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The USDA's milk production report for December surprised us and sparked some interesting discussion in a recent mass balance and charting meeting. We thought it made sense to pull back the curtain and share some of that discussion on the podcast. What does the USDA revision of cow numbers tell us? Should we worry about falling Texas cow numbers with cheese plants coming online this year? Director of Global Strategy Don Street talks through his expectations for Q1 milk production in the wake of recent numbers, which leads to some back-and-forth about the adverse economics facing producers now. Don: All right. Do you want to get rolling? T3: Yeah, let's go ahead and get rolling. Don: Okay. I've struggled to come up with a title. I finally settled on, Once You Count the Cows Before the Barn Door is Opened, which I realize doesn't make any sense, because if you're Nelson Freya, the cows are always in the barn. But USDA is having some difficulties on cows. So, November production was revised lower by three-tenths of a percent. And to do that, USDA reduced cow numbers by 9000 head, kind of spread over a whole bunch of states. Nobody more than 2000 down a couple, or even a 1000 or 2000 up. And milk per cow was down 0.2%. So, given where margins are, not much excitement on pushing cows to really produce more milk. December, production was reported as up 0.9. Again, this is 24 states. I was at 1.7. So clearly, an overshoot because I was two-tenths of a percent off on number of cows at the end of the day. And then about again, a half percent off on milk per cow. So, even though December of '21 was weaker on milk production, it didn't translate into a bump in December. The other interesting thing to note is that USDA dropped the herd 5000 head in Texas in December. And we continue, well, we, me, continue to think that Texas cow numbers have to go up with panhandle cheese coming online. But there again, counting cows is more of an art than a science, apparently. All of this leads to thinking the milk supply will be more limited going into '23. So, we're at the end of January tomorrow. We'll have January milk numbers in three weeks after that. But my projections now, down to 1.7. I think at one time, I even threw out the number it could be up 2.5 in January. That just simply isn't going to happen with the downward pressure on milk per cow. Stated differently, the lack of growth in milk per cow. Q1 2023, I'm now at up 1.1%. I think originally when we first started to look at this, I was at just over two. So, this is much less surplus milk in Q1 than I was expecting. And the next step from that is looking at Q2, not a lot of change. I think we're going to be stuck for some months in about 1% overall growth in milk production, probably for the first-half of the year. January continuing to be the exception because it was down so heavily. There will be a little bit of a bounce just from the math of that reality. If you assume, and this is where we ended 2022, 24 states, 8,918,000 cows, and just hold that steady for the whole year. You can see in January we're up a half percent less than February. And then we're just kind of even with the prior year, a tenth percent up down a little bit, up barely. So, without more cows coming into the system, all the growth after February is going to be dependent on milk per cow. And we already know that's pretty minimal. So, earlier this month, because of the delay in Christmas, we did talk about that you could expect 100,000 cows added to the herd for the two plants that are coming online in Q1 and Q2. If you actually had a 100,000 cows coming in, then your growth in number of cows would contribute much more significantly to overall milk production growth. I think at best, this is probably half of this number. So, I think even with that expansion, with depressed margins, non-aggressive feeding of cows, we're going to be in a milk production environment where we're k...

The USDA's milk production report for December surprised us and sparked some interesting discussion in a recent mass balance and charting meeting. We thought it made sense to pull back the curtain and share some of that discussion on the podcast. What does the USDA revision of cow numbers tell us? Should we worry about falling Texas cow numbers with cheese plants coming online this year? Director of Global Strategy Don Street talks through his expectations for Q1 milk production in the wake of recent numbers, which leads to some back-and-forth about the adverse economics facing producers now. Don: All right. Do you want to get rolling? T3: Yeah, let's go ahead and get rolling. Don: Okay. I've struggled to come up with a title. I finally settled on, Once You Count the Cows Before the Barn Door is Opened, which I realize doesn't make any sense. But USDA is having some difficulties on cows. So, November production was revised lower by three-tenths of a percent. And to do that, USDA reduced cow numbers by 9000 head, kind of spread over a whole bunch of states. Nobody more than 2000 down a couple, or even a 1000 or 2000 up. And milk per cow was down 0.2%. So, given where margins are, not much excitement on pushing cows to really produce more milk. December, production was reported as up 0.9. Again, this is 24 states. I was at 1.7. So clearly, an overshoot because I was two-tenths of a percent off on number of cows at the end of the day. And then about again, a half percent off on milk per cow. So, even though December of '21 was weaker on milk production, it didn't translate into a bump in December. The other interesting thing to note is that USDA dropped the herd 5000 head in Texas in December. And we continue, well, we, me, continue to think that Texas cow numbers have to go up. But there again, counting cows is more of an art than a science, apparently. All of this leads to thinking the milk supply will be more limited going into '23. So, we're at the end of January tomorrow. We'll have January milk numbers in three weeks after that. But my projections now, down to 1.7. I think at one time, I even threw out the number it could be up 2.5 in January. That just simply isn't going to happen with the downward pressure on milk per cow. Stated differently, the lack of growth in milk per cow. Q1 2023, I'm now at up 1.1%. I think originally when we first started to look at this, I was at just over two. So, this is much less surplus milk in Q1 than I was expecting. And the next step from that is looking at Q2, not a lot of change. I think we're going to be stuck for some months in about 1% overall growth in milk production, probably for the first-half of the year. January continuing to be the exception because it was down so heavily. There will be a little bit of a bounce just from the math of that reality. If you assume, and this is where we ended 2022, 24 states, 8,918,000 cows, and just hold that steady for the whole year. You can see in January we're up a half percent less than February. And then we're just kind of even with the prior year, a tenth percent up down a little bit, up barely. So, without more cows coming into the system, all the growth after February is going to be dependent on milk per cow. And we already know that's pretty minimal. So, earlier this month, because of the delay in Christmas, we did talk about that you could expect 100,000 cows added to the herd for the two plants that are coming online in Q1 and Q2. If you actually had a 100,000 cows coming in, then your growth in number of cows would contribute much more significantly to overall milk production growth. I think at best, this is probably half of this number. So, I think even with that expansion, with depressed margins, non-aggressive feeding of cows, we're going to be in a milk production environment where we're kind of 1% up. Just to review quickly, the plants that are coming online, that's where you get 98,

With August's milk production report in mind, the trading team gathered for another monthly mass balance and charting meeting. This month, though, we were blessed by two special guests: Steve Spencer and Vuko Karov from Freshagenda. Don kicked the meeting off by modeling domestic milk production and mass balance expectations for the rest of the year, with special focus on Q4. Then, we handed the reigns over to Steve and Vuko, who guided us through a workshopping version of their Dairy Trade Simulator (DTS). The Freshagenda team tested some ‘What if?' questions on their model and argued that market fundamentals suggest that we should see cheese futures over $2 soon. T3 countered with some points about difficult domestic freight and contractual obligations forcing cheese from high-growth areas. Then, to shift perspective entirely, Jacob suggested that historic correlations driving market fundamentals could break, and that there may be reason to feel bullish Class IV and bearish Class III after all. T3: Welcome back to The Milk Check. This month we return to our mass balance discussion with Don Street and the rest of the trading gang, and this time we have a couple of special guests: Steve Spencer and Vuko Karov from Freshagenda, an Australia-based supply chain and market analysis firm with some great data about how milk production and pricing may evolve in 2023. Welcome to this discussion, let's get started. Steve: Thank you. Vuko: Thanks so much. Steve: Thanks for having us in your meeting. We appreciate the opportunity to join the discussion, let's have some fun and see what it brings. T3: That sounds great. So Don, why don't you go ahead and lead us off. Don: All right, here we go. Balance update, August, 2022. So in spite of Ted being more accurate than I am on these projections and winning bourbon from me, I just want to say that if USDA would get the cow numbers right the first time, I'd be much more accurate. But June was revised downwards to where it was flat. I had actually had a negative 0.02 prediction, so I think that's reasonably close. And for Q2, which we finished down an average of 4/10 for a percent on milk. July finally goes positive. If that holds through the revision, when August is announced again, I was 2/10 of a percent over the 3/10 that was actually reported. Steve and Vuko, these are all 24 state numbers, not national numbers. I think I'm reasonably dialed in spite of the revisions, which brings us to August. I'm, at this point, thinking we'll be up 1% on milk, but the bottom line is that the cow herd will, in the couple of months, be higher than prior year instead of lower than prior year. Instead of being 60 or 78,000 cows below a year ago in August, when we see the numbers, we're going to be 25 to 30,000 cows below a year ago. And in September, we're going to more or less be equal. And then we start to see whether this grows or not. We're going to have more cows than we did in the prior year, which will contribute to higher milk production numbers. I've tried to recast this a little bit to just show you the impact, because June, July, we're up 8/10, one full percent on milk per cow, but fewer cows is the offset. In August, I think we'll be a little bit higher, mostly because of the poor performance of August '21. So I think we'll be up 1% on milk for August, but then I don't want to say that we're just going to continue to move higher but these changes in milk per cow are going to be 1.2, 1.3, maybe 1.4, but we're going to be something over 1%. And then you start to add more cows. And this is of whole certainty, unless we all of a sudden see a shrink in the herd that we don't anticipate because slaughter rates still seem to be lower, not higher. You're going to wind up with 1.4% more milk, maybe as much as 1.8 but somewhere in that range, but it'll be a marked difference than what we've experienced so far this year. Maybe just to take a look at components.

Brian Burke, based in Santa Rosa, California, is a real estate investor and the President and CEO of Praxis Capital, which is a vertically integrated private equity investment firm. He established this firm back in 2001. He began his career in 1989, buying his first rental property which led him into the world of multi-family then commercial investing.  Brian is a successful entrepreneur and syndicator - today he shares how he started his real estate career and giving back to his community after the wildfire in California. He also discusses his investing strategy, where he’s looking to invest, what to expect from an investment and his future plans. Some Of The Highlights: His First Real Estate Investment and His Business Today His Work Strategy and Advice For a ‘Rainy Day’ In Business Brian’s Retirement Plan What is the preferred return?    Connect with Brian: Website: PRAXCAP.COM - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  TRANSCRIPTION Intro: Hey guys, this is Eden and today is a very special episode because we are going to host Brian Burke, who is one of the biggest investors on this show to date. Brian had completed half a billion in real estate purchases this year alone after a long and beautiful career that lasted for 30 years and still counting. When listening to this episode, I was personally amazed by how humble Brian is and the sheer perspectives and mindset real estate investors to have despite the fact that they never met before. Also, today we would like to ask you guys for a favor. If you love our content and feel like you're learning from this podcast, please go on iTunes and give us a five-star review. This helps the podcast to rank higher and the best, part if you give us five-star review, shoot us an email at Hello@donandeden.com with the content of the review and your phone number, and you'll get scheduled for 30 minutes phone call with me and Don where you can talk about real estate and get answers for the questions you always had. So, without further ado, let's get started. Lady: Welcome to the commercial real estate investing podcast with Don and Eden where we cover all aspects of real estate investing with special attention to off-market strategies. Don: Hey Brian, welcome to the show. Brian: Thanks for having me on Don. Don: How's the weather in Santa Rosa, California? Brian: Oh, it's a beautiful day today, almost 80 degrees this afternoon and in November, which is a little unusual, but I'll take it. Don: I like to skate. It's like my hobby. So, I went to L.A., I went to Venice. I took a month off, just wanted to skate, took my skates with me and went there. Some people said it's the best place for anything that has wheels. And so, when I got there, that was late May and it was raining. It was like rain in L.A. and people told me it's very rare. That never happens. And it was kind of cold. And so, one of my friends that lives in California said that the weather over there was pretty unusual this year. Would you agree? Brian: Yeah, it was unusual. A lot of rain this spring and a lot of heat this fall. So, it's been a little bit unusual. But I would say the best weather in California is probably September and October. Those are usually some of the nicest months and people think that summer is probably the nicest, but it's not always the case. Don: Yeah not always the case. Is it still burning over there? I know you guys had the wildfires. Brian: There's a large fire. The largest fire in our country's history just got fully contained yesterday. And that was about a couple miles up the road from our office. So, we were under mandatory evacuation last week. And this week, we're back in action here in the office. Don: As sad it is to say that, I'm sure that these wildfires pose some great opportunities for real estate investors. Am I right? Brian: Well, once in a while they do and we had a fire in our city two years ago that wiped out 5000 homes in our city. We raised a fund last year to rebuild homes and our city and we raised about $8 million and we've been building single-family homes on burned-out home sites where the owners decided not to rebuild and elected instead to sell or move to a different area, put their lots up for sale and we're putting spec homes on those lots and got a couple of dozen homes under construction right now. So certainly it does breed some opportunity. Don: Not only opportunity, in this case, also give back to the community that is your city. Eventually, you want people to live in it and feel happy about it. Because that's home for you. Right? Brian: Yeah, people want the city to be put back the way it was. And we're doing our part to help do that and at the same time provide much-needed housing. When you lose 5000 homes in a city of 250,000 people it makes a real impact on housing demand, and there's a need for housing here. And we're helping to provide that which is pretty exciting. Don: That's beautiful. So, I know your real estate career is a very long one. You're one of the most successful entrepreneurs and syndicators on the show to date. I know you've amassed a portfolio of 250 to 300 million if my numbers are right and you've completed your half a billion in purchases of properties this year, am I right? Brian: Yeah. 2019 is a banner year for us. We crossed the half a billion-dollar mark and real estate purchase, which is an incredible accomplishment for me to even say that it is weird. I never imagined that in my lifetime I would do something like that. But we managed to pull it off. Now we've got a portfolio consisting mostly of multifamily properties. Our business focuses primarily a hundred units and up multifamily all across the US and we've got about 3000 units that we've done. Our portfolio now is about 250-300 million of value. We still do some single-family here and there. Of course, our fund where we're building homes in our city, so we're kind of a multidisciplinary real estate firm that started in single-family migrated to multifamily, but once you have developed roots and single-family, it's hard to lose those. Don: Yes. I started single families too, and let's be honest, it's fun. Even when you're doing commercial, it's still fun to do some projects there as well. So, let's talk about how it all started. When did you make your first steps in real estate? What was it back then? Because I know you've been doing real estate for 30 years, right? Brian: Yeah, my first real estate investment was a little over 30 years ago. In 1989 was my first real estate investment. Don: Just a side note. I was born in 1989. Brian: You were born? Yes. So, when you were busy being born, I was busy trying to find a house to buy and I made my first real estate investment. I didn't even own my own home but I bought a rental and fixed it up a little bit and a couple of years later sold that and I started doing some house flips, one house at a time and I was still working at the time and this enabled me to make a living on my job and then invest in real estate to build my future. Don: What a smart decision! So, one thing led to another and now you are in control of over 500 million worth of property in multifamily which is amazing. So, tell us a little bit about the first deal in multifamily. When was the first time you decided to buy a commercial property? Brian: My first multifamily was about 16 or 17 years ago. And it was here in California, it was a 16 unit apartment building. And what I was doing is I trying to figure out how to invest in commercial real estate, but I just didn't understand it very well. I didn't understand what the numbers meant or how to value it or how to evaluate it. Two rental houses that I accumulated through my house flipping business and flip one, keep one flip one, keep one. So, I had a couple of rentals I wanted to sell and I wanted to do a 1031 exchange and exchange up into an apartment building. It just seemed like it was an interesting way to grow the business and have more economies of scale and cash flow and all that.  So, I reached out to the real estate agent that was helping me sell my flips because he was a CCIM which is a certified commercial broker. And I said, "Hey, I don't understand any of this and will you teach me?" and he did. He taught me how to read an income statement and what to look for and all kinds of different things. And then not long after that, he's told me my first apartment building. I did a 1031 exchange and never looked back. Don: How was the first investment? Was it a good investment, a bad investment? Brian: Funny story is I just sold that property like two years ago. So, I kept it for a long time and I was able to do a 1031 exchange into an oceanfront condo in Hawaii where I rent that out and, maybe one day I'll even be able to move into it. Who knows? Don: We all have dreams. Being busy in real estate, you never stopped working. So, I know we talked a little bit before the show started. I asked you about the ways that you make money when you own such a massive portfolio, but most of it you syndicated. So, most of it, you had to raise money. And you had to structure a deal in which your investors are being paid first because I know you care about your investors. So how do you make money? How much money do you make on these types of deals that you're acquiring? What are your goals for the future as far as your financials? Brian: I started just entirely doing things with many of the resources that I could collect together. My first single-family investment was done with seller financing and then after that, I was like cash advance credit cards and getting signature lines of credit and all crazy kinds of things. I always tried to learn by putting my own money at risk. Then once I figured out how to do it right, I would go to investors and have investors invest. It took me about 12 years to start raising money from investors. And I did it for my single-family business.  First, I raised a blind pool fund and I split the profits 50-50 with my investors while we were flipping homes, and then when we move into multifamily, we're seeing a lot of money from investors. If you're going to buy half a billion dollars in real estate, it takes a lot of capital to do that. We were fortunate that a lot of investors were interested in partnering with us and putting up capital. So generally, the way we work it is the investors provide most of the capital for any multifamily acquisitions that we acquire. And in exchange, the investors get all of the profits until they've received a certain rate of return. Turn, once they've received that specific rate of return, then we start splitting in the profits and our splits usually start around 30% of the profits as the return goes up, then our split can get a little bit higher than that.  But generally, our investors always get the majority of the profits, and they always get paid first. So, this isn't a big cash flow business for us. I know a lot of syndicators out there, who'll just have a profit split day one where every dollar that comes in some goes to the investors and some go to the sponsor. Ours doesn't work that way, the investors get a preferred return where they get all of the cash flow until they've received a threshold return and then we start to share. So, we keep the lights on here by doing house flips and having other multiple streams of income. For example, us building homes here in our community and the fire damage lots is another source of income and we have a lending company which is another source of income.  Occasionally we sell our multifamily properties and that's when we get paid. We get a payday, not a paycheck. It's not quite as lucrative as many people would think, but eventually, you get there and profit potential is enormous but you never realized that until you start performing for your investors. Don: Okay, so let's talk about the way that you structure your deals with your investors. So, they're getting a preferred return. I guess it's 8% right that's the classic return that they get? Brian: Yeah, ours is 8% general. Don: 8% and then that's going to be a preferred return which means they get that right away as they invested the funds or a little bit after right it could be two or three months after, right? Brian: It doesn't mean anything, they may never receive it. If the dealer loses money and never makes money from day one, they never see a dime. But the way of preferred return works is that the investors get 100% of the cash flow until they've reached that threshold return and that's a cumulative return. So, if you invest today, in the first year, the deal throws off no cash flow, you get no cash flow. But if the second year it throws off 4% you get 4%. In the third year, throws off 8% you get 8%. In the fourth year it throws off 12%, you get all 12 because we still owe you 4% from year two and 8% from year one. So, if for two more years after that it still produces 12%, those two years, you're still getting 12% that makes up the 8% from the first year. And then after that, dropped to 8%, we'd start splitting the difference of what goes over 8%.  So, a preferred return is often confused with a dividend and it's they're not the same. A preferred return just means that you're first in line for all cash flow until you receive your hurdle rate. It doesn't mean that you're going to get distributions right away equal to the preferred return. It just depends on what the property is throwing off cash flow wise. Don: Yes, thank you for clarifying that. Now, I know the investors are putting all the down payment and the capital expenses for repairing the properties and improving the properties. And so, they also get a share of the profits of the entire purchase. So, you're offering your investor 70% 30%? Brian: First, they get 100% until you reach that 8%. So, if they haven't been distributed the full 8% through cash flow during the ownership period, then that's where you catch it up. As you take your sales proceeds, you catch up on your preferred return first. After your preferred return is fully caught up, then any sales proceeds remaining after that are split according to whatever the waterfall is. And if it's 70-30, 70% goes to the investor 30% goes to the sponsor. In our case, we have a couple of different hurdle thresholds where it's 70-30, typically to a 12. And then after a 12% return, anything that goes above a 12% return is then split 60-40. And anything that goes above a 15% return if you actually can ever get above a 15% return, if we do then whatever a little amount goes over would be split 50-50. That's the way at least three quarters to 80% of our deals are structured that way and of course, every once in a while there are slight variations on that theme. Don: So, at the end of the entire purchase in the cycle of purchasing a property, renovating the property, stabilizing it, and then you refinancing the properties or you're selling them? Brian: If we're going to hold over three years we like to refinance and return capital to investors. But if we can sell, we will. I always like to say that we're a buy and watch investor, we don't necessarily buy to flip and we don't necessarily buy to hold. What we do is we buy the asset we watch, we improve the asset, and we watch the market for the most optimal exit point. And generally speaking, the most optimal time to exit is going to be right around year two and a half, two year three and a half, right around that point after you've fixed up units and fixed up the outside, you've increased the income, you've pumped the value.  That's the inflection point where now the business plan would switch from things we physically do to just simply relying on the market for anything additional after that point. And when we reached that inflection point, that's usually when we like to sell. But if the market isn't cooperating and we don't think it's the right time to sell then we won’t sell. We can refinance, return some capital investors, sit on it for another year or two or three until the market is ripe for a sale, and then we could sell at that point. Don: What would you say you're typically improving the property like as far as the value goes? So, let's say you purchase a property for 10 million. After all the renovations and after improving the property, what would you say, percentage-wise, is the new value that you guys can bring the property to? Brian: On stabilization, we're looking for at least a 20% lift that includes, over and above the renovation. So, if we bought a property for 10 million, and then we put 2 million into it, or 12, then you'd be looking for somewhere around a $2.4 million increase. So, you'd be like 14.5, maybe 15 million to exit. So, we're looking for the kind of like that 20% or more lift within that stabilize period. Don: Of course, we got 2.4 million in profit, 30% of that is going to go to the sponsor or is considered profit for the sponsor after the deal is completed, right? Brian: First, you have to catch up with your 8% preferred return. So, let's say you distributed no cash flow during that period. For example, let's say it was a real deep value add and wasn't throwing off any cash. Now the first thing you'd have to do is give 100% of it to your investors until they got an 8% return. If it was three years' worth of time, then that's 8% times three. That goes off first, and then after that, whatever cash is left is what goes into the split here. Don: So, assuming you were cash flowing, and you managed to pay the preferred return during the entire process, and they always got the 8%, right? Hypothetically speaking, so you would be making 30%. Brian: That's right Don: Of the amount that you generated, which is 2.4 million in case of buying a property for around 10 million. Brian: And yeah, so you're looking at maybe $750,000. Could be your potential payday for the value created. That's right. Don: Yeah. So, it's just a matter of being able to get into a few deals like that every year, and then the profit as a sponsor, right as an indicator, the product It is down the line, a few years down the road. Brian: Yeah, that's exactly it. Like I said investors want to see their sponsor is getting a payday, not a paycheck. If you perform for them, then you do well. And if you don't perform for them, then you don't do so well. So certainly assuming you did your job right, the profit potential is pretty substantial. Don: But, something Robert Kiyosaki changed my life twice. Once was when he wrote 'Rich Dad, Poor Dad.' We all did read this book and got influenced by it. And if you didn't, then you should, because it's like I would consider that the Bible for real estate investing and investing in general. The second time he changed my life was actually when he wrote his book 'Fake,' which he talks about how money is not real and how money is a depreciating asset and why you should never have it, why you should never hold any money. And that's so true when you are trying to get wealthy and I think it's something you understand once you've made some money in your life because you realize that it's not real. But the things that money can buy, it just pays the bills. But if you try to get rich, then the only way to do that is to equity, which is what you're doing right? Brian: That's exactly right. Don: I think once this light bulb goes off and you get that principle, then you're okay with putting all the work and assembling a deal and improving the deal and stabilizing these properties that you're buying, just so you can get wealthier down the road. Because in theory, you are already wealthier because you have equity in the property. So, it doesn't matter. Brian: Yeah, you've got the equity and assuming that the market doesn't turn against you and take the equity back from you, that's happened before too. You saw what happened in 2005 through 2007. Equity is fleeting, so it's 100% true, everything you just said. But there is something to be said for keeping some cash for a rainy day and always having reserves and kind of living a little bit of a low leverage lifestyle. The people with the most leverage were the ones that got hurt the most. And it's funny when you live through an economic downturn like I have and managed to survive it, you see the risk that leverage ads and so you have to strike a good balance and you want equity and you want to use debt smartly to help improve your position.  But at the same time, you don't want to over-leverage and you want to keep a safety net. You get it, you guys have built your business completely with equity without debt here so far and seeing what that's enabled you to do. And now you can use debt smartly, to help grow your portfolio. And I think everybody needs to watch that as an example of how to do it the right way, and the safe way. Don: Yeah, I think the main reason why we were able to pull this off was that we were making money in two streams, right. So, one stream was our business, our wholesale business, which created nice paychecks and nice paydays the way you call it before. And it's an accurate way to call it because when you make paydays, then you're able to buy properties and create wealth. And so that was the second way that we've created the portfolio that we own right now, through equity. The equity is the transactions that we made. We never live a lavish lifestyle. And it's different than most people here, Miami because, I don't know if you've been here but if you drive in the streets here, then you're going to see a Ferrari or a Lambo everyday second turn. And that's a lifestyle in Miami.  Being a successful investor here in South Florida, we were able to resist that temptation, to invest the money where it should be parked, which is, in my opinion, real estate and stocks and property and equity. There's a beautiful saying that affected me tremendously, "Rich people are busy making money while poor people are busy showing off money that they don't have." Brian: Right. Yeah, you could certainly see a lot of evidence of that around, that's for sure. Don: Definitely. And especially today with social media, everybody's trying to show off, everybody's trying to faking it till they're making it. You're not going to make it, you're going to blow your first 10K on a Rolex. You should be blowing it on education. That's not even blowing it, that's investing and that's the difference, right? So that's what I think like an investor as I'm growing. Of course, I still have a lot to learn and I interview people like you, people that have made it bigger than me, the people that come to the show they have the same perspectives and the same lifestyle as well. Brian: It's just a matter of prioritizing and realizing that the first thing you've got to do is invest for your future. And it's like I spent almost every dime I had investing in more real estate and more real estate. And so, it's enabled me to accumulate a fairly large portfolio of rental homes just for my own, basically, my retirement plan. I don't get any cash flow off of them because I had them all financed on 15-year loans. So that way, they'll be completely paid off when I'm ready to step back and slow down. And it's a sacrifice now because if the property needs to be repaired, I'm probably pulling that repair out of my pocket and kind of negative cash flow, but I look at it as like a deposit into that savings account, right? And then eventually I'm going to have 40 or some rental units that will be completely paid for and cash flowing for me with no debt and right at the time, I would need it the most. So, it's sacrifice now, but it's a payoff later. Don: Definitely. So, let's talk about the future that a bit since we're already talking about it. What would your thoughts on the multi-family market right now and where it's going because I know it's a little bit overheated, a lot of people want to buy multifamily? And I know people buying properties for five and a half cap rate, which is pretty expensive in my opinion. What do you think about the market and where it's going? Brian: Yeah, you're right, the cap rates are low. And we're buying stuff at five and a half and six caps too. So, I get it, it's where the market is right now. And certainly, real estate is desirable, but it's desirable for a reason. And then, the reason is supported by fundamentals. And that's why pricing is so high right now. And one of the most common questions I get is, what inning are we in and everybody wants me to say that we're in the eighth or ninth inning and this is all going to change soon there's going to be a big downturn, you're going to be able to come in and scoop up properties at a big discount. I just don't believe any of that's about to happen, and doesn't matter what anymore because anybody knows that a game can go into overtime and a game can be rained out early, and can't just say that every game nine innings.  So, we're not at the bottom of the cycle. And if we are at the top, what does the top look like? I think that a top when we reach one if we haven't already, it just looks like a plateau in pricing where we take a pause and the economy catches up to where we are and valuations are still fully supported with incomes right now, even where they stand today. So, I don't think there's going to be a big downturn or a big buying opportunity anytime soon like some people are holding off for. When that does happen, maybe prices have gone up another 20% then they fall 10%. And if they would have got in today, they would have made 10%. But instead, they're going to buy them and gain nothing. So, we're still buying and I think one of my defense mechanisms is to buy in strong markets that have population growth, job growth, and income growth and that gives me a hedge against the downside. I think it's important to do that. It's tough out there. We have to look at about a thousand deals to buy one. Don: It looks like a shiny market. Everything's growing. The population is growing. The jobs are growing and so yeah, everybody would probably want to buy it there. But we're already talking about that, what would you say that market is? Where are you looking right now for properties? Brian: We're looking in Phoenix, Arizona, Las Vegas, Nevada, Atlanta, Georgia, northern and central Florida, specifically Tampa, Orlando, North Carolina, such as the Research Triangle market, Charlotte, a little bit here and there of Texas. But I think Texas is way overbought. So, we're kind of scaling back in Texas. We still own there, but we're net sellers in Texas. I love to find something in Nashville, but there's very little product coming out of that area. So primarily, I think, Arizona and Nevada, Georgia and Florida are primary markets. Don: So, you're looking at a lot of markets, and how do you analyze all the deals that are coming your way? I guess you got to have some help, right? Brian: Yeah, we've got a fairly robust team here. I've got two other guys on the acquisition side and one analyst. So, we've, every time a new opportunity comes to us, my chief investment officer will do a quick prescreen. If it passes a certain series of tests, it goes to our analysts to build a financial model. And then it goes back to our chief investment officer or our CFO who is like a co-Chief Investment Officer. And then they review the deal and tour it and talk to the brokers and run the comps and tour the comps and do all those other tasks. Our businesses grown pretty substantially, we're vertically integrated. So, we have our own management company and we manage our assets, which means we have employees on the ground, in all the areas where we operate.  So for example, we toured a couple of assets the other day, and it just turns out that we had our manager go with our acquisitions guy and manager knows the manager of one of the properties because they used to work together at one of our properties actually, and so, we have kind of a little bit of good rapport there and can learn more about the property because those relationships. So, we've well ingrained in the markets that we're in, we have people on the ground and the markets that we're in, and we have full control over the whole process. So I'm lucky that between me and my CIO, my CFO and the CEO of my property management company, between the four of us, we have 100,000 units of multifamily experience going back as long as 40 years and it gives us a good leg up on being able to stay on top of the markets in the assets. Don: That's not something you can easily find as an investor or a passive investor who's looking to invest with a sponsor. I mean, your team sounds very professional and experienced and you guys are exploring many markets and have years of experience. So, if I was looking to invest as a limited partner, I would give you guys a call. And speaking of which, if anybody wants to connect with you and get to know a little bit more about what you're doing and your projects and your future deals, what would be the best way to do that Brian: Probably the best way to reach us is through our website. Which is PRAXCAP.COM or a company's Praxis Capital and our website is P R A X C A P. C O M and on there, there are contact forms and you can fill out and our senior vice president and investor relations will set up phone calls. And we'll get to know you and establish your relationship before we start talking about deals. That's probably the best way. You can also find me on biggerpockets.com which is a real estate forum website where people ask questions and get answers about all kinds of real estate topics. I'm pretty active there and love to answer people's questions on that website when they post in the forum. So those are probably the best two ways. Don: All right, Brian, awesome. Thank you so much for that. And thank you so much for the insights that you gave us today. And of course, most importantly, time is the most valuable asset and therefore I want to thank you for investing the time to come to the show today. We appreciate it. I hope you're going to have a great day. Brian: Thanks, Don. I appreciate you having me on the show. I had a great time and humbled and appreciative to be a part of it. Thank you for having me on. Don: You're welcome. Thank you very much, Brian. Brian: Sure thing. Lady: Thanks for listening to the real estate investing podcast with Don and Eden. Stay tuned for more episodes. Till next time!

In today’s episode, we have the pleasure of featuring a well known & respected mobile home park guru, Kevin Bupp. He entered the real estate world at the young age of 19 where he started with single-family residential real estate. As time went on, he learned about commercial real estate and grew his portfolio- right before the crash of 2008. Like everything, you live and learn- and that’s what Kevin did. He did some soul searching and wanted to focus on his hobbies of health and fitness. He took some time off of real estate and built a company around custom cycling clothes and ran a social club 'Running For Brews.’ However, Kevin still had that real estate fire in him and his vision changed after a lunch meeting. Kevin became intrigued in mobile home parks and he owns several of them throughout the US. In today’s episode, he discusses how and why he chose mobile home parks in this second round of his career, the factors of a good deal & how to find them, and the importance of being in a good headspace.  Episode Highlights: How Things Affected His Business In The Early 2000s 2012 Tragedy And Onwards The World of Mobile Home Parks Where To Learn About Investing In Mobile Home Parks   Connect with Kevin Website: Kevinbupp.com Company Website: sunrisecapitalinvestors.com Podcast: Real Estate Investing for Cash Flow  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  TRANSCRIPTION  Intro: Hey guys, today I'm very excited to discuss one of the most intriguing asset classes and one that is known to have caught my attention at least. And of course, I'm talking about mobile home parks. Mobile home parks are one of my primary targets as an investor because I truly believe that to create long term wealth, there is nothing better than buying a piece of land. And if that land also happens to be a cash cow, then I'm all in. I think mobile home parks are just that. So, in today's episode, I'm going to host Kevin Bupp who has a truly remarkable story and is considered a guru when it comes to mobile home parks. So, let's get going. Lady: Welcome to the commercial real estate investing podcast with Don and Eden where we cover all aspects of real estate investing with special attention to off-market strategies. Don: Alright, hey, Kevin. Welcome to the show. Kevin: Hey, Don, thanks for having me. I'm looking forward to it. Don: Of course I was looking forward to it as well because I know you're one of the best mobile home park investors out there. So, I'm very happy to have you on the show because it's not a secret that I'm very interested in mobile home parks. But first, I'm going to ask you a little bit about your career and how you got started so my audience could get to know you a little bit better. Kevin: Sure. Mobile home parks have been our focus for the past seven years. However, it's not really where I got started. Like a lot of folks, I got started in single-family residential real estate. It was introduced to me or I was introduced to it back when I was 19 years old. Ultimately took me about a year and a half to buy my first property and spent the next couple of years following that introduction to residential focusing on building a single-family rental portfolio. And that's the direction of my mentor at that time. That's exactly what his business model was. So, I just followed it to a tee. We would only ever wholesale or flip a home when we needed to build up capital reserves. But the long term intent was to always build a portfolio for long term cash flow. At some point during the first couple of years, I was introduced to the world of commercial real estate more specifically multifamily property and so we started diving into the multifamily space as well. This is back pre-2008. This is back in 2002-2007, leading up to '08. So, we had built quite a large portfolio of single-family properties and instead of acquiring apartment complexes as well, along with other miscellaneous commercial real estate. Don: Sounds risky build up a big portfolio just before 2008. So, did it end well? Kevin: Well, if I had a crystal ball, I surely would have planned slightly differently, right? No, it didn't end well at all. We're down in Southwest Florida pretty much ground zero, one of the ground zeroes for the real estate crash and crisis. It was a very challenging time. The single-family market down here suffered greatly, not just from a value perspective, all of our properties have a lot of equity. We had a very low leverage point we thought was a very conservative leverage point in our single-family properties. But what we found is within a year period of time slightly less, most, if not all of them were upside down in value. Don: It's like the worst nightmare for every investor. What happened to you? You were investing in single families in Florida before 2008. That's the worst-case scenario. Kevin: Yeah, and it wasn't just the values it was a rental, the occupancy got affected, a lot of people are leaving Florida back then there weren't jobs, a lot of the jobs, were heavily relying on real estate, the growth of real estate, you know, building and development practices. So we had to hit to our rental premiums that were charged, and we had to start offering concessions, and your rents don't always continually go up, there are certain points in times where rents can be affected, and you might have a little more of a challenging time occupying your units will take longer than usual, you might have to give some concessions away, couple free months of rent or a discounted rent for the first couple of months. So, we had to do that, we had to do all the above.  It just was very, very hard to maintain the status quo when we had a portfolio that was underwater. In addition to that, it was negative cash flow, and it went from positive to a negative cash flow standpoint, you can't sustain that for very long least we couldn't. I didn't have $20 million sitting in the bank that could just keep feeding this beast and so we hung on for as long as we could. But ultimately, we were forced to essentially give back a lot of our portfolio to the banks. At that point, the banks didn't have the loss mitigation departments. This was very fresh. Most banks were forced to create those departments within their company to do workouts and loan modifications. However, that did not exist. The first year when things started going completely haywire, and so none of the banks were willing to work with us whatsoever. That's the last thing they wanted to discuss was that loan workout. We really did what we had to do and we tried to hold on as long as we could and ultimately had to get back a lot of what we had built over the years. Don: Okay, so when you say give back, I assume it was a deed in lieu? Foreclosure, right? Kevin: We had hundreds of properties. So, deed in lieu, some of the banks were so in disorganization at that point that they just didn't, there was a way we could speak with just ultimately went through the judicial process and went through foreclosure. We would short sell whatever we could just that we tried to work with the banks as much as possible. We were here, we were open, we're open-minded and willing to work with them. And so, some of the banks worked with us through short sales, we did that.  Others again, there was no communication, there was no dialogue and so, those ultimately went through the judicial foreclosure process somewhere deed in lieu or willing to do whatever we could to ease the process on both sides. But again, there wasn't much organization with a lot of banks in the first couple of years of the crash. Now every bank has a loss mitigation department. There are people, there's a dedicated department to deal with loan modifications and doing reworks with borrowers. That didn't exist. It just didn't exist back then. Don: Of course. Going a little bit forward, then it's 2012. I know you made your first mobile home park deal, right? Kevin: That's correct. Yeah, took a couple of years off a real estate. Well, I shouldn't have I kind of kicked myself in the butt now. But it was damage control for a number of years. It was very hard to see the light at the end of the tunnel. And it's not a sob story. I've learned a lot from it. I lost my personal residence and got bank accounts got garnished. It was a very ugly personal time for me. I'm still young at heart today but I mean, I was in my 20s. And I'd never gone through something like this before. I've only ever experienced the positives of real estate. It was a lot to consume and to digest. I knew that I needed to focus on my health and fitness. And so, I started a few other businesses that were directly related to the health and fitness industry and that allowed me to number one, create some revenue and income for myself because I was broke. I mean, I'd have anything and my bank account got garnished.  Don: What kind of business? Kevin: I started two different companies. One was a custom clothing company. I was a big runner, and I'm a cyclist, triathlete. And so, I was already ingrained in that community. And there was a huge need for custom cycling clothes and also running clothes for big events that we got into the sublimation business. I knew nothing about it before just watch some YouTube videos and did a bunch of my research and ultimately built a printing company. In addition to that, I love craft beer, and I love running as well. I thought there might be a great marriage. This is back again in like 2009 craft beer was kicking off. It wasn't as big as what it is today, but it was on a roll.  So, I started a social running club that was called 'Running For Brews', and once a week and a set location, we meet for a social run. And afterward we have been at a local brewery and we ultimately ended up opening up 45 locations throughout the country. The bars we charge them for basically bringing people every week to the bar so we get paid based on the amount of attendance we had. It was a fun business. It was one allowed me to be in direct alignment with my interest and also stay healthy and fit as well. Because again, every week we were meeting and going for social runs, 5K's, 10 K's, what have you. And so, it didn't kill the world. We weren't making millions of dollars with it but it was a fun revenue-generating business for us. And then the printing company as well. So those two things allowed me to really tie together my hobbies, health, and fitness and also generate income while I was trying to work through the mess that I had been experiencing with the real estate downturn. Don: Nice. Yeah, I think it's very important to do things you love. I've had some rough times as well. And then I found out that my hobbies are the ones that really saved me and got me back to become a lucid person again. I like to skate, you would never know if you see me dressed up work, you'd never know. But if I need to clear my mind, I just go out and skate and do something. I'm sure you've done that and that helped you a lot with mood and willpower, right? Kevin: That's the one thing that I realized is that everything else was out of my control. My credit was shot, I was getting calls every day from creditors. There were a lot of things that were outside of my control. The one thing I could control was how I felt and how I dealt with these challenging times these days and months that were lying ahead. Being in peak shape, both mentally and physically surely helped me get through those times. I mean, if I had just sat around and ate a bunch of cupcakes and drank a bunch of beer and got overweight and lazy, I'm sure my mental fitness surely would not be in tip-top shape. Don: Let's talk about 2012, where you got back to real estate after the trauma that you've been through with establishing a very serious portfolio and then losing most of it in the crisis. Then you got back to real estate, which is I believe, you know, once you do real estate and you're successful, it doesn't matter what happened, you going to get back to it, right? Kevin: Yeah, that fire was inside me. I tried to pull out or once in a while during those tough years, and I wish I would have looked at it differently. I think if it ever happened again, I would have a different perspective. And everyone knows the old saying of ‘buy when there's blood in the street’, it's just really hard to put that theory to work when its blood that's out in the street, right? It's really hard to think about it when you're inside that bubble. But I think looking back I did the best I could. And I had that fire burning, things were looking better. I was in a better situation all around. I've gotten married to the love of my life, still married to her today, she dealt with me through those downtimes. We got married in 2010. So, she was with me during some really hard times. Life was looking great, didn't have good credit yet. Still, we're working through some financial challenges, everything else was just lining up perfectly.  I knew I would get back into real estate, I knew I wanted to get that fire just glowing again. I look back and reflect on what I would have done differently or what mistakes I might have made back during my earlier years prior to the crash. What would the second round look like? Was it going to look the same or am I going to change my business model a little bit? What I realized is that I put a lot of time and energy into buying 120 plus single-family properties for the rental portfolio. I wasn't married, enjoyed what I did, but I put a lot of long hours and which is fine. I mean, you got to work your butt off.  However, I knew there was a more efficient way kind of reflected back and I compared to my apartment complexes that we owned to the single-family properties and realize that we didn't put nearly as much effort into acquiring 500 doors, apartment doors as we did acquiring 120 single-family rentals and those apartments to seem to kind of chug along, whereas the rentals were scattered amongst three different counties. They were inefficient to operate. I just knew that moving forward, I didn't want to have to rebuild a single-family home portfolio. It wasn't a good fit. It wouldn't allow me to scale fast. I wanted to regrow things or rebuild things much faster than I had done it before. I knew that multifamily is a way to do that. I understood residential real estate.  I knew that apartments were going to be a good fit for me and during that kind of journey of learning how the landscape has changed even the apartment space, I got introduced to a guy by the name of Randy. Randy owns mobile home parks here in Florida. He owned three of them had been a banker for his entire life, did a lot of lending on mobile home parks here in Florida and ultimately retired from the bank and went out and bought three fairly large mobile home communities and had lunch with Randy were introduced by a mutual friend. I had lunch with Randy one day just not interested in mobile home parks, but just really to meet someone new and I left that two-hour lunch meeting with Randy with a newfound interest in the mobile home park.  He piqued my interest in many different ways that I had never even thought about as it relates to investing in parks and I left that meeting confirming that I was going to give the next 12 months of my life to learning everything I could about mobile home parks, not just learning it, but going on actually putting the use of buying a park. So, I was going to buy a park and either prove or disprove all the great things that Randy had said about the niche. So that's what I did. I went out and did that. So, this was like 2011 when I met Randy, and so in late 2012, bought our first Park up in Atlanta, Georgia still owns it today.  The smaller community, it's the smallest thing that we own. However, we bought it at the right price, it's a great location. And the thing kicks out money every month without fail, bought that one, really enjoyed how it went. Bought the second one, which up in North Carolina bought a third one bought the fourth one and the story evolves forward seven years later, got communities and 11 different states right now and this has been our core business for the last seven years. So really, it has been very lucrative for us, it has been a lot of fun. It's a phenomenal niche. You've come into it, Don. I know you're looking to buy your first park so there's been a lot of things that have piqued your interest in this niche. Same things that probably peaked mine seven years ago. And we just took it and ran with it. So that's where we're at today. Don: I could tell you what I'm thinking about mobile home parks and where I'm coming from, I'm coming from owning a single-family portfolio as well. I'm also developing 30 units here in Hollywood, Florida. I'm developing the entire thing from the ground, it's going to be in A-class building, it’s going to be great, close to the beach. So, it's a great area. But somebody had a discussion with me, which also piqued my interest in mobile home parks for a few reasons. I can tell you what I'm thinking, and I want to know what you're thinking about this because I know you're the expert of them. So, here's what I'm thinking. I'm thinking that there are a few reasons why I'm interested in them. The first one is because they're not zoning for them anymore. So, it's just a fundamental of supply and demand. That's like the most basic thing in the universe. Supply, demand. If you have something that has more demand than supply, then you should try to get that thing for a good deal. So, they don't zone for them because they don't make as well as an income for the cities, as much as the multifamily would as far as property taxes from what I understand, maybe there are other reasons. So that's one reason.  The second reason is that it's just not getting any cheaper and it's not getting any easier to find affordable housing in America. Some so many people have section eight vouchers but can't find homes and the population is growing. So, I don't see any stop to that, I just see how you know, we keep growing as far as that number and the gap between the rich and poor, that's not going anywhere as well. So, when rents are going to get compressed, how compressed are they going to get so that mobile home parks are going to go down in the price? That's the reason. The last reason is that its land. So, it's God's money. When bitcoins replace dollars and when the currency changes in the next 10 years or 20 years, the land is always going to be worth a lot of money. I think buying a mobile home park, close to downtown is a long term investment. It's the best investment you could make, because in cash flows and it's going to appreciate in a tremendous way. If somebody who owns a car dealership is going to want to buy our lot because there is no other land to buy it and they could pay you $15 million in 20 years in today's money. That's what I'm thinking. Am I right? Kevin: I think you hit all relevant points. And it's a great covered land play. We're not a speculative buyer. So, we don't buy our mobile home parks with the intent that there's going to be a higher and better use in 10 or 15, 20 years, we buy it for the income that's being generated as a mobile home community. However, we look at the higher and better use as icing on the cake. If you're within the path of progress or anywhere in its path, even if it takes 15, 20, 30 years to get to you, that land at some point in time should have a higher value than what it does today.  Having a mobile home or mobile homes on that site paying you lot rent. People need a roof over their heads. It's a great way to cover the cost of owning that land and generate some income until that higher and better use comes along. So now, I wholeheartedly agree. I mean, it's a parking lot. It's kind of the same idea behind investing a parking lots like you see parking lots is urban core districts, downtown business districts. What a great covered land play. You've got basically a demand for parking, you got a prime piece of real estate at some point in time or another, those surface parking lots are going to have a much higher better using that could be high rise office building apartment complex, what have you, and I feel mobile home parks are very similar nature. Don: Okay, so let's talk about your criteria and your experience. So, what have you learned about investing in mobile home parks? What is it that you're looking for? Like when you see a deal, how do you know it's a good deal? Kevin: A good deal has a different definition for everybody. A lot of it depends on Is it a long term strategy, is it a short term strategy. For us, we like to look at things as though we're going to own them for 7 to 10 years if not longer than that, ideally longer than that, right? We have bought and sold things in the past. However, going into them, we pretty much decided that, that is that type of deal. Like we're going to get in here turn around, and we're not going to keep it for whatever reason that is we're going to look to flip it here in the next year or two. But as far as long term strategy, we know number one, speaking about the demographics, we want to be an area that is economically sound, that doesn't have a diminishing population to it, we want to be an area that has a strong median home price, strong median rental price as well, so that we know there's a demand for affordable housing.  You know, we wouldn't have been an area that's got a diverse employment base as well. We want to know there are jobs available for our workers. Generally speaking, that's the demographics that we're seeking. As far as the deal itself, there are certain targets we have investors that we have to meet the demands of and so for us, we look at what kind of cash on cash return in this park generate, not just from day one, but look at year one, year three, year five, you know, what does the long term projection look like in this community? Where can we get it to go, where's the value add components and what's realistic of what we truly achieve in that given time, and our target then between year one and year two, is to be somewhere in the 12% to 13% cash on cash range, so that number is kind of changed over time.  I could tell you that things have gotten a lot tighter, cap rates are going to press quite a great deal in our space, and the types of deals we were buying four years ago, you're not seeing as much of anymore back then we could easily be getting 15%, 16%, 17% cash on cash returns, sometimes upwards of 20% cash on cash returns quite often. It's getting a lot tighter lot harder to find those types of opportunities today, however, we still like to hit those lower double-digit cash on cash returns between year one and year two, and sometimes sooner, sometimes it might take a little longer. But that's really what the target is that we're reaching for. And that's a leveraged return, that's assuming that we're going to put some type of debt in place. The normal debt that we underwrite with is 70% loan to value 20-year amortization. Unless we know that it absolutely from day one will go either with CMBS or a Fannie or Freddie loan. In that case, typically, it's going to be in the 75% loan to value range in a 30-year amortization. Right now the rates are somewhere in the low foursome are actually below four, depending on what rate of an asset it is. So I'm not sure if that answers your question, Don, but what we're kind of looking for it doesn't mean that folks are out there hunting if it doesn't meet the criteria I just gave you, it's not a good deal because that just means it's a good deal for us and that actually fits our buying criteria.  As far as like quality of assets, I say the one big thing that's changed for us over the last couple of years, not that we would ever buy low-quality assets, however, we're much more picky with the great asset that will buy today than what it might have been maybe five years ago. It's one of those things from a bandwidth perspective, you're always you're buying or dogs wanting to start parks. it's manageable when you're small when you've got a few communities, but just know that those dogs, if they're in a primary that might be different because you can always change the tenant base if you've got just a phenomenal location area. But if you're an okay area, but you got a low demographic that you're serving in your park, it might not ever be more than what it is there today, you know, and so you might just have a little bit more of a challenging demographic that you're serving. And it gets to a certain point where that's just not scalable. At least that's what we found when you're putting out a million fires left and right because you got an older park, it's kind of got a rougher tenant base that is just very demanding.  You're always fighting them to get your payments on time. It's got a really old infrastructure that you're always repairing. Your bandwidth gets stretched very thin very quickly if you tried to own 10, 20, 30 of those parks, and so we're very particular nowadays with not just the quality the park itself above the ground, but also below the ground. What does that infrastructure look like, be very particular about what's the useful life that's there is there 10 years left in the water and sewer lines? Are there five years or 20 years? When was the park built? How about the roads themselves? What condition they're in? And how are they going to hold up over time? So we really put a lot emphasis on that, because we want to know that, number one, the tenant base that we're serving isn't going to be overwhelming for us that they're going to be just a good solid tenant base, but also the park itself, the infrastructure that we're not going to get surprised 10 years down the road with some major infrastructure improvements that we hadn't planned for. Lots of parks out there were built 60-70 years ago. Pipes don't last forever, sewer systems don't last forever, wastewater treatment plants don't last forever, and they're incredibly expensive to replace. Anyway, that's just some of the things that we look for out there searching. Don: I want to ask you a few questions about that. Because from the way you say it, it looks like you guys are looking to buy parks that are already established, occupied, are in good shape, but how could you get like that? Kevin: Yeah, give you an example. We got a parking contract right now, this is probably a perfect example for us. There's a park down in Texas, we're not closed yet, we're in contract for some I'm not going to mention the actual city and state or I'm not going to mention the city but it's in Texas. It's 204 lots and total. Still, this is a good example to use. So, this park, it's got 151 mobile home pads and then the remainder is RV pads, which is kind of a hybrid so it's not 100% mobile home. However, the RV-ers are long term. There are some folks that live there for like three, four years, it's very much a permanent type establishment. The mobile home lots of 149 of 151 are occupied and 26 of the RV lots of the 51 are occupied.  From a revenue perspective, the park is fairly stable, the lot rents are at 375 they could easily go to probably 450 so it's got some move to run on the rents already. It's got city water and sewer it's already being built back so there's not a lot of recapture or revenue to be had thereby building back the water and sewer. They do have some recapture issues but not big ones, you know, things that are fairly easy for us to go in and fix probably a couple of water leaks and a few people that aren't paying their bills as they should be. But generally speaking, that upside has been kind of removed as well. However, where the upside in this park lies, is it looks like crap. The infrastructure is good. The water and sewer are good. It was built to the right specs. It's laid out well, however, the family that's owned it for the past 40 plus years, they just haven't enforced any rules at all. These are all 10 own homes.  There are no park own homes here. I'd say maybe only a handful of homes have actual skirting and so the park looks loud. Hell, it looks horrible. The roads aren't in great shape against got good infrastructure there it was planned out well as far as layouts are concerned. All the lots are a big enough size to where they can fit. newer model single-wide some double-wide. It's got paved two car parking in each home. However, there are cars all over the place. It's more of a cosmetic type deal for us to go and improve other than raising the rents themselves. So, our intent with that one we're buying it for $5.65 million. More than likely what the first 12-18 months will look like there is trying to fix the minor water recapture issues that are going on.  There's about $65,000 of water and sewer that's going somewhere and it's not getting recaptured. I don't know if it's a big water leak or what but we're going to fix that. Normally, it's pretty easy to kind of narrow down what the issue is there either if people aren't paying it, or there's a water leak in the water is going into the ground, one of those two things. We're going to do that we're going to go in and skirt every single home. It's going to cost us $150,000 to do it, but it's going to make that park look like a completely different part just by doing that every home will have a new skirting unit the home itself looks kind of like crap. It will look a million times better with skirting around it. We're going to do a massive community cleanup. There's lots of untagged vehicles, lots of crap around the houses, we're probably going to spend upwards of $50,000 just by buying renting 30, 40 yard dumpsters to get in there, get some labor in there to help people clean your mess up that they've created over the past 10, 15, 20 years.  We're going to fix the roads by about $150,000 worth of road repair that is needed in that park and then the RV lots there's 25 that are empty right now all the hookups are there. I did some test ads to see what the demand was for a one-bedroom, one-bath park model home they'll park miles like one of the small little 99 square foot homes. Within 24 hours we had like 55 inquiries on Facebook so there's a great demand for that type of product in that marketplace. So, we're going to go by 26 park model homes and fill in those remainder of RV pads or if any of the other RV lots turn in the meantime we'll bring in a park model home. That way it looks more like a mobile home park then it does a mobile home park with an RV section with like fifth wheels and travel campers and things like that. So, we'll do that over this period of the first 12-18 months. We'll get rents up. I don't know if we're going to push them to $450 relegate but we'll get them over $400.  Now here's the best part about this. It's in the best part of town it's a right down the road from a Country Club. It's right behind. It's probably one of the nice neighborhoods in the area. All the major retailers are within a block away so if you got a good arm you can throw a stone that far. It's very close by so it's in the best part of town however it looks like death. But the revenues coming in such a desirable area and the schools are so good right there that the park is full the vans full however it looks horrible, and so it had been on the market for a while for a much higher price and it just hadn't sold because it looks scares people away. However, I can see the underlying beauty because I know that the location in the market changes everything. I can easily take what's there now because I know there's enough people that are banging at the door to get in saying, ''Hey, I would love to live here and raise my family here because it's such a great part of town and great schools," that if I lose some of the bad people that are there, I know I'll fill those places right back in with good people.  However, this park was in like the other side of town, it wouldn't be a good deal to me at all, I would never be able to make it look better than what it does today. Even if I put money into it, it would revert to its old self very quickly, and it would never be a strong operator. Collections are phenomenal revenues high, we can get the rents to $450 within the first two years will bail turn around and sell this market we choose to pry for slightly over $10 million is what the evaluation will come in at. If we fill in the park models, get the lot rents up to $450, fix the water recapture problem and aesthetically improve the park which will help drive down that cap rate on the sales side that it becomes all day every day at $10 million parks. Don: So okay, so let's talk about the numbers. So right now you're buying it based on the income I assume, right? Kevin: Yeah, it's about a seven cap. Now we're buying it out. Don: It's a seven cap. What would you say right now is the renovations that it requires as far as the dollar amount. Kevin: About a half-million dollars. Don: Half a million. So, you're buying it for 5.56? Right? Kevin: We're buying a 5.65. And then we got about a half million. Yeah. Don: Okay. You got to be a little bit over 6 million, right? Kevin: Correct. Don: Okay, so how are you going to bring the park into a valuation of 10 million? Is that because you're going to sell it on a lower cap rate? It's almost an institutional park. Right. The buyer for that is institutional. Kevin: So, it would it will be when we're done with it. Yeah, right now, not even close. But it will be when we're done with it. We evaluated a six and a half cap was where we ran it at. Don: That's your exit point? Kevin: Yeah, that'd be the exit point. Things in Texas right now in this market are trading for like five and a half cap. So, but we were low conservative with the exit there in case it fluctuates. Six and a half cap is what we used. Don: What's the NOI of the park if I may ask you right now. Kevin: Yeah, I don't know. Don, I couldn't do that. I'd be lying if I gave you a number right now. Don: But you're saying you could increase the NOI by roughly 35%? Kevin: That's correct. From a rent increase from a, there's like $120,000 worth of payroll in this park. So, there are lots of family members working there, there's a lot of expense line items that can be shaved down as well. Payroll being one big one. As I said, there's about a $65,000 water recapture issue that's happening. I'm not sure where it's going. It's either people aren't being charged, or there's a pretty massive leak.  Just between that and payroll alone, there's $100,000 of additional revenue to be had. Filling in the remainder of the RV lots that are there with park model homes is a major boom, thinking assuming that you're in the 450 range as far as lot rents are concerned. Adding those 26 homes there is a major boom for that park as far as revenue and then if you raise the rents on the remainder of the park, and you get to that $450 mark, which is $75 above where it's at today. Let's just say that on all 200 lots in that park that we were able to achieve another $75 of revenue so that's another $180,000 a year of annual income that doesn't have any costs associated with it other than a rent letter increase going out. There are no additional costs associated with achieving that additional revenue. So just between that and shaving off some of the lifetime expenses, there's $280,000 of additional revenue there to be had. Don: Okay, so I want to ask you a question regarding buying a park that is currently in such a bad situation and condition that it doesn't cash flow, or it does, but not enough. So, it could be, you know, sometimes don't have negative cash flow. So, is that something that you recommend if there's a solid value on them, or that's something you would never do? You always want to buy something that cash flows right now. And so, when you buy it from day one, you already make money? Kevin: This one will cash flow. So, this one will support itself. We're not going to pay for all these improvements out of the cash flow. That's just a bad plan altogether. So, we're going to put up all this capX money as of right from the get-go. This is going to be funded right in the beginning. So, this one, not that situation. This one supports itself. Would we get into it if it didn't support itself? Probably not. It's just there's a lot of risks there on that size of a deal. If it truly is a negative cash flow. I feel very confident about it, but the timing gets Off relatively quickly, when you have such a major renovation project, just lining up crews and contractors. Missing a year off deadline on a big project like this is not unheard of, it could be very commonplace.  So, it gets very expensive if you're truly losing money on a monthly basis, and you missed the target by a year of when these parks ready. So, if we're off by six months or a year, the park still makes money and still makes sense. It's still generating good levered cash on cash return while we're making these improvements. Now, there's a park we got in Georgia. Going into it, we knew number one, we didn't want to be in that marketplace. I didn't like the market all that well. However, what we're buying the park for, it was kind of like, there's no way we can lose here, especially based on the time that we can get the timing right of getting this place cleaned up and renovated, some of these homes so that we should be able to get in and get out and should have little to no risk associated with it. That's what we did took us about 18 months to get in and clean the place up.  We did it with the intent of not taking any cash flow out the place didn't pay for itself. I guess we probably could have taken some cash flow at some point or we just put it all back in property and got it cleaned up, got it stabilized, and then turned around and sold it to a cash buyer and moved on to the next. So that one, we felt confident we had such a low basis in it. However, it's your first deal, and you gotta make it work, I will probably move away from something like that, man, there's just so many things that can go wrong. And it's like you've got all your life savings sunken into this thing or if you got your money and your investors money, but yet, you've never actually done a deal like that before, and you don't have a plan B, then I think it's incredibly risky. I think there's easier ways to make money than to do that, the model I just shared with you. However, I've got experience doing it, I've done it before and allow the money than deal with my own money in a wouldn't have sunk me if that deal wouldn't have gone as planned. And again, our basis was so low that it would have been very hard for us to lose. Don: I understand. Okay, so let's talk about how you find these deals because I know that's a big deal. That's 200 and some spaces, it's more of the institutional buyers typically the people are going to look for that. So how do you find these deals? Kevin: We got a lot of relationships with brokers, but I will say that the majority of the deals that we own today and that we have in our pipeline are due to our efforts. And that is direct mail, pick up the phone and cold call owners. And we take on the role of a broker. I mean, we identify parks in certain markets that we like, and we try to build a rapport with the owner or someone in the family that has ownership of that property. And this particular deal in Texas I gave you, you say it's an institutional it will be. However, it's not today, no institution, the right mind would touch this thing in the current condition that it's in. However, I know that it will be an institutional play once we're done with it. So that's where we hope to get it but that one was found via cold call, it was listed when we called on it.  However, it was not listed on like loop net or any of the big commercial side that had a local commercial broker that had it marketed. I don't know where the heck he was marketing and Don, I'd never seen it before and normally I see pretty much everything that gets on the market. He had been asking, I think over $8 million for I think eight and a half million or something like that. He's not a mobile home park broker. He didn't understand the business. A lot of development happening right in this immediate area. I think that he's a little off what that lands worth. However, that's how he was marketing and it was like eight and a half million dollars. And we made a number of offers over the last six months and finally really took our offer knew we could execute on it. So that was a cold call.  We get a lot from the cold calls, we get a lot from direct mail. But our goal is to really build relationships with owners, not just send them a piece of mail saying, "Hey, we buy mobile home parks, you'll call us." That doesn't work all that well. You know, our goal with the letter is a very personalized letter. And then we typically follow up with a phone call and just say hi, say hello, go to the relationship. You get to meet these folks at industry events that they're going to be attending. If I'm going to be in the local area, if I'm visiting another property, I get on our spreadsheet, I see who else has a park in that area, how we communicate with them. So, I try to get together coffee, try to grab lunch, what have you. Just build these relationships doing the same things a lot of brokers do, but we do it on our behalf. The goal of doing that is that remove competition because as soon as it gets into a broker's hand, it's their fiduciary responsibility to get the highest dollar amount for it right even if it's a pocket listing, per se. More than likely that pocket listing is going to get handed off to a number of potential buyers. We've never sold a property directly to the owner we've always used the broker. I get their capacity and where they fit in. I just don't like being the guy on the buy-side that has to bid against five other people for the same property. So, we typically go right to the owners. Don: When you get into a mobile home park and you see that it needs a lot of work, what would you say the price per pad? Of course, I know it depends on many factors that condition but what would you say is the dollar amount you have to renovate in case you have to put roads, in case you have to work on electricity and work on the septic tanks? Kevin: I can tell you what we do as far as like setting reserves aside on an annual basis per lot per year, we set aside a certain amount of money for ongoing capital reserve items, right but as far as like day one, what's needed. It's all across the board. This park here in Texas is going to be half a million dollars, we closed on the park just a couple of months ago up in Indiana. Its pristine man. It's so nice. We're kind of joking with where do we spend 10 thousand dollars. There's not much to do at all and all the water and sewers directly built by the city, public utilities built by the city, the roads are the perfect shape, all the structures are in good shape. So, we are not putting hardly any money into and it's not because we don't want to because there's nothing to do to it, there are no improvements that make. Now that was a good deal. It's probably one of the nicest parks we own. It's gorgeous. It's an 85 lot park, 42 the lots are occupied. It's all double wides. Hundred percent double wides. We paid 750 for it. Lot rents are $317 a month in direct build city, water, city sewer. All the 85 lots are developed, all the infrastructure hookups are there for 85 homes.  However, there's only 42 in there. I'm not sure the story behind why it never really truly got off the ground, but it's a very high-end community. In fact, despite one of the nicer neighborhoods in this area to live even nicer than some stick-built homes. Some people just don't know what the heck they're doing. I mean, the guy was nice, the seller. He had known for seven years. There were three vacant double wides and then a fourth vacant double, which is the office. They have a nice office there, which will keep it as an office but it's a big double-wide so that came with the sales probably $50,000 home. And three other vacant double wides had over the last seven years, people had just abandoned. This guy never did anything with them. They have just been sitting there locked up, kind of preserved, you know, they all need some rehab. But we just got done rehabbing the first one couple weeks ago, we sold it for $23,900. Put about $9000 into it, and we got it for free. We're renovating the second one right now or I'll put about 10 or 11 into it and total renovation. And it'll probably sell for $24900. And then the third one about the same price point. So, the guy never does anything. He's double eyes. They just sat there money going down the drain. Yeah, yeah, that was a cold call effort. Don: You're going to fill out all the lots, right? Kevin: We haven't fully decided yet. I don't know what we're trying to wait and see. We bought it with the intent that it made sense even without infilling lots because it's a small town. So, we didn't run the performer based on Hey, we got to fill in X amount of loss per year because I just don't know what the demand. I'm not sure yet as to what that demand looks like and how many homes we could sell a year.  So, what we're trying to use as a determining factor is how fast he's used mobile homes will sell the ones that we acquired through the sale. As we renovate them, if I got people showing up left and right on these next couple of deals with $25,000 cash in hand, they'll tell me that there's at least a market for probably $25,000 to $35,000 homes. However, I'm still not dead set on that there's a market for $60,000 or $70,000 homes. So anyway, the next couple of months will tell us a lot as to what kind of money people have that live there. And then that will help us decide what the next steps are as far as in filling that community. So that's the plan. I just don't know how many homes a year will be that we bring in. Don: I also don't like specifically on mobile home parks talking to brokers. So, I'm also calling and doing cold calls and talking directly with sellers and I have found out that it's probably the best way to do this in this space. I don't know why, I mean in multifamily, it wasn't working quite well for me when I was trying to call the owners directly but in mobile home parks, it does. For some reason, you call people and they're nice. Why do you think that is? Kevin: I don't like being cold-called. I hate being cold-called. However, one of my business partners that I own some of my private portfolio with, he picks up the phone, anyone calls. He also talked about a lot of the owners are still of the older generation, like our parent's generation. They're nicer, they're friendlier. They're used to having conversations in person, not just on a text message. Back in their day, how they communicated, right, they spoke with each other, they had an open line of dialogue. So I think that's why 15 years from now, I think that you might find that a completely different story, as far as mobile home parks are concerned, like who the owners are on the other side and are you able to have good quality conversations with them or is it just going to be in order to take on the other side, and you will never be able to get to the decision-maker. Don: So, what do you think is the best way for somebody who's trying to learn that asset class? What do you think they should do? Is it listening to podcasts and reading books? Where do you think it is the best information? Kevin: Education is the start with everything right? Thank God today we have podcasts. There's so much free information out there. We've got a mobile home park-specific podcasts, we've got 100 plus episodes. Lots of our earlier episodes are very granular. They go into like the operational side, we go into very deep intricacies on the finding the value and underwriting a park. Go listen to, you know, the hundreds of hours where the podcasts that are out there ours and there are other ones as well that are good. There are places like bigger pockets that have a dedicated mobile home park section of their forum. There's another dedicated mobile home park forum out there, you know, so there are lots of places to get free information.  However, at some point in time, it's a matter of actively doing something. And sometimes it doesn't mean by yourself. I've always had partnerships, I enjoy it. I know what my strengths are, I know my weaknesses are. No one's good at everything. So being able to identify someone who's out there already doing it can help fast track your success in the space, find out what their weaknesses are. And maybe that's where your strengths lie, and your team up with something that's already got a little bit of traction, and has already done some deals or they're doing deals currently. You can kind of dive in and help them grow their business. That's a much faster way to do it then going at it all by yourself. However, some people don't want to partner they want to go at themselves, but you gotta take action some point of time. I'm going to buy a deal and everything that you've learned in theory, you know, will come into play. However, you'll learn things that don't pan out exactly how they did theoretically right? You learned by being in the trenches and doing a deal. Don: Of course. So, in case anybody wants to get in touch with you and kind of do something together, what is the best way to connect with you? Kevin: They can find me on my website. It's Kevinbupp.com. I do two weekly podcasts. One's real estate investing for cash flow. It's a commercial real estate investing podcast, you can find that on the kevinbupp.com website, or company website is sunrisecapitalinvestors.com. So if you want to see what we got going on the mobile home park space, that's where you can find that. And then we also have a mobile home park investing podcast. You can find any of our podcasts on iTunes, you just search my name, or search mobile home parks or real estate investing, you'll find it there. I'm not too hard to track down, Don. So, between a couple of those ways, yeah, they can't find me then they're not looking hard enough. Don: Okay. Well, Kevin, I want to thank you for being on the show today. And we appreciate all the insights you gave us. Kevin: Yeah. Thanks, Don. Thanks for having it's been a lot of fun. Don: All right. Thank you. Have a great day. Lady: Thanks for listening to the real estate investing podcast with Don and Eden. Stay tuned for more episodes. Till next time.  

Douglas Skipworth has had an entrepreneurial heart from a young age. He began his journey in community banking and worked on earning his CPA and CFA certifications. Since then, he has been in the residential real estate industry for about 20 years and is passionate about partnering with others to develop thriving real estate businesses. He currently co-owns CrestCore Realty, which manages 2,500 properties in Memphis, TN. Along with his partner, they have built several real estate companies in brokerage, management, lending, and construction.  In this episode, he discusses his life and business, the advantages of community banks, ideal criteria for investing in a new deal, the importance of connecting with others and shares helpful advice on education for today’s world. Listen in as he shows us hows real estate and adding value to others tie it all together.  Episode Highlights: How Much It Helps Your Business If You Connect With More People Effects Of Borrowing Too Much Money For Education How Local Banks Help In Real Estate Investing Importance Of Establishing A Relationship With Local Community Banks Douglas’ Interest In Helping Certain Types Of People Via His Businesses   Connect with Douglas: Website: crestcore.com Email: Douglas@crestcore.com - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  TRANSCRIPTION  Intro: Hey guys, this is Eden your co-host. Welcome to the show where we talk about all aspects of commercial real estate investing. Today, Don is interviewing Douglas Skipworth. Doug has been investing in real estate in the past 20 years. And today he'll cover a lot of subjects including community banks, relationships in real estate and some philosophical issues like college and financial freedom through self-educating yourself with the tools that are available to us nowadays. I want to mention, again, our new website that's forming a decent shape you can visit us at DonandEden.com. Also, remember you can always reach out to us I answer all emails personally: Hello@donandeden.com. So, let's get started guys. Lady: Welcome to the commercial real estate investing podcast with Don and Eden where we cover all aspects of real estate investing with special attention to off-market strategies. Don: All right. Hey, Douglas. Welcome to the show. Douglas: Hey, Don. Great to be here. Don: Yes, I think you deserve it because you've been doing real estate since 2001. Right? Douglas: That's correct. My partner started in 2001. And I started in real estate in 2002. Between the two of us, we're going on 20 years. Don: Wow. So, you guys have been through a lot, right? So, you started, the market was going up, then there was a bubble, and then everything changed. And then you guys probably had to make some adjustments and change business models. Now, when the markets have been going up for a few good years. Douglas: Yeah, it's so funny, because I don't know when you always talk about the good old days. I don't know if the good old days were when things were running up, or the good old days, because we were, you know, we were buying and refinancing and things were great or when things kind of went bust, because that was a huge opportunity for us personally to add to our portfolio as other investors busted in community banks had deals to give away and then rates have been so low for the past 10 years that that's been a good time. So, if you kind of look back at the past 20 years it has been the good old days. Don: Yeah, I don't know who said it. I'm pretty sure it's Warren Buffett. "When there's blood on the street, buy real estate." Douglas: So true. Don: Yeah. So, tell us about the early stages of your career. How did you get started? What did you do? How did you even hear about real estate? And what were your goals at the time? Douglas: Great question. After college, I knew I wanted to start a business. So I kind of jumped into commercial banking and accounting, got my CPA and my CFA certifications to learn all I could about business and then I was working in New York City at the time and I had an opportunity to come to Memphis to work with an owner-operator of a real estate business when he was ginning up a tech company. It was kind of like a proprietary Zillow back in the early 2000s. It was a great chance for me to get on the owner-operator side of the business because I kind of knew from my first few years I wanted to be a business owner. So, I just kind of jumped in real estate tech and was learning a lot about real estate and I moved into a neighborhood and bumped into a guy who was a jogger. So, he and I started jogging together. He was in manufacturing, managing plants across the country mechanical engineer by training and he had in high school, a mentor who owned real estate and so he was building wealth through real estate while working his full-time corporate job. And I was working in real estate on a data in business side working with realtors and appraisers on the residential side. So, we had a lot of commonalities, shared some interest, but he kind of told me about what he was doing with his investing portfolio of properties, both multifamily and single-family, I got interested. So, I started doing the same thing on my own. And we would jog together and share war stories and share best practices and really developed a friendship and almost a partnership. So, we decided we wanted to try and do a deal together that neither of us had done. So, to kind of share the risk. We ended up doing a tax sale because we had never bought a tax sale, either of us. And so, we just kind of shared the risk on that and it went well. Then we shared the risk on another one and another one and then we bought a little portfolio together and then we bought a few more together then we started doing some third party management together and fast forward to today we've got several hundred units together, we manage several thousand units together, we've got a brokerage and property management and maintenance company would do some hard money lending. So, we've enjoyed our friendship and business relationship. Don: That's truly amazing. I mean, I think, you know, going on a jog, and then meeting your future business partner that you're going to do so many things with, it's just outstanding. And that's why people always say that when you are trying to get into real estate, then you should always say that this is what you're doing to people. Because people are going to tell you something back and they're going to tell you, hey, you should talk to this guy or I've heard about somebody who does that does this and then you get ideas. So, you always gotta talk to people. And that's a great example of how talking to people, getting to know them, listening to them, changes your life in a good way. Douglas: That's a great point. Especially I was laughing about This was somebody the other day, because when I was working in banking when I was working in accounting when I was working in real estate technology, I would tell people that and nobody seemed interested or knew what to talk about. But as soon as I started investing in residential and small multifamily properties, and I would mention that everybody had either thought of it or had a friend or a family member who had been an investor at one time, or were thinking about doing it themselves or just buying a house. So, to your point, it just opens up a wealth of conversations and connections, that being a real estate investor and talking about it highly encourage people to do that. Don: Definitely. Now, there's another thing that I want to talk to you about because I just had this conversation with my friend and you just mentioned it that you went to college back in '01 he said, right? Douglas: I wish and I graduated in '96. So, I'm a little older than that. Don: Yeah, so a little bit older. So, this is exactly the time where you're growing up, I believe. I don't know how old you are. If you want to share it. Douglas: I'll be 46 in two weeks. Don: 46. Happy birthday! Here's my question. So, you are growing up at the times where your parents must have told you for the people that were close to you to go to college, right? Get a degree if you want to be successful in life, right? Now, my generation, I'm 30 years old, and I never went to college. So... Douglas: Awesome.  Don: I've been investing in real estate since I'm 23 years old. My background is kind of different because I wasn't growing up in an environment that tells me that I have to go to college because we had the internet so we could hear other people talking. And so, there is the age of information where you could get a book for 10 bucks so you can listen to a podcast for free, right and get all the education you need. So, my question to you, would you recommend going to college in modern times or just jumping right in and just getting an education from a different source? Douglas: If you're entrepreneurial enough, and you have a plan and you have a determination, then yeah, you can do it on your own. There is a lifelong learning component that podcasts, books, resources now are at our fingertips as well. Well, it's just meeting people's mentors and connections. So clearly have learned more since I've been at a school then I learned in school. But for the right person, so for example, I got a master's in accounting. When I was out of school, I worked full time went to school at night, and I got scholarships and the company paid a little bit. So, to get that degree to get that knowledge and earned that credential at a private university cost me $2,000 of my hard-earned money. All the rest of that money came from somewhere else, which was, which was a good lesson that I learned how to do real estate as well. You don't have to go out and spend all your hard-earned money and borrow. There're ways if you can get creative, you use other people's money. So, what I wouldn't suggest for 99.9% of the people is to go borrow $70,000 a year to get an education, an undergraduate... Don: Exactly what I see. I mean, I see the age doing that. And I'm thinking you guys are taking debt for so long and you're also investing time. So, you're taking debt and investing time and I don't like doing one of them. I don't like investing my time for a long term period when I don't know if it's going to bear any fruits. And when you invest your time and your money, it kind of sets you back so much. Douglas: It's applicable in this because education is so important, whether you're learning through podcasts or books. Yeah, one of my mentors, he owns 5200 unit multi-family, mostly low income that they do a phenomenal job across the Southeast. And he told me many years ago, "Never borrow unless you're borrowing against an income-producing asset." That's where I was like, man, I can't borrow to go to school' I can't borrow for a car. I got to borrow against an income-producing asset, whether it's a business or a real estate piece of property. So that's a valuable lesson that a super successful multifamily investor gave me 20 years ago and I've never forgotten. So, very much on point to not borrow for that education, not borrow significantly for that education. Because it's going to put you back. Don: Yeah, I agree. And I think what I'm going to do, you just gave me an idea. I'm just going to record an episode later on that will talk about that subject specifically. I want to get back to borrowing money because I know you have a way of borrowing money. You're borrowing money from community banks. Douglas: Yes. Don: So, tell us a little bit about that. I know it's different now, you can make things happen when you work with the community bank. Douglas: Yeah, so we've worked with community banks since 2001. Part of the reason we like working with, some of the benefits is their local that you can go to church with them, to school, kids playing on sports teams, living in the same neighborhood. So, there's more of a story relationship aspect, and then there's also the local component to it. So, they're going to work with you and get behind you and understand that and then they're going to be a lot more interested in that relationship and kind of support you. They can't do as big a deal. They got lending limits, but they also have access to other local investors and kind of keep you in mind. So, for us, it's just been a great relationship. The Real coup for us was when the bad times hit for other investors and those banks had property, they were taken back. And they were looking to get it off of their balance sheet because they did not want to own real estate. And they didn't give it away. But there they created a win-win. It was kind of a "your price, my terms" situation, whereas they would say, "Hey, we want it at this price. We need to get it off at this price." And we say, "Okay, these are our terms." And if they said, "Hey, here, the terms we need," then we'd say, "Well, this is the price that we need." And we picked up hundreds of units during that '08 to 2014 probably working with community banks and borrowing and all the money from them on those deals. Don: Yeah, that's amazing. I know, multifamily was doing pretty well in '08 relatively. So, it's very smart to buy them at that time. I wish I was investing in real estate at that time, life would have been different. So, I want to ask you about your relationship with this bank. So, when you establish your relationship with the community bank, how do you do that? So how do you choose the bank? Is it more personal? Are they looking into your financials in a more personal way, not as strict of a guideline is what I'm asking. Douglas: There's no doubt to have guidelines. But you're right. It is a relationship. If someone were to look for a relationship with a community bank in their location, start with friends, family, mentors, anybody who knows somebody who was either sympathetic to you personally some way or to the real estate property investing or learning on real estate. So that's how we've established those relationships. There are plenty of local community banks that don't want to have anything to do with what we're doing. They don't like lending on real estate, they've got too much real estate, whatever. But some lots are in it's through those relationships where you develop a business strategic partnership with the banks. Don: Would you say that these loans are typically more expensive than what you would get with a regular loan? Douglas: So, for us, we kind of looked at loans and there's the traditional mortgage market where you can price things pretty cheap, but you got to have good credit. And then there's the community bank. And there are private loans. There's hard money lending. So, there are several different routes. Community bank financing is pretty cheap. It's got some strings attached, because they want you to jump through some hoops more so than a private lender would, more so than a hard money lender would. It will be things they're going to review past couple years of tax returns, they might run a credit check on you, they're going to ask for you sign a personal guarantee. So, they're going to be some things that some other lenders aren't going to have. But again, they're going to look out for you and they're going to keep you in mind when they're talking to other investors. Other investors want to get out of deals, they're going to say, "Hey, we're going to talk to Don and Eden they're doing this'' or "sell your properties to Don Eden, and we'll finance it" where they can just assume your mortgage or assume your loan. So, we've done that with banks and through relationships, which is a lot harder to do with national lenders as you know. Don: They lend for properties that are in their area, or they could lend for properties anywhere in the US? Douglas: Primarily they'll lend to either properties that are in their area or borrowers that are domiciled or headquartered or located in the area. Don: Yeah. Douglas: So, they will do deals outside of the state if it's somebody they know locally. Don: Yeah, that's very interesting. Yeah Douglas: It's great. And it becomes a network and they become part of your network, and they become one of your strategic partners. And you can develop relationships with multiple community banks and work with all of them. And it's a great mutually beneficial relationship. Don: Terrific. Yeah, I think that's critical information for somebody who's listening to that show. And they want to get a loan for a property that they want to buy and they don't know who to talk to. I guess that's just an option that you got to consider. Go talk to your community bank, establish a relationship and get to know the people there because real estate is a long play. You do something where you plant seeds right now, and you wait for the seeds to sprout in the future. So, I guess that's one seed that you got to plant right? The community. Got to go and talk to people when you want to do deals. Douglas: It's been everything from helping you find new deals to financing deals to providing opportunities for other lines of business. So, they can help you finance because you built up a track record with them and they understand who you are and how you operate. So, they become a champion for you within their organization and the community. I couldn't recommend it highly enough. It's been one of the keys to the foundation of our real estate business. You've got deals, financing, and management when it comes to investing and finding deals, financing or paying for those deals and then manage them after the fact. So that financing piece is huge, whether it's your cash or somebody else's cash. Most real estate investors use somebody else's cash. So, a community bank is a great option. Don: Awesome. You manage over 3000 units and you also invest in real estate. So, you bought together with your partner over 800 units and you haven't had any money partners or equity partner so you've done this by yourself, complete with both of your hands. And that's amazing. I gotta say, I host a lot of people here on the show. Most of the people that try to syndicate, try to get to raise funds, and then buy their deals. You've been investing for better of two decades right now, and you've been doing that on your own. But I want to ask you if you've been investing in real estate and creating your wealth, why do you still want to do property management? Is it because of your investments? Or is it just because that's your core business? Douglas: Probably all of the above. And we feel like part of what we're here to do is to serve people profitably, you know, so we're in business to serve. Because we have our rental properties, we have to do property management, and we'd like to have our rental properties for the duration. So, we need to do property management and then managing properties for others is a skill that we have developed so we can get paid for it, we can get better at it and we can use it to serve others. So, it's kind of a mutually virtuous cycle of things going around where we get better, it helps us manage our properties better but helps us serve our clients better. So... Don: Win-win-win-win-win. That's many things in real estate. Douglas: Absolutely all the way around. And that's why we've expanded to Jackson, Tennessee, and Dyersburg, Tennessee and you know, hopes to expand into Eastern Arkansas, Central Arkansas, North Mississippi, Central Mississippi over time because it benefits all of us to do that. Don: It's what I like about real estate that you could find so many things to do in real estate that creates a win-win-win-win in different types of businesses. It's not the way that it is in real estate. You can create a business that creates wealth for you, that helps you with taxes that appreciate that cash flows, and that is being managed by you as another business. It's just amazing. So, we've been doing all that. It leads me to ask you, what would be the criteria for buying a new deal? Douglas: We've kind of bootstrapped it on our own. So, we're limited because we don't have equity partners and we don't syndicate. We usually have to have the financing in place. So that's assuming a loan, or some type of owner financing, or working directly with a bank that can provide the purchase money. We're super limited on what we do, which just leads to more deals for everybody else clients and that's great, but we're super selective at this at least we have been for the past 20 years we look forward to someday where we can just go out bad things all cash and not worry about it. But so, we're selected looking for different things, whether it's a single-family home, small multifamily or small commercial building. The recent thing we bought a property management company and bought the building. So, we're now an owner occupant of our office in that building. So that's a great win-win. Don: You buy the tenant and the building and you're the owner of both. Douglas: Exactly. So that's the most recent that was a month and a half ago. So that's been great. Don: You've been working with your partner surely but slowly, right? You've been managing properties, investing, buying them one by one with your money, creating long-term wealth, going to stay in your family forever. What would be the next step? Douglas: One thing we've been very fortunate on it's just building and surround yourself with some great people and building a good team. We've got folks who help run the businesses and operate the day today. And that's been awesome for us. So, continuing to develop those folks and grow opportunities for them as well as for ourselves. So, with the businesses we have now, which are really real estate services, brokerage, property management, maintenance, like said financing, then we have some business services, we provide some virtual assistants and some business back end support to our businesses and a few others. Just growing those real estate service lines and business service lines in this geographic area is our next focus personally for the next five years. Don: Awesome. So, what kind of areas are you guys going to focus on it in case anybody wants a property manager or wants to consult with you on a few things that have to do with real estate? Douglas: Yeah, so we help folks like ourselves, people who are wanting to build wealth, people who are wanting financial freedom, people who are looking to create an income or buy something to pay it down over time in resident real estate, small commercial real estate, multifamily real estate in kind of this MidSouth Mississippi, Tennessee Arkansas area around Memphis, Little Rock, Jackson, Mississippi. So, anything related to that brokerage, property management, maintenance, construction, lending, helping people fix and flip, helping people bridge loans into a long term loan. And then we provide virtual assistant services for folks who are doing real estate services, whether it's just somebody operating on their own or a brokerage or property management company, we're happy to help that because we've got a lot of experience. We got about 120 virtual assistants right now in the Philippines that work for 18 companies. Again, we feel our calling is to help people succeed through business and real estate. That's what we're trying to do and we're trying to help other people do it too. Don: Try and make an impact when you’re already wealthy. That's the next thing is to try to make an impact and help other people and that's truly a remarkable goal. So, what would be the best way to contact you Doug in case anybody wants to get in touch? Douglas: I love to talk to anybody. Easy to send me an email at Douglas@crestcore.com or find me on LinkedIn or find me on BiggerPockets. Those are probably the three best ways to get in touch. Don: Right. So, I want to thank you very much for being on the show today, Doug. Douglas: Love that, Don. Thanks for having me. Lady: Thanks for listening to the Real Estate Investing podcast with Don and Eden. Stay tuned for more episodes. Till next time!

The Walter Proof Experiment on W.A.P.X ! Imagine. Tu fais une retraite dans un paisible monastère. Pas de luxe, pas de volupté, mais du calme en pagaille. Il fait doux, le jour point, les cloches tintinnabulent, la vie s'éveille, le Wapx commence. Elle est pas belle, la vie ? Eh ben ça va pas durer ! Car du bruit et de la fureur, il y en a aussi, dans cette 40e édition du Wapx ! Dans cet épisode Gregorian Voices PV Nova : 11 days Jacques Higelin : Remember BBH75 Distorsion : Plasma Pedal ArcAttack : Iron Man Back in Black - Bobines Tesla Covers : The Goddesses of Bagpipe Eleanor Rigby Pokemon Battle The PeteBox : Where is my mind Postmodern Jukebox : Nothing else matters Luna Lee : Riders on the storm Brassens est vivant : Graeme Allwright : The passers-by Les Wriggles : La mauvaise réputation Magyd : Supplique pour être enterré sur la plage de Sète Oncle Koums : Quand on est con Quartet Clément Reboul : Les copains d'abord L'Orage : L'orage Brassens en chaabi Ratbeat : Tout petit Knobz : Quand on est con Melodica Men : La Chevauchée des Walkyries West Side Story medley Trucs en vrac : Colin Bowden drum solo The Don : All of me Paquito D'Rivera : All the things you are La +BCdM : Bob Marley and the Wailers : No woman no cry - Version live par The Fugees - Jimmy Cliff avec Erykah Badu - Jonathan Butler - Gilberto Gil - Joe Dassin - Boney M - The King Stones La Playlist de la +BCdM : sur le Tube à Walter sur Spotify (merci John Cytron) sur Deezer (merci MaO de Paris) et sur Amazon Music (merci Hellxions) Le son mystère : Henry Salvador : Oui, non, ah Pomplamoose : Seven

NPC Don Ward – 9/26/17 Hugh Ballou: Welcome to this version of the Nonprofit Exchange. Russell David Dennis, how are you today sir? Russell Dennis: it's a beautiful day here in Colorado. A little cloudy, a little cool. It's a great day just to be alive. Don Ward: Hugh: We have a long-time friend and another brilliant person who is in my life. Russ haven't met him yet, but you will discover for yourself that Don has many, any gifts. We are going to talk about a special topic: We are all challenged around the topic of talking about money. We like to champion charity as the definition of what we do in the social benefit sector. The word is nonprofit is used a lot. I ends to color our thinking about money. Our guest today is Don Ward. Don Ward wears a number of hats. I know Don Ward from the CEO clubs in Central Florida, where you have introduced me to some really great leaders. Don, welcome to the Nonprofit Exchange. Don: Thank you very much. Honored to be here. As they say, whatever you honor will honor you. Hugh: Love it. There are a lo of things you do, but in this space of influencing leaders, our topic today is money has eyes. Talk about your background, your experience, and what gives you the knowledge and wisdom to present today around this topic. Don: Mistakes and great mentors. The only two ways you learn. So I would say that is what qualifies me. Probably there is a call that I am going to give you a mock version of that call later. I used to run a CEO of an organization you and I were a part of. People would find outa bout an event and go, “Oh my god, I have to be there. My credit card is maxed out. I don't have any cash. Nobody loves me.” And all that stuff. We would just say, “Do you see yourself being there next week?” They say, “Yeah, I gotta be.” Okay. No problem. Be on a call at 9:00 on Wednesday night. I'll give you a dose of that call a little later on. Hugh: Great. Don: But yes, I have helped over 400 companies raise seed capital on up to over a billion. I could go into a whole lo of things about what attracts money, but I will give you the coaching little bit segment there. Basically, if you have an A-level team and you have a B-level play-in, you are funded. You have an A-level play-in and a B-level team. Ain't no money comin'. Hugh: Whoa. That's a reality check. So you have some really good information to share with us today. We often just go back and forth in a Q&A with guests. I want to give you some space to share in a presentation mode about money has eyes. I heard you say, you kind of slipped it in, that you helped 400 companies raise capital. Is that what you said? Don: Absolutely. I don't have it on my business card. I don't have it on my website because I only do it for people that I know I am divinely called to work in conjunction with. Not everybody is our assignment. Hugh: Got it. We work with- Russell and I work with charities. I work with early-stage entrepreneurs. Many, many, many are challenged. This is a great topic for everyone, so I want to get out of your way. So you have worked with seed capital, and I heard you say a billion dollars. Don: Well, actually, I am sitting on two operations right now. We are in the middle of a $9.9 billion raise on one, and the other we are in the middle of a $500 million one, but we are gonna need a lot more than that before it's done. My biggest part to bring to it isn't just laying out the corporate engineering or the capital development, but really it's helping people to reshape their vision and mission. If you can talk about what you can do in 15 words or less, people might hear what your' saying, and you might actually sound like you know what you're talking about. But if you can get it down to five words, you are powerful, probably the most powerful person at the event. Especially if it is a networking event. They ask you what it is; you want money to be asking you questions, you don't want to be telling it anything. Hugh: That's a paradigm shift. Why don't you share with us about Money Has Eyes? Don: Okay. That might be my two-point oversion because the actual title is Ears. But I like it. Hugh: Ears, ears. Sorry. Don: Because you can't receive what you can't perceive. Mony does have to see what you ar talking about. I'm with ya. I say Money Has Ears, and I talk about money as if it is its own entity. People have it, but money is listening all on its own, and it knows exactly what it wants to hear, sense, or see coming from you. If it is smelling need or fear, goodby money. I work in a lot of faith-basd organizations as well, and people are always coming up and going, “Well, God gave me this idea, and He is going to fund it.” I go, “Okay. Let's pretend you're God. If you're God and you're looking down and you know that you are going to lean on your understanding, would you fund it? God is not going to fund it. God is as much about team as the world is about team. If you got the wrong team, the money isn't coming. Maybe we need to reshape what your priorities are.” A lot of people say the next thing, when you ask them, is money. The next thing you need is team. The reason you don't have money is because you don't have the team. People aren't compelled to believe that you can execute the plan you allegedly have. In the nonprofit sector, I think one of the big issues is always been they lead with their need. Let's say that you have a church and you are saying, “Oh my God, we need fifty grand by Friday, or we are going to have to close this church down.” God is sitting there looking at you going, “Well, if you clos down, I am going to look bad. However, I'm not moved by your need.” God is not even moved by your need. What is He moved by? Your faith. If He is moved by your faith, and your ability to execute properly with what you have in your hand, chances are money will come. But asking, seeking, and knocking, okay. Start on your knees, but actually at some point, you have to go outside and ask, seek, and knock. If you are going to ask, seek, and knock, do you know how to talk to money? Do you understand that money has the attention span of a third-grader with ADD and a fourteenth-century classroom? Teacher starts writing on a chalkboard with chalk. Student is left the room. If your first introductory comments in your capital presentation go over about fifteen words, your investor probably lft the room mentally, too. What is that investor listening for? Well, there are thre things I belive money is attractd to: vision, passion, and team. I do a lot of coaching with a lot of different entities. Before I go on board with them, I ask three questions. 1) If they won't die for it, I am not getting on board with them because they won't be doing it this time next year. 2) Is it global? Anything less than that, what if, is the seed of a dream, just a cash flow strategy. Is money looking for interest on its money or multipls? Multiples. Okay. But we are going to convert this into nonprofit talk here in a second. 3) Is it socially responsible? Is it doing greater good for mankind? If those visions say yes to those thre questions, then okay, let's sit down and talk because right there, I know you got the passion ecause you are willing to die for it, I know you got the vision because it's global. You have permitted yourself to see beyond a cash flow. You just permitted yourself to see beyond your own ability. You have permitted yourself to see beyond your own resources. In my line of thinking, God never askd you to do anything you have the ability to do. He is counting on you ot build a team. That leads to what if there are three phases to a dream: the birth, the death, and the resurrection. Why does every dream at some point have to die? because entrepreneurs are entrepreneurs. Anything they know at all, ask me how I know. what happens is they lean on their own understanding. They don't have mentors half the time, probably a lot more than half the time. They have no revelation of team. It's just a matter of time before the dream is going to die. God is not worried about it either because He is not letting the dream go away. Once He gives you something, it's yours; you're stuck with it. It's your gift. You can be grateful or consider it a curse, whatever you want. But the bottom line is, that's your responsibility. You'll have this desire at times to resurrect the dream. This time you're teachable. Do you want to start getting into the Money Has Ears routine? I was setting it up, I guess. Hugh: Yes, sir. Go for it. Don: All right. People would come on this call at 9:00 at night, and you're hearing all this chatter in the background. “Okay, let's start off. Everyone on this call is here because you need to raise some money and quick. You all need to raise at least ten grand to join this organization, get your hotel, get your airfare, blah blah blah. Right. How many people like asking other people for money?” Booo. Hiss. Everybody is like, “No, I hate it, man.” “Okay. Befor you ask for money, you have to come to a place of understanding a certain element about what you're going to do with the money. Are you raising this money in the case of this call? Are you raising this money so you can come out, you can network with the kings and queens of industry, build a team, raise capital, because your product, your service, your ministry, your charity can do great things for mankind?” All of a sudden, everybody is like, “Yeah, that's me, man. My product is going to change the world. What I do for mankind, I am going to be digging water wells in Africa.” Everybody has a different thing. “Okay, next question. Are you actually needy in the world, or are you needed by the world?” People are having Aha moments. “Crap, man, I am needed by the world. I am needed by the world, man.” “All right, if you are needed by the world, then are you actually raising money for you or the people you're going to serve?” “Oh. Actually I got to get this money so I can help all the people that in my heart I am going to mak a big difference for what I am bringing to mankind.” “Okay, before we finish the call or carry on any further in the call, everyone take am oment now and make that little shift. Tak that switch that says ‘I am needy because I gotta go talk to people about money' and click it over to here where I am needed. Everyone make a shift?” “Yeah.” “Okay. Next part is going to disappoint a couple of people. Mayb it will hurt somone's feelings. Does everyone in this call belive in something bigger than themselves?” Yeah. Pretty much everyone did. “Okay. How many of you believe the universe is going to take care of getting you your ten grand in the next couple days so you can b out there?” A lot of people go yeah. They're cheering. “How many people believe that Jesus is going to give you the money?” A bunch of people are cheering. “Anyone believe out here that Buddha is going to give you the money?” A coupl people might say it once in a while. I am not going to say all the ones that nobody was vero n the call for. Bottom line, those people on the call did believe in something bigger than themselves. “Okay, that's all you need. I am going to teach you how to play the game. It doesn't matter which one of those you believe in, but you hav gotta believ in something bigger than yourself to pull this exercise off.” “Okay, that's cool.” “if you need to hang up, hang up. No hard feelings.” “We're all good.” “okay. This is what we're going to do. First, we are going to do a little exercise. This little exercise, if you have ever ben in MLM, is going to feel familiar. Basically we forgt how many people we know. we know a lot of people. The thing is, w don't know what to say to those people. We all know that friends and family support your passion and your present but seldom are they ever supportive of your enlarged tomorrow.” “Yeah, you're right, man. Everyone is telling me I can't do this, it's never gonna happen, good luck, I'll pray for you.” “Okay, that's all right. This is what you're going to do for an hour after this call tonight. I want you to sit down and make a list. I don't care if you have to writ down the name of your dead second-grade teacher. Write it down. The person you met in the elevator last wdneday that give you a business card. Write it down. Any name that comes to mind, writ it down. Okay. Now what. “Now we are going to go through and grade them. A, they may have resources, they may support me. B: I don't know if they have eresources, I don't know if they can support me. C: Ain't no way. What I want to tell everybody on this call is I have had people call me and say, ‘I have three As, five Bs, and like 300 Cs.' I'd go say, ‘Go practice on a C. I will teach what it is they are going to say.' Before I do, I have to explain about what money is listening for because we called this Money Has Ears. Money wants to know two things. If I am coming home, how much more money is coming home with me and when? IF I am not coming home, am I doing a greater good for mankind in getting a tax deduction? We have nonprofits on the call tonight?” “Yes.” “We have for-profits?” “Yes.” I am going to give you some modeling of the right language because I am going to tell you a little surprise right now. The truth is, you are not going to even ask the person sitting in front of you for anything but wisdom.” “Oh my God, I thought we were raising money?” “You don't understand. When you re asking for money, all you ever will get is wisdom. Ask for wisdom.” “He's probably right. That makes sense.” “Okay. Now here is where you are going to find out who you call. I don't want you using your head to figure this out. You went through a list-building xercise. I don't care what you do with it. Cyou can throw it away now.” “Why am I going to do all that work and fill out the list?” “I just wantd to stir up in you to remember how many people you really know.” “Yeah, okay.” “Well, here is the part of the list. This is the part of the exercise where the magic happens. You are going to go, ‘Oh Universe, Oh Buddha, Oh Jesus, whatever your claiming to be your higher power, you're going to say, ‘Give me five faces.' This is how long it's going ot take you ladies and gentlemen. You take ten minues. If you meditate, you meditate. If you pray, you pray. Before you do, you just go, ‘in the next ten minues, I want you to put five faces before me, and I will call those faces in the order that you give them to me.' There is something about lining up with your word with your maker. If you told your maker, ‘This is what I'm going to do,' you better do it. You will call those five faces. What are you going to call those five faces for? A ten-minute wisdom meeting.” “Ten minues?” “What I am about to teach you you do not need a business plan, an executive summary. All you need to do is to sell you as being willing to die for it, that this is an incredible opportunity, and that you are building a team capable of executing the plan. You don't have to prove any of it because you are not asking people for millions. You are asking for thousands. It's aw hole different league.” “okay.” “Well, this is kind of how it goes, ladies and gentlemen. You are going to call up the five faces that you just got in that ten minutees' time. I know I just met you in the elevator last Wednesday. I looked you up on LinkedIn, saw you have done a lot of things. I am moving a project forward, and I need to get some counsel from somebody that isn't family or isn't a friend. They all are going to be dreamkillers. I need to get a third party look at my project. I promise if our meeting goes eleven minutes, it will be your fault.' The other person is going, ‘Number one, I just met you last Wednesday. Number two, you think I have wisdom?” Let me tell you something. I started the call with whatever you honor will honor you. Anyone who has asked you for wisdom, were you insulted? Hugh: No. Don: No? You honroed them. I sense I could get some wisdom. I was meditating this morning, and I am going, Man, I need some wisdom. Who can I call? Your face popped up of all things.” “Really? I just met you in the elevator last Wednesday.” “I don't question it. When I ask my maker for a face and he gives me the face, I am going to go talk to the face. You'er the face. Would you honor me with ten minues of your time? I promise it won't take eleven.” “Yeah, okay.” “To honor your time, I understand there is a Starbucks just a couple blocks from you. I'll come to you. I'll be there ahead of schedule. You will be out in ten minutes.” “All right, okay. I'll come see what you're talking about.” Next day, 2:00, just like you set up with him. You're there early. You're looking proessional. Money does have eyes, and if it looks at you and says, “You ain't professional,” so thanks for that tidbit there, Hugh. We are going to add in an adiditon that money ahs eyes, too. It's looking for something better to do. Money is always looking for something better to do than it's doing today. It'll go form point A to point B in the speed of thought. It has no loyalty. Money doesn't like to keep doing the same stupid thing it did befor either. Nonprofits have a real issue if they can't give a compelling vision of how they are learning to actually reproduce once you give them some seed. Most nonprofits are just eating the seed. They are not doing anything with the seed to grow more. There are some issues here. That would be another phon call. Here we are. Wee're back to the person in front of you that you met in the elevator last Wednesday. Here is what you're going to do. You have ten minutes. The first eight minutes, all you're going to talk about is them. “Man, I'm here to have a meeting and make this money.” “No, everything flows through relationships. Let me ask you a question,” is what I used to say to them. “If you show nine minutes of undivided attention into somebody, do you think you might read one minute of undivided attention?” “Yeah.” “okay. All you need to say is going to take one minute. I am going to teach you what you are going to say in your one minute.” “Okay. All right.” “What' that going to be? Depends on what it is you're taking out there and what it is you are raising your capital for. Basically, it's the same whether you're for-profit or nonprofit. I know I just met you last Wednseday. I am so honored you are sitting here in front of me and you gave me this time. I promised you ten minutes. I have a minute and a half. I can do it in that maount of time. This is what I am working on. I have committed my life to it. I am not quitting until it happens. W are building an incredible team. The plan is getting ever-evolving. As you know, all plans change. We are so proud of our plan. Where we're at right now, wee're at like 10k, 10.5. 10k shy of our first phase of development. Who do you know that might be interested in digging water wells in Africa?” Assuming that that is that person's mission. And you shut up. The first person to talk now loses. And you smile. You sit there for ten minues. They are the one holding this meeting any longer because they aren't talking. You just smile. You sit there. They will come back. Money always says, “So what are you offering?” If you are an onprofit, that is way too easy an answer. A chance to earn some human interest, do some good for mankind, and give a tax deduction. That's all that it's looking for. Nonprofit money, that's all it's looking for. The question is, what are you offering? Is what you are doing for mankind btter than what it is presently doing for mankind? That's only convincing to the money if it's sold out ha you are sold out. How sold out are you? You just told them you committed your life to bringing this to pass. You are doing everything. You hav ben building this fortune-level team. You have a fortune-level plan. That's another key word to throw in there. Those words represent that you're professional. You're not messing around. They are not going to stop and go, “Can I see your executive summary?” You are not talking about fifty or one hundred thousand or a million dollars. “I find three people at $333 a piece. We're there.” If you're for-profit, then the person is going to turn to you and dsay, “What are you offering?” You're going to say, “We are offering a convertible promissory note. It's saying 1% simple interest per month, 12% per year. Can you get that at your bank?” “No.” No, you can't get anything close to that at your bank, can you? “No.” “What are you saying about a convertible?” “We're getting ready to raise capital. During that cycle of a one-year offering, if somebody wants their money back at a payment, we will pay it back to you.” The people on the call are going, “Where am I getting the 12% interest?”         Learn more about your ad choices. Visit megaphone.fm/adchoices

Kelly Coughlin interviews Donald Moore about generating more revenues from trust and wealth management clients and managing risk in that business line. Moore is a former OCC examiner.   Donald Moore Jr., CEO of Bearmoor, LLC has over 20 years of experience in the asset management and fiduciary industry. He has served in senior fiduciary positions with various US Treasury agencies, as well as a leading financial services consulting firm. He began his career as a Trust Examiner with Office of the Comptroller of the Currency. He has examined over 50 trust divisions, including the lead position at two of the nation’s largest trust institutions. He has assisted in the development of national policy and guidelines at both the Comptroller’s Office and the Office of Thrift Supervision. Kelly Coughlin is CEO of BankBosun, a management consulting firm helping bank C-Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, BankBosun.com. Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C-Suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now your host, Kelly Coughlin. Kelly: I’ve got Don Moore CEO of Bearmoor LLC. Don, how are you doing? Don: I’m doing well, thank you Kelly, I appreciate the opportunity to chat with you today. Kelly: Don, you’re in Boulder? Don: I’m not quite in the Republic of Boulder, I’m a little bit closer to the Breckenridge area up in the hills of Colorado. Kelly: You’re happy because the Broncos just won the Super Bowl, I take it. Don: I’m slightly indifferent to the Broncos winning, although they had their ginormous parade yesterday down in Denver. Everyone’s excited that Peyton got his Super Bowl, but again, I think it was the defense that won it for him. Yeah, we’re happy here in the state. No one’s going off the edge yet. Kelly: Let’s get right into it. Tell me what Bearmoor does. What’s your value proposition? Don: Basically, it’s the optimization of risk-adjusted revenue from an organization’s existing fiduciary activities portfolio. It’s basically their personal trusts, their investment management accounts, their retirement accounts, foundation endowments and custody. All those off-balance-sheet activities within the fiduciary world. Again, the optimization of their risk-adjusted revenue from their existing portfolio. Kelly: First of all, it’s banks that are in the wealth management business. They have trusts, they have wealth management capabilities, correct? Don: Correct, a lot of organizations that are clients, their definition of wealth management differs, but it does include trusts, insurance, and private banking. Kelly: You help those kind of banks do what? Don: Optimize top-line revenue. What we mean by that is, I like to use a quote from Bono, the lead singer for U2, he was up at his concert and doing one of his social announcements where he was clapping his hands and he said, “Do you know, every time I clap my hands, a child in Africa dies?” And someone screamed out, “Stop clapping your hands.” We don’t focus in on expense because for the past 10 years in the industry, the industry’s been focused on nothing but expenses. The expenses have outpaced revenue growth 6 out of the last 10 years. Their focus on expenses I don’t think, has been all that fantastic. We like to say, “Well you’re already focused on expense reduction, we want to help you grow top-line revenues.” Our value proposition leads to an increase to revenue top-line. Kelly: Before we get into how you do that, let’s talk about some personal background. Don: All right, I’ll start out with education. I went to school, got a degree in finance and accounting, after I graduated from that I went to work for the United States Treasury Department as an examiner with the Office of the Comptroller. The currency, the OCC, I found an opportunity to begin examining in the fiduciary world and I became a fiduciary examiner. Through that, I went to Washington, DC. For those of you in the fiduciary world that have an understanding of Regulation 9, when I was in Washington, DC I helped draft and write that regulation that now national banks follow. For most states, it’s been adopted verbatim on that. I left there, and went over to another Treasury Department, the Office of Trust Supervision, which has now been rolled into the OCC and wrote their fiduciary training program and some of their examination procedures over there in a fellowship capacity of 18 months before leaving and going to the consulting world, and focused on consulting in the fiduciary world, and that brings us to where we are right now. I am married to my wife Toni, we live out here in Colorado, we have four children. Hobbies; I would say right now we’re doing lots of skiing, got some good snow out here in Colorado, so that’s one of my hobbies. Do a lot of running, outdoor activities is me. That’s who I am, I’m 52 years old and I feel it every day. Kelly: Don and I have known each other for probably 15 years, and we made a good connection when we found out you grew up in Minnesota, correct? St. Louis Park? Don: Yeah, sure, you betcha. Kelly: Let’s talk about the business. How do you help these banks make money? How do you help a wealth management bank make some money? I want to come up with let’s say five take-aways on how our listeners can make money through what company like yours offer. Don: Let’s start out with, the opportunities for increasing top-line revenue within your fiduciary activities exist. They are out there. I like to use the phrase, “You’re standing on a whale, fishing for minnows,” because there’s already opportunities to increase your top-line revenue within our organization. What we mean by that is we go through and do an analysis account by account basis and identify opportunities in three phases: one, gap analysis which is, “Hey, where are you missing it?” From the standpoint of what you think you’re getting. You may have some system errors, system inaccuracies that can help you identify opportunities, that’s one phase. Second one is competitive analysis. Where is it that you would like to beat your competition, and where is it that you actually are? We ask you what your business’s strategic plans are, we go out and do mystery shopping and competitive shopping for the organization to make sure that they understand where they are and where their competition is, and where they can go with their current level of pricing. The third analysis is a regulatory analysis. What’s changed in regulation that allows you to either understand the regulation and generate additional revenue, or do we have some risk there? Again, gap analysis, competitive analysis, regulatory analysis to help you identify those opportunities, because they do exist. I would say that’s the first area. Kelly: You exposed that just recently, gap analysis. You’re looking at pricing, and how competitive they might be in pricing in addition to more of a qualitative, these are the type of services they would offer? Don: Along the lines of both, Kelly, with regards to the types of services we want to break it down so we understand the types of services they offer. Then the pricing that they have on each of those services. When we talk about pricing, we all know that there are committees, and then there are boards, and we’re talking about the board-approved pricing for these services. Kelly: This is for wealth management services. These are the basis points. This is how much we charge for a $5,000,000 fiduciary trust account, correct? Don: Correct. Absolutely. Those are established by, I would say, the business line which then goes to the committee and the boards approve. These are the pricing and it would include not just basis points, but it would include minimum account fees, it would include fees for ancillary services such as real estate administration, closely held business administration. Maybe there’s a tax prep fee or a tax information letter fee. Maybe there’s a stand-alone fee for extraordinary type services. All the fees charged for the services provided within wealth management on the fee schedule. We then go through and see what accounts are actually on that schedule, and what accounts are not, what accounts have customization, what accounts have discounts. It doesn’t make sense for the level of service being provided. What’s critical with that, from a Bearmoor perspective, is what I would say would be the second take-away, which would be a risk understanding of your accounts. If you haven’t done a risk assessment on an account by account basis, it would be highly recommended that you do so. This would allow you to identify the level of risk for each account and type of account using system information. This isn’t something that’s subjective, it’s based upon system criteria that you’ve established and put risk weightings on it. Let’s say you have an account that is an irrevocable trust account with two co-trustees, five beneficiaries, some unique assets in there, and maybe it’s over $2,500,000. You would assign various risk criteria to each one of those factors. Maybe that has a higher risk than a revocable trust. Kelly: You’re not talking about portfolio risk, you’re talking about risk of an unhappy client (other than portfolio volatility). Don: Correct. What we’re seeing is a fair amount of, I hate to go back to the regulatory side, but a fair amount of regulators are saying, “Hey, we can risk rate loan accounts on the banking side, why can’t we individually risk rate these off-balance-sheet trust accounts from an administration standpoint, from a level of risk?” and then get some understanding about what may be some levels of capital might be for this entire portfolio. It’s not investment portfolio risk management, for lack of a better term it’s complexity rating the account. Kelly: Give us three things that you like to look at, that might go into the calculus of that. Don: I would say type of account. Kelly: The fiduciary, non-fiduciary. Don: Correct, you would have the fiduciary accounts would be those revvocable and irrevocable trusts, investment management accounts, foundation endowments, IRAs. Then the non-fiduciary lower risk would be a custody account, where you don’t have any investment management responsibilities. Another item would be the type of assets in there, so maybe less risk would be a mutual fund portfolio, that’s made up of a bunch of mutual funds to meet the account’s objective. A higher risk would be, “Hey, it’s a stand-alone investment in a large piece of commercial real estate.” High risk on that. The third thing would be type and/or number of beneficiaries. The larger the beneficiary pool, the more risk you may have because you have different competing objectives. Some of those might be income beneficiaries, others might be remainder beneficiaries, or growth beneficiaries. Kelly: The high-risk account would be one in which there’s a fiduciary relationship to your holding assets that are perhaps individual securities and not mutual funds and the third? Don: Number of beneficiaries. Kelly: Number of beneficiaries. Is that because the more people you have in the equation, the more likely it is you’re going to have somebody complaining about it? Don: More likely there’s going to be a complaint there, but more likely that there’s going to be conflicts of interest. What I mean by that conflicts of interest is those beneficiaries may all have different needs and you as the fiduciary that’s managing that account, have to take all those into consideration and make sure you treat them equitably and fairly based upon the information you have. Kelly: Tell us how you help the bank make more money. Don: From that account by account analysis on the gap analysis and identifying opportunities within their portfolio. Not just from a best practices from what we’ve seen over the past 15 years of doing this, but also what’s taking place within their lines of business and their strategy. Overlaying that on that analysis and saying, “Hey, here is the opportunity, and here’s how that opportunity impacts each account.” Kelly: This is for your part one you look at the market, you look at competitors, and you say, “Oh, your competition’s charging 200 basis points, you’re only charging 150. You could charge 180,” for example. Don: Correct. If you still want to be the low-cost provider and the lowest-cost provider is charging that 200, and you’re at 150, you could go all the way up to that 200 and charge 190, 180. Right. Kelly: Right. Don: Do that complete analysis. Or your minimum fee is stated to be this, we’ve done in a cost analysis of your portfolio and you’re not even covering your costs with your minimum fee. You’ve got to adjust your minimum fee. Kelly: Don’t you think most banks know their competitor? Let’s say pricing, and their level of service, because they either get clients poached frequently, or infrequently, and if they find out why, then it’s well, his is cheaper, or better service, whatever it was. Don’t you think they know that? Don: That’s what we thought. That’s what we were counting on, but when we started doing the mystery shopping, because we asked our clients who are their competitors, who do they want us to mystery shop. Then we also provide them all the other information that we have. That, other than the actual opportunities, was one of the most highly prized pieces of information that we provided to our clients was, “Oh, look at all this competitor information.” My business partner and I looked at each other and said, “Wow, we didn’t realize how valuable this was. We thought you guys knew it, we’re showing it to you to let you know that we know it.” You would think they would know it, but a lot of times that isn’t the case based upon the information that we were able to gather and the reaction that we get from those. I think they have an understanding of it, but once they actually see the documentation and support for that that we’re able to gather, that brings it full circle. Kelly: I’m intrigued by, and I always have been intrigued by you being a former regulator with all due respect to your former profession, the dark side I suppose, or actually I think when you go into industry, they say you’ve gone to the dark side, I believe. However you look at it, how a former regulator can help on the revenue side is always been amusing to me. I know you do have a pretty good reputation out there, so kudos. You’ve been doing it quite a while, I believe. Don: Yeah, I appreciate those comments. Perhaps my capitalistic views weren’t always the right forum to be a regulator, so maybe I’ve always had to get back to this side. Maybe I was on the dark side and came back to the light. Kelly: Any more takeaways? Don: I would say re-acceptance, and what I mean by re-acceptance is, based upon the information that you have today on your existing accounts, the level of administration, the level of responsibility, the potential problems associated with the risk audit compliance items, the regulatory issues, and the revenue that you’re making on it, would you re-accept the accounts in your portfolio today? If the answer to that is no or maybe, you need to actually go through and do this risk assessment and the revenue opportunity assessment to make sure be able to answer that question yes or these are accounts we no longer need to be a part of. Kelly: It isn’t just no longer be part of, it may be no I wouldn’t accept it under these terms. These terms being pricing, but would you accept it at 50 basis points? No. Would you accept at 150? Yes. Isn’t that as much of a relevant question as acceptance or non-acceptance, it’s how should we price this thing? Don: Proper pricing is critical. We have top 10 risk piece that we do and one of the top 10 risks is appropriate pricing, so you’re absolutely right. “Hey, I wouldn’t re-accept it because of the assets.” That’s one thing. I wouldn’t re-accept this because of the price and the assets. Could we price it accordingly where you would accept it? Absolutely. That’s part of the analysis we do. Kelly: Why don’t you post on our website the top 10 risk pieces in a blog post? Don: Absolutely, I can do that. Kelly: That’d be nice to accompany this. That’s it for now, give us your favorite quote. Don: It’s Milton Friedman the great economist. “The question is, do corporate executives, provided that they stay within the law, have responsibilities in their business activities, other than to make as much money for their shareholders as possible?” My answer to that is, no they do not. Basically, everyone should stay focused on generating revenue for the shareholders for where they have their fiduciary duty. Kelly: What’s the stupidest thing you’ve said or done in your business career? Don: This is classic me, and this took a long time to live down. This was years ago. I basically said, I used another quote when I was giving a presentation because someone asked a question with regards to revenue enhancement and I said in front of this entire group, “Life’s tough, but it’s tougher if you’re stupid.” Yep. Kelly: Good one. Don: I was much younger. Kelly: Don, I enjoyed talking to you, thanks so much for your time. We want to thank you for listening to the syndicated audio program, BankBosun.com The audio content is produced by Kelly Coughlin, Chief Executive Officer of BankBosun, LLC; and syndicated by Seth Greene, Market Domination LLC, with the help of Kevin Boyle. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any other way represent the views of any other agent, principal, employer, employee, vendor or supplier of Kelly Coughlin.

This week's guests Don George from Gadling and Book Passage Travel Writing Conference and Jessica Speigel from BootsnAll.comNews Stories this week:    * Delta apologizes for sending separate kids to the wrong cities    * Romanian stowaway survives flight from Vienna to Heathrow    * Airline credit cards dangle perks to lure new customers    * New airline rules may lead to peanut ban    * US teenage sailor Abby Sunderland found in Indian OceanTips:    * Gary - Netflix iPod app, Google Earth for iPad    * Jen - AOL Travel will pay $1000 for destination guides    * Don - All of the Map by Laura Fraser    * Jessica - Bootnsall Traveler's Connect facebook application    * Chris - iPhone 4​