with the local representatives, because that’s where you can have an impact on the government. And if you wanna change the way that the world is, we need to get in touch with leaders, and/or be one yourself.

On that note, I ran for a county commission seat just recently. It was just a vacancy, so it wasn’t a traditional election. I didn’t win, but I am gonna run next year, so call me in 2020 for [unintelligible [00:24:25].29]

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

Danny Coleman: Well, they can visit my website, www.dannycoleman.me. You can find my podcast… Everything about me is on there, but my podcast is Organizing Chaos. You can find that on Stitcher, iTunes, Spotify, or your favorite music listening apps. But yeah, if you go to dannycoleman.me, you’re gonna see all my social media profiles – LinkedIn, Instagram, all that jazz.

Joe Fairless: You laid out the plan for how to attract and screen qualified applicants so that you bring in the best people, which creates the best culture, and you got very detailed talking about things to put in the job description to attract people, as well as ways to filter out a bunch of people who wouldn’t be as qualified… And then questions asked during the interview process.

Any entrepreneur who is scaling their business – this is an interview to listen to, and I’m grateful that you spent some time with us. Thanks again for being on the show. I hope you have a wonderful day, and we’ll talk to you again soon.

Danny Coleman: Awesome. Thank you, Joe.

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JF1254: From Losing Money On The First Deal To Paying Cash For New Investments with JD Martin

JD and his wife thought the best thing to do with their first deal was new construction. They didn’t make money on that deal, actually they lost some. They sat out for a little while before getting back into real estate. Now JD has a full time job and multiple part time jobs, along with having a portfolio of 12 properties he rents out. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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JD Martin Real Estate Background:

Real estate investor and Owner of Biz Brainstormers, a real estate business, and personal consulting

– Executive director of a utility system and adjunct professor for two major universities

US Navy Gulf War I veteran and holds a doctorate degree in public administration

– Based in Johnson City, Tennessee

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

– Best Ever Book: Your Money or Your Life


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

JD Martin: I’m doing well, how are you?

Joe Fairless: I am doing well, and thank you for joining us. Here’s the deal about JD – he has got some real estate experience that he’s gonna talk to us about, but first, thank you sir for your service; he is a U.S. Navy Gulf War vet.

JD Martin:  Thank you, I appreciate it.

Joe Fairless: I first and foremost thank you for that, and now let’s talk about real estate. You hold a doctorate degree in Public Administration, and JD is also a real estate investor and owner of Biz Brainstormers, which is  a real estate business and personal consulting company. He is the executive director of a utility system and he’s an adjunct professor for two major universities. With that being said, JD, do  you wanna give us a  little bit more about your background and your current focus?

JD Martin: Sure. All of that was right. What I do mostly in real estate is we have buy and hold properties; we don’t have a lot of them, we’ve got about a dozen of them, but we kind of started this off about 15 years ago was the beginning of our real estate adventure, and we lost a boatload of money and kind of got out of it for a little while. Then when we came back, we decided to focus on the rental properties, and since then we’ve created a pretty good stream of income and about seven figures in equity.

Joe Fairless: You started 15 years ago(ish) and you said you lost a boatload of money; how did you lose it?

JD Martin: Well, when we first started messing around with real estate, we were just middle-class workers and we had had a couple of houses that we had owned ourselves, and we decided to build a house. We had originally started off with new construction; we thought we would actually live in the house, and then as we kind of got into it, we thought “Well, maybe we’ll sell this and make some money and kind of go that route.”

The entire process turned into a disaster. Our timing was wrong on everything, our numbers were wrong on everything, our relationship with the bank was rough, and when it was all said and done, we had lost over $100,000 on that project, and we were people who didn’t have $100,000 to lose. So we lost this big chunk of money… We said, “Okay, I don’t think we’re gonna do real estate anymore. We’re just gonna work our jobs and maybe put a little away for retirement… We’ll come back to this maybe someday, or maybe someday never.”

Then about 5 or 6 years ago we had accumulated a pretty good chunk of equity, and we saw it wasn’t making any money, and we said “Well, what do we do with this?”, so we started looking at real estate again. We had some of the typical things people have – IRAs and a pension fund and things like that, but nothing that was really too exciting; it wasn’t making a lot of money… And we said, “You know, we’ve got this education of hard knocks from losing all this money on this new construction, so maybe we can use of that knowledge and apply it to something that will create a cashflow”, and it just kind of snowballed from there.

Joe Fairless: On the development deal, is that all on one deal that you lost 100k?

JD Martin: Yeah, that was all on one house.

Joe Fairless: And that was the house you were gonna move into and live in?

JD Martin: Yes, originally we had started off — it was going to be a new construction for ourselves. We had a house, we were gonna sell the house we were in while we were building this house; so we were gonna build this house and then sell what we were in. Then once we got into it a little bit, we said “Well, the market seems kind of slow for used houses, so to speak, but new construction is popping, so let’s sell this, make some money, and then we’ll kind of figure it out from there”, and neither strategy worked out.

Joe Fairless: What did you end up doing?

JD Martin: We ended up selling the new construction. So we did end up selling it, but we sold it at a huge discount. We had cost overruns everywhere, we had self-inflicted mistakes, things that we didn’t understand the numbers very well on, we had problems with our draws — we had construction loans from the bank that came through in draws and we had problems with the draws…

Then we had a competition that started when we were about maybe three-quarters of the way through this thing… We had major competition – a developer bought an enormous farm essentially across the street from where we were building; he bought an entire farm and just started dropping houses everywhere, and we could not compete at all with that.

Joe Fairless: Oh, man…

JD Martin: They were putting houses down so fast… These guys had houses down faster than we could do simple things like run plumbing. [laughter] And their margins — I mean, I don’t know what their numbers were, but I’m sure their margins were really tight… But they were doing 200 houses, so they could be really tight, and we just didn’t have that luxury. By the time it was all said and done, we were lucky not to go bankrupt.

Joe Fairless: Yeah, that was the perfect storm of disaster, what happened there.

JD Martin: It was a perfect storm of disaster. Yeah, it was a very expensive education. It worked out in the long run I guess, because when we started buying the rental houses, without that education, knowing what goes into — because we were the GC’s, so without knowing what went into electrical and plumbing and framing and roofing and drywall, and even things like grading property, without knowing those things then we probably would have been at a disadvantage when it came to looking at rental properties.

So we were buying things that were value-added, where the properties had become dilapidated and were gonna need work. And without that kind of experience and background and education, when we came in to look at these rental properties, we could look at them and say “Well, I pretty much know what’s involved in doing this, or I know what the cost is gonna be involved in doing this” and I believe it gave us a competitive advantage in the marketplace and we started buying houses.

Joe Fairless: Who’s “we”?

JD Martin: Me and my wife, I’m sorry. I’m married, so me and my wife, yes.

Joe Fairless: When the dust settled on the $100,000 loss, what were the conversations like between you and your wife about the project?

JD Martin: [laughs] Some of them were kind of ugly. We never came close to divorce or anything like that, but that would have broken a lot of relationships; it didn’t break ours. I guess the conversations, once the dust had settled and we had finished, it was like “Okay, how do we repair this damage?” We finally unloaded the house, but we were left with huge tax bills everywhere. So the question was “Okay, well how do we repair this damage?”

The way we repaired it is probably the way most middle-class people would approach it at that time – we just kind of put our noses down and got to work. We just went out and worked our jobs, and did a side hustle here and there, wherever you could make a little money, and applied all that money towards becoming solvent again and cleaning up the mess that we made and the mess that we were left with. That took a while.

On a middle-class salary, that’s a multi-year project, for sure. But after a few years we managed to clean up all that debt and clean up that damage, and from there we were able to start taking money and putting it to the side. We’ve always kind of lived underneath our means; we’ve never really been big spenders or ostentatious people, so we just started setting money aside and kind of accumulating this little nest egg. We didn’t really know what we were gonna do with that nest egg… Eventually we went into the rental properties, but at that time we just kind of set it aside as “Hey, let’s have something to fall back on and some cash reserves, instead of where we were before.”

Joe Fairless: For a Best Ever listener who might be going through something similar to what you two went through, and they have a significant other – husband or wife – any advice or thoughts that you have for them for how to approach those conversations? You just went through the situation for how to resolve it from a tactical standpoint, but from a more conversations standpoint before you get in that – any tips for those conversations?

JD Martin: I think the thing that helped us is 1) we never were accusatory towards each other; I’m sure I made the bulk of the mistakes, because I kind of spearheaded the project, so I would say a lot of the fault lay with me… But even things that my wife might have been kind of the lead on, or maybe didn’t put enough input on – we never got accusatory. When everything was done, we kind of looked and said “Okay, this is our mess. This is not Hey, look what you did to us, and now what are we gonna do?” We always kind of approached it as a team, and approached it as “Okay, so we went into this together, it didn’t work, we’ll get out of it together.”

Even during the process, there was a point where we knew we were gonna lose a lot of money… It wasn’t like we were all done and said “Oh, we’re gonna lose money!” There was a point about three-quarters of the way in that we knew it was gonna be a beating at that point; it was just “Finish it up and let’s get out of this.”

When we were at that realization, it was just a matter of being honest with each other, not holding back information, or even kind of holding back your feelings. There were times when I was scared, “Hey, we’re gonna lose the house that we live in. Forget about the new construction, we’re gonna lose our own house.” Just being honest with those feelings and not running from them, so to speak.

Joe Fairless: Now, you started putting away some money, and then how many years until you bought your next property?

JD Martin: It was about ten years. So it was a pretty good distance, but when you come out of something that traumatic for people… At that point, I had never even made $100,000; neither one of us had. Combined we hadn’t made $100,000. So when you come out of something that traumatic, it took a little bit of time before we had the — I don’t wanna say guts, but the wherewithal to get back into even looking at real estate. And even when we did, I remember the first couple conversations we had about it was like “Do we really wanna do this?” We’d been down that road before and it was ugly; it was not good at all.

So it was about ten years, but you have to realize that five years of that (maybe even six) was just cleaning up the damage, really, that was left over from that. So yeah, it was about ten years.

Joe Fairless: At that ten-year mark, right before you two pulled the trigger on the next deal, what was the conversation like, and were one of you going in one direction and the other the other direction? Was one good cop, the other bad cop on doing it?

JD Martin: To some extent I think that’s true. My wife was probably more bad cop than me. I think when we started having that conversation it was like “Okay, we accumulated this chunk of money” and we accumulated a pretty healthy pot of cash at that point… So we said, “We’ve accumulated this chunk of money, we have some IRAs and we have some other stuff, we could put this in an index fund or something else like that”, but neither one of us were comfortable with the stock market… We don’t know a lot about it; we have Vanguard funds and things like that, but… “So we have this money, what should we do with it?”

When we kind of kicked around the conversations of what options were out there, real estate kind of kept coming back, and we kind of looked at the market and saw what we thought maybe was an opportunity locally to get into doing some rental property.

I guess my wife was probably more the bad cop than me in terms of being more “Hey, let’s make sure we really have the numbers straight on this before we even think about doing it”, but we were more or less on the same team. I don’t think there was really that much disagreement either way on doing it or not doing it. We had a lot of conversations about it before we even started looking at houses.

Joe Fairless: Now let’s fast-forward to today – what type of deals are you buying?

JD Martin: What we’re buying today is we’re generally looking for value-added buy and hold properties. We’re usually looking for 2-3 bedroom houses, 1-2 bath; 2 bath if we can get it, 1 seems to be more typical. And we’re usually looking at things that we can get in at 50% or less of the after-rehab value. So if a house is worth $100,000 fixed up, we’re looking at things that we can pick up for 50k or less. Mostly, these houses will need anywhere from 5k to 20k worth of rehab to them, so that when we’re done… And we haven’t really leveraged much; we’ve leveraged a few houses, but most everything we hold outright. But when we’re done, if we want to leverage out of it or sell it, that we have a pretty good chunk of equity already in it that’s really — if we wanted to get our cash back out of it, we would essentially leave nothing behind; all of our own money would be cashed out. So that’s mostly what we look for.

We have a specific niche that we aim for, which is we’re in a college town, so we aim for neighborhoods that appeal to college students – mostly graduate students, but not exclusively… So we kind of look in that niche. We have a pretty narrow scope, probably a lot narrower than most real estate investors, but I still work a day job. I’m a few years from retirement, and we always look that this is just the way to invest this nest egg; we never really set out to be real estate moguls or create an empire, but as we went and kind of picked these houses, it just kind of snowballed from there and created a pretty healthy stream of income.

Joe Fairless: How many different streams of income do you have?

JD Martin: We’ve got a dozen properties. Other than that, of course I’ve got my day job, and I’ve got two part-time gigs. My wife is retired, so we’ve got her retirement income. If you looked at each property as its own income stream and then everything, we’ve got 15-16 streams of income, which I think is probably paramount to existing in this new economy where anybody who’s dependent on just their job, or even just their two jobs if they’re a dual income household (both people working), to me it’s — I don’t wanna say it’s crazy thinking, but if you are depending, you’re putting a lot of dependence on one or two things going right… So creating this multiple stream of income approach has been fantastic for us. It’s created a situation where I could leave my work and we’d just keep chugging along.

Joe Fairless: Do you manage your own properties?

JD Martin: We do. It’s a small portfolio, and everything is local. I can be at any property that we own in 15 minutes. So it’s a pretty small portfolio, and it’s a local portfolio.

Joe Fairless: How many hours  a week do you work in your day job?

JD Martin: My day job works out to roughly 50, maybe a little less than that. But I’m running a utility district and I’m not that far from retirement… So it works out to roughly 50; some weeks are less than that, some weeks are easier than others, but if you averaged it out, it works out to about 9-10 hours a day.

Joe Fairless: What advice do you have for someone who is looking to efficiently manage their portfolio — because you clearly have a system in place with a full-time job… You have to be incredibly efficient with your 12 rentals, plus you said two part-time gigs, which means you have to be even more efficient with your rentals… So what tips do  you have?

JD Martin: Well, the first thing – one thing we do, and we kind of did this in the beginning – when we pick up a house, the house is fully rehabbed before we put it on the market. So we don’t put it on with a roof that’s got one year left of age in it, or appliances that have seen their better days and are just about to break down… When we get a house, we go through it and anything that’s anywhere near the end of its life gets replaced, so that when we put it on the market and somebody gets in it, there’s almost nothing for us to do.

Some of our houses, we have been — other than going back for an inspection once a year, looking at it, we haven’t been back to that house for a year. And by putting that in place, that’s one thing we’ve done to minimize time that way.

Another thing we’ve done is we’ve been very stringent on our tenant screening. Our rental prices are probably a little bit lower than what we could get if we really wanted to push it on the market, but from my point of view, I want a big pool of renters, and I want a strong pool of renters. I wanna have my choice of the cream of the crop, rather than just whatever is left over. By doing that, we get strong renter pools and then we screen them very heavily, because I think if you minimize your tenant turnover and you minimize the aggravating tenants that you can get, it’s gonna really make your life a lot simpler.

So those are two things… Aside from that, I have a small pool of trusted contractors that I can use to handle things I don’t wanna deal with. I have a good plumber, I have a good HVAC guy, I’ve got a good electrician, so if anything major comes up that requires some kind of immediate attention, I can pick up a phone call… Actually, I will do everything by text mostly; I can pick up the text and say “Hey, you’ve got a heating unit that’s not firing.” He says, “Okay, I’ll be out there by 11”, and that’s the end of it; he sends me a bill and we’re done.

Joe Fairless: How much do your homes rent for on average?

JD Martin: I won’t buy anything that I don’t think I can make at least 1% per month of whatever my basis in it is. For me, I consider my basis whatever I paid for the property, plus whatever it costs me to rehab it, plus any ancillary opening costs – if I had to keep it the first six months and pay electric for six months, or whatever the case may be. So if I have a property that I bought for 50k and I put 20k in it, I have 70k in it, that house has to rent for at least $700 or I wouldn’t buy it.

Most of our properties are running for 1.1% to 1.6%, 1.7% above what we have in them, so the annual cash return on them, if you take out expenses, might be for some of them as low as maybe 10% or 11%, and for some of them as high as 17%, something like that.

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

JD Martin: My best real estate advice ever is know your numbers and believe your numbers. On the house we lost all that money in, we had no clue about numbers. We weren’t dumb people, we just didn’t really understand how to truly figure out the cost of holding that house and the cost of construction. We could figure out “Okay, we’ve got an estimate of $10,000 to do framing”, but we forgot about $2,000 in doors, and things like that. So we really had no firm handle on the numbers…

Even today, when we buy the rentals, every once in a while I’ll see a property and be like “Oh, I really want that property”, and then I run the numbers and they just don’t work. Then you get into the temptation of “Maybe I can make these numbers work, maybe I can kind of finagle here, and make this…” and it doesn’t work. If the numbers aren’t there, don’t pretend that you can make them there.

That’s my best advice – you have to know how to do the numbers, and then you have to believe your numbers; once you put it down, if you figured out the most you can pay for this property is 75k and they come back at 76k, you’ve gotta walk. It doesn’t sound like nothing, but if you’ve done your numbers and you trust them, and 75k is your top out point, then 75k and one dollar is over that point, and you’ve gotta go.

Joe Fairless: That’s also a great way to condition yourself if you do walk on that seemingly minor difference in price point, because then that would help you walk during more high stakes situations, because you’re not continually letting things slip for what you want, versus what you’re getting.

JD Martin: I agree. I think what happens is that you rationalize, you say “Oh, well it’s only $1,000 over what my max was.” Yeah, but your max is already the highest thing you could make this work at to begin with.

When I do a max number, I know that hey, if I have to pay more than this, then this property is not gonna make any money, and why would I wanna own any properties that don’t make money?

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

JD Martin: I am.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:20:43].29] to [00:21:32].19]

Joe Fairless: Best ever book you’ve read?

JD Martin: Best ever book I’ve read in business would be Your Money Or Your Life, by Vicki Robin. Kind of maybe a close second might be The Millionaire Next Door. Both of those are life-changing in terms of changing your mindset. So business-wise, those would be probably my favorite books.

For enjoyment, I like Flight of Passage by Rinker Buck. It was a good book.

Joe Fairless: Best ever song you’ve written?

JD Martin: [laughs] Best ever song I’ve written? I guess I would have to say Gut, Guns and Nascar, because that’s a song that made it to the Super Bowl; although it personally might not be my own favorite, it’s certainly my most famous.

Joe Fairless: And it made it to the Super Bowl in what way?

JD Martin: It was played at the Super Bowl at the 49ers and Ravens. It was actually — I play in a professional rock band when I’m not doing all this other stuff, and we had played at some clubs and one of the sound people worked sound for the Tennessee Titans NFL team, and he was part of the sound crew for the Super Bowl, and our song was part of his playlist.

Joe Fairless: What’s your band?

JD Martin: My band is the Rhythmbrewers, and it’s rhythmbrewers.com if anybody wants to look us up.

Joe Fairless: Best ever deal you’ve done?

JD Martin: Best ever deal I’ve done was probably one where it was a foreclosure and we had put in an offer in on it and the bank didn’t move on it. Then later there was people coming out of the woodwork, everybody putting in an offer. There were probably 15 offers on this thing, and the bank realized they had something that would go for pretty good money, so they said “We think we’re gonna reject all the offers and just put it on the auction.” It looked like everybody was [unintelligible [00:22:57].25] Well, in between that, before they could get it on the auction site, an investment company came in and bought a huge portfolio from this bank, and bought maybe 1,000 houses. I guess the deal was when they bought this 1,000 houses, the bank made them take some things that were in areas that they thought they might not be as well received, and this house was one of them.

When this investment company had come through and bought this, they realized we had had an offering on it before, and they called our agent and said “Hey, are your investors still interested in this house? We don’t really want it, it doesn’t fit our portfolio, so we’re willing to just give it to them for their offer.” We said, “Oh, yes, we’re ready”, because we ended up with 60k in it, and it was worth about 150k. If we sold it today, we would make (I don’t know) a couple hundred percent.

Joe Fairless: What’s a mistake you’ve made on a transaction that you haven’t mentioned already?

JD Martin: A mistake I’ve made on a transaction that I haven’t mentioned already… I would say probably a house that I bought where when I did the numbers I had inadvertently left something out that the house that was being for sale, they had already priced it with leaving that number out. We got into a deal, and then when I went back and realized, “Oh, I really should have accounted for this…” It still ended up being a good deal even with that, but they weren’t willing to move on that number once we had come to a price. So it still ended up being a good deal, but it cost me a few thousand dollars just on the error of not accounting for that. I think it was the roof, and when we had gone through it we didn’t account for that in terms of our offer.

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

JD Martin: I’ve got this little website called BizBrainstormers.com, and I do kind of real estate and personal finance mentoring. It doesn’t really make any money… I charge a little bit of money; I do that just to make sure they’re serious, because I talk to a lot of people, and I’m on some other real estate websites, and I talk to a lot of people and there’s a lot of dreamers and tire-kickers out there…

So I charge a little bit of money, but it’s minuscule for the amount of time I spend with people. I wish that something like that was around when I was doing my first deal, because I didn’t even have anybody to talk real estate with at that point; we just kind of winged it. If we hadn’t winged it, somebody else that could have been a disinterested viewer could have said “Hey, you guys are getting in way over your heads here”, and maybe saved us a bunch of money. So I try to do that.

Outside of that, I meet a lot of times with investors that live locally and say “Hey, can we go to lunch and talk?” and I do that with them for nothing. I participate in online forums and try to give out whatever knowledge or advice I’ve been able to accumulate… So those are kind of the ways I try to give back.

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

JD Martin: They can go to that website, which is bizbrainstormers.com, they can go to my band’s website, which is rhythmbrewers.com, they can just send me an e-mail, and I’ve got e-mails on both of those websites; they can send me an e-mail for me at a place there and I’d be glad to talk to anybody.

Joe Fairless: JD, thank you for sharing lessons learned and what you’re doing now that has built your portfolio. From the lessons learned standpoint, holy cow – timing and numbers. Know your numbers, know your timelines, and believe in your numbers and hold true to your numbers. Starting out with new construction right out of the gate is incredibly challenging, and it is something that if we do that, then we’ll definitely – as I’m sure you’ll agree – wanna be aligned with some other people who perhaps even have money in the deal with us, who have the experience… That way it mitigates risk.

JD Martin: I certainly wouldn’t recommend that as a starting strategy. I think there’s other ways to get your feet wet.

Joe Fairless: I completely agree. And when something like that happens, because as long as we’re doing real estate over a long period of time, we’re gonna have some projects perform unfortunately the wrong way, not how we had planned… And when we’re in business relationships or relationships in general, one insight that you have is don’t get accusatory, instead focus on solutions and really grow together, not grow apart. That’s something I have recognized…

When I was working in advertising, I worked with some people who when we got into a challenging situation, we knew that they were just gonna attack us, and we were gonna eventually grow further apart, versus it’s actually an opportunity to grow together as a team, and that’s an important part.

Then the additional streams of income – you’ve got lots of streams of income, from two part-time gigs, a day job, and then your rental portfolio, as well as how you lower or make the management as efficient as possible by fully rehabbing the homes before you put it on the market, that way you don’t get as many phone calls.

Thanks for being on the show, I really appreciate it. Thank you, again, for your service. I hope you have a best ever day, and we’ll talk to you soon.

JD Martin: I appreciate it, thanks a lot. That was a lot of fun.

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– Partner of Memphis Invest, one of the largest passive turnkey real estate companies
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff. I hope you’re having a Best Ever weekend.

Because it’s Saturday, we’re doing a special segment called Situation Saturday where our best ever guest talks about a sticky situation they were in and how they overcame it. How are you doing, Chris Clothier?

Chris Clothier: I’m doing phenomenal, man. How are you?

Joe Fairless: I am doing phenomenal as well, and nice to have you on the show again. Best Ever listeners, if you recognize Chris, that’s because he’s been on the show before. Originally, he was on episode 58, titled Turning Smiles Into Profits, where he talked about his customer service program and how they call every single client of their with this turnkey company every month, and get feedback.
From that interview, I implemented a question that you talked about, Chris. You talked about how you always talk to potential partners about the mistakes that they’ve made, and if they say they haven’t made any, then they either are being dishonest or they haven’t been in the game long enough. I actually ask that on my normal format ever since then, for the last 900 episodes, because of you.

Chris Clothier: Wow! Are you kidding me? 900 episodes – that’s cool! I’m glad I could contribute to that.

Joe Fairless: Yeah, and there have been so many good answers as a result of that. There are so many lessons learned just from you mentioning that one thing. I guess it was 900 days ago, I guess that’s how it works. [laughs] Ain’t that crazy? 900 days ago, whenever we talked.

Well, a little bit about Chris. He is the co-owner of Memphis Invest. It’s one of the largest passive turnkey real estate companies. Memphis Invest does over 100 million in annual revenue. They purchase over 600 single-family homes yearly in Memphis, Dallas and Houston. He’s based in Memphis, Tennessee. With that being said, Chris, do you want to give the Best Ever listeners just a little bit more about your background? And then let’s dive into the tough situation you’re in.

Chris Clothier: Yeah, absolutely. As you said so eloquently, I am a partner in Memphis Invest, and I am partners with my father and my younger brother. My older brother Kent, while maybe not being a partner in the company, obviously had a huge influence on us. He’s got his own real estate company out in California, but what’s important is that my family, all of us have been raised in this very entrepreneurial environment. Ever since we were kids — I started working when I was 11, and everything that we’ve ever done has been really customer service centric, no matter what the industry was, no matter what the particular company was that we started. Each of us has started our own companies, and always based on customer service, no matter what the product was.

For that quick little background, we’re managing, as you said, 4,000 properties for passive investors from around the country. We love real estate, probably more than anything, just being in business in general. We love having clients and vendors and team members and building things… I guess it’s in our blood, it’s in our nature, from doing it for so long to this point.

Joe Fairless: From managing 4,000 properties to buying a whole bunch of properties on an annual basis, to building companies, I know you’ve come across many sticky situations, so you’ve got lots of different stories to choose from. Which one do you wanna talk about?

Chris Clothier: Let’s talk about one that may hit closer to home for many of your listeners. It’s just about doing a deal yourself, and I’m gonna talk about bravery… Being brave enough to go out there and try and take on a challenge on your own, rather than feeling like you have to go with a partnership. It really boils down to… Early on, several deals that I had done went really well, and one went South really fast. But the point of it was that all of it I did with a partner, because I wasn’t brave enough to go on my own.

It’s interesting for me, because I look back on it… I had all the tools, I had everything that I needed, I just didn’t have the confidence and the bravery to go on my own, so I chose a partnership instead [unintelligible [00:06:15].15] but that’s a partnership that no longer exists and it’s a friendship that got hurt because of it, so I’d love to share that.

Joe Fairless: Yes, please do. You’ve piqued my curiosity.

Chris Clothier: Well, I was in Denver, Colorado recently at the Best Ever conference event out there in Denver. It gave me a chance to kind of go back to some of my old stomping grounds, where I got started as a real estate investor. It’s also the place I founded my first company, which was a grocery arbitrage company. I was very successful thanks to having some really good mentors and my family around me that helped me to build my first company successfully. And I was taking my earnings from that company and I began to invest in real estate.

The biggest challenge that I had was the fact that I should have been smart enough to look around me and say, “I’m a smart person, I’ve got good people around me, I’ve paid attention, I’ve got good mentors…” I built a business at the time that was very successful, but I still felt like I needed a partner in order to invest in real estate, the fix and flip kind of stuff. And rather than pick the best partner, I picked — let me just be clear… Great guy, phenomenal person. He was a good friend of mine, but the problem was that neither one of us had any experience in real estate, and the funny thing was we both were scared of losing, and rather than lose alone, we chose to lose together.

That’s what happens so often in partnerships… We made the decision to be partners for all the wrong reasons. Not because he had strengths and I had strengths, but because we both had a weakness, which was lack of faith, lack of bravery, lack of courage to go do it on our own. To be fair to him, he was already a long-term buy and hold landlord that was doing okay, but we were going to do some fix and flip homes.

In the end, we picked a couple of deals and we were doing well. We had no idea that we were spending twice as much as we needed to spend and taking twice as long to do it, but we were selling the houses and making money. And we mistook making money for success, if you know what I mean. We were not doing a good job of anything, we were just spending money.

Joe Fairless: Well, selling houses and making money – on the surface that certainly appears to be asuccess from a business standpoint.

Chris Clothier: I’m glad you said that, because you’re right. But that was our problem… Anybody that is successful over the long term knows that you have to track your progress, you have to know how many dollars you spend in relation to how many dollars you make. You have to know how everything correlates, all the cause and effect of what it is you’re doing.

For us, we were moving so fast… We both had other successful companies that we were making money in. Neither one of us were holding each other accountable to anything. One of the tips I always share [unintelligible [00:09:11].26] is “Inspect what you expect”, which neither of us were doing. We basically were just kind of relying on the other to be the smart one. Looking back, it’s really funny – we were making some money; we could’ve done much better, and what did us in eventually was a home that we chose that… This is how fickle real estate is. It was right there in Denver, and it was a matter of 200 yards – that was the difference between us making money and losing a lot of money. We lost over six figures on this deal, and it broke apart our partnership certainly.

We were just not really friends anymore because of it. There was a lot of animosity towards each other, because neither one of us were holding ourselves accountable, much less the other. The problem is that we purchased a home that was literally two blocks away from where it needed – both school district, taxing district… The way that homes were gonna be appraised and what would be used as comparable sales – it literally was the difference between a home being worth 500,000 and a home being worth 300,000. We owned the home in the four hundreds.

We held the house for a very long time. I continue to write checks for it, and write checks for it, and write checks for it. I tell people on the backside when it’s all said and done that I went into a partnership with someone that I was comfortable with, someone who told me all the right things that I needed to hear, like I was a good businessperson and I was smart, and I was obviously successful; I had money together, we would be able to fix and flip homes.

I did not partner up with someone who had the ability to run good forecasts of as far as what we’re spending, how to budget that money and how to model that money. I didn’t partner with someone who could pull comparable sales and could analyze that 200-yard difference, that two blocks that really sunk us. I didn’t partner with a person that had the right skill set for me, because my skill set was absolutely at my business, and I had money. I had the ability to stay organized and stay on point, but I didn’t know real estate.

My partner, unfortunately, didn’t have money, but also didn’t have the real estate skills that were needed, so he was managing a project that he didn’t know how to do. It ended up being a disaster, and I go back to the very first thing I said… When we’re choosing a partner and we’re choosing a partnership, I did it out of fear, and that is never a good reason to go into any type of  — whether it’s a real estate transaction or a business transaction, you should never enter one out of fear.
Like I said, we were fearful of losing money, so rather than losing money as individuals, we lost it together as a partnership.

Joe Fairless: Based on what you said, it sounds like you need someone who has the right skill set to complement you, or fill in the blank for whoever is the person who is looking for a partnership… But when do you know that you should have a partnership, versus going on your own and doing your own deal?

Chris Clothier: If your choice to go into a partnership is based on your own fear, whether it’s fear of unknowns, whether it’s fear of failure, whether it’s fear of taking on a really big project and being highly successful, which believe it or not, that’s a fear that a lot of people have. When they haven’t done a really big project – they’re perfectly capable of doing it, but the simple fact that they haven’t done it before is a fear that makes them bring on a partner instead.

So when you’re making a decision on whether to bring a partner in based on fear of what could happen, then you’re probably not ready to bring on a partner. It needs to be a partnership – and you nailed it perfectly, Joe… You need to take on a partner when you can look around the landscape and say, “I’m able to bring these particular skills to this project.” Maybe in my case I didn’t have the time or the experience to know how to do comparable sales, so I wasn’t sure how to comp a property properly at the time. I did not have enough experience negotiating with contractors to negotiate pricing. I had been basically a very passive investor up to that point.

If I was gonna partner, I needed to bring someone in that had the experience of negotiating with contractors, getting them hired, keeping them on track, because I knew all those things had to be done, I just hadn’t done them before. If I had just spent a little bit of time sitting down and thinking about it, I would have realized that even though I’d never done it, I negotiated with contractors daily. It was a different kind of contractor, but I’d been negotiating for years; I knew exactly how to negotiate a contract, I knew exactly how to negotiate work to be done… I could have easily contacted one of the top real estate agents in the area, because I knew the things to do, I just didn’t do them. I strictly chose a partner based on fear, rather than probably looking myself in the mirror and saying, “I know how to do this. I’ve been a successful businessperson, I’ve been in the local real estate investors association, I’m surrounded by smart mentors… I can do this.”

I chose to take the easy route, which was “I’ll get a partner instead and let him do these things. I’ll provide the money and make it on the backside.” And the worst part for us, Joe, was that we were successful for the first three or four deals we did. We made money.

Joe Fairless: Yeah, false sense of security.

Chris Clothier: Oh, yes… Absolutely.

Joe Fairless: One question I have… I’m a huge Tony Robbins student and he talks about how emotions like fear and being scared or being maybe depressed, they’re all action signals if we use them in an empowering way. I don’t remember what he said fear is and what that should lead us to, but I suspect it’s something like, “Get prepared.” If we’re fearful about something, then we need to either get educated or more prepared.

The question I have is along those lines… I have entered into partnerships with a good dose of fear, but then also it’s because I know some of the aspects that they’re good at that I’m not will help with the transaction, and it’s gone well. So I am fearful that “Hey, I really don’t wanna do this because I’m not gonna set up the project for success”, so how do you reconcile that with this approach?

Chris Clothier: You said something perfect right there… You are aware of your weaknesses. I’ve got a better way to put it – the things [unintelligible [00:15:49].26] on that particular deal, and it was that awareness that made you fearful to move forward without correcting that. What I’m talking about for me is I guess I had that same mentality, but I just didn’t recognize what I needed in a partner. Instead for me it strictly was “I like this person, I’m good at what I’ve been doing, he’s been good at what he’s doing… It will be fun to be in a partnership with this person. He and I can make some money together. We have done all this stuff together, so we can — whatever it might be… It might be playing softball on Thursday nights together, and we’re gonna meet for a happy hour…” Whatever.

These things that say “Hey, this is what makes us a good partnership, and he’s got time on his hands, he’s got some experience…” I was never asking the questions that you were asking right there – “Does this person bring to the table exactly what I need?” Forget anything else about it, and “Do they bring to the table the specific things that are gonna make me successful in this project?” Being fearful and not moving forward because you don’t have everything you need yet, that’s smart.

I love the way that you said Tony Robbins puts it, in the case of “Get educated, get yourself surrounded by the right pieces, don’t just stop.” But for me, I didn’t do that. I just chose a partner that I thought would be fun to hang out with and I can make some money with, and I thought if I do lose, we’ll both lose together so it’s no big deal, because we’re buddies.

Joe Fairless: Everyone loves losing over a hundred thousand dollars with a friend. You should experience that with all your best friends. I highly recommend it.

Based on listening to you and taking notes, I’ve condensed it into a five-step thought process, and I wanna run it by you to see if there’s anything else that you’d like to add. One is to know the skills that are needed to do what you wanna do. Two is to identify the skills that you bring, three is to identify the skills that are lacking, four is to know how you wanna structure it, and then the fifth would be when you approach someone saying, “Hey, I know skills are needed…” — and you don’t saying it exactly like this, but say, “I know the skills that are needed for this project X, Y, Z. I bring these skills, I think you can bring these other skills. I’d like to structure it as follows. What are your thoughts?” Is that the approach that you would take?

Chris Clothier: Yes. And I will add one asterisk for everybody to understand, and we’ll see if you agree with this. I was told by a very good mentor of mine that all partnerships end, and it’s the responsibility of those entering into the partnership to decide on the frontend how it will end. That includes — as he pointed out, he’s like “Look, at some point debt is chasing us all.” Man, I will not forget what you said up there on stage, that we’re all dying. I remember that when hearing you speak on stage, Joe, and that is true. So from the very beginning, set up how will this look, because it may look like one of you passes away at some point, and what happens next?

So he said, “If you will sit down and decide on the front end if this go good, if things go bad, should there be debt – whatever happens, this is how we’re gonna handle it”, then that partnership has the pieces it needs to get started up on the right foot. If you partner with people because you like hanging out with them, as I did, you very well may end up as I did, and that is no longer with a partnership, and possibly losing money.

Joe Fairless: Yeah, and I can tell you if you bring in investors in a partnership, they’re gonna ask the same question of “What happens if one or both of you die?” I’ve been asked that many times, and we have to make sure that it is written out in the agreement, because then we go, “Oh, good question. Let me show you point three sub. three, or whatever it is.

Chris Clothier: Yeah, “Let me show you exactly what will happen.” That’s good.

Joe Fairless: I love that. This has been great. It’s a very clear theme and story. Is there anything as it relates to identifying the right partners that you wanna mention that we haven’t talked about already?

Chris Clothier: I don’t know about exactly the things you need to look for, because everything is going to be different… But I love what you said earlier, I think clarity is really, really smart. When you recognize that you don’t need to move forward on something without having the right pieces in place – and that might be a partner – let that be a great starting point for you to start defining “What do I need?” I can’t say this is always gonna be the case, but I do believe that there’s no need to be in a hurry. There’s a need to get things done, and there’s a need to have timeframes, but there’s no need to be in a hurry.

When you know that you need to surround yourself with other pieces, get to defining it. Get to learning exactly what it is you need around you, and then go get it.

Joe Fairless: As far as partnerships go, we don’t necessarily have to have partners, we just need to identify the skills that are needed, and then perhaps we hire someone instead of bring on a partner, so maybe we hire a vendor to do that.

Chris Clothier: Well, like I said earlier, sometimes the skill is already in you, you just don’t know it. Maybe it’s just learning a different way to look at something, taking a different approach. Some of that happens when you surround yourself with mentors and you run your ideas past them and what it is you feel like you need to move forward on a project, and they’re able to educate you that you have these particular skills, you just need to hone in on it, you don’t know it yet. Or you don’t need to have a partnership to bring that skill, you’ve already got it. You need to bring it out of you.

Had I been told some of that back in the day, maybe I wouldn’t have moved forward on that partnership… Who knows? Maybe I still would have, because I would have had a different kind of fear, but hopefully you get the point there, that it’s all those steps: surround yourself with good people, know your strengths, know what you need, be clear, and see what happens.

Joe Fairless: Chris, where can the Best Ever listeners get in touch with you?

Chris Clothier: I am always at MemphisInvest.com. They can send me an e-mail, chris@memphisinvest.com, or they can go right there onto our website and take a look around. There’s tons of videos of me, I guess, and they can certainly register to get more information on our company. I’m more than happy to try and help people get educated.

Joe Fairless: I love this conversation. It is about when to find the right partner, or if to bring on a partner at all, and that is first know the skills that are needed for your venture, second, identify the skills you bring, third, identify the skills you need, and like you just said, make sure that you don’t have those skills and you just haven’t uncovered them yet. Lastly, look to structure it as follows for however you wanna structure it and, as you mentioned, having an idea of what the end looks like, because all partnerships end, we’re all gonna die, or it’s gonna go in opposite directions for whatever reason (who knows? life happens) so know how it will be dissolved when the time does come to be dissolved.

Thanks so much for being on the show, Chris. I hope you have a Best Ever weekend, and we’ll talk to you soon.

Chris Clothier: Talk to you soon, man.

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JF914: How to VISUALIZE Your Success Amidst Failure #SituationSaturday

Imagining your success is a pivotal part of your journey towards it. Our guest visualized what he wanted and manifested his dreams by taking massive action after having clarity and a vivid dream of who he wanted to be. If you are failing or if you feel that your efforts are not earning you what you want, it’s time to change how you see yourself and visualize your own success.

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Bryan Harris Real Estate Background:

– Owner with Homesfor10k and Real Estate Mentor
– Built several multi million dollar businesses from conception to 8 figures
– By age 27 owned and managed an 8 figure real estate portfolio including over 120 properties
– Mentored over 300 individuals on how to start a real estate investing business
– Based in Memphis, Tennessee
– Say hi to him http://www.homesfor10k.com 

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JF905: Flying Planes, Flipping Houses, and Hiring the Right People

Too busy doing what you don’t want to do, or the tedious things that need to be done? Hire someone! Today’s guest did just that and was able to close more transactions and remain an Air Force pilot.

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Bill Allen Real Estate Background:

– Owner of Blackjack Real Estate, LLC
– Active duty Navy pilot who fell into REI due to his constant military moves
– In 2016 he flipped 13 houses and wholesaled 54 in Pensacola, FL with plans to double those numbers in 2017
– While still working full time he has turned to systems and building a business
– He is now expanding to Chattanooga TN
– Based in Nashville, Tennessee
– Say hi to him at http://www.blackjackre.com
– Best Ever Book: Traction

Made Possible Because of Our Best Ever Sponsors:

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

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JF890: STORAGE UNITS Acquisition You NEVER Would Have Guessed and Quitting His Job 5 Days Ago!

Extremely simple approach to acquiring storage units, yet very unconventional at this level. Our guest is a free man as he quit his job just five days ago, and now he’s investing full-time. Hear how he got started and how you can jump into storage units.

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Michael Rogers Real Estate Background:

– Full-time real estate investor and Owner of Chandler Properties
– After 15 years in the corporate accounting world, he retired from corporate job on January 20, 2017 to become full time investor
– Manages residential rental portfolio including 350 storage units and entrepreneur office space
– Also flips and wholesales properties thru http://www.SellMichaelYourHouse.com
– Based in Chattanooga, Tennessee
– Say hi to him at http://www.chandler-property.com
– Best Ever Book: The Essays of Warren Buffett

Made Possible Because of Our Best Ever Sponsors:

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JF722: 23-Year-Old Builds 26 Homes and How He Funds Million Dollar Deals

Hold on to your hat, he’s 23 and he is putting together million dollar deals constructing 26 brand new homes. He’s young and highly driven, and he’s rocking the Nashville, Tennessee market. Hear how he found funding for this project and all other deals.

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Devan McClish Real Estate Background:

–  Owner of McClish Properties
–  Completed over 60 deals
–  23 year old currently developing several homes currently
–  Based in Nashville, Tennessee
–  Say hi at Facebook Devan McClish
–  Best Ever Book The Intelligent Investor

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JF672: Why This Investor Won’t Touch Single Family Homes Now

Today’s guest is an accomplished real estate investor that purchases multi family properties including large multi family commercial zoned land. He shares his concern for having multiple exit strategies and why single-family resident purchases are not the best investments, hear his Best Ever advice!

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Rod Khleif Real Estate Background:

– Host of “The Lifetime Cash Flow Podcast”
– Participates in Tony Robbins seminars
– Started the Tiny Hands Foundation
– Based in Sarasota, Florida
– Say hi to him at: http://www.lifetimecashflowpodcast.com/

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You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

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