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My goal is to provide information about real estate investing that will actually help the average aspiring investor take the steps necessary to start and grow their real estate business!

Jesse Fragale


    • Jan 26, 2022 LATEST EPISODE
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    From Tech to Real Estate with Tim Milazzo | EP89

    Play Episode Listen Later Jan 26, 2022 39:00

    Tim is the co-founder & CEO of StackSource, a tech-enabled commercial Real estate financing platform. StackSource has now completed over $250 Million of commercial financing transactions and they are in growth mode They are re-inventing the stagnant mortgage brokerage model with a tech-enabled marketplace/service. Tim speaks from experience when he says that the best possible financing for a commercial/multifamily real estate deal doesn't have to be painful. StackSource brings transparency to commercial financing. In this episode we talked about: Tim's Bio & Background Genesis of StackSource Platform StackSource Distinguishing Aspect Capital Markets Overview Underwriting Real Estate Inflation and Interest Rates Debt Market Residential Real Estate Space Tim's Team Structure Promising  Areas in Tech Space, Real Estate Tech and Property Tech Roll Up Strategy in Real Estate Mentorship, Resources and Lessons Learned Useful links: tim@stacksource.com https://www.stacksource.com https://www.linkedin.com/in/timmilazzo/ https://www.facebook.com/TimMilazzo Transcriptions:  Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Or ladies and gentlemen, my name's Jessica gala. You're listening to working capital the real estate podcast. My guest today is Tim Palazzo. He's the co-founder and CEO of stack source. A tech enabled commercial real estate financing platform.   Stack source has now completed this hot off the presses over half a billion of commercial financing transactions and they're in growth mode. They are reinventing the stagnant mortgage brokerage model with the tech enabled marketplace slash service. Tim speaks from experience when he says that the best possible financing for commercial multifamily real estate deal doesn't have to be painful. Stack source brings transparency to commercial financing. Tim, how you doing today?   Tim (1m 1s): I'm doing great, Jesse. Thanks for having me on.   Jesse (1m 4s): Well, thanks for being here. I was going to say it in the bio here, but you might as well give listeners a little bit of a background because it seems that prior to stack source, you were in the tech space. It looks like Facebook, Google. Maybe you could talk a little bit for listeners about your background in real estate and how you got to the place that we're at today.   Tim (1m 26s): Yeah. Thanks so much, Jesse, for the opportunity. So real estate is one of these things that could have been, you know, in my blood, so to speak, right. I had an immigrant grandfather who late in his life after saving up from his union job, started buying like a couple of commercial properties in his town, in New Jersey. And then my dad was full into it right away as a, a leasing broker in New York city. And he became a managing director for a boutique leasing brokers that was then bought out by CVRE, which is now the number one, leasing brokerage in the city.   And I interned at a real estate company when I was studying finance in college. And that would have been the natural path is to follow this, you know, generational real estate path. I always loved technology companies. I loved tech and smartphones and software programs and video games. And that's the stuff that really made me excited. And so when I came out of college, I went and worked for tech companies specifically in advertising technology for several years before coming back to real estate, seeing this opportunity to merge technology and software with the real estate industry.   And I saw a spot that I thought I was really needed, and that's why I found it stack source.   Jesse (2m 46s): Awesome. So we talked a little bit before, before the show here. So you, where are you originally from New York and now you're in Florida. Is, is that right?   Tim (2m 55s): Yeah, so I, I moved to Florida during the pandemic actually had a growing amount of small children running around the floor of our two bedroom apartment in New Jersey, just outside of New York city. And so we made the move since I was working from home anyway, and our team was increasingly remote across the U S to move down to a place that would be really good for the family. Give us a little bit more space and be a pretty good work from home environment here too. That's great.   Jesse (3m 25s): So for, for listeners stack source, what was that kind of the Genesis of, of this platform and how you, you know, what you've been up to with, we said at the outset over a half a billion so far in commercial transactions?   Tim (3m 41s): Yeah. Well, I came to this idea for stack source because I happened to visit a real estate tech meetup several years ago in New York with a couple of friends that were involved in the real estate industry. And my eyes were really open to that time to, you know, taking this passion for software and technology and coming back towards the real estate industry and what was going on. And at that time there were some really cool startups in data and getting access to real estate data, cool startups in like transactions and keeping track of your portfolio as landlords.   And I started to see a bit of a FinTech and really online real estate investing was the only thing that was starting to happen there with, you know, fundraise and Realty mogul. And some of these companies that you can invest passively into real estate deals online. And this lit up my eyes to, okay, well, who's building the inverse of that platform, who is for a property owner for an investor. That's a sponsor, that's raising capital. Who's giving them a menu of financing options. Who's providing them with access and transparency into what are all the sources of capital that they can tap on a deal by deal basis.   And that seems like a pretty clear and obvious idea to me. And maybe I had, because I was further from that part of the industry and, and I was coming in as an outsider. It just seems so clear and easy and obvious. And I think to people that were in the industry for a long time, commercial lenders for decades are commercial mortgage brokers together. They were too close and they saw how hard the transactions were and how hard these relationships were to navigate when the truth is actually something in the middle. There is technology needed for having transparency into financing, but there's just huge expertise in this human touch and relationships are valuable too.   And so stack source ended up being a tech enabled commercial finance that we have capital advisors and teams of capital advisors across the country at this point that provide that skill in underwriting and that negotiation and that structuring ability to put commercial financing deals together. But there's a transparency to our platform where you can see your financing options and you can easily compare them and the is faster and more efficient.   Jesse (5m 60s): That's interesting. So with these, these different competitors that you kind of saw in the market, what was the, what was kind of the value add or the, the distinguishing aspect of stack source as it, you know, with who's currently in the market?   Tim (6m 14s): Sure. Well, the speed and the transparency of the process has really been the focus for us since day one. When I started working on this as a platform, it was myself and a couple of software engineers saying, Hey, how, how much can we automate in this process of finding the right financing options and getting loan quotes? You know, that was the first thing is like, how easy can we make it to get loan quotes on a commercial property? And it kind of showed us what are the edges of what can be automated and what can be made instant versus what are, where are the human pieces of this process?   And I think if you were someone that started a commercial mortgage brokerage in the 1970s or eighties, you probably adapted to email in the nineties and two thousands, but what other technology have these guys really had adopted because they're run just by the most successful broker at the, the, at the firm. And they're, they're going to be the best sales guys, but they're not going to be the innovators in operations, in technology. And that's led to these traditional commercial mortgage brokers to be under-indexed on research and development to be under-indexed on this innovation and this technology and what it ends up being for the, for commercial mortgage brokers and for financing advisors is they don't have access to the tools that they could.   They don't have access to the tools and the data and automation in a way that can make them more efficient. So it's speed, it's transparency. We're now working on a lot more features and functionality on our platform, and there's a lot coming on our platform, but it's always been this speed and transparency from day one   Jesse (7m 52s): Around. That makes sense. So, in terms of the, the actual kind of, from when you started inception of this, to where we're at today, it's obviously been a crazy last 18 to 24 months. What have you seen in the capital markets or change, or how has that evolved over the, the last, you know, the last little while?   Tim (8m 14s): It's interesting, because for the last decade, we've had low interest rates, right? And only now in 2022, are we starting to have economists predict the federal reserve in the, in the U S is going to start to pull back on some of this quantitative easing, and they're going to start to raise interest rates, there's internet, there's an inevitable interest rate rise coming. We're still in this low interest rate environment for now. Now certainly the pandemic made things a little bit more choppy with during the pandemic.   And in the first phase of the pandemic, we saw leverage start to be pulled back, especially from banks and more conservative lending institutions. They started back leverage. They started adding more capital reserve requirements. You know, that's, that's largely washed away by this stage of the pandemic where the underwriting has smoothed out. Again, we're at full leverage, not only full leverage for permanent financing, but we're seeing really healthy leverage on value, add and construction deals as well, where you can, there's a lot of dry powder out there in the forms of bank balance sheets in the form of debt funds.   Everybody's waiting for interest rates to rise, but there's this kind of golden opportunity right now to lock into a 10 year term with a loan, you know, in the low threes or to get construction financing. That's a, that's a really healthy leverage. I think it'll be interesting to see what happens to both cap rates and interest rates as inflation continues to rear its head and see how long it rears its head and how strongly there's going to be in interest rates. But it hasn't yet.   Jesse (9m 55s): Yeah. Yeah. It's something that we've constantly been talking about in the, over the last little while. I know, you know, you have the Powell that was, I think, just in front of Congress to answering questions. So I think it's top of mind for everybody right now, in terms of the actual asset classes themselves, we talked a little bit at the outset commercial and multifamily. Is it all different sub categories within commercial that you guys will lend on?   Tim (10m 21s): Yeah, so, so SAC source won't lend directly on anything. What we do is we act as a portal and a guide and you know, that menu of financing options. So everything you find on our, on our platform is coming from third-party capital sources. So we have built up this national lender lending network of hundreds of banks, credit unions, CMBS shops, you know, the, in the U S the big agencies, Fannie Mae and Freddie Mac, and a lot of debt funds because there's all these, sometimes it's a sidecar fund for some big real estate developer that wants to support other developers.   And the debt part of the stack, many of them are just dedicated debt funds, or even mortgage rates. And you have all these scattered sources of capital, and everybody has their own lending and investment criteria. They are looking at certain asset classes, they're looking at certain parts of the capital stack, maximum leverage and recourse. And there, there are these, you know, multifaceted lending programs where it's a half an hour conversation. If you really want to understand any given capital source, you have to ask about all of this, you know, what are the edges of what you can do and how, how, how do you size your loans?   Do you size them with debt yields? You sized them with LTV, figuring out what might be a match and what projects might be a match for any given number of lenders is this intensive process. If you try to do it manually. So what we've done is we've cataloged all of that. We've put all of that in a database so that you enter a, a loan request and stack source on the front end. And you're instantly matched with algorithmically. Here are your matching lenders now from a human level and a quality and a sponsor quality standpoint, there's some quality control and making sure the right deals are entering our marketplace for our lenders to respond.   But if you're a quality deal and you know, you're underwritten correctly, we can instantly identify which of these capital sources might be a place you might get matched to just a couple of capital sources. If you're working on something really funky. And if you've got a straight down in the middle of multi-family refinance, you're going to get matched to a lot of lenders and you can potentially get an instant agency loan quote.   Jesse (12m 23s): Fair enough. So if you took, say for an example, you took a, an investor, you know, they, they are looking at a a hundred unit apartment building in say, in your neck of the woods in Florida, what can you walk the, walk me through what the process would be like for, for that investor?   Tim (12m 43s): Sure. So we need to know what are the relevant details on the underwriting that any lender or capital source is going to need to know? So property address the, the net operating income, the physical characteristics, when was it built? When was it renovated? What type of framing, all this stuff that would impact a lenders, sizing, underwriting, and pricing of a loan. The idea is you enter that once in the stack source portal, and that's instantly matched to the database of what these different capital sources are looking for. And it also instantly generates a debt offering memorandum still can be made, have changes made later.   We w the stack source team themselves, and our analysts are going to adjust and tweak and add, add data and Siri and the right comps. But those two things are done instantly where, you know, within men, within minutes, the ideas, you know, the types of capital sources and the types of things they can provide, Hey, there's an interesting life insurance company lending on this type of multifamily. And they can only go up to 65 LTV, but hang on, their rates are amazing. Like, yeah, I want to get a 2.8% interest rate.   And I'm interested in, you know, putting that lender in my shopping cart, so to speak. You know, I want to see if that unders interested in working on my deal, that, you know, some, some lenders, some loan programs, like a, like a Freddie Mac, small balance, you can get an instant quote on our platform. And then some of this is like, Hey, it's a life insurance fund. They're going to review. They're actually going to do a lot of diligence. But if I get the loan from them, it's going to be the best interest rate around.   Jesse (14m 15s): Got it. So, in terms of that, you know, that investor, he finds, say that life insurance companies, that that's kind of lending on funky loan, funky, or, you know, more involved loans in this certain area in Florida. And then how does, how does the, how does that get taken to fruition the, through the platform they're connected and then they, they break from the platform, or is it everything is done within the platform?   Tim (14m 40s): Good question. So, first of all, you do get an advocate. That's a human being on the platform. So you're not dropped off into something that's confusing. And especially when you're matching to a bunch of different lenders and they may be asking questions and, and, you know, they they're expecting to see the underwriting in a certain way. So that person that you get to talk to is a capital advisor. And they are professionals that work for stacks, horse across the U S that have been, you know, have decades of experience in lending and commercial mortgage brokerage, and real estate investment.   And they're going to be your advocate through the whole process. So you don't have to talk to, you know, it'd be just as bad that you have to talk to 14 lenders on stack source versus, you know, trying to find those lenders on your own and pitch the deal to them one by one. So there's no pitching all of these lenders separately. You get one capital advisor, you'd answer some questions, you get an advocate. They actually will help you with structuring and finding the best financing sources, maybe challenge you on different ideas that you haven't thought of because there may not just be a senior lender, but there may be a subordinate APOE source that can also add value in your capital stack.   So you get to have a conversation with a capital advisor, they help you go out to market, and then you are getting notifications. When you have new loan quotes and new financing offers in the portal, you get an email notification, you can compare and analyze those very easily within the process. When it comes time to sign the term sheet and deposit, the lender gets to choose their own process, because they're the ones closing funding, your loan. So some of those will have a, an email checklist or, or what have you, you know, but you keep the capital advisor advocating with you throughout the process until close.   Jesse (16m 22s): That's great. So we've talked a lot about over the last few months, a lot about the amount of debt in the market right now, you know, we talked about it, just you and I here briefly on inflation interest rates. W w what we're finding on the investor side is that there is a lot of capital chasing fewer and fewer deals. I'm curious on the flip side of that, on the debt market side, what are you finding is, or is, or are some of the biggest challenges from, from the debt side of things?   Tim (16m 52s): Well, you're right. You're right. There's a lot of money. There's a lot of types of money. That money is going to go full leverage, and it's going to be low rates. So for these capital sources, when they find a good project that they want to back, it it's a competitive market for them to get in to the capital stack, especially if it's multifamily industrial, some of these darlings of the industry, or you could probably throw self storage and a couple other things in there that are performing really well, you know, really from coast to coast.   And so we're seeing that's advantageous for the borrower, not just in rates, but there are negotiable pieces of term sheets right now, from everything from recourse to reserve structuring to leverage that it really slants it in a it's a borrower's market. Right, right now in early 2022, and things can change that change economically. But early 20, 22 is one of the best borrowers markets that we've had.   And that's, that's not just early 2022. You look at 2019 was the largest year of commercial mortgage origination ever. The second largest ever was 2021 and 2022 is not slowing down. As far as the first half of the year, from what we've seen now, inflation some more economic pressure, some bad job reports, something can slow it down quickly, but right now, 2022 at pace could be the record breaking banner year for commercial mortgages.   So it's a competitive, it's a borrower's market right now. People have been gearing up. People geared up for maybe more economic turmoil than we've seen rear its head yet. And so there's this money that needs to go somewhere. It needs to be on deals. And that's just as true on the debt market as is on the equity.   Jesse (18m 43s): Yeah, I mean, we're seeing, we're seeing the exact same thing from, from our vantage point here. And we're finding, you know, some telltale signs for this is we're finding more and more lenders are getting more creative on deals, you know, in, in my area, we're typically very conservative when it comes to debt in general. And now we're finding that, you know, five years ago, there's certain properties that, that wouldn't be lent on. You know, it could be at a host of things, maybe environmental, you know, other, other aspects or variables that lenders are trying to figure out and get more granular to see if they can lend on.   So it sounds like that's, that's happening across the board. And, you know, we just had somebody that on the podcast last week that was speaking to self storage and yeah, another area that I'm sure you're seeing a lot of capital going towards.   Tim (19m 28s): Yeah. And retail, if you're in a hot market to, you know, re you probably don't want to be fifth AV office and retail in New York right now, but you absolutely want to be retail in south Florida, for instance, or Dallas, Texas. These are places where they're seeing such a population increase and, you know, there's, there are plenty of drivers behind that, that we could go into, but they're seeing a massive population increase in Texas, Florida, the Carolinas, and, you know, it's actually a great market for retail, even retail construction.   So I think any asset type in these hot areas across the country, and then if you're in the right asset type multifamily, storage, industrial, you're going to get the money you need anywhere.   Jesse (20m 15s): Yeah. It's been a, it's been a ride quite a ride the last few years. So I'm curious, Tim, just because of your background, I thought maybe you could talk a little bit about how coming from the tech world, how has that impacted the way that you look at real estate or, you know, the way that you look at the business and, and just the way you look at your customers. Okay.   Tim (20m 38s): I think there's a lot more information and data available today on real estate than there was a decade ago. There was like one big real estate data company, a decade. And while they're still one huge. Now, now they're huge. And they're a huge real estate data company, and they've acquired others. There's a lot of other startups that are bringing interesting data points that can help with underwriting that can help make you more intelligent and make you more competitive when you're using data to full effect. I think there's a lot more workflow technology, not just with real estate CRM, so that certainly has grown, but really with, you know, deal management platforms and portals, and the listing portals are so much more full featured today than they were.   I think this next era of real estate tech is going to see a lot of those trends come together where not only will some of these real estate tech companies be more vertically integrated, where they were a data company and how they're helping with like transaction tools, but there's going to be integrations and partnerships between more real estate tech companies, where processes for, you know, for asset managers, for operators, for property managers and all the way down the line can really be connected in a way that it hasn't been before where your accounting system and your asset management system and your CRM and your transactions, and all the way through to your, you know, your tenant portal.   If you have all of these things are connected in a way that can really drive efficiencies. And, and that's, that's something that we're starting to see in the real estate tech market is, you know, these startups, some of them are becoming like real companies and like larger companies. They've gotten a lot of funding, 2021 in addition to being a second highest ever year for commercial mortgage origination. It was the highest year for venture capital investment into real estate data and real estate tech companies. And that's, you know, that's a leading indicator of more change and efficiency and innovation to come in our space.   Jesse (22m 40s): Yeah. I, you know, I think that's, that's exactly right for us. What's kind of amazing from the commercial real estate standpoint is you've seen the proliferation of tech in residential for a long time now, I think, and I think we're still playing catch up on the commercial side. And I think, I think we're headed in the right direction, but hopefully COVID, you know, the silver lining there is, it's kind of made people think a little bit more in just more forward thinking from the technological perspective.   And I think we've kind of, you know, COVID in general has kind of kicked us into that mind frame a mindset because we, we just did it by necessity.   Tim (23m 18s): Yeah. I agree. Residential real estate tech is another place to look. If you want to know, what are you going to, what are the trends going to be two or three years from now in commercial? You could look at what's happening in residential today. So in our space, I mean, it's very encouraging that in the us one out of every 11 loans on residential homes, I think was by rocket mortgage last year. And that's a staggering number considering every banker and every single bank can credit union across the country, wants their own customers coming in the front door to get a mortgage, but they're not, they're using rocket mortgage, we're using better mortgage because of the digital experience because of the ease and the efficiency of it.   And for that many people to be choosing instead of their local bank relationship or the local mortgage broker relationship to be choosing the efficient path and the transparent path, I think tells you all, you need to know about what's going to happen in five years in commercial mortgage.   Jesse (24m 13s): Yeah. It's just seems like a bit of a democratization to the consumer level. Tim, I'm curious, the, you, you mentioned that you guys were in growth mode, you know, even prior to the show we were talking about, you know, where you guys were at last year compared to this year, what is the, the next, you know, year or two look like for the team?   Tim (24m 34s): Well, we tripled our revenue and doubled our team at Sachs worse in 2021. And so to stay at a trajectory like that would be amazing from a, you know, from a company growth standpoint. And, you know, I think we've got the infrastructure in place, but really it's what's what are we going to continue to do on the product and not sit still and just say, Hey, we have a nice little digital loan portal. You can get access to these different financing options. We're going to continue to invest in this product.   Things like there are a couple of types of automated quotes you can get on our platform today. There'll be a dozen types of automated quotes. You can get on our platform by the end of the year, a lot of it for multifamily, but others are starting to do for other asset classes as well. So if you have straightforward underwriting scenarios, why should you wait on a banker to finish your round of golf before giving you, what is your interest rate in one zip code versus another, that's just not going to be the way agency multi-family and stabilize multi-family deals are quoted in the future as well as other asset classes.   So we're going to continue to push on the products pretending to make it as good at experiences and as easy to experience as possible to wait through different financing and capital sources. And, and we're going to hope to do that across the U S we're going to strike some more partnerships with other real estate tech companies, which I kind of alluded to is happening across the space in order to streamline the underwriting and the due diligence process, as well as to surface financing options in more helpful contexts, where you may be off of stack source, but you can get financing options where it's helpful to do so.   So that those are some of the things that we're focusing on.   Jesse (26m 14s): Are there current areas in the tech space or real estate tech prop tech that you think, or that, you know, you're excited about, or, you know, you think you're going to see a lot of big changes aside from the space that you're currently in.   Tim (26m 28s): I'm, I'm a huge cheerleader for real estate data and not just real estate data, but like external sources of data and figuring out how they impact properties and cities and what that means for investors. I think that's like a really cool thing that's happening. And it's, it's several steps away from something like artificially intelligent, real estate investing where like, you know, but I know 30 years ago, the best chess players were human and now they're computers 10 years ago, like there's this ancient Chinese board game of go.   And they thought it was too complex for, you know, for humans to be over, you know, passed out by a computer by computers. But now it's happened. I kind of wonder about real estate investing. I don't think that there's going to be some AI that can like out invest like the best real estate investors, certainly not at this stage of our history, but I think we're about to enter this era where if you're a real estate investor, that's not making the best use of data and tech you're going to fall behind.   And I don't think it's even too bold to say that because, you know, within, within like real estate comps, but also like social media sentiment and like there's, so there's so much you can mind and understand, like, where are people going? What do people want? And I think the best real estate investors are gonna make so much use of that over the next few years. And they're going to seriously outperform.   Jesse (27m 59s): Yeah. That's a, that's great. I'm currently reading a, the age of AI is a book I highly recommend it's Henry Kissinger, I guess, teamed up with, I think he was Eric Schmidt. I don't know if he was like, I think it was Google one of the founders, but it's   Tim (28m 14s): Chairman of Google when I worked there.   Jesse (28m 16s): Oh, there you go. That's right, Google. So, yeah, I'm just kind of nerding out on that book right now. I've thought it was pretty, pretty interesting, but yeah, it it'll be cool to see how this, how we shift because even, even the proliferation of data, when it comes to our area, we, we were using Altice insight for a lot of our stuff. Then moving into CoStar. And a lot of the brokers that I worked with were like, you know, CoStar is never going to be where all this is is that, you know, what we were using. And now I don't even think, I think every broker I talked to just uses CoStar.   So it's, it's interesting too, because you want other companies to be able to play in the space and be competitive, but it kind of seems like it's very similar to these social media platforms where the, you know, you have a first, first mover advantage and then once you actually become the dominant incumbent, it's it just kind of snowballs. So I'm, I'm curious how that will play out, you know, in five years from now, we'll, you know, we'll, there'll be a couple of different data companies or will there be, you know, one or two that, that dominates our space.   Tim (29m 18s): Yeah, that'd be interesting to see. I'm also curious to continue to see how it plays out though. A bunch of other real estate data companies have grown a lot over the last couple of years, and maybe they're not as large and certainly not as comprehensive as CoStar because CoStar has also been acquiring other real estate tech and data companies. They bought 10 X last year. They bought a couple other real estate data companies for different verticals that they didn't have well covered yet. But like out of New York city comp stack raised $50 million to do office industrial and retail comps across the country.   Last year, Moody's analytics is investing in several real estate tech companies like light boxes investing in a bunch of real estate tech companies. So there are some of these other players that are putting together, if not this, the full comprehensive package, I think there are starting to be some challengers. And then there are these interesting, like alternative data, you know, placer.ai had raised a bunch of money over the last couple of years. And what they do is for real estate companies, they allow you to see without doing manual measurement, where is foot traffic and where's car traffic, because they crowd source the data from people's smartphones and they see where are all these smartphones moving around?   And they aggregated anonymized that to say, you know, at any given storefronts or, you know, ha and a given storefront, how much foot traffic foot traffic will it really have, you know, on a two o'clock on a Thursday or for this apartment complex, how many people are already driving by on the way to work and would have a shorter commute if there was an apartment complex here. So like the, the analytics I think is, you know, gotta be one of these biggest opportunities for real estate tech and real estate data companies it's already happening.   I expect that to continue to accelerate.   Jesse (31m 13s): It's curious to the, the fact that you have companies doing kind of a roll-up strategy when it comes to acquisitions and growth, where they're buying other companies, rather than building their lines. I'm curious to see how we kind of roll forward. Like in the Canadian market, Avison young, the commercial real estate company I work for. I think we are, we're over 80, 80 offices now, but we're probably one of the larger ones here. So you have CVRE JLL, Cushman, the usual suspects, Colliers and ourselves. And we've a lot of these companies. I know Cushman has, we are JLL, has we built our own platforms?   So exactly what you're talking about, where, you know, we're in an office building in downtown Toronto, you can see where all the cell phones are analytics for our company, but we're building that in-house, and I'm always a little bit hesitant when I hear companies doing that, that aren't in that space. Cause I'm, I'm just of the mind like, well, why don't you just get the best, the best person or best company that does this and, you know, figure, figure that out. So I think, I can't remember the name of the company that we use, but a hundred percent, I think, I think that this is definitely the next, the next stage.   And then I think the, the big question is just like, it was 20 years ago. Okay. You have information now, what do you do with it? And I think that'll be, you know, still the difference between these successful investors or brokerages or real estate companies versus the ones that aren't at the top of their class.   Tim (32m 33s): Right? Yeah. And, and the answer might be different based on your size and your goals, right? Because a powerhouse estate investment company that has multiple funds or rates, or, you know, and they have a, they have a big presence in a, in a big budget. They, they're probably going to build their own tools, just like the major brokerage companies. They're going to build their own tools. You know, Avison young is going to build its own, you know, suite of tools, but some of the largest investors are going to do that too, for their own operations. If you're a mom and pop investor, you should looking for something off the shelf, that's going to give you an advantage.   And because you can't help to beat some of the in-house tools beat by some of the larger ones. So that's really where startups can thrive is either enabling like these big companies and being a part of their mix or having an out of the box solution for tons of small investors. And so we're probably somewhere we're somewhere in between because we do mid market loans as well as small, but in that small space, and even in a space where commercial mortgage brokers don't even want to help you, that you owe you need $700,000 to buy your first, multi-family get out of here.   Like you're not going to be helping since the office of many brokers, but for stacks or so we've made that process really efficient. And we actually did a number of loans less than a million dollars last year.   Jesse (33m 55s): Yeah. I think that's a critical point there. All right, Tim, I want to be mindful of the time here. We're just coming up to the end of the episode here. We ask all of our guests for questions. If you're ready to answer them, they're a little bit of a final four. We do.   Tim (34m 10s): Yeah. Let's do it Jesse.   Jesse (34m 11s): Right on. All right, Tim, what's something that, you know, now that you wish you learned at the beginning of whether it's working in real estate or at the beginning of your career in tech,   Tim (34m 22s): So many things, but I'll say everything is sales when you come down to it because everyone you deal with, even if you're not actually selling something, they're a human being and people react well when you use empathy. And when you use clarity of communication, and these are really what great salespeople do is they connect with someone at a, at a human level. Then they communicate clearly and then they guide them in the right way. So if can sales and I wish I learned that earlier.   Jesse (34m 52s): Yeah. It's great to try to move the S word into a, a, a positive thing over, I feel like it's over the last 10 or 15 year, he probably longer, I feel like it's, it's now starting to take a switch to people realizing that even in the technology, I think technology companies were a big part of this too, because at the end of the day, you know, you add value you market, and then you need sales to kind of bring it in and actually have that human aspect that you just mentioned. What would you say to a younger person trying to break into the industry?   And that can be on the real estate tech side or real estate in general?   Tim (35m 27s): Well, if you're trying to break into real estate or real estate tech, figure out something that you are good at and double that strength because especially right now, companies are looking for talented people. I mean, listen, it's, it's actually a job seekers market in many ways, and there's been this great resignation, find something you're really good at. And you can be passionate about whether it's your current passion or not. Like for me, starting off my career, I, if I looked around the room of my peers and other financed graduates coming from my university, I was good at spreadsheets, double down on something.   You can to be really good and add value on day one. And you're gonna make it hard for people to turn you down for a job. If that's part of the part of the job, right on   Jesse (36m 16s): What is on the proverbial bookshelf that could be audio book or any media that you're you're consuming right now,   Tim (36m 25s): I have too many podcasts on my list and I also have way too many books. I feel like I track what books I read on good reads.com. And I, for every one that I check off the list, I must be adding two or three. So the reading list is growing. I have a bunch of leadership books that I want to read because I, my company is growing and we had less than 10 people a couple of years ago. And now we have 25 and growing. So, you know, there are, I, I expect to read 3, 4, 5 leadership books among other things this year.   Jesse (36m 57s): And it's funny you say leadership. I was just looking at a list today and I don't, I, you know, listeners can can message or they can email in on whether this, the leader who had no title, I think was the, was the book that was recommended. Yeah. I think it's Robin,   Tim (37m 13s): That's my list based on the title alone. Next for that.   Jesse (37m 16s): Yeah. Okay. So last question. Our personal favorite here. First car make and model   Tim (37m 25s): Jeep Cherokee sport. 1999 red. We used to drive it down from, we lived outside of New York city and we used to drive it down to the Jersey shore. And you know, it was a lot of fun. You didn't care if you got sand all over it. And I CA I kept that car for a while and definitely shed a tear when I had to sell that.   Jesse (37m 46s): That's a, yeah, that's a pretty good first car. I was going to say, like you were in New York at the time. It doesn't seem like a, it doesn't seem like it fits there.   Tim (37m 54s): No, no. On the New Jersey side, it works well,   Jesse (37m 56s): Though. There you go. Absolutely. All right, Tim, for, for listeners that want to get more information on yourself or the company work in, they worked in the, be pointed to I'll put some, some links in the show notes.   Tim (38m 9s): Sure. Stack source.com is our company website. If you want to reach out to me directly, my email is tim@stacksource.com. So pretty simple, but if you search Tim, Milazzo M I L a Z O on LinkedIn, Facebook or Twitter, I'll be the first one.   Jesse (38m 25s): My guest today has been Tim Alonzo. Tim, thanks for being part of working capital. Thanks,   Tim (38m 30s): Jessie.   Jesse (38m 38s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    Self Storage Investing for Beginners with Paul Moore | EP88

    Play Episode Listen Later Jan 19, 2022 36:51

    Paul Moore is an amazing contributor to BiggerPockets. Paul has launched multiple investments and developed companies appearing on HGTV and completed over 100 commercial & residential investments & exits in Real Estate. He has contributed in Fox business and Real Estate Guys™ Radio and is a regular contributor to BiggerPockets Producing live video and blog content. Paul also co-hosted wealth building podcast called “How to lose money” and  he has been featured on a number, over 200 at this point. Paul is a 3 time Real estate author. His new book is “Storing Up Profits: Capitalize on America's Obsession with STUFF by Investing in Self-Storage Paperback” In this episode we talked about: Paul's Bio & Background Entering Commercial & Multifamily Space Going Vertical in Self-Storage Rent Control Breaking into Self-Storage Self-Storage Performance and Risks within the recent 2 years Dislocation Aspect Underwriting of the Deals Thoughts on 2022 Outlook Why it is important to find your BIG WHY Mentorship, Resources and Lessons Learned Useful links: https://www.wellingscapital.com/resources https://podcasts.apple.com/nl/podcast/the-biggest-opportunities-in-real-estate/id1505750263?i=1000534008754&l=en Transcriptions:  So that's, that's what got me into real estate in the beginning. And then commercial, I ended up building a multifamily and operating it in the buckin oil rush of North Dakota. It was a multifamily quasi hotel. We did that for years. It was a lot of fun.   Jesse (4m 34s): That's great. So you, like, I'm not dissimilar from, from some stories and multifamily is you started with these properties, realize that you can make a dollar to two going that way. And then at what point did you end up going into the commercial space or the multi red space?   Paul (4m 50s): Yeah, so that was 20. So in 2010 we threw a bunch of friends and I threw over a million dollars to the bottom of a hole in the ground expecting about 50 times as much oil to come back out and nothing came out. And so I don't think we, I can almost certainly say we didn't think it through as well as it might sound now, but we thought, well, who made money in the gold rush? Well, those who sold the picks and shovels. So we noticed that there was a massive, massive housing shortage in North Dakota. I mean, like 10 or 20,000 people in a town of 3000, you know, sleeping in their trucks.   So we created this multifamily, which, which we ran as a, you know, sort of an extended stay hotel in 2011. And that was our entree in. And I ended up writing a book on multifamily about five years later and I was off to the races.   Jesse (5m 42s): Yeah, fair enough. I'm sure the, the Western Canadians can, can appreciate the throwing money in a hole in terms of the, so that moved from initially in Detroit, working with Ford motor company, was there an inflection point in your career where you, you said, okay, I'm going to go with the real estate way and, and left, left the job, or was it something that you kind of did on the side and kind of transitioned to?   Paul (6m 6s): Yeah. So when we launched our company, when I left Ford in 92, 93, it was actually, we started a staffing firm and I had only done a couple real estate deals on the side during those years. And honestly I hated real estate on the side, but when I had a chance to go into it full time in 2000 after we sold our company, that was, I I've honestly loved it ever since. Fair enough.   Jesse (6m 35s): Okay. So moving on to, you know, you write this book on multifamily, we're talking today about storing up profits, the, the book I mentioned at the outset, what can you tell us for the, for the average investor that say, you know, I'll give you an example is, is invested in some real estate, maybe it's on the commercial end. Maybe you, you know, whether it's single family or whatever, pick your vertical and keeps hearing about self storage. You know, we hear it, we hear it up here, you know, in the Canadian context, our friends to the south, we hear it constantly being brought up.   I think I mentioned before we had Brandon Moore or Brandon Turner on talking about self storage, but for the average investor, how would you describe the self storage vertical?   Paul (7m 17s): Yeah, so we, you know, we'd beat our head up against the wall for years looking for multifamily. And as I, you probably didn't know I'm old or, and, but seriously, those watching her going, he's really old anyway, but seriously, we, we were w w we're more conservative every year, you know, that I get, and, you know, I wanted to focus on investing and not speculating after making some mistakes in that arena. Hence the podcast name, how to lose money, but we, you know, really felt like it was like we were at the risk of overpaying for multifamily.   And unlike you, we didn't have a great acquisitions team finding those under the radar deals. And we found out that there were 53,000 self storage facilities in the us. That's the same as subway McDonald's and Starbucks combined, but three out of four are run by independent operators. And half, two thirds of those are actually run by single facility owners, which is also known as mom and pop owners.   And these mom and pops typically. I mean, first of all, the cap rates have compressed so much in the last eight or 10 years that they've doubled the value of their facility. And many of them did that by doing nothing except maybe staying the way they were, which is sometimes not always, but sometimes kind of mediocre. And so the opportunity for a medium sized company to go in and buy these facilities with this incredible intrinsic value, which I'll get into in a few minutes is enormous.   And we hadn't seen anything like that in multifamily in a long time. So we transitioned from multifamily to self storage, and then eventually also adding mobile home parks in 2018. And it's just been great. I mean, here's a couple quick stats. I mean, a couple quick issues to consider one would be that, I mean, if I'm renting a thousand dollar a month apartment from you and you raise my rent 6%, I might leave rather than commit to another 60 bucks a month or $720 a year.   But if you are renting me a self storage facility or unit, I should say, and you raise my rent 6%, well, you know, if it's a hundred dollars a month going to 106, I'm probably not going to spend a weekend rent a U-Haul get my buddies together to move my junk. I mean, excuse me, my treasures down the street, just to save six bucks a month. And that's one of the reasons that prices are so inelastic. And what I mean by that is, you know, I mean, they typically users don't leave because you raise the price, especially since most of the tenants think, Hey, I'm only going to be here a few more months anyway, and it's a month to month lease.   Well, that month to month lease has another benefit. And that is, it allows us to capture inflation. Think about it. Imagine my, my friend who has an Amazon sorting facility and has a 20 year lease on it, what's going to happen. If inflation goes way up, well, he's already locked in, or the guy with the warehouse, you know, that rents it for 10 or 20 years or a medical building. But this allows you to capture inflation increases, you know, potentially as much as every month. So we love that. There's also a ton of value adds.   Now, Jesse, the first time I heard value add self storage, I literally laughed. I thought, what are we talking about here? Four pieces of sheet metal, some rivets, a floor and a door. How are we going to do value at where where's the pain? Where's the fake hardwood flooring, where's the bark park. You know, none of that was available. And I had no idea. There were a significant number of value adds in self storage. For example, adding you hall now, adding you hall can, you can put a U haul out in front of your facility and with no cap ex nothing out of pocket, you can generate between one and $5,000 a month in commission, let's say it's $3,000 a month.   That's $36,000 a year using the commercial value at, I mean the commercial value formula, you know, 36,000 a year divided by, let's say a 6% cap rate. That's a $600,000 increase in value just by setting up a U haul operation at your facility. You can also sell locks, boxes, tape scissors, other retail items. You can add late fees. You can throw out bad tenants.   A lot of these mom and pops have a lot of delinquency. We invested in one self storage facility in grand junction, Colorado that had 80% delinquency, 80% of the tenants weren't paying or were paying late. And so there's just a lot of stuff you can do. You can add boat and RV storage, which is really popular. These days, you can add temporary storage like those, you know, storage, those boxes, and you can, there's so much, you can do two. And when you, you know, when you add the value formula and then add a little bit of safe leverage, it can really, really juice investor returns.   Okay.   Jesse (12m 42s): So I have a couple questions to start with, but just, just so I understand that correctly on the value add thing. Cause I, I never heard that concept before, either in terms of, so for example, the U haul, you basically just like you would see some industrial sites with multiple tenants that UCLU haul truck onsite, basically. That would be you, you basically getting the income for having that URL there and having individuals that are, that are tenants of yours renting that, is that correct?   Paul (13m 11s): Yeah. It wouldn't have to be tenants. Basically. You've got to, hopefully you've got a great location with high visibility on a main road you better. And these you halls will be sitting out front. People would book them from your location. And then the one catch is you have to have an employee there to check them out, you know, to sign the paperwork. And then when they come back in to sweep it out. So if you already have an employee think about self storage, how up and down somebody's hours are. I mean, I can imagine them sitting there for hours watching the security screens and Netflix.   Well, you know, it's not really a huge increase in cost to do that, but you get commission from you hall for doing this.   Jesse (13m 50s): It also be fair to say let's loop in Canada. Let's just say Canada is a big state and where you would be similar to New Jersey, New York, California. And I think Maryland in terms of rent control, the ability to remove tenants because of delinquency like you're describing here, is it, does it fall under the landlord tenant regulation in states or is it easier to, to remove them?   Paul (14m 16s): Yeah, that's another benefit of self storage is there's no eviction moratorium from COVID or from anything else, even in the height of COVID we were able to evict tenants. So that is another benefit for sure.   Jesse (14m 31s): I think the reason I bring up those states is those are all states with some form of rent, stabilization or control. And it's, it's a big factor up here, and I know it's a big factor in those states. So another appealing aspect, it seems of self storage, Paul, in terms of, so you talked, you opened the book with these, you know, different reasons that that self storage is an appealing asset class. And then you move into the ability to actually break into self storage. Cause you know, some people, if they're looking at these larger commercial deals and I think you're bringing up seven different paths about how you could get into the self storage space.   Could you talk a little bit about that?   Paul (15m 6s): Yeah. I, I wanted to write a book for bigger pockets on seven unique paths to get into commercial real estate. But instead I actually devoted the last one third of this book to that topic. And so this would apply to most, any commercial real estate. I think it's really hard for a lot of people, including myself for years to try to figure out how do I get into commercial real estate? And so the seven different paths real quick are one, some people call it stacking based on Brandon's a nomenclature there basically it would be buying a small facility, fixing it up, leasing it up, possibly refinancing, but more likely selling it and then going on to a bigger facility and then just rinse and repeat over and over.   I know that works. It's a long and winding road to the top, but it definitely will work. A second path would be being a capital raiser. Now here in the states, you've gotta be really careful with the securities and exchange commission if you're raising capital for other people's deals, but if you're a partner in the deal, or if you can work your way into a partnership with somebody for a raise and you raise the capital, that could be your specialty. And a lot of people do that are really good with people. They might have social media skills or podcasts, and they can raise a lot of money for other people's deals.   Some people have started their whole company by raising money. First Whitney Sule from the real estate syndication show. That's how he started. And he is just a master. Now at multifamily, he's raised a whole lot of money for his own deals, but he started as a capital raiser. Third would be a deal finder deal finder would be somebody who sort of serves hopefully legally in the role, similar to a commercial real estate broker and somebody who basically goes out and finds deals.   And then instead of getting a commission, they'd say, Hey, look, I like to get a piece of ownership in this deal. I'd like to stay involved and I'd like to do this over and over. And eventually hopefully, you know, you get to be a partner in that company or maybe another one. So deal finder is third. Fourth would be go big where you just start out at a high level. Let's say you won the lottery or, you know, retired from the NFL or you just have access to inherit it or your own money. You sold Bitcoin or something. And you can just start out at a high level and people do that.   It's, there's some challenges with that. Of course, path five would be, get a job. Now, most of your listeners probably thinking, I'm wait, I'm listening to Jesse to get out of my job. I don't want to get a job. Well, there are some benefits, especially if you're young to getting a job in property management or as a commercial broker or a commercial mortgage broker, possibly an asset manager, there's different things you can do to learn the lingo, learn the business, meet the people, get the connections and work your way into a career.   Six path would be taking the passive path. And that would be, you know, just becoming a professional or even a non-professional passive investor. Let's say you've got the money, but you don't have the time. You just need to do a great job. Vetting a great syndicator, check out several of them, use Bryan Burke's book, the hands-off investor, and go out. And that an organization that you can invest with and get, you know, essentially sometimes even higher returns than you'd get by yourself.   But somebody else is doing the heavy lifting. The seventh path is finding a mentor or a paid coach. And that would be, you know, finding somebody who will be willing to bring you into their training program or even somebody usually locally who will let you, you know, you trade your services for them, you know, the opportunity to hang around their office, get to know the product, get to know the company and the business as a mentee to that mentor. So those are the seven paths I talk about in the book.   Jesse (19m 5s): Yeah. What a great recap. I don't think I've, I've heard that in one, in one fell swoop, but that's pretty much covers everything. I didn't know that about Whitney. So for those interested, the syndication show, I believe it's called a fantastic podcast with Whitney and Brian Burke. We've had them on a number of times. I can't recommend that book enough. One thing I love about the book that he has is so many books are not from the limited partner's perspective, they're there from the, you know, the capital raiser or the, the GP. So it's nice, even as a GP, you really want to understand both sides of the coin.   So I'd recommend that to anybody that is interested. So Paul, from, from that outset, you know, you have these benefits of, of self storage. We go through this crazy time in the last two years, you know, the world has, hasn't probably one of the biggest health concerns of my generation. At least if not the last century and then various asset classes perform some not so well, some very well, how did self storage perform over the last two years? And maybe it's just in addition to that, what are the risks?   If, if any, with self storage?   Paul (20m 13s): Yeah, let me start with the risks. Cause I don't want to forget that it's really important. The biggest risk in self storage is really during the lease up. That's the time of the risk, at least. So in other words, we invested in a non unstabilized asset in Bradenton, Florida on a main road in a very, very booming area that had 29,000 new residential units being built in that area. Well, it was great until we tried to fill it up and that two new competitors, large national competitors had also built new facilities right down the road and the due diligence people miss this in that process, it just happened to fall right before they were really evident at any rate.   So it was harder to fill up that facility. It took two years longer than planned. And I think that is the biggest risk is large national competitors nearby by the way that eventually sold for an 80% profit to the investor. So it was great, but at any rate it was a hard road. So that's the number one risk would be competition, especially when you're unstabilized and leasing up. Other risks would include, of course, this is true for anything, a bad operator, you know, a great operator can take a mediocre deal and make it good or even great.   A terrible operator can destroy the best deal on the planet. And so bad property management, bad operator, those would be other risks with self storage, overestimating. Your ability to raise rents would be another one. You know, your, Hey it's 20% below market. Yeah. Well, there may be a reason for that. So really just, you know, things like that would be the major risks. I think if we drive around a lot of us, see just self storage in the, in the states everywhere.   And we're wondering why this has gotta be overbuilt. Well, I can take you to Nashville and show you, drive you around Nashville and show you why it is overbuilt. There's too many self storage facilities in too many locations around the city, but then I can drive you 20 minutes south to a suburb, a nice suburb Bellevue or Belmont they're neighboring suburbs. And they're completely underbuilt in fact, there's huge under supply there. And so this is why it's really important to invest with a great syndicator who uses tools like radius plus to check out, you know, the number of square feet of self storage versus, you know, the market, you know, the demographics, the number of people there.   So that's some of the risks as far as how it's done since COVID, it feels like you threw me a softball there, but I don't think you did the wall street journal, New York times, business wire and others have recently written articles basically saying that co that self storage is the big star in commercial real estate. Since COVID during COVID, we had students moving out of their dorms and their apartments, not knowing. I mean, the first weeks of COVID in March of 2020, what's going to happen.   We got to put our stuff in storage. Will we come back in two weeks when they flatten the curve or will it be two years we don't have. And so that, that was a nice little initial bump. Then there was the eviction moratorium that didn't happen, self storage. And then we have these unfortunate situations. I'm not making light of this, but a self storage thrives during the four days that's downsizing, dislocation, divorce, and death. And we had some of all of that going on during, and since COVID, let's look at dislocation, I mean, people have been moving in droves from places like Chicago, New York, San Francisco, and LA to smaller towns or different places like Utah and Texas and Florida and Charlotte and well, a lot of them need self storage along the way.   And so let's take dislocation as an example, Jesse, I mean, look in the last year at the massive number of people who have moved from places like New York city and Chicago, LA San Francisco to places like Utah and Texas and Scottsdale and Charlotte, a lot of these people need self storage along the way other people, you know, are moving for different reasons. There's been a lot of stress. There's been, unfortunately, a lot of divorce, there's been some death.   And so there's a lot of, you know, reasons that self storage is actually, you know, doing better right now. And another factor most people don't talk about is the price of steel and other building materials. Plus just the labor is in massively short supply. And so it's held up some self storage projects from coming to fruition. So the competition is actually lower, at least in these last, you know, let's say six to 12 months or more. And so really nobody would have dreamed, we thought self storage and we said self storage would do well in recessions.   Nobody had any idea how well self storage would do during this pandemic.   Jesse (25m 37s): Yeah, it makes sense. And just kind of from an anecdotal point of view, I can't, I can't remember a time where I've kind of put something in storage and I haven't used that storage for an extended period of time. I feel like, like you said, I believe you use the, the word inelastic. My, my very technical economic term would be sticky. It's just that aspect where once people store something in an area, like you said, you know, if you go from a hundred to a hundred, $6, is that going to make me move it probably not. You know, if you go up some crazy amount, then you might move the needle.   One thing I'm curious about I've, I've always been curious about the underwriting when it comes to self storage, because we always talk about self storage in the real estate context. I'm curious if that translates to the underwriting of the deal. And for example, you know, I somewhat of a rule of thumb when it comes to looking at multi-racial properties is an expense ratio of 40 to 50% know it'd be a good rule of thumb to do a back of a napkin calculation. Is that are the metrics with self storage?   What would they be most similar to in the real estate space?   Paul (26m 44s): I mean, that would be very similar to multifamily, but the operating expenses would be, I think about, I believe they would average something like 32% on average for most facilities, as some of the automated facilities have a lower expense ratio, but at the same time they can't have you all, they can't have showroom items like, you know, the retail items we discussed. And so their revenues might be a little lower as well. But yeah, other than that, you know, the, the revenues and certainly the value formula is quite similar.   Jesse (27m 20s): Fair enough. I just want to be a little bit mindful of the time. We do have four questions. We ask every guest when we wrap up here, but before we even get there, I'd like to get your thoughts on 2022 and maybe beyond in the relatively short term. And maybe we could talk about that a little bit in the context of self storage. And then, you know, if you want to opine on the broader real estate market, I'd love to get your thoughts.   Paul (27m 45s): Yeah. I used to make predictions when I knew nothing. And now that I know a little more, I don't, I mean, I've noticed that Charlie Munger, Warren buffet, Howard marks, those guys won't make any predictions of the cycle. Howard marks of course reminds us to, even though we can't know when the cycle is going to change, we should act appropriately for where we are in the cycle. So one thing we have here is this is a 10 real $10 trillion bills from Zimbabwe. And it just reminds me as I'm sitting here, you know, that we are in a real inflationary time and it might not be transitory.   And so I think that is something that, you know, self storage has going for it. Like I mentioned, it allows you to capture that inflation real time. And if it, you know, if deflation hits, it would allow, you know, you, that happened as well. I guess   Jesse (28m 40s): I would just say, I heard one of the best definitions from Howard marks when he said, if you want to define the, the cycle and in this could go for real estate as well. He said, stage one couple forward thinking. People realize that they think the market's going to get better stage two, a broader economy, and people realize it is getting better. Stage three people think it's going to get better forever. And he's like, I don't know why you need a better definition of that. And it it's people, you know, listening to this, they know I'm a big Howard marks fan, but I mean, it's a great, it's a great point.   And one thing I've, I've said a number of times is when my mentor, he said, you know, real estate is one of those few industries where you can actually charge your customers are downloaded inflation to your customers. I E tenants. And it sounds like self storage is a continuation of, of that. If not in more real time, given the fact that sounds like you could, you can do it on a monthly basis.   Paul (29m 35s): Yeah. Right. That's exactly right.   Jesse (29m 37s): All right, Paul, we, before we get to the final four questions here, I thought I would ask you why it is important for investors or entrepreneurs to find their, why.   Paul (29m 47s): You know, I woke up at 33 years old on October 7th, 1997. And I had a couple million dollars in the bank, which was completely unprecedented for a, you know, for me and I wasn't any happier. I wasn't any more, you know, like I didn't, I felt a little more successful than I did the week before, but not a whole lot. I think it's really important for people to find their big, why, you know, studies show that if you make over $95,000, I mean, let's say you make 950,000 or 95 million a year.   You're not any happier than you were at 95,000. So we really need to have something else to live for. I think we were created for more. And so I really would recommend people find a big why for me, it's a it's it's regarding human trafficking. You know, if you took the record profits, not the average, the record annual profits of apple, general motors, Nike and Starbucks, and you added those together, double that number. That's the approximate profits projected from human trafficking every year.   And I'd like to believe if I was alive in the 18 hundreds, I would have been an abolitionist fighting against slavery. And if I was alive or if I was an adult in the 1960s, I would have been fighting for civil rights. Well, this is a civil right. And it is slavery and it's happening right under our noses. So my company Wellings capital is dedicating ourselves to try to free 5,000 slaves in the next five years from human trafficking. And I'm just recommending, you know, on a broader point that everybody finds something you're passionate about.   That's bigger than yourself or your business,   Jesse (31m 28s): Dear. And I think it's important as you know, we do or individuals get successful individually or with their companies in our case, in real estate that you CA you figure out what those things are and you know, that human element of, of being, being successful or prosperous. Okay, we are going to switch it up to a four questions. We ask every guest, if you're ready to go, I'll fire them out. Yeah.   Paul (31m 51s): You bet. What's   Jesse (31m 52s): A one thing Paul, that you know, now that you wish you knew when you started investing in real estate.   Paul (31m 58s): I wish I hadn't known the difference between investing and speculating and investing is when your principles generally safe. And you've got a chance to make a return. Speculating is when your principal is not at all safe and you've got a chance to make a return. You know, they say low risk, low return, high risk leads to not high return. It's actually the possibility of losing all your money or making a high return. I wish I'd have known the difference when I started and lost a bunch of money early on.   Jesse (32m 27s): Yeah. I mean, it goes back to Howard marks where, you know, you have that curve where he's like, well, if high, if high risk means high return by definition, that is not that's impossible. It's it's, that would mean that it's certain it's, it's obviously the higher, the risk, the higher expected important expected piece there a return. Right. Okay. Number two, your view on somebody that's entering our industry, a younger person, what would you say to them in terms of mentorship and, and getting started?   Paul (32m 59s): Yeah, I would actually. So bill gates became the wealthiest guy in the world through three simple steps you can take right now. Number one, I'm sorry. I had to do that. Number one, he decided at a very young age, what he wanted to do, and he's stuck in that lane. He did not very, he said no to 10,000 distractions to stay focused. Number two step, he, all he partnered with, or he actually found a company that would partner with him who was the biggest wealthiest, most influential company in that business, the tech world.   And that was IBM. Then third, here's the surprise. He did everything in his power to make them successful. When he did that, he quickly became the wealthiest guy in the world at a pretty young age. And so I would say following bill gates steps, you know, try to figure out what you want to do. Say no to distractions, find a big organization. Who's willing to partner with you and do everything you can to make them successful. That's great. Okay.   Jesse (34m 3s): Number three, what is one book you just are constantly recommending to people?   Paul (34m 9s): Well, I was going to recommend Howard marks mastering the market cycle, but since your listeners are already familiar with that, I would go back to my second one by Jay Papasan and Gary Keller. The one thing, yeah,   Jesse (34m 21s): That's a great book. And you know what, it's funny with mastering the market cycle. That is one book that's fairly hard to find on. I think it's on audible. If you want to listen to the audio version, but maybe, maybe I'm not looking hard enough, but I books, I, it was more challenging to find. All right, Paul, I think we're going to get an interesting answer on this one. My favorite Bloomberg question, first car, make and model   Paul (34m 46s): 1969, black Ford Mustang with the hood scoop   Jesse (34m 52s): 1 64, a oh 69, sorry, 69. I was going to not quite as cool. I was going to say the, would that be similar to the a, was it the 1970 was Mach one with the, with the kind of riveted Fastback.   Paul (35m 8s): Yeah. Well, interestingly, my hood was an aftermarket hood and somehow or another, I ended up with a Fastback hood with the turn signals out on the hood, you know, with my 1969 car. So   Jesse (35m 23s): Yeah, and I think that car was a, it was an Evie electric. Now I'm just joking. I feel like, I feel like this question is slowly, slowly going to get phased out as more and more people that come on just never had a first car, which is just the paradigm. Awesome. Well, for listeners that want to either, we'll put a show notes for the book for links to reach you, but where would the best be the best place be to, to connect with you? Paul   Paul (35m 51s): Jessie, I'm sure you can relate to this. When I, all those years, I wanted to transition from residential to commercial. I didn't know what to do. And so I've written a guide for people, free guide for people who want to learn, how to make that transition. And it's at Wellings capital.com/resources. That's w E L L I N G S capital.com/resources.   Jesse (36m 14s): My guest today has been Paul Moore, Paul, thanks for being part of working capital.   Paul (36m 20s): Thanks, Jesse. It's prey to be here.   Jesse (36m 29s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care.

    Investing in Real Estate; A Global Perspective with Colin Lynch | EP87

    Play Episode Listen Later Jan 12, 2022 52:30

    Colin Lynch os the Head of Global Real Estate Investments at TD Asset Management. Colin is responsible for Global and Canadian Real Estate Strategy, overseeing fund design and structuring, implementation and oversight of acquired assets for the Global Real Estate Strategy. In this role Colin manages Investments in over 1000 properties located in over 20 counties worldwide. In this episode we talked about:  • Colin's Bio & Background  • Financial Crisis  • The Canadian Market from a Global Perspective  • Post-COVID Real Estate Market Overview  • Pricing & Affordability  • Effects of Inflation  • Commercial Real Estate Culture  • Mentorship, Resources and Lessons Learned Useful links: https://www.linkedin.com/in/colinkrlynch/?originalSubdomain=ca Transcription: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Ladies and gentlemen, welcome to working capital the real estate podcast. My special guest today is Colin Lynch. Colin is the head of global real estate investments at TD asset management.   Colin is responsible for global and Canadian real estate strategy, overseeing fund design and structuring implementation and oversight of acquired assets for the global real estate strategy. In this role, calling manages investments in over 1000 properties located in over 20 countries. Worldwide. We just updated that now. Colin, how's it going   Colin (53s): Kid. Good. Thank you for having me here.   Jesse (56s): Thanks for, thanks for being on the show. I'm really excited to talk with you today. I think there's a number of things that we'd like to cover, but before we do, as with every guest that we have on the show would love to get a little bit of more information on your background, how you got into real estate. We talked a little how it was a bit of an unconventional approach or entrance into real estate. So take us back, take us back and give us a little bit of a, of your background.   Colin (1m 23s): Absolutely certainly unconventional approach to real estate. So first things first, I actually grew up as very much into music as a musician. And so I was one of those children that was in every sort of music class. By the time it got to high school was performing in a ton of ensembles through the, by the a hundred concerts a year, got to the end of high school, said time to explore something else.   Cause I figured I, I had learned all that I could possibly learn in music, which was incorrect, but I figured I'd at least explored app. And so I went into a business and history. So I did three things in undergrad. I did the world concerned for a music. I did a bachelor of commerce at Queens, and I did a bachelor of arts in history at Queens. And, and then, you know, graduated and it was the heyday of the leveraged buyout, boom. And my mom who said, I was way too all over the place said, you got to get a skill.   You've got to focus and you should go work for those banks because they never run into any issues, their board to stability. And so that's what I did I do to fleet, went out to investment banking and went to Morgan Stanley and got to experience the global financial crisis front and center. Ben went to, went to, to business school. And throughout that entire period, this is where you expect me to say, I had that passion for real estate, which I do, but I also had a passion for commercial aviation.   So joined McKinsey and company in Chicago, but reality was all over the world, did that stuff. And after traveling all over the world, I said, look, that's fantastic, but I'd like to come back to a city I love and a nation I love and that's in Toronto. So I did that and this is where the real estate part comes in. I had been very interested in, in a lot of political activities. And so in 2014, in January, 2014, somebody that couldn't get elected asked me to help him.   And that was the John Torrey mayoral campaign here in, in Toronto. And so 10 months later he was mayor. He asked me to work for him. I said, no. And through that conversation set of conversations that got introduced to this firm called Greystone, a firm that I had never heard of before. And, and after about a year of conversation, Greystone asked me to join. So initially I joined in strategy working for effectively the C-suite and, and then that turned into moving into the real estate world.   So that's a long way of saying I had a very unconventional introduction to the world of real estate, but it was, it was a fun story to, to live through.   Jesse (4m 26s): That's great. So in terms of the, the financial crisis component of that was that you were still a at Morgan Stanley at that, at that time. And if so, what were you doing? What were you doing for them there?   Colin (4m 38s): Yeah, I was doing a number, number of different things. I, so I started started that Morgan Stanley focused on consumer retail and financial services. So financial sponsor stories. So serving pension plans who private equity firms in the light and then also timber companies. And then, and then as, as the financial crisis unfolded that broadened.   And I basically worked across firstly every street, but spent a bit of time in real estate as well. And then from a type of activity, as I mentioned prior to the global financial crisis investment banking was doing a lot of leveraged buyouts and throughout the financial crisis also worked on things like that or in possession financing for companies going through insolvency or worked on a few, reached a sort of a few IPO's did some M and a, but at the conclusion of my term at Morgan Stanley, the governor of the bank of Canada, Mark Carney at the time requested some help on the financial stability plan for Canada that was quantitative easing effectively in Trent and requests was help design a program for the bank to implement a quantitative easing.   And so that's what I did in the last sort of four months or so of my time at Morgan Stanley. So highly unusual investment banking experience for sure. A lot of industries and a lot of different types of activities that I participated in very much a function of the global financial crisis.   Jesse (6m 21s): Yeah, for sure. I mean, it's still topical, I guess even the current environment we're in now. So I think the, the idea of just the macro economic perspective you got, I don't think it's something that's too dissimilar to some of what we're doing right now from a stimulus and, and a quantitative easing perspective.   Colin (6m 40s): Very fair point. And you know, it's interesting because prior to this environment that we're in used to tell folks about that quantitative easing program, which the bank didn't actually have to implement. And the bank was here in Canada was one of the few central banks worldwide. They didn't have to implement quantitative easing well, fast forward to 2020, and we were pretty, pretty heavy on the quantitative Beason train. So, so, you know, it's things, things change and evolve over time.   Yeah.   Jesse (7m 11s): Yeah. Fair enough. So take us to, to the Greystone, to the actual foray into real estate, you know, what, what area did you, did you initially go into, and maybe for those that don't know a little bit about what they do?   Colin (7m 25s): Yeah, absolutely. So Greystone began as the investment management corporation of Saskatchewan. So 35 years ago, thereabouts, it was a department of, of the government and it was spun out from the government and became sort of like the investment authority for the province of Saskatchewan then became owned by pension plans. And at that point looked very much like, you know, the Aimco as an example, what the government of Saskatchewan said at that point, when they spun it out was after five years, the pensions could do whatever they wanted in terms of their investment management services.   And over time management bought out most of the interests of those pensions and, and that, that time Greystone had a very small real estate portfolio. It was a full suite, so public equities and fixed income, but also had real estate. And that real estate grew from about 200 million to on, on, by the time TD came around and bought Greystone in 2018, that real estate portfolio equity was about 16, 17 billion mortgages was around, I believe at the time about 4 billion.   And so it was quite the successful run and Greystone had become a name for excellence in real estate, both equity and debt, even though Greystone began and, and still had quite a strong public equities and fixed income side to it. And so like that, I joined Ray stone working with the senior team in, and once I did a number of things around reorganizations U S expansion, et cetera, I said, look, it's time to fire me because I'm pretty much done.   And then that, you know, originated into originate the conversation, which was, you know, do you want to be a coach, I E a manager, or do you want to be a player on the team? And I looked at that and I said, you know, what, why being a player on the team looks really interesting. And so that's the path I went down. And as we've looked at the different areas in Greystone and where my passion was, my dad grew up in construction. And so I grew up with, you know, floor plans, building plans, sorry, I'm on my, on my basement floor.   You know, I had a fascination for real estate. And so I thought that would be a cool place to be. And so my foray in was working on our asset management division. And so we created a real estate asset management division in house to do a bit of that work a bit on the office portfolio, in the industrial portfolio. And then, so I worked on that, that I was also asked to help co-create the international strategy, which was taking Greystone success that we had experienced over 30 years within Canada and, and expanding that outside of Canada.   And so I worked on those two initiatives and, and then the international strategy went from strategy to being a fund. And I went from creating the strategy to running the fund and then, and then that grew, and it was quite, it's been quite a successful ride. And then I was earlier this year, asked to take over the domestic portfolio, which is that portfolio that had been around for the, for the last 30 years.   Jesse (10m 55s): Yeah. So in terms of, in terms of going into the fund model, what was it prior to that? Was it, was it raising capital for asset specific and w like, what was that transformation like?   Colin (11m 5s): Yeah, so it was actually, so on the international side, it was literally building something from scratch. So Greystone prior to launching the international head, just domestic real estate. And it was a largely one strategy on the equity side and one strategy on the debt side, diversified across property types and by risk strategies and by geography and on international there's, there were a lot of investors con we call clients that were asking us, you know, why don't you have a strategy to invest outside of Canada?   And for about a decade, the Greystone response was we hear you, but we're focused on delivering great results in Canada. And so when I came around and said, look, I really am interested in, in, in being a player on the team versus the coach, they said, great help us solve this. And so we, we literally had a whiteboard. That's how we began. And we, and we designed ground up a single, comprehensive global strategy, investing everywhere from Australia to Europe, to the U S across all the property types and all of our strategies in all formats.   So it could be a fund investment or can be a JV, or it could be a club. And, and so we designed something with a tremendous amount of flexibility, which took a long time, but it was quite fun to be able to just literally create something from scratch and then, and then to actually build it, which, you know, you have all of the legal ramifications, regulatory ramifications fro in selling Greystone to TV in the middle of bad. And now you're pro you're owned by a traded bank and they've got their own regulations and then sort of, you know, build a track record and, and take that to the market and, and raise capital and, and deploy it.   So that's been, that's been the journey on the international side and it's definitely been interesting.   Jesse (13m 11s): Yeah, that is interesting. So we had a Michael Emery on the show a few months ago from allied REIT, and we know every time I have some Canadian Canadian guests that has started or work for a large Canadian real estate company, I always ask them the comparison to the U S or globally, where you have individuals playing in our backyard for a certain amount of time. And then I can imagine just like you're alluding to here, the regulatory environment, the probably the accredited investor differences and those kinds of complexities. Well, I'm sure there was a bunch of things that were challenging, but was there one thing or one or two things that was really one of the, one of the hardest parts about that transformation or about that ability to go from not just in playing in a Canadian market, but into a global space?   Colin (13m 58s): Oh, that's a good question. Certainly the regulatory dynamic is, is, is challenging. The European union, as an example, is a highly regulated regulatory construct. And, and there's a lot of rules around if you're marketing a fund, there's something called a passport and you sort of have to have this passport that applies to certain European countries.   We have a vehicle in Ireland called the ICAP, which Cyrus collective acid vehicle runs pretty akin to accompany. So with a legitimate board and, and, and all of the infrastructure service providers, companies that service that ICAP sending that up was quite, quite, quite the work, particularly as we're getting to the ninth ending of this, of this story, right, as COVID started. And so we sort of certainly felt the heat of regulatory concern just in general, as, as we were creating this as, as COVID habit.   So that's probably a little bit of a boring answer cause folks, folks, really, not too many people get up in the morning wanting to talk regulatory details, but, you know, we had eight, eight external law firms helping us around the world on, on that, on that point. And so, you know, the, the complexity of that I think was unexpected. I would say I'd stepped back from that and say, there's a cultural difference, you know, in, in the U S for sure.   You know, I think a bit more aggressive in Canada, we've got a smaller number of participants in the market that are fair. You know, quite a number are fairly well capitalized and have very long-term perspectives in terms of ownership, property. That's not uniform around the world. And certainly the U S is a deep and liquid place. And, and, and the regional variances are quite significant, but I think that broad sort of hates a little bit more aggressive is actually probably true.   I'd say the real estate challenge for us is there's just a host of participants worldwide. And so, you know, we're active in Australia, we're active in the UK, we're active in Germany, we're active in Japan and, and finding sort of like-minded investors across all of those regions. It's just a lot to learn a lot to introduce yourself a lot of introductions to make, and a lot of subsequent sort of conversations. And then you layer that on, into, into do that in the pandemic.   And, you know, fortunately we S we did maybe three years of those introductions and, and subsequent meetings, pre pandemic, but still we've, you know, we've had quite a number of those conversations. So layer on doing, doing that in a pandemic. And it becomes a quite interesting,   Jesse (17m 2s): Yeah, a little more challenging than, than any other time or most times in terms of, if we go there on that, you know, lockdowns the government stimulus, what we we've talked about before eviction moratoriums a lot has happened in the, in the last crazy to say almost two years, how has that perspective for you? And I understand it's a big question, but how has that, how has your perspective as a, as somebody that deals with real estate on a, on a domestic and global level, you know, how has your opinion of the market and asset classes changed over the last year or two?   Colin (17m 38s): Yeah, that is a big question. So generally put, I've been reminded of the ever present role of government in our lives and in particular in real estate. And I, and I don't think that can be overstated, right? So whether, you know, the, the eviction moratoriums, or simply put closing down a lot, a lot of the retail, et cetera, and that was a global story.   And, and going through the different government programs requirements, et cetera, particularly during the first two waves of COVID was, was an exercise. And, and there's things that we know about. So the shopping malls closed, et cetera. There were other things that got a bit less play, but were also meaningful. I E different requirements for international investors use Australia as an example, there were new requirements for international investors looking to bring capital into the market due to COVID.   So, you know, that, that was interesting now to real estate foundationally. I don't think COVID has changed my perspective on the different property types. So as an example, while located office and CPDs high quality had the view that if, you know, pre COVID, if, if you're making office investments, that's probably where you want to invest during COVID, don't have, I haven't changed my perspective on it, you know, has my overall sort of thoughts on office as a property type being tempered clearly.   But I, you know, I think you talk to folks and say, and what you hear is, you know, COVID, hasn't really changed their direction of travel. I think that's, that's largely the same for me. I do think on the retail side at some point. So I used the UK as an example, where we saw a lot of devaluation of retail. At some point, you hit the level where you say, you know, the land value is, is, is higher than what folks are sort of trading in the market for.   Right. And I think in the UK, you actually have some of those situations, but I think in, in Canada, there were probably some deals to be had in the retail space, depending on the type of retail you're looking at. And that probably, that would be a different point of view than one I would have had two years ago. It's just, we've seen, you know, a lot interns evaluations over the last two years, multifamily and industrial. I mean, you know, I think we've all been very interested on the industrial story, the E the E grocery dynamic, something I'm focused on a bit, most folks don't see that being a significant concern in, in, you know, for those that own grocery boxes.   But I do think that that E grocery, even though most would say, it's fairly unprofitable for the operators. I do think it's worth watching. And, and then on the multifamily side, you know, the, the story say, Hey, everybody's moved out, Tim, we're all gonna live in, in, you know, in two hours outside of the metros or we're going to move someplace far. I think we're seeing that kind of played out to a small degree, but largely hasn't fully, and folks have moved back.   And especially in, in the U S where folks have moved back into urban Metro San Francisco's a bit sluggish on that. But beyond that CEO look at Seattle, look at Boston, you've seen, you've seen those apartment rants quite dramatically increased this year. So, you know, some, all of that up and say, not dramatic changes in my view on real estate overall, but certainly certainly reinforcement in some areas and, and deeper thinking and others.   Yeah.   Jesse (21m 57s): I think I'm probably agree with everything you just said, from my perspective of what you're saying, it sounds like very similar to our outlook. Obviously we're biased in brokerage, but on the office end, I think that there was, if you were really in tune with what was going on in office, you saw a lot of these changes really predated COVID in the lockdown, the different ways of working, the ability to have people come in on potential alternating days. So I th I share your position on downtown well located transit oriented office.   I think the story hasn't changed much for them. What's, what's been amazing is that record prices that we've seen in, in industrial and multi res industry industrial, you know, has been the darling of the industry, multi Rez. I think at the beginning of the pandemic, there was this concern that eviction moratoriums would have caused this, you know, mass vacancy, which I think just generally we didn't see, we saw people paying their rent, which I guess in theory, or in practice was kind of subsidy subsidized by the government's.   Colin (23m 3s): Yeah, no, that's right. That's right. It was. And that goes back to the first point on the large role of government in, in our society. And, and to be fair, so much of our society was underwritten by the government, especially in that first lockdown, but our multifamily it's interesting because one could juxtapose a national headline from CNN, for instance, saying nobody's paying rent and rent collection is only at 70%. And multi-family, and then what I was hearing from, from institutional owners was, oh, no, our rent collections are 95%.   And I, the worst I heard was like maybe 89%. And so, you know, that, you know, those two stats juxtapose show the importance of institutional ownership of the multifamily space and, and how that really paid off in, in, in, in, throughout the crisis, not withstanding the point that yes, government definitely helped pay the bills for a number of folks, but that really, really mattered. And also the types of multifamily that you were in, this is more of a us common than Canada, because, you know, you have a much broader spectrum in the us, but certainly some of that luxury multi-family was, was hit pretty hard in the U S but interestingly, it is bouncing back.   Now I was in Boston six weeks ago, or so touring a bit of this product and it's, you know, it was quite interesting. The bounce back has been pretty robust. So anyway, for me, the point is institutional ownership and management of, of multifamily really made a difference in, in the crisis. Yeah.   Jesse (24m 49s): And I think on that point with trip, you know, AAA or high-end multi res, I know that there was intra construction, you know, pivots from, okay, maybe let's go be like, you know, maybe we don't need the Taj Mahal, whereas prior to COVID, they might've gone for that super high end. But yeah, I think a big component of it has been, despite some of the government policies, people have continued to pay the rent. And it seems to be at least from the data that we have, that the not only the prices keep going up, but net operating income keeps going up.   So the question really from my point of view is, you know, w where do we hit the wall first and pricing or affordability, you know, what, what tempers multi rise.   Colin (25m 30s): Yeah, that's a really good question. And take it take cities like Vancouver and Toronto, which have robust shadow rental markets where that condo inventory is, is really, you know, subbing in for that luxury rental. And I candidly think that it's those owners that will have to deal with that question first versus a multifamily owners. And if I were to sort of locate myself along that spectrum, I have to think affordability's going to start being an issue one way or another.   So whether it's, you know, people are paying, you know, the income proportions after, after tax income is, is, is off the charts. I'd say as, as a proportion of rent on average, you know, in, in, in, in Toronto and Vancouver, again, to a lot of that sort of condo shadow inventory, but it's worse for folks that are owner occupiers, just based off of the, you know, the significant appreciation that has happened.   So, you know, I think it's a legitimate concern. I just don't think institutional multifamily Canada is going to be the first in line to address it. I think there's going to be some other folks who dressing at first and we'll see how it gets addressed. And then the big thing that everybody talks about in, in the public equities world is interest rates. And when will they go up and, you know, folks are concerned about inflation. And I think we genuinely are, cause it sucks that things are a lot more expensive quickly, but I think a lot more people are much more interested on how will central banks, if they decide that this inflation run is a bit more permanent than they thought, Hmm, how will they adjust interest rates to, you know, deal with that.   And, and, and there, you know, if I look at that's the challenge and the folks lined up to, to face that challenge, those multi-family owners, aren't first in line, they're probably third in line. The first SIM are probably, you know, I would say highly leveraged homeowners that have, you know, purchased a product in the last year or so.   Jesse (27m 47s): Yeah. Fair enough. In terms of moving on to a little bit more on the interest rate, inflation inflation environment, you know, we keep hearing whether this is transitory, whether inflation that we have right now, for those that don't know, I think the fed very quietly, you know, mentioned that they would no longer be targeting the 2%, you know, their, their typical target of a 2% inflation. And it kind of went under the radar, I think even from, from kind of financial news, but w what are your thoughts?   And I guess in your role at TD, obviously you have to take a pretty broad global approach. How, how, how did that decision and what you've been seeing as inflation kind of creeping up, how is that influencing or changing, if it does your opinion on, on, you know, where you think you want to lock in rates where you think that you can, you can be in, in variable environments.   Colin (28m 44s): Yeah. Good question. So numb number places, one on, on the fixed versus fair, but we, we have generally put, had a predisposition to have as much fixed as possible on the view that, you know, this environment is benign in terms of the cost of debt. And so if we could sort of lock in some of that, that's, that's quite attractive now in certain places, it's pretty hard to do that. So construction financing being one, but we're possible that's being broadly the approach and, and this, and now that's a worldwide thing.   So, you know, I think that approach was most pronounced pre pandemic in places like Japan and also in Germany and other European countries. But I think now that's a Candace point, a us point, et cetera, on the other side, which is on the property type side, that's interesting, right? Because multifamily have one year, at least a student housing and maybe eight months, maybe 12 month policing. And when you look at an inflation world of rising interest rate world, that becomes quite interesting, even pre pandemic we're down in Australia, looking at industrial, we took a lot of comfort from the structure of leases in, in, for industrial product in Australia, which have a rental escalations each year.   And it's quite quite attractive at two to 3% per year. And so some now, sorry, that's quite attractive right now, right? Hopefully, hopefully it's attractive in five years, but I think that's also important. What's the structure of the leasing in, in the property types that you're investing in. And, and it's interesting, even in the office environment today, we're seeing leasing transform a little bit. We're seeing shorter term leases, not due to inflation, just due to uncertainty in office, but the, you know, the, I guess the net benefit of what might be viewed as more challenging leasing dynamic is you might have a little bit more flexibility in the shorter term if we, if we do have, you know, rising rates due to rising inflation.   So it is a complicated point, but we, we really began thinking about it in earnest in 2020. You know, we, we thought about it in 2019 and 2018, but in 2020, as we saw some of those significant changes and by the way, on the fed. Yeah. So that was a watershed moment. At least to me, when they moved off that sort of target, they also sort of announced, I think in the September meeting to be, you know, that they would begin tapering. Now we've been tapering in Canada for awhile, but I also think that's an important announcement that probably didn't get as much press as it should.   And then the program to taper fully, I think goes until June of next year. And after that, you would, you know, at least conceivably expect that rates would begin to rise. And I think to most people that would be sooner than what most people anticipate for the U S fed to, to do so. Yes, the feds made a few announcements that I think of come beneath that radar screen.   Jesse (31m 59s): I think it's one of those things that when it comes down to the ground level for us at the property level, whether it's, you know, office leasing or retail, I think there is potential for return of, you know, we've had leases where in the nineties and eighties, you'd see these legacy leases where they didn't have step-ups discreetly, but they had, you know, each, each year your rent would rise or your base rent would rise as a function of the CPI index. So it'd be interesting to see if we go back to more of kind of targeted step-ups that really want to go up with inflation, you know, if that's going to be a big enough thing where you, you see that translate, but yeah, it's, it's definitely something that's on the interest rate side, curious for all everybody, you know, we have people on that are, I find extremely smart that will have complete opposite opinions on inflation and interest rates.   So it's one of those things where you watch carefully, but in terms of having a crystal ball for where, where rates are going to go, I mean, I think I've confidently said rates will have to go up for the last 10 years.   Colin (33m 5s): Yeah, that's right. That's right. And, and, and eating a bit of humble pie is essential when, when, when prognosticating about these saints, because it's, you know, it's, it's almost like predicting currencies. There's just so much that goes in to, to, to, you know, what the fed does or what the bank of Canada does. And, you know, you can raise rate rates quickly or slowly. You might raise some that dance through there is, there's quite a lot in there.   And then you've got geopolitics, you've got a health pandemic and, and, you know, so sitting in 2019, nobody would have anticipated, right. Where rates would be today, just nobody would have gone in that. Right. So to your point, yes, I, I definitely eat some humble pie as well.   Jesse (33m 54s): Yeah, no, fair enough. You, you control what you can control. And, you know, we were in one of those few industries where you can directly almost directly pass on inflation to your customer, but it's a interesting point, especially in the Canadian environment, when you talk about student rentals where you essentially can mark to market your rental rates almost almost annually, usually two years, three years. But, you know, for those that don't know the Canadian environment, even in multi res, even though they're one year leases, you're not really marketing to market within, you know, every year, you know, the turnover can be, depending on the asset can be quite a bit different than, than student res.   Yeah,   Colin (34m 32s): Absolutely. And that, and, and, and that will be interesting going forward, right? Because you had folks in the last year or so, depending on the market and depending on the product, and this is more of a condo shadow inventory point that moves to take advantage of some of the lower rents in the multi-res side, that due to, you know, rent control, both, you know, use Toronto or Ontario as an example, you would think that the turnover rates going to decline materially, at least in the short term, as a result and in, in the student world, you know, it's, it's doubly interesting.   So number one, you've got your normal turnover folks graduate, but you also have this year and next year cold called the bulge in the class. You've got people that might've delayed, that are now taking the class people that were at home that are now going back to campus. You've got campuses that were virtual, like Ryerson here in Toronto that are going back to in-person in January. So that re all of that combined, and then you've got international students that are coming back.   It makes it a really interesting place to be in the student world. Yeah.   Jesse (35m 50s): Yeah, for sure. Colin, I want to be respectful of the time here, but I do want to talk about the, the black opportunity fund for those that don't know what it is. I just want to, you know, before we, we ask our final questions here, I mean, just in kind of asking the question, are you able to talk a little bit about the fund moving on to kind of culture in our commercial real estate world? You know, we can talk about specifically here in our area, but I think culture is very similar, our commercial real estate culture.   So I'd like to just kind of get your view on where we're at right now, from your point of view, you know, we're what improvements from a cultural standpoint you think that we can make and, and yeah. And on that talking a little bit about the fund and what it is.   Colin (36m 37s): Yeah, absolutely. So first the culture culture in real estate, in the commercial real estate world, it is a highly congenial culture and relies a lot on personal and interpersonal interaction and the log on the power of networks. And that's just a global global point and familiarity with each other on the basis, usually of doing deals and transactions and working through situations, none of that's overly bad.   What I have found, whether it's going to expo in new Nick or whether it's going to, you know, an animal con conference in Beijing is it's extraordinarily a male and be uniform. And when I stepped back from that, I think, you know, the folks that occupy our properties are not all male and not all uniform. And we live in one of the most incredibly rapidly changing and advancing times ever, right?   We're in the fourth industrial revolution and everything literally is changing. And so how can an owner operator of real estate realistically tell their investors that they're the best in the world at what they do, but their staff is only, you know, only calls from a quarter of the population in the country or city in which they're in. I just don't think it's possible. There are smart people out there, brilliant people out there that would make fantastic real estate investors that aren't actually able to get into real estate for X, Y, Z at ABC reasons.   So I think that's a problem for the real estate industry as much or more than it is a problem for society. But if we can solve that problem, we create better outcomes. And this isn't just that, you know, this isn't a CSR thing. I E the thing at the back of the annual report and where everybody's smiling, no, this is actually a, Hey, you can do, you can create better returns by having smarter people running the strategies, running the real estate.   So what's the black opportunity fund, a billion and a half world's largest pool of capital to fund a black led black focus, black serving charities nonprofits on one hand businesses entrepreneurs on the other hand. And why, because when we went through the last two years accelerated by what happened, George Floyd, we saw a ton of organizations doing fantastic work, just subscale.   They just need a capital. And it, why? Because we thought, Hey, why don't we start an, you know, a scholarship? Well, there's a ton of organizations getting scholarships. Why don't we start an after-school program? There's tons of organizations. There are literally hundreds and hundreds and hundreds of nonprofits, by the way, didn't say charities because they don't have even the scale to get through the process to become a registered charity. So they're non-profits, but they're, you know, moms and pops doing their best with the limited resources that we, that they have.   So black opportunity for motivate contributions from corporations, governments, individuals, families, anybody, we think it's a whole, a candidate problem to scale up these charities, nonprofits on the businesses and entrepreneurs side. There are thousands of entrepreneurs and businesses, all of them virtually all of them, very small. And the number one issue statistically as surveyed is access to capital.   And there is both and a perception issue and also true difficulty accessing meaning financial institutions are less likely, and this was studied by the, the federal reserve are less likely to give to an individual of color. There, there are like more likely to be determined, to be high risk.   And as a result, individuals of color are less likely then to go to those financial institutions. So you have sort of this negative wheel created. And so we're just trying to break that and create an assessable pool of capital to provide. So that's the goal of the black opportunity fund. We have been raised capital TD just announced a couple of weeks ago, $10 million plus office space. Plus the conduct individuals, national bank announced 6 million, just over $6 million to, to the black opportunity fund.   There's been a number of other contributions, but we're early meaning we've got a ways to go. We spent a lot of time creating the infrastructure at the correct governance, the board, et cetera, et cetera. And it's been a huge effort, more than 300 folks involved. We talked to thousands of businesses and charities and all, all across the country. And that's important to geography. Folks think about Toronto and Montreal. They overlook St.   Johns and Halifax and equalizer. We want to focus completely across the country, French and English, female, and male, and, and, and also LGBTQ plus, et cetera, that is important to us. And so that's the black opportunity fund.   Jesse (42m 29s): Yeah, I think, I think for, you know, from the point of view of the industry, I think me personally, I think that's why it's important to have these carefully, these organizations do these care for careful, you know, dis w whatever you want to call them, disparate impact studies, but we're looking at what policy actually does at the end of the day. You know, we have XYZ goal for policy, but what is really happening in reality? One thing that really clicked for me was I was in business school years ago in Toronto, and we had a venture capital capitalist that was talking to our class.   And he said that he had his daughter, she was going into computer science and programming and university of Waterloo for, you know, the Americans listening pretty much our Silicon valley in Canada. And he said, he went, brought her into programming and it was an orientation. And as most people could imagine, 99.9, 9% male. And initially I remember thinking, well, you know, if, if you go into something and you have people that are interested in that and they want to do it, and it happens to be disproportionate to society, you know, that's people making, making decisions, but then you said something, I think it would always stuck with me.   And when we have these conversations, I always think about this is, he said, these are, this is the generation that's going to design the virtual reality in geography. We plan the way that we navigate the world is a lot of it is going to be on the computer. A lot of it is going to be software. Do you really want this one cohort of people, no matter how great they are with all the blind, you know, the blind side, you know, the blind spots that they have. Do you want that to be what creates the future and designs it, or do you want to have a multitude of different views where the collective blind spots, you know, create something that is very clear?   Colin (44m 22s): Yeah, no, that's exactly. That's exactly it. And the tech world to that point has had its owns for the realization. Cause you know, commercial real estate, isn't alone. I mean, I'd say broadly the investment world, same thing broadly, broadly the tech world. But if you stay, you know, I stepped back and I've, and I've posed this question and truly a few times, it's like, why, why is it that virtually all of the administrative assistants are female. And it's like, do you, do you grow up?   Are you born? And you grow up and there's an innate desire as a female to become an admin assistant that doesn't exist for males. And clearly the answer is no, at least at least my interpretation and understanding of medicine yields me to conclude. That's probably not the case. It's probably a societal expectation. But if you take it to your example or the instance of commercial real estate owners, you know, how, how is it that you will grow?   How can you grasp future trends? How will you understand how people want to live, work and play, how they want to shop the types of retailers? They w retailers that they want to go to the experience that they want to have in lifestyle oriented centers. How can you actually understand that? If it's five dudes planning out the layout of the mall, right? It just, I don't get it. So to me, it's kind of like, well, you want to, you want to draw people in so that you have these different points of view.   So   Jesse (46m 0s): You're just going to go to that mall and not have any place for, for your, any daycare to put your child.   Colin (46m 7s): Yeah. Pretty much   Jesse (46m 9s): Awesome. And okay. I've, you know, we've been very, very generous with your time here calling. We have four questions. We ask everybody on, on the show. So if you're cool, I'll S I'll send them your way.   Colin (46m 20s): Sounds good.   Jesse (46m 22s): Okay. What's one thing, you know, now in your career, you wish you knew when you started,   Colin (46m 27s): I say, boldly use using the Wayne Gretzky analogy, which is old flea. Think about where that puck is going and skate, where that puck is going versus looking at the shiny object today and going to that shiny object today.   Jesse (46m 46s): Yeah, that's great. I haven't heard that in a while B be where that thing or that puck is going to be not where it, not, where it is in terms of, we always ask guests in terms of what you would tell younger people, getting into our industry, and just generally your view of mentorship,   Colin (47m 3s): Jay mentorships, critical more than my mistakes has been not caring mentors throughout my career. As I progress, meaning I have lots of mentors as I began my career. And then you sort of, you know, go through the different levels and you know, you get busy, it falls off you, you know, whatever, it's a terrible thing. I think mentors are absolutely critical. Gives you a perspective on, on things that you're seeing today that, that person's seen in a different way, 3, 4, 5 different times, and can tell you what they did or what didn't do more important than that is a mentor calls out your bullshit.   And that's really important sometimes. And so that's valuable somebody coming into the industry today, what would I say? It is a relationship industry at the end of the day. I mean, you got to do the work you got to do well, you got to have passion for it. So if you don't have passion for real estate, don't go into real estate. So assuming you're passionate for real estate, it's a networking industry, it's a relationship industry. And so take that time to go out and take somebody to drinks.   Or if you don't drink, take them to lunch, whatever it is, because that, that is what gets your career going in the industry.   Jesse (48m 29s): Yeah, absolutely. What is one or two books or podcasts that you are constantly recommending?   Colin (48m 35s): Yeah, that's a good question. I do like Malcolm Gladwell's books a lot. I wish I could say I've got a long book list. I wish I could say I've read all the books on that book list. There's a book that comes to mind. It was it's the power of one. I read it in literally high school, but it, it, it, it just speaks to me as a story about courage and resilience that, you know, I think is beneficial today.   And if I go back to your earlier question about advice, people used to say in, I banking world, it's a marathon, not a sprint. It absolutely is. And so to run that marathon, you need resilience and you need that, you know, that, that capacity to endure, to learn, to fall down, to, you know, make mistakes and to get up even better. Yeah. That, that book, the pair, the power of one was quite, quite instrumental to me, even though I read it so many years ago. Awesome.   Jesse (49m 39s): We'll put a link up to that. And the last question, my favorite layup first car make and model.   Colin (49m 48s): So funny enough, I've never, I've never owned a car because I've always lived in, in urban centers and have, you know, subscribed to the notion of taking the subway, walking everywhere and now taking Uber's. But the first car is likely to be some form of electric vehicle. Can't say it's going to be a Tesla, but it might be a, so let's go with Tesla and some electric vehicles.   Jesse (50m 16s): I like it. That's the first guest to prospect there, their first car. And the second one that, that they've always, they've always been public transit oriented. So I think that trend is going to continue going in that direction.   Colin (50m 30s): Yeah. I was early on that train cause you know, you know, it was very unusual, but you know, just like the, not having a landline telephone, a terrain that was early on that too, but eventually I'm going to have to give them, I know I can, I can see it coming in. It's probably going to be that Evy, hopefully when those batteries are better, there you go   Jesse (50m 50s): Calling for those, for those interested in getting in contact with you or anybody that wants to see, you know, what you guys are up to, what would be the best place to reach out?   Colin (51m 1s): Yeah. So LinkedIn is, is, is good. People do reach out through that in terms of finding, you know, what we're up to black opportunity fund for bear has a good website, lots of info there. We keep it up to date as it relates to T them and global real estate and our Canadian real estate, there is a T damn website, like most websites in the, in the investment world. We don't tend to overload it with information.   So, but T them does have a LinkedIn page. And so that is also quite active. So following either TDM on LinkedIn or on Twitter, there's there's information there. And if you don't want to do either and just want to message me on LinkedIn, you can, and eventually I'll get back to you.   Jesse (51m 54s): My guest today has been calling Lynch con thanks for being part of working capital   Colin (51m 59s): Pleasure. Pleasure. It was great conversation.   Jesse (52m 8s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care.

    Just Ask Jesse - How To Hire The Right Property Manager | EP86

    Play Episode Listen Later Jan 7, 2022 10:14

    Hiring the right property manager to manage your real estate investments can truly make or break your business. You've probably heard horror stories of nightmare property managers leaving your rental property vacant, destroyed, or simply taking your money and running. In this Just Ask Jesse I share the pros & cons to property managers & tips for hiring the right one to manage your rentals!

    How Brie Schmidt Grew her Real Estate Portfolio by 50 units in 1 year | EP85

    Play Episode Listen Later Dec 29, 2021 44:07

    Brie Schmidt acquired her First Investment Property in 2011 and left the Corporate World in 2014 when she became a Full Time Real Estate Investor. Brie is the Managing Broker of Second City Real Estate, a Full Service Brokerage Working with new Investors and Seasoned Investors Looking to Expand their Knowledge of the Industry and their Portfolio. In this episode we talked about: Brie's First Steps in Real Estate Switching to Real Estate on a full-time basis 2021 Portfolio Review Capital Deployment The Difference Between Chicago and Milwaukee Property The Active Investment Strategy  Property Management 1031 Exchanges Regulatory Environment from the Landlord-Tenant Prospective Mentorship, Resources and Lessons Learned Useful links: http://www.secondcity-re.com/agent/brie/ Transcriptions: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Hey, my name is Jesper galley and you're listening to working capital the real estate podcast. We have a special guest today that is Brie Schmidt. Brie acquired her first investment property in 2011 and left the corporate world in 2014.   When she became a full-time real estate investor is the managing broker of second city real estate, a full service brokerage working with new investors and seasoned investors, looking to expand their knowledge of the industry and their portfolio. I had the special pleasure of being on a panel with Bree in new Orleans at the bigger pockets conference. Bree, how are you doing I'm   Brie (54s): Dan. Great. Thanks. How are you?   Jesse (56s): I'm doing fantastic. Well, I appreciate you coming on the show. I thought just, you know, we were talking before the show. I think it would be really interesting to have you on because we talked a lot, but you know, across that panel and I think it would be a treat for listeners to talk not just about multiple larger units when it comes to multi residential, but to talk about the mid and lower size units or smaller size units and kind of approach it from the perspective of the kind of unique markets that you're in. So maybe to kick us off, why don't you give us a little bit of a, of a background for yourself, for listeners, how you got into real estate?   Brie (1m 35s): So I always say I used to be a normal person. I used to have like a normal job and normal, you know, grind go to the grind kind of goals in life. So I used to work in advertising sales. I used to work in business development and advertising sales never really saw myself doing anything different. You know, it was really had aspirations of being a female CEO one day. So I live in the Chicago market, which we were talking about before show is a somewhat unique market, as far as housing stock.   There's very few cities in this country that have a large portion of two to four unit multi-units. So depending on the neighborhood in Chicago, it can be between 50 and 70% of our housing stock is two to four unit properties. And they're generally about a hundred thousand dollars, less than a single family home. So at the time I was think I was just getting engaged and my fiance and I were talking about, and you're like, what are our life plans? They're like, well, we want to, we want to buy a single family house, but like, we don't need, we don't need that sort of space right now.   So that was our plan was we bought a three unit property. We did a quote-unquote house hack, you know, standard FHA loan. And our plan was, you know, at some point we would need more space. We could, you know, take out a wall, move a staircase. Now we took up two of the three floors. And then at some other point we'll need the other space. We'll just, you know, get and take out a wall and move a staircase. And we'll eventually just take this house and convert it to a single family home. So that was our hundred, like end all be all goal with real estate investing. About three months after we bought the property, my father was diagnosed with a very aggressive form of cancer and he passed away a few months later.   And the thing is the day before he was supposed to retire is when he passed away and we already planned his retirement party and it now became his wake. And it really resonated with me as, because I would just think back of all the things my dad would say, like, when I retire, I'm going to go do this. When I retire, we're going to go to Thailand. You know, I'll retire after you get married or I'll retire when your brother had finished his PhD. And like, he always had all these dreams and goals that he never got to see because he never took action on it.   So here I am, 28 years old, you know, working 60 hours a week, traveling all over the country for somewhere else. And I'm like, this sucks. You know, like this is a terrible life. I've got, you know, 30 plus years till retirement. And I'm going to be in the same position as my dad. You know, I've always wanted to go to Italy. I've always wanted to go do these things and I've done nothing with them because I was too focused on work. So it really changed my perspective on life and decided to reorientate things.   And that's how I got into real estate investing. So you'll, you'll figure out, you know, I just go, I'm a bull in a China shop kind of person. So within the, we bought our first property in 2011, we bought another property in 2012. We did it again in 2013, that 2013 property was a renovation property. We bought like a 1960s house and completely renovated it, you know, pulled cash out. And that is when I found a website called BiggerPockets, which I'm sure you know about.   And it completely changed everything that I was doing. I had never talked with another investor. I had never read a book about investing. I was just kinda, you know, winging it. And it opened up this whole new world of possibilities. So we were sitting on a decent chunk of cash and now I had all these possibilities in front of me and opportunities to learn. So we went full forward ahead. So we looked at other markets to invest in while I love, love, love Chicago.   It's not really a cashflow based market. It's more of a balanced, you know, similar, not as expensive as California, but you know, similar sort of market, New York as well. You're just not going to be retiring off cashflow here. So I, I took some time. I looked at Milwaukee, Kansas city, Indianapolis spent some time in those markets, learning those markets and we decided to invest in Milwaukee. So for you guys that don't know it's about an hour and a half drive, so it's a, you know, easily commutable distance.   So in, let's see, 2015, we bought 10 properties and then 2016, I bought another eight. And then I had partners. I worked with that. I bought another 10 in 2016. So we went quite all in and fast growth trajectory on our acquisitions in those markets. So that's kind of my, and then I started a brokerage firm here in Chicago that was started in 2014. We are the largest boutique brokerage firm working with investors in the Chicago and market. And then I also do the Midwest real estate networking conference where the largest conference in the Midwest for real estate investors.   So everything, when I say I used to be a normal person with normal hobbies, that's what I mean. Like I used to be able to small talk and chit chat about sports or shopping. And now my whole life has become real estate, which is fantastic, but it's all I want to talk about. Cause it's all that meal. It's fun for me. So it was taken over my life in a very, very good way.   Jesse (6m 56s): Yeah. Well the, the energy didn't go out and I noticed when we were, we were at the conference and it's, that's great to hear it. When, when you made that transition, I'm always curious because it's not a dissimilar story where we have guests on that had a quote unquote, normal life or normal job, normal, whatever. And then they move into real estate investing. What, at what point in that kind of, you know, 20 11, 20 12 was the point where you said, okay, let's go in full time and, you know, get, you know, not, not continue to pursue the, the day job.   Brie (7m 26s): So it wasn't like a, it wasn't a pre-planned conscious decision. To be honest, the plan always was I was making great, you know, I had a great salary. I actually loved what I did. I had spent nine years building up my career. I did, it was not something that I wanted to walk away from. So the plan was never for me to leave my job and do real estate full time. Real estate was always going to be a hobby on the side. So it was when we were looking at doing our first set of properties in Milwaukee, that I started to realize like one day it was like, well, I always wanted to make sure that my real estate investing never got in the way of my day job.   And then one day woke up and realized that my day job was getting in the way of my real estate investing show. But I'll tell you this story. I used to travel a lot for work. And we were at the airport, it was a 6:00 AM flight to Atlanta. So it was like five 15 in the morning. I'm staying at the airport with my boss who just had a baby. She was like, I don't know, baby was like four months old. So we were flying down to Atlanta and then we had to get a car and rent a car to go to Columbus, Georgia, which was like a two hour drive for a two hour meeting.   And then drive back to Atlanta to take an airport plane ride home because she had to get home. She had a newborn and I remember sitting in the airport with her at like five 15 in the morning. It's like the butt crack of Dawn. And I get a travel alert on my phone. Like, so when it comes to travel, like Istanbul has been like my number one bucket list place. And there was a flight alert. It was like 400 bucks to go to Istanbul and I'm staring at us and I'm like, oh my God, I'm going to go to Istanbul. And she's like, what one? I'm like, I don't know, there's 400 bucks. Like I'm going to go whatever. And she started going through, like, this was April.   She starts going through my calendar while you can't go this month. Cause you've got this and then you've got this. And then like at the end, she's like by October, like, yeah, you can take a long weekend. And I was like, screw this. Like, this is not the life that I want. Like if I want to go to Istanbul, I want to go to Istanbul. So between it was around the same time that we were mid acquisition with our properties. Like I said, we were buying five properties. I remember calling my commercial lender and being like, Hey, if I quit my job, is that going to affect my ability to acquire more properties?   And as soon as you said, no, I was like, great. I'm giving my notice. And that was it. So it was like a two week, like, Hey, is this gonna, are we going to completely blow ourselves up by doing this? Or no? And the answer was no. So we just did it. I just did it.   Jesse (9m 51s): Yeah. I feel like the, there is this point where people, especially like yourself that have a job that has a good income. There's a beginning stage when you're investing where it is an asset. Obviously the W2 income, T4 in Canada, where, you know, lenders are looking at that. But you do get to a certain point where the assets are become more important than you as the individual. Did you experience?   Brie (10m 14s): Yeah, exactly. But if it wasn't, we were already past the point of doing residential loans. We were already well into like the commercial loan process and that was pretty much what we would be doing moving forward. So as if you don't know, as a us and Canada might be different, you know, those are two very different processes. So it was important for me to know that the commercial under that we were working with, I said, I've done, you know, 23 loans with him. You know, they, they were very strong as far as like backing me personally and financially, as long as he was okay with it, I was ready to go.   So I said like, this was probably mid April. I left my job at, and by the end of June, I was, I quit and done diminish doing real estate full-time ever since.   Jesse (10m 60s): Right on. So what take us up to 2021? What, what does the portfolio look like?   Brie (11m 5s): It's less so, yeah, I've actually sold, I didn't sell anything in 2020, but 20 18, 20 19. I sold some properties about half of my portfolio. So this is also a very interesting story. I was at a conference, very similar, like the bigger pockets conference we were at new Orleans. And I remember the first session, the first morning was an economist. I was actually in Philly with Dave Vanhorn's conference. So this economist is on stage. And he's saying a lot of big words. I don't know, you know, yield curves.   And I don't know, I'm writing things down. Like I should Google that later. So at the end of the conference, the, there was a charity event and the economist had had was the auction off three hours of his time. As for this charity fundraiser. I'm like, this is a perfect opportunity for me to learn, right. What he's talking about. Because while I understand like real estate economics, and while I understand the market economics that I'm in personally, I don't understand on a national or global level, right? How all these other things that are going on are going to affect my market.   That's why I wanted to learn. So I bought his time as part of the auction. And one of the things he did was he wanted to go through my entire portfolio with me five years back, right. Looking at my cashflow, my projections, something that I hadn't done. Like every year I would view my portfolio, right? Like we all do, but I never really like went back and looked at it from a high-level five-year perspective. And he put on all these different calculations and I don't even, I still don't even understand half of them that he did for me. But one of the things that we looked at is what was my three-year average cashflow and my five-year average cashflow, what would I get if I sold the property less than the fees and how does that, that profit relate to annual cashflow?   And I realized quite quickly there was some properties that like, there was just always something, right. There was always something going on with these properties. At the end of the day, if I sold the property, I will be getting like 15 years cashflow up front. I'm like, well, that makes stupid for me to keep these properties. So that has become for the last three years when I'm part of my process is every year I not only review my pre like in my, or what we did and what our numbers were this year.   I also look at my three-year, my five-year. And then since acquisition numbers and reevaluate my portfolio every year, I hire a local realtor in Milwaukee, even though I'm licensed there, I don't, I'm not super active there to do a CMA on my properties. And I rebalance things and I re reallocate things and see, Hey, is this the right? Is it keeping this property, the right thing to do? Or at what point does it make sense for me to sell? So that's, that was a learning experience I took from a med economist. Yeah.   Jesse (13m 54s): Yeah. And it's sometimes it's like, you get that second opinion or you just to get something that, not that you weren't accountable, but kind of high level taking a look at your portfolio. I found a very similar thing happened with me earlier in my career, where there was very similar to you just cap X that would happen. So, so technically your P and L looks good. It looks okay. But really at the end of the day, your cashflow statement is getting hit with these large expenses. And, you know, 1960 would have been a newer pro property. Like one of the first properties we bought was in the early 19 hundreds.   So, you know, stone foundation, knob and tube. And what I was finding was that there were particular properties that were just these cash, like just pits, because you'd just be dumping in. And, you know, even if you average out capital expenditures, if you pick properties that have, you know, a lot of maintenance, you really gotta be careful about how you're smoothing that out over the, the time that you hold. And, you know, sometimes there's an inflection point, whether that's five years in seven years in it's, like you said, it just makes so much more sense to sell it and redeploy somewhere else.   Brie (14m 56s): Absolutely. Yeah. It was a very interesting exercise for me because I always just looked at things. I said, like, I looked at things on an annual basis. I never went back and looked at things from the beginning or the last couple of years and was like, wow, you know, this property is not produce thing. Right. And since I bought it, the values have gone up, like I would make, I had one property. I was going to make like 33 years cashflow I'm like done sell it now. So it's become an interesting exercise.   Jesse (15m 27s): So I want to ask the, the question that so many investors are asking today is w we see it from sellers, but just in general, that number one, you know, where do you, if you do sell a property, where do you even deploy capital? Because the market is so competitive right now, I'm curious, was Chicago, Milwaukee, was this something where you did sell properties in Chicago and then Milwaukee kind of looked like a, a place where you deployed or were you guys doing it at the same time? How did that, how did those two locations come about?   Brie (15m 57s): Yeah. So everything in Chicago, we acquired from 2011 to 2013, and we have not sold any of those properties. Everything in Milwaukee was pretty much 2014 to 2016, and we've sold about half of those properties. And so like, our portfolio was about 31 properties before we started selling anything off. And our newest property was built in 1910. So when you talk about old, like that's just the market, you know, like these, these were older 1890s, 19 hundreds, 19 times are when the properties were generally built.   Jesse (16m 34s): So sorry, the, the property, like the, the move to actually continue investing. When you deploy that capital, wha what are their active investments that you wanted to put them in? Was it, was it the strategy to put it into the properties that you currently have? How did you deal with that once you had that windfall?   Brie (16m 51s): I'll let you know when I figure that out, it's been terrible.   Jesse (16m 56s): Well, we were just talking about this before the show. They're just talking about the inventory issue in all of north America.   Brie (17m 3s): Yeah. I think I'm like, I, this, you know, this may or may not be the right decision, but I really I've gotten this far in my investing career by trusting my gut and nothing. Nothing has been interesting to me since, you know, I've, I've looked at some like multi-family investments, but very few actually piqued my interest, mobile home as well. It's like, I'm dabbling into that stuff, but nothing that's been like, Hey, this, like the doors have opened, I see the light.   This is the path forward. So really put, put the cash in the market and let it sit until I decide what to do with it.   Jesse (17m 43s): Yeah. Fair enough. So, can we talk a little bit, like I said, at the outset, I think investors would get a lot from this, you know, two to five unit world that you live in, especially in these areas. Can you talk a little bit about why an investor would go into say a three, a triplex or a five unit as opposed to 25 30, even if they have the capital to do both   Brie (18m 4s): Same things like for us? Like, so when we, when we went into the Milwaukee market, we bought 18 properties in nine months, 67 units. It was, so we obviously had the capital to buy one big building if we wanted, but chose to do smaller buildings and said for a lot of different reasons, a, like we just talked about, you know, if some of the properties are underperforming, I could sell the ones that are underperforming and keep the ones that are performing without having to sell the entire property as a whole.   So that was part of the reason. And like I said, all of our properties are within like about a mile and a half radius. So it's not completely spread out. Like everything is within less than a 10 minute drive from each other. But one of the main reasons was the properties are like, obviously residential properties are valued differently right. Than commercial. So when I was looking at the, the cap rates and the returns that I could get, they were much higher on two to four unit properties. And they were on these multis. So again, the markets, Chicago and Milwaukee, you know, got the neighborhoods can be between 50 and 70% housing stock, at least two to four unit properties.   They're everywhere you drive down the street. Right? And like half the block is a small apartment buildings. So there's a lot of different options of different inventory. But the thing was when it comes to the small Maltese, at least in my markets, they learned pay is water. Everything else is separate to the tenants, right? So there's no common meters for anything. When you look at insurance, right? I'm getting homeowners insurance that, or my business, you're getting commercial policies. Your insurance rates are much higher than mine.   You generally pay corporate water. I pay residential water. You know, there's, there's like my taxes right. Are different than your taxes. So when I was looking at, you know, up to about, I would say about 20 units that evens out, because when you think about it, if you've got a 15 unit right next to my three unit, and at the same size, same condition, you know, two bedroom apartment, we're getting the same rent, right? Your 15 unit does not offer the amenities like the pool, the, you know, the doorman to increase runs, right? So we're getting the same sort of rent, but your expense ratios are much higher than mine.   So it came out, like I said, once you got to about 20 units, then your expenses ended up being closer to what my expenses were. And then the cap rates even doubt, but like anything on you, it's like Tanya properties. And we see this all the time in Chicago. Cause we get a lot of investors that come to us and say, Hey, you know, we want to get into like these, you know, small midsize. Multi-families like, great, I'll start running some numbers for you, but taking a consideration. I want to show you something else. And I'll show them side by side. Like here's, you know, here's 10 properties that, that are like between 10 and 30 units.   And here's, you know, 10 properties that are two to four unit properties. The cap rate is always higher. So the risk though, is that if the market, the real estate market changes, right, you're subject to comps, not at a Y in the residential world, but financing is also easier as well. We don't have, you know, you can get 30 year fixed on a two to four unit property. You're not getting a five or seven year arm.   Jesse (21m 14s): And in terms of the investors that you typically work with, or even yourself is for the most part, the strategy buy and hold with, with the size   Brie (21m 22s): Of units.   Jesse (21m 25s): And one of the things, you know, you'll hear people say, even at the 20 unit size, in terms of property management, you know, whether, you know, there, you have the economies of scale, how do you handle that?   Brie (21m 36s): It's a great question. So I think it depends on your market, right, Chicago, where at least where I work is more of an AB type market. So even, you know, even clients that I've had that live out of state, a lot of them can self-manage or we have a company here locally. I think they've expanded to, if you go to the markets now called nest egg. So it's not that I got rent, they do all the cart, property management. So like I've been using them since my maintenance, since I was pregnant with my first kid. But like, I don't use them for, I do my own run collection.   I do my own lease ups, but I have that option if I want to, but there's no monthly fee. So, you know, I just had an issue this morning, a tenant reported an issue, you know, it goes through their system, they diagnose it, they take pictures, whatever it is. And then they send me emails saying like, Hey, we think this is going to cost this amount of dollars and this many hours, who do you want to schedule the repair, the tenant, you know, then they call my tenant and they work it out. It's like, I have not been in my properties for repairs and years. And if no one makes a repair requests, I don't get charged anything.   There's no monthly fees. So that sort of product works really well in the Chicago market where, you know, it's not, it's not very high touch, right. Milwaukee on the other hand is more of a C class market is absolutely high-touch. You definitely need full-time property management services, but that's what it was. We grew so quickly said when we came to our, so by the, as after two years, we were at just under a hundred units, that's enough to be important to a property manager.   And in the beginning I had my own in-house team. I tried doing it myself. And it was terrible because you can't have one person. Right. It's what I learned. One of the learning lessons I had, you know, while the, the property manager that I chose was fantastic with my tenants. Right. He lived in the community, he actually owned some of the properties that I bought. My first properties were bought from him, you know, great relationship with the tenants, with service, with service workers, repairs, right. All that was handled, knew nothing about accounting, you know?   And like he would go to him and he'd go deposit like 10 grand in my bank account. And I'd be like, what's the spore? He's like, oh, you know, I've got the receipts in my pocket. I'm like, that's not. So I, like, I still had to do a large portion of the business. So one of the things, you know, property management is a terrible job. I would being a teacher or a property manager, like the two things I would never want to do in life.   But it takes to have a well-rounded property management team requires multiple skills, right. One person can not do it and do it well. So by outsourcing it, you're getting multiple people's positions and skillsets. So that was a life lesson that I learned. I thought I was smart by having my own in-house team. I could control things more. It was 20 times the work. It was terrible.   Jesse (24m 44s): Yeah. I find with property management, the, the companies that have been successful doing it, they, you really have to look at it as a full time full service business, and you need the personalities for that. And I think it was M zero Brian Berger, J Scott, we had on another bigger pockets contributors that I think w their, their point was 70, 75 unit pluses, where, you know, you can, you can afford to have your own super in the building. So like that, you know, even with the property management company, but also having that super in the building, you know, it is at that point where you can scale and you have a point of contact that's in addition to your property management company.   But I'm always curious, because I think, I think in the two to fives, it really is dependent on the market. Like when I got into real estate, I was in student residents. So a lot of them were like these boarding houses that had five tenants, or, you know, five students or eight students where those markets, yeah. You got some people shake the mouse a little, but you also have, what was nice is you actually have this little cottage industry of property management companies, at least back when I was in school that were local, that would manage, you know, houses.   And you had that ability to scale. And like you said, I think you've made a good point there, which I think oftentimes gets overlooked. It's that you're, you're still going to a property management company and still say, Hey, this is 80 units, or this is 40 units. It's just, they're spread out.   Brie (26m 11s): Yeah. It's one of the things I was at, like one of my biggest pieces of advice, when someone tells me, like, I want to invest in Milwaukee, Oregon, or cashflow market. Right. If your plan is to buy a small multi, and then like every year acquire another couple of units, you're going to sink, you know, it's, you're, you're not going to go well for you. So when I was buying our properties in Milwaukee, one of the things I did is after we sold the property, after we bought the property, I call the seller and ask them like, Hey, you know, deals done. Like what, any lessons you can teach me or things I can learn.   The best majority of them were like out of state investors who that was their problem. They only had one or two properties. I remember this one property we bought, we bought it December 1st. The guy told me, he's like, you know, the top unit has been vacant for like three months. We've dropped rent. Like I just can't do it anymore. I'm like, really? Because we bought it, we bought it on a Wednesday. And my property manager posted that night. We had like five showings this week on it. We got it rented out. It's like the property manager can make or break. Absolutely you return. And if you're only, if you've got like three properties or, you know, 10 units with one property manager, you aren't a priority.   The end of the day, I have a hundred units and you have ton. And we both have a vacancy. Gus, who's the priority. It's me. You know, and I don't do it very often, but whenever I have to, if I call my property manager and say, Hey, I need you to stop what you're doing right now and handle this. You better believe they're going to do it. Right. So that's where scale becomes incredibly important.   Jesse (27m 42s): Yeah. And it's nice that there are kind of companies like you mentioned, or even, even locally here where the technology is getting better, where you can actually have, you know, one off properties here and there. I know, not true for Chicago. I know Toronto, we have a huge condo market. Like it basically is our purpose built market. Rental markets are extended, but you know, it's challenging when you only have a few one-offs. Where are you? What do you, what did you think, would you say is the biggest difference between the Chicago and Milwaukee market   Brie (28m 14s): Price point? Number one, you know, Chicago is much more expensive, but again, like each market, whether it be Chicago, Milwaukee, Indianapolis, Kansas city, they all have different, you know, ABC markets. So it just so happens that I got my start in investing in Chicago, which was more of a lead type market. I, my cashflow play is Milwaukee, which is the, I invest in a C class area. You know, I've looked at investing in a, Milwaukee's a B class areas.   And they're very similar returns where I get in Chicago for my air AB class areas here. So it just depends on what your strategy is, you know, at the end of the day. So part of that economist evaluation was also taking into effect or taking into account what my property values were. Right. And what if I were to sell everything, what I would would be at again, like my, my cashflow in Milwaukee per dollar spent is like almost triple what it is in Chicago.   So the end of the day, like, I always assumed like my, my money came from Milwaukee, right? Like it pays my bills at the end of the day. It did it. When you, when you throw in the appreciation I got from Chicago, like that's where I made my money. So I was looking at it again. There's two different strategies. At least I have two different strategies. Chicago is my wealth building. Right. My, my tenants call me once a year. You know, like they're generally very easy. They stay for a few years. It's not a high touch market.   You know, my property is just, I sit and maintain. Right. And then I'll get my money when I sell Milwaukee. On the other hand is the cashflow based market. That's where I bring in my, my monthly paycheck. We'll call it, you know, two totally different strategies. I like having the balance personally, but there's no right or wrong answer. There's no, you know, this is the best option I like having both.   Jesse (30m 12s): Yeah. Yeah. It makes sense. I'm curious. The something that is unavailable to us connects is the 10 31 exchange in the states, the differing of taxes into a likened kind asset for, for any of the listeners that haven't heard us banter about it before, is it, is it applicable to investment properties that are purely residential? Can you use it for you can use it for both. Okay.   Brie (30m 37s): We do again, we do, we do a few times a year, 10 31 exchanges within our brokerage side of the business, but it sucks. I just had one, the, oh, this is terrible situation, terrible. Like, whoa. It was me. The guy sold the million dollar properties, but he was selling, he was selling a property in California, wanted to parlay that funds into Chicago. This was just in like October where our market started to get really slow. Inventory was terrible. He was from the time he was selling, he was then, you know, you've got 45 days and two weeks he was leaving for Germany for a month.   So he's like, listen, you know, we gotta find this property in two weeks. And then we're in Germany. You know, we've got things to do. And it just so happened. Like the day after closing, he called me, like, we actually need to leave for Germany tomorrow. So they were in Germany the whole time. And I was trying to find them a property. But like when we were looking, you know, between like one and 1.5 million, which for a two to four unit property is completely adequate budget for Chicago. We couldn't find anything for him. And he ended up taking the cap, gain tech, but at the end of the day, that's better than buying a bad investment.   Right. So, but it was a, it was a very stressful experience because I'd never met him in person. He was never going to be able to fly to Chicago and see the property. And I had 45 days to put something on a contract for him and try to guess what he wanted and what he would like, you know, like, so it was all like videos and it was just, it's just, it is what it is, but   Jesse (32m 10s): You know, it's our world,   Brie (32m 12s): But is her world   Jesse (32m 14s): Sabrina. I want to talk, but just one more thing before we get to some of the questions we ask every guest, I am just mindful of the time here. We could probably do a, another 45 minutes on just the second half of this story. But before we get there, I'm curious to know the regulatory environment from the landlord tenant board perspective. I have a, you know, we talked a little bit about this before. I have a suspicion that it's very similar to our market, very tenant friendly. How does that compare to Milwaukee?   You know, what's your experience been?   Brie (32m 48s): You could, I don't think you can find two different while California. You can't really find two different markets. And again, they're only an hour and a half drive from each other. So both offers similar returns. I would say, as far as the investment market, but yeah, Chicago has one of the strictest landlord-tenant ordinances in the country. I still invest here. You know, we've got plenty of clients that still invest here. It's really, to me, the landlord tenant ordinance is not, it's not super strict, but you have to know the rules, right. And that's where people get in trouble.   If they don't know the rules, everything is quite reasonable. Right. If you, you know, a general repair, you have 14 days to correct it. That's not an unreasonable request when it comes to like heat, hot water, electricity, like, you know, those sorts of things, you have 48 hours to correct. You know, got not in a reasonable request. It, but our eviction process is beyond terrible. I just had to summer my first eviction ever in Chicago, where, you know, I gave a ton of in 50 days and always I was not renewing his lease.   He started, he understood it. I rented out his unit. Like he let me do showings. And then like the week before it was like, I've got nowhere to go. I'm not leaving. Like, well, that's not really an option. Like I have someone moving in in like five days. So it was what we would consider a hold over tonight, which is still allowed to evict, even though we had the memorandum here, but it took, you know, two months before we even got him served through our court process. Milwaukee on the other hand is very landlord friendly.   I can get, let's see, when I give someone a five day notice the next day I can go and file in court. Typically I get a court date within seven to 10 days. And you go, when you show up to court, they pretty much ask you one question, which is, can you prove the rent you owe to this landlord is not what they say. And they'll start, you know, well, they were a shit landlord and all that. I don't care. She says, you owe this, do you have proof otherwise? And they're like, no, and they'll start ranting. And they're like, okay.   So what do you want to do? They'll go to me like that is, that is the only piece of information that they want to know. Right? They don't, they don't care about the other things. One of the other great things about Milwaukee's market as far as evictions is which we use. It's a tool we use quite often is they have a payment plan process within the court system. So again, a lot of times, you know, they fall behind, right? And they're, they're communicating. It's not like we want to evict them so we can work out a payment plan.   It's a court ordered payment plan. And as soon as they miss one payment, I just go straight to the court, show them document, signed an affidavit, boom. Sheriff comes. So it just there's no, I don't have to go back to court and we don't have to go back to, you know, like starting all of the process over again. It just picks up where we left off. If I were to do a normal eviction. So also a really win-win situation. Right? If they say that they can make these payments and they can get caught up, right. And they do that, then they don't get evicted. But if they fall behind, we have the option of just picking things up and not starting over again.   Milwaukee also has some really great rental assistance programs for tenants that do fall behind as well versus like Chicago. We, you know, we had a ton of apply for rental assistance back in June. I just got it now in December, you know? And luckily if I wasn't so accommodating, right. You know, it was five months of background. Like that's a lot of rent to, to go back, but Milwaukee just moves faster and they are a lot more, there's a lot more options within that market.   Port options or rental assistance options.   Jesse (36m 36s): Does Chicago have rent control?   Brie (36m 38s): No. Okay. Hey.   Jesse (36m 41s): Yeah. The gas. Yeah. W I would have been 50 50 on that. I know it's tenant friendly, but I don't, I didn't know if they went that far.   Brie (36m 52s): So luckily for us, it is part of our state constitution. And once you get out of the state or city of Chicago, it is a very, very red state. So to, to have rent control in Chicago, you have to have this state constitution amended and there's way too many conservatives to allow that to happen. So every year it happened, like every year someone brings it up, right. And every year it goes to the process and every year everyone freaks out about it. And every year it gets stopped quite quickly.   But if it wasn't, if it was up to the actual like cities or counties, we would absolutely have rent control here. But luckily it's on a state level.   Jesse (37m 35s): Yeah. I think if I think Jersey, what is a Jersey, California, New York Mahershala, Washington. I think, I think we're the opposite. If you can find a, like a pretty sure across country, we have some form of rent stabilization. But the big thing for us is that is when we have new tenants, we mark the mark to market the rents. So you kind of reset at market levels, but it's a bit of a different animal. That's great. I, I want to talk or let listeners know where they can go and kind of reach out to you. But before we get there, we've got four questions.   We ask every guest. So if you're ready, I'll, I'll send them over to ya. I agree with something, at least one thing that you know, now in your career, you wish you knew when you first started out,   Brie (38m 17s): Oh gosh, just one thing I can do a whole podcast and all the things, You know, again, I, I'm a big believer in trusting your intuition, right. And figuring out what works for you, what works for me doesn't necessarily work for you. So that takes time. That takes your own learning lessons. But as long as, like you said, I've made obvious mistakes. As long as I was confident in my decision, right. I have no one to blame, but myself and that makes me sleep at night, knowing that like, Hey, this is, this is just a bump in the path and it's going to be a learning lesson down the road.   So my advice would be, you know, really focusing on what you're doing, what your goals are, what your needs are, right. Where, where you can grow personally and then create your own path.   Jesse (39m 10s): Gotcha. Okay. In terms of, if one thing or a few things you could say to new investors, people getting into our industry regarding mentorship, what would that be?   Brie (39m 24s): I'm not a fan of a mentorship thing. You know, I don't think it's a gun. Your mentorship to me is you're, you're learning from someone, but you're trying to replicate what they're doing. Right. And that's not always, right. So I'd like, I get all the time, like, Hey, what, what neighborhoods do you buy in? Cause I want to buy there. I'm like, well, I have haven't I have a Nissan Pathfinder. Do you want to buy my car? Because I have that car. Like, you know, that doesn't mean like what I have my needs and goals are. So it was back to the first thing of, you know, mentorship, you know, isn't, shouldn't be a immediate goal for someone, I think, you know, utilizing sites like bigger pockets, bigger pockets, right?   Learning about your market, listening to podcasts, right? Take a little bit of information from everything that you're hearing and learning and figuring out what works best for you. That's what you need. And then once you're ready, right. Finding a good team, a good agent, right. A good brokerage, good, you know, lenders, lawyers, whatever that will help support you and what your goals are. But you should be the one dictating what your path is. Not someone else telling you what to do.   Jesse (40m 32s): Fair enough. What's a resource or book that you find yourself constantly recommending.   Brie (40m 37s): Oh, getting things done. I love that book. It has completely changed. Like you guys, like not only do I not want a landlord, but I own a brokerage firm. I also plan an event for real estate investors. I'm nine months pregnant and I've got a two year old right there. You know, there's, there's a lot of different things that come at me at different times through the day with so many different moving parts. Right. So having like an organizational prioritizing to do list right.   To, to be effective has really important. So I read the book, maybe I was actually too busy to read the book. So I bought the cliff notes to be perfectly honest, about five years ago. And I went from working, you know, 60 hours a week in my business to probably working 30. I, you know, cut out all the nonsense and really transformed my work-life balance because of that book. Yeah.   Jesse (41m 36s): And I think they've updated. We've had a guest before recommend this and I think they've updated some of the, the concepts. Cause I, I it's, it's like the book for, for like task management and organization. So I think it w I can't remember what the release date, but a lot has changed technologically, but I still love the, how they systematize everything in that book.   Brie (41m 57s): I am so full though. I have to write everything down. Like   Jesse (42m 1s): I remember like the bin you'd have to move things from the bin. Yeah.   Brie (42m 5s): I have to like physically write things down and like physically cross things off of my paper. I can't do like a word, you know, or technology just doesn't work for me. I'm too old.   Jesse (42m 14s): So speaking of Pathfinders, our last question, first car making.   Brie (42m 19s): Oh, Ford Thunderbird. Terrible bomb. Yeah. I was at, it was my dad's car that I bought off him. Right. I'm a terrible driver. Do you understand this? No, I think it was a V6 or a V8, whatever. I crashed it so many times. I'm just a terrible driver. I still am a terrible driver. My husband drives pretty much. He will not, my husband will not let me drive a car if he's in it.   Jesse (42m 48s): I will say this though. It is, it was an upgrade back then from the four tourists, which, which I spent my childhood,   Brie (42m 55s): It was a beast of a car though. You know, I said, I ran over curbs and ran into walls with that card and like never scrape on me, you know, but yeah. Thank you so much for having me on the show.   Jesse (43m 9s): I really appreciate it. If anybody's, you know, in your local area or would like to just reach out to you where, where would be the best place to, to go   Brie (43m 17s): I'm on BiggerPockets almost every single day. Some messaging me on bigger pockets, Brie Schmidt, or you can check out my website. It's a second city spelled out dash R e.com.   Jesse (43m 30s): Okay. We'll send them there. My guest today has been breached brief. Thank you for being part of working   Brie (43m 36s): Capital. Thank you so much.   Jesse (43m 45s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse, for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    How to Use Real Estate to Reduce Taxes with Amanda Han | EP84

    Play Episode Listen Later Dec 22, 2021 43:49

    Amanda is a CPA Specialising in Tax Strategies for Real Estate, Self-Directed Investing, and Individual Tax Planning for over 18 years. She's been Investing in Real Estate herself for over 10 years with a Focus on Long-term Hold Residential and Multifamily Assets across Multiple States. As both a Tax Strategist and Real Estate Investor, Amanda Combines her Passion of Real Estate Investing with her Expertise in Tax. Her Goal is to Help Investors with Strategies Designed to Supercharge their Wealth-Building Using Entity Structuring, Self-Directed Investing, and Income Offset Opportunities   In this episode we talked about: Amanda's Journey in Real Estate Structuring Real Estate for Taxes Depreciation of Real Estate Investing Opportunity Zones  Real Estate Investment Opportunities for 2022 Mentorship, Resources and Lessons Learned Useful links: https://www.instagram.com/ahan127/ https://www.keystonecpa.com/About-Us

    Real Estate Market Analysis with Shaun Hildebrand of Urbanation |EP83

    Play Episode Listen Later Dec 15, 2021 45:04

    Shaun Leads the Team at Urbanation, Armed with a Background as an Economist and 15 ears of Experience in Residential Market Analysis. Shaun is a Thought Leader in the Residential Development Industry and his Unique Perspectives on the Market Guide Urbanation's insights, Analytics and Research Strategy   In this episode we talked about:    • Urbanation Background  • Shaun's Bio and First Steps in Real Estate  • Overview of Toronto Condo Market  • Shaun's Thoughts on Purpose-built Rental Housing  • Rent Control  • The Size of Toronto Condo Market  • The Outlook on How Immigration Will Impact the Real Estate  • Inflation and Asset Growth  • Mentorship, Resources and Lessons Learned  • Book or Podcast   Useful links: https://urbanation.ca Transcription: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right, ladies and gentlemen, my name's Jennifer Gallan. You're listening to working capital the real estate podcast. My guest today is Shawn Hildebrand. Sean is the president of urban nation, Inc.   For those that don't know, urban nation was founded in 1981 by Eve Lewis, an industry leader and visionary. That's an emerging market opportunity for high rise condominiums in Toronto at a time when they were considered a niche product, how's it going? I'm doing great, Sean. We we're just chatting a little bit before the podcast and wanted to have you on for a little while for those that don't know urban nation. Maybe you could give a little bit of a background as to what you guys do and kind of how that company has evolved over the years with your involvement.   Shaun (1m 7s): Sure. Yeah. So as you mentioned, Urbanation was founded basically 40 years ago and began actually from Eve Louis's graduate thesis at the time. So condos were sort of a new product in the housing market in Toronto, and, you know, she studied the market, collected all the data and realized that there was a business at that could be formulated out of this research. And over the years, Urbanation continued to collect on a quarterly basis, new condominium apartment market activity by serving directly the developers that were active in the market, putting out our quarterly condo market survey publication.   And eventually over time, as, as technology evolves, moving the data and reporting into an online format. I joined the company almost nine years ago in early 2013. So at that point we were, we were just sort of really launching the full database. So that was kind of my first initiative as I, as I began to take over leadership in the company. And over the years, we've, we've continued to expand that database and the technology behind it.   We've also sort of branched out our research into more than just condominiums, but now tracking what's happening in the purpose-built rental markets. That's been a big focal point for the company over the last number of years is tracking all of the new rentals that are coming into the market, surveying them in the same sort of way that you would survey a new condo project by going directly to the building owner or property manager and collecting data such as vacancy rates and rents and, and producing a separate quarterly reports in conjunction to our previous reporting that was being done on the secondary condo rental market.   So individual condo investors, which has been sort of the biggest supplier of new rentals in Toronto for a number of years, but now we're starting to see, you know, traditional rental development happening. So it's, it's really sort of allowing us to have a more holistic lens of what's happening across real estate development. We've also expanded into tracking the land sale market as well. So through, through research that we do leveraging our relationship with CareNet and using land registry, we track all of the land acquisitions that are occurring.   So again, allows us to, to further expand our reach into the real estate market research area and, and track projects from, from a very early stage. So we, we offer this information for a subscription module. So our, our, our subscribers are very diverse. They include obviously all of the top developers in the region, but also financial institutions, private equity, other types of lenders and suppliers, government organizations, appraisers brokers, and, you know, what, what really drew me to Urbanation when I joined the company, was that it was, it was more than just a data, right?   So previously before I joined the company, I was working as the lead analyst at Canada mortgage housing corporation. And my job was to forecast the Toronto housing markets and provide a market intelligence to senior government officials. And I leveraged Urbanation to a great degree and trying to really try to figure out what was happening in the condo market at the time. This is sort of in the, in the mid to early two thousands. And in the later two thousands, there was a big focus on whether or not we were, we were over supplying the market with, with condos and having ordination was an invaluable resource to be able to really dig into the data and understand what was happening.   And, you know, w what drew me to company was that, again, it was more than just, you know, supplying the industry with levers. It was, it was really kind of putting meaning behind that, that, that, that, that research, and to be able to analyze the data and provide market intelligence that provides guidance and insights as to what's actually going on, you know, across the market. So that's something that we continue to expand. You know, we, we, when we, when we, when we enter into a new area of research, it's not just about supplying the data and the stats it's, you know, what's actually behind these numbers, what's driving them.   And from that, we've, we've really started to evolve our advisory practice. So we, we, we produce custom market feasibility reports for individual sites that developers are looking to bring to market. And over the years that that's become a very large part of our business as well. So we're continuing to expand on all fronts. We're looking into new markets in terms of our geographic expansion. We've been extremely active in sort of the tertiary markets that surrounded GTA within Ontario and very meaningfully within Ottawa on what's been a big part of our expansion recently, as we've been doing a lot of market work in that area and collecting data on every new rental developments.   And we've pumped a project that's active in the market there.   Jesse (6m 27s): Yeah. Fair enough. On the point of CMHC for those that don't know, I guess the equivalent for the states would be a Fannie Mae, Freddie Mac, just kind of an institutional crown corporation, is that I think that's correct. In terms of just on that note, was your background always in real estate? Was it always kind of in the economics of real estate world, or did you come at it from a different angle?   Shaun (6m 51s): Well, I went to school to study economics, both undergraduate and graduate degrees. And when I was doing my master's, you know, I found it to be very theoretical as a lot of graduate programs are. And, you know, I had a hard time really understanding what I was, what I was being taught and, and trying to think about it in practical terms. And, you know, at the time there weren't any, at least within my program, real estate economics classes, but I was really interested in the housing market, which was, which was kind of starting to take off at that point in time.   And I felt that when I applied the economic concepts that I was being taught to, to real estate, it all kind of started to make sense because, you know, all of the, the sort of macro economic theories could be put into practice when you're understanding what's happening in the housing market. And eventually I did my, my, my graduate thesis on the housing market. And from there really started to focus my, my, my career aspirations in, in real estate economics.   And initially I was, I was working in Ottawa for the bank of Canada and the federal government for a little bit of time, and then eventually moved to private consulting in Toronto, and then to see an HC. And then now over the past homeless nine years with termination.   Jesse (8m 16s): Yeah, it's interesting. We've had people on the show before and I call it the Paul Samuelson ization of economics, where you start getting more mathematical and more statistical where you're kind of turning out economy nutritions rather than, than policy a policy makers are employees at companies. I'm curious, you've got a great graph or kind of timeline for anybody that's interested. You can go to urban nation.ca where it basically from the inception of the company to today. So, you know, in 1981 or urban nation launches to today, the global pandemic, but on the way you see such a, such an interesting story of, of condo sales and development in Toronto, for those that don't understand, or, or those that aren't aware of the condo market in Toronto or, or Ontario for that matter, how would you describe it to somebody, you know, looking in from say, another state or another country where their world is housing and purpose-built and condos are kind of a, you know, a smaller piece of, of the market.   Whereas for us, it's, it's all we know in, in large part.   Shaun (9m 24s): Yeah, very, very much. So Toronto is quite unique in the context of north America, where the bulk of, of high-rise development here locally happens within the condo sector, as opposed to the purpose built rental market. In fact, as of the third quarter, we had six times as many condoms, either construction as we did rental apartments, which is usually the inverse when you go to another large market in United States. So the condo market has worked very well in Toronto through, through pre-sales and investment activity.   So the typical course is that a, any project will launch offer their units through the broker channel who typically access investor purchasers, who, who buy very quickly and early on. And that helps fund the construction to be able to proceed with the development and investors have been extremely active in the Toronto market over the last 20 years and continue to be so in today's market, typically we'll sell 20 to 25,000 new condo units.   And then we're going to get in here this year will probably be somewhere around 27, 20 8,000. So it's going to be probably the second highest year on record behind 2017 for new condo sales. And, you know, it's, it's, it's one where we're seeing the market mature. So where as in the past condo development in pre-sale activity was very much focused within the central core of the city. It is now expanding out geographically across the region.   So the greater Toronto area includes the city of Toronto and the sofa in the suburbs that surround it. And for the first time this year, we're actually seeing more new condo sales happening in what we call a nine oh five region of the GTA, the suburban areas of the GTA, then actually within the city proper. And I think this really speaks to the affordability and, and, and, and, and sort of the history of the call, the market and why it's caught fire in that. You know, we, we don't build very many single family homes anymore in the GTA for a number of reasons, which we could probably have a whole podcast on its own, but basically condos are the dominant form of new housing developments in the region.   And as this has happened, single family housing has become scarce even more so during the pandemic, as a lot of buyers look for more space, backyards, larger properties, they weren't commuting as much. So they felt more comfortable buying my larger homes outside of, outside of the core. And the price for single family housing was just skyrocket. And this is something that's unique to Toronto. It's obviously happening across Canada and a lot of markets in the U S as well, but it's created an abnormal divergence between price appreciation and the low rise market and price appreciation in the high rise market.   And it's created this very large gap in pricing between a house and an apartment. One that is, is very, very abnormal. So if you look at the average price of a house right now, it's $1.5 million in the GTA, look at the average price of a condo it's about $700,000 or so. So that, that gap over around 800 grand has never been as large as, as it is right now. And in fact, it's increased by about 50% since the pandemic. So affordability has become an even bigger issue after the pandemic.   And a lot of the trends that I would say that they were seeing pre pandemic have only just accelerated as a result of COVID-19. So, you know, the condo market was harder initially because, you know, people were adverse to buying high rise units located in the core because of, you know, issues around the pandemic. And in the fact that a lot of businesses were closed downtown, you didn't necessarily need to be downtown. And there was probably some health concerns as well with, you know, being a very densely populated areas, but the kind of market has staged and remarkable turnaround.   And now you're starting to see, you know, double digit inflation once again, but that gap still persists. And I think it's one of those things that continues to drive demand for condos, whether they be downtown or whether they be in the suburban markets. And it's been, it's been fascinating to see, you know, how quickly a condo project can pre-sell, whether it's, you know, located at center ice downtown, or whether it's located in a suburb, you know, a hundred kilometers from, from, from the city core in almost every case, the project will sell out extremely quickly and you'll still get quite a lot of investor purchasers, even if the, the development isn't located downtown.   So I think this speaks to how the market has evolved over time and has continued to consistently produce sales volumes that, you know, are meeting or exceeding 20,000 units a year, which is, which is remarkable for us. But, you know, w in the context of the overall housing market, probably not enough to satisfy, you know, population growth is coming into the region.   Jesse (14m 32s): So in terms of the, the market itself, you, you mentioned that we're starting to build more purpose-built purpose-built apartment buildings, and you mentioned Ottawa as you know, one of those areas. I'm curious to get your thoughts. I, I talk with a lot of, a lot of individuals in our industry that are older than I, that have had lived through the eighties and nineties. And we had on the podcast, Richard Epstein, who is a professor of law at NYU. And we did a podcast on the history of rent control and rent stabilization in New York.   And I'm curious if you think that that had an effect on development of purpose-built over the last 20, 30, even 40 years in Ontario, or a few things, there was another, another factor that basically resulted in an over not overdevelopment, but leaning towards condos, as opposed to purpose-built because for those that don't know, the, the stock of purpose-built up until recently has been pretty old stock. And I was always curious if, if it was an actual thing with policy, or if it was more of a cultural thing of, of owning, owning a property rather than renting,   Shaun (15m 41s): I think it's a, it's a combination of things like rent control introduced in the seventies and evolved over time has, has certainly played a role. So capping the amount of increase that can be passed off to a tenant, obviously with strict revenue growth for, for that asset class and makes it economically less attractive to develop new as a result. So that that's, that's one factor, I think for sure, but I think, you know, part of it is the fact that, you know, during, during the mid mid two thousands, I'd say there was a big push from the government to put renters into the home ownership market, right?   This was a way of kind of reviving the economy, reviving the housing market after, you know, a pretty significant slope during the very most of the 1990s. And you saw, you know, things like 40 year amortizations get introduced to 0% down mortgages cash back at closing. I think it was, it was almost, you know, you're, you're almost a fool to, to rent at the time because it was, it was so much easier to get into the housing market and to arrest pepper, to buy than it is than it was to rent. So for a period of time, you saw this massive outflow of, of renters from the existing rental stock into the home ownership market.   And on an annual basis, we were actually losing renters as a population because we were adding so many of you to the ownership market and the home ownership rate is wrong, or just skyrocketed from between, you know, 2001 up until around 2011, 2016. And, you know, there wasn't really command to be building new rental apartments because the demand was all on the ownership side. And that's where kind of condominiums started to really take off because this was around the same time.   And since then the dynamics that started to change somewhat. So as, as, as the housing market has entered into the, you know, the later stages of this purchase cycle and, and housing has become so expensive, it's, it's had a huge impact on affordability. And as a result, homeownership rates have actually started to decline a little, and you're starting to see most of the household growth occurring within Toronto, actually happening within the rental space.   And this has pushed rents up, or at least a decrease in that dynamic to a level that started to make better economic sense to build than to invest in, you know, existing low cap rate buildings that were rent controlled. So, you know, starting, I would say around 20 15, 20 16, we started to notice that, you know, there were requests for market studies that were coming across our desks were starting to shift from condo to purpose-built rental, and you started to get a lot more institutional interests kind of coming into the marketplace.   So developers and, and investment partners looking at Toronto from a longer-term lens than they have in the past. So, you know, it was, it was pretty much entirely common development, presale the units getting move on to the next project. Whereas now it's, you know, how can we, how can we invest into the markets for the longterm and recognize that the population is expanding, we're going to in a, in a, in a, in a rental market that has structurally low vacancy rates at an average, you know, around a 2% for the last 10 to 20 years, we know that the population is going to continue to expand.   We know that whole ownership affordability is going to continue to be restricted for first time buyers. So how do we plan ahead for the future? And so, you know, a lot of the development proposals that are actually coming into the markets, they are for traditional purpose built rental, and we're, we're at a stage now where I think according to our latest report, we had about a hundred thousand units in the proposed pipeline that were expected to be developed as traditional rentals. And I'd say there's probably at least another 50,000 above that, that we've been looking at, haven't actually been officially submitted yet.   So we're building up the supply pipeline for the future. I think the next challenge is actually getting it through the development cycle because, you know, less than 20,000 units are actually in the pipeline and approved for development. So it's, you know, it's, it's, it's tough, you know, the, with, with COVID, you know, the rental market was hit pretty hard, particularly downtown and rents are only starting to come back now in our latest report, we've gotten that rents were up on a year, over year basis for the first time, since the pandemic in the third quarter, but there's still about four or 5% below what those pre COVID highs were.   So I think there's been a lot of uncertainty about, you know, when the market's going to come back, you know, what sort of a rent growth projection should, should we be incorporating into our performance? And, you know, has the outlook changed at all? Or is it even looking stronger because of increased immigration targets? And what's happened to housing prices since COVID-19, so it be interesting, it's interesting times, and, you know, th the development applications that are coming in or are starting to be, you know, more geographically dispersed.   So, you know, traditionally it only really made sense to build rental downtown because you could get $4 a square foot plus rents. But now one of the, one of the trends that we've seen since COVID-19 was that the suburban areas of the GTA were pretty much untouched in terms of the rental markets. And these are low supply markets that had, you know, very little existing purpose-built rental stock to begin with. They were entirely relying on, on Palmdale stock for rentals, which there wasn't that much out as well, because investors were mostly focused downtown then in the suburbs.   And then you saw this infusion of demand as the population began to sort of spread itself out around the region. And rents actually are, you know, higher today than where they were pre COVID vacancy rates are still stuck at around one to 2%. And, and I think developers are starting to notice this and, and, and a lot of development slated for master plan communities around existing shopping centers located on the group of fringe. And, and then I don't buy. And, you know, it's not just a matter of, you know, getting a site and throwing up a tower.   It's, you know, how do we, how do we make a complete community here? How do we make it mixed use near transit, integrated with retail office, other commercial components that can make a new place, a new living environment for, for renters. And it'll be fascinating to see how this evolves over the next 10 to 20 years, because you know, the, the old model of, of renting in Toronto, it's going to dramatically change as we move through the next couple of decades.   Jesse (22m 22s): I got to get your thoughts on the 2018 bill. That was a, I believe it was 2018 bill that was basically buildings built after 2018 were exempt for the most part, I believe from, from rent control, built buildings built prior to that, you know, the stabilization we have in our various provinces, at least for Ontario would stay status quo. Do you think that had a, had a, an effect on, on the, you know, this push to more purpose-built developments?   Shaun (22m 53s): I think so, you know, the, the data did show that after, after November, 2018, we did, we did begin to see a greater inflow of development applications come in for rental. They were building before that, but we did see that pace of, of, of, of, of, of submissions actually accelerate. But I, I think there's, there's probably some level of skepticism w within the development industry, that this policy could change with the change of government, right.   Quite, quite easily, and quick, quickly, particularly in this environment where we're housing it is is, is forefront on political issues. And, you know, if another government takes over the province, you know, we could see that change fast. So I think, I think, I think developers realize that, you know, it could be forced to, to, to, to have rent control units in the builds. And, you know, for the most part, for, for those that we do work with, they don't typically have aggressive rent, growth assumptions.   Like they need to be able to make these numbers work with conservative growth estimates. So they're, they're looking at rents today. They're, you know, they're factoring in a rebound pre COVID numbers in the short term, which is like, which is, I think, a realistic, but also looking at, you know, a historical rate of rent projection that is consistent with what we've been seeing over the last 10 to 15 years, which is, you know, I think we're probably carrying around if we're going to have 4%, which is, which is, I think a conservative given the fact that it won't be long before we're back to, you know, 2% or less vacancy rates across the city.   And our latest data shows that we're, we're pretty much on our way there.   Jesse (24m 42s): So I guess one of the, one of the benefits with the new, I mean, the newer build, even if the policy did reverse, like you're saying whether it's two or 3%, maybe 4% rental growth projections, I think it's just as a in competition or with the backdrop of you can buy an existing apartment building. And it's really the issue. There is the mark to market of rents where you have historically low rents. I'm curious on your thoughts. You know what I mean? These things are completely interwoven in our city, but the, the shadow market or the condo market, there's different names for it, where that these condo owners rent out their space.   And it's kind of, you know, typically mom and pop, I have a couple of condos I rent out and it's kind of taking the place of the apartment buildings. Purpose-built how big of a market is that, you know, like what, from, from your data, w what size of the market would you say that that encapsulates?   Shaun (25m 40s): So what 40% of condos in Toronto are used as, as rental properties, so that that's grown over the years. I think it was 20 to 25%, maybe, maybe 10 to 15 years ago. So it, it tends to rise, but it's, it's rising at a slower pace than it has in the past. It seems like we're kind of reaching a, an equilibrium of around 40%. And I think, you know, it's, it's been, it's been easy for investors to buy units and hold onto them because the economics of doing so and so favorable, right?   You could buy a unit three construction, and you don't have to close on it for four or five years. So you have that timeframe for rents to inflate, to a level that will make the unit cashflow positive. And historically that's always worked out very well. In fact, we did a study on all of the condo units in the GTA at rich completion in 2020. And we looked at what their closing price was. We looked at the rents that they were able to at closing, and we also teamed up with land registry to understand what their mortgage costs were.   So we were able to actually calculate on a unit by unit basis, what, what cash flow actually realized was, and what we found was that most investors still were cash flow positive or cashflow neutral, though. Two thirds of them are, and less than 40% were, were at cashflow negative position. And really it was only investors that were comfortable negative or only those that had remortgaged the unit at closing. So if you closed on the unit at the, at the secure pre-sale price from several years ago, and you also were able to take advantage of interest rates that were on historical lows.   I mean, it was, it was so easy to, to, to just get it out, even at right levels that were somewhat depressed last year, but this all kind of looks backwards at the fact that, you know, investors were closing on units that were bought before the big jump up the condo crisis. So when we looked at the average price per square foot for units that closed in 2020, it was less than $700. So less than $700 a square foot, the average new condo price in the GTA right now is $1,200 a square foot.   And for the units that are going to be closing in, let's say, 20, 24, 20 25, they're going to be closing at a presale price of around $1,300 a square foot. So I was bullish as the next guy on the rental market. I think we'll, we'll, we'll see good rent inflation in the next few years, but that's going to require about 75% growth in rents from where they are right now for investors to continue to be cashflow neutral or cashflow positive in, in, you know, four years time, let's say.   So I think the shadow market is going to change. It may not be as, as, as, as strong as it's been in the past because of the big jump in prices. And the fact that this is going to make it tougher for an investor to hold on to their units. And, you know, investors are generally okay with being cashflow negative so long as the unit continues to appreciate. So if we get into a situation where, you know, the, the cashflow is isn't there, and, you know, the, the price of the unit is appreciating perhaps slowly, there's going to be less of an incentive to hold onto the unit for, for, for as long as they have historically.   So I think this represents an opportunity for the primary market to step up, right? Like you're, you're not going to have as much competition with the secondary market because of the fact that they're going to have to be pushing rents to $6 a square foot by 2025, if they're going to have any chance of making these units cashflow positive and probably higher than that, if we're factoring in some increases in interest rates. So the other thing is that the shadow market, the secondary condo rental market tends to be heavily skewed towards small units, right?   So you've got a small one bedroom units, some studios that are favorable amongst investors because they have a lowest price tag. And historically they're able to generate the greatest rental yields, but the demographics of renters are much more diverse than just having a 500 square foot unit. And this is where purpose-built rental development helps to fill a void. You see that, that, that purpose-built rental projects typically have a larger average suite size and it called the rental window, usually about a hundred, hundred square feet larger, much more, much, much more diverse in terms of its unit mix, some more tubings suites, for instance, that could accommodate, you know, couples, small families, roommate situations, it's, you know, gas sizers.   We're seeing quite a, quite a few of those gravitating towards the rental market. So liquidating the primary residence and using that to help fund retirement and, and actually downsizing into a rental as opposed to purchasing a similar sized condo unit, which would be well over a million dollars in today's marketplace. So I think, you know, purposeful rental is, is, is, is evolving the apartment market in general by, you know, looking more towards the future demographic trends and also from a product standpoint, right?   There's, you know, when you, when you, when you, when you build a building and you're holding it, you have to kind of resell it over time, right. To the next tenant that's been moved in. So there's much more attention that gets paid to the amenities spaces, the Walgreens, the experience of living in the building resident services. So I think you're, you're, you're seeing some in a lot of cases, higher quality buildings coming in. And I know that the developers that are active in today's space are looking quite closely to what's been happening in the us, right?   Like the U S is much more advanced than we are in building new multi-family housing. So, you know, understanding what's worked and what hassles and bringing in professional management and into those new buildings, it's, it's been interesting to see, and it's, I think it's a learning exercise. And even within, you know, a small number of new rentals that are being built, you know, I I'm seeing that product evolve from where it was even just a few years ago.   Jesse (31m 50s): Yeah. I think that's a positive thing. And even on the consumer level or the, you know, the renter, if there's that more certainty that you're not going to get evicted, or that there's a certainty of, of tenancy, as opposed to having a condo where you can be in a precarious situation, I want to switch gears to some of the supply aspects. You mentioned immigration, obviously COVID has had an impact on, on the whole world, Canada, generally speaking, we're pro-immigration country countries built by immigrants in terms of the effect that you think that we'll have in the next few years, given the numbers, being slightly adjusted to where they were a few years ago, but basically your outlook on how immigration will impact real estate.   And if you think that we are, we are, we have enough supply because I know you mentioned 20, 21 would be a record year for condo units, I believe, but, but is there still a supply constraint given the fact that we could have, you know, more population growth?   Shaun (32m 54s): Yeah, for sure. So if you look at the last 12 months for permanent immigrants admissions into Toronto, then it's written back about a hundred thousand, but for the last fall, last of September, 2021. So a lot of this is the conversion of non permanent residents into permanent residence. So a lot of them may already be living here, but the government seems to be very, very focused on continuing to raise those integration targets over the next few years, and as travel returns to more normal levels, you'll actually see that begin to materialize into actual population growth.   So I think that's partly important to understand Toronto typically receives about 35% of all the immigrants that come to a public country. And unfortunately we're not building a pace that's going to be able to satisfy that level of demographic demand. So we've been pretty much stuck at building at a pace of under 40,000 housing units a year for the GTA for the past 20 years.   Housing construction generally across the province has risen in, in, in the last number of months. So it is responding to demand and anticipating future demand, but it's been that growth has been entirely focused outside of the GTA. So it's happening in less supply constrained markets within the province. And in fact, for the first time in a long time, there's more housing being built outside of Toronto in other parts of the province than there is within Toronto. So I think, you know, this is, this is, this is a policy problem that you're introducing higher immigration targets, but you're not necessarily looking towards housing supply to, to accommodate that growth.   And inevitably what happens is that the new immigrants get, get shut out of the Toronto housing market because there just simply isn't any supply. And they begin to move into areas where perhaps there is more supply and that may not be economically the right thing to do because you know, a lot of the immigrant new immigrate immigrants are, are working in, in, in, in, in economic hubs, which are mostly located in central areas of Toronto. So, you know, there's more commuting and that sort of thing that goes on.   So I think, you know, more certainly needs to be done. W we will see a lot of condo completions in 20 20, 22. And you can look at this through, you know, the historical relationship between presale launch launches. And then there's normally a five-year lag between when they actually get delivered a record year in 2017 for launches. So it stands to reason that next year there's going to be a pretty big year for, for condo occupancies. Most of those will be offered for rent still, I believe. So. I think you're going to have, you know, a little bit of an increase in supply to meet that additional demand, but by no means, will we be building a pace that's going to satisfy the, the level of population growth that's going to be coming into the market in the next few years.   So, unfortunately, there's, there's really, isn't much that can be done about this in the interim, because all of the supply that's going to be coming to market, I would say over the next seven years has already been spoken for, we already know how many units are under construction. We already know how many units are approved for development. So we know generally how much supply is going to be coming in, you know, within the next five, seven years. And it simply isn't going to be enough. And if you look at kind of how the dynamics are going to be shifting between ownership and renting, there's going to be an even larger deficit of rental units.   Then we then we've seen in the past. So it won't be long before we're, we're back to 1% vacancy rates and rents that are inflating much, much higher than, than, than, than historical norms. You know, it just, in the first quarter of this year, we were recording vacancy rates in downtown Toronto at 9%, six months later, they were below 4% and another six months they'll probably be below 2%. And this is without immigration, right? This is, this is, this is happening, you know, before that big surge in population happens.   So, you know, what it's going to look like in the next few years is, you know, much of what we were seeing pre COVID, but, you know, amplify to a degree.   Jesse (37m 10s): So we asked four questions at the end of the show with all the guests, but before we get there, I wanted to kind of, you talked a little bit about it, but a prognosticate a little bit about the next few years for development, you know, you touched on rental rental growth. I can assume I can infer from that, that as we have compression of vacancy rates, that rents will go up. Do you see a, a point where, you know, we've seen, at least in, in, in our brokerage, we've seen record prices, record cap rates.   You know, I've said for the last 10 years, interest rates can't get any lower and they continue to get lower. Where do you see if at all that we come up to a wall when it comes to whether it's asset inflation or rental growth?   Shaun (37m 55s): Well, for per housing crisis, I think you're going to see some resistance next year as is inflation numbers. And the communication coming from the central bank made it quite clear that interest going to start to revise it soft point probably early next year. And you know, the market's pricing in at least four moves by Canada. So, you know, given where housing prices are, that's going to have an impact on affordability, for sure. I mean, that's the been one of the biggest drivers of, of the asset inflation that we've been seeing, it's the record, low interest rates. And as those start to normalize, you begin to see some headwinds in terms of that growth.   So whether that happens, you know, the first half of the second half or the early 20, 23, it's hard know because you know what impact that's having on the broader economy. But certainly I think, you know, the narrative is going to shift from one where we're seeing housing prices grow by 20 to 30% to one where they're starting to at least level out, but usually there's, there's trade off there, right? As you see big increases in housing prices inflation, it tends to lead to higher rates of rent inflation.   And we haven't seen it yet, but I think we will see it. But to your point, you know, when you're looking at rental growth in rent inflation, you're constrained by incomes, right? Like there's only so much that a you can afford. And yes, we're seeing higher income, new immigrants coming into the GTA that can afford higher rents. But, you know, even though there's going to be some, some resistance levels, if you look at the average price of a new purpose built rental in the, in the GTA, it's about $2,400 a month. So the average new new immigrant coming in, you know, is, is probably earning something that, that, that would make that kind of on the fringe of being affordable.   But if you relate it to the average ownership costs for a condo, for instance, it's a thousand dollars a month cheaper. So it is really the de facto way of introducing a affordable housing supply in the GTA that, that is geared to the market. So at a certain point, though, you know, you will, you will start to see some resistance and we actually did begin to see that pre COVID. So once rest started to rise to 25, 20 $600 a month, you began to see renters pull back a little bit and, and, and, and the demand didn't dissipate, it just started to move into less expensive markets.   So I think that that's something that will, that will reemerge, like right now, the hottest segment of the market for rental growth is the downtown market because it's in that recovery phase. But once it starts to exceed those preached pre pandemic levels, you'll probably begin to see, you know, renters look for more affordable pockets of the market, and that will help to manage, I suppose, the, the continued growth that we're expecting.   Jesse (40m 42s): Fair enough. All right, Sean, we have four questions if you're ready to go all LABA, Matt. Yeah. All right. Something, you know, now in your career, whether business or in the real estate industry, you wish you knew when you first started out   Shaun (40m 57s): Something that I know now, geez, I guess it's, you know, the market never works the way that you're going to expect it to work. You know, you can, you can have the best economic model, but you know, there there's, there's, there's so much human emotion in real estate, in psychological elements that, you know, sometimes I think, you know, we'd be better equipped to be a psychologist and an economist when trying to evaluate the market outlook.   So learning to, to understand that a forecast is, is more than opinion and, and, and, you know, it's subject to a lot of variability. I think every economist in marketing analyst there has had to learn over the last several years   Jesse (41m 47s): In terms of mentorship, somebody that's just breaking into or thinking about breaking into our industry, what would you say to that person   Shaun (41m 57s): Learn as much as you possibly can, you know, a firm such as organation is great at, at learning the industry from the ground up. So understanding the data, gaining, getting exposed to, you know, the development industry across the board, I think is incredibly valuable. So, you know, you know, we're working for a large organization is, is great, or a boutique organization such as organization as well, but being exposed to understanding how the market works and learning the data, learning how to source information and how the, the market functions practically I think is probably a great starting point   Jesse (42m 36s): Booker podcasts you could recommend to listeners   Shaun (42m 41s): Or podcast. Geez, I'm not big on both. To be honest, I, I, I, I read the news. Like I slipped a little, little, little time that I, I try to consume media through, through the newspaper. So I'm probably one of the few people that actually still get a printed global mail delivered to me every morning. And that's really all the time I have to spend on, on, on consuming media is, is when I sit down and actually read through the paper, you know, I think I was, I was starting to get into podcasts a little bit more before the pandemic, while I was commuting into work, but not having that time to sit down and listen to podcasts anymore is, you know, reverted back to traditional media and said, okay,   Jesse (43m 30s): All right. And for those that aren't, aren't watching this and listening, Sean, you look like you're, you're 35. So that's, that's awesome that you're still getting the, the paper. Last question, you know, this is the toughie first car make and model   Shaun (43m 44s): My first car. That was my own, that, that wasn't provided to me by my parents was a Chevrolet cavalier.   Jesse (43m 54s): I was very close. That was the Sunfire. That's great. That's great too. We've had, we've had some interesting cars on the show over the last 80 episodes. That's awesome. Shine. I really appreciate you taking the time for those that want to learn a bit more about urban nation or, you know, reach out to you. What's the best, best approach   Shaun (44m 13s): You can visit our website. urbanation.ca. We have a lot of information there. You can send an inquiry into the, the general line in Cote urbanation.ca or myself, Shawn S H a U n@urbanation.ca. Happy to answer any questions that may come up,   Jesse (44m 29s): I guess today has been Shawn Hildebrand. Sean, thanks for being part of working capital. Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse, for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care.

    Raising Private Capital: Build Your Real Estate Empire Using Other People's Money with Matt Faircloth | EP82

    Play Episode Listen Later Dec 9, 2021 44:02

    Founder and CEO of DeRosa Group Matt is a Regular Contributor and Podcast Guest on Bigger Pockets.com, Has an Active YouTube Channel Dedicated to Educating Investors, and the Author of the Amazon Best Seller, Raising Private Capital, how to Build your Real Estate Empire with Other People's Money In this episode we talked about:  • Matt's First Steps in Real Estate  • Scaling: the jump from 49 Units Up  • Raising Private Capital   • Advice to Individuals Who Haven't Raised Capital yet  • Matt's View on the Real Estate Market   Useful links:   https://derosagroup.com https://www.instagram.com/themattfaircloth/   Transcriptions: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right, ladies and gentlemen, my name's Jesper gala and you're listening to working capital the real estate podcast. My guests today are returning guests, Matt fare, cloth, founder, and CEO of the DeRosa group.   Matt has been a full-time investor for over 15 years. Just talked a little bit about the deal volume here over a hundred million in real estate transactions and controlling over 1000 units in multifamily mats, a regular contributor and podcast guests on biggerpockets.com has an active YouTube channel dedicated to educating investors and the author of the Amazon bestseller. Highly recommend raising private capital. How to build your real estate empire with other people's money. Matt, how's it going?   Matt (59s): Good. I'm good, Jesse. It's great being here, man. Am I, did I, did you tell me a bit at BiggerPockets conferences? This is that I'm your first repeat appearance on your podcast?   Jesse (1m 8s): No, the first repeat appearance was definitely the BR Brandon Turner. So   Matt (1m 13s): Yeah, you're right. Yeah,   Jesse (1m 15s): But you're there though. You know, you're very generous in the, the first, first few episodes. I think you were you're right on. I think that was right when you started marketing the book, but you know, I think at that point I read half of it completed it a long time ago. A great book. I thought it was, I thought it was just for us, at least it was very perfect timing, which is fine.   Matt (1m 37s): I gotta be here, man. I should get like, we should do like the SNL jacket thing, like finding it loud when there's repeat guests, you know, like we should do like the, like the special, like the number five collab or whatever it is. I'm in the number two clubs now at Brandon. So I want to, I'm glad to be back here with you, man. Thanks for that.   Jesse (1m 52s): It's great to have you, you know what, I didn't even ask before we started. Are you still, are you still in out of Jersey right now or   Matt (1m 59s): So we have an office building in Jersey, but we, we work, but my wife and I have since moved to Pennsylvania just across the bridge, across the river from New Jersey. And now we live just north of Philly in a little town called new hope, Pennsylvania.   Jesse (2m 14s): Nice, nice. And how long has this, how long have you been there now? Three years. Awesome. Cool. Is that you guys doing some deals out there or was it just more of a, a kind of a personal things to   Matt (2m 25s): We move? I, you know, Jesse, I never thought I would be the guy to live in like a, like a suburban development, you know, but you know what, man, I, I got like the whole modern family house. I got, I live in a cul-de-sac and everything like that. The kids go out and play. I know my neighbors, circuitry, Katrina, the bomb, that, that whole thing. So w my wife and I are both urbanites, you know, I've, I've lived in or around urban cores for most of my life. And now we're in the burbs man.   And I, and I love it. I don't know if I'll be in the burbs forever, but for right now with two young kids, this is kind of the, where you want to be. So, no, that's perfect. Yeah. It's been a big, big, big change for us. Well, that's great.   Jesse (3m 6s): So I guess, you know, for listeners, just to catch us up to speed, it's been a, it's been quite a while since we spoke, you know, we've had a couple of major global situations. We've probably the last few years for, you have been a pretty interesting with the book and to see how that's been going. So maybe you could catch us up to speed a little, what you've been up to the last, the last year or two.   Matt (3m 29s): Yeah, man, what's interesting is that when, at my I've been investing for 16 years full-time and what, what I've in, in the beginning part of our career, we were into single family homes. We were in a, you know, a small office complex that, you know, the one down there and Trenton, we would do a lot, a lot of mixed use buildings here and there. And we were invested in, in what a lot of beginning and newer investors would, would consider to be, you know, like the typical deal, like single family, home, small, multi, you know, those kinds of things.   And we ended up scaling up to a reasonable portfolio of those kinds of things. But then, you know, through, through just being able to prove the proof in the pudding for ourselves to show that we were able to, what we were able to do for investors at a scale out best practice as we grew. And so we did, like, we stretched up a little bit into a 10 unit apartment building. Then we stretched a little bit further and did an 18 unit. Then we special bowl further into 49 unit. Right. And that's probably about when you and I had talked, right.   Or is a 49 unit apartment building. Then we went and did 198 unit in, in North Carolina. And then we, we realized the scalability and, and the, and that once we had proven that street cred to our investor base and to ourselves and to prop and, and that we were able to take best practices. We had learned in doing the small stuff and to the larger staff that that's been, our primary focus is, is a mid to large real estate deals for, you know, mid-size multifamily.   And so what I, to answer your question, what I've been focusing on in my time doing the last couple of years, scaling out a team of people that helped me run the larger real estate stuff. And I've got an, a plus team now, th that, that run all that. And I've been spending my time leading that team and, and charging us through COVID and, you know, inflation and all that stuff, but also working on the things that we still own, right. I mean, a couple of years ago, we still owned a lot of that single family homes and duplexes and triplexes and that kind of stuff, and slowly divesting those things and, you know, taking, doing our best to care of the investors that are in those projects and giving them, giving them the best trends that we could so that we can put our focus on just on the larger deals while we still properly unwind and take care of the small stuff.   So we've really been becoming like all grows up, you know, in the last couple of years, as, as a real estate company, you really just focusing on, you know, bigger and large stuff, well, maintaining and selling the small stuff. So the last couple of years Jesse's been all about the focus, transition optimization of, of, of the optimization and of the smaller things while leading and growing into new territory for us on the larger deals.   Jesse (6m 21s): Yeah. It sounds like at that point, you're, you're dealing with scale scaling with systems in terms of the, I think it was the 49 unit probably was the last time we spoke. So that one that jumped from the 49 unit up, how was that different if it was two from the one prior to the 49? And I think that was like an 18 unit or something, right from the 1849. So was that, was that transition from the 18 to 49, different from that transition from 49 to the, to the larger stuff you guys are doing.   So   Matt (6m 52s): The 18 to 49 was probably the biggest chunk and he will here's. This is interesting. Here's why, right. So what we decided to do when we were running everything, I even wrote an article for BiggerPockets years ago. And the article said, why I will never buy a deal outside of 30 minutes away from my office. Right. I had to eat the, I literally, if I, if those words were on paper, I'd pull it up and eat them right now. Right. Literally like little hot sauce on it. Now it ethos words, because at that time it made sense for me to scale out with in-house property management.   Like these are my employees, in-house maintenance, property management interface between the tenants, office manager, bookkeeper, that kind of thing. So I had a reasonable size team. We ran, you know, like, like a north of a hundred unit portfolio with, and it ran well, and it could have, we could have scaled that up to, you know, in, in, into the mid to high hundreds, or even floated with a thousand units or whatever of in-house owned, in-house manages managed units. And when we, the 18 unit we managed in house, and so had that down at the protocol down, had the process orientation down for that, then this 49 unit shows up and that one's two hours away from the 18 unit.   And I was like, man, I wrote that article, I guess I probably, you know, I don't know, but it's in a great location, great market, you know, love the location that it's in. It's, it's just all everything added up and the numbers added up on it and everything worked. And we had proven ourselves on many other smaller deals to investors and private lenders that we get enough people lined up to get into a larger deal. So we said, you know what, let's tackle this larger project. Like, w let's give it, let's give it a bit, let's get into this. We think we can do it.   Problem is Jesse, we'd hire a third party manager to run that property. So I, and this, at the time, God blessed my wife. She's like my muse, you know, I told her we're going to scale up property management, two hours away from our home in Lancaster. And she was like, why don't you just give it a shot to run third-party management? Because if you don't like third-party management, or if they're not doing a good job, you could just fire them and bring it in house. But why don't you try using another management company? And I think that she saw that that's, that, that, that was really going to help us scale by taking a focus off management and focus on capital growth processes, you know, renovations, capital may, you know, capital improvements, those kinds of things.   And it was a huge shift in running a team, going from running a team that I managed and developed a protocol and they'll work for me. And they ran around. Yeah. Right. They're my people versus going to a team that was not my people, third-party property management. It's a major shift, but it was a game changer.   Jesse (9m 46s): So curious about that, cause we we've dealt with a third department property management and I'm sure listeners that are invested, you know, either having in-house or having third party. Was there anything specific or kind of the big things that, that were the hardest to get over with that transition, whether it's them, you know, having their systems as opposed to using your systems, was there anything major that, you know, it was, it was just really that it was a challenging one to, to kind of relinquish a little power.   Matt (10m 12s): Well, the accounting thing, you know, you figure out the accounting stuff, cause it's not like they're, they're keeping your books, you know, on the back of a napkin. Right. That's it, that's an easier transition than people think it is. They call, well, we use QuickBooks and they use that folio. How we can we get, you know, what give you, I'll give you an hour or two, you probably figure it out. You know, that's way, way easier than the real. Then the real deal stuff. It's like, well, what are the interfaces? And what are the decision-making what's the decision-making protocol? How much rent should I charge for that vacant apartment?   Right. Should I, or should I not replay, like I have a leak in the ceiling, should I patch the roof? Or should I open up the ceiling to see if there's something inside it that's causing the leak from HVHC doctor or something like that. Right. Yeah. So it's, it's the, if this, then that type of protocol, that is the biggest shift and this level of trust you have to have for the property management team and for their protocol. And just to understand that there's things that are going to happen over here and you're just not even gonna know about it, you know? And so there's a level of having the faith and trust to go a little bit more hands-off and trust that they're going to be able to implement your ideas and visions, but you still got to have your finger on them to the point where you can, you know, catch issues or be like, Hey, we've that ceiling's been leaking for the last three weeks, three months.   And the tenant keeps calling back and they're saying that their HVHC is not working, you know, or that tenants complained of bugs four times in a row. Well, maybe it's because they're not living. Maybe it's because of an issue they're causing versus something that's actually in the building. You know what I'm saying? Stuff like that, that, that you still have to have your finger on as an owner, you cannot hands off and too many owners just go like this completely. But it's like, what's the level of me letting them run their business while I still manage the asset. And that's where the concept of asset management comes in.   Jesse (12m 4s): Yeah. I was going to say, it's like the, you give up a little bit on the property management or everything, depending on what you're doing, but then your internal controls have to go up, right? You need to have those systems of, and it could be as easy as, even on a smaller scale, you know, you're spending X amount of dollars, anything over this, we need executive approval or anything related to this. We need, you know, you have a process, like you said, if then, you know what F and then have a decision tree, you know, between, between you, the property manager,   Matt (12m 31s): Except that their protocol is that, well, we don't call an owner unless we have an expensive of 500 bucks and you have to be okay with that. Like, okay, well, do I want to get calls at a lower number or whatever it is. It's about understanding the process and accepting certain things. And knowing like, this is something I could probably live with. And this is something that I needed to change protocol for. Right. That was probably one of the bigger shifts. And just knowing you don't want to, here's here, I'll give you the term because everybody uses this term now cause attraction and stuff like that, the book attraction is KPIs and determining what the KPIs are for property management, that you need to keep your finger on and stuff that you can just let them run.   And not that it doesn't matter, but it's not going to really affect the things that it's not going to go direct to bottom line. And, and if, if it gets really bad, it'll trigger a KPI, you know, and that, so what are the things on the property management side that I have to hold them accountable to? And what can I just let them run? And if it gets really squirrely, I'll see it. Yeah, yeah, sure.   Jesse (13m 33s): You know, you can control so much of the input, but it's sometimes easier to just have the output. Did we hit this? Did we hit, you know, whatever that KPI is, then you can kind of look back if, if things are, if there's an issue, something needs to be changed. Matt, how was the process of, you know, you wrote, you wrote this book, raising private capital, how did your journey with these properties going from 1849 plus, you know, you're, you're now over a thousand units, I think in terms of the raising capital aspect of your business, how did that, how did that evolve?   Matt (14m 3s): It's a, well, it's funny. The first one I talk about in raising private capital was like, literally somebody, my wife went to college with and she was, I think like we connected with them on like a column like Dan, or maybe she saw him at like an alumni event or w w w w whatever, the, whatever it was. She mentioned to this colleague of hers from college that her and I had gotten into real estate investing. And he was like real estate investing. That's interesting. You know, I've always, I've always wanted to get involved in real estate, but I've never had the time. And it's like, oh, well, you know, my husband has the time, you know, like you should, you should talk to my husband.   And so that you start there and it just something we just stumbled into. And I had to call a lawyer to say, Hey, I've got this guy wants to give me money. What should I do? And he's like, okay, slow down. Let's talk about what is this going to be a equity or debt? And my lawyer was very patient and talk me through, you know, loan agreements and whatnot. And this was, you know, 12 years ago when we were first figuring this whole thing out fast forward to, you know, taking it. Step-by-step one foot in front of the other to, again, you know, again, not to like be a systems dork again, but I guess I'm an engineer by trade.   So I just, that's just how I think in that we started to develop systems and processes around raising private capital and, you know, everything from webinars to funnels to it. Like, you know, having those that want to invest with you participate in some sort of a process to where you can understand who needs to go, where, and your system it's, that's been the journey in, in really taking us to the next level in, in, in marketing and making people aware of us, but also in, in making, you know, making sure that people, the right leads go to the right places.   And that's all been all systems and systems and processes and trial, trial, and error kind of thing.   Jesse (15m 49s): So on the, on the point of systems, I talked with a lot of investors that are at that point where they've raised capital maybe for one or two deals, asset specific, or property specific capital. They're not yet at the size, or at least they don't think they're at the size to justify, you know, a, an actual portal, a fund portal or syndication portal. You know, what point do you, do you see investors really starting to put the systems in? Is it a, is it, is it a size of deal perspective or is it a amount of investors perspective?   How do you think about that?   Matt (16m 21s): I think the most people wait too long to do it. I got talked to one guy who had like 20 million in an equity under management, and he was running it on Excel, bless for anybody, man, he's running it using Excel spreadsheet. Right. And, and, and that, and it almost like you need to go next level, man, you need to look at it. You've got to get this wacky internet machine here. You need to take a look at, you know, and so I, I find that most people probably wait too long to handle capital management investor.   And it just, it just makes your life easy. And you don't have to, like, there are softwares out there now that are not 20,000 a year, you know, to, to buy, we use a software called invest next. And I, you know, I, I'm not, you know, I just have, I happen to know they have a low dollar amount, buy it to get in. If you, if you're managing just a couple of investors, they're, they're, I think it's, it might've been, it might be a hundred bucks a month or a little bit more than that to manage a couple of investors.   And of course it scales up as you have people in, but I find that as an investor, if I were past it and I'd do some passive investing too. But if I, you know, if I were passing, investing with somebody, knowing they've got their web interface, that goes to a portal, I can split my K one there in my data's all in their portal. And I can just pull it down when I need it. And everything like that is so much easier than knowing I got to go ping somebody or bother somebody. If I got a question or want to know how things are going, or what did you send me last month or whatever it is. And it's all in the portal, it's all in that system.   So I think it also just makes your company feel a little more professional as a syndicator, or as somebody offering any kind of, whether it's debt or equity, whatever, whatever you're offering your investor base. Those portals, I think are phenomenal that you've covered is whatever you're using.   Jesse (18m 12s): It's a it's cleaner too. I mean, you, you trade so much paper in the deal, especially with deals like this, and you have a bunch of investors and, you know, even, even today with, with the internet and emailing, it's just a lot where you can just say, here's this area. And I dunno for invest next. That's actually the first time I've heard of that, I don't know if that's something where, you know, you have your accountants or lawyers have access to that where they can dump data there. But I find, yeah, it's just, like you said, it, it makes it it's a professionalism aspect, but then it streamlines a lot of what you're doing.   Matt (18m 42s): Yeah. I mean, and that, that world is changing as I think that, that people become more, have more affinity and trust for things that are not wall street based from an investing standpoint. I think that you're going to see more and more of these kinds of interfaces for people to show up people to participate in. And so right now that's who we use, but who knows. I mean, maybe like, you know, QuickBooks gets into the business of that. At some point it becomes like super easy plug and play or whatever.   And so as we, I think as, as people start investing in things that are outside of wall street, more and more, there'll be more and more options. And that, and people just want like an easy professional interface. I can go get the data I need without me having to go to an individual to, to get what I want. So I think it's, it's a changing, evolving space. And there's some, I mean, just a couple of years ago, there were no portals now there's like, you know, a billion of them. And so I think that we'll see more and more services like that, that allow people like, you know, real estate investors or whatever, kind of a syndicator or business offering a person to be able to put their things out there and have it feel more and more professional for investors to participate in.   Yeah. It can be, Hey, we're just getting started on what?   Jesse (19m 53s): Yeah. And it's funny, like 10 years ago you were 15 years ago, you would have thought, oh, you can't, you know, you have to be one of the big banks or you have to be this investment house to have that. Whereas now, you know, like you said, who knows if it's a plugin or add onto QuickBooks in a couple of years in terms of the, for investors. So I'm sure you've got, we were at new Orleans at the BP cons, a lot of good talks there. You know, we, we chatted a little bit about, you know, how you've, you know, what you've been doing the last year or two years. I'm curious, you've probably had a number of people come up to you about the book on all different levels of where they're at in their investing career.   For those individuals that are say they haven't raised their first property, or maybe they've done one, but for the most part up to up to today, it's been bootstrapped. What kind of advice do you give individuals like that that are, that are maybe don't yet think that they have the confidence to be able to raise capital? And the other thing, probably thinking that, you know, why would somebody trust me to raise capital if I haven't done it before?   Matt (20m 52s): I think it's more important that you've got some real estate investing experience or real estate exposure versus whether or not you've raised capital from your network before I, and I think that that has to do with whether or not your network believes that you know, what you're doing with regards to, you know, that site. So I, if I, I tell people, if you can, you know, do your own deals, your own money, you know, or borrow money with collateralized, collateralized loans and that kind of stuff, and do a couple of deals on your own before you go put it out there or attach yourself to a larger operator, that's got a huge portfolio with tons of experience and everything like that with regards to accessing your network or having the right to ask them for money or whatever.   Raising private capital talks about the concept that everybody knows people with money. And those that tell me, they don't know, people with money are likely afraid to go to their network or concern, or just embarrassed or whatever, to go and make the ask. You know, I mean, my own immediate family is invested with me, you know, and I'm proud to say that and people, and I've, I've asked people like, well, would you allow your mom to invest with you? You know, and like, oh no, no, no, no. I'd never put my mother's money at risk.   Is that, well, let's take an examination on your business, but you'll let your mom go buy something off wall street, but you won't let her invest in something that you are operating, that you are driving or you have your finger on, on her behalf or your father's behalf, whatever it is. So I think that there's a, there's a look yourself in the mirror moment that people need to do to make sure that they've got an, a faith in what it is. They're building. That the people that are closest to them, they would trust involved in it. If that's not the case, then tighten up your hat, your investment houses to the point where that, that, that is something you're willing to stand behind and then you'll have enough confidence to, to take it to the, to take it public by then.   Jesse (22m 43s): Yeah. And it's something you talked about in the book and we talked about last time was there's a lot of people thinking that what they're doing is an ask where a think you reframe it as your it's an opportunity. And it sounds, it sounds funny and like, oh, it's just a, you know, it's whatever it's nomenclature, but it really is. It's no, no. It's, if you really believe in what you're raising capital for, whatever it is, whether it's a, you know, a movie in LA or it's a real estate piece of real estate and, you know, in Pennsylvania, it's really you saying here's an opportunity. Here's something I think, you know, I'm not asking you for money. I'm, I'm giving you an opportunity.   And I think, yeah,   Matt (23m 15s): I've been that embarrassed person want to give me some money from a real estate deal. I've been there. You know? And I mean, I get that. It's embarrassing at first. And it's tough asking people for anything for money specifically. Right. But if you reframe it for yourself, like, Hey, listen, I got a question for you, neighbor Bob, what's the stock market going to do tomorrow? You know, I don't know. You probably don't either, right? But I'll tell you what I have tenants and they're likely going to pay their rent. And if they don't every course, or I have loans out, and if you loan me money for my real estate stuff, you have collateral, meaning like you have a lien on the property, which means you can come take it if I don't pay you back.   You know? So I, I, I believe that there's this level of Moxy, if you will love a confidence that it takes to, to take yourself, to, to really show people that, that the, what you've got is going to work. And once you've got has, if this, the gnats, and, and then in some ways it has a lot of mortar, a lot of more of those than a typical wall street paper investment does. Yeah.   Jesse (24m 18s): In terms of getting into a little bit more complexity, you know, that, especially in the states right now, the fund to funds model is pretty big. And for, you know, for those that don't know a lot of, a lot of what we talk about here is syndication where it's deal specific capital raising, where when we started getting into fund of funds, you can be an LP, but you represent a larger pool of your own LPs in a say, limited partnership structure. I'm curious your view on that. Cause I don't think we've talked about this before the fund to funds model in general and you know, the associated type of fees or, you know, the different return that maybe you can ask for or demand based on the fact that you're bringing in an outsized LP size.   Yeah.   Matt (24m 58s): There's a lot of those out there. And I mean, from a syndicators perspective, that's kind of what you want is to be in a fund to funds because I can't tell you Jesse, how many times people call me up saying, Hey, I want to invest with you. And I love your deal. They will love what you guys do. Love your website, love your transparency, love all this stuff. And like, okay, great. I don't know the deal. I'll call you when I do. And then a couple months later when we have a deal to call them up and say, Hey, we have a deal. Remember the, remember the whole song you were singing about a great I was. And how I greet you on invest with being, let's go back to singing that song for a second.   And they're like, oh no, no, no. We already give that money to the next person that we called five minutes after we hung up with you. Right. Forgot the words   Jesse (25m 34s): To that song.   Matt (25m 35s): Yeah. Right. Oh, I forgot. Yeah. Yeah. What was that song again? Can you hold that only? Can you home the tone? Yeah. No. So there are, and I've been there myself and I think a lot of the syndicators out there just wanted to have a level of uniformity and a level of like an open door thing that's available whenever. And they just went, investors want to, are excited to get into something. You have the door open that they can hop in and that they can, you know, put their capital with a syndicator they trust. Right. What, what gets, and I see a lot of people that have a lot of deal flow, do that.   People that you and I both know that are, you know, talking heads in the world, I'll have, I'll have a lot of those now what makes me, I say nervous, but what you have to, as an investor, you have to make sure you vet completely as people that are raising capital. And then they're going to take that capital, invest with other people, right? Like who like, like, like it's a derivative fund, right. So it's like, well, why wouldn't I just go give it to that person? Oh, you're going to diversify me. I get it. Okay. Well, how much, what fee structure are you taking off the top?   You know, that I'm, that I'm now getting diluted by. Right. So I think it's just it's it's okay. Cause you do probably get diversification. You get, you know, diversified exposure across the board or whatever, maybe different asset classes. I know people that are running like a blended fund like that that's invested in self storage and flex industrial space and mobile home parks. Well, great. You get, you know, a little bit of everything and maybe geographic diversity to all kinds of cool stuff, but you want to make sure they're not just picking anybody.   They're not just shotgun approaching it. And just like, Hey, whoever's got a deal. I'll give you money. And th they, that they're properly vetting their operators. And then they're not taking too much of a fee in exchange for doing something that you arguably could do yourself too. You know, because I could call each one of those people. Now, it doesn't mean I don't believe in, in blended funds or whatever. It's something that we are doing as well. Although our blended fund does not invest in, it's not just a fund that invest in a bunch of multi-family. We see that there are things that are missing from syndications and those things are liquidity.   You can't get your money back in a syndication. If you will, if you invest in a syndication, you're locked in for five or more years, right. You can't compound your returns in a syndication. Right. I can't take the returns that you give me if I invest with you and recycle those returns back upon themselves and participate in compounding interest, which is Einstein said is the eighth merit eighth wonder of the world. Right. So I think more powerful. Yeah. So I can't, what, what a blended fund done properly can allow you to do.   If you invest with the right operator is something that allows you to compound your returns and get your money back when you want it. And not just how old the property is not going to sell for another four years and I can get you your money back. Right. So those are the, those are the things that we've worked on to blend in and you can't do just one asset class or one thing with one timeline, it's got to have multiple timelines of money coming in, coming out. Like it's got to have a short-term aspect and a long-term aspect. So that's the way we designed it. And in that, so it's something that we have active and it's something we did on a small scale because you don't have to have a $50 million fund.   It could be a couple million dollar fund and that, so that's something that we're doing, but I think that you're going to see more and more of them as capital becomes more. There's a lot of capital out there looking for a home. And so I think you're going to see more funds and not less because people are going to get, people are getting wise to it like, well, geez, I could just put up a sign that says I invest in real estate. And then, you know, I know a lot of luck. Well, a lot, a lot of capital's going to show up because there's a lot of capital looking for something different besides the wall beside wall street right now.   Jesse (29m 24s): And I think I'm just, I totally agree with your point where you're telling individuals, you know, just make sure that you're aware of what are the returns, sorry, what are the fees that are going to be taken on by the, by the person that's that is basically raising money for that fund, but then going to the other fund. And sometimes, you know, some people will say that absolutely not. They won't do fund to funds, but sometimes the returns are great. It's yeah, you're, it's a fee on a fee, but maybe you have an outsize preference promote that, that makes up for that, for that fee.   And the other thing too, you tell sometimes there's situations for investors where most likely, yeah, they have diversification, but most likely they couldn't have got into this particular dealer arrangement because you're putting, you know, you've raised 3 million for this one LP spot, so to speak. Whereas if you went in just on your own, you'd probably just be like all the other, you know, minimum say a hundred K or 50 K whatever the minimum investment is and your profile would probably look different.   Matt (30m 20s): Well, I mean, there are, when you get it, when you've aggregated that much money through a fund, you can kind of call your own shots, you know? And that's maybe what you're saying is that, you know, somebody calls up a syndicator in St. Louis and I see you're raising 10 million. Well, what if I give you half of that? Yeah. You know, w what would you be able to do for me? Can you pay my investors a little higher rate of return? Can you, you know, whatever. And instead of that investor, th that syndicator saying, oh, yeah, I'm going to go and raise this at, you know, I'm going to go and get the 150 of my best friends to invest in this deal with me.   You know, I can just go to you. And maybe some of my, some of my best friends to, and maybe you make my life a lot easier. I believe that's what they're doing. As I've seen that happen. We've been approached by that too, for people that, that have, you know, kind of like assembled a lot of money and you can call you, you know, what was your oyster at that point? And so maybe if you're a good negotiator, you can kind of like, you know, put up, put together a win-win.   Jesse (31m 19s): Yeah. And I think there's a, to your point of, we're going to see a lot more funds. I think we'll see a lot more of this too, just in the same way. Specialization usually happens in an industry and you might have somebody that's great at raising capital, but maybe it is not the operator. And they go to the DeRosa group and they say, Hey guys, do you have anything on the spigot right now? We'd love to be, be an investor on your deal. And they see you as a great operator. And they, you know, they want that LP spot. But I think, I think we're definitely seeing more and more of it in the market.   Matt (31m 47s): Yeah. And you will, and we will, as I think that, you know, what we do becomes less and less of a secret, and there are, there's even bigger wall street, you know, money working its way into like, not like owning it to an apartment building, but working its way into LP level syndications, you know, what broker dealers coming around going like, say, Hey, listen, we used to, you know, only raise a hundred million for big, big, big, big, big operators. Now, guess what, if you need 10 million, we'll go raise that for you.   Or, you know, like the broker dealers are dropping what they're willing to raise for because it's, they're seeing their clients wanting exposure to private placements and things like that. So we've been approached by a few broker dealers. I think it's beginning of the, of, of the amount of capital that's going to come into the real estate space. And maybe it's all through maybe a lot of it's through funds   Jesse (32m 40s): Problems. It's something that I'm very curious how this kind of rolls out because even in our Canadian context, in the U S similarly, the broker, it's always been a bit of a gray area where, you know, if you, if you raise for a fund, okay, you're, you're not necessarily a broker dealer, then you keep doing it and keep doing it. It's like, w you know, at what point do you have to be, to be a pure broker dealer, or, you know, I'm not sure how it works in your state, but I think there is, as, as it gets more and more, what would you say institutionalized?   You feel like some of the, some of the legal framework, I don't know if that will evolve or change, but definitely a lot going on there.   Matt (33m 16s): It's starting to the sec has already changed up the whole Kappa. They're changing the capital raiser laws. They've also changed up. There's some call that out, came a, it was a couple of years ago, but nobody's really, it's becoming popular now. And it's called regulation CF, which allows you to sell more micro sheriffs. The non-accredited investments. We did shares of one of our syndications that a thousand dollars a piece. So now that's not that wasn't, the, the whole syndication was much, much larger share prices, but we, we broke off a small chunk of the deal just to test it out, to see how it goes.   Cause not to, like my personal mission is to offer what we do as syndicators and his real estate investments to everyone. Like, I want everyone to be able to get into some sort of a passive investment if they choose to, without having to read an enormous check or go to put any of their tone time in or whatever. And so I think the world's going to change to the point where more and more people are going to be allowed to, or aware of alternative ways to make money and alternative ways to invest outside of just buying a stock off wall street. They can still do that.   And I don't think there's anything wrong with that, but I think it's wrong is that that's the only choice that many people have had, unless you're in the know or in like the country club or silver spoon network or something like that, then you knew about other things, other ways, other, you know, good old boy network plays that you could do investing well, that's all busted up and now it's a lot wider, but I think that there's a lot more widening that can happen for more and more people. And eventually everyone to invest in these kinds of things. And the rules are slowly, you know, it's it's government velocity, Jessie.   So the lows are there. The rules are slowly changing. Yeah.   Jesse (34m 59s): Well, it ties in with what we were saying before, too, as the systems increase, improve, you have the ability for operators like yourself to unitize and get smaller. And then you offer that down to the retail, you know, quotations, retail, I guess, customer   Matt (35m 12s): I'll give you a big vision. I have one day and I mean, I might make an, a, we have a deal under contract right now that I might try it. I don't know how it's going to go, which means like on this, but I want to buy an apartment building and I want to offer for people that live there, the right to buy equity in the apartment building.   Jesse (35m 30s): Hmm. That's interesting. That's almost like a co-op model.   Matt (35m 34s): Yeah. But they're not, they don't have to own the whole in a co-op typically the people that live there are the only ones that aren't all right. They all ages. If you live there, you own it. Right. And it's considered home ownership right now. I'm Todd. This still be a syndication to pass a mess, but I'm not. I'm talking about going to the tenants that are living in a 200 unit building and saying, Hey, listen, how about for 500 bucks? I'll let you own a little bit of the sticks and bricks of where you live. You pay him cash flow, you pay him upside residual. You give him a K one, you pay them the whole thing. And because of those portals, we just talked about, I can post a K one.   I can post their ACH payments and everything like that. It's, it's just as simple. It's all spreadsheets, you know? So 20 people or 200 people, or 4,000 people are technically just as easy to manage through an online portal. Right. And that's, that's a wacky idea. I have, I'll probably get talked out of it, but my team that are more, more pragmatic than I am, but   Jesse (36m 31s): I just don't write another blog Gus, and you'll never do it. I   Matt (36m 34s): Know. Right, right, right. Yeah. I will. I'll do it. I'll make it happen. If I go out there and say, I will never know you will, you know,   Jesse (36m 43s): Well that I want to be mindful of the time we were coming up to the end here, but I'd love to get your thoughts, you know, before we can talk a little bit about how people can reach you and talk, you know, we're where they can find the book. Cheers. Your, your view on the market right now in, I know you're an optimist like myself, but w you know, where do you see the opportunities in the next let's call it short term? Are you thinking differently given, given the last year?   Matt (37m 8s): Okay. I'll give a few different opportunities that I see that I think not in a people are focusing on right now. And then I'll think I'll tell you where I think the market's going to, you know, for, for, for go break out my crystal ball, right? So I think that not enough people are focusing on revitalizing industrial applications in the United States. I think that there should be more industrial flex space. As we continue to become more Amazon defied in our world, there's going to need to be more flex space. More people leasing like three to 4,000 square foot of small warehouse to do light, light, industrial manufacturing, or light storage with a little bit of office space sitting there as, as we get into more of, of the right now economy of, of, you know, shipping small products or whatever, to peoples it's in people's homes and selling things online or whatever.   And boutique brokerage buddy of mine owns a small flex space. And he's got a guy that sells exotic fish out of a little flex space. And he's got fish tanks, probably 30,000 gallons where the fish tanks and this little industrial space, and he's got every kind of fish you'd ever think of. And you can buy them from this guy online and they'll ship them off to you for a, for a crazy price. You can buy these really cool fish for people that are hardcore, you know, fish collectors that can't just go to PetSmart to get their, the fish that they want.   They want something really cool. That's been bred. And you know, that specific or whatever, because of the internet, the magic internet box, things like that are becoming more and more applicable. Right? So I think that there's, we're going to see, we're going to need a lot more of that kind of space in this country have a lot of spaces like that are tired and drawn down. Additionally, this could be an opportunity to repurpose things that are no longer applicable anymore in America. Like we don't, we probably got too much office space, probably got too much retail space in, in, in, in north America, let's say America and Canada.   So I think there's gonna be an opportunity for somebody to think of cool applications for the rundown strip center, down the street, from their house or for the office building. That's 50% dark. You guys think of that idea. You know what, whatever, whatever ways maybe it's living space, maybe it's a school. I don't know. You guys think of it and do something amazing right now with regards to multi-family as much as feel like it's overheated, it's overpriced or whatever. I think, unfortunately, we are going to be looking at some inflation in the next couple of years now. I think it's actually going to drive up.   It's going to drive up wages. It's going to drive up cost of goods and it's going to drive up breaths. And I think that that's going to overall, if not keep multifamily as a high priced asset, it'll maybe drive it up a little bit more. I don't see rates going up anytime soon, maybe a little teeny bit, but not like double or triple or whatever, because I don't think the fed the U S government can't afford to raise rates, you know, given what it would do to our debt if, if rates went up. So I don't think we're going to see huge, huge spike in rates. Maybe a little bit sticker just to try and keep up with inflation, but believe it or not, I think multi-family is going to continue to be a hot commodity.   It's not, I don't see any fundamental that makes it crash anytime soon. And so I think maybe it slows down a little bit. It'd be nice if it kind of hit a ceiling a little bit and slowed down just a nudge. But I do think that it's not, nothing's going to clip it anytime soon. And I think it'll be a good asset to be in for the foreseeable future because we're just not building enough housing and there's becoming more and more people. And we're the housing construction we're building is nowhere near keeping up with the population demand for it. So that's my 2 cents Jesse, and it could be completely wrong on all that stuff, but that's what I think I was going to say,   Jesse (40m 43s): No, that was the, the quickest crystal ball three minutes. And you heard it here first folks. Yeah. I could agree with you more on that. I mean, we pretty much, you know, what, what are we a lagging indicator for the states, despite what you would read and see in the media? You guys continue to be a big player when it comes to immigration and population growth in some of the major cities in the states and Canada. And I think that to your point, I don't know who is more supply constraint. I know we are from a multi-racial standpoint, continue to be.   So, you know, until, until we start seeing more supply, it's really hard to say that multi-family is going to do anything, but at least stay where it's at. If not, like you said in shop, I think for, from my point of view, it's, it's going to be the prices. The prices are going to get to a point where I feel that's not going to be the deciding factor of if they continue to go up, it's going to be the, the, the net operating income side. It's going to be the affordability side. Now, how much higher can that go?   Matt (41m 39s): You can't sit root capris. Can't go much lower. But I mean, I think America is finally realizing that maybe Canada has it, right. Maybe you ought to pay people a real living wage for doing what they do. And, and that $7 an hour is probably not enough, you know? And that, so you see companies like, you know, Amazon McDonald's Starbucks that are paying 15, 20, 20 $5 an hour, which is to be straight, man. That's really what it takes to get by, to raise them. You can't raise a family on seven or $10 an hour, $12 an hour, forget it. You know, there is a family you can feed yourself on that, you know?   And so the fat and the, and it's just not fair that some Americans to keep their lights on, have to work two, maybe three jobs, you know, that ain't right either. And so we're going to see, I think, a correction on living wage and a wage, one, what, what an acceptable wage rate would be in the U S and that unfortunately is going to push up cost of living so   Jesse (42m 34s): Well, I appreciate that Matt, we will look in a year if that prognostication is correct, and we'll hold you to it,   Matt (42m 41s): I've drawn a year from now. We'll just listen to this episode and disagree with everything you and I said, yeah, they're   Jesse (42m 46s): Just a bunch of talks about how   Matt (42m 48s): Wrong with those two guys, right?   Jesse (42m 50s): Matt, in terms of you've done the final four before. So I will skip that. But in terms of where people can reach out to you, aside from a Google search of Matt grouper DeRosa, where can I send them?   Matt (43m 3s): They can go to Instagram at the mat, fair cloth to check me out there. They can go to my company website, which is DeRosa right there behind me, D E R O S a group.com DeRosa group.com. And they can do all kinds of cool stuff, like check out a copy of my book, which they can buy on my website. They can, you know, check out our YouTube channel. They can join our mailing list. It can hear all about the passive cool stuff that we're doing as well@derosagroup.com.   Jesse (43m 28s): My guest today has been Matt Faircloth, cloth, Matt, thanks for being part of working capital.   Matt (43m 33s): Thank you, Jesse.   Jesse (43m 40s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care.Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right, ladies and gentlemen, my name's Jesper gala and you're listening to working capital the real estate podcast. My guests today are returning guests, Matt fare, cloth, founder, and CEO of the DeRosa group.   Matt has been a full-time investor for over 15 years. Just talked a little bit about the deal volume here over a hundred million in real estate transactions and controlling over 1000 units in multifamily mats, a regular contributor and podcast guests on biggerpockets.com has an active YouTube channel dedicated to educating investors and the author of the Amazon bestseller. Highly recommend raising private capital. How to build your real estate empire with other people's money. Matt, how's it going?   Matt (59s): Good. I'm good, Jesse. It's great being here, man. Am I, did I, did you tell me a bit at BiggerPockets conferences? This is that I'm your first repeat appearance on your podcast?   Jesse (1m 8s): No, the first repeat appearance was definitely the BR Brandon Turner. So   Matt (1m 13s): Yeah, you're right. Yeah,   Jesse (1m 15s): But you're there though. You know, you're very generous in the, the first, first few episodes. I think you were you're right on. I think that was right when you started marketing the book, but you know, I think at that point I read half of it completed it a long time ago. A great book. I thought it was, I thought it was just for us, at least it was very perfect timing, which is fine.   Matt (1m 37s): I gotta be here, man. I should get like, we should do like the SNL jacket thing, like finding it loud when there's repeat guests, you know, like we should do like the, like the special, like the number five collab or whatever it is. I'm in the number two clubs now at Brandon. So I want to, I'm glad to be back here with you, man. Thanks for that.   Jesse (1m 52s): It's great to have you, you know what, I didn't even ask before we started. Are you still, are you still in out of Jersey right now or   Matt (1m 59s): So we have an office building in Jersey, but we, we work, but my wife and I have since moved to Pennsylvania just across the bridge, across the river from New Jersey. And now we live just north of Philly in a little town called new hope, Pennsylvania.   Jesse (2m 14s): Nice, nice. And how long has this, how long have you been there now? Three years. Awesome. Cool. Is that you guys doing some deals out there or was it just more of a, a kind of a personal things to   Matt (2m 25s): We move? I, you know, Jesse, I never thought I would be the guy to live in like a, like a suburban development, you know, but you know what, man, I, I got like the whole modern family house. I got, I live in a cul-de-sac and everything like that. The kids go out and play. I know my neighbors, circuitry, Katrina, the bomb, that, that whole thing. So w my wife and I are both urbanites, you know, I've, I've lived in or around urban cores for most of my life. And now we're in the burbs man.   And I, and I love it. I don't know if I'll be in the burbs forever, but for right now with two young kids, this is kind of the, where you want to be. So, no, that's perfect. Yeah. It's been a big, big, big change for us. Well, that's great.   Jesse (3m 6s): So I guess, you know, for listeners, just to catch us up to speed, it's been a, it's been quite a while since we spoke, you know, we've had a couple of major global situations. We've probably the last few years for, you have been a pretty interesting with the book and to see how that's been going. So maybe you could catch us up to speed a little, what you've been up to the last, the last year or two.   Matt (3m 29s): Yeah, man, what's interesting is that when, at my I've been investing for 16 years full-time and what, what I've in, in the beginning part of our career, we were into single family homes. We were in a, you know, a small office complex that, you know, the one down there and Trenton, we would do a lot, a lot of mixed use buildings here and there. And we were invested in, in what a lot of beginning and newer investors would, would consider to be, you know, like the typical deal, like single family, home, small, multi, you know, those kinds of things.   And we ended up scaling up to a reasonable portfolio of those kinds of things. But then, you know, through, through just being able to prove the proof in the pudding for ourselves to show that we were able to, what we were able to do for investors at a scale out best practice as we grew. And so we did, like, we stretched up a little bit into a 10 unit apartment building. Then we stretched a little bit further and did an 18 unit. Then we special bowl further into 49 unit. Right. And that's probably about when you and I had talked, right.   Or is a 49 unit apartment building. Then we went and did 198 unit in, in North Carolina. And then we, we realized the scalability and, and the, and that once we had proven that street cred to our investor base and to ourselves and to prop and, and that we were able to take best practices. We had learned in doing the small stuff and to the larger staff that that's been, our primary focus is, is a mid to large real estate deals for, you know, mid-size multifamily.   And so what I, to answer your question, what I've been focusing on in my time doing the last couple of years, scaling out a team of people that helped me run the larger real estate stuff. And I've got an, a plus team now, th that, that run all that. And I've been spending my time leading that team and, and charging us through COVID and, you know, inflation and all that stuff, but also working on the things that we still own, right. I mean, a couple of years ago, we still owned a lot of that single family homes and duplexes and triplexes and that kind of stuff, and slowly divesting those things and, you know, taking, doing our best to care of the investors that are in those projects and giving them, giving them the best trends that we could so that we can put our focus on just on the larger deals while we still properly unwind and take care of the small stuff.   So we've really been becoming like all grows up, you know, in the last couple of years, as, as a real estate company, you really just focusing on, you know, bigger and large stuff, well, maintaining and selling the small stuff. So the last couple of years Jesse's been all about the focus, transition optimization of, of, of the optimization and of the smaller things while leading and growing into new territory for us on the larger deals.   Jesse (6m 21s): Yeah. It sounds like at that point, you're, you're dealing with scale scaling with systems in terms of the, I think it was the 49 unit probably was the last time we spoke. So that one that jumped from the 49 unit up, how was that different if it was two from the one prior to the 49? And I think that was like an 18 unit or something, right from the 1849. So was that, was that transition from the 18 to 49, different from that transition from 49 to the, to the larger stuff you guys are doing.   So   Matt (6m 52s): The 18 to 49 was probably the biggest chunk and he will here's. This is interesting. Here's why, right. So what we decided to do when we were running everything, I even wrote an article for BiggerPockets years ago. And the article said, why I will never buy a deal outside of 30 minutes away from my office. Right. I had to eat the, I literally, if I, if those words were on paper, I'd pull it up and eat them right now. Right. Literally like little hot sauce on it. Now it ethos words, because at that time it made sense for me to scale out with in-house property management.   Like these are my employees, in-house maintenance, property management interface between the tenants, office manager, bookkeeper, that kind of thing. So I had a reasonable size team. We ran, you know, like, like a north of a hundred unit portfolio with, and it ran well, and it could have, we could have scaled that up to, you know, in, in, into the mid to high hundreds, or even floated with a thousand units or whatever of in-house owned, in-house manages managed units. And when we, the 18 unit we managed in house, and so had that down at the protocol down, had the process orientation down for that, then this 49 unit shows up and that one's two hours away from the 18 unit.   And I was like, man, I wrote that article, I guess I probably, you know, I don't know, but it's in a great location, great market, you know, love the location that it's in. It's, it's just all everything added up and the numbers added up on it and everything worked. And we had proven ourselves on many other smaller deals to investors and private lenders that we get enough people lined up to get into a larger deal. So we said, you know what, let's tackle this larger project. Like, w let's give it, let's give it a bit, let's get into this. We think we can do it.   Problem is Jesse, we'd hire a third party manager to run that property. So I, and this, at the time, God blessed my wife. She's like my muse, you know, I told her we're going to scale up property management, two hours away from our home in Lancaster. And she was like, why don't you just give it a shot to run third-party management? Because if you don't like third-party management, or if they're not doing a good job, you could just fire them and bring it in house. But why don't you try using another management company? And I think that she saw that that's, that, that, that was really going to help us scale by taking a focus off management and focus on capital growth processes, you know, renovations, capital may, you know, capital improvements, those kinds of things.   And it was a huge shift in running a team, going from running a team that I managed and developed a protocol and they'll work for me. And they ran around. Yeah. Right. They're my people versus going to a team that was not my people, third-party property management. It's a major shift, but it was a game changer.   Jesse (9m 46s): So curious about that, cause we we've dealt with a third department property management and I'm sure listeners that are invested, you know, either having in-house or having third party. Was there anything specific or kind of the big things that, that were the hardest to get over with that transition, whether it's them, you know, having their systems as opposed to using your systems, was there anything major that, you know, it was, it was just really that it was a challenging one to, to kind of relinquish a little power.   Matt (10m 12s): Well, the accounting thing, you know, you figure out the accounting stuff, cause it's not like they're, they're keeping your books, you know, on the back of a napkin. Right. That's it, that's an easier transition than people think it is. They call, well, we use QuickBooks and they use that folio. How we can we get, you know, what give you, I'll give you an hour or two, you probably figure it out. You know, that's way, way easier than the real. Then the real deal stuff. It's like, well, what are the interfaces? And what are the decision-making what's the decision-making protocol? How much rent should I charge for that vacant apartment?   Right. Should I, or should I not replay, like I have a leak in the ceiling, should I patch the roof? Or should I open up the ceiling to see if there's something inside it that's causing the leak from HVHC doctor or something like that. Right. Yeah. So it's, it's the, if this, then that type of protocol, that is the biggest shift and this level of trust you have to have for the property management team and for their protocol. And just to understand that there's things that are going to happen over here and you're just not even gonna know about it, you know? And so there's a level of having the faith and trust to go a little bit more hands-off and trust that they're going to be able to implement your ideas and visions, but you still got to have your finger on them to the point where you can, you know, catch issues or be like, Hey, we've that ceiling's been leaking for the last three weeks, three months.   And the tenant keeps calling back and they're saying that their HVHC is not working, you know, or that tenants complained of bugs four times in a row. Well, maybe it's because they're not living. Maybe it's because of an issue they're causing versus something that's actually in the building. You know what I'm saying? Stuff like that, that, that you still have to have your finger on as an owner, you cannot hands off and too many owners just go like this completely. But it's like, what's the level of me letting them run their business while I still manage the asset. And that's where the concept of asset management comes in.   Jesse (12m 4s): Yeah. I was going to say, it's like the, you give up a little bit on the property management or everything, depending on what you're doing, but then your internal controls have to go up, right? You need to have those systems of, and it could be as easy as, even on a smaller scale, you know, you're spending X amount of dollars, anything over this, we need executive approval or anything related to this. We need, you know, you have a process, like you said, if then, you know what F and then have a decision tree, you know, between, between you, the property manager,   Matt (12m 31s): Except that their protocol is that, well, we don't call an owner unless we have an expensive of 500 bucks and you have to be okay with that. Like, okay, well, do I want to get calls at a lower number or whatever it is. It's about understanding the process and accepting certain things. And knowing like, this is something I could probably live with. And this is something that I needed to change protocol for. Right. That was probably one of the bigger shifts. And just knowing you don't want to, here's here, I'll give you the term because everybody uses this term now cause attraction and stuff like that, the book attraction is KPIs and determining what the KPIs are for property management, that you need to keep your finger on and stuff that you can just let them run.   And not that it doesn't matter, but it's not going to really affect the things that it's not going to go direct to bottom line. And, and if, if it gets really bad, it'll trigger a KPI, you know, and that, so what are the things on the property management side that I have to hold them accountable t

    Taking a Leap to Multifamily Real Estate Investing with George Roberts | EP81

    Play Episode Listen Later Dec 1, 2021 45:02

    George Roberts III is a Data Scientist and a Principal at Horizon Multifamily as well a Real Estate Investor and Syndicator who focuses on Value at Opportunities in Central Florida   In this episode we talked about:    • George's Podcast Details  • George's Bio & Background  • Pivoting to Real Estate  • The First Real Estate Deal  • Financing Deals  • Capital Raising  • Effective Networking   • Sourcing Deals Approach  • Ways of Reaching Out to Brokers  • Real Estate Market Opportunities  • Macro Perspectives of Real Estate Space 2021-2022  • Mentorship, Resources and Lessons Learned   Useful links: https://www.instagram.com/groberts0429/?hl=en https://www.linkedin.com/in/georgerobertsiii/

    Finding & Funding Real Estate Deals with Anson Young | EP80

    Play Episode Listen Later Nov 24, 2021 36:53

    Anson Young is a Real Estate Agent and Investor with Hundreds of Transactions Completed in Each Category of Real Estate. Anson and his team Specialize in Marketing directly to Sellers for Off-market Deals, Using Many of the Methods that can be Found in his Book Finding & Funding Great Deals. When not Working, Anson can be Found Exploring the Wilds of Colorado's Rocky Mountains with his family, Reading Favourite Books to his Son, and Attending Loud Rock Concerts. In this episode we talked about:  • Anson's Bio & Background  • Anson's First Steps in Real Estate Business  • Becoming a Real Estate Agent   • Anson's Main Focus in Real Estate  • Raising capital   • Private Landing  • Sourcing Deals   • Building an Off-Market List  • Prospecting and finding  Opportunities  • Anson's Thoughts on Inflation and Interest Rates  • Mentorship, Resources and Lessons Learned   Useful links: https://www.instagram.com/younganson/?hl=en https://www.youtube.com/c/ansonyoung Transcriptions: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Right? Ladies and gentlemen, my name's Jessica galleon. You're listening to working capital the real estate podcast. Our special guest today is aunts and young Anson is a real estate agent and investor with hundreds of transactions completed in each category, real estate Anson, and his team specialize in marketing directly to sellers for off-market deals, using many methods that can be found in his book, finding and funding great deals when not working ants and can be found exploring the wilds of Colorado with his family and tending loud rock concerts.   And I can see you got a twig behind you there, and son, how you doing?   Anson (54s): I'm good. I'm good. Thanks for having me, Jesse.   Jesse (56s): Yeah, my pleasure having you on, what do you got there? Is that a base? It's hard to tell because   Anson (1m 1s): That one's a five string bass.   Jesse (1m 4s): I like it. Fantastic, man. Well, thanks for coming on. We were just chatting before the show, like a few of the most recent guests you were speaking at BP con this year, what was, what was your topic?   Anson (1m 17s): So my topic this year was finding the deals in any market and it focused on kind of out of state investing or long distance real estate investing, building a team, you know, how basically how to go ahead and find those deals, whether it's networking or off market. And, and yeah, that's seems to be a hot topic. Everybody's market is too expensive. So they're looking at other markets and I figured I'd hit on that since that's what I'm doing too. So   Jesse (1m 47s): Yeah, absolutely. It's certainly topical right now. It's we kind of joke around about the inverse relationship between, you know, the, the lower interest rates are, the cheaper money is the harder it is to find deals.   Anson (1m 59s): Oh yeah, for   Jesse (1m 60s): Sure. So in terms of a little bit of your background for listeners that aren't familiar with you, maybe you could kind of take us back to how you got into real estate. I know you just mentioned on the outset, you're also an agent. Maybe you could take us back to the beginning of how that journey started.   Anson (2m 17s): Yeah, sure. So back in 2003 or so I was working in it, I got laid off like everybody did, it feels like kind of boat, post.com, bubble burst. And so I was just looking around of what to do next. Do I go back into it? Do I double down in that arena or do I do something else? And at the same time, my wife and I were going to move down to Phoenix from Denver to be closer to family, my brother had just moved there.   They were having their first kid. So I was like, you know what? I don't have a corporate job anymore. I could kind of move wherever I want. And right before I left a friend of mine handed me rich dad, poor dad, which is, I think just the basic origin story of all real estate investors these days. But, but literally read that book on the way down to Arizona and changed my entire mindset about what I could do, what I should do and why going back into a corporate environment, probably wasn't the best idea.   And so landed in Phoenix and decided new city, a new me, and kind of jumped in and tried to learn as much as I could about anything that I could about real estate. And at the same time I was bartending. And so nights were spent working and days were spent trying to figure out real estate. So that's kind of a, that's kind of where I got started.   Jesse (3m 48s): That's great. So in terms of kind of getting into that mindset, I mean, not, not a dissimilar from a lot of people that come on the podcast or just talking in general, rich dad, poor dad just seems to be a cornerstone for a lot of, at least the beginning of real estate education, because I think ultimately the quadrants of that book for, you know, for anybody that hasn't read it, you definitely have to go check that book by Robert Kiyosaki. But I think it is ultimately when you get to that fourth quadrant where it's passive or, you know, quotations passive investments, I think real estate is just, it kind of lends itself to that, to that type of investment or that type of income.   Anson (4m 28s): Yeah, absolutely. And I had no idea that any of that existed, I mean, the guy who gave me the book, Paul, we were, I remember talking in this parking lot late at night and, and, and, and I couldn't even wrap my brain around getting a second mortgage. Like you have one mortgage who's going to give you money for a second house. You know, like that, that's how small my mindset was until that book helped me unlock and unpack what's possible.   So it, there's a reason why it's so such an origin story for many of us is because we weren't really taught that. And, and then this, this book just showed us kind of a different way of how things could work. Yeah,   Jesse (5m 10s): Yeah, yeah, absolutely. And it's, it's funny cause you know, that book, it really, it hits people in totally different, different jobs and different times in their life. And it still seems to be one of the ones that keeps coming up. So you, you read rich dad, poor, poor dad, you're you get laid off from your job where once, once that clicks for you and that light bulb goes off, what was, what was your process after that?   Anson (5m 35s): So I'm like, like many people starting off. I had no clue what I was doing. So I basically attended every single meetup that I could find from kind of Rhea meetups, real estate investment associations, to like cashflow one-on-one games. So, you know, tied in with the, the rich poor dad, it's basically a board game that people get together and play that kind of go through the principles of financial freedom and stuff.   And so anywhere that I could latch on to people who were doing real estate, I was there and I, I kind of made that my full-time job of, of doing that I've formed relationships. And in that I just started doing, trying to provide as much value as possible. So I'd go do all kinds of odds and end tasks for them for a couple of investors and a couple of agents. And in return, you know, all I asked for was just information. Like I would go run contracts, you know, for a long time for an agent.   And then I would ask for, Hey, can you teach me how to value properties on ML MLS? And so trying to provide that value first and then asking for something in return later on. And so I, I ran contracts, I punched signs in yards. I knocked on doors for a foreclosure investor. Feel like I did all these different things to try to learn as much as possible. And about after nine months to a year, one of the agents reciprocated with a deal.   And she was like, Hey, one of my clients has a property that they want to sell. I think that it would be great for you guys kind of sent over the numbers, helped me run through it and ended up to be our first deal. And it was a live in flip that we spent the next year fixing up and, and, you know, figuring out what's next. But we, we sold it after a year and ended up moving back to Denver. And so it was perfect timing because that was right at the end of 2005. And I think the Phoenix market crashed the next week.   So, so we got out just in time, but I learned a lot on that first deal and then went ahead and just appended and moved markets, which felt like starting over that's that's, that's kinda how that deal went. So   Jesse (7m 58s): Kind of started on that deal. Similar to a lot of individuals were, I guess, somewhat of a, you know, some people call it house hacking where you were living in at the time, but also renting out a, would that be fair to say it was kind of that, that type of arrangement for the first one?   Anson (8m 13s): No, we did. We did kind of a, it needed a lot of work. And so we just decided to move in and fix it while we were living there. We were fixing up stuff, you know, as time and money permitted and by the end of it, you know, it was fixed up and ready to go. And actually my agent w I, I had sent her an email, you know, we had gone to Vegas for our anniversary decided right then that we were kind of just done with Phoenix.   I sent her an email saying, Hey, I think we're going to sell. And she's like, I'll buy it. Like my parents will buy this. Like, she had very much faith that the market was going to keep and she was a little bit wrong on that, but that's okay. Yeah. So she gave us a really good price on it. We ended up making, I think $60,000 on it after a year, which isn't too bad and, you know, had some money to go back to Denver and continue the journey   Jesse (9m 11s): Right on. So was the journey continuing on that kind of operational level where it was value add deals or did you, did you pivot?   Anson (9m 22s): I think I, yeah, it was definitely a value add deals. When I got back, I felt like it was starting over because I didn't have a lot of real estate contacts I didn't have, I didn't know the market. And so, no, I kind of just went back to basics. I started working with investors and agents. I actually got hired on to a real estate agent team and was doing broker price opinions for banks. And right then I just, I figured out this whole thing of bank owned foreclosures and that this could be, you know, a really big thing.   And so, so from then on, probably for the next two years, pretty much everything that I bought was a bank owned foreclosure. So they were all distressed value, add properties that, that had almost no emotion into them because the banks don't care if you low ball them, they just care if it meets their kind of pricing matrix. So that was a fun time to be in real estate for sure. But I got my license maybe a year after I moved back and just kind of did both. I was an agent investor just kind of juggling both things.   Hm.   Jesse (10m 29s): So in terms of the kind of becoming an agent, because you get lots of people that are like, should I get my license as an investor, if you're going to make that switch, did you find it was something that was kind of critical or a nice to have type of type of thing where you still had to develop relationships with host of different agents?   Anson (10m 50s): Yeah. I found it to be absolutely critical to all the real estate that I was doing. Just, just from a, you know, obviously if I'm buying Oreos and my entire existence of finding deals is on MLS. I don't want to be one step removed from that process. I want to be, you know, like a direct actor in that process. And so right in front of MLS on a daily basis to try to find, you know, the deals that I'm looking for, rather than relying on an agent to send them to me, or, you know, go around the back door and give me their log-in or something like that, I could shoot off offers immediately, you know, set showings, do the things that I needed to do to go lock up these deals.   And so for me, it was absolutely pivotal   Jesse (11m 41s): In terms of kind of where you've developed your business today. So you kind of, you go through this process, there's the light bulb moment. You, you see that it's, there's proof of concept when you, you know, in one year you make 60 grand catch us up to today. What, where are you focusing? Not on, not just from a, from a geographical standpoint, but even from a type of asset or type of real estate that maybe you focus on or areas that you focus on.   Anson (12m 7s): Yeah. So, you know, it's kind of ebbed and flowed over the years between wholesales fix and flip. What I'm pivoting towards this year is more longterm buy and hold properties, single family, a small multifamily, those kinds of properties. And so that's a little bit different for me. I'm, I'm used to doing this transactional turn and burn, and now I'm trying to slow down and think for the longterm so that I can, you know, actually have something to show for my effort rather than just, you know, larger pay check, so to speak.   And so, so Ben pivoting in that direction as, as a business and Ben geographically in three different markets this year, just testing things out and getting the ball rolling on long-term cashflow. So that's kind of where we're at.   Jesse (13m 3s): So answered for the actual capital raising side of the business for you or where you source capital has that changed over the, the last few years? And if so, how, how has that evolved for, for yourself?   Anson (13m 16s): It hasn't changed too much once I kind of discovered private money lending before the sec kind of changed their rules, we would kind of just cold call for private lenders, developed relationships with them, had a good track record over time. And so after a while, you know, we would get referred to their friends who were looking to, you know, make, you know, a 10 to 14% return on their investment. And, and so, so yeah, so it hasn't changed too much because we're still using short-term even on these long-term projects we're using short-term funds to, to acquire them and then refinance it now to a more portfolio or, or bank loan style financing.   So I guess that side's new, but when we go into purchase, we're still using like our same private money lenders. They know that they're going to hang on for, you know, three to six months until we refinance out, but that's not too different from a flip where we would hold onto it for three to six months and they would get paid out at the end of that. So, so the, you know, the initial buy is the same. It's just that long-term piece of now it's going to convert into something long-term. So can you,   Jesse (14m 34s): You talked to, to that a little bit for listeners, you know, for that type of approach where you are, you know, getting short term finance, when you have a project going on and then stabilizing after that, maybe you could to kind of run through how that works. And, and, you know, on top of that private lending, I think is a bit of a black box for a lot of people. So, you know, maybe, maybe get your thoughts on that as well.   Anson (14m 59s): What do you mean by black box?   Jesse (15m 0s): Well, I, I feel that a lot of people that aren't in our industry, they hear private money and it sounds like they're meeting somebody in an alleyway and they're handing them a bag of cash. So I think, I think from like, I think for a lot of people, they don't realize how many private lenders there are out there, how many more options you have than just walking up to the bank that you've known for years, or are you, you know, you know, the brand,   Anson (15m 25s): Right? Yeah. So in, you know, I wish it was like an alleyway with a sack full of cat. That'd be kind of fun actually. But typically private lending is just lending from an individual rather than a bank. And so a sophisticated, private lender will operate somewhat like a bank where they, you know, they kind of vet deals. They've vet you, they vet the process. Some even want like a loan application and stuff. Others are very much more relational.   I mean, your next private lender could be your rich uncle or something who really believes in you and wants you to succeed. So it kinda runs the gamut from usually it's, you know, older people who are using the retirement funds. Some people who came into some money one way or the other, it seems like two or three of my guys who I lend or who I borrow from. They all sold a business in their sixties and now have kind of more money than they know what to do with, they see a return of 12% PR and that's very exciting to them.   And so they will lend that to the right person. And so it's kind of, I wouldn't call it a beginner strategy at all, because usually you have to have a kind of a track record. You have to have a reputation for what you're doing for somebody who just is sitting on, you know, even if it's a million dollars, you know, that's two projects in Denver. And so they, you know, lending out their entire million dollars. It has to be to the right person, the right projects with the right track record so that they are secure that bill, you know, end up getting that back.   And so it's kind of private lending in a nutshell. And to your other question for kind of stabilizing an asset, typically we're, we're purchasing with private money, which is for us, it's a hundred percent loan and fix. And so we're, we're into the deal with no money and we go ahead and we get the property fixed up rented, and our next lender wants to see it for at least three months.   We're, we're, we're collecting rent. Everything is stable. Everything's looking good before we can transition that into kind of a, it's a refinance into either a portfolio or, or a conventional style loan. I prefer portfolio, cause it seems just a little easier, but then they, they close on it and they'll pay off the private lender. And so now instead of owing, you know, this individual money, now we own, now we owe this credit union or this bank money and, and pay them.   And it's a long-term note, whereas our short-term private money lender is only like a six month note. So now we have a 30 year note and a smaller payment, so we can actually cash flow.   Jesse (18m 29s): Nice. Yeah, yeah. Obviously the goal there, if we switched to sourcing deals, like we talked about at the outset, it's a, it's a challenging thing to do right now. So it was topical, I guess, that that was in new Orleans. That was your kind of discussion topic, maybe as a comparison, if, if there has been things that are different than when you were starting out, how you were sourcing deals, then as opposed to strategies you've, you've learned and are using now, how has that evolved?   And, and you know, what, what approach are you using given the fact that it just seems like there is so little supply out there.   Anson (19m 7s): Yeah. That evolution has been pretty huge. So like I S like I said earlier, starting off, we did a lot of, we just bought bank owned, foreclosures right off of MLS. And we got really good at that to the point where we also sold REO, but we would buy from other REO brokers. And so we kind of knew the inside process of how asset managers think what different banks did, what, when they did their price reductions, you know, could we get in one day before a price reduction and then get under that price reduction and lock up a property before everybody else saw it.   We got pretty good at that kind of stuff. Once the foreclosure crisis started resolving itself, bailouts and everything else, there was just less foreclosures coming. And I saw the writing on the wall when, on the REO sourcing side, it's kind of the, you know, the, the, the source of the river started drying up and we were both benefiting from that source of the river plus way downstream, when we would pick up deals. It's like, oh man, I kind of see the writing writing on the wall here.   We're not going to be able to find as many deals as we used to. And so at the same time, we were also doing some short sales and looking around there was still, you know, a huge, you know, huge chunk of people who were underwater on their mortgages. And so we just aggressively attacked short sales that were listed and short sales that weren't listed. So we were just going straight after foreclosures basically. And so for about a year or two, we did mainly short sales. Was it, we got really good at that as well of going from the wild west or short sales to when it kinda got standardized and institutionalized.   We saw, you know, everything in that whole window. And then, and then the same thing happened where I started seeing that the market was rising, the prices were rising and not everybody would be underwater forever. And so what do I do next? And from there, we went off market. We, we, we did a little bit more MLS deals we would find, but those really just started getting few and far between, and we needed a bigger source of deals we were doing mainly wholesaling right then.   And so the better source of deals was just to go directly to the seller. And so ever since probably 2014, 15 up until now has been all off market direct to seller. I haven't bought an MLS deal probably three or four years. They just, I don't know. It's just not, not scary   Jesse (21m 54s): Now. Yeah,   Anson (21m 56s): Exactly. So all, you know, basically all off market right now, just going directly to those sellers and seeing if we can help them.   Jesse (22m 4s): So on that, on that note, in terms of the approach that you use with, you know, is it the, of, in the vein of direct mailers, are you kind of going to the secretary of state? Are you going through different software? How are you, how are you reaching out to those? Those would be sellers.   Anson (22m 22s): Yeah. So our main, our main way to reach out and touch them is direct mail. We have just this year started adding in, or I shouldn't say just this year, it was probably 2019, just started stacking in more ways to reach sellers, kind of this, the same lists and in different ways. So if they did respond to the direct mail, we also called them. We also text them. We also emailed them if we could, you know, find them on Facebook, knock on their door, whatever it took to really get in front of the right sellers.   You know, there was a time where you can just send out postcards and, you know, get a 2% response rate, just pick from the best ones. But that just started kind of getting less and less as there was more competition. So now we're reaching out in multiple ways, but direct mail is still our number one.   Jesse (23m 16s): Yeah. You know, it, it's interesting because it comes, I guess, depending on who the sellers are. Like, for instance, if you, if you're really reaching out to predominantly mom and pop, or like you said, small, multi, multi Juarez, you know, I found that the responses are usually better. However, if there's that one layer of say a corporate structure, LLC, partnership, whatever that is, do you, is that also part of the pool that you reach out to? And I guess from there, if it is, you probably have to do that one extra step of, you know, who's the principal who's, you know, who's the signing officer.   Anson (23m 49s): Yep. Yeah. So in Colorado, our, our secretary of state is pretty transparent. So we can go on and search LLCs and find out who, you know, who's the owner where their register addresses all that stuff. So our, oh, I wish I had the number of, of LLCs that we've mailed to, but I have given that over to a VA to go ahead and look those up and just make sure that we're hitting the right people and getting in front of them instead of just setting, you know, XYZ LLC, you know, it's like Paul Jones or something.   So,   Jesse (24m 25s): Yeah, yeah. In terms of the, so for those that are just kind of getting into real estate in terms of finding off market deals, they're coming into an environment that, you know, we we've seen prior to supply constraints, a different approach. Whereas now, because there's so few real estate opportunities out there properties, they were coming into a market where they probably have to start with direct, direct to seller or trying to find off market deals. How would you go about telling somebody who's getting into the industry? How does start building that list?   Anson (24m 58s): I mean, even today, it sounds very, very old school, but I think that are driving for dollars lists are still some of our Mo you know, highest producing lists. And if you want to keep the cost down and you have more time than you have money, I would say, drive for dollars and then cold column, just, you know, skip, trace them or look them up on white pages.com. Yup. And then, you know, send out phone calls. You'll probably, you know, get 50 to a hundred driving for dollars leads a day.   And then, you know, cold column the same day or the day after you'll, you'll keep yourself busy for sure. But it, you know, bang for buck time for payoff, it's definitely the best use of your time to try to find deals.   Jesse (25m 48s): Yeah. A hundred percent, all it really takes is, you know, you do it for a week. If you can hit one, then you know, there's your, there's your week's work right there. Exactly.   Anson (25m 57s): And pretty good ROI.   Jesse (25m 59s): Yeah. A hundred percent. And in terms of your stock, you know, your stock mailer, is it typically, like you said, you know, Hey, you know, Hey Doug Smith and then w what's the typical pitch that you, that you guys employ.   Anson (26m 14s): Yeah. So we definitely try to speak, you know, the ethos or the, you know, the, the makeup of our direct mail is, you know, handcrafted and handwritten. So we want to make sure that we're, we're talking to them down at like a normal level of like, Hey, we're here to help. So it's like, you know, using names, using addresses, using, you know, subdivisions, if we really want to like, like, Hey, you know, Hey, Jesse, we're, you know, we're wondering if you wanted to sell 1, 2, 3 main street, if you've ever thought about selling hassle-free please give us a call.   You know, we don't have any commissions or inspections or appraisals, you know, call us for a no obligation fair offer. And that that's enough of the core of the message to get across of like, Hey, we're here to help. You know, sometimes we'll add in that we're local, you know, we're, we're, we're definitely, you know, not an eye buyer or somebody who's a Zillow or something coming in that we're here to work with them and we have, you know, multiple ways to help them.   So,   Jesse (27m 28s): Yeah. Fantastic. At the end of the day, it's really just getting that phone call. You're not expecting it to get the sale, which it's nice, but not expecting to get the sale on the first touchpoint.   Anson (27m 37s): Right. Yeah, exactly. It's definitely a long game of multiple touches and, and yeah. Building on each other. So,   Jesse (27m 47s): So handsome, we're in a crazy time right now, recording this, you know, coming into the end of, of 20, 21. I don't think anybody could have predicted the last year and a half. How has your business, or how do you see your business evolving as a result of kind of the environment that we've been in, if at all, and, and maybe just prospectively, where do you see opportunities, you know, coming in the new year?   Anson (28m 15s): Yeah. So we're going to continue doing what we're doing for this year, which is, you know, more out of state looking at a state for markets that are conducive to cash flow. Short term rental opportunities is, is pretty big focus right now as well. And then locally, we've been partnering more with other investors because we've had a lot of time spent on the other side, kind of looking at a state. And, and so, you know, looking forward to next year, you know, I think the market's going to just be doing more of the same, can't foresee anything crazy that's going to happen.   And so, you know, we're just kind of to focus on long-term projects and, and even if we're wrong, you know, we still have, long-term more passive, passive things going, so   Jesse (29m 12s): Right on. All right. And so we ask a four questions, every guest before we wrap up. So before I get there, I'm just curious, I've been trying to, you know, for the last month or two kind of taking a poll of, of different real estate professionals I talked to, and I'm just curious your thoughts on number one, inflation, and number two interest rates. And, and I'm not expecting you to have a crystal ball, but I just, I find it funny because, you know, you have asked people, you get four opinions on these topics, right?   Anson (29m 46s): Yeah. So inflation's obviously going to be an issue. I think that Brian, who's the economist who spoke at BiggerPockets convention, had a lot of really good things to say. And pretty much everything that I would kind of repeat of, you know, inflation's a problem. It's not going to be a problem today or next year, but in the next, you know, four years or so, it will probably pop and become an issue.   And as far as interest rates, it's like, I think that they just voted that they're not, they're not going to change at all. And so as long as interest rates stay down and buying, and money is easy, it's just gonna turn, turn the market and keep it going. So buyers will keep buying. Investors will keep investing money right now is probably the easiest thing to get, whether it's hard money or otherwise, and so easy money, hard deals.   So it's going to probably just keep fueling that and, and yeah, just, it, it's kinda hard to say, but I think Brian had a really good kind of outlook on it where, you know, 20, 24 or 2026 is kind of when things will start changing and creeping up a little bit on, on interest rates. And I, I don't know enough about it to disagree. So   Jesse (31m 13s): Yeah, we had a, we had Brian on the show, you can check that episode out. I think it was in the sixties, but he was, he was great if especially if you, if you geek out on, on economics, that's definitely the one that listened to. I love it. Okay. Sweet. If you're ready, we'll fire off these final four questions to ya.   Anson (31m 32s): All right. I'm ready. Right on.   Jesse (31m 34s): What's something, you know, now in your career Anson, whether that's in real estate or business that you wish you knew when you started out.   Anson (31m 43s): So I kind of, I definitely always traded just short-term money for, you know, not worrying about long-term things and, you know, it's like, oh, you're in your twenties. You know, you don't really care too much about it, but once you get up into your forties and you're kind of still doing the same thing, it's probably not the best idea. And so I would, I would go back and tell myself for sure, just like, Hey, keep like even a third of the amount of houses that you're doing, and then you won't have to work when you're 40.   So   Jesse (32m 17s): There you go. That's a, that's a good point. Okay. In, in terms of, for that person, that's getting into our industry, what do you tell them in terms of your view on mentorship?   Anson (32m 32s): Yeah, that's a really, really good question. I'm a big fan of mentors, whether it's kind of formal mentors and informal mentors, you know, people who were willing to help you up. And I would say, just find somebody who aligns with your values and then see how you can provide value to them so that they can help you get to where you want to go. And then once you're at a place where, you know, a few years along the line, I think that mentorship works both ways where you should have a hand up and a hand down.   So you're, you know, you'll graduate through mentors that you're working with and every step along the way, you should be helping bring people up as well. And that teaches you a lot of things too, as you're teaching and working through things with other investors as well. So you've kind of learned by teaching and then obviously you learn by learning from somebody who's where you want to be.   Jesse (33m 31s): Yeah. That's great. Great answer as well. Okay. In terms of, let's put a pin in rich dad, poor dad. So put that one aside, but what is a book that you find yourself just recommending over and over again?   Anson (33m 45s): Yeah. So my, that is, it was a book that I also give about the most as well. And it's obstacle is the way by Ryan holiday and it's a book on stoicism and it's, it's really helped me in my personal life and also through business as well. And so it's just an, and an outlook on life and on business and situations that I wasn't exposed to until I kind of started getting into it. And that book definitely hammered it home for me.   So   Jesse (34m 19s): That's cool. I don't think we've ever had that book recommended on the show, but I've, I've definitely had people say it's a, it's a killer book. Yep. Okay. Last question. First car, make and model.   Anson (34m 32s): I had a 1979 tan VW rabbit. That is   Jesse (34m 38s): Unreal.   Anson (34m 39s): Two door.   Jesse (34m 40s): Yeah. That's pretty good, man. Like 79. I just looking at you. I would've, I would've assumed it'd be the eighties or nineties, but that's, that's quite the car.   Anson (34m 50s): That's the same year I was born. It just happened to be, my dad's always worked on VWs my whole life. And so my step-mom drove like a Cabriolet and my dad's had like dozens and dozens of bugs and, and yeah, when it came time to me, for me to start driving, you know, he bought this 79 tan rabbit that he's like, this is yours. If you get your grades up. And it took me a little while, but finally got my grades up enough to, to drive it. So   Jesse (35m 20s): I love how they're bringing back the seventies and eighties, the retro stitching for a, for a lot of their, their new models. So it got kind of that vintage look.   Anson (35m 29s): I'd love to see it. I'd love to see a new rabbit. Yeah.   Jesse (35m 32s): Oh yeah. Bring it back. Awesome. All right. Answered for those of you that want to connect or reach out or have any questions. I know you're doing work with bigger pockets. Maybe you could tell, tell listeners where they can go on the Google machine.   Anson (35m 47s): Yeah. If you go to the Google machine and if you want to connect with me bigger pockets, this is probably the easiest way to do it. It's just, if you just search my name on the site, you'll find my, my, my profile. Think I'm the only answer on the young, on there still. So that's good. Yeah. And then yeah, if you want to find me on Instagram at young Anson, and if you want to find me on YouTube, I do do videos for bigger pockets and starting to do more videos for myself as well. And so you can find me there.   Jesse (36m 16s): My guest today has been aunts and young aunts and thanks for being part of working capital.   Anson (36m 21s): Thanks, Jesse. Thanks so much.   Jesse (36m 31s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Right? Ladies and gentlemen, my name's Jessica galleon. You're listening to working capital the real estate podcast. Our special guest today is aunts and young Anson is a real estate agent and investor with hundreds of transactions completed in each category, real estate Anson, and his team specialize in marketing directly to sellers for off-market deals, using many methods that can be found in his book, finding and funding great deals when not working ants and can be found exploring the wilds of Colorado with his family and tending loud rock concerts.   And I can see you got a twig behind you there, and son, how you doing?   Anson (54s): I'm good. I'm good. Thanks for having me, Jesse.   Jesse (56s): Yeah, my pleasure having you on, what do you got there? Is that a base? It's hard to tell because   Anson (1m 1s): That one's a five string bass.   Jesse (1m 4s): I like it. Fantastic, man. Well, thanks for coming on. We were just chatting before the show, like a few of the most recent guests you were speaking at BP con this year, what was, what was your topic?   Anson (1m 17s): So my topic this year was finding the deals in any market and it focused on kind of out of state investing or long distance real estate investing, building a team, you know, how basically how to go ahead and find those deals, whether it's networking or off market. And, and yeah, that's seems to be a hot topic. Everybody's market is too expensive. So they're looking at other markets and I figured I'd hit on that since that's what I'm doing too. So   Jesse (1m 47s): Yeah, absolutely. It's certainly topical right now. It's we kind of joke around about the inverse relationship between, you know, the, the lower interest rates are, the cheaper money is the harder it is to find deals.   Anson (1m 59s): Oh yeah, for   Jesse (1m 60s): Sure. So in terms of a little bit of your background for listeners that aren't familiar with you, maybe you could kind of take us back to how you got into real estate. I know you just mentioned on the outset, you're also an agent. Maybe you could take us back to the beginning of how that journey started.   Anson (2m 17s): Yeah, sure. So back in 2003 or so I was working in it, I got laid off like everybody did, it feels like kind of boat, post.com, bubble burst. And so I was just looking around of what to do next. Do I go back into it? Do I double down in that arena or do I do something else? And at the same time, my wife and I were going to move down to Phoenix from Denver to be closer to family, my brother had just moved there.   They were having their first kid. So I was like, you know what? I don't have a corporate job anymore. I could kind of move wherever I want. And right before I left a friend of mine handed me rich dad, poor dad, which is, I think just the basic origin story of all real estate investors these days. But, but literally read that book on the way down to Arizona and changed my entire mindset about what I could do, what I should do and why going back into a corporate environment, probably wasn't the best idea.   And so landed in Phoenix and decided new city, a new me, and kind of jumped in and tried to learn as much as I could about anything that I could about real estate. And at the same time I was bartending. And so nights were spent working and days were spent trying to figure out real estate. So that's kind of a, that's kind of where I got started.   Jesse (3m 48s): That's great. So in terms of kind of getting into that mindset, I mean, not, not a dissimilar from a lot of people that come on the podcast or just talking in general, rich dad, poor dad just seems to be a cornerstone for a lot of, at least the beginning of real estate education, because I think ultimately the quadrants of that book for, you know, for anybody that hasn't read it, you definitely have to go check that book by Robert Kiyosaki. But I think it is ultimately when you get to that fourth quadrant where it's passive or, you know, quotations passive investments, I think real estate is just, it kind of lends itself to that, to that type of investment or that type of income.   Anson (4m 28s): Yeah, absolutely. And I had no idea that any of that existed, I mean, the guy who gave me the book, Paul, we were, I remember talking in this parking lot late at night and, and, and, and I couldn't even wrap my brain around getting a second mortgage. Like you have one mortgage who's going to give you money for a second house. You know, like that, that's how small my mindset was until that book helped me unlock and unpack what's possible.   So it, there's a reason why it's so such an origin story for many of us is because we weren't really taught that. And, and then this, this book just showed us kind of a different way of how things could work. Yeah,   Jesse (5m 10s): Yeah, yeah, absolutely. And it's, it's funny cause you know, that book, it really, it hits people in totally different, different jobs and different times in their life. And it still seems to be one of the ones that keeps coming up. So you, you read rich dad, poor, poor dad, you're you get laid off from your job where once, once that clicks for you and that light bulb goes off, what was, what was your process after that?   Anson (5m 35s): So I'm like, like many people starting off. I had no clue what I was doing. So I basically attended every single meetup that I could find from kind of Rhea meetups, real estate investment associations, to like cashflow one-on-one games. So, you know, tied in with the, the rich poor dad, it's basically a board game that people get together and play that kind of go through the principles of financial freedom and stuff.   And so anywhere that I could latch on to people who were doing real estate, I was there and I, I kind of made that my full-time job of, of doing that I've formed relationships. And in that I just started doing, trying to provide as much value as possible. So I'd go do all kinds of odds and end tasks for them for a couple of investors and a couple of agents. And in return, you know, all I asked for was just information. Like I would go run contracts, you know, for a long time for an agent.   And then I would ask for, Hey, can you teach me how to value properties on ML MLS? And so trying to provide that value first and then asking for something in return later on. And so I, I ran contracts, I punched signs in yards. I knocked on doors for a foreclosure investor. Feel like I did all these different things to try to learn as much as possible. And about after nine months to a year, one of the agents reciprocated with a deal.   And she was like, Hey, one of my clients has a property that they want to sell. I think that it would be great for you guys kind of sent over the numbers, helped me run through it and ended up to be our first deal. And it was a live in flip that we spent the next year fixing up and, and, you know, figuring out what's next. But we, we sold it after a year and ended up moving back to Denver. And so it was perfect timing because that was right at the end of 2005. And I think the Phoenix market crashed the next week.   So, so we got out just in time, but I learned a lot on that first deal and then went ahead and just appended and moved markets, which felt like starting over that's that's, that's kinda how that deal went. So   Jesse (7m 58s): Kind of started on that deal. Similar to a lot of individuals were, I guess, somewhat of a, you know, some people call it house hacking where you were living in at the time, but also renting out a, would that be fair to say it was kind of that, that type of arrangement for the first one?   Anson (8m 13s): No, we did. We did kind of a, it needed a lot of work. And so we just decided to move in and fix it while we were living there. We were fixing up stuff, you know, as time and money permitted and by the end of it, you know, it was fixed up and ready to go. And actually my agent w I, I had sent her an email, you know, we had gone to Vegas for our anniversary decided right then that we were kind of just done with Phoenix.   I sent her an email saying, Hey, I think we're going to sell. And she's like, I'll buy it. Like my parents will buy this. Like, she had very much faith that the market was going to keep and she was a little bit wrong on that, but that's okay. Yeah. So she gave us a really good price on it. We ended up making, I think $60,000 on it after a year, which isn't too bad and, you know, had some money to go back to Denver and continue the journey   Jesse (9m 11s): Right on. So was the journey continuing on that kind of operational level where it was value add deals or did you, did you pivot?   Anson (9m 22s): I think I, yeah, it was definitely a value add deals. When I got back, I felt like it was starting over because I didn't have a lot of real estate contacts I didn't have, I didn't know the market. And so, no, I kind of just went back to basics. I started working with investors and agents. I actually got hired on to a real estate agent team and was doing broker price opinions for banks. And right then I just, I figured out this whole thing of bank owned foreclosures and that this could be, you know, a really big thing.   And so, so from then on, probably for the next two years, pretty much everything that I bought was a bank owned foreclosure. So they were all distressed value, add properties that, that had almost no emotion into them because the banks don't care if you low ball them, they just care if it meets their kind of pricing matrix. So that was a fun time to be in real estate for sure. But I got my license maybe a year after I moved back and just kind of did both. I was an agent investor just kind of juggling both things.   Hm.   Jesse (10m 29s): So in terms of the kind of becoming an agent, because you get lots of people that are like, should I get my license as an investor, if you're going to make that switch, did you find it was something that was kind of critical or a nice to have type of type of thing where you still had to develop relationships with host of different agents?   Anson (10m 50s): Yeah. I found it to be absolutely critical to all the real estate that I was doing. Just, just from a, you know, obviously if I'm buying Oreos and my entire existence of finding deals is on MLS. I don't want to be one step removed from that process. I want to be, you know, like a direct actor in that process. And so right in front of MLS on a daily basis to try to find, you know, the deals that I'm looking for, rather than relying on an agent to send them to me, or, you know, go around the back door and give me their log-in or something like that, I could shoot off offers immediately, you know, set showings, do the things that I needed to do to go lock up these deals.   And so for me, it was absolutely pivotal   Jesse (11m 41s): In terms of kind of where you've developed your business today. So you kind of, you go through this process, there's the light bulb moment. You, you see that it's, there's proof of concept when you, you know, in one year you make 60 grand catch us up to today. What, where are you focusing? Not on, not just from a, from a geographical standpoint, but even from a type of asset or type of real estate that maybe you focus on or areas that you focus on.   Anson (12m 7s): Yeah. So, you know, it's kind of ebbed and flowed over the years between wholesales fix and flip. What I'm pivoting towards this year is more longterm buy and hold properties, single family, a small multifamily, those kinds of properties. And so that's a little bit different for me. I'm, I'm used to doing this transactional turn and burn, and now I'm trying to slow down and think for the longterm so that I can, you know, actually have something to show for my effort rather than just, you know, larger pay check, so to speak.   And so, so Ben pivoting in that direction as, as a business and Ben geographically in three different markets this year, just testing things out and getting the ball rolling on long-term cashflow. So that's kind of where we're at.   Jesse (13m 3s): So answered for the actual capital raising side of the business for you or where you source capital has that changed over the, the last few years? And if so, how, how has that evolved for, for yourself?   Anson (13m 16s): It hasn't changed too much once I kind of discovered private money lending before the sec kind of changed their rules, we would kind of just cold call for private lenders, developed relationships with them, had a good track record over time. And so after a while, you know, we would get referred to their friends who were looking to, you know, make, you know, a 10 to 14% return on their investment. And, and so, so yeah, so it hasn't changed too much because we're still using short-term even on these long-term projects we're using short-term funds to, to acquire them and then refinance it now to a more portfolio or, or bank loan style financing.   So I guess that side's new, but when we go into purchase, we're still using like our same private money lenders. They know that they're going to hang on for, you know, three to six months until we refinance out, but that's not too different from a flip where we would hold onto it for three to six months and they would get paid out at the end of that. So, so the, you know, the initial buy is the same. It's just that long-term piece of now it's going to convert into something long-term. So can you,   Jesse (14m 34s): You talked to, to that a little bit for listeners, you know, for that type of approach where you are, you know, getting short term finance, when you have a project going on and then stabilizing after that, maybe you could to kind of run through how that works. And, and, you know, on top of that private lending, I think is a bit of a black box for a lot of people. So, you know, maybe, maybe get your thoughts on that as well.   Anson (14m 59s): What do you mean by black box?   Jesse (15m 0s): Well, I, I feel that a lot of people that aren't in our industry, they hear private money and it sounds like they're meeting somebody in an alleyway and they're handing them a bag of cash. So I think, I think from like, I think for a lot of people, they don't realize how many private lenders there are out there, how many more options you have than just walking up to the bank that you've known for years, or are you, you know, you know, the brand,   Anson (15m 25s): Right? Yeah. So in, you know, I wish it was like an alleyway with a sack full of cat. That'd be kind of fun actually. But typically private lending is just lending from an individual rather than a bank. And so a sophisticated, private lender will operate somewhat like a bank where they, you know, they kind of vet deals. They've vet you, they vet the process. Some even want like a loan application and stuff. Others are very much more relational.   I mean, your next private lender could be your rich uncle or something who really believes in you and wants you to succeed. So it kinda runs the gamut from usually it's, you know, older people who are using the retirement funds. Some people who came into some money one way or the other, it seems like two or three of my guys who I lend or who I borrow from. They all sold a business in their sixties and now have kind of more money than they know what to do with, they see a return of 12% PR and that's very exciting to them.   And so they will lend that to the right person. And so it's kind of, I wouldn't call it a beginner strategy at all, because usually you have to have a kind of a track record. You have to have a reputation for what you're doing for somebody who just is sitting on, you know, even if it's a million dollars, you know, that's two projects in Denver. And so they, you know, lending out their entire million dollars. It has to be to the right person, the right projects with the right track record so that they are secure that bill, you know, end up getting that back.   And so it's kind of private lending in a nutshell. And to your other question for kind of stabilizing an asset, typically we're, we're purchasing with private money, which is for us, it's a hundred percent loan and fix. And so we're, we're into the deal with no money and we go ahead and we get the property fixed up rented, and our next lender wants to see it for at least three months.   We're, we're, we're collecting rent. Everything is stable. Everything's looking good before we can transition that into kind of a, it's a refinance into either a portfolio or, or a conventional style loan. I prefer portfolio, cause it seems just a little easier, but then they, they close on it and they'll pay off the private lender. And so now instead of owing, you know, this individual money, now we own, now we owe this credit union or this bank money and, and pay them.   And it's a long-term note, whereas our short-term private money lender is only like a six month note. So now we have a 30 year note and a smaller payment, so we can actually cash flow.   Jesse (18m 29s): Nice. Yeah, yeah. Obviously the goal there, if we switched to sourcing deals, like we talked about at the outset, it's a, it's a challenging thing to do right now. So it was topical, I guess, that that was in new Orleans. That was your kind of discussion topic, maybe as a comparison, if, if there has been things that are different than when you were starting out, how you were sourcing deals, then as opposed to strategies you've, you've learned and are using now, how has that evolved?   And, and you know, what, what approach are you using given the fact that it just seems like there is so little supply out there.   Anson (19m 7s): Yeah. That evolution has been pretty huge. So like I S like I said earlier, starting off, we did a lot of, we just bought bank owned, foreclosures right off of MLS. And we got really good at that to the point where we also sold REO, but we would buy from other REO brokers. And so we kind of knew the inside process of how asset managers think what different banks did, what, when they did their price reductions, you know, could we get in one day before a price reduction and then get under that price reduction and lock up a property before everybody else saw it.   We got pretty good at that kind of stuff. Once the foreclosure crisis started resolving itself, bailouts and everything else, there was just less foreclosures coming. And I saw the writing on the wall when, on the REO sourcing side, it's kind of the, you know, the, the, the source of the river started drying up and we were both benefiting from that source of the river plus way downstream, when we would pick up deals. It's like, oh man, I kind of see the writing writing on the wall here.   We're not going to be able to find as many deals as we used to. And so at the same time, we were also doing some short sales and looking around there was still, you know, a huge, you know, huge chunk of people who were underwater on their mortgages. And so we just aggressively attacked short sales that were listed and short sales that weren't listed. So we were just going straight after foreclosures basically. And so for about a year or two, we did mainly short sales. Was it, we got really good at that as well of going from the wild west or short sales to when it kinda got standardized and institutionalized.   We saw, you know, everything in that whole window. And then, and then the same thing happened where I started seeing that the market was rising, the prices were rising and not everybody would be underwater forever. And so what do I do next? And from there, we went off market. We, we, we did a little bit more MLS deals we would find, but those really just started getting few and far between, and we needed a bigger source of deals we were doing mainly wholesaling right then.   And so the better source of deals was just to go directly to the seller. And so ever since probably 2014, 15 up until now has been all off market direct to seller. I haven't bought an MLS deal probably three or four years. They just, I don't know. It's just not, not scary   Jesse (21m 54s): Now. Yeah,   Anson (21m 56s): Exactly. So all, you know, basically all off market right now, just going directly to those sellers and seeing if we can help them.   Jesse (22m 4s): So on that, on that note, in terms of the approach that you use with, you know, is it the, of, in the vein of direct mailers, are you kind of going to the secretary of state? Are you going through different software? How are you, how are you reaching out to those? Those would be sellers.   Anson (22m 22s): Yeah. So our main, our main way to reach out and touch them is direct mail. We have just this year started adding in, or I shouldn't say just this year, it was probably 2019, just started stacking in more ways to reach sellers, kind of this, the same lists and in different ways. So if they did respond to the direct mail, we also called them. We also text them. We also emailed them if we could, you know, find them on Facebook, knock on their door, whatever it took to really get in front of the right sellers.   You know, there was a time where you can just send out postcards and, you know, get a 2% response rate, just pick from the best ones. But that just started kind of getting less and less as there was more competition. So now we're reaching out in multiple ways, but direct mail is still our number one.   Jesse (23m 16s): Yeah. You know, it, it's interesting because it comes, I guess, depending on who the sellers are. Like, for instance, if you, if you're really reaching out to predominantly mom and pop, or like you said, small, multi, multi Juarez, you know, I found that the responses are usually better. However, if there's that one layer of say a corporate structure, LLC, partnership, whatever that is, do you, is that also part of the pool that you reach out to? And I guess from there, if it is, you probably have to do that one extra step of, you know, who's the principal who's, you know, who's the signing officer.   Anson (23m 49s): Yep. Yeah. So in Colorado, our, our secretary of state is pretty transparent. So we can go on and search LLCs and find out who, you know, who's the owner where their register addresses all that stuff. So our, oh, I wish I had the number of, of LLCs that we've mailed to, but I have given that over to a VA to go ahead and look those up and just make sure that we're hitting the right people and getting in front of them instead of just setting, you know, XYZ LLC, you know, it's like Paul Jones or something.   So,   Jesse (24m 25s): Yeah, yeah. In terms of the, so for those that are just kind of getting into real estate in terms of finding off market deals, they're coming into an environment that, you know, we we've seen prior to supply constraints, a different approach. Whereas now, because there's so few real estate opportunities out there properties, they were coming into a market where they probably have to start with direct, direct to seller or trying to find off market deals. How would you go about telling somebody who's getting into the industry? How does start building that list?   Anson (24m 58s): I mean, even today, it sounds very, very old school, but I think that are driving for dollars lists are still some of our Mo you know, highest producing lists. And if you want to keep the cost down and you have more time than you have money, I would say, drive for dollars and then cold column, just, you know, skip, trace them or look them up on white pages.com. Yup. And then, you know, send out phone calls. You'll probably, you know, get 50 to a hundred driving for dollars leads a day.   And then, you know, cold column the same day or the day after you'll, you'll keep yourself busy for sure. But it, you know, bang for buck time for payoff, it's definitely the best use of your time to try to find deals.   Jesse (25m 48s): Yeah. A hundred percent, all it really takes is, you know, you do it for a week. If you can hit one, then you know, there's your, there's your week's work right there. Exactly.   Anson (25m 57s): And pretty good ROI.   Jesse (25m 59s): Yeah. A hundred percent. And in terms of your stock, you know, your stock mailer, is it typically, like you said, you know, Hey, you know, Hey Doug Smith and then w what's the typical pitch that you, that you guys employ.   Anson (26m 14s): Yeah. So we definitely try to speak, you know, the ethos or the, you know, the, the makeup of our direct mail is, you know, handcrafted and handwritten. So we want to make sure that we're, we're talking to them down at like a normal level of like, Hey, we're here to help. So it's like, you know, using names, using addresses, using, you know, subdivisions, if we really want to like, like, Hey, you know, Hey, Jesse, we're, you know, we're wondering if you wanted to sell 1, 2, 3 main street, if you've ever thought about selling hassle-free please give us a call.   You know, we don't have any commissions or inspections or appraisals, you know, call us for a no obligation fair offer. And that that's enough of the core of the message to get across of like, Hey, we're here to help. You know, sometimes we'll add in that we're local, you know, we're, we're, we're definitely, you know, not an eye buyer or somebody who's a Zillow or something coming in that we're here to work with them and we have, you know, multiple ways to help them.   So,   Jesse (27m 28s): Yeah. Fantastic. At the end of the day, it's really just getting that phone call. You're not expecting it to get the sale, which it's nice, but not expecting to get the sale on the first touchpoint.   Anson (27m 37s): Right. Yeah, exactly. It's definitely a long game of multiple touches and, and yeah. Building on each other. So,   Jesse (27m 47s): So handsome, we're in a crazy time right now, recording this, you know, coming into the end of, of 20, 21. I don't think anybody could have predicted the last year and a half. How has your business, or how do you see your business evolving as a result of kind of the environment that we've been in, if at all, and, and maybe just prospectively, where do you see opportunities, you know, coming in the new year?   Anson (28m 15s): Yeah. So we're going to continue doing what we're doing for this year, which is, you know, more out of state looking at a state for markets that are conducive to cash flow. Short term rental opportunities is, is pretty big focus right now as well. And then locally, we've been partnering more with other investors because we've had a lot of time spent on the other side, kind of looking at a state. And, and so, you know, looking forward to next year, you know, I think the market's going to just be doing more of the same, can't foresee anything crazy that's going to happen.   And so, you know, we're just kind of to focus on long-term projects and, and even if we're wrong, you know, we still have, long-term more passive, passive things going, so   Jesse (29m 12s): Right on. All right. And so we ask a four questions, every guest before we wrap up. So before I get there, I'm just curious, I've been trying to, you know, for the last month or two kind of taking a poll of, of different real estate professionals I talked to, and I'm just curious your thoughts on number one, inflation, and number two interest rates. And, and I'm not expecting you to have a crystal ball, but I just, I find it funny because, you know, you have asked people, you get four opinions on these topics, right?   Anson (29m 46s): Yeah. So inflation's obviously going to be an issue. I think that Brian, who's the economist who spoke at BiggerPockets convention, had a lot of really good things to say. And pretty much everything that I would kind of repeat of, you know, inflation's a problem. It's not going to be a problem today or next year, but in the next, you know, four years or so, it will probably pop and become an issue.   And as far as interest rates, it's like, I think that they just voted that they're not, they're not going to change at all. And so as long as interest rates stay down and buying, and money is easy, it's just gonna turn, turn the market and keep it going. So buyers will keep buying. Investors will keep investing money right now is probably the easiest thing to get, whether it's hard money or otherwise, and so easy money, hard deals.   So it's going to probably just keep fueling that and, and yeah, just, it, it's kinda hard to say, but I think Brian had a really good kind of outlook on it where, you know, 20, 24 or 2026 is kind of when things will start changing and creeping up a little bit on, on interest rates. And I, I don't know enough about it to disagree. So   Jesse (31m 13s): Yeah, we had a, we had Brian on the show, you can check that episode out. I think it was in the sixties, but he was, he was great if especially if you, if you geek out on, on economics, that's definitely the one that listened to. I love it. Okay. Sweet. If you're ready, we'll fire off these final four questions to ya.   Anson (31m 32s): All right. I'm ready. Right on.   Jesse (31m 34s): What's something, you know, now in your career Anson, whether that's in

    House Hacking Strategy with Craig Curelop | EP79

    Play Episode Listen Later Nov 17, 2021 39:53

    Craig Curelop is a Real Estate Agent and Investor. He is an Author of The House Hacking Strategy: How to Use Your Home to Achieve Financial Independence and Co-host of FI Team podcast. In this episode we talked about: - Craig's Bio & Background - House Hacking Strategy - Expansion of Craig's Real Estate Portfolio since 2017 - Working at BiggerPockets  - Real Estate Investing Strategies  - Writing a Real estate Book - Sourcing Deals - View On Current Market Environment - Short Term Rental Market Outlook - Financing Deals - The Advice to People who Consider Making a Career in Real Estate - Building a Team  - Mentorship, Resources and Lessons learned Useful links: https://thefiteam.podbean.com https://www.instagram.com/thefiguy/?hl=en Transcriptions:  Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Ladies and gentlemen, my name is Jesper galley and you're listening to working capital the real estate podcast. Our special guest today is Craig . Craig is a real estate agent and investor. He is author of the host hacking strategy and co-host of FII team podcast, Craig, how's it going,   Craig (37s): Jesse? So good to be here today. I'm doing great. How   Jesse (40s): Are you? I'm doing awesome, man. I can't complain we're on the tail tail end or just, just pass Halloween. So I, for those that can't see us right now, we've got a couple of mustache here, but I feel like yours is for a Movember   Craig (53s): Mine's is just for life and his life. The lady, the lady loves the mustache, so we   Jesse (58s): Keep it. That's amazing. So it's just a lifestyle choice.   Craig (1m 1s): It's a lifestyle choice. Yeah, man. It's been like a year. I think it's, I'm almost, I'm approaching my one year mustache anniversary, so I love it. There should be a, there should be a celebration for that.   Jesse (1m 10s): Oh, I said we were just chatting. I have mine on, I meant to shave it off. I was afraid of mercury for Halloween and now I, and now we're in November, so I don't know what to do, dude. You   Craig (1m 18s): Look good. You should keep it.   Jesse (1m 21s): I appreciate it, man. Are you joining us today from, from Denver?   Craig (1m 25s): Yeah, I am here in Denver. Yeah. Been here four and a half years.   Jesse (1m 30s): Sweet. Well, thanks. Thanks so much for coming on the show. Really appreciate it. I think we'll have a great episode here. Talk a little bit about your background in real estate and love to get into house hacking and the book. But before we do, maybe what we could do is talk a little bit about how you got into real estate and bring us up to speed of what you're doing these days.   Craig (1m 52s): Yeah. So I got into real estate because a lot of people like a lot of people, I hated my job. And so I was actually working like a venture capital type role in Silicon valley, which sounds super sexy and super cool. And I was hanging out with mark, like I was hanging out with mark Zuckerberg and Elon Musk and all that, but that wasn't, that's not really the case. Right. I'm actually just like buried in spreadsheets, working hundreds of hours a week is what it felt like. And really just getting paid like an abysmal amount on an hourly rate. And I just kinda came to this conclusion that there's no way I wanted to do this for the rest of my life and what, like, what's the way to out.   What's an early way to retire. How do I achieve financial independence? And that's what kind of real estate came to mind through a lot of iterations I went through, I tried to do start my own startups, which was just horrible, horrible stuff. And then I was like, I don't need to be mark Zuckerberg or Steve jobs or anything like that. Right. I can just be a real estate investor. And so I found bigger pockets pretty quickly after this deciding I wanted to get into real estate just was absorbing absorb, absorb information for about six months. And then I was like, okay, I got to get out of Silicon valley. Cause I just can't afford anything here.   It doesn't seem like this whole house hacking thing really works in Silicon valley. So I actually moved to Denver, got a job at bigger pockets, which was like a dream come true. Started surrounding myself with real estate investors and people that were doing things that I wanted to do. And, you know, got my first property in that was April, 2017 or actually started June, 2017. I got my first property   Jesse (3m 21s): Right on. And that first property was that a, was that a house hacking proper property. And, and I guess before you answer that, maybe for listeners just to update people that don't know how sacking would, is it?   Craig (3m 33s): Yeah. So how's hacking is the idea that you buy a one to four unit property with a low percent down, typically three to 5% down. You have to live in it for a year. So if it's a single family house, you're living in a room, if it's a two to four unit, you're living in a unit and you rent out the parts that you're not living in, so that the rent covers your mortgage and you're able to live for free or at least drastically reduce your housing expense. And because your housing expenses probably your largest expense, you're actually able to save a lot more money. So you can go ahead and buy the next investment.   And so that's what I did on that first property. I purchased a duplex. This was before anybody really knew about the rent by the room strategies before that was popular. So the only way to house at this time in my head was to buy a duplex live in one side, rent out the other. So it was an uptown duplex. I lived in the bottom, rented out the top and I wasn't quite covered my mortgage. And I was like determined to cover my mortgage. It would have been a great house either way, but I was determined to cover my mortgage. So I Airbnb it out my bedroom and put up this like cardboard box room divider thing, slept on a futon and made that where I slept for one year.   And that was my 24 year old hustle self.   Jesse (4m 47s): So that, that is a pure house hack right there. So in terms of the, the uptown, was it already, was it already converted to the ability to have a walkout? What did that?   Craig (4m 58s): Yeah, it was totally turnkey. And so with house hacking, I firmly believe, and I stand by this. I was like this to the grave. Is that a turnkey property? That in by Turkey, I just mean the rehab is totally completed for you is much better than doing a rehab when you're doing the house. Heck because with house hacking, right, the, the magic is buying one every single year on the year and your year does not start until you close on that first property. And so let's say you close today's November 1st, let's say close today, November 1st.   I can't buy another one until November 1st of next year, but if I'm doing a rehab, that means I am spending more money. I am not getting money from my tenants. And that may push me back if I have to save another 20 or 30 grand to get the house hack on November 1st. So who cares if I have an extra 30,000 of equity in my house, which I can't use, I need 30,000 in my pocket, which I can go buy the next house for.   Jesse (5m 52s): And the one year is that, is that a financing thing? Is that just a strategic thing?   Craig (5m 57s): Yeah, that's a financing thing. So in order to get those low down payment loans, the three to 5%   Jesse (6m 1s): Down the bank says, you need to live there for at least one year. So yeah. Yeah. I find, I find too, there's a, depending on kind of the weather American Canadian, depending on which state you're in, I know that the ability to move in or displace a tenant oftentimes has a one-year horizon on it that they want you living there for one year. But to your point, yeah. In terms of finance, I think most areas you're going to get that lower financing. When you can say that you're personally moving into the, to the property in terms of the, so, so you start with, you start with that property, how, and that was a 2017, you   Craig (6m 37s): Said 2017.   Jesse (6m 38s): So from 2017 to where we're at right now, a couple of things have changed in the market. You know, some minor things in terms of how you kind of grew the portfolio. If you have from then to now, what does that look like?   Craig (6m 52s): Yeah. So the growth at first, it's really slow because you just don't have a lot of money, right? Like, you know, I remember on that first one, I pretty much depleted almost my entire savings and maybe had like 10 grand left and I needed to save up another 20 or so grand and get the next house hack. And you know, at that time I was maybe saving $2,000 a month. So it was like gonna take me probably a whole year to save up for the next house. Heck. So what I was doing, you know, I call it the lull period in between house hacks where there's really not much you can do. I mean, if you want to be a real estate hustler and start wholesaling and flipping, you could get into that, but I wasn't really interested in those things.   So I just doubled down at my work. I was working at BiggerPockets at the time, doubled down on my work there. I actually asked Scott who Scott trench to see yogurt buckets, basically, how can I make more money here? And I was able to, he actually gave me an opportunity and we created a pathway together to where I could make more money at my, at my W2 job. I was doing Airbnb arbitrage. I was throwing out my car. I was basically just figuring out any possible way that I can make some more money because I want to hit financial independence as early as possible, like so badly because I hated that feeling of being stuck.   Jesse (8m 4s): Yeah. Yeah. It's great. It's looking for different or different streams of income. And for those that don't know, like Turo Turo is great. It's a, it's basically an Airbnb for your card and I'm pretty sure they're in every major market, but so it sounds like, it sounds like for you, it wasn't so much the flipping and the fact that you're going to run a business, you wanted more so passive income and, and longer term, longer term growth.   Craig (8m 25s): That's right. Yeah. I was, I mean, maybe I was scared honestly. Like I didn't want to handle hard money. I was in Denver. Right. So buying a house for 400 grand hard money on that, it's going to be like 50 grand. And I was like only about 20 grand. Right. And then you still got to put 20% down. So it became such a high effort thing that like, I wouldn't be able to do that and have my W2 job. And I really loved my W2 job at the time. Like I was hanging out at BiggerPockets, we were talking real estate network was growing. I had a lot of opportunity at BiggerPockets.   So I was like, just, that is my number one focus. So   Jesse (8m 59s): At the time, what were you doing at BiggerPockets?   Craig (9m 2s): So I was their finance guy. So I say the finance guy, because I was the only person on the finance team at the time. And so basically like doing all their books, running the numbers, making reports for management and stuff to look at. So I, at one point I knew pretty much every number that BiggerPockets had, but unfortunately I don't have that anymore. So my numbers are probably three years expired.   Jesse (9m 26s): Okay. Fair enough. And you've moved at sounds like you've moved from BiggerPockets to another W2 job or are you investing full time?   Craig (9m 35s): No, so yeah, I knew that BiggerPockets is going to be my last w two jobs. And so my, yeah, so I figured pockets. I basically had done three house hacks. So over the course of about three years, I did three house hacks and I felt like I was financially independent, but I wasn't sure. And so the way I test it was I took a zero paycheck and maxed out my 401k. So like my entire paycheck for three months was going to my 401k and I figured, Hey, if at the end of three months, my checking account is higher. I'm financially free.   And if not, well, then I'm pretty darn close. And I just, I just maxed out my 401k. And so lo and behold, it was a lot bigger and I was like, I can, I think I can make it on my own. And so pretty much a month after that, at the end of January of 2020, I quit BiggerPockets and went full-time as a real estate agent, helping people, coach guide and mentor people, helping coach guide and mentor those who want to house hack.   Jesse (10m 32s): Fair enough. So in terms of the, the host hacking itself, so you, you move on to that anniversary, you move in purchasing another property. How sack of that property, what are you doing with the former property in terms of whether you're selling refinancing? What does that look like?   Craig (10m 46s): I don't do anything. I just move out and I put someone else in my place. So just rent it out. I did refinance my first two properties because interest rates were so low this past year in 2021. And so it made a lot of sense. I think I reduced my monthly payment by like, like a total of a thousand dollars over the course of two properties. So easy way to boost your cashflow. And so, so yeah,   Jesse (11m 9s): Yeah, absolutely. Absolutely. But in terms of the, cause the Denver market, it's not the cheapest market in the world. So in terms of you were still able to cashflow, even when you're, you're moving out of these properties with, with the down payment as low as it was.   Craig (11m 24s): Oh yeah. So on that first property, my, my mortgage payment before I refinanced was 22, 2300, I was getting 1650 for the upstairs and 1300 for the downstairs. So my rent was 29 50 and my mortgage payment was about 2300. So six 50 over the mortgage, of course there's reserves and all that kind of stuff, but it was a newer property. So there wasn't a whole lot of maintenance and stuff. It wasn't a great location, so not a whole lot of vacancy. And you know, maybe you put reserves for two or $300 a month and it's still cashflows $300.   And it's in a great area. It's appreciated like probably 200 over 200 grand now in just a few years. So like great property now, since I've refinanced it and rents have gone up this year in 2021, you know, it's, I think I'm making a little over $3,000 on the rent and my mortgage payment is only like 1700 or maybe 1800. And so, you know, now it's closer to a thousand dollars of cashflow on the property and then yeah, same, same thing, same thing as it goes like each one, probably each property that I have in Denver cashflows about a thousand dollars a month.   Jesse (12m 33s): That's great. So being the numbers guy, when you look at these properties specifically on the host hacking side of things, is there an approach that you take that might differ from, from other investors or other investments?   Craig (12m 46s): Yeah. So when you're house hacking, you want to fit, you want to have multiple strategies that you can do, or at least I like having multiple strategies. And what I mean by that is, you know, if you've got a duplex, can you rent it out? Each unit like traditionally and still cashflow, it may not be your best cashflow, but can you still do it? Can you Airbnb it? Can you rent it by the room? How does the layout work? Can you, you know, in a single family house, can you split the upstairs and the downstairs or, you know, the left side from the right side and make two different units out of it. And so properties like that are the ones that we really like.   I pretty much in Denver now, I pretty much only buy single family houses that we could easily convert it to duplexes just based on the layout. And that way, you know, you're getting the house at a single family price in a single family type neighborhood. He renting it out as two separate units that are actually would get you higher rent than you would have to duplex because it's in a nicer area, it's a nicer house. And so the numbers work really well in places like,   Jesse (13m 41s): Yeah, no, that makes sense. And you kind of moved into, I guess, writing with the house hacking strategy. How did that come about? What was that process like?   Craig (13m 52s): Yeah. So writing has, you know, the miracle morning. I do. Yeah. Great. But yeah. Great. So amazing. Both of you haven't read that book. You need to read it a life-changing book, but ever since I started doing that, I started to write every morning and I think he had Ellen Rogers who wrote the book meant means like journaling, but I just enjoy actually just like writing content in the morning. And so basically I write every morning and I was writing blog after blog, after blog for bigger pockets. I think I have probably close to 60 blog posts on bigger pockets. And so they asked me, Hey, do you want to write this book on how second you can?   I was like, hell yeah, I do. And so I, you know, basically instead of writing the blog post every morning, I would just take a stab and write a piece of the book every morning. And after about a hundred days, I had a first draft of a book. And then, you know, for a few months later after the edits and stuff like that, it got published. And that was definitely a, an inflection point in my life.   Jesse (14m 43s): Yeah. I'm always fascinated as listeners probably know of the, the process, the, the, the writing process. We had Chad Carson, coach Carson on the show, by the time you're listening to this, that episode probably has aired. He was talking about the same thing. It was basically from blog to multiple blogs to book. It seems like a strategy that a lot of writers, especially in our space use, as well as, you know, on the other side of, for the individuals that maybe writing isn't isn't their passion, or it's just something that's that doesn't come easily easily to them.   I found that some, some people put content out audio and then basically transcript the audio and then kind of edit from there. But yeah, it's, it sounds like you were the former on that.   Craig (15m 24s): Yeah, no, I, I genuinely like to like touch the keyboard, which is weird, I guess, but like, I like to like make that thing go and yeah, it doesn't take long, you know, if you can just sit yourself, I mean, there's a word counter right on the bottom left, like a Microsoft word document. So I would just be like, I'm not, I'm not leaving this computer until a thousand words richer or whatever you want to call it.   Jesse (15m 43s): And for those that are interested, we'll put a link up for where you can reach out and where you can get the book. But in terms of the, the framework of the book, did you, I mean, obviously you, you wrote through blogs, but in terms of the framework itself, did that change from when you initially wrote it and you know, how did you approach that?   Craig (16m 1s): Yeah. So when you're running a book, it's all about the outline. Like you should spend half the time of half the total time writing the book on the outline, because that is the most important part. If you got the outline, good, the book will just write itself. Right. And so it's almost like almost, you just keep expanding, expanding its spending on the outline until it becomes the book and then you have to go back and, and make it flow. And so really it was just a mixture of yeah. Having a solid outline. Also, I took a lot of my blog posts and just kind of repurposed them a little bit for the book because I mean, a lot of my information is out in the world somewhere.   That's the great thing about a book, because you can even sit into one little thing. And so, and so, yeah, I mean, that was pretty much the process, you know, outline, outline, outline. And then after I had a thorough outline and I went over it with bigger pockets, I just, just started writing a thousand words a day. Every day. You had a, before you had a book.   Jesse (16m 55s): No, that makes sense. So in terms of the, you know, one of the biggest things right now that we're seeing in our market is it continues to be a lot of capital chasing fewer and fewer deals. And it just seems that deals are harder and harder to find where, you know, it's usually one or the other. And in times where there's a lot of deals out there, it's usually financing is harder to find. So in this environment, for those, whether they're looking for longer term properties or looking specifically to do house hacking, what's your approach for sourcing deals and you know, what do you tell clients and investors that you coach?   Craig (17m 28s): And so we get almost all of our deals on MLS and how second is kind of a different beast, right? And the reason for that is you don't need to get a property, super undervalued, add value to it and refinance it, right? The magic is just like slowly collecting rental properties with a low percent down. So you can buy a $600,000 property here in Denver and you're putting 5% down. That's 30 grand, right? And so you've gotten this, you have this property for 30 grand. You have to make the deal work by creatively trying to figure out ways, right? So we've got a lot of people that like to Airbnb, a lot of people that do rent by the room, we've we teach people how to do these split things that, that I like to do.   And those almost always cashflow, right? It may not be a thousand dollars a month at first, but over time, rents are going to increase. You're going to be paying more of your mortgage payment down. Maybe you can refinance to a lower rate. You can take off your PMI and you figure out ways to increase your cashflow over the course of five, seven years. And you know, that that's, the play is the long-term buy and hold. So that's why the MLS works is because again, we don't, we're not trying to like add a whole bunch of value and refinance it, deployed money back out. We're just okay with letting the $30,000 in and keeping it in there.   Jesse (18m 38s): Yeah. And it kind of sounds similar to what we do on the commercial real estate side. We always find that the owner occupier is the one that can pay the highest price for the, for the property because of the, the economies that they have, or the fact that because they're operating out of there. So I guess in a similar way, the person that is house hacking, maybe, you know, not that you're going to pay more than you should, but you probably can be more competitive than somebody that's purely going in there to rent it out.   Craig (19m 2s): Yep, exactly. Right. You can, you can. Yeah, exactly. You can pay more because again, like you're going to be thinking about your competition because the, the, the market's competitive. Right. And if your competition is a lot of it is like home buyers, it's probably more so than house hackers. And so as a house hacker, you can pay more because you're already offsetting your mortgage payment with rents. And so sure, like, what's the difference of like a $50,000 difference is like $250 on your mortgage. Right. It's significant, but it shouldn't be life-changing.   And that $250, you're going to make that back in a month with appreciation. Right. So like, it doesn't even like the price almost doesn't even matter, but make sure you run the numbers and it makes sense, but like with how exactly, I've just never heard anybody lose. Like, and I know a lot of house hackers.   Jesse (19m 50s): Yeah. No, it makes sense. I mean, especially that you're in the property, are there properties that you basically try to avoid or properties that, you know, comparing two properties, say one, like you said, that needs, needs renovations or needs capital improvements. Do you try to avoid those? And, and also just kind of on the same, on the same wavelength when it comes to properties that, you know, you can put a walkout in that doesn't currently have one that would be perfect and create a house hacking property. Is that something you also would look at when you're, when you're looking at properties?   Craig (20m 23s): Yeah. So we like to look at, so creating a walkout can be very hard if the house, like, you know, if the basement isn't already at like our level. So we try to find a house where the stairs to go, like stairs to go from the main level to downstairs is right by maybe a back door or garage door. So you can just kind of wall off where, you know, the backdoor meets the upstairs. And then the, so then just, so when you walk in the back door, it's just, you go down the steps.   And so that those lamps are the ones that we really like, and there's a ton of them in Denver. So that's what tends to really work. I think you had another question, but I forgot what you asked   Jesse (21m 4s): In terms of the, just other capital improvements. Are there, are there certain properties that you, you try to avoid when it comes to, you know, when it comes to spending a certain amount of money to get it to where you need it to be? Okay.   Craig (21m 16s): Yeah. So again, I like the layout to be, like I said, right where the, the less amount of work I have to do the better. So if I have to like dig a separate entrance, like that's a lot of work, expensive egress windows can be very expensive and they've gone up in price in my market when I was putting them in like a couple of years ago, it was 3,500. Now it's close to $5,000 for a regressed window. And so if, if egos windows are already in there, that is really helpful. If there's some sort of plumbing fucked up to the downstairs, we can hook up a kitchen fairly easily.   That's really nice. And so, yeah, those are all the things that I kind of look for. There's nothing that I, I like nothing in particular that I wouldn't do, but if it's like, not even like it, but I wouldn't like force a house to make it a house hack. If the layout doesn't work and all that, like, there's, there's plenty of houses where the way it does work.   Jesse (22m 5s): Yeah. Fair enough. So just shifting gears in terms of where we're at in the market right now, I know that, you know, as you mentioned, you, you write a bunch of blogs. I've seen different posts that you've had. I'm curious to get your thoughts on the current market environment that we're in. Obviously, you know, there's been lockdowns for a few years, almost two years now, if not, yeah. Over we're coming into it right now to two years in terms of how that's affected, if it has at all, the way that you're viewing the real estate market. And is it informing decisions that you're making today?   Craig (22m 37s): Yeah, that's a good question. So, so COVID was probably the best thing that ever happened to me from a, it from a financial standpoint, which maybe I'm, I think I'm one of the few, because when everything's shut down in April and may of 2020 is right. When I basically started my real estate agent business and no one was doing showings. Right. And it was super competitive before that, but no one was doing showings and Denver never really shut it down. Like they never made it. So you couldn't schedule it. Like there were some markets where you couldn't schedule it Denver, you can still schedule it.   And I was talking to like my buyers and I was like, well, no one else is looking right now showing percentages, showing times like showing rate is down 88%. So I swear we're probably the only ones even looking and the seller wants to sell and you want to buy, so if you're cool with it, like I'm cool with it. Let's just go and it will be, you know, six feet apart wear the mask, whatever, like, you know, and, and so we did that and we were for like a few months there, every offer that we were putting out there was getting accepted and it was at asking price. And it was like, it was even below asking price, which was like beautiful for them, for the buyers.   Obviously that was only a short window. And then as things started to heat up again towards the end of last summer, and then all through winter 20, 20, 20, 21, and throughout 2021, things got started really heating up and getting really, really competitive. And that's where house hacking comes into play. Right. Because it's like, Hey, not only were the price is going up, but rents were also going up as well. But we were saying like, okay, let's just analyze the deal, right? Like it's listed for 500,000, can you pay five 50 for it? Like, this is what your mortgage payment would be.   This is what you'll get in rent. You're still going to be making over a thousand dollars a month, like who cares what the listing price is and how much over we have to go. Then the only downside was the appraisal gap coverage, right. Where, you know, for the listeners that may not know is if the appraisal is, comes in lower than the purchase price, someone's got to make up that difference in cash buyer or seller or combination of the two. We kind of had a, a way around that as well. And so should I get into that or please do so, so one thing that we did a lot of was we would set the inspection.   So we would set the inspection for maybe seven to 10 days out. So let's say, you know, you're under contract on November. First inspection would be November 10th. We would then immediately call the lender and get a rush appraisal to be done like that same, the same week. So we're reporting this on a Monday, the appraisal would be backed by Friday before the inspection deadline. If the appraisal comes back super low, we can still back out because of the inspection. So we were able to fully waive the appraisal while still having to be able to back out on the inspection. And that was a strategy that I think a lot of, well, maybe we were the only ones to do it, but I'm sure we're not the only ones to do that strategy, but that worked really well for us in terms of getting deals in our contracts, getting deals done and making sure both parties were very happy.   Jesse (25m 33s): No, fair enough. And in terms of the short-term rental space. So I think you've, you've written blogs on this in terms of that area of the business, you know, how has, how do you see that market given everything that's transpired over the past year and a half, two years? And do you think, do you think it's a S it's a space that is going to be coming back? If it has an already   Craig (25m 55s): It's already come back and it's tough. It's like, it's doubled since, but it was, so I had a whole bunch of short term rentals. I was one of the scared ones that shut, shut everything down and turn into long-term rentals during COVID. And I think a lot of people did that. So the supply and demand just wasn't there. So then as more and more Airbnbs came on and we started air, like our clients started being, they were just crushing. It they're like, dude, I like you told me I was going to make like 3000 a month. I'm making 5,000 a month, like, like the are conservative numbers. Like they were blowing our numbers out of the water, which was great.   Like, I would much rather have people be happier in that regard. But, you know, as, as, as, as far as where it's going to go, like, I don't have a crystal ball. I don't know. That's why I always say like, Airbnb can be your plan a right. And that could be the way you make your most money, but like, make sure you have a plan B that also cashflows, even if it's only a hundred bucks over the mortgage, just so you can hold it, hold it through this recession or whatever, because, you know, when, when, whenever this recession hits that we're going to have at some point, right? Like the first thing that's going to go is recreational travel business travel is probably going to be a lot less, especially with zoom and all of these things that have come to fruition through COVID and there's going to be a lot less reasons for people to travel and want to travel.   And so if the Airbnb, I mean, at the end of the day, Airbnb hasn't even gone. Hasn't even made it through a recession yet the company Airbnb. Right. So we don't even know how they would handle it. So just to have that, have that like backup plan, I think it's super important.   Jesse (27m 24s): Yeah. In terms of the actual financing of deals, obviously you're doing a particular strategy and niche when it comes to the house hacking, but generally speaking, do you have a, a certain methodology or philosophy about how you handle the debt side of your business?   Craig (27m 41s): So I, I personally am trying to get as many, as many Fannie Freddie loans as I possibly can, because we all know that's the cheapest and that's the best kind of debt you can have. I think you're allowed to have up to 10 Fannie Freddie type loans. Once you've maxed out at your 10, you know, then you have to start thinking about other creative ways. And so right now, I think I'm at like seven or eight, I'm going to probably be at 10 by early next year, but I'm fine with that.   Like, I kind of just want to exhaust my 10 because now I'm going into like more commercial real estate investing, triple net, lease side stuff and all that. And that's where I see the future of my real estate investing going. But yeah,   Jesse (28m 24s): No, that makes sense. I want to kind of shift a little bit to something we talked about at the beginning. So your W2 job, or, you know, your, your normal kind of day to day job. You're not dissimilar to a lot of people that we have on the show that make the jump into full-time investment for people that are looking to get into real estate or people that are into real estate. And they're coming up to what, you know, you had an inflection point, you know, what do you, what, what would you say to those individuals in terms of actually kind of leaving the, the day job and you know, what seems like a pretty, and it is a scary, scary move, you know, what, what are your thoughts on that?   Craig (28m 59s): I mean, it's uncomfortable doing so, right. But think about it this way is that your worst case scenario is the scenario you're in right now, right? Your worst case scenario is as you quit, you maybe lose $5,000 on an experiment of trying to, you know, do something for yourself. And then you have to go back and get another job. Right? Like that that's really a hardest. And so if you can kind of just like, look at it as an experiment and look at it, like nothing is permanent, just because you say you quit, it doesn't mean you have to quit forever.   Right. And also, I like the idea that, yeah, you've got enough rental property, passive income to support at least your basic living expenses so that you have enough runway. So that it's, it's not, you know, it's not an issue, you know? Yeah. So   Jesse (29m 44s): For you, it wasn't, it wasn't like a burn, the boats thing where you just absolutely, you know, drop it and say, I'm going to start buying real estate. It was buy real estate, figure out what that number is to make it, make it at least somewhat more comfortable to make, to do that transition. Do I have that right?   Craig (29m 59s): Yeah. Yep. Is that right? Right. I mean, I think for me, I had like $3,000 of passive income and I was like, I'm a single dude. Like I can live off of that as long as I say frugal. And then once you become your entrepreneurial self, you can make a million times more than you ever could have W2. And that will just funnel you're, you know, getting more financially independent or, you know, more fat financially independent, or however you want to call it.   Jesse (30m 22s): No. Fair enough. So in terms of the, you know, you mentioned you, you did get licensed, so as a licensed realtor, you kind of moved into that space, the fit team. Is that, is that on the investing side or is that the, is that on the broker agenda things?   Craig (30m 36s): Yeah, so I ended up being like so busy last year that I either had to quit or start a team. So we started a team. We, we got a team about 1520 agents now that are all house hackers, all investors, at least on the investment side. And so we help coach guide, mentor people through that process of house hacking. We've got pretty much everything you need in terms of, you know, relationships with vendors, leases, calculators, like we'll walk you through the entire process if you need us to just because that process is so scary to like the first person putting their, like 30 of the $40,000, they've saved up for their whole life into one house.   It makes you feel better when you've got a whole team of people with, you know, hundreds of deals under their belt, kind of guiding you through that.   Jesse (31m 23s): Yeah, for sure. And I mean, in terms of the team itself, the, the team that you built out and the coaching that you have, was that something that happened, it seems like you, you had the demand. So you built out the team for those that are building their own team w with real estate, whether it's sourcing real estate, trying to get property managers, what are your recommendations? Kind of some of the stuff that you've found that were helpful to you when you were starting out and you're buying these first few properties,   Craig (31m 52s): I I'd say like, just document your systems as best as you can. Loom is something that I use a lot. So I'm sure people know about it by now, it's a screen recording thing. It's a plug-in on Chrome and anything you do that is repetitive, you should be looming it. Right. And you save it somewhere so that someone else can do it. Right. So, so these days I'm doing very few. I really don't do any showings. I really don't do any contract writing. I've got the team that does that and they can ramp up so easily without asking me hardly any questions, because I literally have videos and videos and templates and samples of all of that.   Right. So we can onboard a new agent pretty quickly and they're up and running very quickly. And the questions they asked me are like high level questions that they should be asking me. And so I can stay kind of in my 20%, which is know content creation coming on, podcasts like this, right. Doing stuff like that to just to just grow the, grow the brand.   Jesse (32m 46s): Yeah. That's great. I love the loom. And it's funny now, like two years or a year and a half after everything, that's, that's really been going on in the world. It's nice that we have zoom, loom, Skype, where you can actually, you know, when you're hiring something, somebody just the other day, my partner and I were like, okay, we can give instructions to this person. Or we could just record the call, the onboarding call. And then, you know, they, he, or she has a reference.   Craig (33m 7s): Yeah. It's, it's so amazing. Like, and I think it's way easier. Like the old fashioned, like paper trail documents, like your type every step-by-step. We have a little bit of that, but the loons are just so much easier and so much better too. Like it's a picture is worth a thousand words. Right. So video's worth like a million.   Jesse (33m 24s): Yeah, no, a hundred percent. A 100%. And then you ha it's, it's more dynamic, right? Yeah. You can have somebody in real time asking you questions and then solve it, solve it right there. Awesome. Well, we have, we've got four questions that we ask every guest that comes on the show and want to be mindful of the time here. But before we get to that, in terms of the coaching that you have for people to reach out we're where can they find find you? And, you know, what's the best route for them to, to take on.   Craig (33m 51s): Yeah. So, you know, we've got our podcast, the fight team podcast is actually being rebranded here shortly. So we're going to come up with a new name, so be on the lookout for that. And then, you know, if you're, if you're in the Denver area or you need a real estate investor from the real estate, Adrian, the fight team.com is where you can find us. And I'm also on Instagram. If you want to just kind of check out my stuff at the fire guy.   Jesse (34m 12s): Absolutely. We'll put a link to everything in the show notes, but yeah, let's go to the final four here. If you're, if you're ready to go, I'll send them your way. Let's do it. Okay. What's something, you know, now in your career, it can be real estate or business that you wish you knew when you first started out.   Craig (34m 30s): I wish I knew the who, not how concept have you heard of, you know, that mother basically. Yeah. That whole thing of why stay in, what do you do best in stay in your zone of what you do best at anything. You don't do good. Hire someone to do it for you. Cause they're not only going to do it better, quicker and probably cheaper, but it's going to also grow your business much faster and you're going to be happier.   Jesse (34m 56s): Yeah. I can't, I can't recommend that book enough when we were at the BP con BiggerPockets conference in new Orleans, I was think Dan Sullivan is the author awesome book. It's it really is. It really changes the way you look at things because for so long, we're taught, you know, if you, if you get somebody to collaborate with you, if you give somebody a task that you're, you know, you're cheating in school. Right. But really the idea of find, find out who's the best person to do that. And it should be, should it be taking up your bandwidth or not? Yep. Love that.   Awesome. All right. Number two here. What is a, a book that you seem to constantly be recommending and we'll put the who not, how on put that aside for a second or podcast that you, that you keep recommending?   Craig (35m 40s): I guess the miracle morning doesn't count either. Cause he already mentioned that one, definitely the miracle morning and who knows how or applied my tattoo a podcast, obviously there's a bigger pockets podcast. That one is kind of a no brainer. Can I just depends on where you are in your journey. But I think like for, for fundamental business books, miracle morning changed my life. Who knows how it changed my life. And also the E-Myth is, is really, really good if you're thinking about growing a business and long people wanting to step away someday.   Jesse (36m 9s): That's great. We'll put links up to those as well. In terms of people that are getting into the industry, people that are, whether it's through brokerage or looking from the investor's lens, what would you tell them in today's market? And just generally your thoughts on mentorship?   Craig (36m 27s): My thoughts. So, so in terms of the market today, I think like you have to just like keep buying no matter what the market's doing, because timing the market is like been known to be fail failure right now, known to fail. So just dollar cost, average it by one a year with the course of 10 years and you'll buy it the highest you'll buy it. The lowest in terms of mentorship and stuff. I think you really, I hate that term mentor. I hate when someone asks me to be their mentor, I kinda just wanna be your friend, right? Like I'll be friends with almost anybody, as long as you're, we've got the same values, the same morals, and we're kind of on the same page.   So just like go to meetups and just start talking to people, right. And then follow up with them and grab a coffee with them and grab dinner with them and go on a hike with them. And before you know it you're, you've got a friend and maybe they're more experienced than you. Then they become your mentor. Right. They're going to naturally just give you advice. They're going to want to help you. And so that's like my favorite way to mentorship is just becoming friends with people that are both above you. So you can be the mentee and below you. So you can be the mentor.   Jesse (37m 25s): That makes sense. All right. The last one, Craig, first car make and model.   Craig (37m 30s): Oh man. He tried to get to my bank accounts. It's a 2002 Dodge. Intrepid was my first car   Jesse (37m 38s): Right on. And I said, that's not the one you put on Turo.   Craig (37m 41s): No, no. The one I put on Turo was a Toyota Prius, which got smashed up. But yeah, that's a fun, fun story. Maybe we'll dive into it real quick. I think I lost you on the yeah.   Jesse (37m 57s): Okay. Yeah, no, you can get into it. Cause I know you put a, you put a blog out as well about, about just different income streams I think. And Turo was a Toro was definitely one of them I believe.   Craig (38m 8s): Yeah. So yeah, back in the day, Touro was a street, was an income stream that I had to kind of while I was at bigger pockets and I could fight to work. And so basically I, I was proud of myself. I read, never split the difference by Chris Boston negotiating book. And I was able to negotiate the price of that car from 12,500 down to 10,000. So I bought the car for 10,000. I Ubered it for awhile. I toll road for awhile. The car probably made me about $10,000 over the course of two years. And then someone crashed on Turo. The Touro com whatever the company has, some insurance policy where they actually paid me out like 11,500 for it.   I ended up like getting more than I ever paid for it initially after, you know, however many miles later. And then I bought a crappy car for like 50, for like five grand and kept the six grand and invested in real estate. So   Jesse (38m 57s): There you go. Always, always on the move. Awesome. All right. Well, we'll put links up to, to everything that we talked about here. And just for those that, you know, I know you have a presence on Instagram as well. Could you just let us know the handle for that as well?   Craig (39m 11s): Yup. It's a, the fire guy. So like the financial independence guy.   Jesse (39m 17s): Awesome. My guest today has been Craig Kurloff Craig. Thanks for being part of working capital.   Craig (39m 21s): Thanks for having me on Jesse. Appreciate you.   Jesse (39m 31s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.  

    Retire Early with Real Estate with Coach Carson | EP78

    Play Episode Listen Later Nov 10, 2021 50:14

    Chad Carson is an Entrepreneur, Writer, and Teacher, who Co Owns over 100 Units of Rental Property and Private Lending In and Around the College Town of Clemson, South Carolina. He wrote an Amazon Bestselling book “Retire Early With Real Estate”, and his story has been featured on Forbes, Yahoo Finance and more. Chad, His Wife, and Two Kids Recently Returned from 17 months Living Abroad in Cuenca, Ecuador. Each Week Chad Shares Tips, Strategies and Stories on His Popular Blog Podcast on Youtube Chanel CoachCarson.com In this episode we talked about:  • Chad's Bio & Background  • Flipping Houses  • Ups and Downs of Students Rental Space  • De-Risking Real Estate Deals  • Valuation Metrics of Single-Family Rentals VS Student Rentals  • Raising Capital in College Towns  • Chad's Plan for Tomorrow  • House Hacking  • The process of Writing the“Retire Early With Real Estate” Book  • Chad's Thoughts and Views on Interest Rates and Inflation  • Unlevered Yield  • Coaching and Blogging on Youtube Channel  • Mentorship, Resources and Lessons Learned   Useful links: https://www.coachcarson.com https://www.instagram.com/coachcarson1/ Transcriptions: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right, ladies and gentlemen, my name is Jesper gala and you're listening to working capital the real estate podcast. My guest today is Chad Carson, AKA coach Carson.   Chad Carson is the author of the bigger pockets book retire early with real estate. And he is an entrepreneur writer and teach and teacher who cones over a hundred units of rental property in Clemson, South Carolina, Chad used real estate investing to reach financial independence before the age of 37. When he, his wife and two kids decided to spend 17 months living in Ecuador in south America each week. Chad shares tips, strategies and stories on his popular blog podcast and YouTube channel coach Carson, coach Carson. How's it going?   It's great,   Chad (1m 2s): Jesse. Good to see you. Good to see you again. And we were on a panel not too long ago, so nice to connect.   Jesse (1m 7s): Yeah, absolutely. Yes. We were in new Orleans on the a at BP con, which was a lot of fun. I've talked about it on the show. It was nice to get out there since the last one in Nashville, which I guess was two years before that. Right?   Chad (1m 20s): Exactly. Yeah. It's like the rockstars of real estate. You get to hang out with people and talk about the market. Talk about all deal making. It's a lot of fun.   Jesse (1m 30s): Yeah, absolutely. And you know what I did forget to mention you are also a, a alumni of Clemson football. So go tigers.   Chad (1m 38s): Yeah, exactly. We're not doing so hot this year, but for the, any of the college football fans, Clemson's usually up there, but this year we're a little, a little soft.   Jesse (1m 46s): And if I remember correctly, you're you played linebacker back in the day there   Chad (1m 50s): I did. Yeah, that was my that's how I paid for my school. So luckily I didn't have it as far as I know, no permanent damage, you know, concussions, things like that, but yeah, it was middle linebacker. I was about 40 pounds bigger and had a, had a lot of fun doing that at the, at that time   Jesse (2m 5s): Weight loss period that that happens after the, the college football day.   Chad (2m 9s): It either it either goes one or two directions. I lost, I lost my four day in that like all the little small guys now on the team are like enormous. So they found all the weight that I lost.   Jesse (2m 18s): Sorry, the secondary maybe gained some weight and then you get the lineman that, that cut it   Chad (2m 23s): Down. Yeah, exactly. Right   Jesse (2m 25s): On. Well, thanks again for coming on. I thought it would be great to have you on the show since that panel, that we were on a lot of the questions that we got seem to be still topical today, before we kind of dive into, you know, what's currently going on with real estate and what you're doing for listeners, maybe you can give a little bit of a background about how you got into real estate and what you've been up to since, since that's first started.   Chad (2m 49s): Sure. Yeah. So when I graduated from college, so at Clemson university, I thought I was going to go to play football and NFL, and that was a dream that quickly got shattered. And then I also was a biology major college. So I was considering going into medical school, kind of that direction. Also had some job offers in the financial world, you know, working like on wall street, that kind of thing. But I was really always really interested in the lifestyle of a real estate entrepreneur and particularly a small real estate entrepreneur who sort of controls your own destiny and works out of the house and keeps overhead small.   And so a business partner and I started flipping houses pretty soon after I graduated from college and we scraped by and figured out ways to come up with capital to buy primarily single family houses, fix them up, flip them. And then over time that worked out pretty well and we were able to make a living. And we, I think that was 2003 when we started by 2006 and seven, we also started buying some rental properties as well. And in particular, we got into the niche of college student rental properties eventually in Clemson, South Carolina.   So we're in a college town. So that just seemed to be the best fit for finding a good balance of cashflow and growth and good longterm stability and wealth building was with those kind of small multiunit properties, duplexes, fourplexes with a 12 Plex. We have some kind of aggregated land that we have with multiple apartment units on it as well. But that's where we are now. Today is a, we have 110 units. Most of those I'd say 60% are those college student rentals, but also have a mix of single family houses, mobile homes, things like that.   Jesse (4m 23s): Yeah, that makes sense. And in terms of the, the first ones that you got into, not, I guess dissimilar from a lot of people that get into our, our space coming at the kind of value add flipping, was that something that at that time you thought might be the direction that you'd go to, to do flipping or, or was it, you know, it's a little too hands-on and maybe passive or somewhat passive is the better, better.   Chad (4m 46s): Yeah, I mean, I looked at it as is, it's a great way to add value and that, particularly for me, I didn't have any capital upfront. So I just, I don't know where I heard it, but I just learned that if you can find a good deal and in any market, then the capital is out there. There's there's and I think that's more true today than, than ever that we are flooded with capital. I mean, there's people who are looking for deals, there's money, that's looking for deals, but if you're that small entrepreneur or big entrepreneur who can go out and find a lot of real opportunities that have either equity that you can add value to today, or you can find good longterm cashflow in long and growing, growing markets or markets are good opportunities.   I just found that skillset that I learned early on was so valuable for all sorts of things and it put food on the table to start off. But over time I found that acquiring equity that I could work one time, do all the work upfront and then have that paid dividends for a really long time. That was just very enticing to have that because it fit into the lifestyle goals that I had, not just, I love working, I love projects, but real estate to me, the power of it is how it starts in the beginning as a startup. You had put a lot of work in, but it becomes a relatively passive investment that gives you a lot of lifestyle freedom and the end.   Jesse (6m 0s): And at that time, I mean, getting into student rentals, was that the approach initially, or was it just that that's where you were finding   Chad (6m 8s): It was not my approach originally. It was mainly to single family houses and typical suburban kind of subdivisions is where we found a lot of our early deals. And I still like those single family house deals for what they are as well. But I actually did a house hack where I lived in one unit and rented out the other, my first introduction to college student rentals. And it was just where I wanted to live. It was near the college town. It was near just the place I wanted to be. And I found that I just, I think I started from that getting to know the, the tenants themselves.   So I live next door to a wonderful Chinese couple who are getting their PhD in some kind of health, health initiative, or I'm sorry, healthcare or biotech, I think it was. And then another, you know, had like an international flavor, had China and the other guy and his wife from South Africa and another one from another, you know, another country. And I just thought it really interesting, the people I was meeting and I thought they were really good tenants. And so it just that sort of just landing into my lap, having to find somewhere to live in a house act is a great way to pay for your living expenses.   But after that, I said, there's gotta be more opportunities to buy more properties like this. And so we started picking up after you every year from there.   Jesse (7m 21s): And in terms of the, the student rental angle, like I think we, we chatted a little bit in new Orleans that, that very similar, how I got started in real estate was, was in the student rental space. And, you know, you hear everything when you're investing in student rentals from, you know, it's, it's a complete nightmare. You're dealing with tenants, but maybe you can talk to listeners a bit about how that's a, it's pretty misleading. And, and if anything, it's, it's really, from a risk standpoint, I look at it at completely the other way around what most people will tell you.   Chad (7m 50s): Yeah. It's like real estate in general. Some people run away from it because they heard that there's going to be tenants and toilets and people having leaks. And that's going to be such a big deal. Well, the same with student rentals, they hear that people have, you know, big parties and through kegs through windows, which I'm sure happens somewhere. Right. And in fact, I've probably been at some of those parties when I was in college, but, but it's not, it's not the, the, you know, it doesn't have to be that way. So a lot of there are a lot of good students, students who are renting their place and to take responsibility and you also have the, the parents are often helping pay, pay their way.   That's just the reality of it. And so if you do that, you can, I, I have very little credit risk with my student rentals. We have almost always had payments on time. I can think of two situations. And now 18 years of investing a little bit less than that with student rentals, where I've had a credit issue on a student rental and the rest of the time, the rent's paid things. Thanks for taking care of. They have a security deposit. There are some damage issues here and there just like you would with any tenant. But I saw, I think the positive of student rentals as they be find the right university, the right town, the right place with the right dynamics, you're going to consistently get your rent.   That's great. And the negative, I would say the drawback of it is it's a more higher high turnover type business. So you do have that maintenance, you know, maintenance turnover, and your, I found my maintenance cost to be higher than maybe some people would anticipate early on just because you're having to paint. You're having to clean up. You're having to do these things pretty often. And, but the flip side of that again, is that we are leasing period starts for student rentals. And now December before they, before August of the next year.   Yeah. So here we are, actually, we're our property manager just talked to another day. They're starting right now, here we are beginning of November. So it gets earlier and earlier where know, at least in our market, students are trying to lock down their rentals pretty early. And so that's what we found is we can, pre-lease all of our, our rentals, very rarely do we have something that's vacant. Hmm. Okay. So we do have a vacancy period about 10 to 14 days when we're fixing up the property and doing the turnover. But that's like, there is no sitting there for, for one or two months waiting on finding a tenant there's pre-leasing, you know, turnover period.   And then it's leased for 12 months. Yeah.   Jesse (10m 8s): And I find in most markets, I'm not sure if, if for yourself, is that nine times out of 10, the occupancy is really only three quarters of the year. Some of them do, at least my experience has been, some of them do stay in the summer, but we typically see 12 month, 12 month leases paying rent for 12 months, but really occupancy either.   Chad (10m 27s): That's exactly right. Yeah. And it's a pretty strong landlord market for us in our markets, even, you know, so we've been able to always negotiate that we don't do nine months leases or have to do subleases, but they, most of the people are gone or the summer, or maybe come for a few weekends here and there, but that's, that's the case for us as well. I'm curious,   Jesse (10m 45s): Do you, de-risk further with having the least document several or in other words, if one person doesn't pay rent that the others have to come up with that rent, is that how you structure your,   Chad (10m 58s): We do structure ours that way. Yeah. There's, there's other big operations in town who have like least by the bedroom type arrangements. We've always chosen not to do that. And we had explained that early on with a couple of students who, Hey, my roommate is not paying the rent. That's not my deal. I said, well, actually it is your deal. That's your, you look at, look at this like a partnership, you know, this is a marriage without the, all the good stuff. Right. You know, you're, you're married to your, to your, your partners here. And so they would all have to pay the rent and figure it out among themselves.   And, and so, yes, it was very rarely happened, but that has been, that's come up. And so we, we do have that discussion with the lease with our private property managers to have that discussion. Now let them know that.   Jesse (11m 38s): Yeah. And it's great because you have a kind of a, I mean, you have a private, private solution or private market solution, but you also have kind of social norms that factor into that too, where, you know, one person, when they have four other friends living in a place where, you know, parents have the lease and somebody is not paying, you know, the pressure to make sure that you, you know, you're on time and you do things properly. It's probably like,   Chad (12m 1s): Yeah, they work it out. Yeah. There's the, yeah. You don't want to let down your roommates let down other people, so, or, or the handle it privately behind the scenes, you know, they, they work it out. Yeah.   Jesse (12m 10s): And on the other side of the other flip side of the fact that there's more turnover, I know in markets that have more rent control or more, more regulatory red tape, they actually liked those landlords. Like the fact that there's more turnover, because then you can actually reset rents without issue.   Chad (12m 29s): Yeah. That's been a big deal for the last six, seven years for it because the rents have gone up consistently every single year. And so rather than having to face that, how do I raise my rent on a good tenant kind of conversation, which is always tricky, right? You can now push it to market rent every single time. And the other benefit of that big lead time on your leasing period is that you can test out new rent levels without a whole lot of risk. And so if we push it too far and we can't find anybody, like we're getting zero leads at this new rent level, we can pull it back and say, okay, we're a little too aggressive here.   Let's pull it back to this. And I've always found with leasing, I don't do the leasing anymore, but I've, I've done tons of leasing over in the past. And it's a really good skill to have because you can see that you can see the sensitivity to price, to the marketing you're doing to whatever. And if you get the right price, market match, I mean, it's like a faucet. Like you turn on the faucet on the water and the leads start coming through. I've always found. And so I think it's good to have done that myself because when I'm having conversations with my people who are doing our leasing, I don't have a lot of excuses.   I might look, you know, it's either the property is not ready. It's either you're not promoting it well. Or the price is not right. It's one of those three, which one is it? And let's look, let's look at the metrics. Let's look at the numbers. How many leads are you getting? How many showings have you had? How many applications have you had? How many people are not renting is one of those, like we're having a problem. And one of those levels there   Jesse (13m 52s): And how has the last a year or two Chad, how has that impacted number one, your business, or, and as well, your, your outlook on, on the space that you're in and potentially maybe where, where you'd want to be?   Chad (14m 5s): Well, I mean, us personally, I was a little, I was scared during COVID, I'll be, I'll be, be honest about that. And the story, the story for me was where we, we are a big fish and a kind of a small pond or in a small town with a big university. We have a lot of our holdings in one place. And so as, as we've matured with our portfolio, looking to have some geographic diversification was always on our radar. And we've kind of been doing that both with, within real estate and also into equities and other things too. But it hit home with COVID because a lot of the COVID regulations, nobody really knew what was going to happen in March of 2020.   And when the university where we are at Clemson university decided to go all virtual. My first thought my concern was, well, why would anybody come back to school? Like if they're going to be, you know, going virtual, they can do that from their home, wherever they live. And so I'm, I'm thinking, okay, you know, how much cash I need to save? In case we have 12 months of like 30% occupancy or 50% occupancy, I'm started thinking about worst case scenarios. And we start figuring out how much is that going to cost us to do that and how much we have to lower our rents. So that, that didn't pan out.   It turns out most people came back and wanted to have their lease their, their, their apartments. Anyway, even though they were virtual, but it did imprint upon me, the fact that we have some vulnerability that we need just as a personal wealth building strategy, that diversification is really important. And that's, so this, this last year and a half or two COVID has been, that's been the message for us of de-risking our geographic exposure, but also just de-risking period. Like if we do have a situation like that, even if we're not geographically diversified, we we've made it to the place where we have enough, we have enough income, we have enough properties.   So de-leveraging paying off debt, doing some things that are not real sexy or not real recommended for people who are always growing, but actually doing the boring, paying off your debt. You know what happens if you have a great depression or your rents go down, I can deal with that. If you, even, if you had, if you had no debt and you read sweat crater by 50%, that would be painful. You'd have to tighten your belt, but you wouldn't lose your properties because you couldn't pay your debt. It would be a totally different situation.   Jesse (16m 13s): Yeah. And that's another thing we talked about on the panel. It's this idea, where's that balance of, of you don't want your, you know, to a certain extent, you don't want to have no debt because then, you know, your return on equity is not pretty, but at the same time, you don't want your loan to value or, or your debt to be so large that maybe you're cash flowing. But like you said, do you have a correction of 10% of the market, 15, 20, whatever it is. And then all of a sudden you are in negative territory.   Chad (16m 38s): Yeah. And I, I just, I look at people that are a lot smarter than me only look at Warren buffet and people who, who build their business to be resilient. He he's an insurance business. He has to be reinsurers all the big insurers out there. And so he has to be cognizant that he can't predict everything and I've got to save a lot of cash. There is some leverage in his portfolio, you know, he has float and I'm sure it's some kind of long-term debt, some of his holdings. But if you look at the total debt that a company like Berkshire, Hathaway, Hathaway, or other mature companies have, once they've achieved that maturity, they're not aggressively trying to like spring every single bit of return out of their portfolio.   They're more about not losing money, like not, not having habit. They want to survive for the next, for the long run. And I think there's a, there's some wisdom in that. I think we, we real estate investing is so debt heavy that we just assume that that's always the way things are done. And the people I know is just me personally, on the small level, who've really done well over the long run and who personally have a lot of peace of mind. And they're just not really worried about the ups and downs of the market are often the people with the most cash in the bank and the least debt. And so, I don't know, that's my, that's my personal correlation that I see out there.   Yeah.   Jesse (17m 47s): Yeah. I couldn't agree more with that. It just gives you, it gives you that little bit of buffer in terms of, of risk in general. Now, when it comes to, when it comes to student rental properties specifically, we've heard my partners and I actually more demand in the last little while I've had schools in our area, reach out to me and, you know, asking, are your listings still available because we don't, we just don't have the supply or is your market similar? Is, are you seeing that there's a bit of a supply challenge for student rentals?   It's,   Chad (18m 19s): It's been yes. For the most part has been that same scenario. We've, we've had some ups and downs because we're, we're in a pretty small market. So we have 24,000 students who go to Clemson university. There are 17,000 residents or the population of the city of Clumpson. So the university, and then the city, the city of 17,000. And then we have a couple little small towns, somebody we're very, it's a unique situation. We're very, we don't have a lot of other renters other than our students and our faculty. So when every time there's, there's been some supply excesses, when you have 2000 new units come out online at one, one year luxury student apartments.   So sometimes your upper end, your upper rent type stuff, we have a few, you know, more closer to campus, higher rent stuff. Those get affected big time. Whenever the new stuff comes on on the market, it's like throwing a big rock in a pond, you know, and we're in a small pond as everything gets kind of shaken up. So we had some vacancy issues for on a couple of properties, but for the most part that kind of stabilizes and the, the D the overall driver of that is the student population has been increasing at the university consistently, probably two or 3% per year. And the supply doesn't always keep up with that perfectly.   You know, sometimes it goes above it. Sometimes it goes below it, but in general, I think if you're in a college town, that's the, that's the metric you need to pay attention to is student population, and then whatever other population of faculty and those kinds of things go with that. And then if you're in a larger college town than we are, which I think is healthier, actually, if you're in like a a hundred thousand person college town, or a bigger city, you also have other industries that are related to the university high-tech industries, things like that. And I think that's an interesting mix because then you can cater to the two different segments of the market.   Not only be, you know, renting to students, you can kind of have some cross, cross marketing to different populations out there.   Jesse (20m 5s): Yeah. We've seen that in, in most of the areas that we had seen residents, it's been more so like 170,000, 200,000 population wise, and then, you know, 30, 40,000 on the student side. So yeah, it's funny that they, you know, in Clemson, it's pretty much a, you know, you double the double, the population there when school's in exactly, in terms of the way you value on that student, on the student rental front, do you typically do what we do and that it's not a per door metric, it's usually a per bed metric.   And how do you look at valuation when it's, you know, single family versus student Rez?   Chad (20m 42s): Yeah. We look at it per bedroom as well. And there's a little bit of a, you know, kind of a gray area when you get into some of the lower price rentals where, you know, there there's some, a few that we rent to student grad students, or maybe also some regular local, just kind of people who just need a rental, but when you're in the pure student rental, yeah. We look at it, whether it's, you know, it's a four bedroom apartment that that's, you know, that's pretty clear, or sometimes we have two bedrooms and one, we, we, the two bedroom apartment, we're always looking at it like on the per bedroom basis. And we also value it that way.   So we, you know, we'll, we'll work it backwards to try to get almost always to some kind of rental yield number, you know, a cap rate rental yield, or trying to understand what if we paid, no, we had no debt on this property. You know, what is the yield on the, on that? And that's, that's the first level of valuation that we'll do. And I I've always liked it speaking back of debt. Again, you know, you have a cost of capital, you have a cost of debt, both either your debt costs or an equity cost, if you're splitting the deal with other people. But to me, the main metric that you have is that, that rental yield like an unleveraged rental yield, because that's what you're using to distribute to the debt and to your partners and everybody else.   And so I just, I've always kind of used that as my, my true north. Not because that's the only way we're going to make money, but because that's what gets me through the ups and downs, that's what got us through 2000 7, 8, 9, because we were able to pay our bills and have some, have some cushion there. And so that's, we start with that. And that, that metric has not been as attractive the last couple of years, as it was earlier, you know, as interest rates have gone down rental yield, unleveraged, rental yields have gone down as well as the prices have gone up. So people are just willing to buy properties with lower rental yields, but that's also made it more important to find deals, to have more kind of hidden value add or hidden upsides.   So I found that really knowing my market street by street, knowing what the things that are most important to my students are, for example, being close to public transportation, being on the bus line, also walkability. And bikeability, I think that's, that's my biggest personal metric. Like when I live somewhere, I want to be close to bike trails and walking, and, and I, I feel like that is a generational thing where people go to college towns, they often have a walkability and bikeability, that's pretty good. Clemson's not so good. I've been trying to work on that on the side, trying to get that better, but I think they go there and then they go to other towns and like, Hey, I remember my college experience was so walkable and bikeable, they want to go find places as, as once they find their first apartments and houses that also have that.   And so I think that's a really important trend, you know, nationally with, with different, different markets that we're in. But I think that from a college town standpoint, if you can find the numbers are important and leveraged yield, but we're also trying to, if we're going to buy and hold for a long period of time, I want to find the places that are better than others in town, whether that's distance the campus along a bus line, along a bike lane, some kind of, you know, just a character in the market, big trees, nice, nice sidewalks, things like that that are harder to replicate when people build new construction.   But if you can buy that from an existing property that gives, that gives you some extra value.   Jesse (23m 48s): Yeah. I like the, the unleveraged yield approach, but, you know, it's kind of, here's, here's a net yield for a property and, and kind of getting, you know, taking out the debt first as an analysis, it makes a lot of sense in terms of the, the walkability I find interesting too is cause when you go to certain college towns, to your point of knowing the specific market is that some college towns, you know, their tolerance for, you know, a hundred more yards or 200 yards, it might be lower or higher than other universities. I know in our area, some universities, if it's, if it's a five minute more walk, all of a sudden, you know, that they rule that out or a specific property, they're like, no, we're not, we're not going on that side of the street.   Chad (24m 27s): All right. Yeah. You gotta, you gotta go block by block. Right. I mean, you just got to know that's where local market knowledge is so critical. Yeah,   Jesse (24m 33s): Absolutely. So in terms of, as you, as you kind of continued to, to get, you know, get more properties, you're now over a hundred units in terms of where you want to be next, when it comes to whether it's apartment building, student residence, what does that look like for you, Chad?   Chad (24m 50s): Yeah, we're sort of thinking of, you know, I'm not saying contrary contrarian, but my lifestyle has sort of dictated the way I'm going to build my business. And I have a healthy respect for like bigger businesses and people who build big, you know, big syndications, but that's, that's been like the opposite of what my business partner and I are trying to do. We sort of hit a level where we said, here's the fork in the road for us. We're either going to continue growing. And by other units, we could replicate what we've done here and doing it another college town or another city, and raise a lot of capital and do that. Or we could just say, all right, this is, this is as big as we want to get our business.   And we actually frame it as like a small and mighty business, like this, keep this thing deliberately small so that we can then have space to do other things. And for me, other things are teaching other people how to do it. And I have a podcast as well, traveling with my family, doing, you know, consulting here and there for other people doing a YouTube channel. So it's just, it's more of a personal choice. This isn't as much. So the personal choice has dictated that our real estate investing business is not going to get any bigger. And so going back to the de-risking conversation, that's another reason that we, we look at, you know, I looked at the cashflow, our business produces from the gross revenue.   And then after deducting all of our expenses, capital expense reserves, all of that. Here's how much income we needed. Here's how much we have and we're in. We're pretty good there. So the next step for us is do, is let's, let's make sure this foundation, this castle, that we've, we've built, can't be taken down and there's no guarantees in life, but some of the ways that could happen would be debt that's that's the main way I've seen people mess up their real estate careers in the past. So either stabilizing the debt, getting longer term debt, low interest rates, making sure that stabilize and making sure we have enough cash reserves.   And in some cases just paying the debt off, even with, even if that doesn't make sense from a growth standpoint, that's more of the ambition we're having of the next few years, what we might sell a property there that is not an ideal property. And in the past we would do a 10 31 exchange or something into another property. Some cases we're just paying the tax and paying, paying another set of debt off on that property. So that's, that's kind of where we are. That's our ambition. And then also just trying to help other people do the same thing on a kind of that small and mighty scale.   Jesse (27m 4s): I like that small mighty, but I mean, it makes sense too. It's, you know, when you're talking about it might not be as an attractive return, you know, if you're not doing a syndication or you don't have investors, it really is not as big of a deal. You're not, you don't have a fiduciary obligation to them. It sounds like up to now, you've, you've worked with partners or bootstrapped the, the financing side of it is that, is that pretty much how you've done it to date?   Chad (27m 27s): Yeah, we primarily have done private capital, but just very simple private capital. Like we had a, an professor of mine at Clemson when I first met him, one of our first deals, he would loan us the money. And I, he actually didn't realize that at the time I learned that you could do a self-directed retirement account where you, instead of just investing in stocks and bonds and things like that, there's these kind of boutique custodians who allow you to make loans to other people against real estate or buy a limited shares and syndications, for example. And so I showed him that he could do that and he was like, oh, that's interesting.   Well, what do you want me to do with it? And I said, well, how about you loan me money for this flip that I'm doing and I'll pay you 10% interest. And he said, that sounds good. Okay. And he said, you're going to do all the work. I said, yes, I'll do all the work is so it started off that way. And then we sort of branched out and eventually said, well, we don't want to flip it anymore. We just want to hold these properties. And so we can't pay 10% interest and make that work. So we started just paying 6% interest for most of our deals. And then we would extend the terms out, you know, instead of doing, you know, a one-year term, let's do a 15 year term and have it, have it go longer.   So that that's been a large majority of what we've done is private capital. Often through self-directed retirement accounts, we've done a lot of seller financing where a seller, instead of them selling their property and paying taxes on it, we'll offer to buy their property. And it's often landlords who are just trying to get out of the business and then we can get really attractive, low interest rates with them. And so it's been a mixture of that kind of capital with a little bit of commercial debt as well. And then, so, so when we, when it comes time to pay stuff off though, it's, it's just the person who has a bond, a debt, you know, instead of it, these are me and my business partner are the only equity partners.   We don't have any other, other people who are working with us on that side.   Jesse (29m 8s): No, that's great. You've, you've kind of found a, an in between, right. Between the larger syndication or asset specific capital raising and, and just doing it all on your own in terms of the, so the structure that you have now, you've, you've purchased these properties over the years, and you're now doing coaching and teaching. When it comes to retire early with real estate, the book that you worked with with bigger pockets, how did that come about? And in terms of, you know, putting that out there and, and how long ago was that, that, that the book came out?   Chad (29m 39s): Yeah, it coincided with my family. I were in Ecuador. You mentioned that at the very beginning, we decided to take this sabbatical trip and it was sort of just, it was representative for us that, all right, we're, we're, we've hit a plateau, we've got enough income coming in. There's still work to be done, but we're ethic, we're at a good place. And so we traveled and then our daughters were three and five years old and my wife teaches Spanish. I like, we like foreign languages. So they learned Spanish and enrolled in schools locally. And we just enjoyed living. There, just went to Cuenca Ecuador at the same time though, you know, always thinking of what's next. And I had been writing a blog for bigger pockets or writing on their blog and had my own blog going on.   And, and just, I think I was talking to Brandon Turner. It was some conference and he said, oh, you got to write a book, Chad, just pitch this pitch, the book idea at a bigger pockets. And so that was, you know, a year or two before we went on that sabbatical. But I, I decided to write the book while we were at Ecuador so that everybody else would go to bed, you know, eight, eight or nine o'clock. They put the kids to bed and then I'd write for like an hour or two. And for me, it was just, it was putting into a framework what we had done in our business. So from, I used the metaphor saying, you start at the bottom of a mountain, you're looking up at the top of the mountain.   The top of the mountain is this idea of financial independence. When you have enough wealth to pay all of your personal expenses, whether that's rental income in our case, or if you own stocks or something else. And so I tried to give people several different routes up that mountain, that how do you do that? How do you do your first deal and get that first capital when you don't have a lot of capital or have a lot of knowledge often through house hacking often through, you know, maybe move into a house and then, you know, move out of the house and keep it as a rental or, you know, doing some burrow strategy type deals when you don't have a lot of capital.   And then, but then, you know, moving up the mountain, some of the conversations we've had here, like how do you get to a place where you feel more confident that you can actually live off of your income and actually have a, have time, have free time to do things. So I talked about some of those strategies and having backup plans to your backup plans, you don't have side hustles and things that would make them make you some extra revenue. So it was sort of a, it was a blueprint type book, but then it was also, I interviewed, I think it was 700. I did a survey of 700 people who were aspiring for financial independence or had already achieved it.   And then I profiled 25 of them who are at different levels of their real estate journey. And just talk to ask practical questions, like how many properties do you have? How much income do you need to retire? And so it's all these kinds of financial independence, retirement oriented questions. And I told their stories kind of in between the chapters of the blueprint that I've put together in the book.   Jesse (32m 6s): And how long ago was that, that that book   Chad (32m 8s): Came out 2018 was when it was published.   Jesse (32m 10s): So definitely, definitely still topical in terms of the, the process. I'm always curious, you said your you're writing it when you were away. I imagine it was a lot of work. How was the tactical process of writing the book?   Chad (32m 25s): Yeah, I started with a big outline and, you know, as, as a blogger and you're a podcaster, I think we have content that we put out there where, where idea, we're always putting ideas together. So I had a lot of ideas in mind, but it's a pretty grueling in terms of yeah, just researching and get it. You know, I wrote probably 120,000 words for a book that ended up being 65,000 words, you know? So you cut like half of it out and had friends read it and say, yeah, that sucks. You don't want to do that. You know? And it says the brutal process is not, I mean, writing on a computer is one thing, but just the, the reflective process of putting your ideas out into the world and having them, you know, critiqued, thirdly, stomped on and beat up.   You know, I think my linebacker training was probably the best training I could have had for that, just because I had football coaches who would just scream at you and yell at you. And, and so the end, the end result though, you hope is, you know, it could always be better, but that the end result of that is very satisfying when you get it out there. And the good thing about publishing with bigger pockets, who I know you're you're involved with as well, is that they have a platform. They have people who are interested in the book. So the marketing, the marketing side of things is not my strength. And so I like the writing. I like the teaching. I like sharing, but marketing yourself and putting yourself out there as a whole nother strategy than writing the book.   And that was fortunate that that BiggerPockets could help me on that side.   Jesse (33m 49s): I'm always curious when we have individuals that have written books and what their style was, was it actually pen to paper every day? Was it, you know, modifying transcripts of, like you said, content that they already have, and, you know, I guess everybody's a little different in terms of what their strengths are.   Chad (34m 5s): Yeah. I was just, you know, I had the outline, I had, I had content out there, but it was just every day. I think I read this from Stephen King or somebody like that. I just said, you just got to make a goal, even if it's, even if it's not good that day, just like write 700 words or a thousand words or whatever it is, and just get it out on the, on the computer. And I did type it up. I think I used the Google doc and just had that going for a long time. Now I am pen to paper type person too. Like I love doing my mapping and I'll, if I have ideas for the chapter, I'll sorta mind map that out and draw it out, you know, on a, on a non-digital non-connected type a world.   Cause I had to think clearer, they're usually in the morning or late at night, but that's where the best thinking goes on. But then when you, you gotta just had that, that deep work time of, you know, two to three hours at a time of just knock it out, type something, get it on the paper and this chick away at it, you know, a little bit by little bit by little bit.   Jesse (34m 58s): Yeah, absolutely. Well, I thought we changed gears a little here in terms of where we're at in the market right now. We talked again about this when we were on our panel, you have a particularly particular view of, of where you think the market is right now when it comes to very topical inflation and interest rates. I know, you know, nobody's got a crystal ball here, but how are you preparing for the next year or two for the short term, you know, aside from what you've said about de-risking, but your thoughts on that and, and I guess generally your view on where interest rates are at and where you feel inflation may or may not be.   Chad (35m 33s): Yeah. I mean, if I had to vote or bet on something, which I'm not a great bet betting person, but I would, I would bet inflation's going to be continue to be more of the topic for awhile and at least for a couple of years. So I'm, you know, I, there's not a lot of preparation for me on that side of things, because a lot of our portfolio already, we have some debt still. We have assets that we feel are in really good locations that have long-term potential. So I just, I, I feel like we're in an, all of you who are listening to this, if you're one of the reasons you should be investing in real estate, is it, this is one of the best assets for an inflationary period.   And the other message that I think is so important, but if you're in, if you're in the growth phase for what, wherever you are, whether you're just early in your career as an individual investor, or if you're in the syndication world, the best formula I've ever heard of an investing for inflation is that you buy these assets that go up in value over time because they're good, well located. And you buy a property that has an unleveraged deal of let's say six or 7%. And then you borrow money at 3%. And your cost of capital is three. If you have a margin of three to 4% between what you can produce an income and what it costs you to borrow money, and then that property's going to get better and better over time.   I think that is such an incredible basic formula to build wealth because you are lucky, especially if you can lock that interest rate in for a long period of time. Now that you're, it's only getting better over time. And that's, I kind of keep that in mind in terms of just, it's almost like football, you know, this has simple, simple plays that work well on any market. And that's a simple play borrow for a lower cost than what your property produces by in a good location that has some dynamics of supply demand that are in your favor over the long run, and then just be a buy and hold investor and wait, just be patient you don't, if you get the more you can be flexible on when you exit, then you can be more optimal about, you know, knowing that it's going to happen at some point, but we don't know if it's gonna be three years or five years or 20 years, but we're going to be, be patient enough to get there   Jesse (37m 28s): In terms of unleveraged year, a yield. Just, just so listeners are clear when you talk about unleveraged yield, we're talking about the cap rate for the property, or are you factoring in debt with that yield? Yes,   Chad (37m 39s): But like a cap rate. And I guess I use leverage yield instead of cap rate, because I used to always use cap rate online on my YouTube videos and a couple of like nitpicky people are pointing out that well, that's not exactly what a cap rate is. You know, use a cap rate to value a property or what I'm S what I'm saying is, is an internal metric. This is just, let's just look at this and leverage yield. Let's take all of our expenses, our operating expenses, management, maintenance taxes, insurance, let's take capital expense reserves, whatever we need to make sure we've covered all of our outflows of cash what's leftover when that's all said and done, except for excluding your mortgage payment.   That's, that's what I'm saying. I actually like   Jesse (38m 14s): That term better unleveraged yield or operating yields, because it kind of gets away from this. What I've heard the term. I can't remember who's who coined it, but a suitcase words and cap rate is definitely a suitcase word. It means a million different things to different people. If you're the investor, the broker, the buyer, the seller, you know, and you just hit it right there, even with cap reserves, right? How do we, how do we factor those in some people do it differently? So that makes sense. I mean, you're looking at, from an interest rate perspective, from a risk standpoint, if we could do fix, we do fix, if we can make sure that that yield is higher than the interest rate, it's not rocket science.   You know, the question is finding those properties. Yeah.   Chad (38m 54s): Yeah. And that's, that's the, that's a whole nother thing, but it's, it's we started talking about the market, like, how does the market effect that this is a competitive market? So finding those deals is certainly challenging, but I know when I first started investing in 2004, three and four, we're just not that long ago. Right. It was the interest rates were higher, even then I thought interest rates were low, but you knew there were five or 6%. Now they're three or 3%. I mean, that's, that's incredible. So yes, it is more competitive. Yes. The yields have gone down, but with the right properties and the right markets, that's where we, as operators can really set ourselves apart.   We can find those value, add opportunities. We can find those little pockets of opportunity within our market, in my market. For example, Clemson is my, my main little town, but I think some of the better opportunities, and these are these little small towns, right next, next to the Clemson central and Pendleton and Seneca. Nobody's gonna know what those mean if they're not in my market, but if you're, I think that's my challenge to everybody is try to find ways in this market to do the opposite or go the different direction from what other people are doing. How does it, when the competition's digs, how can you zag?   How can you do something different? And that often is with locations, which is finding those little pocket locations. Sometimes it's with different asset classes. Like I do residential multiunit, but you know, maybe mobile homes are the thing in my area, or maybe there's a self storage, or, I mean, I'm not saying that you should just jumped ship on your, your strategy, but being open to different competitive advantages, I think is what we're all having to do right now.   Jesse (40m 24s): Yeah, for sure. Well, we have final four questions that we ask everybody that comes on the show, but before we, before we get there, I'd love to chat a little bit about what you do on the YouTube channel and how you kinda got into that side of, of really just coaching and, you know, hence coach Carson. But yeah. How did that come about?   Chad (40m 45s): Well, it started as a, as a written thing. So I was a blogger and I actually, well before, even before that, I did coaching locally. So I actually don't do a lot of coaching. Now. It's more like coaching through the YouTube videos, through podcasts, through, through a course online course that I teach, but it would really wish it's starting one-on-one with people locally in my market. And they're saying, Hey, how do I find a deal chat? How do I analyze a deal? And so I would just do it, you know, at a local real estate meetup and show them on the back of a napkin or a back of an envelope. Here's how you do it. Here's what I'm doing. And it was just that, that love of teaching, I guess, that kind of made it so that I was like, I just want to share this more publicly.   And I met the bigger packets guys, Josh and Brandon started writing for them, start writing my own blog. And I wrote so many articles that nobody looked at it. It was just like, I'm really glad they did because they were not that good at the time. But I think whether you're YouTube or podcasts blogger, you just got to love the process of teaching and sharing and ideas in general. And so for me, it grew from that to a blog, which was great. I could write it on my own, turned into a book, the podcast game, just because the people who happen to be reading my blog all were asking me, Hey, I like listening to podcasts and I'd rather do that than read it all the time.   So I started doing that and then YouTube has been spend kind of a recent passion. I've had a YouTube channel for awhile, but I think it's a more challenging medium in some respects, because you have the video, you've got the, you have people's attention. Span is a lot shorter on YouTube. Unfortunately with the podcasts, you know, people are washing dishes or exercising or something. So you have their attention a little bit longer YouTube, but man, if you, if you're not doing something good, they're out, you know, there's skipping, let's get outta here. So I'm still a rookie in this respect. But a lot of my style there is kind of a tutorial driven.   I'm trying to use a little whiteboard and show, you know, they look over my shoulder. Here's how I would run the numbers. Here's an, here's what an unleveraged yield needs. Here's how you calculate cashflow or here's a story about a deal I did. This is my first rental property. And here were the numbers in the beginning. Here's how it changed over time. Here's my spreadsheet I use. So it gives me the ability, like a podcast is a good conversation media, but a YouTube is more of an instructional tutorial based. And I've really enjoyed that, that aspect of it as well.   Jesse (42m 53s): Yeah. And I find the thing with YouTube as well. It's the more challenging thing, at least for me, it's the consistency of putting episodes out. Like when you're you got a podcast, you know, you have a, you have a call with somebody today. You got to be there that other person's going to be there when it comes to YouTube to kind of self-start cause you can outsource a lot of things. It's very difficult to outsource your face in front of a camera.   Chad (43m 13s): Yeah. We haven't figured that one out yet, but that's also what makes it special. Like I think YouTube is so cool and that it's basically taking down the big media networks. Like it's, it, it is more popular. There's more views. And who are the people who are creating? Yes, there's some big names out there, but it's just like the Chad Carson who's check cars. They want to know what it is he have to do with anything. Nobody gave him permission to give content. And the only reason, the reason that we are doing that out there is that people are voting with their views. And that, that is, that's a cool concept. That to me is like, it's the, it's the epitome of the internet, but it's also on a large scale with YouTube that people are choosing to sit down in front of their TV or the computer or their phone and watch these no name creators who are producing good content and then they vote for it.   And then YouTube has an algorithm that shares that with other people because people are voting with their, with their watch time. And that's, that's pretty, that's pretty amazing.   Jesse (44m 4s): Yeah, absolutely. No, for sure. It's a, it's definitely a great medium, especially for on the instruction front. All right, Chad, we got four questions. We ask everybody that comes on the show. So if you're ready for those, I'll, I'll send them your way. All right. Let's do it. All right. What's something that, you know, now in your career could be business real estate that you wish you knew when you first started out.   Chad (44m 25s): Yeah. The numbers are not everything. When you analyze a rental property or any kind of property, I was so enamored with the numbers early on and you know, I'm a spreadsheet nerd. I'm sure a lot of real estate investors are that I would just get enamored with. Oh, look at this cap rate, look at this internal rate of return. Look at this cashflow potential. And I ignored the other half of that coin, which is the kind of qualitative metrics of that property of location, of desirability, of long-term potential, you know, opportunity to add value to the property.   And so I, I missed, I missed on some opportunities, but I also put too much weight into some properties that had, they were they had a good cashflow for a reason. They were in a bad location and the next door neighbor was dealing drugs. You know? So it's like, I, I learned the hard way early in my career about that, but I said, there's a more balanced approach now to saying, yes, I got to have metrics that make sense, but I also need to have those metrics are driven by real world human beings who choose to live in a place for a certain reason, let's start with a human being. And then let's just use the metrics that sort of control my emotional irrational impulses.   That's the, the, the, the metrics are just to kind of keep me in check.   Jesse (45m 35s): Yeah. That's a great answer. Couldn't agree more with that. All right. In terms of somebody that's getting into our industry, what would, what advice would you give them and just generally your view on, on mentorship.   Chad (45m 46s): I think you need to love the process. And I don't mean like, you know, this is real estate investing has been your passion for all your life, but I do mean that if, if you, if you're doing it, just because it seems lucrative or seems like it's a place to make a lot of money, like that's fine. Like making money is great. We all should make money, but you gotta have something that really draws you to this business. And for me, it was like running the numbers. It's really interesting to me that I sort of tapped into something that was, that I just enjoy doing. I enjoy the communication and the human side of things.   The negotiations are really fun for me. I almost feel like it's a puzzle piece that you get to put together. So, you know, I, I, I had a, I almost have a bad habit of just doing deals because I just loved the, the deal, you know, let's put the deal together, you know? And so that's, I think going back to a new person, who's getting into the business, find a piece of the business that you love, whether that's the remodeling side of things, the am analysis side of things, the negotiation side, or multiple, and to stick with that, like get really good at that. Find that kind of intersection of what you're passionate about, what you're good at and what a need in the marketplace is.   And if you just stick with that, it's focused on that. The rest I think will take care of itself. That's great.   Jesse (46m 56s): All right. Number three, aside from your book retire early with real estate, or what book recommendations are you constantly giving out again and again that you could share with listeners?   Chad (47m 7s): Yeah. This is a oldie classic book, seven habits of highly effective people. I just, I was fortunate enough to read that right after I was getting out of college. And it's one of those books that, you know, the first three habits are just personal habits, like being proactive, putting first things first, you're just learned about personal effectiveness and planning. The second three habits are all about interpersonal communications. So how to, you know, think win-win make sure that the person's winning and you're winning listen first, don't seek always like, get your first word in.   So there's just some core, like really good principles that I I've re-read that book like 10 times every time I reread it, I'm getting other little kind of layered benefits from it. So highly recommend that one.   Jesse (47m 49s): Yeah. I guess every time there's, there's more nuance that you get out of that book. All right. Last question. My softball first car make and model   Chad (47m 58s): First car make a bottle. This is a Toyota Camry, 1995 model cloth Gracie. And, you know, drove that to high school, drove that to college. It was actually, this is a funny story. When I started my real estate, this is, I still had that car and I put, I was trying to find deals and I put these noxious vinyl signs all over the side of my car saying like we buy houses and here's my phone number. And it was sort of a, it's sort of a turning point for me. I was embarrassed. I was like, God, this is horrible.   I've putting these all in my car, drove away one girlfriend who was like, ah, you're not, I really don't want to be around being around you. But then I was a kind of a filter for my next girlfriend who became my wife because she's like, oh, whatever, that's fine with me. But the cool thing about that for me, that that car was, I owned it free and clear. And then I put a sign on top of it that I made cost me 300 bucks to put the signs on there. And I ended up buying a property every year for like five years that made me, you know, minimum five, 10 grand per property off of this marketing that it, so this car was like a money machine did really well.   Jesse (49m 4s): I think that's the best answer to that question that we've had on the show. That's, that's pretty good. Awesome. In terms of where people can reach out to you aside from a quick Google search, where can they go, Chad?   Chad (49m 16s): Yeah, my, my home base online coach carson.com. That's where you can find my podcast. Although you can search for my podcast on any of the podcast players out there, apple, Spotify, those as well. And then of course on YouTube, if you search for me on YouTube, we'd love to hear from you. Please leave me a comment on YouTube or somewhere. Always like to hear your story and, and respond to that. And what would enjoy connecting it with you somewhere online?   Jesse (49m 38s): My guest today has been Chad coach Carson. Chad, thanks for being part of working capital.   Chad (49m 42s): Yeah. Thanks for having me, Jesse. This has been a lot of fun.   Jesse (49m 52s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    Building Wealth from Rentals with Ashley Kehr | EP77

    Play Episode Listen Later Nov 3, 2021 47:07

    Ashley Kehr Holds Degrees in Financing and Public Accounting and is a License Insurance Agent. She Purchased Her First Rental Property in 2014 and since then has Grown her Buy and Hold Portfolio Consisting of Residential Property, Commercial Property and Mobile Home Parks. Ashley is also the co-host of the BiggerPockets Real Estate Rookie Podcast with a Goal to help Newbies figure out the Actionable Steps Necessary to get their first deal. Currently, Ashley lives near Buffalo, NY on a Dairy Farm with her husband and three boys. She Spends most of her time Educating New Investors, Analyzing deals, Seeking the Next Adventure, and living a spontaneous life. In this episode we talked about: Ashley's Bio & Background Property Management The First Duplex Deal Investing in Mobile Home Parks A Pivot to Camp Grounds The Underwriting for Camp Grounds Regulatory Environment The Philosophy of the Trade-off between Potential Income and Value Real Estate Risks and Opportunities in the Next 2 years Mentorship, Resources and Lessons Learned Useful links: https://www.instagram.com/wealthfromrentals/?hl=en Transcriptions: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Ladies and gentlemen, my name is Jesper gala and you're listening to working capital the real estate podcast. My special guest today is Ashley Kerr. Ashley holds degrees in finance and public accounting and is a licensed insurance agent.   She purchased her first rental property in 2014 and has since grown her buy and hold portfolio consisting of residential property, commercial property and mobile home parks. Ashley is also the cohort cohost of the bigger pockets, real estate rookie podcast with a goal to help newbies in real estate, figure out the actual steps necessary to get their first deal. Currently. Ashley, we just talked about this. You live near Buffalo, New York on a dairy farm of all things with your husband and three boys. How are you doing   Ashley (1m 2s): Good. Thank you so much for having   Jesse (1m 3s): Me right on. So I guess just on that, on that point, you are in Buffalo, so we're probably just a two hour drive away from each other. The dairy farm is that that's a family run thing or?   Ashley (1m 15s): Yeah, so my husband's family, he's third generation. And basically when I moved out of my parents' house, I moved to here and lived down the pharmacist.   Jesse (1m 25s): I love it. We were just chatting before the show. I'm kind of on the heels of, of BP con in new Orleans. Ashley was, you were speaking on a panel, you mentioned before. It was a panel of, I guess, women in real estate. Is that correct?   Ashley (1m 40s): It was all about women that have succeeded in real estate and their advice to inspire other women to get started.   Jesse (1m 49s): Awesome. Great. Well, like they can attest to the fact that we had a great time out there. Didn't cross paths at this time, but maybe next year at next BB con.   Ashley (2m 0s): Yeah, definitely. I there's so many people there so many awesome people to me, it's hard to even get from point a to B because you just run into people. Maybe you met online or people you wanted to meet or just, you know, somebody that comes up to you that heard your story. Yeah.   Jesse (2m 15s): I couldn't agree more Ashley for our listeners that don't know you have a really great presence online, Instagram kind of showcases some of the stuff you're doing, but for those that don't don't know your background, could you give us a little bit of a background of, you know, how you started out, how you got into this world of real estate that we, that we all love?   Ashley (2m 36s): Yeah, of course I, so when I graduated college, I got married and I started working at a CPA firm and I was going to get licensed as a CPA and just work as an accountant. Well, I lasted about six months and I really hated it. So I ended up quitting my job and I was just going to be a stay at home mom. I was going to get pregnant, have babies and live on the farm. Well, about two weeks into my unemployment, my friend's dad approached me and he had a 40 unit apartment complex that he wanted me to run for him.   And so I agreed I could do it from home. It would be part-time. And basically from there, I grew a property management company for himself, for him and all of his properties. It ended up being about 80 residential and about 20 commercial properties that I was managing for him. So to start my first deal, I actually approached his son and said, look what your dad is doing. We should do this. And we bought our first duplex in 2014. And that was how I got started.   Just kind of watching somebody else learning from him and working for him. I gained a lot of experience and knowledge.   Jesse (3m 49s): That's incredible. And that was only, I mean, 2014, right? Not too long ago. Yeah. So in terms of basically saying here's a 40 unit apartment, what were the details, was that, was that something local that you could do or was it, you know, it wasn't across state lines.   Ashley (4m 6s): Yeah, it was right in the town, you know, 10 minutes from my house as in the town that I had gone to high school. And so I knew the town very well. It was very convenient to get to. And I started off with a small little office there that I could go to if need be. And actually just my first day was the first of the month. It was April 1st, 2013. And so all the rent checks are coming in and I was like so nervous that I wasn't going to track them properly. That all 40 checks that came in, I actually photocopied all of them before I actually deposited them.   And I spent pretty much, it took me, I think like full two full years to actually build out my systems and processes for property management. But it was definitely a learning experience. I ripped my hair out a lot. I cried and life is much better now not doing property management. I ended up outsourcing property management to a third party in February, 2020. So I gave up the property management on my properties and also with the same investor. So now I just do asset management for both of us.   Jesse (5m 11s): Was there a reason that a, that person had had come to you for managing that, that 40 unit? Or was it just happenstance?   Ashley (5m 21s): I actually grew up next door to him, his daughter and I were best friends growing up. And I actually went on vacation with their family when I had just quit my job just because I had nothing else to do. And I that's where they were talking about who needs help. And I think there was kind of this mindset. They had that because I was an accountant. I was capable of managing and running a building, which really wasn't true. I could do the bookkeeping for it. But as far as I had to spend a lot of time learning the rules, the regulations and stuff like that and how to make it actually run efficiently.   So, but that was really just it. The, it was more his wife and his kids like pushing him. You need somebody to help you. And so I ended up doing a lot of admin stuff for him too in personal assistant stuff. And then he brought me in an all these projects. I helped him build a 40,000 square foot dealership. I helped him purchase a dealership. I helped him start an insurance agency. So I'm so grateful for him, for him because he brought me in on so many opportunities that a lot of people don't have that I guess, advantage.   Jesse (6m 32s): Yeah, for sure. It's like the school of hard knocks for a few real estate. So property management is, is one of those professions where it's, it's a lot of hard work. It's a lot it's can be a very stressful job. And usually when you're doing a great job of it, nobody calls you and says, Hey, you're doing a great job. So usually you get the call when there's an issue. How did you, well, I guess first, when did you realize that that was something maybe you didn't want to do at least you personally doing for, for long-term and, and w was there a light bulb moment that, you know, you came across that you, you thought, Hey, let's, let's go buy real estate.   Like you're talking about.   Ashley (7m 8s): Yeah, actually the light bulb moment was when I helped him purchase the dealership. So I saw how he was purchasing a business and what he was doing was taking his properties that he owned and refinancing them, pulling the equity out. And he was able to make a cash offer on this business and purchase it. And I still remember sitting in the attorney's office at the closing table and he had had me set up the LLC. He had had me set up the bank account and I was the one signing that huge check that was given at the closing table.   And just the fact that he put that pen in my hand and had me write that check. I had never even seen a check that big of a month before I think really had an impact on me. And I saw like the power of the real estate that he had and how he used the equity to further advance his investments. So that was the biggest aha moment for me.   Jesse (8m 4s): Yeah. And you kind of got the, I mean, learning by osmosis by you actually doing it, but it's kind of like, I, at least I see it as there's that psychological barrier for a lot of people, as you know, with, with our industry, but you basically being the proxy, they're signing the check for him that I've, I probably broke down some psychological barriers about who can or can't buy real estate at that scale.   Ashley (8m 26s): Yeah, definitely. And even he had me do all of his financing. So anytime he went and got loans, I was in charge of that. I did all that. I worked with banks and that also helped me build a network of loan officers too, because I was super diligent about being timely in responding to loan officers, getting them what they wanted and working with them. And they liked that working relationship. And so when I started investing myself, I had a lot of loan officers that were very eager to work with me because they knew that I would provide to them what they needed to make the loan work.   Jesse (9m 2s): Yeah. Attention to detail and, and staying on top of them that didn't know traits that would explain or describe a CPA there. Yeah. So in terms of you, you pivoting to, or moving on to saying here's an opportunity that you think that you and this investor that you worked with that would purchase it, how did that property come along? What was that deal like?   Ashley (9m 24s): So I started talking to my, the investor son, just putting a little bug in his ear. Like, I think we should do this. And actually the first property that I found, I sent it to him. I said, I think this is the one we should buy. And we went and looked at it and we put an offer. It was accepted. And so he brought the money, he had savings that was going to be the cash offer on the property and how we structured. It was, we became 50 50. So I would do the property management, manage the remodel and do all the leasing.   And then he was the money guy. But also what we did was to make it less risky for him. He also received a monthly principal and interest payment every month. So he was making five and a half percent on his money. It was amortized over 15 years. And then he was getting 50% of the equity in the property and 50% of the cashflow and the property too. So it was a very, I guess, a good offer for him because it was less risky because he was tied into it so much in getting all this benefit from it.   And for me, it was just a way for me to get started, look like right now, I would never do that deal with anyone, but looking back like that got me started. And I I'm super grateful   Jesse (10m 43s): For that. And was that a, was that a local deal?   Ashley (10m 47s): Yeah, so it was in the same town where I was managing the, the apartment complexes and we stuck in that town for, I think our first three deals. And then for our fourth one, we ended up venturing into the city more and then starting to spread out.   Jesse (11m 2s): So in terms of you, you started in this, this duplex, you said for this first deal, and now, you know, just kind of touching on that. That's not a deal you would do now, but how has that growth to the second deal? Was it, was it zero to one or was it one to 10? Like how did, what was the type of deal that you did after that? Duplex,   Ashley (11m 21s): After the duplex was another duplex and it was actually on the same street, just a couple houses down and it went up for sale and my partner ended up putting a line of credit on his house and that's how we, we use that money to purchase the second one. And then we ended up doing a portfolio loan, putting a mortgage on both of them pulling the cash out of them. And that's how we purchased our third home right around the corner too. So we bought three just within a couple blocks of each other.   Jesse (11m 49s): Very cool. So in terms of over the, I guess now, well it's seven years, a little bit, almost eight over that process. You've, you've obviously ventured out to other areas in commercial real estate. Well, what was that process like? It was, there was this, it sounds like at the beginning, at least it was a gradual thing, but was there another, whether you call it a hot moment or was there a big leap in saying, okay, I'm going to, I'm going to try my hand at this, you know, this asset class or moving out into larger deals.   Ashley (12m 18s): Yeah. At first I was very focused on duplexes, small multifamily. The largest I bought in the beginning was a six unit. And then the smallest was a duplex. And I, I was really focused on that and I really became very confident and comfortable purchasing in my market on those properties. So a lot of people ask if I still consider myself a rookie, if I'm purchasing a small multifamily my market. No, I don't. I think I'm very experienced in that. Any other kind of investing? Yes, definitely in that.   So I, I stuck with that and then I ended up just having this opportunity to buy this mixed use commercial building and the investor that I worked for. He owned a liquor store and I saw the power of his liquor store and just the uniqueness of it. And it could be a cash cow and just kind of diversify your portfolio. And so I ended up buying my first commercial building, where I put the, the liquor store in that building. And that was my first kind of different strategy than I went after since then.   So that building finished in 2020, we opened up the liquor store in November, 2020, since then I have been like all over the place, especially hosting a podcast is so bad for my shiny object syndrome because I hear all these things that are like, I just want to do that. They're like sounds awesome. All these different things. So I spent a lot of time going after self storage, mobile home parks and campgrounds. And I recently went to four conferences back to back and I finally have realized that I'm going to focus on campgrounds.   I do have a mobile home park under contract, which I'm going to continue with that. It's a sweet deal. I did have a self storage under contract, but it fell through because the seller wouldn't do a phase two environmental study. Yeah. So the phase one recommended it and the owner said no. So I falling out of contract on that one. And then I'm working on getting a campground under contract now. But I think my big aha moment as to why I was focusing on campgrounds is I had a couple of people talk to me during the conference and really like point out to me what I'm struggling with.   And point out facts, such as look at all the successful investors I'm friends with. He said, look at your network. Are all of them going after like three big asset classes right now? And the answer was no, they're all focused on one. Maybe they started out focused on something like I started out focused multifamily, but then now I'm pivoting. I have that down. I have that strategy, you know, set it's running smoothly and now I can pivot on onto something else, but you don't see these experienced successful investors going after three or four large strategies at once and seeing what will work.   And then the second aha moment for me was I was telling somebody about this campground that I was offering on. And he was like, that's, that's it. And I was like, what are you talking about? I know I want to offer. And he's like, no, that's what you're excited about. He was like, you just spewed off so many different random facts and stats and all this stuff. When you've talked about self storage, your mobile home park, it's just like, oh yeah, I got a mobile home park under contract. Like you don't have that excitement. So that was a big aha moment for me too, was that I'm actually excited about investing in campus.   Jesse (15m 39s): So leading up to campgrounds, which I want to talk about because we, we don't, I don't think we've ever really gone into detail at all on the show, in terms of that process, that takes you from the first few investments to where you're doing these, you know, more commercial side of the business deals. How, how did that develop from the team point of view in terms of networking with other people or having other people influence the decisions you made for those future properties?   Ashley (16m 6s): Yeah. So up until this mobile home park that I have on our contract, I had never paid more than $152,000 on a property. And that was my sixth unit. Everything else had been below that. So my mobile home park is $750,000. That is a huge like jump for me. And that was like a huge mindset shift for me to get over that hurdle because I'd never even spent close to that amount of money or looked for that amount of money.   I've always done well with creative financing and finding money, but to find that much money was like, like nerve wracking. But I spent the last year and probably if you would have talked to me two months ago, I wouldn't even have realized this yet, but I spent the last year doing so much networking. There's a group of people. It next month will be our sixth time meeting up for various events or different things. And I think just talking with them, seeing what they're doing has really kind of helped me eliminate a lot of my limited mindset and knowing that I can achieve these things, I am capable of doing this.   And if I work hard enough, I'm going to find a way I'm not going to give up. And so that definitely helped just seeing what these other people are doing. I even had a James Dainer and he's an investor from Seattle and he runs a very successful company. He endangered, he actually let me come and job shadow him for three days. And I just got to like, see the inner workings of his mind. I got to sit in in all his meetings and that was so awesome. And it's such a cool opportunity. So if anyone is trying to, like, you feel stuck, reach out to people in your network and just go and watch what they're doing and see it.   And it's, it's definitely motivating. I get so pumped up after I surround myself with other investors.   Jesse (17m 59s): Yeah, for sure. And I mean it to the conferences or, you know, speaking with other like-minded individuals, even at, at BB con when we were in new Orleans, it is I think a relative thing where people, I hope that when listeners hear, you know, $20 million, $40 million deal it's, there is that aspect of like, it is relative. There was a, there was a point where, you know, somebody jumping from a million to $5 million or 100,000 to 500,000 or less is, you know, for that person, it's five times what they've done before 10 times, what they've done before.   But I feel like once you do that enough times, you get that aspect of, oh, wait a minute. It really is that the concepts are the same. The deals are bigger, right?   Ashley (18m 40s): 'cause, you're getting like the same ratio of compare, like your, your rental income to the purchase price. Like if that ratio is still the same, who cares if it's a hundred thousand dollars property or, you know, a $1 million property, I guess. Yeah.   Jesse (18m 55s): I find the way I conceptualize the moving from, you know, your first property or second property, not really, I guess more so when you move from certain size of properties, to me, there's a category of one you can continue to bootstrap and then another, you have to raise external capital. Right. And, and what that inflection point is, is going to be different on the individual, right. You know, if you're one or two individuals, there's a certain level where you cannot afford to purchase that property, unless you create a structure where you're raising capital.   And I'm curious for yourself that 700,000, you mentioned creative financing. Did you underwrite it from a pure debt point of view and put in your own capital, or was that something where you had to create a vehicle where you were raising capital?   Ashley (19m 41s): So I spent all my money on real estate. So I have no money. I actually did two offers to the seller. I did one where I'd go and just get a commercial loan to purchase the property. And then I did one at seller financing and I did the seller financing at his asking price. And I said, you know, I'm willing to negotiate on terms. And he told me, I knew $2,500 a month. So I took, and I amortized the loan over 25 years at three and a half percent.   And that came out to $2,500 a month. And so I got a nice interest rate, a long-term loan, and then he needed, he's actually, he lives on the property. So he's actually moving off the property and he's building a house. So he needed some money for that to build the house. So I am putting some money down on the property, but I actually sold a property. And that's, what's going to fund that down payment.   Jesse (20m 41s): There you go. So that's creative. It's funny, you mentioned that one deal that didn't go through because you had the phase two environmental where, you know, there are all these strategies that you can use where we have a property right now that we have contamination on it. And it's really a matter of, of remediation. And part of their creative strategy, most likely will be a purchaser that comes along where we have to do, you know, a short seller financing or VTB on it to get it, you know, get the environmental assessment. But again, like, it's really just a matter of thinking outside of the box. And I'm sure you, as an accountant, you're like, okay, 2,500, we'll figure out what numbers those need to be to make that payment happen.   Ashley (21m 17s): Yeah. As soon as he said that, I got like excited inside and I was like my smile and be like, okay, well, how about if we did it this?   Jesse (21m 27s): So if we were to pivot to the campgrounds, this is something that, I mean, I don't know a lot about, I know we had Brandon on talking more about, you know, mobile, mobile home parks seem to continue to be the trend. Obviously multifamily is on fire, but yeah, for, for a complete newbie campgrounds, how did you come across them? And, and why do you get so excited when you, when you, when you're talking about?   Ashley (21m 54s): So I actually came across this campground that was close to me for sale. It was actually on LoopNet. And I found that the day was listen, I got to be the first person to go and see it. And the older gentleman that owned it, he took me through the whole property, along with my broker. And just like, I could see so much value add and all these different revenue streams just popping out at me. And so that's what really got my interest. And like, my family had cam when we were younger, my parents still have an RV.   We have like family land that we turned into, like a private campground, I guess. But so I have some experience in that and I love the outdoors and camping, all these different things, but just walking through that property and seeing the potential, like just even Wade whacking, the property was going to add so much value. The basketball net had like rocks or something, like holding it down and I wasn't even faced the right way. And just like all these things just super easy improvements could increase the value of it.   The second thing that really enticed me about that property was that there, I think there was 164 sites and about 120 of those were seasonal. So people came in in the spring and this was in Buffalo. So campgrounds are closed in the winter, but they came in, in the spring, left their camper there, they paid a seasonal rate. And then they came and picked up in the fall. And that really limits the daily check-in checkout, which I kind of liked that model a lot more because I'd like to stay away from as much operation as possible. So I offered on that property.   Hannah was like my biggest offer after it was 1.4 million and they were asking 1.5 and they had me go through, I was getting bank financing on that. And they had me go through a bunch of hurdles, like sending them so much stock to make sure I was really a qualified buyer. And then they ended up getting an offer from a capital group out of Los Angeles that beat me out. They did offer 1.5 million and they ended up getting it, but it made like the Buffalo news and stuff that this campground was, they stopped taking stop doing showings because there was two competitive offers from a capital group in Los Angeles and local investor, which is me, but that was like, so he got the bug there.   And then I realized like after I lost that on it, like, wow, I was actually, I really enjoyed that. So I started looking a little bit more and reading about different revenue streams. I got a couple of people on the podcast, the real estate Wiki podcast too, who are investing in campgrounds and one that wanted to start investing, but had done a ton of research, had them on the podcast so I can learn some more. And so then from there I found another one and I'm currently trying to get one under contract now.   And I just did a, an episode on the bigger pockets, real estate podcast with David Green. And I mentioned on there that I'm looking for campgrounds and that was released yesterday and already today. I have so many people sending me deals. So anybody else   Jesse (25m 4s): I'm sure. Yeah. It's a, it's a great, you know, selfish or symbiotic. I don't know you want to call it, but where we can, we can have people, we can have guests on we're. I mean, the value, hopefully we're giving is we're, we're getting it in return from having the guest on. And obviously listeners just hearing a boat, like I would never have thought a campgrounds. Now I'm going to look into what's the, what's the Canadian market, like in campgrounds. Just curious. I'm curious though, from the, from the perspective of you come across this, this, this camp brown, you start seeing all the different revenue, potential revenue, streams, the underwriting for a campground obviously, or maybe not obviously, but from my perception, it seems like you're buying a bit more of an operational business.   It's not as much pure real estate, but when you're underwriting it, are you looking at it as a, you know, as somewhat similar to a cap rate, like you're looking at the yields annually, are you looking at which companies that you would need to employ to, to manage the thing? W what did that look like for you being, especially being an accountant where it seems like those types of things would be at the top of the list for you?   Ashley (26m 11s): Yeah. So actually what I did at first was I AIG Osborn had, he has an available a self storage deal analysis calculator. I actually took that. And I use that for that first property that I put an offer in. And I tailored that to like, okay, so he has, you know, the size of the storage units. How many of those units do they have? And then what's the, you know, the monthly rate for that. And I just like, changed it. Okay. There is, you know, 50 full RV hookup sites.   There's maybe 50 with only electric or something. And I just tailored it to kind of fit a campground. So I've been actually working on that because there is not really a template or a calculator to analyze a campground because they're so different. Each one is so unique with what they have to offer and what are those different revenue streams. That's also what entices me, because there's so much different ways you can generate revenue off of a campground.   So for the deal analysis, it's really been, so I'm only offering on my second one, I've analyzed maybe four or five in total now. And I just, I have to completely almost redo the spreadsheet every single time, because they're going to have different expenses. They're going to have a different income streams. So I really just start by making a list of what I think the revenue is. It can generate. And then I'm pulling comps. I'm looking at websites of other RV parks in the area.   And I'm like, okay, what is their daily rate? What's their seasonal rate. A lot of times it even says what they charge for different things. So like one campground had a zip line and ATVs or whatever, and you'd pay like $25 for a day pass, use the activities. Okay, well, I could do that online, and this is what I could charge. So pulling comps on the campgrounds, because that's going to be your competition. People are going to look at what's around, especially the seasonal, because seasonal campers usually don't live that far from where they're parking their camper, usually within an hour, because they're going there on weekends, you know, the days off or even just for a night sometimes, and then commuting bathroom work, blackout work.   The one that I had offered on first at the Mo the owner said, the majority of people there lived within 30 minutes of where they were keeping their campsite. So if they're looking in that area, that's definitely going to be, your competition is looking right there and see what amenities they have, and then kind of figure out the price. It's almost like a, how an appraiser does an appraisal, those do the bedroom, count the bathrooms and then compares them and like, okay, this is the average, this is what I can put that value to that property.   Jesse (29m 4s): It's almost like how many things can we unitize and figure out what those, what those costs are or income is in terms of the, as a complete outsider in this, in this sector. Is there a case for campgrounds? Like, are there situations where the campground you can purchase the business itself, but not the real estate? Or are those always kind of co-mingled   Ashley (29m 28s): No, you definitely can where you do like a land contract, but that would be something that I'm not interested in at all. I like the idea of owning the property. And I joked when I went this recent one I'm offering, I joke that in 10 years, I'm going to pay it off. I'm going to kick everybody out and I'm just going to build my dream house live there.   Jesse (29m 50s): So actually we were on one of the panels that we had in, at the conference we were talking about, well, it was, it was a question for a couple of us on the panel and it was talking about the regulatory environment. And I thought, it'd be interesting to ask you because New York state, I think is probably of all the states, it's probably has a little bit more of regulatory kind of work to get through from a landlord tenant perspective. How, how have you looked at real estate or how has that impacted how you look at real estate, especially in your, in your state?   Ashley (30m 23s): Yeah, so it's definitely not a landlord friendly state, New York by all means. So everything really changed for the worse in June of 2019. And even now just with COVID the, the regulations they put on, on evictions and everything like that has been awful to deal with and what tenants can get away with. And it definitely has deterred me from wanting to keep building a portfolio here. I think that I do have a nice sized portfolio.   And if I, which I do think I will continue doing a bunch of burgers is I'll, I'll go out of state and kind of diversify in different markets. Maybe do a couple here a year still, just because it's so easy for me. Cause I know the market and I know the properties and I get a lot of deals sent to me. But yeah, we, we were lucky. We didn't have too many people that didn't pay during COVID, but there's one person that hasn't paid since COVID and we can't evict them.   We can't do anything. So I was very thankful that I gave up property management before COVID hit, because I wouldn't be bald ripping my hair out even more. So that was nice. But yeah, I, I think that if you are investing on state, don't come to me here.   Jesse (31m 46s): Yeah. Yeah. I think there's a, there's definitely a different, I mean, we're, we're very, I think our whole country safer for Alberta is, is a challenging regulatory environment. I think rent stabilization and rent control. We had a professor actually from New York city from NYU that was talking about the history of rent control and rent stabilization in New York state and then across the country. But I think for us, I'm not sure if it's the same for you, but basically we have a certain amount that we can raise every year. And they're really the only time you can raise above that is when a new tenant comes in.   I'm not sure if it's the same kind of,   Ashley (32m 20s): Yeah, we don't have that like outside of Buffalo, cause that's more like New York city, but for us, the biggest thing is like in June when all of the, the laws kind of changed and they just changed so drastically. So it used to be a three-day notice before you could file a petition for eviction, but then it changed to a 10 day notice and then it just like made the whole eviction process a lot longer, the different rules and regulations they put in and just a lot easier for tenants to get away without paying rent just a lot more loopholes and things like that.   Jesse (32m 56s): Yeah, absolutely. I think one very like a stark difference between let's just use Buffalo, for example, compared to say our market in Toronto or I mean you could go LA you could go, Boston, Buffalo has been a very, I think yields centric type of market where you, the cap rates that you can achieve around your area, probably a lot higher than the cap rates we can achieve in our area. But I think that has been at the expense of potential equity growth. So how do you look at, at that when you are doing your underwriting and just generally your philosophy of, of that trade-off between, you know, potential income as opposed to value?   Ashley (33m 36s): Yeah, so like one thing is the 50% rule in the 1% rule. So the 1% rule says that the per your, the rent that you're charging each month is 1% of the purchase price. I can hit that all day long. What I can't hit is the 50% rule where 50% of your expenses are 50% of the monthly income because the property taxes are so high too. So that's like a, not even the, the laws at all, just property taxes are so high here too. So that's been kind of another reason for me to want to go out of state for my rental portfolio, because if I buy this $20,000 property, I can pay that off very quickly or just pay for that in cash.   But I'm still paying those properties taxes every single year. And those, I just sold a property that the property, it was 20,000. I had bought it for and the property taxes were about three grand a year on it. And, but I could go upstate and I could pay maybe, you know, 50, 60,000 for that same house, but only pay a thousand dollars in property taxes. And once that property is paid off, it's only a thousand that I'm paying every year instead of 3000. So that I would say is even more of a factor to me than the, the landlord tenant laws, even.   Jesse (34m 54s): Yeah. It's funny that we would be the inverse of that. The 1% is almost impossible if not impossible, but the 50%, which is, you know, for listers, like you have a, your, whatever your expense ratio is, that's really, really what it is, you know, as a percentage. So us, I think 30 to 40% is pretty, pretty normal. It, unless it's brand new and then you can get a little bit lower, but yeah, I didn't, you know, and I didn't even think of that from a property tax perspective. That's really, I always, I, when you mentioned that, I thought it would have just been just expenses in general, not necessarily property tax.   Ashley (35m 26s): Yeah. It's, it's definitely the property tax, but we actually in Erie county, which is the county that's in Buffalo and, or surrounds it, they actually have an Excel sheet that they, every year that they just put on the county website that tells you each town and what the tax rate is for those towns. And then it compares it for you. It says, okay, if you buy a hundred thousand dollar house, this is what your taxes would be on that property. And you can go through and see, and it shows, breaks it down from like town and county.   And then if there's a village to village tax and then school tax. So what you can do is you can go through there and say, okay, these are the desirable school districts. Well, what towns border that, where you're paying that low town and county tax, but you're getting into that school district because of that little bit of overlapping. So if you guys, and anybody wants to go and look search your county, I'm sure they probably do this too. If your county does and look at that and you can see what towns have the lowest tax rate tax rates.   So the last house that I, I just did a flip and that house had super, super low property taxes. It was in a small little town and the reason it had low property taxes was because there was like a garbage dump in the area landfill. And they pay the majority of the property taxes. Well, this property was like right on the edge of the border where you're not getting any smell from the landfill. And so it was kind of like an opportunity because you get that, you know, I, that property, I also purchased for 20,000, but instead of 3000 and proper Texas, it was only $850 a year in property taxes.   Just show the difference. Yeah.   Jesse (37m 12s): Yeah. I think that's, I mean, it's pretty amazing. Like you can have properties within, you know, 45 minutes an hour from each other and just have such a drastic price difference when it comes to property tax Ashley, in terms of the way that you're looking at the market right now, and fingers crossed, hopefully we're coming out of this thing, you know, in, in the right direction, when it comes to the lockdowns and restrictions, what is, where do you see opportunities over the next few years? You know, what's, what's kind of got your interest aside, you know, aside from, from the, what we've discussed here, but what are you excited about?   Ashley (37m 47s): Well, I guess, you know, I'm trying to stay away from that shiny object centers. Talking about teenagers is bad for me, but I think there'll be a opportunity for businesses. So going after businesses that maybe are sick of the COVID regulations, or maybe they did fall behind and during COVID and they just haven't been able to catch up. So I think there'll be opportunity there. So some of the businesses I'd be interested in are not really going to be ones that were impacted by COVID, but were actually empowered by COVID.   So they actually did better. So that would be like liquor stores, which I got one of those. And unfortunately we didn't get our like liquor license until basically the shutdown was kind of over, but looking at the kind of businesses that can survive COVID I think really piques my interest that if there was another shutdown or something like that happening again, that these businesses were thriving and they still do successful anyways, even when there isn't a shutdown.   So that was like a liquor store was a big one for me. And then I also like the idea of a laundry mat or a carwash, just the, the, the ease of the cash cow from those. And then I do have some experience managing a laundromat for that, that other owner. So yeah, those are any other business opportunities   Jesse (39m 18s): Working with that. Gentlemen is the gift that keeps on giving we've. We've looked at laundromats as well. It's just one of those compelling things that even without buying the real estate there, there still is a compelling case. If you can obviously do both. That's great. But I like your point in terms of businesses that have been resilient. I mean, we've seen in our own market, you know, whether it's technology, medical, technology companies, ghost kitchens, just companies that you didn't, you couldn't foresee how much, how explosive their growth would be prior to the pandemic, obviously for, you know, nobody has a crystal ball, but that that's, we do see those companies, a big driver of, of real estate at least locally here.   And I'm sure it's, it's the case where you are.   Ashley (39m 60s): Yeah. And even with auto dealerships. So I've been in because of the same investor I've been in the auto dealership industry and they are making more money now because of the shortage of cars. So every car that they're selling, it's getting selled at invoice or above because there's no cars available because all the chips and all the parts are stuck on a ship waiting to come into the us. But they they've said that they sold they're making as much as they did, but they're selling half of what they sold before.   COVID. So they're doing less work, making the same amount of money. So it's been almost beneficial to them to, I mean, there's definitely was some hardships, especially during the shutdown and things like that, but there's the PPP programs that I think helped a lot of, of businesses. So it's very interesting to see what businesses actually have benefited from COVID and have done better.   Jesse (40m 57s): Yeah. I couldn't agree more. Well, actually, I want to be respectful of your time here. There's four questions that we ask every guest that comes on the show. So before we kind of get on how people can reach out to you, if you're game for those all, I'll start them off. What's something that, you know, now it could be in your real estate or career in general that you wish you knew when you were starting out.   Ashley (41m 19s): So, one thing that I did not know was that you could go and get a loan for an investment property. I thought you had to make a cash, but you had to buy it in cash because that's how that other investor had purchased all of his properties. So I wish that I would have known that there was other options to me then just taking on a partner and I could have explored that. And not that I, you know, made a bad decision or anything like that, but I wish I wouldn't have had that limited mindset of that. You could only buy a property in cash, and I didn't even realize creative financing and all the different ways to purchase property until I actually found bigger pockets in 2017.   So that was three years later. And then I tripled my portfolio in a year and a half after just digging into the forums and learning all these different ways, you know, seller financing and private money, all these different things.   Jesse (42m 13s): Yeah. Just, just all the different resources. The next question is, you know what, since you were on a panel for women in real estate, maybe we'll, I'll kind of tweak the question a little bit. Typically we'll ask, you know, your view, what would you give as a recommendation to younger people coming into our industry, your view on mentorship, but why don't we say from a, especially from a female point of view, younger women coming into our industry, you know, what would be your advice to them? And, and just generally, and mentorship,   Ashley (42m 41s): I think that there are some women out there who think that they are at a disadvantage being a woman in real estate, because there's so many men doing it. Don't look at it like that. It is an opportunity and it is an advantage. You are going to stand out because you are a woman. If you go and look at a property with a broker, do you think he's going to remember the 20 other men that have looked at it and know he's going to remember that one woman that came, that you know, is investing in properties.   I think there's a lot of doubts and that, you know, you're going to get scammed by contractors because you're a woman, you know, don't know what you're doing. And that's also an advantage. You know, if a contractor is going to try and scam you, because you're a woman who's going to do it right off the bat. So if he's talking down to you or things like that, then you know, not to hire him or if it's a guy and the contractor is like, okay, he probably knows what he's doing. I'm going to scan them at them or something.   But I, I think use it to your advantage. And it's an opportunity. And if you feel like, because you are a woman that you are not being taken seriously, then you're talking to the wrong people. You're talking to the wrong person because I have more friends in real estate that are men than women and not a single one of them has ever talked down to me or made me feel like I don't belong. That it's a boys club at all. If anything, I feel like I've been more welcomed because I am a woman.   There's a million other men doing what I'm doing, but there's not as many women. So it's given me an opportunity, a like up and I think take advantage of that   Jesse (44m 25s): Great advice. Okay. Is there a resource, a podcast or book that you'd like, let listeners know about that you're listening to reading   Ashley (44m 36s): The real estate rookie puck.   Jesse (44m 41s): Yeah. As well.   Ashley (44m 44s): Yeah. If there is actually a book that I love and I think that anybody who's in business or the real estate or any other business should read this because no matter what, you're going to be dealing with people, and it's a hug your haters by Jay Baer. And it's a customer service based book. And basically it talks about like, if you received negative feedback or criticism, how to deal with that, and also how to kill people with kindness. So if you are a wholesaler and you're getting, you know, sellers that are, you know, or you know, how to work with them.   And so I, it's a, it's a great read. I, it's probably the, one of the, probably the only book that I've scribbled in that much before and like taken notes and highlighted things. And so   Jesse (45m 32s): That's great that I think that's the first on the show. I've never heard of it. We'll put a link up to that as well. Awesome. All right. My favorite question, first car, make and model.   Ashley (45m 42s): It was a green Bonneville. I don't even want the makeup upon GMC or Chevy or something, but That's basically about think of a vote.   Jesse (45m 57s): Yeah, just, just in a, in a what's it called in Buffalo with a PO thing. It's Pontiac. Pontiac Bonneville. Yeah. Awesome. Awesome. Well, Ashley, for, for people that like to kind of find out what you're doing online, like I said, you have great, great presence on, on Instagram and other platforms were where's the best bless area for people to reach out.   Ashley (46m 19s): It will be on Instagram app wealth from rentals. And then we also have a real estate rookie, a YouTube channel, and then a real estate rookie, a Facebook page. You guys just searched those.   Jesse (46m 32s): My guest today has been Ashley Kurt, Ashley, thank you for being part of working capital.   Ashley (46m 36s): Thank you so much for having me.   Jesse (46m 45s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    Real Estate Financing, Development and Student Housing, with Andrew Drexler | EP76

    Play Episode Listen Later Oct 27, 2021 46:31

    Andrew Drexler has been a Part of the First National Financial Commercial Team for over 15 years, and has Originated more than $4 billion in Commercial Financing. In 2020 alone, his team funded over $1 billion in Commercial Mortgages, of which $822 million represented transactions in Ontario and $236 million Represented Transactions in Quebec In this episode we talked about: Andrew's Bio & Background The Real Estate Market Liquidity Debt Markets and Financing of Projects The Retail Real Estate Outlook Remote VS Onsite Work Real Estate Risks and Opportunities Underwriting Apartment Buildings Condo Development The Student Rental Market Canadian and US Real Estate Mentorship, Resources and Lessons Learned Useful links: https://www.linkedin.com/in/andrewdrexler/?originalSubdomain=ca https://www.firstnational.ca/contact-us Transcription: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time, or at least an in gentlemen, my name Jessica galley, and you're listening to working capital the real estate podcast. Our special guest today is Andrew Drexler. Andrew has been part of the first national financial commercial team for over 20 years.   Now, for those of you that don't know first national is one of Canada's largest non-bank mortgage lenders offering both commercial mortgages and resident residential mortgage solutions. And correct me if I'm wrong, Andrew, I believe you said that we're over 10 billion in, in mortgage originations.   Andrew (50s): It's going to be pretty close to 10 billion for this year. Yes, we're on the commercial side. It's going to be a very exciting year.   Jesse (56s): Well, first of all, thank you so much for coming on. It's it's great that you're being generous with your time. How you doing today?   Andrew (1m 2s): My pleasure. Good. Thank you. It's a beautiful fall day in Toronto right now. I love fall. It's my favorite season. So it's a beautiful day   Jesse (1m 9s): Transience of that fall season. We get it for such a small amount of time. That makes it so good. Well, it is a, it is false. Yeah, no, absolutely. I appreciate that. It is fall. It's a leaves home opener today. So at least versus Canadians for the hockey fans out there. What we do with, with guests that we have on first and foremost, Andrews, we like listeners to get a little bit of a background into, you know, how you got into the, the real estate space, maybe a little bit of, of your background and how you ended up where you are today.   Andrew (1m 44s): Sure. So, you know, I first got introduced to real estate actually, when I came as a 14 year old immigrant to Canada for Romania, with my family. And it was the first time it occurred to me that you have to pay rent to live somewhere. And I thought that was quite interesting. So I guess I went to school at the university of Toronto and upon graduating, I was very fortunate to meet more the co-founder of first national and, you know, he's a legendary figure in our industry.   He's been a great mentor for me now for 20 years. And so early on in my career Morty and I were looking after one of our largest clients from Israel who came into Canada and bought a lot of real estate in a very short period of time. And so early on, I was exposed to all the different asset classes and because they were short-staffed here, we did a lot for them, not just the financing, but a lot of the acquisition work and due diligence work, you know, and that gave me a really good understanding of both the equity and the debt side. So it's been, it's been a really amazing ride really for the last 20 years, we've worked on some really exciting deals, mixed use deals, construction loans, and pretty much every asset class.   So it's been, it's been quite an interesting last 20 years. We've seen a lot for sure. And you know, I'm excited about where the Canadian industry is. I mean, there, we see a lot of changes, but we also have some challenges going forward. So I think overall though, the industry, the Canadian real estate industry is in a pretty good space   Jesse (3m 12s): For sure. And in terms of coming out of the university of Toronto going, you know, meeting, meeting the, you know, the head of first national, was that your first path into real estate or was there, was there other companies that you work for prior to, to first national?   Andrew (3m 26s): No, that was my first. That was my first job out of university. It was, I was, I was quite lucky. Actually. I started a business lab in university, which led me to meet somebody who then introduced me to the Maury and went, you know, it, this is how the opportunity came about. And it's been, it's been a great opportunity that I really appreciated, you know, first actually has been just such a gold standard in the mortgage industry, Steven Smith and Moya Taz. And they've done a great job of being at the forefront of innovation. And, you know, like you said earlier, I mean, we're going to be close to $10 billion of new mortgages originated this year on the commercial side, the single family side is, is a leader in its space as well.   So we get a really good look at what's going on in the industry, you know, both from the commercial side and the, the, the, I guess the single family side and just the strength and the health of the overall industry. From that perspective,   Jesse (4m 18s): I'm curious to ask, I mean, it's not often you have a seasoned vet. That's been with a company like first national from inception in terms of the, the background that you've seen over the years, first National's evolution to, to what the different places that they lend within the capital stack. How has that evolved over your career there?   Andrew (4m 36s): So we used to be predominantly an apartment lender on the I'm only going to speak from the commercial side cause that's where, where I work, but we are mostly an apartment lender and now we've become, you know, we do retail, we do office, we do self storage, we do student housing and retirement. We've really become a very balanced lender. This is a time. I mean, there's definitely a lot of liquidity in the markets, both for on the equity side and on the debt side, it's a great time to be a borer. If you have existing assets, it's a very difficult time to be a developer, looking for land, looking for new projects, you know, it's become tougher and tougher to make money in real estate, both buying and developing.   But if you do have an existing portfolio, it's a very good time and there's so much liquidity. I don't think I've ever seen this much liquidity in our market, again, both from the, the equity and the debt side.   Jesse (5m 28s): So how has the last year, well, almost two years now, this environment that we've, we find ourselves in, how has that, if, if it has at all changed the way that you look at the debt markets, the way that you look at financing of projects, you know, anything different philosophies changed over the, over the last 18 to 24 months?   Andrew (5m 51s): You know, it's a good question. So I think we've been surprised at how certain asset classes have held up. I think at, you know, we were worried about apartment owners and, and, you know, we were wondering whether people are going to lose their jobs and not be able to pay their rents. And the apartment sector has held up incredibly well. You know, I mean, the government's done their job to, to support people and then people to their credit have done a great job of maintaining their rent payments and not defaulting there. I think, you know, rebel is had its challenges.   You know, obviously people shop differently. Now. I think people are spending less, I think on the office side it's yet to be determined, right? I mean, I, I'm a big believer in the return of the downtowns. I think, you know, we've seen apartment vacancies in the downtown core across Canada go from 0% to 15% almost overnight. I think we're starting to see the return now and nobody's really back at work, but very small people are, people are back in the office. I think that we will go back fairly quickly. I'm so bullish on, on the Canadian major cities.   I mean, I just think when I look around the world, I, I wouldn't rather be, I wouldn't be anywhere else really than, than here. So I think there's a big draw from an immigration perspective, economic perspective, our, our political system is good. Are healthcare systems good or universities are good. So I think, you know, Canada will continue to be a strong point of, of, of entry, you know, industrial of course has been booming. And so that's, we all know that everybody's looking for, for industrial space and, and rents and values and land and cap rates.   Everything is it's at an all time high cap rates at an all time low, of course. So the Canadian market is held up really well. I, I would say my biggest worry is really more around the retail side. I think the, the office side will rebound and I think the office sector for the most part is owned by very large institutional players that have a deep pockets. I think on the retail side, I'm more concerned about, you know, when you lose the mom and pop tenants and when you see some of the anchors that are maybe downsized or not quite taken up as much space, I'm not sure that there's a long list of replacement tenants that are waiting in the wings.   You know, in previous years or decades, there's always somebody new coming out of the U S there's always somebody new coming out of Europe. We just don't seem that anymore. And I'm just worried that that rents probably in the long-term are going to be flat lower than where they are today. And that's assuming the occupancy stays at the level that it's at, but overall the market has been good. I think you certainly put more emphasis now on the strength of the bore and their cashflow abilities. You know, it used to be that somebody got, they had a good net worth, they're good to go, but now it's, you know, they own a bunch of different plazas and they're not quite getting their full, you know, a hundred percent of rent that they used to collect.   So can they still support the loan or what happens when their loans roll over? And they start all of a sudden going to a higher interest rate, you know, which is the next point, which is, you know, I do think unfortunately we're in for a, a period of rising interest rates. I do think that everywhere you look, you know, it screams inflation, and eventually that's going to make its way into the interest rate environment. You know, there's talk about one a day data being, being slowed down or reduced at all levels and malt and other, you know, many countries.   And I think that that ultimately will put pressure on bond yields to move up, which will result in higher interest rates are interest rates can lead to higher cap rates, you know, maybe a reduction in values. And again, the cash flow is, is a big concern. So we're definitely, stress-testing our borders a little bit more, and we're looking very closely at the ability of the property as well to, to support their, that they plan on taking   Jesse (9m 32s): Yeah, in terms of a lot there. But for, for the particular asset class, I'm curious with retail, as you know, we've seen, I think whether in the states, whether it's 26 or 27 square feet per person per capita, and we're somewhere 16 and then, you know, European countries, sub 10. So all that to say that we, you know, a lot of real estate or retail, I think that even prior to COVID, we, we knew it was overbuilt, but now really getting granular. And the ones that at least we see is that the grocery anchored or the good anchor tenant malls or areas experiential areas I think are going to be positive.   But when it comes to you looking at retail as an asset class, are you looking, you know, with much more emphasis on the credit worthiness of, of the tenants and what that tenant profile looks like?   Andrew (10m 21s): Yeah. I think it's, it's the long-term stability of that tenant and trying to anticipate what their long-term needs are going to be. So, you know, when I look at a Canadian tire, when I look at a Walmart, Walmart, which used to be obviously the gold standard, and you have one of those in your Plaza and don't even have to worry about the rest of the tenant roster. I think you, you try to say now, well, where would they be in five years? Do they still need that kind of footprint? Is there a chance that, you know, we're competing with their own sites and they go somewhere else because they need more or less, you know?   And then when you look at the, the, the rest of the tenants and you look at their rents and you even look at the renewal rates, like, are they really going to be getting those rents? You know, considering that, you know, they spend more on cleaning, they spend more on staff, they're doing a little bit less business than they used to. You know, certainly if you go into the mall and all of a sudden you're allowing two people per store, four people per store, you know, what does that do to their bottom line? It's got to impacted, right? And then you add in, again, the extra cleaning Dexter wages, certainly the profit is going to be decreasing.   You start thinking about supply chain issues, you know, where they're getting their, their items that they're selling their merchandise. Does that cost them more? Are they still able to get it on time again, that affects their profit, which ultimately for them to stay afloat, do you need to come back to your landlord and say, Hey, I'm sorry, guys. I want to stay open, but I need to pay a little bit less. So I think it's more about not just happens right now, but it's really what happens two to five years from now. That's really important from a tenant by tenant perspective.   Jesse (11m 56s): Yeah. That makes sense. In moving over onto that office side, do you, do you, well, I'll say this, do you subscribe to the, this, this idea? I think I'm, I'm partial to, I'm also, you know, obviously biased in, in the Toronto downtown market, but the idea that I think that 24 hour cities are going to come back, whether it's the new Yorks, the Las Vancouver, Toronto, I think suburban offices have held up decently. I think it's, it's a lot of the mid tier, you know, the, the class B class C in mid markets that I think are going to be the questionable questionable office is the ones that aren't connected to the suburbs through transportation.   Like you just, you know, having a car and the ones that aren't downtown connected via all the transit that we have here. What are your thoughts on that?   Andrew (12m 43s): You know, for me, the question is about when people are going to feel comfortable being on public transit, right? So I'm a huge believer in that downtown. I'm a huge believer in, in, you know, not just the hybrid model, but a return to work model, because I truly think people need to be around others to brainstorm, to be more creative, to be more productive. I know we've all been very productive for the last year and a half, but the reality is everything's been shut down. You've had nothing to do blood work, you know, but now as things open up, you know, it's easy to, to, you know, not feel as, you know, energetic or enthusiastic plus you've been, you've been locked up at home for awhile.   You know, when you come into the office, is it just a certain level of energy that, that kicks in, right. And I think for the young people, not that, that I'm so old, but for the young people, you really need to be around to hear what's going on, to learn about deals, to learn about what's going on in the market. You just don't get that from the home. And so I do think the office market will come back strongly in the downtowns across Canada. I just, for me, the question is more, is this six months? Is it a year, is a year and a half. And I think the answer depends on when will people feel comfortable being on transit.   Cause you know, everybody thinks they're going to drive into work. I tell you I live 15 minutes away and it takes me 45 minutes now to drive in with 5% of the people being downtown. And so once everybody's back to work, it's just no chance I'm doing a drive in and out of downtown. So, but I I'm a such a believer in the return of the downtowns and, and it goes the same for buildings, right? I mean, people are not going to be working, living in the suburbs for the rest of their lives. You know, if you have family, that's a different story, but the young people, again, who may be moved home or, or bought a place for our way that I just think they'll, they'll want to come back into the downtown, you know, and once their friends are back and the energy's back, you want to be in and around the downtown.   And you know, that will signify the return of that 24 hour city that you're talking about.   Jesse (14m 38s): Yeah. I think that's born out by most of our experience that we've had with our office. We've, we've opened in October, so not too long ago, officially on, on kind of a rotational basis. And there's definitely that feeling that vibe, you know, just kind of interoffice sports are kind of slowly coming back. And I really felt during COVID or that at least the beginning, I really felt for the individuals that were associates and analysts just coming into our industry only, you know, the time where you should be making the most connections speaking with the most people, they were kind of forced to be at home during that time.   Andrew (15m 12s): Yeah. It's very difficult that you just can't learn the same way when you're at home. You know, you try, I mean, I have a team of analysts and you know, we try to get them on calls. You're calling your client, you get them on, but sometimes you don't get the client, you hang up, they call you back. You can't quite just say, hang on, let me put my house on line. And these are learning opportunities where you just around people and you learn, I mean, I've learned so much by, you know, the, the predecessors or the people that are still our company that had been there before me just listening to them. You know, that's how you learn how to talk to clients. You learn what to say, what not to say, you know, you learn about stuff that's going on in the market.   I mean, these are really valuable things that I really hope that the young people see the value in that. And they forget that it's been easy to work in your jogging pants and, you know, get a workout in, in the middle of the day. But hopefully you'll you realize that the importance of, of being in the office?   Jesse (15m 59s): Yeah. I think the interface, zoom, whatever it is, teams it's, they've got, they've done well, but there's definitely those subtleties. I, in terms of, you know, you mentioned interest rates, you know, I think it kind of went under reported with the fed kind of decoupling their, their target inflation. I'm I'm assuming I, I should be, I should be more up on this for the Canadian side of things, but I assume that we will follow something similar to what what's going on in the states right now you mentioned inflation and, and as a result of eventual, upward pressure on interest rates, how do you view, how do you analyze that?   How do you approach that when from a, from a lending point of view?   Andrew (16m 39s): So I think the challenges with the construction projects, you know, where you have, you're trying to underwrite the future value of the asset upon completion. And you're trying to peg a certain interest rate, a certain ceiling rates that you cannot exceed. So you're structuring your construction financing based on the end value. When you have a certain rate that you can't, when you convert to the term that you cannot exceed. And so, you know, the challenge with, with apartment construction is that the projects take so much longer than they used to.   You know, you start off with approval is taking years now, too. So the pre-development takes a lot longer. The construction is taking longer and you know, whether it's COVID related, whether it's supply global supply chain, disruptions related, you know, everything is taking longer. And so, you know, now you're looking at a project that could be five, six years before you get to completion. So we're essentially trying to peg where the interest rates are going to be in five or six years, because that's what we've tied our construction loan to. So I think that's, to me where I have the biggest concerns, we mitigate that by saying, you know, we're really just focusing on large bores that have liquid assets and very good cash flow in their portfolio.   But a lot of these apartment projects are getting to be very significant. I mean, we're doing projects that are, you know, $200 million upwards of $200 million. That's a lot of exposure. You know, you have a, a 50% basis point 50 basis point rise in interest rates, which could impact your cap rate by 25 basis points. You know, that's a lot of, that's a, that's a big value of sling. And I think if you try to say, look, you know, we're going to increase the interest rate in our underwriting by 50 basis points per year. Or if you're trying to Peggy at five years out, that's two and a half percent.   There's no chance that anything today is going to cover. So it's, it's a bit of a balance, right? But I think the biggest challenges in the multifamily sector, I think, you know, industrial, not so much office, but industrial and retail, usually construction is a lot shorter. And usually you have your leases done right at the beginning. So you don't even have to worry about leasing risk at the end. So it's merely just pegging your construction risk and then how quickly you can turn out the debt. But I think apartments though, you do have some, some serious interest rate.   Jesse (18m 53s): Yeah. At least with industrial construction too. I mean, it's a slab of concrete at, at a certain point. And the, the, the construction itself is simpler. I'm curious, Andrew, when it comes to the underwriting of apartment buildings, for those that don't know that the Canadian market is a bit unique, especially in comparison to the states. A lot of our apartments stock is older stock in terms of the actual, when, you know, when you hear that there's a class, a class apartments in whether, you know, it's in Miami or Boston, we really started building a class not very long ago.   So the projects that, that you would finance or that you would look at geographically, where do you find them clustering and what type of, what type of assets in the apartments fear are you financing? Are you lending on?   Andrew (19m 40s): So there it's our asset class that, that transacts the most. So there is a lot of capital chasing apartments. So the existing portfolios are being bought the existing older buildings. There there's a lot of demand for them. There are a lot of international players that are a lot of Canadian REITs. There are a lot of wealthy families and investors that are still looking to acquire multi reds in Canada. And so that's good because you know where your debt is today, and it's been very cheap.   And so you can lock into a 10 year rate and still get some pretty attractive returns. We send a lot of new rental development over the past five years. And the reason for that is because, you know, it used to be that interest rates were high and rents were low, right? We had rent control for many years and there was no incentive to build apartment buildings. And like you said, the apartment stock in our country is very old and we hadn't had new construction for a very long time. And so the shift happened when interest rates started going lower and lower to the point where we were at historically low levels, the financing environment became a lot more conducive to new development.   And a key part for me was that the tenant profile had changed. So tenants right now, whether you're dealing with retirees cashing in, on their home equity, young professionals that either can't afford or don't want to buy a house right now, or international students, these are very sophisticated pennants that have said, you know, I want a nice building. I want a superior HVAC system. I want amenities like rooftop, patios, and barbecue areas where we can entertain friends. I want gyms in our building. And so this level of demand from the tenants has driven the, the, the, the increase in supply of new apartment buildings.   Now, not all new apartments have been luxury. You know, we've built, you know, call it no frills, new apartment buildings as well. You know, new apartment buildings that maybe don't have the same level of amenities. And we've built those, not just in the major cities, on the major transit nodes, but on the outskirts as well. And so those have been really well received. So I think to your point, our rental stock is very old. And anything new that has been brought into the market has been received very well, because there are lots of people that have the ability to pay more for their rent and want to live in nice places.   And, you know, frankly, the units have gotten smaller, but that's okay because you live in a brand new, beautiful building. And again, you have these great amenities and you have people over, they're not going to be in your, an apartment. They're going to be in the, in the common areas. And so we've seen a lot of new developments in, in that sector. The challenge now is will that continue going forward? And I think, you know, the demand side is definitely there. I think the challenge is in those risks that we're talking about, namely interest rate risks, the fact that the projects have taken longer, they're becoming bigger.   And with the construction costs today, escalating rapidly, you know, the returns are now getting to that point where they don't really make sense. And so this all leads to this affordability crisis that we have in Canada, which is both the home ownership, we're home on affordability issue and the lack of affordability on the rental side. And the challenge is that people don't understand that the issue is a supply issue. It's not a matter of cap, the rents, you can increase rents anymore, or you can't get rid of and evictions.   It's not that the issue is that we don't have enough supply and pre COVID. We were pretty close to 0% vacancy rate across the country. Most cities we're going to get there again, as soon as immigration opens up, as soon as the international students are coming back, as soon as people come back into downtowns to the office, that vacancy rate goes back to zero. And yet here we are with facing a, an, an affordability issue again. And so we need to find a way to solve that.   Jesse (23m 28s): Yeah, I think that is kind of the knee, knee jerk reaction. It's it's these symptoms. I think of the problem that you, you go to like rent evictions or these, these type of things where it's it's, the constraint is supply. And I I'd like to get your thoughts just on the, the history, at least of our market. A lot of it has been this shadow market of condo development, being a proxy or a replacement for what should be purpose-built apartment buildings, people that are fully intending on, on renting. Is that, is that dynamic, do you think that's still happening and will happen between the two asset classes and maybe just a follow-up to that?   If so, is that because of the, the ability to build condos is regulatorily easier than, than a purpose-built right now,   Andrew (24m 18s): I'd say that's a complicated question. So I think traditionally, it was easier to do condos because, you know, you would pre-sell, you would have a certain profit built in there and then you'd go get your financing. And then you start construction. You also had a very level of construction industry where costs were an escalating, like they are today. And your, your development timeframe was a lot shorter than it is today. So it was fairly cookie cutter in that once you, the risk was in picking a site in and getting the pre-sales done, once you did your pre-sales and you locked in your profit, then it was just a matter of building it out.   And it was fairly straightforward. The challenge now on the condo side is that, you know, as a lender, I don't even know if I want our borders to pre-sale or to pre-sell the full, you know, 75 or 80% of the building to cover a loan because frankly cost escalations are so high that it's going to eat them through their profit pretty quickly. And then I don't really want them losing their motivation halfway through the project where we funded half. And now all of a sudden there's no profit left. So it's, it's very challenging as a lender to decide, you know, what do you want, do you want pre-sales or not?   Having said that the price is the sale price is seemed to continue to escalate and costs are not slowing down. And, but the, the sales side is not slowing down either. So you're seeing sale prices per square foot that are getting higher and higher in Toronto. So condo projects right now still make sense. The challenge is that the rental side no longer makes sense. And so we need to find a way to continue to enhance, you know, entice, I guess, developers to build the, you know, rental product because we need it.   But I think the difference between the two, I mean, personally, I would rather be in a, in a purpose still rent the building. You've got professional management, you've got a building full of renters that are going to be there. Long-term with the condos, there's constant turnover. People aren't as careful with the buildings, you know, it's just not the same crowd, but having said that they both been successful. And so that tells you that there's a lot of demand for whether it's condos or whether it's new rentals. The idea is that people want to live in newer, nicer buildings with nicer amenities.   And so right now the condo market seems to be really strong. Again, the rental market seems to be picking up as well again. And I think longterm they're both going to continue to be successful. The challenge is, will there be enough enticement to the developers to build rental, or are people all just going to, to condos now and be selling that because you can still make it work from a condo perspective.   Jesse (26m 49s): And as, as asset value is safer, multifamily increase and, and net operating income also continues to increase. Where do we hit that point of like that unaffordable point? And I guess more importantly from a policy perspective, w what do we do to, to ameliorate that aspect of, of what looks like the direction our market's going in?   Andrew (27m 12s): So I think the challenge is, so right now you have a federal government that has a very strong immigration platform, which is great for the economy, which is great for housing. It's really good all around. I mean, you know, as a, as a fellow immigrant, I know that people come here because they want a better life, right? So they come and they want to work hard and they want to, you know, own something, their house or a business. And so it adds a lot of value to the economy. So you want to continue to encourage that. So the federal government has done that. They're also offering financing through groups like CMAT, you know, to encourage development, the provinces are doing their part because they're giving grants at different levels.   And the municipalities are trying as well. They're, they're waiving development charges for affordable units. They're waiving taxes. The problem is that they're operating independently. And as a group, they need to come together to, to sacrifice a little bit more to say, what is it that we can each give up in order to balance the equation that the developers have? Because right now, what the government is offering is not enough to support for the development. I mean, these developers are building two, three, 4% cap rates.   And again, with the longer timeframe, and you were saying five, six years, by the time you're fully leased, that's a lot of time to wait and a lot of risks from an interest rate perspective and cap rate perspective and ultimately valuation perspective. So, you know, if it's barely interesting right now for developer to build, and they're only doing two or three, 4% cap rate, and that's assuming that everything pans out, you're just going to lose them, right? And so what can we do? We need to come together. We need to shorten from a municipal perspective, we need the shorter shorten approval times, you know, approve or reject an application within six months.   It can take two years, you know, maybe entice them, give them more density, but they have to build a certain amount affordable. But then you waive development charges on the full building, not just on the units that are affordable. Maybe you wave Realty taxes on the whole building, not just on the affordable units. These are things that, that have to happen in order for us to, to stimulate development. I mean, ultimately, look, if you're a developer, you have two sides of the equation, right? You have the development side, which right now costs are through the roof, and you need to reduce that.   And so from a government perspective, you can only help with agency self-assessment tax, where you can help out by waving or reducing development charges, or by, by maybe subsidizing land. But then once it's built on the operational side, if you're trying to put a cap on the rent that they can charge, and you're trying to entice them to reduce the rent to an affordable level, you have certain expense line items that can be adjusted. You can't adjust, you can't adjust insurance, which is going through the roof as well. You can't adjust wages.   I mean, again, huge inflationary pressures on wages and the staff. And so the only thing you can do is you can adjust Realty taxes, which is the municipality. So this is my point. Like the, you have to look at both sides, the development costs and the operational side, and, and is at all levels of government, we have to come together and we have to piece it to then entice these developers to provide more housing, which then in turn will, will alleviate your, your housing problem.   Jesse (30m 28s): Yeah, that's interesting because even on the office side, I think they've phased most of them out, but the tiger grants that we have where we're the tax incremental aspects of, of basically assisting whether it was developers or large tendencies with, with the tax piece, it's like, that's only one piece of the equation. And it's funny, we had, we had John Love on the program and other, you know, big name in Canadian commercial real estate, who said the same thing. It was a coordination problem with, with the different provinces that, you know, people need to be talking collectively and, and the federal government and the provinces need to need to work at this project.   Not, not unilaterally, but together. I'm curious if you want to pivot to an asset class. That was how I got started into, into the industry. And I know it's something that I wanted to chat with you about on the student residence, a student rental market in general, I think at the beginning of COVID just like you were mentioning before with our thoughts that apartments might be, you know, might be in trouble. And then it turns out they did pretty well compared to the comparatively. My first thought was when this happened, the first few months was that student rentals were going to get hit the hardest, just in, just in virtue of the nature of the pandemic.   How, how has the student rental market been, what, what has been the experience that you've seen over the last year or two?   Andrew (31m 47s): You know, I think as an asset class, they struggled a little bit and, and frankly, you know, they did because all of a sudden they had no students, right. And, and in the privately owned residences, you know, people stayed in, they weren't sure if they should go home or not. I think in the ones that were either owned by a university or managed by a university, you know, they allowed people to leave and basically let them walk out of their leases. But that's, to me was a shorter blimp. I mean, I absolutely love this asset class. I think it's got the most upside in, in Canadian real estate, you know, student housing to me, you know, when you think of it back when you're younger than me, but when we used to go to school, it was cinder blocks.   It was ugly buildings. It was, you know, poor locations, you know, the, the knock on it was you had eight month leases and you had kids that would just trash the place, right. I mean, that is completely gone. Now, you know, we do so much student housing at first Nash. Then I tell you, these buildings are unbelievable. I mean, you'll have, first of all, the wifi, capacity's huge. And it's the number one, you know, by far most important element in, in the decision of a, of a student. So that's different. They have amenities like gyms and, and, you know, again, these rooftop patios and study rooms and indoor parking and 24 hour security.   So that's from a tenant perspective, it's a dream they're located very close to campus in most cases. And from an operational perspective, I mean, these kids are now, they realize how lucky they are to be in those places. Their 12 month leases, they have parental guarantees. Sometimes they have cross tenant guarantees. So there's no issues with damage. And, and from a demand perspective, there's so much demand, you know, we have, we're, Canada's huge for international students. You know, I'm not sure if you know, but there, I think that the number is 5 million international students and Canada's third behind the U S and Australia.   Our education system is amazing. Our universities are ranked really well in the world. And so there's a lot of demand for these universities. Most of the students that are coming in have money there for them, whether they're paying $750 per month or $800, it doesn't really move the needle too much. And so you have really strong demand and equally important is the fact that it's the one asset class that is a great protection for inflation, right? Because you have 50% turnover every year.   And so unlike retail or industrial or office where you're locked into long-term leases for apartments, where you're maybe five to 10% turnover per year in student housing, you get 50% turnover. So it's the only asset class that allows you to truly capture the inflation should that materialize. So I think from a demand perspective, you're good from an operational perspective, you're good from a inflation perspective, you good? So I I'm very bullish on, on student housing and the quality of these purpose-built buildings are very high.   I mean, as a, as a parent, I can tell you that if my choice was a basement apartment for my kids with three other friends or one of those buildings, it's a no brainer we try to take and I'd be happy to pay more.   Jesse (34m 53s): Yeah, for sure. And I think when I started investing, it was in Waterloo. I went to school out there and that was, I think, kind of when I was finishing, they started to build these purpose built and, you know, pool rooms, gyms, like, eh, like everything you're describing here. And then the other piece is even compared to, in juxtaposition to regular apartments, where you have tenants that will stay in because we still have rent stabilization in Ontario or rent control in Ontario, you have the turnover. So you have the natural mark to market with, with the rents with student rentals that I think gets overlooked probably through the haze of this idea that students are just trashing these places, which it, you know, if you see, if you see the way that they're built today is not the case.   I'm curious when you are for student rentals, because you see a lot of these companies in, in the, in the states and in Canada that are signing up, sorry, they're, they're buying properties, they're developing them. And then they're actually taking on the property management of the companies. Is that, is that something that's being looked at holistically when you're underwriting those deals?   Andrew (35m 59s): Yeah. I mean, look much like seniors, housing, student housing is very much an operational business. So, you know, as much as I love the asset class, I think the caveat is you have to know what you're doing from an operational perspective. I mean, there's a different level of rapport you have to have with your tenants. You interact a lot more. They're very spontaneous. They want things immediately, right? Like they can't, I have a request for something to be fixed and you get two days later, it has to be immediate. You have to address things right away. So there's a different dynamic with your tenants at the same time.   Look, you are getting substantially higher rents because of this. So there's very much an operational component to the business. And I think the good operators don't know how to do that. And they can create synergies, especially if they have a larger portfolio. And so that's really important. So we do look at who the operator is, and it does make a difference that, you know, you're not a one-off and you understand what it's like to be and manage that asset class. You know, I think the more and more we're seeing consolidation in that as well.   I mean, we're, we're, you know, we're happy to have, you know, aligned with some Woodburn who are the top two operators in that field, and we can see how great they are managing their portfolio, because they understand again, how to manage. And they create synergies by having so many buildings in that, you know, a new player out of the U S Harrison street there they're coming in as well. And they've had experienced operating student housing in the U S so you're starting to see international interest in this asset class. You know, there's, there's squad Rio there, RBC, there are people that are large Canadian institutional investors, CPP, you know, who have large international portfolios, and they've never come into the Canadian market because it was too fragmented and it was too small.   And you know, now that there'll be some amalgamation now that you're starting to see players develop bigger portfolios, I think there'll be more interest because somebody that's large can come in and buy a large portfolio versus the one-off, which again is not going to move the needle. So, you know, again, I love the asset class, but I think it's, it's really important to understand the operational aspect of it, to know that what you, you know, when you're going into it, you need really need to know what you're, what you're doing and how you're dealing with   Jesse (38m 13s): On the, on the construction side for, for student rental, are you seeing companies that are building completely from scratch in some of these towns or, or actually buying existing existing properties and, and converting the use or, or, you know, changing something to student residents, whether that's complete change of use or just adding to the existing?   Andrew (38m 34s): Yeah, I think all of the above, you know, we've seen traditionally, it's been the one-off developers that have built, and then they've sold, you know, to the larger players, like the likes of Woodburn and align best. We're seeing these companies partner up with developers now as well for future developments. We have seen, you know, people come in and buy finished products with the hope that they'll be able to acquire more in that market. I mean, there are certain markets that, you know, certainly Waterloo has had a lot of development.   Kingston near Queens has had a lot of development. Toronto has had a lot of development, you know, I think though for the most part, what people don't understand is that these universities are full and the buildings, the good quality buildings are full as well. And so if you're building a good project, I don't think there's a risk for over-saturation. You know, I'm not worried about what a loo being oversaturated, because when you look at the enrollment, it's increasing substantially every year, and these kids again are coming from abroad, or they're coming from Toronto, or they come from Montreal, they come from other cities, they're there for the quality of the university.   And they're gonna pay if they're paying so much for tuition, they're certainly going to pay an extra a hundred dollars a month to live in a brand new purpose-built building over a, you know, an old basement apartment. So I think the good quality buildings in these places are full and the good operators know how to run them, to keep them full. So I'm, I, I do believe that that this will continue. You know, the other thing is some of the universities own buildings on campus, but they're old buildings, you know, they need retrofitting and to do that, you need to really gut them.   You need to empty them and got them and start them almost, you know, from the beginning, which means there's a, they're gonna decrease supply. Right. Which means that you're going to need more, you know, off-campus supplies. So that, that helps as well. The markets.   Jesse (40m 29s): Yeah, for sure. Andrew, we have four questions. We ask every guests at the end of the show and want to be conscientious of your time before we, before we get into that, we'd just love your thoughts on, on where you see opportunity in maybe the, the short to mid term in, in whether it's Canadian market us, you pick,   Andrew (40m 50s): I would say the only asset class that I really like is the one we just talked about, student housing. I just, I liked the protection against inflation. And I liked the fact that your tenants are not rent sensitive. I would say that is probably my only real opportunity. I mean, I still like multi-racial development providing that it's in the right markets and you have a very longterm outlook on it. You know, I don't think you should be building an apartment building if you have a five-year timeframe.   I think if you're a generational investor and you're building good quality real estate, that you're gonna pass through generations, I still like rent a multifamily, but you know, if you're just buying for the short term, I don't like it as much.   Jesse (41m 35s): Gotcha. All right, Andrew, if you're good to go with these all, I'll fire them off at. Yeah. All   Andrew (41m 40s): Right. Let's see it.   Jesse (41m 42s): Okay. What is something that, you know, now in your career, it can be in first national or, or business in general, you wish you knew when you, when you got started in this industry,   Andrew (41m 55s): You know, I would say understanding the, you need to add value to be properly compensated. And I would say, you know, don't be afraid to ask, to get paid, providing the, you add value. You know, most people, you know, they're always uncomfortable too. And I was too, too, oh, I got to talk about fees now. Well, that's who I got to ask to get paid, but you know what? I've come to realize over the years, if you truly add value, you should get compensated for, for your services.   You know, nobody works for free and you know, you should get paid. But the key though is understand how you add value. So understand who you're dealing with and what it is that you can provide to make that person, that company, that board, that developer better, you know, how do you enhance their life? To me, it's about, you know, making people money, saving the money and mitigating the risks. You know, these are the, this is sort of the mantra I live by. You know, when I talk to somebody it's like, can I help you make more money? Can I help you save money? And can I help mitigate your risk?   If you do these things, you're adding value. And if you add value, I think you should get properly compensated for it.   Jesse (43m 2s): What does mentorship mean to you? And what would you, what piece of advice would you give the younger individuals coming into our industry?   Andrew (43m 11s): You know, mentorship for me was huge. I mean, you know, everything I know in this industry started with Maury and I am forever grateful for, for his mentorship and his guidance and his, you know, introduction to people and watching him, you know, how he talked and how he dealt with people. It was, it was really useful for me. I think as a young person, you know, try really hard to be around good people and try to listen as much as you can. You know, there's so much knowledge and the people that had been around in the industry for a long time, they have so much knowledge, you know, of how deals work of real estate of just so many tidbits that you can pick up along the way.   I would say, if he can really put yourself in an office that's surrounded by and surround yourself with good people, you know, really do that, which is why I'm so adamant about people coming back to work. Cause I think that's the only way you can really learn. You know, you're not going to learn by being on a team skull, you know, you need to be there in person. So surround yourself with good people and just be a sponge, try to learn as much as you can also have a really long term outlook. You know, don't focus too much on what am I going to get paid today? You know, what's my job title today. Think about, you know, what is it that you can learn and are you around good people?   Because if you are, then you're going to learn a lot and you're going to, you know, benefit more in the long run. That's   Jesse (44m 33s): Great. What a book recommendation would, would you be able to give our listeners, we can put it up in the show notes,   Andrew (44m 41s): Huh? Atlas drug, but that's about a thousand pages and that takes a really long time.   Jesse (44m 47s): That's hilarious. I, that is the first we've gotten that. That's a, that's pretty good. And that is a long one though.   Andrew (44m 53s): You know, I, I thought the Steve jobs book was interested in the way he constantly challenged the status quo. You know, whether you like them or didn't like him as a person, I just loved the creativity and the ability to constantly challenge that I'm not satisfied with this, make it better. I want this. And every idea of his was always challenged and questioned, but that's how you create new things. Amazing things.   Jesse (45m 16s): I'll take us a month to make, okay, we need it next week. Last question. The, a nice softball first car make and model   Andrew (45m 26s): A Ford tempo, Ford   Jesse (45m 28s): Tempo. I   Andrew (45m 29s): Like it.   Jesse (45m 31s): That's funny. We had a, we had a Ford Fairlane on which I think, I think it was a car that my dad drove back in the seventies, but that's the first Ford tempo right on Andrew for first of all, thank you so much for coming on for individuals that if they're in the area or want to reach out connect, where's the best place for them to go   Andrew (45m 51s): LinkedIn or the first national website? My contact is there,   Jesse (45m 55s): I guess today has been Andrew Drexler. Andrew, thank you for being part of working capital.   Andrew (45m 60s): My pleasure, Jesse. Thank you.   Jesse (46m 9s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    Using Virtual Assistants to Grow Your Real Estate Business with Bob Lachance  | EP75

    Play Episode Listen Later Oct 20, 2021 37:40

    Bob Lachance is a Real Estate Investor, a Nationally Recognised Speaker, Mentor and Trainer who Specialises in Helping Customers Build their Businesses through Automation and Outsourcing. Bob currently Owns Four Businesses and Helped Start One of the Nation's Largest Real Estate Coaching Programs. In this episode we talked about: Bob's Bio & Background “Who Not How” mentality Bob's journey from pro hockey player to entrepreneur Why outsourcing is so important in real estate How to Find and Hire the Right Virtual Assistant How to integrate VAs in your business E-mail Management, Cold Calling, Admin Management Mentorship, Resources and Lessons Learned Useful links: https://revaglobal.com https://www.linkedin.com/in/boblachance/ https://www.facebook.com/REVAcareers Transcriptions: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right, ladies and gentlemen, my name's Jessica galley and you're listening to working capital the real estate podcast. I have Bob on the program today. He's a real estate investor.   He's a nationally recognized speaker, mentor trainer, and everything related to real estate. He helps out with, and I believe Bob correct me if I'm wrong. You are a ex pro hockey player.   Bob (44s): I am, I played eight years and four years here. Four years in Europe,   Jesse (48s): Right on, well in recognition of a Leaf's a home opener here. Yeah. Great to have you on how you doing?   Bob (54s): Very good. Very good. Thanks for having me. Appreciate it.   Jesse (57s): Awesome. So, Bob, typically what we do, we have a new guests on the show. We do a little bit of a background on the guests. Maybe you could give listeners a little bit of your history as it relates to your career and, and real estate.   Bob (1m 11s): Yeah, absolutely. Yeah. W what's fast forward today. I'll back into it. I run a successful virtual assistant company out of the Philippines have been doing since 2014 and also have a, a real estate company. We should be at about a hundred and probably 40 to 50 transactions this year. So we're on, we're on a pretty good trajectory there, but how I got started to get back to that, I went to Boston university on a four year scholarship for a ice hockey league, which has talked about, and then I was fortunate enough to be offered a two year contract by St.   Louis blues. So I left two classes short of getting my degree with the thought process of, you know, you can always go back, but being obviously you've been from Toronto and understanding the hockey mindset, I never went back. So my thought process was I could always go back and get those two classes, but as you know, you know, once life gets in the way it gets rolling. Every summer I lived in Boston, I would be working out training and never ended up back in school.   So it's kind of comical though. It's when you actually go in school or when you're in school, you don't appreciate it as much as when you're actually out. So I, and I'll get back. I'll get to that a little bit later, but just starting with my path. I played at eight years, four years here in us and then four years in Europe. And then my last year I had my first son and my wife was working in the United States and I was in leave. I was in Switzerland at the time and I D I had to decide whether I was gonna hang up the skates or bring her with me.   And she had a very successful career in medical sales at the time. So we decided that, you know, I was going to hang up my skates and figure out what I was going to do with my life. So just probably 99.9% of all people that do real estate. I was reading books and read rich dad, poor dad. I bought a course online, a guy by the name. I think he's an attorney, David wisdom all about real estate, but you know, nothing in particular. I was a course about that thick, probably about 3, 4, 5 inches thick, but I read the thing from top to bottom and decided, Hey, you know what?   I don't have to go back to school to be a real estate investor. So I was a real estate investor. I was quiet, coined myself to rephrase. I coined myself as a real estate investor. This is 2004, started from there. My first flipped in 2004. And I decided to really do it as a, as a passion and a career and got my first business partner. I think it was the end of 2004, 2005. I was actually door knocking to people that were losing their houses.   Pre-foreclosure my buddy gave me a script at the time just, and I knew it and let me, let me rephrase it. I knew nothing like zero. I came from the hockey locker room, which for those of you who actually listened this, that came from any type of locker room, you learn zero in business. You learn how to cuss. You learn how to you learn how to, you know, kinda have a, a, a camaraderie, if you will. But on the business side, you don't learn much. And being in Europe for four years, you don't have a network either like you do have here in the United States.   So when I got back, I was kinda, you know, you're you go through any, any athlete understands this, you go through kind of a depression. I think you're a football player, right? Jesse. Yeah. I played football and hockey and hockey. So after you're done the planning, you understand this, you go, you know, before you start, or even when you join, you jump into a different industry, you go through some sort of, kind of a depression. It's, it's, it's not, I don't like saying the word depressed, but you go through a law if you will. And it takes a little while to find out and really get your team again.   Right? Because when you're hanging out with your buddies and you're hanging out with, you know, you, you know, you got your, you're going to block your butt, you block for your buddy. You're going to pass to your friend, you know, and you're going to win as a team when you're out there as a solo preneur, there is a transition, right? And it took me a little while. And I, you know, when I first got in real estate, I got a deal by myself that a rehab to pretty well made about $32,000 on it. But I also realized that there's no emotion in a dollar, right? When you get a big check the first year, you know, there's a quick high, there's a quick, it's kinda like when you, you know, back in the day, when you took Sudafed three Sudafed before you played, right, you can't do that now, but I'm just saying Sudafed.   So I took a couple Sudafed before I played every game. Maybe some coffee too. And you get that, that you get that quick high, right? You get that quick, quick, Joel. And it's the same thing when you get a big check, but when you take a step back, there's really no emotion in money it's really has to do with the goals that you hit. So I realized I didn't want to work by myself. So I joined a real estate investment association. I saw the speaker on the short-sale industry. So I bought that course and next event again, I had no network.   So the next event I had this, I had to go to within the regroup I had asked, Hey, who's the, who's the best short-sale person in Connecticut. And they all pointed this gentlemen, Patrick, pre-court went up to him say, listen, do you have no idea who I am? I'm not looking for a penny, but are, do you have any openings in your business? He said, you know what? I actually am looking for a door knocker. So for those of you who know what a door knocker is, it's kind of like working your first job as a janitor, and you have to work your way up because it is not sexy.   It's not your you're literally, you have a list of individuals and names, and you're driving from house to house with a script knocking on a door, right. It's door to door sales in essence. So I ended up having a little bit success in that. And then I, I hired someone to take my spot, jumped into negotiating with banks, because we were doing short sales, which means, you know, their, their debt was they're over leveraged. So they had $200,000 of debt. The property is worth a hundred. So now I'm talking to banks on a daily basis negotiating, and then brought myself out of that.   Hired. Somebody started a national coaching program while I was investing, started a virtual assistant staffing company for not only individuals like myself, but for other students as well, that needed extra time in their day that are working part-time or full-time and needed to, you know, needed to, to offs offset some of the tasks. So I know that, sorry about the long-winded answer, but   Jesse (7m 38s): No, that's great. I mean, I think it touches on a, I'm sure there's listeners that are coming from the sports world. I know in real estate, in general, there's a lot of ex players of all sports, but especially here in Toronto, our office is a lot of ex hockey players. My partner was drafted to the pens, played ECHL, kind of went all over and really didn't start in brokerage until he was in his late twenties. I think it was, yeah, it was late twenties. And I can a hundred percent appreciate the fact that, you know, you got somebody staying late in the office and you're trying to figure out what what's this guy doing.   And he's just trying to just get caught up on things that, you know, guys had, you know, Excel and just being able to figure out the emails and everything. But I think that's probably what, at least on the brokerage. And that's probably what the draw is for a lot of players to come over to brokerage because you get that team camaraderie aspect that you maybe don't get in other businesses. And certainly not as a, a solopreneur. So Bob, when you, when you got into kind of, when you say door knocking, you mentioned that you were doing some flips at that point, was it starting to get into the flipping business and that's you started doing transactions there or was that something separate?   Bob (8m 49s): Yeah, so I actually did it my first flip. It was just driving for dollar. So I saw a, a house that was, you know, needed it, it needed a roof, it was beat up. You could tell it was vacant. So I got in called the broker, actually it was listed property, got in, walked in, opened the door. And there was like a, a rancid smell of cats CRN. Right. So I opened the door and I'm like, all right, I read in this book that, you know, a lot of people are going to turn away from this. So I ended up making an offer. I think the property is listed for 180 5. I made an offer at 1 35 and lo and behold, the owner accepted it.   And I was like, oh, what do I do now? Right. Obviously you need money, you need contractors, you need all that kind of cool stuff. But I figured it out, ended up doing okay. And then after that, it was just, you know, I had zero systems, zero marketing, nothing. Right? So that's when I actually got a door knocking when I met my future business partner and he actually taught me, he said, listen, you know, he'd go door to door. Here's one of the, the systems and strategies for getting motivated sellers to sell your houses. So my whole mindset was, I want to start from ground up to learn the business because if one day I'm in, this is what pat taught me.   He was my old business partner that, you know, the, the success rate of businesses that last two years is not very high. I think it's, I don't even know the rate. It's very, very low of any business being successful, let alone partnerships. So John me that's my mindset was, you know what? I got to learn everything from ground up just in case I have to start my own company, whether it's a brokerage, whether it's a real estate investment company, whatever that looks like. I think it's very important for everybody to learn from foundation down or foundation up, I should say.   Jesse (10m 28s): Mm. Yeah. Fair enough. So you, you kind of, you start getting into hitting your stride in terms of doing transactions, moving up in the career in terms of where you're at now. Cause you mentioned kind of on the outset talking about virtually virtual assistance and that business. And I think it kind of takes a theme of a lot of people that we've come on the podcast, basically the who, not how mindset of, of basically trying to figure out what tasks are absolutely mission critical that you do, which ones can you outsource?   How do you do that? Can you afford it? So how did you get into that side of the business?   Bob (11m 3s): Yeah, it was interesting cause we, 2007, we actually got approached. There's a company called fortune builders here in Connecticut. And, but three of our buddies that actually started it, we're, we're flipping properties. They're were flipping properties. We would wholesale them. Some properties, we'd do some short sales together, a bunch of different stuff. And they approached us because pat and I actually started our first education program with a company out of Florida, end of 2005, 2006, and then 2007, when they were launching fortune billers, they said, Hey, listen, we've never done fulfillment.   We've never done coaching. How do you, you know, what do you guys do? And then we started mapping it out and they said, Hey, you guys want to be partners with us handshake partners. Right? So we were, our job was to take care of this. And, and then we grew that to, I think the biggest, they were were probably about $300 million in sales. Well, took care of the backend, started a coaching program from ground up hired coaches filled from within. And so after going probably through and working with over 30, 40,000 students, there's a lot of common themes, right?   Not only with my own business, but a lot of our students were either working part-time or full-time. And one of the things that we've noticed, I mean, you probably see this in your business. They're not making any more time. There's 24 hours in a day. There's not much time left to do a lot of this stuff. So I was always looking for some sort of service or product to, to help our students. And then in 2013, I actually got introduced to what a virtual assistant was and virtual assistants most likely when I talk about it, it's someone who doesn't live in the country.   Right. And I know there's, there's people that live in country in the same country that are virtual assistants, but not in the same state, et cetera. But I got introduced to a couple of different countries. I tried India, I tried Pakistan. I tried south America. The best virtual assistants that I found were in the Philippines. So after a year of working with them, a light bulb went on and I said, you know what? There's a business here. And the partner that I had at the time had no idea what I was talking about, but I said, listen, I said, you're using virtual assistance.   I said, you're pretty good on the systems and processes. I helped start coaching firms. So let's create training right behind the virtual assistant industry. So we started launched our first company, 2014, tested there for two years for proof of concept. It was a big hit. And then, you know, fast forward today, we're at over, they were at about 560 virtual assistance within, within a couple countries.   Jesse (13m 43s): So I'm curious on that point about trying different countries, whether it's Pakistan, India, like you see a lot of, you know, Upwork or fi wherever people kind of go resources that they use to look for virtual assistance. And it's been my experience too. I've had a, I've had three virtual assistants, the Philippines, two of them, the Philippines one, not in the Philippines. And I found the same thing. And I hear a lot of people that even just colleagues of mine or friends of mine, one just comes to mind, just started a Keller Williams brokerage on the residential side.   And they have found success in that side. Is there, is there something about what you were looking for or real estate that it seems to be the Philippines keeps coming up as, as the place to go?   Bob (14m 24s): Yeah. I just think it's really more cultural based. The Philippines Philippine culture is very family oriented. They look at your business as their business and they really, you know, they, they have a lot of pride in what they do. That's one thing, but also English is one of their main languages there. A lot of people don't realize that. Of course there's other kind of other kinds of like tagalo is one of them, but English is what they're taught and the newer generation too. And they're getting, you know, their English and accents getting, you know, more improved each year that they, you know, they've learned and they, you know, think about this now they got the internet here.   They're watching YouTube to watch a Netflix all day long, et cetera. So it just improves on that side of it. So we just selected that because of those main reasons.   Jesse (15m 13s): Yeah. It was one thing I was really surprised by when I started looking into this was, you know, part of the, the friend I mentioned the business that they were doing was cold calling. And like, to me, I was like, you can't outsource cold calling you can't and they say, well, why can't you? It's like, well, we outsource it. Like we, we teach younger guys and gals every day in our office there. Why can't you do that? And part of it was the first question was if you're in Toronto, you're in Boston, you're in New York, like you have the cultural or the, the proficiency in English is one thing, but not to have an accent and immediately think it's a cold call is another thing.   And what surprised me is that the people that we interview in the Philippines, like the first one had a UK accent, like fluent. And, you know, as a north American, there's, there's nothing better than a cold call from somebody from the UK or it's just a very, in a very endearing or disarming accent. So that was something for sure. I, I, I could see that a hundred percent that every year you're starting to get that proficiency up higher and higher to the point where yeah, you can hire for cold calling. It's just a matter of them teaching, teaching them the same way you would teach somebody local on the specific task of cold calling.   Bob (16m 24s): Yeah. And that's a great point. I literally had a, I had a presentation or a, I don't know if it was a podcast or a webinar to a, a real estate. It was a, it was a mix of investors and agents. And we had that this same conversation. And a lot of people don't realize is that, you know, I live in the Northeast, Northeast, Connecticut, United States. And I don't know if anyone's ever been there, but you know, growing up in Boston and Connecticut, there, there's a different kind of attitude there with people.   Right. So if they are okay with having a Filipino call them and they're giving them information, then anybody in this world will be okay with someone from the Philippines because you know, the attitudes of the Northeast are kind of like, you know, they look at you a certain way, like, what's your angle? What are you putting in that? So, so just, just to that kind of going off of that, if you have the right script and like you said, they follow a process, the main thing for any, whether it's it's the brokerage side or the investment side, the only thing that you want as an operator is for them to pretty screen that potential lead to say, yes, I'm interested to talk to either Bob or Jesse or whoever.   That's all you want. You do not want any, any virtual assistant closing a deal for it. Because if you do, it's your, it won't work. It's your business to close those deals. So driving those motivated leads to you. It's a, it's a very good way to keep your energy.   Jesse (17m 57s): Yeah. I think that's, that's for those listening that are looking at on the say on the investment side, you're calling off market deals because of how crazy our market is right now, especially industrial and multi-racial, but you're calling those owners of property. And you're trying to figure out if they're sellers. The, the thing that clicked for me, especially with the VA side of things is that their goal is not the same as yours. When you're calling, when I'm calling. It's a certain, I know that I have the ability to pivot to it, to the sale, but even for myself, the first part of the call is usually, you know, not somebody is not going to say, okay, yeah, well, I'll sell right here.   So what I underestimated was what you just said, the piece about them, first of all, their goal is to get them in contact with, you know, their team lead or their that's, who that's you, whoever, you know, whatever way you describe getting that call, but it's basically booking a meeting for us and to, to actually close the deal. And what I underestimated was that, that layer of having that seniority, when you go on the call, it actually helps you because it looks like you, you know, you have a staff of people that your, your time is valuable too.   You're not just calling.   Bob (19m 3s): Yeah. Yeah. And, and it weeds through a lot of the thinking about this. If you're sitting by your desk all day long, calling four hours a day, I guarantee you will be burnt out. Right. I mean, it did for me. So what I did, I didn't finish my, actually my, I didn't finish my story on every day from 10 o'clock to 3:00 PM, I would door knock. And then I would go home in that same list, I'd go to either white pages, four eleven.com or whatever. And I would skip trace the number in out and hammer the phones before I would have dinner. Cause obviously my wife would have killed me if I, if I kept working all night, but that's what I would do all day long and over time.   And that beats you up, that beats you up. If you're hammering that all doing that, if that's the only thing you're going to do. Yeah.   Jesse (19m 44s): That's a lot of fatigue. I mean, even, even in our industry, you do that for your first couple of years at most. And then hopefully, you know, you get some, some deal volume. So Bob, in terms of, for somebody that's, they are completely outside of the realm of, of hiring somebody. It doesn't seem like something that'd be part of their business at this point. A lot of times people that justification will be the costs, which, you know, I think Kevin kind of get dispelled fairly quickly with the fact that you're outsourcing it. But the, just the fact that talk a little bit about the need for one, when people say, I don't think I'm at that stage yet.   Yup.   Bob (20m 22s): And I look at it. It's, it's funny. You said that. Cause I had this conversation earlier with someone too, I look at is, and this is not what I, I, how I looked at things when I first started, I look at things as an investment now. Right. So if you're going to hire somebody, it's not a cost, it's an investment. Right? So we just added a transaction coordinator in our office. And that to me is a huge investment because that's going to give your team is going to be way more right then if you don't have it.   So that's the way I look at adding a, let's say a cold color because you have to look at what we do on a daily basis. And you say, okay, if I'm doing a $10 an hour task, most likely I'm gonna have a $10 an hour bank account, right? Because if you're doing those tasks, our jobs as business owners or whatever role managers, whatever role we are is not to be cold calling all day. It's not to be, you know, spending our time prospecting. It's not to be, you know, doing admin work, posting social media, doing all of that stuff that you should literally look at your calendar for the next two weeks, write down all of your tasks, identify what tasks you could take off of your plate and pass off to somebody else.   Whether it's a virtual assistant or your office assistant, whatever it is. Right. And then you'll realize like, wow, I actually have 20 plus more hours of my week. Hey, you may, you may decide to go to a Leafs game then and get out of office, get out of your office early. But if you have that extra time, then you could decide, Hey, do I want to use that to build this or build this or build this or go on vacation or whatever it is. But you'll realize with an extra 20 hours, you can do a lot.   Jesse (22m 5s): Yeah. For sure. What do you find from the individuals that you work with in real estate? What do you find is the task that they find that is the one that they end up saying, this is something I, I need more time to do or when they take these other things off their plate, they're like, this is really the thing I should be focusing on.   Bob (22m 23s): So are you saying that the tasks typically that they're doing, are you saying then that when that's off or do they do   Jesse (22m 29s): Once, once they offload, like you said, you go through your tasks, you, you identify the ones that you don't need to be there that you can offload to the VA after that, do you find there's one or two tasks that those individuals find that, okay, here, this is what I should be focusing on. Okay.   Bob (22m 44s): So yeah, that's kind of tough question, but I'll give you, I'll give you the answer of me personally. What happens when you, you're not overwhelmed and you're not looking at this phone, you want you, you're not checking the list and checking the box. You could actually take a step back and look at your business through a 10,000 foot overview. And once you actually can do that, it's kind of like sports, right? When you're, when you get better, the game gets slower, right? So it's kind of the same concept. And in, in, in business, if you could then have more time, you could pull yourself out, you could see how things are moving, right.   They move really, really slow. So now you'll be looking at your acquisition team, how many calls and now you can really oversee them. How many calls are they doing? Maybe you're going to listen to calls maybe, oh, you're going to realize, now you need to add another individual on your team. So you could really look at it on a and again, this all depends on what type of business you're in. If you're in the commercial brokerage right now, you're going to be building relationships, going to dinner with a banker or with a v-neck or you'll have that much more time to build your business and look at your business in a different light.   Does that, does that?   Jesse (23m 51s): It makes sense. Yeah. A hundred percent. And I think it, it, it is probably a tough question because I find it'll probably be different for each type of individual and worker or, or type of entrepreneur, especially. I think that's a good point because I feel like most entrepreneurs like pure entrepreneurs at heart, I think are, are creative and big picture. And part of, one of the worst things you can do is get them bogged down in, in my new HSA and task oriented things. And like you said, it's almost like a it's sports or it's like Neo in the matrix, everything kind of slows down and you know, you're seeing everything around you and you can finally say, you know, what are we doing in six months?   What are we doing a year from now? And have that big picture plan.   Bob (24m 33s): Yeah. And you can start, you can start doing quarterly, you know, start setting quarterly goals. And you know, a great book has traction. Right? Very, very good book to read, to start that scaling up as another one, but it's really good. You could now start implementing this in your business and you could do more training. You know, there's nothing more important as you know, is, is training your team because, you know, if you could have spend more time on the ground with the team training, they're going to be that much better themselves in the companies you have that much better.   Yeah.   Jesse (25m 3s): Fair enough. So when you let, for example, if you have somebody that, whether it's, you know, most listeners are on the real estate end on the investment side, when you have an individual that's looking for a virtual assistant, they hire the virtual assistant. Do you find that there's kind of a hierarchy of tasks that you, you know, you say start with these types of things before you go, for instance, into more sales oriented stuff. So here's an email list that we need cleaned up, or here's a know here's some administration work that we need done and then move them towards sales or cold calling or acquisition, or is there it's, everything's, you know, everybody's different.   Bob (25m 42s): Yeah. You know what, that's an extra, very good question. And the answer is everyone's different. We identify that right or front, because the way our process is we have a sourcing and recruiting team in the Philippines. We also have a training team where they train three to four weeks a month on real estate tasks. And then we have a placements team where we use predictive and index and disc profiling. So once it gets to the placements team, we already know when sales comes in, when an individual wants a cold call, or let's say, it's almost like match.com and in placements, right.   They match up the, the disc profile, that predictive index in the qualities that, that particular virtual assistant has with the tasks that you're looking for, I'm looking for. So that's what we do as a company to match them up. Because you know, you know, this, if you've ever, if you've ever gone on a company like Upwork, it's a pain in the butt, right. You have to sift through hundreds and hundreds. I mean, I hired here in my office and I use wise hire or indeed or whatever, it's the concept I got to do all the heavy lifting.   Right. So we, what we did in our, my Reva global company is we funded all of that heavy lifting and just hand it over to them.   Jesse (26m 53s): Yeah. It's funny. It's almost a, the irony of when you do go on Upwork, you almost want a virtual assistant to, to hire for you on Upwork tonight. When you, when you say disk, just, just so I'm following you, it's like the personality tests, like the, the profile. Okay. So you go to that, to that level of, of granularity when you're trying to match up the VA with the professional. Yep. Correct. And what, what was the kind of the origin of that approach where you start actually looking at all right, is this person really psychologically the right person for this task or for this, this matchup?   Yeah.   Bob (27m 32s): And you started looking at that over the years. You know, it started, like I said, I started this in 2014, you'll realize that, you know, cold callers tend to be a certain kind of profile. Right. And you'll have, you know, bookkeepers are a certain type of profile because you'll never want to put, and I'll give you an example. These is accurate it's dominance, right? So you have dominance and eyes for influence interaction or interactive. So those type of individuals, they love being on the phone. Right.   You know, just the fi finish up that S S is for, for a steadiness and a CS for consciousness. Those are more of your bookkeepers that are really attention to detail. You know, you know, there's a lot of salespeople, you know, their attention to detail. Sometimes you don't want them.   Jesse (28m 19s): There's a couple of zeros there.   Bob (28m 21s): Exactly. So that's how we look at that to, to help, you know, find the best fit.   Jesse (28m 27s): Yeah. And I think that's a missing piece with a lot of it. I think that goes for not even VAs. I think that's just hiring in general, trying to match up culture. And that's, you know, it goes back to the beginning of our discussion here, you know, where you have certain industries, I find are more conducive to X athletes. It's a very, you'll have very similar cultures and working together.   Bob (28m 49s): Yep. Yeah. There's I mean, you know, ex athletes, it's typically it's sales, right? You got a lot of Phi X app, that's going in a financial industry, right. Medical industry, same thing, pharmaceutical industry. That's a lot of how, how a lot of these companies, actually, I got a buddy that's pretty high up in principal financial, and that's what they do. They look at, you know, they look at resumes from, from bigger companies. And I know there's a lot of colleges that are tying to some companies now, which is actually really, really, really good.   And you know, the funnel.   Jesse (29m 21s): Yeah. Would you not to put you on the spot here, but would you be able to name a couple tasks or jobs that you would think, or that most people think is, is something they wouldn't put on a VA, but, but you've, you've found success in it or are there certain things that people are surprised that VA's can, can do?   Bob (29m 43s): Yeah. I mean, on the multifamily level, just talk about the multifamily side. We have a lot of our multi-family investors. We have a lot of our blog. We have a lot of single family investors that own hundreds of units. Right. I have one individual that has 15 virtual assistants with us that does everything from bookkeeping to taking tenant calls, to doing tenant placements. Right. So those are some of the things off the bat right away. The other marketing properties that are actually some of those properties that go vacant, someone needs to then start marketing them and push them around to all of the sites that they have.   The there's a, some syndicated sites. So you push them out too. So there's a lot of those types of tasks that other people don't think of in reference to that. Another one is, is a big part of all of our businesses. I mean, you have a podcast, right. It's using a virtual assistant to splice up your videos and send it out to your, whether it's your email list or whatever list that you have posting it on YouTube posting on Instagram, posting it on Facebook, all that kind of stuff that takes a lot of time. And it's a pain in the butt, right.   So I have a podcast. That's what we do.   Jesse (30m 52s): Yeah. 100%. It is a, it becomes a bit of a full-time job, but, and once you hit your stride with something like that, really the hardest, the hardest part I found is the, is that setup piece. So like you're saying whether it's going an Upworker, it's going on another site, it really, a lot of it is that finding people and you find, you find that you, you really need a virtual system for that job itself, just trying to get other people on.   Bob (31m 15s): Yup. Yeah, for sure. And, and, you know, it took me a little while at the beginning and that, that was the business model that we, we figured out at the beginning because of the pain, you know, I felt you could go for places that, you know, I always look at in this kind of funny, you look at, I look at my company, I'm not the cheapest. Right. And I've, I've come to realize after 17 plus years in business, if you go for the cheapest, you're going to get the cheapest. Right. That's the way it's pretty, you know, you start looking at that, the older we get, you start seeing things a little different.   And I always go back to, to this one of my first houses I ever bought, I bought a home Depot cheap door for 99 bucks. And the, and it was a you're the next door and every winter and every summer, my, either he bill or electric bill was through the roof. And I was looking at that door doors. I think I probably should've spent probably over 500 bucks and I probably would have saved thousands of them, thousands and thousands of dollars. So that's the way I look at, you know, you pay for in life, you pay for what you get rewarded, you pay for   Jesse (32m 22s): Yeah. A hundred percent. So just wrapping up close to the end here, we usually have a set of questions. We ask every guest, but before we do them, I'm, you know, selfishly on the VA side, I have a question about email and calendar management and, you know, just like a lot of these things that you think can't get outsourced, that it turns out that you can, from an email management point of view, how, what do you recommend if somebody is they've, you know, for whatever business it is, they want somebody to offload or shoulder some of the things that they're doing through email, you know, for strategies from that point of view, whether it's calendar and email, just email and you know, what techniques do you find these that, that people are, that are the VA's are doing?   Are, you know, the aggregating, the most important ones. Are you training them up on that piece?   Bob (33m 13s): Yeah. So just on, on email management, I mean, we could get, I don't know how many emails you get a day, but I get a billion. Right. And you get some that don't, you know, they're just junk mail. You signed up for a Travelocity Expedia and they sell your email over to something else and they sell it to something else. Right. So I find what works out well as virtual assistance, just sifting through and going through each, probably each hour and then getting through some of those. And then we set up a side email to send the really important ones over to.   So that's how it worked out very well. It saves that does save a lot of time. I know it sounds so simple, but if you actually took the time and you're like, all right, you're looking at, you're looking at your emails, how many junk emails you actually get per day or emails that just waste your time and are not important for you on a daily basis. It's hours upon hours on a day.   Jesse (34m 8s): Yeah. And it's, it's time is one piece of it. But I think another piece for sure is just the stress. It's, you know, when you look at your phone and there's 200 emails or there's 78, whatever it is like you go, if somebody can be like, okay, I have somebody, whatever. I was just text message or emailed. I know those are the important ones. I don't have to stress about it. I can manage it. Yeah.   Bob (34m 26s): And I, I know if anyone's like me, it's I look at this, I gotta get mine down to zero.   Jesse (34m 31s): Yeah. I'm the same way. I, if it's over like 20, I'm starting to get stressed. Awesome. Well, we've got four questions. We typically ask every guest. So if you are a, if you're ready to go off, throw them at you, let's do it. All right. What's something, you know, now in your career or business, you wish you knew when you started out   Bob (34m 52s): Don't chase the shiny objects. Because typically those shiny objects where losing a lot of money and wasted a lot of time.   Jesse (34m 60s): I like it in terms of mentorship for younger people getting into, in, into the industry, whether it's real estate or other specific areas, what would you say to them? What's your view on mentorship?   Bob (35m 12s): I say 100% invest in it. 100% because mentors will cut your learning curve over time and will make you way more money than being a, a lone Wolf in a, in a solo preneur and saying, Hey, I can do it all myself. You know, if you learn anything from, from, from sports it's you need a team. I don't care if it's Wayne Gretzky, right? Wayne, Gretzky has a team with them. Doesn't matter. Right? I mean, look, how good look, how good Toronto is? They have a lot of sprinkles stars, right?   If they learn how to play together, they might win a cup. Right?   Jesse (35m 46s): So fingers crossed any resources or books you're reading right now that you'd, you can share with the listeners.   Bob (35m 55s): I would, I would definitely say books like scaling up or traction or some of the books that 100% I would highlight. And we talk about our, in our business, outside these walls here all the time. And I think those are, if you're going to read some books, those are very, very powerful books. The other one is one of the, the ones that I think is for me, it has been very powerful as a it's called a compound effect. Darren. That's a very good one. Yep.   Jesse (36m 21s): First car make and model.   Bob (36m 23s): First car was a Nissan Maxima, white Nissan Maxima. This is when I got my signing bonus. I bought a used one. So it was back. This is hallway back.   Jesse (36m 33s): That's awesome. Right on Bob. Where, where can listeners find you on the interwebs?   Bob (36m 40s): Yep. Actually you go to my website@rivaglobal.com, R E V a global.com. I'm on Facebook. I'm on LinkedIn. I'm on Instagram. So you can find us there. We have a podcast called Friday coffee break. It's on every Friday at 10:00 AM. Eastern standard time. So you check me out there and yeah, all my contact information is out there.   Jesse (37m 4s): My guest today has been Bob Bob. Thanks for being part of working capital.   Bob (37m 9s): Awesome, Jesse, thanks for having me.   Jesse (37m 18s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    What's Next for The Real Estate Market? With CoStar's Senior Economic Consultant Joseph Biasi | EP74

    Play Episode Listen Later Oct 13, 2021 45:31

    Joseph Biasi spends his Days Analysing Economic Trends and their Relationship with Commercial Real Estate for CoStar – the Leading Real Estate Data Analytics and Aggregator in the US.  In this episode we talked about: Joseph's Bio & Activity Commercial Real Estate Market Outlook Retail Property Analysis Industrial Real Estate Overview Interest Rates Government Policy Single Family VS Multifamily Real Estate The Effect of Inflation on Real Estate Investors Mentorship, Resources and Lessons Learned Useful links: https://www.costar.com Transcriptions: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right, ladies and gentlemen, welcome to working capital the real estate podcast. My special guest today is Joseph Biassi. Joseph spends his days analyzing economic trends and the relationship with the commercial real estate sector. And he works for CoStar advisory services. For those of you that don't know what CoStar is, they're the leading real estate data analytics and aggregator in the us. And I'm not sure if Canada as well, but I wouldn't be surprised we use them pretty much every day. They're our go-to for analytics, for properties, for research and a part of our underwriting process. Joseph, how's it going? Great. How are you doing? I'm doing great. Do I have that right, Joseph, in terms of CoStar where they're at today, maybe you could, you could let the audience know a little bit about your position there and CoStar in general and what you guys do. Sure. Yeah. Joseph(1m 10s): CoStar is a data analytics platform and a data vendor. We, we track pretty much every commercial building that we can at least get research on across the United States. We are moving into Canada as well, more and more. We're getting better coverage in Canada and as well as Europe, my job in particular is I sit on top of that data as a consultant. I'm a senior consultant with advisory services. And my job in particular is to advise client both developers as well as investors on macro economic and commercial real estate trends Jesse (1m 45s): Right on. Yeah. What I've noticed is we have, I think 84, 85 offices now, and we've, we've pretty much switched over completely to CoStar and that goes for Canadian and, and us markets, but it's definitely come a long way in terms of the coverage that we have at least, you know, in our major markets, you pretty much, you've got everything covered there. Speaker 1 (2m 7s): Yeah. I mean, we've been really pushing research recently. Speaker 0 (2m 11s): So this was, this was something we were at, we were at this panel and in new Orleans this past, I guess two weekends ago now, and we were talking about, you know, where, where people can find information, those people looking for deals in the market and a lot of, a lot of what we do on the investing side and not just in brokerage, but we'll, you know, when we tried to track down owners, a lot of times we're looking at properties on CoStar trying to find the beneficial, the true owners and reach out to them directly for off market deals. Speaker 1 (2m 38s): Yeah. So I, I, before actually, before I worked at CoStar, worked in brokerage. And so I was, I I've been a user, it's a fantastic site for anybody who wants to do any kind of real estate deals, right. On a little biased, but Speaker 0 (2m 52s): Yeah, a little biased. So in terms of the, the actual market, I thought what would be, will be just that would be useful and educational for our listeners is talking a little bit about what's been going on in the market over the last year or two and the outlook for the next, let's call it a mid to mid to longterm. And by longterm for me, I think five years, I don't think longer than that, but yeah. You know, let's talk a little bit about the commercial real estate market in general, over the last two years, how have things changed in terms of the data that you're seeing in terms of the way you approach the market and, and your analysis? Speaker 1 (3m 31s): Great question. Yeah. So, you know, when the pandemic hit, I think there was a lot of fear going around and that translated into a lot less commercial real estate deals, particularly in the office sector. Everybody began to work from home. We knew, we noticed a pretty steep drop off in transaction activity, which has since returned. And that's, that's pretty much been the story is we had this initial 20, 20 decline, a couple of, a couple of quarters of, you know, pretty severe transaction volume decline. And it's all become back effectively, but it's come back in a very different way. And that's the actual story behind what's happening in the commercial real estate market is if you look at the macro macro numbers, you know, total amount of transaction, the total transaction volume is back. But if you look at where that's happening, it's very different. For example, the Dallas Fort worth had more transaction activity in 2020, the first half of 2021 than New York. That's not normal. We're seeing, we're seeing those rooms moved down to, if you're talking about retailer, multi-family, we're seeing them move down to the south, the study United States, as opposed to, you know, the new York's and the San Francisco's of the world. Phoenix is another market we've seen, which is, I suppose, as a Western market, those, those Sunbelt markets are where we're seeing the most demographic growth. We're seeing the most transaction activity. And we're seeing the biggest pricing gains across all four, four major property types Speaker 0 (4m 55s): In terms of the, to go from geographic to the property types, if, you know, starting with retail, I guess. Cause that's, that's the one where when the pandemic first started, there was the big question of retail, which I think for, for the most part has been overbuilt. I don't think it's a surprise in the U S Canada. Canada's pretty. Yeah. I mean, we are as well, but I think we're somewhere in between the U S and in most European countries on a per square foot basis. But talk about retail, you know, how has that analysis been over the last, you know, call it a year to two years? Speaker 1 (5m 29s): I think retail, it, at least in my opinion is one of the most fascinating property types. Like, yeah, you're absolutely right. There needs to be some level of rationalization. If the landscape has changed, it is no longer the place where people go deep. The only place people go shopping to buy goods, that doesn't mean it's going away and there's still, I would argue opportunities. And I think that's the way we've been trying to, to talk about retail, which is look, you know, you're not, if you're looking at a class B or class seem, all those are going to struggle, but if you're looking at, you know, there's still good opportunities and you just, there's a lot more nuance and a lot more detail that you need to look into for a retail building the tenants matter so much in a retail building, even more than an office or an industrial building, because if you have a good grocery anchor, a neighborhood center in a well-populated area, that's still a good asset. And that, that I think has kind of been, under-reported just due to the fear around retail during the pandemic and the fear around retail because of e-commerce. Speaker 0 (6m 36s): Yeah. It's a, it's one of those things that we've always talked about that, you know, good grocery store, anchored retail. I can't imagine in a lot of these markets, if anything, they were a bit, some of those properties were buoyed by the fact that the only places that were open were the Walmarts or, you know, these grocery stores that were anchored. Speaker 1 (6m 54s): Exactly. And we're, you know, we are seeing, you know, returns to normal leasing patterns in the Southern states where, you know, where retail really does follow rooftops. And in those Southern states, we've seen pretty much a full recovery, and we've seen a pretty much a full recovery in terms of pricing as well. Whereas if you talk about, you know, these, these tertiary markets in the Midwest, or some of these coastal gateway markets that have really struggled during the pandemic, there's still, there's still losing people. They're still struggling to kind of recover. Speaker 0 (7m 25s): So have you seen, I know you, you track a lease terms and different differently structures. Have you seen a difference in the way that retailers are approaching their leases? You know, where you could have some retailers in the past doing 5, 10, 15, 20 year leases, has that, has that shifted or is it, is it too early to tell Speaker 1 (7m 43s): It's a, it's a little early to tell, just because we're, we're finally kind of getting back at least down south, but the, the tenants that they're looking for at certainly become far more focused on either, you know, necessity based retail, certain tenants like dollar stores. So these, these discount stores are doing really well. And then experience-based tenants have done are something that landlords are really looking into as a long-term longer-term play. At some point, this pandemic will become less and less, have less and less of an effect on the economy. And a lot of landlords believe that the future of real estate of retail is experiential. That you're drawing people there for something more than just a shopping experience. Speaker 0 (8m 28s): Does CoStar track the rezoning or reclassification of buildings in terms of, for example, one of the, one of the, the guesses that, you know, that we have is that retail and, and certain types of office buildings may be converted, maybe switch the use might be switched even in hospitality, potentially hospitality going to multi-family. But if do you track that type of thing? Speaker 1 (8m 54s): Yeah. It hasn't occurred as much as you would think, given the amount of airtime, not an ink that's been spilled on it. It really hasn't happened. It does happen, you know, so I went to college in Worcester and the Greendale mall in Worcester got turned into an Amazon distribution center, but that isn't really the rural quite yet. They're still working on that because, you know, it's, a lot of people think that a mall is going to turn into an industrial center, like a distribution center, and it's more likely to be knocked down and turned into multi-family center because it's still the highest and best use is, is multifamily for a dense urban area. We're, we're, we're starting to see some of these malls really struggle. Speaker 0 (9m 36s): Yeah. I think you're absolutely right with the amount of ink that's been spelled as a that's been spilled on it because it is one of those things, I guess, more of an academic thing. It's logical to think that okay. But I think the reality is you get in transaction costs the actual time it takes to convert these things. There's a little bit more that goes on with it. If you, if you kind of slide from retail, move into the, the office space. So my partner and I on the brokerage on predominantly work in office investment sales, as well as leasing, they, I don't, you know, despite some of, you know, what, what has been said last year, that markets haven't been affected. I just think a lot of people were saying certain things were, what we saw was a large, large drop-off in office. And not surprisingly, I'm assuming that's, that's what you S what you've seen. And if not, maybe you could provide some insight there. Speaker 1 (10m 26s): All right. No, absolutely. I, I, if you look at where most of the transaction activity has fallen off, it's been an office and it really has a lot to do with uncertainty. Right. It's, you know, what will work from home look like in five years from now, because if you, and you know, this probably better than I do, if you're buying an office for your leasing office, it's, it's a five to 10 year lease or three to 10 years typically. So you're, you're really guessing what's going to happen down the road. So when you're buying office, it's, it's a little scary right now. And I, I understand that the shop view for CoStar advisory services, and I do not speak for all of CoStar district health, say for CoStar advisory services, is that, you know, the office, there will be less demand for office because I work from home, but we don't believe this is the death of office everybody's going to be working remotely. And we also don't believe that. And I personally don't believe that, you know, these downtown offices are going to, you know, go away anytime soon. I I've in that downtown, these downtown clusters are going to severely struggle. I think the actual concern for office, if we want to think about where, where we might see struggle is those class B offices in urban areas that have less, that don't have as good a commutability score that aren't dark, aren't able to draw. Don't have the same amount of amenities. Those, I think are the ones that well, we think are going to struggle a little bit more. Yeah. It's funny. You Speaker 0 (11m 53s): Mentioned that I was having a conversation with a, with a colleague of mine. And I was, we were talking about that specific thing where a lot of suburban markets actually, haven't been doing particularly poorly with office and then these downtown connected, but there's, these Midtown markets are like these markets that are tertiary markets, that if, unless they have good connectivity, it's a really, you know, there's a question mark about how they'll do well, we've also seen though, is that the, the office side, like you were saying before, the underwriting has changed to the extent that, you know, we, they want to see is what type of tenant, what, you know, where are they in the lease? What are their rights? And, and it's funny too, that you mentioned five-year and then kind of went back to three-year because what we've seen is that, you know, when I started in brokerage, really, it was rare to find even three-year head leases. It was typically a five-year minimum. Where now, if one thing has happened from COVID, we've seen all kinds of different lease lease terms. Speaker 1 (12m 47s): Yeah. I mean, if you, if you think about going to selling a building, occupancy matters more than anything else, even, you know, that's the, that's the first and only thing I, if you have to take some rent losses, you'd rather take some rent losses and lose occupancy. So peop landlords are for office buildings are, you know, it is definitely a tenants market right now, but we, in terms of the, the urban areas, I think the reason they lose out is because the downtown offices have that commutability and then the suburban offices have that advantage of being able to drive to them. If I'm in, I'm in Boston, which is a famously difficult Metro to drive in. And there's no way I'm going to go drive to, let's say Brighton, which is just outside the main city to go to an office there, but I'd be willing to go to suburban office and I'd be willing to take the T down to than the downtown crossing, for example. Speaker 0 (13m 37s): Yeah, for sure. And you, you know, one thing too, is like we've had, what we've seen is that the CFO or COO, depending on, or the real estate, you know, facilities manager, whoever's dealing with the company's real estate. It has been a lot of like kicking the can down the road, because like you said, it's, it's, you're making a decision. That's going to impact five, 10 years. Whereas if you're buying an investment, one thing you can say is that interest rates are where they're at right now. You can, you can, you know, logically pursue maybe a little bit more risky investment, but for the people that work at a company, they're like, I'm not going to make a decision where in a year from now I could look like this was the terrible, the worst thing I did for the company. Speaker 1 (14m 12s): Right. Right. Exactly. Speaker 0 (14m 14s): So if we, okay, so that's retail office. If we switch now to, to industrial, because one thing that was really a cool stat that I saw when, when COVID just happened was the fact that retail sales did not decrease. It's just where the sales happen changed. Right. There was a pivot to online sales, total sales didn't D decrease, at least at the beginning of the pandemic, the data that I was looking at. So I'm curious, I mean, I think it's no surprise industrial's doing pretty well today. Speaker 1 (14m 48s): Yeah, no, it's not. It's no surprise. And it continued to do well. The pandemic, you are somehow seeing cap rate declines, which I think if you said two years ago, most people would be like, there's no way, but I just given how quickly we begun to really shift into e-commerce and the, you know, the room to run in terms of e-commerce. If you look at Europe, Europe uses e-commerce far more than the United States does still, but kind of going back to your point about retail sales it's, I've been tracking it very closely for that specific reason. If you look at retail sales, and this is because, you know, the government stepped in and enacted a lot of stimulus by, by June of 2020 retail sales had more sales than you would expect, given what you would expect pre pandemic. So if you forecast it out pre pandemic, but retail sales should be, and it's a fairly linear trend, you would expect them to have, you know, X amount of retail sales. And we're, we've seen exceed that basically since June of 2020, and about 35% of that is e-commerce, which is impressive when only 16% of retail sales is e-commerce right now. So e-commerce is pushing along, is pushing along retail sales. And realistically there's only, only it can only go up in terms of e-commerce. I want to be careful in saying that, because I know that's gotten people in trouble before. It can only go up in terms of e-commerce industrial is starting to become, starting to see a lot of construction. If you want to talk about the property type in particular, we're starting to see more speculative construction, but on the, at the, at the, at the other end of it, you can make the argument that it's pretty easy to turn off the industrial tap. If you it's just, you're building a big slab of concrete and yeah, exactly. It's a slab of concrete. Got you build a box and you're good to go. And there's a lot of reasons to believe that structural shifts from retail, from onsite retail to e-commerce means strong sales, and that's not even getting into three PLS and manufacturing tenants that we do also expect to do quite well. Amazon alone accounts was one, a hundred million square feet of absorption in 2020. And I, I don't know if they're going to do that again, but they are already, they're already in the, you know, they continue to be the player in the market and continue to push industrial. So do you think, Speaker 0 (17m 20s): Look at the, on the topic, the three PL or third, third party logistics and last mile delivery, like, do you, do you, do, do you break down industrial into these sub categories for your analysis? Speaker 1 (17m 31s): Yeah. Yeah. I mean, you almost have to, right, because that's how, that's how tenants think about it. You have these big distribution centers and then you have these last miles and, you know, these last miles tend to be these, these crappy frankly buildings that are in well better located areas. And the great thing, if you're looking from an standpoint about these last miles, they're not usually the highest and best use. So there isn't a ton of new construction in the last mile, despite the huge amount of demand for the last mile, at least according to what we're seeing. Speaker 0 (18m 5s): So in terms of the, the actual investment sales side of the industrial coin, when, you know, we see in our market, which I think pre pandemic, we were at 2%, I know Toronto is, I know LA and Toronto you'd know better than I would, but I know that we were at the top and north America with the, in terms of how lower vacancy rates were and continue to be on the industrial side. And what we've seen on the investment sales side is there's only so much product that, you know, you've seen, oh my God, that thing's traded again, that's traded three times in the last year. Are you seeing that same stuff in these really hot markets where properties have, basically, I'm assuming it's a constraint on the, on supply right now. Speaker 1 (18m 45s): Yeah. I mean, I, you know, everybody is out for industrial and they're continuing to increase their allocation. It's it's, you know, when we talk to clients, it's the first thing they always say is don't worry, we're going to increase our allocation to industrial really? Usually at the cost of office and retail. Well, not usually, always at the cost. No. Yeah. It, it, you know, that's, that's the other side of the coin, right? Is we saw 6% rent growth so far in 2021, we can be concerned about construction and market specific. If you look at like, you know, inland empire, for example. Yeah. There's a lot of construction or, you know, Las Vegas, for example, there's a decent amount of construction, but at the same time, the amount of demand that we're seeing come in and given it's a structural shifts, it means that you could, you should expect continued demand. That being said, we're getting to a point where cap rates are going to struggle. Maybe a little bit to continue to decline. Speaker 0 (19m 45s): I was going to say, it's for reminds me like economics 1 0 1. We're like, no, that the shift it's the whole demand curve moving, not just going up along, right? Like there's a, there's an innovation here. There's, there's a structural shift to less retail and more, more industrial distribution. Speaker 1 (20m 0s): I was actually trying to the other day to think of a, a good comparison. And I think we landed on radio for retail retail's radio where it it's still gonna have a use, but it's not the same use that it used to have an industrials TV now, the television. Cool. That's the entertainment. Yeah. Speaker 0 (20m 22s): So where does, where does vaulty Rez line up with that? If we, if we go to multi Rez, which you have to think that, you know, prior to the pandemic, we were like, can cap rates keep going down? And then they kept going down. And even right now, buoyed by I'm sure interest rates are multi-res team. I think, did their, did their had a banner year for 2020, like a record year for them? Speaker 1 (20m 46s): Yeah, we we've hearing that a lot is that, you know, 20, 20 and now 2021 in particular, it's been a great year. 2021 saw the largest increase in rent we've ever seen quarters for Q3. So we just finished up two, three, we're still finalizing the results, but shaping up that Q2 Q3 and Q1 of 2021 are the top three years in terms of demand for multi-family. And it, you know, that's across the board. However, if you start breaking it down by markets, the south in particular is really, really very strong. I mean, I'm going to keep harping on myself just because it is as strong as it is, but you know, multi-family is price per unit has gone up by 30% compared to pre-recession averages in Sunbelt markets rents in, like, for example, Austin increased by 15%, six months, you get, you kind of become to begin to become worried more about affordability than anything else, which is at some point, this becomes a economic macro economic problem, which of course then comes back to haunt investors. You know, a lot of that gain has already happened and really have seen a deceleration, which you would expect given seasonal trends in multi-family. And, you know, in some of these markets, you really are beginning to hit the, the affordability limit. And that's where you can start making a great argument for like, for manufactured homes or for mobile home parks. For example, particularly in the south, the Southern states, they don't work as well in the Northern states. I would argue at least mobile home parks. Speaker 0 (22m 27s): Yeah. Neither up here. Speaker 1 (22m 30s): It gets a little chilly. I know, but it's, multi-family has done, has probably been the outperformer, which, you know, given all the news around how well single-family pricing has done is isn't that surprising. And if you, if you look at single family, a single family price growth compared to multi-family rent growth, single family price growth in almost every single market has grown faster. So it's not like your, your other options is getting any easier to, to afford. Speaker 0 (23m 8s): Yeah. And in terms of like your outlook on this, in terms of the actual properties themselves, like, are we finding that in these markets that there are underperforming assets that are now being utilized to their, to their, you know, market rents, you know, value, add deals. Do you think that is what's happening in a lot of these markets? Or do you think that the pressure of lower interest rates is, is what's fueling most of, most of the acquisition in, in multifamily being an asset class that's pretty much being subsidized or was subsidized for the last year, year and a half by the government in most in countries. Speaker 1 (23m 46s): Yeah. I mean, that's a huge part of it. And then on top of that, I think lower interest rates is extremely helpful for multi-family acquisitions. You know, part of it is it, some of it has to be just the inflation hedge that you'd get for multi-family. If, if you were to all concerned about inflation and you want to look in real estate multi-family is probably your best bet just given. And we can talk about this at some point, just given the short lease term is, but the, the eviction moratorium also, at least in our opinion, has had a pretty big effect on multifamily demand because on one end, you're, you know, you are seeing a huge spike in terms of demand, but then we kind of scratch our heads at it for a while. But then if you think about it, we weren't evicting anybody. There's 800,000 evictions in the U S per year. I don't know what it is for Canada. That's 800,000 units that aren't going, that aren't in negative demand. We aren't, we aren't building, you know, these, these class C units were, if we're building anything, it's, it's a class, a, a, that's the only thing you can really afford to build right now that will, that will pencil. So, you know, people are, people are basically sitting in their home, sitting on their apartments, they're unwilling to move. So we aren't seeing that, that negative demand. And on the other, the other side, we're seeing a huge uptick in people separating how tools, if you're, let's say you're a 22 year old kid and you you're living with four roommates, we're seeing people decouple those households and begin to move out into their own places. All of that kind of leads to these, this huge spike in, in multi-family. Speaker 0 (25m 36s): Yeah, I guess the real question, like you said before, it's, it's the affordability aspect you have, like you said, 30% increase, I think in evaluation, but 15% increase in rental rates. And there is, there is a certain level where, you know, you, you just hit a, you hit a wall in terms of affordability from the, from the consumer point of view. Speaker 1 (25m 56s): Yeah. I think it's, it's going to have, it was a concern even before the pandemic was, you know, a home affordability shelter affordability, and it certainly did not get better. Speaker 0 (26m 8s): And on the construction end, you, you, you mentioned class a, are you seen quite a bit of construction on the multi-family side? Generally, Speaker 1 (26m 14s): It's pretty, it's pretty much in line with the last couple of years, to be honest with you, which was pretty significant. But on the other end, we saw a huge amounts of construction delays even before the pandemic. And it, it kind of acted as this filter for, for supply being added, frankly, especially, especially down south where there's huge amounts of demand, there's huge amounts of supply waiting to be added. But at th at the same time, they just can't get it out. Whether it be supply costs, labor is certainly a problem. Anybody and anybody who's trying to build multi-family right now has told me that labor is almost impossible to find at this point. Yeah. Speaker 0 (26m 51s): I mean, just even on the small scale or we're doing projects in our area, it's, it is extremely slow. And, you know, you talk to anybody in the construction industry. They'll, they'll tell you the same thing right now. Not just supplies, but labor as well. If we shift over to, to that piece on inflation, it's been a hot topic in terms of ink spilled. I'm sure it was one of those things that, yeah, the over the last little while there's been enough fuss bulled over on, on the inflation side, what's your view from the data that you guys are seeing? Speaker 1 (27m 25s): Yeah. I, I take the view that I am in agreement with the bond market and the fed that it is transitory. I think the definition of transitory has been changing pretty significantly because at first I think it was six months and now it's probably going to be a little bit longer than that. Kind of where I begin to split a little bit from the fed at least, is that it's inflation is likely to be higher for longer. I don't think it's going to be quite as high as it has been. A lot of that. A lot of the reasons it's been high currently, it has a lot more to do with the pandemic and kind of short-term factors. You know, you can think about shortages and chips. You can think about shortages and car parts, for example, or appliances, as well as transportation demand, which should burn itself off and on top of the stimulus. But the fed changed how it does it targets inflation. And I think it really went under reported. I think a lot, it, it didn't really make as much noise as it should have because what they're essentially doing now is they're saying, okay, we need to make up for really chronically low inflation in the, the last cycle. So we're going to allow inflation to run hot, to get the labor market gains that we saw at the end of the last cycle. Because if you look at between 2018 and 2020, the federal site statistics around minority wage gains, for example, it didn't really begin to appear until the economy was basically at full employment. What that three, 3.5, 3.4% unemployment rate. They want to see that again, that's Jerome Powell has basically explicitly stated that that's what they're looking for. That being said, the fed has begun to sound a little bit more hawkish. Cause I think they, I know they were taken by surprise by the how high inflation got, and they're, they're likely going to raise rates by the end of next year. All of that said, I, I still believe the fed is willing to let inflation run above that 2% mark for the next couple of years. Speaker 0 (29m 30s): So for those that don't know what you're referring to in terms of the under-reporting is the fact that they've, they've broken off of the, the, what they used to be the 2% target, is that right? Speaker 1 (29m 40s): Yeah, I, yeah. I mean, I was in colleges, every continent was, you know, they target 2%, they adjust rates based off of that. That's obviously a little more complicated than that, but now they're targeting a longer term inflation average of 2%. And because inflation from 2010 to 2019 ran between, you know, according to their measure of inflation PC around between 1.5 and 1.8% for most of that, they view allowing it to run from two to 3% as making up for some of that loss, those loss pricing increases over the last cycle. Speaker 0 (30m 15s): So in terms of, from the investor perspective, if your outlook as to how that informs your decisions from a real estate point of view, you know, what does, what does that leave us with in terms of the discussion that we've had even today in terms of the different asset classes and how you view economic decisions and investment decisions? Speaker 1 (30m 35s): Yeah, I mean, look, inflation is here to stay at, which is actually fair, especially since it's not, you know, hyperinflation I, where the fed is going to be forced to raise rates quickly. Hopefully, you know, it's actually good news for real estate. Real estate is a real asset, you know, I'm sure, you know, everybody, every economist has said this at some point, you know, real estate is a real asset. It, it benefits from a real value gains and holding real value, which means that in an inflationary environment, commercial real estate itself is a good play within those property types. There are some that are better than others, especially if you're unsure of how stable and the inflation rate is going to be the shorter, the lease term, especially in a higher demand property types that, you know, you can think about industrial or especially multi-family, it means you can adjust your, your rent increases to match inflation. If you look at, and we've seen this actually in the market, if you look at NOI gains real NOI gains from Nate grieve since 1990, there was only two real periods of actual real NOI gains from the nineties to the, from early nineties to the late nineties and from 2010 to 2015. Other than that, if you deflate real and alive for multi-family, it's basically flat, which, which essentially means that NOI is just, is, is working as an inflation hedge. You get the same real return year after year. That that makes multi-family really attractive. Industrial actually has not done that well, based on that same measure up until very recently. Speaker 0 (32m 12s): Yeah. I liked the idea. I was always told by a mentor of mine there where, you know, real estate is one of those few industries investment that you can download inflation to your, to your customer, you know, pretty much one for one. Speaker 1 (32m 27s): Yeah, you can, it, it is extremely easy to just pass on that inflation to the investor, unlike pretty much any other asset class. I mean, if you think about bonds, for example, you can't do that for the most part. You just, you know, if you invest in a bond, you you're losing real value every, every coupon payment. Speaker 0 (32m 44s): Yeah. And I th and I think to your point earlier where you have those shorter terms with multifamily, it's obviously easier to do, but I was just reading a lease yesterday that was kind of the old school lease where the, it was over 10 years, but the, the bump ups, the step-ups and rent were basically the CP attached to a CPI inflator. So we haven't seen those as much, usually landlords, if anything, at least prior to the pandemic, they would just say, okay, it's, you know, 10 bucks a square foot now 12 bucks 14. And usually that would be more than inflation, but they have some mechanism in there. Speaker 1 (33m 17s): Yeah. Well, I was going to say, the other thing landlords might want to start thinking about is, is indexing it to inflation and that's, that's actually the great part. I mean, that's why we target a specific inflation rate is because then you can make these easy decisions. I know inflation is going to be 2%, it's a very stiff assumption. So, you know, we can, we can just assume a 2% going forward. Now you have to start thinking about, okay, is it, you know, is it going to go, you're making a bet. Is inflation going to be long-term? Is this higher inflation could be long-term or is it going to come back down? How much is it going to come back down? It's really difficult. And while it does sound really nice to indexed, to inflation, if you're an office, a landlord right now, I think you struggle a little bit because you don't have the negotiating power necessarily that you did two years ago. Speaker 0 (34m 5s): Yeah, absolutely. So in terms of, so in terms of that, how that view informs the interest rate discussion, the way that, you know, the fed will respond, if, you know, if employment is higher than, or full employment, or if changes in inflation that, that they're measuring, how, how do you see that impacting the interest rate decisions? Speaker 1 (34m 27s): Yeah, so I, I I'm, I think I'm in the minority here, at least in terms of the broader economics where I really don't see interest rates increasing significantly. And I know that's a really economist answer to touching it a little bit, but I don't see interest rates hedging or increasing significantly because one of what the feds, the fed said about how they're going to react to inflation, they said, they're willing to let inflation run hot. They care more about the labor market gains right now on that needs us more liquidity in the system for longer, which, you know, can go only a few places. It can, it can drive. And we have seen equity increase by multiples. And then the only other place we can go really is bonds for, you know, those multi-trillion dollar that multi-trillion dollar liquidity pool we have right now. I mean, it's at the point where the banks just basically don't know where to put the money. All of that, to me suggests a, you know, short, you know, lower interest rates on top of that. If you think about the demographic factors that are affecting the United States, you know, slower demographic growth going forward, that's not going to change. That's baked in effectively. Unless people begin to move here in a mass on top of technological change, you know, you would expect to see more automation going forward. I think it's coming faster than a lot of people like to acknowledge that pushes down prices, which then pushes down interest rates. And I know globalization is no longer it, maybe isn't moving forward as quickly or as moving forward at all. But globalization still means a lower interest rate environment. You know, the fed in 2018, tried to push interest rates to 2.5% and ran into huge liquidity problems in the market. There isn't there, they don't and they view, and this is their view. They don't view the neutral interest rate as much higher than rate where they're no longer stimulating nor creating drag on the economy is much higher than two or two and a half percent. So all of that, to me suggests maybe slightly higher interest rates from what was the tenure at. At one point I, you know, 50, 50 basis points, but maybe not, it's probably gonna be lower than it was before, before the pandemic. Speaker 0 (36m 45s): Would there be something that would change that view for you or, or a few factors that would change that view for you in terms of where interest rates could go? Cause, I mean, that's usually the big thing where a lot of people say, oh, if inflation is going in this direction, interest rates have to, you know, come up to that, you know, come up as a result of that. But yeah, what are, what are, what are some factors that may, may kind of give you pause to, to think it might go the other way or at least increase over what you're, what you're talking about? Speaker 1 (37m 13s): That's a great question. And, you know, as inflation has continued to stay high, it's been something I've been thinking more and more about, but the, you know, inflation first and foremost above all else, if inflation gets out of hand, it, it becomes a inflation spiral. That's when I think, you know, you'll begin to see interest rates really start to hike. The other, the other concern would be the fed. It depends on who Biden dominates next year for the fed. If we get someone who's hawkish, if we see you're going to see some more hawkish fed governors, I think that in a more hawkish fed chairman that could change my view on interest rates. And finally, we begin, we begin to S you know, removing chewy really begins to drain liquidity faster than I thought it would. No we're right now, we are still buying billions of dollars of bonds every month. I don't expect removing QV would do that, but that could drive interest rates higher if the, if the market begins to react to, or begins to become concerned about liquidity in the us, into global bond markets. Right. I, I sh I should mention real quick that also there are wars and pandemics that I can't predict. I learned that last year. Speaker 0 (38m 40s): Yeah. That was a, it was, I remember two, two or three years ago. And I won't say who the company was, but, you know, I remember it was couched almost as a joke, you know, barring any geopolitical disputes or a global pandemic. And I was like, oh my God. But yeah, those are always the things you're like, you know, there's these extra exogenous factors that you're not going to be able to, to forecast these black swans. So I guess the, you know, from the real estate perspective, that's a good overview of where we're at today in terms of the different asset classes. And we're, you know, the view of the economy is just want to be mindful of your time. Joseph, we have four questions. We ask everybody before we, we end the episode. So if you're okay with that, we'll kick it off. Speaker 1 (39m 25s): Absolutely. Speaker 0 (39m 26s): What's something, you know, now in your career, you wish you knew when you started. Speaker 1 (39m 32s): That's a great question that it's okay to be wrong and it's okay to make a mistake. I think I was, at least at the beginning of my career was a little more concerned about mistakes and being wrong. If you're, if you're an economist, if you work in economics, you know, if you work in real estate and you're trying to forecast trends, you're, you're going to be wrong and that's okay. It's just, just, don't be wrong. You just learn from the mistake. Don't make the same mistake twice, twice, I think is what I needed to learn as opposed to you have to be right the first time. Speaker 0 (40m 1s): Yeah. It's all always lies. I camera it was like Truman or something that said, ah, give me a one-handed economist. Everyone says on the, on one hand, on the other hand, but yeah. I Speaker 1 (40m 11s): Mean, I'm certainly, I'm certainly guilty of that Speaker 0 (40m 15s): While you want to be precise with your answers in terms of mentorship, what would you tell younger people coming into the industry or your views of mentorship in general? Speaker 1 (40m 25s): Oh, I would not be where I am without mentors. I think it's so important to talk to people who that are in a place that you want to be, or are doing things that you want to do. I've had some fantastic mentors for both in real estate and in, in economics before, before I worked in commercial real estate, I was working in banking regulation. I was thinking regulation research, I suppose I worked with some fantastic economists that taught me everything I knew, including, you know, my, my advisor in college. I, I, you know, like find someone that you think is worthwhile to talk to and then just bug them. I think I was my first job. I was in the chief economist office, every opportunity I could just asking questions, being curious, trying to learn as much as I could cause that, and it's, it's paid dividends for me. Speaker 0 (41m 25s): Awesome. Are there any recommendations you could give a book recommendations, podcasts, I guess, with the spirit of this conversation, maybe in real estate or economics? Yeah. Speaker 1 (41m 34s): There's, that's not a good question. There's two, there's two, there's two that I, one that I love just for all time, which is thinking fast and slow by data economy, which, you know, I, I like to think that I don't necessarily subscribe to the, the basic, the, what a lot of mainstream economists think about in terms of models. I think there's more to it than that. And David Kahneman does a really good job of breaking down how people think and how that relates to economics. Fantastic book. It's a really interesting read, even if you're not an economist and the other one is the rise and fall of economic of us economic growth. I believe it's, I'm reading it right now. So I should know the name. Speaker 0 (42m 17s): Yeah. We'll put a link. I think I know the one, the one you're talking about, Speaker 1 (42m 23s): I, you know, the first economist I worked under was an economic historian. So he instilled that interest in me. And it basically shows that, you know, the century from 1870 to 1970 was a period of unbelievable technological change and economic growth. And I it's really fascinating and it informs a lot of what I think will happen going forward in terms of slower, you know, slower but steady economic growth. We're not going to see those four to 5% GDP gains without, you know, huge amounts of stimulus anymore. And it was good. Speaker 0 (42m 54s): Yeah. I have a, if it's Robert Gordon, is that a that's right? Yep. Okay. We'll put it. Speaker 1 (43m 0s): I think it's a fantastic book. I really like it. If you liked economics, I would suggest that it's. Speaker 0 (43m 6s): Yeah, no, it's, it's one of those things where I w was interested in reading, but unless you get like a recommendation, sometimes you go down a rabbit hole, but the Conaman that's I think, correct me if I'm wrong. I think Conaman was the first non economist to win the Nobel prize in economics. Speaker 1 (43m 23s): Yeah. He was a psychologist and I it's, it's a lot about how the brain thinks and makes decisions and you know, it really attacks that idea of rationality and really looks at why people actually make decisions. It's, it's a great book. It really changed how I thought about, you know, economic modeling and where I work, how we, how markets work. Speaker 0 (43m 45s): Very cool. We'll put a link to both last question. First car, make and model. Speaker 1 (43m 51s): Oh, I had a 2004, a Honda accord, which is it. And it was, it had a bigger engine than it was supposed to have, which was great because if you've ever driven in Massachusetts, all of the on-ramps are about five feet long, so you have to really gun it. And so that was a fantastic car. I missed that car still. I would rather drive that than when I'm driving now. Speaker 0 (44m 20s): Right on. I feel like a lot of engines were stuffed into those older Accords and civics, Joseph, for people to connect with you or a, you know, anything related to the information or data you do with CoStar work and they reach out, Speaker 1 (44m 34s): Yeah, we have a website, I'll send it to you for blankets, CoStar advisory. You know, you can always find me. I write a lot of articles for the website, so you'll see me on CoStar, if you have it, which I would suggest otherwise, you know, just I'm on LinkedIn. Speaker 0 (44m 54s): My guest today has been Joseph Biassi Joseph. Thanks for being part of working capital. Speaker 1 (44m 59s): Thank you for having me. Speaker 0 (45m 10s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse, for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    When NOT to Use the Cap Rate | Just Ask Jesse

    Play Episode Listen Later Oct 7, 2021 10:23

    In this week's Just Ask Jesse we received a question on the limitation of using cap rates for analyzing real estate. I run through four scenarios where I think they are not as useful and don't tell the whole story about a property.  To Just Ask Jesse contact:   Email:  jesse@workingcapitalpodcast.com Instagram: jessefragale Website: www.workingcapitalpodcast.com Transcriptions: Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right, ladies and gentlemen, welcome to working capital the real estate podcasts. We have a another just ask Jesse this week. And for those that don't know that's anybody that is interested in getting a real estate question, commercial real estate question answered. You can reach out to me either on Instagram or you can directly email me for emails. You can just type in jesse@workingcapitalpodcast.com or check me out on Instagram. You can direct message me there. Jesse, J E S S E for galley, F R a G a L E so either or so this week I was asked a question that was related to cap rates, and it was talking about when to use a cap rate or scenarios that a cap rate isn't useful. And the way I framed that question was, I thought what I'd look at is the limitations of the cap rate, because oftentimes, you know, in real estate, we see the cap rate all over the place and to recap, no pun intended in terms of the calculation that's net operating income divided by the value or purchase price. And that'll give you a percentage. So for instance, a hundred thousand dollars divided by 1 million. So a hundred thousand and NOI divided by 1 million, say that's the purchase price that would equal 10%. And that would be a 10% cap rate. Now, in terms of understanding when or when not to use it, I thought I'd go over four limitations that we have when using cap rate to keep in mind. You know, ultimately the positive aspect of the cap rate is it's a very quick way to figure out what the yield is on a property, what the percentage return is on a property compared to another property. And the best time to use them is when you're comparing two very similar assets. And in that case, you can do a quick test. And really what it will allow you to do is figure out if further analysis is required now, in terms of the limitations of the cap rate, or just some things to keep in mind. Number one, I think it's important to understand that it does not include debt. Doesn't include the mortgage. So firms or individuals with different capital structures that is that they have different leverage or they're using different types of financing at different rates. It's really difficult to compare those two in general, but when you're using the cap rate, it's silent about those two things. So how you finance a deal is silent. So you got to keep that in mind because when you're looking at the properties, gross income minus expenses, that will include everything, the gross expenses, but not the mortgage payments themselves. So as we know, in commercial real estate and residential real estate investors put debt on commercial property during the whole period. So the fact that the cap rate doesn't include debt financing will limit its useful usefulness. When you're looking at two deals or multiple deals that are leveraged differently now in terms of number two, the variations in calculation and the time period that's used. So what I mean by that is investors, brokers, sellers will all use different metrics or different time periods when calculating the net operating income, not all the time, I shouldn't say always, but oftentimes. So for instance, what we call the T 12 or the trailing 12 months, some investors might use the past 12 months of net operating income to derive the cap rate. It's probably what I would do. It's probably what most investors do now, sellers or brokers. When you see the offering memorandum, you might have the potential NOI. So they're using a figure. That's not necessarily what is the actuality, but maybe what the market rents are and ideal vacancy and maybe no vacancy at all. So keep that in mind when you're taking a look at cap rates and whether they're coming from investors or they're coming from people trying to sell the asset. Now there's also the different schools of thought, whether items like what we call replacement reserves, whether they should be included or not in the calculation. And I use a replacement in reserves as just an example, but for those that don't know, a replacement reserve is when you put money aside monthly or annually for items that are large ticket items like the roof boiler window replacements. And we know those items are expensive and they're a large amount of money, but it usually happens in one year. And in order to smooth that over, we put a little bit aside every year. Now that little bit we put aside brings in the debate of whether replacement reserves should be calculated as part of expenses for the cap rate or they shouldn't. Now, if you can think about that, if they aren't calculated. So what we say is replacement reserves are below the line below the NOI line that would have a big effect on the percentage cap rate that we derive, right? Because we're not putting it into the gross operating expenses expenses. Conversely, if you put them above the line and you include them, that's going to have another hit on what that yield looks like. So ultimately these variations do matter when you're trying to drive the cap rate and it's something that you just need to pay attention of when you are using it. Now, the other one I like is that when you're doing value, add properties, the cap rate can be misleading. And that's why they're so useful when comparing like unkind assets, you know, when you have to assets that can be compared fairly easy, that's the time you would use a cap rate, alternatively value add properties that offer oftentimes have significant vacancy reduces the effectiveness of the cap rate, for example, a property that has great fundamentals, but it's poorly managed may have a 30% vacancy in a market that, you know, the average vacancy based on your research is 5%. So immediately this vacancy will drastically and artificially reduce the cap rate because of the lower NOI. And it's really easy to think about that because you could have cap rates that really don't make sense in a market 1%, 2%, because a building is poorly managed and maybe has much more vacancy than it really should, or, or that it would compare to the market. So that's another thing that you definitely want to look at when using cap rates on the other end, you want to look at properties. Like I said earlier, that are similar, similar in age, similar in area, but also similar in that they're representing what the market is in a particular area. So in this example, that'd be vacancy rates. The last one I'll mention that I find really doesn't get mentioned that often is that they ignore the lease expiring risk. And perhaps it's not mentioned as much because it may affect commercial deals a little bit more, but you could easily see it in an apartment deal in an apartment deal leases are typically one year in length or month to month. So in that case, we don't really see the lease expired profile as, as having a huge issue. On the other hand, if you look at office industrial and retail deals, the leases can be five years, 10 years, 15 years in some cases, 20 years. So the cap rate does not illustrate the risk of key tenants coming up to expiring. The, this is a major problem as there may be substantial vacancy losses and expenditures required for Lisa. So for instance, if you have a, a tenant that has a 20 year lease, that might have the exact same cap rate as if you had a not so great tenant with a three-year lease. And I remember this a couple of years ago when we work was, was IPO going can't believe that I think it's been a couple of years now, we would see in our area, the cap rates change, depending on, depending on if we work was in the building. So they would capitalize instead of doing the NOI divided by the value of the building, in order to figure out the value of the building, the little algebra, you have to capitalize the NOI. So you take the net operating income and you divide into that, the cap rate. So what they would do is they would use a different cap rate, a higher cap rate to make up for the fact that they saw we work as potentially a riskier tenant. So definitely you want to look at the leases and go into depth as to the quality of the tenants, but also the length of the leases. So those are four things that you should look at when using cap rates and understand their limitation. At the end of the day, the cap rate for me is a quick test of whether you should be doing a further inquiry. And it's something that 100%, if you're comparing very, very similar buildings, it's a good way to have a high level overview of whether those buildings, whether you prefer one or the other, but obviously more analysis is required for any deal that you look at. Cap rate is just one tool. So hopefully that answers that question just shows a little bit of the limitation on the cap rate. And anyways, I hope you enjoyed it. If you have any questions, like I said, Jesse, at working capital podcast.com or just reach out to me directly on Instagram. Thanks so much. Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care.

    Short-Term Rental Real Estate Investing with Avery Carl | EP73

    Play Episode Listen Later Sep 29, 2021 37:19

    Avery Carl is a Full-Time Real Estate Investor and Real Estate Agent Based in Florida. She helps Real Estate Investors Gain Knowledge in Order to Be Able to Invest their Money in Short Rentals, and Create More Passive Income. Through Strategic Investment and Short-Term Rental Properties and Maturification? Rental Market She was a Millionaire by 31 years. She Owns Over 24 Properties and is a CEO and Founder of Short Term Rental Shop, a Real Estate Team that Helps Investors Acquire Short-Term Rental Properties in the Most Recession Resistant Markets.  In this episode we talked about: Avery's Bio & Background Short-Term Rental Properties Vacation Rentals and Airbnb Approach in Financing with Short-Term Rentals compared to Multifamily and Single Family Homes Management Approaches Metrics Used For Underwriting Properties Out-of-State Investing, VAT Complexity Avery`s Vision on how the lockdown has Affected the Real Estate Market The Deals Avery is Looking For Currently Dealing with Investors Out of the Country VS Dealing Local Mentorship, Resources and Lessons Learned Useful links: https://theshorttermshop.com https://www.facebook.com/theshorttermshop/ Transcriptions: Speaker 0 (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right, ladies and gentlemen, my name is Jessica galley and you're listening to working capital. My special guest today is Avery Carl through strategic investing in short-term rental properties and mature vacation rental markets. She was a millionaire by 31 years old. She now owns over 24 properties and is the CEO and founder of short-term rental shop a real estate team that helps investors acquire short-term rental properties in the most recession resistant markets and trains them on the methods that led her out of the corporate rat race and into financial freedom. Avery, how you doing? Speaker 1 (51s): Pretty good. How are you? And actually we're at 96 doors. Now that, that outdated. Sorry. Speaker 0 (57s): I kind of feel like that. That's great. That's good to hear. We were just saying before the show that I was looking through some old emails and it looks like we both spoke at BiggerPockets conference so hard to believe now it's 2019, but you're going to be talking it's this weekend. You're going to be talking on short-term rentals. Speaker 1 (1m 16s): Yes, yes. Again, as will you, but not on short term. So we're, we're doing it again Speaker 0 (1m 21s): Right on. Well, that's great to hear. Well, thanks again for coming on to the show. I think our listeners will get a lot out of this. I really want it to have an episode where we can talk a little bit about your background and how you got into real estate, but also specifically talk a little bit about the short-term rental market for people that, you know, they know what Airbnb is, but perhaps don't really know how people do invest in this market. And you know, also what the impact has been over the last 12 to 24 months in the short-term space. So maybe to kick it off, you could give our listeners a little bit of your background, you know, where you started and, and how you got into real estate, Speaker 1 (1m 59s): Happy to do it. So I started in real estate kind of by accident. So my husband and I moved from New York city to Nashville in 2013. And we both had corporate music, jobs, music business, and we weren't didn't know anything about real estate or real estate investment. We knew we wanted to buy a house to live in because you can't really do that in New York, at least not on the salaries we were on. And so the real estate agent that we had at the time was really trying to direct us to this really fast appreciating hipster area of Nashville called east Nashville. And we said, eh, we are sick of neighbors. We came here from Brooklyn, we moved to Tennessee to be out in the country. So we want to buy something out in the country. So about something out in the country. And we thought, well, you know what, maybe there's something to that fast appreciation. And people are selling their houses two years later for a hundred thousand dollars more. And we decided we wanted to do that, which is not the way to invest by the way. But we thought at the time, well, you know, maybe we can keep this house and maybe buy one more sometime and sell it in. You know, however old our kids are at the time, we didn't have any kids. So when our future kids go to college, we can sell those and pay for their college. And we'll be like so smart and cool and savvy and not have to pay for that. And so we did buy a house in that area. And luckily that was a really, really great investment. We didn't know it at the time that one, the mortgage was 650 bucks a month. We were renting it for 1500 a month. And after we got a few rent checks, we thought, okay, we really want to get into this. We're going to build a business out of this. So then we did all the educating ourselves piece that most people do before they buy a property. And we started reading all the books and listening to every podcast imaginable and we thought, okay, well we have one more down payment left. So what can we buy? That's going to make the most amount of money, the fastest so that we can scale our portfolio as quickly as possible. So we landed on short-term rentals and we didn't want to do it in Nashville rear living at the time because we thought that the regulations in Nashville are crazy. They're changing all the time. It's just not really somewhere. That is a safe place to invest regulation-wise. So we thought, well, where can we go? That it's the normal thing for people to go rent a house that somebody has to own instead of a hotel. So we landed on the smokey mountains, which is a few hours east of Nashville. Everybody goes there and stays in cabins on vacation, long story short, we bought one of those. Again, had no idea what we were doing. We knew we didn't want to pay a property manager, 35 to 40% of our gross income. We knew there was a way to manage it ourselves from three hours away. We just had to figure out what that was. We figured all of that out, you know, lots of stumbling and figuring out it ended up working really well for us scaled that one property to five cabins in the Smokies within about a year and a half, five years later, we've used all of that income to go buy weather more traditional long-term real estate investments. We've got a bunch of single families duplexes. We've got three 12 units and a 26 unit. We also, so of the 96 doors, we have eight of them are short-term rentals. And that's about the gist of it. And I started the short-term shop on our second short-term rental investment because I kind of realized there weren't any agents in that marketplace that could answer our questions about return on investment and remote self-management and how much should this property make. There was nobody who could really answer that. So I became that agent and bridge that gap. And now the short-term shop is in six markets soon to be seven. And we have helped over 4,000 investors buy cashflowing short-term rental assets, Speaker 0 (5m 42s): Right? So in terms of the short, short term rental aspect of things, so you get into this space and only a few years ago, it seemed like there was only one or two players in that space in terms of whether you're using Airbnb or different things to actually rent out the space. But when you're going in to look at at short-term rental properties, what, what type of things are you looking at off the hop in terms of, in terms of, if something qualifies as a good short-term rental, Speaker 1 (6m 8s): The market is going to be the most important thing. So we look for areas we specifically invest in and then also work as agents in areas where that I call mature vacation rental market. So these are areas that people have been coming to stay on vacation and renting cabins, condos, beach houses, rather than hotels for decades and decades. So these are areas that are very safe for that regulations wise. These are areas that the cities and counties figured out how to monetize short-term rentals through a small local occupancy tax decades and decades ago. So the regulations are very established. So we focus on those types of markets rather than Metro markets, just because with Metro markets, there's a lot of industry outside of tourism, which means there's a lot of primary homeowners, also a lot of hotels. So between hotels and then primary homeowners who don't want you coming into their neighborhood and opening up a mini hotel next door to them where they're trying to raise their kids. It just is a recipe for a lot of change in descent dissension. So we try to focus on those regional drivable, true vacation rental markets. Speaker 0 (7m 17s): And in terms of the vacation rental investing, as opposed to just somebody on Airbnb, is there a distinction or do you make a distinction between that? Speaker 1 (7m 27s): I do. Yeah. So a lot of people will I call Airbnb is just there any short-term rental property, anywhere in the country, a vacation rental is going to be a property in one of those vacation markets where pretty much, I would say 90% of the real estate in those markets are short term rentals. Like the smoky mountains in Tennessee, the Emerald coast and Florida, which is destined Panama city beach. I mean, you know, there's tons of areas that, you know, anybody in any of the region, any of the regions of the country can kind of think, oh yeah, that I know like Aspen. So things like that. Speaker 0 (8m 1s): And in terms of, so when you go out to buy these properties on the short term side of things, is there a little bit of a different approach you take in terms of financing, you know, compared to multi-family or even single family homes. Speaker 1 (8m 14s): Yeah. So if you are buying the, one of the cool things about buying short-term rentals is that they are also vacation homes. So if you are buying a vacation home that you plan to rent out, when you're not there, you can get what is called a 10% down, a vacation home, or sometimes it's called a second home loan and 10% down, you know, typically you have to put 20 to 25% down on an investment property, but a property that you plan to vacation in, I think the Fannie Freddie rule right now is 14 days out of the year. You have to stay there. So all of those 14 days you are allowed to rent that out. So you can utilize that 10% down, so lower down payment, lower interest rate, and you can have one per market. So you can have one in Florida, you can have one in Tennessee. So it's a really cool way for people to be able to get in for less money. And then also be able to scale more quickly. Yeah, Speaker 0 (9m 7s): For sure. One thing, I mean, I'm sure people that have looked into this area, whether they're in real estate or not one of the big things, at least for me, has been this idea of management of these properties. Right. You know, for us, when we think of like, longer-term, whether it's commercial or residential management, you have this, these companies that take a certain percentage usually off of gross or effective rent. And this seems like a lot more time intensive in terms of turnover, people coming in and coming out. So how does, how do you approach management and how is it different than say traditional rental properties? Speaker 1 (9m 39s): So I will say for my long-term rentals, every single one of those is with the property manager. That's an entirely different beast property management in a long-term space. Yes, I'm all for it, but in the short term space. So the way that prices are right now, and this is by no means a metric to measure anything with real estate investing. It's just a very loose rule of film, observation that right now, the way prices are typically in the markets that we're in, people are netting after their mortgage, after all their expenses, anywhere between 35 and 45% of their gross. If you have a traditional management company managing this and 35% is the average amount they charge, you might be breaking even, or possibly losing money right out of the gate. So as there have been more self managers coming on the scene, and not most people that are buying short-term rentals nowadays are self managing there's tons and tons of technology to help you do that. The biggest one is a group of platforms called channel managers, and they automate a lot of the process for you. They sync with your cleaners, Google calendar or icon or whatever they may be using and let them know automate the scheduling of the cleanings, automate a lot of the communication for between you and the guests. So you're not having to just cause when I first started, you had to just a question would come in, you'd have to go answer it. And you'd have to answer that same question a hundred times when every single person did that, but now it automatically sends templated messages back so that you're not having to do a lot of that stuff manually. Speaker 0 (11m 16s): Okay. So it seems like they've, they've streamlined quite a bit of it, but that, that seems like a pretty hefty management fee for these short-term short-term companies. Speaker 1 (11m 24s): Yeah. Yeah. So I guess that kind of stems from, you know, back to say 2000 and earlier there weren't, BRBO Airbnb, those weren't in existence just yet. Maybe some form of them were, but they weren't widely used and areas like the ones that I've talked about, there were still real estate there. People were still coming in vacationing to these places, but the owners who owned properties in those markets, if they wanted to put a dent in their expenses at all, they were forced to use these local property managers. So they just found that, Hey, there is nobody but us, so we can charge these exorbitant amounts or they can just, you know, have to pay their own expenses. So I think that just came around from there kind of being a monopoly on that. Speaker 0 (12m 8s): Yeah. So is there, is there a middle ground, like you said, there's these systems in place in, you know, maybe not having a full-time manager, but also not wanting to be there for every call for every issue that somebody has in, in a vacation home. Is there, are there systems where you have something resembling a middle ground between those two? Speaker 1 (12m 25s): What most people do when they have over five properties would be to hire a, a VA, a virtual assistant don't know what that is. We have a VA for ours. There is something in Airbnb called co-hosting where you can hire someone else who owns properties. If you're going to go out of town and you just don't want to be gotten a hold of for a week or two, that you can hire them and it will allow them to log onto your account and, you know, handle all that business for you during that specific time. So there's, there's some ways around it, for sure. Speaker 0 (12m 57s): So talked a little bit about the selection process. It's highly driven by market in terms of the actual, the properties themselves say you've selected the market, you have three or four properties, you're comparing them to each other. What kind of metrics do you use in terms of underwriting these properties? Speaker 1 (13m 14s): So if there, if I'm looking at three properties and they're all the same size and similar amenities and good locations, I use what we at the short term shop called the enemy method. So the enemy method is, and let me back up just a little bit. There are tools you can use. Data-wise like air DNA to see how the properties in that neighborhood have been performing. But what the computer can't tell you about how the performance of the properties are, is the, the different amenities, the intangible items, that data doesn't show you like does one property have a pool and the other one does not have a pool. A is one really, really beautiful and updated. And the other one's kind of falling apart. You can't really tell just from the data. So we use the enemy method, which is, if you're looking at a property, you get on the booking platforms, Airbnb and BRBO, and look at the properties around you, your enemies, and see, okay, this property is about the same size as me. I can improve on this property here. They have bad pictures. This property doesn't have a pool. The one I want to buy has a pool and you can kind of by using the data and the enemy method, figure out where you should be. Speaker 0 (14m 24s): Okay. Right on. And in terms of actual the metrics side of things, cause you do you know, other than short-term rentals, do you use a hard and fast rule in terms of, you know, we're looking for this type of internal rate of return or this type of annual growth rate, or is it more so look at cashflow as, as maybe a percentage of your gross income. Speaker 1 (14m 44s): That's a really good question. So I use gross annual income to, to analyze everything monthly doesn't really work because of seasonality. And it's really difficult to calculate a net number because the success of a property is so dependent on the way it's managed and not necessarily the property itself, but we do look for a minimum of a 15% cash on cash return, really kind of more like 20, but that's kind of, we're looking for, you know, if it's 20 or better, we're buying it if it's 15, but it can be improved, then we're looking at that as well. Speaker 0 (15m 20s): Yeah. And you know what, that's a, it's a good point in terms of the, the seasonality of these rental properties. Are there areas that you won't invest specifically because of the seasonalities regarding weather or is it just more, more so the seasonality of that particular tourist tourism market? Speaker 1 (15m 38s): It just depends. So I own properties in the mountains and I also own several beach properties. And when we bought first bought at the beach coming from a mountain experience, we were a little concerned about the seasonality of a beach market, but we found after our first one that our four bedroom beach property performed really, really similarly on an annual basis to our four bedroom mountain property. But whereas the mountain property made all of its money between probably March and December and just slow down a little bit in January and February, the beach property is between March and October. So you do have those few months at the end of the year where you're just going to be booked here and there, we were really worried about that, but it was kind of a nice little break and on an annual basis, the income was almost the same. So it's like, you get a little break, like a summer break, but you know, over the holidays, Speaker 0 (16m 28s): Like an ice cream shop. Yeah. That's cool. So in terms of the, the, like, given the fact that these are predominantly in vacation areas, so like you said before, most likely the regulatory framework is going to be, you know, it's going to be there or is going to have the ability to have short-term rentals. Is there anything else you would still say to people whether it's HOA or any rules within a building that you would still say, these are the things you got to make sure you check prior to purchasing, just make sure that you can do short-term rentals or other things maybe that, that they wouldn't have thought of. Or are there any tips or advice you'd give on that end? Speaker 1 (17m 4s): Yeah. So after you checked the city and county-wide regulations as a whole, you want to check and make sure that there's not any zonings that don't allow short-term rentals. So even though the markets that we're in are really, really friendly towards short-term rentals, there are still a very few small little geographical areas that they don't allow it to preserve primary home ownership for the people who actually live there. Then you want to check hos because every now and then you're going to find one in a resort area that is specifically for only second homeowners. They do not want any renters so that, so you want to go city and county and then like say inside the city limits zoning, and then you want to go HOA. Speaker 0 (17m 45s): Okay. No, that makes sense. Just because I'm, you know, I'm in the city here, I think to your point of Metro, like whether you're in a city that's popularly nursery, densely populated with apartments or condos, a lot of times the boards or whoever runs them will have something that basically completely prohibits short-term rentals. So it makes sense that if you went for, rather than just Metro rentals, but you're going to actually season markets that expect that, that you'd have lighter regulations there, if any, at all, exactly. Right on. Okay. So Avery, can you talk a little bit about, so you've, you've done short-term rentals. This is part of the business that you have right now, before we get to the shop. I'm just curious, the other properties that you bought, what was that you branching out from short-term rentals or did you buy those assets prior? What, what has that experience been like for you from an investor standpoint? Speaker 1 (18m 36s): Yeah, so I, even though I bought mostly short-term rentals at the beginning of my investing career, it was never the goal to own only short-term rentals. I am not by any means saying that that is the right and only way to do things. Some people do. People ask me all the time. Well, if short-term rentals are so great, why do you have so many long-terms because the goal for me was to generate cashflow quickly so that I could go buy more passive assets, which is exactly what we've done. So whether you want to use that cashflow to go buy more short terms or buy more passive assets, that's totally up to you. And that's the beauty of real estate investing. So for me, the goal was to buy more passive assets and that's what we've done. Speaker 0 (19m 14s): And what would be a, maybe you could talk through a couple of the types of assets that you buy now, you know, the last one or two assets, what, what type of space or those are vertical, are those in? Speaker 1 (19m 27s): So I do not recommend that you do what I'm doing right this second, but this is what we're doing. It's working really well for us. I recommend that you focus on one thing at a time, but we have been buying multi-units in a market in the Midwest. That's working really well for us. So we have some great deal flow going there. And then also we have a market in the Southeast where we focus on value, add single families, maybe duplexes, not a lot of duplexes anymore. So we have both of those trains kind of rolling at the same time. Speaker 0 (19m 56s): Very cool. Now the, the company itself that you started for the short-term rentals, the short-term shop. So is that, is that you're a, you're an agent by trade, is that right? Yes. Speaker 1 (20m 7s): Yes. So we are a real estate agency. We are brokered by exp. I have to say that or else I get in trouble, but I don't do the whole multi-level thing. That's annoying, but we're in six markets right now. So we're in the smoky mountains in Tennessee, the Emerald coast and Florida forgotten coast in Florida, the Disney market in Florida, blue Ridge, Georgia, and Gulf shores, Alabama. We are adding crystal beach, Texas next week. And what we do is we work only with short term rental investors. So we don't even take any other types of clients and for our buyer clients, if you choose to use us as your agents in those markets, we're all very, obviously I train all of my agents to learn how to analyze these things. Most of them are short-term rental investors themselves. But if you choose to use us as your buyer's agents in any of those markets, we have a whole back end training program where we teach you everything that you need to know from getting your Airbnb. And BRBO listing set up to all the automation tools and the tips and the tricks to streamline things all the way down to helping you source your cleaners, handyman vendors, boots on the ground. So if you come to us, not only are we going to get you the house, we are going to make sure that you're successful with it. So that's what we do. Speaker 0 (21m 14s): Very cool in terms of the out of state, you know, or for the Canadians out of province investing. I imagine most of the people that are investing in vacation rentals don't live where their, where their investments are. So in terms of that complexity, how is that dealt with? Is it a non-issue? Is it something you need to put systems in place? What's your experience been with that? Speaker 1 (21m 37s): So for us, we have always done a ton of videos, showings, lots of videos, and you can't, it's true. Like you can't always live in the best place to invest in any certain type of real estate. So if you are going to invest out of state, I do recommend reading David Green's book about out of a long distance real estate investing. That's a really good one because you do have to build a team. You have to vet your team remotely, and you have to make sure that you are working with the right people. When you're, I know a lot of people that listen to a lot of real estate investing podcasts are trying to work with like a hundred agents. You really need to find the agent that knows what they're doing, or at least the top two or three, and not just go work with everybody who responds to you. I see that a lot now, especially as the market has gotten really, really tight that people will, like, I had some money who I sent him an off-market listing that I had, that I w it wasn't listed yet. And he said, oh, no, I think I'm gonna pass on this. And then I put it on the market like a week or two later. And he offered on it with another agent from another town. That's not even in, not even in the market, they didn't even have access to the right MLS. So don't do that because you want to get, you know, work with the top agent or two that work in the space that are going to be working for you in the market that have the most relationships either with past buyers. So people who own things who might be wanting to sell things soon, that's how you will get stuff off market. And also the agents who have the best relationships with all the other agents in the market, because that is also a good source for off-market deals. Speaker 0 (23m 14s): Yeah, for sure. And I'm assuming that your brokerage will also assist know downstream in terms of the investment. And, and by that, I mean, putting them in contact with, with a broker or a mortgage broker for financing of these deals, I'm sure you have some preferred vendors that you deal with in specific areas for these types of properties. Speaker 1 (23m 31s): We do. We actually also just started a mortgage arm called the mortgage shop because we were overwhelming so many different lenders and brokerages. So we just started our own to help our clients. And we focus while can do, you know, regular, if you want to buy a house with us, whatever, but we focus exclusively on in are not explicitly, we're not allowed to, but we focus mainly on investors, especially short-term rental investors with our mortgage products Speaker 0 (24m 2s): In terms of the last 24 months now, which is crazy to think that way, there's obviously been an impact on the economy, on a rental properties in general, hoteling, tourism. What's your experience been like over that period of time, just with, you know, with the pandemic, with lockdowns and have, have you, you know, lessons learned have, have there been things that, you know, perhaps without the pandemic you wouldn't have got into or, or have kind of moved the business towards? Speaker 1 (24m 31s): So I will say that what we thought was going to happen at the beginning of the pandemic was the opposite of what actually happened. So the beginning of the pandemic, when they shut everything down and everyone short-term rental calendars were wiped clean, we thought, oh, crap, there go there short-terms, there it is. It's happened. And after two weeks, when everybody, you know, got off the couch and stop watching tiger king and things opened back up the tourism and the markets that we're in, like people just busted the doors down, everybody was dying to get out of their houses and that our short term side of our business boomed, whereas it was actually our longterm side that we had to worry about with the eviction moratoriums. And that's just not anything that at the beginning of COVID week that never crossed our minds. We just thought, oh, people are going to stop going on vacation. Well, actually the opposite happened. So our short term side of our investments has really, really boomed. And luckily we only had to do two evictions, so it wasn't too bad. And those people were problems well before COVID, but we, we just happened to be in the right place, right time with the short-term rentals and the COVID Speaker 0 (25m 45s): Right on in terms of the market going forward, then, you know, let's say the next one to two years in terms of investing for you. I know you mentioned that you're doing a lot of different things with investing. Is there a specific asset class specific areas that you're you're looking at or that you like? Speaker 1 (26m 1s): So it's just so hard to find deals now that I've, I've got my eye always on the short-term markets that we're in and then the Midwestern market that we're in for the multis and then a few different Southeastern towns that we've invested in over the past few years for the single families and duplexes. It's just so hard to say because a lot of people think, oh my gosh, we're in a bubble, everything's going to the bottom's going to fall out. But then part of me feels that way. But then the other part of me is like, well, there is such a housing shortage because of all of that construction that did not happen between 2008. And now that I don't know how long it's going to take us to get back to equilibrium to where it is, where things more normal, and it's easier to get deals again. And people are able to actually buy things without 10, 15 offers. So it's just really hard to say, I'm, I'm picking things up as long as they make sense. I'm, I'm steadily grabbing what I can just because it does kind of feel like this might not go back down. It might continue to be really difficult for primary homeowners to buy. Let me know. Great example of that first house that I bought in Nashville. I just sold that. I listed it a little bit high because that was 10 31 exchanging I had a hedge fund come in and offer me $40,000 over asking cash. I think, have any other offers? I didn't have multiple offers. There was no reason to offer that much 40,000 cash, no inspection closed it. And that kind of stuff is I think, going to continue to happen in Metro areas like that. And, you know, it's just really hard for the typical home buyer to be able to compete with. Speaker 0 (27m 37s): Absolutely. I mean, we see it just on the commercial side, it's the same situation for at least on the apartment and industrial as well, where, you know, there's, if it's a good property in a good market, you know, you can expect five to 10 on, on bid date, you have five to 10 people competing. I'm sure for, you know, markets that you're around, it's a similar situation in terms of the, so on that, on that end on the brokerage end, is this something that, I mean, when you don't talk to agents or brokers, it's one of those things where if you talk to them about fully being a hundred percent investor, it's always just so easy to continue to be a broker, but you also have the, the shop will you be as hands-on going forward or is the goal to, to pretty much be on kind of the, the ownership or investment side down the road? Speaker 1 (28m 25s): I'll probably stay pretty hands-on with it. It's just, it made such a difference in mine and my husband's lives that we were able to figure out how to do this and how to self-manage. And it's really rewarding because I'm 33, I'm nowhere near being able to retire and just, I mean, I can retire, but my brain cannot retire. I can't just sit around and deteriorate. So it really is rewarding to help other families transition the way we did from being, you know, I, I was making $37,000 a year and we get emails here and there from clients who were like, oh, you know, it allowed one parent to be able to stay home with the kids, or it allowed one person to stop working to take care of their elderly parent. And it's that kind of stuff that it can be a really life-changing thing. You know, two or three short-term rentals is, oh, like over a hundred thousand dollars salary in some cases that somebody might never have achieved, just climbing up the corporate ladder. I mean, I know I'd still be waiting on my $10,000 raise to make $50,000 a year. So it's really rewarding to help other people do that. Speaker 0 (29m 35s): Yeah, for sure. I just curious, you said that one of the properties was 10 31 exchanging. I was just looking on, on TV for those that don't know, that would be a like unkind asset where you sell one asset and you, I can't remember what the amount of time is, but you purchase a likened kind of asset and you defer the taxes just for us Canadians up here. I heard that it is possible. You guys are going to be having, I know there's some, there's some talk about getting rid of the 10 31 exchange. Is that real or is it just more of, you know, just talk, Speaker 1 (30m 4s): I think it's just talk, I think the worst it'll be is that maybe you cannot defer a hundred percent of the taxes. Maybe you can only defer 80 or, or, you know, some other percentage, but yeah, I think that was just something that was big talk during the election. I don't, I just, I don't see that going away. We've had it. I think I'm going to get the year wrong, but I think it's been around in the U S since the twenties or thirties. So it's made it through this many presidents so far think it will probably continue in at least some form or fashion through the next few, hopefully. Speaker 0 (30m 37s): Yeah, it is a it's something that would be, it'd be great to have here because it just, the, the actual frequency of trading happens. I think just that it's a huge benefit. Being able to actually transfer and move out to properties and have somebody new, put more money into properties on that note, I'd say about 55, 60% of our audience is, is Canadian, or it's close to half and half Canadian and us with the balance overseas, in terms of somebody that's looking into buying a vacation rental property, say they come to you, but they live in Vancouver or they live in Montreal. You do, you deal with people investing out of, out of the country into vacation rentals and is the approach different? If so, Speaker 1 (31m 17s): We do, we get a fair amount of overseas. Investors of the financing is a little different because there are very few lenders and brokerages who will work with truly, can't think of the word with Canadians basically, unless you have like a, a green card or a social security number or some specific type of work visa. So we have a few of those, but other than getting past the financing part, it's really very, very similar. Speaker 0 (31m 42s): And would there be a benefit to if you have a partner that is an American or US-based partner in terms of the financing, like my thinking would be, you know, we have a number of investors that will have colleagues or have people that they will invest with better Americans, maybe that's you just organize that through the, you know, the financing aspect happens through an entity maybe that you both create or something to that extent, Speaker 1 (32m 5s): That would definitely be easier because having an American partner would open you up to a lot more options in terms of financing. So if you could form some sort of LLC or entity with them and then do it that way, I think that would probably be the easiest route. Speaker 0 (32m 20s): And as per the usual, a disclaimer, we are not giving any legal or accounting advice, but Avery, we do something a little bit, sorry. We do something at the end of the show with every guests. It's a four questions I want to be mindful of your time. So maybe we could get into that, but we do. I just like for you to just let listeners know if, if they are interested in that aspect, number one, the short term rental vacation rentals through your company, what would be the best route to, to kind of get, get to you? Speaker 1 (32m 55s): Yes, go right to our website, the short-term shop.com. There's a little button right in the middle that says schedule a consultation. That's the best way to do it. Speaker 0 (33m 2s): Okay. Sounds good. And if you're good to go, I'll I'll log these, these questions that, yeah. Okay. Okay. What's something that you know now in your real estate career, you wish you would've known when you first started out. Speaker 1 (33m 16s): Oh, I, I wish I would've known. So when I was 19 20, 21, I was going to university of Texas. I lived in Austin, was bartending, downtown making great money. And a lot of my older friends who were bartending with me were buying these 70, $80,000 houses on the east side of Austin. And at the time I was like, well, if I'm not going to buy something impressive, like my parents' house and why would I buy a house? Why do I want to buy one of these dinky little houses? Well, now those dinky little houses are worth a million dollars. And if I would have just done that and not been a snob about what, what was worth buying that, then I would have had a headstart on, on everything. So I wish I would've done that differently. Speaker 0 (33m 57s): I had a, I had somebody on the show recently said the best time to buy something as a hundred years ago, the next best time is now. So I was like, that's pretty good. Tell that to clients. Okay. Question number two. What is your view on mentorship for people that are older in our industry, or even people getting into our inter industry Speaker 1 (34m 18s): Go for it, especially in short term. I think there are a lot of people you really have to vet your mentors wisely. So what I've seen with short term rentals and Airbnb is, and I've seen my own clients do it. They will buy one or two in a six month period. See all this money come rolling in. We call it green light syndrome. Cause you get a little green button, green light, every time somebody books with you, they start seeing all this money coming in and they realize that they can do it. And look at me, I have no training wheels and I'm driving this thing. And so then they go immediately start some sort of Airbnb academy and want to charge people thousands of dollars to teach them how to do it. When they've only been doing it for three or four months, they haven't even owned the property for a whole year yet. So while I think that mentorship and, you know, taking these online courses can be a really, really great way to learn. Just make sure that you do your research. Don't just run off and pay a thousand bucks for everybody on the internet because not all mentors are created equal. Speaker 0 (35m 15s): Yeah, for sure. A lot of gurus out there. Yeah. Okay. In terms of the, you, you know, you've been on the podcast circuit, are there one or two books or podcasts that are indispensable for you that you'd, you'd recommend to listeners Speaker 1 (35m 31s): Bigger pockets podcast? Of course. And then I mentioned it earlier, but David Green's long distance, real estate investing. I sent it to all my clients to read. So they kind of have a primer on because most of them were buying out of state with us. So he answers a lot of those questions that they ask us. So it's really good. Good reading material. Speaker 0 (35m 50s): Yeah. That's been on my list for a long time. This the long distance one. So yeah, I'll put a link to that as well. Okay. Last, last question. First car, make and model. Speaker 1 (35m 60s): It was a yellow Jeep Wrangler, Speaker 0 (36m 3s): Austin, Texas. How could I have guessed that? Speaker 1 (36m 8s): I have a purple one. Now I have a purple Jeep Wrangler now. Speaker 0 (36m 12s): Yeah. They've come a long way right on. Okay. So you've, you've connected people to where they can reach out to you for anything else in terms of, you know, where you're, where you're talking podcasts, you know, is, is the website, is that okay or other social media that you'd like to plug that people can, can reach out to Speaker 1 (36m 32s): Instagram and Facebook? All of that is posted in both of those places. And Instagram is at the short-term shop and Facebook is slash the short-term shop. Speaker 0 (36m 43s): My guest today has been Avery, Carl Avery. Thanks for being part of working capital. Thank Speaker 1 (36m 48s): You so much for having me. Speaker 0 (36m 57s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    Canadian Real Estate Investing and Brokerage with Sandy Mackay | EP72

    Play Episode Listen Later Sep 23, 2021 51:28

    Sandy Mackay is the Founder/CEO of MacKay Realty Network. Sandy is an Experienced Realtor and Investor. Sandy has Worked on Hundreds of Real Estate Transactions since 2011. Sandy is also One of the Hosts of Breakthrough Real Estate Investing Podcast.  In this episode we talked about: Sandy's Bio & Background Legality of Wholesaling Pivoting from Real Estate Wholesaling to Building a Buyer`s List Brokerage Model The Importance of Taking Actions A comparative framework for commercial and residential markets Real Estate Changes in Terms of Technology Companies Entering the Space Dealing with Real Estate Broker Real Estate Market Outlook Mentorship, Resources and Lessons Learned Useful links: https://www.facebook.com/sandy.mackay.3 Transcriptions: Speaker 0 (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Hello, welcome to working capital the real estate podcast. I'm your host, Jennifer galley. And today we have a special guest. His name is Sandy Mackay. Sandy is the founder and CEO of McKay Realty network. He is a, an experienced realtor and investor. Who's worked on hundreds of transactions since 2011. He's also host of the breakthrough real estate investing podcasts. Really awesome podcasts. Check that out if you haven't heard it already, Sandy, how's it going? Speaker 1 (49s): Awesome, man. Happy to be here. Excited to share some great content. Speaker 0 (54s): Absolutely. Well, we're excited to get into it. I thought would, would be a bit of a treat for listeners is to talk a little bit about what we normally talk about, which is real estate and maybe zero in a little bit on the focus of what you do in brokerage in the companies that you've built. And I take it today. You're joining us from Hamilton, Ontario, Canada. Is that correct? Yeah. Speaker 1 (1m 16s): Nailed it in Hamilton, Ontario. Speaker 0 (1m 18s): Perfect. For those that don't know, that'd be a, I guess a pretty solid one hour west of Toronto, great area to invest. Well, Sandy, you've worn a number of different hats over the last few years. You've done some pretty impressive things on the real estate investing side, as well as brokerage. You were actually introduced to me by, by my partner that I work with in commercial real estate. And what we do with most of our guests is take a step back and talk a little bit about how you initially got into real estate. So how did it all start for you? Speaker 1 (1m 49s): Yeah, I mean, I got, I got, you know, got when way down the path further than I ever thought in the real estate world starting out. I mean, we kind of reached out for that as a book in my life and my, my, my whole outlook on life and my path, my, my wife now girlfriend at the time we kind of were working together actually. Yeah. Give or take 10 years ago. And, and, and somehow got came across that book. It went to a weekend seminar thing with the rich dad, poor dad programs, never didn't buy into the whole big, expensive ticket item there, but like just got a lot out of it actually changed my whole outlook on things. And then being more of a, you know, that business owner sort of mentality, and then working for self versus, you know, how we're trained in life to kind of just work for the, the big companies I guess, out there. And then that was my upbringing too. It was just like being trained to, you know, go work for a big corporation. So that book changed my life. And my past got a little interested in real estate side. We started to look for ways to make money in real estate without having any money cause we had none. And so how do we get creative to buy or invest? And we started doing wholesaling. So we started like looking for deals that were, that were hard to find, but there's so much good content in there still is around how to do that. And you know, we started to look for distressed properties, motivated sellers, people that were eager to get out of their property for whatever reason. And, and so we started building out kind of two less like our in our investor list, people who were gonna buy these properties and then the sellers motivated sellers. And it was didn't really think of it this way at the time. But looking back, it's like we are building out our, our, our, our, our database of clients essentially. And really it really turned out well, we building out our investor list was probably the best thing we ever did cause we, you know, gravitated towards the realtor side, eventually got their licenses, joined up with a great mentor of mine on his team at the time. And that kinda, he kind of pulled us into the real estate realtor industry and we're building out our list of investors at the time, which turned out really well when the real estate side, once we got our licenses, those are our pool of potential buyers. And, and, you know, we kind of realized we were always looking for the really difficult to find deals. There's a lot of other deals out there to sell to. They don't have to be home, run deals all the time, but you know, so we got our license, we started selling more properties and doing more deals. We, we, we did have some success in the wholesaling side of it bought our very first property because of the $25,000 wholesale fee that we made on a, on a deal in Burlington, Ontario, right in between Hamilton. And Drontal, that was, that was the literally the, all of the funds we had to buy our first property for like 260 grand, which you've been Oshawa, Ontario, other side of Toronto, literally the 20, it was 5% down. I did, I did some hands-on work there, which I'm not very good at doing, but they had a bit of hands-on work. It's been about 10 grand on a credit card to fund some materials and whatnot. Look at YouTube, watch YouTube to tell me how to lay floors and put trim on and stuff. And first and last time I ever really did any version of that. And yeah, from that point forward, like kind of luckily in a way that property was worth 400 grand, like two years later, parlayed that into more properties started raising money for deals, started working with lot of joint venture partners. Yeah. Just soak up so much knowledge that was going to have so many courses and events and things like that to network and grow our education. And, and people just started asking us about like, what are you doing? And all of a sudden, you know, over time, a few years went by and money started to kind of coming our way. And we started doing some bigger deals and, and yeah, just done like tons of deals over the, over the time. Now we ended up starting a few different companies. We, we were doing a lot of renovation projects realized that we needed some construction, help realized we needed to property management help. We started, my wife runs our private manager company now. So we have a company that we work with there and, and I run the real estate side of it, the realtor team, largely residential real estate. And, and then lots of brokerages here too. So we have a brokerage, the realtor team, my wife does, my wife does run mostly the construction side too. We have a construction company, but she kind of oversees that more than I do. And she runs the, a property management company. Speaker 0 (6m 34s): You've been keeping busy clearly in terms of there's a lot there. But in terms of the wholesaling aspect, you hear a lot about this, you know, especially from the Canadian and us perspective, a lot surrounding the legality of, of wholesaling, you know, what exactly is it? So for listeners, can you unpack a little bit, a little bit about what you mean by wholesaling? Speaker 1 (6m 58s): Yeah, totally. We, yeah, so there's a lot, there's variations on it, but essentially, you know, the, the basic model. Yeah. You're, you're selling the contract, right. You're not actually ever buying the house. You're, you're, you're having an agreement to purchase a house on paper and, and unless otherwise stated in Canada, at least, you know, all, all contracts are assignable and so you can always assign it to someone else. So you can basically change the name into someone else's name. So we go talk with the seller, they want to sell their house for 200 grand. Let's say, that's that? That's, that's, that's the way back numbers. Let's say 500 grand. Yeah. Let's say 500 grand. Yeah. A real actual house. Not a, not a, not a little chunk of, you know, 10 square feet, but an actual house. Yeah. So let's say you're going to buy 500 grand the seller once. And you know, they wanna, a lot of times it's, it's something urgent. Like they want to in two weeks or they want it this month, for whatever reason. And going through the avenues of like hiring a realtor, maybe fixing it up, all the things that you might need to do to, to sell it. It's not really an option for them for, for whatever reason. And, and so, you know, you offer them, Hey, I could, I could bring you a list because I've built out my list of buyers here. I have a big chunk of buyers that would love to buy this place and I could bring them to you, you know, in two weeks they can close, you know, a lot of times those are cash buyers or, you know, putting a big line of credit, ready to go. They can, they can buy that 500,000 asset dollar assets quickly. And so, you know, you go to them and, and you say, Hey, I'm going to buy this from 500 grand. You basically go to the investor database now and go, we have this place it's available for 5, 5 55, 25, 10, whatever you want to mark up. And, and, and you split it, you make the difference. So that's your, that's your kind of margin there. So you sell it to them for five 20, let's say they pay the 20 grand to you. They pay the 500 that you agreed upon with the seller. And that's it. And pretty much some legal stuff in between all that, but it's, it's fairly simple at the end of the day, it's, you're taking that spread and not much different than putting on a commission on a deal, right. It's not too much different. You're just, you're the, you don't need a license for it. And it's, it is legal as much as it seems, almost kind of shady at times. And, and, and when you, when I explained that is fully legal and you know what, at the end of the day, you're, you are addicts value to some people like it done well, you're, you're helping that person out of a sticky situation that they're probably, Speaker 0 (9m 37s): Yeah, for sure. I think part of the, well, ultimately if somebody's signing a contract, you'd like to think that there's a meeting of the minds and everybody is doing it voluntarily. I think part of the misconception of assignments, or at least part of the issue, there was a number of articles a year, a few years back that was a boat assignments. And basically the tax implications of them. Cause a lot of definitely a major Canadian cities pre-construction condos, you were basically assigning or selling the paper. And I think part of the issue was people were claiming that as capital gains, when it really it's its operating income, as far as I understand. Speaker 1 (10m 17s): Yeah, yeah. We never scaled it up too big. I there's a, there's some huge companies, you know, I always back when we were doing it, I don't think I was oblivious. I think there just wasn't the exist a really proper business around this. Like I think people were doing it here and there they'd do it for bid and then parlay into some other things. I only saw so many videos on these American guys doing like such high level of this. They always selling hundreds of wholesale deals a year. And I was like, man, that's crazy. Can't find them. I could never find them any opportunities. Now there's like, you know, there's, there's a, there's at least a handful or more of, of, of people around Ontario, for sure that are doing a ton of deals, wholesale deals and just growing into proper businesses. Whereas before it was kind of this, like, you know, under the, under the roof, nobody really knew about it. And it was kind of like a under the radar thing. And like, it was almost, you know, if you were actually wholesaling deals, it was like crazy. Like nobody could find real hook. Now. I'm like, I open my inbox every day. There's a wholesale deal sitting there of some sort ready to go. It's interesting how that, how that stands. Yes. Speaker 0 (11m 25s): I think under the radar is exactly it. It's one of those things that's mysterious until, until you know, a little bit more about it. Same thing with, you know, your first time you hear about hard money lenders, you're just like what people will be able to just lend you money. What is it a back alley? And you realize there's actually a number of these people in our, in our industry. So you started with a wholesaling and then what you said as you start building a list together. So how did that, how did that grow your business in terms of pivoting from wholesaling to building a list and that there's value in this list from investors that would be buyers and sellers? Speaker 1 (12m 1s): Yeah. I mean, we, you know, I, I joined, I joined up with a team originally. That was, that was my first realtor side of a business. I, I had, you know, it was a great mentor of mine at the time for awhile. And he just, he was, he was someone I met through real estate investor circles and kinda convinced us, my wife and I both to get into the realtor world. And, and I was really thankful that went down that path, learn so much working with him alongside them day to day, opened my mind up significantly to what was possible and, and just, just thought so much bigger after working with him. And yeah, we, we, we got into that side of things. We, we were living in Bon. So just north of Toronto, Hamilton was the like hot up and coming city. And thankfully we, we just kind of went all in on it on Hamilton and moved out this way, kind of for a few reasons, just timing made sense. It wasn't the very, very sexy city to move into at the time, you know, 10 years ago it was, or we're not, we're not quite 10 years here, but getting, getting there, it was, it was not a cool place. Really. It was kind of like the really, really ugly thing that you bypass over the bridge on the way to the Buffalo and then the U S then it would be like, you know, it's all, it's all steel city, right? It's like very, it's not the most dealing working city as you drive past it. And it's transformed so significantly in the last 10 years, it's just gone from like this really dirty, ugly place to a really kind of cool hip place. You know, a lot of gentrification, cool restaurant scenes, all that sort of stuff. And it's, it's, it's been really cool to watch it. A lot of it's Toronto money coming this way and, and, and coming in the city and developments and all that. So, you know, over time, we've, we've kind of read that, rode that wave to an extent, you know, it was really good timing. We brought a lot of our contacts from Toronto area this way and did a whole bunch of deals, bought a lot of, a lot of deals ourselves, you know, went from kind of, we kind of started with that niche of real, like real estate investors and then, you know, kind of branched off and diversified into just typical residential sales and, and, you know, typical stuff buying, selling real estate. So we build up a network here of people, not investors per se, just, just everyday people and, and yeah, built up the realtor business eventually that led to opportunities to open a brokerage within the Keller Williams world. So we opened a Keller Williams franchise in, in what, nine months ago in bond back where we came from. And so I'm kind of in between there again now. So I'm commuting here and there and living the dream London, a brokerage, which is like a whole nother topic. Probably we won't get into too deep, but, you know, brokerage models are like just evolving a lot in real estate worlds is really ensuring all the different prop tech companies out there. And just a lot of, a lot of what's the word, just a lot of things shaking, getting shaken up in that industry with, you know, the traditional brokerage model is kinda fading, I guess, in, in, in terms of the value it offers. And so it's just a lot of, a lot of different things happening in that world. Speaker 0 (15m 17s): I think we should talk about that in terms of just the, the model itself. I always say real estate is an informationally challenged business. If you're not on the inside, it's really challenging to find information and that's slowly changing, definitely on the commercial side. If you're not in the loop, you're not connected with brokers, it's just very opaque. And it's something that I think, you know, I think generally people think that brokers prefer that, but not me. I really think that we should be opening up our industry and have more communication and more transparency. I want to talk about the, the brokerage model, because instead of starting a boutique brokerage, you went instead to a franchise model. So what was that like basically starting a business with a little bit of help from a, from a franchise head. How does that look in the real estate world? Speaker 1 (16m 10s): Yeah. I mean, we like a lot of the kind of path for any successful. Let's say realtor generally is like, you know, you build up their book of business, you start scaling it and then eventually you go, well, do I need this like franchise that I'm under? Or do I just start my own or do I, you know, am I going to be the broker running? So there's a lot of different ways that that could look right. You can be, you can run your own boutique shop. You can, you know, do you want to tack onto one of these big franchises and open up something like that? A lot of options, I guess, that are there. I, I, you know, I, I got into this kind of Williams world. They eight plus years ago now, and just, it's a really easily scalable model, which I like the system, the models are kind of built in to, to, to run it really well, to a point where like, like we were talking before the show, you know, nine months in here, I'm not like spending every waking second running this business. And it's, you know, we're only nine months old. So it's to get to that point on my own, starting from scratch would be very difficult if I was having to come up with all these different models myself. So, you know, for me, and I've never opened a franchise before. So this was a new experience in a sense, we have some other businesses that we've started from scratch and we're kind of trying to figure it all out as we go. Is there a sense, a lot easier running a franchise, as long as the franchise has good, like, you know, models and systems to, to, to run with? I don't know. I think I've learned a lot of a business actually in, in running one and opening. It is just the importance of operations and models and systems and, you know, for scalability of any company and you really need to focus on the models and what, what you're going to, where you're going to systematize. You know, it's like a McDonald's thing that you can just like, that's why are they there? They're running a systematic, scalable business. That's the, every franchise is very, very similar. It's all the same. McDonald's university Keller Williams is very similar. On the brokerage side, we have a Keller Williams university and they teach how to run, how to run the business of a brokerage. You know, how to recruit people, how to run the books and everything. It's just like, almost like a masters in business is how to run that business. This is what I've enjoyed a lot about. It is just, I, I can now implant the same sort of thing in our other businesses. I've learned a lot about that through the franchise side is just, you know, in our property management business, we use the same sort of models to run that and, you know, running the administration, which is not my like Bordeaux by any means, you know, having the right people to run that I can train and lead them through the same models that Keller Williams teaches. So yeah, I've, I've, it's been a fun experience. We've, we've built it out from scratch to 75 or so agents right now, and, you know, it's as more and more agents come on and there's a lot more stuff that gets thrown out you, but, you know, being systematic, running with that in a, in a systematic way becomes all the more important. Speaker 0 (19m 14s): Yeah, that's great. I think from a business point of view, I've always been a big believer that 80 or 85% of the success, you know, whatever success I've had has been due to taking action. And it's one of those things that you think it's sounds so simple. Take action. But so many people don't make the first step or don't take action on, on something that they totally can take action on in a given time. And that's where you see, I think you see people that, you know, they're not the, maybe not the smartest person in the world, but they're super successful. And really, they just, they didn't question certain things. They just said, okay, if we need to buy this, we gotta buy this. Okay. If I need to invest in this, you, you know, we'll figure out a way to do that. And all of the behind the scenes stuff that needs to be done at the end of the day, you don't see that stuff. You just see, you know, the final product and you really don't understand how they got to that point. But I think action's is a big thing. Speaker 1 (20m 10s): Yeah. It takes, it takes, yeah. You know, we were talking about that, like three kind of the fun part of it in a way is all those different things and no business, any business is just, it's chaotic at times, for sure. There's so many things to do. I think people get scared of that, right? They get scared of all the unknown and that's one thing I'm real estate. I can be really thankful for once we, like we going back to the start of this, once we just took action on that first property we bought, we actually just went to that weekend seminar. We went to, and like the amount of most people, you know, it's kind of almost that almost has a negative outlook on it, going to leads and weekend seminar things. Cause they're all upselling on all these courses and whatnot, but the simple act of going there, like literally the path and we got a lot more action oriented from that and changed the path of our life in so many ways. And you kind of get used to taking action over time. If you just one simple decision, right. It can change your life. Just take an action once, you know, it's like, it's just like waking up earlier every day. Like it takes, yeah, it's uncomfortable for the first couple of times. And then it starts to get just in rhythm and in a habit. Right. So yeah, one of the best habits you can get into is taking action consistently and no ready, ready, ready, aim fire. I guess this is kind of ready. Fire aim, ready? Fire aim. So to an extent you obviously, you know, there's obviously a bit of a dichotomy of that, but you know, taking an action, you learn so much through that, that you, you could spend hours and years or days trying to figure it all out beforehand, but eventually you just gotta jump in and, and go and, and, and kind of figure it out as you go. And you're going to screw, screw stuff up, and you're going to have some big losses, but got to get comfortable with that. Right. You got to get comfortable taking some risks. Speaker 0 (22m 2s): Yeah. I couldn't agree with you more. I, it's funny, just circling back to the, you know, that action oriented stance, it's usually the smarter, younger or less experienced brokers or people in our field that they look at very successful people. And they're just astonished, like how, you know, how did this person do this transaction or as a part of this deal. And a lot of times it's somebody that, you know, thought that they could do something that maybe at that point, they probably shouldn't have even been thinking at that scale, but they took action and it, and it panned out for them. So anyways, Sandy, I want to talk a little bit about the, kind of the dichotomy between commercial and residential, because you went and you started a brokerage shop, and I'm curious of the kind of mechanics of that in terms of the hat you wear, whether that's a managing director hat, are you, are you kind of passively a part of it now, because we talked a little bit before the show, how this is something you might want to do in the future open different franchises. So maybe you could talk a little bit about the framework that you're currently in. Speaker 1 (23m 4s): So we have like same way. I look at my realtor team side of things, you know, I, I always look for, I'm not the administrative person. I'm not going lead that out. I, you know, we're looking for us, we have a, we call it a market center administrator there, they're running our admin side. They're, they're owning their like business within a business is leading the admin team and running the operations. That's not me, but I'm leading that person. They're, they're leading that whole division. And then we have a growth partner team leader or whatever, like in many brokerage operations, they would be like a broker manager, but they're not necessarily that in our world, but that would be kind of what most people would think of them as I'm managing the brokerage, they're running the whole growth side, helping to train the agents on growing their businesses, et cetera. So they're doing a lot of the recruiting side and they're, they're kind of like our CEO, which is, it's not really me doing that role, which is why I'm, you know, most businesses, if you're starting out, you're the owner, you're usually the seal for awhile in this model. I I'm kind of able to, to, to not be the CEO more of like a chairman role, I guess, like kind of overseeing the vision for where we're headed, but not getting into the weeds of day to day. And so I have a CEO as most people would think of it as, and she kind of runs the day-to-day does all the hiring and the sales growth side of things for the brokerage. So we have two different towns, the girls side recruiting sales side, and then they'd been side and, and those are really, for me, those are the, I lead those people and they lead everyone else, which allows me to, to not be in the weeds of day-to-day there as, as if I was starting my own brokerage boutique, I would be in there everyday. I'd be the CEO, for sure. So it's, that's the difference, I guess, franchise versus, you know, boutique style and, and big brand, I've got to, I get to feed off their models and, and, and, and step aside a bit quicker than I would have otherwise. But yeah, we have 75 agents who are, you know, running their own businesses within our business. And, and so there's a lot of, you know, there's a lot of training and education that goes in line with that to help them grow. They obviously need to be successful if they're going to hang around with us, they're not going to hang around if they're not successful. So we spent a lot of time on that training, helping them run their business and be better business people. And, and yeah, and then it's, it's, it's all sorts of fun along the way. Speaker 0 (25m 39s): Nice. So to circle back on this, just the changing landscape, the technology and, and data that's out there in real estate. I recently had a friend of mine. They're looking for a house in, in our market, which is very, very competitive. And there was a frustration, and this wasn't even an investment property, but there was a frustration about just the lack of transparency. Obviously there's a wrinkle with the fact that there's multiple bids on many properties, commercial real estate, and residential alike wanted to get your thoughts on how you see real estate changing in terms of technology companies entering the space and how data will play an impact. And just the model in general. Do you think it's it's broken or do you think it's just something that we need to improve on? Speaker 1 (26m 27s): Yeah, I, yeah. That's, that's like, that's what everyone wants in the tech world data information, right? That's, that's, that's the big play with all these companies. I think long-term and scandal. I don't know. I, I w w one thing I like about being partnered with Keller, it's an American based company. I kind of feel like we got a little bit a heads up on things coming, because us is always a little bit ahead of us. Ken has been very like, like that was the real estate industry for so many years. Right. We have the information you don't, you need to pay us to get the information. And that was it now disruption in tech world. Right. They're a little more, a little more freedom of information, a little bit more, not fully, but some more out there, like how Sigma you mentioned right there showing data around how sales and things like that, that, that is open to Republic. They're also a brokerage. So like, they're like, I always look at like, what is that? What is the place for these tech companies? You know, sometimes. Yeah. Yeah. Whereas, I mean, and you can look at like a lot of the U S ones that are there. For some reason, I'm surprised haven't really grown into like a Zillow would be a very easy example in the U S that's a massive company. Not, not even really doing anything in Canada, or very minimal, if anything now, but they're also a brokerage. Like a lot of them are brokerage oriented. And I think ultimately there's a billions of dollars in commissions that are out there. And, and in real estate world of sales that are happening. And surprisingly, it took so long for the tech world to try and get a piece of that. But now everyone's trying to get a piece of that, right. So how do we, how do we, how do they, how do they get a piece of that it's it's information and sharing information and being able to control the, the lead of the buyer or seller, or at least there are less, less, or whatever, whatever someone's trying to do in real estate, whoever controls the lead controls, you know, they have the power. And so they're all, you know, you control the lead, you can get all the information through the process. There's so many different plays out there, but ultimately it's about information controlling the leads. And ultimately they're trying to get a piece of the commissions, which are so there's, there's so much money there. I don't blame them for trying to get a piece of it. So I think the little bit of a battle, right, between the, the tech world and the traditional brokerage shops, kind of wanting to maintain their value, but, you know, the tech world's really taken over. So I think, you know, a lot of realtors are kind of battling with that now, and are they going to be like relationship based or tech based or some version of in-between and, and you have to utilize what's out there, like you guys, a realtor, and if you're going to run your business, you've got to utilize the text as much as you can with the caveat that like, you know, just kind of thinking about where your information is going, where, where is the data that you're, you know, you're there almost a lot of times as a realtor, you're kind of giving information to these tech businesses, but they're actually not trying to help you. They're trying to take over your business. You're like dying a slow, slow death almost by giving them this information. No, it's really interesting. There's a lot of like things that play with that. And obviously me being a brokerage owner, I'm, I'm trying to battle in a way for the broker, for the, for the realtors to maintain their business, but also got to keep in mind that inevitable, that tech is going to be taking over a lot more as we go. And, and so trying to kind of utilize what's there and what innovations are happening. But also, I, you know, real estate is very still relationship based. I think there's, there's not a, maybe a one day, there'll be a time where like, there's no in-person version of real estate, but I think for the foreseeable future, there's still, you know, a lot of people trust and want to deal with the person eventually and not just be totally automated. Like, you know, like you're buying your, your, your, your, your dinner or something on Uber eats like you, you can pretty much be okay with just not having a person involved in that. There is a person there, but you don't really need to communicate with them. I don't think, I don't think that's necessarily going to be buying or selling or leasing houses or space. I don't think that's quite there yet if ever might be. Speaker 0 (30m 48s): I don't think we're quite there yet. I think it's generally at the end of the day, I think it's the complexity of the deal, whether it's commercial real estate or residential real estate, I think there is nuances in these deals. And oftentimes it's those things that, you know, people think that it's, it's not that complex to put together an offer or to have certain items in the offer, but, you know, state by state province, by province, there is different nuances. There's different representations that are made. There's the legal aspect of this stuff. So ultimately, you know, at the end of the day, I think that you see a lot of these companies, I think don't quote me. I think one was called 42 floors, or you see other companies. I think that was based out of New York, where even in commercial leasing, you know, they put in the parameters, you put in the size office, the type of plan you want. And then it spits out, you know, you put your email in, but then eventually they connect you with a broker, right? So even though the technology's come so far, you still need a sales professional or broker, at least right now. And at the end of the day, for most people, if it's not an investment, it is the largest transaction you've probably ever done in your life. Speaker 1 (31m 60s): That's the thing, it's the biggest asset that people have in life. In residential side. It's generally the biggest size of that. I know commercial might be a bit different maybe for businesses and whatnot, but yeah, they're our biggest asset. I mean, Canada, look at how the wealth is made in light and life it's real estate, right? Like that's, people's life, life. That's how Canadians make money in life. They had to have their jobs, but their wealth is built through owning their own home. And, you know, that's, that's the American dream owning your own home, but it's Canadian. We actually have made so much money in the last 30 year run of a, of a real estate where it hasn't really gone backwards at all. So that's where all our wealth is made. It's a huge asset. So having, I think, yeah, people still want that personal feel with it. I think it's, it's gone away a little bit maybe with the way that tech has, it has disrupted, but it's not going away fully. It's just changed the way things are running and, you know, yeah. The millennials and younger are so technology savvy that they, you know, they're finding information, it's changed a bit in the residential world has changed a bit to an extent where you're, when we're meeting with clients, buyers or sellers, they have a lot of information already. They already know like roughly what their houses were like. They used to know people that had no idea what their houses were worth at times. Now they know they know what the neighbors sold for. They know, like they know all the, they know a lot more information. So it's just changed the way that we add value to people and, and what the business model looks like. We have to come up with more creative ways that value, ultimately just having the information of what a house is sold for or what it could sell for is not enough. We have to, we have to, we have to be better ultimately at delivering the service and value. Speaker 0 (33m 47s): Yeah. That makes a lot of sense on the commercial side. You know, when we deal with institutional landlords, whether they're pension funds, real estate investment trusts, or the like people almost don't believe that landlords generally speaking, they want to deal with a broker on the other end because they feel that at least from my experience, not dealing with a representative, they're basically walking through and teaching really the, potentially the entrepreneur, the owner in a leasing, a transaction, basically how to walk through an APS or walk through a letter of intent or offer. I'm curious, how do you deal with that unrepped situation in the residential space? Speaker 1 (34m 31s): Yeah. Interesting. Cause there's, you know, in the, in the greater Toronto area, for example, right, there's 60, 60, 60 5,000 realtors. Now, I believe it's the biggest real estate board in the world actually are in north America. So many realtors, cause obviously they're attracted to the potential financial benefits they get from the industry. And so there's so many that, you know, represented or not even, even even represented, it's often we're training the other side on how to do a deal because they do one deal a year or, or they do no deals a year. And so even, even when they're represented at that time, it's a lot of work for like, if you're experienced and they're not often, you know, you're doing some of their work for them or helping them through the process in some way. And, and most people are represented, I would say here and there, know we do, we do deal with people that aren't, but fewer and farther between, I think it's a lot of education and training. It's not the most fun thing I would definitely, you know, we definitely prefer dealing with that. We've dealt with before that we'd like, and trust them just like anything, right? Like anyone hiring a realtor in general is going to deal with someone they know like, and trust we like dealing with on the other side of the deal, people we know like, and trust just makes for a smoother process in general. It's funny. It's funny. There's a, there's, there's more, you know what, this seems like. There's more, I think unrepresented, if you were to ask the general public, probably I don't think it's true. I think there's actually maybe more representative than ever. Speaker 0 (36m 10s): Yeah. And I think there there's a statistic, don't quote me on this, but it's something like of the board members and I'm sure this is similar for other boards, like 25%. You didn't sell one thing in any given year. So a lot of them just have the license and then something like, you know, you'd go up to 50%, didn't sell more than, than 10 assets or 10 homes in residential. But yeah, it's pretty, it's pretty amazing how many we do have in our board. Speaker 1 (36m 36s): I just, I just probably have 20,000 of the 60,000 that I mentioned there. It was 20,000 sold zeros houses. So a third, a third cell, literally zero. Yeah. Speaker 0 (36m 49s): And I think one thing I do think has gotten better, at least in our market that they have increased the barriers with how long it takes to get a license. You know, it's, it's just, it's not something you can just in one weekend. Okay, there you go. Your license. And I think that's important to kind of limit how many, how many people that we have just jumping into it and not necessarily, you know, committing to, or wanting to really be in there. Long-term Speaker 1 (37m 13s): I know you asked some states where you can just get it the next week, you know, just like, you know, it's like a couple hundred bucks or maybe, maybe a couple of grand at most, and I'll just have my license in a week and I'll, I'll, I'll, I'll just, I'll just represent myself because then I'm going to go sell my house this month. I'll just, I'll just grab the license and go somewhat sell it. Yeah. It takes one a year. Maybe, maybe less, probably last six months to a year to get your license here and maybe five grand. It's still, it's still relatively low barrier of entry, considering that we're representing people on their largest, if not one of their largest assets, it would be awesome. I guess once, once we're in it, you know, it'd be awesome if others could get in as easily, but at the same, to the same extent, you know, I got in real easily and maybe I would never have gotten my license. I got into this. Or maybe, maybe either of us were never invented this. If it was more difficult. I don't really know part of the reason that I got into it because it was kind of easy. I think they say like 80% are out of the business in two years, you know? So it's, it's a very high interest rate, very high partially because it's so easy to get in. And because people want to collect quick, quick fat paychecks, and it's not the reality once you can get in and like any business, right? Anyone starting a business, it's going to be, I want to be a business owner. It looks so fun and exciting. It's grueling for the first couple years. Typically often make no money for a couple of years. And so it's, it's a lot harder than it looks that's for sure. A lot harder than it looks. Speaker 0 (38m 45s): Yeah. A hundred percent. I always say it's a, it's a five to seven year business. I mean, you really have to commit, I don't know if you know, probably a little different for residential, but I always say in commercial, you got to put in five to seven years to really get there. And it's funny in our industry, a lot of times people are like, oh, people in commercial real estate, they, you know, if you're in commercial real estate or you must make a lot of money and it's that kind of survivorship bias. It's like, no, no, no, no. Like the, the guys have just hung around the longest. A lot of people have left earlier, moved to, you know, in our world on the landlord side or just switched careers. But yeah, I think five to seven years, Sandy, generally speaking, I'd love to get your thoughts on the market, the real estate market right now. Let's maybe talk locally and then broaden it out to, to a larger scale. Speaker 1 (39m 32s): I mean like, yeah, it's I, you know, and this is all over north America, if not the world where people have gone away from a little bit away from being like urban life and a little bit more into the rural life. And then there's a bit of an attraction to that. I think millennials younger, especially, right. We're a little more attracted to, we're not as much attracted to money as, as traditionally, like our other generations have been, we're more like attracted to lifestyle and what that looks like. And a lot of people that's not living in a 500 square feet, a condo with a concrete jungle. It's more like let's go have some land or some space. And so that's been honestly a little more available or a little more of a real life reality with, with COVID right. You can actually work more remotely. So a lot more of those opportunities where you don't need to live in downtown Toronto to, to work. So we've seen that all around outskirts of Hamilton and Toronto is just people looking for more land, more space, more, more value too. And then the property values have gone up based on that line demand. Pretty simple there, but Canada everywhere across Canada basically is just such a shortage of supply, super high demand. We're in an election month here. So we'll see if that changes anything. It probably won't, but there's, there's, there's extreme demand because we in Canada, we have such high immigration, right? Good quality immigrants. So it's their homeowners within a short time and, or want to be homeowners. So the demand is through the roof and we can't build homes fast enough. And so supply is very, very short on supply. I don't see that changing anytime soon. And so, you know, based, based on those two simple concepts, when money is cheap to tack on, you know, to throw an extra, extra spur on the fire, their money is dirt cheap. So it's, you know, the better, the best time to buy a house a hundred years ago. The next last time today, you got to buy as many as you can. I'm throwing on my investor hat on. I always tell people this just buy houses. You got to take action. You got to buy houses, buy as many as you can. And then you're never, you cannot go wrong. If you have a long time, you might next year. Sure. The market could drop slightly. I don't think it's going to collapse by any means. It could drop slightly if, if money gets more expensive than, yeah, it could maybe just taper off a bit, but don't see anything drastic happening. And yeah, like if you, if you don't own a home right now, or you don't own multiple homes, you should, you should be definitely getting into the market. And the Canadian market is just so robust and there's incredible market, probably the best in the world. So it's, yeah, it's silly not to be involved in it as much as it can be buy as many properties as you can. You're you're going to, we don't, I think we're also, you know, one other thing, look at Europe anywhere that's been around, like we're a really young country. So we have a few generations worth of like actual, not even a few, like one or two generations of actual wealth in this country. Whereas like Europe has, you know, hundreds and hundreds of years worth of wealth filled up. So we're very young in that sense. So, and just look at, I think you can't, you're not really buying houses in, in, in really developed European countries. They've been around forever. You're inheriting properties. You're not going in and buying that many properties yourself. So we're going to be like that too. Eventually we're running out of space to an extent. I know we have a lot of space in Canada, but we're running out of where we can build in and actually people want to live. So if not for yourself, you have to buy houses here. Kids are not going to be able to afford this stuff, but you can argue about that all day, but affordability is not going to, I don't think it's going to change anytime soon. Speaker 0 (43m 22s): Yeah, I agree. That's good though. Best time to buy as a hundred years ago next to time is now. And, and you know what, I think it's the, it's still the case today. I mean, ultimately I think specifically with Toronto and Canada, can't remember the stat. Exactly, but it's something like 90% of the Canadian population lives within a hundred miles from the U S border. So although we are a huge country, our populations are pretty densely packed. And I remember about five years ago, you know, there was this thing where they were talking about how overvalued Canadian real estate was, how bubbly it was. And I really think the, the counterpoints now that are, I think are a little bit clearer, obviously with COVID a little, you know, has changed somewhat, but I think we'll get back. There is immigration and in, in professionals, moving into our cities and generally speaking, like our cities are quite populous and other parts of our country, they are just not areas that majority of people live. I mean, Ontario itself, you go seven, eight hours north in Ontario. There's certain areas that you'd probably still need to take a ho a helicopter to. So yeah. I couldn't agree more with you that Speaker 1 (44m 33s): Whether it's not very exciting. Yeah. Speaker 0 (44m 35s): The weather doesn't get much better. All right, Sandy, we have four questions, little rapid fire we do with every guests at the end of the show. So if you're ready to go, I'll shoot Speaker 1 (44m 46s): Them at. Yeah, let's do it. All Speaker 0 (44m 48s): Right. Perfect. All right. First one. What is your view and advice regarding mentorship for people trying to break into the industry or that are already in the industry and want to get to the next level? Speaker 1 (45m 1s): I joined it. I joined the team when I got into real estate is the best thing I ever did. You got 10 plus years of knowledge in a couple of years, I was with that team all, all based on mentorship and guidance. And, you know, I think the biggest thing is we hang around with is really important in life. And, and, you know, being in an environment that's going to help you grow is, is it's really underrated. It's like it couldn't be more important. And, and, and you know, what comes with that is mentorship and support and guidance and training, et cetera. And, and you grow into the people you hang around. So, you know, you should audit that circle regularly. Speaker 0 (45m 39s): What's something that, you know, now that you wish you knew when you first started in real estate Speaker 1 (45m 48s): In this business, I would say like 50 plus percent of it is just getting the business in the first place. A lot of people forget that, or don't realize that and getting into it. And I didn't either, you know, I didn't realize that that is like, that's like 50 plus percent of it is just getting the business in the first place. So becoming a lead generating machine in some way, shape or form is, is, is really what you need. Like that's the whole business until you, because you don't even have until you get that. So it's a big part of it. It's something worth educating yourself on and learning a lot about, Speaker 0 (46m 19s): Yeah. Number another good answer. The lead is our business. You feed what? The lead. Okay. So what are some podcasts books or resources that you're listening to right now that listeners should hear about? Obviously we'll talk about your podcasts, but yeah. Feel free to plug whatever you'd like here. Speaker 1 (46m 38s): Yeah. I'm interested. I brought a change. My life. I've mentioned that one. Yeah. Breakthrough real estate investing podcast. You can go listen to, we've got a hundreds of episodes. Now, the, the book I like recently that I found, maybe I'll look back on it a few years and say, it's changed. My life is not how I really liked that book. Who not how, which is, was the author. And I'm losing my, my thought on that. Who not, how D not be in Jackson. It's the Speaker 0 (47m 7s): Blue in the yellow book, right. Speaker 1 (47m 11s): It's doing yellow, Dan Sullivan, Dan Sullivan, Dan Sullivan. And it adds a coauthor. I think he's with someone else, but that changed my life in terms of it might've changed my life. It changed my, a lot of thoughts that I have around, around leverage. And, and also just like, you know, freedom, I guess, different aspects of life and what we're doing this for it. So it's a, it's a great book around leverage for sure. Speaker 0 (47m 35s): Alrighty. Last one here. First car, make and model. Speaker 1 (47m 40s): Oh, I had Pontiac grandam had these two, like hood scoops on the front or I'm a, I'm a Denver Broncos fan orange is my favorite color. It was, it was, it was a nice, like, not, not, not neon, but a nice flashy orange. Speaker 0 (47m 59s): And that's awesome. I know exactly the one you're talking about. I really liked that guard back in the day, my cousin had it, it was laced like wide bodied, pretty beef, your car, then the Sunfire is, are the smaller cars you saw around that time. So that was probably around the Elway and Tarell Davis days. Speaker 1 (48m 17s): DV Joel Davis was my, it wasn't my man that got me on the Broncos train. They're in the mid nineties. Yeah, that was probably, it shouldn't be a lot of, most people would say that. I say all the way I, it was trial David's for me. Speaker 0 (48m 31s): Unreal. Well, thanks so much, Sandy, in terms of how people can reach out to you getting contact, whether they wanted more information on the broker gen or on the investing side, or even here locally, if they're looking for properties, selling or buying a site from a quick Google search, what's the best way for people to reach out to you, Speaker 1 (48m 52s): Instagram and Facebook, easy to find me, just look up my name and or email me, San Diego Mackay, realtor.com is pretty easy. And yeah, definitely. I love to connecting with anyone in the real estate world in, in, in any way, really, especially if you're looking to be in the realtor side, you know, we're always looking to connect with people around that. And I can certainly point people in the right direction if they're looking to build a career in real estate, do a lot of investment stuff. But if you really wanted to actually full-time run a career of any kind in real estate, I'd love to chat with people. Speaker 0 (49m 25s): Perfect. And just before we wrap up, I want to tell listeners, I think we're okay. We're 70 something episodes. And right now in the reason working capital exists in part is because of the conversations Sandy, you and I had a, what is it now a year and a half ago? And you were just very helpful and, and talking about the details and the setup and everything. So really appreciate that. Speaker 1 (49m 49s): Yeah. You know, it's, I think we were kind of the first Canadian based podcast to be honest, the invested investor in podcasts, like that actually stayed on for more than like a couple episodes. So that was a, we've been doing that show for seven, almost eight years almost, which is crazy to think. But yeah, Speaker 0 (50m 10s): When you first started, I was like, I don't even remember listening to podcasts back then. Yeah. Speaker 1 (50m 17s): That was, that was, that was why we were really early adopters, I guess, in Canadian space and yeah, I guess we're like, I don't really call him the godfathers of that space or something. It's funny to go back if someone's listening and wants to go back on some really, oh gee like investor talk. It's pretty funny to go listen to our early episodes. They're like sold. And so like comical now compared to like the products that, that you and others put out now, it's like we were, we were not very good, but there was some good, good value of getting information. I think Speaker 0 (50m 51s): My guest today has been Sandy vacay. Cindy, thanks for being part of working capital. Speaker 1 (50m 56s): This is fun. Speaker 0 (51m 6s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    Unlock Your Home Equity Without Taking on Debt with Matthew Sullivan | EP71

    Play Episode Listen Later Sep 15, 2021 51:45

    Matthew Sullivan is the CEO and Founder of QuantmRE, a company that supports homeowners by helping them unlock some of the equity in their home without taking on more debt. A seasoned entrepreneur, Matthew has a proven track record in real estate innovation through his experiences as Co-Founder of the $50M Secured Real Estate Income Strategies Fund, and as Founder and a President of Crowdventure.com, a real estate crowdfunding company.  In this episode we talked about: Matt's Bio & Crowdfunding Background What home equity contracts are and how they work How to qualify for home equity contracts Releasing equity in your home without taking on more debt Getting money now by selling some of the future value in your home How to tap into a formerly untapped asset class Leveraging equity in your home to get cash with no extra debt Mentorship, Resources and Lessons Learned Useful links: https://www.linkedin.com/in/mattsullivanco/ https://www.quantmre.com Transcriptions: Speaker 0 (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time, or at least in gentlemen, my name's Jessica galley, and you're listening to working capital the real estate podcasts, another special guest today. But before we get there, just wanted to let listeners know we have a website up for we've had our up for a while, but working capital podcast.com. If you have any questions regarding the show, anything real estate related or anything related to our guests, feel free to reach out there. There's a just asked Jesse section. Now without further ado, I have Matthew Sullivan on the show. Matthew is the CEO and founder of quantum R E a company that solves a real problem for homeowners by helping them access a portion of their home equity without taking on more debt, Matt, how's it going, Speaker 1 (1m 4s): Jesse? Thanks for having me on. Speaker 0 (1m 7s): So Matt excited to have you on the show. It's a, you know, very, very unique kind of discussion. We're going to have specific to, you know, the product that you're offering. So maybe before we start with that, what we normally do with guests is have a little bit of a background, you know, for listeners, how you got into real estate judging by the accent. You didn't grow up in salt lake city. Speaker 1 (1m 29s): Yeah, no, that's right. No, it was a Birmingham, Alabama, actually, there we go. Now I'm originally from the UK, moved over here about eight years, eight years ago. And I've been an entrepreneur all of my life, which literally translated means I have been unable to get a job for most of my life. So congenitally unemployable from the get go started out life as a stockbroker in the late eighties, which was a tremendous fun breaking countries like Hong Kong, Singapore, Malaysia, Indonesia, Philippines, Thailand, you know, when they were all the assay and tigers then moved into stint with a few buddies at a small corporate finance house. And then really just decided that I really wasn't very good working for anybody else or other that was decided for me. So I decided to become an entrepreneur, got involved in telecoms and then the internet came along and really just, there was this fantastic sort of journey dealing with all things technical and platform based. And finance-based spend a few years working with sir Richard Branson with the Virgin group. And we worked on projects like V2 music and Virgin clothing and Virgin cosmetics. But w one of the things I never did, but always wanted to do was get involved with real estate. So when I moved over here, about eight years ago, I set up a real estate crowdfunding company. So it was one of the very first crowdfunding companies to come out of the changes in regulation and legislation that was, that was created by the jobs act or the jumpstart, our business startups act that was signed into action by Barack Obama. And what that act did was it enabled you to publicly solicit for funds for what are essentially private placements say beforehand, you couldn't publicly solicit, or you couldn't advertise private placements, but the jobs act allowed you to publicly advertise your deal or your, your PPM. And that really created, or was the birth of a number of different crowdfunding platforms. And so that's, that was my baptism by fire into real estate, but it was sort of leveraging everything that I'd learned beforehand about, you know, platforms and technology and regulations and, you know, securities laws. So, you know, it was a, it wasn't a path that was totally untrodden Speaker 0 (4m 9s): Right on. And by that solicitation, I assume you're referring to, what's known in the states is a regulation. D I think it's correct me if I'm wrong. 5 0 6 B and 5 0 6 C. One of them is only to accredited investors. And then the other one is open advertising. Is that right? Speaker 1 (4m 25s): If you say five or six, B is actually available to accredited and non-accredited investors, but you have to have a prior significant prior relationship with those people say, you can't generally solicit, so you cannot advertise it five or six C only available to accredited investors. And you have to prove that they're accredited through independent third parties. So you can't just self-certify that you are an accredited investor under five or 60, but you are allowed to advertise your deal or your PPM or your, your offering to, you know, to a wider market. Speaker 0 (5m 7s): So you move from the space that your, you were currently in prior to real estate, you go into kind of crowd funding, this idea that I guess basically the democratization of private placements, to a certain extent we saw in our industry, a bunch of these crowdfunding companies start up, where do you go from there in, in your career? Speaker 1 (5m 28s): Oh, I gave him one of the challenges really of trying to start something in a, in a new environment is that it's difficult to get that initial traction. So one of the gaps that I had was, you know, local or US-based real estate knowledge to say it was never my intention really, to do anything other than partner with people in the U S who have real, you know, you're, you know, real estate background. So as very fortunate, meet a couple of guys that I'm still working very closely with today, who are, you know, very successful and profit real estate developers and investors. So there are, they became our partners. But one of the things that I also came across in the early years about five or six years ago, was this concept, or rather a construct, an agreement that allowed owner occupied properties allowed the owner to access some of their equity without having to borrow money, say it was, it was something that wouldn't have worked a few years ago because the agreement itself was structured in a way that meant that it was either not investible, or it would have created all sorts of potential issues for the homeowner, but I sort of kept a close watch on it, and it was fascinated by it and intrigued by it saw that industry begins to develop in the contracts, begin to develop and decided that this is something that really could be an incredibly large untapped industry. So it felt like I was at the beginning of mortgage securitization. And so I really wanted to get involved. We set up quantum Ari with the mission to enable homeowners, to unlock their home equity without taking on more debt. And at the same time, creating a marketplace where the paper that is created when you allow a homeowner to access their home equity, where that could be traded and creating liquidity for home equity effectively. So, so, you know, this, this whole idea of making home equity accessible investible and tradable was, you know, fascinating, intriguing, and it's something that still, you know, is hugely exciting, you know, even today for four years on, yeah. Speaker 0 (8m 1s): When you say the CMBS feel like you're on the ground level, just reminds me of the big short kind of that scene when they, when they first started realizing they're tradable securities that they could package in terms of, you know, before we get into the nuts and bolts of it. Cause it, it really is one of those things where if you haven't heard of this type of, I don't know if you'd call it an asset of structure before, it's almost too good to be true. People are thinking, okay, how do, how is it possible to unlock equity in my home without taking debt? But before we get into that, can you just talk a little bit about this concept of house rich and cash poor? Speaker 1 (8m 36s): Well, it's a real problem. And even though it sounds relatively benign for people that have the bulk of their wealth tied up in their home, even though on paper, they may be worth hundreds of thousands of dollars. The only way that they can access that is to go back to the bank and borrow money. Now, particularly with the current economic circumstances that have been, you know, triggered by COVID. And in particular, we're seeing today more and more people that are in the strange position where on paper, you know, they're, they're worth a lot of money, but on a day-to-day basis, they are struggling to find the cash to meet their everyday expenses, expenses, you know, like grocery bills, school fees, that sort of thing. And so the term house rich cash poor really is sort describes this position where, and there are tens of millions of Americans that are in this position where your, the bulk of your wealth is in a single, concentrated nonfinancial, non cash flowing asset, which is effectively the equity in your home. And the only way, if you don't want to borrow money, the only way, you know, previous to, to, to what we offer is to sell your home. So you're, it's a bit, you know, it's a two-edged sword, it's this, the wealth becomes this, this, you know, the, the sort of necessary evil, why would you want to sell your home? So that is what we mean by that is it's something that is, and we're seeing this even more with the rampant house price appreciation over the last year or so, you know, that gap is widening, you know, even more, Speaker 0 (10m 16s): Yeah, fair enough. So in terms of the actual mechanics of it, I believe home equity contracts is, is the, I guess you call it a product. I would, I would say, Speaker 1 (10m 26s): Yeah, I, you know, in the same way, it's a financial product. Exactly. Speaker 0 (10m 29s): So this, you know, financial instrument, this product basically run us through it. What is it exactly? And how would it work for, you know, somebody that would be interested that has, you know, maybe a 50, 60, 70% plus equity in, in terms of their, their equity to, to their asset value. Speaker 1 (10m 50s): Sure. Well, let's, let's start really by, and again, I'm very conscious of what you said earlier, which is that this is too good to be true because that's, that's something that we come across frequently and we can really understand why somebody thinks that. But if we start by saying what, it's not in a home equity agreement or home equity contract, it's an agreement, it's not a loan, so we are not lenders. So it's not a home equity line of credit. It's not a mortgage, it's not any form of debt. And the easiest way of describing it is if you look in the commercial world, the capital stack of any sort of commercial development comprises a number of different layers. So you've got your senior debt, junior debt, there's mezzanine financing, that's preferred equity, the shared appreciation mortgages, which have a combination of debt and equity, pure equity. So there are different types of funding layers within the typical cake that you get in a, in a, in a commercial real estate transaction, if look at residential real estate, the capital stack there it's, it's primarily debt. So a few different flavors of debt, you know, there might be a home equity line of credit. There might be a reverse mortgage. There might be a, you know, standard sort of mortgage. There might be a variable rate mortgage, but it's kind of variations of the same thing. So the equity portion of the home, which in, in your example, if you've got 50, 60, 70% equity, that's the majority of the capital stack doesn't have any mechanisms attached to it, to enable other people to invest in that. So currently from an investor's perspective, you've got a $23 trillion asset class, and that's all of the equity in, in residential homes in the U S that you can't invest in because you can buy some of the debt. Sure. You can go and buy a tape of, of, you know, first position or second position performing a non-performing notes, but how'd you get your hands on the equity in homes that are not for sale. So it's really interesting from an investors perspective, but from the homeowner's perspective, what instrument, the option agreement in its simplest form, it's a transfer of ownership. So we do not entendres owners. The agreement states that the owner commits to share in some of the parent and future value of home in exchange for cash lump sum today. So the trade is we're investors. We're not lenders as we're not lenders, there's no interest. If there's no interest, there's no monthly payments. So that sort of that's, that's how we don't have that, that issue there, but we do get paid and we do make money on the transaction. And the way we do that is by sharing in the appreciation when you get to sell your home. And the way we do that, as I said is through this agreement, that really is very similar to an option agreement. So it sits on the side of the ownership structure of the home. It's protected by a lien on title. So that means that when the home is sold and when we go through the SBA process, the lien holders such as us, we get paid before the homeowner gets the balance. But what that enables us to do in exchange for that initial investment is get our investment back together with a return on that investment by way of a share of the appreciation. Speaker 0 (14m 24s): Yeah, that makes sense. The way, when I first heard you, it's funny, we, we connected, you know, one way, but I also, I remember I was like, these things sound so familiar. I've heard a podcast on this before, and we'll be holed. It was a, it was a podcast you were on. And the way it was easy for me to think about, it was kind of this idea of having a, you know, a player in the juniors that you're basically kind of making an agreement with them that, you know, provided you go pro we're going to take a little bit of a piece of that, your future, you know, future earnings at the point where there's some sort of capital event. So if I understand it correctly, correctly, you know, say just for, instead of percentages is figures say you have $500,000 of equity. Number one, I assume you, you know, you can take a piece of it. You can T you can have this product for all of the, all of it, and whatever way you go, you, you get this product. And basically you're providing capital to me. There's no interest payment, it's not a debt instrument. So I don't have anything going out. However, if you know, use Toronto as a good example of, we've had a bit of a hockey stick graph in terms of appreciation in our market. So what you would see in five years from now, if I go to sell this house, it's almost as though there was a lien on the house that you're in, you're in first position that you have, I assume in your agreements, maybe you could talk a little bit more about this. You'll have a, you know, a certain percentage return that that is basically paid out to you, kind of like a waterfall. And then anything above that would be, you know, equity appreciation that I've made on the home. Do I have that right? Speaker 1 (15m 55s): Yeah. It's we are partners and we share in the appreciation. And what we do when we go into that agreement is we are very specific about what that percentage is. So the agreement is clear and we say, you know, this is the investment, it's an absolute sum. So it's a, it's a number. This is the current value of your home. And we agree on that by using a third party appraisal. So these are people that we don't instruct ourselves. They're instructed through a third party intermediary. So it's, you know, we try and be as arms length as possible. So we've got the starting point. And we then say that when you sell your home, a fixed percentage of the value of the home goes to us. So effectively, what you're doing is you're selling some of the current value of your home to us or the, or the, the rights to that at a discount. So it's the whole present value, future value calculation. In other words, money today is worth more the money in the future. So we're going to get our money in the future, but if we're going to do that, then we want some sort of discount to factor in all the various risks that could happen along the way. And that's really what it is, and it's in its simplest form. Speaker 0 (17m 18s): So if you were to explain it a little bit more to people in my industry on the commercial real estate side, would you, would you start the conversation by saying, think about this as preferred equity? Yeah. Speaker 1 (17m 29s): It's exactly what it is. It's, it's a preferred equity position where our equity, you know, is paid before your equity. So the definition of preferred equity, we get out our equity first, but it's not debt. So we're always in a sort of junior position, or we're always behind the primary or the secondary lenders. So the debt portion of your home will always take precedence. If you don't have any debt, then obviously we'll be in first position. But in most cases, we're in, you know, second position we try and avoid being in third or lower. Speaker 0 (18m 8s): So your subordinate to the debt, if any, but you are senior to the current equity or, or the, you know, which is likely the homeowners. Speaker 1 (18m 17s): Exactly. But there's also a much more of a partnership element with a debt product. Your capital is always do no matter what the value of the underlying security is. So, you know, the lender will always hope that the security is worth more than the capital. Some should. They have to call the loan in our agreements. The amount that you repay is directly proportionate to the value of the home when you sell it, or when you decide to refinance, if you want to buy us back. So there is a potential for our investors to get a lower return, or, or if house prices do significantly fall and you sell, we may be in a position where we get back less than we invested so that the other big differences, the repayment is directly correlated with the value of your home when you sell it. Speaker 0 (19m 14s): So, one of the things that when I started looking into these, what I was curious about is this aspect of, you know, regulatory environment changes regardless, you know, depending on state country, one of the things for us, we found that when we would do say a cash out refinance or a home-ec, let's, let's use the home equity line of credit, because it's a little bit easier. So say you have an ability to take a 300,000 of a home equity line of credit. Now you don't have to tap into it yet, right? That's the whole point of it is that it's going to be there. Now, what we have found is that from a credit perspective, it will affect your credit because you have the ability, basically the bank knows that you have the ability to access it. So, so I've seen a bit of a shift that people are careful with how much that they take out. I remember in the past, it used to be, get as much as you can have it, sit there, but now it's a burden to a certain extent, from a credit perspective, how does this play into, you know, how banks look at you is if somebody is, you know, getting approved for another mortgage for a different property, how does this show up? How does the home equity contract, if it does it all? Speaker 1 (20m 23s): Well, again, that's the thing. It doesn't because it's not debt. So because it's not debt, there's couple of other advantages, one it's effectively your own capital that we have bought from you at a discount. So it's, it's the sale of something that you already own. So there is no debt element to it. So it just does not appear on your credit report as debt, even though we do check your credit report, before we go into the agreements, to make sure that your someone that we'd like to invest alongside when the transaction is completed, it's not a debt transaction. So your credit score is not affected. It doesn't appear as an additional line item. Now, the benefits of that is that you can use that money to pay off other creditors that are part of your credit score. So if you have existing credit card debt, or if there is some lane that you want to refinance, you can do that because you're not robbing Peter to pay Paul as it were. Now, you're not over leveraging, you're actually reducing your leverage. And again, these are all concepts that psychologically one sort of struggles with because you're always, you know, tuned to think of this as debt, but you're not, you're actually paying off your credit card or your other debt with wealth that you have been able to access from your home equity. Hmm. Speaker 0 (21m 50s): Yeah. That makes sense. In, in terms of the, like you mentioned before, you know, call up or basically it's, it's an option. What I'm curious about, you mentioned if, if there was a situation where a market changes now, obviously it's not like shorting a stock. There is an unlimited losses. We don't go to negative numbers in real estate. However, if, if there was a 20 or 30% downturn in a given market, and for whatever reason the owner had to sell, how would that, how would that play out in, in terms of what the payout would be for, for that preferred equity position? Okay. Speaker 1 (22m 25s): Th there's a, there's a calculation for the amount for the upside, and there's also a calculation that's agreed for the downside. So in other words, whatever, the percentage that we've agreed at the, at the beginning, that, that standard, the two, and normally with our agreements, the two are the same. There are other companies in our space and they have slight variations. So they'll pay a certain amount or you will pay a certain amount on the upside and the investor will pay a slightly different number on the downside. But those figures are all agreed on the basis that if the property does fall below a certain threshold, the investor is going to get back less than they invested. You know, there is no recourse to the homeowner. There is no ability for us to set a minimum return because then that starts falling into the purview of being alone. So, you know, you've either gotta be fish or foul in the solar business. So, you know, if it is a risk-based agreement, then we have to take risk. Speaker 0 (23m 28s): So I, I imagine somewhat similar to syndications or other private placements. It's not a guaranteed return. There's a bit of a preferred return. Speaker 1 (23m 38s): It is exactly. But what you do is in the underwriting stage, you're careful with where you're investing. We're not investing in properties where we're not likely to see house price appreciation. And there are a number of states where you're not going to see the same level of appreciation. Then you're going to see in California or New York or Florida, for example. So we tend to operate in only a certain number of states. And in addition to that, we're careful about where we invest. So there's certain minimum house prices and the certain maximum house prices and the ha the maximum house price is sort of counter-intuitive because you would've thought we would want to invest in a $20 million Hollywood mansion. But the problem is when the market starts getting a little uncertain, if you get three appraisals round one, we'll say it's worth 10 million. One was that it's worth 20 and another will say it's worth 30. So you can't price. Those types of houses say, w you know, we stay very much in a sweet spot where price transparency and price discovery is far easier. So we try and reduce the opportunities for our investors to, to lose money. But again, there has to be risk. Otherwise it's not an investment, but, but, you know, we try and mitigate that risk by using intelligence and underwriting and information and forecasting to, to give us the best chance. Speaker 0 (25m 2s): Yeah, it makes sense. But Matthew, you know, we always have three appraisals, the, the broker, the buyer and the bank. Yeah, exactly. Speaker 1 (25m 8s): Yes, yes. Speaker 0 (25m 9s): That's. So that was basically leading up to my next, my next question. It was more from, from the business standpoint, in terms of market selection, it seems like, you know, one of the challenges we always have as real estate investors is that we want areas that are appreciating from a price perspective where we can force appreciation, but also, you know, the double-edged sword, we don't want cap rates to be compressed. It seems like you're, you're in a position where you can at least focus a little bit more on what are fundamentally a good markets for price appreciation. How do you model that out? What do you look for in those markets? Speaker 1 (25m 43s): Well, first of all, the difference between this and other investments is the scalability, because we are investing in homes that are not for sale. So this investment has a number of benefits compared to ownership of real estate. So if we're looking to buy real estate in certain areas with that comes the burden of management, you know, debt servicing, perhaps, you know, tenants, servicing, finding tenants, repairs, et cetera. So, you know what we're doing, doesn't involve any of the burdens associated with home ownership. So we have a much wider of pitch or a much wider field to look at because we are co-investing in properties that are not for sale. So that's a slightly different, we're a very different dynamic than actually thinking, where are we going to buy? So what we're looking at really is generally over time, we know that, you know, real estate will appreciate in any 10 year period, and it is most likely to outpace inflation the way that the agreement is structured, it builds in a form of structural leverage. So what that means is even though your house may only appreciate by three or 4% a year, the agreement itself gives the investor a bigger return than the underlying house price appreciation. So we're not looking to get a one for one, the agreements are structured. So we get maybe a two or three X return on what the underlying house price appreciation is. So if your house goes up by 5% and you sell it, we're probably going to make about three times that once we've got our share of the equity back. So there's we, so we have that non debt leverage that's built in. So you've got an option agreement that has a leveraged return, but we're not using debt. There's a bit of downside protection because we're buying into your property at a discount. So, so there is some protection for the investor. So that gives us the ability to actually look at quite a wide range of real estate, because we're not restricted to just look at property that's for sale. So we can actually go and pick some really prime estate real estate that is owner occupied and could be owner occupied for the next, you know, 20 or 30 years. Speaker 0 (28m 10s): So if I understand that correctly, say you have a million dollar asset. It goes up in a given period by say, 6%, $60,000, but you have built in an equity position of a hundred thousand dollars or preferred equity. So now that six 60,000 is 60 per 60,000 with the initial investment of a hundred. And that's how that multiplier kind of plays out. Speaker 1 (28m 32s): Yeah. I mean, the numbers are, if you have a million dollar home and we unlock, we access for you a hundred thousand dollars, that's 10% of the current value of the home. What we will then do is say, when you sell your home, you give us 16% of the value of your home at the time you sell it. So let's say you sold it for 1.1 million. We would get 16% of 1.1 million. So we would get about 170,000. So our a hundred thousand dollars becomes $170,000. So that's a good return for us now, from your perspective, you know, over a period of years, the re you know, the, the actual returns compress. So it becomes close to the sort of costs that are the average home equity line of credit would be, but that's, that's in the, in the longer term, in the shorter term. However, if you sold your home, that would be quite expensive. So we build in a cap where the most that we can get as a return on our investment is kept each so that if your property does rocket up, and then, you know, the amount that we get is actually kept so that the balance goes to you. So, but in any case, we are buying some of your current value at a discount, and that serves two purposes. One, it gives the investor some cushion in case the property goes down in value, but secondly, it gives the investor, this sort of structurally leveraged upside. And for you, the homeowner, it's great because you've got access to some of your capital. It's free and clear. So there's no monthly payments, there's no tax implications. And I'll talk about that in a second. So you don't have to pay income or capital gains tax at the time that you get the capital and you can use that money for what, and if you're paying off credit cards at 30% a year, then you're, you're doing very well. Or if you're investing as a down payment in another property, because that's not debt, then you've suddenly got yourself another, another property in your portfolio. Speaker 0 (30m 42s): Yeah, I would imagine also no land transfer tax, because like for the, on the investor side, because you're not, you're not purchasing exactly. Speaker 1 (30m 50s): There's no, no change of ownership, but there's no, no triggers. So from a mortgage perspective, there's no, you know, early settlement due to, you know, sale or transfer. There's no partial transfers. It doesn't trigger property tax reevaluations. It doesn't trigger capital gains tax. Now, the interesting thing is there's obviously a cost of the money. So if we provide you with a hundred thousand dollar investment is going to cost, you let's say $150,000. If you settle a few years time, now that $50,000, which is the cost of the capital, you can use to offset against any capital gains tax liability you may have on that property. So, in other words, if you were going to, if you had a $500,000 gain, you can reduce that gain by $50,000 now. Yeah. Speaker 0 (31m 40s): I mean, that's, that's where the first, you know, first thing that comes to mind is too good, too. Good to be true. It's it's like a tales. I wouldn't heads you lose, but Speaker 1 (31m 50s): Yeah, again, it's just think of it in terms of what, what is the preferred equity structure in a commercial deal? Yep. Same, same thing. So the owner of a commercial property gets to offset the cost of the, in the app to against the capital gains, because it's, it's, there's, there's no magic. All you're doing is you're just using financial structures that are used everyday in the commercial world. You're just using it in the, in residential world. Yeah. It used to it. And that's the thing, isn't it? There's no difference. Speaker 0 (32m 22s): Yeah. It, it, you know what I, it really is. And I'm sure this is, this is what made me, whether you'd use the word challenging, but this is the thing, the education piece, where people are so caught up in the idea, especially with residential, anytime I'm taking money out of this house, it has to be attached to some sort of debt structured that where, whereas in the capital gains example, again, even, even myself, I've been in commercial real estate industry industry, my whole career, and the way I think of it, even having to catch myself, oh, that's right. It's a cost of the transaction. It'll reduce your liability. Speaker 1 (32m 55s): Exactly. And that's the biggest challenge we have is the psychological attachment. People have to the equity in their homes. The biggest challenge we have, if all the, I'd say the biggest roadblock is for people who don't like the idea of giving away something that they haven't got, you know, so that they're trading the expectation of having future equity. That, and the interesting thing is people look at this in a very narrow focus. So when you talk to them about the, the future value of their home, excuse me, they see that as absolute. Well, they don't take into account is w what could happen to them and their lives and their job, or, or, you know, healthcare bills, or that they're assuming that everything in five years or 10 years time will be exactly the same as it is today. And their equity will be there for them. So what, after, you know, a bit of conversation, then people begin to start unpacking that stuff and realize that, you know, if I do have a life change, or if my, I do lose my job, then I'm never going to be able to borrow money. So that equity, you know, I might, I might have might as well have $20 million worth of equity because I can't ever get my hands on it. Speaker 0 (34m 13s): Yeah, for sure. I mean, it's one of those things, I think as real estate investors, we're a little bit more open to the idea of the, of the fact that if you have a hundred percent of your house paid off, or a hundred percent of an asset income producing asset paid off, it would be looked at as a negative thing from a real estate investors point of view, see your return on equity is going lower. Speaker 1 (34m 34s): Yeah, exactly. So trying to have that conversation, you can do it, but you have to pick your, your moment because what you end up doing is you're not just talking about your product. You're then embarking on this sort of financial education journey, where you're talking to people about the value of their home. People want to pay their mortgages off because they want to be debt free. But then you say, well, look, you realize that your house that was going up in real terms, 15 or 20% a year is now going up by 3% a year, because you've lost that three to one or four to one leverage. So there is this such a thing as good debt, if you can't afford the payments and you're getting that leverage effect. Yeah. So sure there is education is that it does lead onto a whole other conversation, but you know, all of it's very positive because you know that there is no gotcha. There's no catch to what we do. The decision is this is what it's going to cost you. This is, this is how we make our return. This is what you get in exchange. You know, what do you think, you know, here, here is everything black and white. And so you can make very informed decisions about this, which is, which is great. But as I said, it's not, it doesn't suit everybody. Speaker 0 (35m 50s): Yeah, for sure. I could definitely see it from that psychological barrier, especially, you know, the, the American kind of idea of home ownership is, is sacrosanct. And you kind of toying with that or talking about that. If it's not done, like you said, if you don't pick your pick your place or your spot, I'm curious Matthew, the, the actual investor side of the coin. So when you're, when you're looking for investors to invest in these products, what does that side of the equation look like in terms of how you raise capital or how you source investors and Instructure that side of the, the coin Speaker 1 (36m 23s): Biggest challenge? Again, this is something that we came across right in the very early stages, four or five, six years ago, you've got a, an asset that potentially doesn't pay off for 30 years. And in the meantime, there's no flow. So it's like, so everybody wants stuff that pays off next year with tons of cashflow. So it's like, you know, well, how do you, how do you go about fixing that problem? And there are investors. So there are, you know, hedge funds and family offices that have capital allocations that are suited to long-term asset backed investments. So, you know, money comes from those areas, but what we've built on our is an exchange. So our objective is to create a, you know, a system, a marketplace where the paper that's generated when you create a home equity agreement, that return profile that is backed by the lean on real estate. So you've got a real estate asset backed investment with a structurally leveraged return and downside protection on residential real estate in prime areas. It's a really good investment downside, no cash flow because it's equity based. And potentially you've got a ways a long time before you get the liquidity event. If we can create a marketplace where, where you can sell your interest. So as the underlying value of the property goes up, your return is going to go up because the two are directly linked. So in the same way that there's a marketplace for, you know, life insurance, settlements, and other types of, you know, non-cash fling, you know, securities, we've created a marketplace where you will be able to buy and sell fractions of home equity agreements. So you can or will be able to build a portfolio of homes or the equity in homes that are not for sale. And you don't have to buy the whole chunk we're using blockchain technologies and the efficiencies that we're partnering with the algorithm protocol. So what we do is we take a home equity agreement. We use these super efficient blockchain technologies to chop it up into little pieces. And the blockchain allows us effectively to keep track of where the ownership is of all of those little pieces at any one time. So we can use that and we can create this marketplace where those fractions can be bought and sold, that creates more liquidity or liquidity options for the investor. And then that suddenly completes the picture. Speaker 0 (38m 55s): So in terms of, you know, you have the average investor looks into a home equity contracts wants to go forward with it, ha what's the first step that they would take. Speaker 1 (39m 5s): This is stuff that w that is in the pipeline. We have a few weeks away from being able to get our first few deals on the platform. So there's a lot of structuring, fair amount of technical work. That's still in the finishing touches. You can go to our website today and register as an investor. You can see what the platform looks like, and it's going to be very familiar. It's very similar to crowdfunding platforms, or, you know, E-Trade or platforms where you see the investment. You can find out details about what's behind the investment, what the terms of the agreements are, and you can make informed investment decisions. You can't do that yet, but it's going to happen very soon. Speaker 0 (39m 49s): So the, the markets just generally speaking, I assume, right now, the focus is a U S specific markets in the U S or like you said before, there's, you know, there is cushion in terms of which markets you can look at. And like you said, it's, you're, you're buying houses that aren't for sale or, sorry, you're, you're investing in, in home ownership partnerships with homes that aren't for sale. Speaker 1 (40m 12s): I think really, for us to move into, I mean, we're active directly in California and indirectly through partners in 18 other states. And that's probably going to be about the number of states, because there are a number of states where you, you have regulatory issues. You've got challenges like in Texas, for example, homestead regulations there make it unattractive for investors, because it's very difficult to, you know, protect the investors if, if something goes wrong with the agreement. So it's a combination of where is the appreciation going to be? How predictable is that appreciation or depreciation and how liquid, or how, how attractive is that marketplace? And also what's the regulatory, what regulatory hurdles, or would we have to overcome. And again, the us is sorry to be master of the bleeding obvious, but it's a very large place. There are tens of millions of homeowners who have more than 50% equity in their home. So, you know, th th th th it would just be unfeasible to make even a tiny dent in that available marketplace, you know, in, in our lifetime. Speaker 0 (41m 32s): Yeah. It's pretty, it's pretty crazy in terms of the actual number. I think you mentioned earlier right now, from an equity point of view, roughly 20, 22. Speaker 1 (41m 41s): Yeah. Freddie Mac, the, they publish their figures frequently. If you look at the entire residential marketplace, the amount of equity compared to debt is around 20, 23 trillion. That doesn't mean to say that that's available equity. I think the available equity figures around 9 trillion, which is still enough to keep you occupied for a few weeks Speaker 0 (42m 4s): And not to put you on the spot here, but I know it's always ebbed and flowed in the states in terms of percentage of people that own their homes. You, I think, you know, from the sixties to low seventies to we're we're where are we at right now? Roughly? Speaker 1 (42m 17s): Yeah. I don't know. Okay. I don't know. I know where to find that information right now. I, again, may I, may I plead the fifth on that Speaker 0 (42m 29s): And you plead the fifth, it's something I'm always curious about because it's usually in stark contrast to European countries w you know, with, with home ownership percentages, obviously being lower, Speaker 1 (42m 39s): It's a lot less, I mean, if you read it. Yeah. I remember reading lots of articles, which really it's astonishing how low home-ownership is today compared to where it was maybe in 20, 30 years ago. So, you know, my sort of memory is that it is in decline, which is counter intuitive, but, you know, I think I'll stop digging at that point. Speaker 0 (43m 1s): Yeah, no, I'll check that out. And yeah, we'll, we'll look that up and put a link to any of the stuff we see. I, I think it peaked, I remember reading a book 10, 15 years ago, where it was talking about kind of the Bush one in that era being over 70%. And I was like, wow, that seems like a high figure if not higher, but I'm right on. I want to be respectful of your time here, Matthew, but we'll, we'll talk a little bit about where people can reach out and link to you, but we have four questions. We ask every guest. So if we change gears, if you're game for that, I'll, I'll hit you with them. Speaker 1 (43m 34s): Yes. Now I haven't actually prepared for these. So you've actually got me on the spot. So I don't, Speaker 0 (43m 41s): Oh, they're easy ones. You'll, you'll be fine. You've had a bit of a storied career. You've, you've done different things. If you kind of went back to the beginning of your career, gave yourself advice, you know, what would you, what would you say to a younger Matthew Speaker 1 (43m 58s): Buy low, sell high, not the other way around you idiot. Speaker 0 (44m 3s): All right. Take it easy on, on younger Matt in term, in terms of mentorship, you know, obviously you're working with a company, you have team members, what's your view on mentorship for younger people in our industry? I think Speaker 1 (44m 17s): It's one of those things. The funny thing is you don't realize you need it until you need it until you've, you know, it's one of those things that I wish I had embarked on at a much earlier age, but the headstrong, yeah. Matthew of younger years felt that I should have written a book when I, when I, when I was younger. Cause I knew everything and you know, you don't, and there are, there's such value that people bring its perspective. The key word is perspective. They may not have specific knowledge about your marketplace and it doesn't matter if they don't and you know, don't ignore them because you think, how could you possibly help me? Because you don't know what the high-speed split-level taper Shang ratio is. It's they bring perspective. They bring experience in things that are very similar. So I am a great believer in mentorship. I wish I had, you know, listen to other people at a much earlier age. And you know, I think I, I learned from other people is my, is, is what I, Speaker 0 (45m 23s): For sure. I'd like to read that book then, you know what all book odd that there was no citations in it in terms of resources or books you're reading right now. Is there anything you, you kind of have on the go, you could share with listeners? Yeah, no, Speaker 1 (45m 39s): I don't really read that much. And cause you know, you're constantly sort of where is the time, but, or I'll pick a couple of books up and just read the first few chapters, but there's a book. I can't remember the author it's called something like getting stuff done and I'll, we'll find out what it is, but it's something that I picked up because one of the things that I'm thinking Speaker 0 (46m 3s): Of getting things done, David Allen, Speaker 1 (46m 6s): David Allen, that's it. Yeah, exactly, exactly. That it's a brilliant book because for those of you who stay awake on Sunday nights until three in the morning, going through countless lists of stuff, you've got to do, he just explains that that is absolutely the last thing you should be using your brain for your mind is for creativity's for it's for creating things. And if you try and use your brain as some sort of storage mechanism, or you're going to go mad B, you're going to run out of storage capacity very quickly. And this is not designed to do that. So get a book or some trusted source and write the stuff down that you need to do there. And then you can rely on that and go to sleep thinking. I haven't got to worry about this stuff because I know what I've got to do because it's in my book and then your brain is suddenly unfettered and free of this clutter. And then you can start creating stuff. So, but all of that was it. There's one of these few books that you read that you think, God, this is good shit. This is actually useful. And so David Allen, you know, you know, my hat goes off to you. So if we're writing something that is incredibly Speaker 0 (47m 16s): Useful, you know, it's funny, you mentioned reading a couple chapters in a book. I was just talking to a friend about this book. Cause I think they, I think they updated it because a lot of it, I mean he wrote it, he was a pioneer. It was I think at the beginning of Excel. So there w there was a lot of, it was physical storage, storage and filing systems. But the takeaway from that book, what I told my friend, I was like, the biggest takeaway was like, your brain is not for storing things. If you have something amazing idea, whatever it is, get it out of your brain as quickly as possible because that's, you know, once it's in there long enough, you'll lose it and, and then it's gone or potentially gone. Speaker 1 (47m 53s): And he does. And you just, as I said, you just go mad. Cause you, you keep trying to remember stuff and you just never, you know, you say you're, it's it doesn't do you any good at, Speaker 0 (48m 2s): Yeah, for sure. Anybody also we'll put a link to that, that book as well. And anybody interested as well, I've found useful is the idea of a brain dump mind map, whatever you want to call it. You know, maybe it's Monday morning, you just write everything. Don't worry about if it's not organized, just get it out of your head. But yeah, we'll, we'll put a link to that. All right. Last question. My favorite softball first car make and model. Speaker 1 (48m 27s): It was an Austin mini 1000. It was, there's a little story that, cause I was about eight 17, just passed my test and I'd been working at a fruit packing firm to save up the money to buy it. So I bought these cars 200 pounds from this gun, the farm, and I go to at home and I had to didn't even have my driving license at that point. And it was a 1973 yellow mini 1000. And so when I woke up the following morning, ran outside to see my new car at 17 road and there was a flat tire. And so I got the Jack out of the back and started jacking the car up to, to, to change the wheel. Cause I thought, well, I can do this. And I'm jacking away in Jacqueline way for like, you know, you know, a very long period of time, far longer than it should have been. And then I sort of realized that the Jack has actually gone through the floor because the, the, you know, the whole car is so rusty that it's literally just like, you know, and there was a lump sponge that had been stuffed in the back and painted black to, you know, to pretend there's metal. So I then realized at that point that, you know, the, the, the world was not full of honorable people, but most importantly, men is of a certain age. We're prone to Russ say, yeah, that was my, I still remembered. I'm traumatized by this. Speaker 0 (49m 47s): It's amazing. What a memory is. We bring up with that last question. That's that's fantastic. We've never had a mini, I would venture to guess if, if it was of that era, I mean, that car wouldn't even be a leader. I'm thinking 6,998 Speaker 1 (50m 0s): CC Speaker 0 (50m 1s): 98 CC. All right. I was going to say it was 800 or 900 CC, Speaker 1 (50m 5s): 60 miles an hour in approximately four weeks. Speaker 0 (50m 7s): Yeah. Yeah. That's great. All right, Matthew, I appreciate taking the time. It was great to, to kind of dive into these contracts. I found that, you know, it's like, oh, could we talk about one thing for half an hour, 40 minutes? And these ones, I think you really can and need to, to understand the product. So for listeners that want to get more information, if they have other questions work in, they head to, Speaker 1 (50m 30s): Yeah, the website is quantum Ari, Q U a N T M R e.com. Everything's on there. So we have a calculator where you can see how much equity we can unlock there's details about the investment side. We've got all sorts of eBooks and podcasts and videos and articles say it's a fairly rich site. We've been around for a few years. So, you know, there's quite a library of information that you can, you know, download or, or read or listen to. And also we have a phone number, so there are human beings behind the site. So if you want to speak to one of us, ask us a question, just, you know, pick up the phone and, you know, feel free. Speaker 0 (51m 8s): My guest today has been Matthew Sullivan. Matthew, thank you for being part of working capital, Jesse, Speaker 1 (51m 13s): Thank you for having me. And it was my pleasure. Speaker 0 (51m 23s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.    

    Going Big! Investing in Large Multifamily Real Estate with Ashley Wilson | EP70

    Play Episode Listen Later Sep 8, 2021 52:29

    Ashley Wilson is Co-Founder & Co-Owner of Bar Down Investments, and HouseItLook. Bar Down Investments owns and operates large apartment buildings, and offers opportunities for investors who are looking to passively own real estate. HouseItLook flips primarily higher end homes in the suburbs of Philadelphia, Pennsylvania. Prior to Real Estate, Ashley worked in Clinical R&D for GSK, Wyeth, and Sanofi-Aventis.  In this episode we talked about: How Ashley got into Real Estate Investing Her Experience on Short-time Rentals Buying Larger Scale Commercial Properties The Deal Ashley is Working Right Now Deal Structure and Terms Debt and Equity Financing Real Estate Funds vs Syndications Mentorship, Resources and Lessons Learned Useful links: https://www.bardowninvestments.com https://www.instagram.com/badashinvestor/?hl=en Transcription:   Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right, ladies and gentlemen, my name is Jesse for galley. I am host of working capital the real estate podcast. My guest today is a special guest that I'm speaking with a little bit later this year. Her name is Ashley Wilson. She is the co-founder and co-owner of bar down investments and house it look bar down, investments owns and operates, large apartment buildings and offers opportunities for investors who are looking to possibly own real estate. How's it look flips primarily higher end homes in the suburbs of Philadelphia, PA prior to real estate. Ashley worked in clinical R and D for GSK. Why? If I hope I said that, right. And Sanofi-Aventis Ashley, how's it going? Speaker 1 (60s): Great. Thank you so much for having me, Jesse. Speaker 0 (1m 2s): My pleasure. You know what? I didn't even give you the last introduction. She is the new owner of a adorable boxer, Harold. So if you hear anything in the background, that's just Harold messing around. But yeah, thanks again, Ashley. I really appreciate it. I'm excited to, to meet up again in person a little bit later this year at BP con, where we're both talking, I believe correct me if I'm wrong. It's October 3rd for anybody that is interested. Speaker 1 (1m 32s): Yep. First week in October. Speaker 0 (1m 34s): Perfect. Well actually, why don't, why don't I give it over to you in terms of a little bit of a background of your career, we can talk about, you know, deals right now and a little bit about the market, but before we do, maybe you can give listeners a little bit of a history of how you got into real estate. Speaker 1 (1m 51s): Absolutely. So as you mentioned, I was working in the pharmaceutical industry and my husband was a professional ice hockey player. So we were both looking for ways to diversify our retirement strategy. We weren't heavy believers in the stock market. We didn't like that. It wasn't an asset backed investment. It didn't have tax advantages. It wasn't, you know, a hedge against inflation. It just there's a lot of different principles we didn't like about it. So we started looking for alternative investments and we stumbled upon real estate. In fact, we actually stumbled upon bigger pockets, which was the one and only source at that time, about 13 years ago. And we started doing some research and listening to their podcasts at the time and, you know, whatever article that they were publishing. And we figured out that this was the best fit for us. So we started in real estate by house hacking, which is a way in which you can offset your expenses on your primary residence by having someone lease out space. So it could either be a bedroom or living room, really any sort of space that you can lease out. And the way we did that is we would lease to my husband's teammates. So we had to live somewhere for a season and we basically then were living for free. And my husband's teammates were paying us rent to live in these places. And of course they became, you know, like the party houses because a bunch of guys were living there. So it was, it was a really fun time. And then we transitioned into short-term rentals. So we started during the off season, we had a property that was located in a tourist area and Hershey, Pennsylvania. So we would short-term rent that property during the off season. And that really turned us on to real estate. I mean, it was nice to have your expenses offset, but once you were able to automate a process of doing these short-term rentals going between us and Canada in the summer between my family and my husband's family, and still being able to collect money, that was pretty intriguing for us. And it definitely hooked us so shortly after that I left pharma and my husband continued his career, but I ended up partnering with my father and starting a high-end flipping business. So we focus on flipping historic and pretty expensive homes in the suburbs of Philadelphia, Pennsylvania. And then we have done that for the past seven, going on eight years. And a few years ago, we transitioned into large commercial real estate. So today what we do is we buy 150 200 unit minimum properties. And it's almost like either the Burr strategy on steroids or flipping on steroids. However you want to say it, but it's taking distressed assets and then repositioning them and being able to offer passive investment opportunities for people who may have some other career, but they still also like us wanting to diversify their retirement strategy and have tax advantages. Speaker 0 (5m 17s): Yeah, that's very cool. It's funny. I was going to ask from the outset, when I saw bar down investments, I was like, who plays hockey here? Speaker 1 (5m 24s): Exactly. My husband of course came up with the name and the logo, which most people don't get actually is a, you know, it's a sky view of a net and you know, the B and the D is the crease in front of the net. So yeah, Speaker 0 (5m 41s): So I was a goalie for a lot of years. So that's why we were at, well, the other thing, obviously the apparel company, but that's, that's funny. So was, are either of you Canadian born or were you just playing hockey up there? Speaker 1 (5m 54s): My husband's Canadian born he's from London, Ontario, Speaker 0 (5m 58s): Right out, right on out to London. That's great. So you start with a house hacking like a lot of people do and you know, whether that's a basement walkout, a duplex where you're, you know, living in one, renting out the other, covering your expenses, but graduating towards short-term rentals were, was short-term rentals. Was that a stepping stone or did you stay with that for, for some time, Speaker 1 (6m 21s): That was really just a matter of convenience and how to maximize a system we already had in place because we weren't making any income during the off season. The benefits the players of renting with us is they didn't have to rent a year, lease from someone else they could just rent month to month from us. And then that made it so we could do short-term rentals at the same property during the off season. So it was not something looking back. I'm surprised that I didn't turn it into, you know, our main business. I think if we had done that, we would have been very successful at doing it. But of course with what's happened with COVID and everything. It's not necessarily a recession resistant asset class, so it probably would have taken me down a different road. And I'm fortunate that I didn't. And I think being in pharma at the time and clinical R and D I was so distracted with my W2 that I didn't see the potential there. So that was obviously a good and bad thing. Long-term it was a great thing, but short-term, it was probably a bad thing. Speaker 0 (7m 32s): Yeah. It's funny. You know, when, when the, we first got into lockdowns, it was one thing that I didn't even think about when it came to short-term rentals. Obviously hoteling, first thing you think about is, is vacations people not using them, but yeah, it was one of those things where as we got more property managers or systematized in short-term rentals, I felt like a lot of people moved into them because if you remember the Airbnb, when it first started there, isn't, wasn't really companies that were going to be able to manage this stuff. And that's key for turnover, or you were just, you would have a full-time job and then some, so from there, you, you go into a small step into, you know, a hundred unit plus investment. So how does that, how does that pathway happened to, to start doing these larger scale commercial properties? Speaker 1 (8m 18s): I'm a firm believer that you should always lead with value. And I think every single person in this world has value to offer. For me personally, the value that I added to stepping into commercial real estate is my knowledge with construction management. So I grew up with a, an, you know, my father still is my one business partner on the one business, and he's a general contractor and he's had his own business for 40 years. So for me, it was great to have that exposure into construction and be able to see it on both the residential commercial side, and then be able to leverage that skillset in a different capacity. I think that when you lead with value, as opposed to saying, how can I, how can I partner with you? How can I get into multifamily without saying what value you can provide to someone that is why oftentimes that conversation never gets to the next level? In my particular situation, I was telling everyone I wanted to get into commercial real estate. And it just so happened to have a friend who was already in commercial real estate, which I didn't know, I knew he was in residential, but I wasn't aware that he was also in commercial real estate. And when I told him that I wanted to get into commercial real estate, and I thought I could add value by leading construction management. His response to me was the timing of this is incredible because I just went under contract with 124 unit property of which there is a $2 million renovation budget. And one of the buildings was burnt to the ground and needs to be rebuilt. And I have no construction knowledge experience. So it was a perfect partnership in the sense that I could use my value to offset a deficit or a pain point that he was having and he was seeking. So that is how I got into commercial real estate so quickly. And I mean, you can say so quickly, but it was all the years of preparation that gave me that opportunity to be able to exploit. So I think if you just figure out what value you can provide, and it doesn't necessarily have to be real estate related, I think people might be listening and saying, well, what value do I really have to these larger entities? We'll just ask them, what, what is your major pain point? It might just be as simple as we're terrible on social media. We need someone's managers, social media account, or, you know, we're having issues with accounting or legal, and maybe you're not the solution, but you know, someone who is a solution just by doing an introduction can provide value as well. So I think when you just seek to have a conversation, instead of what can you do for me? What can I do for you? And flip that script, then I think you can get really far in this business very quickly. Speaker 0 (11m 22s): Yeah. That's a, it's a great point that you have this, you know, time you've been doing this stuff and it's, we have people on the podcast all the time where it just looks like they, you know, one day they, they bought a 200 unit property where it's, you know, 10, 15 years in the making do another things. I really like what you said about the value. I, because you hear so much and you know, I'm sure you do, I'll get messages saying, you know, I want to get into commercial real estate, you know, w what can I do to help? And it's funny how initially you think, like, I, there's nothing I can do because I'm not in construction, or I know anything about property management, but that's a really good point that about social media or, you know, helping you with accounting. Because as we scale in real estate, we are creating businesses, right? A large business, you know, a a hundred unit building is a large business. So all of a sudden you have this, these ancillary things that we might not know much about if our background is in real estate and social media might be a perfect example of that, you know, editing videos. Sure. You could hire somebody, but if you have a talent that's tertiary to the real estate business, that's definitely something that, you know, if you want to add value to somebody in your kind of area in real estate, that's definitely an an avenue to do it. Speaker 1 (12m 34s): Absolutely. I couldn't agree more with you in the, the icing on the cake of that is the consistent followup afterwards, because I think oftentimes people make that initial connection and they reach out and they try to provide value, but then there's no follow-up after that. So I can give you an example out of every time I've ever spoken at an event or conference or anything I always get, and I'm sure you do as well. People who come up afterwards and then they want your contact information, and maybe they send you one or two emails. But after that, it's crickets. And there is a, there was an event that I spoke at, at my Alma mater. And there was a girl who came up to me as senior. And she said to me, point blank, you know, how do I work for you? And, you know, it was like, well, let's just stay in touch and, you know, keep the conversation going. And after that, she continued to email me consistently for a couple months, keeping the conversation going. And now, so this was not last may, but the may before, and now we are hiring her. So, you know, it wasn't the right time at that. You know, she, she provided and is going to provide extraordinary value to our company. But at the time that we started talking, it wasn't a great fit then. But her persistence that to me, show me more than anything else, because she was so committed to wanting to learn and wanting, you know, I was actually coaching her, coaching her on the position that ultimately I would want her to be in and she wanted to be in, so it does take time. But I think when you spend the time, then you get rewarded handsomely. And I am very confident that the relationship that we will have will be long lasting professionally personally, because she just was so dedicated. And that's very rare. I mean, think about, you know, how many hundreds of people send you an initial email and, you know, she's like the needle in the haystack. Speaker 0 (14m 50s): Yeah. A hundred. I think, you know, there's a lot of, I think, benefits to having a sales background in general, because whether, you know, whether you work for Xerox or you're actually in brokerage and real estate, if you're in this industry long enough, you've taken defeat, you've contacted people. You don't let it bother you. And I know for a lot of people, it's a really challenging thing to do to constantly follow up. But, you know, even myself, not that I'm that great, but even people, I know mentors of mine that have been doing this for 20 years longer than I have. They're still doing that stuff. Two people at a, at a, just a much higher level. I still reach out to people all the time. And it's even people I've had on this podcast that I should not be on this podcast at all. Like, especially when we first started, it was, you know, follow-up a, follow-up okay. A video, a video call like through video card and say, Hey, listen, I think there's a great market out here. And just like being able to just kind of, don't worry about the, the outcome there, but for sure, I can't imagine, I can't agree with you more on how many times the initial reach out happens, which is great, but no, follow-up, and it's going to be dead because these people are not going to be calling you back. You have to stay top of mind and that you give a perfect example there, you know, even in Toronto, another one, another thing I like doing just generally in brokerage is that when you do follow up, it is one of the most annoying things for me personally, is when you follow up with, did you get that? Did you receive that note below? And we had arts object on the podcast, he's has a best-selling of cold calling book. And it's like, if you're going to touch that person again through a contact, you better add value there. So in our market, now we just put a, an opinion of value together for a 30 unit apartment building for, you know, people in the U S in Toronto, 30 unit apartment building is probably still like 10 million USD. We're extremely expensive market, but anyways, I send it out and then it goes quiet for two weeks. And now I'm like, okay, I want to follow up, but I can't follow up with just saying, Hey, how did everything look? So, you know, we said, okay, we're bringing this listing out this. I thought it might be interesting. Just something where if that second contact is happening, give them something, you know, offer some more value. Speaker 1 (17m 3s): I couldn't agree more. I think when you lead with value, follow-up with value, you're really helping someone permanently ingrained in their brain that you provide value. And it's just a matter of that repetition. And you always want to be around people who provide value because at the end of the day, the people who are successful or either providing small value to the masses or large value to the few, but regardless of how you look at it, it's that they're providing value. Speaker 0 (17m 41s): Yeah. That, that is a great point. Yeah. I couldn't agree more with that. And, and it's even stuff where, you know, we know the industry, like, especially brokerage, you know, we had one of our competitors, CVRE guy called me for, you know, you just wanted Intel on some building. We have some listing we have, and he's like, before the call, he's like, Hey, did you hear about this comp, this comp, this comp? And he's like, listen, you know, I don't even know it's a quid pro quo. I'm not going to just call you, ask for information, especially, you know, we're competitors, but obviously it's, you know, it's a small industry as you know. Okay, cool. So I want to get to a, we were talking a little bit before we started recording. You have a deal that's a, that you're actively working on right now, without going into too many of the, of the details. Why don't you tell us a little bit about that deal, how it came to fruition and where you're at? Speaker 1 (18m 31s): Yeah. So we've been working pretty heavily in the Houston market for a few years now, and I've established really great connections with brokers and even direct to sellers and vendors. And we get deals sourced to us all different ways, but this particular deal is from a broker who only does off-market deals. So this was a situation and it was just extremely fast. I think we got it on a Monday and we were offered. We offered on a Wednesday morning and the offer was accepted Wednesday. Mid-afternoon it was very, very fast. So this speaks to all of the time that you put into building a relationship, all the things we just talked about, and it also speaks to knowing your market, because once you know your market, it's very easy to make quick offers. And it's easy to make quick golfers on $15,000 houses. And it's easy to make quick offers on hundred million dollar properties, because once you know your market, you know, you know, your numbers, you underwrite the deal and you, you know, it pretty thoroughly. You have someone go out a local that you have a relationship with because I'm not located in Houston. So how did I be able to ascertain the capital expense budget for this property is because I was able to call on someone very quickly and have them walk the property for me. And we went through it together. So ultimately it was the deal that we put together very quickly. And it's over 400 units in Houston. It's located within 15 minutes of another property that I already owned there. So, Speaker 0 (20m 18s): Sorry to interrupt. Just curious in that market right now, are they like one 40, a unit, 140,000, a unit, a hundred were, where are they at right now? Speaker 1 (20m 26s): It varies. It can be anything from, you know, I mean, it obviously depends on the class. It depends on the submarket, but anywhere from like 80,000 a unit to over 400,000 a unit, I mean, you have such a, a spectrum. It could even be than that, to be honest. But those aren't the deals that I'm looking at, Speaker 0 (20m 53s): No value add. So maybe in the high, you know, just under a hundred or maybe just over a hundred, something like that, Speaker 1 (21m 0s): The majority of deals that I look at are over a hundred anywhere from, I would say the average deal I'm looking at is between a hundred to two 30 a door. Gotcha. That's what, that's what I'm looking at. So it's pretty broad, but it also depends on, you know, the sub-market and the value that I see in that property. But yeah, we, we typically like to be in B markets B slash a minus markets. We don't go after new construction. We, we like to be right under new construction. So we've created a buffer there, but that's typically where we're, where we're seeking Speaker 0 (21m 52s): The deal. Like you said, Monday, you get it Wednesday, put the offer in, in terms of how you structure your deals. Are we, you know, 45 days for due diligence are, you know, is capital, is capital ready to deploy or do you raise assets specific? Could you talk a little bit about the mechanics of, of, you know, the actual financing? Speaker 1 (22m 13s): Yeah. So for this particular deal, it's kind of a outlier from what we normally do, because it's an assumption. So with going through, Speaker 0 (22m 23s): Sorry, assuming the debt for correct. Yup. Speaker 1 (22m 27s): Yup. So this is a completely different process because you're at the disposal of whatever the original loan was originated under assumption process. So this is typically we've actually hired an assumption consultant there. They only do assumptions and they specialize in it there. My understanding is basically they're the only shop in town and I don't mean locally. I mean, nationwide did they do every single assumption. If you're hiring a consultant, you're hiring this group. And they have told us with the lender that the original loan is under. It's going to take about 90 days on average to be able to close the loan. So we'll go through a typical DD period, which for us is around 30 days plus or minus. Sometimes we'll get access agreement while we're structuring the PSA, the official contract, you know, once we're under LOI, other times, we'll just wait until the PSA's signed. It's all property dependent. And then from there, we typically into a financing contingency period. But because this is a, an assumption, it's a completely different beast. So the, the lending approval process is happening in parallel while the DD is going on. And then continuing of course, for approximately 60 days after the due diligence period is over. So this is a bit longer closing than normal. Typically we'd like to be within a 60 to 75 day close period. And that's also contingent on the loan. If you're going after agency versus bridge or CMBS, you have different loan, origination timeline. So you have to comply with those because otherwise you won't be able to close the deal. If you're using debt on the equity side of your question, we do equity on a deal by deal basis. Meaning we like to partner equity with the appropriate asset type, meaning we're, we're very familiar with what our different sources of equities appetite is for a particular investment. And if we get, you know, a specific property that matches one source of equity versus another, we will approach that group, whether it's a family office institutional, or if we're syndicating, depending on the deal. So that's how we structured. It's not a, there's some businesses and it's not, it's not a right or wrong. It's just different ways of doing business, but there are some businesses that structure, every single deal is the same return model. It's the same crop of investors. It's the same deal type. And then there are other businesses that have more fluidity. So the buy box or the properties for which they seek have more variation, the equity, the whole capital stack fluctuates. So the debt they're using the equity they're using that varies the return models vary. So we're more the latter. Speaker 0 (25m 50s): So it sounds like, correct me if I'm wrong. The, it sounds like a bit of a hybrid of a fund and a syndication. Whereas you kind of tap into say, you have a return profile for some family office that, you know, whatever it say, it's more conservative, say it's a four or 5% yield or 6% stabilize asset. Whereas one wants a really value add, like you will go out specific to the, to the deal. Is that right? Correct. Speaker 1 (26m 17s): So for example, there is another deal. We were invest in vinyl with a couple of weeks ago and that deal was a perfect deal for some of our institutional family office folks. So we had approached them about that deal because that penciled perfectly for what they sought for an investment, as opposed to us, you know, going the route, let's say there's pluses and minuses to every source of equity. So that once again, there's no right or wrong answer, but what we like to do is have a lot of different options because then that allows us to have a lot of different buying criteria options. It allows us to build out our business with diversity as well, because we have a lot of different types of assets within our portfolio too. So that's one of the benefits that we see of course, by being more diversified in terms of the assets for which we seek in the return structures that we offer. Speaker 0 (27m 24s): So with the, just for the particular pro property in Houston did, at what point do you contact your source of funds? Like once you have it under contract, you'll, you'll tap them and is, is their funds, is it legally committed in the, in that they've signed a subscription agreement already that commits? Or is it, you know, we have this under contract conditional, or, you know, maybe one or two conditions and then you, then you reach out to them. Speaker 1 (27m 51s): It depends on the deal. So for example, on this particular property, we waited until we had it under LOI to announce that we had something and this deal situates itself better for syndication, as opposed to, I'm not saying that there aren't family offices or institutional funds that would've sought this property, but there are fewer than, than institutional and family offices typically seek more stabilized, performing assets, newer construction, lower risk, lower return, basically, you know, risk is inherent with higher return expectations. So we were able to yield higher return expectations on this property because it had a higher risk portfolio as well. And once we had it under LOI, we released some details, but not all of the details until our purchase and sale agreement is finalized because if you're in the industry, you know, that the LOI is basically a gentleman's handshake and it's legally not enforceable, but the purchase and sale agreement is. So for due to that reason, you have to keep a lot of things close to the chest with respect to the other deal that I mentioned, where it was more stereotypical than an institutional quality asset, we actually, I get a good, you know, I always establish a good relationship with a broker and figure out where are we in terms of how many other offers am I competing with, you know, from the get-go. And normally I won't tell an institutional partner at that time when we're submitted an offer, because for those institutional assets, it's typically a three minimum rounds of submission. So you first, originally you have to submit an offer, then it's best in final. Then it's buyer, buyer, seller calls, but oftentimes they'll do two or three rounds of best and final, and then they'll do the buyer calls. So I just figure out, you know, I'm not figuring, I'm obviously not able to figure out what people are offering, but I'm able to figure out, okay, how many people are best in vinyl and then how many people are with the buyer calls. So once we got to buyer calls, that's when I started having the conversations with the institutional folks, because there's a high probability of getting the property when I'm only competing with four other people on a phone call. And in that particular situation, it actually came down to us and another buyer and our offer was better all the way around the price point, the terms, everything, the only difference between us and the other buyer was that the seller knew the other buyer personally. So that's why we ended up losing out on that deal. But once we got to the buyer calls, I informed our capital. And it also too, even if you don't get it, a lot of people are like, well, what if we don't get the property? It's still is another touch point to you. What you were talking about is have an opportunity to have a touch point that whoever you're speaking with then also knows too, that you're constantly working and looking for deals and opportunities for them. If you wait until you get a deal, you might be waiting a year or longer because it's just so difficult in commercial real estate to acquire. So it does provide an opportunity for you to connect. Again, typically they want to go through your underwriting. So it provides another level of confidence too, because you will be in a situation at some point where you'll need to move fast. And if you've built up this relationship with this institutional partner or family office, and constantly have provided underwriting, they're going to have a level of confidence going into whatever situation you have. That's fast moving with a higher, I guess, confidence level of confidence to know that you right, underwrite a certain way that mirrors what they they want. So it, it's never a bad idea to share where you're at with these groups. Speaker 0 (32m 24s): So for the, for the non-institutional, if it's not a family office and you're you find a property, are you going through the typical, you know, I think for, for you, it'd be 5 0 6 B or five succeeds, just that going for the accredited investors that you're looking for. And you're kind of, you're going through that process. And the reason I ask is I'm curious for how you, as a company are compensated, if it's upside with the promote, if it's, you know, you're, you're in there as a limited partner as well. How do you structure typically? Speaker 1 (33m 0s): Yeah. So a couple of questions there. The first question with respect to the sec, reg D filing, we file under 5 0 6 C I'm a firm believer. And when I first got started in the industry, only 10% of deals were done with . And I only believe in doing five or six deals. And the reason being is because as you mentioned, five 60 is for accredited investors. And when I first came into the industry, everyone was pushing this whole concept of, well, the people that are going to invest with you most likely are your friends and family. That is true when you first get started. However, it also puts a ceiling on how many people you have in your network. We're a five or six C doesn't. So that's for starters, because five of 16, you can advertise. The second reason, I prefer five of 16, which to be honest with you is the primary reason that I prefer is that 5 0 6 C allows a third party to verify the accreditation status. It actually requires it in five or six B you as the investor, or you as the investment offering entity are qualifying the person to be of financial capacity, et cetera, to be making an investment. And I think that creates a bias because at some point that deal might go south let's play worst case scenario. And if someone comes back and says, well, I wasn't fully aware of the risks, or I didn't understand what I was doing, but they qualified me and they allowed me to, but they also to one in need to invest because they were the ones who needed the funding. I think that that is a conflict of interest and it creates liability. I want to eliminate as much liability as possible, which is why I believe Five-O succe limits one's liability because it allows a third party to verify the accreditation status and not the ownership entity. So that's first and foremost. So we always structure with 5 0 6 C. I'm not going to say we will always in the future because like everything rules change. So maybe something will change in the future and we have a different opinion. But as of today, I will only move forward with five or 60 offerings, because I think it's the safest way to move forward. The question with respect to how is the general partnership compensated first in terms of every deal we ever do, the first investor on any deal is always the general partnership we invest in every single deal we do. And we also invest alongside of the limited partners. That may seem like a no-brainer, but that is not often the case with some other ownership groups. They'll create another class where the general partnerships investment goes into a separate class and it's treated differently than the limited partner class. A shares are investments always go into the class, a shares alongside every other limited partner. It doesn't get treated any differently. The general partnership also is compensated because of the fee structures, as you mentioned, and also too, in terms of the splits, our typical deal is anywhere from an 80 20 split favoring, the limited partners with typically a seven or eight pref all the way down to a 60, 40 split with 60 still being to the limited partners. So we, we do have some compensation up front. It is honestly, it's an industry standard or below the going market rate. We stay on top of, you know, we subscribe to almost everyone's offerings just to see how are people creatively structuring their deals and what our industry rates trending at. So we have our own in term internal barometer of what's fair, and what's been circulating in the market space, but we are not a heavy fee based entity. We always believe in being aligned with the investor's interests too. So what we, for example, in the last deal, we structured a waterfall because it had huge upside and the waterfall was to show that the general partnership is obviously going to work harder in that waterfall structure, because if we reach certain milestones, then the split changes at those different milestone levels. So that shows the limited partner. Yes, they're going to be motivated because, you know, once I hit, let's say a 16 IRR and it's goes from a 70, 30 to a 60 40, the general partnership is now receiving more, but I also too have reached my hurdle of 16 IRR. So, Speaker 0 (38m 2s): Well, yeah, the, you know what, it's on that. I'm curious cause w the deal that we raised capital for recently, we did it that way before, excuse me, before we would have different share classes for GP and LP. And we structured this one because it was a value add, and there was gonna be a lot of legwork. We structured it in a S in the way that we had the general partner would invest. You'd have obviously the general corporation that the partnership that, that physically owns the real estate, but we had basically arm and arm. We were limited partners as well. So the three sponsors of the deal were limited partners put in the same, at least the minimum that we asked of others. And if, if I, if I hear you correctly, it is, it is an alignment with your other limited partners, but it's also, I think it's also preferential for the general partner to, because you're participating in a pref where depending on the deal structure, oftentimes you get a different share class that you don't participate in the pref. So I, I don't know if you have any thoughts on that or if I, if I heard you correctly. Speaker 1 (39m 9s): Yeah, no, I completely agree with you. I think that when you, you co-invest in the LP shares and you participate in the same pref, you're motivated intrinsically for the same reasons that, you know, an investor would want you to be motivated. I think heavily feed ownership, groups, and entities offering groups. I think that's what creates misalignment because they're getting paid before any of the work is really done. It's a pet peeve of mine. When I see people, you know, basically throw parties when they acquire a property, because yes, it is hard to acquire property, but the work actually starts once you acquire the property. So, and I think a lot of people forget that and they rely so much on appreciation to get the, the sale kicker. And historically, that has happened. But that doesn't mean it'll always happen. I mean, look at the 2008 real estate crisis, you know, within the U S market, I didn't hit obviously Canada as heavily as it did in, or not even close to what happened in the U S because you have different underwriting systems and banking systems, but ultimately that showed you real estate. Doesn't just continue to appreciate forever. You have ebbs and flows in the cycle and you have to be prepared for when it's not consistently increasing, you know, there is such a term called depreciation, you know, so I think the thing is that when you have alignment as an investor, if you're a passive investor, one of the things you should really seek to understand is, is the number one is the general partnership, putting capital into the deal. Number two, what is their fee structure? And what are those triggers that are those they're capturing those fees. If it's all front ended, what is the motivation to operate the deal? I think understanding those points really position you better for making wiser investment decisions. Speaker 0 (41m 28s): Yeah. I think the other thing too, I thought you were going to go there with this, but as a good point, but the celebrating at the, at the acquisition, especially as a sponsor or a GP, it's almost in bad taste because, you know, you're, you're almost like, okay, we got our acquisition fee. We, you know, we, cause there is, there is obviously from that perspective, that's what keeps the lights off. And it is one of the bigger fees that most syndicators and funds have on acquisition. So it's almost like, you know, when you do get the deal, I don't know, maybe just be a little bit more like, all right, let's get to work kind of thing. Yup. Speaker 1 (42m 0s): I agree. And we work really hard. I mean, what we do even leading up, even before we even acquire the property, the day we acquire the property, the first week of acquiring the property in the first month, it is honestly running on adrenaline because you have worked so hard to even get the property to close and there's so much work that's involved there. But then after the property closes, I don't know about how other operators work, but I can tell you how we work. And it is just organized chaos maybe because it is, I mean, there is a rhyme and reason for what we are doing, but it is just super fast paced. And, you know, that's, that's why we work with the property management team that we work with because their tenacity to take over a property and reposition it as quickly as possible is just exceptional. And it's something that I'm very grateful for that we align so well with our property management company. So I think that's when the real work starts and that can't be forgotten. Speaker 0 (43m 13s): Yeah, absolutely. Well, actually I think we can definitely say we can do another episode here. I just want to be mindful of the time we've got a kind of wrap up with basically final four questions. We ask every guest. So if you're okay with that, I can kick us off here. Absolutely. So first I'd like listeners to get your thoughts on mentorship. And we talked about it a little bit already. Speaker 1 (43m 39s): I am a huge believer in mentorship, gurus and running to the back of the room. I'm not a fan of, but mentorship I think is amazing. I think you learn so much through other people. If that person is willing to provide quality education to you, but ultimately you have to pay one way. So it's either with time or monetary. And if you can find a really good mentor and take action from the things that they're telling you to do and telling you to avoid, you can learn very quickly through someone else and be able to propel your journey. So I'm a huge believer that mentors provide a lot of value. You should have a mentor at whatever level you're at. You were never enough to not have a mentor. Mentors are good too, because even if you know something, just having someone else from an outside point of view, constantly looking, they'll bring things to the forefront of your minds. There is a, a psychology study that was done on physicians, and it was talking about how physicians have to retain so much information and how they are likely to diagnose certain ailments, viruses, diseases, et cetera, based on the things that they have most recently read, not always based off of symptoms and because of that, it speaks to how the human brain works and being in the front of your mind, to be able to recall the information. So sometimes having a mentor, just to be an extension of your brain, so to speak, and maybe they have some other things that they've recently read or heard, and then they just shine the light back on those things that you've already, you know, put like in a closet somewhere in your brain. And it's hidden in a dark room. They, they can be helpful that way too. Speaker 0 (45m 47s): Yeah, that's great. I think it's also, it kind of years ago it would be taboo to ha you know, go to talks to somebody, whether it's, you know, a psychologist, a psychiatrist, but we, you know, we have a company that we work with that when they put, or they do venture equity for this, for startups. And when they put a CEO in the CEO role, or when they acquire a company or fund a company, they basically force this person to speak with a mentor, which happens to be a trained psychiatrist. And they will have people that'd be like, no, I won't do it. And they're like, if you want the capital, this is a requirement of the job. And it's amazing how many times they say they come back and just say, it was one of the best things that they've ever done. So whether you call it, mentor somebody, talk to a friend, just somebody that you're, you're, you're basically getting everything out. And I find our job sometimes, like you said, you could be running on adrenaline. And especially if you don't have a huge team, it's, it's lonely when you're doing a lot of this stuff. If, if you know, like say you're CEO of a company and there's there, aren't, co-founders something like that. But that's a great point. I will, I'll definitely have to Google that. Do you remember the, where the study came from? If we put a link up, Speaker 1 (46m 58s): I don't remember where it came from, but it was my undergrad. So I was a psychology major and took neuroscience two. And I obviously did a lot of research on research studies. Exactly. Speaker 0 (47m 18s): So second question, basically your experience in the industry, you go back in time, you meet a younger Ashley at the outset of your real estate career. What do you tell? What do you tell that? Speaker 1 (47m 33s): For me personally, I wouldn't change any part of my journey because I am very grateful for everything that, that I've been able to accomplish. But if I was going to tell someone how to do it faster, I would say to partner sooner, take more risks and just go bigger sooner. That's probably what I would tell that person. Speaker 0 (48m 5s): Yeah. It's amazing how much that comes up on the show. All right. Number three, basically. Sorry, just let me get my bearings here. Resources, anything you're reading right now, podcasts, you're listening to that. You know, it doesn't necessarily have to be about real estate that you think listeners would benefit from Speaker 1 (48m 25s): I'm reading, who not how, which I've heard amazing things from actually from Brandon brought it up. Brandon Turner from BiggerPockets was talking to me about it the other day. So that is on my reading list right now. I am really into trying to find people that I haven't heard speak before. So I'm trying to find meetups. When I see a meetup of someone I haven't heard before speak, I'm seeking out people that I think could provide a fresh look. It doesn't matter their experience level that never has mattered to me. In fact, I think newbies probably provide the best value out of everyone that I've heard speak on average. So of course there are some really phenomenal expert speakers. I'm not trying to discount them, but I think people new to real estate have such, you know, like fresh eyes and perspective, and they're not tainted by like, oh, you can't do it that way. Kind of philosophy. So I love seeing a really innovative ways that people are doing things, but that's what I'm doing currently. Speaker 0 (49m 43s): Awesome. And listen to this though. My favorite question, first car, make and model. Maybe this was in high school. Maybe this was off at a Colgate. You, Speaker 1 (49m 53s): I bet you can guess this, but I had a Jeep Wrangler. I grew up in the error of clueless. So hair in the wind blonde hair in the way. And my brother always tells his story that we were driving with a top-down and a cop yelled from his car slowed down, and my brother started laughing and he was like, two cops always just tell you to slow down. Normally they're supposed to pull you over, but yeah, the rules. Yeah. But I had a Jeep then and I actually have a Jeep Wrangler now as Speaker 0 (50m 32s): Well. They've come a long way. Yeah, Speaker 1 (50m 35s): They definitely have. So it's actually my husband's car, but I still steal it from time to time. But it is stick shift. He has a thing for stick shifts and that, that drives me insane. Speaker 0 (50m 48s): Yeah. I'm surprised they still make that car with stick. Is it still like the long stick goes like right to the floor? Is it, it's not, Speaker 1 (50m 55s): It's not the long stick version, but it's, it's just very rough to shift gears. And, but he's like no one will ever steal it because how many people can drive stick, shift these days. So that's his philosophy, Speaker 0 (51m 12s): One guest calling it a millennial security device or something like that Speaker 1 (51m 17s): Because nobody, Speaker 0 (51m 19s): Nobody drives stick anymore. Awesome. Okay. Well, aside from BP con later this year, people want to reach out to you. So you on social aside, as I always say, aside from a Google search, so any anywhere you'd want to point them. Speaker 1 (51m 34s): Yes. So if you're looking to passively invest, you can find more about the opportunity I was talking about@bardowninvestments.com. And then if you want to follow my real estate journey, you can find out more at bad Ash investor on Instagram, Speaker 0 (51m 51s): I guess today has been Ashley, the Wrangler Wilson, Ashley, thanks for being part of working capital. Thank you so much for having me. Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

    The Biggest Opportunities in Real Estate with BiggerPocket's Brandon Turner AKA Beardy Brandon | EP69

    Play Episode Listen Later Sep 1, 2021 50:26

    Brandon Turner is an Active Real Estate Investor, Entrepreneur, Writer, and Podcaster. He is a Nationally Recognised Leader in the Real Estate Education Space and Has Taught Millions of People how to Find, Finance, and Manage Real Estate Investments. Brandon is about to Release “The Multifamily Millionaire” Volume 1 and Volume 2  In this episode we talked about: Regulations and Lockdown: NYC vs Hawaii The process of Underwriting Deals Asset Class Comparison How Deals are Structured Specifics of Mobile Homes Scaling a portfolio Macroeconomic Trends Raising Capital for Private Equity Deals Selling the Fund “Multifamily Millionaire” book The Investment Philosophy of Open Door Capital Transcriptions: Speaker 0 (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. All right guys and gals, my name's Jennifer galley, and you're listening to working capital the real estate podcasts. We have a returning guest on the show, Brandon Turner. He was our first guests ever on the podcast. Brandon holds a lot of titles. He's an investor. He's a, one of those VPs that BiggerPockets, and most recently he is about to release the multifamily millionaire and brand of correct me if I'm wrong. That's volume one and volume two. That Speaker 1 (49s): Is correct. That's all. That's a great introduction, man. Look well done. Well done. Speaker 0 (53s): I appreciate it, man. Well, it's good to, it's good to talk to you. It's it's crazy to think that, oh man, what has it been? It's almost 70 episodes now. So a year and yeah, you're in change and change quite some time. You know, nothing's really happened in the world over the last a year and a half. So Speaker 1 (1m 9s): It's been a pretty, pretty lame couple of years here. Nothing's happened in the world. So I don't really talk about today. Speaker 0 (1m 14s): Yeah. Real quiet. Well, yeah, listen, thank you. As a, as always for, you know, giving your time here. I know it's always nice to talk to you. Catch up, see what's going on in your world and, and talk real estate. So maybe on, you know, on that note, it has been a urine change. How how's everything been going with you? I guess first and foremost, you know, you, the family, everybody's all good. Yeah. It's been Speaker 1 (1m 38s): A weird year. I mean, Hawaii was like kind of like, you'd go to the beach. I live in Maui for those who didn't know that, but I go to the beach and it was like empty. Like, you'd be the only one on the beach. And we went from that to now you go to the beach and there's people sitting on you like everywhere you go. So it was such a stark drastic change. So yeah, life has been weird. A real estate stuff has been nuts. I don't remember exactly what I had when I was on last time. But in the last 18 months, roughly we've picked up a, what is it like 10 or 12, large mobile home parks. We have 1700 units now that we bought in the last year. We have another 1800 under contract right now. So it'll be at 3,500 by the end of this year, which has been wow. Crazy. Yeah. I don't want from zero employees to, I think, 13 now. So it's been a, it's been a growth year and a half. I love the Speaker 0 (2m 24s): Unbanked up. Just, just pick up, I'm going to pick up some milk after this. That was Speaker 1 (2m 28s): A milk and some mobile home parks and a couple apartment complexes down in, you know, in, in, in Houston and you know, whatever. Very cool. Cool. Speaker 0 (2m 36s): So before we jump into that, cause I want to talk, talk about that and you know, some of the details there in, we talked a little bit about the, the lockdown, everything before the show in Hawaii. So you guys are, you know, I didn't even think about it until, you know, it jogged my memory when I was like, oh, I'm talking to Brandon. And that of all the people that come on the show, I kind of compare the, I guess you would say New York state or California to, you know, us north of the border in terms of how extreme they've been. Even though it hasn't been as extreme as our lockdowns, but it sounds like Hawaii was pretty, you know, pretty high up there in terms of the regulations and the lockdown. Yeah. Speaker 1 (3m 13s): A similar stuff to what you guys have. Like, they wouldn't let anybody in for a long time, like six months, they just wouldn't let people in the state hardly at all, unless you quarantine for two weeks. And it was pretty, pretty locked down in that way. So nobody really came. And then even like the mat, like we still wear masks everywhere. Pretty much here. We're like the one state left that. I mean, now everybody's wearing masks again, but yeah, that never really went away. I mean, you're outside for awhile. It was like, you had to wear a mask at the beach outside by yourself. That was weird to me all the time. I never, that was weird. Everyone. They're like what? And they were walking around, giving people tickets, if you were sitting on the beach alone without a mask and were like, you had to come over to me. I mean, I never got one, but you had to come over to people, get in their space, infect them with your disease to give them the ticket that like, what, how, how does this logically make sense? It didn't make sense. But finally they did away with the needing to have a mask on the beach, which was nice. We had Speaker 0 (4m 2s): A, there was a point definitely in, in Toronto where it was like, if you were outside jogging, there was like the public shaming of like people looking at you. Like what's going on over there. You're walking and jogging. Speaker 2 (4m 14s): Yeah. Oh yeah. There was, yeah, there was a Speaker 1 (4m 16s): Lot of that. So after the, you have to wear a mask everywhere, then it went to, you have to wear a mask if you're not exercising. So like there, their stories of people like riding their bike and they stopped for like, they just like stopped the bike from moving into copperheads, runs over and give them a ticket. He was like, come on, I stopped for a second to look at something or whatever. And they, yeah. So you had to pretend like when that happened, you had to pretend you were working all the time if you're outside. So somebody walks by, you're just like, you know, doing jumping jacks or something like I'm exercising, I'm exercising here by myself. Yeah. It was weird. Speaker 0 (4m 45s): Yeah. Yeah. Well, you know what, at the end of the day, it's, it's one of those things where at least, you know, as it relates to real estate, I am sure you have come across people in our industry that they, they saw, oh one or 2000, 2001 as their badge of honor or oh 8 0 9 as their badge of honor. Or if you go back further, you know, the, the early nineties in, in the real estate market, commercial real estate market in the states and Canada, and it just, you know, this is one of those things, were, it is a technical recession. And it's something that I think it will be a benefit to investors down the road because they will have to have dealt with things that, you know, they had never had to deal with in a lot of markets. Speaker 1 (5m 23s): Yeah, very much so. I mean like this is when, like it sucks to go through difficult times and insanely difficult as much as it's uncertain times. Right. There's just no certainty, but that also trains us to be better. You know, it makes us better people, better investors, smarter, more nimble, you get caught in this. Like everything's always going to be the way that it is right now. And you start forgetting that the world changes all the time. Like nobody forces anybody. That's why they call them black Swan events. Like they're just, they're so rare and you can't predict them. The only thing you can predict is that there's going to be unpredictable things. And so when we, instead we change our mindset around unpredictability and say, this is like, this is a life. So how can I be an investor that can handle unpredictability? And how can I be nimble and how can I be liquid and how can I be make this light and have a team? And like those things for us, I will be better investors because of 20, 21 and 2020, not worse. Speaker 0 (6m 17s): Yeah. I think there at least the way I saw the way people under, under wrote deals or are underwriting deals now, you know, the, the percentage you have in reserves, you know, will be, has been affected by a lot of investors. And I'm talking from, from just, you know, the mom and pop shops to institutional companies that we deal with that they're starting to think a little bit more about, you know, how levered do they want to be and just having outs because they don't want to be in a position where we have, you know, economic situation like we have had over the last year and kind of be, be caught, be caught in the rain there. Yeah. That's Speaker 1 (6m 55s): Exactly it. And I think again, yeah, hard times make good people. So it's Speaker 2 (7m 1s): So positive Speaker 0 (7m 2s): On your, on your agenda. It sounds, I mean, clearly there was a 3,500 units. You guys have been busy what I'd like to actually for, for listeners that don't know the asset class, you know, we've had people that come up have, come on the show before we get to the apartments. Just the actual moment, mobile home parks, especially for the listeners, you know, half of the listeners are, are, are Canadian half, roughly, half are in the states. And the mobile home park is, it's not a particularly large asset class at all in the Canadian market, but we always have people on and from the states. And I'd love to just get your, you know, what is it and how were the deal structures in terms of leasing as opposed to ownership and, and maybe how, how you stumbled, stumbled into that virtual. Sure. Speaker 1 (7m 48s): Yeah. So there's, there's a lot of different types of mobile home parks out there. I mean, there's RV parks and there's like combinations and there's mobile home parks. Where, where the, the, I mean, essentially we're talking mobile home for those who really have never heard of one before. We're talking about these little houses that are typically two, three bedroom, maybe one bedroom, they're typically 10 feet wide, 12 feet wide. They have double-wide 14 foot wide, or they have double wide ones, but they're like shells that you then put little rooms inside of it. And it's typically a cheaper building material to be typically a flat roof. Not all, always there are really popular back in like the fifties. They, they started getting prevalent here in north America and there's millions of them. Units, not properties of millions of people in America still live in mobile home parks. And in Canada, some do again, they're not as popular, but they are up there and they come across our plate. Occasionally we don't buy them there, but just cause it's not our, we don't, we don't know what we're doing there. So I'm a big believer in having a focus, interrupt Speaker 0 (8m 43s): You for just one second on that. I'm just curious. Are you, are they predominantly in Eastern Western Canada? Like were where have you seen deals come up? I've Speaker 1 (8m 51s): Seen him all over the place in Canada. Yeah. I've seen some, I've got someone was to, is that the name? Yeah. So I've seen them there. I've seen some out east, maybe one or two have ever crossed my plate. We don't get them. They're so rare. And they're also, sometimes they're usually more on the RV park side where it's, somebody has a bunch of RVs and maybe they put a bunch of mobile homes on them, but they're not real great in cold weather. They do them. I mean, we buy them in Minnesota. We buy them, whatever, but they just don't work quite as well in, in cold weather. So I got my first one was in Maine. So it's definitely possible. Maine is the cold north, about as cold and north as you can get in in America. Okay. Speaker 0 (9m 29s): So we're, we're on the, we're on the mobile home parks where these are the smaller houses, millions of millions of people in the U S are still live in these. What, what kind of, you mentioned there's a, there's different variety of these. Speaker 1 (9m 43s): Like sometimes the owner will own the land and the homes and they just rent the homes out. That's that that's done. I don't like that model because mobile homes tend to break easier. They're one step. They're like a cross between a car and a half a house. And when we say mobile homes, typically they don't move. I mean, they can move, but it's not like, oh, it's not like an RV or a motor home or whatever you call them. Do you guys call them RVs and RV or motor? So, okay. Yeah. So same terminology. So it's not like that where you just like pick up and drive it. They have to be moved on the trailer. You have to put wheels on them and they require between five and $10,000 to move them. So they're not, they don't get moved very often, but they are movable. And so sometimes the land, again, the owner will own the land and that, and they'll rent them, but they're usually not very good quality. They break easier. And so I don't like telling them, I'd rather have a tenant who can go and fix his own toilet for, you know, $30 rather than me having to fix a toilet for $400 with a plumber. Because knowing that things are going to break a little more often and there's a little more, you know, they're a little thinner walls and a little bit thinner studs and a little bit thinner, everything a little bit, just not as good quality wise. It's like a traditional stick built house. So we like to buy them where we own the land and the tenant owns their own house and the tenant, maybe they moved the house in. Maybe it's been there all along. Maybe we buy a house, we move it in and we sell it to a tenant and they buy it and they own it then. And the beauty of that is that they're just paying lot rent. Like they're just paying for the right to have their house on my lot. And typical lot rent is 250, 300 5400, maybe on the high end. I think we have some nicer parks that might be up to like 600, but most of them are usually in the $300 range that they pay for the right to have their property there. Then they typically pay their own water and sewer bills. It's just like, they own a house, but they have to pay to keep their house somewhere. And it's a relatively low-income way. Like it kind of addresses a low-income problem in America, which there's just not enough housing. In fact, I was looking up some stats today and it's like 30 or 40%. Okay, let me, let me, I'll read it to exactly. It was from the, where is it? One more, the national low income housing coalition. They put out a report and it said that 40 was say 40%, 44% of all workers, 18 to four are low wage workers in America. So 44% of everyone who works is making a, what they call it a low wage. There's 38 million Americans in poverty. There's 36. So it says for every hundred, extremely low renter households, like poverty households for every hundred of them, there's only 36 affordable properties in America. So in other words, the majority of those people can't afford to live. And so they're having to live multiple people in one house. So this kind of addresses that it's like, Hey, you can, you can live here for 300 bucks a month or maybe 600. If you're going to pay for the house as well, you're gonna make a payment for the house, which is how we oftentimes will do it. But yeah, so there, it addresses that problem of low-income it creates kind of community feel a lot of mobile home parks have a stigma because there's has been a lot of bad management of mobile home parks has been a lot of violence. You get, when you get low income people, it tends to drive more drama and violence for whatever reason. And so we buy them, we fix them up, we make them nicer and then we make money. Speaker 0 (12m 55s): So ma maybe walk us through what it would look like. So you have, you're looking at the type that we're, you have somebody that will actually own their unit. Right. And then pay you basically some right to be on that, on that land. Is that right? Yeah. Speaker 1 (13m 10s): Yeah. So they own their own house. Typically. That's what we want. We don't want to own the house. So yeah, they own the house. They pass through 300 bucks a month that they pay their own water bill. And the cool thing I like about these is that they don't, the cashflow can be very stable because I don't like the water bill. Doesn't go up and down the sewer bill. Like people stay for a long time. Cause it's so expensive to move a home. They don't want to leave. It's their home. They're not gonna leave it on like an apartment where people leave every two years, a mobile home park, they might stay for five or six or seven years on average. And so we get much more predictable, stable cashflow that I like to say is very recession resistant. And I say that like this, let's say the market crash. We have a big recession and you're a millennial living in Toronto and you're paying $3,200 a month for rent. I don't know what rent is, are five grand per month for rent four grand a month for rent. So let's say your $4,000 a month rent during a recession. You're like, oh, I got to tighten my belt here. I gotta, I gotta say some money. Those $4,000 a month people they're not going to suddenly start paying 1200 bucks a month over in the worst part of town. Right? What are they going to do? They're going to tighten their belt and they're gonna go from 4,000 to 3,500, the 3,500 people. They're gonna be like, oh yeah, tight times. I'm gonna go down to 3000. And, and everybody, it condenses from the top down, but it's not like the people paying 300 bucks a month are going to go, well, I got to go live under a bridge that they just keep paying it. It can press us from the top down. And so I would be worried about owning a rental with $4,000 a month, rents in a recession, knowing that there's, who's going to rent that in bad times, those people get stuck and you have to drop the rents down to 3000 and Ellison. Their NOI is just in the, in the hole and they're upside down. I like the mobile home parks because it's a much smaller number, but let's say you have average lot rent. You buy a property or average lot rent is $200 a month, which is not an uncommon thing. And you raise the rent over the next couple of years to $300. You're only raising a 100 bucks, but what did you actually do percentage wise to the NOI? You increased it 50%. Imagine buying an apartment, increasing your, your rent 50%. Like that's a, that's a huge jump that you'd be on the front page of every newspaper for, you know, gentrification and, and kicking out tenants. But we're talking about a hundred dollars can make a 50% difference in your NOI. So it allows for pretty massive growth in an industry where cap rates are the same as they are in apartment complexes. So if you're buying at a four cap or a five cap, you can do some dramatic increases with value edges by, by raising rent or by infilling putting more units into it. Yeah. Speaker 0 (15m 39s): I think it speaks to, to the last, whatever the, during COVID a lot of the AAA A-class property that, you know, took the, took the hit, right. That's where it first took off, took it on the chin because you know, you're not, you're not thinking, like you said, of, of doing four or $5,000 rent for a two or three bedroom anymore, you're doing, you know, you're going to break down to be class and then the bees are going to come to see, but you're right. See, doesn't just, Speaker 2 (16m 2s): You know, they're still around. They're still around. Yeah. Speaker 0 (16m 4s): So in, you know what, the, the thing for me, conceptually, I've always tried to understand with the, the mobile home parks you're talking about is that when you have an apartment building, say it's a 50 unit apartment building. Part of the strategy is the rent. Clearly the other one is the, how you allocate your capital. As it relates to, you know, say there's equity appreciation. You have a, a capital event you refinance in five years, take that money out. And you know, in, in, you know, play with the equity component, how does it work in mobile home parks when you're taking on, you're taking this kind of rent that they're going to give you because they have the lot, but you technically don't own the, the, the structures. Do you own the land? Yeah, we Speaker 1 (16m 46s): Own the land. And so it really works the exact same way. I mean, we, we treat it exactly like you would buy an apartment complex. Like there's really no differences other than the fact that you don't have to send in a plumber to fix the toilet. The tenant takes care of their own. And we still deal with a lot of rehab stuff because we're constantly buying houses. Our strategy is actually not the jack-up rent. Like that's actually some, some companies, this is where mobile home parks get a bad name. They will buy a property where a lot rent is $200. They will then go in and they'll Jack the rent to 500 and they'll say, well, tenant, what are you going to do? You can't afford to move your house. So screw you. That's what people and like, it's, it's sad. I understand it's capitalism. This is how it works. Right? The, the, the it's business of whatever, but it still hurts. And I don't, I don't like that. What I would rather do is say, Hey, your lot rent is $200 a month. Okay, fine. We're raising at the 2 25 and the next year or two 50 next year, maybe 2 78. So we raise it over time. But what we want to buy is we want to buy a property that's 80% occupied and make it a hundred percent occupied because unlike multifamily, let's say you like, you buy an apartment complex. And then I buy apartments too. I'm not saying they're bad, but if you go and shop for an apartment right now, and it is 80% occupied, you are likely pain and like cap rate as if it was completely full, because they will assume, oh yeah, you're just going to add those 20 units, you know, 20%. And you'll be fine. So you're paying actually for those units that are empty on a mobile home park. That's typically not the case. If it's an empty lot, it's not included anywhere. Even in the brokers, like the pro forma, it's not included in there. It's just like, yeah, that's not rented. So we're not including that. So you were literally buying them for the value of a 70% occupied property. And so when we add in those 30 more percent or 24% or whatever, it dramatically increases the value of our property. So now we're combining slow rent raises that keep our tenants like, you know, taking care of them with this idea of infill. And so combining the two together creates a pretty massive increase in NOI, which then allows us to refinance, do the same stuff, take out capital or sell a few years later and take a, you know, property that you bought for 5 million and go ahead and sell it for 10, three years later. It's like, those are doable things. Speaker 0 (18m 54s): Yeah. It's like truly you're creative in the, in the sense that you're going to actually bring each, you know, vacancy, whether it's 20 or 30% actually value add dollar for dollar. So of that 3,500 Brandon, the, so that was all in the last year, year and a half. And what percentage of that, or how many units of that are, or if any, are apartment buildings as opposed to mobile, mobile home parks. So the Speaker 1 (19m 18s): Apartments, the apartments we have, we haven't closed on yet, but it will out of it because 3,500 is the ones that we have under contract and the ones we own. So all we've closed on so far since I, you know, the last two years have been mobile home parks, that's like 1700, the other 1800 out of them. About half of that, is it a park is an apartment. So I think there's three in Colorado and one in Houston that we're buying. So total, maybe 700 units combined of all of that. And so, and I like the apartment stuff too. There's nothing wrong with it. And it's great. And I want to do a lot more of it. In fact, it's way more scalable. This is why we actually going into it. There are only 50,000 mobile home parks in the entire country or in north America that are left 50,000 of them. And that might sound like a lot, but there's more multi-family in Houston than there are mobile home parks in the country. Yeah. Small number. I Speaker 0 (20m 3s): Was going to say in the states, I can't remember the latest stats, but it's something like 25 million units in the country or something like a apartment. Cause I think that the actual housing units is like 50 million or something, but the, we were talking with Jay Scott, he was on the podcast a couple months ago, or maybe yeah, maybe a month ago. He, and he was talking about that sweet spot when it comes to multi-family where he's like, you know, the smaller multi families are great. You can find good property management. He's like the big, big stuff, you know, 80 plus a hundred plus is great. Cause you, you know, you can hire one or two full-time people. You can have a really qualified management and he's like, it's that stuff in the middle. He's like, it's very challenging to have good management. Speaker 2 (20m 44s): So maybe on that yeah. Speaker 0 (20m 47s): On that point for, for you scaling. So th th those sound to me, like still pretty expensive markets, Houston and Colorado. Right. Speaker 1 (20m 56s): They, they are, but there's also, that's where everyone's moving to. And so that's why we, like, we're looking down the road, like where is the macro economic drivers happening? And it's in those cities, like, it's the Nashville, it's the Austin, it's the Houston, it's the Denver. And so if we can find a deal, that's pretty good. I think we'll be able to, I mean, we're not, we're not buying based on appreciation, but I think we've got a really good shot on appreciation because of just the population growth. And the fact does not build in enough in those areas. And so that's why we've kind of focused to the apartment side, like mobile home parks. We have our criteria for location, but it's not as strict as apartments because like even in a smaller area or an area that's not massively growing, there's always going to be a low-income people. They need a place to live. And so I'm not worried about that on the apartment side though, like I want to make sure that we're about a 500 unit apartment building. I want that area to be going up in value because I need appreciation to play a piece in the growth versus mobile home parks. I don't really need appreciation to play as much of a piece. That's kind of more of a cashflow game and a, and a forced appreciation game. So, yeah, it's challenging Speaker 0 (22m 1s): Too. I mean, if you have investors, you know, you, at the end of the day, we, we talked about this last time cashflow is, is crucial and you don't want to just, just bank on appreciation in any way. But the reality is when you have investors and you're showing them some exit cap rate, some, you know, something that influences IRR, you have to, you have to factor that in. And hopefully you're in a, in a market where you can justify that and illustrate that to them. Speaker 1 (22m 25s): Exactly. Yeah. So if we're, if we're projecting, let's call it 3% per year appreciation. If we're going to say that, like, I would feel comfortable saying that in Houston, I would not feel comfortable saying that in Cleveland. Right? Like, I'd be like, that would be a stretch. And at the end of the day, like we're only as good as our last deal. If we start doing crappy, like, you know, giving, you know, 3% IRR because we, we underwrite a F on the road, underwritten, underwritten by underwrit underwrote eighth, like a 5% per year growth. And really we're in an area that's losing 2% every year. That's a problem. So that's why we're betting on the better markets. Yeah. You don't want a Speaker 0 (23m 1s): Hundred unit apartment building in Buffalo with a hockey stick graph for, for appreciation. So what, what is your, you know, call it apartment perfect apartment avatar in terms of unit count, some of the economics, maybe some of those macro economic trends you're talking about. Yeah. I mean, Speaker 1 (23m 21s): The big, the biggest thing that we look for is the, a we're looking for the population growth. Like we care a lot about that. We care about the, a decent amount of what the landlord tenant laws of the area. We'd like it to be a little bit easier. I don't want to be in California or Hawaii for those reasons. I mean, everything's got a price, right? If you buy a good enough deal, maybe I'd survive California. But I prefer that a unit size, anything over a lots, I mean, a hundred lots or a hundred units, depending on if it's apartment, I don't want the middle, that middle spot. It's too hard. Right. I want to be able to have staff and to have people, I want a clear path for a forest appreciation. I like value. And I'm not saying I want to buy a completely junk or property. I like to have cash flow today. We call them cash growth deals, one word, cash growth. It means like you get cashflow from year one. I'm not doing development. I'm not doing projects that won't make any money. I want to make money from day one from year one. But I also want a clear path for growth in a value. That's not dependent just upon, let's do 3% per year for appreciation. Absolutely. Right. So yeah, the property we bought in Houston and they we're buying in Houston right now, there's 530 units, but three of them have been 300 of them have been completely remodeled and are achieving a way, way higher rent. So we have a very clear path, okay. The other 200 or whatever, two 30, we're going to remodel them. And now we can get the same rent that these other 300 are add. So I don't have to guess on, like, I wonder what will happen if I remodel this unit. So we have a very clear path towards growth and it's in a great area. It's got all of their benefits to it, but yeah, and for me right now, bigger is better because we, we can raise money better than most people can because of my position, you know, in the, in the world of BiggerPockets and everything. So it, it takes less work to buy a 500 unit property than it does to buy a 12 unit property. I don't know why, but it's just the way that it is. And so I would rather buy a big deal since I can afford it, then buy a little deal. It's just way, way more bang for way little effort. Yeah. Speaker 0 (25m 17s): So the, the Houston market right now, w like, where would you guys be in on a per unit? Is it, are they in the 200,000 per unit range? Are they generally, Speaker 1 (25m 26s): Yeah, generally in the 200, 220,000 range, we're buying ours at one 18 and still, like, we felt pretty good about that. And again, it's a larger deal, which you can tend to get a little bit lower cost per door, but yeah, we're buying out like one 18. And so I think we got a lot of, a lot of room. Yeah. Growth. Speaker 0 (25m 41s): Our are at the, at the brokerage house I work with. I think we're on average now Toronto's is just kinda gone insane. We're at 300, 330,000, and those are the big, those are big ones. Those, those aren't like, yeah, it's, it's pretty crazy. But yeah, I mean, that's, that's good to hear that there's still deals like even in, in a good markets in Texas, because I totally share your view on the, the landlord tenant or the regular regulatory framework, because like you were saying before, at the end of the day, there's there's extremes, right. You don't want to just Jack up somebody's rent three times, but you also don't want to, you know, with rent stabilization in New York rent stabilization. And I believe DC in California, you know, 1.2% a year is it's kind of a joke. And, and like, it's it's to me and I won't, I won't get into it, but it's fairly paternalistic to say that people can con can't contract on their own. You know, it's not it's of like consumer protection laws, everybody, all of a sudden is a little old lady that can't can't help herself, which obviously we've got to look out for those people. But anyways, the, so these deals, I want to talk a little bit about how you started in terms of the structure of how you you're raising capital for these deals. You mentioned the bigger pockets, because, you know, if these are syndicated or private equity deals, it seems like you're using I guess, 5 0 6 C or are you where you're, you're able to kind of advertise. Maybe you could talk a little bit about that. Speaker 1 (27m 16s): Yeah. So we got the file of six B and five or six C options. Right. I don't know. Do you guys have those in, in Canada Speaker 0 (27m 20s): Or call them national instruments, but they're very similar. There's, you know, credit investor or family and friends, all that jazz. Speaker 1 (27m 27s): Exactly. Yeah. So we, most investors started the 5 0 6 B level in America and they family and friends, they start there. We kind of just started with C because of my position on the podcast and having a big platform. And I got a quarter million followers on Instagram. And so we, we just, I have to be able to advertise. And so we went, we went five with 60. It means we can't take unaccredited money or non-accredited money, but that's okay for now. Maybe we'll figure that out in the future with, they have things called the reg A's, which allow for both, but I probably won't go that route. Was that okay? Was that Speaker 0 (27m 55s): Kind of the grant Cardone? Like that's the root cause? Cause there was, there was like, I think there was as low as like five grand or 10 grand. Okay. And here's why Speaker 1 (28m 4s): I don't want to go reggae, but here's the, here's the truth. Like grant Cardone got sued. I don't know if you'd knew he got sued by a guy who put in 10 grand. Like he didn't get sued by the guy that put in a million. He got sued by the guy put in 10 grand. And like, I'm sure that I don't know where the lawsuit ended up. I don't know much about it. Other than that, I heard about it and they probably will settle or did settle. I don't know. But that's the annoying when you bring in uneducated money and unaccredited money, you get the people who are like, well, he said where I was going to make 15% every year. And I only made 3% this year. And he's like, yeah. I said, IRR, like over time and the it's IRR, like that's where, that's where you get those people. The more money people put into my fund, the less questions I ask, just a phenomenon that I love. And it's the people that put in 30 grand that are asking all the questions and the people that put in the millionaire, like where do I send my money? Yeah. Which is great. You keep sending me emails. Can you stop sending me money? Yeah, exactly. So five. So we did file a six C we on, on the first, I mean on everything we've done has been five or six C's or we did funds for the part. We do funds for the mobile home parks, because the average price of a mobile home park is three to $4 million. We've steadily increased that because we want larger and larger properties. It's now like right now, our average this quarter, I think is like seven, but there's still smaller deals. And so I don't want to just put plus their mobile home parks with people view as a little riskier. And so I don't think they are, but people view them that way. So if we package multiple ones together, everyone feels better and it's a bigger amount of money and it's less paperwork. So what typically put fi between three and seven parks into one fund, probably average of five. And for example, our newest, we raised $19 million on fund four. It was a 19 and a half minute. Well, it was a $20 million raise. We shut it off and money has been trickling in the last few days. And we're at 19. I think we're just gonna call it good. Cause that's about what we need to close on the five or six parks we have ready to close. So that's how we do that side. Speaker 0 (30m 1s): So I'm curious. I was, I was listening to, I can't remember what podcasts now, but it was a, it was talking about the funds and I was, I was explaining it to a colleague of mine that, you know, there's, there's callable capital, you know, there, there is capital where you actually have to, you have it fully invested and then you better have pretty or, you know, they actually give you the money. So you better have pretty good deal flow. If you're going to have money sitting somewhere, how do you structure it in terms like, do you have a commitment that they have to actually give and then it's called. And then the second question, when you actually have investors that do that, do you have a, a percentage allocation that they make or is it kind of first come first serve? Speaker 2 (30m 45s): So we Speaker 1 (30m 46s): Do a little bit of a hybrid, but basically we, we raise all the money to begin with and we just have good deal flow. Yeah. We are very meticulous on our outreach, on our broker relations on our off-market search. We're very detailed and very systematized in it. And so for example, we like, we get 10 point, whatever percent of our offers accepted. We just like, we just get that. We just like, so we're like, okay, so we made 74 offers or whatever it was. Or 76 offers, I think 74 offers. And I'm like that in quarter two and we got seven offers accepted. And so like, we just know that like, we're pretty, we're pretty like straight when it comes to our funnel and, and we treat it very much like a business. So I feel like our deal flow has been, been pretty predictable as from the beginning. Now there are, there have definitely been moments where we're like, okay, well we got $6 million sitting in an account right now and we don't have any properties. This is like, we're just losing money right now. And like, we're draining, like our investor returns are going to drop a little bit, but it's not as substantial as people might think, like over a five or seven year, time period, if you have money. Yeah. It moves out. If you have money sitting for six months doing nothing, it might drop your IRR by a quarter percent. Like it's not a, it's not the end of the world that said that hasn't really happened when we just continually, we typically what we want to say hybrid, what we kind of do is we raise in, in chunks based on what we need at the moment. Right. So like, or what we think we're going to get. And so it sounded like we'll have a $20 million fund and then we'll go raise like a bunch when we launch and we'll have five or six or 7 million with trickle in. And then we'll start using that with our buying properties. And then it's like, okay, we're getting kind of low, better put on the gas again. And then we'll go and I'll talk about it on my Instagram and on my podcast. And all of a sudden more money comes in and then we pull off the gas. And so we can, we can throttle it based on what we kind of need. And that's been really helpful. The downside is that means we're typically raising for blind funds. It means that people that we can't say here's a property. This is what the numbers are. Instead. It's like, this is the team. Trust us. We're going to take this take care of you. And that's a little bit harder sell. So it takes a little longer, but as we will, the track record, and as we get more and more deals, we start going full cycle on. I think that'll be easier. So we've raised $75 million in the past 13 months or something like that. Yeah. Thanks. Yeah, it's been, it's been crazy, but I think that's just the beginning of what we could do. Cause now, like we're looking at selling our first fund and we're moving into the next. And so like as we get that track record and we say, look, what we did over here, it's going to be easier and easier to be able to have people trust us. And then the apartments a lot easier in terms of like, this is the apartment and those are, those are one-off deals that we can explore. Speaker 0 (33m 23s): Yeah. The a I'm reading the a hands-off investor. And we had, we had Brian, Brian on the show for, on Burke for anybody that, that wants to look it up. And he, he, he said, you know, you said trust. He's like the fund is the trust vehicle. He's like, that's what the fund is. You know, the building, if it's a syndicated one-off, you can go, you can touch it here it is. But like you said, it's, here's our investment philosophy. Here's our track record. Here's the team trust us. So on that, on that point. So 75 million that's raised for that. And you're talking about now potentially selling the fund. So the fund, would that be the mobile on a mobile home site? Speaker 1 (34m 0s): The first one we've done for mobile home parks. So it's our first one was small. It was only five, $5 million. I think total, we raised, maybe it was four. And then we bought, you know, $8 million with the real estate. And so we're looking, or I don't know what it was somewhere in there. And so now we're looking to sell that one. In fact, we should have decided for sure, we're not, we're not a hundred percent committed to it because I think there's still a lot of meat on the bone of a we're only selling it. So we can say, look what we did. We've got a track record. We've gone full cycle now in our, in our first fund. Now we can go to the next level, but I don't really, I'd rather not say, I think we can make more longterm if we don't, but I need the reputation that to grow. So yeah, I'm the Speaker 0 (34m 33s): Same way. True real estate guys. No, no, no, no, no. I never saw, so I'm like, I don't Speaker 1 (34m 37s): Want to sell it. There's so much there. And I think we're, it's such a good point. Yeah. Right now in the market to buy. Yeah. I think we're going to see. Yeah. So when Speaker 0 (34m 44s): You, the logical buyers for that, so it would be kind of a portfolio sale of whatever assets are rolled up in that fund. And, and then I assume it would be the same down the road for, for the apartments. And on that note, just on exits, you know, when you talk to investors, for instance, you know, stuff that you're purchasing say 20, 21, 20 22, when you talk to investors and I'm sure you get the question, like everybody in our world gets is, you know, what's, what's the exit strategy when, you know, when do we realize a return? What, you know, what constitutes a capital event, you know, and how did they get the return of capital? What do you, what do you kind of, what do you do with these, these funds on the apartment side now? Speaker 1 (35m 27s): Yeah, on the apartment side, as a side, typically say five to seven years is our expectation, but I always make the disclaimer. I don't want a thing. I said five years to go to when we sell, I want performance today, state when we sell. So if that means we're going to do it in four years or seven years or nine years or five years, like if you can't be flexible, then we don't want your money. And we're very blunt about that. Like, we want to work with people who are flexible enough because we it's all about managing expectations. If I said five years and then it was six. And then you get a bunch of mad people. But if I said six, they'd be fine. It's all expectation management there. So kind Speaker 0 (36m 1s): Of like you were talking, I don't know if it was before the show or at the beginning of the badge of honor of going through certain recessions where some investors won't invest with people, if they haven't gone through, you know, some sort of financial or economic calamity, but it is one of those things with, you know, if you said to investor, I don't want something five years ago that I say, I said in 2015 to dictate and, and you know, COVID happens and now, and now I have to, you know, commit to that. Five-year. Speaker 1 (36m 27s): Yup. And so I'd rather give, I would rather give myself some flexibility. So on the apartment size and on the mobile home park side, both of those, we say five to seven or we like, we're flexible, be flexible with us and let's just make sure we're getting the maximized return that we can get everyone the most amount of money because that's what matters. Speaker 0 (36m 44s): That's awesome. All right, Brendan, I want to shift gears, you know, time flies when, when we're chatting and I want to talk a little bit about the book you mentioned, correct me if I'm wrong. August mid August. Speaker 1 (36m 55s): I think it's mid August, 1918. Something like that comes out. Yeah. I should know that exact date, but it's moved a few times. Speaker 0 (37m 1s): So yeah, for listeners, a little bit of the backgrounds for the book I know is I assume it's under the BP brand a lot. You guys always have great, great content, great books. I'm sure you got some amazing Amazon stats for all those books, but yeah. Give us a little bit of a background on it. Speaker 1 (37m 16s): Yeah. So the, the, it started with Brian Murray, who was my partner and opened our capital. We invest in the multifamily together. I was talking about how, like there's no like S like book that we thought could be like the definitive book on just multifamily, residential multifamily, real estate. And so we started talking about, well, maybe we should write one. Maybe we should talk about this. I mean, he's written one on commercial real estate before, and it included apartment stuff, but it was just more on general, large commercial. And then I've written obviously like a bunch of books on residential, but it was, it was very wide. And so we thought, how do we go a mile deep on one topic that's very popular right now is commercial and or sorry, apartments. And as we did that, we realized we couldn't do that because multi-family when I say multi-family, some people think duplex and some people think 300 unit apartment complex. And that the truth is they are very different, very different, right. Every, and so where do you draw the line? And, and, and at first went, okay, well, four units in smaller is residential and five units or greater as commercial. Okay, well, who's syndicating a five unit property. No one is right. Yes. The financing is a little bit different, but that the game is the same. If you're buying a three unit or a five unit, or even an eight unit or a 12 unit, it's all kind of the same. So where do you draw the line? And I'm like, I don't, I don't know. But at the same time you could syndicate a duplex if you want it to. And you could have a team that buys duplexes. So it's not unit number. And so we define it as approach. There's two approaches to real estate. There's small, multi-family real estate approach and there's large multifamily approach. And the way the best, I mean, there's a bunch of definitions we've defined here, but the one I like the most is if you know your tenants names, you're probably a small multifamily investor. If you don't, you're probably large, right. Because if you you're, if you don't know who your tenants are, it means you've got people in place. You've got systems, you've got teams, you're probably raising the money for it. You're probably got quarterly meetings and you're issuing distributions and all that stuff. That's the large game. So we wrote two volumes that are like, I wrote most of the first one with some input from Brian. He wrote most of the second one, some input from me. And so volume one is on small deals, like how to buy that first apartment. I mean, the first, you know, duplex fourplex, eight unit, 20 unit, how to self-manage or find a local property manager. And then his book is more on like, how do you build a team? How do you syndicate? How do you raise money? What's a mezzanine debt. What does that mean? Like all those things that are on the, on the larger scale. And so we're just launching them together at the same time. Cause most people are probably gonna end up going from book one to book two over the course of their career. So that's, that's the books. Speaker 0 (39m 42s): That's, that's probably the direction you want to go. And I really, I liked the, the breakdown of that because it kind of gets to the, the, the different markets that we have, you know, like we were just talking before a very expensive markets, whether they're in the states or Canada, when I hear somebody's bought, you know, X amount of units for 5 million, you know, and that gets you, like you're saying before, like a six unit in, in a certain market. And it's like, well, you know, raising $5 million, you could definitely syndicate a $5 million deal. You're raising, you know, whatever it is, you know, a couple million dollars worth of worth of equity. Whereas, you know, that size unit deal would be like a couple hundred thousand dollars in, in some small markets. So I like that. That's, that's really cool. So the book itself, the, the volumes, it sounds like kind of the progression for each one is the same. Like, are they structured relatively the same? So that they're kind of a companion. Yeah. Pretty Speaker 1 (40m 34s): Similar. So, you know, you walk through all the basics that you'd get. So how to find, you know, how to, how to build them, how to build a business plan around it. Like what, what are you gonna do? How do we make that real? So I'm a big believer when I write books, I love to make things real for people. So not just theory, but like, let me, let me show you how this plays out in real life. So for example, I have a chapter in there called like, oh, shoot, what's the title of it, basically like financial freedom in five years. I think like that. And it basically walks people through a, let me see if that's actually correct on the title. I know we changed that a little bit. Yeah. Financial freedom in five years. And it walks through a concept that's a little bit complicated, but the idea being a lot of people are overwhelmed by the idea of owning a 20 unit or a 50 unit. It's like, that's so many units. I'm just getting started. How I do that. I'm like, don't worry about the 50 unit, but it doesn't mean you have to be stuck on single family. So imagine you bought a duplex this year and I walked people through the story. Like you bought a duplex, here's what it makes. Here's how much it brings in. Wow. You're making $300 a month in cashflow. Good job. Like, but that, that first deal is so important for forging your identity. And then next you buy maybe a five unit and then maybe a 10 unit and then maybe a 30 unit and then maybe 50 unit. And so that concept really shows you that in five years you could get to like five, 10, $15,000 a month in passive income and you just scale up slowly. And so I could tell somebody that, or I could paint it into a picture. So that's an example where I, I did that in and then walk through the chapters, obviously like how to find deals, how to fund them off market on market, how to, how to finance them some creative strategies. I spent a lot of time talking about the different types of multi-family like, you know, like the monster house, which is like, those single family has been converted into like Frankenstein Frankenstein. Exactly. They just add on units here and there. Like how many of us have those? I have a few of them still where they're like, they were not meant to be a multifamily, but they've made them there and I've walked through the pros and cons. And like, how, like, how do you deal with that? Or the side-by-side like, I love side-by-side duplexes and triplexes and fourplexes. Cause the water meters can be separated usually. So you can shift the water under the tenant, like that little tip, like things like that versus a up and down duplex where the water meters are all pro all the water lines are connected together and it gets really difficult to separate. So there's a lot of like specific about that in, in the books. Yeah. Speaker 0 (42m 38s): That's very cool. Yeah. It just kind of got me thinking too, like we don't have Costech here. I don't think you're actually allowed to, but, but separately meters is like, it's huge. Right? When if you can get everything where suddenly your expense ratio goes from 50 to 30%. Speaker 1 (42m 52s): Yeah. Yeah. And, and there are property types that allow for that easier than others and there's rubs and there's all that like that you can throw in there. But yeah. It's like knowing those little intricacies that, that can make or break a multi-family that's, what's kind of the goal. Yeah. Speaker 0 (43m 4s): Yeah. No, you know what? I think it's not cost sake. Really. It's a ratio. Utility billing is rubs, right? Yeah, yeah, yeah. It's I know there are certain states allow for it to like certain ones. Yeah. So that's cool. Different, different building style and yeah, just a it's funny when you talk about scaling, it's so true. It's so much easier to, or at least, you know, I'm a visual person. So to me, stories are the, the visual words and you can kind of conceptualize it, but it's so true that when you come to somebody that says, Hey, a 30 unit until you do do a 30 or 10 15, whatever it is, it's you don't realize that it's actually less of a headache because then, you know, you can have support. Whereas you buy that one or two, it's like, it's more of a headache. Cause it's all you. No, Speaker 1 (43m 50s): I bought, I bought a condo, a single condo here in Maui recently, not one condo has been more work than 3,500 units combined. Like it's insane. It's insane that that's, I'm saying that, but one little condo is more worth than 3,500 units and it doesn't Speaker 0 (44m 5s): Yeah, 100%. Cause like you're, you're like, what did I do Tuesday? Some reason I was on the phone with a utility company for two hours. Speaker 1 (44m 11s): Yeah, yeah, exactly what that is. It's constant problems and contractors not showing up. And of course it's not big enough for me. I just have a team to take care of the whole thing. So I just gotta do it. And I'm like, what am I doing? Like, this is stupid. Speaker 0 (44m 23s): Yeah. And you know, it's w where are you talking about kind of growing to that, you know, you forge your identity to that. I think it's very much like a startup company and a lot of times the CEO or the founder of the company, although talented and we're in, we're in basically integral to having that company become something may not be the best person. Once it's an enterprise, as the manager, you know, where you have more people that may be more system oriented systematized or system oriented, but that's really cool. I, yeah, it sounds good. So we'll, we'll take a look out for that. And if, you know, we release this after that, we'll put a, put a link up to it. So I just, I want to be respectful of your time, Brandon. I just want to let listeners know for Opendoor capital. And I'm just curious personally, what, you know, what do you tell people that are interested? Want to learn more, want to see what you're up to? And like you said, who is the team and what is the investment philosophy? Where should they head to? Speaker 1 (45m 20s): Yeah, so we do something kind of different. So what we do is we go to an intersection. If you want to give us money, you have to put it in a briefcase, all cash. You go to intersection, we cross the busy intersection, you dropped the bag, we dropped the cash, you dropped the cash. We give you a little bit of a piece of paper and we're all good. Just no cops, there Speaker 0 (45m 36s): Must be no, my cousins or something. Speaker 1 (45m 37s): Exactly. Yeah. You got like tip your hat twice. That's how we notice you. Yep. Yep. That's it. ODC fun.com is our website. We put everything on there. Yeah. ODC fund, which I probably need a new website because now we don't just do funds. So now it's like ODC fun. Maybe we'll be OTC fun. Have fun with ODC Speaker 0 (45m 57s): GoDaddy page. Exactly. Speaker 1 (45m 59s): Yep. We have OTC fund. We put a lot of stuff there. I'm, I'm super active on Instagram. And so here's an interesting point for anybody listening to this that wants to eventually raise money is that I once had an investor say to me, the reason I invested in Opendoor capital is because of the way you talk about your wife. And that was such an impactful statement for me because not, not patting myself on my back here, what I'm saying is like, people are not investing in twin Oaks, mobile home park in Ohio, like whatever, like they're not investing in that. They don't know about that. They're investing in my ability to do what I say I'm going to do. And so you are marketing yourself every second of every day in every interaction that you have in the public. So the way you promote the way you talk about your family on Instagram or on Facebook and the way you comment on other people's stuff, all of that is showing the world, what kind of person you are, can you be trusted? And five years later that people are gonna look back and say, like, I have been following you for years online. And I respect the way you do business, the way that you respond to people or the way that you're kind of the way that you're smart. So anyway, that's a, that's a big thing. So I knew I try to put my life on Instagram and a lot of ways, which sometimes gets me in a little trouble, but it's good. Like when yeah, it's been, it's been good though. Speaker 0 (47m 14s): Brandon just say, you know, I I'll pat you on the back, so you don't have to do it. But yeah, like just we've, you know, going back to the first time we spoke on bigger pockets, like, I don't even know now 6, 5, 6, whatever it is now. But yeah, it comes, it comes across authentic. I think a big thing of it too, is I've noticed, you know, much, much smaller scale with myself, the other pieces, they, they can tell how much you love real estate and you, you can't fake that. It's really hard to. So if I look at your page and not number one, it's authentic, I, you know, and say, you're the less, you know, you're more logic and, and you know, less emotion. What comes across is that you obviously really give a shit about real estate. Because if you didn't, you know, you, you wouldn't talk about it all the time. So I think it's important to, for the principal that you're investing with to love the asset class. Like they, they want to eat, sleep and breathe real estate. Speaker 1 (48m 9s): Yeah. I totally agree. I have a lot of people say like, yeah, I don't even like real estate. I'm just in it because it makes money. I'm like, well, that's cool. But like, like, man, I love, I love this game. I love every, every piece of it. It's a fun even dealing with nasty contractors. Like I'm like, this is, this is a game and it is a lot of fun to play and it's got real high stakes, but yeah, I'm, I'm, I'm, I'm a lover. So before Speaker 0 (48m 32s): We, we shut down here, BP con 21, I know it's, you know, fingers crossed everything's going in the right direction. New Orleans, October. Oh my God. Fourth now. Speaker 1 (48m 46s): Yeah. Fourth, fourth and fifth where there's like a preview Dan. Third, if people want to go to that, I think that those might be sold out though. But anyway, yeah. Speaker 0 (48m 53s): Some, some pretty, pretty amazing speakers on the, like the center stage. How L rod, I t