How to Scale Commercial Real Estate

Sam Wilson


Remove the guesswork from real estate investing and establish a clear path for consistent returns. Here, building wealth is straightforward and fun.Discover how commercial real estate investors from all over the world got where they are today, how you too can generate truly passive, tax-efficient income, and confidently invest in real estate, even in the face of risks and unknowns.Real estate has made more people wealthy than any other form of investment. However, it can come with a steep learning curve and high risks if you don’t know what you’re doing.If you are a business owner who dabbles in real estate and wants to grow your portfolio or expand your network, you are in the right place.Welcome to How To Scale Commercial Real Estate. On the show, we expose the most important, needle-moving real estate investment strategies, leading you to maximize your returns. This is your friendly guide to getting past the roadblocks of investing in real estate so you can sail smoothly toward creating the financial and time freedom you’ve been wishing for.The best minds in real estate give you the tips and tricks to scale your real estate investment portfolio. Listen to industry professionals as they reveal insider secrets that helped them acquire multimillion-dollar assets in a strategic way.Hear details about the most crucial and painful mistakes they made in real estate so you know what to avoid and how to plan carefully throughout your real estate investing journey.Learn about leverage, real estate metrics that matter, and gain valuable resources, connections, and tips that will shift your mindset toward an immediately more prosperous, passive income-generating path.Discover how investors build high-performing teams and find the best deals and then implement their advice to build your own robust real estate portfolio. Your host, Sam Wilson, is passionate about helping you fully grasp real estate fundamentals and know what to look for in any real estate deal, whether residential, commercial, short-term or syndication. Real estate syndications are group investments in large commercial assets where you can invest your money passively, alongside dozens of others (including Sam!) and earn reliable passive income through distributions and equity. Sam Wilson is an active investor in self-storage, multi-family apartments, RV parks, laundry facilities and single-family homes, bringing vast industry knowledge from a diverse background to the show. Unlike other established real estate investors, Sam is in the middle of his own growth journey. He invites you to rise alongside him and his team members as, with each conversation, he’s learning too! Sam is the Founder of Bricken Investment Group, where he helps clients find commercial real estate syndication investments that align with their investing and lifestyle goals. Likewise, this podcast guides listeners through real estate’s steep learning curve to mitigate the risks. If you want to be a successful real estate investor without necessarily becoming a landlord, you need real estate syndication investments in your life. Growing and diversifying your portfolio and high-worth network boils down to making the right investing decisions and surrounding yourself with a like-minded, growth-pursuing community. It starts right here. Jump into the discussion of How To Scale Commercial Real Estate with Sam Wilson at Together, we'll achieve life-changing growth and invest in commercial real estate assets ripe with strong fundamentals, leading to the financial and time freedom we’ve been dreaming of.

Available on


1209 episodes

How Creative Financing Can Help You Scale Your Real Estate Business

Today’s guests are Mel & Dave Dupuis.   Mel and Dave Dupuis are the real estate couple who specialize in Creative Financing. With over 20 years of combined experience, 240 units bought with no money and no joint venture partners, and 1,700 students in their mentorship program.   Show summary: In this episode, The Dupuuis share their journey in real estate, focusing on their use of creative financing to grow their portfolio. They discuss the importance of having an exit strategy, not relying solely on market appreciation, and the need for a strong, diversified team. They also share their approach to international real estate transactions and how they navigate the complexities of different financing methods across countries. Despite the challenges, they view their mistakes as learning opportunities, emphasizing the importance of adaptability and due diligence in their success.   -------------------------------------------------------------- Intro [00:00:36]   The shift to creative financing [00:01:08]   Common mistakes in creative financing [00:05:22]   Negotiating a Property Purchase [00:09:38]   Defining the Buy Box and Locating Sellers [00:10:47]   Building a Team and Scaling Across Countries [00:15:15]   The team and its structure [00:19:30]   Building the team over time [00:20:23]   The worst deal and mistakes made [00:21:27] -------------------------------------------------------------- Connect with Mel & Dave: Facebook: Instagram: Web: YouTube: TikTok: Resources:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Dave Dupuis (00:00:00) - I know a lot of different people say, you know, only five units and over only six, 16 units and over. Some people are very. I'll buy a duplex tomorrow. If it makes me money, I'll buy a single family home tomorrow. If it makes this money, I'll buy a 20 plex. So it's more or less looking at what is the deal doing? What is the cash flow? How much effort do we have to put into it? You know, time versus effort versus money. And what's the team's bandwidth as of right now?   Intro (00:00:23) - Welcome to the how to Scale commercial real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:36) - Mel and Dave Dupuy are the real estate couple who specialize in creative financing. They have over 20 years of combined experience, 240 units purchased with no money and no joint venture programs, and they currently have 1700 students in their mentorship program. Melanie, welcome to the show.   Mel Dupuis (00:00:53) - Hey, thank you so much for having us.   Mel Dupuis (00:00:56) - It's great to be here.   Sam Wilson (00:00:57) - Absolutely. The pleasure is mine. There are three questions I ask every guest, or in this case, guests that come on the show, and I'll let one of you tackle this. Where did you guys start? Where are you now? And how did you get there? And you have to answer it in 90s or less.   Mel Dupuis (00:01:08) - Okay. We. Perfect. I'll get started. So Dave and I were married couple. I had two properties. When I met Dave. He had the one who we slowly started buying. Properties hit the common roadblock of running out of money. So then we got into real estate, into creative financing, and that was a game changer for us. That's when we bought 12 properties in less than 12 months. That was 56 units. And now we're applying the same strategies of no JVs, no money, none of our own money in five countries. Boom 90s or less, boom.   Sam Wilson (00:01:38) - 90s or less. I love it when you guys decided to scale your business.   Sam Wilson (00:01:43) - Was real estate the only thing you were doing or did you have your hands in a job? What did that look like?   Mel Dupuis (00:01:49) - Yeah.   Sam Wilson (00:01:49) - Go ahead. I was a full.   Dave Dupuis (00:01:50) - Time firefighter malware at our local college. So yeah. So this was a side hustle that that became the main thing, right? Became the bread and butter. Right?   Sam Wilson (00:02:00) - Right. Okay. Cool I love it. And I'm assuming that now real estate is your full time gig.   Mel Dupuis (00:02:05) - Exactly. Yeah. We're both able to to to leave the 9 to 5 job. The golden handcuffs.   Sam Wilson (00:02:11) - Yeah.   Dave Dupuis (00:02:12) - Yeah. We're proud to say that.   Sam Wilson (00:02:13) - That's awesome. Good for you guys. Okay, so you ran out of your own money and you said, all right, I got to go out and figure out a new way to do this. What year was that?   Dave Dupuis (00:02:22) - 28, 2016. I think we had six properties. Yes, Red, rich dad, poor dad and went, what have we been doing wrong this entire time? And, you know, light bulb moment.   Dave Dupuis (00:02:33) - Obviously a lot of people have that same moment and then got educated on creative financing and other people's money. And then 2017 is like Mel said, that's when we had the 12 properties in 12 months.   Sam Wilson (00:02:43) - Got it. Okay. 12 properties, 12 months. What do you mean creative financing is like that? That thing that you know, every investor dreams of, but very few are able to actually crack the code on how to make creative financing work, let alone doing it in five countries, which we'll get to hear later on. I think of the show. But what did you guys how did you guys establish and or get your first property under, you know, creative financing, owner financing, whatever you did on that. Like what what was the thing that you did and then how did you develop a replicable system behind that?   Mel Dupuis (00:03:15) - I mean, part of it was mindset, right? Realizing that if all these other people can do it, I'm not the first one in world that there has to be a way.   Mel Dupuis (00:03:22) - So realizing the mindset first and then making it a win win as well. At first we were all about we wanted to win. We wanted the best deal. But with creative financing, if I'm going to get into a deal, none of my own money and I'm still the sole owner of the of the property, I do want to make it a win win with, let's say, the seller, for example, or somebody who's lending me money. So really making it a win win. And once I showed them as well the exit strategy. So people want to make money, right? We all want to make money. So as long as they're able to find the right deal, where you're able to do that and you make money, they make money, but they also want to know how you're going to be paying the box. So we have a built in exit strategy that we've always done where it's numerical, it's logical. So we can actually review our numbers and know that we're able to pay that person back because you're being on Sam.   Mel Dupuis (00:04:06) - Not every deal is going to make financial sense where you can pay them back. So really knowing our exit strategy before we enter the deal.   Sam Wilson (00:04:12) - Okay, I like what you said there. You said you said that you have the same exit strategy with every deal. It would seem like in creative financing, you would be dealing with a lot of nuanced sellers that want this or they want that or they want, and you're trying to. I would think that you'd have to. Again, I'm not a seller financing or excuse me, creative financing when we get that right creative financing person, it's just not something I've done a whole lot of. But it would seem like you'd have to craft that exit to each individual seller uniquely, and it sounds like that's not the case. No.   Mel Dupuis (00:04:43) - Sorry to Claire. Sorry to clarify. Absolutely. So every deal is I just meant that every single deal needs to have an exit strategy on every deal. So on every deal I have to have an exit strategy. But every deal absolutely look different.   Mel Dupuis (00:04:55) - Looks different. The interest that I pay on every deal looks different. The term looks different. But essentially at the end of day, what I'm looking for is that if I'm boring X amount of money and the terms is X amount, am I able to pay them back or not? And if I don't, then I need to go back and renegotiate or pass on that deal. Right?   Sam Wilson (00:05:12) - Right. Absolutely. Okay. So give me give me some of the things maybe that you see people commonly doing wrong when approaching creative financing structures.   Dave Dupuis (00:05:22) - Okay. So to compound what Mel said on their exit strategy, this is the thing. People are just waiting for that market appreciation, right? They're just like, oh, the market's going to keep going up. And when we when we really dove into creative financing, we interviewed a lot of people who built a portfolio and unfortunately had had gone belly up. And that's what we were noticing. They were banking on interesting rock bottom interest rates. Excuse me. And the market continue to go up.   Dave Dupuis (00:05:48) - And we're like, well, that's out of your hands, right? Like no one can control that as we're seeing now. You tell people that from 2020, 2021, they would have said, no, it's this guy is going to continue, right. Going up. So, right. That was the big thing is making sure that we're not just dependent on those. And then also the thing with creative financing, I see people, they don't give themselves enough runway. They think, you know, six months and it's like, well, six months comes very, very quickly. Even 12 months is pretty short. Like, right. So I see the runway and yeah, the exit. What they're building their exit strategy around. Right.   Sam Wilson (00:06:21) - So you mentioned two things there. One appreciation rising interest rate. What what are. So it sounds like some of the things you're seeing is people are tying these deals to interest rates and saying, hey, we'll pay Prime Plus whatever it is on a floating on a floating rate.   Sam Wilson (00:06:37) - Is that is that kind of one of the things you're mentioning there? Am I missing something there?   Dave Dupuis (00:06:40) - No. You're bang on. Where. Yeah. They're underwriting and then going Cape. As of right now the deal makes sense. Like you said kind of at this interest rate. And the second it bumps up like we've seen they're underwater and they're they're scrambling. And now they're looking at liquidating and in a down market. So it's it's underwriting and stress testing your deals from day one with that worst case scenario. Like for example, we're buying a deal right now in Ohio with is it 8 or 8.5% interest and a deal in Orlando with 9% interest, and people are going, you're bonkers. And it's like the deal still makes sense. We're still making hundreds of dollars per per. These are ones a single family and one's a condo where you typically do multi. Family, but they're making hundreds of dollars every single month. Cash flow. And the rates will go down at some point.   Sam Wilson (00:07:27) - So the value of the property will go up over time.   Mel Dupuis (00:07:30) - So it's yeah, there's so ways to get into this.   Sam Wilson (00:07:33) - Got it, got it. Okay. Cool I know this is live. So either way we're just going to do a couple quick housekeeping things. If I can get you guys to make sure you're really close to the mic, they'll be really helpful because your audio is kind of going in and out on this end of it. So if everybody's listening, they're hear you over here and then coming back in. So anyway, I love hearing you guys loud and clear. Thank you very much. Let's keep moving on that. You mentioned not enough time. How do you broach that length of time with the seller? And again, I know every deal is creatively structured, but I bet every seller is going to go. They want less time. And you say I need more. How do you guys handle that?   Dave Dupuis (00:08:06) - So okay with the sellers and I love that question, Sam. The runway that we're giving ourselves is going to be based on the value add properties.   Dave Dupuis (00:08:13) - So for example that's what we like buying is doing the typical BR right. Doing the value add having specifically something that um, I like the low hanging fruit. I say we like the low hanging fruit. Have we done the big gut jobs and get the sledgehammers out and open up the kitchen? And yeah, we've done those right. But are the ones that we love the, the, the um, the rinse and repeat ones are the ones where we can go in. It's some flooring, it's some paint. Add some value, add 100 to $150, minimum rent increase per unit over a short period of time. Right. So those are the ones that we're looking for. And those are the ones that we kind of concentrate on. Um, now do we differ from that. Yes. But that's kind of our and when we build out the exit strategy, the length of time, that's where we're talking with the seller. Okay. So let's say you have a ten plex. Like right now we're looking at a couple of buildings in Texas and some are 20 units, some are 40.   Dave Dupuis (00:09:05) - Some are like, okay, for us to stabilize and reposition this asset, I'm going to we're going to need at least three years. Right. So let's say that if I can pay you back sooner awesome. But let's give ourselves enough runway. So that's kind of how we're looking at a deal by deal scenario.   Sam Wilson (00:09:19) - Got it. No, I like that I like that, and you mentioned 20 to 40 units. I mean, why are people in a position such that creative financing is really the only exit that they have as a seller? Like, how are you? What's happened to these assets such that this is now what their desired exit is?   Dave Dupuis (00:09:38) - So with these ones actually were were negotiating back and forth, they had bought it. They've done a lot of work to it. It's like halfway to to the finish line. And they're like, you know what? We decided we're not these buying whole type people. We're going to make some money which good for them, they're going to make money. We're going to, you know, pick up the baton or carry the baton, whatever saying that is, and bring it past the finish line.   Dave Dupuis (00:09:59) - So they're just realizing that, you know what? This isn't what we wanted to do. We'd rather hold notes instead of actually be, you know, investors. So in this particular one, that's that's what's going on.   Mel Dupuis (00:10:09) - The thing is everybody is at different stages. We've done that on some of our properties here that we're holding financing for, and we're putting those investments somewhere else as well now too. So it's realizing that that not everybody has the same exact plan as you as an investor. Some people want out because there, Tavis, some people just want to do something different. Some people may want to invest in a different area, and that's what we're doing as well. So we're doing owner financing on one end, but yet purchasing with owner financing on the other. So again, as long as it's a win win. And why do we do this? Because it benefits us. It's always that's always the answer. Why would anybody lend you money? It has to benefit them and you have to show them your exit strategy.   Sam Wilson (00:10:47) - When you.   Sam Wilson (00:10:47) - Define.   Sam Wilson (00:10:49) - It.   Sam Wilson (00:10:49) - Sounds like you have your by box fairly well defined, but yet at the same time, you mentioned a single family residence, a condo in Florida, and then a ten or a 20 plex somewhere in Texas. How do you define your buy box, and then how do you locate those sellers then that are willing to entertain a creative financing offer?   Dave Dupuis (00:11:10) - Okay. Love that you said that. And and it's true. Because some people will say, well, you're doing short term rentals in Costa Rica and you're. Yeah. So I agree with you. Hour by box ends up becoming basically bandwidth and time versus effort versus money. Right. So and I've never been and I know a lot of different people say, you know only five units and over only 616 units and over. Some people are very I'll buy a duplex tomorrow. If it makes me money, I'll buy a single family home tomorrow. If it makes this money, I'll buy a 20 plex. So it's more or less looking at what is the deal doing? What is the cash flow? How much effort do we have to put into it? You know, time versus effort versus money.   Dave Dupuis (00:11:46) - And what's the team's bandwidth as of right now. Right. So um.   Sam Wilson (00:11:50) - And that's going to.   Mel Dupuis (00:11:51) - Change as well naturally. Right. If, if the team is working on a big new project and they're limited on time, then having something that's a bit more of a turnkey might be a better fit for right now compared to if we have time and we have an amazing deal, a large multifamily, for example, then hey, let's go after that one. Like one year, for example, bought a 50 plex and a and a four plex. And some people say, well, again, there's so, you know, fairly different sizes. Yes. But they both made financial sense. And that's something that really helped us succeed in the long run, is that we weren't only looking at one certain deal where we're looking at a lot of deals in whichever one is, is the right deal. Again, depending on on the cash flow, on the appreciation future appreciation value as well, that we'll see.   Mel Dupuis (00:12:38) - And yeah, the return on our on our own time or our team's time as well.   Sam Wilson (00:12:42) - Are there certain kind of clues that as you're looking at properties that you say this might be a property that an owner would take a look at a creative financing solution on every deal?   Sam Wilson (00:12:58) - Yeah.   Sam Wilson (00:12:59) - Okay. Maybe, but but but to me, I'm going to be the devil's advocate here and say, like to me, you're saying, hey, every deal. Okay, well, why don't we all just get on, you know, costar something else and just start calling? I mean, I'd rather just beat myself with a brick, then do that just blindly and hope to actually hit gold. So you got to have more to the source than than just that.   Mel Dupuis (00:13:21) - Yeah. No. And when I say every deal, I mean that I'm I'll always find a way. Because even if I find an amazing deal, even if the owner is not willing to hold financing, that's only one of the ways that we use with creative financing.   Mel Dupuis (00:13:34) - There's promissory notes. You can use secured funds like somebody for one. So yes, I will if I find amazing deal and I know I can have an exit strategy, I'll definitely speak with with the owner and try to make it a win win, because they may not be thinking about it and they might say, no, you're bang on. But if it's amazing deal, then I'll find the capital elsewhere as well.   Dave Dupuis (00:13:52) - And something else that Sam, what I'm looking at when we're looking at deals and we're analyzing in our cash flow analysis matrix, when the rents are very under market, that's what I'm like. Okay. So they're asking this price. They might not be necessarily aware of what the market's doing. I'll look at the market rents. You're half of where the market rents are or you're only, you know 6,070%. No one's going to qualify for this because the underwriting at the financial institution is just not going to make sense. So that's what I'm like, hey, I'll give you your price or close to it, but you're gonna have to hold financing until I can actually reposition the asset.   Dave Dupuis (00:14:25) - So those are the ones that and I find those ones we love it because we know probably the reason it's been sitting on the market is no one is qualified for it unless they're coming with a big down payment. So those are the ones that we get excited about.   Sam Wilson (00:14:36) - Right? No, I think that's that's yeah. You hit a couple nails on the head there. We're in a deal right now where we mean we were in the in the running for it. And then somebody else came in with some astronomical figure and we're just like.   Sam Wilson (00:14:50) - I can't beat that.   Sam Wilson (00:14:50) - Yeah, I can't beat that. And of course, what's happening right now? Well, they can't get financing on it. Exactly. You can offer what you want all day long. So I think that's that's really interesting what you've mentioned right there. Let's move then I guess into one other part of this conversation and they go, this is a short podcast. There's so many things here I want to cover, but scaling across five different countries, I mean that just in my mind, it just sounds incredibly challenging.   Sam Wilson (00:15:15) - Tell me, what are some of the secrets to the sauce that you guys have done to make that even a possibility?   Mel Dupuis (00:15:21) - Having an amazing team, right. Knowing that I don't know what I don't know, and that's okay. And really relying on on the experts. Right. Cross border attorney investor focus agents. So really building our team has been we couldn't do it without them. There's just no way because we are so far away. And and often we've purchased properties on scene. However we do our due diligence by a distance.   Sam Wilson (00:15:44) - Wow. All right. So team is one part of it. What about the finances I mean that seems like that would get a little bit squirrely when you're going okay. Yeah we're buying stuff in Ohio. We're buying stuff in Florida. And did I mention Costa Rica? And then what bank is open? Where and then when? When? I mean, it sounds like an accounting nightmare. How have you guys solved that?   Dave Dupuis (00:16:04) - So yeah, the play in Costa Rica, Mexico and Dominican is different than North.   Dave Dupuis (00:16:09) - America. So like we loved it. We highly leveraged debt in Canada, in the US. Good debt. Yeah. No. No worries, no lambos. Right. Good debt. Um, but in Costa Rica, Mexico, Dominican. So Mexico, Dominican Republic. Uh, well, as far as I know, we can't qualify it right as a foreign national. And there's no financing. Okay. In Costa Rica, there are some mortgage brokers that can do it. They typically cap out around 60% loan to value. I have not used that, just to be honest with you. It's just a different place. So for example, it's more of a seller financing, right? Just like in Canada, in the US seller financing. Well, the most recent one in Costa Rica, the guy was from like Sweden or Switzerland, never met him. Was all done through the agents. Right. Um, and the down payment was a promissory note from back back in Canada. So same structure deals, same difference.   Dave Dupuis (00:17:00) - Now the thing to play there is still get the lifts, still get the appreciation. Um and then sell right. Don't like selling but liquidate a few so that you have enough funds left over. Let's say you bought three and you sell two. Well, then left enough funds are left over to pay off completely the the the one left over. So a little bit of a different play but still other people's money.   Sam Wilson (00:17:20) - Yeah okay. That's that's that's really. And again, how do you even filter through all of the opportunities in real estate to find those 2 or 3 or those half a dozen, whatever you're working on, on those various countries, like how does how does that even happen?   Mel Dupuis (00:17:35) - Well, I mean, we do analyze a lot of deals. We we look at a lot of deals at this point. We have team members that that help as well. But but when we first started, I was just looking at a lot of deals. Sometimes just after a while you get quick edit, where are you able to look at it? Deal.   Mel Dupuis (00:17:50) - You basically know at least like, I'm not even like you said, don't waste my time on this one. Right? So we definitely don't waste our time if it's obvious that the deal doesn't make sense or I won't have my exit. And then, yeah, I put inside my my cash flow matrix and it's very quick. It tells me if my pillars make sense or not and tells me if I have an exit strategy. So that's kind of how we we filter through them.   Dave Dupuis (00:18:09) - An investor focus agents right in those areas. They'll feed us the deals to.   Sam Wilson (00:18:13) - Got it. Got it okay. Very cool. Let's see all the things that we've covered here. We talked a little bit about some of the earmarks or hallmarks of creative financing, you know, missteps that people have made. We've talked you guys have not done any joint ventures. No Syndications you've done everything up to this point, creative finance, is that right?   Sam Wilson (00:18:33) - Yes. Except for the first six.   Dave Dupuis (00:18:35) - It was traditional financing before.   Sam Wilson (00:18:37) - Yeah, before we started.   Mel Dupuis (00:18:38) - Yeah.   Sam Wilson (00:18:38) - Before you, before you figured out this, this kind of method. We've talked about how you guys find sellers. We talked a little bit about your team. Not much. Maybe we'll come back to that. Um. And then scaling across various countries. I think that's that's absolutely amazing. And again, maybe that is part of that conversation is the team because that's I mean, finding your agents, finding your your mortgage brokers, finding the sellers. I mean all of that takes team. And you said you've done this even without seeing some of these properties. I think it's really, really courageous. So tell me about the team that you guys have behind you there on the ground in Canada or maybe elsewhere around the world? What's that been like to build that team inside of your own company?   Mel Dupuis (00:19:13) - Well, worldwide is definitely what our team is, is built. So we actually have very few team members located locally. Pretty much all of them are in Canada, in different areas across Canada. And I think we have like 7 or 8 different countries and as part of our entire team.   Mel Dupuis (00:19:30) - So we do have a very diversified team, and that allows us to really have a lot of connections. Number one, a lot of introductions. And the thing is, like I also know my lane, I know, you know, thinking like, oh my gosh, buying a property without seeing it yourself. How scary is that? But the reality is, I also know that I'm not the expert at Foundation and I'm not a licensed electrician. And I also know me walking through the building. I wouldn't know those kind of things anyhow, so I rather build a strong team where they can do their due diligence on, on, on my behalf. Report back to me. Of course I do my due diligence and videos and all those kind of things as well. That's how I mean, even locally now. That's how we we even do it locally as well, because I know what my strengths are and what my weaknesses are. And, you know, it's to find the deals and managing the assets and the, you know, raising funds and all that that comes with it.   Mel Dupuis (00:20:23) - So our team now, yeah, it's a diversified team, of course, lawyers, accountants, insurance company agents, mortgage brokers, who's open to creative financing. And then the whole bookkeeping department, the finance controller CFO. So social media marketing. So we have a lot of different divisions of course. So and but this also didn't happen overnight. Right. Like when Dave and I first started a brand new investor, we started off with Dave and I, and I was, you know, we were the ones cleaning and doing the dump runs as well. So this is just something over time that we've built as well.   Sam Wilson (00:20:59) - I love that, I love that, and I love the, the, the kind of reference there because yeah, in doing the dump runs boy been there.   Sam Wilson (00:21:07) - Been there too many.   Sam Wilson (00:21:07) - Times where it's like, all right, well there's all hands. It's just my hands on deck. Okay, great.   Sam Wilson (00:21:12) - Do what you gotta do.   Sam Wilson (00:21:13) - Right? You got to do what you got to do in the early days.   Sam Wilson (00:21:15) - I love that. Told me one thing. On the creative financing side, what is the worst deal you've done and or a deal you wish you hadn't done? And what did you learn from it?   Dave Dupuis (00:21:27) - Rate of financing side. I think of your first deal, but it wasn't creative finance.   Sam Wilson (00:21:34) - Maybe there's none.   Mel Dupuis (00:21:35) - I don't know. We don't really regret any. It's real estate. I don't really I mean, we've made a lot of mistakes.   Sam Wilson (00:21:40) - Okay, give me one of those then.   Dave Dupuis (00:21:42) - You know what? It was probably the business structure. Honestly, Sam, initially everything was owned personally, and it had just completely our total debt to income and our total debt service ratios were whacked. And it has nothing to do with the creative financing. It's just we had 18 properties in our own name, and we couldn't even buy a house for ourselves because the banks were like, you're out to lunch. Like you got to like your your ratios are gone, right? So that was probably one of the biggest ones was just the business structure was terrible.   Sam Wilson (00:22:09) - That is that's that's not funny. But it is 18. It's funny.   Sam Wilson (00:22:12) - Now.   Sam Wilson (00:22:13) - Yeah funny now. Right. You got 18 properties and they're like you can't buy your own house. Sorry. Oh that's that's a that's a brutal bit of news right there. Like this doesn't make any sense at all man. This has been fantastic. Mel and Dave, thank you for taking the time to come on the show today. Certainly have learned so much from you guys. I love the way you're doing it and how you're doing it. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Mel Dupuis (00:22:36) - Thank you so much, Sam. So we're all over social media, YouTube, Facebook, Instagram. Username is always investor Mel Dave investor.   Sam Wilson (00:22:44) - Mel Dave will make sure we include all of your social media handles there in the show notes. And thank you again for coming coming on today. Certainly appreciate it.   Mel Dupuis (00:22:51) - Thanks so much.   Sam Wilson (00:22:52) - Thanks, Sam. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:22:56) - If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Oct 26, 2023
The Growth Potential of Medical Office Spaces

Today’s guest is Ben Reinberg.   Ben Reinberg is the CEO of Alliance, and has over 20 years of commercial real estate experience with over $500M in assets.   Show summary: In this episode, Ben discusses his experience in investing in medical office spaces. He highlights the stability and demand of this sector, despite the complexities and nuances involved. He shares his strategies for adding value to these spaces and the importance of selecting investors who align with their values.   -------------------------------------------------------------- [00:00:00] Intro [00:04:12] Opportunities in medical office spaces [00:10:30] Barriers to entry in the medical office space [00:11:24] Understanding the Medical Office Space [00:12:27] Tenant Profile and Property Requirements [00:15:04] Analyzing and Acquiring Medical Office Assets [00:22:07] Qualifying investors [00:23:44] Learning more about Ben and his fund [00:24:34] Closing -------------------------------------------------------------- Connect with Ben: Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Ben Reinberg (00:00:00) - Started seeing that more and more people were working remotely from home and at coffee shops. And I said, office space is going to eventually be a dying animal in certain regards. So there are certain tenants that need office space, like medical tenants. You know, law firms need. But even a lot of attorneys now are working from home. I know a lot of my colleagues and they they have an office, but they don't need as much space. So I started seeing this shrinkage of space from the internet. And then the pandemic hit and it became more prevalent. More people were saying, hey, we could do these zoom calls. Now we can. We don't need to meet face to face. We don't need a conference room. We don't need to have this expensive overhead. Right.   Intro (00:00:45) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:58) - Ben Rosenberg is the CEO of Alliance.   Sam Wilson (00:01:00) - He has almost three decades of commercial real estate experience and over $500 million in assets. Ben, welcome to the show.   Ben Reinberg (00:01:08) - Sam, thank you very much for having me today. Happy Tuesday to you and pleasure to be on your show.   Sam Wilson (00:01:14) - The pleasure is all mine. Ben. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there?   Ben Reinberg (00:01:24) - Uh, started back in Chicago, north suburbs of Chicago, uh, started syndicating commercial real estate. First deal was industrial deal then got into office and retail. And those are my expertise industrial office retail. And then we expanded within office. Now we acquire medical office, which is a large presence in our portfolio, Sam as well as veterinarian office. So where we sit today is started when I was young, in my 20s, and now I'm 53 years old and we've grown a portfolio and we've sold off a lot of our portfolio last five, ten years.   Ben Reinberg (00:02:02) - And now we're looking to grow again. And we've had staff, so we're scaling the company my company Alliance consolidate group of companies. It's Alliance for anyone looking who we are. And we're the leaders in investing in medical office in the United States.   Sam Wilson (00:02:19) - That is fantastic. Been I've not had I don't believe any guests come on the show that specialize in what you do. So this will be this will be a fun conversation for me because I get to ask questions that are genuine, like curiosity. I have no idea how this how this space works, what yields are things like that. I guess before we get into the mechanics of what your core focus is, let's rewind maybe 2030 years. Can you break down some of the. Shifts in opportunity. I think this is something that we've been talking about a lot with a lot of different sponsors, is that not everything is golden forever. There's times to invest in certain asset classes and times to get out. What have you seen, I guess, across the last 20, almost 30 years of your real estate experience in the changing times of opportunity?   Ben Reinberg (00:03:09) - Well, I've seen a lot of change.   Ben Reinberg (00:03:11) - The internet has had a drastic change on commercial real estate, and what I've seen from that is you look at retail as an example. So we just don't shopping centers and strip centers, and we don't own that type of product as much anymore. We've wound it down in our portfolio and sold them off. And the reason being is there's not as many retail tenants running around leasing space. Sam in different types of assets in the retail space. And so for us, we saw that and said, you know, we're going to move on to other asset classes. Industrial has been a great product through our career. The other thing that changed is when I was younger, we were buying General Office. We were we thought that we would own a tremendous amount of large office campuses around the country. That was a strategy we had. And then once we started seeing the internet became more prevalent, people were working more remotely. You look at what happened with Covid, which was a perfect example to what we thought was going to happen.   Ben Reinberg (00:04:12) - And you look at suburban office around the country, anywhere around the United States, there's a tremendous amount of vacancy. And so there is some opportunities where people are leasing space because they're doing remote hybrid work. Or if you're from Chicago, like where I'm from, Sam. Even though I live in California right now, one of the challenges is you go downtown Chicago, see so much vacancy in these large high rise skyscraper buildings. And it's also because not only because of Covid, but also they're shifting they're opening offices in the suburbs. But the suburban office market is really challenged. There's a lot of vacancy. Any new product needs to be absorbed if it's still out there. People are building new office like they have. And so that's an asset class that's drastically changed that and retail that I've seen in my in my career. We got into medical office about 19 years ago because we saw an opportunity to find a product in a space where we knew was never going to go out of style. You know, people need medical services and our tenant support those type of services for anyone, their families.   Ben Reinberg (00:05:20) - And we realized when that was the foundation. It's a very stable product with a lot of upside and a lot of demand.   Sam Wilson (00:05:26) - That is really interesting. What were some of the signs or the signposts along the way? That kind of because it sounds like you were able to exit the properties that you wanted to get out of before the bottom fell out on them. How were you able to accurately predict that and not get stuck holding the bag?   Ben Reinberg (00:05:45) - Just being a tenant in suburban office where our headquarters first started? Over the years, I saw that I saw the population growth changes in different areas of the country. And I started realizing, I started seeing that more and more people were working remotely from home and at coffee shops. And I said, office space is going to eventually being a dying animal in certain regards. So there are certain tenants that need office space, like medical tenants, you know, law firms need. But even a lot of attorneys now are working from home. I know a lot of my colleagues and they they have an office, but they don't need as much space.   Ben Reinberg (00:06:27) - So I started seeing this shrinkage of space from the internet. And then the pandemic hit and it became more prevalent. More people were saying, hey, we could do these zoom calls. Now we can. We don't need to meet face to face. We don't need a conference room. We don't need to have this expensive overhead. Right. And so over time, we started seeing it and we thought we're like, maybe it's going to happen. Maybe it's not going to happen. Sam I'm not sure. But I think over time, especially with this younger generation we saw, is growing up on technology. They're extremely comfortable with the remote and hybrid. They almost they almost demand it. So the work environments changed and that's changed in office space. And with retail, you know we see there is a growing presence of of different restaurant chains that have expanded. There's different niches. But we've seen a lot of our medical tenants go into retail centers to get the traffic counts and the exposure and get the walkability to go to their, their facilities.   Ben Reinberg (00:07:26) - So we're starting to see that. We see a lot of urgent cares in retail centers now, and we see a lot of physicians they're opening in retail centers because what they see is the mother might go and shop a couple of doors down and, you know, her kid might be at the doctor. And so there's a lot of benefits to being in a retail center for some of these folks out there that are that are patients of these physicians. And so we started seeing that trend as well. And it's going to be very interesting times as we grow older, Sam, to see like what's going to happen with retail, you know, what are going to be the key factors, like how is this going to affect brick and mortar, you know, is, you know, multifamily still has the ability to absorb tenants in a rising interest rate market. But when interest rates drop, more people buy homes. So it gets affected as well. So there's no rhyme or reason. It's it's where the opportunities are.   Ben Reinberg (00:08:21) - And we saw a long time ago there's an opportunity to medical and we doubled down on it and took advantage of it.   Sam Wilson (00:08:27) - I think that's great. I think that's great. Also finding something that is almost market cycle agnostic. I mean, I think that's one of the things that, you know, again, you talked to a lot of sponsors on this show and you see you see I see many different sponsors pivoting right now going, okay, you know, we had opportunity in this for the last 7 to 10 years. But you know, that's drying up. So now we're looking at other opportunities. But you've kind of found a spot that is again market cycle agnostic that in the medical office space. So let's take what remainder of time we have here and really dig in if we can. You know you've been in it for what, 19 years? I think you said in the medical office space.   Ben Reinberg (00:09:07) - We've been in the medical office for about 19 years. We started buying dialysis facilities when they were being scrutinized by the United States government, especially DaVita.   Ben Reinberg (00:09:19) - And we saw that and we said, you know, there's more kidney disease running rampant, more people are consuming fast foods and high. Cholesterol and have have rampant renal challenges. And we just said, you know what? This is a really good opportunity to look into this. And we did. And fortunately we we did very well with it. And I'm really proud of where this company has taken the medical office space. And our investors have done extremely well. And so we have a lot of investors from around the country and even the world that are investing in our medical properties with us, and they've just been incredible because of of just the opportunity.   Sam Wilson (00:10:01) - I'm taking this right off of your website here, and you have a statistic posted there that says from the change during global financial crisis, Q4 or actually since Q4 2006 through the trough, I'm not sure exactly what that means, but essentially it shows a 70% decrease in investment volume over, I guess, that period of whatever that period of time is maybe 2006 through now in medical office space.   Sam Wilson (00:10:26) - Does that ring true with you and if so, why is that?   Ben Reinberg (00:10:30) - Well, with us, it's actually the other way. I mean, we've doubled down and increased our volume, but a lot of folks have, um, have maybe not acquired, uh, medical office because the barriers to entry really need to understand. Sam, what are all the nuances, different licensing laws, what makes us successful? Ten is a specific medical office property. And what ends up happening is that people don't feel comfortable with it. And so we do. We spent a lot of time going through our learning curve, understanding medical office and what it meant. And what's interesting is, I would say the last five years, medical offices been very hot. There's more people that have come into our space because they realize it's stable cash flow with great upside.   Sam Wilson (00:11:19) - Got it. What are what are some of the barriers, would you say to entry in the medical office space?   Ben Reinberg (00:11:24) - Well, I would say it's understanding how to be able to talk to physicians, understanding what the metrics are in different facilities, what produces a great.   Ben Reinberg (00:11:37) - Medical business for these physicians and looking at where the opportunities as well. And so there's just a barriers to entry. It's a lot of experience. It's a lot of time to get your arms around the different niches in the medical office space. So every sector in in medical has different requirements, different metrics, different licensing, different success metrics. And so when you really understand the business, it creates a high barriers to entry. Because not everyone can just jump in. Yeah. You could jump in and buy a medical property. But you need to understand like what's the default risk. Why is my tenant gonna pay rent?   Sam Wilson (00:12:18) - Right. And it sounds like it sounds like every tenant has a very unique profile and building type that they want to lease from you.   Ben Reinberg (00:12:27) - That's correct. Mean. And the buildings have different construction to, you know, different power sources. Some need generators, some need certain electrical because they have certain equipment. Look at imaging facilities. Right. Facilities. They spent a tremendous amount of money.   Ben Reinberg (00:12:44) - Some of them have chillers. So they spent a tremendous amount of capital in the property. And you have to understand why. You have to understand how does that affect the real estate. What happens if the tent defaults on the lease? Can you release it? So you really need to understand the credit worthiness of every tenant. Sam. It's really important.   Sam Wilson (00:13:03) - Who is who is an.   Sam Wilson (00:13:04) - Ideal tenant for you guys? Is it is it a national medical corporation? Is it like you said, you know, talking to individual physicians? What's that? What's that tenant profile like that you guys really prefer to work with?   Ben Reinberg (00:13:18) - For us, it's really someone we could build a long term relationship with, someone that has that's credit worthy. Now. It could be small or a large national or privately owned, but it's on that it has a successful business that it really enhances the community of what their business is doing, you know, building deep roots. So, for example, you're in Memphis and if you went to orthopedic, you want to make sure that that orthopedic group or group of physicians that they're going to not default on the wrist are going to pay the rent, they're going to pay taxes, they're going to pay insurance, they're going to run their business from there.   Ben Reinberg (00:13:56) - What different about what's different about medical office is that the properties are very important to the revenue generating of the business because of some cases, the equipment. So take orthopedic. Let's say they have MRIs and and scanning equipment and x rays and all this equipment they need to invest in what ends up happening, Sam, is those that equipment and that property is critical to producing revenue. So we look for tenants that invest in the property. We look for tenants that have equity in their businesses or ability to support rent payments and it's entire process. We take our analysis through to see if there's a viable opportunity in that specific asset.   Sam Wilson (00:14:44) - Do let's talk about the acquisition side of these acquiring these assets. What's what is that process like? I mean, to go out and see a facility potentially on market for sale. Let's just use that for an example. How do you even know if that's worth pursuing without then already having a tenant in mind? Or maybe you do.   Ben Reinberg (00:15:04) - Well, generally speaking, most of our assets have tenant tenants in the property.   Ben Reinberg (00:15:08) - Okay. Or we'll put a tenant in the property depending on the situation. But and the day we're going to underwrite the credit of the tenant, we're going to look at the rent compared to market. We're going to analyze and see what what it would, what the replacement cost of the property is. What are we paying per square foot. We're going to look at if it's a single tenant net lease property. What is the situation with the lease? Who's responsible? What. How does the tenant in the landlord delineate responsibilities in that lease. So we're going to look at those factors. We're going to look at vacancy rates. We're going to look at absorption rates in those submarkets. We're going to look at how long they've been there. What's the story. We're going to look at the dynamic of the physician group ages. Is this a bunch of physicians that are going to be retiring in five years? So we look at the business, we look at the real estate, we look how the real estate sits within the market and why they're there.   Ben Reinberg (00:16:06) - We look at is the business growing or are they going to be there for a long period of time? What happens if they leave? Sam? Are we going to then have an issue releasing it based on what we're paying, what the rent is? So we look at the real estate for miles and we look at the business. And that will allow us to determine is a survival asset, say, to invest in our brand new fund, the Alliance Medical Property Fund.   Sam Wilson (00:16:31) - Got it. What's a way that you. So you look at these assets. You look at all those things. You put them into your matrix. Okay? Is this an opportunity worth pursuing? But how do you add value in this situation? Or I guess maybe the one you mentioned there where you already have attended in place? What's a value add in the medical office space?   Ben Reinberg (00:16:49) - The value add is is a lot of different ways. There's value that's provided. One is we might have some vacancy that we lease that we pay for on the acquisition.   Ben Reinberg (00:17:00) - Some might be expansion of space. Another way is the credit worthiness of a tenant. We have a lot of tents being absorbed by hospital systems and private equity groups that have better credit than when we started. And also we also unleash renewals. We'll add value whether it's rent increases, whether it's annual escalations, whether it's certain clauses in the lease that we had removed and replaced, it could be reporting financial statements on an annual basis. There's a lot of different ways we might take a five year lease and make it a 15 year lease. And so there's different ways we always look at what's the outcome, what's the end value. And then we back into it and start figuring out what variables can we enhance a lease to add value.   Sam Wilson (00:17:48) - That's that's really, really interesting. It sounds it sounds pretty new. Not not nuanced, but very detailed in the way that you guys find creative ways to restructure these when you buy them in order to add value. And again, I think that goes back to what you were saying earlier about barriers to entry in the space, in that if you don't have that.   Sam Wilson (00:18:09) - In-depth understanding of how to structure these such to add value on the surface to a guy like me, I'd look at it and go, I have no idea, Ben, how to how to even remotely increase value in this property. So that's really cool. You've mentioned something here a few times that I want to circle back on, and you've mentioned default risk, but let's talk about that. It sounds like that is a possibility maybe in some of the things that you've worked on. Can you just speak to that a little bit.   Ben Reinberg (00:18:37) - Yeah. Default risk is basically when a tent defaults on their lease. And so we we basically are looking at what are what's the probability that they're going to honor their lease. Now defaulting is more than just well he didn't pay rent. He didn't pay his cam or or insurance or taxes. It could be, you know, someone poured gasoline on the property and little lit a match mean there's all different ways it could be we had some sort of insurance claim in the tenant didn't take care of it.   Ben Reinberg (00:19:09) - There's different clauses in that lease that can trigger a default. So you have to deal with good people. Integrity is everything. That's one of the core values of our company, Sam. And you have to have tenants that align with your values. And that's something that's so important to us because then you know you're going to pay rent. We don't like to chase people. So what I love about our physicians and the people we do business with, we don't. We only have to chase them. They pay rent because again, look at the premise. Their businesses are predicated on the success of that piece of commercial real estate. Where is it located? How does it function? You know, is the roof intact? No. Roof leaks, is it? How's the structure? How's the Hvac working? So. At the end of the day, when you look at all these facts, the real estate is so critical to providing and helping and assisting revenue generation for that physician group. And that's a really key factor, because that's when real estate becomes very valuable to that doctor group.   Ben Reinberg (00:20:13) - So that day, the the retention rate is in the upper 80s on renewals rates. Well, it has low default risk. And so it's a safe, secure investment where you can create upside. And that's why our investors love about the Alliance Medical Property Fund.   Sam Wilson (00:20:28) - I want to hear more about that. I've got one. One last question. Just just curiosity from my own kind of mental picture of what you guys work on and do. Is there is there a particular size of property that you say, hey, this is the sweet spot for us. I mean, can you talk to that to me a little bit about that? On the size of facilities you're working on?   Ben Reinberg (00:20:46) - Well, generally speaking, we typically see square footage of 7000ft² or more for a medical facility that we look at, that's generally speaking what you that or more in the square footage. Generally we look for deals over $3 million to get our capital out. So we play in a space about 3 to $25 million per acquisition. That's historically where we play.   Sam Wilson (00:21:08) - Got it very, very cool I love it. Well, it's been here the last couple of minutes that we have talking about the medical office fund. Can you give us kind of the details on it on here on the show, or is that something we have to come to you guys directly for?   Ben Reinberg (00:21:21) - Well, I would suggest if you are interested, if you're a passive investor, go to a. and you can learn more about it. And you can follow me and you could you can invest with us now and we'll get you more information. But basically it's going to be a portfolio of medical and veterinarian properties. We've acquired every five properties in the fund and spinning off great returns. And our average it's a call fund. Average investor typically puts $250,000 or more. You have to be accredited and you have to be able to invest when we call the capital and we have to honor your commitment. So what we do, Sam, is we qualify, we interview our investors. We don't just let anyone invest in the Alliance Medical Property Fund.   Ben Reinberg (00:22:07) - It's a privilege. And by doing that, we want to make sure we're a good fit for your portfolio and that your good fit for us and a good fit is people that honor our values and that are going to be responsive and that are going to be true to their word. And that's really important to us because we have a lot of investors we've never met in person for decades that investing with us that have been wildly successful. So we're going to interview folks out there and make sure that they're qualified, investing what this alliance is not for everyone. You know, we expect people to honor their words. We expect people to be responsive and respectful. And we're going to give you a seven star experience and white glove service if you invest in the Alliance Michael Property Fund. But again, we don't chase people. We are doing what we say we're going to do. We're going to acquire properties and great properties and provide great cash flow with upside. But that day is you're going to have to come to the table and align with us because we're looking for long term relationships.   Ben Reinberg (00:23:11) - And so we spend a tremendous amount of time qualifying our investors and making sure that they're a good fit for us and our team.   Sam Wilson (00:23:21) - That's fantastic. Ben, thank you for taking the time to come on the show today and really break down the medical office space. Investment opportunity. Talked quite a bit about the fund, the way you guys find and add value, the barriers to entry. This has been certainly insightful for me and I have enjoyed it. Just one more time. If you don't mind sharing with our listeners how to learn more about you and your fund, what's the best way to do that?   Ben Reinberg (00:23:44) - Learn more about me. Go to Ben Ryan. I'm on all the social media platforms. You can also listen my podcast, Ben Rosenberg hyphen. I own it, it's growing. We have celebrities in ultra high net worth individuals come on our show from success. Its significance. If you're a passive investor and you want to build wealth for you and your family, look no further. Go to the Alliance Consolidate Group of companies website.   Ben Reinberg (00:24:10) - My company, go to Alliance and you can click a button that says invest with us. Fill out a form, we'll have someone reach out to you and you can learn more about investing in the Alliance Medical Property Fund and see how we can generate a lot of wealth for you and your family.   Sam Wilson (00:24:29) - Ben, thank you again for your time today. I certainly appreciate it.   Ben Reinberg (00:24:32) - Thank you Sam, great seeing you.   Sam Wilson (00:24:34) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well. Rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Oct 25, 2023
Cashing In on Unique Vacation Rentals

Today’s guest is Alex Jarbo.   Alex Jarbo is the founder and CEO of Sargon Investments. He is a regular contributor to some of the top real estate investing podcasts in the world. He is also the host of the YouTube channel Alex Builds where he teaches how to properly build and manage short term rentals.   Show summary:  In this episode, Alex Jarbo, founder of Open Atlas Investments, shares his journey from the Marine Corps to building a $40 million real estate portfolio in vacation rentals. He discusses the importance of treating vacation rentals as a business, being present on multiple platforms, and building an email list of guests. Jarbo also talks about the changing preferences of short-term rental consumers, the influx of people into the vacation rental market during the COVID-19 pandemic, and his expansion plans. He credits his success to understanding the principles of scaling from multifamily real estate and applying them to vacation rentals.   -------------------------------------------------------------- Intro [00:00:00]   Starting in Real Estate [00:00:55]   Scaling the Vacation Rental Portfolio [00:03:06]   Investing in Bigger Short-Term Rental Deals [00:05:00]   Treating Vacation Rentals as a Business [00:10:10]   The Flood of New Market Entrants [00:11:00]   The Benefits and Challenges of Syndicating Short Term Rental Opportunities [00:13:20]   The shift in management [00:20:25]   Passion for negotiating deals [00:21:39]   Time to fire myself [00:23:08] -------------------------------------------------------------- Connect with Alex: Linkedin: Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Alex Jarbo (00:00:00) - I think gone are the days of just taking any type of random property and just throwing it on one site like Airbnb and just being done with it. Like I said, you need to treat it like a business. You need to be on multiple platforms like Airbnb, Vrbo, You need to be building your own email list of guests.   Intro (00:00:15) - Welcome to the how to Scale Commercial real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:28) - Alex Jarboe is the founder of Open Atlas Investments. Alex is at the forefront of revolutionizing the vacation rental and hospitality industry with his focus on custom, unique micro resort developments. Alex, welcome to the show.   Alex Jarbo (00:00:42) - Oh, thanks for having me on, man. Absolutely.   Sam Wilson (00:00:44) - The pleasure's mine. Alex. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there?   Alex Jarbo (00:00:52) - Uh, started out of the Marine Corps.   Alex Jarbo (00:00:55) - Directly. Moved here to Asheville, North Carolina and got my real estate license. Started looking for a property. Realized really quickly I couldn't purchase anything that was in my price range. So my very first real estate investment was a ground up development, 800 square foot A-frame that we own to this day, and that over the last seven years snowballed into close to a $40 million real estate portfolio. Either were acquiring, purchasing or managing over $40 million in vacation rentals just in this market alone.   Sam Wilson (00:01:24) - Wow. Yeah, in Asheville is a great a great market for that. I I'm guilty of actually looking. Was it Airbnb this morning? Maybe I was looking at short term rentals in Asheville. So maybe maybe I need to come to you first here when this calls over and see what you got. But no, seriously, that's that's impressive. What year did you get out of the Marine Corps and start investing in real estate?   Alex Jarbo (00:01:46) - Yeah, 2017 is when I moved here. Yeah. So relatively I mean, I've been in it for roughly six years now, six, seven years.   Alex Jarbo (00:01:54) - But I started reading up on real estate books like my last year in the Marine Corps. And just I originally turned to flipping. And then there was a, I joined like a flipping mentorship. And the gentleman that was a part of that flipping mentorship he had, like just briefly, I'd mentioned that back in 2016, like all of his like, long term wealth was tied into short term rentals. And that really, like perked my ears, got on a one on one call with him. He sort of taught me how to, like, invest like in a market, like how to choose a good vacation rental market. There was like 3 to 5 markets that we had decided on. And my fiance at the time, wife now was like, yeah, Asheville looks really cool. I'm like, screw it, let's go. Like, I was open to really moving anywhere. I'm originally from Detroit, Michigan, but we've been here ever since 2017.   Sam Wilson (00:02:40) - Yeah, and you picked one of the prettiest parts of the country, in my opinion, to live in.   Sam Wilson (00:02:44) - I've got obvious envy for where it is that you call home. But that's. Let's get back on track, though. I mean, that's that's impressive. 2017 till now, a $40 million portfolio, but not just a $40 million portfolio. I think it's one thing to say, oh, hey, we got a $40 million portfolio in multifamily. Again, not to be discounted by any stretch, but you can do that with one deal.   Alex Jarbo (00:03:05) - One deal.   Sam Wilson (00:03:06) - That's really tough to do. I would imagine in the short term, rental space would have been some of the keys that have really helped you scale that.   Alex Jarbo (00:03:15) - One of the biggest things is just understanding that and this, this most of the stuff I know about the larger vacation rental deals or just vacation rentals in general, talking to, talking to investors, everything I learned from multifamily books, it's like the like the way we the way we pitch our deals with preferred returns and equity splits between general partners and limited partners. All that stuff was taught through mentors or multifamily mentors or multifamily books.   Alex Jarbo (00:03:40) - So I realized really quickly the same thing with multifamily. Going from single family long term rentals to owning multifamily, is that scaling, doing larger deals, like I call them, micro resorts, anywhere between 7 to 20 units, 40 units. It's not. It's to go from one unit to ten. Unit is not ten times as hard. So I learned that really quickly with the development piece that in terms of my time, me looking at a property that we can build two cabins on, or me looking at a property that we can build 20 properties on, it was the same use of my time. Obviously it was more for my engineer and my GC, but for me to look at like just driving out to parcels, it was the same time. It was just the number was obviously way bigger. So that's where that came from. Was like I looked at my goals and I wanted to see where I wanted to get to, and I didn't want to just focus on Wednesday and Tuesday cabins here and there.   Alex Jarbo (00:04:36) - Granted, those still make I mean, all those properties that we've developed in the last six years have cash flow very well. But doing these larger deals, I mean, the numbers are just crazy compared to what what I was doing say, like just four years ago alone.   Sam Wilson (00:04:51) - Give me give me a case study on that. Like what? What sort of. What is a bigger deal in the short term rental space, and how do you identify that?   Alex Jarbo (00:05:00) - So the when the we developed six cabins which that doesn't sound like that much, but like we developed a six cabin one and then we purchased a seven cabin or it was a historic house with six cabins on it. The one that we're purchasing right now is a $20 million development, and that one is only 20 units. But these properties cash flow like crazy, like just the seven units alone have done close to seven figures in in revenue just in this year alone. So when I when I say like bigger deals, I would say anything over like 6 to 8 units to start that are in the same area.   Alex Jarbo (00:05:35) - So like you're purchasing and I've said this before, there's a lot of mom and pop owners on of bed and breakfast and some of these like larger cabin communities that like, existed prior to when Airbnb and Vrbo were a thing. And now those mom and pop owners are of retirement age, and they're looking to sell off some of these properties. And what I've realized, I've looked at a lot of these. I purchased a couple of them in just the last year and a half. A lot of these are undervalued, like significantly. And so that's what I would say to your original question is the like I would say anything over like 4 or 5 units that are in the same area would be a little bit of a bigger deal compared to just purchasing 1 or 2.   Sam Wilson (00:06:15) - Yeah. No. Absolutely, absolutely. And that's and there's scale is relative to what it is that you are working on. How do you. So please don't mind the cash flow. Yeah, absolutely. I mean that's insane cash flow.   Sam Wilson (00:06:29) - Insane cash flow. What do you feel like? I mean, you made you made a point there where you said that, you know, a lot of these these these styles of. Short term rentals have been around for a long time. This is not anything new, but absolutely, I would argue and maybe you can confirm or tell me, put more clarification on this, because I'm not in the short term rental space, but that investor preference has changed in what those short term rentals look like. Amenities mean all of those things kind of kind of give us some broader overview on that and how you guys are setting these things up for today's consumer.   Alex Jarbo (00:07:04) - So for the on the consumer part it's like market then property. So market investing in properties that tend to be a little bit less or investing in markets that tend to be a little bit less seasonal. So Asheville mountain markets that aren't necessarily ski resorts like cities, those tend to do really well because they're less seasonal. Nothing gets more picturesque than a cabin or a property on the side of a cliff in the winter, right in the mountains.   Alex Jarbo (00:07:30) - Right? So so that's market when it comes to properties. We're investing in unique properties or developing or purchasing unique properties where the property itself is an experience outside of the city that the guest is visiting. That's really important. And you're right about the guest expectation changing. It has definitely gone full circle, and we can talk about that in a second. About back in the day, you had to pick up a phone to book a vacation rental, and now it's like it's sort of hospitality. And vacation rentals are sort of moving towards like direct booking sites, which is almost practically full circle, where I look at Airbnb, Vrbo,, they're always going to be a part of my business, but I look at them as marketing arms to my business. It's where the eyeballs are at, but the eventual goal is to be able to take the guests off of those platforms after they stay with you. That's the key there, after they stay with you, not when they're trying to stay and put them into your own ecosystem through a direct booking site.   Alex Jarbo (00:08:23) - And that way you're treating all of this like a business, and not just when someone asked me like, it tears me apart when I go, hey, what do you do? Or how many properties do you have? And they're like, I'm an Airbnb. So you're like, no, you're not in Airbnbs, you're in vacation rentals. And if you want to take it a step further, you're in hospitality, right? So when when it comes to like guest like the guest expectation back in the day when you had to pick up that phone, you had to. A lot of times you have to bring in your own silverware, your own linens, like stuff like that is completely changed. And then just there's a higher level of expectation now, especially with the flooding of vacation rentals that has happened in the last like 4 or 5 years into the markets. I think people are looking for those more unique stays, those more, I call them Instagrammable properties where people would be proud to put them on the like on their social media, where your guest practically turns into your own little influencer because they're putting it on their social media and showing their their people.   Alex Jarbo (00:09:16) - And then that redirects you to your website or your Instagram account or whatever social media account you want to use, right?   Sam Wilson (00:09:22) - No, I love that, I love that, yeah. And I've heard that from other people who've come on the show saying, hey, look, you know, one of the strategies, obviously, is to get them off of the Airbnbs and back to your direct booking sites. I think that's really cool. Let's talk a little bit. You hit on flooding the vacay or you said flooding the vacation rental markets. What? I mean, we've seen that. And, you know, I actually saw something and I don't I don't look on social media actually very often maybe like once every 2 or 3 months. And I just happened to see a guy in the short term rental space buying a short term rental. He gave a quick, you know, paragraph about why the previous owner really stunk at being a vacation rental owner. So yeah, we see this flooding of them. But then what are people doing wrong and how does that present opportunity for people like yourself?   Alex Jarbo (00:10:06) - Yeah, it's exactly what I said about the like I'm an Airbnb.   Alex Jarbo (00:10:10) - So it's like I think gone are the days of like just taking any type of random property and just throwing it on one site like Airbnb and just being done with it. Like I said, you need to treat it like a business. You need to be on multiple platforms like Airbnb, Vrbo, You need to be building your own email list of guests. And one of the easiest ways to do that. And I've plugged this company ever since I've started like interviewing with about properties is a company called Staffie, and it's a Staffie sells these little discs that plug into the back of your router very cheap to purchase these. And then the subscription is incredibly cheap, but it creates a landing page for your internet. So like imagine when you go into Starbucks, you go into the airport, you have to put your email address in to get access to the internet. It's the same thing, except you have your own branding for your company. That way when a guest stays with us, we then capture their email, and then we do seasonal emails to them to get them to book.   Alex Jarbo (00:11:00) - Hey, you can save way more money where you don't have to pay these crazy service fees anymore, and you can book directly through us that way. Like I said, you're creating this, this massive wheel, this massive circle. And that's that's one thing that people, I think weren't ready for when they just saw someone on social media, or maybe they saw their friends doing real in vacation rentals, like really well in vacation rentals. And also during Covid 2020, 2021, tail end of 2022, vacation rentals saw record numbers because people were stuck here. Like people were like you could only travel domestically. So obviously occupancies were up that 95, 98, close to 100% people were charging up the craziness. I mean, I was I was part of it like my my occupancies were through the roof, but I was in vacation rentals prior to that knowing that that was not normal. So I think a lot of people that flooded the market the last like three years were just people who got into it during Covid, where interest rates were low.   Alex Jarbo (00:11:51) - If they purchased, interest rates were low. So it was really relatively easier to get a property. All of these vacation rental lenders sort of came out of nowhere as well in the last like three years, which is not necessarily a bad thing, but. That compares with like just everyone just putting their numbers out there and be like, this is how much I make. It was like, okay, cool, I can just get a property, throw it on Airbnb and be good to go. So I think that's where the flooding of the market came, was just people thinking that you could just be on one platform and be good to go.   Sam Wilson (00:12:20) - Right. Yeah. Absolutely. Absolutely. Love. And so everything you guys are doing there is in the broader Asheville area. Yeah, it's.   Alex Jarbo (00:12:28) - In Buncombe County. Yeah. After this larger deal that we're working on, I do. There are 2 or 3 other markets that I've identified in the country that I want to get into, because it's it's good and bad to have a massive concentration of like your properties in one area.   Alex Jarbo (00:12:45) - I just want to diversify into different markets after that. It's just fun to do it. I mean, these are these are cool vacation markets that are like some of the top markets in the country. So it's just it's cool to like come into a market and develop something unique that actually complements the city that you're getting into. I've always been a huge fan of that. Just whole strategy in general.   Sam Wilson (00:13:04) - Absolutely. Well, let's talk about this. I mean, you said you were taking you're taking the things you learned in the multifamily space and applying it to the short term rental space. And it sounded like you're syndicating short term rental opportunities. Talk to us about that.   Alex Jarbo (00:13:20) - Yeah, I mean, that that came from I mean, phenomenal mentors like Paul Moore from Wellings Capital is the first person that comes to mind. Just learning. The Vinnie Smiley was another one that like I've been on his podcast, I read his book. That's sort of what got me into multifamily or just understanding the the metrics around multifamily to apply for short term rentals.   Alex Jarbo (00:13:41) - But yeah, I originally got into that world just to learn and understand that, like just talking to my different mentors that like, I mean, even I mean, I don't know how it is now because I haven't really kept up with it. But during like the Covid era, even before then, like cap rates were severely compressed during during that time. So it was a pretty easy conversation to to have with a multifamily investor be like, hey, this is the preferred return. This is the general partner, limited partner split. This is the cash on cash. This is the equity multiple. It's like we practically just took the metrics that multifamily investors were used to, like, used to seeing and dealing with like in terms of a syndication and just apply that to these larger vacation rental deals.   Sam Wilson (00:14:24) - Did you do are you doing those as a one off syndication or did you launch a five?   Alex Jarbo (00:14:29) - Now it's a one off. I quickly learned it should have been a fund just just based off of the timeline that we had to close on this first deal.   Alex Jarbo (00:14:36) - So my next one will definitely be a fun. But yeah, this first one was just a single asset syndication. But yeah, that's a it's funny because I was just thinking about that this morning. I was like, I should have done a fund instead of a syndication.   Sam Wilson (00:14:48) - Yeah, well tell tell us why, I guess. Can you give us give our listeners some color on as to why you say that?   Alex Jarbo (00:14:53) - It's like. Getting the deal, finding the money compared to having the money, and then finding the deal or starting to work on the deal. Just the timeline type thing. It's like, okay, I have technically I have this closing date that I have to meet, and this is when the money has to be raised and anything and everything can happen with dealing with investors and getting. There's a big difference between a soft commitment and actually getting that money wired. So that's the biggest thing, is just the pressure of I would rather have dug that well before I needed it is what I've always told myself of, like having that money there waiting so I can then deploy it into a deal compared to the other way around.   Sam Wilson (00:15:31) - Right. And that's a challenge. It certainly is a challenge. And I think one of the. Things that you have in your favor. Having a fund is that you already know what types of assets you're buying. You've already got a proven track record. This is what we're buying. Here's the type of assets you can give a long history of the things that you're buying. A lot of times I as a personally as a passive investor, I'm not a big fan of funds because especially if it's a blind, entirely blind fund where you're like, all right, so you say you're going to buy that, but I'm not quite sure. You're like, hey, no, like, here's the 8500 previous I'm making number up. But properties we've bought that, this is what's going in it.   Alex Jarbo (00:16:08) - So yeah, that's a good point. I mean the I have so there's a fund that we've teamed up with and I'm completely open to doing that with this deal. But there was a there was a fund that we teamed up with where.   Alex Jarbo (00:16:21) - Like some of the some of the assets in that fund where like the investors were like, okay, I would rather just I wish it was a single asset syndication where I can just invest in this one property. So it's a double edged sword. It is honestly.   Sam Wilson (00:16:32) - Yeah, it is. And I will say that openly because we have a fund open right now that raising capital in a fund is twice as hard as raising for a single asset. So cut. Like you said, it cuts both ways. And I've heard that from a lot of sponsors. Like it's harder it's harder in a fund than it is in a single asset deal. But yet the ability, like you said, to continue to acquire, to continue to raise money constantly as opposed to going, all right, well, now it's go time. Now we raise a bunch of money. Okay, we closed and then you start the whole process over again. It's it cuts both ways. So making that decision obviously on a case by case basis.   Sam Wilson (00:17:04) - But I just loved hearing hearing your insights on that okay. So we talked a little bit. Focus on bigger deals syndicating these deals. Um Alex one of the things that we talked about before this or before this show started recording was that you have coached over 5000 people in the short term rental game. What has that process been like? Talk to us about that, because I'm sure I'm sure you've got a lot of insights from working with so many different coaching clients.   Alex Jarbo (00:17:34) - Yeah, that came from I had purchased a course through Brian Page of B&B formula when it was just it was like a, I think 1 or $2000 course. When I first started, I knew I wanted to get into vacation rentals. That's why I moved here. But it was cool. He was like one of the first people to create a course. And then I had actually pitched him on one of my deals where I was like, hey, like, I would love for you to invest. And then that that had spiraled, gone into like, he had a podcast at that time, too.   Alex Jarbo (00:18:00) - And I was like, I would love to hop on the podcast and pitch the deal. And he's like, I actually don't do the podcast anymore. But I'm looking for coaches and we only have like two of them right now. And that course had morphed into a coaching program. And I've been with B&B formula, teaching an hour or two a week for the last year and a half, and then it's morphed into over 6000 students at this point. And we do group coaching one on one, all that fun stuff. But yeah, it's just it's been really cool to see students go from like zero, like learn this in the Marine Corps. Like just to just general leadership is it's really cool seeing like some of your mentees sort of surpass you and seeing some of these students build these massive vacation rental companies, management companies and a massive portfolio as well. I mean, one of our students has over like 350 listings. So it's been it's really cool to be a part of a community like that, too, because you're sort of you have your finger on the pulse when it comes to like changing the things in the economy.   Alex Jarbo (00:18:55) - So like, you'll see, like students be like it's way harder to find a deal in X, x, X, or like every 2 or 3 months. There's always like a new topic that students are constantly asking about. So the biggest thing I've seen is like the rental arbitrage deals. It's, in my opinion, still the easiest way to get into real estate investing in general when it comes to vacation rentals. But there you have to be a little bit more strategic when it comes to choosing a market compared to just like I said, going into any market, getting any type of property and just throwing it on Airbnb. So that's just what I've learned from coaching so many students. Is that the biggest thing I've learned about coaching students is that. You're a lot of times you're going to be your biggest enemy where it's like students get in their own way. It's a mindset thing outside of you. We can give you all the tools in the world, give you the best coaches in this industry. But if your mindset is not there, or like you have a negative mindset that is going to severely impact the way you talk to owners or just talking to like negotiating your deals and whatnot and managing your properties.   Sam Wilson (00:19:54) - Absolutely. Absolutely. That's that's really great. That's awesome man I can't believe that. 5000 plus 6000. Would you say coaching students at this point?   Alex Jarbo (00:20:01) - 6000 students.   Sam Wilson (00:20:02) - Yeah, that's wild man. And I think that's an added benefit maybe I probably would never have thought about was just the fact that you get that consistent feedback from the people you're talking to of what's going on in the market. It's kind of your.   Alex Jarbo (00:20:15) - Yeah, I've gotten things like, hey, have you used this service or this new service or tool for your company? I'm like, no, but it sounds really interesting. Let me check it out. And then I end up putting it in my company.   Sam Wilson (00:20:25) - Right. That's cool. Let's talk about your company for just a quick second here. How do you balance being an operator? And I'm not I'm maybe use the wrong word here, but an operator and then also a capital allocator because obviously more than capital allocator. But you're raising capital and you're operating your deals. How do you balance that.   Alex Jarbo (00:20:42) - Yeah. So the, the, the biggest shift the last six months is finding we interviewed all the top managers in this area. And we're still I'm still in the management portion of it, but I'm not in the day to day. So I found a manager had him run projections for us that were without giving him obviously our numbers. And I found a manager that projected our number like did significantly more than us, and that was because they had access to specific channels that we didn't, just because of how big they are. So I've recently delegated a big portion of like my cleaning, my maintenance, my event planning, because we have a wedding venue in this market as well that's attached to one of our vacation rental properties. All of the operations piece has been delegated to a local manager. My goal is in my management side of my company is just strategy and social media, because a lot of our properties, with them being unique, social media is a big portion of that. And then when it comes to capital raising, I love putting together these deals like that.   Alex Jarbo (00:21:39) - That is where I realized my passion is is like negotiating, not necessarily negotiating this deal in particular, we were almost practically exclusively working with the sellers because they were representing themselves. But negotiating the deals and just understanding the different pieces and just fitting them together, that's really what I really specialize in. And the types of properties we're showing investors. I mean, they do sell themselves like they truly do sell themselves. We're running a big like Facebook and LinkedIn marketing towards like raising these capital. And the leads are just flowing in every single day is just how picturesque these properties are. So in terms of selling them on, on social media or just showing, like we shot a massive investor video that took us four days to shoot, that's easy to do. And then as long as you back it up with the numbers, you're good to go. So that's what I truly enjoy. So that's how I balance it. Finding a manager. Or you can hire someone in house if you wanted to do it that way to take take all the stuff that you don't want to do, like almost an operations manager and just focusing on the, the the stuff that you enjoy doing and time blocking, just dedicating three hours a day to 1 or 2 items snowballs into a ridiculous result over the course of 3 to 6 months or a year or whatever.   Sam Wilson (00:22:52) - I love it, man. That's awesome. Yeah, in the consistently improving what your strategy is, I think it's one of the things you say, okay, I've done it this way for a long time, but let's look at another way. Yeah.   Alex Jarbo (00:23:03) - Time to time to fire myself like the, the what I came to.   Sam Wilson (00:23:08) - Absolutely, man. That's that's that's it. There was, there was somebody inside of our company there today. What she say to me, she goes, you need to stop doing that. Like now I'm like, thank you. Yeah, yeah, that's my love language. She's like, just get out of the way. Like.   Sam Wilson (00:23:22) - Seriously I'm trying.   Alex Jarbo (00:23:23) - Yeah. Like I'm like trying to focus on, like how to, like, split all my time up. And I'm like, I think I just need to remove myself. Like, yeah.   Sam Wilson (00:23:30) - It's fast as you can, man. Alex, I got one more thing here that for those of you that don't know that, listen to this show.   Sam Wilson (00:23:37) - I always ask our guests on the onboarding side of things, you know, what's a unique something unique about you or a strange hobby or something that you might find interesting or I might find interesting? And Alex shared with me that he is a Guinness Book World record holder. Alex, here at the end of the show, just break it down for us man. What world record do you hold?   Alex Jarbo (00:24:02) - Furthest distance to roll a coin. It's one of the most random things if you don't know anything about me. Yeah.   Sam Wilson (00:24:08) - Furthest distance to roll.   Sam Wilson (00:24:11) - How far was it?   Alex Jarbo (00:24:12) - I forgot, man. It was like, I don't know, like I don't I had a friend that would like, was like manager of like a Gold's Gym. And this Gold's Gym had a massive long stretch of concrete like up front when you first walk into the gym, I think it was like it wasn't that far. It was like 60, 70m. It was honestly harder to find that than it was to like actually do the record.   Alex Jarbo (00:24:32) - But yeah, I did it back in 2019 when I was bored out of my mind for 2018. And. I submitted everything to Guinness and they sent me a certificate like six months later. It's pretty funny.   Sam Wilson (00:24:46) - That's hysterical. Furthest distance to roll a coin. All right, well, on that note, Alex, that's awesome, man. You never know what you're going to get out of Alex Jarboe, a short term rental expert. Thank you for taking the time to come on the show today and share with us all of your insights here. You've got some really cool stuff going on there in the Asheville market, and look forward to hearing what you do in those other couple of markets that you've identified to move into next. If our listeners want to get in touch with you, learn more about you and or your current opportunity. Raising capital for what is the best way to do that?   Alex Jarbo (00:25:19) - LinkedIn is really easy. That's a lot of stuff. Lives on. LinkedIn is just Alex Jarboe. We actually also built a website specifically just for this deal.   Alex Jarbo (00:25:27) - So that's Open Atlas Dot investments, investments with an S. I'm sure it's going to be linked somewhere in the show notes. But the deal is also on my LinkedIn, which is probably the easiest way to get to it. And then you guys can check out all the videos that we shot for it. Pitch deck there. You guys can sign up to to just schedule a call with us, and then we can go from there.   Sam Wilson (00:25:46) - Rock and roll Alex. Open Atlas Dot investments. We'll make sure of course as Alex said to include that there in the show notes. Thank you for coming on the show today. I certainly appreciate your time. This was great.   Alex Jarbo (00:25:55) - Appreciate you man. It was fun. Hey, thanks for.   Sam Wilson (00:25:57) - Listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.   Sam Wilson (00:26:13) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Oct 23, 2023
Opportunities You Shouldn’t Turn Down This Downturn

Today’s guest is Patrick Grimes.   Patrick is a the Founder of Passive Investing Mastery and Invest On Main Street; 4000+ units, over 1/2 billion real estate portfolio; best selling author; strong recovery last recession; BS and MS in Engineering & MBA; traveler & adventure sports enthusiast.   Show summary:  In this episode of the How to Scale Commercial Real Estate Show, host Sam interviews Patrick Grimes, founder of Passive Investing Mastery and Invest on Main Street. Patrick discusses his journey from being a mechanical engineer to running a large private equity firm with half a billion in holdings. He introduces their recessionary acquisition fund, which aims to buy distressed properties in cash, refinance them, and quickly acquire multiple properties to create a diversified portfolio. Patrick also shares how his team uses intelligence software to identify distressed assets and the importance of agility in the current market.   -------------------------------------------------------------- Intro [00:00:00]   Lessons from past experiences [00:04:46]   Building a recession-resilient portfolio [00:09:01]   The recessionary acquisition fund [00:11:46]   Refinancing and 1031 exchange [00:17:46]   Finding deals with distressed operators [00:20:02]   Finding Great Deals [00:21:58]   Acquisition Engine and Distressed Assets [00:22:58]   Contact Information and Book Offer [00:24:15] -------------------------------------------------------------- Connect with Patrick:  Book: (promo code: HowtoscaleCRE)   Web: Facebook: Linkedin: Instagram:  YouTube:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Patrick Grimes (00:00:00) - LED me back to a large portion, 25%. Even at Tiger, 21 of their portfolio is in real estate. And so for that, the tortoise, but not the hare means buying for cashflow. It means buying existing construction. It means not speculating, not gambling, not sliding the big stack all on green 24 and spinning the wheel.   Intro (00:00:21) - Welcome to the how to scale commercial real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:34) - Patrick Grimes is the founder of Passive Investing Mastery and Invest on Main Street. He's a best selling author. He had a strong recovery from the last recession. He's also an engineer and an adventure sports enthusiast. Patrick, I bet there's a dozen more things in there that are part of your bio that are really cool that you are involved in. Thanks for coming on the show today.   Patrick Grimes (00:00:54) - Glad to be here, Sam. I've heard a lot about you from my my colleagues, and here we are finally connecting on your show today and on my panel on alternative investing tomorrow.   Patrick Grimes (00:01:04) - So we're doing a deep dive together in back to back.   Sam Wilson (00:01:07) - I'm looking forward to it. This will be great. Patrick. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Patrick Grimes (00:01:17) - So I started as a mechanical engineer graduate and stuck pretty true to the path for a while, but I got some advice early on that said, you know the high tech space I was doing machine design, automation and robotics, and the owner of the company said, it's great you're going to earn a lot. You're going to have a lot of fun, but it's a wild ride. Invest in real estate, don't invest in high tech and put as much as you can as soon as you can. So that caused me to dump everything in real estate early on. Had a wild ride in real estate actually. And so. But as I progressed in my career, I found my way back to it.   Patrick Grimes (00:01:55) - And now we are a very large private equity firm. We have half a billion in holdings on the multifamily apartments, as well as some diversified energy funds. And we have a recessionary acquisitions fund, which is my which is the exciting announcement where we can win from this recession in this, as we see a bunch of great opportunities today, where I was in a losing position in 2009 and ten previously.   Sam Wilson (00:02:25) - Wow.   Sam Wilson (00:02:25) - Okay, man, there's so much here that I would love to take. There's so many rabbit trails we could go into here on your story. I just want to point out from kind of the intro, you go to school, you get a mechanical engineering degree. It takes mechanical, I would say an engineer. I love the engineers in our life. We need you. Right? You're very, very important people in our world. But it takes them a while typically to come around to making a decision. Because you are engineers, you study everything thoroughly and then make a decision. It sounds like you got out of school, got a job, and was like, sure, why not? We'll go get into real estate.   Sam Wilson (00:03:01) - What what was that process like?   Patrick Grimes (00:03:04) - So the analysis paralysis thing is real. But I managed to make in fact, I did the Do Zone podcast all about getting things done, and the guy picked on me for being an engineer the whole time.   Intro (00:03:15) - Because it is, I promise.   Patrick Grimes (00:03:17) - Yeah, it took me when I got the advice you needed to start investing in real estate. I treated it like I was going back to it, going back into another course, like I was taking electromagnetic static physics again. But I was doing it in real estate, so I was downloading guides, reading books, attending webinars, and I started learning about the highest returning deals. And so I wasn't very much interested in, like, conservatism that young. I was very much like, let's just figure out how to double and triple my money. And this was 2007. The market was never going to go down. So I pulled the trigger and learned quickly the downside of downturns.   Sam Wilson (00:03:57) - Wow. Wow. Yeah.   Sam Wilson (00:03:59) - You really you really did.   Sam Wilson (00:04:00) - And that's that's painful. I mean, one of the questions tell me if you agree or disagree with this and why. But one question I love to ask sponsors when I'm investing passively is tell me about a time when you lost money. Just because I think it's one of those things if somebody's never lost money. I have this theory that the first time they're going to lose money is when I invest with them. So I want to know, because I guess it instills some sort of confidence in me when someone's like, yeah, here's how I messed up. So what are some of those things that you are doing? Because I want to get what I really want to focus on today is, of course, your recessionary acquisition fund that you guys are launching. But how do those two, you know, comparing that to your zero 8 to 2010 experience, to what you guys are doing now? What are the lessons you learned and how are you positioning yourself differently now?   Patrick Grimes (00:04:46) - Well, it's a really great question because it's right at the heart of kind of who I am.   Patrick Grimes (00:04:50) - And my fiber. And I just spoke on it in San Francisco and had a little bit more time than that. But yeah. So back then I was looking for, again the highest returning deal, and I had very limited cash. So I was trying to leverage it up as high as I could, and I even got to 90% loan to value. And I in order to get the best terms, I personally guaranteed that loan, which meant they was I was risking. I didn't know at the time what cross Collateralization went, and signing on the loan myself meant that they could come after everything I personally owned. I was all in in one asset, right? It didn't have any diversification. I just was going big. And because I was trying to get really high returns, I wasn't buying for cashflow. I wasn't buying something that supported itself, that going in. If if the market crashed, I could just write it out, right. And I bought pre-development, not even development pre-development. And so a couple layers of speculation.   Patrick Grimes (00:05:55) - And I learned that speculation is different than investing. Buying for cash flow is different than speculation. And moving forward I you know, it did take me a number of years to recover emotionally. I was obviously it was a humiliating experience, but financially the property went I had to negotiate debt forgiveness, a property went through foreclosure, my credit got pummeled. I was able to escape bankruptcy. A lot of people did get. And maybe it would have been better if I'd done that. It would have been better if I'd done that. But I was able to escape it because I didn't want I didn't want to go that route. I got a master's in engineering in business. Started producing a lot of income again. And then I was following the breadcrumbs of the wealthy. And where do they invest? And unfortunately, it led me right back to real estate. But it led me back to investing as the tortoise, not the hare.   Sam Wilson (00:06:50) - Man. That's. Those are painful lessons. And what do they call that? Wisdom's tuition, I think, is the other way I've put it.   Sam Wilson (00:06:58) - It's like that's that's it. You have paid the tuition for that wisdom, so you led you right back to real estate, which is funny. But of course, like you said, you decided to become the tortoise. But what does that mean to you?   Patrick Grimes (00:07:14) - Right. And let me be clear when I say back to real estate, I mean for a large part of our portfolio. If you download the The Passive Investor Guide that I have on my website, it does show how 8% of that the middle class is 8% of their wealth in alternative investments. Okay, the high income and ultra wealthy have 25 to 50% of their wealth in alternative investments. So I actually am about diversification because in alternative investments, it's everything outside of Wall Street, right? It's it's real estate, maybe energy. We do energy deals as well. There's health care investments, right? There's lots of other kinds of investments, business equities to build that around in portfolio. But the breadcrumbs led me back to a large portion, 25%.   Patrick Grimes (00:08:00) - Even at Tiger, 21 of their portfolio is in real estate. And so for that, the tortoise but not the hare means buying for cash flow. It means buying existing construction. It means not speculating, not gambling, not sliding the big stack all on green 24 and spinning the wheel. So if you can buy an asset that cash flows right, that means you're putting enough down on the asset that allows it to cash flow. And you've got to look at recession resilience. So we're looking in the best markets that have shown over time to have to have the best resilience, which oftentimes there's some of the the cities in the southeastern states in Texas that are landlord friendly, that are tax advantaged and have had steady growth. And once you found a place like that, you're looking for diversified employment. You find a property that you can put a lot of capital down that'll cash flow. You got to see if it will cash flow, even if vacancies drop to where it did in past recessions. Then you've got to build a financial foundation.   Patrick Grimes (00:09:01) - I know put a very little bit down on a personally guaranteed balloon payment loan. We do long term debt or fixed interest debt or debt that is 3 to 5 years but has a rate cap. We bank and with that rate cap, we make sure that if our interest rate does rise to that cap, that we can still cash flow again means putting potentially even more down on the property, or buying the right kind of property that can cash flow in those kind of situations. And so there's a lot that I just said there. And there's other layers of the onion to dig deep, but it comes down to the the failure mode event analysis class that I took, and mechanical engineering, where you look at all the failures, you've seen, all the deals that come across my desk of operators that didn't have enough reserves, didn't put enough down, didn't have fixed debt, didn't have a low enough interest rate cap, didn't have replacement cost insurance in the case of a natural disaster. Didn't have replacement, didn't have rent insurance, revenue insurance to replace their rents.   Patrick Grimes (00:10:08) - In the case that there was a time that what residents weren't paying all these things combined right. You can put together a high risk adjusted return, meaning it's not going to be the biggest return, but you can put together a deal that will perform very strongly even in a down market.   Sam Wilson (00:10:27) - I think that's incredibly compelling. Obviously you do as well because this is what you guys are. This is your bread and butter right now. But but I think to investors today that's incredibly compelling. I don't know I don't know anybody right now. If you said, you know, if you took a random poll and of course this is I'm just making this up. But but I just can't imagine that if you took a random poll and said, hey, you know, in the next five years, do you predict economic just, you know, exuberance like the markets are going to do? Great people are going to do great. Like I think everybody's kind of overall sentiment is that good things are not in store in the near term.   Sam Wilson (00:11:03) - And so positioning, it's just it's just where we are. And so positioning yourself with these things and you've mentioned if you're listening to this show, I mean go back, hit pause and go back and listen to the 20 things Patrick just mentioned, because they were all things that as you look at deals you should be considering, but let's let's talk a little bit about the recessionary acquisition fund. I mean, I think one of the things you said is that, yeah, you're buying stuff for cash, will you're buying stuff that's well positioned, but I think you're also seeing stuff right now that may have some, some hair on it. Is that is that correct inside of it where you guys can come in kind of rescue the deal and then move it on down the line? What's, what's how does the recessionary acquisition fund work? There's the final question if I eventually got it out right.   Patrick Grimes (00:11:46) - Well, the strategy in past years, say in the last 5 or 10 plus years for real estate sponsors, has been to buy something and then hold it for 3 to 5 years plus and buy something that's a little bit below market that hasn't been renovated, and that you can renovate the units ten, 20 a month for, you know, 2 to 300 units and, and then bring it above market.   Patrick Grimes (00:12:08) - And that means you've got to buy a property. So you got to put up the equity for that. Then you got to put up the equity to to renovate it. Right. Which maybe it's another 50 or 100% of the equity you're raising to buy it. And then you got to hope that over the course of 3 to 5 years, the rent rise as you renovate and spend the money, and then you got to hope the building appreciates to an extent greater than the capital that you raised, greater than the capital that you raised for the CapEx or the renovations, and then produces a return beyond that. And what we're finding today is that in the inflationary environment, with interest rates going up, insurance going up, and taxes going up, with renovation costs being material, supplies being delayed, labor being hard to find that unfortunately. Stop penciling. Why? Because when your expenses go up it and your interest rates go up, it draws down on your valuations. And so even though you're working real hard to improve the property in the long term, I don't know.   Patrick Grimes (00:13:16) - So what's going to happen. So. The strategy right now is not to pull out the crystal ball that we had of yesteryear and try and hope for three, five and seven years down the line. Me as an analyst, I know that in 2009 and ten, not me, but other real estate investors that made it very wealthy. Were those individuals at the assets transferred to. During those times, they transferred away from the speculators, the gamblers like me back then, and they transferred to the people that made intelligent, articulated acquisitions at the right time. And so to really position yourself moving forward. You need to take off your old hat. Put on a brand new hat. Because the strategy to win in downturns, to find the upside of downturns isn't in pulling out your crystal ball and future for future speculation, it's in buying right and not hoping on long term value add. So what I mean by that is there is a ton of deal flow right now. Not like in three years or five years ago.   Patrick Grimes (00:14:21) - There's a ton of deal flow right now where we know on the buy that we're getting a great deal and we know very clearly going in today what that deal is, and we can move in cash to purchase it from a distressed operator, not a distressed asset, necessarily mean these are performing properties. We just bought a property at a ten cap, right? I mean, it's pushing out 10% cash flow a year if you buy it all in cash, which we did. That's what a ten cap means. It's amazing. I mean, it's performing property but it's distressed operators, individuals that that didn't plan for interest rates rising, didn't plan for inflation, didn't have reserves on the sideline to deal with their tenants not paying during Covid. And when the rental assistance checks stopped coming in, that and the eviction ban lifted, the evictions got backed up. They didn't plan for not having income, right? Maybe they had a natural disaster and they didn't have replacement costs insurance or revenue insurance to pay. So there's a bunch of reasons why right now, today there's a ton of distressed operators, distressed owners, not distressed assets.   Patrick Grimes (00:15:36) - Right. Needing to exit quickly. They need a source of relief. And so we can be that on the buy. And that's that's what we're doing. There's there's a case study of four properties that were done prior to us launching the Recessionary Acquisitions Fund. That set the stage for this is exactly the strategy we're going to rinse and repeat does. And within the recessionary acquisitions where we just did our first asset, we did it all cash by we we raised the capital immediately. We closed within 12 days. Incredible deal right off the bat. And what we're going to do is we're going to immediately refi out half our capital. So we're going to do 50% loan to value. That's that low leverage strategy I was telling you about. We're going to buy a second asset within the fund. So we're not going to distribute refinances and sell again. You got to take off your hat, put on a new one, new thinking cap today. Because normally one asset, you hold it, you cash flow you refi, you get that refi as an investor, when it sells, you get the proceeds from sale.   Patrick Grimes (00:16:38) - Not the case today. Why? Because we're not going to hold. We're going to buy it. We're going to refi, but we're going to keep that in the fund. And we're going to buy a second asset within the fund. And then we're going to take the first asset and we're going to 1031 exchange it into a third asset within the fund. We're going to do this very quickly. We're already working on the refi. We're already lining up the second and the third acquisitions right now. Then with those two we're going to create four and then four becomes eight. We're going to do this at 6 to 12 month paces between property to property. And we're going to turn $100,000 investment from an accredited investor, instead of putting it into one asset and holding it for 3 to 5 or 5 to 7 years, and missing this entire buying window this exciting time, right now, you can invest $100,000, and we can put it to work in a dozen properties in the next 3 to 5 years. And so by doing that.   Patrick Grimes (00:17:29) - Each time we make, we make a buy. We know the return. We're not hoping. And then we make one more step return. Make the return on the buy. And we make one more step return and one more step return. Instead of looking at that crystal ball, we just keep stepping forward to raise the returns.   Sam Wilson (00:17:46) - I've got several questions on this front. One of them goes back to the we'll start kind of the end and work our way back to the beginning. You said what you'll do is you'll buy the asset in cash, and then you'll refinance that at a 50% loan to value. And then you mentioned you're going to 1031 that into a second property. What's the point in refinancing if you're going to sell it in 1031? Into another property.   Patrick Grimes (00:18:11) - So we can refinance very quickly. It's all about velocity of capital and diversification. Right. So we can refinance very because we know we're we're getting a great by the minute we we buy it, we can pull out half our capital and we need to close quickly.   Patrick Grimes (00:18:26) - It's a little bit like Whac-a-mole on these deals. We do a lot of work up front, but the minute we do all the we do all the work front loader to make sure it's a good deal. But the minute our due diligence funds become hard, we know that it's an asset we get to close on and even in this asset. But from the 12 days that it took us to close, from the time that we we finished due diligence, the owner was already starting to get antsy because he already, he felt he left $1.3 million on the table. We believe he left 3 to $4 million on the table. So we have to move very quickly on these these assets in order to get them across the finish line. So we're going to close in cash the best basis we can pull out the capital quickly traded forward. And then we'll move to take the base asset the equity and the base asset after it three, 456 months. And then we'll trade it into the third asset.   Sam Wilson (00:19:16) - Got it.   Sam Wilson (00:19:17) - Man.   Sam Wilson (00:19:17) - That's an advanced strategy. There's a few other questions on that. Just in the in the operations of this fund. So these operators and again your clarification I appreciate which was that it's a distressed operator not a distressed deal. You know maybe they didn't have insurance. You know they've got hit with insurance premium increases. They've like you said they didn't have rate caps in place. Interest rates are killing them. All these different things that can happen to a distressed operator. It seems like you would incur those same. Increase in prices that they would maybe, maybe not the interest rate side because. Actually, if you're refinancing it, yes, maybe at a lower, lower interest rate. But all those still costs are going to be fixed and then passed on to you. How are you making this deal? Better than maybe what they are.   Patrick Grimes (00:20:02) - Well, let me give you an example. Okay. This first asset that we just bought in the fund. All right. It was the software developer that owned it living in the Bay, San Francisco Bay area.   Patrick Grimes (00:20:11) - All right. He inherited it from his father. And he spent 2 to 3 years virtually ignoring it. Right. And during this time, he he had the wrong kind of debt. Right. So we saw his interest rates go wild. He saw the cash flow go all over the place. He doesn't know how to operate or he's inexperienced. He's disinterested because he's interested in something else. In the meantime, he had tenants move out and even with tenants moving out, which it got down to 60% occupancy, which he had brokers calling, and we spoke to the brokers, but he was disinterested in putting in the work to actually lease it up. During this time, this thing dropped to six. This great property, great performing asset. And when we bought it with the cash price, we bought it. It was cash flowing at 10% a ten cap. So it's a performing asset. Nobody. It's really hard to buy properties regardless of how occupied it is, which at the end of the day when we bought it, it's cash flow.   Patrick Grimes (00:21:11) - There's only upside from there, right as you lease it up as you occupy it. Right. And we were there. He had two other offers and they were all higher prices, but they weren't cash buys. And we're going to move fast enough for them. Right. And so that's an example of how we find these pockets of deals in these times. And these people are disinterested and just throw their hands in there and they just want out quickly.   Sam Wilson (00:21:33) - I think that's that's absolutely brilliant. I love that the last question. Unfortunately, we're out of time here today. And if you're listening to this and want to get a hold of Patrick, he's going to give his contact info here at the end. This strategy I think, is brilliant, not something we've heard a lot about, if any, taking it really at the at the angle you guys are right now here on the show. We interview a lot of people here. So this is this is really, really cool. I love what you guys are doing here.   Sam Wilson (00:21:58) - So tell me this. I mean, it seems like people would be just lined up for these deals. Buyers would be all over these these opportunities you guys are finding how are you finding such great deals.   Patrick Grimes (00:22:09) - So that's one of the really exciting parts is so and normally again you have to take your old thinking cap off. You've got to put on your new recessionary thinking cap. Okay. It's really tough to do deals right now as we did 3 to 5, 5 to 10 years ago, because the brokers have been whispering prices to these owners that are dramatically higher, 20, 50% higher than what these properties are worth now. And the brokers are now in this spot where they're trying to hang on to the seller and but they're trying to get the price down, but they've already set the stage at a losing battle to make this deal come through. So while we love brokers and we have a lot of great relationships with brokers, pretty much most of all of our assets and all of our engagement with the deals starts with the owner.   Patrick Grimes (00:22:58) - And so we have this really cool. And we talk we explain it a little bit on on our website. I, we have this really cool acquisition engine which uses intelligence software. We have a huge team of people to funnel through and identify all the highest likelihood distressed assets. We've got a bunch of really cool filters that help us identify which ones, outreach teams that reach out to them, and then we reach the owner directly. Now, sometimes we end up talking to a broker, but we reach the owner directly and have those conversations, and we make sure that they're the right kind of buyer for us that are interested in moving quickly. There's some component of distress to them that allow them to exit at a great price. And they're not they don't have a broker that's going to mass market this so that we can move very quickly and lock it up, because agility is the key to the game. Buy as much as you can as quickly as you can and trade to the next assets. And during this very short, narrow window of call it a year and a half, two years where we see a trillion and a half dollars in debt coming due in commercial real estate, where we can snatch up as much as we can during this time.   Sam Wilson (00:24:09) - I love it, Patrick. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Patrick Grimes (00:24:15) - So if you want to learn more about the recessionary acquisition fund, head over to Passive Investing Mastery. Passive Investing Mastery. We've got the Recessionary Acquisitions Fund and the Recessionary debt fund. Really high cash flow play next to it that we're launching soon. And if you're interested in having a chat, set up a call with me. You can go to invest on Main Street and my calendar is there. You can set up a meeting. I'm happy to talk to you wherever you're at. One of the things that I love about what I do is I have plenty of time to, you know, talk to, invest when I make the time. That's what I love to do. And regardless of where you're at, I'm happy to get your point in the right direction. We do only allow $100,000 minimums with accredited investors only into our deals. But I know other operators that that that can't be out here soliciting and talking about their investments.   Patrick Grimes (00:25:05) - I can point you to that work with non-accredited investors too. And I also have I mean, I have a best selling book. Would you like me to offer a copy of that out.   Sam Wilson (00:25:14) - Please?   Patrick Grimes (00:25:15) - Yeah. Persistence, pivots and game changers turning challenges and opportunities. I think I have a copy of it right. It is just such a cool book. I did it with, in fact, an actual rockstar. I co-authored it with a couple other people. Phil Collins, lead guitarist of Def Leppard, was one of them. It just an actual I mean, it was so cool. There was NFL, NBA players, entrepreneurs, handful of us put together a book and I tell my whole story. The ebbs and flows, the the ruin, the rebuild, the pivots, all of it. And until we landed here in Hawaii and where I'm at now. So I tell the whole story, I'd be happy to. I send out a signed hard copy, just as a give back to others that were hard working professionals that are looking for another option, right, to accelerate retirement.   Patrick Grimes (00:26:06) - And so if it helps to inspire your journey along, invest on Main Street slash book. That's the secret link. That's it's invest on Main Street comic book. If you use the promo code how to scale, then we know you're not somebody random. And then I legitimately offered it because we don't we don't send it to anybody. That just fills out the form. But but I do sign them, I sign them and. And we should we ship off a sign hard copy and and if you want to schedule a meeting to chat, I'd love to talk to you and appreciate all your time today.   Sam Wilson (00:26:40) - Awesome, Patrick, thank you so much for your time. This was awesome. You shared a wealth of knowledge and experience here with our listeners, as well as some awesome giveaways that book will share. Of course, all of the links there in the show notes that you've shared with us today, and I certainly appreciate your time. Thank you again for coming on.   Patrick Grimes (00:26:56) - Absolutely. Thank you.   Intro (00:26:57) - Sam.   Sam Wilson (00:26:58) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:27:01) - If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new.   Sam Wilson (00:27:16) - Listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Oct 19, 2023
From Master Sergeant to Commercial Real Estate Expert

Today’s guest is David Sepulveda.   David is a U.S. Air Force retired Master Sergeant with a strong track record in leadership & discipline. Transitioned into real estate investor & commercial broker.   Show summary: In this podcast episode, retired US Air Force Master Sergeant David Sepulveda shares his journey in real estate and discusses his expertise in commercial real estate. He emphasizes the importance of considering factors like inflation and the cost of living when investing in real estate. David also talks about the challenges he faced in the industry and how he overcame them by obtaining his license as a commercial broker. He specializes in retail and multifamily properties and discusses the current market trends in Southwest Florida. The episode also touches on David's military background and the leadership skills he learned in the military. Overall, it highlights David's commitment to integrity and client satisfaction in his real estate career.   -------------------------------------------------------------- Starting Real Estate Journey [00:01:02]   Breaking into Commercial Real Estate [00:02:03]   Southwest Florida Real Estate Market [00:05:02]   The military rank structure [00:10:13]   Leadership skills developed in the military [00:12:19]   Impact of insurance market changes in Florida [00:15:35]   David's journey in real estate [00:20:48]   Becoming a commercial real estate broker [00:21:22]   Contacting David [00:21:30] -------------------------------------------------------------- Connect with David: Linkedin:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: DAvid Sepulveda (00:00:00) - I tried to explain to them, Well, you're not taking into account, number one, inflation. You're not taking into account, you know, increase in cost of goods. You're not taking into account just increase in cost of living, you know. So all of those things, I think, are important factors that a lot of people kind of. Bypass. They don't they don't take it into consideration as much as I think they should.   Intro (00:00:25) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:38) - David Sepulveda is a US Air Force retired master sergeant with a strong track record in leadership and discipline. He is a real estate investor and also now a commercial broker. David, welcome to the show.   DAvid Sepulveda (00:00:49) - Thank you for having me, Sam. Absolutely.   Sam Wilson (00:00:51) - The pleasure is mine. David There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   DAvid Sepulveda (00:01:00) - 90s All right.   DAvid Sepulveda (00:01:02) - Well, I honestly started back in 2013. That's where I started my real estate journey. I started out as an investor. It was really my focus to just try to grow my wealth, take care of my family, try to figure out how to get a piece of that American dream, if you will. Um, so got into tax lien investing. From there. I graduated to tax deed investing from tax deed investing scaled up to the single family. Did a very light flip. Then I scaled it up to a major flip. And then I said, Well, you know, the natural progression is to get into commercial real estate. What I noticed when I got into commercial real estate is that it's a little bit more difficult to kind of that entry to barrier, if you will. Um, you have a lot of people that if you don't already have a proven track record, they don't want to play with you, you know, they don't want to allow you to, to come to their sandbox.   DAvid Sepulveda (00:02:03) - So I had to do is I had to figure out, well, hey, if this is a space that I really want to be and how do I break into that? And that's what led me to get my license as a commercial broker, because I still wanted to be an investor. But since nobody else wanted me to play, I was going to play the way That's awesome.   Sam Wilson (00:02:21) - So did you skip the residential brokerage side altogether?   DAvid Sepulveda (00:02:27) - I did. And that's that's not something that normally happens, right? I will say that most brokers and to be honest with you, when I got my license, they didn't even want to talk to me. Right. I actually had to go in person into the different brokerages and say, Hey, here I am, this is who I am. Because commercial real estate is a completely different language than residential real estate. But once I went into the office and I started speaking the language, they were like, Oh, he does know what he's talking about. We can allow him to play with us.   DAvid Sepulveda (00:03:01) - So that's really what it took, was the persistence and that just resilience, you know, that that that thing that we get taught in the military being resilient be resilient.   Sam Wilson (00:03:10) - Absolutely when you so yeah one of the things that sound like you did right was to understand who it was you were talking to when you went to these brokerages and say, hey, look, I've already done my homework. I know. I know this industry. I mean, a lot of times, like you said, you got to have some sort of experience or something to kind of break in or allow get your foot in the door. What what did you do once you got into the commercial real estate world to really solidify your position?   DAvid Sepulveda (00:03:39) - I really had to market myself as an expert. I had to make sure that I conveyed not only the confidence, but the knowledge. You know, because you can have all the confidence in the world. But if you don't have the knowledge to back it, you're still going to look like a fool.   DAvid Sepulveda (00:03:54) - You know, So it was nice to come back home to southwest Florida because I know the area I grew up here. So it was very easy for me to already have a good working knowledge of the area. So then all I had to do was really express to all of the different business owners and the different landlords and whatnot that I do understand the market as well as the market product itself.   Sam Wilson (00:04:20) - Got it. Got it. Very, very cool. So what year was it then that you got your or you became a commercial real estate broker?   DAvid Sepulveda (00:04:28) - I actually got my license back in 21, 2021.   Sam Wilson (00:04:33) - Okay. License in 2021. And you specialize. We talked about this off air, so I'll ask a little bit of leading question. But you specialize in retail and multifamily. Things have changed incredibly in both of those asset classes from 2020, especially in the retail side. And multifamily has gone hot and heavy. And then, you know, we've seen quite a bit of slowdown on the transaction side on that.   Sam Wilson (00:04:56) - Is that something you're also seeing in your market or are things still just running wide open where you are?   DAvid Sepulveda (00:05:02) - Southwest Florida is a very hot market. We're actually seeing growth in a lot of different sectors. So unfortunately, don't get to capitalize on the the downturn as everybody else may be able to in other areas of the of the continent. But southwest Florida is just the growth. Has been phenomenal. We're talking, last I checked, a thousand people moving to Florida daily. And out of that thousand we were capturing here in southwest Florida, I believe it was maybe, you know, 10 to 15% of that.   Sam Wilson (00:05:39) - Wow. That's a lot. That's a lot. That's really interesting. So you haven't seen the transaction volume slow down at all on the multifamily side?   DAvid Sepulveda (00:05:48) - No, we saw a little bit of a pause because of Hurricane Ian. So a lot of people were, you know, kind of holding on to their money, both on the buyer side and seller side. The buyers were trying to see what the sellers were going to do with the properties, if they were going to fix it up with the insurance money, they were going to take the insurance money and run.   DAvid Sepulveda (00:06:06) - So we saw a bit of a pause there. But man, southwest Florida is so strong and so resilient. Man. They just came back and, you know, a year later and it's as if, you know, obviously we have areas where you can see the the damage. But, I mean, everybody's going strong, man.   Sam Wilson (00:06:23) - That's great. I think it's one of those things that, you know, we hear it, but you don't if you listen to the national conversation, it's going to say, man, you know, transaction volume in multifamily is down, what, 75% year over year on a national level. But real estate is indeed local. So I think that's the other part of it is, you know, for you guys, it's almost as if interest rates it sounds like interest rates have risen, but you guys haven't taken notice.   DAvid Sepulveda (00:06:49) - No, not as bad as that. Other parts mean. There might have been a bit of a slowdown, but not enough for me to be like, Hey, there's just an abundance of multifamily come shopping here, you know.   Sam Wilson (00:07:01) - Come shopping and say, Well, let's talk about then what are people buying right now that makes sense for you guys?   DAvid Sepulveda (00:07:09) - Man, Let me tell you, we can't keep multifamily on the shelf. We can't keep industrial on the shelf. Um, even retail now is starting to pick it back up. You know, now that Covid has slowed down and we're getting the tourism back into Florida. So a lot of different sectors, especially like I said, here in southwest Florida, we're seeing a good increase.   Sam Wilson (00:07:30) - Wow, That's awesome. That's awesome. Let's talk about what you invest in personally. Now, you've been you talked about this early on. You know, in 2013, you were buying tax liens and tax deeds, which I think is kind of an advanced strategy, to be honest with you, for your kind of intro into real estate. Most people don't start with deals with that much hair on them. We won't go down that rabbit hole, but that's someday maybe we'll have you back on and we can talk about that journey because I think that's a very interesting one.   Sam Wilson (00:07:57) - But what are you personally investing in now?   DAvid Sepulveda (00:08:02) - Now I am still investing in multifamily. I'm investing in small retail as well as small businesses.   Sam Wilson (00:08:11) - Interesting. Okay. How do you as a broker tell me this from a not from an ethical standpoint, but just from a working with your client standpoint to know that you're putting their interests first? I'm sure that's something that you have to think about when you see deals come across your desk, you say, Hey, man, that's a great opportunity. But should you know, you don't want to eat the best and leave the leftovers for your clients. So how does that work with you both as an investor and as a broker?   DAvid Sepulveda (00:08:41) - It's all about just open and honest communication, right? One of the things that we've learned in the military is integrity first. And I always try to make sure that I'm open and honest with my clients. Let them know, listen, I. Understand that you're trying to sell this property and I may have an interest in this property.   DAvid Sepulveda (00:08:59) - Here's what I could offer you. And to be fair, I will also let you know that if we were to take this to market, you would get X amount. And there's quite a delta between my offer and X amount, but I can close quickly. You know, it'll be a smooth transaction as opposed to us being on the market and allowing the market to tell us when it will close.   Sam Wilson (00:09:23) - Right, right. Yeah, that's that's really, really interesting. Yeah. But that would be and that's, I mean, that's, that's the beauty of doing what you do is that you can offer, offer people deals that make sense for them in order to avoid a lot of those pains of taking deals there to market. Well tell me this, David, as a master sergeant in the military and I will openly say I knew nothing about the military. I was not in the military. I'm often accused of it just because I was raised by a marine. And so I know what it's like to grow up in one of those houses where it's, you know, be seated by X number of times and out the door by this very, very regimented.   Sam Wilson (00:10:00) - But what does a master sergeant do and what are some of the things from a leadership and leadership development perspective, I think that you learned inside of the military that still guide what you do today.   DAvid Sepulveda (00:10:13) - Well. So when you're looking at the military, it's really broken down into two different sectors. You have your enlisted sector and you have your officer sector. Being a master sergeant, which is equivalent to E7, is an enlisted sector rank. E7, Master Sergeant is one of the higher ranks. It is part of what they call the top three, the highest rank you can achieve as an enlisted members and E9, which is a chief master sergeant in the Air Force. And then you have below that the senior master sergeant, and then you have the master sergeant. Now depending on your in the Air Force, we call it AFS in the different branches, they call it by a different name. For example, in the army is Mos. But basically what it is, it's your job in the military. So depending on your job in the military can really determine what your responsibilities and your roles are.   DAvid Sepulveda (00:11:08) - You could be in charge of a whole section of airmen and it could be include 20 or 30 people as well as a certain number of civilians. Or you could be in a very small shop and only be responsible for 2 or 3 people. A lot of my time as a master sergeant, I spent it in what they call the commander support staff. So the general has an admin staff and that admin staff is responsible for making sure that the airmen are taken care of. Whether we're talking about their vacation time, which we call leave, we're talking about any pay issues that they may have, um, making sure that they're, I don't know what you call them on the civilian side, but we call them enlisted performance reports, so their PRs. So that's really where I spent a lot of my time as a master sergeant is making sure that the airmen were taken care of.   Sam Wilson (00:12:08) - Wow, that's really, really awesome. What are some of the things I guess that you felt like were developed in you as a leader in that role?   DAvid Sepulveda (00:12:19) - Well, um, there's really a lot of things that you learn being in the military, right? You learned teamwork, you learned, um, the discipline and the core values, which is the the integrity, first excellence and everything we do, you know, and I think a lot of that has carried over into civilian sector for me now is making sure that, you know, like I stated before, I'm open and honest with my communication.   DAvid Sepulveda (00:12:47) - I'm letting you know, letting my clients know, like, listen. I can purchase this, but it's going to be significantly lower than if you were to take it to market. However, it's a lot quicker. So that integrity, just being that, you know, that honest dealings with people and you know, the discipline because real estate is really a disciplined game, you have to continuously do the cold calling. You have to continuously do the door knocking. You have to continuously look at the market, the market trends, see what's going on, see what changes are coming into place, whether we're talking about, you know, new policies, new laws, you know, different, you know, companies coming in that may affect other sectors of your businesses. So it's just the discipline of doing the thing over and over again, no matter how much you might dread it.   Sam Wilson (00:13:43) - And man, there is plenty of that to go around, I think for all of us, there's there's plenty of those things where you go, yep, I don't really want to do that today, but it's something you just got to put your head down and go.   Sam Wilson (00:13:55) - It's probably easier in the military when there's somebody, you know, yelling at you if you don't get it done than it is when you just can, you know, hide it under your own to do list. You're like, you know, maybe tomorrow we'll get that done. But either way, I like both things that you said there was the adaptability is the way I would summarize that when you said, you know, being open to changes and looking at what changes are coming and then the open and honest communication side of things, I think I was speaking with somebody yesterday and they said, man, you know, I just I'm just not very I'm pretty non-confrontational. I'm like, man, like, just one stop saying that. I said, Because that's negative self-talk. And two, we can rephrase this into something where that open and honest communication like you're talking about can become part of who, who that person is. And they're significantly younger than me. But I think it was it was it was just a great conversation, a reminder that we can constantly be improving the way that we communicate.   Sam Wilson (00:14:50) - Let's go back, I guess one of the things I thought about when you were saying looking at changes and we're going to take a real left turn here in conversation, so I apologize, but I wrote it down here as a note. The the Florida market, you're on the brink of, I think what's the name of the next hurricane potentially heading your way right now. They named that.   Sam Wilson (00:15:07) - Yet Adelia.   Sam Wilson (00:15:09) - Amelia okay so that's that's and we're recording this at the end of August here in 2023 hopefully hopefully that passes by without much to talk about. But the insurance market's for what you guys deal with in Florida. I mean, that's a hot topic. Like what are you advising from the brokerage side? Like how are you advising your clients and your own portfolio right now? What are you doing on the insurance side of stuff?   DAvid Sepulveda (00:15:35) - I mean, that has been a thorn in everyone's side because so many insurance companies have pulled out of Florida altogether, which, you know, by the law of supply and demand, the ones that have stayed are able to jack up their prices and have I mean, you're talking about people used to pay, you know, let's just say 100 grand annually.   DAvid Sepulveda (00:16:00) - Now they're looking at almost half a million annually, you know, So the increase is definitely hurting a lot of people's pockets. Unfortunately, it's a necessary evil. You know, because being here in Florida, you can't just go without flood insurance. You can't just go without, you know, any insurances to cover your assets. So, unfortunately, you know, I try to make sure that I have surrounded myself with the best team so that my clients can win. So I do work with a good insurance broker who goes out there and finds my clients the best insurance coverage that they can.   Sam Wilson (00:16:43) - What are people doing to offset some of those just astronomical rate increases?   Sam Wilson (00:16:50) - Well.   DAvid Sepulveda (00:16:51) - I mean, you're seeing a lot of. A lot of adjustments, whether we're talking scaling back on their inventory in the retail sector, whether they're talking. Increasing the rents in the multifamily sector. So you're seeing a lot of. Passed as being passed, you know, passed down, which it's understandable, but unfortunately when you're in a market.   DAvid Sepulveda (00:17:20) - That you have a mix of fixed income and disposable income. Those with the fixed income really feel the pain of those, you know, costs being passed down.   Sam Wilson (00:17:34) - And there's really nothing. There's nothing you could do about it. I mean, it's just it is. I mean, you can't you can't continue to absorb those astronomical rate increases without then eventually, you know, passing that on down to the to the end user. And that's I just I don't see a way any other way around that. Especially, again, as you said, you know, the the insurers are leaving the market, leaving just a few there to choose from. And I guess that's just something probably to think through as you look at investing in Florida or markets like Florida that have some of these associated natural disaster risk where it's like, okay. Do you see people underwriting a continued increase in insurance costs where they say, okay, you know, it was 100, now we are 500. But you know what? We're going to go ahead and budget for a million.   Sam Wilson (00:18:26) - I mean, is that part of people's equation now?   DAvid Sepulveda (00:18:31) - I think it's always smart to make sure that when you're underwriting any asset class that you always increase cost. I think, you know, whether we're talking about a increase of 3% or whether we're talking an increase based on prime rate or even the CPI. I think it's it's wise to I don't see it a lot. I think I'm seeing it more now. You know, now that has skyrocketed. But prior to Hurricane Ian, when I would talk to my clients and I would, you know, see where their mindset was and try to pick their brains as to how they're coming to the numbers that they're coming. I tried to explain to them, Well, you're not taking into account, number one, inflation. You're not taking into account, you know, increase in cost of goods. You're not taking into account just increase in cost of living, you know. So all of those things, I think, are important factors that a lot of people kind of.   DAvid Sepulveda (00:19:29) - Bypass. They don't they don't take it into consideration as much as I think they should.   Sam Wilson (00:19:34) - Interesting. Interesting. Well, there's there's the nugget for the day. If this is something you haven't been considering in your underwriting, David just laid it out for you. Make sure you're including those things and really probably padding those stats, especially in higher risk markets such as Florida on some of those variable costs that you have. I mean, that's the bummer about it. It's like you have no absolutely no control over it. It's like, oh, by the way, your insurance went up 400 grand and you did nothing wrong. It's not like it's not like half of your property burned down. You rebuilt it and they're like, okay, well, you're a terrible manager. It's like, by the way, you're just we're going to quintuple the cost of your insurance and you're just kind of stuck. So that's, you know, preparing for some of those things can be a difficult thing to do and put in your underwriting because it might might kill more deals than than you would like.   Sam Wilson (00:20:26) - But then again, yeah.   DAvid Sepulveda (00:20:28) - And I think that's what a lot of people think. That's the deterrent for a lot of people. I think they're so caught up in the momentum of trying to get a deal that they don't look at the fact like, well, what are the factors that will make this a good deal? Because in the long run, if you don't take those things into consideration, even a good deal today may not be a good deal tomorrow.   Sam Wilson (00:20:48) - Right. Right. Absolutely. Well said. David, thank you for taking the time here to come on the show today. Certainly enjoyed learning about what a master sergeant is in the military, what your leadership skills there that you had in the military and how you translate those over into what you've done. I love the go get them attitude in 2013, just jumping right into tax liens and tax deeds. I think that's that's that's really, really cool. And then and then, like you said, positioning yourself as an expert, jumping out there and saying, hey, look, I'm going to be a commercial real estate broker becoming an expert there in your market and in your space.   Sam Wilson (00:21:22) - You've shared a lot of great things with us today. Certainly appreciate that. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   DAvid Sepulveda (00:21:30) - Honestly, you can find me on most social media under commercial real estate. Dave Or you can look up David Sepulveda with con consultants in Fort Myers, and that'd be the best way to get hold of me.   Sam Wilson (00:21:41) - Fantastic. David, thank you again for your time today. I certainly appreciate it.   DAvid Sepulveda (00:21:46) - Absolutely. Thank you for having me.   Sam Wilson (00:21:47) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Oct 18, 2023
How Shawn DiMartile Quit His Job and Built a Thriving Portfolio

Today’s guest is Shawn DiMartile.   Shawn DiMartile is a multifamily investor with over 300 multifamily units. He's co-founder of Takeoff Capital, host of The Real Estate Takeoff Podcast, and author of the eBook "California Gold".   Show summary: In this podcast episode, Sean DeMartel, shares his journey from being an air traffic controller to building a real estate empire. He discusses his decision to invest in a 32-unit apartment complex, his transition to full-time real estate investing, and his strategies for engaging with podcast hosts to share his unique story. Sean also talks about his interest in California real estate, particularly in San Diego, and shares a case study of a project where he is adding 11 units to a two-bedroom house. He also discusses his strategy of buying retail properties instead of distressed properties.   -------------------------------------------------------------- Intro [00:00:00]   Introduction and Background [00:00:30]   Leaving Air Traffic Control [00:03:20]   Reaching out to podcast hosts [00:10:03]   Telling a unique story to raise capital [00:11:46]   The California Gold Rush strategy [00:13:58]   The strategy of buying retail [00:18:44]   Design strategies to make small units feel bigger [00:19:36]   Different holding periods for projects [00:21:45] -------------------------------------------------------------- Connect with Shawn: Linkedin: Instagram: Web/Ebook:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Shawn DiMartile (00:00:00) - People like to invest with those they know, like and trust and connect with. Because at the end of the day, people are investing with you, right? You know, Yes, they're investing in your company. ET cetera. But you are the biggest risk factor. Anytime someone's giving you their money to go, invest in a project.   Intro (00:00:17) - Welcome to the How to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:30) - De Martel is a multifamily investor with over 300 multifamily units. He's co-founder of Takeoff Capital, host of the Real Estate Takeoff podcast and author of the book California Gold. Sean, welcome to the show.   Shawn DiMartile (00:00:43) - Thank you so much for having me. I'm happy for this, Sam. I appreciate it, man.   Sam Wilson (00:00:46) - Absolutely. The pleasure is mine. Glad to have you. I think back on the show, you've been on this show before, I think maybe two years ago or so. Approximately.   Sam Wilson (00:00:54) - Yeah. We'll have to look that up.   Shawn DiMartile (00:00:55) - I forgot about it, too, because I reached out to you and you're like, Dude, you've been on my show before.   Sam Wilson (00:00:59) - Well, and you know, it happens. I'm with you. You host a great podcast. I was I was pleased to be a guest on the show last week. You asked great questions and make it very, very easy on the guest. I will say that I've certainly you know, there's a lot of there's a lot of podcasts out there, but you run a great one. And I certainly appreciate coming on that show. And again, that is if you want to plug it one more time, what's the name of that podcast again?   Shawn DiMartile (00:01:20) - The Real Estate Takeoff podcast. Thank you so much.   Sam Wilson (00:01:22) - Yeah, absolutely. Check out Sean's podcast. Sean There are three questions I ask every guest who comes on the show in 90s or less. Can you tell our listeners where did you start? Where are you now and how did you get there?   Shawn DiMartile (00:01:32) - Easy.   Shawn DiMartile (00:01:33) - So I started as from a poor family in Louisville, Kentucky, grew up, couldn't really afford to put myself through college, join the Navy as an air traffic controller, got out of the Navy after five years doing that, did it for the FAA, started making some decent money, saving, wanting to figure out where to start investing because I wanted to, you know, climb the the ladder and get to, you know, even more wealth and found the Bigger Pockets podcast years ago and got obsessed, studied hard and then eventually I went all in on my first real estate investment. And this is before I even bought my first house. I liquidated my 401 K and I bought a 32 unit apartment with a couple of buddies. Um, started the podcast around the same time and then shortly after that got a multifamily mentor. Fast forward a little bit and we started syndicating properties with that mentor. And here I sit today with about 300 multifamily units, boutique hotel and numerous Airbnbs to encompass my portfolio.   Sam Wilson (00:02:34) - Man, that's really cool.   Sam Wilson (00:02:36) - I love I love that story that the, the, the bootstrapping story is one. Of course it speaks to my heart because there's I just get tired of people being told that, hey, you know, you're limited by whatever the limiting factors are. They place on you where you come from, what your what your religion, your race, whatever it is like. Oh, well, that's like, that's nonsense. Anybody can do anything. So we all have incredible capacity for success. So I think it's really cool how you have done this. Air traffic controllers, I'm sure we talked about this on your last show. Air traffic controllers are paid pretty well. Like you you you get tenured in that and it's and it's I mean, it's not a low paying job. Why did you what what about that? Were you like, hey, this is going to be long term. I want to do this another way.   Shawn DiMartile (00:03:20) - Yeah. So the thing about air traffic control, that just makes it so tough, obviously you're under a lot of pressure.   Shawn DiMartile (00:03:26) - Everybody knows it's a really stressful job. That's no secret. But what makes this even worse is that there's a hyper shortage of air traffic controllers in the nation. So when you sign up to be an air traffic controller, you sign up and agree to mandatory overtime. And basically across the country, everybody's working six day workweeks. As an air traffic controller, my days off were Tuesdays and Wednesdays, so I would usually only get off Wednesday and be working the rest of the days. So my work life balance was basically zero. I would work crazy shifts, you know, Sunday I would wake up and be at work at 5:30 a.m., work till 1:30 p.m. and then go back to work at 10 p.m. at night and work the graveyard shift that very same night. And I did that every week. And the outlook for that was that I was going to be working into my 50s before I could finally get off on weekends. And this just didn't make sense to me. And it's great money, you don't get me wrong, But I mean, you really become a slave to that job.   Shawn DiMartile (00:04:24) - And you look at the people retiring in their 50s and they look like they're in their late 60s. And that was really, you know, a light bulb moment for me that if, you know, what do I want? Do I want to sit here as a W-2 making really great money or do I want to try to do something else so I can finally get my time freedom back?   Sam Wilson (00:04:41) - No, man, I think that's huge. And that's what you just mentioned there, I think is just a sound piece of advice. Look at the people 20, 30 years older, older than you in whatever career it is you're looking at and go and not just one, because there can be some outliers, but look at all of them as an aggregate and go, Do I want to be what that group looks like physically, mentally, emotionally, lifestyle wise in 20 or 30 years? And if the answer is no, get out. I mean, I could.   Shawn DiMartile (00:05:13) - Not agree more. That's a great way to put it because that is what you will become if you stay in a grinding job like that.   Shawn DiMartile (00:05:20) - Mean hell if you're mining coal and you look at guys that are retiring from that and you've got to you know, that's obviously more physical, right? But it's the same thing. Like, you know, do you really want to spend the majority of your life doing that work? Right?   Sam Wilson (00:05:33) - And we still live in a country where you can choose. I mean, that's that's the other thing is that you get to pick still in the states. There's places in the world where you don't get to pick and you're going to be doing whatever it is mining coal or air traffic controller whether you want to or not. So and that's and that's that's too bad, actually, to hear about the air traffic control job because, I mean, there's a lot that is on your shoulders. And I mean everything obviously that you say and do is recorded on on live lines. You make one mistake, man, and they will roast you. And rightfully so, because, I mean, you do have planes in the air that need to not be connecting with each other.   Sam Wilson (00:06:13) - So it.   Sam Wilson (00:06:15) - Of course.   Sam Wilson (00:06:15) - Yeah, but that's wild, man. How did you get out? At what point in time do you say, hey, look, I've got enough coming in from my what was now side hustle, now become full time real estate job. You said, Hey, I can quit being an air traffic controller.   Shawn DiMartile (00:06:27) - That was in 2022, actually in March of 2022. I had that was after we had syndicated a couple properties. In January of 2022. We sold that 32 unit that we had bought a couple of years before, made some profit on that. And then also had you know, at that time I had three Airbnb listings that were producing a lot of cash flow as well. And you know, I was I was I was right around the the net income that I was making from air traffic control. But. You know, I knew that if I wanted to grow the real estate business further to where it's, you know, that is my full time job and and grow that company that I needed to make that jump.   Shawn DiMartile (00:07:07) - So that's why I made it last year just going all in to really give the real estate everything that I've got and it has paid dividends.   Sam Wilson (00:07:15) - Okay, cool. I want to hear about that because there can. At times. We've seen people flounder. When they make that jump, they get out there like, Hey, I'm going to go do this. And it's like, Oh man, crud. Do they do this and do that or they do this? They don't get the momentum. How did you how did you carry that momentum forward once you said, All right, I'm out and congrats on doing that? I bet that was I bet that was a fun day to finally walk away and say, all right, guys, I'm going to do my own thing. But how have you established the momentum in the in the strategy that you want to employ, I guess, over the last what is that, 18, 17 months?   Shawn DiMartile (00:07:51) - Yeah, I mean, you know, it really just when I mean, going all in, in order to keep that momentum going, I had to start doing everything that I could to get my name out there and get in front of as many people as possible.   Shawn DiMartile (00:08:05) - So dedicating more time to being guests on podcast, writing more content as far as blogs, my book going to more speaking events, going to more like really anything and everything that I could do regarding the real estate strategies I was doing, I put I dedicated my time to joining business clubs, everything. So by doing so, that was getting me in front of more investors, making more meaningful connections with other operators. All of that stuff really, I think was necessary and critical for me to keep that momentum going and keep doing deals. So last year we closed on two deals and all of that stuff definitely would have been harder, you know, if I was doing my W2 job, you know, But there is give and take by leaving that W-2 job. I left behind a lot of money from the W-2, which makes it easier to qualify for personal loans, things like that. That's all out the window now. So, you know, it is a double edged sword and there are some pros and cons of doing it.   Shawn DiMartile (00:09:07) - But ultimately, I needed to to be able to go all in.   Sam Wilson (00:09:10) - Right. Right. No, I think that's that's fantastic. And what would summarize most of that at or of gosh, I can't speak today what would summarize most of that as there we go I'll find the right the right word is engagement. Like you just got to get out and engage. You mentioned getting on podcast, making sure you're right in your blogs. We'll get to your e-book here a little bit because I want to I want to talk about that. But what's what? And I love that strategy because the name of the show is how to scale commercial real Estate. There's a lot of people potentially in your shoes listening to this going, hey, you know what? I do want to make this leap, but what do I do? Either, you know, you started having your portfolio already, you know, working before you quit your W-2, which is smart, but they want to know what those next engagement steps are.   Sam Wilson (00:09:50) - And I think you outlined some of those. What did you do in order to get on more podcast shows out of the gate without as much maybe traction or industry experience as maybe what you felt like you should have in order to do so?   Shawn DiMartile (00:10:03) - Um, a couple strategies that I use. Number one, I like to reach out to podcast host directly myself. The reason why is I host my own podcast and I get bombarded in my email inbox as well as, you know, my virtual assistant getting bombarded with people that want to come on the podcast and they put their copy and paste intros to try and get on the podcast. And I just found that that wasn't super effective with me. So I thought, Hey, I don't want to be one of those people, so I'm just going to do it myself and reach directly out to these people to maybe staying a little bit better of a chance. So that was one method. And also trying to just and focus on highlighting my unique story, because I know that when people go when when people have someone on a podcast, you know, if you just say, I'm, you know, a real estate investor and I've been listening to your podcast, well, yeah, so is everybody else.   Shawn DiMartile (00:10:51) - So I tried to highlight what might make my story a little bit more unique or a topic. Um, and I think that in combination with having my own podcast, definitely helped because, you know, I'm able to make better connections that way, maybe even do a podcast swap and have that host come on my show. Think all of these strategies combined increase the probability just a little bit that I would get on those shows. And that's really it, right?   Sam Wilson (00:11:17) - No, I think that's that's fantastic. And I think telling that unique story certainly stands out. Yeah, you're right. If you if you had sent me an email, Sean said, Hey, Sam, I'm a multifamily investor and I'd love to come tell you, you know, about multifamily investments. I mean, God bless you that there's lots of opportunity in the multifamily space and what you do is great, but it's not not a story. It's not a unique story. You got to how does how do you feel? Like a learning to tell your unique story has also helped you raise capital?   Shawn DiMartile (00:11:46) - Oh, that's a good one.   Shawn DiMartile (00:11:48) - It's it's helped me raise capital because people like to invest with those they know, like and trust and connect with. Because at the end of the day, people are investing with you, right? You know, Yes, they're investing in your company. ET cetera. But you are the biggest risk factor. Anytime someone's giving you their money to go invest in a project. So the sponsor is so important and I like to tell everything about my story. And I even put this on my socials and things of not only what I'm doing in real estate, but me as a person, how I grew up, the challenges that I faced, the mistakes I've made. I like being really transparent about big mistakes I've made in my real estate investing because I know people want to hear that. So I think really, when it comes to the unique story, it's it's being personable, like, you know, hearing about my struggles, being poor, growing up and having absolutely zero money. I mean, when I was in college, I was working at Cracker Barrel as a server.   Shawn DiMartile (00:12:42) - My parents couldn't give me jack diddly to help with college because they didn't have any money. Starting from something like that and getting to, you know, growing your portfolio resonates with people because everybody listening is in the same shoes. So and I remember back whenever one of the first podcast I heard on Bigger Pockets was a PE teacher, and to this day I'm still friends with them. That grew a portfolio of hundreds of multifamily units and retired. And I loved it because I was a guy just like him that didn't have a high paying job. And I think that people like that, right?   Sam Wilson (00:13:14) - Yeah. You're teaching kids to play kickball in elementary school and then you found real estate and found a way to really create wealth for yourself, which I think shoot, man, if I could play kickball and get paid like I could in real estate, certainly.   Sam Wilson (00:13:27) - To be awesome. Right?   Sam Wilson (00:13:29) - But that option just presently doesn't exist. So outside of that, let's talk a little bit about your strategy. You got your hands in some unique things.   Sam Wilson (00:13:38) - You mentioned those there in your in your bio or in your in your intro there about boutique hotels, Airbnbs multifamily properties give you some unique things you're doing because I know you wrote an e-book called California Gold, which most. Okay, a lot of investors hear California and they're like, No. Yep.   Shawn DiMartile (00:13:58) - And I'm glad you brought that up. So I'll be as short as I can because so I've always felt the same way about California. I've always thought to myself, no way. And until this year, outside of my Airbnb here, I had zero interest because of the same things everybody else, you know, the politics, the landlord, tenant laws, etcetera. And then two years ago, San Diego implemented a new municipal code. It's the only city in the country that has this and that got me interested. So for a little bit of context, San Diego is geographically constrained, but it's growing. It's constrained by the ocean of the West. You've got mountains to the east, Mexico to the south and a military base to the north, and all of the flat available lands been built on.   Shawn DiMartile (00:14:38) - So what San Diego did that so unique is they took accessory dwelling units, which I'm sure a lot of people have heard about, otherwise known as Adus. And they expanded it to where you can put unlimited adus up to the floor area ratio. So what this means is I can go and buy a single family home, you know, less than a mile from the beach, and I can add ten units or more to that property if it's big enough and put new product on the line. And some of the most coveted communities that otherwise get no new buildings. And so when I saw that and I saw that, okay, not only can I build, you know, I can build these for 150 to 200,000 per unit with nice finishings and I can sell them for north of $400,000 a unit and I get to put my own tenants in there. So I'm not buying a value add multifamily where who knows when I can get those tenants out? Because here in California you can't just say, Hey, I don't want to renew because I want to renovate it.   Shawn DiMartile (00:15:32) - So doing value add here carries more risk. And then, you know, we can maybe get into more of the minutia. But this strategy carriages, so much less risk. It's in my own backyard where most of my investors in and it just made so much sense numbers wise that that was the light bulb that went off. And I named my book California Gold, because I call it the new California Gold Rush. There's only so many lots that qualify and make sense to do this investment. So the well will run dry eventually. And right now it's a rush to find the lots that you can put all these units on and you can make a killing.   Sam Wilson (00:16:06) - Wow, that's fantastic. Give me a case study on that. Like what's you know, what's a what's a well, just give me some examples of things, assets that you've bought and how you did it.   Shawn DiMartile (00:16:16) - So I got a project right now in an area called Ocean Beach in San Diego. I bought a two bedroom, one bath, two bedroom, one bath house on a 7000 square foot lot and it's a half a mile from the beach on a hill.   Shawn DiMartile (00:16:29) - I'm adding 11 units to it to where it's going to total 12 units in the back of the house there is. So there's one unit being added to the existing house and then the huge lot behind it. We're building a three story structure with units on all three floors, second and third floor units will have. Corrected views of the ocean. Now, what's what I love about this, though, anybody that's, you know, heard about the negatives of multifamily development knows that a lot of the risk is holding costs because you're sitting around waiting for the government to give you permits while you make no money and you're just burning through it. Right. This strategy is different because I bought an existing house that I can rent out and not only am I renting it out, I got an Airbnb permit. So the property's actually cash flowing while we're waiting around to get those permits. So we reduced one of the biggest risks we've mitigated substantially by doing that. Now the rest of the plan is to obviously we've designed the units they're getting permitted now, build the units, fill them with tenants, put on permanent debt and cash flow that property.   Shawn DiMartile (00:17:34) - And now we have a property that these units I'll finish it by saying this These units in this Ocean Beach community, 10% of units there have air conditioning and in unit washers and dryers. Every single one of our units is brand new in unit air conditioning and heating, washer and dryer in unit in ocean views. And that's just something you're not getting with most units there.   Sam Wilson (00:17:57) - Wow. Okay. Let's let's dig into I guess there's a few questions at one. That's a that's a completely awesome strategy I think. I think finding those the the riches there in the niches is the phrase goes and this is exactly what you've got on the acquisition side of things. Are you basically just paying retail price for that property just because of the upside potential?   Shawn DiMartile (00:18:22) - Yes, exactly. We are paying retail now. We paid a little bit less than retail. We were able to negotiate that property down 150 below asking. But we were also able to get seller financing on that deal, which helped a ton, 80% seller financing, 5.4% interest interest only payments.   Shawn DiMartile (00:18:38) - So that was infinitely better than what we were getting offered by by.   Intro (00:18:42) - Banks, right? Right.   Sam Wilson (00:18:44) - Yeah, absolutely. Okay, cool. And I've got I got a buddy in a in a completely different strategy. But this is this is something we're kicking around a lot. He's like, man, he goes, you know, because we are very accustomed to going out and finding off market, you know, either distressed or, you know, whatever it is you name it for how we can get a discount on the buy side. And we're looking at his strategy and how effective it is. And I'm like, Dude, just get on the MLS and start buying retail. Your your cash flow is insane on what you're doing. So why waste time, you know, trying to nickel and dime your way to success when you've already got the plan built and you just you can afford to pay retail. There's enough margin there is what I'm getting the numbers.   Shawn DiMartile (00:19:22) - Make sense.   Sam Wilson (00:19:22) - Right? So cool. So you can buy retail your product still make sense or your margin still makes sense at retail when you build those seven units, how many square feet are those approximately per unit.   Shawn DiMartile (00:19:36) - So our two bedrooms are a little over 600ft². And then we're providing a number of studios that are about 346ft² right now. I know a lot of your listeners are thinking, my goodness, that's small, but that is sort of the trend here in Southern California to get the units a little bit more affordable. But to combat the how small they are, we're implementing a ton of strategies and design to make them feel a little bit bigger. So floor to ceiling windows, bringing in tons of natural light. And the studios have these really cool excuse me, Murphy beds that convert to couches. That way the that unit can feel big for the tenant.   Sam Wilson (00:20:15) - Yep. Yeah. Love a good Murphy bed. That's cool. All right. So and again, a 7000 square foot lot is not that big. Like I'm sitting like my my lot here is only 9000ft². And I'm going, wow. Okay, so that's that's 2/7 or I guess whatever, two nines. Anyway, it's 2000ft² smaller galley. I can't do the math here on the fly.   Sam Wilson (00:20:36) - It's too, too early in the day. But 2000 square foot smaller, I'm thinking, how do you fit seven units plus a house? Where do they where do they park?   Shawn DiMartile (00:20:44) - So good question. With this strategy, one of the one of the things that also make it great is the city doesn't require parking so long as you're within a transit priority area. So TPA for short, that just means you're within a half a mile of major public transportation no matter what kind it is. So this the the tenants are going to have to park on street parking, but there's a plenty of street parking in this area. It's far enough away from the beach and a community where everyone will be able to find parking. But that's not really a huge downside for this market because that's street parking is what everybody has. If you've got, you know, private parking, that's huge. And by the beach.   Sam Wilson (00:21:21) - Right. No, absolutely. Absolutely. Cool, man. That's awesome. I love that. Just the the again, the finding something unique and then finding a way to scale that.   Sam Wilson (00:21:32) - So, I mean, you've answered a lot of questions. You've thought really I think obviously you've thought really well through this strategy and it's and it's effective. So you're then taking these units and you're selling them off. Is that what I heard?   Shawn DiMartile (00:21:45) - Yeah. So, you know, some of these because of our investor appetite, you know, some investors don't want to hold as long, some do. So some projects we're going to be doing shorter holes that are more like a 3 to 4 year hold where we're going to lease it up, get it stabilized and then sell it off for a quick pop on their money. And then some of our deals we're going to be doing like 5 to 7 year holds or even longer so we can just hold these cash flow on them and then reap the rewards of the increase in rents that we're going to continue seeing.   Sam Wilson (00:22:12) - Man, that's awesome. Sean, We've got about three minutes left here on the show. I want to hear a little bit more about what our investors can find inside of your book and how they can gain access to that.   Shawn DiMartile (00:22:23) - So to gain access to the book, it's really easy. Go to investor Sean Simple and I spell my name Shar investor Sean and the book is going to tell you everything about this strategy, all the basics. You can read this book in 15 minutes and it's going to tell you not only like what the rules are, the municipal code, it's going to show you the websites you can go to to find out how many units you could put on the calculations, all of that stuff, ways you can mitigate risk. All of that is within that book compacted down as much as I could get it. And then, you know, also, if you're while you're at it, make sure to follow me on Instagram. Sean underscore Demartini Hopefully we could throw that in the show notes or something. But I talk a lot about this strategy on my social media as well.   Sam Wilson (00:23:07) - Fantastic. Yeah, we'll make sure we include your name and the spelling of that. For those that are not sitting in front of a computer or able to actually access the show, notes Martellus de Martinelli.   Sam Wilson (00:23:18) - So when you're looking up Sean, that's how you spell his last name. Sean Thank you again for coming on the show today. Man, the day was a blast. I certainly loved hearing about your strategy going to the Navy, becoming a air traffic controller. What it took for you then to get out and just building, building your wealth such that you could exit your W-2, looking 20 years in advance, saying, I don't want to be that person? You gave us some great insights on capital raising, on how to be authentic and just being yourself. Your unique story, crafting that unique story and telling it such that investors can relate to you, man. And then also just the you know what to do out of the gate, getting on podcasts, blogs, writing an eBooks, engaging in the community. Man, you've dropped a lot of great things here today outside of downloading the e-book there at your website link. Is there any other ways you'd like our investors to get in touch with you or learn more about?   Shawn DiMartile (00:24:02) - You know, I just want to emphasize one more time to follow me on Instagram.   Shawn DiMartile (00:24:06) - I'm putting a lot of work into it. You're going to see some super cool content that's really high quality. And outside of that, man, you'll get everything else off of investors. Sean And thank you so much, Sam, for like plugging all this stuff and all your kind words. I do appreciate it, brother.   Sam Wilson (00:24:20) - Absolutely. Thank you, Sean. Appreciate it. Have a great rest of your day. You too. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Oct 16, 2023
The Most Powerful App for Real Estate Investors: DealMachine

Today’s guest is David Lecko.   David Lecko is the founder and CEO of DealMachine, the highest-rated mobile app to help real estate investors find off-market deals.   Show summary:   In this podcast episode, David Leko, the founder and CEO of Deal Machine, discusses the evolution of his mobile app for real estate investors. He explains how the app started as a tool for finding off-market deals and expanded to include features like running comps and pulling lists. David shares his journey from being a software developer to starting Deal Machine and how the app has improved the lives of investors. He also talks about the transition from real estate investing to running a software business and the importance of simplicity and user experience.    -------------------------------------------------------------- The Journey to Real Estate Investing [00:00:47] Building Deal Machine and Transitioning to a Business [00:03:18] The Growth and Success of Deal Machine [00:06:54] Improving App Design [00:09:16] Simplifying Features for Beginners [00:10:21] Using AI and Chat AI Format [00:11:20] Cell Tower Leases [00:18:21] Investing in Parking Lots [00:19:18] Racing [00:21:25] -------------------------------------------------------------- Connect with David: Instagram/TikTok: @dlecko Linkedin: Twitter: @tweetingdavid Facebook:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: David Lecko (00:00:00) - We weren't trying to change a behavior. People were driving for dollars for decades, and we just made it easier for them to do that. And then as we grew, we found out people also want to run comps. They want to know the MLS data is providing that comp, they want to pull lists. And so we've been able to do that. And I'll do it in the mobile app, which is pretty unique. I don't know that there's another solution that does all that in a mobile app.   Intro (00:00:24) - So welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:37) - David Leko is the founder and CEO of Deal Machine, which is the highest rated mobile app to help real estate investors find off market deals. David, welcome to the show.   David Lecko (00:00:47) - Thanks, man. It's a pleasure to be here with somebody who's got such a wide experience and real estate as you write, you did single family to commercial to laundry facilities.   Sam Wilson (00:00:58) - This is true, but this show is not about me. This show is about you, David. So I'm excited to have you on the show. I've actually in a previous life and it found I'm finding out from you here before we kicked off the show is that maybe I'll start using Deal Machine yet again. There was a previous life when I was doing Single Family. I used the machine quite a bit. So it it's kind of fun to have you here on the show many years later. But before we get into all of that, there are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   David Lecko (00:01:29) - I started in Indianapolis. I'm now in Austin, Texas, and I took an airplane to get here, believe it or not. Actually, that's a lie. No, I had to drive me and my cats on the road trip. But to to seriously answer your question, I was actually my life really sucked before real estate investing.   David Lecko (00:01:47) - I was the only software developer at a company as well as the tech support and customer service representative. So I was sleeping with my computer under my pillow and at my best friend's wedding I even had to leave and go fix a bug on this software. So, you know, real estate was a way to earn more money, but also kind of earn my time back. And I took the advice to drive for dollars and look for properties. I built a little widget for myself to look for those first few properties, and that turned into a company called Deal Machine. When I found out other people were willing to spend money to try new marketing methods for their own off market deal search. So I am just blown away by how other people have been able to improve their lives using the app I created for to do myself. So I've got about I've done 15 real estate deals and I have 12 rental properties. They're all in Indianapolis.   Sam Wilson (00:02:46) - Yeah. Well, let's, let's talk about I mean, because there's a, there's a, there's a split there where you find out that your business might be worth more than what you were doing in real estate itself.   Sam Wilson (00:02:58) - Like you found that shovel selling shovels to the miners became more profitable than mining itself. Kind of the old, you know, gold miners like that's and not not that you can't make money in real estate, but but that's kind of what you are like. You're selling a service to real estate investors at this point. So talk to us about that kind of transition for you and how that process worked.   David Lecko (00:03:18) - Yeah. So I got into the game because I wanted rental properties. I wanted that cash flow that would securely give me that cash flow every month, no matter what the stock market was doing. And even no matter what the real estate market was doing. I mean, rents don't go down if you look at the Federal Reserve graph. So I just knew that was my calling. I bought about, I say nine rental properties and then I stopped buying it because it had been three years or so. Deal Machine was really picking up steam and I started focusing on that. It was a bigger, faster growing opportunity.   David Lecko (00:03:53) - And then fast forward five years to now and I noticed I was like, Man, I got like $1 million of appreciation on these nine houses that I was holding. I wish I would have bought a lot more. And so now I'm, you know, I'm buying more properties again, I've done just my third deal this year so far. So kind of like a slow, steady start back into it this year. But it's been really fun. I'm loving doing it now.   Sam Wilson (00:04:20) - That's interesting. That's not the answer I would have expected. I mean, because you've built a cool I mean, a cool platform deal machines, an awesome app. For those of you that have no idea what I'm talking about. Well, now you know the name of it. Go. Go look it up, find it and figure out how to use it. But tell me, tell me. I mean, you are a software developer, so this kind of came to you naturally. But what was like how did how did you figure out? One of the questions I always had because this was what year did you launch Deal Machine 2018, 2019?   David Lecko (00:04:48) - Yeah, it was actually I started working on it 2016.   David Lecko (00:04:52) - Okay. And then I put it on the app store in 2017. Okay. And then, yeah, it wasn't well known and say I would say until 2019.   Sam Wilson (00:05:01) - Yeah, we were using it in 2018 because I hired a guy and I gave him the app and I just said, Hey, you know, here's how you drive for dollars, go out, find these houses, take photos and then bring them back. And that's what he did, actually using the Deal Machine app. But one of the things I always found to be interesting was how did you because you can pull data from counties, but how did you get it to where it would work nationwide? Because county data is so disorganized on a county by county basis that finding accurate information can sometimes be a bit of a cluster.   David Lecko (00:05:32) - So yeah, it only worked in Indianapolis. People really started talking about it though, and it was just terrible that they couldn't use it in their counties. I was wasting that moment where they wanted to try this new app that was out there, but it wasn't set up to use in there.   David Lecko (00:05:47) - So what I did was there's like several companies that aggregate this. The best is actually first American title company. Okay? And so but we tried a lot of different data providers and ended up being able to license that from one of those aggregator companies. So we get daily updates and so then that's that's live in the app. So if you've added a property, you're marketing to it saying, Hey, do you want to sell your house? If it sells, then the app will automatically update, shut that mail off and it'll tell you, Hey, this property changed hands. So we're turning off the marketing, right?   Sam Wilson (00:06:19) - No, that's cool. That makes sense. That makes sense. And that was a question I probably hadn't researched or thought more about until now because I'm getting rewinding five years of my business going. How did they get that? So you went to a third party aggregator of data, not directly to the source, because at the source was just such a quagmire of relevant information. I'll say it.   Sam Wilson (00:06:41) - I'll say to that that way. So talk to me about Deal Machine. What's it been like growing that app? What's it been like growing the user base, the iterations of it, the team that supports it? Talk to us about just the business side.   David Lecko (00:06:54) - Yeah, I feel thankful that I started this journey for freedom and luckily I was able to build a business without any investors and I have a business partner who's my best friend, but we kind of. Always have to please the customer, but there's not necessarily like an individual that would tell us to do one thing or another. And so I've been fortunate that we've had such a great partnership over these seven years without having to do that, which is so typical with software also. I mean, I think the true reason why that happened is because we weren't trying to change a behavior. People were driving for dollars for decades and we just made it easier for them to do that. And then as we grew, we found out people also want to run comps.   David Lecko (00:07:35) - They want to know the MLS data is providing that comp, they want to pull lists. And so we've been able to do that. And I'll do it in the mobile app, which is pretty unique. I don't know that there's another solution that does all that in a mobile app. So that's been pretty wild. The growth, I mean, like I said, I only wanted one property and that was the outcome of making this widget, you know, and I the I'm just continue like I continue to be thankful for the success that we've had and those that we've been able to help. And man, one of the stories that just sticks out to me is Cody Shafer is a guy I met a few months ago at a conference, and he was an Uber driver making $30,000 a month because he drive Uber, take the money he made from Uber, put it into his marketing to market to these rundown houses that he saw while he was delivering food. And I was like, Dang, you've got to be like the highest Uber driver out there.   David Lecko (00:08:32) - And so Cody is a guy who just makes me smile. I'm like, Dang, he's using my app to do that.   Sam Wilson (00:08:38) - That's cool, man. That's really, really cool. Talk to you about the iterations of this app. I mean, because that's it seems like keeping up. And again, I'm not a software developer, I can barely send an email. So keeping up with the iterations of like the new developments, keeping up with stuff in the App store, keeping up with the I mean, because I'm sure you get a thousand requests for, hey, can you make this thing, you know, fly us all to the moon? Like, no, I can't add that one on the list, but thanks for the offer. Like, how do you keep up with those? Just probably endless requests for updates.   David Lecko (00:09:07) - Yeah, well, so first of all, it looked really ugly because I made it myself, but I knew how to use it. It was functional, but it just looked ugly.   David Lecko (00:09:16) - And then I started getting a few signups per day. I was getting on 30 minute phone calls with them to tell them how to use the app. I was like, Man, it's got to be more self explanatory than that. So step two was I called my partner and he wasn't my partner at the time, but I was like, You're a better developer than me. You've got to make this look good. And so people need to know how it works without calling me for 30 minutes. Yeah. So that was step two. And then step three, we did we did listen to all the feature requests and in fact, we built them all. But Sam, I've got to be honest, like I always am. I'm always honest. Such a weird thing. I actually regret doing that because all of that complexity actually made it confusing for a new person who was just trying to create financial freedom for themselves and do their first deal. It made them have more analysis paralysis. So then step four is we kind of made it very simple again, even though we can do other things like run comps that it didn't do in the first place, It's just if there's an advanced feature, it's kind of tucked away.   David Lecko (00:10:21) - It's very hard to make complex things simple, but we've put a lot of effort into making it simple. And then five is just reduce the bugs further, make sure this is the most stable experience possible so that it is always feeling polished and nobody can tell when we've updated it. It wouldn't disturb their workflow, but we've kind of gotten a really good groove of that. So those would be like the five iterations I would say with Deal Machine, that's wild.   Sam Wilson (00:10:48) - Yeah. And that I think is the challenge of all. And it's funny, I was talking to another, another software firm here this morning on the show and we were talking about that, you know, taking the complex and making it simple, making the dashboard simple, making it to where there's no coding, no training, no like, hey, watch the 87 videos on how to actually get this to work. Right process, which, you know, I find that most most things that do require that. So you kind of dialed back a lot of the more robust features and went back to the back to the basics.   David Lecko (00:11:20) - Yeah. Like, for example, a lot of times I don't know what a property's worth, I will guess, but the comps tool is helpful for me to see that we now have the AI. When that all came out, we put that in the app and then it has access to real estate data, which is unique. The AI is out there, don't have access to real estate data otherwise. And so it can help me know what is the property worth, what does it think the comp is worth? And so I can also ask it for advice on responding to an objection from a seller. And that's a tool that's helping a lot of beginners get past that analysis paralysis in that in that chat AI format, right? You can ask it a lot of things just all right there in the chat window. So that's just one example of how we've incorporated something that's a little bit more advanced. But still in a simple way.   Sam Wilson (00:12:07) - Right. And I guess getting into the cops thing, I mean, that kind of goes if you have the feature, that's cool, but it kind of goes against the whole driving for Dollar's methodology, which is that really we're out here, we want to find 100 properties that we want to market to.   Sam Wilson (00:12:24) - And if they're, if they're dog looking properties, yeah, I want to take a photo of that and I want to market it like so the cops.   David Lecko (00:12:30) - Comes, the cops comes later when they call you back from your mailer and then you put together an offer. So that's what the cops are for, is when you're later in the process getting that call back.   Sam Wilson (00:12:41) - Right. Right. You don't need that the day you're standing there in front of the house going, man, like this grass is eight feet tall. I wonder what this house is. Actually fair market value is like, who cares? Take a picture like, Yeah, send him a postcard. Can I. Can I. Can I. Can I make you an offer? Well, let's talk about that side of it. I mean, when when I was using the the app back in 2018, I mean, you would drive up to a house, you could take the picture, and then you could mail a postcard. Right from the app, which I thought was one of the coolest features.   Sam Wilson (00:13:08) - Do you guys I haven't used the app in five years. So tell me, is that something you guys still do?   David Lecko (00:13:13) - Of course, yeah. I mean, I just did a deal a couple of months ago, and she called me because she's like, Hey, this postcard you sent, it has the picture of my actual house. Now, I didn't take it, but I pay a driver 20 an hour in Indianapolis to drive around and look for rundown properties. So he took the photo and I knew it was a good house because I could review the photos. I was like, Yeah, this this looks rundown. And so then she was like, Well, I called you because it looked like you put in a lot of time into this. I got other mailers, but I called you because you're stood out. I ended up missing out on the deal, but I kept in touch with her and said, Hey, is this thing closed yet? I just want to make sure you're taking care of.   David Lecko (00:13:51) - Funny enough, it fell out of the deal, fell through. And so then I got it for my original price and I did end up buying that deal for 122. I hear anecdotally that these mailers, they're actually causing people to call me instead of somebody else. So that's something that I've continued to do, is send the mail with the picture of the house on there. I think that's part of the magic.   Sam Wilson (00:14:14) - Part of the magic, absolutely. And the fact that, again, it's within and I'm not you know, I'm telling you things you already know, but it absolutely was when I was using them like, this is so powerful that I can take a picture of the house, you know, or like you, you know, I had a guy that was driving around taking photos for me. He could take a picture of himself like, Hey, here I am, you know, stand in front of your property like I'm actually here. Yeah. And so it removed a lot of the complexity and hit mail right from the app.   Sam Wilson (00:14:39) - So I think that's really, really cool. I love the way that you've also simplified it when you add it on to when you feel like this is too hard, we're going to do we're going to dial this back. Where does Dial Machine go from this point forward? What's what's the horizon look like for you guys?   David Lecko (00:14:54) - I think there's a lot of people that want to quit their jobs and build a business with a proven business model. I mean, most of the people use our app to do wholesaling real estate. I think we've only even scratched the surface. So my team, like the app grew on its own, which was crazy. I'm so lucky for that. And we've been now been able to reach more people this year specifically than we have in the past because we've started doing marketing. So, you know, I just am excited about the people we can help achieve an awesome life where they're not bound by just a 9 to 5 and they can make more in a month than they possibly did in a year sometimes, which is always really, really fun to do.   David Lecko (00:15:35) - So that's what I'm really excited about. In terms of what can dial Machine the app do, I would say there's one thing, Sam, that it still doesn't do yet and we will be getting to that eventually, but it's receiving the phone calls through a number that is incorporated in deal machines. So that way, you know, when your cell phone rings, you know, hey, this is like a money phone call and then the call can be logged automatically in deal machine. So that hasn't been done before, but I think that's going to really close the loop on that thing we all struggle with. It was just like follow up and entering notes in the CRM and keeping track of things like that because just like the deal I mentioned, that follow up was awesome and that's what got me the deal. So if the calls are coming back in through Deal Machine, I know we can help people with that follow up piece as.   Sam Wilson (00:16:28) - Well, right? Yeah, the money's in the follow up, so that's, that's really cool.   Sam Wilson (00:16:33) - I love I love that. It's always fun to hear. I mean, there's it's we never solve all the problems. We just kind of like every new solution creates another problem to solve, which is kind of kind of the way of life in its own right. But it's also you get to work on the ones that are even more fun. What about on the commercial side of things? I'll ask a question that pertains to me personally in in the sense that we are in heavy acquisition of laundry facilities. And so let's assume I drive up to a inn. Maybe, maybe this is where the challenge becomes. So I'm going to present to two challenges to you. I drive up. To a laundry facility will deal machine recognize commercial properties as well. Or is it just residential?   David Lecko (00:17:11) - Yeah so you're typical single family type list. You know, might be code enforcement list or absentee owners with high equity or expired MLS listings, all of which you can pull in deal machine. But on the commercial side, you can search buildings by units if you're looking for apartments, for example.   David Lecko (00:17:31) - And then we have this fun part of the app called Weird and Unusual property types. So beyond just being entertaining to look through, we've got dry cleaners slash laundry service and we also have self-service laundromat. And then right below that is a slaughterhouse stockyard. So you're probably not interested in that. You probably just stop right there, but thought that would be a fun example of what else is in that weird and unusual property type category.   Sam Wilson (00:17:57) - Yeah, I'm going to stop at the slaughterhouse and or stop before we get there. But but thanks for making that option one.   David Lecko (00:18:04) - One of the other property types was there's an investor who just invest in cell towers, and I thought that was really interesting. He said most carriers will actually rent the cell tower. Yeah, so that's even a property type that you can search for.   Sam Wilson (00:18:21) - Now, that's really cool. I mean, it was Amir Waldman, the guy that was was was he the one you talked to about the cell tower leases?   David Lecko (00:18:30) - I can't think of his name, and I don't know if that was his name.   David Lecko (00:18:33) - Okay. Okay. But you know somebody.   Sam Wilson (00:18:35) - Yeah, I do. Yeah. He specializes in brokering cell tower leases. So anyway, for those of you who are listening to the show, look up Meir Waldman. If you're just curious, like who? The world. What's he talking about? Really cool. Yeah, really cool knee. She came on the show maybe two years ago. And of course, I can't forget his name because the only guy I've ever met that specializes in cell tower leases. But yeah, you can go back and find that one. It's somewhere, I don't know, 300 episodes ago, but we were talking about something totally different than The Machine. He got off on a tangent, but that's a cool property type that you can look up and those are oftentimes the things that are just they're so nuanced. Well, here's here's let me throw this nuance at you. At one point I was investing in parking lots like surface parking lots and parking garages. Do you guys have that as a weird and unusual asset type?   David Lecko (00:19:18) - We do.   David Lecko (00:19:18) - And I actually had a dream before I ever bought any property. I was like, Man, I would love to own a parking lot because there's no upkeep on it. And they charge $40 a parking spot per night sometimes.   Sam Wilson (00:19:33) - So we bought we bought a parking asset in Houston, Texas. We paid, we bought 19. Who cares? We're talking. We'll talk about a lot of fun things in the show today. But 19 parking spaces, we paid $1.2 Million for it. Okay. That's a lot. It's a lot. That's it. Literally, it was a lot. I mean, yeah, it's a lot. And it was a lot. But it threw off $150,000 a year in not operating income.   David Lecko (00:20:00) - And not a lot of expenses. Right? Like, what's it going to do?   Sam Wilson (00:20:03) - What's it going to do? Flood We'll wait for the water to go down like. Right. Okay. It's it's a service parking lot. So yes, yes. There are opportunities like that where it's like, okay, this is just a stupid return with.   David Lecko (00:20:16) - How did you find that deal?   Sam Wilson (00:20:18) - Uh, driving for dollars.   David Lecko (00:20:20) - Heck, yeah. That's awesome. You just sent the mail to the owner, and they called you back.   Sam Wilson (00:20:24) - Researched them, making maps. I mean, that's a whole nother conversation earlier today. But, yeah, it was literally just okay, you know, mapping out all of the parking lots in Houston, Texas. I literally have a Google map still with every pin of every parking lot finding the owners, which is a total pain in the neck and then making offers. And so, yeah, it can be done. So it But just to your.   David Lecko (00:20:44) - You're my idol.   Sam Wilson (00:20:46) - No, sir. No, sir. I'm just just copying a page out of your book on driving for dollars. So that's, that's really the way that works. I mean, so that's really cool that you have that asset class in there because nobody else at this point has really ever said. I mean, it's just been a very manual process of determining what those are.   Sam Wilson (00:21:00) - So that is fantastic. I'm gonna have to compare what you have in your database against what I can go back to five years ago or four years ago and say, hey, what, what, what was I missing at any particular city? So that's really cool. Let's talk about something even more random and fun. We talked about racing. You moved to Austin and you moved to Austin and you got into racing Watts. What's that about?   David Lecko (00:21:25) - Yeah. So back in 2019, my friend said, Hey, I'm doing this race where you bring a $500 car and you drive it for 24 hours and we've got three drivers, we'd need a fourth. Would you want to do it? Usually a person who likes just weird stuff like that. And even though I had never driven this car or been on a track, I was super pumped. I said yes. And the first time I drove it, we didn't even practice with it. And the seat was like too small. And I was strapped in too tight and I was like, Dude, I cannot do this.   David Lecko (00:22:01) - I was the second driver. Cars are flying by on the track and he just shut the door and he's like, Do it. See you later. Be careful. And that was the first time I ever drove. And it took all of my mental capacity and I was not even going up to speed, but it was all almost like too much, right? But it was so refreshing that I couldn't think about anything else. I was just focused on what was going on right there. And and then I started to notice every lap I got a little bit more comfortable. So open up, more capacity, I could go a little bit faster and then just competing to see how fast could I go. And that was that was just an amazing feeling. Like I said, it was a break from anything else that was going on in life and that was something I really, really loved. So then I moved to Austin like a year and a half ago. There's a club racetrack here. It's $300 a month and they have a Miata Race series.   David Lecko (00:22:53) - So you have to have like a 1991 miata and it's only got 100 horsepower. That is the cap. And then they strip it all down and it's all everybody is the same car. So then it's skill based. So there's like 30 people out there. We do 18 races per year. This is we I've done ten races so far. So I got a coach, worked a lot with him and went from getting lapped to now I finished like fourth place was my best finish. The last race we did. So it's been fun just to get better at stuff and that is just one of the most rewarding things in the world to me.   Sam Wilson (00:23:28) - Dude, that's so cool. Like what? What a nuance and what what a what to talk about niche like that's way niching down a miata 1991 Mazda miata 100 horsepower car I do you had a $500 car that was supposed to run for 24 hours straight.   David Lecko (00:23:47) - That's part of the challenge. It's a racing's not just for rich idiots, for all idiots, you know.   David Lecko (00:23:52) - And so but yeah, so, so now the Miata Race series, the car is definitely I mean, I've spent like 14,000 to buy the car and set it up properly. Um, but it is one of the best cars to actually learn on because if you do not execute the corners in the highest speed way, you don't have horsepower to fix the problem. So you're going to be slow the whole straightaway. And so it really is great for driver development and being out there in a real race against other cars. It puts you in these situations where it's not only good enough to be faster than somebody, but you have to know how to pass them to. And that's like a totally different thing when you're trying to, you know, get around somebody who's like of a similar skill level as you. So it's just a lot more to learn. And it's so much fun, like I said, to get better.   Sam Wilson (00:24:43) - Wow. That's really, really cool. I mean, how fun is that? And again, like it just that's, that's the thing I love about stuff like that.   Sam Wilson (00:24:52) - You said it already, but it's like you can't think about anything else. You can't think about your work. You're not you can't think about Deal Machine. You can't think about your properties. You think can't think about, you know, pending closings. It is I have to race and there's nowhere else for my mind to go except for right here.   David Lecko (00:25:08) - Exactly.   Sam Wilson (00:25:09) - That's so cool. And like, not for just for rich idiots. It's for all idiots. So that's. That's pretty fun, man.   David Lecko (00:25:15) - That race series is called The 24 Hours of LeMans, which is a play on Word to that famous race called Lima in France. So it's yeah, it's like a race that they do those all around the country.   Sam Wilson (00:25:26) - Dude, that's cool. I'll have to check that out. The 24 hour race. I'm going to write that down here. David It's been a blast having you come on the show today and talk about Deal Machine. Talk about you growing the company, the app, how you've used it personally and then how it's making a difference in other people's lives.   Sam Wilson (00:25:41) - I don't know if you know this as well. I was I'm a Hoosier as well, actually. I used to own a business in Carmel, Indiana, which is where I think you're from. So it's it's blast to have you here on the show today and talk about a lot of different random stuff. But if we if our listeners want to get in touch with you and learn more about you, what is the best way to do that?   David Lecko (00:25:58) - I got to do a selfish plug for my own podcast, The Deal Machine Real Estate Investing podcast. I co-host it with Ryan Haywood, who's done 400 deals after he did a 14 day challenge back in 2019. So he and his wife, they made 8500 bucks in their first deal. Now we co-host a podcast and we talk to. People who have quit their jobs through this wholesaling real estate business model. And so that would be a great way to get to know me because just like this podcast, I just learned so much of random stuff talking with you and that was so fun.   David Lecko (00:26:33) - So but I'm also on Instagram is the best place to contact me on Instagram.   Sam Wilson (00:26:39) - Fantastic. Delete, go on Instagram. We'll make sure we put that there in the show notes. David, thank you again for your time today. I do appreciate it.   David Lecko (00:26:46) - Thanks, Sam.   Sam Wilson (00:26:47) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Oct 12, 2023
Strategies for Scaling a Real Estate and Lending Business

Today’s guest is Michael Gevurtz.   Michael Gevurtz is an entrepreneur and investor in the real estate and finance industries. He is the CEO and founder of Bluebird Companies, a diversified real estate organization specializing in private lending, development, and construction management.   Show summary: In this podcast episode, Michael shares his experience working for a real estate investment trust and how he ventured out on his own after the financial crisis hit. He discusses his decision to become a lender and how they mitigate risk by underwriting loans conservatively. Michael also talks about their focus on bridge and fix-and-flip loans and the importance of assessing borrower credit and cash flow potential. He emphasizes the significance of effective communication when managing a remote team and discusses scaling and team building. -------------------------------------------------------------- [00:03:41] The start of the lending business [00:08:52] The importance of single-family properties [00:10:05] Origination and sale of 30-year rental loans [00:11:43] Selling loans at scale [00:13:16] Fixed and flip loans [00:18:33] Leadership and scaling the business [00:21:49] The remote management approach [00:22:52] Benefits of remote management [00:23:56] Closing remarks and contact information -------------------------------------------------------------- Connect with Michael: Linkedin: Instagram: Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Michael Gevurtz (00:00:00) - Lending is a risk mitigation business. That's really what it is. What asset class do I go after to make the safest risk adjusted return for me and my investors?   Intro (00:00:11) - Welcome to the How to Scale Commercial real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:24) - Michael Gavin is an entrepreneur and investor in the real estate and finance industries. He is the CEO and founder of Bluebird Companies, a diversified real estate organization specializing in private lending, development and construction management. Michael, welcome to the show.   Michael Gevurtz (00:00:39) - Thank you, Sam, for having me.   Sam Wilson (00:00:40) - Absolutely. The pleasure is mine. Michael There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Michael Gevurtz (00:00:49) - Yeah, sure, Sam So I started in 2005 working for a real estate investment trust here in Philadelphia, Pennsylvania, Real estate investment trust. They they focus on they specialize in enclosed malls and shopping centers.   Michael Gevurtz (00:01:07) - Um, for about five years, I was a development director for the most of the properties in the South and part of the part of the mid-Atlantic region. So at that time, from 2005 through 2010, they were acquiring portfolios of malls and shopping centers. And that's and that's when this redevelopment initiative really took place in retail, when retail started changing. So converting big, you know, anchors and big boxes to more lifestyle oriented uses, maximizing value through developing out parcels on underutilized land, things like that. So I cut my teeth and I learned the business of real estate development there, which is a great experience because it was a large company. They owned 20,000,000ft² of of property fully integrated in-house. And and then the financial crisis hit. So and if you remember, the retail really got hit hard during that time. Um, so from there, in 2009, I decided to go off on my own. And from 2009 to about 2015, I was focusing. I was purchasing local properties in the neighborhoods, the emerging neighborhoods and outside Center City, Philadelphia.   Michael Gevurtz (00:02:34) - So in South Philadelphia, parts of North Philadelphia, a little bit in West Philadelphia. And we you know, we focus on this this urban infill strategy where I developed over 70 properties in that six year period, ranging from single family homes to sell single family homes to rent, mixed use properties, you know, apartments above a retail use or a restaurant, something like that. And that was really fun. And, you know, a lot of those investments, you know, we still own today. And then in 2018. Um, I brought, you know, from 2015 to 2018, I was experimenting with blending. So, you know, you're out in the neighborhoods, you're meeting these contractors or other real estate investors, and the market started getting a little overheated, at least I thought, at that time. So I started lending to contract, you know, other contractors and investors, 100,000 here, 200,000 there with some of the money that I made in the real estate business. And then it was successful and it was working and it was a relationship business.   Michael Gevurtz (00:03:41) - It wasn't actually a business. It was more of like a side investment. But then in 2018, I decided to bring all my real estate expertise and knowledge and the properties I had developed and manage and pair it with the lending business. So since 2018, we've been primarily focused on fix and flip bridge lending and 30 year rental products.   Sam Wilson (00:04:04) - That is really interesting. I want to go back to a comment you made where you said you felt like the market was getting overheated. Why would that then say to you, this is a good time to become the lender? I would have thought maybe it was the other way around where it's like, Oh, the market's overheated. The last thing I want to do is be holding a note on stuff that's going to go belly up. Well.   Michael Gevurtz (00:04:24) - Well, I didn't. The risk on that on those deals is in the equity position? Sure. So I'm underwriting these loans, especially at a conservative LTV. Back then it was like 50%. You know, back then it was more of like traditional hard money.   Michael Gevurtz (00:04:43) - And we can talk a little bit about what hard money means and things like that. So I didn't want you know, I started buying stuff 2009, 2010 that was like shooting fish in a barrel. I mean, anything you bought went up for the next few years. Reynolds Single family home prices went up. It was easy. And then around like 2015, like it wasn't so easy anymore. I was looking at different things, different way to attack it. No, I agree with you. I would not want to lend at a high LTV on an overheated market. But the way that I look at it is I take over the property if the borrower can't complete it. So, you know, I'd rather expose 100 to $200,000 in the debt position that instead of equity at that time.   Sam Wilson (00:05:24) - Yeah, absolutely. Absolutely. No, I think that's really cool. The thing I love about your story here is that you said you still own a lot of that portfolio that you built up from 2009 to 2015.   Sam Wilson (00:05:37) - Yes, I think that's awesome. I did a kind of a bag of the napkin analysis of everything I bought from 2013 to like 2020 because I was in the fix and flip game for actually 2018 when I got out of the fix and flip game. But I looked at that and I'm like, I could have retired if all I did was just hold that portfolio.   Michael Gevurtz (00:05:58) - Well, well, I'll tell you, it's funny you say that because the the best deal I ever did on a on a return basis was a package of eight single family houses in South Philadelphia that I bought in 2012, paid $100,000 apiece for them. They were all rented with great tenants for 12, 1300 bucks a month. And then, you know, I pretty much financed it 100% because there was equity in the deal where I was able to refinance it, you know, a year or two into it, get my money back. And I did make the mistake of selling most of those off. Now, I kept a bunch of them.   Michael Gevurtz (00:06:36) - But I do think about that sometimes. I'm driving down the street. I used to own that house. It'd be worth, you know, $400,000 today. But the majority of the portfolio I've kept.   Sam Wilson (00:06:46) - Good for you. Good for you. You're smarter than smarter than me. That's. Yeah. Which you can't. I mean, hindsight's always 2020 or at least somewhat. Sometimes it's 2020, I think I should say. But and that's just, that's just business. You know, you take the wins when you when you get them and you think you're winning and you are and you move on.   Michael Gevurtz (00:07:06) - Yeah, you can't.   Sam Wilson (00:07:07) - Always second guess it. But it is also interesting just to see what how the strategy, if I could go back, how you would have changed that. But I digress. And kind of getting off off track here because we want to talk about your lending business that you've built from 2018 until now. You guys focus on. Will you tell me like, what's what's your core business look like in the lending business now?   Michael Gevurtz (00:07:31) - So the the core business is that we're bridge lenders.   Michael Gevurtz (00:07:36) - We provide funding capital to acquire, construct and refinance Single 1 to 4 family properties is our core business. When I started it in 2018, it was heavy on the bridge side. There's a lot of fix and flip going on up until more recently because the real the state of the real estate market, it's kind of frozen is how I describe it. Yeah. In single family and commercial, we're doing a lot of 30 year rental loans for people who, you know, are trying to get, you know, flip their bridge loan into a perm. That market's really been healthy or people who own properties free and clear with little debt on them. And, you know, the capital markets are pretty, pretty dislocated at the moment and they're looking for money either for working capital or to to acquire more if they have equity in their property, 30 year rental loans. Great way to go.   Sam Wilson (00:08:37) - Yeah. So tell me tell me about, I guess in the first part of your statement there, why did you focus on the 1 to 4 family? What was the opportunity there that you saw in that versus other potential assets to lend on?   Michael Gevurtz (00:08:52) - Um, well, I started there because that's what I just knew and I built and renovated a bunch of stuff.   Michael Gevurtz (00:08:58) - I mean, it's kind of like where a lot of people start, right? The, the single family market, single family home market is, is more stable and has a longer track record of. Providing year over year growth compared to other asset types. You know, as I mentioned, I'm familiar with retail development and you see what's happening in the office space right now. People need a place to live. Look, multifamily is getting a little skittish because that could be a little overheated. The single family market is definitely the most stable and wanted, I thought to myself. Lending is a risk mitigation business. That's really what it is. What asset class do I go after to make the safest risk adjusted return for me and my investors?   Sam Wilson (00:09:50) - Got it. No, I love that. And now you. Now you've really switched, it sounds like to you said the 30 year rental loan. How do you how do you capitalize that and then get your money back? Are you selling those notes off? Yeah.   Michael Gevurtz (00:10:05) - Is that we all. Yeah, we can't we don't have the capital structure to hold 30 year paper. Right. So it's all are all originated used off warehouse lines and partnerships with capital providers and. It all goes to investors who have an appetite for that long term.   Sam Wilson (00:10:24) - Right. Right. That's that's interesting. So tell me how that how does that process work? Like, what's the turnover time from? Okay, maybe you guys have investors and I'm just I'm speculating here. So tell me if I'm wrong. You guys have investors give you money, you guys then go out and you close this 30 year, you fund this 30 year loan, but then you take that and then sell that off. Is that about the.   Michael Gevurtz (00:10:46) - Yeah, exactly. I mean, it's it's all about so the loans can be originated within 21 days. That's our average turn time. The and it's a turn business and it's a it's really a fee. Business is what it is. We're providing a service to match, you know.   Michael Gevurtz (00:11:07) - You know, our customers, our borrowers with the appropriate capital source. So we charge origination fees. There's some processing things that go into it and things like that.   Sam Wilson (00:11:17) - Sure. Sure. No, completely understand that. I was going to ask you about that. So I'm losing my train of thought here. Let's see. Isn't the buyer side of things now is looking at that. So yeah, it's a fee based business, but what's your what's your typical term? That was a question. What's your typical turn time from the day they closed? Yeah. Until you sell.   Michael Gevurtz (00:11:36) - An asset within within 1 or 2 weeks. Okay. It's quick. Yeah, we don't. I don't hold it on the warehouse line for very long.   Sam Wilson (00:11:43) - Right, Right. Okay. I gotcha. And then how do you match that up? I mean, are you selling these to private equity? Is there just a pool of buyers that you just put it out to and say, hey, I got this loan available? Or how do you how do you effectively sell those at scale is the question.   Michael Gevurtz (00:11:58) - Um, so this is a new product that we're working on and I actually have not yet in the chat, so to speak, on. Selling them at scale. We're smiling them off one by ones and small packages and things like that. But that's, you know, the next thing that we're going to be working on. Got it. And, you know, we need scale. For the securitization market. That's where all this stuff is going, right? Right. So it's going to be anywhere from 50 to $100 million at a clip. And again, look to you before, we're not there yet on the 30 year we're doing. You know, we focus a lot on the bridge and the fix and flip space, which is an entirely different loan type. And we hold you know, we hold most of that on our balance sheet. Um, but it will be it will be an interesting journey on how to. Efficiently execute on the aggregation and sale of those of those loan assets. And the way I look at it, I'm going to approach it, You know how I have built all the other parts of my business and, you know, we're going to take a clean sheet approach to it and I'm going to hire the best people and, you know, connect with the best people in the industry.   Michael Gevurtz (00:13:14) - And we're going to figure it out.   Sam Wilson (00:13:16) - Right? No, I like that. You know, and that was my next question. Was your fixed and flip loans, things like that. I would imagine that those are like you said, there are things you hold on the balance sheet. Is that simply just because the returns on those mean that's that those are those are interest bearing loans that at a number that probably makes sense.   Michael Gevurtz (00:13:36) - It's mostly because of duration I mean they're short duration you know average is say is a little under 12 months and you have to think about. Well, the where, you know, the capital that we have to lend doesn't have the time horizon for 30 years, first and foremost. And then for the other aspect is that, you know, duration isn't is expressed in time, but it's really a measure of risk as a result of interest rate changes. Yeah. So. Right, So a, you know, last year was a great example. Our entire portfolio for a period of time for a couple of months was like not making any money because our cost of capital was rising and our interest rates were fixed.   Michael Gevurtz (00:14:23) - On our bridge, on our bridge loans mean the whole industry, you know, got hit pretty hard by that because of how fast the rates rose. But because of short duration, it didn't affect the asset value of that loan. And I was able we were able to just run them off and then originate new loans at a higher rate. Right at market, Right.   Sam Wilson (00:14:41) - That makes sense. That makes sense. And and would you say because your your capital is, like you said, warehouse lines and things like that, do you take and it's probably a floating rate that just adjusts all the time. Do you bring in private. Do you raise money from private investors at fixed rates or is that just an entirely different side of the business or different strategy altogether?   Michael Gevurtz (00:15:03) - Yeah, no, no. We have we have the investors that plug in the equity capital required for the warehouse lines, and they're paid just a fixed rate of return based off the income that comes off the fund. Got it. And then the warehouse line fluctuates based off of Sofr or prime.   Sam Wilson (00:15:22) - Right. Got it. Okay, That's. That's pretty that's I mean, that's a pretty complicated series of things that have to happen because you're you're again, I'm just getting my head wrapped around. The way this works is that you have lenders that get a fixed rate of return who basically collateralized the warehouse line. Is that a fair saying.   Michael Gevurtz (00:15:43) - That that's exactly what to say.   Sam Wilson (00:15:45) - Yeah, right. Okay. And then you're borrowing off of that warehouse line. So you. Yeah, it's that is and.   Michael Gevurtz (00:15:52) - And that's why the short duration is important because imagine if we were taking long dated risk on a short that's that's a recipe for disaster and that's a that's effectively what you know the SVB banking crisis was. You know they their deposits and everything are short term. Their capital short term, they're borrowing short term. And they were buying long term instruments that they couldn't weather that storm and had a market down to market.   Sam Wilson (00:16:19) - Like selling options you have you would at that point have unlimited risk. You know. Exactly.   Sam Wilson (00:16:24) - Yeah.   Michael Gevurtz (00:16:25) - So yeah you it's like the.   Sam Wilson (00:16:27) - Premium but then you have unlimited risk as the interest rate rises. So it's like you got to offset that somehow. And the way you do that is by, you know, compressed duration.   Michael Gevurtz (00:16:36) - Exactly. That's right.   Sam Wilson (00:16:38) - That's cool. I love that. Very, very cool. So we've talked a little bit about your private lending business. Actually, I have a couple of questions here before we kind of shift gears and talk really about the business side of your business. But, um, where do you see risk right now in the space that you're in? And I know we talked a little bit about this compressed or shorter durations is a way you offset some of that risk. But what are some other things, I guess market sentiment? And then where do you see risk and how are you guys offsetting that?   Michael Gevurtz (00:17:07) - So. It's really a function of, you know, credit the borrower's credit and loan to value on the collateral. And, you know, I was having a conversation with a colleague of mine in the industry, and all he wanted to talk about was, well, what's the LTV? What's the value? What's the value of the asset, what the value of the collateral.   Michael Gevurtz (00:17:28) - And that's, you know, nice to look at an appraisal and say, you know, yeah, this house is worth $400,000, but if there's not many transactions, you have to resort to cash flow. You know, what's, what's the what's the borrower look like, What's their experience in their ability to execute and what type of cash flow can the property throw off, even if it's not designed to even if their plan is to sell it as a flip? You've got to look at the rental income because that will be able to ride you through a rough patch. Whereas value, who knows what values are today in reality.   Sam Wilson (00:18:06) - That makes a lot of sense. Makes a lot of sense. Very cool. One other point I wanted to make here is that you guys have just gone to a national lending lender.   Michael Gevurtz (00:18:16) - Yeah, we're we're now national lenders. We're able to lend across the country opposed to just stay here local in Philadelphia.   Sam Wilson (00:18:23) - Got it. Well, let's talk about that because that requires team. That requires building a business that requires you as the leader to, you know, get out there and organize all your people in the right ways.   Sam Wilson (00:18:33) - So what have been some things, I guess, on the leadership side and scaling your business that have been kind of some important lessons that you've learned over the last few years?   Michael Gevurtz (00:18:42) - So I think. The first thing, looking back at some of the mistakes I've made, is that before you scale a business, you really have to define what you're doing, why you're doing it, what are your values, what's the culture that you want to create? And because everyone does create. A culture, they just might not know what the heck they're doing. And then if they grow and grow and grow one day, they look around themselves and they're like, I don't like what this guy's doing or how this guy's behaving or how we are collectively, you know, attacking this. So, you know, I went through for a few years. It took me a few years to really figure that out. And I went through an exhaustive process to define my objectives from a leadership standpoint. And and then the next challenge is, you know.   Michael Gevurtz (00:19:42) - You have to communicate it. Um, you know, what are our values again? What are our. What's our mission? Our mission is that we provide capital to real estate investors so they can accomplish their goals. And I've seen it across the board. Some of our clients are just looking to build up a portfolio to create wealth for generational wealth. Some of our clients are looking to improve neighborhoods. You know, they grew up in an area they don't like the direction that's going into. And so once you really, you know, they don't like the direction that it's going into. So that's why they're motivated to do what they do. So when you're able to connect those points together, then you know you have a purpose behind that. And that's really I think we're like, you know, we're the special sauce is.   Sam Wilson (00:20:26) - Yeah, no, that's very, very cool. And it sounds like you would like to align yourselves with borrowers that have kind of a mission and purpose behind what they're doing that kind of aligns with what your mission and purpose is, Correct?   Michael Gevurtz (00:20:38) - Correct.   Michael Gevurtz (00:20:39) - I the word alignment, you know, is key. Like, you know, going back to after when I left Crete, you know, I built all those properties and some of them, you know, with a series of different partners. I was looking for partners. I'm a I'm a I love the action. I'm a deal junkie by trade, by nature. And, you know, you get into a partnership with somebody and they're your friend or they do something that you do, and then you realize, well, it doesn't really complement what I do. And our interests really are not aligned. So alignment of interest between internal stakeholders and external stakeholders is really important to me. Yeah, and being able to identify that is key.   Sam Wilson (00:21:24) - Right? That's that's fantastic. What's it been like scaling across the country? I mean, that requires that communication, um, really just to increase exponentially, I would think you accomplish that.   Michael Gevurtz (00:21:39) - So.   Michael Gevurtz (00:21:41) - It's. Remote work and hybrid work has really you know, that shift has really changed the landscape.   Michael Gevurtz (00:21:49) - I used to have a mentality of that. You have to have people boots on the ground in the neighborhoods across the country to get that going. And, you know, a couple years ago, a colleague of mine and. Pretty much, you know, opened my eyes up. The fact that there's so much data out there and, you know, and he was in in Baltimore, Maryland, and I could tell you what's going on on the property in North Philadelphia that you're lending on. I know it just as well as you do. And I'm sitting here in Baltimore. So, you know, we mostly most of the national stuff is done totally remotely and we spend a lot of time. I spend a lot of time with my sales director, for example, making sure that he's managing the sales staff and. You have. He's so diligent with communication. When you're when you're managing remotely, you have to essentially keep it, act like you're in the office together, but not right. And it's not intuitive for a lot of people.   Michael Gevurtz (00:22:52) - But. If you're diligent with that, the results can be great. And, you know, in terms of because, you know, we have we have sales guys in Florida that are doing deals up here. You know, they just you know, all the borrowers have the same objective. You know, we know what they want. It can be anywhere.   Sam Wilson (00:23:16) - Right. Right. Oh, that's cool. Absolutely. Love it. Michael, I regret that we are out of time because there's a lot of questions here on the leadership team building, scaling side of things. I feel like you've got a front row seat to growing something. I think you get you get some of the people and they're always excellent guests. But on the show, you know that have are looking back 40 years ago and going man this is what it took to grow but I feel like you are kind of in the middle of it. And so there's a lot of lessons that we can we can really learn from you. Thank you for taking the time to really break down your business, the private lending business, how you guys are offsetting risk the products you guys see that customers want right now and how you guys are aligning yourselves with your borrowers on on what your company core values are and what they're accomplishing as well.   Sam Wilson (00:23:56) - So I think this is a really cool space. I absolutely love it. Thank you for taking the time to come on today. If our listeners want to get in touch with you, your firm and learn more about you, what is the best way to do that?   Michael Gevurtz (00:24:06) - The best way is Bloomberg lending. There's a a contact us and an apply now page and that will go straight to our sales team and we'd love to talk to whoever is interested in working on the next project.   Sam Wilson (00:24:22) - Fantastic Bluebird lending Blue Bird lending. If I could speak bluebird lending. Com and make sure we include that there in the show notes. Michael thank you again for your time today. I do appreciate it. Thank you Sam. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.   Sam Wilson (00:24:51) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Oct 11, 2023
The Best Advice for Succeeding in the Laundry Industry

Today’s guest is Mike Worthy.   Mike is the VP of Equipment Sales for the oldest/largest commercial laundry distributor in the Mid-South area.    Show summary:  In this podcast episode, Mike Worthy, discusses the laundry business and the opportunities and challenges it presents. He emphasizes the importance of doing business right and getting the right advice from reputable distributors. Mike explains that every case is different and thorough research is crucial. He provides case studies to illustrate the differences in laundry facilities and talks about the changing model of the industry. The conversation also covers rising costs, sophisticated ownership groups, the future of the laundry business, and the importance of choosing the right equipment mix and reliable distributor.  -------------------------------------------------------------- Intro [00:00:00]   Opportunities and challenges in the laundry business [00:01:46]   The shift in ownership and consumer expectations [00:05:29]   The changing model of the laundry industry [00:09:07]   Barriers to entry in the laundry business [00:10:38]   The importance of research and partnering with experienced professionals [00:11:51]   The future of laundry [00:18:19]   The specialization of people within their niches [00:19:44]   The importance of distributor guidance [00:21:29] -------------------------------------------------------------- Connect with Mike: Linkedin: Web: Phone: 800-467-3194   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below:   Mike Worthy (00:00:00) - So people get into this phase of I'm just going to drop it off, have someone touch it, do it. I don't have to worry about, come back and pick it up. And that it continues to increase with wash dry fold, people wanting to use a phone app, people not wanting to use quarters and that that demographic changes daily on the value of people don't want to do what the old laundries used to do.   Intro (00:00:20) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:33) - Mike Worthy is the VP of Equipment Sales for the oldest and largest commercial laundry distributor in the Mid South Central Laundry Equipment. Mike, welcome to the show.   Mike Worthy (00:00:42) - Well, thanks for having me.   Sam Wilson (00:00:43) - Absolutely. Mike The pleasure is mine. I think this is the first time I've had anybody come on the show and talk about laundry. If anybody who's listening to this knows we are going long in the laundry business.   Sam Wilson (00:00:54) - And so I think this is a lot of fun. I'm glad to have you on today, Mike. There are three questions, though, that I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Mike Worthy (00:01:05) - Okay, so our company started back in the mid 80s when everyone had mullets and parachute pants and listening to Duran Duran. So we've been around for a long time. We started out also owning some some small laundry operations and we soon found out you you can't own an operation and compete with your customers. And so for the last 38 years or so, we've been totally independent, providing everything from commercial laundry to hotels, motels, vineyard laundries, hospitals and hotels and I've been doing this for good, gosh, over 20 years. And so had a lot of fun And enjoy the ride, man.   Sam Wilson (00:01:39) - That's cool. Well, tell me, I mean, is now a good time to be in the laundry business?   Mike Worthy (00:01:46) - It is if you do it right, that the key is it's always a good time to get in business and expand your portfolio.   Mike Worthy (00:01:52) - But do you do it right and do you have the right advice from the right people? So, yes, absolutely. Great time.   Sam Wilson (00:01:59) - Well, let's let's talk about what do it right might entail. I mean, there's we we see unlimited opportunity. And I think in our space, which we're in the retail you know where would the retail laundry space. So we do the self-serve, we do drop-off, we do delivery, all of those things. And I see unlimited opportunity to acquire stores and then go do it right. But I want to hear from you because you get to see all across the country all different types of laundry facilities, what does do it right mean for you?   Mike Worthy (00:02:30) - So it's every case is a case by case basis. That's that's the key. You can't just use a universal cookie cutter and says what works in Dallas is going to work in Marion, Arkansas, for example. So everyone is a is a is a case by case basis. And the key to everything is is getting as much information as you can from a reputable distributor.   Mike Worthy (00:02:52) - And so there's a long listing of things that you look for in distributors. But but the key is getting good advice, doing your research and getting as much research as you can. But boots on the ground is also equally important.   Sam Wilson (00:03:06) - Okay. So boots on the ground. But so you say you stay on a case by case basis. Let's look at some of these cases. How could some of how give me maybe two different case studies and how they would differ.   Mike Worthy (00:03:16) - Okay. So for example, suppose we're talking in a large town that has laundries for sale. So just because the laundry is for sale doesn't mean that it's a great idea or a great investment. It could be, but there's a reason that it's for sale to begin with. And there's a long list of scenarios that that something could be for sale. But as a business person, if I've got a business and it's doing well, why do I want to sell it? There's always that. Why there's always underlying things that's being sold because the equipment doesn't work or it's outdated or they can't get service or the equipment is obsolete.   Mike Worthy (00:03:52) - So there's a long list of things that you look for for sure, but you also have that equal opportunity if you want to buy your own property, build your own laundry, you know, kind of custom tailor it to to your needs. So we've got people that start from a ground up situation. We just had a great success story in South Arkansas, $1 million plus laundry that built from the ground up all the way to 16 foot ceiling fans and floors that look like the ocean to, hey, I'm just buying something and I'm just going to re-equip it and try to get my profits up. So a lot of different scenarios and everyone is different.   Sam Wilson (00:04:26) - Everyone is different. And I think that's that's the fun part about it, is that is that you got to you have to determine what the right store needs in a particular location. But let's let's talk about the Y sell scenario. I have this theory that the average laundromat owner is getting older. This is what we're seeing on the stores we're acquiring. They're getting older.   Sam Wilson (00:04:51) - They are still taking coins. They mean a lot of the stores we're buying don't have a website. They don't have a phone line. They don't do pickup and delivery and the list goes on. You know, I mean, the store we just bought, the guy was telling me all about how to do a bearing overhaul on a machine. And I just kind of looked at him and I'm like. Now. I don't want to know how to do that.   Mike Worthy (00:05:15) - No, you do not. It is not fun.   Sam Wilson (00:05:17) - No, in a poor use of their time. So I'm seeing. I'm seeing this this shift in ownership from older to younger, which just makes sense because, I mean, the model they have built is unscalable or unsustainable, rather.   Mike Worthy (00:05:29) - No, you've nailed it right on the head. And what you've also seen is that the days of the small laundry will be coming to a close sooner or later, Maybe not in the particular town that you're in or someone else may be in. But unfortunately, due to this day and age of Covid and social distancing, people don't want to be cramped in a small laundry.   Mike Worthy (00:05:47) - They want to have the amenities of a nice laundry. And I give this example all the time. I'm in my mid 50s and I grew up in the 80s, of course, watching a Chevy Chase vacation. And you'll hear a and I tell this to everyone, you'll hear a sentence in there that says, I'm so hungry I could eat a sandwich from a gas station and that back then you would think of a gas station. You would never eat there. You wouldn't want to use the restroom there. I don't want to stop, but nowadays you see a nice gas station and they've got food and drink and TV and Wi-Fi and all this good stuff. So what our demands are as a consumer has changed for laundry and gas stations and doctor's offices and shopping. And a lot of these people aren't up to speed and you hit it right on the head when you said wash dry fold and things to that extent, because I've got a I've got a son that's second year of college that doesn't want to do laundry.   Mike Worthy (00:06:36) - So people get into this phase of I'm just going to drop it off, have someone touch it, do it. I don't have to worry about, come back and pick it up. And that it continues to increase with wash dry fold, people wanting to use a phone app, people not wanting to use quarters and that that demographic changes daily on the value of people don't want to do what the old laundries used to do.   Sam Wilson (00:06:57) - I think that's that's probably the best comparison I have heard yet. I had I hadn't put that those two together. But you're absolutely right. And you would say, I think I think previous mentality would have said that that the people that want and use laundromats don't demand that those amenities. But they do. I mean, we just retooled a store here in Memphis. And I mean, it's like like you said, the floors are, you know, everything's new top to bottom, brand new paint, signage, machineries or equipment, the payment systems. I mean, it's just it's it's a spotless brand new store.   Sam Wilson (00:07:31) - And the place was a dump before. Yes.   Mike Worthy (00:07:33) - And you get into the stereotypes when you just say the word. Well, first of all, when you say the word coin laundry, it's no longer just coin. But you have that vision of your head of broken equipment and nasty and no air conditioning. And the market's changed because suppose you're you're you're a well-off gentleman and you're married and you've got three kids and you went to, let's say, Silver Dollar City over the weekend and you have all this laundry. Well, do you want to come home and you guys spend the rest of your Sunday doing laundry or take it down to a nice laundromat and knock it out in an hour, an hour and a half. Right. And so the general consumer doesn't want to go to a laundry that's nasty and dirty or unsafe or unlit. And so when you provide those services, you're not only opening up customers that don't have a washer and dryer, but now you've got grandma that spilled something on the comforter and you've got the kids that don't want to do all the football uniforms.   Mike Worthy (00:08:21) - And so your your clientele just basically jumps through the roof with the offerings that you can offer as a smart laundry owner, right?   Sam Wilson (00:08:28) - Absolutely. Yeah. On that store in particular, we've doubled revenues in just a few short months, which.   Mike Worthy (00:08:33) - Is just very, very doable.   Sam Wilson (00:08:34) - Very doable. Right. So let's talk about that. One of the one of the not one of the objections I was going to say blowback, but that's the wrong word. One of the objections I receive from potential investors, as they say. Well, I mean, well, if you can do it and it's so simple, like you just mentioned, lighting, machinery, payment systems, point of sale systems, staffing your stores, you know, increased hours, all those things that we do there, like that's anybody can do that. So what prevents somebody else from coming in and putting a store in the corner right next to you? I have an answer for that, but I'd love to hear kind of what your thoughts are on that.   Mike Worthy (00:09:07) - So as a distributor and I know I stress on this, but the model has changed so much because in the past, the way the laundry industry worked is you had to be a laundry owner to to be able to be a distributor because you have quotas. Just like in any job, you've got a quota, you got to hit your number. Well, if you're not out selling the customers, then the only way you're selling is to yourself. And so that is kind of changed where, hey, they're looking for manufacturers are looking for a full fledged distributor, not just an owner, but someone that is that handles everything from a hotel to a vintage laundry to a to a hospital. And so the ownership has changed on what they're looking for. And by ownership, I'm talking about the manufacturers. But when we get into looking to compete with someone, one of the things that we promise is we're not going to put a laundry next to you. If you partner up with us, you've got a you've got our word as a vendor of almost 40 years that why do we want to put someone right next to you? Why would we want to put something else you got to worry about? Two is franchised stores.   Mike Worthy (00:10:06) - We're not going to put a franchise store next to you. We're going to make sure that we take care of our customer. And it makes no sense to put and I know certain areas in Memphis. You can go into a two two square mile radius and find ten laundries. And half of them are all put in by the same person and four of them are owned by the. By the distributor. So you need to really even out the playing field and really dive into what you're doing. But that's the key of making sure you're finding demographics and a good spot. And as us, we're not going to build against somebody that we just built for.   Sam Wilson (00:10:38) - I think I think the other side of this and one of my answers to it is that the the cost to build stores has risen. I mean, incredibly incredible.   Mike Worthy (00:10:49) - Well, yeah. And the finance. Right. Just went up, too, as you know. So this is we take the call every day, 3 or 4 times a day. Hey, I'd like to get in the laundry business.   Mike Worthy (00:10:57) - I've got $5,000 and we do take that. So unfortunately, getting into a business, it's one of those things you got to have some money to make some money. Right? And that's kind of true because some of the bigger investments now are million dollar stores or half million dollar stores easily easy before you start getting into it. Really a lot of improvements. These are some basic stores that are 4 or $500,000 just on equipment. Right. And then contractor cost and plumbing, all of that stuff adds up. And sometimes people aren't educated enough to and I don't mean that badly. I'm saying they don't do their legwork right, of saying, hey, before I buy this property, let me see the demographics. Let me see if there's laundries nearby. And oh, let me make sure if I'm going to put a laundry here, I don't have to bore a drain under a state highway. That's going to cost me an extra 20,000 grand.   Sam Wilson (00:11:43) - Right?   Mike Worthy (00:11:43) - Right. So there's a lot of things and that's that's the key, is to partner up with someone that's that's done it, that understands every nuance of how it works.   Sam Wilson (00:11:51) - You're spot on. Correct. And those are all the all the answers I give to investors because we have our clean laundry fund, which is we're going out and acquiring 20 to 25 stores through that fund. And people say, well, why can't, you know, why can't just the guy down the street just come out and start a laundromat? Because all the things you just mentioned, one, it's knowing what you're doing. And two, it's just the the incredible amount of capital now that it takes to get to build and then, you know, furnish a store it completely or put all the equipment in a store. I mean, I'm budgeting anywhere from 750 to $1.5 million per store now. I mean, at the low end at 750 to 800 and easily.   Mike Worthy (00:12:27) - And then if you have to build your building, add to add to that, add to that.   Sam Wilson (00:12:31) - Right. And so I think that's one of the barriers to entry that I personally really like one because it's like it keeps the mom and it keeps it keeps just that I hate to say it keeps them out, but there's just there's just a natural barrier to entry and getting in the business.   Sam Wilson (00:12:44) - And so I think that's it's good in the sense. The other thing I'm seeing I think is really good is a, um, a sophisticated ownership group entering the space. Tell me what you think about when I say that. What do you think?   Mike Worthy (00:12:59) - So and that's kind of a loose term because everyone's different and sophistication is based on someone's own opinion on for sure. Where did they get that information? So you get some folks to get some great information and you get some that, hey, I read it. You know, everything you see on the Internet, it's true. And everything you read is true. You get some people that get some bad information. And that's that's the key. I can't stress that enough is if I'm shopping for a vehicle, I'm going to look at the three or 4 or 5, six different brands, and then I'm going to start looking at dealerships. And in this day and age of point and click and instant gratification through through a, you know, through a drive through or through your phone.   Mike Worthy (00:13:36) - Sometimes people don't do the research. They just say, Hey, I found the first guy right here. Here's the first one on Google. I'm going to call him. Oh, he sounded good. And don't do the rest of the research. So there's a lot of underlying things that we see when we say, Hey, this group may be great and this group may not be so great, but they both think they're great. And so the key is just using the research that's available at your fingertips.   Sam Wilson (00:14:01) - Right? Right. When I when I say that one of the things I'm thinking of is that we're just seeing people come to the space that want to do this professionally. They want to build a replicable, scalable business that serves their customers really well. It goes back to, you know, the, you know, the rise of the Speedway gas station, talking about things that you you know, where it's like, hey, you get there clean. They're well lit. I mean, you can see two gas stations, one across.   Sam Wilson (00:14:26) - I'm thinking of BP versus and BP maybe coming around. I don't know. But if I think of which one's going to be better lit and more well equipped, I'm going to say, well, it's going to be a speedway gas station versus maybe a BP gas station because maybe. Right. Different standards. And so what I'm seeing is that same thing in the laundry space where we're seeing consolidation ownership groups are buying ten, 20, 30 stores at a time or in their portfolios, rather, versus the just stand alone mom and pop owner that, again, you know, is lacking a phone line or a website to.   Mike Worthy (00:14:54) - That's correct. And that's not where it's at. So if I'm building a laundry, that's what I'm looking for, is if my competitors, the small little laundry mom and pop, the biggest thing if I walk into a competitor and there's all these signs that say Broken out of order, that's my key to build. Absolutely in in a heartbeat builder by now. And it makes it makes sense.   Mike Worthy (00:15:13) - But you've also got to do those demographics just because you see the one laundry in town and then you start looking at the number and going, Well, I'm going to spend $600,000, but the laundry is only going to make $80,000 a year. That's not smart, know, And being able to understand the demographics, it's not just let me print something out and hand you a nice portfolio and you figure it out. You have to be able to dive in, do the talk, walk the walk, and then you get into the you know, then you get into the deep dive of who's the distributor in the service after the sale and the parts and the equipment brand and, and it goes on and on. But this is not we do see a lot of people that have got the right mindset, like you said, But, hey, my wife's going to run it in her spare time and I'm a doctor over here. This is not that. This is not the glamour of a subway or a restaurant.   Mike Worthy (00:15:56) - And look at me. You're going to you're going to have a baby stock hung in a pump. You're going to have someone lost their money and they're upset. You're going to have you know, you're going to have a myriad of things that could could happen in a laundry, as you can imagine. But this is your this is a hands on. This is not just I'm going to set it and forget it and go rake up all the money and go buy a new bass boat. And that's where the mentality has been for the last couple of decades, right?   Sam Wilson (00:16:20) - Yeah. And you said all the things that could go wrong. I'm going to switch that word out and say all the things that will go wrong. Well, I was.   Mike Worthy (00:16:26) - I was being optimistic, But you're you're right on there, you know. You know what I'm talking about.   Sam Wilson (00:16:29) - Absolutely, man. I've and that's that's the other thing is that is it is. It is. And you can decide, I think, how operationally complex you want to make it.   Sam Wilson (00:16:39) - But even even if you're not doing wash dry fold, even if you're not doing delivery laundry with drivers and trucks and all that stuff that you can add on, even on just the self-serve side of things, it's still an operationally complex business. And I think that's that's what people kind of miss estimate as they look to get into this and go, oh my gosh. And we just have the fortunate pleasure of just kind of learning on the job and having other things going on too. We got in the laundry business kind of by mistake, and then I found out I loved it. I'm like, Oh, this is great. Well, it's.   Mike Worthy (00:17:10) - Great. It is. It is fantastic. You meet a lot of nice people. Yeah, it is. It is one of the things I mean, we've been doing almost 40. I've been in almost for 20. And I learn something new every day.   Sam Wilson (00:17:19) - Absolutely. Let's talk.   Mike Worthy (00:17:20) - Coming to work.   Sam Wilson (00:17:21) - I do, too, man. I think. I think it's great.   Sam Wilson (00:17:23) - One of the there's two things I love about the business. One is that it has excellent margins. And then I think the other side of it is that when you bring an excellent product to market, we get to serve a demographic that's not used to being served in that way.   Mike Worthy (00:17:36) - I'm almost shocked if this is for me, this, wow, this has air conditioning, you know, so many places you walk into and it's really kind of sad of how can you expect someone to to operate a facility and you don't have heating air or you don't have a restroom or you don't have a just basic a chair, right? And so you come in and offer. Someone that what they expect and you go beyond the expectations and that's your advertising. They will tell people and then they'll spread the word. They'll post it on Facebook. That's your that's where you're going after is the word of mouth.   Sam Wilson (00:18:11) - Right? We have we have this new store we just brought online. In the last seven days. We've generated over 55 star Google reviews for that store.   Sam Wilson (00:18:19) - I mean, it's like it's just not that hard to present a really great product that people love. I want to talk to you before we run out of time, though. Let's talk about the future of laundry. One of the things that I always emphasize is that I feel and tell me if I'm right or wrong. So I'd love some feedback on this that that the laundry business is recession and inflation resistant. What do you think?   Mike Worthy (00:18:42) - Well, they've been saying that same sentence and you've hit it right on the head again for for decades. And when the when the chips are down, guess what? People are at the laundry, Right. And then when the chips are up and everyone's doing well, guess what? Then you've got to think of other ways to keep that business going. And guess what? The wash dry fold you've just hit an area if you're doing wash dry fold for people that have a washer and dryer and have a have a two car garage and have a college education, they just don't want to do laundry.   Mike Worthy (00:19:06) - I don't like to do laundry. I hate it. But if I can take it and drop it off and someone will have it all nice and pressed and ironed for me, hey, great. I'll pick that up and I'll pay for that service. You pay for the for the biggie fry or the biggie drink. You know, there's there's things people want to pay for and that's one of them that more and more people are going, I don't want to do laundry. I don't want it. You think of the think of the the influx now of landscapers and yard workers. Used to be, you know, everyone was proud to do their own yard. I'm going to mow my yard. I'm proud Now. I was like, I'm not doing I'm hiring that I got my time is valuable, right? And so put value on your time. And that's why you see the Wash Dry fold is doing so well.   Sam Wilson (00:19:44) - It really is. Yeah. I mean, this goes back to just the continued specialization of people within their niches.   Sam Wilson (00:19:51) - It's like and the same thing holds true for me. I mean, you hit it on the head the maybe 2 or 3 years ago. I'm like. I'm no longer mowing my lawn. This makes no sense to me to go out on a Saturday and spend two hours mowing my grass when it's like, Well, I could spend two hours building our laundry business or any of our other commercial real estate businesses and have a far greater return on my time than pushing more around this.   Mike Worthy (00:20:14) - Maybe it's me. I take the two hour nap on a Saturday. You know, let me relax. People want to enjoy some time off for a while, and that's not where it's at. And laundry also is not where, you know, do you really want to have to spend all that time doing that? More and more people are saying, no, I'll take it somewhere, as long as it's cool, clean and comfortable and reputable. That's not going to happen in these little small, dumpy little laundries. You offer what you know, you basically you build it, they will come.   Sam Wilson (00:20:37) - You build it, they will come. That's so true. Yeah. I always make the joke. One of the stores we just bought the five closest stores to this one that we're remodeling. I wouldn't wash my dog in, let alone go. It's like, okay, we have. We have nothing but unlimited opportunity in upside. So I really love the idea. I didn't know that that was really something you've been saying for, you know, since coin laundries or just laundry.   Mike Worthy (00:20:59) - It's been around for a while. But that but you hear that and people hear it. But you still have to have the eagerness and the finances to get into the business. Right. And it's a great and you were right when you said, hey, it's think of how many people have a restaurant, mom and pop restaurant, and you see them come and go, This is not going to be the mom and pop come and go investment. You're not going to see that. Nope. And so kind of weeds out the bad investments.   Mike Worthy (00:21:22) - Hopefully. Now it doesn't mean we doubt everybody, but then now you've got to make sure you've got the right equipment mix and the right distributor to help.   Sam Wilson (00:21:29) - That's it. I mean, that's it. And we rely heavily on our distributor for making those informed decisions because it and one of the things I keep saying to our investor base is that we want to thoughtfully scale, like as we grow, because you can still buy a bad store, you can still buy a bad location, you can still overbuild under build wrong, mean wrong payment systems. You can misread it without all of the correct data and think that is where a distributor such as yourself really, really comes in and helps guide. And I know you guys are in the business to sell equipment. I understand that that's how you get paid, but also you build alongside of those that you work with because if we fail, you fail too.   Mike Worthy (00:22:07) - So that's actually part of that is true and part of that is false. So one of the things that we've said since we've opened our doors is my job isn't to sell you equipment and you go, Well, what's that? My job is to make you successful.   Mike Worthy (00:22:21) - I can't afford to sell you equipment. And then you're, you know, I'm just talking. And I said, you get you all hopped up to buy equipment and you fail. I can't afford that. I want you successful. And then you're going to tell someone or you're going to buy another store or they're going to know, Hey, call Mike. This guy really treated me right. I can't afford to fail. So, you know, when we say we're truly behind the customer from the demographics to the design to, you know, trying to get same or second day service being in town, we put a strong focus on that. So it's it's not hey, let me just make a quick sale that, you know, we all like to make money, but I like to see you successful. That's that's my number one goal.   Sam Wilson (00:22:57) - Love it. Mike. Thank you for taking the time to come on the show today. It was certainly fun for me to get to banter with somebody else about the laundry business.   Sam Wilson (00:23:05) - I don't get to do that every day. We talk a lot about all the other commercial real estate asset classes, and this was personally a lot of fun for me, just because it's something we are so passionate about right now. If our listeners want to get in touch with you or learn more about you or the laundry business, now that they've got a front row seat to how it should be done, what is the best way to do that?   Mike Worthy (00:23:25) - Okay, so a couple of ways. Central laundry equipment, that's our website, Central laundry equipment. Or you can call our 800 number. We have offices in central Arkansas and Memphis. That number is (800) 467-3194. (800) 467-3194. And we'll even send you a couple of some information about our company. And we've got some great infomercials that will talk to you and you'll hear from our customers, our manufacturers, our people that have invested in laundry and people that we've done service for, for 20, 30 years that will kind of talent who is central laundry equipment.   Sam Wilson (00:24:05) - That is fantastic.   Sam Wilson (00:24:06) - We'll make sure we include all of those things there in the show notes. Mike, thank you again for your time today. I certainly appreciate it.   Mike Worthy (00:24:12) - Take care. Thank you again. Hey, thanks.   Sam Wilson (00:24:13) - For listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Oct 09, 2023
How AI and Machine Learning are Reshaping the Real Estate Industry

Today’s guest is Arunabh Dastidar.   As an ex-asset owner and manager of projects worth over $5B, Arunabh Dastidar has first-hand experienced the flaws that hinder growth in the real estate industry. His mission is to revolutionize the future of rental management.   Show summary:  In this podcast episode, Arnab Naskar, discusses how his platform simplifies and accelerates data analysis in the real estate industry. He explains the streamlined integration process and emphasizes positive customer feedback. Arnab shares his background and how he got involved in real estate, highlighting the need for a solution to improve decision-making. Sam delves into Arnab's entrepreneurial journey, and Arun Doster discusses the incorporation of AI in real estate. They emphasize the importance of data-driven decision-making and storytelling.   -------------------------------------------------------------- Intro [00:00:00]   Revolutionizing the Future of Rental Management [00:00:42]   Arnab Naskar's Background and Journey [00:01:09]   Predictive Pricing and Decision Making in Real Estate [00:04:59]   The power of language models with AI [00:12:57]   Detecting ongoing issues and tenant satisfaction [00:14:17]   Real Grow: Using external data for portfolio growth [00:21:12]   The future of real estate decision-making [00:22:10]   Getting in touch with the guest [00:22:33]   Closing  [00:23:05] -------------------------------------------------------------- Connect with Arunabh:  Linkedin: Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Arunabh Dastidar (00:00:00) - They can literally drag drop their CSV or Excel files to bring their internal data into the system. And then our AI actually maps those with and cleans it up to a greater extent so that it becomes immediately usable because as you mentioned, this is a daunting task of ingesting all that data. We have made it so simple and we are one of the fastest integration the industry has ever seen. And this is not what I am saying is what like our customers say.   Intro (00:00:29) - Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:42) - As an asset owner and manager of projects worth over $5 billion, Arun Doster has firsthand experience the flaws that hinder growth in the real estate industry. His mission is revolutionized the future of rental management. Arnab Welcome to the show.   Arunabh Dastidar (00:00:58) - Thanks for having me.   Sam Wilson (00:00:59) - Absolutely. The pleasure is mine. Arnab There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:05) - Can you tell me where did you start? Where are you now and how did you get there?   Arunabh Dastidar (00:01:09) - Oh that's amazing. Where did I start? I'm an engineer myself. I sold my first company when I was 25 and then travel 20 countries before ending up in real estate private equity world. And one evening I was taking a call on $130 million deal and my Excel was crashing. And that cuts gets you to where I'm at now. We are solving that problem of decision making across real estate by bringing AI and data models into the industry. So where we are heading towards is revolutionizing the way how real estate makes decisions using advanced data models and making it more efficient, productive and more accurate so that everyone of us can make more money.   Sam Wilson (00:01:56) - I love it. I love it. I mean, those are those are high ideals, but I'd love to get into the weeds and really find out what that means. But means but before we get there, you sold your first company at the age of 25 that you just grow up in an entrepreneurial family that just said, hey, you know what? Go out and carve your own way.   Sam Wilson (00:02:14) - How did that happen?   Arunabh Dastidar (00:02:16) - Oh, that's that's interesting. I did not grow up. My my family was, you know, like very humble beginnings. We had mostly people working in sales. So I had the sales knack from the very beginning, but I did engineering and ended up in a very clear cross. So I started coding when I was 12, and by the time I was in engineering I was like, I know a lot about computers. Maybe I should select more build worlds. So I ended up doing civil engineering. So that's how the whole infrastructure and technology comes into play. And then at the very early age, I was involved in bigger projects with public private partnership the world has ever seen. Because of this, you need mix of technology and infrastructure and found a solution for hyperlocal deliveries for renovation materials across Asia. And then that was my first company, which I coded from scratch with a couple of other buddies. We we were in 22 different cities, huge operations, and then we went out racing and ended up getting acquired by one of the top companies.   Arunabh Dastidar (00:03:26) - And then, you know, rest is history.   Sam Wilson (00:03:28) - Wow. Wow. That's a lot of experience that you've wrapped up long before many of us even figure out who we want to be when we grow up, which I'm not sure I know the answer to that question. But, you know, I think we'll spend the rest of our life figuring that out. So you sold that company and then what did you do to how did you get involved in real estate when you said, hey, you know what, I think real estate is the next move.   Arunabh Dastidar (00:03:52) - Yeah. So I was always interested in pre-development investments, walled off real estate. So, you know, during my voyage to like, travel around the world, Abed was like exploring what to do next. And I was drawn towards, you know, drawn towards learning more. And that's how I pursued my MBA. And that's where I specialized in real estate investments and ended up working with real estate private equity for a couple of years to handling around $1 billion of project assets in North America.   Arunabh Dastidar (00:04:29) - And that's what like drawn me towards the new problem, which now we are solving about. Everyone talks about real estate moves slow. Nobody knows why. I'm going to tell you it is the decision making which makes it slow because there are so many different things you need to look at before you say a thumbs up or thumbs down to a deal or thumbs or thumbs down to a to a capital expenditure. And that's the process which we'll say is definitely helping to bridge the gap in.   Sam Wilson (00:04:59) - Well, tell me tell me, what are some of those decisions that you feel like you've been able to accelerate the decision making process on?   Arunabh Dastidar (00:05:08) - Yeah. So we have different data models. One of the most used data models of ours is predictive pricing. So before going to market, you have major asset classes which are prone to seasonality, market changes, neighborhood changes and things like that. You can bring your internal and external data sets on our platform and our platform can predict and prescribe how much rentals you can should charge in each of these neighborhoods preemptively and also can tell you three months from now you're going to see there's a high probability that you're going to see this week and see you should use this marketing channel versus this marketing channel to nail it.   Arunabh Dastidar (00:05:49) - So those are a few of the use cases which are most used. Apart from that, we have use cases around how to reduce your expenditure or improve your tenant satisfaction. So we correlate data points on work orders then in satisfaction online ratings as well as your actual cost basis and give you predictions about if you change a in this building, this will improve your in your tenant satisfaction, which is some of the decisions asset managers are regularly making. And you can see that in a very nice looking dashboard and by which is associated with it.   Sam Wilson (00:06:29) - This this year above my pay grade by a long shot here. So I'm going to attempt to ask intelligent questions and they'll probably come out as unintelligent ones along the way. But that's that's okay. I'm here to learn right along with our listeners today because this is truly fascinating to me, aggregating this data in a meaningful way, like acquiring like you were talking. Let's go back to predictive pricing to me, that just sounds like a daunting task where you're going, okay, you've got to get all the historical data.   Sam Wilson (00:06:59) - You then have to collect even the hyperlocal data and then and then and then aggregate that and then synthesize it into some sort of meaningful output. How in the world are you doing that?   Arunabh Dastidar (00:07:12) - Yeah. So thanks to our data plug partners, that's one of the major things which we have worked on. We partner with a variety of data providers within the platform. If you're already subscribed to some of them, you can bring that data through into the platform and do on demand analysis on that or the beauty of how what where we spend most time is making it so simple and no code for asset owners that they can literally drag drop their CSV or Excel files to bring their internal data into the system. And then our AI actually maps those with and cleans it up to a greater extent. So that it becomes immediately usable because as you mentioned, this is a daunting task of ingesting all that data. We have made it so simple and we are one of the fastest integration the industry has ever seen. And this is not what I am saying is what like our customers say.   Sam Wilson (00:08:12) - That's really, really wild. So you guys partner with a whole bunch of others? I mean, let's face it, there's a million data sources out there. Exactly right. And so you obviously, you're not out there, you know, picking up the phone and calling all the local apartments and saying, okay, what's your rental rates? What's this and that? You're aggregating this from other data sources. But I think the key there is what you've said is that you're able to get that in, ingest it, and then have a meaningful output in mere seconds. How long did you work on this before you felt like you had had the template refined to where you could then take this to the public?   Arunabh Dastidar (00:08:47) - It's it's a team, actually. We work with PhDs from some of the top universities across North America who have built these models with us for the last two years. We did a commercial launch last year and now we're being used by 300 plus buildings and now like have tons and tons of more interest in the models because the what it can do is just give superpowers to asset managers, because now they can do like ten x more work without spending that much of like grind and like legwork time.   Sam Wilson (00:09:24) - Right? Yeah. They're not, like you said, you know, digging through an Excel model at 10:00 at night going, okay, did I, did I map these fields correctly for the output that I got? And I think that's correct. And then you sleep on on the next morning, you find out you made an error.   Arunabh Dastidar (00:09:38) - Oh, yeah. Yes. Yeah. It used to happen to me so much. So many times the next morning. Oh, I missed that assumption.   Sam Wilson (00:09:46) - Right, right, right. This assumption. I was off by a factor of two on this assumption. And that really made which I mean, I still find myself doing that on occasion. I'm like, okay, I'm going to sleep on this and come back tomorrow and see if this makes sense still. So yeah, that's really, really cool. Predictive pricing. Let's get let's get back to that a little bit. When you say that, are you are you talking about resale pricing? Are you talking about predictive pricing on what you should be charging on a per unit basis? Like what how many things wrap into predictive pricing?   Arunabh Dastidar (00:10:18) - So predictably we can tell rental pricing.   Arunabh Dastidar (00:10:21) - So how much you should charge for your corner unit in a particular neighborhood in the summer month which is coming up. Or you can also based on. So now there are two elements on predictive pricing. Of course, go to market. The second is renewals, which are very, very important, right? So if you're having a lease renewal coming up, you want to know the tenant satisfaction data, you want to know how many work orders they have released, and then you want to know what's their alternative to before proposing a price to for that renewal as well. Right? So our technology can actually bring these three data sets and can synthesize a price which they cannot like. They would have high probability to accept and not get you into a vacancy, which you have to gain market and spend money on. So that is what we do. We are building on models on resale as well. So it's something in our product pipeline. Currently we do more on asset management where you have to constantly deliver results on the bottom line of your assets, right?   Sam Wilson (00:11:30) - No, I think that's cool.   Sam Wilson (00:11:32) - So so if I'm just to recap what you said, you have the resale data, things like that. That's part of the in the in the pipeline for the predictive pricing side of things. Yeah, that's cool. I love that, man. This is really, really wild. I think the incorporating artificial intelligence into this, I mean, we've seen just the what even the the I'm going to call it simple, but it's not even what ChatGPT is doing right now. I mean, that's what most of us who aren't in the AI world, at least that's what I think of. I'm like, okay, chat GPT. I even used it last week, which I'm just astounded by because I was writing a newsletter and it was, you know, if anybody's written anything ever, you just hammer out a whole 100 different thoughts and like, yeah, because you don't want to stop the flow. And I'm like, I was going to read, synthesize it or reorder it and kind of make it into a meaningful newsletter.   Sam Wilson (00:12:22) - I'm like, You know what? I'm going to stick all of this in chat GPT and see what it can do to turn this into one cohesive thought, like organize this thoughts and make it a logical, a logical paragraph. And seconds later I had a 15 newsletter and of course I edited because there was some things that were not perfect, but I mean, it saved me two hours of time at least. That's right. Rewriting something, I'm like, Oh my gosh, this is. This is amazing. So you guys are doing kind of the same thing with incorporating AI and how that's, you know, that's shaping the future of real estate. But tell us tell us what your thoughts are on that.   Arunabh Dastidar (00:12:57) - You gave a great example. Now imagine that power of language models with descriptive and productive AI. So which works on math, right? ChatGPT is still bad at math, right? Okay. Math is tough, right? So it's still bad in math, but it's still a great at language.   Arunabh Dastidar (00:13:15) - So how we do these two things together is we have built a proprietary, specific industry, specific data models that feeds the language models to give you the responses with math. So now you are you're actually accelerating not only the process of like data driven decision making, but also the storytelling aspect of it. So when you see look at our our dashboard, so you can see all the data points. But then when you look at our insights, you can see that explained in a human language format, which gives you more confidence to take that action or nudge you towards the right direction to look at it. So it's it's really great language which helps you like make more human sense, right? Instead of like spreadsheets. And then it's great data models that give you that data. And combining these two is what changes decision making, what accelerates that decision making part.   Sam Wilson (00:14:17) - Wow, that's really awesome. So let's let's cover some more of those decisions that your platform helps people make. What, outside of predictive pricing? Give me some other examples if you can.   Arunabh Dastidar (00:14:30) - Yeah. So one of the very interesting things which were platform was able to detect is the kind of work orders you generate and preemptively telling you that these are the ongoing issues or regular issues which comes up and which impacts your tenant satisfaction. So there are a few maintenance modules which tells you the ongoing system but cannot correlated with external factors or few things which are outside of that particular niche. Right? So what our system can tell you that, you know, maybe this is an ongoing issue, but this is a smaller issue. But this every time this particular issue comes in, maybe it is water leakage or it is like an issue comes in, it impacts your tenant sentiment much more because we connected with the tenant sentiment data, which is another software as well. So think of us at that layer where synthesizing multiple different, you know, the ERP as well as external data points and giving you what is the most relevant decision to make without like without having a tunnel vision, right? So if you go currently to each of these systems, they give you a tunnel vision on, okay, this is the most repeated work order, that's great.   Arunabh Dastidar (00:15:53) - But what with that right, if you if you get the data but you don't know the how, you are actually missing 80% of the picture and our system helps you get to the how connecting from these two areas.   Sam Wilson (00:16:06) - That and doing that again on the fly is, I think, the most powerful part of this. Yes. Because it's one thing like and I like the way you put that where you said, hey, it's you know, it's one thing to see, okay, this might be the most repeated work order, but it might be that it really doesn't impact tenant satisfaction any. That's right. Might not impact the bottom line in a way that maybe there's one work order that's only 5% of the total work orders that come in, but it really honks every tenet off when it happens and they end up leaving because. Well, and so and that can drive, you know, an outsized and outsized return or lack thereof, you know, without and being able to aggregate that data in a meaningful way.   Sam Wilson (00:16:47) - I think one of the and this again, I'm not a techie. I'm just going to tell you that right now, I can send an email, I can get on a Zoom call. And outside of that, I'm pretty well stuck. But I'm just thinking about stuff like even our investor portals where it's like we upload all these documents and it just maps it all to the right, you know? Okay, this is your k one, your k one, and reads the names on it and plugs it without us having to go through and select who the 100 investors are in that deal and like and that's that's a small idea of what technology can do that really makes our lives easier. But you guys are kind of doing that same thing at scale. And I think that's that's a powerful part of what we haven't even mentioned the name of it here. Can you tell us the name of your company so our listeners can actually go out and find this?   Arunabh Dastidar (00:17:30) - It's called Real Sage. Yeah. So real sage.   Arunabh Dastidar (00:17:35) - Sage is the wise. Yes. Real sage. Sage is the wise person. Real comes from real estate. So we're bringing wisdom to real estate. And that's how it is. Real sage.   Sam Wilson (00:17:45) - That's really fantastic. How did you sell this idea? Let's get into the nuts and bolts of how you built your company just for a couple of minutes here, because I think this is always, always a fun conversation as we talk about how to scale commercial real estate. You had this great idea. You saw a problem. You have the intelligence in the background to figure out how to solve that. But then how did you incorporate all these other PhDs, universities and people like that into what you were doing and sell them on the idea that this is a problem that we can solve.   Arunabh Dastidar (00:18:13) - It's first of all, it's believing in the problem, right, as a team. So I have two other co-founders. The other guy went to Columbia for his master's, comes from very deep real estate background work with private equity.   Arunabh Dastidar (00:18:28) - We are the people who come from industry. There is no one else who can be passionate, more passionate than us to actually solve the problem. And you know, when you go with the passion and like show what you're trying, what you're trying to do as a mission driven company ourselves, people will tag along. You know, that's I have seen like for us and I so I advise a couple of companies in San Francisco and other places. One thing which I recommend, anyone who is in entrepreneurship, it's a hard journey. If you're not passionate about it, you can't do it. You have to have that really great mission. And that's what differentiates us as a team and product to have that mission, to change it for the industry. And that's how the first nuts and bolts got together. We spoke to our clients, we heard them, we resonated with their problem and each fact of our product, when you look at it, it will tell you, it will scream that this is a customer problem, which we are solving.   Arunabh Dastidar (00:19:36) - Right? And a lot of technical products, right? Like do this mistake of making it too technical on the behind. So you need lots of analyst or external consultant to like actually bridge it together. So which is a big pull for an asset manager or anyone from the industry to take. We have made it so simple that it's a no code solution for anyone who can get on a zoom and know how to open an Excel file can start using our system. Why? Because we come from the industry and we understand that. And that's how, like the first few pieces started talking, talking to a lot of customers, always helpful. And now where we are at is also like given regular feedback, regular touch with the people. And I personally do onboarding. I personally sit on onboarding calls as well.   Sam Wilson (00:20:23) - So that's really, really cool. Yeah. You've lowered or eliminated as much as you can the barriers to adoption because like you're saying, you know, if all of a sudden you have to learn to code or you know, you mentioned the word APIs and this and that and the other, and it's like, I mean, you call a guy like me and if I needed your product, I'd be like, Yeah, that's just that's too hard.   Sam Wilson (00:20:42) - I don't I don't have three weeks to learn how to adopt what it is that you're not. I see that. I think you've seen it probably too, in the tech space. And it's like, this just doesn't work simply because the, the interface with a common user just isn't there. So I think that's really cool. You guys have done some awesome stuff. I wish we had more time to dig into some of the other things that that your current product does. But I got one last question here for you, and we talked about this briefly about things that are in the pipeline. What are some other major problems you guys are looking to solve in the near term?   Arunabh Dastidar (00:21:12) - Yeah, one of the big launches of which we are looking to do is real grow. We know there are so many commercial real estate investors who are going into transaction and actually building our growing their portfolio. Our technology would be helping them to bring more external data sets and do disposition and acquisition analysis based on the trends on those markets.   Arunabh Dastidar (00:21:38) - So imagine you want to buy something in Texas and you don't know anything about Texas. Market partner with one of our data plug partners. Bring the Texas demographic data our system can do on demand, No code analysis on where the market is going and then can suggest you spots where you can then go and scout for deals that can help you grow in the next five years and six years horizon. So that's one of the big things which we are working on and we're looking forward to it.   Sam Wilson (00:22:10) - Wow, that's really, really cool. I have thoroughly enjoyed having you on the show today. Thank you for taking the time to come on and share with our listeners just the future of real estate and how decisions are going to be made. Because I think this is this is you're ahead of the curve on this. And I think this is a really, really fun topic to to discuss. So thank you again for your time today. If our listeners want to get in touch with you and learn more about you. What is the best way to do that?   Arunabh Dastidar (00:22:33) - Yes, you can go to real estate and hit on request.   Arunabh Dastidar (00:22:40) - Our team would be love to like chat with you, understand your problem and go from there. You can follow us on our LinkedIn page at Real Sage or reach me out on LinkedIn at the Star or Twitter as well at T.   Sam Wilson (00:22:56) - Fantastic. We'll make sure we include all of that there in the show notes. Arnab Thank you again for your time today. I certainly appreciate it.   Arunabh Dastidar (00:23:02) - Thanks a lot, Sam, for having me. Take care.   Sam Wilson (00:23:05) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Oct 05, 2023
Breaking Barriers: Susan King's Multifaceted Approach to Architecture

Today’s guest is Susan King.   Susan is a registered architect and a principal at HED, one of the oldest and largest architecture and engineering firms in the country.   Show summary: In this podcast episode, Susan King discusses her passion for architecture, her journey to becoming a licensed architect, and the challenges she faced along the way. Susan also talks about two exciting projects she is currently working on, including a conservatory built using passive house methodology and a collaboration for underserved neighborhoods in Chicago. The conversation also touches on the challenges of unique designs and building regulations.    -------------------------------------------------------------- Intro [00:00:00]   Susan's Journey [00:00:49]   Challenges of Becoming a Licensed Architect [00:02:22]   Exciting Project: The Conservatory Apartments [00:09:55]   Passive House Certification [00:10:55]   Challenges with Building Codes [00:14:21]   Demand for Apartments and Active Adult Housing [00:20:47]   Susan King's contact information [00:23:30]   Show notes and website mention [00:23:49]   Closing remarks and call to action [00:24:01] -------------------------------------------------------------- Connect with Susan:  Linkedin: Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Susan King (00:00:00) - A lot of people like to talk about net zero. These days, I view it as an important step towards net zero because think that you need to make your your project, you know, rightsize it, make it as efficient as it can be, make it using as little energy as possible. And then you can talk about trying to, you know, get all the way to to not needing any, you know, any power brought to the building.   Sam Wilson (00:00:23) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:36) - Susan King is a registered architect and principal at one of the oldest and largest architecture and engineering firms in the country. Susan, welcome to the show.   Susan King (00:00:47) - Thank you. Thank you for having me.   Sam Wilson (00:00:48) - Absolutely.   Sam Wilson (00:00:49) - The pleasure is mine. Susan, There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Susan King (00:00:58) - All of them in 90s.   Sam Wilson (00:01:00) - Got it.   Susan King (00:01:02) - Okay, so where did I start? Guess I wanted to be an architect from a really, really young age. I grew up in northeastern Ohio. I was the artist in the family. I was always drawing and I studied Frank Lloyd Wright in, um, in art class and particularly Fallingwater. And that was it. After that, I'm like, that's what I want to do. And so guess fast forward several years later, graduated from college architecture degree worked, worked and became licensed and then started to kind of focus my career into housing, which has been all kinds of housing but has been the main focus of, you know, of my professional life. So when I say, yeah, I because when I say all kinds of housing mean with the exception of no single family housing, but does senior living, underserved populations, market rate, high end luxury condo, the whole student housing, the whole gamut of multifamily, you.   Sam Wilson (00:02:12) - Get to see it all. And I guess for those who are listening, I've got several architects as friends and as in-laws.   Sam Wilson (00:02:22) - I mean, getting through architecture, getting not just through school is really, really hard and then getting passed all the exams. I mean, I don't think people realize how many exams are still left when you guys graduate college.   Susan King (00:02:38) - Yeah. Yeah. So I've blocked all that out of my life, I'm sure. So. Well, and then I'll just tell a funny story that before I studied Frank Lloyd Wright and decided on architecture, I had I love animals. I'm a cat person and I wanted to be a veterinarian. And so the thing that amuses me now, looking back, is that I was like, Oh, no way. I'm not going to school for eight years to be to be a vet. And then instead I ended up going for six to become an architect. And then and then also after that's over, as you say, had to finish my I had some of my internship while as part of my schooling there's a it constantly changes so my info may be a little out of date, but it's like a 2 or 3 year internship where you're then out of school working as an architect, under supervision, people who are licensed.   Susan King (00:03:32) - And then you get to take the fun licensing exam, which in my day was when it was in person, was a one time of year. You got one shot at it. Um, I think it was 3 or 4 days of test after test after test. And then if you didn't pass all of it, you had to wait a whole year to to retake it. So, yes, it was quite an ordeal. I think I still have nightmares about like waking up and finding out I have to do that again. But today, today, it's all modernized. And I hate to sound like my parents. Like when I was your age, I had to do this, that and the other. But it's all I think it's like all year round. It still takes people a long time to get through its 8 or 9 tests. Still, that hasn't changed and it does still take them several years. Even though it's spread out, you know, they can they maybe it's worse now. They're constant.   Susan King (00:04:25) - They take you know, it's constant throughout your life until you're done. And it can take 2 or 3 years to get through all of it, right?   Sam Wilson (00:04:32) - Yeah, it's amazing. It's absolutely amazing. I just. Yeah, watching, watching one of my sister in law's get through, it was just like, oh, my gosh, does this ever end? And so years later, they're still taking and studying and just just banging their head against the desk, you know, studying day in and day out for one exam, they get 3000. Well, we got eight more to go like, Oh, right.   Sam Wilson (00:04:53) - And so good on you. Good on you for getting.   Sam Wilson (00:04:56) - Through it and getting it done. I mean, I guess I say all that to say one, It takes a lot of commitment and discipline to get that done. And then secondly, you guys have to know a lot to do what you do. And I think that's that's really, really cool. Let's let's kind of dive in, if we can, into what you particularly work on there at head and kind of well, just tell me a little bit about that.   Sam Wilson (00:05:19) - Maybe we'll, I'll ask my next questions later on.   Susan King (00:05:22) - Yeah. So, so now right. And so I'm a principal, so I'm an owner of the firm now and then. Guess that's a whole nother journey to if you even want that, you know, some architects don't know. Necessarily, you know, want that. Want that responsibility. Yeah. But I always did. I guess I'm full of jokes because the other joke I make now is guess because I get asked to speak a lot about different things and I mentor a lot. And, um, one of the other things I usually share is that I always wanted to be an owner, Um, but I thought I would be with a smaller firm. I did not see myself with a large national practice, so but on the other hand, I never wanted to be a sole proprietor either. I'm very collaborative. Um, like to bounce things off people always. Everything's a team, especially when you're coming, you know, when you're talking about building or designing buildings.   Susan King (00:06:20) - There's so many pieces to it that it's always a team effort. But the surprise to me was I always thought I'd have maybe 2 or 3 partners, you know, didn't think I'd have. I think I have 50.   Sam Wilson (00:06:32) - 50 partners.   Susan King (00:06:33) - So I'm one of 51 shareholders in the firm. So but I, I think I mentioned already, I mean, went to I graduated from the University of Cincinnati. It was a bachelor of architecture degree. And with that came some practical experience because they had I think they still have this it's a cooperative program. So it takes you six years to get your five year degree because you're after your second year, you're actually working in architectural offices. So that begins that's the beginning of your your intern period that counts towards the licensing time. So, um, so after that, I wanted to move. I worked in Chicago as a student and wanted to return here after graduate and, and that's what I did. So I worked in a few different firms all smaller. And even the firm that I joined in Chicago that became head was a 40, 50 person firm.   Susan King (00:07:33) - And um, and has formed as a it's been a series of acquisitions over the past like 20 years. Guess that's how we've grown to a national practice. So, so I've been here actually kind of a long time and I was an associate at the time that so was already licensed. And I do a bit of design, a bit of planning in all the way into the details. I spent several years doing contract administration, which is observing, observing the buildings, getting built. So I kind of had all of that under my belt before then, you know, became an owner of the of the project. And so but when I made the move to ever since I've been here, it's I came here to do multifamily housing and that's been what I've done. And like I already mentioned a lot of affordable housing and a lot of senior living at all levels of care. Um, has been my main focus. So when you ask like, what do I like? What is my day? What did my day look like? Um, uh, so it can it's different every day.   Susan King (00:08:45) - And maybe that's why I like it. Um, but it'll involve a bit of, you know, depending projects at different phases. I mentioned earlier, we have a project under construction right now, so I've got actually a couple of things under construction right now. So there's a little bit I'm not the one in the field, but, but do get involved, you know, in different things that come up that are going on during that process. But prior, prior to getting to construction, there's there's design, there's planning, there's getting the the client doing the marketing to get the project to begin with. So going all the way back to the other end of the line. So I kind of as a principal, I touch all of that.   Sam Wilson (00:09:24) - All of it, all of it, Yeah. Know and, and that's, that's amazing, first of all. But let's, let's, let's talk a little bit about a project you're most excited about right now. What's some things you're seeing because I know you got to have favorites don't lie to me and tell me you don't because there's some stuff you're like, Oh, this is really fun to work on.   Sam Wilson (00:09:42) - The other stuff, you're like, okay, that's a snooze fest. We'll do it. But that's boring.   Sam Wilson (00:09:47) - So yeah.   Sam Wilson (00:09:49) - I'll talk about the stuff that put you to sleep, talking about the stuff you're working on right now that's really, really fun and compelling for you personally.   Susan King (00:09:55) - Okay, So we'll I'll start with the one that we chatted about right before we came on live. Um, the one that is under construction. Um, it's a smaller project. It's only four stories, but it is, it's all affordable. It's called the Conservatory Apartments. It's here in the city of Chicago. And what's so I don't know if I said this already, but it's 43 studio apartment, so that's what makes it a little bit smaller than normal. Um, and it, it has a very sustainable, energy efficient green, green if you want to use that word agenda. So I really get excited. Don't really care. With the topology is. But if a project can bring together the sustainability pieces and make it happen, I think that's where that's what really gets me excited and this is one of those in the project is pursuing passive house certification, which is kind of an extreme green.   Susan King (00:10:55) - I always want to say prescriptive. I don't know if that's really right, but it's a tried and true methodology of building that is a little different than the traditional way, but it produces a very high performance envelope for the building. And I view it as a lot of people like to talk about net zero these days. I view it as an important step towards net zero because think that you need to make your your project, you know, rightsize it, make it as efficient as it can be, make it using as little energy as possible. And then you can talk about trying to, you know, get all the way to to not needing any, you know, any power brought to the building. So, so that project is about halfway done. And we had received our our design certification for Passive house and the acronym is US. So Passive House Institute, United States. There's actually a think a European or German institute as well. Um, so they are the ones that are monitoring, monitoring what we're doing and making sure we're, we're doing it all correctly.   Susan King (00:12:05) - And today actually happens to be the blower door test where they're going to think it's happening. It should be happening right now as I'm speaking, it's pumping all this air air into the building to check the whole envelope before they start doing the the cladding and everything to make sure it's as tight as it is supposed to be. So this is the first time my firm has has been able to, you know, have had the opportunity to pursue this type of certification. A lot of people might be more familiar with Leed. We've done a ton of lead and all of that. So to me, this there are these. Other methodologies out there, or if it's not really technology, but certifications that are a little more extreme green in my opinion. So like living building challenge and and passive house think that in those categories. So so that's one project. Um, I'm also I have another project that's just starting that we are actually also in Chicago but we're teamed with a, another firm from California. Um, that's part of that we just won earlier in the summer.   Susan King (00:13:15) - It was part of a design competition here in Chicago. There's for the past 3 or 4 years, there has been an initiative called Invest Southwest. And it was focused on our, the neighborhoods of Chicago to the south and to the west, trying to bring catalytic projects into neighborhoods that had previously sort of been underserved, underdeveloped and all that. And this was an initiative coming out of the mayor's office. And so it was it was highly competitive. And so there were several of those types of projects going on around the city right now. And so we're we're again, proud to be part of one of them.   Sam Wilson (00:13:54) - That's really cool. I mean, yeah, those are those are fun, fun projects for you to work on. Let's go back to the four story conservatory project for just a second. I had a question on that. When you're doing such a unique design, unique building methodology, what is that process like? Interfacing with local building codes, building inspectors? I mean.   Susan King (00:14:21) - Oh yeah.   Sam Wilson (00:14:24) - It can't be an.   Sam Wilson (00:14:25) - Easy row to hoe.   Susan King (00:14:27) - No, it was not. But think it think it's going to get easier here now and not I'm not going to say because because we we forged the way by ourselves, that's for sure. But I'm laughing because we we actually had an amazing time getting our permit a year ago. I was just pulling out my hair going, Are we ever going to get this thing out? And the interesting thing, though, about our that project and that timeline, we happen to just be paralleling it was sort of like we were just maybe just ahead, if we'd just been a couple months later, her life would have been easier. But the, the codes were changing here and have changed. Um, and so it should be I'm hoping to do another and I'm hoping the road will be easier the next time. But we actually had to ask for, um, an alternative compliance path on our, our ventilation requirements. And again, lucky for us, there was a whole group of advocates and other people who were working on this issue directly with the city of Chicago Department of Buildings to get these changes that we were asking for, um, built into the code.   Susan King (00:15:43) - And so it's just the little, you know, it was, yeah. So all of that was taking taking officially effect as we were finally pulling our permit. So our timing was just in, in parallel with it and just keep thinking that, yes, my next one and everyone who is coming behind us, it should be easier. But but historically, um, the city of Chicago, their their building code and I'm not a mechanical engineer, so I'm not the best person to be able to explain this. But it was around the things we were asking for were around ventilation and exhaust and that, um, you know, having a really tight envelope. You've got to balance it with a mechanically ventilated system so that you don't get, you know, the sick building and all of that. So it's really important, right? It's important stuff. And it's reason to be, you know, make sure you're doing it right and all of that. But, um, but, but yes, it was quite, um.   Susan King (00:16:43) - It was it was a challenge and it was long. And I do keep thinking back because last year at this time we were trying to get our the design certification piece is kind of the step where the institute signed off right before you, you know, before you start construction. And we were on while I'm anxious today that our blower that the whole building blower door test is going okay. Um a year ago it was even more.   Sam Wilson (00:17:06) - Even more more angst.   Susan King (00:17:07) - About it like are they going to approve this or are they not going to approve it? Can we get the permit out? Um, you know, is this code going to be adopted? Which it has been. And so that's pretty exciting. And, and I will then say I'll put it in Chicagoan context. So that that had been a big barrier. Our ventilation apparently we are buildings here, we're over over ventilated which of course then takes energy to sure. But if you look at if you go east, interestingly enough, to New York City and Pennsylvania and then the entire state had an initiative and then also Boston did something recently as well all all around passive house.   Susan King (00:17:50) - So to fit into your like they are already scaling passive house up. So I'm anxious for Chicago to catch up with them but because want to say think Boston like did something really radical you could kind of maybe Google it and find it. But I want to say they they built passive house straight into their code, but it might not be exactly that extreme, but it was pretty radical. And so think believe this is the way it's going. We are building differently but think we're actually building the way we're going to build in the future, right?   Sam Wilson (00:18:22) - No, And that's that's it. I mean, yeah, I look at this is obviously I'm not an architect. I'm loosely in, you know, I've owned a way too much real estate. So I see a lot of it. And I've been in the trades. I've had a business in the trades for a long, long time. And you see the way buildings are built, you see the materials being used, you see the the waste, you see the inefficiency in the building.   Sam Wilson (00:18:46) - But it's just the way it is. Like even looking here in Memphis, it's like the housing stock just in the general single family housing. It's just so old. It's so old stuff is just horribly inefficient. And it's like, my goodness, there's got to be a better way than continuing even in the new build stuff. It's just it's still that feels like it's the same. It's just the same product. But. It's going to fall apart faster. So it's like, you know, what are we.   Sam Wilson (00:19:15) - Doing?   Susan King (00:19:15) - Yeah, we should build for length, build for duration, durability, and.   Sam Wilson (00:19:21) - Go ahead.   Sam Wilson (00:19:21) - I'm sorry. Oh, yeah, no problem.   Susan King (00:19:23) - But you just made me think of the other thing. That mean we. We've dabbled in it. But the other big construction change, I would say, is modularity. Right. Mean and or you know, we see a lot of prefab components but but everyone thinks it's like kind of a no brainer that the the solution to the housing crisis is is modular units like why can't we have an apartment come out pretty much built you plug it in.   Susan King (00:19:50) - Right. And at least for whatever reason, it doesn't get off the ground like people try and it dies. And I it's a little bit frustrating to watch but think that's the other thing that that's got to happen.   Sam Wilson (00:20:03) - It's coming It's a it's a slow moving process, but it's certainly coming soon. We got just a couple of minutes here left and I've got one more question, more from a just kind of I going to call it market sentiment, but I really want to hear from you because you guys get kind of a front row seat to all the projects being built around the country to what builders are looking for, what they want to build. Coming to you guys probably saying, Hey, can we even do this? What's the possibility here in all of the housing profiles that you guys work inside of? What's the type or the product that's in most demand for you guys to be architects on and to draw up plans for and. Yeah. What?   Sam Wilson (00:20:45) - Oh, yeah.   Susan King (00:20:47) - Yeah. Good. That's a good question.   Susan King (00:20:50) - Think it's. It's apartments, but think right now. Uh, probably for the next. So things come in cycles, Right? And so I mentioned, um, our firm in our Los Angeles office kind of rode. There was a high rise housing boom there for the past ten years before Covid. And we got to do a lot, a lot of units built a pretty strong portfolio out there. And then, of course, it's on the, you know, you overbuild and then it cycles down. And so out there, we're seeing a lot of the, um, little maybe a little more suburban, less dense, but still probably 3 to 4 stories in height, but a little more sprawling, you know, apartment complexes. Um, in and we didn't, we didn't touch on senior living but think senior living is always in demand and then but there's a new and we we're pursuing a lot of these but we haven't landed anything yet. Um, there's kind of a new category in senior living called It's a terrible name, but it's called Active Active Adults.   Susan King (00:22:00) - But it's really 55 plus apartments but without any kind of medical or nursing. And they don't they're standalone. That's what maybe separates them from the continuum of care life plan, community type campuses that were being done. So I think that's on the I, you know, we're anxious to to have some of that in our portfolio. We don't yet but think it's it's coming and and it's that baby boomer the end of the baby boomer the next generation X guess you know they're like we're healthier we don't we don't consider ourselves seniors don't call us that and active adult probably isn't the right name. But that's somehow what we we've got right now, which can also have issues with with with fair housing and all of that. They have to be careful. But I'm surprised it's lasted as a as a label label.   Sam Wilson (00:22:54) - Right.   Sam Wilson (00:22:55) - That's very, very insightful. Susan, I have loved having you on the show today. Thank you for taking the time to really just break down your journey into becoming an architect, what it takes to become an architect, the types of assets you guys are working on, you know, breaking down this conservatory project with passive house there in Chicago.   Sam Wilson (00:23:15) - I think that's absolutely fascinating. You guys get a front row seat to kind of what is going on in the commercial real estate sectors across the country. So I appreciate you taking the time to come on today and share with us if our listeners want to get in touch with you or learn more about you and your firm, what is the best way to do that?   Susan King (00:23:30) - Um, I'm on LinkedIn, so that's probably, you know, you can Google my, my name with our website is W WW dot design. So. And I'm there too. So head dot design.   Sam Wilson (00:23:48) - Head dot.   Sam Wilson (00:23:49) - Design. We'll make sure we include that there in the show notes. It's a very pretty website. I should expect nothing less from an architecture firm, but yeah, very, very cool. Susan, thank you again for coming on today. I certainly appreciate it.   Susan King (00:23:59) - Okay. Thank you. Thank you for having me.   Sam Wilson (00:24:01) - Hey, thanks for.   Sam Wilson (00:24:01) - Listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:24:05) - Favor.   Sam Wilson (00:24:06) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Oct 04, 2023
How to Differentiate Your Syndication Business

Today’s guest is Andy Crebar.    Andy is the CEO and co-founder of GP Flow which is on a mission to unlock the potential of real estate. He’s spent his career working in fintech and real estate and lives in New York with his young family.   Show summary:  In this podcast episode, Andy Crebar discusses his background in fintech and real estate, as well as the development of GP Flow as a platform to help real estate sponsors and LPs. He explains how GP Flow was created by understanding the pain points of sponsors and LPs and offers insights into their integration with existing CRM workflows. Andy also talks about HoneyBricks, a crowdfunding platform they built using GP Flow, and discusses the Equal Opportunity for Investors Act, a proposed legislation that aims to allow financially sophisticated individuals to become accredited investors. Sam and Andy both express their enthusiasm for the potential impact of this legislation on private real estate investment.   -------------------------------------------------------------- Intro [00:00:00]   Background and Experience [00:00:40]   Development of GP Flow [00:04:11]   The evolution of the real estate industry [00:08:31]   Differentiating GP Flow from other investor portals [00:09:45]   Honey Bricks as a crowdfunding platform [00:12:42]   Equal Opportunity for Investors Act [00:17:10]   Expanding the Market for Non-Accredited Investors [00:18:09]   Challenges with Accredited Investor Requirements [00:19:03] -------------------------------------------------------------- Connect with Andy:  Linkedin: Twitter: @andycrebar  Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Andy Crebar (00:00:00) - For us, it's really just about understand the customers. We'd spend hundreds of hours with GPS watching them use existing tools and asking them, you know, what spreadsheets do you hate? Like, Oh, this spreadsheet always got to come back to this because this thing does that thing. But then you track it here and you're like, okay, there's an opportunity there. And when you hear enough of sponsors talk about the same spreadsheet that they're using to solve a specific problem, it's like, okay, there's something there's something that we can help them be more efficient on board, more capital and, you know, work with more investors.   Sam Wilson (00:00:27) - Welcome to the How to Scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:40) - Andy Graeber is the CEO and co-founder of GP Flow, which is on a mission to unlock the potential of real estate. He spent his career working in fintech and real estate. He lives in New York with his young family.   Sam Wilson (00:00:50) - Andy, welcome to the show.   Andy Crebar (00:00:52) - Thanks for having me, Sam. Excited to be here.   Sam Wilson (00:00:54) - Absolutely. Andy The pleasure is mine. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Andy Crebar (00:01:03) - Sure. So I started my life in a place called Sydney, Australia, and then moved to the US in 2015 with my my girlfriend, now wife. Since then, I've been working in FinTech as a real estate, as you mentioned. What really changed for me? Probably due to the pandemic over the last ten years, my wife and I had acquired a few single family rentals and apartments, but we got crushed during Covid. Places went empty. We were doing concessions, a ton of management, and then we went really deep on multifamily. We found there's lots of great syndicators across the country, lots of great sponsors, great deals, aligned incentives. So we started a flow that focused on helping build better software for them and unlocking new capital pools and markets and getting more LPs invested in these deals.   Andy Crebar (00:01:44) - Today, as you mentioned, live in New York, we're really excited to share what we do and how we can help both sponsors and LPs in private real estate.   Sam Wilson (00:01:50) - There are a lot of moving pieces. I feel like in that short story you just told 2015, you moved to the States girlfriend, you're involved in fintech. I mean, were you involved in tech before you came to the States? There had to be a background in there somewhere.   Andy Crebar (00:02:05) - I was actually involved in technology banking. I worked at a company called Macquarie Group, which is well known in Australia. They do some stuff around the world but very well known in Australia. Investment banking. I did that for five years, was fantastic. Got knee deep in models and presentations and financial calculus and that sort of stuff. But I knew my future was in technology and knew the best place to be in technology at the time was in San Francisco, so we moved there in 2015, packed up all our stuff, arrived with a couple couple of backpacks and a dream, and we just got underway doing it from there.   Sam Wilson (00:02:38) - Wow. That's really that's that's inspiring. And then you said Covid came around. You owned some single family rentals, maybe some apartments along the way. This is not. But three years ago. And you kind of in my own summary, got your teeth kicked in in Covid. Does that sound about right?   Andy Crebar (00:02:57) - Yeah, that's a good analogy. Let's run with that. Got my teeth kicked in. But my journey with real estate started from a young age. My dad's actually an architect, and he's always taken me around. You know, on weekends it would have been moving my brother or sister change house or helping someone renovate the kitchen or whatever it was. And he taught me two things that really stood out with me. One was how beautiful real estate is, but also how it's a platform for building financial wealth. And those two lessons really stuck with me. So then the first chance I got to buy property was in 2012. We bought a small one better, which we converted to two in a place called Bondi in Sydney, and that's really where I got my fix.   Andy Crebar (00:03:33) - I was like, Wow, we can actually improve these things, generate wealth and also improve the quality of life of people living in these buildings. And that's where we we started aggressively, you know, buying and investing over the last ten years. And we've been lucky to now own property in in Australia, in the US and Canada, which is where my wife's from.   Sam Wilson (00:03:48) - That's really, really awesome. So, so you made it through the but it sounded like in that in that period during Covid, you know, you said you started working with multifamily sponsors and people around the country. You said, okay, and how and in what? In what capacity were you working with them as an investor, As a co-sponsor? As what? What was that?   Andy Crebar (00:04:11) - So it was actually the catalyst is really during Covid, we have a few places in Bondi and in Sydney and Bondi, a tourist town like I think 50% of the apartments get rented out to tourists and backpackers. And when Covid came in, laws came in.   Andy Crebar (00:04:27) - Everyone, all the expats from around the world went home one day, pretty much went half vacant because everyone that you know, might be a Brit hanging out in Australia had to go home now. So all these places were vacant. So we had our places go empty for months. A couple other places in the US also had some challenges around concessions and supporting people to not move them out of their out of the place. And that's when it really switched me, which is like I know real estate to the path, but like managing a single family apartments and houses is really tough to scale, right? That's what led me to multifamily, which was like, Wow, people are doing this at bigger scale with more diversification, better returns and LPs can get 15% of their money investing passively in other people's deals. Wow. That's what we want to go with it. And that's what really let me down the multifamily path and getting started and working with GPS and LPs.   Sam Wilson (00:05:16) - How did you discover the GP flow, your GP flow like it seems like that would have been let me just maybe I'm a slow learner, but the processes that you've developed inside of that would would have probably taken me a decade to figure out.   Sam Wilson (00:05:33) - And it seems like you've somehow taken all of those lessons and compiled them, not just compiled those lessons, but then also made a platform for others to use very, very quickly. How did you do that?   Andy Crebar (00:05:46) - Three two factors in that. So me and my co-founder and my CTO at our last company, we built B2B software in FinTech. It worked out well for us. We'd both be investing in real estate. We hadn't built software for real estate before. And then from going deeply into multifamily, we saw this opportunity around helping GPS raise more capital, do it faster, be more efficient, those sorts of things. There's also this big overarching wave of more and more LPs getting involved in real estate, and I'm sure there's many sponsors listening to this. It's chaos. To get a deal done, you need to finally I said lock it out, those sorts of things. But then chasing around. 5100 different LPs for 50. 100 grand checks using different tools within the CRM. It's in. Hello sign.   Andy Crebar (00:06:31) - It's. Have we got the Y yet? There's just a lot of manual processes and workflows which ultimately prevent sponsors from working with broader audiences. Right Triangle, which is changing, which we can speak about in a moment. And we said, look, there's lots of opportunity here to help us do this better, which ultimately help more LPs get access to the the great returns that private real estate can provide.   Sam Wilson (00:06:53) - Right? So so I and I wholly understand those those pains very, very well. And I think even correct me and this is why I want to hear this, because even. Even with the right systems in place, and I won't name any names, but there's we just launched our latest fund. And even with a fund administrator in place that is handling theoretically all of that investor onboarding and all those systems, it's like, okay, hey, we're going to pay you handsomely to take care of this. Even then, I'm still involved somewhere. Somehow there's a hey, what about and this and wait.   Sam Wilson (00:07:28) - But there wasn't a signature from a and it's like, wow, Like this was supposed to be turnkey. So I feel like there's there's there's no magic pill. But yet you've solved some of the major point pain points, I would think, in the system that you develop. So talk to me about those pain points and what you've done to overcome some of those, such as the ones you just mentioned, where it's Hello signed. Oh, there's this the I mean. Talk me through some of that.   Andy Crebar (00:07:58) - I'll give you the the founder lands and then the real estate lens. So in building software for anyone, like it's always building any business really to really understand your customer, like what are their pain points, how are they using it, those sorts of things. And when you find customers that are using five different tools, do the one thing you know, there's generally opportunity there, which is like, okay, how can we build a better holistic solution for these individuals? In talking about all those different points, solutions and management? There's definitely a lot to it, but that's obviously the beauty of technology because you can automate a lot of this stuff.   Andy Crebar (00:08:31) - Real estate's an incredible industry, but it's often a slow moving industry and there's a lot of wealth with, you know, traditional generations that are used to doing deals in a certain way and those sorts of things. I think that's changing a lot. Now we're seeing more and more syndicators, you know, target, you know, accredited investors or target retail scale really quickly. So we think that industry is evolving and being more receptive to adopt technology and do this stuff in new ways. For us, it's really just about understand the customer. So we'd spent hundreds of hours with GPS watching them use existing tools and asking them, you know, what spreadsheets do you hate? Like, Oh, this spreadsheet always got to come back to this because this thing does that thing. But then you track it here and you're like, okay, there's an opportunity there. And when you hear enough of sponsors talk about the same spreadsheet that they're using to solve a specific problem, it's like, okay, there's something there's something that we can help them be more efficient on board, more capital and, you know, work with more investors.   Sam Wilson (00:09:24) - That makes that makes a heck of a lot of sense. Yeah. I mean, I'm sitting here as you're talking, looking here at your website, and I think it's really, really cool. But this would you categorize this as more than an investor portal? Because there's lots of investor portals out there and it seems like there's more to this than just that.   Andy Crebar (00:09:45) - But of course it's more than an investor portal. We we differentiate across a number of different ways. One thing that you talk about Miami thinking a lot about recently is just the use of a CRM. There's a lot of incredible systems out there, you know, HubSpot, ActiveCampaign, MailChimp, even all these sorts of things. And they've all got really powerful workflows. And 90% of syndicators we work with are using one of those systems. It's really good for automated touch points, for sequences, for workflows, whatever it may be. But when we think about investor portals, a lot of these investor portals have actually built out their own CRM in it, and then it ends up having sponsors, having two databases of like, I've got Sam Smith over here, but actually Sally Smith here.   Andy Crebar (00:10:26) - And is that the same one that signed the subscription docs? And then reconciling those things. So one thing we've focused a ton on is actually building into existing CRM workflows. So sponsors that are managing a pipeline in HubSpot or ActiveCampaign or those sorts of things, as soon as they're moved from stage to stage wide and automatically trigger this thing in flow to send out, you know, signature docs or those sorts of things and really just use one CRM as a source of truth best as having two. So things like that where we're not so much focus on being another investor portal, but really differentiating around how can we do stuff differently or better for how sponsors are using technology differently. Right.   Sam Wilson (00:11:02) - No, you're spot on. Correct. Because that's I mean, even you know, I'm guilty of it. You just touched on a pain point. That's a very, very present reality for me where it's like, oh, hey, cool. I'm really glad that Andy signed up on our investor portal. But does that tie then back into and for us, it's active campaign.   Sam Wilson (00:11:18) - Does that tie back into active campaign and are those two talking? The answer is probably not. And so and that's that's a loss. I mean, my gosh, if people sign up on the investor portal, but then there's never a follow up sequence. If there's never the, hey, by the way, email sent to me or investor relations or somebody else saying reach out to indie. Yeah. And we lost.   Andy Crebar (00:11:41) - Yeah, We see a lot of sponsors try and duct tape these things together with Zapier or other tools, but at the end of the day, you know, it can work If you're managing 100 investors, we want to get to 1000 and do bigger and bigger deals and more and more deals ultimately need to move outside of your personal network of friends and family and attract new investors and nurture new investors. And for that, you need the best serums. And for that, you know, we want to be the investor portal that works with those best CRM seamlessly.   Sam Wilson (00:12:04) - Right. No, I think that's really, really awesome.   Sam Wilson (00:12:07) - Yeah, man. I'm excited to take a demo here of of your product here at VP Flow. That's pretty awesome. Let's talk about the other side of this business because it's one thing. It's one thing for the guy selling shovels to tell you how great the shovel is. It's another thing for the guy selling shovels to be using a shovel himself. Right. And so you've you have built another website and another capital raising platform online that is built off of your flow. Product. Is that right? Can you tell us about that?   Andy Crebar (00:12:42) - Yeah, that's right. We are. We eat our own dogfood at honey bricks. We go.   Sam Wilson (00:12:46) - Like that.   Andy Crebar (00:12:48) - A crowdfunding platform built on Flo. And it's something that they teach a lot in, um, you know, the venture backed technology community, which is like the faster you can start dog feeding your own product and actually be your own customer, you know, the better product you can build. So we, we do that ourselves. A honey bricks, everything at honey bricks Honey, which is a crowdfunding platform for for multifamily syndications across the country.   Andy Crebar (00:13:12) - Everything there is running on Flo. So whether it's onboarding investors, accreditation distributions, sending out shares, whatever it may be, that's all using our software. And we've got a ton of learnings and things. We're always going to be improving with the product, but it's been great to actually use it ourselves. You know, we've done ten deals in the last 12 months. We've got a little over 3000 investors on the platform, you know, raising capital for great sponsors, but really just doing it ourselves and showing, you know, keep making the product better and showing that it does actually work.   Sam Wilson (00:13:44) - Right. No, I think that's awesome. So tell me about Honey Bricks. I mean, so you guys are working with great sponsors around the country, but give me kind of the the and it is crowdfunding, but give me kind of more of a of a deeper dive into the product itself. Who's investing on it, how you guys manage that? I mean, that's that's still it seems like even with a great CRM, there's still a lot of moving parts into bringing a sponsor in, getting the deal vetted, getting it approved on the platform, getting investors in.   Sam Wilson (00:14:13) - I mean, there's a lot of moving pieces there. How do you do all that?   Andy Crebar (00:14:16) - Uh, it's quite simple once it's up and running and then using technology. But obviously there are a lot of moving pieces, especially on the regulatory front as you outlined. Uh, but the value prop we provide to, you know, investors that find us and invest in honey bricks is really around three things. The first one that pretty vetted deals. You know there's. Then it's 2 million apartments across the US and prime buildings. You know, there's thousands of syndications every month. We have a team that goes out and finds 100 of these every month and underwrites them ourselves, gets comfortable with the sponsor, the market, you know the deal. And then we'll we'll prove out these things and bring 1 to 2 to the marketplace that we truly believe in. And the second value prop is really around better terms. So these are a fund of funds where we're investing in another operators deal. So they're doing all the real work, you know, actually, you know, renovating the apartment building, finding it diligence and working with tenants, improving the asset, those sorts of things.   Andy Crebar (00:15:10) - So operationally, it's quite an easy lift as far as managing these SPV entities. And the third one is we provide the options for secondary market liquidity after 12 months so investors can sell to other investors in the marketplace after 12 months separate from the deal. So the deal's life lifecycle might be five years after 12 months if Sally wants to sell to Mary. Know they can do that through the platform.   Sam Wilson (00:15:33) - Wow. That's really. Yeah. Solving the liquidity issue is pretty cool. How did how does that work? What is there a loss to the initial investor? Is there like how does what's the liquidity options look like through honey bricks? Because that's there has to be an exchange of value somewhere.   Andy Crebar (00:15:53) - Yeah, We we don't provide, you know, valuation benchmarks. What we do provide is, you know, the issue price here's what the preferred return value would be. Those sorts of things. But it's really up to Sally and Mary. You know, they can post advertisements within the platform and they can, you know, negotiate if they want an anonymous basis.   Andy Crebar (00:16:11) - But we don't set the price.   Sam Wilson (00:16:13) - Sure, sure. And so then they just swap out their position in that particular deal.   Andy Crebar (00:16:19) - Yeah, the particular entity because remember to fund the funds which are separate from the deal. So it doesn't actually influence the the top deal. You know, it actually this influences the SPV with the investors money bricks in it.   Sam Wilson (00:16:30) - Right, right, right. No, that's that's really really So each of your deals on honey bricks is a separate SPV goes live and then investors get in on that. Talking about crowdfunding we've had some new legislation guess come through this has been recorded. August 8th, 2023. So tell me about that. You talk you told me a little bit about this off air and it's some stuff that's new, new news to me. Maybe I'm just two heads down. I don't quite know. But give me give me some color on that and how that's affecting what it is that we are doing.   Andy Crebar (00:17:02) - Yeah, it's it's interesting. It hasn't made more noise, I guess, in the community because we saw it and we said like, that's quite interesting.   Andy Crebar (00:17:10) - We knew it's been coming for a while, but as far as how quickly it's moving through, it has representatives in the Senate. It could be here within the 12 months. And what I'm talking about is the Equal Opportunity for Investors Act. Now, there's a representative from Nebraska, Mike Flood, I think his name is, and he proposed something called the Equal Opportunity for Investor Act, which basically asks FINRa, the SEC, to approve a accreditation test. Right. So not not based off income or no net worth, but an actual test that people that are financially sophisticated can take and then become accredited investors. And why that's interesting is that the approval in the House of Representatives was overwhelmingly positive. It's like 300 to 20 or whatever, whatever it is. And it seems to be moving pretty quickly. It's getting to the Senate. And given that overwhelming response, it's likely it'll get approved quickly by the Senate. So as part of that legislation, they need a test within the next 12 months. So if you work backwards from that and say it takes a few months to get through Senate, it could be with us by the end of 2024.   Andy Crebar (00:18:09) - And why that's important is. If you believe people do not invest in this stuff. And you know, at honey bricks, we only work with accredited investors and we probably get seven out of ten people that want to invest in honey bricks and not accredited, which we politely have to say, sorry, deregulation, we can't work with you just yet. But I think there's a huge market here in the US around non-accredited today. Investors that want to invest in private real estate, they're not sick of the stock market volatility. They want to invest in stuff they understand generate double digit returns. They can't do it. So I think that's a really key piece of legislation that's changing. It's going to be a big change in the amount of capital that's available in private real estate deals.   Sam Wilson (00:18:48) - Oh, man. And the number of people that are highly intelligent, very capable of making these decisions, and yet they can't because they don't meet an income or net worth requirements. Like that's the people that need to be in these deals anyway.   Sam Wilson (00:19:03) - Like mean think about friends of mine that are, you know, they're judges, they're lawyers maybe. I mean, it's like, you know, they're not making half $1 million a year, but they're very smart people. It's like, how? Okay, but you don't meet the accredited investor requirement. This is silly for sure. So yeah.   Andy Crebar (00:19:21) - A lot of benefits with it, you know, think it's there for a reason. But think you're right, there's many very smart, financially savvy people that can want to invest in these deals and could invest in these deals but can't due to the legislation. So that's great to see.   Sam Wilson (00:19:36) - Yeah, absolutely. Absolutely. Yeah. This is this is fun. I'm glad to see your state on the front end of these changes. I mean, getting honey bricks out there, taking advantage of the crowd, funding legislations and laws, then building flow and and making honey bricks run off of it. I mean, those are all very, very cool things. And you love what you're doing here in the real estate space and how you're really bringing new products to the market that are meaningful and making a difference.   Sam Wilson (00:20:02) - So certainly appreciate that. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Andy Crebar (00:20:08) - We show up there or sponsor or fund a funds manager head to GP flow. Com. You can learn more about what we do and how we help GP's there. If you're an LP looking to invest in high quality multifamily deals across the US. Check out honey And either way you can always find me and as well.   Sam Wilson (00:20:27) - Fantastic Andy at flow honey bricks and flow. Make sure we include all of those there in the show notes. Andy thank you again for coming on today. I do.   Sam Wilson (00:20:36) - Appreciate it.   Andy Crebar (00:20:38) - Right on. Thanks for having me, Sam.   Sam Wilson (00:20:39) - Hey, thanks for listening.   Sam Wilson (00:20:40) - To the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.   Sam Wilson (00:20:56) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Oct 02, 2023
Important lessons learned from Managing a 44-unit Apartment Complex

Today’s guest is Mack Benson.   Mack is a husband, father of three, and a real estate investor working a full time job in IT.   Show summary: In this episode, Mack Benson emphasizes the importance of thorough tenant screening and the need for a property manager who understands the unique challenges of managing an apartment complex. He shares his journey in managing a 44-unit apartment complex, highlighting the challenges he faced with property management and the lessons he learned along the way. Despite the setbacks, he remains optimistic about the future of the property and plans to continue investing in real estate.   -------------------------------------------------------------- Intro [00:00:00]   Mac's real estate journey [00:00:49]   The challenges of property management [00:06:29]   Challenges with Property Management [00:11:06]   Lessons Learned from First Deal [00:11:44]   Finding the Right Property Manager [00:13:59] -------------------------------------------------------------- Connect with Mack:  Facebook - @MackBensonOfficial  Instagram - @MackBensonOfficial  LinkedIn -  Twitter - @MackBenson Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Mack Benson (00:00:00) - I think some things were misaligned between our group and the property manager, where the property manager was really focused on getting people into the units and some of the screening that should have been done probably wasn't because we ended up having to evict three quarters of the tenants that were placed by that first property manager.   Sam Wilson (00:00:23) - Woah.   Intro (00:00:24) - Welcome to the How to scale Commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:37) - Mac Benson is a husband, a father of three children. He's a real estate investor, also working a full time job in information technology. Mac, welcome to the show.   Mack Benson (00:00:48) - Thank you.   Sam Wilson (00:00:49) - Absolutely. Mac, There are three questions I ask every guest to come to the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Mack Benson (00:00:59) - Where did I start? I started real estate like everybody else does. Reading Rich Dad, poor Dad. But mine was in about 2001 and didn't quite do anything with it.   Mack Benson (00:01:11) - As in I did nothing with it until about 2018 when I was listening to a just a random podcast. It was about making yourself a better person because that's what I was into at the time. And the guy started, he was interviewing a real estate investor, but the guy was a surgeon and he was buying apartments on the side. I was like, You know what? If he's doing it, I probably can too.   Sam Wilson (00:01:38) - And so then so that that's that's. Where do you start? Where are you now?   Mack Benson (00:01:43) - Right now, I've got 44 units, 40 of them a single apartment complex that was 2021 build that. When we toured it, it was literally two by fours and a couple pieces of sheetrock on the third floor. Wow.   Sam Wilson (00:02:01) - Wow. Okay, cool. So you bought so you bought that building in 20 when it was finished, I would assume.   Mack Benson (00:02:07) - Yep. If right at the tail end of 2021. Okay. And it's been a work in progress since. So it's been taking all of the attention.   Sam Wilson (00:02:18) - For that 44 unit building.   Mack Benson (00:02:21) - Yeah. Yeah. It was obviously newbuild, so completely vacant. So our value add was to get people to live in it.   Sam Wilson (00:02:31) - Right.   Sam Wilson (00:02:32) - Well, talk to us about that. This is your first syndication. Are you the lead sponsor on this deal? So this is just solely your deal.   Mack Benson (00:02:41) - So we were going to syndicate it. We ended up going through the entire process. We had all the paperwork drawn up, PM everything ready to go, bank accounts open, ready to start taking funds. And then the seller slash builder came to us and said, Hey, would you guys be open to seller financing? Berry. You know what? Talk to us about that. What does that look like? Yeah. And what he proposed, we took it back to our underwriting and said. You know what? This actually makes it a lot better for us. So we're going to pull back and say, can we come up with a down payment he's looking for without syndicating? Right.   Mack Benson (00:03:26) - And turns out the partners that we had on board that we're going to be our key principal on the syndication said, you know what, we want to stay in this And they were able to help get us the entire down payment and off to the races we went.   Sam Wilson (00:03:41) - Okay, now that is interesting. What were the terms? That the seller proposed that made it good for them, but also a win for you.   Mack Benson (00:03:52) - Mainly the down payment. So he was we were looking at having to put up about our total acquisition was going to be about 2 million. Out of pocket to begin with. It's a 2.   Sam Wilson (00:04:06) - Million in equity. We're going in the deal. Yep. Okay.   Mack Benson (00:04:10) - And his proposal brought it down to 800 K plus. We would we were going to need operating expense and operating account.   Sam Wilson (00:04:21) - Sure. Sure.   Mack Benson (00:04:23) - So it cut what our our total capital contribution by about half.   Sam Wilson (00:04:29) - Right.   Mack Benson (00:04:30) - And then rates. Rate was good. I mean, what was that, 2021 So I mean, if you were looking at agency, you could have gotten in the threes.   Mack Benson (00:04:41) - If you remember back then. I do. And think we're at 4 or 5, which back then we were like, You know what? It's a little bit high today. That sounds like a steal. And the term was good also because the term was going to bring us into 2026.   Sam Wilson (00:05:02) - Okay, So you got a five year term fixed fixed, I'm assuming, at 4.5%. Yep. Okay. And what happens in 2026?   Mack Benson (00:05:13) - Balloon, refinance or refinance, sell or extend if that's available, but with what rates are doing. Doubt that's going to be available from the financing.   Sam Wilson (00:05:27) - What what did they what did the seller gain by owner financing that were they're trying to offset taxes? What was what was their play? Do you know?   Mack Benson (00:05:37) - Yeah. He did not want that big giant income that he was going to have to pay taxes on. So this is extending it out for him. He's getting the interest payments, which he wouldn't have gotten. I mean, he's going to end up getting more than he got to begin with.   Mack Benson (00:05:54) - With the interest payments that we're giving.   Sam Wilson (00:05:58) - Sure. Now, that makes sense. That makes sense. Yeah. He's he's it was a tax attack strategy there. So you've got this 44 unit building, your first your first commercial real estate asset, if I'm not mistaken. Is that It is yeah. And so you said you have it's taken all of your attention in focus. So I guess this would be now two years in of owning this asset. What are some things that you've learned owning and operating this asset? What would you do differently?   Mack Benson (00:06:29) - One of the biggest things we've learned is that property management can make or break a deal. We are currently on our third property manager. Which has been tough. And if you've ever tried if you've ever transitioned from one property manager to another, I mean, it takes the second one two months to even figure out where the light switches are. Right. And then they're having to clean up whatever they don't like and whatever the owner doesn't like from the previous property manager.   Mack Benson (00:06:58) - I mean, there's a reason you left the original to begin with. And I mean, we're nine months in and nine months in with a third property manager and we're about two months. From having our head above water.   Sam Wilson (00:07:15) - When you say head above water, when you feel like you finally solved all of the kinks in the system.   Mack Benson (00:07:21) - Yeah. And we're finally in a place where instead of. Re tenting for business reasons. We're on a normal cadence of filling units that are in the process of moving out. We're not finally. We're finally not chasing our tails. Yeah.   Sam Wilson (00:07:39) - Yeah.   Sam Wilson (00:07:40) - No, that's that's interesting. On a brand new build like I've seen tenant turnover, not tenant turnover, seeing property management. Turnover in difficult to manage assets in the wrong. Class C assets and or you know, there's just some problems that come along with certain types and location at location assets. It's like, okay, well you know it's going to be harder just based upon where the asset is. But a brand new build seems like something where property management could come in and have a brand.   Sam Wilson (00:08:13) - I mean, it's a clean slate. What what were the things that maybe they didn't expect? That they encountered.   Mack Benson (00:08:23) - One of the things that we worked through was. Some of the tenant screening that had gone on or lack of I think some. I think some things were misaligned between our group and the property manager, where the property manager was really focused on getting people into the units and some of the screening that should have been done probably wasn't because we ended up having to evict three quarters of the tenants that were placed by that first property manager.   Sam Wilson (00:09:01) - Well.   Mack Benson (00:09:02) - Yeah, it it. There was some pains. It was rough. And luckily we had gone into the project well capitalized, knowing that we were going to have we were going to be operating in the red for we expected nine months. We didn't expect 15 months.   Sam Wilson (00:09:21) - Right. Have you guys hit?   Sam Wilson (00:09:23) - Black yet. I know you said 15 months. It sounded like a 15 months or so you started to actually have. Those colors switch a little bit.   Mack Benson (00:09:32) - Yep, we are. We are running in the black.   Sam Wilson (00:09:36) - That's good.   Mack Benson (00:09:38) - Yeah, we had a couple. Surprises along the way other than the tenant issues from the first property manager, One of the first tenants that they had placed started a fire, which was our first insurance claim, and then we had a flood, which was a second. So. Within the first seven months of operation, we were back into a construction zone, which put the second property manager in a really awkward position for showing units through a construction zone. Right. So yeah, construction, reconstruction and rehab is done. Tenants are in. We're at the break even. We're at or above our break even occupancy and things are humming.   Sam Wilson (00:10:27) - Along, right?   Sam Wilson (00:10:28) - No, I mean, that's a tough it's a tough project for for even seasoned veterans like. Oh, okay. Well, I mean, do you feel like when you run the tape back, were there things that you could have or should have done differently to have avoided many of these pitfalls?   Mack Benson (00:10:49) - So for the first I would say for the first two managers, we weren't necessarily.   Mack Benson (00:10:55) - I don't think we were paying attention as well as we should have.   Sam Wilson (00:10:59) - Yeah.   Mack Benson (00:11:00) - And that's something we we learned. We learned our lesson and it did not repeat.   Sam Wilson (00:11:06) - Got it. Got it. Yeah. Pay attention, man. And that's tough, especially when there's so many moving like you in that early stage. You're pushing hard and you're hoping that everyone else is taking care of what they're supposed to take care of because you've got limited bandwidth, especially if you're still working a job. And it's like, okay, well, I'm hoping the property manager is doing right and instead they're just slapping tenants in there. Anybody that applies, Oh, you have a pulse. Cool. Yeah. Come on in. You can come. You, you, you. And then you're you're kicking out 75% of those. What did you say ten months later? I mean.   Mack Benson (00:11:44) - Yeah, within the first year. Basically, as soon as the eviction moratoriums were over, we were in the, what was it, a three month line of other owners trying to do the same thing.   Mack Benson (00:11:58) - Right?   Sam Wilson (00:11:59) - Right. Oh, man. Oh, that's brutal. That's brutal. Looking back on this deal, are you still glad you did it?   Mack Benson (00:12:08) - You know, I am. I have basically gotten a PhD in operations in my first deal. And who else can say that? I was at an event last year just talking to some other guys about the experiences that I've had. I mean, just. To get this deal over the finish line to close. I mean, that was a process because we ended up bringing on we ended up doing seller financing, brought in at 1031, we were going to syndicate. So it's like, okay, you pretty much covered all your bases on there and you didn't even you hadn't even closed yet. And then with the fire, with a flood, they said, Well, you're only missing blood. I'm like, All right. So I guess I have one more thing that I have on the horizon at some point and some deal. Hopefully not this one, right? Other than me smashing a finger, swinging a hammer at some point.   Sam Wilson (00:13:01) - Right. Right.   Sam Wilson (00:13:03) - May that be the only blood you ever see at one of your properties. And even then, try to avoid that. If you can tell me about this. Working a full time job. I mean, you're still you're still full time it still managing this project. Where where does your real estate investing career go from this point forward?   Mack Benson (00:13:23) - One day the real estate will be this wood. Well, I'd say the sole focus, but I've still got the kids and the wife, so not the sole focus, but the the primary source of income will be real estate at some point.   Sam Wilson (00:13:39) - Yeah, right. Oh, that's that's really interesting. Tell me about the size, like a 40 unit building or 44 unit building. Um, has that. Has that made it challenging to find good property management where you are, or is that no problem?   Mack Benson (00:13:59) - Yes and no. And it's kind of funny because before when we were. Still under contract working towards close. We interviewed a number of property managers and and settled on landed on the first one that we ended up with.   Mack Benson (00:14:15) - We had actually interviewed the property manager that we currently have in that first wave and decided not to go with them. We were nervous about their lack of experience because they had never managed an apartment before. All they did was single families, duplexes, quads, but never anything in the apartment world. They really wanted to, but they just hadn't found an operator that would take them on yet. So nine, ten months later, we were back talking to them and they had evolved as a company. They had gotten a lot of their processes and systems and processes had gotten a lot smoother and more professional and ironed out, and it seemed like a great fit. And it so far it definitely has been.   Sam Wilson (00:15:09) - Oh, that's interesting because you would think. Now the people with the experience would be the right ones to hire, but maybe not necessarily so. Maybe the ones that are really willing to put in the work and do the right thing is far, far more valuable. Very, very interesting. Mac, thanks for taking the time to really share with us your growth.   Sam Wilson (00:15:31) - You're kind of journey thus far from 2001 reading a book and then 2018 rolls around. You say, okay, I think now is the time to get into real estate. Did you feel like in that window in your early 2001 to 2018 window, was it was there like, okay, there's a better way, or was it just a distraction in your job or what kept you from really making that leap sooner?   Mack Benson (00:15:58) - I wasn't ready. Um. I was too immature and mean, to be honest. What? Following 2001 to 2008, I just hid in the bottom of a bottle. I mean, in 2009, I look back and I had a Facebook memory celebrating sobriety in 2010. And it was I had thought that I was on the three case a week plan, but my memory reminded me that I was on the five case a week plan.   Sam Wilson (00:16:33) - Yeah.   Mack Benson (00:16:35) - So got rid of that and then went back to college again because the first time was so successful and just started working on myself. And after my first kid was born, like, you know what? I really need to do something better for myself.   Mack Benson (00:16:57) - I was like probably 260 then and was like, I need to focus on my health because I want to be around for my kid. And, um. The realization that I needed to do that myself. I need. I'm the only one that can make myself healthier. So focusing on that, and that's what actually got me into the podcasts that talked about health, fitness, self improvement, and it was on the Self Improvement podcast that the real estate syndicator was on.   Sam Wilson (00:17:31) - Wow, wow. And you're like, Hey, I've heard of this before, This rings well, gotta rewind.   Sam Wilson (00:17:37) - And I actually and.   Mack Benson (00:17:39) - I actually went and got the Purple book out again because I still had it. It was in the back of a bookshelf covered with dust, dusted it off and opened it up and just devoured it. And probably 100 other books since then.   Sam Wilson (00:17:53) - What's what's one personal habit you have right now or personal discipline you have that you feel like makes you better every day?   Mack Benson (00:18:04) - For me going to the gym.   Mack Benson (00:18:07) - Um, lifting heavy things.   Sam Wilson (00:18:11) - It.   Mack Benson (00:18:12) - And that's twofold. I mean. I mean. Well, multiple I would wouldn't even say two because there's a litany of reasons and mean strength and muscle is part of it. But putting off the things that will take me down in old age, right? Like if I have more muscle now, that's more muscle that I can have to lose as I get older. Right. And. More of more muscle now means more bone mass, which means my bones won't be as brittle until later. Right. So all of that goes to I want to be here for my kids and I want to do better for my kids. And if I'm not healthy, well, I'm not going to be here for them.   Sam Wilson (00:18:56) - Right?   Sam Wilson (00:18:57) - Right. Oh, that's so true. That's so true. Health is absolutely wealth. And it's funny, man, because. Because. Yeah, no, we could I could talk about this all day long because it's something I have spent. Too long.   Sam Wilson (00:19:12) - Thinking about reading, about studying. I mean, cracking the cracking the human code of my own code of like, okay, what's it mean to be, you know, what's my version of healthy look like? And trying to figure that out. That's, that's really, really cool that you do that because I think it's important that you bring up the point of like. You're not just going to the gym to be a meat head and make your make your biceps bigger. I mean, okay, that's cool. But there are long term health benefits that go right alongside of that that you you mentioned that I think are very, very compelling. Like, oh, I want to be I don't want to be prematurely old. I mean, none of us got to here alive. But there's no sense in no sense in getting old before before its time. So very, very cool. Mac Love what you've done in the commercial real estate space. You've taken on an incredibly challenging project. It sounds like out of the gate and you're still sticking with it, which I think is a testament to you and to your commitment to continuously learning.   Sam Wilson (00:20:07) - And of course, you know, figuring out the commercial real estate game. I love the fact that you got an owner finance deal and how you guys structured that. Very, very cool. Keep up the good work. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Mack Benson (00:20:24) - Best is either on Instagram, Mac Benson Official or my website Infinite Infinite Focus Capital.   Sam Wilson (00:20:32) - Infinite Focus and we'll include both that and Mac's social handles. They're in the show notes. Mac, thank you again for coming on the show today. I do appreciate it.   Mack Benson (00:20:43) - Thank you, sir.   Sam Wilson (00:20:44) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for.   Sam Wilson (00:20:58) - Us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories.   Sam Wilson (00:21:05) - So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Sep 28, 2023
Balancing Real Estate Investing with a Full-time Military Job

Today’s guest is Lupei Chou.   Lupei is an active-duty Naval Officer with 20 years of leadership, logistics, government contracting and project management experience in the Defense Industry. She has completed multiple deployments at sea and proudly served her country in Afghanistan.   Show summary: During this episode, Lupei discusses her background in real estate investing, her experiences as a co-sponsor in syndication projects, the importance of selecting the right partner, challenges in asset management, balancing real estate investing with a full-time military job, and her future plans in real estate.  -------------------------------------------------------------- Intro [00:00:00]   Lupe's Real Estate Background [00:00:55]   Challenges in Asset Management [00:06:12]   Lupe's transition from single-family to commercial real estate [00:11:59]   The benefits of the co-sponsor model [00:12:36]   Contact information and conclusion [00:13:01] -------------------------------------------------------------- Connect with Lupei:  Linkedin: Instagram: Facebook: Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Lupei Chou (00:00:00) - The most important thing is really about selecting your partner. Um. And we learn a lot in partnering with different people. And I also partner with. Other people, other investors outside syndication space. So I would say selecting your partner is absolutely the number one important thing to to be very selective, to be very careful with who you partner with.   Intro (00:00:28) - Welcome to the How to Scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:41) - Lupe Chow is an active duty naval officer with 20 years of leadership, logistics, government contracting and project management experience in the defense industry. Lupe. Welcome to the show.   Lupei Chou (00:00:53) - Thank you for having me, Sam.   Sam Wilson (00:00:55) - Absolutely. The pleasure is mine. Lupe. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell us where did you start? Where are you now and how did you get there?   Lupei Chou (00:01:05) - All right. I started as a single family investor, actually, even going way back, you know.   Lupei Chou (00:01:13) - My own rental property was, you know, my own house was became rental property due to military moves. So that was my first experience as a landlord. Um, I started in a single family space and moved to the multifamily and. Sorry, what's the second, third question?   Sam Wilson (00:01:32) - No, no, it's all good. Where did you start? Where are you now and then How did you get there?   Lupei Chou (00:01:39) - So how did I get there? Yeah. So what I learned was I don't make money in. In residential rental. It's very, very hard to make money. Um, I was, um, I had six units. Um, and, uh. I can have a repair issue. Maintenance issue. Wipe out the profit for the whole entire year very quickly. Very easily. So that's why we gotta go bigger. Have more units.   Sam Wilson (00:02:08) - What? What, what? What do you guys own? What's your portfolio look like today?   Lupei Chou (00:02:13) - So currently, my partner and I, we focused on taxes and Georgia.   Lupei Chou (00:02:19) - Those are our two primary primary markets. Atlanta. And there are a few places in Texas we are working on. But yeah, and we have, um, we have close to syndications. Um, but all of us started in the residential space before becoming syndicators.   Sam Wilson (00:02:40) - Got it. Got it. Yeah. So you got involved in syndication, said, Hey, I'm going to do multifamily real estate. What? What? I guess tell me about those projects and why you picked those in particular. Maybe even tell me when like give me some kind of some color to those projects and how you got those across the finish line.   Lupei Chou (00:02:58) - Really? You know, our first project, we are. We were co-sponsors. We really just. Joining another team to for experience and help with the race. Um, but we also have experience in small multi all of us, the three of us. Me and my partners. So we just want to move on to a bigger properties because as you know, right, like you and all your friends and people, you know, run out of money at some point, you have to be able to tap into the bigger investor pool and be able to raise.   Sam Wilson (00:03:35) - How have you done that? Let's let's talk about that for a second. Going out and finding a bigger investor pool, what's been some effective strategies you've employed to do that?   Lupei Chou (00:03:46) - I think everybody started out with their maybe their social media, and that's what I did too. I started sharing my story, um, just make a, you know, post about what I'm doing. That worked well, I think in the beginning, um, just to get the words out, let people know what you're doing. Um, and I did have a lot of friends, even friends I haven't talked to in a number of years, reaching out to me, you know, just interested or curious.   Sam Wilson (00:04:17) - That's great. That's great. So you guys had your first project you went into as a co-sponsor. What have been some things you've learned in going into a project as a co-sponsor? And maybe, maybe, are there things that you would have done differently or things that you said, Hey, we did this really well the first time through?   Lupei Chou (00:04:36) - I think that the most important thing is really about selecting your partner.   Lupei Chou (00:04:41) - Um. And we learn a lot in partnering with different people. And I also partner with. Other people, other investors outside syndication space. So I would say selecting your partner is absolutely the number one important thing to to be very selective, to be very careful with who you partner with.   Sam Wilson (00:05:06) - Yeah, absolutely. Anything else come to mind on that front as you review the tape and said, okay, we did this, you know, on our first co-sponsor deal, um, being selective of your partner. Yes, that's number one. Anything else come to mind that you'd say? These are some things that that maybe I would do differently the next time around.   Lupei Chou (00:05:24) - I think other than that, you want to have complementary skills. Um. Because people bring in different skill sets to a table, right? And sometimes, um, you just don't really have the skills, the right skill set mix. And it kind of makes, it makes property management very difficult because once you're closed and you are together for the next 3 to 5 years, so running the property and taking care of it and make sure it's profitable, um, it will be a lot easier when you have the right skill set, you know, a group of people.   Lupei Chou (00:06:00) - That's another thing we also learned.   Sam Wilson (00:06:03) - Absolutely. So you close your first project as a co-sponsor, your second project. Did did you do on your own or was that also as a co sponsorship model?   Lupei Chou (00:06:12) - We also did as a co-sponsor, but we were a lot more involved on the second time. Um, which is really, um, I think I didn't really understand a lot of the things when it comes to asset management. And I've learned a lot in that second project because we did have some issues with asset management and property management company. We fired a number of companies, um, and just trying to, you know, get that right. We're still working through some issues. But yeah.   Sam Wilson (00:06:48) - Is this is this asset harder in particular to manage? Was there something about the asset that has caused you guys to go through? So many different property managers.   Lupei Chou (00:07:01) - I think it's just a smaller asset. It's 60 units and certain companies, they don't really want to take on that property. Maybe too small for their portfolio.   Lupei Chou (00:07:12) - But, you know, it's yeah. So that's something I also realized. Okay, you know the size, right? The size matters.   Sam Wilson (00:07:21) - Yeah, No, it undoubtedly does. And that's and that's something that. Who was it I was talking to here recently? They were saying, oh we were talking to a lender. And he said, get get in front of the lenders in this particular asset class and really figure out what and how they underwrite and how they how they view deals, because that's going to give you a lot of color as to what you should be looking out for. And think the same thing maybe applies here where it's like, hey, there's, you know, 60 units. The the bigger shops don't want to deal with it.   Lupei Chou (00:07:53) - Yeah. So yeah, so that's being a challenge. I think the size is kind of like. Not too small, not too big. It's kind of in the middle. Um. Yeah. Um, but we are plugging away. We just continue, you know, Find what? Searching the right fit to, you know, help with the property management.   Sam Wilson (00:08:13) - Yeah. No, absolutely. Yeah. Because, I mean, that'll be a challenge When you get to a 60 unit property, it's like, well, you know, getting the, getting a competent property manager in there to, to run that for you could be could be potentially tough. Tell me tell me this you know you're still full time military, is that correct?   Lupei Chou (00:08:31) - I am. Yep.   Sam Wilson (00:08:32) - Wow. How do you balance your. Real estate investing with working full time.   Lupei Chou (00:08:40) - You know, so that really comes down to partnership. I do have two partners that we work very closely together and, um, you really just kind of like make sure all bases covered, you know, I, of course, you know, do things in the evenings and weekends and whatever I can do in the day. But really, I rely on my partners to, um, to take care of all the things.   Sam Wilson (00:09:08) - Mhm.   Lupei Chou (00:09:08) - Yeah.   Sam Wilson (00:09:09) - Okay. Very, very good. Any advice that you would give to people as they're looking to transition out of their job and get into real estate? Anything you'd give there as a as advice.   Lupei Chou (00:09:23) - So, you know, my background is military, you know, and of course, my approach is more on the conservative side. Right. I really think, you know, that transition is. Important to really make sure you're in a good place. I have seen people quit their jobs and ended up having to go back to their jobs or getting another job. Right. Because the real estate, especially as a new investors, it can be very unstable. A lot of ups and downs. Maybe you're making money this year, but, you know, that's not to, you know, to say you're going to make money next year. So, so so to me, I think it's important to make sure, you know, you have all the bills covered and, you know, like safety fund, all that stuff set up before quitting. It's very exciting, you know, And I have, um, mega money, you know, in deals and it make you almost make you think, Oh my God, I want to just quit.   Lupei Chou (00:10:27) - But yeah, be careful.   Sam Wilson (00:10:30) - Do it thoughtfully. Do it thoughtfully. Yeah, there's that's, there's absolutely some, some wisdom in that when looking forward, like looking to your future in real estate, what do you want that to look like and how do you plan on getting there?   Lupei Chou (00:10:45) - You know, I am I'm finishing up my military career here very soon, in the next year or two. At that point, I want to be fully devoted and focused on my business, the real estate, and just be more hands on and really learn the ins and outs. I mean, I feel like I'm learning now, but really not at the level I want to. So that's what I want to do and continue to grow the portfolio. And I'm very interested on development and maybe tap into that. That's my goal.   Sam Wilson (00:11:24) - I love it. I love it. Lupe. Thank you for taking the time Here to come on the show today. Certainly learned a lot from you. I loved hearing your entrance into commercial real estate and yeah, you've taken a similar journey to us all in that it's like.   Sam Wilson (00:11:38) - And I still have you. I do. I do still have some legacy single family stuff in my portfolio that just have not ever divested of. And I will tell you, it's always a little bit of a disappointment when the phone rings and you're like, Oh crap, now what?   Lupei Chou (00:11:52) - I get nervous when my property manager called me because there's no good news when he calls. Never.   Sam Wilson (00:11:59) - Never, No. And so I've actually taken the drastic kind of burned the boats route and have owner financed a lot of those properties off of the existing tenants. It's just like it's just the it's not worth the, the mental strain, you know, that it puts on where it's like, okay, like I don't, I don't have any desire. I don't care if I sell it for if at a minor loss, it's just got to go get out of my head. So clearly you've taken that transition from commercial or from single family and said, okay, we learned our lessons the hard way. Now we're going to go into commercial real estate.   Sam Wilson (00:12:36) - Doing the co-sponsor model in the beginning is a great way to learn, and it sounds like it's an iterative process, too, even for you. I think in that did your first project and the second one around, you've been way more involved and oh yeah, I love I love seeing that as we, you know, as you transition through that process and how you are scaling your commercial real estate holding. So certainly thank you for taking the time to come on the show today. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Lupei Chou (00:13:01) - Yeah. So you can find me on LinkedIn. IG Facebook under my name. Lupe Chao. Um, our company page is Crown Capital. That's Crown Capital Um, so check us out.   Sam Wilson (00:13:20) - Fantastic. That's Crown Capital Corp Corp. Crown Capital Corp, dot com. And Lupe Chalice. Lupe. I see you, Lupe. Thank you for taking the time to come on.   Lupei Chou (00:13:32) - Thank you so much, San.   Sam Wilson (00:13:33) - Thank you. Have a great rest.   Sam Wilson (00:13:34) - Of your day. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for.   Sam Wilson (00:13:48) - Us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Sep 27, 2023
Raising Capital for Real Estate Developers and Revolutionizing Financial Planning

Today’s guest is Dana Cornell.   Dana Cornell is a Certified Investment Management Analyst and Certified Financial Planner, whose passion is to take the uncertainty out of investing and provide consistent returns his clients can count on.   Show summary:  In this podcast episode, Dana Cornell shares his journey from working at Morgan Stanley to starting his own firm, Cornell Capital Holdings. He discusses his focus on income replacement and tax efficiency strategies, as well as his role as a capital raiser for real estate developers. Dana explains how his licenses and certifications as a fiduciary set him apart in the financial world and emphasizes the importance of thorough due diligence in making informed investment decisions. He also discusses his involvement in development projects, particularly in the self-storage sector.    -------------------------------------------------------------- Intro [00:00:00]   Dana Cornell's Background and Starting Cornell Capital Holdings - [00:01:11]   Walking Away and Starting a New Path - [00:02:16]   Focus on Income Replacement and Tax Efficiency Strategies - [00:05:09]   The process of bringing capital to deals - [00:08:59]   The role of a capital raiser for developers - [00:09:28]   The number and types of investment opportunities available - [00:11:59]   Building a Team - [00:19:14]   Demand for Income Replacement - [00:20:09]   Contact Information - [00:21:37] -------------------------------------------------------------- Connect with Dana:   Web: Email: Book:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Dana Cornell (00:00:00) - So by going and essentially becoming an outsourced team member for our developer, I said to them, Look, I'm going to go raise this money, but you're going to pay me the fee, not the client. So it's very efficient from the client standpoint and it's very efficient from the developer standpoint because they're paying me a few percent. The same thing I used to charge a client, basically, but they deal with me. I handle all that. I raise all the money for them. And on the flip side, the is not paying a fee. So it's very efficient for them unless we're doing some deep planning for them, that type of stuff. And I'll just charge a flat planning fee.   Sam Wilson (00:00:35) - Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:47) - Dana Cornell is a certified investment management analyst and certified financial planner. His passion is to take the uncertainty out of investing and provide consistent returns his clients can count on.   Sam Wilson (00:00:58) - Dana, welcome to the show.   Dana Cornell (00:00:59) - Sam Thanks for having me, my friend.   Sam Wilson (00:01:01) - Absolutely.   Sam Wilson (00:01:02) - The pleasure is mine. Dana There are three questions I ask every guest who comes on the show in 90s or less. Can you tell us where did you start? Where are you now and how did you get there?   Dana Cornell (00:01:11) - I'll give it my best shot. So I'm from south of Buffalo, New York. A little town called Olean started pretty typical, you know, middle class family. My father is excavation contractor. My mom was a kindergarten teacher. Didn't really come from money. I didn't know many people that had money. Um, so I started knocking on doors to start talking to people and let them know what I did for a living and see what they needed and how I could help them. That turned into, 17 years later, fortunate to be recognized on the Forbes under 40 list for advisors in the country, best in the state, All that good stuff managed about 1.4 billion with my team and my group at Morgan Stanley and about two years ago decided, you know, I didn't feel like I was doing the best job for my clients, which I'm sure we'll talk about why and how and decided to literally walk away from that, which, as I told you briefly before we started, they asked they asked me if I needed mental health counseling because that's not typically the move in that industry when you reach that level of success.   Dana Cornell (00:02:16) - Um, but I felt strongly about it. I knew there was a better way to build wealth. I knew my ultra wealthy clients did it a different way. And so that's how Cornell Capital Holdings was born.   Sam Wilson (00:02:26) - Wow.   Sam Wilson (00:02:26) - Okay, let's let's let's let's do dive into that a little bit. Walking away because that 1.4 billion in assets under management those are hard earned clients. I mean getting people to put their accounts with you, to trust you with their finances. I mean, that's a that's a tough row to hoe.   Dana Cornell (00:02:44) - It is. It is. Yeah.   Sam Wilson (00:02:47) - And walking and walking away. And when you leave, you leave all your clients behind, essentially.   Dana Cornell (00:02:52) - You have to.   Sam Wilson (00:02:52) - Yeah, you have to.   Sam Wilson (00:02:54) - No wonder. No wonder they asked you. Do you need I mean, you spent 17 years just I mean, beating your head against the desk, getting this done, and now you're like, okay, I got to go. Like, I'm done. Yeah. Have you, have you Let me let me see if there's a nice way to ask this, since you had that move when you when you made that move, was it just like, yes, this is it.   Sam Wilson (00:03:15) - This feels amazing. I'm so glad I did that. And you've never looked back.   Dana Cornell (00:03:19) - Are you asking if they were right, if I needed that mental health counseling?   Sam Wilson (00:03:22) - Don't know. But. No, no, I wasn't asking that.   Dana Cornell (00:03:24) - But no, I have not looked back and I'll tell you why. So, you know, being a traditional financial planner. It's funny. Everybody would always ask me, What's your number? What's the number you need to retire? And it's all relative to what you need, right, and what you spend. Right. But if you reverse that and I talk a lot to my clients now about the reverse financial plan, if you start with income first and buy your time back by buying passive income and being very efficient with it in both not paying tax as best you can and fees to eat away at your your income and your capital. You know that's a it's a much different situation. So when I experienced that for myself investing in real estate syndications and then made the decision that, hey, this is how my ultra wealthy clients have built wealth, this is something I truly you know, I had two little boys show up around the same time.   Dana Cornell (00:04:19) - You know, they're five and and soon to be four now makes it just puts a different perspective on things maybe really reflect internally, hey, am I doing the right thing? So I feel great about what I'm doing and I didn't. You know, so the answer is no. I never looked back. And that's the main reason why, you know, I truly believe in how we're doing it now. And. You got to feel good about what you're doing at the end of the day.   Sam Wilson (00:04:43) - Oh, you do? Undoubtedly. Undoubtedly. Tell me. So what when you when you launch that on your own. How did you decide and what did you decide to focus on? Because you're basically doing the same thing. You've started your own, your own, you know, financial planning firm. But now you can you can call the shots because now you can tell your clients and you can advise your clients, hey, you could invest in this multifamily syndication or whatever it is. I mean, is that the gist?   Dana Cornell (00:05:08) - Exactly.   Dana Cornell (00:05:09) - So so, you know, quite simply, to sum it up, instead of being a more of a generalist, we're just more of a specialist. I focus on your your income replacement and tax efficiency strategies or not working with all of your capital typically. Um, some we do, but most we don't. And it just allowed me to be laser focused on what we're doing and what we're offering. So to answer your question, you know, I had started researching and interviewing different developers and there was a gentleman I knew that that had a similar firm he started 20 years ago, and quite simply they would partner with best in class developers in different asset classes of real estate. And I started with self storage. It's the most I did that because historically as an asset class, it's the most consistent, right? Um, that's where I started. Found a really good team to partner with there. Convince them that they could do more projects if I added fuel to the fire and handle the investor relations on their side.   Dana Cornell (00:06:09) - You know, and I helped coach a lot of developers now to structure their raise, how to find the right investors, how to do all that stuff on one side, and then on the other side, I'm profiling high net worth individuals looking for passive income and tax deductions and matching them to the right projects and teaching them about the risks and where that fits into their portfolio. So that's how it's come together.   Sam Wilson (00:06:31) - Got it. I want to hear your state of the market and interest rates and all of those things and kind of what you're seeing on the development side, maybe as part B here of this showed here today. But maybe before we get there, you said you're only handling portions now of people's income. I think probably previously you're handling the majority of what your clients had and now you're only taking portions of it. How do you how do you structure that? I mean, I think about that just, okay, how do you how do you structure it such that obviously you get paid because you got to still feed your family and I mean, without doing fun to funds and things like that.   Sam Wilson (00:07:06) - How does that process work with you as an advisor helping your clients?   Dana Cornell (00:07:09) - Yeah, so great question. So the beauty of it is, you know, I had worked previously on managing as much of your assets as I could, doing a financial plan charging an annual management fee, very typical wealth management structure. That's fine, but I thought there was a better way to structure the whole thing. So by going and essentially becoming an outsource team member for our developer, I said to them, Look, I'm going to go raise this money, but you're going to pay me the fee, not the client. So it's very efficient from the client standpoint and it's very efficient from the developer standpoint because they're paying me a few percent. The same thing I used to charge a client, basically, but they deal with me. I handle all that. I raise all the money for them. And on the flip side, the is not paying a fee. So it's very efficient for them unless we're doing some deep planning for them, that type of stuff.   Dana Cornell (00:08:01) - And I'll just charge a flat planning fee so it makes it much more economically viable. And the reason I say we deal with typically a portion of their money. Alternative investments are not appropriate for all of your cash. Right. We have liquid alternatives, but you can do that stuff anywhere. You know, I'm not going to charge you 1% to manage your cash and and fixed income exposure. It doesn't make any sense where rates were, especially right now. We can talk a lot about rates if you'd like, but, you know, I'll tell them, look, I can do that for you, but you can do it elsewhere just as efficient and cheaper. All right. Let me add value where I really, truly add value. And that's usually for about half, 40 to 50% of people's liquid net worth.   Sam Wilson (00:08:49) - That's that's really interesting because, I mean, a lot of times what we'll see in the I mean, you're a capital raiser in its own right just with a different kind of spin on things.   Sam Wilson (00:08:59) - And you're doing this through because you have your licenses. You you know, I don't know what they all are probably at this point forgotten a lot of those. There's a lot of probably reporting. I've had too many FINRa licenses over the years and I've kind of blacked out a lot of that. Yeah, it's like I forget a lot of that, but I mean, you have some compliance things to keep up with in reporting things. Maybe they're different than what somebody who doesn't isn't licensed. So how does how does that process work and why have you chosen to go the route you have in bringing capital to deals?   Dana Cornell (00:09:28) - Yeah, you know, I'm glad you brought that up. I appreciate it because I think it's something that sets sets me apart. So from the world I came from, right? I'm a fiduciary based on my licenses and my certifications to the client. Right. A lot of people. And I saw I experienced it myself, you know, going into syndications or a real a private investment of any kind.   Dana Cornell (00:09:50) - Doesn't matter if it's a private investment. It's private meaning the information is not as accessible as buying a publicly listed stock or bond. Sure. So how do you if you don't spend all of your working hours and have 20 years of experience like we bring to do the right due diligence to make sure it's the right fit and then figure out how does that fit into your world as an investor, what percentage, how much you should invest in each project, so on and so forth. So I blend both of those worlds. You're right on one side. I'm a I'm a capital raiser for the developers. I just make it easier for them because I'm one source of capital and I handle all things investor relations and, you know, it makes it streamlined for them. They can go further faster. But I'm really I focus. More on the investor side and being that guide and that bridge to making the right decision. So you're not getting burned, you're not over concentrated. You know what the risks are. I think there's a lot of value being that guy in the middle.   Sam Wilson (00:10:48) - You know how when you're looking because I'm thinking about this and if you're looking at someone's portfolio, what you how many deals do you guys have as available deals to your clients at a time? Because maybe one type of an investment may work for me. I may want you know, I may want something, you know, my stage in life. Like I really don't want necessarily the cash flow right now. I want it to double or triple in the next five years where somebody 75th May want to just flip the coupon. Yep. So how do you have the like what what is your set number of opportunities look like at any given time?   Dana Cornell (00:11:23) - Yeah. So, you know, it's a moving target. It kind of honestly comes by by opportunity and our underwriting process of what deals come through. You're right. So I'm always looking. I spent a lot of my time profiling deals, doing my underwriting, taking it through our process to have different offerings. And we have a menu of probably right now between registered fund offerings that we have access to that you would typically have to put a million or more indirectly to have access and you can get for a much lower minimum with us and the true direct private syndicated deals.   Dana Cornell (00:11:59) - You know, we probably have a menu of ten different options at any point in time, but really of the true privates, 2 or 3 going at one time that are more growth focused cash now, cash later, have your tax advantage trying to hit the main points there. Give them enough opportunity. You know.   Sam Wilson (00:12:17) - How do you stay in front of maybe you just have an amazing team behind you, but how do you stay in front of that many different opportunities and kind of I mean, because that's a lot of communication. That's a lot of I mean, just just reporting back to investors the status of those opportunities and where they're going and what the different moving pieces are like, how do you manage that whole communication flow?   Dana Cornell (00:12:39) - It's leverage. You know, I couldn't do it myself by any means. So it's the the old who to do the whole story. You know, I lean on a lot of other professionals to help me with due diligence to give me third kind of third party non biased opinions on deals.   Dana Cornell (00:12:56) - My team here is handling an awful lot of investor relations and summarizing and synthesizing all that information. So I can then take it, you know, and efficiently kind of put my spin on it and relate it to the investors so I can disseminate that to help them make good decision and keep them updated on what's going on.   Sam Wilson (00:13:15) - Right? No, I think that's great. Tell me a little bit let's let's let's go to part B here of this of this podcast and talk about the. Kind of the state of the economy, what you guys are seeing, especially because it sound like you're doing a lot of development stuff. It's not that you mentioned the word development a couple of times, so it sounds like that's kind of one of the niches that you've picked. Yeah. What's the what's going on in that world? Give us kind of the the the breakdown of where we are and maybe where you see things going.   Dana Cornell (00:13:44) - Yeah. So big question, man. You know, I'm always contrasting in comparing what I call traditional investments, publicly traded stocks and bonds to private alternative offerings.   Dana Cornell (00:13:59) - Um, we could talk about stock market and all that stuff all day long, but I think it's no secret that that market is going to fluctuate. It's going to go up and down. We're coming into an election year. It's going to have good periods. It's going to have bad periods at the end of the day. It's consistency of returns and the predictability of those. That that truly changes the game for people. And that's what you see the ultra wealthy focus on. So when I'm looking at projects, I'm looking at what is the predictability that one of course our principal is protected to if it's an income producing project. And that's why like a lot of our self storage development that where I started. We're building in areas where they have three times the amount of demand or partnering with publicly traded companies to run, operate and eventually acquire those properties. They've checked the box that it all makes sense ahead of time from their standards. So you're borrowing some credibility from a publicly traded company and their team and their resources, right? Instead of, hey, I'm going to I'm going to go out and build my own storage facility.   Dana Cornell (00:15:12) - And I like this spot because I'm biased towards it. And, you know, I think this makes sense and I hope it works. No, there's a lot more going into the research before I'm going to put my name on an offering and put my own money in it because we're doing that, too. You know, I'm not I'm not suggesting anything that we don't have our own capital in one way or another, you know. So.   Sam Wilson (00:15:36) - Think. Go ahead. I'm sorry.   Dana Cornell (00:15:37) - Well, I was just going to say so I think that then leads you to a path of, okay, if it's private investments over public investments where. Right. Real estate. There's a bunch of different flavors of private real estate rates going up so fast. You know, one of the things we did was underwrite all of our projects to historical interest rates. Mm. Commercial real estate historical rates are about 6.5%. Give, give or take. Right. That's what we underwrote that to. Plus a cushion. A lot of projects I saw over the last two years.   Dana Cornell (00:16:13) - We're underwriting the current rates plus a cushion in their pro forma. Well, I have 20 years of experience of seeing rates fall. I know they're not going to stay low. That's the new normal for people. But that's not our reality. That's not the historical average. We haven't been there in the last 30 years. We were for the last few. But if you're not building in that cushion, you're going to see a lot of trouble in a lot of asset classes within real estate and a lot of individual projects. So those are some of the things we're looking at. That's why you've heard me mention development, because I think you can kind of pick and choose your spots there. Um, not to say there's not issues there. It comes down to the project and the developer at the end of the day.   Sam Wilson (00:16:53) - Right. No, absolutely. You've mentioned a couple of things, and I want to hear your thoughts on this. You said the two things that you're really working with people on is income replacement and tax abatement.   Sam Wilson (00:17:04) - On the income replacement side of things, how? Because of where interest rates have been climbing, like how how have you combated that in its own right because preferred returns of whatever they were 7% 6% in 2019 were pretty attractive, but 7% in 2023 is like, okay, I can get five and a half at the credit union. So exactly it and I can get it out tomorrow is not tied up for five years. So what are you doing on that front to kind of structure things creatively?   Dana Cornell (00:17:35) - Yeah. So, you know, it's I talked to developers about this a lot, so it's knowing your marketplace and knowing where you're at in this market cycle. And you're right. So now the risk free rate of money, you've got to beat five 5% to make it even worth your time to get out of bed. Correct. So how do you change your offer and how do I find offerings that are more income focused in more of a really right now, a lot of what we've been doing is not as much growth focused, right? It's cash flowing properties or soon to be cash flowing properties at enough of a of a current yield to make it worth you know it is the eight, nine, 10% income.   Dana Cornell (00:18:15) - Right. Um, and it's looking at other asset classes, you know, real estate's great, but you got to keep your eyes open for everything. We do a lot of small business acquisition as well. Um, you move to where the risk isn't as much and in turn that creates more opportunity. And right now it's higher income tax deduction and less growth type strategy That seemed to work right now.   Sam Wilson (00:18:39) - Right. Oh, man, that's really, really cool. I love I love what you've done here. Dana. This is really cool. The just the I mean, leaving big business, leaving a $1.4 billion portfolio of assets under management to go do what you really feel in your heart is the right thing to do. I think is is admirable. And you know, it's it's cool to watch. Just see what you've done that on that side of things. Let's talk let's talk staff, building teams, those sorts of things. We touched on this slightly, but when you venture out on your own and and maybe you already knew, you're like, okay, I'm going to step out and it's going to be a home run.   Sam Wilson (00:19:14) - I have no I don't think this would be a problem at all. But or maybe there was some apprehension as you went out on your own and said, we're going to launch this thing. What's it been like building a team around you to help you guys run your day to day operations?   Dana Cornell (00:19:25) - Yeah, you know, it's it's been an interesting learning curve. When I left, I thought I could be. I thought I'd be more of a and I still am, but I thought it'd be more of a lifestyle type situation, kind of a one man band, limited staff, that type of thing. What surprised me, even though I knew and it proved concept, was the demand for people looking for the two main issues I solve for, you know, income replacement, passive income by cash flow don't pay tax on it. That's our core thesis, right? So the amount of investors reaching out, wanting help with that, whether it be on the planning side or just implementation of that, was overwhelming.   Dana Cornell (00:20:09) - So Morgan Stanley taught me about I mean, that's the beauty of a corporate structure. You see. You see how that works. You see how teams are built, an organizational structure, but it's also done for you, right? So I had to spend a lot of time increasing my learning curve and finding the right people. And that took a while. You know, we went through a few people that I thought were the right spots initially, and initially they probably were. But the business evolved so quickly, you know, we kind of had to increase capacity and increase the capacity of our people to fulfill that spot. So yeah, man, it's been a it's been a learning curve and it's a continuation of that learning curve as we continue to grow, Right?   Sam Wilson (00:20:54) - No, that's cool. That's cool. Thank you for taking the time to share that with us, Dana, And thank you all for taking the time to come on the show today and just tell us what motivates you, What makes you get out of bed and why you're excited about doing what you're doing right now.   Sam Wilson (00:21:07) - I think it's awesome. And I really appreciate it, too, because me and the number of financial advisors and financial professionals I talked to that are just their hands are tied. I mean, they're like, Man, I love what you're doing. I love, you know, I love that private real estate, private syndication, private business, any of those types of investments there. Like we can't touch with a ten foot pole. We just we're just forbidden from from doing so. So thanks for stepping out and doing what you're doing. This is. Great if our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Dana Cornell (00:21:37) - Our website, Cornell Capital Holdings with an you can join our investor network. There's a button on there and you can email me directly. It's just Dana at Cornell Capital Holdings within. Com. Tim Thanks for having me on, man. This has been fun. Thanks for letting me tell my story.   Sam Wilson (00:21:52) - Absolutely. Thank you for telling it again.   Sam Wilson (00:21:54) - Cornell Capital Holdings. We'll make sure we include that there in the show notes. You get the spelling on that. Exactly correct. Cornell Capital Holdings. Dana, thank you again. The pleasure was all mine. Thanks, Sam. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Sep 25, 2023
Blending Asset Classes: How PlaceMakr is Changing the Real Estate Game

Today’s guest is Jason Fudin.   Jason Fudin is the CEO and Co-Founder of Placemakr, a mixed-use multifamily operator.   Show summary: In this podcast episode, Jason Fudin, CEO and co-founder of PlaceMaker, discusses their unique business model that blends different asset classes to create value in real estate. They offer a hospitality living or flex living model, similar to private student housing, and a pop-up hotel model where they partner with developers to run a subsection of new apartment buildings as furnished units during the lease-up period. Jason explains their transition from pop-ups to permanently flexible buildings and the challenges they faced along the way. He also shares his belief that blending real estate and higher utilization will become the norm, increasing the value of real estate.   -------------------------------------------------------------- Introl [00:00:00]   Jason Fudin's Background and Journey in Real Estate [00:01:12]   Spinning PlaceMaker Out and the Opportunity for Growth [00:03:30]   The Flex Living Model [00:09:37]   The Pop Up Hotel Model [00:10:46]   Building a Blended Asset Class Company [00:11:46]   The blending of real estate and higher utilization [00:18:44]   The transformative impact of the company's model on real estate [00:19:36]   Attracting good people to the team [00:20:23]   -------------------------------------------------------------- Connect with Jason:  Linkedin: Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Jason Fudin (00:00:00) - Let's say we're going to go build that 300 unit apartment building, brand new. Well, when you deliver it, the whole thing is empty, right? You got 300 empty, brand new apartment. What we do for partners that build new buildings is we come in and say, Hey, give us 100 units the day you open and we'll run a subsection of your building as an apartment hotel as you lease up. So if you're leasing 20 units a month, it'll take you 15 months to lease up an apartment building. For 12 of those 15 months, we'll run 100 or so units furnished where people can stay. And so we monetize that vacancy during lease up in a temporary way so that if the lease up takes a little bit longer, the developers make additional cash flow and if it goes faster, they make a little less. But it's an insurance policy that's paying them. And then for residents, they get, you know, an on site hotel, they get hospitality services for free. So we blend the asset classes.   Jason Fudin (00:00:49) - We're in the business of making real estate more valuable by blending the asset classes.   Sam Wilson (00:00:52) - Welcome to the How to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Jason Fudan is the CEO and co-founder of Place Maker, a mixed use multifamily operator. Jason, welcome to the show.   Jason Fudin (00:01:12) - Thanks for having me, Sam.   Sam Wilson (00:01:13) - Absolutely. The pleasure is mine. Jason There are three questions I ask every guest who comes on the show in 90s or less. Where did you start? Where are you now and how did you get there?   Jason Fudin (00:01:22) - I started growing it up up in upstate New York. Uh, I went to college in Canada as an engineer, decided I wanted to be in real estate and not an engineer because real estate blends the community analytical challenges and money. And so found my way into real estate development. Started as a secretary. I worked my way up to running a couple of billion dollars in development and then eventually started my own company.   Jason Fudin (00:01:46) - And I'm building something for myself and my team.   Sam Wilson (00:01:48) - That is crazy. So the you said it so fast, I missed it. You started as a 90s.   Jason Fudin (00:01:56) - You kept me quick, you know?   Sam Wilson (00:01:58) - No, no, that was great, man. I love it. I love it. Sometimes you're like, you asked for 90s and it's like 900 seconds. You're like, Wait, that was 90, not 900. So no, you did good. I appreciate that. But the you started as a secretary and then you started running a couple billion dollars. You worked with running a $2 billion real estate development company.   Jason Fudin (00:02:15) - A pipeline. So I worked for a senior vice president at Vornado Realty. And at the time, the Vornado office was focused a lot of focus on office and I worked on the residential side, so there wasn't as much focus there. And I got this awesome boss who said he showed up was like, I'm running all these projects, how do you want me to hand them off? And he goes, Look, you seem like a brilliant kid that's going to work your ___ off.   Jason Fudin (00:02:39) - Like, let me know if you're drowning. So I just I worked an ungodly amount, learn the industry from some amazing colleagues. And when I left that role, yeah, I was responsible for about 2 billion of development between master plans, individual ground up developments. Um, and then then went over to a regional developer and ended up working with my now co-founder and we bought land and capitalized deals and did regulatory, you know, buildings, condos, apartments, retail, you name it, and then just continue to work my way up till eventually went back to that big company. He was an executive there, ran their innovation division, which was novel seven, eight years ago for a big public REIT and then built what is now place maker within the organization and spun it out. And we're about six years old now.   Sam Wilson (00:03:30) - Wow, that's really cool. When you decided to spin Place Maker out of that organization, what was the opportunity you saw in going off and doing your own thing that maybe wasn't there when that company was inside of the other business?   Jason Fudin (00:03:43) - So I always expected to go build my own company.   Jason Fudin (00:03:45) - And the reason I chose real estate development is it was $1 trillion asset class and I figured there had to be a niche space where smart person could go build something that they were passionate. And so I kind of bided my time. You know, I built a lot of real estate for other people, made them a lot of money. And then when I saw the opportunity to make real estate more valuable, real estate is just a set of cash flows. People become really like emotional about it, but really it's a set of cash flows. And so what became really obvious to me is if you could increase those cash flows in a predictable, nonvolatile way, you'd make real estate more valuable and saw the opportunity to do that. And I started doing that. And a big company, that company is a REIT, so they're precluded from having a hospitality operation in house and so they were unable to own the business I was building. So spun it out. Uh, asked my now co-founder to join me, raised a few million dollars of capital and and off we went.   Sam Wilson (00:04:38) - Got it. So you guys spun that out and now we talked about this before we started recording and I'd love to hear kind of what and again, I'm talking out of my league here quite a bit, so I'm going to have to rely.   Jason Fudin (00:04:49) - I doubt that, but I appreciate it.   Sam Wilson (00:04:51) - No, no, you're you're not too dumb it down for for somebody like me to understand. But you guys and I think the words that you use, you are you said we are a tech enabled operator, which means you guys are a venture. Lincoln said venture capital backed, tech enabled operator. Is that the way the way you said that?   Jason Fudin (00:05:09) - Yeah, I said it all jargony, but that's true. I'll dumb it down for you. So basically, a bunch of folks that invest in high growth operating companies have invested north of $70 million in our operating company under the premise that it will become a large public company over time. And so there's two major innovations in our operating business. One is blending multiple real estate asset classes to create higher yield, more viable real estate, the commingling of real estate.   Jason Fudin (00:05:42) - The second innovation is operating that co-mingled real estate in a way that depends largely on software and other technology tools in order to maintain lower expense ratios. And so off a more cash flow, more profit on the property base. And so we are those two things. As an operating company, we're pioneers in the blending of asset class classes and were the forefront of using technology to operate those assets efficiently.   Sam Wilson (00:06:08) - Can you give me a case, a case study on that?   Jason Fudin (00:06:11) - Yeah, sure. So we and we also buy buildings, so I'll put it all in one. There's a building we bought in Nashville, I think you're in Tennessee, right?   Sam Wilson (00:06:19) - Am Yes.   Jason Fudin (00:06:20) - We bought a building that in. Asheville and the sober neighborhood just off Broadway, its 300 or so units. The cost us about $140 million, $150 million. And so we acquired that with an outside investor. We we bought that asset with the with the plan of blending hospitality and multifamily. So that 313 unit asset has about 200 furnished units today, just over 100 unfurnished units, a single onsite operating team that's probably about a third the size that you'd see at a hotel, the same at the same size.   Jason Fudin (00:06:51) - And something like 80% of our arrivals are contact list. And so a lot of that like concierge check and stuff that needs to happen at a traditional hotel doesn't happen for us. All the locks are automated in our backend system. The same if you booked with us the day before, you'd get an automated code to get into your room, you can turn your phone into your key. And so that entire experience happens with a lot less kind of hand-holding. Think about like ordering an Uber today versus calling up a cab ten years ago. So we've automated a lot of that. In addition, we've blended a global workforce with an onsite team, so a lot of things that traditionally would be handled on site at, you know, all hours of the night or whatever else we handle out of, we call it off site supports team in other states, at other properties or in other countries. And that allows us to continue to maintain a pretty low cost of goods sold on the expense side. So that particular asset runs just shy of a 50% margin.   Jason Fudin (00:07:47) - Um, and an average hotel runs at a 25% margin and service maybe at 30. So we're, we're doing almost twice as good as pure play hospitality, um, because of technology.   Sam Wilson (00:08:01) - Now in that building was a it is a hotel or it is a yeah this.   Jason Fudin (00:08:09) - That's like saying like that's like saying on your phone is that the storefront that you went to or it's not that was probably not the right ways to frame it. Right? Our customers fall into four categories folks that rent with us for 12 or more months where they bring their own furniture. It's their home, they sign up for the internet, everything else. Yep. Um, and they have access to hospitality services. So, you know, you could opt in for cleaning or linen service or whatever, you know, it's just. It's a more experiential home. Sure. Um, that's about a third of that building. The other two thirds is furnished. And we have three types of furnished guests. We have long stay furnished. So think like your company is moving you to Nashville.   Jason Fudin (00:08:48) - You know, they're like, Hey, for six months, we'll pay for your housing. They just. They just rent a one bedroom apartment for six months. The next is we call it interim housing. Think like two weeks to six weeks. You're a doctor on residency, you're traveling nurse, whatever. You're reloading, you're getting your house renovated. It's too long to be living out of a hotel, but too short to actually sign a traditional lease. Right. Um, and then our last set of customers are transient. You're coming to Nashville Thursday through Monday because you're going to go down to Broadway and hopefully behave a little bit. Um, you're working Monday through Thursday in town on projects on a regular basis. You're a consultant. Um, and so that's kind of the core set of customers we have. And any particular property.   Sam Wilson (00:09:30) - And this is the same model you guys like you said, any particular property, It's the same model you guys are carrying to each.   Jason Fudin (00:09:37) - Yeah. So, yeah. So we do that in Nashville, we do that in New York City, we do that in Washington, D.C. We optimize like that particular asset will have more than doubled the cash flow from when we bought it within 24 months.   Jason Fudin (00:09:49) - So it'll be 24 months here in December, we'll have more than double the in-place cash flow. So that's obviously material for an asset like that. So it's not a hotel per se, it's not an apartment building per se. It's structurally an apartment building with an operating model that leads to higher cash flow. Think one of the easier analogies is to think of private student housing, where they're building essentially apartments. But they're, you know, they're they're structured around a specific set of customers where they can drive more cash flow than a pure play apartment building in that same city. We're like that on steroids. On steroids. Right? Like we're that times a lot more. So that's that's called our hospitality. Living or flex living model. That's about 80% of our inventory. The other 20% we run is that kind of a unique little model we call a pop up hotel. And so let's say you were going to go build that 300 unit apartment building, brand new. Well, when you deliver it, the whole thing is empty, right? You got 300 empty, brand new apartment.   Jason Fudin (00:10:46) - What we do for partners that build new buildings is we come in and say, Hey, give us 100 units the day you open and we'll run a subsection of your building as an apartment hotel as you lease up. So if you're leasing 20 units a month, it'll take you 15 months to lease up an apartment building. For 12 of those 15 months, we'll run 100 or so units furnished where people can stay. And so we monetize that vacancy during lease up in a temporary way so that if the lease up takes a little bit longer, the developers make additional cash flow and if it goes faster, they make a little less. But it's an insurance policy that's paying them. And then for residents, they get, you know, an on site hotel, they get hospitality services for free. So we blend the asset classes. We're in the business of making real estate more valuable by blending the asset classes.   Sam Wilson (00:11:28) - That's really, really genius. Where did I mean, I've had, I don't know, what's this 800 and something episodes that we've put out on this show.   Sam Wilson (00:11:37) - And I've not heard anyone doing this model. Where did you cook this up? Was this your own home cooking or was this a model you've copied from somewhere else? How did you come up with this?   Jason Fudin (00:11:46) - I would say own cooking. Um, so when I was at Vornado running their innovation group, it's been a bunch of time looking at how do you make real estate more valuable? And one of one of the there's basically two ways to make real estate more valuable. There's more, but like there's two big ways you take existing assets. One is you get more assets through the door, higher utilization. The other is you sell to the highest paying customer at any point in time, which is commingling uses. And if you think about real estate as a, you know, an evolution of a bond, a fixed income asset, your goal is to throw off more cash flow in a predictable way. And so by doing those two things, you know, the the high utilization is like co-living co-working, shared conferencing.   Jason Fudin (00:12:26) - The co-mingling is something like what we do or what a convene does in the office conferencing space. And yeah, it just was really obvious to me. And so I sat down with my analyst at the time, me and her in a room and we were like, What is the easiest way to blend asset classes, to create value? And we're like, Well, what is more wasteful than a brand new empty apartment building? Like is crazy? They were like, Well, if we can there's a there's a duration mismatch between the timing of how you lease up a building correctly, um, and how quickly someone could use it in the interim. They're like, oh, we'll just pair those two things to go build an operating company that blends the asset classes where it's free money, and then once we get good at that, we move to the permanent model. So our business plan originally was start with pop ups until you understand and get good and build the tech stack and, you know, understand customer, customer funnel and OpEx ratios and all that crap.   Jason Fudin (00:13:18) - And then once we get good enough, it's no longer free money. We make it the core business. And that's that evolution that we evolved to. We started the company in 17 and my partner and by 2021, so within four years we were buying and rolling out permanently flexible buildings. And today we have a couple thousand units of this stuff.   Sam Wilson (00:13:35) - That is really cool. Tell me about some of the operational challenges that you face and how you overcome them.   Jason Fudin (00:13:44) - I mean, operations is messy in anyone that anyone that's in the operating business knows that you designed your best set of procedures and structure. You hire super talented people that are empathetic and then you learn by doing. And so every time you make a mistake, you figure out why you made it. You make a right, you make it better. And that's kind of been our iterative process. I'd say we've accelerated it by using technology. We've accelerated by bringing a bunch of veterans on that run, billions of dollars of assets or, you know, hundreds of stores or whatever.   Jason Fudin (00:14:19) - We blend. Leadership generally is a mix of people from the multifamily world in the hotel world, so each can take their best habits hopefully, and try to cancel out each other's worst. And I'd say one of the biggest mistakes we made early on when we started the company is we didn't appreciate the value of building the right culture and talent. You know, as developers were kind of like, Oh, we just, you know, you build a building like any bricks need windows, whatever. Like a company's not like that. It's like a living organism. And so one of the biggest mistakes we made at first was not appreciating how critical it was to build that culture, that set of norms. And, you know, we had like core values that couldn't even tell you what they were. So it was total crap. Um, but today, you know, we have three norms of the company. We own it, we make it better, we treat people right. Everyone rallies around that and they know that if they ____ up, but they do it in, you know, an effort for one of those norms that they're going to get some grace.   Jason Fudin (00:15:11) - And that's helped us build a foundation of a high quality team. And then people that do a great job, we promote them fast and often and give them more and more responsibility. And so and then we offer people where we feel like they're not a fit. We don't just wait it out as some big company.   Sam Wilson (00:15:26) - Oh, no. I think that's that's really, really great. And that was going to kind of be my next my next question behind this because there's you know, I look at what you're doing and obviously don't understand it in a comprehensive way, but it's like getting something like this off the ground. You got to find that multifamily building that that was just built that's empty. Then you got to find that model. How are we going to set up the pop up hotel? And we got to find all the services, all the people to plug in. I mean, that's a lot of things to get all moving in a common direction and get it working out of the gate to where the first one works.   Sam Wilson (00:15:59) - Then you can go out and do it like you've done across the country. I mean, that just sounds like a monumental undertaking.   Jason Fudin (00:16:05) - Yes. Yes. I mean, that's the business. You know, certain innovations are kind of like blue ocean, like AI or something else where basically, you know, human technology has never, you know, cross that chasm. And so it's a very different kind of innovation. You know, like you fundamentally change the way something works, like when the world went from like pulleys for lifting weights to hydraulics, you know, like it was just a pure technological change. In our case, the reason I called it a tech enabled operation is that's exactly what it is, is we're solving thousands of little problems in a cohesive way so that the outcome leads to higher profitability, effective, you know, customers, a customer product. Our Net Promoter score is close to the Ritz-Carlton, even though we're at that much lower. So, yeah, we had to solve a million problems and we have another 10 million to solve, but that's what makes the operating company valuable.   Jason Fudin (00:16:58) - It was just a small little like jump leap, whatever. No one would pay us the money. They pay us on a contracted multi-year basis to increase the value of the real estate.   Sam Wilson (00:17:09) - Right, Right. Yeah. No, I like that. Yeah. There are thousands of problems to solve. Do you feel like what you guys are doing? I mean, feel like it's you're on the you're on the front end of this kind of model? I mean, do you see other operators beginning to copy your, your kind of.   Jason Fudin (00:17:27) - Yeah, we've seen people do pieces of it. So to your point, every piece that we do is complicated. So we've seen people run furnished apartments like a hotel where they sign leases and have to deal with the management contracts and the structure. We've seen people run apartments this 30 day plus corporate housing. We've seen people buy the stuff and bring another operators. We've seen we've seen every version of we've seen folks in the hotel space just try to use technology to make them more efficient operators.   Jason Fudin (00:17:51) - So we've seen like all of the pieces of our business, I would say that no one effectively like we does. We do bring it all together and to bring it all together is where the real value is created. It's the flexibility, you know, building in the optionality into the real estate. But yeah, we've seen a lot of people touch around the edges and then there's a number of buyers and developers that pursue just the real estate strategy and they bring us in as their partner. We either power their stuff or we operate their stuff or whatever. Um, the company today is on a trajectory to be worth a couple billion dollars over the next few years as kind of a niche player. So if you think about, again, private student housing, that's a small market relative to real estate United States, but there's multibillion dollar players in that space. And like if our view of the world is wrong and what we're doing is niche, we become a couple of billion dollar company, we create a few billion dollars of creation of value in real estate and.   Jason Fudin (00:18:44) - Pondered. We go. My belief, my strong belief is that the blending of real estate and the higher utilization of real estate will become the norm for new projects because it's more valuable, right? And that will be reflected in land pricing. And as soon as land trades at a price that reflects a higher and better use. Developers won't have a choice but to build versions of our model as a physical asset, right? And when that happens, we're not a couple of billion dollar company. We're competing with the biggest hotel companies in the world, the biggest public companies in the world. And we're powering a new generation of real estate assets and corporate markets.   Sam Wilson (00:19:19) - I love it. No, I absolutely love it. This is this is an episode I'm probably going to kind of mentally catalog or putting my my, my brain bank and say, okay, you know what? We're going to we're going to go back to this 1 in 7 years like a what do they call those? One of those things we did as kids, whether you'd like.   Jason Fudin (00:19:34) - Right time the time capsule. Yeah. There you go.   Sam Wilson (00:19:36) - The time capsule, You know. You know, first grade. I want to be a firefighter someday. Like, okay, open this in 20 years. So I'm going to come back in about seven years and say, okay, where did Jason and his company go and how his real estate really shifted? Because you're absolutely right. Like the highest and best use with what you guys are doing is transformative in the way that these buildings are operated and owned. And I think this is this is really, really cool. I got one final question for you here, Jason, before we sign off. And it really comes down to bringing good people on your team, what would you say? Because I know you mentioned this there. You said, hey, you know, we've brought on some of the brightest and best that we could. How did you attract them to what you were doing and make it an attractive place for them to come come to work.   Jason Fudin (00:20:23) - I think actions speak louder than words. And so if you see the way me and my partner run the business, we run it in the way that we'd want to be treated as employees. We've built a culture of transparency, of hard truths and a, you know, the best answer wins, not the most senior person. And I think that that attracts a players and they bring in their other friends and people they've worked with. And it's kind of contagious in that way. I think also structurally we've made ourselves accessible to a bigger pool of talent. So we on the corporate side are remote first, and that means that we have team members in some 30 states. That means that anyone in America that has access to high speed Internet can work on the corporate team. In fact, that means anywhere, anyone, anywhere in the world technically could if we structure their contract correctly. Right. Um, and that's been, that's been huge on the non property side is there's a lot of overlooked, highly talented people, whether they're new moms or otherwise, want to live in places that don't lend themselves to a corporate office.   Jason Fudin (00:21:23) - So we've, we've, you know, dipped into that largely. And then on property, you can move up within our within an organization so much more quickly than you can like pick a big apartment operator hotel where it's like, well you do two years at the front desk and you do like, ___ that, man. Like if you're doing exceptional work and you're having an impact, we're going to give you more and more. And so for our property team members, they're able to move up quickly and get that responsibility. Everyone gets stuck in the company from our cleaners through the executives, and we built the company where hopefully we all went together.   Sam Wilson (00:21:53) - That's awesome. That's awesome. Jason, thank you for taking the time to come on the show today. This has been awesome. Learned so much from you and love the model you guys are bringing to the market. If our listeners want to get in touch with you or learn more about you and your firm, what is the best way to do that?   Jason Fudin (00:22:07) - Yeah, just shoot me a note on LinkedIn.   Jason Fudin (00:22:08) - I do a pretty okay job of checking it. I'll get back to you. And then we always have positions open, so please apply for them. You can mention you heard me on this podcast and come stay with us as a guest.   Sam Wilson (00:22:19) - Sounds great. Jason, thank you so much for coming on the show today. Certainly appreciate it.   Jason Fudin (00:22:23) - Thanks, Sam. Thanks for having me.   Sam Wilson (00:22:25) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Sep 21, 2023
Leveraging Digital Marketing to Raise Capital

Today’s guest is Adam Gower.    Adam Gower Ph.D. is a 30+ year real estate veteran with over $1.5 billion of CRE investment and finance experience who today builds digital marketing systems for real estate professionals who want to raise equity capital online (aka ‘crowdfunding’) and he   Show summary:  In this podcast episode, Dr. Adam Gower discusses his background in real estate and his transition to digital marketing. He emphasizes that while the medium may have changed to online platforms, the fundamental triggers that motivate investors remain the same. Dr. Gower shares his journey and how he now helps real estate professionals build digital marketing systems to raise capital online. He discusses the challenges of navigating the world of digital marketing and advises testing different marketing ideas. The conversation also touches on the importance of addressing investor concerns and maintaining open communication to attract capital in a challenging market.   -------------------------------------------------------------- Intro [00:00:00]   Introduction and background of Dr. Adam Gower [00:00:55]   Building digital marketing systems for real estate professionals [00:03:12]   The challenges of digital marketing [00:10:51]   Applying traditional marketing techniques to online platforms [00:12:38]   Testing and iterating marketing ideas [00:17:44]   Changing Capital Raising Strategy [00:21:23]   Addressing Investor Concerns [00:23:31]   Regular Communication and Education [00:26:22]   -------------------------------------------------------------- Connect with Adam:  Linkedin: Twitter: YouTube: Facebook:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Adam Gower (00:00:00) - And the way that people interact with sales materials and marketing materials hasn't changed the same exact triggers. Will will motivate somebody, an accredited investor, to want to learn more and then to actually act and invest with you. Nothing's changed. Even though it's online, the the techniques are the same. What's cool about the tech is figuring out how to how to read the data, right. And understand which ideas you have that you're testing are working better than others. But apart from that, nothing's really changed then. Welcome to the How to scale.   Sam Wilson (00:00:43) - Commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:55) - Adam Gower, PhD, is a 30 year real estate veteran with over $1.5 billion of commercial real estate investment and finance experience. Today, he builds digital marketing systems for real estate professionals. And for those of you that don't know, Dr. Adam Gower came back on the show. Oh gosh, it was earlier this year, April 10th, 2023.   Sam Wilson (00:01:15) - So we're catching you kind of right, mid quarter, first third of the year. Then we're catching the second quarter of the year. Adam. For those that didn't catch that first episode, there's three questions I ask every guest who comes on the show and I'm going to ask you to answer them again really quickly if you can, in 90s or less. Where did you start? Where are you now and how did you get there?   Adam Gower (00:01:34) - Right. First of all, thank you for having me on. And I always I love being on these shows where the you know, the pre conversation is really mellow and quiet. And then you go into the introduction. Adam Gower is like, like it's like the radio voice.   Sam Wilson (00:01:51) - Absolutely, man, we got it. We got to make it entertaining for those that are listening. Otherwise they're going to put everybody to sleep.   Adam Gower (00:01:58) - I need to I need to take notes from your book, Sam, because I always do my introductions afterwards. But anyway, to answer to answer your question, where did I start? Okay.   Adam Gower (00:02:08) - I started hundreds of years ago, actually in the early 1980s. It was very interesting time to start because in those days, mortgage rates I remember Sam, when I first put money in the bank in the early 80s, I got 12% interest on deposit. Imagine that, 12% zero risk guaranteed money and and mortgage rates were pushing 20%. It was a very different time. Remember that might that might figure in what we're going to talk about later today. So that's where I started. I started pulling wires for an electrician and then eventually started raising money for a ground up multi-family developer. Second question was, you got a room? I've got a I've got a memory of, you know, whatever, a steel trap, a memory like a steel trap can only hold one thing at a time.   Sam Wilson (00:03:02) - And it's very difficult to get anything out of that trap completely. Exactly.   Adam Gower (00:03:06) - Yeah. It just. Just sits there kind of dormant. Weird.   Sam Wilson (00:03:09) - You start. Question number two is, where are you now?   Adam Gower (00:03:11) - Ah, right.   Adam Gower (00:03:12) - So spinning forwards, however many years that is unfortunately 40 odd years. I don't like to admit that it makes me seem really old. But anyway, so today, so what we do is we build a digital marketing systems and help people build digital marketing systems so they can raise capital online. We've focused exclusively on commercial real estate. Our clients manage probably over 35 billion AUM and have raised over $1 billion using our systems over the last few years. So that's that's what we do now. I just I got addicted to the idea of digital online syndication when it became legal. I raised over half a billion myself and it would all been in-person, sitting with people, traveling, having people travel. To me, it's just brain damage. So when it became legalized, I'm like, Goodness, that you could do it online. I just decided to switch and and that's what we do. It's what we do now. Yeah. It's I really enjoy it. It's like a hobby. I enjoy it so much.   Adam Gower (00:04:20) - Like a hobby. It's like.   Sam Wilson (00:04:22) - A hobby. Good for you. Yeah. I don't know that. Going to work as a hobby for me yet. So maybe I need to take a page out of your book.   Adam Gower (00:04:29) - Well, you know, it's what I tell my boys. You know, you got to do you? I've got, you know, three sons, and I'd tell him, you got to do what you really enjoy If you if you do what you enjoy, you'll never work. Right? It'll always be just joyful. And, you know, you just look spring out of bed in the morning and look forward to the day ahead.   Sam Wilson (00:04:49) - Oh, that's for certain, man. I've always wondered that about about people that watch the clock. Like when when 430 or 5:00 happens and I know I got to go hang not don't have to, but I get to go play with the kids because I know I can't leave all the kids at home with just my wife. So it's like, okay, I've got to wrap up work, but like, how in the world is it 430 or 5:00 already? Like, I never look at a clock and say, Gosh, I wish it would speed up.   Sam Wilson (00:05:11) - I'm always going, I wish it would slow down.   Adam Gower (00:05:13) - I need more time in my life. Right?   Sam Wilson (00:05:16) - I've never gotten to Friday afternoon. I'm like, Man, thank goodness it's Friday afternoon. I'm like, Is it really?   Adam Gower (00:05:21) - I got everything done. Yeah. No way. It says.   Sam Wilson (00:05:24) - Right ever.   Adam Gower (00:05:26) - Exactly. All right. So what was a question?   Sam Wilson (00:05:28) - Three questions. You already answered it, which is, Where are you now?   Adam Gower (00:05:30) - Oh, so that was question. Okay, good.   Sam Wilson (00:05:33) - Start. Where are you now? Oh, no, that's a lie. See, I can't remember my own question.   Adam Gower (00:05:36) - Where do you start? Where are you now and where you're headed?   Sam Wilson (00:05:38) - How did you get there? Oh, how.   Adam Gower (00:05:39) - Did I get that? All right, I will tell you that. But I'll connect the dots between pulling wires for an electrician and raising money for multifamily and what we do now. So the simple story is like this. So during the and it's important. It's a good question that you ask and it's.   Adam Gower (00:05:54) - Probably since the last time we spoke because of where we are in the in the cycle in the commercial real estate cycle at the moment. So the last major downturn and this is a major one. This one we're going through now was 2007, really is when it really started with a vengeance. And I in in summer of 2007, I sold everything I had actually really liquidated everything, just got out. And I ended up working for East West Bank. And one of the major actually the biggest regional bank in California. And they were really they had some challenges because they had, they had done, um, a lot of real estate collateralized lending. And a lot of those real estate deals were all those those loans were non-performing, right? People had stopped paying. There was a lot of problems. And so they brought me in to help clean the balance sheet by selling the notes. I did some workouts and then subsequently I ended up at I'll cut out a couple of steps, but I ended up at Colony Capital working on a $7 billion loan loan portfolio or portfolio of non-performing loans, and that was a whole different cycle as well.   Adam Gower (00:07:14) - Um, and um, and then when the, then when the market started to pick up. And around 2012, I started doing seed investing. Totally different. You know, I've made some money. The downturn actually treated me very well, and I started looking at these little startups. It was like a different world. I moved into a interestingly, you know, a lot of these things kind of dovetail into what's going at the moment. It wasn't a we work, but it was similar to a we work, it was a startup incubator. It was like this huge warehouse with open desks and open seatings, and you could rent a desk permanently. So I had all my stuff on my desk, but it was basically working in a warehouse. Sam I absolutely loved it. It was fantastic. I was surrounded by these bright students, you know, half my age and more. And I did some teaching at the university as well. But it was just the vibe in there and the energy. And you could hear people talking and doing presentations and walking around.   Adam Gower (00:08:23) - It was just really high energy. And so when the Jobs Act and I was investing in some of their little startups, I wrote some checks like, that sounds kind of cool, but they were talking a different language. I'd never heard this language before SEO and SOS and Google Analytics and you name it website. That was like everything was brand new. It seemed like rocket science to me, like it was completely impenetrable. Um, but the Jobs Act passed in 2012. So you said 90s maybe 90 minutes if you don't stop me. But the jobs that passed and it suddenly allowed sponsors just allowed anybody to technically sell securities online. What that meant was that you could raise money online. I just saw that and thought, Oh gee, this like my entire life has been chasing around, trying to find good investor leads and then nurturing them in person. And now I can scale that like absolute scale, perfect scale, right? You can reach everybody all or to everywhere, all the time online, instead of having to knock on doors like kind of literally knock on doors, Hey, is there somebody's home? Right? Do you want to invest? And so I started to learn the the art of digital marketing, of marketing online.   Adam Gower (00:09:52) - And I forgot your question again already, but I'll just kind of wrap up anyway. How did I get to where I am? And it just went from one thing to the other. In fact, I started some interest and I started with a podcast and, and I taught myself how to produce a podcast, how to build, which isn't trivial. You know, you're sitting there with lots of 800, how many ever episodes you've got on a big you've got a gorgeous mic and, you know, nice background. But when you started, you scratch your head, right? What do I do? Oh my God, how am I going to record? I'm going to clean up the audio. Is it going to be video? How do I get it out? Where do I put it? What is libsyn? How do I distribute? It's like a million different questions. So it's actually. Go ahead. It's like you don't. So I figured this out just like you did. And then I built websites and then I built marketing funnels.   Adam Gower (00:10:44) - Then I started putting them all together for clients. And that's what we've been doing. That's basically how it started.   Sam Wilson (00:10:51) - That's really cool. I think one one word that you used that is it's a common feeling as especially here recently on gosh, because we have our hands in the laundry business and then we have our hands in the RV resort business and, and then setting up all the marketing campaigns for those various businesses and hiring third party ad agencies to handle all of that online. You said impenetrable. Like, I look at this and literally I got the the the the I don't know what the wrong the word for it. You use the right word for it, but basically said, here's the plan of action. And like you said, they're throwing out acronyms, they're talking geofencing, they're talking this and that and the other and how we're going to I'm just like, Uh huh, yeah, okay. Just where do I can I just mail you? Can I just give me the credit card and just.   Adam Gower (00:11:38) - That's right. All I want is more business. Get it, get it, get it for me.   Sam Wilson (00:11:44) - Needs to be there. That's it. It's like, yeah, you know, I don't care if it's ten grand a month.   Adam Gower (00:11:48) - I actually find the whole process really interesting, actually. You know, what's what's particularly interesting about it? I'm looking at my as I look up here, I have books that my entire room is books, by the way, apart from this whiteboard behind me. But you know what we're talking about actually. These are tactics and techniques and strategies for selling and marketing and selling that have been around for a very, very long time. The reason I'm looking up here is there's a couple of books. There's Robert Collier. Book. This is amazing. It was written in 1920, I think. And then there's my life in advertising, scientific advertising. What is it called? Scientific advertising by John Hopkins. And there's a bunch of books like that. What's cool about it? Applied Business correspondence.   Adam Gower (00:12:38) - What's cool about is this stuff was written 100 years ago about the way that they did marketing direct mail where they'd send out literally send out mail to sell some of the things, you know, three by three feet of books as well. One of the things that's the coolest idea by three feet, five pizza box for your bookshelves, you know, whatever and pay on the drip and here's a coupon or whatever. But the tactics and techniques are exactly the same online. Why? Because human psychology is not changed now. The way and the way that people interact with sales materials and marketing materials hasn't changed. The same exact triggers will will motivate somebody, an accredited investor, to want to learn more and then to actually act and invest with you. Nothing's changed. Even though it's online, the the techniques are the same. What's cool about the tech is figuring out how to how to read the data, right. And understand which ideas you have that you're testing are working better than others. But apart from that, nothing's really changed then.   Sam Wilson (00:13:52) - Right? No. And that's and that's it. I mean there comes. What do you recommend to people? I mean, because there comes a point where we we all can't be experts in everything. I can't, I cannot and I don't have the mental bandwidth to become an expert in online digital, you know, paperclip marketing. I really don't. It's I know it's not rocket science. You know, as you said, it's you got to figure it out. But I don't have the the cognitive bandwidth to absorb and understand that. Right. Is that the gap you are filling in your business? Yeah, we.   Adam Gower (00:14:24) - We do that. I mean, the way to decide whether or not it's worth doing. Right. Just talking to you, it's interesting that you bring this up so we can talk hypothetically. We can talk very specifically. So being specific about your comment. So the way to do this is to you've really got to look at how much money you're putting in to the process and how much money you're getting out at the back end.   Adam Gower (00:14:48) - It sounds kind of, you know, a bit silly to say it's because it's so obvious, right? But that is what you want to do. So let's say you've got a laundry, a laundromat somewhere, and I'm not that experienced in laundromats, to be honest with you. But I imagine that you still you can do what you can advertise and you can get contracts, you know, from local sports teams. And there's all kinds of things that you can do to, you know, kind of scale the thing up. But you also want local students to know about that. You do coupons, promos, I really don't know. You put in tech, there's all kinds of stuff that you want to do, but you also want people to know about that, right? So whatever your total cost of advertising is, you want to be looking at what is the return on that spend, and the acronym is return on ad spend. So that's going to include however much you're spending on the advertising. By the way, this applies 100% exactly the same to raising capital for for equity.   Adam Gower (00:15:45) - Well, actually doesn't it's actually more technically it's harder for equity because in your case, you would you would say, okay, I'm going to run a campaign. I'm going to pay the agency however much a month. We're going to actually invest, however much we're going to invest in this in the you know, in the paid ad itself. I love emotional spending that let's say you spend 10,000 and I'm pulling this out. My. I have no idea how much money you make in a laundromat at $0.25 a pop. I don't know how that works. But anyway, let's say you spend 10,000 or $1000 on your advertising and your agency. You know, pretty much if you have made that money back, if you do the campaign properly, right, you could do a coupon, right? You do a coupon for a certain period of time and you can see how many people actually use that coupon. Was it worth the ad spend or wasn't it Right. Was it worth it? You've also got to look at lifetime value, right? Somebody comes in for the first time, they might only spend $10.   Adam Gower (00:16:45) - I don't know. Again, I've no idea. But now, suddenly, if they buy a membership, I don't know if you have membership, if you've got a recurring membership model and they sign up now, you know you've got this lifetime value. So you can start looking at it in that context and determine whether or not the campaign worked. The key, though, with any kind of marketing these days, as it was or even 100 years ago, was to test ideas. Don't be afraid of trying something. You know, I've just pulled an ad campaign that we've got on Facebook. It wasn't doing very well. All right. Most of my campaigns, you know, they run positive. I make more money than the campaign we're running. Just kill the campaign this morning. There wasn't losing money. It's like, you know what? Let's kill the thing. Can't be bothered and actually don't even want to revamp it. I'm just going to stop the campaign. But the key is to test and the chances are that you will test multiple different ideas and ways of let's get back to raising money for real estate.   Adam Gower (00:17:44) - You will test all kinds of different ways of raising money, finding accredited investors, nurturing them and converting them. And probably nine out of ten, those of those ways won't work. You know, nine out of ten ways that we try don't work. Oh, my goodness. But the ones that do, we double down on. And those are the ones that we roll out to our clients. So actually invest a lot of money testing different ways of marketing. Most of them lose. I know that fails, but the ones that win, those are the ones that we take to our clients. And then we we we double down on those.   Sam Wilson (00:18:18) - Right, Right. And that's and that's having that patience, that kind of that that kind of iterative patience to go, okay, we're going to put this campaign out there. We're going to see how it does. Do we like it? Did it perform? Yes. No. Analyze it. Start back over. I mean, that that process sounds like it's ongoing for you.   Sam Wilson (00:18:39) - I mean, really for the life of however long you're doing this.   Adam Gower (00:18:41) - Well, yes. But I think life is like that, isn't it? I mean, I was I just was reading your some of the stuff on your website before we connected. And you did multifamily and you did forget not mobile homes, but something else. And now you're focused on laundromats. Well, that is the same process, right? It's a process of trial and error. You try something, you work. It either does well, it doesn't work well. It sucks up your time. It doesn't suck up your time. You find that you've got a niche, something. So you double down on that and you just focus on it because it's the one that really worked for you. And everybody's different. So it's not anything. It's kind of got a little bit more esoteric, I suppose. If we talk about life, the universe and everything, but it is life. That's how you kind of deal with life. You test ideas, you test stuff, you go on vacation.   Adam Gower (00:19:29) - Let's why don't we try such and such? Never going back there. Right? You try it didn't work or you go somewhere and it's amazing. And you book the minute you get back home for next year, right? As life is like that, you just try stuff. And if it works, you do more of it. And if it doesn't, you move on.   Sam Wilson (00:19:47) - You move on. That's exactly. Yeah. I've got one of those vacation memories in my book here.   Adam Gower (00:19:53) - The good ones are the bad ones.   Sam Wilson (00:19:54) - It was a bad one. Unfortunately. I was like, You were never doing that.   Adam Gower (00:19:58) - I'll tell you something. I'm going to tell you right now. I went to a hotel. My kids were just at camp. I took my wife. I like to go to the you know, we kind of splurge when the kids are right. We went to this supposedly fabulous four star hotel resort. I figured we'd go away. I treat my wife, we spend a lovely time, kind of a staycation here in California.   Adam Gower (00:20:18) - The bloody room had duct tape holding the thing I could not sweat. Whose duct tape on the floor instead of a I couldn't believe it. I was absolutely disgusted. And I know this business. I know the owners. I know the management companies like guys, this is not cool. I got out and you know what they offered me? They came back. The manager, the hotel manager wrote and complained about this thing she offered me. She said, We'll give you a free night. But no, wait a minute. I'm just complaining. It's like going to a restaurant saying the food is dreadful. And they say, All right, I'll tell you what. Why don't you come back again? We'll give you some more dreadful food.   Speaker 4 (00:21:00) - What?   Sam Wilson (00:21:01) - That's. Oh, man, that's a very, very. Yes, very. Through the way you live and learn, though it's an iterative process. Just Hey.   Adam Gower (00:21:08) - Listen, hang on. Sorry. We're kind of going off on a bit of a tangent because I'm a bit hyper caffeinated, but what your what are your listeners want to hear about raising capital at the moment? Let's give them something really tangible and, you know, something you can use when you leave the call today.   Sam Wilson (00:21:23) - That's absolutely I'm glad we're making this segue because there's there's two things I want to talk about. One is how you are changing your capital raising strategy because capital raising has become immeasurably harder, I think, for everyone. I'm certainly seeing that in what we're doing. People are sitting tight. They're holding on to their wallets. They're just kind of going, Oh, crud. Like you said, maybe it was you that said this or maybe the last podcast Guest I think it was maybe the last one. We were talking a seven on a multifamily deal. Just isn't that compelling when I can get five and a half at the credit union, right? Like what? What are you guys doing? What are some strategies you're taking right now that are and again, not that we want to convince people to invest, but we want to give them compelling reasons to invest. What are you guys doing differently?   Adam Gower (00:22:12) - Well, yeah, I would say that it's not that you want to convince people to invest. You want to give people a solutions to the problems that they have, and that is if you've got a good asset class and you are able to make money, then you have what investors want.   Adam Gower (00:22:28) - You've just got to be able to articulate what it is that you have. That's that's kind of the way I think about this business, is that really, you know, a successful real estate sponsor has exactly what everybody wants, right? We've got ongoing income, passive income, which is just an IRS term, but you're offering ongoing income on your investment and to build wealth. Who doesn't want that, Right? Everybody wants that, Right. The challenge is that investors, everybody is skeptical. So they hear about you the first time and you say, here, I'm going to give you a passive income and build your wealth. That's what they want. But they're skeptical. They don't trust you. They want to be sure that you're not, you know, in a basement somewhere, you know, putting it in your pocket and whatever, buying Rolls-Royces all the time with their money. Right. Right. So you've got to get over that hurdle. Now, during the good times, it's actually not difficult because people are making money hand over fist and they're just looking for alternatives.   Adam Gower (00:23:31) - They're less skeptical because there's less bad news and in the news. Right. About what's going on. So during a downturn and this is also true, in fact, during good times, but particularly during a downturn, there are two things that you have to do, right? So these are practical with underlying this podcast to this point, whatever minute we're at here right now, this is something you can actually take away and use immediately. The first thing that you have to do is address the concern that your prospects have immediately. So whatever that concern might be, don't hide away. Don't hide that and pretend it doesn't exist. Deal with it immediately. Because if you don't deal with it immediately, no matter what else you say, the conversation that your prospect is going to be having in their own mind is, Yes, but what about this? And today and we know this from the advertising campaigns, we run for clients and also from a multi sponsor investor sentiment survey that we ran recently. Investors, including you, probably you as in you, dear viewer or listener to this podcast, are concerned mostly about protecting your money.   Adam Gower (00:24:50) - You don't want to be losing all your money when values drop. And and you're seeing the commercial real estate really hitting some some choppy waters. So the first concern you have is not to lose money, right? So when you communicate with sponsors I'm sorry, with prospects at the moment, the language you want to be using, language patterns you want to be using or specifically protecting the investment, protecting your investment. Don't use clever terms like principle preservation. You and I know what that means, but investors use a different kind of language and you always want to use the same language your investors use because you want to be understood. So protecting the investment is very important. So in your communications, this can be on any kind of ad campaigns that you have or any kind of newsletter you put out, any kind of pitch that you put out. Start with how you protect the downside. What are you doing exactly? How much debt are you taking on? Is it fixed? Is it a variable? If it's variable, why are you choosing to do variable today? What kind of leverage have you got? Have you underwritten your deal? Do you want me to stop? I see you.   Sam Wilson (00:26:09) - We are. We are in the final 30s and we got it. We got to hang hang it up, unfortunately. But this is gold. So I want you to finish out this thought because I think I will do our investors, but our listeners are really going to get something out of it.   Adam Gower (00:26:22) - Yeah. So this is really important. So. So you want to be addressing how you're going to protect their investment. That's the first thing. And then you can start or at least that needs to be the bulk of what you of your communication. The second thing that you need to do, communicate regularly. Oh, my goodness. Don't just not pitch all the time. Educate, talk about what's going in the market, what are going on, what are you seeing? How are capital markets? What's going on with interest rates? How are you dealing with them? What are you doing at cetera? Be don't pitch educate about these key issues. Those are the two things that we should have started with that Sam.   Sam Wilson (00:27:00) - Now think it's been great. Dr. Adam Gower, thank you for taking the time to come back on the show today. If our listeners want to get in touch with you and learn more about you, what's the best way to do that?   Adam Gower (00:27:08) - Gower crowd. Go to Crowd Gower. Sign up for the newsletter. You'll get an email from me on Wednesday with the latest newsletter. If you want to ask me a question, hit reply.   Sam Wilson (00:27:21) - Absolutely. Thank you, Adam. Do appreciate it. Have a great rest of your day.   Adam Gower (00:27:25) - Thanks, Sam.   Sam Wilson (00:27:26) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Sep 20, 2023
Navigating Commercial Real Estate in an Inflationary Market

Today’s guest is Daniel Holmlund.   Daniel started the Alternative Investing Club which helps educate people in creating an ownership culture. He is also an active real estate investor who partners and mentors with others.   Show summary:  In this episode, Daniel shares his real estate journey, from flipping single-family homes to founding Good Samaritan Capital, a syndication and private equity real estate company. He also discusses the growth of the Alternative Investing Club and offers advice for aspiring club organizers. Daniel and Sam then delve into the current market conditions, including inflation and interest rates, and discuss the strategies implemented by Good Samaritan Capital.    -------------------------------------------------------------- Intro [00:00:00]   Building the Real Estate Club at Intel [00:03:19]   Moving the Club Externally [00:08:28]   Scaling the Club and Membership Growth [00:06:29]   The Real Estate Club and Networking [00:11:12]   Impact of Interest Rates on the Market [00:12:52]   Good Samaritan Capital Growth Fund [00:18:19]   Daniel's contact information [00:22:31]   Expressing gratitude [00:22:54]   Closing[00:22:55]   -------------------------------------------------------------- Connect with Daniel:  Facebook:  Linkedin: Email:  Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Daniel Holmlund (00:00:00) - We went and raised a large chunk of money for them and negotiated with them for better terms, and then an individual would get coming in. And it really dawned on me this year that being able to find better terms is the name of the game. And the only way you can really do that is through scaling. Welcome to the How to Scale commercial real estate show.   Sam Wilson (00:00:23) - Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Daniel Hamlin started the Alternative Investing Club, which helps educate people in creating an ownership culture. And he's also an active commercial real estate investor in Daniel. I know that that bio just doesn't even remotely capture everything that you've done in commercial real estate, but either way, it's great to have you on the show.   Daniel Holmlund (00:00:53) - Hey Sam, it's great to be here. I love seeing that you put out a daily podcast and I know a little bit about the rigor that that entails. So congratulations to you too.   Sam Wilson (00:01:02) - Well, we have to I can't say it's daily anymore.   Sam Wilson (00:01:06) - Regrettably, we did seven. I don't know who is. We? We got a mouse in my pocket. I did. I do have a lot of help. So maybe it is we it is definitely a we. Podcasting is a wee wee sport, but we did 720 episodes. So two years straight daily and then we've moved to three days a week. So it yeah, we're only at three days a week now. I can't claim a daily real estate show anymore, but either way, Daniel, this show was about you, not me. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Daniel Holmlund (00:01:38) - Sure. So when I was little, my grandparents bought a apartment complex. After my grandfather retired from International Harvester, it was only after he retired from his full time job and bought real estate that he actually amassed a new wealth. And that kind of struck me as a ten year old.   Daniel Holmlund (00:01:54) - So I started right out of college, buying properties in single family homes, usually adding a little value there, flipping them. That was in 2002. I invested as hard money lender from overseas, actually all during 2006 to 2008. I ended up through the 2008 with a couple of houses that hard money lenders didn't want to pay me back for. Kept those for a little while and then founded Good Samaritan Capital, which is a syndication and private equity real estate company in 2018. And I have been working on private equity commercial deals ever since.   Sam Wilson (00:02:34) - Okay, that is really cool. I mean, but you've also held a W-2 here until recently, if I'm not mistaken.   Daniel Holmlund (00:02:42) - Yeah. Yeah. So I until just this year, I was full time at Intel where I worked on video and and artificial intelligence was a trainer for these. So didn't actually write the software. But I trained people in how to use it. And I also started the real estate club at Intel, which has been going now strong for four years.   Daniel Holmlund (00:03:04) - It's just exited Intel and we rebranded ourselves the Alternative Investing Club. And it is we bring a speaker in every single Friday and just learn from great people who are out there doing it.   Sam Wilson (00:03:19) - Let's stay there for just a second because I think this is something really cool that you set up there at Intel. You guys, like you said, you had a weekly meeting. You brought in a speaker every Friday. I think you had, you know, parameters around it which make all the sense in the world. It's a no pitch educational only. And I actually got to present there for you.   Daniel Holmlund (00:03:36) - Yeah you did you it on syndicating parking lots.   Sam Wilson (00:03:38) - Yeah. This was three years ago.   Daniel Holmlund (00:03:40) - Three years ago. Yeah. Yeah.   Sam Wilson (00:03:41) - 3 or 3 and a half even. But it was fun. Yeah, it was great. It was great. It was great to be there. One. How did you build that club and then what advice would you give to somebody else thinking about that? Because, I mean, you guys are at Intel.   Sam Wilson (00:03:54) - You're not there to talk about real estate. You're talking, you know, microprocessors and all the other probably 800 billion things that Intel involved in.   Daniel Holmlund (00:04:00) - Yeah, Yeah. And you know, actually, I not only helped to build the club at Intel, but in 2021, I started just a small pro-bono mastermind helping other people start clubs. And we, we helped start the club with me over at Walmart, over at Netflix, at Cisco, at We revitalized the club over at Apple. We started one at Facebook. And so we we built a little bit of a network there and they're actually totally independent from me and off doing their own deals, starting their own clubs. But in Intel, I basically went into and said, I see you've got a stock company or a stock club. I see you've got a startup club and I want to run the real estate club. And my advice to people wanting to do that is figure out who to talk to at and make sure that you you frame it in terms of I am making this company a better place to be, right? You know, Intel needs to be a great place to work.   Daniel Holmlund (00:04:58) - And because of that, we're starting this club, which is purely educational and and also networking.   Sam Wilson (00:05:04) - Right, Right. That's cool. That's cool. Yeah. Love that. I mean, again, I've never spent a day in corporate America, so wouldn't even know where to start on that front. Like, oh.   Daniel Holmlund (00:05:14) - Hell, some corporations are. Ah love the idea that you have the enthusiasm, some are really conscientious and they'll put like the the compliance officers in the audience to, to monitor you, which, you know, you should be compliant. You should be running a purely educational club. Right. So, you know, just work with them and make sure that you keep the people happy and provide great speakers to your club members.   Sam Wilson (00:05:40) - Right. Right. No, I think that's great. How long did it take for you to get traction on that front?   Daniel Holmlund (00:05:45) - Oh, gosh. You know, my first four months running that club, I was embarrassed to go out to speakers. I was like, We're the Intel club.   Daniel Holmlund (00:05:53) - We've got like 12 people that are showing up. Yeah, but around what I did that actually grew the club is I went to other clubs and there's a, there's a 20 and 30 professional club called called Next Gen professionals at Intel. And I said to them, Hey, can I get on your calendar? And this is what we we do. So I went and networked with other clubs and that's actually what caused my my growth to explode. And you can see a very nice progression up over the last three and a half years. We're now at almost 1100 members.   Sam Wilson (00:06:29) - Wow. That's really, really impressive. And that's something I mean, I'm assuming you've done essentially with no marketing, no advertising.   Daniel Holmlund (00:06:39) - In fact, I was forbidden from doing that. It didn't sell. It was all word of mouth. Right.   Sam Wilson (00:06:43) - Right. Oh, that's really, really cool. I love that. And I think that's the other thing is I think even back to launching a podcast or it was like, you know, I don't know where we are 800 and 3050 episodes, somewhere in that range.   Sam Wilson (00:06:58) - It's like the first few episodes. It's like, Man, why am I doing this? Like I think I had? I think God bless the guy that came on with seven downloads, I think was on my first episode published like, Oh, after a week I had seven listens whoop de stinkin do. Why are we doing this? And obviously that's changed. But I think anybody starting out scaling what they're doing just has to note there's that incubation period, there's the embrace, the suck period of like, well, hey. Oh yeah, Pat in your hand, will you come talk to my 12 friends at Intel?   Daniel Holmlund (00:07:30) - Because our group is at the very beginning of the club, we actually used to reserve a room and physically go there. And I realized one particular time nobody showed up in the room, but there was like 15 people online. And I looked at them. They were all in the same building as I was in. They were just at their desks. And so you go through periods like that, right? Right.   Sam Wilson (00:07:51) - And did you go and did that change the model or the way that you did it from then on? Did you do it all remote after that?   Daniel Holmlund (00:07:56) - It's completely remote. Most of our most of our attendees, the number one spot is actually from Folsom, California. Number two is Portland, Oregon. Number three is is Phoenix, Arizona. So we're a lot of West Coasters. There's some Texas and Virginia and other places thrown in. But but, yeah.   Sam Wilson (00:08:13) - Got it. Oh, that's really, really cool. I love that. And so how did you how did you take that club out of Intel? I mean, did you just take all your email list and say, All right, guys, we're going to move this club? I'm not hosting it here at Intel anymore because I've stopped working for.   Daniel Holmlund (00:08:28) - Pretty much, yeah, over over about a eight week period. I said, first of all, we posted all of our videos internally at while the club was happening in Intel, only Intel employees were allowed to go there.   Daniel Holmlund (00:08:41) - So we posted our videos internally. We couldn't even send them to our speakers. Right? And well, actually, that's not true. We could send them to our speakers, but we asked they not share them. Right. And so and the reason why is because Intel wanted to protect the the privacy of their employees. And that was the policy that we had to abide by. Right. And so going out of Intel, it's been a big process. We basically told everybody, hey, if you want to continue coming to the group, sign up on this external emailing list in order to get on the group and we're going to go through all the videos and make sure that names are blurred out that you know, and anything that reveals any sort of employee name or data is taken out. And which was hard because we did question and answers where would say Bob is asking da da da da da da, right? And I realized actually early on that just using first names and not whole names was a good way to go because it meant a whole lot less editing.   Daniel Holmlund (00:09:40) - Right? But basically we just told the told the group that we were moving externally and we moved over to Alternative Investing Club. Com and that's where we're hosting now.   Sam Wilson (00:09:51) - That's really cool. Yeah. I love I love the idea of protecting the kind of the privacy of the people who are in the meeting. I made it here's a here's a rookie mistake I made the other day. Daniel I was doing a webinar and I didn't and I was using Zoom and I'm too cheap to pay for the, the like the webinar version of Zoom because it's like another, you know, I do like two webinars a year. So I was like and I pay for obviously.   Daniel Holmlund (00:10:15) - Like 400 bucks isn't it? It's something like that.   Sam Wilson (00:10:18) - But a.   Daniel Holmlund (00:10:19) - Month.   Sam Wilson (00:10:19) - It's high. When you tack on the webinar feature, I'm like, Man, I don't really care about that. And you can do speaker only view because none of that, none of the attendees in the webinar needed to be there. But I failed to do that.   Sam Wilson (00:10:30) - And so it had everybody. His name's who was attending obviously a webinar for our clean Laundry fund. And I'm like, Oh, crud, there's all the type of video editor get in there and blur everything out and like. But it just wasn't quite the same, same but same idea. Or it's like, Oh crud, everybody doesn't want to get advertised. Hey, I was in this meeting and none of my investors want to get advertised to the world that, hey, they were attending a webinar for a clean laundry fund. So it's just like you got to protect those things. So very, very cool. We've talked a lot about the club and how you started at Intel, what you've done to move it to taking it out of the corporate America structure. What are some things you're doing differently now inside of that club that maybe you couldn't do before at Intel?   Daniel Holmlund (00:11:12) - Uh, well, for one thing, we're beginning to bring in actual, you know, pitches to the club. So if people want to come in and talk about their clean laundry fund, we're doing more of that where it actually is listed to the attendees.   Daniel Holmlund (00:11:26) - This this is is a pitch for a particular fund. And this is, you know, this is not a non educational one. One thing that I want to back up and say, actually, is that the the real estate club for me was my launching platform for Starting Good Samaritan Capital. So it was a networking group and I did a ton of networking, never using company resources, always called on Zoom outside of company resources, never doing anything like that. But I built up my investor list that way, and Good Samaritan Capital over the last over the last five years now has participated in 12 syndication deals, um, and two of which we have sponsored and then two fund to fund deals, I'm sorry, three of which we've sponsored and two fund to fund deals. And so our goal was to bring a new high quality vetted investment out to the attendees or people, rather not the attendees, but the people on my investor list. There's actually a lot of people attending who were not on my investor list.   Daniel Holmlund (00:12:32) - Um, and bring it out once a quarter. So we've, we hit that goal every single quarter except for Q4 of 2022 where interest rates were starting to peak up really quickly and liquidity was drying in the market. This is still the current conditions that we're in and I'd love to talk about that as well too.   Sam Wilson (00:12:52) - Yeah, shoot, man. No, let's let's talk about I mean, that's a lot of deals to get done. And that's and you, you essentially what you just said, if I can recap it and clarify is that you built your investor list by hosting these events and by starting these clubs.   Daniel Holmlund (00:13:09) - Absolutely. Yeah, absolutely. You and it's straight out of, you know, the best ever real estate syndication book. Right? Create your thought leadership platform, create a thought leadership platform and become the expert to a group of people that you know and earn their trust through repeatedly being there. Our club has actually had for an average of 49 events on Friday for the past four years. So we we usually don't do the Friday after Thanksgiving and maybe 1 or 2 in December.   Daniel Holmlund (00:13:41) - But other than that, we're there like clockwork and that that's a way to create trust.   Sam Wilson (00:13:47) - Yeah, absolutely. Absolutely. Very, very cool. You wanted to talk about interest rates not getting a deal out in the last quarter. What what what has been your focus and where are you going now that we've kind of, you know.   Daniel Holmlund (00:14:02) - Things, things. Yeah. Yeah. So so it's interesting. I think that a lot of people that are in the real estate market right now are realizing and and actually in the club we've been warning for two years I was joking in back in 2021 about which is more transitory inflation or the Fed or the Fed's reputation. Uh, and and I think now it might be the Fed's reputation, right? And that's, that's actually what we thought back then too. Um, but the writing was on the wall for quite some time. And in fact, one of the reasons I started a real estate company is because I knew I needed to convert all my stock market funds into real estate and hard assets because we were going into an inflationary period.   Daniel Holmlund (00:14:45) - And my my thesis was always that inflation is starting to pick up. The way that governments are spending is going to necessitate that inflation picks up. But all it's going to take is a shock to the system to make it really jump up. Right. And we've seen lots of shocks to the system. Of course, nobody thought Covid would come around, but it only takes the shock to the system and shocks to the system happen a lot. The economy tends to position itself right on the knife's edge, right where, you know, we've borrowed just enough to make inflation. Not a problem if everything goes right. Well, what if everything doesn't go right? You want to be in assets that are tangible and that actually go up in value in inflationary environment. Since that was the core theme to my business, you know, five years ago and the writing was on the wall since, you know, 2013 where we anyway won't go down that route. So, so we, we now are in a period where inflation is kicking up, expenses are going up, the interest rates are going up.   Daniel Holmlund (00:15:50) - This is drying up a lot of liquidity in the market. A lot of lenders have drastically pulled back. I see deals right now that, you know, used to be underwriting for underwritten for 75% LTV loan to value and now they're doing 65 or 60%. And so syndicators are raising a lot more capital in order to. If they're deals done, they're paying, you know, 7%, pref, 6% pref, whatever they happen to be paying, which is, you know, not as competitive as it used to be when interest rates were down at 2%. Right. You know, if you can borrow money at 2%, why pay 7% pref? Well, now they're getting a lot more closer to each other which is causing pref to move up potentially in some types of deals. And so a lot of lenders are pulling back and it's it's creating demand for private equity for increased amounts of equity and for mezzanine debt, particularly with operators who are running into cash flow issues or maybe didn't buy a rate locks. And so a lot of distress is starting to come into the market.   Daniel Holmlund (00:16:58) - And that's that's kind of been our theme this year. Last year, our theme was in the two years before actually was flight to quality assets, where we invested in A-minus and B plus multifamily assets. We also bought our industrial asset in Kansas City, which is doing well. And this year it's going to be opportunistic to a certain extent deals with pref equity. And so Good Samaritan Capital has shifted its strategy a bit. Last year in our flight to quality deals, we started what's called a fund fund of funds, and we went and invested with large operators like Rise 48 and Lone Star and, you know, big operators who had a good track record of paying out dividends, not dividends distributions. Um, and so we, we went and raised a large chunk of money for them and negotiated with them for better terms. And then an individual would get coming in. And it really dawned on me this year that being able to find better terms is the name of the game. And the only way you can really do that is through scaling.   Daniel Holmlund (00:18:11) - So I'll stop there because I've been talking for a little while. I could keep going, but I'll let you get an edge. A word in?   Sam Wilson (00:18:19) - No, this is good. I'm loving here in the thought process how you guys have shifted, what you are looking for, what you previously invested in. You know, we're running out of time, but I do I do want to hear about because we've kind of got the back picture on where you've seen things and where how you guys are shifting your strategy, but you've launched a growth fund. I do want to highlight this before before we get off the call here, which is talk about your growth fund, because I think inside of that, when you talk about the four different things you guys are doing will really help kind of backfill the rest of what you were previously talking about.   Daniel Holmlund (00:18:55) - Yeah, it's realizing that scale was needed in order to be able to come to the table and get better terms. We've launched the Good Samaritan Capital Growth Fund. It's a 506 C fund for accredited investors, and we are targeting four main strategies which we think are are particularly good in this environment.   Daniel Holmlund (00:19:16) - In fact, I think there's a short window for it in this environment. And the first one is, is new construction. In the short term, we're going to see a lot of cash flow crunches. And so I want our focus to be on the areas where we can deliver for our investors, and that's in long term, long term growth. So we're looking at new construction, particularly new construction of land that is already permitted and already has the the architectural diagrams signed off by the counties. So we come in, we'll buy the land, the permits and the diagrams and then partner with new construction companies in order to build midsize multifamily 30 to 40 to 50 units. That's strategy number one. Strategy number two is, is a continuation of our previous flight to quality strategy, where we invest in multifamily that is long term and is either A-minus or B+. And usually I like to see some sort of tax abatement. Taxes are the largest expense in a multifamily deal. If you can reduce that expense, which a lot of a lot of municipalities right now are offering tax abatements because there is an increase in affordability.   Daniel Holmlund (00:20:34) - So the county is coming in and helping you subsidize your your renters in many cases. And there's different types of deals. The second and third, I'll do really quickly, there is an opening right now for pref equity deals are beginning to become cash flow constricted and maybe they just need to finish off the last couple of units that they're doing. So there's a pref equity play which is in high demand right now. The the drying up of of markets and the unwillingness of banks to lend or the or only lend to large players has created a vacuum there. And there's an opportunity to step in with pref equity. And then just slightly further up on the. Capital stack is the mezzanine debt. There's a great opportunity for mezzanine debt financing as well. So the long term plays are the new construction and the value add and the shorter term kickers that generate a kick in the fund are the pref equity and the mezzanine debt. And so those are the areas we see as being good places to target this year.   Sam Wilson (00:21:36) - Daniel And then.   Daniel Holmlund (00:21:37) - Probably next year.   Sam Wilson (00:21:39) - Absolutely. No, that's incredibly insightful. I mean, we could spend the next two hours really just breaking down each of those different components, how you vet, how you choose to work along, who you choose to work alongside and, you know, not winding up like you did in 2008, owning assets that you don't necessarily want. You know, how do you guys structure? And we could get into all of that. So maybe you need to come back on the show and we'll re re kind of go or not recap but go through all of those and get it get a little bit deeper. Dive into that. For those of you who don't know, Daniel was one of the early people here on the podcast that came on. Daniel, last time you were on the show, it was December 16th, 2020. And you goodness, I know you were episode number 17, So thanks again for coming. Oh, you came on early, man. Thanks for giving thanks for gambling on me.   Sam Wilson (00:22:31) - Certainly appreciate you having you come back on the show here today. Daniel, If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Daniel Holmlund (00:22:38) - You can reach me at Daniel at Good Samaritan and our website Good Samaritan capital.   Sam Wilson (00:22:45) - Good Samaritan or Daniel at good Samaritan make sure we include all of that there in the show notes Daniel thank you again for coming on today I do appreciate it.   Daniel Holmlund (00:22:54) - Thank you very much.   Sam Wilson (00:22:55) - Hey thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Sep 18, 2023
From Bartender to Real Estate CEO

Today’s guest is Zachary Beach.   Zach is an Amazon Best-Selling Author of The New Rules of Real Estate Investing and revised edition of Real Estate On Your Terms. He has been an authority in real estate for 8 years now and has personally completed hundreds of real estate transactions and mentored investors to complete thousands of transactions.   Show summary:   In this podcast episode, Zachary Beach, CEO and partner at Smart Real Estate Coach, shares his journey in the real estate investing business. He discusses the challenges of traditional financing options and highlights the importance of creative financing and direct negotiation with sellers to achieve better cash flow. Zachary emphasizes the value of personal development and mindset in his success and shares insights on acquiring properties through creative financing.    -------------------------------------------------------------- Intro[00:00:00]   Zachary's journey into real estate investing [00:00:53]   Adding value to a business relationship [00:02:39]   Becoming a Virtual Assistant and Acquiring Real Estate [00:08:49]   Determining Good Deals in Creative Financing [00:11:10]   Buying Commercial and Multifamily Properties [00:14:25]   The importance of positioning in real estate deals [00:18:59]   The seven steps to acquiring a property [00:19:56]   Free book [00:21:29] -------------------------------------------------------------- Connect with Zachary:    FREE BOOK::   Website:  Podcast:  Facebook Page:  Google +:  YouTube:  Instagram:  LinkedIn:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Zachary Beach (00:00:00) - You know, if you're looking at it through a traditional lens and you're either going to go raise a bunch of money or you're going to go get, you know, institutional financing, there's typically a lot higher of a monthly payment that you're going to be dealing with. So you're not gonna be able to cash flow as well compared to if I approach a seller and I say, Hey, I need my payment to be here, but I'll give you your price then, Now all of a sudden we can walk into a lot more cash flow versus having to raise the debt. Welcome to the How.   Sam Wilson (00:00:27) - To scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Zachary Beach is a three time Amazon best selling author of Real Estate On Your Terms. He's also the CEO and partner at Smart Real Estate Coach. And lastly, he's the co-host of the Smart Real Estate podcast. Zachary, welcome to the show.   Zachary Beach (00:00:53) - Sam It's a pleasure, my man.   Zachary Beach (00:00:54) - I'm excited to be here with you.   Sam Wilson (00:00:56) - Absolutely. Zach. The pleasure is mine. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Zachary Beach (00:01:06) - Hundred percent 90s You're talking like Massachusetts here now, so we'll fly through this. So I was a bartender and personal trainer, um, just a short nine years ago and was burning the candle at both ends and was getting extremely exhausted and tired because, you know, as you can imagine, late nights and early mornings. So actually approached my father in law, who is now my business partner in multiple business ventures. And at the time he was he was revamping his his new real estate business as he got crushed in 2008. And he was, you know, coming out of the crash and got involved in this thing called creative financing and real estate investing. So I ended up joining him. And then about six months later, I was able to get my first my first property under contract, my first creative financing deal went ahead and burned the candle at both ends or burn the bridges, I should say, dropped every other job except for real estate investing.   Zachary Beach (00:02:01) - And from there on out, just continue to build up that local buying and selling entity. And then also grew a real estate coaching business at the same time and kind of brings us to where we are here today.   Sam Wilson (00:02:12) - Man, that's awesome. I love that there. I guess there's a few things here that I would I think some of our listeners would would pertain to them. When you said, Hey, I'm going to approach my father in law and say, you know, can I work with you? Can we learn how to, you know, kind of learn to do what you're doing or can I add value to you in some way? What was that conversation like then? Sure. And then how has that changed?   Zachary Beach (00:02:39) - Yeah, well, the relationship's dramatically changed. Right. So was 24 years old. Um, it was December of 2014, and. And I was approaching him because I just was exhausted. Me and my wife were. Remember, it was one morning, it was like 4 a.m. because she was also a bartender at the time.   Zachary Beach (00:02:58) - It was like 4 a.m. And we looked at each other and we were like, we got to figure out something else. And right. We were in bartending for about four years. Of course it was. It was a blast. It was like my second college. But there was a time and a place and now it was the time to to make the transition. So I said, Hey, I don't know if I'm gonna like real estate investing, but maybe I should talk with your father and see if, you know, we could fit into his current business and and see if we can create something bigger. Because I'm extremely ambitious, and I know he is as well. And let's see how we can take this to the next level. So when approached him, I said, you know, I don't know if I'm going to be good at this or not, but, you know, if you'd have me, I'd be interested in doing some things in order to generate, you know, some value to the company.   Zachary Beach (00:03:40) - And, and, and I got the sexiest job in the world, but I when got was a list of names and numbers of expired listings people that had a property on the market at one point in time and it didn't work out and he said call these people. I'll, uh, I'll work with you on your sales scripts and let's try to generate some, you know, some warm leads. And once we start moving those leads to the funnel, then we can go ahead and start making some offers and trying to do some deals together. And that's kind of where it all started. And really at the end of the day, we kind of ate what we killed. So it wasn't like he wasn't that he was going to take a massive risk on his end, but eventually, you know, ended up taking a big leap as I started to learn it and then eventually said, you know, if I'm going to really be a real estate investor, then I got to I got to really focus and I got to cut everything else out.   Zachary Beach (00:04:28) - And, you know, did that after about 4 to 5 months in the business and can hit the ground running from there.   Sam Wilson (00:04:34) - Wow. Okay. So you made an important point there. You said eat what you kill. So you brought value in father in law or not, this would pertain to any business relationship where you're looking to learn from someone who's ahead of you. And I think that's the name of the game is how to scale commercial real estate. And I certainly have employed that tactic where it's how do I add value to you? What can I do now? Maybe that isn't asking you to write a check so I can come to work for you per se, but yet I want to work directly with you. So I love I love the way you approach that and say, hey, you know, eat what you kill. You went six months and you got your first deal under contract. So what? And he handed you a list of names and numbers and said, Hey, call them up and just see where it goes.   Sam Wilson (00:05:17) - What was that process like in I guess, you know, it sounds like you had success with it six months in. So tell me how you stuck with it.   Zachary Beach (00:05:26) - Yeah, it's it's mindset is everything, right when it comes to real estate investing. And the interesting thing is I still use that skill set today, right? Is the it is the building block of real estate investing in in my perspective, which is communication. Because once you communicate properly with people and solve their problems, understanding their motivation to understand the financials, I don't care if it's single family or commercial. Once you are able to communicate and solve people's problems, well, that's where the real estate deals come into place. Any brand new real estate investor that I communicate with am always like, This is not a real estate business. This is a communication business, this is a people business. And once you're able to solve people's problems, well, now, now you're going to be able to really start to be able to build some wealth in real estate.   Zachary Beach (00:06:09) - So that's what I built upon consistently. And that's why I say, like to this day, I still use that skill set because if we enter into a new market, I just say, give me a list of expired listings and let's start let's start talking with some sellers in order to get some deals done, get straight to the source. Um, so during that, during that process, I mean, it, it was hard. I mean, for the first 2 to 3 years, real estate investing for me was hard. It wasn't natural to me, although, you know, it may say, well, you had a bar, you were a bartender, you know, you should be able to speak with anyone. And that may be true, but if you have zero real estate experience and you don't understand how the dynamics of a real estate investment deal, whether it be a traditional mainstream deal or, say, a creative off market deal, that's still a huge learning curve that you get to take on as well.   Zachary Beach (00:06:55) - So it was it was hard and it was challenging. And the only way I was able to really stick with, you know, building this out. And as I started doing real estate deals, I started to find the love for for business in general. And the only way to be successful in any type of business is to consistently work on personal development. So I found myself, you know, listening to, you know, why I was setting up the bar, you know, And I just started, you know, doing real estate deals. I was listening to Jim Rohn, not music. I had my headphones in listening to personal development. So what I noticed, though, was as I continued to work on myself personally from a mindset, from a personal development, from behavior standpoint, that my my real estate career started to get better and better and better. So then I start to make that connection that said, All right, if I can control what's up here in my mind, then you know the business is going to grow in itself anyways.   Zachary Beach (00:07:47) - I think I can't quote the exact person I used to say it, but they said, you know, your your income will never outgrow your development. So then I just started focusing on how I can develop better in order to increase my income and increase my wealth long term.   Sam Wilson (00:08:02) - I love that. I love that. And that's so true. That is so true. Your income. Well, I couldn't have said it that way, but I like it. Your income. What? How'd you say your income will never outgrow your development? Yeah. So that's. That's really cool. And you and you've transitioned. I think, you know, even in your roles inside of the company, I mean, the company obviously is not what it was nine years ago when you came on board knowing nothing about real estate. So what have those role in kind of transition's been for you as you've grown the company along with your father in law?   Zachary Beach (00:08:36) - Yeah, what's interesting is it's like I would say day one, but since probably about the first year that I started investing in real estate, I've always been simultaneously growing two companies at the same time.   Zachary Beach (00:08:49) - So it wasn't like I've ever just invested in one. So we've we have our own personal buying and selling entities, so we still buy and sell real estate with the exact techniques that, you know, we teach our students. So we have our own portfolio in southern New England. And then at the same time we have a real estate coaching company that teaches people the exact same strategies, tools, techniques, you know, process systems, tools to grow and scale their creative financing business as well. So we've always had those two business simultaneously growing. So I've evolved in both, right? I've evolved from being, you know, from day one, being a virtual assistant, basically, right? Somebody that's prospecting consistently. And then eventually I became a very well paid virtual assistant and then eventually get to a point where then I was heading up all the entire acquisitions. And at one point in time, me and my brother in law and father in law with a couple support staff were doing four to, you know, 4 to 10 deals a month, you know, with with creative techniques that most people either aren't aware of or say that it doesn't exist, like owner financing and subject to's and lease options.   Zachary Beach (00:09:59) - But then at the exact same time, I was also, you know, the CEO of our coaching company and a coach teaching people how to do this and helping them acquire real estate into their portfolio. And eventually, as that started to evolve, became more in a deal structure mode. On the on the investment side and CEO of the coaching company, which happened over the past 12 months.   Sam Wilson (00:10:24) - That's awesome. What so you guys so let's go back to this very first deal. You're looking for commercial real estate or even maybe at that point, residential real estate, I don't know. But what's your.   Zachary Beach (00:10:36) - Residential at that.   Sam Wilson (00:10:36) - Time? At that time. Okay. Primarily residential. So let's fast forward maybe then to now, like when you're looking for commercial real estate for, you know, because you have two companies, you're running there for your own personal investing, What's your buy box on other finance deals and why?   Zachary Beach (00:10:55) - Yeah, I actually got this question asked for me like just yesterday because I'm communicating with this with with a gentleman and he's been providing, say, leads because he does wholesale fix and flips, but it's trying to get involved in the creative space.   Zachary Beach (00:11:10) - So he's been providing leads and I've just been sharing with them how I've been doing it. So he said he asked me that exact question. So he goes, How do you know that this one is a good deal? And I said, Well, first and foremost, the seller said that he's open to creative terms mean that automatically jumps to the top of my list. Um, considering considering that the the challenging part of the conversation is, is asking the right questions to understand motivation but then understanding the the challenge that can be solved with a creative financing technique. Um, because everyone I mean, literally everyone has been taught one way of buying real estate. Typically if you're brand new and that's through traditional means, you go, you, you work hard, you get 20%, 25% in your pocket, you go put it down on a piece of property. Then you go ahead and you go get the rest of the rest of the financing from a bank or an institution. And then now you have doesn't matter if it's a single or a multi or commercial.   Zachary Beach (00:12:10) - Now you have a property, um, and that's how everyone's taught. So most of creative financing is an education process for the seller, so it's okay. Mr. Seller I understand your problem. Here's how we can solve it, and here's some techniques that we can utilize or some different strategies that we can utilize in order to get you to their end motivation, whether it's they want tax or estate planning benefits, whether they want a higher price, whether they want cash flow on the property. Um, it's just now providing that solution. So that's step number one. That's what I always want to know. Number one is I know it's a good deal if somebody's open to it. Um, at least I know that that's the hot lead. Then from there, it's what types of terms can I create with that seller? Because just because they're open to it doesn't mean it's a good deal, but it's definitely at the top of my list. So now I need to understand it's typically five terms that are involved in, say, an owner financing deal.   Zachary Beach (00:13:08) - So owner financing would just mean that we're going to take out the bank and we're just going to go direct the seller. The seller is going to be your bank. This is going to finance the property for you. So there's typically a handful of terms that are involved purchase price down payment or not. We have lots of deals where we put no money down. We have if there's an interest rate or not, there's lots of deals in which we do that are 0% interest rates. We have, you know, length of time and if there's a monthly payment. So those are like the the generic terms that we're that we're going to be now crafting. So once we've established those and now those terms make sense for us to buy, meaning the terms look good, we're going to be able to acquire what we're going to be able to cash flow it. We're we're going to be able to either have our exit in mind or know that we can keep it for a certain period of time to improve the value of the property.   Zachary Beach (00:13:59) - Now, once I have that, now it's okay. We got ourselves a good deal. The motivations in line, the finances are in line. Now let's just figure out the best way to go and close on this.   Sam Wilson (00:14:07) - What type of assets are you buying right now? Assuming purchase price down payment, interest rate term, which all of those then equal of course your final payment. Yeah. But what type of assets in the commercial real estate space are you acquiring right now? That makes sense.   Zachary Beach (00:14:25) - Yeah, it's a good question. So we've acquired our own commercial building that housed all of our offices, also housing all state and a couple other local businesses. So mixed use, but we also will acquire multifamily, typically up to ten units. And and it's not because like we're not willing to buy bigger units. It's just because usually up to ten units or mom and pop jobs. So they're more open to doing a creative strategy like owner financing because it's usually if we get a hold of it, it's been either inherited or they've owned the property forever.   Zachary Beach (00:15:01) - Or talk about what happened with Covid. You know, you have a certain amount of vacancy or you have a certain amount of people that are not paying and you're going through evictions for a mom and pop shop if that's their only building or they only own a couple of them, that's a big hit for them. And now that creates a big fear factor. So we'll go ahead and buy properties just like that as well. And so we'll just accumulate them in in those lower lower unit ranges because typically if you get past ten units and above, you're starting to deal with more of an institutional or other investors like ourselves. And it's it's just not as likely for you to go ahead and get good terms that you want to go ahead and acquire owner financing.   Sam Wilson (00:15:40) - Right. And you may you made a good a good clarification there on typically who the owner financier. Financier. Yeah I don't know whatever who who that is right. It's like, oh okay. It's going to be a mom and pop. They're not going to they're not going to have a massive portfolio, probably.   Sam Wilson (00:15:57) - Maybe they do. And they just can't get rid of it. But let's but so like the kind of clarification of who the type of potential owner finance seller is, how do you not wind up with dog assets? Because if something's inspired listing like or maybe I could ask that a different way, which is what are things that typically lead to an expired listing that then make it a desirable acquisition for you?   Zachary Beach (00:16:23) - Yeah, and I'll give you some clarification. So if we're buying commercial, it's typically off market. They more than likely weren't on the market at this point. So single families we we acquire a lot from expired listings. Um, so, so typically if we're going to go up to a multifamily, we'll do a specific mailing to a free and clear list. Man, you can grab those on prop stream or whatever database you're using. Debt free houses, usually they own at least one, if not multiple buildings or attached to them. And of course, I mean, you love and out of state owner as well, especially if they're a tired landlord.   Zachary Beach (00:17:03) - So just approaching those and then we'll send out a mailing. And if we get one deal out of each mailing, which you know, cost you, you know, a couple thousand bucks and in succession, then that's a we're in a good spot. And to tell you about like dog listings or things like that, again, the two things that we tend to care about are are the motivation of the seller and the finances on the property. Because if you're looking at it through a traditional lens and you're either going to go raise a bunch of money or you're going to go get, you know, institutional financing, there's typically a lot higher of a monthly payment that you're going to be dealing with. So you're not gonna be able to cash flow as well compared to if I approach a seller and I say, Hey, I need my payment to be here, but I'll give you your price then, now all of a sudden we can walk into a lot more cash flow versus having to raise the debt and the equity on the property in no way have to pay a more people or an institution so we can actually walk into properties that you typically wouldn't be able to cash flow as well.   Zachary Beach (00:18:00) - And then then of course, the end result would be one of two things. Either we'll hold on to it. Secondly, if you wanted to, even though we typically don't, you could fix improve it and then refinance it and keep it and bring in some traditional financing or do what we've done with a couple of our multis, which are go buy them on owner financing, make principal only payments for say, 48 months on the property, improve the units, turn up the units now, improve the cash flow on the property, and then let you know some of the bigger investors out there that are looking for units. Go ahead and acquire your property at a higher price because you've established the rents and made the improvements on the property.   Sam Wilson (00:18:41) - Right? That makes a lot of sense. What do you do to inspire confidence in your sellers that you're going to perform?   Zachary Beach (00:18:50) - Yeah, that's a great question, right? Because that's at the end of the day, that's what every everyone's looking for, especially if they first got the first game involved in real estate investing.   Zachary Beach (00:18:59) - A lot of it is I mean, some of it I lean on, you know, we have you know, we got a history, right. We've we've been doing these deals. I mean, I've done or participated in pretty close to 500 creative finds. It deals at this point in time nationally so I can lead on that. Secondly a lot of it just positioning at the end of the day, if you if you want the deal, you know, you need the deal like you need water sellers can tell. Um, so just keeping a good positioning and don't try to ever force a deal because it's never one of my coaches said this really well and he said it's not your timing, it's the seller's timing. So it's all about following up and being consistent and being helpful. But most importantly, I think what I always try to do my best at and what we teach our students is to is to not prejudge the asset or the person. Um, so we have this thing called seven Steps to a Taken, which is basically seven steps to acquiring a property.   Zachary Beach (00:19:56) - And our, our comps and comparables is actually step five, not step one, a step five. And the reason why is because I want to meet the seller. I want to see the property. I want to have an open dialogue without any preconceived notions before I start negotiating, because usually the seller is going to tell you what they're looking for and what they're willing to do. Now, does it mean that that's exactly what you need to do? But they're going to tell you. And if you have preconceived notions of, hey, what about that property and what about that property? And you know, what's going on here? All of a sudden you're you're already on the opposite side of the table with the seller. So we always want to get on the the same side of the seller, same side of the table as a seller. That way we can now show them a solution. And if the solution works for both parties, then you got yourself a good deal.   Sam Wilson (00:20:43) - Man That's fantastic. Zach, Thank you for taking the time to come on the show today.   Sam Wilson (00:20:48) - This has certainly been enlightening. I've learned so much from you. I love your story. Going from bartender and personal trainer. Man, you were you were literally grinding it out, like you said, going to bed late at night and then getting up early morning and probably doing personal training and everything in between. And you've really just gone out and yeah, done some really, really awesome things. It's been cool to see the way you have grown both your personal investing business, but also your coaching company, the way you guys approach creative finance, finding deals off market, the types of assets that you buy. You've dropped a lot of really, really good stuff for our listeners here today, so I certainly appreciate it. If they do want to get in touch with you and learn more about you, what is the best way to do that?   Zachary Beach (00:21:29) - Yeah, absolutely. Sam, I appreciate that. So I want to make sure that anybody that's interested in creative financing, any of your listeners, that we're able to get the our Amazon bestselling book in their hands for absolutely free and don't mean like a PDF.   Zachary Beach (00:21:42) - I mean, we'll actually ship you the book to your house. All you have to do is go to wicked smart and the number three that's wicked smart three. Go ahead and grab our first Amazon bestselling book real estate on your terms. We'll ship it out to you and probably some other goodies in there as well that you can start diving into what it actually means. Become a creative financing real estate investor.   Sam Wilson (00:22:06) - That's fantastic. And if you're listening, yes, indeed, they will ship it for free. I got my own copies here in the mail about a week ago. I think there were several books there in that package. So thanks for sending those on. I haven't had a chance yet to dig into them, but they are in my in my queue of books to read. So Zach, thank you again for coming on today. I do appreciate it.   Zachary Beach (00:22:24) - Yeah, Thank you, Sam.   Sam Wilson (00:22:25) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen.   Sam Wilson (00:22:38) - If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Sep 14, 2023
Diversifying Your Real Estate Portfolio with Agriculture

Today’s guest is Chris Rawley.   Chris is the CEO of Harvest Returns, an agriculture investment platform. He has invested in real estate and income-producing agriculture for over two decades.   Show summary:   In this podcast episode, Chris discusses the opportunities in agricultural investing, emphasizing the importance of agriculture in providing food for the growing population. He suggests investing in specialty types of agriculture products that are more immune to commodity fluctuations. Chris also explains how Harvest Returns attracts farmers and ranchers looking for financing options, offering creative financing solutions tailored to their specific needs. The conversation covers the benefits of grass-fed beef, regenerative soil practices, and the platform's ability to diversify investors' portfolios. Chris also shares insights on managing deals and investor communications.   -------------------------------------------------------------- Intro [00:00:00] Chris Raleigh's background  [00:00:48] Opportunities in agricultural investing [00:03:34] Ranchers seeking financing [00:10:17] Challenges in funding grass-fed livestock [00:11:11] Expansion and financing options [00:12:02] Working Harder and Time Allocation [00:20:15]  Investor Communications and Management [00:20:49]  Deliberate Growth and Learning from Experience [00:22:11]  -------------------------------------------------------------- Connect with Chris:  @harvestreturns Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Chris Rawley (00:00:00) - Agriculture. And I'd say real estate, too, is the are the two industries that touch every single person on the planet. Everybody's going to have a place to stay and everybody's got to have something to eat. So it's not a it's a growing industry, just like real estate. As the population grows, people are going to consume more food, more calories. And so there has to be more farmers and farms to produce it. And as that happens, we have to do it more sustainably.   Sam Wilson (00:00:23) - Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Chris Raleigh is the CEO of Harvest Returns, an agricultural investment platform. He has invested in real estate and income producing agriculture for over two decades. Chris, welcome to the show.   Chris Rawley (00:00:47) - Thanks a lot for having me here.   Sam Wilson (00:00:48) - Sam Absolutely. The pleasure's mine. Chris There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:00:54) - Can you tell me where did you start? Where are you now and how did you get there?   Chris Rawley (00:00:58) - Well, like a lot of people in my real estate investing career, I started with single family homes, um, just rental property. And that quickly evolved into multiple single family homes and duplexes and that evolved into land. And then that evolved into I wanted to invest in a farm and there wasn't a good way to do it. So I decided to go the hard way and built a platform for not only myself to be able to invest in farms and ranches, but other people as well. So we've put together over $30 million syndicated farm and ranch and agribusiness deals and been going strong since 2016.   Sam Wilson (00:01:36) - Okay, fantastic. Tell us about the opportunity in agricultural investing.   Chris Rawley (00:01:43) - Yeah. So, you know, the first thing that it's important to know about agriculture is the basis of it is food or the basis of food is agriculture. And we take that for granted. You know, we all go out to eat.   Chris Rawley (00:01:57) - We go to the grocery store, we pretty much got whatever we want 24 over seven, 365 Food is in. Produce is always in season because it's shipped in here from Mexico and South America and beef and lamb shipped from Australia. So so we have we're very blessed in the United States to have access to food and other countries are not they don't have that same benefit. So if you're an investor and you're interested in where your food comes from and how it's produced, investing in a farm or a ranch or an agriculture business is a great way to kind of make that connection and get a little bit more in tune with the food system. On top of that, you know, agriculture and I'd say real estate, too, is the are the two industries that touch every single person on the planet. Everybody's going to have a place to stay and everybody's got to have something to eat. So it's not a it's a growing industry, just like real estate. As the population grows, people are going to consume more food, more calories.   Chris Rawley (00:02:55) - And so there has to be more farmers and farms to produce it. And as that happens, we have to do it more sustainably. So that's kind of the other dynamic that's going on within agriculture right now as technology is being applied to produce food more sustainably and more efficiently.   Sam Wilson (00:03:13) - Right? No, undoubtedly the need is obvious. You know, the need for food won't go away. Tell us about if there is an opportunity from an investment standpoint, like where are you? Where are we in the investing in agriculture kind of cycle if there is even such a thing?   Chris Rawley (00:03:34) - Yeah, you know, there are cycles in agriculture. They revolve around commodities for the most part. So prior to Covid, you know, there's base commodities, things like soybeans and corn. We're kind of in a in a downslope and beef. And now they're there on the especially with food inflation that we've all experienced. Every single one of us has seen that whether you're going to Chick fil A or a five star restaurant, you know that food costs more these days.   Chris Rawley (00:04:04) - And it's it's part of that cycle now. We try to avoid that cycle by investing in kind of specialty types of agriculture products like grass fed livestock that tend to be a little bit more immune to some of the commodity fluctuations. And and indoor agriculture is one of our little specialty niches and and some more other niche things like, like wineries, vineyards. Um, so those are things that, that we hope are inflation proof but also not so impacted by fluctuations in commodities. So if you're looking at farmland itself, there's a lot of people that want to invest in farmland. I would say they're at the top of the cycle right now. Farmland appreciated quite a bit over the past 3 or 4 years, especially what we call row crop farmland, which is things like wheat and soybeans that everybody's familiar with. But for the smaller specialty niche sort of ag spaces that we like to invest in, I think we're not really in a market cycle necessarily.   Sam Wilson (00:05:07) - Got it. Yeah. I want to I want to touch on on that for just a second and then hear kind of what you guys are seeing, where you guys are seeing the opportunity because yeah, I mean, we've seen everybody from Bill Gates to I mean, just everybody and their mother, it seems as investing in farmland.   Sam Wilson (00:05:22) - I actually had lunch with a I'm based here in the Mississippi Delta, of course. So we've got row crops galore across the arc. I mean, we're ten minutes from Arkansas and I got a buddy over there that buys just, you know, he's a broker, but also just buys tons and tons of farmland. And he had never done syndications. He said, hey, you know, we're trying to pull some investors together. I want to do an investigator, you know, and we started talking return profiles. And it was in like 1% annually and returns on cash on cash basis. And I'm like, who's investing? Like who's like, who are you getting that cares about a 1% return? Right. And farmland and obviously it was row crop. You know it's again it's it's the it's the commodities it's the like you mentioned soybeans, corn, wheat, the stuff that everybody grows. But I just wondered from an investment cycle how you guys were different. It sounds like you are like you're not just Yeah.   Chris Rawley (00:06:14) - That yeah. And you know for your buddies that there is that 1% which is probably the annual rents from the cash crops. That's yeah.   Sam Wilson (00:06:22) - That's it.   Chris Rawley (00:06:23) - Land appreciation you know land is they're not making any more of it as all saying goes and especially farmland becomes more and more scarce. But you know, it's, it's an overbought market. That's my personal standpoint right now kind of kind of farmland. That doesn't mean you can't make money over the long term. And it is a long term sort of thing. You're dealing with a speed of biology. You know, people like tree crops. We've done some things like hazelnuts and things like that where you might plant a tree, but it's going to take you seven years or so to start getting some sort of cash flow. So people have to be patient. You have to be creative in the way you structure these deals. You have to be creative in the way that the companies are able to achieve cash flows. So it's it's a lot different than just going out and buying land.   Chris Rawley (00:07:09) - If people want to do that, that's great. And there are ways to do that. There's farmland, REITs and publicly traded stocks and things like that. You can do that. But for our particular investments, something like grass fed livestock, we're actually investing in a ranch operation. There may be a land component, might be a high yield debt that's secured with land or the cattle themselves. We've done both or combinations. So there we tend to pride ourselves in our creativity and these structures, these investment structures, whether it's high yield debt or equity or even convertible debt, we've done all three of those and seen some nice returns.   Sam Wilson (00:07:47) - Can you walk us through I mean, this is really fascinating. I think for me and probably also for our listeners because I think all of us are familiar with the multifamily syndication at this point. We understand the waterfall return, know the splits, all that. I mean, it's just it's we've been down that road more than once on this show. But things like what you're talking about, we've covered almost not at all.   Sam Wilson (00:08:08) - And I forgot to even mention this here at the beginning of the episode. For those of you who don't don't know, Chris actually came back on the show or came on the show. He took a gamble on this show back on December 4th of 2020. So if you want to go back, I think we're at episode we're north of 820 at this point. It was episode five. So you can find Chris back on December 4th, 2020 and kind of get a preview as to what he was working on then and what Chris is working on now. So just wanted to put that plug in there. If you want to get kind of both sides of the coin of what what he's done in the last almost three years now. But let's get back to this creative structures side of things. I mean, I think I think this is fascinating. Can you give us some case studies on how you guys structured it, how you found the deal and kind of what what was the win win between you and the operator?   Chris Rawley (00:08:55) - Yeah.   Chris Rawley (00:08:55) - So one of the niches that we like is livestock. There's very few places for a investor to get into purely investing in a ranch where you are helping a cattle producer or a sheep and lamb producer, that sort of thing grow their business. And we kind of stumbled upon the the method of collateralize the livestock themselves. Since then, we've combine that with collateralized land and collateralized equipment. But these are high yield notes. We've done, gosh, probably 12, 15 million of them, I think, and never had any default. You know, of course, past performance is no indication of future results. But, you know, knock on wood, we've done pretty well. Our investors have done well with them and they're seeing double digit returns. And, you know, which is nice. It's not as nice as it was when CDs were paying 1%. Now CDs are paying 5% or Treasuries, you know, 4 or 5%. You can get those those safe returns. But if you're looking to build beat inflation, getting something north of 10% is always is always good.   Sam Wilson (00:10:05) - Oh, yeah, absolutely. So how do you how do you find a rancher that is in need of capital without finding a rancher that is a bad rancher?   Chris Rawley (00:10:17) - That's a great, great question. You know, the first part of that is they find us. We had a little success, kind of by luck. Um, our deal flow really started to accelerate as we started doing more successful raises that the ranchers that come to us, in some cases they already have conventional land loans, maybe they have equipment loans on expensive piece of. And for anybody that knows ranch equipment is is very, very you know, six figure high six figures to get a tractor or something like that sometimes. Um and they need to expand their herd. So they've got all the pieces in place. Maybe they have a piece of family land that they inherited from their grandfather. So that's generally the biggest expense in these operations is land. So they have that, but they're just starting out. Maybe they grew up, you know, feeding cattle, raising cattle.   Chris Rawley (00:11:11) - They know all about it. They're ready to start on their own. We have a lot of husband and wife's teams and they come to us and say, hey, starting out, we know what we're doing, but we can't get a loan because we don't have a track record. You know, USDA, the AG finance system, the AG credit union system is pretty much optimized for those row crop farmers, right. Like we talked about. And if you're doing something out of the ordinary, if you're doing like grass fed, regenerative livestock, that sort of thing, it's much harder to get funding. So we'll, you know, we'll look at all the pieces of their operation, look what their cash flows can sustain, and then we'll put together some kind of instrument that will work for them, whether that's debt or equity.   Sam Wilson (00:11:55) - Got it. So you guys will come in and structure this debt or equity or both potentially.   Chris Rawley (00:12:02) - Generally we won't do both. I mean, we have done convertible debt, which is, you know, debt that turns into equity.   Chris Rawley (00:12:07) - But we have worked with other pieces of a capital stack where they've got a bank loan and then we'll bring in equity to kind of make them a down payment or help them be able to get a bigger operation. Because like anything else, there's economies of scale and we're trying to help smaller farmers get bigger and make more money and get higher margins. And of course, that's a good thing from the investor standpoint.   Sam Wilson (00:12:28) - Oh, for sure. For sure. And doing things like grass fed beef again, I think that that you're I don't know what the yield is or even the right way to put that because I'm not a rancher clearly. But it you know the dude do those cattle then of course fetch a higher price per pound when they go to they.   Chris Rawley (00:12:48) - Do generally the other piece of that grass fed is that you know grain fed. So all cattle has the same cycle. Life cycle, you know, starts out on milk, mother's milk, then it eats grass and then either becomes grass, finish where it spends its whole life on grass or grain finish where generally it goes to a feedlot and they'll feed grain.   Chris Rawley (00:13:08) - And we have nothing against feedlots. We've supported those. We will continue to support those. But a lot of consumers are really looking for this grass fed grass finished. It takes a little longer to get a product because the cattle doesn't grow as fast as when you're shoving, you know, soy or corn down its throat. It takes a little while. So it's a premium product. Some people say it tastes better. Some people say it's better for you. I'm I'm agnostic. Don't make those judgments. But it's a good market. So we like it. And those those ranchers, the other piece of that is regenerating the soil. We're working with a lot of ranchers that are doing that by, you know, animal agriculture gets a bad rap for a lot of reasons, and most of them are unfounded and produced by misinformation and bad information. But it's really a healthy product and it's a sustainable product when it's done right. We're not talking about clearcutting Brazilian forest, you know, hardwood floors, which a lot of people think about.   Chris Rawley (00:14:06) - That's not the kind of ranches we work with. We work with American ranchers and the Great Plains and Texas and Georgia that are doing their best to to maintain healthy animals and healthy soil and healthy watersheds.   Sam Wilson (00:14:19) - Right. Right. No, there's a lot to be said for that, man. I I'm a big I'm a big fan of grass fed beef. I've got about a cow and a half in my freezer sitting here on the other side of my office wall. So it's. Yeah, I know. I know where it came from. I know it's actually grown by my family in Alabama, but same idea where it's like, Oh, hey, I know the farm this came off of. I don't know exactly. It's, you know, start to finish grass fed. No, it's great, great beef. Anyway, so I'm a believer in the in the great beef strategy that you're employing there. I think I think it's absolutely awesome. So you guys have found a niche it sounds like inside of.   Sam Wilson (00:14:53) - Being basically banking the kind of unbanked sectors of agriculture, if you will call it. That's true.   Chris Rawley (00:15:01) - I mean, part of it is I don't necessarily like the term unbreakable, but it's sure, we're creative in financing in banks for various reasons or not. And we are. So that's that's always a good thing. And that's why these producers keep coming back to us.   Sam Wilson (00:15:17) - Yeah, I'm sorry. I shouldn't use the word un bankable unbreakable. Sounds like they are, you know, some reprobate that can't can't get a credit card. That's not not what they're saying at all. But there are creative structures that you're setting up.   Chris Rawley (00:15:29) - But you know, it's that's just as the banking system becomes more and more regulated and that's what happens. Anybody who's tried to, like, go out and purchase like more than one rental property or more than five rental properties, you know, the drill is, is there's just it doesn't matter how much money you have, how much equity you have, the banks are kind of hamstrung with their with their metrics and their limits.   Chris Rawley (00:15:53) - And it becomes you're essentially unbreakable, even though you're a great credit. You know, you might be a very experienced investor.   Sam Wilson (00:16:00) - Oh, gosh, yes, absolutely. And and I seem to consistently find myself investing in things that are outside of what the norms are because of the opportunities like you're describing, where it's like, oh, hey, you know, we can hit double digit returns, we can do this and this and this, and it's just, it's, it's, um, you know, it's blue ocean for you as an investor, but yet finding the creative way to get that financing across the finish line can be at times a bit challenging. So you've invested in ranches. You talked a little bit about tree crops. I mean, is that something you guys are still active in or is there.   Chris Rawley (00:16:34) - Yeah, I mean, we get probably about 30 deals a month across our desk and maybe four, 4 or 5% of them actually end up on a platform in front of investors. And that's as part of our due diligence process.   Chris Rawley (00:16:46) - But yeah, we do livestock. We're looking at vineyards right now, we're looking at tree crops right now. We're looking at, um, agriculture, technology companies is something we kind of came in, stumbled upon a couple of years ago. These are companies that provide technology to help farmers grow more sustainably and efficiency efficiently and all that. And it's it's obviously a higher risk. It's more like an angel startup investor. Right? But it makes it kind of put some juice in somebody's portfolio. And the beauty of our platform, I think, is, you know, our minimums are fairly affordable. If you've got enough money to kind of self direct your money into a. You know, whether it's real estate or whatever, outside the just dumping money in your 401. Every month and the stock market index, it's supportable because you can spread your 1015 K across multiple deals, spread your risk, but also spread your exposure into different parts of livestock or agriculture.   Sam Wilson (00:17:45) - Right. You mentioned the term platform a couple of times and then you said spread your risk out.   Sam Wilson (00:17:50) - Describe that for us because it sounds like there's something you guys have built maybe that the average syndicator doesn't have.   Chris Rawley (00:17:57) - Yeah. So it took us a while to get here, but we've got the deal flow and we've got all the technology in the back end that we launch a new offering about every 2 to 3 weeks. Wow. Um, so we're, we're constantly, you know, we're serial issuers. I guess you would, you would classify us where we've got offerings going. And these are farms and ranches raising anywhere between and businesses, you know, $200,000 to several million dollars and and sometimes that's part of a much, much bigger project like we've done where we were just a piece of a capital stack of a $50 million project, but we may have only invested 500, 600,000. And then we've done some where we were a big chunk of of a, you know, new farmer, that new rancher that described kind of getting off their feet. But maybe they maybe they're sitting on $1 million piece of land and they just need a few hundred thousand dollars to go out and buy some fences and chutes and cattle and things like that.   Sam Wilson (00:18:51) - How do you manage all of I mean, a new issue every 2 to 3 weeks is that's a lot of parties. That's a lot of ranchers, you know, don't even know what you call them. Guess you farmers, I guess, is what you call people growing, you know. Yeah. Tree crops and all those sorts of things. I mean, how do you manage all of those various entities and people? That's a lot of communication, I would think it is.   Chris Rawley (00:19:16) - And you know, started out just me and my partner Austin Manus back in 2016. And we would launch, you know, we launched our first deal on 17 and we launched, I think, maybe two deals that year. Um, maybe, you know, it's just grown. We've grown the team, we've, we've improved our processes. We've got a lot of automation in our due diligence process and our asset management process. So it is a lot to juggle. You know, we send out like 1600 K ones. I think this year it's quite a, it's a, it's a lot, but I've got a super accountant, super, you know, resources that we tap into.   Chris Rawley (00:19:50) - We've got some third party providers that do all the sort of background compliance stuff. So we just kind of put all the pieces together and that was the hardest part of starting or getting to where we are is organizing the pieces. We didn't know what we didn't know. And now we have learned lessons the hard way in some cases, and we've got built a system kind of systematize our building our business, and we're able to iterate it over and over again.   Sam Wilson (00:20:15) - Do you feel like you work harder now or did you work harder in the earlier stages of your business?   Chris Rawley (00:20:21) - That's a great question. I'd say the amount of work is about the same. It's what we spend our time on is different. So there was a lot of head scratching early on and trying to figure out what we didn't know. We've learned those lessons. We built a network of contacts and providers that now we spend more of our time, like you said, just dealing out lots of communications. We're constantly on calls. I'm still the chief sales officer.   Chris Rawley (00:20:49) - I get on almost every single sales call when a deal gets to the stage where we think it's viable, you know, I'll get on that call after it's kind of going through the initial processes. And so it's and then once we get the deals up and running, of course there's that the management piece, which is investor communications and tax documents and distributions and all those sorts of things. And we get fortunately we've got all the pieces in place to do that.   Sam Wilson (00:21:17) - That's cool. I'm sorry. Go ahead.   Chris Rawley (00:21:20) - Yeah. And that wasn't easy to get all in place. And it's not necessarily always easy to execute and you're always kind of dealing with the, you know, the one investor that needs a little bit of extra attention. And that's just the reality of of being in the world that we're in.   Sam Wilson (00:21:37) - It really is. Yeah. There's there is, there is that there's always the one investor that needs a little bit more, which is, okay, it's all right. There's also there's also lots of investors that you know that I'm sure you have these too, where it's, you know, they require almost no attention.   Sam Wilson (00:21:53) - And so it probably all washes there in the end. When you review the last, say, 5 or 6 years, if you could do one thing to have either made the process easier or maybe made a mistake that you could have otherwise avoided, anything come to mind on those fronts?   Chris Rawley (00:22:11) - Yeah, that's really hard because I we people take pain to learn, right? Austin always says this is like the best way to learn is through pain. And so think a lot of the things. That we have in place now. And, you know, a couple of deals that have gone bad and things like that we wouldn't have learned unless we experienced them. So although I have no regrets. Yeah, sure, there's deals we wouldn't have done or, you know, we would have changed something or automated processes sooner or later. But we didn't know what we didn't know. And, you know, we built very deliberately our processes and our team and our systems and grown very deliberately. We tried not intentionally not to grow too fast by raising a lot of money as a company or some of our competitors did that and, you know, haven't ever had to lay anybody off having ever, um, you know, been involved in lawsuits and, you know, any kind of issues, negative issues like that.   Chris Rawley (00:23:08) - So we're, you know, we're happy and we're going to continue to move very deliberately and fund as many farms and ranches as we can.   Sam Wilson (00:23:14) - Right? I love it. I love that word. Deliberate. That is, um, that's something we think about a lot here on our side of things where it's like, hey, you know, we have unlimited opportunity, but do we want or are we prepared to take that on right now? Like I think I think you should be as much afraid of too much growth, too fast as you should be a failure, because I think they can both lead to the same place, which is.   Chris Rawley (00:23:42) - That's very, very true. You can you can fail. You can grow hard and fast and you can fail hard and fast. And it's it's you don't want to be there.   Sam Wilson (00:23:50) - You don't want to be there. Yep. Deliberate. That's a great word here for today. Chris, thank you again for coming back on the show. It's been a pleasure to hear just where you guys have gone and almost, again, almost three years since the last time you and I got to chat.   Sam Wilson (00:24:04) - If our listeners want to get in touch with you or learn more about you guys, what is the best way to do that?   Chris Rawley (00:24:10) - Yeah, the best way is just harvest returns. Of course, we got social media and all the different platforms, but harvest returns, dot com.   Sam Wilson (00:24:17) - Harvest will make sure we include that there in the show notes. Chris thank you again for coming on. I certainly appreciate it.   Chris Rawley (00:24:23) - My pleasure Sam. Thanks. Hey, thanks.   Sam Wilson (00:24:25) - For listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Sep 13, 2023
Navigating the Real Estate Journey: Insights and Lessons from Jerry Miller

Today’s guest is Jerry Miller.    Jerry has been a full time Information Systems professional for many years and is making a transition to full time real estate investor.   Show summary:    In this podcast episode, Jerry Miller shares his journey from full-time IT consulting to full-time commercial real estate investing. He discusses his experience with single-family homes, becoming a limited partner in a multifamily syndication, and eventually transitioning to being a general partner in commercial real estate deals. Jerry emphasizes the importance of communication in dealing with unexpected events like hurricanes and the need for a clear plan. He also talks about the time commitment required for real estate investing and the role of a team in commercial real estate.    -------------------------------------------------------------- Intro [00:00:00]   Jerry's journey from single-family homes to commercial real estate [00:00:58]   The role of a team in commercial real estate [00:04:13]   The illiquid investment and options for getting out [00:09:56]   The importance of communication and dealing with unexpected events [00:13:52]   The role of a team in commercial real estate [00:14:45]   The importance of transparency in real estate investments [00:17:38]   Safe ways to get started in commercial real estate [00:19:07]   Understanding the evaluation of an apartment complex [00:19:29]   -------------------------------------------------------------- Connect with Jerry:    Linkedin: Instagram:  Facebook: Web Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Jerry Miller (00:00:00) - We've got a deal on the west coast of Florida. You know, it got hit by a hurricane. Like how do you how do you control that? Well, the answer is you don't. These are physical assets and stuff happens. But I think, you know, communicating what's going on is absolutely key. And then communicating your plan to deal with whatever's going on is also an important key that think separates, you know, an operator from a from an excellent operator. Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Jerry Miller is making the move from full time it to now full time commercial real estate investor. Jerry, welcome to the show. Thanks, Sam. Glad to be here. Absolutely. Jerry The pleasure is mine. There are three questions I ask every guest who comes to the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there? Okay, so guess it was 18 years ago.   Jerry Miller (00:00:58) - I got started in investing in single family homes. I've got a nice portfolio of single family homes, but two years ago I invested as a limited partner in my first multifamily syndication and was very happy to to get involved in that. Once I started digging in and trying to understand, well, if you're if I'm making a 15% return, then what are the general partners making and how is it that they're making such great returns? And once you begin to understand how to value a multifamily property and, you know, what does it worth, why can it be refinanced for you really do see where it's a better option to work on than, say, single family homes. And so since then, I haven't really looked back. I've been doing commercial real estate as a general partner. Now this is I'm on my fifth deal and I'm very excited about the possibilities of commercial. Wow. That's that's a lot of movement. And in your.   Sam Wilson (00:01:50) - Bio, you said you're making the moves, making the move from full time it into full time commercial real estate.   Sam Wilson (00:01:56) - So you're still in that transition period?   Jerry Miller (00:01:59) - That's right, Sam. I've got my own consulting company. I'm kind of a one man band. I do work in software consulting. I've enjoyed that. It's been a great living. I'm looking at, you know, I'm coming up on 58 years old and within a couple of years I would expect to no longer consult at all, but exclusively do commercial real estate.   Sam Wilson (00:02:20) - Got it. Now that's a lot. So you're you run your own consulting company. You are also and you said you have 1 or 2 day jobs. I guess you're consulting companies, one company one day job, but you have another. That's right.   Jerry Miller (00:02:32) - Well, my, my, my real estate sometimes feels like a full time job. Right? Obviously, that needs to be as much nights and weekends as it needs to be. But occasionally it conflicts, you know, where you've got day job type appointments. And so I just have to manage that. I do have a little bit of flexibility in my consulting job that I still need to just deliver.   Jerry Miller (00:02:49) - At the end of the day, I need to make sure that my client needs are met. And so if I'm not available at a specific time on a specific day, that's usually not a problem.   Sam Wilson (00:02:59) - Right? Right. What would you say or would you say that you've estimated the amount of time being a full time real estate investor is required? Did you estimate that properly undershoot it, overshoot it? What do you think on that front?   Jerry Miller (00:03:13) - Um, well, it's a great question, Sam, but the reality is there's, there's the minimum of what you can do, but you don't come into real estate thinking minimum. You come in thinking, I want to cover all the bases. So you really do raise the bar. You know, if you do estimate ten hours and you realize, well, it's going to take double that, you know, 20 hours a week to get this done, well, then you commit the time to get it done because you can't you can't do this halfway. You can't you can't you know, you can't be questioning, you know, is my valuation solid? Is my asset strategy firing on all cylinders? You really have to bring your A game.   Jerry Miller (00:03:48) - And and I would say that this is where you know, I think commercial real estate is a team sport. You need to be really clear on the roles and the responsibility within your team so that you and your team members can carry that ball.   Sam Wilson (00:04:00) - What have you done on the team front? I mean, getting into commercial real estate as a as a general partner, you know, takes a lot of effort. But talk to me about team. What is what does that mean to you when you say that?   Jerry Miller (00:04:13) - Good question. So I got started in commercial on the general partner side. One of the syndicators that I invested with was a limited partner. Um, they were on the verge of potentially having to make a capital call. This was my guess. It was the summer of 22 where the bank was requiring more seasoning, you know, more reserve in the bank. And he had an investor that wanted that needed to back out. There was some personal thing going on and think most people know that syndications are illiquid.   Jerry Miller (00:04:39) - That's one of the, you know, potential weaknesses of a syndication. But this was a general partner that had a heart and he wanted to be able to give that investor his money back. And so he he he had asked me because we were on great terms, he was like, hey, do you have any more to put into this deal? And at the time did not. Um, but then he asked, Well, do you know anybody that you think would be interested? Said, Well, I think I can call a few friends. We were only actually talking about a couple hundred thousand dollars and, you know, made like ten calls and I raised $300,000 in like a week. And I thought, wow, this was easy. Um, it's not it's not easy. But these were close friends who I knew, you know, had the money and had a had a serious interest in real estate. And I just needed to explain the syndication concept. And once, you know, once I kind of walked through the the risk and reward profile there, like Jerry, this is absolutely something that I want to do.   Jerry Miller (00:05:28) - I'm not planning to retire for a while, so I'm good with this money, you know, not being, you know, being tied up in a deal for 3 to 5 years. And so that's. Started me on a path where he was he was very pleased with with my performance and was frankly very pleased with my performance. I wasn't thinking commercial real estate as a as a full time gig at the time, but he and I chatted about, well, hey, we want to do bigger deals. And if you think you can continue to raise money like this, then we can do bigger deals together. And that was that was a turning point where I kind of set my mind on what will it take, you know, to be a full time commercial real estate guy. And the answer is, you know, you need a set amount of passive income. I've already got a decent chunk of passive income from my rental property, so I just had to cover the remainder of meeting, you know, my basic expenses.   Jerry Miller (00:06:20) - And so that definitely put me on a on a on a pretty serious path to spend time getting involved as, as a general partner. And honestly, I've really enjoyed it. It's been a lot of work, but it's been very rewarding.   Sam Wilson (00:06:32) - Yeah, I would say so. I mean, that's, that's one of those things that. When you get into syndications as a general partner, you don't necessarily think that, hey, I'm going to have to have income coming in in order to cover what I'm doing as the general partner because it takes it takes time to ramp up, right? Your general partnership, income side of things.   Jerry Miller (00:06:53) - So very true.   Sam Wilson (00:06:54) - Yeah. So that's an interesting point I think you've made there is that there needs to be some residual income and or savings in order to cover that lean period of really growing your side of your business. I want to hear about this deal a little bit because you mentioned the word it was on the brink of a capital call and an investor needed money out.   Sam Wilson (00:07:13) - Talk to us about that deal. I mean, to me, that's that sounds like it has hair on it.   Jerry Miller (00:07:18) - Well, that may be fair. So this was a, um, this was a pre entitlement land deal. We're building 29 townhomes in Charlotte, North Carolina. It was a it was an 18 to 24 month play where, you know, you put your money in. There was a there was a nice return when they when they, you know, get entitlements, build build the units and then you know, these all were going to be individual sales. So they've got a sale you know all 29 and then they were going to cash out the investors. Um, I don't necessarily recommend the the land deals as a first deal for folks, you know, getting involved in syndications. I would kind of recommend the, the multifamily value add where you're buying an existing apartment complex and you're going to execute an asset strategy to make money in a probably a 3 to 5 year time period. I think they're they're a little safer think they're like the dividend versus growth stock.   Jerry Miller (00:08:10) - This analogy that I use with my investors, if we think about a growth stock, you don't get any dividend, but you have very high appreciation that you're hoping to get somewhere down the road. That's your land deals in the multifamily space, there's great upside potential, but there's risk that it's not going to go according to plan and therefore you can't bank on any of that money versus your your, you know, your value add play. Well, that's your dividend stock, right? It's it's very unlikely to have huge appreciation. What it's going to have is nice stable rent paid over a period of time and over a long period of time you might get to enjoy a little bit of that that that that growth from, you know, the net income increasing, but it's less likely to produce the same return as the raw land deal. So this was think this was my third limited partner investor investment and I knew the team well I knew that they'd been doing pretty much all the things right. And so, you know, I was comfortable working with them to, you know, basically recruit friends into a deal that I was already in.   Jerry Miller (00:09:11) - And I was I was very upfront about that. And, you know, they were they were happy to to be a part of that. So there was some risk that, you know, we did need to put more money in the bank. But that's not an all bad thing. That just means your reserves are higher than they were. And we didn't have to cash out this investor right on the dotted line. They've signed that. They're illiquid. But we wanted to because, again, we want people to do what they want with their money. So I actually liked the heart behind it. I don't want to work with somebody that's, you know, kind of a, hey, that's too bad, right? I want to work with somebody that's like, Hey, we just got to go the extra mile to find the investor to sort of buy out their position, which is exactly what we did. And everybody sort of got what they wanted out of that deal.   Sam Wilson (00:09:53) - Right? Yeah. And that's that's a good point you're making there.   Sam Wilson (00:09:56) - And I don't know, you know, I'm sure there are sponsors out there that would be, you know, kind of hard nosed about it, like, well, I'm sorry. You put your money in, go fly a kite. Um, I think most of us would probably be like, Yeah, all right, get it. Like you, you want to cash out for whatever reason, and we'll work to try to find a way. That's right. And, you know, it may take a little time, but you can work. And let's talk about that. I mean, this show is called How to Scale Commercial Real Estate. You're getting into a nuance there that I think most of our listeners probably understand because it's a pretty high level show here. But just just tell us about that illiquid investment and what the options are that most investors have if they want to then get out of an illiquid investment. What are those options, generally speaking?   Jerry Miller (00:10:38) - So it all depends on the contract that you signed with that general partner, right? Is it a is it a JV? Is it a joint venture deal where you're part of a partnership and you have very clear, you know, buyout arrangements where one of the other one of the other partners is potentially going to buy you out? You know, most of the syndication language is very much a once you put in your money, it's totally up to the operator when you're going to get cashed out.   Jerry Miller (00:11:02) - And it's typically going to look like a 3 to 5 year, either a refi or a sale of that asset. Right? Um, it tends to not be in the limited partner's favor for the syndication because it kind of can't be. What you want to do is find a general partner team that kind of has a heart, that has the ability to raise capital on a regular basis. And you know, again, if you're getting started, then probably take that minimum investment. Don't don't overextend yourself to where you think you might need that money down the road. But take a take a more limited, you know, lesser position. And then if you get excited about syndications and you want to do it again, then six months later, maybe do the same, you know, same amount with the next with the next investment. And that way you're sort of diversifying a little bit of your risk and your your understanding. You know what a good syndication deal looks like. Right.   Sam Wilson (00:11:52) - Right. And I think I think one of the things that we've seen, you know, commonly see both in deals I've invested in and also our own in-house deals, is that the sponsor or the general partner, If if a limited partner needs out, generally has the first right or first refusal.   Sam Wilson (00:12:09) - So if you invested with me and you came back to me six months later said, Hey, Sam, you know I'm going to need I need my hundred grand back, I'd say, All right. Well, that's fine. I may want to buy you out personally and take over your limited partner position. Right. Or do just like you guys did and went out and found some other investors to then take your spot. I mean, it's exactly it's possible. It's possible. And, you know, the bummer about that is that no, it's never in because you got there's there's cost there's there's fees associated with it and it's a little bit of a paperwork trail. It's never in the LP's best interest to cash those out because it's like, well you know, at this point you're probably going to get your money back and that might be the end of it. And there might even be a little bit of a haircut just from associated fees that go along with, you know, attorney's fees, etcetera, re papering stuff and trading all that stuff out.   Sam Wilson (00:12:57) - So it's but at least it's an option. It's always an option there in in your.   Jerry Miller (00:13:02) - That's right. That's right. Yeah. And the timing of course matters right. We like to have, you know, interest in every deal because we like to be able to say, hey, we're, you know, we're into every deal. But then three deals actually came along between about March of 22 and about June of 22. And so every one of us was sort of tapped out. We already had money in the you know, they were in different states. Right. But the point is, we had already kind of committed to that. So we weren't in a position at that particular time to to buy them out. But you're right, It's it's all dependent. I think I think honesty and transparency are just absolutely key in this industry. If you can't buy them out and you just straight up tell them what's going on in the why. And hey, 3 to 6 months from now when I get my, you know, earnest money back from a deal that's going on right now, there may be that possibility.   Jerry Miller (00:13:52) - I think people understand when you're doing the best you can for them, even if even if they don't get the desired result, at least you're trying on their behalf to, you know, to help them with whatever their situation is. And that's that's been key for me. I've had, um, you know, we've got a deal on the west coast of Florida. You know, it got hit by a hurricane. Like, how do you how do you control that? Well, the answer is you don't. These are physical assets and stuff happens. But I think, you know, communicating what's going on is absolutely key. And then communicating your plan to deal with whatever's going on is also an important key that think separates, you know, an operator from a from an excellent operator.   Sam Wilson (00:14:34) - How do you vet or what things do you do differently now when you look at general partnership opportunities that maybe you didn't do on the first one?   Jerry Miller (00:14:45) - Uh, good question. Um, well, on the first one wasn't lead, so I would say I wasn't really the one making the shots.   Jerry Miller (00:14:54) - I was depending on the folks that had done this many times before. And my piece of it was, you know, specific to capital raising and asset strategy on what I thought we could do and when. So I was, I would say, a contributor in the early days, and now I'm stepping up as as more of a lead. And I think the answer to your question is it it being a team sport, you need to be very clear. What expertise am I bringing to the table? What expertise are my team member or members bringing to the table? And you know, and do does that skill set cover all of the things that you think you're going to need? That's that's a really important thing if you know, the deal I'm working on right now has a development component. And so one of my partners is is a general contractor and he's got a lot of experience on what is the price per door and what does it take to build things and he's got a he's got a skill set that I that I don't have.   Jerry Miller (00:15:47) - I've got the underwriting side, I've got the asset management side. And so what's nice is we complement each other extremely well.   Sam Wilson (00:15:56) - That's great. That's absolutely great. Let's talk a little bit. I mean, you've said you've been in real estate for 18 years. You made the leap to. A limited partnership in multifamily syndications two years ago. Or maybe it was. It was more than that, but maybe it was two years ago. You did get my notes mixed up here. But talk to me about the size of the deals and just kind of what velocity looks like for you compared to your first X number of years, investing on your own in single family and now what you're doing commercially.   Jerry Miller (00:16:28) - Uh, great questions. So, you know, when I, when I invested, um, when I got started, we, we took down a, I think it was a $10 million asset. Again, the, the syndicator, uh, was, was two, two guys that were, you know, seasoned, done this before.   Jerry Miller (00:16:47) - They were both full time and real estate. I had a good relationship with, um, with one of the principals because he and I had actually worked together in the consulting space. So I already knew that, you know, he was a really solid guy. So it was, it was a it was, it was a win win for me to get started. And again, my role was, which was much smaller. And so we we did kind of the same thing for then a a $20 million asset where we, you know, had to raise a little bit more. It was a it was a little bit more involved in the reserves and the asset strategy and that was a nice step up. Um, you know, the, I was involved in a, um, two different land deals that, you know, that were pre entitlement. And there's sort of a set of risks associated with, hey, we think we're going to build X number of units. But the reality is the permitting may not come back at what you plan for.   Jerry Miller (00:17:38) - And so, you know, we chatted a little bit about what does it take to raise money for those. And it's it's transparency. It's hey, here's the blue sky version of what we think is going to happen. And here's the what I call the Debbie Downer version. Like this might actually happen. And so what what I'd like to describe to my investors is what does that cone of uncertainty look like, right? What is best case? What is worst case? And then what is most likely case so that they can fully appreciate, you know, how much is their money at risk? Because the reality is the the pre entitlement, your money is much more at risk. And people need to understand that. That's why you get such a better return than the typical value adds. And it's up to you to decide do you want to allocate, you know, a portion of your your nest egg in that? Because again, you can make better returns, but you're at greater risk of principal loss, Right?   Sam Wilson (00:18:32) - Right.   Sam Wilson (00:18:32) - No, I think that's great. That's great. Yeah. I mean, so you've done quite a bit here in the last two years. You've been involved in a variety of really unique assets and or yeah, new assets and unique strategy that a lot of people aren't. Mean, it's a little more advanced doing entitlement and land and all that stuff. I think you said it early on that, hey, you don't you don't necessarily recommend that. But what what would you say is a safe way for someone to get started in commercial real estate? Because it sounds like you went head long and there's other options out there that you'd say they're a little bit more on the well-beaten path.   Jerry Miller (00:19:07) - I would say for somebody that's brand new, get into a multifamily value add deal. So that's an existing apartment complex where the operator's got a plan, you know, to to grow the net income, you know, that means they're probably driving rents up and they're probably driving expenses down and then taking advantage of that increase in net income.   Jerry Miller (00:19:29) - I would say as a limited partner, the one piece you probably need to educate yourself on is how do banks and general partners evaluate the worth of an apartment complex? You know, at the end of the day, it's all about that net income. But but understanding how to get to that net income is an art. There is there is quite a lot of detail that goes into that. And so as the limited partner, you can just point blank ask how are you going to drive, you know, net income, what's the strategy? And you know, for somebody that's doing the underwriting model, they have to go line by line and understand our property tax is going to increase by the cost of inflation, our rents going to increase by, you know, and just go through what that looks like. And then we typically do a 3 to 5 year forecast to see where do we see that this asset is going. And so that's a deep understanding for the general partner, that the limited partner just needs to have a working understanding of how did they arrive at the numbers that they're at.   Sam Wilson (00:20:24) - Right, Right. That's awesome. Jerry, It has been so much fun having you on the show today. I've learned so much from you. It's been a blast to see your journey through the single family space now into the commercial real estate space. You've gone headlong into it. You've certainly making some really great strides, and I love the information really brought to us today, both from, you know, how to get involved in it, things to look out for, ways to get started into it. What has taken for you to scale the amount of effort and work? I think that goes into being a general partner. I mean, that's again, something that we talked about that is often probably mis estimated. So I just really appreciate you taking the time to come on today. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Jerry Miller (00:21:08) - Well, Sam my website WW dot largo group 20 Yes that was the year that I founded Largo group there folks can you know can can hit me up on you know LinkedIn, Facebook or Instagram if you're interested in potentially looking at our next deals, go ahead and schedule a call.   Jerry Miller (00:21:29) - I need to get to know you a little bit and understand what your what your goals are. But but really, that that website is the front door to to reaching me. Whatever, whatever folks want to do. I've always got the free e-book you can you know, for getting started in real estate you can just plug your your email in there if you want to just kind of sit back and watch, we'll send you some some good content via email. That's it's really up to you what level of engagement you'd like to have.   Sam Wilson (00:21:53) - Fantastic. Jerry, thank you again for your time today. Certainly appreciate it.   Jerry Miller (00:21:56) - Thanks, Sam. Great to chat with you.   Sam Wilson (00:21:58) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories.   Sam Wilson (00:22:20) - So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Sep 11, 2023
Navigating the Challenges in the Office Space

Today’s guest is Michael T. Fay   Michael is Chairman of the U.S. Capital Markets Group Executive Committee, Managing Director of Avison Young’s Miami office, and Global Director for the Asset Resolution Team Affinity Group. He has brokered over $16B in transactions over 40 years.   Show summary: In this podcast episode, Michael Fay discusses the challenges faced by the office sector in the commercial real estate market. He highlights the major reset happening in the office market, with different companies implementing varying approaches to returning to the office. This has resulted in high vacancy rates and uncertainty about the future of office space in major metropolitan markets. Fay also discusses the challenges faced by lenders and borrowers, the potential repurposing of office buildings, and the shift towards industrial real estate.  -------------------------------------------------------------- Intro [00:00:00] Michael Fay's Career in Commercial Real Estate [00:01:03] The Major Reset in the Office Market [00:04:01] The resetting of loans and creative solutions [00:09:17] Distressed office properties and new investment funds [00:11:30] Redevelopment of malls and creation of urban centers [00:16:25] Opportunities in the Real Estate Market [00:18:20] Alternative Investments and Interest Rates [00:19:46] Inflation and Commercial Real Estate [00:21:00] -------------------------------------------------------------- Connect with Michael: Email: Phone: 305-495-0003 Linkedin: Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: 00:00:00:01 - 00:00:23:10 Michael T. Fay Only about 50% of office buildings can really only be repurposed for multifamily or some other use outside of office. So what's interesting in what I'm hearing and what I'm starting to see is, yes, the foreclosures are coming in, but there's going to be, what I would say, a proverbial kicking the can down the road. What does that look like?   00:00:23:18 - 00:00:24:17 Michael T. Fay Welcome to the How.   00:00:24:17 - 00:00:47:14 Sam Wilson To Scale Commercial Real Estate Show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Michael Fay is chairman of the US Capital Markets Group Executive Committee. He's the managing director of Allison Young's Miami office, and he's also the global director for Asset Resolution and Team Affinity Group.   00:00:47:22 - 00:00:54:18 Sam Wilson He has brokered over $16 billion in transactions over the last 40 years. Michael, welcome to the show.   00:00:55:14 - 00:00:57:09 Michael T. Fay Thank you so much. It's great to be here today.   00:00:57:12 - 00:01:06:18 Sam Wilson Absolutely. The pleasure is mine. Michael, there are three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell me where did you start? Where are you now and how did you get there?   00:01:08:12 - 00:01:30:14 Michael T. Fay Started commercial real estate when I was 13 years old. Honestly, I was 13 was the time when I wanted to really think about real estate. It was a great way to watch. Watch. It happened with some friends of ours. I started in commercial real estate 20 when I was 20 years old, actually this month, July 20, 23. It's been 40 years, so 40 years in the business right now.   00:01:31:10 - 00:01:49:03 Michael T. Fay I reside in Miami, Florida and a couple other places. It's really it's been a great business. It was involved with a bank and some other really great entrepreneurial ventures in commercial real estate. Just allows such a purview into so many businesses and things going on. So that's why I feel blessed to be here.   00:01:49:07 - 00:02:07:00 Sam Wilson Yeah. My gosh, that's that's a heck of a career and a heck of a job. I mean, I'm thinking just the amount of change that you went through from 83 to 0 three. Right. Like that was that was incredible. And then to see that, then turn and then do it again for the next 20 years, that's a lot.   00:02:07:01 - 00:02:21:01 Sam Wilson That's a lot to compress here into a 15 minute podcast, and I'm sure we won't even begin to scratch the surface. Tell me, what are some things you know that you're working on right now that you said, hey, this is this is something I'm really excited about in the commercial real estate space.   00:02:22:24 - 00:02:46:20 Michael T. Fay So right now, just to go back to what you just said and these 20 year segments, I think I nine different downturns. So that was from the RTC days of the nineties to the Russian ruble crisis to the war and the Great Recession of oh eight and of course, the pandemic and today our great inflationary the so, you know, we see these and there's a couple more in between I think today.   00:02:47:04 - 00:03:20:13 Michael T. Fay What's exciting is that they're really a tale of many cities and it depends a lot for the country. There's all sorts of opportunity that goes on in different product types, whether it's office for a retail, multifamily development deals. You know, we do some of the largest, largest sales of development sites, especially down here in South Florida, out working on the $1.2 billion sale for Dante, the Malaysian gaming company, which we exclusive represent where the middle of several offers, all that which we're locking in on right now.   00:03:21:03 - 00:03:55:13 Michael T. Fay We have other larger development sites that we do work with the courts. We do work with the special servicers, which I'll get into in a moment on the curbside. But, you know, I would tell you, each area of the United States is got its own opportunities and weaknesses. But I think the biggest weakness that we're seeing across the whole country, South Florida being the exception or as the office for the office, the return to office, the amount of office buildings that are experiencing the distress, the higher vacancies of digital.   00:03:55:14 - 00:04:09:10 Michael T. Fay Right now, we're going to see one of the largest resets, I think all the office product that we've ever seen across the country. This goes for all the major metropolitan markets to CBDs as well as even tertiary markets.   00:04:11:00 - 00:04:16:20 Sam Wilson Major resets. What are some things that you're seeing when when you say major reset, what comes to mind?   00:04:18:00 - 00:04:37:23 Michael T. Fay So a major reset really is what's the office what is the office going to look like? What does office space look like for the next two years, five years, ten years, 20 years? How our employees work, how are people coming back to the office? So a lot of the work around the office, there's different, you know, different companies of work to work differently.   00:04:38:17 - 00:05:07:13 Michael T. Fay You know, a lot of groups have got a three day work week, a lot of groups are doing a full time. You got to come back to work. So some groups and companies are having a specified amount of days and weeks and vice versa. So I think each company is going through that. What's bad and what has been very tried is the owners of these office buildings are experiencing these companies say we don't know what we want.   00:05:07:16 - 00:05:31:10 Michael T. Fay So therefore there's a large amount of uncertainty. How much space am I going to be? What does the amenities look like? What what do what do employees want to come back to? Do they feel safe? Do they feel secure? Why? Why should people come back? I already said, you know, our biggest thing is camaraderie, communication, collaboration and partnership.   00:05:31:10 - 00:05:53:23 Michael T. Fay And so we kind of drive off of those four pieces of why we're back in the office and what we're doing in the office. But a lot of companies feel differently. So what, in my opinion, is as we go through these this thought process, you're now hitting on large vacancies. But look at New York, you're probably sitting at a 32% vacancy rate.   00:05:54:21 - 00:06:20:09 Michael T. Fay But this that's not uncommon. There's a lot of other areas you could go to Chicago, you go to Houston, you could go to L.A., you can go to all these other major markets or having resets, if you will. So that's that's the big reset. The second part of the reset is really what are the lenders doing all these large office portfolios and or individual assets across the country?   00:06:20:09 - 00:06:43:14 Michael T. Fay So when you sit there and have all these groups that are trying to figure out their load, so we've got rising inflation and rising interest rates, interest rates right now or at the top, as we've seen, that is put a major downward pressure on a lot of these groups that have got what we call maturing loans. These are loans that are maturing during this period of time, which is really creating, again, more downward pressure.   00:06:43:14 - 00:06:48:03 Michael T. Fay So we've got these two confluences coming in and really created this downward pressure.   00:06:49:08 - 00:07:10:07 Sam Wilson What so what are lenders let's talk about that for a minute. What are lenders doing and what are borrowers doing their own office space? I mean, we haven't and forgive me if I'm wrong, tell you. Tell me if I'm wrong, rather. But I don't know that we've seen mass foreclosure in the office space yet. Is that is that the case?   00:07:10:12 - 00:07:44:00 Michael T. Fay And so you're asking. Great question. So I'm going to break it down to basically two or three areas. So what what's happened is I wrote the asset resolution revisiting. We've got 140 different people across the US and the major market and tertiary markets and we are all hyper focused on helping lenders. That's is the special servicers, the banks, life insurance companies and even Bassetti lenders work through any issues that they have during this time.   00:07:44:00 - 00:08:07:00 Michael T. Fay And by the way, separating office for 1/2, it could be an issue of a shopping center, could be an issue on a mall. Right. These things. And by the way, it's also depends on what part of the market you're to see the market, the country. So we're seeing that under the scenario of the office buildings, I will tell you there's been some really large major national banks.   00:08:07:17 - 00:08:35:17 Michael T. Fay Those banks peeled back many, many borrowers after the 2008, 2009 crash. And they would have call it 90,000 borrowers. They scaled it down to 10,000 borrowers. The other 80,000 borrowers went up to community banks. They went off to regional banks. So they the large banks spread the risk. But what's happened is the call it the 10,000 customers they kept were the large ones.   00:08:35:17 - 00:09:03:03 Michael T. Fay Those were the 150, 253 or $400 million credit facilities. And there's an old saying, little kids, little probes, big kids, big problems. So we've got that big kid, big problem. That's affecting a lot of the servicers and the banks. So when we think about the office buildings themselves, that's where the resets come at it. So you've got maturity and you've got vacancy issues and you've got return to work and what does it look like?   00:09:03:20 - 00:09:31:15 Michael T. Fay So I read a statistic probably six months ago. All the office buildings, only about 15% of office buildings can really only be repurposed for multifamily or some other use outside of office. So what's interesting in what I'm hearing and what I'm starting to see is, yes, the foreclosures are coming in, but there's going to be, what I would say, a, the proverbial kicking the can down the road.   00:09:31:15 - 00:09:56:13 Michael T. Fay What does that look like? The kicking the can is really to say, okay, we're going to extend your load, we're going to reset the load. We're going to do a lot of different things. But it depends on your servicer that looks a little different than if you're a bank and so you've got these different ways. So I think the resetting is they're going to get creative and state listen, the property was worth $100 million.   00:09:56:13 - 00:10:17:00 Michael T. Fay The loan was 60 million. So now all of a sudden the property is worth 60 million. So does the bank want it back? The bank may say, listen, borrower put in 10 billion or let us work out a short sale. Effectively bring in a new buyer that's going to put in ten or 15 million. That will keep the of the 60 billion.   00:10:18:06 - 00:10:39:24 Michael T. Fay There's going to be a lot of creative ways. Now, the problem is banks handle it differently than servicers because you've got bondholders on the service side, you've got credit default swaps, you've got a lot of other what I would say pressure points in that as opposed to a bank which the banks making decisions based on their capital and their earnings for the actual quarter.   00:10:41:08 - 00:11:08:19 Sam Wilson I know that's a that's a really, really interesting scenario that you're painting there. So 85% of office space will forever be office space is what I'm hearing. You're saying we can only convert 15% of it if they're kicking the can down the road, trying to get creative, trying to work out strategies, or even doing cash in refinancing is I mean, how how are borrowers doing that?   00:11:08:19 - 00:11:17:09 Sam Wilson Hey, come up with ten or 15 million bucks for an office space maybe that's vacant or is already underperforming like get that. Well, million bucks from where?   00:11:18:02 - 00:11:43:04 Michael T. Fay So I will not name names, but you can figure out the names, the names of all the big investment houses and investment groups that have got all this product in their portfolios. They're either selling it the major discounts and getting out or to handing it back. Right. But they're giving it back. Now, what's interesting, those same groups are also creating new funds.   00:11:43:20 - 00:12:07:20 Michael T. Fay Okay. Investments, funds to go back and buy distressed office at a reset number. And that's what's going to end up happening because it's the only way to look when you when you think about offices and I'm talking about class A trophy assets were you and I don't care if you use New York City just because everybody's picking on New York City today.   00:12:07:20 - 00:12:35:07 Michael T. Fay You know, somebody said it was called New Glut City, you know, glut of office space. I read that an article somewhere, right. 88 with the imagination of having corporate tenants on long term leases forever. And it's very hard to move. And all of a sudden today it's changed, COVID changed that whole thing. So now these corporations, as I said, are working differently and their employees are working differently.   00:12:35:07 - 00:13:06:16 Michael T. Fay People are working differently. So therefore, that whole that whole system and that whole business plan has really changed. So it's forcing a reset, which I keep saying at it's forcing a different look. And the way to do that is, is to really get real with what the situation is and handle it. So, you know, all these groups are having properties back, but they're also figured out new funds, distressed funds or opportunistic funds to go back and say, how do we work on the reset and make this better?   00:13:06:24 - 00:13:15:19 Sam Wilson Absolutely. I mean, it's it's the it's the right time to buy. It just kind of seems like I mean, obviously, these large companies can pull this off.   00:13:16:06 - 00:13:45:14 Michael T. Fay But let me say one thing, which is really think you will find believe it or not, and I'm not suggesting that, but you will find some major metropolitan cities in the CBD, areas where you may say this office building will no longer be there. They're going to figure out either if they can't repurpose it, which is about 50%, you may see these buildings getting pulled down and then having a brand new build where we are seeing this in Miami or land values of Miami are continuing to increase all the time.   00:13:45:21 - 00:14:00:11 Michael T. Fay And, you know, we're bordered by Biscayne Bay and the Everglades. So the the amount of land I mean, you can look it doesn't matter if you're Chicago. It doesn't matter if you're a New York, L.A. It's it's really, you know, land constraints that drive everything.   00:14:00:16 - 00:14:17:23 Sam Wilson Yeah, absolutely. Absolutely. But on the buy side of things, I mean, I was talking to somebody else here on the show recently and they were saying, you know, hey, we're buying office space in New York City as fast as we can possibly get our hands on it simply because they're paying three or 400 bucks a square foot. When he goes two, three years ago, we're paying nine.   00:14:18:21 - 00:14:20:07 Michael T. Fay Or 1100. Right.   00:14:20:16 - 00:14:26:22 Sam Wilson Right, right. And he goes, even if we're just even if our plan is to buy it and sit on it, like, okay.   00:14:27:09 - 00:14:44:15 Michael T. Fay That's where you get to. But, you know, look, you get figure out today. So office buildings are very interesting. You have cost of capital, so you've got the interest rate, then you've got debt improvements and certainly a tenant rep, at least high commissions, those are all very, very big. The old adage was make it disappear, turn it off.   00:14:44:15 - 00:15:04:15 Michael T. Fay Owning an office building as you own it, but you make all your money off the sale, sign it. And that's what it was for years, you know. Right, because it's a cap asset class. It was also considered one of the safest asset classes for years. And and now, you know, multifamily, you know, it's paid carpet. Thank you very much.   00:15:04:22 - 00:15:29:14 Michael T. Fay You know, I can raise rents all year long as leases rule. So that's why multifamily continues to still be an asset class. No other asset class is just the back end of that industrial. You know, when you think about the pandemic pressing forward, the use of Internet retail sales, it went from that call it seven to 8% to 15% in a period of two years.   00:15:29:18 - 00:15:58:03 Michael T. Fay That was almost like 10 to 12 years of growth compounded into only two years. And when you think of the logistics that's going on and the distribution centers and everything else that happens, that's what you know, you look at great companies like Prologis and these other larger groups of these larger industrial groups that continue to build and service the retailers from that standpoint, but also the last mile logistics, which is really becoming interesting.   00:15:58:11 - 00:16:01:05 Michael T. Fay So Industrial Can has really got it.   00:16:01:05 - 00:16:22:23 Sam Wilson Absolutely does. Yeah. It's very, very, very interesting to watch kind of how all of these interplay and see which ones are really doing well and which ones are struggling or plateauing. And again, you know, I've heard it said since I got in real estate a decade ago, you know, that real estate is local. I mean, I think I think I'm hearing that from you in the South Florida market.   00:16:22:23 - 00:16:24:15 Sam Wilson You guys are having a.   00:16:25:15 - 00:16:50:13 Michael T. Fay It's it's it's local in a lot of ways. But when you start to look at industrial industrials more regionalized, if you will, only because of what your handling of retail is local. But it depends also what you're doing. But, you know, when you look at the Internet sales for certain retailers and that experience becomes a whole different game and how that's played.   00:16:50:13 - 00:17:14:08 Michael T. Fay So look, you know, I think, you know, good neighborhood retail you know anchored retail's good the malls we are having several malls right now we're in a couple of foreclosure malls. You know, we're image the malls like the Broward Mall here in Fort Lauderdale for Rialto. It's an incredible mall. And it's got such an unbelievable upside of development and a replay there.   00:17:14:08 - 00:17:37:20 Michael T. Fay So, you know, we're in the middle of doing that. We're going to have a call for offers here in the next call. It probably right after Labor Day weekend. But my point being is this is the transformation of malls and creating what I would say, urban urban centers, if you will, that will have residential redone, retail, destination, entertainment, things of that nature.   00:17:37:20 - 00:17:56:19 Sam Wilson Yeah, those are cool projects to to see come around. I mean, in malls, my gosh, the amount of land those take up and the redevelopment front there it's saying that sounds like that's an awesome opportunity. And I looked at a project here recently, I think it was in Cincinnati, similar idea. I mean, just an enormous undertaking. And it was.   00:17:56:19 - 00:17:57:08 Michael T. Fay Absolutely.   00:17:57:12 - 00:18:19:00 Sam Wilson All all the the the the redevelopment of an existing mall. What are some other opportunities do you really see right now? I mean, you get to see things from a lot of different angles. But when looking at the real estate, commercial real estate landscape kind of across the country, what's something you see is you say, hey, there's excellent opportunity in what.   00:18:20:15 - 00:18:45:06 Michael T. Fay I, I still think, you know, if you're looking at real estate, you can look a lot of these, right? Some of the reach of this public sector of the stocks. I think you could follow some of those groups and probably get some interesting buys from that standpoint as this reset is taking place, whether it's an office read or industrial read or a retail, whatever they may be or even a multifamily, I think you'll start to see some of those play.   00:18:45:06 - 00:19:09:09 Michael T. Fay So if you're not buying real estate, you could participate from that standpoint. I think also, you know, the crowd source funny continues to be some people are doing that. But you know, again, you've got to be careful with the sponsors. You've got to work with the right sponsors. You know, you've got to watch what's going on to see how they handle their assets or what they do.   00:19:09:23 - 00:19:32:17 Michael T. Fay You know, commercial real estate really for years and years and years, you know, those capital intensive, you will have a large slug of equity. You need to be able to apply your loans. So right now, the opportunity, I think, is going to be watching the interest rates. As for the next two years and the fallout, remember, stock market goes down the fast as it comes back, as fast as real estate goes down.   00:19:32:17 - 00:19:56:10 Michael T. Fay Really slow and it takes a while for it to come back. So right now we're on the downward slope in a lot of these areas that I think we might add some decent foreclosures or short sales or motivated sellers. What are the key components here that I think we are seeing for the first time in a long time was interest rates for the last call it since the Great Depression.   00:19:57:18 - 00:20:31:17 Michael T. Fay The Great Recession of 2000 ignited. Interest rates were low. So you had you couldn't really go to alternative investment, to the stock, to real estate. Right now, you're seeing banks pay 5%, 6%. Look at the treasuries. There's alternative investments that you can go into and get that call at four and a half to 6% without much benefit. So the interesting part is people maybe say, I've done I want to move into something else so you'll see some other sales happen from that standpoint as well.   00:20:31:17 - 00:20:42:03 Michael T. Fay So I think the alternative, because interest rates have gone up, it creates a different sliding economic opportunity on both sides for sale or buy.   00:20:42:10 - 00:20:59:10 Sam Wilson It really does. It really does. Let's talk about inflation for just a minute. I mean, it's one of those things, you know, what your thoughts around a a diverse portfolio that is inflation protected inside of commercial real estate. What's the what's a play you'd recommend?   00:21:00:16 - 00:21:20:00 Michael T. Fay Well, I think it's anything I mean, a lot of a lot of people were kind of going back, you know, for us, what we look for work with clients, you know, if it's a if it's a retail center, right, and and there's fixed there's fixed, Bob. So that without CPI increases, you know, you pretty much you're getting you're pretty much locked.   00:21:20:00 - 00:21:37:22 Michael T. Fay It it is what it is. So as inflation goes up and you're other things go up, you know, the value of the asset is either going to stay the same or go down. So I think, you know, looking for opportunities where there CPI increases or tenants rolling over, you can have these resets the by the way, that's got on industrial right now.   00:21:38:12 - 00:22:02:19 Michael T. Fay But a lot of these areas where they had all these leases or that industrial because it's become such a hot commodity, you can end up raising the rates that you're getting on your decimal space. And we've seen some increase, you know, increased unbelievable rates. Same thing with multifamily, multifamily, because it rolls every year. You can kind of catch up your rents to what your expense or inflation.   00:22:02:19 - 00:22:17:00 Michael T. Fay So, you know, I think, you know, there are several markets within the country that I've seen that 10 to 25, 27% multifamily rental rate increases over the last couple of years.   00:22:17:14 - 00:22:26:00 Sam Wilson Right. Yeah. It sounds like to summarize, you'd say anything that you can reprice in a shorter time frame than other things have. Maybe be the the.   00:22:26:00 - 00:22:36:20 Michael T. Fay Absolutely, absolutely. No, no. That was a problem with office buildings. Office buildings. They were locked in with certain fixed rates and weren't going anywhere while it was safe. Remember, high risk, high return, low risk, low return.   00:22:37:01 - 00:22:48:09 Sam Wilson Right, right. And it's funny because in in that even those office spaces were locked in. It was almost you thought it was lower risk, but now it looks like it was a higher risk in the end deal there.   00:22:48:09 - 00:23:09:18 Michael T. Fay Well, you know, but but but when you have two black swan events of the pandemic and then the global inflation that we had, which was pressed on by other global logistics and things of that nature, you know, you would have never thought that. I mean, you can look at the different the different graphs of each country and where it stands, where it is.   00:23:10:00 - 00:23:23:13 Michael T. Fay It's just interesting to see. I mean, it was totally a global pandemic, but it's been a global inflationary issue. So those are the two Black Swan events within a two year period, which is really what's at downward pressure.   00:23:23:19 - 00:23:43:06 Sam Wilson Absolutely. Absolutely. This has been great. Michael, thank you for taking the time to come on the show today. Certainly learned a lot from you. I love to get your current kind of state of the market insight. Loved hearing about office space, kind of where you see opportunity on that front. You guys are working on some absolutely very cool projects and again, thank you so much for your time.   00:23:43:14 - 00:23:48:11 Sam Wilson If our listeners want to get in touch with you and or learn more about you and what you do, what is the best way to do that?   00:23:49:07 - 00:24:03:24 Michael T. Fay So please you email me at Michael Dot say at Abyss and or I'm always available by cell phones. 3054950003. That is service.   00:24:04:01 - 00:24:19:16 Sam Wilson You are a bold man, sir. I don't know that I would put my phone out there if I were you, but thank you very much. For those of you listening, that's an incredibly generous offer from Michael to put both his email and his phone number out there to get in touch with him. Michael, thank you again for coming on the show today.   00:24:19:16 - 00:24:21:00 Sam Wilson This was an absolute blast.   00:24:21:15 - 00:24:25:22 Michael T. Fay My pleasure. It was great. Thank you. Great question. To the great top three. Did have a great one.   00:24:26:03 - 00:24:47:13 Sam Wilson Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories.   00:24:47:13 - 00:24:50:19 Sam Wilson So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Sep 07, 2023
How to Finance Unbankable Deals

Today’s guest is Malcolm Turner   Malcolm has over 25 years in the financial services industry but specializes exclusively in commercial lending. In 2007, he co-founded Castle Commercial Capital LLC, a national commercial mortgage banker and brokerage based in Southfield, MI.   Show summary: In this episode, Sam interviews Malcolm Turner, co-founder of Castle Commercial Capital LLC. Malcolm shares his journey into commercial lending, starting with his background in financial services and his transition from residential lending to commercial lending. He discusses the challenges and opportunities in the current market, emphasizing the importance of finding the right financing options for different types of deals. Malcolm also talks about the benefits of bridge lending and gives examples from the self-storage industry.    -------------------------------------------------------------- Intro [00:00:00]   Starting a Commercial Mortgage Brokerage [00:00:49]   Surviving the Financial Crisis and COVID [00:03:21]   Specializing in Multifamily and Bridge Loans [00:05:46]   The importance of speed and time in closing deals [00:11:34]   The risk and challenges of unbankable deals [00:15:40]   Strategic repositioning of a hotel property [00:19:16]   The challenges and opportunities in the current market [00:22:27]   Using premier properties to feed applications and keep occupancy high [00:23:34]   The importance of meeting with a finance guy ahead of a deal [00:24:36]   -------------------------------------------------------------- Connect with Malcolm: YouTube: @CastleCommercialCapital  LinkedIn:  Facebook:  Twitter: @CastleLoans   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Malcolm Turner (00:00:00) - A lot of people that were doing bridge loan deals that shouldn't have. Mm. And so now with the price increases, okay, they're not competitive and it's like, oh, bridge loans are bad. No, that deal should have never been in a bridge loan in the first place.   Sam Wilson (00:00:14) - Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Malcolm Turner has over 25 years in the financial services industry. He specializes, though, exclusively in commercial lending. In 2007, he co-founded Castle Commercial Capital, LLC. They are a national commercial mortgage banker and brokerage based in Southfield, Michigan. Malcolm, welcome to the show.   Malcolm Turner (00:00:46) - Thanks, Sam. Thanks for having me on. I'm honored to be here.   Sam Wilson (00:00:49) - Absolutely. Malcolm, The pleasure is mine. There are three questions I ask every guest who comes on the show in 90s or less. And you tell me, where did you start? Where are you now and how did you get there?   Malcolm Turner (00:00:58) - I started in.   Malcolm Turner (00:01:01) - Well, how far you want to go back? I started in financial services as a financial advisor. And then the laws changed with Glass-Steagall, where everyone got in everyone's backyard. You know, insurance guys selling brokerage and broker, selling insurance and got into residential lending. That was a tremendously lucrative at the time. You couldn't do deals fast enough. There wasn't enough appraisers to do them at that time. This is oh five, oh six, and was having a conversation with my pastor and his office one day about me doing the right thing for a client, which meant putting him in a fixed rate FHA loan, and my manager wanted me to put them in an option arm that would have blowed up three years later had we, you know, you know, new had a crystal ball. And I was like, Yeah, but this guy is a single guy. First deal. We should do the right thing, right? Oh, there you go, Malcolm Talking about that. Do the right thing. Stuff, you know, and I said to my pastor, why he's doing the right thing.   Malcolm Turner (00:01:57) - A batch of dishonor. And he says, Well, if you were going to do a company, you know, mortgage broker, brokerage, how would you do it? I'm like, well, do commercial because commercial is about the numbers. It's not about the kitchens and the bathrooms. It's the math. You know, And we talked about I said, you set up an office and you have to build relationships with lenders and do this, that and the other. And that's about all it would take. It goes, Great, let's do it. I was like, Oh, I thought we were talking hypothetical. He's like, No, I love you like a brother and I trust you with money. We should do it. And I was like, okay. I was like, Well, I love you too, man, and I trust you. But the only thing about mortgages. So we would be doing all the work and we're splitting the money and I don't want to mess up our relationship.   Malcolm Turner (00:02:41) - And he's like, Yeah, you're right, Malcolm. I totally get that. Tell you what, you you don't have to train me. I get it. I'll be humble, let you coach me. Um, let's build a legacy for our families, and I'll fund it. And you set it up, and then we'll be evenly yoked. I was like. Okay. And that's how Castle Commercial Capital was born 16 years ago.   Sam Wilson (00:03:06) - Wow. That's a that's an unconventional story. I love that getting into lending in 2007 doesn't seem like the most favorable time to start a company like that.   Malcolm Turner (00:03:21) - It was not. Our saving grace was the residential market crashed first. Commercial really didn't get pounded until 2010. That's about when the, you know, it finally caught up to commercial. You know, but since then, we've survived the great financial crisis. We survived Covid. You know, we've even survived just the latest rate increase over the last year because there's been quite amount, quite a bit of turmoil, especially on my side of the table.   Malcolm Turner (00:03:54) - You know, lenders have gotten and all lenders are going out of business. You know, when lending stopped during Covid and in March of 2020, by the time June and July rolled around, some of those lenders didn't make it, you know, and we're still here. So I'm I'm I'm glad to do that. But, I mean, that's not because I'm special or anything like that. But I've always recognized like when Covid hit, I said, okay, no one's funding right now. Not sure when they're going to kick up. So let's redo our website. It's a great time to do it. Let's redo our marketing. As a matter of fact, let's come out with a commercial mobile lending app. Let's do that. You know, and so I've always tried to stay out front and say, okay, you know, like Wayne Gretzky said, you know, he's great because he skates to where the puck is going. Not to where the puck is, you know. And that's up the side.   Malcolm Turner (00:04:51) - And then we just wrote our book financing the Bankable deal, you know, And so I was at the commercial, the National Commercial Mortgage Brokers Conference in Vegas last year, and I was talking to a bunch of commercial lenders and saying, Hey, I'm writing this book. Where do you guys think the market is going and what's it doing? And, you know, did I cover everything? You know, Is there anything I missed? And one of the guys was somewhat skeptical. And we had a breakout session the next day. And during the breakout session, he found out everyone on the panel had done business with me. But him. He was like, Wait a minute, you did business with him. You did along with him. And both of the guys going, Yeah, he sure did. Yes, he does. They're like, Well, okay, well, you got to get us in there, right? You know? And I was like, Yeah, okay. You know, that's awesome.   Sam Wilson (00:05:38) - That's awesome. Well, tell me this. What what is the type of lending that you specialize in now?   Malcolm Turner (00:05:46) - Right now, most of our business is multifamily. Most of our businesses are multifamily and we kind of slid into the bridge loan, the bridge lending space because you know, the market for deals. That are picked over and everyone's fighting for. If the market is this big, those deals are this big.   Sam Wilson (00:06:09) - Right.   Malcolm Turner (00:06:10) - And so there's another you know, this is a stat a lot of people don't know, but like 85% of commercial loan applications are denied. Yeah. Believe that are denied. Right. That doesn't mean that the other that the the 15% are great and the other 85% are terrible. You know, there's probably another 25%. Of those deals that are doable. They just don't know how to do them when their bank says no. Right. Right. And so I was at a a commercial multifamily meetup and a banker was doing the presentation on financing. And at the end of it, they said someone asked the question, well, outside of there were a small community bank outside of you guys doing loans, who else can do them? Another way to do multifamily as well, the small banks and big banks.   Malcolm Turner (00:07:02) - And I was like, That's it. And they were like, Yeah, just just those two. And that was from their perspective, Right, Right. And I was like, okay. So I posted in the group on their Facebook page. There's seven alternative ways of financing deals between Fannie Mae, Freddie Mac, USDA, FHA, HUD, Right. Private lending, bridge lending. There's a whole smorgasbord of options, you know, and everyone's getting in the business. You have insurance companies, pension funds, hedge funds that are setting up mortgage funds. So there's plenty of capital in the marketplace. Now, deals, on the other hand, is another story, but there's plenty of capital to get to get deals done right. Just no matter what, it's going to cost you. And then if you're buying, can I price my deal where the cost of capital makes sense, you know?   Sam Wilson (00:07:54) - Right. Right. That that's the the kicker right there. Can I price my deal where the cost of capital makes sense? And, you know, there's a lot of fear, I think, in the marketplace right now.   Sam Wilson (00:08:09) - What are we on? And you would know this stat better than me, but I read it maybe. A month ago. That year to date, transaction volume in the multifamily space was down 75% nationally. The rising interest rates are a concern, as you said. You know, you guys have weathered through that. But having, you know, specializing in the bridge lending space, there's a lot of people that look at bridge lending now, especially with a, you know, suspiciously. They look at it and go, oh, absolutely. Bridge lending. Don't I got to go? Like, that's not for me. Tell me why it still is a good option for the deals you guys are getting done.   Malcolm Turner (00:08:51) - Well, I think you start with when is it inappropriate? Mm. Right. If you have a cherry deal, it's cash on like crazy. You got tremendous occupancy or expense ratio is is fantastic. The property condition is great, the location is great. You know, you don't need a bridge loan.   Malcolm Turner (00:09:16) - And what I've seen is for convenience and speed and just, you know, again, convenience because it's not as many hoops to jump through. A lot of people that were doing bridge loan deals that shouldn't have. Mm. And so now with the price increases, okay, they're not competitive and it's like, oh, bridge loans are bad. No, that deal should have never been in a bridge loan in the first place.   Sam Wilson (00:09:39) - Right.   Malcolm Turner (00:09:40) - You know, so for me I look at if the deal has something wrong, if it's got what we call heron on the deal, poor occupancy, poor cash flow, you know, there's all time. There's a situation where there's a time sensitive thing going on. Like, for example, I had to deal with closed where there was two partners, two guys partnering on a deal. They own the property probably about 5 or 6 years when I was getting a divorce. And and, you know, sometimes you see it coming. Sam Right. You sort of know the handwriting's on the wall, right? And the one partner says, Look, if you're getting divorced, we got to get out of this partnership because I don't want your wife winning, winning your half of the deal, and I can't be partners with her.   Malcolm Turner (00:10:28) - Right. You couldn't make it work. I sure as hell can't. Right. So. So they were looking to get out fast. Their property manager was my client. So I have been he's been I do commercial real estate meetup here locally in Southfield, Michigan. And this guy's been coming to my meetups a couple of years and he had about ten rental properties. And so we did a portfolio loan, cashed out of his cash, a bunch of equity out of his residential. And then literally 45 days later, these guys said, Hey, hey, Rob, do you know anybody that might want to buy this property? Because we got to get out fast. And he was like, Hey, me, me, me, me, me. Right. He's already been the property manager and he had the cash and he knows what the issues were with, with the property, right. And there were certain things they were they should have done, but they weren't doing. They could have made it more profitable.   Malcolm Turner (00:11:25) - And so he knew where it could go. So we financed that deal, got those guys out, and we closed in like 30 days.   Sam Wilson (00:11:33) - Wow.   Malcolm Turner (00:11:34) - You know, and for the speed for closing that quickly and beating the attorney right to the courthouse, you know, he got that property at like a 15 know 18% discount to value. Right? Right. So for some sellers. Speed and time. Let's just say time is more important than money. Right, Right, right. And so, you know, you have to say and play a blue ocean strategy. And say, okay, where am I looking at deals that no one else is looking at and then how do I make that work? And then that's where a bridge loan could come in. And even if the deal is is fine and there's no pressing issues like these two partners had, you might still offer that lower price. But I will close quickly. I will close in three weeks. I will close in 30 days or less, you know, and see if they bite now, if they don't bite.   Malcolm Turner (00:12:32) - And he says, okay, fine, you didn't you know, you didn't bite. I guess I won't have to go the traditional route, you know, because there's going to be a higher cost with the bridge loan. Sure. Right. But if I'm getting an 18% discount off a value. I don't care.   Sam Wilson (00:12:47) - Right.   Malcolm Turner (00:12:48) - The math works, right?   Sam Wilson (00:12:50) - Well, hopefully the math works, because even if it's a discount, if the current cash flows don't cover the, you know, the current expenses, then it becomes an interesting, interesting equation.   Malcolm Turner (00:13:02) - Well, right. That's where the math has the math. Right. Right. And I say that in my in my book. The math has to work. Right. Right. And you can't fall in. And one of the mistakes sometimes investors will make is they'll they'll find a deal or maybe it's a deal that been paying on for a long time. It finally comes available. They get a shot at it and it's a bad deal. And I'm telling them it's a bad deal.   Malcolm Turner (00:13:28) - They got other advisers telling them it's a bad deal and somehow they still trying to make it work. I remember I had a guy shop a deal to me three times in two years. In the first time, I was like, Yeah, I don't think this is going to work. He didn't listen. He went to someone else, you know, didn't work, pay some guys money up front to quote unquote pre-approval or some nonsense. Okay. And came back to me. And then the third time, a real estate commercial real estate brokerage here in town say, hey, Mac, I got a client coming in tomorrow. He's got this big deal downtown Detroit. We're trying to make it work, you know, I know it's short notice, but can you meet me in my office at 10:00? Because he doesn't have his financing set. And I was like, sure, sure. I walked up to the meeting and the guy's name the broker's name was Levi, right. And I was like, Hey, Levi, how are you doing? Is that good? He's like, Malcolm.   Malcolm Turner (00:14:20) - I was like, Mike. And Mike was like, Hey, Malcolm, how are you doing? I'm like, Good. He was like, Oh, you know, each other. I was like, Oh, yeah, right. And we went to talk about the deal and he was like, Yeah, I got the spreadsheets. Like, It's okay, Mike. I got everything on your deal. I don't throw that stuff away. So everything you submitted to me is all those financials still the same? Yeah. Okay. Well, your options. The options I gave you six months ago. The options I gave you a year or two years ago. I'm probably the ones you still should take. And he wasn't willing to listen. He was so in love with this deal. He just couldn't let it go.   Sam Wilson (00:14:57) - Mm hm. And it was a deal that should have just been let go, is what it sounds like. It was just a bad deal.   Malcolm Turner (00:15:04) - It was. Well, it wasn't.   Malcolm Turner (00:15:05) - I won't say it was a bad deal, per se. It wasn't a great deal for him. Right. And he ended up losing it. Someone else got it. And, you know, long story short, it was a deal that was probably like a million and a half. And I just saw it. It sold for like 5.20.   Sam Wilson (00:15:22) - Wow.   Malcolm Turner (00:15:23) - So, you know. But but if I you know, they always say, you know, there's there's more than one way to skin a cat. Sometimes there's only one. There really is only one. And if I say this is how you make it work and that's how you get it done and the guy doesn't want to do it was nothing I can do. I can only advise.   Sam Wilson (00:15:40) - You can only advise. Let's talk a little bit about your financing, the UN bankable deal book. And again, you know, this kind of goes obviously hand in hand with bridge loans, things like that, that help get some of these deals across the across the finish line.   Sam Wilson (00:15:56) - But what are un bankable deals and why? What's compelling about those that makes people even want to buy them? I mean, if banks are looking at it going way, way, way too much risk, kind of like you looking at it going, Hey. That's a that's a challenging deal. Like what? What's the motivation behind someone trying to get deals like that done And what's the what's the I mean, just give me some color behind that if you can.   Malcolm Turner (00:16:21) - Sure, sure, sure. I mean, from my perspective, a good bankable deal has got some hair on it that scares the willies out of everybody else. So one, you're not going to have a lot of competition when it comes to negotiating the deal, because most people, I think, don't think it's possible. Right. To you know, like I said, it may have cash flow issues or occupancy issues. And the question becomes, does your team because I believe teamwork makes the dream work. Right? Does your commercial real estate team have a plan? To turn that property around.   Malcolm Turner (00:16:59) - You know, sometimes that that property, that own banker will deal is a hotel that's failing miserably as it is a lot of hotels right now, Sam, that are in trouble. A lot of the biggest category of deals in foreclosure and forbearance. Our hotel deals. Okay.   Sam Wilson (00:17:18) - It's not it's not office space.   Malcolm Turner (00:17:21) - No, it's hotels. It's hotels.   Sam Wilson (00:17:25) - Tough. Why?   Malcolm Turner (00:17:26) - Because if I'm, um. Ford. Okay. And I'm leasing 50,000ft², and I've got a five year lease, right? I'm paying my bills. Right? Right. For may try to negotiate with the landlord, but I'm paying my bills. Yeah, okay. In a hotel, though, right? It's consumer based. So Right. So the consumers are like, Yeah, that area's not that hot anymore or we don't like that property anymore or it's not managed well. It can drop like a hat. You know? And so as an investor, though, sometimes we know in commercial it's about highest and best use. Right.   Malcolm Turner (00:18:14) - So one of my examples in my book is about strategic repositioning. I had a client, she bought one of these, um, drive in like motel type places. You know, we're talking about, you know, the movies. You pull up to it, that's where everybody hides out and trying to hide from the FBI. You're on the lam. One of those type hotels. And she closed off the place. She put wrought iron fencing all around it. She made it senior only because seniors only need about that much square footage. Right. She took the wall out and the and the back of the unit in between. So she made two units. One one unit is like their living area and the other unit is a bedroom. Sure. Bedroom, private bath. Right. The other one was like a little living area with a kitchenette. Okay. She provided housekeeping for them. She provided meals for them three squares a day, all for all inclusive price of, like 2500 a month.   Sam Wilson (00:19:15) - Wow.   Sam Wilson (00:19:15) - Okay.   Malcolm Turner (00:19:16) - The square footage was only 432ft². We? You know, that thing was cash flow and like crazy, right?   Sam Wilson (00:19:30) - I'm sure it was.   Malcolm Turner (00:19:32) - You know, And so she's like, let me do it again. And so that's where now if she goes to get a loan for multifamily. That's not going to work there. Look, this is a hotel, right? You're going to have to do some renovations to it. We don't know about your experience doing that, you know? How successful is it you're going to change the use? What about. But if somebody has a plan and they've got it worked out and she had a chef that would come in in the in the clubhouse of the of the place, he would cook meals for all the residents on a daily basis. It worked out. It cost her like $5 a meal. Wow. Right. The maid service, same thing. And the great thing about the maid service. They're all seniors, right? They're on fixed income. They loved the fact that meals, housekeeping, everything was included for her.   Malcolm Turner (00:20:26) - She knew her property was going to get kept up because the maids going in there cleaning everybody stuff. And if somebody was having a rough time, if they were sick or they weren't doing well, the maid would know first. Sure. And say, Hey, Mrs. Johnson, And you know, Unit three B is struggling. You may want to call her adult children, have them come check on her. You know, So it was a way to better manage the property as a property manager because the maid was giving her all the gossip on what was going on with the place, you know, and every unit was maintained well, and she made a really good profit. Oh, and she gave them cable, right? Because she gave them like basic cable. And the only thing those tenants had to pay for was their own cell phone.   Sam Wilson (00:21:08) - Wow.   Malcolm Turner (00:21:09) - Wow. And that was not a bankable deal. But that was where, you know, and I believe she bought that property all in between the renovations and the purchase was like a mill one.   Malcolm Turner (00:21:23) - And I think the value of our cash flow was something like 2.4. Wow. And then when I met her, she wanted to cash out, refi and then go buy her another one. Sure. And I was like, Absolutely.   Sam Wilson (00:21:37) - Absolutely. Yeah. Because you got the model. I mean, that's it. And I think that's what I'm hearing you say here is anything that is outside of the ordinary, it's not maybe cash flow positive and or if it is cash flow positive, the value add plan has not yet been implemented. A heavy value add plan has not yet been implemented. So what you need are a couple of things. Tell me if I'm wrong, but you need someone with a skill set to implement the heavy value add plan. Yes. And then, you know, obviously, you know, that's really it. In the second part is to have that plan. So if you have those two things inside of a deal, maybe that non-traditional or the lender's traditional lenders won't look at, you need to go to the non-traditional route, which is through maybe somebody like yourself that helps specialize in that.   Malcolm Turner (00:22:27) - Okay. And there's money for you know, there's money for all of that. And as lenders who aren't scared. Of a value add project. Right. They're not scared of even if it's like a straight, like obviously repositioned, but also just, you know, this is a property that maybe market rents are 1200 a month and the current rents are like 700, 800 bucks. The owner is like, you know, 82 years old. And he just didn't feel like putting everyone on a new lease. So the whole rent roll is month to month. You know, it's on the market and the bank is like, Yeah, yeah, we didn't want to do that. But if you've got a guy that's got, let's say, 4 or 5 properties already in the area, he's bringing in applications, right? Rental applications from those other properties. Okay. He knows I can fill up those 20 units easy, no time. You know, I know guys, they do self storage like that. They'll have a great location and they'll they'll have one property.   Malcolm Turner (00:23:34) - That's the real big marketing property. It's on such a great corner that property is always filled and they use those extra locations to fill other self storage. They got like 5 or 6 other self-storage units that are not on great locations, so therefore they were cheaper.   Sam Wilson (00:23:50) - Right.   Malcolm Turner (00:23:51) - Right. And they use the one premier property, right? The trophy property to feed the applications and keep the occupancy high and the other self-storage properties that they have.   Sam Wilson (00:24:02) - That's awesome. I love it. I love it. Malcolm, I've learned a lot from you here today. Learned about bridge lending. You learned about the times when it's a good application and a good opportunity to use that. Talking about your book Financing the Unbreakable Deal, we've talked a lot about the advantages of using bridge lending, convenient speed. The yeah, just went kind of through a lot of those details on that. I've learned a lot from you. Certainly appreciate you taking your time to come on the show today. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Malcolm Turner (00:24:33) - They can find us on YouTube.   Malcolm Turner (00:24:36) - We have a YouTube channel, Castle Commercial capital. You can find us on YouTube. Our website is Castle Commercial Capital. I also have my book website, which is financing them. Bankable deal. They can learn more about the value that's in our book and if they want to book consultation, I offer this to all of your listeners there. They can have a free consultation for half an hour with me to discuss the deals that they're working on and future deals, because one of the best ways to be really effective with your financing and I put this in my book is to meet with your finance guy ahead of the deal and say, Hey, here's where financing is at, here's where it's going, here's the best deals to get done, and then go out in the marketplace and see which. And it's amazing. Sometimes I'll have a conversation with someone. And literally three days later, I found just the deal you were talking about. Really? Yeah. But it's like and I'll end with this, it's like getting a car, you know? I got a black Toyota Venza, XLE.   Malcolm Turner (00:25:36) - Not a whole lot. I'm on the road. Most. We don't even know what that car is. I didn't know what it was. I fell in love with it when I saw it. Right now, I see them all the time. Every day. Right? Right. It's like once you get an eye. For certain types of deals. You see them. You know, I've got an eye for commercial real estate. You know, I personally like to buy single tenant leased properties that are vacant. So every time I'm driving down the street and I see an empty McDonald's or a former Baskin-Robbins or a close Starbucks, I'm like, ha ha ha. And then I'm reading What's the other tenants around that? And most people just drive by those places, right?   Sam Wilson (00:26:15) - I love it. I love it. Malcolm, thank you for taking the time to come on the show today. We'll make sure we include the links to your book and to your website there as well. There in the show notes.   Sam Wilson (00:26:25) - I certainly appreciate your insight and your time.   Malcolm Turner (00:26:27) - Hey, thanks for having me on, Sam. I appreciate. It was fun.   Sam Wilson (00:26:30) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Sep 06, 2023
Positions We Are Hiring For Right Now

In today’s show, Sam shares opportunities for new team members at Brick and Investment Group.   Open positions: Director of Communications (remote, part-time role): Timestamp: 00:05:35 Investor Relations (remote, full-time role): Timestamp: 00:06:35 COO at Ellie's Laundry (not remote, full-time role): 9. Timestamp: 00:07:30   Apply: Email:   Show summary:  In this podcast episode, Sam discusses the importance of building a team and the hiring process. He shares his personal experience and emphasizes the idea of working together as a team. Sam announces three positions available within his company and encourages interested individuals to reach out to him for more information on these opportunities. -------------------------------------------------------------- Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Sam Wilson (00:00:00) - Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. How to scale commercial real estate listeners want to say thank you, as always, for tuning in and listening to this show today. You get just me. I've not done many solo episodes, but this is one of those things that, well, once you hear what the topic of today's episode is about, you'd like that makes sense to have a a solo episode. So again, you know, thank you as always for listening. One of the questions I commonly ask people who come on the show guess that. Come on the show you I know if you've been listening to the show for a while, you know this is something I always ask about, which is how did you build your team? What does that look like to build a team? What have you done right? What have you done wrong in the hiring process? What's it looked like early on especially and that's the name of the show is how to scale.   Sam Wilson (00:00:58) - What does it look like early on to bring on team members that have really helped carry you to the next level? And I think it's it's a it's a question that I asked because it's a question that I have commonly wrestled with. I think here for the last decade or so. When I sold our flooring company when I was 30, I sold that flooring company up in Indianapolis, Indiana. And one of the things that I had had enough of was employees. I'll be honest, I was tired. I was tired of working with other people. I was tired of telling employees what to do. I was tired of the problems that came with having team members that I was then responsible for. And I just said, Man, I don't want to do that anymore. Well, here we are 11 years later. I do have, again, a lot of employees, but it's taken me a while really to get to that point where it's like and I don't even like the term if you get to know me, you don't.   Sam Wilson (00:01:57) - I don't like the term employees told me of the day. I said, Look, I'm no one's boss. Like if you come if you come to work with us, you come to work with us. You don't work for me, you work with me. And that's that's really the kind of the spirit of what we want to do when we're bringing on team members is to let everybody know that we are a team and that we're yes, we are building something bigger than hopefully anything, us, anything that any of us can achieve on our own. And so that's been a it's been an interesting process for me. But even bringing on a lot of those team members, they've been team members that I'm not directly responsible for. We've had some great general managers here in the Memphis area that have helped kind of manage some of our laundry side of things that I don't even directly interface with a lot of those employees. So a lot of that again, that burden has been taken off of my shoulders. All that to say, though, is that on the brick and investment group side of things, so we have our laundry facility business, which has, I don't know, probably 15, 20 employees at the store levels that work with us.   Sam Wilson (00:02:59) - But then on the brick and investment group side of things, so kind of more on the leadership side of things. I've kept the team pretty light and that's been intentional because again, I've tried to avoid being responsible for other people and that's it's hindered growth, to be honest with you. And that question I asked the podcast guests that come on and say, hey, you know, where or what have you done right? What have you done wrong? I know I said that earlier in the show earlier on. What have you done right and what have you done wrong and how did you build your build your team And every single person, at least in my memory now, you could probably go back and find a guest that came on and say, Well, Sam, you're wrong, but in my memory as I recall it. Every single person that has come on the show has said, if you want to scale, you must have team. The way I've heard it said is if you want to go far.   Sam Wilson (00:03:47) - Uh, or if you want to go fast. Excuse me. Let me get the get the phrase right or the. Yeah. Get get this right. So if you want to go fast, go alone. If you want to go far, go together. And again, you can probably look it up and be like, Hey, that's you butchered that one, two. Sam Which is probably true, but you get the idea is that if we want to go the distance, we've got to have team to do it. So the preamble, my five minute intro here to actually the thing that I wanted to talk about today was that on the brick and investment group side of things, we have opportunities for team members, not I have told you all the reasons. Probably you never want to work with me, which is because I don't really want to be responsible for people. But it's one of those things that. In 2023. Somebody asked me this for 2023. They asked me at the end of 2022.   Sam Wilson (00:04:40) - They said, hey, in 2023, what are two things you are going to do to make a meaningful difference in the way that your business operates? I said. Focus and team. Two things. Two things alone that we are going to do inside of our business is hyper focus and bring on excellent team members. And I will say that we've had we're doing more. Better. Faster now than we ever could have possibly done as a lightweight. And we're still a lightweight team. But even even just on my own, even for that matter. So all that being said, there are opportunities here inside of the Brick and Investment group and want to let our listeners know what those are. There's two remote positions and there's one that is not a remote position and we'll get right into those. So the three positions that we are hiring for first and foremost is a director of communications. This person handles all of the investor updates, monthly newsletters, weekly newsletters, website edits, project management. They manage our social media managers.   Sam Wilson (00:05:56) - They manage a lot of the things that are the kind of forward facing communication outlets. For the firm. That role is a definitely a remote position. It's something where. It could be what I call an all you all you can work buffet. But it is it's probably more a part time role suited for somebody that's looking for 20 to 25 hours a week and they super hyper flexible schedule. Not not a very in There are definitely times that availability has to be, you know, nailed down but a very flexible position that can be anywhere in the country. Director of communications The second thing or second job, rather, that we are actively hiring for is an investor relations position. Again, could be a completely remote position and that role is definitely a full time role. We are at a point now where, again, I've handled investor relations now for four years and it's something that we're excited to grow the number of investor conversations, the investor request, the things to keep up with it is a full time job, everything from investor outreach to investor updates to just doing everything that pertains to staying in front of and making sure that investors are happy and taken care of is a second role here at the company that I am actively hiring for.   Sam Wilson (00:07:21) - And again, that can be a remote position, but it's something that would really if that's something you are considering or you know, this is your skill set, certainly please reach out to me on that job. The third position we're hiring for is a COO inside of Ellie's laundry. And you're going to say, what is Lee's laundry? Well, for those of you that don't know, we are going long. We have been going along for a while in the laundromat space, actually prefer to call them laundry facilities because of how our stores operate. But the laundry facility space is a business that we know very well. We've been investing in for years personally and have recently opened that business up to our retail investors and we are growing that business exponentially. And so it's been a lot of fun to really see that business just explode. The opportunities there are unlimited and we are actively seeking a CEO for that company, Ellies Laundry. We have the Clean Laundry Fund, one for those of you that haven't been tracking what we've been doing, the Clean Laundry Fund, one is going to acquire another 20 to 25 stores in the next 2 to 2 and a half years.   Sam Wilson (00:08:28) - And we just, again, have unlimited opportunity there inside of the Clean Laundry Fund and inside of Lee's laundry for expansion and growth and need a experience there need an experienced CEO to come on board and really help us take that business to the next level. If this person or persons, any of these roles, describe who you are as an individual and you want to learn more about these, please reach out. The best way to do that is Sam plus the plus sign Sam Plus Careers at Brick, an investment group that's Brick, an investment group again that Sam plus careers, that brick and investment group. But now you get a good idea of where we are in our growth journey. And there's actually more roles that we have openings for as well inside of the business. But those are probably the three most prominent roles that we're actively hiring for and would really love. If this is something that you say, Hey, I'm great at this and I am ready to scale with a team and make a meaningful difference in both our communities and the team that we are building here.   Sam Wilson (00:09:30) - I would love to hear from you on that. So that's it. Thanks again for taking the time to tune in to the How to scale commercial real estate show. You know how to get a hold of me and have a great rest of your day. Thanks so much. Bye bye now. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Sep 04, 2023
From Brain Injury to Real Estate: Nick Prefontaine's Remarkable Journey

Today’s guest is Nick Prefontaine.    Nick Prefontaine was named a top motivational speaker of 2022 in Yahoo Finance. He's a Speaker, Founder and CEO of Common Goal. Using the S.T.E.P. system he is able to lead clients through their trauma. Once they make it through, that is where their limitless potential lies. Nick's been featured in Brainz Media, Swaay and Authority Magazine.   Show summary: In this podcast episode, Sam interviews Nick Prefontaine, a real estate investor and motivational speaker. Nick shares his personal journey of overcoming a traumatic brain injury and his success in the real estate industry. They discuss Nick's step system, which he applies to both his recovery and his coaching program. Nick talks about his high success rate in helping buyers qualify for loans and move forward with their homes, attributing it to their unique process. They also touch on Nick's experiences as a motivational speaker and his strategies in the commercial real estate space. -------------------------------------------------------------- Intro [00:00:00] The Step System [00:04:28] Nick's Journey [00:01:17] Realization and Doubt [00:06:46] The Step System [00:10:32] Motivational Speaking and the Step System [00:11:19] Real Estate Journey [00:15:12] The commercial real estate strategy [00:21:09] Buying commercial properties creatively [00:21:48] Closing [00:23:30] -------------------------------------------------------------- Connect with Nick:  LinkedIn:   Facebook:   Website:   Podcast:   Facebook Page:   Google +:   YouTube:   Instagram:   Twitter:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Nick Prefontaine (00:00:00) - Our success rate of our buyers. We're we're seeing it. GS Up to 90% of them that are once they're in the home, they're able to qualify and get their own loan and move on with the home, um, move on with their lives where as the other investors out there, the, the, the so-called competition um is seeing the inverse right. 90% of the people fail and only 10% of the people and that's because there's a very particular process that we'd like to put all of our buyers through so they're successful when they get to the end of their agreement.   Sam Wilson (00:00:38) - Welcome to the How to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Nick Prefontaine was named a top motivational speaker in 2022. He is also a real estate investor. Nick, welcome to the show.   Nick Prefontaine (00:01:01) - Sam I'm excited to be here and with your audience today.   Sam Wilson (00:01:05) - Absolutely. The pleasure is mine. Nick In 90s or less. Can you answer these three questions for me? The same three questions I ask every guest who comes on the show.   Sam Wilson (00:01:13) - Where to? Just start? Where are you now and how did you get there?   Nick Prefontaine (00:01:17) - Uh, where where did I start? Gosh, I would say back to that fateful day in February of 2003, I was just club with my friends. Uh, got to the mountain, headed right for the top and charged towards one of the biggest jumps in the terrain park and going off it, I caught the edge of my snowboard, threw me off balance and landed on my head. Uh, the doctors told my parents that I probably wouldn't walk, talk or eat again. And, um, let me see. Less than 90 days later, I ran out of the rehab hospital in Boston.   Sam Wilson (00:01:55) - Wow. Won't walk, talk or eat again. 90 days later, you're running out of the hospital. What has happened between I guess that would have been middle of April 2003 and now.   Nick Prefontaine (00:02:09) - That's right. Middle of April. Yeah, you got it right. Um, a lot has happened. I was. I was.   Nick Prefontaine (00:02:14) - I was trying to give you the CliffsNotes version, but a lot has happened. I, um. I actually, when I was in high school, and it was really reflecting on it. Sam back, it's. It was reflected back to me from a mentor of mine. She said, Wait a minute. So only 18 months after finishing rehab, outpatient rehab, I was knocking on the doors of, um, notice the default doors of homeowners that had missed a few payments all the way up to several payments on their home, and the bank still foreclosed on them. So that was how I got my start in real estate. That was when I was 16, right when I got my license. And then, um, after I after I got out of high school, started starting to get my real estate license. Uh, got it. And when I was 19 years old and that led me to doing what I'm doing today, which is helping buyers and sellers. Um, we buy and sell property on terms creatively, so not conventionally.   Nick Prefontaine (00:03:18) - And you can do that with that. We can, you can do that with anything, as I'm sure you're aware.   Sam Wilson (00:03:23) - I am. I am. That's a really fascinating, fascinating story. So 18 months after rehab, walk, talk, eat again, 90 days later, you defied really all expectations. What would you attribute that to?   Nick Prefontaine (00:03:40) - Uh, well, all right. So this is something that we recently developed within the last year, which is the step system. And it's something, it's step is an acronym. It's something that I unknowingly use to recover from my snowboarding action and what we've created, um, and the acronym stands for Support, You get to make sure you have the support of the family and friends around you. Um, this has you pulling back on relationships that you built prior to your setback, and then t is trust. You have to trust that the next step is always going to be available to you, so long as you take your first step is energy without maintaining your energy.   Nick Prefontaine (00:04:28) - Um, you're not you're not a good use to anyone. You've got to maintain your energy, um, to get to get to that next level. And finally, persistence. And this is just a Cliff Notes version, but, uh, p this is a 10,000 foot view, but P is persistence. Once you've taken your first step, keep getting up every day and taking your next step, no matter how small. So that's something, that's something that, um, that I did unknowingly when I was in the hospital and what we've recently uncovered. Um, so yeah, pretty exciting, man.   Sam Wilson (00:05:04) - That's cool. I love that. What? Let's go back to the I know the you probably have more lessons to share with us maybe than the time in the hospital, but I think that's probably a fairly, um, memorable time for you. Like at what point in time? Or did you ever go through that period where it's like, Oh wait, there's a realization that things may never be the same and then how did you deal with it?   Nick Prefontaine (00:05:33) - Yeah, that's a great question, Sam.   Nick Prefontaine (00:05:35) - So I would say when I was going through it and anyone that knows from going through a traumatic experience, time slows down. So although it was I was in a coma for three weeks, I really don't remember a month because it was partially induced because they had to induce me because they worried if they didn't, I wake up and freak out and the swelling in my brain would increase and I would die. So it was really less than 60 days. But those less than 60 days felt like six years. Just time time slows down when you're going through an experience like that. I don't know. I see you nodding your head. Um, so I don't know if you can relate to that or not.   Sam Wilson (00:06:22) - Well, I've never had a traumatic brain injury per se, but certainly I think everyone's encountered something at some period of time where you wish there was a fast forward button and you're like, Oh my gosh, can we not? This is painfully slow. Yeah, And you just went out. That's it.   Sam Wilson (00:06:43) - I think there's that period where you just want out. So yeah.   Nick Prefontaine (00:06:46) - And to answer your question head on though, it's just bubbling up to me. Uh, there was so from the moment that I, that I remember the first moment that I remember, um, was the third floor when I was transferred to the rehab hospital in Boston. I was initially put on the third floor, which was reserved for the most critical of cases, and I hardly have any memory of being on the third floor because they were in the process of taking me off the drugs and medication. Um, when I first like kind of got my bearings and my surroundings, I just got up and kept doing the best I can and kept getting better every day. And a big thing, the reason I was able to do that is because when I was in the coma, my parents, the doctors would come in to share like news, worse and worse and worse in the beginning. And they came into my room to share it in front of me.   Nick Prefontaine (00:07:45) - Even though I was in a coma, my parents knew that I was still taking information. So they said, No, no, not in front of him. And they made the doctor's walk outside to share the information. So I didn't know any better. I just as soon as I was aware of my surroundings, I got up, um, took my next step and I kept getting better every day. Um, there was one moment, though, which was in between my therapy, so I would get up in the morning. I would need help from a physical therapist helping me to shower and learn because I lost everything. So I didn't know how to do anything. Sure. So I would do that and then I would have physical, occupational and speech therapy. And after which you broke for lunch. And there was a there was a time on one of those days early on in my recovery, I was in my hospital room. I was in a wheelchair. I still couldn't really talk, wasn't really audible.   Nick Prefontaine (00:08:41) - It was, if anything, a whisper was coming out and I was looking over my situation. Sam and I just. I turned my mom who was who me every day. That was part of my support system. And I said, Am I? I just couldn't figure it out. For whatever reason, I was having a moment of doubt, I guess you could say. I was like, Am I ever going to be able to walk again? And she looked. She looked at me and right away didn't even hesitate. Of course you are. That's what we're doing here. So you can get everything back and we can go home. And that was the only moment of doubt that I can say that that happened when I was in the hospital. Everything was just I got every day was, all right, what do I do next? What do I do next? What do I do next? And um, when I got home, it was really no different. I, I had to be tutored even though it was at school, because I got, I got out of the hospital at the end of April.   Nick Prefontaine (00:09:38) - I had to be tutored because I had lost so much time and wasn't able to be in regular classes with my classmates. So I got tutored for the rest of the school year and then all summer long. Um, in order to move on to high school with the rest of my classmates. Wow. So let me take a breath there. No, that's throwing a lot of information at you.   Sam Wilson (00:09:59) - No, it's a great story. I mean, that's. It's. It's inspiring. And it certainly one of those the one of those stories of perseverance, I think. I love the idea of the step that you put in there first is having that support. And I think you and you sound like you guys have rolled this out through your coaching program as well, if I'm not mistaken, using this same kind of process for. Can you hear me?   Nick Prefontaine (00:10:26) - Yeah, No, I got you.   Sam Wilson (00:10:28) - Okay, cool. I'm sorry.   Nick Prefontaine (00:10:29) - The glasses. Yeah.   Sam Wilson (00:10:30) - Gotcha. I thought you were giving me, like, the.   Sam Wilson (00:10:32) - Hey, I can't hear you. Fine. You're good. Which is fine. Here, we'll hit time out there. Matthew, if you want to delete that. He is. Matthew's the the editor. We can just wind that back a few seconds. Let me jump right back in here. In a couple of seconds, we'll give him a pause so we can find the find the break. It seems like you guys have rolled out this step program or the acronym you use for step, not just for you and what you do on the coaching side of things or on the motivational speakers side of things. But you've also rolled it out inside of your business because I think these things kind of all they parallel, do they not, between the support, trust, energy, persistence, like those are those are four things that everybody needs to be successful really in anything they're doing.   Nick Prefontaine (00:11:19) - Yeah. You know what? When I had a mentor year and a half ago reflecting this back to me, the step system, what I actually did and everything, she was it was the whole reason was saying because she said to me, Well, okay, you ran out of the hospital, but how'd you do it? I said, I don't know.   Nick Prefontaine (00:11:36) - I just I got up and did it, like, did it. And there's just that's the mentality that the step system is how I've tackled, um, and been able to overcome and succeed with anything in my life. And it's really so it's really something that has been instilled in me. Um, and it's the way I was raised and like that, my upbringing. So that's how I've always dealt with things. Um, and now, now I'm, I actually started a company a year over year and a half ago now calm and goal, which we lead people that are going through a trauma or life challenge through the other side and then they can thrive with the rest of their lives. But this step system is something that we all naturally do. When I when I go like this and say we all mean like at smart real estate coach, it's just like the way the way the only way I know. Um, so it's just like continue to take your next step, but specifically the step system.   Nick Prefontaine (00:12:45) - Yeah, that's a common goal. Um, but it's, it's something that I've done my whole life.   Sam Wilson (00:12:50) - You're called on to speak as a motivational speaker. You, we were talking about this off air is that there are brain injury, traumatic brain injury associations that will say, hey Nick, can you come talk to us or come, you know, share? What are some of the things that you find are consistent themes that you talk about that resonate the most with the people that you are sharing with?   Nick Prefontaine (00:13:18) - So depending, depending on the amount of time I have because, um, like tonight I'm going to be doing for speaking for the Brain Injury Association of Ohio, and that would be a 45 minute version of my keynote. Um, and then when I spoke at the Brain Injury Association of Maryland in March at their annual conference, that was a 60 minute version. And the, the only difference is in what's so exciting to me about the keynote is I get to share that step system and go into detail, um, like really drill down and go into detail about how they can apply it to their lives.   Nick Prefontaine (00:13:59) - So, um, the common theme that I'm seeing is people come up to me after I've, I probably have, um, on average, like 10 to 15 people come up to me after and say how much, um, my story and the subsystem, um, help them see through what they're going through and they're going to go back and um, really try to drill down and download because it's free. It's a free e-book step is a free e-book that I give away on my website, which I can give it to you after to throw on the show notes. But um, yeah. So just excited as you can say.   Sam Wilson (00:14:43) - Absolutely. No, that's really, really cool. I love that. I love that. Yeah, that's. That's absolutely awesome. When did you so you've been in real estate? You know, I think you said 18 months after rehab, you're out knocking on delinquent homes with delinquent mortgages, whatever, delinquent payments of some sort, seeing if you can acquire those houses. What's your real estate journey been like inside of this? Because it sounds like, you know, real estate has kind of been part of what you've done really from the outset.   Sam Wilson (00:15:12) - I mean, gosh, 18 I don't know if you were still in high school when you started doing that or just out of. Yeah, but yeah, that's that's pretty compelling. Tell us a little bit a little bit about your real estate journey.   Nick Prefontaine (00:15:23) - Sure. So that was it was actually the. So not the first summer after I ran out of the hospital, but the second summer I was my family was involved in real estate. So I, I had always been around in my whole life. However, I started to get the itch and I started going to my dad's library that second summer after I came home. And that would have been summer of 2005. And I started looking through his books and everything. And and I asked him, What is a book that you recommend If I wanted to like get started. And he said, Cashflow quadrant. So as I was reading through that, I came back to him and said, I want to I want to get involved. What do I do? And or how can I get started? And right around that time I was getting my license, my real not real estate license excuse me, my driver's license.   Nick Prefontaine (00:16:17) - So he thought it'd be a perfect fit because right on, right along that time around that time, they were starting to play with the idea of having bird dogs, lots of properties and knock on doors and set meetings for the investor to meet with these folks about potentially buying their homes. So I was like, Oh, awesome, that's what I'll do. So I had to go to school during the week, but on weekends and holidays I would usually pick 1 or 2 days out of a weekend and I would do like 50 to 70 doors. I go to cities where they were high concentration and I do these doors. Um, if you fast forward a little bit, I got out of high school, started starting to get my real estate license, and I got my real estate license and, uh, drumroll, please. Um, march of. 2008. Great timing. Great timing. Great time to get your real estate license. So, um, I got my real estate license and started selling real estate, helping buyers and sellers.   Nick Prefontaine (00:17:25) - As a realtor, I had all the people around me. Lamenting and complaining. Oh my God. The market used to be so good. Used to be so easy. You could do this and do that. I didn't know what they meant, so I. I just. That was the market that I. That I was dealt with, that I that I had to deal with. So I learned how to, how to help buyers and sellers in that environment and around we're not around. In 2014, my dad started buying properties 2013, 2014 started buying properties as an investor, and he asked me if I could help him with the marketing of all these properties that he was getting. I was reluctant, Sam. I was like, No, no, no. I got my own thing going on. I'm not looking for any any extras or anything. And luckily he asked me more than once. And so I started helping them with the marketing. Then the calls started coming in. He couldn't keep up with them, so he asked me if I could help out with the buyers.   Nick Prefontaine (00:18:26) - So that morphed in New and then over the years, I developed a process, a buyer process that we have to bring our rental buyers through so that they're able to qualify for their own loan once they get to the end of their agreement. And I think you can probably relate to this, but um, our success rate of our buyers, we're, we're seeing it, jeez, up to 90% of them that are once they're in the home, they're able to qualify and get their own loan and move on with the home, um, move on with their lives where as the other investors out there, the, the, the so-called competition um is seeing the inverse right 90% of the people fail and only 10% of the people and that's because there's a very particular process that we'd like to put all of our buyers through so they're successful when they get to the end of their agreement.   Sam Wilson (00:19:29) - Got it. No, that's really cool. And I love and it sounds like that's all you've done basically is some form of real estate really since high school.   Sam Wilson (00:19:38) - Is that a fair analysis?   Nick Prefontaine (00:19:41) - Fair statement?   Sam Wilson (00:19:42) - Wow, that's cool, man. Good for you. I'm not. People are not. Maybe they disagree or agree. I really don't care. But the I think college is overrated, to be honest with you. Like, you know, if you can figure out a path to go out and make a meaningful difference, improve people's lives, there's ample opportunity to get paid for doing so. And you definitely don't need to go to school for for that to happen. In fact, it probably gets in the way more often than not. So I'm always, always happy to meet another bootstrap for that. Maybe I think that way because that that was my story. Um, yeah. Anyway, love it. That's very, very cool. So you've been in real estate ever since then. You guys have worked out the buyer process, a 90% conversion rate. So for those of you who are listening, it sounds like you guys are doing lease options basically as one of your strategies on the homes that you're buying.   Sam Wilson (00:20:37) - So you're selling them on a lease with an option to buy and you're getting 90% of those to then convert to exercising that option to buy, is that right?   Nick Prefontaine (00:20:46) - Yeah. So we're we're buying we're buying properties creatively, so we're not going and signing personally and qualifying for loans or putting big down payments down or anything like that. Um, however we acquire them, uh, we're always selling them on a rent own agreement to our buyer. Right. Um. Very simple. Yeah.   Sam Wilson (00:21:09) - Right. No, that's cool. I love that strategy. Do you guys employ that strategy at all in the commercial real estate space?   Nick Prefontaine (00:21:18) - We have? Yeah, we have. We've done several deals over the years with with commercial. The building that we're in is, was bought, um, with owner financing. I think my dad may have mentioned that. Yeah. Um, also there have been several buildings over the years in the state that we are right now, which is Rhode Island. And you can do this anywhere where we did mailers to, I forget the exact niche list.   Nick Prefontaine (00:21:48) - I think it might have been out of state landlords or something, but 4 to 6 unit buildings. We ended up buying two of those out of the mailings to to on two different occasions, buying them, um, improving the property, getting the rents up and improving the whole property and then selling them, buying them creatively and then selling them for a profit. So yeah, we've done a few commercial deals as well.   Sam Wilson (00:22:16) - Got it. I love it. Nick, I love your story. Thank you for taking the time to come on the day on the show today and share with us you've overcome incredible adversity. I have a very close friend of mine who something similar on a hiking accident fell in, kind of was told the same thing, but his journey was much, much, much, much, much, much longer maybe than yours was in getting out of the hospital and even surviving what's kind of a miracle, let alone being able to walk and talk again. So I think it's really cool that you have overcome that.   Sam Wilson (00:22:51) - You have found a process really that can be applied both to life, to real estate, to really anything you undertake. And I think it's really cool the way that you give back to the brain injury. Others that have, you know, endured brain injuries and giving back to brain injury associations, being a keynote speaker, you got a great story. And I also love what you're doing in real estate. And it's really cool the way that you guys are helping other homeowners, not just find and keep their homes when they are rent to buy buyers, but also just the way you guys are coaching and helping other people in the real estate space. So very, very cool. I love this. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Nick Prefontaine (00:23:30) - So if anything, if anything rang true with any of your listeners as far as on the business, on the business end, how we buy, how we buy and sell homes, um, creatively and our trademark prepaid system.   Nick Prefontaine (00:23:45) - Um, they can go to smart real estate and if they scroll down they can get registered for the free masterclass. And as I said, that's going to teach them about how we buy and sell on terms and our trademark three day system. Um, and then if they're interested in the step system and like following me with anything I'm doing with my motivational speaking or anything and that and that regard, they can go to Nick Um, and they can download the step system for free today and that will help them take their first step.   Sam Wilson (00:24:25) - Awesome. We'll make sure we include that there in the show notes. Nick Nick thank you again for coming on today. It was an absolute pleasure.   Nick Prefontaine (00:24:35) - Always a blast. Thanks for having me.   Sam Wilson (00:24:37) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.   Sam Wilson (00:24:54) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Aug 31, 2023
The Power of Lease Options: Adam Zack's Innovative Approach to Real Estate Investing

Today’s guest is Adam Zach.   Adam retired from the Civil Engineering profession at age 32 through real estate investing. He is a family man with a business, not a businessman with a family.   Show summary: In this podcast episode, host Sam interviews retired civil engineer Adam Zack, who achieved financial independence through real estate investing. Adam shares his strategy of buying rental properties in up-and-coming markets and emphasizes the benefits of being a tenant buyer. He discusses his approach to underwriting potential buyers based on their credit score and background, and explains how he pairs investors with properties that meet their desired return criteria. They also discuss the challenges of securing loans and verifying down payments, as well as the potential market size for this investment strategy. Adam reveals their recent launch of a fund to streamline their real estate purchases. -------------------------------------------------------------- Intro [00:00:00] The Marshmallow Test [00:01:49] Formulating the Plan and Executing [00:03:12] Finding the Person First, Property Second [00:06:53] The option to buy structure [00:08:25] Complications and sourcing funds [00:09:17] Market potential and disqualifying criteria [00:10:51] The challenges of real estate transactions [00:18:05] Launching a real estate fund [00:20:26] Current challenges in the real estate market [00:21:15] -------------------------------------------------------------- Connect with Adam:  Linkedin: Facebook:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Adam Zach (00:00:00) - As a tenant buyer, it's actually great to buy an up and coming markets that could drop because you just have the option but not the obligation to buy. And so at the same time, that's why we're setting this up, not so much as like, hey, test drive it, it's, hey, this is your house. And if something were to go wrong, we give them three years, they get an option to extend for a year. Plus we give them the option of like, Hey, if something really goes wrong, we'll just sell the home. And if there's whatever equity is generally left, you can take part of your deposit back. Just like if you bought a house now and sold it six months later, you're going to lose money just 6% to agent fees, whatever it is. And so we're trying to set it up as much for success across the board. Welcome to the How to Scale commercial real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:50) - Adam. Zack is retired from the civil engineering profession at the age of 32. He did that through real estate investing, as he claims. He is a family man with a business, not a business man with a family. Adam, welcome to the show.   Adam Zach (00:01:03) - Thank you, Sam. Good to be here.   Sam Wilson (00:01:05) - Absolutely. The pleasure is mine. Adam There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Adam Zach (00:01:14) - Little town of Dickinson, North Dakota, population 17,000, went to civil engineering school. One of six found my sweetheart in college. We got married. We now have three kids. Five, three and one. Got into real estate just as I graduated engineering and realized that the marshmallow test was the key to success, that if I can just wait and not eat that one marshmallow today, I can have two later.   Sam Wilson (00:01:40) - Fantastic. I would venture to say that many of our listeners have no idea what you're talking about.   Sam Wilson (00:01:46) - I do know what you're talking about. Tell us about the marshmallow test.   Adam Zach (00:01:49) - So they did this experiment. It was kind of cruel with kids, but like it was a great indicator of success in life or being able to get what you want because success has a funny success in my mind, is just getting from point A to point B if you want to get there, point A to point B could be I could lose £1, £10, I could get whatever I want. So in general, they set these kids in a room and they said, Hey, you can have this one marshmallow now and you can just eat it or you can go play with those toys. And if you wait, I think it was like 30 minutes, I'll give you two marshmallows later. And the kids that were able to be like, You know what, I'm going for the two marshmallows. Like, I'm going to do it. Like these kids that were, you know, less than ten years old that they were able to have some sort of self-control.   Adam Zach (00:02:27) - They tracked them over a period of like 30 or 40 years and found out that they were much happier and successful in their careers.   Sam Wilson (00:02:33) - Right? Right. Yeah, absolutely. So you graduate engineering school and then you get into real estate. One thing I know because I am not an engineer, I need engineers in my life because you exhibit this trait, which is that you will research, research or research plan and then execute. And having had and currently have friends who are engineers getting to the point where they're like, okay, now we're ready to do it takes a considerably long amount of time. It sounds like you were able to formulate the plan and execute, which a lot of people struggle with in a in a relatively short period of time. How did you do that, especially coming directly out of college?   Adam Zach (00:03:12) - The tipping point was asymmetric reward to risk at a 2 to 1 ratio. So Daniel Kahneman does this great test, like you flip a coin. It's heads. I'll give you 50 bucks. If it's tails, you give me 50 bucks.   Adam Zach (00:03:25) - Most people won't do it. Like I don't want 5050 because they fear losing two times as much as they gain winning. So the tipping point is, I'm going to flip a coin. You win $100 or you lose 50, then that's like when the tipping point is like, Oh yeah, I'll do that. Right? Like, sure, if I do it enough time, if I'm going to do that enough time, I'm going to win. Right? But if it's like it's just one time, some people like you have to get to that comfort zone. So for me, it was, okay, what's the upside and is it more than a 1 to 1 ratio? Because otherwise my brain cannot compute, right? It's like, here's the reward. I'm betting a dollar. I could lose a dollar. Like I'm just playing blackjack and it's like there's too many and there's so many variables that I can't control. So in my mind it was, how do I make it a 2 to 1? Because I have to get beyond that first for my own reptile brain.   Adam Zach (00:04:12) - And once I do that, I'm like, Let's just do this enough and eventually I'm gonna win, right?   Sam Wilson (00:04:18) - Oh, that's really cool. Let's dig into that. And I love My mind immediately actually went to Blackjack. You said that. I'm like, Yeah, I think, you know, I'm not mistaken that the casino's edge in the game of blackjack, it's only like 3/10 of a percent. It's not 1%. Maybe it's a half a percent. Whatever it is, it's. It's really small. So, I mean, the casino does have the edge, whatever that is. 50 point call it, 50.5% to your 49.5. And the game still gets played. But you found a way to have that return of 2 to 1 on the okay, I win, I make 100, I lose, I lose 50. What was it?   Adam Zach (00:04:57) - So for that it was specifically, how can I. Heads. I win, tails I break even. Right? And it was okay, if I win, it's going to be this.   Adam Zach (00:05:07) - And if I don't, it's like, okay, over the long term, I'm going to generally not lose money. It's not I have to get 8%. It's not that I have to beat the S&P. It's just like, okay, over a period of five years, if I do this, the worst thing that's going to happen is I got a $10,000 education that I should have put. I could have put my money in at 8% and maybe would have grown to $12,000, which is like, you know, do. But if I win, you know, that now turns into a rental that I get a block that then fuels everything else. And so it was looking at that ratio of like, okay, if I do this right in general, and of course you can always go, you know, it could be worse, right? I could have not had insurance and the whole house could have fall down. But it's like, okay, give give some sort of like 95 degree level of confidence, right? So like that's where it gets a little bit tricky.   Adam Zach (00:05:54) - But like that's how my engineer brain was like, okay, well, the worst of the worst of the worst is like, as long as I have insurance and as long as something else, like in general, if you hold real estate long enough, like it generally works. So like for my first deal, it was like, just try not to lose money and if I happen to be right, I'm going to probably learn something and win.   Sam Wilson (00:06:11) - Got it. I love that. So you began in Single Family, is that right?   Adam Zach (00:06:16) - That's right. And that's what I grew most of the portfolio. It's crazy. It just a single base hit at a time, right? That was it. Just one one after another through 50 homes.   Sam Wilson (00:06:25) - 50 homes. You have 50 rental properties currently, correct?   Adam Zach (00:06:29) - In 13 different states.   Sam Wilson (00:06:31) - Wow. Okay. 50 rental. That's that. That's a twist. I did not expect 50 rental properties, 13 different states. What was the strategy in getting outside of You're in North Dakota, right? You got it right.   Sam Wilson (00:06:49) - What was the strategy or the intention behind, hey, we're going to we're going to go outside of North Dakota.   Adam Zach (00:06:53) - So besides just taking the action, getting in the game, we went through like pivot one, pivot two, pivot three of like, oh, this business model is better. Okay, now this one's better. Okay? It's fixing flips. No, it's the burn. No, it's wholesaling. No, it's commercial. No. And it was like, okay, in general, we just like, okay, what do you not like about what you're currently doing? Solve that problem? And so what we currently ended up with with, okay, let's find the person first and the property second, which means we find someone who 1 to 3 years away from a mortgage, they apply to us. We preapproved them like a bank. We go buy the home and sell it to them on a rent with an option to buy. So we don't find any properties. We don't look at properties, We still get the inspection and still get the appraisal.   Adam Zach (00:07:30) - But now we find the people, the people go shopping with an agent and then we buy the home for them.   Sam Wilson (00:07:36) - So I'm sorry, I'm a slow learner. Rewind that strategy again.   Adam Zach (00:07:42) - So. So this scenario, Adam cannot get into a house because I recently left my civil engineering job and on paper I make negative money. So the bank says, Hey, turns out your debt to income ratio is out of whack. Like, I can't buy you an owner occupied home, but you can go get a loan all day, right? So I can buy a non owner occupied. But if I want a primary residence, the bank does not like Adam in my current position. Wealthy, but debt to income doesn't work. So I go, Hey Sam, if I put 20% down on a new build here in Fargo, so a $400,000 house, would you go get a loan for 320,000? You don't put any money up. Whatever your whatever your pity is, I'll pay you that plus $500 a month.   Adam Zach (00:08:25) - Just give me the option to buy it back at $430,000 any time in the next 18 months. And you'd say, well, what's your credit score? What's your background? What's like? And so then we we basically underwrite people like I'm a registered loan originator. I'm also an investor. And so we underwrite people to that criteria. I'm like, okay, you're risky, you're 20% down, you're not risky, you're 5% down. And then we're basically pairing of what we want from a return, just almost like we're privatizing the mortgage industry. But instead of doing a first position loan, Sam, as the investor taking title, you get to depreciate it. It's a rent with an option to buy. So it's more favorable to you as the investor when you're buying the home, selling it on an option to buy because the option fee doesn't get taxed right away. It's not like deferred capital gains. You can still 1031 into something. And so that's the structure that really hit the turbo button for us.   Sam Wilson (00:09:16) - Wow.   Sam Wilson (00:09:17) - I mean, forgive me, but that sounds that sounds complicated because you got to write borrower, you got to find the right property. You've got to find the right bank. Let's assume I'm the lender. I'm the I'm the one in this case putting up the $320,000 loan. Does it get complicated? If you are the lease option tenant, I'll call it that. Does it get complicated with you bringing the down payment and me securing the loan in the bank comes to me and says, Hey, Sam, where'd that 80 grand come from?   Adam Zach (00:09:51) - If you're putting it in your own personal name, 100%, because they got to source all the funds, right? If you're getting a commercial loan or typically a DSR, they they I guess sometimes it's, hey, I need a show proof of funds, but I'm putting my 80 grand towards the title company you're bringing. If you have let's say we're doing ten and ten, then you would send it to the title company. So in theory you just have to show the proof of funds.   Adam Zach (00:10:18) - But the title company is the one receiving all the funds, so they're receiving my non-refundable 80 grand of option fee. And then the day and the day you close the take title, sign the mortgage, do the personal guarantee, whatever it is, we're executing the lease with the option to buy. So you you actually don't typically we don't touch the keys. They just hand the keys over.   Sam Wilson (00:10:35) - Sure. Right. Yeah. Ideally. Ideally, that's the that's the strategy. That's really, really intriguing. How many potential, um, people are there that fit this criteria such that you can make a scalable business out of it?   Adam Zach (00:10:51) - So roughly 1 in 10 Americans get denied a mortgage, which is, which is excess of 2 million people every year. There is 140,000 people searching rent to own into Google every month. Wow. And so all we did was tapped into that market disqualify the individuals that can only put 1% down because like there's different like there's larger companies divvy homes, Home Partners of America, this is their entire business model, but they don't offer it up to other investors.   Adam Zach (00:11:23) - They say they say test drive the home, put 1% down, rent it with the option to buy. And that's that's also a great scalable market. But they only pick great properties and great locations. And for us, since we're tenant led, we just said, Oh, you're picking a property and nowhere in North Dakota you're probably going to need 20 to 30% down because I don't want to come to that property. I don't want this property back, right? And so all it is, is just like a balanced, almost like risk to reward of like, okay, if they default, if Adam defaults, I'm keeping his 80 grand and then I'm selling the property, I have to evict him. It's not a foreclosure because it's a lease with an option to buy. So instead of being a six month foreclosure, it's a 30 to 45 day eviction. And it's just kind of helps protect that. And then the icing on the cake is if you do a rent with an option to buy, there's rent guarantee insurance that you can apply that I didn't even know existed.   Adam Zach (00:12:15) - The guarantors leap easy and then Single key, which is in Canada coming to the United States, you can literally apply coverage like the banks do with private mortgage insurance on renters. And so if they default, you keep their option money. You have this insurance policy which is basically like you're, Oh shit, something went wrong because they're potentially higher risk because they don't fit the bank. And so we've just been layering that on to now try to find this balance of what does it look like, What is it, what is an investor want from a return? How much skin do they want in the game from the tenant buyer? And it's like almost going into underwriting like 101. It's just like, okay, well, what does Sam want? Does he want cash flow? Does he want appreciation? Does he want a nice home? Does he want a nice location? Okay. Does one all those. Okay then based on that, what's the demand for people in Indianapolis that would want Sam to buy him a home? And then we just play matchmaker?   Sam Wilson (00:13:02) - Interesting.   Sam Wilson (00:13:03) - Okay, so let's just run the numbers here. You've got a house. This is hypothetical, but you got a house for 400 grand. They put you know, again, it's you and me doing this deal. Adam puts 80 grand down as the down payment. Is there an option? Fee in addition to that?   Adam Zach (00:13:20) - No. So I'm interchanging it. It's technically an option fee, but generally no. Like security deposit. Right? It's the option fee, which you can call it a down payment, but it's technically an option fee in an option agreement.   Sam Wilson (00:13:33) - Right. So, okay, that's your you're calling the 80 grand the option fee. Totally. Fine. Understood. And I'm sure there's some reasons legally for that which we won't get into the nuances of. I'm sure our listeners can just make their own conclusions from that. And then you say, all right, you know, congratulations, your $400,000 home is going to cost you whatever it is. I don't know. What would that be, $2,200 a month, maybe 2400 bucks a month in today's rates.   Sam Wilson (00:14:00) - Plus you'll be 500 bucks a month on top. So the investor collects the six grand a year. And then if you add them exercise in the next 18 months, you'll owe me an extra 30 grand on top of that. But the only way they're going to exercise is if they are able to then in 18 months go out and get a refinance.   Adam Zach (00:14:20) - You got it.   Sam Wilson (00:14:23) - What are the statistics around the people that are able to substantially turn around their lives in such a way that they actually get that refi done?   Adam Zach (00:14:29) - Terrible. Which is why. Three things. Number one, we created a podcast dedicated to those 1 in 10 people denied a bank loan because in general, people do this all the time. Hey, give me ten grand, move in. You can get financing in a year, right? Yeah, sure. I can take the money, rinse and repeat, and it's like the greatest ROI you'll ever get, right? Ten grand plus rent and do that every year. It's like just juicing the ROI.   Adam Zach (00:14:54) - So it's like number one, stop it. Okay, then number two, becoming a registered mortgage loan originator. I'm still not a great loan originator, but understanding. Okay, what does it actually take to become qualified with a bank? And then number three, setting them up for success so that they can do it. So whether it's a credit repair, whether it's reporting the rent credits, whether they're being a co-borrower on something, it's seeing them through. And so at the time of this, we have like we have an 80% buyback rate, which is staggeringly higher than like the national average of what don't know if there is like an authority, but I've heard like 5 or 10%. But it's usually because you're only putting 1 or 2% down because all buy a home right now in Florida with 1% down. If I can lock in a price because I'm playing the appreciation game, I would love to do that as what I call a tenant buyer. As an investor, I don't want to do that because I want the upside without the downside protection.   Adam Zach (00:15:44) - So like as a tenant buyer, it's actually great to buy an up and coming markets that could drop because you just have the option but not the obligation to buy. And so at the same time, that's why we're setting this up. Not so much is like, hey, test drive it, it's Hey, this is your house. And if something were to go wrong, we give them three years. They get an option to extend for a year. Plus we give them the option of like, Hey, if something really goes wrong, we'll just sell the home. And if there's whatever equity is generally left, you can take part of your deposit back. Just like if you bought a house now and sold it six months later, you're going to lose money just 6% to agent fees, whatever it is. And so we're trying to set it up as much for success across the board, right?   Sam Wilson (00:16:23) - I mean, and again, 80 grand is no small amount of money. And so for the person that has 80 grand in savings to plunk down on a $400,000 house, um, you know, you'd hope they could figure it out.   Sam Wilson (00:16:36) - But it sounds like you're doing you're taking a different approach to this business because, yes, there are the people in the in the capacity to wash, rinse, repeat and really juicy returns. But it doesn't really do anything for the people that live there. It doesn't do anything other than really just pad your pocketbook. I'm not going to say it's wrong, but I'm going to say that, you know, maybe there's better ways of doing stuff. It sounds like you're really making sure. And you said 80% of your buyers end up exercising. That's really, really strong, right?   Adam Zach (00:17:05) - Right now it's really strong. I, I see some ways that that might get generally lower, but as of the recording of this, it's 80%.   Sam Wilson (00:17:12) - That's awesome. And that's cool. I mean, and that's good. That's good for two people. It's good for the tenant buyer and it's also good for the investor. I mean, because then they collect their their upside and then the tenant buyer, of course, ends up with the with the house.   Sam Wilson (00:17:27) - But you're going through the steps that probably a lot of landlords, business owners aren't going to go through in order to make sure that people then exercise. I think I've only done. Oh, no, I've done three. Three deals like this. But I too, like you like I went to a lot of effort to see to it that they got these across the finish line. How do you handle that side of things? I mean, you said you're a family man with a business, not a business man with the family. 50 of these houses, you've got investors, you've got properties, you've got builders, you've got all of these. There's a lot of moving parts there. How do you manage all that?   Adam Zach (00:18:05) - So luckily, I have an awesome business partner and a team. And so we've found kind of our own skill sets where we have someone in call it tenant relations, and I'm more in sales and marketing playing with Google ads and Facebook ads and trying to make sure that our website explains things to the tenant buyer is putting out content, trying to help them.   Adam Zach (00:18:21) - And so once once you get through the closing, it's it's relatively more easy because they have a monthly payment and they're just trying to get mortgage ready like that, but like getting to the finish line, like just in general, buying a house is complicated. Okay. Add in the fact that our agents are showing someone that we're not even there and we're, you know, potentially assigning this to an investor and they're understanding like, okay, what does this actually mean? And if one person, whether it's the insurance, the title company, the buyer, the seller, the agent, us, the tenant buyer, like if someone falls through, it's like, okay, then the whole thing comes down just like in any other normal transaction. So it's like, okay, being the transaction coordinator and holding everyone's hands and making sure that we have the contracts to hold everyone to it, getting earnest money from either investors or the tenant buyers to make sure that they have skin in the game just to make sure things don't fall through the crack.   Adam Zach (00:19:11) - And then if worst case comes. To it. We just buy it all cash and just save the deal if something were to fall out. So we have a little bit of options because we don't want to have a bad reputation out there of like, Hey, we can't close on homes. But in general, you know, that's the piece. And then it's like, okay, normally what people need to work on is their credit or it's paying down debt. Rare is the time where they're just waiting for two years to get like their tax returns. But, you know, that does happen. And so it's okay. How do we increase the likelihood of them buying it back, which, you know, wasn't our primary focus. Our number one was like, okay, how do we use this to quit our day job? I'll be honest, Like it wasn't very altruistic to start off. I was like, How do I make more money? And it was like, Oh, it turns out Chris Krohn on YouTube is like, Oh, I'm preaching about least options.   Adam Zach (00:19:52) - And then when he patented Joe McCullen, it took these courses and I was trying to sandwich lease options, but it was really hard to find motivated sellers. But why don't I just find a motivated. You know, home shopper. And so I found that. So we're not buying it great, but we're selling it well. You know, if you can buy it at a discount plus sell it on a lease option, well then you got both. We just found a model where we're purchasing properties right now off the MLS and cash flowing them all day, every day.   Sam Wilson (00:20:18) - Wow, that's wild. I love it. I love it. Now, you've launched a fund here recently. What? Tell us about that.   Adam Zach (00:20:26) - So we kept trying to do these one off deals, right? Like, we'll find the person, we'll do all this. And we said, All right, let's just get two of us together. We'll put a bunch of money in there, We'll look at the bank and the bank's like, Oh yeah, cool.   Adam Zach (00:20:35) - You guys are good for like $5 million. Okay, let's just go buy. So any now we know that the next 30 homes we're just gonna buy like, no questions asked. The banks on board. We got the investors, we already got all the capital. So we just did a, you know, a pretty standard fund, put that together, got some limited partners in there. And then we're going to see how that works by 20 to 30 homes, see what the returns are, see what the splits are, and then just either do that every year or keep it as an ongoing, ongoing thing where we just keep buying more properties with the fund and keep distributing it. But right now it has a sunset of, hey, we're just going to buy 20 homes and then we're going to go do it again, Right?   Sam Wilson (00:21:08) - That's that's really, really cool. What are some bottlenecks or complications in your business right now that you presently have not solved.   Adam Zach (00:21:15) - Interest rates doubling over a year? And so in general, last year it was hotter than a pistol where everybody wanted to go through.   Adam Zach (00:21:24) - And it turns out the demand is still here. But just like everyone in 2023, when interest rates are at 7% every. So we have this list of I'm going to call it pre-approved home shoppers that are like 50 to 100 people that are just like, well, I'm not sure if I want to do it right. And there's but that's America in general, right? Low inventory. Nobody wants to give up their 3% rate like, but everyone's pre-approved. They could get a home and everyone's like, well, I don't want to overpay. It's still generally like a seller's market from what we're seeing in different places, even though the highs, you know, have come down. But like it's still like homes are still going like 1 to 3 days. So in general, it's like everything got more expensive. Well, when that happens, things generally slow down in general. But what we've seen is we've got this huge demand built up, but not as many contractual offers. So the top of the funnel from us is still rocking where we get 1000 to 2000 people every week to our website.   Adam Zach (00:22:13) - We get, you know, ten people applying with us and, you know, every week. So we got like 2 or 3 new home shoppers every week. And it's just a matter of, okay, do they want to move forward with this or not? And then we'll get people that came came to us from last year like, Hey, can I still get that? Uh, nope. That's not it's not it's not the same, you know, 4.5% interest rate.   Sam Wilson (00:22:32) - No, no, it's not. And that's. Yeah, man. Very interesting. Adam, I've really enjoyed having you on the show today. I love what you guys are doing. The strategy, I understand lease options and lease to own very, very well, but I've never seen it employed quite the way that you're doing it. So this is very, very fascinating love. I love what you're doing and I also love the way you are getting people into homes and helping them get across that finish line and actually make it to homeownership in the end.   Sam Wilson (00:23:02) - I think that's that's a really cool, unique strategy that you're employing there. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Adam Zach (00:23:11) - If they want to learn more about me, you could just follow me on Facebook. If you just search Adam Zach Or if they want to learn more about this strategy, it's home equity partner slash investors home.   Sam Wilson (00:23:21) - Equity and Adam, I butchered your last name there in the beginning.   Adam Zach (00:23:26) - It's just very German. It's like Baquba with a Z.   Sam Wilson (00:23:30) - With a Z. Yeah. And I'd definitely made it. Adam. Zach. So, Adam. Zach Got it. Adam Forgive me for that. I've enjoyed having you on the show today. Thank you so much for coming on and have a great rest of your day.   Adam Zach (00:23:41) - This is a pleasure. Thank you very much. Thanks for the great questions.   Sam Wilson (00:23:44) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen.   Sam Wilson (00:23:57) - If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Aug 30, 2023
Transforming Mobile Homes into Luxury Residences: an Innovative Solution to Affordable Housing

Today’s guest is Franco Perez.   Franco is on a mission to create affordable housing in Silicon Valley. He discovered that the Bay Area’s mobile home parks offer an abundance of underused land with great growth potential.   Show summary:    In this podcast episode, Franco Perez discusses his mission to create affordable housing in Silicon Valley by renovating and expanding mobile homes in mobile home parks. He explains how his company revolutionizes the construction industry by building homes on an assembly line in a controlled factory, reducing costs and increasing efficiency. Franco addresses the misconception that mobile home parks are low-quality and emphasizes the benefits of owning a mobile home as a way to build net worth. He also discusses the challenges and opportunities in navigating building restrictions and codes, as well as the need for more young people in the construction industry.   -------------------------------------------------------------- Intro [00:00:00]   Franco Perez's mission to create affordable housing in Silicon Valley [00:01:01]   Converting old mobile homes into larger, luxury homes [00:02:08]   The benefits of factory-built homes [00:11:19]   Changing perception of mobile home parks [00:12:25]   Challenges in building codes and regulations [00:13:34]   The benefits of mobile home ownership [00:21:59]   Challenges in protecting mobile home parks [00:23:11]   Government protections for mobile home residents [00:24:47]   -------------------------------------------------------------- Connect with Franco: Linkedin: Web:   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Franco Perez (00:00:00) - Cars originally were only affordable to the rich and wealthy, and it was only until they started building it on assembly lines that they were able to make it available for everybody. Right. And how did that happen? It's building processes. It's making making the build of these cars more effective. And that's exactly what we're doing now, is we're building these homes on an assembly line in a controlled factory and maximizing the output of the current labor that we have today. And and with that, we're able to buy material at economies of scale. We're able to really make labor way more effective. And in the in the end, we're we're making the cost, the total cost of the construction way lower than you would if it was a single site unit build home or traditionally built home. Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:01:01) - Franco Perez is on a mission to create affordable housing in Silicon Valley.   Sam Wilson (00:01:05) - He discovered that the Bay Area's mobile home parks offer an abundance of underused land with great growth potential. Franco, welcome to the show.   Franco Perez (00:01:14) - Thanks for having me. I'm excited.   Sam Wilson (00:01:16) - Absolutely. The pleasure is mine. I also am excited, frankly. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Franco Perez (00:01:28) - Well, first moved here from the Philippines, got into real estate because of necessity, as the only job I could have taken at the time. Didn't go through school from there. Did real estate agents work? And I hated it and really wanted to help people in the middle class and got into finding out that mobile homes do that very well. So I took it upon myself to to start a business and helping people get into mobile homes. And that's where we are now.   Sam Wilson (00:01:58) - Start a business helping people get into mobile homes. So you're placing tenants essentially in mobile homes.   Franco Perez (00:02:05) - We are doing that.   Sam Wilson (00:02:06) - Are helping people buy mobile homes.   Franco Perez (00:02:08) - Yeah. So, I mean, in the beginning it just first started with really helping people transact, so buying and selling mobile homes. And then from there, once they once we started to build up our business, we realized that a lot of these low quality mobile homes are like single wide trailers could have been optimized. So we start now. We're currently turning a lot of 700 square foot mobile homes and turning them into beautiful 1600 square foot, three bedroom, two bath, 12 foot high ceiling like beautiful luxury homes.   Sam Wilson (00:02:41) - Now what? That's wild. So you found and what year really did you start doing this?   Franco Perez (00:02:49) - You know, we only started our business about almost three years now. Okay. So, yeah, Yeah. So it's pretty exciting.   Sam Wilson (00:02:57) - Absolutely. So and again, I'm forgive me if I'm asking you this, the questions that you've already answered, but I'm a slow learner. You started buying and selling just mobile homes. You started placing people in the mobile homes.   Sam Wilson (00:03:11) - Then you figured out there's a way to renovate. And this is what you said blows my mind. Renovate a 700 square foot mobile home and turn it into a 1600 square foot really nice house. What's the strategy? How do you profit in that? What are the I mean, there's so many questions as it pertains to that. And is that and I'm throwing like 80 questions at you initially ask one. But is that the main strategy now or what is what is the overarching strategy?   Franco Perez (00:03:38) - Yeah. So you kind of said it everything pretty much correctly, except we're not actually buying the mobile homes themselves. We kind of as a construction company, helping, you know, people reach us like, Hey, you own this home. It's in a beautiful location. If we convert this to a much bigger home, you can actually spend X amount. And when you sell later down the line, you're going to make X amount plus more, right? So we create a win win solution for them to convert their old home to a new one.   Franco Perez (00:04:08) - And in return, they have a much more they have much more value in that in that mobile home itself. And then they can sell it for more later down the line. So we really act more as a development style company, if that makes sense.   Sam Wilson (00:04:22) - Yeah. Are these mobile homes placed in mobile home or manufactured housing communities?   Franco Perez (00:04:30) - Yes. Yes, they definitely are.   Sam Wilson (00:04:33) - How do you I mean, I don't own any mobile home parks. So how do you handle the kind of sizing restrictions? I mean, every mobile home park I've seen is they're packed in pretty tight. How do you how do you find that extra 800ft² to expand? And even how in the world do you expand a mobile home? I mean, I would I would have thought those are pretty fixed.   Franco Perez (00:04:55) - Well. Well, a lot of these homes are built in the 70s and they really weren't optimized for high density housing. So keep in mind, like in my area in San Jose, you know, these are mobile home parks that are located right across the street from Google, Samsung headquarters, Apple headquarters, you know, prime location.   Franco Perez (00:05:13) - And people are paying high dollar amounts just to rent a rental apartment. One bedroom, one bath is typically about 3300 bucks. If they were if someone wanted to purchase a single family home that never owned one. The median price point for a single family, homes $1.6 million. Right. So big contrast in between and came to realize that, hey, these are already in prime locations. They're just built in the 70s. They're old style homes. And, you know, they weren't built to last this long. So what we do is we can we're realizing like you're on they're on a lot themselves. Some parks, they are pretty packed. But there's, you know, in our parks, you'll typically see a single wide with a porch on the side and then we'll end up maximizing and retrofitting their lot so that they can get the maximum amount of value. Of course, we have to analyze each space case by case and see how they can maximize their value. But in most cases, you can turn a single white into a double wide and we're doubling the square footage and raising the value by a lot.   Sam Wilson (00:06:18) - Wow. And you're you're doing this construction work for existing owners.   Franco Perez (00:06:26) - Correct.   Sam Wilson (00:06:27) - Okay. Yes. And are those owners, the people that actually live in the home, or is it and I'm just asking more specifically, like you're there in the in the Bay Area, Are they are they tenants that are living there? Like who is what's the profile of the person. I guess that actually yeah. House.   Franco Perez (00:06:46) - Yeah. So I guess first off, like the big stigma around mobile home parks is that, hey, the, you know, we only get our perception of mobile home parks from the media really like TV or the news or, or Eminem music videos. Right? And our perception of mobile home parks is that they have low quality people, that they have low quality builds. And this is really only for the poorest of the poor. Right. And but the truth of it is, is just like in apartment buildings, like, hey, there's apartment buildings where I don't want my kids ever visiting or that sort of thing.   Franco Perez (00:07:16) - And then there's luxury style apartments that are actually beautiful places to live, great communities, great amenities. And that's the same spectrum that we have with mobile home parks. You have, you know, they aren't just bad quality parks. There's very high quality parks that look like resorts that have spas, that have swimming pools, billiard rooms and that sort of thing and have tons of space as well. Right? So that's the first thing. The next is actually I forgot the main part of your question. But, you know, the the main thing is, first, understanding that mobile home parks might not be what you perceive. And also on the financial side, we have a lot of bad knowledge about or bad information about these two. Hey, mobile homes only depreciate in value. They're built of low quality and that sort of thing. But this is all old news that is still being passed on to current day. Right. And that's what we're doing is like I was at Washington, DC, we built a home on Capitol Hill and we showed how beautiful these homes were being built.   Franco Perez (00:08:18) - And on our YouTube channel, we show the quality of how it's being built. We use two by fours, fiber, cement, exteriors, you know, quartz countertops all the way throughout. And it's really such a beautiful thing. What how we're advancing and revolutionizing mobile homes itself. Right?   Sam Wilson (00:08:34) - Oh, that's cool. I love that. So lots of questions on that front. So we've talked a little bit who who the owners of these are. I mean, California's not known for having a few rules. There's a lot of rules, especially as it pertains to building restrictions and things like that. How how is navigating the building restrictions, building codes, things like that, when you're doing kind of an unchartered waters model, which is, hey, we're going to renovate, expand, build on to a 1970s. Mobile home and turned into something brand. Yeah. How's that process?   Franco Perez (00:09:12) - You brought up? A really good point, and I'm very passionate about, like lobbying and stuff with DC. We were.   Franco Perez (00:09:18) - That's why I was in DC. We were pitching to multiple different states, not just California, but California is of course, kind of the most difficult. Now, one thing to keep in mind is that these mobile homes were building are in mobile home parks. Right. And you don't actually own the land itself. So the that small separation actually allows for us to build a much more efficient and rapid rate because it's not technically real estate. Right? So with that, we have less governance of how we build this. We you know what normally would take me to build a 1500 square foot home on a piece of land would take me 8 to 13 months. Whereas on this, in this mobile home park, I can convert someone's old mobile home to a new one. We just beat our record recently where we completed start to finish in less than two and a half months and it's insane what we're doing. So now we're doing that repeatedly and they love beating our record too.   Sam Wilson (00:10:16) - Well, 75 days start to finish is impressive.   Sam Wilson (00:10:20) - What about what a and I would imagine, you know, the cost component is something you kind of started talking about early on. What's the cost? I mean, are the are the costs lowered in your construction style? I mean, you're doing some pretty cool finishes as well, but there's economies to be found there.   Franco Perez (00:10:41) - Absolutely. You know, one of the big things that's really underrated, we're our country is facing a huge problem when it comes to construction in the future. Right. We're not building enough affordable housing out there. And we have to innovate and change how we're doing, how we're building housing. And it's so important and it's fascinating. If you see on our channel how we build these on assembly lines. And I kind of bring this analogy is that, hey, cars originally were only affordable to the rich and wealthy, and it was only until they started building it on assembly lines that they were able to make it available for everybody. Right. And how did that happen? It's building processes.   Franco Perez (00:11:19) - It's making making the build of these cars more effective. And that's exactly what we're doing now, is we're building these homes on an assembly line in a controlled factory and maximizing the output of the current labor that we have today. And and with that, we're able to buy material at economies of scale. We're able to really make labor way more effective. And in the in the end, we're we're making the cost, the total cost of the construction way lower than you would if it was a single site unit build home or traditionally built home. Right. And that's a huge thing that that we're also working on as well.   Sam Wilson (00:11:58) - That's wild. So you're you're having these manufactured in a facility. Even even even these. Remodels, new construction or reconstructions, if you will. All this is built in a factory and shipped to you.   Franco Perez (00:12:14) - Exactly. Yep. So if you can imagine, just like I know I keep using our area as an example, but this works in many other areas. Like we were just consulting in Austin as well.   Franco Perez (00:12:25) - The labor in these high density areas are very expensive. Now if we can transport the cost of that labor to another outside area where it's less expensive, hey, we're able to create great jobs for an area that doesn't have a lot of jobs, and then we're able to transport these units to to a site that really needs affordable housing. And this is a model that's really been growing and probably the most. Talked about thing in the construction industry and we speak a lot about it. It's very similar to like modular construction. They're starting to do these in apartment and multifamily as well. But we really have to change the way we see building homes. And this is this is a movement that's going to be happening.   Sam Wilson (00:13:09) - Oh, I absolutely couldn't agree more. I mean, it's it's we're seeing it not just on the mobile home park side of things, but the eye getting getting. Buildings like this. Through codes, through building permit phases and allowing municipalities and to accept these types of buildings. I mean, once once this becomes mainstream, it's going to be like, okay, wait, we can reduce the cost.   Sam Wilson (00:13:34) - Like you were saying, I like the analogy of the car assembly line. You know, the Model T came out, I think it was the one that really changed. It was like everybody can now have a car like this is wild, but you know, get it. Getting this stuff pushed through is obviously it's a it's a labor of love, if you will. What are some things that you or some headwinds you're running into on the legal and or building codes, construction side of things that are preventing some of this to go really more mainstream.   Franco Perez (00:14:04) - Well, you know, I really work on this at a at a big level to try to ease as much as we can a few of our issues is. Originally there wasn't a lot of loan options for financing for people that want to own something like this. And through the years it's gotten better and better. Now we have 10% down programs, 25 years, and now we're trying to just get more government backing to help us create this financing as a solution.   Franco Perez (00:14:33) - The second is for it's really advocacy or really letting people know that the. The second restriction is really the perception of mobile home parks and mobile homes itself, right? That's why we push how quality built these are on our YouTube channel. That's why we push how this is helping the teacher that wasn't able to stay in the Bay Area, be able to stay there and have a comfortable financial situation. You know, we loved sharing these stories because the general public misunderstands this. And sometimes in outside areas they try to close this down or feel that it's creating a bad a bad thing in their area. And that's really something that we try to push for and try to protect the preservation of these mobile home parks, right?   Sam Wilson (00:15:22) - No, absolutely. Absolutely. Yeah, They're not they're not generally building more of them in most, uh, most governments and local governments are opposed to them. So it's yeah, you're fighting an uphill battle, but I really like that. Do you see what you're doing is expanding ever beyond the mobile home park industry, or is there just so much opportunity there that that's not even on the on the radar yet?   Franco Perez (00:15:47) - There's there's a ton of opportunity all throughout affordable housing, if you ask me.   Franco Perez (00:15:51) - I think the problem around affordable housing is is so underrated. We don't realize how bad of an issue where it's going to be later down the line. One thing I'll put out there is like all most of our construction labor are 45 and older and they're retiring. And they, they, they they don't want to work anymore. But we don't have enough young generation people that want to get into the labor industry and how are we going to build homes, You know, if we don't innovate now, there's we're going to hit this huge problem and it's something we should see now in and adjust and innovate and build better, Right? And a lot of these regulations and restrictions are causing builders to have difficulty to building homes. And we need to lower the restriction so we can make it easier to build these homes as well.   Sam Wilson (00:16:40) - No, there's.   Franco Perez (00:16:41) - There's a ton of yeah, I'm all for anybody that's helping create housing in an innovative way. And there's so many opportunities out there.   Sam Wilson (00:16:51) - There really are, man. And I'm not going to be on the forefront of that, you know, got my hands in other things.   Sam Wilson (00:16:56) - But I think it's a fascinating thing to watch, certainly, because it's like I mean, I think about this all the time. I live here, even in Memphis, Tennessee. And I'll be honest, like even in the existing housing stock, it's like, my gosh, like stuff is it I mean, especially here in the South. I mean, you know, it's just the the natural environment alone will just wear something out in short order. So not to mention being lived in by humans and it's like, my gosh, our housing stock is aging, it's getting old, like stuff's falling apart, Like and there's it's getting to the point where the replacement housing stock and even even the replacement housing stock that's coming online isn't that great quality. You know, it's going to last nearly as long as this is. So how how are we going to, like you said, continue to provide housing stuff that's well built stuff that will at least stand the test of time. I mean, my I used to think a hundred year old house was old and now I'm like looking around.   Sam Wilson (00:17:50) - I'm like, dang. Like, we're really close to living in 100 year old house. That's this is. This is wild. So yeah, it's just kind of fun to see that how Let's go back to your kind of origin story here a little bit. How did you find the first person and implement the first kind of mobile home park remodel? Like what was what was that process where it suddenly turned you on and said, hey, wait, we're on to something here.   Franco Perez (00:18:16) - Well, I think the first thing I want to mention is that I grew up personally with a single mom and remember the pain points of rent. And I think that's a really big part of why I'm so passionate about this is because I felt that pain. And for me, working as a real estate agent, it just wasn't rewarding. Telling people, you know, helping the richest people I can help find the most expensive homes that I could and turning away the people that were in my shoes like, Hey, I'm sorry, you can't afford it yet.   Franco Perez (00:18:44) - You don't have a down payment yet. Save up some more, make some more, and then we can work together later. Right. And I hated that so much. And and I really wanted to explore out there to find, like, how can we help create a stepping stone for people that can't yet afford real estate and but want to get out of that rat race of renting and looked into government entities, tried that for a little bit. Realize a lot of these rent lowered rent situations aren't really helping families as much as we think they are. It's really the ownership. The wealthy are able to benefit from homeownership like tax benefits, appreciation, building equity, leveraging a loan. And these are things that should also be accessible to everybody. And I came to realize I actually I accidentally stumbled upon on Google Maps, mobile home parks. I was like, Whoa, there's a ton of mobile home parks I never even knew about. And they're everywhere. And and I met the people. I realized that, wow, you know, these people are able to live here and be able to feel financially secure.   Franco Perez (00:19:50) - And and and the financial model of it really is is a beautiful thing. And it's something that more people should realize. But that's kind of how I found out about it. Then it came into how do we help improve it? How do we help build better quality homes in these parks that are already existing in high density, high cost areas? That's how it started.   Sam Wilson (00:20:13) - Do you have a background in the trades?   Franco Perez (00:20:17) - You know, I have no formal education, didn't really go through college or anything like that. But, you know, I think one thing I always look back on is being coming from the Philippines is really being resourceful with what you have. I think people have to realize education and anything we want to learn is out there on the Internet. You know, all the information is there. It's just a matter of how we use it. And if we are passionate about wanting to use it right. And because of my passion of wanting to help for me, helping one single family get out of a rental rat race is so rewarding.   Franco Perez (00:20:51) - And if I can if I know I could do that at scale, man, you know, I'll study this all day and and learn it myself, right? So I seeked upon online I seek developers and learn from them for, you know, worked for them for free and that sort of thing. And that's kind of how I got my education. Right.   Sam Wilson (00:21:10) - Got it. No, I love it. That's great. Wasn't suggesting that necessarily had to have a background in the trades. I just think, you know, I'm even more inspired by what you've done because, you know, I would think that, hey, we're going to walk in. I see that. We're going to turn that into something cool. We're going to build a new a new, completely remodeled, brand new mobile home with twice the square footage and awesome finishes that you would have had a background in the trades and or and building construction. But even that you didn't even have that really necessarily going into it. And self-educated I think is even more inspiring.   Sam Wilson (00:21:41) - So that's really, really cool. One of the things I think about is that it's lots. There are lots rent or lot rent. So if you have a mobile home on it now, you've expanded it from 700 to 1600 square feet. Is it still movable?   Franco Perez (00:21:59) - We we build it to a point to where it's really is permanence could be right and it's not, you know so so it's not like on wheels or anything like that, but it's just enough to be classified as a mobile home. And and the ownership. You talk about rent and I think a lot of people are steered away from mobile homes and owning it itself because you're always going to be paying that rent. But I share to people that this is something that is better than renting and it's a way to upgrade yourself out of renting. Hey, that person that's spending 3300 a month on full rent and after five years have nothing to show for it, they can instead go to a payment like this, which is about 3500 a month to one third of that, let's say, is going towards the low rent, which is like we could we could be negative about it, but realize that two thirds of that is going towards an asset that you own that's helping you build your net worth and helping you progress your family stability.   Franco Perez (00:22:57) - Right. And that's the key thing here is it's a stepping stone to graduate yourself out of that rat race and into your journey of home ownership. And.   Sam Wilson (00:23:07) - I'm sorry. Go ahead.   Franco Perez (00:23:09) - Oh, I was finished.   Sam Wilson (00:23:11) - I'm so sorry. My apologies, Franco. I just. I hear that. I love it. I love the mission. I love the goal there. But how? One of the things that that I follow is mobile home park closures. I follow municipalities that are saying, oh, I mean, it's happening all over the country where it's like, oh, hey, cool, really glad. And people claim that it's the largest privately held mobile home park owners in the country that are kicking everybody out and closing the parks, which is just categorically untrue because if you look at it, there's a lot of municipal I think there was even National Park Service here and it was like, Oh, hey, cool, thanks for you've been here for 100 years, but now we're taking the land back and everybody get out.   Sam Wilson (00:23:53) - You got 30 days. And it was like, Wait, Like residents are furious. How do you as a it's somebody in this position, protect yourselves against that. Like if you're gonna put all this money into this program, all this money into renovating a home and renovating a mobile home park or mobile home rather, how do you make sure that, hey, in two years I'm not going to say, Hey, thanks so much, by the way, get out.   Franco Perez (00:24:16) - Hmm. No. Good. Good question. And I think the there's a lot of bad stories and bad myths. And keep in mind that the news really pushes it's an easy target to talk about mobile homes all the time. Right? So whenever there's a hurricane or that sort of thing, everyone's like always targeting that. But the reality of it, I say take in your own information and your own areas and really realize how these are. And the second part to that is I am very passionate about protecting and preserving these in the government level as well.   Franco Perez (00:24:47) - And we've done that to help protect residents. So there are now and this is different in every area, but in our area, for example, in San Jose or in California, there's it's going to take too long to go into the details. But this park closure happened. Their homes were valued at about $200,000. They had to do a closure to redevelop. And because of the government protections around this, they were the developers were forced to either pay them their value of their home plus 50%. So they were actually getting about 300 K for the value of their home because and then that or they gave them the option to to keep one of the homes that they're building. Right. So they can't just it's kind of like an eminent domain situation. These residents are protected as well. They're not just they have to give them the value of what their home is worth in order to kick them out. Right. So it's not what you think where it's like, hey, they're closed. They lost all of the home value, that sort of thing.   Franco Perez (00:25:46) - It's not that way. There are government entities that protect them. Yeah, And if you think of two, these banks are smart, right? These banks that are funding these residents, they're not going to fund a loan in a park that where they could close and lose all their value, too. Right. So if you think these banks are funding these, of course, they know their risk. They know their legal protections as well, too. So there are a lot of people that are safe in that manner.   Sam Wilson (00:26:14) - Franco This has been enlightening. Thank you for taking the time to share with us what you're doing here for the affordable housing situation we have. You're solving it in a in an incredibly unique way. I don't think I've had anybody come on the show out of 800 and some odd episodes at this point that has even remotely come close to doing what it is that you're doing. So think this is super cool. I appreciate you taking the time to come on today and talk to me and our listeners about it.   Sam Wilson (00:26:42) - If we do want to get in touch with you or learn more about you, what is the best way to do that?   Franco Perez (00:26:47) - All of our links are at Franko TV. Or you could Google us at Franko Mobile Homes and really appreciate what you said. We're so passionate, our team worked so hard on just helping as many people as we can and and appreciate being on your show. Absolutely.   Sam Wilson (00:27:05) - Thank you. Franco. Make sure to include that all there in the show notes. Have a great rest of your day. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Aug 28, 2023
The Best Solution for Group Investing in Real Estate: Tribevest

Today’s guest is Travis Smith.   Travis is the Founder and CEO of Tribevest, a platform that makes it easy and safe to invest as a group and do deals together in as little as 48 hours. He started his career with Morgan Stanley but realized financial freedom was easier as a group.   Show summary:    In this episode of the How to Scale Commercial Real Estate Show, Travis Smith, Founder and CEO of TribeVest, discusses his platform that allows investors to invest as a group and do deals together. Travis explains how TribeVest differs from traditional syndication and fund-to-funds models, focusing on empowering individual investors by leveraging their tribe. He shares that TribeVest is now working with lead sponsors and their investor networks to create accessibility and raise more capital for deals. Travis also addresses the challenges of consistency and compliance in the industry and highlights TribeVest's partnership with sponsors to ensure aligned and compliant documents.  -------------------------------------------------------------- Intro [00:00:00] The Origins of Travis [00:01:14] Building a Massive Business [00:02:08] Creating a Fund Manager Program [00:05:14] The challenges of working with the SEC and sponsor consistency [00:12:57] The benefits of using TribeVest for fund managers [00:14:19] TribeVest's partnership with lead sponsors and economies of scale [00:18:10] -------------------------------------------------------------- Connect with Travis:  Facebook -  Twitter -  IG -  LinkedIn -  LinkedIn - Web -   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Travis Smith (00:00:00) - We've been mastering group investing for the last four and a half years. We've built out all the the the platform, the infrastructure, all those services. And now kind of the next thing is and again, we're doing this by partnering with the sponsors and saying, hey, you know, to safely, you know, go out there and work with, you know, with other entities, it's important those other entities are set up in a legal, safe, compliant way. And Tribez is the company that makes that so easy.   Sam Wilson (00:00:36) - Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Travis Smith is the founder and CEO of Tribe Vest, a platform that makes it easy and safe to invest as a group and do deals together in as little as 48 hours. Travis, welcome to the show.   Travis Smith (00:01:00) - Sam Thanks for having me and really looking forward to this. Thank you.   Sam Wilson (00:01:04) - The pleasure is absolutely mine.   Sam Wilson (00:01:05) - I, too, am looking forward to this. Travis There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Travis Smith (00:01:14) - Oh boy, Where did I start? So the origins of Travis go back 15 years. And my brothers and I were trying to figure out how to break into real estate and true wealth building, finding financial freedom. We kept running into, well, how and where and how do you learn how to invest in real estate? And then the big problem is capital. So my brothers and I came together, formed an LLC, started pulling capital together and did our first deal, did our next deal, did our next deal. And we look back and we realized that by forming and funding our investor tribe, we unlocked a future none of us could achieved achieved on our own. So that's where I come from. Where am I now? Is that the next one?   Sam Wilson (00:02:08) - Yep.   Sam Wilson (00:02:08) - Where did you start? Where are you now and how did you get there?   Travis Smith (00:02:10) - All right. And where am I now? I'm building a we're in the early stages of a massive, exciting business where we're helping others and we're empowering others to come together, pull their capital so they can participate in private deals, real estate, things they wouldn't or couldn't on their way on their own. And I think, you know, where I'm at right now is super excited to talk about specifically how we're working with lead sponsors and their investor networks to be more effective at creating accessibility and raising more capital, to do more deals to to do more good. And how I got there, how I got there. Here is just an incredibly blessed family, unconditional love and support and can do and insane amount of persistence is how I got here.   Sam Wilson (00:03:17) - That's great. I love it. Yep. Persistence. I think that's the that is the the ingredient that that many either lack or it's probably one of the tougher ones to generate is persistence for a lot of people.   Sam Wilson (00:03:32) - So tell me this just so we can understand. You know, our listeners are a sophisticated listener group. This is about a scale commercial real estate. We spend no time defining terms, anything like that here on the show. So this is as high level as we can possibly go. Tell our listeners why what you do is different maybe than just a regular syndication and or fun to funds model.   Travis Smith (00:03:59) - Yeah. So I'm really excited to have this conversation. First, we aren't the law firm or super expensive solution out there that most. Uh, lead sponsors, Lead syndicators use. Right. Very complex. And we aren't that we aren't that. You got to remember we started with the investor, right? How do we help one investor become more powerful by leveraging their tribe so they can pull capital, their expertise, their network to do more. So you got to remember where we started. We start with the investor. And in this case and in this world, the limited partner and and now where we've come is we help that lead sponsor, right? And we help them by creating a capital raiser program, a fund manager program where they can be efficient with their existing investor network.   Travis Smith (00:05:14) - Right. And how do we do that? We help the lead sponsor roll out a program that makes it easy for their aspiring capital raisers. Fund managers to easily form a fund to fund tribe. And this is new. This is new system. So we now have an attorney on staff. We're building those that, you know, we're creating the the operating agreement, the PM, the subscription and now on try best we can easily help fund manager form a fund manager tribe and and go out to their network and legally safely affordably help the lead sponsor and participate in the lead sponsors deal.   Sam Wilson (00:06:12) - Got it. So if I if I understand the. Kind of flow, if you will. You've got a lead sponsor. That lead sponsor. Of course, has the deal or opportunity. And then you may have a another, which is not uncommon in this business. I can't talk about it on the. Oh, wait, we are talking about on the show, which is that people know there's capital allocation companies out there.   Sam Wilson (00:06:35) - And so you're kind of going with that, you know, maybe capital allocator and saying, hey, look, let's create and tell me if I'm wrong. Stop me any time. Let's create a fund of funds and we'll help you set it all up such that your tribe can then invest in the lead sponsor deal. Is that right?   Travis Smith (00:06:51) - Yes. And let's get more specific. So you know, you're part of some of the same groups were a part of. Of course, we love left field investors and the good work that they're doing. And what we've seen is this movement of of of people coming into passive investing into syndications. Right? Coming in as a limited partner. And they're they don't have a financial advisor. Right. But they're they're going to these communities. They're investing in masterminds. They're listening to your shows. They are very informed. They're very educated. And they're becoming very good investors. Right. They're they're building the relationships with the sponsors. They're doing the due diligence. And before they participate in these these syndications as a as an investor, as a limited partner, they're they've done all these things right.   Travis Smith (00:07:51) - And so now they're having success. They continue to to enjoy and learn how to become a better investor. They're meeting more sponsor building relationships. They're learning how to do more due diligence. And they have a network, right? They have a network that is saying, hey, next deal, you get in, will you like, you let me know because like what you're doing is really exciting. And can you can you teach me? Can you help me? And and as you know, this industry makes it really hard for us to help each other. Right? It's, you know, and and so what you do is, you know, you you tell them about a deal or whatever it is. But we're tribe is of course, we've built a tribe, a pro tribe where you can go out and say, hey, come on in. Maybe there's a $500,000 investment and all of us can come together. We can each put in 25, K or 50 K to get in together. And that's just a simple business partnership, single entity governed by an operating agreement.   Travis Smith (00:09:14) - And we're all on the same terms, all for one, one for all. And that's a really cool product we offer, right? And now what we've done with the fund manager tribe, which is a new, new thing we're bringing to the market, is now how can I even, you know, help more people, right? And then how can I potentially, you know, be in a position where I can create my own fund of funds and and invite more people in, giving them access to bigger, more deals, better deals, while while being appreciated for my time and effort and energy and all the work that goes into that. So that's a little bit of the of the evolution, if you will, is you know, we've we've been mastering group investing for the last four and a half years. We've built out all the the, the platform, the infrastructure, all those services and now kind of the next thing is and again, we're doing this by partnering with the sponsors and saying, hey, you know, to safely, you know, go out there and work with, you know, with other entities, it's important those other entities are set up in a legal, safe, compliant way.   Travis Smith (00:10:39) - And Tribez is the company that makes that so easy. We've turnkey that to make sure anybody you're working with is set up, you know the right way compliantly, you know, crossed all the T's, dotted all the i's. And again just offering that as a as a way to make it more accessible, right? Making that more accessible.   Sam Wilson (00:11:01) - When you partner with the sponsors. I mean, because a lot of times, you know, the structure will be if you're doing a fun to funds deal, maybe you're using the same attorney that the sponsor does, maybe you're not. But the deals I've been a part of on a fund to funds both as a. Faster in an active investor. You know, they remember my question here. Oh, partnering with the sponsor is.   Travis Smith (00:11:26) - What you were going to say is the sponsor. You know, typically when you've participated in a fund to fund that, the sponsor, you know, that fund to fund is working with the same attorney that the lead sponsor is working with.   Travis Smith (00:11:40) - Yeah.   Sam Wilson (00:11:41) - Yeah, it was something along those lines. But but essentially we're kind of left as a fund to fund to go out and find our own. If we're not using their attorney, find our own attorneys, draft our own docs, and then come in as an investor. And in this case, you're kind of turning it. This is where I was going with that. You're kind of turning this on its head or it's, Hey, the lead sponsor then comes to you and says, Hey, let's create. Help us create then the correct fund of funds model for our then potential capital allocators that want to do so into our opportunity.   Travis Smith (00:12:17) - That's right. That's right. And and you're right. So, you know, the lead sponsor is, you know, working with SEC attorneys, making sure they're setting up their operating agreement and PPM, the subscription docs, making sure that they're doing all the proper filings. And then and then, you know, again, how do you help your network be more successful out there? And you you hit on all the challenges that come with it, right? Like, man, I have to work with an SEC attorney.   Travis Smith (00:12:57) - Do I need to work with the SEC, the lead sponsors, SEC Attorney What are the costs? You know, and then the challenge is for the sponsor is it's so antiquated that there's no consistency. So it's just hard to know, you know, you know how you know how to work with making sure you're working with the right entities that are set up and aligned and have done all the right things. And that's where Tribez comes in. And how we partner with the sponsor is they know when we're working with their fund to fund managers that their their documents line up with their documents, right? That all the proper filings, the checklist, all those things are consistent in taking care of and compliant. You know, also in terms of operating. Right. I think another challenge the sponsors have is great. I'm working with a great guy. They're awesome. And but are they delivering on at the Standard? We're used to? Like we do a great job at doing communications out. We're very consistent with our distributions, you know.   Travis Smith (00:14:19) - How are you keeping track of all this? ET cetera. ET cetera. And I think without tribe best, that answer varies, right? And where Tribez comes in is there's this single platform with all that infrastructure built in making sure that the, you know, the fund manager tribe is making their their quarterly or monthly distributions in a very professional and consistent way, you know, helping them take the communications from the lead sponsors and distributing those to the, you know, the fund to fund members. ET cetera. So just the consistency that we bring to the market makes makes this accessible and a great way for sponsors to build out and empower their investor network.   Sam Wilson (00:15:13) - Does your. Yeah, I guess so. So this is a sponsor centric platform is what I'm hearing that or begins with a sponsor and maybe it's not like you said it starts with the investor. Obviously that's, that's the most important component of all of it. But the sponsor kind of initiates this conversation with Tribe best. Is that generally the way that.   Travis Smith (00:15:33) - Right? Yeah. You know, so we're working with a very select number of, you know, really the most respected, most well run operated lead sponsors out there. And we can be very selective in who we work with. Um, you know, because it doesn't, we don't, we don't need to be working with everybody, right? Our, our business model allows for us to really focus and partner so we can make sure that we're covering all the bases and again, crossing all the T's, dot and all the I's. But yes, to answer your question, the partnership starts at the sponsor level. And again, certain qualifiers to work with us are, you know, do you have a proven track record? Are you known for your operations and and, you know, all those things? And then the next question is, hey, are you you know, are you looking to be more efficient and effective with your investor network at raising capital and and providing resources for them to be, you know, better participants? And the answer is always yes, but how? And so again, try best comes in and says, look, our program you can kind of roll out to your to your network.   Travis Smith (00:17:03) - And again we provide all all these services and value to make sure you're doing it right in an inconsistent way, which is the hard part. Right. Otherwise it's, you know, to do that. That there's training, there's infrastructure, there's all these other things that you kind of got to do if you're going to do it right and safely. And again, Tribez kind of brings this platform and all those checks, checks, you know, in a and again, a consistent platform way.   Sam Wilson (00:17:38) - One of the things as a fund of fund. Manager I've seen is just the expenses involved in getting set up those fund of funds. If this is a program that you guys are consistently and I'll be honest, I'm going to throw in my little bit of jab at our at our attorney friends. I feel like so many of the documents that we get are just the same set of documents, changing the names with a few tweaks through them and it's like, Wow, I just paid 20 grand for that. That was fun.   Sam Wilson (00:18:10) - Especially when you get a you know, and these are well respected attorneys. It's like, Oh, I can get that to you tomorrow. You're like, Wait, we just drafted this today. Like. Okay. So we really are just changing names. And you're charging me 20 grand with a few tweaks in there for like, okay, you spent an hour on that. Like, are there economies of scale? And again, you know, forgive me if I just put my own internal monologue here on the podcast in perpetuity, but.   Travis Smith (00:18:33) - You're saying what we're all thinking, right?   Sam Wilson (00:18:36) - Are there economies? I know, I know that's bad, but it's just the reality of it. Are there economies of scale that you guys are achieving with kind of finding a model that can be not white labeled? But, you know, it sounds like this you've got the model figured out where it's not reinventing the wheel every single time. And are there economies of scale that you guys are able to achieve with that?   Travis Smith (00:18:58) - Absolutely.   Travis Smith (00:19:00) - And and I think, you know, look, the attorneys are critical part of this.   Sam Wilson (00:19:10) - 100%.   Travis Smith (00:19:11) - And 100%. And making sure you're setting it up the right way and working with the best attorneys is a good idea, is a good idea. And the best attorneys they deserve and make a lot of money. And again, they deserve it because, you know, there's a lot of things you need to make sure you're doing and doing it the right way. But the the question, which is a good one. Are there economies of scale to leverage? Yeah. And we all know. Yes. Yes, there is. And and look, we've been doing that for the last four and a half years. Even if you kind of go back to that traditional, you know, group investing group, you know, investor group model that's governed by an operating agreement, you still need an LLC and and even, you know, without tri best, you still have to like find the right attorney. You know, they're going to draft an operating agreement.   Travis Smith (00:20:18) - You're talking thousands and thousands of dollars for a super partnership, something that's been done hundreds of thousands of times. Right. And so, you know, four years ago, we said, look, let's just work with really bright attorneys, the best attorneys, and form a couple of templates that can be easily configured based not by tribe best, but by the members of that investor group. And now fast forward four years here. You know, we're taking that same mindset and true to being a software as a service platform and a fintech platform. And yes, there are economies of scale and and we do have an SEC attorney on staff. We don't offer legal advice. We're not in a law firm, but we are seeing all those, you know, those consistencies in the market. And so how do we do that in a way where it saves saves the the the ecosystem money so that they can they can they can focus on, you know, doing the best deals, building those best relationships, all those things.   Travis Smith (00:21:32) - And that's that's one of the reasons and how we've been able to keep this at such a no brainer cost.   Sam Wilson (00:21:38) - Right? No, I love that. And it's one of those things that that in the end serves the investor best as well, because obviously those those expenses get baked into those deals that we do. And it's like, okay, if we can keep some of that down and still do it. And again, don't get me wrong, I'm not going to bash all of our attorneys. They've been very helpful. I mean, some of the stuff that we're paying for, of course, is their their insurance policies that then back the work that they do. So, you know, it's and those.   Travis Smith (00:22:04) - Little bit of the nature of the beast.   Sam Wilson (00:22:06) - It is it most certainly is. Yeah you need it it's nature of the beast. But if there's a way to, like you said, create templates that then can be modified on a case by case basis without reinventing the whole platform, that that makes a heck of a lot of sense.   Sam Wilson (00:22:19) - Travis really enjoyed our conversation today here, talking about try best learning kind of your guys's history where you are now and how you guys are really making investments easier and more accessible for both your investor base and kind of simplifying the process. On the sponsor side of things, I think this is really, really cool. I love what you guys are doing and look forward to having a further conversation with you guys about the opportunities you have. But if our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Travis Smith (00:22:48) - Yeah you can follow me at. On LinkedIn is probably the best way. Just, you know, do a search of Travis Smith and Travis let me know you. You heard me on this show and I'd love to connect with you and then you can go to try and we're in the process of really updating our our website but it's always a good place to go and define just more specifics on this fund manager tribe program and our pro tribes again which are very narrow focused to help in the end really smart, good people get more access to the best deals.   Travis Smith (00:23:34) - You know, you can just chat with us on our website and again say, you heard me on this show and we would love to to to talk more about it and help out any way we can.   Sam Wilson (00:23:47) - Fantastic. Travis, thank you again for your time today. I do appreciate it.   Travis Smith (00:23:51) - Thank you, Sam. Good to be here. Thanks for having me.   Sam Wilson (00:23:53) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.      

Aug 24, 2023
The Most Creative Strategies for Finding Real Estate Deals

Today’s guest is Chris Prefontaine.    Chris is the four-time best-selling author of Real Estate on Your Terms, The New Rules of Real Estate Investing, and Sell With Authority for Real Estate Investors. He’s also founder of the Wicked Smart companies and host of the Smart Real Estate Coach Podcast. Chris has been in real estate for over 31 years. His experience ranges from constructing new homes in the 1990s and owning a Realty Executive Franchise to running his own investments (commercial & residential) and coaching clients throughout North America.   Show summary:    In this podcast episode, Chris Prefontaine shares his experience and insights in the real estate industry. He discusses the importance of being able to pivot creatively to find deals, reflects on his early days building homes on spot lots, and how he shifted his strategy after the 2008 crisis. Chris emphasizes the significance of surrounding oneself with experienced individuals and shares his approach to deal structuring, owner financing, and master lease purchase. He also talks about the potential of owner financing across various asset classes and introduces his book, "Real Estate on Your Terms." -------------------------------------------------------------- Intro [00:00:00] 2008 crash [00:01:01] Deal flow [00:08:56] Structuring deals [00:10:39] Seller motivation [00:12:10] The history of owner financing [00:16:58] The versatility of owner financing [00:17:27] The appeal of owner financing for higher-end assets [00:19:04] -------------------------------------------------------------- Connect with Chris:  Book request: Email:    Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Chris Prefontaine (00:00:00) - So there are always going to be people out there. There's a third of the properties in the United States, roughly, that are free and clear. That is a great pond to fish in. Always don't care what the market is. And I know this, the market can go up, down, sideways. Doesn't matter. You will always, always have enough deal to come across during any market as long as you know how to pivot creatively. And that's what we do.   Sam Wilson (00:00:20) - Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Chris Prefontaine is a four time best selling author. He's also founder of the Wicked Smart Companies and host of the Smart Real Estate Coach Podcast. He's been in real estate for over 31 years. Chris, welcome to the show.   Chris Prefontaine (00:00:47) - Thanks, Sam. Glad to be here. Hope we can impart some some nuggets here while we chat.   Sam Wilson (00:00:51) - Absolutely. I'm looking forward to it.   Sam Wilson (00:00:52) - Chris There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Chris Prefontaine (00:01:01) - Um, started in 1991 by building homes on spot lots where the owner would wait for the money, the vendors would wait for the money. So we were doing creative way back then in my 20s. Um, we, um, we pivoted big time after the 2008 crash and started saying, okay, no more signing on bank loans, no more pledging cash. We buy everything today. Owner financing subject to existing financing. All these projects, you can do any asset class with any one of those. And we teach that not only we do it ourselves, we teach that all around North America.   Sam Wilson (00:01:33) - That is wild. So I've never heard the term spot lot, forgive me, 800 and some odd episodes and ten years in the business. I don't even know what that is. Can you define that?   Chris Prefontaine (00:01:41) - Spot lots.   Chris Prefontaine (00:01:42) - Yeah. Meaning sort of infill lots. Where you come in a situation, there might be one lot left or, you know, someone has a lot next to their house they can subdivide. We did that and I was naive enough in my early 20s to go to the owners and say, Look, we're going to build a house and go to the vendors and say we're going to build a house. But you guys all get paid when it closes in like four months. And they all said, yes, the market was tough then, but I look back and say, Wow, I don't know if I'd ask that now, but we did it. We did like 100 homes.   Sam Wilson (00:02:05) - That's crazy. Yeah, I'm not even sure I would have the courage to to look at a contractor in the eye and say, Hey, buddy, listen, four months from now, you'll get paid.   Chris Prefontaine (00:02:14) - But I guess it's so different. I think back. I remember. I remember I had a eyeball with the lumber supplier and he chuckled.   Chris Prefontaine (00:02:20) - But then he did it. So, you know, it's funny.   Sam Wilson (00:02:22) - That's wild. Okay, so you work that strategy. I'm sure there's a lot of other things from 1991 through 2008. And it sounds like in your story there, there was potentially some pain throughout the zero eight crisis such that it made you really pivot into your strategy that you're employing now.   Chris Prefontaine (00:02:40) - Yeah, pain would be an understatement. Mentally, physically, you know, financially, big time. I had about 20 some odd properties at that time. I, I bought conventionally or with a loan and or with investor money. So I was on every single property personally guaranteed and so realized the hard way what that means. Yes, I had good credit so I did that but learned the hard way what that means when the market takes a dip one third to two thirds and some of my projects. And so that was a miserable four years from zero eight Feb till 12 Feb It was a miserable four years and we worked it out. We pivoted in 12 and said, okay, got my legs again, get out of my head and said, I can do this still after 18 years I can do this.   Chris Prefontaine (00:03:21) - And we pivoted and created the smart real estate coach and our own deals and we just do not do not sign personal loans anymore. And it's a little bit different going to sleep at night knowing that.   Sam Wilson (00:03:32) - I can only imagine four years is a long workout. I mean, that's a long time to be under that amount of stress. What were some of the things? You know, looking back on it, you'd say, hey, you know, this is how how would your approach change? Were you to be in that position again?   Chris Prefontaine (00:03:52) - I'd say exactly, because it was all mental. It was me beating on myself saying, what the heck? And despite it being a national crisis, I blamed it on me. Right? My stuff. So I will tell you, in hindsight, I would have done what I did about at the three and a half year point, which was go find 2 or 3 people that have been through it and then some over the years and have more experience in the market than I do.   Chris Prefontaine (00:04:14) - So people 15, 20 years older than me, that was super successful. I did that. But it took me too long to do that and got in my own head. And when I did that, one of them literally chuckled at me. Sam. He chuckled at me and said, Okay, here's all things I've been through, and he's listed a litany of things. And then it made me seem like, okay, it's no big deal, but wish I did it earlier. Like I'm talking like six months in. Go. Okay, help me tell me how to get through this. But but so it's really key because success leaves clues, right? You and I know that. So there is someone out there that went through what you went through. I don't care what it is. Personal business, financial, this summit. So you got to seek them out earlier.   Sam Wilson (00:04:48) - I like that a lot. That's that's really, really smart. It sounds like, um, you know, finding those people that were ahead of you are the ones that kind of, like you said, help you get out of your own own head on that.   Sam Wilson (00:04:59) - Like, that's, that's fantastic. I mean, that's so true. I think for any of us, though, I mean, it's the same reason we're in mastermind, the same surround ourselves hopefully with people smarter than us.   Chris Prefontaine (00:05:09) - Right on.   Sam Wilson (00:05:09) - Yeah, but I like that. So you think you could have shortened that four year period to 6 to 12 months maybe?   Chris Prefontaine (00:05:16) - Yeah. In hindsight, the mental game is so crazy, right? I just. I just was in the cycle and then you. And then you start attracting more of it. And that sounds kind of fufu, I know, for some people, but I'm telling you it's real. And so, yeah, I could have done a lot more quickly.   Sam Wilson (00:05:29) - Yeah, man. No, it absolutely is. Yeah. I always say that being inside my head by myself is like a bad neighborhood. It's not somewhere you want to be alone. It.   Chris Prefontaine (00:05:38) - That's a good one. I like that.   Sam Wilson (00:05:39) - Absolutely. So, no, I like that.   Sam Wilson (00:05:41) - That's fantastic. So you pivot in 2012, you say, all right, look, you know, we've got to do things differently. You've no longer guaranteeing loans. You're no longer signing on stuff. How have you been able to employ this strategy over the last now, I guess, 11 years? Yeah, that's that's basic math. The last 11 years, I mean, we've had a bull run in the market. We've had incredible growth across all sectors. My. Argument, which you're going to prove me wrong. But would it be that man? You know. As things get better, people aren't looking to exit properties commercially, residentially, whatever it is on terms. Tell me why I'm wrong.   Chris Prefontaine (00:06:18) - Yeah, I always like using specific examples, so it's not theory. I am standing in my building, my commercial building right now. It's a mixed use building and I bought this in 18 and I bought it on owner financing. It was free and clear. That's who we that's who we target.   Chris Prefontaine (00:06:32) - That's our avatar free and clear properties. So that on 99% of the deals, I can structure principle only payments as long as I get them to their number and as long as I get the right term. Now, why did he do it? To answer your question, he did it for personal tax planning and personal estate planning reasons only. He had a four by eight sign saying My firm is building me and realtors coming in saying I got an offer for I got a buyer for. And he kept saying, No, no, no, I want in need owner financing. So there are always going to be people out there. There's a third of the properties in the United States roughly, that are free and clear. That is a great pond to fish in. Always don't care what the market is. And I know this, the market can go up, down, sideways. Doesn't matter. You will always, always have enough deal to come across during any market as long as you know how to pivot creatively.   Chris Prefontaine (00:07:17) - And that's what we do. And I just give you one example, but that's a great example.   Sam Wilson (00:07:20) - It's a great example. I mean, but in this particular case, you had a seller that was already looking for what it is that you do. How does this conversation shift when you have a seller that is on the, you know, the other side of the equation where they're like, hey, look, I only want. A sale. Cash out. I'm going. I'm done. How do you. How do you warm up that conversation with the seller such that it becomes an option they'll consider?   Chris Prefontaine (00:07:48) - Yeah. So my conversation sounds like this. If you said that to me as a seller, I just have one question that'll tell me if need to go further or not, and I'm just open with them and I might not be there by the question is great. 99% of the sellers I buy from want what you just described. Full price, close now conventional. Everything's simple. However, fracture closings are at like 20% right now.   Chris Prefontaine (00:08:08) - Things have fallen apart. So if it doesn't sell and if you don't get your price at the time you want, what's your backup? And that usually provokes a further conversation down the road. So I give them their space, let them go try it if they need their cash up front. And they absolutely know that and they need the equity out to go buy a house for the family or a building for whatever, they absolutely can't pivot. I'm not the buyer. They need the cash now. People need to be able to wait. That's why I like free and clear, because the financially typically well off.   Sam Wilson (00:08:35) - Right, right. Right.   Chris Prefontaine (00:08:36) - Yeah, that's.   Sam Wilson (00:08:37) - True. Yeah. If you're if you're if you're owning commercial properties, residential properties, whatever it is and it's free and clear, then you've made some good decisions along the way and you're not you're, they're not actively looking to cash out and harvest that equity. Maybe, you know, like somebody that's levered to the hilt. So that's, that's really, really cool.   Sam Wilson (00:08:56) - Have you seen have you seen any deal flow increase, decrease? Has it been steady? What's what's that been like and what's kind of the sentiment towards. Yeah.   Chris Prefontaine (00:09:07) - Super applicable question. So here's what happened. I'll go back to like pre Covid and give you the gist. Yeah. So because all this means is what pond do you fish in? I don't care if you look whatever asset you're looking for. Are you fishing in the for sale by owner fishing expired. You're fishing in a niche list like free and clear. Just you just have to pivot where you're fishing. Here's why I say that. Beginning of 20 people panicked. I scream to my community, the wicked smart community. No, no, no. This is when you doubled down. They need a guide. Sure enough, our properties tripled what we were taking in, but that only lasted three months. Then the market got hot, right? A four months. Whatever it was. So then everything was selling like hotcakes. So was it a good pond to fish in for sale by owner in any asset class? No.   Chris Prefontaine (00:09:44) - That was you had to do a lot of calls to get the same lead. And so you just have to bop. And we've with where you're fishing our properties steadied out then meaning instead of getting 25 a month in the community, you probably got 10 or 12. And then it's now the market slowly but surely has been going right back up with some strong demand from the expired market. Right. Because things aren't selling like they used to. The media is screaming. I think they're incorrect, but they're screaming, panicked, everybody. And that's causing sellers to come looking for us. So it's going to do the ebb and flow. To your point, it's just a matter of you knowing where to fish, knowing your metrics, because that's what we teach, but also knowing like the skills to structure deals and creative real estate will put you through any market. That's it. You can pivot and pivot and deal after a deal. After a deal.   Sam Wilson (00:10:24) - What what, what are what are some things that you're really with? People that work with you? What are some ways you're structuring deals and or, you know, insisting, hey, this is the right way to structure a deal? And then maybe what are some pitfalls as well?   Chris Prefontaine (00:10:39) - Yeah.   Chris Prefontaine (00:10:39) - So the free and clear on the financing I love I also love the sub two meaning if you knew listening to this just subject to the existing loan balance. I just one of my students just told me about a large commercial building where the gentleman actually couldn't wait to sell it, subject to his existing loan, meaning that loan stays in their name right until such time it's cashed out. And then there was a owner financing component for his equity. So that's kind of a quasi owner financing sub two combo. I love those because let's think about it. What were the interest rates for the last year or so? Super low, right? And now we're grabbing buildings in residential that have these low interest rates. You can't get better than that. Even if you went and did it for yourself, right? You have one property or you have one house or whatever, and you're getting it for two and a 3:45 and three quarter rate. Not bad. That's what we're seeing. It's crazy.   Sam Wilson (00:11:29) - That's free money. I mean, it's it's free money.   Sam Wilson (00:11:32) - And that's a that's a I know there's gonna be a left turn here, but that's something I've been trying to convince my own mother of, who is now in her late 70s. And it's like, don't pay off your home. You have a fixed mortgage at like 2.5%.   Chris Prefontaine (00:11:45) - It's crazy, isn't it?   Sam Wilson (00:11:46) - 30 years?   Chris Prefontaine (00:11:47) - I don't think we'll see it. I really don't.   Sam Wilson (00:11:48) - Know. Absolutely not. Absolutely not. And yeah, those are those are those are amazing deals to find. Okay. So we've talked a little bit about the way you like to structure them and that was a unique structure, a sub two plus owner financing on the on the equity side of it. Like how what's a seller's motivation even in a situation like that? Why? Yeah.   Chris Prefontaine (00:12:10) - This is also a great timing question that you hit. You're hitting some high points. Here's why because I wasn't seeing those before. I was seeing people that want to sell. They're free and clear pretty much while often have time. People that are selling us sub to and willing to keep their name on the loan are usually hurting financially now in the community.   Chris Prefontaine (00:12:26) - Rick in New Hampshire comes to mind. His last two deals, six figure deals for him. They were both sub two with a component of owner financing. And what I'm seeing is to answer your question. People. They either have two properties they're getting up in age or they have two properties or more, and they are a little afraid with the media screaming. The media is helping us because again, think they're incorrect. But that's what's going on now. And you know what he prospects he specifically is prospecting now this particular student owners of two or more properties. And so it's not surprising me now in hindsight that he's finding that because they just want to unload some they want top dollar, but they can give us a term. And if on the equity piece we're making no payments or interest till the end or we're making principal only payments, that's a Great recession. Hedge It's a great play. It's a great leverage play. I love it.   Sam Wilson (00:13:13) - Absolutely. Any I mean, a savvy seller, again, I'm giving a counterargument, but a good savvy seller would say, hey, look, Chris, you know, I love the deal.   Sam Wilson (00:13:23) - Maybe I do owner financing on the equity portion. Let's even structure, you know, you can take it sub two, but I'm going to need personal guarantees. I'm going to need something that says you got skin in this game and you're going to perform. How do you handle that conversation?   Chris Prefontaine (00:13:38) - I've gotten it literally more so when I first got back in, but literally maybe 3 or 4 times where the attorney hits me or hits my attorney. Right. And I just tell him it's not for me, quite frankly. And and I think it's usually a confidence issue. I don't think I know as I listen to some of my students calls, if they're getting it, they're usually coming across pretty weak on the phone. It's not a negative. It's just not his experience. So I don't get any more just from a conference standpoint. And if I do those first few times I bought it was a multi coincidentally, and I ended up buying that property because my attorney said they don't do it. You have the security.   Chris Prefontaine (00:14:09) - You're telling me it's low loan to value. They don't do it. And so they came back. Now that one took a year and there was a big residential properties like 14 acres, almost a million bucks. And that one took a year. He kept wanting to do it with me, and he went through two attorneys who said, No, no, no, you can't do that. They got a sign. Okay, let me know. So if they end up selling, good for them. But if they don't, they're going to come back. So we just don't sign personally.   Sam Wilson (00:14:29) - What what would you say is the average cycle or average? You mentioned a year there. So what is the average time it takes to get deals like this the way you're structuring them closed?   Chris Prefontaine (00:14:41) - Good question. I would go anywhere from 60 days to a year, Sam, because like this building when I talked to him. Now, granted, to your point, he was looking for it right and in cold calm.   Chris Prefontaine (00:14:52) - But this took probably we we actually we live on an island so we happen to use the same law firm. So this was like a ten minute conversation. He loved my book. He read it. He's like a math guy. He's like, this is great. And they structure a deal. Like this whole thing took maybe a week. So usually it's a couple months to a year. Now, what dictates that? In my opinion, if they're an expired property, they're on with a commercial or residential agent, they're usually more quickly converting. If they're a for sale by owner, they it takes follow up. Why are they a for sale by owner they think they can sell, right? So when they realize they can't like 98% of them don't, then then they come to reality. They either go to an agent or call us. Right? So that does take longer. Those are follow up calls always. Yeah.   Sam Wilson (00:15:33) - So let's talk about that on on the finding deals side of things. What's what's kind of the strategy behind this? Is there a particular program you use Is there I know you mentioned expired, you mentioned free and clear.   Sam Wilson (00:15:46) - I mean, obviously you can there's data sets where you can pull down that data. But what's the what's the process we have?   Chris Prefontaine (00:15:53) - We do have a lead source that that feeds us. Those categories I'm mentioning to you. And then a database. You know, you and I know you could pull a list of literally anything, but I love like the multiple properties or Love Free and clear out of state, you know, combos like that, That's where we get them. Then what happens though, we have a virtual assistant call first. So our students, unless they want to do more on their own to increase their lead flow, if that's if that's their business plan, most of them are starting with a virtual assistant calling so that the cream rises. Hey. Yeah. Have him give me a call. Yeah, I'm open to that. Then we'll call those leads. They're a lot stronger. I keep those in my desk at any one time. Like the virtual assistant emails them to me, and I call those only unless I'm in a mode where I want to open up a new list and experiment myself.   Sam Wilson (00:16:36) - Right, Right. No, that that makes a heck of a lot of sense. We've covered subject two, We've covered owner finance. We've covered the ways that you guys are finding leads. I want to know, and you mentioned commercial, which obviously this show is 100% about commercial real estate. Are there asset classes? Is there are there any asset classes where you're not seeing transactions like this occur?   Chris Prefontaine (00:16:58) - Uh, not me personally. No. I think here's something interesting. I do have some people say either on a show or even sellers say, Oh, I've never heard of that. Okay, really? Okay. So if you read the new book by Anderson Cooper, I read it because his family had a mansion on Bellevue Ave here in Newport, Rhode Island. So I said that would be interesting. In the book, he talks about his family buying owner financing and he called it master lease purchase on these large buildings in New York City in the 1600s before banking like so it's been around forever. Sure.   Chris Prefontaine (00:17:27) - All we did is wrap a bow around it and assistant around it and support around it so that students don't go. They go in the real world. We help them get deals done. We revenue share and we're in the trenches. But other than that, it's been around forever. You can do any asset class, planes, boats, cars, any asset class can be done the way we just talked about, right?   Sam Wilson (00:17:43) - Yeah, I've actually thought about that quite a bit. Is is that there. And I've done a not a ton but a fair share of owner finance and subject to deals probably obviously nowhere near the scale that you have but I've often thought about that. I'm like, my gosh, like the potential to do this across anything like you said, planes, boats, cars, homes, any of those things exist because there's always a motivated seller somewhere that needs to get out. I think the trick the trick is finding and tell me if I'm wrong here, but the trick is finding the right data set or the right pond in which to fish.   Chris Prefontaine (00:18:19) - Is that sound about Once you're in any pond, what do we really doing? Because people say to me, Oh, how do you convince them? Never What? Never convince? What I do is listen for the motivation. What would you do if it didn't sell right? Bingo. You get you get the answer. Then if you can solve for that, good. You're gonna have a deal. If you can't tell them I'm not your buyer. So it's that simple. And just to get people's mindset, the asset class in the price doesn't matter. Sam Right. Sure was a house. I bought a house here in Newport a little while ago. This was back before the crash, and the guy in front of me didn't know it right away, bought that house owner financing. He needed to do that because he's going through a divorce. You're talking about several million dollar property. He needed to do it because going through divorce and then eventually he put financing on it. But my point is, there's no class or price range that's off limits.   Chris Prefontaine (00:19:04) - In fact, I would argue that the higher end buildings in residential are more apt to do it. They understand it, the more savvy. It's a very easy conversation.   Sam Wilson (00:19:13) - That's interesting. That's that's that's a I think that's that's a brilliant point. The higher end assets, the more expensive they are. Probably more likely, which is probably true. I mean, we see that in multifamily, you know, loan assumptions. Yeah, same kind of basic idea. Obviously, a loan assumption in a multifamily property is maybe very or is structured very differently than a subject to would be. But you know, in the end, same basic idea somebody else has.   Chris Prefontaine (00:19:38) - And I'd be shocked, to your point, if you could run across an investor, say like you or I, that has bought and sold and gone through challenges that loves a bank, that prefers to use a bank before. So that's why they're open. A lot of people aren't bankable or don't want to deal with banks, right?   Sam Wilson (00:19:54) - Right. Oh, absolutely.   Sam Wilson (00:19:56) - Absolutely. No, I'm in the I'm in the it's it's funny, you mentioned that. Thanks for bringing up the pain here this week. It's I'm waiting like like nail biting on in a pre a delayed appraisal for a closing that's supposed to happen Friday on a commercial building and it's like. Oh, this process sucks. Okay. So, yeah, I love I love what you're doing. Let's talk a little bit about your book here. I know you have an offer here for our listeners. I think it's very, very generous of you. Tell us about the title of your book, what it's About, and how they might get a copy of that.   Chris Prefontaine (00:20:28) - Sure. It's real estate on your terms. It was written in 17 best seller. Then we were revising it right at the end of 19, beginning of 20, and Covid hit us. So we said, okay, let's take advantage of this, this opportunity here and update it appropriately. So we did. So it's very, very up to date right through like 2021, I think it came out.   Chris Prefontaine (00:20:47) - And that's going to show a through kind of what you and I talked about, but a little bit more granular on how you can buy any asset class without using a cash credit or gobs of cash or or your credit or investors if you don't choose to do that. Because I do have people that read a book go, You know what resonated, Chris don't want to go raise money like some people just don't want to do that, right? So it's going to teach you how to do that. We do have a free copy and it's not one of those offers, as I told you off air that says, you know, free copy and then you got to put it into credit card free shipping. Right. We are going to ship it from this building and you'll get that and you might get another book in there as well. Just go to wicked smart books with wicked smart books, dot com, forward slash Sam and then the number one numeric number one.   Sam Wilson (00:21:26) - Awesome wicked smart number one and you can get a copy of real estate on your terms.   Sam Wilson (00:21:33) - That's really generous of you guys to share that with us and I think it's extra cool. And I mentioned this off air, but extra cool that you guys ship a hard copy book still out to people. It's not just the oh, what's the what was the term used. Yeah it's not just a PDF download they called that there was a name, somebody who's a term for their day that's like, oh they call it a snooze fest. They're like, Oh, thanks for the PDF download. There's a total snooze fest. So actually getting a real book in the mail I think is is really, really cool. Chris I've enjoyed having you here on the show today. We've covered all sorts of really fun things. I loved hearing your story of just how you've transitioned from 1991 all the way here to 2023 and the wealth of experience that you have. I love what you're doing in the marketplace. Yeah, it's talked about a lot, but I think you guys bring a new and exciting kind of angle to the way that these assets are taken down and just, you know, learning how to do open finance subject to even on larger commercial projects is a very exciting and enticing discussion.   Sam Wilson (00:22:31) - So thank you for that. If our listeners want to get in touch with you outside of getting a copy of the book and or your company, what is the best way to do that?   Chris Prefontaine (00:22:37) - You can just email me Chris Chris at smart real estate coach. Com. Just make sure they mention your show because I don't always give that out.   Sam Wilson (00:22:44) - Got it. Chris at smart real estate mentioned the Hello skill commercial real estate podcast. Chris thank you again for coming today I do appreciate it. Hey thanks for listening to the How to scale Commercial real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Aug 23, 2023
Breaking Free from the Golden Handcuffs: David McIlwain's Journey to Real Estate Wealth

Today’s guest is David Mcllwaine   David is a seasoned entrepreneur and successful executive with deep experience in business growth, scale and delivering results. His real estate experience is vast--spanning over 20 years.   Show Summary:  In this episode David Mcllwaine shares his journey from corporate America to real estate investing, discussing his experiences of being downsized and how it led him to pursue real estate as a way to take control of his career and build wealth. He talks about the challenges he faced in the real estate industry, including losing over $1 million in earnest money. David also emphasizes the importance of not being displaced by technology and provides insights on the current economic cycle and upcoming challenges in the commercial property market. -------------------------------------------------------------- Intro [00:00:00]   Real estate as the next path forward [00:01:07]   Challenges and learnings in real estate [00:07:38]   The impact of reduced transaction volume [00:11:34]   Positioning oneself in the current economic cycle [00:13:36]   Breaking the golden handcuffs mindset [00:17:32]   Work ethic and agency [00:22:14]   Job loss and building wealth [00:23:12]   Closing [00:23:21] -------------------------------------------------------------- Connect with David:  David McIlwaine Facebook Personal Page   MAC Assets Facebook Business Page   MAC Assets Instagram Page   David McIlwaine LinkedInPersonal Page   MAC Assets LinkedIn Business Page   Podcast   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: LinkedIn: Email me →   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: Spotify: -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: 00:00:00:00 - 00:00:26:04 David McIlwaine Breaking your golden handcuffs is really not just quitting a W2 job. In fact, it's far from that. It is recognizing how you can take your situation and tournament those handcuffs in a tournament of powerful tools. Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   00:00:28:01 - 00:00:41:08 Sam Wilson David McElwain is a seasoned entrepreneur and successful executive with deep experience in business growth, scale and delivering results. His real estate experience is vast, spanning over 20 years. David, welcome to the show.   00:00:42:08 - 00:00:46:14 David McIlwaine Sam I love hearing all that with a deep baritone voice. Thank you so much for having me.   00:00:47:02 - 00:00:56:04 Sam Wilson David The pleasure is mine. There are three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell me where did you start? Where are you now and how did you get there?   00:00:57:03 - 00:01:23:11 David McIlwaine I started in corporate America running a sales force after 25 years in the advertising industry. I got downsized. 18 months later, I was downsized again after being the chief revenue officer for a tech startup, and I went through a divorce. So what happened is I could no longer live on an airplane as a high flying corporate executive carrying a tiny suitcase in a tiny briefcase and sitting in seat one day.   00:01:23:22 - 00:01:40:17 David McIlwaine I had to figure out to make a living on my own. And I came to realize I came into real estate. Fast forward ten years later, I own a residential real estate brokerage and I'm a general partner in a thousand multifamily doors and on a private equity real estate firm helping investors to maximize their returns.   00:01:40:23 - 00:01:56:06 Sam Wilson Oh, that's cool. I love that. I love that. What what were the things that took you for that said Hook that said, hey, real estate's the way. That's the next path forward after getting. Well, it was once, but twice. I mean, that's that's painful in and of itself.   00:01:56:23 - 00:02:20:02 David McIlwaine It was pretty painful. Was that the day I got cut, the first time was a merger. And I lost my job the day I hit the quota for the upcoming quarter. And it was like my, I don't know, 13th or 14th quarter in a row. I had hit the budget prior to the start. Wow. So. So my team and I were pretty good at what we did.   00:02:21:03 - 00:02:57:00 David McIlwaine Corporate merger. If you've been a top shelf dog, you know that a merger means job loss, huh? Period. Every single time. And from there, I went to Tech and I said, okay, I'm good up. Dust myself off and get back up on the horse. I did. I reversed seven negatives, quarters of revenue decline and lost my job the day after we closed on a series big round of funding because the CEO came in and said, Hey, Chief Revenue Officer, those 35 sales executives, you were going to hire those 35 reps.   00:02:58:06 - 00:03:24:18 David McIlwaine We're not going to hire them because we paid off our debt. I said, what debt? And I'm the second in command and I didn't know about that. Oh, wow. Yeah. So I got to real estate because I realized that I could never again give away agency over my career to the vagaries of someone else's decision making.   00:03:25:02 - 00:03:44:18 Sam Wilson Right, right. Yeah. Me. And that's powerful. That's powerful. And that's I mean, it's I can't imagine I've never lived in that world, but I mean, just hearing that this makes my skin kind of crawl like, wow, okay, so you've done everything you're supposed to do. You've done it, all right? You've hit home runs for the company, and they're like, Hey, thanks.   00:03:45:09 - 00:04:15:03 David McIlwaine Yeah. And and it's happened. I watch it happen to my father in the eighties. I watch it happen to my friends. I watched it even happened to my former wife. I've watch it happen to people. Odd ends tonight. A thing. And I'm not saying that corporate America is bad. Hear me out. I'm saying that we as investors and entrepreneurs and if you're listening to this podcast, you're listening because you want to learn something, you want to invest in something, you want to grow something.   00:04:15:03 - 00:04:25:17 David McIlwaine And all of us are seeking some knowledge. Right. And I say this because I don't want people being blindsided. Mm hmm. And it's painful.   00:04:26:03 - 00:04:35:22 Sam Wilson Absolutely. Absolutely. You saw it. You saw real estate as the next thing to get into. What was what what were the steps in that journey that bring you to today?   00:04:36:24 - 00:05:03:09 David McIlwaine Well, it's real simple. In advertising, the Internet destroyed a lot of vehicles and created a lot of vehicles. And I had seen technology displace realtors. I have seen technology displace newspapers. I have seen Amazon displace retailers. So I went through a through a moses in the desert period. And I looked at all kinds of different ways that I could meet certain criteria.   00:05:03:16 - 00:05:28:18 David McIlwaine One of them is to never be dis displaced by Amazon or technology. That was a real core foundation of mine is I've got to have a product and an offering that the technology cannot take away. His introductions. People are petrified. I'm not. The second thing I had to do was find a way to build wealth for others, and that was really important.   00:05:28:18 - 00:05:55:15 David McIlwaine I didn't want to build wealth for me. I got enough. I'm okay. But what I really enjoy is teaching others how to make critical decisions, how to think for themselves, and how to create agency and sovereignty in their lives. All right. So there's items one items, too, out of three. What products fulfill that shelter? Shelter does not get replaced.   00:05:55:24 - 00:06:18:10 David McIlwaine We might replace around the edges, but ultimately, at the end of the day, every single one of us, according to Maslow, and he was right. We have a hierarchy of needs. Food, clothing, shelter. Right. So I'm not going to provide food. I'm not a very good farmer. I got a garden growing right now and I'm waiting for the yield.   00:06:18:11 - 00:06:39:03 David McIlwaine My first thing was a couple of slices of dill, so I was happy to see that. But I can't feed the masses. Right? I'm not God. I'm not going to make it rain and I've done a rain dance and it didn't yield any fruit. So therefore, oh, shelter, I can help with that. And that led me to multifamily into housing.   00:06:39:12 - 00:06:53:07 David McIlwaine So I started as an agent, went from an agent to a brokerage owner, from a brokerage owner and single family. I bought some investments. Then I discovered the power of multifamily and the power of leverage. And I jumped on it. Jumped in with both feet.   00:06:53:16 - 00:07:08:22 Sam Wilson That's cool. I love that. And that, you know, and that that brings two things that satisfies you're never be displaced and then building your wealth for others idea. Tell me where you guys have a thousand units at this point?   00:07:09:10 - 00:07:11:20 David McIlwaine Mm hmm. That's cool. 2000 doors.   00:07:11:24 - 00:07:16:12 Sam Wilson I love it. 1000 doors. I'm sorry. Yeah, a thousand doors at this point.   00:07:16:20 - 00:07:17:10 David McIlwaine What?   00:07:17:12 - 00:07:37:14 Sam Wilson What has been that journey like? And where are you guys now? I mean, a lot of operators have gone penciled down. It's July of 2023. I get the year right that we're recording this. So where are you guys now in that process? Are you still actively buying? If so, what and where and why? Tell me. Tell me about that side of your business.   00:07:38:03 - 00:08:00:12 David McIlwaine Well, it's been a challenge for sure. We haven't made an acquisition in over 12 months. We were in the middle of an acquisition in Q2 of last year when the Fed raised rates for the first time and then they raised rates by the BI. It hurts my heart to think about the number of percentage rate by 500 basis point over 350 basis points in 90 days.   00:08:00:21 - 00:08:44:23 David McIlwaine Yeah. And we weren't able to perform on a contract and we lost over $1,000,000 earnest money. My partner's like, whoa. Oh, wow. Yeah. Whoa. And talk about great learnings. You know, it's it's a great series of learnings. And one of the biggest learnings that I came away with this was, okay, I can't control the Fed. And that might sound like a stupid learning, but the reality is that there's so much that people think they can control that is out of their control.   00:08:45:03 - 00:09:00:01 David McIlwaine MM. But what I can do is make informed, strategic, calculated risks. And perhaps we hadn't made the right calculator at risk how they were.   00:09:00:18 - 00:09:01:19 Sam Wilson I'm sorry. Go ahead. I cut you.   00:09:01:19 - 00:09:03:01 David McIlwaine Off. No, go ahead. Go ahead.   00:09:03:22 - 00:09:17:13 Sam Wilson What things? Looking back on that. Okay. Yeah. Hindsight's 2020, I think. Maybe not. All right, but. Okay, so you lost $1,000,000 in earnest money. Maybe you didn't calculate.   00:09:17:15 - 00:09:25:22 David McIlwaine But my partners and I lost it. I didn't lose it all. I did lose a big six figure number. But yeah, we as a team lost over $1,000,000.   00:09:26:01 - 00:09:44:03 Sam Wilson I don't like losing a dollar. I lost a $50 bill. We were on vacation last week and I had to take the kids down to the pool. And so I stuck a 50 in my driver's license in my back pocket, in my swimsuit, and then somehow are Urumqi. Urumqi and a $50 bill because I didn't want to take other stuff with me.   00:09:44:03 - 00:09:55:14 Sam Wilson And I lost a 50 at some point, I'm like, Oh, crud, where'd that go? Of course, by this point in time, it's gone. I was upset about that, like, Oh my God, I'm an idiot. But it wasn't $1,000,000. I mean.   00:09:55:18 - 00:09:59:01 David McIlwaine Yeah, well, losing money is easy, right?   00:09:59:22 - 00:10:03:02 Sam Wilson Yeah, it is. It is like that. It's very easy.   00:10:03:02 - 00:10:30:00 David McIlwaine Losing is easy. Learning from it is growth. Yeah. So a couple of the things that we learned, right? I can't I can't predict the Fed. I have to be much more sensitive to the winds of change in the investor community. The reason we fell apart was that we had a 1031 exchange that came to us at the 11th hour and said, We're not going to do it.   00:10:30:15 - 00:10:44:21 David McIlwaine We'd already had three extensions, and that was about 18% of our total investment, and we didn't have enough time from the seller to reload that. Ten $31 amount. Yeah.   00:10:44:24 - 00:11:02:20 Sam Wilson And and they had you by the throat. By the barrel. Yeah. With a million bucks on the line and they see that as like. So you're saying if I don't extend I get $1,000,000. Okay. Twist my arm. I don't extend. That's basically what happened.   00:11:03:16 - 00:11:28:02 David McIlwaine Yeah. The reality is that they extended twice already and they were just tired of it. So I understand it. It makes sense to me. I don't like it, you know, and I can dig in a whole bunch of operational issues or I could dig into a whole bunch of emotional issues. And the lessons there are really powerful. Like when the Fed starts making moves, people do react.   00:11:28:20 - 00:11:31:21 David McIlwaine The entire commercial real estate marketplace is seized.   00:11:32:08 - 00:11:45:22 Sam Wilson Yeah, slowed down a lot. What is it? You're a year, what? 70, 75% fewer multifamily transactions? I think that's right.   00:11:45:22 - 00:12:14:15 David McIlwaine I think we're I think we're at 15% of year over year transactions. Yeah. So it's fallen off by 70 to 80%. Right. Either way, you look at it. Right, it's a huge hole. And your listeners might be thinking, so what? Here's what that means to everybody. If there are no transactions, intrinsically, values are not known. The if the values are not known, it makes it really hard to secure financing.   00:12:15:04 - 00:12:43:24 David McIlwaine Financing is the number one expense of every commercial real estate investment because we make money for leverage. So we want to use financing as a tool to expand our profits and your returns. Right. So if we don't have that that transactional volume, we don't have value, we don't have good financing numbers. Therefore, we also don't have any development or greatly reduced development.   00:12:43:24 - 00:13:08:04 David McIlwaine As we have greatly reduced development, the pipeline for the future shrinks further. Homebuilders get scared. Condo builders get scared. The reason all of us have all this value in our home is that we are honest because there's a national supply of housing. There's a shortage. There's a national shortage of housing. Compound this with code and you've got all kinds of things coming at us.   00:13:08:16 - 00:13:34:11 David McIlwaine So the lack of volume is not just about somebody not losing commissions or not making commissions. It really does affect a large swath of people. And it's jobs, jobs, jobs, jobs. Right. Politics is local and politics is jobs. The economy is jobs. The economy is pay it. And all of these things have an impact and a domino effect for sure.   00:13:36:18 - 00:13:48:21 Sam Wilson That they do. What are you doing right now, then, to position yourself to take advantage of this economic cycle or that wherever we are in this economic cycle, I guess I should say.   00:13:49:10 - 00:14:13:08 David McIlwaine A of things are going on. I've been pencils down for a while. I'm putting a pic of my pencil back up. We are starting to see some normalcy. Lending is starting to slow, slowly return. The Fed has a requirement to lend so much to Fannie and Freddie and they need to hit those lending targets. So there will be some easing of lending constraints.   00:14:13:23 - 00:14:41:08 David McIlwaine The DC hours, the debt service coverage ratios have skyrocketed now on what they require. So it used to be that you had to have a 1.2 times cash flow to pay your debt service. Now it's 1.3. Mm. So that's a 50% increase in the free cash you have to have in an asset to get lending. Right, which means you can't borrow the same leverage, which means you got to borrow less, which means the investor is getting smaller returns no matter what.   00:14:41:22 - 00:14:46:10 Sam Wilson In the investor is getting smaller returns and assets have to come down in price.   00:14:47:11 - 00:15:07:11 David McIlwaine Or the lend. It has to go up in the assets, have it come down in price, which is why the market is seized. Right? Because if you're selling one of your properties, you believe that it's worth X and the market says it's worth X minus Y, but you don't need to sell it. There's no compelling reason for you to sell it.   00:15:07:11 - 00:15:42:05 David McIlwaine Why would you write? Right. And so part of that freight train is coming because commercial properties are typically mortgaged on five year cycles. And a lot of them in the last go go version of the teens had or the toes have been leveraged on 3 to 5 year floating rates. And those are coming due. So I'm starting to look at the beginnings of that freight train, doing shows like this to talk to people about our company and what we do and to get out the word that you can still make money in real estate.   00:15:42:13 - 00:16:05:13 David McIlwaine We're also looking at some different asset classes, like self-storage, like some funds for oil and natural gas, build for build to rent and and townhomes and apartment complexes. So it's not completely void. It's just that were shifting our focus more to education right now than we are to acquisition because we don't want to acquire just to acquire.   00:16:05:15 - 00:16:13:01 Sam Wilson Right. Right. No, no, you don't. You mean you could. You can you could easily just buy yourself a job and or a an albatross.   00:16:13:11 - 00:16:17:24 David McIlwaine If you buy yourself an albatross and not the can you have a golf when you when you get a two out of five.   00:16:18:13 - 00:16:26:00 Sam Wilson Right. No, not that. This is this is the what was the rhyme of the Ancient Mariner? Wasn't that the albatross? Not.   00:16:26:06 - 00:16:31:19 David McIlwaine Yeah, yeah, I know what you're talking about. I can't remember exactly, but it's a heavy burden on your shoulders, right?   00:16:31:23 - 00:16:43:14 Sam Wilson It's a dead bird. They hang around the guy, right? Yeah. Because he shot the bird in the bird was right. And so then they shot it. They made they made the sailor where the dead bird around his neck. So that's the albatross around your neck reference like. Oh, great. And it's.   00:16:43:20 - 00:16:46:01 David McIlwaine And it's heavy and sticky and a burden and a.   00:16:46:01 - 00:17:09:20 Sam Wilson Burden. Right. So you might just get yourself an out. I've never talked about that here on the podcast before. Okay. On that nasty thought, let's keep moving. I do want to talk about something. Speaking of mindset, it's a mindset shift. One of the things I see a lot on social media from you is just that talking about your mindset, talking about getting I think your podcast is your best is your podcast called Break Your Golden Handcuffs.   00:17:09:20 - 00:17:12:00 Sam Wilson Do you have a podcast called that or is that just the name of your.   00:17:12:17 - 00:17:18:06 David McIlwaine That is correct. My podcast is called Break Your Gold Handcuffs Available Wherever you get your your podcast. Tell me a.   00:17:18:06 - 00:17:31:09 Sam Wilson Little bit about that and then tell me what some of the things are you cover on that show, because I think this is relevant to kind of just how you're approaching your business. And then, you know, to a lot of our listeners, I think some of what you're sharing here would be incredibly valuable.   00:17:31:23 - 00:17:53:03 David McIlwaine Well, I appreciate that, Sam. So the show is around the concept that we've all got handcuffs in some way, shape or form that we let shackle us. Yeah, the the break of golden handcuffs. The logic is that or the the traditional definition of a set of golden handcuffs is that you're going to have a job. You can't quit because if you quit, you lose money.   00:17:54:02 - 00:18:16:08 David McIlwaine I had golden handcuffs where I was making so much money, I couldn't replace the money anywhere else. It wasn't that I had to wait to get paid a bonus. It was that I just couldn't walk away from what I did. I didn't love it, but it was awesome income, right? Or I've got a pilot who loves to fly, but that's all he does is fly.   00:18:16:08 - 00:18:40:06 David McIlwaine So he doesn't want to do just being a pilot for 40 years. There's more to life. So one of my pilot friends started a cattle ranch on the side. I got another pilot friend who's a syndicator. You know, he got there's different things to do if let's say that you're a police officer and you love being a police officer, but you don't want to make that the only way you create a source of income, right?   00:18:41:03 - 00:19:10:08 David McIlwaine So part of that is to recognize that breaking your golden handcuffs is really not just quitting a W2 job. In fact, it's far from that. It is recognizing how you can take your situation and tournament those handcuffs and in turn turn them into powerful tools. Maybe they become bracelets, maybe they become assets. So in my story, I made a plan of what was going to happen once I left corporate America.   00:19:10:23 - 00:19:36:05 David McIlwaine Now I left involuntarily. So my plan was to completely executed. But had I not made that plan, I would have been in a whole different position. Hmm. I never missed a meal. My kids never missed a meal. I went through a really expensive, nasty divorce. No child support payment was ever missed. You know, my kids went to college on the college plans that I created during those handcuff days.   00:19:37:06 - 00:19:55:15 David McIlwaine So I might not have had the perfect freedom at that moment. But now I have the agency over my day, my time, my decision making, my career, who and where I work. And the idea that about mindset is that we have choice. Yeah. And people don't realize that.   00:19:55:22 - 00:20:05:03 Sam Wilson They don't realize that. And there's this idea that there's entrepreneurial people and then there's not entrepreneurial people. It sounds like you would dispel that myth.   00:20:07:01 - 00:20:37:17 David McIlwaine The interesting question, I haven't thought of it like that. What I would say is that I was highly entrepreneurial and a publicly traded company and I was successful because I'm an entrepreneur, thought I would challenge that and say instead it's those who think and take action and those who process and take no action. Yeah, you can be an entrepreneur inside of Disney, in fact.   00:20:38:04 - 00:20:45:00 David McIlwaine So there are some of the best jobs Disney has, right? When you're an Imagineer, you're an entrepreneur. Right?   00:20:47:08 - 00:20:57:14 David McIlwaine And you can be an entrepreneur inside of a law firm and start a different practice. Or yet an entrepreneur doesn't have to just be their own company owner.   00:20:59:05 - 00:21:29:06 Sam Wilson And I like that. I like that because you talk about breaking the mold, breaking the golden handcuffs. It's this idea that there is capacity in each of us, no matter what we're doing, to set things up the way the art of the design, the life that we want, and we're not necessarily just tied to doing this. I think it takes some training and probably maybe you'd agree or disagree with that, but I think it takes some training to get people outside of that mindset that this is the way I make an income or this is the way I provide for my family.   00:21:29:06 - 00:21:38:10 Sam Wilson It's like, okay, that's a way of right and kind of opening up those windows for them to go, okay, there's there's some other opportunity out here maybe that you hadn't considered.   00:21:39:15 - 00:22:01:12 David McIlwaine Yeah, my headset on my battery, my batteries on the headset just died. So I got to go. Sorry about that. But the whole thing here is that we do have that agent see of our decision making. I was at dinner last night with my with my kids. They're 20 and 19 college junior college sophomore. And we're talking about decision making.   00:22:03:03 - 00:22:31:08 David McIlwaine And I asked them how they go about their decision process and what do they think we were talking about values and decision making and we talked about what values are different that they have than I have. And one of them was work ethic. Hmm. Okay, let's explore this. The work ethic wasn't ethic, it was ours. Hmm. What they learned was that their mom did a 9 to 5 work from home post-divorce pre divorce.   00:22:31:08 - 00:22:55:22 David McIlwaine I did a 7 to 7 live on the road post-divorce. I work seven days a week, but it's not always 9 to 5. I went backpacking last week on Monday and Tuesday with my son because we had this window where he wasn't working and I wasn't working. That's cool. But I work Sunday and Saturday. Okay, so what? So that's agency.   00:22:56:06 - 00:23:11:23 Sam Wilson Right? Right. That's cool. David. I love, love what you've done. Love how you've done it. Thanks for kind of bringing the insight to going from multiple mergers, which I wrote down here. Merger equals job loss, which I never really thought. Yeah.   00:23:12:12 - 00:23:17:19 David McIlwaine It it's not if you lose your job, it's when do you lose your job.   00:23:18:11 - 00:23:38:17 Sam Wilson That's yeah, that's that's that's harsh. That's harsh reality. But one that you know very, very well. And I love how you've then taken that the pain of that job in high paying job loss at that and then created your own mantra of never be displaced, building wealth for wealth for others. That's two things that you said there early on that are kind of your driving and motivating forces.   00:23:38:17 - 00:23:58:21 Sam Wilson You've done it through multifamily. You've taught us the mistakes that you are some some lessons, rather you learned through losing $1,000,000 in earnest money which yeah I'm at the sit down after the show and think about that one that's that's hard and also also you know, breaking the golden handcuffs and the opportunities that lie out there for so many of us.   00:23:58:21 - 00:24:06:02 Sam Wilson So I just thank you again for coming on the show today. I certainly appreciate it. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   00:24:06:21 - 00:24:20:00 David McIlwaine You have two choices, Max assets dot com MRC assets assess and there you can connect with us or you can follow my podcast, which is also on that website and that's break your golden handcuffs.   00:24:20:14 - 00:24:30:01 Sam Wilson Break your golden handcuffs and Mac assets dot com. We'll make sure you put both of those there in the show notes. David, thank you again for your time today. I do appreciate it.   00:24:30:15 - 00:24:32:07 David McIlwaine Sam, it's been a pleasure. Hey, thanks for.   00:24:32:07 - 00:24:34:07 Sam Wilson Listening to the How to Scale Commercial Real.   00:24:34:07 - 00:24:39:15 David McIlwaine Estate Podcast. If you can do me a favor and subscribe, leave us a review on Apple.   00:24:39:15 - 00:24:42:20 Sam Wilson Podcasts, Spotify, Google Podcasts or whatever platform.   00:24:42:20 - 00:24:44:04 David McIlwaine It is you use to listen.   00:24:44:15 - 00:24:49:19 Sam Wilson If you can do that for us, that would be a fantastic help to the show. It helps us both attract.   00:24:49:19 - 00:24:50:13 David McIlwaine New listeners.   00:24:50:19 - 00:24:56:10 Sam Wilson As well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Aug 21, 2023