JF1789: Ground Up Development, Asset Management, & Litigation Tips with Roni Elias

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Roni always loved real estate, he worked in the industry for years before working in his current role. He helps manage a large portfolio for his company, as well as works on the funding side. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“Someone has to be the good cop, someone has to be the bad cop” – Roni Elias


Roni Elias 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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Roni Elias. How are you doing, Roni?

Roni Elias: Wonderful. Thank you so much for having me.

Joe Fairless: Well, I’m glad to hear that, and it is my pleasure. A little bit about Roni – he’s the lead asset manager for TownCenter Partners. He has worked in litigation cases reaching over 9.5 billion dollars, managed a portfolio of over 520 million in real estate assets at a previous firm. Based in McLean, Virginia. Did I pronounce that right?

Roni Elias: Yeah, McLean, Virginia.

Joe Fairless: McLean, Virginia. With that being said, Roni, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Roni Elias: Sure thing. Thanks for the introduction. Previously I was very heavily involved in real estate assets, and predominantly we were ground-up developers, going anywhere from purchasing hundreds to thousands of acres, and being the master developer, holding back sometimes portions for multifamily development or retail development, and selling off residential portions, outparcels and so forth.

We grew from a very modest firm. We were backed by very significant private individuals. We grew from probably a five-million-dollar firm, in excess of almost 600 million. As our ownership team started to get a little bit older, we started to liquidate some assets, so they could retire. I was then given the opportunity to do something a little bit outside of real estate when I came and joined TownCenter Partners, where we do probably something very unique – while everyone probably hates the word “lawsuits”, or being involved with a lawsuit, we look at a lawsuit as an asset. A lot of plaintiffs come to us – or plaintiff law firms – saying “Hey, I’ve got this great case. It’s against a Fortune 500, or this massive company. Lawsuits are very expensive, I need assistance.”

We step in, we fund that lawsuit or fund the company that has been essentially hurt by that lawsuit to keep it afloat, and then when they win their lawsuit, we’re repaid what we invested, plus a portion of the winnings. And if the case, for some reason, is not successful, no harm, no foul; we have taken that financial loss and the plaintiff can just go on from there. So we’re definitely assisting folks, and we started to do a dramatic amount of real estate litigations, and a lot of our clients now who have won their lawsuits – we’ve created kind of our asset advisory side, where we’re out there scouring for talented general partners, where we’re created our own fund for clients who have now successfully won their lawsuits and wanna put their financial earnings to work… And seeing who are talented GPs to partner up with. We will just be focusing on the multifamily sector. We think that that’s a great sector to be in, and it can create a great income stability for our clients. We’re just very excited for what the future holds for everyone right now.

Joe Fairless: Well, so many questions to ask… Let’s start with — when you were working with the ground-up development team and you were developing hundreds of thousands of acres, how did you get involved with that, and what was your role?

Roni Elias: I started off initially as an asset manager. We were a very small team, and our ownership group kind of wanted to be in control of the process, the planning, and kind of creating large-scale development projects. I always had a love for real estate; it was always  great that you could take a drawing, where sometimes there was just a big, square box, and just saying “Hey, this corner is going to be apartments. Along this major highway we wanna do a retail shopping center, grocery-anchored.” We really love that.

As we started to do it more and more, I’ll tell  you, it was a lot of probably brain cell damage. We predominantly were developing in Florida and New York…

Joe Fairless: Oh, wow…

Roni Elias: …and we got to see some extreme heights, where you could have bought a property for 2-3 million dollars, and the next day you were getting phone calls saying “Hey, I wanna buy this for 4-5 million dollars.” Appreciation was happening through the roof. And then during the downturn, where things were just so bad, we had some development projects where we had poured millions into it, and a new mayor was elected and there’s now a referendum on any large-scale developments. And now millions of dollars poured in for design plans, engineering, legal fees and all that, and now you’re kind of holding something that “has a diminished value” because the city wants to look at its new scale type of developments.

So it was very exciting, we got to experience some great highs, but we during the Great Recession even a firm of our size, we did have to give back the “keys” to some assets, because they just did not work… And we worked some things out with some banks. We had to restructure some deals with them; and some banks were great to work with, some not so great. Again, when we’re looking for GPs to partner up with our fund for our clients, we don’t look at it as really a  bad thing that folks went through a tough time, or some things happened to them. We’re doing our due diligence and seeing “Hey, did you at least live through a bad fight call, or how did you deal with the situation?” Because life is not perfect. Things happen, and how you react to it is the most important thing, and how you dealt with those situations.

Joe Fairless: When you’re in a tough spot and you’re working with a bank, or you’re attempting to work with a bank, what are some things a bank that isn’t as amenable to you working with them, what are some things that they’re saying to you, versus a bank that is willing to work with you more?

Roni Elias: I’ll give you at least a tactic that I think is the best way. I think there should be always a two-team approach, and the best way to attack it is someone’s got to be the good cop, someone has to be the bad cop. I predominantly took on the position as the bad cop, to kind of drill things down while either another team member of mine would be the good cop, or our legal counsel would try to be the good cop.

Our goal was to always save the assets. Sometimes banks are just very unrealistic. Back in the day when you’d just call them up for “Hey, I’d like to borrow 20 million”, their response was “Why don’t you borrow 30 million?” Now the phone call was “You owe me 25 million. I would like a check for 25 million tomorrow.” And my response would be “Well, let me go and look underneath my bed, and if I have 25 million dollars, it will be there tomorrow.”

I think as we’ve gotten older, especially now that we’ve been through that downturn, we try to always see where that person is coming from. Understanding people might be going through bad days, and if this person is maybe sometimes speaking that aggression out on you, it’s okay; I don’t try to take things personal, which in the back of my mind it was personal, because “Hey, you’re taking this asset that we added so much quality to and put so much money into…”, and things change; and it didn’t just change for us. This was kind of a halving across the board for everyone.

Joe Fairless: When you were being the bad cop, and say your counsel was being the good cop when you’re communicating with the lender, what were some things that you would say or talk about as the bad cop?

Roni Elias: As the bad cop, we’re gonna make this a very long, arduous journey. Today you’re getting some payments. We’re asking for extensions; we’re asking for maybe lowering the payment. If you aren’t happy with getting paid $100,000 a month, I wonder how it’s gonna feel when you’re getting paid zero a month, racking up hundreds of thousands of dollars in legal fees. We made a name for ourselves — I think one thing you have to also make sure is you don’t say something unless you’re actually gonna do it or back it up… Because the worst thing is to put deadlines or say stuff and you just would not follow through.

Our in-house and even our outside counsel understood when we would say something (or when I would say something), that they could pretty much take what I said as going to the bank. So if we were gonna fight this aggressively, or we were closing on this deal on XYZ date, it was going to happen. So I think them just making sure that what you say is actually gonna happen — and some folks might not know this out there. Once the loan goes into default, usually there is some person, a special asset person who’s usually a legal cousin Vinnie, who wants to kind of just scare you and intimidate you into all of these actions to take. “Hey, if you’re not going to get us our money, we’re gonna chase you till the end of time for this”, and all of these things, and kind of scare you.

Those folks – what maybe a lot of people don’t know about them is they have a financial incentive to squeeze as much blood out of you as possible, because they are going to earn either a bonus or some type of commission off of you by squeezing every little penny out of you. Again, nothing wrong with that; everyone has to make a living. But I think knowledge is power coming into discussions with them, and just saying “Hey listen…”, you lay it out there for them, you try to make them understand things…

And sometimes I would say they’ve got a little bit of a sick head; it takes a couple knocks to the skull for things to now start making sense, saying “Oh, jeez, these guys are kind of difficult”, and making them realize for every dollar we’re spending in legal fees, you’re probably spending 5 or 6 dollars. Is that a wise benefit of the bank’s time and money? …while “Hey, maybe we should give these guys some breathing room, so they can refinance, earn some money during this time period, and we all go our separate ways.” Because at that point it was “Okay, do you wanna take the property back? What are you gonna do with it? You’re a bank. You’re not in the business of developing. Or do you wanna start building apartment complexes and doing that? No.” So what were they gonna do? They were gonna take it back, have to fire-sale it… Okay, so we could have refinanced you out higher than that fire-sale, and all it was was time, and you’re still earning a monthly P&I payment.

So it took some convincing. Some did not wanna see it, so finally – “Okay, here’s the key”, and walked away, no recourse against that. And at the end of the day they did what we expected – they fire-sold it, and had to take a substantial loss than the offer we had given them. The market dictates what people are willing to offer, and then when things are in that distressed position, it causes different dynamics. Either has to come all-cash purchase, or there’s a lower LTV or LTC, so the pool of buyers becomes much more limited. Some banks recognize that, some did not.

I would say an unfortunate [unintelligible [00:15:38].11] good learning experience, because now definitely — at least myself and the team, we definitely look at things much more differently. Back then when things were just gung-ho and the phone was always ringing off the hook, “Hey, I wanna buy this asset, boom-boom-boom…” Looking back at it, I wish we said yes to a lot of those phone calls, instead of wanting to hold on… So that’s just given us kind of a much better outlook, especially now going forward, and being extremely good shepherds for our clients, who — we’ve seen them go through very difficult positions with their lawsuits, and now they came to us and said “Listen, I wanna do something that can help my family” or “I wanna have some type of income-generation going forward”, finding those quality general partners for them, so they can have a healthy cashflow and their initial investment is protected as much as possible going forward.

Joe Fairless: Let’s talk about some of the circumstances where there’s litigation and you all fund the company through that process, and then you share on the upside… What are some examples — and obviously, share whatever you can share, but I’m curious of some examples where there’s this level of litigation. What happens where there’s a multi-million – or in this case, when I introduced you and your bio, I mentioned that you’ve worked in litigation cases reaching over 9.5 billion… So what are some things that one company is doing to another that causes this high of dollar values?

Roni Elias: Let’s take an example, and – not to get a letter tomorrow from the Fortune 500 company saying “How dare you use our name?!” Let’s take an example, and let’s try to make it real estate-related… So let’s say the John Doe family in 1960 became joint venture partners with the Mouse company. At that point, the Mouse company was a very small company, and part of their joint venture agreement – that they would continuously grow together, and as new locations were built, they were 50/50 partners.

Let’s say in 2018 John Doe company has now 100 stores with the Mouse company. The Mouse company has now grown to be a publicly-traded Fortune 500 company worth billions of dollars. Someone inside of the Mouse company says “Man, these John Doe’s have really made a ton of money off our back. And you know what? Looking at this agreement, we think they actually are in default of their agreement. And if they’re in default of their agreement, do you know what we can do? We can take those 100 stores from them, liquidate them, give them 10 cents on the dollar, and we’ve now come into so much great cash and great equity. This is a home run for the Mouse company.”

[unintelligible [00:19:06].12] this is all highly unethical. You’re doing this to a partner that has been with you for 50+ years, and this was the deal. Just because the deal went great and you became a multi-billion-dollar company, and John Doe’s family has become wealthy off the deal, which one would say is a win/win situation for all”, someone in grand wisdom says “You know what, we can stick it to John Doe company and call them on a default.”

It’s a lovely Thursday, he’s out there drinking coffee with his family, and goes and checks his mail, and gets a letter from the Mouse company that says “Dear Mr. John Doe, we find you in default. We are hereby terminating our agreements. We are seizing the 100 stores. You will be receiving no more distributions, and we think after we do all the books more than likely these 100 stores have zero value, or you have to write us a check.”

Adding insult to injury, a Fortune 500 company wants to rob you blind and tell you at the end of the day “Hey, you might even owe us some money on top.” So John Doe quickly goes and speaks to their lawyer, has to file a lawsuit, and predominantly if you were to imagine yourself looking at the courtroom, it’s John Doe with his one-person attorney, and on the other side this Fortune 500 company who has five or six representatives there, and probably another five or six attorneys also, and spending thousands of dollars an hour saying how John Doe and his family are such bad people, and they were forced to call them in default, and so forth.

Joe Fairless: Got it.

Roni Elias: So John Doe comes to us and says “Hey listen, I’m up against the Mouse company. They are a multi-billion-dollar company. My attorney has told me it’s going to a million dollars to fund this lawsuit and go forward.”

We’ll review it, we’ll do our own underwriting, and give it a value internally. Then we’ll come up with, let’s say, “Okay, John Doe, we’re gonna fund your lawsuit for half a million or a million dollars.” Or if John Doe says “My attorney is working on a contingency fee. I need half a million or a million dollars to survive during the lawsuit”, we would do that also.

And then there would be a repayment structure where every six months the amount that has to be repaid is increasing… And as I tell everyone, it is increasing at a very high rate. But it’s not a loan, and so forth. It’s a non-recourse advance. Again, like I said, if the lawsuits flop, you never have to pay back that money. We take that loss.

So a year or a year and a half later the Mouse company says “How about we pay you 75 million dollars? We’ll take these 100 stores off your books, and we just separate and go away.” It is up to John Doe and his attorney to decide what’s fair; if the thinks 75 million is fair. He takes the 75 million, refers to our contract and sees what that million dollars has now grown to, pays us, and the rest goes to him, and everyone goes their separate way.

Had we not funded that million dollars, who knows what John Doe would have gotten, if anything. If you look at our tagline, that’s all that we’re doing – we’re here to help folks that are truly hurt, or trying to be taken advantage of by some larger player out there in the market, and just trying to tip the scale in favor of John Doe.

Joe Fairless: Got it. Thank you for that example, and thank goodness that you all are there for the companies that need help and can’t financially weather the storm during the litigation process.

Taking a giant step back, really quick, here’s a question I ask all the guests – what is your best real estate investing advice ever?

Roni Elias: The best real estate advice – listen to your gut and do your homework. If for whatever reason it doesn’t feel right, listen to it. There’s been multiple chances that “Man, I wish I did that deal.” I could have made so much money. And there’s been times where we were like “You know what, thank God we didn’t do it.” We would have been sitting here with a fat zero. So just listen to your gut and do your homework.

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

Roni Elias: Yes, sir!

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

Break: [00:24:17].25] to [00:25:18].15]

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

Roni Elias: The best ever book I’ve recently read… Believe or not, I’ve been reading the BRRRR book by Bigger Pockets. It kind of intrigued me a bit.

Joe Fairless: What is the best ever deal you’ve done? We’ve talked about some already… What’s the best ever?

Roni Elias: By best ever you mean largest profit ever made, or…?

Joe Fairless: However you define it.

Roni Elias: I’d say the best ever deal closed Friday, on a purchase for two million; on Monday we sold it for five.

Joe Fairless: Yes, please. Where was that located?

Roni Elias: This was located out in International Drive in Orlando, Florida. Heavy tour area, next to the Convention Center… A commercial piece of property where we had certain plans for it during the due diligence and closing of the property; a substantial tenant reached out to us, that wanted to purchase the property, and made us a deal that was too good to be true in such a short time period that we said we should be put in an insane asylum if we do not accept these people’s offer. We said “Let’s do it!” We were very hush about it. We did not even tell our lender about it.

They were very perplexed when we closed on Friday, and Saturday I was just saying “Can you just confirm what is the pay-off amount?” and the banker was like “Well, I can tell you what it is, but I’m kind of surprised why you’re asking about this.” I said, “Don’t worry about, we’ll talk on Monday.” On Monday our closing agent reached out to them and said “Hey, I wanna confirm the pay-off. Is it this?” They were like “Yes, it is. Thank you very much, we look forward to receiving the wire.”

That was probably one of our best deals ever.

Joe Fairless: We’ve talked about deals that didn’t go well, so I won’t ask about that again… What’s the best ever way you like to give back to the community?

Roni Elias: Right now at TownCenter — when we were created, 5% of our profits (not our investors’ or anyone else’s) we donate. We have two charities, Hands Along the Nile and Orphans Africa, and we also do a couple scholarship programs for young attorneys who are studying for the Bar. You reap what you sow, so we’re very big believers in that.

Joe Fairless: I completely agree. And how can the Best Ever listeners learn more about your company?

Roni Elias: I invite you to our website, which is yourtcp.com. I’m very accessible via email; if you ever wanna shoot me an email just to discuss whatever, roni@yourtcp.com. It would be a pleasure to help anyone out there that’s going through some type of difficulty, in a lawsuit where they’re the plaintiff. And I definitely wanna wish everyone an exciting 2019, and see how things go here for the rest of the year. It’s gonna be definitely some exciting time periods for everyone.

Joe Fairless: Well, Roni, thank you for being on the show, talking about the challenges that took place during the recession, and some insider knowledge on when you’re working with banks – how to approach it, the team members involved. I loved your “unofficial cousin Vinnie to scare you” analogy  (or reference, I should say), and how to have those conversations if we are in a situation like that… And then also, on the flip side, some deals that you’ve done that have received a tremendous amount of profit.

And then obviously, talking about what you’re focused on now, and representing those who need representation in order to receive the justice that needs to be received… So thanks for being on the show, Roni. I hope you have a best ever day, great catching up with you, and talk to you again soon.

Roni Elias: Thank you so much. Take care.

JF1594: Expanding & Growing Your Strategy When Deal Flow Slows #SkillSetSunday with Paul Moore

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Paul is back with us today to tell us about his pivot into self storage from multifamily. For anyone who wants to get into self storage but don’t have any knowledge this is a great intro to the major points on self storage vs. multifamily. If you do have some knowledge on the subject, it’s never bad to learn more! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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 Theo Hicks:  Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. Today I’m your host, Theo Hicks, and I am speaking with Paul Moore today. Paul, how are you doing?

Paul Moore: I’m doing great, Theo. Thanks for having me on the show again.

 Theo Hicks:  No problem, looking forward to our conversation and learning more about what you’ve been doing since we last had you on, which — if you wanna listen to Paul’s first interview, it was two years ago this month as of the recording; so it might be a little bit over two years when you’re actually listening to this, but that is episode 809, entitled “Creating a 10-million dollar fund, building a hotel and focusing on multifamily.”

Today is Sunday, which means it is Skillset Sunday, so we’re going to be discussing a certain skill that Paul has, and we’re gonna be focusing on value-add self-storage. But first, a little bit of background on Paul – he is the founder and managing director of Wellings Capital. He was the two-time finalist for Michigan Entrepreneur of the Year. He’s based in Lynchburg, VA, and you can say hi to him at WellingsCapital.com.

Before we go into the specific skill in regards to self-storage value-add, can you tell us a little bit about what you’ve been up to since we last had you on the show?

Paul Moore: Absolutely. We have had a hard time — we are apparently not as good at acquisitions as Joe and his team, and admiringly watching Joe over the last 2-3 years and seeing his growth and his spectacular amount of deals he’s done, and the investors… I really admire him. We have not been able to pull that off. We have felt that the deals we have seen, mostly publicly marketed in multifamily, have been overpriced. The market is generally overheated, so it was hard for a guy who wrote a multifamily book called “The Perfect Investment”, which is still selling on Amazon and on our website, it’s hard to say “Hey, guys, we’re gonna expand into self-storage”, but that’s what we’re doing. We’re doing that for a number of reasons. One is the fragmented market.

Now, in multifamily there are only 7% of the 50+ unit apartments in the U.S. are owned by small operators, mom and pops. They’re almost all owned by more sophisticated, larger companies, 70%. But in the self-storage world, between 65% and 75% are owned by mom and pop or independent operators. There’s 53,000 self-storage facilities in the U.S. That’s the same as McDonald’s, Subways and Starbucks combined – I checked it myself – and about 40,000 of those are owned by independent operators and mom and pops, and they’re not maximizing revenue. They don’t need to. A lot of them bought or built these facilities a decade or two ago, and they’re clipping coupons, they’re happy to be 70%-80% occupied, or at the other extreme, they haven’t raised rates in years and they’re maybe 100% occupied and they’re happy. But there is a huge difference between a mediocre self-storage unit facility and a well-run one, and that’s where the opportunity is. This fragmented market is one of the reasons we jumped into this. That’s what we’ve been up to the last year or two.

 Theo Hicks:  Okay. And have you done any self-storage deals yet?

Paul Moore: What we decided is that self-storage is somewhat overheated as well, and we thought “Do we really wanna jump into this and take tens of millions of investor money before we have had experience in this?” So we decided the best way to do this would be for us to partner with operators who are already really good at this, who have gone through several market cycles. We spent the last 8 months actually interviewing and vetting sponsors; we’ve flown all over the country, I was in L.A. last week, Florida this week, I was in Atlanta several times before this, interviewing these self-storage syndicators, and we are actually co-investing with them. We co-invested almost three million dollars with one this summer, and we’re getting ready to do two more deals starting in the next month or so. By the time this is live, we’ll probably have a couple other opportunities available for investors.

 Theo Hicks:  Great. Can you talk about the numbers on the self-storage deals? Because people know how fix and flips work, and smaller rentals, and even larger apartments, but how does the process of analyzing the deal, what types of return metrics do you look at? … things like that, for that specific deal you’ve invested in.

Paul Moore: Absolutely. What we’re looking for in a deal is we’re looking for a property that’s on a major road, with a lot of traffic; it’s visible on that road, it’s not behind another building or down in a valley, and we’re looking to draw a radius around the facility and we’re looking at the population density versus the number of square feet in that radius. We like a 3 mile and a 5 mile radius. So we’ll draw that circle and then we will see where we’re at with that. Our goal is to be under about seven square feet of storage per person in that three or five-mile circle. If we’re under that, we’re likely under the national average, which means we’re likely in an under-supplied market. Now, I say “likely” because it’s not completely scientific. Places like Florida, Texas and California – they use more storage, they have virtually no basements, and they don’t use their attics often for storage, because especially in places like Florida, it’s really hot and it can ruin your stuff. So there’s a higher demand for stuff around Florida, especially around the coast, where there’s more income and more recreational toys.

So we’re looking to be under 7 square feet per person. As far as the metrics, it could be a development deal, and that would be different, but if it’s a regular value-add, cash-flowing deal, we’d be looking for 5% to 9% return to the investors annually, and then look for an appreciation in principal paydown, which brings the total return to about 18%-22% annually. That’s what we’d be generally looking at, and it’s very similar to where multifamily has been, especially in recent years passed.

 Theo Hicks:  Thank you for going over those specifics. Let’s talk about value-add, because you mentioned it a little bit before we went live that you were surprised that there was such a thing as value-add self-storage… Do you wanna talk about your discovery of this asset class, as well as some of the main things that are a value-add on self-storage?

Paul Moore: Well, one of the benefits of self-storage is you don’t have to deal with things like toilets, tenants and trash, but when I looked at self-storage – and I actually looked at it 19 years ago originally, in 1999… When I looked at it, I thought “Wait a minute… It’s just concrete, steel, and rivets. That’s all it is. What are the value-add opportunities?” I didn’t know what that was in 1999, but then in the recent years I did.

Apartments have carpeting, or hardwood flooring, and lighting, and paint, bathrooms and kitchens to upgrade, appliances – all these beautiful things. Self-storage is steel boxes, so where’s the value-add? I was surprised to find that there really is a significant set of value-add opportunities, that an experienced, really good operator can take advantage of. Some of these, by the way – they’re policy and procedure changes that add tremendous income and value.

For example, you can add U-Haul. U-Haul (or Penske) has all these independent distributor agreements with facilities, and they will often [unintelligible [00:09:33].09] will sign a deal with a self-storage facility. I was at one in Florida this week on Tuesday, and they were making $5,000/month in revenue from U-Haul. It took a little bit of extra work, but it wasn’t enough work to hire an additional person; so it didn’t cost much, and they were getting $5,000 in commission income. Well, multiply that by 12 – that’s $60,000/year, divide it by the cap rate, and let’s say that cap rate is 6,5%, that adds almost a million dollars in value to that facility.

Now, if it’s a five million dollar facility and you just added a million dollars, it sounds like  a 20% appreciation, and that’s true at the asset level… But you know what, Theo? That’s not true at the investor level. At the investor level, because of leverage, that 20% appreciation looks more like 60% appreciation in a typical leveraged deal. That’s a pretty amazing thing from just changing a policy and produce and adding U-Haul. But there’s a lot of other stuff you can do. You can add a nicer showroom, more point of sale items like boxes, scissors, locks and tape. You can sell insurance, you can have administration fees, late fees… Typically, mom and pops don’t like to do that.

You can also do a lot better job marketing. 50% as of a year ago – 50% of people who found a self-storage facility reported that they found it by driving by. They might have seen it on their iPhone or on Google maps first, but they drove in and that’s how they found it. Well, that’s a huge opportunity because using the online world, getting digital, having a website, doing Facebook marketing, Google AdWords, other online outreach is an opportunity to get in front of some of those mom and pop operators locally who are doing a terrible job marketing.

We looked at a self-storage facility in Raleigh (Raleigh, of all places), very hip and trendy city, that didn’t have a website. The lady said, “Why would I need a website? I’m 100% full.” Well, that says a lot right there. But anyway… Other things you can do is you can raise rates; that’s obvious, but it’s not necessarily as obvious as you may think. If you have $1,000/month apartment and you raise the rate 6%, somebody’s thinking “I’m gonna be here for years. That’s an extra $60, $720/year… I don’t wanna stay”, and they might move for that $60. But if you have $100 storage facility, they’re probably not gonna take a Saturday, pack up a rental truck, go and hire a few friends to move all their stuff down the road because you raised the rent by $6. So the tenants are inherently sticky.

Another factor with that is most tenants in self-storage think “I’m only gonna be here two or three more months.” You can survey them and they’ll say that, “I’m  just waiting till I can sell this stuff on eBay” or “I’m waiting till I move to that other house” or “I’m gonna put it back in my basement’, but often because it’s hitting their credit card, they don’t care as much, and it’s honestly there for years.

One investor we talked to in self-storage says “I decided to invest. When I was thinking about investing, I realized I had a self-storage unit for seven years I hadn’t even thought of. It’s just been hitting my bank account/credit card, and I hadn’t give it a thought.” That’s when he decided to invest. So there are lots of other things that can be done as well, but those are some of the main value-add drivers.

 Theo Hicks:  Okay. And then how do you actually find these self-storage deals? Are they on LoopNet, is there an MLS for these things, or do you have to be more proactive with your lead generation?

Paul Moore: Yeah, it’s probably somewhat similar to apartments… There’s letter writing campaigns, there’s driving by and stopping in; that sometimes works, but it’s a lot of work though. There are actually brokers just for self-storage facilities, and like in the apartment world right now, those brokers don’t want [unintelligible [00:13:41].00] they’re gonna be going to their friends, they’re gonna be working with people they already know, who will close, people that won’t embarrass them… So this is kind of the “Rich get rich, poorer get poorer.” Kind of what Joe has done with apartments – he’s got an inside track on lots of off-market deals; well, the people who are experienced in self-storage have a great inside track and a great benefit over beginners in this space, because the brokers are gonna call them first.

I just hung up the phone before this podcast with a guy named AJ Osborne. AJ Osborne was on the Bigger Pockets podcast that came out July 4th, 2018, and he talked about how he had 7,5 million dollars invested in a Kmart, and he had converted it to self-storage and he was on the verge of getting an offer (possibly within a day or two) for 25 million for that Kmart that he had retrofitted – while he was in a coma, by the way – and that’s only 40% leased up.

Guys like AJ are going to get deals that most of the rest of us will never see, and that’s one of the reasons we’re partnering with people and we’re raising up a fund to invest in other operators like that that have great experience.

 Theo Hicks:  You kind of touched on this already, but I wanna ask you anyway, so we can get a more detailed, specific answer… What advice would you give to someone who is listening to this podcast and they’re like, “Oh, self-storage sounds interesting to me. I wanna learn more. That might be a future potential investment vehicle”? What would your advice be to them in order to get started?

Paul Moore: Well, there’s actually seven ways to get started in multifamily or self-storage, and I go over this in a lot of detail on other venues. Quickly, they’re being a deal-finder, being a money-finder, just jumping in at a really high level, working your way up from really small to larger, going and getting a job for another operator and learning the business, or finding a mentor. I think that’s all seven.

I would recommend that you pick one of those and go for it. Become a deal-finder, for example, and take those deals to another company and say “Hey look, I’ve found this deal, and I’d love to partner with you and learn the ropes along the way.” Another thing you can do is you can find a mentor. There’s a guy named Scott Meyers in Indianapolis, and he’s got a great mentoring program. He teaches people to do self-storage. Apparently, they’ve had about 75-80 people go through their masters level program, and a lot of those people have become millionaires in a very short time. So those are two of the things I would do…

Oh yeah, the seventh way to invest (I thought I missed one) is to invest passively. That is to learn the ropes by investing, let’s say, 50k or 100k with another syndicator who’s doing the business, and ask them if you can learn from them along the way… Or maybe you just wanna stay passive and keep investing, and that’s a great way to do it, too.

 Theo Hicks:  What is the biggest difference you found between multifamily investing and self-storage investing?

Paul Moore: Well, that’s a hard question… I’m trying to think of a major difference, there’s not a lot. They have a similar Sharpe ratio, which is the return versus the risk ratio, and I talk about that a lot in my book. They have fairly similar value-add opportunities. Some of them start at 5%-10% cash-on-cash return, and then they have a total of, let’s say, 20% return, where multifamily lately seems to be a little bit lower, because it’s overheated somewhat, as we have all seen.

I’d say one difference is there are more ground-up development opportunities in self-storage, which can be great, but it can also be a curse. So if you get in on a ground-up opportunity in self-storage – and you can do that in apartments, too – you might not get your first distribution check for a couple years, but then there’s a really strong windfall on it. And of course, that’s possible in multifamily, but it’s not the kind of multifamily that I think Joe or I do, which is more of a momentum play or a value-add, stabilized class B multifamily.

But like I said, some of the self-storage deals we’ve been looking at and starting to invest in are like that Kmart that AJ has, where there’s no distribution at all for, say, 1,5 to 3 years, but then there’s a very large payoff after that. But there’s more risk with that, as well.

 Theo Hicks:  Is there anything that we haven’t talked about as it relates to entering the value-add self-storage investment industry?

Paul Moore: Yeah, just like multifamily, I think it’s really important not just to jump in. It’s a rough time in late 2018. Interest rates are higher, cap rates are staying low, which means the values are staying very high, and it’s a time for a newbie to get burned. So I would say be really careful. If you’re gonna invest passively, invest with a pro, somebody who’s been through several market cycles, which is, again, what we’re doing… And if you’re gonna do it on your own, be very, very sure that you have really evaluated it carefully and that you are in a situation where you’re not gonna get burned by paying too much.

Don’t let a banker and don’t let a broker tell you how much this is worth. You need to figure it out on your own, and if you’re not qualified yet, then make sure you are partnering with somebody who is.

 Theo Hicks:  Great advice. Paul, I really appreciate you joining us today on this Skillset Sunday. To summarize what we discussed – you explained the reason why you expanded into the self-storage industry, or at least one of the reasons why; it had to do with the fragmented market, and that a very small percentage of multifamilies over 50 units are owned by small operators, whereas a larger percentage  – I think you said 65%-70% – of self-storage are owned by small operators… So it opens up the opportunity for more of those value-add deals… And you mentioned that you got started with a partner who is very experienced, rather than jumping in on your own.

In regards to what you look for in deals, it needs to be visible on a major road, and then you draw a 3 and 5 mile radius around the self-storage facility and you wanna see a population density of under 7 square feet per storage per person…

Paul Moore: There are tools online that do that, that already draw that radius for you.

 Theo Hicks:  And then you mentioned the returns for the value-add plus appreciation plus principal paydown. Then you mentioned that a really good market for self-storage is Florida, which I can agree with, because I live in Florida now and I don’t have a basement, so we kind of just shove things into closets… And once we have kids, I’m sure it’s gonna get more and more difficult.

Paul Moore: Absolutely. And the deal we just invested in, by the way, this summer, is just South of you by a few miles… It’s in Lakewood Ranch area.

 Theo Hicks:  You also explained some of the value-add opportunities [unintelligible [00:20:41].06] You said add a U-Haul, a nicer showroom, more points of sale, like scissors, and tape and boxes, sell insurance, better marketing, and you can raise the rates.

How you find these deals – pretty similar to multifamily: direct mailing campaigns, driving for dollars, and brokers who work specifically with self-storage facilities… But like multifamily, they’re likely gonna go to their friends first, so you have to build rapport with this broker, and we’ve got plenty of episodes and blog posts about how to do that.

Then lastly, you went over the seven ways to get started as a self-storage investor, which was be the deal-finder, the money-finder, jump in at the high level, education-wise, start small and then work your way up, work for another operator, find a mentor or invest passively.

The biggest difference between self-storage and multifamily is that ground-up development – there’s more of that in self-storage, but besides that, the two asset classes are fairly similar. And then lastly, your advice for others who wanna get started is to 1) don’t just jump right in, because we’re at a point in the market where a newbie could definitely get burned… So if you want to become a self-storage investor, make sure you’re working with a pro, and do not rely on the bank or the broker for the valuation of these self-storage facilities. Make sure you figure that out yourself.

Paul, I really appreciate you talking with us today. Have a best ever day, and we’ll talk to you soon.

Paul Moore: Alright. Theo, thanks… It’s been a real honor to be on the show again. I hope you have a great day.

JF1386: How Do You Remove As Much Risk As Possible In Real Estate Investing? With Chad Doty

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If you ask Chad, the answer to the proposed question in the title, is to buy B class multifamily properties built between 1982 – early 2000’s. We’ll hear a better explanation and reasons why he believes this is the best way to invest in real estate with the least amount of risk. We also hear some difficult deals he’s had and how he was able to work through it. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Chad Doty Real Estate Background:

  • CEO of 37th Parallel Properties Investment Group
  • 12 years of multifamily real estate investing experience & 10 years of management consulting experience
  • Close to $300 million in real estate transactions
  • Based in Richmond, VA
  • Say hi to him at https://37parallel.com/
  • Best Ever Book: The Goal

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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, Chad Doty. How are you doing, Chad?

Chad Doty: I am excellent, how are you?

Joe Fairless: I am excellent as well, nice to have you on the show. A little bit about Chad – he is the CEO of 37th Parallel Properties. He’s got 12 years of multifamily real estate investing experience and 10 years of management consulting experience. They’ve closed on approximately 300 million in real estate transactions.

Based in Richmond, Virginia. You can learn more about their company at their website, which is in the show notes page. With that being said, Chad, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Chad Doty: Yeah, you bet. Background – I didn’t grow up as a real estate investor. I was a business operations guy. I got dropped into companies to make them run better. But as my wife — I got a call when I was mid-thirties when our son was being born and I was four hours away, and I’m like “Ugh, I’m gonna be a road warrior. I’m getting a call about a son arriving and I need to fix this.” So I wanted to find better solutions where I wasn’t trading time for money, so I took that business skillsets and looked for ways to create passive legacy-level income, and that sort of led down the path of “Okay, let’s do commercial real estate, let’s do multifamily, let’s do B-grade multifamily and let’s focus on the best markets for B-grade multifamily.” It kind of all came from there.

We’re about 14 people, we’ve been in business since 2008-2009, and total transaction volume is around 380 million, and currently still running [unintelligible [00:02:34].11]

Joe Fairless: Did you initially have the B-class properties and the other things that you described at the beginning, or has that evolved to what you purchase now?

Chad Doty: It was from the beginning. What we looked at is — we didn’t grow up in it… It was “Okay, we want the characteristics of as recession-proof as possible, as evergreen as possible… Because nothing is ultimately fully evergreen, nothing is ever risk-proof, but how do you take out as many of risks as you can, and multifamily had the best long-term risk-reward profile of any real estate asset class, and was a hard asset, tax-advantaged, evergreen; it’s food and shelter.  So we picked it based on the data, and since we’re sort of business deconstruction and improvement experts, we were able to go through that process and kind of said “Okay, let’s play here and just get good at it.” So it started from the beginning.

Joe Fairless: And how do you define B-class properties and why did you choose B-class?

Chad Doty: You’ll hear B, you’ll hear workforce… It just all depends on the resident profile you wanna get good at serving, and for us that is the blue collar, light-blue collar; they’re making anywhere from median household income, from 45k to 85k/year. Median household income in the U.S. is like 57k, so you’re serving the meat of the bell curve; it’s the largest group of the U.S. population. That is how we define it, and we’re typically buying assets that are built between 1982 and early 2000… So B- to A-.

Joe Fairless: And why that age?

Chad Doty: Basically, the box is already there, meaning that HVAC systems, the plumbing – all that stuff is today normal. There’s nothing really that’s changed materially in that. You walk in, you’ve got a  living room, you’ve got a kitchen, you’ve got bedrooms and bathroom. But you can buy at 30 cents to 50 cents of construction costs, add another 5k-10k/door and get a really good product. So the rental improvement range is far better in B grade multifamily and the resident base is far more insulated from economic shocks than let’s say tip of the spear A, or credit-restricted C.

Joe Fairless: With properties that were built before 1982 – have you purchased any, and if so, what did you notice with those in particular?

Chad Doty: ’82 is sort of a soft number. The hard number is really 1979-1980, because then we’re primarily missing all the lead and all the asbestos risk. That said, there are phenomenal assets that are B+, A- assets, trophy assets on the beach, built in the 1950’s, but they’ve gone through some level of remediation. We don’t buy coast market trophy asset stuff, so it lets us avoid that risk… And generally, you’re gonna have better roof slope structures and better envelopes with some of the stuff built after that timeframe, so that’s kind of why we avoid it.

Joe Fairless: What’s been a challenging property that you worked through and what aspects of it was challenging?

Chad Doty: We bought a deal in Houston that backed up to a [unintelligible [00:05:41].16] and maybe a fifth of the property was [unintelligible [00:05:47].04] and we dealt with some issues on Hurricane Harvey. It was insured, we had business interruption insurance and all that… While it’s actually gonna come out better economically in the long-run, dealing with a 500-year storm is no fun.

It’s one of those things where you think you’re fine, but then just nature happens. We don’t buy stuff on the coast, and this one was insulated, but obviously, stuff happens, and 36 of 104 units got downed by Hurricane Harvey. So that’s been a process… Ultimately, because of the insurance profile, we will end up well, but it’s a lot of brain damage having to go through that process.

Joe Fairless: What part of the brain damage component was most challenging?

Chad Doty: Anyone who has never dealt with commercial corporate insurances – there’s all of the reviews and assessments you have to go through, and the adjuster’s job for the insurance side is to delay and/or minimize payment structures as much as they can to manage the insurance base of the carrier. Dealing with that, and especially with the co-insurance in the back-end – it takes so much longer than it needs to, from the outside looking in… So if you haven’t gone through that before, it can be a little bit of a shock. It just takes time and persistence, and just doggedly going through the process.

Luckily, we’ve got a phenomenal asset manager that had multiple years with equity multifamily that was able to take that, but… It’s something that if you’re not prepared for, it can be interesting.

Joe Fairless: You said it takes longer than it should… Approximately how long does it take?

Chad Doty: We would think it would have been a 60 to 75-day process from analysis to claim, and it took closer to six months. You’ve got business interruption insurance that will recover that lost time and money, but you don’t get it till the end… So every extra delay you get pushed back out when you get to restart distributions for your client.

Joe Fairless: And then with 36 of 104 units being flooded in this case, do you have an operating budget that you dip into to just operate the property in the meantime, or do you do capital calls, or how do you approach that?

Chad Doty: We had a reserve balance to deal with it. Every single deal — and that’s a good part of our philosophy, we are more about minimizing risk, batting percentage versus slugging percentage. Every single deal we carry has a six-month mortgage reserve, and we also look to raise the capital improvement stack for the first five years anyway. So we had the reserve load to deal with it and all of our assets carry it; if you don’t have to, you don’t wanna dip into it so far to not recover it later. But we [unintelligible [00:08:26].05]

Joe Fairless: And then with raising the capital improvement stack for the first five years – that leads me to believe that your deals are projected to be longer than five years? Is that the case?

Chad Doty: Yeah, we’re a long-term holder of cash-producing assets. Our investors are looking for a consistent income stream that’s highly tax-advantaged, with equity growth along the way. So for us, you can actually increase your IRR by deferring capital until you need it, but it’s a hassle factor for the client. Okay, we have a capital call based on the commitments to start renovations, and you’ve gotta then tap people, so you’ve gotta herd cards consistently through the deal. This way we raise it all up front. It lowers our return a little bit, but in the long-run it’s a better product, we believe, for our clients.

Joe Fairless: So approximately how long are the holds projected to be?

Chad Doty: We’ll hold as long as it’s performing. From a portfolio perspective right now we’re holding 250 million, but at one time we’ve had north of that, and we’ll prune either when we get an outsized offer that’s well north of projections, or if we see the market slowing down in ways that we don’t think it’ll keep the NOI growth that we need.

Joe Fairless: What’s something that you’ve done to evolve your business from when you started it to today?

Chad Doty: We’re always fine-tuning our asset management. We try to be very closed-loop about it when we make a choice – how did that end up with the returns? How did that compare to projections? How do we get better next time? We’re constantly going through that Kaizen process, that constant, never-ending improvement. So that’s evolved just step by step with every deal, and as cap rates compress and as interest rates nudge up, some of our biggest evolutions have been in our capital structuring and how we raise, and converting from friends and family 506(b) offerings that can’t advertise to 506(c) accredited only, can advertise, with having a [unintelligible [00:10:22].16] and being able to really push the envelope. We went from buying 25 million in assets three years ago to 50 million, and now this year we’re gonna do 100 million.

Joe Fairless: And with that growth, I’m sure that you get the question – if not frequently, then a good amount – the market is coming up for a correction, so why are you buying right now? What’s your response to that?

Chad Doty: It’s a great question. When you say “the market”, there’s no national real estate market, right? It’s all local. That said, interest rates are national… So part of it is, but not all of it. So it really is “What’s the demographic story of where you’re going to play, and what happens when the economics turn?” And if you look at buying now, you can still get good pricing. It’s compressed, but if you can still create value in those deals, you’re still getting double-digit returns with consistent cashflow in the assets if you know what you’re doing… So why not buy?

Is there less of a spike on the going in price? Sure. But philosophically, everyone’s heard the term that “You’re making money when you buy”, and we think that’s a half-truth, or it’s proven not that way to us. You don’ really make your money when you buy; you establish a baseline profit to market averages. You actually make your money when you operate and you sell. And if you can operate well, you can make money in any market cycle.

Joe Fairless: Yeah, I completely agree. You mentioned earlier you all have made decisions and you’re constantly focused on never-ending improvement, and you look at the cause and effect of what resulted in a profit or loss, or what allowed you to make more or less money… What are some tactical things for some of the best ever listeners who are apartment owners on perhaps a smaller scale? Maybe they’ve got a 100-unit or a 150-unit… What are some tactical things that you’ve seen with your portfolio that they could implement to help their apartments perform better?

Chad Doty: We were slow adapters of revenue management, LRO, and using it to ride with the market, and in every single deal we implemented it on, it improved our revenue pretty much within the first two months… And they’re good enough now where even smaller players can get access to it. So we were slow adapters to that, because you think that the resident doesn’t like not knowing what the pricing is gonna be on a day-to-day basis, but the market is moving there anyway. So get out of your way and look at best practices of companies bigger than you and don’t be afraid to adopt them regardless of your size, because your resident base doesn’t know you’re a small player compared to [unintelligible [00:12:59].24] or Greystar or whoever; they just know they might wanna live there, so understand the experience of other players and model those. You don’t need to reinvent the wheel. This is not a cutting-edge business; it’s primarily a blocking and tackling service business.

Joe Fairless: How much does LRO cost?

Chad Doty: It can vary between $3 and $5 a door per month. But if you get 10 to 20 or north of that, it pays for itself pretty much instantly.

Joe Fairless: It sounds like you do value-add deals… Does it make sense during the first 12 months to have that in place, or is that in place after you do the renovations?

Chad Doty: You absolutely put it in place, because what you’re doing is you’re not improving all the assets at once; what you’re doing is you create a model. There’s a million ways to do this. The way we do it is you first understand what spec you wanna hit in terms of the unit amenities of the asset and where you expect to peg that rent, compared to your comps within 3-5 miles. That’s just math and observation and data collection.

Then when you go to put your model together, that model then will be “Okay, I wanna own this part” and then you’ve gotta test how that model sells with a combination of LRO in the marketplace. Then you’ll start to renovate against that spec and adjust. So you wanna have LRO on while you’re starting your first wave of renovations, to let you understand how you’re doing.

Joe Fairless: You mentioned earlier identifying what the large companies are doing and then doing aspects of what they do or modeling after what they do, and that’s why I’m glad we’re interviewing you right now, so what are some additional things that you all do that could be modeled by an owner who had on a smaller scale properties, but are still apartment investors?

Chad Doty: I think when we started I did a 6-unit building and a 12-unit building, then partnered up with another guy, and then we did 112, and then we’ve been at that level since ’09. When we first started though, we would abdicate – and I say abdicate as a negative term – construction management and renovation management to the property management firm. Most people at this scale will self-manage and it’ll be a job, or they’ll have third-party property management and then you’re asset-managing them… But there’s actually three roles in every deal; there’s asset management, which is controlling strategy, property management (day-to-day blocking and tackling) and construction management, which is what are you doing with the value-add piece, with the bulk renovations, the contracts that manage the asset… And most property managers are not very good at construction and contract management. So find ways to outsource that sooner rather than later, or partner up or take it yourself, because you’ll get more bang for your buck, and you’ll get more of what you want.

Because getting in the day-to-day of how they lease and how they rent – they know that stuff better than you. But the construction management side/renovation side, more times than not they don’t.

Joe Fairless: From a team standpoint, you mentioned you had 14 employees? Is that correct?

Chad Doty: Correct.

Joe Fairless: How do you structure your team?

Chad Doty: We basically have acquisitions and asset management, which is driven by my business partner and co-owner; that’s got three staff. Then we have sales and marketing, which is basically lead gen and education, and then whenever we have a new deal, the raise process with those deals. That’s three people. Then we have basically shared services, which is client communications, office manager, fractional controller, and a few other admin folks.

Joe Fairless: If you were to start another company from scratch, but does the same thing, how would you prioritize the hiring for which comes first?

Chad Doty: It depends… There’s a book called The Goal by Eliyahu Goldratt; it’s about bottleneck management and the best thing you can do is just to optimize throughput as you solve for the weak link. So it all depends on what you don’t have.

When we started — I’m an operations guy; I wasn’t a rainmaker capital development guy… So we sell by being good at what we do. Our weak link early was capital development, but as you start to get a track record and people start calling you, then capital development gets lighter and you’ll need to scale your acquisitions. So I don’t think the answer is one or the other, it’s “What is your gap?” and solve for that gap. Most business ownership is just solving for a weak link.

Joe Fairless: That’s really interesting. Based on your experience as an entrepreneur and real estate investor, what is your best real estate investing advice ever?

Chad Doty: I touched on it briefly, but there’s a fantastic book – an old book, my dad gave it to me; I’m mid-forties – called Winning the Loser’s Game, and it’s about tennis pros. The best tennis pros don’t hit the most aces, they make the fewest mistakes. Same thing with Jack Nicholas – it’s not that he [unintelligible [00:17:49].23] He never really made any errors. Same thing in investing – there are people who might make 300% on a deal, but then they have a deal that does nothing or gives back.

Find a way to minimize your risk in every single action that you take, so that the process you build around that business is wrapped around that risk mitigation. It makes thing so much easier, because then you can be aggressively conservative, meaning that you will aggressively buy every conservative deal you can. That puts success on autopilot, because then you’re not really worrying so much about “What about this, what about that?” You’ve taken care of that in the way you architect deals, and then the rest of it really is how do you then get bigger? What’s the next weak link you have? That has served us really well.

Joe Fairless: From an underwriting standpoint, what do you make sure is in place to have that risk mitigated as much as possible?

Chad Doty: The risk mitigation starts before underwriting. For us, it’s the two things that we need before we even think about the deal – we have to have an MSA submarket neighborhood that we know in our bones we’d put our grandma’s last $100,000 in. So there’s population growth, components of population growth, employment growth, components of employment… There’s easily 25 metrics we go through and say “Okay, is this the kind of market that will serve our client?” Then we find the best property management in that type of client service business, so B-grade operator vs A-grade operator. Then and only then we look at deals. Because if you’ve done that, you’ve taken out the two biggest risk rocks, really.

Then when you go to underwrite, then we’re looking for — a big thing we look at is breakeven occupancy. This is something that Ray Alcorn introduced me to. He lives in Blacksburg, VA, I live in Richmond, and I’m sure it’s been out there before, but he has a fantastic book on it… And it basically is “How vacant can a building be and still make money?” We basically sensitivity-test all of our assets going in, and we’ve gotta be able to buy a deal that can take double market vacancy for a year and still make money. So if market vacancy is seven, double that as 14; we have to have a breakeven occupancy of 86%, meaning the building could be 14% vacant for a year and we still make money.

All the markets we’re in have never hit a double market vacancy event historically, and the largest real estate downturn since the Great Depression was ’08-’09. So it’s a great safety metric that has served us well.

Joe Fairless: As it relates to that breakeven occupancy, if you are in a market that unfortunately does dip significantly to double market vacancy – once in hopefully a lifetime, or hopefully never, but if it happens once in a lifetime, it happens… Would the approach be to lower rents and give concessions to keep the occupancy high, or would you let the vacancy take place and keep the rents for the current units at their rate?

Chad Doty: That’s a great question… It depends. First of all, the LRO – and this is a benefit of doing it – will be sensitive to a concessionary market, it’ll be sensitive to flattening rents, it’ll be sensitive to declining rents, so you’re gonna get some good feedback on that.

We generally believe that just from an underwriting perspective – and I think we’re preferred with Freddie and Fannie; we’ve got 220-odd million dollars of debt with them in our history… They’re gonna get nervous if you dip below 92% occupancy. But if you’ve got rents — still, they wanna have that current flow. So I think your lender community and your investor community — because in your whole period, occupancy is gonna make you more cashflow, but when you’re gonna sell, it’s going to be your average rental rate and market occupancy. Some people think “Hey, I’ve got a 97% occupancy building” – you don’t get valuation on that when you sell it; you get valuation on market occupancy and whatever your lease rate is on your rent roll. So if you’re holding, optimize for occupancy. If you’re looking to move the asset, you’re optimizing for rent rate.

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

Chad Doty: Bring it.

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

Break: [00:22:01].09] to [00:22:43].25]

Joe Fairless: Best ever book you’ve read?

Chad Doty: The Goal, Eliyahu M. Goldratt.

Joe Fairless: Best ever deal you’ve done?

Chad Doty: We bought a deal in Louisville, Kentucky that had a 1031 component from a deal in College Station, that we then bought another deal in Dallas, Texas, and we were able to jump cashflow for the client by 25% on each level. It was a fantastic deal, and a series of deals that we cascaded through.

Joe Fairless: Over what period of time?

Chad Doty: Six years.

Joe Fairless: Do you remember roughly the purchase prices of each of those three, just so we can get a visualization?

Chad Doty: Sure. The first deal was 4.3 million, the second deal was 10.5 million and sold for 14.6 in only 2.5 years, and then the other one was 26 million.

Joe Fairless: And is that a current property, or did you exit out?

Chad Doty: No, it’s a current property, and it’s probably worth high twenties, low thirties right now, and we’ve had it for 2.5 years.

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

Chad Doty: I bought a deal that was a 1978 and had asbestos; we wanted to do washers and dryers in the deal and we couldn’t without a massive renovation budget, because of the remediation costs. It was still profitable, but it dinged our ability to grow rents at a faster pace… So that’s one.

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

Chad Doty: Kid’s causes. We give a lot to the Children’s Hospital here in Richmond, as well as FeedMore, which does a lot for child hunger in Virginia. So we’re very kid/local the way we run it.

Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about what you’re doing?

Chad Doty: 37parallel.com is our website, and then we have a booklet called “Evidence-based investing.” It’s basically how we came to believe this to be a solid space. If you go to 37parallel.com/bestrealestate, people can get their hands on that.

Joe Fairless: Chad, thank you so much for being on the show. Thanks for talking about your approach, why you’re focused on class B properties, pros and cons on that, as well as the type of investment group that you all are and what your philosophy is, some tactical things that can be helpful, like the different LRO that you discussed, as well as scaling the company for any apartment investors who are looking to scale their apartment investing business.

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

Chad Doty: Thanks, Joe.

JF1302: Switching To Wholesaling After Flipping Over 2000 Houses with Brad Chandler

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Starting in 2003, Brad and his company have flipped over 2100 homes. With so much capital out, he decided to switch to the wholesaling model. Figure out what it takes to flip a high volume of houses, and what it takes to build a wholesaling business that does 200+ deals per year without your assistance. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Brad Chandler Real Estate Background:

  • Co-Founder and CEO of Express Homebuyers, one of the largest home buyers in the entire country.
  • Successfully flipped over 2,100 houses since 2003
  • Passionate about real estate investing in 9th grade, he read a book about how to buy a home with no money down
  • He has been able to build a real estate investing empire that does 200+ deals per year without his assistance
  • Based in Fairfax, Virginia  
  • Say hi to him at https://www.bradchandler.com/
  • Best Ever Book: High Performance Habits by Brendon Burchard

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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, Brad Chandler. How are you doing, Brad?

Brad Chandler: I’m doing awesome, thanks for having me.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Brad – he is the co-founder and CEO of Express Homebuyers, one of the largest homebuyers in the entire country. He has successfully flipped over 2,000 houses since 2003. Based in Fairfax, Virginia. With that being said, Brad, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Brad Chandler: Sure. So I could go way back, but we’ll go back to ninth grade – I read a book in the ninth grade on how to buy real estate with no money down. I had some financial challenges as a kid and knew that I wanted something that would generate unlimited income. I had an investor buy my neighbor’s house in 2002, and I went and talked with him. He said, “Yeah, I buy houses at 20%-30% below market, I fix them up and I resell them”, and I go “That’s what I’m gonna do!” I always knew I wanted to do real estate, but I thought you got rich in real estate by putting down 20%, paying off a house with the rent check over 30 years and hopefully it appreciated.

So after eight long months, I bought six houses in July and August of 2003, quit my full-time job in October 2003, and basically rehabbed, fixed and flipped up to last December. Then we said “You know what? We’ve lost so much money renovating houses that I’m gonna switch my model to wholesaling, get rid of renovations.” So this past year we wholesaled just shy of 200 houses, just in the DC market; we had our best financial year ever, and here we are today… I decided to start a coaching company to teach people exactly how we do it. We started that about six months ago.

Joe Fairless: Well, I certainly understand going from fix and flip to wholesaling. I always tell guests when we talk about fix and flipping versus wholesaling, if I was doing one of the two, I would 100% be wholesaling, versus fixing and flipping. Just less risk, better return on time, in my opinion… Unless you really get fulfillment by doing fixing and flipping. Wholesaling to me is a much better approach.

Brad Chandler: You are so right, and it requires so much capital if you’re gonna do rehabbing on a big scale. We had tens of millions of dollars out.

Joe Fairless: Well, with your process, you all wholesaled, as you said, 200 homes last year. Do you also invest into properties for long-term holds for your own portfolio?

Brad Chandler: In 2010 to 2012 we bought approximately 80 single-family houses in the DC Metro area. We found that we were not making the yields that we thought because they were all single-families; it was low, low single digits, and we were borrowing money for the rehabs, so the cost of capital was around 10%-12%, and we’re thinking “Does this make any sense? We’ve got a couple million dollars tied up in rentals that are earning us let’s say 1% or 2%, but yet we’re paying 10%-12%.”

So we actively decided the time is right to sell, so we’re in the process — we’ve sold probably 65 of the 80. Then probably at some point in time — my wife and I are doing some investing on the side, and we’ll likely get back into it. My actual degree in Virginia Tech from an undergrad standpoint was residential property management, so I would love to own apartments, just never have gotten around to doing it… Yet.

Joe Fairless: Yeah, I’m with you, okay. The reason why I ask is wholesaling is a job, whether it’s automated or however you have it set up, it’s still a transaction-based business, so that’s why I was wondering when you do make that money, are you then investing it for more of a long-term play, so that you’re not chasing the transaction?

Brad Chandler: Right now we’re investing it into growth. We’ve launched in six other markets, we’ve done some test launches and we’re gonna see how that works, and if that works, we’re just gonna continue to take our excess cash and fuel it to growth.

Joe Fairless: Got it. So I wanna give you a scenario… I’d like to hear your thoughts on this, because it’s a tactic I’m playing with and I’d just like to hear your opinion. So I buy apartment buildings, and you’re wholesaling primarily 1-4 unit properties?

Brad Chandler: All one-units, really.

Joe Fairless: Okay, all one-units. If I were to come to you and pretend I’m just some random person you never came across, you don’t know me from anyone else, and I met you at a local meetup, and I heard that you’re wholesaling, and you are wholesaling at an amazingly high level, and I said “Hey, I’ve got some apartment buildings and I’d like to buy some more. I know you’re likely doing direct mail – first off, is that assumption correct?

Brad Chandler: It is correct.

Joe Fairless: Okay, so you’re likely doing direct mail… What if the direct mail leads that you’ve got – what if you asked them one extra question, and that question is “Do you own any larger properties?” And if they did, if you sent them my way, then I would give you some sort of referral fee if we close on a transaction. What would you say to that?

Brad Chandler: I would say it’s fine. I hope my acquisition staff is actually asking, because that’s a question I learned long ago – ask everyone you know and come in contact with, “Do you have any other properties you are looking to sell?” So I think it’s a good idea. I’m not sure how — it’s like a needle in the haystack… Of all the people who’d call us, I don’t think there’s gonna be a ton of them that have a multi-unit, but maybe.

Joe Fairless: Cool, so you’d be open to it. I’m testing this tactic out, by the way, so you are my focus group… How would you structure that so that it benefits you, or so that you know that you’re getting compensated? Would you want a percent, or would you want just a flat fee, or how would you structure that?

Brad Chandler: We’ve given a lot of leads out free over the years, and we typically ask for a percentage… A much larger percentage than I would ask for an apartment. So yeah, we’ve asked for a percentage of profit, but this would be much tougher. It would probably be a small percentage of the purchase price. Just something easy, that’s not gonna take a bunch of brain damage to figure out each time.

Joe Fairless: Yeah, fair enough. 200+ wholesale deals last year – how do you get to that volume?

Brad Chandler: Well, processes is really what it is. There’s probably 30 people now on our team, when you include our virtual assistants. I started out in 2003 with a negative $80,000 net worth and bought six houses in two months, and then just scaled it. As we needed more people to do more jobs, we would systematize the position, and then we would go out and hire really great people, and then we would just reinvest profit into marketing.

We were spending like $200 marketing budget per month when I started, and now we’re well over six figures a month in marketing. It’s just a process of scaling, one month at a time.

Joe Fairless: 30 people on the team, including VA’s… Can you tell us what categories of departments they’re in?

Brad Chandler: And we’re growing, by the way. So we’re looking to hire eight different people, not here in Springfield, in Orlando, Tampa, L.A. and Seattle. Departments – so we have accounting, that have two people; we have a marketing department that is two people, looking to put a third person in that… We’ve got acquisition and sales, which is ten people; myself, my partner… What else am I forgetting? I think that’s it.

Joe Fairless: And then VA’s across the board?

Brad Chandler: Yeah, there are like 10 VA’s [unintelligible [00:09:45].10]

Joe Fairless: Right. What are your VA’s doing?

Brad Chandler: They’re doing a lot of nurture. They’re actually screening — we get leads on a nationwide basis now, so they’re actually screening those calls and seeing if there’s a level of motivation, and if there are, they’re handing them over to our acquisition staff.

Joe Fairless: And where are those VA’s located?

Brad Chandler: They’re in the Philippines. However, we’re just about to hire three more people – one in Tampa, one in the Texas area and one in the state of Washington. Those were found through Upwork. Those are obviously US-based folks.

Joe Fairless: Sure. All of them found through Upwork?

Brad Chandler: Those three were found on Upwork.

Joe Fairless: What about the Philippines?

Brad Chandler: Everyone else is through MyOutDesk.

Joe Fairless: MyOutDesk?

Brad Chandler: Yeah, they’re a VA company that specializes in virtual assistance for the real estate industry.

Joe Fairless: Okay, got it. I had not come across them before. Cool. Did you say six figures a month marketing?

Brad Chandler: Yes.

Joe Fairless: So you’re spending over $100,000 on marketing every single month?

Brad Chandler: Yes.

Joe Fairless: How do you allocate that budget?

Brad Chandler: We are spending approximately $50,000-$60,000 on internet, both pay-per-click and organic. We’re likely spending about $60,000 on direct mail, and then we’re spending about $30,000/month on television.

Joe Fairless: Okay. How do you evaluate the effectiveness of television, and what are you doing on television?

Brad Chandler: Ironically, Joe, TV has been our bread and butter for years. I started TV advertising I think in like October/November 2003, so it really was our only marketing source for so many years… So that’s how we evaluated it. Now we do our best with tracking numbers to see what’s coming in, and we also are able to look at the Google Analytics now. We’re setting this stuff up now, where we run a commercial and see if there’s a spike in internet traffic.

Joe Fairless: And with the internet allocation, pay-per-click and organic, how do you know your marketing dollars are being invested effectively?

Brad Chandler: We’re really good at tracking everything. Obviously, pay-per-click is really easy because you actually see the returns. SEO is accounting for about 600 of our out-of-area leads. We track everything with what’s called UTM parameters.

Joe Fairless: What is UTM parameters?

Brad Chandler: Wow, so this is pretty technical… When you go to Google, it’s like Google.com and it has a long string of numbers and letters, each one of those is tracking, so anytime anyone clicks on something and it goes in our database, we can see where it’s coming from.

Joe Fairless: How did you build that team out? Or is that your area of expertise?

Brad Chandler: I would say my expertise is marketing, but I’m more of the high-level “Hey, I know the consumers’ behavior and what makes them buy and purchase…” Things like that that are very technical – we just hire people with that know-how.

Joe Fairless: How do you know you’re hiring the right people?

Brad Chandler: We have a pretty exhaustive interview process, where it’s very, very intense. We run through a [unintelligible [00:12:36].17] analysis, as well as the behavioral test. We ask for lots of references and we go really deep in the reference checks, and then we literally spend about three hours with each candidate. When you spend that long and you do that much testing, you really have an idea. Of course, you wanna look for past success and previous positions and previous accomplishments in their life.

Joe Fairless: What’s the behavioral test?

Brad Chandler: Behavioral test – we had actually used something that helped Keller Williams grow. It’s a small company in [unintelligible [00:13:02].04] it’s called an AVA. It’s a little bit different than a personality test; the report that it gives really tells you your behavior, and what you’re good at and what you’re not good at.

Joe Fairless: Got it.

Brad Chandler: And if anyone is hiring people and not using those tests, you’re really missing out.

Joe Fairless: If I wanna give the test to someone, how do I get access to it?

Brad Chandler: It’s through a small company called Corporate Consulting in [unintelligible [00:13:24].12] Virginia. But there are several products, Joe, as you probably know, on the market, like the Myers-Briggs, and… There’s a number of them.

Joe Fairless: So you are investing over 100k in marketing, and then once you get a lead, what are some things that you have evolved over time? Because you’re getting a high volume in your process.

Brad Chandler: We’re getting ready to recreate everything now to make it simpler and flow smoother, but approximately in 2010, 2011 and 2012 we kind of looked back and said “Gosh, we’ve probably lost millions of dollars not following it properly.” So we implemented Infusion Soft, which is pretty complex, and for the normal homebuyer I would not recommend using it… But we implemented it.

My COO did a deep dive and really learned the ins and outs of it; he got training from one of the ex -founders or one of the first guys at Infusion Soft, and we just have become so good at follow-up. We touch them 15 times in the first four days, and then we never let a lead go. We closed leads last year that were seven years old. In 2017 I think we closed like ten deals just from calling back missed phone calls… So we’re all about follow-up.

Joe Fairless: What are the 15 ways – and obviously, you don’t need to mention all of them, but can you talk more about that? And four days, 15 times…?

Brad Chandler: It’s just simply a combination of voicemails, phone calls, text and e-mails.

Joe Fairless: What part of that is automated?

Brad Chandler: It’s semi-automated. Let’s say a lead came in today; it would trigger saying “Hey, give him a call.” So we automatically give him a call. When we push the button that said “Did not answer”, they would get an e-mail fired off, and then a couple hours later they would get a text fired off. When they came in the next day, it would say “Hey, you’ve gotta call Johnny back”, and the same process would start – call, if you didn’t get him… And we’re soon gonna have a technology where we just — well, we kind of have that now, where we can push a button, it leaves a voicemail, and then an e-mail would go out and then a text would go out.

Joe Fairless: What’s something else from the evolution of your company – not necessarily marketing-specific, just the evolution of your company – that you’ve learned that could help other Best Ever listeners who are wholesaling and looking to build, or even just an investor looking to build their company?

Brad Chandler: I’ve gotta mention the follow-up again. That’s probably the single most important thing.

Joe Fairless: [laughs] Yup.

Brad Chandler: Something I’ve known, but I just didn’t do it – I’ve always known how important people were, but I was never able to pull off a team that just every single person is an A player, and after 13 years of going through a lot of bad candidates and a lot of bad employees, we have got a team now that there’s not one person that I’d say “Oh, if he/she left, I would care…” – we don’t wanna lose anybody. Good people make everything a lot simpler, so make sure — even if people may be listening to this and saying “You know what, I’m getting ready to make my first hire. I don’t spend $150,000/month in marketing, I don’t do 200 deals a year… I just need someone to help me out, so what I’m gonna do is I’m gonna put an ad on Craigslist, I’m gonna put an ad on Monster.com, hopefully I’ll get three candidates and I’ll just pick one.” That’s the worst thing that you could do, because a bad hire can absolutely ruin you.

Whether you’re hiring your first person or your hundredth, make sure that you do a detailed, detailed interview, and make sure that you’re selecting someone who you really, really want to. If red flags come up, really research those or just discount them and move on.

Joe Fairless: Do you do a test period with your potential hires?

Brad Chandler: We’ve done it in the past, but it’s not protocol. Virginia’s an at-will state, so we’ve got really strict KPI’s and we’re looking at people on a monthly and weekly basis – are they performing? And if they’re not performing, they just don’t stick around.

Joe Fairless: What’s an at-will state?

Brad Chandler: At-will means the employer has the ability to fire at any time, without repercussions, without cause.

Joe Fairless: What is your best – and you might have just mentioned it, the follow-up process… But what is your best real estate investing advice ever?

Brad Chandler: We’re marketers, really. Anyone in the homebuying business, they’re a marketing and follow-up company that just happens to buy and sell houses, so I think I’ve just mentioned it – marketing, follow-up and just people.

Joe Fairless: Got it. Okay, cool. Are you ready for the Best Ever Lightning Round?

Brad Chandler: Sure.

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

Break: [00:17:27].01] to [00:18:01].19]

Joe Fairless: Best ever book you’ve read?

Brad Chandler: I think I just may have read it, and that was High Performance Habits by Brendon Burchard.

Joe Fairless: Best ever deal you’ve done?

Brad Chandler: We wholesaled a deal in 2005 where we made $300,000 on it. It was a small building… Actually this was a multifamily, like a three-unit in Adams Morgan in DC.

Joe Fairless: How did you find that deal, do you remember?

Brad Chandler: I bet you it came off of a TV ad.

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

Brad Chandler: In 2005 we bought three development deals in one month, thinking that we were the smartest people in the world and knew everything about real estate, and we ended up losing three million dollars collectively on those three deals.

Joe Fairless: Oh, that’s fun. That’s a good lesson.

Brad Chandler: Oh, great lesson. [laughs]

Joe Fairless: When presented a similar opportunity, how would you approach it now?

Brad Chandler: Well, we have had similar opportunities and we’ve actually turned it around and made great profits. We didn’t know what we didn’t know back then. We should have done our due diligence, we should have had an attorney involved in the process… So just before you go hard on a deposit, make sure that you’ve got all the approvals that you need.

Joe Fairless: Is that what happened – you went hard on a deposit, but didn’t get the right approvals for breaking ground?

Brad Chandler: That was the problem on two of them, and the third one was just a complete debacle in every way, shape and form.

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

Brad Chandler: I am finding it very fulfilling to teach people what I do, and starting to change people’s lives by teaching them how to invest in real estate.

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

Brad Chandler: I’ve got a book titled “Wholesaling Secrets: Discover This One Technique We Use To Close Over 200 Wholesale Deals Every Year Consistently.”

Joe Fairless: That’s a mouthful.

Brad Chandler: Yeah, I know. The next book I’m gonna shorten… Simply text the word “invest” to 855-999-1616, and they can go to BradChandler.com for my coaching programs.

Joe Fairless: Cool. And I’m kidding about the mouthful, because my podcast is The Best Real Estate Investing Advice Ever Show, and I always tell people “It’s tough to say, but great for Google searches.”

Well, thank you for being on the show and talking to us about how you have scaled your wholesaling company, how you are in marketing and you happen to be selling houses, so it is about the follow-up and it is about the people that are on your team… And how you’re allocating your marketing budget – 40% towards internet, 40% towards direct mail, and 20% towards television… And then how you screen potential candidates for your company.

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

Brad Chandler: Thanks so much, Joe.

Bobby Montagne and Joe Fairless

JF1222: Pivoting From Development To Private Money Lending with Bobby Montagne

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He has over three decades of residential property development, finance, and sales. After 2008 Bobby saw that banks were not able to lend on projects that previously had never been an issue. With capital drying up, he decided to pivot. He created Walnut Street Finance to provide capital to companies doing what he just pivoted from. Now his company is a full fledged private lender that understands the product (construction & development) better than most, which allows them to lend when a lot of others cannot. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Bobby Montagne Real Estate Background:

– Three decades of experience in commercial and residential property development, finance, and sales

– Successfully overseen $15 billion in career transactions

– Among an elite class of private real estate lenders and delivered high-quality returns to partners and investors

– Between 2010-’15 was principal owner of WSD Capital, a real estate development firm that renovated and resold 185 classic row houses that generated $150M in revenue

– Based in Fairfax, Virginia

– Say hi to him at: www.walnutstreetfinance.com

– Best Ever Book:Think and Grow Rich


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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, Bobby Montagne. How are you doing, Bobby?

Bobby Montagne: I’m well, thank you. How are you? Thanks for having me.

Joe Fairless: I am well too, and you’re welcome, my friend. I am very much looking forward to our conversation. Holy cow, I was looking over your bio before, and you’ve got some experience – three decades of experience, in fact, in commercial and residential property development, finance and sales. And in fact, between 2010 and 2015 he was the principal owner of WSD Capital, which is a real estate development firm that renovated and resold 185 classic row homes that generated – get this! – 150 million dollars in revenue.

He is based in Fairfax, Virginia. His company now – Walnut Street Finance. There’s a link to that in the show notes page… With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Bobby Montagne: Sure thing, I’d love to, and again, thanks. The short story is I got out of school in the late ’80s, I worked for other developers and finance companies for ten years. I started my own company, Walnut Street Development in the late ’90s, and then built essentially infill residential properties in and around Washington DC in what we refer to as the Beltway And by infill I mean typically very good locations, where we were tearing something down or just buying a small infill site and building a building.

We built high-end condos, we built single-family detached, and we were essentially the builder and the developer. We would buy the land, zone the land, build the buildings, sell the buildings.

In 2015, after the recession and the Dodd-Frank Law I noticed that capital was no longer available for the typical infill developer, just because banks used to be able to do essentially A to Z. After the recession, the whole front of the alphabet got taken away from them, and capital was no longer available to the typical infill developer. So if I started my company in 2012 or beyond, I probably could have never found capital to build the projects.

So I decided to pivot, and go from the builder/developer to a lender, in the space where traditional banks weren’t lending. I love this space, I understand the space, I understand real estate and the thought process, and we’ve been at it now for a year and a half. We’ve originated about 15 million dollars in 40 different deals in and around Washington.

Joe Fairless: Is that where you’re focused to lend, Washington?

Bobby Montagne: Washington DC, Northern Virginia and pieces of Maryland that, again, touch the Beltway, Southern Maryland. The plan is to do it in that market, this region, for the next year or two, and then begin to think about other markets. But we wanna perfect our model, perfect our underwriting, and just really better understand this private lending space before we move into markets that we’re not familiar with.

Joe Fairless: There are opportunities that I see all the time, but my focus right now is multifamily investing. However, I might think “Man, storage units (which I do) make a lot of sense, and so do mobile home parks.” I believe both of those things. However, I’m not gonna pivot, because I’m focused on what I’m doing.

Now, you said you saw an opportunity, because the capital wasn’t available for infill developers in 2015, and now you wanna be the solution to that, but what were the other reasons why you switched? Because it’s one thing to see an opportunity, it’s another to then switch what you’re currently doing and making money on and do something else.

Bobby Montagne: That’s such a good question. As with every pivot in a business, especially if you’re having success, pivoting is a big deal. We started buying dilapidated row houses in Washington DC in 2010, and we could buy dilapidated row houses in DC in 2010 for a great number. We would do a complete gut renovation and sell the property, and have a cash-on-cash return somewhere in the high twenties. It was a good business.

That high twenty cash-on-cash return continued through 2014. I was flabbergasted at how long it lasted. Typically, when you have those sorts of returns, others discover the space, money comes flooding into it, competition increases. Others can discover the space and get after it in an organized fashion or compete with us in an organized fashion until late ’14, early ’15.

Before late ’14, early ’15, depending on the market, we had a very simple formula – essentially, we would buy a dilapidated row house for $10  (I’m just using that as a ratio point), we’d fix for $5, and we’d sell for $20. If we were in Georgetown, that ratio would be buy dilapidated for a million dollars, renovate for 500k, sell for two million. If we were in Petworth, we’d buy it for 300k, fix it for 150k, sell for 600k. So that buy for ten, fix for five, sell for twenty formula stuck in many neighborhoods, and we did it as efficiently as we could for four years, 180-something-odd units.

In late ’14, early ’15, as others discovered the space, the buy for ten moved to buy for twelve. The fix stayed at five, and the sale stayed at twenty, so the margins got squeezed because there were more players bidding up the price of dilapidated row houses. It got very competitive, and the simple story was in a neighborhood called Petworth we had done 30-something-odd row houses; on a particular street in Petworth (3rd Street), we had done five or six deals. I knew 3rd Street really well. I knew dogs’ names.

A house becomes available on 3rd Street, I’d hear about it at one o’clock; I’d bid 350k, we’ll close as soon as they want to, and I’d get a call later that afternoon the number is 375k. I said “Okay, 375k it is. Ready to close.” I’d get a call after dinner, the number is 400k. It’s the first time Petworth dilapidated traded for something with a 4 in front of it, and that’s when it hit me – I was like, “Holy cow, the others have discovered the space. We’ve gotta think about a pivot.” And that is what led to the original thought of the pivot.

In fact, the moons always line up. I called the guy who won on 3rd Street for 400k – a great guy, a young guy, just getting into the space, quit his 9-to-five, was gonna get into this business big time, educated… But he didn’t have any capital. So I called him, I introduced myself, he said “Yes, I know who you are, I know your company, and I like your product.” I said, “Well, listen, congratulations on the buy. When do you have to close?” He said, “Thirty days.” I said, “What are you gonna do for capital?” He said, “I don’t know, but I’ve got about 25 days to figure it out.

Long story short, I lent him 300k of the 400k to buy it, and I lent him all the construction improvements and he turned into a friend of mine. I did two or three deals with him off of a yellow pad. I hadn’t even considered really getting into this lending space… And after I did a couple deals with him, I began to think, “This really makes sense, because there’s so many folks that are very good builders, and they’re also good deal bird dogs, just like this guy on 3rd Street, but what they don’t have is access to capital”, and they don’t necessarily understand money as well as they should, and I can help in both of those categories. So that was the beginning of the thought process, and it went from there.

Joe Fairless: If you were talking to someone who lives across the country from you so there’s no competition from them, and they said “Can you just tell me what are the benefits from owning a company that does these loans (hard money lending)?”, what would your replies be, from a monetary standpoint? “Well, we mitigate our risk here and then we make our money here…” What would you say?

Bobby Montagne: I would not get into hard money lending or private lending or the space I’m in if I did not understand the product as well as I do. My company really understands construction. We know what a two by four costs; we know how to underwrite, we know how long the construction takes, we know about permits and plans and marketing. We’re so comfortable in that space that I feel like I can take on more risk than most of our competitors in this space who are typically – not across the board, but typically very smart money guys, but they don’t know what a two by four costs.

So to answer your question, with that background [unintelligible [00:11:29].19] real estate, the upside in this space is the security of the investment. We’re lending 75% to 80% loan-to-value in the first lien position on a hard asset – a row house, a single-family detached, a condo in and around Washington DC, the capital of the United States, where the real estate values are pretty strong. So if things go South, we have real collateral backing our investments.

In addition to that – and again, with the caveat that we understand the space and the asset, in addition to that, lending only up to 75% of the loan-to-value, we vet fully not just the real estate, but the borrower also… Not from the standpoint that there’s a big, fat balance sheet – because they never do – but from the standpoint of “Are they capable of doing what they say they’re gonna do?” And then in the completely subjective category, do they have integrity? Are they going to do what they say they’re going to do? You get to know the borrower, and then at some point you put your hand on your heart and you “I believe he’s [unintelligible [00:12:37].22]”

So if somebody on the other side of the country is getting into this space, I would recommend really knowing the product, and I would recommend underwriting not only the hard asset, but also the borrower.

Joe Fairless: As far as how you make money on it, you initially talked about the security of it with the 75% loan-to-value, so you’ve got some leeway there, and then you also have a hard asset… What type of upside is there for you?

Bobby Montagne: Well, what we do is we have a fair amount of my own money in this, but our cost of capital we pay our investors is somewhere in the neighborhood of 8% to 9%. We pay our investors a monthly coupon, so they get a check every month. Then we lend that money to our borrowers, that’s somewhere between 10% and 12% annually, and somewhere between two and four points. The total cost is somewhere between 12% and 15%. So we receive 12% to 15% for the money that we put out, we pay 8% for that money, and we keep the delta.

Let’s say the delta is 5%. If you can build a company where you’re doing 10 million dollars in loans per year, you can count on keeping 5% of that, or 500,000 bucks. The real game is to scale the company to somewhere in the 40 million dollars of origination per year, and we’re on our way to that. We should be there in early 2019. Then when you apply the 5% delta on 40 million, it’s a two million dollar upside. You use that two million dollars to first pay your people, and you don’t need a lot of people in this space; you need a handful of really smart people, and the rest goes to retained earnings. That’s a good business.

Joe Fairless: With the investors you’ve got monthly distributions you’re doing, 8% to 9%… When you are low on projects, are you still having to pay 8%-9% to investors on projects that you’re not lending their money out to earn that higher percent so you have a delta?

Bobby Montagne: That’s a great question, Joe. Typically, in the hard money or private lending space when the money is idle, not in play in a deal, investors aren’t getting paid, so the switch is shut off. When a new deal arrives, the switch gets put back on. I don’t do that. If you invest in my company at 8% or 9%, the switch goes on and it doesn’t go off until you redeem. I’m able to do that because we have a very strong pipeline, and the reason we have a very strong pipeline is because we’ve invested very heavily in in-bound marketing, and our phone rings with viable deals.

So I don’t have the off-switch for my capital, so the next question – or the obvious question – is “Well, what happens when you have a whole bunch of idle capital and you’ve got money just going out and not coming in?” Well, we protect ourselves from that in that we can return capital. If I have idle money and I don’t see a home for it for the next three or four months, we’re gonna return capital. But honestly, where we are in the business, in the growth mode, shame on us if we don’t have a home for capital.

Joe Fairless: You said you invest heavily in inbound marketing – what are you investing in?

Bobby Montagne: We invest heavily in inbound marketing and outbound marketing. On the inbound side we work with HubSpot; we put out content blogs, two and three and four a week, primarily aimed at potential borrowers. On the outbound marketing side we have outreach meetings to talk about hunting for a deal – “What are you looking for? What neighborhoods are promising? Why would you pick that neighborhood over another neighborhood? How does the math work?” “We’ll buy for ten, fix for five, sell for twenty.”

So we’re educating… We’re content marketing, as the term is, but we’re educating. We’re constantly trying to help, not dissimilar to what you do, trying to help those worthy borrowers who are very good builders, who get up early and get after it. We’re trying to help those folks build a business. And we can do that by providing capital, and we can do that by providing help. For example, we did a loan with a guy in a great location (again, in Washington DC), in a neighborhood called Eckington. Gut renovation of a row house; permit should have taken three to four weeks. After three to four weeks, no permit. We give them a call and say “Hey, when are you starting?” He says, “I can’t get my permit.” We said, “Well, what’s going on?” He explained it to us, we provided a resource that he then engaged, hired, and it [unintelligible [00:17:42].02] and off to the races he went.

So we try to help not only with providing capital, but we also do a bit of coaching. “This is a better way to go than the other way”, if folks want to ask. If they don’t wanna ask, that’s fine, too.

Joe Fairless: Based on your experience in the industry as a developer and now on the lending side, what is your best real estate investing advice ever?

Bobby Montagne: Not my best advice, I borrowed it from Warren Buffet – it’s preserve capital. That’s the first and probably only real rule. You can’t afford to lose capital. It happens, it’s happened to me, but you really have to protect your capital. So that’s my advice. As Warren Buffet says, “Rule number one – protect capital. Rule number two – see rule number one.”

Joe Fairless: On the part where you have lost money on a deal, can you tell us a story about that deal?

Bobby Montagne: I can, actually. It wasn’t on the lending side… Like I said earlier, we’ve been in the lending business for about 15 months now. We haven’t had any deals get sideways on us. We will eventually, and we know how to deal with it when it does happen, but in 2000 to 2005, 2006 I built high-end condos in and around Washington. Very big deals. I built a building next to the Vice-President’s mansion in Washington DC off of Wisconsin and [unintelligible [00:19:10].20] a 420-unit deal in Arlington; it had a pool on the tenth floor that looked down the mall… I mean, really high-end condo stuff.

And from 2000 to 2005 you couldn’t build them fast enough. They sold off with paper before we even had the frame up of the building. In 2006 we had three buildings, mostly completely sold out. Between the three there were 15 units all in the 1 million plus range that had not sold, so we were kind of scratching our head in late ’05, early ’06, like “Why haven’t these sold?” The building is done, people moved into it, it’s a great product, but they weren’t selling.

At the same time, I was getting ready to start a building on Mass Ave. in Washington, a ten-story apartment building where we had bought the land, zoned the land, gone through historic review, and getting ready to build the building.

So I went to New York and I got a big construction loan to build this ten-story building in early 2006, and it was so easy to convince the bank in New York that this was a viable project and they should lend literally tens of millions of dollars to get it built… And I left New York on a train on Thursday night and I started thinking to myself, “That was way too easy.” There should have been way more due diligence on the bank side, way more questions, like ‘How fast do they sell? How many days on the market? What are the price points? Why did you decide to do this many one-bedrooms and this many two-bedrooms?’ None of those questions.

So I’m sitting on the train, I’m coming back to Washington from New York, and it occurred to me, “That was really easy money for this ten-story building on Mass Ave. and we have 15 units that we can’t sell in these completed buildings.” So I started thinking, “We can’t sell the last units, easy money… We’re at the top of the market. We need to get out right now.”

I went and I talked to my equity investor at the time, an older gentleman who’d seen it, been there and done that, we kind of talked through what I’ve just said, but in a little more detail, and he agreed. “It’s the top of the market, time to get out.” So we sold everything – we sold those last 15 units, five of them a at a loss, we sold that site on Mass Ave., the ten-story multifamily condo building site on Mass Ave. at a slight loss, and we got on the sidelines in 2006 and stayed there until 2009. And although I lost money and the business obviously didn’t grow, because we weren’t building anything, it was the smartest thing I’ve ever done.

Joe Fairless: Wow. I’ve heard stories where people got out, but I haven’t heard as detailed of a story like you just told us. Thank you for sharing that. Are you seeing anything like that now?

Bobby Montagne: No, I am not, and I really like the way we’re growing now. At least I can speak towards the Greater Washington Metropolitan marketplace. We’re increasing in values, but at a steady, reasonable pace. There’s no crazy spikes. Construction costs are remaining relatively steady, eaking up a little bit, but no spikes.

I remember in 2004 and 2005 we were selling a 420-unit building in Arlington, we would have a conference call every morning with my equity partners and the lead bank to talk about pricing, because we would increase prices almost every day, and we’d still sell it, which is crazytown. And when building buildings we would budget x amount for steel, and then all of a sudden steel costs 2x, and you’re like “Why?” and it’s like, “Well, that’s what it costs. The demand for steel. Supply and demand. Prices went up because everyone wants steel.”

Concrete – same story, and then you always heard, “Well, they’re building everything in China, so concrete prices are up because China is sucking up all the concrete.”

I’m not seeing anything or hearing any stories like that now. It’s just steady, the line is increasing, but not at any spike or exponential rates. I love that kind of market.

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

Bobby Montagne: Sure.

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

Break: [00:23:41].26] to [00:24:39].08]

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

Bobby Montagne: Think and Grow Rich.

Joe Fairless: Best ever deal you’ve done?

Bobby Montagne: Clarington 1021, a condo building in Arlington.

Joe Fairless: And why is that the best ever deal?

Bobby Montagne: Not just for me, but the profit mostly for the equity partners… A profit of 15 million dollars in 18 months.

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

Bobby Montagne: Not doing full due diligence, and I continue to make that mistake. It’s a fight against frankly being lazy. Can’t do it.

Joe Fairless: What’s one area of the due diligence that you’ve honed in on that you need to put more focus on?

Bobby Montagne: Well, we have gotten better at that, but I would say the piece that we constantly need to ask about is document control. Are all the documents right? Do we have the originals? Is everything fine and within the right spot? Did the title report say what we wanted it to? Are we properly ensured? You know, document control.

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

Bobby Montagne: The best ever way I like to give back is actually being involved in the giving back and not just writing checks. For example, we get involved in helping to renovate and build houses for those that wouldn’t be able to do it for themselves, kind of a Christmas in April program. I really like that way of giving back.

Joe Fairless: And how can the Best Ever listeners get in touch with you or learn more about your company?

Bobby Montagne: Our website is WalnutStreetFinance.com. Our phone number that rings in our office on everyone’s desk and gets picked up is 703-273-3500. My cell phone – if you are interested in learning more about this space or our company, you can call me directly. That number is 202-409-4100.

Joe Fairless: Well, thank you for talking about your experience in real estate developing, and then also doing what you’re doing now – lending; why you got into lending, you saw the writing on the wall, the example of what you were looking for with the deals, I love how you simplified it. For me it was helpful, because I have a very simple mind – that “ten dollars you buy, five dollars you fix and you sell it for twenty”, and how you were seeing it bump up to twelve, five, twenty. And the writing on the wall that you saw in 2006, and what you did, and then some deals that you’ve done along the way.

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

Bobby Montagne: Joe, thanks so much. I really appreciate your time.

best ever real estate pro advice

JF950: Creating Your Internal Success and External Success and Fulfillment #SkillSetSunday

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They’re both necessary, and today you’ll hear how to create both. You’ll understand why there are internal and extra no goals and what the purposes of them are. Be nourished by this episode and start planning your future!

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Alison Cardy Real Estate Background:

– Founder and CEO of Cardy Career Coaching
– Runs an international career coaching team specializing in guiding people through career changes
– Author of Bestseller, Career Grease: How to Get Unstuck and Pivot Your Career
– Based in Arlington, Virginia
– Say hi to her at www.cardycareercoaching.com/

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success advice from Alison Cardy


Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. 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 Sunday, we’re doing a special segment, like we usually do, called Skillset Sunday, where by the end of the conversation you’re gonna have a specific skill that you either didn’t have before, or you’ll be able to hone a current skill that you have, to make it even sharper.

What we’re gonna be talking about today is, as real estate investor we clearly have our quantifiable goals outlined for what we want to achieve for success, and what a lot of people might not have identified is the internal success, the internal scorecard. So yes, we will achieve our goals, because we are Best Ever listeners and we’re gonna listen and make sure that we implement that advice in action… But what about the internal success, and what about the stuff that matters most?

With us today to talk through how we can accomplish the internal success in addition to the external success that we’re seeking – Alison Cardy. How are you doing, Alison?

Alison Cardy: I’m great, how are you?

Joe Fairless: I’m doing well, nice to have you on the show. A little bit about Alison – she is the founder and CEO of Cardy Career Coaching. She runs an international career coaching team, specializing, guiding people through their career changes. She’s the author of the best-seller “Career Grease: How to Get Unstuck and Pivot Your Career”. Based in Arlington, Virginia.

Alison, before we get going on the internal success approach, can you give the Best Ever listeners a little bit more background so they have some context about what your focus is?

Alison Cardy: Definitely. As you mentioned, I run a career coaching team, and one kind of interesting back-story on me is I have two core values that are just so fundamental to who I am and I how I operate in the world. I really believe in honesty and I really believe in looking at reality and operating within reality. For the past eight years I’ve been running this career coaching business, with moderate success externally.

In terms of internally, we do a great job for clients, [unintelligible [00:04:34].24] happy, but I have really struggled for a long time with the idea of marketing, because it runs so counter to those core values that I held. I would tell it to people straight, and I would hesitate to put forth some kind of fantasy about how things are gonna be. As a result of that, banging my head against the wall about “Why am I not attracting more people towards my work?” and not hitting that external success right out of the gate (or even in a couple years in), I had to learn how to stay sane in the midst of not having those external successes.

What I really came to – and it kind of matches my personality – was how to have internal success and internal happiness. I’m curious to vet this against you, but I think sometimes the external result can be a little unreliable; we can get it some days, and some days we’re in the game, we’re trying, we’re playing on the card, and we don’t get it. So what I came to was how to find that peace and contentment, independent of the external result. Of course, we still wanna be striving to get those things, but there’s a place where you can be peaceful and happy, no matter what score the game comes down with.

Joe Fairless: Yeah, this is gonna be so helpful… I have seen with how I set goals; sometimes my goals will be in motion, so once I accomplish them, I’m like “Yeah, that’s good, but what’s next?” and then I immediately set up another goal… Which people say you should do, as far as setting up another goal, but I don’t take enough time to celebrate when I do accomplish a goal, and ultimately we’re on the journey to accomplishing goals much longer than we actually sit and take in the glow of accomplishment.

So since we’re on the journey to accomplishing it much longer, boy, this internal success dialogue and being okay with where we’re at is incredibly important, because ultimately that’s like 95% of the time when we need to have that in place, versus the 5% when we actually achieve the external success.

Alison Cardy: I love what you’re saying, Joe. Exactly! It’s kind of like “How can we feel successful all along the journey, before we hit the goal, while we’re en route, when we actually achieve it, when we’re setting the next one…? How can we have that inner contentment that’s not just reliant on that 5% happening, or living that 5% happy and then go back to the 95% of “Yeah, so I’m working for this next thing again, I’m not happy right now.”

Joe Fairless: Absolutely… So how do we do it? That’s the money question.

Alison Cardy: Definitely! Well, one of the strategies – I’ll share a couple – that is really helpful is to think about internal metrics of success. This is really common for sales people where you know “Okay, if knock on a hundred doors, I can’t expect or be certain of how many sales I’ll make, but I can know that if I do what’s in my control (knock on those doors) and I measure that and I track that, man, I can wake up the next day and knock on a hundred doors again, because I feel like I did what I can do.”

So in anything in what you’re working towards, if you can think about not just the external result, goal that you’re looking for, but also the mini process goals along the way that are within your control. It’s sort of like if you were an athlete and you’re training for the big game, you may not know that you’re gonna win the game, but you can work hard and practice, you can show up… That is within your control. So really focusing on what’s in your control, setting metrics against those internal activities, and then when you hit those all along the way, which you will do en route to your goal, give yourself a pat on the back every single time, and know that “Okay, I’m doing what I can do. I’m being a success no matter what happens.”

Joe Fairless: Yeah, those mini process goals – I love how you phrased that, because I recently had someone ask me “How do you measure success on a daily basis?” and it really is identifying your large long-term goal, but then having these, as you said, mini process goals that you know when done tie into the longer term goal.

The beauty of the mini process goals and they key is, I believe, identifying what is effective action for the mini process. Because if you’re doing mini process goals and the mini process goals are not effective, then you’re not gonna reach your long-term goal. But if you know what is effective, then you simply don’t focus on the long-term goal, you just focus on the things that you know are proven to get you to the long-term goal. In that way, you don’t feel let down every day when you don’t get the long-term goal; you actually feel uplifted, because you are doing these mini goals that lead up to the long-term goal.

Alison Cardy: Exactly. And I’ll just build on that with one other concept, which is the difference between commitment and attachment. Commitment to a goal is “I’m gonna work on this and I’m gonna do whatever it takes to get there.” This is more for that bigger long-term goal. Attachment to the goal is “It has to happen this way, at this exact time.” There’s a difference between commitment and attachment, and I think a lot of times where people create unnecessary strife for themselves is when they get so attached to a particular, specific vision – “It has to be this way, it has to be at this time” and it shuts off to other possibilities.

A better philosophy is commitment, which says “Okay, I wanna get to this end result, but I’m open to finding a better mini process goal if this one’s not working” or “I’m open to switching things up to get that final goal, so that I can actually be effective” versus being so attached and grasping to “It has to be my way, or else…”

Joe Fairless: Wow… I can tell you that directly applies towards multi-family syndication. I have clients I work with, and the very first thing that we do is we outline what success looks like for our time together… And I’m gonna start talking about the commitment versus attachment approach, because what I found is when we set a goal, let’s say a thousand units in five years – we wanna control a thousand units in five years, so maybe they wanna do five syndications in five years, 200 units a pop… There are multiple ways to approach it and accomplish that.

For example, they could raise all the money themselves and be the only general partner. If they were attached to that goal, then that’s how and only how they would think. However, if they’re committed, then perhaps there’s other ways to accomplish it, which I’ve seen in what I’ve done with people, and that is they raise money for my deals, and they’re out of the gate much sooner and they’re able to accomplish it much faster… But it’s not what they initially thought the process would look like.

I’m gonna think about that for my own stuff, too… My goal is to control a billion dollars by my 40th birthday, and I’m gonna just let that float, versus be attached to a certain amount of units or any number of ways. So the question I have for you is how do you know what is too vague — because you have to have a vision, so how do you know if you’re too vague with the commitment?

Alison Cardy: I think that the goal is pretty easy… I would imagine for you, Joe, you’ve set goals before, this is how to define it, how to be really clear about it, so I would agree – you need to be clear on what you’re trying to get to. I think the place that can be either so binding for people or freeing is the path to get to it. So if they think they know the way to get to it, or if you think you know the way to get to that goal, then you’re gonna only see certain opportunities; you’re only gonna go in the direction that your brain already is familiar with.

But if you see that goal and you say “Okay, I’m committed to this. I’m gonna work on it, I’m gonna do whatever it takes, I’m gonna get this goal, but I don’t really care how I go about doing it. It doesn’t have to be my way, or a way that I’m familiar with…” All of a sudden, it frees your brain, it opens up your brain to see so many more possibilities that may make the achievement of that goal much easier than if you just kind of have your head down and saying “Okay, this is how to do it.”

Joe Fairless: It makes sense. I think going back to what we were talking about earlier – the mini process – I think that the key with the mini process is knowing that the mini process goals that you are creating are effective. Do you have any tips for how we identify if what our mini process goals are, if they are actually being effective or not?
Alison Cardy: That’s a good question.

Joe Fairless: Or even how to pick the mini process goals, the approach we should take to the mini process that you mentioned…?

Alison Cardy: Yeah, I have two thoughts on it. One is if you can connect with somebody who has done what you’re trying to achieve – obviously, for people who are getting into real estate investing, if they were to connect with you, then that person’s gonna have more of a vision of how that landscape works and what’s gonna be effective.

I think finding somebody further along who can help you to identify the most effective process goal is really valuable, more so than people realize. Because it is tricky to know what’s gonna be effective or not, and somebody who has that experience and perspective can say, “Hey, did you ever think about doing X? That’s gonna get you really slow results, so you should probably think about Y.” So that’s one thing.

Another thing – there’s something to being open to trying and learning, and as I mentioned in the intro, being open to reality. If you’re trying something and you give it a period of time – I’m not sure of the exact timelines for your industry, Joe, but if you think about “Okay, I’ll try this for a certain amount of time” and you look around and say “This isn’t working… What can I do differently?” Sometimes you just need to try things and see, because even with an expert, things are gonna work differently for different people, they’re gonna bring different strengths… So kind of being open to trying and know “Okay, part of the process is figuring out which is gonna be most effective for me.”

Joe Fairless: Makes complete sense. When you looked at the type of psychology shift that you made from — first off, how did you come across this shift in psychology? What was a tipping point for you and how did you come up with the commitment versus attachment and the overall internal success approach?

Alison Cardy: I think I’m just naturally very internally focused. I’m an introvert, and that’s where my brain goes. If you were to look inside my head, it’s very much in order, it’s very calm… I just don’t know where I put my focus. So I came up with it because many times I would get attached to a goal – “It has to happen like this” – and it was so painful to me when I’d have that goal and I wouldn’t hit it. I was like “There’s gotta be a better way”, as opposed to just driving myself crazy with having a fantasy of how the world should work and then being disappointed when it didn’t follow my dictatorship exactly the way that I wanted.

So I think it was some of those experiences, and then also just having that idea that there are certain things that I can control, and there are certain things that I cannot control. Why don’t I put all my intention on what I can control, and really focus on that? Because that’s gonna be a lot more helpful.

Joe Fairless: Easier said than done. I love that philosophy. It’s something that we have to continually and consciously practice, the focus on what we can control versus what we can’t… Because uncertainty is no fun, that’s for sure, unless we embrace it and we get used to it. That’s also what we’re talking about – uncertainty. Because this is a solution to being uncertain – focus on what you can control, yes, but then also more tactically speaking, what you said earlier with the mini process goals. That way, when there is uncertainty about “Am I eventually going to have a profitable real estate business? Am I eventually going to have leaps and bounds growth?” Well, I know that’s uncertain, but I’m going to focus on these mini things that will equal success when I do them.

Is there anything that we haven’t talked about as it relates to the question of “Okay, we’re not getting the noticeable external success. How do we have internal success?” – anything that we haven’t talked about that you wanna talk about?

Alison Cardy: Yeah, well I think there are really five characteristics, and I’m sure at least we’ll evolve a bit over time… But five that really come to mind for me as to how you can be internally happy in the midst of external uncertainty, which – that’s life. [laughs]

Joe Fairless: Yup.

Alison Cardy: Indeed, that’s life… Unfortunately. So I think the five characteristics – and we’ve hit on some of them… One is – and we’ve just talked about it – clarity on your locus of control, and good boundaries. If you get really good at knowing what’s yours to take care of and what’s other people’s, your life will change. So that’s one thing.

Another thing is having your brain be your friend. If you think about the internal dialogue in your head that we all have, we want that internal dialogue to be – and this may sound a little cheesy – unconditionally loving. We want that presence in our head towards ourselves, and then also towards others; that leads to a lot of happiness, when there’s a kind voice in your head.

The third one is a focus for your brain. I think this is what we were just talking about – having a goal and a purpose, something that you’re working towards, focuses your brain. It’s very healthy, very helpful. Of course, as we just mentioned, we wanna focus on that goal without attachment to how exactly it’s gonna happen.

The fourth characteristic is to rely on internal metrics for measurements of success. “Okay, I’m doing what I need to do. If I’m doing that and I pat myself on the back and feel proud of myself, I can get up and have fun tomorrow.” There’s plenty of work to do in the world, there’s plenty of time to do it, so you might as well enjoy it.

The last characteristic of internal happiness is to prioritize your own personal well being. You could have great purpose, you could be clear on what’s yours, and if you ignore your own health, your own relationships, your own need for rest, you’re not gonna be happy. So it’s really important to take care of yourself in the midst of your journey, as well.

Joe Fairless: Number five tends to be neglected, from my personal experience with people I interact with, and myself included. It’s also surprisingly — it can be the most challenging thing to convince entrepreneurs and real estate investors to do, because they’re focused on the business and they’re not necessarily focused as much on taking care of themselves and having some time for themselves. How do you prioritize your well-being as an entrepreneur?

Alison Cardy: In my life it’s definitely way at the top in terms of taking care of health and the people in my life who I care about, and making time for them. I do it with habits – straight up habits. I think too often people think “Oh, I need to have discipline to eat well, to exercise or to make time for loved ones”, and I would say – this is actually something from Gretchen Rubin… She says, “No, you don’t want discipline at all… You just want the habit in place to actually have your life run that way”, because a habit means it’s running on autopilot; it’s like brushing your teeth – you don’t think about how to do it, you don’t think that you have to do it, you just do it, hopefully.

So the one I would recommend for people if you’re having trouble with this, is don’t take the whole “Okay, I wanna be a healthy, zen person” – don’t take it all in at once… This is my favorite thing to do: just try to do find one little tweak, one small area where you could build a better habit. It’s gonna be different for any individual, but honestly, I believe anything in your life will improve if you give attention to it. So take ten minutes and just look at your life and say “What is one way I could take care of myself better?” and have a habit of it, not just a one-off. “What is one little piece of time in my day that I could tweak and put in something that I enjoy, or that takes care of me, or that feeds me?”

Find it, and then focus for a period of time on actually following through on doing it, make it a priority, and eventually it’s just gonna go into autopilot and you won’t have to think about it; then you can add another one. So don’t do all of them at once, but just find one little tweak that would be prioritizing your well being, and make a little time to try to add that in.

Joe Fairless: There is a talk that Oprah does at the Stanford Graduate School Of Business, she’s being interviewed… I recommend Best Ever listeners go look it up; just search “Oprah Winfrey take care of yourself.” She talks about the importance of just that – taking care of yourself. It’s basically like the plain analogy with the mask – you have to put the mask on yourself first, so you can actually allow your kid to survive, because if the kid doesn’t get it on, then you don’t get it on and you both die. So if’s just a matter of taking that approach, and it’s a tough one for people who are maybe psychologically stable; it’s tough initially, but once we think about the importance of “Okay, we take care of ourselves first and then we can add value to the world on a much greater level than if we didn’t take care of ourselves.”

Alison Cardy: Yeah, I’m gonna check that out. I haven’t seen that particular one. But I’d also add a perspective for people – right now, your goals, your dreams, they feel so important and so urgent, and we need to get them… And if you think about it, a thousand years from now it’s not gonna matter that much. Or even if you think till the end of your life – is it gonna be so important that you hit a milestone by one point, versus a little bit later? That’s not the best for your audience, but just if you take a longer-term perspective, we may as well enjoy our life, we may as well be happy and healthy. Why not? It’s life, it’s the only one that we have, we should enjoy it.

Joe Fairless: I love the perspective, it’s true. There’s very few people a thousand years from now who… Let’s just do this – a thousand years ago there were very few people who we still remember, so the odds are we’re not gonna be one of them. Maybe we are… [laughs] But I think that puts things in perspective.

Well, thank you for being on the show, Alison. Where can the Best Ever listeners get in touch with you?
Alison Cardy: Sure. Our career coaching website is CardyCareerCoaching.com. I am so in love with this kind of authentic happiness thing… I work with just a few select clients on figuring this out, so you can always e-mail me at alison@cardycareercoaching.com if you’re intrigued and wanna implement this in your life.

Joe Fairless: Alison, I took away a lot from our conversation, and I’m sure the Best Ever listeners did as well. This is a challenge that we come across regularly, which is “How do we remain sane when not having noticeable external success?” The solution, as you talked about, is the mini process goals or tactics or actions… Mini process actions, where we take action on a daily basis, and by taking that action we feel that we’re successful because we know if we do it over time, then it will lead to the large results… Maybe not in the exact form that we have visualized, but since we will be committed, not attached to that, we’ll be okay with it, because we’re going to go towards the ultimate vision and not necessarily the exact methodical nature that we have thought about… Because things change, and we have to adapt to how they change.

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


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JF866: How to Find the BEST Deals with the LEAST Amount of Marketing #skillsetsunday

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Arguably the greatest question of all time, how do we get the best deals with the smallest overhead marketing budget? Or how about how do we get the best leads with the least amount of marketing in general? Today you’re going to find out how to find the big dogs in your market, try any market in the US. Next he will take you step-by-step on where the deals reside and how to recognize a deal in that niche market, half the battle is finding the type of buyer that will purchase in that niche. This is an episode you do not want to miss!

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JF728: EXIT Strategy Breakdown and How Many Can be Performed

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Today’s guest has a handle on creative deals, but more importantly, the exit strategy. Instead of looking how to enter a deal he looks at ways to exit the deal to ensure his ability to purchase. Hear how he does it and the many different ways to exit a deal.

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Rich Lennon Real Estate Background:

– Founder and owner of RVA Property Solutions
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