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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 → email@example.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 → firstname.lastname@example.org 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 → email@example.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 → firstname.lastname@example.org 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 → email@example.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 → firstname.lastname@example.org 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 → email@example.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 → firstname.lastname@example.org 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 → email@example.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 → firstname.lastname@example.org 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 → email@example.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 → firstname.lastname@example.org 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 → email@example.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 → firstname.lastname@example.org 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 → email@example.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 → firstname.lastname@example.org 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.