JF2731: One Simple Strategy for Sourcing Off-Market Multifamily Deals ft. Akam Ahmedi

How do you pursue sellers who are on the fence about selling their property? Akam Ahmedi, co-founder of Invest Capital, shares his successful follow-up strategy that has helped him close on three multifamily properties, one of which took two years to close. Akam divulges how he found these off-market deals, along with the details of these properties.

Akam Ahmedi | Real Estate Background

  • Co-founder of Invest Capital, which specializes in acquiring off-market opportunities by going direct to seller and buying properties at highly favorable prices and terms. They value-add Class A and B areas, aim to refinance within two to three years, and give their investors their original principal back.
  • Portfolio: GP of 240 units; $30M in AUM.
  • Five years of real estate experience — entered multifamily one year ago.
  • Based in: Washington, D.C.
  • Say hi to him at: www.investapts.com | Socials: https://shor.by/xiOM

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to The Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any fluffy stuff. With us today day, Akam Ahmedi. How are you doing, Akam?

Akam Ahmedi: I’m doing fantastic. How are you, Joe?

Joe Fairless: Well, I’m glad to hear that, and I’m doing fantastic, too; looking forward to our conversation. A little bit about Akam, he’s the co-founder of Invest Capital, and their website is investapts.com. Props to you for getting that URL; that’s very intuitive to remember based on your business. Your business is primarily buying apartment communities, you’re a GP on 240 units, and those 240 units are worth about $30 million. Based in DC. With that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Akam Ahmedi: Yeah, absolutely, Joe. Thanks for the intro there. It all really started coming out of college about five years ago, got into the marketing space, helping small businesses with their marketing, Facebook ads, Google ads, that sort of thing. That didn’t quite work out, didn’t like clients we were working with at the time, so I jumped into single-family wholesaling. About 2018, the beginning of 2018, I did a bunch of deals in the DMV; it stands for DC, Maryland, Virginia. We got into that, we liked what we were seeing there. However, it didn’t meet the long-term goals, but it was great for short-term cash.

We decided to get into flipping to bolster those numbers, the net numbers, and that increased our bottom line. That still didn’t hit our long-term goals; it did hit our short-term goals, and it bolstered it even more. We got into the next best thing, single-family, that’s very, very familiar right? Multifamily – we decided we wanted to do larger units upfront, take on the challenge, so we got into multifamily about a year and a half ago, closed our first deal. One and a half years later, we’re still doing about 24 flips a year in the DMV, but our primary focus is our commercial real estate business and going after these larger multifamily assets, 150 plus units.

Joe Fairless: Thank you. Some follow-up questions… First, marketing business – it didn’t work out; what specifically didn’t work out about it?

Akam Ahmedi: That’s a great question. If I could go back, I would have made it work out. At the time, one, I was inexperienced. The avatar that we were going for was the reason I believe it didn’t work out. We were learning a lot about marketing and the different types of strategies we can help business owners with. However, the avatar, when you’re going for a restaurant, that’s not bringing a lot of revenue and you have to charge them $1,000 a month. You start to realize that you can’t really provide a superior service for $1,000 a month. You also realize that lower-end clients – granted, they’re still in business; I wish them the best of luck, but they’re usually the biggest pain in the behind. You learn it the hard way, you could barely pay the bills, let alone provide a really good service. By the time the service was provided, there was no leftover cash to keep the business running or even pay the bills.

Joe Fairless: Okay, makes sense. So if you had to do that business again and you could not do real estate investing, how would you make that business successful?

Akam Ahmedi: The marketing business?

Joe Fairless: Yeah, the marketing business.

Akam Ahmedi: That’s a great question. Our avatar would change. I haven’t really thought about it, but just top of my mind, go for higher-end clients, individuals that are looking for lead gen, and a high-ticket space, aim for that. I would really niche down. In my mind right now, as I’m thinking about it, there could be a few things, but it would have to be in a high ticket space. The reason being is I’m all about the superior product, superior service, just top of everything, and that’s the reason you want to charge a lot. That way, if you’re charging say $10,000 to $15,000 a month, you could bring in a lot of weapons to provide that service that goes over the top, that raises their bottom line and makes them happy. Ultimately, they’re going to be happy to pay you 10, 15, 20 whatever the amount is, as long as you’re providing a superior service. That’s how I’d answer that question.

Joe Fairless: Now, you said “we” when you’re referring to your business and now I’m moving on to real estate. Who is “we”?

Akam Ahmedi: “We” is myself and my partner, Ace Karimi.

Joe Fairless: How do you know Ace?

Akam Ahmedi: Ace and I met in college at James Madison University; he transferred in, I believe, his junior year. It was kind of a lucky situation. My roommate and his roommate were best friends in high school, so when he transferred in, our roommates got together, they invited us out, and that’s how we met for the first time. From there, it was just clicking, growing and learning, and becoming closer friends. Then after college, we jumped into a few different business ventures together and it all worked out well.

Joe Fairless: How many years ago did you graduate college?

Akam Ahmedi: I don’t even think I’ve ever been asked that question, but six years ago now. In about three months, it’ll be six years.

Joe Fairless: Got it. Well, hopefully, that’s not the only question I ask that you haven’t been asked before. Otherwise, I’m not doing my job. Alright, so you two did wholesaling and flipping, and then you went to apartment communities… How many apartment communities do you have?

Akam Ahmedi: We currently have three apartment communities.

Joe Fairless: Okay, and they total 240 units. Can you give us a unit breakdown per community?

Akam Ahmedi: The first one was 72, the second one was 64, the third one was 102.

Joe Fairless: Got it. Where are they located?

Akam Ahmedi: Virginia and Maryland.

Joe Fairless: How did you find the 72-unit?

Akam Ahmedi: The 72-unit was off-market. We were reaching out to a bunch of different property managers and owners, and one of the property managers –well, specifically for this property, for the 72-unit– we built a really good rapport with. She had mentioned that the owner was very old, elderly. At the time, that’s all we knew; he was about 97 to 98 years old. We found out what his phone number was; not through her, but through our research online, and come to find out he was a very big player in the market. He actually built the properties to where we happened to be the second owners of that property. He built the shopping center that just sold actually a few months ago. He passed away about three months after we closed that deal, unfortunately. He passed on a pretty large estate of a lot of real estate, retail buildings… What is it called? Elderly homes, nursing homes, apartment communities, and then a bunch of…

Joe Fairless: Assisted living.

Akam Ahmedi: Correct. Single-tenant retail. So he was actually in his own assisted living facility. We didn’t know why he had three different nurses – we thought that was kind of strange – until we were doing our due diligence on the property and one of the employees at the property mentioned that he actually owned and built that assisted living facility, which made even more sense at the time.

Joe Fairless: Yes, yes. You were connecting with property managers and owners, you said, and a property manager told you about him, and then you got his information, his phone number and you called him up. Let’s dissect that some. Tell me about your approach for finding and speaking to the property managers, please.

Akam Ahmedi: That’s a great question. It’s definitely evolved over time. In the beginning, we were heavy with direct-to-seller, talking to professionals in the space, specifically in Virginia and Maryland at the time. Our approach then was, “Let’s reach out to these people that are as close to the owners as possible, or the owner themselves.” In an ideal world, you want to speak to the owner themselves. Everyone else can help you, kind of; sometimes they get in your way, most of the time. At the time, we didn’t know any better, we just reached out to a bunch of people.

The approach was this – we call and we talked to him; for this specific 72-unit, reached out to the property manager, talked to him a little bit about the property, tell them that we’re buying in the area, that we’re investors in the area that we’re buying, that we have the experience… And really just build rapport. You’re not pressing for sale or anything; you just kind of gather information to make them feel comfortable with you. At a certain point, she started feeling comfortable and gave us information, like the man who is 97-98 years old, gave us information that the contractor who happened to be really good friends with the owner at the time was just ripping him apart in terms of what he was charging them.

They were such good friends that the owner in the assisted living facility wasn’t taking the matter seriously in terms of when his employees would say, “Hey, they’re charging a lot of money for each unit turn.” They’re charging like $1,000 to replace some blinds. When we were doing our financial due diligence, it was unbelievable what the contractor was doing. So when we started gathering information, we saw the opportunity. Not only was he 97-98; as you know, Joe, that means… Hopefully, he lives as long as possible, but that estate’s going to pass eventually, that there could be some motivation there to sell; even if it’s not at a discount, at a solid price.

The property was in great condition, believe it or not; it needed unit turns, but the exterior was phenomenal. It just needed a few items and amenities. So it really just came down to understanding “Hey, there may be some motivation and opportunity here after hearing a few pieces of information from the property manager.”

Joe Fairless: You researched property managers initially, or you researched properties initially?

Akam Ahmedi: We researched properties initially, and then reached out to…

Joe Fairless: So you had a spreadsheet of all the properties that you researched, or did you buy that information from somewhere?

Akam Ahmedi: Yes. At the time, it was Reonomy.

Joe Fairless: Oh, sorry. Yeah, got it. So you used Reonomy… And when you initially spoke to that property manager, how do you build rapport with them?

Akam Ahmedi: That’s a really good question. I guess it’s done naturally, but when you reach out, you reach out as someone that is interested in purchasing, interested in helping in any way they can. When you talk to a property manager, you’ve got to be careful, because if they think you’re going to purchase, they think they’re going to lose their job. So you state the elephant in the room and almost immediately, if you’re going to mention that you’re interested in purchasing, you let them know like, “Just so you know, this doesn’t put your job at risk by any means. Usually, when we buy properties, we keep the property manager on board as long as they’re doing great work.”

The following question for me is always, “I’m assuming you do great work, right? That’s probably why you have a job and it’s fully leased.” If they start feeling comfortable, they say yes, and then you continue the conversation. But you have to state that, because otherwise it’ll be a brick wall.

Joe Fairless: Yup, got it. Okay, that’s helpful. And you did not ask for the owner’s contact information, because you said that you found that phone number through a different means. I assume just skip-tracing, or was it just you doing a Google search, or something else?

Akam Ahmedi: You can use software like True People Search, or Fast People Search. Typically, they have really good information. As long as that name is not something like Steve Smith; there are thousands of Steve Smiths. For the most part, it’s pretty easy to find; you put in the location, you put in their first and last name, and you can reverse it. If you have the person’s address but you don’t really know their name, you can reverse their address, it’ll give you their name, and give you the number. Different ways to go about it, but I love using True People Search.

Joe Fairless: That’s what you used in this case?

Akam Ahmedi: This is what we used in this case.

Joe Fairless: Okay. So you got the phone number, you just dialed it up, and the gentleman answers. What do you say?

Akam Ahmedi: My partner actually made the first call to the owner, and for some reason, the owner could barely understand him. I don’t know why. He was old, his hearing was the best. So he passed over the phone to me after making the initial call and getting the conversation started… And it was really just about — with a guy like that, you had to call him in the morning, because he got kind of grumpy past like 12pm. So with a guy like this, you immediately get into it. “Hey, this is who I am. My name is Akam, it’s nice to meet you, sir. The reason I’m calling is that I noticed that you have this property here on 123 ABC Boulevard. I happen to live in the area, I grew up in the area, I own a few properties, and I love what I saw. Are you open to an offer?” A lot of times you get some resistance, because they hear it all the time, people just saying that, but they don’t actually send them an offer. Or they say that and they lowball the hell out of them.

In this case, we let them know we’re always very competitive with our offers. At first, he was just like, “I’ve already been offered 3.8 million. I’m not taking anything less.” We’re like, “Okay, that’s great. Are you open to selling?” His answer was, “Not at this time” at that moment, so we kept following up over the course of weeks.

Joe Fairless: Once a week, every day, every other day? What.

Akam Ahmedi: It depends on the seller. In this case, it was probably twice a week. Give them some space, but not too much space. Twice a week, we kept calling him, and eventually got to the point where he was just very open to it. Some days he wasn’t, some days he was, and all of a sudden, one day he was just like, “I want this much.” So he’s like “Just send in your offer.” So I got his attorney’s information. This is where you have to lead as the, I guess you call it the sales rep, or whatever, the person calling. You have to lead them; it’s something I learned immediately, even in the single-family space. You can’t wait for them. They’re the ones that are waiting for your offer, so you have to lead them.

This is your process; they’re just going to follow you along, your process.

So at that point we took control, got his attorneys information. The first offer we sent, I believe — I don’t even know, I think it was somewhere around like 3.2 or 3.5; automatic rejection. So we came back a week later, offered him 3.8, he accepted. This is where it gets a little shaky… He accepted, and then when we called them back, he was just like, “I’m not selling anymore.” We found out later that his attorney was the guy that was getting in the way.

So what we did was now we followed up even harder. Two or three times a week at a time, and he wasn’t interested, he wasn’t interested. About a month and a half later, we called them, we had it at 3.75, and he was open to it. I remember I was in Tennessee at the time at a mastermind, and I was eating lunch. I was alone but I was like, “Okay, for some reason I know this can get done.” I picked up the phone and I called them, I said something… I was like… What was his name? Louis. “Louis, this is Akam again. How are you?” He’s like, “Yeah, how are you doing?” I said, “Hey, I just want to reach out to you. I would like an answer on if you want to move forward or not. I know some days you do, some days you don’t, but I would just like to let you know that we’ve put in hours of time, a lot of due diligence on this, spent a lot of time researching this property and whatnot, and spent countless dollars with attorneys getting a PSA sent over to you, only for you to back away. I find that extremely disrespectful, but it’s okay. If you don’t want to do business with us, just please let us know. If you do, let us know that too, so that way we can get something done.”

I think that really hit him, because I think it was the disrespect. Him realizing that he wasted not just my time or the team’s time, partner, resources, the people around us, and obviously a few dollars. So I let him be and kind of gave him about four or five days. The next time I called him, he was very happy to talk to me. I just said, “Louis, reach out to your attorney, give him a call. He needs to hear this from you and say you’re ready to do the deal. Can you do that for me?” He said “Yes.” I said, “In about 10 minutes, I’m going to call you back to verify that you did that. Once I call you back, I’ll call him and we’ll get the paperwork started.” Within 30 minutes, PSAs were out, and we were going back and forth on the PSA. Within a few days it was signed.

Break: [00:18:24][00:20:20]

Joe Fairless: Wow, there’s a lot going on there. What did it appraise for?

Akam Ahmedi: I think we got it for 3.8 and it appraised for 4.4. We’re about to refinance on that property, Joe. We’re looking at an $8 million valuation.

Joe Fairless: Wow. How much did you put into it?

Akam Ahmedi: We put in about 450k, so 3.8 plus 450l. After all of the costs, were about 4.5 all in.

Joe Fairless: Let’s talk about the 64-unit. How did you find that?

Akam Ahmedi: That’s a good question, let me think… It was my partner that found that. Interestingly enough, that was also a property manager, believe it or not.

Joe Fairless: A different one?

Akam Ahmedi: A different one. This one’s in Maryland, right by Ocean City, Maryland. I’m sure a lot of people are familiar with that area.

Joe Fairless: I’ve been there.

Akam Ahmedi: In your younger years, I’m assuming.

Joe Fairless: It’s actually for work, so it wasn’t as fun as one might imagine.

Akam Ahmedi: Right. Good beaches, though; great beaches there. He reached out to what he thought was the owner’s number, my partner, but it was actually the property manager and this woman…

Joe Fairless: How did he get the number to begin with, where he thought it was the owner?

Akam Ahmedi: This is also from Reonomy. In this case, he called thinking it was the owner; it was not the owner, it was the property manager. And my partner and she talked for a good hour and a half. I remember I was leaving the room when he first initially called her. Then I come back again after getting some food and he’s still talking to this lady. I remember he puts it on mute and he’s like, “This is something hot, hot.” [laughter] So I know the look in his eyes, and he’s excited. I’m just like, “Okay, cool.”

So that deal, they talked, they built amazing rapport, and between that conversation and over the next two weeks, they were not really going back and forth, they were just keeping in touch. She was letting him know that she was going to let the owners know, “Hey, that you’re interested in buying, that you’re a serious buyer, and see what they say.” Believe it or not, they were all about it; they wanted to sell. It was their time. There were four partners, it seemed like two of them were active and two of them were passive. That’s what it seemed like.

Joe Fairless: Lazy.

Akam Ahmedi: Correct, something like that. I don’t know what kind of stuff was going on.

Joe Fairless: Probably supposed to be active, but weren’t doing their share, and the other two partners probably wanted to get out of there.

Akam Ahmedi:  The other two partners wanted to get out of there, but I’ll be honest, even the ones that weren’t doing their share weren’t doing much. [laughter] These guys were a classic mom-and-pop; they’re like 60 years old, but they’re not your classic older people. They were just all over the place. They had a lot of energy, all over the place. [unintelligible [00:23:00].16] and then we’ll tell you what happened in due diligence.” These guys were definitely comedians, they were really funny to be around.

But my partner built a great rapport with the property manager, and the property manager put in a great word. She was sick and tired of always trying to do improvements to the property and the owners just would not accept it. I think Ace really hooked her with that part. He was saying how in our group, we let the property managers speak freely, give us a lot of feedback, and we like to implement things and improvements to make the communities better. I think that stuck with her, so she reached out to the owners, and then finally made the connection to Ace. We got down to the LOI and it was accepted for 4.5. At this point, the LOI was based off of information they’d given us, even rent numbers and NOI.

Joe Fairless: I’m sure it’s all factually true.

Akam Ahmedi: Almost. [laughter] So once we get the LOI, we say “We’ll get you to PSA, but we need to see the financials first before we put this in official writing.” So they sent us the financials; the NOI was like 100,000 less than what they said. 100,000 to 140,000 less than what they said. At this point, my partner wasn’t as excited, because they were stuck on this 4.5 million number… It didn’t make sense at 4.5; we were buying like at a 3.3 cap in like a 6.5 cap market. As we both know, Joe, sometimes you don’t always buy off a cap, because you realize that there are so many improvements that can be made from a rent perspective, or even on the expense side. But in this case, it didn’t make any sense. So from there, that’s when I took over. I saw that he kind of lost that excitement, and he felt like his time was wasted.

So over the next few weeks I was talking to them. The main guy that I was speaking to, I talked to his partners every time he spoke to me. From that point on, Joe, I remember one day I was talking to him, I think his name was Joe too, actually. We were in Florida at this time, in Fort Lauderdale and I gave him a call, we had set up a meeting with him and his other active partner. I had told him something like, “Hey, Joe, realistically, we put an offer of 4.5 on a table based off of the information you gave us. And then when you gave us actual financials, it was way off. $120,000 off. We were originally buying at around a 5.5 cap anyways, but now we’re buying it at 3.5. No one in this world will buy that property for a 3.5 cap.” I was like, “If you don’t want to do that deal with us, that’s fine. But we’re going to have to be at,” I believe I said 3.4 million. It was 3.4. And he was just like “Oh, that’s low. There’s no way they’re ever going to accept that.” I was like, “Well, look, the reality is we’re not paying 4.5, and no one else will. And I don’t say that disrespectfully. I’m just telling you that it doesn’t make any sense for anyone.” He said, “Okay, we’ll let you know.” And he counters us, I think a day or two later after talking to partners, at 3.65. We thought about it for a day, but then we realized, “Wait a minute, this is a great deal at 3.65.” So we did the deal, and then due diligence and all that started.

Joe Fairless: How long from start to finish did it take to get a signed contract for the 72-unit? The same question for the 64-unit, approximately.

Akam Ahmedi: From the day we spoke to the seller, initial contact?

Joe Fairless: The initial contact to signed PSA, for both deals.

Akam Ahmedi: I like that question a lot. I feel like a lot of people think this happens so quick. This is not a single-family. The first deal, the 72-unit was three months, 90 days; I believe it was May to August. And then the 64 – wow, the 64 had to be five months. It was October to March or April.

Joe Fairless: Thanks for sharing that. And then really quick – anything in the due diligence that you want to mention? It seemed like there was something wacky going on during due diligence.

Akam Ahmedi: Yeah, you could tell it was wacky. Once you’re doing due diligence, there’s a physical and financial side. We were seeing the physical, we knew it needed some love, really just needed to turn it into a community more than anything. That project – we’re still spending, about 900,000 in CapEx. During due diligence, these were the type of guys, you could tell, that they will lie just about almost everything. You could tell, especially when you did your research and you looked over everything. One of the guys — you know, we would throw out ideas, “Hey, why didn’t you do this at the property? Why haven’t you done that to the property? X, Y, and Z?” And his thing was, “Oh, it sounds like a great idea. Yeah, do it, do it.” We asked him once — I believe my partner asked him, he said, “Do you know how much that would cost?” He said, “No, it doesn’t matter. It’s going to add plenty of value.” So you could tell these were mom-and-pop, they didn’t really know what they were doing, if they just had money, they threw it into something. For them, they got extremely lucky. I don’t want to call it lucky, but they did great on that property. They sold it for 3.6, but they picked it up, I believe in 2005, for I think 700 grand. So they did really well for themselves; and they were crushing it from cash flows, even though it was so inefficient, just because their basis was so low.

Joe Fairless: Yup. 102-unit, really quick, like 30 seconds or less – how did you find it?

Akam Ahmedi: Two-year follow-up, that one was direct-to-seller. He was a psychiatrist, he and his wife; his wife was the property manager of the property. She was 83, he was 84; they were going to sell it during COVID, but then they wanted to travel and she was like, “I don’t want to just sit at home with my husband.” But it was direct to seller, True People Search, through Reonomy. That was a two-year follow up, Joe. That was, I think, May of 2019 was the initial contact, and we didn’t get it under contract until June or July of last year.

Joe Fairless: Wow. Well deserved. Nice work on that. I’m glad that you talked about how long it took, and the effort, and the steps that you and Ace took to build rapport and to go from initial contact to under contract. I didn’t even ask how long to close, but just three months from initial contact to PSA being executed on the first deal, five months on the second deal, and two years on the third deal. But man, isn’t it worth it for just that effort? The amount of money that is made as a result of those follow-ups was incredible. Taking a step back, what is your best real estate investing advice ever?

Akam Ahmedi: If the numbers work, do the deal. Don’t always look for the home run. If it’s a really good deal for you and your investors, or just you, take the deal. That’s how home runs are made; a lot of times you don’t know until you do the deal.

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

Akam Ahmedi: Always.

Joe Fairless: What deal have you lost the most amount of money on, and how much was it?

Akam Ahmedi: What’s that city in Texas?

Joe Fairless: Lots of them.

Akam Ahmedi: It’s oil.

Joe Fairless: Forth Worth? Dallas?

Akam Ahmedi: No, it’s not a big city.

Joe Fairless: Lubbock? Amarillo?

Akam Ahmedi: It’s San something. It’s not San Antonio, it’s San something.

Joe Fairless: San Angelo, San Marcos?

Akam Ahmedi: San Angelo, thank you. San Angelo, a 100-unit asset, lost 40 grand on it. But we didn’t close on a deal because we were putting our investors at risk. We did not want to do that, so we took the loss on the earnest money.

Joe Fairless: If given the same opportunity, what would you do differently so you did not lose the money?

Akam Ahmedi: Would have taken control with our team members and vetted the deal the last day of due diligence.

Joe Fairless: What deal have you made the most amount of money on, and how much?

Akam Ahmedi: Single-family side, about 350k; multifamily side, it’s going to be the 72-unit here soon. It’s going to cash a check of about 300,000 from refinance proceeds, and then once it sells, it’ll probably make a million each for myself and my partner.

Joe Fairless: Best Ever way you like to get back to the community.

Akam Ahmedi: Helping others. What I mean by that is I do donate money to charities, but more specifically, when I’m physically interacting with individuals and helping them with knowledge and giving them feedback from my experience. Right now, I coach two people, real estate, absolutely for free. We just get on a weekly Zoom call. I like to do that, I feel like I could make my most impact there as of right now.

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

Akam Ahmedi: That’s a great question. Just connect with me on LinkedIn, and connect with me on Instagram, or TikTok, @akinvest.

Joe Fairless: Akam, thank you so much for being on the show. What an enlightening conversation about how the perseverance is required to get deals done, but then also tactically how to make that happen. Thanks for being on the show. I hope you have a Best Ever day and talk to you again soon.

Akam Ahmedi: Thank you, Joe. Hope you have a great day, too. Thanks for having me on the show.

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

Oral Disclaimer

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

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JF1958: A Look Inside The Real Estate Banking World with Lindsey Johnson

Lindsey is in the mortgage insurance industry right now, but also has a background in banking. She’ll give us a look inside the mortgage industry, and share some things we may not know about it. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“The mortgage system that we have today has evolved over a decade” – Lindsey Johnson


Lindsey Johnson Real Estate Background:

  • President of U.S. Mortgage Insurers
  • Served as Director for the Federal Home Loan Bank of Atlanta, represented the bank in D.C. during several key legislative reforms including The Housing and Economic Recovery Act of 2008 and the Dodd-Frank Act.
  • Based in Washington, D.C.
  • Say hi to her at http://www.usmi.org/


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

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

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


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, Lindsey Johnson. How are you doing, Lindsey?

Lindsey Johnson: I’m doing well, thank you. Thanks for having me on.

Joe Fairless: Well, I’m glad to hear that, and you’re welcome. I’m looking forward to our conversation. A little bit about Lindsey – she’s the president of U.S. Mortgage Insurers. She served as director for the Federal Home Loan Bank of Atlanta. She represented the bank in D.C. during several key legislative reforms, including the Housing and Economic Recovery Act of 2008 and the Dodd-Frank Act. Based in DC. With that being said, Lindsey, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Lindsey Johnson: Absolutely. It’s a mouthful, I know, and a lot of acronyms that could be boiled down in there, but… Yes, essentially I’ve been focused here in D.C. for a long time, mostly on mortgage policy and mortgage finance policy, and sort of done it on the business side, and also within the government… And just everything that we do as real estate professionals definitely si highly-regulated. It essentially comes down to the government, whether you’re talking about FHA (Federal Housing Administration) or you’re taking a conventional loan [unintelligible [00:02:28].18] government-sponsored enterprises – everything is gonna have some kind of government policy attached to it. So that’s really where I’ve been focused.

Now I’m with the mortgage and insurance industry, and we really are very proud of the role that we’ve played for more than 60 years in helping facilitate home ownership for millions of Americans.

Joe Fairless: So what is your primary goal right now, within your current role?

Lindsey Johnson: My primary goal is to really create a better environment for our companies – most of them mortgage insurance companies across the country. Just to make sure that they’ve got the best operating environment to help facilitate home ownership for people, with less than 20% down.

Borrowers who don’t come to the closing table with a hefty 20% are not only abused by lenders, but actually are  a higher credit risk profile than many other borrowers. But that’s where our company stands in, and we really bridge that gap between what they bring to the closing table, and what the lender would require. In doing so, we’re protecting that lender against those potential losses if the borrower was unable to repay that loan, and there’s not enough equity in the house to cover the amount that’s owed. So we really fulfill that really important facilitator role.

Joe Fairless: Okay. So what about policy now would you change, in a perfect world?

Lindsey Johnson: Well, look, the mortgage finance system that we have today has evolved over decades, and it was somewhat of a hodge-podge; there was no real rhyme or reason. A lot of the response that you’ve seen, even in today’s market, has come out of other crises and lessons learned. So they’ll make some adaptations and some changes.

I think one of the most important things that should be done, and that we as mortgage real estate professionals need to focus on is how do we connect the dots and bridge the divides for consumers where they are today? One of the craziest things to me is how complicated the home-buying or even the refinancing process could be, especially for homebuyers.

I went through a refinance process, and I’m still amazed every time I go through it. How is this so complicated?

Joe Fairless: I agree.

Lindsey Johnson: But you think about the profile of today’s and you’ve got millennials coming into the market, and they look and analyze information and data about the home purchase process in such a different way. Most of it is on their phone. And you think about their incomes being through gig economy… There’s just a lot of different things that are different today than they’ve been in the past.

You’ve got a very diverse population… Today’s generation is more diverse than any generation before it. They’ve got different cultural preferences for home ownership, they’ve got different challenges… But in the end their goals remain the same – they still wanna be homeowners, and they still wanna attain homeownership. So that’s where we’re really focused on informing them, getting the right information to them about different mortgage options, and then really are working with the rest of the industry to make sure that they’ve got the technology and the tools to keep up in the digital world for where they live.

Joe Fairless: I currently own three homes; my company is apartment investing, but my first four purchases on the real estate front were four single-family homes. I’ve sold one since, and I currently have three; I have equity in them. Do I hold on to them and continue to make $200/month until someone moves out, and then I love $5,000 for move-out stuff? That didn’t work, a). B) Do I sell them? C) Do I refinance, get some equity, and then hold on to them long-term? Well, c), the refinance, makes the most sense financially… But whenever I went to a bank and I starting talking to them about the process, it would have been three separate refinance loans, and the process of going through a refinance was just such a headache… And I just thought “You know what – I’m just gonna sell these and I’ll take that money and invest in our apartment deals…” But as you said, it’s such a complicated process to go through that refinance and home purchase. How would you streamline that to make it more simple and easy to go through?

Lindsey Johnson: Well, I think a lot of what my companies are doing today – and we work directly with GSEs and with lenders – we are really adopting a lot of great technology that’s gonna be more real-time in terms of getting rates; just being very competitive and being able to provide those rates to consumers in real-time. That’s something that the industry has been doing really over the last couple of years, but every day we see a little bit more evolution in this. So it’s faster, it’s quicker to the market…

I think generally in terms of verifying income of individuals – that’s something that just through the process has been very clunky, frankly…

Joe Fairless: Yup.

Lindsey Johnson: …going through this process. And you’ve gotta provide W-2s, and your income statements, and your pay statements, and then the process takes a couple months longer, so suddenly they ask for more income statements… You know, it’s a little bit of a labor process. And imagine that for someone who really is in the gig economy, or an Uber driver, or some of these other industries where you’re not just a normal W-2 earner… That becomes even more complicated.

So we are collaborating with many others, and the GSEs are taking a lot of the lead to streamline that process, to bring in new technologies, to have that done upfront and verified through technology, that everybody can trust and verify.

So it’s not taking any shortcuts around making sure that there’s still prudent lending, and that we’re understanding the risk profile, and verifying… But it’s gotta be done in such a way that it’s not gonna burden the consumer to the point where they walk away, like you’ve experienced.

In our industry a part of this is making sure that they’ve got the right understanding. The other really frustrating thing for us is we constantly hear, literally on a daily basis, and there’s research and surveys that will say consumers will cite down payment as the biggest hurdle. And I remember my dad telling me, drilling it in my head, “You gotta have 20% down before you’re going to that lender.” And that’s just simply not the case, and it shouldn’t be viewed as the only prudent way to get into a mortgage.

One thing that our industry has been keenly focused on is just educating consumers that you can get into a conventional loan for as little as 3% down. There are different options available conventionally, where you’ve got [unintelligible [00:08:39].05] you can get a government-backed FHA loan with 3.5% down, and both of those options should be on the table. Again, it’s one of those situations where I think that — for some people, they think “Well, if I wait and I save that 20% down, it can save me money in some areas”, but it could cost you money in other areas. And there’s some really great calculators out there where you can estimate “What am I gonna be paying in rent over that timeline horizon of saving for 20%, versus what I might be building in equity?”

It just took me a longer-term look, and through taking a look across the horizon, and what those payments are gonna be and what your long-term economic goal is. Those are things we think a lot of consumers just haven’t had the tools and the resources and the education to do so far.

Joe Fairless: So U.S. Mortgage Insurers – the business model that would help  your company (or group of companies) continue to thrive is more people getting loans at less than 20%, because then more mortgage insurance would be in play, therefore you all would make more money, yes?

Lindsey Johnson: Yes, absolutely. And then [unintelligible [00:09:45].28] you think about not just that home ownership is expected to rise between 8 and  10 million households by 2025, but low down payment lending has been on the rise, especially since post financial crisis. The median down payment today for all buyers, first-time and repeat, is 13%, and for first-time homebuyers the median down payment is about 7%. So it is a really important tool for a huge chunk of the market today.

Joe Fairless: So I know during the last couple years – I think it was 2015… Okay, so maybe not the last couple, because we’re in ’19, but… In 2015 and 2016 – I don’t remember seeing more recent data than this, but in 2015 and 2016, during the economic expansion, the percent of household renters increased. That’s not good for business for you… So what are your thoughts on that, when we talk about that?

Lindsey Johnson: Well, it’s funny, because I think that generally we wanna make sure that people are home-ready before they can do their mortgage. It’s not good if people are on the sidelines, and they’re home-ready and they’re not getting into the mortgage market, but it’s also not good – and we saw this pre-crisis – when people get into the market too soon, or are unprepared, or are making decisions that are just not based on their economic rationale, and their own position. We don’t view it necessarily as negative… What we do see however is a lot of people that do have the resources, that would be mortgage-ready, that are staying on the sidelines because they feel like they need those hefty down payments… And they’re kind of chasing a moving target.

Let’s just say that home prices rise 3% annually, which is relatively low compared to what we’ve seen over the last few years… But let’s just say it’s at 3% and someone is going to put $40,000 (which is 20%) on a $200,000 home. If they’re trying to save that amount, just in a couple of years, the target has definitely shifted, and it’s like $48,000 just a  couple years’ time. So we continue to just demonstrate that this is not a new situation, we’ve seen this in the past… Home prices do fluctuate. Sometimes they go up, sometimes they go down, so you don’t wanna just base it on the upside potential, and that’s why you’re gonna get into the market… But at the same time that you potentially lost some equity opportunity, you’ve also been paying a lot of rent.

So just understanding that whole dynamic I think is really eye-opening for a lot of folks when they sit down and they do the math.

Joe Fairless: What major group has an opposing stance to your group, and what are their counter-points?

Lindsey Johnson: That’s an interesting question. No real group has an opposing position to private mortgage insurance. Obviously, there’s competition in the marketplace, and we welcome competition all day, every day. If there’s a better mouse-trap out there, I think that’s great. Even to your point about the rental, and in fact even the single-family rental market – one thing that we saw during the crisis and after the crisis was you had some opportunistic investors who saw what was happening in the crisis and scooped up some of the real estate, and are using them for single-family rentals.

A lot of folks in D.C. were concerned, but I think some of that is really good and healthy, because it somewhat puts a floor in the market; home prices may start to have  a floor to the bottom. And then the other component is a lot of families that previously were homeowners may have been foreclosed upon, and are going to have a difficult time getting back into home ownership for a period of time… But they still want a single-family mortgage.

So we don’t necessarily view that as competition, we view that as sort of a healthy dynamic that’s occurred in the marketplace and is hopefully meeting a need.

I think that there’s a recognition that there are individuals, very credit-worthy and sustainable individuals who get into the mortgage finance market and completely be sustainable borrowers, that simply don’t have a hefty 20% to put down… So we really don’t have a lot of opposition. Competition – sure. But that’s healthy.

Joe Fairless: I would love to hear about a story about a challenging time you’ve come across professionally.

Lindsey Johnson: Many, here in DC, obviously. Anybody who experienced the financial crisis here in DC – it was a lot of focus on mortgage policy, and I think that this industry in general, and some of this predates when I was with the industry, but a lot of it we’ve been continuing to work on… But just everyone that’s part of this industry, taking a look at what works and what doesn’t work, and being intellectually honest with what needs to change… I can give you many examples, but just [unintelligible [00:14:12].12] and going through the financial crisis and really having to manage not just the downside risks that we had on the business side, but also the policy risks that we had here in DC, was enormous… And we were trying to work with policymakers who don’t necessarily understand the business. So it was an extremely challenging time.

This industry  –  I will say I came in in 2015, so it was after the crisis, but there was still a lot of uphill climb to do… So making sure that we were looking at new capital requirements, and the contracts that are between us and lenders and the GSEs, and how and when we take claims, and making sure that those things make sense going forward – those are all significant changes for an industry [unintelligible [00:15:04].04] for decades, and sometimes uncomfortable. But I will say I was extremely impressed with this industry coming in, at the willingness to look at that and make some of those changes to make it stronger going forward.

Joe Fairless: What were some changes?

Lindsey Johnson: Well, one big change was we basically doubled the capital that we were required to hold. Obviously, pre-crisis we were not just state-regulated, but we sort of had de-facto regulations from the GSEs, and 95% of the mortgage market goes to Fannie and Freddie. So we obviously insure loans that are going to Fannie and Freddie that don’t have 20% down, and one of the changes coming through the crisis was “We want you all to be even stronger, because you’re most exposed to some of this mortgage credit risk.”

So we’ve doubled our capital going into 2014 and 2015, and have made some even further enhancements since that time to our capital. But the industry is also doing a lot in terms of evolution of credit risk management. So they’re dispersing in some very sophisticated ways their credit risk on the back-end, to very highly and well-regulated re-insurance companies, and even to the capital markets to insurance-linked notes. So it’s not just a buy, hold and hope industry; it is really more of a sophisticated credit risk management started to occur.

Joe Fairless: Let’s take this down to a super-local, granular and specific level. I’m a real estate investor and I have three homes for sale right now… And I want to make sure that as many people know about getting loans for less than 20%, like you’re advocating and you’re trying to get the word out as much as possible, so that people know “Hey, I don’t need 20% down. I can do it as low as 3% or 3,5%.” What are some tools that either you all have I can leverage, or what are some tips you have for me as a real estate investor trying to generate more demand for the properties that I’m selling? …because some people don’t know that they can buy with as little down as 3% or 3.5%.

Lindsey Johnson: Well, I think first of all, just for agents and investors to know that not everyone does, and understandably; as I said at the beginning, it’s sort of a complicated process, and we’re just one of the many pieces. There are a lot of resources out there, and we are doing for our part a lot to just make sure that consumer and others know where to look. We’ve developed a website for consumers, and I think it’s great for real estate agents and others to get a lot of this information. It’s called LowDownPaymentFacts.com. And it’s not just from our industry; we’re pulling and calling from many other sources, so that folks really have information at their fingertips about how to be home-ready, and about their different options available to them for down payments.

So we connect these consumers to these different resources. Some are through our member companies… And our companies work mostly with lenders and business-to-business, but we wanna make sure that the information is there. And they offer these free mortgage savings calculators. So as a borrower, or an investor, or an agent, you really can look and very easily consider how different down payments can impact the savings rate, or the rent that you might save, the equities that you may build… Very customizable, so consumers can really take control. But it truly is, I think, one of the most helpful websites out there, that kind of breaks everything down in terms of down payments.

So again, LowDownPaymentFacts.com. There’s other resources out there, and I would just really encourage, whether it’s a real estate investor, or obviously an agent or others, to look at, to be educated on and to understand the options available to consumers.

Joe Fairless: Do you happen to know the percent of people who don’t realize that down payments can be less than 20%?

Lindsey Johnson: Yes, we do actually, because there’s a lot of surveys on this stuff, as you can imagine. There was a survey that was done in July that suggested 50% of people who are not homebuyers, who suggest that they wanna be homebuyers, say that it’s because of a down payment requirement of 20%.

A survey a couple years ago – it was at 40% said that you have to have a full 20% down payment. So there may have been a different way that they were asking the question, but as you can tell, it’s a significant number of people who are otherwise most likely eligible to me homeowners, that are citing that down payment as the number one obstacle.

Joe Fairless: Hm. I’m in my own little real estate world, because that just shocks me. I just thought everyone knew — I mean, clearly not everyone, but I thought 80% of the people that were wanting to buy a house, that they could get into a primary residence for 3%-5% through some loan options…

Lindsey Johnson: Well, the amazing thing is – and I’ve mentioned this before – once you start to look at those who actually go through the process, then you start to see that the majority are putting far less than 20% down. I think the challenges for those people who are just kind of teetering and tinkering around and thinking about it, they still have that in the back of their mind… So it’s sort of really limiting their willingness to go and actually get the information.

So we are trying to kind of push it to them and just make sure that they realize it’s not something that you’re required, that they’ve got a lot of options available to them, and that if that’s the one thing that’s holding them back, it shouldn’t be.

Joe Fairless: Anything else that we should talk about, that we haven’t discussed?

Lindsey Johnson: No, I think we’ve covered most of it. I think we’ve talked about — the private mortgage insurance helps lenders, we help taxpayers, we paid more than 15 billion in claims through the financial crisis… And those are claims that the GSEs, and therefore the taxpayers didn’t have to pay.

And then we help borrowers. I mentioned that we’ve helped more than 30 million borrowers over the last 60 years, but just last year we’ve helped a million borrowers. And if you really look at who those individuals are, 60% are first-time homebuyers and 40% have annual incomes of $75,000 or less. So it’s such an important component of the housing finance system, and we really are very proud of the work that we do to enable home ownership for millions of Americans across the country. So we wanna get the word out, we wanna make sure that people have the right information.

Joe Fairless: And the best place the Best Ever listeners can learn more, one last time?

Lindsey Johnson: Absolutely. LowDownPaymentFacts.com.

Joe Fairless: Excellent. Well, Lindsey, thank you for being on the show, talking about the mortgage insurer’s perspective, and mortgage insurance – clearly, most listeners on this show know what that is, so I’m glad we got into some of the policy that you’re championing, and then also some of your background through the 2008 crisis… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Lindsey Johnson: Thanks, Joe. Take care.

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JF1939: MHP, Multifamily, Commercial, & SFR’s Investor With Experience In Every Class Tells All with Maurice Philogene

Theo and Maurice are going to have a great conversation for us today. Maurice has a lot going on in his business, with experience across many different asset classes, he has a lot of value to add for us today. The first thing we will get into is how he balances his time between all those different deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“You just can’t do it without family and good partners and friends” – Maurice Philogene


Maurice Philogene Real Estate Background:

  • Founder and Principal of JMP Investment Group, LLC
  • Multifamily investor and entrepreneur, he’s executed over 200 transactions across numerous classes of real estate, including commercial, apartment buildings, mobile home parks and single-family residences.
  • Based in Washington, D.C.
  • Say hi to him at jmpholdings@outlook.com
  • Best Ever Book: The 4 Hour Work Week


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

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

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


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JF1817: How To Get Top Dollar For Your Home With Minimal Improvements with Caroline Carter

Caroline and her team help homeowners sell their homes quickly and for the highest amount possible. They do through through a process called Total Home Transition, and they also help with packing and unpacking at the next house. Hear her best tips for getting a home ready for market. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“It’s not about the seller when you’re selling your home, it’s about the buyer” – Caroline M. Carter


Caroline M. Carter Real Estate Background:


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Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


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, Caroline Carter. How are you doing, Caroline?

Caroline Carter: Hey! Good, Joe. How are you?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Caroline – she’s the founder and CEO of Done In a Day. She’s helped more than 2,000 families repair their homes to sell for top dollar and avoid the chaos and stress of moving. Based in Washington DC.

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

Caroline Carter: Sure, absolutely. I’m happy to. I was a middle child, one of four. I grew up in New Jersey. I had some high-achieving other siblings. I never expected to be a high achiever myself. There was not much really expected of me. I was an average student; I’m sure you’ve heard this before. But I was very tenacious, very driven, very OCD, a little bit of a clean freak, and I was organized to a fault. So I thought “Hm, what can I do? What are my special skills and abilities that I bring to the table?” And one of the things that I realized very early on is that I was a nurturer. So I started babysitting as a mother’s helper at eight years old, and amassed $400 in the bank by the time I was 12. So that’s kind of how I grew up… My parents were not helicopter parents at all. As a matter of fact, they were just the opposite.

I remember my mother saying to me, when I was very young and struggling with making a decision about something… She said “You know, Carrie, I don’t worry about you. You always land on your feet.” And I thought, “Okay, that’s the worst thing you could possibly tell a child”, because I didn’t have the tools necessarily to figure out what I was struggling with, but yet, I remembered that through the years as I’ve gone through more difficult periods in my life, and had to really dig deep to figure out “You know what, I am gonna land on my feet, and I’ve just gotta figure it out.” So in essence, I’m glad that I didn’t have helicopter parents, looking back.

Joe Fairless: So you are the CEO and founder of Done In a Day.

Caroline Carter: Yes.

Joe Fairless: Will you describe your business model?

Caroline Carter: Sure. We focus on total home transition. The process is called total home transition. You’re gonna say “Well, what does total home transition mean?” Total home transition is the process that we all go through, from the moment we decide to sell a property until the moment we’ve unpacked the last box in the next house.

Essentially, what we do is we partner with agents – realtors, real estate agents – to work with their clients to guide and educate them how to make the best use of their time and money as they walk through this process. There’s really two phases of it.

The first is understanding how to package your property to sell. Now, a lot of people say “Oh, you’re a home stager.” Well, staging is only one part of it, and I’m sure you’re familiar with — are you familiar with home staging, Joe?

Joe Fairless: I am.

Caroline Carter: Okay. So most people believe that that’s really what it’s all about… But you can’t stage a home – which is in essence bringing in furniture to highlight the house – until you’ve  actually performed a non-emotional buyer-based assessment of the structure and property… Meaning you’re going to look at the house to figure out what it is that you need to fix; anything that beeps, squeaks, creeks… So essentially, I’m a visual marketer, right?

Joe Fairless: Right.

Caroline Carter: I was with someone the other day and we were walking out on their back patio… And the door to the back patio wouldn’t open. He said “Hold on, I actually just have to jiggle it up a  little bit.” I said “Okay, John, that’s something that we’re gonna wanna take care of.” So the visual packaging of a home, which includes painting, carpeting, visual and cosmetic updates – that’s the first portion of the process to position it to sell. So we work along with the agent to provide this assessment.

Then you go into kind of no man’s land, when the house is on the market and we have to keep everything perfect, and we’re living in this hotel-like home… Once you have a ratified contract, you then move into the Move portion of the sale. That’s really figuring out “How am I going to move this family, get the best deal on the move, the best to organize it and supervise it, to get them  unpacked in the new home?” Essentially, you’re trying to work with this family to smooth the transition.

Joe Fairless: Okay. And on that front, I’m sure you get sometimes “Well, I’ll just hire a moving company, so what do I need you for?”

Caroline Carter: Sure. What’s interesting about home transition – and I work with many, many people who are heads of their individual industries. When it comes to our home, we all of a sudden lose our ability to think without emotion.

Joe Fairless: [laughs]

Caroline Carter: No, seriously.

Joe Fairless: I know, I agree with you.

Caroline Carter: [unintelligible [00:07:10].28] and it doesn’t matter if it’s 1,000 sq. ft. or 12,000 sq. ft. This has happened with anybody and everybody, from sports figures, to [unintelligible [00:07:20].18] high-ranking government officials… And all of a sudden you start talking to them about how to non-emotionally look at this process, and they say “No, I get it, but…”

Joe Fairless: [laughs]

Caroline Carter: So it’s a problem, because when it comes to your home, people don’t understand that this is a discoverable process, meaning after having worked with over 2,000 families over the last 14 years, we know that there is a process of about ten steps that each family walks through. These are identifiable steps. We know by educating our sellers on what to expect, we know it’s a total rollercoaster. We know where the high points are, we know where the dips are, we know where they’re going to falter, so we prepare them for that, so they approach it in more of a business-like fashion, as opposed to winging it, which most people do. They separate the sale of their home and the move, whereas Done In a Day looks at it as one continuous process… Because it really is, rather than two separate processes.

Joe Fairless: So help me understand a little bit more specifically in my own mind, and perhaps some listeners… When I mentioned, “Well, I will just hire a moving company”, then you talked about “There’s an emotional process involved, and there’s ten steps that each family goes through…”, but what is it that’s more complicated than “Well, I will just hire a moving company. They’d move things from A to B”? And where is emotion involved in that process? I guess I’ve just missed that connection.

Caroline Carter: Okay, I’m sorry. I get over-excited about my process… Because it really does affect everybody. So when you make the decision to sell your home, that is a very personal decision. You may have made it because of a death, divorce… It’s one of the huge life-changing events, for all of us. Now, the U.S. Census Bureau says that Americans, more than any other country, move an average of 11 times over their lifetime. Think about it, 11 times you’re packing up your Kitty Karry-All and taking it on the road. So these moves become very complicated.

So you make the decision to sell… Typically, you reach out then to a realtor,  or  a real estate agent, right? The National Association of Realtors says that still, 87% of us will engage the services of a realtor. What’s a realtor’s job? A realtor’s job is to sell your home, right?

Joe Fairless: Yup.

Caroline Carter: Okay. Have you ever met anybody that didn’t wanna make the most possible money on the sale of their home?

Joe Fairless: I have not, no.

Caroline Carter: Right. So that’s where I come in. It’s visual packaging, meaning we look at the property, the interior and the exterior of the home, and we create what I call the perfect listing. The perfect listing is a listing that presents as updated, clean, with the buyer’s wants and needs and preferences in mind… Meaning it’s not about the seller when you’re selling your home, it’s about the buyer. It’s about understanding what today’s buyers are looking for, and speaking to that.

In order to actually get to that point, we each have to go through our homes – if we’re doing this correctly – and sift through the roughly 300,000 items, according to the L.A. Times that we have in our home. Now, of course, I’m counting the plastic tupperware we used to put our– right?! But we all have storage areas, and garages, and basements, and attics, and even if you’re living in an apartment, you have a storage area in the basement maybe. So what you wanna do is by combining the move and the sale of the home into one process, you’re actually sorting, purging, donating, packing to store, and ultimately move, so that you’ve gone through your home as part of this process, you’ve touched everything once and made a decision about it… Right?

Joe Fairless: Yup.

Caroline Carter: So you are at the end of packaging the house to sell. You’ve also packed to move. You’ve packed the things that are not necessary to the packaging of your home, so when your home is on the market. Everybody will tell you, put away your personal photos, and your tombstones, and so on and so forth. The total home transition process goes much deeper into the process. So it’s helping you to sell your house, walking you through the emotion of making these decisions, making good, solid, non-emotional business decisions, so that you’re looking at everything you own and deciding what it’s gonna cost for your to keep it, what it’s gonna cost for you to store it, and whether or not you need to and want to. It’s a very organized process. Does that make sense?

Joe Fairless: That does make sense. What’s an example of maybe a client that you worked with who had some items that you gave a suggestion to do something with, whether it’s remove it or highlight it…? Just to kind of give some specific examples of clients; I think that’d be helpful, too.

Caroline Carter: Sure. The way that we start every single project is through  a consultation. These are paid consultations, where we go in and meet with the seller and talk about the scope and schedule of the project… The schedule being “When is it that you intend to list your house for sale?” and the scope being “Let’s see how the house currently presents and let’s see what we need to do to create a house where a buyer is going to immediately identify and wanna find out more about this house.”

I had a situation recently where a woman had lived in this home for about 25 years, and she was looking to downsize. It was actually a beautiful home. It was all painted yellow, which was a very prominent color about ten years ago. There were personal photos everywhere. She basically intended to leave the house just as it was, meaning she didn’t believe in visual packaging, she didn’t believe in the power of the buyer, who’s really actually driving the sale. She dug her feet in the sand and said “Really, this is about me. I’m not changing anything.”

Anyway, she had a hallway – which many people do – of portraits and  pictures of trips and so forth with her family over the years. And I suggested to her that one of the most important things is to allow a potential buyer when they’re walking through to see the width and depth of a particular area or hallway without drawing attention needlessly to photographs, and artwork that was just placed there just for our pleasure, but had no real reason to be there.

Joe Fairless: Okay.

Caroline Carter: I suggested that she remove and pack away this portrait hall. And she said “I think you’re great, and I’ve heard a lot about you, but I’m not doing anything.” And when I left that consultation, I thought to myself “She’s gonna sit on the market”, because she is absolutely someone who cannot remove herself emotionally from the bricks and mortar. She still thinks of it as her home, instead of a marketable product that we need to package and sell. It needs to be updated, so that it can relate to today’s buyers. She was still very attached.

So the moral of the story is she changed nothing. Her pictures online of the property, where we know that’s where we first come into contact when we’re looking for a home – we put in our coordinates, “I’m looking for this”, and up pops five, ten, fifteen listings. How are we gonna decide what we wanna see? We decide visually first. We go through and we go “Ewgh, ewgh, ewgh… Uuuh, this one looks good!”

So anyway, she did not change a single thing about her house, and it sat on the market for three months, until her agent suggested that she do a sizeable price reduction, which was about $150,000 on this particular property. So instead of anticipating and addressing these objections ahead of time with me, three months before, she was not interested, not ready, and that cost her $150,000 for not addressing the emotional aspect of moving. It is very emotional, but it’s really not about you, it’s about the buyer.

Joe Fairless: You live in Washington DC now… Do you work with clients in the DC area, or in the North-East, or all across the country?

Caroline Carter: We focus pretty much on the DC Metro Area.

Joe Fairless: Okay, got it. So how do you identify what type of buyer you want to attract for a particular house?

Caroline Carter: That’s a great question. The interesting thing is that even though people think “one size fits all” and they’ll throw out things like “You have to paint the entire interior, and you have to recarpet, and you have to replace appliances”, that’s not always the case. If you are able to look at your house in a non-emotional way, and you understand who your target buyer is – that’s really important, Joe… Because today – we know today’s buyers are very, very distracted; they’re extremely distracted by their social media. They’re always on their phones… They’re able to identify with one click what perfection means to them. So “Oh, master bathroom – click. That’s the one I want.” So they’re able to identify it, and they have these preconceived notions in their mind… So what my job as a visual packager is is to get that particular listing as close as possible, so that it will appeal to today’s buyers.

Joe Fairless: What are some things that are tried and true, that appeal to today’s buyers?

Caroline Carter: The first one, the most important, is to be able to neutralize the walls. When we move into our homes – this relates to the emotional [unintelligible [00:18:07].18] throughout our homes… It’s the way we make a house a home; we design it to our taste. But when you go to sell it, it’s totally different. We wanna speak to that buyer.

So the most important thing is to show value visually and physically. What do I mean by that? When a potential buyer is walking through your home, they need the bricks and mortar, what they’re buying, to actually speak to them, without the bricks and mortar saying  anything. It sounds funny, right? They need to be able to see the width and depth of each room or area, the height of the ceilings, the play of light… You wanna highlight the unique assets in the house, and one of the ways is to neutralize the paint. Well, people have been saying this for years and years. Some people think that their home is the exception. It’s not the exception. No one’s home is the exception.

The second thing is you’re going to want to declutter. That’s the big buzzword today. But as we talked about earlier, decluttering is not just cleaning out your closets, it’s making mindful decisions about everything you own, so that yes, you’re cleaning out your closet for the benefit of the buyer, but you’re also beginning to dump, donate, pack to store, and that sort of thing, for yourself; you’re taking charge of the process.

The other thing is you’re gonna look for fast and inexpensive updates. Kitchen cabinets – you might put a white coat of paint on your kitchen cabinets and upgrade your hardware. The knobs and pulls on the outside of your kitchen cabinets. You might also reface your appliances. Let’s say your appliances are in good shape, but they’re all white-faced, or they’re all black-faced. Did you know that you can get sheet metal cut and cover the front of them, instead of replacing the whole appliance?

Joe Fairless: That’s pretty cool.

Caroline Carter: Yeah, it’s totally cool, and a lot of people didn’t know that. So if you’re talking about replacing a Sub-Zero refrigerator just because you don’t like the color… So what we do is we look at each and every house and we figure out “How do we maximize this space? How do we highlight the unique assets of this particular property, show value to this potential buyer in a way that they can relate to?”

So you’re not actually changing the house, you’re merely polishing it. Deeply polishing it, obviously, with paint, and white towels… There are all sorts of tricks. White bedding… What’s gonna photograph well and what’s not…? But essentially, what you wanna do is you want to guide a buyer’s visual tour of the property, so that you’re placing artwork, you’re tablescaping to guide that buyer… Because buyers are very distracted, so you wanna make sure that you’ve got their attention from beginning to end. And they’re gonna give you less than 10 minutes, period. They’re there to check it off their list.

Joe Fairless: Anything – and this might not be as relevant where you live; perhaps it is, but anything from a landscaping standpoint, or backyards, that you look to address?

Caroline Carter: Absolutely. Again, we talked about the interior and exterior. Regardless of how much yard you own… When I was growing up – of course, I’m 55 – we called it the backyard. Now they call it outdoor living room. They’ve got all these crazy ways to refer to it. Essentially, what you want to do is you want to look at the exterior as closely as you look at the interior. Very often that will require you looking at the color of the paint of the exterior of the house, the shutters, the front door, the quality of the hardware on the front door.

Here’s another interesting point for your Best Ever listeners. Have you ever looked at a door — I had a door recently on a two million dollar house, and the hardware (the handle etc) looked cheap to me; and it’s on a two million dollar house. And one of the things I suggested was “Let’s get some new door jewelry. Let’s make this door look as solid, secure and reflective of the price point of this property. Because right now it doesn’t look secure, it doesn’t look impressive…” And that’s what we did. So it’s visually tuning up the outside, whether it’s replacing shutters, painting shutters, so that you’ve created this beautiful, valuable visual. And it doesn’t matter, your house doesn’t have to be a 12 million dollar house, or a one million dollar house… It’s about making the best of what you have, focusing on your unique asset.

Sure, you’re going to have to trim trees that block the facade from the street, or overgrown bushes, or dead limbs on trees. You’re gonna have to edge and mulch, you may need to put in sod where grass is not growing. Essentially, you want to show value, both inside and outside, so that the buyer feels that they’re really getting a good deal for what the house is listed at.

Joe Fairless: Taking a step back, but on a related note, what is your best advice ever for investors who are selling their homes? I know you’ve talked through a lot of your advice, but maybe more macro-level.

Caroline Carter: Sure. I think the best advice I could give any seller or any agent who is working with sellers is to understand that this is not about you, it’s about the buyer. And it’s a visual game. Sure, it’s financial, sure, it’s still your home, no question; but we live in a visually-driven world, and we also live in a world where these buyers today expect perfection, they know exactly what they want, and they are determined to find it. So if you’re able to understand what that target buyer is looking for, speak to them and you will sell your home.

I just recently went through this in my own home, and had to package the home to sell. Very, very different than designing to live. I did this to my own home, and I sold the home for full price in eight days. So… I have to put my money where my mouth is. But essentially, to understand that this is a discoverable process, and you simply need to remove the emotion from it. You will not make good, quality decisions about the sale of your home, and the move, unless you remove the emotion from it.

Joe Fairless: We’re gonna do a lightning round, and then I’ll ask you some quick-hitting questions. Are you ready for the Best Ever Lightning Round?

Caroline Carter: Absolutely.

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

Break: [00:25:09].01] to [00:26:10].07]

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

Caroline Carter: Best ever book… One of my absolute all-time favorites is Think and Grow Rich, by Napoleon Hill, and my dog-eared copy is always pretty close to my desk. But I recently read one this Sunday, with a cup of coffee, called “Find your lane’, by Bruce Waller. The book is very easy to read (I’ve read it in one sitting) and it’s all about digging deep to understand the why behind your life focus. And while I’ve read millions of these books, this one came at a good time, and it helps you to really ask yourself some basic questions about the balance in your life, and why you’re doing what you’re doing.

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

Caroline Carter: I’d have to say that’s an easy one… The Best Buddies Organization, working with differently-abled children and adults. I’m a single mom of three kids, and we’ve always been involved with the Best Buddies Community, locally and nationally.

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

Caroline Carter: They can connect with me in a variety of different ways. They can also purchase, if they’re interested in hearing more about this process or how to survive during a home transition, they can purchase my new book which I just wrote, called Smart Moves, available on Amazon. But they can connect with me at CarolineCarter.com, Facebook Caroline Carter Smart Moves, LinkedIn Caroline M. Carter. I’m on Instagram and Twitter too, and if they wanna email me, if they have specific questions, they can get me at Caroline@CarolineCarter.com.

Joe Fairless: Outstanding. Congratulations on your book, Smart Moves: How to Save Time and Money While Transitioning Your Home and Life. I see it on Amazon right here. I will be purchasing it.

I really enjoyed our conversation, Caroline. Thank you for getting into the specifics of how to visually package our product when we are selling our home, and thinking about it from the buyer’s perspective. It’s not about us, it’s about them. And then you got into some really tactical things that we can implement after listening to this…

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

Caroline Carter: Thanks, Joe. I appreciate it.

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JF1756: Filling Vacant Units With Short Term Renters | WhyHotel with Jason Fudin

As new apartment communities come to market, they’re empty. Jason’s business model is to find those apartment communities, get access to some of those units as they are being leased up, and turn them into short term rentals for 8-24 months. “Pop-up hotels” as Jason calls them, WhyHotel only moves in during the lease up of new communities, helping investors mitigated the normal losses occurred during the lease up. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“In the U.S. between 200,000-400,000 MF units are delivered each year, on average, they take about a year to fill up, so that means there is somewhere between 100,000 to 200,000 units vacant at all times in major U.S. cities” – Jason Fudin


Jason Fudin Real Estate Background:

  • CEO and Co-Founder of WhyHotel
  • WhyHotel is a platform for renting a full size apartment with a 24/7 hotel staff onsite when traveling vs staying in a hotel
  • Based in Washington D.C.
  • Say hi to him at https://whyhotel.com/
  • Best Ever Book: Hiring A Players


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.
We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


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, Jason Fudin. How are you doing, Jason?

Jason Fudin: Good, Joe. Thanks for having me.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Jason – he is the CEO and co-founder of WhyHotel. WhyHotel is a platform for renting a full size apartment with a 24/7 hotel staff on site when traveling, versus staying in a hotel. Based in Washington DC. With that being said, Jason, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jason Fudin: Sure. My background is in institutional high rise real estate development. I managed a couple billion dollars of multifamily for rent apartment developments for a large company called Vornado. In that role I realized – not quickly enough, but pretty quickly – that when you deliver a high rise apartment building for rent, there’s a decent amount of vacancy when you open up, as in it’s almost entirely empty. I saw that opportunity and tried to turn it into a business, which is now WhyHotel.

Joe Fairless: You work with class A developers of multifamily and you propose your business model to them, and partner up that way? Is that the gist?

Jason Fudin: Yeah. For example, a few months ago we opened 100 units with Equity Residential. Equity had a 200-unit apartment building delivering, delivered empty as all apartment buildings do, and we said to them “If you give us access to 95 units, we’re gonna turn those vacant units into a temporary hotel, we’ll put them to work, and Equity will make extra money while you fill up your building with long-term residents. We, WhyHotel, will be able to have an asset that is top class.”

We’re also opening with Brookfield here in about four weeks. So yeah, all top-tier, major real estate player.

Joe Fairless: Are you primarily partnering with developers, or are you working with owners who have existing assets?

Jason Fudin: Just developers. Our model is based on the premise that there’s vacancy during lease-up. We say that each of our hotels is a pop-up hotel, and that it will be there somewhere between 8 and 24 months, depending on how long it takes to fill up the building with renters.

Joe Fairless: Wow. That’s really interesting, because I’m putting myself in your shoes, and the insight – clearly, that makes a lot of sense… But if I’m in your shoes, I’m constantly having to hop around from one place to another, since I’ve got that 8 to 12-month window, versus establishing a long-term portfolio where I can rock and roll, and this company can scale… So how do you think about that?

Jason Fudin: In the United States between 200k and 400k multifamily units are delivered each year, and on average they take about a year to fill up. That means that there’s somewhere between 100k and 200k vacant units at all times in major U.S. cities. This is a pretty large opportunity.

If you went after conventional hotels, the margins are super-tight because you have to justify why your use of land and building is more valuable than somebody else’s in terms of driving profit. In our case, we have to justify why if we do something it’s worth more than nothing, because these units are otherwise vacant… So what it allows us to do is build a national [unintelligible [00:04:05].12] in other people’s beautiful  buildings. It allows us to build a brand, back-end yield optimization and a very healthy amount of profit, without taking on the development risk that you would typically see in a real estate deal.

Joe Fairless: Okay. Do you attempt to establish relationships with some core developers, that way you’re not having to constantly reintroduce  yourself to new developers over and over and over again?

Jason Fudin: Yeah, the development community knows us pretty well at this point in time. We have deals with most of the large publicly-traded multifamily players, and a lot of the national developers that are backed by pensions… So yeah, there’s less of introducing, it’s more like just “Good to see you.”

Today what’s interesting is we’re found money. We bring something extra to the table. What we expect to have happen now is through the next cycle of high rise multi development, when someone’s trying to get a deal that depends on them trying to buy the land, if they know they’re gonna make a significant amount of money in addition to the regular apartment buildings by having this interim cashflow, they’ll pay a little more for the land. And that means that we go from being a “nice to have” to a “need to have”, because we’re part of the economics that justify the development of that project.

At that point in time it’s not us meeting with our friends and saying “Hey, do you want an extra chunk of change?”, it’s us saying “Hey, we’re the pop-up hotel operator in town. We’re best suited to produce that interim income for you.”

Joe Fairless: As a developer, if I have the 200 units and you come to me and say “Give me 95 of the units”, I know you’re bringing income where there otherwise wouldn’t be, but are there any expenses, or wear-and-tear, or other things that would detract me from doing that partnership?

Jason Fudin: People could always think of something, but no, the answer is we turn the units back in the same rent-ready condition we got them in. An unknown fact to most people is that multifamily buildings actually grow faster when someone’s lived in the units than when they’re new, because you start to have pricing power and you have occupancy… So there’s no detriment to the actual pricing–

Joe Fairless: Will you say that again?

Jason Fudin: Yeah, so when you stabilize the rent roll for an apartment building, for the next on average three years you’re able to grow the rent roll at a rate that’s higher than the overall market, and that’s because now that you have a stable asset, you’re able to push rate and burn off concessions. Buildings that are once lived in, as in literally there’s been one tenant in that unit – you can do better than a brand new building in terms of rates.

Joe Fairless: What are some reasons — because I’m sure you all have approached developers, and there have been some that said “Thanks, but no thanks.” What are some reasons that they’ve stated?

Jason Fudin: Yeah, there’s probably been a bunch that said “Thanks, but no thanks.” One of the biggest reasons we get is how is regulatory gonna work? What we do is in advance of delivering a building we secure permits for a hotel use; we often pull a hotel license. But some folks are like “I’m just not willing to go back into any kind of public process”, and sometimes that is required. We’ll have zoning hearings, and we’ll meet with planning commissions. So that’s one.

The other is the unknown. We’re a newer concept, we’re a young company – about two years old – so some people say “Hey, it’s a 100 million dollar asset, and I don’t know you.” We’re getting way less of that now, given some of the partners we’re bringing in; groups that can validate how we’ve operated and how we’ve been highly productive for the projects… But those are the two – regulatory, and the newness of us as a company.

In terms of economics, the developer is not taking any downside risk. We go about monetizing the vacant units; they’re not paying for that.

Joe Fairless: And let’s talk about that now. From your perspective and your company’s perspective, you just got the greenlight to go into an apartment community… Now what do you do?

Jason Fudin: Normally, we sign an LOI to say “Hey, these are the terms”, and then in parallel we negotiate the–

Joe Fairless: What are the typical terms?

Jason Fudin: Things we’re interested in is how many units are we gonna take in the building, how long are we guaranteed time in the building, what’s the distribution of revenue look like, who’s responsible for what things on regulatory… Kind of the high-level deal points. Basically, carve-outs for lender approval, or regulatory, those kinds of things.

Once we have our set of terms, we then normally go to pursue regulatory while we in parallel finalize the larger agreement. Those larger agreements are like 40 to 60 pages, because they’re big real estate deals… So that’s normally the process. By the time we have the agreement signed and the regulatory approvals in place, we then prepare to open, which is a whole process. We have go-live team that places all the furniture, it gets the telecom set up, we have a general manager that will hire, onboard, train our hospitality team; most of them come from conventional hotel brands. Then two weeks before the things opens, everyone goes through their training and we get ready to go. We’ve been taking bookings for 3-4 months prior, and then we open and it’s kind of off to the races.

Joe Fairless: How many markets are you in right now?

Jason Fudin: As of now I would say it’s one market, but it’s really two. We’re in DC Metro and Baltimore. That has been a plan of ours, to double down in our backyard as we kind of get better at operating and optimizing revenue, and our funnel of customers, and building a brand… But in 2020 we’ll be doing a huge push nationally, and while I can’t say where we’re going yet, I can tell you we’re going to a number of major cities across the U.S.

Joe Fairless: And what’s the value proposition to the consumer?

Jason Fudin: The consumer gets the best end of the deal. They get to stay in these brand new full size apartments for less cost than staying at a residence inn, or a [unintelligible [00:09:28].24] So they get a higher end product… And by the way, everything’s brand new hospitality – great furniture, all the telecom, you can stream Netflix and Hulu on ChromeCast, there’s a full cable package, you have a bedroom separate from your living room, you have a washer/dryer, you have a brand new high-end gym, rooftop pool potentially… So you get all of those things, and you get a 24/7 on-site hotel staff.

So you get all the best parts of the service of a hotel, but all of the space, comfort and lifestyle advantages of a home-share.

Joe Fairless: And where do you see you all fitting in relative to Airbnb?

Jason Fudin: We see Airbnb, HomeAway, VRBO, Expedia, Booking.com — I would say Hotel Tonight, but I just heard that Airbnb bought them… We view all of them as channels. They are marketplaces where we’re able to find customers, and we pay a customer acquisition cost for those customers, and we also have our own set of direct channels and sales teams that sell directly to the community.

Joe Fairless: As you’ve honed the business plan and the execution in DC and Baltimore, what are some things that you’ve learned?

Jason Fudin: We’ve learned a lot of things. One of the things we’ve learned pretty quickly is when you have 100 or more units, unlike just a traditional home share where you have a unit or two, you’ve gotta run the thing like a hotel; you’re staffing it like a hotel, you have the same number of channels and funnels of demand as a hotel… You’re also subject to the same seasonality, days of the week, shoulder days of  a hotel. So what we’ve had to get smart on is optimizing the way that we sell into a market, so that we’re able to fill up 100-160 in short order.

Joe Fairless: And from an execution on the ground standpoint, with the go-live team – anything with that process that you have honed? Whether it’s as small as a certain telecom approach, or furniture approach, or as large as just your macro-level strategy?

Jason Fudin: We’ve learned how long it takes to put plates, and cups, and silverware in the unit, and have people work some pretty long hours, having underestimated that originally…

Joe Fairless: How long did it take?

Jason Fudin: It takes about six man-hours a unit, which is surprisingly long,  but there’s a lot of back and forth trips, so we’re getting better at that. We have learned how important it is to have the telecom on in advance, because potentially a Verizon or a ChromeCast might just be two weeks late, so you don’t wanna have it turned on right before… There’s a lot of those lessons learned. A lot of them are just on the execution, and so each one just gets easier execute. Decisions on furniture, where furniture [unintelligible [00:11:52].28] get damaged…

On our very first pilot we used Apple TV’s, and people would forget to log out, so we don’t use Apple TV’s anymore… So those kinds of things are just learned along the way.

Joe Fairless: You worked for —

Jason Fudin: Vornado.

Joe Fairless: Vornado. Huge company. I could remember the exact pronunciation. I remember walking by one of their offices in New York City all the time… Were you based n New York or DC when you were working there?

Jason Fudin: DC. I managed a large amount of multifamily development just for the Washington DC market in my first role with them, and then I ended up coming back as an executive to run their innovation group out of DC.

Joe Fairless: Okay, and what are some things that you learned there, other than the main insight that drove the creation of this company? What are some more tactical things that you learned there, that you’re applying with this company?

Jason Fudin: That’s  a good question. I would say one of the things I learned personally there is the patience and the time it takes to build something of scale. I’m a pretty high-energy person, and I wanted to be in real estate development. But obviously, buildings don’t grow up overnight, they’re still hand-built. So having to live through the process of putting up a 400 million dollar asset teaches you that patience.

That’s really important for us, because at our company – we’re a startup, we have to grow fast, we are growing fast, but still having an eye on the long game, to know that it still takes some time to get up to a couple thousand units and a couple hundred employees, and it’s not gonna happen overnight. That’s probably one.

And I’d say the second thing that I learned – and I don’t know if it it’s tactical, but… Real estate moves at a different pace than technology. And I think a perfect example of that is I was a development manager for a high rise apartment building, and we had pegged the rents at a certain dollar amount. That was in 2011. Then we went about entitling it, and then building it, and then delivering it. That delivered in 2016, so five years later…

Joe Fairless: Wow.

Jason Fudin: It was a very large project; I think it’s probably worth — well, now Amazon is gonna be on the [unintelligible [00:13:52].03] It’s probably worth about half a billion dollars; it’s a large project. And what’s interesting in that particular project is Uber changed the rental fundamentals of that project, because Uber wasn’t a thing in 2011 in any meaningful way, and it was kind of  a sleepy market in Arlington, Virginia. Then Uber arrived, and now all of a sudden we are only a $9 and 9 minute Uber ride from a more active lifestyle market. So while we thought it was a $500-$600/month chunk price discount to live in our building, now people are like “Well, why would I spend $600 more if I can be there in 9 minutes for $9?”

So we had tremendous upward pricing power, having to do with something that we didn’t control, and hadn’t thought about. I think that for me that was a big life lesson, in that real estate doesn’t move at the pace of technology and can be highly disrupted by it when it’s in motion, because you can’t stop it; you can’t stop building a couple hundred million dollar project.

Joe Fairless: Right. It’s a powerful lesson, especially when you’re dealing with those large of numbers, but certainly can be applied to any type of transaction.

Based on your experience as a real estate investor and entrepreneur, what is your best real estate investing advice ever?

Jason Fudin: My best real estate investing advice… I guess I’ve got two pieces – go where the market is going, not where it is today. A lot of people get caught up in the excitement of “This is this amazing spot”, but the spots change, so go where the market is going, not where it is today. And that’s if you don’t have that much money. And if you have a bunch of money, make your own market, so that where it’s going is where you make it. I think that’s important, because [unintelligible [00:15:23].12] large company like Vornado, and they can make a neighborhood that didn’t exist by investing 2-3 billion dollars. But if you’re a smaller developer, you’re not gonna be able to have that kind of outsized influence on any particular submarket. So you’ve gotta go directionally, where the rest of the market is going.

Joe Fairless: And how do you identify where the market is going, not where it is today?

Jason Fudin: You’ve gotta be a local. Anyone who tells you you can develop from afar, without local insight, is cheating themselves.

Joe Fairless: So you’ve got to be local, or have a local on the ground insight.

Jason Fudin: Yeah, you’ve gotta have local talent as part of any project, because sometimes street by street or exit by exit – there’s certain perceptions of what is and isn’t happening, and people know what’s coming… And if you’re outside of that and you’re not living, you’re gonna get tripped up on something you didn’t realize was a thing. You’re gonna be the outsider who made the dumb move.

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

Jason Fudin: Yeah, let’s do it.

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

Break: [00:16:24].01] to [00:17:09].03]

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

Jason Fudin: It’s called Hiring A-Players. A smart method for hiring people. It has changed the way we hire at WhyHotel. A company, especially a small company, is only as good as its team, and it’s exceptional. Based on hundreds of thousands of hirings.

Joe Fairless: What’s a top of mind tip you can give us from that book for hiring people?

Jason Fudin: Be thoughtful, be structured, and only hire the best.

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

Jason Fudin: Caring too much about how it impacted the other side of the table.

Joe Fairless: Best ever deal you’ve done?

Jason Fudin: The best ever real estate deal I did was a public deal, where there was a time dislocation between when we tied it up and where the market would be when we got to build it.

Joe Fairless: When you say “time dislocation” – will you elaborate on that?

Jason Fudin: Yeah, basically we tied up a deal with the city at one of the companies I worked at, but we knew we would break ground on it for a number of years because of the process, but we didn’t have to pay for it until we broke ground, and therefore, back to the earlier advice I gave about “Go where the market is going”, we knew that market was moving, and to be able to tie it up, but then not have to break ground until later put us at an advantage in terms of basis and the ability to get a return.

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

Jason Fudin: Teaching. I’ve mentored, I’ve taught at a college level, and I think that to be able to give back to the people that are coming next is powerful, not only because it’s enjoyable, but because they can then have an impact.

Joe Fairless: And how can the best ever listeners learn more about what you’ve got going on.

Jason Fudin: They can go to our website, WhyHotel.com. We say “Why a hotel, when you can have a place like home?”

Joe Fairless: Jason, thanks for being on the show, talking about the insight that led you to co-found WhyHotel, and the business model behind it, as well as the value proposition for all the players – your team, the developers, as well as the consumer. Interesting stuff. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Jason Fudin: Awesome. Thanks, Joe.

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JF1630: Raising Capital For Completing BIG Deals with John Rubino

Raising enough money to complete the large deals that John and his company do takes a lot of trial and error, and on the job learning. Figuring out what works and what doesn’t work when raising money can be a painful process, so can scaling a real estate business. Lucky for you, John shares his experience and knowledge on the show for free, so you can learn from his mistakes and successes. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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JF1608: How To Recession Proof Your Real Estate Investing Business #SkillSetSunday with J Scott

You know the name by now, he’s an in demand speaker and a best selling author. J is back to add more value to our lives, as always, this time having a discussion on the state of the market, and how to survive regardless of which part of the market cycle we are in. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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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, J Scott. How are you doing, J?

J Scott: Joe, glad to be here. Great to be back, thanks.

Joe Fairless: I am glad that you are here, and I welcome you back with open arms, because I always learn something during our conversations. I’ve seen you present at a couple conferences, and I know how much you hate presenting in public, but you are damn good at it, and you always teach the audience a whole lot of stuff… I won’t speak for the audience, you always teach ME a whole lot of stuff, and perhaps some others as well.

J Scott: I appreciate that.

Joe Fairless: A little bit about J, just as a refresher, Best Ever listeners. He’s been on the show a couple times… Episode #217 – this is not even close to episode #217; it was over 1,000 days ago when I first interviewed you on the show, and the title of the episode is “You only have one chance to make a good flippin’ impression.” A little play on words; you used to focus on fix and flipping, especially at the time. Now I think you’ve broadened your portfolio a lot since then.

Another episode, episode #1209, the interview on negotiating real estate, and that’s a Skillset Sunday episode that I highly recommend listening to, because he also — when I mentioned that I’ve heard J at a couple conferences, one of the conferences in Philadelphia, Dave van Horn put it on… Oh, no, actually that was my conference, the Best Ever Conference; you actually talked about negotiating, and some great tips there, and we talk about some of those tips in this interview.

And J is the author of three real estate books, including the best-selling book on flipping houses, which has over 125,000 copies sold in just five years. And in fact, he’s got a second edition of the book on flipping houses that has recently released, and a second edition of the book on estimating rehab costs that has recently released, so go check those out. Where is the best place to get those – Amazon, or Bigger Pockets?

J Scott: Both are great. You can buy them individually on Amazon, or if you want the set with some bonus materials, go to BiggerPockets.com, and they can sell you both books together with some additional bonus materials.

Joe Fairless: Since 2008, J has built, rehabbed, sold, lent on and held over 40 million dollars in property. Because today is Sunday, we’re going to have a special segment with J called Skillset Sunday. You know the drill, Best Ever listeners. This episode is going to be focused on a specific skill that you can hone – if you already have it, maybe you’ll get a little bit better – or acquire by the end of our conversation.

Here’s the skill – how to recession-proof your real estate business. J said he’s got some good ideas on how to do that, and I’m looking forward to this conversation. I do not know what those ideas are, so I’m looking forward to a lively conversation. With that being said, first can you just give the Best Ever listeners a quick recap of your background, just so we have some context?

J Scott: Yeah, absolutely, and I appreciate that introduction. I’ve been in the real estate industry for about ten years now, since 2008. My wife and I have a business together. We started out flipping houses, we did a couple hundred flips over the first five or six years of our career, and then we expanded into some smaller multifamily, we’ve done some lending, we’ve done some smaller rentals, we’ve done some note investing… We’ve done a little bit of everything, and I’m a big fan of — and I guess we’re gonna talk about it in this discussion, but I’m a really big fan of instead of trying to fight the market, basically going with the market and doing what the market is allowing us to do. We’re kind of doing a lot of different investing strategies, and we’re always looking for the path of least resistance and the low-hanging fruit when it comes to our investing.

Joe Fairless: I mentioned prior to us recording that I really appreciate your posts on Facebook about the economy, and I told you that most of the times I read something about what you post, I will then one day later read about it in the Wall Street Journal. Not the same day, not the day before, but one day later I’ll then read something about what you posted, in the Wall Street Journal. I’m like, “Wall Street Journal needs to hire you, to get some better intel, or some quicker intel”, or maybe you’re just faster to market because it’s a Facebook account, not an edited post, or edited article by the Wall Street Journal, so you do have speed-to-market on them. But that’s why we’re talking about the “Recession-proof your real estate” business topic. So how do we do that?

J Scott: I’m a big believer, like I said, in — basically, at any given point the market has stuff to offer, and the market has stuff that it’s not offering. And you can basically be one of two types of investor; there’s nothing wrong with either, I’m not making no judgment here. The first type of investor is someone like you – you’re actually a great example. There are people in this industry who are such a master of their craft, they’re so good and so knowledgeable and so well-connected and so experienced that no matter what the market has to throw at them, they can be successful. You can go out during probably the worst parts of a recession, or the best parts of an economic boom, whatever it is – you could go out and you could be successful buying multi-unit apartment complexes. And that’s what 1% of the real estate investing population can do; they’re just so good at what they do that no matter what the market is throwing at them, they can be successful.

Unfortunately, for the rest of us it doesn’t necessarily work that way. You could be a pretty good house flipper, but there are gonna be parts of the economic cycle where house flipping is just not gonna make sense for you or for anybody. You could be a really good landlord, but there’s gonna be parts of the economic cycle where acquiring rental properties just isn’t gonna make sense.

I’m a big fan of knowing where we are in the cycle, knowing what strategies and what tactics are working in each part of the cycle, and also being able to prepare and plan for the next part of the cycle, so that when it comes, you’re ready to kind of pivot your business and continue to make money.

We’ve noticed over the  – and when I say “we”, I guess it’s you and me and a lot of investors out there that have been paying attention – last year or two the market has definitely changed. We’ve gone from what I like to call an expansion, in economic terms (the economy has been growing, GDP has been growing) to a point where we’ve kind of hit a peak in the market. So instead of every month there being fantastic economic news – obviously, unemployment is still great, GDP is still good, but instead of it going up month over month over month, what we’re starting to see is we’re seeing mixed economic news coming out. The stock market is up and down, and wage growth is kind of hit or miss, and there’s been some layoffs here and there… Things are still really healthy overall, but we’re starting to see signs of the economy cracking, we’re starting to see signs that in a month or a year or two years things may not be as good as they are now.

And if you follow macroeconomics and economic theory, what you’ll find is this isn’t uncommon; it’s perfectly natural for the market to go in cycles – it goes up, it goes down, it goes up, it goes down, and a typical cycle can last anywhere from 5 years, to 8 years… We’re now almost 11 years into the current cycle, and it’s perfectly natural for it to go up; so the fact that we’re getting to a point where it’s likely to turn down in the next several months or years isn’t a reflection of who’s in office, it isn’t a reflection of how businesses are doing, it’s just a reflection of that’s the way our economy works.

What I’ve been talking to a lot of people about over the last few months is 1) how we can modify our businesses for now, so that we’re reducing the risk should the market have a downturn, and second, how to prepare our businesses for the coming downturn, and what we can do now so that when the market turns, we’re prepared and we can still make money. Does that make sense?

Joe Fairless: That does make sense. So in order to talk specifics about how to modify our business now for reducing risks should the market have a downturn, and we can prepare to make money, do you need to have a specific type of business in order to use those, or do you have concepts that apply to any type of real estate business?

J Scott: Well, there are certain strategies that are gonna work better at this point in the market cycle. And sure, let’s talk some details. I started with house flipping, I still flip houses, a lot of people I know flip houses, and I imagine a lot of people that listen to this show flip houses… So if you’re flipping houses right now, a  lot of these are common sense, but there are a lot of things that house flippers should be doing right now.

One is we’ve stopped doing big flips, we’ve stopped doing anything that’s gonna take more than six months. So between 2014 and 2017 we were doing some new construction, we were doing what we call pop tops, where we add a second story on houses, adding square footage… We’re not doing those anymore, because we’re not convinced that we necessarily have a 6 to 12-month runway before the market starts to turn down and prices start to decrease. So we’re pretty much sticking with projects that are under six months long, and preferably under three months long.

We’re making sure that any deal that we have has multiple exit strategies. From 2013 to 2017 we were pretty certain that if we took on a flip deal, we’d be able to sell it as a flip, so having a back-up strategy wasn’t particularly important. But these days having a secondary, or even a third or fourth or fifth strategy as a back-up should your flip not work out is really important. Maybe that back-up strategy is turning the property into a rental, maybe the back-up strategy is being able to do a lease option, or being able to do a wrap or subject to, depending on how you finance the property… But having a back-up plan – maybe it’s seller-financing the property to an owner-occupant who doesn’t have great credit – is important these days, because you could get to the end of your flip and you could find that the ARV is lower than what you expected, or because it’s taking so long to sell that your carrying costs are higher, maybe the rehab went over budget… So having a plan B, C and D these days is really important.

We’re avoiding leverage these days. One of the big risks when the market is potentially gonna turn is that if interest rates go up, or if the values of your property go down, you can’t necessarily repay your loans. It used to be that I’d have no problem taking out 100% loan-to-value loans against my flips, because I was pretty confident that I was gonna be able to sell for at least a little bit of profit. These days if I’m planning on making 15% return on my investment on a flip, and the market drops 20%, if I have 100% loan, I’m automatically underwater. So we’re avoiding large amounts of leverage.

Joe Fairless: Okay, so you said avoiding leverage, but then you said avoiding large amounts of leverage… So you’re still using leverage.

J Scott: Us personally, we are avoiding leverage altogether at this point in the market cycle. That said, I realize that a lot of people are not in the same position we are, and they can’t avoid using leverage completely. So to them I would recommend avoid large amounts of leverage. If you think that the biggest potential drop in the market is, let’s say, 20%, then don’t leverage your properties more than 80% loan-to-value, because if the properties then drop 20%, you’re right about even on your loan. So figure out from your perspective what’s the worst case scenario, and then factor that into your risk model.

Joe Fairless: With you avoiding any leverage, what are your thoughts of getting a long-term loan at relatively speaking a lower interest rate based on where we’re still at; that to me seems pretty conservative, but clearly you have a different approach to it, because you’re avoiding any leverage… So what are your thoughts about that?

J Scott: Keep in mind that I’m talking about flips right now, and if you want, after this we can jump into some of the strategies that we’re doing to prepare for the next phase…

Joe Fairless: [unintelligible [00:13:53].16] because you’re buying small multifamily too, so…

J Scott: Exactly, and my strategy is completely different for the buy and hold.

Joe Fairless: Okay, alright. Sorry. So this is only related to fix and flip.

J Scott: This is related to fix and flip, exactly.

Joe Fairless: Okay.

J Scott: Another thing we’re doing is we’re staying away from the higher-priced houses in our markets. What you’ll find is if you look at some historical data, when the market turns, the first type of house that typically sees a reduction in sales and in greater inventory are the highest-priced houses in any particular market. So if your average house price in your market is 200k, you probably don’t wanna be flipping the 600k, 700k, 800k houses, because when the market turns, that’s the buyer demographic that’s gonna slow down first. So we’re staying away from the really high-priced houses.

We’re also staying away from speculatory purchases. There were times when we would buy a flip thinking “We may make a little bit, we may make a lot. Let’s take a chance.” These days we wanna be absolutely certain of our numbers before we buy anything, because the speculation is where you get in trouble when the market changes.

Joe Fairless: Cool. And now how to prepare, so that you can still make money in a downturn?

J Scott: Yeah, if you wanna talk about things we’re doing to prepare – we’re moving a lot of our assets to cash. During a downturn, for anybody that wasn’t around in 2007-2010, what you’ll find is that when there’s a recession and things get bad, or even as things start to improve on the other side, cash is king. Credit gets really tight. These days anybody can get a loan — not anybody, but these days getting a loan on a rental property or even a flip isn’t that tough; there’s portfolio lenders out there, there’s hard money lenders out there, there’s private money out there… But what you’ll find is as soon as the market turns, the portfolio lenders go away, the hard money lenders tend to slow down, and private money lenders, your friends and family – they get scared to invest in things like real estate, so that goes away… So having cash is really the best way to keep your business moving forward during a downturn.

What I recommend to everybody is if you have any assets that you can easily liquidate, now’s a great time to do that. Second, I tell people if you have assets (real estate) that you’re not willing to hold for 3-5 years, now’s a great time to sell it, because if you’re not looking to sell it right now, in a year or two or three the value could be lower. You could be looking at 3-5 years before the value comes back to where it currently is. So if you’re not interested in holding for 3-5 years, seriously consider selling now.

I tell a lot of people, start working on building your credit. If you don’t have good credit right now, credit is extremely important when there’s a downturn. Lending requirements tighten up, you go from 680 credit scores being good enough to  get a mortgage, to you have to have a 740 credit score. That’s just an example. But having good credit will really give you more options when the market turns.

Along the lines of credit, apply for lines of credit now. Even if you don’t use those lines of credit, if you can take out a HELOC, or a personal line of credit, or a business line of credit, having that cash available for when great deals come along and you can’t find private money or you can’t find hard money or you can’t find a bank to lend, having those lines of credit available now is really important… Because once the market changes, it’s gonna be a lot harder to qualify for those lines of credit.

If you have any short-term debt, now’s a great time to restructure it, because interest rates are going up, and as interest rates go up, it’s gonna be harder to refinance when a year or two or three from now your debt comes due. So negotiate with your lenders and if you have something that’s gonna come due or that’s going to balloon or that’s gonna have an interest rate that resets in a year or two or three, go to your lender now and say “Hey, can we restructure this into a five-year or a seven-year loan now?” so that you don’t have to worry about it in a couple of years when values are down and interest rates are up.

I’d say sell off any income properties that can’t handle a 10% decrease in rent or a 10% increase in vacancy. During the last downturn – and I know in a lot of markets rents stayed pretty strong, vacancy stayed pretty strong, but in some markets vacancies and rents dropped significantly in 2008-2009. So if you’re barely cash-flowing, if you can’t handle a 10% drop in rents, or you can’t handle a 10% drop in occupancy, consider selling off that property and look for something better, or just hold the cash.

What else…? Here’s a big mistake that I see a lot of investors make when the downturn starts – they don’t cut their losses; they’re scared to take a little bit of a loss, so they hold and hold and hold, and they chase the market down and they find that they end up taking a much bigger loss later. So what I like to say is if you happen to be in an area where the market turns and suddenly you’ve gone from making a little profit to breaking even, or losing a little bit of money, don’t be scared to cash-out and say “Okay, I’m gonna take a little bit of a loss, because what you could find is 6 or 12 or 24 months later that little loss could end up being a big loss.

Joe Fairless: You’re currently buying property that are not fix and flips, right?

J Scott: Correct.

Joe Fairless: So what is your approach with those properties that you’re purchasing and what types of properties are they?

J Scott: That’s a great question. If you look again at historical data, what you find is typically the A-class properties are the first to take a big hit on rents and occupancy when the market turns. A lot of people start losing jobs, they take paycuts, and people in A-class units find that they can’t necessarily afford those units, so they move down to B-class units. And people in B-class units move down to C-class units.

We’re staying away from what a lot of people call the A-class properties, the high-end properties, and we’re focusing a lot on the C-class properties. In fact, over the last year or two we’ve bought a bunch of D-class properties that we’re improving to C-class, because as the economy changes and as the market turns, there are gonna be a lot of people who can’t live where they’re currently living, but they still need a place to live, so they’ll down a class, or they’ll move down two classes.

I’m a big fan of B and C-class properties during a recession… And it’s not for me, but I know that there are a lot of landlords who focus on worse than C-class properties; what they’ve found during 2008 was that they were still able to make money. Remember, everybody needs a place to live, no matter how little money they make… So if you’re focused at the very bottom of the market, there’s a lot of headaches there, but you may find that those units are more recession-proof than some of the higher-end units you might be considering buying.

Joe Fairless: The D-class property that you’re improving to a C-class, how many units is that?

J Scott: We have a 38 and a 16 right now. These are mid-sized units.

Joe Fairless: The 38-unit property, what type of financing do you have?

J Scott: We originally bought that seller-financing, and then we refinanced into a portfolio loan with a local bank.

Joe Fairless: And what are the terms of that loan?

J Scott: We are paying seven years 6%, amortized over 20 or 25.

Joe Fairless: And in your mind a seven-year loan is conservative enough, knowing what you’ve mentioned earlier about your belief in a correction taking place soon?

J Scott: It is. If you look at the data historically, the market moves in cycles and you can kind of think of it as two different parts of the cycle; you have the expansion from when the recession ends until the next recession starts, and then you have the recession phase. And typically speaking, that expansion phase is about five times as long in general than the recession phase. So typically, what we see when the market turns is there’s a steep and a quick drop, but that tends not to last tremendously long. So if you have a loan that’s at least 3, 4, 5 years out, you’re probably gonna be in a decent position by the time that resets or the time that you have to refinance.

Also, remember, interest rates tend to go up towards the top of the cycle – that’s how the government controls inflation  – but as you get towards the depths of the recession, things are really bad, the government is gonna lower interest rates to encourage spending, to get people to stop saving money… So typically, by the time the recession is done, which again, is a year or two after it starts, interest rates are down low again, or lower. So I’m perfectly comfortable with seven, and I think I’d be comfortable with five or even four from here.

Joe Fairless: Anything else you think we should talk about as it relates to building a recession-proof real estate company that we haven’t already talked about?

J Scott: For your typical fix and flippers or buy and hold folks, I think that covers the bulk of it. But if you’re a lender – it’s interesting, because I see a lot of lenders right now that are either big hard money lenders or smaller private lenders, and what I find is that a lot of these lenders are lowering their rates today because they’re so desperate to find deals. So they’re lowering their rates, they’re increasing their loan-to-value, so they’re taking more risk in terms of the amount of leverage they’re giving out… I do some private lending out of my IRA, and for me, I’m doing just the opposite – I’m actually raising my rates and I’m being more conservative on my loan-to-value.

Joe Fairless: What are your rates? What do you charge?

J Scott: Typically, I lend mostly to people that I know and trust, and on properties that I will look at and say “I’d be happy to own this property if something happens.” So typically I’ll lend at somewhere  in the 10%-12% range, no points; maybe even a little bit cheaper than that if it’s a deal that I can almost root for them to fail on and I could take the property. Not that I ever root for my borrowers to fail… But if I’m really comfortable with the collateral, I might do a little bit less than 10%.

These days I’m starting to do 12% to 14% again, with a point, because I know that there’s additional risk. If the market turns, there are gonna be a lot of fix and flippers that are gonna get caught with their pants down when the market turns, and I know that there’s some buy and hold investors that they might be cash-flowing now, but they won’t necessarily be cash-flowing if rents drop 10%, or if occupancy drops 10%. So I’m being a lot more cautious with my lending now. I’m increasing rates… I’m focusing a lot more loans on buy and hold investors, because typically buy and hold properties, if bought well, are gonna be recession-proof. If your DSCR is high enough, you’re not gonna have to worry about a 10% drop in rents. So if I have to take back a buy and hold property, I’m less concerned than if I have to take back a flip that might be 5% or 10% or 20% underwater.

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

J Scott: Absolutely. Anybody that wants to get in touch with me, my e-mail address is j@123flip.com. You can check out my website at 123flip.com, you can follow me on Facebook, J Scott Investor, and if you wanna check out my books, it’s The Book On Flipping Houses, The Book On Estimating Rehab Costs and The Book On Negotiating Real Estate, all available on Amazon, and soon all to be available on BiggerPockets.com.

Joe Fairless: Those all sound like Friends episodes. Has someone told you that?

J Scott: Yes, THE Book On…

Joe Fairless: Yeah, yeah, The Show About… Well, J, thank you so much for being on the show… Helpful for any type of investor, but certainly fix and flippers. If you’re fix and flipping right now, do fix and flips that take less than six months, you have multiple exit strategies, you avoid large leverage – J avoids any leverage on the fix and flips right now – and avoid the higher price homes.

Similarly, for buy and hold portfolios, staying away from A-class properties. We don’t buy A-class properties for this reason. Also, having loans, you said, at least four years – agree there; our loans are at least five years. And ultimately, I also like buying cash-flowing properties that, regardless of what happens, if you’re making money and you can ride out the storm, where the loan does not become due, then you’re in a pretty good spot… And wrote about my three immutable laws of real estate investing, and they certainly overlap with what you’re saying here, because you mentioned earlier to be cash-heavy, and that’s definitely important during a correction.

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

J Scott: Thanks so much, Joe.

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JF1455: Helping Real Estate Investors Revitalize Neighborhoods by Lending $150M with Jeff Levin

Jeff has overseen over $1.5 Billion in loan originations. Around the time of the great recession, he founded Specialty Lending Group. With this company he has lended over $150 million to real estate investors in the Washington D.C. area. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Jeff Levin Real Estate Background:

  • Real estate investor, author, and President/Founder of Specialty Lending Group
  • Lends private money in the Washington D.C. Metro region
  • Has a book coming out this fall titled The Insiders Guide to Private Lending
  • Based in Washington D.C.
  • Say hi to him at www.jeffnlevin.com
  • Best Ever Book: Daring Greatly

Best Ever Listeners:

Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.

See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


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, Jeff Levin. How are you doing, Jeff?

Jeff Levin: Good, Joe! Thanks for having me.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Jeff – he is a real estate investor, he’s an author, and he’s the president of Specialty Lending Group. He lends private money in the Washington D.C. Metro region. He’s got a book coming out this fall, titled “The Insider’s Guide to Private Lending.” Based in Washington D.C. With that being said, Jeff, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jeff Levin: Yeah, absolutely. Joe, thanks for having me, and hello to all of the Best Ever listeners. I’ve been in real estate for (gosh), just about three decades, 30 years… And I’ve seen the real estate industry evolve, I’ve seen it grow, both at a large and kind of a micro-level, within the private lending arena.

During the past 30 years – as a background on me – I’ve invested in my own properties; I’ve done both buy and holds, I’ve done fix and flips, and one fact about me is I’ve overseen the origination of one and a half billion dollars of loans.

Around the time of the Great Recession I founded Specialty Lending Group, to help real estate investors revitalize neighborhoods in the DC Metro area. And since 2008 I think we’ve lent real close to 150 million dollars, specifically in the Washington Metro area, literally revitalizing neighborhoods.

Most of the housing stock – and I’ll speak specifically to the geography of Washington D.C. – needs to be remodeled. There are a lot of people, as you know being in this space, that nobody really wants to buy if you’re [00:04:54].08] Or actually, not no one, but very few people; it takes a special type of person to see the end of a project when you’re seeing paint that’s old, and some places — you remember when people used to have wallpaper, right?

Joe Fairless: Oh, yeah. Not everyone has a vision, right?

Jeff Levin: Yeah, so that’s what we do… We’ve had a lot of fun doing it, and right now we’re specifically targeting the Washington Metro area. I’ve been in D.C. for nearly 30 years, and really have watched D.C. evolve as a city.

Joe Fairless: Your book coming out this fall is titled “The Insider’s Guide to Private Lending.” What does that entail, the Insider’s Guide?

Jeff Levin: In the Insider’s Guide to Private Lending — it is really an insider’s guide… I’ll walk our readers through the private lending process. People look at the private lending process and they think it’s in a foreign language that they don’t understand, and in the book we go through step by step how to find borrowers… I share a lot of personal stories about a borrower who was on the verge of bankruptcy that I lent two million dollars to, and we’ll talk about — and hopefully on this call I’ll be able to share some of the transactions that I’ve had the privilege of being involved with throughout my career.

But the Insider’s Guide to Private Lending really teaches the reader about the opportunities in private lending.

Most people think through a 401k – which hopefully most people have and are saving for their retirement – that they can only invest in stocks. We teach in the book that you can start a self-directed IRA and actually invest in private loans. So we cover the gamut… It has a lot of really good stuff for beginners, and a lot of really good stuff for people who have been in the industry and can relate to some of the stories that I share in the book.

Joe Fairless: Let’s talk about that example; you’ve piqued my curiosity, and perhaps some of the listeners’… You had a borrower who was on the verge of bankruptcy, and you lent him two million dollars. Please tell us that story.

Jeff Levin: You might think I’m crazy… A lot of people do, but let me start from a global perspective. When evaluating private real estate transactions, you look at a number of things to vet the transaction and make sure it makes sense… Whereas I may look at a transaction and consider it very low-risk, a banker might look at the transaction and consider it very high-risk.

This particular borrower, in the height of the great recession in 2008, he was a big developer… And when I say big developer – he’s not buying buildings in every major city, he’s buying buildings locally. And at one point he had, I think, close to twenty million dollars in real estate.

Well, come 2008, and he had done a condo conversion… The bank, like many banks, as you remember, during the Great Recession, decided to call a lot of their loans… Meaning they would make real estate investors pay them off, or they’d foreclose on them… And in many cases, back in 2008-2009, they offered discounts on these types of loans.

So our borrower was in the midst of developing close to 20 condo units in one project, and he had the ability to purchase that note at 50% of the face value… So the borrower was on the verge of bankruptcy, because he could have gone under had he not found me or somebody like me to lend him money to buy the condos, and then finish the condos, and then sell the condos.

He ended up walking away from that transaction I think with close to $200,000 in profit, after almost being on the verge of filing a bankruptcy… And he turned out to be a good friend, too.

Joe Fairless: So the key there was that he had the opportunity at 50% of face value, so he had built-in equity going in?

Jeff Levin: He did.

Joe Fairless: Because if he didn’t have that, he wouldn’t have had the two million from you, right?

Jeff Levin: He would not have had the two million. I analyzed the perceived risk, and the real risk. And the real risk in the transaction was not that the condos wouldn’t sell… The real risk is “Can the borrower complete the renovation?” and that’s where a lot of people in the fix and flip world and the bridge loan world and in the development world – people get screwed up on that.

If you ask me the one thing that can hurt real estate investors, it’s not having the ability to actually execute on the renovation portion of the loan.

Joe Fairless: And how do you qualify for the execution part?

Jeff Levin: One of the things that I do is if a borrower is doing their own renovations, I obviously ask them what they’ve done, I go see properties… I trust, but verify. And if it’s a general contractor that they’re hiring, you’ve gotta do due diligence on the contractor. What type of projects has the contractor done… If you’re gonna hire a contractor to do residential condominiums and they only specialize in commercial office buildings, you’ve got a disconnect. If you hire a contractor to do condo conversions that’s done condo conversions, you’ve got a match… But you’ve gotta do major diligence, and I think the best piece of advice, if I can share with you – and I’m sharing it with private lenders and any real estate investor – I call it the CYA, Cover Your Assets.

There was a situation many years ago, and I explain this in my forthcoming book, The Insider’s Guide to Private Lending, and I also talk about tangible steps that everybody can take to ensure that you’re protecting yourself, so that you don’t make the same mistakes.

So I had a profit share, a joint venture with one of my borrowers, and everything was going great; the borrower finished, and it was time to sell the property, and he conveniently forgot about the profit share, and as a result I was not legally entitled to the $80,000 profit because I had a lack of documentation.

I share this story in my book, and I share it with audiences that I speak to, with borrowers, with anybody I know. It’s so important, the CYA.

Joe Fairless: Well, I’m sure that you had some documentation… So what documentation did you have, that you thought at the time was adequate, but that wasn’t?

Jeff Levin: I guess I’m not embarrassed to say it, because I learned a valuable lesson…

Joe Fairless: It was a handshake, wasn’t it? It was a handshake?

Jeff Levin: It was called a handshake, yeah. It was the handshake. In today’s world–

Joe Fairless: Not even an e-mail? Or when was this, how long ago?

Jeff Levin: This was right when I started…

Joe Fairless: Okay, so 30 years–

Jeff Levin: No, this was 2008. I knew better, but because I was doing so many things, I didn’t pay attention to the detail… And the detail was making sure that I CYA-ed, and I didn’t. I still got paid on the loan, but I didn’t earn the profit that I had anticipated.

Joe Fairless: And I’m just curious, with this individual, when you said “Hey, yeah, we did the loan, but also we had that profit share component…” – did they say “No, we didn’t”, or did they say “Screw you, buddy. I’m not gonna do that”?

Jeff Levin: The latter, but not exactly in those words. “I did all the work. All you did was put up the money, and you’re not entitled to any profit.”

Joe Fairless: Got it. Okay, cool. So they didn’t say that there wasn’t an agreement, they just said that “I did all the work, so now I don’t want you to have a profit.”

Jeff Levin: That’s exactly right.

Joe Fairless: Cool.

Jeff Levin: And that’s why had I had it documented, there would be absolutely no questions.

Joe Fairless: How about another deal that you’ve done with a borrower, good or bad? It sounds like your book’s chock-full of stories, so how about another one for us?

Jeff Levin: Let me start with a good one.

Joe Fairless: Well, both of these have been real good.

Jeff Levin: Besides the fact that I’ve bought and sold a lot of real estate and I’ve made money and I’ve lost money on transactions, and most importantly I’ve learned… But the best transaction that I’ve ever done and that brings a smile to my face just to think about – the borrower is a friend of mine named Johnson. Johnson also was a big developer in the Great Recession, and had challenges with his married, i.e. he was losing money and his wife wasn’t happy, and his wife said “You can go ahead and do one more project, but you can only invest (I think it was close to) $80,000.”

Johnson had identified a building that was a 14-unit building, I believe (14 or 15 units) and said he was gonna add an additional three units to it. He said, “Jeff, I need to borrow the money for six months. At the end of the six months I will have revitalized, renovated this building, I will have added three units, and I will have a lease with the VA for five years.”

I said, “Johnson, I like you, I’ve lent to you before… That sounds a bit ambitious. Why don’t we do a [00:13:27].13]?” He said, “No, I only want it for six months.

At month six not only did Johnson do everything he said he was gonna do and refinanced… He refinanced, he cashed out his initial down payment, he had $10,000/month of positive cashflow. After, he went to a traditional community bank to get a loan, and he had a million dollars in built-in equity in the building.

Joe Fairless: Wow.

Jeff Levin: That is the best transaction that I have done that was a win/win, and we made some money for my company and for my investors, and Johnson has since graduated, meaning he’s now going to community banks, but he comes back from time to time when he needs money quickly, and he comes to borrow from us. That’s my best feel-good lending story.

Joe Fairless: You said he’s graduated and he’s gone to community banks… What are the key differences between what you offer, private money, and what community banks would offer, generally?

Jeff Levin: I think we as private lenders we offer one thing that despite the repeal of some of this stuff in Dodd-Frank, community banks can’t beat us on speed. If you make a phone call to a private lender, if you make a phone call to me today, within five days, if everything lines up, we can get your money to you and get the transaction closed.

When I say “graduated”, what I mean is community banks typically have lower rates, they take longer periods of time, and they can do loans for longer periods of time, i.e. fixed for five, ten years, sometimes straight amortized over 20… So when I say — a lot of beginning investors start out with private lenders, and then move to community banks… So that’s what I mean when I say “graduate.”

Joe Fairless: What’s a good losing money story?

Jeff Levin: Well, I can tell some stories, not many, about losing money… But there was a time where I made four loans to one borrower, and I was clearly way too concentrated… And I ended up taking small principal haircuts to get out of them. Now, what happens when private lenders lose money is time is money, and that expression is very true in private lending… Because whether you’re lending your own capital, or you’re lending capital on behalf of investors like myself in addition to my own capital – the time value of money. We ended up selling each property at an average of a $10,000 discount, so we lost $40,000.

In comparison to our overall pool, it wasn’t a big deal… But the lesson I learned is “Walk before you run”, and “Trust and verify”, because this borrower said they had done  a number of flips… These stories are all from 2008, kind of 9-10 years ago. But it’s not fun to lose money, Joe. It’s absolutely no fun.

Joe Fairless: You mentioned you were too concentrated, but I imagine – and perhaps I’m about to put words in your mouth, but I imagine you have loans, like 4+ loans with one borrower… So was it the too concentrated aspect that got you in trouble with this one borrower, or was it the due diligence aspect?

Jeff Levin: I jumped in too quickly; instead of making one loan to a borrower, I made four at once. At the time, my pool of funds was maybe 20 loans. So I was too concentrated with this one borrower.

Joe Fairless: And that was the first time with this borrower?

Jeff Levin: That was the first and obviously the last time with the borrower.

Joe Fairless: Okay, fair enough.

Jeff Levin: But I think if you ask me, one of the biggest that I’ve made as a private lender is not actually going inside the property… Years ago, I remember when I was pressed for time, I drove by a property that I was going to lend on, but I didn’t go inside. The guy was a paralegal, I thought he was responsible, and as it turned out, it was being used for illicit activity, if you will… So we had to take down all of the drywall after we ended up foreclosing… Not that I know that smell, but you can imagine what the house looked like on the inside… So that’s a good tip for you.

Joe Fairless: So you personally go inside of the properties prior to lending on them?

Jeff Levin: One of my staff does. I used to go into every single property. Not only did I go into every single property, I inspected as the work was being done… But as our pool has grown over the years, it’s impossible for me to do that. If it’s close to my office, or if it’s in Metro Washington D.C., I’ll try to get there… But a lot of the neighborhoods I know, but I do have my people go in and take interior pictures, and make sure that what a borrower says that they want to do can actually be done.

Joe Fairless: And I’m glad you’ve mentioned that, because we have a decent amount of Best Ever listeners who are interested in lending their money to others, myself included. I don’t personally do private money lending, but down the road I can see myself doing it, like a decade from now or something, where I wanna put some of my focus toward that. I will still do what I’m doing now, but maybe do a little bit of private lending on the side… So one thing you said, a mistake that you made early on but now you don’t do that is not going inside the property… What are some other mistakes that a first-time private money lender might make?

Jeff Levin: This is a good question, Joe, and I don’t wanna plug my book again…

Joe Fairless: Plug it. If you’ve got answers in the book, please do.

Jeff Levin: The Insider’s Guide to Private Lending – it will share a lot of do’s and don’ts, but the biggest thing is getting to know your borrower, getting to know who you’re lending to. This goes back to the story that I shared about how I did not document the $80,000 profit. Guess what? Had I documented it, I may or may not have gotten it; agreements are only as good as the two people that make them. If I shake your hand and you shake my hand, and you’re a good guy and I’m a  good guy, and we believe in the old adages that hard work pays off, good things happen to good people — sometimes bad things happen to good people [00:19:26].25] but you really need to dig deep and get to know your borrower.

You need to look at their credit report, and if it doesn’t say nice things, find out what happened and find out why. That is tip number one – to find out who your borrower is. If they’re an experienced real estate investor, not only look at what they’ve done, look at the quality of what they’ve done. You can learn a lot on the internet about almost anything, and especially about pieces of real estate.

So I guess tip number one, I would say, is to know your borrower. Tip number two is to know your renovator, the person actually doing the job… Because sometimes these renovators don’t do the work, and ultimately, the person who’s gonna do the work is the general contractor… So it’s important to know who the general contractor is, and also to have realistic expectations.

Johnson, though I thought he was overly aggressive, he came through, but that’s few and far between. If you’re a private lender and you think your funds are gonna be out for six months, don’t expect them back for nine; even though it would be great if get them back in six, that can really derail your lending process and in turn your reputation as a private lender, if you don’t have capital for a deal that you’ve committed to do.

Joe Fairless: That’s great stuff. Based on your experience as a private lender, and also 30 years in the industry, what’s your best real estate investing advice ever?

Jeff Levin: Two words – buy and hold.

Joe Fairless: That’s three.

Jeff Levin: [laughs] It is three. My best three words – buy and hold. So I’m a buy and hold investor. Even though I’ve been involved in hundreds of transactions in one way or another – not as a lender, but as an owner – the most value I’ve seen is by buying a piece of real estate, improving it or getting it rented, transitioning it, stabilizing it, and if you’re using private money, which is candidly the way I’ve started this business as I borrowed private money to buy a 20-unit apartment building, and put up at that time all of the assets I had to do it.

Right now, in addition to being a lender and an author and a speaker, one of the things that I do is I like to buy and hold real estate, and operate it, and create a flow of passive income, and that’s how generational wealth is created.

Joe Fairless: Do you still have that 20-unit?

Jeff Levin: No, let me tell you about the 2-unit… This is a funny story. I ended up buying a 20-unit building in one of the roughest parts of Washington, and arguably still a tough part, though D.C. has really gentrified, if you will, meaning in terms of income, from lower income to higher income. So I buy this building… I owned at that time two condos in Georgetown that were lowly leveraged, and I had (I don’t know) a couple hundred thousand dollars in cash. I put up some cash and I pledged both buildings.

I buy a 20-unit building, I self-manage it, they’re mostly voucher recipients, so public housing… And I end up buying it, and I thought I was going to continue to buy buildings, and I got tied up in something called TOPA. For those who don’t know what TOPA is, in the District of Columbia it’s called the Tenant’s Opportunity to Purchase Act, and tenants basically have the first right of refusal to buy buildings.

So I got caught up in this lawsuit, and the lawsuit ended up getting dismissed, and defended by title insurance… I had done nothing wrong; when I bought the building, I used hard money, I refinanced it, and that’s when the lawsuit happened, after I refinanced it… So I stabilized it, and I sold that building and I made a million dollars – half in cash, and half in the tax deduction, because I sold it to a non-profit.

What that did for me is that started Specialty Lending Group, and really got me into private lending. I used that half a million dollars, and now we’ve turned half a million dollars in over 150 million dollars in loans.

Joe Fairless: So clearly, what you chose to do with those proceeds worked out. I’m curious though, if you just made 500k in cash on this project, why not continue to do what you had just done to make that money, and buy another apartment building?

Jeff Levin: Good question, and I have since bought multiple apartment buildings. I saw an opportunity. There were people that were calling me that said “I can buy this property, fix it up and sell it. I can buy this property, hold it in my rental portfolio…” So for me it was a win; I didn’t like the location, and that’s why I was okay parting with it, and the top three things in real estate are “Location, location, location.” That area, fast-forward – I sold it 10+ years ago – is still not stabilized.

So the opportunity that I saw in front of me in the private lending space far outweighed holding this one building.

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

Jeff Levin: I am, let’s do it!

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

Break: [00:24:23].00] to [00:25:16].23]

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

Jeff Levin: Oh, good question. I read a lot of books, so it’s hard to highlight the best one that I’ve ever read… I’m currently reading “Daring Greatly” by Brené Brown. It breaks down about the importance of vulnerability in relationships, and how being open and honest with your team and other people in your life can lead to innovative ideas, better workflow, and so much more.

Joe Fairless: Best ever deal you’ve done that you haven’t talked about already?

Jeff Levin: Good question. The best deal I’ve ever done is I identified a piece of real estate that was off-market, and I told you about the deal that I sold the 20 units — I also sold this piece of property, so I’m talking about two sales, not the other real estate that I own… I identified an off-market piece of real estate and I sold it 13 months later – actually, it was 12 months and two days – and made a profit of a million and a half dollars.

That happened about three years ago, and it happened with the help of my wife, who encouraged me to buy the piece of real estate.

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

Jeff Levin: Best way I like to give back is to our youth. One of the things that I do is I volunteer during the school year at a public high school, kind of with — not so much special needs, but inner-city kids that would benefit from an entrepreneur like myself. I volunteer at Ballou High School; it’s a school in South-East Washington D.C.

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

Jeff Levin: The best way to get in touch with me is by e-mail, and I encourage you to go to Amazon to take a look and purchase or give a review of my forthcoming book, The Insider’s Guide to Private Lending.

I am also starting a personal website, and that’s a website you can view at www.jeffnlevin.com. I think that is probably the best way to get in touch with me, through the jeffnlevin.com website.

Joe Fairless: I’ve really enjoyed our conversation. You talked about mistakes first-time private money lenders can make. One is we’ve got to get to know the borrower, so the mistake would be they don’t get to know the borrower.

Some tips that you have – always look at the credit report, make sure you’ve got the background story of why things are the way they are; look at the experience – not only look at their experience, but look at the quality of the projects they’ve worked on, and know the renovator, know the general contractor (it might not be the same person), and as a lender, have realistic expectations… In order to have realistic expectations, we need to know what realistic expectations are, and one example that you gave is if it’s a six-month project, expect nine months; be pleasantly surprised with six months, and document, document, document the contractual stuff. Handshakes are great, but I think you’ll want to document things.

Really cool hearing about your 20-unit building, as well as what you did with the proceeds when you saw an opportunity in the lending industry… So thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Jeff Levin: Thanks, Joe. Talk to you soon.


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Michael Blank & Joe Fairless on Best Ever Show episode 1453 banner

JF1453: Get Financial Freedom Through Real Estate Investing #SituationSaturday with Michael Blank

Michael is another expert syndicator and author of a new book, Financial Freedom with Real Estate Investing. Today he’s here to tell us how people can do exactly what the book title says, be financially free through real estate investing. Great advice in this show, get ready to take notes! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:


Michael Blank Real Estate Background:

Best Ever Listeners:

Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.

See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


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

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment called Situation Saturday… And here’s the situation – you want financial independence, and hey, you’re listening to a real estate podcast, so it’s likely that you are looking at or currently implementing real estate as a way to achieve that financial independence… And fortunately, we have Michael Blank on today’s episode, and he just wrote the book “Financial Freedom with Real Estate Investing”, so we’re gonna learn about how to do that. How are you doing, Michael?

Michael Blank: Hey, I’m doing great, Joe. Thanks for having me on the show today.

Joe Fairless: Well, my pleasure and nice to have you back on the show. If you recognize Michael’s name, well, you’re either a loyal listener of this podcast; you can just search “michael blank joe fairless” and listen to previous episodes with him, or you can listen to his podcast; he is the host of the popular real estate podcast called “Apartment Building Investing with Michael Blank.”

He’s a full-time entrepreneur and investor who controls over 65 million buckaroos in multifamily assets. Based in DC… Michael, how about just real quick maybe give some background about yourself, and then let’s dive into financial freedom with real estate investing, the book you’re releasing, what we can learn from it.

Michael Blank: Yeah, I’ve been on a multi-year (nearly a decade) quest for financial freedom, and I had it for a while and then lost it again, and regained it… And I’ve done everything from software, to restaurants, traded stocks and options, flipped houses, did apartment buildings, negotiated short sales… I’ve done a bunch of stuff, and some were successful, some weren’t, and some really didn’t give me the lifestyle that I wanted… And when I looked at it, when I took stock of all these things and I looked at the lifestyle I wanted, which was financial freedom, there was really one that checked the most boxes, and that was always apartment buildings. That’s what I focus on right now. My passion really is sharing how to do that, and what’s really exciting about it is that people can get started with apartment buildings, regardless of whether they have experience or cash. That’s what I really find exciting about that.

Joe Fairless: Yeah, that is certainly intriguing. As you mentioned, you can get started without experience or cash… I guess that’s a great way to start the conversation. How can you get started without experience or cash in apartment buildings?

Michael Blank: Well, first let me say a lot of people think this, and as a result, they take certain actions that may or may not be misguided. Normally, the argument goes “Michael, apartment building investing is a great way for passive income, long-term wealth, but let me do some single-family house investing for the next five or ten years, and I’ll take that experience and the money I make and then I will graduate to apartment building.” It’s not a bad plan. Shoot, I’ve done it, and most of the people I know have done it. The thing is it’s not the most efficient plan. There’s a more direct path, which is getting started with apartment buildings right away…

The two main objections – one we talked about already, “I don’t have the experience. I don’t have the money. I’m stuck.” So how does one overcome the lack of experience? There’s a couple very simple ways to do that, but first and foremost is educating yourself, so you don’t sound like a newbie… Because as you know, apartment building has its own language, and when you don’t use the right language, you immediately sound like a newbie, and you know you sound like a newbie when the broker says “You know what, send me your proof of funds and I’ll send you more details.”

When that happens, there’s evidence that you just sounded like a newbie. So number one is don’t sound like a newbie, and number two, build a team around you, so when the broker says “Who are you? Why should I talk to you?”, you say “My name is Michael and I’m a real estate investor looking for blah-blah-blah, a certain deal… But I’m working with Frank, who manages 5,000 units, and I’m working with so-and-so down at a title company…”, and the broker will be like “Oh, Frank? What a great guy! I’ve known him for years!” and all of a sudden the conversation is about the experience of your team members, versus the lack thereof on your side.

So the lesson there is to build a team around you, and you do a great job with this, Joe; you’re awesome at creating teams. So you talk about the team around you, and the focus is no longer on you. That’s the main way that you very quickly can overcome the lack of experience without spending 5 or 10 years investing in single-family houses.

Joe Fairless: How do you track the right team members?

Michael Blank: It’s really about — I would boil it down to enthusiasm. If you’re enthusiastic and you have ambitions, people wanna be part of that… And when you can share your enthusiasm with others, it really attracts other people. Then what I also find is when you do attract a great team member, great team members attract other team members.

You know, start with a property manager – if you have a great property manager that manages 5,000 units in Birmingham, Alabama, a lot of people are gonna know this property manager, and if they know that he’s on your team, gosh, they may wanna be on your team as well.

Sometimes you need these team members to attract other great team members. So using word of mouth, and then leveraging the team to attract even better team members.

Joe Fairless: You mentioned it boils down to enthusiasm… I can see a scenario where someone can be really enthusiastic, but they don’t attract quality team members. I’m thinking of some specific examples where people will reach out to me on Bigger Pockets, and they send me seven pages worth of messages, and that’s showing a lot of enthusiasm, but it’s not attracting me… And who cares about me, but I’m just using this as an example, because it’s something that I think of when I hear enthusiasm, but there can be misplaced enthusiasm or not necessarily strategic enthusiasm. What are your thoughts on that?

Michael Blank: Yeah, this is a really good point, and this happens to me a lot as well. “Hey man, I’ve got a smokin’ hot deal. What do you think?” I’m like, “Are you kidding me? It’s gonna take me 90 minutes to answer that question.” So this person is not being very respectful of my time. It’s all about being respectful with people’s time and adding value to that.

So I do think though it is partly by building a vision and by appearing credible to a team member, and you’ve gotta convince a new team member that you’re credible. This goes for the property manager as well. So again, it’s all about appearing credible, being respectful with people’s time, and adding value. The property manager wants to manage units, so they’re gonna wanna talk to you if they think that you’re gonna actually get into a deal. If you can show them that you’re building a team, that you’ve done this coaching program and you’ve aligned yourself with this equity partner, they’re gonna go “This guy is for real. I wanna be a part of that.” Then you use that again…

But you’re right, it’s not just enthusiasm. It’s certainly about appearing credible… The same thing goes for brokers. The brokers wanna know that you’re credible and that you’re serious, and that you’re not wasting their time. There’s a big thing around not wasting people’s time.

Joe Fairless: Is there a sequence that you should look to bring on certain team members?

Michael Blank: It’s always a bit of a chicken/egg problem. I always say the gateway into a new market are always the brokers. But then again, you call a broker without a team being built, and you don’t wanna appear like a newbie also. For example, if you’re breaking into a completely new market, you can certainly google “property managers” etc., but word of mouth is still the best thing.

The way I normally do it is I call up the broker and I say that “I’m expanding into a new market, I’m working with XYZ, with high net worth individuals… What do you have? Show me some deals” and you start the conversation there… And then you slowly build on that; you provide feedback on that first deal, and you build a relationship and you say “Look, I’m talking to property manager XYZ, who you don’t really love… Is there anyone you really love?” and now you get that first referral, and you start building relationships and getting referrals in that way.

Joe Fairless: And in that scenario, you’d mentioned to the broker that you’re working with private investors and equity investors… So do you need to have those investors in place prior to reaching out to the broker?

Michael Blank: That’s right, and that addresses the second objection that people have with getting into apartment buildings, aside from experience – it’s “I don’t have any money of my own, or I certainly don’t have enough money to get into these large buildings, so what do I do?” and the answer, of course, that you and I know, is “Raise money”, and the question is “Well, when do I do it? If I don’t have a deal under contract, I have nothing to talk about to investors. On the other hand, if I’m lucky and someone actually accepts my offer, I have 45-60 days to close – I don’t have enough time to raise the money,” which is also true.

So a lot of people throw up their hands and go “Can’t be done.” The way that we do it and you do it is we kind of have a sample deal. We start with a money-raising partner and the relationship building  right now, today, because what I want is I want someone to verbally (at least) commit to me that “Hey, you know, if you find a deal like this, that you just show me, even though it’s made up, hypothetical – if you find a deal like that, I’m in for $50,000, $100,000.” And you use these sample deal packages as a way to get out of the way the large questions – “Why multifamily? Why should I invest with you? Why this? Why that?” and you get these big questions out of the way, and then you make someone comfortable with the whole idea and they give you a verbal commitment.

So if I have verbal commitments from five investors, now I have a lot more confidence that I can actually make offers on something. A lot of people try to make offers on deals – or worse, they don’t, because they don’t have the confidence… So why not go out, start the relationship and the conversations early, slowly get them to the point where someone’s actually comfortable and interested in investing with you, getting a verbal commitment, and then when you get a real deal, you then firm up that commitment.

If you do that, and you do actually have a deal – and you guys do this all the time, you talk to people all the time, build up relationships over weeks or months, and then when you have a deal, you subscribe it in five days… Why? Because you’ve already had conversations long before the actual real deal.

Joe Fairless: When you’re starting out and you have that sample deal and you’re speaking to the first ten or so people about it, and you finally have a conversation where someone says “Yeah, I’m interested. Let me know if you find something like this”, should you ask him/her “What is the investment amount that you’re looking to do?”, or would you not ask that question?

Michael Blank: It depends on what stage I’m in in the relationship. Normally, when someone has an interest in finding out more, I will normally say “Well, typically, the minimum investment is $50,000, returns are X, Y and Z… Do you know someone?” and if they go “Me! Pick me!”, they kind of self-qualify themselves, because I’ve just said the minimum investment is $50,000.

For example, early on I made a mistake where someone was very interested and I spent an hour, took him to lunch, and got really excited… I said “The minimum investment is $50,000” and he goes “Oh… I have $5,000”, and I’m like “Darn it! I just wasted my time!” Even though, of course, in the beginning you’re not really wasting time because you’re practicing… However, as you get a little more sophisticated, as part of the elevator pitch I typically drop the fact that there’s a minimum investment.

Joe Fairless: Okay. What are some mistakes that a beginning investor tends to make as it relates to either building out the team, or having those investor conversations to qualify investors and build up some of that equity they need?

Michael Blank: Well, you just identified two of the major mistakes that people make, and I think it’s really a function of education, because… I mean, I had a call week — you’re not gonna believe this, but I had a call with someone, and he just lost $23,000 on a multifamily deal that didn’t close; it was a bigger deal, but it was his first. I’m like, “Oh my gosh, John, I’m so sorry to hear that. What happened?”

He was describing what happened, and the series of events, and I’m just starting to shake my head, I’m going “Oh my gosh, there’s mistake number one. Oh, what? Compounded by mistake number two. Oh, gosh! Geez, I wouldn’t have done that!” And I don’t wanna judge him, but it was an expensive lesson that he’s not gonna do again.

I think fundamentally it does come down to education, because if you get education, whether it’s through your program, or my program, or someone else’s program, they’re gonna point out the things that you need to be doing. You need to be building your team, you need to be raising money, you need to make sure that on due diligence you don’t spend money until XYZ is done – like unfortunately our friend John has done – so the whole thing of education… Also, using the right words, building confidence. I think it does come down to education, and I think that will eliminate most of the errors.

Joe Fairless: What were some of the specific things that he did to lose 23k? Because I’m sure that would be applicable to a lot of people.

Michael Blank: Yeah… Small stuff, like hopping on a plane before you have it under contract – there’s an expense there. Now, you have to pay an attorney for the contract, that’s important, but he very quickly thereafter retained the attorney to draft the PPM, he immediately ordered the property inspection and locked in the rates. Well, shoot, I haven’t even seen the actual financial documents yet.

Typically, we stagger these things. We do everything that basically doesn’t cost money first, like reviewing the financial, utilities, doing all the financial review I can do from the comfort of my own home, and if that checks out, I’ll hop on a plane and actually get eyes on the property… And if I like what I see, I’ll have scheduled the property inspection the day after, because if I don’t like what I see – which happens as well – we’ll cancel it, and not spend $8,000, and I will only initiate the PPM process once those first two steps are done.

Had he followed that sequence, which you can get through either program which we’ll teach you, it would have probably cost him $2,000 [unintelligible [00:15:22].29] and maybe the attorney for the contract, but the other stuff – he would have never had that problem. And that’s just an example, which of course cost him a lot of money.

Joe Fairless: Your book is called Financial Freedom with Real Estate Investing. We’ve talked about two components of the process – experience and cash, and those tend to be the two main objections that (potential) investors have as it relates to getting going in apartment investing. Is that how your book is structured, or can you elaborate more on the book itself and how it flows?

Michael Blank: Yeah, I spend about a third of the book addressing those two objections, because I have found when I’m so enthusiastic about sharing my blueprint to financial freedom, I lose the person if they don’t agree with me that it’s actually possible to overcome a lack of experience and a lack of money… So I spend the first third of the book kind of showing you how it’s actually possible. I spend the rest of the book showing you how to do it, and the focus of the book really is on your first deal… So I show you step by step how you do your first deal, actually the mechanics of raising money, doing due diligence, and the reason I do that is because I have observed that people who do their first deal of any size is always the hardest, and takes the longest, and is usually the smallest. Then what happens is a second deal follows almost in automatic, rapid succession, as well as the third, and I call it “The Law of the First Deal.”

In all of my podcast interviews I observe the same phenomenon, that if you do your first deal, all of a sudden everything kind of happens automatically after that. You’d have to exert more effort not to do the second deal than to simply do the deal, because you become a deal man and a money magnet… And because of this phenomenon, I just know that if I focus my resource in helping someone do their first deal of any size, the second or third will follow, and financial freedom is literally a year or two away from that.

Joe Fairless: What’s the best way the Best Ever listeners can learn more about the book, and quite frankly, go grab it?

Michael Blank: Yeah! Go grab it on Amazon. Just google “Financial Freedom With Real Estate.” It’s a bright yellow book, you can’t miss it. And I’m at themichaelblank.com.

Joe Fairless: Michael, thank you so much for being on the show, talking to us about the Financial Freedom With Real Estate Investing, the book that you just published, as well as lessons in the book and the objections that a lot of investors have as it relates to apartment investing – “I don’t have the experience” or “I don’t have the cash”, and as you said, you cover about a third of it in your book, and I was fortunate enough to read through it prior to it publishing, and certainly gave it my endorsement, and best of luck for that book launch… I know it’s gonna add a lot of value to a lot of people’s lives.

Michael Blank: Joe, thank you so much for having me.

Joe Fairless: Thanks for being on the show. I hope you have a best ever weekend, and we’ll talk to you again soon.

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JF1412: Building A Dream Team When Embarking On An Entrepreneurial Adventure #SkillSetSunday with Bobby Montagne

Mr. Montagne shared great advice with us once before on the show (find link below). Last time, we learned his real estate strategy, today we learn how he has been able to build his “dream team”. As real estate investors, we are entrepreneurs, and we need to have an excellent team that we can trust to have our backs. 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:

  • CEO of Walnut Street Finance
  • Real estate entrepreneur with three decades of experience in commercial and residential property development, finance and sales
  • Has successfully overseen $15 billion in career transactions
  • Among an elite class of private real estate lenders that has consistently delivered high-quality returns to partners and investors

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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.

First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment called Skillset Sunday where we’re gonna talk about a specific skill that will help you in your entrepreneurial endeavors as a real estate investor. That specific skill is building a dream team when embarking on an entrepreneurial business venture.

With us today to talk about that, Bobby Montagne. How are you doing, Bobby?

Bobby Montagne: I’m well, thank you, Joe. How are you?

Joe Fairless: I’m doing really well, and great to have you back. Best Ever listeners, you probably do recognize Bobby, because he’s been on the show before, episode 1222, titled “Pivoting from development into private money lending.” Bobby is the CEO of Walnut Street Finance and he is successfully overseeing 15 billion dollars (yeah, with a B) in career transactions. Based in Wash D.C.

With that being said, how about we start out, Bobby, with just a refresher on your background? Then we’ll get into the dream team.

Bobby Montagne: Sure thing. The short story on my background is after college and graduate school I worked for others for ten years in the real estate, finance and development space. That was the plan – to kind of work for a big company, a small company, and maybe one in between, and then start my own company, which I did in the late ’90s as an infill real estate developer.

What that means is we would go in and typically buy desirable locations, smaller sites, knock down or reposition whatever was on it into some kind of residential use, and develop and build either townhouses, rowhouses, condos… Something residential. I did that for 18 years, until 2016.

In 2016, after we put some capital together, we began lending that capital to our former competition and became a private lender, providing capital to worthy borrowers with worthy projects. That brings us to today.

Joe Fairless: You’re gonna be talking to us about how to build a dream team. I would certainly say that with all of that experience, you have a lot of connections along the way, and it helped you identify the right team members, so I’m gonna be curious to hear how you approach the dream team scenario, and especially if you don’t address it – which you probably will, but if you don’t address it from someone who doesn’t have your breadth of experience, how someone else can do something similar.

Bobby Montagne: Sure. The first step in assembling the team – and you want a dream team, because if you really think about it, if you just kind of step back and look at what you’re trying to build (any kind of business), you can’t do it by yourself. There’s no chance, no matter how smart, talented or how much money you have, you cannot do it by yourself… So you need to surround yourself with people first and foremost – and this is all in my opinion – that you can trust. I call them foxhole people. I just envision being in a foxhole, for example, in World War I. Who do I wanna be in that foxhole with? Who’s got my back? Those are people that  you trust, and that’s who you wanna begin to surround yourself with.

The second piece as you’re kind of sitting back and thinking about it is you need to really understand the process. I’m a real estate developer and private lender, so I really need to understand the process of real estate development, beginning with identifying an opportunity, all the way through getting that opportunity approved, zoned, site-planned, building permits… So if you understand the process, it’s kind of like an assembly line – what do you have to do first, and once that’s complete, what do you have to do next?

In each one of those pieces that you figure out along your assembly line, you need to identify a specialist that you trust, who can help you through that piece. At the end of the day, that’s kind of how I think about it – I break it down into bite-sized pieces.

Joe Fairless: That is very helpful, and that certainly can be applied to any entrepreneurial venture, real estate included. Can you give us now an example, maybe of your own company?

Bobby Montagne: Sure. For example, I’m a real estate developer and I identify an opportunity. That might be an opportunity that I’ve driven by for years, a vacant building that I think is in a decent spot, and I wanna pursue purchasing it… What do I need first? Well, I need a purchase contract, I need somebody to help me understand the title, I need an idea of the value, what should I offer for it… So the first person I need in that whole process is some sort of real estate lawyer who can draft a contract for me, who can track down the title for me, who can arrange a closing for me… So that’s the first person I wanna find in my analogy in that assembly line.

Then let’s say I get through that part, and while I’m going through that part  – concurrent with that part – I wanna understand the underlying zoning; what can I build there? What can reasonably get approved? How long will it take? What do I need in order to do that?

In order to build on that site, for example, a 25-unit condo building or a multifamily building, I need to understand “Does the underlying zoning allow that?” If it doesn’t, I need to rezone it. I need a picture of what I’m gonna build, so I need an architect. I need somebody to help me design what I have in my head on a piece of paper, so that I can then go in front of a planning commission or a town council or whoever I seek the approval from, so I can pitch my idea.

And to pitch that idea, I need a picture of that idea and an architect can help me draw that. An architect can help me understand the underlying zoning, what kind of density I might be able to get… So while I’m putting my contract together with my transactional or real estate lawyer, I put that in place, first part of my assembly line, and then I go to hunt for an architect that I can work with, that I trust, that can draw well, that can put my vision on a piece of paper so that I can go pitch that to the people that are required to approve it.

Back to the dream team – the first piece begins with… I need a lawyer, and now I need an architect, and if for example I need in that 25-unit condo building that I wanna build 50 parking spaces, and I need to attach that to water and sewer, and I need to build a sidewalk and a curb around it – well, for all that kind of stuff I need a civil engineer. I need someone who can site-plan it, who can work the land, who can look back on what’s approved and what’s viable there and help me understand that, and then take that and put it on a piece of paper so that I have a site-plan, I have a vision of what that piece of property is gonna look like when I’m done building it.

So all of a sudden, I have three people that  really need on my team: a real estate lawyer, an architect, and a civil engineer… And I haven’t even put a shovel in the ground yet.

Now I’ve got the first three pieces, the first phase of my team coming together.

Joe Fairless: So we’ve got the two steps – one, find foxhole people, trustworthy people, and two, know the process, so that you can assign specialists that you trust to each part of the process. Let’s dig into each of these a little bit.

The first part, the foxhole people – how do you personally identify people you can trust?

Bobby Montagne: I don’t just get on Google and find out who the architects are in my area and hire one… I talk to other developers, for example. I talk to other people in the space, and I get referrals. Somebody might tell me — I’d say his name… The best real estate transaction lawyer I know, Jack LaVoy. He was referred to me from a friend of mine who had done some business with him and I reached out to this friend of mine who is in a similar business, and I said “I need a really good real estate lawyer. Do you know anybody?” and he gave me Jack’s number.

So I call Jack, I get to know Jack, I like Jack, I  like his style, I check his references, he’s with a good law firm, they check out, so I go and have a cup of coffee with Jack, I talk about what I wanna do, he tells me if he can help me or not… If he can – great, he’s my guy; if he can’t, maybe he can tell me somebody who could, and then I’ll go chat with that guy. So it’s not something that happens overnight; it happens over a period of time. And you, as the entrepreneur, have to make all of this happen, because folks aren’t gonna call you and say “Hey, I understand you’re thinking about this. I might be able to help you.” You’ve gotta go find these people. It’s an effort, you have to be the catalyst that makes it happen.

So to answer your question, the best way to find people that you’re gonna end up trusting and who can help you are referrals from people that you already trust.

Joe Fairless: As far as the specialist that you identify from each part of the process, it sounds like you could take the same approach you just said and just apply it to that as well, because you just find people in the space that you already trust and get referrals for the specialists… So is that just a copy and paste type of answer for this, too?

Bobby Montagne: It absolutely is. For example, let’s say I find that corner, it’s got a dilapidated building on it; I think the opportunity could be to take that building down and build in this case four or six townhouses. During that process, I’m gonna wanna know what those six townhouses might sell for once they’re done as I envision them being done – four bedrooms, three and a half baths, high-end kitchen, two-car garage… In that neighborhood.

I have to know what those will sell for at the end of the day when they’re built, a year or two years from now… So I might reach out to the local realtors in that space and say “Hey, I’m thinking about building this 4-bedroom townhouse. Brick front, three and a half baths, two-car garage. I’ve done some comps myself, and I think they might trade for 800k each. What do you think?” and then you have that discussion.

So all of a sudden now you have a realtor who knows what you wanna do and is helping you out, and who if they play their cards right and are helpful through the whole process, will end up listing those six townhouses for you, and it works for them, too.

Joe Fairless: 15 billion dollars in career transactions… So when something along the way, especially when you were in development, something didn’t go according to plan, and if you took the approach — well, first off, is that a correct assumption?

Bobby Montagne: Absolutely.

Joe Fairless: Okay, fair enough.

Bobby Montagne: Almost in every case it didn’t go as I originally envisioned, but with the proper persistence, you get to the finish line.

Joe Fairless: Okay, so here’s my question. If you took the approach that you are saying to take, which I completely agree with – find trustworthy people, and then find specialists after you know the process, and plug them in, and you found them through a referral, but something didn’t work out because they messed up, they weren’t the right person, what is a way to mitigate that from happening as much as possible? Because I imagine you have come across that before where you got a referral from someone who worked with someone, someone who was trusted, and then they worked with you and it did not work out at all, and you’re like “What the heck? I just followed this process… What went wrong?!”

Bobby Montagne: Yeah, it has happened to me on a number of occasions and I’ve learned from it. The takeaway is really simple, and I didn’t invent this phrase, but it pays off to put in your brain – hire slow, fire fast. What that means is do your due diligence, check your referrals, make sure that your architect has done a project similar, for example, to the one that you’re pursuing, has a reputation, knows how to get in front of a planning commission or planning council to get approvals, has some experience in that space, knows what the questions are gonna be before they’re asked, so he’s already answered them, has the proper supporting documentation, pictures, plans etc.

So hire slow. Go to referrals, talk to the person, ask them questions… Questions just like the questions you asked me – hey, when you’ve been hired before and it didn’t go right, how did you end up working it out? Now you’re in the battle, and your architect (from my example) cannot deliver the plans and the specifications that you need in order to advance your plan, and you call them and you nudge and you push him, and every day, every time you talk to him he gets back to you slower, he’s hard to reach… He’s just not delivering. It’s time to fire fast. Get rid of him. Move to plan B. When you’re vetting all the different architects, don’t just throw away the ones you didn’t hire; keep their name and number around, just in case you need them.

But I can look back at all the mistakes that I’ve made by putting the wrong team together, and in almost every case it’s because I didn’t properly vet them in the beginning. I was in a hurry, I just wanted to make it happen, I wanted to hit a deadline, I wanted to make the spring market, I was afraid I’d lose the project if I didn’t get it done… So I traded the quality, the due diligence of the team members I’m looking to hire – I traded that for speed, and in every case it took the project longer, because switching courses, switching architects, switching general contractors mid-stream is costly and painful, both with respect to time and money.

Joe Fairless: Great stuff.

Bobby Montagne: Sometimes you just have to do it. I just always go back to “Hire slow, fire fast.”

Joe Fairless: Anything else as it relates to building a dream team as an entrepreneur that we haven’t discussed, that we should?

Bobby Montagne: Fire fast is very painful; it’s emotional, it’s hard, it’s confrontational and none of us like confrontation. I don’t care where you’re from, nobody seeks confrontation… So it’s hard to do, so you tend to procrastinate it, and you make matters worse.

The best way is to fire fast and fire fair. The conversation basically goes “What’s happening here isn’t exactly what you had told me would happen when we were talking, and it’s now how I envisioned it happening. If we’re both honest with ourselves, this probably isn’t gonna work.” So instead of just firing him, the “You’re fired!” kind of thing and have that conversation, I say “Hey look, I wanna unwind this honorably. I want it to be if I run into you in a restaurant that we have a conversation and we don’t avoid one another… So you’ve probably done some work and you probably think I owe you some money at this point… Let’s have that discussion, let’s get square and let’s just look at this as something that we both made a mistake on and we wanna move on.”

So you can’t stiff a guy money-wise because he’s not doing exactly what you want. You have to be fair, and if he thinks you owe him 20k and you think he’s done 10k worth of work, have that discussion and make a deal and move on.

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

Bobby Montagne: The best way is through our website. It’s long, but it’s easy – walnutstreetfinance.com.

Joe Fairless: Bobby, I really enjoyed our conversation. This is applicable not only to real estate investors, but entrepreneurs in general… But since this is a real estate investing podcast, I’ll stay focused on that… Any type of real estate venture, this is helpful for, and the two steps that you mentioned – one is find foxhole people, so people you can trust, and two, know the process.

I wrote down something, just playing off of what you built, and I just wanna get your thoughts on it to see if you’re okay with maybe amending it or maybe just building on this a little bit. I wrote down three things. One is – and this is purely just listening to you and writing based on my notes from your conversation… So one, sit down and write out the entire process. So first we’ve gotta know the process.

Two – confirm that process with someone who has more experience, to make sure we’re not missing any parts of the process.

Three – assign trustworthy specialists to each part of the process. What do you think about that?

Bobby Montagne: That’s exactly right. That’s the nutshell. A piece of it you added I’m not sure I said, but I think it’s absolutely right – after you think you know the process, after you think you know what the assembly line looks like, go talk with somebody who has done it before, talk to one of the specialists who understands the whole thing, and make sure that you’ve got a trustworthy specialist, someone smart in each one of those stops along the assembly line.

Joe Fairless: This is great stuff. Thank you again for joining us again, Bobby. I hope you have a best ever weekend, and we’ll talk to you soon.

Bobby Montagne: Thank you so much. I appreciate inviting me back. I look forward to talking to you again.

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Best Ever Show Real Estate Advice

JF1390: Gain Credibility & Visibility As A Real Estate Investor Using Traditional and Social Media #SituationSaturday with Christina Daves

Christina is here to tell us how we can leverage traditional media to get more visibility. Her tips also help for gaining credibility as a newer investor. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Christina Daves Background:

  • Founder of PR for Anyone
  • Shows people how to get visibility using social and traditional media
  • Author of the bestselling book, PR for Anyone™ – 100+ Affordable Ways to Easily Create Buzz for Your Business
  • Say hi to her at http://prforanyone.com/  or at www.getpresstoday.com
  • Based In Washington D.C.

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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.

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’re doing a special segment called Situation Saturday, where we will help you work through a challenging situation that you might be in, or perhaps you’ll come across in the future.

Today, the challenging situation is you’re a real estate investor but no one knows about you, or not as many people as you’d like know about you, so we have a guest today who will teach us how, as real estate investors, we can get more visibility using social and traditional media.

With us today to talk about that, Christina Daves. How are you doing, Christina?

Christina Daves: Hey! I’m great, Joe. Great to chat with you again.

Joe Fairless: Nice to have you on the show. A little bit about Christina – she is the founder of PR For Anyone. She shows people how to get visibility using social and traditional media. She is the author of the book “PR For Anyone: 100+ affordable ways to easily generate buzz for your business” and you can check out her website at PrForAnyone.com.  With that being said, Christina, will you give the Best Ever listeners just a little bit of background for context, and then we’ll get into the bulk of our conversation?

Christina Daves: Yeah, absolutely. Oh my gosh, it’s probably eight years ago now I invented a product, and everybody loved the idea, and it was great, and everything was wonderful until I manufactured the product and I realized that I had created a whole new space in the marketplace. So you wanna talk about nobody knowing about you — nobody knew that they needed my product. So what happened was I broke my foot, and I was put in one of those big, ugly medical boots and we were headed to New York City the next day… So I’m looking for anything to decorate it, right? We’re going to the fashion capital of the world, so I’m googling “medical boot fashion”, “medical boot accessories”, and there was nothing on the market.

Having been an entrepreneur my whole life, of course, the light bulbs went off, and I did research, and I found out that there was a huge market for this… So I went forward, took a mortgage out on the house, did everything, and then it was like “Oh my gosh, how do I let people know about this?” I didn’t have any money left for advertising; I couldn’t hire a big DC PR firm… So basically, I became a do-it-yourself expert in publicity, and “How do you get free publicity?” I made a lot of mistakes along the way, and then I really started to figure things out.

On national television, I was on the Steve Harvey Show, I’ve been in Forbes several times, Entrepreneur… I figured things out because the more visibility I got on these big media outlets, the more people would find out about my product. That’s how it started.

Joe Fairless: And as real estate investors, especially investors who have a full-time job, but then want to transition into active full-time investing, the challenge is a credibility challenge, because they have a sphere of influence that knows them from whatever background and profession they were in previously, and then when they start talking to people about real estate investing, it might be like “Wait, what? You’re a real estate investor? I know you from computer programming, or whatever else.” And not only for people who are transitioning from full-time something else to full-time investors, but then also anyone who’s listening who wants to grow your business – you get more traction with more exposure, you’re likely going to generate more business results… Totally relevant for us, and I’m excited to dive in. What’s the best approach for this conversation?

Christina Daves: Well, we’ll start with publicity, and then we can talk about some social media hacks and tools that everybody can use… But it’s starting local. You’re probably on a more national level in terms of investment, but I would think a lot of people listening are investors in their own backyard, and that’s where your expertise comes in. Just because you were a computer programmer, there’s a lot of spin that you can give yourself to position yourself as — maybe you’ve lived in that area your whole life, and you know the real estate industry inside and out. Maybe you were doing another job AND doing it. So when you’re pitching stories, you don’t have to say “I’m new at real estate investing.”

If you’re with a company — I work with a lot of real estate agents and I always say “Don’t say you’re new to real estate. Say you’re newly affiliated with this firm.” So there’s lots of ways you can spin it a little bit.

Local is the easiest way to get publicity, and one of the things I recommend is if there is a national trend in real estate investing, if there is a study that came out, how can you pull it locally? What does that mean for your local market? That’s a great thing that you can pitch your local market, again, assuming that most of the people on here – you could tell me your audience better; if it’s national, I have a whole other idea. We can go nationally, too. But locally is the easiest way to get publicity.

Obviously, they want local people… If you ever tried to pitch the media in another state, it’s hard. They want the people who are in their community to be the experts. But that’s why it’s  — like I said, you take national trends, national studies and bring them into your local community; that’s a really easy way to stand out and to get coverage.

Joe Fairless: I love that. With the national trends or reports – is that as simple as seeing what’s on a national news station, and then saying “Hey, I saw this report from XYZ” or do we have to get Google alerts for that, or how should we approach that?

Christina Daves: Yes… Yes to everything. If you can see that study before it makes the national news and then you can approach your local – that’s great. Or let’s say you see it on NBC Nightly News, you see a study… I would call my local NBC affiliate and say “Hey, they just ran this story last night; let me tell you what the local spin is. How about I come in for an interview and we can talk about what this means for our region?”

Joe Fairless: That’s easy. Not easy, but it’s a simple, intuitive process is what I should say, because my next question was “Who do you reach out to when you find the study that could be newsworthy and you’re approaching them?”

Christina Daves: And people laugh… Especially locally, it’s really easy. Google. Google is a question search engine. “Who writes about real estate stories for…” and the name of your local publication. Or “Who writes about real estate investing?”

If you’re in New York City, I’m gonna tell you it’s gonna be a little bit harder. That’s the number one market in the country. And most of those are your NBC Nightly News, those kinds of things. You can still get on in New York, it’s just that you’re competing with a lot more people. But for the most part, everywhere else it’s really not that hard. You can pick up the phone, you can Google your call letters (WRC in DC) and you can pick up the phone and call the newsroom and say “Hey, I just saw this story on NBC Nightly News. I’ve got a great idea how we can bring this locally. Who is the producer that I would send my e-mail to?” And they’re gonna tell you, because they wanna know this kind of stuff.

Everybody is so afraid of the media, and they really are very accessible and very easy to reach, and very appreciative if you give them good stories.

Joe Fairless: That is a stand-out way, certainly, to get local coverage, and as you said, starting local is the easiest way to get publicity. Is there a channel or medium, rather, that we should prioritize over others?

Christina Daves: I would say TV probably is more competitive, because more people are trying to get on television. What’s interesting is I think that the blogs and the onlines have  a much bigger reach. TV used to be the big thing. Now it might not be so bad to have a link in your local paper where they’re e-mailing all of their subscribers. People read news online, people read news on their phones. So I just think anywhere in your regional market…

Know all of your newspapers, your magazines, know what they cover. I always tell people, “Do your homework.” Spend that extra bit of time so you know what they cover and how they cover it. How do they normally write real estate stories? Or do they even cover that?

You don’t wanna pitch somebody that would never cover the real estate market. In DC — it’s all about activities in DC, and concerts, and book readings, and this kind of thing. They would not write a story about the real estate market in DC. But find the outlet that does, and then build your media list, so  you have it right there. You’ve got the 10 people in your community that you can hit every time there’s a story, and you’re staying front of mind, so then they’re also gonna remember you when there’s a real estate type related story… They’ll be like “Oh, Joe’s been sending me great story ideas for months now. I bet he’s got a great quote on this.”

Joe Fairless: When you have an idea to pitch the local media, should you reach out to all of them at once, just to make sure you get coverage, or take a different approach?

Christina Daves: That’s a very good question. You have to be kind of careful, especially with television. I will usually pitch what I think is the best media outlet first. So I’ll pitch, I’ll follow up with a phone call, and then I’ll send a reminder e-mail, all within a few days.

Now, if it’s breaking news, I will pick up the phone and say “Hey, this study came out. This is really impactful for our region”, and talk about it. But then, after that amount of time I would go to the next one, and if the first one came back, I would be honest and say “Hey, so-and-so is also covering it.” Sometimes they want exclusive, sometimes they don’t care, but you don’t wanna upset them. They might say “Okay, we’ll pass on this one, but next time let us be first.”

So you just have to be mindful of your contacts… Especially because you’re not sending a press release. I’m a big proponent of you find the right person, you build a relationship, you send a personal e-mail to them, so they know this is not a blanket press release that’s gone out to the world. This is really specific to them, to their media outlet, and you could be specific about it.

“I know that you cover once a month in this section in the paper, and I think this would be a great fit for that.” You’ve done your homework, and they see that.

Now, newspapers – if you’ve got a regional and you’ve got a local, I would pitch both of them; that doesn’t really matter. Again, in DC you could pitch The Washington Post real estate section and the regional paper and the local paper all the same story, and you wouldn’t step on anybody’s toes.

Joe Fairless: Got it. Okay. You mentioned starting local is the easiest way to get publicity, and you say national would be a different direction… So how do we go national?

Christina Daves: The easiest resource is something called “Help a reporter out.” I’m a huge proponent of it; I’m actually one of their biggest success stories, because I use it every single day. It’s helpareporter.com. I’m not a paid spokesperson or anything like that; it’s an amazing resource. There are a ton of real estate leads in there. So what happens is three times a day they send out queries from journalists looking for quotes or more information, and it comes out at like 6 AM, 1 PM and 6 PM roughly, Eastern Time. It’s important to answer quickly, because I think they have 500,000 people in their database that they’re sending this out to… But I will tell you that the real estate people that I have worked with have been in the Wall Street Journal, they have been in national magazines, they have been in the Washington Post, New York Times… It goes on and on and on.

It is so important to make that part of your marketing plan, especially being in the real estate industry, because there are some days you could get 10-20 real estate queries alone; I don’t know any other industry that they do that much with.

Then you get the — I call it the Google juice. You get the SEO of these big, huge media outlets that are putting your name in there, they’re putting your website if you have a website, and then when people start checking you out for doing stuff with you and you start coming up on page one of Google with a New York Times or a Wall Street Journal article, you look incredibly credible to those people… And that’s why local is easiest, but national is where the big credibility is.

Joe Fairless: For example, when you got into Entrepreneur Magazine, how did you get into there?

Christina Daves: If you put my name into Google right now, last I checked there was like 14 pages of Google. I would say 90%-95% of that is answering Help a Reporter Out queries. It’s tremendous. That’s how I got in the Steve Harvey Show. I changed my business completely to be on a show like that, and that was all from Help a Reporter Out.

Joe Fairless: What were you on the show for?

Christina Daves: I was on an inventors’ competition that I won.

Joe Fairless: Wow!

Christina Daves: Yeah, it was great! I won $20,000 and all of that credibility to be on that show, and then they brought me back a couple more times. It was amazing.

Joe Fairless: Now let’s talk about social. What do we need to know about social to help get more visibility. Everybody thinks they need to be on every single platform, and you’re not gonna do every platform well. You can’t. It’s impossible. Take the one that you’re really comfortable with and do it really well.

Obviously, for real estate in general, that’s a big referral business; people who know, like and trust you are gonna tell people about you and what you do… So Facebook is really good for that to stay front of mind with your family, with your friends. Don’t post all your business stuff on your personal page. Make sure you have a business page. But sometimes you can send some stuff over to your personal page to remind them.

For real estate investors, LinkedIn is huge because of the searchability and because of the types of people that are on LinkedIn and the people you can connect with to build your network. It’s very important to have a good profile, a good profile picture. Don’t put a picture from happy hour at the beach; this is business. [laughter]

The next one that’s really big in the real estate world right now is Instagram – because of the pictures, because of the Instagram Live, because of the slideshows that you can do… But I would take one and get really comfortable with it. Hashtags are really important on Instagram, Twitter… And this is new on LinkedIn – you can now use hashtags to get found. So when you’re doing your posts, think about that. And social media, guys – video. You’ve got to be doing video.

I heard a statistic that in 2019, 80% of all content consumed online is gonna be video. So you’ve got to be putting your stuff out there, and just get used to it. It’s muscle memory. The more you do it, the more comfortable you get. My first video was horrible, and I love to tell the story – my first Facebook Live I was so proud of myself… I got all set up, I did it, I hit Post, everything was great, and I realized that my phone lock was on, so I was at a 90% angle… [laughter] But I didn’t lose any clients. Nobody said “Oh, Christina, I can’t work with you because you did a Facebook Live sideways.” Everybody laughed and thought it was really funny… But that’s how people get to know you, and that’s how people get to see the authentic you, and that’s how people get to decide they wanna work with you.

So video is really important… And LinkedIn is doing video now. They do any lives; it has to be a recorded video. And then the Facebook Lives are just a tremendous way to get people to find out about you and allow you to educate people… So it’s something you really have to incorporate into your marketing plan.

Joe Fairless: Anything that we haven’t discussed that we should discuss in this shorter conversation? Because I know your book has 100+ affordable ways to create buzz for your business… But anything that comes to mind that you think we should discuss for our conversation?

Christina Daves: Yes, just do it! My business coach years ago told me that imperfect action is better than perfect inaction, and I have embraced that. Because like I said, people are gonna not wanna work with you because your video isn’t perfect, or your content isn’t perfect… It’s just really important to get yourself out there, because if you don’t do it, somebody else will. Somebody’s gonna do it. If they need a real estate investor to quote in a newspaper or a magazine, somebody’s gonna get it, so why not let it be you, and put yourself out there so you’re the expert and you’re the credible one and you get all the logos on your website, compared to the other person who’s doing it?

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

Christina Daves: PRForAnyone is everything. That’s my handle on all the social media, that’s the website… If you’d like to go a little deeper on what we talked about today, with some more ideas, I have a PDF checklist that I created. That’s at GetPressToday, and it’s specific for people in the real estate industry… To give you some ideas on how to make yourself newsworthy, how to pitch to media… So that might be helpful to actually have something written in front of you. And if you wanna talk about anything, ChatWithChristina.com will take you right to my phone calendar, and I would love to talk to you and see what I can do to help.

Joe Fairless: Excellent. Yeah, I’m at GetPressToday, and I see “Get my free step-by-step guide.” Awesome. Christina, thank you so much for sharing this expertise, how to get free publicity, both locally, just paying attention, creating a database and doing the work, the just-do-it part, and being smart with how we approach the local contacts. As you said, TV is more competitive, but blogs tend to have a bigger reach, and they also help better with SEO, unless the TV segment is also published on that news organization’s blog, and then you get the double whammy, which is good.

Then how to approach national press, HARO – Help A Reporter Out… My company has been using that sporadically, and we certainly have received some success there, so I second that… And you taught me something — you taught me many things, but one of the things that I wrote down and I bolded and I’m gonna be reaching out to my team on is LinkedIn, how we can use hashtags now on LinkedIn, whereas before we couldn’t… Or you could, but it just didn’t do anything. So that’s something that I’m gonna implement in my stuff, too.

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

Christina Daves: Thank you.

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Bobby Montagne and Joe Fairless

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

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.

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JF1209: The Interview On Negotiating Real Estate #SkillSetSunday with J Scott

J Scott earned over $1 million on his first 50 flips. He literally wrote The Book On Flipping Houses. His most recent book, The Book On Negotiating Real Estate gives us expert tips to negotiate like the professionals. If you want to learn how to get better deals on properties and get an edge on your competition, bring pencil and paper when you listen to this one! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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J Scott Real Estate Background:

  • Investor specializing in residential rehabbing/flipping
  • Completed 200 deals since 2008, has bought and sold over $25M in property
  • Earned more than $1,075,291 on his first 50 flips
  • He is the author of the best-selling book, “The Book on Flipping Houses
  • J also runs the website 123Flip.com, which provides insight into every aspect of his real estate business
  • Releasing new book on negotiating for real estate investors in May 2017
  • Based in Washington D.C.
  • Say hi to him at www.123Flip.com  
  • Listen to his Best Ever Advice Here:



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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluff. With us today we’ve got a returning Best Ever guest; you can hear his best ever advice, episode 217, titled “You Only Have One Chance To Make A Good Flippin’ Impression.” How are you doing, J. Scott?

J Scott: Hey, Joe. I’m thrilled to be here!
Joe Fairless: Nice to have you on the show, and thrilled that you’re back on the show. You add a lot of value — when we talk you add a lot of value to my life, and now it’s time for me to share the value with the Best Ever listeners as well. You did that on episode 217, and we’re gonna do it again.

Today is Sunday, and because is Sunday, this is Skillset Sunday, where we talk about a specific skill that will help the Best Ever listeners after they get done listening to our conversation. We’re gonna be talking about the skill of negotiation; you’ve just released a book on that. In addition, a little bit about J. Scott – he has completed over 200 deals. He’s bought and sold over 25 million dollars in property. He’s an investor specializing in residential rehabbing and flipping.

He earned more than a million bucks on his first 50 flips… Exactly, 1,075,291 dollars on his first 50 flips. And he runs the website 123Flip.com. Based in Washington, Dc.

Before we get into negotiations, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

J Scott: Sure. I started in real estate back in 2008, probably the worst market in history. My wife and I had been in the tech industry before then, and living in California… So we did the corporate thing for a long time, decided to start a family, moved back East, and we were looking for something to do back in the summer of 2008, just before we got married. Somehow we fell into real estate. The story I tell – so I guess it was true, because it was 10 years ago and I barely remember – is we were watching an HDTV flipping show, and my wife said “Hey, let’s try flipping a house.”

We had just purchased our first house, I could barely change a light bulb, she didn’t know anything about real estate, but we decided “Hey, we’re looking for something to do. Let’s give it a try.”
We bought our first house two days before we got married, and then we bought three more within the next two months, and it just kind of took off from there. I attribute a lot of our success to the fact that it really was the worst real estate market probably in 100 years, so it forced us to really learn the foundational concepts of real estate. We couldn’t just come in and rely on appreciation and a crazy market to kind of fix all of our mistakes. We really had to learn the basics, and we really had to do things right, because if we made any mistakes back in 2008, we weren’t getting things sold.

So that’s kind of how we got started, and we flipped houses for about six years, then we started doing some new construction, we started buying some rentals, so we’ve expanded a little bit, and we’re doing a whole bunch of different stuff these days, but fix and flip is still our core business and our bread and butter.

Joe Fairless: And now we’ve got the benefit of hearing how you’ve honed your negotiation skills, so how should we approach this conversation so that we get the best information to the Best Ever listeners about negotiation?

J Scott: Like I said, back in 2008 – the worst market in recent history; I like to say that in any given real estate market, one of two things is true – it’s either really tough to buy houses, or it’s really tough to sell houses. If not one of those things were true at any given time, everybody would be making tons of money. So back in 2008 it was really tough to sell houses. I could go out and throw a dart at MLS listings and find great deals, but getting them sold was tough back then, because there were so many easy deals out there that you could buy stuff at literally 20, 30 cents on the dollar where I was, in Atlanta. Negotiating wasn’t really that important of a skill.

Like I said, I could just go online and find MLS listings and REO’s and buy properties all day. But what I found is – and what a lot of real estate investors have found – over the last 3, 4, 5 years, the selling parts become really easy. Tons of buyers out there, crazy hot market, but where a lot of investors are running into trouble is buying properties. That’s where negotiation really comes in handy. Being able to work directly with sellers, being able to work with institutions like banks, and HUD and other government agencies, and even being able to work through real estate agents, knowing how to negotiate gives you that edge that really allows you to get better deals on properties.

So it takes a deal that either may not work or is really thin and turns it into a deal that’s good or great, and it also gives you that edge over other investors who are coming in, trying to buy the same deals. So especially in a market like the one we have today, where things are hot and there are plenty of buyers and not a lot of sellers, negotiation really makes a difference between getting the deals and not getting the deals.

Joe Fairless: So you’re taking us into the territory of “it’s not just about negotiation, but it’s about the rapport building”, it sounds like. Is that correct?

J Scott: Absolutely. I think a lot of people, when they think about negotiation they think about that part of the process where you’re haggling over price, you’re haggling over terms, one person’s saying “Hey, I’ll give you this”, and the other one is saying “Well, how about that?”, but what a lot of people don’t think about is there’s a whole lot more that goes into negotiation before you get to that stage, that determines who’s gonna come out successful. And that’s all the preparation, that’s building rapport, that’s really building trust.

When we talk about building rapport, what we’re really talking about is building trust. Basically, building a relationship with another party so that they will trust you and like you, and frankly, they want to see you succeed. People want to see other people that they like succeed. Even if they’re on the other side of the negotiating table from you, if somebody likes you, they’re gonna want to help you. So that’s what building rapport does – it builds that level of trust, and it builds that level of likability so that the person that you’re competing against is actually also on your side.

Joe Fairless: Okay, and I think everyone will agree with you on that – we want to be liked by the other party. So let’s talk through the process that you recommend a Best Ever listener go through, or certain things they should do to accomplish the goal of building rapport and trust.

J Scott: Certainly. There are a lot of things, and anybody that’s delved in psychology and persuasion techniques knows that there are a whole bunch of techniques. I’m not actually gonna go into each of them, but they all basically revolve around the fact that other people want to be liked, they want to be accepted, they want to feel important. I like to say – and this is true whether you’re negotiating or whether you’re going out on a date or whether you’re going into a job interview – the best way to build rapport with somebody is to let them talk about themselves. People love to talk about themselves.

I like to say, if you go to a dinner party and you want to be the center of attention, all you have to do is ask a question and then say “That’s really interesting. Tell me more!” If you keep saying that over and over, you’re gonna find people just circling around you. Everybody likes to talk about themselves, and if you give people the opportunity to talk about themselves, they’re gonna feel like you are doing them a favor, and they’re gonna naturally congregate towards you and they’re gonna like you.

So whether it’s negotiating, whether it’s going on a date, whether it’s going on a job interview, ask the other person questions, let them talk about themselves, because they’re gonna interpret that as something likable about you, if that makes sense.

Joe Fairless: Okay. Is this part of the preparation work that happens prior to going back and forth on the purchase price and the terms?

J Scott: Well, there’s a lot of preparation that goes into it. There’s the preparation even before you meet the other person. If you get a phone call from a potential seller who says “Hey, I wanna sell my property at 123 Main Street”, and you ask some basic questions and you get some information and it sounds like it could potentially be a good deal, you say “Great, I’ll meet you there tomorrow at noon and I’ll take a look and we can talk.” What should you be doing between that moment and the next day when you actually meet the seller – there’s a whole bunch of preparation that goes on there, and it starts at the highest level, which is “What’s the market like? Is it a buyer’s market, is it a seller’s market?” That will give you some indication of how much leverage you have in that negotiation. What’s the inventory like? That tells you how much competition you have. Is that seller likely calling 30 other investors, or are you the only phone call they’ve made?

Then investigating the neighborhood – everything from “Where is the house located?” Is it on a busy street? Is it near an airport? Are there train tracks running behind it? Then even down to the house level – drive by the house before you meet the seller. Does the neighbor have chickens living in the yard? Does the neighbor have loud barking dogs? Go in the middle of the night; is there a lot of activity in the middle of the night? Are people out and about? Is there drug activity on the street? Stuff like that. That will give you the information you need so that when you go and start talking to the seller about actually buying the property, you know what you’re buying, you know how much it’s worth, and you’ll soon know what type of leverage you have over the seller.

For example, we once bought a property where there was a train running through the backyard. We were looking at Google Maps and we saw the train tracks. We did some investigation and we found out that the train only runs basically in the middle of night. 3 AM, every night, it passes the back of that house. If we wouldn’t have done that investigation, we’d have no idea that there was a train that ran behind the house.

Then when we went to talk to the seller, we were able to say “Hey, we know there’s a train that runs behind the house every night at 3 AM. That’s gonna make it more difficult for us to sell the property after we fix it up, so how are you gonna compensate us for that negative aspect of your house?”

So doing that type of research gave us some leverage to go to the seller and say “Hey, we know there’s something negative about the house. You’re gonna have to compensate us for that. You’re gonna have to give us some concession for that negative.” That’s type of research that allows you to have a discussion with the seller, that puts all the information on the table and allows you to get concessions and allows you to get compensation for the negatives.

Joe Fairless: Getting a little granular on that particular example, how do you put a price point on a train at 3 AM behind the house?

J Scott: Well, the nice thing is if there’s a train running behind that house at 3 AM, it’s probably running behind all the houses in that neighborhood, and it’s probably running behind a lot of the houses in the adjoining neighborhoods. So you can look at comps and you can see, are these houses selling for 5% less than other houses in the area that are further from the train tracks? Or maybe there’s no price difference at all, but even if there’s no price difference at all, the seller doesn’t necessarily know that you can still use that as leverage, you can still use that to get concessions. But typically, looking at comparable sales in that neighborhood or other neighborhoods that have the same proximity to the train tracks (or whatever the negative is) will give you an idea of what that particular thing, what’s the discount you’re looking at based on that particular thing.

Joe Fairless: In my mind we’ve got two categories, and perhaps this shouldn’t be this way, but we’ve got two categories. You’ve just described how to prepare for a meeting so that you know what you’re buying and you do have leverage – or you identify if you don’t have any leverage based on your findings… So that’s one category. But then the other category is what you’ve mentioned earlier, and that is people want to be liked, accepted and feel important, so really it’s about the person, not necessarily the opportunity… And this is just how I have it broken out in my mind, and in my notes, as I’m listening to you.

So you just talked about the actual opportunity, but then what about the person? How do you prepare for being liked, accepted, or having them like you, them feeling accepted and important, so that you do build that rapport and they want you to succeed?

J Scott: There’s a whole bunch of ways. A lot of people look at negotiation as “It’s all about business.” What I like to say is that it’s not about business, it really is personal. Business in itself is personal. The biggest reason somebody is going to do something nice for somebody else is because they have a personal relationship with that person, and whether that relationship is “We’ve been friends since high school”, or “We’re worked together for the last 10 years”, or “They came into my house yesterday and we had a great conversation and they were really nice.” If you have that relationship, people are going to want to do something in reciprocation.

It doesn’t necessarily mean you have to be best friends for the last 20 years. Just sitting down at a kitchen table, having a cup of coffee, talking about kids, talking about where you went to school and where you worked, and finding things that you have in common can go a long way towards building a basis for a relationship that will make the entire negotiation process a lot easier.

In terms of specific tips, a few things that I like to say. One, there are a lot of investors who like to negotiate over the phone or over text message, because it’s easier; you don’t have to have a hard conversation with the seller or with the buyer, face to face, but in actuality it’s just as difficult for the other party. If you’re gonna throw out a low-ball offer, it’s really hard to do that face-to-face, but by the same token, if the seller gets a low-ball offer face-to-face, it’s hard for them to look you in the eye and say “Absolutely not.” It’s easy for them to say “That’s ridiculous” over text or over e-mail or even over the phone, but when you’re face-to-face it’s hard for you to throw out a low offer, but it’s also hard for the other person to reject that offer. So getting face-to-face is really an important part of the process. It gives you some leverage, but again, it allows you to build that rapport.

If you’re talking to somebody over the phone and you never see them, you’re less likely to feel attached to them in some personal way than if you’re sitting at the kitchen table or the coffee table, drinking a cup of coffee and talking about family. So I talked a little bit about asking questions, talking about them. People like to talk about themselves. Doing little things for people.

You mentioned the book that we’ve just released on negotiating, and I talk a lot about what I call concessions. Concessions are a whole pot filled with things that make up the deal, and you give some and you take some, and you divvy up the concessions. One thing you can do that really can help a negotiation is you make a concession upfront; you give something. People have this innate need to reciprocate something that’s been given to them.

Here’s a good example. Have you ever received in the mail a request for a donation from some company, and they include a little sheet of return address labels for even a nickel? I’ve started seeing [unintelligible [00:17:48].20] of literally a nickel. There’s a reason they do that – they do that because they know you’ve now received something, and you have this innate need to now reciprocate, and what they’ve found is they can literally hand you money and it’s gonna be beneficial for them, because they know that they’re gonna get something much bigger in return.

That little idea of “I gave you a gift, now I expect something in return” is huge. So if you wanna build what’s called “capital” with a buyer or a seller, one great thing you can do is you can give a little concession. Buy them a cup of coffee; meet them at a restaurant, pick up the check. Go to their house with a little gift. All of these things will basically not just ingratiate them to you, but also provide the sense of obligation back to you. That’s not something I invented, that’s actually a well-known psychological product of persuasion, but it’s very useful when working with buyers and sellers in the real estate world. These little things, these little tips can add up and really tip the scales of leverage in your favor in the negotiation.

Joe Fairless: I practice those tips as well, and thank you for mentioning the law of reciprocity. That’s a big one, when we give them something proactively, because… I think it’s The Power of Influence; I think that’s the book that I read it in, by Robert Cialdini. He talks about it in there. This is just scientifically proven; this isn’t us just waxing poetic. Study after study proves this, that when you do give something initially, they do feel compelled to give something back, but here’s the kicker – as you said, when you give back, after receiving something, you tend to give back more than what you received, and there’s a disproportionate return there. So in a deal, when you give them something upfront, then you can almost expect to receive something disproportionately bigger coming back your way.

I wanna ask you a question about — after you set up the meeting but before you meet them, you do the preparation on the market inventory, the neighborhood, the house… Do you do any preparation on the person?

J Scott: Absolutely. That’s one of the nice things with social media these days – it’s really not too tough to do prep and reconnaissance on people. Everything, starting with a simple Google search, you can find out things like – let’s say it’s a seller – where does the seller work, maybe even how much money does the seller make; you can find out how long they’ve owned the property, you can find out probably how much they owe on the property or at least how much their mortgage originally was, and you can do the amortization schedule yourself.

You’ll probably find family pictures. You can find out if they have kids, how old they are, you might find out their sports affiliation; you can find out, “Hey, he’s a Boston Red Socks fan.” You’re a Boston Red Socks fan? Great, now you have something to talk about. You can find out where they grew up and where they went to school. Hey, you know somebody who went to that school? Again, you have something to talk about.

LinkedIn is a great resource. Perhaps you know somebody that works in the industry they work in. How many mutual first connections do you have on LinkedIn? Realtor.com – go on Realtor.com and you can find out when they bought the house, what was the condition of the house when they bought it, you can see pictures of the house when they bought it… So you walk in and you realize, “Wow, the house has been trashed in the last three years since they’ve owned it. Probably something’s going on there.”

You can do things like Facebook, Instagram, Twitter; you can find blogs. I tell a story in our book about how we literally had a deal where a seller came to look at one of our properties, and they made an offer – it was a low offer – and we were thinking about accepting the offer, because the house had been on the market for a month or two and we were getting ready to drop the price… But before we did that, my wife, who is probably the best I’ve ever met at Google-stalking people, she starts looking around. She finds this person’s Facebook page – this was a couple years ago, before people started making everything private…

She literally found a Facebook post by this woman that had looked at the house, and it basically said something to the point of “Was on a house hunting trip…”, we found out that her fiancée lived in Wisconsin and was getting to move to Maryland, where the house was. And the Facebook post was something like “We’re getting ready to give up on finding a house on this trip, but we think we’ve found the perfect house. We’ve made an offer, we’re just waiting to hear back from the sellers. The house is really close to”, and they mentioned the name of some person.  “We could be neighbors!”

So we see that Facebook post, and the first thing my wife thinks is “This person really wants this house.” It was obvious that they were getting ready to give up on finding a house on this trip; they found this house, it’s near a friend of theirs, so instead of basically going back and giving them a big discount on the house and making a counteroffer that was close to their offer price, we actually went back and made a counteroffer close to list price, and we got it. They accepted the deal… Simply because they went and they posted on Facebook how much they liked this house and how excited they were, and we found that post, we could use that as leverage. And people do that all the time. If anything, we’ve found that we’ve been on the receiving end of that a few times.

We have a blog, 123Flip, and for the first several years we posted all the pictures of our properties and all the numbers, and we actually found that there were a couple buyers who came and looked at our properties and actually found our properties on our blog, knew exactly how much we bought the property for, knew exactly how much we rehabbed it for… So that time of personal reconnaissance using social media, using Google, can go a long way towards helping you build a profile of your buyer or your seller, and then figuring out where the pressure points are, figuring out the motivations, figuring out the points of leverage you have over those people when you’re negotiating with them.

Joe Fairless: J, this has been an educational conversation, that’s for sure. I’ve written down a lot of notes. Where can the Best Ever listeners get in touch with you?

J Scott: I am on Facebook and Twitter, @123Flip, my website, 123Flip.com, and my e-mail, J@123Flip.com. For anybody that might be interested in the book we’ve just released, it’s called The Book On Negotiating Real Estate – feel free to check out NegotiatingBook.com. You can download a free chapter there, and it’s also available on Amazon.

Joe Fairless: Outstanding. I will be getting that book. J, thanks for being on the show, talking about how preparation is so important. That’s really the focus of our conversation today – being prepared, not only to speak to the individual, and the search that you need to do prior, and you gave the story about the social media stalking that your wife is so good at doing, and how it resulted in more dollars in your pockets, as well as the preparation to do on the property itself, what’s the market (is it a seller or a buyer’s market?), what’s the inventory, the neighborhood, the train track example at 3 AM, and the house and the neighbors as well.

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

J Scott: Awesome. Thanks, Joe.

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JF1189: Starting Small Leads To Quick Success & Bigger Success with Dan Lesniak

Dan is a real estate broker, developer, and author who got started by selling other condos in the building he was living in. According to him, that was a key part to his success, by starting small and building a reputation, he was able to leverage and scale to more places, doing more business quicker than had he started by going bigger. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Daniel Lesniak Real Estate Background:

  • Real Estate Broker, Developer and Author – ‎Optime Realty
  • Author of The HyperLocal HyperFast Real Estate Agent- provides detailed strategy
  • Made $500k gross in his first year as real estate agent
  • Helped hundreds of buyers and sellers complete over $250 million in sales
  • Based in Washington, D.C.
  • Say hi to him at www.hyperlocalhyperfastbook.com  
  • Best Ever Book: Awaken The Giant Within


Made Possible Because of Our Best Ever Sponsors:

Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit www.fundthatflip.com/bestever to download your free negotiating guide today.


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 fluff. With us today, Dan Lesniak. How are you doing, Dan?

Dan Lesniak: Great! How are you doing, Joe?

Joe Fairless: I am doing great as well, thanks for asking me and thanks for being on the show. A little bit about Dan – he is a real estate broker, developer and author. His company is Orange Line Living. He is the author of The HyperLocal HyperFast Real Estate Agent. He made $500,000 gross in his first year as a real estate agent, and he is based in Arlington, Virginia. With that being said, Dan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dan Lesniak: Sure. Just real quickly, I started off in real estate about five years ago, and I had a great first year right off the gate. I did about 22 million in sales, 26 transactions, and shortly after that I started to form a team. Eventually, I met my wife through real estate. She also had a team, so we combined the two teams into one that we co-run with a couple different brands.

Right now we’ve got our own brokerage, we’ve got about 36 people, and we sell about 350 homes a year, so that’s a big focus of ours, of course.

The second thing we focus on is development deals. My wife has a background in new construction sales, that she did before she got in a general brokerage, and as a part of our general brokerage strategy, she’s helped a lot of custom builders do infill deals in our area. We’ve got a whole program here that’s generating lots for builders.

A couple years ago we started to realize we should become partners in some of these deals with the builders, put our own money and get our own loans and raise our own money from investors… So we’ve expanded, started to do that… We typically do 4-6 homes a year; they’re usually complete teardowns, and new construction.

That’s been going well, and of course, as you mentioned, the book came out a couple months ago and it’s been doing well; it talks about my first year in real estate, and some of the strategies I use to grow so quickly in the area… So that’s a little bit of a background of where I’ve been and what we’re doing now.

Joe Fairless: We’ve got a lot to talk about, and I’m looking forward to digging into the details… Let’s start with probably the area that you get asked most frequently, but it’s for good reason… Your first year, grossing $500,000, and 22 million dollars in sales, 36 transactions – what are the strategies that you used to grow so quickly and do that?

Dan Lesniak: The biggest overarching principle was to really focus on a process I call STP, which is Segmentation, Targeting and Positioning. Segmenting is how you divide the market up; basically, how are you gonna cut this pie that we call the market? Target is which of the segments are you gonna go after, and positioning is how are you gonna position yourself to that segment, as the person that can create value for them, and ideally the most value.

When you’re thinking about the focus you wanna have, the segment you wanna go after, it’s important to make it small enough that you can have an impact. The smaller it is, the smaller the market piece you’re going after, the easier it is to have an impact. Your energy, your time, your marketing dollars are gonna go further if they’re concentrated amongst fewer people. So it’s important to do that, and important to pick a segment that has a cohesive profile, so that you can send a marketing message that will really appeal to them.

That being said, it is possible to take a segment that’s too small. If you own 100% market share of a segment that produces four or five transactions a year, that’s not gonna be a very good business. It’s gotta be a big enough market share that if you were to become the [unintelligible [00:05:08].07] agent in that segment, that you’d be able to have a good business off it. But I feel like most agents, especially when they’re starting out, they try to go after too big of an area, or too widespread of an area. The typical strategy is they go after their sphere of influence (SOI) and that’s gonna be a very diverse, both economically, socially, geographic group. So you’re missing out on a lot of benefits there.

In my case, I decided to basically go after the buildings that I lived in at the time. It only had about 200 homes, so I started to get a few of the sales in there, and then kind of spread out into other adjacent buildings and houses.

Joe Fairless: Going after the sales and the buildings you were living in… So you were living in a condo building?

Dan Lesniak: Correct. Yeah, I was living in a condo building. It was about three or four years old at the time, so it was about the point where people are starting to outgrow their condo, so turnover was starting to happen. But yeah, initially I just really focused on 182 condos that I thought would be coming up for resale soon. I got a few clients there, and luckily, most of the people selling there were looking to move into adjacent condo or townhouse communities, so that kind of just helped me naturally spread from one building to all the buildings around the one metro stop, and then to the next metro stop, and so forth.

So it really all started with having a narrow geographic focus and specific target, and all of my marketing was positioned and directed to those people.

Joe Fairless: You have provided insights that I’ve seen Tim Ferriss talk about, John Lee Dumas on Entrepreneur On Fire – his recap of 1,000 interviews that he did with entrepreneurs, he mentioned the same thing you mentioned there, smart… It is smart, but I didn’t mean to say smart — the smaller the market piece, the easier it is to have an impact. That is initially counter-intuitive to a lot of people, myself included, because when you get started you wanna reach everyone; you wanna grow your business to reach as many people as possible, but the reality is if you start with a very specific group in mind, deliver on those expectations or exceed their expectations, then you can grow and evolve from there. Is that what you did?

Dan Lesniak: Yeah, I started out there, I probably  in that first year got close to 50% of the market share in that building. Then if you do open houses there, you’re getting directional signs, you start mailing about those success stories to adjacent areas, and now you’ve got sellers that are looking to move into bigger townhomes or bigger condos, so you can go to those areas and tell them “Hey, I’ve got the buyers…”

By starting small and really just trying to get one, two, three, four sales in that first building, I was able to have some quick success that I was able to leverage into more success.

Joe Fairless: Let’s talk about development deals. As a real estate agent and now broker, you have evolved your business, which I compare to a fix and flipper evolving their business from fix and flipping to then investing those profits into long-term rentals. So instead of you being transaction-focused – which you still do, where you sell homes, but you also have the long-term play where you’re an owner on these development deals… What was the biggest challenge that you and your wife had, evolving from transaction-based to then becoming partners on the development deals?

Dan Lesniak: Initially, it was just such a big capital commitment… The first deal we did was a one-acre home in Arlington; they contacted us, one of [unintelligible [00:09:17].26] one of the townhouses we were selling. I knew that that townhome was gonna sell quickly, so they couldn’t write a contingent offer… But I knew I’d be able to quickly sell their existing home. Then my wife said “Hey, that’s one acre. We could probably get like four or five houses out of that.” Most of the homes in Arlington are like an eighth of an acre or smaller… So we decided to buy it from them directly, so that they could move into the townhouse that they wanted, so they were happy about that… But it was a two-million dollar purchase for us, which at the time was a lot.

We didn’t have a history of development at the time, so banks options were requiring us to put 30%, 40% down, things of that nature. So it’s just kind of that first, big, initial loan was a little scary, and we just kind of jumped into the deep end…

Joe Fairless: How did you get the money? Was that your own money?

Dan Lesniak: Half of it was our money, and then we ended up partnering with one of the top two or three builders in the area that did custom homes; they put the other half of the money, and we basically became a 50/50 partner. Our role was to give input on designs and what the end product should look like, and then sell the four homes. Their role was to do the engineering and build the homes. So we each put in half the work and half the equity.

Joe Fairless: Did you pay cash for that, a million each, or did you have a loan?

Dan Lesniak: We got a loan. We ended up putting 300k each, and then a loan for 1.4.

Joe Fairless: Okay. What type of process did you have to go through to get approved for the loan? Anything noteworthy?

Dan Lesniak: We went with a small local bank. They tend to be the ones that do the investment and spec build type loans. The bigger banks and regional banks seem to stay away from that. So it was a local bank. We had to provide them with personal financial statements and a few years of our earnings and tax returns, but other than that I don’t think it was too out of the ordinary.

Joe Fairless: Okay.

Dan Lesniak: A little bit of legal work… We had to form a separate LLC with the builder, but that wasn’t too big of a hurdle either.

Joe Fairless: Have you sold those four homes?

Dan Lesniak: Yeah, those four were done about two years ago, [unintelligible [00:11:40].27] Overall, it was a really great project. We put in 300k to kind of get it going, and I think we walked away with about 480k in profit, and it took a little under three years total. Yeah, we were happy with it.

Joe Fairless: Do you take any of those profits – or maybe not those particular profits, just profits in general – and then invest in long-term real estate for you and your wife?

Dan Lesniak: We haven’t yet. We’ve bought and sold rental homes before, and typically we’ve done that through our guaranteed sale program. We have a program where we guarantee the sale of homes for move-out buyers and give them a price upfront; if they agree to it – great. If their home doesn’t sell, we buy it at that price. We’ve acquired two or three rentals through that program, so we’ve definitely used some of the profits to do that.

We haven’t really held on to any of them for more than a few years. We tend to kind of rent them, try to get them cash-flowing, but if we see a chance to sell for profit later, we do that.

So we’ve done that, we’ve reinvested some of that money into two new projects, and then the other thing we’ve added – we’ve got three different development deals going on now, but now what we’ve added, because of our success on the first one and because some of our past clients have heard about that, they’ve wanted to participate somehow… So we’ve basically gone out, we’ve raised the majority of the down payment now, and put those people in kind of like a second position behind the bank, and they a preferred return of 15%. So now we’re able to do projects of similar size, but not have to write such enormous checks to do it.

Joe Fairless: A 15% preferred return – did I hear that correctly?

Dan Lesniak: Yes.

Joe Fairless: And how long does the project usually take? Two, three years?

Dan Lesniak: If it’s one house, it’s about a year, because we have done some where you just buy one house, tear it down, build a new one. If it’s a subdivision where we’re gonna take one or two houses and try to get four out of them, that can take about two years.

Joe Fairless: And let’s go with just one house to keep things simple – one house, it takes about a year… That 15% return – that isn’t paid out once you close and start working on it, it’s deferred until you actually liquidate, and then they get the first 15%… Is that accurate?

Dan Lesniak: Correct. So if they put in 100k and it takes 12 months, we’re writing them a check at the end for 115k.

Joe Fairless: Okay, and do they have any upside on the deal, or is it just the 15%?

Dan Lesniak: No, so far the only structure we’ve used has been a straight 15%.

Joe Fairless: Okay. And when I say “just”, I mean, 15% is amazing… I don’t mean to trivialize that, I was just curious if there’s any equity participation. Okay, based on your experience, what is your best real estate investing advice ever?

Dan Lesniak: I think my best advice would be to just find something that you like and that excites you and just jump in and do it. There’s probably dozens of ways or even hundreds of ways to make money in real estate, and until you’ve done it, it’s gonna be new to you… There’s gonna be some few of the unknowns, and uncertainty… If you let that get in your way, you’ll always find the reasons why not to do something.

Real estate has the advantage of having a lot more flexibility than most investments. If the market turns on you, you don’t have to just throw up the flag and surrender; you’ve got options to refinance, restructure, change the purpose of whatever you’re doing… So there’s usually a way to make it work.

My biggest advice would be to just find something that really interests you, and learn about it, read about it, get a mentor if you can, and jump in and do it.

Joe Fairless: I am the same way, I have a similar mentality as the one you described. Pros and cons to that mentality… What’s a disadvantage that you’ve come across with having the ‘jump in’ mentality?

Dan Lesniak: Well, you might not do it the best way; you might read something wrong and make a mistake, or even lose money when you do it that way.

Joe Fairless: What about a specific example for you? Can you think of a specific example where it hasn’t worked out?

Dan Lesniak: Yeah, the biggest example for me was probably about 12 years ago, so it was a long time ago, but I started buying my first home when I was fairly young – I think 23 – and I was in the navy, so I had access to [unintelligible [00:16:40].25] financing, so it was pretty easy because you didn’t have to put any money into it… And especially back then, anybody could get a loan on 2004 or 2005.

So I bought my first home in Jacksonville, Florida. That one went up in value a lot, I think like a 25% increase the first year or two… So I bought a second one, and that was going well. Then they were building some new condos in downtown Jacksonville and I thought “Oh, I can get in pre-construction, put down a deposit to hold it, and then two years or a year and a half when they said it would be done, I could sell it and make a ton of money.” Well, it worked out well for my first two homes in Jacksonville; I made I think $65,000 on the first one, and that was having put nothing into it when I bought it… But the condo, they said it was gonna take a year and a half to build; it took closer to two and a half, I believe, and by then the market had turned, so I basically had to walk away on my deposit, which at the time was close to $40,000.

It was pretty tough to do… Their developer was pressuring me to close, and my parents actually were, too. They were like “What about that money you’re gonna lose?” In my mind, I had made money down in Jacksonville, so I was happy about that, but I was also buying a condo in Arlington at the time, so in my mind had I made money in the Jacksonville scenario, or had I not lost that $40,000, the $400,000 condo that I was buying in Jacksonville probably would have cost 500k… Because you’re really only gonna lose in a down market if you sell and don’t get back in.

So I sort of took comfort in the fact that although I was losing 40k down in Jacksonville, a) I made about that much on the first house I did down there, but b) I was buying a home to live in up in Arlington, DC area. Had the nation’s market been such that the Jacksonville home worked out, I would have paid just as much, if not more, for the home in Arlington. So that was a good lesson. I think I looked at it in a way that  was healthy, and it helped me in evaluating investments since.

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

Dan Lesniak: Sure.

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

Break: [00:19:05].01] to [00:20:09].07]

Joe Fairless: Best ever book you’ve read?

Dan Lesniak: Tony Robbins, Awaken The Giant Within.

Joe Fairless: Best ever deal you’ve done?

Dan Lesniak: The deal I’ve described earlier, where we bought the one-acre lot for two million and then turned it into four homes.

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

Dan Lesniak: I think there was a deal once where we waived the home inspection of a property we were acquiring for investment, and we ended up having to do a lot more fixes than we originally anticipated. It was the deal where we should have had the home inspection or looked a little bit closer before we made the offer.

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

Dan Lesniak: We love partnering with local charities. There’s a couple that we’ve partnered with for a few years now… Number one is Doorways for Women and Families. They help women specifically, but also families that are going through hard times get back on their feet, get into safe housing, and then educate them so that they can get out of tough situations and go on and live happy lives. So yeah, Doorways for Women and Families has been a great partner for charity.

Joe Fairless: How can the Best Ever listeners get in touch with you? What’s the best way?

Dan Lesniak: You can go to my website, LiveTheOrangeLine.com, or HyperLocalHyperFast.com – either one of those two.

Joe Fairless: Dan, thank you for talking to us about what you’re doing, in particular how you’re generating multiple revenue streams with your company, how you got started in selling homes – a very strategic approach… The segmentation, targeting and position approach, and how you mentioned “The smaller the market piece you go after, the easier it is to make an impact.” Make sure you have it large enough to actually make an impact, but be very specific and intentional, and pick a segment that has a cohesive profile, so that when you send the message to that segment, it will resonate with the majority of the segment.

Additionally, how you’re partnering with builders to develop properties, bring in money, now bringing your money and investor money, and sharing in those profits… In that one example you gave us, you put in 300k, it was the first deal that you did, it was a big ol’ one at the time, and I imagine 300k is still a large deal to you, but still relative to the amount that you had been doing in the past, 300k certainly was a big chunk, and you ended up making over $400,000 in the course of less than three years.

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

Dan Lesniak: Thanks a lot, Joe.

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JF1135: An Easier Way To Track Each Property’s P&L In Real Time with Raj Bhaskar

After serving as CEO of a financial software company that was bought by Yardi, Raj co-founded and is CEO of a mobile tax app made for real estate investors and freelancers. Hurdlr can help investors keep track of how their properties are performing in real time. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Raj Bhaskar Background:
-Co-founder and CEO of Hurdlr, a mobile tax app designed for freelancers
-Prior to Hurdlr, he was CEO of VisualHOMES, a leading provider of financial software for real estate owners
-VisualHOMES was acquired by Yardi Systems in 2010
-Raj graduated, with honors, from The George Washington University.
-Based in Washington, D.C. Say hi to him inside the Hurdlr app
-Best Ever Book: The One Thing

Made Possible Because of Our Best Ever Sponsors:

Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit http://www.fundthatflip.com/bestever to download your free negotiating guide today.


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

Raj Bhaskar: Doing great, Joe. Thanks for having me on board today.

Joe Fairless: My pleasure, nice to have you on the show. A little bit more about Raj – he is the co-founder and CEO of Hurdlr, which is a mobile tax app designed for people like us, who have a business, and we need some tax help and need some financing tracking help. Prior to Hurdlr, he was the CEO of VisualHOMES, which is a leading provider of financial software for real estate owners. That company was actually acquired by Yardi in 2010. He is based in Washington, D.C. – with that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Raj Bhaskar: Sure, happy to, Joe. Thanks again for having me on board. Yes, I started with VisualHOMES back in the year 2000, so I did that for 10 years and two months. Basically, it was a real estate management platform focused on affordable housing and public housing, so subsidized housing like section 8 units, for example. So we did the property management [unintelligible [00:02:16].23] of all the financials, mostly for affordable housing agencies and public housing authorities all around the country; we were in about 35 different states. We built that up to about half a million units under management, a couple million residents; we were processing around 200 million monthly rental payments.

Joe Fairless: Wow.

Raj Bhaskar: And then, yeah, it was acquired by Yardi. 1st August, 2010, Yardi has half of all U.S. apartment buildings, a great fit… All of my clients and the employees are still there, and this is about seven years ago now.

Joe Fairless: That’s impressive. That’s really impressive. Was it your idea?

Raj Bhaskar: No, it definitely was not.

Joe Fairless: [laughs] With VisualHOMES you were the CEO though, right?

Raj Bhaskar: Correct.

Joe Fairless: Okay, so when did you join and when was it founded? I think you said 2000, when you joined, right?

Raj Bhaskar: Yeah, we had acquired a very small company that had a DOS product for housing agencies. They were focused on small agencies, and my strategy was basically to focus on medium to large agencies – I called it the Housing 500 – so we built a brand new platform from scratch and built in all the housing regulations and compliance… Which kind of ties into my new venture, because taxes are not that different; it’s basically regulations and calculations and compliance, just in a different market.

That’s where I have a solid team who likes to do that kind of very tedious work. And automating that is one part, and then the second part is “How do you stay up to date?” I’ve always tried to help folks with those things, so they don’t have to go through that painful stuff.

Joe Fairless: So how do real estate investors work with Hurdlr now?

Raj Bhaskar: They use our Hurdlr app to track all the finances around their real estate investments, or if they’re landlords, to track the rents and expenses. We have a real-time income tax calculation engine built in; we built an engine that supports all 50 states and D.C., so they can see their real — I call it “true profits”, and that’s revenue or income minus expenses, minus taxes. That’s what you keep at the end of the day.

So we allow folks to do that, and you can track your P&L at the property level. So you can have multiple properties, each with their own P&L, in a mobile app, on the go, in real time.

Joe Fairless: That is necessary, especially if we don’t have our own bookkeeper/accountant who’s helping us, but even then it’s usually not real-time, at least from my experience. What are some challenges that you’ve come across?

Raj Bhaskar: It’s interesting that you point out real-time, because that was one of my pet peeves in my prior venture. I got it growing nicely, and then there’s a time in the second five years, after we built up everything, where we were doubling our financials every year, and I wanted to see indicators along the way, and I got it to where my internal controller got me the financials a week after the month closed, and that was considered pretty good. I didn’t like that; I went around for indicators during the month, so I could make sure we hit our goals. That was one of the challenges that we’ve been building our app, is “How do you get all of those things in real time?”

I think for real estate investors — we also have a few thousand Airbnb hosts who also use our app to track for their rental units that they’re hosting, and the challenge is really staying on top of that… So we try to do that in the app, to help entrepreneurs stay on top of that. It was born out of the landlord related features and real estate investors because when I was building this current venture I was married and we were living in our condo, and then we eventually wanted to settle down a bit and get a house, and then I started renting out my condo.

The first time it came for tax filing, that’s when I had to provide all this info; I hadn’t done that before, and it was pretty tedious to get everything together, find all the info, especially all the expenses you have to track along the way.

Joe Fairless: With the app, you’ve seen it from beginning to now… What are some of the main differences that you’ve implemented based on feedback from either your team or the consumer?

Raj Bhaskar: From our users, and specifically in real estate, the number one thing was doing the P&L at the property level. So if you have multiple investments, how do you show the P&L per investment, in addition to a roll-up P&L. And that’s something we had planned early on in our system, because we built a project-based accounting system at the core so you’d be able to do that, but we didn’t release it with that; we released it with just tracking your P&L, regardless of whether you had multiple properties. It was nice to see folks requesting that, so we added that in. That was the biggest thing.

The second thing I think that we’re headed into is really can we get into folks with mortgages and loans, and tracking the financials around that at a more granular level. We haven’t done that yet, but we’re getting requests for that.

Joe Fairless: What’s your exit plan for this? Is it to get bought by a large company again?

Raj Bhaskar: My approach to building ventures in general — I’m only on my second one. I don’t consider myself a serial entrepreneur, because I’ve only had one other venture. It’s only to just build value at every step of the way, an ongoing business. If you look at my last venture, the team is there, it’s still operating, all the clients are there; that’s a solid ROI for Yardi after seven years. So I like to build things that last. I couldn’t say that there’s an actual exit strategy; it’s not to say that we won’t, at some point in the future, but generally you wanna do it where it grows the value even further.

Joe Fairless: Based on your experience as an entrepreneur and someone who’s been in the real estate space for over ten years, and then most recently worked with real estate investors, what is your best advice ever for real estate investors?

Raj Bhaskar: My best advice ever for your Best Ever listeners who are real estate investors is to know your financials in real time, to know your numbers, and kind of drilling down on that. As I’ve given my background, tracking your expenses is key. It can be tedious, but there are all kinds of tools out there to make it simple. It’s something you need to do, and there are three reasons why. One is that if you don’t, you’re leaving thousands on the table, and that’s for really any size property; the bigger, the more valuable it is, you’re gonna be leaving a lot more on the table.
The second is to save time. If you value your time, and I imagine that the Best Ever listeners value their time, then you’ll be saving time, but not having to set aside a day or two when it comes to tax time to get all that stuff together.

Third reason – and these aren’t necessarily in ranking order… You’ll be able to make much better decisions when you know your numbers. That’s something that I think a lot of times when I see in real investing, a lot of it is just focused on cashflow, because you have the payment on the loan and the mortgage going out, and then your rent coming in, in certain forms. Expenses are another big bucket to not overlook.

Joe Fairless: Can you give specific examples for each of those three, just to bring it to life a little bit?

Raj Bhaskar: Sure. So I have a condo that I’m renting out, and one of the biggest expenses I have are the monthly condo fees. That’s a simple one, that you would think that everyone’s tracking and noting, but often if you’re filing your own taxes, you’re not using a professional, sometimes folks kind of skip that. It’s not the time to get lazy with that stuff, because it directly impacts your profits. When you know these things, it’s reducing your taxable income.

So condo fees are one, and then the other big one which is harder to track are ongoing repairs/maintenance. For example, my condo is about ten years old now, and the HVAC system that it came with wasn’t that great, so it didn’t last that long. I had to replace that recently. That’s something that I’m absolutely tracking and reporting on my taxes. That’s   a pretty big expense. The harder ones I think to track are the one-off that come here and there. The ongoing ones you can automate with any number of tools out there; you can link it to your bank account or credit card.

I’ve seen folks that are doing this stuff really well. I know people who have opened a separate credit card for each of their properties; they may end up having a lot of cards, but they only charge expenses to that card. That’s another system you could put in place, so you know all the expenses for that particular property. But all those expenses add up quite a bit.

In terms of time, for any new Best Ever listeners that are investors or are thinking about getting into it, I can’t tell you enough to start now, put that system in place. You’ll see at the end of the year, when it comes time for prepping for taxes that it’ll make it so much more painless. For us humans, it’s hard to establish new habits, but that’s one that’s particularly important, because you save a lot of money.

But if you have a system that you set aside a week to do your tax prep, if that’s how you like to do it, that’s fine. I just prefer to do seconds a day, basically, as it comes in, because the information is really fresh, you don’t have to remember. I have a great memory, but now I have almost an 18-month old, our first child… And man, the first two weeks… While it was great, actually, I think it affected my memory.

Joe Fairless: Permanently?

Raj Bhaskar: [laughs] I’m definitely noting things a lot more now, because at any particular moment maybe you’re lacking quite a bit of sleep, and you’re perhaps not as sharp… It’s just easier to remember these things as they occur.

Joe Fairless: Yup. That was number two, right? Save time.

Raj Bhaskar: That was number two. And number three, on better decisions, there are real estate investors who I believe think they’re making money, but they’re not actually making money. The basis is that you don’t know your numbers, and if you don’t know your numbers — let’s say you think you’re making money, then chances are you’re spending more money than you should be… It’s a natural thinking process, because you think that you’re making more money, so you’re more open to spending a little more, and that’s a problem.

You need to know where you stand; you should have your objective on what profit margin you’re trying to hit, or at least be conscious of it, and have all the numbers while you’re making these decisions. If you think about it, if you’re not tracking things along the way, now you find out the stuff at the end of the year, when you or your accountant does the filing… This isn’t something where you just make an annual decision; you wanna at least do quarterly, if not monthly, where you’re checking things. You have your ongoing personal balance sheet or your investments, where you’re just making sure everything’s okay, looking for red flags.

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

Raj Bhaskar: Absolutely.

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

Break: [00:13:32].22] to [00:14:30].03]

Joe Fairless: Best ever book you’ve read?

Raj Bhaskar: The One Thing by Gary Keller and Jay Papasan.

Joe Fairless: Best ever transaction you’ve done – business, real estate, or whatever.

Raj Bhaskar: I bought my house on a seven-year ARM; that was fixed for the first seven years at 2.24% jumbo loan, and the monthly is equivalent to the rent I get on my condo that’s one-third the value of the house.

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

Raj Bhaskar: I like to do two things – help entrepreneurs with their businesses, and second, I do charitable giving, but my history with that is through my friends, who are either leading events or organizations.

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

Raj Bhaskar: I’ve made plenty of mistakes in business. In real estate in particular, with my investment in my condo, for example, one of the best ever mistakes I’ve made was not projecting out my lifestyle changes over several years… Because initially, my investment was to live in that condo, and I bought it when I was 26. I ended up living there for 8 or 9 years, which is a record, I think, for condo living… But that neighborhood is the neighborhood that I loved at the time, I loved to party in at the time, but I didn’t project out over so many years. That location – it was a great location, but that’s not the location to be when you start settling down and not partying like that anymore.

I think that can apply to other aspects of investing, when you’re looking at your long-term goals, is it purely financial or are there other aspects to it?

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

Raj Bhaskar: I can be reached inside my Hurdlr app – we have live in-app chat; we help our users through an app chat with any of their financial issues, or tracking or tax questions, and I jump on that as well. That’s real-time, during normal working hours, otherwise as quickly as possible in off hours.

Joe Fairless: Raj, thank you for sharing your entrepreneurial journey with us. Thanks for talking about some tax tips, or really our tax approach, and expenses approach that will be best practices. The third thing that you mentioned really resonated with me in terms of making better decisions, because sometimes we think we’re making money, but we’re actually not making money, and I’ve realized that with my single-family homes. I have three houses, and about this time last year I got an accountant to track all that stuff for me.

I get property management reports, but then I wouldn’t necessarily reconcile that with the mortgage I was being paid, so now I get every month a nice, clean spreadsheet of what I’m making or not making, and it is eye-opening. I didn’t necessarily know that — one of my homes, I have a mortgage payment that’s $900; I didn’t think it would be that high. I still make — last month I made $226 on it net of all expenses, but it’s just some things that we need to pay attention to, and it is something that if we’re not doing it, then we need to, as real estate investors.

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

Raj Bhaskar: Thanks a lot, Joe. I really appreciate it.

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JF1131: How To Be The #1 Brokerage Team In Your Market with Samer Kuraishi

Samer started out as an agent doing his own thing. He never really had a fantastic mentor or coach, but still made a really successful brokerage. If you are an agent or broker you’ll want to hear how he has sold over $800 million! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Samer Kuraishi Background:
-CEO & Broker of A-K Real Estate, boutique brokerage in DC, MD & VA
-Manage a team of 40+ agents / staff Specialize in residential, development, distressed properties, commercial & property management
-As of 2012 started using online marketing, has sold over 800M+ in sales.
-#1 Team in DC 4 yrs in a row
-Based in Washington, D.C.
Say hi to him at www.zillow.com/profile/SamerKuraishiGroup/

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They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit http://www.fundthatflip.com/bestever to download your free negotiating guide today.



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

Joined with me today, Theo Hicks. How are you doing, sir?

Theo Hicks: Doing great, Joe. How are you doing?

Joe Fairless: I am doing great, nice to be partnered up with you again on Follow Along Friday. How do we wanna approach today?

Theo Hicks: We have a couple listener questions, but I wanted to first hit on the main topic for today, which is about finding advisors and mentors. I know something that you talk about a lot is the fact that in order to become – we’re talking about multifamily syndication specifically – an apartment syndicator, you’re gonna either need past success in business, or past success in real estate. If you’ve got past success in real estate, obviously, you can use that and leverage that for syndicating, but if you have business success, you can also use that, but you’re also going to need some sort of tying of real estate, so that your investors know that you know what you’re doing, or have someone on the team that knows what knows what they’re doing.

Joe Fairless: And YOU know you know what you’re doing.

Theo Hicks: Exactly, yeah. So obviously, you’ve got the education aspect of it for the syndicator themselves, but it’s also good to have an advisor and mentor to leverage their experience, and also other benefits as well. I know that you have had advisors/mentors in the past, so I wanted to have a conversation around that, about where you find them, what benefits you get, how many have you had, and things like that… So however you wanna approach the subject of how to find an advisor or a mentor for real estate.

Joe Fairless: I have had three total paid advisors over my real estate investing career, and one of those three I still am paying and still work with. He is more of a mindset strategy, less of a tactical Q&A for real estate deals. I have a network around me with people who have more experience than I have on real estate deals. My business partner, Frank, has been in the industry longer than I have been in the industry. He has quite frankly more relevant experience in asset management and underwriting, so he is also someone who is on my team and we’re partners.

As far as how to find the best real estate mentor or consultant, there’s really only one way. That one way is through  a word of mouth referral. That’s it. How I found my three were not through word of mouth referrals. I’d say the first two, pros and cons, and the third one, pro… But I found him through the Tony Robbins program. I watched Tony Robbins’ Ted talk video, then I had heard from other people who I knew that the Tony Robbins program was a good program, so I guess secondarily it was through word of mouth, but no one directly said “Go talk to this person”, but it was through a program that I already heard good things about.

As far as why I say word of mouth referral is the only way – well, that’s the best way to qualify someone. If you go through someone who you already know and they’re like “Yeah, it’s worked well for me. You should check this out, too!” You can read books and reach out to the authors, you could go on Bigger Pockets and see who’s posted a lot or has insightful things to say, but ultimately, it’s important not only for someone to be qualified, but they’ve gotta have some other things as a mentor/consultant.

I want to mention a couple things on what to expect from a consultant or mentor, and what not to expect. Because a lot of times when we think of hiring a mentor or a consultant, we think of them being our knight in shining armor, and they’re not. So let’s talk about what we shouldn’t expect from them. We shouldn’t expect them to be the solution to our problems. We shouldn’t expect them to have a done-for-you program where “Oh, you sign up with me and I’ve got it all taken care of. You sit back, you hang out and just follow this thing and be semi-engaged, and you’ll be a millionaire”, because that’s just not true. If it is true, best case scenario – let’s say it’s 100% true – then when you become a millionaire through that type of program… Well, I’ll just ask you, what happens to most of lottery winners ten years later?

Theo Hicks: They lost it all.

Joe Fairless: They lost it all, or worse. Or they’re dead.

Theo Hicks: Most likely much worse.

Joe Fairless: Yeah, most likely much worse. Unless you improve yourself along the way, regardless of what chunk of money you receive, you’re gonna be back to where you started, or worse. So even if it is a “done-for-you” program, then you’re still gonna be where you were, but you’re gonna have less years of your life to figure it out. So don’t look for the done-for-you programs; if someone promises it, even if they’re telling the truth (which they’re likely not), you’re gonna be worse off.

Instead, here’s what you should expect from a program – you should expect someone to have expertise in the subject matter that you’re looking to get better at. You should expect someone who is actively doing that subject matter. If it’s a partnered investing, when is the last time they closed? If it’s wholesaling, how many wholesale deals do they personally do? Not their student… That they personally do. If it’s fix and flips, same thing. Note buying – same thing.

There should be a system, but it’s a proven system that others have replicated through implementing the system. Not done-for-you, but a proven step by step system for how to do it. You should expect to have an ally for your business, for your transactions, and most importantly, you should expect to have an ally who you can selfishly talk about what you need help with and not feel guilty for only talking about what you need… And that’s key, because some people have the mindset “I don’t wanna pay for consulting”, and that’s cool, I get it… Whatever, there’s no one path. The challenge with that thought process if you wanna achieve at a really high level is that you’re gonna need to bounce ideas off of people, you’re going to need to have questions about how to structure certain things, deals, contracts, whatever, and while you certainly should be consulting attorneys and CPAs along the way (where they’re relevant), there’s gonna be some grey area for stuff that you just need help with on that particular stuff.

When you continue to go to one person who you’re not paying, then there’s not gonna be that value exchange, unless they’re just incredibly nice; maybe they’re older, they’re just looking to give back, or maybe they’re a family member… That’s different, right? Family members are probably gonna be more willing to do this, but eventually you’re gonna hit a point where you’ve exhausted all of your karma points or the outreach that you can do and they’re gonna be wanting something in return, or you’re gonna turn them off and you’re gonna hurt that relationship.

So when you do have a consultant or a mentor, you pay them, or you give them a part of a deal or however it’s structured, and that allows you to selfishly ask them “Hey, what do I need to do right here?” and just keep asking them, because you’re compensating them.

Then the fourth thing would be connections. You should expect to receive connections from the consultant or mentor. Real estate is a relationship business; it’s about people, it’s not about transactions. Everyone who’s in it for the long run and who has success in the long run gets that. I just finished a book by Sam Zell… I’ve mentioned it before, but I just finished it now; it’s called “Am I being too subtle?” and he talks about how he always sets up his business transactions so that people want to do business with him in the future; therefore, if he can get something at a price that he knows he’ll make a lot of money, but the other person won’t make any, he’ll actually decrease the amount of profit he gets so that they win a little bit, he wins, and they wanna continue to do business with him in the long run. And that’s the way to approach business, and life in general. You will just be a happier person.

So to recap, the four things to expect from a consultant or mentor. One, expertise on the subject that you’re doing, and make sure that they’re actually doing it. Two, they have a system for doing it, and others have replicated those results; that’s something Tim Ferriss talks about a lot – it’s one thing to be an expert and to have an accomplished background in whatever your profession is, and it’s a whole other thing to actually be able to replicate those results for other people; so a system for doing so. Three, having an ally who you can selfishly ask a bunch of questions to and not feel self-conscious about not giving something back, because you are giving back. And four, relationship or connections. So those are the four things to expect.

What not to expect – a knight in shining armor. They’re not someone who is going to just magically wave a wand — now, I’ve turned the knight into a wizard, I realize that… But magically wave a wand and then it’s done. Just don’t do the done-for-you programs. If they just say “Oh, you just pay this much and it’s pretty much you sit back and be done” – don’t do that. Because even if it does work, you’re gonna be worse off in five years than you were when you began.

So going back to how you find it, the one way – a word of mouth referral, and if you don’t know someone who can provide you a word of mouth referral, then guess what, you’re not ready for a consultant, because you haven’t done your legwork on having enough of a network to be integrated or evolved in that industry. If you don’t know enough people in that industry where people can say “Oh, you should work with so-and-so”, then you’re not ready for that mentor step anyway; you need to work more on the foundation of the business, learn more about the fundamentals and attend more meetups and attend more seminars and conferences about whatever you’re focused on.

Theo Hicks: So after they do that, they kind of get their education and they’re working on their network, would that be the time they get a mentor or an advisor, or should they have done a couple of deals first, like smaller deals, or shadowed on deals? When do you think would be the ideal time to find an advisor? And you can say based off of when you found your first advisor…

Joe Fairless: Yeah, once you know the fundamentals of the business… If you’re asking questions to the advisor that can be easily found through a Google search, then you’re not ready. But if you’re at the point now where it’s like, “Okay, I get it, and I’ve got the following things working for me; I’ve got two-three things”, maybe you’ve got some money, but need help finding the right market, or you have the right market, you just need help getting access to more money, but you know how to run the numbers, you know the fundamentals, then I’d say it’s time.

Basically, one of my favorite books is “The road less traveled” by Scott Peck, and he’s a psychologist… There’s a whole series – The Road Less Traveled And Beyond, Further Along The Road… He got a little carried away on the title… But he talks about when you need to see a psychiatrist, and this is relevant to what you’ve just asked. When you need a psychiatrist is when you feel stuck; when you’ve done what you can do, but you’re just stuck. That’s when it’s time to bring on a professional or an expert in the area to help you out. So that’s what I would say.

Theo Hicks: [unintelligible [00:13:35].00] Something I really liked about your mentor now is that he’s very outcome-oriented. If you have a specific outcome in mind – you know exactly why you wanna have a coach, because you wanna have this outcome, that’s quantifiable and specific, then maybe that’s also another sign that you’re ready to have a mentor… Versus, “I wanna be a real estate investor, and I’ll get a mentor just because I’m supposed to.” My point is don’t just do it just because you think you’re supposed to; have an actual goal in mind as to why you’re getting this person, so you’re not wasting that person’s time, wasting your time and your money, when they could be spent on actually getting education elsewhere, doing your first deal, or whatever it is.

Joe Fairless: That’s a great point. For every one of my calls where someone applies to my consulting program, at the beginning of the call I always say “I wanna make sure we accomplish whatever you’re looking to accomplish on this call, so what is outcome for our call?” And I do that not only for people that apply, but then outside of that for other types of business calls. I make sure that we accomplish the outcome that they want to accomplish, and then if something works for us, it does; if it doesn’t, whatever. I help someone accomplish their outcome, we got to know each other, and then we’ll just go on our separate ways and everyone’s happy. Two thumbs up.

Theo Hicks: Cool. Alright, so now we’ll move on to a couple of listener questions. We’ve got Nick, who asked this question actually last week on Follow Along Friday. He wanted to know what is a better investing strategy between being leveraged versus having the entire property paid off? So I guess that’d be buying it all-cash up front.

Joe Fairless: Well, it’s clear that having leverage you will have a better cash on cash return. That’s obvious. However, I don’t think it’s a matter of a black and white debate on it, because the numbers are numbers… That’s why there are loans, to help you have better cash-on-cash return; I think that’s why there are loans, but that’s one purpose loans serve. The real question is what type of risk-tolerance do you have and what’s your investment philosophy? Because that ties into if you should buy all cash or if you should have a loan and have some leverage. Or a third option, have some leverage and then just aggressively pay off the loan. It’s a matter of your risk tolerance.

I can tell you that after speaking to people who lost it all in 2008 on my podcast, a lot of those people are now buying houses in cash and not having loans, and they went the complete opposite of the extreme they were at before, and perhaps there’s a middle ground they should be doing… But there’s something to be said about being able to rest at night knowing that regardless of what happens, banks don’t have anything on me, because I own all my properties free and clear. And again, it’s not about returns, because that’s not a debate. You get better returns with leverage, and the tax benefits, because you write off the interest, and some other things.

Theo Hicks: And the mortgage pays down from the actual residents… That’s one of my favorite aspects of having a loan – they’re paying down the loan.

Joe Fairless: They’re paying the loan for you. So there’s not a debate on that, it’s a higher level question of “What’s your risk tolerance?” because there is more risk when you have a lender; there is. And with that risk tolerance, what do you choose to do? Right now I can tell you all of our apartment communities obviously have a loan on them, because that gets the returns that we need just to return to our investors and to have successful transactions. If we paid all cash for the deals, then we would be making whatever the cap rate is, right? So 5%, 6%, 7%, or whatever that particular deal is… And that just doesn’t work. So we do leverage for apartment communities.

For my single-family homes – I do have loans on them, but I’m wrestling with this question myself on my single-family homes. I only have three houses, and I could pay them off; I haven’t yet, and I don’t know if I will or won’t. Financially, it’s not a smart decision to pay them off, but from a peace of mind standpoint, it’s kind of nice. So that’s really the question, and those are the things to think about.

Theo Hicks: Something else I’m thinking right now, and let me know what you think about this – if you do also have them paid off completely, and let’s say the market is to take some sort of dip, then not only are your properties themselves safe, because you’ve done a loan on them, but then you have access to all that equity, all the properties around that area, that people are potentially getting foreclosed on or can no longer buy those properties… So you can take a loan against your property to buy those properties, and then get a loan at that point. I guess the fact that you have access to that equity still, that you can if you need to and you want to take a loan against that, or [unintelligible [00:18:54].07] whatever you wanna do, you have that option too, whereas… Technically, you have it if the loan is depending on how much you’ve paid it down, but you definitely have access to equity if you pay it off completely.

Joe Fairless: One asterisk on that would be if the market tanks and you own them free and clear, it’d be more challenging to get a loan on your investment properties. So one thing you could do in that scenario or planning for that scenario if you do pay them off but you’re thinking about doing that, is talk to a credit union and see if you can get a line of credit and use those free and clear homes as collateral, and do that when things are nice and rosy. That way you’ve got this access to a line of credit. Now, the line of credit could disappear at any point in time from the credit union if things go South in the market, but at least you’re planning a little bit ahead to leverage that equity without actually tapping into it prior to something bad happening.

Theo Hicks: Yeah. The next question is from City Park Properties. He asks–

Joe Fairless: He or she.

Theo Hicks: He or she asks “Can you explain the difference between a broker who can offer off-market deals and a real estate agent”, who I’m assuming will only offer the on-market MLS deals?

Joe Fairless: He or she.

Theo Hicks: He or she. [laughter]

Joe Fairless: Do you wanna take that one?

Theo Hicks: From my understanding, as you create relationships with brokers, they’ll have their on-market deals, but obviously those deals were off-market when they got them… So if you have a relationship with brokers, you’re gonna have deals sent to you before they actually go live. From my understanding, the difference would be not necessarily the person themselves – because they would be doing both at the same time – it’s just how much of a relationship do you have with this person, or how much of a reputation do you have as an investor, that they would be comfortable giving you this deal before they actually put it on the market.

Now, I’m not sure if there’s brokers that just do off-market deals and that’s it, I don’t know, but from my experience so far, that’s what I’ve found – they’ll have on-market deals obviously, but if you know them well enough, you can get access to that beforehand. I also know for smaller deals, if you’ve got the pocket listings – that’s a well-known thing, where if you know an agent, they will have a deal that they don’t put on the market because they know that you’re interested in… I guess from personal experience, two of the three properties I bought were off-market, and one was on-market.

Obviously, that same real estate agent had five deals – two on-market, and three off-market that he wasn’t ready to put on market yet, probably for tax purposes for the seller, or something… But just the fact that I knew that guy was really the only reason I got these properties. If I didn’t know who he was, I wouldn’t have seen him posting on Facebook and I wouldn’t have had his phone number to reach out to him, call him and say “Hey, I wanna see this property and I wanna learn about the other properties off-market.”

Basically, the difference is “Do you know them or not?” and “Do you have a good relationship with them?” And if you do, you will have access to more deals that you would if you’re just some random guy that they don’t know.

Joe Fairless: Nailed it. Completely agree.

Theo Hicks: Alright, so that wraps up the main topics, the listener questions… Next, we’re gonna move into just some updates and observations from the past week. Do you have anything for your business, updates or observations?

Joe Fairless: Yeah, just closing approximately 5th December on the 304-unit. We are closing out our due diligence; we’ve been doing due diligence, and everything looks good. Really, we’re sending out the private placement memorandum to investors most likely today or tomorrow; that got finalized. Then we’ll just begin funding, and everything’s good; we’re all good there. As far as other property updates, we’re exceeding our rents from our projections across the board on every one of our properties, so things are going well… Nothing really stands out.

I mentioned I finished the book “Am I Being Too Subtle?” and now I’m reading a book from the 1970s called Coma, and it’s like a psychological thriller, so it’s not in the same genre as self-improvement, but I do recommend Sam Zell’s “Am I Being Too Subtle?” He does a really good job of putting you in the deal while it’s happening, even though it’s already happened, and he gives you his mindset for why he structured a deal a certain way, and this isn’t just real estate deals, it’s larger deals. He talks about losing 100 million dollars of his own money, plus  millions and millions – he doesn’t mention how much – of investor money on a cruise line venture that went South after 9/11.

He talks about having to file bankruptcy for the company that owned the Chicago Cubs and Chicago Tribune and some other entities… So he talks about failures, and he also talks about a lot of success, and how he structures an organization based on meritocracy, versus just tenure, or whatever. It’s what have you produced, and how he expects his employees to be entrepreneurial. He’s a billionaire, and it’s important to at least – when a billionaire talks – to hear what they have to say and then decide if it’s relevant to your or not. As a real estate investor, I recommend other real estate investors read this book, because it is a lot of relevant stuff.

Theo Hicks: Nice, cool stuff. My business – I’ve got one lesson learned about boilers… It’s a lesson first, so whenever I buy a property or look at a property, before I even put it under contract, I’m gonna have this new guy that I met come in and at least look at the boiler and then look at individual radiators in the units.

Joe Fairless: Can I guess the price?

Theo Hicks: Yeah, guess.

Joe Fairless: $4,500 to replace the boiler.

Theo Hicks: No, it’s more than that.

Joe Fairless: $9,500.

Theo Hicks: I know someone who sent me a quote that they got back in 2013, and it was $8,100 to replace his boiler, but the guy that I had come in – but I think that was just for the actual material, not including labor – said “Expect between $10,000 to $15,000 to replace the boiler.” Another lesson is you have to do maintenance on it once a year; at least inspect it, clean it up a little bit.

He was telling me a story — I’ll get to my point in a second, but he was telling me a story about how he’s working with a church right now that bought a brand new boiler for like $25,000 five years ago, and they didn’t inspect it or anything, and I guess whether it’s condensation or leaking, it basically just disintegrated because it so corroded, and so they had to replace a brand new boiler that they bought five years ago for $25,000. Obviously, they were doing [unintelligible [00:25:44].25] to raise the money, and things like that.

So I’ve got three boilers in the three of our properties, and the story goes one of them was leaking – I saw a leak on the ground during inspection, so in the inspection report or the inspection addendum we had them fix that. And they went in there, and I thought it was fixed, but it wasn’t… So another lesson is make sure that they actually fix what they’re supposed to fix. And it took them months to actually address the issue. Lastly, they finally went in there to fix it —

Joe Fairless: Who’s “they”?

Theo Hicks: The sellers who I bought the property from.

Joe Fairless: Oh, but you’ve already purchased it and the seller is going back in there to fix it?

Theo Hicks: Yeah, they’re going back in there to fix it.

Joe Fairless: So you closed without them fixing it, but they said “Hey, we’ve got your back. We’ll come fix it after closing, don’t worry, Theo”?

Theo Hicks: Exactly. Which at the time I thought, “Oh, how nice of them”, but now I’m thinking that they did this for a specific reason, which I’ll get into in a second. So they’re bringing their contractor… It was basically — they just cut these pipes and then they replaced them. And they go in there, and I guess they had to refill the boiler with water, and then go to each of the individual radiators and bleed them, because apparently it’s under pressure, so there’s air in there; they’re bleeding all the air out, so that water can circulate through.

And they go to the first radiator they open up, they take it off, and there’s like this long pipe that’ll go up and down with [unintelligible [00:26:58].10]. He sent me a picture of it, and it looks like something that you’d find on the sunken Titanic, it was so corroded and rusty… So he said “We can’t even touch this. This is such a hazard, since the boiler under pressure could explode at any time.” So we can’t touch this, you have to get it replaced.

I was in there yesterday and they went through all the individual units, and there’s probably three or four radiators per unit, and luckily only two of them were Titanic status, so they’ll have to fix those. But the boiler itself is so old that they told me “You need to start saving up money to replace them.”

So the lessons learned are having an inspector come in there and look at the boiler and all the individual radiators before buying a property. The boiler contractor that I was working with, he also owns properties, and he said that you can actually get the sellers to do that inspection separately from the regular inspection; they had them paid for it. I’m not sure if I’ll do that or not, but I’ll definitely have them looked at. He offered to actually do it and come in and look for me; he was a really nice guy.

Then also, obviously, if you have something on the inspection addendum, make sure that you have it addressed before closing, because they might not be doing it because they know that you’re opening up a massive can of worms. If they would have addressed that issue prior to closing, we would have found out that replace a couple of radiators, and the boiler potentially needs to be replaced, as well.

The silver lining here, from my perspective, is two things. Number one, I’m glad we’ve found this problem now and not in the middle of winter, because I don’t even know what people do if their heat goes out in the middle of winter, because you’re obligated by law to obviously provide heat.

Joe Fairless: You’d be riding up there with portable heaters, you’d buy a CVS.

Theo Hicks: Or putting them in a hotel.

Joe Fairless: Or putting them in a hotel, yeah.

Theo Hicks: So that was number one lesson, and I guess silver lining. And number two was I hadn’t looked at the other boilers in the other properties, and they were in much greater shape than this boiler… So I’m still gonna have to go and inspect each individual radiator, because obviously if the owner neglected the radiators in one unit, I’m expecting it to happen in the other units, and we’ve already had complaints about the boiler not working in one of the buildings… But yeah, fortunately the only boiler that he believes I’ll need to replace any time in the near future is in the one unit, whereas the other two are newer. So boilers are interesting…

Joe Fairless: To find the right inspector, what should a Best Ever listener search for, who should they ask to inspect the boilers? Because you said you already had it inspected, but it wasn’t sufficient.

Theo Hicks: So I asked the HVAC guy that was with me yesterday, I asked him “How did my general inspection not catch this?” and based off of what was involved to do the inspection – it wasn’t much, but it involves moving furniture, and pulling off the radiator. He said that most inspectors just don’t do that. Some of them might, some of them might not, so I guess one thing to do is that when you’re doing an inspection, if there is a boiler in the actual property, ask that inspector “Hey, can you look at the boilers? Do you have previous experience looking at boilers?” Or you can just get a boiler inspection from an HVAC company. So google “HVAC service city-name”, and then call up and say “Hey, do you have experience with boilers? Do you do maintenance on boilers? Do you inspect boilers?” and then go from there.

According to this boiler guy – he could just have been selling me, but he said to me “Not a lot of people look at these things anymore.” I’m so glad we found each other… Because I just found him just because of the issue with my property, and he was just the guy that the seller found. So I kind of just got lucky by finding this guy.

If you need to find someone, either ask the inspector who’s going to do your general inspection if they can look at the boiler and if they know how to look at boilers, and if not, just find an HVAC company to do a separate inspection.

Joe Fairless: Okay. Good lesson. It sucks for you, but good lesson. [laughter] In the long run it will be a good lesson for you, and everyone, for sure.

Theo Hicks: It’s one of those things where you kind of have to go through it to understand, unless you’ve read a book somewhere where they talk about boilers… Because I wouldn’t even think about looking into the boilers or having the boilers inspected. I was like, “Oh, I guess they just work, because people are living here.” It’s little things like that that you don’t think about that could be costly.

And the other lesson is make sure you get them ongoing maintenance once a year, because they can last 40-50 years if you do that.

Before I wrap up, one last thing that we wanted to start doing is that we’ve got the Best Ever Facebook Community, and each week a [unintelligible [00:31:15].18] or social media guy will post different business-related questions, that will have interactions with people, and it’s also nice because you see how other people answer these questions based off of their experience, and kind of just get to know each other.

So we are going to answer these questions ourselves on Follow Along Friday… This week the question – we’ll call it the Best Ever Facebook Community question of the week – was “What is your favorite morning routine for daily success and productivity?”

Joe Fairless: What’s yours?

Theo Hicks: [unintelligible [00:31:44].14] I was having trouble with having a morning routine, because it was more of like individual routines that had a kind of — I would do one, and that would be done and I’d have to will myself to the next one, and the next one, and the next one… So I wanted to find a way where I could just have one trigger that would automatically make me do all of my routines so I don’t have to think about it.

Something I’ve been doing for the past month – and this is at night, but then I review it in the morning… But I literally write out what I’m gonna be doing the entire day. “I’m gonna wake up at this time, and this is what I’m gonna do. At 8 o’clock I’m gonna do this, at 10 o’clock I’m gonna do this. Then at noon I’m gonna have a lunch…”

Joe Fairless: And that’s working for you?

Theo Hicks: It works really well, and it’s evolving, because now I’ve got alarms, so whenever I’m done with a certain task, the alarm goes off and I move to the next job. I’m kind of like automating myself so that I’m not only doing every single thing that I need to do for the day… At the end of the day I go back and I essentially just journal exactly what I did right and wrong; it’s like “Okay, I said I was gonna get up at 7, but I got up at [7:30] today, but I still did everything I was supposed to do. Then I was supposed to read at 9, but I had this thing come up that I had to do instead, so I couldn’t read today at all.” Or “I didn’t go to gym today because I’m lazy”, or things like that.

So it forces me to look at my failures, instead of just skipping something I said I would do and then just not even thinking about it again. That’s been very helpful. So at night I write out my schedule, in the morning I review it, I set up my alarms in the morning and then I do it throughout the day, and I don’t have to think at all throughout the day. At the end of the day, I think again by journaling about it and trying to make any tweaks, like “Oh, set an alarm”, or whatever… So that’s my routine.

Joe Fairless: After hearing that, you realize what I’m gonna do tomorrow…

Theo Hicks: What are you gonna do?

Joe Fairless: I’m gonna call you randomly 17 times throughout the day… [laughter]

Theo Hicks: To see if I’m on my schedule?

Joe Fairless: Yeah. “What are you doing now, Theo? What are you doing now? Are you supposed to be talking to me? Aren’t you supposed to be doing something else?”

Theo Hicks: I’ll send you a screenshot of it every morning. [laughter]

Joe Fairless: Things I do every day in the morning for productivity is as soon as I wake up I have a Five Star notepad and I write 15 times “I’m a strong, confident, successful and handsome real estate billionaire entrepreneur.” I’ve been saying that as my incantation and affirmation many years. Recently, over I’d say the last 90 days, I’ve been doing that every single day, writing it down 15 times, and I’ve mentioned that on the show before.

Theo Hicks: Even on weekends?

Joe Fairless: Even on weekends. Every single day. And if I miss a day – because there have been a handful of times where I’ve missed a day – I then make up it later. So I am caught up to today for the last 90-120 days.

Theo Hicks: That’s awesome.

Joe Fairless: Every day, 15 times. “I’m a strong, confident, successful and handsome real estate billionaire entrepreneur.” I also drink a liter of water with a scoop of wheat grass mixed into it every morning when I wake up; I have a daily journal that I write in usually towards the middle or end of the day… I just write whatever’s going on that day. It’s amazing to go back a year – and at this point I can go back two years, with that daily journal; I’ve been doing it that long – and just see what I was doing, what I was thinking that day and see the progress that I’ve made over that period of time.

Then I always do some sort of exercise. Over the last 90 days or so I’ve been doing at least 50 push-ups…

Theo Hicks: In a row?

Joe Fairless: In a row, yeah.

Theo Hicks: That’s impressive.

Joe Fairless: And in my softball team, Ben, who is Samantha, our team member’s boyfriend, he’s on my team and he asked me if I was on steroids… And not because I look swole, but because I’ve hit a home run in softball the last four games in the row, except for the last game [unintelligible [00:35:28].06] But I’ve been nailing home runs, and I attribute that to my 50 — actually, I do 51 push-ups, because I wanna do 50, and I always do a little bit above, so I always do at least 51 push-ups. Then usually I do some sort of cardio, too.

So those are the things I do for productivity and to get me set for success… Every day. Every single day.

Oh, and I read at least one section in a book, whether it’s a paragraph or whether it’s just a couple pages, depending on how boring the book is. But I will always read something, and that helps build momentum for continuing to read.

Theo Hicks: Yeah. Do you wanna mention the Best Ever Conference, or any updates on interviews we have?

Joe Fairless: We might have updated guests, I don’t know. Just go to BestEverConference.com and you can see all the guests we have so far. And early bird special – you save $100 if you book between now and Halloween.

Theo Hicks: I believe we have Bigger Pockets Josh Dorkin Part I released this Tuesday, and then we have part II coming up next week.

Joe Fairless: Which is not related to the conference, so…

Theo Hicks: Oh, sorry… I was talking about the upcoming exclusive interviews; I got ahead of myself.

Joe Fairless: Okay, got it. Yes, Josh Part II is being aired this coming Tuesday.

Theo Hicks: Awesome. And to wrap up, make sure you subscribe to the podcast on iTunes and leave a review for the opportunity to be the review of the week. This week we’ve got Westin Brooks, and he said:

“Awesome podcast. As a religious listener and a first-time investor, I felt more than confident diving into the real estate world. I’ve already utilized several tips and techniques he’s discussed, and I’m looking forward to expanding. Thanks!”

Joe Fairless: Thanks with an exclamation mark.

Theo Hicks: A lot of exclamation marks in there.

Joe Fairless: I appreciate you listening, Best Ever listeners… Enjoyed it. We’ll talk to you tomorrow, and have a best ever week!

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Best Real Estate Investing Advice Ever Show Podcast

JF1057: Wholesaling $4,000,000 a Year, Learn how to Wholesale Development Deals! With Raphael Vargas

After being robbed when he first started at the age of 21, he put his head down and kept working. His hard work paid off with a $30,000 first time wholesale fee! Raphael is not slowing or stopping, his company is doing four to five million dollars in revenue this year, oh and he’s only 25 right now!! Plus Joe and Raphael do some cold call role playing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Raphael Vargas Real Estate Background:
-CEO of Ace Equity Pros, a Collaborative Real Estate Investment and Brokerage Company
-Has produced Millions in revenue and operates in 3 Major Markets.
-DC / Baltimore, MD / Tampa, FL.
-Began real estate investing at age 21 and by age 24 created a $7 figure real estate business
-They have bought and sold over $35 Million Worth of Real Estate in the past 3 years
-Based in Washington, D.C.
-Say hi to him at aceequitypros.com
-Best Ever Book: Traction

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

Raphael Vargas: Phenomenal, my friend. How are you?

Joe Fairless: I am doing well, nice to have you on the show. A little bit more about Raphael – he is the CEO of Ace Equity Pros. He has produced millions in revenue and operates in three major markets: DC, Baltimore and Tampa, Florida. He began investing at the age of 21 and by the age of 24 created a seven-figure real estate business. His company has bought and sold over 35 million dollars worth of real estate in the past three years. He’s based in Washington DC. You can say hi to him at his company’s website, which is in the show notes. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Raphael Vargas: I am an entrepreneur by trade. Like you said, I started when I was 21, really from just kind of a starting point of literally ground zero, with a heavy background in sales and communications. I’ve been in sales for pretty much my entire life. But as far as real estate, I had no experience whatsoever.

I got introduced to real estate by an individual that just literally told me “Hey, you can flip properties with no money.” I didn’t believe him, so he actually showed me some documentation, some paperwork, and then I believed him. I paid him my entire net worth, which at the time was about $3,000, and he took it and robbed me. But the blessing is — which, by the way, for all the listeners out there, make sure you’re hiring the right individuals and listening to the right individuals that know what they’re talking about.

But the lesson that I learned was just 1) to obviously choose the right individuals to learn from in coaching, and 2) he just implanted that in my mind, and that’s really all I needed to just jump into it. I had no other coaching besides that to get to where I’m at today, other than just the YouTube videos, free podcasts, free information… There’s so much ridiculous free information online out there… It’s crazy to see people in America not striving for success and actually obtaining it… Because this is America, this is the land of the free. We literally have every opportunity to be successful here – financially, spiritually, mentally and physically. It’s really a blessing to live just here in America, first of all.

That’s pretty much my background, that’s how I started – I learned about real estate, and then three and a half, four years later now, I’m 25 years old and we run a pretty successful real estate brokerage [unintelligible [00:04:56].04] in multiple markets, and we are also doing a lot of wholesaling, flipping of contracts, flipping of properties in multiple markets as well, and we have a pretty substantial team that’s dedicated to our success as a company and as a company vision.

Joe Fairless: And I completely agree with you – so many free resources out there… We have access to pretty much everything that we need in order to be successful; you just have to actually put in the work and do some stuff. I was gonna ask you how old you are, because the 21 to 24 year old thing – I was like “I don’t know if he’ll remember back then”, but I think you’re gonna remember… [laughs]

So 21 to 24 years old, you created a seven figure real estate business. Is that a million, five million? What is that figure, and tell us the specifics on what you were doing to generate that.

Raphael Vargas: Sure. This year we’ll probably do close to around 4, 5 million; close to around the end of this year we’re projected to do that. But as far as what I did to actually get to that – it’s just a ridiculous amount of failure. I mean, a ridiculous, ridiculous amount of failure. From when I started and I was 21, I was doing everything from running around knocking on a bunch of doors from homeowners… I didn’t know what I was doing, I didn’t know how to portray myself; I looked like I was 16 when I was 21 still, but regardless, I was just doing everything, and I was just a massive guerilla marketing kind of guy – knocking on doors, cold calling… I got my first deal from cold-calling and it was actually a 1.1 million dollar acquisition, a condo development in DC.

Then I sold it for 1.13, and I made 30k on my first deal. That’s when the light bulb went off, it was interesting. That was my first closed deal. It’s when the light bulb went off and I was like “Wait, I can wholesale houses – why can’t I wholesale development properties? Why can’t I wholesale land acquisitions? Why can’t we wholesale condo conversion projects?” That’s what we started doing here in Washington DC, where we’ve done really large [unintelligible [00:07:04].06] where we just get a contract with a homeowner that doesn’t understand the full potential of their property to its full maximum use.

After studying development in Washington DC, I was able to really target those properties and then acquire those properties from the homeowners for a contract and then resell that to a developer for a high profit margin.

Joe Fairless: Was it just land, in some cases? Or was it someone’s property and then selling it to a developer so they can probably tear it down and then build something much bigger and newer?

Raphael Vargas: Yeah, land and/or properties. In DC specifically there’s almost no land, it’s all property, because it’s a very small and very congested city. But it’d be a row house sitting on a longer lot, where you can bump it back significantly and bump it up, where you can do four condos, three condos, luxury kind of area, that kind of thing.

Joe Fairless: That’s really interesting, because that is taking the typical wholesaling approach and adding an artistic spin to it, because you’re not just doing the wholesaling of a single-family house, but you’re looking at what type of development opportunities are there. You’re looking at it from the developer’s perspective, and you’re seeking out the opportunities that they would be interested in, and then you’re flipping the properties to them.

Raphael Vargas: That’s exactly right.

Joe Fairless: So you mentioned that first deal, the wholesale where you made 30k on it… How did you come up with the idea to look at it from a developer’s standpoint and flip properties to developers?

Raphael Vargas: It was from that very first deal – I analyzed it and then I was really pushing the deal, because I knew financially it made sense. I didn’t have many buyers, but I did have one great buyer relationship from a gentleman, and he was a developer in Dubai; a very wealthy individual, he’s actually the vice-president of Climate Control for the United States, and he’s really close with Richard Branson, things like that. He just really inspired me, and he kind of taught me how to put on my developer lens and hat.

After understanding it from him and selling the first deal to him and successfully closing on that, that’s what made me kind of understand their perspective. Then I just wanted to learn more, and after I closed that deal and a few more single-family deals, I paid one of my developer buddies to spend a day with me and teach me the zoning restrictions, zoning codes, setbacks, frontage on specific condo zoning, FARs – understanding all of that so that I can start teaching our acquisitions team on exactly how to analyze the property once they come across it to its maximum ability. That’s what we did.

Joe Fairless: That’s fascinating. I’m really glad we went this direction on the conversation. What’s FAR stand for?

Raphael Vargas: FAR is floor area ratio, and there’s always an FAR, depending on where you are. For example, if your FAR is three in a specific zoning code, and let’s say your lot size is 1,000 square feet, that means that you can build buildable square footage of 3,000 square feet. So you would multiply your FAR by your lot area, and that’s what you would get for your buildable square footage.

So we would understand that, but before, we’d look at a property and just say “Hey, this property is a single-family asset”, and we’d look at it as a single-family asset and offer a homeowner way lower than what it’s actually worth. Then we’d analyze it and say “Hold on, this is in C2a zoning, where the FAR is 3.5 potentially, where if it’s not a single-family, we can actually develop this where the height restriction is 90 feet, and we can build 10,000 square feet on this, so it’s way more valuable.” That’s how we learned that.

Joe Fairless: How did you get in contact with the Dubai gentleman?

Raphael Vargas: It was actually off of Craigslist. I was doing everything by the book when I first got into real estate. I didn’t close a deal for eight months, but I was the hardest working man I think ever in America. Days I would go not sleeping and not even eating, and I would just be like cold-calling homeowners, reading books, obsessing over this, [unintelligible [00:11:24].08] my brother, who was mentally disabled. I had a special place in my heart for my brother, because he was just really struggling… Just seeing him consistently walking around in circles… I wanted financially to take care of my family to a whole other level, which I’m still striving to do, and what inspires me every day, and my relationship with God, which also inspires me every day as well.

In the beginning, I was just doing everything by the book, and again, it said “Post on Craigslist and look for buyers”, and that’s what I did. He reached out to me, and little did I know, he’s like building hotels in Dubai, and he’s a ridiculously wealthy individual. He was just looking for some houses in DC to place his money, and that’s how I found him. We built a really good relationship to this day.

Joe Fairless: Walk us through the initial interaction and then the subsequent conversations or interactions… He responded to your Craigslist ad, then what happened?

Raphael Vargas: He responded to my Craigslist ad; very nice, humble individual. He just said, “Hey, I’m looking for investment properties. If you have anything, let me know.” It was a very simple e-mail, simple conversation. Then I told him about all of these deals, and he would say “Yeah, that doesn’t work for me. This doesn’t work for me. I’m looking for something bigger, or smaller”, whatever it is. Then we finally came across this deal, and we met and we consistently worked together on this deal, because there were a lot of issues with closing it – tenant issues, condo conversion issues… I was there helping him with those issues as well, trying to get them closed to make sure he felt comfortable. He saw my effort, and we ended up closing the deal. So it was pretty simple, and that’s pretty much how it went.

Joe Fairless: You said your company is doing between 4-5 million this year… What is that? Is that revenue, is that profit, is that something else?

Raphael Vargas: That’s revenue. Revenue as far as wholesale assignment revenue. We don’t do any fix and flips; it’s just too tedious and our goal is to expand and scale this company to closer to around a 100 million dollar company, and it’s very scalable with the model that we have. And not only is it scalable, it’s also very profitable, and at the same time it really serves all kinds of homeowners.

The way that we do so is we have an investment fund – I learned this at the beginning of this year… I started realizing how many leads we’re throwing away consistently; I was just throwing away leads, homeowners that say “Hey, I want 250k” and their property is worth 300k. Us as investors, we can’t do anything with that, but I started realizing — me and my partner Joe, who has helped me throughout this entire process and has been my journey buddy essentially through this… We started realizing and saying “How can we stop throwing these away?” What we did was we started building out a brokerage, an agent model, where we say “Okay, let’s [unintelligible [00:14:20].00] We get these leads and these kinds of people that want this price and need to sell fast; we’re gonna wholesale it, or buy it and resell it on the market, and we’re gonna close and move quickly. That will be the investment model.” And you know what? If that homeowner wants 300k and the ARV is 325k, but it’s in great condition, we’re gonna give that to the agents.

So we custom-built a CRM based upon that, and we wanted to find out ways on how we can actually expand into multiple markets and still be effective, still not lose that touch and still build culture with our people in every single market that we’re in. Because of that, we’ve built a merged business where it was the agent and the investment model. And like I said, the investment model is strictly the one that’s doing between 4-5 million (that we said), but the agent model… Right now under listings we have close to around 32 million since the beginning of this year – 30 million in listings. That’s a whole other side of business that I was throwing away, and we as investors consistently throw away.

My partner and I just became really diligent on building that agent brokerage business out, and leveraging our real estate agents as our outside sales people… And then having a call center team in our offices here in Washington DC that qualifies those leads, sets those appointments, speaks to the homeowners and says “Look, we have options for you. We’re not just some regular company that’s here to lowball you. We’re here to give you options, and depending on what you want, that’s how we serve you”, and that’s exactly what we’ve done.

Now the game is “No lead left behind. No homeowner left behind.” We have an opportunity for every homeowner.

Joe Fairless: I like that. Do you do any lease options?

Raphael Vargas: We don’t, unfortunately.

Joe Fairless: How come? Why do you say “unfortunately”?

Raphael Vargas: Actually, not unfortunately… I did lease options when I first got into real estate, because I was trying to do everything and I hated it; it’s just not for me at the moment. Maybe I haven’t really learned enough about it to see its profitability, and it could definitely be something that’s amazing and profitable, but it just hasn’t been for me just yet.

Joe Fairless: What’s been the biggest challenge creating the brokerage and having the “no lead left behind” business now?

Raphael Vargas: People. You’re only as good as your people are. And leadership. Leadership and people. Everything surrounds around leadership, and I truly believe that to a T. Every day I’m consistently trying to focus on how I can develop myself as a better leader… And my partner Joe – we’re consistently focusing on how we can be better leaders, and not just leaders in business, but spiritual leaders, physical leaders, mental leaders for our people. The more we can develop our people, the more they can be really in tune to the company culture, in to the company vision, the longer terms they’re gonna stay with us and the harder work they’re gonna put forth every single day, day in, day out. That’s been the biggest issue – people.

Now, after taking a lot of different courses… Joe and I have been to courses like Scaling Up, which is a great course for business people, and there’s things like traction coaches, and we have a scaling up coach right now… But the people are everything, and I think that was originally the first biggest issue. We had the wrong people, but that’s changed since then.

Joe Fairless: You said it’s changed since then, so how are you now qualifying people in a way that you weren’t before?

Raphael Vargas: Joe, who handles a lot of the HR stuff, he created a job scorecard, and what we do is just for every position that we’re looking to hire, we really hone in on specifically — there’s two things for somebody to be qualified for a position: are they culturally the right fit? That means “Do they fit those core values in the company?” and then performance-wise, “Are they a high performer? Are they competent skill-wise for the position?” You need to know what are those competencies and skills for each one of those positions, and then again “What is your company culture? What are your core values?” and really understand those, so that you can interpret and understand whether or not the people that you’re interviewing/sitting in front of match core value, match that culture, and also have the competency and skills needed for the position. I hope that makes sense.

Joe Fairless: It does make sense, that’s a great tip. And with “culturally the right fit for the company”, what that forces us to do is self-reflect on “What is our company culture?”, because we have to know that before we can see if someone’s a fit, and it makes us be aware of what we currently have as a culture, and “Is that what we want? and what we wanna bring people into?”

Raphael Vargas: Yes.

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

Raphael Vargas: Wow…

Joe Fairless: You knew it was coming… You knew it was coming at the end of the show, baby! [laughs]

Raphael Vargas: Yeah, yeah… [laughs] Oh, man… I don’t wanna say, because it really is the best advice ever that I’ve ever received; I don’t wanna say it because it’s so effective, but do more cold-calling. That’s my best advice ever. Do more cold-calling, step out in front of homeowners and be different… And do more cold-calling. Contact more homeowners via cold-calling. It’s a way that a lot of investors are not doing, and we significantly scale that in our company to be ridiculously effective.
We still do a lot of different marketing techniques – direct mail, online, things like that, but the best advice I got, which is from Todd Toback (California) was “Do more cold-calling.” That’s what we’re starting to do a lot more of.

Joe Fairless: And where does your team get the phone numbers?

Raphael Vargas: I can’t say exactly who it’s from, but we do skiptrace them. We skiptrace a lot of the data.

Joe Fairless: Okay… And remind me again – what’s Skiptrace?

Raphael Vargas: Skiptrace is like an investigative service where you can input information of who somebody is and their address, and then that company retrieves that information on their best contact information, their best addresses, where that person is located currently if they can’t be found.

Joe Fairless: So do you just do it like by the zip code? Because certainly I don’t think you would do by individual people and then get their information, because that would take forever.

Raphael Vargas: Of course, yeah. By zip code, that’s exactly right. We target the hottest zip codes in all of our markets, whether that’s Baltimore, Tampa and DC, and that’s how we target these people.

Joe Fairless: I just answered the phone, it’s from someone at your call center. What do they say to me?

Raphael Vargas: Hey, good afternoon. Is this Mr. Joe?

Joe Fairless: It is.

Raphael Vargas: Hey, Mr. Joe. This is Raphael with Ace Home Offer; just giving you a quick call about your property on 123 Main Street.

Joe Fairless: Oh, cool. Okay.

Raphael Vargas: Yeah, so we just bought a house right there in that neighborhood, and I just wanted to personally reach out to you to see if you might be interested in an offer on your home. We’d love to make you a fair offer on your home.

Joe Fairless: You know what, Raphael, I usually don’t do this, but I like the way you sound, so absolutely, whatever you want, I’m in. [laughter]

Raphael Vargas: That’s, that’s… I wish we had more of those.

Joe Fairless: [laughs] I got the sense of it though, yeah… What if they say “I’m not interested.”

Raphael Vargas: “No worries, we’ll remove you from the call list.” We scrape their data and not call them again.

Joe Fairless: Got it. Okay, cool. That’s great stuff. Thank you for doing that. Are you ready for the Best Ever Lightning Round?

Raphael Vargas: Sure.

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

Break: [00:22:07].02] to [00:23:02].12]

Joe Fairless: What’s the best ever book you’ve read?

Raphael Vargas: Best ever book I’ve read… I’m gonna be cliché and I’m gonna give you two books. One is definitely for me, it’s the Bible. I use that as my guidance tool [unintelligible [00:23:13].27] the decisions that I have to make consistently. I feel like that’s the best book I’ve ever read. But on a business level, it’s gotta be in the beginning Traction changed my life when it came to business. Traction just ridiculously changed my life, changed our business. So it’s Traction on a business level.

Joe Fairless: Best ever deal you’ve done?

Raphael Vargas: A condo conversion project where we netted $300,000 on an assignment fee and we got it done in 30 days.

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

Raphael Vargas: Not following up enough, or not being bold enough with homeowners or buyers. Not being bold enough.

Joe Fairless: By “bold” what do you mean?

Raphael Vargas: Bold as far as controlling the conversations. I’ve studied a lot on sales, and everyone in our company studies a lot on sales; controlling a conversation and controlling the transaction is an absolutely necessary part if you wanna actually get a deal closed. So not being bold enough to control the conversation, control the conversation, control the transaction and put your foot down in certain circumstances.

Joe Fairless: That condo conversion project where you made 300k in less than two months – did you wholesale that to a developer?

Raphael Vargas: Yes.

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

Raphael Vargas: Best way I like to give back… For myself it’s giving back what I have – the wisdom that God has given me and the knowledge on how to build yourself as a leader. I feel like that’s my gift to the world at the moment, giving that back.

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

Raphael Vargas: They can get in touch with me on AceHomeOffer.com. They can reach out to me there, or they can also e-mail me directly at Raphael@AceEquityPros.com. Ace Equity Pros is our wholesale site where you can pick up the best deals in the DC, Baltimore and Tampa market. Ace Home Offer is the company that does the acquisitions with the homeowners.

Joe Fairless: Excellent. Well, thank you for being on the show (holy cow!), talking about your 21 to 25 year old experience in real estate, and how you’ve gotten to where you’re at now… The consistent focus on 1) hard work, 2) self-improvement and 3) being savvy. You’re really savvy, especially in terms of adding the artistic approach to wholesaling, where you’re wholesaling to developers. You used that example towards the end of our conversation with making $300,000 on the condo conversion project in less than two months, and how after you got a couple deals under your belt you sat down, paid a developer buddy of yours to teach you zoning codes, setbacks, frontage, FAR (which I now know stands for floor area ratio), and many other things… And then also how you’ve built your business, the “no lead left behind” approach, and the call center has been a major lead generator for you.

Thanks for being on the show, thanks for telling us about your business, it’s an inspiration. I hope you have a best ever day, and we’ll talk to you soon.

Raphael Vargas: Thank you!



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