How to Scale Commercial Real Estate

Today's guest is Greg Friedman.   Greg has more than 23 years' hospitality experience with an emphasis on deal-structure and financing. He successfully has led Peachtree in more than $8 Billion in hotel acquisitions, investments and development since co-founding the company.    Show summary: In this podcast episode, Greg Friedman shares his insights on the commercial real estate landscape, focusing on the lucrative opportunities in credit trade for financing acquisitions, developments, and recapitalizations. He recounts Peachtree's adept navigation through economic downturns like the Great Financial Crisis and the pandemic, crediting proactive investment strategies. Greg also discusses the hotel industry's potential, driven by favorable supply-demand dynamics. -------------------------------------------------------------- Introduction (00:00:00)   Greg Friedman's Background (00:01:07)   Influence of Family and Entrepreneurship (00:02:00)   Navigating the Great Financial Crisis (00:04:29)   Investing During Market Disruption (00:06:39)   Hotel Investment Strategies (00:09:23)   Opportunities in the Hospitality Space (00:12:11)   Investment Risks and Opportunities (00:13:17)   Lending and Financing Strategies (00:16:58)   Target Audience and Demand Profile (00:18:44)   Conclusion and Contact Information (00:20:30) --------------------------------------------------------------   Connect with Greg: Web: https://www.peachtreegroup.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: Greg Friedman (00:00:00) - Across all commercial real estate. I think the best opportunity set is on the credit side. The credit trade me hands down, is the most compelling trade today. And if you're doing direct lending, you know where you're financing groups to go out and acquire and develop assets or even recapitalize existing assets. And a lot of cases were, you know, ultimately driving from a standpoint of the investments we're making, we're getting, you know, outcomes that are very similar to what we would be getting if we were investing on the equity side.   Intro (00:00:29) - Welcome to the how to Scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:42) - Greg Friedman, thank you for taking the time to come on the show today. I certainly appreciate having you. Come on.   Greg Friedman (00:00:48) - Yeah. Thank you Sam. I appreciate the opportunity to be on the show with you today.   Sam Wilson (00:00:51) - Absolutely. Greg, as our listeners know, normally I give the guest bio there in the beginning, telling all about the guest and where they come from.   Sam Wilson (00:00:58) - But instead, we're going to skip straight to the same question 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?   Greg Friedman (00:01:07) - Definitely. so, you know, I graduated from University of Texas at Austin back in 1999. I spent, you know, about eight, you know, 8 or 9 years in banking before I started Peachtree going back, you know, to 2007. And, you know, Peachtree, when I originally started it, it was a, you know, small family office that we were focused on going out and acquiring and developing hotel assets. And like all businesses, we've transitioned through the years and we've transitioned into a vertically integrated private equity firm that invests across, you know, all commercial real estate property type. So we invest, you know, still very heavily across the hotel space. But we also have investments across all commercial property types as well as we have investments outside of real estate as well.   Greg Friedman (00:01:49) - And then as I mentioned, we're vertically integrated. So we own an operation development lending asset management company, so forth.   Sam Wilson (00:01:56) - That is fantastic. Did you grow up in a family of entrepreneurs?   Greg Friedman (00:02:00) - You know, I did. So my my grandfather was a huge entrepreneur. He was a doctor by trade. And he, he also owned a bunch of real estate, like any good doctor that lived in a small town in Alabama, because I grew up right outside Tuscaloosa. He was, you know, he was very focused on not only being a doctor. He was an eye doctor. He was also focused on doing everything from owning commercial real estate, you know, to owning a home building business to owning movie theaters. So he was, you know, very entrepreneurial. So he was a huge influence on my life. And he, you know, owned hotel properties. And that was, you know, that's how I sort of got into the business because he owned a business that owned hotels, but also owned a hotel lending business.   Greg Friedman (00:02:43) - So I personally grew up around the business before, you know, professionally getting into the, hospitality business on the lending side, when I graduated college.   Sam Wilson (00:02:51) - Got it. And so was that. I guess maybe that's the answer, the question that's kind of what gave you the bug early on that said, hey, this is this is kind of the direction we're going to take, but what did you decide to do differently? Maybe, you know, when you launched Peachtree that your family wasn't already involved in.   Greg Friedman (00:03:08) - Yeah. So, you know, at this point in time, when I launched Peachtree, my family was pretty much out of the hotel business outside of, you know, some limited investments. So it was, you know, my grandfather, unfortunately, he was, you know, at this point in time, he passed away shortly after I started Peachtree, but didn't have a lot of, you know, he had sold off most of his investments. And same for my mom, who was a big influence as well.   Greg Friedman (00:03:29) - But, but really went in and, you know, initially thought I was going to, you know, just focus because I knew the hotel business from a professional perspective that was out there financing, capitalizing hotel projects and have financing capitalized over 300 hotel projects across the US when I was on the banking side, so I wasn't necessarily looking to duplicate what the family business had done. I was trying to really create my own legacy. And, you know, with myself and I had a partner that still is involved in the business today. The two of us both wanted to create our own legacies, to go out, you know, acquire and develop hotel properties. And we had, you know, our own capital that we were investing. So, you know, personally was using my capital along with my partner. And then our family members were investing heavily. So my grandfather, my mom and so forth were big investors. Initially when we went out and acquired developed assets, when we set up a business.   Sam Wilson (00:04:20) - Got it.   Sam Wilson (00:04:20) - You launched that in 2007. That seems like the prime time to, get heavily into commercial real estate. How did you weather the next 3 or 4 years?   Greg Friedman (00:04:29) - Yeah. So we're good at picking timing here. So we picked it in May of 2007 when we formed Peachtree. And and that was probably the absolute peak before the great financial crisis. And so we, you know, so we went out and, you know, made about eight, 8 or 9 investments across the lodging space, in 2007 timeframe where we bought some land parcels that we ended up developing into hotels shortly thereafter, or we bought actual hotel assets. And it was, it was sort of interesting, just as I reflect on it, because, you know, it was probably the best lesson, you know, for us on the business side, because we quickly went from, you know, being able to play offense, meaning we were able to make investments to happen to play, you know, truly play defense because we were going through one of the, you know, worst economic situations of all time.   Greg Friedman (00:05:17) - With the great financial crisis that really took hold by the mid part of 2008. And, and we successfully navigated through that environment, not only do we end up producing, you know, decent returns, we, you know, all those investments we made, we actually made positive returns on every investment we made pre, great financial crisis. But we were we were super active. We were, you know, very good about not only playing defense but being able to go out and play offense and buy a lot of distressed debt during the great financial crisis. You know, where we bought over, you know, 50 loans. We bought a lot of hotels that were in distress on the real estate side as well. And we bought, you know, we developed a bunch of hotels from the ground up in the middle of the great financial crisis. So we had a lot of success making new investments as well as playing defense. And, you know, being able to, you know, really optimize and drive the returns across our, you know, our existing investments at that point in time during the great financial crisis.   Sam Wilson (00:06:13) - It sounds like you guys were. What? Let's be brave when others are fearful. Like you guys were brave when others were fearful in in this time. What? What did you guys do differently that able you know, that allowed you guys to go out and buy distressed hotel assets and say or distressed debt, whatever it was and say, hey, we're able to do something better than the previous operator has done.   Greg Friedman (00:06:39) - Sure. So I think, you know, I think a couple different things. I think it's just part, you know, at this point in time, I think it's part of our DNA, of our organization. And when you look at just the culture here, we're not afraid of chaos. We're not afraid of, you know, operating in tough environments. And we've had a lot of success doing that, obviously through the great financial crisis. And then even through the pandemic, we were one of the most, you know, active buyers of distressed debt. We bought over, you know, 180 loans in 2020 and 2021.   Greg Friedman (00:07:06) - In the middle of the pandemic, we bought a bunch of hotel distressed hotel assets, even during the pandemic, as well as, you know, we made a lot of, direct loans to groups that needed rescue capital made over, you know, 29 loans to different groups that needed rescue capital to make it through the pandemic. So I think it's it's one of those components where we're willing to be decisive when the market pulls back, you know, you find a lot of groups, become, you know, very timid when there's a, you know, when there's a chaotic environment, when there's disruption in the marketplace. And we're very proactive in the sense that we, you know, like what we did during the great financial crisis, we were very proactive in asset managing our current investments and really setting those investments up to be successful. And then simultaneously, we were able to, you know, shift our mindset because it's hard to play defense and offense at the same time. And you have to sort of, you know, you have to bifurcate those two strategies.   Greg Friedman (00:08:02) - And that's something we did successfully during the GFC. And then as we grew our company because we were much larger, you know, you know, before the pandemic started and we're even larger today than before the pandemic. But, you know, we were able to split our team where we had a certain part of our team focus on playing defense and really optimizing the performance of our existing investments. And then we had another team focused on going out and making new investments in finding and sourcing opportunities. And a lot of cases, what you find in the especially in the hotel industry, there's a lot of inefficiencies from one operator to another. And we've you know, we internalize the operations side going back to 2008 and Peachtree, we did it in order to play defense during the great financial crisis. And having our own internal hotel operation platform has paid dividends for us, not only being able to identify opportunities, but truly being able to outperform, you know, how other operators operate. And unfortunately, when there is disruption in the marketplace, like a pandemic or a great financial crisis, you can quickly see who's good at operating and who's, you know, who's been struggling, but you know, has had the benefit of the, you know, economic conditions before that disruption.   Sam Wilson (00:09:13) - What are some telltale things that you guys look for in an operation where you say, man, that would be a great buy because we can implement X and make this so much better.   Greg Friedman (00:09:23) - Yeah. So a lot of it is looking at revenue management strategies, like you find that a lot of hotels don't really optimize their actual revenue management strategies, being able to maximize rates that they're charging and simultaneously driving the occupancy. So being able to drive those revenues into the asset, you find that other operators are really good at revenue managing. But when you get these revenues, they just overspend and you know, you want to drive. Great guest experience. And we pride ourselves on being able to do that across our portfolio. But you want to be able to, you know, simultaneously because you're making you know, you're making investments in these assets because you're a for profit enterprise. You know, usually and for us, we're for profit. So we want to make sure we're able to control expenses. And we keep a very tight budget on, on what we're spending on the operations side, but we're doing it at a level where we don't want to impact the guest experience.   Greg Friedman (00:10:15) - So being able to balance that out is usually where you can find those opportunity sets. And then, you know, I would say from a more just high level value add strategy that we've been able to implement. When you look at the hundreds and hundreds of, you know, investments we made on the equity side across hotels we've acquired, you know, what you find is a lot of times hotels are undercapitalized from a CapEx perspective. So we'll buy an asset and go in and spend a lot of money to renovate that asset and actually bring it into a level where it can be competitive with the other hotels in its comp set to be able to charge higher rates and be able to drive occupancy. And, you know, other cases, you know, you find that, you know, we're able to, not only, you know, spend money to drive performance from a standpoint of renovating the asset, but change the brand and going from one brand to another brand. There's a lot of value that could be, you know, that could be created by making those brand changes.   Greg Friedman (00:11:11) - And we've had a lot of success in doing that, taking something that's maybe unbranded and putting a marriott or Hilton brand into it. So it has a strong reservation system to help drive that performance.   Sam Wilson (00:11:22) - No, that's really, really excellent. I love the insight there. And I know probably of all commercial real estate asset classes, I know the least about hotels. So this is this is kind of a fun conversation for me to learn, from you. So. Well, Greg, let me ask you this. Like, where is the opportunity that you guys? In hotels today. I mean, it's something where, you know, the traveler preferences have changed. We've seen a lot of, I think, shift in the in the market. you you mentioned here even before we started hitting record that you saw that there's chaos in commercial real estate. So I'm sure having weathered 2007, you know, been through that, built an enormous company up until now. You guys are constantly reassessing where opportunity lies. So give us kind of the insight on what you think and where you guys are positioning yourselves as it pertains to the hospitality space as a whole.   Greg Friedman (00:12:11) - Yeah. So and we we love the hotel space. And we also, you know, we still think there's a lot of opportunities within commercial real estate outside of hotels as well. But across all commercial real estate in general, hands down, the best opportunity set today is not to go out and acquire assets. You know, we think there's a better opportunity set actually on the development side across hotels today, although I think there will be a better opportunity to buy hotels more opportunistically later this year. But we're finding, you know, a better opportunity set if you are investing on the equity side, on the development side versus actually acquiring assets. But going back to my original point, though, across all commercial real estate, I think the best opportunity set is on the credit side. The credit trade me hands down is the most compelling trade today. And if you're doing direct lending, you know where you're financing groups to go out and acquire and develop assets or even recapitalize existing assets. And a lot of cases where, you know, ultimately driving from a standpoint of the investments we're making, we're getting, you know, outcomes that are very similar to what we would be getting if we were investing on the equity side.   Greg Friedman (00:13:17) - Yet we're in a, you know, position that you could argue that's protected because we're in a lower leverage position because we're financing 60 to 75% of the, you know, acquisition costs, development costs, you know, the current value of the assets. To recap. So to me, that's the best opportunity set right now, is to invest through credit versus taking on the last dollar risk on the equity side. But if you are going to take on Las or equity risk across hotels, I you know, I believe the, you know, the development side to be super compelling because there's a lot of markets, you know, when you look at hotels in general, you know, supplies down roughly about 30 to 40% from historic averages. So supply is growing at less than 1% a year. That's projected to be the case for the next five years or so. And that's just a, you know, that's a you know, that's really the outcome of what happened during Covid, where supply pipelines were shut down because nobody wanted to build new hotels when no one was traveling.   Greg Friedman (00:14:13) - And then all of a sudden we transition as travel started coming back, you know, back in, you know, 2022, we started transitioning into this environment where the credit markets became dislocated. So it became more and more challenging to finance construction or new construction assets. And and that's created that constraint of new supply. And simultaneously, there continues to be robust demand. Drivers like demand continues to grow from where, you know, where we were even last year across our industry. And, you know, we're still expecting over the next five years, demand is going to be, you know, growing at historic levels at 2% or higher per year. So demand's way outpacing supply. And there's a lot of markets that, you know, could support new hotels be built in. That's one reason why we do favor development. The other, you know, just sort of interesting component to hotels compared to other property types. Today, if you wanted to invest across, you know, any property type hotels trade at higher cap rates.   Greg Friedman (00:15:08) - And part of the reason, you know, I'm probably a little bit, you know, negative towards equity investments in general right now is I still think we're going through this whole repricing, across all asset types, especially, you know, commercial real estate because interest rates are much higher today than where we've been over the last decade. You know, we've averaged like use the ten year Treasury rate as the risk free rate, the ten year Treasury rates, you know, averaged around 2% over the last 12 years or so. And, you know, you look at today, the ten year Treasury rates around four, you know, 4.3%. So the ten year Treasury is almost double where it's been over the last 10 or 12 years. And, you know, I believe that the ten year Treasury is going to stay elevated. And if it does stay elevated, when you start applying risk premium spreads, which the ten year treasury rate is, from my viewpoint, the risk free rate. And if you applied the, you know, risk premium spreads on top of it for what commercial real estate typically is, which is on average about 275 basis points above that risk free rate.   Greg Friedman (00:16:07) - You know, you start to realize a lot of, you know, assets, a lot of these assets that are trading at a 5% cap rate or even a low 6% cap rate, you could argue you could see, you know, continue to see a cap rate expansion from where they're trading out right now. And that's the risk of making equity investments. I'm not sure if the market's fully, reset. Whereas hotels, you know, are trading around 8% cap rates. So you have higher risk premium spreads, you have less repricing risk. And that's why hotels are. More compelling on the equity side than some of the other property types that you see out there.   Sam Wilson (00:16:42) - I love that explanation. Thank you for taking the time to, to do that on that, on that credit side of things, what are people building now that today's that? Yeah, I guess what are people building right now that makes sense for you guys to be the lender on?   Greg Friedman (00:16:58) - Yeah. So I mean, on the development side, we're financing a lot of new hotels that are being built.   Greg Friedman (00:17:03) - So we're doing a fair amount of construction loans. We're doing a lot of acquisition loans, as you can imagine, outside of construction. We're actually doing some multifamily construction loans. You know, you have a record amount of supply getting delivered in multifamily. So we are very selective on the markets that we are financing. But we are doing some multifamily construction loans, some stuff on the industrial side as well on construction lending, but by far the majority of the type of loans we're making today are, you know, going out and providing acquisition financing or recapitalizing existing assets. And we are starting to ramp back up on buying loans. You know, we bought four loans in the month of December alone. We're buying we're in the process of buying several loans as we speak today. And when we buy loans, this isn't you know, our credit strategy is not a loan to own strategy. Our strategy is to go in and buy loans or even make loans with the idea of helping the borrower be successful. You know, that's what we're our focus is on.   Greg Friedman (00:17:59) - As we buy these loans, we typically buy them with the idea we're going to restructure the loans and hopefully allow the borrower to have runway to be successful and get us paid off over the next couple of years as the market normalizes back out.   Sam Wilson (00:18:13) - Right? No. And that's I mean, that's a lot of moving pieces there and a lot of different strategies I think that you guys are employing all at once. So it's it's a lot of fun to hear you just talk. I know you you probably stay at the 30,000 foot level with a lot of people making a lot of these things happen. I think that's that's really, really cool. I guess, maybe even a more direct question is on the construction loans that you guys are doing. I guess I'm trying to understand the type of traveler today that the hospitality space needs, not the type of traveler that we're building for today. Where is what is that.   Sam Wilson (00:18:42) - Yeah. So we yeah, typically we're.   Greg Friedman (00:18:44) - Focused, you know, on just to sort of put to scale what we're looking at is typically select service limited service compact full service extended stay hotels with 100 to 250 rooms.   Greg Friedman (00:18:57) - Right. So typically the type of guess we're going after are the, you know, corporate travelers. In some cases it's leisure demand. And because each of these submarkets have different, you know, demand drivers that are driving who's actually utilizing these hotels. But I would say the majority of the demand is coming from corporate and group demand as well. As, you know, there's a decent amount of leisure demand, which usually makes up about 20 to 30% of the hotels that, you know, we invest into, have about, you know, have a leisure component to it as well. Sure.   Sam Wilson (00:19:27) - No. That answers the question that that was. Yeah, that's that's super insightful because that's that's kind of the answer I was expecting because I think I've just we've just seen kind of the, the, demand profile change I think slightly over the years. And that was that was the answer I probably expected right now was that more select service? yeah. Corporate traveler sort of sort of clientele at those hotels. So that's really, really cool.   Sam Wilson (00:19:50) - Greg, we've talked about a lot of different things today. I mean, you guys have grown an enormous company here over the last. What is that? Oh seven? 17 years.   Sam Wilson (00:19:58) - 17 years?   Sam Wilson (00:19:59) - Yeah. Man. Congrats. That's a lot of fun. You've done a lot of things you've shared with us today. Your thoughts on the market as it is today, where you guys see opportunity. You've shared with us how you guys have built, built your firm, the types of things that you guys are investing in, the opportunities and how you guys have diversified yourself over the last ten years or so, and what you've been investing in, the types of loans you're buying, acquisitions, development and a very insightful show. I appreciate you taking the time to come on today. If our listeners want to get in touch with your firm, what is the best way to do that?   Greg Friedman (00:20:30) - Yeah, just visit our website, Peachtree Group. Com and we're happy to, you know, connect with anybody that the connect with us.   Sam Wilson (00:20:37) - Fantastic. Thank you again Greg. Appreciate your time today.   Greg Friedman (00:20:40) - All right. Thank you. Talk soon.   Sam Wilson (00:20:41) - 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 Jay Conner.   Jay Conner has been buying and selling houses since 2003 in a town of only 40,000 people with profits now averaging $78,000 per deal. He has Rehabbed over 475 houses and been involved in over $118 Million Dollars in Transactions.   Show summary: In this episode, Jay Connor discusses the advantages of using private money and private lending over traditional banking methods for real estate investments. He shares his personal success story of raising $2.15 million in private funds within 90 days. Jay also highlights the importance of mastermind groups, building a strong team, and the transition from mobile homes to single-family houses. Additionally, Jay promotes his book "Where to Get the Money Now?" which offers a step-by-step guide to funding real estate deals, and he provides a special offer for listeners to receive an autographed copy.   -------------------------------------------------------------- Mastermind Groups (00:00:00)   Background and Journey (00:00:45)   Transition to Private Money (00:02:22)   Deployment of Private Money (00:03:49)   Protection for Private Lenders (00:04:38)   Applicability to Commercial Real Estate (00:05:59)   Building a Strong Team (00:06:52)   Automation and Delegation (00:10:03)   Efficiency and Growth (00:11:48)   Raising Capital Strategies (00:14:31)   Raising Private Money (00:16:35)   Mindset and Rejection (00:21:40)   Book Recommendation (00:22:24)   Offer for Listeners (00:22:46)   The giveaway (00:22:55)   Raising money principles (00:23:39)   Thank you and closing (00:23:56) -------------------------------------------------------------- Connect with Jay: Web: www.JayConner.com   Facebook: https://www.facebook.com/jay.conner.marketing   Linkedin: https://www.linkedin.com/in/privatemoneyauthority/   Free Book: https://www.jayconner.com/book   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: 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: Jay Conner (00:00:00) - My business started to skyrocket, like overnight when I started joining really good mastermind groups, mastermind groups of where I, fellow like minded individuals are in real estate investing and have been doing it a while. I'm not listening to advice from somebody that hasn't even done their first deal yet, right? I'm listening to advice from fellow mastermind members that are doing 50 plus deals a year. Welcome to the how.   Intro (00:00:33) - 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 (00:00:45) - Jake Connor has been buying and selling houses since 2003, in a town of only 40,000 people, with profits now averaging $78,000 per deal. He has rehabbed over 475 houses and been involved in over $118 million in transactions. Jay, you've been on the show before. It's really great to have you back for round two. Thanks for coming on today, Sam.   Jay Conner (00:01:08) - Thanks so much for having me back. Talking about my favorite subject in topic. And that's private money and private lending, because quite frankly, that in and of itself has had more of an impact on our real estate investing business ever since 2003.   Sam Wilson (00:01:24) - Absolutely. Jay, I asked this question to every guest that comes on the show, and so I have to ask it for the listeners maybe that didn't hear your first episode in 90s or less. Where did you start? Where are you now? How did you get there?   Jay Conner (00:01:40) - So where did I start? I grew up in the housing business with my dad, Wallace Conner, and at one time he was the largest retailer of mobile homes, manufactured housing in the nation. So I grew up, you know, being around a family that was that helps people own a home. So in the early 2000, the consumer financing for that product went away across the nation. And I knew if I ever wanted to, if I ever got out of mobile homes, I wanted to get into single family houses. Now I've done commercial as well. I've done condominium developments and, shopping centers. But my focus has been single family houses. So how did I get to where I am today? Well, I'll tell you.   Jay Conner (00:02:22) - In short, from 2003 to 2009, I relied on institutional money and local banks to fund our real estate deals. And in 2009 January 2009, I had a rude awakening. I was on the phone with my banker, and I learned that my line of credit had been closed with no notice. January of 2009 I'd done a ton of deals with my banker, and of course, during that time, they were not loaning out money to real estate investors anymore. So I knew I had to find a better and quicker way to fund my real estate deals. So right after that, I was introduced to this concept of private money private lending, self-directed IRAs. I'd never heard of any of that stuff. And so in less than 90 days, I raised $2,150,000 in private money and lending from individuals through connections that I have and had. And since that time, I've not missed out on a deal for not having the money.   Sam Wilson (00:03:27) - That is fantastic. It, $2.15 million in less than 90 days. Yes, you had the context or contacts to do that, but what did you have them invest into? I mean, it's one thing to go out and say, hey, I have, you know, this is the thing we're doing, but where did that money get deployed so rapidly.   Jay Conner (00:03:49) - In single family houses? So I had houses under contract to buy and close on before I knew that, you know, that my, my line of credit had been shut down and so but I only needed, $500,000 or so to take those houses down. So the other $1.5 million we started putting to use on other deals that we were negotiating on, you know, over that 90 day period.   Sam Wilson (00:04:20) - Got it. One of the things I think, that you've always stressed to your lenders is they are direct investors. Their name is on the they, you know, not just a promissory note, but they hold the deed of trust or I guess, you know, depending on what state you're in, I'm not sure how North Carolina does it or the mortgage. is that still the case today?   Jay Conner (00:04:38) - That is the case. Everything that we do with single family houses is what we call one offs. So what do we mean by a one off? Well, a one off is that you've got a private lender, which by the way again we're not talking institutional money.   Jay Conner (00:04:51) - These are individuals. These are human beings just like you and me, using their investment capital and or their retirement funds to invest in our deals. And so you have a private lender or maybe a couple of private lenders that are funding a single family house. And as you said, they get the problem. They get the same protection as a bank, right? They get a promissory note, they get the mortgage or the deed of trust here in North Carolina that collateralize that note. So we're not borrowing unsecured funds. They get named as the mortgage on the insurance policy. That's another layer of protection. We name them also as additional insured on the title policy. So we give them the same protection as the bank. So the private lenders are not having any kind of equity position. It's not joint venturing. The private lender acts in the same capacity as the bank. And it is our entity, our company that owns the properties. Right, right.   Sam Wilson (00:05:47) - And that makes perfect sense. And for those of you who are listening to this, go and wait, Sam, why are we talking about private lending on single family homes? On the how to scale commercial real estate podcast? It's because the principles are the same.   Sam Wilson (00:05:59) - Not only do I think the principles are the same in the in the way that you can utilize this strategy in commercial real estate, because I think, as you mentioned, you may have done that with shopping centers and with other things. but it also could give you something else in your tool belt. Another way to think about how to take down a deal, because there's there's not a one size fits all approach to how we finance and take down assets, even on the commercial. And I think even especially on the commercial real estate side, where you get into some very, very creative financial structures. So this, this may be just one more thing in your, in your toolbox that you can go, oh, here's, here's a way I can plug somebody. And I know that has a lot of capital that maybe could help us get this deal done. So very cool. It sounds to me when you mention all of this, like, you have to have a great team behind you that is able to get all these eyes dotted and t's crossed.   Sam Wilson (00:06:52) - Otherwise this becomes an administrative nightmare.   Jay Conner (00:06:55) - Absolutely. The team is so important. So who are the team members? Well, first of all, it's my opinion. You're not really in business as a real estate entrepreneur or investor until you have a relationship with an excellent real estate attorney. As a matter of fact, our real estate attorney is right next door down the sidewalk, about ten feet, so that's pretty convenient. I've been with the I've been using the same firm, the same group of people, ever since 2003 when we started. So we got a long history of relationship to Sarah. So the real estate attorney is important. I am not a realtor. I don't want to be a realtor. I want, but my relationship with my realtors are very, very important. My primary realtor that I've been doing business with, it helps me find deals, pulls all my CMA's. For me. Comparative market analysis gives me opinion on value. his name is Chris. We've been together doing this thing ever since 2004, the second year that I started.   Jay Conner (00:07:55) - And so the realtor relationship is so important. And then, of course, my team members, I've got a full time acquisition list that's been with us for 18 years. But what in the world is an acquisition? Acquisition negotiates the deals, I make the decisions. you know, based on what I want to offer on properties and etc. and then I've got my project manager. So I got a actually, I have two project managers that oversee, the houses that we're doing on rehabs. So they go out and they estimate the repairs and budgets when we're actually rehabbing a house. And, by the way. As a side note, private money is not just for rehab. Business private money is when the seller of any kind of property requires all the cash. Now, of course, we're familiar with all kinds of creative ways to buy houses and commercial properties and etc.. You know, when you're in the commercial space, of course, self storage and all that kind of stuff. Very popular to have seller financing.   Jay Conner (00:08:55) - Take back a note with single family houses. We will, you know, buy houses sometimes, subject to the existing note where the owner agrees to sell us their property and we agree to make the payments on their current mortgage and leave that in place. But at the end of the day, and, Sam, I think you will agree. At the end of the day, particularly in the world of single family houses, most of the time, as in 87% of the time, to be exact, the seller requires all the cash. So having the cash ready to be ready to go is going to allow you to make more offers and not miss out on any more deals. But back to the team. Acquisition is very, very important. And, I have a I have a full time personal assistant that helps, you know, runs my calendar, schedules my appointments and etc. but let me go back to day one. It didn't start out this way. Day one. I mean, Jay Connor was running around with his hair on fire, you know, 60 plus hours a week trying to do everything myself.   Jay Conner (00:10:03) - And I learned a very, very important lesson. You cannot scale. You cannot grow if you try to do all this stuff on your own. So I. I set out on a quest after I'd been in this business for about 3 or 4 years to start automating, delegating everything that I can and to only be involved in the activities in the business that I really enjoy. Right. So today, what do I do? Well, I make decisions. It's my job to make sure the marketing machine was motivated. Several leads are coming into the funnel every day, every week. Because I say if you don't have consistent leads coming in all the time, you're not in business. You got a hobby, right? So I make sure the marketing leads are, turned on. And another important part about communicating with my team is the proprietary software that I use, communicating with the entire team as to where we are with any given deal. That's why with the team in place and our software of communicating with each other, regardless of where that deal is in the pipeline, that's how I'm able to run this business in less than ten hours a week.   Jay Conner (00:11:16) - Right.   Sam Wilson (00:11:17) - And that. Yeah, you you've hit on hit on the, the, the team systems. I mean, that stuff takes time to build. And it goes back to the, Seven Habits of Highly Effective People. I think I'm thinking of, I think. The, the third, what is the third chapter where they talk about, Efficiency is not efficiency, but it's something along those lines where they have the, the, you know, the the matrix where it's urgent, not urgent, important, not important.   Sam Wilson (00:11:47) - Oh, right. Right, right.   Sam Wilson (00:11:48) - You know what I'm talking about. Where it's like most people spend like 80% of their time in the urgent, important category, which is crisis mode.   Jay Conner (00:11:56) - That's right.   Sam Wilson (00:11:57) - Where we need to be spending, you know, the inverse 80% of the time in the not urgent, important category in those.   Jay Conner (00:12:04) - Well, you know, if you're if you're in the if you're in the reactionary mode, right. versus focusing on growing your company and making it better and putting systems in place, then your company's never going to grow.   Jay Conner (00:12:18) - If you're in the reactionary, you know, box.   Sam Wilson (00:12:22) - Does building team and system, does that come naturally for you, or is that something you've honed over time?   Sam Wilson (00:12:30) - I'm sure I honed that over time.   Jay Conner (00:12:33) - I didn't get a college degree on how to build a team and grow system and put systems in place. That'd be a great degree. I tell you, I tell you how all that did come about very early on. And this right here is, is very, very important advice that I would give to any real estate entrepreneur, whether you're brand new or you've been in it for a while. My business started to skyrocket, like overnight when I started joining really good mastermind groups. Mastermind groups of where, fellow like minded individuals are in real estate investing and have been doing it a while. I'm not listening to advice from somebody that hasn't even done their first deal yet, right? I'm listening to advice from fellow mastermind members that are doing 50 plus deals a year, so I can't recommend that strong enough to get involved in a group to where you can really learn from and contribute to your fellow mastermind members.   Sam Wilson (00:13:39) - Right? No, that's really, really powerful. I like that. So we've talked a bit about team. You know, I like the idea. We talked about this a little bit off air. I like the idea of debt. And this is just again, you know, full disclosure here on my own show, which is that I don't love I don't love raising capital. It's not something that comes to me. And I'm like, man, like you said, you know, find team members that love doing this. Not that's not what I love doing. just because of the amount of work that goes along with it. One, you're now married to that investor for 5 to 8 years, potentially answering questions, fielding emails, responding back. I'm not an amazing communicator, Jay. It's not something, again, like, you know, outside of the podcast, it, you know, my wife handles all outbound family communications. Like, I don't know if you want to hear if you want to know something from our family.   Sam Wilson (00:14:31) - I talked to my wife, because I'm just going to do, like. That's where I specialize is doing. And I found that one of the shifts that we've made strategically is that we take on a lot more debt. It's short term debt now, similar to a private lender. And in fact, it is private lending on on a lot of deals where it's debt as opposed to raising equity. And I found that to be really powerful one, because it ticks all the boxes for me personally, where I now no longer am and beholden is too strong of a word, but I'm no longer responsible. I will say to those people that gave me the money, because there's great responsibility when you have equity investors, and as long as I'm making those payments back to those lenders on time, they don't give a rip what I do in my day in and day out. And so it alleviates that communication, you know, kind of kind of hang up that I have. So I don't know, what are your thoughts on that when you when you hear that? I mean, for me, it's it's just a strategy we, we're employing more and more and I'm really enjoying it.   Jay Conner (00:15:26) - Yeah. Well, let me comment on. What's what are the activities that we do to raise private money. So. So I've got two comments or two thoughts. Number one, as far as an activity goes or a way to raise private money as far as having an event, the only events I've done are what I call private land or luncheons or private lender events to where I will invite a group of people, you know, to a luncheon, and I'll teach the private lending program that I've put together that gives our investors high rates of return safely and securely. And so I'll just teach the I'll teach the opportunity. You know, since I started doing this, I've never asked anybody for money. And they say, J how did how do you have, you know, right. At $10 million, now that you've raised a private money without asking anybody for money, it's real simple. I put on this hat that's called my teacher hat. So this is my private money teacher hat. And I just teach people how.   Jay Conner (00:16:35) - So, you see, the traditional way of borrowing money is you go to the bank or the institutional lender, and you get on your hands and knees and you say, please fund my deal, right? It's you're begging, right? And this world, I'm not asking for a mortgage. Excuse me, I'm getting interrupted here on my screen. I'm not asking for a mortgage. I'm offering a mortgage. Right. So. So as far as activities, I mean, I've raised $969,000 at just one private lender luncheon, and I wasn't pitching any deals. There's no there were no deals at at that luncheon. It was the program. So they tell me what they want to do and how much they got to work with. And then I call them up with the good news phone call. Well, what in the world is the good news phone call? Well, Sam, let's say you're one of my private lenders, and you've told me you got $150,000 to invest. And let's say I got a house with an after repair value of 200,000 over in Newport.   Jay Conner (00:17:34) - So I pick up the phone. Believe it or not, we still have handsets here in North Carolina with cords attached to them. But anyway, I pick up the phone and I call up Sam and you and I have a little chit chat. And then here is the script. Here's the script. Let's hear it on the good news phone call. I say, Sam, I got great news. I can now put your money to work. You see. Side note, you've been waiting for the phone call. You've been waiting for me to put your money to work. Because you tell me you've got this. And by the way, Sam, if you had retirement funds and I've introduced you to the company that I recommend where you can move retirement funds tax free, no tax effect over. And then you can loan that money out and earn tax deferred or tax free income. You're really waiting for the phone call because you've moved the money over at my recommendation, and you're not making any money until I put it to work.   Jay Conner (00:18:28) - So back to the script. I call you up. I say, Sam, I got great news. I can now put your money to work. I've got a house in Newport with an after repair value of $200,000. Now, the funding required for this house, this property is $150,000. Closing is going to be next Wednesday, so you'll need to have your funds wired to my real estate attorney's trust account by next Tuesday. And I'm going to have my real estate attorney email you the wiring instructions. That's the end of the conversation. Notice I do not ask Sam, do you want to fund the deal? That's the most stupid question in the world. I get asked Sam. Of course he wants to fund the deal. He's been. He told me he's got $150,000 to put to work. He's waiting for me to put it to work, and I don't have to pitch the deal because I'm not going to bring a deal for Sam to fund. It doesn't fit the criteria of the program that I already taught him as to how it works.   Jay Conner (00:19:25) - For example, part of the program is I'm not going to borrow more than 75%. I'm not going to allow my private lenders to loan me more than 75% of the after repaired value of the property. I didn't say of the purchase price. I said of the after repair value. So did you did you hear those numbers? The after repair value, which I told Sam, was 200,000. The funding requires 150,000. That's 75% of the after repair value. And so. You know, one question. I got on another show yesterday, Sam, was when you're looking for when you're looking. I could what I'm getting ready to say is probably the most important thing I will say on this show. One question I got yesterday was J. When somebody's looking to start raising private money and they've never raised it before, what's the first thing they should do. I said that question is easy. The first thing they should do is get their mindset right. It's hard to own real estate until you own the real estate in between your ears.   Jay Conner (00:20:31) - So what do I mean by that? How do you get your mindset right? It's this whole idea of you're not asking, you're not begging, you're not chasing, you're not selling, you're not persuading, you are educating. Educating. You're an educator, you know, of my 47 private lenders that we've got right now, not one of them had ever heard of private money or private lending until I educated them on what it is. All my private lenders, none of them are sophisticated. They're normal people, just like you and me. By the way, where's a great place to start making your list as two potential private lenders in your world? Retired people? There's a good chance retired people and got retirement funds, and now you can educate them on what self-directed IRAs are. You know, not one of my 47 private lenders had ever heard of what a self-directed IRA is. And so over half of our private lenders are using their retirement funds to invest in our deals and be our private lenders. So that's the first thing.   Jay Conner (00:21:40) - You're an educator, right? You know, sometimes people say, gee, they may not say it directly, but if they've never raised private money, they got a fear of rejection. Here's my question how can you be rejected if you're not asking anybody for anything?   Sam Wilson (00:21:59) - That is. That's a very, very good point. It goes. I mean, the other way to look at that is the the answer is always no. it's no before you ever made the call. So if it doesn't work out afterward, where did where are you? The same place you started? It's like it's.   Jay Conner (00:22:15) - By the way, there's a really good book I recommend, and the title of it is go for no. Have you ever heard of that book saying not.   Sam Wilson (00:22:24) - You haven't heard of go for No, man.   Jay Conner (00:22:26) - I was going to look over there on my shelf and just see if I had it handy. It's a really, really thin book. you can get it on Amazon, but but quick read. But the premise of the book is don't go for yes, go for nothing, go for no.   Jay Conner (00:22:41) - Right. And it's just a whole reframing of how you get a bunch more yeses when you're going for. No, I.   Sam Wilson (00:22:46) - Love it, I love it. J you had one other thing that you wanted to, give away here to our listeners today, which I think will be of value. How do they get that?   Jay Conner (00:22:55) - Absolutely. Yeah. So the first time I was on your show, I gave away my e-book, but now we're taking it to the next level. So here is my recent book, Where to Get the Money Now? And subtitle How and Where to Get Money for Your Real Estate Deals without relying on traditional or hard money lenders. You can't even get this as an e-book to download. I'll actually mail this to you. Priority mail, three day priority mail. I'll autograph it and, just cover shipping. And so here's the URL to get this book shipped out to you right away. W w w dot j Connor j con air.com/book. That's J connor.com/book. I'll rush it right out to you.   Jay Conner (00:23:39) - It walks you through easy read step by step. How to get all the money and funding for your real estate deals you would want. And by the way, as Sam said at the beginning of the show, the principles are the same. Whether you're raising money for commercial or you're raising money for single family.   Sam Wilson (00:23:56) - Thank you, J, for coming on the show today. I certainly appreciate it. It was great to have you back on. And thank you also for that, giveaway there to our listeners. I myself will, end this call and probably send the book to my house because you never know what you're going to learn. So get the book. If you're listening to this show, I'm sure it's packed full of great stuff. And, Jay, thank you again for your time.   Jay Conner (00:24:16) - Thank you Sam. God bless you.   Sam Wilson (00:24:18) - 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 (00:24:31) - 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 Ryan Smolarz.   Dr. Joseph Ryan Smolarz is the founder of STOR, leveraging his experience as an entrepreneur and Otolaryngology practitioner to guide people toward financial sovereignty.   Show summary: In this podcast episode, Dr. Joseph Ryan, a former otolaryngologist and founder of Store Partners, shares his transition from medicine to commercial real estate, focusing on self-storage facilities. He highlights the importance of team building, relationship-driven negotiations, and ethical business practices. Dr. Ryan also discusses his podcast, "Medicine and Money Show," and invites listeners to connect with him for educational discussions on investing. -------------------------------------------------------------- Building Successful Teams (00:00:00)   Introduction to the Show (00:00:31)   Dr. Joseph Ryan's Background (00:00:44)   Transition to Real Estate (00:01:10)   MBA and Transition to Real Estate (00:02:08)   Challenges and Enlightenment from Higher Education (00:04:27)   Transition to Self-Storage Focus (00:09:42)   Staying in Self-Storage Lane (00:11:41)   Decision-Making and Deal Selection (00:11:47)   Managing Capital and Acquisitions (00:13:57)   Challenges in Business Growth (00:15:51)   Remote Operations and Team Building (00:19:51)   Finding Deals and Relationship Building (00:20:59)   Building Rapport and Deal Cycles (00:23:26)   Conversation with Potential Investors (00:25:03)   Conclusion and Call to Action (00:26:19) -------------------------------------------------------------- Connect with Ryan: Web: https://storpartners.com/#/ Linkedin: https://www.linkedin.com/in/joseph-ryan-smolarz-4803a81/   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: *Ryan Smolarz * (00:00:00) - Where I think the, you know, the Alpha lies in building the teams. we have a big focus on that. And, trying to find people who were who were all rowing in the same direction with. I find that super important. you know, the when you know, you have a good team, when one person on the team doesn't like the decision, but everybody else does, and they are rowing even faster in the same direction that everybody else is.   Intro (00:00:31) - 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) - Doctor Joseph Ryan is the founder of store. That's. That's spelled excuse me store. He leverages his experience as an entrepreneur and otolaryngology practitioner to guide people toward financial sovereignty. Ryan, welcome to the show.   *Ryan Smolarz * (00:00:59) - Hey, thanks for having me. Sam, this is going to be great.   Sam Wilson (00:01:02) - Absolutely. The pleasure's mine. Ryan. There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:07) - Can you tell me where did you start? Where are you now? And how did you get there?   *Ryan Smolarz * (00:01:10) - I started in 2017. I realized that, going from room to room as a doctor wasn't going to allow me to retire. And, once I decided that I ended up in a month, I was sitting at a desk in the in an MBA program in Miami. And, so we decided to get into commercial real estate. We, built a assisted living home and started an e-commerce company. Like a lot of people kind of, diversified out. And now we're sort of the diverse offering, if that's a word I'm not even sure, down into more of a focus. And, self storage is certainly one of those. And, where we're going, we want to do right by our investors, raise capital and buy, self storage facilities and, you know, do the best we can for, for our people, our investors, the people who believe in us and treat us well.   Sam Wilson (00:02:07) - Got it.   Sam Wilson (00:02:08) - Now, you're you're an EMT and you decide that you want to do. You said going room to room as a doctor isn't really going to lead us to where we want. So you went to get your MBA? Yeah. It sounds like more education. I mean, you're already super highly educated. So what what was the kind of thinking there or thought process there? And how did you get how did getting an MBA lead you to real estate?   *Ryan Smolarz * (00:02:29) - Yeah. So, when I was what happened was, I woke up one morning and decided I wanted to go on a surf trip, and I had no idea how to get into my bank account to see if I had enough money. I didn't even know what bank we banked at. So my wife took care of all of that. and so I realized that, you know what? Maybe, money is not fun tickets. And I should probably take it a little more seriously. Right? So doing the things that I do, I sort of take it to the extreme.   *Ryan Smolarz * (00:03:06) - And I was like, well, if I'm going to do this, I'm going to go all the way. So let's learn how to do business and the whole bit. And so, yeah, the next month I was in that MBA program and, kind of spiraled from there. you know, I realized that I really liked it. And in that moment, I became, an investor instead of a consumer. And I can tell you that that was one of the most powerful things that's ever happened to me. or, you know, my children's birth and and raising them and my wife and the relationships, but just the outlook on life. my thought process sort of switch from thinking about, you know, watches or cars or whatever it was to solving the world's problems and, capitalism. And, you know, how can we take those thoughts and, you know, do something with them and change the world for better? And, man, it was life changing.   Sam Wilson (00:04:05) - Did you do you feel like you.   Sam Wilson (00:04:07) - And I'm going to. I guess when I say this, I don't think of higher education as a place where people typically get enlightened to go be an entrepreneur. Even in the MBA program, how did was just the right school, the right timing? Was that the right people? Like what was the confluence of things that occurred to really inspire this in you?   *Ryan Smolarz * (00:04:27) - Yeah. So, you know, I was starting from absolute zero. I didn't know, you know, how a bank worked. I didn't know what an interest rate was, really. I mean, we had a mortgage on our house, but, you know, I was like, oh, it could have been 12, 15, 100. It wasn't. You know, I don't want to change anything for me. I didn't really grasp the concept of, you know what that meant. And, once I figured out that, you know, if you do understand business and you can, you can put these ideas into fruition. that there was always a place that there was, like, this itch I was trying to scratch, and I never could figure out what what it was that was off.   *Ryan Smolarz * (00:05:12) - and almost instantaneously, when I made that, that jump, it was completely different. Like, I didn't have that feeling anymore. And so, yes, the MBA, the MBA program was really meant for people who are in that, you know, business, corporate ladder. But I just use the information in a totally different way. Right? I just took what they were telling me and applied it to where I wanted to apply it. and it really worked out perfectly.   Sam Wilson (00:05:44) - That's awesome. So you've gone from a guy that doesn't even know where he banks to now running funds, buying self-storage, raising capital. I mean, being very, very in the weeds in the finances.   *Ryan Smolarz * (00:05:58) - Absolutely. Yeah. We did it, man.   Sam Wilson (00:06:00) - That is that's awesome. So what, outside of the MBA program, how did you then take the next steps to figure out? I know you mentioned the e-commerce business. You mentioned some other things along the way, but kind of give us the, the maybe the modified version of what happened over the last six years to get you where you are now.   *Ryan Smolarz * (00:06:18) - Yeah. So I you know, I always had these ideas in my head about things that I wanted the bucket list. Right. What are the things in life that I want to accomplish? And, I had these ideas for some patents. And so, you know, one day I just said, you know what? We're going to write these patents and we're going to push it through the system and see what happens. And so we did, got a patent attorney and, started having the conversations and, wrote two patents. One of them is supposed to launch the product here in a couple of weeks. It's been, you know, almost five, six years of in production. Wow. yeah. So, you know, once I figured out that Wall Street sort of has this language that they don't want retail to know what it means and that, you know, I've been through medical school, got the anatomy under my belt and learn Latin and, you know, all the things that were really difficult to learn.   *Ryan Smolarz * (00:07:17) - I said, you know what? I think that, you know, the stereotype of doctors not being able to learn this stuff is just garbage. it was the same thing in flying a plane. You know, people told me that I couldn't be a pilot. I said, that's just garbage. so I'm going to go learn how to do it. And, you know, being a contrarian and it's just sort of the way I think and the, you know, you tell me I can't do something. Okay, well, that means that I'm going to do it. If I want to write, I want to.   Sam Wilson (00:07:49) - I would I'm sorry. Go ahead.   *Ryan Smolarz * (00:07:51) - No. That's it.   Sam Wilson (00:07:52) - I would imagine then that being a contrarian again, in a field where everybody kind of has to play by the rule book has been helpful for you because you stand out. No.   *Ryan Smolarz * (00:08:03) - yes and no. there have been certain times where that has certainly worked. not in my favor. but from making that switch from, you know, this ultra conservative, profession to quite the opposite, you know, where the world is, your oyster, kind of scenario.   *Ryan Smolarz * (00:08:24) - it was an easy transition for me because it was hard for me to sort of fit into that box and just never, never been that kind of guy. And so, you know, I would come in and say, why don't why don't we do this in surgery? Think of the work a lot better. Oh, that's not what the books say. Right. And so I pushed it a little too far on occasion. with those, you know, mentors and things like that. But I think that, you know, hard work, dedication that's never been a problem. They knew they knew I was working hard. But, you know, it just kind of it was it fit my mentality so well, to make that sort of jump.   Sam Wilson (00:09:03) - That's cool. Tell me, how did you get to today your you are through store, which again is store. What is the store partners you said was the website. Is that right?   *Ryan Smolarz * (00:09:12) - There's dot com. Yes. Store partners. Com store.   Sam Wilson (00:09:16) - Partners.com.   Sam Wilson (00:09:17) - You have to go check that out. How how did you get into what you're doing now. Because even that even being in real estate this is yet another. And it sounds like you love to learn. That's one thing I've picked up from our conversation is that I think, calling you a lifelong learner is probably an understatement, but, you know, what you're doing now is even a unique subset of commercial real estate. how did you get into what you're doing now?   *Ryan Smolarz * (00:09:42) - Yeah. So, interestingly enough, I remember where I was. I was driving to the airport, and there happened to be a podcast on and I was getting done with my training through the MBA, and I really didn't want that to fall to the wayside. I was pushing hard, to try to use that, if, if nothing else, the mindset. And so there was a guy on there talking about self storage and, I thought, you know, my life is so complicated that what, what I want to do is to find an asset class that is the the most that I can find.   *Ryan Smolarz * (00:10:24) - That's not complicated. And, you know, people say that you can look at your set of keys and figure out how complicated your life was. I looked down at my seat and there was like 300 keys on my passenger seat. And I said, man, my life is super complicated. So here's what we're going to do. We're going to go buy a concrete slab with a metal box. And we're going to do that. And, so I went online, try to find the best, person to learn from that that I could in the world. And that's kind of how I do things like, you know, I, I love mentor programs. I love coaching programs. you know, I want to learn from the best. And I always feel like if I don't, then what did I miss? so I ended up in this group, and I've been there since 2000 and really 2018. We started in 17 because I got an a limited partner deal to, to try to learn. And, it's just grown over the time and, you know, got to know and, respect the, the guys in the group.   *Ryan Smolarz * (00:11:26) - And so it's almost a lot of, you know, it's as much fun as learning going on a quarterly basis up there to see them.   Sam Wilson (00:11:32) - Right? I bet it is. So you've stayed in the self-storage lane the entire time? Yeah.   *Ryan Smolarz * (00:11:40) - Yeah.   Intro (00:11:41) - Absolutely impressive.   Sam Wilson (00:11:42) - Hats literally. Hats off to you. That's impressive.   Sam Wilson (00:11:46) - I.   Sam Wilson (00:11:47) - I mean, there's temptation. I only speak from personal failure on this front, but I'm sure over the years you've had some really great deals come across your desk and unique opportunities that were outside of the slab in a box methodology that you've, been employing. How have you said no to those?   *Ryan Smolarz * (00:12:06) - Well, there's been some times where I have and, you know, it was basically friends and family flipping homes and said, okay, well, here's some capital. Go for it. Right. but I'm just not interested. I don't know it. I, you know, I could probably underwrite it, maybe, but it's a headache, right? I mean, it's just like, it's it's much easier for me to take a self-storage deal, look at the number of, you know, what they're selling it for, for square feet.   *Ryan Smolarz * (00:12:34) - I know the the ins and outs. It's kind of like Warren Buffett. You know, he's got you call him up in five minutes later. He knows if he wants to do the due diligence and put it under contract. you know, it's just it's the experience. It's the knowledge. It's knowing who's in the business know, knowing who to call. I mean, it makes me want to vomit, to try to learn, relearn all that. Right? It took me a lot of time to figure that out.   Sam Wilson (00:12:58) - No doubt on on that front and that and that kind of learning that, those soft skills to where you can have a deal sent to you and within just a few quick, you know, glances, you're like, yes, no or maybe investigate further. I mean, that's a, that's a, that's a hard earned skill set. And even even yesterday I had somebody had a broker send me a deal and I just called her back and said, hey, you know what? If I offer on this, it's going to be one less than one half of what the list price is.   Sam Wilson (00:13:28) - And here's three key reasons why you want to draw it up. Knock yourself out. But that's about where I'm going to be. Yeah. She you know she understood it. But having that innate kind of, you know, built an understanding of what what it takes to make those sorts of deals go around is, is really, really powerful. So you are a full time EMT. You work really hard during the week. You are running your and tell me what is the structure or current structure of what it is that you do, or you guys running a fund or you doing a deal by deal syndication? What what is that?   *Ryan Smolarz * (00:13:57) - Yeah. So it's a series LLC. so there are barriers between each deal. so if you invest in one deal, you're not invest is not a blind pool. it's basically a syndication under a holding company is really what it is. So syndication on syndication on syndication. and so going through that process, my main focus these days is the fund manager role of a fund.   *Ryan Smolarz * (00:14:25) - That's sort of where my, passion lies. And to be able to, you know, to, to do all of those components, which is super fascinating to me and super boring to everybody else. I absolutely love it. and so to be able to do that in self storage, which I have a fair knowledge base on and bring in the right people, it's it's just been it's been fabulous and, almost. Well, it is life changing for me, right.   Sam Wilson (00:14:56) - Does that, what was I going to ask you on that it was or are you guys allocating capital? Are you guys actually buying the deals yourself and running them?   *Ryan Smolarz * (00:15:05) - Yeah. So it started off as allocating capital. we were almost like a debt fund for equity. that's how I can describe it. but now we've moved into our own space. we have a acquisition team that we're building, and, we're going to do it all in all in house, under the under our roof. And, you know, if there's a development deal and we decide to JV with, with another sponsor, or firm, then so be it.   *Ryan Smolarz * (00:15:34) - But right now we're, we're focused on acquisition and, that's, that's sort of where the bread and butter lies for us.   Sam Wilson (00:15:41) - What has been probably the, number one lesson or maybe the hardest thing that you've had to solve in growing a business like what you're doing right now.   *Ryan Smolarz * (00:15:51) - Oh, it's certainly. Well, one thing is timing. Like when the capital comes in versus when the the deal closes and, and trying to make all that work is, sometimes just torture. but the other thing that I think is more kind of, you know, the 30,000 foot view where where I think the, you know, the Alpha lies in building the teams. we have a big focus on that. And, trying to find people who were who were all rowing in the same direction with. I find that super important. you know, the when you know, you have a good team, when one person on the team doesn't like the decision, but everybody else does, and they are rowing even faster in the same direction that everybody else is.   Sam Wilson (00:16:43) - What do you when you. Can you explain that a little bit further? If what I heard was you saying that you may have a team member that doesn't necessarily agree? With the decision, but yet is still meaningfully participating in and helping everybody push in that direction. Is that.   Sam Wilson (00:16:59) - Right?   *Ryan Smolarz * (00:16:59) - Absolutely. Yeah, absolutely. And it may be me that disagrees in the other part. People on the team want to push forward. It really depends on the scenario. But if you're out in the middle of the ocean, everybody thinks that, you know, North America is to the left and Asia is on the right, and you got to get to the, the, the place that's closest. If everybody wants to go to the right and you want to go to the left in the decisions made, you paddle as hard as you can and, and to the right and, you know, you're you're all in. So this is, you know, a team sport. It's not an individual sport, and it's full contact.   *Ryan Smolarz * (00:17:38) - there is no doubt about it. Commercial real estate is full contact sport.   Sam Wilson (00:17:42) - It is indeed. You're based in the US Virgin Islands. Where do you guys buy? And I'm imagining that you're not buying. All right. There in the Virgin Islands. No. So how do you do that?   *Ryan Smolarz * (00:17:56) - Yeah. So we spend hours and hours talking about our buy box, and it's constantly changing. Right. What do we buy? Right now? It's over 20,000ft². It's in the Sunbelt states and only states that we feel are good for business. as you you can just take property taxes, right? We have and we look across our portfolio and you can just look at that line item on the due diligence on the, on the PNL. And you can almost tell right looking looking back, one place will be three times more than the other one. Right? with the market rates being fairly similar and just with that data point alone. Hey, you know what? We're going to the one that's more business friendly.   Sam Wilson (00:18:47) - Yeah. There's no doubt behind, behind your principal and interest payments, property taxes, are probably going to be your second greatest, expense, unfortunately. Generally, you can do nothing about you can contest, but, you know, good luck if you just bought it and they, reassess at your latest sale price depending on what the state is. So that's, What's that now?   *Ryan Smolarz * (00:19:12) - Oh, we look a ton at, dividing up the goodwill, you know, for those purposes. so we don't get hit with that extra income. That's just for goodwill. It's not on the property. we have a person. We're going to have a on the podcast. I think it's next Wednesday. Who not only does cost eggs, but he fights property taxes on the increases, like that's his job. And so we keep him very busy, and, it's awesome. And, you know, I hope he never retires.   Sam Wilson (00:19:42) - Tell me about building team. I guess, you know, again, building it remotely. You guys, I'm sure you still have staff, at the front desk at these facilities.   Sam Wilson (00:19:51) - Maybe you don't. I don't know, you could maybe if you can break down a little bit of your kind of operations and how you guys run that from so far away.   *Ryan Smolarz * (00:20:00) - Yeah. So a lot of it. And self-storage. I mean, these are, C plus B minus facilities. there are, there's a few of them that have, management on site, but not many of them. A lot of it's done remotely. We have, the coined the term, chief petty officer. So, there is someone that at least goes by once or twice a week to make sure that the, you know, there's no garbage on the ground that the the lawn, people who are coming by to keep everything up. you know, there are instances where, you know, we get calls and say, hey, we we need a locker. Like, okay, the keys are in the back, right corner. Right. and, move your stuff in. And, you know, here's the way you pay.   *Ryan Smolarz * (00:20:46) - So there is there's components of it that are, you know, offsite, onsite. It really just depends on the facility and what works for the community and all the all the things.   Sam Wilson (00:20:59) - Yeah. Self storage has been a hot asset class for a number of years. How are you guys finding deals that pencil in today's interest rate and also competitive you know buying environment.   *Ryan Smolarz * (00:21:13) - Yeah. So our last deal was bought on seller financing at a cumulative rate of about 2.8%. yeah. So we. Yeah, that definitely helps it. Pencil. There's no doubt about it. We love Utah. you know, a lot of it's this marketing engine that I talk about ad nauseum over and over. It's, you know, having dialers and bringing deals to the table where really our focus is, to close that deal where everybody wins. Right? Because what we don't want is our name to get out there as sort of a, you know, a a firm that's trying to squeeze. So there's certainly times we leave some on the table, to, you know, keep that reputation intact.   *Ryan Smolarz * (00:22:12) - we love to keep up with our sellers, you know, to see what they're doing. And, you know, when I'm in the town of a previous owner, then, you know, maybe we'll go to dinner or something like that. you know, we're really not in the commercial real estate business as far as I'm concerned. We're in the relationship building. sort of. That's what we do, is build relationships. And, I think that goes a long way. And with you, if you go into, you know, a negotiation with that in mind is how can we all win walking away from the table? I think that's powerful. And I think that that brings, you know, sort of a little bit of a competitive advantage to our group.   Sam Wilson (00:23:00) - It takes time.   Sam Wilson (00:23:02) - To.   Sam Wilson (00:23:02) - Time and effort to build those types of relationships. What would you say your average from the first day you look at a deal and say, I'm interested in that to when you finally get a deal closed. Do you think that, do you think your number of days in kind of transaction, or considering a transaction to getting it closed is longer than other people's cycles? Maybe.   *Ryan Smolarz * (00:23:26) - Maybe, it's tough for me to say. I mean, I I'm in contact with quite a few firms that are doing the same thing. I would assume that we're a little bit, outside the norm. just on the the real front end of building that rapport. but with our, you know, standard operating procedures in place, I think we'd catch up on that a little bit as we go through the deal.   Sam Wilson (00:23:55) - Right. No, that makes sense. And I'm not suggesting that's a that's a bad thing. I was just thinking that, you know, if you're thinking about employing this, which it sounds like an incredibly sound strategy, but that you just need to know that you need to put the time in. I guess at the short, short summary there is that this takes time to build those relationships, but it does pay off there in the in the long haul. So that's very, very cool. Ryan, we've talked about a lot of things, everything from kind of your story as an EMT, going to school, how you got involved in commercial real estate.   Sam Wilson (00:24:27) - I love the singular focus that you've had over the last six, 7 to 7 years now. and just kind of how you've built out your company, the way you guys are finding opportunity right now. So much here to learn. one thing we didn't talk about was that you have your own podcast. So if you're listening to this, check out Ryan's Medicine and Money show. if I had the pleasure of being on that show at one point. So check that out. That's, that's also another way that you can connect with Ryan. if our listeners want to get in touch with you and learn more about you, what are some other ways they could do that?   *Ryan Smolarz * (00:25:03) - Yeah. So on our website, store, store partners.com, there's a button you can click. and that will take you directly to our calendar, Lee or Calendly. And, you can have a conversation with us. a lot of our focus on these calls is about, if we can provide value and some sort of education, you know, not necessarily pushing to, you know, come into one of our deals to me, if a person's not comfortable, with the investment, it really may not be the right time or place for to place that capital.   *Ryan Smolarz * (00:25:42) - And so we really focus a lot on that. we love talking to, you know, the, the potential investors, CPAs or financial advisors or whoever the case may be. So, you know, bring it and, you know, we will do our best to answer every question that that comes up. I'm on LinkedIn, Joseph Ryan, small hours. You can check me out. and, Yeah, that's probably the two best places.   Sam Wilson (00:26:11) - Sounds like a winner. Ryan, thank you again for coming on the show today. I certainly appreciate it.   *Ryan Smolarz * (00:26:16) - Absolutely. And I appreciate you having me.   Sam Wilson (00:26:19) - 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 (00:26:41) - Thanks so much and hope to catch you on the next episode.

Today's guest is Mark Podolsky.   Since 2001 Mark has completed over 6,000 raw land deals with an average return on investment of over 300% on cash purchases and over 1000% on land deals that he financed.   Free Book: https://landgeek.samcart.com/products/dirt-rich?utm_source=how-to-scale&utm_medium=podcast   October 2021 podcast:  https://directory.libsyn.com/episode/index/id/21693923   Show summary:  In this episode, Mark shares his journey from hands-on management to overseeing his business in just 30 minutes a week by building a capable team, establishing efficient systems, and utilizing technology for automation. He stresses the importance of delegation, staying focused on high-impact activities, and operating at a strategic level.    -------------------------------------------------------------- The importance of focusing on your comparative advantage (00:00:00)   Introduction to the show (00:00:39)   Mark Podolsky's impressive track record (00:00:52)   Mark Podolsky's return to the show (00:01:04)   Recent developments in land investing (00:02:08)   Automation and scalability in land investing (00:03:30)   Different methods of buying land (00:05:27)   The value of cash flow in financial security (00:08:51)   Adapting to economic cycles and mitigating risks (00:10:54)   Land as an inflation-resistant asset (00:13:44)   Strategies for land acquisition and investment focus (00:14:55)   Time management and life philosophy (00:16:37)   Scalability and automation in land investing (00:18:26)   Achieving business efficiency and learning from past experiences (00:19:35)   Leveraging comparative advantage and delegation (00:21:10)   Mark's offer (00:22:31)   Link in show notes (00:23:06)   Contact information (00:23:39)   Closing remarks (00:23:53) --------------------------------------------------------------   Connect with Mark: Linkedin: https://www.linkedin.com/in/thelandgeek Web: https://www.thelandgeek.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: Mark Podolsky (00:00:00) - Let's say, for example, you are, you know, the best at finding deals, right? Right. Like that's how you're making your money. You're, you're you're finding these deals, but you also type 135 words per minute. Right. And so you're like, well, I can I can hire someone at 80 words per minute. But they're not. I mean, they're fractionally as good as me. I might as well type it for myself. But the answer is no. You're comparative advantage, even though you're might be the best typer is going to be you're only should be focusing on deals, right? And letting everything else go.   Intro (00:00:39) - 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 (00:00:52) - Since 2001, Mark Podolsky has completed over 6000 raw land deals, with an average return of over 300% on cash purchases and over a 1,000% return. That sounded like I just hit puberty.   Sam Wilson (00:01:04) - My goodness, Mark, where did that come from? 1,000%. Let's try that again. A thousand. Hey, whatever. We're going to leave it in there. I like this man. You made 1,000%. I don't care how you say the number. That's a lot on land deals that you financed. Mark, welcome back to the show.   Mark Podolsky (00:01:17) - Sam Wilson. Brother. Great to see you again. And look, I. You know, these these little puberty things. That's pretty cool.   Sam Wilson (00:01:26) - It is until you're until you're 42. And,, you know, you don't want to be there anymore. Hey, man, it's great to have you back on the show. For those of you who are listening. Today, Mark came on the show two, two and a half years ago. I don't have the episode number right in front of me. If you want to go back and listen to that, I would highly advise it, because what Marc does in that show is really breaks down the land investing business and what that looks like.   Sam Wilson (00:01:48) - We probably won't spend as much time on the nuances and kind of not the new, but maybe more time on the nuances today, but last time, kind of explaining what the land business is. So go back and listen to that if you want a primer for this episode. But today, Marc, it's great to just have you back on the show. We got lots of things to talk about. So tell me, I guess in the last two and a half years, what's been going on?   Mark Podolsky (00:02:08) - Well, I'll tell you that it's a good time to be a land investor. And the reason being is when we are doing our deals, we're paying cash. And so interest rates can do whatever they want. And it really doesn't matter. And so for us, it's been a great, you know, sort of bull market in in raw land investing. And we've seen our note portfolio increase now., gosh I don't even have the percentage. But it's it's really been exciting last two, two and a half years watching our clients get out of what I call civil economic dependency, which means if they're not personally working, they're not making any money and seeing how they've been able to quit their jobs, it would retire their spouses and have that security, knowing that when their passive income exceeds their fixed expenses, they're working because they want to, not because they have to write.   Sam Wilson (00:03:07) - No, that's hey, man, that's that's a great,, a great thing, certainly to strive for the land business, at least a lot of times what we see and other guests that we've had on the show that talk about the land business, it's a very active. It's like flipping houses, but without the house. I mean, is it how how does how does what we've kind of heard some people talk about versus how you do it, how do those two differ?   Mark Podolsky (00:03:30) - Yeah, that's a great question. So really, the last thing anyone wants to build from this build for themselves is another job. Right. And we see this happen all the time where people come in, they're enthusiastic, but then they don't have the wherewithal to start building systems, processes, playbooks, swim lanes to say, okay, how do I leverage my time for the highest impact activities? So the way that we teach this, and the way that we set up our own business is using software on the front end, inexpensive virtual assistants and software on the back end.   Mark Podolsky (00:04:10) - 90% of this business is automated and is scalable. And so it actually said, I've got my my second book. It's just about ready to come out in a few months. Dirt rich too. The plot thickens. How to scale your land business. And so I talk all about the pieces that you need in order to to grow, scale your lab business without making yourself crazy. And this really can be applied to any business that you're trying to grow., it's just it's just one of those things because. We think, well, we should be doing all of it and we don't scale. And so it kind of gets back to that sort of Michael Gerber E-myth piece as well. And, you know, are you the technician? Are you the,, you know, the other pieces of it and most people are coming in the technician and we want to become the CEO of our business.   Sam Wilson (00:05:08) - Right? Absolutely. Yeah. And the land business is a it's a is a very interesting business because there's a thousand ways you can do it.   Sam Wilson (00:05:16) - Like what I know you mentioned here, you mentioned early on a note portfolio like what's right. If there is any one particular strategy that you like to employ, what is it?   Mark Podolsky (00:05:27) - Yeah. So I like really three buying. Sort of simple ways to start to buy land. The first one is direct. So what we'll do is we'll do county research, we'll pick our county, and then we'll start looking at comparable sales. And essentially we'll take the lowest comparable sale in a county. We'll divide by four. That gives us what Warren Buffett call a 300% margin of safety. And we'll send direct offers to those people. And why are we doing that? Because we don't want to be in the appraisal business. If we send out a blind offer, then next thing you know, we're spending all our time on the phone appraising and negotiating. So this is just an offer. Take it or leave it. Maybe there's some room for renegotiating, but not much. Right. So that's the first way we can buy.   Mark Podolsky (00:06:14) - The second way we can buy is we can totally eliminate the aspect of getting a list, scrubbing a list, pricing a list, mailing a list, and we can go straight to a wholesaler. They've already done all this front end work, and now we're buying it at a premium of what the wholesaler bought it for. But they've left enough meat on the bone because our margins are so high that we can go in and make. Maybe 100 to 300% on our investment. So you've got retail, you've got a wholesale. And then let's say that you're really cash constrained. And you just want to sort of dip your toe in the water or you're just. Your capital is really dwindling. There's something that we have been teaching now called land arbitrage. And so land arbitrage is typically when someone like me will buy a piece of land, let's say the market I bought it in, let's say I paid $10,000 for it, and I started selling it for $400, down $400 a month. And after, say, ten months of receiving payments, I've gotten 50% of my capital back.   Mark Podolsky (00:07:28) - Right. And then someone defaults. Well, I've already established here's the market. It's $400, down 400 a month for $10,000 a piece of property. Well, what I'll do is I'll use a land arbitrage technique. And so I'll say, Sam. Hey, look, I know you don't have $10,000, and what I'll do is I'll land arbitrage this to you. So instead of $400 down, $400 a month, I'm going to sell it to you for $8,000. $200, down 200 a month. And now you're going to flip it $400, down 400 a month, and you're going to make the spread at a $10,000. So because I've got my almost all my capital back out, I can afford to do this. And then you can lock up a piece of property for only $200. And so let's say it's three months and you couldn't sell the property. Well, now you're only out 600 bucks, so you've mitigated your risk and you've been able to keep your capital. So those are three really simple ways of buying land.   Sam Wilson (00:08:38) - Got it. No I love that I love that yeah. The, there's there's lots of different ways that you can do it, but it sounds like you've been building and will continue to build a note portfolio of your own because you like that monthly cash flow.   Mark Podolsky (00:08:51) - Yeah, I mean, I, I prefer cash flow over cash.. I think it's the antidote to financial insecurity. I really do. I think cash is great. And I think there's certain circumstances where you want cash. But ideally, if you can get to cash flow and you have steady cash flow, it's the antidote to financial insecurity because, you know, you don't have to go hustle for your next deal. You know, you can get sick. You know, life can throw any curveball it wants at you. And you have the steady cash flow coming in every single month without you having to put in too much effort. I mean, let's face it, nothing's completely passive. If, you know, if I gave you $1 billion, you'd still have to do something with that capital actively.   Sam Wilson (00:09:40) - You absolutely would. I've always said that that, you know, the misnomer of passive investing. It's like, no, it's not passive. I'm still vetting sponsors. I'm still, you know, making sure distribution I'm still entering those bond spreadsheets to track the performance of sponsors. I'm still I mean, there's still a lot of still getting tax return documents. I mean, there's nothing passive about passive investing. Maybe less.   Mark Podolsky (00:10:02) - Nothing. Yeah, it's it's less active, but there's nothing passive.   Intro (00:10:06) - Right, right.   Sam Wilson (00:10:07) - Absolutely. So you're a big fan of the cash flow which I couldn't agree with you more, man. I don't know where you were ten years ago, Mark. When? Our 11 years now, when I got into real estate, of course, I read the purple the purple book. And you know, that's all Robert Kiyosaki talks about. It's cash flow. And I'm like, that doesn't make any sense. Like, I want the big lick now. Like, and.   Intro (00:10:25) - Yeah, you.   Sam Wilson (00:10:26) - Know, 11 years later I'm like, man, he was on to something. Cash flow makes a lot of sense. So. Right. It's it's funny how your,, how your perspectives change. When you came on the show a few years ago, you had mentioned that in 2008 you were in the land investing business and got crushed. How are you positioning yourself differently now in light of kind of wherever, whatever we are, wherever we are in the economic cycle that no one knows?, what's different now for you?   Mark Podolsky (00:10:54) - I think I think when you get crushed the way I got crushed. And so it wasn't that the the land business was still profitable, but what I didn't understand was I had Parkinson's law of money. So the more money I made, the more money I spent. And it's an interesting thing because I was I was listening to a podcast recently where Americans feel that how things are going now, they'll continue in this trajectory, where in Asian countries, they're always waiting for the other shoe to drop.   Mark Podolsky (00:11:30) - And so I'd like to take the more Asian approach now because I've felt it. And I know that anything can happen. There can be any kind of black swan event. Nobody could predicted Covid, right, in most of the things. And really that's the definition of risk is when you've thought of everything, what's left, that's risk. And so to me, knowing that I've thought of everything and I can't think of everything, how am I going to mitigate that inevitable risk? And so I probably have more cash on hand than I that I should. Right. And I probably am more conservative with my personal debt than I should be. And. That's really how I think about it. And I'm constantly looking at the market. I'm constantly asking myself that Jeff Bezos question if everything's going to change, what's not going to change, and sort of position myself in the land business in that way. So I think that's just sort of being a little bit conservative, paranoid and having enough cash on hand so that I can weather the inevitable financial storm.   Mark Podolsky (00:12:43) - That's that's coming. It is coming. I don't know when, but I can tell you right now it's been a great, you know, ten year or what. How long has it been since the.   Sam Wilson (00:12:55) - 16.   Mark Podolsky (00:12:56) - Is it.   Sam Wilson (00:12:57) - 6000? Eight was 16 years ago. Yeah.   Mark Podolsky (00:12:59) - Yeah, yeah. So you could say. Okay, Covid was, was a big dip for some sectors, but other sectors, it was crazy. And you have this huge government bailout. They throw trillions of dollars into the economy. You've got massive,, inflation now. And now we're trying to set that back. I mean, it always feels a little. An unsteady to me. And so I want to prepare myself,, for that.   Sam Wilson (00:13:29) - Absolutely. What about. What about the the. Who am I going to ask this? The recession. Inflation. I would imagine that land would be considered inflation resistant in the sense that it's dirt, right?   Mark Podolsky (00:13:44) - Yeah. Yeah. So so when in when you know, we we benefit in a, in a high interest rate environment.   Sam Wilson (00:13:51) - How's that.   Mark Podolsky (00:13:53) - Well because the the the land is a is basically a fixed asset, right? So just like gold or silver, you're,, it's a great inflationary asset. In that sense. So as I said, interest rates, I mean, we're finding interest rates because we're not using debt, but also in an inflationary environment. We do really well as well.   Sam Wilson (00:14:15) - Right. Because you can just reprice to whatever that now.   Mark Podolsky (00:14:18) - Yeah.   Sam Wilson (00:14:19) - Value is.   Mark Podolsky (00:14:20) - Exactly.   Sam Wilson (00:14:21) - Well are there, are there. Ways of. I know you said you buy everything in cash. Is there a particular size or a particular use or., you know, are there things you're staying away from in the land business like development projects or subdivides or infill lots or you name it? Is there anything right now that you're like, yeah, you know what? That style of land investing is not for me because of where I see us, where you perceive us to be in the cycle.   Mark Podolsky (00:14:55) - Yeah, I'm agnostic when it comes to these different strategies of acquiring land.   Mark Podolsky (00:15:00) - What I focus on is where can I get an asset 25, $0.30 on the dollar. And in today's market, it's not going to be an infill lot. I'm just not going to get that right. I might be able to get an incredible deal in, say, a rural area where I can subdivide. Absolutely. I'll do that deal all day long, a development deal. I'm not going to go through the the risk and the process and the headaches and, you know, the years of of, you know, going through that process of getting a piece of land shovel ready. Right? Right. I think it can be a great model. It's just not for me. And so I don't necessarily avoid them. I just sort of I'm an inch wide and a mile deep. I just keep doing what works for me.   Sam Wilson (00:15:55) - That makes a lot of sense. That links, I mean, which essentially you said, hey, you don't see there's anything wrong with those. It's just not necessarily the one that you want to be personally investing in.   Mark Podolsky (00:16:06) - Yeah, absolutely. It's just not going to be in my buy box.   Sam Wilson (00:16:10) - And a lot of those require a very, very unique skill set like the one, you know, where you just talked about the risk, the process of getting, taking a parcel, subdividing it and then getting it shovel ready for whatever you perceive may be the best, highest and best use of that that can be. A lot of years, a lot of gray hair and a lot of,, a lot of time that maybe you could have spent otherwise, you know, on on your business. Doing what,, what you're what you're best at.   Mark Podolsky (00:16:37) - No, absolutely. And I'm, you know, vicious with my time. Right? So,, I've got an app called Y croak, and it reminds me five times a day of my death. And so I. You know, I'm very conscious of the fact that, like, it's really short. It's terrifyingly short. And so how I spend my days is how I spend my life.   Mark Podolsky (00:17:02) - And I want to have the most enjoyable day as possible, doing what I love to do the most. And so if there's something I'm doing that I don't love, well, I either, you know, delegate it, automate it, or eliminate it and that's it. And sort of taking this inventory of, of how I'm spending my time to make sure that,, I can live, you know, the best life I can.   Sam Wilson (00:17:30) - That is, I've never heard anyone mention that we croak. That's,. That's pretty funny. I mean, but it's realistic. You know, I always joke and say that this is just a rental suit. Like, I don't get to keep it, you know? Yeah, you wear it for a while, and then it's all it's over. So. Yeah, that's,. That's pretty funny. Delegate. Automate. Eliminate I love that., okay, so we've talked a little bit here about kind of what your philosophy is right now, how you're positioning yourself, the types of things maybe that you guys are buying, what works for you.   Sam Wilson (00:18:04) - We've talked about your note portfolio,, some strategies for offers on land, the ways you can, different ways you can buy land. What's the what would you say to somebody,, you know, on the scalability of the land investing business. I know you mentioned 90% of this business you think you can offload to other people. Talk to us about that.   Mark Podolsky (00:18:26) - Yeah. So I personally spend about 30 minutes a week in the land business and I'm meeting with my team. We're having a meeting and we're looking at how many offers went out. How many deals are pending, what have we sold and then what playbooks do we need to update? We're where have things changed so that team knows how to run the playbooks,, for each aspect of the business. And that's really it. And just sort of keeping,, my finger on the pulse of the health of the business. And where do we need to add resources? Where do we need to take away resources? Where are things changed? Where can we,, utilize technology? How can I help us do a better job?, and really looking at those types of things as a CEO would look at, at the business.   Mark Podolsky (00:19:17) - So I'm trying to stay at that 30,000 foot level.   Sam Wilson (00:19:21) - That's really smart, I love that. How long did it take you to get that set to where your business runs? Basically? I mean, 30 minutes a week. It's it's running without you, man. I can burn 30 minutes on a phone and, you know, short order. So how did you get there?   Mark Podolsky (00:19:35) - I would say, you know, it took many, many years, I want to say at least five years and then constantly tweaking and doing that and then. Yeah, I mean, it's at least five years to build that.   Sam Wilson (00:19:51) - Right, right. Are there any things you could have done or anything you could have done to kind of shortcut that process as you look back on it and say, man, if I'd implemented.   Mark Podolsky (00:20:00) - Well, if my my clients are doing it in a year, I just didn't know what I didn't know. Sure. So I and I also had this,, I think Chris Tucker from Virtual Freedom calls it,, superhero syndrome, where I thought, oh, no one's going to do it as well as me, right? No one's going to price as well as me.   Mark Podolsky (00:20:20) - No one's going to do due diligence as well as me. No one's going to market as well as me. No one's going to sell as well as me. And it's it's totally wrong. Right?   Sam Wilson (00:20:29) - Totally wrong there. Well, okay, I'm going to be devil's advocate here and say maybe it's not totally wrong, but there because I think there are unique strengths each of us has. I've got a guy no, no.   Mark Podolsky (00:20:43) - 100%.   Sam Wilson (00:20:44) - Right now. And the dude is amazing. Like he can take the most angry seller in the world and suddenly before they're over there, like, you know, high five. And it's like, I'm like, dude, you need to keep doing that. Because for some reason, like you turn angry callers into just happy go lucky people and they want to, like, be at your kid's birthday party before the call is over. Like, that's weird.   Intro (00:21:02) - So yeah.   Sam Wilson (00:21:03) - Yeah, Matt. I'm like, let's let's move all the other pieces or take those off your plate, but we're going to leave that.   Sam Wilson (00:21:08) - We're going to leave you in that seat. So.   Mark Podolsky (00:21:10) - Right. But but as an entrepreneur, I mean, let's say for example, you are, you know, the best at finding deals, right? Right. Like that's how you're making your money. You're, you're you're finding these deals, but you also type 135 words per minute. Right. And so you're like, well, I can I can hire someone at 80 words per minute. But they're not. I mean, they're fractionally as good as me. I might as well type it for myself. But the answer is no. You're comparative advantage, even though you're might be the best typer is going to be you're only should be focusing on deals, right? And letting everything else go for sure.   Sam Wilson (00:21:52) - You hire two people that can type at 80 words a minute and suddenly you're whatever it is, 25 into 135. What? That percentage is more in speed. So now you're 160 words a minute. 135. Understood. No, that's absolutely great.   Sam Wilson (00:22:04) - Mark, this has been fun having you come back on the show and really just banter and talk about the land business. I wish we had a little more time today because there's there's more stuff I want to talk about, but we'll leave that for our investor or for our investor, for our listeners to come to you and and investors to come to you and find out how to invest in the land business. I know you had mentioned something to me, and I've already forgotten what it was, but you mentioned on the show before we started recording, actually, that you had something for our listeners. Can you tell me what that is?   Mark Podolsky (00:22:31) - Yeah, I'd love to offer them a free book called dirt Rich. And so I've got a link for them to click on. It'll, it'll take them,, to our page. They can get dirt rich for free, which will actually just give them a nice overview of the land business. Also talks about my story, my cautionary tale. So you don't have to make the same mistakes I did in life, which could save you a lot of,, time, money and heartache,, as well.   Mark Podolsky (00:23:01) - And so all you have to do is pay for the shipping,, and get dirt rich.   Sam Wilson (00:23:06) - Dirt rich. We'll make sure we include that link there in the show., show notes rather for Mark's book, dirt Rich, which is really cool. Thank you for offering that to our listeners and shipping that out. It takes a lot of time and effort to write a book, by the way, and just to send that to you for free is a really great gift. So, Mark, thank you again for doing that. The link for that free ebook will be in the show notes there on our website, which again, you can find that,, there at the Brick and Investment group.com/podcast. Mark, one more plug for you though. If our listeners want to get in touch, we learn, touch with you and learn more about you. What is the best way to do that?   Mark Podolsky (00:23:39) - I think the best way is to go to the land geek. Com. Com and start learning more.   Sam Wilson (00:23:47) - Than geek com.   Sam Wilson (00:23:48) - Mark, thank you again for your time today. It was great to see you again.   Mark Podolsky (00:23:51) - Thanks, brother. Good seeing you.   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.

Today's guest is Ben Lapidus.   Ben Lapidus is the Chief Financial Officer for Spartan Investment Group LLC, where he has applied his finance and business development skills to construct from scratch a portfolio of over $500M assets under management, build the corporate finance backbone for the organization, and organize over $200M of debt capital from the firm. In addition to completing over 50 real estate transactions at and prior to Spartan, Ben is also the founder and host of the national Best Ever Real Estate Investing Conference and managing partner of Indigo Ownerships LLC.   Best Ever Conference Code Use code “INVEST” for $300 off any ticket type at https://www.besteverconference.com/   Show summary:  In this episode, Ben Lapidus joins Sam to discuss the nuances of the commercial real estate market, with a focus on self-storage and investment strategies. Lapidus shares his expertise on navigating the current market, the importance of robust business plans, and the challenges of finding attractive yields. They also talk about the Best Ever Real Estate Investing Conference, detailing how it adds value for passive investors and the innovative strategies used to attract them.    -------------------------------------------------------------- Self-Storage Market Insights (00:00:00)   Introduction and Background (00:00:37)   Current State of Self-Storage Market (00:02:03)   Investment Strategies and Passive Investors (00:03:34)   Conversion Deals and Opportunities (00:05:18)   Shift from Office to Self-Storage (00:06:00)   Interest Rates and Debt in Self-Storage (00:07:14)   Pricing Mechanism and Market Response (00:08:36)   Commercial Real Estate Market Overview (00:10:33)   Alternative Investments and Portfolio Allocation (00:11:57)   Best Ever Real Estate Investing Conference (00:13:46)   Strategies for Attracting Passive Investors (00:15:41)   Conference Organization and Team Management (00:18:28)   Closing Remarks and Special Discount (00:20:16)   Best Ever Conference (00:20:30)   Contact Information (00:20:50) -------------------------------------------------------------- Connect with Ben: Web: https://www.benlapidus.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: Ben Lapidus (00:00:00) - If your business plan can survive 2 or 3 years of negative leverage, because you can take a low enough IRR that you can store enough cash on the side, then it is a great time. If your business plan is overly aggressive or you're trying to seek a very high IRR at a at a velocity of capital deployment, that's unachievable, then now is a bad time to make an investment. You might want to wait 12 or 18 months to do so. Welcome to the How to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:37) - For those of you that don't know Ben Lepidus, you need to know him. I've known Ben. Now. What? Man? What's been seven, eight years at this point? Yeah. About to go about that. I met you normally, Ben. I love to do a long winded introduction about how great the guest is. You are a great guest. I'm. It's my honor to have you on the show today, but before I give you my own introduction, I'd love for you maybe just to come on the show today and tell us a little bit about who you are, and then we'll get into it from there.   Ben Lapidus (00:01:03) - Yeah. I'm the founder and host of the best ever Real estate investing conference., not the brand, just the conference. And,, was a founding team member of Spartan Investment Group, which bought a half a billion assets under management in self-storage, recently retired, but have a long history of buying single family multifamily self-storage assets over the last 12 years., recently or prior to that,, was in the adtech space, learned a lot about big data, started a study abroad company Costa Rica., and have tried several other startups that failed. So I'm an entrepreneur at heart and can't wait to talk about whatever you want to talk about.   Sam Wilson (00:01:36) - Dude, that's that's a whole lot. I mean, my gosh, that's a lot of moving pieces there. Most recently you were like you mentioned a,, a partner there at Spartan Investment Group where you guys bought an absolute ton of self-storage. Why don't you just give us maybe a high level view recording this? What? Its end of February 2024, high level view of where self-storage is now and then maybe is what you see across the commercial real estate space as a whole.   Ben Lapidus (00:02:03) - Yeah. So self storage still has incredible fundamentals. When you look at the supply demand of self-storage, it's gone from 1 in 11 households to one in less than nine households are leveraging self-storage or consuming self-storage just over the last 5 or 6 years. That's an incredible shift in demand in a 5 or 6 year period simultaneously, construction costs,, going up, interest rates going up have made new supply difficult. So the fundamentals that drive storage is still in a very attractive asset class. That's on the consumption side on the on the,, the consumer side, on the investor side, investors have wised up to it. So it's become incredibly competitive. And the the spread between what you can get on the equity side versus what you can borrow on the debt side, has been radically compressed., and it now mirrors one of the major five food groups. You've got all of this office money, which was the largest component of commercial real estate coming out of office. And it's number one place to place it is self storage.   Ben Lapidus (00:02:59) - And that's just a lot of moving money. So from an investment perspective, the supply and demand,, isn't as attractive as it used to be. So I think what we're going to see over the next two years is do rates compress faster than cap rates?, and do the supply and demand economics on the consumer side kind of create a skyrocket effect of occupancy and rental rates such that it's attractive enough despite the competitiveness on the investment side?   Sam Wilson (00:03:23) - Wow. That's a that that that's an impressive,, impressive insight there. So yeah, I guess, you know, in short, is now a good time to to be investing in self-storage.   Ben Lapidus (00:03:34) - Now, there is never a bad time to be investing in self-storage. To be clear, it's recession resistant. It's always going to go up because of those supply demand economics. It's just is this the best time to generate the cash flow that you need to kind of cross the chasm if you're buying in a negative leverage environment. And so it's really about your business plan.   Ben Lapidus (00:03:54) - If your business plan can survive 2 or 3 years of negative leverage because you,, can take a low enough IRR that you can store enough cash on the side, then it is a great time. If your business plan is overly aggressive or you're trying to seek a very high IRR at a, at a velocity of capital deployment, that's unachievable, then now is a bad time to make an investment. You might want to wait 12 or 18 months to do so, right?   Sam Wilson (00:04:18) - Right. What about what about that conversation with investors like as in passive investors? How does that work when you're looking at deals that may be negative leverage? I mean, is that even a conversation that's being had?   Ben Lapidus (00:04:30) - It is. And that's because you just kind of find a different investor profile as the yield moves from kind of value add to more opportunistic, you have to find the investors who are willing to take the risk return ride with you at the end of the spectrum where those yields are achievable and attractive. If you're trying to get, you know, a 6% cash flow with a 14% IRR on an asset, that's 70% stabilized, that's been in existence for ten years with no expansion potential, that's going to be really tough.   Ben Lapidus (00:04:59) - But if you can find a conversion opportunity or the doughnut hole in a state that is booming with those supply demand,, economics working in your favor on the consumer side, then you can achieve those 20, 25, 30% IRR on a ground up development or conversion deal or an expansion.   Sam Wilson (00:05:15) - What do you say when you say conversion deal? What comes to mind?   Ben Lapidus (00:05:18) - Yeah, conversion is just taking,, a space that is not used for storage today and converting it for,, storage purposes. If you if you like, like a Macy's, a Kmart, a Shopko and just converting it into kind of like how urban air. I don't know if you've got urban air where you are, but I. Here in Colorado, there's an urban air chain, which is like an indoor like,, pre-teen park for trampolines and stuff. And they've just been converting, you know, grocery stores basically into,, urban air adventure parks. It's the same thing with storage.   Sam Wilson (00:05:51) - Same thing with storage. Be it office.   Sam Wilson (00:05:53) - , I know I'm a passive investor in an office to storage conversion project right now.   Ben Lapidus (00:05:58) - Hotel to storage? Yeah, all sorts of things.   Sam Wilson (00:06:00) - Which is wild because you're looking at this. They've they've converted it from,, office to storage and, and just like you're saying, the opportunity in this particular area was unbelievable. I mean, it's leasing up at like 30 or 40 units a month. I mean, it's just flying off the shelves as soon as they got their Co, which was,, kind of kind of crazy to see. So that opportunity exists. You mentioned the money that's coming out of office and going into storage. How are people even getting their money out of office? I mean, talk about something with negative leverage. What's that look like?   Ben Lapidus (00:06:31) - I mean, we're seeing,,, gosh, I'm gonna I'm gonna fail to come up with specific examples, but we're talking like, institutional level, like CRO holdings,, tremble., you know, bam capital, like those, those size of organizations,, dumping their office assets or dumping their office up co partners and selling them off, whether it's at pennies on the dollar or not.   Ben Lapidus (00:06:55) - And they are recalibrate or,,, rebalancing their portfolio to not reinvest that into office but say let's let's find alternative assets. Self-storage being the darling of the alternative asset space inside of commercial real estate.   Sam Wilson (00:07:08) - Got it. Very, very interesting. What's that look like on self-storage right now?   Ben Lapidus (00:07:14) - That is just as attractive in self-storage as it was anywhere else. And now that's a misnomer because nothing is attractive in debt., I just I use that to say it is just as attractive as any other lending rate outside of the agency world. So you're not going to ever beat, you know, government backed loans like you would get in housing. But outside of that,, you can get self-storage. Lending rates are akin, if not better than than office lending rates today, if not better than retail rates today., you can still find like, kind of the needle in a haystack. Sub six low 6%,, interest rate. Although the majority of what you are seeing on average, when you make those phone calls or high sevens, low eights, and then you're kind of getting to the riskier stuff of nine, ten and even double digits, you know, interest rates.   Sam Wilson (00:07:59) - Anybody doing long term fixed rate on that or is it all floating debt.   Ben Lapidus (00:08:03) - Oh, sure. Yeah. You can find long term fixed rate either, either by way of, you know, like doing shorter term or by doing a swap,, or some other derivative that, that, that creates that, that fixed rate despite starting with the floating rate product.   Sam Wilson (00:08:17) - Okay. Very very cool. Have we seen maybe you've answered this already and forgive me. I'm I'm,, I'm riding the short bus here today, but have you seen seller prices come up as interest rates have also climbed or not? Solid prices go down. Rather like have we seen that that sellers become more realistic or is it still.   Ben Lapidus (00:08:36) - Yeah. So? So I drove the acquisitions team and was very familiar with that up until about 7 or 8 months ago. So I've started to fall off of my, you know, a thumb on the, on the pulse of things. But we haven't seen the correction that you would assume,, with, with,, interest rates climbing.   Ben Lapidus (00:08:54) - So number one, we've only seen rental rates correct by 3% with all this inflation maneuver. And that is incremental street rates not in place rates. So revenue is still going up at self-storage consistently in the industry. And you look at the rate level reporting revenue still climbs quarter after quarter after quarter. The incremental customer rates might be decreasing. But you've got one month leases. You can you can do existing customer rate increases after providing that discounted rate almost immediately if you choose to. So we're still seeing rates increase. So it's an inflation hedge. So we haven't seen the pricing correction in response to the interest rates that you might assume. Because you've got investors coming out of longer term lease product like office like retail like industrial, for the purposes of hedging their inflation and going into short term lease product like self-storage, because they see the future potential of that inflation benefit. So yes, we we have seen pricing come down a little bit. But now instead of, you know, pricing to,, a 4.75% cap rate on a T3 or maybe pricing to a 6% cap rate on a year two pro forma.   Ben Lapidus (00:10:03) - So we're just we're seeing a different heuristic to kind of come to the same pricing or margin of error pricing as we were just a couple of years ago.   Sam Wilson (00:10:10) - Right? No, that's very, very interesting. Thank you for taking the time to give us kind of a brief snapshot on where the self-storage industry is today and kind of what's driving the pricing mechanism behind that. Certainly appreciate that. Let's hear what your thoughts are on the commercial real estate market as a whole. Like where is opportunity if that's still one that people are, you know, fighting tooth and nail over to get involved in? Where do you see opportunity today?   Ben Lapidus (00:10:33) - Yeah, I think commercial real estate just doesn't have the spreads that it did for the last decade. I mean, it was if you're listening to this podcast, you probably have a sentiment that there was a time where raising capital was on the easier side of the spectrum if you wouldn't just blatantly say easy. And that's because you could achieve like a yields an IRR just by consequence of of appreciation that was happening in commercial real estate in general.   Ben Lapidus (00:11:01) - , that appreciation has evaporated as a result of interest rates climbing., and maybe that appreciation will return if and when interest rates decrease. But for right now, you do not get the cash flow that you're you're used to getting after the last decade and a half, you do not get the appreciation that you're used to getting after the last decade and a half. So kind of commercial real estate wide, it's just not a very attractive time to be in commercial real estate relative to yields that you can get in other places. And, you know, modern portfolio theory suggests that up to 30, 35% of somebody's portfolio should be an alternative assets, with real estate being the largest segment of it. About 9 or 10% of the average portfolio contains real estate. So there's a long way to go for alternative assets to kind of climb to 35% to get to that modern portfolio theory number. But there's a lot of other segments of alternative assets like precious metals, operating businesses, secondaries,, private equities that have not been tapped into nearly as much.   Ben Lapidus (00:11:57) - And I think that those yields are more attractive today than what commercial real estate offers. And that's and that's probably going to be for the next 18 months at least.   Sam Wilson (00:12:05) - Well, yeah, absolutely. And I'm I'm testament to that. I mean that's what we're investing in right now is operating business simply because it is inflation resistant. It's recession resistant, like it's it's stuff that spins off cash flow at rates that commercial real estate just simply can't. And that's like.   Ben Lapidus (00:12:22) - I'm more interested in the activity of how the space is being used right, right now than the than the value of the space itself. Right. As an investor mindset. Right?   Sam Wilson (00:12:33) - Right. Yeah, absolutely. That makes a heck of a lot of sense. So you've got you've been through,, you know, all of this here with with Spartan here up until, you know, seven, eight months ago. And what do you do with your time now, like when you talk about these things and you think about, okay, alternative investments, operating businesses, what what are people doing with the space? Like what piqued your interest today?   Ben Lapidus (00:12:51) - Yeah.   Ben Lapidus (00:12:51) - And the way that I found my way to,, the partnership at Spartan was through the Best Ever conference, which I founded with Joe Fairless the year before, joining up with with the guys at Spartan Investment Group. And,, that that conference has been a North Star for me because I've been building it to service me as an avatar consumer of the conference. Who do I want to learn from? Who do I want to meet? Who do I want to be surrounded by? And let's just kind of create all of the details of this conference to attract those people, those speakers, those sponsors, those attendees. And, and I don't I don't know if you've seen that consistently year over year, Sam, but you were there at the first year. Every single speaker that I picked was somebody that I wanted to hear what they had to say personally, like myself. And that's still the case today. We don't have anything to sell at the. Conference. We just want to create a community of like minded people who are intelligent, are having a good time, and want to collaborate with each other to get more out of their businesses and out of their lives.   Ben Lapidus (00:13:46) - , and so that's that's the premise of the conference today. And,, I'm just kind of using the small amount of free time that I have,, after prioritizing my family and my kids, which is the major shift that I made this year into growing and improving the quality of that conference., and so a lot of our effort this year, with the conference coming up in April, April 9th, ten, 11 and 12, in Salt Lake City, is to focus more on the needs of the the passive investor. So as our conference has grown, we've attracted a lot of participants on the syndication side of the house, the operator side of the house, the people who have their their fingernails dirty with the real estate. But the passive investor hasn't had as much,,, emphasis at the best ever conference. So we've built a deal list site that we're going to be launching next week that allows all of the passive investors who are going to be in attendance to review all of our pitch slam competitors and all of our syndication sponsors deals in advance.   Ben Lapidus (00:14:45) - We're going to have a scheduling feature where you can, without walking around the conference and being cultured upon. You can establish one on one sessions with the syndicators that you want to get to know, like, and trust before putting your money in. It is the number one place to show up and look in the eyes. Hundreds of potential,, companies to invest your money into, and not just in commercial real estate, but into a growing number of private placement,, opportunities. And so that's that's really our focus for growth this year is just making the conference useful and desirable for the passive investor, which then, of course, makes it more useful and desirable for the syndicator, who's looking to join forces with those passive investors in growing their portfolio.   Sam Wilson (00:15:27) - That's really cool, I like that. What what have been some strategies that you've implemented to bring in that more passive investor? The people like how how do you draw in that ideal clients? The wrong word attendee how do you do that?   Ben Lapidus (00:15:41) - Yeah. So I think the experiments that we've done in the last couple of years are, number one, you know, three years ago we tried out this pitch slam.   Ben Lapidus (00:15:48) - It's kind of like a TechCrunch disrupt where,, a panel of judges decides on who has the best deal of the year. And the first two years was,, kind of pay to play, and it wasn't a very good situation. But last year was the participation by merit. And you were actually a brick and was one of 12 finalists,, put up on stage. And that got to compete for prize money of $600,000 by actual investors who are on stage. And so we're going to be repeating that this year. We had over 80 applicants this year,, and we have 12 finalists selected for the stage. So that's number one. Number two, we've been trying to partner with investor communities like IDC, intelligent investors, real estate community last year, left field investors this year,, long Angle is another great investor community that we're going to be highlighting on our stage this year., 506 group is,, you know, Mark Robertson, somebody that we've highlighted on our stage before. So trying to partner with investor communities, number three is building that directory so that you can in the comfort of your home, review and plan for your time so that you're not just kind of showing up and hoping that something good happens, but rather you're reviewing materials and saying, I actually have an interest in this.   Ben Lapidus (00:16:50) - I have an interest in a laundromat fund or a Texas vineyard fund. Let me,, or neighborhood retail fund that only buys nine caps or a hotel conversion,, into a bed and breakfast fund or something like that. Right. We've got all of these disparate, kind of nuanced data center style, as well as the traditional multifamily retail office opportunities that you could review. But looking at them in advance and determining, I want to interact with these people,, from the site, that's a new feature, as well as the scheduling one on one feature where you can kind of come up with your agenda as a passive investor in advance. And we've got a speed networking session that we've never had before that only qualified, excuse me, accredited investors are allowed to participate in with prevented sponsors who are,, either on our pitch slam stage or,, sponsoring the event so that you can have kind of five minute curated,, one on one rapid fire conversations. So those are some of the features that we're adding to the experience this year.   Sam Wilson (00:17:45) - Dude, that's really cool I love that. And yeah, I've been,, coming to the conference since 2017. And it's been it's always proved incredibly valuable. So if you're listening to this and you've not been to the Best Ever conference, go check it out. It,, is definitely worth your time. You'll get way more out of it than you put in., so yeah, that's,, that's my plug. My shameless plug as well, for the best ever conference I have. I have benefited from that, Sam. Absolutely, man. It's been a blast, dog. Well, you know, it's fun, man. It's kind of like homecoming. Like you go back and see all your friends. You're like, hey, man, what's up? I missed everybody, it's been an entire year. I can't believe it. But you also have, you know, have created an environment where meaningful relationships, relationships. So if I could speak today are formed. So that's,, that's very, very cool.   Sam Wilson (00:18:28) - On the technical side of that, I look at that conference, Ben and I just kind of go, my gosh, like, this is a ton of. Work. How? How have you organized your team, your people, and your time to pull off something of that magnitude? Because honestly, I look at it from the outside and it seems like you've done it pretty effortlessly.   Ben Lapidus (00:18:49) - But I appreciate that. I, you know, the first 4 or 5 years did all myself on top of growing Spartan at the same time., and, you know, we were just starting to have kids then, so it was a little bit easier to do the multitasking, right?, but around your 4 or 5, I got, I got burnt out, you know, we were we had scaled it from, I think the first year we had 170 people. By year 4 or 5, we were at like 800 people. Now we're this year, it's probably not going to grow just because of the challenging macro environment and people having surplus budgets for marketing and travel, what have you.   Ben Lapidus (00:19:19) - But we'll have over a thousand still., and around that year I said, you know what? I, we just gotta have to hire some people. And so we've built a team, and now they're in their third year of doing this conference together. And so they've, they've just got a great rapport with each other and are capable of seeing the bigger picture that's being put in front of them, the strategic plan that's being put in front of them and executing on that. So I'm I'm very fortunate to be in a position where I only spend about an hour or two a week on that conference up until maybe a week beforehand. And I can I can use all of my extra mental load to be creative with. How can we improve the experience and offer more value to everybody participating?   Sam Wilson (00:20:00) - That's really cool, Ben. I've enjoyed our conversation today. As always, it's a pleasure to get to chat with you. I always feel smarter,, after those engagements, so appreciate you taking the time to come on the show today.   Sam Wilson (00:20:11) - Is there anything else you want to cover here on the show? Before we wrap this up? It's just burning a hole in your mind.   Ben Lapidus (00:20:16) - Yeah, I think we're going to have a special discount,, for your audience, so I don't know what it is, but I don't know if you know what it is, but we're gonna have a special discount for your audience that you can put in the show notes, and you can check us out at Best Ever conference.com, and I hope to see everyone there.   Sam Wilson (00:20:30) - Best ever ecommerce.com. Yeah, check that out. I will get that special discount for our listeners to the how to scale commercial real estate podcast. Put there in the show notes. You'll have to find the episode on our website in order to find that discount, but it'll be there and I hope to see you all at the Best Ever conference as well. So, Ben, thank you again. If our listeners want to get in touch with you and learn more about you, what's the best way to do that?   Ben Lapidus (00:20:50) - Yeah, you can reach me at Ben at Best Ever Conference.   Sam Wilson (00:20:55) - Fantastic. Thanks again, Ben. Great to see you. Have a great rest. Your day.   Ben Lapidus (00:20:58) - All right. Thanks, Sam.   Sam Wilson (00:20:59) - 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 are Alex Morrison and Andrew Runnette.   Alex Morrison has broad experience across real estate, capital markets and startups. Alex currently is the founder and CEO of Portal Warehousing, an innovative real estate operating company in the flex warehousing space.   Show summary:  In this podcast episode, Andrew and Alex, co-founders of Portal Warehousing, discuss their innovative flex warehousing business. They detail how they provide small industrial spaces to various businesses, emphasizing the flexibility and services they offer, such as logistics support and community building for their members. They share their strategic approach to market underwriting, building selection, and the importance of location in gentrifying areas. Despite challenges in scaling and logistics, they highlight their efficient systems and the high demand for their spaces, evidenced by rapid occupancy rates. The co-founders invite building owners to consider management deals with Portal Warehousing, which seeks to expand its unique model nationwide. -------------------------------------------------------------- Intro (00:00:00)   Concept of Flex Warehousing (00:02:17)   Finding Properties and Plugging Tenants (00:07:17)   Membership Perks and Differentiation from Self-Storage (00:12:27)   Challenges in Scaling and Overcoming Them (00:17:08)   Underwriting Deals and Selecting Locations (00:18:17)   Underwriting Markets and Demand Generation (00:18:59)   Building Criteria and Location (00:20:12)   Real Estate Cost and Client Opportunities (00:21:34)   Minimum Building Size (00:23:07)   Conclusion and Contact Information (00:23:55) -------------------------------------------------------------- Connect with Alex and Andrew:  Facebook: https://www.facebook.com/portalwarehousing  Instagram: https://www.instagram.com/portalwarehousing/   Linkedin: https://www.linkedin.com/company/portal-warehousing/ Web: https://join-portal.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: Alex Morrison (00:00:00) - They have very limited options after they outgrow their first space, which maybe is a garage, maybe a bedroom as they get to that next level., the options drop off. They need to sign a five year lease, and there's not a lot of space that's available sub 5000ft². So what portal is doing is being an institutional level provider of small warehousing space.   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.   Sam Wilson (00:00:32) - I've got Andrew and Alex with me here today from Portal Warehousing. Andrew and Alex, welcome to the show.   Alex Morrison (00:00:38) - Thanks so much for having us.   Andrew Runnette (00:00:39) - Absolutely.   Sam Wilson (00:00:40) - The pleasure's mine. I always asked 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? And, Andrew, if you don't mind kicking us off by answering that question. And then Alex, I guess we'll have you be up next after that.   Andrew Runnette (00:00:55) - Yeah. No problem. Thanks for having us on., we started the company about three years ago., we just opened our fourth warehouse,, and we've got for,, Salt Lake, Tempe, Brooklyn and LA., it's been a journey, and we're, you know, we're growing and just moving on to the next one as we go. So I'll let Alex take it from there.   Alex Morrison (00:01:21) - Yeah. I mean, the the genesis of the company actually came at the start of Covid when the world changed. And, you know, traditional methods of real estate were kind of changed overnight. And I was based in LA, and the only thing you could, you could tour for the first six months of Covid were industrial buildings., so we looked at buying a lot of industrial buildings for my last,, the company I worked for lastly, which was a real estate private equity company. And ultimately that journey led us to developing an operating company that could plug into vacant real estate and add a lot of value.   Alex Morrison (00:01:54) - And that and that, you know, three years later is portal. And what we do is as effectively,, we're a co warehousing, flex warehousing operators. So we provide industrial space for businesses of all sizes to, to use for all sorts of purposes. But basically the solution is a flexible industrial product that,, serves a lot of needs on the logistics side and the warehousing side.   Sam Wilson (00:02:17) - Okay, that's really, really cool. I love that in the name again of your company is Portal Warehousing going to learn more about it? I think it's join-portal.com. So give me a breakdown on that. Like what's a who's a customer. What is flexible warehousing I know we talked about this before the show. You guys said something along the lines of, you feel like where you are now is where maybe self storage was 30 or 40 years ago. Kind of give us just a broad overview if you can.   Alex Morrison (00:02:43) - Yeah. Like I'd say from a fundamental perspective, if you think about an industrial business or an industrial user of space,, there's a long tail of users that are smaller.   Alex Morrison (00:02:53) - , you know, the Amazons of the world take on 50,000 100,000ft² plus of spaces, but there's a massive amount of companies that just need a couple thousand square feet or less space. And their options are super limited. So the genesis of portal was actually thinking about our network in the e-commerce space and learning, you know, their their kind of supply profile as you as you start a company and think about the last company you saw advertising or purchase from on Instagram, these companies have products they need somewhere to store them and fulfill them out of. They have very limited options after they outgrow their first space, which maybe is a garage, maybe a bedroom as they get to that next level,, the options drop off. They need to sign a five year lease, and there's not a lot of space that's available sub 5000ft². So what portal is doing is being an institutional level provider of small warehousing space.   Sam Wilson (00:03:42) - Got it. An institutional provider of small warehousing space. Is this kind of I mean, we're going to use this maybe not even the right term, but I mean, we see it happening across Airbnb ten years ago, you know, hey, we're working.   Sam Wilson (00:03:55) - We're doing you know, people are renting out their houses on Airbnb. We're seeing it happen in the parking industry where we're, you know, anybody with a lot that can park a semi and some other things those get, you know, turned into,, you know, semi parking spaces. And you guys kind of saw this, I guess same opportunity in again, smaller, potentially unused spaces. And or maybe you're taking big buildings and converting them I don't know. I mean it's that kind of am I thinking along the right lines here.   Alex Morrison (00:04:21) - Yeah, exactly. The thought is there is a massive amount of of customers out there that need a functional place to operate. They don't need the 32 foot clear class A building. They just need an industrial logistics environment with a dock door and loading in a commercial address. And we can take spaces that range from your class A warehouse to, you know, our newest location in Brooklyn is actually on the seventh floor of a multi-story, you know, a true multi-story warehouse that was built 100 years ago with freight elevators and logistics for that manufacturing kind of company.   Alex Morrison (00:04:52) - We can plug our customer in. That just needs a highly functional space,, and some logistics services and basically fill buildings that, you know, are antiquated from today's traditional logistics perspective.   Sam Wilson (00:05:06) - Got it. Okay. That's really, really cool. Tell me, I guess when you you guys are all over the country, you said Salt Lake City, Tempe, Brooklyn, Los Angeles. How how do you underwrite? How do you even figure out if this model will work where you guys are going?   Alex Morrison (00:05:24) - I mean, we there is an enormous demand. We think this product works in, in every city. We have to be smart on location. We're really focused on infill amenities markets. If you think about our customer profile, which Andrew can kind of jump into a little bit, they want to be in a convenient we're really selling convenience as well as space here. The core product is space, but it's also the alternatives are very slim. So our customers are paying for for high quality functional space near where they where they work.   Alex Morrison (00:05:55) - So generally that means last mile locations that are infill. They'd rather be in downtown LA than going out to the Inland Empire, for example. And Andrew, one of you, you know, show Sean some of our story, Sam, some of our,, example kind of customers that we work with.   Andrew Runnette (00:06:13) - Yeah. We've seen a lot of crossover sand between, you know, people doing industrial work but also doing e-commerce work, but also using the spaces where they work out of it as well. So you've got your side hustler, you've got your Amazon full fillers, right. You've got all those kind of profiles that come across, but also a lot of service industry customers where, you know, satnav company, right. They get a contract to do some restaurants in Phoenix, for example. We've had this numerous times where they come in and use our warehouse to fulfill their contract. Then they're gone, right? So it's flexible. You know, they're signing a six month lease or a 12 month lease and, you know, that's it.   Sam Wilson (00:06:55) - That's really interesting. How how does it work? I guess, you know, from a buildout perspective. Are you guys are you guys subleasing space from another, you know, are you guys buying the warehouse and then, you know, making it into smaller bays or are you guys buying are you guys subleasing space and then leasing that out again. Like how are you guys finding the properties and then plugging the right tenant into the right spots.   Alex Morrison (00:07:17) - Yeah. Like,, just to kind of exhibit an example is our, our building in, in Brooklyn., we have a bunch of different strategies. We do select releases, but generally we're moving away from that. We're doing mostly management deals now and then acquisitions through some of our capital partners or where our partner buys a vacant building and we come in and operate it and generate a pretty big increase in NOI, because we're generally getting at least three times market rents on our on our, our spaces, because we're making them much smaller than a market lease is.   Alex Morrison (00:07:50) - , so we'll take a 50,000 square foot warehouse and break it down into spaces that average about 500 or 700ft², where 50 companies can operate out of. And we have a logistics operational component where we help them with a bunch of services and give them an awesome space to work out of. But for the most part, you know, they're doing their own business within their own space. It's private, but they share the logistics infrastructure, so we're allowing companies that will never have access to things like a dock door., because generally, it's hard to find that when you when you are below 5000ft² and don't want to sign a five year lease, where do you find infrastructure like that? We can provide someone who needs 200ft² of space with a commercial, you know, dock door, which which allows them to grow their business very quickly and grow with us.   Sam Wilson (00:08:36) - Got it. So you guys, are you guys moving? I maybe I misheard this, but you're moving away from the like actually buying of the of the warehousing and then leasing them out and more into the management model.   Sam Wilson (00:08:47) - Is that kind of what I'm hearing?   Alex Morrison (00:08:50) - Yeah. The last two deals that we did were management deals., and one of them was an acquisition through a partner of ours, and the other was a third party management deal. And we're seeing a lot of opportunity with that as the as the product matures and, and the track record kind of appears and it looks really good. Really good. Honestly, our track record in terms of filling space or buildings or 100% full generating big premiums, people are saying, can you do this with us? Can you do this in our building? And we can take some of these funkier buildings that are in, you know, gentrifying pockets but are not class A industrial and generate like class A+ rents on those, right?   Sam Wilson (00:09:24) - No, that makes a lot of sense. And I would think from a scalability model, I mean, that's far more scalable than you guys, one building at a time, taking it, building it out, doing whatever you're going to do, then managing it and then going back to the next building.   Sam Wilson (00:09:37) - Like at this point, your customer base is nationwide. You're you're just running the management side of it. How does that work? Say, I came to you today and I said, hey, I need 200ft² and, you know, Salt Lake City, like, how do you how do you define what that 200ft² is? And where does a customer, I mean, what's what's that space even potentially look like?   Andrew Runnette (00:09:57) - It's pretty small, but it works for a lot of people., but it's already set, you know, it's got a it's got a key. It's got a door, you know, it's it's already set. We we've modeled out how many we need of that size in each of our locations. And we've got 250ft², 500,015 hundred square foot spaces that are just predefined. And people make it work and they, you know, they can move in same day. Really. We've made it really easy. We've automated everything.   Sam Wilson (00:10:27) - So it is a lot like I mean a storage unit. It's just you walk in, you get the keys.   Sam Wilson (00:10:32) - Hey, this is the size,, you know, like you said, two 5500 was your next one 1500 square feet something along those lines? You can pick one of those three sizes and boom, you're ready to go.   Andrew Runnette (00:10:43) - Yeah. And we've we've taken a lot of learnings from storage. Right. We've taken a lot of learnings there and and really automated things and made it pretty easy. We only have one general manager at each location, so operating a 40,000 square foot warehouse.   Sam Wilson (00:11:00) - Right. Okay. What were you going to say, Alex?   Alex Morrison (00:11:03) - I was going to say, we mentioned earlier on the call that, you know, we see a lot of similarities between storage. I think another another name for this product is could be like industrial Self Storage, where it looks like self storage. It feels like self storage. Our customers are not people, they're businesses., and it's a very diversified rent roll. And you know, we're cutting up space. It's a you know, it's changing the model to a monthly model versus a per square foot model.   Alex Morrison (00:11:27) - And, and that's what storage does. And you can get some pretty big premiums when you do that., so so we do think this is,, like an early asset class that you'll see more and more of and just like self storage., you know, 30 years ago, it was,, mom and pop industry or maybe not institutional industry. And now it's a darling of real estate. So, you know, not to say that that will become of this, but I think it could I really do.   Sam Wilson (00:11:52) - Got it. So let's say you rent that 1000 square foot space or 1500 square foot space. But I am looking at I think one of the things that you mentioned here was that all of your spaces have a services component that goes along with it, maybe that you're not going to find,, I guess I'm what I'm searching for here is the differentiator between self-storage and what you guys are doing. And I know there is one. So maybe you guys can clarify that for me, because when I see here 200ft², I'm thinking, well, why not just go rent to ten by ten, roll up storage units, and then you're at 200ft², and it's probably less than maybe what you guys do.   Sam Wilson (00:12:23) - But there's got to be some differentiator there. So tell me what that is. Maybe.   Andrew Runnette (00:12:27) - I think there's two,. The docs, as Alex. Alex mentioned earlier. Right? You can't find a loading dock at it. Such a small space. Right?, and then second would be we receive goods for people. So say you have 6 or 7 pallets coming in. You let us know. We'll grab them off the truck for you. Pretty simple. And we'll throw them in your unit if needed or, you know, if you can't be there. So companies are saving you know that labor piece, right? They're saving the money right there by not having to have somebody out there warehouse at all times.   Sam Wilson (00:13:00) - Absolutely. And if you don't know, for those of you that's never been in a business that has receivables like that, that come on trucks, I was a long time ago. And what a nuisance that is. Man in the middle of the day you're trying to get something done and all of a sudden there's somebody knocking hey man, there's a there's a semi trailer out back like crud okay, let's go pull something.   Alex Morrison (00:13:19) - And we also help on more on the logistics side too. I mean we help with the outbound and the inbound. So you know we arrange pick ups from all the major carriers. So from a if you're a small e-commerce brand sending out 100 packages a day, all you need to do is give you past a product that's been packaged to us, and we'll handle it from there. And we aggregate that amongst the facility. So we have economies of scale and get the past that labor cost and the shipping costs. Savings on to our members. So there's a big component of of the logistic services that, you know, we have a lot of companies that actually come to us from self-storage. They're in 4 or 5, six self storage spaces, and at some point that breaks and it's definitely a more affordable model. But at some point you have to make a decision, do I want to run my keep growing my business professionally or do I want to stay, you know, limited by storage units and in generally, you know, it breaks at some point.   Alex Morrison (00:14:10) - So, you know, our model is kind of the next stage. If they're not ready to go lease a 2000 square foot industrial space, if they can even find it, where the next kind of stepping stone for that, for that journey.   Sam Wilson (00:14:21) - Right. Yeah. Like you like you mentioned there, if you can even find it, let alone being able to find it on flexible terms, you know, which it sounds like that's another perk that you guys have where it's not, hey, we're not tied in for 5 or 10 years on an industrial space. It is. You know, I don't know what you're I'm sure there are varying lease terms, but it's it's probably much shorter duration, I would guess.   Alex Morrison (00:14:43) - Yeah, it's 3 to 12 month terms. And generally, you know,, customers don't leave us after their initial term. They just they like the flexibility. Something changes. We, you know, we've had companies grow from our smallest space to our largest space, 200ft² to 2000ft² over the course of a year.   Alex Morrison (00:14:59) - And then and then they're ready for their next, you know, traditional term. And they'll go find a 5000 square foot building to lease on a five year basis. But they might not be ready for that for, you know, a number of reasons when they first joined us.   Sam Wilson (00:15:11) - Right. Oh, that's really, really cool. You mentioned the term member. And I'm looking here at your website and one of the line items across the top on the menu bar, I guess that's what that's called., is this membership perks. What is.   Andrew Runnette (00:15:22) - That. Yeah, we touched on some of it. I mean, that that's, you know, the technology partnerships, meaning the shipping platform,, you know, the receiving for customers, the outbound. So setting up, you know, they don't have to set up accounts with Fedex UPS, right? They can just come in to us and use our accounts and ship out to their customers. You know? And that way they get aggregated shipping discounts as well.   Andrew Runnette (00:15:47) - , and then, you know, partnerships to help them scale their company. If you need help building your Shopify store, we have somebody that can help you, you know, if you need insurance, we can help you there. We've just built a bunch of partnerships that people get access to just through becoming a member of portal.   Sam Wilson (00:16:04) - Got it. And that's and why did you guys select the the term member versus, you know, client or something else or you know, where did that name kind of or that idea of calling people members come from?   Andrew Runnette (00:16:17) - I think it builds community. It builds, you know, being a part of something. I mean, there's, you know, a lot of,, folks that meet each other within the warehouse., we just had a packaging company join us, and he's he's now supplying packaging., he started supplying packaging in one facility, and now he's expanding to others, and now he actually expanded to others. So he's in he's in two, maybe in three facilities here in the near future.   Andrew Runnette (00:16:43) - So, you know, that also helps him save on shipping to his customers outside of Porto as well, right?   Sam Wilson (00:16:50) - No, that's really, really cool. I love this model. This is really unique. And you guys are obviously you're aware that you're filling a gap in the market that's probably existed for a long time. What are some challenges, I guess, that you guys see in scaling this? And then how do maybe you intend on overcoming those?   Alex Morrison (00:17:08) - Yeah, I'd say one of the one of the biggest challenges in any real estate operating business has this challenges like, is growing efficiently, smartly and and quickly enough to to grow., so, you know, we see demand for this all across the country., you know, some markets are hard to break into. The coastal markets are very expensive on an industrial industrial basis. Our base rent is a function of the base rent of the real estate. So, you know, there's just some some markets are cost prohibitive. And we're getting creative on deal structure to solve that.   Alex Morrison (00:17:39) - So I'd say I'd say our limiting factor is just is just real estate. And which is a good problem to have because if we're having that issue, we know that the companies that we're servicing are also having that issue., but, you know, at this point, we're just we've really built out a really strong set of infrastructure. We spent most of last year building out our operations,, from top to bottom. And we think this year will be a big year for us on growth. So,, but, you know, the more, the more deal flow we get, the faster we we can we can grow the company. And it's just a matter of finding the right deals in a creative way.   Sam Wilson (00:18:13) - Right. Very, very cool. Andrew, you have any thoughts on that?   Andrew Runnette (00:18:17) - Yes. I mean, I think the challenge is, you know, come just in logistics, but, you know, that's what we're solving for. So it's I don't I think the way we've built out our infrastructure and all of our systems over the last year just, you know, really set us up for scale.   Sam Wilson (00:18:36) - I got a question really, I touched on this a little bit earlier, but it was really about how you how you underwrite a deal, like when you look at an opportunity like what makes it. Yeah, this is going to be a great place to put a co warehousing space or I guess, again, I'm probably using the wrong word there. But how do you do that? I mean, that's that's kind of yeah. Just loving the answer to that if you can.   Alex Morrison (00:18:59) - Yeah. We spent a significant amount of time underwriting markets doing our diligence., you know, generally before we open a facility will have a list of about 200 companies that have signed up for the product that are waiting for us to open so that we know that the demand is there and we do. We've built out a really powerful demand generating system that's proprietary that,, helps us basically determine the demand levels. So, you know, we'll run ads across the internet, across different platforms to, to kind of market something that's coming soon and then hear from the actual customer.   Alex Morrison (00:19:32) - , we want to make sure the demand is there. We're not picking the wrong pocket. And there's obviously better places in a city than others. Like everything in real estate. We want to make sure we're in the right space to make sure that, you know, the occupancy comes to us., but we're, you know, in terms of our, of our occupancy history, we're really excited because, you know, we filled up our our two first facilities to 100% occupancy and under an under ten months,, and, and that's that, you know, very, you know, premium market rents and honestly a wait list in these facilities. So the demand is there., it's just about being smart, about making the right kind of decision on where where to place the facility.   Sam Wilson (00:20:12) - Is there a type of building in particular that works? And one obviously, maybe that's a stupid question, because you just mentioned a building in Brooklyn with a seventh floor that you've converted into this. But I ask the question anyway, but a type of building that works for this and the type of building that just doesn't.   Alex Morrison (00:20:26) - Yeah. What we like, the criteria that we look for is, is generally like adequate. You know, we essentially we look for criteria like doctors, parking, location. Those are the three main kind of things that we look for. Clear height isn't as important to us. So we can kind of fit into these buildings that you wouldn't think have have a useful life in industrial anymore, because an Amazon wouldn't be able to work there. Our companies generally have no issue with that. So,, you know, honestly, most buildings, most buildings work. And what we really try to find is these class B and class C buildings that, you know, are relatively priced well,, in good pockets of town and gentrifying industrial neighborhood. We like to say we go to where the breweries are because once a brewery starts to pop up, you know, you know, these are industrial pockets that are turning over and our product would work well there.   Sam Wilson (00:21:15) - Got it. And I think that's probably the, the, and again, filling up an entire space and ten months that's, that's, that's impressive.   Sam Wilson (00:21:23) - But because you're getting premium rents like the the numbers make sense. I would imagine a lot sooner in the process than maybe it would be if it was just a standard industrial building. No.   Alex Morrison (00:21:34) - Yeah, it all comes down to the real estate cost. The base cost. You know, if we went and paid class A rent and it doesn't really provide value to our customers or, you know, class A pricing on a per foot basis,, we don't need to do that. I mean, it would work just as well, but if we can find value in A, in A, B, or C building in a good part of town that we know we can bring the rents to and bring the occupancy in, we'd rather do that than than pay up for a higher quality building.   Sam Wilson (00:22:03) - Got it. Understood. So can somebody approach you today if I called you to say, hey, Alex and Andrew, I've got a building that I think would be a great fit for this, I own it.   Sam Wilson (00:22:12) - Am I an ideal client for you?   Alex Morrison (00:22:15) - Absolutely. And, you know, we're looking at opportunities all across the country. I'd say to like an ownership to the audience out there that has a building, you know, we're generating the ownership like 25 to 35%, no premiums on the real estate that on a per a market basis. So it's compelling from, from a, from market rent perspective. And we're also, you know, bringing breathing life into some properties that maybe have stagnated. So absolutely, we are looking at management deals across the country in our in our open open awesome.   Sam Wilson (00:22:48) - Know that's and if you're listening to this you know Alex just said it. You know if you've got a building that kind of fits this profile reach out to these guys. And of course their information will be included here in the show notes at the end of it., and just find out if this is a good fit. Is there a particular size, like what's a minimum size that you would need in order to turn a building into? Yeah, you guys are doing great.   Alex Morrison (00:23:07) - Great question Sam. We generally look for 40,000ft² and above. So 40 to 80,000ft². Size range is what we find works best from an economies of scale perspective. Now we could we could flex down. We can flex up. But generally 40,000 is our starting point.   Sam Wilson (00:23:23) - Got it. Okay. 40,000ft² or bigger. This has been fantastic. Alex and Andrea, thank you for taking the time to come on today. And really, I mean, I haven't I don't know whether we had 900 episodes or something on this show at this point, and we haven't had anybody talk about what you guys are doing right now. So obviously you're aware that you're on to something unique. And obviously filling a building in under ten months proves that that is also true. So certainly appreciate your guys's time today. Any last thoughts on your business, on the model or anything else you guys want to share here before we sign off?   Alex Morrison (00:23:55) - You know. Thanks for having us, Sam. If you're ever out in Phoenix, Sol, la, Brooklyn, or maybe more markets come by, check the space out and you'll you'll find it really cool.   Sam Wilson (00:24:05) - Fantastic.   Alex Morrison (00:24:06) - Appreciate you having us on.   Sam Wilson (00:24:07) - Absolutely. No. The pleasure was mine. If our listeners want to get in touch with you and learn more about you. What is the best way to do that?   Alex Morrison (00:24:15) - Yeah. My email to alex@join-portal.com Andrew's Andrew at join dash. Com or you can go to our website join-portal.com and and reach out to us there.   Sam Wilson (00:24:25) - Fantastic. We'll make sure we include that there in the show. Notes. join-portal.com Alex and Andrew, thank you again for coming on the show today. Appreciate it.   Andrew Runnette (00:24:33) - Thanks. Thanks, Sam.   Sam Wilson (00:24:33) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:24:38) - Favor.   Sam Wilson (00:24:39) - 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 Ben Fraser    Ben Fraser is the Managing Director and Chief Investment Officer at Aspen Funds, where he combines his analytical nature with a passion for delivering outstanding client service and strong returns through out-of-the-box investments.   Show summary:  In this episode, Sam speaks with Ben Frazier from Aspen Funds. They delve into the complexities of raising capital and the strategic shifts Aspen Funds has made to adapt to the evolving market. Ben outlines three common scenarios they encounter: providing gap funding for urgent capital needs, facilitating loan assumptions to improve leverage, and offering rescue capital in distressed situations. He explains the intricacies of negotiating with senior lenders, emphasizing the importance of understanding their motivations and the power of being the last money in. Ben also candidly discusses the current challenges in the commercial real estate market, including rising interest rates and an influx of new supply, suggesting that survival through the next few years will be key for investors.   -------------------------------------------------------------- Intro (00:00:00)   Ben's Career Journey (00:01:14)   Evolution of Aspen Funds (00:02:00)   Challenges in Raising Capital (00:03:42)   Adapting to Market Changes (00:04:55)   Navigating Risks in Real Estate Investments (00:05:13)   Building Trust with Investors (00:07:13)   Attracting Capital through Thought Leadership (00:10:52)   Timeline for Capital Attraction (00:12:13)   Current State of Commercial Real Estate Market (00:14:05)   Future Opportunities in Real Estate Investments (00:17:57)   Conclusion of the Show (00:17:57)   Gap Funding (00:18:24)   Loan Assumption (00:19:56)   Distressed Rescue Capital (00:20:52)   Hope for Sponsors (00:23:32)   Negotiating with Lenders (00:26:15)   Conclusion and Contact Information (00:28:52)   -------------------------------------------------------------- Connect with Ben:    LikedIn: https://www.linkedin.com/in/benwfraser https://www.linkedin.com/company/aspen-funds   Web: aspenfunds.us   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: Ben Fraser (00:00:00) - There's something like 9 million accredited investors just in the US, right? For any one of us to be successful, I only need like a couple hundred investors. You know, if I want to go big, a couple thousand investors, that's not that many in the sea of accredited investors. And so my mindset started to shift. We started to position ourselves as thought leaders,, to attract capital to us as authorities in our space, doing a lot more content,, getting in front of audiences virtual and in person and starting to kind of build a,, an attraction mechanism to bring capital to us.   Intro (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.   Sam Wilson (00:00:49) - Ben Frazier is the chief investment officer at Aspen Funds. They're an inc 5000 company, and he's responsible for sourcing, vetting and capital formation of investments. He has prior experience as a commercial banker and underwriter, as well as working in a boutique asset management group.   Sam Wilson (00:01:05) - He's also the co-host of the Invest Like a Billionaire podcast. So if you haven't checked that out, go check that out as well. Ben, welcome to the show.   Ben Fraser (00:01:12) - Hey, thanks for having me, Sam. Absolutely.   Sam Wilson (00:01:14) - The pleasure's mine. Been there. Three questions. I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there?   Ben Fraser (00:01:22) - Yeah. So you kind of said a little bit. I was,, spent some time in banking as a commercial banker, underwriter. Learned a lot. Got to look under the hood of ultra wealthy borrowers of the bank. And my favorite thing was going to look at their personal financial statements and tax returns. Learned a whole lot. Two biggest takeaways were the most wealthy,, borrowers were business owners and real estate investors. And I thought, hey, that's what I want to do. So an opportunity to join Aspen Funds about six years ago now, I've become a partner and,, helping scale and grow the business,, and running running my team.   Ben Fraser (00:01:55) - So it's it's been an amazing ride. And,, just kind of getting started to.   Sam Wilson (00:02:00) - That's really cool. What was the opportunity that you saw when you joined Aspen Funds? Like, what was the gap that you said, hey, man, this is something I can fill and this is the direction we can take the company.   Ben Fraser (00:02:09) - Yeah, well, I kind of got bait and switch that I like to say in a in a certain way, because I was coming on to be the VP of finance. So as a banker, you know, finance MBA. So I was like, I'm going to go kind of the CFO route, kind of help with the the finance side of the business. So I joined, you know, they'd been going about five years at that point, had only raised about 10 million bucks. So it was pretty small at that point. But so opportunity to help scale and grow something. But then very quickly they said, hey, you know, we actually need help raising capital because that's, you know, really we need to scale.   Ben Fraser (00:02:43) - And I'm like, okay, that's not what I really signed up to do. But hey, I want to just help out where I can and, and the and grow. So learned very quickly., I had no idea what I was doing and,, tried all the wrong things. Made a lot of mistakes., wasted a lot of money,, trying to do different campaigns. But fast forward to six years later. We've raised over $200 million in equity from investors. And,, continue doing to to scale up. So it's it's been a fun thing. I have an amazing team. It's not all me. I have about,, six different people that are on my marketing and investor relations team. So we just continue to be able to invest in good people. And I don't do any calls anymore. But still, you know, run that team, right?   Sam Wilson (00:03:27) - No, that's really cool. I'd love to hear a little bit more about those kind of mistakes and things that you say maybe you did wrong early on, but before we get there, let's talk maybe about what Aspen was doing then and maybe what it's doing now.   Sam Wilson (00:03:40) - Like, how has that changed?   Ben Fraser (00:03:42) - Yeah. You know, I think it's important to have an agile business model, especially in real estate and investing, because the tides can change. Right. And what you were doing before,, may not be a good place to be now. And what was really cool at the genesis of Aspen, it was really an opportunistic thing that our, our founders saw, and it was buying discounted distressed mortgages on, on homes. Right. And at that point, coming out of the great financial,, crisis, they saw this opportunity was a great opportunity., but it really launched us. We continue to operate those funds that continue to perform very well, but it's just not the same level of growth that we've seen in the past. And so several years ago, we started to take the same approach that we use to identify really good opportunity sets, really good, what we call macro driven themes. So we're looking at the macro economic picture, trying to find where we think these long term trends are going to kind of carry the next wave and, invest in those verticals.   Ben Fraser (00:04:45) - And so we have a few different verticals we kind of focus on and have expanded into a lot of different,, kind of asset classes from there. And, continue to, to grow those.   Sam Wilson (00:04:55) - Got it. What about the distressed mortgage business? What's that? I mean, what's that look like today? If you guys were I asked this this is kind of a leading question because I'm, I'm an investor in a distressed mortgage fund that is basically gone belly up at this point.   Ben Fraser (00:05:13) - Oh, no. Yeah.   Sam Wilson (00:05:14) - It's not good, man. It's not good. I could I got a front row seat on telling you the wrong things to invest in., but it's gone belly up and I'm looking at it going, and they made some mistakes, I think maybe 3 or 4 years ago where they ended up doing. They took these loans and they did worker work workouts. Work around.   Ben Fraser (00:05:29) - Workouts. Yeah. Workouts.   Sam Wilson (00:05:30) - Yep. Workout. Okay. I'm not in that business. You can tell,, with the borrowers, but they were resetting then, you know, the interest rates at that point in time, like, hey, Ben, cool, man.   Sam Wilson (00:05:40) - We can rework your loan. I know you had 100 grand. We bought the loan for 20 grand., you know, we'll reset it for 70, and you can,, you know, you can take the well and we'll, you know, set it at 3 or 4%. Well, now, nobody wants those. They can't resell them. Like the value of those loans is declined to almost nothing because nobody wants to take a 4% or 3% loan on their books because they're not worth anything, because now it's, what, 7% that's going rate something like that? How did how did you guys get around not getting caught holding the bag like that?   Ben Fraser (00:06:08) - Yeah. You know, again, being agile not both in a macro sense, but also a micro sense. So as the market kind of matured we had to shift strategy. And so, you know, we we saw that one of the biggest risks would be rising interest rates. And at that point we thought it was a pretty, pretty minimal risk because we'd have low rates for a long time.   Ben Fraser (00:06:28) - , but we always risk adjusted our pricing. And we just kind of held to that and, you know, missed out on some opportunities, but just felt like that's, you know, we're taking more risk working with a borrower that is,, you know, not as good credit quality as, you know, you or I. And so we risk price those to,, you know, much higher interest rates. So our yields, our gross yields are generally in the 13 to 15% range., and so we've been able to stay right sized in that fund and still pay our investors their full return and haven't missed in 11 years. And,, have, you know, still pretty good healthy portfolio. So it's, you know, call it some luck, call it a little bit of foresight and just good discipline. Throughout changing, changing times.   Sam Wilson (00:07:13) - Right. And I think a lot of people are afraid of that. One of the things that we hear a lot of people say is, you know, don't don't fall prey to shiny object syndrome, which is a real thing.   Sam Wilson (00:07:22) - You know, we're investors, they get involved. I'm I'm one of them. I'll be honest. It's, you know, early on, you're like, oh, hey, what about this? What about that? That's really cool. That's really cool. But yet at the same time, there's a right time and place to be like, no, we're pivoting. We're not doing that anymore. Because as you said, very at the beginning that, you know, times change and you got to have to have a, have to have an agile business model in order to adapt with the times. So really cool. Thank you for sharing that. Let's talk a little bit about the early on days of raising capital. You said you spent a lot of money and made a lot of mistakes, did some wrong things. Give us some insight there.   Ben Fraser (00:07:52) - Yeah. You know, so I came in with pretty much no network. We didn't have a website that worked,, and no background and raising capital. I'd done some like sales jobs before, so I knew how to like, talk to people.   Ben Fraser (00:08:03) - But, you know, that was about it. So my initial thought was, hey, if I just. Go into rooms where there's wealthy people. We have a compelling product, compelling offer. I can convince them to invest with me, right? I mean, it's that simple. Money needs a place to land. We got a good place for it. You know, easy as pie. So we started doing. I mean, it's kind of funny because we go to this this,, conference, and there was this,, kind of service provider that mostly worked with financial advisors, which this is a very common lead generation tool where they go do dinner events, they send out mailers, they bring people to a fancy steakhouse. They do a whole, you know, dog and pony show and convert people to a,, an appointment where you kind of talk one on one and then you, you know, get the assets. So they tried to apply this to,, fundraising. And,, so we tried this and, you know, I went to like a whole week long training of how you do these seminars.   Ben Fraser (00:09:03) - And,, we went all all in on it and spend a lot of money and had a lot of success from people coming to their and people that were interested. And then we had a really high conversion rate to appointment. So I'm like, man, this is working. So we just keep doing this while we're working through the the lead pipeline. And then at the end of the day, we did, I think, 3 or 4 of these events, and they're costing us 15, 20 grand a pop. So, you know, we're dropping some change. And at the end of the day, I raised a big fat goose egg and I was like, what just happened? Because people came, they were interested, they wanted to learn more and I couldn't close them. And what was so interesting to me, you know, there's different reasons why people decide not to invest, but the ultimate one was they just didn't have enough trust in us. They didn't. There wasn't enough of a,, comfort level, knowing who we are, what we're doing.   Ben Fraser (00:09:57) - And, you know, we had a little bit of a track record, but, you know, this was these were called audience. And so very quickly learned, you know, the kind of idea of, of funnel,, marketing, but also in capital raising, building that trust is so important. And finding ways to shortcut that trust curve is like kind of really became my, my passion of learning how to do that. And so what really shifted was we instead of like my approach at that point was begging and groveling and just any dollar I could get I would take. But, you know, it created this scarcity mindset to where it was like, if I don't close this investor on the phone right now, I don't know when my next investor is going to come and I need the money to, you know, invest in this deal to an abundance mindset of, you know, I think I forget the number that changes all the time, but there's something like 9 million accredited investors just in the US, right? For any one of us to be successful, I only need like a couple hundred investors.   Ben Fraser (00:10:52) - You know, if I want to go big, a couple thousand investors, that's not that many in the sea of accredited investors. And so my mindset started to shift. We started to position ourselves as thought leaders,, to attract capital to us as authorities in our space, doing a lot more content,, getting in front of audiences virtual and in person and starting to kind of build a,, an attraction mechanism to bring capital to us. And,, then you build on momentum right where you, you find where the momentum's rolling and you just double down, triple down and,, and just keep, keep going. So it's fast forward. Now, we've raised, raised a lot of money and it's I'm not working any harder. Not necessarily any smarter is just doing the right things. Right.   Sam Wilson (00:11:36) - No, I love that. Thank you for sharing that. That's,, that's that's time intensive on the front end. I think putting in those, positioning yourself as thought leaders, putting out content, I mean, what was the,, it's like,.   Sam Wilson (00:11:50) - You know, Google ads or something like that. You know, they say on the front end, like you're going to spend the first 4 or 6 months and you're pouring in tons of money in an ad campaign in the first 4 to 6 months of that. There's just very little happening. You don't think, and then eventually, you know, you start to get traction with it. What would you say the timeline is for you? Or you said, hey, man, we put in the hard work that 12 months, 24 months, what was how long do you feel like before you start to really get your feet underneath you?   Ben Fraser (00:12:13) - Yeah. You know, I think it's just it has to be a mindset shift where we all want a silver bullet that if I just do X and I invest Y into it, I get out Z and I make all this money. Right. And it's it's never as simple as that. And I think I spent so long trying to find the formula that we could just pour money into that would just give us, you know, new capital.   Ben Fraser (00:12:34) - , but it's like the quick fix, right? And it's so much of what we're doing, you have to play the long game. And when you're doing content, when you're building a,, an audience, when you're building a platform, whatever mechanism you choose, whether that's, you know, blogs, whether that's YouTube, whether that's a podcast,, whatever it is, it takes time. And so for us, we started with SEO,, we had some skills internally of being able to,, rank high in Google. And so we started doing that, writing articles and, ranking high in Google for certain keywords and then doing layering on advertising on top of that. And then, you know, that became kind of the first,,, flywheel that we could kind of build off of into other, other things. And so it took some time. It's hard to say exactly when it really kicked off, but I would say we spent. Probably a good portion of a year or two, like with this mindset of we're just going to go hard.   Ben Fraser (00:13:25) - We're going to, you know, build this thought leadership platform with results along the way. But I would say at about that kind of 18 to 24 month mark. Everything. Just start taking off, right? Because you get a couple wins, you get on a couple stages and all of a sudden, you know, you just start to attract more and then it's,, this kind of snowball that picks up steam and just gets bigger and bigger and bigger and bigger. And, you know, you just kind of roll with it, right?   Sam Wilson (00:13:49) - I love it, love it. Thank you for sharing that. Certainly appreciate it. We've got about nine minutes left here on the show. I want to get cover. Two things. One, I want to get your thoughts on what the current,, commercial real estate market looks like. And then what you guys are really going along in right now.   Ben Fraser (00:14:05) - Yeah. You know, it's it's interesting as we stand today, beginning of 2024,, we're sitting on the back end of the fastest,, rate increases in history.   Ben Fraser (00:14:15) - And,, the market is still digesting. What does that mean? You know, how how long is this going to be? When can we get our first rate cut, please? Jerome Powell and it's from my perspective, caused a,, a misalignment of expectations to reality. And I think a lot of people are just wanting to go back to the old normal. Right? What we're used to really low interest rates, really cheap money. And I think we're entering into a new normal. And,, I think we're going to have rates higher for longer. What does that mean? I mean, anyone that knows, you know, some basic math and you have smart listeners, but, you know, higher interest rates put a lot of pressure on higher cap rates, which really puts, you know, downward pressure on value. So I think we're seeing,, values being taking a hit in the short term. But we also see a lot of capital on the sidelines looking for places to invest.   Ben Fraser (00:15:08) - Right. So I don't think we're going to see the next oh eight., you know, part of that was driven by a banking crisis. And we're not seeing the same level of a banking crisis. It's more idiosyncratic across different types of of lenders that have maturing portfolios., but what I do know is that, you know, coming from a banking background, when when the credit markets tighten and when investors get spooked, it's very difficult to form capital. It's very difficult to go get debt, very difficult to go get raises, raise equity. And investors, they see maybe opportunity or the kind of beginning stages of it as the market kind of resets and goes into another bull run. But I think we're still very early in that. I don't think we have fully reset number one. And number two, it's going to take some time for investors to have confidence coming back into, well, what is the new exit cap rate that we're projecting? You know, what is the economy going to do.   Ben Fraser (00:15:59) - And right now what we're seeing from a risk adjusted standpoint is kind of the private credit boom. Right? This is this is the time of the market when private credit, it goes through a really big,, boom cycle because senior lenders are pulling back., a lot of times if it's like agency or CMBS loans that you have on existing portfolios or acquiring new interest rate,, or not interest rate, interest reserves,, that you got to bolster your, your cash reserves that maybe you don't have enough capital to finish your business plan, you know. And so there's credit tightening there. It's difficult to raise capital from a capital call of investors. So you can kind of come in and preferred equity mezzanine debt lower part of the capital stack lower risk. You don't have the same exposure to cap rates continuing to go up or values to drop because you're usually cap out at, say, 70, 75% loan to value. And then on new acquisitions, we're seeing a lot of this loan assumptions are the hot thing right now, right where you can go and assume an agency loan,, at, you know, low rates of yesteryear and,, be able to ride out whatever maturity is left on there.   Ben Fraser (00:17:08) - But generally those are very low leveraged loans, especially, you know, at the values a couple of years later. So,, you can kind of come in at that part of the, of the capital stack. You can generally get really strong risk adjusted returns., you know, not quite equity like returns, but low double digits and,, on a net basis and you're way lower in the capital stack. So it's, it's from our standpoint, a very attractive place to be. We think it's going to be an opportunity for at least the next several years., as a lot of these maturing loans start to hit and,, the market has to digest an enormous amount of supply of new,, mostly housing and multifamily,, so there's going to be a lot of turbulence in the market for the next 24 months, and we want to be positioned to take advantage of that.   Sam Wilson (00:17:57) - So how does that work? Let's let's assume, I don't know, we're going to make up some fictional situation.   Sam Wilson (00:18:02) - Or maybe you can make up a,, change the names for,, identity. You know, no one knows who they are. But what's a situation that you guys have encountered where someone has come to you and kind of walk us through how you guys look at the opportunity, and then kind of how you help the borrower out in that situation, then how you protect your investors. Give me give me kind of some nitty gritty if you can, without obviously telling your stories.   Ben Fraser (00:18:24) - Yeah. So I mean, there's probably three situations that we generally see. One is gap funding. So I had a,, a borrower just the other day. They're closing on a deal., they, you know, leverages downs, have to raise more equity. It's really hard to raise equity right now. He had a big investor drop out there going to the closing table. And like 3 to 4 weeks I need a million bucks., so we're coming in. This is a 90 day loan. And, you know, we're charging high interest for this because it's, you know,, it's money that he needs, and we're coming quick.   Ben Fraser (00:18:57) - And it's an asset based loan. But in the course of the whole project, it's a very, very minimal cost versus not closing. So we kind of come and help gap fund., and then we get paid off in 90 days that that happens fairly regularly. Another case I mentioned is the loan assumption. And generally loan assumptions like what we're looking at right now, they have a 2.9% assumed rate with another I think it's 6 or 7 years and a really good submarket. You know, it's a I think a 90s vintage property. So it's just it's a great asset. But it's at like 45% leverage., so it's difficult to get your, their equity investors returns. They want at that leverage point. So we come in. We're more expensive than the senior debt. You know we're in the kind of mid double digits total cost standpoint. But it's still a creative to their equity investors who get all the upside. And we kind of get a contractual rate of return. And we bring the leverage up to a, a more normal scenario.   Ben Fraser (00:19:56) - , while they can still, you know, manage that a really good loan assumption., and the kind of third scenario is probably the more distressed rescue capital situation. This is,, these are a lot more challenging because a lot of times basis dictates the future, right? If you just bought it at the peak and you levered it up to 80%, and we've seen a lot of deals recently, there's there's there's just no way you're not going to sell it at a loss. I mean, I'm sorry I can't put any more money down at this deal because you're already at today's value. You're over over 100% leverage, right. So those are difficult situations. But there are situations where we're seeing where a lot of these senior lenders and bridge debt lenders are very, very desperate because they have a lot of issues in the portfolio. They get very aggressive. So we can actually go lower in the capital stack. They actually subordinate portions of their senior loan behind us. So they actually stand to lose significant amounts.   Ben Fraser (00:20:52) - , if,, you know, if there's a loss in the property before we ever get hit, even below the senior, not all the way below, but somewhere kind of in the, in the,, behind them. So those are kind of different situations we see,, in kind of the needs for the capital.   Sam Wilson (00:21:07) - Right. So just and I want to, I want to kind of pick that last deal apart a little bit and see if you can clarify some things on this. What you're finding is that there are bridge lenders out there because obviously a loan is a lender's asset. So they have a loan on a on a deal. And that for whatever that that deal is now in distress. And you guys come to them along with the borrower and say, hey, look, we can help bridge this gap. Yep. Or whatever. Not. I guess you use gap funding on the first deal, but we can we can come in and you in the, in the initial, senior debt holder will now subordinate part of their debt to what you guys are bringing to the table.   Sam Wilson (00:21:45) - So you guys are now in position one in order to keep this deal moving forward. Okay. Yeah. For those of you who are listening, he's shaking his head. Yes.   Ben Fraser (00:21:54) - I know that's the question.   Sam Wilson (00:21:57) - I am just yeah.   Ben Fraser (00:21:58) - So, so so the idea on this, this deal in particular, it's,, they. We're doing the renovation plan that a bad property manager drove. Occupancy was low, aided to a lot of cash reserves. They ran out of money to finish renovation plan. They're stuck at like 70% occupancy because they don't have the capital to finish renovation plan. They hit the business plan. They're hitting the market rents. They have a path to stabilization. They don't have any money to do it. The senior lender is saying, we're not putting any more money out because we're out. We're our whole portfolio is, you know, in trouble. And,, we're, you know, they don't want to take it back because they have other deals are taking back. And, you know, that's the last thing they want to do.   Ben Fraser (00:22:37) - So we could come in and say, hey, we'll provide the, the, the, the funding to finish the business plan. But lender we need you to subordinate to us in this scenario. It's, it's a almost a 2 to 1. So if we put $3 million out they're going to subordinate $6 million of their senior portion of their loan behind us. So they have to lose $6 million before we even lose a dime of our capital. And that's, you know, last money in dictate terms. Right. And that's just the reality is you can write the ticket and we have all the leverage, because if we don't like the deal, we just won't invest in it. We won't put the money out. And so that's that's where you get a lot of you know getting to cherry pick.   Sam Wilson (00:23:16) - Got it. That's really cool Ben I love that I mean that's that's I mean that's amazing one that you get to dictate those terms and come in in that position. I guess there's there's two further thoughts on that though is that what is the hope from the sponsors position.   Sam Wilson (00:23:32) - Like what's the hope for them as it pertains to their equity investors? Are they eventually just hoping to just not lose the farm on this deal and make their investors whole as kind of that? This is their this is their their Hail Mary to get out of the deal alive 100%.   Ben Fraser (00:23:47) - I think a lot of sponsors in these situations have realized, wow,, we're going to be lucky if we can get our capital back, because a lot of these deals were purchased at historically low cap rates. And when the interest rates have reset and they're higher now, you I mean, they can't even refinance because the refinance would require a huge capital injection rate. We all have cash out refinance, right. Most deals right now are cash in refinances. That's not the direction you want to see cash going. And so it's it's difficult because values have come down. We're kind of I think at the beginning stages of the worst part of this cycle. Right. I think it's over the next 20 or 12 months, it's going to get pretty, pretty gnarly and then hopefully kind of start to rebound up.   Ben Fraser (00:24:30) - But if you can just make it through the next couple of years, right, to where a lot of this,, distress of maturing loans is hit the market. I mean, the other kind of big wave that were they're fighting right now is new supply, especially in the Sunbelt markets. We're seeing record number of deliveries of new units because these were all started in the cheap money, you know, part of the end of the last cycle. And it's now all being delivered. And so we have 60% more new supply than the previous record hitting over the next two years. And so you're now competing not only with high interest rates, but now with a new tons of new properties. And they're getting very aggressive and leasing these up. So you just if you can make it through the next couple of years, you can hope to ride out the storm and hopefully values recover a little bit. Hopefully we do have some lower interest rates and all those factors that you can't control, but probably in a better position a couple of years down the road can hopefully at least return capital.   Ben Fraser (00:25:27) - And maybe you can squeeze out some profits too.   Sam Wilson (00:25:30) - Right? Right. And I think that's, that's I mean, one, I don't wish that on anybody, but it's also just an economic reality. I think a lot of sponsors probably need to take to heart, which is that, you know, the days of yester year of doubling our money in 18 months, which I was,, you know, part and parcel I was a participant in had lots of fun doing it. But I think those days are behind us for the foreseeable future., so, you know, getting being honest with your investors and saying, hey, look, if we do our, the best we might do here is get out alive. So if we can return your capital to you, I feel like we've hit a home run at that point. So that's that's a humbling conversation. But it's something I think we're just going to see more of. The last question I have for you on this, what's that conversation like with the,, bridge debt lender, the, the, the senior lien holder saying, hey guys, we're going to come in as rescue.   Sam Wilson (00:26:15) - Like, how do you even start that? I mean, I, I would imagine that that conversation I'm just projecting here. So tell me if I'm right or wrong or how it actually works, I guess is the real question. But that, I mean, it's going to begin with a lot of like no answers in the beginning because like, no, we're not subordinating our debt and like, why? Like, how does that even work out? Like, how do you work your way through the legal and technical challenges of getting this whole sort of a deal done?   Ben Fraser (00:26:39) - Yeah, attorneys definitely get get rich in this scenario. So there's a lot of negotiations, a lot of, you know, redlining of agreements. But,, yeah, I mean, it really starts with, you know, knowing where where our box is and knowing what we're not willing to capitulate on. And so it's really a matter of here's your options. I mean, one of the options of the sponsor is. If they don't get the scalpel, they give the keys back to the property.   Ben Fraser (00:27:05) - But from the lender's standpoint. What's their motivation. Right. And if there's like we're actually targeting certain bridge debt lenders, I'm not gonna say the names because it's proprietary knowledge. Right. But they have struggling portfolios and we know they they don't want to take back all their properties. Right. And so if they have a certain number of properties or a portfolio that's just struggling, they just want to kick the can down purely from an operational standpoint. Right. They can't take back as many properties because they're going to probably take losses in their capital. So it's understanding what their motivations are and the position they're in. Because in some deals we've seen with this lender, they're actually not in a negative equity position. There actually is a little bit of equity they sold right now. Now the sponsor would lose capital. And so but we don't have as much leverage to work with the the senior lender. And so you know we have to kind of understand the position. And then we've actually just walked away from the negotiating table like two times already on this one deal.   Ben Fraser (00:28:04) - And I'm not even sure if we're going to get there. Then just we're talking about a deal. In my head that's, you know, an act of negotiations., but. It's understanding what their motivations are. And because I, I write the last check, I have all the power and all the leverage because I just walk away if I don't, because there's a lot of other deals out there that are looking for capital. And so it's it's you kind of have all leverage in that position, right?   Sam Wilson (00:28:29) - No, that's really, really interesting. Ben, thank you for coming on the show today and kind of breaking down what it is you guys are doing currently where you've been in the past. You've given us all sorts of insight, everything from kind of the mistakes you made early on raising capital to,, you know, what you guys are doing now on the private credit side of things, where you guys see the market and just how you guys are positioning yourself for the foreseeable future. So certainly appreciated you coming on today and sharing your insights with us.   Sam Wilson (00:28:52) - If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Ben Fraser (00:28:57) - Yeah, you can check out our podcast, Invest Like a Billionaire., and then our private equity firm is Aspen funds at Aspen Funds us.   Sam Wilson (00:29:04) - Aspen funds us. We'll make sure we include that there in the show notes. Ben, thank you again for your time today. I do appreciate it.   Intro (00:29:10) - Thank you. Sam. Hey, thanks.   Sam Wilson (00:29:12) - For listening to the How to Scale Commercial Real Estate podcast. If you can do.   Intro (00:29:15) - Me a favor.   Sam Wilson (00:29:16) - 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 Joel Friedland.   Joel has 40 years of experience as a broker, investor and syndicator in industrial real estate.   Show summary:  In this episode Joel Friedland  shares his journey from starting as a broker to establishing his own firm. He stresses the importance of specialization and building lasting client relationships. Joel discusses the industrial market's growth due to e-commerce and manufacturing but warns of economic downturns. He advocates for all-cash deals, avoiding debt for investment stability, and highlights the competitive edge it provides. Joel compares leveraged investing to gambling, promoting a risk-averse strategy for long-term security.    -------------------------------------------------------------- Intro (00:00:00)   Staying focused on industrial real estate (00:01:57)   Market swings and the state of the market today (00:06:18)   Types of industrial real estate and market demands (00:09:10)   Positioning in the industrial real estate market (00:11:06)   Reasons for selling industrial buildings (00:15:24)   The no-debt financing model (00:17:53)   Competitive offers and leveraging returns (00:21:29)   Risk Aversion and Leverage (00:23:45)   Gambling in Real Estate (00:24:47)   Balanced Portfolio and Risk Mitigation (00:26:57)   Conclusion and Contact Information (00:27:48)   Closing (00:28:25) -------------------------------------------------------------- Connect with Joel Friedland:  Instagram: @investingwithjoel YouTube: @britproperties Tik Tok: @investingwithjoel LinkedIn: Brit Properties Web: https://britproperties.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: Joel Friedland (00:00:00) - In every downturn when there's been, let's call it agitation of my mental health and my investors. Investment safety. Yeah, it's been because in every case I can prove in every case it's because we had a loan.   Intro (00:00:18) - 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 (00:00:31) - Joel Friedland has 40 years of experience as a broker, investor and syndicator in industrial real estate. Joel, welcome to the show.   Joel Friedland (00:00:39) - Thanks, Sam. It's great to see you.   Sam Wilson (00:00:41) - Absolutely great to see you, Joel. I asked three questions to 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?   Joel Friedland (00:00:52) - Sure., so I'm 64 today. I've been in the real estate business since day one. I've only had one career, and it's industrial real estate in Chicago. I started out as a broker, working for a family that was in the business for decades, and they had 80 buildings that they owned as syndicators, and they hired me as a leasing agent right out of college, and they trained me and taught me, and they were my mentors.   Joel Friedland (00:01:20) - And eventually I tried to join the family wasn't my family, and they wouldn't let me in. So I started a business with three other guys and we did the same thing. I've stayed close with that original family. I'm so close with them, actually, with one of the one of the sons that today I'm having a call with my advisory group before I buy buildings. I have an advisory group zoom meeting, and he's one of the leaders of the zoom call, and that's from 40 years ago. Same relationship. Still love him. We love each other and he's brilliant.   Sam Wilson (00:01:57) - And that's absolutely amazing. I mean, I don't know if I would put that in the blessed category, like there's there's very few people that can have a single career, not only a single career, but one in a very, very niche asset class without ever looking to the left or to the right. How did you stay on track and avoid temptation to look at other shiny objects?   Joel Friedland (00:02:24) - So I have studied successful people. I've studied people who are super wealthy.   Joel Friedland (00:02:32) - And primarily families that are super wealthy. And I'll tell you what they have done with their business. They've stuck with it. They don't go. They don't go to the right. They don't go to the left. They just stuck with it. I can give you the stories of about 200 family businesses that I've done business with as a broker and as a syndicator, where they invest with me and every one of them goes back decades. I have a company. We're buying a building right now from a family that started a business in 1935. In Chicago. It's called the. The company in the building is called talk. Often they make you know, have you ever been in a parking garage or a university or mass transit place where they've got those posts with the blue lights, with the phone you pick up or you push a button to get security? Yep. They make those talk. A phone makes that. So these two guys started the business back in the 1930s. And now the the family that owns the building that they've been running the business in.   Joel Friedland (00:03:44) - , they are are the grandchildren of the original founder. Why are they so rich? Because they did one thing. Because if you jump around, you don't learn. The ins and outs of the business. When you do something long enough, you learn it. And I'll give you an example, just like a. A metaphor or a or a. I don't know the difference between the, but,, an analogy. So,, my mother had,, kidney cancer diagnosed a few months ago. All right. So who does she go to? She goes to the kidney. Removal urologist. Who's the best in the world, right? You want the best one in the world? Would you go to someone who says, well, I used to do knees and I didn't like that so much, it didn't work out. So I started doing brain surgery.   Sam Wilson (00:04:45) - It didn't like.   Joel Friedland (00:04:46) - That. So I decided to go into being a urologist. And I've done a few kidneys. I've done it for a couple of years.   Joel Friedland (00:04:54) - You know, you could move the frick out of there so fast. Yes, but the person who has done dozens and dozens of kidney surgeries a month, right? Same thing, same thing, same thing. So that's what my mother did. We went, we're in Chicago. She went to the University of Chicago. And Doctor Shalhoub is the guy that she saw. You know what? He removed my dad's kidney 12 years ago. Wow. He's the guy we trust. So. I'm in the same business, industrial real estate in Chicago. The niches, small industrial buildings, class B. With it are occupied by manufacturers that are owned by families. That's my niche. That's it. And there's 16,000 industrial buildings in Chicago. And there's about 20,000 companies in Chicago and industrial one point 5,000,000,000ft². If I can't make a seven figure income by knowing that market really well, I'm a moron. But I'll tell you what. If I go do deals in Tennessee, or I go into the office leasing business, or I go into the retail business or the multifamily, someone who's been in it for 40 years like I have, is going to eat my lunch, right.   Joel Friedland (00:06:15) - So I stick with one thing.   Sam Wilson (00:06:18) - I love it, I love it. That's that is that is admirable. And I appreciate you, given the insight onto your motivation and kind of thought process behind why you have stuck with that one thing, that one thing has seen, I'm sure, in the last 40 years, many different. Comings and goings of both market swings, of industrial appetite, of tenant, types of lease rates, cap rates, the whole nine yards if you will. Can you break down some of that for us? And maybe at the end of that give us a state of the market today?   Joel Friedland (00:06:52) - Sure. 1981, when I started working for the Podolsky family,, there were interest rates out there like you wouldn't believe 17, 17 to 20% makes today's 7% mortgage look like a really good deal. We were in a terrible recession. It rode up after that because there's a recovery after recessions. And then in 1990, we hit another bump and there was a downturn. And through the 1990s it was great.   Joel Friedland (00:07:21) - And then there was another downturn in 2001 when nine over 11 happened. And we rode that up. And then there was another downturn, which is the worst 1 in 2008. And now things have been riding for 15 years, all to the good low interest rates, cap rates coming down. You can't blow it in a market where you can borrow at 4% and cap rates keep going down. But that's changed. And now people are struggling because interest rates are all of a sudden at 7% instead of at 4%. And if you had floating rate debt and a lot of debt, you're screwed. So the market's been great. Industrial has been great for four years. Rents have increased 80% throughout the entire market in North America, including Canada. And that means if your rent was $5 a square foot when you started out five years ago with the lease, today it's nine. So it's been booming because of the internet? Because the internet requires warehouses. And because of manufacturing. Because as manufacturing does well, it requires industrial buildings, which are warehouses that they fit with their machines and bring all their employees in to make stuff.   Joel Friedland (00:08:35) - So that's that's what the look is today. I think the market's coming down a little today. I think the the economy, the real estate economy is in a bit of trouble. And industrials still doing great. But it's not immune. Nothing's immune.   Sam Wilson (00:08:51) - No. Nothing's immune. Certainly I would I would propose that things change as in the especially, you know, the types of industrial maybe that tenants want. Have you seen any shift in the last couple of years on the types of industrial real estate that is, that people are, are leasing.   Joel Friedland (00:09:10) - They're leasing every kind of industrial real estate. So if if you drive down the highway in any town, big, big city, small town along the highway, you're going to see big industrial buildings occupied by companies like Amazon, right? Wayfair, like target for their online sales warehouse and for their warehouse for their stores. And if you think about it, every product in the world is made in an industrial building, except for crops that come from a farm.   Joel Friedland (00:09:41) - But they are brought to industrial to be packaged and sent out. So there's nothing. If you look around on your background and you've got,, the sign, you've got the wood, you've got the,, microphone. Everything in your office, in your house was made in an industrial building someplace. Yeah, and they have to keep making it. You know, you look in the background here, everything here. There's what's in my office here probably represents 10,000 industrial buildings where products were made that either are parts that went into my phone or parts that went into my lamp. Industrial is everywhere and is necessary. And it's a part of the supply chain. It is the supply chain. Right, right.   Sam Wilson (00:10:30) - No, that makes absolute sense. I love it, and it's one of those. It's one of those.. Who? I don't want to call it recession proof, but it's almost my question for you would be is on the,, you know, as demand changes or if the if the man doesn't change, I mean, tell me a guest on that front.   Sam Wilson (00:10:49) - I know you said that. Yes. Everything comes from a factory and or an industrial warehouse, but how do you position yourself to be in front of what that demand type is? And or, you know, what customers want? Is that is that a question? Even make sense?   Joel Friedland (00:11:06) - Yeah. I don't have to be in the front of it. I have to be in the middle of it. What's that mean? I have to be in the middle of it. I have to be. I have to own industrial buildings in great locations where companies want to be, and I have to keep my tenants. And, you know, you and I talked about this before we buy all of our buildings., all cash, no mortgage, debt free. And I think I've done a little study. There's probably 4000 syndicators in the United States with portfolios over $50 million. And I would say of the 4000, we may be the only one that does all cash deals. Yeah. So when I say I have to be in the middle of it, I have to own buildings.   Joel Friedland (00:11:49) - My investors put 25, 50 or $100,000 into our deals. They expect me to know what I'm doing and to protect their money, which is why we don't have mortgages. You can't lose to a bank if there's no mortgage. Right. My tenants expect me to give them a fair deal. And they expect me to keep their roof from leaking. These are net leases. But even in a net lease,, in industrial, landlords are almost always responsible for the roof and the structure of the building. So being in the middle of it means knowing my market inside out and only buying buildings that are desirable for any kind of tenant. No matter what they do, whether they're a distributor or a manufacturer. And making sure that they are in locations where there's a lot of,, population density public transportation in Chicago., we own ten industrial buildings in the city, and with one exception, they are all occupied by distributors and manufacturers. We have one that's a service company., in Florida, for example, there's a complex in in every major city in Florida where they have service companies,, and they have drive in doors so that companies that install shower doors or companies that do sprinkler systems or clean pools, they don't have loading docks and they don't have manufacturing.   Joel Friedland (00:13:18) - Florida is not a manufacturing area. Right, right. Pretty much the Rust Belt is. So the Rust Belt is is sort of the East Coast. The the Midwest. And then going out into Southern California, there's there's a lot of manufacturers there, but most of the other markets are distribution markets. So to be ahead of the market, you'd have to have a big warehouse in Nashville. There aren't a whole lot of manufacturers moving to Nashville, and it's a smaller market in Chicago. There are so many companies manufacturing products. I just need to own a building that they all like. That's the key. So it's gotta have high ceilings. It's gotta have good loading docks. It's all about the geometry and the physical makeup of the building. So I don't have to be in front of it because it's a very old line business. All these buildings go back to the 1960s. 70s 80s 90s the last 20 years,, we just buy existing buildings. We don't build anything. So the people who stay out in front of it are the developers who build these giant 500,000 square foot buildings, million square foot.   Joel Friedland (00:14:29) - We don't do that. Because we're syndicators, we have to do a smaller variety of business than buying a $200 million complex with one tenant.   Sam Wilson (00:14:39) - Right, right. And that's actually here in the Memphis market, which is, you know, a huge distribution market. That's what we're seeing. Sit vacant actually, right now are those massive buildings that there was a boom there for a while. But those massive buildings are the ones that I was talking to a broker here locally about. They said the smaller stuff like maybe, you know, what you're getting into is stuff that's still, you know, in high demand, but those huge buildings just are they're tougher to move right now. So that's, yeah, that's really interesting. Let me ask you this. Why? Why do people sell these buildings? You're in a market that sounds like it has just. You know, unmet demand. So why are people even selling this at all?   Joel Friedland (00:15:24) - Now they don't. Very often. That's the problem. There are very few buildings on the market.   Joel Friedland (00:15:29) - Are our,, vacancy factor across the Chicago areas? About 4%. Whoa. And people don't move if you're in a in the industrial business. So let's say you're in multifamily or let's say mobile home park or let's say,, self-storage. Yeah. How long does it take one of those tenants to leave? Few hours, right, a few hours. An industrial company that's manufacturing products, that has 40 machines that are screwed into the floor, with 40 employees that have been trained how to use those machines over a period of years. Moving that takes two years from the start. When you think you want to move to actually implementing the move as a two year process. Wow. You can compress it probably to a year and a half if you're really good as a as an owner of a company. But why would they want to move if it takes two years to do it? And it's a distraction from what they do running their business. Also, they can't lose their employees. They don't want to move.   Joel Friedland (00:16:40) - They don't want to retrain people. And also usually if it's an entrepreneurial company, the location of their building is right near where they live, so that they don't have to drive that far for their commute. So for so many reasons, they don't leave. And, you know, the cost of moving the machines. This is just one company. We have a company that makes fruit juice concentrates in a building in Chicago. They're in 40,000ft². If they moved, it would cost them $20 million.   Sam Wilson (00:17:13) - Right. So they're heavily incentivized to stay put.   Joel Friedland (00:17:16) - That's they're not leaving. Yeah. No, no, they're.   Sam Wilson (00:17:20) - Not going.   Joel Friedland (00:17:20) - Anywhere.   Sam Wilson (00:17:21) - I want to ask you a question about your. And thanks for giving me the insight on that. That's that's really cool to be in a market like that and to,, be able to play in that in that space is,, is pretty cool. That's, that's, that's that's a very niche niche market niche kind of type that you're in there in the industrial real estate space.   Sam Wilson (00:17:38) - I think that that's fascinating. But let's talk a little bit about your. Financing and or lack of financing model. When did you kind of hatch that idea and potentially tell us why?   Joel Friedland (00:17:53) - , I've bought a hundred buildings over the years with my investor groups. And in every downturn when there's been. Let's call it agitation of my mental health and my investors. Investment safety. Yeah, it's been because in every case I can prove in every case it's because we had a loan.   Sam Wilson (00:18:21) - Wow.   Joel Friedland (00:18:21) - Every time you get in trouble, it's like, how are we going to pay the debt? How are we going to pay the mortgage? Okay. Real estate is a mortgage business. It's a business where you have leverage. Everybody knows that. That's what real estate is. But after 40 years really after about 35 years. So a few years ago, after recovering from 2008, where we did have losses, we lost money on sales, selling buildings that we should have made money on if we had better staying power.   Joel Friedland (00:18:52) - . And I look at all of the deals of the, of the 100 deals we've done, we own 19 and we've sold the other 81. And of the 81 we've sold, nine, which is roughly 10% have lost money. Wow. And the common link on every loss is that when things got bad in a down market, paying the debt became very difficult. Banks have no sense of humor. And I've decided that rich people who invest in deals for the long term want safety first. They want to preserve their capital. And I have a group of them that hate losing money and like, steady cash flow. You know what your cash flow is if if you have no debt, it's 100% of your NOI. 100%. There's nothing going to the lender. There is no lender. So an example. We have a building that's,, we're into it for about $2.5 million in Chicago. The company that's in it as a manufacturing company, they make,, welding,, safety products, safety products for the welding industry.   Joel Friedland (00:20:03) - The rents 235,000 a year. We have some expenses, but they pay the taxes, insurance, maintenance and utilities. When you take out our expenses, it's $220,000 of NOI on 2.7 million, which is our our all in price. It's an 8% cash on cash return. And we keep paying it because the tenant keeps saying they've been in the building since, I think 1987. They're not leaving. In. The rent goes up every so often, sometimes every year in certain buildings. So the no debt concept for me. Is. My investors love it. They do have riskier other investments, like my typical investor might have 1020 syndication investments, private placements. Sure, we're the only one with no debt. I don't recommend that other people do this. I just do it because for me, it makes me feel safe. I sleep at night and my investors sleep at night, but it's not for everybody.   Sam Wilson (00:21:14) - No. Certainly not. I really like that model. I guess the one kind of stand out question in my head is how do you make competitive offers if you're doing it in all cash?   Joel Friedland (00:21:29) - You mean offers to sellers.   Sam Wilson (00:21:31) - .   Joel Friedland (00:21:32) - Oh well we're the most credible seller in town. We don't need a mortgage. We're all cash buyers. So if someone's trying to sell a building to us for $2 million, I say I've got the cash in the bank, I don't need to borrow money. So we'll do our due diligence. We'll spend 30 days doing due diligence. If everything checks out., we'll close two weeks later. I don't need to go to a bank. I don't need to do anything. Just close.   Sam Wilson (00:21:57) - Right. I guess maybe the further thought on that is that leverage can potentially increase returns. So what you will have is that people can afford to pay more for it because they're taking leverage on that makes the deal, quote unquote, sweeter. Does that make any sense?   Joel Friedland (00:22:14) - It does. And I consider that to be gambling. Sure. It's just it is, it is. It's gambling. And I'm not saying, listen, gambling when you're an entrepreneur and you're in business or you're a real estate investor, you're a gambler to some extent, right? You're even if you read the paper, it's Hines bought this building in Bedford Park, Illinois, and they made a bet on an industrial and Bedford Park.   Joel Friedland (00:22:42) - It's a bet. It's a bet, right? So every every time you do a deal with a lot of leverage. If you're stretching to make the deal, and you're trying to prove to your investors that you're going to get them a better return than anyone, and to do so, you need to take a lot of risk by borrowing a lot of money where rates have to stay low, tenants can't leave., the the,, property doesn't need a lot of work. It doesn't need a new heating system. It doesn't need the driveway redone. It doesn't need roofs redone. If you can find the perfect situation and the market's going up. Yeah, sure. You can overpay for everything. We don't have to pay for anything.   Sam Wilson (00:23:29) - Right?   Joel Friedland (00:23:30) - Right. If someone wants to pay more than us because they're bigger gamblers than we are, we just don't get the deal.   Sam Wilson (00:23:36) - Right?   Sam Wilson (00:23:37) - I love it, I love the discipline there, and I really I really, actually,, appreciate that because, I mean, you you you know what you want one.   Sam Wilson (00:23:45) - The price of what it takes to sleep at night. There is a price to that. And that is maybe that you have less or, you know, lower returns maybe, than what the next guy does that takes on leverage, but that is a price you're willing to pay. And I love that. I mean, and it sounds like your investors love that too, because again, like you own it in cash. Like, okay. So oh well like right.   Joel Friedland (00:24:08) - We're we're risk averse. That's the that's the term or risk averse. And today, for example, I'm seeing a lot of people getting in trouble because they had floating rate debt and.   Sam Wilson (00:24:20) - They oh gosh.   Joel Friedland (00:24:21) - If you're the kind of gambler in real estate that says, I'm going to make a bet, I'm going to bet that if I buy this $10 million complex and I put 7 million of debt on it, so I have 3 million of equity. And I'm buying it for a six cap. If everything goes perfect in three years, I might be able to sell it for a five cap.   Joel Friedland (00:24:47) - But what happens if the market's bad rates have gone up? You can't afford your mortgage to even get to the point of selling it. The roof needs to be redone, the parking lot needs to be patched, and now you're in a situation where you're, like, swallowing hard and like, you know that that feeling I have over the years been a casino gambler. You know, that dopamine hit you get when you're playing blackjack. Do you gamble at all?   Sam Wilson (00:25:13) - I don't want to say this on air. 20 years ago, in my early 20s, I did. I, I gave that up about 20 years ago. But yeah, in my earlier life when I was younger and had more money to blow and no, no family and kids. Yes, I did at one point.   Joel Friedland (00:25:29) - Okay, so I believe that a $10 million purchase with a $7 million mortgage is a form of gambling. Oh, it's not that. It's not that it's wrong. And if you can project the 20% IRR over a three year period.   Joel Friedland (00:25:44) - And and make it happen. That means. You bought it for 10 million. It has to be sold for for more than 10 million. Because you got to get your money back and you got to pay the mortgage off. So you've got to get more than 10 million or you lose. So you're betting that the property in the next three years or five years will be worth because you have selling costs. It's got to be worth 11 million just to break even.   Sam Wilson (00:26:11) - At least.   Joel Friedland (00:26:12) - So you're betting that what you're buying now for 10 million will be worth at least 12 million, or you're a loser in the casino.   Sam Wilson (00:26:21) - Right?   Joel Friedland (00:26:22) - And anything goes wrong. You're you're staying. Power to get to that fifth year is debatable. And that's why you're seeing so many foreclosures today and so many people selling buildings for a loss all over the place. We just don't want to do that.   Sam Wilson (00:26:45) - No. There's no. And that's it. That's it man, I love your approach. Love the way you guys are doing things.   Sam Wilson (00:26:50) - I love the the no debt syndication that that that's really, really cool. So thank you for saying it's not for everybody.   Joel Friedland (00:26:57) - I'm not recommending it for people who go into syndications like mine, I recommend to them that they go into some risky things with a lot of upside. Sure, because you've got to have a balanced portfolio. First of all, they should own some stocks, they should own some bonds, they should have some cash, and they should have some real estate or other alternative alternative investments. I'm just a little tiny piece of everybody's portfolio.   Sam Wilson (00:27:25) - Right? Just a.   Joel Friedland (00:27:26) - Tiny piece. And that's all I should be.   Sam Wilson (00:27:29) - Right?   Sam Wilson (00:27:30) - Right. Yeah, but it's an important piece. It's an important piece. And it's in and it's. And it's a risk., I'm not gonna call it risk free, but it's almost as risk free of an investment as you can get. So, yes, I.   Joel Friedland (00:27:42) - Call it I call it highly risk mitigated.   Sam Wilson (00:27:45) - Right.   Sam Wilson (00:27:46) - Highly risk mitigated. Yeah. Absolutely.   Sam Wilson (00:27:48) - Joel, thank you for taking the time to come on the show today. It was certainly insightful. I've learned a lot about your market. I've learned a lot about your work history and career experience. It,, it was certainly great to have you on. And again, I learned I learned a lot from you. I love the way you guys are doing all of your deals in all cash, no debt., that's very, very compelling. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Joel Friedland (00:28:12) - Brit properties. Brit with one t Brit properties.com Brit properties.com.   Sam Wilson (00:28:18) - We'll make sure we include that there in the show notes. Thank you so much again for coming on today. I certainly enjoyed it.   Joel Friedland (00:28:24) - Thank you Sam.   Sam Wilson (00:28:25) - 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.   Sam Wilson (00:28:35) - Whatever platform it is you use to listen.   Sam Wilson (00:28:37) - 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 Gust is Ben Spiegel.   Ben is a experienced portfolio manager specializing in niche lower middle market commercial real estate opportunities.   Show summary: In this episode, Ben Spiegel, founder of Redwood Capital, discusses his transition from investment banking to real estate private equity, focusing on niche lower middle market opportunities. He shares his "asset agnostic" investment philosophy, in-house property management strategy, and his goal to build a premier outdoor hospitality brand. Ben also talks about the benefits of diversifying asset classes, the growth potential in the outdoor hospitality industry, and his success in developing luxury RV resorts, leveraging USDA loans for financing. He offers insights into selecting locations for RV parks and encourages engagement with his firm. -------------------------------------------------------------- Intro (00:00:00)   Transition to Real Estate (00:00:57)   Future Goals (00:02:25)   Operating Different Asset Classes (00:04:09)   Bullish on Outdoor Hospitality (00:05:14)   Luxury Outdoor Hospitality (00:06:51)   Financing and Development (00:10:51)   Location Selection (00:18:38) -------------------------------------------------------------- Connect with Ben:   Linkedin: https://www.linkedin.com/company/redwoodcapital   Instagram: https://www.instagram.com/redwoodcapitaladv   Web: www.redwoodcapitaladvisors.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: Ben Spiegel (00:00:00) - I don't think that it is that difficult to specialize in more than one asset class. And I think that when you when you don't subject yourself to specializing in one asset class, it enables you to really have a much more robust deal pipeline that allows you to source many more opportunities and therefore deploy more capital.   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. Ben Spiegel is an experienced portfolio manager that specializes in niche, lower middle market commercial real estate opportunities. Ben, welcome to the show.   Ben Spiegel (00:00:45) - Thanks so much for having me.   Sam Wilson (00:00:47) - Absolutely. Ben. There are three questions I ask every guest who 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?   Ben Spiegel (00:00:57) - Yeah. So I started on the investment banking side of things at Barclays. I quickly moved to the buy side, working at, uh, several, uh, special situations, hedge funds, uh, investing in, uh, distressed and, uh, stress, special situations, bankruptcies and restructurings.   Ben Spiegel (00:01:16) - Uh, I was there for about 4 or 5, six, seven years. And then when I, when I started working at those firms, I was smart enough to start taking half my bonus and buying real estate with that. And after being on the buy side for about 6 or 7 years, I was presented with an opportunity to buy a large non-performing loan, uh, and take it through bankruptcy and, uh, restructure it. And when I did that, I decided to leave the buy side, and that's when I started, uh, Redwood Capital, which is a boutique, uh, real estate private equity syndication firm. Um, so I, I have about 75 million under management, uh, right now, uh, fluctuates up and down. Uh, I invest really. I like to call myself asset agnostic and that I invest in everything from medical offices to, uh, to our to luxury RV resorts to multifamily. I don't really have a preference as long as it has, uh, cash flow and I can understand the drivers of it, I will invest in it.   Ben Spiegel (00:02:25) - And, uh, basically, where do I want to be? Uh, I want to be five, ten years from now. I want to have 1500 to 2000 pads, uh, under management or under my ownership, uh, in a private REIT that I'm currently forming right now. Uh, and to be a premier outdoor hospitality brand, uh, similar to a, a marriott or a Hilton, but, uh, of an outdoor hospitality style.   Sam Wilson (00:02:54) - Man, that's really cool. I love that you mentioned a lot of different asset classes there. Are you guys coming in just on the capital side on those or you actually operating the deals yourself?   Ben Spiegel (00:03:04) - No, we're we're we're we're operators as well. We have in-house property management. And uh, actually I just actually was talking to somebody about this the other day. I think that's really one of the most important and overlooked things in this business. I said that, uh, in real estate, if an asset is managed by a third party, it really will never reach its full potential.   Ben Spiegel (00:03:24) - Uh, because coming from the private equity world, incentive is being incentivized and having a sense of ownership is everything. So in every deal I do, I give my property manager internal property a piece of equity. And I also put them on a quarterly, uh, bonus structure, uh, that's tiered based on, uh, profitability of, uh, how the building does in terms of if it's clear, certain NOI hurdles, they get an incrementally higher bonus. And I have found over the years that that had the return on investment for that amount of money has been ten x.   Sam Wilson (00:04:02) - How what's that process been like, and how does your team juggle all these different asset classes?   Ben Spiegel (00:04:09) - So I guess, um, real estate compared to corporations where you have fluctuations, commodity price fluctuations, it's it's relatively straightforward. I mean, you have your revenue, your expenses. Uh, I mean, uh, there's some obviously variables related to the tenant structure, uh, the longevity of it, but I don't think that it is that difficult to, to specialize in more than one asset class.   Ben Spiegel (00:04:38) - And I think that when you when you don't subject yourself to specializing in one asset class, it enables you to really have a much more robust deal pipeline that allows you to source many more opportunities and therefore deploy more capital.   Sam Wilson (00:04:57) - Interesting. Okay. Very very cool. And the one thing that one focus of yours and you mentioned this here and kind of what your 5 to 10 year plan is, is that you are incredibly bullish on the outdoor hospitality space. You want to grow that side of your business. Can you give us some insight as to why?   Ben Spiegel (00:05:14) - Yeah. So just to kind of give you some quick four facts and a lot of people are really aware of. But right now the average age of an RV owner in the US is 32 years old, right? Last year, our 2022 460,000 new RVs were shipped, but only 17,000 new pads were built. The average age of the existing RV destination is over 40 years old, and 92% of which are owned by single owner Mom and pop that do not have the necessary resources to invest back into their businesses.   Ben Spiegel (00:05:54) - To bring the, uh, their destinations up to the level that the new generation of RV owner needs, such as even most. Most don't even offer Wi-Fi or cell service on their on their sites. To kind of give you an idea of how behind the industry is and what really, uh, makes things exciting is Covid just changed everything post-Covid, 60% of uh, uh, permanent office worker or office workers are now permanently remote. So you have this whole new lifestyle, this new nomadic lifestyle that's being embraced. And it's, uh, it's really catapulted the industry into a stratosphere that nobody really thought it could ever go.   Sam Wilson (00:06:40) - Buddy. And you're specifically focusing though on the luxury outdoor hospitality spaces. What does that mean and why is that?   Ben Spiegel (00:06:51) - Yeah. So luxury in terms of outdoor hospitality. Me it's more of an amenity focus. Uh, that it's luxury is it's certainly a lower bar than you would think of when compared to most other asset classes. Uh, luxury basically means you keep a clean site. You have a pool, you have a pickleball court, a gym, maybe a gym.   Ben Spiegel (00:07:15) - Uh, we have gyms. And, uh, we like to incorporate a work center, maybe, depending on the location. But, uh, there's two different, really, uh, main kinds of RV destinations. You have communities and resorts. So resorts are located very close to a major attraction, uh, close to Disney World, or they're right on the beach. Uh, and they're able to charge a higher average ADR average daily rate. But the downside with them is you have a lot of higher turnover. Your average day is 3 to 5 days max. So there's a lot of turnover, a much larger vacancy rate as opposed to a community where you're probably located. Still in a very convenient location right off the highway, but probably about 30 or 40 minutes away from like the beach. So I, I only focus on the Gulf Coast, more specifically, uh, Alabama, Mississippi and Louisiana. And, uh, so we're we a community would be about 30 to 40 minutes from the actual coast, uh, right off a hot, you know, a main highway.   Ben Spiegel (00:08:22) - Um, it would it still have, uh, not as many amenities as a resort, but but close to it. But the main difference is your average stay is 45 to 60 days. And, uh, you also need less, uh, staff to, uh, run it. So you're, uh, you're basically your your net operating margins are about 60%, compared to about 45 to 50 for a resort. And instead of operating at like a 30% vacancy or 30% vacancy, you're probably closer to an 18 or 20% for a community. So they both they compliment each other. Well.   Sam Wilson (00:09:03) - Got it. Okay, that's really interesting. And I guess how far how many of these do you own currently? And has your model evolved as you have bought different resorts over time?   Ben Spiegel (00:09:15) - Yes. So, uh, when I first started to get into looking at getting interested in the business, it was during Covid. And at that time, uh, existing RV destinations were trading at all time high valuations. I mean, I'm talking three, 3 or 4 caps for some of these and that were for that were like 30 or 40 years old.   Ben Spiegel (00:09:36) - And, uh, what really occurred to me is I could build at a cost per pad, brand new, at almost a similar cost, if not less than what what I would have to pay for a 30 or 40 year old one. So that got me, uh uh, on the path to starting a joint venture with a existing owner operator of RV destinations, who's also a feasibility consultant. And, uh, basically we formed a joint venture and, uh, we went off to start building, uh, luxury RV resorts and communities, uh, in, uh, mobile, Alabama, Biloxi, Mississippi, and even, uh, Gulfport. And, uh, so now we have two we have two sites, uh, combined, probably about 172 pads. And, uh, but we have, uh, we have land under contract to build, uh, 300 pads right now, uh, which is the by far the largest development we've ever done. And, uh, something, you know, really interesting about this industry that kind of even makes this whole dynamic even feasible.   Ben Spiegel (00:10:51) - There not a lot of people are aware about is, uh, the US Department of Agriculture has a very unique niche loan program called the Rural Business Development Loan Program, where they will lend 75 to 80% loan to construction cost, uh, to build an RV destination. I mean, think about it. So you're paying like we're in contract on a piece of land for $1.5 million. 40 acres. Uh, you know, about 35,000 an acre, you know, and our construction budgets? 15 million. What kind of lender in their right mind is going to lend you $15 million on a $1.5 million piece of collateral? No. So it's just, uh, without this program, it's just, uh, it's not unless you're a family office with, you know, so much cash that you can afford to fund the whole thing with cash and then refinance once you season the cash flow after, um, the USDA loan credit program is is critical to being able to to build these, uh, in most locations.   Sam Wilson (00:11:54) - Yeah. That's a that's crazy. I knew that the USDA had programs like this. I've not ever applied indoor. Um, actually work my way through that process. Especially not on an on a luxury RV destination project. That's, uh. But that's crazy. Yeah. That's crazy loan terms. I mean, does it ever, um, is there any, I guess, any concern as you look at that and you go, oh my gosh, like, we're almost over leveraging and or this is like, I don't know, I guess when you think about that, what are what are some what are some areas of concern. Because this allows you to do things that maybe otherwise wouldn't make sense. Right.   Ben Spiegel (00:12:29) - Yeah. Well, I mean, I guess one of the scariest things is you have to you have to show 1 to 1 asset coverage on a full recourse basis. So if something does not work out, uh, they're coming for me or they're coming for us. Uh, right. They're going to.   Ben Spiegel (00:12:45) - They're coming for everything. So you have to have a lot of faith in the project you're building. Um, one thing I'd say is that we we usually were never really we never really go above the 75% LTC level. And we have enough experience with our general contractor at this point, uh, that we. We know how the process goes. We know what to expect. We know what the costs are. We're comfortable with the bank. The banks that we deal with that are subsequently secured by the USDA. I mean, how it works is it's a 12 month draw. Schedule a draw once every 412, and then upon completion, it immediately converts to a 25 year amortizing facility. So there's like no refinance. It's it's it's a lot simpler than you think. As long as you can keep construction and think there's no vertical construction. I mean, the only vertical structure you're doing maybe is a single story clubhouse. Uh, you're just dredging. You're you're laying plumbing, electric fiber, and, you know, maybe doing some site work, uh, land moving, but that's really about it.   Ben Spiegel (00:13:55) - It's not high risk. You're not building a skyscraper. I mean, in my experience, you know, I've done ground up developments in Malta and in other areas. And, you know, usually the problems don't start. So you start going vertical and. Right, um, you know, so the fact that you don't really have to do any vertical, I mean, not only is your construction time cut by 75%, you know, it's a year versus four. Um, but it's just that's honestly the big kicker that makes it that makes you comfortable with it. Uh, I would not take on those kind of recourse terms to, to build, to build a regular multifamily building, that's for sure.   Sam Wilson (00:14:34) - Right. Yeah. There are there are certainly strings attached there. And I guess that when that 12 months is up, that's when that loan starts to a fully amortized fixed interest rate 25 year loan. So you don't really know. In the end, I guess you're underwriting a range. You're like, hey, you know, it could land here, could land there on your final fixed interest rate.   Ben Spiegel (00:14:58) - So basically it's usually a, uh, between a 25 and 50 basis point spread above the Wall Street prime rate, which right now is about, uh, seven, three quarter percent. So, uh, it's not it's not very cheap, but it's not insane. It's not like normally you'd have to go to a bridge lender and you'd be paying 13, 14% and three points upfront, and you'd only be getting 40% LTV if you're lucky, even full price. And then the cash on cash returns just do not make sense. So you kind of how are you going to syndicate a deal like that? Uh, the deal, you know, only really makes sense with these loans, so. And but and then there's on smaller and smaller destinations, like I'm going into contract on ten acres, uh, on the beach in, uh, in Long Beach, Mississippi, which is right down, down from Gulfport, uh, west of Gulfport. And, uh, it's going to be about 120 pads. And the development budget, there's about, uh, 6 million there.   Ben Spiegel (00:16:02) - You can you can get a local bank to get you to get you 65, 70%. Uh, it's recourse. But, um, uh, you know, you know, relative relatively similar borrowing rate. So you want to be very selective. And also the USDA has a max if you want to go above 25, you can't have more than 25 million outstanding at any one time. So once you hit that $25 million mark, you kind of have to start to, to, uh, try alternative sources, whether that's, uh, talking to a life insurance company, going to other private areas to borrow money once you have proof of concept or your track record. But, uh, they do have that $25 million mark. But then you're all there's ways around it to mix in some SBA or, uh, 500 sevens in there to kind of, uh, dilute it a little bit. There's ways to get around it, but you want to be very careful. It's not something you want to just take on very lightly.   Sam Wilson (00:16:58) - No, certainly not. And that that makes sense. And I think the other thing to point out here is I bet there's probably some multifamily investors who are listening to this right now and they're like, wait seven and a half or seven and three quarters plus 50 basis points, and now you're at 8.25% and they're going, oh my gosh, that's unsustainable. But the margins inside of the outdoor hospitality space that just want to point out are probably a lot more robust, maybe, than what you would find in a multifamily project.   Ben Spiegel (00:17:26) - Oh, absolutely. And you also have to understand, uh, from an expense ratio standpoint, the taxes down there or nothing. And the reason why you're in that space is you you literally you just own the land. Uh, you don't have any repairs and maintenance. Uh, something breaks in the RV. It's not your dime. If anything, you sign an exclusivity agreement with a repair company, and you take a piece of all the money that they make repairing them. Right? So that's, you know, it's, uh, there's multiple, uh, you know, ways to, to generate incremental income.   Ben Spiegel (00:18:01) - And, uh, it is very sustainable at those rates. Uh, man, we're able we're I mean, we're throwing off I don't know if we were throwing off, you know, mid to high teens, uh, leverage free cash flow yields. And, uh, we target a 4 to 5 year over a 4 to 5 year hold, period. Uh, LP equity multiple between two one and 23X.   Sam Wilson (00:18:22) - Right. Oh, that's really cool. I love that last question for you here, Ben, before we sign off on this, how do you go about determining what a good location is to build an RV park or luxury RV park ground up.   Ben Spiegel (00:18:38) - Absolutely. So there's a few, uh, items on the checklist that you always have to abide by. Um, one, you have to be very close to a major interstate. I mean, within maximum of 1 to 2 miles. And that interstate has to be seeing at least, uh, a traffic count of, uh, you know, 50,000 vehicles per, you know, 50,000 plus vehicles per day.   Ben Spiegel (00:19:04) - Uh, number two, uh, you you need to be within ten mile, ten miles of a Walmart. Uh, I that's that's not an industry standard. That's my own. Our personal underwriting. I just feel that Walmart has the most, uh, advanced population analytics software, uh, in the real estate industry. And they're not building a supercenter in an area where the population is going to be declining, um, let alone it's definitely going to be steady if not growing. Also, I, I only choose to build along the Gulf Coast in the southeast where they're experiencing, uh, huge, uh, migration rush, uh, in terms of population and wealth. Uh, they have an abundance of water and electricity to things that are a lot of areas of the country don't have. You can't build a factory now in most areas of the country because they don't have enough water. Uh, you want to see, uh, you want to see the population growing at a certain clip? You want to pay attention to, uh, RV, uh, RV permits.   Ben Spiegel (00:20:15) - What? What they're going what's going on with how much they're rising by. And, uh, if you want, you want to be in a good school district and you want to be on a you want you want to have some frontage to a main road as well.   Sam Wilson (00:20:28) - That's fantastic.   Ben Spiegel (00:20:30) - And then on top of that, you pay a consultant a lot of money to do a robust feasibility analysis to give you an 80 page report just to back all that up.   Sam Wilson (00:20:38) - Right, right. So you take all the all the data you have, and then you also pay somebody a whole bunch of money. I love it. Ben Spiegel, thank you for taking the time to come on the show today. I've learned so much from you. I love what you're doing in the outdoor hospitality space. There's not many people who have the courage and the requisite skill set to go out and build new RV parks in the ground up, especially not luxury ones. So I love it, man. Thank you for saying that.   Ben Spiegel (00:21:01) - If I can do it, anyone can do it.   Sam Wilson (00:21:04) - I doubt that's true, but I certainly appreciate the humility. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Ben Spiegel (00:21:11) - Yeah, absolutely. Uh, Redwood Capital advisors.com and website. Uh, I have Calendly book a call with me. Uh, I'm on LinkedIn. Uh, Instagram handle is Redwood Capital ADV. Um, I'm always, uh, always happy to chat about anything real estate related.   Sam Wilson (00:21:31) - Fantastic. Ben Spiegel, thank you again for coming on the show today. I certainly appreciate it. Have a great rest of your day.   Ben Spiegel (00:21:36) - Thank you so much, Sam. Thanks so much for having me.   Sam Wilson (00:21:38) - 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.   Sam Wilson (00:21:49) - 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 (00:21:55) - 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 Clint Harris. Clint spent 16 years in medical sales, built a STR portfolio to replace that income, and a property management company. He made the jump to self storage conversion projects, and then syndication, and is now a General Partner with Nomad Capital, $120 million AUM. Show summary: In this episode, Clint Harris, a partner at Nomad Capital, shares his transition from medical sales to real estate investing, focusing on short-term rentals and self-storage conversions. He emphasizes financial independence and the value of time and location freedom. Clint discusses the slow but rewarding process of real estate investing, the balance between active and passive roles, and the importance of aligning strategies with personal goals. He also speaks on the power of partnerships and leveraging others' strengths. -------------------------------------------------------------- Intro (00:00:00) Clint's journey in real estate (00:01:05) Lessons from early real estate investing (00:03:16) Transition to self-storage projects (00:09:39) Balancing financial and time independence (00:13:07) Challenges of managing multiple ventures (00:18:52) Operating Partner and Manager Selection (00:19:09) Nomad Capital Partnership (00:20:05) Contact Information (00:21:02) Podcast Wrap-up and Call to Action (00:21:19) -------------------------------------------------------------- Connect with Clint: Linkedin: www.linkedin.com/in/clint-harris-543265139 FB: https://www.facebook.com/clint.harris.3150?mibextid=LQQJ4d IG: https://www.instagram.com/clintstagram_nc/?utm_source=qr Web: https://nomadcapital.us/ 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: Clint Harris (00:00:00) - Traditionally, we'll buy a building for a couple million bucks, put a couple million into it, and then stabilize. Value is usually between 13 to $17 million, which means we're sitting at around 30 to 35% loan to value when we are stabilized. So we can refi to 5,560%, pay our investors and ourselves when we do that, and we're paying people out by way of a refinance, it's a nontaxable event because it's not a capital gain. We didn't sell anything, so they're getting a nice return. We keep some money, keep the lights on here at Nomad, and then that gives us the ability to continue the scale. Intro (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. Sam Wilson (00:00:45) - Glenn Harris has 16 years in medical sales. He has built a short term rental portfolio to replace his income. He has a property management company and now he's doing self-storage conversion projects and syndications. He's also a general partner now with Nomad Capital and has over $120 million in assets under management. Sam Wilson (00:01:04) - Clint, welcome to the show. Clint Harris (00:01:05) - Thank you. Sam, great to be here. Great to see you again. Sam Wilson (00:01:08) - Absolutely. Always good to see you, Clint. 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? Clint Harris (00:01:18) - I started building in a career in medical sales. That is a short. It's a young man's game that will grind you up in terms of nights, calls, uh, working weekends, heart problems. I was implanting pacemakers and defibrillators. That is not a Monday through Friday, 9 to 5 kind of job. So that's where I started. Because of that, I actively focused on looking to build an off ramp from that lifestyle to stop trading time for money. Uh, and that got me into single family rentals, where I discovered that it's a very slow way to get ahead. That got me into, uh, buying small multifamily properties and converting them to short term rentals. Clint Harris (00:01:59) - And that taught me the value of multifamily and the value of asset class conversion that drastically increases the value of an asset, because you change the formula by which the asset is valued. And that led me to, again, a very active profile. It replaced my income. It gave me a level of financial freedom, but it did not give me time or location independence. So in the pursuit of time, location and financial independence, that led me to self-storage, which is where I am now, and general partner with Nomad Capital. We specifically focus on buying big box retail buildings like Kmart's, grocery stores and warehouses, and we convert them from one single big box into 6 or 700 class A climate controlled self-storage units. And it's taking those same lessons. It's it's one property that can be converted to a different asset, where you change the formula by which the value is created, and you create multiple tenants and putting them in place, you're buying for less than the replacement cost. Use vertical integration to leave as much value as you possibly can. Clint Harris (00:02:55) - And that's what changed my life in a meaningful way. And I left Cardiology behind in in 2022 and, uh, full time nomad and real estate investor. Sam Wilson (00:03:04) - Man, that's really cool. I love that you you've gone through several iterations of the business, and I guess in what and what year did you start investing in real estate? How long has that been? Clint Harris (00:03:16) - I started investing in real estate. Let's say I bought my first property as a duplex when I was in my early 20s. I'm okay. I'm 41 now. I would tell you this. I started investing in real estate when I was probably 2324. It was the post 2008 crash era. So between 2010 and 2013, I think my wife and I bought nine single family properties, I believe, um, the reality was there's a big difference between investing in real estate and doing it correctly. I'll tell you, I did it wrong for at least ten years. It wasn't until, uh, I relocated to Wilmington, North Carolina. My wife and I took a promotion. Clint Harris (00:03:56) - We moved to the beach, and I used a lot of road time to start listening to podcasts aggressively and educating. So I said, I've been doing real estate a long time. I've been doing real estate correctly, uh, since 2018. That was when we first got it right. And we started we unloaded some single family properties. We did some 1030 ones, and we started buying multifamily properties with bad long term tenants, converting them to Airbnbs. And that's really where it kind of took off. And the lesson I learned is, you know, you could have four condos at the beach with four mortgages, four sets of HOAs and four sets, utilities and break even. Or I could buy one quad plex, have one mortgage, one set of taxes and utilities, and net 80 grand a year. So the unit density in that lesson. So I think there's a big difference in investing and investing correctly. And I certainly was not doing it the right way for the first ten years or so. Sam Wilson (00:04:46) - Well, yeah. Sam Wilson (00:04:48) - And that I mean, that's kind of the thrust of the show is how to scale. Like it's it's one of those things where and you've made the, the, the progression. I think that so many investors make along the way, myself included, where it's like, oh, wait, like this, just this doesn't work at the single family level. Uh, what were some of the things, I guess, I mean, you because you developed a model, you said, okay, this model didn't work or isn't working the way we want it to. Like getting through those transitions is oftentimes tough. And or people can be accused of shiny object syndrome going, well, here's the next greatest and best thing. Like, how did you work your way through that without feeling like you're just chasing your own tail, trying to find the next iteration of what might work? Clint Harris (00:05:27) - Well, I did, I think that's a really, really good question. If I'm trying to give you the most condensed life experience that I can that's going to offer the most value to you and your listeners, I would say this with single family rentals. Clint Harris (00:05:38) - The lesson that I learned there is that if one property is 1 or 2 headaches a year, and then you multiply that by nine, it's it's a very slow way to get ahead. It does not scale very well. And ultimately like it's just not worth your time. The mistake that I made from there, not a mistake. As part of our journey moving into small multifamily properties. And we still own and we have 14 Airbnb properties and a property management company that manages another 80 listings. Which is why I keep talking to you about laundromats, because we got £40,000 of linens a month during the summer to deal with, um, the the issue when I made the jump from that first portfolio that we built and ultimately we took it apart and rebuilt it into something else, here's the important thing I think I was really focused on. The finances. And single families would just way too slow. So the financial independence and the goal that I had to reach in terms of financial independence and cash flow was there by jumping to a short term rental strategy, specifically with multifamily properties. Clint Harris (00:06:38) - However, when we built that portfolio out to the point where it replaced my income from surgical sales, we tried to turn it over to some property management companies. And the reality was, nobody's going to manage my business the way that I manage my business. Right. So our options were to either unpack that and go in another direction or do what we did, which is build a property management company around it. And it took us two years to do that. And now people look at it and they think that it's passive income. We've got checks rolling in and my properties are being managed at cost and it's passive income. The reality is it's residual income. We just frontloaded the work several years ago, and you don't see all the work that went involved. And now it just looks like mailbox money. And here's the issue that I ran into. Then the goalpost moved my goals for what I wanted to accomplish changed. And I suspect that throughout my life they're probably going to change again. So I'm trying to get ahead of that by talking to people farther down the road and learn. Clint Harris (00:07:38) - I was focusing on financial independence when I hit that level of financial independence. It did not come with time or location independence. We're all after financial independence, right? And everybody says that they love investing. The reality is, I don't think they love investing. I think they love what investing represents to them in terms of freedom of choice and freedom of purpose. But the way that you build out your portfolio, you could be painting yourself into a corner and pitching, pigeonholing yourself. I have properties, multifamily properties at the beach that cash flow like crazy. But instead of one tenant in each property, I have 8 to 10 tenants per month in each listing. They're paying a lot of money to be there, and they have high expectations and there's a lot of turnover and the messaging and communication and issues that pop up, even with just managing the people that are managing our property management company. It's on the weekends and it's during the summer, and it does not get you time or location independence because you have to stay on top of that. Clint Harris (00:08:43) - And it takes extra work to create the extra value from the multifamily properties there. And so for me, the goalpost moved because it wasn't really just financial freedom that I was after. It was time and location independence. So if you take a step back and you look at things in terms of scale, the same lessons from value add that were there with single family and leveraging and BR and using the money again is there with multifamily, the importance of residential density and more rental units than you have sets of fixed overhead. And the lesson of an asset class conversion that changes the value of the property? All those lessons are there. But then you factor in, okay, what's going to give me the time independence, the location independence and the financial freedom to get where I want to be. And ultimately, when I talk to the older guys that were farther down the road, for me, it was one of three things. But traditionally hard money lending and lending, uh, cell storage and mobile home parks. Clint Harris (00:09:39) - And I didn't have $1 million to lend anybody. I didn't have any interest in mobile home parks. I wasn't that thrilled with tenants at the moment because of who we'd been dealing with through our short term rentals and the 85 properties that our company managed. So that led to self storage. Then when I met my partners, Eric and Levi Hemingway, through local networking, they're doing asset class conversion. We went in and did a joint venture in 2021. We bought an old Kmart for 1.5 million. The replacement cost on the big box retail building was 6.5. We put 2.5 million into it. We're into it for 4 million. We converted it to 600 climate controlled self-storage units, and it's worth three times what we have into it, depending. Different projects vary, right. But that was the one that as a joint venture was like, okay, if we wanted to build this cinder block shell, it's going to cost us $6.5 million. But we can buy it because there's very little appetite for big box retail. Clint Harris (00:10:30) - But it's got the residential density and A1357 mile radius. It's got the vehicle count that created the value for us to be able to move on. And when you talk about scalability, if you buy an asset, no matter what it is, you fix it up and you make it nicer. You increase the rents. The value goes up by 30%. In order for you to a pay day, you either have to wait and get your cash on cash return through the cash flow, or you probably have to liquidate the asset for you and your investors to get a payday. The good thing about asset class conversion is that it can be such a swing in value that it leaves you sitting at a really low loan to value. Like traditionally, we'll buy a building for a couple million bucks, put a couple million into it, and the stabilized value is usually between 13 to $17 million, which means we're sitting at around 30 to 35% loan to value when we are stabilized. So we can refi to 55. 60% pay our investors and ourselves when we do that, and we're paying people out by way of a refinance. Clint Harris (00:11:30) - It's a nontaxable event because it's not a capital gain. We didn't sell anything, so they're getting a nice return. We keep some money, keep the lights on here at Nomad, and then that gives us the ability to continue the scale. So the lessons from everything I was doing earlier, it's the same thing. I think that's why the importance of people going through the steps of whatever it takes to get them, uh, through their career and learning, just understanding that it's significantly more likely that whatever you're doing right now is probably a stepping stone to where you want to be later versus the destination. And if you feel that way, I think it's easier to always be learning and networking, and that's typically how you're going to get ahead. Sam Wilson (00:12:09) - I love it, I love it, Clint. That's very, very insightful. I would say there's two thoughts that come to mind when you were talking. One is that real estate is a get rich, slow game. And I think that people oftentimes, myself included, probably, you know, in yester years they've thought, oh my gosh, we're going to do this and we're going to do that, and we're going to do one deal. Sam Wilson (00:12:26) - Like, you know, Clint is talking about right now, man, we're set. But it's like that's like you said, it's a stepping stone. I think it's a get rich slow game. And the second thought I had behind that was holding with three fingers when I'm already counting the two. The second thought I had behind it is that you were talking about, um, financial independence, then time and location independence. And I think one precedes the other. Like for a lot of people, you do have to initially find the financial independence so that you can then begin thinking about what time and location independence might look like. Talk to me about how you're doing, what you're doing right now, and how that plays into your set desire to be time and location independent. Clint Harris (00:13:07) - Yeah, that's a great point. I think it's not. You can't scale all of those things at once. You just traditionally you're going to reach a level of financial independence. And then what you do with that money determines whether or not you're going to be able to afford to get your time back and get your, your location independence. Clint Harris (00:13:22) - So what we're doing now in terms of scalability is last year we did six individual deals. We did two kmart's, three warehouses and a grocery store. This year we've converted to a fund model. So we've got a $10 million fund open right now for the purchase of $30 million worth of buildings that are going to be converted to $80 million worth of storage. So we get a scalability bump there. In terms of working with a portfolio. We just closed the first two properties. We got three more to go, and we can order the materials and get them a lot cheaper. We have different crews that are working at the same time, basically overlapping on different projects. So the overall fixed cost of the properties continues to get lower and lower, which just helps us with that loan to value with the stabilization and be able to refinance and move on. So in terms of that, like that, just we're just continuing to make those small tweaks and move forward. I think I heard something really recently that just impacted me. Clint Harris (00:14:14) - It was a statement somebody made in passing, and it just it gave me pause. And coming from someone that has an active real estate investment portfolio, small, but I mean, it does well for us. It's one of those things where I have to look on at the return of the property from the initial purchase price we were buying at the beach in 2018 and 2020. We've had massive appreciation, so I've got my return on the property, return on the initial investment, then I've got my return on the equity as to how much equity has grown in the property, and it might be lackluster there, but then there's also, you know, those are fairly active. And then I look at the returns that Nomad is paying out or that you can find across the alternative investing landscape, like if I invested in your, your, your laundromat funds or whatever it may be, you can choose your asset, your operator or anything else. But somebody said recently, you know, I've done a lot of active investing in the past, and I used to look at my return on investment now where I am in my life, I look at the return per hour that I have to spend worrying about it every year, and I can make 50% return on investment. Clint Harris (00:15:19) - But if I'm an active investor working on something, that's one thing. But if I'm making an 18 or a 20% return with a passive investment strategy and I spend two hours a year thinking about it, or reading the reports or reading the monthly updates or whatever it's like, for me, that is a significantly higher return based upon the amount of hours of my year that I spend thinking about it. And the dude that told me what this was in Colorado for two months, ice climbing up waterfalls and I was like, probably somebody I should listen to. So I thought that was a unique perspective of, at the end of the day, like, it's just it's a testament that goes to show that the older we get. I think our time becomes more and more valuable to us. And it's one thing that you're willing to sacrifice some of that to get your time back. And that can be a slippery slope, because if you built a portfolio of properties with the intention of managing them yourself, and that makes it a good deal, and then you haven't factored in the cost of management or for somebody else to handle those assets for you. Clint Harris (00:16:22) - When you do decide it's time for you to get your time back and you're trying to put management in place, there's a cost to that, and that's a line item. You have to pay for that management, and that can sometimes take a deal that was a good deal and turn it into not a great deal. And that means it can take an entire portfolio that you've built and turned it into something that it's not a great deal unless you're the one managing it. And now you've just got a job, right? And that's another scenario where maybe you get the financial independence, but you don't get the timer location independence. And without those three things together, you have to have all three to have any kind of independence of purpose where you choose what you want to do. Hopefully it's family or giving or building or whatever is important to you, and fishing or hiking or ministry or whatever it may be. But the ability to make that choice on your own has to have those three components, and sometimes you can scale out in a way that it's at the detriment you're giving one of those up to accomplish the other, and they can be mutually exclusive. Clint Harris (00:17:23) - And you don't know that until you get farther down the path of building out a portfolio. And then you have to either just lie in the bed that you've made or learn how to unpack it and shift. Sam Wilson (00:17:32) - That's absolutely right. And it's and I think there's no right answer here is the other other side of this where it's like, you got to figure out what works for you. I will I'm, I got a front row seat to, um, having made some investments personally, passive investments in some deals that just simply aren't working out. And it's, it's a painful like, oh, man. Like, hey, I was looking for passive investing. And instead I put in my, my money into some things that performed well for years. And suddenly they've gone poof. And it's like, oh my gosh, what happened there? So I think, you know, there's a lot of things we don't have time to unpack here, but it is figuring out what strategy I think works for you, which one you want to trade your time for, do you want to actively manage it? You know what? And knowing your operator to I mean, that's one we again, I'm going down a rabbit hole. Sam Wilson (00:18:17) - We probably don't want to or don't have time to really unpack, but it's something that, uh, you know, figuring out what the right path for you is. And do you want to be that active operator? And if so, just be going into it with your eyes wide open or it's like, hey, man, you know what? This is going to cost you? Time and location dependence is is a price you're going to pay. You have to stay here in order to make this work. So how let me ask you this one quick question. I know we're at the end of the end of the call time here, but you've built out a property management company and now you're working full time with Nomad Capital, you know, running the self-storage fund and everything else that you guys have going on. How do you manage all that? Clint Harris (00:18:52) - So it's similar to the smartest thing I did, honestly, there was was get out of the way. I'm a visionary and a big picture guy, and I have one of the strengths that I have is I can get people excited about a common goal and help people kind of see the vision of of what we're building. Clint Harris (00:19:09) - And I can tend to be a little bit heavy handed in terms of wanting to have control of that. The smartest thing I did with our company was, you know, build it out from scratch. The first 18, 24 months, I had an operating partner who's kind of, um, we're doing it together, but he's following my lead with some of the suggestions and softwares and directions that we went. And then we brought on another manager, and it didn't take me too long. It took me longer than it should, but it didn't take me too long to realize, you know what? These people are better operators than I am. So the one thing I will give myself credit for is having good judgment and character and abilities when choosing those partners. Uh, besides that, getting out of their way and let them do what they do, which is better than than what I do. Right? And so again, there's a cost to that. I get owners distribution, but I'm giving up income there to bring in a manager, but I'm bringing in a manager who's better at her job than I am at her job and letting her do what she does. Clint Harris (00:20:05) - And within Nomad Capital, same thing. I partnered with guys that have significantly better skill set than I do. They're GCS with 35 years of commercial construction experience like I do investor relations, capital raising, education, that kind of stuff. And that's my wheelhouse. That's my background because I was in medical sales for 16 years, and I can have that conversation. And a lot of our investors are white coat physicians that I used to work with. Right. So that's kind of my wheelhouse. But the best thing that I know how to do is identify people that I know, like, trust and respect, and then let them do what they do and try to look for any way that I can to provide value and help. So, um, I know that's not the answer that you're really looking for, but the reality is, like, I've just got other people that are better than I am, and they're people that I, I can trust and and I do. And I'll let them do what they do. Sam Wilson (00:20:53) - That's fantastic. Clint Harris, thank you 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? Clint Harris (00:21:02) - Best way to do that is you can go to our website, Nomad Capital US, and schedule a call with me or email me directly Clint at Nomad Capital US. Or you can find me on LinkedIn or Facebook. Sam Wilson (00:21:13) - Fantastic. We'll make sure to include that there in the show notes. Clint. Thank you again for coming on the show today. I certainly appreciate it and have a great rest of your day. Clint Harris (00:21:19) - Thanks, Sam. Sam Wilson (00:21:19) - Appreciate it. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can, do me a. Intro (00:21:24) - Favor. Sam Wilson (00:21:25) - 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. Sam Wilson (00:21:34) - That would be a fantastic help to the show. Sam Wilson (00:21:37) - 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 Anton Ivanov.   Anton Ivanov is a US Navy veteran, real estate investor, entrepreneur, and founder of RentCast.io and DealCheck.io.   Show summary:    In this podcast episode, Anton Ivanov, a seasoned real estate investor, shares his expertise on optimizing real estate operations. He advises on the importance of delegation, professional property management, and maintaining a CEO mindset. Anton recounts his journey from house hacking to managing a diverse portfolio, emphasizing starting small and learning progressively. He highlights the need for efficient turnover processes, tenant retention, and aligning rental rates with market trends using tools like RentCasio. Anton's strategies have notably increased revenue without new acquisitions, showcasing the value of operational efficiency and cost management for sustainable growth.    Links:  https://directory.libsyn.com/episode/index/id/21693881   -------------------------------------------------------------- Delegating and Focusing on Improvement (00:00:00)   Introduction and Background (00:00:26)   Starting and Growing Real Estate Portfolio (00:01:18)   Focusing on Improving Operations (00:02:48)   Transitioning to CEO Role (00:03:35)   Professional Property Management (00:04:50)   Minimizing Vacancy and Tenant Retention (00:09:14)   Implementing Systems with Property Managers (00:13:45)   Lease Renewal and Rent Adjustment (00:18:14)   Vacancy Minimization (00:20:36)   Lease Renewal Strategy (00:22:13)   Action Items for Revenue Growth (00:25:13)   Expense Reduction (00:27:27)   Contact Information (00:28:56) -------------------------------------------------------------- Connect with Anton:    Email: anton@rentcast.io   RentCast Facebook: https://facebook.com/RentCastApp Twitter: https://twitter.com/RentCastApp Web: https://rentcast.io    DealCheck Facebook: https://facebook.com/DealCheckApp Twitter: https://twitter.com/dealcheckapp Web: https://dealcheck.io   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: Anton Ivanov (00:00:00) - You know, ultimately you are in charge. It is your business, it is your assets. But you need to be able to delegate and kind of step back and focus more on areas that need improvement, as opposed to just doing everything yourself.   Sam Wilson (00:00:13) - 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 (00:00:26) - Anton Ivanov is a US Navy veteran, a real estate investor, entrepreneur and founder of rent, Cascio and Diehl Checchio Anton, welcome back on the show.   Anton Ivanov (00:00:36) - Thanks for having me, Sam. Great to be here as always.   Sam Wilson (00:00:40) - Absolutely. The pleasure's mine. Anton. It, uh. I didn't look it up here ahead of time, I can't remember. It's been a couple of years since the last time you were on the show, so it's great. Great to have you come back on. I don't remember the episode number. So here, maybe we'll include that there in the show notes, in case you want to go back and kind of hear Anton's, uh, first podcast with us, where he breaks down a lot of the ways he built this business and some really other cool, uh, things that he's done there in his real estate investing career, which we're not going to really get into too much today.   Sam Wilson (00:01:07) - However, Anton, for every guest who comes on the show, even returning guests, there are still three questions I asked them in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Anton Ivanov (00:01:18) - Absolutely. So we started investing, uh, me and my wife about, uh, it's been about ten years now going on that, uh, we actually started very small. We started with house hacking. Uh, you know, we bought a one duplex that we lived in. One of the units rented out the other. We moved on to some out of state turnkey investing in single family properties. And then most recently, we were buying commercial multifamily in, um, commercial and like, fourplex residential multifamily in Kansas City, Missouri. So we've had kind of a very, uh, more slower growth, I like to say it, but it was more manageable. Uh, it helped us make, you know, some smaller mistakes, learn from them, and then move on to bigger deals over the years.   Anton Ivanov (00:01:59) - And we've covered a lot of this with you, Sam, on the last podcast. So, um, again, I'm a big proponent of kind of not jumping into necessarily the biggest deals, uh, if, if, you know, if, if you prefer starting smaller and learn from that. Um, and yeah, we've been super happy with that, uh, lately and kind of what I wanted to focus on this show. We've, we've spent a lot of time on focusing on improving our operations, um, and kind of increasing the cash flow. The existing units we have, we have, uh, 42 units right now spread out across, uh, three places, Atlanta, uh, San Diego, and then the bulk of our portfolio and, uh, Kansas City, Missouri. Um, and yeah, just the market recently has been a little bit tougher. You know, obviously we have still prices are pretty up there. They haven't, uh, softened up, as I would expect them by now.   Anton Ivanov (00:02:48) - And then the rates are high. It's just kind of a tougher environment, in my opinion, for acquiring new rentals. So I think it's a great time to focus on operations, because I think it's oftentimes neglected by some investors that just kind of focus on more and more deals, more and more units in their portfolio. Uh, but I think you can get a great ROI in your time and kind of effort by just focusing on what you already have.   Sam Wilson (00:03:12) - Man, there's a lot to be said for that, and I look forward to jumping in to getting kind of the nitty, your nitty and gritty details on how you guys have done this. I guess before we get into that, though, 42 units spread completely across the country. I mean, yeah, Kansas City, San Diego, and if you're if you are managing operations, it sounds like you're, you're self managing these properties.   Anton Ivanov (00:03:35) - Um, so no. And actually that that takes me straight into our first point is, uh, you know, I look at, you know, when you first starting investing in real estate, you're kind of more I would say, uh, you know, boots on the ground.   Anton Ivanov (00:03:48) - You're more involved, especially with acquisition and management. I think it's important as you transition to larger volumes of units, you know, ten, 20, you know, 40 like US units, especially if they're spread out across the country. Um, I think at that point, you kind of stop being maybe like the workhorse of your business, of your real estate, uh, you know, venture empire, if you would, and you kind of start to become the CEO, right? Where you're, you know, ultimately you are in charge. It is your business. It is your assets. Uh, but you need to be able to delegate and kind of step back and focus more on areas that need improvement, uh, as opposed to just doing everything yourself. So one of my, you know, first tips for kind of improving operations at scale, uh, again, is not necessarily doing it yourself, but finding professional property managers. So we've used professional management for all of our units. Funny thing is, when we bought that duplex that we house hack, that was our first property that we bought, we used the property manager for the upstairs unit, even though we lived in the building.   Anton Ivanov (00:04:50) - And it sounds kind of stupid, maybe silly, you know, like, hey, why don't you just manage your your right there. It's the unit above. But I had this vision of kind of growing our portfolio to 40, 50 units, and I wanted to start getting experience with working with property managers, kind of seeing how that plays out, which prepared us to, uh, later buy out of state properties that I was not going to manage myself. So I think it's important, you know, I I've met folks who self-manage, especially if they're local. The buildings that they own are local. It can work. But I just think it turns into a full time job very quickly, especially if you have a lot of units. I think you can free up your time. Uh, and if you find a good manager, you know, and kind of work with them. Right. It's it's also another thing I would say about property managers. Uh, it's it's not really a give it to them and forget.   Anton Ivanov (00:05:40) - Kind of arrangement, which I think some people expect. Um, and, you know, in an ideal world, maybe it would be. But everybody is different. You're you're different from, you know, Sam from, uh, from me the way you want your units managed. And, yes, a property manager has their own, like, procedures and steps, and they like to do things a certain way. That doesn't mean that you can't go to them and say, hey, look, I know you guys like to do it this way, but here's how kind of I would like to tweak the process. Like, again, you're basically the CEO. You know, they're working for you. You're paying them. Um, and I think as the CEO, you have the full right. And kind of not to micromanage them essentially, nobody likes that. You know, they don't want you to be there just making every little, you know, second guessing their decision and stuff like that. But know if you feel like things are not going the right direction, step in there.   Anton Ivanov (00:06:28) - You know, do a monthly phone call. This is what we do with our property managers, even if things are going smoothly, just to check in and see how things are going, any big issues, anything we should be concerned about? Look at trends and let them do the work. Uh, especially if you own out of state properties.   Sam Wilson (00:06:43) - That's really great advice, and I bet most people don't do that who are out of state owners is having that monthly check in. Yeah. How do I mean and I also wonder if, you know, how did you convince and or get on the calendar of your property manager saying, hey, I want this monthly check in because I bet some property managers out there that would be like, hey, Anton, it's great knowing you, buddy, but I really don't want to spend 20 minutes with you once a month talking about your properties and go away. So, uh, how did that conversation.   Anton Ivanov (00:07:16) - Yeah, well, two things. So I think as you, uh, you know, as you scale your portfolio, the more units you own in a certain area, the more units you have each property manager manage.   Anton Ivanov (00:07:25) - Uh, you kind of become a more valued client. Right? So if, if you, if they're just managing one house for you, you're absolutely right. They may just not be inclined to spend as much time with you because you're like one out of 500 or something units. But as your units grow, you have, you know, a dozen 20, 40 plus units. Uh, it becomes much more easier, at least in my experience, to get on their calendar, uh, have them be a little more responsive. Um, and I would take advantage of that. You know, I would. You are a more valued client. They should spend more time with you. Um, so that's kind of one thing. I think it's natural for that to just happen as you grow your portfolio. The second one does come down to property managers and not being able to basically, you know, fire one if it doesn't work out. I had to do this in some of our markets, you know, some property.   Anton Ivanov (00:08:13) - There's so many property management companies and some are like you said, they're just like they don't really want to like stir the boat. They just kind of want to collect their cut from from the rent every month. They don't want to talk to you, you know, like they don't want to talk to the tenants. Um, and in my opinion, those are usually not the best property managers. Like, I don't think, again, a property manager should be like, always, you know, shaking things up, but they should be responsive. Communication is like one of the keys that I always looked at in property managers. If your property manager is not responding to your emails, phone calls, whatever, I bet they're not doing that with the tenants. Also, like there's probably some some like communication issues with the tenants and that's what you don't want. Because to me, like how they talk to me is, you know, kind of relates to how they talk to the tenants. And I want a property manager that will talk to the tenants, be responsive, like stay up to date, because that's how you increase tenant satisfaction and retention, which actually takes me to our next point, uh, very, very nicely.   Anton Ivanov (00:09:14) - How do you improve operations and kind of efficiency of your portfolio is minimizing vacancy when you have a portfolio at scale, a large multifamily commercial portfolio? What I've found and I've talked to a bunch of investors is vacancy becomes your biggest expense. It's not your taxes, it's not your insurance. It's not your it's it's actually vacancy. If if you have 40 units and ten of them are vacant, you know, that's like a 25% reduction in your income, it becomes huge. So focusing on minimizing vacancies. And there's many different aspects to this right. This it's both basically you know when you do have vacant units, uh, you need to get efficient at filling them. And this comes down to having a very good unit term process. You know, you're not like messing around, finding a contractor doing scopes of work. Like we've got it down to a science where basically we have a portfolio like our bulk of our portfolios in Kansas City. We have a standard list. Like I'm like, hey, here's basically a punch list, right? Here's here's what you go through.   Anton Ivanov (00:10:15) - Uh, they we have a standard set of contractors where they agreed on budget and materials. Like, we like to standardize, we paint like, you name it, like it's it's such a well honed process. And again, that's something that's easier to do at scale. You know, if you own a single family here or single family, there is kind of a little more individual work. Like what does this house need when you have commercial units, you know, larger special talk to folks that have 100 plus years. When it's right there. Like I can't be going and doing a personal inspection, or every manager is going to do an inspection, like have a standard set for how you turn a unit. So when a unit does become vacant, they give you the keys. It's like, boom, we done the inspection, boom, we've scheduled the work. We had contractors lined up, you know, a week too. It's it's done. The work is done. We can release it. We already know what we're leasing it for.   Anton Ivanov (00:11:04) - Uh, we already have a kind of a marketing plan. We know where to pose these properties. And, you know, with the unit is vacant for a weeks, you know, 2 or 3 weeks, like max, where as a as opposed to sitting there on the market because, again, every month you're not collecting rent, you're losing a ton of money. Uh, and it's kind of like a hidden expense, right? It's not like on your operating expenses, on your CapEx or anything. It's it's it doesn't show up there. But but when you're not collecting rent, that is an expense. So huge, very huge minimizing vacancies. The other thing I will say, kind of where we started with the whole vacancy, is the whole tenant. I call it like tenant retention. Right. Uh, general concept, but it basically involves keeping tenants happy. It's it's a multifaceted thing. It's it's hard to like, point it like, hey, do this and your tenants will be happy.   Anton Ivanov (00:11:53) - But having a good property manager like we started talking can go a long way. You know, tenants, in my experience, most of them like they're not like super picky. Like you'll get 110 and out there, that's just kind of a pain in the butt. Uh, excuse my language, but but most people, you know, if if they have an issue, uh, they understand, like, things break, right? You know, dishwashers break, whatever garbage disposals break. They just want good communication. And we've heard that time and time again from our tenants. Like, they love the fact that. So we have like, programs where they can text, they can use a website to submit maintenance requests, like it's easy to get Ahold of our managers, our maintenance departments. And I think that alone can go a long way to like, keeping tenants happy and keeping them in your units as opposed to like you know, always moving out because they just, you know, they ask for something to get fixed.   Anton Ivanov (00:12:44) - And it's been weeks before somebody even called them back. Like, that's not the experience you want. So, uh, just work with your property manager, establish some programs that can be very simple, like you don't have to send them gift cards or like, you know, I've heard, like some landlords do, like crazy stuff like that, you know, they'll, uh, send them a birthday gift, send them a Christmas gift if you have the capacity and kind of to do that, like. Yeah, I think it'll be great, you know, at least a little postcard or something like that. But even just the basics, you know, be responsive if they have issues, you know, work with them on the issues. Just be reasonable with the tenants. Uh, keep them happy. Put yourself in their shoes. I think that can go a huge way to to reduce your vacancies.   Sam Wilson (00:13:24) - You've brought up a lot of things that I would feel are more on the property manager. Things to do, such as? Right.   Sam Wilson (00:13:32) - Having text message, you know, hey, I can text and say, yeah, something broke or this or that. How are you incorporated? Or how are you having these discussions with your property managers and saying, hey, these are systems we want to implement.   Anton Ivanov (00:13:45) - Yeah. So that that yeah, you're absolutely right. So I'm not doing these myself. I'm not out there like with my phone number giving giving it to the tenants. No, this is exactly like the first thing I think, you know, having a good, good, good property manager, having a good relationship with your property manager and then finding one that is willing kind of to work with you if they don't have these systems to implement them. That's like one of the keys. And that's why I started with that as my number one point, a property manager at a scale like with a with a larger portfolio can make or break, you know, your basically success, your long term cashflow. So again, it's you know, it's more like an art form.   Anton Ivanov (00:14:24) - I can't tell you like, hey, you know, go on Yelp or something like that. Look for these keywords. Find a property manager like it's it's it's been like a bit hit or miss for us. You know, we've we have started with some companies that were doing okay. Then we got to a certain point with kind of our larger volume that we found. Hey, you know what? This is just not working. I would say the best thing that helped us was a I only ask I only find property managers now through referrals. Uh, we haven't entered a new market in a while, but I would never, like, go on Google or Yelp or whatever and just grab a random company. I just think that's, you know, your the chances of you finding a really good one are pretty low. Um, I would definitely. If you're in a new market, you've never invested there before, I would try to network and connect with other investors, property groups, like whatever, find a little circle, you know, little local meetups, and then ask who they use for property managers, find out how big their portfolio is.   Anton Ivanov (00:15:18) - Uh, so it kind of matches what you're doing, because, again, a property manager who, like, specializes in single family is going to be different than somebody who manages like 100 plus unit, you know, apartment complexes. Like you need to find a manager that like, fits what you're trying to do. Um, and then again, it's just about establishing a relationship, you know, when you come into it. I would ask him questions. Like, hey, uh, you know, how open are you guys to doing a phone call with me every month? Like, it's it's a question that you can easily ask during, like, your initial vetting process with the property manager. Uh, you know, all these questions like, hey, how do you guys handle maintenance? Like, is it a website? It's just a forum. Like, do they have to call? Uh, so I actually have, I think like a property manager checklist or interview, uh, questionnaire. Maybe we can throw that in the show notes that like covers a lot of these bases.   Anton Ivanov (00:16:06) - And it will just should give you a better understanding of how they do things. Because, yeah, you want to find a company that already has a lot of this stuff in place. And really good property managers, they do like they're not going to be, you know, like set and forget. They they will have these programs because it's in their best interest to like the like most property managers don't collect money when the units are vacant. They want to keep the tenants, you know, to keep them happy, keep the owners happy. So a good property manager company is probably going to have a lot of this stuff already. It's just again, a matter of finding one, which is not easy, but it is possible, right?   Sam Wilson (00:16:39) - No, I love it. That's, uh, that's very, very helpful finding a property manager that you think you said it. But just to recap, but find the property manager that that matches the property type you're looking for them. Exactly. And has experience in that because there's like like you said, there's it's a wildly different skill set for a 100 or 200 unit apartment complex than it is perfect.   Sam Wilson (00:16:58) - Yes, 100 single family homes spread around the city. So that's, uh, that's really, really helpful. Can I go back to. Yeah. The vacancy. Yeah. First thing that you hit on as a way to, you know, improve operations. And of course, you know, I also like what you said there when you said that, hey, you know, you're you're if you're not collecting rent, it doesn't show up as an expense other than your top line revenue number is smaller, but there's not exactly there's not like a line item says, hey, you didn't collect rent and here's how much money you lost. Yeah. Which would be kind of helpful, I would think.   Anton Ivanov (00:17:30) - Yeah. Well, we tend to put it up higher like before the operating expenses. Right on the like the NOI worksheet. So.   Sam Wilson (00:17:37) - Right. Right, right. Yeah. Somehow it needs to be like above the top line. Like here's your minus for all your vacancy. Right. But anyway, I digress.   Sam Wilson (00:17:44) - The question I had for you outside of, you know, uh, quick turnovers, that sounded like one thing that you said that you guys are really, really honing in on is if you have a turnover. Yeah, it's done very, very efficiently. What else are you doing on that front in order? And of course, you know, your second comment which was retention, which is also, you know, part and parcel of minimizing vacancy is keeping the tendency you have. Yeah. Is there anything else on that minimization of vacancy that you guys are actively doing that maybe our listeners could employ?   Anton Ivanov (00:18:14) - Yeah, I would say, uh, and kind of this I actually had a third point that this will take us in there nicely. So this is more on the retention side. So again, keeping the tenants happy with simple things like communication, maintenance. Uh, the other thing where I think landlords struggle and we have to is the whole like lease renewal and rent like, like where to keep the rent because you know, yeah, if the tenant is happy, a lot of times, though, it still comes down to what are you charging in rent? Uh, you know, if, if, if you're, like, overcharging them way above market, they're going to shop around.   Anton Ivanov (00:18:47) - They're going to move. Right? So, uh, but where do you do it? Or. I've met landlords that are like, on the opposite, they'll be like, I haven't raised rent for this tenant and ten years, you know, and, and and I'm happy and they're happy I think, you know, with that there's, there's a medium right there. So, uh, my philosophy is I do want my portfolio to kind of keep track with the market rents, right, or over a long period of time. So I'm not a big proponent of not raising rent for tenants for like decades. It's just I think there's really no reason to do that. Uh, yes. Maybe you will lose some absolutely exceptional tenants. But if you actually do the math of how much rental potential rental income you lost over the course of, whatever, five, ten years, you didn't raise the rent on them, even if you fact, you'll have a turnover and the new tenant, it will work out better in your favor, in my opinion.   Anton Ivanov (00:19:38) - You know. Right. It comes down to a little bit into like your personal philosophy and all that stuff. Uh, but just mathematically, I think you'll do better to keep track with the market rents for your portfolio overall. Now, what we tend to do for, for our own portfolio is we would be a little more aggressive when leasing new units, right? So if we have a vacant unit, we'll do a market analysis. Now by the way I'll do a self, you know uh plug here. So we have a rent Casio platform. Uh you go and rent Casio. You don't need an account uh, if you have a residence. So it's currently only for residential properties like apartment complexes. We don't quite support industrial or warehouse or retail on the commercial side yet, but if you have residential, you know, both small multifamily and larger commercial properties you can plug in and address, you know, the, like the property size type, and it will give you a rental analysis, like a rental CMA report with what the rent should be, what are the rental comps and stuff like that.   Anton Ivanov (00:20:36) - So there's like really no excuse with today's tech is. Getting to with not knowing what the, you know, current market rents are and a good property manager should have a like a ping on that as well. Like they should know. You know what what kind of properties would rent for. So basically when we're leasing new units, you know we already had a vacancy. We did a turn especially it's kind of like a, you know, a decent rehab. It's in good shape, will be a little more aggressive meaning like will list it pretty close to what we think market rent is maybe a little bit under, but it'll be like pretty up there. And you know we'll kind of judge rental demand. Obviously that's another thing with kind of working with your leasing agent for minimizing turnover is is like I've seen property managers that will just throw a rental number on there like they think it should rent for, I don't know, 1200. Uh, and then they'll list it and then it's like crickets and, and they just keep the listing on and they keep the listing on.   Anton Ivanov (00:21:27) - Maybe they get one showing like. No, like we tell the leasing agents like, hey, if, if, if you list it for a week, you should get like at least five, ten showings, whatever it is, depending on the year. Like you should get interest. If you're not, then it's too high. Like it's it's as simple as that. It's not like your pictures or you know what I'm saying, because markets also change so rapidly. Like you can look at long term trends, which was shown on the Rent Cars website. You can actually look at like zip code and where the rents are going, but they change like too quickly. They're seasonal, you know, there'll be less demand in the winter, like for example, around the holidays. Usually nobody's moving. Then there's like more demand, like in the summer when people tend to move. Right. So you just have to be like really on it. You're leasing agents should be not necessarily you personally, but uh, just do little adjustments and then you get more showings.   Anton Ivanov (00:22:13) - You feel kind of the vacancy. So we're a little more aggressive on the leasing of new units. Were a little less aggressive on renewing leases. So we typically do one year leases, sometimes two. But we'll be we'll kind of look at the tenant. And if they're paying their good if their rent is kind of pretty close, like if it's a new tenant, maybe they at least a year ago. Sometimes we'll skip a year. We just won't even do an increase. I'm not a big fan of like just doing $50 a year every year, like something regular. We will actually see what they're paying, what their history is. Uh, what would we lease that unit for? Uh, if it was like, you know, vacant if we just did market rent and if it's within like 10 to 12%, I mean, like 10 to 15, even sometimes 20% within market, we will leave it alone. We will maybe bump it up, but we will kind of always trail the market rent on lease renewals basically by about like 15%, sometimes even more for good tenants.   Anton Ivanov (00:23:09) - So we'll kind of keep it up, but we will be much less aggressive. And that kind of gives you a spread. Because if that tenant was to go and be like, you know what, they give me a little increase. Like, I don't know, $100, $150 a month. And what are they going to do? Like think about it. They're going to go and shop, right? First they're going to be like, you know what, I don't want to pay more because it's like human nature. Why would I pay more? They'll go do a market analysis for the same kind of unit type that they're in. And if the market rent is really like ten, 15% higher, they probably won't really find anything that is better than what they're paying. And they'll be like, well, I guess, you know, it's inflation. And you know, people expect rent increases, right? They just don't want to be in a position where like, uh, you know, they feel like you're overcharging them.   Anton Ivanov (00:23:54) - So if they go and they find a bunch of other units for leasing for less, or maybe they're just better conditioned leasing for the same. So just put yourself in the tenants position. Again, my preferred strategy a little more aggressive on vacant units, a little less aggressive on, uh, existing tenants and lease increases. Uh, but, uh, you know, find a strategy that works for you. Communicate that to your property manager, like your property manager should be on it. It shouldn't be like, oh, what should I lease this unit? Like we have a process like go to rent cast or whatever platform they like to use, you know, find the rent estimates. You know, look at the tenant. Is this a lease renewal? Is this a new tenant? Right. Like have kind of almost like a workflow checklist whatever that, you know, that they know. Uh, but let them do it, you know, once once they're comfortable with. And we had great success with this.   Anton Ivanov (00:24:42) - Like we got our leasing agents and they like it too, by the way. Like, you know, property managers do like systems. They have a lot of units. They kind of they don't want to be overthinking too. But if you get them on a system, I actually found that they're very responsive to it provides like overall a good company. Like they're, you know, they're honest. They want to work. Uh, they like these systems. They, they like that, like, hey, I do do do do this. And my owner is happy. The tenants are happy. Like, we're done. You know, it's, uh, I've, I've haven't had personal issues once. You kind of get them on board with that man.   Sam Wilson (00:25:13) - That's great. So we got three action items here. Yeah. In order to. And it all comes. Well, you know, one is minimize the vacancy, two is retain the existing tenants that you have and then three is inside of retaining those existing tenants.   Sam Wilson (00:25:27) - Um, you know, it's it's paying really close attention to how your units are priced and when who the tenant is. That's, that's currently there. And or if it is a unit that you're filling. So that's really, really helpful. What has been your. I know you'd mentioned this maybe off air and maybe you didn't mention it on air, but I think you told me that there was a certain percentage that you've really increased the top line revenue to your business without adding more units here, just implementing this strategy.   Anton Ivanov (00:25:54) - Yeah. I think I haven't like done the math exactly today, but I think over the last. So we haven't bought new units I think for two years. And it's primarily because of Covid and kind of the market was really up there, you know, with the prices, then the rates start going up. So we've really focused on operations because I feel like as a real estate investor, you always should be focusing on something again, like you're the CEO. Like you shouldn't be just sitting around, you know, collecting your paycheck, which is nice, but, uh, and a great time if you feel like the market is a bit saturated, you know, not not the best interest rate environment.   Anton Ivanov (00:26:27) - Focus on operations. We've grown our, uh, top line revenue and our cash flow because of that by over 20% by doing these tips. So by focusing on vacancies, working with our property managers, uh, and, uh, you know, kind of really keeping up with market rents, I think over the last couple of years, we've increased cash flow by over 20% without buying a single unit. And I think unless you're like, really? On what I, what we just talked about, probably almost any investor, any building, any asset can use something from that. And these are just like a few tips. You know, there's obviously like cutting costs and and improving your like maintenance and all that stuff that you can get into. But I would basically look at your, uh, you know, your profit and loss for, for each asset or for your whole portfolio and just work through every number like it starts with rent, then it's your vacancies, you know, then you jump into your expenses and just look at, you know, criticize every number, uh, like, you know, can I increase this number? You know, if it's rent, can I decrease this expense number, like scrutinized, like just brainstorming.   Anton Ivanov (00:27:27) - It's actually kind of cool and and, like, fun, in my opinion. Like, you'll be surprised. Like, we've even, uh, this is kind of a little off side, but we've done, like, things like, we went to our utility provider, uh, for trash, like, for trash collection. We said, like, hey, we have all these units, like, we have 30 plus units. You guys are servicing. Can we can we get, like, a 20% discount? And I don't think we got 20%, but we got like 15% discount for like, no reason. Like it's just a matter of just, you know, just asking for it, just brainstorming it. Increase your top line or decrease your expenses and just see your cash flow, you know, balloon without actually increasing units. And then you can apply this over and over again to new units you buy down the road. So it's like you're setting your current portfolio for success, but you're also preparing to basically maximize the profit and cash flow of future acquisitions, which I think is huge, especially like, you know, if the if the environment of the market is a little more tougher and maybe investors are passing over these buildings because they're like, hey, the numbers don't really work, you can look at them and you'll be like, you know what? I can make this work because I have this whole toolkit for improving my income and reduce my expenses.   Sam Wilson (00:28:35) - Anton, thank you for taking the time to come back on the show today. This was certainly insightful. I love the way you guys think about property management, how you interface with your property managers. Again, you've given us several just awesome, uh, very, you know, tangible action items, steps that we can take here. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Anton Ivanov (00:28:56) - Yeah. So check out our I already mentioned our Rent Casio platform. Uh, great for looking up rents and tracking your portfolio. We also have our deal checker platform. That's for for property analysis on new acquisitions. And if you want to get Ahold of me, just send me an email to Anton at Rent Casio. I actually reply, I get a ton of emails, but I reply to all of them. Just may take me some time. If you have questions about our software or about real estate, feel free to hit me up.   Sam Wilson (00:29:21) - Fantastic will include that there in the show. Notes Anton. Dot what was it?   Anton Ivanov (00:29:26) - Anton at rent Casio.   Sam Wilson (00:29:29) - Anton at rent Casio. I know I was messing that up somewhere. That's okay. Thank you again for your time today. I do appreciate it.   Anton Ivanov (00:29:36) - Thank you. Sam, it's always a pleasure.   Sam Wilson (00:29:37) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do.   Sam Wilson (00:29:41) - Me a favor.   Sam Wilson (00:29:42) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever.   Sam Wilson (00:29:48) - 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 Robert Withers.   Robert is an Entrepreneur and Real Estate Finance professional with experience in Conventional , SBA & Private Equity CRE financing.   Show summary:   The conversation unfolds with an introduction to unconventional loans, followed by an exploration of the scale of real estate podcasts.The discussion touches upon selling brokerages, navigating agreements, and imparts valuable lessons on scaling a real estate business. Throughout the episode, the speakers candidly address challenges in scaling, regional business variations, the significance of relationships, and provide a comprehensive overview of the current state of commercial finance.   -------------------------------------------------------------- 00:00 - Intro 03:54 - Speaker, guest journey. 06:48 - Guest's background, transition. 09:31 - Selling brokerages, agreements. 12:45 - Scaling business lessons. 15:54 - Challenges in scaling. 18:32 - Regional business differences. 21:45 - Importance of relationships. 24:50 - State of commercial finance. -------------------------------------------------------------- Connect with Robert:  Facebook: https://www.facebook.com/M1CapitalCorp   Linkedin: https://www.linkedin.com/in/robert-withers-602b16/   Twitter: https://twitter.com/M1CapitalCorp   Phone: (914) 490-8623   Web: https://mortgageone.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 - 00:00:36:12 Robert Withers Why lock into a seven and a half percent, 3 to 5 year conventional loan with prepayment penalties when you can take interest only debt at a point they have a point and a half to two points over that. Okay. No prepayment penalty. And if it pencils, meaning if the numbers work, you'll have an opportunity in two years to hopefully lock into long term as cheap as possible interest rates going out for that, you know, for that either five or ten year term that you're looking for.   00:00:36:23 - 00:00:58:16 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. Robert Withers is an investor, entrepreneur and real estate finance professional with experience in conventional SBA and private equity. Robert, welcome to the show.   00:00:59:01 - 00:01:00:21 Robert Withers Thank you, Sam. Great to be.   00:01:01:03 - 00:01:09:21 Sam Wilson Absolutely, Robert. The pleasure's 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?   00:01:10:21 - 00:01:42:18 Robert Withers Well, okay. Where do I start? I started in the men's clothing business back in 1982. And basically what happened was I had was given an opportunity to be able to jump into the mortgage business because of the expensive men's clothing that I wore. Somebody took notice. So that was a sharp dresser. It gave me an opportunity to be able to get into sales in the mortgage industry in the early eighties and taught me the business.   00:01:42:24 - 00:02:14:15 Robert Withers Four years later, I went into my own business, started my own company after three mortgage companies on the residential side, which I all sold the last one right prior to the to the financial crisis. We took a little time off, reset things, decided that residential mortgages wasn't something that I wanted to do any longer, and jumped into the commercial real estate finance field.   00:02:14:23 - 00:02:18:03 Robert Withers And I've been there ever since. That was in about 2014.   00:02:18:22 - 00:02:32:16 Sam Wilson Got it. Okay, now that's cool. How did you when you sold all three of those businesses this this is getting in the weeds a little bit, but it sounds like you figured out how to do it once. And you said, look, we built one company. Want to go out and just do it again. But how did you get around non-compete or did you just.   00:02:33:03 - 00:02:33:24 Robert Withers I waited them out.   00:02:34:09 - 00:02:34:17 Sam Wilson Okay.   00:02:35:04 - 00:02:55:04 Robert Withers I waited them out. You know. But you know, Sam, it's interesting you bring that up because I. I sold a mortgage brokerage. Now, I don't know if you know anything about our business, but not a lot to sell there, right? There's not a lot of, you know, really good will and maybe some of a pipeline that you may have in it.   00:02:55:20 - 00:03:18:10 Robert Withers The companies weren't huge companies, but they did you know, they did a few million dollars worth of business a year. So they were nice sized companies. My first one was a sale and I was young when I did it, so it was awesome. I sold it for seven figures. I actually sold it to somebody who decided to reinvest the money back into the company so we could go national.   00:03:18:17 - 00:03:45:24 Robert Withers That did not work out. It didn't work out for me. It didn't work out for him. And I wound up buying the company back, which and then developed my second company. So the non-compete wasn't really an issue because of the fact that I kind of waited it out and then was able to buy the company back and take it into my second mortgage company, which I sold and turned that actually into a mortgage bank that we were in several states.   00:03:46:08 - 00:04:07:00 Robert Withers So it was kind of cool. We had a great time. But my, my partner and I had a disagreement in the in the direction I wanted to take it more of a New York luxury market based. And he wanted to do government based business. And we had a we agreed to disagree. It was very you know, it was it was very cordial.   00:04:07:10 - 00:04:23:01 Robert Withers And then my third one, which launched me into my third company, which I shut down really, but sold off some pieces of it, but shut down prior to the financial crisis, non-compete were really never an issue. Timing because of the timing that we took. So.   00:04:23:01 - 00:04:42:02 Sam Wilson Right. Yeah. And if you're listening to this and you haven't sold a business, a lot of times there's going to be restrictions around you getting back into the same business, especially in the same geographic area. If it's a geographically bound company where it's absolute what you can't for three or five years compete in this, you know, whatever the radius is from your business or, you know, and they're all structured differently.   00:04:42:02 - 00:04:56:10 Sam Wilson But that's a that's really cool. I appreciate you giving us the insight there. I think you may have answered this question, but you said in the company that you guys look to scale because the name of the show is how to scale commercial real estate. You guys said, hey, we're going to scale. And I think the principles are the same.   00:04:56:21 - 00:05:08:10 Sam Wilson We're going to scale this business, you know, across the United States. And you said that didn't work out. What were some of the lessons you learned in that didn't work out, process it?   00:05:08:10 - 00:05:46:18 Robert Withers I think for the most part it was two things. We were really more of an East Coast. The leadership team on our company was really East Coast focused. So I found as we talked to people throughout the country, that mindset and how things are done both in, you know, on a local basis and on a regional basis differ greatly from New York to California here and from New York to Tennessee and from New York to the you know, to the northern parts of our country.   00:05:46:18 - 00:06:11:02 Robert Withers So, you know, I think cultural and that not culturally. I think it was just a matter of mindset. And I think the way that we wanted to run our company isn't what we saw. We could replicate well in other parts of the country. So we decided to really stay more on the East Coast. We were licensed in Connecticut, New Jersey, New York, Florida.   00:06:12:09 - 00:06:36:09 Robert Withers And from that part, we were we were successful. And we, you know, we were able to scale, but we were able to scale in what we knew rather than, you know. And you would think, you know, listen, you know, a product like a mortgage is universal, right? It's the same it's a national thing. You know, it's it's it's rates are driven by national for national reasons.   00:06:36:09 - 00:07:02:02 Robert Withers You know, there are state regulations. But for the most part, the markets that buy mortgage loans are national at Fannie and Freddie Mac. But doing a good job in markets that you don't understand is it can be very difficult. And when management doesn't agree with what boots on the ground, well, the flops, the philosophies of each when there's no agreement, it's difficult.   00:07:02:02 - 00:07:22:13 Sam Wilson So I could see that. And that's something that I think until you've lived in various parts of our country, you may not understand. You know, here in here in Memphis, Tennessee, if you get on the phone, even with somebody if I saw you yesterday, Robert, we're going to talk for about six or 7 minutes about nothing. We're going to talk about the weather.   00:07:22:21 - 00:07:39:24 Sam Wilson We're going to talk about, you know, family, all sorts of things. I lose you there, Robert? No. Okay, cool. And I was that you were you were you were still a stone. I was like, oh, shoot. Maybe the Internet froze. But no, we'll talk about a lot of different things long before we ever get to the reason for the call.   00:07:40:05 - 00:07:56:15 Sam Wilson It's just the way it's done. And I'm from Indianapolis. I was born there and we don't really like we pretty much get on the phone and, hey, you know what you need, Robert? What's going on, man? And we get down to business, but here in Tennessee, man, I had to slow down. I'm like, wait, like, if I don't ask and it's just kind of rude if you're just like, Hey, what's up?   00:07:56:20 - 00:07:58:20 Sam Wilson Click like it just doesn't work.   00:07:59:06 - 00:08:04:02 Robert Withers If you're from Indianapolis, right? You were like, right down to business. Now I'm from New York.   00:08:04:05 - 00:08:07:20 Sam Wilson Oh, you guys are even more I mean, you guys are like, what?   00:08:07:20 - 00:08:33:01 Robert Withers We jump a couple of spaces in front of you and it comes down to, okay, we won't even introduce ourselves. And we're pitch and we're pitching a product. You know, we don't get me wrong, I'm not I'm not a big I'm a relationship builder. I've been in this industry for almost 40 years in one way or another. So I didn't survive this way by being transaction, you know, triad transaction related.   00:08:33:08 - 00:08:43:13 Sam Wilson And I'm not suggesting that it's just, it's just a different way of communicate. And if you're not prepared to spend the 7 minutes talking on the phone about nothing, then people are going to think you're rude and be like I don't wanna do.   00:08:43:19 - 00:09:06:15 Robert Withers Business with developing relationships are is you know is something that you know I mean you can start it in 7 minutes, but some of my best clients are ones that came back to me, you know, the second, you know, two or three times we had spoken two or three times transactions didn't work. And then all of a sudden it kicked in and things actually wound up jelling between the two of us.   00:09:06:15 - 00:09:08:10 Robert Withers So relationship building is huge.   00:09:08:14 - 00:09:25:23 Sam Wilson Absolutely. No, I appreciate you giving the insight on that because it's one of those things, even for people out raising capital, it's an important skill set to master. Am I talking to somebody from New York, New York investors? Man, we is down to brass tacks on the beginning. The phone call, I call somebody from Memphis, Tennessee. We're going to spend our time on the phone.   00:09:25:23 - 00:09:40:17 Sam Wilson And so it's knowing and being able to shift even gears immediately when you jump on the phone with those people. And knowing how that works is I think it's an important skill that as you scale your business, that you and your team have to master. So that's a rabbit hole. But I appreciate you taking the time to kind of go down some of that.   00:09:40:23 - 00:10:02:13 Sam Wilson Tell me about your business today. I know you said in 2014 you decided to get into commercial real estate finance and Gilliam saying this is ten years ago now. You know, 2014 was when I think things really started to recover in the real estate markets. Commercial real estate, residential real estate started to, you know, go on that upward curve that we've seen for the last nine or ten years.   00:10:02:13 - 00:10:16:23 Sam Wilson What tell me about the business you guys are in today and maybe give us, you know, if you can, just a quick rundown on what the last decade looked like and kind of how you guys are positioning yourselves now, changing it.   00:10:17:00 - 00:10:41:03 Robert Withers Things have changed a lot from going from an investment market where, you know, we're cap rates were compressed and, you know, they were low and everybody, you know, we had cheap debt. Let's face it, you know, at one point we were looking at 3%, you know, commercial real estate rates that that were trading. So it wasn't hard to get a deal to pencil.   00:10:41:10 - 00:11:29:23 Robert Withers So people were were were trading investment real estate left and right. We work in basically four major food groups or product sets is a better way of describing it. And that is we do a lot of SBA financing for owner occupied clients are looking to finance property they want to buy for their business. We do conventional financing for somebody who's buying a some sort of a mixed use or multifamily product or an industrial product for purposes of investment, we or or owner occupied, we do bridge loan financing which is short term up to three years type financing, which, you know, is in short, short term a great, great tool for actually what's going on right   00:11:29:23 - 00:12:15:08 Robert Withers now because nobody's actually buying into conventional rates because they're high. So putting in a short term solution like a bridge loan makes a lot of sense in many cases. And and spec spec construction, construction financing for the purposes of building a, an investment property, whether or not it's a single family home of a bunch of different homes, you know, you know of it in the case of a of a of a development project or, you know, something that's more like an apartment building, not and we're not seeing a lot of mixed use or multifamily construction going on right now for the purposes of of of in the investment markets.   00:12:16:17 - 00:12:40:23 Robert Withers So we concentrate on those four types of programs here or products here. And from 14 to 23, for the most part, it's been up and down. You know, Sam, it's you know, we started off really, like I said, in a very low interest rate market. So the products were really all, you know, either CMBS loans or they were regional banks that I we don't do a lot of business with national banks.   00:12:40:23 - 00:13:06:24 Robert Withers It's mostly local or regional banks offering great product. And as rates changed over time and an opportunity changed over time, we shifted gears. Last year was our biggest year ever with SBA financing. We did a lot of SBA financing and bridge loan financing. So and quite frankly, I think we're going to we're going to see a repeat of that for 24, as they've been saying in our industry.   00:13:06:24 - 00:13:26:01 Robert Withers Andrew About your industry. Sam But in our industry they've been saying it's survive until 25. So you know what? I think for the most part, you know, we're looking ahead and maybe, you know, going to see some of that investment type real estate come back in 2025. Right, equity investment properties.   00:13:26:07 - 00:13:44:13 Sam Wilson So that makes a lot of sense. We're going to cover, I think, get into some of the more nuanced pieces of this. I'm looking here, bridge debt. You mentioned that bridge debt is a good tool for now a lot of people. And I'm going to I'm going to I'm going to ask you to tell me why I'm wrong.   00:13:45:09 - 00:14:00:23 Sam Wilson So a lot of people have taken on short term debt in the last 2 to 3 years. And from this side of things, I look at it and say, man, bridge, that's a bad deal. It's a bad deal because right now there's I don't know how much what is it? What then? You could probably give me the accurate number on this.   00:14:00:23 - 00:14:08:03 Sam Wilson I'm going to pull this one up and say it's north of $1,000,000,000,000 in debt coming due in 2024 on commercial.   00:14:08:05 - 00:14:08:15 Robert Withers Scale to.   00:14:09:03 - 00:14:09:13 Sam Wilson I'm sorry.   00:14:09:24 - 00:14:10:17 Robert Withers Close to it.   00:14:10:23 - 00:14:25:05 Sam Wilson Right. So in in some of that, I would venture to say I don't have any empirical evidence to substantiate this claim. But I would say that a large part of that is probably bridge debt where it's like, hey, man, we got to get out of this. We don't know how to get out of it. We got to refi somewhere.   00:14:25:12 - 00:14:42:04 Sam Wilson And so we're going to see cash in, revise happening and or assets selling at a massive discount because of the way they structured the debt. Tell me why you say in light of that frame, tell me why you say that bridge debt is still a good tool for now and how do you use it without playing with fire?   00:14:43:02 - 00:15:09:18 Robert Withers Interest rate cycle sent interest rate cycle was lower three years ago when this debt was was originated. So unfortunately, that debt that's coming due is is being refinanced in a higher interest rate market. We've for the most part, if you were to believe the Fed in I have a hard time believing the Fed. But, you know, if you're over the next couple of years, we're going to see that cycle turn around.   00:15:09:18 - 00:15:31:15 Robert Withers I think for the most part, we can agree that interest rates have topped out. You know, there is certain concerns on the employment jobs data side, but for the most part, inflation looks like it's under control. And although take my word for it, I never seen the price of eggs and bread be where it is at this moment.   00:15:31:15 - 00:15:51:09 Robert Withers But for the most part, inflation, if you're going to go on a on a pure core product or service or, you know, in this case a product gasoline, you know, gasoline prices are coming down. Now, you could say that that's, you know, technical in nature. But quite frankly, I think it's a good indicator where we're headed in regards to prices.   00:15:51:20 - 00:16:38:24 Robert Withers So having said that, I think that people who are originating bridge that now like we have a bridge program that's one overpriced three quarters to one over prime you're single digits right why lock into a seven and a half percent 3 to 5 year conventional loan would prepayment penalties when you can take interest only debt at a point they have a point and a half to two points over that okay no prepayment penalty and if it pencils meaning if the numbers work you'll have an opportunity in two years to hopefully lock into long term as cheap as possible interest rates going out for that, you know, for that either five or ten year term that   00:16:38:24 - 00:16:49:02 Robert Withers you're looking for. So it depends on the transaction, but quite frankly, I think is a short term for the right trend, for the right transaction. I think it's a good solution.   00:16:49:20 - 00:16:55:19 Sam Wilson So the so the gamble here is that interest rates do not continue to climb.   00:16:55:19 - 00:16:56:07 Robert Withers Yes.   00:16:56:17 - 00:17:01:05 Sam Wilson Okay. No. And that's I mean, that's as long as you go in eyes wide open. You know.   00:17:01:09 - 00:17:49:07 Robert Withers I think any substantial climb in interest rates, Sam, would hurt this economy, never mind our industry more than than it already has. And I don't think the Fed's willing to take that chance. So, listen, it's as real estate. It's you know, there are there is some risk, right? So this is a risk weighted decision. We're advising certain clients who who have that space in their performer to maybe consider bridge debt now versus convention debt because they're not facing a 2% prepayment penalty on a $10 million loan in 2025, when interest rates could be the I mean, hypothetically lower and much lower.   00:17:49:21 - 00:17:50:04 Robert Withers You know.   00:17:51:13 - 00:18:11:07 Sam Wilson You guys said and that makes sense. I mean, again, you know, for for the right product or the right project at the right time, you know, that's something you just got to weigh your options there. I think that's the conclusion there that that there is this is a tool that for the right fit makes perfect sense that let's talk about SBA 2023.   00:18:11:07 - 00:18:22:01 Sam Wilson You guys said you wrote a ton of SBA loans at 2023. Walk us through that program. I mean, SBA, I'm assuming, is long term fixed. Yes, we.   00:18:22:01 - 00:18:23:24 Robert Withers Buy 25 year. Yeah, 20.   00:18:23:24 - 00:18:25:19 Sam Wilson Five. Talk to us about that if you can.   00:18:26:07 - 00:18:56:19 Robert Withers Sure. So what we found is there was a host, a lot of owners of businesses out there who had done well, post-pandemic. Their businesses were doing fabulous. Listen, let's face it. We what you can question is there's always going to be a debate on it, but our economy is strong. So a lot of small businesses were doing very well and they decided that, you know what, they want to buy something now this is the time to buy it.   00:18:56:19 - 00:19:30:15 Robert Withers Our financials look great. We've got cash. You know, perhaps we're going to wind up being able to negotiate a great deal on the property that they're already in, approached the owner say, listen, we you know, we're interested in buying the property. Interested, or they were looking at property that was on the market for sale. Now, you know, as a seller of a as you know, a retail spot or industrial space or maybe a commercial condo, seller's got to say to himself, you know what, the market's pretty ripe right now.   00:19:30:21 - 00:19:56:05 Robert Withers This is a good time to sell. I mean, you know, where are we going to be in at the end of 2024 in regards to values? Because everybody's kind of targeting that we're going to see a reset and that reset is going to be pretty much because of a total environment type. Look at look at commercial real estate, fair or not, things on a macro basis, you know, they impact the smaller markets.   00:19:56:16 - 00:20:23:22 Robert Withers And what we saw, what people really take advantage of that, you know, they were able to lock in a rate that was. Yes. Higher than they wanted to pay. But they're an owner. SBA gives them up to 90% leverage, which is, let's face it, that's very attractive fixed rate for 25 years. And on the seven eight program, they give you they can give you working capital and they pay your closing costs.   00:20:25:00 - 00:20:46:10 Sam Wilson That's wild. I mean, to win it. Yeah. In fixed rate fixed rate debt over a 25 year period. I mean, it's incredibly tempting because it's the the real estate investors in this in this case, small business owners, greatest hedge against inflation like you can borrow in dollars and repay and dimes.   00:20:47:01 - 00:20:47:13 Robert Withers Thank you.   00:20:48:03 - 00:21:07:08 Sam Wilson It's yeah that I mean that's that's astounding I mean it's getting through I think one of the things like you mentioned, though, one of the one of the, you know, reasons that people don't do it is because they look at that interest rate that they're paying because it's above market. They're looking at that. They look at the length of time they're locked into it.   00:21:07:08 - 00:21:11:04 Sam Wilson They look at a lot of those factors and then look at are closing costs, which can be onerous.   00:21:11:23 - 00:21:40:24 Robert Withers Daunting. But since 5000, they're not paying 5000 in rent and you know, all for their mortgage payment. They may be paying closer to seven because of the interest rate bump, but they're paying 7500 right now, a month in rent to somebody else and not owning the property. And the money's gone. And all they get out of it is a line item on their on their pro forma, on the on their if they have financials and a line item expense on their financials makes no sense.   00:21:40:24 - 00:21:56:13 Robert Withers If somebody is in the position where they can, they have the capital to buy the property that they're in or something that works better for them. This is the time to use SBA financing. It was without a doubt the leading charge product of 2023 for us.   00:21:56:18 - 00:22:01:17 Sam Wilson Right. Because it's one of the last ones that had long term fixed rate debt, the last last minute.   00:22:01:17 - 00:22:04:20 Robert Withers Single digit rate and single digit rate.   00:22:04:20 - 00:22:06:12 Sam Wilson So that's that's amazing.   00:22:06:12 - 00:22:20:03 Robert Withers And really the analysis, Sam, is rent versus own. It's nothing more than that. It's not interest rate, it's not copper. It's nothing else other than rent versus own. Where are the benefits of owning this property versus renting?   00:22:20:03 - 00:22:26:19 Sam Wilson It makes perfect sense. What is the total dollar amount? The SBA will loan any one person or entity?   00:22:27:03 - 00:22:27:18 Robert Withers 5 million.   00:22:27:24 - 00:22:39:12 Sam Wilson 5 million. Okay. And that's 5 million in cash. Not and that would include that would include the debt against against real estate. Or is that just 5 million does doesn't.   00:22:39:12 - 00:22:58:08 Robert Withers Include any of the other sponsored SBA loans like the I forgot what the till loans that they came out with or the PIP loans that has nothing to do with. In fact we've taken the opportunity, Sam, to refinance those loans out that have to be paid back through acquisition, through SBA financing.   00:22:58:13 - 00:22:59:16 Sam Wilson Right. Right.   00:22:59:18 - 00:23:26:24 Robert Withers That's we're doing that right now on a transaction. We're actually taking out their PE loans that have to be paid off because they were done on a seven year basis, which made no sense. I know this. The borrower may she just made a really bad decision in regards to the the terms of that peep loan. And we're now taking that debt, refinancing it into an acquisition, never mind a refinance, and lowering her monthly payments or cash flow.   00:23:27:04 - 00:23:44:04 Sam Wilson Yeah, we we, of course, you know, had the opportunity to take advantage of those types of loans as well. But I think those are locked in for 30 years at like three or three and a half percent. And I'm like, Yeah, I guess what, we're never paying those down. I'm going to pay that for 30 years. I'll be 70 when it pays off and I will be happy to do it because it a payment.   00:23:44:04 - 00:23:59:13 Robert Withers Is a payment. I don't care what rate it is, I don't care what rate it is. It's a debt. You know what? Why is if you don't need it? I know people who are sitting still sitting with that money in their bank account, but yet they're paying a payment on it. They never needed it. They took it because it was cheap.   00:23:59:17 - 00:24:00:05 Sam Wilson Right.   00:24:00:20 - 00:24:05:13 Robert Withers But they're making it, you know, they they have to they had to start paying it back, you know.   00:24:05:14 - 00:24:28:05 Sam Wilson So very good. Thank you for taking the time to walk us through the opportunity that lies there with the SBA. We've talked about Bridge. We talk about SBA. You've talked about a reset that you think is going to happen across the macro kind of commercial real estate. I'm going to know how to finish out that sentence, but either way, the macro real estate picture is going to experience a reset.   00:24:28:13 - 00:24:47:10 Sam Wilson This is a conversation I had with some bond brokers last night who deal with a lot of CMBS loans and things like that. And they said, you know, what isn't isn't the kind of price of interest rates and or bridge debt coming due? Isn't that already baked in like when people are taking stuff to market and I'm like, I don't know that it is.   00:24:47:10 - 00:24:51:17 Sam Wilson What do you think about that and what do you mean when you say reset? What do you what do you think of.   00:24:52:00 - 00:25:18:24 Robert Withers Values are going to get impacted? Sam That's what interest rates they have to. They always do. So we're going to see valuations and those valuations a lot of for a lot of especially the larger private rate. So I'm going to be underwater. You know, they were going to have $800 million worth of debt on a building that was valued at 1000000 to 1000000002 and now all of a sudden, that's about $800 million or $750 million property.   00:25:19:03 - 00:25:45:17 Robert Withers Right? So values are going to be resetting. And when values reset, there is going to be two ways of looking at it. It's a cash refinance. Right. As you as you spoke about, there's going to be capital calls and some of the even larger players, the national players are not willing to come up with those capital calls. They handing the keys over to landlords, those loans excuse me, to the lenders.   00:25:45:22 - 00:26:07:13 Robert Withers Those banks are going to put that property on the market to savvy investors who are going to do what they're going to lowball the purchases. They're going to wind up settling in regards to the debt, using the the bank to finance it, but yet the purchase price is going to be lower. Sam That's the reset I'm talking about valuation patterns are going to get reset, which is going to trickle down to even in our local markets.   00:26:07:20 - 00:26:14:04 Robert Withers And I think we're going to wind up seeing both opportunity and unfortunately, we're going to see some pain across the board.   00:26:14:21 - 00:26:30:09 Sam Wilson Yep, I couldn't agree more. Robert, thank you for taking the time to come on the show. Today was certainly a pleasure to have you. You are a wealth of knowledge and insight. Give us a lot of things to think about here today as we consider what it means and how we are going to finance our properties here in 2024.   00:26:30:09 - 00:26:33:18 Sam Wilson If our listeners got to get in touch with you and learn more about you, what is the best way to do that?   00:26:34:18 - 00:26:55:21 Robert Withers I'm going to give you a old fashioned cell phone number, which is 9144908623 mortgage one com. You can always go to the website and there's a form you can fill out. And the inquiry comes straight to our, our sales team and, and I'm aware of it. So I'll make sure that it gets taken care of, especially if it's referred by you said.   00:26:56:01 - 00:26:59:23 Sam Wilson Fantastic. Robert, I appreciate it. Thank you so much for coming on the show. Have a great rest of your day.   00:27:00:05 - 00:27:01:03 Robert Withers You two enjoy your day.   00:27:01:11 - 00:27:22:21 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.   00:27:22:21 - 00:27:26:01 Sam Wilson So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

Today's guests are Jeff Patterson and Matthew Bell.   Show summary:  In this episode of the How to Scale Commercial Real Estate Show, guests Jeff Patterson and Matthew Bell discuss the opportunities presented by electric vehicle charging stations for commercial property owners. They highlight the benefits of having charging stations, such as increased customer stay and revenue generation. They also discuss the potential costs and incentives of installing these stations, emphasizing the importance of taking advantage of current incentives. The guests also explore the marketing strategies for charging stations and the potential for partnering with the federal government in developing charging infrastructure.   -------------------------------------------------------------- Opportunity for Commercial Property Owners (00:00:00) Introduction of Matthew Bell (00:01:04) Monetization and Regulations of EV Charging Stations (00:06:11) The payback period and potential costs (00:09:51) Incentives for EV charging stations (00:11:17) Solar and EV charging possibilities (00:16:23) The Efficiency of Solar Power for EV Charging Stations (00:19:12) Opportunities for Commercial Property Owners (00:19:47) Marketing EV Charging Stations (00:21:51) --------------------------------------------------------------   Connect with Jeff and Matthew:  Web: https://www.phoenixparkingsolutions.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: Jeff Patterson (00:00:00) - There's a reason why, um, companies like Starbucks and, uh, waffle House, which I put in one of my recent LinkedIn. There's an article out there where they're looking at it because they want people to stop and stay longer at their business while their car charges, and they've ran the calculations on how they're going to make more money by people being longer inside their stores. So it's not just about the investment in getting the return of the chargers outside. It's about the additional money you could make inside your business. And depending on what your business model is, um, you know, that could turn out really favorable for you.   Intro (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.   Sam Wilson (00:00:48) - For those of you that don't know, Jeff Patterson was on the show on November 6th, you should go back and check out that episode. That's episode number 866. Today we're here doing round two of the show with Jeff and also with Matthew Bell.   Sam Wilson (00:01:04) - Matthew, welcome to the show. If you don't mind, you know, again, if you want to hear, just buy. I'll go back and hear that one. But, uh, we're introducing Matthew here to the show as well. We're going to do a two person or three person episode here today. So, Matthew, can you tell us, uh, just quickly what your background is? Actually what I normally ask Matthew, and I can't help but do it. I'm sorry. In 90s or less. You got to tell me. Matthew, where do you start? Where are you now? And how'd you get there?   Matthew Bell (00:01:26) - Sure. Absolutely. Thank you, and thanks for having me on today. Um, so I'm our vice president of business development at Pyramid Network Services. So, uh, I started in telecom right out of school. Uh, worked on the first major build out for sprint. From there, I moved I became outside counsel for Verizon for a number of years. Uh, there I moved to in-house, um, corporate counsel for a large fiber company.   Matthew Bell (00:01:50) - Uh, eventually that sold, went back to sprint, uh, for a period of time, uh, and ran national build out there for Network Vision, where we went and, uh, updated 27,000 sites in about three years. Uh, and then when that ended, uh, wanted to do something a little bit different. And that's how I ended up at pyramid.   Sam Wilson (00:02:10) - That's awesome. Cool. I know the topic that we are covering here today, for those of you who are interested in what episode or the, uh, you know, round two of this, of this episode is we're talking about electric vehicle charging stations. So maybe, Jeff, you can kick us off and tell us just what that means, what the opportunities are, and kind of how you guys tie into that right now.   Jeff Patterson (00:02:32) - Sure. Thanks. Good to see you again, Sam. Um, so everybody's hearing all the the sound out there on the street, and it's in this article on this social media platform about EV car.   Jeff Patterson (00:02:45) - You know, uh, they're making this new one, or, uh, California is mandating no combustion vehicles after 20, 35 to be sold. Um, there's a lot to be said, but there's a lot of consumer questions going on. And I know for a lot of investors and commercial property owners, what do I do? Who do I even talk to about this? And that's where Phoenix kind of came in the market of, well, we're talking about cars talking about charging a vehicles, which typically is going to happen in a parking lot. So parking companies seems to be a logical place that you'd reach out to. Um, now for us, we decided to partner with pyramid and s, uh, because of their full turnkey agnostic, uh, services. So, um, instead of me partnering with, just for instance, ChargePoint, which a lot of people, you know, know anything about EV chargers I've seen out there. Nothing wrong with them. Um, but I would be dedicated to one single charge company with pyramid and s.   Jeff Patterson (00:03:46) - Um, we are able to work with multiple, uh, charging station companies to offer what's best for anyone out there. And it doesn't just have to be someone who's looking for my particular operation services. It could be a strip mall. You could be a a waffle House, a huddle House, uh, uh, a Walmart, um, the Starbucks, you know, we do everything from start to finish and, um, you know, really are there to help everyone along the process because most people don't know. Where do you start?   Sam Wilson (00:04:17) - Absolutely. No. I mean, yeah, if you asked me that today, I'd be like, I have no idea. So you you guys get to plug in and work basically with everybody, you know, everybody from even I would imagine, multifamily property owners. I mean, any property type is really your target avatar.   Jeff Patterson (00:04:33) - Correct.   Sam Wilson (00:04:34) - That is wild. So what's what's the opportunity for a building owner, say, somebody like me, like, how do we how do we how do we, no pun intended, plug in with this.   Sam Wilson (00:04:44) - And I mean, is there monetization opportunities? Is there like why would we even provide this other than just a nice thing to have?   Jeff Patterson (00:04:55) - Well, it depends on what type of property you do have. You know, you mentioned multifamily, for example. Well, what type of, um, multifamily project do you have? If you're in our city and you're in places where EV charging is growing? If I own an EV car, I'm not going to come live at your apartment complex if I don't have a way to charge my car. So this becomes very important for you to be able to, um, not lose potential, uh, residents. As you know, you're growing and maintaining your business profile. Uh, similar things would be, um, think about, like, a Whole Foods or. Uh, Matt and then were recently educating me on school buses. Uh, a lot of school buses are going, uh, electric and, uh, pyramid has a platform there. They work with a company, and they installed the chargers for the entire county for the school system to take the school buses.   Jeff Patterson (00:05:49) - Electric. Uh, it really depends on where you're at, but there is monetisation options. For instance, no one really charges for free. Um, you know, you plug up, you pay for the amount of time you use and, um, you know, based upon your initial capital investment and what you're charging for therm, uh, you know, like any other investment, there's a break even point and then profitability afterwards.   Sam Wilson (00:06:11) - Is there on on that monetization aspect, are there regulations around how much you can mark up that electricity? I know utilities are pretty heavily regulated. I know if you produce and of course, you know, it's the fox guarding the henhouse, but if you produce electricity, you know, via solar, you're going to be limited via contract rates. And as to what that gets sold back to the grid. So conversely, are there limits as to what you can charge at an EV charging station to the end user?   Jeff Patterson (00:06:41) - I'm going to turn this one on to Matt.   Matthew Bell (00:06:42) - Yeah.   Matthew Bell (00:06:43) - There currently are not. Um, obviously, if you're charging a huge amount, there'll be an issue there, but it really comes down to the speed that you're charging at, and I think that's why it's not regulated. So there's obviously a larger upfront cost to install a level three EV fast charger. And the EV fast charger can, uh, charge your car in approximately 15 to 20 minutes. Uh, whereas like a level two charger is more set up, uh, to do it over a few hours. Uh, so again, thinking about the different kind of, uh, location that you're at, whether you're a commercial property, uh, a hotel or something like that, people are going to be there for a longer period of time. Uh, the two hour charge of the EV works a little bit better. Uh, a level three charger is something that, you know, you'd want by, uh, a highway or at a McDonald's or something like that. Uh, people stopping by trying to fill up, grabbing something quick, and then moving on.   Matthew Bell (00:07:50) - So I was just going to add in to, you know, I think a piece of this is the question you were asking before was, you know, do we want to be a part of this? Why would we be a part of this? And I think those are great questions to ask. But another another thought about this is that, you know, EV is here to stay. And I think we're seeing it just kind of slowly building. But it's it's not a fad. It's not going away. Um, the last couple of years there's been like between 1 and 2 million, uh, cars produced, EV cars produced, uh, but they're projecting in 2029, uh, which is, is five years from that will be over 6.5 million. Uh, so the demand for this is, is going to be huge. Um, and we've seen just in 2021 and 2022, some of the largest investments from the US automakers as well, uh, they put in over $70 billion to gear up for this.   Matthew Bell (00:08:44) - And the cars are are very different. Um, they will recognize some benefits from it as well. And that, you know, uh, an internal combustion engine has over 2000 parts that move inside of it, whereas an EV only has 20, uh, the components in a in an Ice car, uh, an internal combustion engine car, there's over 30,000 components. There's half as many, uh, in an EV car. So beyond just the, uh, benefits, the environmental benefits, uh, that people are talking about, there's a lot to be gained, uh, for the, the automakers to as this process matures. And I think it's going to be something that that people are going to demand and, and require when they go different locations.   Sam Wilson (00:09:30) - Right. And I would imagine that the speed of adoption, uh, early on for people placing charging stations is probably like the early bird gets the worm, in a sense, in that because it's not widely spread. It's something that if you if you put these in now, you obviously can can probably recoup your investment much sooner, say, than somebody ten years from now.   Sam Wilson (00:09:51) - It's like, you know, scratching their head, going, oh, man, you know what? We should probably put an EV charging station in, you know, because I don't know I don't know what the in Jeff, you mentioned this what the payback period is like. How long does this take. And maybe you guys can speak to what that, you know, potential costs are. And I know, like you mentioned there, uh, Matt, that that, you know, level one, two, three, I'd imagine there's probably different costs associated with that. What are, you know, talking about government and intervention or involvement, rather, what are the incentives, uh, are there incentives available for this sort of thing? I mean, maybe you guys can just give us some insight on that, because this is obviously a world I know nothing about.   Jeff Patterson (00:10:29) - Definitely. I wanted to piggyback there real quick on Matt. Uh, last comments, we're just talking about how the automakers are into it.   Jeff Patterson (00:10:36) - Well, you also have the big guys like BP, where they are now leveraging and investing their money into lithium and creating their own chargers. So it's not just the automakers. Um, you see it all around in all the industries where they are leveraging and shifting direction, which, um, you know, ultimately means, as Matt said, it's not going anywhere. Currently, there are lots of incentives. That's part of what Phoenix and Pyramid working together, uh, help throughout our turnkey process is, you know, when we get to that, uh, that stage with whomever we're working with, we will help work with you on those incentives.   Sam Wilson (00:11:17) - What? What is this? Can you give us a breakdown of of like, maybe payback period. And and I know obviously every installation is different. Uh, but you know, what? Should somebody be looking at from a payback period? And then also from a just, you know, cost of, uh, cost of implementing a system like this.   Matthew Bell (00:11:37) - Yeah, I'll jump in on that.   Matthew Bell (00:11:38) - So, you know, like Jeff was saying, um, we manage a database, a national database that tracks all these incentives. Uh, and, and this part sounds kind of salesy, but the time really is now, um, to to grab Ahold of these, there are tax incentives, there are utility incentives. There are state incentives that are municipal incentives. There are national government incentives. Um, there's a lot of money out there, and it's coming from a lot of different sources. Uh, and we track all of that. So, you know, even if you're thinking about wanting to do this, um, you know, I would say reach out to Jeff, reach out to myself, um, and just let us run the incentives and see what's out there, what might be a possibility for you because, um, eventually, like, we always see, the money goes away, right? The the the system starts to mature. You get more of these locations out there. Uh, you don't need these incentives any longer.   Matthew Bell (00:12:37) - And so, you know, I was telling somebody this the other day, but a few years ago, somebody came to my house and said, hey, you want to put a new roof on? And I said, yeah, I don't think I'm really looking to do that right now. I said, do you mind if I go up there and take a look at it? I said, sure, and he spent a few minutes up there and he said, yeah, I think you're probably gonna need one in the next year or so. And, uh, there's, there's some hail damage up here. Probably get a good portion of this covered. I'm a lot more interested in a new roof at this point. So, uh, you know, I think that this.   Sam Wilson (00:13:07) - Is.   Matthew Bell (00:13:09) - It's kind of akin to what we're talking about here, but there, there really are, depending upon what state you're in, and we can look it up by the exact address and location, uh, to tell you what's available now or what may be available, uh, in the coming months.   Matthew Bell (00:13:23) - Uh, but that that's one of the factors that comes in. So, um, to get back to your a question about the payoff period, you know, it really depends a lot on, um, obviously the upfront expense and, and that can be driven by, you know, a level two charger. You're talking kind of in the tens of thousands of dollars, uh, a level three you're probably closer to. You know, 80 to 100,000. Um, and that just because of the power upgrades that are going to be required, uh, and the equipment that's going to be required, that's a level two is, you know, much more like a trickle charger. And, and people can usually support that with the infrastructure that they currently have. But uh, a level three a lot of times requires a new service. That said, obviously people enjoy being able to charge their car in 15 minutes versus, you know, two and a half or three hours. So what you can charge for that is significantly more.   Matthew Bell (00:14:25) - Um, so I think you have to find what fits for you. Um, but we have seen, uh, payback periods in just a few years. Um, for, for both level two and level three, dependent upon customer traffic and pieces like that.   Sam Wilson (00:14:42) - Right. So here here's I'm going to give you a little bit of a potential case study. We've got a facility in a small town in Tennessee. And the, uh we're putting solar in. Now, I will say that solar in general, from our perspective, doesn't make sense. Like the payback periods, like 25 or 30 years. I mean, and from a, you know, especially when bringing in investors, most investors don't get too thrilled with a 25 year payback. We break even in 25 years. It just doesn't make sense. But based on where this building is located, the zones it's in and, you know, some some arbitrarily grown or derived government map, it's a 90. We have a 90%, um, between tax credits and everything else.   Sam Wilson (00:15:25) - It's a 90% of that solar installation is covered. So our payback period is actually one year, which is you know, that's fantastic. Fantastic. Right. And so, you know, a company like you came to me and said, hey, man, you know, we should do solar on your building. And they said, well, here's how we're going to do it. And then they guided us through the process and they had their grant writer write the grants and blah, blah, blah. And down the road we go. And it was I mean, it was a brainless move, like, of course we'll do that. Is that same kind of thing available here in the EV charging space?   Matthew Bell (00:15:54) - Yeah, we actually submitted for incentives, um, at a New York property the other day for just that. And we, we believe it'll be between 80 and 90%, uh, of that that's covered, um, again, but not to set that expectation for everywhere. New York is pretty progressive and and a lot of money available there.   Matthew Bell (00:16:13) - California same way. Um, and, and other states are following suit um behind that. But but that's out there. Exactly. For example.   Sam Wilson (00:16:23) - Right. Which is, which is, which is really weird because I kid you not, ten miles down the road, another facility would only qualify for 50 because we looked into it as well. And it was like, well, okay. Now once again, solar no longer makes sense because again, it's a 12.5 year payback period. So scrap that one. But we're going to do the 90%, you know, one with uh with no questions. So that that's really great to think about. And on that question, you know, follow along with that is let's talk about solar to EV charger possibilities. Anything like that exist out there.   Matthew Bell (00:16:56) - There are. And I apologize, Jeff, I want to give you a chance to jump in here, too. But, um. Yeah. You're good. Um, there are, uh, solar opportunities out there around that.   Matthew Bell (00:17:06) - Uh, what we're seeing a lot of those is, uh, battery systems as well. Um, and that's one of the pieces that we try and do when we come in. Uh, we do a lot of value engineering. And that's not only picking the location. If you have a parking garage and you say, hey, we want to put it in in a corner, putting it in the east corner versus the west corner might be a $100,000 difference just because of power runs and, uh, and working across a parking lot or something like that. So those are all pieces, um, that, that we look at inside of that. But, um, the battery backup systems can sometimes help pull in power, and you don't have so much of a demand on the grid at that point. Uh, and you may not need the same level of service upgrade. So we have seen some solar, uh, and we've done a lot of solar projects. So that's certainly something to look at. But, uh, we're looking and utilizing batteries a lot as well.   Sam Wilson (00:18:03) - Right. That would make sense because and at this particular installation, because that was one of the things we looked at. And this was a commercial facility. We're just doing direct consumption. When the sun produces, we use the energy. We're not putting batteries at this facility because it the cost of doing so was like an a double or triple it. And it again, it didn't make sense. But I would imagine on the solar side of things, if you're able to set it up solar to where it goes to battery, and then when someone because you know somebody's not charging, you're then recharging the local storage that then somebody can plug into and charge their own batteries and, you know, off they go.   Matthew Bell (00:18:36) - Yeah, there's a need on the market right now. Um, that actually is that it is a DC fast charger. Uh, but it it has large batteries inside of it, and so, um, they're still working out a few pieces with it, but you can actually pull, uh, small amounts of power from and you could institute some solar piece to that as well, but you're pulling in smaller amounts of power over a period of time, and then you're offering the DC fast charging speed without having to do that major, uh, electrical upgrade.   Matthew Bell (00:19:10) - Right?   Sam Wilson (00:19:11) - Right. Yeah. And I can imagine.   Sam Wilson (00:19:12) - That that that's not, um, I'm not going to call it sustainable, but that is not it's not going to be an efficient way to do it strictly off of solar. So I'd imagine there have to be a switching, you know, some, some, you know, with being tied to the grid. Plus, you know, using solar as a as a is a is an augment to that, uh, you know, to that grid tie in. So what, uh, what thoughts on this do you do you have Jeff, I know we haven't heard much from you, so I kind of want to.   Sam Wilson (00:19:36) - Hear from.   Sam Wilson (00:19:37) - You, uh, a little bit more insight on market, on what people should be doing. Uh, anything, anything on that front. And, you know, if you want to share some other stuff you're having asked about, I'd love, love to hear from that as well.   Jeff Patterson (00:19:47) - Of course. Thanks. I think it's something everyone should be looking into.   Jeff Patterson (00:19:51) - So, you know, we've clearly made the point today that from an investment standpoint, um, a lot of people are shifting that way from car dealers to whether you want to buy an EV charging car or not, unless you might change where you live. Some states are regulating it. So eventually you're going to own a EV car. Um, you know, if you're just an investor, it's an opportunity for you to possibly make some money in the long run. If you are a property manager, you know, is it best for your property? Uh, if you're a property owner, are you talking to your property managers? We look into these things. Is it going to help draw more people to our business to stay longer? There's a reason why, um, companies like Starbucks and, uh, waffle House, which I put in one of my recent LinkedIn. There's an article out there where they're looking at it because they want people to stop and stay longer at their business while their car charges, and they've ran the calculations on how they're going to make more money by people being longer inside their stores.   Jeff Patterson (00:20:48) - So it's not just about the investment and getting the return of the chargers outside. It's about the additional money you could make inside your business. And depending on what your business model is, um, you know, that could turn out really favorable for you, right?   Sam Wilson (00:21:03) - Right now, that's exactly right. We we are long. One of the things we invest in is, uh, laundry facilities. And so people come, they do their laundry, and I'm thinking I've got several locations of Meccan actually going to shoot you in this podcast is over because I'm like, I wonder those, uh, what the incentives could look like at those facilities and if it would make sense when people come in, you know, they're there for an hour. Uh, and we do see electric cars. So it's, uh, on that. What what is the, um, what's the marketing methodology behind this? What should somebody be thinking about on that front? Is it. And I've never looked I've never even so much has done a cursory review of like, where's an electric charging station? Because I have no need for it.   Sam Wilson (00:21:41) - But is it all just on Google Maps, like you say, EV charging station? Like, how does somebody market this to the public to even let them know that they have the station available?   Jeff Patterson (00:21:51) - So yes, there's Google Maps Apple map you can log on right now and type in, you know, a blink charge or a charge point. And people who have taken the time have got those charging stations added, but that's not where all of them are. Um, there's actually a national database. Anybody who owns an EV car, um, has access to and can see when they want to charge your vehicle, it'll tell you where the nearest charger is at. Um, so that way you can go and charge up. It's, uh, a federal, um, database that is out there. So every EV charger that's put in gets put in there, and that way everyone can see it. And you can click to map your trip to, uh, Ohio or to Florida, to the beach, and it'll show you which route you need to go to, hit the Chargers and, uh, make sure you can, you know, get there and back and the amount of time you want to.   Sam Wilson (00:22:41) - No, that makes that makes a heck of a lot of sense. Yeah. Because that I mean, you need to know where those are. So you can you can plug in. All right. So I've got one more question on this. And this was something somebody approached me with maybe two years ago. They said, hey, you know, we've got this incredible opportunity to I'm going to call it partner, but to work with the federal government on developing charging stations across our highway systems. He would talk to me about that. If you know anything at all about what that looks like, because they're saying, hey, you know, we can go, we can go across call it Tennessee, we can be on I-40. It'll be every 50 miles, and we'll have charging stations, we'll have advertising opportunities, we'll have lot a lot of blah, blah, blah. I don't know all the things because it's been three years and I've slept since then. But you have any insight on what that looks like?   Jeff Patterson (00:23:27) - I think Matt would be the most knowledgeable here on that since, you know, he's the day more day to day.   Jeff Patterson (00:23:32) - So I'll let you take the wheel there.   Matthew Bell (00:23:34) - Okay. Um, yes. And we're involved in some of those. Uh, there are, um, three states that have been, uh, released recently that I know about. Um, and we're kind of in final talks to, to work through that, but, um, but yeah, they're setting those up. Uh, the goal is to be able to get people from point A to point B, uh, utilizing these chargers. And there's, there's huge gaps out there. And that's where a lot of this money's going. And, and that funding is supporting those, um, those initiatives to make sure that, that people can go where they need to go. Um, and, and the second piece to that, uh, and that's something that we, we do spend a lot of time on is, uh, making sure that the chargers are up. So, um, so to qualify for that government money, uh, you're, you have to have a 97% uptime.   Matthew Bell (00:24:34) - Um, and currently we don't only not have enough chargers, but, uh, at any given time, about 30% of the Chargers nationally are down. Uh, and there's there's a real issue around that. Uh, and so, you know, part of what we provide to is, is a long term service and training and, and things like that. There's currently um, I don't think people use the phone book anymore. But if you did, if you open that up, you're not going to find your EV charging repairman, uh, listed in there. So, uh, it is new. And so, you know, we do want to create long term relationships with customers, uh, and clients, whether you're just doing one at, at your laundromat or you're doing one all across the country. Um, we want to do the training so that you guys can do some of the basic service. And then obviously it would support on top of that, um, if there was something else that you needed.   Sam Wilson (00:25:33) - Right.   Sam Wilson (00:25:34) - I love it. Absolutely love it. Matthew and Jeff, what is the best way to get Ahold of you guys? If our listeners want to learn more about what you guys are doing and talk about EV chargers at their facilities.   Jeff Patterson (00:25:47) - Uh, for us, you can go to our website. Phoenix parking solutions. Com we have a special EV solutions tab. Click on that. It'll give you, uh, more about what we talked today and a direct access point to get in touch with us.   Sam Wilson (00:26:00) - Fantastic. We'll make sure to include that there in the show notes. Gentlemen, thank you for coming on today. I certainly appreciate it. And I learned a ton from you. Thanks. 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.   Sam Wilson (00:26:25) - 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 Andrew Brewer.   Andrew is a Real Estate Developer and a Buy & Hold Investor   Show summary: In this episode real estate developer Andrew Brewer shares his journey from stationary engineering and facilities management to real estate development. He discusses how his background has equipped him with valuable skills and insights into asset management and construction. Brewer emphasizes the importance of continuous learning and understanding the concerns of property owners. He shares his strategy as a developer, the challenges of remodeling versus new construction, and his approach to valuing land for development projects. He also highlights the necessity of taking calculated risks for wealth building.   -------------------------------------------------------------- Stationary Engineering and Facilities Management (00:01:43) Experience Working on a High-Rise Building (00:04:13) Lessons Learned from Construction Defect Litigation (00:06:14) The skill set as an owner and investor (00:10:15) The difficulty of remodeling vs building new (00:11:21) Valuing shovel ready projects (00:18:28) The risk of investing (00:19:27) Valuing land and potential (00:20:20) Factors in determining offer price (00:22:09) -------------------------------------------------------------- Connect with Andrew: Linkedin: https://www.linkedin.com/in/andrew-brewer-b6b042125/ Facebook: https://www.facebook.com/andrew.brewer.irongall Web: www.irongallinvestments.com Web: www.distance3development.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: Andrew Brewer (00:00:00) - What the owners look for. What do investors look for? What makes something a good investment, which is a different skill set to this is how you asset manage this facility. Um, and then I was able to use that knowledge and speaking with, you know, the HOA and the property owners at this facility because I'm starting to think like, okay, what are they thinking? You know, what are their concerns? They've bought this unit in this building. What are their concerns as an owner, which may be very different to my concerns as somebody that's trying to keep the lights on. And then how do you balance those two things? Um, so I think that, you know, that was really invaluable to, to starting my own company.   Intro (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 (00:00:48) - Andrew Brewer is a real estate developer and they buy and hold investor. Andrew.   Sam Wilson (00:00:53) - Welcome to the show.   Andrew Brewer (00:00:54) - Hey, thanks for having me. Absolutely.   Sam Wilson (00:00:56) - The pleasure is mine. Andrew. 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?   Andrew Brewer (00:01:05) - Um, so I started, uh, I grew up in the San Francisco Bay area, so I guess I started there. Um, I actually started my career as a butcher. Uh, I did that for eight years through high school and college. Uh, when I graduated college, I moved into stationary engineering, uh, which is facilities management of large commercial assets. And from there, um, I moved into, uh, running my own company and developing real estate. Uh, where I'm at right now is I run my own company and I develop real estate. And what was. I'm sorry, what was the third question?   Sam Wilson (00:01:40) - Where did you start? Where are you now? And how did you get there?   Andrew Brewer (00:01:43) - Uh, how I got here is I, you know, I did a lot of reading, you know, listen to podcast, read books, went to meetups, like, did that whole kind of route to educate myself about the ownership side of real estate? Uh, and I developed my skill set through my W2 job as a stationary engineer.   Andrew Brewer (00:02:01) - Uh, and then also by doing projects, uh, both by myself and with partners, uh, kind of mushed all of that knowledge and everything together to start my own firm, and here I am.   Sam Wilson (00:02:12) - Wow. That's a lot. A lot of moving pieces. I'm curious, what is stationary engineering? I've never heard that term, and that's, uh. I'd love to get a little insight on that and how that shaped what you do currently.   Andrew Brewer (00:02:25) - Definitely. Um, so stationary engineering, contrary to most people's first opinion, is not creating new types of paper. Um, it actually is the the other definition of the word stationary, which means like stationary as and it doesn't move. Uh, and that's um, that's as opposed to in that industry, marine engineering. So when you're dealing with like large boats, battleships, cargo ships, things of that nature, all of those ships have systems that, you know, keep that ship running. They have generators, boilers, filtration systems, um, all that kind of stuff which run, you know, the power for the ship, for it to move lights, you know, anything like that that's needed on a large ship.   Andrew Brewer (00:03:09) - Now, all of those systems can exist off a ship, and often they exist in buildings. So when you are a stationary engineer, you are doing all of that applied engineering work, but in a stationary facility, as opposed to a facility that moves. Um, so a stationary engineer could also be called, uh, like a facilities maintenance person or, you know, something like that. Uh, the engineering portion of it generally comes when you're dealing with a large systems like high pressure boilers or things of that nature, which is a little more in-depth and requires a much more specialized skill set than just, you know, swapping out. You know, light fixtures or something like that, which is something that, um, which all facilities maintenance people do. But it's only the engineers that get to work on the actual, like, big systems because something like, uh, a high pressure boiler, I mean, that could explode and kill people. So you need to know what you're doing. It can't just be some rando that comes in and starts working on it, uh, so that, um, that's that job, um, where I was working.   Andrew Brewer (00:04:13) - I mean, they have these in all types of buildings. Um, the facility I worked in for a number of years, uh, was in San Jose, California. Uh, it was a high rise building, 27 storeys, um, composed of 197 residential units and then eight ground floor commercial spaces. So it was half of a city block, that one facility, um, because it was a high rise. We had a lot of, uh, singular systems in the building, um, on a lot of apartments, like garden style apartments. When you think about the Hvac system, generally, you'll see like a roof, and there's just like a whole bunch of condensing units all in a row along the roof. You know, when you're in a 27 story building, you've got less roof area. You can't just fit a bunch of condensing units. You have one system for the entire building, uh, which would be a cooling tower or a chiller or something like that. And then that is supplying, um, you know, refrigerant and cooled water to all of the 197 Hvac units that are in there.   Andrew Brewer (00:05:13) - So it's a very different system that you have to work with. Um, so that's that's the building that I worked in. I started there as a utility engineer, worked my way up to the assistant chief engineer of that facility, um, and worked on, you know, everything in that building heating and cooling, electrical, plumbing, uh, you know, even some structural work, cosmetic stuff. Worked very closely with, uh, the HOA board and the property manager to keep that facility running. Um, keep everything running on budget. Um, you know, there was a there was a lot of it was kind. A mishmash of, you know, property management, maintenance work, asset management, facilities maintenance. Like we kind of did it all because we were actually a relatively small team for that facility. Um, and that's, you know, that's really how I got a lot of my hands on knowledge. Um, while I was there, I also acted as a consultant for construction defect litigation lawsuits.   Andrew Brewer (00:06:14) - Uh, so I did that. And, you know, basically that's suing developers and builders for, uh, defects in their construction. Um, and so, you know, so I did that as well and then participated as a project manager in reconstruction projects. You know, like if you win a construction defect litigation suit, generally there's a large settlement. That settlement, if it's used properly, is used to remediate all of those problems in the facility. So that's, you know, basically a huge redevelopment project that then has to happen, which in a high rise, as you can imagine, involves a lot of work being done suspended on lifts many hundreds of feet above the ground. Um, which is not always super fun.   Sam Wilson (00:06:59) - No, but would you say that that is where you really, um, you know, figured out how to become a developer?   Andrew Brewer (00:07:08) - Uh, that was instrumental in it. So, um, doing that job, um, I didn't actually develop anything from the ground up, but the process of, you know, redevelopment, working on those lawsuits, um, that all gave me a lot of background knowledge.   Andrew Brewer (00:07:24) - So, you know, as I'm developing properties now and building properties, I know exactly what's going to put me in court at the end of the day because I know what to look for. I know where common mistakes can pop up. I know how, um, how serious those things can be if you don't do your due diligence as a builder. Um, and a lot of this stuff can be relatively mundane. It's not something that people think about. Um, you know, I'll give you a good example of that. One of, um, one of the big issues in this facility I was working in was, uh, was plumbing problems. And, you know, it turned out that that one of the issues was the builder used, um, the wrong kind of rubber and a lot of the gaskets and seals and it, you know, the water source in that area, you know, had certain, you know, certain things. And it's very hard water in San Jose. It's very similar actually, here in Austin, Texas, there's just a lot of calcium in the water.   Andrew Brewer (00:08:23) - And, uh, you know, those minerals that were in the water reacted poorly with, um, with that type of rubber, I guess the chemical composition of that rubber, and it degraded it prematurely and led to just leaks everywhere. And, you know, as, as I'm sure you know, you know, I mean, you got water will do wonders for your, your flooring and your sheetrock and, and everything. So, you know, the the leak itself may not cost that much to fix, but having to remediate, you know, a big leak cascading from the 20th floor all the way down. I mean, that's a lot of damage. That's hundreds of thousands of dollars of damage for a single plumbing leak. Um, so those things get amplified. So I kind of saw that in real time, like, oh, this is bad. These can be millions, tens of millions of dollars in damages if you don't build this stuff correctly. So that's really informed. You know, how I've approached development is making sure that, you know, I take all the steps to not get sued for that, you know, to protect my investors as well.   Andrew Brewer (00:09:22) - When I started developing, um, you know, I have a partner here in Austin that I develop with, um, he actually grew up, uh, building spec homes with his parents. His parents had a spec home building company, and they would go out and, like, buy land, subdivide it, build houses. So he and I had very complementary skill sets. He knew, you know, like, hey, this is the specifics of like, land development. And I had the point of view of like, hey, this is what it takes to do this with a large commercial facility. Um, because the process of doing, you know, redevelopment or reconstruction, I mean, you still have to go to the city, you still have to pull permits, you still have to get approvals. You know, you still have to work with contractors. A lot of that is very similar, even if it's not like exactly apples to apples. Um, but, you know, I mean, pulling a permits, pulling a permit, you know, that that doesn't change whether you're doing it for a new build or redeveloping something.   Andrew Brewer (00:10:15) - Um, so I learned all that through my job, and, uh, and that really informed, you know, what I'm able to do now, um, at that same time that I was doing that, you know, that's when I was doing, you know, a lot of reading. I still do a lot of reading, but I was doing a lot of reading then listening to podcasts, going to networking groups. Um, and I was investing myself just on the side outside of my job in smaller single family stuff. Um, and so I developed that skill set as an owner and as an investor. Like, what do owners look for? What do you investors look for? What makes them? Being a good investment, which is a different skill set to this is how you asset manage this facility. Um, and then I was able to use that knowledge and speaking with, you know, the HOA and the property owners at this facility because I'm starting to think like, okay, what are they thinking? You know, what are their concerns? They've bought this unit in this building.   Andrew Brewer (00:11:09) - What are their concerns as an owner, which may be very different to my concerns as somebody that's trying to keep the lights on. And then how do you balance those two things? Um, so I think that, you know, that was really invaluable to, to starting my own company.   Sam Wilson (00:11:21) - Absolutely. And I and I would I would say that just from an outside perspective, the remodel indoor remediation side of things is 10 to 1, the difficulty of just building something new.   Andrew Brewer (00:11:33) - It is. Um, that that's definitely true. You know, my dad, uh, my dad was a carpenter and a staircase builder for a time, uh, back before I was born. But, you know, in another life, he was that. And, you know, like, as we talk about that kind of stuff. Now, you know, the thing that he's always said to me, which I found very true in my career, is, you know, when you're remodeling, um, or, you know, he would say it's so much easier to build new than to remodel, because when you remodel, you're fighting for inches and you got to find them somewhere.   Andrew Brewer (00:12:03) - If you're building new, you know, you can just add inches and it's really easy. Um, so that with him just saying, like, yeah, you're always fighting for inches, that is just kind of always stuck in my head. Um, it's part of the reason I like new development more than more than rehabbing stuff. It is a little easier in some ways.   Sam Wilson (00:12:20) - Absolutely. I would, I would the only the only thing that I would argue on that front is that your speed to market could be potentially faster on a remodel than maybe on.   Andrew Brewer (00:12:31) - That's definitely true. Um, you know, I have some folks, you know, that I know that are able to, you know, they buy property or maybe we're able to exit it pretty quickly, you know, especially during like 2020 to 2022. You know, it's like, hey, I'll buy this apartment complex. I'll renovate 20% of the units, get some higher rents. It's proof of concept. Turn it around and flip it. I've got an exit in 6 to 8 months.   Andrew Brewer (00:12:53) - Put that on their resume. Like, look, I've got all these exits now with me, it's a little more challenging when I'm developing a property. I can't really just, uh, in six months be like, well, I built some of the framing. I'm going to flip it to you. Like people really expect you to finish it. So. So my holds end up being a bit longer because I actually have to stick with them from all the way from the beginning, all the way through the end.   Sam Wilson (00:13:13) - What's your what's your plan on the development side of things? I mean, I see, you know, the there's there's developers that get it too completed, partially occupied and then punt it. But in your bio there, you said you're a buy and hold investor. What's your what's your strategy on that front?   Andrew Brewer (00:13:30) - My ultimate goal in every project I do, I guess I'll say aside from single family home subdivisions, because I, I don't want to compete with, you know, D.R. Horton or Lennar or anything.   Andrew Brewer (00:13:40) - I will entitle lots for them, but I don't want to build the houses, um, for my townhome and multifamily projects, my goal is always to buy raw land and title it, develop it, build it, and then hang on to it forever. Like that's what I want to do. That doesn't always work to do it that way. Uh, there can be deals found at any stage in the development process. You know, I have bought shovel ready deals. I have bought raw land. I have bought land that was already zoned, but not, you know, entitled or developed. Um, I've bought land that, you know, wasn't even annexed into a city with no utilities. Um, I can come in at any point in the development process, and I have, um, it all depends on, you know, how the how the numbers work out. You know, like, if somebody wants way too much money for their entitled land or their zone land or whatever, like, I'm not going to do that deal.   Andrew Brewer (00:14:37) - If somebody is offering like a great deal and I see a good way to make, you know, investors a lot of money, uh, then then I may buy something shovel ready. But ultimately I would like to, you know, extract as much value as I can. And you do that by doing the entire process, you know, from raw land all the way through, holding the final asset. At the end of the day, I'm going to do what is best for the investors, which sometimes is to sell. If there's a crazy good offer on the table or, you know, if there's a feeling that, you know, maybe the next phase of a project might not go so smoothly, maybe there were some recent, you know, changes to the zoning code or changes to, you know, the building codes or maybe you know, somebody in, you know, a local municipality that is, you know, Anti-development just got elected. You know, I, you know, I might say, like, uh, might not be the best thing for us to stick with this project.   Andrew Brewer (00:15:33) - We could probably get it done. But the risk, you know, may not outweigh or, um, may outweigh the, the rewards at this point. So I'm always very cognizant of, you know, what's going on in the area, what's going on with any project. If we have to exit, or it makes sense to exit to minimize risk or protecting investors investment, like I will absolutely do that in a heartbeat. Um, but ultimately, I, I want to just hang on to stuff. You know, that's there's so much time value of your money in real estate. Like, you know, real estate goes up over time. You know, if you get a good asset at a good price, you know, it can make sense to just hang on to it, you know, as opposed to trying to repeat the same thing every couple of years.   Sam Wilson (00:16:17) - I mean, outside of the constraints of, you know, like you said, elected officials coming in that are anti-development things like that.   Sam Wilson (00:16:23) - What what else is there that might prevent you from holding something long term?   Andrew Brewer (00:16:31) - Um, other, you know, other things. There might be, uh, construction prices going up, like if this is if this is entitled land that we haven't built on yet, you know, seeing, you know, supply chain issues or, you know, just prices on certain items kind of go in going super nuts in the future. That would definitely, you know, factor in might want to, you know, offload a project if it looks like it might not be feasible to build anymore. Um, if there was, you know, some, some kind of negative press in the area where the project is not necessarily elected officials, but, you know, if I don't know, you know, we're trying to build some apartment complex on some street and like, you know, suddenly, you know, some, you know, some gang moves in, you know, down the street and suddenly there's a bunch of homicides like, uh, maybe, you know, this might not bode well for the neighborhood in the future, you know, might make sense to try to offload this before the situation gets worse.   Andrew Brewer (00:17:33) - If it looks like there isn't a strong response to that, um, you know, things, things of that nature, um, I guess I would say would be reasons to offload. Another reason would be a really good offer on the table. You know, somebody comes in is just like, hey, I'm going to offer you a stupid amount of money for this thing. Like, okay, well, you know, if I, you know, can like two x my investors money in like a year because some guy really wants to get into this area. And by this project, I mean that might be a good thing if it's going to take me, you know, five years to two x their money, they might be very happy just cashing out right now. Um, I might prefer to hold it, but I mean, you know, it's mostly investor money, so, you know, you got to do what's best for them.   Sam Wilson (00:18:14) - Right? Absolutely. They got one other practical question on that front, which is, you know, how do you how do you value shovel ready projects when you look at that? Like what's that process? What does that process entail?   Andrew Brewer (00:18:28) - Valuing shovel ready projects is really hard.   Andrew Brewer (00:18:31) - Um, valuing land is really hard. Especially entitled land. Um, but for a shovel ready project or, you know, entitled land, the way I do it is I try to back into a value based on the final completed asset value and what I think it will take to get there. So factoring in, you know, cost of construction and holding costs, you know, time, um, you know, time to build all that kind of stuff. You know what I think you know, the rents or the sale prices might be, uh, when it's completed. You know, I kind of back that off put in, you know, what a, you know, a good market return would be for somebody to invest in that project, you know, a good risk adjusted return. Everything I look at is a risk adjusted return. Um, you know, this is investing there. There are risks. You know, you don't get a 20% IRR on your money without taking some risks, like, you want no risk.   Andrew Brewer (00:19:27) - Go stick your money in a savings account and get 0.1%. Like that's the risk free option. But it is not the option that builds wealth. Um, not to say that I'm careless with money, but you know I do. I am upfront with my investors that like, hey, like there is a risk here if you know, if you like, you know, are betting on this money to like pay your medical bills in the next six months, please don't invest it with me like I don't want to be, you know, I don't want to be put in a position where, you know, you where I've disclosed that this is an illiquid investment and you need the money in six months, and then I'm looking like a jerk. Um, but, you know, anyway, back back to the point of valuing land, you know, put in a reward, put in. You know what my profit needs to be for me to do the project, factor in all of that stuff and kind of back into like, okay, so this is kind of what I could pay for this land.   Andrew Brewer (00:20:20) - I guess it's a very similar approach to what a lot of, um, buy and hold investors do where they, you know, you know, if they're not looking at the actual value of the property based on, like, you know, the rent roll or something, but they're looking at the potential of what the property could be and buying on that number. That's really what I do. And coming to a number on, uh, shovel ready land or entitled land, I, you know, I, I really develop kind of my top number at that point. And then I kind of go to the market and see what is land trading for, you know, are there any other entitled projects that I can look to potentially as a basis for comparison? Oftentimes there's not, um, or not something that would be a true, you know, apples to apples comparison. I'm often having to extrapolate from a different, you know, type of project. You know, maybe if I'm looking at, you know, hey, this this is an entitled project for 200 units.   Andrew Brewer (00:21:15) - The only other comp I can find in the area is a project entitled to build 16 units. Like, kind of hard to make a comparison there. Um, so, so there are a lot of estimates. Um, but. You know, if I see that, you know, the price that I'm willing to pay is far over. You know anything else that's listed in the market? You know, I'll go with that lower number. Like, hey, let me lock up something that, you know is more in line with the market. If the market's asking way more than you know, than my number says, uh, which, you know, happened here in Austin for a couple of years, you know, people were just paying stupid amounts of money. I don't I don't know how they justified prices, uh, that they paid. Um, you know, I may, you know, lob in an Loi just to kind of see if there's any response, not really expecting anything. You know, if they come back and want to be reasonable, that's fine.   Andrew Brewer (00:22:09) - Um, but I have, um. You know someone someone that I spoke to about, you know, putting in offers and, you know, what he said was, you know, if your offer price is off by more than 10% of their ask price is probably not going to go anywhere. Uh, you know, you can ask, but, like, don't sit there and be, like, betting on getting a favorable response. Um, so, you know, that's kind of how I try to value stuff and, and look at it there.   Sam Wilson (00:22:36) - Fantastic. Andrew, this has been a blast having you on the show. I've got like 500 more questions that I want to ask you, but unfortunately we are out of time. We've learned so much from you here today, especially as it pertains to kind of what your thought process is on the development side of things, how you view projects from a, uh, what did you call that, a construction defect litigation lawsuit perspective? I mean, that's that's a skill set that very few people have have been part of those, uh, calling in as a witness on a very specific part of that process.   Sam Wilson (00:23:08) - And it's, uh, yeah, it's very interesting to see see those go down and kind of how that works out. But you've got you've got a just an amazing background and uh, yeah, a wealth of knowledge there. So 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's the best way to do that?   Andrew Brewer (00:23:23) - Yeah. So people can find me on Facebook or on LinkedIn. Um, those are the two platforms that I use the most. Uh, or they can visit my websites. I've got two real estate companies, uh, here in Texas. Uh, one is Iron Gall Investments. So you can visit er on JL investments comm or distance three development. That's dot distance. The number three development.com. And you can shoot me an email. Uh I've got two emails either Andrew at Angle investments.com or Andrew at distance three development.com.   Sam Wilson (00:23:58) - Fantastic. Thank you again for your time today Andrew I certainly appreciate it.   Andrew Brewer (00:24:02) - Definitely. Thanks so much for having me.   Sam Wilson (00:24:04) - 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 Rod Kheif.   Rod Khleif is a multiple business owner and philanthropist who is passionate about business, high performance, real estate and giving back.   Show summary: In this episode Rod Kheif, a successful business owner and philanthropist, shares his journey in the real estate industry. He discusses his early start, inspired by his mother's investment, his significant loss during the 2008 financial crisis, and his recovery. Rod emphasizes the importance of mindset, determination, goal-setting, and focus. He also highlights the significance of surrounding oneself with a positive peer group and the role of meditation in enhancing focus. Rod provides insights into the current state of the commercial real estate market, advising listeners to be conservative in their projections and to educate themselves before investing.   -------------------------------------------------------------- The mindset it took to recover from losing $50 million (00:01:54)   Importance of goal-setting and decision-making (00:03:48)   Pushing through fear and limiting beliefs (00:06:13)   The importance of focus (00:07:38)   Playing to your strengths (00:08:25)   The power of peer group (00:09:15)   The Projections and Debt Crisis (00:15:23)   Opportunity in the Market (00:16:11)   Lowering Interest Rates and Future Outlook (00:17:42)   The episode ends (00:23:57)   Rod shares his contact information (00:23:35)   The hosts thank the guest (00:23:50) -------------------------------------------------------------- Connect with Rod Kheif: Website: http://Rodkhleif.com LinkedIn: Rod Khleif - https://www.linkedin.com/in/rodkhleif/ Twitter: @RodKhleif - https://twitter.com/RodKhleif Instagram: @Rod_Khleif - https://www.instagram.com/rod_khleif/ Facebook: Rod Khleif Official - https://www.facebook.com/rodkhleifofficial/ YouTube: https://www.youtube.com/RodKhleif   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: Rod Kheif (00:00:00) - It's how do you get anything if you don't know what it is? You've got to create a burning desire or hunger. You've got to want it. That's how you push through fear. That's how you push through limiting beliefs or that's how you get uncomfortable. You know that comfort zone is a nice, warm place, but nothing grows there. And so you've got to push through fear and all that by knowing what it is you want and why you want it.   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.   Sam Wilson (00:00:32) - Ratcliffe is a multiple business owner and philanthropist who is passionate about business, high performance, real estate and giving back rod. This is your second time on the show. It's been a couple of years. I didn't have time to look up the episode number beforehand, but in case you didn't hear rod the first time, go back. Find that episode there on the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:00:50) - That was a great episode then. Rod, it's a pleasure to have you back on today.   Rod Kheif (00:00:52) - Oh thanks, brother. It's good to see you again.   Sam Wilson (00:00:54) - Absolutely, rod, the pleasure is mine. There are three questions, however. 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 in 90s?   Rod Kheif (00:01:07) - God. Oh, man. That's a that's a long, sordid story, brother. I started because my mom bought the house across the street when I was 14 for 30 grand. Two years later, she told me she'd made 20 grand in her sleep. And I said, forget college. I'm going to do real estate. And and fast forward to today. I've owned over 2000 houses. I've rented long term 200 of them in your backyard in Memphis. We won't talk about that. And then the rest are in Florida and Denver. But, you know, I now own thousands of apartment units.   Rod Kheif (00:01:37) - I lost $50 million in 2008 and nine, and it was a single family that pulled me down. And so what I'm known for talking about on my podcast and at my live events is the mindset it took to have 50 million to lose in the first place. And probably more importantly, the mindset took to recover from that to the success that I'm blessed to have today.   Sam Wilson (00:01:54) - Let's talk about that because I think, you know, if we get and we don't have an agenda for this show, I think you and I talked here ahead of time. For those of you listening, you know, a lot of times we'll just kind of hash out some of the high points we want to hit. I think you and I are going to kind of wander all over the place today and have a good time doing it. But one of the, you know, we talked about that on your first episode. So you can go back and listen to Rod's story. You can lose in 50 million bucks. That's a big deal.   Sam Wilson (00:02:17) - That's a big hairy deal, not only to build a portfolio of 50 million, but then to lose it. I do want to talk about the mindset it took to recover that. So let's spend a little bit of time there and then compare that if we can, before the show is over, we're going to compare that to where you see us in the market today and kind of how.   Rod Kheif (00:02:32) - The proverbial, you know, what's about to hit the fan, uh, there's no question about it. So, uh, you know, so how did I, uh, how did I have 50 million to lose in the first place? And how did I recover? I, when I, when I lost everything I associate with what I wanted and why I wanted it. So, you know, if you come to one of my boot camps, the first thing we do is goal setting on steroids. Because how do you get anything if you don't know what it is? You've got to create a burning desire or hunger.   Rod Kheif (00:02:57) - You got to want it. That's how you push through fear. That's how you push through limiting beliefs or that's how you get uncomfortable. You know that comfort zone is a nice, warm place, but nothing grows there. And so you've got to push through fear and all that by knowing what it is you want and why you want it. So you've got to do your goals. By the way, if you haven't done your goals, write this down. Write down rods, links com or text the word links to 72345. If you're driving at the bottom of that link tree, that's got all my social media, it's got my podcast. I have the largest commercial real estate podcast really in the world now we're over 20 million downloads. And and it's because I spent time on mindset and psychology. But if at the bottom of that, Linktree is my goal setting workshop, I do it every year on the first year. I'll do it again January 1st of this year. And you know, how do you get anything if you don't know what it is? Right? And and people spend more time planning a Christmas party than they do designing their lives.   Rod Kheif (00:03:48) - And so do your goals. That's designing your life. Have your spouse do it. Have your kids. If they're over ten years old, do it. So again, text the word links to 72345 or go to rods links.com. It's there. I'm not going to try to sell you anything. Just go design your life. So that starts with goals. Then you got to make a decision. And that's what I had to do back then. I decided to get out of my pity party and get my butt back up and make stuff happen. And the Latin word for the word decision means to cut off. Uh, for a great analogy, for a real decision would be if you're going to attack the island, you're burn your ships because you're taking their ships home. It's committed. There's no one foot in, one foot out dipping a toe in the water. It is freaking done when you make a decision. So you got to make that decision. That's the next piece. Then. Then for me, I had to I had to get back up after I made the decision of what I was going to do, which was focus on on multifamily, uh, because my multifamily did just fine when I lost everything, it was the single family that pulled me down.   Rod Kheif (00:04:40) - So then I took that first step and I went out there and started buying multifamily again. And that's the next piece. You got to take that first step. And, you know, in this business, I have a lot of students that are very analytical. And if you're analytical, you know who you are, and I love you, but you know how you typically have to check off every box before you make a move? Well, you can't do that here. You've got to take that first step. You know, great analogy for this would be you can drive all the way across the United States at night. Headlight only seen 60ft in front of you. You know you'll make it. Other people have made it before. You may have some obstacles, but it's the same way with your goals. But you got to take that first step, okay? So make a decision. Take that first step because you don't want regret. You know, um, the worst thing in the world is regret.   Rod Kheif (00:05:20) - Don't fear failure. Fear, regret. Um, you know, there was this nurse in Australia I may have mentioned on the last episode with you named Ronnie Ware as a hospice nurse, and. Yeah, and you're right, the five, uh, five biggest regrets of. She asked that, she asked her hospice patients. Do you have any regrets? And the biggest regret was not doing what I know I could have done. Doing what someone else, uh, you know, told me to do. Not doing what I know I'm capable of. I can't think of anything worse than that. So no regrets. Don't fear failure. Fear that. And then, you know, it's it's, um. The next thing is pushing through fear and limiting beliefs. You know, when I, uh. So what is fear? Um, you know, f everything and run or false evidence appearing real, I think. Yes, it's probably that for sure, because 99% of what we fear never happens. But it's definitely, in my opinion, face everything in rise because it's the successful people that push through in spite of the fear, um, and limiting beliefs.   Rod Kheif (00:06:13) - You know, when I immigrated this country, I got thrown into school. I found out what bullies were for the first time, and my mom proud dutchwoman that she is, sent me to school in these wooden shoes. These are the actual wooden shoes. We found them when we put her in assisted living. And so I got my butt kicked again. And then we had bullies that lived on the end of my street. And, uh, you know, she they chased me home, and she chased them off with a flyswatter. So next day, I got my butt kicked, you know? So I came up with this belief system that I wasn't good enough. I used to ask myself, how can I show them I'm good enough? Uh. And which presupposed that I wasn't. So, you know, a lot of people have these limiting belief systems. I'm not smart enough. I'm not good enough. I don't have enough time. I don't have enough money. I'm not analytical enough. That was another one of mine.   Rod Kheif (00:06:51) - There's a reason the acronym for Belief Systems is B.S., because 99% of them are. They have no basis in fact, but we believe they're real. The next piece is focus. I knew I had to have laser focus. The most successful people on the planet have an extremely high degree of focus. And here's the thing whatever you focus on gets larger, and wherever focus goes, your energy flows. But you know you want to make sure you're not focused on negativity. You know, we start to talk about politics and what's happening in this country. And I got flamed up because I'm very much on one side of the fence there. And but the bottom line is whatever you focus on gets larger. And, you know, they asked Mother Teresa when she was live, she was antiwar. She said, no, I'm pro peace. You know, I get students or people, not student students no better. But I get people to call me and say, you know, what do I do to get out of student loan debt? I'm like, wrong question.   Rod Kheif (00:07:38) - What do you do to make so much money? The debts are irrelevant because again, whatever you focus on gets larger. I listen to two podcasts, um, and, and you know, and I try to stay on both sides of the aisle. One is Tim Ferriss was definitely on the other side for me. And then there's Joe Rogan. And, you know, I get excited about my 20 million downloads. I think they get that a week on theirs. But on Tim Ferriss Show, I listened to it because it's fascinating. And he interviews the best of the best in every walk of life, the best athletes. Michael Phelps, NFL, NBA players, best actors Ed Norton, Hugh Jackman, Arnold Jamie Fox, uh, CEOs of the biggest companies in the world like Zuckerberg, um, um, billionaires like Ray Dalio. And he deconstructs their success. Okay? He interviews them, deconstructs their success. And I started to hear a pattern. They almost all meditate. What does meditation enhance your focus.   Rod Kheif (00:08:25) - Right. So pay attention to focus. That's a big one. The next one is playing to your strengths. I knew what I was good at and I'm a great communicator. And so I started the podcast and I'm the mouthpiece for, for for my acquisitions company. I have my thought leadership business. I have, you know, over a thousand students around the country. They now own coaching students. They now own over 180,000 units that we know of. I'm super proud of that. Um, and I've only been teaching five years and, and and, and and I teach them play to your strengths higher align or partner for your weaknesses. Okay. Because when you're playing to your strengths, you love what you do and what you love what you do. Success is inevitable. Don't do what you don't love. You know, one of the best combinations in my business, multifamily real estate, is an analytical person with an outgoing person. Introvert with extrovert. That's a match made in heaven because you need both pieces.   Rod Kheif (00:09:15) - Some people are both, but most are better in one or the other. Here's the thing though. Don't live someone else's life. Do what you're good at and when you do, you never work another day in your life because you love what you do. And when you love what you do, you're passionate. And passion is required to influence people. And so, you know, and so focus on your strengths. You're going to love what you do. You'll be passionate and and then you'll be able to influence people. And that passion is the fuel. You know, when you have that passion it breeds creativity and innovation and minimizes or even eliminates fear. Um, just a couple more pieces. The next one is peer group. Who you hang out with is who you become. You know, uh, I when I was losing everything in 2008 and nine, I was in Tony Robbins Platinum Partnership, which at the time was about 130 grand. It's more than that now. But I was around people that were killing it in the crash when I lost, you know, $50 million in 2008 nine.   Rod Kheif (00:10:04) - They were killing it. And that's when, right when I was in that mastermind and they're like, get up, you big wussy. Go make something happen. 50 million, million. That's who you want to be around when the soup hits the fan. Right. And so, you know, that's that's, uh. And so pay attention to who you allow to influence you. Most people will default to a peer group that they went to school with or that they work with. And, and sometimes these people don't have your best interests at heart. They're naysayers or they're afraid of your success, or they feel afraid of feeling like a failure. You succeed. And sometimes it's family. And I'm going to tell you I love your family, but choose your peers. Get around people that want more out of life, people that will push you and hold you accountable. That'll hold you to a higher standard. Most importantly, that that think what you think is hard is easy. You know, if you're playing tennis, do you want to play tennis with somebody that's better than you or worse than you? I mean, you know the answer.   Rod Kheif (00:10:52) - Um, and then the last piece I'll talk about is, is failure. You know, you only fail if you don't get up, back up. You don't get the lesson. You know, I call them seminars. We really fail our way to success. You know, problems give you feedback. You know, I will tell you, if you come to my bootcamp, I've got a virtual one coming up in January, and I'll give your peeps a hell of a deal if they want to come. But, you know, uh, it's a Saturday and Sunday. On Monday, you'll get a survey from me asking you what you thought. And of course, 99.9% of the feedback is fantastic, but I'm looking for that 1% of constructive feedback. And how do I make it better? And that's the only way to get it. You know, I got to meet the billionaire owner of Spanx, Sara Blakely. You know, that the women's undergarments that hold everything together for women and women know who this is.   Rod Kheif (00:11:36) - But anyway, she started with 5000, and she's a billionaire. But I met her at a mastermind that I went to, and she told me that her dad used to ask her and her brother once a week, what have you failed that this week? I thought, what an awesome freaking question to ask your kids. You mind if I mention my boot camp real quick?   Sam Wilson (00:11:52) - No. Go for it.   Rod Kheif (00:11:53) - Oh, okay. Yeah. So I've got a virtual boot camp coming up. It's coming January 6th and seven, so you can do it at home in your underwear. I don't sell anything there. It's not a sales pitch. It's two days of training. And if you come use the code, Sam, and you can come for $97. Okay. And so where you go is you go to rods, links, comm. If you're driving, text the word links to seven, 2345. There's a ton of free resources there. I've got free books there. My social media is there. If you've got a question about anything about this business, I answer every single question on social.   Rod Kheif (00:12:24) - So if you ask me a question, you'll get an answer for me every time. Some people are like, is this a bot answering? And I got to send a picture of my underwear with my fingers up or something. No, that's me. But anyway. But the point is, go there that my boot camp site is there when you know the price will be 4 or 500 bucks by the time the boot camp comes around. But if you put in the code, Sam, you come for 97. I don't sell anything there. It's every aspect of the multifamily business. Soup to nuts. And and if you go to the bottom of the boot camp website, you'll see hundreds and hundreds of testimonials. And if you come and you don't love it, I'll give you your $97 back. I don't mean like it. I mean freaking love it. I'll give you a $97 back. So you know, there is that. But, uh, but anyway, so that's coming up January 6th and seventh and rods links.   Rod Kheif (00:13:02) - There's a lot of free resources there. And again, at the bottom is my goal setting workshop. Do your goals. You should be doing your goals 2 or 3 times a year. Go do it. You know you'll really enjoy the process I promise you.   Sam Wilson (00:13:12) - So yeah rod that's a lot man. I appreciate you going into detail on that. You know, having the people around you, I think that, uh, you know, can help recenter after a devastating loss. It's probably one of the things that took away from what you.   Rod Kheif (00:13:26) - Oh, no, it helped me a lot. Help me a lot for sure. Yeah. For sure.   Sam Wilson (00:13:29) - Absolutely. So you you came out of that, you rebuilt your portfolio. You kind of gave us some insight on, you know, how you, you know, structured everything and got your head in the right space to recover mentally.   Rod Kheif (00:13:42) - Yeah. All the mental structure. Sure.   Sam Wilson (00:13:44) - And that sounds like it's 80%, maybe even more 90.   Rod Kheif (00:13:47) - It is.   Rod Kheif (00:13:47) - Listen, that's the reason my students are so successful because I'm pushing them so hard on the on the mental and the psychological part. The technical is easy. You can learn that anywhere. Go to YouTube University, you know, come to my boot camp for $97. You'll get the technical and you'll get a lot of mindset stuff as well. I'm going to tell you, you're going to get you're going to you're going to leave that event just out of your skin. But the point is, most people don't do that piece. But that's the most important piece, okay. Is is the mindset and psychology for every aspect of your life your health, your wealth, your relationships, your happiness mindset and psychology is the most important piece for sure.   Sam Wilson (00:14:18) - Absolutely. Absolutely no, I love that. That's absolutely great. How are you setting yourself up now? This is not something we got to talk about two years ago.   Rod Kheif (00:14:27) - Being very being very conservative. I'm going to tell you that I'm very conservative. Like I haven't bought a deal in over a year.   Rod Kheif (00:14:33) - I've got a deal right now. Screaming deal under contract. Um, it's 200 units in San Antonio, about a little over a mile away from another 296 unit asset we own. That's one of our top performing assets. And this deal is this, this unit, this this place is even nicer than the 296. And we're going for 100,000 a door. The one next door sold for 137,000 a door. Um, you know, this place was under contract for 26 million months ago. We're getting it for 20. I mean, screaming deal. Uh, we're assuming a low interest loan. I'm very, very conservative, Sam. I mean, like, we're we're, uh, we'll have six months of operating reserves of expenses, just, you know, in case the, you know, you know, what hits the fan. Um, we're we're going to do a huge CapEx renovation budget. They're almost $4 million, and we'll have 360,000 of it in just in case we miss something. I mean, that's that's how conservative we are.   Rod Kheif (00:15:23) - Um, the projections are very conservative, but that's the that's the operative word today is be conservative. I really believe the soup is about to hit the fan. The. There's a ton of debt coming due. And and when debt comes due in the commercial space, you either have to sell or refinance. Sales are down almost 90%. Refinancing is extremely difficult right now because of the interest rate increases. And we have what's called debt service coverage requirements. Meaning, you know, when you buy a commercial property, they're looking at the property's ability to service the debt, not yours. They're not looking at your income. They want to make sure the property will do it. And so, you know, these operators, I know some world class operators that are in in deep duty right now. I mean, they're in trouble. And and I mean, guys, I really have a lot of respect for because they got what's called bridge debt, which is like hard equity money in the single family space. And it's it's very onerous debt.   Rod Kheif (00:16:11) - It's low, low, uh, adjustable rate interest rates short term. And, you know, I'm embarrassed to say I'm in a couple of them right now with a past partner that did it. Um, uh, talked me into it. Uh, we'll get out of it, but it's no fun. But there are a lot of them that aren't going to get out of it. And so there's incredible opportunity coming. You know, there's been a lot of greed these last few years. Um, you know, Warren Buffett's famous quote, be fearful when others are greedy. I've been real fearful the last couple of years. But then again, the flip side of that is be greedy when others are fearful and the fear is here, it's coming. All you have to do is watch the news. Don't get me started, but just keep this in mind. The news are not there to inform us. They're they're they're moneymaking. They're not public service organizations that make money. And the censorship and the propaganda on the news anymore, it's just almost like, mind numbingly stupid and amazing that people are falling for it, frankly.   Rod Kheif (00:17:01) - Uh, but, uh, yeah, don't get me started on that. But, uh, you know, just be careful what you bring in. And that's why focus is so important. That's why your goals are so important. So you don't get sucked into that stuff. Stay focused on your goals and what you want. And this could be the greatest moneymaking opportunity of your lifetime, because I believe everything's going on sale. Businesses, definitely. Every asset class in real estate is going on sale, you know? So whatever it is, what? Pick your vehicle right now, decide and and go learn it. If it's multifamily, get your butt to my bootcamp. If it's something else, go learn it right away. Because if you're in the if we're in this, if we're in the middle of the soup, it's going to be too late. You've got to build relationships. You got to understand how to value stuff. And you know whether businesses are real estate. You got to understand all that.   Rod Kheif (00:17:42) - And so that takes some time. So you want to get up to speed as fast as you can. Because I really we may have a lull before the election. I think rates are going to come down because the current administration has to do something. You know, unless they're going to steal the election again, they're going to have to do something to, to to look decent. And so, you know, it's it's going to be, uh, you know, lowering the rates to try to make the economy look better. But after this election, watch out, because I really believe the proverbial, you know, what's about to hit the fan. I really believe that.   Sam Wilson (00:18:10) - Well, for sure, if you just look at the the amount of debt that's maturing in the next 12 to 18 months and it's it's a crazy thing, a staggering number and.   Rod Kheif (00:18:20) - Commercial commercial debt. Yeah. Right.   Sam Wilson (00:18:22) - Yeah. And I mean, and that's I mean that's, that's a staggering number. We'll just seeing how that plays out will be interesting.   Sam Wilson (00:18:28) - I do have a just a mechanical question on this deal that you guys are buying. Why is someone even selling a deal that has a fixed load?   Rod Kheif (00:18:35) - They ran out. They ran out of money. Yeah, they ran out of money. Uh, horrible operator, horrible management. They've got 40 vacancies in the market that were 96% occupied a mile and a half away. Um, and this these units are bigger. They have fireplaces. That's on a lake. Um, I mean, it's a nicer asset, but they've let it go to hell. And that's why we have to raise 4 million, uh, in CapEx almost. That's probably 3.8 million, um, to, to do the to to do the renovation. They're on 200 units, a pretty significant CapEx budget, but it's going to be a world class asset again, Lake on one side, golf course on the other, just it's it's got all the bones of really being something spectacular but horrible management, which is what we love to see.   Rod Kheif (00:19:15) - That's the ideal scenario. Uh, because we're assuming low interest debt on that. It's got seven years left on it. We're not getting new financing. It's got 4% debt on it, which is fantastic right now. So we're assuming that that loan and, uh, yeah, just a very exciting screaming deal. Very excited about.   Sam Wilson (00:19:31) - How how do you keep your acquisition teams busy? I mean, it's been a year.   Rod Kheif (00:19:36) - Oh we're going through so many deals, man. I mean, we looked at so many. We've kissed so many frogs. You have no idea. So many frustrating where people have outbid us and we're like, no, we're not going to go higher than that. And, you know, it just is what is. By the way, if you're accredited and you want to take a look at the San Antonio deal, text the word partner to 72345 and we'd love to talk to you about it. I also have an incredible free, free resource for investors, passive investors. It's probably the best out there.   Rod Kheif (00:20:03) - It's this we call it the Cash Flow Club. It's the free cash Flow club. If you text club to seven, two, three, four, five we'll give you the link. It's got videos, books, articles, emails. I think it's just probably the most incredible resource for passive investors that's out there. We're not going to try to sell you. It's just a free resource. If you want to check it out, it's free Cash Flow Club. See our Cash Flow club.com or text the word club to 72345. And we'll send you that link. Incredible resource. For learning about passive investing or better yet, come to my boot camp. Honestly, you know, why would you give your hard earned money to someone without having some basic understanding of what it is you're investing in? So many people do that they'll put their money in the stock market. Haven't got a clue what's happening with it. Don't do that. Spend a little bit of time learning what you're investing in, either at my bootcamp or, you know, go to the Cash Flow club or learn elsewhere.   Rod Kheif (00:20:53) - But learn before you give your hard earned money to someone. That always kills me when I see that. So yeah.   Sam Wilson (00:20:59) - Absolutely. Rob, this has been great. I mean, you've given us the, uh, the way to get our head screwed on straight. You've told us about this, the deals that you guys have been sorting through. Finally, finally finding one in San Antonio. Right? Right. One thing I read this morning, I and I spend about one minute a year on social media. Uh, but, uh, for better or for worse, I just it's just not where I spend my time. But I did read something this morning and they were talking about capital raising, and they're saying, man, this is a challenging environment to raise capital in. How are you guys climbing? Well.   Rod Kheif (00:21:31) - I mean, you know, it is tough. It's right now it's not finding the deals that's hard. And moving forward it's going to be finding the money. And you know it's going to be a challenge.   Rod Kheif (00:21:39) - And you know, you just have to allay the fear of your investors. I'm actually doing a raising capital workshop the next two nights. It'll be at the bottom of Rod's links because this will probably air afterwards. But at Rod's links will be my raising Capital workshop. It's like four hours. What I trained my warriors, my coaching students on how to, you know, raise capital. So go watch that at Rod's links or text links to 72345 and uh, and and again I'm teaching that tomorrow and the next day for four hours. So, um, you know, the soup to nuts. So if you want to learn how to raise capital, you're going to want to watch that because it's, it's it's again, it's what I teach my warriors at my warrior only events, my warrior, my coaching students, I it's what I taught them at my warrior only event because it's so important right now.   Sam Wilson (00:22:20) - Yeah it is. And it's interesting to see even the bigger names that it's like, hey, you know, even the the shops that are raising lots and lots of money or saying the same thing like this is challenging.   Sam Wilson (00:22:30) - So it's it's got to be, you know, a.   Rod Kheif (00:22:32) - Lot more handholding. Yeah. Yeah.   Sam Wilson (00:22:34) - It's adapting and it's like you said, allaying the fears of your investors and presenting really the, the, the sound deal mechanics. I think that that'll, that'll really help, help close the deal. So that's really, really cool. What else is there. Is there anything else here you want to leave with our listeners? We got about 60s left on the show. Yeah.   Rod Kheif (00:22:49) - No, just go to Rod's links. Com or text links to 72345. And all my stuff is there, you know and and you can learn a lot. There's a lot of free resources there if you're interested in, you know, in investing passively then go to the free Cash Flow Club or Text Club to seven, two, three, four, five and and and we'll chat with you or you can, you know, just see what's there and set up a call if you want or just learn. I mean it's just but you got to learn if you're going to invest your money, for God's sakes, at least have an understanding.   Rod Kheif (00:23:19) - There's the questions you should ask before you get in a deal. As one of the books. They're one of the free books there, my best selling number one best seller. I've given away tens of thousands of copies, is there for free. How to create lifetime cash flow through multifamily properties. There's a bunch of just a ton of free stuff there. So anyway, that's it man.   Sam Wilson (00:23:35) - Fantastic. We'll make sure to include that all there in the show notes. Rod, it was great to have you back on the show again today. Certainly appreciate. Thanks for having. And, uh, I guess my normal question is how do our listeners get in touch with you? But you've done plenty, uh, plenty of sharing how they do that here on the show. So again, thank you for coming back on the show. Have a great day.   Rod Kheif (00:23:50) - Thanks, brother. Thank you. You too man.   Sam Wilson (00:23:52) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can, do me a.   Sam Wilson (00:23:56) - Favor.   Sam Wilson (00:23:57) - 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 Michael Wiener.   Michael Wiener, Partner at Greenberg Glusker in Los Angeles, focuses his practice on structuring real estate and corporate transactions in a tax-efficient manner and providing his clients with creative solutions to complex tax issues.   Show summary:  In this episode Michael Winer discusses various topics, including 1031 exchanges, California property tax, and partnership tax issues. Michael emphasizes the importance of consulting tax advisors early in the process and having a sophisticated team to handle all aspects of a transaction. He also shares his personal experience as an investor and the complexities of holding real estate through legal entities. The episode provides valuable insights into real estate transactions and tax implications.   -------------------------------------------------------------- The 1031 Exchange Challenge (00:04:37)   Understanding Taxable Boot (00:08:25)   Complex Math in Tenancy in Common (00:09:42)   The 11th Hour Panic (00:11:01)   Consult Your Tax Advisors Early (00:14:34)   Complexities of Partnerships and Separate Exchanges (00:18:59)   Passive Investing and Syndication (00:22:00)   Negotiating 1031 Exchange in Joint Venture Agreement (00:23:00)   Challenges of Distributing Cash from 1031 Exchange (00:23:59) --------------------------------------------------------------   Connect with Michael: Linkedin: https://www.linkedin.com/in/michael-wiener-50a8a73/   Web: https://www.greenbergglusker.com/michael-wiener/insights/.   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: Michael Wiener (00:00:00) - You sell $20 million of real estate that has $10 million of equity. You need to purchase at least $20 million of real estate with at least $10 million of equity, because you also see, some people will say, hey, well, I purchased the $20 million of real estate. I got a $12 million loan, and I just cashed out $2 million. And yeah, no, you did. That's great. But. It's taxable boot.   Intro (00:00:27) - Welcome to the how to Scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:40) - Michael Winer, a partner at Greenberg in Los Angeles, focuses his practice on structuring real estate transactions in a tax efficient manner and providing his clients with creative solutions to complex tax issues. Michael, welcome to the show.   Michael Wiener (00:00:54) - Thank you very much for having me, Sam. I'm really excited to be here.   Sam Wilson (00:00:58) - Absolutely. The pleasure is mine. Michael. There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:04) - Can you tell me where did you start? Where are you now? And how did you get there? Well.   Michael Wiener (00:01:10) - About ten years ago, I had my own firm. I was, uh, or just starting my own firm, um, doing some 1031 work, I. Wound up, uh, seeing an ad on the internet. I don't even remember what I was searching for. For an attorney to join a tax boutique in Century City here in LA. So I responded to the ad. Turned out it was a 1031 exchange specialty, um, firm. And, you know, basically based on my practice and some of the clients I was doing work for, we knew a number of people in common. Um, so I wound up joining that firm. It was a four person firm. A few years later, that firm was acquired by a slightly larger firm, and then that firm was in turn acquired by a larger firm. Um, and throughout it, I have to say, I'm really grateful my, uh, my traditional client base stuck with me throughout all the, uh, throughout all the firm uprisings.   Michael Wiener (00:02:15) - Um, and then from the larger firm, which was one of the largest firms in the world, um, I transitioned my practice with, uh, one of my partners and colleagues who have been with me since the, uh, since the smaller firm over here to Greenberg Luster, which was a, um, which was a better fit. I'd worked alongside Greenberg Lustgarten deals, both co-counsel and adverse for many years a phenomenal firm and, uh, and been here for about four and a half years. And I love every day of it.   Sam Wilson (00:02:45) - That's cool. And it's 1031. What you still focus on primarily?   Michael Wiener (00:02:51) - Um. Uh, I generally wind up dealing with tax issues related to the real estate industry, and obviously 1031 is a big part of that. The last, you know, four ish years, really, since 2018, qualified opportunity zones have, um, have become a bigger part of that. We also being here in California, we have to deal with prop 13, California property tax, um, and transfer tax issues and then also deal with um partnership partner, excuse me, partnership tax issues related to structuring um, joint ventures and and real estate investments.   Michael Wiener (00:03:35) - Um, and that then extends its way out to sort of syndicated tenancies of common and, you know, different ways of investing in real estate and being able to take advantage of all of the wonderful tax benefits of doing so.   Sam Wilson (00:03:51) - That gets really complicated really fast. For those of us that want to just go out and buy stuff and own and run real estate projects. You're a great complement to our to our team because the rest of us don't want to think about, you know, probably the things that you think about day in and day out, you know, specializing in this. I can only imagine. No, no, two days are the same would be my guess.   Michael Wiener (00:04:14) - Oh, no, two days are the same at all. Um.   Sam Wilson (00:04:18) - It's crazy.   Michael Wiener (00:04:19) - Every day is a unique challenge, and every day is another opportunity to learn. So what are some things?   Sam Wilson (00:04:27) - Let's talk. Let's talk. 1031 because you've touched on several things, and I know any one of these topics, we could probably burn the entire podcast, you know, going down that rabbit trail.   Sam Wilson (00:04:37) - But let's let's stay on 1031, because I would imagine that for the bulk of our listeners, that's probably something that is applicable. What what are some common challenges and what are some common misconceptions, maybe that you run into when executing a 1031?   Michael Wiener (00:04:55) - Well, the first thing that a lot of people forget about or just don't remember is that in addition to spending all of the money that you get from the sale of your relinquished property, you also have to replace your debt.   Sam Wilson (00:05:13) - And.   Michael Wiener (00:05:14) - You know, you see people from time to time who say, oh yeah, no, we completed our exchange. We sold a property for, you know, $20 million with $10 million of debt, about a $10 million, uh, property. This is very, let me say, very simplifying the facts. Fact pattern. Um. We bought a property with, um, with the $10 million. And, you know, we got this great deal. We only have to put $2 million, $3 million of debt on it.   Michael Wiener (00:05:42) - And we, you know, you know, huzzah! We, uh, we completed our exchange, and it's well known. Yeah. I mean, yes, you did complete an exchange, but you're going to have to. And it's very important to remember that that gets, um, especially tricky in a, uh, uh, tenancy and common context where you have multiple exchanges. Um, investing people, completing multiple exchanges, investing in the same property. And they have to, um, and they have to, you know, satisfy their debt replacement requirements, especially if they had different leverage ratios on their, um, on their up leg. And can wind up with a situation where you may need to invest some fresh cash in order to to equalize it.   Sam Wilson (00:06:34) - So let me let me see if if I can summarize what you said, you replace the one of the one of the things that's often overlooked is that you replace the debt and the equity. So if it's a $20 million property that you originally purchased and that was debt and equity, again, let's call it 10 million in debt and 10 million in equity.   Sam Wilson (00:06:53) - And then you sell that, you harvest, let's call it it was a breakeven deal. You harvest that 10 million in equity. You can't go out and buy a $12 million property with 10 million in equity and 2 million in debt. Exactly. You got to replace that debt.   Michael Wiener (00:07:07) - Well, you can you don't have to replace the debt per se, meaning you can add fresh cash. You have to go basically equal or up in value and equal or up in equity. Right. So, you know, if you you could put in $2 million of your own money, you know, not exchange cash or money that you raised from an investor and then just get an $8 million loan, and that's fine. But too many people overlook that, overlook that aspect of it.   Sam Wilson (00:07:38) - And that that is not an aspect of that. I even understood until right now. So not just to many people, but myself as well. Uh, so yeah, that, that that's really it has to be equal or greater.   Sam Wilson (00:07:49) - Price point.   Intro (00:07:50) - Period. Exactly.   Sam Wilson (00:07:51) - Then what you previously.   Michael Wiener (00:07:53) - Just if you sell, you know, using our fact pattern, if you sell $20 million of real estate that has $10 million of equity, you need to purchase at least $20 million of real estate with at least $10 million of equity. Because you also see, some people will say, hey, well, I purchased the $20 million of real estate. I got a $12 million loan, and I just cashed out $2 million. And yeah, no, you did. That's great. But. It's taxable boot.   Sam Wilson (00:08:25) - Right. And you call it boot b o o t.   Michael Wiener (00:08:28) - B o o t is what the term is generally called.   Sam Wilson (00:08:32) - Taxable boot. There's a new uh there's a new one. I'm going to put that in my newsletter.   Michael Wiener (00:08:37) - That's yeah called um generally defined as sort of money or other non like kind of property that you receive in a 1031 exchange.   Sam Wilson (00:08:48) - Right. And so you can do it, it's just you just have to know that whatever portion remains you're just going to get taxed on.   Michael Wiener (00:08:54) - Exactly.   Sam Wilson (00:08:55) - Right. Okay. And and maybe that's an acceptable, uh, you know, solution for some. You presented another wrinkle there that maybe um, just to again to, to hash it out again, you were talking about maybe, you know, let's use that $20 million example again. We'll see if I can if I can craft this correctly. But I sold that I owned it by myself. And then you sold another $20 million property. And together we were going to go in and buy a $40 million property. Right. But maybe your debt to equity ratio was different than mine was. And somehow you've got to get we can go in as tenants in common buying this now new $40 million property together both 1031 and into a bigger deal. But now we've got to figure out some sort of really complicated math as to how it's all got to work out.   Michael Wiener (00:09:42) - Well, like, you know, let's say, you know, we're going to go in and buy a, you know, a $40 million property with 20 million of debt.   Michael Wiener (00:09:50) - Um, and we're 50, 50 tenants in common. Right. But my. You know, leverage on my download property was, let's say it was very it was more highly leveraged. Let's say it was, you know, $15 million to just to take sort of an extreme example. Okay. When I go in. Um, to that, you know, $20 million property I have to figure out. Well, am I going to put in more cash? Um, if I do, I can put in cash to equalize it. Right. Uh, um, and, you know, that would be fine, but that requires me to come up with $5 million, you know, outside of, uh, you know, outside of the exchange, and, you know, maybe I can go shake the money tree or something, but, uh, you know, that's easier said than done.   Sam Wilson (00:10:42) - Right. And so you help clients when they get into these situations where especially I mean, 1 or 2 is complicated, but I imagine 810 on a much even bigger property than that.   Sam Wilson (00:10:51) - Yeah, it becomes a bit of a, uh, yeah, a bit of a process. You have some.   Michael Wiener (00:10:55) - Uh, pretty extensive Excel schedules, let's put it that way.   Sam Wilson (00:11:01) - Right?   Sam Wilson (00:11:01) - I bet you do. I bet you do. And when and when people get into these situations, like, do you find that they come to you at the 11th hour going, oh, crud, we didn't think through this and now we need help. Is that pretty common that happens.   Michael Wiener (00:11:16) - That's happened. Um, the you know, the good, the good clients, the, uh, the the clients who I've worked with for a long time, generally by now know to, uh, to get me involved early. But it is, let's just say, not uncommon for, uh, you know, people to come at the 11th hour. And, you know, we had one, you know, just. A year ago that I can think of where, you know, literally a week before closing, we had to restructure significantly the, uh, transaction.   Michael Wiener (00:11:52) - Um, the client scheduled it or structured it without tax advice. Um. With three tenants and or they had tax advice but not 1031 advice with three tenants in common. And you know, one was just a fresh cash tenant in common not exchanging one one with one or I guess the other two were exchanging and. Basically I, you know, took a look at it and within three minutes I said, oh, you're going to have, you know, $7 million of boot of taxable boot based off of not replacing your debt. And what we had to do was we wound up having to combine the fresh cash non exchange tenant and tenant in common, make that part of the exchanging tenant in common and that using those those numbers allowed it to uh allowed it to work and to get them to satisfy all the requirements. But you're talking about org charts already haven't been given to, um, to a lender. You're talking about documents already having been drafted and signed and having to go back to people and saying, well, you know, you were going to invest because for the people who are investing in the what I'm going to call fresh cash tenant and common.   Michael Wiener (00:13:15) - There are, you know, a set of expectations with regards to your depreciation and outside basis in your joint venture. And these are technical terms I know, but uh, but um, there are certain let's call it tax expectations that. You would expect to have when you are investing in, um, a non exchanging entity just in a straight real estate deal, in a straight real estate syndication. And those things change a bit when you're, uh, when you're coming into an entity, when you're coming into an existing partnership that is competing with 1031 exchange, there are different issues that you need to be mindful of. And and they can be worked out. But, you know, people need to be aware of them. And people need and, um, documents need to, you know, need to address them and reflect them. And, um, you know, doing all of that a week before closing is, you know, lots of fun. Uh.   Sam Wilson (00:14:20) - So is that what they call it?   Michael Wiener (00:14:22) - I would, um, I would strongly encourage people to, uh, to if you're doing a 1031 exchange, consult your tax advisors early.   Sam Wilson (00:14:34) - Consult them early. Absolutely.   Michael Wiener (00:14:35) - And especially early and early and often I would say. Right.   Sam Wilson (00:14:40) - And I would think, you know, on a single property, single investor, it's pretty it's pretty cookie cutter.   Michael Wiener (00:14:47) - Well, yeah, when.   Sam Wilson (00:14:48) - You get into stuff like this, the complication factor just rises, uh, you know, dramatically. So that's, that's really, really interesting. And how, how do you feel like when you're going back and dealing with legal? Because I mean, at this point, I imagine in this particular scenario, talking about like you're getting legal on the phone, you're getting everybody on the phone to go back and start redrafting all of this paperwork and making appropriate changes. How how is that interaction with, I guess, on the on the legal side of things like, is that a complicated or is that or is that a sticking point for you guys in your business, where sometimes the legal side doesn't understand what you guys understand on the tax side? Or how does that, uh, how does that work out for you?   Michael Wiener (00:15:29) - I mean, and that's an important, uh, an important point is that the clients need to have for these types of more, you know, sophisticated deals.   Michael Wiener (00:15:39) - You need to have a sophisticated team all around. And that means, you know, both tax and legal. So, so that when, you know, we go and we tell the legal team, well, this is what needs to be in the operating agreement. Um, and we get it back for review. That's actually in the operating agreement. They understand what we mean. They understand what concepts we're talking about, and they know how to draft those provisions. Um, and, you know, if need be, then I will go in and, you know, draft those provisions or correct them as necessary. Um, you know, as, as tax attorneys, we still do a lot of drafting.   Sam Wilson (00:16:21) - I bet you do. That's really cool. I love to hear the nuanced layers to things that are, I think, generally seen as pretty cut and dry, such as the 1031. It's generally like, oh, okay, well, we 1031, we bought one or we sold one, and then we bought another one and then we moved on down the line.   Sam Wilson (00:16:36) - But there's always, always another layer to, uh, to what it is we're working on. And it sounds like you, you go many layers deeper than what many of us oftentimes see. So anything else on the 1031 front, we should really highlight here that, uh, are things that either people get wrong, should be preparing for earlier, or are misconceptions anything else you want to hit on that front?   Michael Wiener (00:16:59) - Well, yeah. I mean, I think when people hold real estate through a legal entity, through an LLC, through a through a partnership, and if worse, through a corporation. Um, I'll get to that in a second. Uh, you need to people need to understand that it is that legal entity. It is the, you know, if you have a, um, so just by way of background, if you have a, a multi-member limited liability company, it is by default treated as a partnership for tax purposes. For tax purposes, if you have a single member LLC, it is by default treated as, um, treated as a disregarded entity for income tax purposes.   Michael Wiener (00:17:42) - In either case, you can elect to have that entity treated as a corporation for income tax purposes. That's very rare in the real estate, uh, industry. Um, but occasionally you see it. Um, and but the important thing is that it's that entity that is doing the exchange. So you have a concept called the same taxpayer principle, which I know, um, has been discussed on your show before. Uh. Which says that the. The legal, the tax entity, the entity for tax purposes. The taxpayer that sold the download property needs to acquire the uploaded property. And where that becomes tricky is where you have partners who want to go their separate ways. You know, they had a good run on the last deal, but now they say, well. We, um. We want to. We don't want to be together on the next deal. So to take, you know, the exact one or riff off of the example we were using. You know, you and I are 50, 50 members of an LLC that is taxed as a partnership.   Michael Wiener (00:18:59) - And, uh, we had a really good run, and we, you know, our our property did very well. And now we're going to sell it and say, okay, well what are we going to buy next? And, you know, I say, well, I want to go into industrial. You say, no, I want to go into multifamily or for any or, you know, occasionally you have people that just don't like each other. So I don't think that would happen with us. But, uh, um, uh, you know, for various reasons, there are any one of a number of reasons why, when they're selling the property, that people don't want to be committed to investing in the next property together and structuring those types of exchanges is very complicated. And it can be done. It can be done. There are several different structures and several different alternatives. Um, I can get into them if you'd like, but, uh, somewhat technical. Um. But that also requires consulting your tax advisors early and often.   Sam Wilson (00:20:03) - Right? No, I can only. And maybe even isn't for reasons. You know, it's not like the partnership fell apart. Maybe you, Michael, just don't want to. You don't like the property that we're 1030 running into or.   Michael Wiener (00:20:14) - Yeah, I mean. Exactly.   Sam Wilson (00:20:15) - You want to do something else, like. Well, you know that that was fun. We had a great run, but I really don't want to move on with the next ones. And now we got to figure out a way to, uh, for, say, or in.   Michael Wiener (00:20:24) - Some instances or in some instances, you know, let's say I had inherited my partnership interest in our thing and our LLC. And I say, well, because I inherited it, I have a stepped up tax basis. I'm not going to pay any tax on a sale. Right. I want to sell for cash. Right. Um hmm.   Sam Wilson (00:20:44) - Yeah. And that opportunity to get that stepped up cash out basis isn't going to happen once you 1031 to the next property.   Michael Wiener (00:20:52) - Exactly.   Sam Wilson (00:20:53) - It's got to happen now, right? That's interesting. I hadn't thought about that.   Michael Wiener (00:20:59) - I mean, so there are, you know, there are these situations which we deal with every day and there are about, you know, 20,000 different variations of these, uh, um, that we deal with every day. And, uh, and, um, you know, it's very, you know, it's very challenging. It requires a lot of cooperation. It's sort of like a, uh, you know, a three legged race, probably the ultimate three legged race you need to get, you know, you feel almost like a, uh, like a symphony, like conductor. You're like, okay, now I know you're doing this, now you're doing that. I know you're moving gear. Everybody needs to like, you know, move in concert. The documents. Um, and there are a lot of documents on these deals need to all be, you know, consistent. And then when it comes to filing the tax returns, tax returns need to be filed in a, uh, way.   Sam Wilson (00:22:00) - I didn't even think about that. So there's. I'll give you an example. I was I was a passive investor in a. This is probably more relevant to our listeners in a syndication. I was a passive investor in a syndication, and the deal went full cycle in like, I don't know, 12, 14 months. I mean, it was it was great. Everybody doubled their money, loads of fun. And so they said, hey, you know what? We should we should 1031 this entire syndication into the next deal. Except there were some of us that were like, ah, you know, I don't need to I don't like the Nick. And I in my case, I was one of those people said, I don't want to like the next deal, and I don't want a 1031. And I was an investor through a retirement account into that syndication. So I really don't care if I. 1031 it's it's a zero tactical advantage or tax advantage to me. And so that was really interesting.   Sam Wilson (00:22:50) - And again, I got to sit in the sidelines and kind of just watch it. You know, I just said, no, I don't want a 1031. And then of course, you know, I don't know the volumes of, of documents and paperwork and.   Michael Wiener (00:23:00) - No, but you know, what winds up, you know, what winds up happening as well there there are a few practical, uh, you know, points there. Most indications the syndicator is not going to give you the option. Right.   Sam Wilson (00:23:15) - They're going to say, you know, we are.   Michael Wiener (00:23:16) - Going to, uh, you know, we are going to. 1031 if it's something that you think you may want to do or may want to have the right to. It's important to start talking about that early, early, early, early in the process. Um, uh, because then you can negotiate things into your joint venture agreement. That will allow that. And the challenge, um, is that, you know, once the money, once the cash from the sale goes into the 1031 exchange accommodation account, and, you know, to some extent even before then, it's really in a lockbox.   Michael Wiener (00:23:59) - You can't use it to just, you know. I remember a one time appliance said, oh, and if we need more money for that, we'll just pull money out of the accommodate our accountant. I said, oh no, you won't.   Sam Wilson (00:24:11) - Um.   Michael Wiener (00:24:12) - Uh, first, most any accommodating that's, you know, really worth it won't let you. Right. Um. And even if they would. As your tax advisor, I wouldn't let you. Right.   Sam Wilson (00:24:27) - Right. No.   Sam Wilson (00:24:27) - Because then you negate all of the potential savings of even doing the 1031.   Michael Wiener (00:24:33) - You would blow your 1031 exchange. So you have to come up with a way. And there are ways of, um. You know, generating that cash. Sometimes it's they find another person to come and buy you out, and that person is going to take your place in the partnership. Uh, sometimes there is a, uh, a, um, a strategy that's used where the exchange of commentator will issue in a, in installment note, a promissory note to the partnership that is doing the, uh, the 1031 exchange.   Michael Wiener (00:25:10) - And the partnership can distribute that out to, um, to the investor that is being redeemed. If you're able to and you're able to do this on time, namely, before you really get into negotiating a purchase agreement, you can create a tenancy and common structure where the people who don't want to do their 1031 exchange get redeemed from the partnership in exchange for tenancy and common interest in the property. And they then sell the property, um, you know, in a taxable sale and, uh, and the, um, the people that are doing the exchange continue to just exchange.   Sam Wilson (00:25:47) - And I'm pretty sure that was what happened. It's been a few years, so I don't remember the specifics of it, but I'm pretty sure I do remember seeing something about ticks in there and some other things. And. It all worked out really well. Uh, but it was it was certainly interesting to see from the sidelines. We got about 60s left here. Michael. And I did want to get your thoughts on this real estate held in a corporation.   Sam Wilson (00:26:06) - You kind of gave a an indication that that was bad. Uh, break that one down for me if you can.   Michael Wiener (00:26:13) - Well, so first, there are just obviously two types of corporations for tax purposes. There's a C corporation and an S corporation. A C corporation is taxed as a separate person. So it pays a tax. And then when it distributes money, the investors or shareholders pay tax on what's called a dividend or a distribution. Um, an s corporation, the uh, the, the tax flows through to the shareholder. So you might say, well, how is an s corporation different than a tax partnership. That's also a flow through entity. And there are two primary differences. And that are important when it comes to real estate. The first is that. In, uh, in a tax partnership, let's say you and I put in $1 million into an LLC, and the LLC borrows, you know, $8 million, and we buy a $10 million property. We have a $10 million between us.   Michael Wiener (00:27:18) - Taxable basis each, a $5 million taxable basis. And we can take depreciation deductions on that for 5 million, including our share of the debt. If we were shareholders in an S corporation, we would not get basis for that share of the debt. So we would not be able to get deductions passed through to us on that 4 million, only on our 1 million. The second problem with corporations is that when you distribute appreciated property out of a corporation, it's treated as a taxable sale by that corporation. So these types of structures I'm talking about where people want to do different exchanges and create tenancy in common structures, or do or do anything that's really not possible with real estate held in a corporation. Because when you distribute that real estate out of the corporation, it's treated as though the corporation had a taxable sale of that real estate.   Sam Wilson (00:28:18) - That is interesting. I wish we had more time to dig into that. I've got lots of questions on that front. Michael, it has been a pleasure having you on the show today.   Sam Wilson (00:28:25) - If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Michael Wiener (00:28:29) - Go to Greenberg, glasgow.com. Um, you can email me at M Weiner. Weiner at gofundme.com or um, you can find my phone number on the website. I apologize, I don't remember what it is off the top of my head.   Sam Wilson (00:28:48) - No problem at all. We'll make sure we include all of that there in the show. Notes. Michael, thank you again for coming on today. I do appreciate it.   Sam Wilson (00:28:54) - Absolutely. Thank you very much for having me.   Sam Wilson (00:28:56) - 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 (00:29:18) - Thanks so much and hope to catch you on the next episode.

Today's guest is Frank Hanna.   Frank B. Hanna, Jr., ChFC®, Private Wealth Advisor, is a leading specialist in Estate / Tax Planning, Private Real Estate Investment, and Wealth Management for a select group of individuals, executives, and privately held business owners.   Show summary: In this podcast episode, Frank B. Hanna Jr. explains how they bridge the gap between traditional investments and real estate, offering sophisticated real estate deals to high net worth clients. Frank also educates clients on the benefits of Delaware Statutory Trusts (DSTs) for tax-deferred property exchanges. He shares his optimistic perspective on future economic opportunities, attributing it to maturing debts and banks' reluctance to lend. The episode concludes with Sam appreciating Frank's unique approach and valuable insights.   -------------------------------------------------------------- Intro (00:00:00) Introduction of Frank B. Hanna Jr. (00:00:52) Frank's background and current business (00:01:16) The 1031 Exchange Solution (00:09:45) Delaware Statutory Trust as an Alternative (00:11:13) Diversifying with DST Programs (00:16:29) The debt situation and upcoming opportunities (00:22:00) Taking advantage of opportunities in the market (00:21:16) Contact information and resources (00:23:31) -------------------------------------------------------------- Connect with Frank:  Facebook- https://www.facebook.com/RevXWealth   Instagram- https://www.instagram.com/revxwealth/   LinkedIn- https://www.linkedin.com/company/revolutionx-asset-management/   Web- https://www.revxwealth.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: Frank Hanna (00:00:00) - You know, we manage north of $1 billion for clients. And, you know, when things get rough, you know, the advisor in me, you know, worries for my clients because I know they they get concerned and they get upset. But for me, as an entrepreneur and a real estate investor, I, I get excited to take advantage of some of those opportunities that are out there. And I think, I think there are going to be a ton of opportunities over the next, the next 18 or 24 months for the groups that are well positioned, that are well capitalized. And, um, you know, have, you know, the iron gut to take chances and, and, you know, pursue some of the opportunities that are out there.   Sam Wilson (00:00:39) - 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 (00:00:52) - Frank B Hanna junior is a leading specialist in estate and tax planning.   Sam Wilson (00:00:56) - He also specializes in private real estate investment and wealth management for a select group of individuals, executives and privately held business owners. Frank, welcome to the show.   Frank Hanna (00:01:06) - Thanks for having me, Sam.   Sam Wilson (00:01:07) - Absolutely. The pleasure is mine. Frank. 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?   Frank Hanna (00:01:16) - Um, I started in the, uh, hotel restaurant business. Did that for a number of years, managing, um, family owned businesses. My my family and businesses did that for, you know, 15, 20 years and got out of that and was doing a little bit of, you know, single family home construction, house flipping type stuff and, um, then diversified into some, some other sectors of real estate and, um, you know, wasn't in love with the restaurant business, ultimately had a lot of good relationships from that and had an interest in real estate and basically packaged that into a kind of hybrid financial planning consulting business with a real estate arm.   Frank Hanna (00:01:59) - And, um, I, uh, currently live outside of Philadelphia. My partner and I have been working together for, um, about 15 years. We started, uh, Revolution X years ago. We rebranded recently, and, um, you know, we've got a, uh, a nice footprint, um, you know, probably on East Coast primarily, but we do business across the United States.   Sam Wilson (00:02:21) - Wow. That's a lot of moving. Uh, a lot of moving pieces there. You 15 or 20 years in the family business and. And how did you. I mean, it sounds like a strategic shift when you got out of the family business and said, okay, we're going to go into wealth advising, planning all those things. Like what? What was the the evolution of that? Yeah, I'm sure there's a lot there that I just.   Frank Hanna (00:02:42) - Yeah, yeah. No, it's a great question. So yeah. Uh quick quick turn there. So I, it's funny my um, I, I had had a little bit of background in real estate, um, through my family.   Frank Hanna (00:02:54) - So my father had done restaurants for years, and he had kind of taken some of his successes and, um, and, and, and wealth from that to get into real estate. So I learned a lot through him and through some of our relationships there. My partner was actually doing like high level financial planning for some recognized individuals. Um, where I was living down near Ocean City, Maryland, and he actually was calling upon my father to try to do some financial planning. So we we connected. My dad actually pawned him off on me, and we got talking and started brainstorming and said, hey, you know what? He he's got a lot of good tools that his toolbox on the financial planning side of things. And I think, I think he can help us and help some other people. And I had a good background on, um, you know, business management, tax planning, um, you know, real estate. And we said, hey, look, let's, let's kind of package what we're, what we're both good at and see if we can, um, capture some market share and focus on a certain type of client.   Frank Hanna (00:03:56) - Um, and we, we started from there and, uh, you know, from the ground up. It was a tough, tough fight, but we're, uh, we're rolling pretty good now.   Sam Wilson (00:04:06) - Wow. Okay. I mean, and this is one of the things I think that we've see in the real estate world is that there's people who are like, you know, I'm only real estate. That's it. They they're only going to invest in real estate. And then you have people that are, you know, the typical stock and bond brokers, financial planners, that that's all they know. And the two seem to not very often intersect where you find some of the understands business and understands real estate that understands traditional kind of investing channels. Is this kind of what you've done, has been able to blend all of those?   Frank Hanna (00:04:36) - Yeah, I think so. You're right. You're right. So you have your you know, typically, typically most of your high net worth clients or our high net worth clients have have some wealth in real estate.   Frank Hanna (00:04:45) - Maybe they're doing that on their own. Um, and but yeah, you're right. Some people just love, love the, the thrill of kind of that real estate deal. And they put every last dollar into that segment and sometimes don't get, um, you know, many dollars over to your more traditional investments. And then you have the other people that, you know, save into their, you know, 401 KS or the brokerage accounts. And, and that's how they kind of grew up and, and were taught that way. And, um, ultimately those people, you know, never really, um, you know, transcend into the real estate space because they don't really know where to start. So what we've done is, is taken some of those more sophisticated real estate deals and packaged them in a way where they are securitized and people can invest and get access to some of those deals. And yeah, we've kind of bridge that gap where you can have the best of both worlds. So most of our clients, um, you know, will typically, you know, dabble in both spaces.   Sam Wilson (00:05:46) - Walk us through that, like, how are you packaging those up and presenting those to your clients? I know that there's a lot of times there's they're just from the. The brokers I've spoken to in the, in the you know, the financial planners, they say, look, you know, we can't we can't do this because their, their hands are typically tied, especially by the bigger shops that they work with. They just can't simply touch that sort of thing. So how are you guys doing that.   Frank Hanna (00:06:08) - So so we really like so in the in the financial advisory space, you have to, uh, you know, hang your flag with a broker dealer. Right. So everybody has to have a broker dealer that, you know, supports you, um, make, you know, make sure you guys are doing things the right way and, and, yeah, some of those bigger broker dealers, they're just, you know, like, they're the, the massive ship moving in the night. They don't typically want to invest the resources for all those different advisors.   Frank Hanna (00:06:36) - And and some of those type of alternative products can be somewhat sophisticated. So um, we moved away from there. We used to be with a big, large broker dealer that was not favorable. They didn't want to do anything that was out of the, uh, you know, quote unquote vanilla or the norm. Um, and now we we work with a broker dealer, um, that their sweet spot is in the alternative space. They focus on a high end advisor, um, you know, high net worth clients, and they give us access to some of the best stuff that's out there. So between us and them, we we basically, um, vetted the marketplace across, you know, the continental US and basically found some of the biggest players that had the most sophisticated offerings and, you know, their kind of sweet spot or asset class. And they do real estate syndicated deals. And some are some are designed for people that have cash on the sidelines and they just want to diversify or get away from, you know, some of the volatility in the stock or bond market.   Frank Hanna (00:07:40) - We have a lot of other deals that qualify for like 1031 exchange planning. So people will sell their hard real estate and they can't find a replacement property. They don't know where to go next. Or maybe they're just over the headache of, you know, property management. So there's there's a solution there that a lot of people take advantage of through us. And then we have a lot of deals where we do, you know, cost segregation studies. So people that either have a large, you know, passive income or maybe they, um, qualify as a real estate professional. They'll invest in our deals, uh, you know, not only for cash flow, but primarily for that accelerated depreciation to, um, you know, offset of their offset, some of their federal and state income taxes.   Sam Wilson (00:08:24) - What what I see a lot of I would put myself in this category as the deal sponsor. Like there's they're the people like us who are the deal sponsors. I know the deals we do. And that's kind of where my expertise stops.   Sam Wilson (00:08:37) - But for you, you kind of have to take a holistic approach to people who are, you know, for me, it's like, okay, hey, you know what, Frank? You're you're a accredited investor and you got $100,000. You want to invest. Okay. Come on. No, not not not a not a high hurdle. But for you, it sounds like there there's a there's a certain client type that really is looking for what you do. Who would you say is your kind of ideal client?   Frank Hanna (00:09:00) - I would say, um. You know, I kind of look at it two ways. So. So we have we're really attractive for like, the younger entrepreneur that maybe is, is, you know, a relatively high income, you know, I'd say, you know, six figures and up a year, um, that, that is looking to enter the market and they just don't know where to start. Right. So we can, um, you know, assuming they qualify as accredited investor and have some assets elsewhere, um, they could we get a lot of, a lot of people that are maybe a 30, 30, 40 years old that are just entering the market and they want to get their their toes wet, and they'll get into one of our one or more of our deals, and it typically goes from there.   Frank Hanna (00:09:45) - So that type of client and we have some, some, you know, ultra high net worth clients that have all type of planning needs that are maybe, you know, in their 60s and 70s, 80s, and they're looking to kind of simplify their life, or maybe get some of their financial freedom back, and they've started to divest of some of the holdings that they've had over time. Um, you know, they're they're obviously tax focused. Um, but we get a lot of those type of clients that say, hey, you know what? I've had a ton of success, but I don't feel like managing, you know, dozens and dozens of properties anymore. I'd like to sell, but I don't want to get whacked with, you know, massive cap gains taxes. What can I do? So we educate those type of clients on, hey, you can, you know, sell that real estate, you know, do 1031 exchange planning. And if you don't want to go out and buy another hard piece of real estate that you want to manage, you can use, um, you know, a technique or a solution we typically use like a Delaware statutory trust.   Frank Hanna (00:10:48) - And, uh, it qualifies for the 1031 exchange. So we get a lot of clients that are selling real estate and using our solutions, um, to execute a 1031 exchange.   Sam Wilson (00:10:59) - What? And I think you've just mentioned one of those creative solutions, but what what are some of the, uh, and maybe you can give more detail on that if it's relevant. But some of the creative solutions you guys feel like you've crafted, maybe that are kind of lacking in the marketplace.   Frank Hanna (00:11:13) - So I think, um, you know, the I'll, I'll just start on that Delaware statutory trust. So that's that's nothing new. But for whatever reason, a lot of people are unaware that it's out there as a, as an alternative to a traditional 1031 exchange. Um, or, you know, there's misunderstandings of how they operate. Um, you know, it really has nothing to do with Delaware. But, um, essentially we we take a lot of our deals and I'll use the Delaware, uh, statutory trust tax wrapper just for those 1031 exchange dollars.   Frank Hanna (00:11:47) - And those people that need, need, have that need. Um, so the Delaware statutory trust is a trust where you can, you know, utilize, sell, sell your hard piece of real estate and do a complete tax deferred exchange into one or more offerings, um, and get a tax favored monthly income. We do a lot of deals and, and a variety of different asset classes, um, you know, multifamily, self-storage, industrial, student housing, you know, everything under the sun. We're focused in, you know, markets that are, you know, high growth. They have a good story behind them. They're pro-business, tax favored. And, um, you can, you know, again, uh, relinquish the property management responsibilities and go into our deals. And, um, you know, the length of length of our deals are typically, I don't know, 3 to 6, 4 to 7 years hold. And again, when those deals sell, you can do another 1031 exchange on the back end as well.   Sam Wilson (00:12:50) - No, I love that. That's, uh, and that's one step more sophisticated. I would, I would imagine, than just a straight 1031.   Frank Hanna (00:12:58) - It's, it's a it's actually, um, you go through the same process as the 1031 exchange. So you're going to have your you have to hire a qualified intermediary to be your, like third, third party, unaffiliated, um, individual. That would be the middle man in the in the terms of a 1031 exchange. And then, you know, when you typically would follow that guideline of 45 days to identify and a total of 180 days needed to purchase that new replacement property. Um, our deals are already prepackaged. They're approved. They're ready to go at any given time. We probably have 15 different Delaware statutory trust programs that are available. Um, and you can list them right on your ID sheet and invest those dollars. There's no closing costs. We can settle in 3 to 5 days. So, um, you know, it's it's a little bit of a sophisticated product, but it's once you understand it, it's super easy.   Frank Hanna (00:13:55) - Um, and I, I'd argue it's easier than you know, negotiating and, you know, settling in a hard piece of real estate so we can move quickly. We always have inventory, some really attractive deals. Um, so that's I'd say that's a huge part of our business. I, I'd say that was maybe 5 or 10% of our business. Um, five, six years ago, it was probably 50% of our business this year.   Sam Wilson (00:14:18) - Wow. Wow. No, that sounds really powerful because people are looking for those types of things where one they can push the easy button. Yeah. Okay. You got 15 DST, DST programs that you can pick from. That's pretty impressive because then it's like, well, it just it's just a menu. Which one do I like? And then you're not responsible for it once you do that. Yeah. I mean, that's, uh, that's pretty powerful. I guess I got this just probably get into the weeds here a little bit. And so if it's too far in the weeds, tell me to just stop and part of it.   Sam Wilson (00:14:44) - But it's in those in those DST programs you guys have, you guys are then going out and working with operators, deal sponsors, people that are actually boots on the ground doing, you know, the deals themselves. Unless you guys are running all of these yourselves, which I would be thoroughly.   Frank Hanna (00:14:58) - Yeah. So so yeah. So we have some several layers of due diligence so we understand the deals. Um, so we have, you know, a number of partners that we've got some sort of track record with. Um, but we don't rubber stamp, you know, any deal just because of who's bringing it to the table. So we typically, um, you know, get word either that, hey, this is this is coming to market, or they're thinking about putting this deal together. And then we have our team do a very thorough analysis of the program. We visit the property through, you know, every type of study imaginable and look at the financials and say, hey, this is a deal that we think, um, has a high probability of success.   Frank Hanna (00:15:37) - We're going to approve it and put it on our platform. Um, or we'll look at that deal and say, hey, it's not for us and we're not going to approve it. But, you know, we invest in almost all our own deals. So if it gets if it gets to our platform, we feel really good about it. Um, and then we can offer it to the market or relationships that we have that are, that maybe have that 1031 exchange need. Um, but it's yeah, it's nice. We can kind of layer that out, diversify the client. And, you know, it almost acts like a laddered bond portfolio where, you know, if you if you had $1 million deal and you invested in, you know, 3 or 4 DSPs, you know, once we get out to year three, it's it's rare that, you know, we're not calling you once a year and saying, hey, Sam, good news. Uh, one of your deals is going full cycle, and you have to make another choice.   Frank Hanna (00:16:29) - Are you going to cash out, pay your taxes, do another DST with us or somebody else? Or you can actually go back into hard real estate. Um, and there's typically, you know, a nice income, some degree of appreciation. Um, but it's flexible. So we have a lot of people that, um, are using us now, maybe because of the, you know, rough lending environment and low inventory and deals are hard to come by. And, and, you know, all the factors that are headwinds right now for us, people are still selling real estate. You know, where they say, hey, I can capture a premium. I definitely don't want to pay the taxes, but I don't want to just buy something else that I have to manage that's not as attractive as the property I'm selling, and I don't want to pay top dollar for that. What can I do? Well, you could park it in a DST with us for a handful of years, let the market in a reset and then go back into hard real estate.   Frank Hanna (00:17:26) - Um, you know, in some time.   Sam Wilson (00:17:29) - That makes a lot of sense. And I was going to ask that question when it comes to in order to keep 15 different DST programs that you have may be open, you got to keep your pipeline full of opportunity inside of those. If those are single asset syndications, I mean, those are typically time bounds. So it seems like you'd have a lot of I mean, a lot of deals coming in and out. And I was going to just ask, how do you keep track of that? You know, if there's that many. You know, deals all at once.   Frank Hanna (00:17:57) - Yeah. So so we've got, um, you know, again, we're not doing everything ourselves. So those, those sponsor companies that we're working with. Um, you know, they, they do the day to day management opportunity or responsibilities. And then our broker dealer, um, you know, has another layer of, of responsibility on that too. And then we have a team of, you know, a couple dozen people that focus on all these deals.   Frank Hanna (00:18:24) - And, um, you know, we we have our kind of expected timeline and then, you know, that can change with different circumstances. But yeah, it's, you know, there's a lot of moving parts to it, but we've got that kind of sweet spot or size that I think enables us to be really proficient, um, with, you know, with the type of clients we have, we're not, you know, we kind of stay right in that space where we feel like, hey, we've got plenty, we've got good inventory, we've got good deals. We don't have. You know, too little where we can't meet the need, but we're not approving. You know, much more than that just because, uh, there's, you know, there's not a need there. So we we feel good about our business model and the support and the partners that we have to help manage that. But, um, yeah, you know, having it can change over time. I'd say fifteen's around what we typically have, some of them can be a handful of assets.   Frank Hanna (00:19:19) - Some of them are single assets. But all depends.   Sam Wilson (00:19:22) - Got it. Very, very good. I want to shift gears here just, uh, slightly when you're talking to your ultra high net worth investors, what what is your kind of subjective opinion of how they're view and set market sentiment? I guess you will. How they view the market. How has that changed in the last 12 to 18 months? And I guess if you can give us that insight, that would be helpful.   Frank Hanna (00:19:46) - Yeah, I'd say, um, you know, it's it's a it's a blend. You know, I have some clients that say, hey, you know what? This is as bad as I've seen it. You know, whether it's the economy or whether it's, uh, you know, just what's going on with, um, you know, federal circumstances. And then I have others that say, you know what? I've been through 4 or 5 crashes and market corrections and the worst of the worst. And I've survived every one of them.   Frank Hanna (00:20:13) - So I'm I'm ready, and I'm going to take advantage of, uh, the opportunities that present themselves. Present themselves. Um, assuming, you know, things get worse before they get better. So it's funny because I, you get total totally different sentiments on that. Um, but I think we are in unchartered territory with what's going on in the world, and, uh, you know.   Sam Wilson (00:20:40) - Yeah. Who who who actually knows? Has there been any strategic shift in the way investors invest?   Frank Hanna (00:20:47) - I don't think so. I think um, I think again, the, the ultra conservative and the doomsday buyers and the clients like that, that I have to stay that way. And I don't try to change their mind. Um, but they're, they're those people that are out there. And then there's the others that, hey, they just keep operating. Um, you know, assuming there's going to be a tomorrow and they've had success and, you know, it's it's funny because, you know, we manage north of $1 billion for clients.   Frank Hanna (00:21:16) - And, you know, when things get rough, you know, the, the advisor in me, you know, worries for my clients because I know they they get concerned and they get upset. But for me, as an entrepreneur and a real estate investor, I, I get excited to take advantage of some of those opportunities that are out there. And I think, I think there are going to be a ton of opportunities over the next, the next 18 or 24 months for the groups that are well positioned, that are well capitalized. And, um, you know, have, you know, the iron gut to take chances and, and, you know, pursue some of the opportunities that are out there. So, yeah, two sides of it, I look at it that way. But I do think there's going to be a lot of really good opportunities that are going to come available soon.   Sam Wilson (00:22:00) - Yeah. Would you would you base that um, that feeling just upon the the amount of debt that's maturing? Yeah.   Sam Wilson (00:22:07) - I think.   Frank Hanna (00:22:08) - Yeah. The debt situation, there's just substantial amount of debt that's all maturing in the next couple of years. And you've got banks that don't want to lend on a variety of different asset classes. Um, so I think, again, the people that are well positioned that they're that are well capitalized are going to be able to really, you know, swing the bat and get well positioned on a lot of those deals. And we have like a lending arm to. So we're in a position where, you know, if we feel like the collateral is good, um, we can make a really nice spread on those loans and, and play, you know, more defensive positions. So we're not always, you know, on the equity side of things.   Sam Wilson (00:22:50) - Right.   Sam Wilson (00:22:50) - Right. Now that makes a lot of sense. And I think there's some other people out there with that kind of same idea where it's like, hey, you know what? If we can we can come in, uh, you know, with some rescue capital, take some things over, you know, to, you know, at a discount to market, then, um, like you said, you just got to be ready for that.   Sam Wilson (00:23:05) - So. Yeah. Very cool. Frank, I have thoroughly enjoyed our conversation today. I love what you guys are doing. I love your, uh, kind of unique approach to, uh, tying real estate and investments and tax strategy. I think you guys run a very unique shop there to something we don't see a lot of. So I appreciate what you guys do. Thank you sir. Certainly learned a lot from you here today. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Frank Hanna (00:23:31) - Uh, check out our website. Um, our Rev X Wealth comm. So Rev X wealth.com. Um, you can inquire contact all our contact information's on there. If you want to get Ahold of us ask a question that rev wealth is all over social media to. If you want to search, follow us. There's a lot of good content out there that we put out, um, from, you know, the ultra sophisticated maneuvers to just really good basics to follow.   Frank Hanna (00:23:57) - Um, but, yeah, happy to talk to anybody that's out there. Answer questions, confident you get value out of a brief conference. Uh, conversation with us.   Sam Wilson (00:24:05) - Awesome. Frank, thank you again for the time today. I certainly appreciate it.   Frank Hanna (00:24:08) - Yeah. Thank you. Sam.   Sam Wilson (00:24:09) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:24:13) - Favor.   Sam Wilson (00:24:14) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts.   Sam Wilson (00:24:19) - 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 Larry Taylor.   Larry Taylor is the founder and Chief Executive Officer of Christina. Mr. Taylor is responsible for vision, strategy and leadership. Mr. Taylor is a seasoned investor with over 40 years of real estate experience in the Westside region of Los Angeles.   Show summary:  In this podcast episode, Larry explains how his company identifies valuable properties and adjusts their portfolio in response to market shifts. He also discusses the expansion of Christina's investor base, now open to all 50 states, and the opportunities this presents. The episode concludes with Larry sharing his insights on the desirability of owning real estate in Manhattan and the host directing listeners to Christina's website for more information.   -------------------------------------------------------------- The perception of buying rent controlled properties (00:00:00) Larry Taylor's background and starting in real estate (00:01:11) The impact of regulatory environment on real estate business (00:04:53) The importance of performance certainty in property sales (00:12:14) Adapting portfolio strategy in response to changes in tax and securities laws (00:13:55) The benefits of real estate ownership and the government's support (00:16:17) The growth of investor base and potential for discounted properties (00:22:29) The vision of owning the best real estate (00:23:49) Contacting Christina (00:24:28) -------------------------------------------------------------- Connect with Larry:  Linkedin: https://www.linkedin.com/company/christinala/   https://www.linkedin.com/in/lawrence-taylor-7679479/   Web: https://christinala.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: Larry Taylor (00:00:00) - There's a perception amongst investors that buying rent controlled properties which have depressed rent rolls because those rents have not been allowed to go to market is a bad investment. And I say, oh no, no, no, that's a good investment. You're never going to have a vacancy. And the value can only go up because ultimately, no matter what, rents will rise because they have to rise.   Sam Wilson (00:00:25) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Larry Taylor is the founder and chief executive officer of Christina. He is a seasoned investor with over 48 years of real estate experience in the West Side region of Los Angeles. Larry, welcome to the show.   Larry Taylor (00:00:51) - Hello there. And how are you?   Sam Wilson (00:00:53) - I'm great sir. How are you today?   Larry Taylor (00:00:55) - I'm doing really great and I appreciate the opportunity to be on your show.   Sam Wilson (00:00:59) - The pleasure is all mine. Larry, there are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:06) - Can you tell me where did you start? Where are you now? And how did you get there?   Larry Taylor (00:01:11) - Uh, I am a self-made self-starter. Uh, started as a USC junior. I was a scholarship student. I formed the my first real estate company while I was a student. Uh, the premise of that was to buy real estate in the west side of Los Angeles during the, uh, Nixon wage and price level freeze. And, uh, today we're doing the same thing in the same location.   Sam Wilson (00:01:40) - Wow. Most people. I would assume. Maybe I'm wrong, but. You know, the strategy shift over the years or the asset classes or the type shift. I mean, doing the same thing and the same location for 48 years. It sounds like you guys have either, um, just gone really, really niche or I just found a gold mine and just don't want to leave it. What? What's the story there?   Larry Taylor (00:02:09) - Well, the West Side region of Los Angeles is like the Permian Basin.   Larry Taylor (00:02:14) - Basin? Basin is to oil. It's drilling oil on a proven field.   Sam Wilson (00:02:21) - Okay.   Larry Taylor (00:02:22) - It's fully it's fully developed. It's highly desirable. It is the best year round climate of the United States. Has the highest concentration of millionaires and billionaires in the world. It's the center of tourism center of an entertainment center of technology, two largest ports, and the two busiest ports in the United States. I could go on and on, but, um, uh, if you're drilling oil in a proven field, you're always going to hit oil, right?   Sam Wilson (00:02:50) - Right. I mean, you a lot of things have changed. I think maybe we maybe you said this off air. Maybe we said this, uh, at the beginning of this recording. I'm not not quite sure which one it was, but I think you said you guys formed your company in September of 1977.   Larry Taylor (00:03:06) - That's correct.   Sam Wilson (00:03:06) - A lot of things have changed in in your region, I would think in particular both socially regulatory wise. I mean, a lot of things have kind of come down the pipe that have have made, uh, a lot of people kind of steer away from California.   Sam Wilson (00:03:20) - I know you just mentioned at least ten reasons. I think right off the top of your head as to why what you're doing is, is, is the right time and the right place to be there. But kind of give us, if you can, some of the history of how some of the changes of have have, uh, come about and then how they've affected the way you guys have done business.   Larry Taylor (00:03:38) - Well, first of all, California is a huge state. Yeah, California, the the economy of California, if it was a separate country, would be the sixth largest economy in the world. Uh, there's a world of difference in California, where the northern part of California doesn't resemble the southern part. Um, it's a very, very huge area. And Los Angeles is a very, very huge geographical community. And so when people talk about California, you might as well be talking about southern South America, or you might as well just talk about Western Europe. I mean, California is a huge and diverse, uh, state, which is, you know, larger than most countries.   Larry Taylor (00:04:28) - And so when people talk about California, I don't know what they're talking about, because I can only talk to you about the hundred square miles of the west side of Los Angeles. I don't know anything about the rest of California.   Sam Wilson (00:04:41) - Got it. Very good. But can you. Can you give us a little insight maybe as to kind of the, the way the regulatory environment has shaped the way you guys do business, if it has it all.   Larry Taylor (00:04:53) - Well, of course it has. And its constantly regulations are constantly are constantly being enacted, reenacted, revised. Um, and and that's just not just Los Angeles or just California. It's the entire United States. So the regulatory environment is, you know, again, it creates opportunities. If you look at it strategically, it's the regulatory environment that creates opportunities rather than, uh, acts to, you know, uh, restrict opportunities.   Sam Wilson (00:05:34) - Can you give some insight?   Larry Taylor (00:05:36) - Sure. For example, a couple of years ago, California passed Assembly Bill 330, which ultimately became Assembly Bill uh, SB eight, which basically was designed to stimulate the creation of housing because the state of California is generally considered to be lacking of housing.   Larry Taylor (00:06:00) - So this was an idea that was passed by the state legislature to encourage housing and all the communities. And in California, however. There was an exception that was added very, very last minute to that bill which said, yes, we want to accelerate the ability to build housing by eliminating local restrictions or being able to expedite local over local restrictions. Unless what you're going to do is remove existing affordable, rent controlled housing, in which case, if you remove something that's already rent controlled or restricted in some fashion and you decide to build something on that site, you have to bring back that which you removed. At the same rent or less than what they were when you removed them. What that does is it takes away all of the incentive to remove existing rent control. So you can't really remove it. What happens is if it can't be removed, it can only become more valuable. So in a sense, what everybody's saying. Oh my God, oh my God, oh my God. This new regulation which was designed to stimulate housing, I'm saying, is all that did was it may stimulate the growth of housing in areas where there isn't already housing, but where there is protected housing, it is now protected from demolition into perpetuity, which means no more competition.   Larry Taylor (00:07:43) - So if you have a fully developed area and all of these properties are protected and nobody will ever come in and tear them down and build new, that which exists can only become more valuable because the demand exceeds the supply. So in that situation, regulation actually made a rent control property more valuable, which.   Sam Wilson (00:08:05) - I think entirely. I mean, that's that's all together. I mean, it's unique, you know, in the, in the just in the, in the concept itself. But let's assume maybe that you aren't the one holding those properties. How does that how how can that situation be made advantageous for an investor looking to get into that market?   Larry Taylor (00:08:27) - Well, it's advantageous because there's a perception amongst investors that buying rent controlled properties which have depressed rent rolls because those rents have not been allowed to go to market is a bad investment. And I say, oh no, no, no, that's a good investment. You're never going to have a vacancy. And the value can only go up because ultimately, no matter what, rents will rise because they have to rise.   Larry Taylor (00:08:56) - Period.   Sam Wilson (00:08:58) - Right. They have to. And is that is that what you guys are? Let me ask this a different way. What are you guys specifically focusing on then? Are you guys building new or are you buying existing assets like what's your what's your core focus?   Larry Taylor (00:09:11) - Our core focus is to buy existing. Properties from people that need to sell, not from people that want to sell. And we are not property specific. We are property agnostic, location specific. We like street retail, for example. That's been one of our primary property types that we focus on. We like pedestrian oriented street retail property. Uh, that's one of our hallmarks. We're not really specialists in any one particular property type, because rent is rent. Uh, space is space. Uh, doesn't really matter as long as you're buying in the right location. Location, location, location is going around is as a we've all grown up with location, location, location. They never said apartments, apartments, apartments only or they never said only the southern five states.   Larry Taylor (00:10:08) - Miami, uh, you know, Florida, Arizona. Texas, right? No, it's always been location, location, location. And there aren't that many locations in any one particular state or country, uh, that are investable. And what I mean by investible is where development is restricted. Demand exceeds supply and the entry barrier is very, very high. Those are the components that add to success in investing in real estate. There's very few places in the United States or any country that are investable, right? Period.   Sam Wilson (00:10:54) - That's wild, I love that. So you guys are. You guys are, um, you mentioned there you said asset kind of agnostic, and you want to find people that need to sell, not want to sell. Why are people needing to sell in today's environment?   Larry Taylor (00:11:10) - In any environment, there's always death. Okay. And, you know, for anybody that has a net worth of over 12 or 13 million, uh, they have to pay a state taxes. So if they have a portfolio of real estate, they have to sell the real estate to pay the estate tax.   Larry Taylor (00:11:31) - So death, divorce, bankruptcy, foreclosure, partnership disputes, there's always something like that happening, particularly in a vast environment like the hundred square miles of the West Side region in Los Angeles. There's always, I like to say, there's always someone dying.   Sam Wilson (00:11:49) - There is. There is.   Larry Taylor (00:11:52) - As long as it's not me.   Sam Wilson (00:11:54) - That's, uh. That's that's a good idea. I like that, yeah. So you I mean, in being market or, I guess, asset agnostic, how do you how do you effectively weed through the. I mean, there's got to be just a ton of property coming across your guys's desk. How do you weed through that and actually find the assets that are worth pursuing?   Larry Taylor (00:12:14) - Well, when you've been on the ground in the same location for nearly 50 years, they find you. Number one. If it's listed for sale, it's retail. We're not interested. Okay, so. But they find us. We have a long track record of performance. Certainty of performance to people.   Larry Taylor (00:12:36) - Who need to sell is more important than price.   Sam Wilson (00:12:42) - Can you clarify that?   Larry Taylor (00:12:44) - Yeah. If you need to pay your estate taxes nine months from the date of death, okay, you're going to be more focused on selling a property to somebody who definitely is going to be able to close and provide you with the money that you need to pay your taxes. Yeah. So, I mean, certainty of performance is what comes from companies that have track records within a given geographical location of performance.   Sam Wilson (00:13:14) - How have you how have you guys adjusted your portfolio over the years? I mean, I know, I know, you said, you know, the finding the assets that are it sounds like off market assets finding people that need to sell. You're not necessarily asset specific, but I would imagine I mean, you guys have gone through the savings and loan crisis. You've gone through the.com bust, you went through the GFC. I mean, you went through Covid. You guys have seen all sorts of of incredible market shifts.   Sam Wilson (00:13:43) - I mean, that's that's a wild ride to have gone through the last 50 years. How have you changed or repositioned your portfolio accordingly along the way, if at all?   Larry Taylor (00:13:55) - Well, we did change about ten years ago in response to changes in the tax law and changes in the securities law brought about by the, uh, Jobs Act. Um, it became very clear for real estate investors to be able to benefit from the tax treatment. They had to be able to own multiple properties because the depreciation and amortization, uh, deductions, which are non-cash deductions, which allows an owner of real property to actually earn a positive income. But after tax report a loss, those losses are suspended for most, uh, property owners, unless they own other properties that are producing income, which they can use to offset, they can use the losses to offset the income. So what we did was we formed private equity companies, and we said, we'll have one company that will buy ten properties, and we will allow our investors to invest in the company.   Larry Taylor (00:15:06) - By owning an interest in the company, they'll own an interest in ten properties. And then as properties are throwing off income, other properties are throwing off losses and therefore they'll be able to use the losses within the portfolio and not have to pay tax. So and then we set it up as a private equity company, because a private equity company basically says don't expect great results in the first, second, third, fourth, fifth, sixth year. Real estate is a long term. Most of our real estate partnerships when we were syndicators had a 30 year to 35 year term. Wow. So our private equity companies on average have a 30 year term. Now, if you're lucky enough to own great real estate, the smartest thing that you can do is having purchased it. The dumbest thing you can do as ever selling it. My only regret in the last 50 years is having ever sold anything. Wow. So the government rewards you to keep it, and the government penalizes you by taxation to sell it.   Larry Taylor (00:16:17) - So, you know, in the typical investor mind, which is different than the real estate mind, which is how much am I investing? How much am I going to get back? What's my cash flow? What am I going to get my money back? That works for stocks. That works for bonds. Maybe that works for businesses. Uh, works for a lot of things. It does not work for real estate. Hmhm real estate is buying the best property and the best location at the lowest possible price, and mining it for all of the tax benefits and the appreciation and value creation. Because the government rewards you by allowing you to continue to make money, build value and never pay tax. That's what makes real estate work.   Sam Wilson (00:17:06) - I love it that that's that that's extremely clear. I want to kind of circle back to your greatest regret. Is selling it comet and maybe tie that back into the 30 to plus year hold that you guys project on this. What type of investor gets in and how do you attract that investor? I mean, you know we've got a fund right now.   Sam Wilson (00:17:27) - It's an eight year fund. And people are like, oh, eight years. That's a long time. And I'm like, I don't I don't think it's that long. So obviously it sounds really short compared to what you just, uh, you just said it 30 plus years. How do you attract, attract capital that is looking at a 30 plus year hold?   Larry Taylor (00:17:46) - Well, there's all forms of capital throughout the world, and there's all forms of investors who have different strategies and different requirements. But ownership of real estate is something that's been around longer than human beings. And and so, I mean, real estate has been around longer. And once you own something and you extract value, for example, if you own a property that you purchased for X amount of dollars, call it a $10 million, right. And over a 20 year period, it becomes worth $35 million. And you originally invested 5 million and borrowed 5 million. And then over the first ten years, you earned $3 million in operating income.   Larry Taylor (00:18:33) - But in the 10th year, you had an opportunity to put a $15 million loan on the property, but you only paid ten and you only had five in, but you got three out. Now you have a loan for 15 million. You get three times or four times your money out tax free. And the interest that you pay is deductible at the property level as an operating expense. Now. Five more years go by, go down, and now the property is worth $30 million. And you have a financing opportunity to borrow $20 million. So you pay off your $15 million, put another $5 million in your pocket, and you still own the property. You still pay no tax. Then when you finally die and you have already set up your estate plan, that asset goes to your beneficiaries at a stepped up basis so that they pay little or no tax when they sell the property. You may have an estate tax issue, but in our structure, where you only own a portion with other investors in that in that private equity company, if you're transferring to your beneficiaries a percentage interest in, let's say, ten properties that are owned in this private equity company, the government allows you to apply a discounted value up to 35%.   Larry Taylor (00:19:57) - So let's say 15 years after you made an investment in one of our private equity companies and you invested 10 million, and now that 10 million is worth 20, right? You can leave it to your your beneficiaries that like 16. Okay, so real estate has been the greatest form of wealth creation. Ever. Okay. And I don't discount the stock market and I don't discount the S&P 500 and so on and so forth. But those investments do not offer the tax benefits that the government gives to real estate. And there's a reason for that because stimulating real estate stimulates the economy. So when government is always looking for ways to get people to invest in real estate because it is illiquid. You can wake up in the morning and sell a stock. You can wake up in the morning and sell a bond. You can wake up in the morning and sell out a mutual fund. You can't wake up in the morning and say, oh, I'm going to sell my building in 30 minutes. Okay. So again, but when the government stimulates real estate, it employs a lot of people.   Larry Taylor (00:21:08) - When there's construction, it puts together a lot of a lot of people are working architects, engineers, plumbers, electricians, carpet manufacturers, furniture makers. I'm saying is the way to stimulate an economy is always to stimulate real estate. And that's been going on in this country for the last 100 years. So real estate still is the most significant beneficiary of the government's largesse.   Sam Wilson (00:21:37) - Undoubtedly. Undoubtedly. Larry, I've got one. Uh, maybe two final questions here for you. I've certainly enjoyed your insights. Uh, I love your enthusiasm. What you bring to the table. I mean, you guys have done some really, really cool things, and I love just how you've hyper focused in one very, very specific part of the country there in the West side of Los Angeles. But maybe give me this insight if you can. What what's the favorite part of your business now and then? Where are you guys going?   Larry Taylor (00:22:07) - My favorite part of the business right now, of course, is growing. Christina real estate investors and opening up Christina Real Estate Investors to more and more participants across the United States because the Jobs act allows us now to market the opportunity to invest to in to people in 50 states.   Larry Taylor (00:22:29) - Right. Whereas before we were limited, very, very limited to just California. So that is very exciting. And the other thing that's exciting is, uh, as the Federal Reserve has raised interest rates 11 times consecutively in the last couple of years to rates that we haven't seen in more than 22 years. It's creating a lot of what I call finance stress on very, very good properties. And so we might start to see for the first time, we're starting to see some investors who bought in the last 20 years, or 15 or 10, particularly in the last five, that might be willing to throw in the towel, uh, because if they borrowed at three and they have to re borrow at seven, and the lender is saying, we need you to pay down the loan, they might be more willing to sell the property at a discount. So we're starting to see some pretty good properties become available at some very attractive prices. So between the growth of our investor base coming from 50 states and the potential to have that unlimited and the ability to buy great real estate, but like I said, staying within the hundred square miles of the West Side region of Los Angeles, it's a bigger location to bigger geographical area than Manhattan.   Larry Taylor (00:23:49) - And wouldn't you love to own Manhattan? Some of the biggest titans in real estate will tell you that they've made their greatest fortunes only owning real estate in Manhattan. So I mean, like, this is our our vision, which is, you know, own the best. Forget the rest.   Sam Wilson (00:24:06) - I love it, I love it, Larry, thank you for taking the time to come on the show today. I certainly appreciate it. I've enjoyed, uh, I've enjoyed having you and I've learned an absolute ton from you. I think what you guys have done, and something we'll continue to do is, uh, inspiring. So thank you very much for that. If our listeners want to get in touch with Christina, what is the best way to do that?   Larry Taylor (00:24:28) - Go on our website. It's very, very friendly. Uh, it'll immediately direct you to, uh, our company just by filling out a few things and giving us your information, and you'll get an immediate response.   Sam Wilson (00:24:40) - Fantastic. And for those of you who are just listening, that website is Christina.   Sam Wilson (00:24:44) - Christina la.com. That's Christina la.com. And Larry, thank you again for your time today. I do appreciate it.   Larry Taylor (00:24:54) - You're welcome. Thank you very much. I appreciate the opportunity. I hope your audience enjoyed it.   Sam Wilson (00:24:59) - Hey, thanks.   Sam Wilson (00:24:59) - 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 Jay Helms.   Jay Helms is a financial freedom achiever, a real estate investor living a nomadic slow-travel lifestyle with his family of 5, founder of the W2 Capitalist and Amazon #1 Best Selling Author.   Show summary:  In this podcast episode, Jay Helms emphasizes the importance of having "growth friends" who are also focused on real estate investing, and making daily calls to expand this network. He also discusses the evolution of his W-2 Capitalist community, which now includes a hard money lending solution. Jay highlights the importance of strong partnerships in real estate investing and shares his criteria for selecting partners.   -------------------------------------------------------------- The Growth Trends Exercise (00:03:33)   Changing Who You're Talking To (00:07:12)   The Impact of the Exercise (00:09:07)   The W-2 Capitalist Community (00:10:03)   The Importance of Consistent Networking (00:11:52)   Partner Criteria and Building Partnerships (00:16:43)   The W-2 Capitalist Community Growth (00:20:28)   Listening to Community Members' Needs (00:21:26)   Importance of Solid Partnerships (00:27:30) -------------------------------------------------------------- Connect with Jay:  Facebook: https://www.facebook.com/jay.helms1 Linkedin: https://www.linkedin.com/in/jayhelms/ Twitter: https://twitter.com/jay_helms YouTube: https://www.youtube.com/c/W2Capitalist Phone: 205-249-0248 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: Jay Helms (00:00:00) - So the easy trick to doubling or just growing your portfolio is changing who you're talking to. Now, I'm not saying that you should go out and tell your mom, hey. Or your, you know, your your brother or sister saying, hey, I'm not talking to you anymore, right? I'm not saying do that. I'm just saying take. Make two phone calls a day, right? Most people, if they're working a W2, they get a lunch hour. This is not going to take you 30 minutes to do. You're going to call somebody. You're going to talk to about those things that are where we're focused on growth.   Intro (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.   Sam Wilson (00:00:45) - Jay Helms is a financial freedom achiever, a real estate investor living a nomadic, slow travel lifestyle with his family and family of five. He's a founder of the W-2 capitalist, and he's an Amazon number one best selling author.   Sam Wilson (00:00:58) - Jay, welcome to the show.   Jay Helms (00:01:00) - Sam. Thank you. Man, that was. Man, I don't I don't want to say this wrong. This is going to come out wrong. But you got a voice for radio. I got to be careful not to say. Somebody told me once you got a face for radio, I think what it was, I was like, I.   Sam Wilson (00:01:13) - Probably got that too, man. You. You can hurt my feelings. It's all.   Jay Helms (00:01:16) - Good. It's awesome. Thank you for having me.   Sam Wilson (00:01:20) - Absolutely. The pleasure's mine. Jay. There are three questions. However. 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?   Jay Helms (00:01:30) - Yeah. So where I started, uh, like most people who I put in the sophomore level, we started with a single family. Uh, buy and hold, just one, one bedroom, one bath rental property my wife and I bought with a homemaker line of credit.   Jay Helms (00:01:43) - And we have scaled up from there. We've we've done almost anything and everything that does not involve wholesaling and flipping, although we've lived in a couple of living flips and burned a couple of properties. We've joint venture GG LPs. Uh, we're still in a lot of those deals together. That's kind of where we're going to stay, and that's in the small to medium sized multifamily space. And, uh, we've transitioned into lending and hard money lending. Um, and that's kind of where we're at today, even though we've got our portfolio, we've kind of focused on hopefully I see it as a graduation. So we're just, you know, we're lending to people, um, and we're earning a lot higher interest rates. We're not getting to tap into the equity, uh, unless someone a joint venture piece or a GP, uh, or LP deal, but with a lending piece, it's just it's so much more passive than, you know, other stuff. It's just it's incredible. But, uh, how we got there and we're going to talk about this is really through partnerships, right.   Jay Helms (00:02:43) - And getting to know folks and really, uh, learning some, some lessons along the way, uh, about what a great partnership would look like. And, and, uh, you know, I hate that old saying that the only ship doesn't sell as a partnership because it's simply not true. Um, doesn't mean you're going to have some rough seas. Possibly. But, uh, one of the things that I've figured out along the way is not only with investing, do you have to have investing criteria and stick to those investing criteria. You also have to have partnership criteria, and you got to stick to those partnership criteria when an opportunity presents itself.   Sam Wilson (00:03:17) - Man. That's great. That's absolutely great. There's a lot of questions I have probably about kind of that story that you told us, you know, from doing single family residents live in flips, uh, you know, small to medium sized multifamily. And there's a lot of management, I think that goes into that. Maybe we'll get to that partnership side of things.   Sam Wilson (00:03:33) - One of the things that, you know, you and I talked about obviously before, uh, kicking off this show was really talking about a growth trends exercise, which you kind of find is something that I think it's been instrumental in how you've gotten to where you are now. So before we cover those, you know, finer points in your story, maybe we can start there on that growth trends exercise and just tell our listeners what it is and how it applies to them in you.   Jay Helms (00:03:59) - Yeah. And so for clarity, let's give credit where credit is due. I did not create this. I stole this from Hal Elrod, who we, uh, most of us probably know is the author of the Miracle Morning, uh, series. And, uh, so how does this thing where, um, and I heard it from a third party. It doesn't matter where it heard from. I heard from somebody else. It wasn't strictly from Hal, but basically, you take out a piece of paper, right? It doesn't matter how big.   Jay Helms (00:04:24) - Eight and a half by 11. And you draw, uh, two columns on it, right? The left hand column, you're going to label this growth friends and the right hand column you're going to label as maintenance relationships. And I do this exercise with almost everybody who comes to me and says, Jay, I'm having trouble growing. I don't know what what's going on. I'm doing the things like all the all the stuff that people in the podcast say to do. I'm doing this things I'm not growing. But I bet you're not doing this. So here's, here's the exercise is you get out your phone. Right. You got your sheet of paper, you got growth friends and maintenance relationships. For this exercise we're going to label. We're going to define what those two categories are right. Um, growth friends are people who talk about investing in real estate, building wealth, having a better financial future for for yourself and your family. How do you how do you grow your net worth? You're you're talking about growth, right? And the things that are important to you, in this case, real estate investing.   Jay Helms (00:05:20) - Everybody else for the sake of this conversation falls into a maintenance relationship category. Okay? I don't care if it's your mom, your dad, your brother or sister. Everybody else falls into that maintenance relationship category. Okay? Now and I don't know where my phone is, but I was going to show it, like, grab your phone, right. Grab your phone, you scroll to your most recent phone calls. Right. And you're going to go through the top 25, maybe 30 most recent phone calls. And you're going to put folks based on those definitions we just talked about in one of those two columns. Just write down their first name or their initials basically. Once you've done that, now you're going to go to your text message. Because if you're like me, most of your most your conversations or a lot of your conversations are happening over text. Um, I was playing Halo with my son last night, and I'm getting a text from one of my partners. Hey, I found this 12 unit, and so my son and I, we're we're swapping the controller, we're taking turns in Halo and and, uh, while he's doing his turn, I'm sitting here trying to write a property on my phone, you know, as we're doing it.   Jay Helms (00:06:21) - And so. But go through your text messages and you do the same thing, right? Go for maybe the top 2530 text messages. If it's about growing your real estate portfolio, it's about building wealth. Uh, how to, you know, better secure your future financial future for your family. Then those folks or those messages that you're talking to are going to go in the Growth Friends column. Again, everybody else maintenance relationships, even if it's a funny meme that makes you laugh and it's entertainment, it's going to go into the Maintenance Relationships column. And here's what happens when I when I have this conversation with a lot of people. When we go through this exercise, we get to the end of that exercise and in there complaining about, hey, I haven't grown, I don't know what to do. And I was like, look, and you don't even show me your piece of paper. I know what it looks like. You're really heavy on maintenance relationships, right? Like you may have a handful of growth friends.   Jay Helms (00:07:12) - Everybody else is in maintenance relationships. Yep. Yes, that's exactly it. So the easy trick to doubling or just growing your portfolio is changing who you're talking to. Now, I'm not saying that you should go out and tell your mom hey. Or your, you know, your your brother or sister say, hey, I'm not talking to you anymore, right? I'm not saying do that. I'm just saying take. Make two phone calls a day, right? Most people, if they're working a W-2, they get a lunch hour. This is not going to take you 30 minutes to do. You're going to call somebody. You're going to talk to about those things that are where we're focused on growth. At the end of that phone call, you're going to ask them, hey, who else do you know that likes to talk about this stuff? Right? And you keep building it and you're just making two phone calls every day. Mhm. And you do that for six months and then you do that growth uh growth maintenance exercise again.   Jay Helms (00:08:09) - And it's going to be switched. It's going to flop and your portfolio is going to look different. Your mindset is going to be a lot different. And it's just it's amazing what that little exercise can do and that commitment to making those two phone calls a day. It's incredible.   Sam Wilson (00:08:25) - I love that that's that is brilliant. And it's it you. Of course, I'm sitting here thinking through it while you're talking about it. I'm like, man, I wonder. I mean, because because that even because even and I'm thinking through maybe the last 20 phone calls in my phone, it's I mean, it's everybody from, uh, lenders to distributors to I mean, the list just goes on, but none of those would be classified necessarily as great.   Jay Helms (00:08:52) - Yeah, yeah.   Sam Wilson (00:08:53) - Yeah, yeah. You're a supplier. Okay. That's still not a growth phone call. Yeah, it's work, but it's not like it's. It's a maintenance relationship. That's, uh. It is that's convicting because you got to look back at that and you go, oh, like, man, I need to work more on my growth.   Sam Wilson (00:09:07) - Uh, my growth, um, phone calls every day. So I love that. What what why was there? How was this impactful? May I ask a leading question here? You can be like, well, that's a stupid question, Sam, but like, how was this impactful for you? And obviously, you know, like you're saying this can have, you know, wild impacts for everyone else, but what did it do for you implementing this?   Jay Helms (00:09:27) - So the the reason why I started this W2 right is I fell into this category of I didn't grow up in a family of investors. I didn't have friends who were investors or didn't work with. A lot of people, um, didn't work with anybody who was investing, you know, investing in real estate. And we had bought a few. My wife and I, we had bought three properties and, uh, we're like, all right, we're on to something. We're seeing, you know, income come in. And I'm using passive and air quotes passively, even though we were self managing and um, like we're on to something.   Jay Helms (00:10:03) - But I just we've kind of tapped out our resources. Right. Like if we want to grow past this, I've got to get comfortable with partnering with folks. And how do I do that? So I started reaching out to folks and I started, you know, changing the conversation. And come to find out, there was a lot of people just like me who fell in the same boat, right? They didn't have friends or family who were interested in investing. Matter of fact, they looked at them like they were crazy, you know, like, uh, you know, and it was like, hey, let's start having these phone calls frequently, like, I want to talk to you, Jay. And I was like, I want to talk to you because I'm getting excited just having this conversation. And, uh, and so that just kind of kept steamrolling into what we now know as the W-2 capitalist community. And, you know, you're talking about I get challenged on this sometimes when I, when I ask people to go through this exercise, like, all right, let's go through your phone, mister.   Jay Helms (00:10:54) - You know, Mister hotshot, you know, like, I was like, all right, let's go through my phone. I have no problem. And I'll go through it. And it's like, mastermind member, community member, uh, banker, you know, and it's all these things. And I can go through every almost every one of the conversations is about, uh, growth and about how we can grow our portfolio. Matter of fact. So we're we're, um. Uh, we're recording this at 130. I got up around 630 this morning. Had about an hour to myself. I had about 30 minutes to lunch. And I've been. We homeschool our kids. Everybody's home. Um, and so I've had about 30 minutes of interacting with them as I go to the bathroom or whatever. Take a water break, whatever. And so there's there's a couple of hours where, uh, was that? About three hours or so since I got up roughly. And, and the rest of the time it's been on the phone with partners, it's been on with, uh, with, with other, uh, investors who are looking to grow and just, just constantly and I get more out of that.   Jay Helms (00:11:52) - And a lot of them don't understand this, but I get more out of folks when they call and complain and say, hey, I'm having trouble growing. You know, we kind of walk through it. I get more out of those conversations. They probably they probably do, and they don't understand that. But it's just regurgitating and reciprocating what we've learned in the past. And it's also serves as a reminder because. I started this process a long time ago and I drifted from it, right? Life got busy, I still had a W2 and we kind of get stuck in this spot where we're like, hmm. I'm not really growing. And it took a mastermind member who came in his and, uh, he was getting really excited. It had a lot of momentum. I was like, how do you what are you doing to get this momentum? What are you doing, man? I'm making two phone calls every day at lunch because it's something you taught me a couple of years ago. I was like, oh yeah, I did okay.   Jay Helms (00:12:39) - So I was like, so I drifted from it, right? And we all do that from time to time. And it was a good reminder that it really comes down to who you're talking to and who you're spending your time with. Now, I don't mean that. You know, you again, you don't you don't kick the family to the curb, but you just change your conversations that you're having.   Sam Wilson (00:12:58) - Yep. No, I love it. That's fantastic. Uh, fantastic insight. And it's it's it's. Easily implemented, but difficult to do. Is that the right way to say what?   Jay Helms (00:13:10) - Yeah. You're correct. It's the the discipline to do it. And even even today, like, I know uh, like I have time blocks on my calendars to make sure I connect with a certain amount of people a day. There are days when that reminder goes off. Hey, you got to make 2 or 3 phone calls. I'm like, ah, I'm just not feeling it. I'm not. I'm not feeling it.   Jay Helms (00:13:30) - And that some days I'll skip it and then some days I'm reminded of, um, this line from um, oh man, I can picture his face. Extreme ownership guy, Jocko willing. Uh, is that he's asked, you know, on days where you don't feel like going to work out, what do you do? And he goes, well, I go anyway because at least I'm going to go through the motions, you know? And and so I, um, I am not perfect in making my phone calls and doing my reach out, but I am consistent enough where it is producing an incredible result. Right? And incredible enough for me to come on here with such passion, energy to make sure your audience is doing the same thing, because it really is the key to to grow and otherwise, you know, rewind back to where we just had those three properties and we were. We were buying about one property every year, maybe. And, uh, there's no way we could have grown the way we have, um, with just because basically what we're doing is we're taking the, the, the earnings from those properties, putting them into an account, taking some savings from my W2, combining all that up till we had enough for another down payment, going and buying another one.   Jay Helms (00:14:42) - So it took us about a year right to do it. And um, and there's just there's just no way there's no way we would have been able to get to where we are doing that.   Sam Wilson (00:14:52) - Tell me about your business. Like what? What is your business look like today?   Jay Helms (00:14:56) - Yeah. So that's that's an open ended question. Right. So which business W2 Coppolas the real estate. Our portfolio. Like which which one.   Sam Wilson (00:15:04) - Whichever one you want to talk about or both.   Jay Helms (00:15:07) - Yeah. So um the our portfolio we've got a mix. We've got a little mix of, we've got my wife and I, we've got a fourplex ourselves. We got a short term rental ourself. Uh, and then the rest of the stuff we're in is through partnerships, either through joint ventures or limited partners. We're not a general partner on anything right now. Um, so joint ventures, limited partners. And then we also do some hard money lending on the side. Uh, and so all kind of real estate focused and then the W2 cap is what feeds a lot of that.   Jay Helms (00:15:41) - So a lot of our partnerships came from the W2 cap. Because back to that investing or partnership criteria is one of the things that I do is I've got to know you got to know you not for just six. You know, I use a rule of six months, and I can't remember if I read that in a book somewhere, or if it's like the SEC guideline for raising money or taking money from somebody, um, uh, to invest in one of your deals. I shouldn't say taken, but having a partner invest with you in your deal. But I use that rule for, you know, six months. Uh, I got to get to know somebody. And, um, it's just it's one of those things where it's not like, you know, Sam, you and I are going to have a phone call today. Six months from today. We have another phone call, and I checked that box. It's. That's not what I'm talking about. Right? You got to get to know, really know somebody and just helps me filter out a lot of folks from, um, uh, tactics essentially, because, like, like you probably your social media probably gets inundated with, hey, Sam, I got this deal.   Jay Helms (00:16:43) - I want to partner with you on it, you know, blah, blah, blah. And I'm like. And I said, hey, look, I'll take a look with you. Uh, but you just you need to know I have this rule. I got to get to know you before I'm going to partner with you. Um, and nine times out of ten, here's how the conversation goes. It's like. Absolutely, I respect that. We'd love your feedback on this. And I was like, great, let's schedule a call. Just want to reconfirm, you know, I'm not looking to partner, but I'll take a look at this and and poke holes in what you may be thinking, like you asked me to. And nine times out of ten, that's the end of the conversation. There's no follow up from them. Um, they tell me they're okay with that guideline that I've given them, and they just. They don't do it. Uh, the ones that do, uh, we've had a really solid run, right? They they ultimately end up joining the deputy capitalist community because they know there are other investors in there like me.   Jay Helms (00:17:38) - And there's just been so much wealth and so many partnerships have been developed through that. It's just incredible. So it's kind of this whole circle. It's it's it's where the earn invest repeat tagline comes from. Right?   Intro (00:17:51) - Right, right.   Sam Wilson (00:17:53) - Now that makes sense. So if I, if I get the picture correctly, you're the proceeds from what you guys do in the W-2 capitalist. You then feed that back into your current real estate business. How did you start? Tell me about the W2 capitalist community, how you started it. Like how did you get that off the ground? Because that's kind of I mean, it seems like a massive undertaking.   Sam Wilson (00:18:17) - And.   Jay Helms (00:18:17) - It is. And, you know, we have three kids who are nine, six and four. And so when we launched that, it was just a little over five years ago, um, you know, so they were were three and I can't even do the math. Right. Three one and not maybe not even on the way yet.   Sam Wilson (00:18:36) - And, um, years ago, would you say that was.   Jay Helms (00:18:39) - Five years ago?   Sam Wilson (00:18:40) - Got it. Okay.   Jay Helms (00:18:41) - So. So, yeah. For for one and not on the way yet. And, um, we started with one. It was me and a couple of guys we started. It was one phone call week. We did it over zoom, and I think we originally connected on, um. Some Facebook group. Matter of fact. And so and it really just started from there and it was just, hey, let's get together, let's talk. There's no agenda. You know, um, I kind of found myself in the space. I know what we were. We were pregnant with number three in. My wife had had some complications along the way with each of them. And so we had a local ria. Um, I don't like going to in-person meetings. I'm growing it. Being an entrepreneur has pushed me out of my introverted personality. It's pushing me out of that. But, you know, five years ago, I didn't want to be in a room full of people I didn't know.   Jay Helms (00:19:38) - And and so, um, the good thing is I've been working from home for about a decade prior to that. Right? So I was extremely comfortable. I was zooming before zooming was was cool. And I know that ages me, but I'm okay with that. Um, but it was, you know, it's one of those things where I was like, all right, I had joined a virtual mastermind. It wasn't dealing with investing. It was more of a how to become a better father and how to be, you know, a better husband kind of thing. And, uh, because I was new at it, you know, new husband, new father. I was like, we got another one on the way. What do I got to do to to to do this right. Had a lot of perfectionism in me at that point in time. And, uh, and so I joined this group and they were already doing it. And a lot of what I did, I just mimicked off of what they were doing, um, and just kind of created my own.   Jay Helms (00:20:28) - So but it was a massive undertaking. It started with one phone call a week is on Tuesday nights that went for about an hour, an hour and a half, uh, sometimes. And now we're up to over 20 calls a month, uh, that sometimes go to three hours, uh, with I think we've got 60 members at the moment and, uh, it's it's incredible. We focus a lot on the various niches. Most of it is buy and hold and, um, and that's. Yeah, it has it's taken. It didn't happen overnight.   Sam Wilson (00:21:03) - Right. No, I can't, I can't imagine that, uh, that it did. And I think you know what you've done. It sounds very organic, though, in its own right. Yeah, it kind of just. I mean, we, like you set out to build it this way.   Jay Helms (00:21:17) - It didn't. And, you know, one of the things, um, you know, the heart I mentioned hard money lending that came out of listening to members in the community.   Jay Helms (00:21:26) - So, um, two years ago, I started, I kept hearing, you know, we had members in our community. They didn't know how to navigate hard money. They didn't know they didn't have connections to private money. And quite frankly, I didn't either. I've never used either one of them. And, and but I just kept hearing folks like, man, I got this really good deal. Like, all right, let's let's underwrite, let's see how good this deal is. And we'd underwrite together. I was like. Are you sure that's. That's a good deal, you know. And so and so many deals would fall through because they couldn't find short term financing for them. Right. And so after about a year of hearing that, um, well, I'd say after about six months of hearing that, I set out to, okay, let's bring a hard money solution to the community. And, um, about six months later, launched it with a few guys who were among the original founders in the community.   Jay Helms (00:22:19) - So I've gotten to know these guys, you know, by this time for years. And, um, and, and we just we just passed. We incorporated in June of 22, did our first loan in September of 22. And this past September, you know, at our our year anniversary mark, with past 4 million in loan originations for fixed and flippers. So it's it's just it's just a constant kind of art listening to those folks. What do you need? All right, let's go out and find it or let's figure it out right now. Uh, what we can do for that. So it's it has grown a lot more organically. We've spent I've spent a lot of money on ads, and it just never works. And so I've completely abandoned that for now.   Sam Wilson (00:23:04) - Right, right. It's funny. Funny you say that. I've got a, uh. Yeah. We're back. When we were doing single family and doing a lot of fixing flip. There's a guy here in Memphis that I borrowed, you know, quite a bit of money from.   Sam Wilson (00:23:15) - We always tell me he's like, don't tell anybody that I do hard money lending. That was kind of his thing. He's like, I loan to you in about five other people and otherwise keep it quiet. I'm like.   Jay Helms (00:23:23) - Yeah.   Sam Wilson (00:23:24) - I'll do that. So, you know, it kind of. But at the same, at the same token, I think you know, when you're when you're in the hard money lending space, like you really have to know who you're working with and. Yeah, yeah. Which is funny because I went back to him here recently for something that, uh, we had, like you said, you know, very short term, like 90 day, 90 day deals. And it was like, I need money. That's really short term. The price is kind of irrelevant. So I went back to him and said, hey, man, you know, let's let's look at this. He's like, yeah, absolutely. So it's helpful. I mean, incredibly helpful when you have opportunities like that, you just can't pass up.   Sam Wilson (00:23:57) - Like, you know, there's quick, quick turns on stuff that has huge upside. You might as well, uh, take advantage of it. So that's really cool. J we're about out of time here. But I do have one, you know, as you've, as you've done all these different things, as you've done the, you know, the variety of real estate investments as you've grown your W-2 capitalist, what are some things maybe over your real estate investing career or otherwise, if you wish to share on that front that maybe you would do differently? That was, you know, some things you said, man, this was either a misstep or something. I had to learn the lesson the hard way.   Jay Helms (00:24:28) - Yeah. So, you know, while we're called the W2, it was because I had a W2, right. And I was, I was whatever wages we were living off that and then um taking part of our savings and whatnot investing um, you know I would encourage and I got laid off during Covid, right.   Jay Helms (00:24:46) - I was running the sales team and we got I got laid off. And at that moment I just it was the most fearful but best kick in the pants I ever received. And I envy people who can make that decision on their own. Right. And it takes you know, it took me a while, like I got the call from my boss, and, you know, I'm. I'm sweating bullets over here. Got cold sweat. I finally collect myself. I got my wife because that time we had.   Sam Wilson (00:25:12) - A.   Jay Helms (00:25:13) - Five, three and a one year old. Right. And I'm like. All right. And so I go to her and I tell her, hey, there's this guy, here's what's going on. And she says, great, now we can go travel like we've been wanting to do. And I'm like, time out. Like I gotta absorb, you know, the six figure income that just evaporated. Like, we gotta we gotta figure out what we're doing here. And.   Jay Helms (00:25:37) - And so it took her, like, really planting that in me and saying, and you know, and it took me about a year to warm up the idea and to realize, okay, we're going to be okay financially. Like, I, you know, I'm um, um, getting outside of my comfort zone doing, you know, traveling, getting out of being a homebody. It's it's really, you know, and I say all that to say it took her and her her, um. She's so solid in her, the way she views things and whatnot, and I'm extremely lucky to have her. And that, you know, I look at her as my best and most valuable partner. One of the things that frustrates me about her, though, is, is I'll be grinding on an issue for like weeks. And I'll go to her and explain it to her. And like instantly she gives me the most brilliant answer. I'm learning like that time period to go to shortening, but I have trouble asking for help, like, I guess most men.   Jay Helms (00:26:34) - But, um, you know, the thing that I would say is who whoever's listening to this is your partnership is not only with your spouse, but with, you know, potential real estate partners has to be solid, right? It has to be solid. There's no need to rush into a deal. Don't get hyped up or get caught up in the hype of how amazing a, um, a return is going to be. And there's a lot of people right now that I talked to who, when they sit down and they absorb kind of how they got in the situation they're at, they're like, I rushed into it. I didn't really know this person a lot. And I'm not just talking about marriage, but I'm talking about, um, investing as well. And so, um, so yeah, I would, you know, focus on creating that partnership criteria. Um, and here's just to kind of give you some guidelines on what mine looks like is a, uh, you've had to do at least one deal before of some, you know, certain size.   Jay Helms (00:27:30) - Uh, I've got to know you for six months. And kind of the kicker amongst all that is, uh, you can't be divorced more than twice. Um, uh, I believe that everybody has, you know, the right to make a mistake and to correct that mistake or whatnot. But if you're on your third spouse, right, there's there's one of two things are happening. Number one, either a, you don't know how to treat people or B, you don't really you don't know how to make important decisions.   Sam Wilson (00:27:58) - Yeah.   Jay Helms (00:27:58) - And and there's plenty of other people I can partner with. And I know those are my criteria. And I know that there's probably going to make a couple of people mad, but, um, I want to provide that as a guideline. You know, as you're sitting down thinking about your partnership criteria and what that should look for, you know, it could be very, very similar, uh, or something along those lines.   Sam Wilson (00:28:19) - I love it, man. And that's, that's hard truth right there that you're sharing.   Sam Wilson (00:28:23) - And so, you know, if you're listening to this and you just got, you just got, uh, got upset by that statement, you know what? It's it's reality. And sometimes, you know, hard truths or they just are what they are. They got to speak for themselves. I had a friend of the family growing up and and this is he always told me, he said, Sam, if you want to, uh, really know somebody, he said, look at the way they treat these three things. He said, look at how they treat food. Look at how they treat sex, and look at how they treat money. And he goes, and once you have a, you know, a clear picture on those three things, you pretty much know the man.   Sam Wilson (00:28:56) - That's good. That's I like it. Interesting food, sex and money.   Sam Wilson (00:29:00) - Just look at those. Yeah I'm like.   Sam Wilson (00:29:02) - All right, what is.   Jay Helms (00:29:04) - Which is almost all of, uh, Maslow's hierarchy of needs, or at least the baseline.   Jay Helms (00:29:09) - Right. That's that's interesting.   Sam Wilson (00:29:11) - Anyway, yeah. So it was it was an equal equally as like, you know, the statement you had to think about for me like, okay, Morton divorce. Yeah. Well, I guess that makes sense because. Yeah. Anyway, on all that front, that's a good time. I've really enjoyed you coming on the show today. Certainly appreciate your insights. And, uh, what you shared with us today. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Jay Helms (00:29:32) - So the best way to do it, I, I offer my cell phone. Now, this is this is my phone number. And so if anybody because very few people take me up on it and the ones who do, uh, I think enjoy it or whatnot, but just text me, don't call me because I have my phone set up that if you're not stored in my contacts, you're going to go directly to voicemail and it's probably full.   Jay Helms (00:29:52) - So just text me and it's (205) 249-0248.   Sam Wilson (00:29:57) - Perfect. We'll include that there in the show notes. Jay, thank you again for coming on the show today. I certainly appreciate it.   Jay Helms (00:30:03) - Thanks for having me, Sam.   Sam Wilson (00:30:04) - 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.

Today's guest is Matt McLennan.   Matt is an industrial CRE broker in the PNW with multiple running years top producer status and specific knowledge of IOS marketplace.   Show summary: In this episode Matt McLennan explains the benefits of IOS, its impact on the industrial market, and how it is influenced by port activity. He also discusses the challenges in valuing IOS sites due to lack of data and the importance of local market knowledge. Despite current market uncertainties, McLennan sees opportunities for investors in IOS properties. -------------------------------------------------------------- The Industrial CRE Market and Tenant Base (00:00:00)   Matt McLennan's Background and Career Journey (00:01:00)   The Current State of the Commercial Real Estate Market (00:02:18)   The rise of industrial outdoor storage (00:09:05)   Size and value of IOS properties (00:11:10)   Market research challenges for IOS (00:14:14)   Tech advancements in industrial outside storage (00:18:23)   Impact of port activity on industrial outside storage  (00:19:32)   Uncertainty of cap rates in industrial outside storage (00:21:34) -------------------------------------------------------------- Connect with Matt:  Linkedin: https://www.linkedin.com/in/mattmclennan/ IG: @mattm.cre Twitter: @MattmCRE TikTok: @mattm.cre   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: Matt McLennan (00:00:00) - Think of iOS as things that need to be stored over time, but don't necessarily need to be under a roof. And that's that can be trucks, that can be containers, that can be metal piping, that can be your plumbing contractors, 30 fleet vehicles that he needs to park somewhere. Um, all that stuff. That's kind of part of doing business and all these other sectors. But iOS is attractive, especially for call it the tenant base, because, you know, paying for space under roof is exponentially more expensive than paying for just, you know, a gravel lot. Welcome to the how to scale commercial real estate show.   Sam Wilson (00:00:36) - 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 (00:00:45) - Matt McLennan is an industrial CRE broker in the Pacific Northwest. He has multiple running years as a top producer status and has specific knowledge of the EOS marketplace. Matt, welcome to the show.   Matt McLennan (00:00:58) - Thanks for having me, Sam. Glad to be here.   Sam Wilson (00:01:00) - Absolutely, man. The pleasure's mine. Matt. 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?   Matt McLennan (00:01:09) - I started falling into commercial real estate by happenstance. Hung out with some buddies. I was working a different career and they they talked me into coming here. So I showed up, didn't know what to do or how to do it, but I just cut my teeth and started, you know, working as hard as I could to figure it out. Uh, fast forward to today. It's been seven years, and, uh, things are going great. I'm still learning a ton, but feel like I've got a good knowledge base under myself. Great client base. It's an awesome industry and things have been really good so far. So just trying to keep that train running and and looking ahead really, it's it's continuing to take care of my clients, build the book of business and keep up with this market.   Matt McLennan (00:01:46) - I mean, it's been changing a lot. So that's, uh, that alone will keep you busy.   Sam Wilson (00:01:50) - Absolutely. You are coming off the tail end of a bull run there in space. So tell me where we are today. For those of you who are listening for recording this on November 7th, 2023. So when this airs, it might be 60 days later. And hopefully things don't change that dramatically in 60 days. But you never know. So just to get a time stamp on this here, but tell me, uh, you know, tell me about I guess maybe you can go back and give me the seven year run up to the day.   Matt McLennan (00:02:18) - I started in 2017, and we were already on the call it upwards inflection curve when I started. So admittedly, all I've ever really known is a good market. Um, the old guys in my office and industry loved to remind me of that. And with that in mind, though, I mean, things are changing, right? And I think anybody who's been paying attention, you can pinpoint exactly when that change came.   Matt McLennan (00:02:39) - And it was that first interest rate hike back in early 2022. So we've been in this new environment for the better part of call it 18 ish months. And what does that environment look like today? Um, keep in mind I work specifically on industrial commercial properties, albeit I keep a good pulse on the entire commercial real estate industry. As an industry, all things considered, I think we're actually in pretty good position. The only one I could sit here and knock would probably be office space, you know, large high rise offices and a lot of the metros and core markets. But setting office aside for a minute because that's a whole nother conversation. Most of the product types are doing pretty well. Leasing activity is generally healthy. It might be down here and there. I feel like it's down a little bit in the Puget Sound region where I'm at. Um, values are questionable. And why I say questionable is with the new cost of money via these rising interest rates, everyone's trying to figure out how to make investments, particularly pencil.   Matt McLennan (00:03:39) - And that's really hard to do right now when we're in this changing environment. So we've seen transaction volume fall pretty dramatically. And so and cap rates are a big question mark, which is another, you know, typical measurement of investment performance. Right. And so we're kind of just in this flux time at the moment where everyone's sitting a little bit on the sidelines. It's still very interested and eager to participate in the market. Not sure how to participate in the market. So I'm spending a ton of my time educating my clients and trying to give them some of those kind of what I'm seeing at the ground level and some advice. But really, put very simply, at this date, you know, in November of 23, we're all just kind of sitting, sitting and watching and seeing how this whole thing is going to play out. Right?   Sam Wilson (00:04:19) - Absolutely. Yeah. It's uh, certainly I've seen a lot of capital sit on the sidelines as well. So you just it's it's kind of a wait and see game.   Sam Wilson (00:04:26) - I was even having a conversation with somebody yesterday and they said the same thing. They're like, well, we're just selling stuff off and really going to sit and watch and just kind of, you know, see what happens. So that's that presents an interesting opportunity, though, does it not for those that want to participate in the market right now and if so, big time that.   Matt McLennan (00:04:43) - We were talking about this this morning. Actually, it's a good timing for your question. Debt has been the driver of all investments. If we're talking investments specifically, right? I mean, we all have our performers and and it's it's I want to say it's not simple, but it's not overly complicated to figure out if something's a good investment or not. Right. Based on your, your underlying investment criteria. But that's the big question mark. Right. And so what I'm looking at right now is there's a lot of properties that I believe based on that are being evaluated on current debt or the ability to go get future debt on that.   Matt McLennan (00:05:18) - And that's driving the value down. For example, the office building that I'm sitting in today, it's one of the better performing office buildings in our downtown market. I think if it were to sell today, if they needed to sell today, it would sell below replacement costs. And it's a great building. And but part of the problem with that is the appetite to invest in a downtown core office building. I mean, sounds scary, right? And and banks think it's scary, um, big, you know, call the biggest investors life insurance, pension funds. They think it's scary because no one knows what the future of office really looks like at this point. So but for those who have a plan and kind of have foresight, I think, into the future, I think there's going to be some fantastic opportunities to pick up property below. Realized value. Value is always measured at the point in time. Right. And and so you could argue that you're paying today's value for said property. But I think things are going to appreciate if you can pick up some of these, these properties now at kind of what I think is current or under realized value, I think appreciation in the future is going to be pretty good.   Sam Wilson (00:06:24) - It is. And it's interesting, I think about this a lot. And again, I don't have like the data in front of me to to substantiate this claim. But certainly real estate in the 60s and 70s was a lot cheaper maybe than what real estate is today. And it's like, you know, and of course, you know, most of us don't have a 60 year time horizon for an investment to become a, you know, to become meaningful. But it still just kind of proves your point where it's like, hey, you know what? If you can buy today? And I also think part of this is, is the, you know, the inflation of the dollar. Like, if you're able to borrow today in dollars and repay and dimes over the next 25 years, I mean, I don't think anybody's predicting that the dollar is just going to have some miraculous bull run in value in the near term or even long term future. So sure. Anyway, that's a it's but that's kind of obviously theoretical.   Sam Wilson (00:07:12) - And, and uh, you need to have just a little bit more, um, courage probably now to, uh, get out there and keep acquiring. So yeah, I like that. I really like that. That's let's talk a little bit, um, the types of industrial. This is a question I had for you, and it's kind of a loaded question because again, here in Memphis, industrial is incredibly hot. But I had lunch with two industrial brokers last week, and we were just talking about the types that are leasing. I want to hear what it's like in your neck of the woods, the type of type of stuff that is still, uh, highly in demand.   Matt McLennan (00:07:43) - Yeah. So the Puget Sound market is comprised primarily. If you look anywhere on the map, everyone thinks of us as Seattle and Seattle specifically. We have two ports here. It's the Port of Seattle and then the Port of Tacoma. Tacoma is a sister city to Seattle, about 35 miles south. And a lot of our industrial activity happens between those two ports.   Matt McLennan (00:08:01) - And because we're a port driven market, uh, we're a heavy distribution market. So think containers coming in overseas, those containers are getting picked up the ports, they're going to these warehouses. The product is coming into the warehouse being stored eventually, then go elsewhere, whether that's local or anywhere else in the country. So we're a heavy distribution market. We have a pretty good manufacturing presence as well. Um, Boeing has always been probably one of our top, one of our top employers up here in Washington state. And consequently, I mean, they have a huge manufacturing base. And then there's a lot of those subcontractors of Boeing that also occupy space and have manufacturing jobs. So I'd say we're distribution first, manufacturing second, uh, one sector that I spent a lot of time in is, is what we commonly referred to these days as EOS, which stands for Industrial Outside storage. iOS is basically a derivative of port activity, probably at its at its finest. And really what that means is it's think of iOS as things that need to be stored over time, but don't necessarily need to be under a roof.   Matt McLennan (00:09:05) - Right. And that's that can be trucks, that can be containers, that can be metal piping, that can be your plumbing contractors, 30 fleet vehicles that he needs to park somewhere. Um, all that stuff. That's kind of part of doing business and all these other sectors. But iOS is attractive, especially for call it the tenant base, because, you know, paying for space under roof is exponentially more expensive than paying for just, you know, a gravel lot. And consequently, the investor base called at the institutional level the again, the pension funds, the life insurance companies, the REITs, they've started to take notice of this iOS sector, which has been really interesting to watch. Because it's almost funny because iOS is not new. I mean, there's always been semi-trucks have always needed a place to park. Containers have always needed a place to live outside of the port. Um, but what the investment market figured out, and I've taken advantage of this a little bit personally, too, is that owning these iOS sites, the barrier to entry is relatively low because you're kind of paying land value or slightly above land value.   Matt McLennan (00:10:05) - If there's some improvements, the maintenance a.k.a the money that goes into tending the property pretty minimal. I mean, a lot of them, it's fencing, gravel, lighting. Maybe you have a small building on there that you need to maintain, but it's not like going and buying a piece of land and building a new concrete, you know, tilt warehouse. That's pretty exorbitantly expensive. Um, so a lot of people and then meanwhile, the rents have gone up pretty dramatically because tenants need this space and the institutional money has come in and driven rates up as it typically does. So in any event, that's that's been really interesting. But I think if you pegged to answer your question simpler, Seattle's market, it's it's distribution tenants. It's manufacturing tenants and it's iOS groups. That's that's kind of the meat and potatoes of our market.   Sam Wilson (00:10:48) - iOS. This is a fun conversation. I've got many, many questions on this. So yeah, I mean how do you let's let's start with the size of properties that were typically seeing people use this for maybe maybe we'll start there.   Sam Wilson (00:11:01) - And then I got two questions on how you value these. Um, you know where they're located, like you said, maintenance I got. Yeah. So let's start on size and how you value them.   Matt McLennan (00:11:10) - Size is probably it can vary quite a bit. Um, I'd say the sweet spot is kind of 1 to 5 acres. That's where let's use the 8020 rule. Probably 80% of the tenants live in that 1 to 5 acre space. And and frankly, leaning towards the smaller side. Um, but part of that smaller side has to do with where rental rates have gone. And, and so tenants can't afford these huge yards. There are a lot of them that want to lease, you know, these mega yards think like the big the the Walmarts, the masks, the use and logistics, the targets of the world to have just huge fleets of vehicles and trucks and all that. I mean, they need the big yards and they're happy to pay for it. Um, but if but then at your most basic sense, the, you know, Joe's plumbing down the street that needs a little office, a little maintenance shop and somewhere to park their 30 vehicles that they go to show it, you know, that their service guy shows up to your house and fixes your toilet at home, right? So how do you value these? Um, location wise is a big one, and a lot of times depending if it's if it's a port driven activity, they obviously want to be near the ports.   Matt McLennan (00:12:18) - The other one would be close to population centers, because if you're Joe's Plumbing, for example, you know, you want you don't you don't want to be way out in the boonies where it takes your service guys an hour to drive to any of your customers you're facing. So location is a huge driver, probably the number one driver in price. And then I'd say the the biggest one is the utility that the yard provides. And what I mean by that is. Quality and really buildings, I would say, because a lot of these yards in their most simplest form and we iOS, I usually use the term yard to describe it. That's that's another phrase we use. A lot of these yards can be very simple. It can be literally a square lot with a fence around it. And it's gravel, no buildings, no utilities, nothing. And for some guys, that's all they need. But there's a lot of guys that have staff that need at least some kind of, you know, small, even if it's just a simple Job Shack trailer all the way up to a full on office space.   Matt McLennan (00:13:13) - They need a building to set up a desk and occupy, right? They need a bathroom, right? At the end of the day, if you're gonna have people working on this site and you don't have a restroom and it's just a gravel lot, all that yard, really, the utility it provides is just somewhere to park stuff or lay down material all the way up to a lot of groups. Want at least a small warehouse building like a shop, is what we'd commonly referred to as something that you could go do some basic maintenance, store some parts in, store some goods in all the above. So as you start adding these things to these iOS sites, they start, in my opinion, gathering a lot more value. They command more rent, they lease faster. And that's that's been a trend amongst the market as of late. So it's it's it's really location utility. That's that's what's driving the equation.   Sam Wilson (00:13:58) - Okay. So how do you how well that's just some uh, how do you do market research for that.   Sam Wilson (00:14:02) - Like how do you and obviously you said location is important, but how do you even begin to determine who the tenant type would be. And if they want to come to your yard?   Matt McLennan (00:14:14) - The simple answer is you call me. But no jokes aside, actually, I make that joke because there really isn't a formula for it. I mean, it's it's a property sector. I mean, you go, you pick any of the big research firms, CoStar, CBRE, you know, whatever it is, right? I mean, they capture infinite amounts of data on industrial markets, apartment markets, vacancy rates, absorption, um, anything. Right. No one's doing that for iOS. And it's and it's particularly because it's been kind of a forgotten quote unquote. I mean, I legitimately think you could call it an asset class these days, but it's still it's in its infancy, so there isn't a ton of data on it. Tracking it is difficult. So really, for me, doing a lot of iOS work in my market, it's it's it's up to me.   Matt McLennan (00:15:00) - It's it's putting my boots on the ground, researching zoning codes, tracking down lease comparables. What are what are what's land trading for? What can you do on that land? What utility is it provide? Like I mentioned, I have a checklist that I use. They kind of helps me work with my clients to determine what those values are. Um, so I've kind of come up with a little bit of a proprietary method to doing it, but that but that's really what it is, is it's it's still very subjective.   Sam Wilson (00:15:26) - Right. Yeah. That's, that is that is interesting. So you really need to find somebody, you know, if you're not looking to invest in the Pacific Northwest, you need to find somebody that knows a local market that can tell you. Yes, because I can only imagine that you're like, oh, hey, you know, you know, somebody like me that doesn't know it, you're gonna go, that looks like an amazing spot for this. And it could be just two miles in the wrong direction.   Sam Wilson (00:15:47) - Yep. Exactly. And you have a you now have a you're proud owner of a lot that's worthless. So that that's cool. What about access? I know you mentioned this a little bit. Like how how are people automating access to it. Because you don't want somebody out there lock and unlock it a gate if you even have a gate. But what's that look like?   Matt McLennan (00:16:04) - Yeah. It depends. I mean, it's it's probably not as complicated as you would think on the surface. I mean, a lot of people have keycard systems or I mean, really it's it's secured fencing that's kind of checkbox number one. And then is it automated entries. Do you have a guard shack that somebody sits there 24 over seven seeing who comes in and out? Or do you just give the key employees, you know, a key to the padlock and do you leave it open from 9 to 5 Monday through Friday and just assume that everything's going to be okay? I mean, frankly, it's it's usually more simple than you would think.   Sam Wilson (00:16:35) - Interesting. And what about I mean, I would think that you aren't necessarily especially I'm picturing, you know, 20 bucks trucks, ten semi-trailers, whatever it is, you're not necessarily leasing to just one entity or one firm if the lot's big enough, is that typically the way that works? Uh, and if so, you know, how how do you do that?   Matt McLennan (00:16:55) - Great question. It varies a little bit. I'd say more often than not, you're leasing to one operator. As an owner of some of these sites, I want at least one operator, because trying to have 30 different semi truck tenants on my property and manage that is a nightmare. But I've personally leased space to the one operator who then sub leases to those 30 groups, and he manages that component. So he he's basically running call it a side business where he's leasing my property, paying me rent, then he's collecting rent from all of, you know, his his 30 Co businesses in town. And he he makes additional profit off of you know what I'm theoretically charging him.   Matt McLennan (00:17:34) - So it's good for me and that I only have to deal with one guy. I get a rent that I'm happy. It's great for him because he can upcharge and make more money off breaking it down to, you know, call it the single parking spot, which is something I have no interest in doing. I'll take the hit on the income to not have to manage that. So we see both.   Sam Wilson (00:17:51) - Oh, absolutely. So so there's even property management companies out there. It sounds like I mean, that's exactly what you're dealing with.   Matt McLennan (00:17:57) - To a degree. I mean, since it's still in its infancy there, you would never if you tried to Google, you know, iOS property management. I actually I should take that back. I should really take that back because there have been a couple companies that are making a business of this where they will go master lease a site and, and then do exactly what I just talked about and, and I mean, there's ones that have apps now on your phone where a truck driver could be, you know, in another state that he's not in, he doesn't know it.   Matt McLennan (00:18:23) - And he needs, you know, it's ready to he's he's ready to call it a day. And he needs somewhere to park his truck and just sleep for 12 hours before he continues on his route, pulls up the app, sees within, you know, whatever mile radius, what's available and what the cost is per night, which is probably a supply and demand model. And it's based on an algorithm these days because everything is, you know, tech and fancy. And, uh, and then he, he can book a spot, go show up there. Park, you know, gets gets the key code access or whatever it is, goes into the facility. Parks, comes back out the next day and goes on his way. I mean, we're we're getting to that level of sophistication that hasn't been there until recently. Before that, it could just be, you know, your local mom and pop guy just kind of leasing it out to all of his buddies. But we're getting there.   Sam Wilson (00:19:04) - That is really cool.   Sam Wilson (00:19:05) - I love that it's, um, yeah, it's another take on the parking market in its own right. It's just a little bit a little bit different. And you call that iOS? Or industrial outside storage.   Matt McLennan (00:19:16) - That's it.   Sam Wilson (00:19:17) - Okay, cool. Well, we'll keep our eyes on that front. Uh, do you think one last question. Maybe on this. Do you think that. Property type will move in tandem with how industrial is performing overall.   Matt McLennan (00:19:32) - I think generally speaking, yes. I mean, I would argue right now it's probably being impacted more than the general industrial class, and at least in my market specifically because iOS is so tied to port activity. And if you look across the country right now, port activity to use, um, 20 or 20 foot equivalent units, that's how you measure. Um, that 20 foot container comes into the port ports, measure their volumes and everything based on TEUs. And so if you look at TEUs across pretty much every major port, which is a lot of the West Coast ports, a lot of the northeast ports, the ports on the southeast, um, everybody's down year over year, plus or -15 to 20%, which is a pretty big swing.   Matt McLennan (00:20:14) - And so consequently, freight volumes are down. The probably the number one tenant of iOS space is truck and trailer parking companies. And so if these companies have less work because there's less containers to go pick up in the port, they're they're not making as much money. They can't afford to pay as much rent or lease as much space as they would when times were great. So iOS is definitely taking a hit right now, in my opinion. General industrial, kind of in tandem with the rest of the commercial market in my opinion, is in this period of flux. But I've seen at least iOS actually take a little bit more, um, take a little bit more damage than I guess you would expect. But I think to answer your question simply, yeah, I mean, it falls pretty in line with where the general industrial market goes.   Sam Wilson (00:20:56) - Matt, this has been absolutely fascinating. I've loved learning about the iOS base, something that, uh, I really didn't know a whole lot about. I know I've had some other guests who have alluded to this asset class, but never even actually heard it defined in that acronym, iOS.   Sam Wilson (00:21:11) - We've talked a lot about where industrial is, what's happening in the markets overall. Actually, I did have one one further thought on that iOS space, which is it was cap rates. And then, um, is now a good time to buy if revenues are down. So before I completely summarize our call here today, tell me on that front, you know, what are the cap rates you're seeing these lots trade at. And then do you think now's a good time to buy if revenues are down?   Matt McLennan (00:21:34) - Great question. Cap rates are I can't tell you because it's a big question mark. Frankly, I don't even know if I could tell you a cap rate on on, you know, existing big box industrial. I could I could give you some indicators and point my finger. But iOS, because it's as an investment class is still a little bit in its infancy in my opinion. There just aren't a lot of data points out there to support what the cap rate would be. Um, a lot of these sites are bought and sold by owner users.   Matt McLennan (00:22:01) - The investment market is going in there a lot of the times, but they are taking more of a value out approach where they're typically buying something either vacant or soon to be vacant, and then adding value via building and proving the site. You know, some of those metrics that I mentioned earlier that provide utility to the site, and then they're going to go lease it out. And, you know, by the time you do a value add equation, I mean, their cap rate could be well into the high single digits to low double digits, probably is kind of the the metric. I mean, if you were to buy a purely fully stabilized call lease to Amazon five acre iOS yard that checks all the boxes. What's the cap rate? Slightly above your debt costs, probably not much more. It might even be on par with with debt on assuming you know that you're going to get some upside and as the lease progresses. So that's how I'd answer that one.   Sam Wilson (00:22:48) - All right. Fantastic. And it.   Matt McLennan (00:22:50) - Is. And it is a good time to buy. Um, you got to find the right price. Like any investment, you want to make sure that you're going in under the right basis. But yeah, because I don't see this asset class going away. I think it's still in high demand. It's still in high need for the tenant base. I mentioned why the tenant need for the space is fluctuating a little bit at the moment. But I'm I'm a believer in it. Go buy it.   Sam Wilson (00:23:11) - Absolutely. Well yeah. And again you know going back to the opportunity, the time to buy is when, you know, revenues are down and valuations may be faltering. So that's uh, that's a really compelling, uh, thesis you have there. Matt, I've really enjoyed having you come on the show today. I certainly appreciate it. I've learned a ton from you. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Matt McLennan (00:23:33) - You can always reach me by email or cell phone.   Matt McLennan (00:23:36) - Both of those are on my website that you can find through Kidd or Matthews, my company. I'm pretty active on LinkedIn. If you ever want to reach out to me there and see some of my content that I'm posting, feel free to engage with me there. But I'm an open book call. Email me. I'm always available.   Sam Wilson (00:23:50) - Awesome. And Keter is spelled with two D's. For those of you who are wondering and just listening, it's Kidder. Kidder, Matthews comm. Is that right?   Matt McLennan (00:23:58) - Uh, kidder.com kid.com.   Sam Wilson (00:24:01) - Okay, there it is. Kidder comm. Well, scratch that, you guys, uh, got it wrong for me the first time. Matt, thank you again for coming on the show today. I certainly appreciate it.   Matt McLennan (00:24:09) - Thank you for having me, Sam.   Sam Wilson (00:24:10) - Hey, thanks for.   Sam Wilson (00:24:11) - Listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:24:14) - Favor.   Sam Wilson (00:24:15) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen.   Sam Wilson (00:24:23) - 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 Gino Barbaro.    Gino is the Co-founder of Jake & Gino, a Multifamily Investor, educator, and Operator with over $280,000,000 in assets under management. Their students have closed over 71,000 units and have $4 Billion in Deal volume!   Show summary:  In this episode, Gino Barbaro shares his journey from the restaurant business to real estate investing, emphasizing the importance of understanding the business before scaling. He discusses the benefits of using your own capital, the current market conditions, and the opportunities that arise from motivated sellers. Barbaro also highlights the importance of education, partnering with experienced individuals, and creating a strong organizational culture.    -------------------------------------------------------------- Intro (00:00:00)   Gino Barbaro's real estate journey (00:00:55)   The pros and cons of syndication in real estate investing (00:02:54)   Opportunity in Seller Financing (00:08:36)   Challenges with Seller Financing (00:08:52)   Targeting Mom and Pop Sellers (00:09:14)   The surprise lessons from people in the coaching program (00:16:44)   The type of people they attract to work with (00:17:20)   The importance of managing and scaling a real estate business (00:18:24) -------------------------------------------------------------- Connect with Gino: LinkedIn  https://www.linkedin.com/company/jake-and-gino/   Web: www.jakeandgino.com/apply   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: Gino Barbaro (00:00:00) - Bigger is not always better if you don't know what's going on underneath the hood. So thinking about it as not just an investment, not just a piece of land or a piece of real estate you have out there, but that is a business you have right there and learn how to run that business. And once you learn how to run that business, then go on to the next one and start learning how to scale and put systems in that real estate business.   Intro (00:00:21) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:34) - Gino Barbaro is the co-founder of Jake and Gino. He's a multifamily investor, an educator and operator with over $280 million in assets under management. Their students have closed over 71,000 units and have $4 million in deal volume. Gino, welcome to the show.   Gino Barbaro (00:00:49) - Sam thanks for having me on, brother. How are you doing?   Sam Wilson (00:00:52) - I'm great, I'm great. It's good to have you back on the show.   Sam Wilson (00:00:55) - It's been only 700 episodes ago or so that you were on the show. For those of you that didn't get to listen to episode number 137, go back and check that story out or that episode out, and you'll get to hear Geno's kind of introductory story where he tells how he got involved in real estate. Gino, I won't ask you to rehash all of that today, but there are three questions that I ask every guest who comes on the show in 90s or less. Can you tell me, where did you start? Where are you now and how did you get there?   Gino Barbaro (00:01:21) - Before I do that, please don't go listen to 137. I probably sucked five years ago. I'm not that great now, but I was really bad back then. I'm assuming. Anyway, the answer to your question, I completely forgot because. So who am I? Name is Gino barbaro I was in the restaurant business for 20 something years. I met my partner Jake Cinzano back in 2009. We partnered up in 2011.   Gino Barbaro (00:01:42) - We bought our very first deal. 18 months after we did that, we bought a 25 unit. Since then, we've been able to scale the majority of our own capital only three syndications. We own 1800 units right now, so we've had an amazing journey. Just 1 or 2 great deals of the year refined those deals being very boring because creating wealth is not a dopamine hit every day. It can be really boring for weeks at a time. And then all of a sudden something happens and it's just being steady. Creating a business, creating processes, creating systems, hiring great people, having a great team is what has allowed us to scale to over 1800 units.   Sam Wilson (00:02:16) - That's really cool. I love the what you've said there about only having three syndications and doing a lot of this with your own money. That honestly is something, and I know it's probably not in the cards for me in the near term, but it's something I've thought a lot about where it's like, man, the not having the responsibility of needing to report to investors, tell them what's going on, or even even being responsible to make sure that they get their returns hit, because I'm probably willing to accept some risk and maybe some downside that maybe I'm not willing to accept for my investors.   Sam Wilson (00:02:47) - So what's been your thought process behind keeping that? Only to three syndications with investors.   Gino Barbaro (00:02:54) - Sam, when we started back in 2011, there was no raising capital. The economy was terrible. We know we didn't know syndication was that was not that buzzword. So we bought our very first deal using seller financing. And that's what's going on in the market right now. Seller financing is back. So for those of you that say, hey, I like to use my own capital, maybe buy a couple of smaller deals. I mean, people out there will tell you, well, you got to go big. You got to get economies of scale. That 25 unit property that we bought ten years ago for $600,000 is currently probably worth a little over 2.5 million bucks, right. It's it's generating between 8 and $10,000 in cash flow every month. And the reason why it's doing that is we bought it, right? We refinance it. There's not a ton of debt on it. And when you look at it, rents went from 325 bucks back in 2013 to over $1,100 today.   Gino Barbaro (00:03:44) - So it is, it is it's a little bit of a waiting game. But that's okay. You wait. But that's 125 unit little crappy deal that I own. 33% of it because Jake and my brother Mark are partnered up on that deal. So that one deal has put my first child through college, my second child is graduating, and it's my third child and everyone's out there. It's only a 25 unit deal. Do one of those a year for the next three years, and then by year five you'll be thanking, you know, going I've only got 75 units but $200 profit per unit. You're talking a nice 15,000 bucks in cash flow. You don't have to be overwhelmed by the numbers in this business. And there's no right or wrong answer. I'm not here to tell you to syndicate or not to syndicate, because syndication allowed us to build that business with investors, allowed us to get on a platform. It allowed us to create some kind of acquisition fees where we put back into the deal.   Gino Barbaro (00:04:32) - We saw that that model wasn't for us, because all of a sudden we had capital to do our own deals and we're vertically integrated. So we're not looking to buy 5000 units a year. We're looking to do 2 to 300 units. Really good. Jake and myself, at this point in our lives now, syndication is an awesome tool if you're looking to scale, if you have very little capital to start out with, or if it's part of your overall strategy, you can still syndicate deals and you can still go buy 25 unit deals, 75 unit deals, JV with somebody. Why can't you do them all? Because I'm going to tell you right now, Sam, it may be difficult to syndicate in the next 12 to 24 months if you've got capital calls, if there's investors out there who are skittish, it may be hard to raise money. So this may be the time to jump in and say, hey, I've got my partners here, let's JV on a deal, let's do a seller finance deal.   Gino Barbaro (00:05:17) - So learn all of the strategies in the multifamily, know when to use them and know what your goals are. And make sure that every deal that you underwrite aligns with those goals.   Sam Wilson (00:05:27) - Yeah, absolutely I like that. And you know, raising capital is getting immeasurably more difficult. I mean, I've not heard anybody come on the show here in the last six months and they're like, oh, man, 2023 has been just super easy to raise money. People are just flush with cash. No, people are holding it tight and they're going, oh, crud, we don't really know what's coming down the pipe. So let's, you know, let's let's sit tight with our cash and just wait. So that's that's a really interesting point, Sam.   Gino Barbaro (00:05:53) - You say people are flush with cash. There are a lot of people with cash. They just don't want to give it to you and me.   Sam Wilson (00:05:58) - That's it. Yeah, yeah. Let clarify. Yeah, exactly. You know.   Gino Barbaro (00:06:01) - And I don't mean to cut you off, but I think that's an important thing.   Gino Barbaro (00:06:04) - That's what happens when you go into recession. People are become afraid. That's why asset prices drop because there's less money in circulation. People are holding it then that's why the government doesn't like that. That's why they like lower interest rates. They want more euphoria in the market. When there's more euphoria, one of two things happens. Asset prices do go up, but it is easier to raise capital. You can't have it both ways. You can't have a ton of deals and easy cash. You know one of them is going to be lacking. So right now it may be the capital is lacking, but go out there, continue to make those relationships. And long term you're going to be all right with raising capital.   Sam Wilson (00:06:36) - Absolutely, absolutely. But while we're on this, let's talk about what your views are in the market. I mean, you mentioned, hey, you should have all the tools in your in your tool belt ready at your disposal, from seller financing to syndication to using your own money to whatever it is.   Sam Wilson (00:06:51) - But what are you where are we right now in the market, in the cycle, and what are the opportunities today? And what do you see coming coming ahead?   Gino Barbaro (00:07:00) - I can tell you what we've done over the last year. In January of this year, we closed on 132 units in Knoxville. It was we had $450,000 seller finance note as part of that purchase. July we closed 105 units, and now in December we're closing on 96 units. So for us 300 units this year, excellent. Last year we had a total of maybe 80 units spread out over 4 or 5 deals. We had like a 16 unit deal. We had a 22 unit deal. So now we're seeing the opportunities are in these larger assets. Years ago, the last two years, they've been more difficult for these larger assets because you had private equity, you've had a lot of people come in with bridge debt and take a lot more risk. We're not bridge debt for us is buy right, manage right and finance right. And that finance right component is if you're trying to do short term debt, you've got to be very, very careful.   Gino Barbaro (00:07:49) - Because when interest rates do rise, if they have their there's there's a problem. And that that's what's leading into the opportunity. There haven't been a lot of deals out there over the last 6 to 12 months. They're going to start coming because right now there's a lot of distress. A lot of people are just saying to themselves, here, here's the keys back, back to the bank. And there's a lot of quiet. There's a lot of hush hush going on right now. But I think from what I've been hearing from a lot of operators, a lot of people in the business, that there is going to be a wave of distress coming, and that's a good thing. And that's a bad thing, because the bad thing is, it may be hard to go out into, you know, get debt on these things because debt starts pulling back. So you may have to come up with more of a down payment. Terms may not be as great. But then there's the seller financing component, which we've already used once, and we had a second deal in the contract that had seller financing.   Gino Barbaro (00:08:36) - So. The opportunities are self-financing, and I think the opportunities are that deals will come. And it all comes down to a seller's motivation. If a seller is not motivated and can hold on, they're not going to sell. But the ones that need to sell, that's where the that's where the the opportunity is going to be.   Sam Wilson (00:08:52) - The ones that need to sell, I would imagine, to have debt terms that are not favourable. So how do they do seller financing if the debt they have is just bad? I'm going to call it bad debt, but that's the wrong term for it. It just has terms attached to it that are no good. So how does a seller do seller financing with debt attached to that property? That is not favorable.   Gino Barbaro (00:09:14) - They won't that's that's not the type of seller financing deals that you're going to be looking for, which you're going to be looking for are the mom and pops that have been holding on to these deals. We've got a deal that's coming up in January. We've been hunting these people for three years, and all of a sudden they decided we want to sell in January.   Gino Barbaro (00:09:28) - Well, why January? Well, what's going on in the world right now? We've got a war in the Middle East. We've got Ukraine that's been going on, we've got inflation. I don't believe the GDP numbers for a second. I don't care what you tell me. So I'm looking. All these people are seeing things. Two years ago they were saying to themselves, Jake and Gino, go fly kite. I love this real estate thing. I don't need to sell because if I sell, where am I going to put my money? Now the paradigm has shifted to like, oh, Jake and Gino, we still have health problems, but I think we want to sell because we just want our capital back. We don't want to continue to lose. And that's where I think the mindset is. And these these owners have owned the property for a long time. Their mom and pops, they're about $200 to $300 below on market rents. They haven't kept up. And they're the ones who have a lot of equity in this deal.   Gino Barbaro (00:10:12) - That's where the seller financing are going to come in place. So when you're out looking at deals, make sure you look at those kinds of deals that you know what? They've got some equity in them. They've been they've been held by the same individual for 7 or 8 years. The deal is you're talking about they're going to be worked out by the bank or the banks taking those things over, or you go in as an operator and say, let me work directly with the bank, see if we can create some new types of bank terms so you don't get dinged on your foreclosure. I can take the property over. And oh, by the way, your LPs, they may get written down on this thing. So it's one of those things where it's going to go deal by deal specific. How do you provide value to that transaction? How can you help that general partner team without losing everything? And how do you help the bank by keeping this deal going. The problem is a lot of these general partners didn't operate these properties properly.   Gino Barbaro (00:10:58) - So if you're a team that can actually manage these properties, run these properties and get them back to where they were, I'm sure that banks want to work with you, and I'm sure that general partnerships that have been sunk and having problems, they'll want to have that conversation with you as well.   Sam Wilson (00:11:10) - Yeah, absolutely. Here's here's an interesting thought from a broker actually, that just interviewed this before I jumped on this show with you in New York City. And he was talking about how a lot how this kind of downturn, slash potential downturn is very different than the last ones, in the sense that he said the way that banks are handling distressed debt is very, very different right now. And maybe you can give some insight or some color to this from what you're seeing is that previously it was like, okay, hey, you know, we'll get this off of our books, we'll foreclose, we'll then sell this off, he said. Because of SVB. And what was the other bank that went belly up thing that sure.   Sam Wilson (00:11:49) - There you go. Yes. Those two banks. He said, you know what we're seeing a lot of banks do now is it's real hush hush like and things that are distressed, like things are things are trading kind of, you know, under the radar. If you see any of that go on right now where banks are working stuff out with really, you know, flying the flying the flag. Tell everybody what they're doing.   Gino Barbaro (00:12:07) - That's a great point. I'm not sure. But I know I've been talking to a lot of individuals in private equity. I spoke to somebody the other day. He has a quote unquote, what he calls a rescue fund, but more of a philanthropic where he actually keeps the GPS in on the deal, cuts them out drastically, but but keeps them in. Right. And I think he says he's underwritten over $1 billion worth of transactions in the last three months, underwritten. And he says there is a lot you he says you'd be amazed. And what happens is when people are in a general partnership and there's three or 4 or 5 general partners, the communication start breaking down and then they wait till the last second and then there's nothing that they can do.   Gino Barbaro (00:12:43) - And that's what he's seen over and over and over again. And it really comes down to the health of the bank. If the bank is healthy, they can work it out. So they can work something out with you. They can take it back. But if the bank is not healthy, they're going to foreclose on you. They're going to get that thing off their balance sheet, and they're going to get rid of it one way or another. They want to be made hold of this thing. Banks don't want real estate. They're in. They are in the best business on the planet. They're securing their loans with an amazing piece of real estate, and they're making ten times on their money and lending out money that they don't even have in their vaults. On top of that, why would they want to own real estate? You know, that's that's the way I look at it. I've learned that real estate is not a good business when you're a bank.   Sam Wilson (00:13:23) - I like that. That's funny. That's absolutely funny.   Sam Wilson (00:13:26) - A great way to put that. And you're right, it is not a good business when you are the bank, because that's not the business they are in. Very, very cool. You've given us some insight, both on the way you guys have been taking down deals, the way that you can buy 25 units a year and really make a meaningful difference in your financial and your life future. We've talked about kind of your views on the economy and where things are heading. What what are some what are some other things here that we should really talk about, kind of relevant to what you guys are working on right now that you feel like listeners should hear?   Gino Barbaro (00:13:57) - Well.   Gino Barbaro (00:13:58) - I've really been stressing to people that if you're going to get into multifamily, are you going to get into any kind of investing? Please invest in your education. I've had that Maserati Mike moment where I always share with people. Back in 2005, I met a guy. His name was Mike. He drove into my parking lot at the restaurant.   Gino Barbaro (00:14:15) - He's driving a nice gold Maserati, and he said, invest with me. And I actually met him through a friend and I invested in his deal, and it so much wasn't the deal that was bad. He was bad on top of that. But I didn't understand the investment myself. So I put 170 grand in a mobile home park. Year and a half later it blew up. And do you think I learned my lesson? Didn't went and did a went? And second investment was a strip mall in New York. I didn't know that either. And for me, that's when I got serious in 2008, I said, I need to find mentorships, I need to find some type of process or some type of framework. I didn't have one, didn't know one. And when I met Jake in zero nine, it's like, okay, I've got a business plan, I've got an understanding of how to invest. And when we came up with the buy right, the management and the finance right after our first deal, it's something where it's a repeatable process.   Gino Barbaro (00:15:03) - You're looking at deals, and the only thing that really to us changes is the market cycle. As you're cycling through the market, you may buy different kinds of deals, but you still have to focus on managing these assets and you still have to focus on financing them properly. Things change years ago, who would? A multifamily with a credit union. I think it was unheard of five years ago. Now credit unions have really don't say taking them by storm, but we're doing our first deal, the credit union, in December, because all of a sudden, community banks are they've gotten a lot more expensive. All of a sudden they're calling loans because they need to go borrow funds. People are pulling money out of banks, remember, they're putting in T-bills and they're putting money in other, other areas where they're not in the community bank. And, you know, you're looking at Fannie and Freddie. Their rates are a lot higher. So what people need to understand is there's a process or framework to invest in anything, learn the process that fits what you're trying to accomplish and then follow that process.   Gino Barbaro (00:15:54) - Don't jump into something without having a plan. Don't go into a forest without a map. Get the map and then go into into the forest. People ask me, hey, do I need to make money and then join a program? Or I need to join a program and then make the money? And for me, if you can't, if you don't join the program, how are you going to learn how to make money? You're going to make so many mistakes you're going to make. And I'm talking from personal experience here. You're either going to learn on the street, are you going to learn in the classroom? And I can promise you the classroom is a lot easier to learn a lot quicker. And man, when you have people who've done it, you just, you know, you mirror their success. Success leaves clues.   Sam Wilson (00:16:32) - Oh, it absolutely does. No. And there's no doubt, and I can attest to that. Having had partners, coaches, friends that are way ahead of me in certain asset classes and said, hey, come, you know, just bring your experience to the table.   Sam Wilson (00:16:44) - Partner with me on this from experience, have them review the deals ahead of time. What what we're buying. It's like, oh, I would have totally missed that. Well, there was 50 or $100,000 mistake. Thank you. And it's simple. Just simple phone calls. And all of a sudden you're just like, oh golly, man. So I hear you. That's that's really, really powerful stuff. Now you guys have a really cool coaching program, no doubt. What are some things, though, that maybe have been some surprise lessons that you've learned from people that have come into your group where you said, oh man, this is something I've learned from people that didn't expect.   Gino Barbaro (00:17:20) - I mean, I think it's the type of people that we attract. I was always out there trying to convince people that multifamily is the best vehicle. It's a great place to put your money early on, and that's a hard boulder to push up a hill if I've got to convince you and then you come in, I don't want to be convincing people.   Gino Barbaro (00:17:37) - So the people that we love to work with are people who are single family home investors, people who are fixing and flipping. They know real estate's great. They're just in the wrong vehicle to create long term wealth and to scale. For the most part, there are some people that can do it really well, but it's a lot harder with the single family home space. So what I've learned is you have to be you have to believe in the vehicle and behaviors are belief driven. So if you're already doing it, oh man, this is great, I think, Holy crap, I'm already doing single family. What do I need to learn about multifamily? There's certain differences. I think the second huge component that I learned over the last few years is investing in real estate is an entrepreneurial venture. I don't care what anybody says at Jacobs, you know, we say we create multifamily entrepreneurs. And what do we mean by that? As you start scaling your portfolio, you need to learn how to implement systems.   Gino Barbaro (00:18:24) - You need to learn how to manage. Right. It's not just sexy about buying these deals and financing these deals. You have the child. It's a lot of fun. The process of making that child. The hard part is raising that child. And and it's I've had students join us. Go. I don't know how much money I'm making in a month, but I'm still buying deals. I'm like, time out, can you stop buying deals? And let's figure out how to manage these assets properly, because you've got a lot of people have dopamine hits. They keep buying deals, keep buying deals. They're not managing what they have, but they're but they've been taught, hey, bigger is better. Bigger is not always better if you don't know what's going on underneath the hood. So thinking about it as not just an investment, not just a piece of land or a piece of real estate you have out there, but that is a business you have right there and learn how to run that business.   Gino Barbaro (00:19:11) - And once you learn how to run that business, then go on to the next one and start learning how to scale and put systems in that real estate business.   Sam Wilson (00:19:19) - That's great. I like that, and that is man, that's a temptation. I think for everyone. I think I think all of us on some level are probably deal junkies where it's where it's always fun. It's always fun to see the next thing coming. But I think managing, like you said, is probably one of the biggest components. It's probably overlooked. Let's talk about that for just a second. What are some things you guys have done systems wise, managing your own properties that have made all the difference?   Gino Barbaro (00:19:44) - Big shout out before I answer that question to Mike Dillard, big fan of Mike Dillard's. I'm finally getting him on the show. I don't know if you've ever heard of him, check him out. He has got a passive income course, and the reason why I'm mentioning him to you is you talked about deal junkies. If you're a deal junkie out there, it's all about the neurochemistry.   Gino Barbaro (00:20:01) - It's all about the neuroscience that's going on in your brain. And one of the one of the one of the happy drugs is endorphins. Mike Dillards talking about this. He actually explained it to me. The four happy drugs. I'm an idiot. I couldn't understand that until Mike was watching the video. You got oxytocin, you got endorphins, you have dopamine and you have serotonin. So the endorphins are important because if you're a deal junkie, endorphins are more of like the status kind of drug. When you buy a deal, you feel like you're important, like you've got that extra 30 units. It's really important and it's part of our survival. And I'm not saying it's a good or bad thing, but let's pull back and say, well, why are we buying this next deal if we haven't done really good on this past deal? Let's take a look at why are we making these decisions. And it's important to understand what's going on through your neuro, through your neurochemistry. So go look up mike Diller, everybody.   Gino Barbaro (00:20:48) - You're going to love the dude. He's really makes it. He just lays it out so easily for you. But to answer your question specifically as far as manage, right, when you're managing these deals, it's either third party or it's managing it in-house. And you need to look internally at yourself and say, yes, I want to own 3000 units the next five years. That may be difficult if you're going to manage yourself, because when you manage yourself, you need to hire employees and you need to scale that part of the business. When you're using third party, you have a lot less control, but it's a lot easier for you to scale because all you're dealing is managing the third party. You're not managing employees per se. For us, we just started out buying our own deals and managing our own deals. Jake wanted to get out of his W2, so he's like, I'll manage our first property. He liked management, so he continued to to manage along our deals. There's a couple of things that you need to do when you're scaling a management company or you're scaling a business.   Gino Barbaro (00:21:43) - And I think the first thing that you really need to sit down and understand is you need to create some type of core values for yourself and every, every entity and every organization needs to have it. And the reason why I know that's true is I had one restaurant for over 20 years. It was a good restaurant in New York, excellent restaurant, but I couldn't scale it because there was no mission statement. I was not a leader, and I really didn't have any core values in that business. When Jake and I took over, we got stuck around the 300 unit mark. That's when we decided to, you know, do some scaling up, do some training with Gino Wickman. We did some work with Vern Harnish, and all of a sudden we started working on our core values. And from there you start creating a culture. You start being able to actually understand how to grow your business. And without those core values, how do you hire? How do you fire? How do you look at vendors, investors? That whole thing starts to become more crystal clear and who you want to work with.   Gino Barbaro (00:22:39) - Back at the restaurant, those days where, hey, that employee sucks. It's his fault. It's her fault. It's never was never my fault. But I never set any expectations with the employees. They didn't know what to follow. They weren't any quote unquote rules. There was no culture there. And it felt more like a transaction. They'd come to work and they get paid. But that's all it was. You know, with I think the entities that we're creating, I think our employees are bought in. I think they really enjoy working with us. We have something called the Golden Ticket Club, where if an employee works for two years with us, they're able to invest in our deals dollar for dollar. That is an amazing. And I don't think a lot of people understand that. But they're investing dollars. No fees, no nothing. You're investing alongside us. So you put $10,000, you have X percent or whatever. The deal is worth going forward because we want them to materially participate in that deal.   Gino Barbaro (00:23:25) - I want property managers to see the business model in action. So when we refi that money out and they get that big check, it's like, oh, this is what business is all about. And when they have ownership and you hear a property manager go, it's time to raise the rents. You know you're doing a good thing for yourself, but also for them because they understand ownership. They understand owning something and being part of something.   Sam Wilson (00:23:46) - That's really, really cool. I love that, and that's and that's not the answer I would have expected, to be honest with you, is defining core values and mission statement. That's not not the one I would have would have predicted. You'd say, well.   Gino Barbaro (00:23:59) - What did you think? What was what was your prediction?   Sam Wilson (00:24:01) - I don't know anything outside of, you know, building systems or, you know, whatever it is, there's a there's a dozen other answers that you could probably have given, but those I think are where you've started is, is is an excellent foundation.   Sam Wilson (00:24:14) - So I appreciate you taking the time to really shed some light on that. You know, this has been a blast having you come on the show today. I appreciate you coming back on for a second episode. It's been been a good time. I've learned a lot from you. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Gino Barbaro (00:24:31) - Jake and Gino go on there. You see all the podcasts, all the books, all the website, all the how to shows on there. Just go to the website, Jake and Gino and check us out.   Sam Wilson (00:24:41) - Jake and Gino. I'll make sure to include that there in the show notes. And Gino, thank you again. I certainly appreciate your time.   Gino Barbaro (00:24:47) - Thanks, Sam.   Sam Wilson (00:24:48) - 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.   Sam Wilson (00:25:01) - 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 Bob Khakal.   Bob has sold 2,283 buildings, totaling $21B+ — the most ever for an individual broker in the history of NYC real estate. Bob previously cofounded Massey Knakal Realty Services, which grew from 2 to 250+ employees and was sold for $100M.   Show summary:  In this episode, Bob Nicoll shares his experiences transitioning from running his own company to working at JLL. He discusses the challenges and opportunities in the New York City real estate market, particularly in land and multifamily properties. Nicoll also talks about the changing behavior of lenders in economic corrections and highlights the differences between the current correction and past ones. He recommends two books that have influenced his career.    -------------------------------------------------------------- Intro (00:00:00)   Bob Nicoll's career journey (00:01:16)   Selling his company and transitioning to JLL (00:03:59)   Lender Behavior in Past Corrections (00:10:52)   Different Performance of Product Types (00:11:58)   Opportunities in the Land Market (00:14:07)   Book recommendations for productivity and delegation (00:21:44)   Closing (00:22:33) -------------------------------------------------------------- Connect with Bob:   Email: bob.knakal@jll.com   Linkedin: https://www.linkedin.com/in/bobknakal/   Twitter: https://twitter.com/bobknakal?lang=en   Instagram: https://www.instagram.com/bobknakalnyc/ 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: Bob Knakal (00:00:00) - The class back office building market is really facing a lot of challenges today, but the values of those buildings are the same at the same price per square foot that they were 20 or 25 years ago. If you believe the market is going to come back, if you believe in New York, that would seem to be a good investment. I think the land market also significantly below where it could be the peak of every cycle, is greatly exceeded the prior peak.   Sam Wilson (00:00:29) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:42) - Bob Nicoll has sold over 2283 buildings totaling over $21 billion in volume. He's the most, which is the most ever for an individual broker in the history of New York City real estate. Bob, welcome to the show.   Bob Knakal (00:00:56) - Hey, Sam, great to be with you today.   Sam Wilson (00:00:58) - Man, that's a crazy statistic. I'll just I'll just say that 2283 buildings, as we commented here before the show kicked off, who's actually keeping track? But that's that's actually amazing.   Sam Wilson (00:01:08) - Bob. There are three questions, however. 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?   Bob Knakal (00:01:16) - Well, I started as a college kid at the Wharton School looking for a summer job that would look good on my resume. I wanted to get into investment banking. Investment banking jobs weren't available for college kids. Ended up walking into a Coldwell Banker office thinking it was a bank. They offered me a job, took it even though I didn't want to get into real estate, loved it from day one and went back my next two summers. And then started with CCB in Manhattan when I got out of school, met Paul Massey there. He had just gotten out of a training program. We both were starting in sales day two. On the job. We said, hey, let's work together, see how things go. We'll split everything 5050. That was the start of a 30 year partnership.   Bob Knakal (00:02:04) - And, you know, I've been doing it for 40 years in New York now, for 26 of those years, Paul and I had our own company, which we sold in 2014 at Cushman Wakefield. And, you know, I'm the head of New York Private Capital Group at JLL now running private capital sales in New York.   Sam Wilson (00:02:24) - Wow, that's a colorful career. I mean, there's so many different parts of your story I'd love to love to dig into, but why do you let me start here? Maybe let's start with today. Why do you do what you do today? Like why are you still so active in real estate? You've got an awesome career behind you. You've built a huge company. You sold it. What keeps you going?   Bob Knakal (00:02:45) - Sam, I love it. It's something that I. I truly enjoy. You know, I tell folks it's not only a job for me, it's my hobby. I have a wife and a 14 year old daughter, and they're the most important things in the world to me.   Bob Knakal (00:02:58) - But if they were away for the weekend, on a girls weekend, I'd be working all weekends. So I just really enjoy it. And I think that's the thing that that keeps driving me. And with each, you know, each day brings new opportunities to get wins. I'm addicted to winning. And and that's one of the things that really drives me.   Sam Wilson (00:03:22) - That's really cool. I love that answer and good for you. There's very few people I think that can say that what they do is both their built their career and their hobby. So that's that's really fun and it shines through, I think both in your in your smile when you say, hey, this is what I'm doing and I and I enjoy it and this is, this is why I'm doing it. So that's that's really cool. Good, good for you. Let's talk a little bit about the company that you sold for what was $100 million that you sold your company for. Yeah. What was that transition like? I mean, you're, you know, your knee deep into your own business, you sell it.   Sam Wilson (00:03:56) - And then what did you transition into?   Bob Knakal (00:03:59) - Well, you know, the we sold the business in 2014. We almost sold the business in 2007 for a variety of reasons. We didn't sell it then. We had been offered 50,000,000 in 2007, and that deal didn't happen. But what it did teach us was that when we did sell the business, we would be on five year contracts with whoever bought us. So we actually decided in 2007 that if the market was not really bad in 2014, it would be a great time to think about selling, because in 2015 Paul would be turning 55. We thought the perception would be that our contracts would have more value if we were in our 50s than if we were in our 70 or 80s. So we we get to 2014, the market's chugging along, we hire an investment bank, sell the firm. And in hindsight, it was the absolutely perfect time to sell. 2014 was the peak year. Still, historically, 5534 buildings were sold in New York in 2014.   Bob Knakal (00:05:12) - That was an all time record by more than 10%. That still stands, and it was a perfect time to do it. So we we went to Cushman Wakefield and ran our, our business as a, as a division of of C and W. And then there were some moves that the company made that were not congruent with our contracts. So we shorten our contracts, negotiated some other things. And. And the you know, I left in 2018 to go to jail with 53 people that had been with me at Massey Narco back in the old days. We actually the company, when we sold it had over 250 people in four offices in New York. And, you know, I took 53 of those people with me when I went over to jail.   Sam Wilson (00:06:04) - Wow, wow. That's really that's really a wild, a wild story. And you're to this day still with JL.   Bob Knakal (00:06:11) - Yes.   Sam Wilson (00:06:12) - What's it like over.   Bob Knakal (00:06:13) - Five years now? Which I can't believe. Right.   Sam Wilson (00:06:15) - It happens fast. It happens fast.   Sam Wilson (00:06:16) - What what what's it like now being housed under JL versus running your own shop. And what are some things that you like and maybe, you know, just some things, maybe if you had gone back in time that you would reconsider.   Bob Knakal (00:06:31) - Yeah. Well Sam, I think you, you always look at the difference between having your own shop and working somewhere else. Working at a small company, a medium sized company, a big company. And I tell people there are pros and cons to everything. You know, clearly, if you're running your own shop, you call the shots. There's a lot of freedom associated with that. But then if you're at a big company, you're you're one of 102,000 people and there's somebody who's an expert at everything within that platform. So you have tremendous resources available to you. And at the end of the day, it's all about helping our clients achieve the best results that they can achieve. And when you have all those resources behind you, it just puts you in a different position to to create more value for those folks.   Sam Wilson (00:07:23) - I would imagine that. That's great. Thank you for clarifying that. That's super helpful because I know there's people out here are listening to this wondering, do I do I start my own shop? Do I go work for somebody else such as JLL or any of the other big name shops? But I guess at this point in your career, you can pick who you want to work with. I would imagine, as a client as well, because I'm sure that you are well sought out as a broker there in New York City. So what's what's an ideal client or an ideal product type maybe that you're working on right now that is exciting for you.   Bob Knakal (00:07:57) - Yeah. Well, I've been a generalist selling all kinds of properties my entire career. I think now dovetailing more into doing land sales and multifamily, a lot of the office and retail stuff that were that have come my way. We have actually gone on and and handed that off to other folks in the office that have that as a specialty. But, you know, we've seen that that by specializing in one particular type of property, it allows you to leverage your time a little more.   Bob Knakal (00:08:31) - And that's always a positive thing, because as a broker, you have two main assets. You have your knowledge and your time. You're always trying to to increase your knowledge base, and you have to use your time as efficiently and effectively as you possibly can, because they don't make any more of it.   Sam Wilson (00:08:47) - That they don't, that they don't. Well, let's talk about that land and multifamily. What what does that look like in New York City right now? Yeah.   Bob Knakal (00:08:56) - Well, as you can imagine, there's not a lot of rolling pastures available in New York City. So most of our land deals consist of of acquiring small buildings, demolishing them to create a pad on which to build a new building. And so land really consists of, of taking older buildings that are not in good condition, knocking them down and creating a development site on which a new building can be built.   Sam Wilson (00:09:31) - Is that is that slowing down with the rise in interest rates? Are there any headwinds that are being faced in that particular strategy?   Bob Knakal (00:09:40) - Yeah.   Bob Knakal (00:09:40) - Well, you know, everything has slowed down. If you look at where the market is in terms of number of buildings sold. The market is down about 34% from where it was last year, and down almost 70% from where it was at the peak of the market. So clearly things have slowed down. But interestingly, in this downturn, every product type meaning multifamily, office, land, retail, hotel, every product type is, is performing differently based upon dynamics that are going on with respect to that particular sector. So it's a very, very different downturn relative to the past four big ones that we've had. But you just have to look for opportunity. Keep doing the fundamental things. I always tell people brokerage is a very simple business. It's just very difficult. And you have to do those very simple, mundane things over and over again, day after day, week after week, month after month. And and then you eventually get to your, your objective.   Sam Wilson (00:10:48) - When you say that this downturn is different.   Sam Wilson (00:10:51) - In what ways?   Bob Knakal (00:10:52) - Oh well, it's different. Number one lender behavior in the past, corrections will go back to the savings and loan crisis. In the early 90s, lenders went through a 2 or 3 year foreclosure process, took title to the property, and and then hired brokers to sell it in the in the early 2000 and again during the GFC. Lenders didn't want to go through that process, so they would just sell the debt. Hired brokers does that. This time around, they've been a little more covert about the way they're dealing with their issues. Mainly, I think, you know, Silicon Valley Bank and signature Bank going down created a lot of concern in the marketplace about what their books look like for existing banks. So, you know, they'd be playing everything very close to the vest today. But if banks or any type of lender has been active making loans in the past five years, they have problems on their balance sheet. There's no way you cannot have problems on your balance sheet.   Bob Knakal (00:11:58) - If you were lending in the last five years and they just, you know, are trying to do it in as covert a way as possible, so far, that may change as we get further into this, but so far lenders have been behaving differently than they have in the past. And then the fact that in the past, corrections we've had, every product type was heading downward just to varying degrees. This time, each segment, as I said, is operating and performing kind of autonomously. You look at the retail sector, for instance, I believe the retail sector is on the upswing in New York today because rents have stopped going down. Rents have been on the the downward path for over six years now, but they've stopped going down, leasing activities picking up, and an investor demand is coming back for retail. Now clearly cap rates are up across the board because lending rates are up. But each of the different product sectors is performing differently. That's the other big difference between this correction and past corrections.   Sam Wilson (00:13:07) - Yeah.   Sam Wilson (00:13:07) - And that's that's an interesting one I think to to discern, you know, where is opportunity? I mean that's what a lot of people I think are thinking about. Okay. Well, and we're seeing people pivot out of one thing into the next. You know, maybe they were all into multifamily and maybe they're going into retail, as you're suggesting, or anything else. But I think that's that's one of the questions I have for you is like. What do you see as the best opportunity right now?   Bob Knakal (00:13:31) - Yeah, I think it really depends. You know, I think that if you look at certain asset classes like the the class back office building market is really facing a lot of challenges today. But the values of those buildings are the same at the same price per square foot that they were 20 or 25 years ago. If you believe the market is going to come back, if you believe in New York, that would seem to be a good investment. I think the land market also significantly below where it could be the peak of every cycle, is greatly exceeded the prior peak.   Bob Knakal (00:14:07) - We hit a peak in in the beginning of 2022. That was less than 50% of the peak of the cycle before that. So I think there's pent up value in the land market. But I think you have to really be wise about what you're buying, how you're buying it, and really know the market. As is always the case with real estate, you have to know the market. But I do believe there's a lot of opportunity out there tonight.   Sam Wilson (00:14:31) - There really is. What are people doing with office space? I mean, I've talked to a few other guests here on the show. It's been maybe, oh, probably 3 or 4 months since we've talked about New York City office space. But what are people doing with that right now? I mean, what's the what's the what's the play there, if any?   Bob Knakal (00:14:47) - Well, number one thing, and I think it's important to also differentiate between new construction, Class-A office and everything else, new construction Class-A is doing pretty well. The buildings are just incredible in terms of what they offer a tenant, but it's really the secondary and tertiary space that is facing the biggest challenges.   Bob Knakal (00:15:08) - Some of it is being converted to residential use. I think the city needs more of that to occur. We could very easily have over 100,000,000ft of empty office space in New York, and we desperately need housing, so conversion would be a good thing. But we're also seeing values get to the point where the value of the building and the cost to demolish the building together are less than the land value. So a lot of these buildings, I think, will be demolished to make way for new construction. So again, need to know each sector of the market, each neighborhood, figure out what drives each. And I think there is a lot of opportunity.   Sam Wilson (00:15:51) - That's really, really great. Thank you for taking the time to shed some light on that. Let's talk a little bit about the private capital group that you run. What what what's the story there? I know private is probably the key word, but what's the story there. And I guess what, you know, what are people looking for today from an investment perspective.   Bob Knakal (00:16:09) - Well, the private capital group in investment sales, you have institutional work which is done with the largest corporations in the city, in the in the country, and then private capital. That generally describes high net worth individuals and families who are active in the market. That's where I spend the overwhelming majority of my time. And, you know, what people are looking for is a a reasonable return in a market that, you know, has dynamics and metrics that are moving in the right direction. So we've seen our multifamily market has probably seen the biggest change. The apartment building market here is very closely correlated to public policy. We have rent regulation here, rent stabilization and rent control. And those policies have shifted so far against owner's interests that a lot of the old line New York investors that for decades only bought here are now buying in Florida and Texas and Tennessee. And you know, they won't touch anything in New York anymore. And consequently, that has driven cap rates down around the country. And folks are selling buildings in those areas and coming here to buy in New York, because for the first time ever, cap rates are actually higher in New York than they are around the rest of the country in the apartment building sector.   Bob Knakal (00:17:35) - So really interesting to see how the market ebbs and flows and what folks are looking for. But, you know, people are always looking for something that will provide a good return with relatively low risk. And there are still some folks that are willing to take big risks with opportunistic type of investments. But for the most part, folks are looking for something that can provide a stable return.   Sam Wilson (00:18:03) - Absolutely, absolutely. That's that's really interesting, talking about things that, you know, just watching kind of the psych, not the cycle, but the the path of the money. Like you're saying, the money leaves, it goes to the south. You know, it's heading to Texas, Florida, places where they can get a better return. And as it leaves, then cap rates in New York City, then start to climb. Then the money comes back to New York City and just kind of makes that that circuitous route of, of travel there where the investment gets the best. A turn, as you're mentioning, a place that you're getting a personal return is social media, which I think you mentioned was something that you never thought you would be involved in.   Bob Knakal (00:18:39) - Yeah. You know, I'm kind of old school when it comes to technology and social media fell into that that basket. A bunch of folks are saying, hey, Bob, you really should get on. You have you have great stories to tell. You've been around for a long time, and you know you can make great connections through social media. So in January, I said, you know what? I'll give it a try for three months. See how it goes. I've been really shocked at the reach that it has, the opportunities that it's presented, the folks that I've met. Relationships that I have now. And it's really been eye opening. But, you know, the definitely technology has made the world a lot smaller. And it's been really eye opening to see what what social media affords people.   Sam Wilson (00:19:25) - Absolutely. Yeah. It's one of those things that and and you have more years in the industry than I do. But it's it's it's yeah, it's something it's a discipline I think for, for some of us, you know, myself included, where it's like, well, I don't really necessarily love being on social media, but it's something that.   Sam Wilson (00:19:43) - Need to invest in and need to keep engaging with. So that's really interesting. If you were to rewind your career, go back, what was it, 40 years maybe? Yeah. What's what's one piece of advice you would give to yourself starting out if you could go back and say, hey, Bob, 40 years ago, this is something you should know. Yeah.   Bob Knakal (00:20:00) - Well, number one, Sam, we we did everything by trial and error in the early years and so consequently made thousands of mistakes. Didn't make a lot of them twice, which was good. But I wish that we had reached out and asked more experienced people for input on things before we dove in. At first, you know, in later years we had an advisory board, some of the the top folks in our industry and in business that really provided great insight for us and helped us steer the ship of the company in a very meaningful way. And I wish we had done that. And I also wish that we had hired folks to help, to help us do things earlier.   Bob Knakal (00:20:48) - You know, it seemed like every time we hired a new position, whether it was someone to be the COO of the company or someone to be the CFO of the company, or director of HR, or, you know, someone that took one of the main responsibilities off of all of my shoulders. We seem to get a big bump from doing that. And I think we we probably waited a little bit too long to bring on that additional help, but that was that was a regret as well.   Sam Wilson (00:21:19) - Yeah.   Sam Wilson (00:21:19) - That's a that's an interesting point. And that's something that an email came to you this morning with that same kind of idea in there that obviously the one thing that you can't get back as your time or that your time is one of the most precious things you have. And I think that's a challenge many of us face is knowing when to bring the right people on and when to, you know, get out of your own way, if you will. So that's not.   Bob Knakal (00:21:39) - Yeah, well, I'm a big fan of Dr. Benjamin Hardy.   Bob Knakal (00:21:44) - I've written a couple of great books with Dan Sullivan. Um, ten X is easier than two. X is a recent one where, you know, he says, just look at what you do all day long, and you probably make the overwhelming majority of your money from 20% of the stuff you do, do as much as you can of that 20%, the other 80%, either delegate it to somebody else or or don't do it. And then another one of his books who not how that whenever you ask yourself, you know, how am I going to get this done? You're asking yourself the wrong question. It's who can get this done for me. And so I think, I wish I had those two books available to me way back when, when we started out, because I think it would have helped a lot. But, you know, never too late to to pick up new things.   Sam Wilson (00:22:33) - Absolutely not. Bob, thank you for taking the time here to come on the show today. This was a lot of fun having you on.   Sam Wilson (00:22:39) - You've got a wealth of experience to to share with us. We've talked about a whole variety of things here on the show today, both from your views on the market to your private capital group, to what it was like to build and then sell your own company and then go to work for JLL and just. Yeah, this is a pleasure to have you 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?   Bob Knakal (00:23:00) - Yeah, best way to get me is you can email me at Bob at JLL is CNA Michael so Bob McCall at JLL. Or you can find me on social media. I don't know what my particular handles are, but you know, I'm on just about every platform. Just put in Bob Nicole, you should be able to track me down.   Sam Wilson (00:23:23) - Absolutely, Bob. But I do have your social media handles. We'll make sure we include those there in the show. Notes.   Sam Wilson (00:23:28) - If you're looking for Bob's social media handles, we'll have those there. And again, thank you for taking the time to come on the show today. I certainly appreciate it.   Bob Knakal (00:23:34) - You got it. Sam, it was great to be with you.   Sam Wilson (00:23:36) - Hey, thanks for.   Sam Wilson (00:23:37) - Listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:23:40) - Favor.   Sam Wilson (00:23:41) - 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 Christian Gore.   Christian Gore is the Founder and Managing Partner of G1 Capital Partners, a private capital firm specializing in multifamily and industrial real estate investments.    Show summary:  In this episode, Christian discusses the company's focus on multifamily and industrial real estate investments. He talks about the importance of technology, data analysis, and a strong team in decision-making. Gore also shares insights on entering the hospitality sector, the impact of capital markets, and the state of the multifamily real estate market. He highlights the role of preferred equity in the market and discusses potential distress in older properties. The episode ends with Gore's predictions for the market in 2023.   -------------------------------------------------------------- Intro (00:00:00)   Focus on multifamily and industrial real estate (00:01:54)   Challenges and opportunities in the current capital market (00:08:55)   Performance of multifamily (00:12:05)   Preferred equity (00:13:03)   Multifamily distress (00:15:23)   -------------------------------------------------------------- Connect with Christian:  Web: http://www.g1capitalpartners.com/about   Linkedin: https://www.linkedin.com/company/g-1-capital/   Instagram: https://www.instagram.com/G1_Capital/   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: Christian Gore (00:00:00) - As long as there was a longer time horizon. In terms of your investment period, it really shouldn't be any issues. There's, you know, there's dips and. You know, peaks to the market. But ultimately, if you have a longer term view and a sound capital structure, you should be able to weather the storm.   Intro (00:00:17) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:30) - Christian Gore is the founder and managing partner of G1 Capital Partners, a private capital firm specializing in multifamily and industrial real estate investments. Christian, welcome to the show.   Christian Gore (00:00:42) - Appreciate it, Sam. Thanks for having.   Sam Wilson (00:00:43) - Me. Absolutely. The pleasure's mine. Kristen. 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?   Christian Gore (00:00:53) - Poor thing. So I started as a young little kid coming up in West Texas, ultimately worked my way through the system, got involved with a significant real estate guy by the name of Andrew Farkas, was kind of my first gig in New York, really kind of drinking from a firehose in that environment for for about four years post post GFC, which was quite interesting and ultimately worked through a handful of buy side and sell side shops, you know, over the years, and founded One Capital Partners in 2018, and we've been operating since then.   Sam Wilson (00:01:37) - Yeah. What do you guys do at G1 Capital Partners? I know you said there in your intro you guys are into multifamily and I believe it was industrial, but give me give me kind of the breakdown of what you guys have done over the last five years and where you're going for things.   Christian Gore (00:01:54) - Yeah. So we I would say primarily spend our time in the multifamily and industrial space. That being said, we we are agnostic to product type. So for example, we've we've got a hotel deal in front of us right now. So really just looking for the right opportunities and the right markets and less so focused on product. Historically speaking, I will say what 80% of 90% of what we've done is in industrial and multifamily. We do have some retail holdings as well and currently don't have any hospitality, but we'll likely have hospitality by Q1 of of next year. So we kind of have the whole spectrum of the four major food groups, or at least we we screen it, but but ultimately spend most of our time in multifamily.   Sam Wilson (00:02:44) - Got it. Okay. That's really an interesting thing. How do you how do you effectively grow or manage your team and your investor base when kind of bringing a new asset class into the mix?   Christian Gore (00:03:00) - Sure thing. I would say first and foremost, we're we're extremely technology focused. So that takes a lot of pressure. And quite honestly, you know what I would call biases away. So it not only helps our processes but it also helps our team internally kind of select the investments and really get behind them. Um, but but ultimately I mean it's math. You know, we we're integrating a lot of data that effectively is taking an AI and machine learning. And we think that's that's a little edge that we have there. But but at the end of the day, it's math. You know, in this business it's relationship driven and really just utilizing, you know, what we have as a team. The team is probably the biggest component, I think, in in our business to success. I'm a I'm an ex you know, college athlete.   Christian Gore (00:03:59) - And I look at it no differently. And kind of our industry as, as it is in sports, I really do think the best team ultimately ultimately wins and gets gets the best opportunities across the finish line.   Sam Wilson (00:04:10) - Yeah, undoubtedly. When you say team and especially as it pertains to let's use multi excuse me hospitality as an example, are you guys scaling internally or are you scaling with external partners in hospitality. How do you engage a new asset class. And maybe without having to go through the attendant learning curve that taking on new asset class generally requires?   Christian Gore (00:04:37) - Sure, sure. That's a great question. Um, you know, so historically we have about 2 billion in experience in the hospitality space. That was primarily post GFC. But our kind of thought process and business model internally is right now we're a team of five. You know, over the next year or two will probably get up to a team of maybe ten, 15 Max. And the way we're able to scale that is one like like I mentioned through technology, but two, leveraging our partners so we we don't manage any of the assets, you know, boots on the ground.   Christian Gore (00:05:15) - We we bring in an operator in this case for a hotel. You know, it's a very niche product type. So we work with the top three large hotel operators and kind of leverage their expertise in that space. So it's not to say it's the marriotts of the world, it's the operators or the property management team on site that's kind of below that, below that umbrella. That makes sense.   Sam Wilson (00:05:39) - It does. It does. Okay. No, that's that's great I love that and I don't want to stay here I guess too long. But I am curious. I mean, you guys are making hospitality. One of the potential things that you guys are getting into either end of this year or first of next year. Why now? I guess we'll we'll start there. And then I have some follow on question to that. Why hospitality? Why now? Sure.   Christian Gore (00:06:03) - So I wouldn't I wouldn't market too much in the hospitality space. Kind of the three buckets we're playing in right now is multi industrial. And then what I would call special situations and in this case this hotel opportunity that we have in front of us is a special situation, has a great story behind it.   Christian Gore (00:06:21) - You know it's a post post-Covid REIT effectively blow up. So very low bases needs a lot of TLC, a lot of CapEx really a lot of work put into it. But we like the story behind it and it's extremely core asset. Right in our backyard. So headquartered in Dallas, it sits a rockstar away from our office, so we know the asset very well.   Sam Wilson (00:06:45) - Got it. Okay, that makes sense. So you guys aren't necessarily out saying, all right, we're going to we're going to put a full fledged team together to go out and acquire hospitality in mass. It is hey, here's a great opportunity right in front of us. So why don't we see if we can make this work.   Christian Gore (00:07:00) - Exactly, exactly. And then we obviously allocate the right investor profile for that kind of product. If that makes that makes sense.   Sam Wilson (00:07:07) - It's it does, it does. And that's, that's a that's an interesting thing to be able to go, okay, let's take advantage of this situation without necessarily wanting to develop all of the resources to go out and go long in that space.   Sam Wilson (00:07:24) - Is that a fair kind of analysis of what it is that you guys are dealing with right there?   Christian Gore (00:07:31) - 100%? Yeah, we're not going to be growing a massive hospitality platform anytime soon. It's it's more so, hey, we know this deal really well. We can put all the pieces together. We have the right partners on the equity side to execute. And ultimately, you know, our whole team is really just a bunch of deal junkies. So it's it's really fun to put, you know, hotels. There's a lot more moving pieces. So it's a lot of fun to work on.   Sam Wilson (00:07:59) - I bet it is. I bet it is. Yeah. And that's I mean, I'm with you on the opportunity side where it's like, okay, there's a great opportunity. How do we say no? I mean, those are hard to pass up when they're right there in front of you, and especially if you don't have to build all of the necessary parts that go into, you know, taking that one particular niche business to scale, it's like, okay, we're going to buy this and you can plug an operator in and it's not not the end of the world for us to acquire that.   Sam Wilson (00:08:28) - So okay, definitely I won't beat you to death on the hospitality industry then. But you did mention something. You said you have the equity behind you to take down that deal. But let's talk a little bit more about capital markets as a whole. How is that affected what you guys are doing? How has that affected what you guys are doing in multifamily? In industrial, maybe you can compare the two, give us some insight what you see there and how you guys are navigating 2023.   Christian Gore (00:08:55) - Sure. So I will say it's been 2023 has been tough. I mean, you know, the fastest fed rate hikes we've ever seen in terms of speed. So it's really a shock to the entire system. Right. So we've been you know working to try and get stuff done. Have not been successful this year just mainly due to rates moving that quickly and continuing to move. That being said, we do see a bright spot starting in 2024. There's obviously going to be a lot of pain. That being said, we're very focused on scaling the multi side of the business and and to put more.   Christian Gore (00:09:40) - Strategically the affordable multi side of the business. So we're all in on that. That's that's you know our scaled growth product for the next two years. Industrial still is not pricing to where we think it makes a lot of sense. And candidly you know from a lending perspective which is quite honestly the biggest challenge in today's environment, the beauty about multifamily is, you know, the fact that we have two large government agencies that are still lending on that product and that's, you know, what I think is has been fruitful for the multifamily space compared to all the other four major food groups. That being said, nothing's easy in this environment.   Sam Wilson (00:10:24) - So no, there's no there's no giveaways. What about distress? Let's talk distress there. In multifamily, I hear a lot of people. Even even shops that I'm a little surprised at that previously weren't in multifamily now going, hey, we're getting into multifamily because we feel like there is either currently pain that we can take advantage of and or they see a coming theoretical wave of multifamily opportunities.   Sam Wilson (00:10:52) - Talk to me about that. What's your view?   Sam Wilson (00:10:57) - Yeah, that's.   Christian Gore (00:10:57) - That's the million dollar question, right? You've got folks raising distress funds. Um, you know, it's it's tough to say we're we're tracking it as well as we can and other folks can. Um, you know, I think there will be some opportunities probably in Q3 of next year. But what we're seeing live in the market right now is a lot of pref equity flooding the space and plugging a lot of gaps. And, you know, we we we don't currently and have not put out any pref equity in this space primarily due to where valuations were going in that we we still didn't really feel comfortable. Um, you know plugging plugging a lot of the, the gaps at that basis. But um, you know I think there will be some pain. We're seeing some, we're working on some. But I don't think it's going to be as bad as everyone thinks. If you look back to zero eight and the GFC, you know, like I mentioned, you know, we did my my first gig was working for us Lehman guys post GFC and we did a lot of workouts.   Christian Gore (00:12:05) - We did about 6.5 billion. And you know, I'll be honest with you, I think I'd have to look back at the deal sheet, but maybe 1 or 2% of of all of those deals that went bad were multifamily and the rest were other product types. So, you know, I think there's there's definitely pain, but there's there's a ton of liquidity still still out there ready to take over. So a long winded way of I don't think it's going to be as bad as everyone thinks.   Sam Wilson (00:12:33) - I don't think it'll be as bad, or at least I hope you know, it won't be as bad. Primarily one, because I'm not a I'm not a buyer of multifamily personally, so it doesn't on that front. It doesn't affect me one way or another. Although I'm an investor, I'm not a personal buyer presently of multifamily also because I don't want to see a lot of our friends in the industry go through that hard times. But regardless of what I want or prefer, it still happens. Let's talk about pref equity a little bit.   Sam Wilson (00:13:03) - I mean, that can fill the gap for a while. But then what happens when when that. And maybe you can give our listeners that might not understand what pref equity is, what it is. And then my follow on. So so first question is what is pref equity. You define that for us. And then secondly you know what happens when that pref equity runs out. Are they just you know kicking the can down the road.   Christian Gore (00:13:26) - Yeah. I mean, so the short answer is, you know, definition, I would say it's, you know, it's called pref equity, but kind of operates more like a debt product. So you know, you have your common equity and then ultimately your pref equity what's coming, which is coming in behind it that have that has preference over the common equity. And and so ultimately you know once. Let's say cash flow gets low, you know. You know, groups are plugging in pref equity and to yeah to your point kick the can down that you know down the way.   Christian Gore (00:14:00) - You know ultimately it's going to be the performance of the asset on on whether or not that pref equity stays in place. So there are instances for example, that, you know, we're aware of that groups have plug pref equity. And at this point in time their pref equity is already completely wiped out. So ultimately it's come down to the senior lender or the original, you know, originator of the initial loan on the asset level. So it's it's you know, it's challenging out there. It's very deal by deal. It's market by market. It's very, very specific. So it's it's interesting time.   Sam Wilson (00:14:41) - It really is I mean because I think about about some deals I'm aware of that are doing terribly. And then and then I know about some other deals that I'm both that I'm personally invested in that are I mean, just killing it. I mean, there's like, you wouldn't even know that there's any stress in the market. It's the we're still above pro forma across the board there, 99% occupied.   Sam Wilson (00:15:02) - It's like I mean life is good. Life is great. Like how is this possible I don't know, but but it really is. It's on I think like you said, on a deal by deal basis. Are there any, any types or should I say classes of multifamily that you're saying, hey, this is where we're going to see the most distressed in your opinion.   Christian Gore (00:15:23) - Yeah, I would say, you know, the generally your older, you know, 6070s, even 80s vintage product where the kind of the peak of the market folks were getting, getting very aggressive on pricing, very aggressive on leverage and, and ultimately solving for, you know, not so ideal capital structures. And those are the folks that I think will have the most pain. But for the most part, you know, is as long as there was a longer time horizon in terms of your investment period, it really shouldn't be any issues. There's, you know, there's dips and. You know, peaks to the market.   Christian Gore (00:16:02) - But ultimately, if you have a longer term view and a sound capital structure, you should be able to weather the storm, which, you know, I think everyone's saying survives until 25, which it seems to be the timeline here.   Sam Wilson (00:16:15) - Seems to be and and I except for some people, unfortunately, it's probably wishful thinking is that things will turn around and get better for them by 2025. But again, getting there is step one and two having a meaningful business when you get there. Step two. So we'll just see how that shakes out. I don't be all doom and gloom here on the show today. You guys have been that sellers for what, the past 12, 18 months or so.   Christian Gore (00:16:38) - We have. Yeah we've we've been net sellers. We had some assets trickle into 22 that got a little challenging to execute. But but definitely net sellers.   Sam Wilson (00:16:49) - That's awesome. I mean it seems like it seems like you you timed things fairly well you know. And then we talked about a little bit off show.   Sam Wilson (00:16:57) - So you guys have been net sellers. You said this in the beginning that you really haven't found much here in 2023. That's made a lot of sense to buy. We see a lot of shops that are in asset management mode. You guys are obviously in buy mode, I guess. Talk to me a little bit about that. Like how do you ride out the storm? How do you remain patient? What are some things you guys are implementing in your core disciplines that are kind of keeping you true to what you're trying to do?   Christian Gore (00:17:23) - No, that's a great question. I mean, you know, I would say we're we're just trying to keep a pulse on the market. It's, I mean, it seems to be moving on a weekly basis. Um, you know, but internally and kind of in-house, our view is that, you know, capital will start coming back to the market next year. And we are pretty bullish that rates are going to drop pretty significantly post-election of next year. So from a timeline perspective, that's that's kind of how how we're thinking about it internally.   Christian Gore (00:18:00) - But but to say that it's still very difficult to be patient. Right. When you're, you know, looking to buy and so on and so forth. And quite frankly, the model we run is, is what I'd call a kind of a separate account model. So we go to equity partners, you know, on on any given deal that we think fits the equity check and fits the profile, the market, so on and so forth. And, um, and ultimately they're really calling the shots. We, we, we invest alongside them. And you know, as a GP obviously. But ultimately they're writing the large LP check here. So um, you know, and they're pretty much on the sidelines in this environment right now. The big kind of feedback that we get from, from most of our equity groups that we're talking to, I mean, on a daily basis is is negative leverage. And so what does that mean that, you know, it means, hey, you know, in the multifamily space we can get debt at six and a half, you know, so at minimum you should be buying a six and a half cap, unless there's a true path to some sort of six and a half.   Christian Gore (00:19:09) - So that's kind of how we're looking at the world. And the capital markets just hasn't really adjusted to that yet. And we think Q1 of next year, it will probably get to where it needs to be.   Sam Wilson (00:19:20) - Yeah, I mean, I'll be honest, I hear the term negative leverage and I just I kind of I kind of get scared, cringe. It's like, wait, this, this, this this doesn't make any sense. At least, you know, obviously, like you said, unless there's a clear path where it's like, oh, hey, this is under market, there's an easy value add. There is all these, you know, earmarks of just something that we the present owner.   Christian Gore (00:19:42) - It is not all doom and gloom, Sam. We have we have 3 or 4 deals under contract right now. So there are opportunities. I want to throw that out there. It's it just instead of, you know, looking at 20 and finding a couple, it's like looking at 200 and finding a couple, right?   Sam Wilson (00:19:57) - Right.   Sam Wilson (00:19:58) - No, undoubtedly it is certainly not all doom and gloom. And I don't want to portray that here, but it is something where I think it's just interesting to watch what everybody's doing. And I think that's kind of sounds like what you guys have been doing this year, watching the market, watching other other sponsors, watching how deals are trading and going. Does this fit what we want to do? Does it make sense now or should we wait? What you know, what's the right move? And I think that's okay, especially if you're not sellers. I mean, that's one of those things where it's like if you have assets to sell and you sold them at the right time, you know what you sound like you're doing, doing the right thing and kind of protecting your downside along the way. So this is great. I've really enjoyed Christian having you on the show today. Certainly have learned a lot from you. You give us insight on the capital markets, on you know, what it's like to get into special situations in the hospitality space when those cross your desk, kind of what your thoughts are on industrial and then how you guys are taking advantage of multifamily and then what your just thoughts on the general market at large.   Sam Wilson (00:20:55) - Ah, so certainly appreciate your time here today. It was great 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?   Christian Gore (00:21:03) - Yeah, I would say feel free to reach out. You know, we've got LinkedIn, we've got our website. I believe you have all the all the info on us, Sam, but we're we're a small team or active so we can typically get back to you pretty quickly.   Sam Wilson (00:21:17) - That is fantastic. And our listeners do want to find your website that aren't necessarily watching the show or get into the show notes. What is that website where they should go find you?   Christian Gore (00:21:26) - Sure it is G-1 Capital Partners. Com and I believe our Instagram handle is G1 underscore capital and our LinkedIn should be G one capital.   Sam Wilson (00:21:37) - G one capital partners.com will make sure we put that there in the show notes. And Christian again thank you again for your time I appreciate it.   Christian Gore (00:21:45) - Fantastic. Thank you Sam.   Sam Wilson (00:21:47) - Hey thanks for listening to the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:21:51) - 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 Joseph Woodbury.   Joseph Woodbury, Founder and CEO of Neighbor.com, is redefining the $500 billion self-storage landscape by empowering individuals and businesses to monetize their unused space and generate tens of thousands of dollars a month in passive income.   Show summary:  In this episode Joseph Woodbury explains how Neighbors started as a manual process and evolved into a software company that builds trust in the shared economy. Woodbury highlights the various customer groups that benefit from their platform, including homeowners, small businesses, and large real estate portfolios. He also shares the story behind acquiring the domain name "neighbor" and how Neighbors stands out as the first hyper-local marketplace.   -------------------------------------------------------------- Intro (00:00:00) The early days of Neighbors (00:01:14) Scaling the business through automation (00:03:08) The $300 Monthly Increase (00:09:43) Investing in Neighbor Properties (00:09:43) Small Businesses and Ancillary Income (00:10:54) Acquiring the rights to Neighbor (00:20:50) The significance of the Neighbor brand (00:22:05) How to get in touch with Neighbor (00:23:25) -------------------------------------------------------------- Connect with Joseph: Web: https://www.neighbor.com/   FB: https://www.facebook.com/storewithneighbor/   IG: @tryneighbor   TW: @neighborstorage   LI: https://www.linkedin.com/company/neighbor   LI: https://www.linkedin.com/in/josephwoodbury/   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: Joseph Woodbury (00:00:00) - This space is sitting there totally unused. Whether they're a small business or a homeowner, or even a large commercial office. They're not earning any money off of this space. So we can go to them and say, look, this is an ancillary revenue opportunity. You could earn meaningful cash every single month. Let's post your space.   Intro (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.   Sam Wilson (00:00:32) - Joseph Woodbury is the founder and CEO of neighbors. They are redefining the $500 billion self-storage landscape by empowering individuals and businesses to monetize their unused space and generate tens of thousands of dollars a month in passive income. Joseph, welcome to the show.   Joseph Woodbury (00:00:49) - Hey, thanks for having me.   Sam Wilson (00:00:51) - Absolutely. The pleasure is mine, Joseph. There's so many questions I have as we looked at. If you're listening, if you've not checked out, neighbor, go check it out. But as I even looked at your website, I'm like, oh man, this is going to be a fun episode and I'm really looking forward to this before.   Sam Wilson (00:01:05) - But before we jump in, 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?   Joseph Woodbury (00:01:14) - Yeah. So we started from having the problem ourselves. My co-founder needed a storage unit and had the same experience. I think most people have where, you know, all the facilities close by were full and they were expensive. So he found a friend that let him store in his garage. And four months later, when he picks his items up, he just thought this was such a better experience. I saved a bunch of money. I felt a lot more, you know, security, having it in a nice neighborhood than in a dirty storage facility. There's got to be empty space in every neighborhood in the country. Why doesn't someone create a directory or a marketplace where you can go find it? So we started working on it. It turns out a lot of people have the same problem, and now we're the only storage provider in the country that offers storage in all 50 states.   Sam Wilson (00:01:58) - Wow. And that's really cool. I mean, so you say you're the only storage provider and yes, you are providing storage, but what you guys have built really is, is a software company more than necessarily storage, is that right?   Joseph Woodbury (00:02:12) - Yeah, that's a great point. And that's something we talk about internally is actually our hosts. They're the ones running a business and renting storage. Our business is trust. That's what we sell.   Sam Wilson (00:02:25) - Got it. Yeah. And it goes back to the shared economy sort of idea between Airbnb to Uber to whatever it is. I mean, all of these different. Services like what you guys have built. It's just this happens to be in the storage space. Well, tell me about it. I mean, how do you go from. All right. Cool. Hey, you know, I want to store stuff in my buddy's buddy space. And then I think that was an easy deal to. Now you own a full fledged website. I mean, you even had to buy the domain neighbor, which I want to hear.   Sam Wilson (00:02:56) - How in the world you secured the rights to that one? Because I'm sure that was an inexpensive purchase. But, you know, how did you go about turning this from just a, hey, great experience into the business that it is today?   Joseph Woodbury (00:03:08) - Well, you know, like a lot of businesses, we started with a super manual process. Those that wanted to use our service, we literally would call them and ask them how much they wanted to rent their space for, and we would connect them with renters who we called as well and ask what they were willing to store. And over time, as we got more customers, that became non scalable. So then we had to build in software processes. We built a, you know, a map where they could find each other and and know what the price is day one. And they could book it all without ever talking to us. We built full payment systems in place. We built all sorts of trust and identity verification systems. We, you know, took over all of the customer support between the two so they don't have to worry about dealing with anything.   Joseph Woodbury (00:03:56) - We're happy to to help facilitate any conversations they need to have. We actually built a full messaging platform where they could easily talk back and forth without ever having to leave our platform. And so just over time, what I'd say is we took things that we were doing. With humans, and we automated them through software. And that's how it's scaled nationwide. Yeah.   Sam Wilson (00:04:17) - No, I love that. I mean, so in the early days, you guys were manually calling potential hosts and manually calling potential people to rent that space and seeing if you could pair them up with the right spot.   Joseph Woodbury (00:04:31) - Yeah, yeah. In the very early days when we were only focused on homeowners and residential, before we moved into commercial, we were processing payments through Venmo. The renter would Venmo us and we would Venmo out the host. And and that's how it worked. And and of course, now we use major payment providers. We use the same payment provider that Amazon does to process payments.   Sam Wilson (00:04:55) - Sure, sure. Wow. At what point in time or what at what point in time did you know you were on to something? And maybe if you maybe if the answer to that is day one, was there ever a point in in building this business that you're like.   Sam Wilson (00:05:07) - Man, this isn't going to work.   Joseph Woodbury (00:05:11) - Yeah.   Joseph Woodbury (00:05:12) - Definitely. Marketplaces in general are very difficult businesses to get off the ground because unlike every other business where you have one customer in a marketplace, you have two customers. And if you can imagine a city, I think you said you're in Memphis. If you've got a host on one side of Memphis and a renter on the other side of Memphis, those don't work for each other. And so a host has no reason to join the platform if there's no renters, and a renter has no reason to join the platform if there's no host. So how do you ever even get that started? And in launching new markets, there was always this thought of, how are we ever going to get these, these people to trust us and join our platform with no promise of any success until we can get critical mass, and then the platform really starts moving.   Sam Wilson (00:06:07) - Right? How did you do that?   Joseph Woodbury (00:06:10) - I mean, we, you know, we go after the hosts first in these markets because the hosts, this space is sitting there totally unused, whether they're a small business or a homeowner or even a large commercial office.   Joseph Woodbury (00:06:25) - They're not earning any money off of this space. So we can go to them and say, look, this is an ancillary revenue opportunity. You could earn meaningful cash every single month. Let's post your space. It may be a while before you get your first reservation. And then we start driving the renters to their space, and then the flywheel starts and later hosts that we acquire in the market. We don't have to tell them that, because we know they're going to get booked very quickly, because consumers have found out in that market that we're the best, cheapest, safest, closest storage option in their city.   Sam Wilson (00:06:58) - When you enter a new market, what is that ramp up period or what? Have you seen it historically? Maybe you're over that hump where you don't have to worry about it as much anymore.   Joseph Woodbury (00:07:07) - Yeah, we we are pretty much in the early days, we would launch markets individually where we had a market launcher and a GM in the market, very similar to how Uber launched City to City.   Joseph Woodbury (00:07:21) - And we did a lot of kind of guerrilla marketing in the city, you know, just getting the word out flyers, door mailers, events, things like that. And we were able to continually accelerate that process. We got to a point, kind of, as you hinted at, where we became well known enough that we stopped launching individual markets and we just pursue a nationwide strategy right now. So we do we do large marketing campaigns across the country, and we actually have a lot of word of mouth on the platform as well. It turns out if you're a small business and you're in $50,000 a year on neighbor, you're probably going to tell your friends about.   Sam Wilson (00:08:02) - It, probably going to tell your friends. Absolutely. You're going to tell your friends about it. How long ago was it that you guys launched NBA.com.   Joseph Woodbury (00:08:10) - We launched in 2017. So that's what 5 or 6 years ago.   Sam Wilson (00:08:14) - 5 or 6 years ago. And now you're in all 50 states, which that's I think that's that's fantastic. And I mean let's talk a little bit about just the opportunity, I think I think we all get the idea of maybe an unused driveway or something like that where it's like, okay, so somebody wants to maybe it's not covered, but they can park a boat, they can park an RV, something along those lines.   Sam Wilson (00:08:34) - But your business has gone way beyond that, I would imagine. So break down some of the other kind of ancillary revenue streams that you guys have figured out in this business. And yeah, just just give us some color on that if you can.   Joseph Woodbury (00:08:47) - Yeah, yeah. I think we have kind of four different types of customers. There's the residential hosts that you talked about renting out a garage, an RV pad, a bedroom, and we'll put someone's boat or someone's boxes from your neighborhood mean it's very close proximity in your space. And you may earn 200, $500 a month. You're earning several thousand dollars a year. Then the second would be real estate investors. These are individuals that buy rental properties. They're kind of investing locally. Maybe they have ten, 15 rental properties, and they're kind of capped on how much they can make mean they can increase the rents at the end of the contract each year, but that's about their ability to increase prices. If you think about a property, you know, in Salt Lake, if you own a townhome, you may make the mortgage is $2,000 a month and you make 2300 a month and rent off of that.   Joseph Woodbury (00:09:43) - Your delta is $300 a month. So if you can earn an additional $300 a month on each property through neighbor, you've now doubled your net returns on every single property. So it's really meaningful for those guys. In addition, some of them start even investing just in neighbor properties. I'll use another Salt Lake example. $500,000 would buy you roughly a townhome here. Um, and you maybe make 2530 K in rents off of that a year if you did it for short term rentals instead, like Airbnb, you can maybe earn 40 K a year off that property. If you instead took that $500,000 and bought an empty lot, that would get you about an acre and a half to two acre lot here. That would earn you $100,000 a year on neighbor. So we're talking meaningfully more returns. So we get some investors. They just start acquiring neighbor properties. That's the second group. The third group is going to be small businesses, gyms, nail salons, uh, where they're they've got space inside in the back they're not using.   Joseph Woodbury (00:10:54) - They would love to rent that out to another business to small store their business inventory. It's closer anyway. They've got parking spaces that the city required them to build, but no one ever parks in them, and half of them are in the back of the store. They love to rent those out for long term vehicle or even fleet storage and and they can earn, like I said, you know, we've got a gym in LA that earns $50,000 a year just renting out space around their gym. That's game changing for that small business owner. And then the final category would be large real estate portfolios, large multifamily groups, large retail groups, large office groups. We work with most of the large most of the billion dollar retail REITs in the country. We work with the largest owner of multifamily in the country. And similarly, we'll go to them and we'll say, hey, you've got properties in 50 cities. Give us the 10% of your spaces that never rent out. You've they've all got those two retail pads in the back that no one wants, or that office space on the ground floor that no one wants, or those storage lockers you built in your multifamily unit for the residents, but they never rent them.   Joseph Woodbury (00:12:08) - And so we can rent them out to the community. And then all three office, they've got empty parking garages because no one's coming to the office multifamily. They've got space around their building that the city required them to build. And for a large portfolio that can result in millions of dollars in ancillary income, which is a game changer to your IRR.   Sam Wilson (00:12:30) - What are people doing? Let's go back to your $100,000 on two acres in Salt Lake City example. What are they doing with that to drive that amount of revenue on a two acre parcel that's on a vacant two acre parcel? What? What are they doing?   Joseph Woodbury (00:12:47) - Almost nothing. So they've got to sometimes make improvements like if it's a if it's just a dirt lot, then we'll recommend putting down gravel or even asphalt, which is fairly cheap. We're talking a dollar to a square foot. We also recommend putting up a fence around the perimeter that's not required. We have we have literally empty dirt lots that are fully occupied because there's such a demand for vehicle storage.   Joseph Woodbury (00:13:12) - There's we get millions of renters a year on our platform that we are unable to service because there's not enough space for them in their location.   Sam Wilson (00:13:22) - I mean, are they storing what types of vehicles are getting stored? I mean, is this all tractor trailer storage? Is this I mean, what's that?   Joseph Woodbury (00:13:30) - It completely depends on the market and it also depends on the host. So some hosts are very particular about what types of vehicles they want to store. And so they can select on our platform. They can say I only want RVs and boats or I'm in a downtown area, I want only cars. Or, you know, I like dealing with the fleet guys because they're bigger. I only want the semi trucks or the box trucks. Most hosts though, they just want to earn as much money as possible. It's an empty lot. So what we fill it up with is first come, first serve. We're just renting out their spaces for the highest price possible and getting their lot full as fast as possible.   Sam Wilson (00:14:09) - That's kind of wild. Yeah. I mean, and that would go again. I'm going back to the to the, to the vacant lot idea. Like you would think that you would have to have dedicated tractor trailer parking or dedicated box truck parking or dedicated. But it sounds like you're saying you fill it up and then figure out what you're going to put in there and how you're going to.   Joseph Woodbury (00:14:27) - We actually have this really cool tool that we built for these people. We call it blueprint. You can go on our website and you can put in your address and some specs about it, and we will actually pull up a satellite view of the lot. And we have a tool that allows you to drag out parking stalls and select the length of those parking stalls, so you can put some ten by 50 over here. For large tractor trailers, you can put some ten by 20 over here. For cars you can put some ten by 30 for for like camper trailers and boats. And our system will automatically tell you what you should price each space at.   Joseph Woodbury (00:15:09) - And it'll sum it up and we'll say here's how much you can expect to earn on this total lot. And then you can push publish on that. And we will literally take what you what you designed through our blueprint tool, and we'll just publish all those spaces for you so you don't have to do anything.   Sam Wilson (00:15:27) - Oh, that's really, really cool. Do you have a background in software or tech? I mean, is this is this just second nature to you or how did you guys how have you successfully scaled all of these different aspects of your business?   Joseph Woodbury (00:15:43) - Yeah, I have absolutely no background. You know, my backgrounds and, you know, a little bit of an investment banking and private equity. And then ultimately I worked for a consulting firm called Bain and Company. So, you know, boring professional services. Super grateful to our, you know, the engineering team, the software engineering team that we've built out. You know, our VP of engineering. He was long time, worked for Microsoft for a decade plus, ran the largest genealogy organization in the country website, worked for the largest edtech company in the country.   Joseph Woodbury (00:16:21) - So he understands software like the back of his hand. And that's how we've been able to build the really cool software that we have.   Sam Wilson (00:16:29) - Man, that's awesome. That's very, very cool. I love what you're doing. What are some applications or some problems you guys are solving that I haven't thought about yet?   Joseph Woodbury (00:16:40) - I mean, just generally I kind of touched on this, but a lot of, a lot of real estate industries are seeing decline right now. Office is is really in a world of hurt, especially with term loans starting to come due. You're you're literally getting a lot of these office buildings just handed over to the bank right now. Retail is kind of in a longer term trend. With the advent of e-commerce. It's put a lot of pressure on retail over the last ten years. Storage however, is this very stable non cyclical industry zero eight recession when all of real estate collapsed by 60 to 80%. Storage grew by 5%. I mean it is it's had a 15% kegger for 30 years.   Joseph Woodbury (00:17:27) - And so demand consistently outpaces supply. So it's got the highest occupancy rate of any real estate asset class. 95% is the nationwide average right now. And if you're 95% occupied, you should be building more. I mean, there's money left on the table. We spend about $5 billion a year just on new construction of storage in the United States. And it's still not enough. The occupancy rate still keeps going up, even with $5 billion in capital deployed every year for new builds. Here's a here's a crazy one for you because. Our brains aren't very good at understanding billions and all of that. But we have now built and I'm not talking neighbor. I'm talking the industry we've now built in the US more storage facilities than we have McDonald's, Starbucks, Dunkin Donuts, Burger King's, Wendy's, Domino's, Walmarts, Home Depots and Costcos combined. Wow.   Sam Wilson (00:18:28) - That's crazy. That's crazy. And we're. And you're telling me that there's there's still more demand, but obviously you guys are filling this. And would you what's the ratio? Let me ask you that because I was going to say, obviously you're filling this with a lot of vehicle storage it sounds like.   Sam Wilson (00:18:43) - But what's the ratio from good storage to vehicle storage to the other things that you guys are storing, like how do those percentages break down on the whole?   Joseph Woodbury (00:18:53) - Yeah, that's a good question. I don't have the exact percentages handy. It's definitely going to vary by market. So like in a in a New York you're going to see a lot of demand for goods storage. I mean there's just not enough space in a more rural market. You're going to see more demand for vehicle storage because you tend to have more space in homes for items, but you still just don't have room for those vehicles or those toys that you buy. Um, I'll tell you a crazy story. Again, we work with a lot of these large, very professional, pristine spaces where we'll actually build out units in the space. At the same time, we also work with some very unique spaces. I saw a listing the other day. This woman has a studio apartment in New York City and downtown Manhattan, and she listed her closet for rent, and she listed the space under her bed for rent.   Joseph Woodbury (00:19:54) - And she listed like a spot in the corner. And all three of her listings are completely booked. That's how that's how crazy the the demand is in downtown Manhattan, because the storage companies, they can't build space there. There's no way.   Sam Wilson (00:20:14) - That's hysterical. That's mean. You're renting the storage under your bed. Who would have thought? Who would have thought? Man, that's wild. I love what you've put together here, Joseph. This is really cool. I guess my last question here for you is acquiring the rights. I mean, you guys have you guys have clearly spent a lot of money and a lot of time building the product that you have. I know this this required a lot of upfront both time and money investment. But how in the world did you guys secure the rights to neighbor? That seems like a tough one to to have come across here in the last, I guess seven years or six years even.   Joseph Woodbury (00:20:50) - Yeah, it it took us a bit after we started the, the domain was owned by a guy who had owned it since 1997.   Joseph Woodbury (00:21:00) - So a long time I mean, over what is that? Over 20 years he'd owned it and he'd never done anything with it. He literally just been sitting on it for 20 years. This amazing domain. We reached out a few times, wasn't willing to talk. We reached out again. And finally, you know, he gave us a price that was just absolutely so high. And were these these recent, you know, founders that have, you know, we've raised a small seed round at that point. And so we just had to walk away. We just kept reaching out every 3 to 6 months. And finally he said, you know what, here's a reasonable price. And we got to terms. And he was willing to meet us, and we were willing to meet him, and we acquired it. And it's amazing. I mean, it just really speaks to our brand. We've we've been called neighbor even before we got the domain. That's what we've been from day one. And that's because we view our platform as connecting people who are close to each other.   Joseph Woodbury (00:22:05) - We're the first hyper local marketplace. You know, you stay in an Airbnb in another city. You're probably never going to talk to that host again. You use an Uber, you're probably never going to talk to your driver again. But neighbor, we're connecting people that live two doors down from each other to do storage, or small businesses that are literally in the same office park, but one doesn't have enough space and the other does. And now they're connected. And I mean, you talk about opportunity, some of these small businesses that rent out to the community, it's a great way to get to to help people become aware of their business. You go, you've never heard of this small business and then you rent their space on neighbor. You go store your stuff and then you're walking through and you're like, oh, this is a cool business. And then you become a customer of that business. We love the concept of community and bringing people together that way.   Sam Wilson (00:22:56) - That's cool man. Great story. On how you guys acquired the the domain there.   Sam Wilson (00:22:59) - I'm always curious how that how that works out. There's a few in my back pocket that I've been trying to get for a while, and just haven't seemed to figure out the the secret sauce yet. So for those of you who are listening, that that can be a very challenging and very expensive process. So I'm very, very glad you guys were able to find NBA.com. And I guess that is the last question I always have for guests to come on the show. Joseph, if our listeners want to get in touch with you and learn more about your business, what is the best way to do that?   Joseph Woodbury (00:23:25) - Yeah, we've tried to make it as easy as possible. So as mentioned, we're not hard to find. If you go to the App Store or the Google Play Store or the Apple App Store, where the number one ranked storage app. So just type in storage or neighbor or RV storage or boat storage, whatever will come up first on our website. On our homepage, you'll notice there's a spot for residential where you can easily go access our residential.   Joseph Woodbury (00:23:51) - If you scroll down further on the page, there's a neighbor for business section. So if you're a larger business, especially a major real estate portfolio, you can apply there. And we'll actually have set you up with more of an account management solution where we'll help you onboard lots of space. All the residential stuff is very easy. Self serve if you own a lot. Like I mentioned we have this blueprint tool that's it's all self serve. You never have to talk to us. It will help you lay out your space and design it. It takes about ten minutes and then you know you're on your way to make an 20, 30, 40, $50,000 a year or more off of this space.   Sam Wilson (00:24:28) - That's fantastic. Joseph, thank you again for your time today. Certainly appreciate it. It was great to have you on the show.   Joseph Woodbury (00:24:34) - Yeah. Thanks to you as well.   Sam Wilson (00:24:35) - 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 (00:24:48) - 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 Spencer Hilligoss.   Spencer Hilligoss is a passive investor who deployed 7-figures of his own capital into passive investments in the past 6 years. In 2019, Spencer retired from a 13-year tech career to fully focus on Madison Investing, his passive investing club.   Show summary: In this podcast episode, Spencer shares his personal journey from working in technology companies to retiring in 2019 to focus on his passive investing club. He emphasizes the need for clarity and vigilance in investing, advising investors to thoroughly vet teams and operators before investing. Spencer also provides advice on how to communicate with and motivate investors during challenging times, using two investor profiles as examples.   -------------------------------------------------------------- Intro (00:00:00) Spencer's background and retirement (00:01:26) Clarity and vigilance in passive investing (00:04:25) Twists and Turns in Investing Journey (00:14:05) Positioning for the Next 12 to 24 Months (00:16:10) Investing at the Wrong Time (00:19:19) Motivating Investors to Invest (00:20:06) Understanding Investor's Circumstances (00:20:41) Educating Towards Future State (00:21:16) -------------------------------------------------------------- Connect with Spencer:  Linkedin: https://www.linkedin.com/in/shilligoss/   Web: www.madisoninvesting.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: Spencer Hilligoss (00:00:00) - The goal setting process, like if there were to be. What is the most active part of being a passive investor? Because there are active parts. Right? And this is the misnomer. I think it is sitting down and just gut checking with the financials. What is your true north? Or I'll take out the platitude like what is your financial target you're aiming for? Just like if you're inside of a business, if you're going to use to work in the corporate world, anyone who's in a W2 world, if you manage a profit and loss, if you manage a financial plan, you got to go and sit there and say, hey, last year we thought the target like a win would be that dollar amount. Well, this year is looking a little different. So let's revise like what are where is our bearing here.   Sam Wilson (00:00:44) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor. We'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:58) - Spencer. Helios is a passive investor who has deployed seven figures of his own capital into passive investments in the past six years. In 2019, he retired from a 13 year tech career to fully focus on Madison investing his passive investing club. If you don't know, Spencer also came back on the show. Gosh, what was that? Spencer episode 274 I think. So sometime early 2021. We've done about 600 episodes since the last time you were on the show, so it's a pleasure to have you back on the show today.   Spencer Hilligoss (00:01:26) - Yeah. Wow, that's a fast two years. Sam. Thank you for having me back on. Absolutely.   Sam Wilson (00:01:32) - The pleasure's mine, and it is a fast two years. Spencer, before we get into the heart of the show, though, there are three questions I ask every guest who comes on the show. You have answered these previously, but we're going to have you answer them again in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Spencer Hilligoss (00:01:48) - Oh yeah man, there's still fun questions.   Spencer Hilligoss (00:01:50) - Now I'm probably going to get a different lens on it though, as always, as life evolves. So where I am now actually, let's go back. I started growing up as a punk rock and metal kid playing in bands. My dad was a real estate broker for 30 years. I was working for him as a kid, which is why I ran screaming into technology companies. I live in Silicon Valley in the Bay area, California. I have, you know, grown up for 13 years professionally building and leading large operations and sales groups for fintech companies, financial tech companies. As you mentioned, Sam, I retired in 2019, five months before Covid, and that was not part of the plan, but I would say grateful now more than ever to be leading Madison Investing, which is our passive investing club, as you mentioned up front, where we help other folks walk the same path that we have. You know, I know that right before we hit record, I was sharing a quick story about highlight of the year so far.   Spencer Hilligoss (00:02:45) - We just got back from spending six weeks in Portugal as a whole family, that type of thing, that type of lifestyle decoupling from a geography, taking our kids who are six and nine and Jennifer and I are both living and working abroad with that flexibility. That's what's enabled by passive investing done right. And of course, it's not always like turnkey. Across the the journey. There's a lot of twists and turns. You got to pull out your figurative machete and hack through the the forest, as it were, and find clarity along the way. But hopefully I didn't exceed my 90s on that one.   Sam Wilson (00:03:17) - No, I think shoot, if you weren't, if you were, if you were over 90s, it was worth listening to. So I appreciate you giving us that. That recap yet again and again. If you didn't hear Spencer's first show, go back and check that one out, because I know we're going to cover some very different things. Maybe then what we covered there on that show. You know, I think one of the things and I'm not going to hopefully offend you here by saying this, but I feel like everyone has these grandiose ideas of what passive investing is.   Sam Wilson (00:03:44) - So they're like, oh, man, you know, we're going to be a passive investor and we're going to just cash checks all day long, and it's going to be amazing. But I think the experience is wildly different. I certainly know it has been for me, as I look at all the different passive investments I have, I go, okay, you know, there's some there doing well, some that are doing but not doing well, and then there's some that are performing very poorly. And I look at that and I go, gosh, that's that's it's kind of painful in some respects to look across all of them go, not everything's doing great. What would you say a current investors outlook and kind of mood should be about passive investing right now, because it doesn't always necessarily translate into six weeks in Portugal.   Spencer Hilligoss (00:04:25) - Oh my gosh, what a killer question to open with and for people listening. Sam didn't prep me for that question ahead of time. That's just a hell of a good question. Clarity and vigilance.   Spencer Hilligoss (00:04:36) - You know, I think clarity, first and foremost, it comes down to goals. And everyone out there hopefully is starting from that point. As a quick refresher, Sam, clarity to me means sitting down 2016. I'm working full time, deep into my career and climbing that ladder, making great W-2 income. Jennifer Morimoto, who is my my spouse, my wife, and my co-founder and, you know, co-pilot in life, you know, mother of our kids across the board. We work together in life and work. And we sat down and took a whole weekend to literally sit down and say while working full time, both of us in separate careers, what is the dollar amount per month that we could that we need to hit? Full passive. To cover our needs. And that was a scary exercise, man. That was a scary exercise. And it's something that I think I don't go into lightly, because that weekend had tears that we can had reconciliation and had laughter, and we had to get a sitter to get the kids out of the house just to do it right.   Spencer Hilligoss (00:05:37) - But that's where it started. We set that goal with a 15 year time horizon to remove all excuses. And so by clarity, what I mean is it sounds so clean and simple to say, I'm going to hit 8000 bucks in passive income, which I believe at that time was our monthly income, passive income target. And, you know, I'll qualify it by saying everyone has different expectations in life. Like, we don't want to we don't I don't need a jet. I'm a pretty simple dude. Like I got some guitars. I like plucking a guitar, but I don't need a boat and no judgments on those who want more. But that was our goal back then, and we hit that goal in the last about year and a half, two years ago, we hit that goal in full passive. And we're we're so proud of hitting that. That was hard. But we said 15 years on, the original goal came back shortly after that exercise in 2016 and said, well, that's just too long.   Spencer Hilligoss (00:06:29) - You know, you and I were chatting about our kids right before we hit record today, Sam. And I'll say that like, we wanted to catch some of the magic years, as it were, spending time with our boys while they were still pretty young, and being able to have that type of lifestyle where we could spend more time. And that is what got that clarity for me. So thanks for listening to that context. I just think it's so key for people to sit there instead of saying, man, look at that great looking Facebook paid ad that presents this two x equity multiple, right on a killer looking deal, a beautiful marketing deck. And you're like, that's my ticket to financial freedom. Be like, slow down, get clear. Get clear on why you're looking at this thing. And then don't worry about asset class yet. Come back to it later. Those are the lessons I wish I could impart on myself earlier on. One other thing I'll say is like 2023 for sure has presented some challenges, right? And you hit it earlier.   Spencer Hilligoss (00:07:19) - I'd say that things like understanding the basics of what is the purpose of this one investment, what's the goal for the money? Is it a growth play? If a person is working, like talk to one of our investors in our club who's actively investing with us, has for years, and he says, well, in 5 to 7 years I want to get X dollar amount. By fully passive, you know, 5 or 7 years out. And that's a very thoughtful, responsible goal for that investor. That's a cash flow investor who is making killer W-2 income at a day job, doesn't need it now, wants to have it later so they can still potentially afford to go and invest for growth. They don't need the cash flow now, but if that same investor puts a bunch of money, puts 100 K into a deal, and they have a pot distribution right now. And they're going to get great growth on the back end of that thing. But they don't have a distribution coming in now for a monthly income.   Spencer Hilligoss (00:08:13) - That's a mismatch. So I'll take a pause there. But just wanted to kind of cover at least the vigilance on the clarity.   Sam Wilson (00:08:18) - No I think that's great. I think that's really, really great. You touched on the term goal for the money, which I think is is a it's a powerful. It's a powerful idea because even though we have financial planners and we have people that lay out again all the, hey, you know, this is what you're going to have if you invest. And of course, we've all been through that drill with with our stockbrokers and everybody else where they show, you know, projected where it's going and what it's going to do. I think a lot of times we missed that same exercise. At least I have personally in my own and passive investments around the country in commercial real estate because it's like, oh, that's cool. Like you said, that's a cool deal, I like that. Why not? Let's throw 50 grand or 100 grand at it and see where it goes.   Sam Wilson (00:08:59) - Like, this is going to be fun. But then you look at it and you're like, wait, did that actually line up with what I wanted to do in 5 or 7 years? Because that requires discipline and time. It requires those weekends that you're talking about going, okay, you know, getting a spreadsheet of everything, or maybe it's even more complex than that. But if everything where it's going, what you're expected, payouts are getting them. I mean, that's hard work. I've got a sheet like that. It's hard work. Comparing zero eight. We got a distribution this month. Did it line up with what was pro forma? Which of these are doing what they say they're going to do. And that's that's just it becomes its own kind of animal that. I don't know. Speak to us on that front if you can.   Spencer Hilligoss (00:09:37) - Oh, man, I love this topic. I would say you're nailing it. And by the way, I'm so guilty of the same thing. You know, you see a great looking deal.   Spencer Hilligoss (00:09:45) - Or maybe you just love the team, like, like, oh, I love that operator. They have such a tight operation. Their reporting is killer. Their financial reporting is transparent. They have experience. They've got repeatable process. They've got the exits, full cycle deals, all the works. Right. And I'm like, oh cool, let's drop money. And then I'm like, well, that wasn't so much of a cash flow play. I mean, it reminds me of the very first property we bought is a duplex sitting in 45 minutes from our house, where I'm sitting right now in Vallejo, California, and that thing costs 430 grand. And that's a California property for you. We bought it years ago, cost us six figures. It's down payment and a cash flow is $200 a month. That is not a cash flow win by any measure. That's a quick way to use the player capital, right? But I bring that up as one example of like where we started to where we are now.   Spencer Hilligoss (00:10:35) - And I would say now actually we're going through a refresh of this very exercise. And it's related, I think, to what you brought up a moment ago, Sam, you know, the goal setting process, like if there were to be what is the most active part of being a passive investor? Because there are active parts, right? And this is the misnomer. I think it is sitting down and just gut checking with the financials. What is your true north? Or I'll take out the platitude like what is your financial target you're aiming for? Just like if you're inside of a business, if you're what I used to work in the corporate world, anyone who's in a W2 world, if you manage a profit and loss, if you manage a financial plan, you got to go and sit there and say, hey, last year we thought the target like a win would be that dollar amount. Well, this year is looking a little different. So let's revise like what are where is our bearing here.   Spencer Hilligoss (00:11:28) - And so we're going through that now to say well you got to track it in a spreadsheet. You've got to sit down and say what's the monthly income expected from this. Are we up? Are we down. How much do we need? Are we off track? Do we need to reserve some capital because our family is going to face some some headwinds or maybe tailwinds. Maybe there's good news coming in. You know, just got some unexpected great news on, like, an exit from a deal that is like a mobile home park refinance that's coming in. And I was like, wow, that's the first, I think, capital event that's occurred in 2023 personally. So like that was that was quite unexpected, you know. So I'm like, woo, that's great to see. And we'll see a lot more of that hopefully between 20 and 24 but most likely 2025. So it's tracking and knowing where you're at on that figurative map and sitting down and saying, let's put some financial assumptions behind it, like, what are we going to get out of this deal? Exits, cash flow.   Spencer Hilligoss (00:12:18) - What does take work? It takes some work, you know.   Sam Wilson (00:12:22) - It does take work. And I think it takes work. And it also, like you said, figuring out, you know, what your true north is in this and then and then picking the right opportunities that kind of make up that matrix of deals that you should or should not be investing in. So I think that's just knowing just knowing what it is you're looking for. And again, not being guilty of following my footsteps and just going, oh that's cool. Like I love the sponsor. I love the deal. I mean, why shouldn't we do it? Like, because maybe it doesn't fit the plan. I was having a call with a with a. Friend slash business guy here in Memphis yesterday. And he goes, he goes, Sam. He goes. My answer should be to, you know, he goes, it's no. Because for these two reasons he goes, but yet I just can't help but talk to you about it because this is really fascinating.   Sam Wilson (00:13:11) - So let's keep going. And I'm like, Bill, you know exactly what your answer should be. And I appreciated that. It was it was just a funny response. He's like, my answer should be no because I don't know anything about it and it doesn't fit my box, but I want to hear more like so anyway, we all.   Spencer Hilligoss (00:13:27) - Do it.   Sam Wilson (00:13:27) - We all do it, but we all do it. Yeah, we all do it. Not falling into that trap. So that's really cool. We've talked a little bit about defining temperament in our in our investments, being a tempered investor if you will, finding out goals for the money currently. Tell me tell me a little bit about this. Like what you said that there's two things. One, you said you've experienced some twists and turns in your investing journey. I think you said since 2019. So maybe if you can give us a couple examples of what those twists and turns are, and then tell us how you guys are positioning yourselves to really take advantage of the next 12 to 24 months.   Spencer Hilligoss (00:14:05) - Yeah. Happy to. So. Twists and turns first. Abbreviated version. I can define this in three quick phases. This is not how it felt. Real time. Of course. Life has crazy chapters. You don't know where you're at on the map sometimes until you come out the other side of it, right? So phase one still working full time. This is back in about 2016. We bought that rental that pricey for 30 K rental. I just told you about California and we're like, wow, we're going to run out of money real quick this way. Not in line with our cash flow goals. We then got more comfortable to really took our time and looked at more rentals. Still didn't hadn't quite moved on beyond that rental phase. And rentals are fine. They're a great wealth builder, but. They are semi passive at best. Right and I will happy to debate anyone on that topic. Anyone who's owned rentals can attest to that, property manager or not. They're semi passive. So we got up to five long distance rentals and they were out in Kansas City, Kansas City, Missouri and 60 K average purchase price 250 bucks a month.   Spencer Hilligoss (00:15:08) - Average cash flow. That's a heck of a lot better economics than the first one. Those were maybe, at best, C-minus neighborhood. Um, you don't really learn what that means till you do it.   Sam Wilson (00:15:21) - Right?   Spencer Hilligoss (00:15:22) - And, you know, you get you get it. So we learned that way in terms of overhead, you know. That was more work than we expected it to be. Even with property managers, the economics got a little bit kicked every year because the tenants would beat up the place a little bit, and then we had turnover costs, etcetera. So we sold those properties, and then eventually we started investing as passive investors purely as LPs and some multifamily deals. And we're talking in Alabama and in Texas and a few other great markets, eventually multifamily self-storage. And those twists and turns initially, I would say were super important. You know, like a little expensive. You pay tuition with experience and scars. You also pay it with physical capital. And I would just say that those those were not, in hindsight, ideal if you're trying to maximize return, but they were necessary for us to get to where we are now.   Spencer Hilligoss (00:16:10) - And so I look at those also, once we started investing as LPs, got some killer exits from those. This is around the 2018, 20, 2019. And then we're like, well. There's so many colleagues and so many folks in my network that were saying, Spencer, like, we don't want to fly out to these properties like, you're, you know, this stuff. They're saying this to me like, you know, this stuff, you're flying out of these assets, you're walking them. You want you know, how to underwrite them. All this stuff. And I'd work so hard to get there to do that. Why don't you? What? You help us, you know? And so then we started medicine investing around that time. And it's just the club dynamic of being an educator and a resource for folks to see who who are these teams we invest in. But that doesn't necessarily mean it's always clear. It doesn't mean it's always easy. You know, like like taking the time to get to know partners and operators is it is art and science.   Spencer Hilligoss (00:17:05) - You know, it's, you know, vetting teams and humans is always going to be that way. And so I would say those were some of the whiz bang version of like the twists and turns along the way that brought us to where we are now. Um, I'd say that looking forward to your second question, though, right now is a unique time. You know, I think before this journey over the past seven years, you know, coming out of a tech career, Sam, like, I wouldn't have known how to take in the feedback and the mentorship that we hear, the wisdom that we hear when it comes to when's a great time to invest? Like when do the wealthy people, the wealthiest of the wealthy, the Warren Buffett's like, when do they make the biggest returns? When do they maximize their wealth building? And I wouldn't have understood. Like, you got to go out there and take informed risks during challenging volatility times, during economic headwind times. And that is why right now we're walking into a killer buying opportunity.   Spencer Hilligoss (00:18:02) - We're walking into a killer investing landscape. And it's it's the tough part for every investor is to look through the noise. There's a ton of very real noise occurring right now in the headlines, of course, globally and nationally. But I would say take what you need from the news, but then look past. It has best you can, you know. And so we see opportunities to buy and invest at the asset classes that we love. Multifamily large apartment communities largely in the Sunbelt. With some of the Rockies still love self-storage. We've been focusing on self-storage now since 2019 as a sister asset class, along with multifamily and a couple of other niche non-real estate asset classes. But I would say that that's really what it's about is just being vigilant about not pouncing on a deal is because it looks like it's great from a team that we know you got to go do it deeper. And clearly I have to say this as well. One last thing is just like the interest rate has to be the debt, the loan, the loan structure has to make sense in the current climate.   Spencer Hilligoss (00:19:04) - It has to be either in a suitable loan. You know, there's a lot of that going on on the few deals there are, or it has to be some kind of unique situation where the seller is distressed and you're getting a very significant discount, but tough to find those.   Sam Wilson (00:19:19) - It really is. But those are those are things. And I like your, your you seem to be a more patient investor maybe than what some of the, some of the, you know, fury that's been out there in the last couple of years, you seem to take more time in what it is that you're investing in. And I think you're right here in the next couple of years, we're going to see we're going to see some great opportunities come down the pipe. But I guess here's a question for you. Most investors, the book, Howard Marks wrote the book, Mastering the Market Cycle. And in that he basically says that historically, investors invest at the completely wrong time. Like if you just take the data and you overlay it with the economic profile, he goes, they're always investing at the top and selling at the bottom.   Sam Wilson (00:20:06) - He goes just right the way they do it. So how do you in the times of how do you I mean, I'll get to my question, but how do you communicate to your investors and then motivate them to invest at the times when it's like when everybody else is out yelling, run! You know, there's blood on the street, everybody's going to die and you're going to go, hey, man, you know, actually, right now is the perfect time to buy this distressed asset. You communicate that in such a way that it then compels your investors to invest.   Spencer Hilligoss (00:20:41) - Yeah. Gosh, that's a fun topic, man. I love the reference for the Marx book. I think understanding the posture as like as a passive investor myself, you know, as a passive investor yourself as well, it comes down to understanding fundamentally that like motivation to invest in motivation to act is is probably the incorrect way to look at it. It's really like, does a person understand squarely where they are? If you're trying to educate like they understand, this is probably going to lead back to a goals comment.   Spencer Hilligoss (00:21:16) - But I would say that it starts with just holding up the figurative mirror and saying, here's where I'm at. You know, here's an investor's circumstances. And if they are comfortable where they are, you're really not going be able to prompt action and you don't want to. I'm not interested in trying to compel someone to go and invest in something that is not fit for their portfolio or fit for their their goals. I think really what it comes down to is helping them understand the future state, understanding the future state. What I mean by that is where is the life they want to be, right? Like in three years, five years, seven years, whatever that time horizon could be. And if that means, you know, let's take two profiles. I'll just keep them anonymous and kind of abstracted here. But like profile one most common one, I would say a fellow investors that we work and invest alongside with W-2 employees, at least one significant W-2 income coming into the household likely to if they're in California.   Spencer Hilligoss (00:22:10) - Absolutely to because it's just too expensive here to have one usually. So they're sitting there going, I don't necessarily need to quit my job right now. That profile of dual income with kids, California or West Coast pricing market, they're thinking in maybe five, seven, maybe ten years. Then we want to have some optionality, because perhaps they're aging out of the tech career because ageism is a thing, and eventually they want to have some kind of safety net. So they have to think about these goals. And so educating toward that future state absolutely is the most important thing. And then connecting the dots backwards from that, like reverse engineering where do they want to be. Similarly, it's going to sound familiar, probably to where Jennifer and I were at, you know, years ago. It's like where we where were we when we started holding up that figurative mirror? Looking across, auditing our income sources, auditing our wealth, picture all that stuff, and then setting a real clear, crystal clear vision of like, well, where do we want to be? You know, what kind of lifestyle do we want to have? What kind of options do we want to have? That all applies for people who are working, and they have to work currently for their income profile.   Spencer Hilligoss (00:23:17) - Two high net worth folks, folks who, you know, maybe they exited a business that they built. Maybe they own a company actively, but they're taking more of a backseat while the next generation takes it over. You know, all that profile of so many different high net worth folks out there. But I would say that is more of a discussion of hedging downside risk in a discussion of capital preservation and understanding, like, yeah, I absolutely agree. It's a unique time when you're looking over there at the treasuries and you're saying, wow, that looks like a super safe 5%. Well, what percentage of their portfolio are they trying to allocate toward that? And also, is it really 5% that they want or are they looking at that 5% a little bit too myopically. Are they are they overanalyzing and just using that as their, their, their Uber excuse for analysis paralysis because they just don't want to go and do the mental work across the market right now to think, oh, there are excellent deals that can produce double, triple plus whatever you're getting on a treasury, you know.   Spencer Hilligoss (00:24:17) - So not getting probably getting a little too nerdy here probably for that one Sam. But that's a fun question.   Sam Wilson (00:24:22) - That's awesome Spencer, thank you for taking the time to break. Break that down. And a like I like the the the the phrase you said educating to that future state. And again I probably misused the words not motivate or compel. But it's one of those things. How do you get people off the fence. Yeah.   Sam Wilson (00:24:37) - Yeah yeah.   Sam Wilson (00:24:38) - And it's and it's and that's because again, we don't want people investing. And I've told people that I've told people before I said, no, this just isn't for you like this. This deal is not for you. So please don't invest. Yeah. You can just sense it. But, you know, I do think it is important, though, to see people when they're stuck in that analysis paralysis going, oh my gosh. Like I'm just going to sit here because everything looks so scary. And I think you've you've made some really valid points there on that that I won't rehash and kill it because you did.   Sam Wilson (00:25:04) - You did a great job really explaining that. So thank you again for taking the time here to come back on the show today. It's been an absolute pleasure to have you back on. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Spencer Hilligoss (00:25:17) - Yeah. No thank you, Sam, this has been awesome to reconnect. So Madison Investing.com, that's our website and folks can find some educational content there. We put up there monthly. They can also set up time to chat with me. Happy to be a sounding board on their passive investing strategy.   Sam Wilson (00:25:31) - Fantastic. Madison Investing.com. We'll put that there in the show, notes. Spencer. Thank you again for taking the time to come on the show today.   Sam Wilson (00:25:38) - I do appreciate it.   Spencer Hilligoss (00:25:39) - Yeah. Thank you Sam, really great to see you.   Sam Wilson (00:25:41) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:25:46) - Favor.   Sam Wilson (00:25:46) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen.   Sam Wilson (00:25:54) - 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 Alan Siebenaler.   Alan has flipped over 250 units, homes, apartment buildings, and condos. He has made SINGLE transaction profits of over $1m, and has bought and sold in 9 different states. His projects have been featured on HGTV.   Show summary:  In this episode, Alan talks about repositioning industrial properties into flex spaces, flipping homes, and exploring opportunities in the boutique hotel model. He also shares his current projects, including a luxury flip with ocean views. The conversation also covers the potential of converting office spaces into storage units and the shift towards experience-based retail. Alan emphasizes the importance of adapting to changing market trends and meeting the evolving needs of end users in the real estate industry.   -------------------------------------------------------------- Intro (00:00:34)   Alan Seaborn's Real Estate Background (00:01:03)   Alan Seaborn's Current Projects and Strategies (00:03:28)   The Industrial Property Trend (00:10:29)   Economies of Scale in Commercial Properties (00:12:39)   The Shift in Retail Experience (00:16:35)   Converting Office Space into Storage (00:21:27)   The Future of Office Space (00:21:55)   Conclusion and Contact Information (00:22:34) -------------------------------------------------------------- Connect with Alan: YouTube: www.youtube.com/alsiebs   Instagram: @alansiebs   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: Alan Siebenaler (00:00:00) - But let's say you take an industrial property, just a large, maybe warehouse or something like that, and you divide it up. So you take 10,000ft² and you change it into five 2000 square foot spaces. You give each space their own roll up door, high ceilings, maybe a little bit of office space, but mostly what we'd call flex industrial. So high ceilings and a little bit of office, and then the amount of clients you can attract to that type of space right now is huge. Welcome to the how.   Intro (00:00:34) - 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 (00:00:46) - Alan Seaborn has flipped over 250 units, homes, apartments, buildings and condos. He had made single transaction profits of over $1 million and has bought and sold in nine different states. His projects have also been featured on HGTV. Alan, welcome to the show.   Alan Siebenaler (00:01:03) - Thanks for having me.   Sam Wilson (00:01:04) - Absolutely. The pleasure is mine. Alan.   Sam Wilson (00:01:06) - 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?   Alan Siebenaler (00:01:14) - Where did I start? So I started with the desire to have some financial control over my future. I got a hold of the book Rich Dad, Poor Dad. This was over 23 years ago and I decided to start in real estate, and I got my real estate license and started in commercial real estate because I wanted to learn from real estate investors. So those were my clients. I was helping them buy and reposition retail centers, office buildings, industrial complexes, apartment buildings, and I just learned a ton. I didn't make a lot of money starting out as a commercial real estate agent, but I the the wealth was in the knowledge that I picked up. Um, what was the second question?   Sam Wilson (00:01:57) - Where are you now?   Alan Siebenaler (00:01:58) - Where am I now? So now I am 23 years down that journey. I started personally as an investor with one fixer condo, and we moved into it and fix it up.   Alan Siebenaler (00:02:11) - While living in it, my wife and I and somehow survived that and then moved out of it, rented it out, and then just kept moving forward. Eventually bought a four unit, fixed it up, rented it out, then started doing some 1031 exchanges up into larger properties and then into apartment buildings. And then during the Great Recession in 2009, commercial deals stopped. So I started raising capital and then flipping homes. We were buying them on the courthouse steps in Los Angeles, and we started buying these homes off of banks, repositioning them and selling them retail to like first time home buyers. And so now I have moved up in that portfolio. I've actually, ironically, sold most off. Fortunately, I sold my largest multifamily last February, which I think was kind of at the peak of the multifamily market, and I'm repositioning to re-enter the market. We actually just bought our first construction project. It is a bit of a flip. It's a multimillion dollar flip, and now we're going to be repositioning ourself back into the market, kind of taking advantage of a lot of the buyers sitting on the sidelines and having less competition.   Alan Siebenaler (00:03:28) - So we are actively looking right now.   Sam Wilson (00:03:32) - Is that the actively looking right now that's back into the multifamily space.   Alan Siebenaler (00:03:38) - Uh, that's a good question. It depends. I now I'm only I'm in California based out of Santa Barbara, California, and I'm not going to go long distance unless I have a multifamily. First of all, that's large enough. Meaning? Well, north of 100 units, be able to have a really good management company and a full time presence on the property. And also I'd want it in an A location but with value add, right. So that I can get really good demographics of tenants by adding value to the property, repositioning and improving it, then I might go out of state. In terms of in our area, we're on the coast, so prices are really high. But I really like the model of repositioning industrial space into flex space and breaking it up into smaller spaces, which we can talk about when we talk about industrial and flex. But I'm looking for that. I also like the boutique hotel model.   Alan Siebenaler (00:04:34) - I've done a lot of short term rentals, Airbnbs, furnished corporate rentals in our apartment buildings over the past 15 years, and so transitioning that into a hospitality model like boutique hotels in wine country, looking up and down the coast here in wine country. So that's kind of fun.   Sam Wilson (00:04:54) - Absolutely. How do you decide? I mean, there's there's you've done so much. You've seen so many aspects of this business. How do you decide what it is that you're going to focus on for the foreseeable future?   Alan Siebenaler (00:05:06) - Man. That's a good question. I'll do my best to answer it. One is based on the team of support I have around me. Real estate's a team sport, so there's no way I can pull off what we do on my own. So I have to have the right team. And that's everyone from. It could be my my investors that I have on board. It could be the contractor and renovation team because typically we're doing value add. You know, we're not just buying something that's already completely turned around.   Alan Siebenaler (00:05:39) - So I have to have the right team in position in that area to know and have confidence. And we can build a team fairly quickly. But my team here, my home base, you know, we can only go so far and then we're out of range. And then I'd have to build a whole new team. So a lot of it will depend on that and of course on the opportunity. Sometimes when you find the right opportunity, you can quickly build a team around it. But that's high, higher risk. Because when you're using a new team that that's not seasoned, a lot more things can go wrong. And typically you'll have turnover and you'll have to get to the point where you actually have a good team, if that makes sense.   Sam Wilson (00:06:21) - It does indeed. Yeah. No, I appreciate appreciate your insights there on that front. So just to clarify, I mean, you've done a lot of different things over the years. You've got a high end construction. You said a project flip I think you mentioned that.   Sam Wilson (00:06:34) - Yeah, they're in the things you're working on right now as well. What type of a project is that? Yeah.   Alan Siebenaler (00:06:40) - Right now it's really a fun project. We are working on basically a luxury flip. It's full ocean view, 180 degree view of the ocean and city. It overlooks the city of Santa Barbara Harbor views. You can see the sailboats going in and out, and we purchased it for 2.5 million, and we're putting about 400,000 into it. And we're repositioning it into like a modern beach feel. When I say modern and beach, those two terms kind of clash. But so it's not modern modern. It's like a modern beach. So wide plank floors, lots of whites and woods and and we're creating this feel to it that'll just modernize the property. And with that view, we can afford a lot of upside if the project's done right.   Sam Wilson (00:07:34) - Yeah. No. Absolutely. How do you go? I mean, I'm just really curious, you know, when you when you say luxury ocean flip, I'm thinking like, okay, 2.9 million.   Sam Wilson (00:07:43) - Why would it seems like that seller could just sell it open market as opposed to selling it probably to somebody that's looking to renovate it and flip it? I mean.   Alan Siebenaler (00:07:51) - Yeah, it was a motivated seller. It was, you know, it's what you're looking for is a motivated seller. It was a divorce and the property had been neglected for years. And so the inside of it looked like it was dated 1980s. The outside is like 1970s stucco. So we're just modernizing everything, the stucco, we're turning it into a smooth plaster. We're adding a bunch of custom features to the property. You know, everything cosmetically is changing on the property. And then we're doing some value add where we're making because it's up high with the view, there's not as much flat yards. So we're adding a retaining wall and adding some more yard space, which is huge to have yard space with an ocean view. So there's just certain things we're doing that they would have never done because they were divorced. And you know, unfortunately fighting.   Alan Siebenaler (00:08:42) - And so we were able to come in and solve those problems and reposition it for a higher end buyer to come in and say, that's my home. I want to live the rest of my days in and purchase it at a, you know, at what would be a good return for us, right?   Sam Wilson (00:08:58) - No. That's awesome. I love that I don't know where you live currently or what your house looks like, but when you see projects like that with, what do you say, 180 degree ocean views, is it tough not to be like, man, I should just move in here instead?   Alan Siebenaler (00:09:11) - Yeah, I think about that every day. I'm thinking, how do I keep this property? You know, maybe one of the exit strategies as well is that we'd keep it and we'd rent it out as a what you call mid term rental. So 30 days or more. Because in that area, like a lot of areas right now you can't do short term rentals but you can do mid term. So I could have someone come down from Canada or you know Memphis.   Alan Siebenaler (00:09:37) - And then in the wintertime you're going to come out here and get some sunshine and look at the ocean all day. You might rent it for a month or three months, and we can get a really good rental rate from that. And so that that is another exit strategy, is just to hold it and rent it in mid term furnished. Right.   Sam Wilson (00:09:53) - Oh that's cool I love it. Those got to be kind of fun projects there to work on, which is not necessarily, you know the the standard. Just basic flip. It is something where you get to use your creative skills and actually see a fun project come, come full circle. That's awesome. Let's talk a little bit about so. So that's the construction project flip you mentioned right there. You said something about industrial to flex. Yes. What? I don't even know what that means. Can you break that?   Alan Siebenaler (00:10:22) - Yeah, that's that's a really exciting strategy. You've seen it I know you've seen it. It's it's happening across the country right now.   Alan Siebenaler (00:10:29) - But let's say you take an industrial property just a large maybe warehouse or something like that, and you divide it up. So you take, you know, I'll just use the analogy of 10,000ft² and you change it into five, 2000 square foot spaces. You give each space their own roll up door, high ceilings, maybe a little bit of office space, but mostly what we'd call flex industrial. So high ceilings and a little bit of office, and then the amount of clients you can attract to that type of space right now is huge. You have everything from CrossFit gyms to every contractor. You could think of plumbers, wood floors, you know, tile, Hvac to, you know, I'm even seeing wine bars going in our area. You know, we live in a little bit of wine country and you have wine bars going into these industrial spaces and, you know, setting up a tasting area and, and breweries going in. And, you know, so we're seeing all this kind of just intersection between retail and industrial happening.   Alan Siebenaler (00:11:41) - And just for that cool sort of feel of high ceilings and a roll up door, you can do a lot with that. And that's a very popular trend right now that I'm pretty excited about.   Sam Wilson (00:11:51) - Oh yeah. No, I can I can certainly see the appeal because they're so like you said, there's so many different uses for it that it's even even for some of the stuff that we're doing. I'm like, gosh, you know, that'd be that'd be fantastic. If you know your little 2 or 4000 square foot, I mean, that that would just you can serve a lot of customers that way, each in their own, I think, unique way. And they're probably not limited in from a zoning perspective. I mean, you're probably not fighting the I mean, if it's if it's zoned industrial and they're putting a wine tasting bar in like. Who actually cares?   Alan Siebenaler (00:12:25) - Yeah, yeah, usually you're okay, but you have to work with the government. But the most exciting part about it for the investor is that when you're dividing up that space, you're now going to a much higher price per square foot because of economies of scale.   Alan Siebenaler (00:12:39) - Right? Because now you're not leasing a 10,000 square foot space, now you're leasing five 2000 square foot spaces. So you can imagine what that does to your income on the property at the end of the day, not costs you something. I mean, we looked at one just yesterday where we realized that if we did this on this property, we divided it up. We estimated, let's say it cost us 300,000 to do it. You know, just because it needed the ceiling's blown out. It needed a lot of stuff. But let's say it cost us 300,000 to divide up this industrial property. We ran the numbers on what the new rent would be. And because these commercial properties, the value is determined by the rent and by the leases that back them, we ran a cap rate analysis and figured out that that property would go up in value by $1 million. So spending 300 to go up by buy a million, we're like, man, that's a that's a green light, right? That's a good one.   Alan Siebenaler (00:13:36) - And so that's where it gets really exciting. Is that much more than residential residential. You can improve and you kind of have to fight with the price per square foot and compare it to other residential properties where commercial you can improve. And if your income goes up, the value goes up accordingly. So it's that's a pretty exciting strategy to use.   Sam Wilson (00:13:56) - Absolutely. No, I think that's really, really cool. Is there are there certain types of assets or certain, I guess, profiles of buildings that people should be looking out for, or even locations in general that people should be looking out for to say, hey, these would be the types of assets that this could work in or that strategy could work in.   Alan Siebenaler (00:14:16) - Yeah. Good question. I think, you know, you have to put on your hat of what would it be like to be the end user of this property. Right. So if I'm the investor, I'm thinking if I'm going to divide this up, who are my end users? And we just went through some of them.   Alan Siebenaler (00:14:34) - My end user is a contractor. So what's important to a contractor? Well, they want probably as big of a rollup door as possible that I can get away with in my current zoning. They probably want ceilings as high as possible. They want some storage area. They they might want some power. If I can upgrade the power, that would be great. Um, you know, and then they might want a little bit of office space to be able to go in there and close the door, or have someone go in there and do the books and close the door. So just thinking through, what would your end user want? And some end users won't want any office space if it's going to be, you know, the CrossFit gym or the wine bar sort of space, they might just want as big and open as possible. So just thinking about what an end user want and maybe giving them a few options.   Sam Wilson (00:15:25) - I like that. No, that's absolutely great. Let's talk about some other opportunities that are out there right now.   Sam Wilson (00:15:30) - What are you seeing in maybe the retail. And then if you can talk and touch on the much probably looked down upon office space right now.   Alan Siebenaler (00:15:41) - Yeah. Yes. I'd love to talk about both of those. So retail right now, even if you just look back, maybe the past 1015 years, it's been really interesting to watch. Somewhat painful as the Amazons and the, the online businesses came in. And then you saw all these smaller stores just go out of business, and it's been a little bit painful to watch. But what's been exciting is some of the new life that's coming in, especially over the past few years in that retail experience has shifted to become more of an experience based business than just buying a widget. Like if you want to buy a widget, your Radio Shack type of widgets, you're going to just click a button on your phone and that widgets going to show up in right 1 or 2 days, right? But if you want an experience, you want to go and have a drink or you want to go in for kids, it's the Build-A-Bear thing.   Alan Siebenaler (00:16:35) - Or you know, you want to build a toy, your kid wants to build a toy, or you want to throw an axe. You know, axe throwing is is a new chain that's spreading across the country. Any of those sort of retail experiences, wine tasting, brewery, all of those are bringing in new life into retail. But it's also changing. You know, it's hard to take what was a RadioShack, which were just but ugly on the inside and make it look really, you know, for an experience. We wanted to have a certain feel right now would be more typical to have higher ceilings and beams and lots of window or natural light or whatever. And so there is a bit of a painful transition going on, but there's a lot of excitement there as well for the just the experience based retail, I think.   Sam Wilson (00:17:24) - Experience based retail and then also the I mean, the type of retail that we're seeing, not go places, is like even down to I'm just thinking in here in Memphis, the, you know, ice cream, like ice cream stores or barber shops or there's still a lot of things, I think in retail where there's opportunity on the smaller retail side that is, I think still a compelling, still a compelling asset to, to, to invest in just because again, it's not it can't be Amazon.   Sam Wilson (00:17:55) - It can't be shipped. It can't necessarily be DoorDash. It's something where you got to actually go and and again, that's experience base the ice cream shop, the you know, the barber shop, the liquor store, whatever it is, it's all still experience based retail but just a little bit different.   Alan Siebenaler (00:18:09) - Even you reminded me of another one. Have you seen the ones where they'll take a space? Let's say it's 3000ft² and no one's leasing it, and then they'll have three concepts come in and lease that space together. And one will be like a coffee shop concept, and another will be like empanadas or Latin food, and then something else will be over here, maybe knickknacks or touristy items or whatever, and all three of them will share the space. And that. That's been kind of cool too.   Sam Wilson (00:18:36) - Yes, yes, I have seen that. And I like I like that as well, because it's kind of like that, that indoor outdoor shopping, whatever experience it can be, you know, depending on the space is laid out.   Sam Wilson (00:18:45) - But yeah, I've seen that as well. And that's really cool. Talk to me then, if you can, about opportunity if there is any in office.   Alan Siebenaler (00:18:54) - Office. Yeah. Office is kind of the elephant in the room right now isn't it. My gosh, who would have predicted who would have predicted that no one wants to go to office anymore and they can kind of get away with it. So yeah, it's our post-Covid world is that we have office spaces. Sitting vacant all across the country, and I've got one right now. I'm trying to help a client get leased because they consolidated their offices, and so they're subleasing this space. And I've had like two showings in six months. I mean, it's just we just keep reducing the price. And so office there is always an opportunity in the crisis. Right. So office opportunity is to be repositioned into probably residential. But that's not an easy thing to do. These buildings were built for office, not for every unit to have its own, you know, bathroom and kitchen.   Alan Siebenaler (00:19:54) - And and then you got the zoning challenges and just all kinds of challenges. And so they're really trying to figure that out. It is something that I have my eye on and I don't think anybody's figured it out. But but there is opportunity there. It's kind of like just brainstorming on what that could be. And are there places that could be converted into residential in a way that wouldn't be cost prohibitive? You know, I saw a school recently that was converted to residential, so that was interesting. But yeah, I mean, there's ways to do it for sure, especially if the numbers can make sense. But there's a lot of challenges too.   Sam Wilson (00:20:38) - There are a lot of challenges, man. And that's I think that's it. Like you said, it just it's kind of a in its own right, a TBD in the right locations. I know I'm a passive investor in, in office. What is it. Office to office to storage conversion. Yes. And it's going really well like yeah they're they're ahead of projections across the board.   Sam Wilson (00:21:01) - But again it has to be in the right spot. Like you can't just do office to storage everywhere. There's because one we don't need that much storage I don't think Americans and their stuff but I don't think we need that much storage. And then secondly, just need to be in the right spot. So, you know, but that's that's a much easier lift, I think putting up partitions and roll up doors versus, like you said, running plumbing for every residential unit inside a building like that. Yeah, I.   Alan Siebenaler (00:21:27) - Like that one. I like Office of Storage because you're just like you said, you're not putting in a kitchen in a bathroom. So if you're converting office into storage, you're really just building out the framework for walls and doors and, you know, electrical and but that could work really well of course. Yeah. Based on is the demand in that area enough to support it because you will have some fairly significant construction costs. But that's a cool one. Yeah.   Sam Wilson (00:21:54) - Yeah, yeah.   Sam Wilson (00:21:55) - No, it absolutely is. I'm excited about that project from a personal standpoint. But again, you know, it's I think it is just an interesting time to be looking at office and going, okay, what where does this go in the end. So this has been fascinating. Thank you, Allen, for taking the time to come on the show today and really talk to us about a lot of different asset classes, things that you're both seeing personally and that you have also invested in and done your your resume, if I'll call it that, of things that you've done in the real estate space is fascinating and certainly been insightful to have you on the show today. So thank you for taking the time to come on and share this. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Alan Siebenaler (00:22:34) - Yeah, I'm on YouTube at youtube.com. So it's a l s like Sam I e b like boy, s like Sam. That's a best place to find me.   Sam Wilson (00:22:48) - Awesome. YouTube.com al Allen, thank you again for your time today. I certainly appreciate.   Alan Siebenaler (00:22:53) - It. Thanks for having me.   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.

Today's guest is Salvatore Buscemi.   Salvatore is currently serving as the CEO and Co-Founding Partner of HRN, LLC, a private multi-family investment office, Salvatore Buscemi has demonstrated a keen eye for successful investment strategies. He started his career at Goldman Sachs.   Show summary: In this podcast episode, Salvatore discusses the importance of networking and building meaningful relationships, especially in the investment industry. He shares his journey from considering medical school to raising $30 million for a fund at 29, and his ventures into life sciences and commercial real estate. Buscemi emphasizes the need for genuine interaction and understanding investors' preferences. He also discusses his upcoming book, "Investing Legacy: How the 0001% Invest," which offers insights into the current state of investments.   -------------------------------------------------------------- The importance of networking (00:00:00)   Salvatore Buscemi's background and career journey (00:00:53)   Investing in defaulted loans and impact-driven investments (00:02:38)   Networking and Building Relationships (00:09:29)   Being Busy vs. Being Meaningful (00:10:11)   The Law of Reciprocity (00:15:52)   Importance of building relationships with investors (00:18:20)   Helping investors by saying no (00:19:06)   Introduction to the book "Investing Legacy" (00:20:44) -------------------------------------------------------------- Connect with Salvatore: Twitter: https://twitter.com/SMBuscemi   Instagram: https://www.instagram.com/salvatorembuscemi/   Facebook: https://www.facebook.com/salvatore.buscemi.589   Amazon: https://www.amazon.com/stores/Salvatore-M.-Buscemi/author/B00O5IHPTC?ref=ap_rdr&store_ref=ap_rdr&isDramIntegrated=true&shoppingPortalEnabled=true   LinkedIn: https://www.linkedin.com/in/salvatore-buscemi/   Book: https://www.investinglegacy.com/book   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: 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: Salvatore Buscemi (00:00:00) - Your network is so important. It really is. And and the most extreme example of this is when somebody loses their job, they don't have a network. So they're groveling to all their friends. Right. And so, you know, there's no excuse for that today especially in LinkedIn. You have to treat your you know, you have to treat people like friends. You know, like really. And I think that there's been too much of an institutionalization that's been normalized now where, you know, coming after the pandemic, a lot of people are they're looking for that warmth and that intricate connectivity.   Intro (00:00:26) - 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 (00:00:39) - Salvatore Buscemi is currently serving as the CEO and co-founding partner of Hrn, LLC. They are a private multifamily investment office, and he has demonstrated a keen eye for successful investment strategies. Sal, welcome to the show.   Salvatore Buscemi (00:00:53) - Sam, it's a pleasure and privilege.   Salvatore Buscemi (00:00:55) - Thank you.   Sam Wilson (00:00:56) - Absolutely. The pleasure is truly mine. Sal, 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?   Salvatore Buscemi (00:01:06) - I started out after college not wanting to go to medical school because I passed out holding a tibia in the cadaver room, and I wound up networking because of the work I did for that doctor before I passed out. He had introduced me to his brother, who had just made partner at a firm that I would later work at called Goldman Sachs. At the age of 29, I left and raised $30 million institutionally from a Park Avenue investment manager. I was young, I was looking back. I was very driven. But there was an opportunity with Bear Stearns that collapsed, that was able to utilize my skills and network to be able to put together a $30 million fund institutionally, which a lot of people don't do unless you have that Wall Street pedigree.   Salvatore Buscemi (00:01:46) - And we had a lot of fun. The market's changed in about ten years ago. I started because of some of the families that I've worked with. They we went into like sciences because I was introduced to two partners of mine that have very illustrative careers in life sciences, managing money for the Rockefellers at the age of 26, 6 billion for them. And, you know, it's the same for Texas State Pension Teachers Pension Fund two as it related to the life sciences. So the deal flow that was coming in is great. And we built a whole consortium around that because a lot of people want to a lot of people have discretionary income and not only looking to place it into things like real estate, but also the other things that are a little more impact driven.   Sam Wilson (00:02:29) - That is a wild ride. Let's go back to the 30 million you raised right out of the gate on your own. What was that into?   Salvatore Buscemi (00:02:38) - That was into it was. It was interesting. It was sort of like the Big Short, but not really.   Salvatore Buscemi (00:02:42) - We were buying whole loans, right? Where if you look at the Big Short, they were looking at buying, you know, they were creating synthetics and then they were shorting them or trading them. So we were basically the kitchen sink for Bear Stearns. A lot of the stuff that came through, and this is during 2008. Now, a lot of people time thought that you couldn't short the housing market. Well, movies and books have been written to show otherwise, but it was really me connecting with someone who was a little older than me, but could see the fire in my eyes. I guess enough so that, you know, we were we put together this, you know, this, this, this fund that we were able to buy a lot of defaulted assets from Bear Stearns and some other banks that were going out of business.   Sam Wilson (00:03:21) - Got it. And what what did you do with them? So you bought all these defaulted loans and then what?   Salvatore Buscemi (00:03:25) - We bought low and sold just a little higher.   Salvatore Buscemi (00:03:28) - So what we were able to do is that we were able to clear title on these, the ones that we were going through the whole foreclosure process and then just selling them off to rehabs. Right. And they had as long as, you know, and the key to make it that really made that work, Sam, was to make sure you understood the metrics that they wanted as far as a profitability. And then this way that would affect your investment basis. So if, you know, these guys had to have a margin of like, I'm just saying 35%, for example, it makes it a lot easier for you to go into these deals knowing exactly what these guys want. And it was high velocity and we were able to do that. And then later I did it out in Las Vegas, too, with with commercial real estate, with private lenders. And I actually wrote my first book after that called Making the Yield, because a lot of people didn't know what hard money lending was, or private lending.   Salvatore Buscemi (00:04:09) - If you go to making the yield, you know you can get a copy. But and then after that, I wrote another book on fundraising because that was important to as well. People wanted to know, well what was the right way of doing this. And raising real money was actually came out about a year after that.   Sam Wilson (00:04:23) - What are so you've done a lot. Let's just start there. I hear, I hear, I hear the last 20 years and I go.   Salvatore Buscemi (00:04:29) - I like to say busy. I like to say busy.   Sam Wilson (00:04:32) - You've been busy. Okay. And it sounds like it's busy by choice. What drives you today to keep doing what you're doing? Like what's a what's a key motivator for you?   Salvatore Buscemi (00:04:43) - So we're not we haven't really done much in real estate. We do have 166,000 square foot Class-A industrial building we did in 2020, which has been performing very, very well because it's logistics and, you know, warehouse, light warehouse. But what gets me out of more out of bed in the morning right now is the impact that I've made.   Salvatore Buscemi (00:05:01) - And the track record that's starting, especially from this year. We've seen a lot of our, again, life science companies make a lot of improvements and strides as it relates to getting FDA approval for artificial defibrillator devices that every mother now will carry in her purse. Right. You can charge it with your iPhone. That is a big deal. And that came out in February. We also have a few other things that are happening to where people were. The ability to to really impact humanity is great to a lot of these wealthier families. And the ones that I'm talking about are over $100 million in net worth. They they're not looking for an extra zero, really. They're looking for that impact. They're looking for the bragging rights to go along with something. And we've been involved in a lot of deals right now where even outside of life sciences, we've had a tremendous impact on society. If you think about it, there's 260 million soccer players worldwide. We invested into a company alongside another large family called AI.   Salvatore Buscemi (00:05:53) - Scout. And Scout is a preeminent recruiting tool, and you'll hear some announcements, but they've already been chosen for Chelsea Football Club and a lot of the other Premier League sports, Premier League football teams in Europe, to be used for recruiting. And, you know, the impact that that is made is that in a town in East India where there's only one cell phone for 45 people, one kid was able to get recruited to Burnley, I think. So these are premier soccer clubs that are doing a lot of recruitment and the impact and the democratization of people through technology to be able to improve their lives is something that, you know, really, really draws to me. You know, it's like somewhere I don't have any kids and I'm not married, but at some point you got to look back and see who did you help, you know, what did you really do? And I think most people look at it from the altruistic standpoint where, you know, but look, I like to think big and I like to be alongside people who think just as big as I do to get into opportunities and to and to really communicate the strategy in a way where everybody can get their their hearts and minds around it.   Sam Wilson (00:06:50) - That is amazing. What do you do to put yourself in? Maybe at this point it just it's just the network that you've built. But how do you put yourself in front of these types of opportunities? Because those are pretty nuanced.   Salvatore Buscemi (00:07:04) - They you know, these are not my rule of thumb is the wider an opportunity is made available, the less valuable it is. Think about it. Everybody during the cryptocurrency days, do you buy Bitcoin? Why not everybody sneaking into your, you know, your DMs? I suppose it's a function of your network, but mostly your reputation. If I do not do what I was supposed to be doing with this one company, I would not have been invited to invest in space actually this past August. Right. And so that was an opportunity where I had to move fast. People could depend on me that we could move fast to do this. And we come to the table with money. So I think it's more or less a reputation, whereas people are looking for that certainty of execution, that you're actually going to write a check, you're going to do what you say you're going to do.   Salvatore Buscemi (00:07:44) - You are who you say you're going to do. And it's backed up by pedigree, too, as we talked about. And that gives people the creature comfort to say, hey, let's let Sal into this consortium. Let's let you know. Let's let them have a look. Now, that doesn't mean I'm going to invest. Don't get me wrong. I mean, I get invited to things all the time, but even more so than that, what I like to do is I like to keep the networking on a very high level and a very active level. Tonight I'm invited to three things I don't want to, you know, cigars and cognac mean I'm just going to meet with a bunch of people real quick. You know, it's like a gathering here in Miami. But, you know, if I meet one person of consequence or somebody who I can help, it's worth it, right? And it's just a short walk. And it's a very cool day in Miami today. So it's not like I'm going to be sweating on the way over there.   Salvatore Buscemi (00:08:25) - There's other events too. And I moved to Miami because and this is something I want your listeners to really understand. Your network is so important. It really is. And and the most extreme example of this is when somebody loses their job, they don't have a network. So they're groveling to all their friends. Right. And so, you know, there's no excuse for that today, especially in LinkedIn. You have to treat your you know, you have to treat people like friends. You know, like really. And I think that there's been too much of an institutionalization that's been normalized now where, you know, coming after the pandemic, a lot of people are they're looking for that warmth and that intricate connectivity. And, you know, that's a whole other, you know, a whole other conversation we can have on that.   Sam Wilson (00:09:01) - Right? No, I think that's great. That's absolutely great. Yeah. I mean, I'm reading here on your website or on your website, actually on your LinkedIn profile view or profile, it says, you know, you guys are multifamily office Advisor and you put a bunch of things in there.   Sam Wilson (00:09:13) - And one of the one of the phrases I think that was unique was it says in other, not unique because you actually use the word in it, but was catching was in other unique invitation only opportunities. And so I started thinking about like, okay, so what is Sal doing to get one of those unique invitation only opportunities?   Salvatore Buscemi (00:09:29) - Yeah. You're networking. You're always out there. And for people at home who don't live in Miami or New York City, where I'm from, you have zoom today. There's it's there are people I know who open up their calendars just so they can sleep. You know, where they're meeting with people all over the world. It sounds kind of crazy. And there are people who are eccentric who do that. You don't have to go that crazy. But it would be great if you could meet some people over zoom just to, you know, to continue to build a network meaningfully, not just clicking and accept and, you know, people will forget and also be interactive.   Salvatore Buscemi (00:09:58) - I'm always interactive on people. Whenever I'm on a on a podcast, I always repost it. I always talk about the good things that are going on. I talk about a lot of things that are going on, but that interactivity is more important not just on LinkedIn, but also through email as well.   Sam Wilson (00:10:11) - Right? Absolutely. Let's let's talk about the something that we mentioned here in the beginning of the show. I said, you've done a lot, and you said, I like to define it as busy. How do you make sure that you're busy is also meaningful?   Salvatore Buscemi (00:10:26) - I have two that's a very good point. And you have to look at it and find out what's the highest and best use of your time and how do you leverage that activity. So I like to first of all, number one. Today. We live in a digital age, right. And so you have to continue to attract attention, whether you're me, whether you're someone else or the worst case scenario, politicians, they're constantly attracting attention.   Salvatore Buscemi (00:10:49) - Right. Because attention is the new oil. And, you know, there's there's there's a lot to be said for that. So what I do is the highest and best use of my time are two things. Number one, creating content to post on LinkedIn I like LinkedIn. Twitter for me is like a nice site. Like every time I post something, somebody, you know, I think people are drunk on Twitter, to be honest with you. I just don't understand it. But it's, you know, it has it serves this purpose as far as democratizing the voice. The second thing, too, is that I'm always talking to investors, whether they're current or new. That's the highest and best use of time, current or new. And I'm being very careful about what they're telling me. If it's a new investor, what do they like to invest in? What don't they like to invest into? Sometimes they like investing in stuff we won't touch. That's fine. We can still be friends. But he's not going to get my email distributions maybe.   Salvatore Buscemi (00:11:37) - Right. So I mean it's it's you just have to be meaningful and thoughtful about it because there's just so much noise out there today. And if you really are looking to build those relationships and you're sending out the emails and you're continuing to do things that really set you apart from everyone else, you're going to start to build a brand for yourself. And your brand really is your promise. When you think nobody tells you that they all have these great. You know, if you ask Madison Avenue what a brand was, they say it's a nice logo. And I've been down these road. I know exactly what it looks like, but at the end of the day, people are investing in you in a brand first before they invest in any sort of entity.   Sam Wilson (00:12:10) - Yeah, absolutely, absolutely. And we talked about that a little bit before we started hitting record, which as you said, that we've moved into this transactional sort of capital raising environment where people have lost that relationship edge. How again, you know, maybe I'll just ask the question again, maybe in a different way, but how do how do you.   Sam Wilson (00:12:30) - That's a lot of high touch. I'll just say that in raising capital, in maintaining those relationships, how do you do that in a way that is scalable?   Salvatore Buscemi (00:12:39) - Yeah. Um. Today, I think less is more. When I moved to Miami a year ago, it was off of the. It was still during the tech hype and ether and a lot of people around the tech ether. And then Silicon Valley bank happened. Right. What happened is, is that everybody who I'd meet would be a founder, and it would scare me because they come and they'd have their iPad underneath their arm. And I'm like, oh, no, I'm going to be pitched like, this is terrible. I have to sit through this guy's PowerPoint. And what I think happened is, and you could actually maybe chalk it up to the, to the Bitcoin era when that was supercharged was that people became very transactional. And when you're dealing with people, you know, if you're selling something like a book or, you know, even a car, you know, it's very transactional.   Salvatore Buscemi (00:13:26) - You don't really have a relationship with your used car salesman, right? However, when it comes to getting money from people, people will never give you their money without first giving you their time. They want to get to know you. And this is something that goes back to biblical times that, you know, getting someone to part with their treasure for a higher calling is probably the highest calling is in sales. When you think about it, you know, funding. Look at what we're doing now raising money, bundling for politicians, war companies, whatever. There's a lot of power there. And that's the highest and best skill set you could have is not necessarily being a sales person, but being very social and being, you know, and building that network and really enjoying it. If you don't enjoy it, that's fine. Find someone who does, you know, maybe online, you can help to do that. You know, with I, I'm sure there's going to be all sorts of gimmickry that's going to be coming out with that.   Salvatore Buscemi (00:14:17) - However, you got to make an effort. And I think, you know, for me, if I make, you know, if I'm on the phone, I like meeting new people. I get introductions all the time because they do what I say I'm going to do. If you make an introduction to someone, I'm going to be there two minutes early before the zoom to make sure everything works, just to make sure you don't look like an idiot. Even if this guy doesn't do a, you know, even if this guy and I, you know, never do business together or anything like that, it's a function of your reputation. And people today, I don't think they really they don't value their reputation as much as they used to. I think they're hiding behind, you know, the pixelation of what they want the world to see as far as their Instagram and their social media. But the transactional nature has only accelerated. But in order to counter that, you have to go in the other direction.   Salvatore Buscemi (00:15:00) - And when everybody zigs, you should probably zag. And that's just fundamental for all humans. I mean, nobody goes to the movie theater to read numbers. They all get there to be entertained and hear a story, become a storyteller. People really like that. But it will also help you build your network. And then when the time comes where you need to make and ask for that network and you hold off as long as possible, then you're going to be pleasantly surprised.   Sam Wilson (00:15:22) - Hold off as long as possible.   Salvatore Buscemi (00:15:24) - Yeah, I think a lot of people are saying, oh, I just met this person. I want to know they're going to write a check. Well, they don't know you. They barely know your company. You can't even communicate your company correctly. It's too technical, it's too deep, it's too granular. It's confusing people. Why don't you build a relationship with this guy first, to see if this is something he's really into, rather than just treating like an ATM. And for me, it's the more value you give someone first, the better off in the position you are.   Salvatore Buscemi (00:15:52) - It's the law of reciprocal reciprocation, reciprocity. And that's really what people are motivated people today. You know, it's like I send you a copy of my book, right? I mean, thank you for having me on your podcast. But, you know, like there's reciprocity there, right? I mean, the cost a little money. Yes, I autograph it, but it's something you'll always remember. And for those of you who are looking to raise money, starting out writing a book could probably be the best thing you could ever do.   Sam Wilson (00:16:15) - That's interesting, I love that. That's a great that's a great tidbit. And it is. You're right. I mean, I'll be honest. I don't know what I've got episodes wise. And again, I'm not toot my own horn here, but maybe 870 some odd episodes at this point. And wow. Yeah, I remember every guest who has sent me a copy of their book. Yes. And that's I mean, that's a lot. Maybe. I mean, not a lot.   Sam Wilson (00:16:37) - Not not a lot that I remember, but it's like, you know, there's probably five people maybe of that 870 that sent me a copy of the book, and I can probably name them all off to you. I'm like, oh, they did. Yeah, they did, they did, they didn't, they did. Yeah. And there's a lot of episodes unfortunately, because this is quick, it's a 30 minute show. Not even it's a 20 minute interview, a 30 minute at most, where you and I might interact and remember those people and go like, well, are they hundred and 70? I can name off the top five. That's that's pretty powerful. So I love that law of reciprocity. I hadn't even really thought about that until right now.   Salvatore Buscemi (00:17:03) - Imagine bringing a book to an investment conference. And just I mean, I come with a bag and I just with a Sharpie, and I'll just sit there and, you know, if it's someone of consequence, I want to get to know instead of giving them a business card, which everybody's going to forget or nobody really understands, you have a book here and you're like, hey, you know, and somebody else notices it, what are you reading? And then it just goes around, and then people wind up buying it for their friends, and, you know, it becomes a good Christmas gift, right?   Sam Wilson (00:17:27) - Oh that's cool.   Sam Wilson (00:17:28) - That's very, very cool. And I think this is one of the things we really want to talk about on the show today was raising capital in a in a difficult capital raising environment. It sounds like that's one of the tools that really you're using to help raise capital.   Salvatore Buscemi (00:17:40) - Right now it is you know, a lot of people have come to me and they've asked and they, you know, a lot of the things that we've covered. But I think there's also some sort of people forget that. Especially new founders. We don't invest in new founders because there's a level of immaturity there that we don't, you know, they just don't have the experience. But we don't invest in new founders for several reasons, because they're, you know, they're still learning the ways and they don't have the network to get out of trouble if they, you know, should get caught into any sort of financial trouble or if they need something. Um, we I always send emails out. We interactivity is the new currency today.   Salvatore Buscemi (00:18:20) - And if you are not interacting with your investors on a regular basis, only when you're asking for money, giving them bad news, or giving them a tax bill, you're really you're not you're not doing this business correctly. Everybody today, as I said before, you are your own brand. And if you're raising capital, I don't care if it's sort of like science company. I don't care what it's for. You need to make sure that you have that connection more than just once with those investors, and you treat them like real friends. To take it a step further, you know, as I was joking around with all these founders, with their iPad underneath their arms, they were all looking for marriage on the first date. And that's creepy, right? Because when you think about it, when you're raising capital from someone, it is a marriage, right? Mean it is a marriage. You're with these people. There's an exchange of money, right? There's, you know, there is a contract there.   Salvatore Buscemi (00:19:06) - And a lot of people don't think about it that way. They just think of their investors as just being, like, needy or annoying or not. But I always make sure that I'm of service first. There are people who call me, they'll send something to me, I know I won't, I won't like at all, but I just have to be the no man to tell them no. Does that make sense? Yeah, that'd be like, look, I know this isn't for you, but can you do me a favor? Um, can you look at this? It's for my brother in law. I don't really respect him. I'm just giving you the cliff notes, you know? And he's never been successful with anything. Can you just give me a reason not to invest in this? So I just write five reasons, you know, and then, like, okay. Thank you. Right. But I'm serving them, you know, I'm helping them and that's that's important. Right. And that's, that's the most important part of it is you want to make sure that you're helping them.   Salvatore Buscemi (00:19:51) - I've helped people read their college essays, you know, rewrite their college essays sometimes, um, and I've helped, you know, I've done some consulting for families, too, who are looking to build their own family office and their own investment platforms using, you know, specialized SPV structures, fund structures, joint venture structures. And it's worked out really well. But it all comes down to one thing. If you are not building relationships actively with investors, you're not going anywhere. There's always going to be deals there. There's always going to be something there. And the last thing you want to do is go groveling to an investor when you have a great deal, when you don't have any sort of reputation with them or any sort of really relationship with them, or track record. Really.   Sam Wilson (00:20:29) - Right. Oh, that's that's great. That's absolutely golden. Sal, thank you for taking the time here to come on the show today. Absolutely. Last question I have for you. You've got a new book coming out.   Sam Wilson (00:20:38) - I know you mentioned it there briefly, but just so we make sure we capture this here on the show. What's the title of it and where do we find it?   Salvatore Buscemi (00:20:44) - Investing legacy how the 0.001% invest. This is all the sacred lambs that I've taken and it's slaughtered using and corroborating ex bosses at Goldman Sachs. And you know, even a Rockefeller that I sit on a board with, with a with a genius biotechnology in Boston. This is really how the bias is today. And as you're starting to see the bifurcation, unfortunately, in the country of wealth where there's no middle class, it's just a richer getting richer and the poor are getting poorer. This is what people are really gravitating into. And there's really no mention of ETFs, but it talks about more or less the status of investments, like, you know, owning a professional sports team or being the guy that all your friends behind your back say, oh, I know the guy that owns that office tower over there. That's really what it is.   Salvatore Buscemi (00:21:28) - And anyone who's raising money, it would be a good fundamental insight into the psyche of how and what drives a lot of these people, because not all of them look like Warren Buffett and eat, you know, drink, you know, cherry Cokes and eat cheeseburgers. There's five different avatars I talk about in the book, and each one of them have different motivations. And I highly recommend to get the autograph version you go to investing Legacy.com forward slash book. That's investing Legacy.com forward slash book. It also is available on audible as narrated by author myself, so you can check it out there. Investing Legacy.com forward slash book. And yeah, people who buy the book will be automatically onboarded into our multifamily office platform so that you can actually see how we interact with our investors. So we'll treat you as an investor even if you're not one. Does that make sense?   Sam Wilson (00:22:16) - That's awesome. Sal, thank you very much for sharing that with us. We'll make sure to include that there in the show notes. Thanks again for coming on today.   Sam Wilson (00:22:22) - I certainly appreciate it.   Salvatore Buscemi (00:22:24) - Thank you so much, Sam. Appreciate you.   Sam Wilson (00:22:26) - 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.

Today's guest is Sean Tagge.   Sean is a Biomedical Engineer turned REI. He uses a data and science approach to investing. 1500 SFR and 750 MF doors.   Show summary: Sean shares his journey from flipping single-family houses to multifamily syndications, discussing the importance of measuring progress and accountability in real estate investing. He also talks about the challenges he faced during his first multifamily project, the benefits of investing in Nashville, and his recent acquisition of a 206-unit property. Sean emphasizes the importance of using a data-driven approach in real estate and shares his strategies for securing deals and managing properties.   -------------------------------------------------------------- Intro (00:00:00)   Sean Tagi's Background and Real Estate Journey (00:01:13)   Analyzing and Investing in a Multifamily Property (00:07:24)   The cost of living in Nashville (00:10:01)   Using a scientific approach to investing (00:10:59)   Renovating and raising rents in the property (00:16:11)   The phone answering race (00:20:01)   Measuring and reporting data (00:21:27)   Simplicity of focusing on one trade (00:22:40)   -------------------------------------------------------------- Connect with Sean:  Linkedin: https://www.linkedin.com/in/seantagge/   YouTube: https://www.youtube.com/@SeanTagge   Web: https://acornea.com/multifamily/   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: Sean Tagge (00:00:00) - What gets measured gets done. And then I think add on top of that what gets measured and reported on the rate of improvement increases. So it's just having that accountability is like, hey, you know here here we're at in the project and every week we're just following up on the numbers. Here's where I'm on our budget. Here's how much is completed. Here's the goal I mean, like you don't even really need to say much after that. You just look at the data and the person who's responsible for it can just see, oh, I'm ahead or not on this. And then it gives you a lot of opportunity for coaching and help and giving them tools to succeed. Welcome to the how.   Intro (00:00:36) - 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 (00:00:48) - Sean Tagi is a biomedical engineer turned real estate investor. He uses a data and science approach to investing. He currently has 1500 single family residence doors and 700 and multi 750 multifamily doors.   Sam Wilson (00:01:02) - Sean, welcome to the show.   Sean Tagge (00:01:04) - Hey Sam man. Super excited and honored to be on the show with you. And yeah, excited to dive on in. Hopefully, you know we can get some good golden nuggets for the audience.   Sam Wilson (00:01:13) - Absolutely Sean. Appreciate you coming on today. 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?   Sean Tagge (00:01:23) - Yeah, started in Memphis, Tennessee. I moved from Utah to Memphis and joined on with some partners and started doing turnkey single family flips. So flipped 1500 single family houses. I came on as a VP of operations and got made partner after two years. Ramp that up a lot. That business. We're up to doing about 320 houses a year at one time in the heyday, and then about 3 or 4 years ago started doing multifamily syndications and syndicated about five different complexes in $750. And we currently have 650 that were still in the operating phase.   Sam Wilson (00:01:59) - Wow. Okay. So you came on as partner there at a firm here in Memphis, and you guys did your you helped do 1500 single family residence flips and then you guys and you're doing more. What did you say on average I guess 320 a year.   Sean Tagge (00:02:14) - Yeah. The highest we did in one year. But yeah 250 or so a year to three, 320. Yeah.   Sam Wilson (00:02:19) - That's rolling. I mean that's a house every single day almost.   Sean Tagge (00:02:23) - Hey we were yeah that was our goal house a day. You know it keeps the doctor away. We were trying that got up there. It gets a little hectic after a while.   Sam Wilson (00:02:32) - Yeah no I can't I mean I don't even want to imagine that. Right? I mean, like there's some businesses where you're like, oh my gosh, someday, like, maybe we'll grow to that size. Like I have no aspirations of that. When I think about that, I'm like, no, man, I'm already bald. Like, I don't I don't ever want to do a house.   Sam Wilson (00:02:46) - Yeah, I don't care what the payoff is. That's that's a.   Sean Tagge (00:02:49) - Lot. There's only a few in the whole country that even do up to there. I mean, I only knew maybe five that were in the 300 plus in the whole country. And yeah, it's for a reason. And that's kind of why we started flipping. Had rather do 100 houses one time instead of 100 houses 100 times. Right. So multifamily.   Sam Wilson (00:03:07) - Right. So you got a new multifamily and did you do this on your own or there with that firm here in. Yeah, with.   Sean Tagge (00:03:11) - The same partners. We kind of had a lot of big investor lists. I already had rental crews and everything. And it's a lot easier for them to do 20 doors in one little area instead of 20 kind of spread out. So yeah, it just really helped out from that, that perspective and just kind of started slowly growing.   Sam Wilson (00:03:25) - That did there's because was there a shift in the model? Because in the turnkey residence model, you know, it's it's for most turnkey providers at least it's buy the house, renovate it, put a tenant in place and then sell that individual home off to an investor.   Sam Wilson (00:03:41) - But when you're doing an apartment complex, the model is typically as a syndicator, raise the money, buy the apartment complex, hold it in house, execute the business plan, and sell it later on down the road when it makes sense to exit. What was the model in the multifamily space?   Sean Tagge (00:03:56) - Yeah, so like I said, the single family, yeah, we were done with them in 90 days or so. Just a quick flip with the multifamily. Yeah, there are more a year or two hold and then a couple others. We're doing a five year old model with a refinance in it, and the first one we just did with our own capital, you know, played around with our own money first, made the mistakes and learned. And it was very successful. So then the other four we brought on investors, put in a lot of our own money as well, and one we hope to be selling maybe summer of of 2024. That would be like a two year. I guess a flip for a multifamily is probably that's like the timeline for multifamily flip.   Sean Tagge (00:04:34) - And then the others. Yeah. And then two others we refinance pulled out like 70 to 85% of the investors capital, and we'll hold on to them for another three years completing like a five year total hold.   Sam Wilson (00:04:45) - Right. Okay. Cool.   Sean Tagge (00:04:47) - So you said so just kind of yeah. Just kind of depended on the, you know, the the investment, the area, you know, the, the IRR we could achieve if we think we could flip it quickly or hold on longer. So we just kind of analyzed each deal and had a different plan.   Sam Wilson (00:05:01) - Got it. Okay. So you said you made some mistakes in the first one with your own capital. What would you say some of those mistakes are.   Sean Tagge (00:05:08) - Yeah. So this one we bought during Covid time. So underestimating and really not predicting inflation and rehab costs and material costs just going through the roof through all that. And then we had a plumbing issue where we had like 2030 grand. We had to dig out a plumbing line and fix all that.   Sean Tagge (00:05:30) - And it just took a while. Also working with the city through Covid, when a lot of their employees are, you know, whatever, working from home or whatever. And it just took a while to get all that done. So it's like some things like that, you know, just some are unforeseeable, but some we could have planned a bit better.   Sam Wilson (00:05:46) - Yeah. And build. Thing in. I guess that margin for those unforeseeable things is probably just something you do guess, probably naturally at this point. Correct? You're right. Yeah. In getting inspected, I don't know. Were you guys part of the zoom inspections? Did you guys have any of that stuff?   Sean Tagge (00:06:02) - No, we man, we weren't lucky enough to get those. I think yeah some the. Yeah. Like the what is it, the section eight. They would just have us like inspected ourselves. So we're like yeah it looks great. You know, it looks you know, there's a few things we're going to fix. But yeah right.   Sam Wilson (00:06:18) - But no, everything else is perfect I swear. Yeah, yeah. We had we had some of that here. I'm surprised you guys didn't see that as well. So it. Yeah, there was some zoom inspections that occurred. I thought it was pretty funny. How are you doing a structural inspect anyway? Yeah, those those guys are behind us, but, you know. But none of those are things I don't hear, you know, you know, to right now, we're hearing a lot of pain in the market. We're seeing a lot of pain in the market where people are going, hey, you know what? They took out short term debt and now they can't refi. Or they, you know, they didn't, you know, capitalize the deal properly. And so expenses, you know, I just had another guest on the show today that their insurance costs in Florida have quadrupled since they acquired the asset a couple of years ago. And suddenly their cash flow negative just because of, you know, enormous insurance premiums.   Sam Wilson (00:07:06) - Right. So it doesn't like you made any of those mistakes. It was just, you know, some of the more common ones along the way where you're like, oh, well, that that kind of stunk. But we figured it out and keep moving, right?   Sam Wilson (00:07:15) - Yeah.   Sam Wilson (00:07:16) - That's awesome. That's awesome. What is your plan moving forward? Are you still working with this same group? Because now you've you've even relocated back to. Yeah Utah.   Sean Tagge (00:07:24) - Yeah. So I've exited the single family turnkey flipping. You know just just a grind. I'd rather do multifamily. So I'm off on my own. Doing Acorn Equity and Acquisitions is my company. And we are. Yeah we actually have under contract. So I've been searching this whole year for a multifamily, you know, tons of brokers and you know, seller expectations are still high. So we finally got one down to the right price where it fits our, you know, returns and business plan model. So we have a 206 unit under contract in Nashville Tennessee.   Sean Tagge (00:07:57) - Simple value add C class 1970s build type of house multifamily and going to raise rents $200 a door across all the units with 2 million in repairs or so.   Sam Wilson (00:08:08) - Got it. Okay, well, let's let's dig in to this particular asset because I think this is an interesting conversation. You mentioned C class. We're seeing a lot of C class defaults. We're seeing assets trade below what they were purchased for two years ago. Currently in C class. Why do you feel like now is a good time to buy a C class asset? I guess just tell me. Tell me why this asset in particular makes sense for you, right?   Sean Tagge (00:08:34) - Yeah. So we're buying it at an attractive price. So about 20% below the previous years. And it's this group. Why. Well the group has they own thousands of units their larger real estate private equity firm. And this is their last one in Nashville. And most of their plans and their funds they have they're open for five years. And so they need to close the fund.   Sean Tagge (00:08:54) - And this is like the last one in the Nashville area. Most of their other assets are in Texas. So I mean, they've owned for five years. So they're doing really well even at the price, selling it below market of two years ago or a year ago market. It's fine for them. So win for them and then a win for us because we're getting it down lower and attractive entry. And then I feel my data and research I feel very strong on Nashville, the headwinds and the sorry the tailwinds behind it of, you know, long term. Maybe there might be a down year in the next five years. I mean, I think there will be, but in five years, long term, I think it's going to average out good appreciation and rent growth.   Sam Wilson (00:09:30) - Right? I think picking picking your market, it sounds like it's one of the things that plays into a big part of your data and also your research. Obviously you got to spend some time here in Tennessee, actually. How long were you here? You lived here for a decade.   Sean Tagge (00:09:43) - Yes. Six years. Yeah.   Sam Wilson (00:09:45) - Okay. Okay. You're here for six years. So you got a good feel for what the state has to offer. And Nashville in particular, you know, obviously has some tailwinds to it that, you know, a lot of cities don't. So I don't know where where Nashville ranks on the fastest growing cities in the US. But I think it's it's there.   Sean Tagge (00:10:01) - Yeah. It's always up there with job growth and this. And then another thing nice about Nashville, I don't know if you want to dive too much into it, but it's it's still below the national average cost of living. And like if you've been in Nashville, you walk that city, you're like, this is this is a Dallas Houston. You know, this is you know, it's not New York yet, but this is up and coming city where it's going to be expensive someday. So it's still below the national average.   Sam Wilson (00:10:24) - Cost of living, which.   Sam Wilson (00:10:25) - I think in Tennessee in general, probably exactly.   Sam Wilson (00:10:27) - Still trends, trends below that which is which is great for those of us that live here. We we appreciate the lower. Certainly.   Sean Tagge (00:10:34) - Yes, yes, it's nice, but we can obviously see it's not going to be that way forever, I think.   Sam Wilson (00:10:40) - I don't know, I think Memphis might be.   Sean Tagge (00:10:42) - Yeah, maybe some specific city. Yes, maybe. But the Nashville. Got a new guy, you know, not, you know, Knoxville. Those are nice cities.   Sam Wilson (00:10:50) - They are. They are indeed. What are some things you said you use a science and data approach to investing? What does that mean to you?   Sean Tagge (00:10:59) - I mean, yeah. So it's, you know, data spreadsheets. So when I was doing biomedical, I did artificial heart research. And so yeah, learned a lot of just, you know, using the scientific theory data and spreadsheets and basically just, you know, getting averages and then looking at macro and micro micro trends. So yeah, just kind of see that with with Nashville, you know, the rent growth appreciation, everything like that.   Sean Tagge (00:11:23) - Then also of course, you know, jobs coming in and all that stuff is what I use. And that's kind of how I picked Memphis about seven years ago is I just saw it had a high rent to value ratio, did did that across the whole country and is one of the top three consistently now. It's not quite so much so. So yeah.   Sam Wilson (00:11:43) - Yeah. We've certainly seen a price appreciation here in Memphis again. You know compared to a national average it's still probably on the lower end of things. Are there anything though. But guess when when you. When you say you use data in a scientific method approach. I mean, is there anything that you say, hey, this is a this is a data point. I look at that many people wouldn't think to consider.   Sean Tagge (00:12:05) - Of I mean man, it's so with with you got co-star and all the data. It's really just it's out there for everyone. It just really takes that work though, of gathering several cities, comparing them across one another and yeah, diving into that.   Sean Tagge (00:12:20) - So I can't say I have a secret sauce I wish I did. Maybe I wouldn't tell it if I did, but I really don't, I don't, I swear I don't. It's just it's.   Sam Wilson (00:12:28) - That. Okay.   Sam Wilson (00:12:30) - Okay. I was hoping for something really random where you're like, man, you know what I consider the number of feet of, you know, plumbing at any given, like, weight, right? Yeah. But somehow you figured out that that translates into higher rents. I don't know, just throw in throwing things out there. Okay, so no secret sauce, but yet there's still opportunity out there. What did you do to make yourself an attractive buyer to this seller?   Sean Tagge (00:12:54) - Right? Yes. So we you know what we were we were just there consistently. So is actually this broker relationship we've built up over several months. So that that really there were two other 2 or 3 other offers. We were actually a little bit lower. But the fact that we were consistently showing up, you know, and making offers and other deals, maybe getting outbid a little bit and just showing that we're here consistently.   Sean Tagge (00:13:16) - And then the fact that we own, you know, so I'm partner up with Compass Capital, Sam Brower and Michael Wheatley. They're kind of my my I've known them from college as well. Good, good buddies of mine. We've talked for six years wanting to do a deal together. So this is one we're finally on together. And yeah, so that as well as we own 200 units nearby and was able to perform on those raise rents and execute on the business plan.   Sam Wilson (00:13:39) - Got it. Okay. No that's super cool. That's super cool. So Compass Capital those are they going to be your boots on the ground running it.   Sean Tagge (00:13:47) - Yeah they're the boots on the ground. And then a property management company as well over there.   Sam Wilson (00:13:51) - Got it. Okay cool. Because that's gonna be my next question was going to say okay. So you're now living in Utah. How are you taking this down? How are you selecting contractors? How are you getting this thing, you know, on the ground?   Sean Tagge (00:14:01) - So I already performed the property management company has a rental company in-house, which I like that as well, you know, and they actually they actually hit the budget on the other 200 units, which is that was like that's some of the first questions like can they perform on the budget? And that's usually the roll of the dice when you're starting a new market.   Sean Tagge (00:14:18) - Is your contractor because I mean, us, whenever we try a new contractor, we're just like, hey, it's a third chance. We keep them for a year or longer. You know, it's just something that risky take. So it's nice to know that we already have tested that and they've proven and they have thousands of other doors they performed on.   Sam Wilson (00:14:36) - Repetition is so much easier than starting over and trying to figure it out in the beginning, I think. Yes, the stat you used there, which is there's a one third chance that you'll still be working together in a year when it comes to the general, which is unfortunate, but it's just it's a reality of things.   Sam Wilson (00:14:52) - Yeah.   Sean Tagge (00:14:52) - It's that maybe even less sometimes.   Sam Wilson (00:14:54) - Yeah.   Sam Wilson (00:14:55) - Right. Oh, man. Yeah. That's a that's really cool I like that. So you've already got the business plan in place. You've got the partners, you've already got the renovation, the property management. You guys are just hitting go. Is there any other hair on this deal that you look at and say, hey man, this is going to be an obstacle we're going to have to overcome? And if so, how are you going to do it?   Sean Tagge (00:15:11) - Great question Sam.   Sean Tagge (00:15:12) - So yeah, you know, for us it's just a straight base hit, which I kind of like. It's like, you know, someone smart told me, if you make money on something, you know, and it performs well, you've done it a few times. Just keep doing it. Do it and do it again. So this one is we're just going in. We're renovating the exterior, making it look nice, some of the railings and you know, the paint chipping the roofs, you know, the exterior siding on some units. Then in the interiors we're just, you know, we're putting in what's for the market rent. So we're not going anything too fancy and just keeping it in line and simply what it is, is just the current property manager. They haven't risen rents much over the past two years, and as we know, rents have gone up 20%. And so it's just simply asking and the property is 99% occupied. So that shows me they're not pushing rents really high is they're just kind of complacent and just it's just kind of easier just to renew and maybe not even ask for an increase.   Sean Tagge (00:16:06) - And so we're going to push that a little bit and yeah get it up to market rents.   Sam Wilson (00:16:11) - Right. Well and especially in the Nashville market which again was just seeing incredible growth. If you're if your rents aren't keeping pace what what what do you think about this? I heard this strategy one time. The guy came on the show and he's buying mobile home parks. And one of the things that he required his sellers to do was to raise rents before they bought the property.   Sean Tagge (00:16:34) - That dude, I like that a lot is like, hey, let's test this on whatever's vacant right now. Let's bump it up to whatever, 100 bucks more a month. I like that a lot. Yeah, we haven't tried that on this one, but I've heard a couple of guys doing that. I think that's a great strategy. Maybe even writing that in your contract and just. Yeah, getting the feedback from the leasing.   Sam Wilson (00:16:53) - People, getting.   Sam Wilson (00:16:54) - The feedback from the leasing people and then making the sellers the bad guys, I mean, that's that was his strategy.   Sam Wilson (00:16:59) - He said, hey, look, one, we get a raise in rents and then we also come in, you know, without having to get the flack of, oh, we just bought the property. And now you guys are, you know, coming in here and raising prices and all that. The previous seller did it. Right.   Sean Tagge (00:17:12) - So another another thing like this is totally crazy idea of that was like why not maybe like renovate it to what you kind of are going to make the units renovated at and do an a, B split test of two units in the nicer, higher range, which is kind of what our model is versus the current ones at maybe just even a little less in your range, but higher than currently, obviously. Like you got to write something in of who's going to pay for those renovations and everything. But I mean, that may be worth the, you know, whatever, 1020 grand risk to kind of know if you can prove the.   Sam Wilson (00:17:42) - Theory, right.   Sam Wilson (00:17:43) - No, I think that's great.   Sam Wilson (00:17:44) - Think that's great and that's that. I mean, and again, people are constantly looking for new ways or new strategies to add value in that term. Add value is getting tougher to do.   Sam Wilson (00:17:54) - Mean yes for.   Sam Wilson (00:17:55) - Sure. So, you know, do it. Taking some creative strategies like that I think is really, really important. Let's let's shift gears here a little bit. You said you spent all year working to get this 206 unit under contract. You're moving forward. That that sounds amazing. But I know we talked about this before the show began. You've also got your hands in business. So tell me why you're kind of splitting your focus here.   Sean Tagge (00:18:20) - Right? Yeah. So of course, flipped 1500 single family houses. And I had renovation crews and they had subcontractors. And what I've just seen from the single family residential era of any Hvac, plumbing or electrical, roofing, fencing, I mean, any type of contractor. If you answer your phone, number one, show up to the job and give a bid and then actually do what you're going to say, you're probably ahead about ahead of 80%, 90% of the competition.   Sean Tagge (00:18:51) - And so, yeah, I'm under contract under lock on an Hvac company. And it's it's also I'm keeping one of the partner who's licensed on will stay on. So it's kind of nice is you know I'm good at high level business stuff marketing you know, systems and processes, you know, and acquiring more. And so but then I have a day to day operator as well that I'm partnering up with. So if we're up a bit of my time, take up a bit of my time, but I'll learn a lot from that and can translate the business principles for multifamily and also the renovation.   Sam Wilson (00:19:23) - Side of.   Sam Wilson (00:19:23) - That business in Utah. Or is that back here in Tennessee?   Sean Tagge (00:19:27) - Yeah, it's in Utah.   Sam Wilson (00:19:28) - Okay, okay. The skilled trades I mean, finding, as you said.   Sam Wilson (00:19:32) - Finding.   Sam Wilson (00:19:33) - Not just I think the four criteria, whatever, 4 or 5 criteria you gave, one is for any contractor to show up. But finding then also the skilled trades I mean those are those are the places where it is, like you mentioned, plumbers, electricians, Hvac guys.   Sam Wilson (00:19:48) - You get inside of those three and that and if you can again answer the phone and show up, I mean, I commonly won't even ask for a second bid if you're if you're competent in any of those three trades and you show up and you're like, right.   Sam Wilson (00:20:01) - We can get it done.   Sean Tagge (00:20:01) - I mean, I was because, yeah, I've tried to personally get a house renovated and like I literally had to call, I think 3 or 4 guys and two of them didn't answer, then two answered, but then one didn't show up and one showed up like two weeks later. And the guy that showed up two weeks later, he got the job because I was just, quite frankly, just like, I need to get this done and I'm tired of this, like, just let's do it. And so it's crazy. And what I got good at when we flipped the 1500 single family houses is we had a ton of marketing and made a ton of offers and went on a ton of appointments to make offers personally at people's houses.   Sean Tagge (00:20:35) - And so I had a VA, basically a call center in house call center scripts and then boots on the ground guys making offers. And so I'm kind of going apply that principles and softwares that I connect together, because we follow up with automated texts and emails and tasks to call and all of that. So I'm kind of going to use all those processes to be, you know, be the person answering the phone, because basically it's just a race to the to the answering the phone and showing up is you'll get the business. Then the second end, of course, is, you know, the hiring people, managing the crews, making sure they're doing a job well done, have processes as well for that, which I learned a lot from flipping 1500 single family houses. And of course, some of the rentals go overboard and we're not doing as well in a timely manner and things like that. So using data and actually tracking it and reporting it weekly, right. So I mean, this is for anything, but, you know, this works for multifamily syndication as well as.   Sean Tagge (00:21:27) - Right. You just what is it. There's someone that said, you know, what gets measured gets done. And then I think add on top of. What gets measured and reported on the rate of improvement increases. So just having that accountability is like, hey, you know, here, here we're at in the project and every week we're just following up on the numbers. Here's where I'm on our budget. Here's how much is completed. Here's the goal I mean, like you don't even really need to say much after that. You just look at the data and the person who's responsible for it can just see, oh, I'm ahead or not on this. And then it gives you a lot of opportunity for coaching and help and giving them tools to succeed.   Sam Wilson (00:22:06) - That's really cool, I love that. I love that idea of, I mean, because there are other cross disciplines or other disciplines that go across all of these different segments, from an eight company to a multifamily property, it's kind of all the same in that that the measuring the key performance indicators, tracking all that stuff and figure out where people are is, yeah, really and powerful.   Sean Tagge (00:22:26) - And what I like to is when I was flipping a house, I had to do ten of those things, right? Ten different trades and electricians, plumbers, painters or this. It's just one simple, hey, just the Hvac system. We can focus on that. So I don't know. Frankly, I think it's simpler. Right? It's much simpler than flipping a house.   Sam Wilson (00:22:40) - So I would agree, man. There's there's I don't have any desire to go back to flipping houses at all. So don't I'm like you, I don't I don't miss it certainly was good to me, but I don't miss it. Sean, thank you for taking the time here to come on the show today. I certainly appreciate it. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Sean Tagge (00:23:00) - Yeah. So my company, Acorn Equity and Acquisitions, the website is Acorn E just short for equity acquisitions. And you know also on LinkedIn Sean tag and have YouTube channel Sean tag.   Sean Tagge (00:23:12) - I'm just starting and putting out private equity and real estate investing things in there. So yeah. Hey Sam. Dude, man, it was a great pleasure being on the show. Thanks to all your listeners. And hopefully, hopefully you got a little Golden Nugget and helped.   Sam Wilson (00:23:25) - You out a bit.   Sam Wilson (00:23:25) - Absolutely. We did. Sean, thank you again for coming on the show today. We'll make sure we include your website and all those links right there in the show notes. Certainly appreciate it and have a great rest of your day. All right. 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 Jim Lee.    Jim began his investing journey of a 2 bed/1 bath condo and now, through real estate syndication, he has invested in over 600 units in the past 2 years where he has participated as a general partner/limited partner.   Show summary: Jim Lee discusses his transition from managing a two-bedroom condo to syndicating large-scale properties, and the importance of education and networking in this process. Lee also talks about the challenges he faces in the current market, such as rising insurance costs and managing capex and reserves. Despite these challenges, he emphasizes the importance of transparency with investors and shares strategies to mitigate risk. He concludes by stressing the importance of relationship-building in the real estate community.   -------------------------------------------------------------- Intro (00:00:00)   Transitioning to syndication (00:01:59)   Insurance Costs and Financial Struggles (00:11:41)   Strategies to Mitigate Risk and Increase Revenue (00:14:39)   Lessons Learned and Future Investment Approach (00:15:58) -------------------------------------------------------------- Connect with Jim:  https://twitter.com/FormosaInvestin   https://www.linkedin.com/in/formosainvesting/   https://www.instagram.com/formosainvesting/   https://www.facebook.com/formosainvestin   https://www.formosainvesting.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: Jim Lee (00:00:00) - We're the one making the decision. The LPs have no saying in it, so we should be taking full responsibility on this. Only if we'll go to LP, only if we really need to. Only we're going on on on the verge of default, you know. So hopefully that doesn't happen. But you know, that's, that's, that's that's you know, that's that those are the people that we look for. We that share the same value as we do.   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.   Sam Wilson (00:00:33) - Jim Lee began his investing journey of a two bed, one bath condo, and now, through real estate syndication, he is invested in over 600 units in the past two years, where he has participated as a general partner. Jim, welcome to the show.   Jim Lee (00:00:47) - Thanks for having me, Sam.   Sam Wilson (00:00:48) - Absolutely. The pleasure's mine. Jim. 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?   Jim Lee (00:00:58) - I started working at Loop Net. I graduated 2010 back in 2000 right after the subprime subprime mortgage crash. 2008 followed by the European debt crisis. It was really difficult for me to find a job, but I was fortunate enough to land a job at Loop Net, working as an inside sales rep. Um, that from there, it kind of taught me everything I need to know about real estate. Spoke to property managers, real estate investors, lender agents on a daily basis, learned the importance of having multiple streams of income. So I got in myself into investing in a two bedroom, one bathroom condo. 600ft² did everything from A to Z. Was very actively involved. And then I transitioned to become a syndicator because I realized that, you know, I started to build system around just making my first investment more passive, where now I'm just doing it on a bigger scale with economy. With syndication, we're able to do to economies of scale.   Jim Lee (00:01:59) - We're able to just scale it a lot easier with, you know, what, the team that's going to be managing your projects and basically, you know, with more helping hands, I think it's we're able to create a bigger pie for everyone to split.   Sam Wilson (00:02:16) - What year did you buy that first condo.   Jim Lee (00:02:20) - 2015.   Sam Wilson (00:02:21) - 2015 okay. Very cool. And what year did you decide to get into Syndications?   Jim Lee (00:02:28) - 2020?   Sam Wilson (00:02:30) - 2020. So you bought a condo in 2015. What did you do in that five year window where you just operating as a broker in that time frame, or what were you doing in that five year period? Yeah.   Jim Lee (00:02:41) - So for the first year I was very new to real estate. I bought the condo without knowing much, and after I bought it, I realized how much I didn't know. And that's when I picked up the the purple Bible that everybody Red Bishop ordered. And from there, I kind of started to learn more about real estate. And like you mentioned, I also got a real estate license on the side between 2018 to 2020, I tried that was my very first pivotal moment to shift from a W-2 employee to an entrepreneur.   Jim Lee (00:03:18) - So I try to make a career out of it and it wasn't a good fit. And that's when in 2020, during lockdown, one of my investors introduced me to a podcast show called Real Estate Guy Radio Show. They talk about syndication all the time. So that's how that's what intrigued me. And I started to pursue that passion.   Sam Wilson (00:03:35) - Got it. No, that's really that's really great. What when you when you became a realtor, were you doing residential brokerage? Were you doing commercial brokerage? What were you working on?   Jim Lee (00:03:45) - I was focused on residential.   Sam Wilson (00:03:46) - Okay, okay. And you figured out that wasn't a good fit for you? Why not?   Jim Lee (00:03:52) - Um, part of it is because I came from a sales background. I've been doing that for seven years of my life, and being a realtor is you really you need to get. Well, for me, I had to get comfortable being uncomfortable with just going out and meet people face to face on a constant basis. And I was trying to get used to it, but I wasn't.   Jim Lee (00:04:15) - It wasn't it was definitely not a thing that I excel on. And, you know, I realized that's something that I can do for the rest of my life. I can do it temporary, but it's not sustainable. And that's where I kind of shifted, because I'm more of a black and white type of person, you know, um, you know, I love numbers. If the number makes sense, it works. Whereas being a realtor, it a residential realtor, I feel like there's a lot of emotional sales, especially dealing with first time homebuyers. I'm not saying, you know, dealing with investors. There's no emotional don't but don't, you know, trust me, you still have to sell emotions. But not as bad as, you know, first time homebuyers.   Sam Wilson (00:04:58) - No, it's a different beast. That's that's for sure. And hats off to you for even trying it. I got my real estate license, I don't know, ten years ago. And I never once thought that I had the skill set to deal with the general public buying residential real estate.   Sam Wilson (00:05:15) - I was like, this, I just, I can't I don't have that skill set. So anyway, good for you for at least giving it giving it a go. But then you said, hey man, you know what? There's got to be a better way in Syndications. How have you broken into Syndications? What are you guys buying? And really just give us kind of your current business plan if you can.   Jim Lee (00:05:33) - Yeah, absolutely. So how I broke into syndication is by just constant education since 2020 to, you know, going out to network with the right people, um, syndicating with other multifamily syndicators that been in the industry, doing it for a while. And I actually had to find a business partner. I believe he's been on your podcast show before. His name is Chad Zdenek. He's my business partner, and he I met him and I met at one of the networking event, and we clicked because there was a lot of value we can add to each other's life. And the part I was missing was, you know, the track record, the experience and so forth.   Jim Lee (00:06:16) - And Chad has been syndicating out here in Long Beach, California for, you know, four years prior to we met. So that's how we're able to connect. And then we both syndicated the two deals together last year. They're both in Florida. 1111 deal is 200 unit in Orlando, 400 unit in Jacksonville. And um, the business plan is, you know, to operate out of state for the time being. We like to be the lead sponsor in our deals, um, in California. But right now it's just very difficult to syndicate deals out here. And for the returns to return on investment to make sense for our investors. And on top of that, with all the regulation, the you know, it's just not a politically, you know, tenant friend, you know, landlord friendly state, so to speak. So we had to explore out of state and partner with other lead sponsor out of state to basically, um, leverage their, their network and their boots on the ground to be able to syndicate out of state because in, in the deals out of state, that's where we find that, you know, we're able to mitigate risk for our investor as much as possible.   Sam Wilson (00:07:27) - Yeah, absolutely. So you found a sponsor you wanted to work directly with out of state. What's that relationship been like and how did you vet that particular sponsor?   Jim Lee (00:07:40) - So the relationship we've met these guys. Like I said, you know, we've been going consistently going out to networking. We go to multifamily investor nation events. We go to real estate guy events. We go to that summer event, think multifamily. And it's the people that we constantly see over and over and over. And that's where I think we start to begin to build more trust. The more we see each other, the more we're able to communicate and get to see what they're doing and kind of just speculate, you know, over the years, and what we typically look for is, you know, people that share the same mission and value as we do. That's the most important part, taking care of our investor, putting our investors before anybody else. And I'll give you a good example of the first deal. We partner in Orlando, the lead sponsor.   Jim Lee (00:08:28) - We had a capital call recently. And um, basically, instead of putting the pressure on onto the limited partner, the lead sponsor decides to put it amongst the general partners, you know, to put the pressure on ourself because we're the one making the decision. The LPs have no say in it. So we should be taking full responsibility on this only if we'll go to LP, only if we really need to only work going on on, on the verge of default, you know. So hopefully that doesn't happen. But you know, that's, that's, that's that's you know, that's those are the people that we look for, we that share the same value as we do.   Sam Wilson (00:09:04) - Well, let's dig in on that. I mean, there are there is pain in the marketplace. You know, we're seeing we're seeing things such as what you just mentioned, you know, internal capital calls, maybe not necessarily with us, but we are seeing this across just the general market. There is some pain existing, you know, with rising interest rates, with short term debt coming due.   Sam Wilson (00:09:24) - You sounds like you've picked some great assets in great markets. What is happening? I guess that maybe if you can get I'm not asking you for the inside. Down to dirty is probably not things you want to talk about at, you know, in depth. But maybe what are some things that are happening in the market right now that are causing you guys to currently have a capital call? And then what's the plan to really turn that around?   Jim Lee (00:09:48) - Yeah, absolutely. So, um. First off, you know, there are $2 trillion of commercial debt that's expiring in the next year. That tells you a lot of people are, you know, going to need to refi like we do or, you know, just at this high interest rate. So what can you do in this circumstance? Right. Well, you have options. You can either cash in refi, you know, raise more capital and then get a new loan. Or you can, you know, sell the property at a loss. Depending on if we sell the property as is right now, we'll still get 75%, 80% back.   Jim Lee (00:10:26) - But that's not the goal. The goal is to push the deal forward to to 2025. Survive until 2025. Um, and I'm talking about in terms of people is on variable interest rate. Now if you're on fixed rate, maybe that's a agency debt. That may be you're better off at this moment. But both my deals are very aggressive because my first two deals, you know, I tend to want to be aggressive. I'm targeting value at classy multifamily apartments building 1970s. So there's always that value add component to it. So it's it's basically how you manage your your CapEx and your reserves on top of the rising debt costs. What's happening with our deal is that, um. Like you mentioned, Orlando, Florida is a very, very strong market growing cop population. Job growth is growing. Everything is growing. Economy is growing. Um, our rent before taking over the project was $850 on average per unit. It's gone up to 1350 for the renovated units. So 55% increase. It's great. With all that being said, um, the insurance has pretty much killed us.   Jim Lee (00:11:41) - Yeah, right. So like we have I think our insurance went up by, I think three times or nearly four times of what we used to pay on top of that, like you mentioned, that just keeps going up. So we're upside down by 10,000, even though our occupancy rate is at 94% occupancy rate right now. So 10,000, I'm talking about 200,000 per month. And our debt, uh, our expenses at 2000, 10,000 210,000. So so that's what's going on. You know, I think amongst the GP, we can definitely cough up the money. That's not a problem to push us over. But we do. We we do try to be as transparent to our investor as well. Hey, you know you're not going to see any distribution anytime soon. You know, because we syndicated this property last July, everybody was, you know, everybody thought that they were going to get the distribution sometime around this, you know, this year, a year later. Right. That's what we've been telling them at Valley.   Jim Lee (00:12:44) - Yeah. Takes 3 to 6 months to stabilize the property etcetera, etcetera. But at the end of the day it's the market condition that that also, you know, hold us back. But we, we want to let them know that we're doing everything possible to mitigate this risk as much as possible, basically by cutting down, you know, the simple things that, you know, what an asset manager would do is just cutting down costs, increase revenue in any way, evict a tenant that's not paying. Um, coming up with, you know, strategic plan, you know, creative ways to make more revenue by maybe inserting, like a car washing machine or pet washing station or, you know, just give priority parking spots to the carports, the garage that charge a little extra, you know, just think of creative ways to make more revenue.   Sam Wilson (00:13:36) - That's right. Drive revenue. One of the things you mentioned there, I was kind of you know, it's always interesting, I think, to look at deals that have, you know, some stress on them.   Sam Wilson (00:13:46) - I'll say that and say, okay, what what of this could we have foreseen? What of this? Did we not foresee in some of that being, you know, either either bad bets and or just market forces that you can't control one of those I think that you mentioned, that's probably a huge one is your insurance. I mean, we've seen insurer after insurer after insurer drop the Florida market entirely. So what you have and I think we brought some some insurance agents or brokers here, commercial brokers on the on this show or they've talked about the Florida market and how you have all these insurers that have left, which leaves the only few remaining that are there just taking rates and just, you know. Sending them skyward. How? Other than increasing revenue mean is there is there anything else you can do on that front to kind of help absorb some of that unexpected cost?   Jim Lee (00:14:39) - Um, well, the main thing is just right now, in our massive management call, all we are trying to figure out is how to, you know, cut down bad debt, um, the evictions and basically people not paying.   Jim Lee (00:14:55) - And that's, that's the only that's the only strategy moving forward is to to increase revenue and cut costs at this moment and then explore some good refi option because our occupancy rate is high. Ah, we've renovated two thirds of our apartments already, so 150 units out of 200. So we're we're really in a good shape. It's just the market condition that's, that's, you know, crushing us at this moment.   Sam Wilson (00:15:24) - Right? I mean, yeah, to get a 55% rent bump is is impressive. And to stay again 94% occupied, assuming that's, you know, that your economic occupancy is somewhere close to that is it's pretty great. I mean, that's pretty great for anybody, especially in a class C apartment right now, because that's the you know, those are some of the assets that are getting hardest hit when you look back on this investment and maybe just what you see in the in the market in general, what are what are some of the things maybe that you have extracted from this as lessons that you apply then to future deals you're looking at?   Jim Lee (00:15:58) - Oh yeah, definitely diversify your portfolio.   Jim Lee (00:16:00) - And that's what real estate syndication does for you, right. You can invest in different markets, different asset class and different syndicator. And I think moving forward am not always going to be bullish on variable, you know, variable interest rate. You know bridge loan debt I'm going to definitely explore those agency debt. Um have some of those in my portfolio in case the market shifts like this. Um, but yeah that's that's that's number one for sure. And then number two is don't get too aggressive with your renovation. And I think, I think what put us in this spot also is because we exhausted our CapEx. You know, we we we could use that money towards the towards, you know, paying off the debt. But instead we kind of went we kind of overshoot ourself. And uh, it was a little too aggressive on that. And yeah.   Sam Wilson (00:16:54) - Got it, got it. Yeah. You didn't have enough in reserves is what I hear. Is that because you spend all of it on CapEx and then you go, oh hey, we still we still have debt to pay here.   Sam Wilson (00:17:02) - So that's not going, which is interesting because it's like you want to improve a property. You would think as quickly as you can in order to raise rents. But it is that like it's that like one it's do something level out, then add a little more level out, add a little more and level out as opposed to just burning through it, getting it renovated, raising rents and then going, okay, because there's there's that short term liquidity crunch, maybe that, you know, you just have to try to avoid at all costs. So that's that's really, really interesting. Thank you for taking the time to break down some of those things that the lessons that you've learned. I mean, I think that's that's the name of the game is that there's, there's every education has a price. Right. And it's and it's this is just how did someone put it. They called it Wisdom's tuition. So it that's you can't you can't get around it. All of us are learning lessons all the time.   Sam Wilson (00:17:55) - So that is wisdom's tuition. Jim, is there anything else here on the show today that you'd really love to make sure that we highlight, talk about, just cover what it is that you guys are working on some next, next things you're covering one. One last thing you'd love to share with our listeners.   Jim Lee (00:18:10) - Um, I would say the biggest thing that I do differently versus others is I invest in people I know as real estate investors. We all like to invest in assets that produce an income, that income stream and hopefully, you know, have enough of income stream that eventually replaces your salary and you become financially free. Yeah, that's the goal. That's the end goal we get, I get it, everybody wants that. But I believe in building relationships. I put relationship first before anything else. And I invest in people as in, you know, I think it's very important to invest in your community, invest in your network, invest in mastermind groups, invest in, you know, having your own local real estate meetup.   Jim Lee (00:18:54) - Invest in people. Because when you do so, you're going to generate returns on investment that you you can't. For me, it's hard to calculate to to to measure that. But it's gone. Gone me very far. It's and it's, it's something that I would highly recommend that everyone do.   Sam Wilson (00:19:13) - Fantastic. Jim, thank you for taking the time to come on the show today. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Jim Lee (00:19:21) - Um, they can check out my website, Formosa investing.com. They can also follow me on social media, Twitter, Instagram, Facebook, LinkedIn. Formosa investing.   Sam Wilson (00:19:31) - Formosa Investing.com. Jim, thank you again for coming on the show today. I certainly appreciate it.   Sam Wilson (00:19:36) - Yep, absolutely.   Sam Wilson (00:19:38) - 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 (00:19:51) - If you can do that for us, that would be a fantastic help to the show. It helps us both attract new.   Sam Wilson (00:19:56) - 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 Whitney Ward.   Whitney is the Principal & Fund Manager at CRE-Endeavors where she leads the strategic growth initiatives of the firm. Whitney oversees capital markets, acquisitions and dispositions with a focus on the firm's fund management, and real estate investments.   Show summary:  Whitney shares her journey from corporate America to real estate, her business plan, and her belief that real estate rates will decrease over the next three years. She also discusses her company's focus on 10 to 75 unit deals, their strict criteria for co-investing, and the challenges of raising capital in the current market. Whitney also touches on the importance of educating investors about market conditions and the opportunities they present.   -------------------------------------------------------------- The Journey from Brokerage to Fund Management (00:00:58)   Focusing on Niche Multifamily Deals (00:04:36)   Seizing Opportunities in the Current Market (00:07:22)   Opportunity for arbitrage and acquiring deals at higher rates (00:10:08)   Classifying deals as distressed and the impact on sellers (00:11:07)   Selling assets at a discount due to high cost of debt (00:12:54)   -------------------------------------------------------------- Connect with Whitney:    LinkedIN: https://www.linkedin.com/in/whitneywardcre/   YouTube: https://youtube.com/@WhitneyWard-CRE-Endeavors?feature=shared   Web: www.cre-endeavors.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: Whitney Ward (00:00:00) - I mean, a lot of our, our business plan is derived from our belief that, you know, in the next over the next three years, we'll see rates decreasing. They might not get down to where they were in 2020. Right. But we see an opportunity where some people might be fearing we're seeing lower, lower values. More deals come into the market as an opportunity for us to acquire these deals.   Sam Wilson (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. Whitney is the principal and fund manager at CRA endeavors, where she leads the strategic growth initiatives of the firm. Whitney, welcome to the show.   Whitney Ward (00:00:46) - Hey, Sam. Thanks. Thanks for having me.   Sam Wilson (00:00:48) - Absolutely, Whitney. 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?   Whitney Ward (00:00:57) - Sure.   Whitney Ward (00:00:58) - I started in corporate America. I've entered the real estate business in 2016 through, you know, starting in the brokerage business focused in multifamily assets at this, which since 2016, I've done everything from multifamily brokerage transactions to some passive equity investments into deals. I'm currently now, like you said earlier, the principal and fund manager for my own firm that I launched in 2019, which since then we've done over 100 million in acquisitions and sales transactions and multifamily investments. And we are now dipping into the fund management space.   Sam Wilson (00:01:38) - That is awesome. I love the the journey there. It's pretty fast, really. I would think, you know, going 2016 brokerage. I mean by 2019, did you feel like you had really understood everything you need to understand and just decided to pivot or why why did you go? Maybe that's even a better question. Why did you go from brokerage into then becoming your own principal and run your own deals? What what happened then that made you say, this is a good time to do that? Yeah.   Whitney Ward (00:02:03) - I mean, good question. So we've kept brokerage. We're still in brokerage. So CRE endeavors is a licensed brokerage firm in Georgia and in Maryland. So we that's something we kept. Um, I would say the real reason I pivoted, I was at a national brokerage firm in 2016 through 2019, and my real reason for pivoting was just the autonomy to do more deals in the way that I wanted to do it. You know, most brokerage firms want you to focus just on selling, you know, doing transactions. And, you know, we look, we understand that investing is very important in building your portfolio. And so the, you know, brokerage business allows us to service our active clients. But then we also are able to invest in deals. And we have that autonomy that not every brokerage firm allows you to do.   Sam Wilson (00:02:47) - How do you decide when a deal comes across your desk that maybe is off market, what what you're going to list, and then what? You're going to actually take a stab at yourself without making your brokerage clients upset, seeing you kind of cherry pick off the top.   Whitney Ward (00:03:04) - Sure. I mean, multifamily is unique, right? Because all the other asset classes you really have, you represent a lot of buyers and you represent a lot of sellers and multifamily. It's really focused on having the relationship with the owner of the property. So we don't we never really have a host of buyers that are like, hey, we need deals, right? Because there's so many outlets, you can sign up for all the big firms and get a bunch of deal flow, right? So not to say we don't have deal flow for those buyers, but we don't we don't necessarily say, hey, we're going to be your source for finding those deals for you necessarily. So that that in itself kind of takes away some of that conflict. But with with the fund itself, it has a very strict criteria. We are we co-invest with experienced managers and developers, so they tend to already have that deal, and we co-invest with them when there's a deal that we're, you know, right now, my commercial real estate advisor, she's brought, she's sourcing some deals off market.   Whitney Ward (00:04:02) - And those deals would be directly what we would market to, to, to the public. So unless there came a situation where we market a deal and nobody was interested in it, which highly unlikely that would happen, that we would then buy it. But then, you know, then we could consider buying it. But the, the, the types of deals that we get as a brokerage company are typically smaller deals. I mean, we're we're a niche shop. So our deals are anywhere from ten to on average 75 units. So we service a specific clientele. So we're not really competing. You know.   Sam Wilson (00:04:36) - Right now that's an interesting segment to focus on. The 10 to 75 units. How did you decide to focus on those size of deals inside of the brokerage firm?   Whitney Ward (00:04:48) - Well, I mean when you think about like every market's different, right? So I said we're licensed in Maryland and we're licensed in Georgia. A lot of our deals in Maryland, we do in Baltimore. And that markets is a little bit smaller.   Whitney Ward (00:05:01) - And so as a smaller firm, market share is relatively easier to gain than in a market like Atlanta, where we're headquartered, where the large the top three firms, they're getting 80% of all the market share, especially over 100 units. So if we're going to, you know, eat and then be able to live and take care of ourselves, we had to figure out what's a niche that, you know, those large firms are taking, that there's opportunities that a lot of times residential agents will will we'll get some of those leads for, but not really understand what commercial real estate is and how to service those clients. And so we're able to kind of make us a niche specialty in that space.   Sam Wilson (00:05:41) - Got it. Oh, that's really, really cool. Well let's talk about the transition in 2019 when you guys said, okay hey we're going to go out and start doing our own deals. It's been an interesting run 2019 to today in multifamily. Tell us, give us some color on your guys's journey and kind of how your how you've changed over the last, I guess four years.   Whitney Ward (00:06:03) - Well, I mean, I tell people I was like, I've actually been through like three market cycles, you could say, before Covid and then whatever we're in right now. So it's it's been a heck of a ride. I'm not going to lie. It's been very difficult. But it's also exciting because we're we're all where we are right now. We're seeing a lot more opportunities, like when I first launched the firm in 2019 and we were prospecting business, we were hearing a lot of no's because people were comfortable, right? They were used to their brokers. There's nothing, there's no need to change. Why go to CRE endeavors now? You know, people have either debt maturities coming up or they need to find liquidity in some in some way. And they're they're more open to entertaining what we have to offer. And quite frankly, being a niche firm and having our own source of lenders and equity providers outside of the fund, it has allowed us to be able to position ourselves to serve service clients pretty much the same way that a larger firm would just on a on a smaller scale and more boutique focused.   Sam Wilson (00:07:08) - What about the stuff that you guys are buying in house? You say that now is a great time. Of course, you mentioned a few reasons why now might be a good time to be investing in multifamily, but what what is that journey been like for what you personally are buying and acquiring?   Whitney Ward (00:07:22) - Well, right now, like I mentioned, we're I'm raising capital right now. I'm raising capital because we are seeing valuations down 26% versus last year. We're seeing transactions have slowed down, but they're starting to pick up. And they're expected to pick up here in Q4, especially in Q1. But we're raising capital. And we're telling our investors, listen, you invest alongside us. We're going to we're going to we're going to have a pipeline of business that comes in not only through our leads, through our managers and developers, but we're already boots to the ground. We already know what's kind of going on. We already have a pipeline of business of of some owners that are going to need liquidity over the next 6 to 12 months.   Whitney Ward (00:08:00) - And so we're just having those conversations now. But for the as far as the fund goes, and on that investment side, I mean, we are looking generally for, you know, 75 units to 150 units on size, so we can have a third party property management company in place. And, you know, your typical value add opportunities that you've heard a lot of groups say, we just think there's going to be more value add opportunities to look at.   Sam Wilson (00:08:25) - Yeah, absolutely. No. And I want to touch on I guess a couple of things. Let's talk about the you mentioned the term need liquidity groups that need liquidity. What are some situations that people are finding themselves in that need liquidity, that don't necessarily mean that they have a bad investment?   Whitney Ward (00:08:42) - Sure, I mean mean. So liquidity in its sense, like if you if you invest in real estate, the only way to generate liquidity is to sell or refinance the property. So there's there's like I mentioned earlier, you have some owners that have purchased properties with short term debt in 2021, 2022, and they have debt maturities coming up.   Whitney Ward (00:09:04) - And they're going to need to sell. Whether the market, whether the interest rates are high the way they are today or not, they are going to be forced to sell or refinance, and not everybody's going to be able to refinance if they if they haven't been able to generate enough income to service that refinance, then you have people that might be fund managers that have their funds expiring, and they have to close out that fund. And so they're going to be looking to exit out of the deals that they have to end their funds. You've got developers, you know, people who have constructed have construction loans out. They're going to need to refinance out of those and put stabilized debt. So you have a variety of different scenarios right now that are foresee that show people needing liquidity.   Sam Wilson (00:09:46) - So what's the I guess, what's the opportunity for you in that?   Whitney Ward (00:09:50) - Well, we want to be there to say, hey, we want to buy it. Right? So so I mean, with rates as high as they are and valuations down, we're we're projecting or we're seeing first of all values are down the lowest they've been since probably I would say 2016 at least probably earlier than that.   Whitney Ward (00:10:08) - Right. And so for us we just see that as an opportunity. You know maybe some groups are like, hey, the interest rates are high. I'm scared. But we see a potential opportunity for arbitrage. I mean, even the institutional investors are looking at possibly acquiring deals right now at higher rates, right. And maybe even doing a short term type of floating debt, putting a rate cap on it, and being able to refinance because we believe rates will be down in 2025, 2026. And that'll be a space where you can, you know, refinance or, you know, exit a deal however you want to, whatever your strategy is. So I mean, a lot of our, our business plan is derived from our belief that, you know, in the next over the next three years, we'll see rates decreasing. They might not get down to where they were in 2020. Right. But we see an opportunity where some people might be fearing we're seeing lower, lower values. More deals come into the market as an opportunity for us to acquire these deals.   Sam Wilson (00:11:07) - So would you classify these deals you're looking at as distressed and. Yes, I guess the answer for those of you were listening. Whitney shaking her head. Yes, they are they they are indeed distressed. And I guess what's happening to those sellers? I mean, they're taking a haircut on what they.   Whitney Ward (00:11:25) - They got, they have to do. I mean, you have to you're going to have lower returns than what you expected. And that's the unfortunate thing about, you know, market cycles in some ways. I mean, you know, many people believed that we were in a low interest rate market forever. And, you know, it's just it's just kind of the way the, the cookie crumbles. And and that's why we want, we're, we're saying to our investors, listen, we've been in this market and we're seeing trends that we haven't seen in a long time. And I think, you know, you know, in scary times presents opportunities. And yes, to your point, I would say it's it's stressed and distressed owners because anytime you're forced to do something that you don't have a decision to make, I consider that to be somewhat stressed.   Sam Wilson (00:12:08) - Right. For sure. You mentioned that valuations are down 26%. I guess that's probably a maybe a nationwide percentage there that we're using. Would you say that even valuations are down 26% even on performing deals? Or how are performing deals working out right now? I mean, let's, let's, let's use your scenario and say, hey, they have a short term debt. You know, they've got debt maturation coming up and they need to either sell or refi. Are we seeing deals that are doing really well? I'm thinking of one I've got and we're not looking to sell. We don't than the debt's not maturing on it. But it's doing really well. It's like 99% occupied were way above pro forma. But if we had to sell that, is that also something that people are selling assets like that at a discount because they have to.   Whitney Ward (00:12:54) - You're going to have to I mean, the cost of debt is too high. I mean, I mean, the bid is spread between what buyers are, are able to pay and make it make sense for their investment and what sellers want to sell at, you know, it's it's shrinking, but it's still there.   Whitney Ward (00:13:08) - It still exists. So I mean, with with right now with you come if you get in the market and you really you know, place agency debt on a multifamily property, you're looking at probably 6.5% interest rate on a good on a good on a good deal. I mean, I mean, if someone's trying to sell it a five cap, you're immediately at negative leverage. I mean, there's like a buyer can't make that work, you know what I mean? And so it's now the decision on you guys, if you guys put your property on the market, which I'd assume if your property is performing, why would you sell? Why wouldn't you just hold it? You know what I mean? Like, there's no reason for you.   Sam Wilson (00:13:40) - Well, unless, you know, and I was using our property as an example, but unless we had, you know, debt maturities coming up that we just couldn't avoid, and it's like, okay, well, we're gonna have to refinance this or sell it.   Whitney Ward (00:13:52) - Or are you knocked it out of the or you knocked it out of the park. And even if you sold at a six and a half cap or seven cap, you still killed the returns that you were projecting, right? Yeah. Right. Right.   Sam Wilson (00:14:02) - That's interesting. So you mentioned something there I hadn't really thought about and didn't plan on going down this, this rabbit trail, but I've seen some deal sponsors advertise buying it negative I guess negative leverage is that the term is there. Yeah. Where they're where they're buying it at a six and a half cap. But they're going in cap rates of five cap. What do you think about that strategy.   Whitney Ward (00:14:24) - I mean I mean you know, I was just up in New York last week. I global had a global leaders and commercial real estate conference. And it was just a bunch of institutional investors. And personally, I think anytime you can get in front of institutional investors and just compare notes and listen to them, they're the smartest in the game. So and just hearing their feedback, I mean, it depends on the strategy and how long that negative leverage lasts.   Whitney Ward (00:14:50) - Most most people are most institutional investors would say no. Right. But it also it's going to depend on your business plan. If you could if you go in at a five but you think you can exit at, you know, an eight, I don't know. It really just depends on your arbitrage. Like, um, you know, for us, I'm not we're not looking at anything like that. We're being patient because we think there's going to be situations where a buyer or a seller is not going to have the option to continue to push their price. Right. It's going to come down to they're going to have to sell. So, you know, whoever is going to be positioned well capitalized experience as closed deals. And that's one of the reasons our fund is is a 506 C fund. So it's accredited investors only. But that's one of the reasons why we're partnering with managers and builders that have done deals and have taken them full cycle. Because, you know, I think with that, having the equity, having relationships with lenders, obviously, you know, those experienced sponsors would have those.   Whitney Ward (00:15:50) - I think it'll be easier to transact and get those sellers to agree to prices that they may have not normally agreed to.   Sam Wilson (00:15:56) - Right, right. Tell me about the fund and raising capital in well, in today's market and today's economy, what's that like. And yeah, give us some insight on that.   Whitney Ward (00:16:07) - Yeah I mean it's tough I mean everyone's afraid right. And so one of the things that I have made a focus is educating. People on what the market is doing and where and why. Why we're seeing right now as a time to start raising capital. I mean, I'm not the only group raising money. There's tons of groups. I see funds popping up here left and right, you know, um, so it's a matter and what we we're trying to separate is say, hey, we're already building a pipeline. We already have. We're already boots on the ground. We already know what's happening. We're in the business every day through our brokerage company. We're interacting with investors all the time. And so raising capital has been difficult.   Whitney Ward (00:16:45) - But, you know, if you follow any of the trends and seeing some of the larger institutions like Blackstone or whatever, they're starting to get less redemption requests. They're starting to be able to raise a little bit more capital. We're being we've had some success raising capital on the on the family and friends side. And now that we're 560, we're we're entertaining institutional partners as well. And so I mean, it's it's a consistency. Um, you know, people if you ask me what I really do, I feel like I'm, I'm in marketing and sales because that's what I'm really doing now, you know, and, and trying to get people to understand the opportunity and see not only, like what the market is showing, why this is an opportunity, but with sort of like, why us and what we're going to do different than other groups.   Sam Wilson (00:17:29) - No, I think and that's that. That's a like you said, it's a marketing position as much as anything because you need to come up with a compelling story as to why.   Sam Wilson (00:17:37) - Why now is a great time. And I'm hearing that. I mean, we're hearing that from several people in the industry now where they're saying, hey, you know, we're seeing opportunity. We are positioning ourselves, you know, to take advantage of this opportunity. I just it's yeah, it's I think what you're doing is great. It it is really interesting, though, how you have to craft that message to your investors and share that. So so tell me about that. When you when you're out raising capital in a fund, which I think is uniquely challenging in and of itself, but then also that fund is deploying capital into several other deals and sponsors, maybe that your investors don't know or have a direct relationship with. What is that process like, and how do you instill confidence then in your investors?   Whitney Ward (00:18:18) - Yeah. So a strict criteria for what that manager and developer would have to have from a background experience. So all of the groups that I would consider, I've known them since getting into real estate.   Whitney Ward (00:18:30) - So I've seen them grow, I've seen them manage, I've seen them manage this market cycle. I've seen them execute right. And so what I try to help others understand is, you know, we're doing our due diligence on these sponsors and these managers by by requiring them to have at least done that specific deal full cycle. Right? Whatever that deal is, we're considering, you know, having an experienced third party, third party property management company in place, if not in-house, they've had to have done agency financing deals, they've had to have experience in any type of bridge or construction loans for us to consider it. So it's a background like we're we're doing a thorough background check on any of the sponsors. And again, like I said, these are these are people that I've had relationships. I share the same investment thesis as them. I mean, it would be almost as if I'm a partner with them on a lot of their investment philosophies. So we're not going to go really out of the box on any of this and, you know, do a development deal in Milwaukee when we don't know anything about it.   Whitney Ward (00:19:36) - I mean, that's another thing. Our geographical focus is very specific as well. Being the southeast, our asset type, all those things kind of help our investors feel a little bit more comfortable.   Sam Wilson (00:19:47) - That is fantastic. Thank you again for taking the time to come on the show today, and really tell us what it is that you guys are working on, where you see opportunity love here, and people get excited about what it is that they see, the opportunities they see in the marketplace and how they are, again, taking advantage of that. If our listeners want to get in touch with you or learn more about your fund, what is the best way to do that?   Whitney Ward (00:20:08) - The best way would be to visit our website. It's CRE Dash endeavors. You know, we did a really good job of just making things very simple. Anyone can understand it and you can. My contact information is on there as well.   Sam Wilson (00:20:24) - Awesome. Fantastic. Whitney, thank you again for taking the time to come on the show today.   Sam Wilson (00:20:27) - I certainly appreciate it.   Whitney Ward (00:20:28) - Thanks for having me, Sam.   Sam Wilson (00:20:29) - 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 Shannon Robnett.   With over 25 years of experience, Shannon has been involved from start to finish on over $350MM in construction projects such as multi-family, professional office buildings to city halls, fire and police stations, schools, industrial projects and mini storage. Along with his knowledgeable team at Shannon Robnett Industries (SRI), Shannon is dedicated to sharing his expertise and delivering top-quality projects that bring numerous passive income streams to his syndicate partners.    Show summary:   Robnett shares his journey from watching his parents do real estate deals to becoming a successful builder and investor himself. He discusses his strategies for cost control, market selection, and team building, emphasizing the importance of aligning goals and understanding the rental market. Robnett also reflects on the impact of the 2008 market reset and the current supply constraint in the housing market.    -------------------------------------------------------------- Intro (00:00:00)   Shannon Robinette's background and real estate journey (00:01:11)   The Rents as the Starting Point (00:11:24)   Surviving Interest Rate Hikes (00:12:19)   Selecting Markets for Deals (00:13:07)   -------------------------------------------------------------- Connect with Shannon: Linkedin: https://www.linkedin.com/in/shannonrobnett/   Instagram: https://www.instagram.com/shannonrayrobnett/   Facebook: https://www.facebook.com/shannon.robnett.1   Web: https://shannonrobnett.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: Shannon Robnett (00:00:00) - But the reality is, if I am the builder, I am in total cost control and my my 100% goal is the builder is to satisfy the developers investors. And so we're constantly in there negotiating pricing. We're constantly working on things. We also put the stopgap and the failsafe in there that my construction company signs a guaranteed maximum contract that I personally back up so my investors never have to worry about cost overruns. And so we're able to create the best of both worlds.   Intro (00:00:30) - 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 (00:00:43) - Shannon Robinette has been involved from start to finish on over $350 million in construction projects. Shannon, welcome to the show.   Shannon Robnett (00:00:51) - Hey. Thanks, Sam. Glad to be here.   Sam Wilson (00:00:53) - Absolutely, Shannon. The pleasure is mine. There are three questions I ask every guest who comes on the show. And yes, you have been on the show before, and at some point during this episode, I will figure out which episode that was and we'll make sure we highlight that out.   Sam Wilson (00:01:04) - But either way, for every guest that comes to the show in 90s or less, can you tell us where did you start? Where are you now and how did you get there?   Shannon Robnett (00:01:11) - Well, I started at the kitchen table with my parents watching them do real estate. From there, I grew into a merchant builder and was watching other people. I would build their buildings. They would collect the rents, the revenues. I saw how that was working. In 2001, I built my first investment property. It was an industrial project and two of my original tenants are still in the building. So it proves that the cash flow model works. 22 years later, same year, I watched my father and mother retire with cash flow and realized that real estate was the way to not only get your time freedom back, but to actually gain real wealth and time as well. And so from there, over the last three years, we began, we grew to the point where we needed to start syndicating capital and raising funds.   Shannon Robnett (00:01:59) - And over the last three years, we've raised about 62, $63 million.   Sam Wilson (00:02:05) - Wow. That's that's wild. Good times man. Merchant builder. I've never heard that term.   Shannon Robnett (00:02:12) - Well, that's just where I go to work for other people. You've got a building that needs built. I show up, I build it, and that's my only association with the project.   Sam Wilson (00:02:22) - Got it. What? When? When did you start developing or building your own? Real estate empire of cash flowing properties.   Shannon Robnett (00:02:31) - I started that in 2001. Obviously, we downsized that in 2008 and started rebuilding it back in 17.   Sam Wilson (00:02:40) - What happened in that period between oh eight and 17 for you?   Shannon Robnett (00:02:44) - Well, we just saw, you know, we saw a huge market reset. We saw where you couldn't build a building for what you could buy one for. So we saw a huge price disparity. Housing went from, you know, I mean a house that was $1 million you'd see resold at 500. Oh, yeah. You know, as an example, my parents recently sold their house that they purchased for about 400 for 1.9 million, you know, sorry.   Shannon Robnett (00:03:11) - Correction, 1.6 million, right. 15 years later. But they bought it at absolutely the bottom. And so so with that we couldn't really get there wasn't a lot of build jobs happening. There wasn't a lot of development happening. And which has led us to the problem we have today, which is a huge supply constraint where we have, you know, somewhere between 4 and 7 million housing units necessary in America today just to house the current population.   Sam Wilson (00:03:36) - Right, right. So it's kind of gone full circle for you where it was. It has to build and there was lots to buy. And now there's a lot that needs to be built and maybe nothing to buy.   Shannon Robnett (00:03:48) - Right, exactly. Well, you know, and the supply side is coming back online as, as people run into refinance problems, things like that, perfectly performing assets because we still have a supply disconnect. You know, we've still got supply issues out there. But at the same time we're seeing we're seeing lots of lot, a lot more product than we've seen in the last three years is coming back to market.   Sam Wilson (00:04:11) - Right? Right. And it'll be interesting to see, of course, at what prices those trade based upon inflation or inflation, interest rates and capital availability. For those of you that don't know, Shannon, you show up on my YouTube feeds all the time. Not even searching for you, dude, I'm not even sure what you're doing, but I'm like, oh, there's Rob, there's there's Shannon Robinette again. So I don't know what your strategy is there, but I just had to point that out on the show.   Shannon Robnett (00:04:34) - Well, it's it's basically pester you till you talk to me, you know, and it seems to be working, right. People like, how do I get off this YouTube feed? And then we get to talk about investing, right?   Sam Wilson (00:04:43) - Right. Oh, that's really cool. So if you're if you're out there raising capital, go follow Shannon Rob, don't even follow him on YouTube. It just keeps showing up. So see what he does there. On his social media strategy.   Sam Wilson (00:04:55) - It's pretty. It's pretty wild. So what are you building today? What makes sense in today's environment?   Shannon Robnett (00:05:01) - You know a lot of what we've done. So my past my my first project was industrial. And right now industrial is one of the shining stars in the investment world. And I'll explain in a couple of seconds why. But it's it's really inflation resistant and it always has. But it's never been sexy. Right. And the reality is cap rates on industrial have always traded a couple of points higher than multifamily in any market. The other thing that you have is you've got tenants with balance sheets, tenants that are running businesses. You've got tenants that signed personal guarantees, and you've got tenants to sign five year leases on top of that triple net, which is how industrial is leased because of the long term lease. Make all of the taxes, all of the insurance, all the maintenance, all the management, you know, everything to do with the building, a pass through the tenant. So your rent is truly your rent.   Shannon Robnett (00:05:59) - And as we see right now that property taxes are continuing to go up, even though the market has softened, as we see that, you know, insurance is doubling in some areas, tripling and others, this has put a huge crush on NOI in a lot of areas, except for industrial, because that is truly a pass through to the tenant. So it's really been a resilient asset class. And especially in inflationary markets like this, they perform very well. We've got a 37,000 square foot industrial warehouse that we're building for an international stone dealer in Florida right now, looking to build another 40,000ft² for an aerospace company in the Florida market. We've just acquired something in Houston, Texas that was a fully stabilized, triple net leased industrial product that needed needed some proper management and some rent escalations in the in the expiring rents. And so that's really where we've been focusing right now. We're finishing up two apartment complexes that will come to market here starting Q1 of 23. And both of those should be stabilized and and permanent financing on by by the end of next year.   Sam Wilson (00:07:09) - That is a lot of moving pieces. I like what you said there about the industrial, the attributes of industrial, such as that you get to pass through all of those expenses. Of course you know that. Is incumbent upon having good tenants that can afford those increases.   Shannon Robnett (00:07:26) - Yeah. You know, and the reality is, when you look at it, Sam, when you have somebody that's that's living in your apartment, they are the only way to produce the money. It is their exchange for time that gets them paid. But when you look at business owners, business owners have already figured out how to leverage, right? They have employees that leverage that. They have distribution cycles and centers that that that leverage that. And when you pass through a 15% or a 10% increase in their total rent, they just figure it out. And usually that just passes on down the line. And now what you're buying on Amazon cost you 15% more and you don't really notice it because you still need it. So there's a huge difference in what a industrial flex space user will do versus what a what a tenant will do.   Shannon Robnett (00:08:16) - Because if you if you hand him a 10% rent increase, he's got to go give 10% more time that he's already giving 40 or 50 hours to provide what he's got. And he's also dealing with inflationary prices of chicken and fuel and everything else out there that's gone up two and three times.   Sam Wilson (00:08:33) - That's a really clear explanation that I probably would not have articulated as well. That's awesome, I love that, and that makes a heck of a lot of sense. You got two complexes you're finishing up. Are you building any more multifamily complexes or is that.   Shannon Robnett (00:08:48) - You know, we've got a couple on the books that right now, current interest rates versus rent rates have held us off. But I think that you're going to see there's not enough product out there. There's a glut of it kind of hitting the market right now and stuff that was begin that was began in 22 and 23 or 20, 21 and 22. So you're seeing some of that where you're seeing some some price softening a little bit, but we're really not seeing occupancy shift much.   Shannon Robnett (00:09:17) - And so we think we're going to bring those projects back to the drawing board in probably the second or third quarter of 24.   Sam Wilson (00:09:24) - Got it, got it. Cool. Love this. Shannon I like the way you're unique in that. You're both some.   Shannon Robnett (00:09:33) - People do and some people don't, you know.   Sam Wilson (00:09:35) - What do you mean like like how you.   Shannon Robnett (00:09:37) - Like the uniqueness. Yes.   Sam Wilson (00:09:39) - Right. Yeah. You're unique. Like never I don't know, could probably.   Shannon Robnett (00:09:43) - I even like the way you put it. I'm unique. Other people use different words.   Sam Wilson (00:09:48) - A pain in the anyway neck.   Shannon Robnett (00:09:51) - Yeah. Yeah. Exactly. Exactly.   Sam Wilson (00:09:53) - Right. So, man, I don't even know where I was going with this. Oh. You're unique, I was here, I was here making you feel good about yourself. You're unique in the way that you guys syndicate your assets in that generally, the builder isn't also the syndicator, right? Right, right. Tell me about that model, how it works and what are some of the maybe benefits and complications of it?   Shannon Robnett (00:10:18) - Well, let's talk about it from the investor's perspective, right? I mean, if if I'm going to build something for you, then I'm going to have my price and then you're going to have yours.   Shannon Robnett (00:10:28) - And there is there's going to be this battle between you and me for me to make as much money as possible and for you to get it's done as cheap as possible. That's where change orders come in. And they can really play havoc on your project, right? Yes. But the reality is, if I am the builder, I am in total cost control. And my my 100% goal is the builder is to satisfy the developers, investors. And so we're constantly in there negotiating pricing. We're constantly working on things. We also put the stopgap and the failsafe in there that my construction company signs a guaranteed maximum contract that I personally back up so my investors never have to worry about cost overruns. And so we're able to create the best of both worlds. Not everybody loves that model, because if something happens to me, something also happens to the syndicator. And so, you know, there is there is some of that, but a nice insurance policy, make sure that the right people will be hired to take my place.   Shannon Robnett (00:11:24) - Not enough that it makes me a target, but enough that it makes me, you know, expendable with the replacement. So so there's some of that that we've managed to do. But the other thing that we do, Sam, and when we start our process, we start a process with the rents. We want to know what the rents are in the area. And then we build our total model backwards so we're not buying something going, hey, the NOI is $500,000 a year. What can we do to increase that? I look at it and go, I'm going to get an NOI of 500,000 a year. It's going to allow me to build only this much. And so then we build the budget backwards. Know that when we're done, we've got a cost model that will work so that we can execute on the business plan. Once we've done that, if rents have gone up like they have on these two complexes that we're looking at, we're able to survive the interest rate hikes, which we also modeled at 7.5% on our take out loans for conservative nature.   Shannon Robnett (00:12:19) - So we're able to come through it with 2 or $300 better rents than what we're projected ahead of the game and finance that where we wanted to.   Sam Wilson (00:12:27) - That's awesome. I love that, and I think that's that's really it's just a unique product that you're bringing to the market where you can handle both, both sides of that. So you're finishing up two complexes. I know one of those is at least there in the Boise market as the other one also there.   Shannon Robnett (00:12:45) - And the both of them, both of them are here in the Boise market. Yeah.   Sam Wilson (00:12:47) - Boise market okay. But you also mentioned that you guys have some assets you're taking down in Houston, some you're taking down in the Florida markets. You're kind of all over the country now.   Shannon Robnett (00:12:57) - Well, you know, and what we look at to with that, Sam, is we look at the market first. Right? I mean, there's a lot of people that you've met that they look like a fly in a cow pasture. They're running here, they're running.   Shannon Robnett (00:13:07) - They're they're going here, they're going there, and they underwrite this thing. And man, what a magical product it is. It's I mean, it's got the cash flow. It's got everything. And then they go look at the market and they realize that the market isn't an appreciation market or it's not a growth market. There's there's not a lot of upside potential there. And so then they realize, well, I can't do this deal because it doesn't fit my buy box. Right. And what we've really done is we've looked at it and there's eight markets across the nation that. We will do deals in and only those eight. And so when we're looking at things, if it doesn't fit in that market, we've already eliminated a huge swath of what comes across my desk because we want to be in markets, we want to do a good deal in a great market, then a great deal in a good market. And the reality to that is just simply this, Sam, there's only so much you can do to improve the value of the product that you're working with.   Shannon Robnett (00:13:58) - There's a lot of things that are external factors like taxes, like politics, like job growth, like people moving in and out of the area that you cannot control. But why would you want to do a great deal? I mean, we're talking a 12 cap. We're talking about owner financing. We're talking about everything that makes every syndicator salivate right in Detroit. Right. So. But you chase this deal down and then you realize the market. So we start market first. Once we've identified those markets, it helps us to be coordinated in our efforts. So while it does look like we're in four different markets across the nation moving into three more, they're very select markets. And then we go in and acquire multiple assets in that area so that we have a concentration in the area.   Sam Wilson (00:14:43) - How do you build team and manage each of those? I'll just stop the question there. Think how does that work.   Shannon Robnett (00:14:52) - Well, you know, my 30 years in construction experience has really helped me to identify when we're going out of out of state for construction projects, I will go hire a local general contractor, but I will put him through the same process that puts him on my team.   Shannon Robnett (00:15:08) - Right. So we've got a general contractor in Florida that's doing that deal, and I have set up a revenue share with him where every day that he saves me, I will give him 25% of the interest that I would have paid. And I will also give him 35% of the cost savings on the overall budget. So if this contractor is now on my side, he realizes that he can make an 8% profit by giving me a change order or a 30% profit by saving me money I wasn't going to save if he didn't help me. And so I wind up with the best of both worlds. He's on my team and we go in and we start that model with conversations and get down to who is the good contractors in the area that have the great relationships, the great reputations, and then we firmly bring them on the team by making it a revenue share so they can actually make more money saving me money than giving me a change order.   Sam Wilson (00:15:58) - Right? Right. Which boy? That's the that's the name of the game, isn't it? To absolutely change.   Sam Wilson (00:16:04) - Change. Order the heck out of out of a deal. So you've brought the local general contractors on your team. What's that process like for you vetting another GC? I mean, you know.   Shannon Robnett (00:16:17) - It reminds me of, you know, two bulls meeting in a cow pasture, you know, but but at some point you realize that, look, we're on the same team. And and when you stop and, you know, think about what my business model is, it makes the most financial sense for everyone involved. And the minute that they see that it is a win win and it's designed to be a win win, all of a sudden they're all on board because they know that regardless of what happens to this job, they're going to make money. If they can make this job go very smooth and execute ahead of schedule and under budget, they're going to be even more profitable. If this job goes long. They'll make what they were supposed to, but it won't be a win. It won't be as big a win as if they put better resources on it.   Shannon Robnett (00:17:02) - So then we find them going back to their preferred plumber and going, hey, listen, we need you to work on your price a little bit because we really want to work with you on this job because we know you're not going to screw us over. We know you got the manpower, and it really helps our schedule and gets our timing down to where it needs to be.   Sam Wilson (00:17:17) - Got it? No, that's really cool. What about your internal team? So we've talked a little bit about the external teams, the local general contractors and people like that you're working with around the country. But you need I mean, you guys are you're involved in a lot of different things. Developing a multi family complex is very, very different than taking down an industrial asset in Florida.   Shannon Robnett (00:17:36) - Well it is and it isn't. Right. I mean, Sam, you're you're involved in different asset classes than where you started out. If I remember correct, you guys were doing a lot of RV storage and parking lots and now you're doing, you know, you're doing laundry mats and some other cash flowing assets.   Shannon Robnett (00:17:53) - But, you know, 70% of the underwriting is still the same, right? 70% of the data collection is is very similar. And so when we're looking at that, we're able to take the team that we have. And this is the other thing that I have, and I would love to say this is all me. It's all the Shannon show, but that would be a total lie. I have some of the most amazing team players that are in it to win, and what I figured out how to do is to get them to see what their goals are and magnify those into their job so that they're actually achieving their personal goals while they're doing everything around here. And so they're able to see the wins all along the way, and then you really get the motivation up in the in the office, you get everybody firing on all cylinders. Everybody's willing to jump in and help each other, and you create a team culture that's pretty phenomenal. That can't happen if you're not meeting the goals of every person in here, and not all of them are money.   Shannon Robnett (00:18:48) - And so putting that together and and being aware and, and reciprocating to your staff is some of the best motivation that we're going to have. And they'll not only go the extra mile, they'll run an extra marathon for you.   Sam Wilson (00:19:01) - That is really powerful, what you've just described there. But that takes that takes a little bit of or a lot a bit of empathy, of awareness, of really dialing into the people that are working for you. How do you how do you balance the need to get stuff done? And the time that it takes to invest in those employees and say, hey man, like Shannon, what are you like? What's your goals? Like, where are you? Where are you? Where are you going with this? And then how do you catalog it and make sure that it kind of fits with what they're doing?   Shannon Robnett (00:19:35) - Well, the first thing I do, and this is funny because it throws everybody off. If you've if you've made it through an interview and or a second interview and we want to work with you, the first or the last question I'm going to ask you is, what do you want for compensation? And compensation is all about money, right? Do you want do you want heavily? Or do you want a better insurance plan? Do you want more time off? Do you want, you know, flexibility? Do you want.   Shannon Robnett (00:20:05) - What is it that motivates you? And then the next thing we do is we set out to 12 months goals of where you want to be. In that plan. So if you know, I've got I've got people that are they're all about time off. I got people that are all about flexibility. I got people that are all about money got I got people that are blended in the middle. But when they realize now that the only thing standing between them and their goals is this silly little project, it's amazing how the attitude shifts and the mindset shifts and the and the creative juices start flowing so they figure out their own problems, because that's the only thing standing in the way of them. And six weeks of vacation or them and the flexibility to work from wherever they want.   Sam Wilson (00:20:50) - Bright man. That's brilliant I love that, I love that indeed. Very, very cool. Shannon, thank you for taking the time to come back on the show today. I didn't I was so enamored with our conversation, I didn't actually get to look up the episode.   Sam Wilson (00:21:02) - But for those of you who want to look it up, this would be, gosh, at least two, two and a half years ago. Maybe the last time you. Yeah.   Shannon Robnett (00:21:07) - It was a while ago. It was a while ago.   Sam Wilson (00:21:10) - Certainly appreciate you taking the time to come on today. If our listeners want to get in touch with you and learn more about you and your projects, what's the best way to do that?   Shannon Robnett (00:21:16) - Just Shannon, Rob Netcom. We keep it simple. All of our information is on our website. You get to all our social channels or YouTube, even my calendar. If you'd like to book a call and chat more about what we do and how you can be involved, it's just Shannon, Rob Netcom.   Sam Wilson (00:21:29) - Shannon, Rob Netcom. We'll make sure we include that there in the show. Notes. Shannon, thank you again for your time today. I certainly appreciate it.   Shannon Robnett (00:21:35) - Thank you. Sam.   Sam Wilson (00:21:36) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:21:40) - If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts.   Sam Wilson (00:21:46) - 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 Logan Swanson.    Logan is a husband, father, and land investor.   Show summary: In this episode, Logan Swanson shares his journey from starting a land investing business with a $2000 loan to running a successful funding company. He highlights his strategy of buying cheap desert squares in Texas and Nevada and selling them at a profit. Swanson also discusses his approach to real estate development, focusing on adding value through subdivision and entitlement projects.    -------------------------------------------------------------- Developing Properties and Funding Land Investment Deals (00:01:10)   Pivoting to Financing Land Acquisitions and Sales (00:05:29)   Different Ways of Investing in Land: Subdivision Plays (00:10:15)   The subdivision strategy (00:10:57)   Entitlement projects (00:12:13)   The funding approach (00:18:12)   The goals for the company (00:22:04)   Strategic growth and lifestyle balance (00:23:28)   Compartmentalizing and scalability (00:24:12) -------------------------------------------------------------- Connect with Logan: Social: @primelandexchange Web: www.thelandfixer.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: Logan Swanson (00:00:00) - The idea is instead of going and extending a ton of capital to buy properties, you can actually just partner with landowners and have a skill set to find the best and highest use for that property. And then through maybe a little bit of civil engineering, rezoning, subdivision, any number of ways in which you can force appreciation onto a property, you can actually give that landowner above market value for their property, and you can make a substantial profit with much smaller investment, much less risk.   Intro (00:00:33) - 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 (00:00:46) - Logan Swanson is a husband, father and also a land investor. Logan, welcome to the show.   Logan Swanson (00:00:51) - Hey, thanks for having me.   Sam Wilson (00:00:53) - Absolutely, Logan, 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?   Logan Swanson (00:01:02) - Well, I started with a $2,000 loan in 2018 to go buy some vacant desert squares in the middle of nowhere in Texas.   Logan Swanson (00:01:10) - Nevada. Um, we've moved that now. Grown it from just flipping vacant land to developing properties, funding other land investment deals. And now our main focus is trying to combine all the pieces together into something that's driving a little bit more purpose in my life.   Sam Wilson (00:01:30) - That is really cool, I love that. I know for those of you that are listening to this show and I know I've mentioned this, I think only one other time out of the 800 and something episodes is that I always ask guest a fun fact or a surprising view. Sometimes we incorporate those here into the show. For those of you who are listening. Logan, I think it was in 2018. Your fun fact or surprising views says you started like you said there were the $2,000 loan, but when you when you started, you were a construction project manager by day in a high end restaurant, server by night. And, you know, through just sounds like grit and perseverance, you have really built your business to where it is today.   Logan Swanson (00:02:09) - Yeah. And with my wife, she's my business partner. And as much as I was burning the midnight oil, she was to.   Sam Wilson (00:02:15) - Man, that's really cool, I love it. So you took that $2,000 loan you were buying desert squares, which, from what I understand, correct me why I'm wrong in the land investing space. That's kind of like that's that's the riskier way of investing in land. No. Or tell me about it.   Logan Swanson (00:02:32) - Yeah. So I mean, effectively it's investment. Like anything else you buy as cheap as possible and then you resell it. It's not. There are risks to every investment. Right. But it's the least risky because they're so cheap. When I was started, you know, I started I was buying five acre properties in West Texas for $500, $700 and selling them for $5,000, $7,000.   Sam Wilson (00:02:56) - Who wants those? I mean, what's the like if you're buying five acres for 500? I mean, that's astounding. Like, what is it? It's got to be high desert.   Sam Wilson (00:03:08) - Just. No.   Logan Swanson (00:03:10) - Yeah, yeah, it is rough. It is rough. But there's a buyer for every piece of land. Don't think I've. Nothing has said on my inventory longer than a year. Um, so you might have to get creative with how you sell it, but, you know, there's there's this there's this American intuition that says, I want to own a piece of America. And actually it exists out of this country as well. They want to own a piece of America. And for folks that don't have a lot of money, you know, $5,000, we owner financed a lot of land back then. So it was like $100 down $100 a month, and you could start owning a piece of America and shoot, if you went out there once a year and drove ATVs around, it'd be worth it.   Sam Wilson (00:03:48) - Oh, for sure, for sure. Undoubtedly. That's that's really crazy. So obviously you're not buying five acre desert squares anymore for 500 bucks and flipping it for five grand, which is not a bad return on investment, by the way.   Sam Wilson (00:04:02) - Mean. Now, if it didn't take any time, I'd do that once a month and still be happy about it. But sure. Yeah. You know, I mean, it's better than a sharp stick in the eye, but either way, what is your business look like today?   Logan Swanson (00:04:15) - So today, this year we launched our funding company which has been the main focus. So I've done a lot of flips kind of all over the country. And what that's given me is a skill set to underwrite land flips, which is a pretty, you know, small demographic of people who can underwrite land deals anywhere in the country and quickly evaluate risks and resale value. So our funding company was just really new to me. It's a fine it's it's strictly financial. Whereas before, you know, there's a little bit more of a I don't know, it's just it's very different. I'm not I'm not like a button up suit and tie guy. So getting into something that's like much more banking than it is investing was a big change of pace for me.   Logan Swanson (00:04:59) - So we spent the year kind of building and developing that. Um, and my goal is to try to, you know, five x or ten x at this year. And we're we're well underway. You know, you're in Tennessee. We just funded a $1.9 million development in Tennessee. Gotcha.   Sam Wilson (00:05:15) - Y is now a strategic time to pivot your business out of buying and reselling land. And now into the financing of land acquisitions and sales.   Logan Swanson (00:05:29) - Well, it's beautiful because we are actually still kind of just doing the same thing. You know, when we fund a deal, we actually take title, and then we're signing a marketing agreement with the person that brought us the deal. So they effectively get a marketing agreement with either a profit share or a fixed rate payout to us once the property is sold. Um, I love it now because it's just allows me to own more land all over the place and have someone else do the selling for me and find the deals. So where my business was stymied in the past was how do I regularly find and buy five, ten, 15 undervalued properties a month when I could just, you know, have access to the funding and the structure to do it myself? And we make less money per deal, but mean it's still nothing to sneeze at.   Logan Swanson (00:06:15) - Well, for.   Sam Wilson (00:06:16) - Sure, but you. So unlike traditional funding, this is not a strictly debt play. It sounds like you guys are both debt and taking and JV, right? Right. It's more of a like you said, it's a joint venture. Okay, okay, that's really cool. And so have you shut down your marketing arm of your own land deals to really focus on growing the side of the business? You're doing both still.   Logan Swanson (00:06:37) - Yeah. So it's actually one of the benefits of my company is since I have kind of this huge buyers list and the strong marketing force, when people work with me to fund their deals, they also get the benefits of all that stuff. And, you know, we're pretty well established in certain areas, so it's kind of operate on a calendar. I go back to the same areas again and again and scoop deals and sell them, and I just don't I my second year went nuts. You know, I was buying land all over the country and it just became this train wreck.   Logan Swanson (00:07:05) - So now it's like I only work in Texas, I only work in these few counties, and it's much more repeatable and delegated. So that's that's what we do. Right.   Sam Wilson (00:07:14) - And it sounds like those were those were some of the mistakes. Maybe in the early years that you made was was kind of going too broad.   Logan Swanson (00:07:21) - Yeah. So I mean when we started 2018, we had a lot of success just doing these desert squares. And then the next year we were like, let's move closer to home. So we started going to markets, um, outside of DFW, Dallas-Fort worth. That's where I'm from. And it there was not a lot of competition in our industry. So we were buying we were kind of sweeping through neighborhoods. We were buying properties for, you know, a home like a Lakeview lot for a thousand $2,000 and selling it for 15 to $20,000 cash, you know, within weeks. Right. Um, and, you know, my head just blew up. I thought I was a genius.   Logan Swanson (00:07:58) - It was really just circumstantial. And I was kind of first to the party in a lot of ways. But. So my head got full of all these crazy ideas. And for some reason, my second year, my goal became to own land in every state. And I just went nuts. Um, and yeah, it's easy to operate efficiently in one market. It's almost impossible to operate efficiently in 15, 20, 30 markets.   Sam Wilson (00:08:18) - Man, there's there is a lot of wisdom packed into packed into that. And I think that's also funny, the point you made there about how you can mistake your success for, oh, I'm a genius. And it's really just market forces that for whatever reason, you're at the right place at the right time. And having the insight to spot the difference is, I think what a lot of people are experiencing right now in commercial real estate. Yeah.   Logan Swanson (00:08:46) - Insight or my head was slammed against the wall. It's like hard to miss, you know.   Sam Wilson (00:08:50) - Right. Well there's that too.   Sam Wilson (00:08:52) - But I mean I think it's also, you know, being able to go, hey, you know what? We just hit a home run because we were just in the right spot at the right time. Or you're like, man, this is the undiscovered new way to do everything. And then you go all in and you find out that, like, no, actually it was just the right place at the right time. And yeah, now your your hat is in your hand going, what did I do wrong again. So. Right. That's. We're seeing that. I mean, we're seeing that in multifamily. We're seeing that in some overbought asset classes where it's like, oh, you know, people thought they were just, you know, geniuses in the in the commercial real estate space. And it's like, no, you just had a ten year run of incredibly cheap debt in an appetite a buyer's appetite that was just, you know, suppressed.   Logan Swanson (00:09:35) - So, um.   Sam Wilson (00:09:36) - And then that's slowing down.   Sam Wilson (00:09:38) - So it's an interesting time to be. Well, let's talk a little bit about the different ways you are investing in land. We've had maybe. I don't know, 5 or 7 people over the course of this life of this show. Come on and talk about land. We've talked about, you know, buying desert squares a little bit. We've talked a little bit about just the buy it and resell it, the flipping land process. We've talked about people that have come on and all they do is infill lots. And I think that's probably by and large it, but it sounds like you've got a new spin or a different way that you're approaching the land investing business. So I'd love to hear about that.   Logan Swanson (00:10:15) - Yeah. So I'll preface it by saying I did not invent any of these strategies. You know, I feel like in most industries there's this natural progression, sometimes stupidly, to just keep moving on to the next thing, shiny object syndrome. And, you know, the lesson learned from working all over the place back in 2019 was like, how can I do the exact opposite, you know, shrink and work in a small area? So one of the strategies we've done is development plays or really just subdivision plays where you in Texas and a lot of other areas that have a lot of private land, there's very few restrictions or even processes built around subdividing land up to ten acres.   Logan Swanson (00:10:57) - So we would go through and buy, you know, 130, 150 acres worth of land, maybe a little below retail, not even shopping for a huge discount. But then you, you know, you bring in some civil engineers, you design a little bit of a subdivision, maybe do a little road and power work, and you can double the value of that property just in the subdivision. And then instead of marketing all over the country, you're just marketing a bunch of properties in the exact same location. You know, you're working with one broker or one title company, all that sort of stuff. So we really like those. We're actively pursuing those. We have another wing that's kind of focused on entitlement projects, which is unique to me, and something I'm still dipping my toes in here. But the idea is instead of going and extending a ton of capital to buy properties, you can actually just partner with landowners and have a skill set to find the best and highest use for that property. And then through maybe a little bit of civil engineering, rezoning, subdivision, any number of ways in which you can force appreciation onto a property, you can actually give that landowner above market value for their property, and you can make a substantial profit with much smaller investment, much less risk.   Logan Swanson (00:12:13) - Um, so like kind of an example of that would be say, you know, we like Tyler, Texas. That's where we're shopping right now. There's people who have, you know, a ten acre tract of land that's there's three apartment complexes in the vicinity nearby. This has all the right utilities and everything running to it. But right now it's just a big square with a bunch of trees on it. So, you know, we partner with them and say, hey, we'll establish a buy price on this of $1.1 million. And here's what we're going to do. You're going to give a six months. We're going to get our engineers and surveyors out here. We're going to design the best and highest layout for an apartment complex that, you know, it jives with the city. They get all their approvals, and then we bring it to market as this package for an apartment complex. But we haven't picked up a shovel. All we've done is the paperwork, maybe some surveyors in the field, and we could maybe spend $50,000 doing that entitlement work and add maybe 300 to $400,000 worth of value.   Logan Swanson (00:13:16) - So the landowner is happy they get 1.1 million when they might have gotten $900,000 as is. And we can walk away with a $250,000 profit with $50,000 invested. Um, those are kind of the strategies and there's endless sorts of opportunities like that from subdivision. It's there's all sorts of ways to do it, but the beauty is just seeing the property doing some analysis. You know, you can do this in the commercial space. Rezone a residential property to a commercial property at a ton of value. That way. Um, and then all you do is bring it to market. So the idea is like, I don't want anyone with shovels out there. I just want paperwork and I want to add value.   Sam Wilson (00:13:56) - Right? Right. In that business plan is incumbent upon there being a healthy construction market or, you know, construction, you know, people still looking for things to build, construction, you know, subdivisions, multifamily complexes, things like that. Is that a risk that you try to calculate when looking at that? I mean.   Logan Swanson (00:14:18) - Yeah. You do your homework, you know, you get on the phone with brokers and agents in the area. Um, really? We tried. We actually have sort of a process behind it. Okay, I'm going to get my acquisition manager on the phone. She's going to call 10 to 15 brokers. She's going to ask them all the same questions and weigh their opinions. So what we're going to be asking is like, what's the demand right now? You know, who what out-of-state money is trying to come into this market and what are they pursuing? Things like that. And they'll kind of tell us, they'll give us a roadmap and say, hey, this is the need. If you brought this sort of development to market or this sort of entitled property to market, there is a buyer pool waiting. So you do that homework ahead of time and then, yeah, obviously you just try to focus on a fast growing area. And DFW is just really like there's a triangle in Texas between Houston, Dallas and Austin where you can't miss.   Sam Wilson (00:15:07) - Right? Right. Understood. Have you have you gotten all the way through that process on any property and found out that you couldn't move it?   Logan Swanson (00:15:15) - No. Not yet. So this is, like I said, something we're dipping our toes into. This is more of a new learned skill set. We're in our third month of trying to put one of these deals together. We're much more familiar with kind of the standard subdivision, which, you know, those are the ones that we like to do on a regular basis. But yeah, this is a whole new thing for us. But we are in a community where we've seen it done many times, so I'm confident that it will work. What?   Sam Wilson (00:15:39) - Why do you think that? Developers don't just go out and do this on their own.   Logan Swanson (00:15:46) - Well mean. Developers are usually the ones that benefit from it. So if you think about like there's certain size companies, right? So there's the huge companies that have their own internal organization, you know, Lennar Homes and things like that.   Logan Swanson (00:16:01) - They're just they it's all in house right. But most of the time they're actually a little smaller than that. So if you have some development company that say is good at building 2 or 3 apartment complexes a year or 2 or 3 strip malls or something like that a year, they may be really good on the construction side, but they don't have the wing or the arm that's going to source the deals. They just wait for the market. They wait for a broker or realtor to call them and say they have a deal. So what we're doing is we're filling that initial step we're bringing to market the deal that makes it very easy for them. Like the idea is to be shovel ready, right? So a lot of that works. Done. The city's already approved the plans. They can just start building.   Sam Wilson (00:16:39) - How often do once the plans are approved, does that developer want to come in and make changes?   Logan Swanson (00:16:46) - Yeah. Mean it's regular. Right. So there is a process with the city that's going to allow them to amend the plans, but a really well executed entitlement deal.   Logan Swanson (00:16:56) - You know, if you're developing an apartment complex, for example, the city is going to give you restrictions. So they're going to say, okay, well you need ingress and egress here. You're going to need this much green space. You can only build this high, um, once you add all those variables in, it's more of a math equation than it is like a stylistic design application, because most builders are going to be like, I just want as many units as I can get. So then you kind of build a site plan that's optimized for the number of units, and then, yeah, maybe they say, hey, I want different cladding or whatever, but that's that's not even what we do. We're just getting the site plan. So this is going to be the layout of the development. And then all your architectural decisions can be done from there.   Sam Wilson (00:17:33) - That's cool man I like that. That's it is a different a different approach. Yes. To the and of course, obviously it's not a not a new approach by any stretch, but is certainly a different approach to what we see.   Sam Wilson (00:17:43) - A lot of land investors doing. Let's talk about the finances side of what you are doing and inside of your funding arm. I'll call it that. Or maybe it's a separate funding company. You guys are going in both. It sounds like you're providing all of the capital to close the deal. And of course, you're, you know, in exchange for that, it's a joint venture. You guys have both the debt and the kind of the equity positions inside of it. How are you doing that? Are you bringing investors in? Are you self-funding all of this? What's that look like?   Logan Swanson (00:18:12) - Yeah. So right now my business partner is the funding. He's got some really nice lines of credit that he's got a decent rate. I mean, as good as you can get today. And we've built the company actually we designed for outside capital. We've just put him in as the outside capital for now until we got to a point where, you know, we're either overextended with how much he can supply, um, or we just get really ambitious and say, we need to hold some funds on hand or we have so many applications.   Logan Swanson (00:18:42) - He's not going to keep digging into his own account for it, but it's it's actually very easy to understand from an outside lender's perspective. We do not take like large chunks of capital and then deploy them at later dates. Anytime money would come into our business, it's going to be put into a specific deal. So an outside investor could even do a little bit of the risk analysis with us. We can show them why we like the deal, why we're funding it, why we agreed to the retail value. And then internally, it's really simple. It starts at 6% return on investment, and that goes up 1% each month that the property's not sold. So it's not a bad deal. Most of our deals are going to sell between 3 and 6 months, and that money can get put back in. So the we've actually been tracking the annualized return of my business partner just from putting his money in. And it's pretty wild. Um, and for us, it's honestly it's it's considered pretty easy money.   Logan Swanson (00:19:39) - Ah, that's one of the reasons I'm talking to a lot of folks that are outside of our space is there is way more opportunity than capital. So the people that are inside providing capital, such as myself, even though I've kind of the best rates for what we do, it's still really expensive. Um, so like whether it be working through my funding company or another person's, there's like way more deals than there is capital right now.   Sam Wilson (00:20:03) - Right? That's really awesome. Love, love what you're doing. Let's talk here. The last few minutes we have let's talk a little bit about team, because it sounds like you've you have gone from again just rewind a few short years ago. Bust in your bust in your backside serving food at a high end restaurant at night to now having a pretty good sized team working with you. Tell me the secrets to how you've built out that team and kind of what the various roles are.   Logan Swanson (00:20:32) - Yeah, so the beautiful part is small team. Okay, so I have kind of these different ventures, but they all effectively do the same thing.   Logan Swanson (00:20:43) - It's all just looking at land deals, underwriting it and then managing transactions. The rest of it is kind of automated. It's like Excel spreadsheet formulas. Um, so for me, in lieu of having like secretaries and things like that, I just have a really well built system. You know, I have CRMs, I have people that book on my calendars. Um, right now most of what I do is just underwriting, which this year I'm hoping to hire an underwriter, but my team is really small. You know, I have a couple VA's that are operating for me. I have a marketing company that's third party that I employ. Um, then I have my contractors, right. So I just have people who are going to do work for me, but they're not employees. And then I have one acquisition manager, and based off of the volume of deals that we're currently doing, she's plenty. And she's not even full time with us. You know, we're managing, say, ten, 15, 20 transactions a month.   Logan Swanson (00:21:38) - That's like four hours a day for her. So the beauty of like, these different businesses or entities is they all just kind of stack. And I've found the right people who can just fill in the holes and don't you know, I have myself, my business partner and my wife, who's also my business partner, and that's pretty much the team.   Sam Wilson (00:21:55) - Wow. That's cool. What about goals for the company? Like what's what's your next? Big thing and why?   Logan Swanson (00:22:04) - Yeah. So, you know, I have a few different companies and the goals are all kind of outlined in each one. One of them, my flipping company wanted on a calendar, and I want that be effectively delegated entirely. Um, right now it isn't. It was kind of paused. It was bigger than it was then. I shrunk it down while I focused on other ventures. So getting that right is pretty big. I have this marketing company where I just market and sell land for other investors and same thing. I want that to be relatively autonomous, and I've done a lot of that.   Logan Swanson (00:22:36) - You know, we paid for a lot of automation to get most of the processes done for us. And then my marketing company carries the heavy lifting in that for my funding company. You know, we did, you know, well over a million last year and our first year. But, you know, we're already 3 million in this year. And we're trying to get like maybe 5 or 10 million there, which would be pretty big for us. And then I just want to do 1 or 2 developments a year. And I think that would keep me pretty busy. Right?   Sam Wilson (00:23:02) - No. That's cool. One thing I love that that that I feel like I'm putting words in your mouth here, but that and and this comes out of a thought from a book I just read called prophet. First, you know where he says one of the mistakes that people make is they just get big for big sake. Like, there's this, there's this, there's this kind of visceral inclination that entrepreneurs have where it's like, well, dude, we did 10 million last year.   Sam Wilson (00:23:28) - We should do 100 million next year. He's like, yeah, but are you happy with 10 million this year? And is your lifestyle good? And like does that balance. And so I think what I hear you saying is like, hey, you know what? We're going to we're going to be strategic about the way we grow. And it sounds like it's going to fit your guys's lifestyle as much is is your monetary and kind of income goals?   Logan Swanson (00:23:48) - Yeah, exactly. You know, if the flipping business, for example, forever, we were like, how can we grow this? How can we grow this? And we just found that the more we grew it, the less we loved it, the more burdensome it would get. Um, so I actually outlined I was like, I want to do five flips a month. You know, I really just want to have five properties and standing inventory, but I want them to fit the following criteria. You know, I have to make, you know, a triple digit profit on each one.   Logan Swanson (00:24:12) - Um, and I need it to be in an area where it'll move within six months and I need it to be sold and marketed by either my automated systems or my broker, so that it's just not no weight on me. So really, it's like, how do I take each each of these things and compartmentalize them in such a way that. I don't really want to work more than a couple hours a day. I know that I want to do other things that are productive, but as far as like land industry, business, you know, don't want to be dedicating my whole life to it. And that's why the funding company is the best one to focus on, because it's so scalable, really, it's a transaction manager, eventually a full time underwriter. And then, you know, I'll probably be just shaking hands and getting the deals funded.   Sam Wilson (00:24:51) - That's awesome. Logan, thank you for taking the time to come on the show today. I certainly appreciate it. I always love talking, talking land and land development.   Sam Wilson (00:24:59) - Everything you've talked about today is something I really just it's a topic I enjoyed. So thank you very much for taking the time to share with us. All of your insights has been great. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Logan Swanson (00:25:12) - Yeah, so thanks for asking. I did create a little page that people can visit if they want to. Just explore the various retail ways you can invest in real estate without or land. Excuse me, without having to like start a flipping company or something crazy like that. So if you go to the land fixer.com. There's just a few videos of my ugly mug explaining the various different types of ways that you can, from a retail standpoint, just get money in a booming, small sliver of the real estate investing industry.   Sam Wilson (00:25:43) - That's cool. The land fixer. We will make sure we include that there in the show, notes. Logan. Thank you again for taking the time to come on today.   Sam Wilson (00:25:50) - I do appreciate it.   Logan Swanson (00:25:51) - My pleasure. Have a good one.   Sam Wilson (00:25:52) - 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 Dave Foster.   Dave is a 1031 Exchange Expert, a degreed accountant, and serial real estate investor. He is also a Qualified Intermediary and consultant who shares his tax saving strategies with investors like you who want to maximize their returns.    Show summary:  In this episode of "How to Scale Commercial Real Estate", host Sam interviews Dave Foster, a 1031 exchange expert. Dave shares his personal experience of using 1031 exchanges to fund his lifestyle, including living on a sailboat for ten years. He explains the four D's of 1031 investing and how they can be used to recession-proof a portfolio.   -------------------------------------------------------------- Intro (00:02:41)   Using 1031 Exchange to Fund Lifestyle (00:04:40)   Nuances of Converting 1031 Property into Primary Residence (00:06:31)   The first d: Defer (00:11:26)   The second d: Diversify (00:12:20)   The third d: Die (00:15:16)   The 37 part YouTube series (00:24:09)   Ways to contact and talk to us directly (00:24:09)   Subscribe and leave a review (00:24:23) -------------------------------------------------------------- Connect with Dave:  Twitter: https://twitter.com/DaveFoster1031   Instagram: https://www.instagram.com/davefoster1031/   Facebook: https://www.facebook.com/DaveFoster1031   Facebook: https://www.facebook.com/the1031investor   LinkedIn: https://www.linkedin.com/in/davefoster1031/   YouTube: https://www.youtube.com/c/The1031Investor   BiggerPockets: https://www.biggerpockets.com/users/davefoster1031   Website: https://www.the1031investor.com/   Book: https://a.co/d/f6rKKzc   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: Dave Foster (00:00:00) - But what people don't realize is that it is perfectly fine to periodically convert a 1031 property that has a large amount of deferred tax into your primary residence. And prior to 2008, when you did that and you lived in it the requisite amount of time, you were able to take the entire amount of the primary residence exemption tax free.   Sam Wilson (00:00:31) - 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. Dave Foster is a 1031 exchange expert. He's also a qualified intermediary and consultant who shares his tax saving strategies with investors like you, who want to be in to maximize their returns. Dave, welcome to the show.   Dave Foster (00:00:57) - Sam, it's great to be here again. It's been a while since we got together, man.   Sam Wilson (00:01:03) - It's been since March 16th, 2021 that you've been here on the show. So it's I'm glad glad to have you back on the show today. But maybe for our listeners who haven't gone back to March 16th two and a half years ago and listen to that first episode, there are three questions I ask every guest who comes on the show, so if you don't mind answering them yet again in 90s or less, tell me, where did you start? Where are you now and how did you get there?   Dave Foster (00:01:28) - I started with a huge tax bill from the IRS because my other name is ready.   Dave Foster (00:01:34) - Fire firing. Dave and I bought a duplex in Denver. Fixed it up, sold it. And didn't realize that the 1031 was even allowed. And so ended up paying a huge tax bill. You want to know how that thing still haunts me to this day? Sure. Is that the tax bill would have been about $30,000.30 years ago if I made 10% on my money. For 30 years. What would that look like in my checking account?   Sam Wilson (00:02:05) - I'm going to say 1.2 million. I have no idea.   Dave Foster (00:02:08) - What is it? I refuse to think about it because I want to. It would have been a lot. So that was where I got started, was I discovered that we were going to be able to get to our family's goals quicker by using the tax deferred power of the 1031 exchange. And so that was how we got there. Ten years into that thing, we were able to buy a 53 foot sailboat and move our children on it and raise four boys on a sailboat with tax free dollars from 1031 exchanges.   Dave Foster (00:02:41) - And where I am then, now, today is continuing to reap that and helping other people learn how to do it as well.   Sam Wilson (00:02:49) - So you lived on a 53 foot sailboat? For how long?   Dave Foster (00:02:55) - Ten years.   Sam Wilson (00:02:56) - Wow.   Dave Foster (00:02:57) - Yeah. We raised our four boys on it.   Sam Wilson (00:02:59) - Did you sail around the world?   Dave Foster (00:03:01) - We did not go around the world. But there is so much to see. 50 yards offshore we went. We can find ourselves to Florida. The keys to the Gulf of Mexico and the bombs. And never got to see even a fraction of them. I'm sure there's so much out there.   Sam Wilson (00:03:19) - I'm absolutely sure that that sounds amazing. So would you say that you're a good sailor?   Dave Foster (00:03:26) - Huh? Okay, there is a truism here. Learning to sail is just like learning to golf. It's easy to learn. It's impossible to master.   Sam Wilson (00:03:39) - And now you know why I don't play golf? That. That's a difficult, difficult game. And I imagine sailing is the same. That's not nothing I've ever tried my hand at, but anytime I see it, even on YouTube videos or otherwise, I go, wow, there, looks like there's a lot to know there.   Dave Foster (00:03:56) - Oh, you know what? You're only seeing the final take, right? Right. You're not seeing the 20 takes before that, because it is so true that any docking you walk away from is a great docking. It's a.   Sam Wilson (00:04:09) - Great docking.   Sam Wilson (00:04:12) - Note to self, if I ever decide to live on a sailboat, I'm. I'm going to come calling to you and say, Dave, show me, show me how to do it. You mentioned that while you lived on that sailboat, you use the 1031 exchange to fund that lifestyle. That doesn't make any sense to me. Tell me why I'm wrong. Because in my mind, you take 1031 money and you just roll it over indefinitely. How were you reaping proceeds from 1031 exchanges tax free?   Dave Foster (00:04:40) - Yeah, a couple different ways. That's a great question, because it's one of the most powerful parts of the tax code that nobody knows. So the first one is you want to think about the 1031 exchange as a way to compound your investment capital, because you're getting to reinvest not just your sales proceeds minus tax.   Dave Foster (00:05:02) - You're also getting to. Reinvest for your benefit. The tax dollars you get to defer. So just like in my example, if instead of paying the government $30,000, I get to reinvest that $30,000 at 10%, it's going to double every seven years. And that money that is used to purchase cash flow real estate. And that's always been where my heart is, is to position myself into assets that throw off cash on a regular basis, because then they're doing the work and I'm not. So we had taken our journey from Colorado to Connecticut to Florida, using the 1031 exchange into a fleet of vacation rental properties. And while we were on the boat, those vacation rental properties generated the income for us. Right. So that's the that's the first and easiest way. The reason why the boat was tax free was because we utilized this crossover between section 1031, which is deferral of the tax on investment property, and section 121, which is the sale of your primary residence. Now, when you sell your primary residence, if you've lived in it for two out of the five years prior to sale, you get to take as a couple the first $500,000 right? Profit tax free.   Dave Foster (00:06:31) - And you can do that once every two years. But what people don't realize is that it is perfectly fine to periodically convert a 1031 property that has a large amount of deferred tax into your primary residence. And prior to 2008, when you did that and you lived in it the requisite amount of time, you were able to take the entire amount of the primary residence exemption tax free. So we did that a couple of times in Colorado before we got to Connecticut. And then in Connecticut, we converted a rental property into our primary residence. We came to Florida, did the same thing, and each time we sold, then it was tax free. And that money went to buy the boat. So that's how we got the boat tax free. And then lived our lifestyle of my private clients and the vacation rentals.   Sam Wilson (00:07:34) - So let me just restate what you've said and see if it makes sense to. It just tell me where I'm where I'm getting this wrong. You're rolling over these 1031 properties. You already own one of them.   Sam Wilson (00:07:48) - Say it's a rental property. And you say, all right, I'm going to move into that now. And that's going to become my primary residence. And then two years after living in that primary residence, you say, Bagot, we're going to sell it and head south. You sell that primary residence, and now let's say you've made the maximum amount good for you. You made $500,000. You put that in your pocket tax free now able to go and spend it. And that's it's almost it's almost a a back door exit of a 1031.   Dave Foster (00:08:21) - That's exactly right. Let me tell you the story of a client of mine down on Saint Pete Beach who used 1031 exchange to buy three identical, mean, almost literally identical beachfront condos on the same floor of the same building. And that he retired. And after a period of time he moved into the first one. Now the rules have changed since 2008. You now only get to prorate the game, but as soon as he had lived in that, so that he did for five years, he had lived in it for three years.   Dave Foster (00:09:00) - And then he'd rented it for two years. So we moved into it and lived here for three more years. And then when he sold it, he got to take 60%, 3/5 of the game tax free. He paid tax on the rest of the game. I said, you okay with that? You said, dude, if I was bagging groceries, I'd be paying tax this way. Just go out to my back deck and drink coffee. But where did he move? Next door.   Sam Wilson (00:09:28) - Next door.   Dave Foster (00:09:31) - And now. So the proration is what's powerful because you have to owned the property for five years, but then it's based on how much you've lived in it. So let's say he rents it for two years and losing it for eight, he would get 8/10 80% of the gain tax rate. And then words, you get a move. Enter the next one. Now, you said the great way to do that.   Sam Wilson (00:09:57) - Great way to do it. I love I love the unique strategy. It takes a little bit.   Sam Wilson (00:10:01) - It takes a lot of patience and some planning, I think, to pull something off like that. But you had mentioned the rules have changed since 2008. What are the nuances since zero eight maybe to that and if you've already set them and I just missed them, forgive me.   Dave Foster (00:10:14) - Yeah. Well you used to be able to get the whole game tax free. Got it. Okay. You have to prorate it. That's really the big difference.   Sam Wilson (00:10:20) - That's that's the that's the key. So of the you have to have owned it for at least five years. And only you can prorate the number of years that you actually physically lived in that space.   Dave Foster (00:10:32) - Precisely. Yep. But still, what a great opportunity as you get towards the end. Right. And you're trying to slow down, go more passive.   Sam Wilson (00:10:41) - That's fantastic I love that. Okay. Hey, you went into some nuance and some detail there. I didn't I didn't actually expect and that's kind of what I was hoping for because I think a lot of our investors and listeners understand high level.   Sam Wilson (00:10:56) - 1031 okay. Like maybe it's maybe it's the maybe, you know, whatever the value has to be less or you're buying a bigger property. You, you know, use an intermediary. There's there's all those basic steps to it, I think that a lot of us get. But when you get into things like what you just mentioned, man, that's really powerful. And I had no idea about stuff like that.   Dave Foster (00:11:14) - Right. Well, you want to take a real quick test. Let's see how you do.   Sam Wilson (00:11:18) - Let's see how I do. More than likely now I suddenly retract everything I said about high level understanding, because I think I'm about to get an F.   Dave Foster (00:11:26) - Oh, no, no, you're gonna do awesome on this test. This is a test on what the four D's of 1031 investing are. Now, I'll give you the first one. The first. Steve. 1031 investing is defer. Right? Because anytime you defer, you're starting to calm down your profits. Well, that by itself is the eighth wonder of the world.   Dave Foster (00:11:49) - But you can 1031 exchange anywhere in the country, from any type of real estate to any type of real estate. So if you're going to sell a piece of real estate, no matter where you want to go or what you want to invest in. You do the 1031 and defer. Sure. What do you think the second deal would be?   Sam Wilson (00:12:09) - Defer.   Dave Foster (00:12:10) - Defer.   Sam Wilson (00:12:11) - Uh. Shoot. Defer.   Dave Foster (00:12:15) - I'll give you a hint. Okay. It's deferred.   Sam Wilson (00:12:17) - Oh, okay.   Dave Foster (00:12:20) - Because the 1031 allows you to capture wherever you're adding a real estate cycle. And we may talk about this a little bit in just a minute, but the idea is that real estate cycles cannot be predicted, but they still always follow the same pattern. Appreciation is high and then appreciation stagnates and some other area starts to come on. Think about all those poor people in San Francisco Bay that sold those massively appreciated properties in Silicon Valley, and when invested in the cheap hill country of Texas around Austin, just because they wanted to hang out with you on, they went from an area of high appreciation to a high cash flow.   Dave Foster (00:13:06) - And now, of course, that appreciation has taken off. So everybody in 1031 world is always looking for where the next place is. That isn't yet. So that's the second deed. All right. What do you think the third D is?   Sam Wilson (00:13:24) - I'm going to say defer.   Dave Foster (00:13:26) - Yes. C you're all over this man. And the reason why is that it doesn't just accommodate your movement within a real estate cycle. It accommodates your movement throughout your life cycle as a real estate investor. You could do what are called diversification exchanges, where you sell one and you buy multiple properties to capture maybe your energy level and wanted to force appreciation to get better cash flow on cheaper properties as you start to mature and get tired. You can sell several and consolidate them when you want to start moving into more passive investments. Larger multifamily, triple net commercial, all those types of things where your effort is less. You could also take the opportunity, like we discussed a minute ago, to convert them periodically to your primary residence so that you're capturing turning some of that tax free.   Dave Foster (00:14:31) - And what about moving your portfolio from Ohio to Sarasota, if that's where you want to retire and you want your rentals in your backyard? So that's the third D is it accommodates your life cycle. Okay. For the win. What's the fourth deed.   Sam Wilson (00:14:50) - Dave.   Sam Wilson (00:14:52) - Dave Foster the 1031.   Dave Foster (00:14:55) - Guy answer but you like it. So I'm an experienced the injury of telling you that it's not defer. And unfortunately it's not Dave either. Have no idea. Which is not my favorite answer. But we're all have that way, right?   Sam Wilson (00:15:13) - None of us get out of here alive, right?   Dave Foster (00:15:16) - But here's what happens to your assets when you pass away. Your heirs inherit them and what is called a stepped up basis. So they inherit them as if they paid market value for them on the day you die. So throughout your life, you defer, you defer, you defer. And there's all this deferred tax. When you die, it disappears. You don't pay it. Your estate doesn't pay it. Your heirs get the property tax free.   Dave Foster (00:15:53) - And then they get to start the process over again. It's the greatest generational wealth building opportunity that's out there. Unfortunately, you and I have to die to give it away.   Sam Wilson (00:16:04) - And die to give.   Sam Wilson (00:16:05) - It away. Yeah. You don't get to take it with you. Uh, I think that's a blessing too, though. But no, you think you're right. That's that is. That's amazing. I didn't realize that. There at the end, the stepped up basis.   Dave Foster (00:16:20) - Yeah, I've literally got one family that are now on their third generation investment from Connecticut. The grandfather started doing exchanges with us, and he passed away a few years into it, and his son inherited all of the properties. Don't tax tax free. But then a couple of years later, guess what he was starting to do is up to 31 exchanges. Because those properties it started to appreciate. And then we passed away a couple of years ago. His properties went to his children. And now throughout this boom, they too have started to appreciate and they are now doing their own two, three, one changes.   Dave Foster (00:17:03) - Can you imagine how much tax that is that is come down to them? It's in their pockets tax free.   Sam Wilson (00:17:11) - That's that's incredibly powerful. So what about properties where people borrow money, say you're doing a fix and flip or say that whatever it is, you borrow money in order to improve the property. Let's call it $1 million, and you put in a quarter million dollars in renovations. Then you sell it for 1.5. Let's I mean, I'm just making up numbers. Whatever they are doesn't matter. But how do you and then you owe that money back, obviously, to the people you borrowed money from when that property closes. You're only paying tax, of course on the gain that 250 gain.   Dave Foster (00:17:45) - Yeah, that's exactly right. So the way the IRS accounts for that is that they tell you that if you want to do for all tax, you need to do two things. You need to purchase at least as much real estate as you sold. So in our example that would be the 1.5, right.   Dave Foster (00:18:02) - Secondly, you need to use all of your proceeds from a sale to do that. So you know let's say you borrowed. 750 to buy it, right? Plus the 250 to renovate it. So there's a million, right. So you sold it for $1.52 million. It gets paid back, and you're left with 500,000 in cash and the need to buy at least 1.5 degrees right now, if you want to grow up in size, that's no problem at all, isn't it? You can find a big asset. What if you want to get more when you take those proceeds and you allocate them into down payments on multiple properties? Okay, $250, a couple of different properties or whatever it is that you want to do, and that's how powerful that can be, because the IRS doesn't care how you allocate, as long as at the end of the day, you've purchased at least as much as you sold, and you've used all the proceeds to do it. Now, here's an incredible hack to recession proof your portfolio using this exact principle.   Dave Foster (00:19:14) - Let's say you've got a property for you're selling for 500,000 and there's 200,000 in debt. You sell the property, you've got $300,000 in cash. You could take 250,000, let's say, and go buy the $250,000 property for cash. Right. Take the other 50,000 and go buy the $250,000 property. Using that as a down payment. So you sold what you bought to. But some magical things happen. First of all, you want an asset that's free and clear so you don't have to worry about just keeping the lights on. It's free of mortgage risk. It's free of being taken from you. If the market downturns or whatever, but also all of that equity is trapped in it. So that like right now when we're in 7% interest rate world, you don't have to worry about paying interest while you wait for your next project. Let's say a couple of years from now, interest rates are back down to 3%. You slap a refinance on that. Pull out the bulk of that two hour 50,000. And then go use that to buy your next acquisition target.   Dave Foster (00:20:36) - But meanwhile, it hasn't been costing you anything, but you were still able to defer all the tax of a gain because you use the other 50,000 and used it as leverage to go buy your second property. That's a pretty neat way.   Sam Wilson (00:20:52) - Yeah. That's awesome. That's one thing I didn't realize as well is that you can split those down payments on several properties. Do those. Is there any regulation around? All of those properties being owned inside the same entity or the same name, or does it not matter?   Dave Foster (00:21:14) - Yeah. Actually does. And that's just one of the basic rules of 1031 is that the taxpayer for the property that's being sold has to be the taxpayer for the properties that are purchased. Now, any taxpayer entity could do it to 31 exchange, but it's whatever tax return reports that. Now a lot of people love to practice liability, you know, reduction of that kind of thing. So they like to own their properties at LLCs and at certain state series LLCs where there's a parent LLC that does all its own tax return, and they had children and child LLCs that don't.   Dave Foster (00:21:55) - Those are very common. As long as those children LLCs don't bother no tax return, they're going to be reported on the tax return of the parent LLC and the IRS world. That's the same taxpayer because it's that tax return. So you could sell the one. Buy a property in Dayton, Ohio, free and clear under water, and Ohio LLC and co buy an Alabama property using. Leverage using an Alabama LLC. Both of which are owned by the parent LLC. So plenty of ways to practice liability deferral as well.   Sam Wilson (00:22:37) - Right.   Sam Wilson (00:22:37) - Yeah. That makes that makes a lot of sense. Very, very cool Dave. It's been a pleasure having you come back on the show today. You always give some insightful nuances to the 1031 exchange. I know that you've recently put out a book. Before we sign off here, can you tell our listeners about that book and the best way to get a copy of it?   Dave Foster (00:22:58) - Yeah, it's right out there on Amazon. It's called Lifetime Tax Free Wealth A Real Estate Investors Guide to the exchange.   Dave Foster (00:23:06) - And I love how you catch this. Early on in the show where you talked about the rules and the do's and don'ts. I thought that's what I was writing. But at the end of when looked at when, you know, this is really more of a roadmap for how to strategically reach your life goals using the government's tax dollars. So it's really more strategy and designed to fit your desires than it is just by the numbers one, two, three kind of thing. That kind of fun. We do a lot of case studies in it. People like I was just talking about my story, several others. Because think out there, there's always a way to do this. There's always a way to do it using the government's dollars. And I guarantee you that'll be faster.   Sam Wilson (00:23:55) - I love.   Sam Wilson (00:23:55) - It. Dave, thank you again for coming on the show today. We know how to get your book. Outside of that, what is the best way for our listeners to get in touch with you or your company and learn more about you?   Dave Foster (00:24:05) - Stop by the 1031 investor.com.   Dave Foster (00:24:09) - I've got a 37 part YouTube series talking about all these kinds of things. We've got calculators. We've got ways to contact and talk to us directly, and we get bored if we don't have people visit.   Sam Wilson (00:24:22) - So that's.   Sam Wilson (00:24:23) - Fantastic. The 1031 investor.com. Dave, thank you again for your time today. Certainly 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.    

Today's guest is Tony Johnson.   Tony is a General Contractor & Commercial Real Estate Investor.   Show summary:  In this podcast episode, general contractor and commercial real estate investor, Tony Johnson, shares insights on the importance of involving a general contractor from the start of a project. He discusses the benefits of this approach, such as cost control and sourcing necessary professionals. Tony also highlights the potential pitfalls of not having a good relationship with your contractor and the difference between commercial and residential construction. He emphasizes the importance of hiring contractors who specialize in commercial projects to avoid issues.  -------------------------------------------------------------- Intro [00:00:00]   Tony Johnson's journey as a general contractor [00:00:35]   Building partnerships and finding repeatable clients [00:02:43]   Establishing a relationship with a general contractor [00:13:06]   Importance of reputation and change orders [00:15:46]   Opportunity for general contractors to partner with syndication groups [00:20:33]   The horror stories of using residential contractors for commercial projects [00:22:37]   The differences between commercial and residential construction [00:23:14]   Closing[00:24:03] -------------------------------------------------------------- Connect with Tony:  Linkedin: https://www.linkedin.com/in/anthony-johnson-897255231/   Facebook: https://www.facebook.com/TimelessProperties   Web: https://timelesspropertiescc.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: Tony Johnson (00:00:00) - If you go in with that general contractor in the beginning, he can source the architect, source the engineering firm, source the structural engineers. And if he's able to do that for you, he's going to be a whole lot better off in controlling your costs of things that you're probably not going to be too concerned about. That's going to allow you to put more money towards your finishes.   Intro (00:00:22) - 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 (00:00:35) - Tony Johnson is a general contractor and also a commercial real estate investor. Tony, welcome to the show.   Tony Johnson (00:00:42) - Thank you so much for having me, Sam. I appreciate it, sir.   Sam Wilson (00:00:44) - Absolutely. The pleasure's mine. Tony. 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?   Tony Johnson (00:00:53) - Sure. So as far as as a commercial contractor, I started out in 2007 when the market was booming and.   Tony Johnson (00:01:04) - As I began into it real quick, the market began to crash as I started getting out there and getting going. So I went from doing looking at a bunch of opportunities to no opportunities and going to bids, where there was nobody in the bid to pack public bids and offerings. So everybody was looking for work. And I started out doing a small $600 job cleaning out a building for a local college called Unk Wilmington, right before they demoed the building. So that was my first job. And where am I now? Now I'm doing a commercial up fits for national franchises. We do commercial development, multifamily development, new construction of industrial flex. We do office retail renovations, we do strip center renovations and facade redos. We're doing a couple of facade reviews right now on large strip centers. So that's what we're doing now.   Sam Wilson (00:02:04) - You're busy. What what's the size of your team today?   Tony Johnson (00:02:08) - We have 18 people in house today.   Sam Wilson (00:02:11) - Right? Okay. 18 people in house. And then obviously, you know, skilled trade subcontractors I'm sure you work with with a.   Sam Wilson (00:02:20) - A broad team on that front is talk to me about the general contracting kind of lay of the land. Like how do you guys decide on which projects you want to go after? What's it mean? Just, just just give me kind of an overview of the business today and why you guys operate the way you do.   Tony Johnson (00:02:43) - Sure. So we like to build partnerships and long term relationships with clients. So what our optimal client is someone that's going to have repeat business. So we deal with a lot of capital investment companies that are building wanting to build multifamily. So we try and partner with them, do a multifamily project with them in order to do more with them down the road. We partner with franchises in order to build one out and then continue that relationship on and on. So everything that I try and do is find a customer that is repeatable so I can get repeatable business. So we'll do a Jersey Mike's, for instance, franchise. Then if we do a good job, that franchise owner might open a couple more Jersey Mike's locations.   Tony Johnson (00:03:27) - So then we as long as we keep that relationship open and we do a good job, we'll get the opportunity for more. Not only that, we ask him to recommend us to some other franchisees, and then we'll build and grow and expand that relationship to get more Jersey Mike's. And so we kind of replicate that over and over and over again.   Sam Wilson (00:03:48) - That's interesting. Do. Is there any value because it's like you guys kind of have and again in the term general contractor means you guys are willing and able to build almost everything. But is there any particular asset type or class that you say, hey, this is something I really enjoy working on more than another?   Tony Johnson (00:04:06) - Sure. Well, for us, we really love the retail space. So retail is fantastic for us. Like retail probably would be our number one asset of choice. Then we could go to medical office. So dental offices, even general high end offices, those are fun. Our key is really being able to take something and turn it really fast with high quality work.   Tony Johnson (00:04:34) - And so we've built a great team of subcontractors and our in-house staff that's very familiar with that. So we do quick turns and there's a good amount of money in them.   Sam Wilson (00:04:44) - That's that's that's really interesting. The retail side of things. What size and type of retail.   Tony Johnson (00:04:53) - It's really everything. And it's really, you know, market determined on what is, you know, really turning really fast. So right now, for instance, we're doing a lot of boutique style gyms. We're doing self care models. So massage, massage places, you know, places where they do Botox and self you know, updating I guess, where you're taking care of your body and soul. Right. So we've done some cryo places, those type of things and general gym and, and a lot of restaurants, restaurants have really been a core component of ours. And it's really, to me, kind of shocking with how terribly staffing, how terrible staffing is going with the restaurants, but they're opening everywhere, right? And so they do pretty well.   Tony Johnson (00:05:44) - So we have very good experience with that and a great team with that. So we do a lot of franchise restaurants and then a lot of private restaurants for individuals.   Sam Wilson (00:05:53) - That is considering the staffing challenges. I think that still we're feeling post-pandemic is that's surprising to hear. But then again, you're based there in Wilmington, North Carolina, in Wilmington, I think is just, you know, busting at the seams, if I'm not mistaken.   Tony Johnson (00:06:09) - It is. And so, yeah, I mean, obviously, this is, you know, all market to market what's hot and what's not. And we we typically will work in about a 2 to 3 hour radius of Wilmington. But all the markets around us seem to be doing very well. So, you know we're feeling very fortunate to have that. And you know, we're still like I said, we're working with some capital investment companies and trying to help those guys. And we're a little smaller than some of the big time multifamily developers. So we're a lot more cost competitive, I think.   Tony Johnson (00:06:44) - And we're, you know, more apt to make the numbers work on some of the deals, you know, below 10 million, I would say what we're looking at.   Sam Wilson (00:06:52) - How how are you effectively I.   Sam Wilson (00:06:54) - Mean bidding all of these projects out. I mean that's a that's a lot of I would think. Skill in bidding these projects correctly, where you don't end up just losing your shirt on them. Like especially as you I mean, you transition from retail, medical office, boutique gyms, now franchise restaurants. How do you I guess how do you do that?   Tony Johnson (00:07:18) - Yeah, now that is a challenge a little more now than it has been. So before Covid hit, it had been very easy. I'd had all my budgets down pat, didn't really even need to get estimates, but even now it's kind of settled back down. So I am more comfortable pricing stuff. So basically I break everything down to a square foot, a lineal foot, a square yard, everything. So typically what I'll do is I'll take an estimate of one asset type and see and kind of break that down.   Tony Johnson (00:07:48) - So we have our and our initial estimate. And then once the job is completed we take that final estimate. Then I kind of square foot that down and use that as my baseline for the other ones. And as I get more data in, I kind of compile them and update that a little bit and keep running with it. A lot of these too, they're just slight variations. So when you're in the commercial space and we mix back and forth, when you're doing stick framed multifamily residential, that's a completely different animal than the commercial, which is the metal framed, and the electrical wiring is completely different. So those make it a little more complicated. But once you can generally get some break everything down to a replicable square foot number, lineal foot number, then it makes it a lot easier to start compiling budget numbers that are relatively close.   Sam Wilson (00:08:41) - Relatively close. I like I like that and again, there's nothing that again, I was like I was in a the flooring, the commercial and residential flooring space for.   Sam Wilson (00:08:52) - Far too long, and we did lots and lots of bidding. And even that, you know, you're looking at airports, you're looking at all sorts of and every project was different. I never quite got my head wrapped around like, okay, just the materials were constantly changing the scope and the size and the yeah, it was it was it was a lot. It was a lot. And sounds like your guys are doing this at scale. So I think you've, you've, you've kind of given some clarity on, on that front to what, how you guys rather are doing it. So Tony, one of the things that I've been and I said this yesterday to somebody on my phone, I said I for our future projects, I'm bringing a general contractor on, I will openly admit here on air that for all of our even commercial remodel projects, because I have a building construction background, I've just said it myself. I mean, I know all the trades, I know we bring in and man, at the end of the day, like yesterday, we're wrapping a project here in Memphis and I'm like, never again.   Sam Wilson (00:09:48) - I'm so done. I'm so done driving the bus on on these projects. And I and I've done it intentionally in the past because obviously I can get things done for a lot less money than I can bringing in a GC. I think on our last it was a small, small remodel, maybe a $90,000 remodel on a on a commercial space, but I probably save 40 or 50 grand to me and my investors on that project just by sourcing it all myself. And even then I'm like, man, this just this isn't worth it anymore. Which is kind of wild to say, but it's true. So tell me, what are some things as people are scaling their real estate portfolios as they're growing into bigger assets? Like what are some things that you would recommend as they start approaching general contractors, working with general contractors that you would say, man, this is something that would really grease the wheels in both communications and in just ease of working together.   Tony Johnson (00:10:43) - Sure. Well, think there's a couple of things.   Tony Johnson (00:10:46) - What? What I look for in a partnership with someone is them coming to me early and then not coming to me as just a bid? You know, sometimes I think people get the impression they're told by certain people will go get a drawing done and get the full design done, then go find a general contractor. I always say that's a terrible idea because you you don't know what the general contractor knows about what's going to cost a lot of money. You're going to look and you're going to want the finishes and to have the vision of the pretty place. Those things aren't the things that cost all the money. Things that cost all the money are the Hvac, the electrical, all the things that you don't care about. The structural components of the building. Right? So if you get a knowledgeable general contractor, not just any, but a knowledgeable, honest general contractor in the beginning. So if you get someone that you've gotten referred to or has you know, you've done, I would normally, you know, get a general contractor, call some of their, you know, refer the referral clients, somebody that they've used before, and make sure you do a little due diligence on them.   Tony Johnson (00:11:55) - But once you've done that, if you go in with that general contractor in the beginning, he can source the architect, source the engineering firm, source the structural engineers. And if he's able to do that for you, he's going to be a whole lot better off in controlling your costs of things that you're probably not going to be too concerned about. That's going to allow you to put more money towards your finishes. So what we like to do is get with people early on in the process. A lot of things that are causing projects to stall and not go right now are people that have done the full design set, then are going to look for contractors and everything is way overpriced, and then it's tried to value engineer something, and what ends up happening is they'll say, well, let's just value engineer this town. And what you end up doing is going back to the engineer, going back to the architects, and trying to beg and plead to get these things down with people that I don't have relationships with, and they probably aren't too amped to do it.   Tony Johnson (00:12:56) - And even if they do want to do it, you're going to spend six months in this environment getting it all done so you know, and spend twice as much as you would have spent initially.   Sam Wilson (00:13:06) - That's great advice. That is fantastic advice. What? And again, how do you respect a general contractor's time? I guess in this in this scenario, let's say somebody came to you and said, hey, I've got this project and this is what I'm thinking about. Do you want to take a look at it? Of course, maybe it's their first project, maybe there's ten to follow. But, you know, how do you how do you establish that relationship early on and yet maybe vet 2 or 3 general contractors and find the good ones, like what's what's the secret sauce there?   Tony Johnson (00:13:37) - I think the secret sauce there is where I come into play is, I mean, I'll be upfront and honest if the project doesn't kind of meet my criteria of what I'm looking for, I won't engage in that process.   Tony Johnson (00:13:50) - Right. But when the project meets kind of what I'm looking for, I'll engage in that process and I'm going to invest my time at no charge to you and and put all my time and effort into it with the understanding that when I'm doing that, that, you know, you're not out bidding it against five other people, I'm going to give you a fair price. And, you know, I'm going to be up front and honest on everything. And typically you're not getting charged for that from me. But I just want to make a fair, you know, markup on the project. Nothing. It's not that I'm going to rake you over the coals. I'm going to give you the same rate as if I was bidding it. But that way I know I'm not bidding it against five people, so I'm pretty rest assured that I'm getting the project.   Sam Wilson (00:14:31) - Oh. That's it.   Sam Wilson (00:14:32) - Absolutely.   Sam Wilson (00:14:33) - I go back to the back to our contracting days and, you know, we worked on a lot of bids and that was and that was probably the hardest part, especially when you get into complex design or when there's just incredible nuance to a project and it's like, man, you want it down to the penny figure on this, and I don't want to spend eight hours compiling that down to the penny figure.   Sam Wilson (00:14:56) - So I'm out. Either I'm out or I'm going to shoot you a number that's going to, you know, you're have to sit down to read. So it go ahead. I'm sorry.   Tony Johnson (00:15:06) - I was going to say. And what you need to also understand is a lot of people will have these. They'll have an initial budget number, like you were saying in their head, and we're going to blow them up with a budget number. And that's really I can give someone a budget number with just a sketch. Right? I can give you a round about budget and it'll be a safe number. But what I don't like to do is give someone an unrealistic number to kind of bring them along, and then the number keeps on creeping up and up and up and up. And then, you know, the project doesn't end up going, that's that's really where you run into problems or, you know, you'll sign a contract with someone. They take some money up front and then the number starts to keep climbing, climbing, climbing.   Tony Johnson (00:15:46) - Right. So that's really to me where you can kind of find if someone is a valuable asset for you or not. And so that's really what you want to check around when you're asking about contractors is kind of what's their reputation for change orders. And are they meeting project timelines. And do they have a lot of extra costs added in after at the beginning, how did your number look from the beginning to the end type of stuff?   Sam Wilson (00:16:10) - Those are great questions. Yeah. And again, going back to my days as a contractor, and we certainly saw that in a lot of competition. We always just call it, you know, change order in the heck out of a project where it's like, okay, yeah, they came in real cheap. They were a third of the price of the competition, but you're going to pay one and a half times by the time it's over.   Tony Johnson (00:16:31) - And it's amazing where people will say, I mean, I've lost plenty of projects and we try and do follow up and reach out to clients after the project just to kind of get some feedback.   Tony Johnson (00:16:40) - When we were told that we're way high on a project and then typically we'd reach out and, you know, the clients won't believe it and we'll say, oh, you're $200,000 fine. They won't believe it. There'll be $300,000 in change orders. And they're like, and I'm like, well, you know, we had all those things included. And we tried to explain it to you, you know, but that's how they get you some of these guys and which is creates a bad reputation for the industry a lot of times, which is terrible. But, you know, that's the way of it, because people a lot of times just look at that bottom number and I understand it. It's, you know, you get the shock of the number and then you see this other number and man does that look appealing. When it's way below 30, it's 30% below the other one. You're going to take that low number every time it is.   Sam Wilson (00:17:23) - It certainly is. And that's yeah, that's just a word of caution.   Sam Wilson (00:17:27) - I think you've shared that here with our listeners. I appreciate that. That is really, really look at what you're getting. Look at what you're getting. And not just the the numbers. So that's really, really powerful. Appreciate that Tony. Thanks for taking the time to talk a lot here on the show about working with general contractors, what you guys do, how you guys do it. Let's talk a little bit about your commercial real estate investments. So you got your hands are busy on the general contracting side, what does your real estate investment side of your business look like?   Tony Johnson (00:17:59) - I tell you, I have. I created a commercial investment company two years ago and that was I really never heard about real estate syndication until I actually listened to your show where I started to hear about real estate syndication. And so, you know, once I started to understand it, I'd always been so I was always so enamored with how these guys got all this money, these big projects, and came up from nothing so quick.   Tony Johnson (00:18:24) - And I just never really put all the pieces together. And still I started to learn about syndication and and so once I learned about it, I created that company. And then I have been looking and of course the market here is been booming and booming. And I've lived here for 20 years, and I wanted to get something close to home so I could, as you have done, you know, contracted out to save and put a little extra money on it. And I couldn't find anything until recently. I actually just had a PSA out earlier this week. So I've got finally a nice developable piece of property for industrial. It's zoned industrial in my area. Five and a half acres got a debt tax value on an off market deal. So that that one I plan on proceeding with and entitling and either developing or just entitling and flipping the paper. And I've I'm meeting with a couple people that have entitled land. So we've met twice already that one a partner on doing some other development deals. So that's really where my focus is, is getting in on development with others, with partners that maybe want to infuse the capital and use my experience, or just find some stuff myself and see if I can bring in some passive investors.   Sam Wilson (00:19:44) - Absolutely. No, that's really cool. Yeah. And that's a, that's a that's something that it's funny you mentioned that because I, I had that same kind of question back when I was in the, in as a contractor was like, how where does all this money come from? How are these deals getting packaged up? I had no idea. I had no idea. I was so busy doing what I was doing that I didn't really even have the time to be curious about it. I have seen partnerships between general contractors and syndication groups, where the general contractor comes in as a partner in the actual general partnership, not just the contractor on it. Yeah, that's something that is as you look and you get all these deals across your desk. I mean, is that is that an opportunity for you to explore? Is there complications of that you don't like? Well.   Tony Johnson (00:20:33) - I think it's an opportunity I would explore. I don't you know, a lot of times I don't know if that's in the best interest of the capital investment company.   Tony Johnson (00:20:41) - Right. It's just, you know, I would optimally yes, I would, I would do it. You know, a lot of times I don't I think that they're better off not giving up the equity and just paying a general contractor. Right. There's more for them. And a lot of times I think it creates complication. I mean, obviously I would do it on my side of it. I just don't know if you know how great that pans out. I've heard the horror stories about it and I've heard the a minimal bit of positives about it, but I've heard more horror stories, I think, from others. But, you know, again, I think it depends on the general contractor that you do it with. I have offered that a couple of times to investors just to try and make the deal work, but I think the ones that I was offering it on the deal was so far from working that it really still didn't work.   Sam Wilson (00:21:29) - That's interesting. I have not heard the horror stories side of that from the outside looking in.   Sam Wilson (00:21:34) - I think at that and they go, all right, you can build a multifamily property, and I'm going to bring on the right general contractor. They're going to be a partner in the deal. So they're incentivized, of course, to get it done on time. They're incentivized to get it, you know, get all the permits and get everything done buttoned up properly. I would think that there would be more of an alignment than, than a misalignment. But it sounds like.   Tony Johnson (00:21:53) - You know, I think that I think there would be an alignment in my in my case, I think there's an alignment, and I'm sure there are plenty of alignments. I've also heard of multiple ones where they do an initial with the contractor and the investor, and then they continue a long term relationship. So it's gone both ways. I've not done it personally. I would love to do it, but it's just it never come through to me yet.   Sam Wilson (00:22:17) - Got it. Okay. No, that's really, really cool. Awesome.   Sam Wilson (00:22:20) - Well, I mean that answer some questions. I mean, anything that you think of on that front, you would say that our because because you've seen the kind of horror stories. What are some what are some gotchas or some things that on the investors side of things that you should be looking for in ways to avoid some of the problems you've seen?   Tony Johnson (00:22:37) - I should say, well, I should say the horror stories that I typically hear are when investors are doing a commercial project and they use a residential contractor or residential contractor that says he can do commercial, right. Those are the where the horror stories come in. I don't think if you're using someone that's got that is doing multifamily and commercial. Building. Those guys specialize in multifamily and commercial building. So if you're teaming up with one of them, you're going to be fine. If you're teaming up with someone that does residential. It was a family friend, and this guy is a great person. And you think he he says, oh yes, we can handle it and we can do it.   Tony Johnson (00:23:14) - Those, I think, is where you'll get into the trouble, because it's two completely different construction types when you're doing the commercial and the residential, and there's two completely different subcontractor setups. So the subcontractor for the commercial projects are typically longer tenured, sometimes generational subcontractors that have a lot more experience. They typically have a more set up office and structure within their company. And the commercial subcontractors won't do residential work typically.   Sam Wilson (00:23:50) - Right man. Sage advice. Certainly appreciate that. Thank you, Tony, for giving us that insight. And thank you again for coming on the show today. This certainly a pleasure here to have you on. If our listeners want to get in touch with you and learn more about you, what's the best way to do that?   Tony Johnson (00:24:03) - Yeah, just go to Timeless Properties CC and just reach out to us on there. They got contact pages and we'd we'd love to talk to anybody who's interested and learn about construction or talk about investing.   Sam Wilson (00:24:15) - Fantastic. We'll include that there in the show notes. And Tony, thank you again for coming on the show today.   Sam Wilson (00:24:19) - I do appreciate it.   Tony Johnson (00:24:20) - Sam, thanks so much for having me. I appreciate it, sir.   Sam Wilson (00:24:22) - 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.   Sam Wilson (00:24:41) - 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 Braedon Hebert.    Braedon is the Co-founder of CondoWorks, an accounts payable automation platform built for property management companies (condo/HOA/commercial/residential). He is also an accountant turned entrepreneur.   Show summary:  In this episode of the How to Scale Commercial Real Estate Show, Braden Hebert, co-founder of Condo Works, discusses the role of technology and automation in the property management industry. Hebert explains how Condo Works, an accounts payable automation platform, streamlines the accounts payable process for property management companies, reducing errors and saving time. He also emphasizes the need for strategic thinking when implementing technology. The discussion also covers the challenges of balancing customer needs with revenue potential, and highlights key features of the Condo Works software. -------------------------------------------------------------- [00:00:00] Intro [00:01:33] The Challenges in Property Management [00:09:29] The Importance of Technology in Scaling a Business [00:11:27] The importance of technology and automation [00:13:04] Using technology to establish escape velocity [00:18:07] Automating utility downloading and invoice approval -------------------------------------------------------------- Connect with Braedon:  Linkedin: https://www.linkedin.com/in/braedonhebert/   Web: www.condoworks.co   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: Braedon Hebert (00:00:00) - So part of our technology will automatically download all those all those types of utility invoices then extract the data. So to eliminate any sort of data entry required then it can be approved and paid.   Intro (00:00:15) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:28) - Braden Hebert is the co-founder of Condo Works, which is an accounts payable automation platform built for property management companies. Braden is also an accountant turned entrepreneur. Braden, welcome to the show.   Braedon Hebert (00:00:40) - Yes. Thanks, Sam. Glad to be here.   Sam Wilson (00:00:42) - Absolutely. The pleasure is mine. Braden. 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?   Braedon Hebert (00:00:52) - So as you alluded to, my I got my start as an accountant working for one of the big accounting firms, then went to a big company. But I entered the the startup and tech world about a decade ago in that role.   Braedon Hebert (00:01:05) - And that's where I met my current co-founder, who's the who was the chief technology officer of that first company. And so my path was was in the startup tech world in those finance roles. I went through some acquisition acquisitions throughout that, but wanted to take the leap into the the early stage incubation stage of a company and joined him as a as a co-founder of Condor Works.   Sam Wilson (00:01:33) - That's really cool. What is the what is the opportunity that you guys see? I guess you know, one, the startup tech world is highly competitive. And, you know, I can't imagine jumping into that. That's something that kudos to you guys, you know, for being willing to take those those risks I think that's really cool. But what's the opportunity that you guys see in what you're doing right now. And why is now the time to do it?   Braedon Hebert (00:01:58) - So maybe I'll go back to the to the very beginning. So one of the things that my, my co-founder did, in addition to helping build and develop companies, is he also became the treasurer on his condo board.   Braedon Hebert (00:02:10) - And that's where he saw firsthand some of the the challenges that face property management companies when it comes to processing and paying their bills. So there's there's a high invoice volume. There's multiple stakeholders plus complexity, not from the accounting side, but operationally, if you're trying to keep track of discrete financial records across all of your properties, the the accuracy and routing and recording of those invoices is critical. But but complex because paired with those challenges, it's also an industry that has been slower to adopt some of the more modern technological solutions. And so, for example, he was signing hundreds of checks every month. He was seeing vendors taking six months to get paid. And, you know, when you calculate the internal cost to the property management companies, it can cost 15 to $20 per per invoice just to pay that. So he said, well, this is awful. Ben being the tech guy he is, he said there's there must be a better way and I'm going to build it. And so that's that's how calendar works was born.   Braedon Hebert (00:03:17) - And it was. And we see that that pain that still exists across across many property management companies.   Sam Wilson (00:03:23) - Got it. No, that's really interesting. How does this differ. And forgive my ignorance here because I neither run a tech startup. I don't run a accounts payable automation platform. And um, yeah, anyway, forget what else, I don't run. But anyway, all of those being said. When it comes to accounts payable. In my mind, I think, gosh, I mean, it seems like you could just get ACH set up out of your various bank accounts, you receive your invoices, you ACH or vendors, and off you go. Why is it not so simple?   Braedon Hebert (00:03:56) - So I would I would back up. You know, paying it can sometimes be the easy part. It's it's the, the full cycle being receiving or getting the invoices than having it properly approved, entering that information into the accounting system. So recording that invoice and then and then issuing payment. So you know our platform handles that end to end with with tech and automation built in throughout that process.   Braedon Hebert (00:04:26) - So I'll you know, one of our my favorite examples is is a utility bill. So you know, gas power, water even, you know, the telecom bills. Um, either they're they're coming in the mail a couple of weeks later, then you're rushing to pay them, or someone has to spend time logging in and clicking, downloading, download, invoice, download, invoice downloading. So we we know some of our customers were spending days just doing that. So part of our technology will automatically download all those all those types of utility invoices then extract the data. So to eliminate any sort of data entry required then it can be approved and paid. And so a lot of that upfront work in terms of just handling the invoices can be eliminated, which once you get to a certain scale, you know, some some of our customers are processing thousands, 10,000 invoices a month. And so that that can really add up, uh, across the team.   Sam Wilson (00:05:26) - And the opportunity for.   Sam Wilson (00:05:29) - Error.   Sam Wilson (00:05:30) - I mean, just becomes magnified where it's like, did we get that utility invoice that's emailed, actually paid, and did it get logged properly? And we're counting on, which is just crazy in 2023, we're still counting on human touch on some of those things where it's like.   Sam Wilson (00:05:48) - And so no, I see what you're saying. And that makes a lot of sense, especially for property management companies that are handling, like you said, you know, thousands potentially of invoices a month and going, gosh, is this is this being properly logged? I mean, even for us at just the handful of facilities that we own it, we're trying to put those processes in place where it's like, hey, this is. The is that paid this month, I don't know. So there are some similar meetings we were having just recently were like, is that okay? No, this needs to be a system like very, very tight knit system. Maybe we're not saying.   Braedon Hebert (00:06:16) - Hey Sam, our lights went out. What happened? Oh, shoot. That that invoice that I guess we didn't get it didn't forgot to pay it. And. Yeah, that's the worst that can happen.   Sam Wilson (00:06:27) - Absolutely. Absolutely. Yeah. You get a disconnect notice and you're like, how do we. And which we haven't had a disconnect notice.   Sam Wilson (00:06:33) - But I'm just thinking worst case like you're saying like lights went out or you get a disconnect. How is this happening. And I can see.   Braedon Hebert (00:06:38) - How it happens. That was a theoretical example of course.   Sam Wilson (00:06:41) - Right, right. Luckily it has not happened to us. But that is I mean, I could see it very easily happening accidentally or it's like we don't know how we missed that. So that's that's really cool. Can you tell me we talked about this a little bit before we kicked off the show? You use the word condo more broadly maybe than what I would say here in the States. Can you define really kind of the the broader scale of the product that you guys are developing in the, in the what condo means?   Braedon Hebert (00:07:09) - Yeah. So yeah, I had said our current branding gives away a bit of our origin. So maybe if I say the word aboot or process or process, I'll also give away my Canadian roots. So we got our start in Ontario. In Canada where we're condo is kind of the catch all term for a HOA or community or association.   Braedon Hebert (00:07:32) - And that's that's where we got our start. And that was the the branding and the website that was that we've been developing. But our goal more broadly is to be is to be a solution for, for all types of, of property management companies. So whether it's the condo HOA association as well as commercial residential. And I was actually looking up our customer roster. We have a senior lifestyle management company in the Tennessee area as well. So it's it's you know, the the challenges are similar. And it's from a branding. It's something that's on the on the strategic table for us. But yeah, thank thanks for bringing that up. Uh, just to be able to help. Yeah. Broaden the conversation and to help to clarify that.   Sam Wilson (00:08:18) - Right. Right. Because I mean, your product could very easily be deployed across industrial facilities or industrial property managers to multifamily property managers to, I mean, anybody that's managing a large portfolio of assets that, like you said, you know, has has an incredible accounts, payroll.   Sam Wilson (00:08:35) - Or accounts payable. Excuse me. If I could speak today, you know, invoices coming in. You need to have that product where you can reasonably take those in, make sure they get paid, and then do it again without without making sure that there's a manual process to keep track of that. So, Braden, one of the things that you said in the onboarding question, I always asked us and again, for those of you that listen, what's a fun fact or surprising view in one of the views that you put in there, Braden, was that tell me a company's tech stack, and I can tell you the growth rate. I think that's really, really interesting. What does that mean?   Braedon Hebert (00:09:08) - I. Yeah. Like the the question prompted. Trying to be a bit controversial or edgy but so we've. You know in building this company and talking to hundreds or property management companies, you start to see different patterns. And as a, as a business, it's in you know, real estate in general is often it's is quite local.   Braedon Hebert (00:09:29) - And there are, you know, there are companies that's, that's that's their focus. That's that's where they want to go. But there's others that I call it a bit. I use the term escape velocity for those that are able to, to, to build a company that expands. Into a wider geographic area. And so there's there's a, you know, in property management specifically, there's there's their startup costs, although the switching costs are low. So it's really it's relatively easy to create your own. If you're a property manager, you get four properties. You can you can exist as a standalone business. But those that obtain the escape velocity are the ones that, that, that, that have that extra is that whether it's ambition or operational excellence, to be able to, to grow and specifically think manage people is a huge part of that. Beyond, you know, beyond their local area, beyond the, the, the, the greater metropolitan areas that they ran into to, to, to to grow into a much, much bigger footprint.   Braedon Hebert (00:10:31) - Um, and so I and I the other pattern is that the, the use of technology is a common characteristic of those companies that are able to obtain that escape velocity. So operationally they have to be be sold. They the managing of people is is a huge part of that. But the being able to adapt and and effectively use with the modern technological tools that exist can really help those companies to, to, to grow at a higher rate than, than others who, who aren't necessarily doing that.   Sam Wilson (00:11:10) - I think that's a really insightful observation. It's not something I would have thought about, but what are some of the things, I guess, that as as you see those various companies that are willing to embrace technology, willing to embrace automation, like.   Sam Wilson (00:11:27) - What.   Sam Wilson (00:11:27) - Does that say about them? Because there's more to it than just, hey, I like technology and automation. There's something about their mindset. And their approach.   Braedon Hebert (00:11:37) - Is, yeah, it's not chasing the new shiny thing, but it is a it is a mindset that exists that they're thinking about how to how to improve their business.   Braedon Hebert (00:11:48) - So they're they're not chasing the, you know, every the everyday fires. They're able to elevate it and think strategically. So, you know, it's not about, hey, we're it's not just, hey, we're we have these cool tech toys. It's it's they're thinking strategically about how to just effectively manage their business. And, you know, the the tech they use is a part of that. But it is a common pattern that we've observed amongst those companies that do seem to have a have a higher growth rate than others that aren't there.   Sam Wilson (00:12:18) - Yeah. No, I think that's, that's that's really insightful. And you said not putting out fires because it takes time. I mean, it takes time to think through. Yeah. There's automations. There's there's there's technology out there. But implementing it is a discipline I think. I know at least it is for me. Maybe I'm not that bright and I'm certainly not tech savvy. And so for me, it's harder to be like, okay, how are we going to use this tool effectively in our business? And then how does it act? Or how can we structure it such that it solves problems without creating a whole pile of new ones that now is now just more work? And so I think that's but figuring those things out to where you're getting beyond the day to day, like, okay, hey, this is how this technology solves problems and saves us time and money is really, really cool.   Sam Wilson (00:13:04) - What how did how do you view that as it pertains to your business? Like what are what are you guys currently doing to use tech to establish or get that escape velocity that you need?   Braedon Hebert (00:13:19) - Yes. Yeah. It's it's. So I, we had a meeting with our or some of our investors last night and they, we're also guilty of that as well in that being able to focus on your current customers and you want to provide a good, good level of service for them and a really good experience. And that can often trump, you know, you know, Trump thinking about, okay, this is this is I need I need time to work on the business. So I was working in the business, working on the business and carving that out. And that's where one of the benefits of of having, you know, whether it's a board of advisors or your business, business groups that you may be in is is it does act as a forcing function for you to, to to think about the business and how to how to improve it.   Braedon Hebert (00:14:08) - Um, for, for tech, one of the benefits of being a tech company is that we can build a lot of our own, our own solutions, right, to help that. So we we've we got our start in in about late 2019 and we've seen it growing across Canada, United States, different different types of property management companies. But we've managed to do so and and multiply the footprint of the company without multiplying the amount of people that we need to support that customer base. And so that's that's having a discipline from a product development standpoint, not to just focus on new features or the shiny things for us are being, you know, new things for us develop. It's also being able to focus on, you know, how do we make our system as efficient. That not only helps us, but it does also help our customers in that they're they they have less, less questions. And there's there's things that make it easier for them. So it does come down to to discipline though, at the end of the day, to, to force yourself to take that step back.   Sam Wilson (00:15:10) - It is hard. It is absolutely hard. We in the in our laundry facility business, you know, we use software inside of that and it's interesting to watch and it's newer, not completely new, but they're still constantly solving problems. And there's even, you know, there's even forums where we can put in feature requests where it's like, hey, you know, we'd love to see, you know, XYZ on our point of sale or whatever, you know, whatever the the feature is. And I would think for you guys, that same thing probably is true where people are constantly saying, hey, what's, you know, can we have this feature? Can we add that? Can we add this? How do you prioritize those in what's maybe a problem that you guys are actively internally trying to solve that you haven't solved yet?   Braedon Hebert (00:15:53) - The prioritization question is is tough because everybody has their. Yeah has has. Yeah that's what they want. So you have to balance. One is is this a is this a one off for this one customer.   Braedon Hebert (00:16:08) - Some of them are are louder than others. And so you have to consider is this broadly applicable. Will feature customers find this attractive. And also you have to also wait that as to the revenue potential as well. And so we've had some of our as we've grown we've gotten bigger customers that have have have pushed us in a good way to develop the features that they, as a bigger company, need for their scale. And so that's that's been, you know, how we have prioritized those, those features and. Terms of what's on our on our roadmap. The some of the ones that I'm, I'm personally most excited about is like is to help. There's a lot of similarities and applicability be going from, you know, HOA or communities to commercial and residential. Um, there are certain nuances to, you know, outside of the HOA space that that do differ. And so it's it's there are certain features that would be very well received by certain. Potential customers that we've had conversations with in the, in the commercial space, um, for example, or even in, in rather than being third party managers, you're an asset manager where you own everything versus in the space, you're managing independent hoa's.   Braedon Hebert (00:17:39) - And so, um, being able to, to achieve that vision, the more broad of of being able to cater to property management more broadly, um, building off of that, that HOA Association condo, um, base.   Sam Wilson (00:17:54) - Got it. That's really, really cool. All right. Last and final question for you is what's something about your software or your solution maybe that I haven't asked that you would want to make sure that we cover.   Braedon Hebert (00:18:07) - Well, we spoke about the the automated utility downloading, which is is one of those eye catching features as boring as it sounds. Um, yeah. But everyone, even personally, everyone hates dealing with their utility bills. So if we can automate that, that's that's something that that people really, really enjoy. I there's if I can say to you, so what if if, if, if you're if your current operations include handling paper whether that's receiving invoices on paper, having a cabinet that you store everything in or signing, signing paper checks, you know if that can if you can envision that going away.   Braedon Hebert (00:18:53) - That's that's yeah. Especially when we talk to owners, oftentimes they're the ones who sign the checks. And it's like, okay, what happens if you go on vacation? Well, you know, I signed a bunch before I leave and then I have a huge stack when I come back. Okay. Well, you know, the the the conveyor belt doesn't have to stop running. Uh, in those, in those scenarios. Um, so that's one and I think the other one that in the larger scales is, is being able to really configure, um, who needs to approve what invoice. And so it's reducing a lot of the noise, but also automating how who needs to approve what invoice and when and enforcing that. So one, it reduces work, but also it helps enhance internal controls to make sure that invoices are being properly, properly screened. So that's that's we're getting a little deep there. But that's know that's the stuff that we care about though.   Sam Wilson (00:19:43) - Those are huge pain points that you're solving for though especially that invoice.   Sam Wilson (00:19:49) - I mean, at least that one that invoice approval speaks to me where it's like, you know, as we grow, I go, my gosh, you know, I don't want to be in front of every invoice that comes through the door and have to be the one that signs off on like, oh, yeah, okay. You know, whatever it is we're say we're. Redoing a facility the paving contractor sends there. Like, I mean, there should be a way to and again, maybe that's just a, you know, small example that doesn't doesn't apply. But I think there's you're touching on some things that everyone thinks about and is trying to figure out a way to solve. So that's very, very cool. Braden, thank you for taking the time to come on the show today. I certainly enjoyed it. It was great learning about what you guys do, how you do it, and the opportunity you guys see in the market right now. And it sounds like it's being very well received.   Sam Wilson (00:20:34) - So this has been a blast having you on today. If our listeners want to get in touch with you and learn more about you or your product, what's the best way to do that?   Braedon Hebert (00:20:41) - So our website is Conoco. So not not.com but.co. And so that's that's our website. And then our we're most active on LinkedIn which where you can find me on there as well as as Conda works on LinkedIn.   Sam Wilson (00:20:59) - Fantastic. We'll make sure you include that there in the show notes. Braden, thank you again for your time today. This was certainly a blast. I do appreciate it.   Braedon Hebert (00:21:06) - Okay. Thank you. Sam.   Sam Wilson (00:21:07) - 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 (00:21:28) - So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's guest is Jeff Patterson.   Jeff is an active member of the National Parking Association (NPA) and one of less than 500 Certified Parking Professionals in the country, Patterson is a pioneer in the advancement of technology in the valet and parking industries.    Show summary: In this episode, Jeff Patterson, President of Phoenix Parking Solutions, discusses how his company is revolutionizing the parking industry with cloud-based solutions. The company's technology offers digital permits, validation, and various payment options, eliminating the need for expensive gate systems. Despite challenges, the company has managed to increase profits for clients significantly. Patterson also discusses the future of the parking industry, emphasizing the shift towards touchless solutions.    -------------------------------------------------------------- Intro [00:00:00]   Challenges and Solutions in Parking Management [00:02:11]   Cost Savings and Profit Increase [00:08:34]   Competitors' Difficult App Experience [00:10:24]   The Mobility Movement in Parking [00:12:45]   Security and License Plate Readers [00:16:14]   Revolutionizing the Parking Space [00:20:43]   Challenges and Solutions [00:21:14]   Contact Information [00:21:33] -------------------------------------------------------------- Connect with Jeff:  Linkedin: https://www.linkedin.com/in/jeff-patterson-pps/ https://www.linkedin.com/company/phoenixparkingsolutions/   Web: https://www.phoenixparkingsolutions.com/   Phone: (678) 412-0505   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 Patterson (00:00:00) - When we finish going through this scenario, at the bottom of it, we compare what was their profit to what their profit would be with us. And on $1 million a year gross revenue. A parking garage. They were making an additional $168,000.   Intro (00:00:15) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:28) - Jeff Patterson is the president of Phoenix Parking Solutions. He is leading innovation in the parking industry by specializing in parking management services. Jeff, welcome to the show.   Jeff Patterson (00:00:39) - Thank you. Happy to be here.   Sam Wilson (00:00:40) - Absolutely, Jeff. 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?   Jeff Patterson (00:00:50) - Uh, I started as a financial advisor, subsidizing my income by valeting cars, and ultimately created my own company with another gentleman that was doing the same thing.   Jeff Patterson (00:01:05) - Ten years later, I bought him out. I transitioned the company to be all for tech thinking, and now we are nationwide as of last year, focusing on all of our digital solutions to help property owners and just looking forward to the continued growth.   Sam Wilson (00:01:25) - Man, that's cool. Parking is one of those things that's so few people think about. I mean, it's it's kind of the overlooked asset class, but yet it's not because obviously for those that are in the in the parking business, they understand it very well. But it is I think what you guys are doing is really cool in the parking business. And I know you said you're kind of forward thinking in your in your company, but you guys are revolutionizing the way people pay for and that businesses manage their parking assets. Can you break some of that down for us?   Jeff Patterson (00:01:56) - Sure. We bring in cloud based solutions. So that way you have a property. For instance, I was talking to a client here recently that it's a small parking lot, but they still want to have parking management on it.   Jeff Patterson (00:02:11) - It's going to generate revenue from it. You don't have to go and spend $150,000 to put in gate systems or pay on foot machines. You can still have your digital permits, you can still validate based upon your retail leases, and you can still collect revenue with, you know, scan your QR code or text to park options with all the all the the hefty equipment and install cost that typically you would have to do.   Sam Wilson (00:02:36) - How I mean, do you you said you started in the financial advisory business. Like how have you built a tech, basically a tech company without a tech background.   Jeff Patterson (00:02:50) - I've always been an IT kind of guy. Um, and just being in the industry for parking, there was one of the things that really frustrated me was having to pay people to do very mundane tasks, to go around and hand out these monthly permits, to manually build people for each credit card processes in place, to constantly go reload these tickets on these gate arms. But I can do everything from my cell phone, but I can't give someone a monthly parking pass without, you know, it'll be two days and you know all these other steps in the process.   Jeff Patterson (00:03:26) - There had to be a better solution. So I started really digging into that and taking wireframes, sketches and things like that to potential interested parties about seven years ago.   Sam Wilson (00:03:40) - It's a, it's a you without really that technical expertise to build what you wanted. You kind of took the big idea to some industry partners and said, hey, help me build this out.   Jeff Patterson (00:03:50) - You got it.   Sam Wilson (00:03:51) - Cool. Love that. That's really, really great. And I guess was there. Did you have to carve out any of your business to bring those industry partners on, or were those just advisors that came on, you paid them to then develop the product for you?   Jeff Patterson (00:04:06) - I originally invested into the company, and then that company sold, and I still have a great working relationship with them.   Sam Wilson (00:04:16) - Got it, got it. Okay, cool. I guess I just ask all those things as people think about, we're in a business right now or they're something similar to this. So I asked with my own kind of needs in mind where it's like, how do you tackle a problem like this? Where I go, gosh, we need this technical expertise to do this.   Sam Wilson (00:04:34) - I don't have any idea how to do that. And then do you do you bring on those partners? Do you then just get out your checkbook and write an enormous sum of money to somebody hoping they get it right, which I've got some other friends that have done that and failed miserably because they're like, well, the product now is totally worthless. And we just spent several hundred thousand dollars just in initial stages of development. It was a total flop. So I'm always curious how people without that real in-depth technical expertise figure things like this out. So that's that's really, really cool. Let's go back to parking though I love parking. I think it's a phenomenal asset class. I think it's I always joke, I'm like, what? Like, what are you going to do if your parking lot floods? It's a surface lot. You wait till the water goes down. Like, this is just one of the best businesses in the world to, to be in. And I think I think you understand that.   Sam Wilson (00:05:20) - But we've got legacy issues there. Like you're saying gate arms. When I was looking at parking lots to buy, we always if I saw an attendant sitting there in the booth collecting money, I knew that there was that there was money walking out the door. I mean, because, you know, they're letting their buddies in or they are keeping a 10% of what comes in the till, or I mean, untold numbers of ways that owners were losing money. And like, that's a lot to buy. The one right there with the guy working the working the gate. But so you guys saw those solutions and you said, we can do this with cloud based software. What are some challenges that maybe every every technology presents its own new issues and problems you got to solve? What are some problems, maybe now that have been solved, that you've got this in place?   Jeff Patterson (00:06:08) - Some problems that have been created by this or. Yeah, additional things that have been resolved.   Sam Wilson (00:06:13) - Yeah. Well are either or one of those, either one of those where it's like, hey, you know what we've got now, now we've got this or maybe, maybe to say it a different way.   Sam Wilson (00:06:21) - What are some problems you have yet to solve in the space now that you've got this technology?   Jeff Patterson (00:06:27) - I would say we've got most of them resolved as of a few months ago. They we had a few little line items there that we were trying to to button up. And, you know, whenever you release a new technology or you deploy something, the consumer is always going to try to find ways around it, right?   Sam Wilson (00:06:44) - Yeah.   Jeff Patterson (00:06:45) - So we had to figure out ways to protect that. And for example, our validation platform where you say you go into an orange 30 fitness or sweat house or a restaurant and you walk inside you, there's a tablet there for you. You type in your phone number, type in your plate number, it's success. And then you get a text message that verifies it, said, hey, you've been validated, let you know when your time is expiring. And more easy peasy, right? But we ended up running into situations where people were trying to abuse that 90 minute validation.   Jeff Patterson (00:07:18) - So we had to put in restrictions where it could only be used once every 24 hours. Then you didn't have employees. Instead of buying monthly permits, validating back to back, or the person who went to lunch decided they wanted to take a walk afterwards, and they're just going to, you know, validate again and get some free parking.   Sam Wilson (00:07:37) - Got it.   Sam Wilson (00:07:38) - Oh that's interesting. Yeah. People are always trying to find ways to game game the system. What have been some of the cost savings? I know you mentioned the installation of gate arms, filling the tickets. You know doing all those things that owners, you know, or, or operators have to deal with. But what have been some of the cost savings you've seen for people adopting your technology?   Jeff Patterson (00:08:02) - So I actually flew up to one of my larger clients. That's a big developer around the country a year and a half ago, and we sat down and reviewed one of their. Monthly. You know, pals from a property. We just call this property ABC property.   Jeff Patterson (00:08:20) - Okay. We went line by line item on every single thing that their gated solution to our gate list solution. What's going to be different? And we're sitting down with their national rep. So it's not like we're, you know, giving them a bunch of fluff. This guy knows what we're talking about.   Sam Wilson (00:08:33) - Right?   Jeff Patterson (00:08:34) - When we finish going through this scenario at the bottom of it, we compare what was their profit to what their profit would be with us. And on $1 million a year gross revenue, a parking garage, they were making an additional $168,000.   Sam Wilson (00:08:50) - Good grief. Good grief.   Jeff Patterson (00:08:52) - So just a little bit.   Sam Wilson (00:08:53) - Right, right. I mean, what why why are owners I mean, I'm sure they are, but what are some common objections owners are giving when presented with a solution and not moving forward with it?   Jeff Patterson (00:09:07) - A lot of people are stuck in their ways. It's the same cookie cutter model of what we've always done. It's not broken, don't fix it. But at the same time period, you know, if, for instance, in Atlanta, it used to cost $15,000 a space to build a parking garage, now it costs 40,000.   Jeff Patterson (00:09:23) - So, you know, really need to take into account the ROI here. And if you can deploy solutions that are better for your consumers, that are better for the retailers to help you draw in better tenants then, and it doesn't cost you as much money up front. I think that's a win win for everybody.   Sam Wilson (00:09:45) - Absolutely. No. That's I mean, it's I think it's great and I've seen plenty of that even here in the sleepy Memphis parking market. Seen a lot of those. I mean, there's just not much in the Memphis market that really is exciting when it comes to parking, I'll be honest. But have you even seen a lot of those lots going, especially the service lives downtown going to, you know, pay by license plate and things like that. Here is a scenario I ran into recently, and maybe you guys can tell me how you're overcoming that. I was at a I went to park somewhere and it was it wasn't your platform. I can't remember who it was, but it was a pay by park, pay by license plate, and I was only going to be there for about an hour.   Sam Wilson (00:10:24) - And I pulled up and I had to, like, download an app, give my life history, tell them my credit card, my kids birthdays, and dude, I got like seven minutes in and I'm like, screw it. You know what? I'm going to I'm going to roll the bones here and I'm just not going to pay. I'm not giving you the $10 because now I'm thoroughly irritated trying to give you money. Why are competitors making it so hard? And how do you guys do it differently?   Jeff Patterson (00:10:49) - That was one of the biggest points that I had. And when we were developing this technology, they everybody was jumping on the bandwagon. And you had this company's app and that company's that and another company's app, and who wants to have an app for everything? Parking. As far as the whole gambit of an app for everything is kind of went out the window, right? Yes. It's great. You can do everything in your phone, but don't want to have a file that has all the different parking companies out there I've ever parked with app on it that I've had to take 7 to 10 minutes to complete something.   Jeff Patterson (00:11:24) - Yeah, like I'm the one supposed to be doing the work, not the consumer, right? So we removed that aspect from it, where our consumers either text a code or they scan a QR code, which, you know, those have become very popular these days and don't really see them going anywhere.   Sam Wilson (00:11:39) - Right.   Jeff Patterson (00:11:40) - And for instance, you scan the QR code, it opens up in your web browser. You type in your phone number so that we have a dedicated URL. Um, and then it moves you right over putting your plate number, select your time, use Apple Pay, Google Pay, Cash App, Venmo whichever way you want. It's less than 20s done.   Sam Wilson (00:12:00) - That's amazing. Yeah. That's amazing. I didn't get a ticket that day. There was nobody came by and towed my car. I didn't get a boot on my car or anything else, but but that's the way it should be, right? It's removing removing those barriers to to spend money with the with the consumer. That's really cool.   Sam Wilson (00:12:15) - I'm glad I figured you had an answer to that. And you'd already solved that problem because, man, I said, there's just no way that that this is the norm. Because that was that was a thoroughly frustrating. What what's the opportunity then right now in the parking business? Is there is there any consolidations happening? Is there corporate compression? What's what's going on in parking. Because we're seeing kind of commercial real estate as a whole, whether it be office space, multifamily, softening, things like that. What's happening as a whole in the parking industry. Can you give us any insight on that?   Jeff Patterson (00:12:45) - Yes. Next week is actually the National Parking Association's conference and expo. That happens once a year. There'll be probably 2000 parking professionals, including other folks like yourself, that invest in parking lots coming out there to see what is this technology, who's got this? What options are there, you know, how is this moving? And they're calling it the mobility movement. So currently it's the parking world is moving out of these archaic systems and kind of spitballing us an extra 5 to 7 years forward in this.   Jeff Patterson (00:13:17) - And there's because everybody wanted touchless solutions. You don't want to have to press the button to get your ticket. You don't want to have to wait in line to touch the same kiosk and pay on it that everyone before you just did, right. So a lot more solutions came into play. And with that you're seeing this, you know, like I said, mobility movement coming in the past. And you have companies like Reath who's one of the top five that they built a lot of their own tech labs building their tech plus the largest in the world building sphere. Um. Bigger companies are building their own, but there's tons of other options out there for other operators to utilize and in so many situations that owned business for me, but just being full transparency, sure, where you can operate it yourself and you don't need an operator, right? If it's something basic, you know, if you're just looking for something very simple, there's technology there where you don't have to hire a full parking management company.   Jeff Patterson (00:14:14) - Um, it just depends what you're looking for. Such as residential. If you're using a mixed use development, all of your monthly permits, instead of giving your residents these little decals that they put on each of your windshields, you can do them all digital and just do it on your own using one of these cloud based softwares that are out there.   Sam Wilson (00:14:32) - That. That's really cool. And that was going to be one of my questions was how much of this is eliminating the need for an operator? I mean, for those who are listening, a lot of times at least what we own, we would obviously just get with a local operator, then they would operate the lot, and then we would they would get paid by the operator. In this case, I'm thinking about some of the lots that we own. We could have just eliminated the.   Sam Wilson (00:14:52) - Middleman.   Sam Wilson (00:14:53) - And ran this technology on our lots without without the third party taking their cut of the of the revenue.   Jeff Patterson (00:15:01) - It definitely does create some of those situations out there, but you still need someone to overall manage the location, whether you're hiring them yourself in-house.   Jeff Patterson (00:15:12) - For someone to make sure your sign is good, make sure the porter is cleaning the lot to make sure that the technology is doing as things in the background, to issue the permits to decline, the permits to monitor your validations and look for abuse to. Uh, handling disputes when it's enforcement or booting or towing to provide that customer service that feel, and to also review the ratings of your consumers to see what do they like and not like about your experience. So that way you can be proactive about forgiving them a better one next time they come.   Sam Wilson (00:15:50) - Yeah, I think that that was gonna be one of my questions was how? And you touched on a lot of things that a good operator will do, obviously, on our behalf. You know, one of those is just making sure people like me aren't parking there and not paying the the not paying their, their, their ticket to, to to park there for an hour. So that's, you know, that's that's really, really great. Jeff, let's talk a little bit about security in the parking lots.   Sam Wilson (00:16:14) - I know we kind of talked about this maybe off air, but you were talking about, you know, removal of gate arms, some of the hesitations that some owners may have in moving to a solution like this, in kind of the perceived security that comes along with gate arms, fences, things like that. What's, what's what's how do you guys overcome some of that hesitation on that front by removing those items?   Jeff Patterson (00:16:36) - That's a very, very good question. And I believe that there is a bit of a false sense of security that people have with the gate arm. If you think about a criminal, if if he's going to break your window, is he really care about breaking your gate arm?   Sam Wilson (00:16:51) - No.   Jeff Patterson (00:16:52) - No. So there's not really that much more security that's being provided. But I do get it from a revenue protection standpoint of being able to get out of the gate. And that's one of the big topics of, well, now that there's no gate, how do you guarantee people are going to pay and don't want people's first experience to come into my facility and there's just boots all over the ground, and people might be having arguments with the booter about getting it, you know, removed.   Jeff Patterson (00:17:19) - So. LPR. We all know about license plate readers. They're on the freeways. They're everywhere these days, and we utilize these in surface lots and in parking garages to track when you come inside. And it's integrated with our software platform, where after X amount of time it asks, is this person good? Did they validate? Did they pay? Did they have a monthly permit? And if they don't, it flags them in the system automatically reaches out to that state. Department of Driver's Services pulls their information, and in 2 or 3 days they get a nice little bill in the mail that says, here's where you came in, here's what you left. You forgot to pay for the services rendered. And, you know, please click here. Now to pay it's X amount for the first couple of days and then the price goes up. If you don't pay, we get good collections on it because we're not writing you a ticket. We're sending you a bill for services rendered and so we can follow up.   Jeff Patterson (00:18:20) - Just like any other bill. You don't pay, you go to collections, and then most people end up paying their bill at that time period.   Sam Wilson (00:18:26) - Right? Yeah. I was going to ask what the enforceability of that is, you know, is it is it worth. And it sounds like it is. Because if you've got a good system in place to then send it to collections, or then to send it to something that goes on the record permanently, it becomes much, much more enticing to go ahead and make that payment. Um, but yeah, I was just curious how that how that did eventually work out. So that's that's really, really cool. I love that, I love that, and I love the ability to follow up with those people that park there and actually send them that bill and that mail. What's that been like integrating with the state database? You said 46. Why not 50?   Jeff Patterson (00:19:08) - Certain states are not willing to share the information like California, New York. They will not give out the consumers information.   Jeff Patterson (00:19:17) - And we are working to change that, because if the state writes you a ticket, they follow up pretty harshly on it. But you as a private property owner, if you write someone to take it in those particular states, they're not willing to give you the same information that they have for you to follow up on that. And I know that and some other big third party aggregators that handle these type of enforcement for us across the country, they are working to make it all 50.   Sam Wilson (00:19:46) - Right, right. Yeah.   Sam Wilson (00:19:48) - That would seem like that would be an imperative if you're going to do business in those states. So I guess, has that prevented you from then deploying your technology in those states?   Jeff Patterson (00:19:57) - And some of the states. It's definitely been a barrier to entry. If you run across someone who is very hesitant about booting enforcement or towing enforcement, and I personally am not a fan of towing enforcement like LPR, you know you get a ticket in the mail three days later. Hope you caught me. All right, scan this QR code.   Jeff Patterson (00:20:19) - Pay for it. Call today. Make sure I get it next time. It's not the same thing as your car is gone, or you're waiting for someone to come and remove a boot off. And now you're late to your next appointment. Um. I think that these states that are not. Uh, on board. It would be a much better experience for the consumers in that state to allow this to, you know, happen.   Sam Wilson (00:20:41) - Right, right.   Sam Wilson (00:20:43) - That's interesting man. This is really cool. I love what you're doing in the parking space, no pun intended and really revolutionizing. I'm sure you get that a lot. But revolutionizing the way that people pay, interact, the management, the efficiency of what you guys are doing, I think is just astounding. And you mentioned things I'd never even thought of, which was, you know, because obviously we don't live in I don't live in an area in Memphis, Tennessee, where this is necessarily an issue, but in a lot of bigger cities, you're going to a restaurant, you're going to work out, you're going to places that need parking constantly validated and or paid for.   Sam Wilson (00:21:14) - And you guys have thought through a lot of the things that, you know, would would be challenges that, that, that otherwise, you know, to overcome that, you know, you guys have solved a pretty, pretty slick solution here. So I think this is really, really cool. If our listeners, Jeff, want to get in touch with you and learn more about Phoenix Parking Solutions, what is the best way to do that?   Jeff Patterson (00:21:33) - I go to our website, Phoenix Parking solutions.com. Or you can always give us a call and ask our receptionist to transfer over to me. I'd be happy to talk to anybody. Our number is (678) 412-0505.   Sam Wilson (00:21:46) - Perfect. Thank you sir. We'll make sure to include all of that there in the show notes. And thank you again, Jeff, for coming on today. It was certainly a pleasure. Thank 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.   Sam Wilson (00:22:06) - 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.

This is part 2 of a series with Colm McEvilly   Colm McEvilly works with an internal team and directly with prospective and current investors to guide them to the projects that best fit their needs and their goals. In 2018, he took the plunge out of the corporate world and into full-time real estate investing, where he heard he leveraged his engineering background and the data-driven investing methodology that he had learned.    Show summary:  In this episode, Colm discusses the importance of a systematic approach to real estate investing. He introduces a four-step decision-making process and emphasizes the importance of vetting sponsors, analyzing the market, evaluating the investment, and understanding deal numbers. He also shares resources for gathering market information and understanding laws and risks. He further explains different types of investors and the importance of understanding lending information and deal numbers. He advises thorough vetting of sponsors and emphasizes the value of quality asset management. He also recommends asking for underwriting screenshots and having a direct conversation with the investor.   -------------------------------------------------------------- Intro [00:00:00]   The Decision Making Process [00:03:03]    Vetting the Sponsor and Partners [00:07:32]    Analyzing the MSA and Submarket KPIs [00:09:05]    The average income growth and neighborhood analysis [00:09:41]    Schools and their importance in real estate investment [00:10:40]    Understanding investment strategies and deal numbers [00:16:59] --------------------------------------------------------------   Connect with Colm:  Instagram: https://www.instagram.com/tga_ip/  Web: tgaip.com  Linkedin: https://www.linkedin.com/in/colm-mcevilly-1480b94a/     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: Colm McEvilly (00:00:00) - If you have a process, it puts you in the driver's seat with a clear checklist. It demystifies the process, it gives you control, it saves you headache and heartache. And you know that you're investing for the right reasons.   Intro (00:00:12) - 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 (00:00:25) - This is part two of a series with Colm Machiavelli. If you want to pronounce his last name correctly. For those of you that don't know, Colm has gone from an engineer to an investor advocate, and his journey has gone from serving himself to want to serve a community. Part two of this. I'm excited to have you back on the show here today. Colm, how's it going?   Colm McEvilly (00:00:43) - It's going fantastic. We're going to dive into this quickly and we're going to have in the show notes, a place for you to reach out to me if you want to dive in to your own personal investing journey to talk about the process we're going to go through, why don't you let me share my screen for those that are able to see what we're looking at and so share screen.   Sam Wilson (00:01:03) - Yep. You should be able to to share that. Yeah. If you're watching this on YouTube, this would be a great one if even if you don't watch the show on YouTube, this would be a good episode to go and actually see. See what Colm is sharing with us here today, because this is going to be great.   Colm McEvilly (00:01:16) - So you see the screen, right?   Sam Wilson (00:01:18) - I do.   Colm McEvilly (00:01:18) - Okay. So this is building off part one. Part one talked about investor biases. And so these are the three different biases that investors have when they're going into every decision. We talked about that at length. If you haven't heard about it go the other podcast. If you want more information I would recommend these books. Thinking in Bets how to decide. This is a professional poker player. She talked extensively about the decisions that we make and how everything's a gamble and how when you're an investor, one of the things that you could do to provide a sense of momentum is decide what level of risk certain numbers and certain decisions are for you, and then you can create a matrix and decide that way.   Colm McEvilly (00:01:59) - And the whole purpose is to have consistency with your investor making podcast investor making decisions. Episode 245 on Cash Flow Connections with Hunter Thompson is an episode where he interviewed this poker player, Annie Duke. And when I heard that episode years ago, this was probably 2 or 3 years ago. We? I just thought, wow, this applies so much to the investors that I was serving at the time. And I noticed that when I talked to software engineers that they had a real process that was tangible. But when I talk to investors that were more emotional, let's say usually physicians are pretty. They're making a lot of emotional decisions. They would go back and forth on the progress of their decision, and the result was that they never made a decision. So they're sitting on the sidelines. They weren't happy, they weren't getting anything done. And I had to come up with a tangible process for them to actually feel like they were in control of their decision making process. And just recapping. If you have a process, it puts you in the driver's seat with a clear checklist.   Colm McEvilly (00:03:03) - It demystifies the process, it gives you control, it saves you headache and heartache. And you know that you're investing for the right reasons. So this is the process that I teach my investors to go through. And there's four different key columns, key quadrants. Think of it like a submarine. And you need and you need to fill up each level of the submarine, each room of the submarine before you move to the next. And the key thing I want to call out is notice that deal numbers is all the way at the end. It's not at the beginning. And so there's a couple of reasons for that. One, what if the investment strategy doesn't even work with what you're looking for? The deal numbers don't matter. What if the market has laws or developments or big, big, you know, units nearby that doesn't align with what you think is best for your the use of your money, then the deal numbers doesn't matter. And then what about the sponsor? What if the sponsors unethical.   Colm McEvilly (00:04:01) - You know, anybody could put 15% IRR in the Excel spreadsheet cell box. Is that is that actually a conservative number? Are you looking at the actual rent escalations. Is that matching the market information. So just know that deal numbers are at the end. You need to vet the sponsor. Then you need to look at the MSA and the area. And then you need to look at the investments. And eventually, you know, like I trust Sam, I've invested with Sam before. I trust him as a sponsor, so I don't need to to do this. So so what I'm saying is that this decision making process is going to be a little bit shorter in the future. I will still look at the MSA in the area in the investment and the deal numbers, because that might be something particular to my needs at the time. Maybe the liquidity timing of the deal is is really important to me. So I need to look at this third stage, which is the investment stage. Right. So but but just driving into this and again you could reach out to me, we could set up a call.   Colm McEvilly (00:05:01) - There'll be there'll be my contact in the show notes. But the first thing you want to do is always have a phone call, you know, is there even a real number on the website? You know, is there is there a real number on. There's a real number on on on Brecken right on your Brecken website.   Sam Wilson (00:05:14) - Oh there.   Colm McEvilly (00:05:15) - Better then know I know, I think I know there is.   Sam Wilson (00:05:18) - I mean it's got to be at the bottom or it's under a contact. Go. We just launched the new website last week.   Colm McEvilly (00:05:24) - Yeah, it looks really good, I saw that. Oh, by the way, you put you.   Sam Wilson (00:05:29) - Did put a review from you. Thanks, buddy.   Colm McEvilly (00:05:31) - Yeah, but you put, you put my last name was with an E instead of M. Not that it matters.   Sam Wilson (00:05:36) - Oh, well, then that's. I got to go back to our website, guys. Hey, we're getting off track here, and you have told me something even already here called my website.   Sam Wilson (00:05:47) - I mean, which you can find my contact info all over the internet, but it it doesn't have our phone number there at the footer. We need that. Hey, I'm sorry, we're getting off track here. What you're doing here is really good. But no, we don't have a phone number there at the footer. Yes, there is at least 100 phone numbers. Probably on there.   Colm McEvilly (00:06:04) - Those are called trust statements. You should actually have a couple different numbers. And then side note, if you are raising capital one of the best websites to file file to follow a site. Tuners. See you notice his phone number up here. There's lots of there in marketing it's called they're examples of trust. You know you have the referrals in here. We're jumping off topic but just know if you want to look if you're building a money raising website go to Site Tuners and you can actually reach out to them and get a free free contact. They can help you optimize your website. Oh that's. Yeah.   Colm McEvilly (00:06:36) - And we could talk about that later. So Brecken and then back to the decision making processes. So you want to have a phone call with them. And you want to look at their track record and not just look at what they are projecting, but what were their actual returns. And referrals is really important. A lot of times I'm working with physicians. They only want to talk to another physician that invested with us. So if you're if you're raising money, again, not just if you're an investor, but if you're raising money, make sure that you have the different occupations of your investors separated and tagged, because you're going to have different investors that are going to want to speak and receive information in a unique way, that they're probably going to hear it better from someone that has the same job as you. So just a side note, but but when you're asking for referrals, maybe ask for somebody that has the same job as you because they're going to care probably about the same things as you as an investor.   Colm McEvilly (00:07:32) - The strategy. So different types of strategy. Right now I'm I'm not so bullish on multifamily. I'm more so bullish on alternative assets. I think multifamily is going to be I think there's going to be a correction. And I'm interested in looking in multifamily in a couple of years from now, unless there's a super sweet deal because but the point is, I know my strategy right now and I've moved a little bit away towards multifamily. I'm in alternative assets, I'm in storage, I'm in industrial with some with some really good sponsors. And then think about this. You know, they always say that your closest five friends are going to predict are kind of like a, a microclimate of what you're going to become. If you have five, five friends that are way out of shape and you're probably going to become out of shape, right? Right. So the partners so understanding who your sponsor has partnered with, why and then learning about those partners, are those partners ethical. Like what have those partners done.   Colm McEvilly (00:08:36) - And and then also asking your sponsor why they partnered with that particular sponsor. Because that could show that could be, you know, you're peeling the onion back and learning about why the sponsor partner with somebody else. Because that could show where the sponsor feels like they might not be super strong or might not have enough resources. And time is a resource. And so learning about your sponsors partners is really important. And then.   Colm McEvilly (00:09:04) - So that's the that's the.   Colm McEvilly (00:09:05) - First quadrant or not quadrant. And that's the first step in in this decision the decision making process. And again decision quality equals your life quality. You your decisions in every area how you do one things how you do everything. So now we're going to dive into the MSR. And there's my old partner Neil Bawa had this thing called location magic. I can send you the link for it. It's really good on identifying key KPIs and submarket KPIs. So for example, I want to look at the population growth, the job growth, and I want to look at the crime and the average condo value.   Colm McEvilly (00:09:41) - I want to look at the average the average income growth. And there's certain metrics. And you can reach out to me, I can give you those metrics that are my lowest growth requirements for for Metro. And then I want to look at the neighborhood. I want to look at the the poverty levels. I want to look at the crime levels. I want to look at the income levels. I want to look at the rent levels for that neighborhood. And again, job growth. You can even sometimes look at job growth and neighborhood Scout USA data. There's a lot of really good websites that are out there that can give you KPI metrics. Actually, I can pull up. So here's here's a couple different fee based softwares that will help you with identifying market and submarket information. So we have ry indicator. Neighborhood scout Ryan Ryan is really good for the debt. So that's probably if you're raising capital trying to buy buildings or buy assets, it's really good for because you'll know the timing of when people have to sell or when they have to get new, new financing.   Colm McEvilly (00:10:40) - Best places. Net best map. Those are some free ones. Data using Google search. Crime grade Dawg city data. Department of numbers. Those are some free ways to look at submarkets. And actually I'm going to I want to show you one thing for schools. When you're when you're investing in B and C classes or when you're investing in a in. B classes, the schools are more important. Important if you're investing in a C class, crimes more important to attend it. Just just understand that. But if you want to find out where to get more information on good schools Niche.com Greatschools.org justice. Org. Those are a couple of really good resources for finding out good schools. Again, go back to the a couple minutes back in this YouTube video and you can see those those free and fee services laws and risks obviously rent control understanding if it's even impacting or not. Where I live right now we have rent control but it's CPI plus 8% and Cpi's like 8%. So I can raise my rent 16% every year.   Colm McEvilly (00:11:49) - You know, that's it's okay. Yeah. Northern California has rent control. But is it even you know that's that's pretty high every year municipality. So this has to do with with understanding different laws. There are some really good websites for understanding the amount of permits and developments that are coming in your area. That's really important because if you have a development that's huge, 200, 300, 400 units that are going in across the street, and you're going to probably have to give up a couple of months of free rent. That's going to kill your cash flow for the first year. So that's something to think about. Unit count, square feet. Just know that that in times of recession, people like more bedrooms and more bathrooms. People huddle together when money is tight, and so just having more bedrooms and bathrooms are they're more desirable in a time of recession. But at the same time, they'll probably stay there longer because they're going to have more, more crap there. And then understanding that people will typically choose a bigger square foot facility than than a small or bigger square foot.   Colm McEvilly (00:12:59) - Apartment in a smaller square split apartment, and then just understanding what your asset class and what's the strategy behind that asset class for that investment. And we're going through here quick. Again, we could always talk I got five more minutes right. Yep. Okay. So this third level is the investment. And you can read this. You can pause the video. But we're going to start with tax benefits. There's three types of investors. There's there's growth investors. There's cash flow investors. And then there's tax deferment investors. And so just understanding why are you investing this particular thing. You know an investment in a multifamily investment in a new development investment are going to have different they're going to have different types of depreciation benefits. Right. You know, typically, if you have more than $3 million deployed, you're a cash flow and cash flow investor. And then if you have less than that, you're an equity growth investor. That's just kind of what I noticed from dealing with with I probably had 6000 investor calls, the NOI strategy.   Colm McEvilly (00:14:03) - So what's the strategy that they're doing to implement to increase the net operating income? What's the lending info? This is crushing people. Right now, there's $1.5 trillion of debt that's about to come up at the end of their term. What are those people going to do if if the income or the worth of the property is actually less than, then what it needs to be in order for them to to get new debt, you know, maybe if they're DSR as 1.0, they're not going to be able to get new debt. So they might have to sell. So just knowing what your lending info is, what your LTV, LTC, your when's the interest only term and and how that affects your your bump and your your balloon payment, not your balloon payment, but how it affects the increase of the of the mortgage on a monthly level when you're no longer interest, only if that's what the structure is and understanding the distribution schedule. I don't personally care if I get one check a quarter or one check a month.   Colm McEvilly (00:15:04) - I have so many different investments I don't even look. I mean, I look at all the reports, but to me, I'm going to get the money eventually. I partner with people again. The number one thing I do is I check the sponsor. I partner with people I really trust, people that have a great track record. So the distribution schedule, if it's monthly, quarterly, weekly, you know, with, with some of this new. Bit tokenization of real estate. You can actually have daily distributions, but I don't know if that is even something that's attractive to somebody. And then forms de filing. Just making sure that, you know, it's a real entity that you're sending your money to. But you probably already knew that because you vetted the sponsor. And then the last, the last we have two minutes for the last section, which is the deal numbers, understanding the CapEx, the reserves and the operational budgets. That's really important. And sometimes the CapEx or the reserves are huge.   Colm McEvilly (00:16:02) - And you go, why do we have $5 million of reserves? And they say, well, we're raising this distribution reserves. It's like, wait, you're raising money just to give me back my own money? What the heck is that? You know, but that's a that's a project that I came across about a year ago. It's kind of funny understanding the fees. You know, sometimes the fees are steep, sometimes they're not. But the truth is, you you think that, you know, you need to pay some sort of fees. You want to pay for someone to have some resources to actually implement good asset management. So asset management fees and property management fees, you get what you pay for. A lot of times it's like it's like olive oil. If you if you buy a cheap bottle of olive oil, it's probably fake. But if you buy an expensive bottle of olive oil, it's more likely going to be real than fake. It could still be fake. So the same thing applies with with the fees that have to do with asset management.   Colm McEvilly (00:16:59) - Really important. You think you think that you know, you think it's expensive working with a professional. Try working with an amateur like you get what you pay for, right? Yeah. Ask for the underwriting. I love it if they don't want to share the underwriting with you. That's a huge red flag. And you don't need you don't need the the actual model. You don't want the model because you might get an Excel version that doesn't line up with the version that you have, and it opens up and all the numbers are like, they're gone, they're off. Right? And you just ask for a PDF screenshot of the underwriting, and if you want further information, you should be able to have a phone call with their investor relations person like myself or, you know, the partner like Sam. And they should be able to speak eloquently through the entire numbers with you. Ask for the underwriting.   Sam Wilson (00:17:48) - That's one thing. And we have to we have to hit stop here, unfortunately. But this is awesome.   Sam Wilson (00:17:53) - By the way, what you've shared today is really good because this applies both to the people out there raising capital and also to the people out there looking to deploy their money into investments. The strategy is the same. It's just on which side of the table you are and how you're looking at this. One comment on the underwriting is I actually asked for the Excel model, and so maybe I'm a little bit different in that regard, but I asked for the Excel model just so I can play with the numbers and see how they change. Or it's like, okay, good call out. Like that's your assumption. Like you assume there's an 8% rent growth, but what happens if there's a -3% rent growth, like, oh yeah, you know, I don't know. That's just one of the strategies that I as a personal when I deploy capital into into other investments as a limited partner that I 100% of the time ask for the Excel model. Anyway, on that column, if our listeners want to get in touch with you, learn more about you.   Sam Wilson (00:18:43) - What's the best way to do that?   Colm McEvilly (00:18:45) - My email is column at TGR. That's that's column at TGR. And and there'll be some show notes.   Sam Wilson (00:18:57) - Absolutely. Column. This is great dude. Maybe we got to come back for round three. But thank you again for your time today. This has been absolutely fantastic.   Colm McEvilly (00:19:06) - Hey. Thanks, Sam.   Sam Wilson (00:19:06) - 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 Colm McEvilly   Colm McEvilly works with an internal team and directly with prospective and current investors to guide them to the projects that best fit their needs and their goals. In 2018, he took the plunge out of the corporate world and into full-time real estate investing, where he heard he leveraged his engineering background and the data-driven investing methodology that he had learned.    Show summary: In this episode, Colm shares his journey from engineer to investor advocate, emphasizing the importance of process over outcome in investment decisions. He discusses three common decision-making biases in real estate investing: decision bias, results bias, and confirmation bias.  -------------------------------------------------------------- Understanding Decision Biases [00:04:51]   Validating Information Sources [00:06:01]   Results Bias and the Quality of Decision-Making [00:08:15]   The decision-making process [00:09:21]   Results biases in investing [00:10:27]   Different approaches for different investors [00:15:44]   Attracting new listeners and ranking higher on directories [00:18:50]   Decision-making biases in real estate investing [00:18:50]   Experience in multifamily syndication [00:18:50] --------------------------------------------------------------   Connect with Colm:  Instagram: https://www.instagram.com/tga_ip/  Web: tgaip.com  Linkedin: https://www.linkedin.com/in/colm-mcevilly-1480b94a/     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: Colm McEvilly (00:00:00) - If you're making a decision and you're looking back on your best investments, a lot of times people say that their best investment was the one that had, or their best investment decision was the one that had the highest return. But in actuality, that's a mistake because they're judging the quality of their decision based on the result and not based on the process taken to get there.   Intro (00:00:21) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:34) - Comic evil has gone from being an engineer to an investor advocate. He's experienced the journey from serving oneself to one to serve a community is also an investor of mine and some of our deals, and I've certainly appreciate getting to know him here over the last few years, meeting up at conferences and whatnot. So it's a pleasure to have you back here on the show. Colm, thank you so much for coming on today.   Colm McEvilly (00:00:55) - Oh my gosh, thank you, Sam, and thank you for exposing people to alternative investing opportunities outside of multifamily.   Sam Wilson (00:01:01) - Absolutely, man. The pleasure, the pleasure is mine. It's a blast to do those things today. You know, there's 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?   Colm McEvilly (00:01:13) - I started in single family. I had a heart failure, which basically had me have a midlife crisis in my late 20s, and that pushed me to creating multiple income streams. So I looked towards multifamily syndication. I connected and worked with Neal Bawa, and then I also work with Viking Capital. So I helped raise collectively about 160 million from retail investors. Personally, about 60 million I've converted are the 160, but I've exposure to different systems and processes. And over that journey we had more than 6000 documented investor calls. So what we're talking about today, and the whole purpose of the call today, is to help individuals realize that everybody has certain types of biases, and you need to create a decision making process to reduce heartache and headache, and it's going to save you time and put you in the driver's seat as an investor.   Colm McEvilly (00:02:07) - So, you know, at the end of this, reach out to me. I don't have any deals to pitch, but we can help create a decision making process that's appropriate for you. So I had a I had this midlife crisis. It pushed me into creating different multiple income streams because my W-2 wasn't fulfilling, but I was being compensated well. And so currently I've been involved in about 24 Syndications help raise money for 19. And then I'm currently in 17. And some of those are actually your investments as I'm an LP and seven and an eight in a general partner in ten right now.   Sam Wilson (00:02:42) - Wow, dude. That's amazing. I mean, that's that's a really cool journey. You know, at some point would love to get your more of your back story. No, we don't have time for that here today. But I think that's really cool that you've decided and you found real estate as a way to augment and support the life that you needed to lead while you were taking care of getting your own health back on track.   Colm McEvilly (00:03:03) - So think about with with stock investing. If you were to call Amazon and say, hey, can I get a loan to buy some of your stocks, they would laugh at you. But the power of real estate and like even in the project, I'm involved with you where our cost of money with 6% fixed, you know, and we have leverage in real estate. And that's why real estate, if done properly over time, is a get rich, slow way to do it because we have leverage. And then when you're partnering with other investors, it does two things. As an active side, we're leveraging other people's money and bank money. And then as a passive side, I think the most important thing is I get to leverage my time. I have five single family rentals, and those take way more time than any of the 24 commercial syndication investments I've been involved. And I make I make an incredible amount of return on my time as a passive investor, and that's that's my ultimately, my goal is to be 100% passive.   Sam Wilson (00:04:02) - I love that, man. That's that's fantastic. Yeah. And that's that's it. I do love most not all. I've got a couple passive investments that, you know, there are my own fault because they were, they were we were talking about this last night. You know, when your gut tells you early on that man we're gambling on on this, so I can't I can't say I love all of them, but I love most of them. Yeah. But that's, you know, the ones I'm not happy with are my own fault. So they got nobody to blame but me for that. But no, this is this is really great. I want to talk because I know, again, you know, time is time is of the essence here today. Unfortunately, for both of us. But you mentioned early on about the decision making process. You're approaching this conversation from the investor standpoint. Is that right?   Colm McEvilly (00:04:45) - Well, because I'm an individual, because I'm an LP, you know, I'm a passive investor myself.   Colm McEvilly (00:04:51) - I think of a lot of different things. But because I've had over 6000 documented investor half an hour calls, I recognize the decision making biases that people have. And there's three big ones that stand out. There's one. It's called a decision bias, where every decision you need to realize a bit. And so if you don't, if you don't actually break down the process of making a decision as a level of risk on each of the different criterias you are, you're probably going to make inconsistent decisions. So the first thing is, is understand every decision you make is bias and that it's based on the info that you have. So the tangible takeaway from this is have you validated? Where you're getting the information that you're making your decision on. If you're getting it from the selling broker, that is the you know, they have a financial incentive to to swoon you. So you need to understand, are you getting all your assumptions based on validated information from reliable sources? That's the first thing. And so I'll talk to investors over these calls and they'll they'll bring up they'll bring up objectives.   Colm McEvilly (00:06:01) - And sometimes it's really clear that they got an objective from from like Yahoo Finance. And it was a it was a market data for the entire country. But it's like we're talking about, you know, something hyper local. You know, real estate's hyper local. And in a perfect example is, you know, you go to where Elvis Presley grew up, you know, isn't that a pretty dangerous area? Right? But like a mile away isn't really nice. I don't yeah, great.   Sam Wilson (00:06:31) - Graceland is certainly not in the nicest portion of Memphis, that's for sure.   Colm McEvilly (00:06:35) - Yeah. And so but like, you go to Georgetown or Germantown and it's a completely different demographic and and income and and so. So. But if you make that that investment decision based on the data from the entire metro, you're going to miss out on that and you're going to miss the granularity. So so the key thing is understand where your information is coming from and where you're getting the information. They have something to gain. So always ask for the CoStar report and then the underwriting.   Colm McEvilly (00:07:04) - But that's another thing. So another thing is results biases I don't know are you are you big American football fan.   Sam Wilson (00:07:11) - You know unfortunately I would I would lose on anything sports related. So.   Colm McEvilly (00:07:15) - Oh that's right, that's right. But oh that's fine. So but the whole point is results by I see is another, another thing that if you if you're making a decision and you're looking back on your best investments, a lot of times people say that their best investment was the one that had or their best investment decision was the one that had the highest return. But in actuality, that's a mistake because they're judging the quality of their decision based on the result and not based on the process taken to get there. So what I mean is in 2018, there was there was an interception by Malcolm Butler on the Patriots. Pete Carroll, the coach of the Seahawks, made a call of of doing a one yard throw on a first or second down because he wanted to use all four downs. And everyone's like, why did you do a one yard throw that got intercepted? When you have the best running back in the league, Marshawn Lynch, he could have just slammed into it and try to get the touchdown.   Colm McEvilly (00:08:15) - This is like the fourth quarter. They ended up having the interception. The Patriots ended up winning the Super Bowl. And everybody called you know Pete Carroll Odinga's for calling that play. You know why would you give an opportunity to have an interception. But truthfully if you look back at the statistics of it and you look back at. What had happened earlier that year. There was zero one yard interceptions that entire year. So from a philosophy perspective, he actually had he actually had that the a solid decision. But the results is what crushed him even though it was the right decision. And then and then the last biopsy that you need to understand is investor is confirmation biases. So this is where you are tending to interpret new information as evidence to confirm your existing beliefs. And and so this is when you're dealing with an investor or you are an investor and you have an assumption that you know single families better for XYZ reason or, or, you know, this type of asset class or asset type is better for a certain type of reason.   Colm McEvilly (00:09:21) - So being cognizant of your own, your own beliefs when interpreting other information that can really that can really muddy the water of your decision making process and of your investors decision making process. So the way you want to, the way you want to do that is as an investor, you create a decision making process, an actual step by step journey that you go through. And we'll talk about that next. As somebody who's trying to raise money, you want to you want to learn how and where your investors are getting their decision. And then once you understand where the investors are getting their decision, you probably understand what type of messaging and what type of, you know, grant Cardone says certain things. Well, it's interesting that six months later, he has a project that aligns with what he was saying six months before. You know, it's his pre suasion. So when you're raising money, you really need to understand where your investors are are getting their information because you can't you can't dictate where they get their information.   Colm McEvilly (00:10:21) - You can only try to help how they interpret that information. And that's when you're dealing with their confirmation bias.   Sam Wilson (00:10:27) - That man that's that's that's powerful information. No it's great I mean and what you've broken down a very simple steps of what those different biases are. And you know what I don't think about myself as an investor as a as a deal sponsor. I mean, these these same things apply to, I think, all of us in some regard, you know, that decision making process. What. Well, we'll get to that, I guess going back though, the one, the one that really stood out to me was the results biases. I think that's that's one that's, that's that's hard for me to wrap my head around because there's so many different moving pieces inside of that, like results, biases. It might be that this sponsor has always made money. And so whatever deal they do, I'm just going to throw money at it because, hey, they've always made money. Yeah. Which you know, if if that's inside the decision making process, you could poke holes in that philosophy all day long by saying, wait, you know what? Just because they've hit ten out of the last ten doesn't mean that the 11th one's going to go well.   Sam Wilson (00:11:26) - Yeah, you'll need to get back in. And I'm guilty of that as a passive investor. Just going.   Colm McEvilly (00:11:31) - What's the strategy to you know.   Sam Wilson (00:11:34) - Yeah, absolutely.   Sam Wilson (00:11:35) - Absolutely.   Colm McEvilly (00:11:36) - It's a new type of asset type or class is a new a new type of strategy they've never done before, you know. But sometimes you take risks as an investor like, you know, even for like with you, I really liked you as a person. I liked your other strategies on your other projects. And one of the things I did is I asked you if I could invest below the minimum amount because I and I promised I wouldn't be a pain in the ass investor, and you graciously let me and I plan on investing with you in the future. And so that was an example of where I my I was going through my decision making process and I was unsure about the sponsor. I like to ethically but and but I liked everything else on the on the deal. Right. And there was actually a couple of things in the numbers where I thought, well, I think that is a little aggressive.   Colm McEvilly (00:12:29) - However, there were other areas that made me feel like even if there was misses in those areas, we're going to be okay because there's such a high ceiling to failure because of, you know, one particular example is, is the cap going in cap rate versus the cost of money, like there was a there's a positive difference, you know, or you know. So anyway, but that's part of the decision making process. So and if you want to learn more about how you can make decisions better I recommend two books. The first book is called How to Decide or or Thinking in Bets by Annie Duke. She's a professional poker player, and some of the philosophies that I just presented to you stem from that, but they're recognizable when you're having conversations with sponsors or when you're having conversations with investors. So look up Annie Duke. You don't even have to buy the book. I truthfully recommend you just put on YouTube and go water your plants. You know, just listen to listen to some summit, um, you know, the Cliff notes version on YouTube while you're watering your plants or, or driving your kids to school.   Colm McEvilly (00:13:32) - That way you don't have to. By the book. Let's get real. Sometimes people don't make time for that.   Sam Wilson (00:13:36) - Well, we don't make time for. And I've always thought that when you're reading books like that, it's always just the nuggets that stand out anyway. So you might just get the cliff notes version, be like, oh yeah, that's that's a great point. Without the the background filler information, I probably won't retain long term.   Colm McEvilly (00:13:52) - So here's the thing. Here's the quote of the day. Information without integration is just a distraction.   Sam Wilson (00:14:00) - Yeah boy you.   Sam Wilson (00:14:02) - Said it man. That's it. And we are in that information overload point pointed point of our life. Yeah. You're you're yeah. You're speaking to my speaking my language right there where it's just like, just don't tell me I can't I can't take anything else in. So information without integration is just.   Colm McEvilly (00:14:19) - A distraction, a.   Sam Wilson (00:14:20) - Distraction.   Colm McEvilly (00:14:21) - Or it's just noise, you know, information without integrations. Just noise.   Sam Wilson (00:14:25) - Just noise.   Sam Wilson (00:14:25) - Man, this is this is great.   Sam Wilson (00:14:27) - So how else. And I know we're again we got three minutes left here. But how else have you taken this decision making process? You sound like you've figured out how to kind of crack the code for your own investments and things that you review, but you've also probably had to reverse engineer this and understand how this applies to investors as they look at opportunities you're presenting.   Colm McEvilly (00:14:49) - Yeah. It also it depends on also their profession that shapes how they entertain, how that shapes how they receive information. When I talk to software engineers they're very methodical. So my first, you know, I helped raise $80 million with one company. Those are mostly Bay area tech people. That was a very different conversation than when I was raising money with my second company, Viking Capital, which was almost 95% physicians. Um, you know, because the physicians don't necessarily have the business acumen and the numerical, um, the like the, the background from the math perspective, they're very smart and very intelligent, but you're dealing with different obstacles in conversations where a software engineer will ask you 85 questions and you can literally chew on their process.   Colm McEvilly (00:15:44) - You can tell they're making process, but it's a long, laborious thing. But you can you know that they're not going back, right where where there might be a more whimsical, emotional decision when you're dealing with a physician investor. And that's actually where my heart lies, because I do have. I do have these heart problems. So my goal is to do two things. One, create a nonprofit that pays for therapy for people that have had surgery like myself, and then to serve the life saving medical professionals, specifically cardiologists, because I've had heart problems and but I know we're running out of time. Would you be interested in maybe doing, like, a short part two sometime where we dive into the decision making process?   Sam Wilson (00:16:32) - Oh, 100% man no, this is this has been absolutely fantastic. I mean, it's one of those things that we've just begun to really, really dig in on on this. And yeah, we'll come back and we'll do part two here in the next couple of weeks. Then we can we'll let you know, obviously, listeners let you know when this goes live, but you've given us great things to think about even yet here today, as we've discussed really, the decision making process, validating that info results, biases, confirmation biases.   Sam Wilson (00:16:57) - How does that applies to your investors, how it applies to you as an investor? And then it as for us raising capital, it also applies to how we approach those various conversations with our different types of investors.   Colm McEvilly (00:17:09) - So the investor doesn't make a decision. So you have to help them create a process and put them in the driver's seat. They'll feel the tangible momentum of having a checklist, and it demystifies the process. It builds trust with them because you're transparent, gives them the control to look through many deals a lot quicker, and it will save them time and headache because they know that they follow their process every single time and they don't have to look back.   Sam Wilson (00:17:35) - I love it man. Calm. Thank you for taking the time to come on the show here today. I certainly appreciate it and as always, it's great to see you and catch up. If our listeners want to get in touch with you, what is the best way to do that?   Colm McEvilly (00:17:45) - Um, LinkedIn, my my name and number will be in the show notes.   Colm McEvilly (00:17:48) - Or you could do go to my website tga IP. I'm still building a website because I only started this company a couple a couple of months ago. But but we do have a mission to donate $10 million to to pay for therapy for people with heart surgeries. And that's a very personal thing to me. I know that you get back to your community yourself. So but we're all about impact investing and making a change because we have talents and skills that we can. We can touch people in our community a lot more than just, you know, increasing investor returns and offsetting their taxable income. Right?   Sam Wilson (00:18:26) - Absolutely. Colm, thank you again for your time today. I certainly appreciate it. It was a blast having you back on.   Colm McEvilly (00:18:31) - Awesome. Hey.   Sam Wilson (00:18:32) - Thanks, Sam.   Sam Wilson (00:18:32) - 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 (00:18:45) - If you can do that for us, that would be a fantastic help to the show. It helps us both.   Sam Wilson (00:18:50) - 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 Grant Pruitt.   Grant has over 18 years of experience in commercial real estate brokerages and has collaborated with top global brands like CapitalOne, UBS, NEC and was able to transact worth $800 Million of real estate transactions.   Show summary:  In this episode Grant Pruitt, co-founder and president of Whitebox Real Estate, discusses the growth of his company and the future of commercial real estate. He shares his insights on the changing dynamics of office and industrial real estate markets, attributing the company's success to their clients and dedicated team. Pruitt also discusses the overbuilding of office space and consolidation in the multifamily sector. He provides valuable advice on staying in tune with market trends and sticking to fundamental principles in real estate investing.   -------------------------------------------------------------- Intro [00:00:00]   The growth of Whitebox Real Estate [00:01:01]   Opportunity in the commercial real estate market [00:02:50]   The state of the office space market [00:07:03]   The boom in population and headquarters relocations [00:11:24]   The potential for repurposing class B suburban assets [00:13:34]   The growth of industrial real estate due to e-commerce [00:16:30]   The overbuilt office space [00:22:27]   Sticking to fundamentals [00:23:06]   Closing [00:23:42] --------------------------------------------------------------   Connect with Grant:  Linkedin: https://www.linkedin.com/company/whitebox-real-estate-llc/ https://www.linkedin.com/in/grantpruitt/  Facebook: https://www.facebook.com/WhiteboxRealEstate/  Twitter: https://twitter.com/WhiteboxRE  Instagram: https://www.instagram.com/whiteboxre/   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: Grant Pruitt (00:00:00) - Five years ago, all the headlines were retail is dead. There is no retail. Shopping malls are going by the wayside, and we're never going to have shopping malls ever again. And there's all these dead malls that nobody wants. But you know what? People have figured out ways to repurpose them, to knock them down and build industrial on them, to renovate them, to build experiential retail. And that is completely changed. The, the, the, the talking points. And that's what's going to happen with office. I just don't know what it's going to look like.   Intro (00:00:34) - 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) - Grant Pruitt, who is the co-founder and president of Whitebox Real Estate, has over 18 years of experience in commercial real estate brokerage. He's also transacted on over $1 billion worth of real estate transactions. Grant, welcome to the show.   Grant Pruitt (00:01:01) - Thank you for having me.   Sam Wilson (00:01:02) - Absolutely. The pleasure is mine. Grant. 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?   Grant Pruitt (00:01:13) - That's not 90s, but I'll keep it to that. I started working for my father in San Antonio, who's also in commercial real estate. Broker, developer, owner. I never wanted to get into commercial real estate, but it was literally the only thing I was good at when I went to college. I, um, I thought it was a good way to make money on the side. Turned out that it ended up being a career. I saw an opportunity in in the markets, and I ended up starting Whitebox Real Estate seven and a half years ago. So that's where I am. That's where I got to be. And in the future, I want to continue to grow it and we want to be in, in, you know, at least by the year 2030.   Grant Pruitt (00:01:55) - I want to be in the in seven markets around the United States.   Sam Wilson (00:01:59) - That is amazing. Seven and a half years ago, you launched this firm of yours. And if I, if I got this right off, off air, you said you guys are in Dallas, you're in Fort Worth, you're in Houston and you're in DC and Austin.   Grant Pruitt (00:02:13) - We got a little office in Austin, too, in Austin.   Sam Wilson (00:02:15) - I mean, that's that's a lot of growth in a very short period of time.   Grant Pruitt (00:02:21) - We've been very fortunate. We made the Inc 5000 list this year. You know, it's can't do it without our clients. And so I really owe it to them and the people of this company for sure.   Sam Wilson (00:02:32) - No, absolutely. Though I think it also takes some vision and some stuff on the leadership side to even see the opportunity, which is one of the things that you mentioned. You said you saw an opportunity. I guess it's seven and a half years ago. What what was the opportunity and why was that the time to take advantage of it?   Grant Pruitt (00:02:50) - Well, in the commercial real estate world, there was a lot of consolidation and there was a real change in the business model as I saw it, and that the consolidation ultimately was to take many of these companies public, say ten, 12 years ago, you had a limited number of publicly traded real estate companies, specifically on the the office in the industrial side.   Grant Pruitt (00:03:17) - On the brokerage side, Wall Street doesn't jive with the brokerage business as well as as as privately held companies do, or people that that are involved in privately held companies. And they started getting out of the idea of working with middle market clients, some fortune 200 clients, some institutional clients. And while there was and still continues to be a great appetite to work with very large institutional groups, everybody who wasn't that they couldn't sell 4 or 5 different service lines was kind of left out there hanging. So I saw that as an opportunity for us to go out and take and seize that niche.   Sam Wilson (00:04:10) - Right. So if I'm hearing you right, there's Wall Street and you're saying that that if they weren't of a certain size, Wall Street wasn't interested in it. I said, look, you know, I see an opportunity to start our own brokerage that really is going to serve us the things that maybe they aren't interested in, and there's plenty there for us to take.   Grant Pruitt (00:04:26) - Yeah, all my clients were in in still continue to be I mean, some of them are publicly traded, but for the most part they're going to be some fortune 200, some fortune 500.   Grant Pruitt (00:04:37) - You know, they're going to be good large middle market businesses. And if you look at what is defined as a middle market business, you know, you can talk to any M&A guy and they're talking about five, six, $7 billion businesses being in that middle market space. Because when you look at the, you know, the big guys, you know, you're talking about at this point, $1 trillion valuation on Google and Amazon and Tesla. And there's a lot there's a lot to be serviced that feeds a lot of mouths. It's a lot of bulk. It's a lot of volume that, you know, a boutique like us, we're not really cut out to handle. But if they have 300 locations across the United States or if they're looking to deploy, you know, capital into real estate assets, we're a great conduit for that. That's a great client for us. And, you know, we don't have to have all their business. We just need a little bit of it.   Sam Wilson (00:05:33) - Got it.   Sam Wilson (00:05:33) - That yeah absolutely. Absolutely. And when you're when you're of that size a little bit goes certainly a long way. That's so what was what was the first asset class you really focused on. And how did you present and get your kind of foot in the door to present that then? To those. Uh, companies.   Grant Pruitt (00:05:51) - Uh, I laugh because when you start a business and you start it from scratch, you're looking for anybody that will work with you. Sure. If if, if if they'll work with you. That's the ideal client. And fortunately, it happened to be in the industrial space. So it was a warehouse user. That was the first client that I worked with. But quite frankly, if it would have been, you know, if it would have been triple net lease buildings or retail or multifamily or just about anything that we could have transacted on, that probably would have been our first client and we probably would have been focused on that. But fortunately, it landed in my sweet spot in the office in the industrial space.   Sam Wilson (00:06:37) - Man, that's that's really cool. Yeah, I love that. But let's talk about office space. I mean, that's kind of one of those things right now. That is it's the dog everybody's kicking and I bet you've got some insights that would say one while it's while it's still why may be a good investment now and then maybe if you can give us a little insight into where you think office is heading. Obviously it's local. I would love to hear kind of what you're seeing in your corner of the market.   Grant Pruitt (00:07:03) - Absolutely. So it's it's a really it's it's funny because we see it on two fronts. You know, we're working with the, the the tenant and the user. We're also working with the buyer and the investor and the. Tin it, and the user market is much more active than what people think it is. And I understand why they, they, they feel that way. And then when we talk about that from an investor standpoint, um, there's always a little bit of a credibility check when, when we're saying that we're seeing that activity.   Grant Pruitt (00:07:47) - Um, what we really see, and I think you see this across a lot of markets in the country for the office space, is you have a tale of two cities. You have your class A, class A, um, you know, very well located, highly amenities, desirable product that does exceptionally well. And the vacancy rates are very often sub 10%. And then you have your class B and under assets that are 2,530% vacant, sometimes more than that. And so it's it changes my market. And I'll, I'll point that out as well. And that, you know, I was talking to a buddy of mine in Chicago. And in Chicago he said, well, you know, it's all the class that's in the suburban environment that people are considering and want to be in. I said, well, it's really what I feel is the opposite of the market that I'm in. It's the class B urban assets that have the ability to be reconfigured, that have some sort of, you know, re adaptive use that you can retrofit the building as that are more desirable.   Grant Pruitt (00:09:01) - You know, in this particular market, if you're 3 or 4 straight, 3 or 4 streets off the main drag. And in this market we have a lot of freeways. So if you're 3 or 4 streets off an interstate or a freeway and you know, it's a 1980s, three story, two story atrium building, that's surface parking, that's probably brown brick. That's a really, really, really tough building to own. And that's going to be a difficult building to to operate. And I think that's the great unknown as to what that looks like moving forward and how we work with those assets moving forward. If you have the class B asset that's in an urban environment, we do see a lot of change in use to hotels, multifamily, mixed use development. You know, I've even been seeing people have been talking about I haven't seen in this market, but probably will as soon as we get done here. You know, even doing urban farming in some of these class B assets that are out there.   Grant Pruitt (00:10:08) - So I think that you're going to see a lot of redemptive. Reuse type projects. But, you know, as as long as it's well located, it's a class asset. It's doing exceptionally well. And I'll tell you the driver for that, we've had a lot of, you know, historically speaking, and this really is buck the norm. Historically speaking, the class B asset has been the safest asset to invest in. The idea was that when the market went down, the businesses were looking at ways to cut costs. So the people that were or the tenants that were using class A space would go to a class B asset to save money. So it stayed full. When the market did well, they moved out to a class asset, and the people that were in a class C asset wanted to upgrade their space, and so they moved into a class B asset. So it more or less was recession proof and it always stayed leased. Fast forward to today. The tastes have change, the workweeks have changed, and what we see is if they have 30,000ft in a class B asset that has, you know, 40% utilization, 50% utilization, and on Mondays and on Fridays it's not being used.   Grant Pruitt (00:11:24) - They just say, forget it. We're going to go to a class asset. We're going to take 10,000ft². The people that want to come work here, great. They can work here. The people that don't want to work here and want to work from home, great. That's fine. And by going from 30,000 to 10,000, they're going to a nicer building. But they're cutting their rent. And so it keeps those class A class assets filled. The other thing to keep in mind, and I speak to this from a local standpoint, is in-migration and and headquarters relocations. So one of the the guy that runs my industrial group here in Dallas has a great analogy for for In-migration to DFW. And he says, look, every day a 747 comes in lands at DFW airport and all the people get off, but they never leave. And that happens 365 days a year where you keep having these 747 land and they get off, but they never, ever leave. And so that's how much of a population boom we're seeing.   Grant Pruitt (00:12:30) - And in addition to that, we're still seeing very significant headquarters relocating to this particular market. So I always talk about Toyota. Toyota moved here from Torrance, California. They announced it in 2014. They moved in 2016. They bought 4000 jobs. But it wasn't the 4000 jobs that Toyota brought. It was all the other jobs that came with Toyota to service Toyota. If you go to Plano and Frisco on the northern end of the metroplex, not so far north at this point, but at that point very far north, they built that market. They built a city with all the companies that went there to service them. And I tell people that that was 4000 jobs. I can look out my window and I can see Goldman Sachs new headquarters going in. They're bringing 5000 new jobs. And if I look maybe with binoculars, not too far in Irving is Wells Fargo. That's 3000 new jobs. So that's 8000 new jobs. That's twice what we saw with Toyota that have yet to come and and and take residence here.   Grant Pruitt (00:13:34) - And that completely is going to continue to change the dynamic. So, you know, from an investor standpoint, you always talk about location, location, location. Well where's the population growth? Where are the companies moving to, what businesses are going to need other businesses to come service them? And then what are the asset classes that are still desirable? Now I'll back up a little bit and I will I'll tell you and everybody else that I talked to had this conversation with an institutional family office that does real estate investing last night. I don't know what's going to happen with these class B suburban assets. Something will I don't know what's going to make the most sense. Whoever figures it out is going to make a lot of money. I just don't know what it is. And from a historical context, I'll give you an example of that. It doesn't take that it's not that hard to think. Back five years ago, all the headlines were retail is dead. There is no retail. Shopping malls are going by the wayside, and we're never going to have shopping malls ever again.   Grant Pruitt (00:14:36) - And there's all these dead malls that nobody wants. But you know what? People have figured out ways to repurpose them, to knock them down and build industrial on them, to renovate them, to build experiential retail. And that is completely changed. The, the, the, the talking points. And that's what's going to happen with office. I just don't know what it's going to look like.   Sam Wilson (00:15:02) - Yeah, I think that's a great point. And that's um, it is interesting to see, I mean, shoot here and here in the Memphis market. I was just and again, I'm not in the office space. I don't have any investments in office. But even just here in the Memphis market, talking about that class B kind of asset, that was I was taking one of my daughters to the doctor here a couple of weeks ago, and I was driving by, and it's a class B late 80s build, that same brick build. You're talking about nobody. I mean, this entire campus completely vacant, like, I mean, if I used to be in the single family foreclosure space, I'm like, this just looks like one massive 50 acre foreclosure.   Sam Wilson (00:15:40) - Like, what in the world is. It looked like a nice building. Like if it were maintained and taken care of at some point, the investor probably just said, city. You can have it. I mean, I don't know what happened, what is happening with that, but there is a gold mine sitting there when someone figures out what to do with it. That's right. That's that's really, really wild. I love and thank you for taking the time to break that down, because I've had, you know, several different people talk about office and it is either, you know, you'll look down upon, but you've given some real clear insight into what makes still a very compelling office investment. And it sounds like a couple of things. One is market dependent, obviously, but then type of asset within that market that, you know, people are still looking for. So, you know, come to you and check out check out what you guys have going on there in the Dallas Fort in Fort Worth markets to see what what opportunities still are out there in the office space.   Sam Wilson (00:16:30) - I think that's really, really fascinating. We've seen kind of that on the on the inverse of that though, you know, and you said you cut your teeth on the industrial side. I mean, industrial has just been off the chain for an untold amount of time. Where has that going?   Grant Pruitt (00:16:45) - So I also think that some of that has to do with being market specific. And we are seeing, you know, we saw unprecedented demand for three years and it is quelling okay, I think it's going to continue to be strong. But take a market like Charlotte, they were seeing 13 to 15% annual rent growth that it's it's unsustainable to have that. And our market we've been seeing 10% rent growth. And when I tell people that it's quelling I go, well we're going to see 3 to 4% rent growth, which is extremely good for us because this is a market that, you know, there's some markets like east, east, east of Dallas, the Garland market. You know, I have an uncle that's a developer as well.   Grant Pruitt (00:17:33) - And he was given this talk and he said, you know, in the 1970s we were developing warehouses in Garland and lease them at two bucks a foot. And he said, you know what? Rents are now, this was about 2008, 2009. He goes two bucks a foot. And so it took really 35, 40 years for us to see rental appreciation in some of these markets because we just built so much product here in Dallas Fort Worth. You're seeing the inverse, the industrial demand, even starting prior to Covid, Covid accelerated e-commerce, which, you know, everybody talks about e-commerce last mile. But even prior to that, the the drivers of industrial demand were on shoring of manufacturing. An e-commerce. We we, you know, the third driver of demand that we've seen has been increased inventory levels, which is typically about 30% increase inventory levels. I call it the toilet paper effect that you don't want to run out of toilet paper. So you stock up on 30% more toilet paper than you need in your warehouses.   Grant Pruitt (00:18:36) - Um, it's it's the the increased inventory levels more or less is played out through the system. What is continuing to play out is on touring or manufacturing and even more so, e-commerce, because only about 17% of our retail sales are e-commerce. And I don't know about you, but my home has more Amazon boxes that show up than every day. There are more Amazon boxes that show up at my house than the day before, because we're we're embracing the idea of e-commerce in our household. And I think that's only going to continue to accelerate. You know, the last mile is going to get more and more and more complex because that speed to the rooftop speed to market is going to become more and more important, and technology is going to enable us to be able to do that. So when I say it's market specific, you know, we're in Dallas-Fort worth, you can reach any the majority of the country within a thousand miles. So that's a two day drive for a truck driver. One day. If you have two truck drivers, what changes? That is automated trucking, which is here.   Grant Pruitt (00:19:43) - We're going to continue to see an acceleration of different markets that grow because of what technology is inspiring. And so your question about seeing the inverse. Yes, we are seeing the inverse. We're seeing spaces that were functionally obsolete that didn't lease for 30 years, that were in markets that were in the doldrums, that are now some of the hottest markets in the country. Great example is the valid market here in DFW. We were doing $3 gross deals on buildings that now are probably going to get 10 to $10 net, and that market went from a very undesirable market because it was smaller, smaller products, shallower bays, older product, functionally obsolete class for sprinklers and. When people started trying to identify what was close to rooftops. Well, I'll be darned. It is right there by all the rooftops. And you know, Amazon has completely disrupted the distribution model. You know, if you remember ten, 15 years ago, they started with million square foot facilities in in most metropolitan areas, you know, in DFW they built 2 million square footers.   Grant Pruitt (00:21:06) - And if you the idea of e-commerce was that you weren't going to have as much need for industrial space because it was literally going to come in and out and you weren't going to have to warehouse anything. And what happened was it did the opposite. So it grew the inventory levels and it grew the need and demand for industrial space. So then Amazon went for 1,000,000ft, and then they started leasing 500,000 square foot. And then it went to 250. And I'll never forget they at least 70,000ft in a like a 14 clear, completely functionally obsolete building in central Dallas. And it was like everybody that was real estate professionals had exploded and said, why on earth are they doing that? What are they thinking? And it was because they needed a presence to be able to quickly deliver goods and, well, goods to households. And it broke the model. It absolutely broke the model. So you're going to continue to see that. But I do caution people and that everything in real estate is a pendulum. It swings this way, it swings this way, it swings this way, it swings this way.   Grant Pruitt (00:22:09) - And I don't see a reason at this point in time. But there will come a day when we overbuild and we don't have a need for as much industrial space. And we're going to having we're going to be having the same conversation we're having about office that but it's going to be about industrial because I had that conversation 15 years ago.   Sam Wilson (00:22:27) - Isn't that the way it is, though? I mean, this is something I was on a panel here a couple of weeks ago. We were talking about just being opportunistic in that it is the way real estate runs. Like you're saying, we were overbuilt maybe on office space right now. We went through an incredible run in the last decade on the multifamily consolidation on just, you know, like you said, increasing increasing rents, prices just cap rates compressing, prices, skyrocketing. And now we're seeing that seeing that cool off to a certain degree and again in certain markets. But I think it's one of those things where it's just it's stay in front of that, being in tune with what's happening in the market and really staying true to fundamentals.   Sam Wilson (00:23:06) - And I'm sure it's one of the things you guys preach to your investors is really stick to your fundamentals, because not everything lasts forever on the bad side or the good side. So I.   Grant Pruitt (00:23:14) - Think that.   Sam Wilson (00:23:15) - Yeah, that's really, really cool. Grant, this has been awesome having you come on the show today. You've broken down really two really key asset classes that many people are interested in, both probably on the sidelines watching office and then actively investing in on the industrial side, giving some great insight, both what's happening in your market and then also around the country. This has been absolutely fascinating. Thank you for your time. If our listeners want to get in touch with you and or your firm, what is the best way to do that?   Grant Pruitt (00:23:42) - You can go to? You can go to Whitebox Real Estate, or you can send us an email at contact at whitebox.   Sam Wilson (00:23:50) - Real estate.com Whitebox Real estate.com. We'll make sure we include that there in the show, notes. Grant. Thank you again for coming on the show today.   Sam Wilson (00:23:57) - It was certainly a pleasure to have you.   Grant Pruitt (00:23:58) - Thank you for having me.   Sam Wilson (00:23:59) - 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 guests are Mel & Dave Dupuis.   Mel and Dave Dupuis are the real estate couple who specialize in Creative Financing. With over 20 years of combined experience, 240 units bought with no money and no joint venture partners, and 1,700 students in their mentorship program.   Show summary: In this episode, The Dupuuis share their journey in real estate, focusing on their use of creative financing to grow their portfolio. They discuss the importance of having an exit strategy, not relying solely on market appreciation, and the need for a strong, diversified team. They also share their approach to international real estate transactions and how they navigate the complexities of different financing methods across countries. Despite the challenges, they view their mistakes as learning opportunities, emphasizing the importance of adaptability and due diligence in their success.   -------------------------------------------------------------- Intro [00:00:36]   The shift to creative financing [00:01:08]   Common mistakes in creative financing [00:05:22]   Negotiating a Property Purchase [00:09:38]   Defining the Buy Box and Locating Sellers [00:10:47]   Building a Team and Scaling Across Countries [00:15:15]   The team and its structure [00:19:30]   Building the team over time [00:20:23]   The worst deal and mistakes made [00:21:27] -------------------------------------------------------------- Connect with Mel & Dave: Facebook: https://web.facebook.com/InvestorMelDave/  Instagram: https://www.instagram.com/investormeldave/?hl=en  Web: https://investormeldave.com/ YouTube: https://www.youtube.com/channel/UC-tZnYKP3Klse6plRKKBVOw  TikTok: https://www.tiktok.com/@investormeldave Resources: https://investormeldave.com/resources/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: 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: Dave Dupuis (00:00:00) - I know a lot of different people say, you know, only five units and over only six, 16 units and over. Some people are very. I'll buy a duplex tomorrow. If it makes me money, I'll buy a single family home tomorrow. If it makes this money, I'll buy a 20 plex. So it's more or less looking at what is the deal doing? What is the cash flow? How much effort do we have to put into it? You know, time versus effort versus money. And what's the team's bandwidth as of right now?   Intro (00:00:23) - Welcome to the how to Scale commercial real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:36) - Mel and Dave Dupuy are the real estate couple who specialize in creative financing. They have over 20 years of combined experience, 240 units purchased with no money and no joint venture programs, and they currently have 1700 students in their mentorship program. Melanie, welcome to the show.   Mel Dupuis (00:00:53) - Hey, thank you so much for having us.   Mel Dupuis (00:00:56) - It's great to be here.   Sam Wilson (00:00:57) - Absolutely. The pleasure is mine. There are three questions I ask every guest, or in this case, guests that come on the show, and I'll let one of you tackle this. Where did you guys start? Where are you now? And how did you get there? And you have to answer it in 90s or less.   Mel Dupuis (00:01:08) - Okay. We. Perfect. I'll get started. So Dave and I were married couple. I had two properties. When I met Dave. He had the one who we slowly started buying. Properties hit the common roadblock of running out of money. So then we got into real estate, into creative financing, and that was a game changer for us. That's when we bought 12 properties in less than 12 months. That was 56 units. And now we're applying the same strategies of no JVs, no money, none of our own money in five countries. Boom 90s or less, boom.   Sam Wilson (00:01:38) - 90s or less. I love it when you guys decided to scale your business.   Sam Wilson (00:01:43) - Was real estate the only thing you were doing or did you have your hands in a job? What did that look like?   Mel Dupuis (00:01:49) - Yeah.   Sam Wilson (00:01:49) - Go ahead. I was a full.   Dave Dupuis (00:01:50) - Time firefighter malware at our local college. So yeah. So this was a side hustle that that became the main thing, right? Became the bread and butter. Right?   Sam Wilson (00:02:00) - Right. Okay. Cool I love it. And I'm assuming that now real estate is your full time gig.   Mel Dupuis (00:02:05) - Exactly. Yeah. We're both able to to to leave the 9 to 5 job. The golden handcuffs.   Sam Wilson (00:02:11) - Yeah.   Dave Dupuis (00:02:12) - Yeah. We're proud to say that.   Sam Wilson (00:02:13) - That's awesome. Good for you guys. Okay, so you ran out of your own money and you said, all right, I got to go out and figure out a new way to do this. What year was that?   Dave Dupuis (00:02:22) - 28, 2016. I think we had six properties. Yes, Red, rich dad, poor dad and went, what have we been doing wrong this entire time? And, you know, light bulb moment.   Dave Dupuis (00:02:33) - Obviously a lot of people have that same moment and then got educated on creative financing and other people's money. And then 2017 is like Mel said, that's when we had the 12 properties in 12 months.   Sam Wilson (00:02:43) - Got it. Okay. 12 properties, 12 months. What do you mean creative financing is like that? That thing that you know, every investor dreams of, but very few are able to actually crack the code on how to make creative financing work, let alone doing it in five countries, which we'll get to hear later on. I think of the show. But what did you guys how did you guys establish and or get your first property under, you know, creative financing, owner financing, whatever you did on that. Like what what was the thing that you did and then how did you develop a replicable system behind that?   Mel Dupuis (00:03:15) - I mean, part of it was mindset, right? Realizing that if all these other people can do it, I'm not the first one in world that there has to be a way.   Mel Dupuis (00:03:22) - So realizing the mindset first and then making it a win win as well. At first we were all about we wanted to win. We wanted the best deal. But with creative financing, if I'm going to get into a deal, none of my own money and I'm still the sole owner of the of the property, I do want to make it a win win with, let's say, the seller, for example, or somebody who's lending me money. So really making it a win win. And once I showed them as well the exit strategy. So people want to make money, right? We all want to make money. So as long as they're able to find the right deal, where you're able to do that and you make money, they make money, but they also want to know how you're going to be paying the box. So we have a built in exit strategy that we've always done where it's numerical, it's logical. So we can actually review our numbers and know that we're able to pay that person back because you're being on Sam.   Mel Dupuis (00:04:06) - Not every deal is going to make financial sense where you can pay them back. So really knowing our exit strategy before we enter the deal.   Sam Wilson (00:04:12) - Okay, I like what you said there. You said you said that you have the same exit strategy with every deal. It would seem like in creative financing, you would be dealing with a lot of nuanced sellers that want this or they want that or they want, and you're trying to. I would think that you'd have to. Again, I'm not a seller financing or excuse me, creative financing when we get that right creative financing person, it's just not something I've done a whole lot of. But it would seem like you'd have to craft that exit to each individual seller uniquely, and it sounds like that's not the case. No.   Mel Dupuis (00:04:43) - Sorry to Claire. Sorry to clarify. Absolutely. So every deal is I just meant that every single deal needs to have an exit strategy on every deal. So on every deal I have to have an exit strategy. But every deal absolutely look different.   Mel Dupuis (00:04:55) - Looks different. The interest that I pay on every deal looks different. The term looks different. But essentially at the end of day, what I'm looking for is that if I'm boring X amount of money and the terms is X amount, am I able to pay them back or not? And if I don't, then I need to go back and renegotiate or pass on that deal. Right?   Sam Wilson (00:05:12) - Right. Absolutely. Okay. So give me give me some of the things maybe that you see people commonly doing wrong when approaching creative financing structures.   Dave Dupuis (00:05:22) - Okay. So to compound what Mel said on their exit strategy, this is the thing. People are just waiting for that market appreciation, right? They're just like, oh, the market's going to keep going up. And when we when we really dove into creative financing, we interviewed a lot of people who built a portfolio and unfortunately had had gone belly up. And that's what we were noticing. They were banking on interesting rock bottom interest rates. Excuse me. And the market continue to go up.   Dave Dupuis (00:05:48) - And we're like, well, that's out of your hands, right? Like no one can control that as we're seeing now. You tell people that from 2020, 2021, they would have said, no, it's this guy is going to continue, right. Going up. So, right. That was the big thing is making sure that we're not just dependent on those. And then also the thing with creative financing, I see people, they don't give themselves enough runway. They think, you know, six months and it's like, well, six months comes very, very quickly. Even 12 months is pretty short. Like, right. So I see the runway and yeah, the exit. What they're building their exit strategy around. Right.   Sam Wilson (00:06:21) - So you mentioned two things there. One appreciation rising interest rate. What what are. So it sounds like some of the things you're seeing is people are tying these deals to interest rates and saying, hey, we'll pay Prime Plus whatever it is on a floating on a floating rate.   Sam Wilson (00:06:37) - Is that is that kind of one of the things you're mentioning there? Am I missing something there?   Dave Dupuis (00:06:40) - No. You're bang on. Where. Yeah. They're underwriting and then going Cape. As of right now the deal makes sense. Like you said kind of at this interest rate. And the second it bumps up like we've seen they're underwater and they're they're scrambling. And now they're looking at liquidating and in a down market. So it's it's underwriting and stress testing your deals from day one with that worst case scenario. Like for example, we're buying a deal right now in Ohio with is it 8 or 8.5% interest and a deal in Orlando with 9% interest, and people are going, you're bonkers. And it's like the deal still makes sense. We're still making hundreds of dollars per per. These are ones a single family and one's a condo where you typically do multi. Family, but they're making hundreds of dollars every single month. Cash flow. And the rates will go down at some point.   Sam Wilson (00:07:27) - So the value of the property will go up over time.   Mel Dupuis (00:07:30) - So it's yeah, there's so ways to get into this.   Sam Wilson (00:07:33) - Got it, got it. Okay. Cool I know this is live. So either way we're just going to do a couple quick housekeeping things. If I can get you guys to make sure you're really close to the mic, they'll be really helpful because your audio is kind of going in and out on this end of it. So if everybody's listening, they're hear you over here and then coming back in. So anyway, I love hearing you guys loud and clear. Thank you very much. Let's keep moving on that. You mentioned not enough time. How do you broach that length of time with the seller? And again, I know every deal is creatively structured, but I bet every seller is going to go. They want less time. And you say I need more. How do you guys handle that?   Dave Dupuis (00:08:06) - So okay with the sellers and I love that question, Sam. The runway that we're giving ourselves is going to be based on the value add properties.   Dave Dupuis (00:08:13) - So for example that's what we like buying is doing the typical BR right. Doing the value add having specifically something that um, I like the low hanging fruit. I say we like the low hanging fruit. Have we done the big gut jobs and get the sledgehammers out and open up the kitchen? And yeah, we've done those right. But are the ones that we love the, the, the um, the rinse and repeat ones are the ones where we can go in. It's some flooring, it's some paint. Add some value, add 100 to $150, minimum rent increase per unit over a short period of time. Right. So those are the ones that we're looking for. And those are the ones that we kind of concentrate on. Um, now do we differ from that. Yes. But that's kind of our and when we build out the exit strategy, the length of time, that's where we're talking with the seller. Okay. So let's say you have a ten plex. Like right now we're looking at a couple of buildings in Texas and some are 20 units, some are 40.   Dave Dupuis (00:09:05) - Some are like, okay, for us to stabilize and reposition this asset, I'm going to we're going to need at least three years. Right. So let's say that if I can pay you back sooner awesome. But let's give ourselves enough runway. So that's kind of how we're looking at a deal by deal scenario.   Sam Wilson (00:09:19) - Got it. No, I like that I like that, and you mentioned 20 to 40 units. I mean, why are people in a position such that creative financing is really the only exit that they have as a seller? Like, how are you? What's happened to these assets such that this is now what their desired exit is?   Dave Dupuis (00:09:38) - So with these ones actually were were negotiating back and forth, they had bought it. They've done a lot of work to it. It's like halfway to to the finish line. And they're like, you know what? We decided we're not these buying whole type people. We're going to make some money which good for them, they're going to make money. We're going to, you know, pick up the baton or carry the baton, whatever saying that is, and bring it past the finish line.   Dave Dupuis (00:09:59) - So they're just realizing that, you know what? This isn't what we wanted to do. We'd rather hold notes instead of actually be, you know, investors. So in this particular one, that's that's what's going on.   Mel Dupuis (00:10:09) - The thing is everybody is at different stages. We've done that on some of our properties here that we're holding financing for, and we're putting those investments somewhere else as well now too. So it's realizing that that not everybody has the same exact plan as you as an investor. Some people want out because there, Tavis, some people just want to do something different. Some people may want to invest in a different area, and that's what we're doing as well. So we're doing owner financing on one end, but yet purchasing with owner financing on the other. So again, as long as it's a win win. And why do we do this? Because it benefits us. It's always that's always the answer. Why would anybody lend you money? It has to benefit them and you have to show them your exit strategy.   Sam Wilson (00:10:47) - When you.   Sam Wilson (00:10:47) - Define.   Sam Wilson (00:10:49) - It.   Sam Wilson (00:10:49) - Sounds like you have your by box fairly well defined, but yet at the same time, you mentioned a single family residence, a condo in Florida, and then a ten or a 20 plex somewhere in Texas. How do you define your buy box, and then how do you locate those sellers then that are willing to entertain a creative financing offer?   Dave Dupuis (00:11:10) - Okay. Love that you said that. And and it's true. Because some people will say, well, you're doing short term rentals in Costa Rica and you're. Yeah. So I agree with you. Hour by box ends up becoming basically bandwidth and time versus effort versus money. Right. So and I've never been and I know a lot of different people say, you know only five units and over only 616 units and over. Some people are very I'll buy a duplex tomorrow. If it makes me money, I'll buy a single family home tomorrow. If it makes this money, I'll buy a 20 plex. So it's more or less looking at what is the deal doing? What is the cash flow? How much effort do we have to put into it? You know, time versus effort versus money.   Dave Dupuis (00:11:46) - And what's the team's bandwidth as of right now. Right. So um.   Sam Wilson (00:11:50) - And that's going to.   Mel Dupuis (00:11:51) - Change as well naturally. Right. If, if the team is working on a big new project and they're limited on time, then having something that's a bit more of a turnkey might be a better fit for right now compared to if we have time and we have an amazing deal, a large multifamily, for example, then hey, let's go after that one. Like one year, for example, bought a 50 plex and a and a four plex. And some people say, well, again, there's so, you know, fairly different sizes. Yes. But they both made financial sense. And that's something that really helped us succeed in the long run, is that we weren't only looking at one certain deal where we're looking at a lot of deals in whichever one is, is the right deal. Again, depending on on the cash flow, on the appreciation future appreciation value as well, that we'll see.   Mel Dupuis (00:12:38) - And yeah, the return on our on our own time or our team's time as well.   Sam Wilson (00:12:42) - Are there certain kind of clues that as you're looking at properties that you say this might be a property that an owner would take a look at a creative financing solution on every deal?   Sam Wilson (00:12:58) - Yeah.   Sam Wilson (00:12:59) - Okay. Maybe, but but but to me, I'm going to be the devil's advocate here and say, like to me, you're saying, hey, every deal. Okay, well, why don't we all just get on, you know, costar something else and just start calling? I mean, I'd rather just beat myself with a brick, then do that just blindly and hope to actually hit gold. So you got to have more to the source than than just that.   Mel Dupuis (00:13:21) - Yeah. No. And when I say every deal, I mean that I'm I'll always find a way. Because even if I find an amazing deal, even if the owner is not willing to hold financing, that's only one of the ways that we use with creative financing.   Mel Dupuis (00:13:34) - There's promissory notes. You can use secured funds like somebody for one. So yes, I will if I find amazing deal and I know I can have an exit strategy, I'll definitely speak with with the owner and try to make it a win win, because they may not be thinking about it and they might say, no, you're bang on. But if it's amazing deal, then I'll find the capital elsewhere as well.   Dave Dupuis (00:13:52) - And something else that Sam, what I'm looking at when we're looking at deals and we're analyzing in our cash flow analysis matrix, when the rents are very under market, that's what I'm like. Okay. So they're asking this price. They might not be necessarily aware of what the market's doing. I'll look at the market rents. You're half of where the market rents are or you're only, you know 6,070%. No one's going to qualify for this because the underwriting at the financial institution is just not going to make sense. So that's what I'm like, hey, I'll give you your price or close to it, but you're gonna have to hold financing until I can actually reposition the asset.   Dave Dupuis (00:14:25) - So those are the ones that and I find those ones we love it because we know probably the reason it's been sitting on the market is no one is qualified for it unless they're coming with a big down payment. So those are the ones that we get excited about.   Sam Wilson (00:14:36) - Right? No, I think that's that's yeah. You hit a couple nails on the head there. We're in a deal right now where we mean we were in the in the running for it. And then somebody else came in with some astronomical figure and we're just like.   Sam Wilson (00:14:50) - I can't beat that.   Sam Wilson (00:14:50) - Yeah, I can't beat that. And of course, what's happening right now? Well, they can't get financing on it. Exactly. You can offer what you want all day long. So I think that's that's really interesting what you've mentioned right there. Let's move then I guess into one other part of this conversation and they go, this is a short podcast. There's so many things here I want to cover, but scaling across five different countries, I mean that just in my mind, it just sounds incredibly challenging.   Sam Wilson (00:15:15) - Tell me, what are some of the secrets to the sauce that you guys have done to make that even a possibility?   Mel Dupuis (00:15:21) - Having an amazing team, right. Knowing that I don't know what I don't know, and that's okay. And really relying on on the experts. Right. Cross border attorney investor focus agents. So really building our team has been we couldn't do it without them. There's just no way because we are so far away. And and often we've purchased properties on scene. However we do our due diligence by a distance.   Sam Wilson (00:15:44) - Wow. All right. So team is one part of it. What about the finances I mean that seems like that would get a little bit squirrely when you're going okay. Yeah we're buying stuff in Ohio. We're buying stuff in Florida. And did I mention Costa Rica? And then what bank is open? Where and then when? When? I mean, it sounds like an accounting nightmare. How have you guys solved that?   Dave Dupuis (00:16:04) - So yeah, the play in Costa Rica, Mexico and Dominican is different than North.   Dave Dupuis (00:16:09) - America. So like we loved it. We highly leveraged debt in Canada, in the US. Good debt. Yeah. No. No worries, no lambos. Right. Good debt. Um, but in Costa Rica, Mexico, Dominican. So Mexico, Dominican Republic. Uh, well, as far as I know, we can't qualify it right as a foreign national. And there's no financing. Okay. In Costa Rica, there are some mortgage brokers that can do it. They typically cap out around 60% loan to value. I have not used that, just to be honest with you. It's just a different place. So for example, it's more of a seller financing, right? Just like in Canada, in the US seller financing. Well, the most recent one in Costa Rica, the guy was from like Sweden or Switzerland, never met him. Was all done through the agents. Right. Um, and the down payment was a promissory note from back back in Canada. So same structure deals, same difference.   Dave Dupuis (00:17:00) - Now the thing to play there is still get the lifts, still get the appreciation. Um and then sell right. Don't like selling but liquidate a few so that you have enough funds left over. Let's say you bought three and you sell two. Well, then left enough funds are left over to pay off completely the the the one left over. So a little bit of a different play but still other people's money.   Sam Wilson (00:17:20) - Yeah okay. That's that's that's really. And again, how do you even filter through all of the opportunities in real estate to find those 2 or 3 or those half a dozen, whatever you're working on, on those various countries, like how does how does that even happen?   Mel Dupuis (00:17:35) - Well, I mean, we do analyze a lot of deals. We we look at a lot of deals at this point. We have team members that that help as well. But but when we first started, I was just looking at a lot of deals. Sometimes just after a while you get quick edit, where are you able to look at it? Deal.   Mel Dupuis (00:17:50) - You basically know at least like, I'm not even like you said, don't waste my time on this one. Right? So we definitely don't waste our time if it's obvious that the deal doesn't make sense or I won't have my exit. And then, yeah, I put inside my my cash flow matrix and it's very quick. It tells me if my pillars make sense or not and tells me if I have an exit strategy. So that's kind of how we we filter through them.   Dave Dupuis (00:18:09) - An investor focus agents right in those areas. They'll feed us the deals to.   Sam Wilson (00:18:13) - Got it. Got it okay. Very cool. Let's see all the things that we've covered here. We talked a little bit about some of the earmarks or hallmarks of creative financing, you know, missteps that people have made. We've talked you guys have not done any joint ventures. No Syndications you've done everything up to this point, creative finance, is that right?   Sam Wilson (00:18:33) - Yes. Except for the first six.   Dave Dupuis (00:18:35) - It was traditional financing before.   Sam Wilson (00:18:37) - Yeah, before we started.   Mel Dupuis (00:18:38) - Yeah.   Sam Wilson (00:18:38) - Before you, before you figured out this, this kind of method. We've talked about how you guys find sellers. We talked a little bit about your team. Not much. Maybe we'll come back to that. Um. And then scaling across various countries. I think that's that's absolutely amazing. And again, maybe that is part of that conversation is the team because that's I mean, finding your agents, finding your your mortgage brokers, finding the sellers. I mean all of that takes team. And you said you've done this even without seeing some of these properties. I think it's really, really courageous. So tell me about the team that you guys have behind you there on the ground in Canada or maybe elsewhere around the world? What's that been like to build that team inside of your own company?   Mel Dupuis (00:19:13) - Well, worldwide is definitely what our team is, is built. So we actually have very few team members located locally. Pretty much all of them are in Canada, in different areas across Canada. And I think we have like 7 or 8 different countries and as part of our entire team.   Mel Dupuis (00:19:30) - So we do have a very diversified team, and that allows us to really have a lot of connections. Number one, a lot of introductions. And the thing is, like I also know my lane, I know, you know, thinking like, oh my gosh, buying a property without seeing it yourself. How scary is that? But the reality is, I also know that I'm not the expert at Foundation and I'm not a licensed electrician. And I also know me walking through the building. I wouldn't know those kind of things anyhow, so I rather build a strong team where they can do their due diligence on, on, on my behalf. Report back to me. Of course I do my due diligence and videos and all those kind of things as well. That's how I mean, even locally now. That's how we we even do it locally as well, because I know what my strengths are and what my weaknesses are. And, you know, it's to find the deals and managing the assets and the, you know, raising funds and all that that comes with it.   Mel Dupuis (00:20:23) - So our team now, yeah, it's a diversified team, of course, lawyers, accountants, insurance company agents, mortgage brokers, who's open to creative financing. And then the whole bookkeeping department, the finance controller CFO. So social media marketing. So we have a lot of different divisions of course. So and but this also didn't happen overnight. Right. Like when Dave and I first started a brand new investor, we started off with Dave and I, and I was, you know, we were the ones cleaning and doing the dump runs as well. So this is just something over time that we've built as well.   Sam Wilson (00:20:59) - I love that, I love that, and I love the, the, the kind of reference there because yeah, in doing the dump runs boy been there.   Sam Wilson (00:21:07) - Been there too many.   Sam Wilson (00:21:07) - Times where it's like, all right, well there's all hands. It's just my hands on deck. Okay, great.   Sam Wilson (00:21:12) - Do what you gotta do.   Sam Wilson (00:21:13) - Right? You got to do what you got to do in the early days.   Sam Wilson (00:21:15) - I love that. Told me one thing. On the creative financing side, what is the worst deal you've done and or a deal you wish you hadn't done? And what did you learn from it?   Dave Dupuis (00:21:27) - Rate of financing side. I think of your first deal, but it wasn't creative finance.   Sam Wilson (00:21:34) - Maybe there's none.   Mel Dupuis (00:21:35) - I don't know. We don't really regret any. It's real estate. I don't really I mean, we've made a lot of mistakes.   Sam Wilson (00:21:40) - Okay, give me one of those then.   Dave Dupuis (00:21:42) - You know what? It was probably the business structure. Honestly, Sam, initially everything was owned personally, and it had just completely our total debt to income and our total debt service ratios were whacked. And it has nothing to do with the creative financing. It's just we had 18 properties in our own name, and we couldn't even buy a house for ourselves because the banks were like, you're out to lunch. Like you got to like your your ratios are gone, right? So that was probably one of the biggest ones was just the business structure was terrible.   Sam Wilson (00:22:09) - That is that's that's not funny. But it is 18. It's funny.   Sam Wilson (00:22:12) - Now.   Sam Wilson (00:22:13) - Yeah funny now. Right. You got 18 properties and they're like you can't buy your own house. Sorry. Oh that's that's a that's a brutal bit of news right there. Like this doesn't make any sense at all man. This has been fantastic. Mel and Dave, thank you for taking the time to come on the show today. Certainly have learned so much from you guys. I love the way you're doing it and how you're doing it. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Mel Dupuis (00:22:36) - Thank you so much, Sam. So we're all over social media, YouTube, Facebook, Instagram. Username is always investor Mel Dave investor.   Sam Wilson (00:22:44) - Mel Dave will make sure we include all of your social media handles there in the show notes. And thank you again for coming coming on today. Certainly appreciate it.   Mel Dupuis (00:22:51) - Thanks so much.   Sam Wilson (00:22:52) - Thanks, Sam. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:22:56) - If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

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

Today's guest is Alex Jarbo.   Alex Jarbo is the founder and CEO of Sargon Investments. He is a regular contributor to some of the top real estate investing podcasts in the world. He is also the host of the YouTube channel Alex Builds where he teaches how to properly build and manage short term rentals.   Show summary:  In this episode, Alex Jarbo, founder of Open Atlas Investments, shares his journey from the Marine Corps to building a $40 million real estate portfolio in vacation rentals. He discusses the importance of treating vacation rentals as a business, being present on multiple platforms, and building an email list of guests. Jarbo also talks about the changing preferences of short-term rental consumers, the influx of people into the vacation rental market during the COVID-19 pandemic, and his expansion plans. He credits his success to understanding the principles of scaling from multifamily real estate and applying them to vacation rentals.   -------------------------------------------------------------- Intro [00:00:00]   Starting in Real Estate [00:00:55]   Scaling the Vacation Rental Portfolio [00:03:06]   Investing in Bigger Short-Term Rental Deals [00:05:00]   Treating Vacation Rentals as a Business [00:10:10]   The Flood of New Market Entrants [00:11:00]   The Benefits and Challenges of Syndicating Short Term Rental Opportunities [00:13:20]   The shift in management [00:20:25]   Passion for negotiating deals [00:21:39]   Time to fire myself [00:23:08] -------------------------------------------------------------- Connect with Alex: Linkedin: https://www.linkedin.com/in/alex-jarbo-28a940139/ Web: https://openatlas.investments/   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: Alex Jarbo (00:00:00) - I think gone are the days of just taking any type of random property and just throwing it on one site like Airbnb and just being done with it. Like I said, you need to treat it like a business. You need to be on multiple platforms like Airbnb, Vrbo, Booking.com. You need to be building your own email list of guests.   Intro (00:00:15) - Welcome to the how to Scale Commercial real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:28) - Alex Jarboe is the founder of Open Atlas Investments. Alex is at the forefront of revolutionizing the vacation rental and hospitality industry with his focus on custom, unique micro resort developments. Alex, welcome to the show.   Alex Jarbo (00:00:42) - Oh, thanks for having me on, man. Absolutely.   Sam Wilson (00:00:44) - The pleasure's mine. Alex. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there?   Alex Jarbo (00:00:52) - Uh, started out of the Marine Corps.   Alex Jarbo (00:00:55) - Directly. Moved here to Asheville, North Carolina and got my real estate license. Started looking for a property. Realized really quickly I couldn't purchase anything that was in my price range. So my very first real estate investment was a ground up development, 800 square foot A-frame that we own to this day, and that over the last seven years snowballed into close to a $40 million real estate portfolio. Either were acquiring, purchasing or managing over $40 million in vacation rentals just in this market alone.   Sam Wilson (00:01:24) - Wow. Yeah, in Asheville is a great a great market for that. I I'm guilty of actually looking. Was it Airbnb this morning? Maybe I was looking at short term rentals in Asheville. So maybe maybe I need to come to you first here when this calls over and see what you got. But no, seriously, that's that's impressive. What year did you get out of the Marine Corps and start investing in real estate?   Alex Jarbo (00:01:46) - Yeah, 2017 is when I moved here. Yeah. So relatively I mean, I've been in it for roughly six years now, six, seven years.   Alex Jarbo (00:01:54) - But I started reading up on real estate books like my last year in the Marine Corps. And just I originally turned to flipping. And then there was a, I joined like a flipping mentorship. And the gentleman that was a part of that flipping mentorship he had, like just briefly, I'd mentioned that back in 2016, like all of his like, long term wealth was tied into short term rentals. And that really, like perked my ears, got on a one on one call with him. He sort of taught me how to, like, invest like in a market, like how to choose a good vacation rental market. There was like 3 to 5 markets that we had decided on. And my fiance at the time, wife now was like, yeah, Asheville looks really cool. I'm like, screw it, let's go. Like, I was open to really moving anywhere. I'm originally from Detroit, Michigan, but we've been here ever since 2017.   Sam Wilson (00:02:40) - Yeah, and you picked one of the prettiest parts of the country, in my opinion, to live in.   Sam Wilson (00:02:44) - I've got obvious envy for where it is that you call home. But that's. Let's get back on track, though. I mean, that's that's impressive. 2017 till now, a $40 million portfolio, but not just a $40 million portfolio. I think it's one thing to say, oh, hey, we got a $40 million portfolio in multifamily. Again, not to be discounted by any stretch, but you can do that with one deal.   Alex Jarbo (00:03:05) - One deal.   Sam Wilson (00:03:06) - That's really tough to do. I would imagine in the short term, rental space would have been some of the keys that have really helped you scale that.   Alex Jarbo (00:03:15) - One of the biggest things is just understanding that and this, this most of the stuff I know about the larger vacation rental deals or just vacation rentals in general, talking to, talking to investors, everything I learned from multifamily books, it's like the like the way we the way we pitch our deals with preferred returns and equity splits between general partners and limited partners. All that stuff was taught through mentors or multifamily mentors or multifamily books.   Alex Jarbo (00:03:40) - So I realized really quickly the same thing with multifamily. Going from single family long term rentals to owning multifamily, is that scaling, doing larger deals, like I call them, micro resorts, anywhere between 7 to 20 units, 40 units. It's not. It's to go from one unit to ten. Unit is not ten times as hard. So I learned that really quickly with the development piece that in terms of my time, me looking at a property that we can build two cabins on, or me looking at a property that we can build 20 properties on, it was the same use of my time. Obviously it was more for my engineer and my GC, but for me to look at like just driving out to parcels, it was the same time. It was just the number was obviously way bigger. So that's where that came from. Was like I looked at my goals and I wanted to see where I wanted to get to, and I didn't want to just focus on Wednesday and Tuesday cabins here and there.   Alex Jarbo (00:04:36) - Granted, those still make I mean, all those properties that we've developed in the last six years have cash flow very well. But doing these larger deals, I mean, the numbers are just crazy compared to what what I was doing say, like just four years ago alone.   Sam Wilson (00:04:51) - Give me give me a case study on that. Like what? What sort of. What is a bigger deal in the short term rental space, and how do you identify that?   Alex Jarbo (00:05:00) - So the when the we developed six cabins which that doesn't sound like that much, but like we developed a six cabin one and then we purchased a seven cabin or it was a historic house with six cabins on it. The one that we're purchasing right now is a $20 million development, and that one is only 20 units. But these properties cash flow like crazy, like just the seven units alone have done close to seven figures in in revenue just in this year alone. So when I when I say like bigger deals, I would say anything over like 6 to 8 units to start that are in the same area.   Alex Jarbo (00:05:35) - So like you're purchasing and I've said this before, there's a lot of mom and pop owners on of bed and breakfast and some of these like larger cabin communities that like, existed prior to when Airbnb and Vrbo were a thing. And now those mom and pop owners are of retirement age, and they're looking to sell off some of these properties. And what I've realized, I've looked at a lot of these. I purchased a couple of them in just the last year and a half. A lot of these are undervalued, like significantly. And so that's what I would say to your original question is the like I would say anything over like 4 or 5 units that are in the same area would be a little bit of a bigger deal compared to just purchasing 1 or 2.   Sam Wilson (00:06:15) - Yeah. No. Absolutely, absolutely. And that's and there's scale is relative to what it is that you are working on. How do you. So please don't mind the cash flow. Yeah, absolutely. I mean that's insane cash flow.   Sam Wilson (00:06:29) - Insane cash flow. What do you feel like? I mean, you made you made a point there where you said that, you know, a lot of these these these styles of. Short term rentals have been around for a long time. This is not anything new, but absolutely, I would argue and maybe you can confirm or tell me, put more clarification on this, because I'm not in the short term rental space, but that investor preference has changed in what those short term rentals look like. Amenities mean all of those things kind of kind of give us some broader overview on that and how you guys are setting these things up for today's consumer.   Alex Jarbo (00:07:04) - So for the on the consumer part it's like market then property. So market investing in properties that tend to be a little bit less or investing in markets that tend to be a little bit less seasonal. So Asheville mountain markets that aren't necessarily ski resorts like cities, those tend to do really well because they're less seasonal. Nothing gets more picturesque than a cabin or a property on the side of a cliff in the winter, right in the mountains.   Alex Jarbo (00:07:30) - Right? So so that's market when it comes to properties. We're investing in unique properties or developing or purchasing unique properties where the property itself is an experience outside of the city that the guest is visiting. That's really important. And you're right about the guest expectation changing. It has definitely gone full circle, and we can talk about that in a second. About back in the day, you had to pick up a phone to book a vacation rental, and now it's like it's sort of hospitality. And vacation rentals are sort of moving towards like direct booking sites, which is almost practically full circle, where I look at Airbnb, Vrbo, Booking.com, they're always going to be a part of my business, but I look at them as marketing arms to my business. It's where the eyeballs are at, but the eventual goal is to be able to take the guests off of those platforms after they stay with you. That's the key there, after they stay with you, not when they're trying to stay and put them into your own ecosystem through a direct booking site.   Alex Jarbo (00:08:23) - And that way you're treating all of this like a business, and not just when someone asked me like, it tears me apart when I go, hey, what do you do? Or how many properties do you have? And they're like, I'm an Airbnb. So you're like, no, you're not in Airbnbs, you're in vacation rentals. And if you want to take it a step further, you're in hospitality, right? So when when it comes to like guest like the guest expectation back in the day when you had to pick up that phone, you had to. A lot of times you have to bring in your own silverware, your own linens, like stuff like that is completely changed. And then just there's a higher level of expectation now, especially with the flooding of vacation rentals that has happened in the last like 4 or 5 years into the markets. I think people are looking for those more unique stays, those more, I call them Instagrammable properties where people would be proud to put them on the like on their social media, where your guest practically turns into your own little influencer because they're putting it on their social media and showing their their people.   Alex Jarbo (00:09:16) - And then that redirects you to your website or your Instagram account or whatever social media account you want to use, right?   Sam Wilson (00:09:22) - No, I love that, I love that, yeah. And I've heard that from other people who've come on the show saying, hey, look, you know, one of the strategies, obviously, is to get them off of the Airbnbs and back to your direct booking sites. I think that's really cool. Let's talk a little bit. You hit on flooding the vacay or you said flooding the vacation rental markets. What? I mean, we've seen that. And, you know, I actually saw something and I don't I don't look on social media actually very often maybe like once every 2 or 3 months. And I just happened to see a guy in the short term rental space buying a short term rental. He gave a quick, you know, paragraph about why the previous owner really stunk at being a vacation rental owner. So yeah, we see this flooding of them. But then what are people doing wrong and how does that present opportunity for people like yourself?   Alex Jarbo (00:10:06) - Yeah, it's exactly what I said about the like I'm an Airbnb.   Alex Jarbo (00:10:10) - So it's like I think gone are the days of like just taking any type of random property and just throwing it on one site like Airbnb and just being done with it. Like I said, you need to treat it like a business. You need to be on multiple platforms like Airbnb, Vrbo, Booking.com. You need to be building your own email list of guests. And one of the easiest ways to do that. And I've plugged this company ever since I've started like interviewing with about properties is a company called Staffie, and it's a Staffie sells these little discs that plug into the back of your router very cheap to purchase these. And then the subscription is incredibly cheap, but it creates a landing page for your internet. So like imagine when you go into Starbucks, you go into the airport, you have to put your email address in to get access to the internet. It's the same thing, except you have your own branding for your company. That way when a guest stays with us, we then capture their email, and then we do seasonal emails to them to get them to book.   Alex Jarbo (00:11:00) - Hey, you can save way more money where you don't have to pay these crazy service fees anymore, and you can book directly through us that way. Like I said, you're creating this, this massive wheel, this massive circle. And that's that's one thing that people, I think weren't ready for when they just saw someone on social media, or maybe they saw their friends doing real in vacation rentals, like really well in vacation rentals. And also during Covid 2020, 2021, tail end of 2022, vacation rentals saw record numbers because people were stuck here. Like people were like you could only travel domestically. So obviously occupancies were up that 95, 98, close to 100% people were charging up the craziness. I mean, I was I was part of it like my my occupancies were through the roof, but I was in vacation rentals prior to that knowing that that was not normal. So I think a lot of people that flooded the market the last like three years were just people who got into it during Covid, where interest rates were low.   Alex Jarbo (00:11:51) - If they purchased, interest rates were low. So it was really relatively easier to get a property. All of these vacation rental lenders sort of came out of nowhere as well in the last like three years, which is not necessarily a bad thing, but. That compares with like just everyone just putting their numbers out there and be like, this is how much I make. It was like, okay, cool, I can just get a property, throw it on Airbnb and be good to go. So I think that's where the flooding of the market came, was just people thinking that you could just be on one platform and be good to go.   Sam Wilson (00:12:20) - Right. Yeah. Absolutely. Absolutely. Love. And so everything you guys are doing there is in the broader Asheville area. Yeah, it's.   Alex Jarbo (00:12:28) - In Buncombe County. Yeah. After this larger deal that we're working on, I do. There are 2 or 3 other markets that I've identified in the country that I want to get into, because it's it's good and bad to have a massive concentration of like your properties in one area.   Alex Jarbo (00:12:45) - I just want to diversify into different markets after that. It's just fun to do it. I mean, these are these are cool vacation markets that are like some of the top markets in the country. So it's just it's cool to like come into a market and develop something unique that actually complements the city that you're getting into. I've always been a huge fan of that. Just whole strategy in general.   Sam Wilson (00:13:04) - Absolutely. Well, let's talk about this. I mean, you said you were taking you're taking the things you learned in the multifamily space and applying it to the short term rental space. And it sounded like you're syndicating short term rental opportunities. Talk to us about that.   Alex Jarbo (00:13:20) - Yeah, I mean, that that came from I mean, phenomenal mentors like Paul Moore from Wellings Capital is the first person that comes to mind. Just learning. The Vinnie Smiley was another one that like I've been on his podcast, I read his book. That's sort of what got me into multifamily or just understanding the the metrics around multifamily to apply for short term rentals.   Alex Jarbo (00:13:41) - But yeah, I originally got into that world just to learn and understand that, like just talking to my different mentors that like, I mean, even I mean, I don't know how it is now because I haven't really kept up with it. But during like the Covid era, even before then, like cap rates were severely compressed during during that time. So it was a pretty easy conversation to to have with a multifamily investor be like, hey, this is the preferred return. This is the general partner, limited partner split. This is the cash on cash. This is the equity multiple. It's like we practically just took the metrics that multifamily investors were used to, like, used to seeing and dealing with like in terms of a syndication and just apply that to these larger vacation rental deals.   Sam Wilson (00:14:24) - Did you do are you doing those as a one off syndication or did you launch a five?   Alex Jarbo (00:14:29) - Now it's a one off. I quickly learned it should have been a fund just just based off of the timeline that we had to close on this first deal.   Alex Jarbo (00:14:36) - So my next one will definitely be a fun. But yeah, this first one was just a single asset syndication. But yeah, that's a it's funny because I was just thinking about that this morning. I was like, I should have done a fund instead of a syndication.   Sam Wilson (00:14:48) - Yeah, well tell tell us why, I guess. Can you give us give our listeners some color on as to why you say that?   Alex Jarbo (00:14:53) - It's like. Getting the deal, finding the money compared to having the money, and then finding the deal or starting to work on the deal. Just the timeline type thing. It's like, okay, I have technically I have this closing date that I have to meet, and this is when the money has to be raised and anything and everything can happen with dealing with investors and getting. There's a big difference between a soft commitment and actually getting that money wired. So that's the biggest thing, is just the pressure of I would rather have dug that well before I needed it is what I've always told myself of, like having that money there waiting so I can then deploy it into a deal compared to the other way around.   Sam Wilson (00:15:31) - Right. And that's a challenge. It certainly is a challenge. And I think one of the. Things that you have in your favor. Having a fund is that you already know what types of assets you're buying. You've already got a proven track record. This is what we're buying. Here's the type of assets you can give a long history of the things that you're buying. A lot of times I as a personally as a passive investor, I'm not a big fan of funds because especially if it's a blind, entirely blind fund where you're like, all right, so you say you're going to buy that, but I'm not quite sure. You're like, hey, no, like, here's the 8500 previous I'm making number up. But properties we've bought that, this is what's going in it.   Alex Jarbo (00:16:08) - So yeah, that's a good point. I mean the I have so there's a fund that we've teamed up with and I'm completely open to doing that with this deal. But there was a there was a fund that we teamed up with where.   Alex Jarbo (00:16:21) - Like some of the some of the assets in that fund where like the investors were like, okay, I would rather just I wish it was a single asset syndication where I can just invest in this one property. So it's a double edged sword. It is honestly.   Sam Wilson (00:16:32) - Yeah, it is. And I will say that openly because we have a fund open right now that raising capital in a fund is twice as hard as raising for a single asset. So cut. Like you said, it cuts both ways. And I've heard that from a lot of sponsors. Like it's harder it's harder in a fund than it is in a single asset deal. But yet the ability, like you said, to continue to acquire, to continue to raise money constantly as opposed to going, all right, well, now it's go time. Now we raise a bunch of money. Okay, we closed and then you start the whole process over again. It's it cuts both ways. So making that decision obviously on a case by case basis.   Sam Wilson (00:17:04) - But I just loved hearing hearing your insights on that okay. So we talked a little bit. Focus on bigger deals syndicating these deals. Um Alex one of the things that we talked about before this or before this show started recording was that you have coached over 5000 people in the short term rental game. What has that process been like? Talk to us about that, because I'm sure I'm sure you've got a lot of insights from working with so many different coaching clients.   Alex Jarbo (00:17:34) - Yeah, that came from I had purchased a course through Brian Page of B&B formula when it was just it was like a, I think 1 or $2000 course. When I first started, I knew I wanted to get into vacation rentals. That's why I moved here. But it was cool. He was like one of the first people to create a course. And then I had actually pitched him on one of my deals where I was like, hey, like, I would love for you to invest. And then that that had spiraled, gone into like, he had a podcast at that time, too.   Alex Jarbo (00:18:00) - And I was like, I would love to hop on the podcast and pitch the deal. And he's like, I actually don't do the podcast anymore. But I'm looking for coaches and we only have like two of them right now. And that course had morphed into a coaching program. And I've been with B&B formula, teaching an hour or two a week for the last year and a half, and then it's morphed into over 6000 students at this point. And we do group coaching one on one, all that fun stuff. But yeah, it's just it's been really cool to see students go from like zero, like learn this in the Marine Corps. Like just to just general leadership is it's really cool seeing like some of your mentees sort of surpass you and seeing some of these students build these massive vacation rental companies, management companies and a massive portfolio as well. I mean, one of our students has over like 350 listings. So it's been it's really cool to be a part of a community like that, too, because you're sort of you have your finger on the pulse when it comes to like changing the things in the economy.   Alex Jarbo (00:18:55) - So like, you'll see, like students be like it's way harder to find a deal in X, x, X, or like every 2 or 3 months. There's always like a new topic that students are constantly asking about. So the biggest thing I've seen is like the rental arbitrage deals. It's, in my opinion, still the easiest way to get into real estate investing in general when it comes to vacation rentals. But there you have to be a little bit more strategic when it comes to choosing a market compared to just like I said, going into any market, getting any type of property and just throwing it on Airbnb. So that's just what I've learned from coaching so many students. Is that the biggest thing I've learned about coaching students is that. You're a lot of times you're going to be your biggest enemy where it's like students get in their own way. It's a mindset thing outside of you. We can give you all the tools in the world, give you the best coaches in this industry. But if your mindset is not there, or like you have a negative mindset that is going to severely impact the way you talk to owners or just talking to like negotiating your deals and whatnot and managing your properties.   Sam Wilson (00:19:54) - Absolutely. Absolutely. That's that's really great. That's awesome man I can't believe that. 5000 plus 6000. Would you say coaching students at this point?   Alex Jarbo (00:20:01) - 6000 students.   Sam Wilson (00:20:02) - Yeah, that's wild man. And I think that's an added benefit maybe I probably would never have thought about was just the fact that you get that consistent feedback from the people you're talking to of what's going on in the market. It's kind of your.   Alex Jarbo (00:20:15) - Yeah, I've gotten things like, hey, have you used this service or this new service or tool for your company? I'm like, no, but it sounds really interesting. Let me check it out. And then I end up putting it in my company.   Sam Wilson (00:20:25) - Right. That's cool. Let's talk about your company for just a quick second here. How do you balance being an operator? And I'm not I'm maybe use the wrong word here, but an operator and then also a capital allocator because obviously more than capital allocator. But you're raising capital and you're operating your deals. How do you balance that.   Alex Jarbo (00:20:42) - Yeah. So the, the, the biggest shift the last six months is finding we interviewed all the top managers in this area. And we're still I'm still in the management portion of it, but I'm not in the day to day. So I found a manager had him run projections for us that were without giving him obviously our numbers. And I found a manager that projected our number like did significantly more than us, and that was because they had access to specific channels that we didn't, just because of how big they are. So I've recently delegated a big portion of like my cleaning, my maintenance, my event planning, because we have a wedding venue in this market as well that's attached to one of our vacation rental properties. All of the operations piece has been delegated to a local manager. My goal is in my management side of my company is just strategy and social media, because a lot of our properties, with them being unique, social media is a big portion of that. And then when it comes to capital raising, I love putting together these deals like that.   Alex Jarbo (00:21:39) - That is where I realized my passion is is like negotiating, not necessarily negotiating this deal in particular, we were almost practically exclusively working with the sellers because they were representing themselves. But negotiating the deals and just understanding the different pieces and just fitting them together, that's really what I really specialize in. And the types of properties we're showing investors. I mean, they do sell themselves like they truly do sell themselves. We're running a big like Facebook and LinkedIn marketing towards like raising these capital. And the leads are just flowing in every single day is just how picturesque these properties are. So in terms of selling them on, on social media or just showing, like we shot a massive investor video that took us four days to shoot, that's easy to do. And then as long as you back it up with the numbers, you're good to go. So that's what I truly enjoy. So that's how I balance it. Finding a manager. Or you can hire someone in house if you wanted to do it that way to take take all the stuff that you don't want to do, like almost an operations manager and just focusing on the, the the stuff that you enjoy doing and time blocking, just dedicating three hours a day to 1 or 2 items snowballs into a ridiculous result over the course of 3 to 6 months or a year or whatever.   Sam Wilson (00:22:52) - I love it, man. That's awesome. Yeah, in the consistently improving what your strategy is, I think it's one of the things you say, okay, I've done it this way for a long time, but let's look at another way. Yeah.   Alex Jarbo (00:23:03) - Time to time to fire myself like the, the what I came to.   Sam Wilson (00:23:08) - Absolutely, man. That's that's that's it. There was, there was somebody inside of our company there today. What she say to me, she goes, you need to stop doing that. Like now I'm like, thank you. Yeah, yeah, that's my love language. She's like, just get out of the way. Like.   Sam Wilson (00:23:22) - Seriously I'm trying.   Alex Jarbo (00:23:23) - Yeah. Like I'm like trying to focus on, like how to, like, split all my time up. And I'm like, I think I just need to remove myself. Like, yeah.   Sam Wilson (00:23:30) - It's fast as you can, man. Alex, I got one more thing here that for those of you that don't know that, listen to this show.   Sam Wilson (00:23:37) - I always ask our guests on the onboarding side of things, you know, what's a unique something unique about you or a strange hobby or something that you might find interesting or I might find interesting? And Alex shared with me that he is a Guinness Book World record holder. Alex, here at the end of the show, just break it down for us man. What world record do you hold?   Alex Jarbo (00:24:02) - Furthest distance to roll a coin. It's one of the most random things if you don't know anything about me. Yeah.   Sam Wilson (00:24:08) - Furthest distance to roll.   Sam Wilson (00:24:11) - How far was it?   Alex Jarbo (00:24:12) - I forgot, man. It was like, I don't know, like I don't I had a friend that would like, was like manager of like a Gold's Gym. And this Gold's Gym had a massive long stretch of concrete like up front when you first walk into the gym, I think it was like it wasn't that far. It was like 60, 70m. It was honestly harder to find that than it was to like actually do the record.   Alex Jarbo (00:24:32) - But yeah, I did it back in 2019 when I was bored out of my mind for 2018. And. I submitted everything to Guinness and they sent me a certificate like six months later. It's pretty funny.   Sam Wilson (00:24:46) - That's hysterical. Furthest distance to roll a coin. All right, well, on that note, Alex, that's awesome, man. You never know what you're going to get out of Alex Jarboe, a short term rental expert. Thank you for taking the time to come on the show today and share with us all of your insights here. You've got some really cool stuff going on there in the Asheville market, and look forward to hearing what you do in those other couple of markets that you've identified to move into next. If our listeners want to get in touch with you, learn more about you and or your current opportunity. Raising capital for what is the best way to do that?   Alex Jarbo (00:25:19) - LinkedIn is really easy. That's a lot of stuff. Lives on. LinkedIn is just Alex Jarboe. We actually also built a website specifically just for this deal.   Alex Jarbo (00:25:27) - So that's Open Atlas Dot investments, investments with an S. I'm sure it's going to be linked somewhere in the show notes. But the deal is also on my LinkedIn, which is probably the easiest way to get to it. And then you guys can check out all the videos that we shot for it. Pitch deck there. You guys can sign up to to just schedule a call with us, and then we can go from there.   Sam Wilson (00:25:46) - Rock and roll Alex. Open Atlas Dot investments. We'll make sure of course as Alex said to include that there in the show notes. Thank you for coming on the show today. I certainly appreciate your time. This was great.   Alex Jarbo (00:25:55) - Appreciate you man. It was fun. Hey, thanks for.   Sam Wilson (00:25:57) - Listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.   Sam Wilson (00:26:13) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's guest is Patrick Grimes.   Patrick is a the Founder of Passive Investing Mastery and Invest On Main Street; 4000+ units, over 1/2 billion real estate portfolio; best selling author; strong recovery last recession; BS and MS in Engineering & MBA; traveler & adventure sports enthusiast.   Show summary:  In this episode of the How to Scale Commercial Real Estate Show, host Sam interviews Patrick Grimes, founder of Passive Investing Mastery and Invest on Main Street. Patrick discusses his journey from being a mechanical engineer to running a large private equity firm with half a billion in holdings. He introduces their recessionary acquisition fund, which aims to buy distressed properties in cash, refinance them, and quickly acquire multiple properties to create a diversified portfolio. Patrick also shares how his team uses intelligence software to identify distressed assets and the importance of agility in the current market.   -------------------------------------------------------------- Intro [00:00:00]   Lessons from past experiences [00:04:46]   Building a recession-resilient portfolio [00:09:01]   The recessionary acquisition fund [00:11:46]   Refinancing and 1031 exchange [00:17:46]   Finding deals with distressed operators [00:20:02]   Finding Great Deals [00:21:58]   Acquisition Engine and Distressed Assets [00:22:58]   Contact Information and Book Offer [00:24:15] -------------------------------------------------------------- Connect with Patrick:  Book: https://investonmainstreet.com/book (promo code: HowtoscaleCRE)   Web: https://investonmainstreet.com  Facebook: https://www.facebook.com/lifeoncloudnine https://www.facebook.com/InvestOnMainStreet  Linkedin: https://www.linkedin.com/in/patricksgrimes https://www.linkedin.com/company/investonmainstreet  Instagram: https://www.instagram.com/invest_on_main_street  YouTube: https://www.youtube.com/channel/UC-B4rNcRiMKTnWnClyd0Ojg   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: Patrick Grimes (00:00:00) - LED me back to a large portion, 25%. Even at Tiger, 21 of their portfolio is in real estate. And so for that, the tortoise, but not the hare means buying for cashflow. It means buying existing construction. It means not speculating, not gambling, not sliding the big stack all on green 24 and spinning the wheel.   Intro (00:00:21) - Welcome to the how to scale commercial real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:34) - Patrick Grimes is the founder of Passive Investing Mastery and Invest on Main Street. He's a best selling author. He had a strong recovery from the last recession. He's also an engineer and an adventure sports enthusiast. Patrick, I bet there's a dozen more things in there that are part of your bio that are really cool that you are involved in. Thanks for coming on the show today.   Patrick Grimes (00:00:54) - Glad to be here, Sam. I've heard a lot about you from my my colleagues, and here we are finally connecting on your show today and on my panel on alternative investing tomorrow.   Patrick Grimes (00:01:04) - So we're doing a deep dive together in back to back.   Sam Wilson (00:01:07) - I'm looking forward to it. This will be great. Patrick. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Patrick Grimes (00:01:17) - So I started as a mechanical engineer graduate and stuck pretty true to the path for a while, but I got some advice early on that said, you know the high tech space I was doing machine design, automation and robotics, and the owner of the company said, it's great you're going to earn a lot. You're going to have a lot of fun, but it's a wild ride. Invest in real estate, don't invest in high tech and put as much as you can as soon as you can. So that caused me to dump everything in real estate early on. Had a wild ride in real estate actually. And so. But as I progressed in my career, I found my way back to it.   Patrick Grimes (00:01:55) - And now we are a very large private equity firm. We have half a billion in holdings on the multifamily apartments, as well as some diversified energy funds. And we have a recessionary acquisitions fund, which is my which is the exciting announcement where we can win from this recession in this, as we see a bunch of great opportunities today, where I was in a losing position in 2009 and ten previously.   Sam Wilson (00:02:25) - Wow.   Sam Wilson (00:02:25) - Okay, man, there's so much here that I would love to take. There's so many rabbit trails we could go into here on your story. I just want to point out from kind of the intro, you go to school, you get a mechanical engineering degree. It takes mechanical, I would say an engineer. I love the engineers in our life. We need you. Right? You're very, very important people in our world. But it takes them a while typically to come around to making a decision. Because you are engineers, you study everything thoroughly and then make a decision. It sounds like you got out of school, got a job, and was like, sure, why not? We'll go get into real estate.   Sam Wilson (00:03:01) - What what was that process like?   Patrick Grimes (00:03:04) - So the analysis paralysis thing is real. But I managed to make in fact, I did the Do Zone podcast all about getting things done, and the guy picked on me for being an engineer the whole time.   Intro (00:03:15) - Because it is, I promise.   Patrick Grimes (00:03:17) - Yeah, it took me when I got the advice you needed to start investing in real estate. I treated it like I was going back to it, going back into another course, like I was taking electromagnetic static physics again. But I was doing it in real estate, so I was downloading guides, reading books, attending webinars, and I started learning about the highest returning deals. And so I wasn't very much interested in, like, conservatism that young. I was very much like, let's just figure out how to double and triple my money. And this was 2007. The market was never going to go down. So I pulled the trigger and learned quickly the downside of downturns.   Sam Wilson (00:03:57) - Wow. Wow. Yeah.   Sam Wilson (00:03:59) - You really you really did.   Sam Wilson (00:04:00) - And that's that's painful. I mean, one of the questions tell me if you agree or disagree with this and why. But one question I love to ask sponsors when I'm investing passively is tell me about a time when you lost money. Just because I think it's one of those things if somebody's never lost money. I have this theory that the first time they're going to lose money is when I invest with them. So I want to know, because I guess it instills some sort of confidence in me when someone's like, yeah, here's how I messed up. So what are some of those things that you are doing? Because I want to get what I really want to focus on today is, of course, your recessionary acquisition fund that you guys are launching. But how do those two, you know, comparing that to your zero 8 to 2010 experience, to what you guys are doing now? What are the lessons you learned and how are you positioning yourself differently now?   Patrick Grimes (00:04:46) - Well, it's a really great question because it's right at the heart of kind of who I am.   Patrick Grimes (00:04:50) - And my fiber. And I just spoke on it in San Francisco and had a little bit more time than that. But yeah. So back then I was looking for, again the highest returning deal, and I had very limited cash. So I was trying to leverage it up as high as I could, and I even got to 90% loan to value. And I in order to get the best terms, I personally guaranteed that loan, which meant they was I was risking. I didn't know at the time what cross Collateralization went, and signing on the loan myself meant that they could come after everything I personally owned. I was all in in one asset, right? It didn't have any diversification. I just was going big. And because I was trying to get really high returns, I wasn't buying for cashflow. I wasn't buying something that supported itself, that going in. If if the market crashed, I could just write it out, right. And I bought pre-development, not even development pre-development. And so a couple layers of speculation.   Patrick Grimes (00:05:55) - And I learned that speculation is different than investing. Buying for cash flow is different than speculation. And moving forward I you know, it did take me a number of years to recover emotionally. I was obviously it was a humiliating experience, but financially the property went I had to negotiate debt forgiveness, a property went through foreclosure, my credit got pummeled. I was able to escape bankruptcy. A lot of people did get. And maybe it would have been better if I'd done that. It would have been better if I'd done that. But I was able to escape it because I didn't want I didn't want to go that route. I got a master's in engineering in business. Started producing a lot of income again. And then I was following the breadcrumbs of the wealthy. And where do they invest? And unfortunately, it led me right back to real estate. But it led me back to investing as the tortoise, not the hare.   Sam Wilson (00:06:50) - Man. That's. Those are painful lessons. And what do they call that? Wisdom's tuition, I think, is the other way I've put it.   Sam Wilson (00:06:58) - It's like that's that's it. You have paid the tuition for that wisdom, so you led you right back to real estate, which is funny. But of course, like you said, you decided to become the tortoise. But what does that mean to you?   Patrick Grimes (00:07:14) - Right. And let me be clear when I say back to real estate, I mean for a large part of our portfolio. If you download the The Passive Investor Guide that I have on my website, it does show how 8% of that the middle class is 8% of their wealth in alternative investments. Okay, the high income and ultra wealthy have 25 to 50% of their wealth in alternative investments. So I actually am about diversification because in alternative investments, it's everything outside of Wall Street, right? It's it's real estate, maybe energy. We do energy deals as well. There's health care investments, right? There's lots of other kinds of investments, business equities to build that around in portfolio. But the breadcrumbs led me back to a large portion, 25%.   Patrick Grimes (00:08:00) - Even at Tiger, 21 of their portfolio is in real estate. And so for that, the tortoise but not the hare means buying for cash flow. It means buying existing construction. It means not speculating, not gambling, not sliding the big stack all on green 24 and spinning the wheel. So if you can buy an asset that cash flows right, that means you're putting enough down on the asset that allows it to cash flow. And you've got to look at recession resilience. So we're looking in the best markets that have shown over time to have to have the best resilience, which oftentimes there's some of the the cities in the southeastern states in Texas that are landlord friendly, that are tax advantaged and have had steady growth. And once you found a place like that, you're looking for diversified employment. You find a property that you can put a lot of capital down that'll cash flow. You got to see if it will cash flow, even if vacancies drop to where it did in past recessions. Then you've got to build a financial foundation.   Patrick Grimes (00:09:01) - I know put a very little bit down on a personally guaranteed balloon payment loan. We do long term debt or fixed interest debt or debt that is 3 to 5 years but has a rate cap. We bank and with that rate cap, we make sure that if our interest rate does rise to that cap, that we can still cash flow again means putting potentially even more down on the property, or buying the right kind of property that can cash flow in those kind of situations. And so there's a lot that I just said there. And there's other layers of the onion to dig deep, but it comes down to the the failure mode event analysis class that I took, and mechanical engineering, where you look at all the failures, you've seen, all the deals that come across my desk of operators that didn't have enough reserves, didn't put enough down, didn't have fixed debt, didn't have a low enough interest rate cap, didn't have replacement cost insurance in the case of a natural disaster. Didn't have replacement, didn't have rent insurance, revenue insurance to replace their rents.   Patrick Grimes (00:10:08) - In the case that there was a time that what residents weren't paying all these things combined right. You can put together a high risk adjusted return, meaning it's not going to be the biggest return, but you can put together a deal that will perform very strongly even in a down market.   Sam Wilson (00:10:27) - I think that's incredibly compelling. Obviously you do as well because this is what you guys are. This is your bread and butter right now. But but I think to investors today that's incredibly compelling. I don't know I don't know anybody right now. If you said, you know, if you took a random poll and of course this is I'm just making this up. But but I just can't imagine that if you took a random poll and said, hey, you know, in the next five years, do you predict economic just, you know, exuberance like the markets are going to do? Great people are going to do great. Like I think everybody's kind of overall sentiment is that good things are not in store in the near term.   Sam Wilson (00:11:03) - And so positioning, it's just it's just where we are. And so positioning yourself with these things and you've mentioned if you're listening to this show, I mean go back, hit pause and go back and listen to the 20 things Patrick just mentioned, because they were all things that as you look at deals you should be considering, but let's let's talk a little bit about the recessionary acquisition fund. I mean, I think one of the things you said is that, yeah, you're buying stuff for cash, will you're buying stuff that's well positioned, but I think you're also seeing stuff right now that may have some, some hair on it. Is that is that correct inside of it where you guys can come in kind of rescue the deal and then move it on down the line? What's, what's how does the recessionary acquisition fund work? There's the final question if I eventually got it out right.   Patrick Grimes (00:11:46) - Well, the strategy in past years, say in the last 5 or 10 plus years for real estate sponsors, has been to buy something and then hold it for 3 to 5 years plus and buy something that's a little bit below market that hasn't been renovated, and that you can renovate the units ten, 20 a month for, you know, 2 to 300 units and, and then bring it above market.   Patrick Grimes (00:12:08) - And that means you've got to buy a property. So you got to put up the equity for that. Then you got to put up the equity to to renovate it. Right. Which maybe it's another 50 or 100% of the equity you're raising to buy it. And then you got to hope that over the course of 3 to 5 years, the rent rise as you renovate and spend the money, and then you got to hope the building appreciates to an extent greater than the capital that you raised, greater than the capital that you raised for the CapEx or the renovations, and then produces a return beyond that. And what we're finding today is that in the inflationary environment, with interest rates going up, insurance going up, and taxes going up, with renovation costs being material, supplies being delayed, labor being hard to find that unfortunately. Stop penciling. Why? Because when your expenses go up it and your interest rates go up, it draws down on your valuations. And so even though you're working real hard to improve the property in the long term, I don't know.   Patrick Grimes (00:13:16) - So what's going to happen. So. The strategy right now is not to pull out the crystal ball that we had of yesteryear and try and hope for three, five and seven years down the line. Me as an analyst, I know that in 2009 and ten, not me, but other real estate investors that made it very wealthy. Were those individuals at the assets transferred to. During those times, they transferred away from the speculators, the gamblers like me back then, and they transferred to the people that made intelligent, articulated acquisitions at the right time. And so to really position yourself moving forward. You need to take off your old hat. Put on a brand new hat. Because the strategy to win in downturns, to find the upside of downturns isn't in pulling out your crystal ball and future for future speculation, it's in buying right and not hoping on long term value add. So what I mean by that is there is a ton of deal flow right now. Not like in three years or five years ago.   Patrick Grimes (00:14:21) - There's a ton of deal flow right now where we know on the buy that we're getting a great deal and we know very clearly going in today what that deal is, and we can move in cash to purchase it from a distressed operator, not a distressed asset, necessarily mean these are performing properties. We just bought a property at a ten cap, right? I mean, it's pushing out 10% cash flow a year if you buy it all in cash, which we did. That's what a ten cap means. It's amazing. I mean, it's performing property but it's distressed operators, individuals that that didn't plan for interest rates rising, didn't plan for inflation, didn't have reserves on the sideline to deal with their tenants not paying during Covid. And when the rental assistance checks stopped coming in, that and the eviction ban lifted, the evictions got backed up. They didn't plan for not having income, right? Maybe they had a natural disaster and they didn't have replacement costs insurance or revenue insurance to pay. So there's a bunch of reasons why right now, today there's a ton of distressed operators, distressed owners, not distressed assets.   Patrick Grimes (00:15:36) - Right. Needing to exit quickly. They need a source of relief. And so we can be that on the buy. And that's that's what we're doing. There's there's a case study of four properties that were done prior to us launching the Recessionary Acquisitions Fund. That set the stage for this is exactly the strategy we're going to rinse and repeat does. And within the recessionary acquisitions where we just did our first asset, we did it all cash by we we raised the capital immediately. We closed within 12 days. Incredible deal right off the bat. And what we're going to do is we're going to immediately refi out half our capital. So we're going to do 50% loan to value. That's that low leverage strategy I was telling you about. We're going to buy a second asset within the fund. So we're not going to distribute refinances and sell again. You got to take off your hat, put on a new one, new thinking cap today. Because normally one asset, you hold it, you cash flow you refi, you get that refi as an investor, when it sells, you get the proceeds from sale.   Patrick Grimes (00:16:38) - Not the case today. Why? Because we're not going to hold. We're going to buy it. We're going to refi, but we're going to keep that in the fund. And we're going to buy a second asset within the fund. And then we're going to take the first asset and we're going to 1031 exchange it into a third asset within the fund. We're going to do this very quickly. We're already working on the refi. We're already lining up the second and the third acquisitions right now. Then with those two we're going to create four and then four becomes eight. We're going to do this at 6 to 12 month paces between property to property. And we're going to turn $100,000 investment from an accredited investor, instead of putting it into one asset and holding it for 3 to 5 or 5 to 7 years, and missing this entire buying window this exciting time, right now, you can invest $100,000, and we can put it to work in a dozen properties in the next 3 to 5 years. And so by doing that.   Patrick Grimes (00:17:29) - Each time we make, we make a buy. We know the return. We're not hoping. And then we make one more step return. Make the return on the buy. And we make one more step return and one more step return. Instead of looking at that crystal ball, we just keep stepping forward to raise the returns.   Sam Wilson (00:17:46) - I've got several questions on this front. One of them goes back to the we'll start kind of the end and work our way back to the beginning. You said what you'll do is you'll buy the asset in cash, and then you'll refinance that at a 50% loan to value. And then you mentioned you're going to 1031 that into a second property. What's the point in refinancing if you're going to sell it in 1031? Into another property.   Patrick Grimes (00:18:11) - So we can refinance very quickly. It's all about velocity of capital and diversification. Right. So we can refinance very because we know we're we're getting a great by the minute we we buy it, we can pull out half our capital and we need to close quickly.   Patrick Grimes (00:18:26) - It's a little bit like Whac-a-mole on these deals. We do a lot of work up front, but the minute we do all the we do all the work front loader to make sure it's a good deal. But the minute our due diligence funds become hard, we know that it's an asset we get to close on and even in this asset. But from the 12 days that it took us to close, from the time that we we finished due diligence, the owner was already starting to get antsy because he already, he felt he left $1.3 million on the table. We believe he left 3 to $4 million on the table. So we have to move very quickly on these these assets in order to get them across the finish line. So we're going to close in cash the best basis we can pull out the capital quickly traded forward. And then we'll move to take the base asset the equity and the base asset after it three, 456 months. And then we'll trade it into the third asset.   Sam Wilson (00:19:16) - Got it.   Sam Wilson (00:19:17) - Man.   Sam Wilson (00:19:17) - That's an advanced strategy. There's a few other questions on that. Just in the in the operations of this fund. So these operators and again your clarification I appreciate which was that it's a distressed operator not a distressed deal. You know maybe they didn't have insurance. You know they've got hit with insurance premium increases. They've like you said they didn't have rate caps in place. Interest rates are killing them. All these different things that can happen to a distressed operator. It seems like you would incur those same. Increase in prices that they would maybe, maybe not the interest rate side because. Actually, if you're refinancing it, yes, maybe at a lower, lower interest rate. But all those still costs are going to be fixed and then passed on to you. How are you making this deal? Better than maybe what they are.   Patrick Grimes (00:20:02) - Well, let me give you an example. Okay. This first asset that we just bought in the fund. All right. It was the software developer that owned it living in the Bay, San Francisco Bay area.   Patrick Grimes (00:20:11) - All right. He inherited it from his father. And he spent 2 to 3 years virtually ignoring it. Right. And during this time, he he had the wrong kind of debt. Right. So we saw his interest rates go wild. He saw the cash flow go all over the place. He doesn't know how to operate or he's inexperienced. He's disinterested because he's interested in something else. In the meantime, he had tenants move out and even with tenants moving out, which it got down to 60% occupancy, which he had brokers calling, and we spoke to the brokers, but he was disinterested in putting in the work to actually lease it up. During this time, this thing dropped to six. This great property, great performing asset. And when we bought it with the cash price, we bought it. It was cash flowing at 10% a ten cap. So it's a performing asset. Nobody. It's really hard to buy properties regardless of how occupied it is, which at the end of the day when we bought it, it's cash flow.   Patrick Grimes (00:21:11) - There's only upside from there, right as you lease it up as you occupy it. Right. And we were there. He had two other offers and they were all higher prices, but they weren't cash buys. And we're going to move fast enough for them. Right. And so that's an example of how we find these pockets of deals in these times. And these people are disinterested and just throw their hands in there and they just want out quickly.   Sam Wilson (00:21:33) - I think that's that's absolutely brilliant. I love that the last question. Unfortunately, we're out of time here today. And if you're listening to this and want to get a hold of Patrick, he's going to give his contact info here at the end. This strategy I think, is brilliant, not something we've heard a lot about, if any, taking it really at the at the angle you guys are right now here on the show. We interview a lot of people here. So this is this is really, really cool. I love what you guys are doing here.   Sam Wilson (00:21:58) - So tell me this. I mean, it seems like people would be just lined up for these deals. Buyers would be all over these these opportunities you guys are finding how are you finding such great deals.   Patrick Grimes (00:22:09) - So that's one of the really exciting parts is so and normally again you have to take your old thinking cap off. You've got to put on your new recessionary thinking cap. Okay. It's really tough to do deals right now as we did 3 to 5, 5 to 10 years ago, because the brokers have been whispering prices to these owners that are dramatically higher, 20, 50% higher than what these properties are worth now. And the brokers are now in this spot where they're trying to hang on to the seller and but they're trying to get the price down, but they've already set the stage at a losing battle to make this deal come through. So while we love brokers and we have a lot of great relationships with brokers, pretty much most of all of our assets and all of our engagement with the deals starts with the owner.   Patrick Grimes (00:22:58) - And so we have this really cool. And we talk we explain it a little bit on on our website. I, we have this really cool acquisition engine which uses intelligence software. We have a huge team of people to funnel through and identify all the highest likelihood distressed assets. We've got a bunch of really cool filters that help us identify which ones, outreach teams that reach out to them, and then we reach the owner directly. Now, sometimes we end up talking to a broker, but we reach the owner directly and have those conversations, and we make sure that they're the right kind of buyer for us that are interested in moving quickly. There's some component of distress to them that allow them to exit at a great price. And they're not they don't have a broker that's going to mass market this so that we can move very quickly and lock it up, because agility is the key to the game. Buy as much as you can as quickly as you can and trade to the next assets. And during this very short, narrow window of call it a year and a half, two years where we see a trillion and a half dollars in debt coming due in commercial real estate, where we can snatch up as much as we can during this time.   Sam Wilson (00:24:09) - I love it, Patrick. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Patrick Grimes (00:24:15) - So if you want to learn more about the recessionary acquisition fund, head over to Passive Investing Mastery. Passive Investing Mastery. We've got the Recessionary Acquisitions Fund and the Recessionary debt fund. Really high cash flow play next to it that we're launching soon. And if you're interested in having a chat, set up a call with me. You can go to invest on Main Street and my calendar is there. You can set up a meeting. I'm happy to talk to you wherever you're at. One of the things that I love about what I do is I have plenty of time to, you know, talk to, invest when I make the time. That's what I love to do. And regardless of where you're at, I'm happy to get your point in the right direction. We do only allow $100,000 minimums with accredited investors only into our deals. But I know other operators that that that can't be out here soliciting and talking about their investments.   Patrick Grimes (00:25:05) - I can point you to that work with non-accredited investors too. And I also have I mean, I have a best selling book. Would you like me to offer a copy of that out.   Sam Wilson (00:25:14) - Please?   Patrick Grimes (00:25:15) - Yeah. Persistence, pivots and game changers turning challenges and opportunities. I think I have a copy of it right. It is just such a cool book. I did it with, in fact, an actual rockstar. I co-authored it with a couple other people. Phil Collins, lead guitarist of Def Leppard, was one of them. It just an actual I mean, it was so cool. There was NFL, NBA players, entrepreneurs, handful of us put together a book and I tell my whole story. The ebbs and flows, the the ruin, the rebuild, the pivots, all of it. And until we landed here in Hawaii and where I'm at now. So I tell the whole story, I'd be happy to. I send out a signed hard copy, just as a give back to others that were hard working professionals that are looking for another option, right, to accelerate retirement.   Patrick Grimes (00:26:06) - And so if it helps to inspire your journey along, invest on Main Street slash book. That's the secret link. That's it's invest on Main Street comic book. If you use the promo code how to scale, then we know you're not somebody random. And then I legitimately offered it because we don't we don't send it to anybody. That just fills out the form. But but I do sign them, I sign them and. And we should we ship off a sign hard copy and and if you want to schedule a meeting to chat, I'd love to talk to you and appreciate all your time today.   Sam Wilson (00:26:40) - Awesome, Patrick, thank you so much for your time. This was awesome. You shared a wealth of knowledge and experience here with our listeners, as well as some awesome giveaways that book will share. Of course, all of the links there in the show notes that you've shared with us today, and I certainly appreciate your time. Thank you again for coming on.   Patrick Grimes (00:26:56) - Absolutely. Thank you.   Intro (00:26:57) - Sam.   Sam Wilson (00:26:58) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:27:01) - If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new.   Sam Wilson (00:27:16) - Listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

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

Today's guest is Shawn DiMartile.   Shawn DiMartile is a multifamily investor with over 300 multifamily units. He's co-founder of Takeoff Capital, host of The Real Estate Takeoff Podcast, and author of the eBook "California Gold".   Show summary: In this podcast episode, Sean DeMartel, shares his journey from being an air traffic controller to building a real estate empire. He discusses his decision to invest in a 32-unit apartment complex, his transition to full-time real estate investing, and his strategies for engaging with podcast hosts to share his unique story. Sean also talks about his interest in California real estate, particularly in San Diego, and shares a case study of a project where he is adding 11 units to a two-bedroom house. He also discusses his strategy of buying retail properties instead of distressed properties.   -------------------------------------------------------------- Intro [00:00:00]   Introduction and Background [00:00:30]   Leaving Air Traffic Control [00:03:20]   Reaching out to podcast hosts [00:10:03]   Telling a unique story to raise capital [00:11:46]   The California Gold Rush strategy [00:13:58]   The strategy of buying retail [00:18:44]   Design strategies to make small units feel bigger [00:19:36]   Different holding periods for projects [00:21:45] -------------------------------------------------------------- Connect with Shawn: Linkedin: https://www.linkedin.com/in/shawn-dimartile-ba6595274/ Instagram: https://www.instagram.com/shawn_dimartile/ Web/Ebook: https://investorshawn.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: Shawn DiMartile (00:00:00) - People like to invest with those they know, like and trust and connect with. Because at the end of the day, people are investing with you, right? You know, Yes, they're investing in your company. ET cetera. But you are the biggest risk factor. Anytime someone's giving you their money to go, invest in a project.   Intro (00:00:17) - Welcome to the How to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:30) - De Martel is a multifamily investor with over 300 multifamily units. He's co-founder of Takeoff Capital, host of the Real Estate Takeoff podcast and author of the book California Gold. Sean, welcome to the show.   Shawn DiMartile (00:00:43) - Thank you so much for having me. I'm happy for this, Sam. I appreciate it, man.   Sam Wilson (00:00:46) - Absolutely. The pleasure is mine. Glad to have you. I think back on the show, you've been on this show before, I think maybe two years ago or so. Approximately.   Sam Wilson (00:00:54) - Yeah. We'll have to look that up.   Shawn DiMartile (00:00:55) - I forgot about it, too, because I reached out to you and you're like, Dude, you've been on my show before.   Sam Wilson (00:00:59) - Well, and you know, it happens. I'm with you. You host a great podcast. I was I was pleased to be a guest on the show last week. You asked great questions and make it very, very easy on the guest. I will say that I've certainly you know, there's a lot of there's a lot of podcasts out there, but you run a great one. And I certainly appreciate coming on that show. And again, that is if you want to plug it one more time, what's the name of that podcast again?   Shawn DiMartile (00:01:20) - The Real Estate Takeoff podcast. Thank you so much.   Sam Wilson (00:01:22) - Yeah, absolutely. Check out Sean's podcast. Sean There are three questions I ask every guest who comes on the show in 90s or less. Can you tell our listeners where did you start? Where are you now and how did you get there?   Shawn DiMartile (00:01:32) - Easy.   Shawn DiMartile (00:01:33) - So I started as from a poor family in Louisville, Kentucky, grew up, couldn't really afford to put myself through college, join the Navy as an air traffic controller, got out of the Navy after five years doing that, did it for the FAA, started making some decent money, saving, wanting to figure out where to start investing because I wanted to, you know, climb the the ladder and get to, you know, even more wealth and found the Bigger Pockets podcast years ago and got obsessed, studied hard and then eventually I went all in on my first real estate investment. And this is before I even bought my first house. I liquidated my 401 K and I bought a 32 unit apartment with a couple of buddies. Um, started the podcast around the same time and then shortly after that got a multifamily mentor. Fast forward a little bit and we started syndicating properties with that mentor. And here I sit today with about 300 multifamily units, boutique hotel and numerous Airbnbs to encompass my portfolio.   Sam Wilson (00:02:34) - Man, that's really cool.   Sam Wilson (00:02:36) - I love I love that story that the, the, the bootstrapping story is one. Of course it speaks to my heart because there's I just get tired of people being told that, hey, you know, you're limited by whatever the limiting factors are. They place on you where you come from, what your what your religion, your race, whatever it is like. Oh, well, that's like, that's nonsense. Anybody can do anything. So we all have incredible capacity for success. So I think it's really cool how you have done this. Air traffic controllers, I'm sure we talked about this on your last show. Air traffic controllers are paid pretty well. Like you you you get tenured in that and it's and it's I mean, it's not a low paying job. Why did you what what about that? Were you like, hey, this is going to be long term. I want to do this another way.   Shawn DiMartile (00:03:20) - Yeah. So the thing about air traffic control, that just makes it so tough, obviously you're under a lot of pressure.   Shawn DiMartile (00:03:26) - Everybody knows it's a really stressful job. That's no secret. But what makes this even worse is that there's a hyper shortage of air traffic controllers in the nation. So when you sign up to be an air traffic controller, you sign up and agree to mandatory overtime. And basically across the country, everybody's working six day workweeks. As an air traffic controller, my days off were Tuesdays and Wednesdays, so I would usually only get off Wednesday and be working the rest of the days. So my work life balance was basically zero. I would work crazy shifts, you know, Sunday I would wake up and be at work at 5:30 a.m., work till 1:30 p.m. and then go back to work at 10 p.m. at night and work the graveyard shift that very same night. And I did that every week. And the outlook for that was that I was going to be working into my 50s before I could finally get off on weekends. And this just didn't make sense to me. And it's great money, you don't get me wrong, But I mean, you really become a slave to that job.   Shawn DiMartile (00:04:24) - And you look at the people retiring in their 50s and they look like they're in their late 60s. And that was really, you know, a light bulb moment for me that if, you know, what do I want? Do I want to sit here as a W-2 making really great money or do I want to try to do something else so I can finally get my time freedom back?   Sam Wilson (00:04:41) - No, man, I think that's huge. And that's what you just mentioned there, I think is just a sound piece of advice. Look at the people 20, 30 years older, older than you in whatever career it is you're looking at and go and not just one, because there can be some outliers, but look at all of them as an aggregate and go, Do I want to be what that group looks like physically, mentally, emotionally, lifestyle wise in 20 or 30 years? And if the answer is no, get out. I mean, I could.   Shawn DiMartile (00:05:13) - Not agree more. That's a great way to put it because that is what you will become if you stay in a grinding job like that.   Shawn DiMartile (00:05:20) - Mean hell if you're mining coal and you look at guys that are retiring from that and you've got to you know, that's obviously more physical, right? But it's the same thing. Like, you know, do you really want to spend the majority of your life doing that work? Right?   Sam Wilson (00:05:33) - And we still live in a country where you can choose. I mean, that's that's the other thing is that you get to pick still in the states. There's places in the world where you don't get to pick and you're going to be doing whatever it is mining coal or air traffic controller whether you want to or not. So and that's and that's that's too bad, actually, to hear about the air traffic control job because, I mean, there's a lot that is on your shoulders. And I mean everything obviously that you say and do is recorded on on live lines. You make one mistake, man, and they will roast you. And rightfully so, because, I mean, you do have planes in the air that need to not be connecting with each other.   Sam Wilson (00:06:13) - So it.   Sam Wilson (00:06:15) - Of course.   Sam Wilson (00:06:15) - Yeah, but that's wild, man. How did you get out? At what point in time do you say, hey, look, I've got enough coming in from my what was now side hustle, now become full time real estate job. You said, Hey, I can quit being an air traffic controller.   Shawn DiMartile (00:06:27) - That was in 2022, actually in March of 2022. I had that was after we had syndicated a couple properties. In January of 2022. We sold that 32 unit that we had bought a couple of years before, made some profit on that. And then also had you know, at that time I had three Airbnb listings that were producing a lot of cash flow as well. And you know, I was I was I was right around the the net income that I was making from air traffic control. But. You know, I knew that if I wanted to grow the real estate business further to where it's, you know, that is my full time job and and grow that company that I needed to make that jump.   Shawn DiMartile (00:07:07) - So that's why I made it last year just going all in to really give the real estate everything that I've got and it has paid dividends.   Sam Wilson (00:07:15) - Okay, cool. I want to hear about that because there can. At times. We've seen people flounder. When they make that jump, they get out there like, Hey, I'm going to go do this. And it's like, Oh man, crud. Do they do this and do that or they do this? They don't get the momentum. How did you how did you carry that momentum forward once you said, All right, I'm out and congrats on doing that? I bet that was I bet that was a fun day to finally walk away and say, all right, guys, I'm going to do my own thing. But how have you established the momentum in the in the strategy that you want to employ, I guess, over the last what is that, 18, 17 months?   Shawn DiMartile (00:07:51) - Yeah, I mean, you know, it really just when I mean, going all in, in order to keep that momentum going, I had to start doing everything that I could to get my name out there and get in front of as many people as possible.   Shawn DiMartile (00:08:05) - So dedicating more time to being guests on podcast, writing more content as far as blogs, my book going to more speaking events, going to more like really anything and everything that I could do regarding the real estate strategies I was doing, I put I dedicated my time to joining business clubs, everything. So by doing so, that was getting me in front of more investors, making more meaningful connections with other operators. All of that stuff really, I think was necessary and critical for me to keep that momentum going and keep doing deals. So last year we closed on two deals and all of that stuff definitely would have been harder, you know, if I was doing my W2 job, you know, But there is give and take by leaving that W-2 job. I left behind a lot of money from the W-2, which makes it easier to qualify for personal loans, things like that. That's all out the window now. So, you know, it is a double edged sword and there are some pros and cons of doing it.   Shawn DiMartile (00:09:07) - But ultimately, I needed to to be able to go all in.   Sam Wilson (00:09:10) - Right. Right. No, I think that's that's fantastic. And what would summarize most of that at or of gosh, I can't speak today what would summarize most of that as there we go I'll find the right the right word is engagement. Like you just got to get out and engage. You mentioned getting on podcast, making sure you're right in your blogs. We'll get to your e-book here a little bit because I want to I want to talk about that. But what's what? And I love that strategy because the name of the show is how to scale commercial real Estate. There's a lot of people potentially in your shoes listening to this going, hey, you know what? I do want to make this leap, but what do I do? Either, you know, you started having your portfolio already, you know, working before you quit your W-2, which is smart, but they want to know what those next engagement steps are.   Sam Wilson (00:09:50) - And I think you outlined some of those. What did you do in order to get on more podcast shows out of the gate without as much maybe traction or industry experience as maybe what you felt like you should have in order to do so?   Shawn DiMartile (00:10:03) - Um, a couple strategies that I use. Number one, I like to reach out to podcast host directly myself. The reason why is I host my own podcast and I get bombarded in my email inbox as well as, you know, my virtual assistant getting bombarded with people that want to come on the podcast and they put their copy and paste intros to try and get on the podcast. And I just found that that wasn't super effective with me. So I thought, Hey, I don't want to be one of those people, so I'm just going to do it myself and reach directly out to these people to maybe staying a little bit better of a chance. So that was one method. And also trying to just and focus on highlighting my unique story, because I know that when people go when when people have someone on a podcast, you know, if you just say, I'm, you know, a real estate investor and I've been listening to your podcast, well, yeah, so is everybody else.   Shawn DiMartile (00:10:51) - So I tried to highlight what might make my story a little bit more unique or a topic. Um, and I think that in combination with having my own podcast, definitely helped because, you know, I'm able to make better connections that way, maybe even do a podcast swap and have that host come on my show. Think all of these strategies combined increase the probability just a little bit that I would get on those shows. And that's really it, right?   Sam Wilson (00:11:17) - No, I think that's that's fantastic. And I think telling that unique story certainly stands out. Yeah, you're right. If you if you had sent me an email, Sean said, Hey, Sam, I'm a multifamily investor and I'd love to come tell you, you know, about multifamily investments. I mean, God bless you that there's lots of opportunity in the multifamily space and what you do is great, but it's not not a story. It's not a unique story. You got to how does how do you feel? Like a learning to tell your unique story has also helped you raise capital?   Shawn DiMartile (00:11:46) - Oh, that's a good one.   Shawn DiMartile (00:11:48) - It's it's helped me raise capital because people like to invest with those they know, like and trust and connect with. Because at the end of the day, people are investing with you, right? You know, Yes, they're investing in your company. ET cetera. But you are the biggest risk factor. Anytime someone's giving you their money to go invest in a project. So the sponsor is so important and I like to tell everything about my story. And I even put this on my socials and things of not only what I'm doing in real estate, but me as a person, how I grew up, the challenges that I faced, the mistakes I've made. I like being really transparent about big mistakes I've made in my real estate investing because I know people want to hear that. So I think really, when it comes to the unique story, it's it's being personable, like, you know, hearing about my struggles, being poor, growing up and having absolutely zero money. I mean, when I was in college, I was working at Cracker Barrel as a server.   Shawn DiMartile (00:12:42) - My parents couldn't give me jack diddly to help with college because they didn't have any money. Starting from something like that and getting to, you know, growing your portfolio resonates with people because everybody listening is in the same shoes. So and I remember back whenever one of the first podcast I heard on Bigger Pockets was a PE teacher, and to this day I'm still friends with them. That grew a portfolio of hundreds of multifamily units and retired. And I loved it because I was a guy just like him that didn't have a high paying job. And I think that people like that, right?   Sam Wilson (00:13:14) - Yeah. You're teaching kids to play kickball in elementary school and then you found real estate and found a way to really create wealth for yourself, which I think shoot, man, if I could play kickball and get paid like I could in real estate, certainly.   Sam Wilson (00:13:27) - To be awesome. Right?   Sam Wilson (00:13:29) - But that option just presently doesn't exist. So outside of that, let's talk a little bit about your strategy. You got your hands in some unique things.   Sam Wilson (00:13:38) - You mentioned those there in your in your bio or in your in your intro there about boutique hotels, Airbnbs multifamily properties give you some unique things you're doing because I know you wrote an e-book called California Gold, which most. Okay, a lot of investors hear California and they're like, No. Yep.   Shawn DiMartile (00:13:58) - And I'm glad you brought that up. So I'll be as short as I can because so I've always felt the same way about California. I've always thought to myself, no way. And until this year, outside of my Airbnb here, I had zero interest because of the same things everybody else, you know, the politics, the landlord, tenant laws, etcetera. And then two years ago, San Diego implemented a new municipal code. It's the only city in the country that has this and that got me interested. So for a little bit of context, San Diego is geographically constrained, but it's growing. It's constrained by the ocean of the West. You've got mountains to the east, Mexico to the south and a military base to the north, and all of the flat available lands been built on.   Shawn DiMartile (00:14:38) - So what San Diego did that so unique is they took accessory dwelling units, which I'm sure a lot of people have heard about, otherwise known as Adus. And they expanded it to where you can put unlimited adus up to the floor area ratio. So what this means is I can go and buy a single family home, you know, less than a mile from the beach, and I can add ten units or more to that property if it's big enough and put new product on the line. And some of the most coveted communities that otherwise get no new buildings. And so when I saw that and I saw that, okay, not only can I build, you know, I can build these for 150 to 200,000 per unit with nice finishings and I can sell them for north of $400,000 a unit and I get to put my own tenants in there. So I'm not buying a value add multifamily where who knows when I can get those tenants out? Because here in California you can't just say, Hey, I don't want to renew because I want to renovate it.   Shawn DiMartile (00:15:32) - So doing value add here carries more risk. And then, you know, we can maybe get into more of the minutia. But this strategy carriages, so much less risk. It's in my own backyard where most of my investors in and it just made so much sense numbers wise that that was the light bulb that went off. And I named my book California Gold, because I call it the new California Gold Rush. There's only so many lots that qualify and make sense to do this investment. So the well will run dry eventually. And right now it's a rush to find the lots that you can put all these units on and you can make a killing.   Sam Wilson (00:16:06) - Wow, that's fantastic. Give me a case study on that. Like what's you know, what's a what's a well, just give me some examples of things, assets that you've bought and how you did it.   Shawn DiMartile (00:16:16) - So I got a project right now in an area called Ocean Beach in San Diego. I bought a two bedroom, one bath, two bedroom, one bath house on a 7000 square foot lot and it's a half a mile from the beach on a hill.   Shawn DiMartile (00:16:29) - I'm adding 11 units to it to where it's going to total 12 units in the back of the house there is. So there's one unit being added to the existing house and then the huge lot behind it. We're building a three story structure with units on all three floors, second and third floor units will have. Corrected views of the ocean. Now, what's what I love about this, though, anybody that's, you know, heard about the negatives of multifamily development knows that a lot of the risk is holding costs because you're sitting around waiting for the government to give you permits while you make no money and you're just burning through it. Right. This strategy is different because I bought an existing house that I can rent out and not only am I renting it out, I got an Airbnb permit. So the property's actually cash flowing while we're waiting around to get those permits. So we reduced one of the biggest risks we've mitigated substantially by doing that. Now the rest of the plan is to obviously we've designed the units they're getting permitted now, build the units, fill them with tenants, put on permanent debt and cash flow that property.   Shawn DiMartile (00:17:34) - And now we have a property that these units I'll finish it by saying this These units in this Ocean Beach community, 10% of units there have air conditioning and in unit washers and dryers. Every single one of our units is brand new in unit air conditioning and heating, washer and dryer in unit in ocean views. And that's just something you're not getting with most units there.   Sam Wilson (00:17:57) - Wow. Okay. Let's let's dig into I guess there's a few questions at one. That's a that's a completely awesome strategy I think. I think finding those the the riches there in the niches is the phrase goes and this is exactly what you've got on the acquisition side of things. Are you basically just paying retail price for that property just because of the upside potential?   Shawn DiMartile (00:18:22) - Yes, exactly. We are paying retail now. We paid a little bit less than retail. We were able to negotiate that property down 150 below asking. But we were also able to get seller financing on that deal, which helped a ton, 80% seller financing, 5.4% interest interest only payments.   Shawn DiMartile (00:18:38) - So that was infinitely better than what we were getting offered by by.   Intro (00:18:42) - Banks, right? Right.   Sam Wilson (00:18:44) - Yeah, absolutely. Okay, cool. And I've got I got a buddy in a in a completely different strategy. But this is this is something we're kicking around a lot. He's like, man, he goes, you know, because we are very accustomed to going out and finding off market, you know, either distressed or, you know, whatever it is you name it for how we can get a discount on the buy side. And we're looking at his strategy and how effective it is. And I'm like, Dude, just get on the MLS and start buying retail. Your your cash flow is insane on what you're doing. So why waste time, you know, trying to nickel and dime your way to success when you've already got the plan built and you just you can afford to pay retail. There's enough margin there is what I'm getting the numbers.   Shawn DiMartile (00:19:22) - Make sense.   Sam Wilson (00:19:22) - Right? So cool. So you can buy retail your product still make sense or your margin still makes sense at retail when you build those seven units, how many square feet are those approximately per unit.   Shawn DiMartile (00:19:36) - So our two bedrooms are a little over 600ft². And then we're providing a number of studios that are about 346ft² right now. I know a lot of your listeners are thinking, my goodness, that's small, but that is sort of the trend here in Southern California to get the units a little bit more affordable. But to combat the how small they are, we're implementing a ton of strategies and design to make them feel a little bit bigger. So floor to ceiling windows, bringing in tons of natural light. And the studios have these really cool excuse me, Murphy beds that convert to couches. That way the that unit can feel big for the tenant.   Sam Wilson (00:20:15) - Yep. Yeah. Love a good Murphy bed. That's cool. All right. So and again, a 7000 square foot lot is not that big. Like I'm sitting like my my lot here is only 9000ft². And I'm going, wow. Okay, so that's that's 2/7 or I guess whatever, two nines. Anyway, it's 2000ft² smaller galley. I can't do the math here on the fly.   Sam Wilson (00:20:36) - It's too, too early in the day. But 2000 square foot smaller, I'm thinking, how do you fit seven units plus a house? Where do they where do they park?   Shawn DiMartile (00:20:44) - So good question. With this strategy, one of the one of the things that also make it great is the city doesn't require parking so long as you're within a transit priority area. So TPA for short, that just means you're within a half a mile of major public transportation no matter what kind it is. So this the the tenants are going to have to park on street parking, but there's a plenty of street parking in this area. It's far enough away from the beach and a community where everyone will be able to find parking. But that's not really a huge downside for this market because that's street parking is what everybody has. If you've got, you know, private parking, that's huge. And by the beach.   Sam Wilson (00:21:21) - Right. No, absolutely. Absolutely. Cool, man. That's awesome. I love that. Just the the again, the finding something unique and then finding a way to scale that.   Sam Wilson (00:21:32) - So, I mean, you've answered a lot of questions. You've thought really I think obviously you've thought really well through this strategy and it's and it's effective. So you're then taking these units and you're selling them off. Is that what I heard?   Shawn DiMartile (00:21:45) - Yeah. So, you know, some of these because of our investor appetite, you know, some investors don't want to hold as long, some do. So some projects we're going to be doing shorter holes that are more like a 3 to 4 year hold where we're going to lease it up, get it stabilized and then sell it off for a quick pop on their money. And then some of our deals we're going to be doing like 5 to 7 year holds or even longer so we can just hold these cash flow on them and then reap the rewards of the increase in rents that we're going to continue seeing.   Sam Wilson (00:22:12) - Man, that's awesome. Sean, We've got about three minutes left here on the show. I want to hear a little bit more about what our investors can find inside of your book and how they can gain access to that.   Shawn DiMartile (00:22:23) - So to gain access to the book, it's really easy. Go to investor Sean Simple and I spell my name Shar investor Sean and the book is going to tell you everything about this strategy, all the basics. You can read this book in 15 minutes and it's going to tell you not only like what the rules are, the municipal code, it's going to show you the websites you can go to to find out how many units you could put on the calculations, all of that stuff, ways you can mitigate risk. All of that is within that book compacted down as much as I could get it. And then, you know, also, if you're while you're at it, make sure to follow me on Instagram. Sean underscore Demartini Hopefully we could throw that in the show notes or something. But I talk a lot about this strategy on my social media as well.   Sam Wilson (00:23:07) - Fantastic. Yeah, we'll make sure we include your name and the spelling of that. For those that are not sitting in front of a computer or able to actually access the show, notes Martellus de Martinelli.   Sam Wilson (00:23:18) - So when you're looking up Sean, that's how you spell his last name. Sean Thank you again for coming on the show today. Man, the day was a blast. I certainly loved hearing about your strategy going to the Navy, becoming a air traffic controller. What it took for you then to get out and just building, building your wealth such that you could exit your W-2, looking 20 years in advance, saying, I don't want to be that person? You gave us some great insights on capital raising, on how to be authentic and just being yourself. Your unique story, crafting that unique story and telling it such that investors can relate to you, man. And then also just the you know what to do out of the gate, getting on podcasts, blogs, writing an eBooks, engaging in the community. Man, you've dropped a lot of great things here today outside of downloading the e-book there at your website link. Is there any other ways you'd like our investors to get in touch with you or learn more about?   Shawn DiMartile (00:24:02) - You know, I just want to emphasize one more time to follow me on Instagram.   Shawn DiMartile (00:24:06) - I'm putting a lot of work into it. You're going to see some super cool content that's really high quality. And outside of that, man, you'll get everything else off of investors. Sean And thank you so much, Sam, for like plugging all this stuff and all your kind words. I do appreciate it, brother.   Sam Wilson (00:24:20) - Absolutely. Thank you, Sean. Appreciate it. Have a great rest of your day. You too. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's guest is David Lecko.   David Lecko is the founder and CEO of DealMachine, the highest-rated mobile app to help real estate investors find off-market deals.   Show summary:   In this podcast episode, David Leko, the founder and CEO of Deal Machine, discusses the evolution of his mobile app for real estate investors. He explains how the app started as a tool for finding off-market deals and expanded to include features like running comps and pulling lists. David shares his journey from being a software developer to starting Deal Machine and how the app has improved the lives of investors. He also talks about the transition from real estate investing to running a software business and the importance of simplicity and user experience.    -------------------------------------------------------------- The Journey to Real Estate Investing [00:00:47] Building Deal Machine and Transitioning to a Business [00:03:18] The Growth and Success of Deal Machine [00:06:54] Improving App Design [00:09:16] Simplifying Features for Beginners [00:10:21] Using AI and Chat AI Format [00:11:20] Cell Tower Leases [00:18:21] Investing in Parking Lots [00:19:18] Racing [00:21:25] -------------------------------------------------------------- Connect with David: Instagram/TikTok: @dlecko Linkedin: https://www.linkedin.com/in/davidlecko Twitter: @tweetingdavid Facebook: https://www.facebook.com/profile.php?id=100091388075419   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: David Lecko (00:00:00) - We weren't trying to change a behavior. People were driving for dollars for decades, and we just made it easier for them to do that. And then as we grew, we found out people also want to run comps. They want to know the MLS data is providing that comp, they want to pull lists. And so we've been able to do that. And I'll do it in the mobile app, which is pretty unique. I don't know that there's another solution that does all that in a mobile app.   Intro (00:00:24) - So welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:37) - David Leko is the founder and CEO of Deal Machine, which is the highest rated mobile app to help real estate investors find off market deals. David, welcome to the show.   David Lecko (00:00:47) - Thanks, man. It's a pleasure to be here with somebody who's got such a wide experience and real estate as you write, you did single family to commercial to laundry facilities.   Sam Wilson (00:00:58) - This is true, but this show is not about me. This show is about you, David. So I'm excited to have you on the show. I've actually in a previous life and it found I'm finding out from you here before we kicked off the show is that maybe I'll start using Deal Machine yet again. There was a previous life when I was doing Single Family. I used the machine quite a bit. So it it's kind of fun to have you here on the show many years later. But before we get into all of that, there are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   David Lecko (00:01:29) - I started in Indianapolis. I'm now in Austin, Texas, and I took an airplane to get here, believe it or not. Actually, that's a lie. No, I had to drive me and my cats on the road trip. But to to seriously answer your question, I was actually my life really sucked before real estate investing.   David Lecko (00:01:47) - I was the only software developer at a company as well as the tech support and customer service representative. So I was sleeping with my computer under my pillow and at my best friend's wedding I even had to leave and go fix a bug on this software. So, you know, real estate was a way to earn more money, but also kind of earn my time back. And I took the advice to drive for dollars and look for properties. I built a little widget for myself to look for those first few properties, and that turned into a company called Deal Machine. When I found out other people were willing to spend money to try new marketing methods for their own off market deal search. So I am just blown away by how other people have been able to improve their lives using the app I created for to do myself. So I've got about I've done 15 real estate deals and I have 12 rental properties. They're all in Indianapolis.   Sam Wilson (00:02:46) - Yeah. Well, let's, let's talk about I mean, because there's a, there's a, there's a split there where you find out that your business might be worth more than what you were doing in real estate itself.   Sam Wilson (00:02:58) - Like you found that shovel selling shovels to the miners became more profitable than mining itself. Kind of the old, you know, gold miners like that's and not not that you can't make money in real estate, but but that's kind of what you are like. You're selling a service to real estate investors at this point. So talk to us about that kind of transition for you and how that process worked.   David Lecko (00:03:18) - Yeah. So I got into the game because I wanted rental properties. I wanted that cash flow that would securely give me that cash flow every month, no matter what the stock market was doing. And even no matter what the real estate market was doing. I mean, rents don't go down if you look at the Federal Reserve graph. So I just knew that was my calling. I bought about, I say nine rental properties and then I stopped buying it because it had been three years or so. Deal Machine was really picking up steam and I started focusing on that. It was a bigger, faster growing opportunity.   David Lecko (00:03:53) - And then fast forward five years to now and I noticed I was like, Man, I got like $1 million of appreciation on these nine houses that I was holding. I wish I would have bought a lot more. And so now I'm, you know, I'm buying more properties again, I've done just my third deal this year so far. So kind of like a slow, steady start back into it this year. But it's been really fun. I'm loving doing it now.   Sam Wilson (00:04:20) - That's interesting. That's not the answer I would have expected. I mean, because you've built a cool I mean, a cool platform deal machines, an awesome app. For those of you that have no idea what I'm talking about. Well, now you know the name of it. Go. Go look it up, find it and figure out how to use it. But tell me, tell me. I mean, you are a software developer, so this kind of came to you naturally. But what was like how did how did you figure out? One of the questions I always had because this was what year did you launch Deal Machine 2018, 2019?   David Lecko (00:04:48) - Yeah, it was actually I started working on it 2016.   David Lecko (00:04:52) - Okay. And then I put it on the app store in 2017. Okay. And then, yeah, it wasn't well known and say I would say until 2019.   Sam Wilson (00:05:01) - Yeah, we were using it in 2018 because I hired a guy and I gave him the app and I just said, Hey, you know, here's how you drive for dollars, go out, find these houses, take photos and then bring them back. And that's what he did, actually using the Deal Machine app. But one of the things I always found to be interesting was how did you because you can pull data from counties, but how did you get it to where it would work nationwide? Because county data is so disorganized on a county by county basis that finding accurate information can sometimes be a bit of a cluster.   David Lecko (00:05:32) - So yeah, it only worked in Indianapolis. People really started talking about it though, and it was just terrible that they couldn't use it in their counties. I was wasting that moment where they wanted to try this new app that was out there, but it wasn't set up to use in there.   David Lecko (00:05:47) - So what I did was there's like several companies that aggregate this. The best is actually first American title company. Okay? And so but we tried a lot of different data providers and ended up being able to license that from one of those aggregator companies. So we get daily updates and so then that's that's live in the app. So if you've added a property, you're marketing to it saying, Hey, do you want to sell your house? If it sells, then the app will automatically update, shut that mail off and it'll tell you, Hey, this property changed hands. So we're turning off the marketing, right?   Sam Wilson (00:06:19) - No, that's cool. That makes sense. That makes sense. And that was a question I probably hadn't researched or thought more about until now because I'm getting rewinding five years of my business going. How did they get that? So you went to a third party aggregator of data, not directly to the source, because at the source was just such a quagmire of relevant information. I'll say it.   Sam Wilson (00:06:41) - I'll say to that that way. So talk to me about Deal Machine. What's it been like growing that app? What's it been like growing the user base, the iterations of it, the team that supports it? Talk to us about just the business side.   David Lecko (00:06:54) - Yeah, I feel thankful that I started this journey for freedom and luckily I was able to build a business without any investors and I have a business partner who's my best friend, but we kind of. Always have to please the customer, but there's not necessarily like an individual that would tell us to do one thing or another. And so I've been fortunate that we've had such a great partnership over these seven years without having to do that, which is so typical with software also. I mean, I think the true reason why that happened is because we weren't trying to change a behavior. People were driving for dollars for decades and we just made it easier for them to do that. And then as we grew, we found out people also want to run comps.   David Lecko (00:07:35) - They want to know the MLS data is providing that comp, they want to pull lists. And so we've been able to do that. And I'll do it in the mobile app, which is pretty unique. I don't know that there's another solution that does all that in a mobile app. So that's been pretty wild. The growth, I mean, like I said, I only wanted one property and that was the outcome of making this widget, you know, and I the I'm just continue like I continue to be thankful for the success that we've had and those that we've been able to help. And man, one of the stories that just sticks out to me is Cody Shafer is a guy I met a few months ago at a conference, and he was an Uber driver making $30,000 a month because he drive Uber, take the money he made from Uber, put it into his marketing to market to these rundown houses that he saw while he was delivering food. And I was like, Dang, you've got to be like the highest Uber driver out there.   David Lecko (00:08:32) - And so Cody is a guy who just makes me smile. I'm like, Dang, he's using my app to do that.   Sam Wilson (00:08:38) - That's cool, man. That's really, really cool. Talk to you about the iterations of this app. I mean, because that's it seems like keeping up. And again, I'm not a software developer, I can barely send an email. So keeping up with the iterations of like the new developments, keeping up with stuff in the App store, keeping up with the I mean, because I'm sure you get a thousand requests for, hey, can you make this thing, you know, fly us all to the moon? Like, no, I can't add that one on the list, but thanks for the offer. Like, how do you keep up with those? Just probably endless requests for updates.   David Lecko (00:09:07) - Yeah, well, so first of all, it looked really ugly because I made it myself, but I knew how to use it. It was functional, but it just looked ugly.   David Lecko (00:09:16) - And then I started getting a few signups per day. I was getting on 30 minute phone calls with them to tell them how to use the app. I was like, Man, it's got to be more self explanatory than that. So step two was I called my partner and he wasn't my partner at the time, but I was like, You're a better developer than me. You've got to make this look good. And so people need to know how it works without calling me for 30 minutes. Yeah. So that was step two. And then step three, we did we did listen to all the feature requests and in fact, we built them all. But Sam, I've got to be honest, like I always am. I'm always honest. Such a weird thing. I actually regret doing that because all of that complexity actually made it confusing for a new person who was just trying to create financial freedom for themselves and do their first deal. It made them have more analysis paralysis. So then step four is we kind of made it very simple again, even though we can do other things like run comps that it didn't do in the first place, It's just if there's an advanced feature, it's kind of tucked away.   David Lecko (00:10:21) - It's very hard to make complex things simple, but we've put a lot of effort into making it simple. And then five is just reduce the bugs further, make sure this is the most stable experience possible so that it is always feeling polished and nobody can tell when we've updated it. It wouldn't disturb their workflow, but we've kind of gotten a really good groove of that. So those would be like the five iterations I would say with Deal Machine, that's wild.   Sam Wilson (00:10:48) - Yeah. And that I think is the challenge of all. And it's funny, I was talking to another, another software firm here this morning on the show and we were talking about that, you know, taking the complex and making it simple, making the dashboard simple, making it to where there's no coding, no training, no like, hey, watch the 87 videos on how to actually get this to work. Right process, which, you know, I find that most most things that do require that. So you kind of dialed back a lot of the more robust features and went back to the back to the basics.   David Lecko (00:11:20) - Yeah. Like, for example, a lot of times I don't know what a property's worth, I will guess, but the comps tool is helpful for me to see that we now have the AI. When that all came out, we put that in the app and then it has access to real estate data, which is unique. The AI is out there, don't have access to real estate data otherwise. And so it can help me know what is the property worth, what does it think the comp is worth? And so I can also ask it for advice on responding to an objection from a seller. And that's a tool that's helping a lot of beginners get past that analysis paralysis in that in that chat AI format, right? You can ask it a lot of things just all right there in the chat window. So that's just one example of how we've incorporated something that's a little bit more advanced. But still in a simple way.   Sam Wilson (00:12:07) - Right. And I guess getting into the cops thing, I mean, that kind of goes if you have the feature, that's cool, but it kind of goes against the whole driving for Dollar's methodology, which is that really we're out here, we want to find 100 properties that we want to market to.   Sam Wilson (00:12:24) - And if they're, if they're dog looking properties, yeah, I want to take a photo of that and I want to market it like so the cops.   David Lecko (00:12:30) - Comes, the cops comes later when they call you back from your mailer and then you put together an offer. So that's what the cops are for, is when you're later in the process getting that call back.   Sam Wilson (00:12:41) - Right. Right. You don't need that the day you're standing there in front of the house going, man, like this grass is eight feet tall. I wonder what this house is. Actually fair market value is like, who cares? Take a picture like, Yeah, send him a postcard. Can I. Can I. Can I. Can I make you an offer? Well, let's talk about that side of it. I mean, when when I was using the the app back in 2018, I mean, you would drive up to a house, you could take the picture, and then you could mail a postcard. Right from the app, which I thought was one of the coolest features.   Sam Wilson (00:13:08) - Do you guys I haven't used the app in five years. So tell me, is that something you guys still do?   David Lecko (00:13:13) - Of course, yeah. I mean, I just did a deal a couple of months ago, and she called me because she's like, Hey, this postcard you sent, it has the picture of my actual house. Now, I didn't take it, but I pay a driver 20 an hour in Indianapolis to drive around and look for rundown properties. So he took the photo and I knew it was a good house because I could review the photos. I was like, Yeah, this this looks rundown. And so then she was like, Well, I called you because it looked like you put in a lot of time into this. I got other mailers, but I called you because you're stood out. I ended up missing out on the deal, but I kept in touch with her and said, Hey, is this thing closed yet? I just want to make sure you're taking care of.   David Lecko (00:13:51) - Funny enough, it fell out of the deal, fell through. And so then I got it for my original price and I did end up buying that deal for 122. I hear anecdotally that these mailers, they're actually causing people to call me instead of somebody else. So that's something that I've continued to do, is send the mail with the picture of the house on there. I think that's part of the magic.   Sam Wilson (00:14:14) - Part of the magic, absolutely. And the fact that, again, it's within and I'm not you know, I'm telling you things you already know, but it absolutely was when I was using them like, this is so powerful that I can take a picture of the house, you know, or like you, you know, I had a guy that was driving around taking photos for me. He could take a picture of himself like, Hey, here I am, you know, stand in front of your property like I'm actually here. Yeah. And so it removed a lot of the complexity and hit mail right from the app.   Sam Wilson (00:14:39) - So I think that's really, really cool. I love the way that you've also simplified it when you add it on to when you feel like this is too hard, we're going to do we're going to dial this back. Where does Dial Machine go from this point forward? What's what's the horizon look like for you guys?   David Lecko (00:14:54) - I think there's a lot of people that want to quit their jobs and build a business with a proven business model. I mean, most of the people use our app to do wholesaling real estate. I think we've only even scratched the surface. So my team, like the app grew on its own, which was crazy. I'm so lucky for that. And we've been now been able to reach more people this year specifically than we have in the past because we've started doing marketing. So, you know, I just am excited about the people we can help achieve an awesome life where they're not bound by just a 9 to 5 and they can make more in a month than they possibly did in a year sometimes, which is always really, really fun to do.   David Lecko (00:15:35) - So that's what I'm really excited about. In terms of what can dial Machine the app do, I would say there's one thing, Sam, that it still doesn't do yet and we will be getting to that eventually, but it's receiving the phone calls through a number that is incorporated in deal machines. So that way, you know, when your cell phone rings, you know, hey, this is like a money phone call and then the call can be logged automatically in deal machine. So that hasn't been done before, but I think that's going to really close the loop on that thing we all struggle with. It was just like follow up and entering notes in the CRM and keeping track of things like that because just like the deal I mentioned, that follow up was awesome and that's what got me the deal. So if the calls are coming back in through Deal Machine, I know we can help people with that follow up piece as.   Sam Wilson (00:16:28) - Well, right? Yeah, the money's in the follow up, so that's, that's really cool.   Sam Wilson (00:16:33) - I love I love that. It's always fun to hear. I mean, there's it's we never solve all the problems. We just kind of like every new solution creates another problem to solve, which is kind of kind of the way of life in its own right. But it's also you get to work on the ones that are even more fun. What about on the commercial side of things? I'll ask a question that pertains to me personally in in the sense that we are in heavy acquisition of laundry facilities. And so let's assume I drive up to a inn. Maybe, maybe this is where the challenge becomes. So I'm going to present to two challenges to you. I drive up. To a laundry facility will deal machine recognize commercial properties as well. Or is it just residential?   David Lecko (00:17:11) - Yeah so you're typical single family type list. You know, might be code enforcement list or absentee owners with high equity or expired MLS listings, all of which you can pull in deal machine. But on the commercial side, you can search buildings by units if you're looking for apartments, for example.   David Lecko (00:17:31) - And then we have this fun part of the app called Weird and Unusual property types. So beyond just being entertaining to look through, we've got dry cleaners slash laundry service and we also have self-service laundromat. And then right below that is a slaughterhouse stockyard. So you're probably not interested in that. You probably just stop right there, but thought that would be a fun example of what else is in that weird and unusual property type category.   Sam Wilson (00:17:57) - Yeah, I'm going to stop at the slaughterhouse and or stop before we get there. But but thanks for making that option one.   David Lecko (00:18:04) - One of the other property types was there's an investor who just invest in cell towers, and I thought that was really interesting. He said most carriers will actually rent the cell tower. Yeah, so that's even a property type that you can search for.   Sam Wilson (00:18:21) - Now, that's really cool. I mean, it was Amir Waldman, the guy that was was was he the one you talked to about the cell tower leases?   David Lecko (00:18:30) - I can't think of his name, and I don't know if that was his name.   David Lecko (00:18:33) - Okay. Okay. But you know somebody.   Sam Wilson (00:18:35) - Yeah, I do. Yeah. He specializes in brokering cell tower leases. So anyway, for those of you who are listening to the show, look up Meir Waldman. If you're just curious, like who? The world. What's he talking about? Really cool. Yeah, really cool knee. She came on the show maybe two years ago. And of course, I can't forget his name because the only guy I've ever met that specializes in cell tower leases. But yeah, you can go back and find that one. It's somewhere, I don't know, 300 episodes ago, but we were talking about something totally different than The Machine. He got off on a tangent, but that's a cool property type that you can look up and those are oftentimes the things that are just they're so nuanced. Well, here's here's let me throw this nuance at you. At one point I was investing in parking lots like surface parking lots and parking garages. Do you guys have that as a weird and unusual asset type?   David Lecko (00:19:18) - We do.   David Lecko (00:19:18) - And I actually had a dream before I ever bought any property. I was like, Man, I would love to own a parking lot because there's no upkeep on it. And they charge $40 a parking spot per night sometimes.   Sam Wilson (00:19:33) - So we bought we bought a parking asset in Houston, Texas. We paid, we bought 19. Who cares? We're talking. We'll talk about a lot of fun things in the show today. But 19 parking spaces, we paid $1.2 Million for it. Okay. That's a lot. It's a lot. That's it. Literally, it was a lot. I mean, yeah, it's a lot. And it was a lot. But it threw off $150,000 a year in not operating income.   David Lecko (00:20:00) - And not a lot of expenses. Right? Like, what's it going to do?   Sam Wilson (00:20:03) - What's it going to do? Flood We'll wait for the water to go down like. Right. Okay. It's it's a service parking lot. So yes, yes. There are opportunities like that where it's like, okay, this is just a stupid return with.   David Lecko (00:20:16) - How did you find that deal?   Sam Wilson (00:20:18) - Uh, driving for dollars.   David Lecko (00:20:20) - Heck, yeah. That's awesome. You just sent the mail to the owner, and they called you back.   Sam Wilson (00:20:24) - Researched them, making maps. I mean, that's a whole nother conversation earlier today. But, yeah, it was literally just okay, you know, mapping out all of the parking lots in Houston, Texas. I literally have a Google map still with every pin of every parking lot finding the owners, which is a total pain in the neck and then making offers. And so, yeah, it can be done. So it But just to your.   David Lecko (00:20:44) - You're my idol.   Sam Wilson (00:20:46) - No, sir. No, sir. I'm just just copying a page out of your book on driving for dollars. So that's, that's really the way that works. I mean, so that's really cool that you have that asset class in there because nobody else at this point has really ever said. I mean, it's just been a very manual process of determining what those are.   Sam Wilson (00:21:00) - So that is fantastic. I'm gonna have to compare what you have in your database against what I can go back to five years ago or four years ago and say, hey, what, what, what was I missing at any particular city? So that's really cool. Let's talk about something even more random and fun. We talked about racing. You moved to Austin and you moved to Austin and you got into racing Watts. What's that about?   David Lecko (00:21:25) - Yeah. So back in 2019, my friend said, Hey, I'm doing this race where you bring a $500 car and you drive it for 24 hours and we've got three drivers, we'd need a fourth. Would you want to do it? Usually a person who likes just weird stuff like that. And even though I had never driven this car or been on a track, I was super pumped. I said yes. And the first time I drove it, we didn't even practice with it. And the seat was like too small. And I was strapped in too tight and I was like, Dude, I cannot do this.   David Lecko (00:22:01) - I was the second driver. Cars are flying by on the track and he just shut the door and he's like, Do it. See you later. Be careful. And that was the first time I ever drove. And it took all of my mental capacity and I was not even going up to speed, but it was all almost like too much, right? But it was so refreshing that I couldn't think about anything else. I was just focused on what was going on right there. And and then I started to notice every lap I got a little bit more comfortable. So open up, more capacity, I could go a little bit faster and then just competing to see how fast could I go. And that was that was just an amazing feeling. Like I said, it was a break from anything else that was going on in life and that was something I really, really loved. So then I moved to Austin like a year and a half ago. There's a club racetrack here. It's $300 a month and they have a Miata Race series.   David Lecko (00:22:53) - So you have to have like a 1991 miata and it's only got 100 horsepower. That is the cap. And then they strip it all down and it's all everybody is the same car. So then it's skill based. So there's like 30 people out there. We do 18 races per year. This is we I've done ten races so far. So I got a coach, worked a lot with him and went from getting lapped to now I finished like fourth place was my best finish. The last race we did. So it's been fun just to get better at stuff and that is just one of the most rewarding things in the world to me.   Sam Wilson (00:23:28) - Dude, that's so cool. Like what? What a nuance and what what a what to talk about niche like that's way niching down a miata 1991 Mazda miata 100 horsepower car I do you had a $500 car that was supposed to run for 24 hours straight.   David Lecko (00:23:47) - That's part of the challenge. It's a racing's not just for rich idiots, for all idiots, you know.   David Lecko (00:23:52) - And so but yeah, so, so now the Miata Race series, the car is definitely I mean, I've spent like 14,000 to buy the car and set it up properly. Um, but it is one of the best cars to actually learn on because if you do not execute the corners in the highest speed way, you don't have horsepower to fix the problem. So you're going to be slow the whole straightaway. And so it really is great for driver development and being out there in a real race against other cars. It puts you in these situations where it's not only good enough to be faster than somebody, but you have to know how to pass them to. And that's like a totally different thing when you're trying to, you know, get around somebody who's like of a similar skill level as you. So it's just a lot more to learn. And it's so much fun, like I said, to get better.   Sam Wilson (00:24:43) - Wow. That's really, really cool. I mean, how fun is that? And again, like it just that's, that's the thing I love about stuff like that.   Sam Wilson (00:24:52) - You said it already, but it's like you can't think about anything else. You can't think about your work. You're not you can't think about Deal Machine. You can't think about your properties. You think can't think about, you know, pending closings. It is I have to race and there's nowhere else for my mind to go except for right here.   David Lecko (00:25:08) - Exactly.   Sam Wilson (00:25:09) - That's so cool. And like, not for just for rich idiots. It's for all idiots. So that's. That's pretty fun, man.   David Lecko (00:25:15) - That race series is called The 24 Hours of LeMans, which is a play on Word to that famous race called Lima in France. So it's yeah, it's like a race that they do those all around the country.   Sam Wilson (00:25:26) - Dude, that's cool. I'll have to check that out. The 24 hour race. I'm going to write that down here. David It's been a blast having you come on the show today and talk about Deal Machine. Talk about you growing the company, the app, how you've used it personally and then how it's making a difference in other people's lives.   Sam Wilson (00:25:41) - I don't know if you know this as well. I was I'm a Hoosier as well, actually. I used to own a business in Carmel, Indiana, which is where I think you're from. So it's it's blast to have you here on the show today and talk about a lot of different random stuff. But if we if our listeners want to get in touch with you and learn more about you, what is the best way to do that?   David Lecko (00:25:58) - I got to do a selfish plug for my own podcast, The Deal Machine Real Estate Investing podcast. I co-host it with Ryan Haywood, who's done 400 deals after he did a 14 day challenge back in 2019. So he and his wife, they made 8500 bucks in their first deal. Now we co-host a podcast and we talk to. People who have quit their jobs through this wholesaling real estate business model. And so that would be a great way to get to know me because just like this podcast, I just learned so much of random stuff talking with you and that was so fun.   David Lecko (00:26:33) - So but I'm also on Instagram is the best place to contact me on Instagram.   Sam Wilson (00:26:39) - Fantastic. Delete, go on Instagram. We'll make sure we put that there in the show notes. David, thank you again for your time today. I do appreciate it.   David Lecko (00:26:46) - Thanks, Sam.   Sam Wilson (00:26:47) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

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

Today's guest is Mike Worthy.   Mike is the VP of Equipment Sales for the oldest/largest commercial laundry distributor in the Mid-South area.    Show summary:  In this podcast episode, Mike Worthy, discusses the laundry business and the opportunities and challenges it presents. He emphasizes the importance of doing business right and getting the right advice from reputable distributors. Mike explains that every case is different and thorough research is crucial. He provides case studies to illustrate the differences in laundry facilities and talks about the changing model of the industry. The conversation also covers rising costs, sophisticated ownership groups, the future of the laundry business, and the importance of choosing the right equipment mix and reliable distributor.  -------------------------------------------------------------- Intro [00:00:00]   Opportunities and challenges in the laundry business [00:01:46]   The shift in ownership and consumer expectations [00:05:29]   The changing model of the laundry industry [00:09:07]   Barriers to entry in the laundry business [00:10:38]   The importance of research and partnering with experienced professionals [00:11:51]   The future of laundry [00:18:19]   The specialization of people within their niches [00:19:44]   The importance of distributor guidance [00:21:29] -------------------------------------------------------------- Connect with Mike: Linkedin: https://www.linkedin.com/in/mike-worthy-0973b048/ Web: https://www.centrallaundryequipment.com/ Phone: 800-467-3194   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: 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:   Mike Worthy (00:00:00) - So people get into this phase of I'm just going to drop it off, have someone touch it, do it. I don't have to worry about, come back and pick it up. And that it continues to increase with wash dry fold, people wanting to use a phone app, people not wanting to use quarters and that that demographic changes daily on the value of people don't want to do what the old laundries used to do.   Intro (00:00:20) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:33) - Mike Worthy is the VP of Equipment Sales for the oldest and largest commercial laundry distributor in the Mid South Central Laundry Equipment. Mike, welcome to the show.   Mike Worthy (00:00:42) - Well, thanks for having me.   Sam Wilson (00:00:43) - Absolutely. Mike The pleasure is mine. I think this is the first time I've had anybody come on the show and talk about laundry. If anybody who's listening to this knows we are going long in the laundry business.   Sam Wilson (00:00:54) - And so I think this is a lot of fun. I'm glad to have you on today, Mike. There are three questions, though, that I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Mike Worthy (00:01:05) - Okay, so our company started back in the mid 80s when everyone had mullets and parachute pants and listening to Duran Duran. So we've been around for a long time. We started out also owning some some small laundry operations and we soon found out you you can't own an operation and compete with your customers. And so for the last 38 years or so, we've been totally independent, providing everything from commercial laundry to hotels, motels, vineyard laundries, hospitals and hotels and I've been doing this for good, gosh, over 20 years. And so had a lot of fun And enjoy the ride, man.   Sam Wilson (00:01:39) - That's cool. Well, tell me, I mean, is now a good time to be in the laundry business?   Mike Worthy (00:01:46) - It is if you do it right, that the key is it's always a good time to get in business and expand your portfolio.   Mike Worthy (00:01:52) - But do you do it right and do you have the right advice from the right people? So, yes, absolutely. Great time.   Sam Wilson (00:01:59) - Well, let's let's talk about what do it right might entail. I mean, there's we we see unlimited opportunity. And I think in our space, which we're in the retail you know where would the retail laundry space. So we do the self-serve, we do drop-off, we do delivery, all of those things. And I see unlimited opportunity to acquire stores and then go do it right. But I want to hear from you because you get to see all across the country all different types of laundry facilities, what does do it right mean for you?   Mike Worthy (00:02:30) - So it's every case is a case by case basis. That's that's the key. You can't just use a universal cookie cutter and says what works in Dallas is going to work in Marion, Arkansas, for example. So everyone is a is a is a case by case basis. And the key to everything is is getting as much information as you can from a reputable distributor.   Mike Worthy (00:02:52) - And so there's a long listing of things that you look for in distributors. But but the key is getting good advice, doing your research and getting as much research as you can. But boots on the ground is also equally important.   Sam Wilson (00:03:06) - Okay. So boots on the ground. But so you say you stay on a case by case basis. Let's look at some of these cases. How could some of how give me maybe two different case studies and how they would differ.   Mike Worthy (00:03:16) - Okay. So for example, suppose we're talking in a large town that has laundries for sale. So just because the laundry is for sale doesn't mean that it's a great idea or a great investment. It could be, but there's a reason that it's for sale to begin with. And there's a long list of scenarios that that something could be for sale. But as a business person, if I've got a business and it's doing well, why do I want to sell it? There's always that. Why there's always underlying things that's being sold because the equipment doesn't work or it's outdated or they can't get service or the equipment is obsolete.   Mike Worthy (00:03:52) - So there's a long list of things that you look for for sure, but you also have that equal opportunity if you want to buy your own property, build your own laundry, you know, kind of custom tailor it to to your needs. So we've got people that start from a ground up situation. We just had a great success story in South Arkansas, $1 million plus laundry that built from the ground up all the way to 16 foot ceiling fans and floors that look like the ocean to, hey, I'm just buying something and I'm just going to re-equip it and try to get my profits up. So a lot of different scenarios and everyone is different.   Sam Wilson (00:04:26) - Everyone is different. And I think that's that's the fun part about it, is that is that you got to you have to determine what the right store needs in a particular location. But let's let's talk about the Y sell scenario. I have this theory that the average laundromat owner is getting older. This is what we're seeing on the stores we're acquiring. They're getting older.   Sam Wilson (00:04:51) - They are still taking coins. They mean a lot of the stores we're buying don't have a website. They don't have a phone line. They don't do pickup and delivery and the list goes on. You know, I mean, the store we just bought, the guy was telling me all about how to do a bearing overhaul on a machine. And I just kind of looked at him and I'm like. Now. I don't want to know how to do that.   Mike Worthy (00:05:15) - No, you do not. It is not fun.   Sam Wilson (00:05:17) - No, in a poor use of their time. So I'm seeing. I'm seeing this this shift in ownership from older to younger, which just makes sense because, I mean, the model they have built is unscalable or unsustainable, rather.   Mike Worthy (00:05:29) - No, you've nailed it right on the head. And what you've also seen is that the days of the small laundry will be coming to a close sooner or later, Maybe not in the particular town that you're in or someone else may be in. But unfortunately, due to this day and age of Covid and social distancing, people don't want to be cramped in a small laundry.   Mike Worthy (00:05:47) - They want to have the amenities of a nice laundry. And I give this example all the time. I'm in my mid 50s and I grew up in the 80s, of course, watching a Chevy Chase vacation. And you'll hear a and I tell this to everyone, you'll hear a sentence in there that says, I'm so hungry I could eat a sandwich from a gas station and that back then you would think of a gas station. You would never eat there. You wouldn't want to use the restroom there. I don't want to stop, but nowadays you see a nice gas station and they've got food and drink and TV and Wi-Fi and all this good stuff. So what our demands are as a consumer has changed for laundry and gas stations and doctor's offices and shopping. And a lot of these people aren't up to speed and you hit it right on the head when you said wash dry fold and things to that extent, because I've got a I've got a son that's second year of college that doesn't want to do laundry.   Mike Worthy (00:06:36) - So people get into this phase of I'm just going to drop it off, have someone touch it, do it. I don't have to worry about, come back and pick it up. And that it continues to increase with wash dry fold, people wanting to use a phone app, people not wanting to use quarters and that that demographic changes daily on the value of people don't want to do what the old laundries used to do.   Sam Wilson (00:06:57) - I think that's that's probably the best comparison I have heard yet. I had I hadn't put that those two together. But you're absolutely right. And you would say, I think I think previous mentality would have said that that the people that want and use laundromats don't demand that those amenities. But they do. I mean, we just retooled a store here in Memphis. And I mean, it's like like you said, the floors are, you know, everything's new top to bottom, brand new paint, signage, machineries or equipment, the payment systems. I mean, it's just it's it's a spotless brand new store.   Sam Wilson (00:07:31) - And the place was a dump before. Yes.   Mike Worthy (00:07:33) - And you get into the stereotypes when you just say the word. Well, first of all, when you say the word coin laundry, it's no longer just coin. But you have that vision of your head of broken equipment and nasty and no air conditioning. And the market's changed because suppose you're you're you're a well-off gentleman and you're married and you've got three kids and you went to, let's say, Silver Dollar City over the weekend and you have all this laundry. Well, do you want to come home and you guys spend the rest of your Sunday doing laundry or take it down to a nice laundromat and knock it out in an hour, an hour and a half. Right. And so the general consumer doesn't want to go to a laundry that's nasty and dirty or unsafe or unlit. And so when you provide those services, you're not only opening up customers that don't have a washer and dryer, but now you've got grandma that spilled something on the comforter and you've got the kids that don't want to do all the football uniforms.   Mike Worthy (00:08:21) - And so your your clientele just basically jumps through the roof with the offerings that you can offer as a smart laundry owner, right?   Sam Wilson (00:08:28) - Absolutely. Yeah. On that store in particular, we've doubled revenues in just a few short months, which.   Mike Worthy (00:08:33) - Is just very, very doable.   Sam Wilson (00:08:34) - Very doable. Right. So let's talk about that. One of the one of the not one of the objections I was going to say blowback, but that's the wrong word. One of the objections I receive from potential investors, as they say. Well, I mean, well, if you can do it and it's so simple, like you just mentioned, lighting, machinery, payment systems, point of sale systems, staffing your stores, you know, increased hours, all those things that we do there, like that's anybody can do that. So what prevents somebody else from coming in and putting a store in the corner right next to you? I have an answer for that, but I'd love to hear kind of what your thoughts are on that.   Mike Worthy (00:09:07) - So as a distributor and I know I stress on this, but the model has changed so much because in the past, the way the laundry industry worked is you had to be a laundry owner to to be able to be a distributor because you have quotas. Just like in any job, you've got a quota, you got to hit your number. Well, if you're not out selling the customers, then the only way you're selling is to yourself. And so that is kind of changed where, hey, they're looking for manufacturers are looking for a full fledged distributor, not just an owner, but someone that is that handles everything from a hotel to a vintage laundry to a to a hospital. And so the ownership has changed on what they're looking for. And by ownership, I'm talking about the manufacturers. But when we get into looking to compete with someone, one of the things that we promise is we're not going to put a laundry next to you. If you partner up with us, you've got a you've got our word as a vendor of almost 40 years that why do we want to put someone right next to you? Why would we want to put something else you got to worry about? Two is franchised stores.   Mike Worthy (00:10:06) - We're not going to put a franchise store next to you. We're going to make sure that we take care of our customer. And it makes no sense to put and I know certain areas in Memphis. You can go into a two two square mile radius and find ten laundries. And half of them are all put in by the same person and four of them are owned by the. By the distributor. So you need to really even out the playing field and really dive into what you're doing. But that's the key of making sure you're finding demographics and a good spot. And as us, we're not going to build against somebody that we just built for.   Sam Wilson (00:10:38) - I think I think the other side of this and one of my answers to it is that the the cost to build stores has risen. I mean, incredibly incredible.   Mike Worthy (00:10:49) - Well, yeah. And the finance. Right. Just went up, too, as you know. So this is we take the call every day, 3 or 4 times a day. Hey, I'd like to get in the laundry business.   Mike Worthy (00:10:57) - I've got $5,000 and we do take that. So unfortunately, getting into a business, it's one of those things you got to have some money to make some money. Right? And that's kind of true because some of the bigger investments now are million dollar stores or half million dollar stores easily easy before you start getting into it. Really a lot of improvements. These are some basic stores that are 4 or $500,000 just on equipment. Right. And then contractor cost and plumbing, all of that stuff adds up. And sometimes people aren't educated enough to and I don't mean that badly. I'm saying they don't do their legwork right, of saying, hey, before I buy this property, let me see the demographics. Let me see if there's laundries nearby. And oh, let me make sure if I'm going to put a laundry here, I don't have to bore a drain under a state highway. That's going to cost me an extra 20,000 grand.   Sam Wilson (00:11:43) - Right?   Mike Worthy (00:11:43) - Right. So there's a lot of things and that's that's the key, is to partner up with someone that's that's done it, that understands every nuance of how it works.   Sam Wilson (00:11:51) - You're spot on. Correct. And those are all the all the answers I give to investors because we have our clean laundry fund, which is we're going out and acquiring 20 to 25 stores through that fund. And people say, well, why can't, you know, why can't just the guy down the street just come out and start a laundromat? Because all the things you just mentioned, one, it's knowing what you're doing. And two, it's just the the incredible amount of capital now that it takes to get to build and then, you know, furnish a store it completely or put all the equipment in a store. I mean, I'm budgeting anywhere from 750 to $1.5 million per store now. I mean, at the low end at 750 to 800 and easily.   Mike Worthy (00:12:27) - And then if you have to build your building, add to add to that, add to that.   Sam Wilson (00:12:31) - Right. And so I think that's one of the barriers to entry that I personally really like one because it's like it keeps the mom and it keeps it keeps just that I hate to say it keeps them out, but there's just there's just a natural barrier to entry and getting in the business.   Sam Wilson (00:12:44) - And so I think that's it's good in the sense. The other thing I'm seeing I think is really good is a, um, a sophisticated ownership group entering the space. Tell me what you think about when I say that. What do you think?   Mike Worthy (00:12:59) - So and that's kind of a loose term because everyone's different and sophistication is based on someone's own opinion on for sure. Where did they get that information? So you get some folks to get some great information and you get some that, hey, I read it. You know, everything you see on the Internet, it's true. And everything you read is true. You get some people that get some bad information. And that's that's the key. I can't stress that enough is if I'm shopping for a vehicle, I'm going to look at the three or 4 or 5, six different brands, and then I'm going to start looking at dealerships. And in this day and age of point and click and instant gratification through through a, you know, through a drive through or through your phone.   Mike Worthy (00:13:36) - Sometimes people don't do the research. They just say, Hey, I found the first guy right here. Here's the first one on Google. I'm going to call him. Oh, he sounded good. And don't do the rest of the research. So there's a lot of underlying things that we see when we say, Hey, this group may be great and this group may not be so great, but they both think they're great. And so the key is just using the research that's available at your fingertips.   Sam Wilson (00:14:01) - Right? Right. When I when I say that one of the things I'm thinking of is that we're just seeing people come to the space that want to do this professionally. They want to build a replicable, scalable business that serves their customers really well. It goes back to, you know, the, you know, the rise of the Speedway gas station, talking about things that you you know, where it's like, hey, you get there clean. They're well lit. I mean, you can see two gas stations, one across.   Sam Wilson (00:14:26) - I'm thinking of BP versus and BP maybe coming around. I don't know. But if I think of which one's going to be better lit and more well equipped, I'm going to say, well, it's going to be a speedway gas station versus maybe a BP gas station because maybe. Right. Different standards. And so what I'm seeing is that same thing in the laundry space where we're seeing consolidation ownership groups are buying ten, 20, 30 stores at a time or in their portfolios, rather, versus the just stand alone mom and pop owner that, again, you know, is lacking a phone line or a website to.   Mike Worthy (00:14:54) - That's correct. And that's not where it's at. So if I'm building a laundry, that's what I'm looking for, is if my competitors, the small little laundry mom and pop, the biggest thing if I walk into a competitor and there's all these signs that say Broken out of order, that's my key to build. Absolutely in in a heartbeat builder by now. And it makes it makes sense.   Mike Worthy (00:15:13) - But you've also got to do those demographics just because you see the one laundry in town and then you start looking at the number and going, Well, I'm going to spend $600,000, but the laundry is only going to make $80,000 a year. That's not smart, know, And being able to understand the demographics, it's not just let me print something out and hand you a nice portfolio and you figure it out. You have to be able to dive in, do the talk, walk the walk, and then you get into the you know, then you get into the deep dive of who's the distributor in the service after the sale and the parts and the equipment brand and, and it goes on and on. But this is not we do see a lot of people that have got the right mindset, like you said, But, hey, my wife's going to run it in her spare time and I'm a doctor over here. This is not that. This is not the glamour of a subway or a restaurant.   Mike Worthy (00:15:56) - And look at me. You're going to you're going to have a baby stock hung in a pump. You're going to have someone lost their money and they're upset. You're going to have you know, you're going to have a myriad of things that could could happen in a laundry, as you can imagine. But this is your this is a hands on. This is not just I'm going to set it and forget it and go rake up all the money and go buy a new bass boat. And that's where the mentality has been for the last couple of decades, right?   Sam Wilson (00:16:20) - Yeah. And you said all the things that could go wrong. I'm going to switch that word out and say all the things that will go wrong. Well, I was.   Mike Worthy (00:16:26) - I was being optimistic, But you're you're right on there, you know. You know what I'm talking about.   Sam Wilson (00:16:29) - Absolutely, man. I've and that's that's the other thing is that is it is. It is. And you can decide, I think, how operationally complex you want to make it.   Sam Wilson (00:16:39) - But even even if you're not doing wash dry fold, even if you're not doing delivery laundry with drivers and trucks and all that stuff that you can add on, even on just the self-serve side of things, it's still an operationally complex business. And I think that's that's what people kind of miss estimate as they look to get into this and go, oh my gosh. And we just have the fortunate pleasure of just kind of learning on the job and having other things going on too. We got in the laundry business kind of by mistake, and then I found out I loved it. I'm like, Oh, this is great. Well, it's.   Mike Worthy (00:17:10) - Great. It is. It is fantastic. You meet a lot of nice people. Yeah, it is. It is one of the things I mean, we've been doing almost 40. I've been in almost for 20. And I learn something new every day.   Sam Wilson (00:17:19) - Absolutely. Let's talk.   Mike Worthy (00:17:20) - Coming to work.   Sam Wilson (00:17:21) - I do, too, man. I think. I think it's great.   Sam Wilson (00:17:23) - One of the there's two things I love about the business. One is that it has excellent margins. And then I think the other side of it is that when you bring an excellent product to market, we get to serve a demographic that's not used to being served in that way.   Mike Worthy (00:17:36) - I'm almost shocked if this is for me, this, wow, this has air conditioning, you know, so many places you walk into and it's really kind of sad of how can you expect someone to to operate a facility and you don't have heating air or you don't have a restroom or you don't have a just basic a chair, right? And so you come in and offer. Someone that what they expect and you go beyond the expectations and that's your advertising. They will tell people and then they'll spread the word. They'll post it on Facebook. That's your that's where you're going after is the word of mouth.   Sam Wilson (00:18:11) - Right? We have we have this new store we just brought online. In the last seven days. We've generated over 55 star Google reviews for that store.   Sam Wilson (00:18:19) - I mean, it's like it's just not that hard to present a really great product that people love. I want to talk to you before we run out of time, though. Let's talk about the future of laundry. One of the things that I always emphasize is that I feel and tell me if I'm right or wrong. So I'd love some feedback on this that that the laundry business is recession and inflation resistant. What do you think?   Mike Worthy (00:18:42) - Well, they've been saying that same sentence and you've hit it right on the head again for for decades. And when the when the chips are down, guess what? People are at the laundry, Right. And then when the chips are up and everyone's doing well, guess what? Then you've got to think of other ways to keep that business going. And guess what? The wash dry fold you've just hit an area if you're doing wash dry fold for people that have a washer and dryer and have a have a two car garage and have a college education, they just don't want to do laundry.   Mike Worthy (00:19:06) - I don't like to do laundry. I hate it. But if I can take it and drop it off and someone will have it all nice and pressed and ironed for me, hey, great. I'll pick that up and I'll pay for that service. You pay for the for the biggie fry or the biggie drink. You know, there's there's things people want to pay for and that's one of them that more and more people are going, I don't want to do laundry. I don't want it. You think of the think of the the influx now of landscapers and yard workers. Used to be, you know, everyone was proud to do their own yard. I'm going to mow my yard. I'm proud Now. I was like, I'm not doing I'm hiring that I got my time is valuable, right? And so put value on your time. And that's why you see the Wash Dry fold is doing so well.   Sam Wilson (00:19:44) - It really is. Yeah. I mean, this goes back to just the continued specialization of people within their niches.   Sam Wilson (00:19:51) - It's like and the same thing holds true for me. I mean, you hit it on the head the maybe 2 or 3 years ago. I'm like. I'm no longer mowing my lawn. This makes no sense to me to go out on a Saturday and spend two hours mowing my grass when it's like, Well, I could spend two hours building our laundry business or any of our other commercial real estate businesses and have a far greater return on my time than pushing more around this.   Mike Worthy (00:20:14) - Maybe it's me. I take the two hour nap on a Saturday. You know, let me relax. People want to enjoy some time off for a while, and that's not where it's at. And laundry also is not where, you know, do you really want to have to spend all that time doing that? More and more people are saying, no, I'll take it somewhere, as long as it's cool, clean and comfortable and reputable. That's not going to happen in these little small, dumpy little laundries. You offer what you know, you basically you build it, they will come.   Sam Wilson (00:20:37) - You build it, they will come. That's so true. Yeah. I always make the joke. One of the stores we just bought the five closest stores to this one that we're remodeling. I wouldn't wash my dog in, let alone go. It's like, okay, we have. We have nothing but unlimited opportunity in upside. So I really love the idea. I didn't know that that was really something you've been saying for, you know, since coin laundries or just laundry.   Mike Worthy (00:20:59) - It's been around for a while. But that but you hear that and people hear it. But you still have to have the eagerness and the finances to get into the business. Right. And it's a great and you were right when you said, hey, it's think of how many people have a restaurant, mom and pop restaurant, and you see them come and go, This is not going to be the mom and pop come and go investment. You're not going to see that. Nope. And so kind of weeds out the bad investments.   Mike Worthy (00:21:22) - Hopefully. Now it doesn't mean we doubt everybody, but then now you've got to make sure you've got the right equipment mix and the right distributor to help.   Sam Wilson (00:21:29) - That's it. I mean, that's it. And we rely heavily on our distributor for making those informed decisions because it and one of the things I keep saying to our investor base is that we want to thoughtfully scale, like as we grow, because you can still buy a bad store, you can still buy a bad location, you can still overbuild under build wrong, mean wrong payment systems. You can misread it without all of the correct data and think that is where a distributor such as yourself really, really comes in and helps guide. And I know you guys are in the business to sell equipment. I understand that that's how you get paid, but also you build alongside of those that you work with because if we fail, you fail too.   Mike Worthy (00:22:07) - So that's actually part of that is true and part of that is false. So one of the things that we've said since we've opened our doors is my job isn't to sell you equipment and you go, Well, what's that? My job is to make you successful.   Mike Worthy (00:22:21) - I can't afford to sell you equipment. And then you're, you know, I'm just talking. And I said, you get you all hopped up to buy equipment and you fail. I can't afford that. I want you successful. And then you're going to tell someone or you're going to buy another store or they're going to know, Hey, call Mike. This guy really treated me right. I can't afford to fail. So, you know, when we say we're truly behind the customer from the demographics to the design to, you know, trying to get same or second day service being in town, we put a strong focus on that. So it's it's not hey, let me just make a quick sale that, you know, we all like to make money, but I like to see you successful. That's that's my number one goal.   Sam Wilson (00:22:57) - Love it. Mike. Thank you for taking the time to come on the show today. It was certainly fun for me to get to banter with somebody else about the laundry business.   Sam Wilson (00:23:05) - I don't get to do that every day. We talk a lot about all the other commercial real estate asset classes, and this was personally a lot of fun for me, just because it's something we are so passionate about right now. If our listeners want to get in touch with you or learn more about you or the laundry business, now that they've got a front row seat to how it should be done, what is the best way to do that?   Mike Worthy (00:23:25) - Okay, so a couple of ways. Central laundry equipment, that's our website, Central laundry equipment. Or you can call our 800 number. We have offices in central Arkansas and Memphis. That number is (800) 467-3194. (800) 467-3194. And we'll even send you a couple of some information about our company. And we've got some great infomercials that will talk to you and you'll hear from our customers, our manufacturers, our people that have invested in laundry and people that we've done service for, for 20, 30 years that will kind of talent who is central laundry equipment.   Sam Wilson (00:24:05) - That is fantastic.   Sam Wilson (00:24:06) - We'll make sure we include all of those things there in the show notes. Mike, thank you again for your time today. I certainly appreciate it.   Mike Worthy (00:24:12) - Take care. Thank you again. Hey, thanks.   Sam Wilson (00:24:13) - For listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

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

Today's guest is Susan King.   Susan is a registered architect and a principal at HED, one of the oldest and largest architecture and engineering firms in the country.   Show summary: In this podcast episode, Susan King discusses her passion for architecture, her journey to becoming a licensed architect, and the challenges she faced along the way. Susan also talks about two exciting projects she is currently working on, including a conservatory built using passive house methodology and a collaboration for underserved neighborhoods in Chicago. The conversation also touches on the challenges of unique designs and building regulations.    -------------------------------------------------------------- Intro [00:00:00]   Susan's Journey [00:00:49]   Challenges of Becoming a Licensed Architect [00:02:22]   Exciting Project: The Conservatory Apartments [00:09:55]   Passive House Certification [00:10:55]   Challenges with Building Codes [00:14:21]   Demand for Apartments and Active Adult Housing [00:20:47]   Susan King's contact information [00:23:30]   Show notes and website mention [00:23:49]   Closing remarks and call to action [00:24:01] -------------------------------------------------------------- Connect with Susan:  Linkedin: https://www.linkedin.com/in/susan-king-faia-leed-ap-bd-c-lfa-0057b45/  Web: https://www.hed.design/   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: Susan King (00:00:00) - A lot of people like to talk about net zero. These days, I view it as an important step towards net zero because think that you need to make your your project, you know, rightsize it, make it as efficient as it can be, make it using as little energy as possible. And then you can talk about trying to, you know, get all the way to to not needing any, you know, any power brought to the building.   Sam Wilson (00:00:23) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:36) - Susan King is a registered architect and principal at one of the oldest and largest architecture and engineering firms in the country. Susan, welcome to the show.   Susan King (00:00:47) - Thank you. Thank you for having me.   Sam Wilson (00:00:48) - Absolutely.   Sam Wilson (00:00:49) - The pleasure is mine. Susan, There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Susan King (00:00:58) - All of them in 90s.   Sam Wilson (00:01:00) - Got it.   Susan King (00:01:02) - Okay, so where did I start? Guess I wanted to be an architect from a really, really young age. I grew up in northeastern Ohio. I was the artist in the family. I was always drawing and I studied Frank Lloyd Wright in, um, in art class and particularly Fallingwater. And that was it. After that, I'm like, that's what I want to do. And so guess fast forward several years later, graduated from college architecture degree worked, worked and became licensed and then started to kind of focus my career into housing, which has been all kinds of housing but has been the main focus of, you know, of my professional life. So when I say, yeah, I because when I say all kinds of housing mean with the exception of no single family housing, but does senior living, underserved populations, market rate, high end luxury condo, the whole student housing, the whole gamut of multifamily, you.   Sam Wilson (00:02:12) - Get to see it all. And I guess for those who are listening, I've got several architects as friends and as in-laws.   Sam Wilson (00:02:22) - I mean, getting through architecture, getting not just through school is really, really hard and then getting passed all the exams. I mean, I don't think people realize how many exams are still left when you guys graduate college.   Susan King (00:02:38) - Yeah. Yeah. So I've blocked all that out of my life, I'm sure. So. Well, and then I'll just tell a funny story that before I studied Frank Lloyd Wright and decided on architecture, I had I love animals. I'm a cat person and I wanted to be a veterinarian. And so the thing that amuses me now, looking back, is that I was like, Oh, no way. I'm not going to school for eight years to be to be a vet. And then instead I ended up going for six to become an architect. And then and then also after that's over, as you say, had to finish my I had some of my internship while as part of my schooling there's a it constantly changes so my info may be a little out of date, but it's like a 2 or 3 year internship where you're then out of school working as an architect, under supervision, people who are licensed.   Susan King (00:03:32) - And then you get to take the fun licensing exam, which in my day was when it was in person, was a one time of year. You got one shot at it. Um, I think it was 3 or 4 days of test after test after test. And then if you didn't pass all of it, you had to wait a whole year to to retake it. So, yes, it was quite an ordeal. I think I still have nightmares about like waking up and finding out I have to do that again. But today, today, it's all modernized. And I hate to sound like my parents. Like when I was your age, I had to do this, that and the other. But it's all I think it's like all year round. It still takes people a long time to get through its 8 or 9 tests. Still, that hasn't changed and it does still take them several years. Even though it's spread out, you know, they can they maybe it's worse now. They're constant.   Susan King (00:04:25) - They take you know, it's constant throughout your life until you're done. And it can take 2 or 3 years to get through all of it, right?   Sam Wilson (00:04:32) - Yeah, it's amazing. It's absolutely amazing. I just. Yeah, watching, watching one of my sister in law's get through, it was just like, oh, my gosh, does this ever end? And so years later, they're still taking and studying and just just banging their head against the desk, you know, studying day in and day out for one exam, they get 3000. Well, we got eight more to go like, Oh, right.   Sam Wilson (00:04:53) - And so good on you. Good on you for getting.   Sam Wilson (00:04:56) - Through it and getting it done. I mean, I guess I say all that to say one, It takes a lot of commitment and discipline to get that done. And then secondly, you guys have to know a lot to do what you do. And I think that's that's really, really cool. Let's let's kind of dive in, if we can, into what you particularly work on there at head and kind of well, just tell me a little bit about that.   Sam Wilson (00:05:19) - Maybe we'll, I'll ask my next questions later on.   Susan King (00:05:22) - Yeah. So, so now right. And so I'm a principal, so I'm an owner of the firm now and then. Guess that's a whole nother journey to if you even want that, you know, some architects don't know. Necessarily, you know, want that. Want that responsibility. Yeah. But I always did. I guess I'm full of jokes because the other joke I make now is guess because I get asked to speak a lot about different things and I mentor a lot. And, um, one of the other things I usually share is that I always wanted to be an owner, Um, but I thought I would be with a smaller firm. I did not see myself with a large national practice, so but on the other hand, I never wanted to be a sole proprietor either. I'm very collaborative. Um, like to bounce things off people always. Everything's a team, especially when you're coming, you know, when you're talking about building or designing buildings.   Susan King (00:06:20) - There's so many pieces to it that it's always a team effort. But the surprise to me was I always thought I'd have maybe 2 or 3 partners, you know, didn't think I'd have. I think I have 50.   Sam Wilson (00:06:32) - 50 partners.   Susan King (00:06:33) - So I'm one of 51 shareholders in the firm. So but I, I think I mentioned already, I mean, went to I graduated from the University of Cincinnati. It was a bachelor of architecture degree. And with that came some practical experience because they had I think they still have this it's a cooperative program. So it takes you six years to get your five year degree because you're after your second year, you're actually working in architectural offices. So that begins that's the beginning of your your intern period that counts towards the licensing time. So, um, so after that, I wanted to move. I worked in Chicago as a student and wanted to return here after graduate and, and that's what I did. So I worked in a few different firms all smaller. And even the firm that I joined in Chicago that became head was a 40, 50 person firm.   Susan King (00:07:33) - And um, and has formed as a it's been a series of acquisitions over the past like 20 years. Guess that's how we've grown to a national practice. So, so I've been here actually kind of a long time and I was an associate at the time that so was already licensed. And I do a bit of design, a bit of planning in all the way into the details. I spent several years doing contract administration, which is observing, observing the buildings, getting built. So I kind of had all of that under my belt before then, you know, became an owner of the of the project. And so but when I made the move to ever since I've been here, it's I came here to do multifamily housing and that's been what I've done. And like I already mentioned a lot of affordable housing and a lot of senior living at all levels of care. Um, has been my main focus. So when you ask like, what do I like? What is my day? What did my day look like? Um, uh, so it can it's different every day.   Susan King (00:08:45) - And maybe that's why I like it. Um, but it'll involve a bit of, you know, depending projects at different phases. I mentioned earlier, we have a project under construction right now, so I've got actually a couple of things under construction right now. So there's a little bit I'm not the one in the field, but, but do get involved, you know, in different things that come up that are going on during that process. But prior, prior to getting to construction, there's there's design, there's planning, there's getting the the client doing the marketing to get the project to begin with. So going all the way back to the other end of the line. So I kind of as a principal, I touch all of that.   Sam Wilson (00:09:24) - All of it, all of it, Yeah. Know and, and that's, that's amazing, first of all. But let's, let's, let's talk a little bit about a project you're most excited about right now. What's some things you're seeing because I know you got to have favorites don't lie to me and tell me you don't because there's some stuff you're like, Oh, this is really fun to work on.   Sam Wilson (00:09:42) - The other stuff, you're like, okay, that's a snooze fest. We'll do it. But that's boring.   Sam Wilson (00:09:47) - So yeah.   Sam Wilson (00:09:49) - I'll talk about the stuff that put you to sleep, talking about the stuff you're working on right now that's really, really fun and compelling for you personally.   Susan King (00:09:55) - Okay, So we'll I'll start with the one that we chatted about right before we came on live. Um, the one that is under construction. Um, it's a smaller project. It's only four stories, but it is, it's all affordable. It's called the Conservatory Apartments. It's here in the city of Chicago. And what's so I don't know if I said this already, but it's 43 studio apartment, so that's what makes it a little bit smaller than normal. Um, and it, it has a very sustainable, energy efficient green, green if you want to use that word agenda. So I really get excited. Don't really care. With the topology is. But if a project can bring together the sustainability pieces and make it happen, I think that's where that's what really gets me excited and this is one of those in the project is pursuing passive house certification, which is kind of an extreme green.   Susan King (00:10:55) - I always want to say prescriptive. I don't know if that's really right, but it's a tried and true methodology of building that is a little different than the traditional way, but it produces a very high performance envelope for the building. And I view it as a lot of people like to talk about net zero these days. I view it as an important step towards net zero because think that you need to make your your project, you know, rightsize it, make it as efficient as it can be, make it using as little energy as possible. And then you can talk about trying to, you know, get all the way to to not needing any, you know, any power brought to the building. So, so that project is about halfway done. And we had received our our design certification for Passive house and the acronym is US. So Passive House Institute, United States. There's actually a think a European or German institute as well. Um, so they are the ones that are monitoring, monitoring what we're doing and making sure we're, we're doing it all correctly.   Susan King (00:12:05) - And today actually happens to be the blower door test where they're going to think it's happening. It should be happening right now as I'm speaking, it's pumping all this air air into the building to check the whole envelope before they start doing the the cladding and everything to make sure it's as tight as it is supposed to be. So this is the first time my firm has has been able to, you know, have had the opportunity to pursue this type of certification. A lot of people might be more familiar with Leed. We've done a ton of lead and all of that. So to me, this there are these. Other methodologies out there, or if it's not really technology, but certifications that are a little more extreme green in my opinion. So like living building challenge and and passive house think that in those categories. So so that's one project. Um, I'm also I have another project that's just starting that we are actually also in Chicago but we're teamed with a, another firm from California. Um, that's part of that we just won earlier in the summer.   Susan King (00:13:15) - It was part of a design competition here in Chicago. There's for the past 3 or 4 years, there has been an initiative called Invest Southwest. And it was focused on our, the neighborhoods of Chicago to the south and to the west, trying to bring catalytic projects into neighborhoods that had previously sort of been underserved, underdeveloped and all that. And this was an initiative coming out of the mayor's office. And so it was it was highly competitive. And so there were several of those types of projects going on around the city right now. And so we're we're again, proud to be part of one of them.   Sam Wilson (00:13:54) - That's really cool. I mean, yeah, those are those are fun, fun projects for you to work on. Let's go back to the four story conservatory project for just a second. I had a question on that. When you're doing such a unique design, unique building methodology, what is that process like? Interfacing with local building codes, building inspectors? I mean.   Susan King (00:14:21) - Oh yeah.   Sam Wilson (00:14:24) - It can't be an.   Sam Wilson (00:14:25) - Easy row to hoe.   Susan King (00:14:27) - No, it was not. But think it think it's going to get easier here now and not I'm not going to say because because we we forged the way by ourselves, that's for sure. But I'm laughing because we we actually had an amazing time getting our permit a year ago. I was just pulling out my hair going, Are we ever going to get this thing out? And the interesting thing, though, about our that project and that timeline, we happen to just be paralleling it was sort of like we were just maybe just ahead, if we'd just been a couple months later, her life would have been easier. But the, the codes were changing here and have changed. Um, and so it should be I'm hoping to do another and I'm hoping the road will be easier the next time. But we actually had to ask for, um, an alternative compliance path on our, our ventilation requirements. And again, lucky for us, there was a whole group of advocates and other people who were working on this issue directly with the city of Chicago Department of Buildings to get these changes that we were asking for, um, built into the code.   Susan King (00:15:43) - And so it's just the little, you know, it was, yeah. So all of that was taking taking officially effect as we were finally pulling our permit. So our timing was just in, in parallel with it and just keep thinking that, yes, my next one and everyone who is coming behind us, it should be easier. But but historically, um, the city of Chicago, their their building code and I'm not a mechanical engineer, so I'm not the best person to be able to explain this. But it was around the things we were asking for were around ventilation and exhaust and that, um, you know, having a really tight envelope. You've got to balance it with a mechanically ventilated system so that you don't get, you know, the sick building and all of that. So it's really important, right? It's important stuff. And it's reason to be, you know, make sure you're doing it right and all of that. But, um, but, but yes, it was quite, um.   Susan King (00:16:43) - It was it was a challenge and it was long. And I do keep thinking back because last year at this time we were trying to get our the design certification piece is kind of the step where the institute signed off right before you, you know, before you start construction. And we were on while I'm anxious today that our blower that the whole building blower door test is going okay. Um a year ago it was even more.   Sam Wilson (00:17:06) - Even more more angst.   Susan King (00:17:07) - About it like are they going to approve this or are they not going to approve it? Can we get the permit out? Um, you know, is this code going to be adopted? Which it has been. And so that's pretty exciting. And, and I will then say I'll put it in Chicagoan context. So that that had been a big barrier. Our ventilation apparently we are buildings here, we're over over ventilated which of course then takes energy to sure. But if you look at if you go east, interestingly enough, to New York City and Pennsylvania and then the entire state had an initiative and then also Boston did something recently as well all all around passive house.   Susan King (00:17:50) - So to fit into your like they are already scaling passive house up. So I'm anxious for Chicago to catch up with them but because want to say think Boston like did something really radical you could kind of maybe Google it and find it. But I want to say they they built passive house straight into their code, but it might not be exactly that extreme, but it was pretty radical. And so think believe this is the way it's going. We are building differently but think we're actually building the way we're going to build in the future, right?   Sam Wilson (00:18:22) - No, And that's that's it. I mean, yeah, I look at this is obviously I'm not an architect. I'm loosely in, you know, I've owned a way too much real estate. So I see a lot of it. And I've been in the trades. I've had a business in the trades for a long, long time. And you see the way buildings are built, you see the materials being used, you see the the waste, you see the inefficiency in the building.   Sam Wilson (00:18:46) - But it's just the way it is. Like even looking here in Memphis, it's like the housing stock just in the general single family housing. It's just so old. It's so old stuff is just horribly inefficient. And it's like, my goodness, there's got to be a better way than continuing even in the new build stuff. It's just it's still that feels like it's the same. It's just the same product. But. It's going to fall apart faster. So it's like, you know, what are we.   Sam Wilson (00:19:15) - Doing?   Susan King (00:19:15) - Yeah, we should build for length, build for duration, durability, and.   Sam Wilson (00:19:21) - Go ahead.   Sam Wilson (00:19:21) - I'm sorry. Oh, yeah, no problem.   Susan King (00:19:23) - But you just made me think of the other thing. That mean we. We've dabbled in it. But the other big construction change, I would say, is modularity. Right. Mean and or you know, we see a lot of prefab components but but everyone thinks it's like kind of a no brainer that the the solution to the housing crisis is is modular units like why can't we have an apartment come out pretty much built you plug it in.   Susan King (00:19:50) - Right. And at least for whatever reason, it doesn't get off the ground like people try and it dies. And I it's a little bit frustrating to watch but think that's the other thing that that's got to happen.   Sam Wilson (00:20:03) - It's coming It's a it's a slow moving process, but it's certainly coming soon. We got just a couple of minutes here left and I've got one more question, more from a just kind of I going to call it market sentiment, but I really want to hear from you because you guys get kind of a front row seat to all the projects being built around the country to what builders are looking for, what they want to build. Coming to you guys probably saying, Hey, can we even do this? What's the possibility here in all of the housing profiles that you guys work inside of? What's the type or the product that's in most demand for you guys to be architects on and to draw up plans for and. Yeah. What?   Sam Wilson (00:20:45) - Oh, yeah.   Susan King (00:20:47) - Yeah. Good. That's a good question.   Susan King (00:20:50) - Think it's. It's apartments, but think right now. Uh, probably for the next. So things come in cycles, Right? And so I mentioned, um, our firm in our Los Angeles office kind of rode. There was a high rise housing boom there for the past ten years before Covid. And we got to do a lot, a lot of units built a pretty strong portfolio out there. And then, of course, it's on the, you know, you overbuild and then it cycles down. And so out there, we're seeing a lot of the, um, little maybe a little more suburban, less dense, but still probably 3 to 4 stories in height, but a little more sprawling, you know, apartment complexes. Um, in and we didn't, we didn't touch on senior living but think senior living is always in demand and then but there's a new and we we're pursuing a lot of these but we haven't landed anything yet. Um, there's kind of a new category in senior living called It's a terrible name, but it's called Active Active Adults.   Susan King (00:22:00) - But it's really 55 plus apartments but without any kind of medical or nursing. And they don't they're standalone. That's what maybe separates them from the continuum of care life plan, community type campuses that were being done. So I think that's on the I, you know, we're anxious to to have some of that in our portfolio. We don't yet but think it's it's coming and and it's that baby boomer the end of the baby boomer the next generation X guess you know they're like we're healthier we don't we don't consider ourselves seniors don't call us that and active adult probably isn't the right name. But that's somehow what we we've got right now, which can also have issues with with with fair housing and all of that. They have to be careful. But I'm surprised it's lasted as a as a label label.   Sam Wilson (00:22:54) - Right.   Sam Wilson (00:22:55) - That's very, very insightful. Susan, I have loved having you on the show today. Thank you for taking the time to really just break down your journey into becoming an architect, what it takes to become an architect, the types of assets you guys are working on, you know, breaking down this conservatory project with passive house there in Chicago.   Sam Wilson (00:23:15) - I think that's absolutely fascinating. You guys get a front row seat to kind of what is going on in the commercial real estate sectors across the country. So I appreciate you taking the time to come on today and share with us if our listeners want to get in touch with you or learn more about you and your firm, what is the best way to do that?   Susan King (00:23:30) - Um, I'm on LinkedIn, so that's probably, you know, you can Google my, my name with our website is W WW dot design. So. And I'm there too. So head dot design.   Sam Wilson (00:23:48) - Head dot.   Sam Wilson (00:23:49) - Design. We'll make sure we include that there in the show notes. It's a very pretty website. I should expect nothing less from an architecture firm, but yeah, very, very cool. Susan, thank you again for coming on today. I certainly appreciate it.   Susan King (00:23:59) - Okay. Thank you. Thank you for having me.   Sam Wilson (00:24:01) - Hey, thanks for.   Sam Wilson (00:24:01) - Listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:24:05) - Favor.   Sam Wilson (00:24:06) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.  

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