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 - https://www.linkedin.com/in/mackbenson/  Twitter - @MackBenson Web: https://www.infinitefocuscapital.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 capital.com 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.  

21m

Sep 28

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:https://www.linkedin.com/in/lupeichou/  https://www.instagram.com/lupeichou/ Instagram: https://www.instagram.com/lupeichou/  https://www.facebook.com/lupeic Facebook: https://www.facebook.com/lupeic Web: https://crowncapitalcorp.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 corp.com. 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.  

14m

Sep 27

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: https://cornellcapitalholdings.com/ Email: dana@cornellcapitalholdings.com Book: https://www.amazon.com/Legacy-Wealth-Blueprint-Create-Investing-ebook/dp/B097KMXSTY   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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.

22m

Sep 25

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: https://www.linkedin.com/in/jason-fudin-16613ba/ Web: https://www.placemakr.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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.  

22m

Sep 21

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: https://www.linkedin.com/in/gowercrowd/  https://twitter.com/GowerCrowd Twitter: https://twitter.com/GowerCrowd  https://www.youtube.com/gowercrowd YouTube: https://www.youtube.com/gowercrowd https://www.facebook.com/GowerCrowd/https://www.youtube.com/gowercrowd Facebook: https://www.facebook.com/GowerCrowd/  https://www.youtube.com/gowercrowd   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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. crowd.com. 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.

27m

Sep 20

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: https://www.facebook.com/danielwholmlund  Linkedin: https://www.linkedin.com/in/daniel-holmlund/ Email: daniel@goodsamaritancapital.com  Web: https://www.goodsamaritancapital.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 capital.com and our website Good Samaritan capital.   Sam Wilson (00:22:45) - Good Samaritan capital.com or Daniel at good Samaritan capital.com 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.  

23m

Sep 18

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:: https://wickedsmartbooks.com/sam3/   Website: http://www.smartrealestatecoach.com  Podcast: https://www.smartrealestatecoach.com/podcast  Facebook Page: https://www.facebook.com/smartrealestatecoach  Google +: https://plus.google.com/+Smartrealestatecoachchannel  YouTube: https://www.youtube.com/smartrealestatecoach  Instagram: https://www.instagram.com/smartrealestatecoach  LinkedIn: https://www.linkedin.com/in/zacharyrbeach   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 books.com/sam and the number three that's wicked smart books.com/sam 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.  

22m

Sep 14

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: https://www.harvestreturns.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 returns.com 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.  

24m

Sep 13

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: https://www.linkedin.com/in/jerry-miller-948b7a17/  https://www.instagram.com/jerrymillerrealestate/ Instagram: https://www.instagram.com/jerrymillerrealestate/  Facebook: https://www.facebook.com/largogroup2011 Web :www.largogroup2011.com Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 11.com. 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.

22m

Sep 11

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: michael.fay@avisonyoung.com Phone: 305-495-0003 Linkedin: https://www.linkedin.com/in/themichaeltfay/ Web: https://www.avisonyoung.com/professionals/-/ayp/view/michael-t-fay/in/miami   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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.  

24m

Sep 07

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: linkedin.com/in/malcolmturner/  Facebook: https://www.facebook.com/malcolm.a.turner  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: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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.

26m

Sep 06

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: sam+careers@brickeninvestmentgroup.com   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: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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.

10m

Sep 04

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: https://www.linkedin.com/in/nickprefontaine   Facebook: https://www.facebook.com/nick.prefontaine.7   Website: http://www.smartrealestatecoach.com https://nickprefontaine.com/step/   Podcast: https://www.smartrealestatecoach.com/podcast   Facebook Page: https://www.facebook.com/smartrealestatecoach   Google +: https://plus.google.com/+Smartrealestatecoachchannel   YouTube: https://www.youtube.com/smartrealestatecoach   Instagram: https://www.instagram.com/smartrealestatecoach   Twitter: https://twitter.com/smartrecoach   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 coach.com 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 prefontaine.com/step. 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 prefontaine.com/stapp 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.

25m

Aug 31

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: https://www.linkedin.com/in/adam-zach-pe-0000303b/  https://www.facebook.com/ChessChief Facebook: https://www.facebook.com/ChessChief   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 partner.com/investors 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.  

24m

Aug 30

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: https://www.linkedin.com/in/francotv/ Web: https://beacons.ai/franco.tv   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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.

27m

Aug 28

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 - https://www.facebook.com/tribevest  Twitter - https://twitter.com/tribevest  IG - https://www.instagram.com/tribevest/  LinkedIn - https://www.linkedin.com/company/tribevest  LinkedIn - https://www.linkedin.com/in/travissmithmovethechannel Web - https://www.tribevest.com/pro   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 best.com 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.      

24m

Aug 24

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: https://wickedsmartbooks.com/sam1/ Email: chris@smartrealestatecoach.com    Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 books.com/sam 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 coach.com 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.  

23m

Aug 23

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 https://www.facebook.com/david.mcilwaine/   MAC Assets Facebook Business Page https://www.facebook.com/MACAssets/   MAC Assets Instagram Page https://www.instagram.com/macassetsco/   David McIlwaine LinkedInPersonal Page https://www.linkedin.com/in/david-mcilwaine/   MAC Assets LinkedIn Business Page https://www.linkedin.com/company/mac-assets/   Podcast https://podcasts.apple.com/us/podcast/break-your-golden-handcuffs/id1680781274   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- 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 etsy.com 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.  

24m

Aug 21

Today’s guest is Tom Dunkel.   Having spent his early career as an accomplished corporate finance leader with over $1.2B of middle-market M&A and financing transaction experience, and possessing a proven track record as a trusted decision-making partner to C-level executives, Tom turned his entrepreneurial energy and enthusiasm toward building a self-storage investment business.   Show Summary:    Tom shares his journey from corporate America to entrepreneurship, discussing his experiences in self-storage, short-term rentals, and distressed mortgage debt. He emphasizes the importance of utilizing technology and marketing strategies in the self-storage industry, and shares insights on market dynamics and competition.  -------------------------------------------------------------- Intro [00:00:00] Tom Dunkel's background and journey [00:01:27] Reasons for pivoting businesses [00:04:24] The importance of KPIs for mom and pop operators [00:11:13] The advantages of raising rates in self-storage [00:12:08] Factors influencing being a price leader or follower [00:13:11] Closing [00:22:36] -------------------------------------------------------------- Connect with Tom:  Facebook: https://www.facebook.com/tom.dunkel.1  https://www.facebook.com/belrosestoragegroup Linkedin: https://www.linkedin.com/in/tomdunkel/ https://www.linkedin.com/company/belrose-storage-group/ Web: https://belrosestoragegroup.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Tom Dunkel (00:00:00) - Over the past 40 years, the US economy has been bouncing around like a really wicked roller coaster. Right? Good times, bad times, everything in between. But storage, it's like. It's like that lazy river. Sam, when you got your little cocktail, you're floating around at your resort on your little inner tube there. I mean, it's just gently meandered between about 80 and 90% for that same time period, 40 years. So we really like that, that steady predictability and the increasing demand, and that's high cash flowing business. So we're really enjoying it. Welcome to the How to scale.   Sam Wilson (00:00:33) - 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. Tom Dunkel is a former aerospace M&A guy. He's got 17 years as a full time real estate investor. If you don't know, Tom actually came back on the show September 18th of 2022, which if I'm not mistaken, that was episode number 658. If you want to go back and hear a little bit more of Tom's story, you can go back there again.   Sam Wilson (00:01:04) - Check that eight. Check that out on September 18th of 2022, Episode 658. Otherwise, Tom, welcome to the show. There are three questions that I always ask every guest who comes on. I know you got this question last time, but maybe you'll answer it differently this time. And if our listeners haven't heard that, they want to hear it again anyway. So where did you start? Where are you now and how did you get there? In 90s or less?   Tom Dunkel (00:01:27) - Got it. Thanks, Sam. It's great to be with you and the listeners once again. Great show. Yeah. So as you mentioned, I started out in corporate America after business school was I was kind of the number crunching, you know, Excel spreadsheet nerd. I was putting together the projections and the pro formas for our aerospace acquisitions, doing the valuations, doing the the, the market work to see like, who are the competitors out there, What were they doing, You know, how could we position ourselves and all those kinds of things.   Tom Dunkel (00:01:59) - So I got to work with some amazing people Harvard MBAs, Wharton MBAs, Naval Academy graduates, Chicago MBAs, retired Air Force colonels, and even some astronauts. And if you catch up with me after the show, if you visit with me on my website, I'll be happy to share with you the two astronauts that I've actually had lunch with. But yeah, so from there, Sam went into a couple other jobs corporate wise, and I just knew all along that, you know, scraping and clawing up that corporate ladder just, just just wasn't for me. I knew there would be a better way. So 2006, I got my opportunity when I was fired for my corporate job. Finally gave me the kick in the pants that I needed to go out and do my own thing. So of course, 2006 was a rough time to get started in real estate. But, you know, I went in full bore and got my butt whooped pretty good those next few years. But, you know, learned a lot, got some battle scars and but persisted.   Tom Dunkel (00:03:01) - And now here, 17 years later, I've built multiple seven and one eight figure business and now we're in the self storage space, which is a ton of fun. And I'm sure we'll get more into the details there later. But in the 90s, that's the story.   Sam Wilson (00:03:19) - That's the summary. I love it. I love it. Have you always done just self storage or do you have other real estate holdings as well?   Tom Dunkel (00:03:28) - Yeah. So right now self storage is our primary business, but we do through the years, of course, being entrepreneurs, we try out different things. So we also do have a short term rental portfolio in the there's a, there's a mountain in Lake Region here north of Philadelphia called the Poconos. And so we picked up some Airbnb rentals up there, which were really hot during Covid. And then we also have a distressed mortgage debt business. And that was the business that I started after getting my butt whooped in the residential world in 2009, I started buying notes and then 2010 and etcetera.   Tom Dunkel (00:04:05) - And that business has done real well for us over the years.   Sam Wilson (00:04:08) - Considering the various businesses that you're involved in. What were some of the hallmark or hallmarks, rather, of why you pivoted from one to the next? And was there any expense in not staying with just one?   Tom Dunkel (00:04:24) - Yeah, that's a great question, Sam. So distressed mortgage debt has been great. I mean, we've generated over $53 million of revenue in that business and we're not a big company. So that's that's done real well for us. Problem is, it's extremely unpredictable and it's not like we can go up to Big Bank USA, knock on the door and say, hey, sell us some loans. So we were strictly at their behest, you know, their whim as to what loans they were going to sell, how many and when. And so for like an MBA guy like me, you know, taught how to put business plans together and KPIs and whatnot, I mean, it just became impossible to really predict the future in any way, shape or form for distressed debt.   Tom Dunkel (00:05:04) - So even though that business is still rolling today, it's strictly, you know, when when a deal comes up, we kind of shift and we jump at it. We have a team that's able to do that and then we got to shift back. But so along the way, we had been looking for an asset class where there was some predictability. You know, there was some staleness there was, you know, a way to put a plan together and put a team together and really, you know, build a business. So we actually started out looking at private lending, hard money lending, and we really liked that business. And we still do a little bit of it sort of on the side. But but we were just not able to get the traction to get that business up and running. And one of the big reasons is its super duper competitive. So that's a big takeaway I would give the folks out there is, you know, be careful about what asset class you choose because if it's super competitive, you know, you're going to have a hard time making hay.   Tom Dunkel (00:06:02) - So when that business didn't work out the first time, we thought, Hey, let's try this again. We did this so good the first time. So we failed at that business twice. And we start we got involved with the title company and because again, we thought that was going to be a lot of a lot of small transactions and predictable, but again, couldn't find really the right relationships and team to put to bear there. And then about 2017, 2018, we started hearing more and more about self storage. We were like, Hmm, okay, this is checking a lot of boxes, very fragmented industry. So it's, you know, there's a lot of moms and pops. The big names that you've heard of out there, they only control about 30% of the market, the public storage, extra space, cube, smart, etcetera, those big guys. So the vast majority of the market is just small ones, two mom and pop owners, which was very attractive. The second thing we found super attractive was just the adopt, the adaptability, the market penetration of self storage.   Tom Dunkel (00:07:03) - A few years back, only about 8% of households in the US, we're using storage. Fast forward to today, it's going on 11% and increasing and I know maybe 3% doesn't sound like a lot, Sam, but when you consider there's 120 million households in the country, every 1% move is 1.2 million new self storage customers. And they're just not building them fast enough. So we've got increasing demand, you know, supply increasing not as much, which means there's going to be upward pressure on rates, which is awesome. And then I guess the last thing I would throw out there is just that over over time, over the past 40 years, you know, the US economy has been bouncing around like a really wicked roller coaster, right? Good times, bad times, everything in between. But storage, it's like it's like that lazy river. Sam, when you got your little cocktail, you're floating around at your resort on your little inner tube there. I mean, it's just gently meandered between about 80 and 90% for that same time period, 40 years.   Tom Dunkel (00:08:06) - So we really like that, that steady predictability and the increasing demand, and that's high cash flowing business. So we're really enjoying it.   Sam Wilson (00:08:15) - No, I think that's all of those are excellent, excellent reasons to get involved. I'm I'm shocked that 30% only 30% of the self storage market is controlled by big names. That's a shocking statistic to me. The big one, I would not have guessed that today that that's still. But that's still the case. Which obviously I guess it is. I would think that that though having those big industry names behind it, like those those consolidating entities, is probably a good thing, just in the sense that it brings market awareness. It brings. I mean, it has to improve resale value of your guys facilities if you decide to resell it all, if that's even part of your strategy. Is that not a fair, fair analysis?   Tom Dunkel (00:09:07) - Yeah. So so the rights are it's kind of a double edged sword with them. So if they are in a market where we are, they I mean, they have a lot of sway, right? They've got big marketing budgets.   Tom Dunkel (00:09:19) - You know, it's usually a big shiny building right on the corner in the middle of town, you know, that kind of thing. So when they come into town, especially if they're building a new facility, what they will do is they'll really drive down the rates in the entire market just to get their facility filled up. And then they'll kind of boil the frog slowly and up, up, up the rates. And so, you know, in that situation, we have to follow them, unfortunately. So that's part of our analysis. When we are looking at acquiring a facility, we're looking to see who are the competitors. Is it, you know, is it Joe's self-storage or is it, you know, public storage? And do we So we need to be cognizant of the fact that there are there is a REIT or our REIT's in the market. And so that's just going to just make us think a little bit more about how we're going to address that. But yeah, the the thing though is if they are already established in the market, they're going to be pushing rates.   Tom Dunkel (00:10:16) - So that's the other edge of the sword is, you know, we can then ride that wave as well by. Either, you know, doing maybe a small discount off of what they're doing or if all the facilities in the in the market are full, which does happen, then we know we can really kind of push that demand curve and push those rates and just kind of see where that equilibrium is and and really be more aggressive about bumping up our rates. Yeah.   Sam Wilson (00:10:45) - That's interesting. I would have I mean, it makes sense, obviously what you said, but I would have guessed the other way around would be that your mom and pop owners would be the ones that are keeping prices artificially low because, well, you know, we've all we just had our prices here and we don't want to upset our customers. So we're going to keep it here. It's like.   Tom Dunkel (00:11:05) - No, you're spot on. That's 100% correct. Sorry if I got off on a off the rails there, but no, no, you're 100% correct.   Tom Dunkel (00:11:13) - And that's one of the things we look for when we're acquiring a facility is a mom and pop, you know, their big KPI. And we're talking about KPIs, key performance indicators before we hit record. And that's their like only KPIs seems like is are all my units full, right? That's what the mom and pop operator does. The last thing they want to do is have to have to have a fancy website or implement technology or a marketing program or, you know, God forbid, throw out some Google ads, you know, something like that. It's just not how they run their business. Right. They're just looking for that mailbox money and they know their rates are low. They know that their delinquencies are high, but they just don't want to upset the apple cart because they know they know all their customers a lot of the time. Right.   Sam Wilson (00:12:02) - That makes that makes a lot of sense. But, I mean, that's where the that's where the meat on the bone lies, right? It's like, okay.   Tom Dunkel (00:12:07) - 100%.   Sam Wilson (00:12:08) - 100%. I'm thinking about a which we're we're long in the laundry business. And I was thinking about a store we just bought and we literally raised rates 53%.   Tom Dunkel (00:12:19) - Oh, yeah, right.   Sam Wilson (00:12:21) - Because it's who knows how long it's been since they've raised rates. I mean, of course that's right. It's all the little sophisticated. I'm not going to call it sophisticated little things that you can do that drive a business in a meaningful way that you just mentioned. Like. Yeah. Oh, hello. Google ads. Okay. Pay per click campaigns. Okay, we're marketing. Okay. We have a phone line.   Tom Dunkel (00:12:40) - Right?   Sam Wilson (00:12:42) - I mean, how many of these facilities you're buying where you're like, you guys don't have a site and a phone number that there's a.   Tom Dunkel (00:12:47) - Person and we're actively surveying the market to see like who's charging what and how busy are they, Right?   Sam Wilson (00:12:54) - Yeah. And those are those are where your competitive edges lie. What's your thought? Maybe you answered this, but I'm going to ask it again anyway just to see if there's more more to this than not.   Sam Wilson (00:13:05) - What's your thought on being a price leader or a price follower?   Tom Dunkel (00:13:11) - Yeah, good question. You know, and I hate to I hate to say this, but it's going to depend on the market. So, for example, we acquired a facility in Mount Airy, North Carolina, a couple of years ago. And the entire market in our analysis, we discovered that the entire market was full. And so we knew when we acquired our facility there, Granite City Storage, we knew that if there's a customer in that market that wants a storage unit, they're going to have to pay more because if we bump up the rates even on our existing customers, where are they going to go? So we we were able to successfully play that game in that market and we increased our rates about 21% in the in the first few months. And then we were just able to bump it up kind of incrementally from there. But yeah, I mean, that's that's a big factor is what's going on at the other stores.   Tom Dunkel (00:14:06) - But like we talked about a minute ago, you know, if there's a big new development going in and there's a REIT coming in, you know, we're going to be more of a price follower in that situation. Oh, and what I meant to add on to for my first example in North Carolina, all the other competitors in that market, they followed us after they saw that we were bumping up our rates. They all, you know, bump, bump, bump, bump, bump up their rates. Right. And then, you know, we I don't remember getting like a holiday card or like a commission check that year from those guys, but we should have for sure. But yeah, on the other side with the with the big rates coming in or big developments coming in you know you're going to end up most times being a price follower in that situation.   Sam Wilson (00:14:55) - Right Yeah it's it's a it's a temporary race to the bottom.   Tom Dunkel (00:15:00) - That's right. But but honestly, which is why I'm sorry to interrupt, but which is why like, you know, people look at these really hot markets, you know, like down in Florida and, you know, millions and millions of people moving there, or at least hundreds and hundreds of thousands.   Tom Dunkel (00:15:16) - But we don't like to see that the market being too hot because we know that's going to attract the REIT's. You know, so we're looking for that Goldilocks situation where it's growing but enough to increase demand but not enough to increase, to increase or attract a lot of competition.   Sam Wilson (00:15:35) - What's one of the things that you have done from a management perspective and you're based in Wayne, Pennsylvania, so. That's right. And you're buying things in Mount Airy, North Carolina. That's more that's more than a five minute drive from your house.   Tom Dunkel (00:15:50) - That's right.   Sam Wilson (00:15:51) - So how how have you established systems and got the in and established the right people to manage these at scale from a distance?   Tom Dunkel (00:16:02) - Yeah, I mean, that's really, you know, the magic, you know, the secret sauce, although it's not very secret. I mean, you hit the nail on the head. It's. It's getting the right team together, right with the right systems. And of course, we're leveraging technology to the max. So those moms and pops that we buy from, a lot of times they don't even have a website.   Tom Dunkel (00:16:24) - And if they do, it's stale information. You know, it's rates from a few years ago and the phone numbers wrong, you know, all those kinds of things. So we implement what we call a hybrid management strategy. So each of our facilities has a human that is assigned to it. But because we leverage technology, the phone number that is at the facility, you know, if they call our facility in Douglasville, Georgia, it's going to ring on the cell phone of the human manager. But they might be out in Missouri. And so but because of technology, they're able to answer the phone. Hi, it's Douglasville Self Storage. And then, you know, nine times out of ten, they can handle whatever the customer inquiry is just right there on their smartphone. Right. And in the event that the manager is busy or maybe they are not able to pick up the phone, if the customer is at the facility, they're going to they're going to see one of these they're going to see a QR code.   Tom Dunkel (00:17:28) - And if anyone out there wants to have a little fun, you can scan this on your phone and you can run a unit from us at our Baltimore facility. But the the customer can just go up, scan that QR code, it'll take them to the website, They can fill out all their personal information load in their credit card for autopay, which is awesome. And then just sign the contract with their finger. And then once they submit all that, they get a gate code texted to them while they're right there standing outside the gate punching the gate. Code gate opens up. They go inside, they find their unit, empty out their stuff, lock it up, and they're on their way without having to interact with the human at all. So so we love doing that and it allows us to really drive down our operating expenses at our facilities, which is everyone out there, I'm sure knows because you've got a smart audience that drives up net operating income, which drives up the value of the facility, which is the whole purpose of our value add strategies that we implement.   Sam Wilson (00:18:32) - And it improves the customer experience. I mean, that's the last thing is, yes, it drives up in why. But Tom, if you gave me the option to rent from you where I can do it from my phone, plug in my information and be done in five minutes versus walking inside hand it being handed, you know, 42 pieces of paper and filling out all information.   Tom Dunkel (00:18:51) - That's right. That's right. And and you got that generational difference, too, right? I mean, you know, millennials are our biggest generation right now in the US. And that's you know, they were all born with a smartphone in their hands. Pretty much. Right. Right.   Sam Wilson (00:19:05) - For better and probably for worse. That's right. Yes. That's that's very, very true. Tom, we've got a few minutes here left, and I wanted to highlight a couple of things and just get your thoughts on them. This is, again, you know, the fact that we talked about this in the beginning. You came on September 18th or the show published September 18th of last year.   Sam Wilson (00:19:25) - Some things have changed. It's some things have changed in the financing side of things. On the sales side of things. Yeah. Tell me, how are you guys navigating the current lending environment? How has that affected deal flow? How has it affected pricing fast? Three questions and money as opposed to ask one at a time. So it's up to you now.   Tom Dunkel (00:19:45) - Sure. Yeah. I mean, things have certainly been dynamic the past nine months since we spoke last. And, you know, rates are interest rates are up, you know, 4 or 5%. I mean, which is huge, right? I mean, we were doing deals that, you know, three and three quarters or 4% debt back then. But, you know, now it's a different ballgame. And, you know, we've been able to adapt. Of course, none of this was really a surprise. I mean, we all saw, you know, all the money that had been printed and, you know, that inflation was coming and that was going to push up rates.   Tom Dunkel (00:20:17) - And so we, you know, having been around, you know, the deals and projections and all that for for many, many years, jeez, you know, Wow. Going on 30. Wow. Anyway, I'm not that old. So we knew this was coming, right, Sam So we were we were already adjusting our models, adjusting our exit Capri assumptions and our future rate assumptions and all those kinds of things. And and so we've, we've been very disciplined and about the facilities that we purchased. And for that reason, we've, we haven't purchased a whole heck of a lot. I mean, we're we just closed on our 13th facility. We've got our 14th coming up here soon. But our acquisition pace definitely slowed down because. A lot of sellers were looking back a year saying, Oh, I want that value, you know, from back then. And we're saying, Well, sorry, that's off the table now because our cost of capital is up and we have return targets that we need to hit for our investors.   Tom Dunkel (00:21:15) - So that's definitely slowed us down. But I guess the good news about that is because of the run up in pricing the last few years, there's a lot of owners out there sitting on a lot of equity and that has allowed us to to take advantage of seller financing. So we have we did a seller financing deal in the fall and we have two seller financing deals lined up here that are that will be closing here in the next month or two. And the beautiful thing about that is, well, it's really a win win, right? Because the seller, they're not getting a big tax hit right up front because if they took the whole purchase price, net purchase price and in cash, they'd have to pay a big chunk of taxes on that. So seller financing allows them to kind of push push out their tax liability there. And then for us, there's no big onerous underwriting process that you have to go through with an institutional lender. There's typically no personal guarantees, which again, on smaller deals from a credit union or a small local bank, there's going to be looking for personal guarantees, and the terms are typically pretty great.   Tom Dunkel (00:22:25) - So we're seeing interest only payments, which of course means lower lower payments, higher cash flow left over for our investors. So. So we love to see that.   Sam Wilson (00:22:36) - Absolutely. Tom, this has been enlightening. Thank you for taking the time to come on the show today and share your thoughts. You're kind of updated thoughts here with us on the market, how you guys are handling it, what you guys are doing there in the self storage space. It's a pleasure, of course, to have you come on a second time. You're an absolute wealth of knowledge. I do 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?   Tom Dunkel (00:22:59) - Sure, Sam. It's been great. Love the questions. Great energy. Love it. So, yeah. I'm Tom Dunkel. I'm the chief investment officer here at Belrose Storage Group. You can find us at Belrose Storage Group. We also have a Facebook page. If you want to search Belrose storage group on there, you can find my past podcast interviews and other articles and value add that we put out there for our investor community.   Tom Dunkel (00:23:25) - So yeah, I'd love to love to hear from you and I'd love to schedule a call. You can do that from our website as well. But yeah, we, we're active, we're out there doing self storage deals and we're, we're doing syndications with accredited investors. So I'd love to have you come join us.   Sam Wilson (00:23:38) - Fantastic. Belrose Storage group. We'll make sure we include that there in the show notes. Tom, thank you again for your time today. Do appreciate it.   Tom Dunkel (00:23:46) - Thank you, Sam.   Sam Wilson (00:23:47) - 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.  

24m

Aug 17

Today’s guest is TJ Kosen.   TJ  has been in Real Estate since 2006, first cutting his teeth before the crash with 200+ multi-family units in Tennessee. He has done deals in Texas, California and Tennessee.   Show Description:   In this podcast episode, TJ shares his experience in the real estate industry and how he has successfully scaled his business in the distressed residential space. TJ discusses his strategies for beating the competition, which include understanding the motivations of distressed sellers and offering tailored solutions. He emphasizes the importance of treating the single-family business like a commercial operation and hiring specialized individuals. TJ also talks about the balancing act between motivation and urgency when dealing with distressed sellers and how his company focuses on understanding the seller's needs to provide the best offer. He explains how his company sets itself apart by focusing on margin rather than volume and crafting solutions that address the seller's underlying problems. TJ also discusses the challenges of systemizing projects in the real estate business and the need to build a fund for sustainability and cash flow. He predicts an increase in distressed residential inventory and shares his confidence in their competitive advantage.  -------------------------------------------------------------- Intro [00:00:00]   Scaling a residential real estate business [00:01:53]   Negotiating with distressed sellers [00:07:32]   The offer is more than just money [00:10:53]   Outsourcing and specialization in business [00:13:01]   Challenges in systemizing property projects [00:15:38]   The forecast on distressed residential inventory [00:20:42]   Evaluation of dispo strategies [00:22:15]   Closing [00:23:39] -------------------------------------------------------------- Connect with TJ: Facebook: https://www.facebook.com/tkosen  https://www.instagram.com/tjkosen/ Instagram: https://www.instagram.com/tjkosen/  https://twitter.com/kosentrade Twitter: https://twitter.com/kosentrade  https://www.linkedin.com/in/tj-kosen-a944382b/ Linkedin: https://www.linkedin.com/in/tj-kosen-a944382b/ Web: http://www.tjkosen.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: TJ Kosen (00:00:00) - We often beat our competition by 30 to. I think our record in the past two months is $60,000 below our our competitor's offers by discussing this with the seller. And so you're not dealing with an uneducated seller, you're dealing with a seller that isn't served by a higher offer because they're not actually solving the fundamental problem. Whereas most people, you know, 80% minus repairs, we're like, well, let's let's see what the seller actually wants and let's hit it from the other direction instead.   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. DJ has been investing in real estate since 2006, first cutting his teeth before the crash with a 200 unit plus multifamily property in Tennessee. He has done deals in Texas, California, Tennessee, TJ. Welcome to the show.   TJ Kosen (00:00:49) - Hey, thanks for having me on, Sam. I'm excited to share some insight.   Sam Wilson (00:00:52) - Absolutely. The pleasure is mine.   Sam Wilson (00:00:54) - There are three questions to 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?   TJ Kosen (00:01:02) - 90s are lost. I don't know about that. I'm from San Diego. My first deal was 112 units in your hometown, Memphis, Tennessee. It was a lot of fun. 2006, Let's see where I started, where I went to and where I am now. In Dallas, Texas, we move a high volume of distressed, mostly single family direct seller residential properties in our North Texas market, also in Houston, some in Tennessee and some in Florida. Right now we're doing some marketing down there. We have a pretty good sized team and we really specialize on the direct to seller marketing and we specialize in the optimizing our exit strategy based on the fundamentals of both seller's requirements and the deals specifically.   Sam Wilson (00:01:40) - Okay. I'm excited here to dig in today. I know this show, of course, is a commercial real estate show, but I think any time you can take a business like what you're doing, you've figured out how to scale it.   Sam Wilson (00:01:53) - I would say that what you're doing is probably more complex than buying a 200 unit multifamily. You know, say a B class multifamily property in Dallas. I would rather I would think it would have fewer moving parts than what it is that you're doing. Would you agree with that or not?   TJ Kosen (00:02:08) - Oh, yeah. One of my biggest hurdles really from transitioning from multifamily in the in the crash back in the day to more single family was how much more specialized and individualized the product had to be at least on a like a 1 to 1 basis. So the way that I kind of overcame that fundamental issue with the business model is treating the single family business more like a commercial kind of operation where now we're we're hiring specialized people to do specialized tasks, same as you do in multifamily. You're going to hire, you know, a manager to do a specific thing. You're going to hire a maintenance guy to do a specific thing or whatever it is. So we did the same basically the same type of model, the same type of mindset with residential distressed stuff even down to rehab.   TJ Kosen (00:02:47) - So I said we optimize our exit strategy based on the property, but if we're doing, for example, a renovation, we try to keep the renovation very simplistic in terms of we're doing the same thing over and over and over again as a cookie cutter type model. And again, from the commercial perspective, we even looked at the loans, the loans, the debt we get is very much commercial based, you know, debt service or hard money, depending on the type of loan. So it is fundamentally a commercial mindset, I think, for a residential type of business or type of product.   Sam Wilson (00:03:17) - Yeah, absolutely. So I mean, you correct a lot of things here because I know I know I've got some flaws in my thinking. Probably more than.   TJ Kosen (00:03:26) - That. You might be smarter than me.   Sam Wilson (00:03:27) - I don't know. Probably more than we have time here for you to solve, but maybe specifically about your business. You're in the distressed residential space. Deal flow, I would imagine, has become constrained, especially in the last five or so years.   Sam Wilson (00:03:43) - True.   TJ Kosen (00:03:47) - False, but only if you're better than the competition. And fortunately, there's a lot of competition, so it's easy to be better than a lot of them. And what I mean by that is you have to treat it like a business, really, where if you're going to do a volume, you have to treat the fundamental business is the lead generation and the negotiations on the front end to generate a top of the funnel volume sufficient enough to keep the business operational. Right. From a strictly sales perspective, if you're trading a new sales guy in roofing, we have a roofing company, for example, or, you know, loan officer back in the day is where I started like way back in 2005. You're always training the sales guy, like always be originating, always be originating because you have to have the deal. I was like, Oh, I had a great month. I could coast Well, yeah, but you know, you burn through that really quick. And as you scale up in a business, it actually becomes easier after you hit probably a certain threshold of deal flow.   TJ Kosen (00:04:37) - Maybe cash flow management becomes more difficult. But in terms of like consistency of outcome, it becomes easier to actually keep a consistent pipeline of deals going because now there's so much stuff going on that, okay, if something goes south, it's not that big a deal because you got ten more things that are going like not South. And that's that's how we've been able to overcome it. We focus on lead gen, we focus on negotiation on the acquisition side and then everything else. I don't want to say it works that self out because actually that's fundamentally my problem. I'm the, I'm the I'm the problem solving department. So I actually don't generate the revenue. I make sure we cover our tail on the back end. But that's that's what we've been able to overcome that.   Sam Wilson (00:05:14) - Got it. That's really interesting. What would you say when looking at the. When looking at the distressed seller types, are there any themes to it that you're seeing right now?   TJ Kosen (00:05:27) - More or less. So there's always a there's always a balancing act between motivation of the seller itself and the stressing factors that the seller is dealing with.   TJ Kosen (00:05:38) - So I like to call it a like a scale between motivation and urgency is what we have with the seller. So for example, for years during Covid, obviously we wouldn't have foreclosures because they just weren't happening really. Right? So a foreclosure, typical traditional foreclosure is highly urgent because there's a foreclosure date where they're going to lose the property by and after. I mean, you can kick the can down the road a couple of times, but eventually it's going to happen. But that buyer profile might be very unmotivated because they tend to want to ignore their problems just from what we've noticed from dealing with them. So then we have to negotiate one way with that type of seller where I think I said buyer a second ago anyway, we have to negotiate one way with that type of seller where we stress the actual urgency of the situation and then that elevates their motivation. So that's one type of seller profile. The other type of seller profile would be a more traditional distressed seller that just has a problem with a kind of junky house that they don't want to deal with, and it's very seldom that they don't know what the property is worth or anything like that.   TJ Kosen (00:06:41) - Often we'll tell them and we'll walk through the whole process and talk about the options. But maybe they have a hoarder house and they just have three feet of stuff in the house they don't want to deal with. Maybe they inherited a house and they don't want to deal with the emotional trauma of dealing with the stuff. We like to say when negotiating money is always a motivating factor, but it's very seldom the fundamental motivating factor. As investors, we often project our expectations on the seller. So my expectation is I want to make a lot of money. Therefore, obviously the seller being a reasonable person wants to make a lot of money on their house. That's not necessarily the case. They usually have an emotional trauma or an emotional issue with the House. That's their primary motivating factor. So if we can figure out what that is and solve that problem, then we're not only in a better position to profit ourselves and our company, but we're actually in a better position to solve their problems. Um, not to not to monologue too long.   TJ Kosen (00:07:32) - But for example, we often beat our competition by 30 to I think our record in the past two months is $60,000 below our our competitor's offers by discussing this with the seller. And so you're not dealing with an uneducated seller, you're dealing with a seller that isn't served by a higher offer because they're not actually solving the fundamental problem. Whereas most people, you know, 80% minus repairs, we're like, well, let's let's see what the seller actually wants and let's hit it from the other direction instead.   Sam Wilson (00:07:56) - What how do you do that? Like that, That that sounds. Too good to be true. Like, how do you discover the the motivations for selling and then offer them $50,000 less and get them to say, Yeah, that sounds good.   TJ Kosen (00:08:14) - Um. Well, you need to make it good, don't you? So.   Sam Wilson (00:08:16) - Yes.   TJ Kosen (00:08:17) - So take a traditional cold call lead, I suppose, which a lot of our competition does. And cold calling is our, um, worst performing lead source in our company because we're not as good at the long term follow up as some of the guys are.   TJ Kosen (00:08:29) - But fundamentally, a lot of those types of lead origination mindsets deal with the property because they're burning through a lot of data, a lot of data points, a lot of lists or whatever. And then just in the nature of that lead, they're going to want to disqualify the urgency of the seller. Whereas if we have an inbound lead, if we have a PPC lead, a mailer, lead, even a bandit sign, lead, we've closed a couple of those. It's kind of weird, right? Um, then not only is the seller contacting us, but now we're not trying to disqualify the seller. We're trying to find out the actual underlying need that they contacted us. And we do that by having a long conversation with the seller about the actual situation that they're involved in. Um, again, it's going to depend a lot on the seller. So a pre foreclosure is going to be a lot more urgent and maybe even on our part, a little more aggressive negotiation technique than someone that has a hoarder house that they don't want to deal with trauma of the stuff.   TJ Kosen (00:09:27) - But we're going to find out what the trauma situation is and then we're going to find out how we can solve that problem for the for the other person. We're not going to be qualifying the property to speak of in the initial conversations. So where our competition is going to say, well, tell me about the house. We don't care about the house. Like there's a dollar amount that the house makes sense for us. I think probably for like anything like we'll do seller finance, we'll buy a house for a dollar, even if it's a complete whatever and sell it to someone. So there's always a dollar amount that overcomes whatever problem there is on the house. And we're going to verify that once we actually go on an appointment or send pictures or whatever. So we always verify the house. That's not the problem. The problem is the seller because that's the person that we're trying to solve the problem for. So the better we're able to do that, the better we're able to have long conversations. Our average talk time for qualified lead is probably 30 to 45 minutes, whereas our competition is probably 5 to 25 minutes.   TJ Kosen (00:10:19) - Um, and that's that sets us apart, maybe not in terms of volume, although we do a significant volume, but it sets us apart in terms of margin.   Sam Wilson (00:10:27) - Yeah, that's. And what are you. Obviously you're establishing rapport with the seller, things like that. But let's let's assume that you diagnose what the trauma is. I don't know. You can probably make something up, but we don't necessarily have to. But you diagnose what that is, is, is your secret sauce and then crafting a solution to that trauma. Yes. And then making them an offer kind of independent of that?   TJ Kosen (00:10:53) - Yeah, absolutely. The offer isn't money. The offer is money's a component, but the offer is okay. You need $100,000. But what do you need $100,000 for? Because I know I can only give you 50 grand or whatever it is, Right? Well, I need $100,000 because I want it because of X, Y and Z. Okay, well, if we can get you to X, Y, and Z, then is the offer going to be reasonable if I can get you where you need to be, is that going to be okay if I can make it so I mean, pre foreclosure, probably a good example.   TJ Kosen (00:11:22) - I need 100 grand because I need 100 grand. Okay. You're going to lose your house on Tuesday. You're screwed. It's Friday. Like we can do this. But we're pretty much the only ones that can because you're all just partial because you don't have time. So now we have to say, like, okay, if I can get you, you know this much, here's where here's where you need to be. What else can I do to help alleviate your situation? Well, I'm going to need some time to move. Okay, No problem. We'll do a lease back. We'll do a hold back for the lease back. So we're covered. But now we're competing. Now we're beating the competition on the wholesale side where the wholesalers they're going to see a lease back is something that there is cutting into their profit. For us, we close on 75% of our deals anyway, so it doesn't hurt us that much in terms of that. And we just factor in the carrying cost and the risk in like a decreased price or a lease back hold back.   TJ Kosen (00:12:10) - Oh, don't want to do all the stuff in the house. You know what? No problem. You think you need ten grand a dumpster fees? Just leave the stuff there. Don't worry about it. Automatically dropping our offer by ten grand. Right. Or whatever it is in their mind. So that's that's where we alleviate the emotional trauma for the sellers and and other people can do that. It's just they're not as good at having the conversations about how to do that.   Sam Wilson (00:12:32) - Yeah. How long is it taking you to craft that script or that kind of process? I mean, it's it's a.   TJ Kosen (00:12:38) - It's a work in progress. I'm not the best acquisitions guy. My motivating factor of building this entire monstrosity that I have is I just don't like talking to sellers. They bummed me out. They got a junky house. It smells funny. It's got stuff in it. They haven't fixed the roof for 30 years and they know what they have. I don't want to talk to that person. I've talked to that person a hundred times at the same exact house.   TJ Kosen (00:13:01) - It just happens to be in a different address. I'd rather hire someone and that's where the kind of commercial mindset comes in in terms of like building the business. I'd rather hire someone where that's their binary task and that's what they do all day long and they enjoy doing it and they're paid well to do it. And honestly, they're better at me than doing it because I'm going to be I'm going to be a nice guy. I know I can give you five K more and then you're going to think that I'm an amazing person. Whereas if I send someone else out, oh, I got to check with my boss. Like there's that psychological hurdle that they have to overcome. They know what they can pay, but they're going to know that now they have to come back and justify what they paid for. And I'm going to say, well, could you gotten cheaper? Well, no, absolutely not. I couldn't have gotten cheaper. All right. Awesome. Good job. Could you have gotten cheaper like.   TJ Kosen (00:13:44) - Yeah, probably. Well, okay. You made 80 grand. You should have made 90. You know, whatever the situation is.   Sam Wilson (00:13:51) - Right? No, I like that. I like that a lot. That's. It's always good finding people that are better at it. That the name of the game as a business? I think so. Finding finding people surround yourself with everyone who is better at everything than you is kind of one of my own mantras. Like, Oh, I can only hire you if you're better at it than me because I don't want to be the best at it.   TJ Kosen (00:14:13) - That's a big that's a big misnomer in the entrepreneurial space, right? Everyone says like, Oh, I'm never going to find someone to do X, Y, Z as good as me. Like, that's absolutely not true because first of all, you're probably not as good as you think you are. And second of all, if you're doing X, Y, Z and ABC and a bunch of stuff in the middle, too, you're not doing the critical stuff all the time as well as you can at your max capacity because you're doing all this other stuff, right? So if you hire someone that's honestly more intelligent and pay them better, they're going to have a holistic picture so they know where the thing fits in the entire holistic process of the business.   TJ Kosen (00:14:46) - But they're going to be sophisticated enough to know that their job is to do this one piece of the job, to fit it into the bigger picture. And they're going to be able to do that piece of the job better than you 100% of the time, right?   Sam Wilson (00:14:57) - Yeah. Specialization, man, that's that's that's imperative. I have a question probably more from a personal standpoint because they did a whole lot of house flipping all the way through. In wholesaling through 2018. One thing I could never overcome in this space tell me how you've done this is that every property was completely different. And so even with project managers, even with the theoretically people on the bus that knew what they were doing, it somehow seemed like we could never get projects done as quickly or as well, or because there was never. I know you mentioned cookie cutter, and we got to that to where it was like, Hey, here's the finished schedule, here's the paint schedule. It's the same bloomin color every single time on every single wall.   Sam Wilson (00:15:38) - Here's your trim type, here's your. But even with that project still vary. Oh, there's foundation issues here. Oh there's you know, there's that over there. I mean it's a constant problem solving thing. And each, each project has its own unique problems. How have you found a way to systemize that?   TJ Kosen (00:15:58) - Uh, I mean, the short answer, they haven't. The longer answer is we try to again, we try to make the product look relatively the same. We try to use consistent crews that we've used over and over and over again in a lot of times. And in this market, actually, it's kind of annoying. Flips are probably our lowest margin product, especially when you take into account turnover ratio, cash conversion cycle. My personal headache of going out and seeing these things. So that's the part that. It's a little tougher to outsource, to be honest with you. It's almost it's easier to outsource a good sales guy well in office, but it's easier to train that and have that as a thing as opposed to someone that has, you know, getting into real estate in oh six, that many years of construction experience where I can walk through a house in five minutes and know more about it than most people can in an hour, right? I still walk.   TJ Kosen (00:16:47) - I still walk construction sites. Yeah, I do. Um, fortunately, we're not doing we're only doing six rehabs now out of 30 deals. So about 20% of our deals are rehabs. So it's not that overwhelming. And we try to we try to have a good schedule of what needs to get done day one and then trust the crews to do it and then empower them to be able to do it and then touch base with them. I talked to some of our contractors twice a day even now. Um, but that means that we made. 35. Yesterday I think on a wholesale that I don't know anything about. Right. So that's that's the part of the business that yeah, I'm still very more active probably in that part than I really want to be. Um, but I'm not sure the best way to not be as active as I am in that, Right.   Sam Wilson (00:17:28) - Yeah, that, that was a challenge that certainly I faced and say you're doing better at it than I was because I never really doing it this that you guys are.   Sam Wilson (00:17:36) - But let's let's let me ask you this. So six of the 36 of those are rehab. What are you doing the other 24.   TJ Kosen (00:17:42) - It depends. So that's where we're merging a exit strategy with the entrance strategy on the front end. Um, I don't know specifically because I don't even know all the addresses, but our, our exit strategies range from pure wholesale, so, I mean, that's awesome. Who doesn't want to make a bunch of money without any work? Correct. Um, I mean, it takes work, but that's a lot more systematized work with the acquisitions guys and the dispositions guys do the work. That's good. It's probably 20%, maybe 25%. I'm not sure. Yeah, we hold tail some, so in that we'll take it down. Like for a strictly perspective, we would, we would, we would generally call a wholesale anything that we actually close on. Um, with some things where there's a leaseback or there's some stuff in it, we'll probably, it's probably technically, mostly still a wholesale, even if we buy it for like a week.   TJ Kosen (00:18:30) - We've had, we've had hotels that we've owned for maybe 7 to 10 days and just either put it on the market or have it pre-sold, but for some reason, like a leaseback or stuff in the house, we need to own it personally for a little while. And there's risk to that. Obviously, there's transactional cost and there's transactional risk just with having the property, but we try to do that for the most part. We have a couple like that right now. I think, um, we do a lot of seller financing, so we do a lot of deals where we will buy a property for a good example really is buy a property for $100,000. Maybe it's ARV is $200,000, but we're able to offer seller financing and sell it relatively as is for 140 to 150. And then we'll either turn out the note or offer financing on a shorter term deal and we attract a different, um, probably buyer profile than that, than a full like retail type buyer. So those are the, those are the primary exit strategies we employ, I think.   Sam Wilson (00:19:25) - How do you handle on the seller finance side of things? I mean, it takes a lot of money to hold those and then create those notes and then, you know, how do you keep that cash?   TJ Kosen (00:19:37) - Yeah, well, we just got rid of guys that help us with that. Yeah. Um, we have some good note buyers. That's actually the next part of our commercial thing. We're in the process of building a fund to warehouse those notes because generally they're 20 or 30 year fully amortized. But the rates are really, really good. We're selling stuff with 12 to 13.5% interest rates right now with a 30 year product. So it's very appealing to a note buyer. It's very appealing to a cash flow owner that doesn't want the headaches of the actual ownership aspect of the property that are very low default because we collect 10 to 20% down on all those deals. The buyers are generally as well as you can relatively well qualified for the properties and they just they simply don't want to say they don't default, but they don't really default.   TJ Kosen (00:20:25) - So it's a good product. We're in the process of building a fund because obviously we're going to run out of money like we even if we have $10 million, we're going to run out of money ourselves relatively quickly doing that. So we're going to build a fund and stick a bunch of notes in there and cash flow for some investors, cash flow for us and everyone makes more money. It's going to be exciting.   Sam Wilson (00:20:42) - Absolutely. What are your forecasts on the distressed residential inventory? Do you see that going up? You see it down. What are you forecasting?   TJ Kosen (00:20:53) - I mean, so. Probably up probably up a little bit. Think it's a little bit easier now than it was when there was a lot of the i buyers just really soaking up all the inventory. I know there's still somewhat active, but they're not nearly as active as they were two years ago. Like any non conventional lending, the IE buyers all operate on short term interest rates to maximize their whatever, and as interest rates go up, they get pinched.   TJ Kosen (00:21:17) - We saw that obviously with the non space with our take out financing on rentals. You see it in the commercial space with apartments, that kind of thing. So I think the more our level of buyers are probably going to be at a competitive advantage over a lot of those people. We beat the buyers a lot just in terms of picking apart their offer and explaining differentiating our process from their process. So I think on the retail side, I think we're going to continue to see low inventory because partially because so many people are locked into a low interest rate loan, they're not going to want to quadruple their payment by doubling their house size. So they're like, you know what? I'm just I'm fine where I am. So I think that's going to artificially deflate inventory. And it's going to have an inflating aspect in terms of keeping the retail market up. And I think people that are needing to sell that have a junky house, I don't know many retail buyers that want to buy a house that needs 200 K worth of work when they're going to have to come out of pocket 200 K, even if they can conventionally finance the acquisition of that property.   TJ Kosen (00:22:15) - So I think I think overall, I think we're in a good position to be in. We reevaluate probably every quarter in terms of the. Dispo strategies that were that are most profitable and that we have to do. And we're having fun.   Sam Wilson (00:22:31) - That's fantastic. TJ, thank you for taking the time to come on the show today. This has been a blast having you on. I've learned a ton from you. I love what you're doing and how you guys have done it, how you've learned how to scale this, the systems you've put in place, the teams you've put in place. I think it's really impressive because there's very few, I think, that have figured out. I know you said maybe you haven't figured it out, but, you know, you have a lot more than a lot of other people have there in the residential space. Taking that and scaling this. This business is really cool. I love what you're doing. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   TJ Kosen (00:23:04) - Well, I'm all over the place online.   TJ Kosen (00:23:06) - I'm super easy to find. Very creative too. So TJ on Facebook and Instagram, really easy. TJ kills and I mean, again, a creative guy and our what do you call it? Oh, our kind of company like our looking marketing page is ry af real estate investing and I'm not really sure what AF stands for, but it sounded cool when I put it up there.   Sam Wilson (00:23:28) - Fantastic. TJ Coziness cozy in for those of you who are listening and want to look up TJ. Com. TJ thanks again for coming on the show today. I do appreciate it.   TJ Kosen (00:23:38) - Thanks so much Sam.   Sam Wilson (00:23:39) - 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.   Sam Wilson (00:24:01) - Thanks so much and hope to catch you on the next episode.  

24m

Aug 16

Today’s guest is Paul do Campo    Paul is a Investor with an active income as a copywriter, creating marketing systems and sequences for investors.   Show summary: In this episode, Paul do Campo discusses the significance of building relationships in the real estate industry. He emphasizes the need for personalized communication and shares his journey from wholesaling to becoming an investor and copywriter. Paul explains the psychology behind building relationships with investors and recommends using channels like email marketing to establish a personality-driven marketing approach. He also discusses the importance of authenticity in writing, citing examples from Stan Lee's success in Marvel Comics.  -------------------------------------------------------------- [00:00:00] Intro [00:00:58] Paulo's Journey from Pipeline Construction to Copywriter [00:09:41] Marketing to Investors through Personality-Driven Marketing [00:10:57] The importance of seller lead acquisition [00:11:59] The role of automation in real estate marketing [00:16:27] The messaging mistake of sounding too robotic [00:20:20] The Journey of Stan Lee [00:21:21] Applying Authenticity in Business [00:22:15] Closing -------------------------------------------------------------- Connect with Paul:  Web: www.reiOmnidrip.com   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: 00:00:00:01 - 00:00:24:05 Paul do Campo When you have a repeat transaction type business, I mean, you're going to sell. You're not going to sell one deal to investors. You might sell a second or a third deal. Hopefully that same investor, if he has a good experience with you. Yep. Now, that type of business requires relationship, acquirer requires procedure, rather than just like trying to trying to win the quick trying to, you know, butcher the kill and the one time thing and forget it and lay them to the curb.   00:00:24:06 - 00:00:34:20 Paul do Campo Right. So you so yeah, again, automation kind of slightly removes that, that relationship into when you're especially connecting with investors.   00:00:35:01 - 00:00:55:24 Sam Wilson 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. Part of Campeau is an investor with an an active income. As a copywriter, he creates marketing systems and sequences for investors. Paul, welcome to the show.   00:00:56:14 - 00:00:58:06 Paul do Campo Awesome man. Appreciate you having me on it.   00:00:58:10 - 00:01:05:10 Sam Wilson Absolutely. Paul, 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?   00:01:06:16 - 00:01:46:13 Paul do Campo All right. That's a long story, but how and where? When did I start? So back in 2015 started like everybody else was rich, had a poor dad, dove into the rabbit hole in bigger pockets dot com, all that sort of wholesaling. I was doing direct mail, lots of direct mail the time not this is my first entrepreneur venture going from going from working as a pipeline construction welder foreman in the utility business, natural gas utility and then moving into a whole different world of sales, marketing, business processes and systems.   00:01:46:22 - 00:02:15:09 Paul do Campo So when you jump into that, I mean, it's not it's never a clean, smooth transition. Transition. It's never, oh, I got to figure it out at least for at least for me. Anything new like that has never been a smooth, clean transition like that. And so I learned a lot back then. I, now I slowly, I mean, long story short, slowly started transitioning into flipping land, which did well for me, flipping land to notes, flipping mobile homes into notes as well.   00:02:16:09 - 00:02:43:08 Paul do Campo While I was doing that, I kind of accidentally fell upon another rabbit hole, which was corporate investor care. It became was my first client. I was in a lot of the concierge clients type of type of working on the phone with their clients, building out their pages for them, and then kind of slowly transitioned from that to being a full time copywriter, active, full time copywriter for clients in the space.   00:02:43:08 - 00:03:30:08 Paul do Campo And I say space, I mean, software vendors, services coaches, that type of thing. And then creating now today I, you know, I'm still investor and passive investor more so than having a volume business like I used to. I kind of escape that my from that being my active income to my activism as copywriting into passive income meaning I'm just looking I'm always looking for cash flow deals and those investing with local flippers around here or buying a deal, they find a and today I have my own offer that I sell to investors, which is basically taking all my knowledge of copy and and I merged together creating a, a complete follow up automated system in   00:03:30:08 - 00:03:46:23 Paul do Campo their CRM, everything from all the tactics and techniques of copy that I've done over the years and, and all the sequences into an actual system for follow up rather than just like a couple handful of drip, drip sequences that don't really mean much.   00:03:46:23 - 00:04:16:08 Sam Wilson So right now I'm inter, I'm interested. I mean, how did how did you figure out that? Because we I didn't quite hear the spot where you went from working. We say with pipeline construction. Yeah, work in pipeline construction to a copywriter. Those seem to be two totally different skill sets. Figure out that, hey, I'm actually a really good copywriter and maybe I can let welding go, right?   00:04:16:08 - 00:04:45:03 Paul do Campo Absolutely. You know, I actually enjoyed well, I actually enjoyed that job. It was. But there was limitations to it. I really hated just working for the man. Like I just just every day having to do, you know, knowing that, know, I really don't have that much freedom. And knowing that I have to if I want to go out on vacation, I got to grovel to somebody to ask for education.   00:04:45:03 - 00:05:08:07 Paul do Campo Right. And then now it was union based, so meaning it's seniority. And I was at the bottom of the totem pole. I was the youngest welder there. And so everybody else, you know, they take all the great time, you know, all this all the great vacation slots, all, you know. So I just I just hated that. And then I also hated I, I used to live in Southern California and a lot of people going to just think this is bizarre.   00:05:08:07 - 00:05:31:20 Paul do Campo But I hated living there. I personal reasons that just we didn't enjoy the weather, the people, the traffic, the congestion we enjoy that. So I was stuck there. I worked utilities. And so there's no way for me to get out unless I get a job somewhere else. And so one year I just decide I need to get out.   00:05:31:20 - 00:05:50:19 Paul do Campo And I was doing some copywriting and had it in my mind every day. I actually kept a card in my pocket that I was going to quit. I didn't know how in know how I was going to do it had I was actually had my own publishing business too. I had a course I was selling, had an email list and but I didn't know how I was gonna do it.   00:05:50:19 - 00:06:11:13 Paul do Campo I had some notes from land and mobile homes as well. And then a client, a couple of clients came by that that offered me a heck of a lot of money. And I took it and I took it. And it was more than more than what I got paid at that company that as a as a welder and.   00:06:11:13 - 00:06:13:02 Paul do Campo Yeah. And I never turned back.   00:06:13:02 - 00:06:34:00 Sam Wilson So so you made it out of Southern California and said, hey, look, I'm now a now a copywriter. What talk to me about the psychology of building, because you're more than just a copywriter. Like it's one thing. And I've employed various copywriters over the years where it's like, you know, I'd record the big idea or talk about it.   00:06:34:00 - 00:06:53:04 Sam Wilson It's like, Hey, this is what I'm talking about. This is the knowledge inside of my head. Now I need this synthesized into something meaningful. That's one copywriting skill set. And I was always impressed when a copywriter can take my ideas that I couldn't really synthesize in anything meaningful and turn it into a beautiful paragraph. Because, yeah, it's exactly what I wanted to say.   00:06:53:12 - 00:07:16:12 Sam Wilson Well done. That's one skill set. But it's another thing entirely to understand the the the psychology and a lot of people on this or that listen to this show are probably struggling, I would imagine. Maybe I'm wrong. I'm just projecting my own struggles, but the investor psychology kind of process, as they come in, they get an idea of, okay, who is that?   00:07:16:14 - 00:07:30:14 Sam Wilson What is it that you do? What's your business like? And then then moving them from that curious onlooker to now I want to invest with you in getting them through those drip sequences. That's a different skill set entirely. How have you built that out?   00:07:31:01 - 00:07:45:19 Paul do Campo Right. So as your your example is more so the target is is an investor is your your trying to get fund, fund or sell deals to them, right? Yeah.   00:07:45:19 - 00:07:54:21 Sam Wilson So well, in this case, it would be it would be an investor looking, looking to get that investor, you know, to be comfortable with us as sponsors and then come alongside invest.   00:07:55:05 - 00:08:25:06 Paul do Campo Yeah. Yeah. So with that, I'm going to say that I think the strongest element for that particular segment, I think it's going to be a relationship rather than, you know, you know, because there's nothing really I mean, it depends on what segment you're going after that's important, right? There's there's market awareness is market sophistication. So if you're if you can spread out your blanket, you're going to get all kinds of people to come on board and give it brand new people that just read Rich Dad, Poor Dad.   00:08:25:06 - 00:08:54:08 Paul do Campo And they're so excited about by buying a deal, but they probably won't. Right? So and then there's the season investors and that's the affluent class or you know, that's so there's a great book and I brought this up in another podcast I was in Dan Kennedy's Marketing to the affluent and and that that is a very interesting group that I'm trying to understand as well better because that's who I market to on the drip is my is my offer, my company.   00:08:54:14 - 00:09:15:06 Paul do Campo We actually when I say create sequences, I'm talking about off market investors who are who have lots of leads to buy to be deals from. Right. So in this case, I would have probably have a long sequence for an investor and said what I what I would do instead is have a channel that I'm consistently marketing to them with.   00:09:15:12 - 00:09:51:23 Paul do Campo I saw somebody has, has took me up on this challenge or not took on this challenge but kind of debated or argued with this idea that, you know, an investor is just looking for a deal. That's true. But it's also not true because you're you're marketing to the fool. And in fluent are more likely to to buy from somebody like rather than price shopping or looking for a deal and and the really good in the case study example of this is Brandon Turner speaking of bigger pockets Brandon Turner's open door capital.   00:09:52:04 - 00:10:16:02 Paul do Campo Right doing the same thing. They're going after investors. And so if you watch their advertising, it's just him. It's his personality. So it's personality driven marketing. So I so I what I'm saying here is, is think about how you can grow the relationship that really puts your personality, that is driven by your personality, and you can do it via email.   00:10:16:02 - 00:10:42:13 Paul do Campo You can do a verse versus social media versus ads like Open Door or in some type of influencer type person like Brandon Turner. My, my, my cup of tea is as email. I love doing email marketing. That's how I that is the channel I've used since 2016 to to build a personality driven marketing channel. So yeah, that's, that's my, my tip for marketing to investors.   00:10:43:05 - 00:11:17:07 Sam Wilson Man. That's cool. I like that. I like that a lot. What did you do? Because I'm looking through here at your your website here, which for those of you who are listening is REIT Omni Trip.com. So REIT omni drip dot com. And it looks like to me one of the one of the things that you've really helped real estate investors work through is I think you said it, but it is with the seller side and that's very important obviously on the commercial real estate side of things as well because we have them as two things.   00:11:17:07 - 00:11:32:15 Sam Wilson We need, we need we need money, we need deals without either one of those. Then we really don't have a commercial real estate business. So it sounds like you work more on the seller lead acquisition and or and getting deals closed side of things is that is that about a fair synopsis.   00:11:33:12 - 00:11:58:19 Paul do Campo Yeah. And that that site you're looking at that offer. Yeah. Just because it was just more of a need for that, it was just a lot of is more likely for when you're creating an offer. You know you got to look at what's what's more likely what's what do you fill in the gap with. So yeah like I mentioned earlier I don't answer for or investors LLC having a very complex type of automation in place.   00:11:59:18 - 00:12:20:20 Paul do Campo I'm a fan of automation, but there's a time and place you don't really need it, like having a rat's nest of all these little things. And so with a like we, we put in place for these flippers and wholesalers, we have 20 sequences in place has because there's there's it's the long sales process all kinds different avenues to go with.   00:12:21:08 - 00:12:44:13 Paul do Campo And these people are dealing with at least 100 leads per month. So you can't follow up with that when somebody has a smaller business and only dealing with with 30 leads per month, it's something that you don't really need a whole lot of automation with or it just gets becomes a rat's nest and then you kind of remove the whole relationship because in commercial business you have the advantage over the guy who's just looking for deals.   00:12:46:01 - 00:13:15:13 Paul do Campo When you're selling to investors. I mean, you have repeat transactions. When you have a repeat transaction type business, I mean, you're going to sell you're not going to sell one deal to investor. You might sell a second to a third deal. Hopefully that same investor, if he has a good experience with you. Now that type of business requires relationship, acquire requires procedure rather than just like trying to try to win the click, trying to, you know, butcher the kill and the one time thing and forget it and lamb to the curb, right.   00:13:15:13 - 00:13:26:10 Paul do Campo So yeah. So yeah. Again, automation kind of slightly removes that, that relationship into when you're especially connecting with investors. So yeah.   00:13:27:14 - 00:13:47:12 Sam Wilson No I hear you man. That, that, that's spot on. And that's one of the things I think in our drip campaigns when an investor signs up for the an investor Club, one of the things that they get early on is opportunities and I think they get them throughout the campaign. But it's instead of, hey, read one more email sequence, it is schedule a call with us.   00:13:47:13 - 00:13:54:18 Sam Wilson Get on the phone with us. Let's get to know each other. Let's talk. It's not just have one way one way communications. I think that.   00:13:54:18 - 00:14:11:20 Paul do Campo So I'm not saying at all to remove any drip or automation. I mean, at the bare minimum, I would have a welcome series that welcome serious goals intentions with us here. What are you trying to achieve? What's the first quote sale you have to make? You know, in your case, it's getting on a phone, getting a phone call.   00:14:12:18 - 00:14:32:06 Paul do Campo It could be it could be driving value by getting in with maybe educating. It can be whatever it is. So a bare minimum. I do have a welcome series. Everybody I think should have some sort of welcome series, but I think it might stop there depending on your business, right? If you have a whole lot of things itself, you're an e-commerce business.   00:14:33:00 - 00:14:46:14 Paul do Campo Yeah, you're going to probably have a little more with complicated segmentation on who's buying what, who's looking what and all that kind of stuff. Because you're dealing with lots of volume of leads coming in. Yeah. So it's all it's all business related, all, you know, case by case.   00:14:46:14 - 00:14:59:18 Sam Wilson So got it. I love it. What's the, what's the, what's the limits to what it is that you're doing and the number of industries that you feel like you can effectively serve?   00:14:59:18 - 00:15:22:21 Paul do Campo That's a good question. I don't know yet. So I know with with Army drip itself. I mean, you know, I've covered people with land and that that buy and sell land and they sell land to the consumer world. They don't really sell land to investors typically. And I've dealt with them. I've bought the build sequences for them. I get my limit.   00:15:22:21 - 00:15:46:02 Paul do Campo You know, I, I don't to, to be transparent. I'm like, I'm there writing for every single client. I built this so it's scalable for me and affordable for everybody. So I built I built it to where I have a library of different messages that fit different people, different scenarios. And then I have a software that pulls that all together so that it creates a sequence for them or the sequences.   00:15:46:02 - 00:16:03:14 Paul do Campo So yeah, if somebody comes in, I don't have any of that stuff, I'd have to either. I have to make a decision and say, Well, am I going to charge them a lot of money to create it? Can I resell it? Can I package it up and resell it if it's a one time thing or I'm never going be able to do anything about it, charge a lot more for it.   00:16:03:14 - 00:16:19:02 Paul do Campo So it's all running by case by case scenario. But if it's a single family resident flipper, wholesaler Def, I mean, that's an easy that's easy not out of the park type of thing. If it's somebody who's doing commercial, that's a little I got to see what I can do with that.   00:16:19:07 - 00:16:25:20 Sam Wilson Right. What do you feel like? The number one messaging mistake maybe people make is.   00:16:27:16 - 00:16:35:14 Paul do Campo Oh, that hey, what? What? Give me some what medium or what what kind of channel are we talking about here?   00:16:37:07 - 00:16:41:05 Sam Wilson Let's say it could be. It could be from the.   00:16:41:17 - 00:17:05:01 Paul do Campo Day I got one. Then that's a similar SMS email. Let's just start with that. I think that that the number one I think is sounding too robotic and h.r. Type. I give this tip a lot and i think people sound like they're they're a lawyer or they're from the department. Right? And so it's just dry, boring. They'll be it.   00:17:05:05 - 00:17:23:23 Paul do Campo So my, my tip to that is, is be a little talk like you're from you know, you're Joe Schmo from down the street talk like a normal person would I mean, you want to write I should say write like a normal person would. You know, you're not right. You're not there's nothing legal that you're writing about. You know, there's you're not a lawyer.   00:17:24:02 - 00:17:59:10 Paul do Campo You're not signing a contract. Right. That you're I should say you're not creating a contract for a you know, so just, you know, you're right, like any other person would. Then we get to evolved into into trying to sound professional that that actually just hurts just hurts you because there's a copywriting principle that that you you don't want here here's a really good analogy is if I if I saw a guy roll up in a in a Ferrari in front of my house wearing a slick suit, and he's coming to knock on my door.   00:17:59:24 - 00:18:24:20 Paul do Campo I have barriers immediately out like you're doing all right, says salesman. You know, he screams Salesman, as you approaches Utah. I have barriers. They come right up because he's put himself in a level that where he's looking down on me now. And so and that's the consumers going to have that. Everybody's going to have that barrier, rather, a guy who rolls up in a beat up pickup truck.   00:18:24:20 - 00:18:42:19 Paul do Campo I'm not I'm not saying this is what you do for your sales process. I'm just putting analogy. Your grows up in a pickup truck, comes knocking on door, kind of like almost like the Columbo type of figure. I don't think they Columbo you're just kind of, you know, just this weirdo, like not weirdo but but kind of aloof.   00:18:42:23 - 00:19:06:17 Paul do Campo And so when somebody rolls up like that, you're and he's now on a lower like level where you're looking down on him instead and, and so you put step of the person the same level as you two. Now it's more comfortable, it's more you're the bears are less. But that's an old negotiation strategy of this guy named Jim Camp.   00:19:06:24 - 00:19:27:17 Paul do Campo So I think I think Chris Voss learned from him. He's Jim Camp is long gone. But his book Start With No it's a great book on negotiation has those principles principles there where you don't you don't have to sound perfect at all. I mean, the soundtrack sound perfectly good works against you, so.   00:19:28:03 - 00:19:34:10 Sam Wilson Yeah. No, that's it. I like it. And what you what I hear you say in there is just be authentic, be yourself like.   00:19:34:10 - 00:19:54:21 Paul do Campo Yeah, and that's that's always yeah. And that's a buzz word lies be authentic. And I think a lot of people have trouble being authentic, which I mean, they try to be somebody else or trying to be authentic, which is like, you know, so and that's a hard thing to do. I get it. So one, one tip tip that I, I do, I write a daily email with my list.   00:19:54:21 - 00:20:29:02 Paul do Campo So, so trying to be authentic is a very Yeah. You know, so I don't try to think about I got to be authentic to be authentic and said there's a really good documentary on on Disney on Disney Channel on Stan Lee. I think if you just type in Stan Lee, you'll find it. So Stan Lee helped you didn't create ma why you're kind of created because he but he worked there at Marvel he was there editor and at the time in the fifties he was at comics where everybody was doing the same thing.   00:20:29:02 - 00:20:50:18 Paul do Campo It was all hate for the trans. For the trans just right when everybody was writing and it sells. Stan Lee changed gears and he started writing what he liked to what he wanted to write about, the sort that interests him. That's where Spider-Man is like what I create teenage superhero and which is art was unheard of at the time, teenage superhero with problems.   00:20:50:18 - 00:21:15:07 Paul do Campo And so he did that. And like Marvel took off after that, they were called Marvel. Marvel at the time. They changed the name after but took off it actually tapped into a new market. And that's been so to get back to authenticity, that's being authentic. So the day I just start, I just kind of write what goes against what everybody says I do, but I just write what what I have interest in at the time.   00:21:15:21 - 00:21:21:03 Paul do Campo And and you're going to hit this, you know, that is kind of being in a way, being authentic. So.   00:21:21:09 - 00:21:50:16 Sam Wilson No, it absolutely is. It absolutely is. Yeah, I like I like that a lot. Yeah. That's a that's a great a great clue. There are hint there, but we can certainly apply in our own businesses. Paul, this has been a lot of fun learning from you today. I love what you've done in the journey you've taken from working on the pipelines to making a business out of copyrighting and sequence building and really, you know, dial in in the back end of a lot of a lot of things that we as real estate investors certainly need and use.   00:21:50:16 - 00:22:14:08 Sam Wilson Thanks for taking the time to break down some of the more mechanics of how you do that, what you look for. You've given us some great book recommendations here start with no marketing to the the fluent the the the documentary called Stanley those are like fun fun things to to dig into there and certainly appreciate your time and expertize here today if our listeners want to get in touch with you or learn more about you, what is the best way to do that?   00:22:15:12 - 00:22:27:07 Paul do Campo Yeah just head over my website WWL dot RC omni com was mentioned earlier You can find me there just send me an email from there and I'll be glad to help and answer your questions.   00:22:27:14 - 00:22:36:15 Sam Wilson Awesome Paul, thank you again for your time. RFI Omni drip dot com. We'll make sure we include that in the show notes. Appreciate it and have a great rest you Debbie.   00:22:37:02 - 00:22:38:00 Paul do Campo Awesome man. Thank you.   00:22:38:07 - 00:22:59:18 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 or 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.   00:22:59:18 - 00:23:02:24 Sam Wilson So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

23m

Aug 14

Today’s guest is Tyler Sellhorn.   Tyler is a teaching-oriented technologist. He creates and cultivates digital workplaces that produce results.   SHOW SUMMARY:  In this podcast episode, Tyler Sellhorn, a teaching-oriented technologist and customer success manager, discusses the challenges and strategies for optimizing outputs in a distributed workplace. He emphasizes the importance of explicit communication, accountability, and clear processes for goal achievement in geographically diverse teams. Tyler also highlights the benefits of flexibility and personalized approaches to work. Additionally, he addresses common problems faced by companies, such as integrating systems, change management, and establishing team-level agreements. The episode also focuses on effective communication in a distributed workforce, including considering different communication channels and preferences, checking for understanding, and utilizing tools for efficient communication.    -------------------------------------------------------------- Intro [00:00:00]   Transitioning to a Distributed Workplace [00:02:08]   Measuring Outputs in a Distributed Workplace [00:07:58]   the impact of technology on education. [00:09:59].   establishing team-level agreements [00:14:55]   Different kinds of communication for different purposes [00:19:55]   Common pitfalls when transitioning to a distributed workforce [00:20:39]   Closing [00:25:00] -------------------------------------------------------------- Connect with Tyler:  Linkedin: http://linkedin.com/in/tyler-sellhorn  https://twitter.com/tsellhorn Twitter: https://twitter.com/tsellhorn Web: https://tsell.link   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: 00:00:00:00 - 00:00:21:20 Tyler Sellhorn Ari Optimizing for the outputs are the inputs. If we're optimizing for the inputs, we're going to require butts in seats where we can look at them. Right. Right. If we're optimizing for outputs, we are paying very close attention to the things that we are expecting. You are you have to inspect what you expect. You have to be able to say, did we do the thing?   00:00:21:24 - 00:00:43:05 Tyler Sellhorn And to be able to say back to the person, well done, you did the thing. Here is that bonus. Here is that that incentive pay. Here is like the next opportunity for you because of the work that you've done so far. 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.   00:00:43:05 - 00:00:55:18 Sam Wilson Investing business into something big. Tyler Sell Hawthorne is a teaching oriented technologist. He creates and cultivates digital workplaces that produce results. Tyler, welcome to the show.   00:00:56:07 - 00:01:01:06 Tyler Sellhorn Thank you so much, Sam. It is a pleasure to be here learning out loud with you and your audience.   00:01:01:07 - 00:01:10:09 Sam Wilson Absolutely. The pleasure is mine. Tyler, 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?   00:01:11:07 - 00:01:40:04 Tyler Sellhorn I started out as a teaching or a technology oriented teacher teaching secondary mathematics. So then I made a pivot, you know, as a middle aged person, to becoming a teaching oriented technologist, as a customer success manager for B2B SAS companies, helping companies be successful, working remotely, using software and where am I now? I am busy doing that on a much more general way.   00:01:40:17 - 00:01:52:22 Tyler Sellhorn So if you're listening today and you're looking at home, you know what? It would be nice to have not just a workplace, but workplaces, right. Including the digital space. I'm someone who can help you do that, man.   00:01:52:22 - 00:02:12:04 Sam Wilson That's really, really cool. I know this will be relevant to our listeners in the commercial real estate space. Just because our teams are so geographically diverse. That's right. I mean, gosh, we have a foremost $50 million portfolio and I work from home. All right. The members work from home. And it's like, okay, like.   00:02:12:04 - 00:02:26:23 Tyler Sellhorn How we're all from your own individual facilities, right? I mean, and you're not there on site, you know, managing that person. They're they're being trusted with responsibility and authority to act on your behalf, on the company's behalf, in those places that they happen to be correct.   00:02:26:24 - 00:02:49:08 Sam Wilson Right. And you know, it's funny, there's part of me that likes it and part of me that hates it. Like I was kind of looking at it right now and I'm like, you know, because we're scaling, especially here on, on, on our local operations, the in the laundry facility side of things. And I'm like, man, it's almost like it's almost time where we've got to have an office because we're missing some components that face to face.   00:02:49:08 - 00:03:00:22 Sam Wilson I mean, look how many Zoom meetings we have. I don't have many KPI calls I have with various team members throughout the week. Going through the reviews. There's nothing like just that cam camaraderie of face to face and it cuts both ways.   00:03:00:22 - 00:03:22:16 Tyler Sellhorn But the way, the way I express it is that the async time is about the work and the synchronous time is about the connection and then the in-person time. That's about those bonding moments where we're slapping backs, we're high fiving, we're hearing the echo of our laughter against the walls, right? We're doing those things that can only be done face to face in person.   00:03:22:16 - 00:03:37:15 Tyler Sellhorn Right? These monkey brains got a primate sometimes and it's really important that we do all of those things. It's a both and situation. It's spectrum's not squabbling over returning to the office. It's it's flexibility, not fights over when work should get done.   00:03:38:04 - 00:03:56:13 Sam Wilson Right? No, I love it. I love it. And you threw out a bunch of things there in your 92nd intro, which thanks for keeping that. That was probably 50 seconds. So that was that was well under time. Thanks. I appreciate that. Ding, ding, ding, ding, ding. You made it, man. You cross the finish line before anybody else. But no, seriously, there were some things that you threw in there.   00:03:56:14 - 00:04:15:15 Sam Wilson You know, we're commercial real estate people on this show. So you threw in like B2B sass and this and that and the other. And I'm like, I have no idea what you just said, so maybe I can break some of that down for going back to Monkey Brains. Yeah, me too. Tell a little bit more color on what it is you do and then then we'll get into more weeds.   00:04:15:15 - 00:04:17:04 Sam Wilson So anyway, I'd love to hear that.   00:04:17:12 - 00:04:37:05 Tyler Sellhorn It's really important to make all of those implicit things that used to come along with being in the same office every day at the same times, right? That kind of came along for the ride that were like assumed by everyone that showed up there that this is when we do work, this is how we do it, this is how I communicate.   00:04:37:14 - 00:05:00:15 Tyler Sellhorn And now that we're in a much more distributed and flexible environment, you know, sometimes that scary remote word, right? Right. It's you have to become much more explicit about the the wheres and whens and how we communicate and get things done. That's where the tension and frustration come in, where you're saying said, I really liked this this office thing that I used to have.   00:05:00:15 - 00:05:18:09 Tyler Sellhorn Right. Well, what is it that you liked about it? Well, the only way that those things are going to exist in a distributed environment is if you make a plan and execute on that plan and then reflect on whether or not you actually accomplished the outcome that you were seeking. And sometimes it's going to require being in person.   00:05:18:17 - 00:05:53:05 Tyler Sellhorn You know, very often you see, you know, I've worked in globally distributed customer experience teams. I led a team of 25 people from Seattle to Melbourne. Right. And we saw each other once a year together, optionally. Okay. All right. So so one of the things that's really important to recognize is that when you are operating in that way, that says, okay, we may or may not be present with one another, how you gather those KPIs that you're talking about and how you talk about them and where they're posted and how we can access them.   00:05:53:13 - 00:06:11:05 Tyler Sellhorn There needs to be a process that is really, really explicit. That's the bullet points, sub bullets, right? How do we do these things? And once you have that rock solid, you can start with a shared reality of how things are and then you can iterate from there to continue to improve.   00:06:12:08 - 00:06:15:06 Sam Wilson You say when you say shared reality, what do you mean by that?   00:06:15:20 - 00:06:37:15 Tyler Sellhorn I mean, this is our number. This is your number that impacts that number. And everyone gets to see, right, how are we doing? How do we have the shared accountability? We're not hitting our number because so-and-so is not hitting their number. Right. How do we communicate those things to say on a regular cadence? When do we look at these numbers?   00:06:37:21 - 00:06:58:10 Tyler Sellhorn And even just having the, you know, very often you have a leaderboard, right, in a sales team, right. In saying, you know, who's who's up top. Now, you know, you can think of the always be closing, right? If you're in third, you're getting a new job type of thing, maybe it doesn't need to be that hard nosed in like cutthroat.   00:06:58:20 - 00:07:35:04 Tyler Sellhorn But I do think that having a shared accountable party of what we are doing and how that contributes to that one number or set of numbers that you have, where is that shared workplace that has that number where everyone can see it? Maybe, maybe it's in your physical workplace, like you're in your home office, maybe you have a spot that has the number displayed or maybe it's a dashboard inside of your Google workspace that says, okay, I can always go to this link and find the information that I'm trying to, you know, contribute towards, Oh, I move the number today and there we go.   00:07:35:10 - 00:07:49:01 Tyler Sellhorn And for your boss to say, well done, you contributed to the number today. Way to go. If you're not doing that on a regular cadence and or even having it something that can be accessed whenever, wherever you start doing that. Right.   00:07:49:11 - 00:08:11:09 Sam Wilson Right. Yeah. I think that's one of the cool things about the distributed workplace is the ability for people to kind of work at their own pace and at their own time like members that I mean one even she works and again, I don't need this position filled full time. So, you know, she works maybe 20 hours a week and it's usually Monday was a Friday and today she's like, hey, you know what?   00:08:11:09 - 00:08:14:19 Sam Wilson By the way, I'm working today and not tomorrow, okay? I don't care as long as you get your stuff done.   00:08:15:02 - 00:08:15:17 Tyler Sellhorn That's right.   00:08:15:18 - 00:08:16:13 Sam Wilson It's fantastic.   00:08:16:13 - 00:08:37:05 Tyler Sellhorn She's like, What are we optimizing for, Sam? Are we optimizing for the outputs or the inputs? If we're optimizing for the inputs, we're going to require butts in seats where we can look at them, right? Right. If if we're optimizing for outputs, we are paying very close attention to the things that we are expecting. When you are, you have to inspect what you expect.   00:08:37:12 - 00:08:52:08 Tyler Sellhorn You have to be able to say, did we do the thing? And to be able to say back to the person, well done, you did. The thing here is that bonus here is that that incentive pay here is like the next opportunity for you because of the work that you've done so far.   00:08:52:22 - 00:09:08:05 Sam Wilson Do you switching from I mean, input to output measurements? I mean, tests, secondary mathematics was a very input measurement. Yes, you measured test scores, but it was butts in seats for X number of days a year to count.   00:09:08:07 - 00:09:18:12 Tyler Sellhorn It was this co-located. Does it get Sam there were bells telling us to go from one mandatory meeting to another. Mandatory mean with none of the people that we would have chosen to be with if it was up to us.   00:09:18:13 - 00:09:20:01 Sam Wilson Oh, gosh.   00:09:20:01 - 00:09:41:24 Tyler Sellhorn Right. And I think, you know, here in my second career, right. I'm starting to like your take off some of those layers of trauma. Right. Right. And and and like I'm starting to identify with those students that really did not want to be there, right? Yeah. Sam, you maybe identify as that kind of approach, right? School wasn't for you, right?   00:09:42:05 - 00:10:12:01 Tyler Sellhorn And so I think that's one of the things that we need to transition from is this one size fits all. Like, you know, 1965, you know, industrial age kind of kind of version of things to a one size fits one version of things where, hey, Sam is building the business. That's his and according to his lights and setting the course and setting the sales by his own decision making and, you know, getting to the destination he chose to or not based upon his own efforts.   00:10:12:09 - 00:10:15:00 Tyler Sellhorn I think we're moving more and more towards that future.   00:10:15:00 - 00:10:48:22 Sam Wilson Oh, absolutely. I mean, again, we're kind of moving off of center topic. But I think it's important because one thing it's not that I hate to learn. I love learning. I just it's sitting at a desk to do it. That's right. This is awful. So, no, I think we've seen that in the education space. As as I mean, obviously, you can you can learn anything you want on the Internet now for it's right would cost to sit your butt in a seat for an entire semester and learn that same exact thing so pretty pretty cool what are what do you what do you see are the top maybe two or three problems that companies come   00:10:48:22 - 00:10:51:24 Sam Wilson to you to solve and how do you solve them?   00:10:52:14 - 00:11:21:13 Tyler Sellhorn Number one is getting disparate systems to talk to each other. What do you write? I mean, you have a Gmail address. How do I get the the information that I need to come in to my inbox? Right. I have this system. You've got, you know, inventory for the laundry business. Right. How do I know when I need to know it that we need to purchase more detergent?   00:11:21:20 - 00:11:44:22 Tyler Sellhorn Right. Right. I mean, I mean, that may be or I know that these systems are about to break. Right. I don't want to have to pay attention to that. I want to be notified of that automatically. Those are the kinds of systems that I help set up. So that and also related to people are also related to, you know, hiring, also related to, you know, customer inquiries.   00:11:44:22 - 00:12:13:22 Tyler Sellhorn You know, these are the kinds of things that can be automated or at least automated to the point where all it requires is a click or a set of clicks. Those are the kinds of operational know. How is that? I'm being very, very cool agnostic here. But you can think of specific systems like in the B2B space, like a huge one would be like slack, how do I get my Slack inbox to have all the information that I need without having to go to all the different apps, get all the apps, talk to it.   00:12:14:02 - 00:12:39:17 Tyler Sellhorn Right. I used email earlier. Right? How do I get all the apps to talk to to my email inbox so I don't have to be all over the place? I can click from the inbox and come back there. How do I get my one app to be the trunk of the knowledge tree? Or How do I get a system to be like, okay, well, I'm going to update this process on a regular cadence or based upon the the information that came in and the robots are watching instead of me.   00:12:39:23 - 00:12:49:11 Tyler Sellhorn Right. Because, you know, having a robot teammate, letting the computers, it turns out that computers can do stuff. Sam And very few people understand this at a deep level and I do.   00:12:49:17 - 00:12:52:23 Sam Wilson Right. Is that is that the technologist background in you coming out?   00:12:53:07 - 00:13:13:22 Tyler Sellhorn Oh, for sure. I built x86 computers in the basement with my dad, like we were one of the first thousands CompuServe customers or eventually AOL. Right, right. These are things that like, you know, the I know what a 14.4 board modem sounds like, not just a 96 K, right? Yeah. Yeah. So all of that stuff is, you know, things that are in my wheelhouse, right?   00:13:13:22 - 00:13:23:06 Tyler Sellhorn I know what a terminal is. App scripts, right? These are things that, like, are pretty nerdy and and I'm happy to be your computer nerd.   00:13:24:00 - 00:13:42:22 Sam Wilson That's awesome. So you saw the technology or what did you say, getting disparate systems to talk to each other? That's the first thing. Yes, you do. In what? Just just make me feel good here, because part of me thinks it's just us at the small little, you know, product scale. We are that some of these things I would imagine it's not true.   00:13:43:12 - 00:14:10:19 Tyler Sellhorn It's across the entire spectrum of work. It's crazy. And and enterprises are purchasing software that is very expensive. And then not using a fraction, maybe not using it at all. Right. It's really quite scary how few people actually engage with the robot teammates that have been purchased for them. And I mean this on a very, very small level.   00:14:10:23 - 00:14:44:10 Tyler Sellhorn You have the cheapest laptop that exists. There are things that it can do for you that you didn't even know was possible. And it's really, really great stuff and could make your life easier and you don't have to think about that anymore. Well, because. Because robots should do the robotic things and people can show up then as creative, empathetic humans that are engaging with other humans to get them to buy or to get them the help that they need to be able to succeed and feel good about what they're trying to accomplish.   00:14:44:10 - 00:14:46:14 Tyler Sellhorn That's what we want to be able to do in our businesses.   00:14:46:17 - 00:14:52:00 Sam Wilson Awesome. So you solve that problem first and foremost. What's the second thing that you like to solve?   00:14:52:13 - 00:15:09:21 Tyler Sellhorn Second thing is the change management surrounding that. So first of all, we want to get things you know, I was hinting at this in the previous answer. Right. But the first part is getting things to talk to each other now, how do I make use of that in a way that is going to be able to actually accomplish the outcome I'm seeking?   00:15:10:03 - 00:15:26:05 Tyler Sellhorn Right. So it's so it's the change management part where it's like, okay, we've got the system set up now. How do I use it? Well, right, because there is that human element, right. And it's to say, okay. And then I would say the third piece that that I really bring to bear. Right, is that team level agreement. Right.   00:15:26:05 - 00:15:43:04 Tyler Sellhorn And maybe that's just with yourself. If you're an individual or it's with your team or it's across your entire company is to say, okay, when am I working? And you've already communicated this already with someone that's assisting you. They work Monday, Wednesday, Friday, and they communicate with you when they're going to work on a Tuesday instead of a Wednesday.   00:15:43:06 - 00:16:03:15 Tyler Sellhorn Right. Right. That's a very, very basic thing that would be not obvious to everyone to say, like, oh, I should like, first of all, have a working schedule that is that is communicated right. And that if it changes, I need to say something about that, like those kinds of explicit statements about how we're going to work together. I help build that stuff as well.   00:16:03:21 - 00:16:16:00 Sam Wilson Right. No, that's so important. So, so, so very important. I love it. So you solve some three, three and they're interconnected systems, but yet very different, I would think across across the board the bits.   00:16:16:00 - 00:16:23:07 Tyler Sellhorn I've got to talk to the other bits. Right. And then you've got to be able to use that system that you've set up and then you've got to be able to communicate with others about it.   00:16:23:13 - 00:16:45:21 Sam Wilson Right? When, when a company is looking, no matter what the size, when they're looking at bringing on new team members in maybe, maybe they don't have a distributed workforce, what are some proper groundwork things? You know, and again, maybe, you know, there are some simple solutions like, you know, getting I hate email, by the way, Tyler, can I just say.   00:16:46:08 - 00:17:06:02 Tyler Sellhorn Hey, you know, I think that's the thing that when I was saying one size fits all to one size fits, one, when we work in an increasingly screen based, you know, like business. Right. It's really, really important to recognize that 100% of what you look at in that screen has been chosen by you.   00:17:07:03 - 00:17:07:13 Sam Wilson Yep.   00:17:08:01 - 00:17:19:15 Tyler Sellhorn It's really, really easy to blame other people about what's on your screen. And if you don't like email, stop using email.   00:17:19:19 - 00:17:30:10 Sam Wilson I'm doing my best buddy. I promise you train at training, but training our team members to not email me. I'm like, don't just don't use slack. We have channels for this. We have.   00:17:31:05 - 00:17:54:21 Tyler Sellhorn That. That's exactly right. And I think you should be let me just give you some direct instruction right away. You should have an auto responder for every one of your teammates set up in your email to say, I will not respond to you in this. This is in the wrong place. There should be an automated message that has the correct URL to be sent back to them based upon like a best guess.   00:17:54:21 - 00:18:05:03 Tyler Sellhorn Like you can even, you can teach the AI to like read the message and suggest the URL that you would assume is the correct channel that they should be posting it.   00:18:05:07 - 00:18:12:20 Sam Wilson Right. Yeah, because if it's an operations question, if it's a question, if it's a this like if it's a content question, like, yeah, me.   00:18:12:20 - 00:18:20:19 Tyler Sellhorn And that's first of all, don't email me. Second of all, here's a suggested place to put this. Instead, I will not be replying to this email.   00:18:20:20 - 00:18:42:24 Sam Wilson No. Amen to that. May I need I need more you in my life. Tyler, this is impressive. So as you said, though, every team is different. Every setup is different. A company, let's say they're looking to grow and they're looking to bring on some key team members. Are there people that you just simply have to have at the Home Office or is there a way to do it completely distributed?   00:18:42:24 - 00:18:43:15 Sam Wilson What's your thoughts?   00:18:44:10 - 00:18:57:09 Tyler Sellhorn I think it needs to work for that company. So you need to do the deep reflection and consideration for yourself. Will I need to be able to lay eyes on this person ever?   00:18:57:15 - 00:18:58:01 Sam Wilson Right.   00:18:58:17 - 00:19:22:15 Tyler Sellhorn Once a quarter, once a month, once a week, every day. Right. Like you as the business leader need to decide what is going to work for you and and that is going to inform how you show up. Right? Because Sam Wilson and Tyler Selman are completely different business leaders. I would much rather hire somebody that's awake when I'm asleep and we commute.   00:19:22:18 - 00:19:42:02 Tyler Sellhorn We touch base once in the morning, once in the evening, if needed. Right. Whereas, you know, maybe for you, you want somebody local, you want somebody that you can take out for a coffee, right? Right. And just just, you know, like, say, what's up? And that is going to inform how you show up in the talent marketplace.   00:19:42:11 - 00:20:06:18 Sam Wilson Yeah, absolutely. And also, you know, obviously, this goes without being sad, but it's also role dependent because there are roles that I don't ever I mean, I've had somebody work for me for eight years and we've never even talked on the phone. I mean, like you said, they're awake when I'm asleep and vice versa. The only and in this case, we did email, which is been my new push to get rid of email, but we did email so I do but.   00:20:06:18 - 00:20:22:18 Tyler Sellhorn You but but I think but I think even saying that like, okay, there's going to be certain kinds of communication that I do here, right. Versus another place. Right. Email might be for external partners. And if your internal we're going to have a trigger based on the domain that this came from. That's it. Okay, now, now, now we got it sorted, right?   00:20:22:18 - 00:20:33:15 Sam Wilson Yeah. I certainly under no circumstances can tell my equity investors that are writing six figure checks. Hey, buddy, you can't email me. Not a chance. I'm like, yes, right. Glad to be responding to your email. Thank you.   00:20:33:15 - 00:20:34:17 Tyler Sellhorn Sir. May I have another?   00:20:34:24 - 00:21:01:14 Sam Wilson I have another. I am at your disposal. Yeah. I mean, those are different different conversation for different time. So I like I like the way that you think through that. But but again, going back to kind of the question, obviously building it to where it makes sense for that different organization, we talked a little bit about the things that you try to solve upfront, but are there are there things that people should be looking at or thinking about kind of from a more holistic perspective as they look to grow from a distributed workforce perspective?   00:21:01:14 - 00:21:08:07 Sam Wilson I mean, these are things you go, man, these are some just common pitfalls that I really think if you got it right before you launched into this, would really solve some problems.   00:21:08:24 - 00:21:44:13 Tyler Sellhorn Number one, do not assume that the message you sent and intended was the one that was received and understood. Start with centering the others understanding and how they will receive that message. So business leaders start. They might be email poor people or they might be slack people, or they might never record themselves. But I invite out all of you listening to number one, record yourself on video and provide a summary of what you said.   00:21:45:20 - 00:22:08:04 Tyler Sellhorn A concise transcript and a full transcript, and record your tone of voice, record your facial expression like give the B omni channel. Likely we'd talk about being that kind of a business, you know, whether it's e-commerce or whether it's, you know, like the different kinds of properties we own, right? We want to be able to diversify the kinds of offerings we have.   00:22:08:10 - 00:22:32:09 Tyler Sellhorn Well, you need to do that in your communication. So if it's really, really important that this one message gets communicated, go for bandwidth, right? Don't back up from providing every single person their preferred mode of understanding what you have to say, because some people are only ever going to read the bullets. Right? Right. And some people are going to repeat like read the full transcript and then read it again.   00:22:32:17 - 00:22:53:20 Tyler Sellhorn And then maybe one more pass. They'll get it. Understood. And they won't ever watch your video. Other people will only watch your video and they'll be, they'll be, there'll be. But like if you don't do those things, if you don't provide those things, the message you're intending to send may or may not be understood. And then the second piece to tack on to that is to check for that understanding.   00:22:53:24 - 00:22:54:10 Tyler Sellhorn Hmm.   00:22:54:23 - 00:22:55:19 Sam Wilson How do you do that?   00:22:56:21 - 00:22:57:14 Tyler Sellhorn You ask.   00:22:58:01 - 00:22:58:11 Sam Wilson Okay.   00:22:58:21 - 00:23:25:22 Tyler Sellhorn What did you hear me saying? What do you want? What? When you read that the other day, like like what did you take away? Right. Hey. And also be willing to repeat yourself without annoyance, without judgment, right? Right. If it's that important, it's worth saying again in a different way, in a way that they will understand center, the understanding center, the receivers, understanding of your message.   00:23:26:01 - 00:23:45:15 Sam Wilson I love that. I love that. Yeah. And that's that's actually something again, going back to my hate of email, I sent a ton of video email me cast animatic. I think it's called screen pals with a little link right inside of your email. I mean I sent, I send verbal replies all the time because I can do it one in a fraction of the time.   00:23:45:15 - 00:24:09:23 Sam Wilson I just recorded say, hey Tyler man. Hey thanks send the email. Does want to get back to you on this here's a minute long video I have not started sending the it does auto transcript. I'm that thought about attachment. I'm a big if I listen to a podcast it's by reading the transcript like I can get on your website and if you got transcripts for your podcast which we do for all of our shows, but it's like, I can read that transcript in about 4 minutes.   00:24:10:08 - 00:24:29:06 Sam Wilson Yeah, I get the whole thing. I'm like, Okay, cool. The 28 minute podcast, I just got it in 4 minutes. And that was I learned everything that I would listen if I got it. And of course you missed the intonation in reading that. But either way, it's like you're saying when you're communicating with team members, distributed workforces, doing the all of those things, they can pick it up in the channels in which error, in the methods in which it makes sense to them.   00:24:29:06 - 00:24:45:00 Sam Wilson So I love it. Tyler, this has been a blast having you on the show today. I love the energy that you bring behind the mic. That's that's hard to come by, honestly. Oh, right. As a as a host of I've done 800 and some of these episodes and you probably ranking the top ten of energy behind the mic.   00:24:45:00 - 00:24:47:14 Sam Wilson So thanks. Thanks for doing that. This is a blast.   00:24:47:14 - 00:24:50:23 Tyler Sellhorn I've got enthusiasm to burn and happy to share it with you and your audience.   00:24:51:03 - 00:24:56:00 Sam Wilson Absolutely. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   00:24:56:13 - 00:25:05:19 Tyler Sellhorn I'm most active on LinkedIn and the place to get connected to me. There is t cell dot link, tsc, alcatel i n k.   00:25:06:02 - 00:25:12:20 Sam Wilson T cell dot link. We'll make sure to include that there in the show notes. Tyler, thank again for your time today. I do appreciate it.   00:25:12:20 - 00:25:13:20 Tyler Sellhorn Great to talk with you, Sam.   00:25:14:07 - 00:25:35:18 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 or 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.   00:25:35:18 - 00:25:38:24 Sam Wilson So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

25m

Aug 10

Today’s guest is Chad Zdenek.   Since beginning investing in Real Estate 7 years ago, Chad has grown his General Partner portfolio to $150M. Today he invests actively and passively in multifamily and self-storage projects across the United States. He is also one of the rare investors who invests in CA and outside of CA.   Show Summary:  In this episode, Chad Zdenek, a licensed general contractor and former CEO of Mobile Illumination, shares his journey from being a rocket scientist to running a lighting business with his brother. He discusses the challenges they faced and the strategies they used to scale the business. Chad then talks about his current focus on real estate and the dedication required to scale his business properties. He shares his experiences in the real estate market, including a challenging project in Orlando where they had to renovate a property and increase occupancy. Chad emphasizes the importance of having the right team and being in the right market for success.   -------------------------------------------------------------- Intro [00:00:00] From rocket scientist to lighting business [00:00:59] Scaling a lighting business and reinventing the company [00:05:02] The dedication required to scale a real estate business [00:07:32] The challenges of scaling a business [00:09:12] Choosing real estate as a career path [00:10:24] Entering commercial real estate as a solo general partner [00:13:20] The challenges of taking over a class C property [00:17:54] Renovating and marketing a 200-unit building [00:19:44] The success of the project and the role of location [00:22:43] -------------------------------------------------------------- Connect with Chad:  Facebook: https://www.facebook.com/CSQProperties  https://www.instagram.com/csqproperties/ Instagram: https://www.instagram.com/csqproperties/  https://www.youtube.com/@csqproperties YouTube: https://www.youtube.com/@csqproperties Linkedin: https://www.linkedin.com/in/chad-zdenek-9153ab4/  TikTok: https://www.tiktok.com/@chad.zdenek Why Entrepreneurs Should Invest in Apartments Guide: http://bit.ly/3gU3ipW   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Chad Zdenek (00:00:00) - And anyone who's kind of grown and scaled something they know, like there's always a time period before before you reach the goal, right? Where you just you just got to bust bust chops. And for me, it's actually one of my core values is grit. And and that's something that's always rung true to me. And right now, like, I'm in that gritty time period in real estate.   Sam Wilson (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. Chad Zdenek is a licensed general contractor, a professional engineer, a former CEO of Mobile Illumination. He's a triple master's degree graduate. And Chad has a million other things going on as well. Chad, I'm excited to have you on the show today. Thanks for. Thanks for coming on.   Chad Zdenek (00:00:49) - You bet, Sam. Glad to be with you.   Sam Wilson (00:00:51) - Absolutely. Chad. There are three questions I ask every guest who comes to the show in 90s or less.   Sam Wilson (00:00:55) - Can you tell me where did you start? Where are you now and how did you get there?   Chad Zdenek (00:00:59) - Sure. So technically, I started out as a rocket scientist working on the space shuttle main engines. I got there by studying civil engineering and structural engineering and eventually transitioned into running a business with my brother, which we ran for 15 years, built it up to about 75 employees, three warehouses, sold it in 2018 and went into real estate full time. And that's what I've been doing ever since.   Sam Wilson (00:01:25) - That is a wild, wild journey. Just a little bit. You've told me right there. I mean, it's like every child's dream, right? Like some of them would be an astronaut someday. I'm gonna work on the space shuttle. Like, that's at least it was for me as a child of the 80s. Like, oh, my gosh. Like, you know, space. That's really cool. Why did you quit that and go into doing business with your brother?   Chad Zdenek (00:01:47) - Yeah, so that's a good question.   Chad Zdenek (00:01:48) - And it really comes down to like my passion. So I've, I've always been an entrepreneur at heart. I've founded or helped found eight different companies. And even though I worked at Rocketdyne, who was purchased by Boeing, Fortune 100 company, huge company, obviously a lot of systems and processes. It just wasn't really me. I'm really an entrepreneur and so I wound up leaving that to go work with my brother on a business he started. I was getting my MBA at UCLA at the time and using his business as my my pet project, if you will, focusing on entrepreneurial studies, and then eventually joined him to help scale that business. So. So yeah, that's kind of how it started out. But it was rocket science work is super technical, really fun, but a little too much bureaucracy for me. I'm just I'm a more agile entrepreneur at heart.   Sam Wilson (00:02:43) - Wow, That's that's wild. So you and your brother had a company for 15 years that you sold in 20 1875 employees. What industry was that in?   Chad Zdenek (00:02:53) - It was a lighting business.   Chad Zdenek (00:02:55) - So primarily we actually focused on Christmas lighting, installation, service removal for large homes, big projects like Universal Studios, the Forum. If anyone's here in LA and all the any celebrity you can think of, we did their home here in LA. Largest home was 52,000 square foot actually. So we're talking like really big houses. Average might have been 10 or 15,000 square foot places. Um, and, and yeah, so that was the business. But we also did landscape lighting and wedding lighting and things like that.   Sam Wilson (00:03:28) - That's, that's a very, very nuanced.   Chad Zdenek (00:03:32) - Yeah.   Sam Wilson (00:03:33) - I mean, so you, so you grew that and then there was an opportunity to, I mean after 15 years, you guys said, hey, we can 75 employees inside of a lighting company like you think of that. We said, oh, I do Christmas lighting or I do holiday lighting or whatever it is. It's like, you know, I think small in that, you know, it's like, Oh, okay, cool.   Sam Wilson (00:03:49) - You know, you guys probably do lights for a few weeks of the year and then you're done. But you guys grew this into a I mean, that's a pretty big company. Like, was that the dream all along?   Chad Zdenek (00:03:59) - Yeah. Yeah, it actually was. And we started out literally, it was just my brother and my sister and a couple of helpers. I was on the back end of that kind of doing the business side of it, if you will, the strategy. And then. And then I left. I left Rocketdyne to go work there full time with my brother. And here's a kind of an interesting tidbit. You know, you talk about entrepreneurs taking a leap, right? We all always at some point generally, you got to take a leap. And for me, I took a 50% pay cut to go work with my brother. And and he gave me half the business and promised to pay pay me that 50% pay cut was more than he was paying himself. Wow. So we both really had to compromise.   Chad Zdenek (00:04:44) - I mean, you know, the business is really small at the time. But yeah, we basically scaled that over 15 years and built it into the biggest lighting company in LA.   Sam Wilson (00:04:53) - That's awesome. What would you say is the number one thing you did to effectively scale that business?   Chad Zdenek (00:05:02) - So what was unique about it was and certainly in the beginning when we only focused on holiday lighting, we could really take off like half the year. We were just like working on the business, right? So half of you're working in the business when it was really busy time for us and the other half of the year was working on the business and we we literally reinvented the company every year and so much so that it kind of became a joke to the employees. We we paid them really well. We try to really take care of them. So we got a lot of people come back every year and they'd always come back say, okay, well, what what company is it going to be this year? Because it always changed so much.   Chad Zdenek (00:05:38) - And we invested a ton of time into developing systems and processes and that made a really big difference. And just knowing that, hey, each year we wanted the company to be different and how could we improve? And that's really how we ended up scaling it.   Sam Wilson (00:05:54) - It sounds like you kind of had baked in opportunity to review and work on the business versus working in the business.   Chad Zdenek (00:06:02) - Yeah, for sure. We, you know, like a lot of people, you know, we were obviously we weren't the first ones to this industry. There was a ton of players in the in the industry. And it's kind of like people you might think of that, you know, they might have a crew or maybe two crews if they're larger, they work a couple of months of the year and then the other month of the year they either took off or maybe they worked other jobs. But we really approached it like a business, a much different approach. And we were able to scale a lot more than these other companies.   Chad Zdenek (00:06:30) - And I think that really made a difference. And that really was a mindset knowing that we wanted to grow something to be big and we didn't want to be small and we we worked hard in the off season. That's what we did.   Sam Wilson (00:06:44) - Well, how do you find time in your business today? I mean, I think that's the the the one thing that anybody that's scaling a business or scaling a portfolio struggles with is finding finding that window or dedicating that window of time to work on systems, to work on processes, to work on building the back end of the business and not necessarily doing the business. How do you how do you incorporate that same idea into what you're doing today?   Chad Zdenek (00:07:10) - You know, that's really, really tough. And I don't have a magic solution for that. I'll say maybe the magic solution is maybe like Wizard of Oz. When you find out who's really behind the wizard, right? It's like and I'm happy to share with you guys like, I'm busting my butt right now on my business properties.   Chad Zdenek (00:07:32) - You know, I probably work maybe 80 hours a week right now. It's a it's a ton of time you got to put into it. And anyone who's kind of grown and scaled something, they know, like there's always a time period before before you reach the goal, right? Where you just you just got to bust bust chops. And for me, it's actually one of my core values is grit. And and that's something that's always rung true to me. And right now, like, I'm in that gritty time period in real estate. Right. And I know you know this, too, right? It's a lot harder right now than it was a year ago, a year and a half ago. Like we're in the trenches right now. Right. There's a lot of moving parts in these real estate deals right now. There's a lot of deals that can go sideways if you're not staying on top of it. And it's just a different environment with the way interest rates have gone. So I'm basically I'm working a ton right now to stay on top of things.   Chad Zdenek (00:08:24) - I'm still trying to scale my, my, my business properties. But the magic solution is not don't give up. You know, have a lot of grit. Understand? Like you got to understand anyone who's been anyone who you look up to and like be doing big things and like, wow, how do they do that? They've been in the trenches, right? I mean, look, I've started eight different companies, right? You think I know it by now, But, you know, I'm working 80 hours a week right now. It's it's crazy. And that's because I really want to get this business to to have a lot of scale. And I've got pretty ambitious plans for it. And right now I'm just in that in that trench mode where I really got to work pretty hard to get it done.   Sam Wilson (00:09:02) - You know, And I'm okay with that because I was I was talking to somebody about that recently because I'm I'm with you in a very similar spot in that we're just we're grinding it out right now.   Sam Wilson (00:09:12) - And it's it's hard work. It's hard work building the systems, building the people. It's I mean, think I told you before the call, I mean, I've been on my desk since 4:00 this morning. It's like you wake up or you crawl out of bed, you're like, I'm going to the office. I'm to put on the pot of coffee and we're walking to the office. I don't want to do that forever, but I'm okay with it for now. It's like, all right, so maybe maybe the next 6 to 12 months are really, really work hard. And I think we've I think we've kind of been sold this idea of like, oh, build your systems and then your company just takes off and then but it's like, you know what? There's I think there's a period for everyone where you just got to grind it out. And it's not ideal for a long term. I mean, you have how many kids? Five. Five kids, right? I'm not I can't quite catch you with that many.   Sam Wilson (00:09:57) - I don't want to. I got three and that's enough. But it's like, you know, you don't want to miss out on those things either, watching them grow up. So it's not a it's not a forever solution. But I think there's periods of scaling businesses where it's just like you just got to put in the time. Yeah, let's talk let's talk about your real estate business. Then we talked about the lighting company, how you grew that, which is just an amazing story in and of itself. Why did you pick real estate and then what's that journey been like for you?   Chad Zdenek (00:10:24) - Yeah. So. So real estate's been something I've always really wanted to get into. I was in construction for a few years beforehand doing construction management for large commercial properties. Like you mentioned earlier, I got my general contractor's license, so I've always I've always had an affinity for construction. I've been fairly involved in it. But that's like very transactional, if you will, right? There's not there's no real investment in that side of the business.   Chad Zdenek (00:10:50) - But if you look at a lot of people that have been successful in the real estate space, a lot of it is with real estate investments, right? And so I'd always wanted to get into that. And when I was selling the business, I really wanted to take a pause and figure out what I wanted to do before just jumping into something. My natural reaction was just jump into it, get it done and move forward, right? But I knew that this would probably be like my third and kind of final phase of my career. So I really I took some time. I had a year and a half transition out of that business to figure out what I wanted to do. And I had a really strong urge to get into real estate. Like I said, I was in construction beforehand. I had done some real estate investments on my own beforehand, and so that's when I found syndication and multifamily primarily, although I do self-storage as well. And that's where I decided to go into that because I just I knew a lot of people that had been successful in real estate and and you don't really kind of see it until you're in it.   Chad Zdenek (00:11:50) - It's kind of like maybe riding a bike, like you say, okay, that kind of looks easy. But until you actually do it, you don't really know. And the same thing happened to me in real estate, right? Like, and it really clicked when I got my first tax return back and I had all this money back from from depreciation write offs. I had the leverage from the banks and, and I saw these, these, these investments that were doing really well. And I had all the upside from the leverage. And I'm like, wow, this is how people actually do it. And it really clicked for me. Like, I kind of knew it. But like once you experience it on your tax return, it's pretty rewarding. And then and then look, we mean we unlike you, we do a lot of Class B and C properties. We fix them up. I love doing that part of things. I love construction. I like making things better for tenants and and that's kind of a rewarding part of the experience as well.   Chad Zdenek (00:12:39) - And, and we're doing good things for communities. So it kind of all fits into me as a person. And, and this will be my my third and final phase of my career. But but I love it. I don't know if I ever retire. I love what I do. But I tell you, I do not want to be working eight hours a week the rest of my life I'm with you. If having that to be a kind of a short, shorter time frame. But for now, it's a lot of work.   Sam Wilson (00:13:01) - Yeah, absolutely. Absolutely. What did you do to break into commercial real estate? Because it sounds like that's where you started. You didn't take the traditional path of buy a single family home by 20 single family homes, decide that's not what you want to do, sell them off and then go into commercial real estate. It sounds like you went straight into commercial real estate. Is that a fair statement?   Chad Zdenek (00:13:20) - Yeah. Yeah, it is. And not only did I go straight into it, but I went straight into it as a solo general partner.   Chad Zdenek (00:13:26) - So my first syndication I did on my own, I did everything from A to Z, and again, it was a ton of work, but but I learned a lot because I had to do everything myself. I had ten investors on that first deal. I raised $1.2 million and and bought a ten unit apartment building here in LA. And I had a think about a 500 K CapEx budget for that. Um, so, so it was, it had a lot of moving parts, um, smaller building. But I did everything on my own and it was a great learning experience and that was my first foray into, into real estate.   Sam Wilson (00:14:07) - That's awesome. And is that where you stayed or have you taken a different path to where you are now?   Chad Zdenek (00:14:14) - Well, on the theme of scaling. I know, I know you like to talk a lot about this as well. And obviously I scaled in my last company. I wanted to scale in real estate as well, so I did several deals on my own with with limited partners and then and then began partnering with other syndicators to do larger deals and also out of state deals.   Chad Zdenek (00:14:34) - So I live in LA. My all my initial investments were in Southern California. And then when I partnered with other syndicators and began doing larger deals, I also did that out of state to try to diversify a little bit out of California and was really able to to scale that part of the business to where now I do anywhere from 200 units, 280 units somewhere around there are the property sizes that I do now with several general partners and, you know, a lot more limited partners, but just bigger deals.   Sam Wilson (00:15:13) - How how has that what you look for in a general partner changed? Maybe then when you first started partnering with people, the parameters changed it all for you.   Chad Zdenek (00:15:26) - I'd say I'd say they haven't changed a whole lot. And maybe that's the conservative side of me in terms of, you know, I'm an engineer, so I do have a little bit of paralysis by analysis, by nature. So I'm a little slower to to make these big steps or certainly like working with other people. Um, I got to be pretty comfortable with that.   Chad Zdenek (00:15:48) - So in the beginning and even to today, a lot of it is relationship based, right? So you get to know different general partners, you watch what they're doing, you interact with them, you might even invest with them as an LP initially. I've done that as well. And and you go through those steps and you can really get to know somebody and then you start to really trust them a lot more and you've got some experience watching them. You might have invested with them and then you're ready to do a deal together. I also I run background checks and all the GP's I work with just as a sanity check, even if I know them. It just kind of gives gives that extra cushion in terms of comfortability. But really I don't think it's really changed how I've done it from from the beginning till now. I still do the same kind of general process.   Sam Wilson (00:16:37) - That's cool. I love that. That's good to hear. That's good to hear. I wish I had that same story. Not that any of my partnerships have gone directions.   Sam Wilson (00:16:45) - I didn't wish for them to go, but certainly my my processes have become more refined. I'm I'm less of the engineer and more of the go get it and figure it out once, you know, build it while we're flying it, which is not a good approach necessarily that I'd recommend. Certainly that process is far more refined than it used to be. But either way, I'm always curious to see what people have to say in that regard. We we talked about this before the show kicked off, and I really want to make sure that we highlight and hear the story behind this because we're recording this. Oh, today is July 11th, 2023. So I don't know when this will come out probably in the next 60 days or so. But you guys own an asset. I think you said Orlando. Is that right? And tell me tell me the story on this, because here just to give a little preview, I'll tee it up for you then you can take it from there. But for our listeners, you've taken it from 70% occupancy to a 92% occupancy in the last six months.   Sam Wilson (00:17:39) - So if anybody's listening to this, this is in a more challenging season, I think, for multifamily properties, not the not to mention the class of multifamily property that you're doing this in. So tell us about that asset and how you guys accomplish that.   Chad Zdenek (00:17:54) - Sure. Yeah. And that's been a lot of work and it's a good case study. Certainly a challenging time to do that, that type of a lift right now. But the premise of that was that we bought a Class C property in Orlando, needed a fair amount of work, nothing too crazy, but but needed work. And we had an issue to where. When we took it over from the seller. Um, they basically, believe it or not, the seller literally closed the door on the, on the, the leasing office for like six weeks before we took over. So we did all the due diligence brought in. We even did third party due diligence, ran, walked. Every unit did what you need to do and then, you know, decided, yeah, this looks good, let's move forward with the LOI, blah blah, blah.   Chad Zdenek (00:18:43) - And, and they, they closed shortly after that period. They literally locked up the office and didn't do anything. No work orders, didn't even didn't even collect rents. I mean, it was like really, really bad. I'd never seen something like this before. And so when we finally took it over like we were, our occupancy was already way down. And from where it was, people weren't paying rent. I mean, literally we walked into a crap show and, um, and we could have gone after the seller, right? I mean, we had every right to go after the seller, but, you know, none of us are litigious type, and we just kind of buckled up and hunker down and went after it. So what we did, we brought in our own construction crew, put them up on on site. I think we had 7 or 8 guys and put them all up on site. We had a bunch of extra vacancies we weren't expecting. We had to get rid of a bunch of more people that we weren't expecting and and we went to work and we renovated.   Chad Zdenek (00:19:44) - We renovate. There's a 200 unit building, um, garden style, I think about 20, 26 buildings. And um, and we went to work and we renovated over 100 units. But what happened? So we basically, we kicked butt on construction. But what happened was our, our marketing side on the lease up side was behind for how well we were doing on the construction side. So we got so far ahead. Vacancy was way down. Like I said, we even might have been like 68%, 70% like like pretty low. And I think we took it over. It was supposed to be we bought it at like 90%. It dropped to 82% when we finally took it over. And then obviously with cleaning out some evictions, we dropped from there. And so it was a very, very difficult project. We actually had to swap out the property management company, um, part way through which anyone who's done that mid deal like that is not fun to do, especially on these larger projects.   Chad Zdenek (00:20:47) - And but the premise of the problem was we, besides what the seller left us with, we got really far ahead on construction and the marketing and lease up didn't keep up. And so we basically as a team, we took over the entire marketing department. We still at that time we still had the original property management company or our original property management company, which was new to the property, still running. But we took over the whole marketing department and we really hit the marketing pretty hard and finally we got the marketing catch up, catch up with us. We we got rid of the property management company, eventually brought someone else on and like inside of like 6 or 7 months we got it to 92% and which was a really, really heavy lift. And I'm pretty proud to say like we did that without like price concessions, right? We, um, we had four and you know, this, I mean, you do a lot of asset management. We had four asset management calls a week and, and it was all hands on deck.   Chad Zdenek (00:21:50) - There was 4 or 5 of us that were just really involved all the calls. And in the midst of all that mess, we had to swap out a property management company. I mean, it was it was so much work. So much work. But but we did it. We did it. And in this environment, I think that's pretty tough to do and it's something I'm pretty proud of.   Sam Wilson (00:22:11) - It's tough to do. I mean, one, it's tough to do. It's tough to do in this environment. Would you say would you say that the market or the or the Orlando market in and of itself helped kind of where that as it's in a more clear way because that assets in Orlando was that helpful in getting that filled just because there's better a better tenant base looking for things like would that do you think you could have pulled this off somewhere else, do it the same amount of tenacity and effort, or did the Orlando kind of tailwinds help?   Chad Zdenek (00:22:43) - Yeah, it totally helped. Right. And it kind of goes back to the basics, right? Location, location, location, right.   Chad Zdenek (00:22:50) - We're in a good location. It's actually about ten miles north of Orlando, Altamonte Springs. But yeah, it's it's a good up and coming area, a lot of population growth. So so yeah, we definitely had those tailwinds for sure. And there's no way we could have done that if we were like in a flat market or stagnant market, right? We would have had to do price concessions or something like we'd have to get creative some other way. But, but we're in a good market. We're able to do it.   Sam Wilson (00:23:17) - Yeah. And that I mean, that goes back to the three fundamentals that we always talk about, which is team first, market, second deal third, because you totally, you can't change the first two once you've closed. But the third the deal you can change. So that's you're in the right market with the right team That's really cool. Again, not to take away from the incredible amount of effort that you guys put into making that happen, but you guys got the first two things really right and so obviously you can change the deal.   Sam Wilson (00:23:45) - Post-closing And that's exactly what you guys have done. So very, very cool. Chad I've loved this. I've learned so much from you here today. There's been a blast having you come on. Just hearing your story from being a rocket scientist to then doing a lighting company, growing that, growing eight different other companies, five kids at home, grinding it out and real estate kind of carving your own path and figuring this one out as well. I'm super excited to be able to put this episode out there. Thank you again for coming 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?   Chad Zdenek (00:24:16) - Yeah, best way would be properties. Com or anywhere on social media is just at Ksdk properties at Ksdk properties.   Sam Wilson (00:24:25) - We'll make sure we include that there in the show notes. Chad, thank you again. I do appreciate it.   Chad Zdenek (00:24:30) - Go, bud. Thanks, Sam.   Sam Wilson (00:24:31) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:24:35) - 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.  

24m

Aug 09

Today’s guest is Beth Underhill.   As a real estate investor, Beth has redeveloped over $5mm in single family homes. Lifestyle Equities Group is Co-GP on over 500 multifamily units, 126-bed student housing, and holds equity in a hotel repositioning in Panama along with an RV park in NE Ohio. -------------------------------------------------------------- Intro [00:00:00]   Beth's start in real estate investing [00:00:54]   Beth's favorite property - The Boulevard [00:02:36]   The strategy of pushing rents [00:12:26]   Opportunity in the hotel business [00:14:12]   Airbnb arbitrage strategy [00:19:33]   The Importance of Reviews and Subscriptions [00:22:48]   Closing [00:22:46] -------------------------------------------------------------- Connect with Beth:  Linkedin: https://www.linkedin.com/in/bethjanuzziunderhill/  https://www.instagram.com/investingwithbeth/ Instagram: https://www.instagram.com/investingwithbeth/  Facebook: https://www.facebook.com/TheBethUnderhill Web: www.lifestyleequitiesgroup.com  http://www.lifestyleventuresgroup.com www.lifestyleventuresgroup.com   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Beth Underhill (00:00:00) - So most people think of student housing of Animal House, you know, kids, you know, getting drunk, destroying property, etcetera, etcetera. And that's really just not what it is. And, you know, these these properties, I mean, they're set up. They're they're beautiful. They're better than, you know, sometimes even people's own homes.   Sam Wilson (00:00:19) - 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. Beth Underhill has redeveloped over $5 million in single family homes. She's also a coach on multifamily student housing and hotels. Beth, welcome to the show.   Beth Underhill (00:00:42) - Thank you so much for having me. Glad to be here.   Sam Wilson (00:00:44) - Absolutely. Bet 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?   Beth Underhill (00:00:54) - Certainly so started in 2018, attended a single family fixing flip workshop and that led us to developing or redeveloping, I should say the $5 million of single family homes pivoted in 2021 to commercial real estate, hopped on a ton of Facebook groups, started meeting people, connecting, creating different partnerships.   Beth Underhill (00:01:17) - And that has led me to where I am at today with multifamily properties, student housing properties, hotels and um, and yeah, that's where I'm at today.   Sam Wilson (00:01:29) - That's a lot, a lot of movement in a very short period of time. What have been some of the primary driving motivators for the different assets that you've gotten into diversification.   Beth Underhill (00:01:41) - Number one. Number two, it's really through the strategic partnerships I have. I've always had an affinity for the hospitality industry. I used to be in it many, many years ago. So hotels and the the opportunity to be able to travel to a variety of different places and and see those places, obviously, you know, if you go visit a multifamily property, great. But you know, why not go visit Panama, Central America and actually vacation at the same time, too. So part of it is has been the partnerships, part of it is just been my affinity for for other types of assets. And some of it's just, you know, sort of falling into my lap and and I've just run with it.   Sam Wilson (00:02:27) - So that's awesome. When you look at your portfolio today, which which of yours is your favorite and why?   Beth Underhill (00:02:36) - Um, my current favorite is probably the Boulevard, which is in Milledgeville, and it's 126 bed student housing property. It's just an absolutely gorgeous property. Um, cottage style homes in which the students can live in. And interestingly enough, as we started to acquire this particular asset, I sent my daughter off to college for her freshman year. So I was able to to really understand more about, you know, the assets themselves and what they can provide for students either in there. And generally speaking, you're not an off campus student in your first year. However, with some of these colleges and universities having an overload and not enough student housing, you can be a first year student and be off campus. So it was really important to me to make sure that, you know, we were buying an asset that was going to provide an environment that and I kept thinking in the back of my mind, okay, if this were my daughter and if this was me as a mom paying for this particular, um, room or whatever you want to call it, you know, would I be okay with it? And and absolutely.   Beth Underhill (00:03:53) - It's a newer build. The developer was, you know, just like most developers, they don't want to be operating property after they've developed it. So once you developed it leads to that but held on to it for a few years and then decided to sell it. And that's where we came in and scooped it up.   Sam Wilson (00:04:09) - That's really fascinating. So Milledgeville, I don't know many milledgeville's, but I'm sure I could find it. Where is Milledgeville?   Beth Underhill (00:04:17) - It's in Georgia.   Sam Wilson (00:04:18) - Georgia. Okay. Okay. Very, very cool. This deal came to you. How did the deal come to you? Like, how did it present itself?   Beth Underhill (00:04:26) - Sure. So I am. I actually am marketing director for a group, MTN Investment Group. And so through that particular alignment, I was I was part of the deal. This came to us off market. Luckily we have on our team someone who he comes from Landmark Properties, which is one of the largest student housing property developers, as well as property management companies. So through some of his pipeline resources and so forth, this deal came to us and that's how we were able to to acquire it.   Sam Wilson (00:05:06) - That's really cool. Many people are especially, you know, coming on the heels of. The pandemic. We're afraid of student housing. It's like, Oh, okay, cool. Well, then three seconds later, your whole building can be vacant and then there's going to be, you know, abatements on everything. Lisa I'm not the right word, but, you know, income is going to cease. Like, what are some of the risks in student housing? How are you guys overcoming those and or. Yeah, I'll just start there then.   Beth Underhill (00:05:36) - Yeah, absolutely. I think we learned a lot with Covid. Right? And what we did learn is that students can still be in these types of environments. Like for instance, this particular property, it is the cottage houses are 4 or 5 and six bedroom. So it's just like living in a house, right? So each student can have their own bedroom, their own bathroom. There's just the common area with the living space, the kitchen and so forth.   Beth Underhill (00:06:06) - And what we learned with Covid is that these students can can survive and thrive. Actually, still going to school through Zoom classes may be a hybrid type scenario. I know my daughter, she has some online classes still, and she actually attends the University of Kentucky, so she's physically there. But some of her classes are online, some of them are hybrid, which is a combination of online and going to to the physical classroom type setting. So I think that, you know, if we were ever to encounter another pandemic like that, we're more prepared to be able to handle this sort of thing. And I don't think we would necessarily see that happening. But a lot of the assets that we are purchasing are set up this way. A lot of the assets in student housing, I should say, are set up this way so that the the students themselves have individual rooms. It's almost like a studio apartment or almost like a one bedroom apartment per se. So they can still live there. They can still function and they can still attend school.   Beth Underhill (00:07:15) - So that is one risk that I think has been minimized more. So, you know, one of the things that I love about student housing is that like myself, as soon as my daughter moves off campus, you know, I'm going to be footing the bill for for anything off campus. Right? I'm it's my credit card that's on file. It's my Social Security number. It's my credit that's at risk. And and that's the beautiful thing about student housing. You know, most people think of do you ever remember the the movie Animal House?   Sam Wilson (00:07:46) - Yeah, it rings a bell. But I couldn't tell you to think about it.   Beth Underhill (00:07:48) - Okay. So most people think of student housing of Animal House, you know, kids, you know, getting drunk, destroying property, etcetera, etcetera. And that's really just not what it is. And, you know, these these properties, I mean, they're set up, they're they're beautiful. They're better than, you know, sometimes even people's own homes. Um, so from the standpoint of, you know, mom and dad paying for things right now, you know, the markets that we are purchasing them and you know, the the occupancy is 100%.   Beth Underhill (00:08:20) - We have waiting lists on some of our properties. So there's a shortage out there for student housing. And and that's what we're finding. And we're taking advantage of it right now, capitalizing on it.   Sam Wilson (00:08:30) - What's the difference between what you guys are providing? I'm thinking about here, you know, like the University of Memphis, they're constantly building student housing, dorms, giant facilities, I mean, brand new stuff. How do you compete with that? You know, I mean, I don't understand this entirely. So I'm assuming that's that is university owned versus what you guys have obviously privately owned. How do you compete with those things that the university seeming they seem to be in the space pretty heavy. So how do you compete with them?   Beth Underhill (00:08:58) - Well, and that's that's one thing that you know, you as you are going through your due diligence, that's one thing that you do have to research and ensure that the university itself is not going to take away from, you know, the actual property that we're physically buying.   Beth Underhill (00:09:17) - But a lot of kids, they want to live off campus. You know, I know sort of the path for my daughter is first year on campus, second year in her sorority, third and fourth year off campus. She already has girlfriends that are living off campus and they're heading into their sophomore year. And so that's just the general trend. There's only so much housing and land that these universities have depending on where they're at. So they can only go so far with what they can build. But a lot of them are going through renovations because they're trying to honestly, they're trying to keep up with what's being built off campus. Right.   Sam Wilson (00:09:52) - Right. Absolutely. How does the return profile compare from student housing to say, I don't know, A, Class B, multifamily.   Beth Underhill (00:10:01) - Uh, actually, it's pretty competitive. What we're finding right now with some of our deals, we're at right around 18% IRR. About six, I'm sorry. 8% cash on cash, A2X equity multiple. And this is with a five year hold.   Beth Underhill (00:10:20) - So fairly competitive. The one thing I do love about student housing is that these properties, they're leased up ahead of time, right, going into the school year. Most of them, you know, they've already been leased up. They're cash flowing from day one. You have to sign a 12 month lease. So parents are paying for 12 months regardless of whether or not, you know, the kids are living there for three months over the summertime, but a lot of them are subletting and so forth. So so they're able to get a little bit of that money back into their pocket. But but really, you know, we just first quarter after taking over this property in Milledgeville, we actually sent out distributions to our investors already. So and that's not typical of, you know, a value add play.   Sam Wilson (00:11:08) - It's not. You're absolutely right. It's not. Tell me about. I guess once the school year starts, your occupancy is is probably doesn't change a whole lot throughout that school year. I mean, it doesn't.   Beth Underhill (00:11:22) - Unless, you know, a student, something happens to a student, maybe illness or they drop out of school for whatever reason, something changes. But generally speaking, no. And then we do have a wait list. And unless there's some extenuating circumstances, you know, the parents are still paying for that lease for the entire year. Right.   Sam Wilson (00:11:42) - Oh, that's really, really cool. Yeah. I love the idea of 100% occupied. I think you said is one of the one of the properties that you got. Are there any concerns on that front? You know, I've heard it said and you know, we only own a couple of multifamily assets and I'm not the I'm not the operator on it. So, you know, don't have direct exposure to it. But commonly been said like, hey, if you're 100% occupied, it means you're probably not priced correctly in the sense that. You know, maybe. Maybe, you know, better, better be 94% occupied and, you know, have a higher rent across the whole portfolio or the whole asset than maybe having 100% occupied, but getting less on the rent side of things.   Sam Wilson (00:12:21) - Anything? Anything. Does that strike anything on what you guys are working on right now, or am I just completely off?   Beth Underhill (00:12:26) - No, no, no. Absolutely. We are going to be pushing rents. We have already started pushing rents. In fact, this property in Murphysboro that I mentioned, which is near, of course, Middle State, Tennessee University. Um, it you know, the the current owner he was not pushing the rent until we came along and said, hey look, here's our business plan. This is what we plan to do when we take this asset over. So towards the end of his lease up, he started actually pushing the rents to where we want them to be. And he was getting and he was getting the rents, which was proving to us and him that, you know, our business plan is going to work because people were were biting on those rents. And given the fact that we have 63 people right now on a waitlist for that particular property, I think we're going to be okay.   Sam Wilson (00:13:16) - Yeah, absolutely. Yeah, that's a strategy I've heard before that I really like, which is to make. And it was a it was a mobile home park operator that came on the show maybe a year ago and talked about that, how they would in their contracts, all their contracts, they require the current seller to start raising rents ahead of clothes and they make him the bad guy, like, hey, all right, well, they raised rents and then when they come in, they've already got even more property, already more stabilized than it was when they went under contract, which is which is really, really cool. I love that. Okay, cool. So you see awesome opportunity in student housing. We talked about that. Murfreesboro, you've got a property down in Georgia and then we haven't really talked about hotels. I know we talked about this slightly there in the intro recently, like hotels, you like being able to go where you are, vacation in places that you already own. Tell me tell me about the hotel business and kind of where you see opportunity on that front.   Beth Underhill (00:14:12) - Absolutely. So, you know, obviously, Covid presented a fairly significant opportunity for people to come in and and kind of swoop in to some of these hotel assets. There were a lot of tired owners, particularly in the Caribbean, and that's where we have been looking quite a bit. And this is with a different partnership than what I was speaking of previously with the student housing properties. But but these owners are tired. They weathered the storm. They got through it, and now they're they're like, okay, it's time for us to retire. It's time for us to move on from these properties. And so that's where people like ourselves come in. And we've been talking to some of these owners and been able to successfully take on some of these properties that are in the Caribbean. So I'm part of a deal that's in Panama, Central America. We have a master lease agreement on that. We're looking to actually end that master lease sooner than five years. It was a five year master lease. We're looking to end that sooner than five years and actually just finance the owners out of it and be able to take on the property.   Beth Underhill (00:15:25) - Sometimes what happens with the mass release is that you are you still have to you know, you're still in a partnership, so to speak, with the current owners, and you have to get permission to do certain things. And when you're not necessarily aligned, it makes for a difficult situation. So the sooner we can get them out, the better, right? So that's what's going on there. We have another property in Antigua that we are working to solidify. And the this particular property at 75 keys, cash flowing, it's it's crazy cash flowing. They're running occupancies as high as 80, 85%. And they closed down four months out of the year. So it's nuts. Absolutely nuts. And they're one of the few properties that closes for months out of the year. Generally speaking, you're going to find in the Caribbean maybe properties that will close down like 1 or 2 months. The the the two most dangerous months, let's just say, when it comes to the hurricane season. But they've chosen to do four months because they're actually from Italy and they like to go back to Italy to take a break from just running the hotel.   Beth Underhill (00:16:33) - So they the owners there are a couple and their in their 80s and they're like, you know what? We just we just want to be done. We want to continue to travel the world, go back to Italy whenever we want to. And so that those are, you know, the owners that, you know, we are we are looking more for. And the beautiful thing about it is that their properties are paid off. So they're more open to seller financing. They understand that, you know, to to be able to obtain financing actually in. In the Caribbean is going to be challenging. So therefore, they're willing to carry the paper. It just might mean that you have to come to the table with a larger chunk of money that you might want to. However, to be able to and I'll just know this is an example on a $5 Million property, maybe you come to the table with, you know, 1 million and they carry the paper for 24 to 36 months. But on a cash flowing asset, you can easily pay that back and and kind of have them out of there at least, you know, maybe two years.   Beth Underhill (00:17:41) - So. Wow.   Sam Wilson (00:17:42) - Wow. That's really cool. What's I mean, what are some of the challenges I'm thinking both from an international investment standpoint, from staffing, internationally, employment. I mean, there's just a lot of hurdles to get over. You know, I'm I'm projecting here, but I'm thinking, okay, 70, 75 keys, I think is what you called it.   Beth Underhill (00:18:01) - Keys.   Sam Wilson (00:18:01) - Yeah, 75 keys. So it's so what's what are some of the challenges you faced operationally on a hotel like that?   Beth Underhill (00:18:09) - Um, operationally, I would say probably the biggest challenge is just getting supplies, especially if you want to do any kind of renovations. You know, you're relying, you know, down in the Caribbean, they're relying heavily on places like the United States to actually, you know, for material shipments, etcetera. So I think that's more of the challenge. You know, a lot of these operators have very loyal staff that has been in place for a long period of time. They like their jobs sometimes.   Beth Underhill (00:18:41) - These are the only available jobs in and around these areas. So they're going to keep them right. And if if new ownership comes in and treats these individuals exactly like they've been treated all along, the chances of them going anywhere are are usually very small relative to what we see up here in the United States. It's it's not where in the United States sometimes it's start a job. You know, you're there for three weeks, you don't like it and then you quit. You know, they need those jobs there. And it's you know, they're such small communities. Work can get around that much quicker than it can, you know, up here. So.   Sam Wilson (00:19:22) - Oh, that's very cool. I love that. I love that. So you see opportunity in hotels, student housing. What else do we talk about there? There was something else we talked about that.   Beth Underhill (00:19:33) - Um, we talked about some multifamily, but I also have an Airbnb. It's an Airbnb arbitrage. So and this is in Fort Lauderdale.   Beth Underhill (00:19:42) - We just came back there. We just came from there actually visiting our own Airbnb arbitrage. We wanted to do some things to it, add some, um, add some items to the Airbnb that we thought maybe from an amenity standpoint would be necessary. But it was nice to actually be in our own environment and, and know that, okay, this is what we're providing to other people. This is great. How can we improve it and so forth. But again, it's in an area that we like to frequent. We like going to Florida. I live in Cincinnati, Ohio, So, you know, not a bad option to be able to head down. I mean, you know, it's so funny because, you know, you kind of think to yourself, oh, we don't have to pay for hotel room. We're we're paying, you know, this is kind of free, but it's really not free, right? I mean, when we arbitrage something, I mean, we're actually paying to rent the property and the owner is allowing us to turn around and Airbnb this out.   Beth Underhill (00:20:40) - So that's a.   Sam Wilson (00:20:41) - Pretty unique strategy. I like I like that strategy. But it seems like you have to find the right owner that doesn't want to Airbnb and or manage and or even hire a third party management company to do it themselves in order for that to work. How do you go about locating an owner of an Airbnb that is open to the arbitrage strategy?   Beth Underhill (00:21:02) - Um, you talked to a lot of owners, to be honest with you, because not all of them that are renting their properties out are going to be open to to that. However, you know, when you look at the Florida market, it is it's a busy market and places like Miami were becoming very saturated with Airbnb. Um, if you look at kind of that Southeast, you've got Miami, Fort Lauderdale up to Boca Raton. Boca doesn't even allow Airbnbs at all. So, so Fort Lauderdale, you know, falls in the middle. Um, and you know, when we went down there, let's see, I think it was towards the end of January, we visited numerous locations and talked to plenty of owners and finally found one that said, You know what, Yeah, I'm totally open to it.   Beth Underhill (00:21:48) - But, you know, the contract, of course, is going to make you all reliable or responsible, I should say, for anything that happens to this. And we have I think we have a very fair contract. He's making money. We're making money. It works out for everybody.   Sam Wilson (00:22:04) - So that's that's great. I love it. I love all the things you're in or that you're investing in. I love the diversification, the the commitment to each one for their own unique reasons. That's really, really cool. Certainly appreciate you taking the time to come on the show here today. Beth, it's been a pleasure having you on. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Beth Underhill (00:22:24) - They can email me. Beth at Lifestyle Equities group.com or they can follow me on Instagram at investing with Beth on TikTok same handle at investing with that or you can text me (513) 470-1078.   Sam Wilson (00:22:40) - Awesome. We'll make sure we include all of that there in the show notes that.   Sam Wilson (00:22:43) - Thank you again for coming on today. I do appreciate it.   Beth Underhill (00:22:46) - You're welcome. Thank you.   Sam Wilson (00:22:48) - 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.

23m

Aug 07

Today’s guest is Kenny Rose.    Kenny is a franchise expert with extensive experience working with hundreds of franchise brands across various industries. With a background in financial services and wealth management, he helps individuals invest in and optimize franchise ownership.    Show summary:  In the episode, Kenny Rose, founder of FranShares, discusses the concept of investing in franchises and how his platform connects investors with franchisees seeking capital. He explains why investors are looking for alternative avenues to diversify their portfolios and earn passive income. Kenny shares his background in financial services and how he transitioned into the franchise world. He talks about the challenges he faced in getting FranShares off the ground and the success they have achieved so far. Kenny also explains how FranShares functions, attracting investors through education and reaching out to platforms where people learn about investment opportunities.    -------------------------------------------------------------- Intro [00:00:00] The birth of FranShares [00:01:52] Overcoming challenges and finding investors [00:04:11] Connecting investors and franchisees [00:07:09] The franchising model and long-term investments [00:10:23] The concept of investing in individual locations [00:12:41] The regulatory framework for FranShares [00:13:34] FranShares [00:19:45] Contact Information [00:20:01] Closing [00:20:21] -------------------------------------------------------------- Connect with Kenny:  Linkedin: https://www.linkedin.com/in/kennyrose/  https://twitter.com/kennymrose Twitter: https://twitter.com/kennymrose  https://www.instagram.com/franshares/ Instagram: https://www.instagram.com/franshares/ Web: https://franshares.com/ Investing guide: https://20991829.fs1.hubspotusercontent-na1.net/hubfs/20991829/Franchise%20Investing%20Guide.pdf   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Kenny Rose (00:00:00) - And so then you have the same thing for investors where they are looking for investments that can diversify their portfolio. They're not correlated to the stock market. They're looking to earn passive income. And really like the main way you do this in the past is real estate. But, you know, I'm sure everyone's fighting over deals right now and you get a lot of institutional capital that's competing. And so you got to look for other avenues of where you get those passive income streams. And so that's where investors have really been flocking to because they just see it as like, Oh, that makes sense and it fits my needs. 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 (00:00:44) - Kenny Rose has a background in financial services and wealth management, and he currently helps individuals invest in and optimize franchise ownership. Kenny, welcome to the show.   Kenny Rose (00:00:54) - Thanks for having me, Sam. Great to be here.   Kenny Rose (00:00:56) - Absolutely.   Sam Wilson (00:00:57) - The pleasure's mine. Kenny 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?   Kenny Rose (00:01:05) - Perfect. So got my career started off in financial services over at Merrill Lynch. Found my way into the franchise world on the brokerage side, so I'd help people like a realtor, an investment advisor, find the right franchise to own and coach them through the research process. And we transitioned that into realizing most people don't have 6 or 7 figures laying around to invest or they don't have the time or the skill set. So we created Fran shares the first platform to let anyone invest in franchise ownership as part of their portfolio. And where we now, we had the largest launch for an alternative investing platform with over 18 million in investment subscriptions and got you can see here over 40,000 people on our waitlist for the next couple offerings coming up and really excited for making this the next big asset class one that should have existed a while ago.   Kenny Rose (00:01:52) - My opinion.   Sam Wilson (00:01:53) - Wow. Okay. I've got a million questions, you know, not the least of which is how do you have which we'll get to this. I'll probably save this for later, but I just want to make sure I highlight this. You have 40,000 people on a waitlist. That's every investors kind of like mean dream. That's. That's in a good dream. Not a nightmare dream. That's a good dream.   Kenny Rose (00:02:12) - Yeah. Yeah.   Sam Wilson (00:02:13) - So we'll get to that. But, you know, I think I think the, um, like you said, turning this into, it's like, it's like what we've done in real estate all these years, right? We've done it with, you know, you sell these online platforms where you can buy a share of whatever it is office buildings, real estate, land, you know, industrial. ET cetera. But nobody's done it in the franchise space. When did you know you were on to something? When you kind of. When you were telling me about that.   Sam Wilson (00:02:39) - When did you know you had an idea that you thought, man, this can really have legs?   Kenny Rose (00:02:42) - Yeah, exactly. And so funny enough, you mentioned the real estate ones. It's where I originally got the idea from. I actually been sitting on this one for 7 or 8 years. Back in 2014, Fundrise was the very first one to like be big in the fractional investing space for real estate. And they were raising a series A and I caught the news and I started diving into the business model. I'm like, How does this work? How is it possible? And all these things. And the more I dove in, the more I was like, This solves everything I've been looking for in franchises. So kind of reverse engineered it and applied it with my knowledge in the franchise industry to, you know, I used to call it a REIT for franchises, but realized outside of real estate investors, it was the financial advisor and talk. And I realized most people don't know who to REIT is.   Kenny Rose (00:03:26) - So I had to kind of pluck that word out of my mouth.   Sam Wilson (00:03:29) - Right? Right. Absolutely. So you had you you had the idea for 7 or 8 years. When was the right time to do it?   Kenny Rose (00:03:35) - Uh, pandemic hit. Okay. I was because I built myself a pretty good brokerage and wanted to become really an expert in the franchise world. So I started off just writing answers on Quora and reaching out to journalists. Got featured in Forbes, ABC Business Insider reached over 300 million people. So I kind of like had franchise on the back shelf for a bit. Then the pandemic hit and I read pretty early on people were gambling on the stock market because sports were not. And I was like, Oh, investing doesn't make sense anymore. Like, now's the time. And so I literally shut down the other business and started getting franchises together.   Sam Wilson (00:04:09) - Was that hard to do?   Kenny Rose (00:04:11) - Oh, extremely. I mean, no one's ever done this in the franchise space. And honestly, I call it the F word of business ownership.   Kenny Rose (00:04:18) - So, you know, when I was originally putting this together, well, first things first, I had to pitch a big law firm on doing all the legal work for me and basically said like, Hey, we're going to get funded and we'll pay you back. And they were top three biggest law firm in the country. They said, We believe you. There you go. And then I reached out to 400 venture capital groups and trying to get funding, I think had three conversations out of it. And it was like interesting talk later. So I was like, you know what? I'll I'll I'll go straight to my market and prove my point. So I went and found angel investors and raised like 600,003 or 4 weeks and then went back to all the VCs. And when you've got money in hand, they're always on board. And so, yeah, it took a lot of like education to get them, like to understand why franchising and again, get that F-word out of their head. But no, it's been a great ride.   Sam Wilson (00:05:12) - Oh, my gosh. That's I mean, that's a lot of perseverance. Just just hear that if you're listening to this 400 groups you contacted, 400 groups, had three conversations and zero investors. Yeah, right. That's brutal.   Kenny Rose (00:05:27) - It didn't feel great.   Sam Wilson (00:05:30) - I mean, was there ever like when you made your 100th call, was there ever just like, huh, like we're zero for 100? Or was it just like, shoot me? And the next call might be it?   Kenny Rose (00:05:39) - Oh, no, it was never an option. My mind it was. This just makes sense. And like, you know, I was talking to a type of investor we follow in the middle ground of things where like your classic investor's going to like, understand it but not have access to it and your venture investor is going to be like, well, this isn't like of, you know, your typical software as a service 100 x or bus like most of them are just like, it's just makes sense. Like it's just a sensible business.   Kenny Rose (00:06:04) - And I'm like, Thank you. Would you write a check for it? Right. Yeah.   Sam Wilson (00:06:08) - I still need your money, by the way. Yeah. So? So I mean, we could spend, I think, the rest of this show really talking about your mindset, your commitment, and really how you figured you having what it takes and knowing what you have. It takes and persevering. I think that's part of your story that don't I just don't want to overlook because you've done most people would give up, myself included, probably by the least, if not the hundred, the second hundred, the 200 column. I'd be like, okay, 200 calls and nobody wants this. I got to change my strategy. But you knew you were on to something. You went and you did it. Let's talk about the business itself, because I know this is what you kind of came on the show, was to talk about not just the opportunity, but how it actually functions. So you have multiple needs in this.   Sam Wilson (00:06:53) - Obviously, you need investors to buy shares of franchises, but then you also need to have franchise owners, franchisees, franchisees that need funding. Yep. So tying all of those together I think would be an interesting part of what you do. How does all that work?   Kenny Rose (00:07:09) - Yeah, so really, like at the end of the day, we're a marketplace. We're connecting investors, looking for investments to franchisees seeking capital. Yeah, you know, franchisees. It's very tough to raise capital later on, like when you're going for your very first franchise or your first three, you do all at once. You get an SBA backbone. And then basically when you're like, Hey, I've built this foundation, I want to scale to 5 or 10 bank looks at you like you bought a house and they're like, Oh, we still have debt on these other properties. You know, like you got to pay that, you know, your debt ratio is too high. But like when you look at them as a franchisee, you're like, you did the hardest part.   Kenny Rose (00:07:47) - Like you scaled franchises, like you've got that foundation now to go do more. And so like the bank process is long, it's complicated, it's expensive. And then typically this is where you see like private equity hopping in. But private equity doesn't like to move unless they can invest at least 30 million bucks, but usually like 50 million plus. And so you leave out 99.5% of the market probably that are good franchisees looking to expand and just don't have access to capital. And so then you have the same thing for investors where they are looking for investments that can diversify their portfolio. They're not correlated to the stock market. They're looking to earn passive income. And really like the main way you do this in the past is real estate. But, you know, I'm sure everyone's fighting over deals right now and you get a lot of institutional capital that's competing. And so you got to look for other avenues of where you get those passive income streams. And so that's where investors have really been flocking to because they just see it as like, Oh, that makes sense.   Kenny Rose (00:08:45) - And it fits my needs, right?   Sam Wilson (00:08:47) - How do you find the franchisees? Yeah, how do you vet them before they go on the platform?   Kenny Rose (00:08:54) - Yeah. So it was really interesting like getting this started versus what we do in the future because getting started, because my background was in the brokerage space, people would ask me all the time like, Hey, do you have a resale available? And I'd say, like, honestly, if it hits my desk, you probably don't want it. All right. Oh, why? Like, well, if you own a successful franchise when as soon as you want to sell it, you will have a friend, a family member, another franchisee. Someone's going to want to buy that. A lot of people passed on it before it hits the open market, including the franchise owners. Usually going to say like, Hey, x franchisee in the area, would you like to buy this store, too? And so, you know, because of that, I knew no good deals would come straight into us.   Kenny Rose (00:09:33) - You have to be known for it in the space. So we went and built our own portfolio to start like new locations, partnering with some existing franchisees as well as like installing our own management. And then when it came to, you know, what happens after now we've had over 200 million in deal flow come our way because they hear about us more. You know, again, I knew this was a need in the market. So it's a small world in franchising. So we've gotten everything from like your solo operator, three, five locations all the way to your ones that have hundreds. I think the largest we have is like 600 locations under their belt.   Sam Wilson (00:10:08) - So you've got somebody that has 600 locations and still has or still sees not that they don't wouldn't see value in it, but they are at a place even yet at 600 locations where they say, look, friend shares make sense for them in their scaling model.   Kenny Rose (00:10:23) - Yeah, because the thing is they're still typically looking at private equity for those type of investments or they've worked with a lot of family offices.   Kenny Rose (00:10:30) - And you know, a lot of those operators that are thinking more long term, we make more sense to them because we like to be long term investors. It's not really the private equity 3 to 5 years in flip model. It's no, we're going to partner with you and be with you long term because we have a trading platform. So investors will be able to, you know, liquidate in and out if they need to. We don't suggest it because, again, franchising is a long term investment. You're not going to make as much. But the other thing, too, is that like some of them already caught on to some of this long term appeal for our model is that it's not just the ability to bring capital to franchises, but it's to bring that like network effect to it. You know, like you're in Memphis when we have franchises that are out there, we're going to prioritize investors in Memphis, because if there's somewhere in your area that you own a piece of, that's where you can get your oil changed or go work out or go eat, you're going to go there.   Kenny Rose (00:11:20) - Instead, know if we open a Bojangles there, you're never going to KFC instead because you invested in that Bojangles and you're going to tell all of your friends to go there too. So it's kind of like the Reddit versus Wall Street effect, but on the local level.   Sam Wilson (00:11:32) - I love that. I love that. Yeah, you're absolutely right. You're absolutely right. I will go to the places that I have investments in. Yeah. Much more frequently than I would otherwise. That's a that's a good point. Love that. I love that. How does how does the mechanics of it work? Okay, so you invest. Do I invest in a particular store? Am I investing in just the fund as a whole? What is that? What does that look like?   Kenny Rose (00:11:57) - So again, there's the difference between short term and long term. You know, short term, I know that most people don't have any exposure to franchise ownership. So we like to do diversified portfolios, diversified ideally by industry and by brand, by geography.   Kenny Rose (00:12:10) - So it's kind of like a mutual fund of franchises. You know, in the future we'll be doing brand specific ones so you can invest in like, Hey, we're going to do all these F45 fitness and I'd like to fund a bunch of those ones and be diversified. And then eventually you'll have things like industry verticals, the Health and Wellness Fund, and eventually I want it to be you can invest in the individual locations like my dream when I know we've done it is you're going to walk into a Jimmy John's and scan a QR code and be able to buy a piece of it.   Sam Wilson (00:12:41) - That's cool. That would be. That would be awesome. And and what a what a great way. I mean, this we're seeing this actually happened. Oh, gosh. Had somebody come on the show here maybe two months ago and we're seeing it happen in the apartment space. Yeah, the family space where it's like the tenants are then offered an opportunity to buy a share of the apartment complex that they live in.   Sam Wilson (00:13:01) - Yep. And it's and, and even if it comes out of rent every month but it's, I forget what the name of the platform is, I have to go back to my own podcast and review the, the, the guest that came on. But it's pretty cool. Yeah. I mean, how neat would that be to be checking in at Jimmy John's and be like, okay, yeah, love the gargantuan. So you know I'll spend 12 bucks on a gargantuan and oh hey can buy a share this for whatever 100 bucks. Sure why not It's.   Kenny Rose (00:13:24) - It's making your own money back. It's like the cash back but ownership style, right?   Sam Wilson (00:13:28) - Oh, that's cool. What regulation does this go under? Is this under crowdfunding? Is this like what? How does this work? Yeah.   Kenny Rose (00:13:34) - So regulation, crowdfunding, we also do regulation A plus. So it depends on what type of investors we're working with, whether we're doing accredited only accredited, non accredited and a few other things. But yeah, it all falls under the Jobs Act, which is Jumpstart Our Businesses Act, which includes the regulation, crowdfunding and a few others.   Sam Wilson (00:13:53) - Got it. Okay, cool. So let's see what we've covered so far. You've told me a little bit about how the fund functions, about how we can buy shares inside of I guess I call it the fun. Am I using the wrong word there?   Kenny Rose (00:14:04) - Yeah, technically, portfolio portfolio.   Sam Wilson (00:14:06) - Okay. How the portfolio functions because you guys and let's let's go back to this then. I'm sorry. This is a pretty fun conversation for me, so I'm probably jumping all over the place. But you said you went out initially and launched your own stores because then you wanted to to bring those into the portfolio for them people to buy shares of. What was that process like? How many did you launch? How long did that take? What were the weapons that you launched?   Kenny Rose (00:14:29) - So still in the process of it. But, you know, it was funny originally, like we were working with a like a restaurant management company for one part of it that was in the food side. And it turned out there's this huge demand from franchisees already to do exactly what I was talking about.   Kenny Rose (00:14:45) - And so you've got people who are operators that have done so well in their own franchise endeavors on the management side before, and then basically pooled all their money together, went all in on a location, amazing operators. But then you get stuck in this like, well, now I've got the foundation, like, how do I go get the money for the rest? And so there was a line of franchisees looking to partner with us on that brand. And then, you know, outside of that, we did one in the in the waste management space because it's just a ton of white space for it. And, you know, I knew the model really well. They'd expanded faster than any franchise I'd ever seen. And also I knew how it was managed and that it's typically a very low employee headcount. And, you know, a lot of franchisees, they don't really invest in the proper management. It's like, Oh, who can I get for the smaller amount? We prefer to invest in foundation.   Kenny Rose (00:15:34) - You know, it's like for franchise itself, I don't find the cheapest employees, I find the best. And so we did the same thing for like putting management teams in place where they are overly qualified, if anything, and can just build out a really great team. And then we could start rolling up more and more locations in the future.   Sam Wilson (00:15:49) - That's cool, man. I love it. You've got your hands in active business. You've got your hands in the franchising side of business. Now you've got your hands in owning fractional shares of franchises, which is really, really cool. But yet you've also had to build an entire platform that attracts 40,000 people to it that wanted to get on a wait list. That's a job in and of itself. How did you.   Kenny Rose (00:16:15) - Have a great team? You know, we all work really hard together on the where we're delivering our message, how we deliver it. And honestly, we like to go to where people are learning, you know, even just like here, people are learning about different opportunities.   Kenny Rose (00:16:27) - I'm never like a hard sell type person. It's like, Hey, if you're looking to get educated, get educated. And so think just that education first approach instead of sales approach really gets people interested. They're like, Oh, I've heard about franchising my whole life, but I actually don't know anything about how to own one. I've never heard about this way to do it. So yeah, go like. Podcasts, newsletters. We again, we're looking for where people are getting educated. And yeah, again, the markets really said that they like it and hence they've been signing up and coming along, which has been again dream come true. And I'm excited. I'm gonna have to get a bigger counter over here.   Sam Wilson (00:17:04) - Absolutely, man. Absolutely. That's really, really cool. I love that go to where people are getting educated. And I think one of the things I've said this for gosh, probably most of my business career, I see tremendous value. This is just a commentary free commentary. You can you can delete it if you want, but in franchising it makes so much sense.   Sam Wilson (00:17:24) - I've built several companies ground up and the amount of effort that goes into just that early startup of just getting all the way through procedures, manuals, processes, what we buy, where we buy it, who our suppliers are, when do they deliver, how we pay, what I mean, it's just like it just the list, the start up, the startup cognitive bandwidth is required to do. That is.   Kenny Rose (00:17:47) - Hard. Yeah. And you can't be good at all things. A lot of people. Hey, I've got a great business idea. That's part of it. Now you got to go build a business around it. And that's what I love about franchising is it helps you skip that first 5 or 10 years of figuring it out.   Sam Wilson (00:18:02) - Figuring it out. And not only not only that, but it also you skip that 5 or 10 years of just making some really stupid mistakes.   Kenny Rose (00:18:10) - Yeah.   Sam Wilson (00:18:11) - I mean, think that's the cool thing about franchising is it allows you to you have a scalable model already at your fingertips.   Sam Wilson (00:18:18) - Yeah. Because for most of us it's like, okay, well we're going to try to build this and then we got to build it such that we can replicate it.   Kenny Rose (00:18:25) - Yeah. And honestly, it's funny because if you can get your mind passed the F word, like you can build huge businesses here. Like if you look up the Flynn Restaurant group think they do 4 billion in sales annually and it's like bunch of Applebee's and some other brands in there and it's like you can scale it huge. You just need to follow the process. And I mean, it's not easy by any means, obviously, but there's a lot of opportunity there. People just overlook it.   Sam Wilson (00:18:50) - They do. They do. Yeah. And it's not it's yeah, it's not an f word in my book. I think it's, I think it's a really, really cool thing and I've never. I've never bought into a franchise particular, but but it's certainly something I've always looked at and admired and said, Man, that's that makes a heck of a lot of sense.   Sam Wilson (00:19:06) - So love really what you're doing in the space, when you look at this and you look at the platform you built. Are there other. Industries that you look at that you say, Hey, I can white label what we've done. Maybe it's your own in-house white label and kind of scale this into other things outside of franchising so you don't have to tell me, but I'm just wondering where the where the entrepreneur's mind wanders.   Kenny Rose (00:19:28) - You know, there are so many verticals within franchising that I'm not in a rush to go anywhere else. There's a lot of parts of this industry we can transform, and frankly, it's an industry that touches every other category you could imagine. So don't need to go anywhere else. I'm happy here.   Sam Wilson (00:19:45) - That's awesome. Kenny, I certainly appreciate it. Thank you for taking the time to come on the show today and talk about friend shares. As you well know, probably already you've built something really, really cool. Looking forward to see seeing where this goes. If our listeners want to get in touch with you or learn more about Fran shares, what is the best way to do that?   Kenny Rose (00:20:01) - You can check out our website at Franchisors or add me on LinkedIn.   Kenny Rose (00:20:05) - I'm always a big networker. They're easy to find me.   Sam Wilson (00:20:08) - Fantastic. And that's Fran shares Fran shares and that's Fran shares. Is that right? Yep. Perfect Fran shares. Com make sure we include that there in the show notes. Kenny thank you again for coming on today. I do appreciate.   Kenny Rose (00:20:19) - It. Thanks so much for having me Sam.   Sam Wilson (00:20:21) - 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.  

20m

Aug 03

Today’s guest is Jeff Love.   Jeff is a Partner at Gibbs Giden Locher Turner Senet & Wittbrodt, which has been named one of the Best Law Firms in the U.S. for construction law, construction litigation, and real estate law by U.S. News. Join Sam and Jeff in today’s episode.  -------------------------------------------------------------- Intro [00:00:00] Tenant Estoppel Certificates in Commercial Real Estate [00:05:14] Reviewing Leases and Ensuring Accuracy [00:06:53] Challenges with Obtaining Tenant Signatures [00:08:24] Tenant Estoppel Certificates [00:09:04] Common Pitfalls in Construction Contracts [00:11:45] Importance of Communication and Documentation in Construction [00:17:22] The importance of timing in real estate transactions [00:19:12] Adjusting timelines in real estate agreements [00:20:04] Closing [00:21:26] -------------------------------------------------------------- Connect with Jeff:  LinkedIn (personal) - https://www.linkedin.com/in/jeff-love-65a5951a/  LinkedIn (company) - https://www.linkedin.com/company/gibbs-giden-locher-turner-&-senet-llp/ Twitter - https://twitter.com/gibbsgiden Web: https://www.gibbsgiden.com/attorneys/jeffrey-b-love/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Jeff Love (00:00:00) - And really understanding what you're getting from your contractor because and there's pros and cons to all of them. You know, the cost plus contract, you know, typically tell investors and clients, look, basically the contractor is passing on the cost to you, plus their premium, which is their profit and which is nothing wrong with it at all. But you got to understand that there is no maximum price if prices increase, their costs increase. So to yours. So you need to make sure you understand that and work that into your budget and your business plan. 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. Jeff Love is a partner at Gibbs Garden, which has been named one of the best law firms in the US for construction law, construction litigation and real estate law by US News. Jeff, welcome to the show. Thanks for having me. Absolutely. The pleasure is mine.   Jeff Love (00:00:56) - Jeff 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? I started with building blocks when I was when I was a little dude, apparently. I've always liked real estate, wanted to get into real estate. Once college, UCLA thought, Hey, why not go to law school to learn about contracts? I could, you know, help me be a real estate developer. I went to law school, realized I actually like helping investors more than doing it myself, kind of like being behind the scenes, different clients, different stages. So instead of pivoting to be the real estate developer after a couple of years, which was my plan ten years later, I am a real estate transactional attorney dealing with corporate issues, securities issues and everything real estate from your mom and pop investor to your large national syndicator. Wow, That's a that's a lot to deal with. What's your favorite part about what you do? I like to think really helping investors.   Jeff Love (00:01:53) - You know, a lot of times they come to me. It's their first project. You know, they've listened to a podcast. They say, you know, I'm a successful doctor, but I want to invest in this ten unit multifamily building and helping them do it, avoiding the pitfalls and really seeing them grow, not just real estate, but, you know, other clients companies we have seeing them start, you know, ten years later what they've been able to achieve. That's really the cool thing for me. That's awesome. What are some of the what are some of the common things that people come to you with? And you say, all right, here's how to go back and get your ducks in a row before you come back to me. Are there are there some things that you see repeated over and over that you're helping these first time people kind of that are venturing into larger scale commercial projects that you can help us kind of short circuit some of that. Yeah, and it's common sense, but it's it's hard to know what you don't know.   Jeff Love (00:02:42) - Right? So the first thing I tell people is, you know, having your team in place, you've watched podcasts, you've you've read about it, you may be owning your home, but it's different when you get into kind of commercial real estate or investment real estate. And you really need to have a good insurance broker. You need to have an accountant that understands what you're doing, especially if you have investors and you're offering some type of preferred return. You need to have good real estate broker helping you find those deals. Oftentimes a good attorney that can help you make sure that you're protecting your other assets. So what I tell a lot of first time investors is make sure you have a good team around you so they can help you with the things that you don't know and you rely on your strengths. You rely on your advisors to help you, just like you would in any other facet of life. Yeah, absolutely. Absolutely. So you work on everything from, like you said, mom and pop large scale syndications.   Jeff Love (00:03:35) - You really love the kind of first timer and watching them, watching them grow through that process. What does it look like for you? You invest as well in real estate. So what's it like on the legal side? You know, as you look at investments that you're getting into reverse, to say a lot of the times when it's me personally, I don't read half the agreements. I'm like, Oh, it's just me. No one's really relying on me. So I'm like, just sign on the dotted line. But, you know, we invest in multifamily. It's something that, you know, I like that. I like a lot of different asset classes. But for me, that's one that my wife and I, you know, kind of we understand, you know, we're not having to do allowances or brokers and manage kind of commercial. Everyone needs somewhere to live and we invest locally. So I'm in Redondo Beach City, right. You know, about 30 minutes south of LAX in Los Angeles.   Jeff Love (00:04:24) - And we're reinvest in the city where we lived. We were renters. So we kind of know what things rent for, what we looked for. We can kind of manage it ourselves. I can lease, you know, show it, I can lease it. And what we did is really thought, you know, the buildings that we have are not as much for cash flow, which is really hard in Los Angeles, if not most of California, but appreciation. And we we've done it structured it in a way where we've kind of gifted our kids, you know, small interests every year. So eventually, you know, it gets it out of our estate for estate planning purposes. But it also helps them, you know, kind of get their feet wet. They're really little now, but as they grow, they'll they'll have little portions of these buildings, hopefully spur the bug with them and kind of save that for them or their retirement one day. Right? Oh, that's.   Sam Wilson(00:05:13) - Really, really cool.   Sam Wilson(00:05:14) - So I guess you probably never want to hear your attorney say you don't read all of it, but I bet you read. I bet you read the important parts. Are there things that you really focus in on when you do dig into the documents?   Jeff Love (00:05:26) - I do. So a lot of times there's certain things that I've seen a thousand times, you know? So those are the ones that I probably don't read. It probably should. But reading for clients, but myself, you know, I've seen them over and over again, but with multifamily in particular, you know, also retail. You could make the case for any tenant is really looking at a tenant estoppel certificate in the leases because a lot of times, especially with smaller buildings, you may have ideals. A landlord may have promised a tenant certain things, you know, they could stay there for another year, but it's not in the lease. And myself or client as an investor, I want to know exactly what I'm buying. So what a tenant estoppel certificate does is it makes the tenant basically confirm certain statements in the lease.   Jeff Love (00:06:12) - This is the rent, this is the term. There's no defaults. So that once I close, I buy the building. I know what I'm getting. The tenant can't come to me later and say, you know, sorry, you know, the old landlord said, I have a five year lease at a thousand bucks a month when it was supposed to be a one year lease for $10,000 a month. That's a big difference. The problem is I can always go after the seller, but then I'm stuck with that tenant and depending on what my investment plan is, I may have wanted to try to get the building vacant because it was a one year lease. That really protects me and just make sure I know exactly what I'm buying and I know that what is in the lease is actually the terms.   Sam Wilson(00:06:53) - Now, that that would, I would think, help me clarify this, but that would work on a maybe single tenant situation. Or is this something where you ask for a review of these leases before you ever close and actually look for those things and then put that tenant estoppel in place? Is that is that even word that correctly or am I missing something?   Jeff Love (00:07:13) - No, you did.   Jeff Love (00:07:14) - And it's it's it's more practical and, you know, kind of the more tenants you get because then you have all these different leases to review Terms may have changed. I could get it for a multifamily building, for a retail shopping center, industrial building. I really want I just want to know if the lease that I'm getting, which is a very important part of commercial real estate, you know, is accurate and there's no side deals.   Sam Wilson(00:07:38) - Right? And so you sign that estoppel certificate or the seller signs that estoppel certificate, is that right? Saying, hey, look, these are the terms and then you can come after me If we find out post closed that there are terms with other tenants that vary from what I've defined here.   Jeff Love (00:07:56) - Sometimes it's a seller. Even better is having the actual tenant sign it because if the tenant doesn't sign it, I have a claim against the seller because it's not accurate. But the tenant, if this was the deal, the tenants, you know their in their right to stay.   Jeff Love (00:08:12) - So I typically want the tenant to tell me that everything and this is accurate. If can't get that for whatever reason, then I'll have the seller sign it. But one of the two parties and that protects me as the buyer.   Sam Wilson(00:08:24) - So let's assume it's a 200 unit multifamily complex. How do you practically get the tenants to sign all of this if it's not? How do you how does that work? Like, how do you get that in writing from the tenants before you close?   Jeff Love (00:08:39) - Usually it's a requirement of the lease, but when you get to that scale, there are going to be some tenants you just can't track down. So when you get to 50, 100, 200 units, it may be a certain threshold seller is going to be required to get 75%, 80% of the tenants to sign the estoppel certificate for those that they can't get, the seller is going to sign the remaining, say, 20% because it's just not going to happen. If I have a 200 unit building, I'm just some tenants going to be gone.   Jeff Love (00:09:04) - I'm not going to track them down. I'm not going to blow the deal over that. But I want the majority of them to sign it. That's something that's usually negotiated as part of a purchase agreement when you get to that type of large, large scale. But most multifamily leases, most leases in general, I should say, have a requirement that a tenant is going to sign an estoppel certificate. Because a lot of times if you're getting commercial debt, the lender is going to want to see it as well. Got it.   Sam Wilson(00:09:30) - Got it. Okay. That's that's really, really interesting. So there should be already an agreement in place in the lease that the tenant says, hey, look, if I need to sign this certificate, I will when that time comes. Or is it signed? Typically when they sign the lease.   Jeff Love (00:09:46) - It is signed. When that time comes, usually they have ten days to do it and you'll be doing that. Seller will usually do that during the process and that'll be one of the last items of due diligence.   Sam Wilson(00:09:56) - How often do you feel like this important step is skipped?   Jeff Love (00:10:01) - A lot, especially with smaller buildings and, you know, smaller, you know, maybe you talk to the tenant, you know, but you just, you know, you never know. And that's the problem, especially depending on what you're doing with the property. You know, if you're buying it for, you know, long term investment, maybe it's not as big of a deal. But if your strategy is, you know, I'm going to buy it, I'm going to, you know, rehab it tenant might leave, you know, rent it for a higher amount, then it's a big problem. If that one tenant's, you know, in there for five years and you didn't know about that. So I think it is overlooked but it is an important aspect of do your due diligence process for any real estate acquisition, along with, you know, environmental and tidal issues that we should be looking at as well.   Sam Wilson(00:10:44) - Yeah, absolutely.   Sam Wilson(00:10:45) - No, that's a great that's a great nugget. And these are things that when you look at a deal as a passive investor, you say, hey, I want to I want to find out, you know, do we have these estoppel certificates? I think if I'm using the right terminology here, do we have those signed?   Jeff Love (00:11:01) - You are. And yes, yes, you should.   Sam Wilson(00:11:03) - Okay, That's cool. Wow. I have I learned something new here today as a passive investor myself in multiple multifamily deals. I can't say I've ever asked that question. So there we go. Tip pro tip from Jeff Love here today. For those of you who are listening, that's that's awesome. Thank you for sharing really the inside scoop on that and what some of the things are that you look for. Let's talk a little bit about construction. I know there in your bio we mentioned the word construction. You guys handle a lot of things on the construction side of it. When I say that and you talk about commercial real estate construction, give us kind of some inside scoops on what it is you're looking for there, how you help clients out, common pitfalls, all of those things.   Jeff Love (00:11:45) - Starting from the beginning. I think it's, you know, a lot of times, you know, maybe we do residential construction on our own home. But when you start investing and you have larger deals, the construction becomes kind of a different animal, so to speak. The first thing, you know, a lot of clients come to me and they don't understand is the different types of construction contracts that are just out there and what's the difference between a cost plus versus a guaranteed maximum price called sometimes you hear it called a gap and really understanding what you're getting from your contractor because and there's pros and cons to all of them. You know, the cost plus contract, you know, typically tell investors and clients, look, basically the contractor is passing on the cost to you, plus their premium, which is their profit and which is nothing wrong with it at all. But you got to understand that there is no maximum price if prices increase, their costs increase. So to yours. So you need to make sure you understand that and work that into your budget and your business plan, especially lately with inflation and rising costs.   Jeff Love (00:12:46) - Really something to think about. And on the other side, I'll tell clients, well, yes, you could have a gap, which is it's my fixed price, but if the contractor has a fixed price, are they going to be cutting corners because they can get things cheaper? Is it the quality that you want and you expect or is it a different type of materials that they're using that you weren't expecting? So the first most important and probably most important thing is just to understand the relationship with the contractor, what you're getting from them, how they're billing it and how that's documented in a contract so that there are no surprises later on.   Sam Wilson(00:13:23) - Yeah, I would imagine. I would imagine so. Yeah, there are. I mean, I've been a been a contractor and have contracted a lot in my life. And you're right, there's there's costs or there's benefits to both. I think the cost plus one, like you said, there's no maximum price. And it's and it's in its own right. I like it.   Sam Wilson(00:13:41) - But it's also. You're basically giving your contractor a blank check. All right. Right. Hey, man, you know what and where? Ordinarily, if there's a maxed or a max price in the deal where they say, okay, you know what, maybe we don't have to order an extra, you know, truckload of whatever it is, OSB or whatever the project is. I'm just dreaming out loud here. But whereas if it's like, hey, it's cost plus it's like, yeah, sure, we'll take an extra semi load of OSB because maybe we'll need it when we're doing roofing repairs or whatever it is we're up against and oh well, just tack it on and there goes an extra 20 grand. No big deal. Right. So it's it's, it's a, it's a catch, a catch 22 there. On which way is the absolute right way to do it. What are some common not maybe the disputes isn't the wrong word but common uh things you see people getting wrong in that contract side of things that could have been worked out ahead of time.   Jeff Love (00:14:35) - I don't know that would say getting wrong. A lot of times we'll use, you know, form as American Institute of Architects that are kind of common forms out in California and are pre-printed, but just not understanding the contract. You know, one of the big ones that we get, you know, defaults and kind of disputes over are termination clauses because timing is a huge issue. You know, I've got investors or even for myself, you know, I'm losing rent because I'm waiting for this to be done. And the contractor, for whatever reason, not not putting on the contractor, but they're delays. That could be the you know, the contractor is understaffed or can't get the subs out there. It could be materials. They're not coming in. But as the owner, you know, I may not be fully informed and just. I don't understand what's taking so long. So making sure you understand that. And if it doesn't work out, what does the termination section look like? I had a client, you know, a couple of weeks ago that was entering into, you know, rather small contract.   Jeff Love (00:15:35) - But, you know, for what it was, it was, you know, maybe, you know, a couple million dollars, but it was for a single family residence. And what this contract had is it had a fixed fee. It was cost plus. But the contractor basically had a fixed fee in there of $200,000 that no matter when I terminated the deal, if for any reason, no reason, he got that $200,000. So to me and to the client, he had no idea that was in there and said, Well, you know what? If I just want to, you know, stop and flip the property, I've got a lot of interest. I said, If you sign this tomorrow, you owe your contractor $200,000, right? So making sure, you know, is there something like that in there or is it more common where if I terminate, I'll pay my contractor everything I owe him to date? You know, maybe there's some lost profit, but I'm not on the hook for the whole thing and that I understand that because those delays do lead a lot of times to default and desires to terminate.   Jeff Love (00:16:33) - And that's where we see a lot of disputes between both sides.   Sam Wilson(00:16:37) - Yeah, I can only imagine. And again, coming at it from I mean, I've been on both sides of the equation, both the the contractor doing the work in a previous life and then also the one now as the as the contractor or the general contractor, if you will, or the property owner, rather, that is, you know, contracting this this work out. And you do run into delays, be it. My problem, be it their problem, be it other subs, be it weather, be it all these things. And I think I think what I'm hearing you say and tell me if I'm wrong, but is that it's just imperative to have a clear line of communication where you guys are talking back and forth saying, hey, this is why we're slowing down. This is why it's taking more time. There is. And do you recommend if that conversation does happen, is it important to get those things in writing?   Jeff Love (00:17:22) - Absolutely.   Jeff Love (00:17:23) - And that's probably, if not the most biggest takeaway. You know, those listeners can communicate in every single deal because most of the problems that we have, you know, when it gets to litigation and I'll bring one of my partners say, hey, this dispute, I can't handle it now. It's not transactional. It's litigation because you can communicate whether you're contractor, you're investors, you know, whatever party it is, they didn't know what was going on, so you left them with no choice. So to your construction contract is communicate. And if there is something that changes or documenting it, you know, put it in an email, have the conversation, you know, a phone call and then follow up with an email, just, you know, confirming what we talked about. So you have that paper trail if it ever becomes an issue. And hopefully it wasn't, because now you guys you talked through it. You everyone is aware of what's going on and no one's left in the dark.   Sam Wilson(00:18:14) - Yeah, absolutely.   Sam Wilson(00:18:16) - Absolutely. Cool. We've talked about a lot of really great stuff here so far. We've talked about the Estoppel certificates and what you look for in opportunities. We've talked about construction and just kind of some things we should be looking for and how to how to avoid the common problems that happen on large scale commercial projects. Is there anything else that comes to mind, I guess, from the legal side of things that you think about that you say, man, here's here's the way the world is changing or stuff that you are making sure are now in deal decks or or pens maybe that weren't there a year ago. Anything any new updates on that front?   Jeff Love (00:18:50) - It's a timing is a big one. I think the last couple of years when things really slowed down have showed us, you know, things take longer. A lot of times now with clients, purchase agreements, leases, we're kind of building in extra kind of contingency periods, so to speak, because I can't get someone I can't get my inspector out there.   Jeff Love (00:19:12) - He's taking longer. I've had a number of clients kind of run up against hard deadlines where they're, you know, in a purchase agreement, they're forced to waive contingencies and risk their money being non-refundable, but they haven't been able to get everything done. And seller or buyer aren't cooperative. So we're really just kind of thinking that things from a 10,000 foot level and saying, can I get this done in this time period? Can I raise money from investors? Can I get my lender to respond? Can I get my property inspector out there? And if not, you know, working in can have a 30 day extension, even if I have to pay for it to make sure that that doesn't affect my deal. And that really goes across the real estate spectrum is making sure that you have adequate timing for what you need. Things are moving slower. Make sure that you're going to be prepared for that.   Sam Wilson(00:19:58) - I think that's a great word. It's funny you say that because even yesterday we're sending out some LOI.   Sam Wilson(00:20:04) - We kind of had a verbal agreements on things and we were changing the timelines. It was just like before it was, you know, 30 days and maybe it was 15 days, 30 days to close. And now it's, you know what we're doing 30 and 30 with a 15 day extension on the due diligence period, due diligence period, because all of the above things you just mentioned. And so it was funny just having that conversation yesterday afternoon, just slowing things down, saying, you know what, we're going to we're going to need more time for all of the aforementioned reasons. So thanks. Thanks for pointing that out because that is something that probably even six months ago I wouldn't have thought was really going to be an issue. But now it is. It's just it's just taking everybody surveyors, you name it. I mean, oh, sorry. We're four weeks out. We'll shoot. We're under. I mean, what do you do? You just you got to just, you know, get in line and wait.   Sam Wilson(00:20:51) - So. That's right. That's the way it goes. Well, Jeff, thank you for taking the time to come on the show here today. Certainly learned a lot from you. A lot of great homes here for us to practically employ. So I 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?   Jeff Love (00:21:06) - Check out our website. It's Gibbs Gedcom or feel free to email me J. Love at Gibbs Gate and always happy to answer real estate questions.   Sam Wilson(00:21:15) - Fantastic. And for those of you who are listening, Gibbs is Gibbs getting giddy in? So Gibbs giving Jeff, thank you again for coming on today. I do appreciate it.   Jeff Love (00:21:26) - Thank you.   Sam Wilson(00:21:26) - 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.   Sam Wilson(00:21:43) - 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.  

21m

Aug 02

Today’s Guest is Mike Branam.   Mike is Director of Multifamily Sales at PointCentral and has nearly 20 years of experience in real estate technology, Mike has been a part of several successful prop-tech start ups serving the multifamily industry. Join Sam and Mike in today’s episode. -------------------------------------------------------------- Intro [00:00:00] Mike Branum's Background and Experience [00:01:02] Evolution of Smart Home Technology [00:02:52] The benefits of smart property technology [00:09:24] Future-proofing smart property technology [00:10:19] User experience and customization of smart property technology [00:12:08] Saving on insurance with technology [00:18:52] Benefits of smart thermostats [00:19:51] Closing [00:20:39] -------------------------------------------------------------- Connect with Mike: Linkedin: https://www.linkedin.com/in/mikebranam/ Web: https://www.pointcentral.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Speaker 1 (00:00:00) - I spent a little bit of time in Arizona. So, you know, if it's 115 degrees outside and the outgoing resident has their air conditioning, it's 62 degrees and they're not in that unit for another 90 days. The property is on the hook for, you know, pretty decent chunk of change utility wise. You extract that over a portfolio of 10,000 units. You're talking about significant costs. Yeah, smart property technology solves that, right? So when we start to integrate with property management softwares, so when a resident moves out and the thermostat automatically gets reset, the door automatically locks. Now, maintenance can better serve other aspects of the building to fix that dishwasher that broke yesterday. Right. And and increase service levels and customer or resident service satisfaction. 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. Mike Branum is the director of multifamily sales at Point Central, and he has nearly 20 years of experience in real estate technology.   Speaker 1 (00:01:02) - He's also been a part of several successful prop tech startups serving the multifamily industry. Mike, welcome to the show. Hey, thanks for having me, Sam. Good to be on. Absolutely. Mike 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? Where did I start? I started about 20 years ago in real estate technology at the time, really working on startups and had partnered up with a couple folks that had been on the ground floor at Google and they served as mentors for me in understanding property marketing and the rental space and search technology and pioneered that into a company called Rent Pits, which grew into a company called Remotely, which from my perspective, I believe it was the first smart apartment solution to offer smart home technology to the multifamily space. So I've spent the better part of the last dozen years specifically in that space and now leading the central sales and strategy team that does smart property technology.   Speaker 1 (00:01:59) - So still coming from where I came from and to what I'm doing now and have done so for the past five years. What what is different about what you're doing now than what you've previously done? You know, the technology has come a long way. You know, when I sort of look at Smart Home and put it in a similar bucket is like the flat screen television. 15 years ago, it was like only your wealthy friends down the street had a flat screen, right? Now everyone has one, right? So the cost came down, production ramped up. And of course, you know, it's just sort of like the standard models now. Now there's different types of models, but sort of everyone has one. Smart home is very similar. It's kind of been on that path where, you know, first the technology needed to prove itself. Once it did that, the cost to to sort of enter Smart Home, whether it was your house in my house, was getting the thermostat or getting a smart lock that's really grown into smart home is defined much differently now.   Speaker 1 (00:02:52) - And in fact, I look at it as smart properties specifically for rentals, that it's not just the the end user is the benefactor of that. When I say end user, it's not just the person holding the phone controlling the thermostat. Now it's the it's the building that benefits from that. It's the it's the owner operator of the asset. It's the people who work in the building and live in the building. They all benefit from smart property technology because it's it's mitigating risk. It's making life more customized. It's it's automating certain tasks so staff can do different things, more impactful things. So it's come a long way and it's come a long way fast over the last several years. It really has. I'm thinking back, gosh, to like in the late 90s, early 2000, they started talking about the smart home, you know, and they would send these drawings, these graphics of like, you know, you see all these wires running everywhere and where we're going to take smart homes. And it was just like, okay, this is ridiculous.   Speaker 1 (00:03:46) - Like, you know, they were they were designing whole neighborhoods that were going to be smart neighborhoods. Do you recall that? I do. I do. I go back to like The Jetsons. Right? Like we're all supposed to be flying to work at this point, aren't we? Right. So I think that was like the vision of like everything is sort of automated and everything is super high tech and future proofed. And I think the reality or the evolution of the technology has been, hey, how does it make my life better, easier, more comfortable, more secure? And I think that's where that adoption is coming. I remember years ago people would say, well, if I can't get up and turn off a light switch, then this isn't, you know, I'm not that lazy. It's not turning off light switches. You know, really what it is, is making sure my door's locked when I leave for a trip. It's making sure that if if there's a flood in my space, that that water is turned off automatically.   Speaker 1 (00:04:32) - So don't come back to a $50,000 bill and clear out my basement. Right. So the technology is really just benefiting the real estate space in that way. Now, maybe we'll fly to work one of these days, but not yet. Right, Right. Yeah. I mean, hey, they're working on those vertical takeoff and landing quadcopters and all that stuff. You seen those. Those electric vtol things that. I don't know. I read a lot of flying magazines, and it's always the. It's. It's still in the future. I mean, they keep talking about it, but it's not here yet. But I think that's interesting how how that kind of has played out where you're right. It's not it's not that we're too lazy to get up and turn off a light switch. It's that we maybe want lights to come on at various times when we're out, when we're out of town or we're on vacation or things like that. But then also just the health of the building, even even just from technology.   Speaker 1 (00:05:18) - One of those thought that came to me is my pickup truck. My truck notifies me if I leave it unlocked, Right? I walk to my office and all of a sudden just, you know, get a notification on my phone like, hey, hey, you left your truck unlocked like nobody's in it. You're like, Oh, right, I'm an idiot. I can lock it from my phone, which is kind of wild how some of those things. And oftentimes I live in Memphis, which I always want my truck locked. So those are helpful things. But let's talk then, how this really ties in, though, to multifamily. I mean, a lot of this adoption, a lot of this technology, there's there's a lot of different moving pieces in this space, like aggregating that into a central platform that is meaningful both to the tenant and the landlord is a task. How have you guys done that? You know, several ways. It's a really good question. There's a couple base components to it that that had had and have impact.   Speaker 1 (00:06:10) - Every building has some form of access control solution. Every resident unit has a lock in a thermostat. So taking that and sort of leveling up to the to to the new modern world of, okay, the residents shouldn't have to have a separate access control solution versus a separate app for their smart lock for the door and then a separate app to control the thermostat. Nor should the building and the staff have to sort of figure out all these different technologies that are sort of weaving around the building, which now now what you have is it's harder for them, right? So technology, which is supposed to be easy, is would make life harder. So we've unified that into a single solution. And what that's doing is really interesting, right? So, you know, when a property turns over, you know, what maintenance typically has to do is go up and lock the door, make sure the thermostat is set to a set point that's more energy efficient. I spent a little bit of time in Arizona, so, you know, if it's 115 degrees outside and the outgoing resident has their air conditioning at 62 degrees and they're not in that unit for another 90 days, the property is on the hook for, you know, pretty decent chunk of change utility wise.   Speaker 1 (00:07:21) - So you extract that over a portfolio of 10,000 units. You're talking about significant costs. Yeah, Smart property technology solves that, right? So when we start to integrate with property management softwares, so when a resident moves out and the thermostat automatically gets reset, the door automatically locks. Now maintenance can better serve other aspects of the building to fix that dishwasher that broke yesterday. Right. And and increase service levels and customer or resident service satisfaction. So that has impact on the entire building because it increases renewal rates, improves resident satisfaction and reduces costs. And what's happening right now is we're in this sort of uncertain time economically where the last seven, eight years in multifamily has been pretty good. So rent growth has been steady and even sort of outpaced forecast. That's really not the case right now. So operators of buildings are looking for ways to, hey, let's improve customer satisfaction with our residents and increase renewals. But how do we also improve our bottom line? And it's really becoming, you know, centralization, task automation and operational efficiencies.   Speaker 1 (00:08:26) - And so technology enables all of those things. One more example, and it's probably sort of a tired one, but but Covid sort of forced a lot of different things on all of us. And one of the the early signals in multifamily was, hey, my staff may not be able to actually go to work, but we still have people that whose leases are up and they have to move somewhere. How do we show the model and self-guided tours is is really sort of kicked down the door, no pun intended, and forced a new way of showing properties upon the multifamily space that the single family space had figured out several years ago. And this was more by force. But now that everyone sort of back on site, they said, you know what, like this model kind of works, right? Like, let's let's expand the hours of operation of the model, let people go see it. You know, usually they want to see it at 7:30 a.m. before they go to work. At least the engine isn't there yet.   Speaker 1 (00:09:24) - So it's getting more eyeballs inside the building and on the property, which improves the number of leases that actually come to the building while the staff goes to work on something else. Right. So those are been sort of great enablers for this type of technology. Yeah, absolutely. And it goes back to I mean, every everybody's goal, which is the highest and best use of my time, like what is the highest and best? And it gets a question we're always asking, you know, as business owners like what what's what's the best thing right now for the business for me to be doing? Not necessarily, you know, should I be doing that? Should I be doing at no, I should be working on growth strategy and other things that are really meaningful to what we're doing. So it's kind of the same idea just when it comes to staff on hand. And that, of course then improves. The bottom line is there would have been maybe some challenges in I know you mentioned integrating with property management software would have been some challenge maybe you guys have found in getting this deployed.   Speaker 1 (00:10:19) - And then on top of that, is there any fear once you go through investing in all of this, of obsolescence in the near future? Good question. You know, we get a lot of those questions about future proofing. How do I know that this won't be obsolete tomorrow? The good news about the smart property technology is a lot of the updates are OTA updates. You know what we're not looking to to build a different lock. We're not looking to change the way thermostats actually work. At the end of the day, the thermostat is to, you know, control a set point at a certain time and a door is to lock and unlock. So from a future proofing standpoint, there might be some aesthetic changes to the way. From the stats look in locks, but the function is the same. How do you make those functions smarter, more customizable, more programmable, and to ensure that it's secure. So. So those are things that help with future proof. All the software updates are done at two in the morning when everyone's asleep.   Speaker 1 (00:11:15) - Right? So, so that's the way we get we get through the future proofing component to this. What's good is that everyone sort of recognizes, okay, I've got to get rid of my, for lack of a better term, dumb lock and dumb thermostat. It's now picking the provider. And because there's been so much movement in tech over the last several years, what we've seen is groups are looking to find providers that are future proofed and that will be around tomorrow because there's been a lot of of capital that's gone into startups that may not have had success in profitability. So now they're looking for more stability in their partners right now that that makes a lot of sense. Let's let's rewind here for one one quick second. You mentioned an OTA update. I don't know the acronym. What is that over-the-air? So it's all done over the air. Got it. Got it. Okay, cool. Learned something new here today. Let's talk then about the difference between what you what the landlord sees and maybe then what the tenants see.   Speaker 1 (00:12:08) - How easy is that? I'm going to call it digital keys Assigning. Okay. Mike, you moved into unit ten. Like, here's your access to your thermostat. Here's your access to your I mean, I'm assuming you guys are even doing door locks on the units where it's like, hey, this is, you know, you can open the door with your smartphone. I'm guessing that's that's the capabilities you're working with now. But tell me if I'm wrong. How are you guys managing that between the tenants, between the landlord software, all those integrations? Like, what does that look like from a user perspective? Yeah, a great question, Sam. So when a resident moves in because you know the technology is tied in with property management software, think, think Yardi, think RealPage and Trotta, you know, those types of sort of primary, the foundational property management software solutions when that resident moves in property staff is is very well trained to just enter that capture that resident data moving them in on the appropriate date.   Speaker 1 (00:13:01) - When that happens, they automatically receive email and or text that just says welcome to your smart home and it drops them off to the application. And once the app is downloaded in 30s, they have a smart apartment. So all of those controls are on their phone. Of course, they can still use them physically at the door, at the device should they so choose. But now they have that customization option of I think I forgot to lock the door, I'm at the airport. Let me make sure that happened or I'm in Colorado now. So we have very drastic weather changes. It's not uncommon for it to go from 85 to 25, right? So thermostat controls are really important when you're away so you don't have a catastrophic, catastrophic event. So all that can be done for the resident within 30 to 60s and it's done automatically once the property staff moves them into the property management software. So that's great. The on site staff for them. It's really interesting, right? Because, you know, depending on where where they're working, what building they're working in, there might be a lot of technology or a little technology.   Speaker 1 (00:14:01) - So sometimes there's sort of this fear component. There could be this wall that says, okay, well, what are you putting in my building here? You know, what is this going to do? And it's just going to take my job away. No, it's not. It's actually going to be a job aid for you. So, you know, I went back to that maintenance reference before. You know, maintenance used to be a very reactive role where something breaks and we go fix it. Right now, it's it's not only proactive, it's even preventative. We can provide notifications when an Hvac system starts to operate inefficiently. So it's a nice it's a nice heads up, right when maintenance starts to learn about those types of things that come to their building, we almost see their shoulders go down like, Wait a minute, so I'm not going to get like somebody calling and yelling because the thermostat broke. Like I can actually get a heads up and say, Hey, let me just take a preventative measure here.   Speaker 1 (00:14:48) - Something's not operating efficiently and this could save you a few dollars on your energy bill. Otherwise what happens? It breaks down and they run that bill down to the front office and say, hey, I'm not paying this because your thing broke. Right. So the adoption, I think, is where you might have been going with that. Like the adoption for residents and staff is phenomenal just because it's it's a low barrier technology and it's customized technology, but it's very convenient for the operator or or the staff member or the resident. Absolutely. Absolutely. I'm thinking about some commercial spaces we have, and it's intriguing just to get those notifications again, going back to my truck, that tells me I'm a truck's unlocked, I get notifications. It's like, Hey, your AC, I got one. The other day it said, Hey, your AC's, you know, it's such and such locations have been running for, you know, four hours and the temperature has risen by three degrees. And you're like, Well, that is something wrong? Like, why? Why is that happening? And so I think that's that's really, really cool just to see how how that works.   Speaker 1 (00:15:44) - Well, let me ask you this, Mike. Just from a cost benefit analysis standpoint, what can you can you give us some, you know, just high level case studies on how this works out? And then maybe on the back side of that, tell us the types of properties inside a multi. Like what the ideal candidate is. Candidate is for what you guys do. Sure. So from from a return standpoint, you know. There's a lot of different sort of pockets to this where the the the operator sees return. One is rent growth and retention. There's that element to it. Vacant unit savings, there's that benefit to it, unifying technology. So they're not paying different providers for 3 or 4 different services when it can all be bundled into one, so to speak. You know, a big one that's kind of obvious is water. You know, I haven't met a property manager yet that doesn't have sort of this nightmarish story about water. You know, it leaks from the 15th floor and then everything from the 14th on down, you know, tends to get ruined.   Speaker 1 (00:16:44) - And one that was near and dear to me that was crushing, you know, having been an old baseball card collector as a $3 million baseball card collection was destroyed in a water event in a multifamily property. And you can't get those back, right? So that becomes the I think the average water event was 50, $60,000. Well, this was this was $1 million plus, you know, a water event. And they're absolutely preventable. So, you know, when you look at the return on things like that, every property manager will say, if I can solve water, you know, then, yeah, it'll save us money. But it also really impact our resident experience because the person whose card collection was ruined isn't renewing, right? So, you know, those are the types of things that we'll see on the renewal standpoint. We've got a wonderful ROI calculator that we put in front of our prospects just to point to all the different return points that exist with this type of technology. Um, second part of that question is what types of buildings does this make the most sense in? What's kind of funny is, you know, the initial thought is, oh, this makes a lot of sense for maybe a class or luxury class only.   Speaker 1 (00:17:50) - But we've had incredible adoption on class, you know, you know, not trying to go from a B to an A, but saying, look, we're going to be the best B on the block, and that will help our rent and that'll help attract more residents. And that, you know, that capital investment for technology is significantly less than some of the cosmetic improvements that might have to come with ripping out flooring and countertops and appliances and things of that nature. You'd be even surprised. You'd be surprised, like even workforce housing that operates on really thin margins, you know, some might say, well, that's a candidate they probably wouldn't want to adopt. And they're coming to us saying, actually, we do because we operate on thinner margins. For us, 15% savings on vacant units is much more meaningful, right, than it might be for an A-class property. Um, so those are a couple examples. They're built to rent, which is emerging vertical right now is all over this. Just because the single family home environment has adopted this technology very quickly and build to rent is still a single family home.   Speaker 1 (00:18:52) - But we look at it as like a multifamily that's just not horizontal, right? Um, so there really isn't a property type that's totally off the table because there's different types of benefit for every asset class. Got it. That's really, really cool. Are there? Are there ways of saving on insurance when you employ this technology? I mean, our underwriters giving discounts because, hey, look, you know, we've got an entire point central system set up at our property. You see anything like that? You know, we're hearing about that. We don't have the relationships with the providers. And ultimately it's the operator that's paying the premiums. But we're starting to hear that, hey, I can I can save X percent if I have this system in place. We're even hearing that, hey, my local utility will actually give us a credit or a rebate on the thermostats by by purchasing the hardware because they know that that that can help on the utility, you know, in saving with the grid and sort of dialing certain set points at certain hours.   Speaker 1 (00:19:51) - So there are incentives out there on hardware. There's certainly the insurance market is emerging with this type of technology, right? No, that's really, really cool. Yeah. I'm even thinking about the thermostats in our own in our own house that I mean, it's just amazing how far this has come where they will program based upon peak usage timing in the rest of the city and say okay, well if peak usage is at 7 a.m., we're going to set yours to start at 530 and get the house cool by 630. And then, you know, we're off peak usage. So, I mean, it's just it's amazing all the different ways. And I think it'll be fun just to see how this industry continues to to evolve in what what comes out next. This has been absolutely fantastic. Mike, thank you for taking the time to come on the show today and really tell us about Central, what you guys bring to the market and how it benefits both not just the tenants, but also the landlords and property owners.   Speaker 1 (00:20:39) - There's certainly been fascinating if our listeners want to get in touch with you and learn more about you, what is the best way to do that in Central? So yeah, feel free to contact me. Mike Branham at Point Central, go to our website that can that can point us point you toward me as well. But thank you for the time and and for the platform just to have a good conversation. Sam I appreciate it. Absolutely. Thank you, Mike. And we'll make sure we include that there in the show notes Point Central. Mike, thank you again. Have a great rest of your day. My pleasure. 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.   Speaker 1 (00:21:29) - So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

21m

Jul 31

Today’s guest is Bill Bymel   Bill is the CEO of First Lien Capital LP, a privately owned distressed mortgage investment platform he founded in 2021 which owns over 700 residential mortgages and REO in over 30 states with a total investment of $65 million in equity dollars. Join Sam and Bill in today’s episode. -------------------------------------------------------------- [00:00:00] Intro [00:01:11] Bill's background and experience in real estate investing [00:08:16] Bill's approach to working with distressed borrowers [00:10:18] The revolutionizing the industry [00:11:33] Challenges in the market [00:15:34] The future of the market [00:21:04] The challenges of raising capital [00:22:10] The discipline to say no to easy capital [00:22:45] Closing -------------------------------------------------------------- Connect with Bill:  LI: https://www.linkedin.com/in/billbymel/  IG: https://www.instagram.com/billbysea/  FB: https://www.facebook.com/billbymel  TW: https://twitter.com/billbymel  TT: https://www.tiktok.com/@billbymel Book: Win-Win Revolution - https://a.co/d/cMDA4ov   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Bill Bymel (00:00:00) - You've got somewhere in the range of 250 billion still to 375 billion of defaulted mortgages. Still a very small number in comparison to the market. And so it has been tough, but that's all changing. And a one every 1% move is another 120 billion with a B of new defaults that are coming to market. So we're we're starting to see that trend go in the other direction. And it's like I've just got my popcorn ready.   Sam Wilson (00:00:32) - 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.   Bill Bymel (00:00:45) - Bill by Mel.   Sam Wilson (00:00:46) - Is the CEO of First Lien Capital L.P. It's a privately owned distressed mortgage investment platform he founded in 2021. They currently own over 700 residential mortgages valued at over $65 Billion in Assets under Management. Bill, welcome to the show.   Bill Bymel (00:01:02) - Great to be with you, Sam.   Sam Wilson (00:01:03) - Absolutely. The pleasure is mine. Bill There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:08) - Can you tell me where did you start? Where are you now and how did you get there?   Bill Bymel (00:01:11) - Wow. 90s or less is the hard part. I started as a residential fix and flip investor in the early 2000 in South Florida. I've been a broker in Florida for years. I live in California now. I built that up, got into commercial real estate, buying and selling brokering as well. And then when the GFC hit, I got a random call from a asset manager in Southern California that said I can buy mortgages for pennies on the dollar. That was my lightbulb moment. That was three months before the fall of Lehman. In the summer of 2008. And from there I built I went on to say, I'm going to do this for a living. And for 15 years I've learned how to buy and sell mortgages, work them out, and really kind of created a new paradigm for how to work with distressed borrowers in the residential real estate market. And I've done this to the tune of several hundreds of millions of dollars at other institutions.   Bill Bymel (00:02:08) - The number two guide at a New York private equity firm. And then a couple of years ago, I was the baby bird leaving the nest and started first lien capital with the goal to build it to a half $1 billion company.   Sam Wilson (00:02:20) - Wow, that's really, really cool. I love that. So just to just to clarify, you went out and worked for another firm where you kind of cut your teeth learning this business. It sounds like that is a is an effective strategy to really get into what you're doing. Would you recommend the path you took or is there a better, better way to get it done?   Bill Bymel (00:02:38) - You know, it's very interesting because the secondary mortgage market, which is where we play, that's how we access our product buying and selling, right? That's where big pools of mortgages are traded, as well as small individual loans. This is a good old boys network. Right. And since the 2008 recession, there's been a lot more access to it. There's almost like a tertiary market beyond the secondary market.   Bill Bymel (00:03:04) - Smaller investors trading due to the Internet, due to the availability of communications. That said, the main secondary market remains a good old boys network. So yes, if you can, I always a big believer in finding someone with the knowledge you seek and have them be your mentor. So I met a guy named Pete Sligo back in 2010. At the time, I was buying small deals and and and build, trying to build up. And he had just raised his first 50 million bucks. And he was a mortgage note. He was a mortgage investor with experience at UBS and all the big New York houses. I was like, This is a guy I can learn from and he could learn from me because I knew real estate and we teamed up for ten years. I was his number two. I did all of his Florida stuff and it was through that mentorship that I gained access to the people that you need to know how to and how to work this very nuanced business. You know, it's really taking a Wall Street private equity, institutional world and bringing a main Street approach to it.   Bill Bymel (00:04:14) - You know, it's kind of combining those two things in what we do. So I highly recommend finding someone.   Sam Wilson (00:04:21) - Absolutely. No, that's that's great. I love I love the way that you've done that. It is a good old boys network, I feel like and maybe it's just because I run a podcast with 800 and something episodes, but I feel like it is at this point it's become more mainstream, like more people understand it. I mean, I don't think before and of course I was probably too young. I went through the oh eight crisis. I owned a business then but didn't understand kind of conceptually how all this was traded and kind of the like you said, the turkey is exactly right. Right. But I feel like more people have an understanding of what a mortgage is now, how they're bought and sold. Right. The we've had just obviously up until now, we're recording this June 13th, 2023. But we've just had a booming economy for a decade or more. Has that has the distressed mortgage market, has the pool of available loans shrunk over the last.   Bill Bymel (00:05:11) - Oh, absolutely. Absolutely. It has been very difficult to be a distressed mortgage buyer the last couple of years when there's been no distress. Right. Right.   Sam Wilson (00:05:21) - So what did you do?   Bill Bymel (00:05:23) - You know, I saw it. So the way I made my mark the first two years of this. So there were some unique opportunities in play with Covid when Covid shut down courts in this country. A lot of the guys my competition in the business really freaked out because if you already owned an existing pool of mortgages that were nearing foreclosure. And all of a sudden the courts closed that down. You know, now there's they're they had no timeline to exit these things they thought they were a year away from. So I got a lot of deals in the last few years buying my competitors tales, stuff from old funds, you know, buying up other people's problems, you know, And I have the experience and the knowledge and the comfort to to to really analyze all of those on a one by one basis. So we really hit it out of the park that way.   Bill Bymel (00:06:14) - So part of this business is kind of shifting about shifting with where the opportunity is. Prior to Covid, you know, there was it was scraps. You know, we didn't didn't grow too big. So, you know, there just wasn't enough volume in the in the industry. But keep in mind how big this the residential real estate industry is, $12 trillion of mortgages in America. If there's and we were at our lowest obviously our lowest default rates on record somewhere between 2 and 3%. Right now. So that means that you've got somewhere in the range of 250 billion still to 375 billion of defaulted mortgages. Still a very small number in comparison to the market. And so it has been tough, but that's all changing. And a one every 1% move is another 120 billion with a B of new defaults that are coming to market. So we're we're starting to see that trend go in the other direction. And it's like I've just got my popcorn ready.   Sam Wilson (00:07:21) - Right? Which I know what you mean when you say that because we I think we, we understand the pain that brings to families, to the people affected by it.   Sam Wilson (00:07:30) - So I don't I don't hear you in any way being like, oh, hey, I wish more people would have the stress on their mortgages. We don't. But at the same time, you play a very vital role in just how this economy functions and, you know, helping, help helping keep things liquid and things moving. So get it both ways. You're getting your popcorn now because it's like, well, this is kind of what we're poised for. Unfortunately, we're you're poised with a downturn and that's what that's where you make your money. So, I mean, that's that's part of it. But I want to find out. So so you said that, you know, the the last decade has been tough to be in the distressed mortgage business. But yet you guys, what was your competitive advantage and how did you underwrite that? I know I'm not supposed to ask more questions at once, but you got all your friends who were like dumping off their their kind of tailings of what they had going, All right, this is no good.   Sam Wilson (00:08:16) - That's no good. And you said, wait, there's opportunity here. So what was your competitive advantage there?   Bill Bymel (00:08:20) - Very good question. So I wrote a book about this. Obviously, I'm not, obviously. But you know, I mentioned it to you earlier called Win Win Revolution. You know, that I and it's really details the paradigm by which we operate. We put this paradigm into place over a decade ago, and in many ways it revolutionized our industry. I have competitors of mine that tell people, read, you know, that take my book and give it to their new asset managers, because the whole idea is to meet the borrower at their level. You know, I got it. Nobody wanted to. I don't didn't get into this business to become a debt collector. That's not of interest to me. I like real estate. I know how to value real estate. And I know that if a that it's a very safe investment because you're buying a note as long as it's based upon a true value of the real estate, you can't lose money.   Bill Bymel (00:09:12) - So it's from my perspective, it was the best risk adjusted return investment. Now, if I buy these mortgages at a discount, I can now share some of that savings with my borrowers. You know, we turn around and in in, you know, instead of calling this borrower up and asking them for a payment, we ask them. They're flabbergasted because they get a call from us saying, how do you see this resolving? What would you like to see happen? The first, if there's an opportunity to modify someone, you know, in the old days, we were giving huge principal reductions because people were underwater and that was phantom money to us too, because we were buying the mortgages at a discount. We were able, like you said, we provide a very vital role because as private equity, we have so many more tools in the toolbox. We take the first 30 to 40% of every pool we buy and and perform. Those people give them modifications If someone has the ability to pay and and the intention of keeping their home, we will do whatever we can to make that happen.   Bill Bymel (00:10:18) - And for that middle 50% where maybe they just priced out, their situation has changed, whatever it might be. We want people to exit with dignity. So we'll give people a waiver of their deficiency balances, will help set them up in a new rental property rather than spend money on an attorney to foreclose. I'd rather pass that so that savings back to our borrowers. So that's really how we revolutionized the industry. And that means. We do this through the help of our local real estate broker network and our mortgage brokers and people on the ground who are knocking on doors and letting people know, Hey, we're not Bank of America, you should talk to these guys. And that gives us the competitive advantage that others in the industry can't do. It's just not it's such a big industry. You can't most can't get that granular, right.   Sam Wilson (00:11:07) - Most can't get that granular. The I think the one the one key that gives you the margin in these deals to offer that flexibility is buying at a discount.   Bill Bymel (00:11:19) - Correct.   Sam Wilson (00:11:19) - Like you have to buy and I'm telling you things you already know. But you know, when you're buying at a discount, as you mentioned, for the last decade has been tough. I mean, because people are bidding a lot of these pools up. Am I? And if I'm incorrect.   Bill Bymel (00:11:33) - Yeah, yeah. No, no, no, no. So the last four years have been tough. I mean, you know, we had a good run up until about, I would say 16 is when the market, you know, right around the time Goldman did a deal with the with the federal government where a big settlement over the last foreclosure crisis, they made a huge commitment of dollars to buying buying mortgages and part of their settlement with the federal government allowed them to buy defaulted mortgages and modify them and get a credit against their settlement. So they've been the biggest player in the market the last 4 or 5 years. And then there's another woman who's bringing money in from Asia that's been overpaying for stuff.   Bill Bymel (00:12:16) - And there was a number of investors that were highly leveraged with very cheap capital up until a year ago that were also forcing the price of NPLs up. That said, they were always still creating at a discount, but you'd see stuff trading at, you know, in the 80s or 90s, not enough of a discount that we could really make our our our mold. So we ended up focusing on on harder to work areas like New York, New Jersey, Florida where there judicial foreclosure states a lot of the large institutional investors stay away from the judicial foreclosure states or will bid those down or just not bid them at all. And that's where we've been able to find opportunity and still find discounts over the last few years that.   Sam Wilson (00:13:03) - Yeah, that makes that makes that makes a lot of sense. How do you underwrite that many deals at scale if if you do it at scale? Or is it an individual loan by loan analysis?   Bill Bymel (00:13:14) - And if so, no. Yeah, it's a good question. We have we've developed the model for over ten years.   Bill Bymel (00:13:18) - It's a very it's a very it's a sophisticated yet simple discount model. So think of it like this. It's done on a loan by loan basis with every but and we get the data that the servicer gives us on any pool and we're able to look up it into our model. And what you're in essence looking for is what am I going to get if I have to take this to a worst case scenario, I have to take this property to foreclosure. How long is it going to take? What's going to be my cost to carry the money? What's the cost to the rehab? Potential rehab, legal expenses, the cost of insurance, property taxes? All of that gets discounted off along with a timeline. And what you're projected yield is over that two year period, let's say, you know, 20, 15% per year. And that's how the model determines what price I should what discount I should be offering on any individual low. And believe it or not, even with that, this model like if you get an old loan that's you know, that's late stage foreclosure, my model might say I can pay 105% of UPB for something like that because if it's been in foreclosure for two years, then you've already got another 10 or 15% in debt that's built up above your principal balance.   Bill Bymel (00:14:36) - So, you know, it does work both ways, but most of the time, you know, we're bidding in the 60s or 70s of, of of of value.   Sam Wilson (00:14:45) - Do you you you mentioned popcorn earlier. Are you expecting that? Bid percentage to come down in the near future? Yes.   Bill Bymel (00:14:54) - 100%. So what's happened is, is I've been able to consistently find deals in a mid-teens yield while the rest of the market is bidding large pools to high single digits yields. And what's happened now as a as in the last year is the adjustment in rates has happened. Everyone's expectations is now shifted into double digits, the regular market. And so we're now looking at deals that are in the 20s, minimum minimum 20% yield and as and it could get better, especially if we did dip our toe into commercial stuff in commercial, we should be modeling in the 30s. I mean, there's a bloodbath on the horizon there.   Sam Wilson (00:15:34) - Well, certainly, certainly in the office sector, there's a bloodbath. That's right. That's right.   Sam Wilson (00:15:40) - So, yeah, that's very interesting. What what is the I guess there's two questions I have attached to this. What is your disposition strategy once you get the loan performing?   Bill Bymel (00:15:50) - Oh, yeah, good question. We do have that's why the secondary mortgage market connections are so important. So we're able to pool a report forming pools minimum about $10 Million. Sometimes you get a buyer at five, but the institutional guys will securitize re performers in with new mortgages as they're building these as these aggregators come back to the market once the rates seem to level off, should you know, then you'll see a lot more of these securitizations come back or institutional buyers are just will just buy it to clip a coupon. So we're able reformers now will traditionally not sell for par but you know they'll sell in the 90s of their principal balance. So if I'm buying in the 60s, I'm taking in six months of payments and I'm selling in the 90s. You do the math. It's actually one of the the best return across the board in our portfolios have been deals that we've modified and resold and it's the win win strategy.   Bill Bymel (00:16:56) - So it's like I just love it, you know?   Sam Wilson (00:16:58) - Absolutely. Absolutely. So you I guess that's the last question attached to that is the seasoning period, six months, 12.   Bill Bymel (00:17:06) - Six months seasoning just to resell a loan and have it three months is it's of payments, considers it a repay forming loan. But most buyers in the market want at least a six month seasoning.   Sam Wilson (00:17:19) - Oh, I would think so. I would think so. So you repackage these and you sell these off to aggregators, then? That's right. $10 million at a time. Can you take that on your fund? Is their debt for acquiring debt?   Bill Bymel (00:17:34) - Absolutely. Absolutely. So it's very interesting to see how that market has changed. Yeah. Um, those of you who have watched the news recently know the name back West Bank PAC, West Bank owned two lender finance companies where they had their own internal lender finance, and then they had another Capital Solutions out of DC that they had acquired a couple of years ago, five, ten years ago.   Bill Bymel (00:18:02) - They were one of the larger players in the debt on debt space. So just as an FYI, now they're out of it now. Thank God I didn't take the line of credit they were offering me last year because it was attractive last year at a four and a half, five and a half rate. But that same but those are their floating rates, right? I would have been sitting on a on a 10% loan. So now the debt, the debt on debt still exists. Credit Suisse is obviously most famous for it. It's interesting to the names that are that were bubbled around as being problematic recently are the guys who are deducted. Right um but those guys and there's a there's a number of them still out there Western alliance was another one that did you know that does lender finance there's you absolutely can do it we do we could do it. We try not to leverage ourselves. We try to stay all equity but we have that option. And where we're at right now is that the leverage on leverage options that are out there.   Bill Bymel (00:19:03) - It used to be if I want private equity, I'd have to pay minimum 10% or so and I could get the banks for five, six. Now the banks are not there. So for plus 450 or 500, so it's close to 10% money at the banks as well. So you're you're almost better off doing now the private guys are trying to push into low single, low doubles, but they'll still take 10% probably if you have a relationship. So you're actually better off leveraging through private equity right now.   Sam Wilson (00:19:31) - Right. And does that come in as debt or do they come in as equity?   Bill Bymel (00:19:35) - All of my equity has come. All my private equity money is coming as equity so far I've got I do have it's funny, my main private equity partner is a big, you know, billion dollar institutional group out of New York. And they pursued me as debt for a year. And we and I just that wasn't the kind of relationship I wanted to have. So I prefer to have all equity, have us all, just have, you know, you know, you know, all of our we're all vested in it together.   Sam Wilson (00:20:08) - Pursue and that and shoot man I love the idea of limited to no debt because it just leaves it leaves the toolbox. You leave every tool in the toolbox to really do what you want without constraints. That's great and do what's best for the best for the fun, best for the investors, best on the return profile. It just leaves you much more nimble. Absolutely. Love that. Let's talk here. The last 60s or so that we've got here on the show before we get into how to how to contact you and get in touch with you, let's talk about raising capital. I mean, it's it's something you've got a lot of experience in. What's it been like raising capital for the nonperforming loan space?   Bill Bymel (00:20:48) - You know, I'm an asset. I'm an asset manager by trade in a deal guy. So learning to raise capital was going back to school six years ago at my previous firm was the where I had to first do it. It was one of our main capital partners was starting to pull back.   Bill Bymel (00:21:04) - And so I had to learn how to go out and brand ourselves, packaged, talk to investors. And it has been very educational and and wonderful and yet not easy. You know, the persistence is the key, especially with large dollars. I've got a guy that a gentleman, for instance, right now, multi multimillionaire, I have been pursuing for five years. And he's about to write his first million dollar check this week. And it's persistence. It is, you know, being, you know, the strategy, you know, perfecting our pitch for our strategy has been fine. You know, I think everybody who gets real estate with a little bit of nuance or a little bit of sophistication likes the uniqueness of our strategy and sees the soundness of it. But, you know, raising capital is a whole different it's a whole different career. And, you know, I may look back on this and say, you know, it was worth it because of the money. And I may just say, you know, I like doing deals and I'm going back to just doing deals.   Bill Bymel (00:22:10) - We'll see. Right.   Sam Wilson (00:22:10) - Right. But I think the one interesting thing in all of that, despite the challenges raising capital, the temptation to have your billion dollar fund or $1 billion PE firm that says, hey, we want to come in as debt, I mean, that's low hanging fruit for the guy out there raising capital. And yet you had the patience and. In the discipline to say no. Yeah, not the way we're doing business. So I think that's really, really cool. An awesome, awesome part of your story there to point out. Bill, if our listeners want to get in touch with you, learn more about you and or get a copy of your book Win Win Revolution, what is the best way to do that?   Bill Bymel (00:22:45) - My personal website is bill by bill bml.com.   Sam Wilson (00:22:53) - Fantastic build by Malcolm and make sure we put that there in the show notes. Bill, thank you again for your time today. Certainly appreciate it.   Bill Bymel (00:23:00) - Great to be with Sam.   Sam Wilson (00:23:01) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:23:05) - 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.  

23m

Jul 27

Today’s guest is Armstead Jones.   Armstead is a Strategic Real Estate Investing Advisor at Real Estate Bees with over ten years experience in commercial real estate. Join Sam and Armstead in today’s episode. -------------------------------------------------------------- Intro [00:00:00]   Armstead Jones' background and journey in real estate [00:00:56]   Approaching city council and government for project funding [00:03:23]   The housing market and recession indicators [00:10:39]   Foreclosure and delinquency rates in multifamily properties [00:11:41]   Office vacancy and the future of remote work [00:19:11]   The concept of mixed-use buildings [00:21:32]   The example of Crosstown Concourse [00:22:50]   Closing [00:23:48] -------------------------------------------------------------- Connect with Armstead: Instagram: https://www.instagram.com/imaginethinktank/ Linkedin: https://www.linkedin.com/in/armsteadjones/ Web: https://www.imaginethinktank.com/itt-store/p/re-engineering-baltimore-real-estate   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Armstead Jones (00:00:00) - Is once the community has bought in. Then the politicians are bought in because the politicians serve the community. Right. The community is going to bat for you. They're supporting your project. Everything down to when construction starts, you know, those nosy neighbors will make sure people aren't breaking in your house, right? So you've engaged the community, you talk to them, you went to their meetings, you studied their plan. You've actually put together a thoughtful response and a proposed project to them. And then they're able to then go champion that for you to kind of make it easier.   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. Armstead Jones is a strategic real estate investing advisor at Real Estate Bees with over ten years of experience in commercial real estate. Armstead, welcome to the show.   Armstead Jones (00:00:56) - Welcome. Thanks for having me, Sam.   Sam Wilson (00:00:58) - Absolutely. The pleasure's mine. Armstead There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:03) - Can you tell me where did you start? Where are you now and how did you get there?   Armstead Jones (00:01:07) - I started with an idea in my apartment that I could use real estate to build wealth. Then I decided I need to get an education for building wealth. So I took a job paying less work in the state housing department in the state of Maryland, and then also then went and worked at the economic development arm for the city of Baltimore. Learned everything I could, real estate. And that took me to where I am now. Currently doing large scale projects, residential, commercial, transit oriented development, land development. So, you know, it's taken me a very long way.   Sam Wilson (00:01:42) - Wow, that's really, really cool. What are some of the things, some of the skills you learned in the state housing Department and what was the other other job you said?   Armstead Jones (00:01:52) - Baltimore Development Corporation, we call it BDC.   Sam Wilson (00:01:55) - Okay. I bet you learned a lot about the way to navigate those organizations from the private. Now that you're on the private side.   Armstead Jones (00:02:06) - Well understand. I understand what we call both sides of the table. Right. So understand the government side of it that helps push through economic development projects that can add jobs and tax bases. Um, and also that, you know, there is a need for affordable development as well. Not all individuals can afford market rate or luxury. So what it also then showed me is how the money moves. Um, you can't just go to the government with an open hand and say, give me, give me, give me. There needs to be a P3 or a public private partnership and needs to be some leverage on your end on why you need this money from the government. And normally it's what I call the it would not happen, but for this investment from the government. So, you know, when you start to look at those things, you can identify what it's just a straight market rate deal that you don't need any government kind of subsidies in. And then what deals need help. They need get financing.   Sam Wilson (00:03:08) - Got it. Got it. What were what were some of the when you walked away from that? Some of the things that you see that people typically get wrong when they are approaching the city council or whoever else it may be when they have a project in hand.   Armstead Jones (00:03:23) - Several things. One, they've never talked to the community, right? You can't do community development if you have not engaged the community. Um, second they come in with. I know what's best for the neighborhood, right? It's never about what I know is best for the neighborhood. It's about working with that neighborhood because they might have a nonprofit or a CDC that can leverage grant funds that can help you with your project. And thirdly, some people come in and just throw money, right? Yeah, I'm going to do this. This is going to happen. But I want the government to give me money. Why? Like you're not making a compelling, compelling argument on why the government who are the stewards of taxpayer dollars giving you money for a project that essentially does not need it? Um, and that's that.   Armstead Jones (00:04:14) - But if not for statement, right? If not for the government to step in. You won't get the desired outcome of jobs, right? This office building, convention center, you're building arena. Right. If not for the government stepping in and doing it for the long term investment. Right. The 20, 30 year projection of jobs and taxes and piggyback taxes. Um, and a lot of people just come in with the thought, well, my project doesn't work, so need money from the government to make it work. And that's not how it works at all.   Sam Wilson (00:04:49) - Right. I can only imagine one of the things you mentioned there was talk to the community. What does that mean? What's a practical way to do that?   Armstead Jones (00:04:55) - Um, first thing, you should attend a community meeting. Um, get to know who's in your community. Who are you serving? Right. Those residents know people. So if they're, you know, if there's a master plan, you should go to whatever area you are.   Armstead Jones (00:05:11) - You should go to that planning department and find a master plan, vision plan, urban renewal plan, and look at it for the neighborhoods you want to work in, right? We would like homeownership on this strip. We would like commercial on this trip. And nine times out of ten, those master plans are prepared by third party individuals that are architects and traffic people. And they're they're literally telling you the best places, right from a 10,000 foot view of what you should try to do in these areas. And then those community people then get engaged and they're like, yeah, we want houses here. We want to we want a grocery store here. Okay, well, if grocery stores are, then your thing. You didn't set up a time to talk to the community association about what you propose to do. Right? Always use the word proposed because you want them to feel like they are engaged with you and they are helping to make those decisions in those communities as well. But if not, you know, you go in and you don't do that, it you know, it will it will ruffle feathers and it will slow down because the the rolling ball effect or the snow, you know, the the snowball going down the hill, it's once the community has bought in, then the politicians are bought in because the politicians serve the community.   Armstead Jones (00:06:30) - Right. The community's going to bat for you. They're supporting your project. Everything down to when construction starts, you know, those nosy neighbors will make sure people aren't breaking in your house. Right? So you've engaged the community, you talked to them, you went to their meetings, you studied their plan. You've actually put together a thoughtful response and a proposed project to them. And then they're able to then go champion that for you to kind of make it easier.   Sam Wilson (00:06:59) - That's really, really good advice. And there's very few people actually I've had on the show that probably have as in-depth, in-depth of an understanding as you do as to how that functions. I mean, because that's it's it sounds like it's as much art as it is science.   Armstead Jones (00:07:17) - Yeah.   Sam Wilson (00:07:18) - Exactly, exactly. Figuring out how to do this. And and I think one of the things I hear in all of this is that you just need to budget in a lot of patience in a lot of time.   Armstead Jones (00:07:28) - Correct development is different than investment, right? Say that all the time.   Armstead Jones (00:07:33) - So my company outside of real estate bees is a imagine think tank. We do development, but we also do investment. Right. Development is the concept that I see a vision and I'm going to carry that vision on my back and tell us complete. But I'm the first person putting in sweat equity and money equity, and I might be the last person to see my money back right? This return that I got. But it might take 2 to 3 years. But you know, just using numbers, you saw a deal, you put 50 in and three years from now it's worth, you know, I don't know, half a million of better. Right. But you didn't realize that profit until then. Investment is passive. You're trying to either by cash flowing assets or you're someone who buys and then fixed eventually. But, you know, that's why you just got to you got to know which one fits better and development just takes a while. So anybody starting a business and you're doing real estate development, get some rentals.   Armstead Jones (00:08:34) - I mean, I'm not the biggest fan of singles all the time, right? Especially if you're trying to do other things. If you're managing those yourself, you know how to do the work yourself. You're personable yourself. Great, right? Get you a couple of those. Make that your full time, you know. You know, you'll never work a day in your life, but you know, if you're investing, investment is the concept that my money needs to now work for me.   Sam Wilson (00:08:58) - So no, I like that. I like that a lot. You know, there's a lot of things in the economy right now. People are worried about. There's talk of recession. There's talk of this. There's, you know, just a lot of uncertainty. What does this look like from I mean, are there some leading indicators maybe of a changing just kind of changing grounds? Are there permit polls? Are there like what do you see on the I guess, more on the on the city planning side of things that could be leading indicators or lagging indicators? I guess either way you want to look at that of kind of where we are.   Armstead Jones (00:09:31) - Um, so there's a couple of pieces of data that you can look at. I know we've seen massive layoffs, but these aren't from the companies that kind of employ the middle to lower market. Um, these are your financial firms. Your tech firms. These people were making six figures. Hopefully they got a nice nest egg. They probably realistically have 6 to 12 months worth of money sitting around to cover themselves. So we're not looking at a rising unemployment number because those same individuals who had that kind of capital or probably investing in or, you know, trading something or doing something else to make income currently. Um, you'll see and I'm saying this in Baltimore, permits are slowing down, right? So the reason is because everybody's finance was locked in before the Treasury started hiking rates. So now they're going back and have the, you know, what they call a horse trade, right? Like horse trade and get a new term sheet. And now that interest rate on that new term sheet has made, you know, the debt to service ratios, you know, unbearable.   Armstead Jones (00:10:39) - So you're going to have deeper pocket people having to go out further. Right. Waiting for the market to turn. But we're not going to go into a recession. I think the Treasury and the Fed did. Correct. Right. Like they they raised interest rates to catch up to inflation. We've now caught up to the supply chain issues we were having in 2020. Right. So mostly right outliers here and there. You know something, a spike. But, you know, building materials are pretty much flattening out the labor cost because permits are slowing down. So labor is getting cheaper. I see subs going to primes and saying, hey, um, you know, you got some work next month. Oh, remember, put in that bid for this. I can take 10%, 15% off of that. If you give me the job now, I'll take it. Um, so you're seeing some of that, But there's no recession, right? A recession indicates a slowdown for, um, continual periods, right? Continual quarters.   Armstead Jones (00:11:41) - We haven't seen a slowdown. We have seen people putting people with capital of putting their money back in the bank, and they're waiting for everybody else's tsunami to rise. Right. So they have the money to kind of buy everyone out. I think what we'll get worst case scenario on the real estate side is that you'll see a lot of these class-A and even newly value added class B apartment multi families. Start to get foreclosed on. Delinquency rates are going up. People had a lot of money saved on Covid because they weren't going anywhere. Just ordering Amazon. Right? Maybe some GrubHub, maybe some Uber eats type stuff. Now everyone is back to vacation, right? They're buying clothes. Think about the clothing market. Slow down. Because why would I buy clothes if I got to sit in the house? Right? Like I'm not purchasing things. So now people are spending money on consumer goods. They have less savings. We're seeing delinquency rates go up. And a lot of these multifamily people haven't landlords or property owners haven't really given people mercy.   Armstead Jones (00:12:45) - They're just like, Oh, we can get it right now because there's a housing shortage. So your normal transition is you get an apartment one day, you make a decision to buy a home, whether it's because you got married or you're ready to own one. And people can't buy homes now. So multifamily has just been jacking up their rents. Right? Where are you going to go? Where are you going to go? And we're going to hit a point where people can go somewhere. We're going to see the multifamily wash out. So my thing is, anything over 120 units, you need to start realizing what you can do to set yourself apart in the marketplace. You're.   Sam Wilson (00:13:22) - That's really interesting. Would you say that even even in light of the Fed hiking rates and in light of the fact that the residential housing market is still apparently fairly hot?   Armstead Jones (00:13:35) - It's still fairly hot because the number one thing and we when was at the State Housing department we did a research like project on this. Right. What makes people buy homes.   Armstead Jones (00:13:47) - Right. And it's normally life changing decisions. I moved for my job and I want to buy home where I'm moving to. I got married, so we're buying a home. I had kids. We need more space. So I'm buying a home. I got divorced. I need less space. Right? I need to buy a home. I'm living with my significant other whether we're married or not, and we separate. I need to find somewhere to live. I end up buying a home. Right? It's normally life changing decisions that make people do that. And people. People who have it and who are still financially sound are still in the market looking for great opportunities for their American dream to buy a home with the white picket fence. But we have limited inventory. So because of that, the prices still can remain high. But you're seeing days on market increase, right? When we were in 2027 to 14 days, you had multiple offers, you had people paying over list price and then covering the difference in the appraisal and the list price in cash.   Armstead Jones (00:14:51) - We won't see those days ever again.   Sam Wilson (00:14:54) - Right? Yeah, that was that was a wild, wild time. Let's go back to I guess we talked a little bit about, you know, the the Class A and B, you think that's going to suffer? Because I'm just see if I can articulate what you said. You said class A and B is going to suffer because they've been raising rents so much over time or so much recently that people are going to start looking for other places to go. But how I guess maybe I missed this in your answer. But if the residential housing market is still hot, it seems that that would then feed that class A and B value add multifamily property. Does that make sense?   Armstead Jones (00:15:32) - So you what you're saying is those individuals should be moving their homes. All right. Right.   Sam Wilson (00:15:37) - Right.   Armstead Jones (00:15:39) - There's a lack of inventory. And so as soon as the Fed raise rates, I'll give you a case study. Someone in Maryland before the Fed raised the rates and they were given out these two and 3%, you could afford a half $1 million home in the county right now that the rates have gone up.   Armstead Jones (00:15:59) - You're saying payment is probably 400 to $600 more depending on how expensive to home is, Right. Right. That affordability gap when it comes to a monthly payment kicks a lot of people out of contention for the half $1 million home now. So now you have to find a 400,000 or 350 and it has less bedrooms. You already have three kids. You need a five bedroom, you're looking at a four, you're hesitant, you can do it. You could pull the trigger, you could become that that property owner. But a lot of people are now very picky. Right. They're like, Oh, don't even like white cabinets. And I'll be paying way more than I have to. And it's not even in the neighborhood I want, but this is the only inventory in the market, so I'll just sit on my hands until I find what I want, right? So it's not feeding it quick enough. So what you're getting is people are like, all right, I really can't afford this rent, but I can't afford to go anywhere, right? So if they can't go anywhere, they end up staying.   Armstead Jones (00:17:02) - But, you know, delinquency rates go up. And once we do figure out that levy that opens the door. All the property owners are going to do for the foreseeable future is give away one month free, two month free, $500 gift card, some beats, headphones. We'll give you free parking for three months. Right. They stuck concession in you right. To make it seem like it. But essentially they're hurting so they're giving away what they can in order to market and advertising people.   Sam Wilson (00:17:33) - Right. Right yeah and we haven't even in the stuff that we own, we haven't seen that yet. But you know, that's that's certainly something to keep keep our eyes on. We start seeing that happen happen on a on a more widespread basis.   Armstead Jones (00:17:49) - Are they above 120 units.   Sam Wilson (00:17:52) - Yes. No, that's a that's that's mistaken. One one's I don't own much multifamily on two multifamily assets but one's 106 and one 246. So yeah, one one's above it.   Armstead Jones (00:18:04) - Yeah. The 106 would probably always be okay that 240 unless it's just in an area where there are no units like in Baltimore.   Armstead Jones (00:18:10) - At one point we had 5000 apartments in the pipeline to be delivered. Right? So it's all about market saturation. So depending on where you are, if you are the asset in that submarket, you're fine, right? But if you if you're competing and you need to figure out what your edge is, that's when people start doing the month free, the two months free. Come get this gift card. They just try to market themselves differently than all the other product around them because it's too much competition.   Sam Wilson (00:18:41) - Too much competition, something else to look for. Absolutely. One one last thing I want to chat about here is since since you seem to have a front row seat to all the different asset classes and how they're performing and of course, you know, again, being being part of the state housing Department, I'm sure you saw a lot of really unique things. What where are we with the office vacancy? I mean, everybody I'm talking to you from New York City to I mean, all the way across the country, office is generally vacant.   Sam Wilson (00:19:09) - What what are we going to do about that?   Armstead Jones (00:19:11) - Um, office is going to be vacant for the foreseeable future. Um, one as a business owner, now that I know that my employees can be emailed at 6:00 after work hours because they're on their computers and their home. I don't care if you take an hour and a half lunch break. Really don't care, right? Do whatever you please. Right. I now don't also need this monument to myself of office space in my kingdom where I've hired, you know, my throne of of individuals. Right. So now everybody can hop on a zoom. Uh, Microsoft teams, We can come up with action items. I don't care if you do those action items at 10:00 or 11:00 at night. Right? As long as it's in my inbox by eight. Right. Long as you're on the call by 10:00 the next morning so we can discuss it. Right. We're starting to see that functional and flow works without having a brick and mortar location. With that said, we've built a lot of monuments, right, to a lot of wonderful people who have created jobs and help with economic development.   Armstead Jones (00:20:17) - Right. Help people put food on the table. So we're going to see a lot of conversions of those spaces, right? You're going to see, um, and that was a concept and I can't remember the name of it, but you do a mixed use building, but mixed use in a sense, like. You got affordable housing or workforce housing and with some market rate housing and with some office space and with a community center or a restaurant on the top, some commercial at the bottom, a maker space, you're going to take all these different pieces and they have a model for this. In Philly, they took an old school and they gave every. Every business got a classroom. Right. Every business then could sell out of their classroom. But because this building, it was half 1,000,000ft² of some crazy number. Right. They also then use the the ground floor as like a marketplace. So Fridays, it was activated. Saturdays it was activated, Sundays it was activated. And all of the same tenants who you had up here are coming down here to sell their stuff and they're bringing people to the building.   Armstead Jones (00:21:32) - And you're mixing up the uses, not just this is a Bank of America building. They've taken 60% of it. There's a law firm here, an accounting firm here, a title company here, know it's going to be a mixture of uses in one building, right to the point where you could take an office building and you could produce the stuff upstairs to be brought downstairs to ship out loading docks. Right. Like we never thought about the concept that you could reuse that building and repurpose it. We just didn't need a whole bunch of land and some tractor trailers and you need manufacture and need some rail. Not everything needs that. Right? Right. Like we talked about manufacturing of raw material, like we're talking making t shirts and stickers and, you know, products that can be sold in the local economies. Right. Same way we see the coffee boom. Right? Every city has a signature coffee shop and several in some places, and they all get picked up by Trader Joe's and all the grocery stores and all the corner stores and mom and pops.   Armstead Jones (00:22:35) - Same concept, right? Producing these items locally, using these buildings, repurpose them. And then you've got workforce housing. Oh, wow. I can work where I live. It it you know, it goes back to that concept. Live, work and play.   Sam Wilson (00:22:50) - Yeah. No, that's a really cool concept. There's a there's a project here in Memphis that is called the Crosstown Concourse. Same idea. It was an old. Well, this is a massive undertaking, but it was an old Sears distribution facility. The same idea what you're talking about. I mean, there's everything from a school to doctor's offices to, you know, there's there's workforce housing, there is a condos there, there's swimming pools, there's workout facilities. I mean, you name it, It's I mean, you really if you didn't ever want to leave the concourse, you really wouldn't have to. I mean, everything you want is right there. So it's kind of cool. It'd be interesting to see, you know, as people as people pick up this inventory in the right markets and turn it into into higher and better use to things such as what you're describing.   Sam Wilson (00:23:34) - Absolutely. Love it. Armstead it's been a pleasure having you on the show today. If a listeners want to get in touch with you or learn more about you, oh, and there's one more thing I forgot to ask about your book. You can tell us about that as well. What's one of the best ways to do that? And if you can tell us a little bit about your book.   Armstead Jones (00:23:48) - Uh, elevator pitch on my book, Re-engineering Baltimore Real Estate. I'm an engineer by trade, so always re-engineer everything. I do like to kind of back into it. So the book just gives you resources. If you were to develop in the Baltimore area, why you should develop in the Baltimore area with strategies you could put together, and then from there, you know where to go out, who to pick, um, those kind of things. So just an introductory guide to kind of helping you get started. Um, that book is available on my website. Dot imagine think tank.com, um, also available on my Instagram which is imagine think tank.   Armstead Jones (00:24:35) - Um same thing for Facebook. Imagine think tank. Um, and you can just it's a digital download you go download it. Um, feel free. If you got questions, you can always contact me. I'm one of those people. You got a question or two? I have no problem answering it. But if you need an essay worth of questions, I will send you my consultation link. Um, so that you can ask me all you want. Um, I do consulting work a lot, so, you know, all the way from hedge funds to pension funds. You know, they need someone to kind of explain to them the Baltimore market at a high level. That's exactly what re-engineering Baltimore real estate does. It explains it to you bare, bare bones. What Baltimore real estate is, why you should invest, what are you looking for? And here are all the resources that you have available to you in order to get that done.   Sam Wilson (00:25:24) - Fantastic. Armstead, thank you so much for coming on the show today.   Sam Wilson (00:25:26) - Of course, we'll include all of that there in the show notes. I do appreciate your time.   Armstead Jones (00:25:31) - No problem. Nice to meet.   Sam Wilson (00:25:32) - You. 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. Today’s guest is Armstead Jones.   Armstead is a Strategic Real Estate Investing Advisor at Real Estate Bees with over ten years experience in commercial real estate. Join Sam and Armstead in today’s episode. -------------------------------------------------------------- Intro [00:00:00]   Armstead Jones' background and journey in real estate [00:00:56]   Approaching city council and government for project funding [00:03:23]   The housing market and recession indicators [00:10:39]   Foreclosure and delinquency rates in multifamily properties [00:11:41]   Office vacancy and the future of remote work [00:19:11]   The concept of mixed-use buildings [00:21:32]   The example of Crosstown Concourse [00:22:50]   Closing [00:23:48] -------------------------------------------------------------- Connect with Armstead: Instagram: https://www.instagram.com/imaginethinktank/ Linkedin: https://www.linkedin.com/in/armsteadjones/ Web: https://www.imaginethinktank.com/itt-store/p/re-engineering-baltimore-real-estate   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Armstead Jones (00:00:00) - Is once the community has bought in. Then the politicians are bought in because the politicians serve the community. Right. The community is going to bat for you. They're supporting your project. Everything down to when construction starts, you know, those nosy neighbors will make sure people aren't breaking in your house, right? So you've engaged the community, you talk to them, you went to their meetings, you studied their plan. You've actually put together a thoughtful response and a proposed project to them. And then they're able to then go champion that for you to kind of make it easier.   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. Armstead Jones is a strategic real estate investing advisor at Real Estate Bees with over ten years of experience in commercial real estate. Armstead, welcome to the show.   Armstead Jones (00:00:56) - Welcome. Thanks for having me, Sam.   Sam Wilson (00:00:58) - Absolutely. The pleasure's mine. Armstead There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:03) - Can you tell me where did you start? Where are you now and how did you get there?   Armstead Jones (00:01:07) - I started with an idea in my apartment that I could use real estate to build wealth. Then I decided I need to get an education for building wealth. So I took a job paying less work in the state housing department in the state of Maryland, and then also then went and worked at the economic development arm for the city of Baltimore. Learned everything I could, real estate. And that took me to where I am now. Currently doing large scale projects, residential, commercial, transit oriented development, land development. So, you know, it's taken me a very long way.   Sam Wilson (00:01:42) - Wow, that's really, really cool. What are some of the things, some of the skills you learned in the state housing Department and what was the other other job you said?   Armstead Jones (00:01:52) - Baltimore Development Corporation, we call it BDC.   Sam Wilson (00:01:55) - Okay. I bet you learned a lot about the way to navigate those organizations from the private. Now that you're on the private side.   Armstead Jones (00:02:06) - Well understand. I understand what we call both sides of the table. Right. So understand the government side of it that helps push through economic development projects that can add jobs and tax bases. Um, and also that, you know, there is a need for affordable development as well. Not all individuals can afford market rate or luxury. So what it also then showed me is how the money moves. Um, you can't just go to the government with an open hand and say, give me, give me, give me. There needs to be a P3 or a public private partnership and needs to be some leverage on your end on why you need this money from the government. And normally it's what I call the it would not happen, but for this investment from the government. So, you know, when you start to look at those things, you can identify what it's just a straight market rate deal that you don't need any government kind of subsidies in. And then what deals need help. They need get financing.   Sam Wilson (00:03:08) - Got it. Got it. What were what were some of the when you walked away from that? Some of the things that you see that people typically get wrong when they are approaching the city council or whoever else it may be when they have a project in hand.   Armstead Jones (00:03:23) - Several things. One, they've never talked to the community, right? You can't do community development if you have not engaged the community. Um, second they come in with. I know what's best for the neighborhood, right? It's never about what I know is best for the neighborhood. It's about working with that neighborhood because they might have a nonprofit or a CDC that can leverage grant funds that can help you with your project. And thirdly, some people come in and just throw money, right? Yeah, I'm going to do this. This is going to happen. But I want the government to give me money. Why? Like you're not making a compelling, compelling argument on why the government who are the stewards of taxpayer dollars giving you money for a project that essentially does not need it? Um, and that's that.   Armstead Jones (00:04:14) - But if not for statement, right? If not for the government to step in. You won't get the desired outcome of jobs, right? This office building, convention center, you're building arena. Right. If not for the government stepping in and doing it for the long term investment. Right. The 20, 30 year projection of jobs and taxes and piggyback taxes. Um, and a lot of people just come in with the thought, well, my project doesn't work, so need money from the government to make it work. And that's not how it works at all.   Sam Wilson (00:04:49) - Right. I can only imagine one of the things you mentioned there was talk to the community. What does that mean? What's a practical way to do that?   Armstead Jones (00:04:55) - Um, first thing, you should attend a community meeting. Um, get to know who's in your community. Who are you serving? Right. Those residents know people. So if they're, you know, if there's a master plan, you should go to whatever area you are.   Armstead Jones (00:05:11) - You should go to that planning department and find a master plan, vision plan, urban renewal plan, and look at it for the neighborhoods you want to work in, right? We would like homeownership on this strip. We would like commercial on this trip. And nine times out of ten, those master plans are prepared by third party individuals that are architects and traffic people. And they're they're literally telling you the best places, right from a 10,000 foot view of what you should try to do in these areas. And then those community people then get engaged and they're like, yeah, we want houses here. We want to we want a grocery store here. Okay, well, if grocery stores are, then your thing. You didn't set up a time to talk to the community association about what you propose to do. Right? Always use the word proposed because you want them to feel like they are engaged with you and they are helping to make those decisions in those communities as well. But if not, you know, you go in and you don't do that, it you know, it will it will ruffle feathers and it will slow down because the the rolling ball effect or the snow, you know, the the snowball going down the hill, it's once the community has bought in, then the politicians are bought in because the politicians serve the community.   Armstead Jones (00:06:30) - Right. The community's going to bat for you. They're supporting your project. Everything down to when construction starts, you know, those nosy neighbors will make sure people aren't breaking in your house. Right? So you've engaged the community, you talked to them, you went to their meetings, you studied their plan. You've actually put together a thoughtful response and a proposed project to them. And then they're able to then go champion that for you to kind of make it easier.   Sam Wilson (00:06:59) - That's really, really good advice. And there's very few people actually I've had on the show that probably have as in-depth, in-depth of an understanding as you do as to how that functions. I mean, because that's it's it sounds like it's as much art as it is science.   Armstead Jones (00:07:17) - Yeah.   Sam Wilson (00:07:18) - Exactly, exactly. Figuring out how to do this. And and I think one of the things I hear in all of this is that you just need to budget in a lot of patience in a lot of time.   Armstead Jones (00:07:28) - Correct development is different than investment, right? Say that all the time.   Armstead Jones (00:07:33) - So my company outside of real estate bees is a imagine think tank. We do development, but we also do investment. Right. Development is the concept that I see a vision and I'm going to carry that vision on my back and tell us complete. But I'm the first person putting in sweat equity and money equity, and I might be the last person to see my money back right? This return that I got. But it might take 2 to 3 years. But you know, just using numbers, you saw a deal, you put 50 in and three years from now it's worth, you know, I don't know, half a million of better. Right. But you didn't realize that profit until then. Investment is passive. You're trying to either by cash flowing assets or you're someone who buys and then fixed eventually. But, you know, that's why you just got to you got to know which one fits better and development just takes a while. So anybody starting a business and you're doing real estate development, get some rentals.   Armstead Jones (00:08:34) - I mean, I'm not the biggest fan of singles all the time, right? Especially if you're trying to do other things. If you're managing those yourself, you know how to do the work yourself. You're personable yourself. Great, right? Get you a couple of those. Make that your full time, you know. You know, you'll never work a day in your life, but you know, if you're investing, investment is the concept that my money needs to now work for me.   Sam Wilson (00:08:58) - So no, I like that. I like that a lot. You know, there's a lot of things in the economy right now. People are worried about. There's talk of recession. There's talk of this. There's, you know, just a lot of uncertainty. What does this look like from I mean, are there some leading indicators maybe of a changing just kind of changing grounds? Are there permit polls? Are there like what do you see on the I guess, more on the on the city planning side of things that could be leading indicators or lagging indicators? I guess either way you want to look at that of kind of where we are.   Armstead Jones (00:09:31) - Um, so there's a couple of pieces of data that you can look at. I know we've seen massive layoffs, but these aren't from the companies that kind of employ the middle to lower market. Um, these are your financial firms. Your tech firms. These people were making six figures. Hopefully they got a nice nest egg. They probably realistically have 6 to 12 months worth of money sitting around to cover themselves. So we're not looking at a rising unemployment number because those same individuals who had that kind of capital or probably investing in or, you know, trading something or doing something else to make income currently. Um, you'll see and I'm saying this in Baltimore, permits are slowing down, right? So the reason is because everybody's finance was locked in before the Treasury started hiking rates. So now they're going back and have the, you know, what they call a horse trade, right? Like horse trade and get a new term sheet. And now that interest rate on that new term sheet has made, you know, the debt to service ratios, you know, unbearable.   Armstead Jones (00:10:39) - So you're going to have deeper pocket people having to go out further. Right. Waiting for the market to turn. But we're not going to go into a recession. I think the Treasury and the Fed did. Correct. Right. Like they they raised interest rates to catch up to inflation. We've now caught up to the supply chain issues we were having in 2020. Right. So mostly right outliers here and there. You know something, a spike. But, you know, building materials are pretty much flattening out the labor cost because permits are slowing down. So labor is getting cheaper. I see subs going to primes and saying, hey, um, you know, you got some work next month. Oh, remember, put in that bid for this. I can take 10%, 15% off of that. If you give me the job now, I'll take it. Um, so you're seeing some of that, But there's no recession, right? A recession indicates a slowdown for, um, continual periods, right? Continual quarters.   Armstead Jones (00:11:41) - We haven't seen a slowdown. We have seen people putting people with capital of putting their money back in the bank, and they're waiting for everybody else's tsunami to rise. Right. So they have the money to kind of buy everyone out. I think what we'll get worst case scenario on the real estate side is that you'll see a lot of these class-A and even newly value added class B apartment multi families. Start to get foreclosed on. Delinquency rates are going up. People had a lot of money saved on Covid because they weren't going anywhere. Just ordering Amazon. Right? Maybe some GrubHub, maybe some Uber eats type stuff. Now everyone is back to vacation, right? They're buying clothes. Think about the clothing market. Slow down. Because why would I buy clothes if I got to sit in the house? Right? Like I'm not purchasing things. So now people are spending money on consumer goods. They have less savings. We're seeing delinquency rates go up. And a lot of these multifamily people haven't landlords or property owners haven't really given people mercy.   Armstead Jones (00:12:45) - They're just like, Oh, we can get it right now because there's a housing shortage. So your normal transition is you get an apartment one day, you make a decision to buy a home, whether it's because you got married or you're ready to own one. And people can't buy homes now. So multifamily has just been jacking up their rents. Right? Where are you going to go? Where are you going to go? And we're going to hit a point where people can go somewhere. We're going to see the multifamily wash out. So my thing is, anything over 120 units, you need to start realizing what you can do to set yourself apart in the marketplace. You're.   Sam Wilson (00:13:22) - That's really interesting. Would you say that even even in light of the Fed hiking rates and in light of the fact that the residential housing market is still apparently fairly hot?   Armstead Jones (00:13:35) - It's still fairly hot because the number one thing and we when was at the State Housing department we did a research like project on this. Right. What makes people buy homes.   Armstead Jones (00:13:47) - Right. And it's normally life changing decisions. I moved for my job and I want to buy home where I'm moving to. I got married, so we're buying a home. I had kids. We need more space. So I'm buying a home. I got divorced. I need less space. Right? I need to buy a home. I'm living with my significant other whether we're married or not, and we separate. I need to find somewhere to live. I end up buying a home. Right? It's normally life changing decisions that make people do that. And people. People who have it and who are still financially sound are still in the market looking for great opportunities for their American dream to buy a home with the white picket fence. But we have limited inventory. So because of that, the prices still can remain high. But you're seeing days on market increase, right? When we were in 2027 to 14 days, you had multiple offers, you had people paying over list price and then covering the difference in the appraisal and the list price in cash.   Armstead Jones (00:14:51) - We won't see those days ever again.   Sam Wilson (00:14:54) - Right? Yeah, that was that was a wild, wild time. Let's go back to I guess we talked a little bit about, you know, the the Class A and B, you think that's going to suffer? Because I'm just see if I can articulate what you said. You said class A and B is going to suffer because they've been raising rents so much over time or so much recently that people are going to start looking for other places to go. But how I guess maybe I missed this in your answer. But if the residential housing market is still hot, it seems that that would then feed that class A and B value add multifamily property. Does that make sense?   Armstead Jones (00:15:32) - So you what you're saying is those individuals should be moving their homes. All right. Right.   Sam Wilson (00:15:37) - Right.   Armstead Jones (00:15:39) - There's a lack of inventory. And so as soon as the Fed raise rates, I'll give you a case study. Someone in Maryland before the Fed raised the rates and they were given out these two and 3%, you could afford a half $1 million home in the county right now that the rates have gone up.   Armstead Jones (00:15:59) - You're saying payment is probably 400 to $600 more depending on how expensive to home is, Right. Right. That affordability gap when it comes to a monthly payment kicks a lot of people out of contention for the half $1 million home now. So now you have to find a 400,000 or 350 and it has less bedrooms. You already have three kids. You need a five bedroom, you're looking at a four, you're hesitant, you can do it. You could pull the trigger, you could become that that property owner. But a lot of people are now very picky. Right. They're like, Oh, don't even like white cabinets. And I'll be paying way more than I have to. And it's not even in the neighborhood I want, but this is the only inventory in the market, so I'll just sit on my hands until I find what I want, right? So it's not feeding it quick enough. So what you're getting is people are like, all right, I really can't afford this rent, but I can't afford to go anywhere, right? So if they can't go anywhere, they end up staying.   Armstead Jones (00:17:02) - But, you know, delinquency rates go up. And once we do figure out that levy that opens the door. All the property owners are going to do for the foreseeable future is give away one month free, two month free, $500 gift card, some beats, headphones. We'll give you free parking for three months. Right. They stuck concession in you right. To make it seem like it. But essentially they're hurting so they're giving away what they can in order to market and advertising people.   Sam Wilson (00:17:33) - Right. Right yeah and we haven't even in the stuff that we own, we haven't seen that yet. But you know, that's that's certainly something to keep keep our eyes on. We start seeing that happen happen on a on a more widespread basis.   Armstead Jones (00:17:49) - Are they above 120 units.   Sam Wilson (00:17:52) - Yes. No, that's a that's that's mistaken. One one's I don't own much multifamily on two multifamily assets but one's 106 and one 246. So yeah, one one's above it.   Armstead Jones (00:18:04) - Yeah. The 106 would probably always be okay that 240 unless it's just in an area where there are no units like in Baltimore.   Armstead Jones (00:18:10) - At one point we had 5000 apartments in the pipeline to be delivered. Right? So it's all about market saturation. So depending on where you are, if you are the asset in that submarket, you're fine, right? But if you if you're competing and you need to figure out what your edge is, that's when people start doing the month free, the two months free. Come get this gift card. They just try to market themselves differently than all the other product around them because it's too much competition.   Sam Wilson (00:18:41) - Too much competition, something else to look for. Absolutely. One one last thing I want to chat about here is since since you seem to have a front row seat to all the different asset classes and how they're performing and of course, you know, again, being being part of the state housing Department, I'm sure you saw a lot of really unique things. What where are we with the office vacancy? I mean, everybody I'm talking to you from New York City to I mean, all the way across the country, office is generally vacant.   Sam Wilson (00:19:09) - What what are we going to do about that?   Armstead Jones (00:19:11) - Um, office is going to be vacant for the foreseeable future. Um, one as a business owner, now that I know that my employees can be emailed at 6:00 after work hours because they're on their computers and their home. I don't care if you take an hour and a half lunch break. Really don't care, right? Do whatever you please. Right. I now don't also need this monument to myself of office space in my kingdom where I've hired, you know, my throne of of individuals. Right. So now everybody can hop on a zoom. Uh, Microsoft teams, We can come up with action items. I don't care if you do those action items at 10:00 or 11:00 at night. Right? As long as it's in my inbox by eight. Right. Long as you're on the call by 10:00 the next morning so we can discuss it. Right. We're starting to see that functional and flow works without having a brick and mortar location. With that said, we've built a lot of monuments, right, to a lot of wonderful people who have created jobs and help with economic development.   Armstead Jones (00:20:17) - Right. Help people put food on the table. So we're going to see a lot of conversions of those spaces, right? You're going to see, um, and that was a concept and I can't remember the name of it, but you do a mixed use building, but mixed use in a sense, like. You got affordable housing or workforce housing and with some market rate housing and with some office space and with a community center or a restaurant on the top, some commercial at the bottom, a maker space, you're going to take all these different pieces and they have a model for this. In Philly, they took an old school and they gave every. Every business got a classroom. Right. Every business then could sell out of their classroom. But because this building, it was half 1,000,000ft² of some crazy number. Right. They also then use the the ground floor as like a marketplace. So Fridays, it was activated. Saturdays it was activated, Sundays it was activated. And all of the same tenants who you had up here are coming down here to sell their stuff and they're bringing people to the building.   Armstead Jones (00:21:32) - And you're mixing up the uses, not just this is a Bank of America building. They've taken 60% of it. There's a law firm here, an accounting firm here, a title company here, know it's going to be a mixture of uses in one building, right to the point where you could take an office building and you could produce the stuff upstairs to be brought downstairs to ship out loading docks. Right. Like we never thought about the concept that you could reuse that building and repurpose it. We just didn't need a whole bunch of land and some tractor trailers and you need manufacture and need some rail. Not everything needs that. Right? Right. Like we talked about manufacturing of raw material, like we're talking making t shirts and stickers and, you know, products that can be sold in the local economies. Right. Same way we see the coffee boom. Right? Every city has a signature coffee shop and several in some places, and they all get picked up by Trader Joe's and all the grocery stores and all the corner stores and mom and pops.   Armstead Jones (00:22:35) - Same concept, right? Producing these items locally, using these buildings, repurpose them. And then you've got workforce housing. Oh, wow. I can work where I live. It it you know, it goes back to that concept. Live, work and play.   Sam Wilson (00:22:50) - Yeah. No, that's a really cool concept. There's a there's a project here in Memphis that is called the Crosstown Concourse. Same idea. It was an old. Well, this is a massive undertaking, but it was an old Sears distribution facility. The same idea what you're talking about. I mean, there's everything from a school to doctor's offices to, you know, there's there's workforce housing, there is a condos there, there's swimming pools, there's workout facilities. I mean, you name it, It's I mean, you really if you didn't ever want to leave the concourse, you really wouldn't have to. I mean, everything you want is right there. So it's kind of cool. It'd be interesting to see, you know, as people as people pick up this inventory in the right markets and turn it into into higher and better use to things such as what you're describing.   Sam Wilson (00:23:34) - Absolutely. Love it. Armstead it's been a pleasure having you on the show today. If a listeners want to get in touch with you or learn more about you, oh, and there's one more thing I forgot to ask about your book. You can tell us about that as well. What's one of the best ways to do that? And if you can tell us a little bit about your book.   Armstead Jones (00:23:48) - Uh, elevator pitch on my book, Re-engineering Baltimore Real Estate. I'm an engineer by trade, so always re-engineer everything. I do like to kind of back into it. So the book just gives you resources. If you were to develop in the Baltimore area, why you should develop in the Baltimore area with strategies you could put together, and then from there, you know where to go out, who to pick, um, those kind of things. So just an introductory guide to kind of helping you get started. Um, that book is available on my website. Dot imagine think tank.com, um, also available on my Instagram which is imagine think tank.   Armstead Jones (00:24:35) - Um same thing for Facebook. Imagine think tank. Um, and you can just it's a digital download you go download it. Um, feel free. If you got questions, you can always contact me. I'm one of those people. You got a question or two? I have no problem answering it. But if you need an essay worth of questions, I will send you my consultation link. Um, so that you can ask me all you want. Um, I do consulting work a lot, so, you know, all the way from hedge funds to pension funds. You know, they need someone to kind of explain to them the Baltimore market at a high level. That's exactly what re-engineering Baltimore real estate does. It explains it to you bare, bare bones. What Baltimore real estate is, why you should invest, what are you looking for? And here are all the resources that you have available to you in order to get that done.   Sam Wilson (00:25:24) - Fantastic. Armstead, thank you so much for coming on the show today.   Sam Wilson (00:25:26) - Of course, we'll include all of that there in the show notes. I do appreciate your time.   Armstead Jones (00:25:31) - No problem. Nice to meet.   Sam Wilson (00:25:32) - You. 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.  

26m

Jul 26

Today’s Guest is Eric Brewer.   Since 2006, as a real estate investor, Eric has done over 3000 residential real estate deals in Pennsylvania and Maryland. His experience covers purchase, renovation, direct to seller marketing, novations, turnkey rentals, and property management. Join Sam and Eric in today’s show. -------------------------------------------------------------- [00:00:00] Intro [00:00:26] Eric's journey from the car business to real estate investing [00:01:01] Eric's path to becoming a CEO and his leadership philosophy [00:11:07] The style of management and leadership in the car business [00:12:57] Transitioning from the car business to real estate investing [00:14:02] Joining a mastermind and implementing new leadership habits [00:23:14] The importance of personal and business alignment [00:23:28] Closing -------------------------------------------------------------- Connect with Eric: Instagram: www.instagram.com/eric_brewer_invest_/  http://www.facebook.com/eric.brewer.79 Facebook: www.facebook.com/eric.brewer.79 Web: www.brewermethod.com   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Eric Brewer (00:00:00) - Those relationships, whether it was my choice or their choice to leave. When that ended, it exhausted me. I took it personal, which as much as people say business and personal are two separate things. I think that's a myth. I think if they are, you're doing one of those wrong. If your business isn't a little bit personal and your personal doesn't have a little bit of business in it, those two are out of alignment and need to be fixed. Welcome to the How.   Sam Wilson (00:00:26) - 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. Since 2006, Eric Brewer, as a real estate investor, has done over 3000 residential real estate deals in both Pennsylvania and Maryland. Eric, welcome to the show.   Eric Brewer (00:00:50) - Thanks for having me, Sam. I'm excited to be here.   Sam Wilson (00:00:52) - Absolutely. Eric The pleasure is mine. There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:00:57) - Can you tell me where did you start? Where are you now and how did you get there?   Eric Brewer (00:01:01) - Cool. I started in the car business. I cut my teeth in real estate as a cold call refi lender that was cold, calling people in 2005, just trying to get them to refi their existing mortgage. So got sort of indoctrinated in the world of real estate. Um, I am now, um, a true, I believe for the first time ever CEO in charge my organization where I have three words that define my daily roles and responsibilities, and I literally make no decisions in regards to properties or pricing or personnel. With the exception of our executive team, which is comprised of a CLO department business unit leader for every important part of our business. We operate in three states currently opening up a fourth, um, July 1st and I got here through a combination of uninhibited willingness to fail, probably a delusional perspective of what was possible, um, and an exceptional support system of people that kind of peeled me up off my back each time fell down.   Sam Wilson (00:02:16) - And that's really cool. A lot to dive in. There are a lot that we could we could really dive in on in particular, if you. If you don't mind, give me a quick summary. I know you just kind of gave us the high level and most of the time I pick I started on that on those three questions and we take it from there. But I feel like there's more to your story maybe that we should hear. I have no idea. Okay. I don't actually, I have no idea. But give give us give us give us the give us your story if you can, and then we'll kind of take it from there.   Eric Brewer (00:02:49) - So I I'll go back as far as I can remember and feel as relevant. Um, right around my sophomore year in high school, I got off the beaten path, and, um. There was a separation between my mother and father, and I was left basically alone for very. For way too long. And at that point is a 14 or 15 year old, you know, teenager.   Eric Brewer (00:03:17) - I started doing stuff I shouldn't have been doing. I stopped studying. I start partying. And then one thing leads to another and I'm barely limping out of high school with a diploma. Attended summer school, failed summer school, started my senior year as a junior, had to do a bunch of makeup classes, work a part time job because my parents wouldn't pay for me to go to a tutor because they'd already, you know, kind of survive the embarrassment of summer school. So was just kind of a knucklehead. Mean wasn't like robbing banks or jewelry stores or anything, but like, you know, just wasn't doing the right things and, you know, took a senior week after when most seniors go to the beach and sort of party a little bit to celebrate their graduation. That lasted about six months for me versus six days for everybody else that had a college to report to or a meaningful job or some type of responsibility. And six months later, all my friends had gone off to college or had real jobs and had zero direction about where was headed in life and reached out to my dad.   Eric Brewer (00:04:20) - And he's like, Hey, no, this isn't probably what you want to hear, but you should strongly consider the military. My father was a lifelong military retiree in the US Army. His father retired from the Air Force. A lot of my aunts and uncles, we were a military family and I did reluctantly. He was like, Hey, don't think have any other choices. I'd work like a construction job for a week and a half and realized I'd rather punch myself in the face than ever have to do construction again. And, um, got shipped off to basic training. Probably the best thing that best thing and worst thing that ever happened to. I knew for sure it wasn't for me. But at that phase in my life that it kind of smacked the ignorance out of me. And it was a big eye opener. Um, so did my time in the US Army was a 68 Lima, which back then was an avionics communications repairman. Um, had zero interest in it. Don't even remember why I chose it is because it was as far away from battle as possible, and it was probably one of the lower physically demanding jobs in the military and had a good enough test score to qualify.   Eric Brewer (00:05:30) - So anyway, came home from that and zero civilian application for, you know, working on helicopters back home where I'm from in central Pennsylvania. So came back home. I ended up applying for a ad in the newspaper at a car dealership for a lot Porter, which is you organize the cars on the lot, you do some deliveries and was like, Oh my gosh, a Mercedes and a Toyota dealership that was already sort of a car, you know, had a lot of interesting cars and an affinity for for for cars. And I show up, showed up for the interview. And the only real clothing had was my military uniforms, like 37 pairs of jeans, shorts and white tank tops and the double breasted pinstripe suit I wore to my senior prom. So the most appropriate one thought to wear was my double breasted suit. So I'm sitting in this waiting area at the car dealership. And have you ever been to like a the waiting room at the service department? Like it's a high tension environment, right? Like, everybody's sitting there.   Eric Brewer (00:06:34) - They've already been there too long. They're kind of pissed off with the guy because they came in for an oil change and now they got a build at 700 bucks. And I never forget the guy's name was Mark Smalley, and he was the service manager, comes out into this waiting room and he's looking around and he like double takes and looks at me and goes, Eric and I stood up at attention, Go, Yes, sir. And he goes, You wore a double breasted suit to a $7 an hour job and said, Yes, sir. And he goes, You're hired. And my career in the car business started right there at seven bucks an hour. Flash forward eight years. I was the general sales manager had basically held every position in the dealership. And just through sort of determination and a lack of any real other obligations than to try and make money and put food on the table. For myself, I was working anywhere from 65 to 95 hours a week throughout my career there. And after eight years in the automotive business, eventually selling five, 600 cars a month, managing 100 plus employees, I'd gotten burned out.   Eric Brewer (00:07:38) - That business has a way of. Taking its toll on your soul and also was about to have or just had my first child and knew that I couldn't be a good car guy and a good dad at the same time. So chose to go the route of being a good dad. Um, tried to figure out what I was going to do with my life. Didn't know when got out of the car business once again reached out to my dad and he's like, Hey, don't think you're just good at cars, you're good at management, you're good at marketing, you're good at sales. Where could you leverage that experience and not have to work 95 hours a week and had sold some some cars and done some business with real estate agents, appraisers, you know, lenders. And I'd also really valued, um, at that car dealership would say our expertise was finance. We were able to help people with little money down and bad credit, big down payments, very rate conscious people that owed too much on a trade, too many open auto loans.   Eric Brewer (00:08:40) - We were known for being absolute wizards when it came to finance and we could figure out how to get more people in a car than our neighbor. So I'm like, Listen, I want to get into real estate. It's a good, I think, parallel for for my experience that I'll have a short learning curve and want to start in finance. So I went to 3 or 4 local lenders, interviewed their weighed the comp plans, training, all that stuff, and started working with a place called Comfort Home Mortgage. And the way I started was cold calling Internet leads that they got for people that wanted to refi Sota crap ton of loans made a boatload of money and about six months into that my mentor from the car business called me and said, Hey, I'm selling the dealership. He was like 39 years old, nowhere near being ready to to retire. He had a motor that to this day, I've never seen anybody match. He was just always the first guy there, the last to leave. He was just an absolute assassin.   Eric Brewer (00:09:42) - And he invited me to be partners with him and open a real estate investing company. And one phone call and one lunch later. Um, see, our property group was born in 2006 and flash forward today. Now it's been rebranded as Integrity First Property Group. Him and I are still very much friends. I bought him out about four years ago and now we have 40 employees and operate in three states.   Sam Wilson (00:10:08) - Wow, that's crazy, man. You never know when one or what one thing will lead to the next. I mean, that's that's that's an awesome, awesome story how you just you got into it. Um. You know, there's probably a lot of our listeners that can relate to that. I know. I certainly can. That kind of wandering in the beginning where you're like, Oh man, like I have no idea what to do next. And then it's not like you figured it out just by, you know, through through trial and error. And I think you said that there in the beginning, one of the things you said was an uninhibited, I think, willingness to fail.   Sam Wilson (00:10:42) - Yeah. So that's really, really cool. What were some of the things because you also mentioned how you're now the CEO of your company. Right. And you said if something doesn't fit inside of these three words, you mentioned that I never caught what those three words were and then kind of back. Tell the backstory, if you can, of how you came up with those and how you've kind of developed this philosophy of leadership.   Eric Brewer (00:11:07) - Yeah, it's, um, so I'll go back to like, uh, the, there's, there's nothing more I think, different than the style of management and leadership that I experienced in the car business in the late 90. So what is widely become accepted as the right way to lead and manage people now? Like it was literally just like you see in the movies. I mean, it was a bunch of, you know, guys and $1,500 suits, chain smoking cigarettes, cussing like sailors. Operating in the grey, like throwing fistfights in the back lot and people like, I got fired once a month.   Eric Brewer (00:11:53) - Like it was. It was the absolute wild, wild West. Right. And it's it's not what I would describe as servant leadership, Let's just put it that right. And think what we've learned over time is like people just cannot work under those circumstances for an extended period of time. We've realized that people now appreciate probably more so than income the opportunity to have balance or attach purpose to the work that they do. And, you know, so for me, for about ten years, leaving the car business, um, I've managed very much the way that I was managed, right? So remember, um, you know that about every three years, um, I would have almost 100% turnover in my company. And it was like after the third cycle of that, I'm like, This is exhausting, right? And this will make more sense when we get to what my I believe my sole purpose is here. But those relationships, whether it was my choice or their choice to leave, when that ended, it exhausted me.   Eric Brewer (00:12:57) - I took it personal, which as much as people say business and personal or two separate things, I think that's a myth. I think if they are, you're doing one of those wrong. If your business isn't a little bit personal and your personal doesn't have a little bit of business in it, those two are out of alignment and need to be fixed. And I just you know, we were making a lot of money doing a lot of deals, having awards and accolades to be able to show externally, but internally was starting to feel a little bit like I did at the end of the car. Business was starting to feel burned out, but felt it was more my wrongdoing than it was the nature of the business. And I started seeking answers. I got into a mastermind, completely changed my life, was introduced to an implementer, hired them to come implement into my business about seven years ago, completely changed my perspective on leadership management, delegating tasks. The role of a CEO, um, just turned everything upside down.   Eric Brewer (00:14:02) - And over the last 6 to 7 years, I've slowly been unpacking my bad habits and replacing them with more productive leadership habits was probably the world's most toxic manager. And now I think if you were to ask people that know me and spend time with me, I've become, um, someone that a lot of people follow in regards to leadership, which is almost embarrassing to me to think about because of how far I think that I've come and how much I look back on the way that I used to make decisions. And the way that I used to communicate with people and how polar opposite it is from today. It's amazing that didn't just run myself off a bridge seven years ago or have someone run me off the bridge that worked for me because they couldn't stand being around me. But um, yeah, that's iOS and a mastermind completely changed my my personal and professional, um, experience.   Sam Wilson (00:15:02) - Wow, that's that's, that's awesome. What I mean, when you say and maybe you gave some of this color if your leadership style was forged in the car dealership world, you know, if that was if that was where you took your your operating cues from and that carried over into then what you were doing, I can imagine, you know, you already mentioned kind of what some of those toxic habits maybe were, but how did you get plugged into let's talk about the mastermind and then the of course, iOS is is traction, right? Yeah.   Sam Wilson (00:15:35) - Okay, cool. So those of you who are listening, obviously, Gino Wickman, how do you say his name anyway? You can look up the book Traction.   Eric Brewer (00:15:43) - Gino Pacman. Gino, it's.   Sam Wilson (00:15:46) - Wick. Something I can't remember.   Eric Brewer (00:15:47) - Yeah. Wickman You know, Wickman.   Sam Wilson (00:15:49) - Wickman Okay. There you go. Look up that book Traction, because that's what Eric is referring to. Obviously, you've heard that book on this show before, but and everybody said the same thing, like, Hey, this book changed my life, changed the way we do business. How did you pick a mastermind? I mean, this is this is a this is a personal question for me, Eric, because, yeah, something I've thought a lot, a lot about, and I'm like, Oh, I want to do that. But if you've done any cursory searches, there's about 900,000 of them across the United States.   Eric Brewer (00:16:20) - So I had. Really no clue what a mastermind was. I'd never been to one. It was completely off my radar.   Eric Brewer (00:16:29) - And I live in central Pennsylvania. My mentor and business partner at the time, Craig Rich, lived in Baltimore County. So there are only about 40 minutes apart. And part of our natural growth in central Pennsylvania where we started flipping houses was we eventually moved in to Baltimore County and we were talking about think at this phase in our business from really oh five, oh six, all the way up to around 2012, 13, 14, 15, we bought almost all of our inventory off the public auctions, sheriff sales tax sales. What we would constitute is like on market, right, non direct to seller. And as the the real estate market started to recover, as funding became more readily available for investors, that inventory started to become more difficult to acquire. Our margins started to compress and we went through started looking for advice on direct to seller. And we actually we ended up with like two options. One was a franchise, um, without saying exactly, there was really two franchises out there that, you know, 7 to 10 years ago were around and go, Hey, we'll do direct the seller for you.   Eric Brewer (00:17:48) - You just give us the money and we'll mark it for you through billboards and and all that stuff. And you can, you can, you know, absorb our brand and you just have to go out and buy the house. Okay. And through that process got introduced to a man named Brad Chandler who operates out of like the DC metro area. And we had like a mutual friend or something and someone connected us. We set up a zoom call with Brad, and Brad was like, No, no, I wouldn't go the route of the franchise. You need to join Collective Genius. That's the mastermind that I'm in. It's changed my life. Everything that I do today in my business came from there. Let me invite you as my guest. So me and my partner, Craig Rich, went to, um, a meeting. We were extended an invite. We spent three days there, completely blew our mind. And at the end they said, Hey, do you want to join? We'd like to extend an invite.   Eric Brewer (00:18:41) - We think you're a good culture fit. You bring value to the community. We'd love to have you. And we signed up. And, you know, now it's been seven years there. Now I'm actually part of the leadership team at Collective Genius, so I'm one of about a half dozen or so people that run, facilitate and drive the strategy behind that mastermind. And literally every aspect of my business has the fingerprints of on it, starting with the introduction to a guy named Gary Harper and Susan Harper, who runs Sharper Business Solutions, who came here back then and implemented for me over. We spent three days, ten hour, three, ten hour days together where they ripped apart my business, my organizational chart, our systems, our processes, everything. And we built from the ground up. And yeah, it completely changed the trajectory of our business.   Sam Wilson (00:19:36) - That's cool, man. I love that. I love that. Very, very cool. Thanks for giving us some insight on that. You did mention and I've asked I asked this once, but I'll go for it again, the three words you said, Do you remember what you were talking about on that front? We said, hey, there's three.   Eric Brewer (00:19:48) - Yeah. So part of the the exercise inside of, of interaction is defining like what you stand for as a person and then attaching sort of your personal y, driving that down into the business's sole purpose and then the company's core values and then making sure that that resonates and translates down into the most entry level person in the company, right? They all need to be speaking the same language, showing up for the same reason with the same end goal in mind. And we started with purpose. And I don't know if you've ever, you know, gone through the exercise of defining your why or your purpose, But it is hard. It is. And, you know, so I have I have been literally been working on that for about five years straight. And I've wrestled with it. Right. I always felt like I was giving surface. Well, I want more money. Why? Well, want more time? Why? Well, it gives me more freedom. Why is that important? It's like, dude, like, can I just give you the money answer or the family answer? And we had gone through a quarterly planning session where Gary came back 3 or 4 years later after we initially met, and he was working on this purpose with me.   Eric Brewer (00:21:01) - And I said, Yeah, man, it's my purpose. My why is to positively impact the life of my family. And he looked at me and goes, I think you're full of. And I said, What? And he said, You mean to tell me that God puts you on earth to positively impact the life of seven people? That's it. Seven people. That's all you're capable of. And after I got a little upset with him, I realized he had a valid point. And I started, you know, it was really about my family, their families, their grandkids, my employees, family. It was a much bigger, you know, group of people that I wanted to have an impact on. I was just I was living small. And that's triggered this whole sort of purpose. I asked myself 15 times a day now, why? Why is that important? What's that mean to you? Is that a big deal? A little deal? So the three words for me currently today that I can summarize my job description as relationships experience freedom.   Eric Brewer (00:22:10) - And then each of those have like their own sort of nested like if you say, Eric, what do you mean by relationships? Hey, my focus each and every day needs to be to develop new, meaningful relationships and nurture existing meaningful relationships. Yeah, right after I do that, that creates a unique, pleasurable experience for everybody that I come in touch with. New people, existing people, employees, vendors, Customers. Investors. Bankers. Everybody. And as a result of doing those two things, the natural result of that is to have freedom, right? So those are the three aspects of my job description and my life that get as much of my focus as I can responsibly manage.   Sam Wilson (00:22:53) - Man, this has been fantastic. Eric, thank you for taking the time to come on the show today. You've given us so much to think about. We didn't. This have been a little different show and I kind of felt that that was going to be the case. Just talking to you before we kicked it off was like, you know what? We're probably not going to talk all that much about real estate, but you have driven home tremendous value here to me personally and I'm sure also to our listeners here today.   Sam Wilson (00:23:14) - So thank you for taking the time to be very real and just tell tell your story and what you've learned and your journey thus far. Certainly appreciate it giving us tremendous value If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Eric Brewer (00:23:28) - You can follow me on Instagram. I'm pretty active on there. I'm posting 3 to 5 times a day. A lot of the conversations you and I had today, I'm sharing real life experiences on Instagram. It's Eric underscore Brewer underscore invest.   Sam Wilson (00:23:41) - Awesome we will make sure we put that in the show notes Eric thank you again for your time. I do appreciate it. Thanks buddy. 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 (00:24:10) - So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

24m

Jul 24